Cherry Split in the Works

19 December 2005

The Board of Swedish gambling firm Cherryforetagen AB (CHERb.ST) will propose a plan at its general meeting in the first quarter of 2006 to split the company into three independently listed companies. The three distinct divisions--Cherry Online, Net Entertainment and Cherry Casino--are already independent operations with limited benefits from collaboration, but the board feels that the three branches could be developed more rapidly and stronger on their own. A split would also provide better transparency of the different businesses and allow shareholders to choose their desired risk level and area of operations.

"The Internet-based operations will grow more quickly and with a higher profitability in their companies," CEO Pontus Lindwall said. "Cherry Casino will receive more attention. I also believe that the market will appreciate having three clear investment alternatives."

The board proposes that the Cherry Online division, which operates Internet gambling services through, and other sites, change its name to Betsson. Net sales for Cherry Online increased to US$13 million during the first nine months of 2005 (an improvement over $2.4 million over the same period last year), while profits rose to $1.1 million (an improvement over last year's loss of $331,000 over the same period last year).

The second division would be what is now I-gaming software provider Net Entertainment, which saw net sales rise from $3.4 million to $4.6 million during the first nine months of 2005, while operating profits rose from $2 million to $3.4 million.

The third division, Cherry Casino, would be composed of the company's traditional gaming operations, such as blackjack and roulette at restaurants, gaming on cruise ships in international traffic, gaming machines and other activities, the bulk of which are carried out in Sweden and Denmark. Net sales for the division during the first nine months of the year fell to $22.7 million from $23.3 million and operating profit fell to $663,000 from $816,000.

Overall turnover for the combined Cherry group, which is listed on the Stockholm Stock Exchange, rose to $55 million from $39.7 million during the first nine months of the year.

The board will present its plan for the division during the first quarter of 2006, and it hopes to complete the division during the second quarter of 2006 at the latest.