Kindred Group plc plc Kindred Group Annual Report and Accounts 2018 The Kindred Brain: The insight to put players first. Kindred Group plc Annual Report and Accounts 2018 Utilising data: The Kindred Brain The core of our operations is our unique insight and data we collect and analyse. We call this insight the Kindred Brain, and it informs everything we do. Contents Strategic report Governance Financial statements 1 Highlights 33 Introduction to governance 53 Independent auditors’ report 2 At a glance 34 Board of Directors 59 Consolidated income statement 4 Chief Executive Officer’s review 36 Executive Committee 59 Consolidated statement 6 Revenue model 38 Corporate governance statement of comprehensive income 8 Business model 41 Audit Committee report 60 Consolidated balance sheet 10 Analysing data to fuel the Kindred Brain 42 Nomination Committee Report 61 Consolidated statement of changes 12 Exploring markets and licences 43 General legal environment in equity 14 A uniquely focused brand portfolio 46 Shares and share capital 62 Consolidated cash flow statement 16 Creating a strong and scalable model 49 Remuneration Committee report 63 Notes to the consolidated 18 Key performance indicators 51 Directors’ report financial statements 20 Sustainability 26 Risk management Other information 28 Principal risks and uncertainties 88 Annual General Meeting 30 Financial review IBC Definitions This document is the English original. In the event of any discrepancy between the original English document and the Swedish translation, the English original shall prevail. Highlights report Strategic Kindred is one of the largest online gambling operators in the European market with over 24 million registered customers worldwide. Governance Strategic highlights > Kindred Group signed an agreement GBP with Svensk Elitfotboll to become thenew main sponsor of Swedish Allsvenskan and Superettan, via the Unibet brand. The partnership, with atotal duration of up to 12 years, will begin on 1 January 2020 and is worth Gross winnings revenue +21% statements Financial up to SEK 1.8 billion. > In 2018, Kindred undertook 21 audit certifications across all its licensed GBP activities, as required by the terms ofitslicences, with no failures in compliance noted. > MSCI again rated Kindred Group with itshighest ESG rating “AAA”. > Licensed in Sweden in accordance Betting duties +40% withthe new Gambling Act, effective from 1 January 2019. information Other GBP > Applied for a licence in New Jersey in the USA Operational highlights > Strong levels of activity and all-time high in active customers resulted in all-time high for Gross winnings revenue. Marketing investments in media and sports +28% > Betting duties increased by 40 per cent with an EBITDA margin of 22 per cent, which shows the Group’s ability to GBP absorb betting duties through its focus on scalability and cost control. EBITDA* +12% GBP Earnings per share +12% GBP Free cash flow per share -11% * Refer to Note 29 on pages 86 and 87 for the reconciliation of the Group’s alternative performance measures to the most directly comparable measures reported in accordance with IFRS. Kindred Group plc Annual Report and Accounts 2018 1 Strategic report At a glance The Kindred Group offers Sports betting (including horse racing betting), Casino & Games, Bingo and Poker through our distinctive brands. Our products Our markets by region Gross winnings revenue from mobile (%) (%) (GBPm) 3 4 1 4 1 3 662.7 2018 662.7 2017 537.5 2016 351.5 2015 179.0 2014 109.5 2 2 1 Sports betting 48% 1 Western Europe 57% Yearly active customers (Millions) 2 Casino & Games 48% 2 Nordics 34% 3 Poker 2% 3 CES 7% 3.1 4 Bingo and other games 2% 4 Other 2% 2018 3.1 2017 2.9 2016 2.3 2015 1.3 Kindred’s share of the European online market CAGR 2011-2018 2014 1.2 (%) EURbn Online 12.2% Kindred 25.6% Market share % 55 50 5.16% Today Kindred Group is one of the world’s 45 leading online gambling operators with business across Europe and Australia, 40 and now also USA, offering over 24 million 35 customers across 11 brands a great form of 30 entertainment in a safe, fair and sustainable environment. Kindred Group, which employs 25 1,465 people, is listed on Nasdaq Stockholm 20 2.31% Large Cap and is a founding member of the 15 European Gaming and Betting Association (EGBA) and ESSA (Sports Betting Integrity). 10 Kindred Group is audited and certifi ed by 5 eCOGRA for compliance with the 2014 EU Recommendation on Consumer Protection 0 and Responsible Gambling (2014/478/EU). 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18e 19e 20e Source: H2 Gambling Capital December 2018 2 Strategic report Strategic A scalable business model with applicable local laws. In 2018, 43 create long-term value and continued The industry landscape in Kindred’s main per cent of our Gross winnings revenue is healthy growth. markets has undergone rapid change since derived from locally-regulated markets and 2010, largely as a result of emerging local this number is growing. A sustainable business can only exist if regulation in many countries. Superfi cially, there is sustainable consumption based this looks like a negative development A sustainable business model upon the channelling of digital consumer for the industry, since regulation typically Our business model is based on expanding demand to the regulated framework. introduces both new taxes and additional our business by taking market share from To enable this channelling, operators must cost and challenges in complying with the competition and thereby growing be able to provide their customers with a Governance complex national regulation. our number of active customers. We do value adding offer, including premium user this by being data driven and by knowing experience and fi nancial value. If taxes Over this period however, when managed what drives the customer experience and are too high and consumer experience not right, Kindred’s track record demonstrates what improves our business. We want to aligned to digital market reality, channelling that the opportunity presented by local retain our customers over a long period of will be undermined and consumer policy regulation is such that the opportunity time and build sustainable relationships objectives unachieved. outweighs the costs. Kindred Group with them. This means that our average operates in locally-regulated markets revenue per user (ARPU) is relatively stable Read more on pages 20 to 25 through its licences in Australia, Belgium, over time, while we continue to grow Denmark, Estonia, France, Germany the number of active users. We believe (Schleswig-Holstein), Ireland, Italy, Romania, that this is sustainable and responsible statements Financial Sweden and the UK, and also operates in growth. Our business strategy supports our other markets internationally through its objective of long-term growth through a gambling licences in Malta and Gibraltar. focus on winning and keeping the customer, All licenced activity is monitored through having a digital DNA and operating a local gambling authorities. Kindred pays sustainable business. Only by performing 22% betting duties in all markets in accordance strongly in all areas will we be able to EBITDA margin A scalable business model Betting duties and underlying EBITDA Betting duties % of GWR (trailing 12m) Underlying EBITDA margin % (trailing 12m) information Other 30% 25% 20% 1,465 15% Number of employees 10% at year end 5% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 2016 2017 2018 GBP Sustainable growth Active customers and Group ARPU Active customers (000s) Group ARPU (GBP) 662.7m Gross winnings revenue from mobile 1,600 1,400 1,200 1,000 800 600 +18%* 400 Active customers 200 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 2016 2017 2018 *based on Q4 2018 vs. Q4 2017. Kindred Group plc Annual Report and Accounts 2018 3 Strategic report CEO’s review We will continue to transform +21% gambling by investing in new Increase in GWR technology, exciting products +12% and, above all else, our people. Increase in EBITDA We set ourselves ambitious targets to secure leadership in our industry, not just in financial results, but also in how we look after our customers. Henrik Tjärnström CEO 4 Strategic report Strategic licence by the Swedish Gambling Authority, very fortunate to have such a passionate Sustainable growth following an extensive application process. advocate and leader in our key location. Although Sweden has not been Kindred’s 2018 was another year of strong largest market for many years, it remains Building For Our Future development in Kindred’s fi nancial important to us, as well as being a key part While the business has continued to develop performance, as a result of continuing of our heritage. well, we are never complacent. During 2018 organic growth and a full-year we have undertaken a thorough review of contribution from 32Red. As I said when the news of our licence our management organisation. Through our was announced, “We have been pushing rapid organic growth and the acquisitions In line with Kindred’s strategy to deliver for a modern and sustainable gambling of Stan James Online, iGame Group and sustainable growth, this performance market with high channelisation and 32Red, our business has grown both in scale was driven by continued gains in market consumer protection in Sweden from the and complexity. The number of employees Governance share that were refl ected in a 9 per cent very start of Unibet in 1997, in which the has more than doubled since May 2014, increase in yearly active customers.