Swedish difficulties lead to Kindred profit decline

Unibet operator Kindred Group saw gross winnings revenue for the third quarter of 2019 decline 2% to £226.0m (€260.9m/$290.1m) while after-tax profits almost halved as struggles in Sweden hurt the company’s bottom line.

Of the operator's’s £226m in revenue, £135.1m came from Western Europe, a 3.6% increase from last year. Revenue declined significantly in the Nordic region, however, down 16.4% to £66.4m.

Central, Eastern and Southern Europe contributed £20m in revenue, up 13% year-on-year and revenue from the rest of the world increased by 25% to £4.5m.

Henrik Tjärnström, chief executive of Kindred Group, said the difficulties of Swedish re-regulation continue to hurt revenue and make it difficult to attract players.

“Similar to what we saw in the first half of 2019, re-regulation in Sweden resulted in difficult market conditions in the third quarter,” Tjärnström said. “The current terms and conditions make it challenging to attract customers into the system and can lead to worsening channelisation.

“This, in combination with a lower than usual sportsbook margin in September, resulted in significantly lower gross winnings revenue and a £12.8m decline in EBITDA contribution from Sweden compared to the third quarter in 2018.”

The company has also faced difficulties in the Netherlands, including a €470,000 fine issued in August to its Trannel International Subsidiary by the Dutch regulator for offering services to consumers in the country without a licence.

“We also continue to experience headwinds in the Netherlands due to the removal of the iDeal payment solution,” Tjärnström said.

However, Tjärnström said the company had experienced great success elsewhere.

“Outside of Sweden and the Netherlands, we continued to see strong growth in several other markets, including the UK and France,” Tjärnström said. ”Locally licensed revenue growth was particularly strong with 33% growth, or 13% growth excluding Sweden, compared to the same period last year.

“As expected, this resulted in margin pressure from higher betting duties which increased with 26% compared to the same quarter last year. However, this focus will drive more sustainable future profit growth. Locally licensed markets were 57% of overall gross winnings revenue in the quarter.”

Of the total revenue, £109.4m came from sports betting, a 1.5% decline from 2018. The total amount bet on sports during the quarter came to £1.22b, down 7.3% year-on-year, giving a margin of 10.3%.

Western Europe was the largest contributor to sports betting revenue, producing £74.6m, up 6% from 2018. Sports betting revenue from the Nordic countries, however, fell 25.6% to £22.1m.

Sports betting revenue from central, eastern and southern Europe increased 5.3% to £10m, while revenue from elsewhere increased 80% to £2.7m.

Of the sports betting figures, 57.9% of turnover and 49.7% of revenue came from live betting, as the vertical recorded an 8.4% margin for Kindred, while pre-game betting posted a 13.4% margin. Live betting’s share of revenue fell by 4.5 percentage points from 2018.

Casino and games made up the vast majority of the remaining revenue, contributing £104.7m, a 4.7% decline from 2018. Poker contributed only £5.2m, but saw revenue increase 18%, while other revenue increased 26.4% to £6.7m.

For casino and games, poker and other games combined, Western Europe was again the largest source of revenue, but by a smaller margin, bringing in £60.5m, a marginal improvement over 2018. Revenue from the Nordic region declined by 10.2% to £44.3m, while revenue from Central, Eastern and Southern Europe rose by 22% to £10m while revenue from elsewhere fell 14.3% to £1.8m.

The company’s overall margin on all games was 5.1%, which would mean the total customer stake as £4.43bn.

Kindred paid £48.1m in betting duties, a 25.9% increase from 2018. Marketing revenue share, which includes payments made to affiliates, declined 6.5% to £11.6m, while other costs of sales fell 3.1% to £37.3m, resulting in a £97m total cost of sales, 8.9% more than in 2018, and a gross profit of £129m, down by 8.9%.

Marketing costs, excluding revenue share marketing costs, meanwhile, increased to £48.8m, up 8.4% from 2018.

Kindred’s administrative expenses rose by 20.8% to £57.5m. Employee salaries were the largest contributor to those expenses, rising 17.2% to £24.5m, while other expenses increased 5.8% to £20.1m, depreciation increased 15.2% to £3.8m and amortisation increased 43.2% to £6.3m.

Underlying profit before items that may affect comparability such as exchange rates and acquisitions totalled £22.7m, down 54.7% from last year. Overall operating profit came to the same figure, as amortisation of intangible assets cancelled out exchange rate gains.

After a slight financial loss, the company’s overall pre-tax profit came to £21.4m, down 49% from 2018. Overall after-tax profit came to £18.1m, down 50.8% year-on-year.

Looking ahead, Tjärnström said the company believes it can make a strong impact in the US market in the future after retail launches in New Jersey and Pennsylvania, with mobile products to come.

“During the quarter, we launched the sportsbook product in New Jersey and the Unibet Sportsbook Lounge in Pennsylvania, with the online products to go live in November,” he said. “This will be a great opportunity to deliver revenue growth and eventually profit in the longer term.”