A look at some of the key numbers from Kindred's Q4 results

£751.4m

Kindred Group reported  top line revenue growth of 56% in the fourth quarter, on the back of some unusually good sports betting results and the addition of revenues from the 32Red acquisition. But even adjusting for 32Red and FX changes growth was still 42%, which is unlikely to be beaten by many of its peers. Growth then remains far stronger than wider market. Revenue growth for the group over the 12 months was 38%, with 41% growth in sports and 36% growth in casino. Partly this growth is due to acquisitions, partly due to expansion into new markets, and partly due to catch-up growth on mobile in some of its markets.

Henrik Tjärnström, Kindred Group CEO, noted that mobile revenue grew by 55% year-on-year, and amounted to 70% of total revenue. But it’s also undeniable that Kindred continues to take market share from its rivals in core markets such as the Nordics and is a dominant player in some major European markets that most operators have not tried to or are not able to enter. While others have concerned themselves with being a major player in Spain or Italy it has focused its attentions elsewhere and is arguably reaping the benefits.

1,329,124

Kindred’s total active users in the fourth quarter was another record number, at 1.3m, up from 1.15m the previous year and 1.2m the previous quarter. Bearing in mind it has taken on 32Red since Q4 16 this is not a hugely surprising statistic, but it was interesting to note CEO Henrik Tjärnström comment that actives has risen at a far higher rate than average revenue per user in the period. He pointed to this as a measure of the growth being sustainable and in the current climate with more pressure heaped on operators to limit excessive spending and promote responsible gambling it is a very timely observation to make.

The size of the number of actives is also a guide to the scale of the Kindred business going into 2018 and shows just how much of a land grab it needs to make to continue growth at near its current rates. It’s perhaps not surprising then that management discussed ramping up marketing spend in the next 12 months to “a couple of percentage points below 30%” from around 22% currently. With the World Cup approaching in the summer we should expect Kindred to really open the taps on the marketing front as we enter Q2 and place some real pressure on operators in the markets where it is most active.

42%

Kindred Group made much of its “transformation” from dot.com to dot.country during the year, but regulated revenues were just 42% of the total in Q4 and more importantly there remain a lot of unanswered questions about the markets they operate in. France is a major market for Kindred but it’s hard to see it moving towards profitability in the short term with the tax remaining so onerous and Belgium, another big territory, a market constantly at risk of the whims of the regulators there.

Two of the largest markets for Kindred, the Netherlands and Sweden, are moving towards regulation and it while it would be a shock for the group to not receive a licence in both, it’s not at all clear if regulation will be a short-term positive for them. Kindred undoubtedly benefits from the lack of competition in the Netherlands at the current time while Sweden will be on every major operator’s radar as a key market to target post-regulation. That said it’s not up for debate that Kindred will begin on a very firm footing in terms of brand recognition and reputation and existing revenue base.

The final unanswered question is just how big can Kindred get in the UK market where it has invested heavily both in acquisitions and marketing. It will be hoping 2018 will be a breakthrough year, following major investment in its horse racing product, and any significant success here would firmly establish the group as a true industry leader.

£185m

Profits were at a record level too in the period at £74.5m, up nearly 90% on the previous year and helping boost full year EBITDA to £185m. “The underlying organic EBITDA in constant currency was up 80%,” Tjärnström noted adding the “increase in free cash flow of 78 per cent for the full year” meant a cash dividend of £0.55 was awarded to shareholders, up 78% on the previous year. In short this is a company in a very healthy position, churning out cash and sending a large amount of this to the bottom line. But it should be noted its cost base does not compare exactly like for like with some of its tier 1 competitors in the online gambling sector.

Marketing costs are lower as a percentage of revenue than some of the UK firms for example, and for the full year were just £145.3m. There was, however, an additional £41.3m in revenue share and added together this represents 24.9% of gross revenue and is a more accurate comparison with its peer group. Either way a hike in marketing spend in 2018 will have an impact on bottom line.

One interesting area is betting duties with Kindred paying a high price in some of its markets such as France. For the full year betting duties were £113.6m, up some 68% year-on-year, at around 15% of total revenue despite its large dot.com business and this is an area that could really put a squeeze on profitability once a higher proportion of its markets become locally taxed.

16.2%

Kindred’s pre-match sports betting margin for Q4 was an eye-popping 16.2%, compared to 10.1% in the previous year and as low as 8.4% in Q1 17. In-play margins were also up nearly two percentage points on the prior year. Management were quick to draw attention to the unusually high returns from sports in the period, stating they were 50% above the long-term average. And Tjärnström actually played down their benefits suggesting they were “too high” and had a knock-on impact on casino revenues as a result.

It was also given as a potential reason for the somewhat muted results from 32Red with revenues only marginally up from the traditionally slower third quarter. Football results have seemingly continued strongly in the operator’s favour into Q1 18 so far, but it will be interesting to see if and when they return to more normal levels and what impact that has on profitability later in the year with marketing spend likely to rise.

355

Kindred is one of the more acquisitive firms in the sector and has famously done roughly one deal a year over the past decade. What was interesting to note was the results were announced 355 days after the last acquisition was announced and there was some discussion between management and analysts as to if something should be expected in the short-term. Tjärnström was typically guarded and low-key about the possibility, but by no means ruled it out and it would not be surprising to see Kindred announce something before the World Cup.

What is perhaps more intriguing is if they look to focus once again on bolt-on deals in key markets or if this is the time for it to take on one of its larger rivals. Kindred has always followed its own path and has had huge success in acquiring and absorbing small to mid-tier firms so there is no reason to suspect a sudden shift in strategy, but these are changing times in the sector.