Report
Press release
Quarterly Report Q3, 2005 Interim report January 1 - September 30, 2005
(All figures in this report are in SEK)
Quarter 3
- Cherrys online gaming continued to develop very strongly during Q3
- Betsson's active poker customers increased by 29 per cent compared to Q2
- Betssons customers increased from 140,000 to 189,000
- Net Entertainment's success continues, with over 50 per cent profit increase
- Group net sales increased by 40 per cent to SEK 123.3 (87.9) million
- Operating profit doubled to SEK 16.8 (8.4) million
Interim Period, January - September
* Group net sales increased by 38 per cent to SEK 315.8 (228.8) million
* Operating profit increased to SEK 31.9 (13.7) million
* Profit after financial items amounted to SEK 170.4 (15.8) million
* Introduction of IFRS affected net financial income for the reporting period by SEK 135 million
* Profit after tax amounted to SEK 161.1 (11.8) million, SEK 4.54 (0.36) per share
Group
Quarter
Cherry's net sales increased by 40 per cent to SEK 123.3 (87.9) million during the quarter. Cherry Online reported
substantially increased revenue. SEK 33.1 million of the increase in net sales compared with the previous year relates to
the effects of the Betsson acquisition.
Betsson doesnt see any weakening in the market. The number of active poker players increased by 29 per cent since
the end of the second quarter. At the same time, there was a strong increase in both revenue per customer and
customer lifetime.
The Group's operating profit amounted to SEK 16.8 (8.4) million. NetEnt reports an increase in profit of more than 50 per
cent and Cherry Online has turned a loss of SEK -1.4 million last year to a profit of SEK 6.3 million during the quarter.
The Group's operating margin increased to 13.7 (9.5) per cent. The operating margin for the Groups online operations
amounted to 28.3 per cent.
Profit/loss after financial items amounted to SEK 19.7 (8.3) million and profit after tax to SEK 15.0 (6.1) million, which
represents SEK 0.38 (0.19) per share. Net financial income included a capital gain of SEK 2.9 million on sale of the
remaining holdings of shares in the Icelandic company Betware.
Interim Period
Group net sales increased by 38 per cent to SEK 315.8 (228.8) million during the reporting period. All business areas
except Cherry Casino reported increased net sales. SEK 79.0 million of the increase in net sales compared with the
previous year relates to acquisition effects (Betsson SEK 68.6 million and traditional casino operations SEK 10.4
million).
Operating profit during the reporting period amounted to SEK 31.9 (13.7) million. Both NetEnt and Cherry Online
reported significantly increased profit compared with the same period the previous year, while Cherry Casinos
traditional operations reported a somewhat lower result than the previous year. The Group's operating margin increased
to 10.1 (6.0) per cent.
Profit after financial items increased to SEK 170.4 (15.8) million. Net financial income includes the valuation of financial
instruments at fair market value, which was reported in the income statement from Q1 at SEK 135.0 The transaction
related to the valuation 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. The valuation of Betsson was set at this time at SEK 590 million.
Profit after tax amounted to SEK 161.1 (11.8) million, which represents SEK 4.54 (0.36) per share
Return on equity was 38 (13) per cent and return on total capital 35 (12) per cent. Equity per share amounted to SEK
13.45 (3.21) at the closing date.
Business areas
Cherry's operations are divided into three business areas as of 1 January, 2005:
- Cherry Online - online gaming via Betsson.com and online casinos
- NetEnt - development and sales/licensing of games and gaming systems, Casino Module
- Cherry Casino - traditional casino games and gaming machines, primarily 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 third quarter to SEK 45.6 (6.6) million and operating profit increased
to SEK 6.3 (-1.4) million. The now wholly-owned Betsson operation contributed to the periods revenues with SEK 33.1
million and to operating profit with SEK 8.4 million. In addition, operating profit was affected by the Groups amortisation of
acquired intangible assets, which arose in conjunction 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 8.8 (-2.6) million. Betsson has been consolidated into Cherry since 17 February, 2005, which affected revenues for the reporting period by SEK 68.6 million and operating profit by SEK 14.1 million. In addition, amortisation on
acquired intangible assets, which arose in conjunction with the acquisition of Betsson, impacted operating profit by SEK
-3.7 (0.0) million.
Betsson and its development during Q3, 2005
Betsson has continued its strong growth during the quarter. It appears the annual objective to achieve 200,000 registered
customers will be reached in the early part of the fourth quarter. Betsson doesnt see any weakening in the market for
poker or other products. The number of registred poker players increased by 33 per cent during the quarter. At the same
time, there was a strong increase in both revenue per customer and customer lifetime during the period. This indicates that
Betsson is developing its services in the right direction.
Net sales (gaming profit) for the company amounted to SEK 33.1 million for the third quarter and operating profit to SEK
8.4 million. The corresponding numbers for the second quarter were SEK 25.8 million and SEK 4.2 million. This represents
an increase in revenue of 28 per cent for the third quarter compared with the second quarter, accompanied by a doubling
in profit.
The number of registered customers as of 30 September was 189,000, which represents an increase of 34 per cent since
the end of the second quarter. The number of active customers during the same period was 25,400, which represents an
increase of 25 per cent compared with the second quarter.
Poker has once again shown the strongest growth. Betsson had a total of 145,500 registered poker players at the end of
the third quarter, compared with 109,000 at 30 June, 2005. This represents an increase of 33 per cent during the quarter.
The number of active poker customers increased to 21,100 during the period, an increase of 29 per cent compared with
the second quarter.
The launch of mobile poker has been successful and more than 1,300 customers have now played poker on their mobile
phones.
On the betting exchange, the number of players at the end of September 2005 amounted to 3,300, which represents a
decrease of 15 per cent compared with the second quarter 2005. The third quarter is seasonally weak for the betting
exchange as there are few playable events.
The number of active players in the business area Betsson Sport was 3,100 compared with 1,229 for the second quarter.
This represents an increase of 170 per cent, despite it being a seasonally weak period for the product. The product was
launched during May.
The number of active casino players at the end of September was 6,200 compared with 5,100 players at the end of June,
an increase of 19 per cent. The high level of activity for poker combined with the casinos stronger product offer are
reasons for the casinos success.
In July, an agreement was signed with Victory247 for delivery of a complete gamingsite based on Betssons technology.
Cherry's Online Casinos
Cherry also operates gaming via online casinos in the Cherry Online business area. The focus is on CasinoEuro.com
which is operated from Malta, with Europe as the main market.
The number of registered customers in Cherry online casinos at 30 September was 186,000, which represents an increase
of 7 per cent over the previous quarter. The number of active customers during the quarter amounted to 7,600 which is
largely unchanged compared with the previous quarter.
Gaming profit (revenue) from Cherrys online casino during the third quarter was SEK 12.5 (6.5) million, an increase of 92
per cent compared with the same period the previous year.
NetEnt (previously Net Entertainment)
Net Ent is a leading provider within B2B for online gaming. The companys brand is associated with innovation and quality.
NetEnt has in cooperation with Betsson signed an agreement during the period with Victory247. Heavy investment in
product development is also taking place to further strengthen the companys competitiveness
Revenue for the business area increased during the third quarter by 20 per cent to SEK 12.9 (10.7) million and
operating profit increased to SEK 10.4 (6.8) million.
During the entire reporting period, revenues increased to SEK 36.2 (26.9) million and operating profit rose 66 per cent to
SEK 26.6 (16.0) million
Cherry Casino
The Cherry Casino business area is a merger of the former business areas Restaurant Casino, Maritime Gaming and
New Markets.
The business area operates gaming activities including table games (blackjack and roulette) at 260 restaurants in
Sweden; gaming machines and table games on 37 cruise ships in the Nordic market and on 5 vessels in the
Mediterranean via a partly-owned company; gaming machines at 13 petrol stations in Denmark in a joint venture with
Danish Shell; and the game of pajazzo in shopping centres in Chile.
Cherry is the market leader in restaurant casinos in Sweden with a market share of 36 per cent of active gaming tables.
Cherry's share of the maritime gaming market in the Nordic Region is estimated at 34 per cent of the number of vessels
with gaming activities.
Third quarter revenues declined to SEK 64.6 (70.4) million and operating profit amounted to SEK 3.0 (4.9) million.
Maritime gaming operations reported a smaller increase in revenue and profit, while the other gaming operations
reported reduced revenues and operating profits during the quarter.
For the entire reporting period, revenues decreased to SEK 177.7 (182.6) million and operating profit amounted to SEK
5.2 (6.4) 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 Group employees during the period was 268 (251). The increase primarily relates to personnel
taken over in conjunction with the acquisition of Betsson during Q1 and the casino operations the previous year, as well
as new recruitment in Net Entertainment and Cherry Online. The number of employees in traditional gaming operations
has been reduced.
In September, a total of 820 (843) persons were employed.
Extraordinary shareholders meeting, Board changes
At the extraordinary shareholders meeting on 22 September, 2005, it was decided in accordance with shareholder
Burdarás HFs proposal to appoint as new board members Ragnar Thorisson (Vice President, Nordic Investments
Burdarás) and Patrick Svensk (President and CEO of Zodiak Television AB publ). Kinneviks representatives, Anders
Fällman and Niclas Palmstierna, left the board at the same time following Kinneviks sale of its entire holdings in Cherry.
The other board members elected at the annual general shareholders meeting on 16 June are unchanged, and are
Anders Holmgren, Per Hamberg, Anna-Carin Månsson and John Wattin (chairman).
Election committee
An election committee has been appointed for the 2006 annual general shareholders meeting. The committee consists of
Per Hamberg, Rolf Blom and Fredrik Danielsson. Per Hamberg has been appointed chairman of the election committee.
Further information on the election committees members and how they can be contacted is available on the companys
website.
Events after the end of the reporting period
No significant events have occurred after this report was delivered.
2005 Prospects
NetEnt is proving successful as a software/systems supplier to other gaming operators. This market is growing as a
whole.
The acquisition of Betsson means that Cherry Online has gained additional operations with strong growth and high
potential.
The opening of the EU gaming market, soon to become a reality following the ruling by the European Court of Justice
against the Italian state monopoly, represents increased opportunities for Cherry.
Cherry has not issued a forecast for the full year 2005.
Future reports
* Quarterly Report Q4, Financial Statement 2005 16 February, 2006
For further information, please refer to the summaries included in the quarterly and half-yearly reports of the Groups
income statement, balance sheet, equity summary, cash flow statement as well as notes and key ratios for the period
and comparison period.
Stockholm, 25 October, 2005
CHERRYFÖRETAGEN AB (publ)
Board of Directors
Review Report
This report has not been subject to review by the companys auditors.
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]