Kindred Group plc

interim report for the second quarter of 2024. My name is Nils Andén. I am the CEO of Kindred. I also have our CFO, Patrick Kortman, with me today to run through the results for the second quarter. The outline today is as previously seen, highlights from the quarter. business overview then I will hand over to Patrick for the financials and then come back for a summary and after that we will have the normal Q&A session If we start by looking at the highlights of the second quarter, we are very pleased to see a continuation of the strong development and the continued execution of our strategy. We saw a strong sportsbook performance that drove growth across most, the vast majority of our core markets. with group revenues up 7%. I'm also very pleased that we saw particularly strong development in our focus markets which are the locally regulated markets with gross winnings revenue increasing by 12% if we exclude North America compared to the same quarter last year. We saw strong activity throughout the quarter and of course we had the Euros for the last two weeks of the quarter which boosted the numbers to a degree but I think it's important to point out that we had very strong development throughout the quarter. The focus on our continued cost management and strategic execution is really paying off, and we are very pleased to report an underlying EBITDA of just shy of 74 million pounds, which is a margin of 22%. This solid performance sets really a good trajectory and a steady path to our annual guidance. As mentioned, we saw encouraging growth across our market portfolio and an all-time high of locally regulated share of gross earnings revenue at just north of 84%. The revenues, as mentioned, grew with 7%. This would have been 8% in constant currency and is really a contribution of the wide market portfolio we have where we see growth across the vast majority of our top markets. As mentioned, we had also an absolute all-time high in locally regulated gross earnings revenue of 267.1 million pounds. This is a 12% growth if we exclude North America. The underlying EBTA grew with 32% compared to the same period last year, which is, as mentioned, a margin of 22%, which would have been 23% excluding North America, which truly highlights the scalable business model and the strategic execution over the last quarter. Free cash flow came in at just north of 41 million pounds, which is a big increase, and the active customers saw an increase of 12%, which is of course contributed by the fact that we had the Euros at the tail end of the quarter. Net cash at the end of Q2 stood at 63.7 million pounds. If we look at the business a little bit more in detail for the second quarter, we're very pleased to say we are continuing along the strategic execution that we have communicated in previous quarters that really entails a focus on our locally regulated markets to outgrow and take market share there and also ensure that our profitability improves. As mentioned we had an all-time high of 267.1 million pounds from locally regulated markets in Q2 and we also see that the profitability continues to improve really demonstrating the strength of our cost control and the scalable business model we have. In the quarter, we had a strong activity across our customer base and a solid growth in active customers of 12% compared to Q2 last year. This was, of course, supported by the Euros, where we also see that sports betting actives grew substantially faster than our casino actives, coming in at 21% up, whereas casino actives grew with 6% year on year. As we've seen in previous quarters when we have a major tournament, RPU decreased slightly, this time 6% versus Q2 2023. This is fairly normal given that we attract a bigger base of leisure punters during the major tournaments. If we look a little bit deeper on the product segments, sports betting was the standout during Q2, which saw an increase of 18% in gross winnings revenue, supported by a really busy sports calendar, not only the Euros, but leading up to the Euros. And of course, the Euros bringing really good activity and some favorable results to us. Also worth mentioning that we are continuing and we're progressing according to plan with the rollout of the Kendrick Sportsbook platform. We're now live in a number of test markets and we are seeing some very positive early results and hitting every milestone we have put up for that rollout. In terms of casino and games, gross winning revenue decreased by 2%, but increased by 1%, excluding North America. This was driven by strong performance for Western Europe, but offset by weaker performance across the Nordic, CES, and other regions. Poker and other products increased by 7% with both product segments reporting growth. This was primarily driven by a growth in actives and the overall really good development we see in the French market. If we do a little deep dive on the Euros, we're very pleased to say that this was the highest tournament revenue we've ever had for a major football tournament. It was 16% increase in revenue in comparison to the last major tournament, which was the World Cup in 2022. Sports betting margin before free bets was 19.7%, which is very high, absolutely. This was not only driven by favorable results, but we also see a big shift towards higher margin products, such as BetBuilder. It's been a real step change in this tournament compared to previous iterations. This also meant that BetBuilder and more traditional multibets represented 62% of the total 2024 euro revenue. As mentioned, this actually provided us during the tournament with a sense of margin stability throughout as the traditional outcome bets have higher variance depending on the outcome. We're also very happy to see that the percentage of multi-product players increased compared to previous tournaments. So customers that not only play sportsbook, but play poker or bingo or casino and games. If you look at the right-hand slide here, you can see that the sports betting margin, particularly in the early stages of the tournament, so in June, came in at 24.1%, which is, as mentioned, fairly high, whereas in July it normalized and came in at 10.6%. If we look throughout the quarter, the sports betting margin after free bets came in at 12.1%, which was of course underpinned by my previous slide with the very favourable Euros. It is on an upward trajectory, pushing the long-term average higher, but it's still higher than last year where we had 11.3%. I think it's also fair to say that the market mix in the latter part of the quarter in particular supported the margin. When we see such good development as we have seen in France, that means that it drives the margin up since the inherent margin in France is higher than in other markets. But it was also a combination of the further shift towards these higher margin products such as BetBuilder that contribute to an increased sports betting margin in the quarter. If we look at the regions, the Western Europe segment is continuing to perform really well. The gross winnings and revenue increased by 16%, continued driven by Netherlands that continues to see really strong performance, but also a very strong growth in France of 41% and also, which we're very pleased to see, a return to growth in Belgium that saw a 12% increase in gross winnings revenue in the quarter. This was predominantly linked to increased sports betting activity. In the Nordics, gross winnings revenue was flat. It was a good quarter for sports betting, but this was offset by weaker performance in the other product segments. CES saw a gross winnings revenue decline by 9%, but it's fair to say that the only focus market really for us in that region is Romania, and that market continues to demonstrate really positive development with a strong underlying growth in the second quarter. The other segment decreased by 49%, which is of course driven by the closure of our North American operations. On that note, we are pleased to say that we have now completed the exit from an operational standpoint in North America by the end of the quarter. We have still carried some costs, so in Q2 the gross winnings revenue came in at 2.2 million pounds, so of course a vast decline compared to last year. But this is very much aligned with our internal expectation given the closure. The loss in Q2 was 1.2 million pounds versus 5.1 million pounds in the same period last year. Now that we have operationally exited North America, there is still some tidying up to do in terms of returning customer funds, returning licenses and ensuring that we exit in an ordinary fashion. But we are very pleased to announce that the operational exit is now complete. In terms of relaxed gaming, we continue to show and see solid growth. We had a revenue growth of 10% in the quarter, whereas B2B revenue amounted to roughly 10.4 million, which was 16% year on year. The growth continues to come from broader distribution of relaxed gaming's own content and successful new game launches and some very interesting market expansions. The Q2 gross profit came in at 10.8 million and the underlying EBITDA contribution was 4.5 million pounds representing a 41% margin on relaxed B2B revenues. We have seen a slight increase in operating expenses. This is really to strengthen the team in preparation for future growth and some of these really interesting opportunities in terms of market expansion. We also want to call out that following the acquisition of the minority interest shares in the quarter, Kindred's ownership of Relax Gaming is now over 99%. As you might have seen from the press release around Journey Towards Zero, this quarter we came in at 3.0%, which is the continuation of a positive trend we've seen over the last couple of years where we continue to drive this number lower. We also see continued good development on the improvement effect after intervention, which now came in at 86.8%. We think it's probably hard to get that much higher, but ultimately the continued focus on this across the organization is. With that, I'm going to hand over to Patrick to run through some of the financials for the quarter.

Thank you, Niels, and good morning, everybody. So, as Niels already mentioned at the beginning of this presentation, we had a really solid revenue growth this quarter. It was driven by a wide portion of our key markets. Total revenues reached 327.6 million. That was a 7% increase year over year. Especially local regulated markets grew rapidly with a total growth of 10%. If you exclude North America, this would have been 12%. We also saw relaxed B2B revenues growing by 16%. And this also means then that our not yet local regulated markets continue to see a decline year over year of around 8%. We continue to maintain a strict focus on cost control. And as you can see on this page, we are performing well on all KPIs with reduced expenses as a percentage of revenues compared to last year. Starting off from cost of sales, cost of sales as a percentage of revenues came in at 12.9% versus 14.1% same period last year. This is really driven by a continued focus on our supplier mix and also driven to some degree by changes in market mix. Marketing spend, this includes total marketing costs, so also affiliate costs, came in at 18.5% compared to 20.3% last year. This is driven by increased revenues, but also a slight decline in the marketing costs in total. And here it's driven mainly by North America, this decline. So we had a total decline in marketing spend around 4 million in North America versus a total decline of 2 million for the group, which means that we had a 2 million increase in the remaining markets if you exclude North America. Salaries and other OPECs have been a high focus for Kindred during the last nine months and even longer than that, actually. And here we see now a solid progress with reductions both in absolute term as well as in relative terms. So for salaries, we had a four million decline year over year. And that then resulted in a two percentage point decline as a percent compared to revenues. In other OPECs, we saw a decline from 7.4% last year to 6.6%. And in absolute terms, this was a one million decline year over year. So really strong progress on the cost side. With the accelerated growth, we now see a clear strength of the scalable business model that we are having. So the EBITDA improved by 32%, reaching 73.6 million for the quarter. And this is an almost 18 million year-over-year improvement. Revenue growth and then combined with a fairly stable gross profit margin was the key driver of the improved profitability year over year. So we actually saw a 12.3 million improvement in gross profit and then that combined with a 5.1 million reduction in OPEX costs drew the improved profitability year over year. And we're very happy about the margin coming in now, the underlying EA margin coming in at 22% for the quarter and actually 23% when excluding North America. For the first half of the year, the underlying EBITDA came in just short of 133 million pounds. And that is actually the second best first half ever for Kindred Group. We continue to see headwinds on the currency side and the FX side. So on the revenues, we had a negative GWR impact from FX of slightly below 2%. That's equaling to 5.7 million negative impact for the revenues. And then a 1.4 million negative impact on the underlying EBITDA. For profit after tax, it was almost neutralized at just shy of one or half million negative. We have seen a solid start to Q3 with an average daily revenue of 3.28 million. This is 10% higher in reported currency and 11% higher in constant currency compared to the daily average revenue for the full Q3 2023. Excluding North America, this increase would have been 14% in constant currencies. The sports betting margin for this short period of 21 days was 10.6%, which is slightly above the long-term average of 9.9%. So a very solid start to the summer of sports. And with that, I can invite Nils back on the stage to summarize up the report and then opening up for Q&A.

Thank you, Patrik. Generally speaking, we are of course very pleased with the quarter. A very solid performance and it sets us on a very steady path towards the annual guidance that we have put out. Driven by solid revenue growth, in particular from our locally regulated markets that came in at an all-time high in absolute numbers. We saw a very strong start to the Euros during the quarter and the Euros in totality was our highest tournament revenue ever. We saw a 16% increase in revenue versus the World Cup in 2022. And that is of course driven by the strong sports betting margin, but in part driven also by the focus that we have on high margin product. We also saw a very robust growth in our underlying EBTA, which highlights our scalable business model. An underlying EBTA that saw a 22% margin, which would have been 23% excluding North America. We're also pleased with the continued strong performance in Relax Gaming, and particularly the B2B operation continues to go from strength to strength with the 16% revenue growth. And we are building for future further growth in Relax. Lastly, I want to sum up that we reaffirm our full year guidance of an underlying EBITDA to reach 250 million pounds. This we will deliver through disciplined execution and really focusing on our strategic core markets position that will set us up for continued success. With that, I want to thank you for listening and open up for Q&As. Thank you.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Oscar Ronquist from ABG Sundal Collier. Please go ahead.

Thank you and good morning all. So my first question would be on the Q2 numbers and the trading update. So first of all I think that the or in my view at least I think the casino numbers were a little bit below expectations. It has now been declining for the second quarter in a row even excluding the US exit. So just on the casino side the sequential progress isn't really going as favorable as one might have thought. Is there anything that you can see sort of impacting this, like a strong sports book margin in Q2, for instance, that would hamper the casino growth? And also then on the trading updates, on the opposite side, I think that the sports revenue look, if anything, a little bit on the weaker side, especially as you have a 6 million contribution from the Euros. So just Is there anything you can say on the activity in sports? Is it hampered by the strong sports win margin in Q2 that people have a little bit less to play with? Or can you discuss or elaborate a little bit further? Thanks.

Thank you, Oskar, and good morning. So, there are a number of questions there, and maybe I'll start off with the casino side. So, of course, the very strong sportsbook margin do have an impact on the casino volumes as well, as we have a large number of multi-product players. And so I'm not overly concerned about that development. And still we saw a year-over-year growth if you exclude North America for the casino. And this is quite natural overall. Then in terms of the trading update period, I think it's worth first of all to say that the final itself had a very large negative impact on our sportsbook revenues for the quarter. And so that has a quite meaningful impact on the daily average revenue as it's only 21 days. And that will of course be diluted the more days we have here in the quarter. And then on top of that, it hasn't been that much to really play on for the customers. There were the final rounds of Wimbledon and then the few games, was it 11 games in total of the Euros on the July side. And then in addition to that, it's been fairly quiet. Now, of course, we have the Danish football league starting or have started. We have Allsvenskan starting again and we have the Belgian league starting, I think, this weekend. But it's only once the national football leagues kick off again in August when we will see really an uplift again in the activities. The Olympics are in general a fairly small event for us from a betting perspective.

Perfect, thank you. Next one just... if you sort of could quantify any sort of impact that you expect from the Netherlands deposit limits. I think if I got it right, I think you don't see any sort of significant impact from the marketing restrictions, really. But just on the deposit limits, is there anything that you can say on sort of quantification?

We will not give guidance for specific markets. I think it's also a little bit too early. the limits will kick in on the 1st of October, where we'll actually see customer behaviors, etc. I think the most important thing here is that we reaffirm our full year guidance for the group. And we, of course, have a big, large portfolio of markets that we are working with.

Got it. Just if I sort of rephrase the question and if you could maybe sort of compare it a little bit to the netherland or sorry the belgium uh deposit limit do you expect sort of uh is this sort of expected deposit limit is that should that impact more or less than the belgium uh deposit limit you think it i think it's kind of a soft uh deposit limit compared to the belgium one is that correct

Yeah, I think there's two elements to this, Oscar. I think the Belgium deposit limits were introduced, but I don't think it was exactly a level playing field in that market. We saw some operators perhaps not adopting them to the same 10 degree as we did. I think in Netherlands it's substantially less ubiquitous. I mean, it is going to be all operators operating in the Netherlands will adopt these new limits. Generally speaking, we are fairly confident. We have a very strong, we are the market leader in the strong position. We are the market leader in Netherlands. For the industry as a whole, maybe we can expect a short-term impact. I don't think that's impossible to foresee, but mid to long term, we're very confident on our position in Netherlands as a market leader.

Got it. Thank you. I think just a final question just on the marketing ratio. I think it was very good in the quarter, especially while you had pretty healthy underlying growth as well. So is there a structural change? If we could just look a little bit further ahead, should this, for any reason, we can exclude the US marketing costs here. So just the underlying marketing to sales ratio, is there any reason that should sort of bounce back towards the historical levels? Or could we see sort of a structural change closer to where you are at the moment of the sort of, I don't know, rolling 12 bases.

Yeah, I don't see any structural shifts that would take us back to the levels where we were in the past. As you know, we have marketing restrictions in several of our locally regulated markets. And even more so, we are not able to do marketing in many of our dot-com markets either. And that's impacting the percentages quite a bit. I think it's also then fair to say that we are focusing a lot on to get the best out of the marketing pounds that we're investing and really getting a strong ROI on the spend.

Understood. Thank you very much.

Thank you.

Thank you, Oskar.

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

Hi, guys. Morning. Morning. So I just wanted to follow up on this casino versus sports discussion. How many of your actives are sort of multi-product in the Playbase? Is that a big number?

We haven't shared that number, but it's a fair amount. Of course, we have markets like France, Australia, etc., where, of course, in France you can play poker, but there's no casino products, and in Australia on a sportsbook. But if you would exclude those markets, you would have a fairly high percentage than the multi-product players.

It's fair to say it's more than half, right, that you exclude those markets?

We're not going to the exact numbers of that.

Okay. But it's a big number, right? Yeah. Thanks. And then on the marketing costs, I noticed that, I mean, it's actually flat or slightly down if I look at how it was in the past. in a big event quarter like the Euros, I would expect more marketing and for you to build more active player intake. The active player intake is decent, I guess, but I'm a bit surprised that you lower the marketing so much. And I know you're going to answer that it's like regulatory headwinds. Is there anything else here that we should think about?

I guess maybe start first. Actually, we increased the marketing spend in the markets excluding North America. If you include affiliates, we increased the marketing spend by 2 million excluding North America. And then, of course, we have the restrictions on marketing in many of our countries, etc., of course, which are playing in there.

Yeah, and I think, sort of, if you look back historically, I think we've seen perhaps larger spikes around tournaments. uh but that also comes back to you know very thorough analysis on the payback ratios we see on our marketing investments and i think the historical data we have on that kind of indicates that i don't think we will see similar spikes around tournaments uh for us and subsequently you saw the same in this quarter is it fair to say is it a structural

increase in the margin coming from this, or is it offset by the higher betting duties?

I don't know the betting duties. I think, as I alluded to in the answer to Oscar, was that we don't expect coming back to the same reinvestment percentages as we were in the past. And of course, when we now look at cost, we look at cost throughout the P&L coming from cost of sales, marketing to OPEX and really making sure that we get the best possible return on the investments that we do across the P&L.

OK. Yeah. Thank you. And my final question is on the implied guidance for the second half. I think you did 133 million adjusted EBITDA in the first half, implying 117 for the second half. What kind of headwinds are you seeing in the second half here? Why is the implied guidance so low down at 117?

I think first of all we have only given one guidance for the year and we are not in the business of changing guidances every quarter and then secondly I think it's also worth remembering that we had Q2 was very strong. It was high activity throughout the quarter from a sports perspective, and we also had a historically high sports betting margin. Now we are in Q3, which is a slower period overall with less sports to bet on for a good period of time throughout the quarter. And we do not expect that the sportsbook margin will remain on these high levels. It rather will come down, or the expectation would be that it would come down to the normalized long-term average levels.

Okay, no more questions from you, Martin.

The next question comes from Ed Young from MS. Please go ahead.

Good morning. Can you hear me? Morning, Ed. Morning. My first question was on the tournament impact. Obviously, you've given very helpfully what you generated during the tournament. That would be about 8% of your revenue during the quarter, but it's obviously difficult from the outside to understand what substitution and what's incremental, what's your best estimate of the uplift the tournament provided to your revenues for Q2?

I will not go into speculation of what the cannibalization could have been on other events, etc. But the gross win We share the gross win numbers, which are before bonuses, et cetera. And if you would just apply those numbers to the gross winnings revenue, it would, of course, be around 9% or so. And I think that's the only number that we have and only facts.

OK. My second question was on your UK performance. You usually give that as a disclosure within your geographic splits, but you've mentioned Netherlands, France, and Belgium, but not UK. It looks like it must be below the average of those other segments, but is there any color you can give on UK performance, or is there any reason why it's been excluded this time?

It was actually mentioned in the report. It was 4% growth year over year.

Perfect, thanks. And then for France, very strong growth there. Do you think the whole French market has grown that strongly or do you think you've been able to gain some market share during the quarter?

Good question, Ed. I would be surprised if the entirety of the market had grown that quickly. My very careful conclusion is that we've definitely taken market shares in Q2. We've seen a very strong trend already starting in Q1 with intake of new customers and activity levels in France that's culminated in a very positive result in Q2. uh but you know we will we will get some some more figures on that i think later this year but uh we are of course very pleased with with that development perfect that's all i've got thank you thank you as a reminder if you wish to ask a question please dial pound key five on your telephone keypad

We have no further questions from the teleconference. I will take a couple of questions from the web. And most of the questions actually are related to FDJ. So it's maybe just worth taking them in one go. So the question is really that it's coming from many. How is the merger or the antitrust process going? And what's the status with the FDJ transaction?

Yeah, and thank you. And I think we haven't called out anything specific because there are really no new news to share at this stage. As we know, FTDA are in discussion with the French Antitrust Authority. The only communication we have seen is that they are very comfortable with the timeline that was put out already in the bid in January. And we are not a part of that process. This is something that FTJ drives and they seem very comfortable with the timelines that have been communicated earlier.

Thank you. So I think with that, we have ended the Q&A.

Yeah. Thank you, everyone, for listening. And just again, thank you for the questions and have a lovely rest of the day and rest of the summer. Thank you.

Thank you.