Report
Press release
Quarterly Report 1 January 31 March 2006
All figures in this report are in SEK.
Numbers in parenthesis indicate the corresponding period of the previous year.
Cherrys Internet gaming developed very strongly
- Cherry Onlines revenues increased to SEK 68.8 (19.1) million
- The number of Betsson customers increased by 23 percent to 298,000 during the quarter
- The number of active Betsson customers increased by 32 percent during the quarter
- Net Entertainments revenues increased by 47 percent to SEK 21.6 million
- Cherry Casino is expanding in the Mediterranean
- The groups net sales increased by 58 percent to SEK 133.2 (84.1) million
- Operating profit increased by 122 percent to SEK 8.9 (4.0) million
- Profit/loss after financial items increased to SEK 7.1 (139.4) million.
- Introduction of IFRS affects last years annual net financial income by SEK 135.0 million
- Profit/loss after tax amounted to SEK 5.0 (138.3) million, which corresponds to SEK 0.14 (4.43) per share.
- Work with division of the Group continues as planned.
The first quarter was marked by a show of strength from Net Entertainment. Sales were strong and
margins remained high while we increased the tempo of our development efforts. Internet gaming
also continues to show strength. CasinoEuro increased its net sales by 70 percent during the
quarter while Betssons new site and improved product offering attracted new customers and
increased customers degree of activity, says Pontus Lindwall, CEO of Cherry.
Group
Cherry's net sales increased by 58 percent to SEK 133.2 (84.1) million during the quarter. Internet-based operations
Cherry Online and Net Entertainment reported increased net sales.
The years operating profit amounts to SEK 8.9 (4.0) million. Both Net Entertainment and Cherry Online reported
increased profits compared with the same period of the previous year, while Cherry Casino's traditional operations
reported a practically unchanged result. Group-wide costs increased slightly during the period due to non-recurring costs
for financial counselling regarding division of the Group. Operating margin increased to 6.7 (4.7) percent.
Profit before tax amounted to SEK 7.1 (139.4) million. The comparison includes valuation of financial instruments to a
fair market value, which increased the net financial income of the first quarter of 2005 by SEK 135.0 million. This
valuation to a fair market value was based on the external valuation of subscription rights and call options in Betsson
and was conducted in conjunction with Cherrys acquisition of the company.
Profit/loss after tax amounted to SEK 5.0 (138.3) million, which corresponds to SEK 0.14 (4.43) per share. If the
valuation of financial instruments to a fair market value is excluded from the income statement of the previous year,
profit increased to SEK 0.14 (0.11) per share.
Return on equity was 1 (36) percent and return on total capital 1 (31) percent. Equity per share was SEK 12.51 (13.15)
at the closing date.
Business areas
Cherrys operations are divided into three business areas:
- Cherry Online - Internet gaming on a global market primarily via Betsson.com and CasinoEuro.com
- Net Entertainment - development of gaming software for licensing to international gaming companies
- Cherry Casino - traditional casino gaming and gaming machines in Sweden, Denmark and on cruise ships
Cherry Online
Net sales for the business area increased during the quarter to SEK 68.8 (19.1) million and the operating profit increased
to SEK 1.5 (-1.0) million. The development within CasinoEuro.com was especially pleasing. Net sales increased by 70
percent compared to the previous quarter. This increase was primarily achieved through product development.
Betsson.com
Betsson continued to show strong growth during the quarter. The number of registered customers at March 31 was
298,000, which means an increase of 23 percent since December 31. The number of active customers increased more
rapidly (by 32 percent) and reached 47,000 by the end of the quarter. This is an increase of 161 percent compared to one
year ago.
During the quarter, Betsson began operating in Poland. With 37 million residents, Poland is a large market showing strong
growth in e-trade and Internet gaming.
Poker has once again shown strong growth. The total number of registered poker players increased by 21 percent during
the quarter, from 186,800 at December 31 to 226,000. At the same time, the number of active poker customers increased
by 14 percent to 35,300. Compared to the first quarter of 2005, this is a 194 percent increase in the number of poker
players.
The launch of mobile poker was successful. Over 2,800 customers have now played poker for real money via their mobile
phone. This is an increase of 35 percent compared to the previous quarter. The scope of games via mobile phones is,
however, marginal compared to traditional Internet gaming.
The number of betting exchange players at December 31 was 4,000, which represents a decrease of 9 percent compared
to fourth quarter 2005.
The number of active players in the business area Betsson Sport totalled 7,200, compared to 5,300 the previous year.
This is a growth of 36 percent in Q1.
The number of active casino players at March 31 was 16,900, compared with 7,600 on December 31, an increase of 122
percent.
Cherry's Online Casinos
In the business area Cherry Online, Cherry also operates gaming via online casinos. Focus is on CasinoEuro.com, which
is run from Malta with Europe as its primary market.
The number of registered customers in Cherry online casinos at March 31 was 210,900, which means an increase of 4
percent since the previous quarter. The number of active customers during the quarter was 9,800, an increase of 18
percent. CasinoEuro developed very strongly during the period. Net sales increased by 70 percent compared to the
previous quarter and by 158 percent compared to the first quarter 2005.
Net Entertainment
Net Entertainment is a leading provider within B2B for online gaming. The companys brand is associated with innovation
and quality. Net Entertainment develops gaming software for licensing to customers, today consisting of around 30
different gaming companies such as Unibet, Gamebookers, NordicBet, Bet24, and 24hpoker. Revenues consist of
royalties and other proceeds from sales.
Net Entertainments sales increased substantially during the quarter - an increase by 47 percent to SEK 21.6 (14.7)
million. Operating profit increased to SEK 10.6 (7.3) million. Operating margin remained in principle unchanged at 49
(50) percent. Net Entertainment also licenses out its software and sales consulting services internally within the Group
to Cherry Online. These revenues are included in the figures reported above. Excluding these sales within the Group,
Net Entertainment's revenues totalled SEK 15.7 (11.3) million.
The companys increased product development efforts have borne fruit. Net Entertainment now has an organisation that is
able to launch new products at a rapid pace and with high quality. Coupled with continual product development is the
development of new product families to supplement the company's popular CasinoModule. The new products will enable
Net Entertainment to attract new customer categories.
Cherry Casino
Business area Cherry Casino operates gaming activities, with table games (blackjack and roulette) at 250 restaurants in
Sweden; gaming machines and table games on 37 cruise ships in the Nordic market and on 8 vessels in the
Mediterranean via partly-owned company; and gaming machines at 8 gas stations in Denmark in a joint venture with
Danish Shell.
Cherry is the market leader in restaurant casinos in Sweden with a market share of 37 percent of active gaming tables.
Cherry's share of the maritime gaming market in the Nordic Region is estimated at 34 percent of the number of vessels
which have gaming activities. During the period, Cherry Casino entered into an agreement for gaming on three
additional vessels in the Mediterranean. Operations on these vessels will be initiated during the second quarter.
Revenues for the second quarter dropped to SEK 48.5 (54.3) million and operating profit totalled SEK 0.4 (0.5) million.
The decrease in revenues and profit can primarily be attributed to a market downturn within Swedish restaurant casino
gaming, while maritime and other operations show somewhat improved figures compared to the same period of the
previous year. The first quarter of the year is usually the weakest for Cherry Casino.
Personnel and organisation
The average number of employees during the period was 270 (255) for the Group. Net Entertainment and Cherry Online
saw an increase in personnel, while the number of employees in traditional gaming activities dropped. At the end of the
quarter, there were 794 (866) employees.
Events after the end of the reporting period
Net Entertainment has entered into several agreements regarding CasinoModule. These agreements will be put into
operation during the second quarter.
In April, the EU Commission decided to initiate an investigation of seven member countries (including Sweden) to
determine whether the gaming legislation of the country infringes on EC rights.
2006 Prospects
The Board proposes that the Cherry Group be split into three independently listed companies that correspond to the
current business areas. The Board has determined that the three operational branches could be developed more rapidly
and stronger on their own. A split also gives better transparency of the different businesses and gives shareholders the
possibility to choose their desired risk level and area of operations. Distribution of Cherry Casino dividends are expected in
the second quarter while distribution of Net Entertainment dividends are expected in the autumn.
The proposal will be formed so Betsson continues its operations under the publicly traded holding company
Cherryföretagen AB (publ). It will be recommended that Cherry change their name to Betsson.
Betsson (currently Cherry Online) is expected to at least double their turnover during 2006
The opening of the EU gaming market, which became more of a reality during the first quarter, represents increased
opportunities for Cherry in all business areas.
Cherry has not issued a forecast for the full year 2006.
Financial reports
* Quarterly report for second quarter 2006 18 August 2006
* Quarterly report for third quarter 2006 13 November 2006
Accounting principles
The accounting principles remain unchanged from the year-end accounting 2005. This interim report has been prepared
in accordance with IAS 34 Interim Financial Reporting. Further information on the Groups accounting and valuation
principles is found in note 1 of the annual report for 2005.
For further information, please refer to the summaries included in the quarterly reports of the Groups statement of
income, balance sheet, summary of assets, cash flow statement as well as notes and key business ratio for the period
and comparison period as well as the annual report for 2005.
Stockholm, 15 May 2006
Pontus Lindwall
President and CEO
Review report
This report was not subject to review by the company auditor.
For further information, please contact:
Pontus Lindwall, President and CEO, telephone: +46 8-556 967 10, mobile: +46 708-27 51 55,
e-mail: [email protected]