Kindred Group has confirmed that chief marketing officer (CMO) Elen Barber and chief commercial officer (CCO) Anne-Jaap Snijders are set to leave the business this autumn.
The news follows on from the resignation of long-serving CEO Henrik Tjärnström, which was announced with immediate effect last week.
CFO Johan Wilsby, who announced his resignation a matter of days before Tjärnström, was the first domino to fall, but iGaming NEXT understands he is also set to stay on in his role until autumn.
With four resignations in such quick succession, just five members of Kindred’s previously nine-strong executive team are set to remain with the business.
Those members include new CEO Nils Andén, who was promoted to the top job after serving as CCO for region two (Snijders is CCO for region one).
Others set to remain in the firm’s C-suite include CPO Erik Bäcklund, chief HR officer Rachel Randle-Williams, chief legal and compliance officer Ewout Keuleers, and CTO Sören Thörnlund.
With reference to the resignations of both Barber and Snijders, Kindred suggested the duo had decided to stand down following the completion of a review of the company’s commercial and marketing operations, which was initiated in H2 2022 and led by the two executives alongside Andén.
Kindred insisted the decisions were not related to the resignations of CEO Tjärnström or CFO Wilsby, but investors will continue to question the timing with Kindred currently engaged in a strategic review.
Commenting on her decision, outgoing CMO Barber said: ‘I’m proud to have played my part in Kindred’s success over the past 13 years.
“Our fantastic global marketing team has built a solid foundation upon which Kindred can continue to grow in competitive and exciting markets. It’s now the right time for me to move on to fresh opportunities ahead.”
Outgoing CCO Snijders added: “I had a great time at Kindred. It has been a fantastic journey working out of the Sydney, Malta and Amsterdam office with extremely talented colleagues.
“The pinnacle was to receive the Dutch licence and building up market leadership with the local teams.”
In an interview published over the weekend, Kindred founder and former chairman Anders Ström offered his two cents on the latest developments taking place within the business.
He suggested that Tjärnström’s resignation was a foregone conclusion, given that “what the board wants to do and what Henrik wants to do are not in agreement with each other.”
That comment was made in reference to the strategic review underway at the business, driven by activist investor and largest shareholder Corvex Management.
The review will see Kindred consider options for a sale of the business.
“The option to sell does not seem to have gone down well with Henrik Tjärnström and so he has to drop out,” Ström told Swedish financial newspaper Dagens industri (DI).
The board of Kindred Group has pledged to explore strategic alternatives for the operator to drive shareholder value. This could eventually result in a merger or a sale of the whole company.
The financial results blended into the background today after the Kindred board announced it would conduct a strategic review of the business that could result in a sale.
The process will explore strategic alternatives for the business as the board seeks to deliver shareholder value.
“Such alternatives could include a merger or sale of the company (in whole or in part) or other possible strategic transactions,” said the board in a statement.
The board of directors has retained PJT Partners, Morgan Stanley and Canaccord Genuity as financial advisers and to assist in its review of strategic alternatives.
No timetable has been established for the completion of the review.
The strategy is being pushed by activist investor and New York-based hedge fund Corvex Management, which is the largest shareholder in Kindred Group.
Last May, after Kindred’s poor financial results, Corvex said: “Given recent developments, we believe the Kindred board should immediately retain a leading, global financial adviser to evaluate strategic alternatives, including the potential value that could be achieved through a sale or business combination.”
Corvex has since increased its ownership stake to more than 15% and now has a seat on the board occupied by James Gemmel.
The share price is up nearly 15% as a result of the announcement (see stock ticker below).
In Q1 2023, Kindred Group reported a 24% increase in gross winnings revenue to £306.4m.
Core B2C revenue climbed by 23% to £297.3m, driven primarily by strong progress in the Netherlands, which the company re-entered on a regulated basis last July.
Excluding the Netherlands, gross winnings revenue actually declined by 1%, or 3% on a constant currency basis, with regulatory headwinds reported in Belgium and Norway.
Indeed, Norway – where Kindred is locked in a legal dispute with the regulator – was flagged as a particular area of concern by London-based strategic advisory business Regulus Partners.
Analysing the Q1 results, Regulus Partners analyst Paul Leyland wrote: “If we assume Norway contributes c. £40m after direct costs (RP estimate), then this high risk ‘dark grey’ jurisdiction represents c. 30% of run-rate FCF.
“While not crippling, such a loss would be materially value destructive and hard to offset given the lack of growth elsewhere,” he added.
Kindred did report a return to growth in the UK, however, with revenue from the market up 7% compared to the same period of last year, driven by online casino.
The B2B segment, meanwhile, was boosted by 90% annual revenue growth at Relax Gaming.
Kindred generated the majority of its gross winnings revenue from locally regulated markets, which accounted for 81% of the total.
Underlying EBITDA more than doubled to £49.4m amid a year-on-year rise of 102% as profit after tax also soared by 300% to £25.6m.
The operator’s underlying EBITDA margin now stands at 16%, compared to 10% in the prior-corresponding period.
Kindred said the profit growth was attributable to the increased scalability of the group after relaunching in the Netherlands and a strategic focus on cost cutting, especially in marketing.
For example, marketing costs were down 18.3% sequentially as the World Cup marketing push concluded and the operator capped investment in North America to reduce losses.
Salaries and staff costs, however, increased by nearly 35% to £44.5m due to “selective headcount growth”, as the operator seeks top talent to build its proprietary sportsbook platform.
“This investment in our in-house sportsbook, a key value creation driver, continues to drive growth in operating expenditure,” said Kindred CEO Henrik Tjärnström.
“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,” he added.
The CEO said Kindred was in a positive position in the UK and was primed to take market share from both large and small operators in the market.
According to Tjärnström, upcoming regulatory changes could push customers to spread their gambling across more operators, while smaller operators will struggle to comply with the increasingly complex regulations and could disappear completely.
Kindred is currently live in the UK with its Unibet sports betting brand and 32Red casino brand. It accounts for approximately 4% of overall market share and is profitable.
The government’s long-awaited review on gambling is set to be published tomorrow (27 April).
Deutsche Bank head of online gaming research Simon Davies asked whether there might be a “massive short-term ramp-up” in CPAs in the Netherlands as licensed operators compete aggressively to acquire customers ahead of July’s ban on above-the-line gambling ads.
“No, we don’t see that,” said Tjärnström, insisting the operator had taken up a long-term view in the market and was still executing on that strategy.
Current trading and outlook
Kindred’s average daily revenue up to and including 23 April 2023 came in at £3.54m, a 38% increase on the daily average for Q2 of last year.
This figure was still 10% higher when excluding for the Netherlands.
Kindred said sports betting revenue after the trading period had been positively impacted by a stronger sports betting margin of 12.2%, compared to 9.3% in Q2 2022.
Kindred has not changed its 2023 guidance following the release of its Q1 results. The operator expects to report full-year underlying EBITDA of at least £200m.
The Gambling Commission (UKGC) has hit Kindred Group with a £7.1m fine for social responsibility and anti-money laundering failures.
The operator’s 32Red brand will pay £4.2m of the overall penalty, while its Unibet brand will pay the remaining £2.9m.
Both have also received an official warning following a UKGC investigation, which uncovered breaches at 32Red between June 2020 and March 2021 and at Unibet between July 2021 and October 2022.
The regulator ruled that controls at 32Red were not effective and failed to identify and protect problem gamblers, suggesting that gambling session times – among other factors – should have prompted earlier identification of at-risk customers.
For example, social responsibility failings saw one customer allowed to deposit £43,000 and lose £36,000 within the space of seven days.
According to the Commission, customer interactions logged by 32Red were “superficial” and lacked depth after settling for customer assurances that their gambling was affordable.
Unibet meanwhile – trading as Platinum Gaming – was adjudged to have failed to implement effective policies designed to identify separate accounts held by the same individual.
This meant that customers that had previously excluded from 32Red were able to sign up and create an account with Unibet instead.
Gambling Commission executive director Kay Roberts said: “These failures highlight clearly that both operators failed to interact with customers in a way which minimises the risk of them experiencing harms associated with gambling.”
With regards to AML, the Commission said 32Red failed to properly implement measures as described by the Money Laundering, Terrorist Financing and Transfer of Funds regulations.
Reviews of customer accounts identified that the financial triggers for AML reviews at 32Red were set too high and would not have been able to effectively manage risk.
“Inappropriate controls allowed significant levels of gambling to take place within a short space of time without the operator knowing anything about customers’ financial situations,” ruled the UKGC.
The investigation discovered that customers subject to Source of Funds (SOF) requests were, in most cases, not restricted from depositing and gambling during the two-week period allowed by 32Red to respond to the request.
In the case of 32Red, there was an “over reliance” on confidence that funds flowing through FCA-regulated firms either mitigated or removed risks associated with proceeds of crime.
One 32Red account was not deposit blocked after an information request deadline had expired. This allowed the customer to then gamble £16,280 in total, losing £8,321 for a further two weeks until the account was eventually blocked by the operator.
Unibet’s procedures and controls in relation to AML were also deemed inappropriate, as they were not kept under review and revised appropriately.
Gambling Commission executive director Kay Roberts said: “These failures highlight clearly that both operators failed to interact with customers in a way which minimises the risk of them experiencing harms associated with gambling.
“Our investigations also showed that policies and procedures were overlooked, both around customer accounts and anti-money laundering practices.
“Ultimately, it is an example which all gambling operators should take notice of to ensure they protect their customers at all times,” she added.
Kindred Group CEO Henrik Tjärnström: “While we accept the outcome, and the acknowledgment that we have already taken significant steps to strengthen our processes, we also recognise that we need to work even harder to ensure a safe and compliant business.”
The UKGC said Kindred co-operated throughout the investigation and took corrective steps to address the identified failings.
In a statement, Kindred accepted that certain systems and processes that were in place in 2020 and early 2021 were not in line with the UKGC’s expectations around affordability.
It also suggested the breaches outlined above would be unlikely to happen today after increasing headcount across its UK compliance and risk management teams.
“While we accept the outcome, and the acknowledgment that we have already taken significant steps to strengthen our processes, we also recognise that we need to work even harder to ensure a safe and compliant business,” said Kindred Group CEO Henrik Tjärnström.
“We appreciate the Commission’s clear recognition that our operations are in an improving position and that we remain fit to hold an operating licence.
“Our commitment to reducing gambling harm across our platforms is a key part of our Journey towards Zero ambition – and we are redoubling our efforts to ensure we continue that progress,” he added.
Kindred said it had reduced the revenue derived from high-risk players in the UK by 57% between Q1 2020 and Q4 2022.
The operator first revealed it had set aside £7.1m for an imminent financial penalty during its Q4 2022 financial results.
Kindred Group’s Q4 2022 financial performance has fallen short of expectations. Management has pledged to take immediate action.
Kindred Group has reported a 25% rise in Q4 2022 revenue to £305.5m, primarily driven by the operator’s return to the Netherlands. Q4 underlying EBITDA climbed by 42% to £39.1m.
The Netherlands continued to perform strongly with daily average gross winnings revenue of £0.6m in Q4. It was the exception to the rule, however, as Kindred’s overall performance “fell significantly short of management expectations”.
This has led to immediate actions being taken to improve profitability. More on that below.
For full-year 2022, total revenue declined by 15% to £1.07bn as underlying EBITDA fell by 61% to £129.2m, down from £332.1m in 2021.
In Q4, active customer numbers climbed 25% to 1.83 million thanks to marketing investments both before and during the World Cup. This marked Kindred’s second highest quarterly customer base ever.
During an exclusive conversation with iGaming NEXT, CEO Henrik Tjärnström revealed it was rather a quarter of “what could have been” for Kindred Group.
The operator’s Q4 sports betting margin came in lower than expected at 8.9%. If it had been closer to the rolling 12-month average betting margin of 9.4%, Q4 revenue would have come in approximately £10m higher, according to Tjärnström.
Regulatory headwinds in both Norway and Belgium caused Q4 revenue declines of 12% and 15% respectively when Kindred had actually anticipated revenue growth. This again led to an estimated £12m reverse swing in revenues.
Finally, Q4 saw Kindred make the biggest pay-out in its history after handing £4.4m to Jim “Mattress Mack” McIngvale on his bet for the Houston Astros to win the World Series.
“If you take those three elements, it would have meant around £25m more in revenues which would have changed things completely,” said Tjärnström.
Kindred Group has set aside a provision of £7.1m for an imminent UK fine following a review into its Unibet and 32Red brands. That amount is based on continuing discussions with the UK Gambling Commission as the group awaits a final outcome from the regulator.
Elsewhere, Kindred has pledged to tackle the weaker than expected Q4 performance by taking immediate actions to improve profitability.
These includes reducing marketing investments in the US ahead of launching on its own platform in the States, having already withdrawn from Iowa.
Other measures include the “reprioritisation” of investment projects and the further optimisation of operating expenses.
“We’re really looking across the P&L and also the CapEx investments as we want to really make sure we are as optimised as we can be,” said Tjärnström.
When asked whether lay-offs were inevitable, the CEO said: “We’re trying to stop that problem before it arrives” and suggested a delay on new recruitment in the business.
Tjärnström discusses Kindred’s World Cup disappointment:
“It was known in advance the disruption of the sports schedule that would happen during the fourth quarter. But we expected the tournament to actually compensate for that, and also to overcompensate for the slower period both before and after the tournament.”
As it was a World Cup quarter, Kindred increased marketing investments to 26% of gross winnings revenue, which is thought to have added pressure to short-term profitability.
The reduced calendar resulted in around 25% fewer top football league fixtures compared to Q4 of last year. Kindred’s World Cup turnover was not strong enough to reduce that impact.
Today’s award goes to Morgan Stanley analyst Ed Young. Zooming in on Belgium, Young asked why Kindred had reported a revenue dip of 15% when Entain had reported double-digit growth and a large private competitor had also reported a “much milder” impact.
Tjärnström said Kindred had suffered from being a clear market leader in Belgium after the new deposit limits had spread customers across more operators. “In that sense, we’re probably a little bit more impacted than smaller operators in the market,” he added.
Current trading and outlook
In a new trading update Kindred said average daily gross winnings revenue for the group up to 5 February 2023 was £3.7m, a 36% uptick on the whole of Q1 last year. That rise drops to 9% when excluding for the Netherlands.
Gross winnings revenue from sports betting has also been positively impacted by a stronger sports betting margin of 12.2% after free bets over the same period, compared to 10.2% for the whole of Q1 2022.
The Stockholm-listed operator’s share price ticked 6% higher at one point in early trading. Many of the headwinds were previously communicated in a trading warning on 13 January 2023.
Underlying EBITDA for full-year 2023 is estimated to reach at least £200m, assuming a long-term average sports betting margin.