German online lotteries provider Zeal Network has reported a 359.4% year-on-year increase in net profit for its 2020 financial year, despite having experienced a sharp drop in revenue following its move away from lottery betting.
Full-year revenue amounted to €87.0m, down 23.4% from €113.5m in 2019, due to what Zeal said were “expected dis-synergies” related to major changes within its business and operating model.
Zeal discontinued its existing lottery betting business in October 2019, while it also completed the full consolidation of Lotto24, the online lottery brokerage business it acquired in May 2019.
Consolidation of Lotto24 meant that lottery brokerage revenue was up 169.4% to €78.4m, but the sale of the lottery betting division meant Zeal lost all revenue from secondary lottery betting and instant win games, with this having amounted to €79.3m in 2019. Other revenue also jumped 68.6% to €8.6m.
Zeal also noted that billings – the amount wagered by customers – increased by 39.9% year-on-year to €652.8m, in line with initial forecasts published in January.
Another key highlight for Zeal was that it was able to increase the customer base in its core German market by an additional 918,000 players in 2020, despite the impact of the novel coronavirus (Covid-19) pandemic.
“In spite of Covid-19, 2020 was a successful year for Zeal Group in every way,” Zeal’s chief executive Helmut Becker said. “This was due to exceptionally good jackpot development, billings rose strongly and with the highest marketing investments in our company history we gained 918,000 new registered customers.
“At the same time, we implemented the targeted cost synergies in the course of the Lotto24 takeover in full in the fourth quarter of 2020, launched a successful new product – the charity lottery ‘freiheit+’ – provided €246m for good causes and thrilled 83 customers with wins of €100,000 or more.”
Turning attention to spending for the year, personnel expenses were reduced by 4.8% to €21.9m, while other operating costs were down 18.4% to €56.3, despite a record marketing spend of €32.2m.
This left Zeal with €12.7m in adjusted earnings before interest, tax, depreciation and amortisation (EBITDA), down 56.8% on the previous year. However, when taking into account €4.6m in non-recurring profit, this left €17.3m in EBITDA, only slightly down on €17.9m in 2019.
Amortisation and depreciation expenses totalled €12.0m, resulting in €5.4m in earnings before interest and tax, down 40.7% year-on-year, but when including €2.7m in financial income, this pushed pre-tax profit up to €7.9m, compared to €8.3m in 2019.
Zeal received €37,000 in tax benefits, whereas in 2019 it had to pay €6.6m in tax. As such, this meant it ended the year with €7.9m in net profit, some way ahead of €1.7m in the previous year.
“We have delivered on our promises and already fully realised the planned cost synergies in the fourth quarter 2020,” Zeal chief financial officer Jonas Mattsson said.
“At the same time we have grown our business and launched new products. We are delighted that all this is also reflected in our share price performance.”
Looking ahead to 2021, Zeal said it now expects to achieve at least €700.0m in total billings, with revenue forecast to surpass €95.0m and adjusted EBTIDA at least €20.0m.