KNDGF - Kindred Group plc (KNDGF) Q3 2023 Earnings Call
2023-11-29 10:14:09 ET
Kindred Group plc. (KNDGF)
Q3 2023 Earnings Conference Call
November 29, 2023, 04.00 AM ET
Company Participants
Nils Andén - Interim CEO
Patrick Kortman - Interim CFO
Conference Call Participants
Oscar Rönnkvist - ABG Sundal Collier
Edward Young - Morgan Stanley
Martin Arnell - DNB Markets
Simon Davies - Deutsche Bank
Presentation
Nils Andén
Good morning everyone and welcome to Kindred's Q3 report. We are coming from Stockholm. My name is Nils Andén. I'm the interim CEO for Kindred. With me today I also have Patrick Kortman, our interim CFO, who will come up and run through some of the financials later on in the presentation. Today we will run through some of the business highlights and then an overview of Q3 performance. Patrick will run through some of the financials and I will come back and do an update on the strategic review and end with summary and a Q&A session at the end.
In terms of highlights for the quarter, as you might have seen, we are today doing an interim update on the strategic review. The strategic review is continuing according to plan, but we have decided to announce in particular three things. We are with immediate effect entering into an exit procedure for our North American business.
Secondly, we are initiating an extensive cost reduction program to allow for increased focus on profitable growth in our core markets. In light of the announcements of these internal restructurings and our North American exit, we are also initiating an indicative guidance for the fiscal year 2024 to reach an underlying EBITDA of £250 million. We are also reiterating our full year guidance for this year of at least £200 million, assuming a normalized sports betting margin in Q4.
On top of this, the company remains very confident that there are further optimizations we can do to our cost base in 2024, driving further recurring cash improvements for the company, and we will give updates when appropriate throughout next year. If we look at Q3 in isolation, we saw a solid customer activity with 7% growth year-on-year, and also very pleased to see that we saw an 11% growth in our casino segment. This was, however, offset by a temporary weak sports book and some continued regulatory impacts, as previously discussed both in the Q1 and Q2 report. We, however, remain very confident that some of these temporary impacts on the sports book will abate, and we expect our sports book to return strong growth in 2024, also given that 2024 is a very busy year in terms of sports activity, with both the Euros taking place and the Olympics.
We are also very pleased to announce that we have regained our market-leading position in Netherlands, now that the figures are official, and we see continued above-market growth in the U.K. This is extremely pleasing, given that these two markets are also our two largest markets in our footprint. Lastly, the share of locally regulated gross winnings revenue is now at an all-time high of 83%.
As mentioned, we saw a strong active customer base, but we had a quarter tempered by an impacted sports book performance. Revenue came in at £283.9 million, which was 4% growth in constant FX. If we exclude Belgium and Norway, as we have discussed where we've seen some regulatory impact, the underlying revenue increased with 7%. The underlying EBITDA came in at £42.6 million, which was 6% growth compared to last year. The underlying EBITDA margin was at 15%. Excluding North America, this would have been at 18%. Free cash flow was £24.5 million. This was impacted by a one-off payment in Ohio for exiting that state and working capital movements.
If we go into the business overview for Q3, as mentioned, we're very happy to see that the share of our locally regulated gross winnings was at a new all-time high of 83% in Q3 2023. We have over the last years continued to see a solid shift towards a more sustainable gross winnings revenue mix. And as previously, we see our locally regulated markets growing substantially faster than the rest of the markets in our footprint. We are also continuing our efforts to absorb the growing betting duties. But as we've seen in Q3, a temporary revenue shortfall puts pressure on our scalability, but we remain confident in the underlying EBITDA margin growing as we continue into 2024.
The solid active customer base is something that's very pleasing for us. And we've seen a growth of approximately 7%, meaning we had around 1.56 million active customers in Q3. We did see an impact on our ARPU that decreased by roughly 5% versus last year. This was impacted predominantly by the sports book, which in turn was impacted by the softer schedule and the margin in Q3.
If we look at the sports schedule impact, we saw actually a reduction of 16% of top league events during Q3 this year compared to last year. And the league starting later this year compared to last year as well, given the fact that it was pushed back due to the World Cup taking place at the end of Q4 last year. The solid growth across core markets was pretty much across the portfolio, but we saw some excellent numbers both in the U.K., Netherlands, Sweden and Denmark.
If we go into the product segment update, as mentioned, sports betting declined by 13%, which was negatively impacted by a subdued sports calendar, as I previously touched upon. We also saw lower stakes per customer, which is quite naturally given that the league started later. So this is the lower stake per customer for the whole quarter and a soft sports betting margin, which we will go into a little bit more in detail.
Also, we see the continued impact of some of the regulatory changes that was made in both Belgium and Norway through the latter part of last year. In the quarter, our proprietary racing product contributes 7% of the total sports betting gross winnings revenue. Very pleased to see the development in casino and games, where gross winnings revenue increased by 11%, where we have strong performance in some of our key markets, which more than have set some of the continued regulatory pressure. We are continuing to really focus on a strong and diverse casino offering. We released 18 exclusive slots and two new suppliers in the quarter. It's also very pleasing to see that poker is continuing to grow, and the poker and other product segments grew by 5%, which is driven by a very strong performance within our poker segment.
As mentioned, the sports betting margin came in below our long-term average. The quarter started off fairly well, but a range of unfavorable results in the latter half of Q3 had a dampening effect on the margin, which in the end came in at 9.4% after free bets, which compares to 9.9% during the same period last year. The weighted average long-term sports betting margin after free bets is 9.7%, but what we've seen over the last years is that this is increasing slowly but surely, driven predominantly by the increased popularity of our Betbuilder products, but also a changing marketing mix and continued optimization of trading that supports this upward trajectory of the margin.
It's worth mentioning that we have also continued to optimize our free bets that actually had a positive impact of around 300 basis points this quarter versus the long-term average. This means that if we look at the gross margin, the delta was actually 600 basis points difference compared to the long-term average.
If we look at our regional update, Western Europe increased by 12%, which was driven, of course, by a very strong development in the Netherlands and the U.K. We are continuing to see some regulatory impact in Belgium, following the affordability and safer gambling measures that we introduced in the latter part of 2022. But as mentioned, it's very pleasing to see that the Netherlands grew by 80% in low concurrency, and the U.K. is continuing to grow at an above market rate, which came in at 7% now for the quarter.
In the Nordics, we saw a decrease by 17%, which was adversely impacted by predominantly the changes we made to our offering for Norwegian customers last year. We've also seen some impact by the affordability measures implemented in Sweden and some weak sport betting activity. Sweden has a market contracted as a whole in Q3.
In Central, Eastern and Southern Europe, gross winnings revenue remained broadly flat. We saw a very strong casino performance in Romania, but was offset by an overall decline in sports betting. In the other segment, gross winnings revenue decreased by 15%, predominantly driven by North America.
As mentioned earlier, we will now initiate the controlled exit of our North American operation. We expect to be fully exited by the end of Q2 in 2024, subject to regulatory process. However, in Q3, we still saw a gross winnings revenue of £6.4 million, which was an 11% year-on-year decrease in constant currency. But this is not so strange, given that we have continued to have a very measured approach in terms of our investment levels during the quarter. This also impacted our underlying EBITDA loss, which decreased by 34% to £6.5 million in 2023 versus almost £10 million last year. During the first three quarters of 2023, the underlying EBITDA losses amounted to just north of £17 million for our North American operations.
If we look at Relax, we're very pleased to see how they continue to grow from strength to strength. We had a 27% revenue growth in Q3, while EBITDA grew by 37%. The total revenues came in at £12.2 million, and our underlying EBITDA contribution amounted to £5.9 million, representing a 48% margin. We do have a very positive outlook for Q4, given that we've just launched Money Train 4 towards the end of Q3, and we expect a strong sequential growth quarter-on-quarter for Relax in Q4. We're also expecting to go live with Relax in the U.S. in December.
If we look at our journey to Zero, towards Zero, we continue to have a dedicated focus on this. In terms of our Q3 numbers, the share of gross earnings revenue from high-risk players came in at 3.3%, but it's very pleasing to see that the improvement effect after interventions came in at 86.7%. This is something that we are focusing on and working on across the whole organisation, and we continue to focus on a range of activities designed to maintain customers at reduced risk levels.
One of the most important things we've identified is the ability to shorten the time from detection to intervention. This can predominantly be driven through automation, and that is something that we're focusing on as an organisation. We're also continuing to invest and collaborate with researchers across Europe, and ensuring that the control tools that we have in place are visible, understood, and used in the right way across all our markets.
With that, I'm going to hand over to Patrick to run through the financials for Q3, and then I will be back with the strategic review update and the summary. Thank you.
Patrick Kortman
Good morning, also on my behalf. So, going into the financials for Q3, the Q3 revenue reached £283.9 million, which is actually the second largest Q3 revenue level ever. And this was despite soft sports betting activities and continued regulatory impacts. On a constant currency basis, this was a 4% increase quarter over quarter. If we look on a year-to-date basis, the revenues reached £897.6 million, which is an 18% increase year-over-year.
Throughout the quarter, and continuation to all initiatives that have been done during the year, we continue to focus on strict cost control, and while we also invest in future growth. And this can also be seen in the graphs here on this page, where we have seen some elements of scalability in most parts of the P&L.
On the cost of sales part, we are working actively with our supplier base for optimal performance, and here we have seen reduced commission levels and payment solution costs compared to last year, where the cost of sales element came down from 15.8% last year to 14.9% this year as a percentage of revenue.
Marketing costs in absolute terms remained broadly flat year-over-year. This was despite significant reductions in North America, as Nils talked about earlier, but also reductions in our dot-com operations. On salaries, we saw an increase both in absolute and relative terms, where salaries represented 14.3% as a percentage of revenues. The increase is largely due to increased number of FTEs [Ph] during the year compared to last year, as well as the annualized salary increases made during the beginning of this year.
On other OpExs and CapEx, we saw a decline as a percentage of revenues versus last year. And obviously, the measures announced this morning to drive further scalability, we expect to see a significant improvement during next year. So we continue to drive efficiencies and to secure further scalability, but the soft revenue development during Q3 put pressure on our EBITDA margin. The EBITDA came in at £42.6 million, which represents an EBITDA margin of 15%. And if you exclude North America, the EBITDA margin reached 18%.
Year-to-date, the underlying EBITDA reached £147.7 million, which is a 64% increase compared to last year, and obviously largely driven by the comeback in the Netherlands. And on a year-to-day basis, excluding North America, the underlying EBITDA reached £165 million, with an EBITDA margin of around 19%.
During the quarter, the sterling pound weakened against the basket of our most important currencies, which resulted in a negative gross winnings revenue impact of around 2%, equaling around £4 million for the quarter. However, the weakening of the pound had a positive effect on our cost base, and thereby resulting in a 1.7 million positive effect on the underlying EBITDA. On profit after tax, we had a slight improvement from the FX movements.
So during the first 57 days of the quarter, the daily average revenue reached approximately £3.1 million, which is 4% lower than the daily average revenue for the full Q4 last year. While Casino and others performed well, we have seen a long run of customer-friendly sports betting results. This resulted in a sports betting margin after free bets of only 8.6% for the full trading update period.
In October, we had a very weak sports betting performance, but we have seen a strong comeback in November. Now, looking into the full-packed sports calendar of the rest of the year, we look with positive eyes on the remaining part of the quarter, which is also normally the strongest Casino and other games month of the year.
With that, I conclude the financial overview and hand back over to Nils to go through the interim update or the strategic review.
Nils Andén
Thank you Patrick. Right, as mentioned in the report today, the strategic review is continuing, and we are still evaluating a select number of options to further drive and maximize shareholder value, both in the short and in the midterm. However, we have identified three things that we wanted to give an update on today. The first one, as mentioned, is a controlled exit from North America. The second one is a cost-based reduction, which will result in a much leaner organization, which has a reduced headcount, but also a reduced non-headcount OpEx to further increase scalability. We are also looking at a number of growth initiatives to focus our efforts to deliver further market share gains in our growing core markets.
Let's look at them a little bit more in detail. In terms of North America, we have done extensive analysis over the last year as to our presence there. However, we have decided that the negative cash contribution undermines our opportunities for value creation in our core markets. It is a highly competitive market with an underlying cost structure that means that meaningful profit contribution comes beyond an acceptable time frame for us as a company today. But it's also important to point out that the reallocation of resources actually enables an increased focus on our existing core market footprint, where we see substantially more attractive return on investment.
In terms of the timeline, we expect to have the operations fully exited by the end of Q2 in 2024, subject of course to regulatory process. We see usual running costs in each respective state up to the point of closure, and this will result in an improved EBITDA for the group. And as we have reported, during the first three quarters of 2023, the underlying EBITDA losses amounted to around £17 million.
In terms of the actual restructuring costs for exiting North America, we will update that in our Q4 report as they are dependent on negotiations and discussions we are having with partners in North America. The second part of the interim strategic review update is the actions we're taking to reduce our cost base. This will result in a gross annualized cost saving of approximately £40 million. We of course will not be able to achieve all of those in next year, but they will trickle into 2025. But if we look at the cost base today, we are ending up on around £260 million for the year. But then we also see an inflation pressure on our underlying cost base, and plus headcount movements from recruitments made in 2023 that we estimate will be around a 5% impact on our existing cost base.
However, with these initiatives, we have guided that we see a rough estimate on our OpEx for 2024 at around £245 million. These savings include a reduction of our global headcount by around or over 300 roles during 2024, including North America. I think it's important to point out the actual OpEx cost for North American operations is around £10 million, so it's not the fully EBITDA loss that we're counting here. We will replace some of these roles into low-cost locations, and we will continue to invest in some of the select growth initiatives. We're also looking at additional non-headcount-related cost savings across the total footprint.
As mentioned, some of these will not be fully realized in 2024. Therefore, we also expect that our 2025 OpEx will be lower in absolute terms than our OpEx in 2024, given, of course, a normalized inflation pressure during next year. The exact one-off costs associated with this restructuring will be communicated also in the Q4 report, as they are dependent on ongoing discussions.
When we looked at our core market footprint, we have already initiated several growth initiatives to capitalize on this established good track record we have in these markets. The totality of our addressable core market is estimated to grow with around 6% over the next five years per year, and it has a combined estimated value of around, let's see, £23 million. We firmly believe that an improved resource allocation and narrower geographic spread really strengthens our ability to capitalize on the core market potential through additional growth initiatives. We have seen a number of successful things that we have launched as a company over the last couple of years that we want to capitalize further on, but additionally do even more.
If we look in particular in the casino vertical, we have historically launched a number of successful brands. This is something that we will now accelerate in 2024. We're also having several product launches scheduled for the coming year and further investments into exclusive contents. We're also continuing to build our profitable customer segments across our footprint, and what we will do next year is we will increase our marketing investments in our core markets and continue to optimize our reward strategies to provide the best customer experience in our industry.
We have already this year started to implement some operating model cost effectiveness and efficiencies. We have done a wide range in commercial reorganization, and as mentioned, we are reallocating tech resources to enable and accelerate growth in our core markets. If we look at these three actions, we expect them to drive significant shareholder value already in the short term.
As mentioned, we are exiting North America. We're streamlining our cost base to improve flexibility and scalability across our organization, and a very dedicated focus on our core market to accelerate plans and enhance growth across all of our core markets during 2024. The result of this is, as mentioned, that the underlying EBITDA for the full year of 2024 is estimated to reach £250 million pounds, but we also see that there are further upsides from more annualized cost savings across the totality of our cost base.
So, in summary, before we head over to the Q&A session, if we look at Q3, we had a very promising active customer growth and a very solid casino performance, but this was tempered by soft sports betting activity and margin and a continued regulatory impact in some of the select core markets, as mentioned. We had an underlying EBITDA that was impacted by the revenue shortfalls from the sports book, but mitigated by further cost optimization efforts across the board, and we continue to drive for efficiency across the totality of the group. It's very nice to see that Relax Gaming is continuing to grow and had an increase of 27% and an underlying EBITDA contribution of almost £6 million.
And as mentioned, we have done an interim strategic review update in three parts, and the ultimate outcome of that with guidance for 2024 of an underlying EBITDA of £250 million. And as Patrick mentioned, we are in the midst of a very busy quarter. December is the most busy month for us by far this year, and we reiterate our guidance for the year of at least £200 million for the full year.
With that, we will head into the Q&A session, and I thank you for listening and welcome Patrick back up to the stage for the Q&A session. Thank you very much.
Question-and-Answer Session
A - Patrick Kortman
So I will open up the Q&A session by taking a couple of questions as a warm-up from the way I received on the web, and after that, I'm opening up for questions from the participants on the webcast. So the first question is around the U.S. business, and the question is, will the U.S. business be liquidated or sold to external parties, and what could be generated from such a transaction?
Patrick Kortman
Maybe I start with answering that question. So the current plan is to drive down that business and then eventually liquidate it. We have looked at various options during the strategic review, and we have come to the conclusion that this is the optimal route. However, it's not ruled out that certain parts could be sold, but that remains to be seen over the coming quarters and months.
The second question is around Brazil, and if we have any plans to enter Brazil or Latin America more broadly, and maybe Nils can answer that one.
Nils Andén
So we are, of course, constantly analyzing all markets across the globe, not only in Europe, but also Africa, Asia, but I think it's important to point out that any market we look at has to fit in to our strategy. It has to be a locally regulated market where we see a path to profitable growth. At the moment, our key focus is on our core markets, as mentioned. That does not mean that we will never look at other markets, but in the near short term, our focus is on our core markets.
Patrick Kortman
Very good. And before opening up, I'll take one last question. The question is, can you elaborate a bit on your marketing spend during the quarter in the U.S. and the profit impact from your exit from the market?
Nils Andén
Yes, so as we said in Q2, we have and continue to have a number of fixed marketing assets in North America that include sponsorships that are taken predominantly in Q3 and Q4 as they are associated with American football. That's what ultimately drove the majority of the marketing spend during the quarter and will be the same in Q4. The other question was?
Patrick Kortman
And the other question, I think we can go to the second part, and if you can elaborate a bit about the marketing spend in the Netherlands during Q3 and what to expect going forward in that market.
Nils Andén
Yes, so we continue to invest in the Netherlands. We feel that we have one of the best footprints in terms of marketing assets. As you might be aware, there were further marketing restrictions introduced in the Netherlands on the 1st of July this year, so there is a limit to how much we can spend. But we have secured prior to this deals, multi-year deals that enable us to have, as we deem it, the best marketing assets available in the Netherlands. But further marketing restrictions, of course, means that there is a ceiling to how much we can spend in the Netherlands going forward as well.
Patrick Kortman
Yes, and maybe adding to that, so obviously with the ceiling that Nils just mentioned about and the continued growth that we see in the market, we start to get very strong operational leverage on the investment that we're making in the Netherlands. And that also now results in that we are actually on a gross contribution level. We have a higher gross contribution margin in the Netherlands than the group as a whole. And we expect the margin to actually improve from here as we continue to grow.
But with that, I will open up for questions from the webcast. And maybe I'll say guiding, maybe as a guiding principle, we would like to limit the questions to two to three questions for each participant. And then after that, going back into the queue so that everybody has time to ask their questions.
Operator
The next question comes from Oscar Rönnkvist from ABG Sundal Collier. Please go ahead.
Oscar Rönnkvist
Thank you. Good morning, Nils and Patrick. Thank you for taking my questions. First, I would like to get a sense of the headcount reduction of 300. So, I just wanted to ask where do you find these 300 in the headcount reduction? And just trying to get a sense of if you're scaling down the sportsbook development or in what other departments other than North America that you're able to reduce headcount without hurting the top line. And then just if you're still keen on rolling out the sportsbook as planned and also if that's the case, how could that scale when your sports betting operations are declining pretty significantly despite the Netherlands tailwind year-over-year? Thank you.
Patrick Kortman
So, I can start. So, we are obviously looking at the reductions across the organization. I think it's very important to point out that we are mainly focusing on back-end resources, resources that don't directly impact the revenue. And I think this has been a key guiding principle for us when planning for this cost reduction program. Obviously, within this above 300 reductions, North America is included. And I also want to emphasize that it's a gross reduction of above 300. We will continue then to invest in areas that will support growth. And we will also move certain of these roles into low-cost countries, which will obviously give cost reductions.
In terms of KSP and the sportsbook project, that is continue at pace. And we are aiming to be ready for test market launch by the end of the year. And that means also that the first test market launch would then happen during the first quarter of next year. You referred there to declining sports betting activities and sports betting revenues. I think it's worth emphasizing that it was obviously now in Q3 a quarter with low activity as a whole during the summer period. And we do not expect that to be the new normal. Anything you want to add?
Nils Andén
No, that's perfect.
Oscar Rönnkvist
All right. I understood. So, I mean, when you say backend resources, is that based on like the platform? And also, as you say, the KSP continue at pace. So, can we assume that you have already hired the 400 people that you were expecting?
Patrick Kortman
Yes, so maybe to that one, it's approximately at those levels. They're in total working with our sportsbook. But then I think it's not fair to go in exactly into which areas in the organization that would be more hit than others. But as I said, it's more in towards the support functions that we are targeting the reductions.
Nils Andén
Yes, maybe just worth mentioning, we've done a very robust analysis across the whole organization to ensure that we are set up for growth. That means that any functions or people that are directly associated with revenue generating activities, we have protected in this process.
Oscar Rönnkvist
Understood. All right. The next question might be sort of kind of a follow up, but just on the sports betting side, again, which I think was the main negative part in the report in terms of top line, which you alluded to as well. So, I mean, going back to Q2, you announced a trading update in the beginning of Q3. I think you said that you will have a significant support in the latter part of Q3. And you obviously then already knew about the sporting schedule and the sportsbook margin actually came in sort of in line with the historical average in Q3 in total.
So, I mean, the sort of weaker side of the latter part of Q3 now, having seen all the numbers, what went wrong? If you could ask that in the sort of latter part of Q3 in terms of sports betting operations.
Patrick Kortman
Yes, I think it's fair to say that customers came back from the beach later than what we anticipated. And that was one. But also, in the trading update that we gave for the first 23 days, I think it was in connection with our Q2 report, the sports betting margin was at around 11% for that period. Now, coming in at 9.4% obviously means that the sports betting margin for the period after the trading update period was significantly below the long-term average, causing the deviation into the guidance that we gave.
Oscar Rönnkvist
Yes, perfect. Thank you very much.
Operator
The next question comes from Ed Young from Morgan Stanley. Please go ahead.
Edward Young
Good morning. So, my first question is a bigger picture question. You've given an interim update with sort of various measures, but one thing you haven't talked about at all is the balance sheet and your main net cash. Your commentary is about maximizing returns to shareholders and focusing on markets where you see a good return. It shares on the guidance you've given for next year of trading about five and a half times EBITDA. So, at what point would you consider initiating a buyback to move away from your obviously very conservative balance sheet posture currently?
Patrick Kortman
We will obviously, a discussion that we are having with our board, and we will come back with any updates on buybacks, etcetera, in due course when it's possible. I think it's fair to say that we believe it's good to be in a position with a strong balance sheet, and we want to also take that into our benefit when we now go into investing in growth in our core markets.
Edward Young
Okay. If I put it another way, you've obviously flagged that the board's posture is to continue to look for a third-party transaction, which is presumably a sale or a merger. Are the two connected? Is it fair to say that you're not going to be doing anything in light of there are different various outcomes you could look there? Or if I was to flip that on its head, if you end up not being able to find a transaction that's suitable, would that be a catalyst for potentially deploying capital in terms of a buyback? Could I put it that way around?
Nils Andén
Yes. I mean, the board has been fairly consistent in their messaging. That is pretty much what we said already when the strategic review was initiated. But I think it's fair to say that we do want to see the conclusion or at least further updates around the strategic review before we also guide on our capital allocation strategy for next year.
Patrick Kortman
And, Ed, I just wanted to -- obviously, the around £20 million in net cash that we had at the end of Q3, that was before the second installment of the dividend that was paid in the back end of October of around £37 million.
Edward Young
Sure. But I guess I'd say these are all small numbers when many of your peers are happy to run leverage two, three times in various circumstances. Yes, 37 off 20, but still next to nothing compared to a net debt to EBITDA position. The final question I had, Nil, you made an interesting comment about gross win margin accretion. I guess that's BetBuilder and BetLength that's sort of driving that. You said it was a 600-base point delta versus long-term average. Can you talk about how that's been trending over the previous quarters and where you think that could go? I guess what you're saying is higher gross, higher promotions overall and net growth and net margin, potentially some savings in marketing. That's how I'd kind of read your comment, but just to check I'm thinking along the right lines.
Nils Andén
No, I think what we've seen is that we've been able to optimize our free bets spend and our promotional spend. So the delta on actual margin was larger than the net, the gross win margin after free bets and promotion. I think we will continue to optimize the reward spend across the totality of our footprint.
To your first question, yes, we see if you look at the reported net margin, we see an increasing trend. I think that's associated to a changing product mix, as in what people prefer to bet on and BetBuilder is definitely increasing in popularity. But it's also a market mix, right? We have markets with inherently higher margins. Both France and Netherlands are two of those markets that we can point out. And of course, if they grow more than the rest of the footprint, we will see an increased margin over time.
Edward Young
Okay, thank you.
Nils Andén
Thank you.
Operator
The next question comes from Martin Arnell from DNB Markets. Please go ahead.
Martin Arnell
Good morning, guys. My first question is just a follow-up on the KSP discussion. I guess it should be part of discussions in the strategic review, but we don't communicate much about it today. Is it still to come? More information about this? Or how should we look at this? And also, what is needed for you to change this or potentially exit this key investment?
Nils Andén
So, as we've communicated generally around the strategic review, is that we're looking at all options, both internally and from an external standpoint, of course. I think it's fair to say that we are continuing to invest and we see a benefit of KSP going forward. And as mentioned by Patrick, we are now ready to launch our first test market. And we see a continued benefit over the mid-to-long term, especially from a cost of sales perspective, but also in terms of what we can do with the control of the sports book in terms of customer activation and customer promotions. So, further updates around the strategic review will come when we feel that we are ready to announce them. Sorry, it's our holding statement. I appreciate that it requires a bit of patience.
Martin Arnell
Has anything changed on KSP so far? I think the test market was supposed to be communicated at the end of the year and we're almost in December.
Patrick Kortman
Yes, and nothing has changed really. So, the target has always been to be ready for a first test market launch towards the end of this year. And that's what we're still targeting. And then the actual go live in that particular test market that we'll choose will happen beginning of next year.
Martin Arnell
And when you comment on the cost savings today and the guidance for 2024, it would be helpful if you could share some light on how much the KSP investment is included in this. Could you help us out with that?
Patrick Kortman
It's not included in the 300, above 300 rolls directly. So, it's obviously we were doing across the board optimizations. I don't think KSP is completely isolated. We are obviously looking at exactly what resources we are recruiting, etcetera. And what point in time we are recruiting them for KSP. But it's not that we are doing a reduction with people working on the sports book piece at this stage.
Martin Arnell
Thanks for clarifying that, Patrick. But my question was actually on how the potential impact from KSP on the cash flow impact.
Patrick Kortman
So, we have in total around 400 people working with KSP. We are at the same or with the sports book, I would say, not KSP. At the same time, we are paying third party commissions, which obviously means that we have a double cost that we're running with at the moment. And as we have communicated before, we expect that 2023 will be the peak year in that regards, as we now then in next year start to roll out our own sports book across our markets and thereby also we'll start seeing some benefits from it.
Martin Arnell
Okay. Thanks, guys.
Patrick Kortman
Thank you.
Operator
The next question comes from Imarga Lijasovic [Ph] from Carnegie. Please go ahead.
Unidentified Analyst
Good morning, guys. Imarga here. Just a couple of questions from me. I have an initial question with regards to your underlying EBITDA forecast for 2024. Just to be clear here, maybe I misunderstood something. But does the forecast include the announced exit of North America and the reduction in operating expenses?
Patrick Kortman
Yes, it does. Obviously, the plan, the exit plan for North America, it's not from the 1st of January. It's by the end of Q2. So, there will still be a negative contribution for North America during next year in the £250 million underlying EBITDA guidance that we gave. And it also includes savings from the gross savings of annualized £40 million in OpEx and CapEx. But the full year effect of that, it's not hitting the 2024 numbers only. It's also going to be done into 2025.
Unidentified Analyst
Okay. But I mean, if you just piece that together, doesn't it imply that most of the potential year-over-year growth in EBITDA next year then comes mainly from the cost savings, whereas the, let's say, the organic EBITDA growth is then fairly limited in 2024? Or am I thinking wrong about that?
Patrick Kortman
Yes, maybe. So, I think it's also worth highlighting that I think two things I want to say. One is that we will increase our investments in marketing in our core markets. So, we'll use proceeds from these savings to invest in growth. And I also want to point out that the 40 million is a gross saving. And that will be netted to a certain part, netted out also by investments in areas towards growth in the OpEx and CapEx part.
Unidentified Analyst
Okay. Thanks for clarifying that.
Patrick Kortman
And I think it's on that one. So, we obviously gave a guidance also for the OpEx for 2024 of £245 million. So, that should give some clarity to what we're talking about here.
Unidentified Analyst
Thanks for that. And just some follow-up questions on KSP then. Could you please remind us or give us some more color on how big you expect the margin benefit could be once KSP is fully rolled out and when that will be visible? I mean, I get that the cost is peaking in 2023, but some more color on that would be great.
Patrick Kortman
So, what we have said is that we expect the absolute costs for running our sports book to be lower than the costs were at when we started the project once fully rolled out. And what we have said is that it will – obviously, with the growth, we'll get more scalability. And thereby, we have said that after our financial – the guidance that we gave for our financial targets, we expect further above 200 percentage basis points improvements in the following year on the EBIT. So, absolute costs will -- are expected to decrease for operating our sports book -- our sports books.
Unidentified Analyst
Okay. And just a final question on that part from me. So, if you could remind me, will you run on – like the sports book cost the coming years, will you run sort of a dual setup here during 2024 where you have both KSP and third-party suppliers?
Patrick Kortman
Correct. So, we – yeah, just a recap of that. So, we have three setups essentially today. We have KRP and KSP. So, KSP is obviously – or KRP, the racing platform is obviously live and kicking already. Then we have France where we have our own trading on a third-party platform. And then we are operating with Kambi in the rest of the markets. And the plan or the eventual plan is that we would have all our sports book activities on one platform.
Unidentified Analyst
Okay. Thanks for that. That's all from me. Thank you.
Operator
The next question comes from Simon Davies from Deutsche Bank. Please go ahead.
Simon Davies
Yes, morning. Three questions from me, please. First off, in recent months, we've seen both the Swedish and U.K. government talking about increasing gambling taxes. I think 400 basis points in Sweden, 500 for betting in the U.K. Can you talk a bit about the potential impact that might have on your P&L when you expect this to kick in? And is it incorporated in your 2024 EBITDA guidance?
Secondly, Norway and Belgium, obviously, significant step up in regulatory costs from Q4 last year. You should now have lapped that. Can you confirm that those two markets have stabilized or returned to growth? And lastly, you've now moved up to an 83% share of revenues from regulated markets. Have you exited any markets in the last 12 months or do you plan to do so in 2024? Thank you.
Patrick Kortman
Okay. So starting with the increased betting duties or proposed increases in betting duties in Sweden and in the U.K., these are embedded in our guidance. And if they come true and to the extent they come true, our assumption would be for the second half of next year. I think it's still a question of if they will come true and then, of course, what the magnitude will be. I think more specifically on the U.K., I think it's worth highlighting also that the clear majority of our revenues in the U.K. market today is coming from our gaming or casino, which is obviously not impacted by this proposed increase.
Nils Andén
And maybe on the second question, as you mentioned, we will be kind of coming up to more comparable normalization levels in both Belgium and Norway. And yes, there is a stabilization there and we see particular Belgium. I think we have a strong outlook for next year, given, of course, normal regulatory developments and a return to growth. Was it the third one?
Patrick Kortman
Please remind us.
Simon Davies
It was the third question. Have you exited any unregulated markets in the last 12 months or plan to do so?
Patrick Kortman
Yes. So we exited a German market in June, July last year, and we have exited also our Austrian business. And obviously, then we have done some quite significant changes to our offering in the likes of towards customers in Norway, etcetera during the last 12 months, as you are aware.
Simon Davies
And have you had any planned exits in 2024?
Nils Andén
No. So we're constantly evaluating the footprint, but there's no immediate plans for exiting any markets around the corner at least. We will, of course, inform if it happens.
Simon Davies
Great. Thank you.
Operator
The next question comes from Karanjot [Ph] Grewal from Buffet. Please go ahead.
Unidentified Analyst
Hey, good morning. Just going back to your guidance for next year, you're guiding to about 250 million of EBITDA. I think consensus is at 255 million. I know somebody else has already touched on this. Given you have cost savings, assuming it's still some sort of positive contribution for next year, where is consensus going wrong? Is there something outside of the cost savings we're missing and there's some underperformance in a part of your business? Can you just confirm there will be some positive contribution from the cost savings next year, or should we assume nothing comes through next year? Thanks.
Patrick Kortman
Maybe I'll start there. I think where I believe consensus may be is slightly off in the assumption around the inflationary environment that we are living in, especially what impact that has on our OPEC [Ph] space as a whole. Before any cost reduction assumptions, as Nils discussed earlier today, with the increases in headcounts that we have had during this year and the salary inflation and the overall inflation we are seeing across our footprint, it's around 5% increase.
Then on top of that, we are now doing the cost initiatives that have been discussed today, which will take us down to an OpEx level for next year of around 245 million. That's not the same as a run rate OpEx space going into 2025. We actually assume that our OpEx will decrease further in 2025 as we get the full annualized impact from these initiatives that we are now starting.
Unidentified Analyst
Perfect. Understood. Second question for me. I know there was a lot of M&A circulation as part of the strategic review. Should we assume this is ruled out now, or are there still ongoing discussions?
Patrick Kortman
We can, of course, not speculate about any processes. However, I think the board has made it clear from the beginning of the strategic review that we are going to be looking at strategic or third party transactions across the board. I think nothing is ruled out. We're continuing to investigate a number of specific avenues to create maximum shareholder value, both in the short and medium term.
Unidentified Analyst
Perfect. Understood. Thank you.
Patrick Kortman
Thank you very much. I understand that that was also the last questions. And with that, I would like to hand over to Nils for concluding remarks.
Nils Andén
Thank you very much, Patrick. Thank you, everyone, for listening in. Just a summary. I think we are very confident on our outlook for 2024. We are going to be focusing on our growing core markets to further accelerate growth throughout 2024 with a very focused mind set across the whole leaner organization as we go into next year.
But again, thank you for all the questions and thank you for listening in. We will be back with the Q4 report in a fairly short time frame, but in about two months and a bit. Thank you very much again and have a lovely rest of the day. Thank you.
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Kindred Group plc (KNDGF) Q3 2023 Earnings Call