Kindred Group sets aside £7m for UK fine as disappointing Q4 leads to cost cutting

Kindred Group’s Q4 2022 financial performance has fallen short of expectations. Management has pledged to take immediate action.

Topline numbers

Kindred Group has reported a 25% rise in Q4 2022 revenue to £305.5m, primarily driven by the operator’s return to the Netherlands. Q4 underlying EBITDA climbed by 42% to £39.1m.

The Netherlands continued to perform strongly with daily average gross winnings revenue of £0.6m in Q4. It was the exception to the rule, however, as Kindred’s overall performance “fell significantly short of management expectations”.

This has led to immediate actions being taken to improve profitability. More on that below.

For full-year 2022, total revenue declined by 15% to £1.07bn as underlying EBITDA fell by 61% to £129.2m, down from £332.1m in 2021.

In Q4, active customer numbers climbed 25% to 1.83 million thanks to marketing investments both before and during the World Cup. This marked Kindred’s second highest quarterly customer base ever.

During an exclusive conversation with iGaming NEXT, CEO Henrik Tjärnström revealed it was rather a quarter of “what could have been” for Kindred Group.

The operator’s Q4 sports betting margin came in lower than expected at 8.9%. If it had been closer to the rolling 12-month average betting margin of 9.4%, Q4 revenue would have come in approximately £10m higher, according to Tjärnström.

Regulatory headwinds in both Norway and Belgium caused Q4 revenue declines of 12% and 15% respectively when Kindred had actually anticipated revenue growth. This again led to an estimated £12m reverse swing in revenues.

Finally, Q4 saw Kindred make the biggest pay-out in its history after handing £4.4m to Jim “Mattress Mack” McIngvale on his bet for the Houston Astros to win the World Series.

“If you take those three elements, it would have meant around £25m more in revenues which would have changed things completely,” said Tjärnström.

News nugget

Kindred Group has set aside a provision of £7.1m for an imminent UK fine following a review into its Unibet and 32Red brands. That amount is based on continuing discussions with the UK Gambling Commission as the group awaits a final outcome from the regulator.

Elsewhere, Kindred has pledged to tackle the weaker than expected Q4 performance by taking immediate actions to improve profitability.

These includes reducing marketing investments in the US ahead of launching on its own platform in the States, having already withdrawn from Iowa.

Other measures include the “reprioritisation” of investment projects and the further optimisation of operating expenses.

“We’re really looking across the P&L and also the CapEx investments as we want to really make sure we are as optimised as we can be,” said Tjärnström.

When asked whether lay-offs were inevitable, the CEO said: “We’re trying to stop that problem before it arrives” and suggested a delay on new recruitment in the business.

Best quote

Tjärnström discusses Kindred’s World Cup disappointment:

“It was known in advance the disruption of the sports schedule that would happen during the fourth quarter. But we expected the tournament to actually compensate for that, and also to overcompensate for the slower period both before and after the tournament.”

As it was a World Cup quarter, Kindred increased marketing investments to 26% of gross winnings revenue, which is thought to have added pressure to short-term profitability.

The reduced calendar resulted in around 25% fewer top football league fixtures compared to Q4 of last year. Kindred’s World Cup turnover was not strong enough to reduce that impact.

Best question

Today’s award goes to Morgan Stanley analyst Ed Young. Zooming in on Belgium, Young asked why Kindred had reported a revenue dip of 15% when Entain had reported double-digit growth and a large private competitor had also reported a “much milder” impact.

Tjärnström said Kindred had suffered from being a clear market leader in Belgium after the new deposit limits had spread customers across more operators. “In that sense, we’re probably a little bit more impacted than smaller operators in the market,” he added.

Current trading and outlook

In a new trading update Kindred said average daily gross winnings revenue for the group up to 5 February 2023 was £3.7m, a 36% uptick on the whole of Q1 last year. That rise drops to 9% when excluding for the Netherlands.

Gross winnings revenue from sports betting has also been positively impacted by a stronger sports betting margin of 12.2% after free bets over the same period, compared to 10.2% for the whole of Q1 2022.

The Stockholm-listed operator’s share price ticked 6% higher at one point in early trading. Many of the headwinds were previously communicated in a trading warning on 13 January 2023.

Underlying EBITDA for full-year 2023 is estimated to reach at least £200m, assuming a long-term average sports betting margin.