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Cherry Interim Report 3 2016, 1 January- 30 September 2016

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Highlights 

Third quarter: Revenues grew 39% to MSEK 214.0 and EBITDA increased 78% to MSEK 30.9

  •  Group revenue increased by 39 percent year-on-year to MSEK 214.0 (154.1).
  •  Profitability improved considerably and EBITDA increased 78% year-on-year to MSEK 30.9 (17.4). EBIT amounted to MSEK 21.5 (11.0). The result was burdened with acquisition costs for ComeOn and Nasdaq listing costs of MSEK -4.0.
  •  The result after tax was MSEK 31.1 (12.1), equivalent to SEK 1.33 (0.65) per share after dilution and minority interests. 
  •  At the end of July, Cherry acquired 49 percent of shares in ComeOn Malta Ltd. ComeOn’s revenue amounted to MSEK 263 (an increase of 36 percent) and adjusted EBITDA amounted to MSEK 78 (+115 percent). Cherry´s share of ComeOn’s earnings after acquisition depreciations (MSEK -6.8) amounted to MSEK 21.9 and is included in financial items.
  •  Online Gaming revenue grew organically by 39 percent and EBITDA amounted to MSEK 18.1 (11.5). The figures do not include ComeOn and Game Lounge. Game Lounge is now reported as a separate business area.
  •  Game Lounge’s revenue grew by 167 percent and EBITDA increased 104 percent to MSEK 6.0 (2.9).  
  •  Yggdrasil Gaming’s revenue grew by 299 percent and EBITDA increased 385 percent to MSEK 9.2 (1.9).  
  •  Restaurant Casino’s revenue amounted to MSEK 39.5 (42.5) and EBITDA amounted to MSEK 4.2 (5.3).

Nine-month interim period: Revenues grew 64% to MSEK 583.0 and 49% of ComeOn was acquired 

  •  Group revenue increased by 64 percent compared to the previous year and amounted to MSEK 583.0 (356.2).
  •  EBITDA increased by 472 percent and amounted to MSEK 71.4 (12.5). EBIT amounted to MSEK 45.0 (-3.1).
  •  The result after tax amounted to MSEK 57.0 (-6.4) equivalent to SEK 2.41 (-0.72) per share after dilution & minority interest. The result was burdened with acquisition costs for ComeOn and Nasdaq listing costs of MSEK 9.1.
    •  Online Gaming revenue grew by 78 percent and EBITDA amounted to MSEK 35.5 (-0.6). The figures do not include ComeOn and Game Lounge. Game Lounge is now reported as a separate business area.
    •  Game Lounge’s revenue grew by 173 percent and EBITDA amounted to MSEK 13.6 (7.0). 
    •  Yggdrasil Gaming’s revenue grew by 465 percent and EBITDA amounted to MSEK 26.9 (0.3). 
    •  Restaurant Casino’s revenue amounted to MSEK 114.1 (117.2) and EBITDA amounted to MSEK 11.8 (14.5).

Important events after the end of the quarter

  •  ComeOn is enjoying rapid organic growth and good profitability. As a result, ComeOn’s management updated its forecast for the full year 2016 and now expects sales of approximately MSEK 1,000 with an operating profit of MSEK 260. Cherry believes that ComeOn, from an accounting perspective, will consolidate from 1 October, 2016, provided the Board decides to exercise the option to acquire the remaining shares in ComeOn.
  •  Cherry intends, together with ABG Sundal Collier as financial advisor, to examine the possibility of a further bond issue under its existing bond (ISIN SE0008321616). The proceeds are intended to be used to partially finance the acquisition of the remaining shares in ComeOn, provided the Board decides to exercise the option to acquire the remaining 51 percent of the shares.
  •  To maintain focus and continue to deliver strong growth with good margins while rapidly integrating the acquired companies, we have revised the schedule considering Cherry’s Nasdaq Stockholm listing, which is now expected during the first half of 2017.

CEO’s third quarter comments
Cherry continues to grow substantially faster than the market. For the third quarter, organic growth amounted to 38 percent and total growth to 39 percent. The formula for success is based on the strategy Cherry implemented two years ago, in which we have developed our business areas and added strategic acquisitions of fast-growing companies where the founders and entrepreneurs continue to stay active in the business. Today, Cherry is an innovative and fast-growing gaming company, operating across a broad part of the gaming value chain. Our business areas provide Cherry with diversified and profitable revenues from four separate and strong business areas, with the potential for strong onwards development. To clearly illustrate our business, beginning from the third quarter of this year, the Board has decided to separately report Game Lounge, which is active in performance-based marketing. Cherry's online activities continue to grow substantially faster than the market and now accounts for 82 percent (72) of Group sales.

During the quarter, Cherry finalised the acquisition of 49 percent of ComeOn and, until December 31, 2016, holds an option to acquire the remaining 51 percent of the company. The acquisition means that Cherry strengthens its position in online gaming and enhances our position against competitors, both in Scandinavia and in other European markets, while adding strong brands. Cherry also strengthens its client base within sports betting, which accounts for about one quarter of ComeOn’s revenue. Both the business segment Online Gaming - Cherry iGaming and ComeOn are growing substantially faster than the market with strong profitability and this allows for further investment in existing brands with continued expansion into new markets. Together with ComeOn’s management and founders, the work to quickly maximize our common values and offering has been drawn up. The integration process is ongoing. For the third quarter, ComeOn reports organic growth of 36 percent and a preliminary revenue of approximately SEK 263 million, with EBIT amounting to about SEK 78 million. If they had consolidated, Cherry Group and ComeOn would have had a revenue, for the third quarter of 2016, of approximately SEK 475 million and an EBITDA of about SEK 109 million. ComeOn’s management has, based on the quarterly report, revised its forecast for the full year and expects a revenue of approximately SEK 1,000 million with an operating profit of approximately 260 million for 2016. Already this year, the acquisition is expected to have a significant positive effect on earnings per share, and from the fourth quarter ComeOn will be consolidated, provided the option of a further 51 per cent is called upon. Cherry is positive to ComeOn’s strong growth, good profitability and future development.

During the quarter, Cherry's business area Online Gaming - Cherry iGaming had very strong organic growth of 39 percent. The activity on our gaming sites increased substantially. Active customers increased by as much as 47 percent while deposited amounts were up by 38 percent, compared to the third quarter of 2015. During the quarter, gross gaming surplus from mobile devices increased by 116 percent. During the quarter, we continued to upgrade our gaming sites with our latest technology and new product verticals. Among other things, EuroSlots entered a partnership with a large master affiliate and the site has also been updated with the latest technology.

Our new business area, Game Lounge, continues to develop strongly and is one of the fastest growing companies within performance-based marketing and the creation of customer contacts (leads) online. Growth was 167 percent with a healthy profit, despite major investments in new markets, SEO and marketing to build strong brands. Going forward, we expect continued strong growth with improved margins.

During the third quarter, Gaming Development - Yggdrasil Gaming continued its outstanding performance, as revenues grew by 299 percent with an EBITDA margin of 44 percent. The bet amount (bet turnover) increased by 445 percent. Mobile gaming accounted for 54 percent (35) of the total Gross Win Game. Yggdrasil has, during the quarter, received two additional licences for the re-regulated market of Romania, creating opportunities for new contracts. Also during the quarter, three new and innovative quality games were delivered, which were well received by both customers and operators. The world's largest gaming operator, bet365, went live in August and a contract was signed with the operator Casumo. Yggdrasil continues to launch additional, innovative, and industry-first promotional tools, such as "BRAG", where players can share their gaming actions on social media, and, after the end of the quarter, the promotional tool "Missions", taking gamification to a new level. As new operators are deployed, more games are launched at existing customers and the gaming portfolio grows, Yggdrasil’s revenues will increase further.

Restaurant Casino - Cherry Spelglädje continues to deliver solid earnings and the strategic acquisition of Betman AB will increase both sales and earnings from the fourth quarter. Cherry is the only private gaming company included in the peer group for new gaming legislation in Sweden, and with a market share of 68 percent, is well positioned to benefit from any future increase of bets. A motion has been filed by MP Jan R Andersson (M) to raise the stakes for Restaurant casino games.

In order to keep focused on delivering robust growth with good margins while rapidly integrating recent acquisitions, the Board has revised the timetable concerning Cherry’s change of listing to Nasdaq Stockholm, which is now expected to take place during the first half of 2017. Despite our size in terms of staff, we are still an agile and entrepreneurial organisation where flexibility is important, and the Board currently believe that management must maintain all focus on integrating the newly acquired businesses and delivering strong growth in profitability.

Our ambition is to continue to grow faster than the market, and we are well prepared to do this, both through organic growth and via acquisitions.

Fredrik Burvall, CEO  

Nomination committee
In accordance with the decision at Cherry’s annual general meeting held on 12 May, 2016, the following members of the Nomination Committee for AGM 2017 have been appointed:

The following nomination committee has been formed based on ownership at 30 September 2016, and consists of Pontus Lindvall (appointed by Per Hamberg), Tom Anders Melheim (appointed by Klein Group AS), Emil Svärd (appointed by Prunus Avium Ltd) and Rolf Åkerlind (Chairman Cherry AB). The nomination committee together represents 36.5 percent of the votes and 34.8 percent of the shares in Cherry AB.

The Nomination Committee shall, for the next AGM in 2017, submit proposals on the number of directors to be elected, the directors' remunerations, the composition of the Board of directors, a Chairman of the board, auditor(s), remuneration for the auditor (-s) and the Chairman at the AGM. The Nomination Committee shall motivate their suggested board members, having in mind a diverse composition of the board. Furthermore, the Nomination Committee shall submit a proposal on a new instruction for the Nomination Committee at the next AGM.

Shareholders who wish to contact the nomination committee can do so by e-mail to valberedningen@cherry.se or by mail to Cherry AB, Nomination committee, Blekholmstorget 30, 111 64 Stockholm. 

Financial calendar
Cherry intends to distribute financial reports and statements on the dates below:

  •  Full year report/Interim report 4-2016: Tuesday, 21 February, 2017
  •  Interim report 1-2017, Wednesday, 10 May, 2017  
  •  Annual General Meeting, Tuesday, 16 May, 2017 in Stockholm. Time and place will be announced later.  
  •  Interim report 2-2017, Thursday, 24 August, 2017  
  •  Interim report 3-2017, Wednesday, 8 November, 2017  
  •  Full year report/Interim report 4-2017: Wednesday, 21 February, 2018

For further information please see the full Interim Report 2016. http://cherry.se/en/financial-reports/

Translation
This is a translation of the Swedish original.

For further information, please contact:
Fredrik Burvall, CEO Cherry AB (publ), telephone +46 8-514 969 52, +46 709 279 632, Email: fredrik.burvall@cherry.se Gunnar Modalen, Head of Investor Relations & Communication Cherry AB (publ), telephone +46 702 802 636, gunnar.modalen@cherry.se

This information is information that Cherry AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 08.30 CET on November 9th 2016.

Cherry in brief 

Cherry is a Swedish innovating and fast growing gaming company established in 1963. The business strategy is to create shareholder value by owning and developing fast-growing and profitable businesses within the gaming and casino industry. Cherry operates within four diversified business areas, Online Gaming through Cherry iGaming, Performance-based Marketing through Game Lounge, Game Development through Yggdrasil Gaming and Restaurant Casino through Cherry Spelglädje. The objective is to grow organic in combination with strategic acquisitions of fast-growing companies. Cherry employs around 900 people and has more than 4,600 shareholders. The Company’s B-shares are listed on AktieTorget. 

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