Report
Press release
Quarterly Report Q2, 2005 Interim report January 1 - June 30, 2005
(All figures in this report are in SEK)
Quarter 2
* Internet gaming developed strongly during Q2
* Betsson customers increase from 105,000 to 140,000
* Net Entertainment's success continues; profit increase of over 90 percent
* Group net sales increase by 49 percent to SEK 107.7 (72.5) million
* Operating profit increased to SEK 11.1 (1.1) million
Interim Period, January - June
* Group net sales increase by 37 percent to SEK 192.5 (140.9) million
* Operating profit increased to SEK 15.1 (5.3) million
* Profit after financial items amounts to SEK 150.7 (7.5) million
* Introduction of IFRS affected the reporting periods net financial income by SEK 135 million
* Profit after tax amounts to SEK 146.1 (5.7) million, SEK 4.30 (0.17) per share
Group
Quarter
Cherry's net sales increased by 49 percent to SEK 107.7 (72.5) million during the quarter. Both Cherry Online and Net
Entertainment reported substantially increased revenues. SEK 29.3 million of the increase in net sales compared with
the previous year relates to the effects of acquired businesses (Betsson SEK 25.8 million and traditional casino
operations SEK 3.5 million).
The Group's operating profit amounted to SEK 11.1 (1.1) million. All business areas report an increased operating
profit compared with second quarter last year. Net Entertainment reports a profit increase of over 90 percent and
Cherry Online has turned a loss of SEK -2 million last year to a profit of SEK 3.5 million. Cherry Casino (traditional
forms of gaming) also reports a profit increase compared to the second quarter last year.
Profit/loss after financial items amounted to SEK 11.3 (1.2) million and the profit after tax to SEK 7.8 (0.5) million,
which corresponds to SEK 0.22 (0.02) per share.
Interim Period
Group net sales increased by 37 percent to SEK 192.5 (140.9) million during the reporting period. All the business
areas reported increased net sales. SEK 46.0 million of the increase in net sales compared with the previous year
relates to the effects of acquired businesses (Betsson SEK 35.6 million and traditional casino operations SEK 10.4
million).
Operating profit during the reporting period amounted to SEK 15.1 (5.3) million. All business areas report improved
results compared with the same period last year. Net Entertainment reports a profit increase of 76 percent during the
reporting period.
Profit after financial items increased to SEK 150.7 (7.5) million. Net financial income includes the measurement of
financial instruments at fair market value, which was recognized in the income statement from Q1 at SEK 135.0 million. The transaction concerned 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. At this point Betsson was valued at
SEK 590 million.
Profit/loss after tax amounted to SEK 146.1 (5.7) million, which corresponds to SEK 4.30 (0.17) per share.
Return on equity was 36 (7) percent and return on total capital 31 (6) percent. Equity per share was SEK 13.15 (3.02)
at the closing date.
Business areas
Cherry's operations have been restructured, and effective 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 during the second quarter to SEK 36.7 (5.1) million and the operating profit
increased to SEK 3.5 (-2.0) million. The now wholly-owned Betsson contributed to the periods revenues by SEK 25.8
million and the operating profit by SEK 4.2 million. In addition, the operating profit was affected by the Groups
amortisation of acquired intangible assets, which arose in connection with the acquisition of Betsson, by SEK -1.6 (0.0)
million.
For the entire reporting period, the business area reported an increase in net sales to SEK 55.8 (12.2) million and a profit
increase to SEK 2.5 (-1.6) million. From February 17, 2005, Betsson is consolidated into Cherry, which affected the
interim periods revenues by SEK 35.6 million and the operating profit by SEK 5.7 million. In addition, amortisation on
acquired intangible assets, which arose in connection with the acquisition of Betsson, affected the operating profit by
SEK -2.1 (0.0) million. 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 Betsson's 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. Since May 2005, Betsson has also offered a
bookmaker service in multiple betting form under the product name Betsson Sport. 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 multigaming
marketplace. The companys registered office is in London. Betsson holds a British bookmakers' license.
Important events during the period
During the quarter, Betsson has launched multiple betting, which is marketed under the brand name Betsson Sport.
The service is a bookmaking service, where Betsson players can combine several results into one game. Multiple betting
is still dominating on the Scandinavian market for sport betting, and Betsson expects good product development.
Also during the period, a mobile poker client was launched making it possible to play poker through a mobile phone,
either for real money or play money. The service was launched in June 2005 and has been well received. During the
quarter, new casino games were also launched.
Intensive work is ongoing to launch a new, improved site. The launch is planned for autumn.
Betsson's market position
Betsson has established a strong position in the Nordic market through its strong brand and the high level of repayments
to customers. 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 service's 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 Q2 2005
Betsson has continued its positive development in the second 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 25.8 million for the second quarter and operating profit to
SEK 4.2 million. The corresponding numbers for the first quarter were SEK 17.2 million and SEK 1.0 million. This
represents an increase in net sales by 50 percent compared to the first quarter.
The number of registered customers at June 30 was 140,500, which means an increase of 34 percent since the end of
the first quarter. The number of active customers during the same period was 20,300, which represents an increase of 13
percent compared to the first quarter.
Poker has once again shown the strongest growth. Betsson had a total of 109,000 registered poker players at the end of
Q2, compared with 61,000 at March 31, 2005. This represents an increase of 79 percent during the quarter.
The number of active poker players grew to 16,400 during the period, which represents an increase of 36 percent
compared to the first quarter.
The number of betting exchange players at June 30, 2005 was 4,000, which is unchanged compared to the first quarter
2005. The second quarter is seasonally weak for the betting exchange, since the major European football leagues finish
during May. The lack of a large event such as last years UEFA Championship in football in June 2004 was probably also
a factor. Another contributing reason is that some of the players have moved completely over from the betting exchange
to the new business area Betsson Sport.
The number of active players in the business area Betsson Sport was 1,229. The product was launched during May.
The number of active casino players at March 30 was 5,100, compared with 5,500 at the end of 2004, which is a
decrease of 8 percent. The decreased activity on the betting exchange, and the habitually slower spring and summer
have affected casino activity. Betsson expects a stronger autumn as a result of new product launches and a greater
internal focus on the product.
Betsson operates responsible gaming
In April, Betsson signed an agreement with G4, Global Gambling Guidance Group for an accreditation system for
responsible gaming standards. G4's program for responsible gaming consists of ethical business standards, information
systems for the gaming company's employees and customers, staff development and software which uses a
questionnaire to assess whether a player is in the risk zone. The work is going as planned and Betsson expects to
receive accreditation during summer 2005. The company aims to become the leading gaming company in the
development of technology and staff training to avoid gambling addiction.
Betsson's future prospects
Betsson sees further strong growth in the internet gaming market and will continue its international expansion. Interest
for poker is generally continuing and is expected to keep increasing. The medias interest has also increased and plays
a more and more important role.
The launches in Norway and Denmark have been successful, with these markets showing good growth. The Swedish
market is still Betsson's 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. Betsson's therefore reiterates its ambition to have
at least 200,000 registered customers at the end of the year.
Cherry's Online Casinos
In the business area Cherry Online, Cherry operates gaming via online casinos. Focus is on CasinoEuro.com which is
run from Malta and is focused on Europe as its primary market, and CherryCasino.com which is run from Costa Rica and
has North America as its main market. During the period, the casino Apuestas.com was sold.
The number of registered customers in Cherry online casinos at June 30 was 173,000, which means an increase of 15
percent since the previous quarter. The number of active customers during the quarter was 7,744, an increase of 6
percent.
During the second quarter, investments in the market have been reduced as planned for CasinoEurope.com. This led to
a slight decrease in customer influx while the result was improved contrasted with the previous quarter. Increased
resources were devoted to the existing customers. The gaming profit (revenues) from Cherrys online casino during the
second quarter was SEK 10.8 (5.0) million, an increase of 116 percent.
Net Entertainment
Net Entertainment is a leading provider within B2B for online gaming. The companys brand is associated with innovation
and quality. During the period, the company has begun rebranding, with the result that the companys trademark will
become NETENT.
During this period, Net Entertainment has signed a number of agreements with customers who will be using the company's main product Casino Module. Among these can be mentioned Las Vegas From Home (www.lvfh.com), GII
Entertainment (www.giientertainment.com), Bet and Game (www.betandgame.com) and Red Bet (www.redbet.com). In
addition, an old customer has returned to Net Entertainment, namely CBM Bookmaker (www.cbmbet.com).
The kiosk-project in the UK has been cancelled by our client due to legality issues. Net Entertainment will
seek new geographical markets for Internet gaming kiosks.
New development is ongoing and Net Entertainment anticipates increasing the product portfolio with several new games
during the second half of 2005.
For the second quarter, the business areas revenues increased with 44 percent to SEK 12.0 (8.4) million and
operating profit was improved by 93 percent to SEK 8.9 (4.6) million.
During the entire reporting period, the revenues increased to SEK 23.3 (16.2) million and operating profit rose 76
percent to SEK 16.2 (9.2) 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 280 restaurants in Sweden;
gaming machines and table games on 40 cruise ships in the Nordic market and on 5 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.
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.
Revenues for second quarter were SEK 58.8 (58.9) million and the operating profit increased to SEK 1.7 (0.8) 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 operation Knutsson Casino added
SEK 3.5 million to net sales during the quarter.
For the entire reporting period, the revenues increased to SEK 113.0 (112.2) million and operating profit increased to
SEK 2.2 (1.5) million. The acquired casino operations Knutsson Casino and Engdahl Casino added SEK 10.4 million
to net sales during the reporting period.
Personnel
The average number of employees in the Group was 266 (247) during the period. Most of the increase relates to
personnel taken over with the acquisition of Knutsson Casino and Engdahl Casino the previous year, and the
acquisition of Betsson during Q1, as well as new recruitment in Net Entertainment and Cherry Online. In June, a total
of 832 (836) persons were employed.
As of 1st June, Mats Rydberg took on the role as Managing Director for Cherry A/S (Cherry Casino's Danish operation)
Extraordinary shareholders meeting, new share issue
The extraordinary shareholders meeting 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 the parent companys (Cherryföretagen AB) balance sheet at a value of
SEK 229,642,500, of which SEK 13,710,000 was put into share capital.
Annual General Meeting
The annual general shareholders meeting was held June 16, 2005. The assembly adopted the statement of income and
the balance sheet for the parent company and Group regarding operating year 2004 as they were included in the annual
report. It was decided that no dividends would be paid for the fiscal year 2004 and that the earnings would be carried
forward.
The members of the board and managing director were granted discharge of liability for the operating year 2004. The
assembly decided to re-elect the board members John Wattin, Anders Fällman, Per Hamberg, Anna-Carin Månsson, and
Niclas Palmstierna, and newly elect Anders Holmgren (CEO and one of the founders of Betsson). John Wattin was
chosen as the chairman of the board at the statutory board meeting.
The assembly further determined to authorise the board to, with or without preferential right to shareholders, make a
decision to issue at the most a total of 3,000,000 shares of series B for cash payment and/or determine contribution or
offset or otherwise with conditions, as well as to change the articles of association to the effect that the registered office
is changed to Stockholms Municipality, and, by adopting a conversion proviso in the articles of association, give
shareholders the right to convert their A-shares to B-shares.
Events after the end of the reporting period
On July 11, Kinnevik reported that they had sold the majority of their shareholdings in Cherry to the Icelandic
investment company Burdarás. After the transaction, Burdarás is Cherrys largest shareholder, with 25.1 of share
capital and 17.9 percent of votes. Kinneviks remaining holdings represent 1.8 percent of the capital and 7.9 percent of votes
Betsson has signed a contract with Victory 247 for delivery of a complete gaming system for the Internet, containing
Betting Exchange, multiple betting, poker and casino. Net Entertainment will deliver the casino and certain other
technologies for the project.
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 has gained further 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.
Future reports
* Quarterly Report Q3 October 25, 2005
* Quarterly Report Q4, Financial Statement 2005 February 16, 2006
For further information, please refer to the summaries included in the quarterly and half-year 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, and the parent companys interim report (Note 7).
Stockholm, 21 July 2005
CHERRYFÖRETAGEN AB (publ)
Board of Directors
Review Report
I have summarily reviewed this interim report in accordance with the recommendations of FAR (the institute for the
accountancy profession in Sweden). A summary examination is significantly limited in comparison with a full audit.
Nothing has appeared indicating that the interim report does not comply with stock market and company legislation.
Stockholm, 21 July 2005
Gunnar Liljedahl
Authorised Public Accountant, Ernst & Young
For further information, please contact:
Pontus Lindwall, President and CEO, tel. +46 (0)8-556 967 10, +46 (0)708-27 51 55, [email protected]