Continued expansion and innovative investments
- Group revenue increased by 41 percent to MSEK 753 (536), with organic revenue growth amounting to 39 percent (37).
- Profitability improved, and EBITDA increased by 78 percent to MSEK 165 (93) and the EBITDA margin was 22 percent (17).
- Profit for the period amounted to MSEK 91 (15).
- Earnings per share before and after dilution amounted to SEK 0.77 (0.03) and SEK 0.76 (0.03) respectively.
- The Board of Directors appointed Gunnar Lind as Acting CEO.
- Cherry has completed the acquisition of 44 percent of the shares in the affiliate company, Game Lounge, with Cherry now holding 95 percent of shares outstanding. The purchase consideration amounted to MEUR 9.8 and 1,554,017 newly issued shares in Cherry AB.
- A further 7.5 percent of the shares in the online gaming company Almor Holding were acquired, with Cherry now holding 90 percent of the shares outstanding. The purchase consideration amounted to MEUR 2.2 and 299,504 newly issued shares in Cherry AB.
- Group revenue increased by 33 percent to MSEK 1,434 (1,077), with organic revenue growth amounting to 32 percent (40).
- Profitability improved, and EBITDA increased by 103 percent to MSEK 357 (176) and the EBITDA margin was 25 percent (16).
- Profit for the period amounted to MSEK 180 (51).
- Following new share issues, the number of shares has increased to 4,988,000 Class A shares and 100,680,026 Class B shares, as of 30 June 2018, totalling 105,668,026 shares.
- Earnings per share before and after dilution amounted to SEK 1.56 (0.27) and SEK 1.55 (0.26) respectively.
Events after the end of the period
- On 3 July, Cherry was granted a sports betting license in Poland.
- On 7 August Cherry exercised its option to acquire an additional 7.8 percent of the shares in the gaming specialist Highlight Games. Cherry also acquired shares corresponding to 15.1 percent in the company and now holds of 60.4 percent of the shares outstanding in Highlight Games.
- On 9 August Game Lounge acquired two premium domains in North America, BetNJ.com for sports betting and casino in New Jersey, and the Mexican domain OnlineCasino.mx.
Comments by the CEO
“Strong and broad operations”
With a revenue increase of 41 percent, of which organic growth amounted to 39 percent, the quarter was characterized by expansion and investment. Investments during the quarter were made primarily in the marketing of existing and new brands, and of games developed in-house by Yggdrasil and Highlight Games. Cherry has strong and broad operations meeting the market’s demand for quality in everything we deliver, and it is gratifying to note that July demonstrated that our investments have generated returns in line with our expectations.
The second quarter of 2018 was characterized by a focus on growth, in the short term as well as long term. Investments in marketing were significant and effective. Online Gaming is expanding and strengthening its position in key markets, while the business area’s new brands are also rapidly building awareness and establishing a good customer base. Game Development and Online Marketing have also acted proactively through increased investment in game development, acquisitions and a clearer presence in Sweden. To me, as acting CEO, this is a secure situation providing opportunities to continue strengthening Cherry in its core markets and, in parallel, to assess complementary growth alternatives.
Over the quarter, the Group’s revenues increased from MSEK 536 to MSEK 753 and EBITDA increased by 78 percent, from MSEK 93 to MSEK 165. The foremost individual explanation for this trend is continued favourable development within the Online Gaming business area. The gaming operator holds a strong market position and has launched new brands meeting the market’s wishes. Beyond this, company management, now with permanent CEO Lahcene Merzoug at the helm, is continuing to optimize the cost base. Cherry’s subsidiary Almor, including the German brands Sunmaker and Sunnyplayer Casino, experienced one of its strongest quarters, thereby strengthening Cherry’s market position in the regulated Schleswig-Holstein market (Germany).
Game developer Yggdrasil had an active quarter that included the launch of five new games, including “Sonya Blackjack”, the first game in the new “Table Games” product vertical. During the quarter, Yggdrasil signed distribution agreements with 13 operators. The number of employees (FTE) of Yggdrasil at the end of the period was 243 (134). Following the end of the period, a global distribution agreement was reached with 888 Holdings, one of the world’s most popular gaming operators. An agreement was also reached with Intralot, which has a strong position in Italy, complementing Yggdrasil’s existing collaboration with Lottomatica. In April, Northern Lights became the first independent game studio to use Yggdrasil’s partner program, YGS Masters, and we make the assessment that this will be an excellent way to collaborate with companies in early phases of development. Following the end of the quarter, Yggdrasil was also certified for the fast-growing Spanish market – an important milestone in Yggdrasil’s strategy to grow in regulated markets.
At the beginning of the year, Highlight Games launched its virtual soccer game, SOCCERBET, in selected African markets, while the company also prepared for its introduction in Italy. During the third quarter, Highlight Games, alongside Eurobet and other leading Italian operators, will launch the game in Italy, where the virtual gaming market is expected to generate sales of some EUR 2 billion in 2018, as assessed by the independent data specialist H2 Gambling Capital. Highlight Games has favourable prospects of capturing significant market share, thus Cherry has acquired additional shares in the company and Cherry’s holdings in August totalled 60.4 percent and, accordingly, consolidated as a subsidiary effective from August 2018.
The Group’s affiliate company, Game Lounge, is developing according to plan. The company has established a new office in Stockholm and has a total of 60 employees. During the quarter, Game Lounge acquired assets, including some 1,500 websites, various search engine optimization (SEO) tools and services, and a team of ten employees with unique SEO expertise to aid the expansion of the company into new verticals. In August, Game Lounge acquired two premium domains in North America, which will be important bridgeheads in New Jersey and Mexico.
In June, we were able to complete the acquisitions of additional shares in subsidiaries Game Lounge and Almor Holding. The payment for the additional 44 percent and 7.5 percent respectively consisted in part of new shares in Cherry AB, now bringing the total number of shares in the company to 105,668,026. Both companies are experiencing a positive development trend, and with Cherry’s support, we perceive good opportunities for them to develop at a higher pace and with a broader offering.
During the quarter, the Board took the decision to terminate Anders Holmgren’s employment as the President and CEO of Cherry. At the same time, the Board resolved to appoint the undersigned as CEO until a permanent CEO has been appointed. With my previous experience as CEO of Cherry and as a Board member in the company, I was able to get started relatively quickly.
The recruitment of a permanent President and CEO has been initiated and includes both internal and external candidates. I am sure the Board of Directors is doing a thorough job and, as its work progresses, I am focusing on developing the Group in accordance with the established strategy, supported well by all employees.
Acting President and CEO
The gaming market is currently growing strongly and Cherry estimates that demand in the Group’s largest geographic markets will continue to develop favourably. The Group continuously studies conditions for new business within the related business areas and geographic markets in and outside Europe.
The Group’s focus is on generating shareholder value by being an active participant in the development of new and existing companies in the gaming, media and entertainment sector. The objective is for the companies to become market leaders in their respective areas by building their core values of entrepreneurship, responsibility and commitment. These are important prerequisites for the Group to be able to achieve its financial targets and to continue its successful profitable growth, through both organic growth and acquisitions, in existing and new verticals and geographic markets.
Presentation of the Interim report
The company’s Executive Chairman, Morten Klein, Acting President and CEO, Gunnar Lind, and CFO Christine Rankin, will present and comment on the report at a telephone conference at 10:00 a.m. CET on 16 August 2018. The presentation materials will be available approximately one hour earlier at www.cherry.se. The presentation can be followed via www.cherry.se and/or www.financialhearings.com. To participate by phone, call +46 8-566 426 97 (SE) or +44 203 008 9807 (UK).
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Cherry in brief
Cherry is an innovative and fast-growing gaming company with operations in gaming, entertainment and media. The company was founded in 1963 and today, Cherry operates through five diversified business areas: Online Gaming, Game Development, Online Marketing, Gaming Technology and Restaurant Casino. The objective is to grow organically in combination with strategic acquisitions of fast-growing companies. Cherry employs some 1,400 people and has about 9,250 shareholders. The company’s class B-share has been listed on the Nasdaq Stockholm exchange, Mid Cap segment since 18 October 2017.