Q&A: Kindred CEO on stellar Q2 performance and the Relax Gaming acquisition

Kindred Group last week reported Q2 2021 revenue of £363.7m following an annual rise of 55% driven by record sports betting activity. The Stockholm-listed operator reported an all-time quarterly high in active customers at 1.9 million over a Q2 period dominated by Euro 2020. Sports betting was the standout vertical as revenue skyrocketed by 153%, boosted by the return of the French market and a sports betting margin of 10.7%, rising to 13.8% for Euro 2020 betting alone. Below, Kindred CEO Henrik Tjärnström discusses the firm’s impressive growth in mature Western European countries, as well as the impact of regulatory headwinds in the region from Germany. EGR Intel: Several factors combined to make this a dream quarter in terms of sports betting. Could you elaborate on what those factors were? Henrik Tjärnström (HT): Clearly, the second quarter last year was heavily interrupted by the cancellation of sports. It became clear towards the end of that quarter that it was more of a temporary delay, and then they resumed or were reinstated, and it had a knock-on effect with the Champions League and the playoffs only finishing in August of last year. Looking back over the last year, there weren’t many cancellations at all, and if anything, it was more of a migration from land-based to online that was accelerated until now. This quarter, Euro 2020 was the culmination of a year-long peak sports period and I think that was perhaps partly reflected in the interest around the tournament as well. EGR Intel: How was Euro 2020 for Kindred Group? HT: It was a good event for us. We had a new all-time high in active customers at 1.9 million, which is very pleasing. Now we’re a little bit in between the Euros and the normal start of the season. EGR Intel: How much will future performance depend on keeping newly acquired Euro 2020 customers engaged and which strategies are in place to ensure that happens? HT: We have learned over the years through these tournaments that some of the customers in our database are only active around these big events. That is fine, and we treat them accordingly. But of course, some customers we will apply the usual work to discover what kind of customers they are and how we can take care of them in the best way to meet their demands, and that is no different this time around. Euro 2020 was a very good opportunity for us to take in new customers, but also to activate a lot of our oldest or dormant databases. We are working across all touch points and finding the right tonality with the customers to do the personalisation and recommendations to treat them in the way they want to be treated, rather than pushing things onto them. We will apply our learnings from previous years and we are confident that will work. EGR Intel: You reported a strong Q2 betting margin of 10.7%. How much of that was down to favourable results and how much of it was due to structural changes implemented by Kindred? HT: At the beginning of Q2 we had high activity and that continued throughout the quarter. We had strong margins both before and during the Euro tournament. As we highlighted this morning, the margin during the tournament was higher than the average for the quarter, so Euro 2020 pulled the margin upwards. Also this year, we have France in the second quarter which pretty much wasn’t the case last year when sport was cancelled. France with the capped pay back ratio of 85% also means we’re forced to take a 15% minimum margin all the time, which also adds an upward pull on the margin. We talk about the long-term average and it always used to be around 7% after free bets. But over the last couple of years, that has been trending upwards and is now around 9.1%. In that sense, 10.7% is not enormously high, but it is higher than average. EGR Intel: Many of your competitors are concerned about regulatory headwinds in Western Europe but you performed very strongly in this segment during Q2. How was this achieved? HT: We’ve been working very methodically for many years and putting the foundations in place to enable this performance in that region. In the UK, we started in 2012 and have been gradually fine tuning after putting the fundamentals in place. We took a lot of small steps leading up to the current situation. That is what has enabled us to have strong performance across those countries. We are very pleased with the breadth of the development in the Western European segment where it’s not just one market standing out, but solid performance across all regions. EGR Intel: Sticking with Western Europe, there was no mention of Germany in the Q2 report which is unusual considering the uncertain regulatory situation there. HT: It’s a relatively small market for us, albeit we see a good opportunity there. It’s a low single-digit percentage of our revenue. We have been compliant with the toleration regime since October and now with the treaty conditions since July, so we’re seeing it as a good opportunity for the longer term. We also want to highlight that the conditions are not suitable for high channelisation, especially within the casino segment, but that is what the regulation is right now. We comply and we’re hopeful the market conditions will drive regulation in the right direction in Germany. EGR Intel: Is that “good opportunity” shrinking with the implementation of the 5.3% turnover tax? Is there an avenue of appeal available to operators? HT: We will follow developments very closely, but we have to work with what’s in front of us. At the same time, there is a voice for improvements in terms of conditions. The ambition should be to maximise channelisation into the system. EGR Intel: You acquired Relax Gaming in Q2. Is it business as usual considering you have worked so closely in the past, or do you have a plan to harness the potential of the acquisition?  HT: We’ve had a very close relationship for many years, both as a large shareholder but also on a day-to-day basis, with Relax building our poker and bingo software and also from an aggregation point of view. In many ways, this is business as usual, but it will be an even closer relationship going forward. I think we have something here that can be a one plus one equals three situation and we’ll do what we can to make sure that happens. There are so many strategic benefits and financial benefits for both sides, so it was a perfectly logical step for us.