Five things we learned from Kindred Group’s Q3 2022 results

Despite another year-on-year dip in revenue for Kindred Group, CEO Henrik Tjärnström remains confident on turning the ship around. Releasing its Q3 2022 results, the Swedish operator recorded Q3 revenue of £277.8m, down from the £298.4m achieved in Q3 2021. Elsewhere, underlying EBITDA plummeted by 52% from £84.8m to £40.3m during the reporting period, with a corresponding underlying EBITDA margin of 15%. However, the firm is back in the Netherlands after a lengthy hiatus and is shifting its US strategy to better reflect its aspirations in the market. Tjärnström is bullish on future success despite the downturns, and with the development of its in-house sportsbook platform rumbling on, along with lofty 2025 revenue targets to hit, the CEO is ready to put 2022 behind him and power ahead. Speaking to EGR, Tjärnström touched on a series of burning topics, including chasing market leadership in the Netherlands and how he will approach the US. Return of the mack Kindred returned to the Netherlands on 4 July after serving its cooling-off period following the market’s regulation on 1 October 2021, with the Stockholm-listed firm since singing its praises as the market performed “ahead of expectations”. The Netherlands accounted for 42% of overall revenue in Q3, while daily average revenue reached £366,000 during the quarter. A further 137,000 customers were successfully activated during the quarter. There were concerns the operator would suffer due to having missed out on the initial tranche of licences and looked to claw back market share, but these fears have dissipated somewhat. Kindred will be thankful for its return to one of its key markets having seen its bottom line impacted by its absence. During its absence, Kindred retained all staff and structures, keeping them in place so it would be able to hit the ground running following its re-entry to the market. Tjärnström referred to this a “cost optimisation” programme that was implemented to manage expenses, but he conceded the group did face margin pressure due to this decision, along with a lack of revenue. He said: “Now we are back, we are seeing the benefits of the cost optimisation strategy so that we can scale and return faster. We are seeing really good development on scalability and that is why the margin is now up to 14.5% compared to 10.6% in Q2. Tjärnström also remained bullish on his expectations to regain Kindred’s position in the market, despite having to face off against firms which have had a three-quarter run on the group. He continued: “Regarding position, we are aiming for 15% market share by the end of the year which we are confident we will achieve, and then to challenge for market leadership during 2023. It is then more of a question of when in 2023; and looking at the trends we are very pleased with the developments.” Part of the pack “We don’t have to be a top-three operator to have a profitable business. In the UK we are a top-eight operator, and we still have a very good business. We believe that will very much work for the US as well, eventually,” Tjärnström told EGR as the CEO reflected on Kindred’s US and North American strategy. The key word in Tjärnström’s comments is probably “eventually”. The operator has confirmed it will pull out of Iowa in Q4, having gone live in September 2021. This leaves Kindred operational in New Jersey, Pennsylvania, Indiana, Virginia and Arizona, with a launch in Washington due in Q1 2023. In fact, Q3 results showed revenue down 3% in constant currency, which Tjärnström said was due to launching in Ontario and the closure of 32Red in the US. Slow and steady is the pace he is aiming for, despite the likes of FanDuel, DraftKings and BetMGM having taken the lion’s share of the market. Tjärnström said: “We still see the US as a big opportunity, and we know what it takes. We are putting those fundamentals in place and then scaling is where we are at. We are very confident in our controlled growth strategy that we have in the market. The US is a so big and there will be plenty of room for lots of operators.” Tjärnström also touched on the different approach international operators have needed to take when making inroads in the US, whereas local firms were able to tap into existing daily fantasy sports databases and on-the-ground knowledge. He added: “I think quite a lot of international operators went in and felt we needed to do more work on our fundamentals before we could scale in any financially beneficial way, and that is what we have done over the last 18 months.” Keep calm and Kambi on Kindred also confirmed its Kindred Sportsbook Platform (KSP) is continuing to develop at pace, with the operator having set go live dates for both its French and dot.com markets. Kindred noted the main goal was to be ready to launch the KSP in a test market by the end of 2023, with further recruitment ongoing to help meet these targets. The KSP is set to be rolled out across the entirety of Kindred’s portfolio by 2026, which had struck some concerns over the group’s future relationship with its current third-party supplier Kambi. However, Tjärnström said there was no definitive decision on how the Kindred/Kambi relationship will look post-2026 and that there was ample time to establish how the pair would continue to work together moving forwards. Tjärnström said Kindred had a “fantastic relationship” with the supplier and hoped that it would continue in some capacity. He said: “We have ample time to continue the relationship with Kambi and see what it will look like after 2026. As we have said, our KSP will be built on in-house models and third-party supply and Kambi can continue to be a third-party supplier for us. So, let’s see what the future will bring.” Touching on the KSP, Tjärnström continued: “It will bring a lot of value when it comes to closer collaborations between the product and commercial teams. We will also be able to focus on our footprint and decide where to focus on specific markets.” On the rise In disappointing news for Kindred, the operator recorded a 0.5% uptick in its percentage of revenue derived from harmful gambling to 3.8% for Q3. The figure had been flat for the previous two quarters, remaining at 3.3%, with the operator still targeting 0% by the end of 2023. Kindred has since agreed to partner with Svenska Spel and ATG to release further data around problem gambling as it looks to continue to lead the discussion in the industry around the topic. Tjärnström said he was “disappointed” with the rise to 3.8% but insisted that the initiative was constantly shifting, and that 2023 didn’t mark an end date and instead the firm would continue to aim to drive the figure towards 0%. He said: “Our determination is completely unchanged. We cannot aim for anything but zero, but we also have to be realistic. We need good collaboration between government, other operators and stakeholders involved in our sector. We are working hard to take this down as close to zero as we can by the end of next year. Tjärnström also noted Kindred’s return to the Netherlands on 4 July may have had some impact on the rise in the figure, with measures not necessarily in place to deal with harmful gamblers from the offset. He added: “With the Netherlands and the comeback there, it took some time to identify the customers and push them in the right direction. I also think that is kind of normal in the opening of such an opportunity for us.” Auf Wiedersehen, pet Tjärnström also confirmed there were no plans to return to Germany in the near future following Kindred Group’s departure from the market this summer. The group pulled its flagship Unibet brand from the country, as well as cancelling its ongoing licence applications as it shifted focus elsewhere. At the time, Kindred said conditions in the German market were “not sustainable and competitive against the unlicensed offering” and that there was no “foundation for long-term shareholder value and customer experience at the moment”. Kindred originally pulled its online poker operation out of Germany in September 2021. Tjärnström said nothing had changed since July, with the operator continuing to focus its operations elsewhere. He revealed: “Right now, there is no such plan. I mean, we just communicated in June that we withdrew our licence application but, of course, Germany is a big market. Perhaps the conditions will improve and there will be a better opportunity. “We don’t by any means rule Germany out forever. Right now, we need to focus [on other markets] and we felt that the weak position in the market and the current terms and conditions didn’t lend itself to the best investments. So, we’d rather focus our efforts elsewhere for the time being,” Tjärnström concluded. Current limits in Germany include a €1 stake limit for online slots and a €1,000 loss limit that applies across all operators, along with a 5.3% tax on turnover.