Swedish gaming group Cherry saw huge gains in revenue and EBITDA in 2018 as plans were announced to delist from the Stockholm Nasdaq following its takeover.
The Swedish operator, in its year-end report, said consolidated revenue increased by 44% to SEK 3,236m (€308.7m/$350.0m) in the year to December 31, with organic growth an impressive 34% compared to 27% in 2017. Revenue was up 49% during Q4, the period when European Entertainment Intressenter BidCo’s $1bn takeover bid was launched.
Revenue from online gaming, which makes up 79% of the group total, grew by 42% to SEK 2,591m in 2018, with Q4 igaming revenue growing 49% to SEK 722m. In the fourth quarter, deposits from customers at brands such as ComeOn and Cherry Casino increased by 80% year-on-year.
Game development, the group’s second biggest segment, comprising Yggdrasil and Highlight Games, contributed SEK 275m, an increase of 63% year-on-year. Yggdrasil, in which Cherry holds an 84% stake, saw growth from existing customers, new customers and the launch of new games.
Online marketing via Game Lounge grew 74% to SEK 254m in 2018, while XCaliber, its gaming technology division, brought in SEK 49m compared to SEK 39m in 2017.
“Cherry’s development in 2018 can be summarised with one word: excellent,” Cherry acting chief exeuctive Gunnar Lind (pictured) said. “On almost all measurements, our operations delivered in line with our expectations.”
In terms of profitability Cherry announced gross profit of SEK 2,583m, which was up 50% on the previous year. Marketing expenses grew 29% to SEK 956m as the group promoted its sportsbook brands through the 2018 FIFA World Cup, launched in Poland and prepared for the reregulation of the Swedish market at the start of 2019.
The group also saw a 31% increase in personnel expenses to SEK 480m, as headcount grew from 751 a year ago to 1,035. Other expenses almost doubled to SEK 335m.
EBITDA for the full year was up 89% to SEK 813m and by 40% to SEK 198m in the final quarter of 2018.
Profit before and after tax more than quadrupled, at SEK 500m and SEK 487m respectively. The tax issue will be a pressing one in 2019 with Cherry now licensed in Sweden. Analysts at Regulus Partners believe its Swedish point of consumption tax bill could be worth 25% of group EBITDA in 2019.
Lind said the Swedish authorities must be mindful about the impact of regulatory pressures on licensed operators.
“It is reasonable that gaming companies be taxed and, to some extent, controlled when it comes to marketing, but the legislators must be aware that this is an industry in which customers are aware of their options and can therefore quickly shift their preferences,” said Lind, who stepped into the acting CEO role in May 2018 after Anders Holmgren was arrested on suspicion of insider trading.
“This can result in tax revenue and preventive actions from game addiction being lost. The more laws there are and the more detailed the regulations, the greater the risk that companies position themselves outside the licensing system, with the effect that everyone loses.”
The takeover is nearing completion, with EE Intressenter announcing this week that it has now bought 98.2% of company shares. It intends to initiate a compulsory acquisition procedure regarding the shares in Cherry that were not tendered in the offer and to promote a delisting of its shares.
The consortium comprises Bridgepoint Europe, Prunius Avium, the Klein Group – headed by Cherry chairman and founder Morten Klein – Audere Est Facere, Betsson CEO Pontus Lindwall and two other individuals.
“I am convinced that Cherry and its group companies will remain significant players in the gaming and entertainment industry for many years to come and I look forward to following developments,” Lind added.
“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 in related business areas and geographic markets within Europe and beyond.”