Report
Press release
Quarterly Report Q1, 2005 Interim report January 1 March 31, 2005
(All figures in this report are in SEK)
Quarter 1
* Acquisition of Betsson.com
* Betsson shows high customer growth and increase in net sales and profit
* Betsson launched in Denmark
* Betsson customers increase from 65,000 to 105,000
* Net Entertainments success continues; profit increase of 60 percent
* Group net sales increase by 24 percent to SEK 84.8 (68.4) million
* Operating profit amounts to SEK 4.0 (4.2) million
* Profit after financial items amounts to SEK 139.4 (6.3) million
* Introduction of IFRS affects net financial income by SEK 135 million
* Profit after tax amounts to SEK 138.3 (5.2) million, SEK 4.43 (0.15) per share
Group
Cherrysnet sales increased by just over 24 percent to SEK 84.8 (68.4) million during the quarter. All the
business areas reported increased revenues. SEK 16.6 million of the increase in net sales compared with
the previous year relates to the effects of acquired businesses (Betsson SEK 9.7 million and traditional
casino operations SEK 6.9 million).
The Groups operating profit amounted to SEK 4.0 (4.2) million. Net Entertainment reported an increase in
profit of over 50 percent, while the other business areas reported somewhat lower profit than in the same
period the previous year. The acquired business Betsson.com has been consolidated into the Cherry Online
business area from February 17, 2005, which represents 43 days of the report period.
Profit after financial items amounted to SEK 139.4 (6.3) million. Net financial income for the period includes
the measurement of financial instruments at fair market value, which is recognized in the income statement
at SEK 135.0 million. The transaction concerns the measurement of subscription rights/call options in
Betsson at fair market value based on the external valuation of the company carried out prior to its
acquisition. Betsson was valued at SEK 590 million.
Return on equity was 35 (6) percent and return on total capital 29 (6) percent.
Profit/loss after tax amounted to SEK 138.3 (5.2) million, which corresponds to SEK 4.43 (0.15) per share.
Business areas
Cherrys operations have been restructured, and with effect from January 1, 2005 are divided into three
business areas:
- Cherry Online - online gaming via Betsson.com and online casinos
- Net Entertainment - development and sales/licensing of games and gaming systems, Casino Module
- Cherry Casino - traditional casino games and gaming machines, mainly in Sweden, Denmark and on cruise ships
All comparison figures for 2004 have been restated in accordance with the new business area organization.
Cherry Online
Net sales for the business area increased to SEK 19.1 (7.1) million, while operating profit/loss fell to SEK -0.5
(0.8) million during the first quarter. The acquisition of Betsson added SEK 9.7 million to income for the period
and increased operating profit by SEK 1.5 million during the 43 days following consolidation of the company
into Cherry, with effect from February 17, 2005. Betsson's background, present situation and future prospects
are described below.
Betsson in brief
Betsson was founded in 2000. Its business concept is to provide a marketplace for betting between two or
more parties. In Betssons system, customers play against each other rather than against a bookmaker, which
allows higher winnings to be paid to the players and gives a more varied gaming experience. As well as
betting, Betsson also offers an online casino and poker room. The rising popularity of these two products has
transformed Betsson into a multi-gaming marketplace. The company has 25 employees, and its registered
office is in London. Betsson owns a British bookmakers license.
Significance of the Betsson acquisition
In February, Cherry exercised its option to purchase the remaining shares in Betsson. This represents major
advantages to Betsson and its customers. In particular, it gives the company a stamp of quality, which creates
security for the customers. At the same time, the acquisition provides Betsson with good PR opportunities and
strength in its future international expansion.
The directed new share issue in April 2005 made Betssons founders major shareholders in Cherry and they
have confirmed that they will continue to focus on the development of Betssons operations for the foreseeable
future. The founders have an agreement with Cherry not to sell 70 percent of their holdings before April 18,
2006.
Betssons market position
Betsson has established a strong position in the Nordic market through its strong brand and the high level of
repayments to players. Betsson has also succeeded in creating a large user base which regularly uses the
service. As liquidity in an exchange is a crucial factor in the services ability to function, Betsson has also
established a strong market position where high entrance barriers exist. The combination of this and good
customer support, a strong management team, a loyal customer base and positive profitability development
creates excellent conditions for the company to increase its market share in the future.
Development of Betsson.com in Q1 2005
Betsson has continued its positive development in the first quarter of 2005. Betsson is currently a profitable
gaming company with a proven business model and a large customer base.
Net sales (gaming profit) for the company amounted to SEK 17.2 million for the full quarter and operating profit
to SEK 1.0 million. The company was consolidated into Cherry Online from February 17. Net sales from this
date amounted to SEK 9.7 million and operating profit to SEK 1.5 million. Betsson successfully launched its
services in Denmark during the quarter, which also affected profit.
The number of registered customers at March 31 was 105,000, which means an increase of 62 percent since
the end of 2004. The number of active customers was 18,000, which represents an increase of 47 percent
since the end of 2004.
Poker has shown the strongest growth. Betsson had a total of 61,000 registered poker players at the end of
Q1, compared with 34,000 at the start of the year. This represents an increase of 79 percent during the quarter
The number of active poker players grew to 12,000 during the period, which represents an increase of 65
percent since the end of 2004.
The number of active casino players at March 31 was 5,500, compared with 3,900 at the end of 2004, which is
an increase of 41 percent.
The number of betting exchange players at March 31 was 4,000, compared with 3,200 on December 31, 2004,
which represents an increase of 25 percent since the end of the year.
Betsson responsible gaming
In April, Betsson signed an agreement with G4, Global Gaming Guidance Group for an accreditation
system for responsible gaming standards. G4s program for responsible gaming consists of ethical
business standards, information systems for the gaming companys employees and customers, staff
development and software which uses a questionnaire to assess whether a player is in the risk zone.
Betsson expects to receive accreditation in summer 2005. The company aims to become the leading
gaming company in the development of technology and staff training to eliminate gambling addiction.
Betssons future prospects
Betsson sees further strong growth in the gaming market and will continue its international expansion. The
launches in Norway and Denmark have been successful, with these markets showing good growth. The
Swedish market is still Betssons largest market and is also showing healthy growth. In 2005, Betsson will
focus on establishing itself in new markets and strengthening its product range even more. Betssons ambition
is to have at least 200,000 registered customers at the end of the year.
Cherrys Online Casinos
Cherry launched online gaming in 2000 via Casinodomain. The main market at that time was North America.
Because payments from the USA were becoming difficult, the company directed its efforts towards Europe in
2002, and this is currently the main market for Cherry's online casinos, in particular CasinoEuro. Cherrys
casino gaming operates in five online casinos: CasinoEuro, CherryCasino, Casinodomain, SpeedbetCasino
and ApuestasCasino. Operations are run by the gaming company Mil Treinta y Dos S.A. in Costa Rica and,
from April 2005, by CasinoEuro Ltd, which owns a European gaming license for online gaming in Malta.
The number of registered customers in Cherry Onlines online casinos at March 31 was 151,000, which means
an increase of 15 percent since the end of 2004. The number of active customers was 7,300, which
represents an increase of 26 percent since the end of 2004. The relatively low level of activity is due to the fact
that market initiatives were not implemented in the North American market and that a proportion of the
customer base has aged.
During the first quarter, a fairly extensive marketing program for CasinoEuro was put into action, which
included a TV campaign in Norway. This had the effect of boosting the number of customers and increasing
net sales, albeit at the expense of short-term results for the quarter. From April, the majority of the business
areas initiatives will be concentrated on Betsson, which has a broader product range.
Net Entertainment
Net Entertainment is currently the leading player in the global online gaming market. The companys
trademark is strong in this B2B market and is associated with quality and innovation. The company is
represented in all major trade marts, which is an important part of the brand strategy and essential for
successful sales.
Net Entertainment's main product, Casino Module, is a platform for casino gaming, which can be licensed by
all types of websites with an existing customer base. The product has experienced major sales successes
and is currently used by over 30 international gaming operators, particularly sports betting companies.
Casino Modules success is largely due to its user-friendliness, broad language support, ease of integration
into the customers gaming site and its powerful system administration tools.
Net Entertainment regularly invests large amounts to develop Casino Module and make the product even
more competitive and user-friendly. A new generation of games is currently being developed and these will
be gradually implemented among customers. As the companys business model is based on variable license
revenues, which in turn are based on the results of casino gaming on each website, the increase in
revenues from further development of the product will fall to both the customer and Net Entertainment.
The business areas net sales increased by over 40 percent to SEK 11.3 (7.8) million in the first quarter.
Operating profit improved by 59 percent to SEK 7.3 (4.6) million.
Cherry Casino
The Cherry Casino business area is an amalgamation of the former business areas Restaurant Casino,
Maritime Gaming and New Markets.
The business area operates gaming activities, with table games (blackjack and roulette) at 285 restaurants
in Sweden; gaming machines and table games on 40 cruise ships in the Nordic market and on 4 vessels in
the Mediterranean via partly-owned company; gaming machines at 13 gas stations in Denmark in a joint
venture with Danish Shell; and the game of pajazzo in Chile.
Cherry is the market leader in restaurant casinos in Sweden with a market share of 38 percent of active
gaming tables. Cherrys share of the maritime gaming market in the Nordic Region is estimated at 34
percent of the number of vessels which have gaming activities.
Net sales for the first quarter amounted to SEK 54.3 (53.3) million. Maritime gaming operations reported
reduced figures, due to the termination of the partnership with Stena Line, while the other gaming operations
reported increased revenues. The acquired casino operations Knutsson Casino and Engdahl Casino added
SEK 6.9 million to net sales during the period.
Operating profit fell to SEK 0.5 (0.7) million during the period. The quarterly operating profit figure for the
previous year included a capital gain of SEK 0.8 million from the sale of gaming machines. If this item is
disregarded, operating profit improved slightly on Q1 the previous year. The early part of the year (Q1 and
most of Q2) is a traditionally weak period for Swedish restaurant casinos and maritime gaming.
Financial position and solvency
Cash and cash equivalents amounted to SEK 25.0 (31.4) million at the closing date.
The Group has a low level of external debt. Unutilized overdraft facilities, bank loans and real estate credits
amounted to SEK 1.4 (2.8) million. All the bank commitments apply to the Danish operations.
The equity/assets ratio was 82 (66) percent.
Investments
The Groups gross investment amounted to SEK 9.6 (5.4) million during the quarter.
Share data
The company had 4,094 (3,295) shareholders at the end of the reporting period. The largest shareholder
was Kinnevik, with 28.1 of share capital and 26.2 percent of votes. Following implementation of the non cash share issue adopted at the extraordinary general meeting of shareholders held on April 18 in
connection with the acquisition of the remaining shares (29 percent) in Betsson.com, Kinneviks holding is
now 23.1 percent of share capital and 24.2 percent of votes.
Earnings per share amounted to SEK 4.43 (0.15). Equity per share was SEK 15.00 (2.72) at the closing
date.
Cherrys B share is listed on the Stockholm Stock Exchanges O List. The price on March 31 (most recent
transaction) was SEK 32.00 (23.90).
Personnel
The average number of employees in the Group was 255 (234) during the period. In March, a total of 866
(680) persons were employed. Most of the increase relates to personnel taken over with the acquisition of
Knutsson Casino and Engdahl Casino the previous year and the recent acquisition of Betsson, as well as
new recruitment in Net Entertainment and Cherry Online.
Events after the end of the report period
The extraordinary general meeting of shareholders held on April 18, 2005 concluded the acquisition of
Betsson.com, adopting the Board of Directors proposal to issue 6,855,000 B shares to the owners of GBE
Holdings Ltd (Betsson) as payment for the remaining 29 percent of outstanding shares in GBE Holdings Ltd.
The capital contributed in kind was entered in Cherryföretagen's balance sheet at a value of SEK 229,642,500.
2005 Prospects
Net Entertainment is proving successful as a software/systems supplier to other gaming operators. This
market, as a whole, is growing.
The acquisition of Betsson means that Cherry Online gains operations with strong growth and high potential.
The opening of the EU gaming market, which will soon become a reality before long, following the ruling by
the European Court of Justice against the Italian state monopoly, will represent increased opportunities for
Cherry.
Cherry has not issued a forecast for the full year 2005.
Accounting Principles
This interim report has been prepared in accordance with IAS 34 Interim Financial Reporting, which follows
the provisions of the Swedish Financial Accounting Standards Councils recommendation RR31 Interim Financial Reporting for Groups.
The accounting principles applied in this interim report are as described in the consolidated financial
statements in the 2004 annual report, note 34. This note states that International Financial Reporting
Standards (IFRS) will be applied with effect from 2005 and that comparison figures relating to 2004 will be
restated in accordance with the new principles, with the exception of those which apply to financial
instruments. In accordance with the rules for transition to IFRS, the new principles for financial instruments are
applied only in the parts of the accounts concerning 2005.
According to IFRS 1, reporting will be prepared in accordance with the IFRS standards that apply on
December 31, 2005. These standards must also have been approved by the EU. Consequently, the effects of
the transition to IFRS presented in this interim report are preliminary and based on currently applicable IFRS and relevant interpretations, which may be changed before December 31, 2005 to reflect the associated effect
on reported amounts.
The effects on shareholders equity at the beginning of this year and at the beginning of 2004, when figures
are restated according to the new principles, are shown in note 3 of this interim report. The effects of restating
comparison figures for Q1 2004 and full-year 2004 results, and for shareholders equity at the end of Q1 2004
and full-year 2004, are described in note 4 of this interim report.
Corresponding information relating to the full year 2004 and shareholders equity at the end of 2004 is also
shown in note 34 of the 2004 annual report, which is available on the companys website.
Future reports
* Annual General Meeting June 16, 2005
* Quarterly report Q2 July 21, 2005
* Quarterly report Q3 October 25, 2005
* Quarterly report Q4, Year-end report 2005 February 16, 2006
Annual General Meeting
The Annual General Meeting of Shareholders will be held at 4 p.m. on Thursday, June 16, 2005, in
Tegensalen in Tegen Konferens, Sundbybergsvägen 9, Solna, Sweden.
Shareholders who wish to participate in the Annual General Meeting must be recorded in the register of
shareholders held by VPC (the Swedish Securities Register Center) no later than Friday, June 3, 2005, and
must notify Cherrys head office of their participation no later than 12 p.m. on Tuesday, June 14, 2005.
Solna, May 9, 2005
Cherryföretagen AB (publ)
Board of Directors
Review Report
The report has not been audited by the companys auditors.
For further information, please contact:
Pontus Lindwall, President and CEO, tel. +46 (0)8-556 967 10, 0708-27 51 55, [email protected]