Kindred Group plc

Good morning and warm welcome to Kindred Group's Q1 2023 earnings presentation. My name is Patrik Kortman and I'll be moderating the Q&A after the presentation. And with that, I would like to welcome Kindred Group's CEO, Henrik Sandström, up on the stage. Welcome, Henrik.

Thank you very much, Patrik. Thank you very much, everyone. And welcome to Kindred's Q1 2023 presentation. First, I would like to make a comment regarding the separate press release that was issued by the board this morning. I will here today present the Q1 report and presentation and answer questions around this. I will not comment nor answer any questions related to that separate release. Any such questions will need to be addressed directly to the board. Thank you. Now again, a warm welcome to our Q1 presentation, and let's get into it. We have always been transparent that the fact that transformation will lead to short-term moving to locally licensed revenues and profits will lead to temporary margin pressures. This is especially during times when one of our major markets are undergoing a local regulation, like we saw in Sweden in 2019, and now more recently in 2021 and 2022 regarding the Netherlands. We have always reiterated that after an initial margin pressure, we will see a gradual recovery and return to strong profitability. This will then be on a locally licensed base, which means that it's a high entry barriers with reduced competition and uncertainty, which also justifies a higher valuation. We have shown this market transition many times over and over again with France, Denmark, Belgium, UK, Sweden, and it's therefore extremely pleasing to now show also that we have achieved this in the Netherlands. Big positives during the quarter has been the strong growth and the strong underlying EBITDA developments driven by the continued strong performance in the Dutch market. And this gives us confidence both for the 2023 and also for our financial targets for 2025. I would again like to take the opportunity to thank everyone and my colleagues at Kindred for making Kindred the great company it is. Thank you. So this is the outline of today's presentation. I will start with some highlights on the first quarter and then take a look at the business overview and then round off with the summary. But first, before we dive into the numbers, let's take a few steps back and really look through a wider lens. And this is something that we talked about already at our Capital Markets Day in September last year. We have and we are and we expect to continue to deliver solid progress along the key drivers of the business for the coming years. And our financial outlook is strong and will drive significant shareholder value If we look at the different items here, as you can see, in the market share growth that we mentioned already then in September, we've seen solid growth across markets and now in Q1 as well, offsetting some of the temporary headwinds that we've seen in Belgium and Norway. We're also for the Dutch market. We are on track to become a market leader during 2023. And as we showed in the first quarter now, we generated 57.3 million pounds of gross winnings revenue in the first quarter alone in the Netherlands. also for ksp we have seen material financial benefits coming from our investments into our proprietary sportsbook platform which is on track and progressing well to a first market launch towards the end of this year also for relax we're very pleasing to show strong performance with revenue growth of around 90 percent for the first quarter and ebitda contribution of 5.1 million pounds for the quarter Also for North America, we see very encouraging signs in North America with solid growth and also significantly reduced losses, but more of that throughout the presentation. If we look at the quarter in more detail and some of the numbers that's coming out of that, as we highlighted this morning in the report, we have growth and accelerated cost optimization remain focused to drive further scalability, but also that we've seen encouraging improvements in both revenues and profitability during the quarter. As an example, we see revenues growing 24% to £306.4 million for the quarter. And if we exclude the Netherlands, which of course is part of the business, but still if we exclude that, the revenues increase with 1%, but that's as a result of the headwinds that we've experienced still in Belgium and Norway. On that point, in Belgium, we have worked very hard now for the last couple of months and quarters to really try to return Belgium to growth over time. And we see some positive signs now taking shape in Belgium with the average daily revenues for the first to the 23rd of April during the second quarter is about 10% higher than the daily average revenues that we saw during the first quarter. so it's definitely a step in the right direction we will also be meeting easier comps in belgium over the year but this again is a normal process when we're making the business more sustainable and therefore increasing the longer term sustainable value When we look at the locally regulated share revenues, it came in on 81%, similar to what we had in the fourth quarter, and we see also a strong development now in underlying EBITDA, more than doubling to 49.4 million, up from 24.5 million for the first quarter in 2022, and with a strong underlying EBITDA margin of 16% for the quarter, and again, more on that later. Also strong free cash flow generation, £29 million compared to a negative £5.5 million for the first quarter last year. So really strong developments. Also active customers up 18% and a net cash position of £43.5 million at the end of the quarter. So if we look at the quarters over the time, we see a strong performance again in the first quarter, 306.4. And if we look back at our previous quarters, this will be our fourth strongest quarter ever and still sort of the second strongest first quarter that we've ever seen as well. So again, definitely on the right path, but we're expecting more to come over the coming quarters and years indeed. If we look at the cost base with the continuous focus we have on scalability, we really focus a lot on that. And the cost actions that were taken during the first quarter will have an increased impact during the coming quarters. And of course, M&A also impacts some of the historical comparisons. If you look at the cost of sales here, improving trend, and also on marketing, we came in on just under 21% for the first quarter. This is in line with our expectation that we will sort of have a declining trend over time. But we're also reiterating our guidance for the full year that we expect to come in with a couple of percentage points below 25% for the full year. So we expect to see a gradual increase in absolute marketing spend now for the coming quarters. And of course, with Q4 being the peak quarter of the year. We also will see a salary increase, which is expected also on the back of both M&A, but also on the selective investments that we have communicated previously, both through our tech areas and especially also with an initiative to build our proprietary sports book. These 14.5% include some of the non-recurring elements, and if we exclude them, the corresponding percentage would have been 13.7%, so more or less in line with what we saw for the full year. Clearly, we also see a bit of an impact from the ramp-up in the Netherlands when both the denominator and the nominator is impacted by the effects that we've seen through our investments and at the same time with the scaling up of the Dutch revenue. In other OPEX we see a positive trend continuing and we also see that the same trend there on CAPEX. if we look at the opex in more detail just to highlight the underlying developments the reported numbers you can see here at the furthest left and furthest right on the slide but we if we've excluded the non-recurring credits and cost in the respective quarters we see a fairly stable development of the underlying adjusted opex for q4 22 of around 64 million And then we have some normal elements in salary increases that always happens at the beginning of the year. And then we have some full-time employee growth as well versus the fourth quarter and some other adjustments as well, ending up on around 65 million for the first quarter. This is a level that we expect to remain for the coming quarters for the rest of the years. And as we say, the initiatives that we took already early Q1 will take some time to have effect, and we can't see the full effect now already in the first quarter, but they will make the impact during the second, third and fourth quarter, resulting in a stable adjusted OPEX levels of around 65 million per quarter for the coming quarters. If we look at this also in connection with the underlying EBITDA improvement, we are sort of seeing a clear improvement coming to 49.4% up from the 24.5%, 102% up as we mentioned. And also if we look back at the previous years, The comment I made earlier regarding the transition that we're doing from dot-com to dot-country has been very evident in the short-term margin pressure that we experienced in 2019 with Sweden and now in 2021, end of 2021 and beginning of 2022 with the Netherlands. But also the gradual improvement and comeback that we're showing here already now visible in the numbers. And again, we're expecting this to continue to improve in the quarters to come. And this again makes us very confident for the guidance, the non-recurring guidance that we gave at the time of the Q4 report for at least 200 million pounds of underlying EBITDA development for the full year 2023. And that, of course, also provides confidence for the financial targets for 2025. If we look at the FX, there's been a fairly small movement in both directions, really, and the accumulated effect is a positive of around 3% for our P&L. So again, this is more for background information. So if we look at the business overview, there's been continued strong performance in our locally regulated business. And indeed, it's been a core element of our strategy for many years to ensure that our locally licensed markets continue to grow faster than our don't-come markets. And as you can see here, you see that locally licensed markets from 2019 to the last 12 months at the end of Q1 now has been growing with 38% compounded annual growth rates and at the same time the other markets have grown 12 percent also if you look at the right hand side of the graph here you can see that the last 12-month betting duties is fast approaching 300 million pounds and we're still showing an improved margin underlying EBITDA margin development which is really strong and showing our strong absorption ability as we've highlighted before This is completely again in line with the expectation that the pink line would dip for four quarters, and now when we're adding higher underlying EBITDA margin quarters than we're removing in the last 12 months metric, we will continue to see an improvement in the underlying EBITDA margin for the last 12 months, gradually coming up towards the 21 to 22% mentioned in the financial targets for 2025. We also here see the locally regulated share of revenues that has been also on the increase and we're expecting this also to pick up over the rest of this year and beyond and reach up also towards the above 90% again that we mentioned at the CMD in September. If we look at the active customers development, we saw a solid activity following the World Cup. The World Cup again was a big acquisition and reactivation event for us. We of course worked very hard to make sure that as many of the customers remain active also now in the first quarter. At the same time, we also know and are fully aware that some of the customers during a World Cup or a Euro tournament will only be active during those tournaments every other year, and then they will be dormant, and then we can reactivate them again at the time of the next tournament. So total active customers amounted to 1.62 million for the quarter, and increased with 18% compared to last year. Excluding the Netherlands, the active customers increased with 3%, which is also highlighting the higher base post the World Cup. the rpu at the same time increased with four percent for the first quarter also here if we look at the longer term trends from 2011 to 2023 the compounded annual growth rate of active customers have been 14 and the rp has grown with three percent during the same time so clearly actives grow much faster than than average revenue per user which is the sustainable way of growing the business If we look at the product segment update, we see a strong development, especially within casino and games and poker and other products. For sports betting, including Netherlands, we saw an 8% increase during the quarter. And excluding Netherlands, we saw a decline. And that is largely driven by the significant headwinds that we experienced still in Belgium and to some extent also in Norway. Our proprietary racing product contributed to 4% to the sports betting gross winnings revenue during the quarter. At the same time, casino games increased with 35%, and when excluding the Netherlands, we still saw an increase of 4%. So after a very busy fourth quarter with sports, it's encouraging to see strong performance, especially casino games, and now being by far the largest segment for us. but still a very healthy sportsbook part of the overall business. And poker and bingo or other products remains on around 5% and increased 33% compared to the same period in 2022. If we look at the sportsbook margin in more detail, we can see here that it, of course, varies quite a bit between quarters. But as soon as we add four quarters or get to a 12-month basis, it becomes quite stable, as you can see here on the yellow line. And also, if we look at the longer-term average, if we look at the three-year horizon, it's been fairly stable, then around 9.4%. And in the quarter, the margin of the free bets came in on 9.9%, which is still 0.3% lower than the same period last year. And if we look at the long-term average, it's been gradually increasing over the years due to the market mix, but also that it can vary quite significantly between the quarters. It's also worth highlighting here again that we're working very much on optimizing the margin rather than maximizing it trying to create an as good customer experience as possible also when we look at the regional update we see a strong performance in in the netherlands also helping the overall region performance with gross winnings revenue increasing 37 percent year on year and if we exclude the netherlands we saw a decline of eight percent impacted by the headwinds again in belgium but also the closure of the German market that we communicated during the second half of 2022. So Germany was still in the numbers for the first quarter last year. Also in France, we saw a slightly lower betting margin. and that also impacted slightly negative. But at the same time, UK reported strong growth of 7% despite the stricter affordability measures that we introduced gradually over the last couple of years, and especially during the second half of 2022. In the Nordics, we see an increase of 4% driven by strong growth in Denmark and stable development in Sweden, thereby offsetting the negative developments that we've seen in Norway. In the CES region, it grew 16% for the same period, and Romania continues to make up a significant part of the gross winnings revenue in this region, and again performing strongly. Also in the other segment, we've shown a growth of 4% driven by the growth that we've seen in North America at the same time as Australia, so a 12% decrease largely as a result of lower sports betting margins for the quarter. Again, in more detail on North America, it's some really positive signs both on the revenue development but also on the cost base. So we have had a two-pronged focus, really trying to grow as fast as possible whilst keeping marketing investments under strict control until we launch our proprietary technology platform. And that's what we mentioned at the time of the Q4 report. And that's what we have now delivered on for the first quarter. So as you can see here, gross English revenue of £8 million for the quarter and 18% increase year on year and 8% increase in constant currency. And the negative underlying EBITDA contribution reduced significantly in the quarter to minus 5.5 million pounds for the first quarter versus minus 8.5 million pounds during the same period last year. And again, we're investing more selectively pending our platform launch. And on 14th of April, we received the positive news from the DGE in New Jersey of the approval of our proprietary platform certification. And we're expecting this, as we mentioned at the press release then, to go live in mid-May. Of course, our own platform will give us better tools and abilities to support the local team and also offer a superior user experience to our customers once we are live and with the app focus and everything that we have in that offering. If we look at the Netherlands, and just to highlight that this is a detailed reporting that we will stop after the second quarter, but if we look still for the continuous strong development we've seen since we re-entered the market in July 2022, We have seen continuous strong customer activity with now a number of active customers for the quarter of 205,000 customers. We also reached about 57.3 million pounds of revenues and a sequential increase from Q4 of 8%. also very positive as I mentioned that we returned also Netherlands to strong profitability already at this stage and now we have a similar gross contribution margin for the Dutch market as we see for the group in average and of course we're expecting this as we grow further and get more scalability that this will further improve in the quarters to come and years and based on the performance that we saw in the first quarter we estimate that we have now around a 20 market share pending sort of official data but still that we also hold a top two position which makes us confident to reiterate that we are firmly on track to become the number one operator during this year so strong performance and really encouraging developments in the dutch market If we look at Relax, as I mentioned, really strong developments in Relax. The total revenues grew with 89% in the first quarter, but EBITDA grew even better to 200% growth. And of course, The total revenues amounted to 12.3 million, as you can see here on the right hand side. It's a really strong performance sequentially, quarter on quarter now, especially from the first quarter of 22. So really continuously very, very strong performance. And with a gross profit contribution in first quarter of 10.2 million, and the underlying ebitda contribution of 5.1 million with a 41 margin and and as you can see here it's contributing with around 10 of the overall group underlying ebitda so really strong performance there which again is perhaps not seen given the size share size of the relaxed business but the strong profitability is really making a meaningful contribution to the oral group The reasons for this strong growth and profitability improvement is that they've signed another eight new operator deals and had six network launches of own content during the quarters. We also launched our second exclusive game with Relax in February and several more games are planned on an exclusive basis for Kindred during the rest of 2023. If we look at the share of revenues from high-risk gambling and our initiative with Journey Towards Zero, we remain our dedication and focus on this very, very important topic. And as you can see on the press release the other day, the data from the first quarter highlights that the share of revenues have decreased to 3.0%. and also we see an improvement in the effect after interventions up to 83% now. So positive developments in both directions that the share of revenues is decreasing and the improvement effect after interventions increased from 82.1 to 83.0% here as well. And also worth highlighting that we're now deployed our player safety early detection system with automated interventions in selective markets and we're rolling that out gradually into our markets and that's a tool that helps raise awareness with customers incentivizing them to make use of the control tools that are available and that's clearly helping and it's been shown also in the effect after intervention. So if we summarize the first quarter and a bit of the outlook look as well. But we start with the trading update for the beginning of the second quarter. For the first 23 days, we see a strong start of the quarter with high activity. also on the back of the Q4 strong activity that was carried into the first quarter. And for Q2, the comparatives again distorted by the temporary closure of services to the Dutch residents last year. At the same time, the daily average gross winnings revenue for B2C only for the group up to and including 23rd April was 3.54 million per day, 38% higher than we had for the average for the full court second quarter of 2022 if we exclude netherlands the same number would have been 2.83 million at 10 percent higher than for the full quarter of 2022 second quarter Also, as we highlighted in the report this morning, the sports betting gross winnings revenue has been positively impacted by a busy sports calendar and also a strong sports betting margin after free bets of around 12%. So again, similar developments that we saw at the start of the first quarter at the time of the Q4 report earlier this year. And again, this is normal deviations from time to time, but they tend to normalize over time. But again, very strong start to the second quarter with encouraging development across both casino but also on the sports betting. Also, I'd like to take the opportunity to reiterate what we mentioned already earlier, that our financial outlook is strong and we will drive significant shareholder value in the coming quarters and years. We're making solid progress across the key value drivers in the coming years. And we see here again the solid growth across all regions in the first quarter, offsetting the temporary headwinds we've seen in Norway and Belgium, which is normal from time to time. But when we address those headwinds, we are returning the markets to growth over time, which we indeed also have shown previously. Also for the Dutch market, we're on track to become the market leader with strong development in the first quarter and gaining market share gradually since re-entry. Also for KSP, we see material financial benefits, and we're firmly on track to launch our test market towards the end of 2023. Also for Relax, very strong developments, and we're expecting these also to continue as Relax rolls out into more countries and regions, but also adds more operators. And also for North America to become a top 10 operator in the market, and to really focus on also profitability and profitable growth also for the North American market over the years. And we really look forward to launch our platform within the coming month. So that concludes the presentation and I invite back Patrick for the Q&A.

Thank you. So before opening up from the webcast, we have a few questions that are coming through the web. And I'll warm up a couple of them. So the first one, you touched a little bit based on the US rollout, their own platform. But there is a question here. When do you expect to get approval of your own platform in other states in the US? Are you looking to get the platform approved in all states where you're live?

Eventually, that is for sure the ambition. We have a one platform strategy globally so that we would have the Kindred platform on all brands in all markets. And it's been a concentrated effort now over the last couple of years to bring it to North America to roll it out there. And we started, as we mentioned before, with New Jersey Now, which will go live towards the middle of May. And then we have been working in parallel with Pennsylvania as the second state for some time now and expecting that to happen during the second half of the year, hopefully as early as possible in the second half, but during the second half of this year. And then gradually looking at the other states that were alive or if we're launching newly in the market that we would prefer to launch directly then with the Kindle platforms.

Yeah, thank you. And the second question is about our number of actives during the quarter. So the question is, why has the number of active customers, excluding the Netherlands, only increased by 3%?

Yes, it is a combination of different things. But of course, after a World Cup, as we say, we see a normal decline. And we also made some significant investments in marketing, especially during the fourth quarter and the beginning of the first quarter. We held back a bit on investments, also waiting for Champions League and other leagues to kick off. And now that we're gradually ramping the investments on marketing during the year, we're expecting that to continue to increase. But it's also on the share size of the number when we're looking at 1.6 million, 3% is still quite a lot. But it's of course also depending on the market mix as we've seen here with the likes of Norway and other markets as well. In Belgium, we've seen actually a positive trend in the number of active customers increasing, albeit that we've seen quite a big impact similar to what we saw in the UK when it comes more to the higher value segment.

Yeah, and I would like to just point out also that the closure of Germany obviously impacts these numbers, just to make that clear. And the final question before opening up from the webcast is about the UK. And how would you describe your market position in the UK? And do you see forthcoming regulatory changes as having any impact on your business there?

We see a positive position for us in the UK market where we're a little bit in the middle and we strongly believe that if we can be really agile as we have ambition to be and can adopt faster to changes than our competitors then we have an opportunity to actually gain market share both from above from larger operators and because Further regulatory changes in the UK will most likely mean that customers will spend their spreading across more operators, and we see that could be a potentially good opportunity for us to both take market share, continue to take market share from above, but also from below, as smaller operators will struggle to comply with the complex regulatory situation. So I think we have a really good position in that sense. We also have a very profitable position already at these kind of market shares that we sit on, around 3-4% market share. And we expect that to be a good thing. We also believe that the changes that we have made during the last couple of years, and especially during the second half of last year, means that we are broadly compliant with what we anticipate will be coming in the white paper when that is published, if that is tomorrow has been indicated or not. So we are confident on that.

Thank you. Very good. So with that, I'd like to open up for questions from the webcast.

If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Oscar Ronquist from ABG. Please go ahead.

Thank you. Good morning, Henrik. Good morning, Patrick. Thank you for taking my questions. Good morning. So first of all, I just wanted to tap on the underlying growth here because your marketing spend came down quite sharply in our in my view and also i mean looking at the underlying growth it's minus one percent excluding the netherlands and and that is also affected a little bit by fx i suppose so you correct me if i'm wrong but but in constant currencies it should be down like six percent year over year excluding the netherlands and just Looking at your 2025 targets, it seems like quite a steep run to arrive at 1.6 billion, which is the low end of your target, but you seem quite confident in reaching that. So how should we think about the underlying growth and the marketing spend upcoming quarter?

yeah so you'd make that a little bit there at the end but yeah just to start with the um the developments during the quarter as you saw at the time of the q4 presentation the trading update period margin was very strong around 12 percent and what we showed now for the full quarter was 9.9 percent so clearly that meant that the the average margin for the second half of the quarter was quite weak and that of course had an impact on also the gross winnings revenue generation. So if that would have been remaining more of kind of a normal level for the second half of the quarter, that would have meant higher revenues as well, of course. But margin is what it is. At the same time also, as I said, we're adjusting marketing spend also to some extent more for the longer term, but also then more shorter term. So when we see periods of lower revenue then of course we're making sure that we take some actions that we that we can to optimize it but again it's in north america as well that i would want to highlight here that that's exactly what we communicated in the time of the the profit warning and also at the time of the the q4 report that we that we were expecting and we actively take a decision to reduce marketing investments there until we launch our own platform. So that's also helping in this kind of what could be seen, as you say, with a slightly lower marketing investment, but as I said here earlier today as well, we're expecting this now to increase in absolute terms from these levels throughout the year, and also this normal seasonality pattern for a odd year is that Q1 is strong, Q2 and Q3 is normally slightly lower activity, but it can still be quite good profitability development, and then Q4 is seasonally the strongest quarter of the four in the year. So again, that is all put together for us being confident to reiterate our non-recurring guidance for the full year and also the financial targets of both above 1.6 billion for 2025 in revenues, but also the underlying EBITDA margin of 21 to 22%. We again remain firmly confident in that now that we're coming out of the Dutch market, we're focusing more on growth and also with the cost control than that we can achieve very much on the financial targets.

All right. All right. So then, I mean, just doing some math, let's take the Q1 revenue times four just to get a sense of the run rate, including the Netherlands, then you would need to grow like 16% annually up until 2025 to reach the 1.6 billion. So do you assume like a significant ramp up in some key markets to arrive there? Because I mean, the underlying growth just seems a little bit slow at the moment. And also if you were going to optimize costs near term, I mean, in marketing, for example, which should drive revenue growth ahead. So should we expect revenue growth to ramp up underlying because of some market tailwinds? Or do you think that you will get better return on the marketing investments anywhere near?

Yeah, we're expecting the initiatives that we're taking in markets like also Belgium and Norway to return those markets to growth over time. And also, as we say here, what we're optimizing is the OPEX elements, as we said here, to remain relatively flat on around 65 million per quarter for the rest of the year. And then to allow for more investments into marketing to indeed drive the top-line developments of the group. And again, of course, we're expecting the initiatives and the good developments that we've seen in the Netherlands and also in the UK market and across several other markets already to continue as well to ensure that we are returning to stronger growth And we're expecting that to become visible now in the coming quarters and years. And for this year, as I said, Q4 is normally a stronger quarter than the first three quarters. I think coming in on these levels that we did now for the first quarter, it still makes me very confident on the full year outlook and also for the financial targets.

Okay, perfect. Thank you. One last question just on, in the Q4, when you announced the preliminary figures in Q4, in the conference call there, you mentioned the 16 and 30%. additional fixtures in Q1 and Q2 compared to the year before. So I just wanted to get a sense of how much of a positive impact does the increased fixtures have in Q1 and also what you expect in Q2, if you could quantify that a bit.

Yeah, it is a bit difficult to quantify that in more detail. Of course, it means that we have more high-quality sports throughout the weeks as well. And that is, I think, the main difference, that we have continuously sort of a good offering rather than what's normal when it's more directed towards the Champions League evenings and then also the weekends as such. So it's more kind of a benefit to keep... sort of intake and activity up on a higher level, having those kind of events happening. And now indeed, as we're expecting the fixtures to be boosted both for first quarter, but also for the second quarter. So the activity base we're carrying in to the second quarter now is a positive in that sense as well.

Okay, perfect. Thank you very much. That was all for me. Thank you.

Thank you.

The next question comes from Ed Young from Morgan Stanley. Please go ahead.

Good morning. Three questions for me, please. First of all, just to build on the question you'd already asked, Patrick, on the UK, it's quite a good growth number considering you're taking affordability measures. It's better than others who've reported that market so far. I just wonder if you could touch a little bit what you're seeing competitively in that market. The second question is on Norway. You've said it's a headwind, but could you perhaps quantify that? I don't think it's quantified in the statement from what I saw. And then third, on Belgium, you said you're seeing signs of improvement, but clearly a very negative number. You'd previously spoken about sort of maybe a six-month period to be able to meet some of the challenges around customer journey, et cetera. Do you feel like you've done that, and what sort of your – expect a timeline for that market to recover to flat and then into growth.

Thanks. Thanks. I mean, for the UK, it is a competitive market and we are a mid-tier operator, you can say, in the market. We are sort of just under the larger operators in the market, which, again, we feel is a relatively good position for us to be in. And we can be... sort of benefiting from being faster and more agile than some of our larger competitors. And at the same time, we see and expect to see continuously that smaller operators will struggle more with adaption to the increased regulatory situation. And that will be a potential benefit from both directions, as I said, for us in the market. When we look at Belgium, the Norwegian market, we're not disclosing any detailed numbers on that, but as we highlighted at the time of the Q4 report as well, we've seen headwinds from an activity and revenue point of view. on the back of the further changes we made during the fourth quarter of last year. And those kind of headwinds are continuing now into the first quarter. And as I said already, then it most logically will take up to sort of four quarters until we would expect to see any sort of change in that. But it's a fairly stable development now compared to sort of the fourth quarter, I would say, in the first quarter. For Belgium, we are clearly working hard to address all the items we saw. We made gradual changes during 2022 that resulted in the impact that we're seeing. The 37% decline that we saw now in the first quarter is largely a combination of the changes that we did voluntarily prior to the mandatory deposit limit check that came in in October. So in some ways we're working very hard now to look at the overall offering for the customers and improve that overall for customers and actually sort of expect that to, as I say, we're starting to see some positive signs already compared to start of the second quarter compared to the average for the first quarter. on daily average revenues, but we're still more work to do to improve the user experience for the customers and return to growth, most likely towards the sort of mid to end of this year.

Okay, so it doesn't sound like it'd be unfair to think that might be a four quarters from the October to be back into growth, but maybe better in Q3. Is that sort of a fair picture?

We're of course working hard to make sure it's ASAP, but at the same time it's also reality where it's an uneven playing field in the market where we have sort of complied with the regulations and we have a feeling that some of our competitors are are still not compliant. And we again urge to cooperate with the regulator to make sure that there is a level playing field in the market and with the ambition of protection of the customers in the end of the day as well.

Okay, thanks very much.

Thanks.

The next question comes from Kiranjot Gurawal from Bank of America. Please go ahead.

Hello. We cannot hear you, Kiranot.

The next question comes from Martin Arnell from DNB Markets. Please go ahead.

Hi, guys.

Hello, Martin.

I have just a couple of questions. If we try to lift this up and look at the bigger picture here and away from the nitty-gritty, in terms of your group strategy, what are you most happy about in terms of execution so far and what's been the most challenging part in your view?

Yeah, the strong comeback that we've shown in the Dutch market is clearly beating our own expectations, and we're very, very pleased with that, that we have shown that we are still the only traditional dot-com operator, if we call it, that have got the license and are doing really, really well in the market. and we have a sort of very good sort of dialogue with the regulator and everything as well so we're very very positive and and and and proud of of that comeback and then of course also what we've seen in in the uk market over the years where we really focus a lot on on growth initially for say 2012 to 2018 and then gradually turning that into profitability and and profitable contribution throughout the last three, four, five years, making it one of our most profitable markets and actually growing into a hyper competitive, super mature market in a very profitable way. And then, of course, we also experience headwinds from time to time with the likes of Norway and Belgium recently, but that's normal part of the business. if anything is normally around the 12-month cycle until we return to growth, and hopefully it's sooner than that, but that's a normal part of the business. I would say the overall transformation that we've done and that we have now shown more than doubling of the underlying EBITDA for the first quarter compared to the same period last year gives us confidence that we're well on track to achieve the non-recurring guidance that we that we say also with the the sportsbook platform that's progressing really well and we're well on track for for launching our first test market also relaxed doing extremely well and also the improvements that we show now in in north america for the first quarters i think as again we highlighted those five key value drivers for the coming years i think those are really key elements to look at and as you say look a bit beyond the nitty-gritty numbers here and now, that we are really on a strong path to show strong value creation and that the outlook is strong.

Thanks a lot. That's helpful. And can you just remind us, what is management's view on timing for US expansion turning profitable? And also, when would you expect positive effects from the KSP initiative?

Yeah, so the North America platform rollout is expected to have a positive impact immediately on customer experience metrics like acquisition and also retention and overall experience and that will gradually then turn into growth in revenues and then indeed over time also profitability. We are yet to see really what kind of effect we will see in real time for our own technology there and what we can achieve. But right now we're still reiterating what we mentioned at the CMD of sort of a contribution break even in 26. And then... sort of moving forward on that basis. But of course, it will depend also on what we see when it comes to our own platform. And it could be sooner, it could be later. But most likely, as we're sort of delaying investments, it would be logically slightly later from that point of view. But it also depends on how much we choose to invest, depending on the effect that we're seeing from that platform.

And then it was KSP. Were the benefits coming from KSP?

You had a question on... Yeah, no, that's good. So KSP, we're expecting to launch the first test market now towards the end of this year and then gradually over the coming years then roll out across our markets. So we're expecting that to become, as we said, also at the CMD already that we're expecting the... sort of the the break-even point to come sometime during 25 during 25 and and then see a sort of a the investment we're doing until then is to reap the benefits from from then onwards and then the full benefits of the of the rollout is only happening sort of beyond the financial targets then as such so it's more for kind of building the long-term profitability of the business as such great and then i have just a final question and that would be

How do you view consolidation trend in the market? What's the pros and cons for further big consolidation in the sector in your view?

scale is important and that's what we've had as our one of our core themes as well over the last 10 12 years to really make sure that we grow top line sufficiently fast so that we can absorb the increased costs on the back of the transformation as we highlighted here with especially betting duties and of course we also need to have more over money over to invest in marketing which is a driver for growth So I think there's clearly a logic for larger scale, but of course you also need to be efficient and it needs to make strategic sense as well. So I don't think that our sector is that unique in that sense in business overall. It's size sort of matters in some ways, but of course you also need to be agile and efficient as well.

Okay, thanks guys.

Thanks, Martin. The next question comes from Simon Davies from Deutsche Bank. Please go ahead.

Good morning. Just one broadly from myself about the Netherlands. It sounds like we're going to get an advertising ban introduced at the beginning of July. How do you see that playing out? I understand at this stage it's just TV advertising. Is there a risk that they're going to broaden that out to include some digital advertising as well? And do you see some kind of land grab in terms of a drive for competition in terms of customer recruitment ahead of the advertising ban?

We're not expecting anything right now when it comes to digital. As you say, it's more about TV and out of home. It's been already agreed with social self-regulation and there's a gradual change on first TV and media and then gradual to sort of church sponsorships and also the other things over the coming years. So that's been in the discussion to see what's going to happen exactly on that. But if anything, the situation that we got used to in the Netherlands prior to September 21 was very limited marketing opportunities competing more on experience and product. And that sort of helped us in that sense, even in that reality. So given the strong position we have and that we've had This kind of ramp up and time to get into the market gives us confidence that we can handle also further restrictions if they're coming. But again, we have been mentioning and it's also urging that restrictions on the regulatory system or regulated system is often to the benefit of the dot com or the black market. which is clearly no one's interest. So there needs to be a balance here between sort of restrictions and channelization as well. And ideally, it's an opportunity for regulated operators to really put their brand out there and attract customers to the regulated offer under strict control, rather than to allow customers or push customers more onto the black market, which can happen if there's too restrictive restrictions put in place.

So you don't see a risk of a sort of massive short term ramp up in CPAs as everyone desperately competes ahead of the ban?

No, I don't see that really. We have a long term view and we're executing on our plan and positioning in the market and see good momentum on the back of that.

Great. Thank you very much.

Thanks.

The next question comes from Kiranjot Gurawal from Bank of America. Please go ahead.

Hey, sorry about earlier. No worries. I realize you're not commenting on the strategic review itself, but I was wondering, does the review impact any of your plans around building out the sports book or the US expansion? Also, you've mentioned that the long-term average margin for sports has increased gradually over the last few years. In that backdrop, what should we consider as the new normal sports margin? And the last one is actually just asking for a bit more color. I think the Western Europe segment is your biggest by far. Could you break it down a bit more in terms of what countries make up the biggest pieces there, and where do you think Netherlands will sit within that as well? Thank you.

Thank you. The strategic view I will not, as I said, make any comments on. I didn't really pick up your question either, to be honest. But if we look at the sportsbook margin, the developments that we've seen, as we highlighted, there's been a gradual increase over the years for many reasons, both as we kind of dig deeper into our existing footprint and markets and the marginal customer that we attract tends to be more of a higher margin customer by default and then it's a that's the nature of it's across markets also with the sort of improvements that we're doing in risk management and and other things are also helping that to some extent but also on the french market contribution when france has been growing for us as a market and it's a pretty much a sports only market for us with some poker element, but still predominantly a sportsbook market, it also means that that inherent cap of 85% payback is having an upward pressure on the group margins as well. So there's a few combinations there, also as we've seen over the last couple of years especially as we highlighted ourselves as well regarding bet builder and other kind of multiple driven sort of features that also tends to increase the margin over time on the sort of the back of reduced share of live betting which has a lower inherent margin but also live betting margin has been picking up for the first reasons I mentioned so There's quite a few drivers in pushing the underlying sports betting margin upwards over the years. And then the third one was, sorry Kiran, what was the third question?

The key country is Germany.

You can see what the Netherlands is through our reporting today, so how big part of that it is. And then with Belgium and France and the UK and Germany, now that we closed in the second half of last year, we have not given that kind of country breakdown. We appreciate that people have quite a clear view on what the size of the markets are. And it's something that we revisit from time to time on kind of the segment reporting and kind of the breakdown and what we want to give and sort of feels that it's good to give as well.

Yeah, and you can have a look at the Capital Markets Day presentation where we shared some light on that. Yeah, exactly.

Thank you.

Okay? Thank you. Okay. So with that, we are concluded with the Q&A and I hand over to Henrik for final word.

Thank you, Patrick. Thanks everyone for attending and thanks for the questions and attendance. So we really look forward to meet you up again at the time of the Q2 report in July. And until then, Really look forward to continue to work hard to make Kindred even greater than we are today. So thanks a lot for today and look forward to see you in July. Thank you.