Are you pleased with marginal/flat growth during such a tough year or is it not really enough for the company’s expectations?
We had higher expectations and that’s why we issued a trading update on 13 January when we saw the sportsbook margin was below the long-term average for us for Q4. There were some costs committed already in the quarter which had an impact on EBITDA, as well. With Swedish re-regulation and other developments, 2019 was more of a challenging year but we are used to seeing those challenges from time to time. We have taken action on all markets individually and we are seeing the effects of those actions.
In Sweden, for example, we are back on track, albeit on a slightly lower trajectory than we expected. But it could well be that it’s actually with a steeper incline than it would have been otherwise. So it’s the nature of our business that from time to time there is regulation and more pressure on margins. Over time, we’re convinced we will get back to the same level, it’s more a question of when.
As an initial reaction, the Kindred share price has gone up. Does this suggest the market sees these as a good set of results considering the current climate?
It’s not for us to speculate on the market reactions but, of course, the developments during 2019 have been quite dull from a market point of view. There comes a point where everyone is probably taking comfort from the recent tax numbers coming out of Sweden. We were able to show it is perfectly normal and it’s a normal development in any re-regulated market that margin pressure gradually fades away over time. Also in the US now, we can give more of a clear picture and we had more time to elaborate on our plan.
It’s a completely normal market launch for us and, over time, we are confident we can reap the benefits of that great opportunity and create really good shareholder value coming out of it. We work methodically and very ambitiously across the business. Coming into the year with strong activity levels, and with the European Football Championships in the summer – where a lot of our markets will be participating this year – it’s really good for us. It will be a great opportunity and I’m convinced it will be the biggest event for us ever.
Even bigger than the Fifa World Cup in 2018?
Yeah, for sure it will be, because now we have a higher base and most of our markets are participating. Even Finland is participating, which is quite unusual, so we are very optimistic.
Aside from France, which your trading update details had taxation increases, can you tell us more about why sports betting margins were weaker?
It’s a lot of favourites that won. When we presented our Q3 report, we had Champions League days where a lot of favourites won. That was when the period of lower margins started. So from the 22 October until 11 December, the margins were much below the long-term average.
That was mostly due to football leagues and Champions League football. League football is the biggest sport in our group, so it’s not only in France where we saw lower margins but we saw the same phenomenon across our key markets. Then we had a recovery at the end of the quarter but it was lower in the middle, which resulted overall in a lower average for Q4.
I suppose Liverpool hasn’t helped in that sense, winning almost every game this season?
It’s not really helped – me being a Chelsea fan it hasn’t helped either! But, joking aside, they’ve done phenomenally well and they are a complete machine. Those things tend to normalise over time as they will face some issues at some point and, logically, this will be a natural development.
Due to the taxation changes in France, are you expecting far healthier results from that particular market this year?
It will be more stable. We will not suffer from the same kind of anomalies we had in Q4 and in certain pockets during 2019. During a period of lower margins, when customers actually win, we don’t generate any revenue but still have to pay tax on turnover. When the customers win, they bet more and that increases tax without generating much revenue. So, for sure, that phenomenon will disappear. But, overall, the tax rate is still around 85% of revenue, so it’s still quite punitive.
What was behind the improvement in Sweden based on previous quarters; was it a case of the market settling down or was there anything specific Kindred did to generate these results?
We took a lot of actions throughout the year to improve when it comes to brand mix and the marketing mix. We also got access to paid and social during the year, which are big and important tools in the toolbox. We deployed our way of working across channels from the back-end of May onwards.
Smaller operators are probably struggling and giving up, as well, which leaves room for more flowback to larger operators like ourselves. Now we have a key sponsorship, which we just started to activate with positive feedback from the clubs involved, and we’re really looking forward to the football league restarting in Sweden for a local alternative and the biggest sport in the country.
Is the underlying EBITDA fall mainly because of US investment?
No, the lion’s share of it for Q4 is more due to the fall in gross winnings revenue and also the tax increase in both Sweden and France. The US is part of it as well but the lion’s share is betting duties and the lower margins.
How confident are you of achieving revenue and EBITDA growth for 2020?
We’re very confident on the revenue. We’ll be really disappointed if we don’t manage to beat 2019. We’re also expecting an improvement in profit with the Euros this year and with the issues we have addressed with Swedish re-regulation. Gradually, we are expecting a contribution throughout the year in the US, too. There are a lot of reasons for 2020 being a better year than 2019.
Do you have any precise estimates or targets for a busy summer which includes the Euros and Olympics?
Not really, the margins will be whatever they will be. But we’re expecting a fantastic intake and an opportunity to reactivate our dormant customer base throughout the summer. We’ll have to come back to that in connection with the Q2 report, when we have a clearer picture, which is usually when we’ll know how the whole tournament went.
