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Cherry prioritises growth over profitability for online gaming business

28th August 2013 2:03 pm GMT

Sweden’s Cherry said Wednesday that it will continue to prioritise the development of its online gaming products instead of seeking profitability, as the company looks to re-establish a strong presence in the Scandinavian gaming market.

Cherry reported a 29 per cent increase in online gaming revenues to SEK29.4m for the second quarter of 2013, following a 64 per cent year-on-year rise in deposits.

At the end of the quarter, the company had 17,753 active online players, down 11 per cent quarter-on-quarter, from a total registered customer base of 266,661, an increase of 80 per cent compared to the same period last year.

Cherry CEO Emil Sunvisson said: “The quarter was characterized by a very strong intake of customers and increased deposits. With the launch of SpilleAutomater.com we aim to re-establish ourselves as a major player in the Scandinavian market.

“We have used all of our previous experience in order to create an optimal gaming experience. With the help of a strong personality, working with local sports clubs and offering a unique customer satisfaction guarantee, the product has been very well received.”

Sunvisson said that the online gaming segment was “burdened” by high bonus and marketing costs, which led to the segment posting an operating loss of SEK10.0m during the quarter.

“Online gaming is still in the construction phase and we prioritize development of our products and growth of the customer bases, before profitability,” he said.

Online gaming revenues grew by 32 per cent to SEK56.8m for the six month period, despite the sale of the company’s Automaten brands to Betsson for SEK286m in February.

As part of that deal, Cherry acquired CherryCasino.com which the company expects to re-launch in the near future, hoping to exploit the company’s strong brand in the Swedish market.

H1 2013 Results

Swedish Krona (SEK)   H1 2012 H1 2013
       
Revenues   105.7m 121.4m
Cost of Sales   39.7m 50.4m
Gross Profit   66.0m 71.0m
Marketing Expenses   16.1m 29.7m
Personnel Expenses   36.3m 41.5m
Other Expenses   8.0m 8.7m
Operating Income/EBITDA   5.7m (8.9m)
Operating Profit/(Loss)   3.0m (12.2m)
Profit Before Tax   0.9m (10.8m)
Profit After Tax   14.5m 15.1m)
Basic EPS   1.10 1.14

Overall, Cherry recorded a 15 per cent increase in revenues to SEK121.4m for the six month period, with revenues from the restaurant casino segment climbing 3 per cent to SEK64.5m.

Total cost of sales increased by 27 per cent to SEK50.4m, while marketing expenses soared 81 per cent to SEK29.7m following a 151 per cent rise in online gaming marketing activities to SEK18.8m connected with the establishment of new brands.

Personnel expenses were up 14 per cent to SEK41.5m, while other expenses climbed 9 per cent to SEK8.7m.

The company generated an operating loss of SEK12.2m for the period, compared to an operating profit of SEK3.0m a year ago. Including divested operations, Cherry recorded a net profit of SEK15.1m, up 4 per cent compared to last year (which included the divested maritime gaming operations).

Cherry warned that its financial investment in Yggdrasil is expected to have a slightly negative effect on its full year results, with the company having so far invested SEK6.8m in the business through share capital and shareholder loans.

During the period, Cherry’s EuroSlots.com became the first operator to launch a portfolio of ten new games from Yggdrasil.

“Yggdrasil continues to develop positively,” said Sunvisson. “I believe that many more operators will discover the new and unique products Yggdrasil is developing within the new gaming category Numbers tab.”

As at June 30th the company held cash and liquid assets of SEK106.7m compared to SEK26.2m a year ago.

Shares in Cherry AB (Co. Data) (STO:CHER) fell by 2.74 per cent to SEK21.30 per share in Stockholm this morning following the announcement.

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