Tax realities bite Kindred in year of corporate adjustments

Stockholm-listed Kindred Group has reported that a group-wide increase on taxes and a significant jump in operating costs has weighed heavily on its Q4 and full-year performance.

Publishing its year end report for January – December 2019, Kindred revealed that due to the changes in betting duties across France, the financial impact to Kindred has been ‘greatly increased’.

Henrik Tjärnström, CEO of Kindred Group, commented on the results: “Some of the factors that impacted the fourth quarter of 2019 were the same as we reported in previous quarters, such as the Swedish regulation and increasing restrictions in the Dutch market. These and other headwinds are a normal part of our business that we address, adjust to and, over time, use as a competitive advantage.

“The initiatives we have taken in Sweden to return to growth has resulted in continued recovery from the low EBITDA in the first half of the year; however, compared to the fourth quarter of 2018 the EBITDA from Sweden was still down by GBP 6.6 million.”

“As we noted in our trading update on 13 January 2020, there were some temporary factors that reduced the profit for the fourth quarter. We had below average sports betting margins in many markets, including France. The French turnover-based gambling tax increased the negative effects of the low margins significantly, however the tax system in France changed on 1 January 2020 to a tax on revenues.”

During Q4, Kindred Group saw an increase in its net income taxes paid jump from £4.3m in Q4 2018 up to £13.8m in Q4 2019. Meanwhile, full year results saw net income taxes almost double, with the group paying £26.9m in 2019 compared to £15m in the previous year.

Gross winnings revenue and EBITDA have also continued to be negatively impacted by regulatory changes in Sweden and the Netherlands, although performance in Sweden is said to have ‘improved significantly compared to prior quarters’.

Gross revenues saw a drop during Q4 from £250.1m in Q4 2018 down to £236.2m in Q4 2019. However, this contrasts the full-year increase in revenues, with Kindred reporting figures of £912.8m, up from £907.6m in 2018.

Tjärnström added: “Subject to change during the remainder of the quarter, but as an initial indication, the daily average Gross winnings revenue for the period 1 January to 9 February 2020 in GBP was 5 per cent higher (10 per cent in constant currency) than for the same period last year. In the US, Gross winnings revenues grew by 90 per cent in January 2020 compared to December 2019.”

Operating costs also hindered full-year and Q4 results, up to £112.2m in Q4 compared to the £103m reported in 2018. Of these operating costs, £55.3m million were marketing costs, an increase on the £51.2m in 2018, and £24.9m were salaries, up from £22.6m.

During the full year 2019, operating costs were up from £378.1m in 2018 to £429.9m. Of these operating costs, £210.9m were marketing costs and £96.1m were salaries.

Kindred Group has continued to grow its market presence across the US, having expanded operations in both New Jersey and Pennsylvania via the Unibet brand. Gross winnings revenue across both states amounted to £1.7m for the quarter, whilst the negative impact on the underlying EBITDA was £6m (largely impacted by £5m of marketing investments).

Tjärnström concluded: “We also had the first full quarter of trading in the locally regulated US states of New Jersey and Pennsylvania. It was expected that the first months of trading in the US would be loss-making which is completely in line with Kindred’s experience of launches into other new markets.

“This is logical as revenues grow from zero in response to our marketing investments, which includes initial marketing production costs (USD 2 million) to go live that will be used longer term.

“I am confident that we will see continued improvements in 2020 as our business in the US grows and our revenues increase. The US is the market with the largest long-term growth potential as regulation gathers pace, with the US online sports betting market estimated to be $13.6bn by 2023 (by the independent research firm Eilers & Krejcik Gaming).”