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Zeal “laser focused” on international lottery market

| By Hannah Gannage-Stewart | Reading Time: 3 minutes
Chief financial officer Jonas Mattsson describes Zeal’s performance at the start of a major phase of expansion

Zeal Group will remain “laser focused” on emerging opportunities in the lottery space, according to chief financial officer Jonas Mattsson.

The group reported a 34.2% profit drop today, after a 2017 characterised by challenging operating conditions and some hefty investments in new markets.

The lottery business, encompassing the myLotto24 and Lottovate brands, launched in the UK, Ireland and Norway last year and aspires to mirror that growth over the next 12 months.

While new markets are firmly on the agenda, Mattsson ruled out moves into new verticals. “We have asked this question to ourselves for the last five years and the answer is very clear, we want to be laser focused on lottery,” he says.

Today’s end of year results reveal 18.6% revenue growth from €113m to €134m, alongside a 34.2% drop in EBIT from €38m to €25m at the end of the 2017 financial year.

Mattsson says the results were positive in light of a challenging Q3, in which jackpots were unusually low. The business also felt the force of costly changes to the Euromillions rules and the several investments it made in new markets and products.

“Euromillions, which is one of our biggest products, changed the rules, which comes with an increased cost. That was really pricey,” he says, adding that exceptionally low jackpot values in the third quarter drove the entire lottery market down.

Despite this the group acquired 411,000 new customers in 2017, “laying the foundation for this year and future years,” according to Mattsson.

Zeal is set to launch in the Netherlands and Australia later this year, with Sweden also in the pipeline of markets under consideration. “This is an economies-of-scale business,” Mattsson explains.

The group’s on-going growth strategy follows work over the past two years to increase efficiency, including slashing tech costs by 30% and reducing its risk exposure to the tune of €20m with a new hedging structure at the end of last year.

Zeal’s predominantly German-facing secondary lottery business currently accounts for the vast majority of its income, so spreading the risk across a greater number of markets and products is top of the priority list.

Mattsson says the secondary lottery business operates at around a 40% profit margin, while the smaller primary lottery business, Lottovate, has margins of between 10 and 15%. Across the group the margin was 17.8% in 2017.

Mattsson forecasts a visible return on last year’s investments by the end of 2018, but says the full investment cycle is on average three to four years long.

At the close of 2018 Zeal expects to deliver EBIT of between €33m and €43m, and total operating performance of between €150m and €160m, which would be up on this year’s €141m.

“It is a $300bn market. If we can grasp a small part of that we will be extremely successful so let’s focus on what we are good at and not try to start diversifying into different verticals,” he says.

Chief executive officer Helmut Becker has articulated ambitious plans for the company, pitching Zeal as an “Airbnb or Netflix” style disruptor in the lottery sector. With online penetration at just 5% globally, the senior team is confident it can deliver.

Mattsson is unfazed by the shifting regulatory mood and challenges to secondary lottery providers in certain markets. “Definitely the regulatory environment across Europe and America is challenging, but we have an advantage because we have been dealing with this for the last ten years,” he says.

Pointing to emerging opportunities, he adds: “There are some pretty liberal markets, like the UK, Ireland, Australia, and now Sweden. Then we have other markets that are more difficult. The good thing is when you have a licence you have the competitive advantage, and it’s very difficult for smaller companies or competitors to enter that market”.

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