Annual Report 2012.pdf - Cherry

Part 2 AdministrAtion report / mAnAgement And control
INVESTMENTS
The investments of the Cherry Group in intangible,
tangible and financial fixed assets
amounted during the year to SEK 15.2 million
(6.4).
LIQUID ASSETS AND CASH FLOW
Liquid assets for the group amounted on 31
December to SEK 59.9 million (30.4). Interest
bearing liabilities amounted to SEK 1.8 million
(15.8). Cherry has in the fourth quarter amortised
in advance the last part of the acquisition
loan related to the acquisition of the Automaten
group in 2010 of SEK 6.7 million.
The cash flow from operations amounted
to SEK 41.1 million (24.8). The equity ratio
amounted to 86 percent (70) at the year end.
EMPLOYEES
The average number of employees (number of
employees converted to full-time jobs) within
the group amounted to 204 (203) for the year.
At the end of the year the number of employees
amounted to 677 (722) persons. The majority
of employees in the group are active as
croupiers or dealers at the Swedish Restaurant
Casino. Most of them are young people who
combine their studies with part time work in
the evenings and at weekends.
FUTURE PROSPECTS
The business area Online Gaming is estimated
to grow more quickly than the online gaming
market. H2 Gambling Capital estimated in
November 2012 that the global online gaming
market would grow by 9.1 percent in 2013. Online
gaming is characterized by severe competition
and rules and regulations, which can quickly
change in the different European countries. Cherry
estimates that the company will report negative
margins in the business area Online Gaming
in the second and third quarters in 2013 as a result
of the investment in growth and the sales of
the Automaten sites. Cherry will launch several
products and services that will be accommodated
within the business area Development Projects
to support Cherry’s business concept and longterm
strategy.
The legal situation for gaming on the Internet
changes on a regular basis in different geographical
markets. Pressure is still being exerted on
countries in the EU to adapt national legislation
to the applicable EU laws, with the free movement
of products and services. Several countries
have advised that they are working with new legislation
that will be compatible with the requirements
of EU.
The market for Restaurant Casino is shrinking
every year. An increase in the stakes would
be able to create growth and job opportunities.
Jan R Andersson (Conservative) has submitted a
24 | annual report 2012
motion to the Riksdag (2012/13:Kr221) with the
implication that the maximum stake for Blackjack
should be adjusted to SEK 200 from the
current level of just over SEK 70. The motion is
expected to be taken up for consideration by the
Ministry of Culture in the spring of 2013.
Cherry is not issuing a forecast for 2013.
ESSENTIAL RISKS AND
UNCERTAINTY FACTORS
POLITICAL DECISIONS
Gaming on most national markets is strictly
regulated by law and all gaming activities are
in principle subject to licence. Cherry’s operations
are therefore influenced to a considerable
extent by political decisions. The legal situation
for gaming on the Internet changes on a regular
basis in different geographical markets.
Cherry is actively engaged in remaining informed
of any changes concerning gaming
legislation in Europe.
LEGAL DISPUTES
Persons who suffer from an addiction to
gaming may come to sue companies within the
Cherry Group for their gaming abuse. Even if
such claims are overruled, they could give rise
to substantial legal costs and possibly a loss of
confidence in Cherry, which by extension would
lead to a reduction in earnings. Cherry’s gaming
sites give customers the opportunity to
decide for themselves how much they want to
play for and there are several gaming responsibility
tools for players on the sites, where the
player can decide to switch off, or limit the
amount to play etc. Cherry also works together
with our partners with Global Gambling Guidance
Group (G4), an organisation that certifies
responsible gaming websites on the Internet.
Concerning traditional gaming we have the opportunity
via physical croupiers to refuse players
who have, for example, been drinking too
much. The stakes in Restaurant Casino are restricted,
which minimises the risk of addiction.
Cooperation agreements with partners and
customers can result in legal disputes and applications
for summons.
During 2011 Cherry received a claim from
Norway’s Lotteri- og stiftelsetilsyn (Gaming
and Foundation Authority) where they demanded
that Cherry should stop its marketing
of gaming on EuroLotto.com in relation to Norwegian
players. Cherry finds that the claims of
Norway’s Lotteri- og stiftelsetilsyns are invalid
in that they are directed towards the parent
company Cherry AB (plc) and not EuroSlots
Ltd, and also because they are in conflict with
EEA law, which is superordinate to Norwegian
legislation. Cherry issued an appeal on 5 May.
On 8 July Norway’s Lotteri- og stiftelsetilsyn informed
that the case will be referred to Lotteri-
nemnda (Lottery Committee) in Norway. On 28
October Norway’s Lotterinemnda announced
that the injunction of Lotteri- og stiftelsetilsynet
against Cherry remained in place. On 9 January
2012 the Ministry of Culture announced that
the claim remained in place. No penalties have
been announced.
Cherry submitted a lawsuit in January
2013 at Oslo City Court against the Norwegian
state concerning the injunction issued against
Cherry AB. Cherry will await the decision of
the court before taking any measures.
Cherry has in 2012 initiated a legal process
against a supplier in Online Gaming. Cherry
has won in the first instance and feels confident
of winning the legal process, which would
have a positive financial effect on Cherry.
Cherry estimates that the process will be resolved
in 2013, or in the first half of 2014.
There are no other legal disputes in progress
from previous years and no lawsuits or other
claims other than the above that have been
directed at Cherry during the year or after the
year end.
COMPETITION
The Swedish restaurant casino market is a mature
market and characterised by a large number
of small players. In line with a possible
reconciliation of Swedish gaming legislation to
international legislation, the board expects that
competition may increase. The board considers
that Cherry has an established and solid position
on the Swedish restaurant casino market.
Further political decisions with a negative
effect for the Cherry Group, or increased competition
from financially stronger competitors,
can result in significant negative effects
for Cherry. There are many competitors with
similar products in online gaming and this
competition can in the future come to further
increase from Internet based players. Online
gaming is a highly competitive market, and
one that requires a lot of marketing. Cherry is
actively engaged in strategic policies to handle
any increase in the competition.
RELIANCE ON LARGE CUSTOMERS
There are more than 200 customers in the
business areas in the Cherry Group. No single
customer accounts for more than ten percent
of group sales. Cherry is actively engaged in reinforcing
its customer relations in all business
segments.
CUSTOMER AGREEMENTS
Some of the customer agreements in the
Cherry Group in Restaurant Casino can be
cancelled, i.e. if the restaurant or night club in
which the activity is conducted is transferred,
sold or its management is taken over by another