EQS-News: With a successful 2nd quarter, Cherry SE ahead of plan in terms of sales and profitability in the 1st half

With a successful 2nd quarter, Cherry SE ahead of plan in terms of sales and profitability in the 1st half

Munich, August 14, 2023 Cherry SE [ISIN: DE000A3CRRN9] today published its half-year report 2023 and confirmed its outlook for the current fiscal year.

In the first half of the year, the new Cherry SE management team dedicated itself to implementing a range of individual internal and external measures as well as strategically adjusting business activities. Our efforts are now beginning to bear fruit. We were already able to recoup the budgeted first-quarter operating loss in the course of the second quarter with a marked improvement in earnings. At the halfway stage of the year, business performance exceeded our budgeted targets for both revenue and operating profitability. We remain fully committed to achieving operational excellence at every level and across all corporate functions, said Oliver Kaltner, CEO of Cherry SE, commenting on Cherrys business performance. With targeted strengthening at management level, improved internal checks and balances, and comprehensive cost management, we will continue to grow quarter for quarter in the further course of the year on the back of the strong growth drivers relevant for our business. Accordingly, we remain confident in our ability to achieve our targets for the fiscal year 2023.

For the current fiscal year, we confirm our outlook with Group revenue to be within the range of EUR 135 and 165 million and an (adjusted) EBITDA margin of between 10% and 14% this year, adds Mathias Dähn, CFO of Cherry SE. In addition to ensuring operational excellence and implementing our strategic goals, our focus in the second half of the year will be on intensive margin and inventory management as well as cash conversion.

In the first half of the year, Cherry generated Group revenue amounting to EUR 61.3 million (H1/2022: EUR 65.9 million) and adjusted EBITDA of EUR 3.2 million (H1/2022: EUR 9.4 million). This corresponds to an adjusted EBITDA margin of 5.2% (H1/2022: 14.3%).

Recent business developments are in line with the plan drawn up by the management team. Business with gaming devices and peripherals for office and industry developed well compared with the previous year despite the remaining macroeconomic challenges. Both business units achieved significant year-on-year revenue growth. By contrast, sales in the Components and Digital Health & Solutions business units remained subdued, although Digital Health & Solutions saw a significant upturn in the second quarter.

The GAMING business area generated revenue of EUR 20.5 million (H1/2022: EUR 24.8 million) in the first half of the current fiscal year. Adjusted EBITDA amounted to EUR 0.3 million (H1/2022: EUR 2.1 million), with an adjusted EBITDA margin of 1.7% (H1/2022: 8.5%).

The decline was mainly attributable to the Components business unit, where revenue decreased by 48.5% to EUR 6.7 million (H1/2022: EUR 13.0 million). Demand for switches also remained subdued in the first half of the current fiscal year. Due to the twin impact of the COVID-19 pandemic and the Ukraine war, business at many OEMs was down sharply, which is why distributors and customers alike still have large inventories in some cases.

With revenue of EUR 13.8 million, the Gaming Devices business unit also performed better than in the previous year (H1/2022: EUR 11.8 million). The growth resulted primarily from the acquisition of the Swedish e-sports specialist Xtrfy in January of the current fiscal year. With this acquisition, Cherry has succeeded in purposefully supplementing its existing gaming product portfolio and also gained better access to the gaming and e-sports community. In order to be able to fully exploit the potential and synergies arising from this move, the two companies will be pooling all competencies in a holistic manner from now on. Externally, this fact is reflected in particular by a joint brand presence under the new name CHERRY XTRFY.

The PROFESSIONAL business area generated revenue of EUR 40.8 million (H1/2022: EUR 41.1 million) in the first half of the current fiscal year. Adjusted EBITDA amounted to EUR 2.9 million (H1/2022: EUR 7.3 million), with an adjusted EBITDA margin of 7.0% (H1/2022: 17.8%).

Business with peripherals for office and industry applications within the Peripherals business unit developed extremely well. Revenue grew by 20.1% year on year to EUR 32.8 million (H1/2022: EUR 27.3 million), despite the fact that revenue from security devices has been allocated to the Digital Health & Solutions business unit since the second quarter 2023.

By contrast, the Digital Health & Solutions business unit continued to be impacted by politically related uncertainties. Business with safe, hygienic input devices for the healthcare sector generated revenue of EUR 8.1 million and was therefore down by 40.9% on the previous year (H1/2022: EUR 13.7 million). Since the beginning of the second quarter 2023, revenue generated with security devices has been reported in the Digital Health & Solutions business unit, whereas previously it was allocated to the Peripherals business unit.

The gross profit of EUR 18.5 million generated in the first half of 2023 was EUR 2.3 million down on the previous year (H1/2022: EUR 20.8 million), partly due to the lower level of revenue recorded. The gross margin also fell by 1.4 percentage points to 30.2% (H1/2022: 31.6%), mainly reflecting unfavorable product mix effects. Furthermore, the prior-year period included a positive exceptional impact of EUR 2.3 million arising on the change in estimates of obsolescence write-downs recognized in conjunction with the valuation of inventories.

Adjusted EBITDA was EUR 3.2 million in the first half of the year (H1/2022: EUR 9.4 million), corresponding to an adjusted EBITDA margin of 5.2% (H1/2022: 14.3%). In the first half of 2023, a total of EUR 1.6 million of non-operating exceptional effects were adjusted. Of this amount, EUR 1.3 million related to expenses in conjunction with the personnel changes in the Management Board (CEO and CFO) and a further EUR 0.2 million to expenses in conjunction with M&A activities. The remainder was primarily attributable to personnel recruitment costs required to find a General Counsel and other consulting expenses relating to the conversion of the legal form of the holding company into an SE.

As of June 30, 2023 the Cherry Groups total assets amounted to EUR 364.7 million and therefore decreased by EUR 14.4 million during the first half of 2023 compared with December 31, 2022 (EUR 379.1 million).

Current assets amounted to EUR 160.4 million and were therefore EUR 16.4 million below the figure recorded as of December 31, 2022 (EUR 176.8 million). The reason for this was a EUR 40.5 million reduction in cash and cash equivalents to EUR 52.4 million, brought about by a number of factors. Firstly, cash at bank was used to additionally build up inventories, which increased by EUR 15.3 million to EUR 80.3 million during the period under report. The increase in inventories, mainly driven by the Peripherals and Gaming Devices business units, partially related to the implementation of the e-commerce strategy and the strategic gaming initiative Gaming Goes Global as well as the acquisition of Xtrfy, which included inventories amounting to EUR 2.9 million. However, a significant proportion of these inventories will be utilized as revenue is generated during the second half of the year. Another reason for the reduction in cash and cash equivalents was the EUR 8.6 million increase in current trade receivables to EUR 24.9 million, driven by the high levels of revenue generated in May and June, some of which have prolonged payment terms of up to 90 days and therefore do not affect liquidity until the following months.

Group equity decreased by EUR 8.7 million to EUR 243.2 million in the first half of 2023 (December 31, 2022: EUR 251.8 million). The main reasons for the lower figure were the net loss of EUR -5.0 million reported for the first half of 2023, the reduction of share capital and capital reserves amounting to EUR -2.5 million as part of the share buyback program, and negative currency effects of approximately EUR -3.4 million, which were recognized in accumulated other comprehensive income. The equity ratio as of June 30, 2023 was 66.7%, 0.3 percentage points higher than the ratio as of December 31, 2022 (66.4%).

Cash outflow from operating activities amounted to EUR -26.6 million in H1/2023, a deterioration of EUR 26.8 million compared to H1/2022 (EUR +0.3 million). The development was mainly attributable to the increase in net working capital (NWC), comprising the net amount of current assets (excluding cash and cash equivalents) and current liabilities (excluding financial debt). NWC rose by around 68.2% from EUR 40.9 million to EUR 68.8 million in the first half of the current fiscal year. The main reasons were the further build-up of inventories amounting to EUR 15.3 million, a EUR 8.6 million increase in current trade receivables, and a EUR 4.5 million reduction in current trade payables. NWC also rose by EUR 7.8 million in H1/2022, but the increase in the current fiscal year was EUR 20.1 million higher than in the previous year. In addition, the net loss reported for the six-month period was EUR 4.4 million higher than one year earlier, with a corresponding negative impact on cash flows from operating activities.

In the Combined Management Report 2022, the Management Board provided a detailed explanation of the assumptions and longer-term trends underlying its forecast for the 2023 fiscal year.

In view of the fact that Cherry has surpassed its own forecast for the first half of 2023, based on the measures taken and despite the ongoing challenging market environment, the Management Board expects the positive trend initiated in the second quarter 2023 to drive business performance in the second half of 2023. The Management Board therefore confirms its forecast of March 30, 2023 for the current fiscal year with revenue in the region of EUR 135 to 165 million and an adjusted EBITDA margin of 10 14%.

In addition to the internationalization of its business, Cherry sees the seasonal peaks in demand in both the B2C and B2B business due to various sales events such as Black Friday, Cyber Monday, and the Christmas season at the end of the year as key growth drivers for the second half of 2023 for the Gaming Devices and Office Peripherals business units. Cherry is also planning various product launches and updates during the further course of the year. Finally, Cherry sees increasing collaboration with influencers, e-sports organizations, and other complementary brands as an effective way of driving growth. As expected, sales volume in the Digital Health & Solutions business unit will benefit from the current Digital Act (DigiG) legislative project as well as from the introduction of the e-prescription redemption process via the electronic health card (eGK), which will also be established as a mandatory, fully digital standard in the provision of medicines as of January 1, 2024. In the Components business unit, initial revenue contributions from the MX2 generation of switches and the increased sale of ULP switches are expected to drive growth in the further course of the year.

The underlying global growth trends in the markets for e-sports and gaming, hybrid office workplaces, and the increasing digitization of the German healthcare system continue to be positive factors for Cherry and also represent strong growth drivers for our business in the medium term.

The Cherry Group as a whole aims to return to an adjusted EBITDA margin of over 20% in the medium term.

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The half-year report 2023, together with the unaudited condensed consolidated financial statements of Cherry SE as of June 30, 2023, in accordance with IFRS are available on the Cherry website at https://ir.cherry.de.

About Cherry

Cherry SE [ISIN: DE000A3CRRN9] is a globally operating manufacturer of high-end mechanical keyboard switches and computer input devices such as keyboards, mice, and headsets for applications in the worlds of gaming, e-sports, office and hybrid workplaces, industry, and healthcare. Since it was founded in 1953, Cherry has been synonymous with innovative, high-quality products developed specifically to meet the various needs of its customers.

Cherry has its operational headquarters in Auerbach in Germany's Upper Palatinate region and employs over 500 people in production facilities in Auerbach, Zhuhai (China), and Vienna (Austria) as well as in various sales offices in Auerbach, Pegnitz, Munich, Landskrona (Sweden), Paris, Kenosha (USA), Taipei, and Hong Kong.

More information is available online at: https://cherry.de/

Contact:

Dr. Kai Holtmann

Investor Relations

Rosental 7, c/o Mindspace, 80331 Munich, Germany

Postal address: Cherrystrasse 2, 91275 Auerbach, Germany

T +49 (0)175-1971503

F +49 (0)9643 20 61-900

E-mail: kai.holtmann@cherry.de