Kindred initiates 2023 recovery as board eyes sales options


Kindred Group has declared “encouraging improvements in both revenue and profitability” in the first quarter of 2023, thanks to its core markets performing well to begin the year.

However, while the group is focused on cost optimisation, in tangent with its result, the board of directors announced a review of ‘strategic alternatives’ to maximise shareholder value and the overall value of its assets.

Netherlands leading the pack

Publishing its Q1 results, Kindred reported an overall revenue from B2C and B2B operations of £306.4m, up 24.2 per cent year-over-year (Q1 2022: £246.7m). 

B2C units earned revenue of £297.3m, a 23 per cent increase YoY  (2022: £242.4m) thanks to a return of operations in the Dutch market as the group observed a temporary suspension in the Netherlands between 1 October 2021 and 3 July 2022.

Excluding Dutch results, B2C revenue fell by 1 per cent YoY, as while the UK market continues to see good growth, operations are being “negatively impacted by regulatory headwinds in Belgium and Norway”.

B2B operations came in with a revenue of £9.1m (2022: £4.3m). Kindred stated the Relax Gaming studio “continues to go from strength to strength, showing significant revenue growth” in Q1 compared to the prior year thanks to a “broader distribution” of content and successful game launches and the Dream Drop jackpot feature success with operators.

Active customers rose by 18 per cent YoY to 1,623,568 (2022: 1,377,317) and by 3 per cent when excluding the Netherlands.

Underlying EBITDA for the group during the quarter rose by 102 per cent to £49.4m (2022: £24.5m), with the underlying EBITDA margin increasing by six percentage points and by three percentage points compared to Q4 2022.

This is attributed to “increased scalability” following the re-entrance to the Dutch market and “rebuilding the corresponding revenues as well as strategic focus surrounding marketing investments”.

The underlying EBITDA number did, however, include a negative underlying EBITDA contribution of £5.5m from the North American market, down YoY (2022: £8.5m) and compared to the previous quarter (Q4: £14.9m).

Group gross profit for Q1 stood at £172m (2022: £133.5m), generating a profit after tax result of £25.6m (2022: £6.4m) and net cash of £43.5m (2022: £66.8m).

“The first quarter of 2023 has seen encouraging improvements in both revenue and profitability, with the underlying EBITDA margin increasing to 16 per cent,” commented CEO Henrik Tjärnström.

“The cost optimisation initiatives previously communicated have been implemented during the quarter, however, there is a lag before we see the full effect on the numbers.”

“Total group revenue increased by 24 per cent to £306.4m for the first quarter of 2023 compared to the same period of last year. Within the B2C business improved activity across core markets, especially the Netherlands, helped contribute to this strong start to the year.

“The B2B business further supported through exceptionally strong growth, with Relax Gaming revenue increasing by 90 per cent compared to the same period last year.”

Casino outpaces sportsbook as lead product  

A product breakdown saw casino & games generate the biggest share of revenue during Q1 at 55 per cent, followed by sports betting at 40 per cent, poker at 3 per cent and other games at 2 per cent.

Casino revenue rose by 35 per cent YoY while active customers in the segment also improved by 30 per cent. Excluding the Netherlands, revenue grew by 4 per cent while active customers increased by 7 per cent.

Sports betting revenue improved by 8 per cent YoY with turnover rising by 11 per cent. Excluding the Netherlands, revenue fell by 8 per cent while turnover also dropped by 6 per cent due to headwinds in Belgium and Norway.

Revenue from poker and other products amounted to £15m, a 33 per cent increase YoY with active customers rising by 26 per cent. Excluding the Netherlands, revenue improved by 18 per cent while active customers grew as well by 7 per cent.

Tjärnström noted: “Our strategic focus on unique products and increased control of our offering has resulted in our second exclusive game from Relax Gaming launching during the first quarter.

“The game is among the top five releases in the past twelve months and a top three performer in 2023, proving the value created through exclusive and high-quality content.”

Belgium concerns and US adjustments 

Per region, Western Europe accounted for 58 per cent of the total B2C revenue in Q1, followed by the Nordics at 26 per cent, Central, Eastern and Southern Europe at 11 per cent and 5 per cent in other regions.

Western Europe revenue came in at £174.2m, a 37 per cent increase YoY (2022: £127.1m) in large part due to the resumption of operations in the Netherlands. Excluding the Netherlands, revenue declined by 8 per cent to £116.9m.

Kindred noted the region was impacted by headwinds in Belgium following the introduction of safer gambling measures, down 38 per cent YoY, while the UK market returned to growth, up 7 per cent. However, the group’s exit from Germany also impacted revenues by approximately £3m.

In the Nordics, revenue rose by 4 per cent YoY to £76.6m (2022: £73.8m) with both sports betting and casino products performing well. 

Sweden’s revenue was in line with the previous year and Denmark’s revenue grew by 17 per cent, but changes to offering in Norway in Q4 continue to have a negative impact. Performance is expected to return to normal as customers adapt to the new operating conditions.

In CES, revenue grew by 16 per cent YoY to £32.3m (2022: £27.8m). Kindred added that Romania continues to make up a “significant portion” of this region with the market seeing good active customer development in Q1.

In other regions, revenue increased by 4 per cent YoY to £14.2m (2022: £13.7m). Australia declined by 12 per cent due to a “poorer margin after free bets”, while North American revenue came in at £8m, an 8 per cent improvement (2022: £6.8m).

In North America, the group has also been reducing its marketing spend by £6.3m compared to Q4 ahead of its own platform launch in the region, which is causing a decline in depositing players and total activity. However, the group added its “marketing investment has significantly improved” thanks to the targeted approach.

US prospects have been brightened by the received approval from the New Jersey Division of Gaming Enforcement this month to launch its proprietary platform in New Jersey in mid-May. A second state launch is expected to take place during the second half of the year.

Strategic Notice: Merger-or-Sale Review  

Following its Q4 report, Kindred’s board of directors announced it had initiated a review of strategic alternatives “to maximise shareholder value” and explore its options.

In a statement, the group noted that it will “consider all potential alternatives that can deliver value for the company’s shareholders” including a merger or sale of the company, but no timetable has been set for the completion of its review.

Financial advisors PJT Partners, Morgan Stanley & Co. International plc and Canaccord Genuity will assist Kindred with any potential sale or merger plans.

“I previously communicated that the cost optimisation actions would strengthen our path towards our 2025 financial targets. The first quarter of 2023 has shown encouraging performance and I see positive signs across our business,” Tjärnström concluded.