Edited Transcript of KIND SDB.ST earnings conference call or presentation 24-Apr-20 7:00am GMT

And then, of course, what we’ve seen also in society, both as retail outlets, but also land-based casinos have been shut. It’s, of course, a conversion from off-line to online. And that’s a long-term trend that we’ll come back to later as well that we have built our strategy on, and that’s kind of being spread up now in the COVID situation. What’s also worth mentioning, though, and we hear some discussions in society from stakeholders that the COVID crisis has led to increased problem gambling. We do not see anything of that in our numbers. On the contrary, number of flagged players for us have actually declined since the COVID outbreak. So for us, that’s not the case.

If we look at the overall industry, and if we look at the kind of overall impact and as you would see as well from the newswires, GDP is expected to come down quite a lot, at least for the short-term as a consequence of societies being more or less shut up now for quite a few weeks. And of course, that also have an impact on our GDP per capita, which is normally a very good correlator to our entertainment budget of the citizens and how much they can spend on gambling. But as we saw in connection with the financial crisis back in 2007 and ’08, it can actually be that with customers are rather staying at home like they’re indeed doing more today, it can be that they’re rather spending more of their entertainment budget then on online and on our services and entertainment, and that is also what the new trend going forward after this starts to resume to normality could well be the case, and we’ll come back to that later on as well.

And so actually also the market concentration will increase most likely from this because in more challenging conditions the smaller operators will struggle more than the larger ones, and that indirectly leads to a concentration towards the larger operators like Kindred.

And just to mention a few facts regarding the responsible gambling and what we see out of the COVID-19 situation. What we see, as I mentioned, the overall gambling during the period since 16th of March is actually down. And also what we see in number of detected players on our Player Safety Early Detection System, or PS EDS, that we talk about and got numerous awards for as a market-leading player safety tool between March and April was down 35%, and that gives a very fact-based number on that situation.

Also during the first quarter, 76% of our customers adopted a healthier gambling behavior after detection on our PS EDS system, which is very encouraging to make sure that the customers enjoy our services in a safe, secure manner.

And also from the 1st of January to the 23rd of April, as of yesterday, year-to-date, we have sent over 7,000 on-site messages and throughout the full year last year we gave 14,500 messages. So close to half the number already now after a little bit more than a quarter, which just, again, shows that we are really at the forefront of the RG work.

And also, we have actively contacted almost 3,000 players already this year. And for the full year last year, we contacted around 8,500 players. So again, really a testament to the hard work that the RG team is doing for us at Kindred.

And just to mention, for those of you who are not familiar with it, we offer quite a few RG tools on our platform available for the customers to choose as they want, and those are some of those tools that those 76% of players have been using. And some of them, as you can read here on the slide, self-assessment test, reality check, deposit limits, wager limits, also loss limits, session limits, product lock and self-exclusion. And those are really important tools to — for the customers to enjoy the gambling in a safe and secure manner.

What we have seen in times of turbulence, like I mentioned, the financial crisis in 2007 and ’08 and the business model that we operate and the platform that we benefit from with our pure digital multi strategy creates stability in those more turbulent times, also like the COVID-19 pandemic. And the benefit and the flexibility that we have in this strategy makes us more resilient. And as I mentioned, the multiproduct aspect that we have a lot of products for the customers to enjoy not only Sports and Casino, but also Poker and Bingo and the other products, but also subproducts within the different main pillars, is also making it possible for us to offer a really good entertainment experience for our customers.

Also the multi-brand approach that we have at Kindred is standing us good in these situations. When we have not only the Unibet brand, but we also have strong brands like Maria Casino, also 32Red and the iGame brands that we acquired through that acquisition back in ’15 is also helping us really well in the current situation to compensate for the temporary closure of certain sports.

And of course, also that we have a very well diversified geographical portfolio, again, come on to that later and that sounds us also really well — serves us well in these situations when we are not reliant on one market, but we are more a truly global organization. And also if the pandemic is now spreading from kind of East to West, then the logical thing that when the market resumes kind of from East to West as well, we stand to benefit from that as we have exposure both in the Asian time zone in Australia and Europe and now also in the U.S.

But of course, additionally to that, as I said, rather to both make sure that the customer can use more experiences in the product portfolio, we’re also working very actively. And indeed, as we initiated already immediately after the Q2 closure last year, so very early from Q3 onwards, as we’ve communicated already in previous quarters, when we stepped up the work to really make sure that the business is fit-for-purpose for future challenges. And some of the elements that we have worked on there is, of course, starting to come to fruition already in Q3 and Q4, but now also into Q1. And some of the costs that we have or quite a big part of the cost base is, of course, variable and some of those costs is also now coming down as a consequence of the closure of sports events. And also marketing expenditure has been adjusted, and we have also more prudent approach to investments that we were looking at. And of course, as I mentioned, those things we’re benefiting now from that was initiated already in Q3 last year.

But when we’re talking about sports being all but gone, there’s still a very strong offering of what is available on our sites. And what we see that the customers is currently enjoying a lot within the sports segment is still e-sports, where we have a strong offering. Also on the virtual sports is appreciated by the customers, but especially also in racing, where we offer our own market-leading Kindred racing platform, where we see that horse racing is relatively little impacted in the current circumstances. And more or less normality in Australia, Japan, Hong Kong, Sweden, Denmark, Norway and also in the U.S., and that’s a good complement to the customers as well as there is almost always a race on the platform. So there is definitely a sports offering, but of course, the more traditional big sports and soccer and those big leagues are not available. And that means that the overall impact is, of course, quite large on the sports vertical. But again, indeed, as I just mentioned, is partly offset or offset to quite a large extent by the other products in the portfolio.

But also the sports, the current situation is an anomaly, and it’s always expected that this will be for a more of a temporary situation. And the return of sports, and we’re given here a few snippets from media on what the sports leagues themselves and clubs and other stakeholders are communicating around the return of sports. And as you can see on this slide, it’s quite likely that already during the summer and could be as early as now early May that some of the major football leagues will be returning here in Europe. Bundesliga has talked about perhaps already as early as the 9th of May. Then we have the La Liga coming later on in May. And then the Premier League has talked about from the middle of June. Also here in Sweden, there is talks about starting up the original season that was scheduled now in April to be starting in sort of June time as well. And also that the Champions League and Europa League and other big feature events could also return to be finalized during the summer. And of course, there is a lot of vested interest from both sports clubs, rights holders and media and everyone, fans and other stakeholders overall to ensure that the current seasons are finished and then also, of course, that the new ones — new seasons is indeed starting as scheduled or at least as close as scheduled in the autumn onwards. So for us, we believe that this is more of a temporary thing, and it could also be that it’s more or less a question about publicizing when the events is actually starting or taking place. So that’s what we are relaying from what outside media is saying about the situation.

So that rounds off the first part when we talk about the COVID impact. If you look back again, what we started to talk about or reiterated in time with the Q4 report about the long-term strategy, we remain very much focused still on the long-term journey that we embarked on, especially from 2011 when we saw the reregulation trend develop across Europe. And the main market drivers that existed pre-that as well was sort of the migration from off-line to online, which has really been what the company has built on from the foundation onwards, and that’s really the strong trend that indeed is continuing. And as I mentioned, the COVID-19 situation could for well increase that speed of transformation from off-line to online. But then also, as I mentioned, from 2010 onwards, really from dotcom to dot-country really focusing on sustainable growth in reregulated markets and competing fair and square with all participants in that environment, is really what we have focused on for the last 10 years, and we’re very much committed to continue that journey.

And to further on that, as we highlighted already in the time of the Q4 presentation, this is a slide that we showed then, where you see that the underlying land-based or the retail is off-line, is really quite stable, not growing much over time but rather fluctuating a little bit. But then the more the pink segment on top is where we are, and that’s also the segment that has really been growing over the last 10, 20 years. And that’s where we also see that the growth is continuing. And as you can see here, the expected growth from ’19 to ’24 is expected to be around 7% for the online segment and around 0.6% only or more or less flat then for the off-line segment according to H2 Gambling Capital, the go-to-expert of data in the industry.

But now they’ve given updated numbers after the COVID-19 situation, and this is what they’re expecting the impact to be. More or less that the overall numbers would remain the same, but there’s an even bigger shift in a sense from the off-line to online, where we can see now that off-line is actually coming down expected now between ’19 and ’20, 2020. And on the contrary, online is increasing and now also taking a bigger share of the overall portfolio. So again, they’re also estimating that the COVID-19 situation is leading to an increase of speed in the transformation from off-line to online.

This is also what we mentioned at the Q4 presentation, and just trying to describe and put it into context what the process of a reregulation really means and what it brings, both for us and the industry. And as you can see here on top as well, now we have 60% of our gross winnings revenue coming from reregulated market and that is a trend that is growing, and it will continue to grow in the coming quarters and years. And we highlighted also at the time the Swedish market that was going through the phases during 2019, starting off in 1st January on the introduction phase. And of course, prior to the introduction phase, you have also the development phase of the reregulation system overall. And then when it comes to implementation like Sweden did on 1st January last year and then gradually during the year, moving from introduction phase to market positioning phase and then more into a sustainable growth phase. And that’s indeed what the Swedish market has been through a transition. And if we look at the next market we have in front of us, the Dutch market, it’s now getting closer and closer to the introduction phase, which is now anticipated still to be on the first — from Q1 2021. So from Q1 next year that they will enter into the introduction phase, and that market will then also go through the ones.

For us, we also, of course, have the U.S. states where we are present now in New Jersey and Pennsylvania. And those ones have gone through the kind of introductions and more into the market positioning phase right now, being still early days for us there, but then they will also enter into a sustainable growth phase. So of the 14 licenses that we operate, this is a typical pattern that we see being repeated time and time again and is perfectly normal for us as an organization.

And looking a little bit further into the Swedish situation and giving you an update on the graph that we have been able to use from Martin Arnell at DNB Markets, and we find it’s a very, very good way of describing the overall situation, and it also shows what we anticipate would happen that from the time of the opening of the Swedish market. There was sort of the larger operators, and there was a lot of challenger brands. But gradually, over time, as the entry barriers are lifted quite substantially in the market, it stands to the benefit of the larger operators and the smaller operators will have a more difficult time and gradually their market share would kind of flow into the larger operators like Kindred. And that’s exactly the pattern that we’ve seen, and you can see on this graph, and it’s based on public information data from the tax authorities in Sweden. And you can see here also that Kindred — that we are having a Sportsbook present. We have a little bit more fluctuation between the month, which is completely expected. But the long-term trend for us is increasing, and we are one of the absolute market leaders in the market.

We also work very actively, as I’ve already mentioned, to optimize the cost base to the new reality of reregulated markets. This is again something that we have really worked hard on since 2011 onwards, I could say, and now it’s being further intensified on the back of the Swedish reregulation last year and also, of course, in preparations for the Dutch opening that we anticipate next year. And this is the reality.

So if we look here on the slide, on the left-hand side, you have the overall cost base for us above EBITDA for the full year 2019 of GBP 785 million. And then on the other columns here, you can see the different cost items, cost categories, I should say, in the P&L and how much of that total base they constitute. So the largest part being cost of sales of about 51%. And that is, of course, mostly variable. And here at the bottom, you can also see some of the cost-saving initiatives that we have initiated now since Q3 last year and further intensified as we mentioned at the time of the trading update in January. So 51% of the overall cost base is variable. And as an example, now at times of the sports being reduced, then quite a few elements of that cost base is, of course, also reduced when it comes to commission to suppliers, but also, of course, betting duties, especially in kind of market like France where the betting duties is really high.

The other larger elements in the cost base is the marketing, and this is just the other marketing element. Within cost of sales, we also have the digital marketing elements being visible. So the other marketing of 27% is also a major element in the cost base, but it’s also one that we have more flexibility and opportunity to — albeit that is not linked to the revenue, we have a good, say, an impact on that cost base and really what — where we want to invest it. And then we have also employee cost and other OpEx, which is relatively smaller in the scheme of things of employee costs around 12% and other OpEx of around 10%. But those are also the initiatives that we’re making on these ones. Of course, when it comes to cost of sales, renegotiate contract, it goes without saying with the product suppliers. And also, if we can switch to cheaper suppliers, we will, of course, also do that where possible, but also review the brand portfolio like we indeed have done now in connection with the Q1 report, and we’ve decided to close 3 of the smaller brands that we have in the portfolio to make sure that we also have a more of an optimized setup for the coming quarters and years. But of course, when it comes to the supplier, we have a very good relationship with our major suppliers and we are living in symbiosis with them as well to make sure that we have a good relationship to make sure that we can create a really good win-win situation for both ourselves and for them as well, and what we want to offer is the best product to the customers in the end of the day.

When it comes to marketing, we, of course, as I mentioned, review the brand portfolio here as well and closure of 3 smaller brands. And then, of course, rebalancing the marketing mix as well between the different markets in our well-diversified geographical portfolio, and then also clearly focusing even more so now to make sure that we have a really good return on investment on the initiatives that we do.

When it comes to employee cost, as we mentioned, also in connection with the trading update in January, we have further intensified the work there to make sure that we have an optimized organization structure for — to meet the future challenges. And as you would have also seen from the report this morning, we took in the first quarter a restructuring cost of GBP 1.9 million associated with staff redundancies and we also have — of course, making sure that with the attrition that we have in the group and also the replacement of current roles that we work very actively with those elements so we can minimize the number of roles that we have to put at risk of redundancy. And as a consequence, here you can see at the bottom of this slide, the ambition we have as a group is to go from a combined headcount of FTE and consultants combined, which were around 1,850 in total at the end of March to move down towards 1,700 come the end of the year. Also, of course, other OpEx is having sort of an impact from reduced headcount, and we have a benefit to come from those. But in addition to those headcount-related other OpEx elements, we’re of course, also looking very closely to optimize that cost base and make sure that we can be as efficient as possible also in that area.

The U.S. that we talked about also in Q4, where we mentioned that the contribution we had for the fourth quarter, and we also elaborated on the plans going forward for the U.S. and the trading update that we sort of had at the time, but also what we’re expecting for the full year for this year 2020. And we’re proud to say that we have managed to exceed our expectations in the U.S. now in the first quarter, albeit that it’s early doors, and we still have the impacts of COVID, despite those things that we managed to also beat our expectations internally.

And just to recap, we remain very focused on our selective growth focus and to do that in a really good way. And it’s also very encouraging to report that the start of April or the second quarter has remained on the same path as we saw with the trading update at the time of the Q4 report. And now we can mention that for the first 19 days of April, the average daily gross winnings revenue were up 84% compared to the average daily revenues for the first full quarter of this year. So sequentially, we’re up 84%, which again is in line with our plan. It’s encouraging again for the long-term outlook of the market.

And we stand to benefit from the presence we have in New Jersey and Pennsylvania, where went live on both Casino and Sports. And now at times when sports is all that gone in the U.S., we have the benefit of having a casino element that the customers are enjoying, and we make sure that they have that experience readily at their fingertips. We also replicate the CRM strategy that we have for the European business, of course, making sure that the same effective marketing execution that we’ve developed over so many years is also deployed in the U.S. state, where we built the team of a combination of both U.S. local expertise and seconded in experienced staff from the European business as well. And the overall growth that we need to do in the U.S. on a headcount basis when it comes to presence, state by state, is part of the overall headcount for the group. So the 1,700 target for the end of the year includes also the U.S. expansion.

And the multistate agreement that we signed with Caesars has — is indeed in place still, and we’re, again, reiterating what we said at the time of the Q4 where next states that we’re planning to go live is Indiana and Iowa, where Indiana is expected sometime during August, September and then Iowa from Q1 next year or from 1st January next year or early January at least.

And to recap the numbers that we gave in the report this morning. On the right-hand side, you will see that during the first quarter we had GBP 2.6 million of revenues, GBP 2.7 million of cost of sales and then marketing of GBP 3 million and admin expenses up only marginally from GBP 1 million to GBP 1.1 million, leaving us with an EBITDA effect that improved then from minus GBP 6 million for the fourth quarter, in line with the plan, as we said, to GBP 4.2 million negative for the full first quarter for this year. And the guidance that we gave then that we’re expecting the full year negative contribution to be in line — in around the double negative what we saw for the fourth quarter remains now for the full year.

Financial results. So back to the normal part of the presentation in a sense. If we look into the numbers for the first quarter in more detail, very happy to announce that we’re really close to a new all-time high in gross winnings revenue, only GBP 400,000 behind. If we would have constant currency or indeed if corona or the COVID-19 effect would not have been there, it’s quite likely that we would have surpassed the last year’s numbers. But this is what it is now or from the 2018. So GBP 249.7 million, up 11% as reported or 14% up in constant currency. So really encouraging to see that we’ve returned to double-digit growth as a group.

Also, the reregulated share of revenues came in at GBP 150.8 million, 60% of the total gross winnings revenue. That’s down from 61% at the time of the Q4, which is perfectly normal that from quarter-to-quarter, there can be a slight shift, but the long-term trend is very much there and continues to be that the locally regulated markets is growing faster than the dotcom markets. That’s our absolute ambition.

Also, the underlying EBITDA, really encouraging developments there, up 37% compared to last year to GBP 42.5 million. And of course, that’s also partly as expected. We always communicated and said that at the time of the market going through reregulation like the Swedish one did in Q1 last year, the immediate margin pressure is at its biggest in the first quarter and then it gradually improves over time. And that’s also what we see here now exactly that, that we come up with, with underlying EBITDA from around GBP 30 million to GBP 42.5 million.

Also very strong development on the free cash flow. A few elements impacting that we can mention is that we have gone through a full cycle of renewing our office locations across the footprint and that came to an end in Q1 last year and also that we are — also some of the license fees that we took in connection with the U.S. market that also burdened in Q1 last year is helping us there, but we’re up GBP 38.9 million in free cash flow year-on-year. So very strong development in the free cash flow.

Active customers. We were trending really well at the time of the COVID outbreak in the middle of March. And on that time, we were about 3% above in 90-day actives on the 15th of March. But since then, as sports is also the largest activity element in the product portfolio, we’ve slipped behind — down 6% year-on-year to 1.5 million active customers now for the first quarter. Again, we would expect this to resume also at — in parallel with the lease resuming in sports.

So if we look at the revenues, and this is the stable trend that we reported over the years, and this year was no exception. And these are, of course, the full year comparatives. And as you can see here, Q4 ’18 is the most recent all time high, and now we have that still in our sights to make sure that we beat that in the coming quarters. But it’s a good start to the year.

Also, very encouraging to report that the growth has been very homogeneous across the different regions for us at Kindred. And as you can see here, an indication as well is that the pound has strengthened against our basket of currencies. As you can see, as reported, we have a strong growth but even stronger when we look at the growth in constant currency. So the Nordics in organic growth was up 13.3%, which again is very encouraging. Of course, part of that, Q1 last year was burdened by the initial phases of the Swedish opening is a fact there, but we also had strong developments in the Danish market now in the first quarter this year.

Western Europe as well, continuing to grow really well, up close to 10% year-on-year, which is also, again, very encouraging for us as a group. And CES continuing to grow even faster, which is also more logical considering that it starts from a relatively lower base, but up 24% year-on-year.

But also as we highlighted in the report this morning, as you would have seen from the table that we included already in the bullet points, we’ve also taken the opportunity now when we’re doing kind of a restructuring of the business, also mentioned with the cost that we took for personnel redundancies, and the restructuring cost of GBP 1.9 million. We also — as we have communicated during the first quarter, we had the warning and the sanction fee that we’re vigorously disputing with the Swedish Spelinspektionen and we were awarded a sanction fee of SEK 100 million, equivalent to GBP 8 million. We took a decision to take the full provision now in the first quarter. And then we have appealed the decision, and we’re expecting this to take some time before we get to conclusion. So again, as we highlighted at the time, nothing is paid until it reaches its conclusion, and that could take a good few years before we’re at that point. But nevertheless, from a P&L point of view, we’ve now taken the full provision to put that behind us and then fight it through the court.

And also we have elements below EBITDA. As we mentioned already, the rationalization of brands and nonrecurring, noncash amortization charge that we came off, GBP 6.9 million. We’ve also taken now a complete write-down or accelerated amortization of the Betchoice goodwill, creating a nonrecurring, also noncash charge of GBP 3.9 million. And then also worth highlighting is that for foreign exchange loss on the borrowings of GBP 3.5 million, of which GBP 3.1 million is unrealized as well. Those are the major elements that sort of items affecting comparability for the first quarter 2020, summing up on around GBP 24 million.

And now of course, some of those have impact on the EBITDA. And as you can see here, the EBITDA is still increasing about 10% year-on-year, which indeed is encouraging. But of course, we’re not pleased with that in a sense either. We have an ambition to return to the bigger numbers that we saw in the previous years, albeit now we have to remember that we are also now on 60% from locally regulated markets. So it’s a stronger underlying numbers indeed that we’re showing. But still, GBP 42.5 million is the underlying EBITDA that we had in the group, and that’s the one that really is sort of like-for-like.

When we look at the other cost analysis, it’s also very encouraging to see that the continued hard focus that we have on cost control is paying dividends. And we’re also restoring the trend here where we’re on the downward trend in cost as a percentage of the revenues or gross winnings revenues and the reported other costs post depreciation, amortization and FX now came in at GBP 17.5 million for the first quarter, which equates to 7% now of the revenues in the quarter. So again, the trend that we have been on and which we also elaborated on in previous quarters at times when we go to kind of investment phases, that number can have an upward trend, but long term, we have a very strong ambition to take this down as we’re indeed showing here.

Also, as I highlighted or mentioned, the P&L FX impact, the pound has strengthened against our basket of currencies, as you can see here, and the overall impact was a negative 2% for the first quarter year-on-year. And the different elements in the P&L you can see at the bottom here, and as you can see quite a substantial amount on top line. So as I mentioned, when we were just GBP 400,000 behind on the all-time high with the GBP 6.2 million, we’ve clearly been way above that one. But also further down on the bottom line effect, at GBP 7.3 million negative, it’s worth highlighting that, of that number, only GBP 1.1 million was realized. So again, this is just a normal pattern when we have a basket of currency that we operate in, and this is what we’re highlighting just to show the strong development of the underlying business.

On that point, on the business overview, if we look into detail on the active customers and the group ARPU, we’re very happy to see that the trend that we’ve been on, if we look back further even from 2011 to 2020 now, compounded annual growth rate in active customer is up 19% year-on-year over that period. And at the same time, the ARPU is up 3% for us as a group. So the overall growth is around 22%, but first and foremost, that we’re continuing to grow the business by increasing number of customers rather than the average revenue per customer, which we indeed believe is the sustainable way of growing the business.

And again, as we highlighted, if it wouldn’t have been for the COVID-19, we would have been well on track for also potential new all-time high in this category and especially being more on par, as I mentioned, at the time of the 15th of March when we were actually 3% above last year. And then last year included also the starting point of the Swedish reregulation which was boosted a lot by the bonus uptake with the customers. So strong underlying activity numbers for sure. And the ARPU, as you can see here, in comparison, is very flat compared to the active growth.

Also on Sportsbook margin, we mentioned in the report this morning that we had an above long-term average margin, which, again, is completely normal from time to time. It’s also worth mentioning that for certain quarters of last year we were trending below the long-term average. So again, as we’ve said time and time again, one needs to look at, at least over a 12-month cycle to get to a more stable number and here, we’re also showing the numbers from ’17 to ’20 now to just give a more fairer composition of the market mix that we have and then showing that the long-term average after free bets is more around the 8.5% mark. So we came in about 2% above that now for the first quarter. And again, perfectly normal that it fluctuates a little bit from quarter-to-quarter.

Again, we’re focusing very much here on optimizing the margin. It’s not about maximizing the margin. It’s the combination of turnover and margin that creates the gross winnings revenue that we generate within sports. And we strongly believe in having an optimized margin rather than maximized. So again, we would expect this to come down to more around the long-term average.

When we look at the product and geographic balance, the — as you can see here, also when we have slightly higher than the long-term average Sportsbook margin, that means that also sports as a percentage of the overall revenue is logically a bit higher. And indeed, it was that for the first quarter on around 49% of the revenues coming from sports. As a consequence, the Casino and Games element shrank from 48% to 45%. Poker has stand the benefit really strongly from the COVID-19 situation. And it’s now back almost to glory days in numbers, which, of course, is very encouraging also as we have a market-leading product also in that product area. And also Bingo and the other products holding up well on 3% as well. So a very good product mix overall for Kindred.

And on geography mix, encouraging to see that kind of long-term trends remain where we see that the other segment where we have Australia and the U.S. is remaining on growth from 2% to 3%. And also the Western European segment remaining on 61% being clearly the largest region for us, but it’s also logical where we have large countries with big populations in that segment. So it’s, again, completely normal that the Western Europe segment is the largest also for a foreseeable future.

Also strong developments in the CES region. Romania is doing really well especially there, but also strong development in the other markets in the region and now remains on 9%. And the Nordics also holding up on 27% overall. So fairly stable mix between or very stable mix between the quarters now from Q4 to Q1.

And just to highlight some of the things I mentioned, and I said a big thank you to all our colleagues at Kindred Group for the hard work they’re putting in. And just one sort of touch point on that is the number of releases that we do on our proprietary technology platform, which indeed is one of our key USPs as Kindred. And the continuous upgrades continues in a really high pace despite working from home policies that we implemented already on the 13th of March to take responsibility as an employer as well, both for our staff, but also for society as a whole to make sure that we can flatten the curve as much as possible to the benefit of other parts of society.

But back to the number of releases. In March, we released over 1,000 releases and the second best month on record for us. Over the full first quarter, we released over 2,600 releases on the platform, and that should be compared with what we did for the full year 2019 with over 9,300 releases in total. And this is a very strong trend that we have communicated previously in times of the Capital Market Days. And we’ve come from a really strong trend, and we’re continuing that now. So if we can remain on the trend now in the first quarter, as you can see, we will clearly be above 10,000 releases now for this year, and the trend has been very, very strong.

And what’s also reflective on that is the number of transactions we have on our market-leading proprietary technology platform. As you can see here, we’ve established a new base now with over 35 million transactions per day on average so far this year. And as you can see, especially on the graph here, it’s, of course, very sort of fluctuating quite a lot from day-to-day, which is, again, completely normal, but the long-term trend is really strong, and also in the last couple of months as well, where we’ve seen a lot of new all-time highs being beaten. As you can see on the top 10 list here on the right-hand side, quite a few of them, I would say, to say the least, is coming out during March in 2020. And where we have a new all-time high now on the 27th of March of very close to 49 million financial transactions on our proprietary technology platform. So again, a testament to the fantastic work that we do within Kindred to make sure that we have a market-leading technology and experience for our customers.

We talked in the Q4 about the summer of sports that we indeed expected then in February. Of course, as we’ve said already here today, a lot of that has been changing now as a consequence of the COVID-19 situation. But we just wanted to highlight it again in a sense that even though tournaments are suspended, they will return at some point, most of them at least. And as you would see on the Roland-Garros, they’re planning to be delaying from now in May to later on in the year. Also, as you would have seen, the Euro Championship in football is pushed now for a year into next year. And then it’s also had a spill-on effect on other competitions as well, like the women’s also football being pushed into next year and then also you have the Olympic Games being moved to next year as indeed also the Copa America. So that’s kind of creating space as well for the finalization of the normal league season of this year, which again, we believe is a strong signal that there could well be a return of the current season as it’s been indeed created space for that by the movement of those major events to next year. So for us, in a sense, it could well be that it’s more a question about when things happen rather than them being sort of gone in a sense, which we indeed believe is quite likely.

So just to sum up the presentation, the long-term journey that we’re on, and we’ve been on for many, many years is still very much on track, and we’re executing in line with that. The temporary impact that we see from the COVID-19 situation, we indeed believe will be temporary, but we remain very resilient also in these times. And as we said on the trading update, we’re trending in the region of around just over 10% below the same period last year, which indeed is quite strong considering that sports has taken quite a big impact so far. But again, we expect that to resume as well. And indeed, for that reason, we also have a very positive outlook for 2021, where we indeed will have a lot of the sporting events that was scheduled for this year will happen next year, and then we will also have a bigger base than we would have had this year. So again, it should be very, very good for us at Kindred. So really looking forward to normalization and for the strong year next year in sports.

That concludes the presentation. I invite back Erik for Q&A.

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Questions and Answers

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division – Research Analyst [1]

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Thank you very much, Henrik. I will start off with a couple of questions myself. First, if we look at the Sportsbook vertical, how much of the typical activity would you say remain in play? And also, if some of the major soccer leagues were to open up in late May, in the beginning of June, how much would that increase the current activity?

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Henrik Tjärnström, Kindred Group plc – CEO [2]

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Yes. What we saw early on in sort of the situation, if we call it from the 16th of March onwards, was that kind of the immediate effect was that the sports punters was kind of looking at what else is available. And of course, at that time, there were some relatively more obscure football leagues that still was present and, of course, there was a lot of interest in those events. But gradually, those were also suspended over time. So the kind of the slowing down was kind of gradual over time. But as I said here, also, we have alternative events that is available that some customers have choose to pick up on, but it’s fair to say that some of the customers that used to bet on the bigger leagues, they have kind of taken a break now in a sense and will most likely come back, as you say, in times of when the major leagues are resuming. So I would expect like it’s in society like for you and me in the sense that we’re sort of really looking forward to when things start to normalize. And then we would expect also that the activity would come back and potentially even stronger when it kind of returning.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division – Research Analyst [3]

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Fair enough. And if we look at the casino activity, obviously, it has seen an increase due to the COVID-19 outbreak, but how sustainable would you say that this is, if we look into Q2, Q3?

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Henrik Tjärnström, Kindred Group plc – CEO [4]

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We have — our customer base, as we said here, we have a multi-brand, but also multiproduct and multi-brand situation that we operate, and that’s really giving us a benefit in these times when we have — also for the Unibet brand, we have quite a good product mix within the customers there and the sort of combined players. So the Unibet product mix is not that different from the overall group in a sense. So of course, when those sports players are not finding a sports product, they will be spending some of their entertainment experience probably more on the Poker and Casino and some of the other products that we offer there and also whatever is left on sports in a sense as well. So I think it’s logical that there is demand for our services in society, of course, and when there is like normal pattern in the summer when there’s less sports available, we see also the same kind of pattern, but this is a bit more extreme when there’s virtually no sport in a sense available or very limited at least, then it’s an even bigger increase perhaps more towards the casino. And we expect that to normalize over time. But it could well be that also from a product mix that the pattern is slightly changed perhaps going forward that it’s kind of people who did never bother to go into other products have now found them in a sense and might enjoy them still after the normalization. So it’s too early to tell, but it could be an element of that.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division – Research Analyst [5]

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Got you. And just looking into Q2, I know it’s sort of hard to predict, but do you have any sort of — could you perhaps elaborate a bit on the net-net effect from virtually no Sportsbook activity, but an uptick in Casino, sort of like ballpark numbers? Would you say that the trading update in terms of the daily average revenue is a reasonable guess for like the remainder of the quarter? Or do you see anything in the cards that could change that?

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Henrik Tjärnström, Kindred Group plc – CEO [6]

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It’s, of course, impossible to tell and future will tell, of course, for us. But the — what we believe is quite likely, as we mentioned here, if we would have something like the Bundesliga or something coming only in a couple of weeks’ time, that would have a big impact. And we also know that kind of the Asian leagues like Japan League and stuff will be starting now also back end of April, early May as well. So we’re gradually expecting also, as I said, follow the sun in a sense from East to West, that it could be a normalization of more and more sports events coming on. And then gradually, when we get to kind of the Bundesliga, and hopefully then from early May and then La Liga and Premier League and stuff, then it will be sort of rolling back. So in the end of the quarter, I think we’ll hopefully and likely be looking at a different situation to what we’re doing now. But as I said, we’ve been quite stable now on the GBP 2.2 million per day on average since 16th of March until sort of the 19th of April. So it’s — that’s quite a long period and a stable trend. So I think that’s kind of what we hope and believe in.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division – Research Analyst [7]

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Got you. And just in terms of the Swedish market, could you perhaps elaborate a bit on your thoughts on the current channelization rates? And also sort of the impact from the — from further restrictions due to COVID-19?

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Henrik Tjärnström, Kindred Group plc – CEO [8]

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Yes. Now the trade association that we’re member of, the BOS, the Swedish trade association, they’ve commissioned a report from Copenhagen Economics and sort of early indications on numbers that we’ve sort of seen from that one is indicating that what Statskontoret in Sweden did as a public body when they indicated the casino channelization of around 75% is also what kind of Copenhagen Economics coming in on — perhaps even slightly lower than that as an indication. But also that channelization in sport is slightly higher but just over 80% rather than the 90% target overall that’s set by the government. So overall channelization, if those numbers are correct, and that report is due out in the next couple of days, then I would indicate an overall channelization below 80%, and that’s way below the 90% target that the government set originally and also even more worrying is that the trend is on a decline since the opening of the market last year. And again, I’m completely surprised with some of the statements and some of the conclusions that was drawn yesterday on what we see as a kind of a very poorly fact-based material and seemingly without any consequential analysis on what those proposals would mean for the market. So if the channelization is on the verge of struggling or struggling already now and on a really bad situation, it would implode with those kind of proposals. So we think it’s extremely unfortunate if the already regulated operators are suffering even more. It should be on the contrary that to create a really good system with high channelization, it needs to improve the terms and conditions for the regulated operators rather than the others. And in some ways, it’s hard to see the other thing than kind of trying to collect cheap points in a sense in the overall debate.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division – Research Analyst [9]

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Got you. And if we look at the U.S. — the U.S. expansion, could you perhaps elaborate a bit on the current split, sports versus casino? And also just an update, when you think you will be breakeven on EBITDA and also have — has your expansion plan changed there due to the current situation or is it still intact regarding the time frame for when you go live in Indiana and Iowa?

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Henrik Tjärnström, Kindred Group plc – CEO [10]

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So the product mix, as sports is, as I said, all but dead in the U.S., and that’s a reality that there is pretty much everything on sports in calendar in the U.S. is suspended for the time being for logical reasons. And then as a consequence, most of the revenue right now that we’re getting is, of course, then within casino elements. So again, it’s very good for us. And of course, we built our business in Europe a lot about acquiring through sports and then cross-selling casino on to those customers, and that’s what we’re doing in the U.S. as well, of course, successfully, as we can see here and offering the customer safe and secure experience in both products. So right now, it’s mostly on the casino. And on the expansion tempo, as we’ve said here, we are ahead of our expectations. So from that point of view, we’re not changing anything, and we’re still expecting Indiana, as I said, in August, September, which is exactly what we said in time of the Q4 report and Iowa for — from early next year. So that sort of momentum remains or the plan remains as it is.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division – Research Analyst [11]

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Got you. And if we just look at more like long term, obviously, you have the U.S. expansion, and then you also have a Dutch regulation coming up. Would you — do you still maintain the guidance for total marketing as a percentage of sales as a few percentage points below 30%? Do you think that’s still a very reasonable estimate?

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Henrik Tjärnström, Kindred Group plc – CEO [12]

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Yes. Now we came in on 26.2% now for the first quarter, which is, again, slightly below that, but it’s also the COVID-19. And the — as we mentioned here as well, when we have a lot of the marketing, as I mentioned also, when we’re acquiring through sports and then cross-selling onto those customers, of course, a lot of the marketing expenditure is focused on sports, and we operate very much with kind of no display, no pay in a sense analogy for kind of what we do within marketing. And of course, we also have been able to sort of win in on some of the marketing initiatives that we had planned, but we not need to do now and also, of course, a lot of the marketing was geared towards the euro championship happening this summer, and that’s been delayed, of course, until next year. So we have — we work very actively with the marketing portfolio and what we do in trying to, as I said, maximize the ROI that we’re getting. And now as long as this remains, it’s kind of like the current level is perhaps an indication. But for the full year, it’s probably going to be on the — sort of on the same guidance that we’ve given before, perhaps likely on the lower side of that one to make sure that we’re sort of optimizing also the bottom line in the company. But again, it depends a bit on when sports will resume and how we do that. And clearly, we firmly believe that we are one of the companies that stand to benefit the most or coming out strongest of this situation and being a temporary situation. So of course, we want to be able to maximize the opportunities available as well.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division – Research Analyst [13]

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But if we look into — I know that this is rather hard. But if we look into 2021 and 2022, do you see a risk for you exceeding 30% or do you still think that you will be able to maintain marketing below 30%?

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Henrik Tjärnström, Kindred Group plc – CEO [14]

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No, we’ve had a very conscious strategy for many, many years of trying to grow our already reregulated markets well ahead of the likes of Sweden and the Netherlands. So if you say, right now, when the Swedish market open, of course, to be fair, we had a higher ability to do marketing in Sweden than we have in the Netherlands, where we can’t do anything, so that is kind of more of a marketing expansion, but we still believe that we can reapportion or reallocate money within the good geographical mix that we have to help offset the Dutch situation. But any more concrete numbers depends on when it will happen and what the marketing — or the market mix is looking at that time. So we have to revert to that later on.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division – Research Analyst [15]

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Fair enough. And in terms of M&A, how is the current landscape looking? Do you still think that there are quality assets there? And are there any specific geographic regions you find extra interesting in terms of opportunities?

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Henrik Tjärnström, Kindred Group plc – CEO [16]

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Yes. We have been active participants in the consolidation of the industry, as you know, for many, many years. And as a consequence, also being one of the larger operators, especially one with a pure online focus, we, of course, get a lot of proposals coming our way. And, of course, we also actively look and we have a department within the organization who work solely on that. So that’s, of course, giving us a good opportunity to evaluate any opportunity very carefully. Of course, in the current situation, as I mentioned here, it’s also a fact that it’s not necessarily only consolidation, it’s more almost like concentration as well, like indeed in Sweden when we see that it’s a kind of implicit consolidation happening through concentration towards the larger operators. So we’re not ruling anything out, and we’re clearly looking actively at the opportunities coming our way and what we think is interesting as well. But we will have to wait until we have something more concrete to talk about.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division – Research Analyst [17]

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Got you. Let’s proceed and take some questions from the web.

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Operator [18]

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(Operator Instructions) And our first question comes from the line of Oscar Erixon at Carnegie.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division – Financial Analyst [19]

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A few questions from me. First of all, could you elaborate a little bit more on the sales mix here in early April? Paddy Power Betfair reported sports revenue down around 60% in March to April. Is this the sort — the right sort of magnitude for Kindred as well?

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Henrik Tjärnström, Kindred Group plc – CEO [20]

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Yes, every operator is a little bit different depending on the market mix that one operates. So — but as I said, for the Unibet brand and for sports overall, as I said here, on Erik’s question as well, the initial sort of trend was that we saw kind of a — it’s not completely off the cliff, but it’s been kind of a big decline, and we’ll also look at number of actives within sports, especially as sports have been — there were some sports remaining, and then those have also been suspended. So sports have been sort of actives on decline and as a consequence, also — the revenues as a consequence. But the — we still have a good offering in what is available when it comes to e-sports and also the virtual sports and the racing category, as I mentioned. So we’re still having an element of both turnover and also, of course, on the gross winnings revenue coming from sports. But it’s been on a decline. But as I said, it’s been offset by the growth in the other products to helping us remain on the GBP 2.2 million daily average revenue. So that’s, I think, the important number to look at here rather than looking at sports in isolation because it can’t be much kind of — we’re rather expecting it to improve from here than to kind of decline further in a sense.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division – Financial Analyst [21]

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Great. And my next question is on the U.S. Hypothetically, what type of growth would you expect in the U.S., assuming a regular sports events calendar? Would it be higher? Or is it — has it been offset by casino up until now? And also, if you could elaborate a bit on what the most popular product is in the U.S. in Casino table games slots, like Casino?

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Henrik Tjärnström, Kindred Group plc – CEO [22]

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So the product — sorry, the first question, can you repeat that just one?

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Oscar Erixon, Carnegie Investment Bank AB, Research Division – Financial Analyst [23]

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Sure. Just hypothetically, would growth have been higher assuming a regular sports events calendar or did casino grow strong to offset the lower sports revenue?

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Henrik Tjärnström, Kindred Group plc – CEO [24]

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Yes. No. So in the U.S., it’s exactly that, that casino has offset the sports that we have. But it’s also quite normal for us when we enter a new market, and the U.S. is no exception and when we enter both New Jersey and Pennsylvania, when we come in with our brand being relatively unknown in the scheme of things, the first kind of customers we attract is more kind of the wise guy element and the ones that kind of generates a lower margin. And then gradually, as we broaden the customer base, margin improves over time. And that’s exactly the pattern we’ve been on in the U.S. So even if it’s been sort of part of the revenues, of course, have been coming from sports and, as you remember from last year when we took that bet from Mattress Mac that was successful on the World Series as well, those are kind of indications that we’re already there, and we’re also having a significant sports element. But over time, when sports is resuming and we — also as we grow our brand in the U.S. market, we’re expecting sports to take a bigger, bigger part, and we don’t have any reason to — right now to suspect that we wouldn’t have much different mix kind of on product in the U.S. compared to what we have in Europe. But right now, it’s very much more on the casino element. As I said, sports is pretty much all suspended in the U.S. right now.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division – Financial Analyst [25]

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First one on cost of sales. How much leeway do you see in cost of sales. Given the strong online casino momentum in the market currently, are suppliers willing to renegotiate terms? And will this be a temporary or a more lasting effect do you think?

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Henrik Tjärnström, Kindred Group plc – CEO [26]

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Yes. We, of course, as I mentioned, with 51% of the sort of the cost basis within cost of sales, and a large part of that is, of course, linked to the revenues in one way or another then. So that’s clearly having an impact by default. But as you say, also within the Casino and the other products segment, where — which is actually growing quite well right now, then of course, that’s kind of living a little bit in sort of isolation from the other products. But we’re, of course, looking at — like the product team is always working on kind of optimizing the cost structure and the bang for the buck that we get with the suppliers and improving the relationship with our suppliers as well. So that’s a relentless work that we’re doing despite of the COVID crisis. But of course, now we’re having sort of more of the initial phases to look at the marketing side and then, of course, also on the cost of sales and really see what we can do there to further optimize the different cost items there to make sure that we get as much margin contribution as possible. And some of that work, of course, we — that’s an ongoing work that we always do. And as I said, we’ve further intensified now sort of from early this year and especially from middle of March when we saw more the full impact of the COVID situation.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division – Financial Analyst [27]

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Great. And on marketing now in Q2 given lower sports volumes, what — how should one think? Do you strive to keep it in at the same relation to sales in Q2 or do you — will you try to protect your margins and keep marketing very low in Q2?

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Henrik Tjärnström, Kindred Group plc – CEO [28]

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This is probably a little bit of both, I think. Fundamentally, of course, the margin is what we live up in the end of the day so that, that has a big impact in a sense. But we’re also, as we mentioned here, is about also what going to happen on the sports calendar and how is that going to look going forward, and we don’t want to suboptimize either in the sense that we’re missing out on opportunities when they come. We clearly want to find kind of an optimum balance there. But the — as I said here, we already — we focus a lot on the marketing from the COVID situations being more pronounced, and that’s where we’re still in right now so that, that work very much remains to really turn every stone and really make sure that we get the maximum bang for every buck that we invest in into the marketing and, of course, also focusing on perhaps even more on more measurable channels for the time being where resources is a little bit more scarce as well.

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Operator [29]

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And we have one final question in the queue. That’s from the line of Martin Arnell of DNB Markets.

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Martin Arnell, DNB Markets, Research Division – Analyst [30]

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Can you hear me?

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Henrik Tjärnström, Kindred Group plc – CEO [31]

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Yes, we can hear you.

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Martin Arnell, DNB Markets, Research Division – Analyst [32]

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My question is, firstly, on the Swedish restrictions with this aim to protect the vulnerable consumers. What are you seeing in terms of your ARPU trends in the Casino?

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Henrik Tjärnström, Kindred Group plc – CEO [33]

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Yes. I mean, we — this is clearly a proposal that was talked about yesterday, will go out on kind of review now. And I think the date was, if I remember correctly, on the 7th of May, that it would be kind of coming in with comments. So it’s still not implemented, and we really hope and believe that the submissions that we will do and everyone else as well will be seriously considered and this being stopped in its track in the first place. So it’s a little bit difficult to elaborate on that front. But otherwise, we’ve seen, as expected, sort of a stable development, as you saw from your graph there that we’ve had a good development from month-on-month, especially from kind of last summer onwards. And of course, sport is providing sort of a bit of a fluctuation element on top of that, but we’ve had also good underlying casino activity. And further to the proposal of yesterday, I mentioned it on DI TV this morning as well, it’s just one way of looking at it is in a sense even if it would be a SEK 5,000 per week per account, on the Spelinspektionen home page, one can find all the approximately 150 casino sites that is available in the Swedish market. So any customer, even if this proposal is implemented, can still gamble away up to SEK 550,000 a week if they register on each and every one of those sites. It just again proves how inefficient this kind of proposal would be. So let’s give something on it.

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Martin Arnell, DNB Markets, Research Division – Analyst [34]

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Any thoughts on why the Minister still sort of wants to move forward with this if it clearly doesn’t make sense and boost unregulated market?

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Henrik Tjärnström, Kindred Group plc – CEO [35]

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I think that’s a question for him to answer. It’s — we can’t see the logic really in it, and it seems to be without any fundamental facts. There was no facts really presented yesterday on why this would be the case. It’s based on indications and hunches. And as I said, also seemingly without any sort of consequential analysis on the detrimental effect it would have on the channelization in the system. It would also skew competition in the market towards those operators who operate more on 1 license per brand, and that’s a behavior that we know that Spelinspektionen is not wanting to see. So again, it would not match that ambition either from the regulator. So again, it’s a question for the Minister in charge.

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Martin Arnell, DNB Markets, Research Division – Analyst [36]

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Okay. And just on the cost — the restructuring costs of GBP 2 million in the quarter, how much savings would you expect from that and the timing for that?

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Henrik Tjärnström, Kindred Group plc – CEO [37]

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On the marketing cost savings?

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Martin Arnell, DNB Markets, Research Division – Analyst [38]

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The personnel restructuring in the quarter. You took GBP 2 million charge for that.

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Henrik Tjärnström, Kindred Group plc – CEO [39]

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GBP 1.9 million, yes, exactly. So that’s what we’ve taken now in the first quarter, and that’s kind of for what we’re expecting then to take us through sort of this restructuring that we’re doing. As we mentioned also, we’re focusing very much on the making sure that when it comes to not replacing redundancies — not replacing vacancies, I’d say, and also working very actively with the attrition in the company to make sure that we also manage this process really well going forward without — with sort of the least impact possible on existing staff in the organization. But nevertheless, this is what we have done in the first quarter to make sure that we are more optimized for the future challenges of the company. So that’s the GBP 1.9 million that we took. And as I said, the ambition is to overall headcount to move from around 1,850 in our end of March down towards 1,700 come the end of the year.

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Martin Arnell, DNB Markets, Research Division – Analyst [40]

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Okay. And those year-over-year savings, do you expect that to be seen in the second quarter already?

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Henrik Tjärnström, Kindred Group plc – CEO [41]

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Some of it will come already now in a sense. We also — some of the initiatives that we took already, as you know, in Q3 last year when we sort of put a break on increases started to deliver sort of effect already in Q3, but especially into Q4 and now into Q1. And similarly, with this one, it’s more for the longer-term effect rather than here and now in a sense as well. So it’s a bit of a lag in that system, as you know.

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Operator [42]

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And as there are no further questions at this time, I’ll hand back to our speakers for the closing comments.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division – Research Analyst [43]

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All right. Thank you very much, and that concludes the Q&A session. Thank you, Henrik.

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Henrik Tjärnström, Kindred Group plc – CEO [44]

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Thank you very much, Erik. Thank you very much, everyone, for participating. Thank you.