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Kindred mulls potential sale as strategic review launches

| By Robert Fletcher
Kindred Group has launched a review of strategic alternatives that could lead to a potential merger, sale or partial sale of the business.
Golden Entertainment Q1

Announced today (26 April), the review will focus on delivering and maximising value for its shareholders, with PJT Partners, Morgan Stanley & Co International plc and Canaccord Genuity to serve as financial advisors and assist in the review.

Kindred did not set a timetable for completion and noted that there could be no assurance regarding the results or outcome of the review. The group added that it is under no obligation to make any further announcements unless and until final decisions are made by its board.

The review launched as Kindred also published its financial results for the first quarter of the 2023 financial year. The group experienced growth across revenue and net profit, with chief executive Henrik Tjärnström praising the impact of cost optimisation initiatives previously communicated.

In January, Tjärnström said “no item is sacred” in terms of cutting costs, with the business having reviewed all areas of cost in order to improve spending for 2023. While Tjärnström said there would be a lag before it sees the full impact, the review began to have an effect in Q1.

“As we have mentioned in earlier reports and presentations, 2023 is an investment year as we continue to recruit key talent to build our proprietary sportsbook platform,” Tjärnström said. “This investment in our in-house sportsbook, a key value creation driver, continues to drive growth in operating expenditure. 

“Successful recruitment and strong retention of staff in the second half of 2022, combined with the annual salary review process, have also resulted in higher year-on-year growth in salary costs for the quarter. 

“Growth in operating expenditure has also been impacted by approximately £3m of non-recurring items. We remain fully focused on cost optimisation across our operations and expect our operating expenses to remain stable in the coming quarters.”

Q1 results

Breaking down the first quarter, revenue for the three months to 31 March amounted to £306.4m (€346.3m/$381.5m), up 24.2% from £246.7m in the previous year.

Of this total, £297.3m was attributed to B2C gross winning revenue (GWR), a 22.7% year-on-year increase helped by Kindred’s re-entrance into the Dutch market. Casino and games was responsible for 55% of all B2B GWR in Q1, with sports betting’s share at 40%, poker 3% and other games 2%. 

In terms of geographical performance, 58% of GWR was generated in the Western Europe region, while 26% came from the Nordics, 11% Central and Eastern Europe and 5% from other markets.

Turning to B2B revenue, solely from the Relax Gaming business acquired in October 2021, this amounted to £9.1m, an increase of 111.6% on the previous year. Kindred said this was driven by broader distribution of Relax Gaming’s own content and new game launches, as well as the release of the dream drop jackpot feature across all Relax Gaming operators. 

Turning to spending and cost of sales was 18.7% higher at £134.4m, while administrative expenses also increased 26.2% to £82.9m. After also including £1.5m worth of personnel restructuring costs and £1.4m in spend related to market closure, operating profit was 288.0% higher at £32.2m.

Kindred also noted £1.8m in net financial costs, meaning pre-tax profit for the quarter hit £30.4m, a year-on-year rise of 300.0%. Kindred paid £4.8m in income tax, leaving it with a net profit of £25.6m, up also up 300.0% on the previous year.

In addition, the group noted that earnings before interest, tax, depreciation and amortisation (EBITDA) in Q1 was 115.0% higher at £47.3m.

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

“As our industry transitions to local licences, we will continue to experience temporary challenges across individual markets. This is part of being a global business, however in a locally regulated environment market leaders like Kindred will benefit from a more stable business model.”

Regulatory fines

Kindred was also the subject of a £7.1m fine from the Great Britain Gambling Commission in Q1 after two of its brands, 23Red and Platinum Gaming, were flagged for series of social responsibility and anti-money laundering failures.

32Red, which runs 32Red.com, will pay £4.2m, while Platinum Gaming, operator of Unibet in Britain, was ordered to pay £2.9m. Both brands also received an official warning following a Commission investigation.

Kindred emphasised the historic nature of the failings that led the Commission to fine the business and accepted that certain systems and processes that were in place in 2020 and 2021 were not “in line with the Commission’s expectations around affordability”.

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