Cherry AG reports results for second quarter and first half year 2022
/ Key word(s): Half Year Results
Cherry AG reports results for second quarter and first half year 2022
Munich, August 11, 2022 – Cherry AG [ISIN: DE000A3CRRN9] today published its unaudited condensed consolidated financial statements for the first half of 2022 and confirmed its current forecast for the full year 2022.
"The double-digit growth in the Digital Health business and the success of our e-commerce activities in the Peripherals business have resulted in continued growth of the PROFESSIONAL business area despite the current difficult market conditions," said Rolf Unterberger, CEO of Cherry AG, commenting on Cherry's business performance in the first half of 2022. "In contrast, the ongoing supply chain disruptions, lower demand for switches, and various lockdowns in China continued to impact our GAMING business area in the second quarter, as expected. In the medium and long term, however, we continue to see very good growth prospects due to our successful Ultra Low Profile switches and our innovative, high-quality product portfolio, which will be driven by the major trends in gaming, mobile working and the digitalization of healthcare."
Despite the current challenging environment, business with our globally unique CHERRY MX Ultra Low Profile mechanical switches continued to perform very favorably. In Q2, other well-known manufacturers such as Dell, MSI, XMG, Corsair, and Cairn Devices all announced their intention to use CHERRY MX Ultra Low Profile switches in their high-end gaming laptops and/or desktop keyboards, expanding the existing customer base as planned.
We had exciting developments to our brand and product portfolio. Cherry received numerous awards and nominations in the first half of 2022 for the CHERRY brand, customer satisfaction, and outstanding innovation, design, and quality. We launched exciting new products in Q2 based on CHERRY Advanced Wireless technology such as our new wireless gaming keyboard with 1 MS latency which now provides gamers with the same fast performance as wired keyboards. We also launched specific mechanical keyboards using the CHERRY MX Ultra Low Profile switches. An ergonomic design, an optimized typing feedback, a reduced form factor without a number pad, as well as high-quality materials are intended to ensure sustainable product quality for mobile users.
“Despite current market headwinds, we continue to invest for growth to capitalize on the many opportunities we see in front of us,” adds Bernd Wagner, CFO of Cherry AG.
Group revenue amounted to EUR 65.9 million for the first half of 2022 (H1/2021: EUR 80.3 million), with the PROFESSIONAL business area's share of Group revenue increasing to approximately 62.3% (H1/2021: 47.7%). The changed product mix within the Group due to lower demand for switches combined with higher material costs are the main reasons for a lower adjusted Group EBITDA of approximately EUR 9.4 million for the six-month period (H1/2021: EUR 24.2 million), resulting in an adjusted EBITDA margin of 14.3% (H1/2021: 30.2%).
Revenue in the PROFESSIONAL business area increased by 7.0% year on year to EUR 41.1 million in the first half of 2022 (H1/2021: EUR 38.4 million). Revenue in the Digital Health business unit grew significantly by 33.9% to EUR 13.7 million, driven firstly by rising demand for hygiene input devices and secondly by Cherry's strong competitive position and the high demand for e-health terminals. Despite strong e-commerce sales, the Peripherals business unit, at EUR 27.3 million, was slightly down from the previous year (H1/2021: EUR 28.1 million) and, at EUR 7.3 million, adjusted EBITDA for the PROFESSIONAL business area was below the level recorded one year earlier (H1/2021: EUR 9.0 million). The adjusted EBITDA margin came in at 17.8% compared to 23.5% in the previous year.
Disruptions in global supply chains, the temporary closure of Chinese production and logistics sites in response to the COVID-19 pandemic, high customer inventory levels and the current trend among end consumers towards smaller gaming keyboards led to lower demand for keyboard switches and gaming devices and consequently to a decrease in revenue of 40.9% to EUR 24.8 million (H1/2021: EUR 42.0 million) in the GAMING business area in the first half of 2022. At EUR 2.1 million, adjusted EBITDA was significantly below the previous year's level of EUR 15.2 million. The adjusted EBITDA margin came in at 8.5 (H1/ 2021: 36.3%).
Cherry’s cash position remains strong with cash and cash equivalents of EUR 99.7 million and net cash of EUR 37.9 million.
Net working capital, i.e. current assets (excluding cash and cash equivalents) less current liabilities (excluding financial liabilities), climbed by 20.5% over the six-month period under report from EUR 38.0 million to EUR 45.8 million, mainly due to a EUR 8.1 million build-up of inventories. The increase in inventories on this scale primarily reflects the slowdown in global economic activity and logistical processes, and secondly the strategic decision taken to stockpile certain items in order to establish and expand the e-commerce business. Working capital therefore amounted to 69.5% of revenue.
Cash flows from operating activities for the six-month period totaled EUR 0.3 million, which is an improvement of EUR 2.7 million from the prior year. Cash flow was impacted due to the build-up of inventories in conjunction with a decline in revenue in the Components business unit.
Cash outflows for investing activities amounted to EUR 6.3 million in the first six months of 2022. During this period, mainly machinery and tools, some of which are still under construction, amounting to EUR 2.9 million, and intangible assets amounting to EUR 1.8 million were recognized as additions to assets in the balance sheet. Total capital expenditure was below depreciation and amortization, which amounted to EUR 7.8 million.
Equity reported in the consolidated statement of financial position as of June 30, 2022 amounted to EUR 293.5 million, up EUR 0.3 million compared with December 31, 2021 (EUR 293.2 million). Positive currency effects of EUR 2.9 million were partially offset by the Group loss of EUR 0.6 million and share buyback program of EUR 1.9 million.
The equity ratio as of June 30, 2022 was 72.0%, 0.7 percentage points higher than the ratio as of December 31, 2021 (71.3%).
The Cherry Group's total assets as of June 30, 2022 amounted to EUR 407.7 million and decreased only slightly by EUR 3.2 million during the first half of 2022 compared with December 31, 2021 (EUR 411.0 million).
During the first half of 2022, Cherry implemented a broad set of measures to expand its strategic course of growth in the medium and long term. These include in particular the further strengthening of its management resources, investments in the IT infrastructure, the additional build-up of inventories with a view to ensuring supply capability for the planned expansion of the Group's e-commerce business, and stepping up sales activities in defined new markets.
A deteriorating global economic outlook for the current fiscal year combined with near-term headwinds in the gaming market resulted, on July 18, 2022 for the Management Board to update its original forecast for the 2022 fiscal year with the publication of insider information pursuant to Article 17 of the Market Abuse Regulation (MAR). Accordingly, Group revenue is now expected to be within the range of EUR 150–170 million (previously: EUR 170–190 million), with an adjusted EBITDA margin of 14–19% (previously: 23–26%).
For the PROFESSIONAL business area, the Management Board still expects revenue growth in the low double-digit percentage range for the current fiscal year. In addition to the targeted further expansion of the product portfolio in the Peripherals business unit, growth will be driven primarily by the selective expansion of sales channels, particularly the e-commerce business via major online marketplaces in Europe in the second half of the year. Moreover, in the Digital Health business unit, the successful ST-1506 e-health terminal designed for use in the telematics infrastructure for healthcare in Germany is expected to contribute to overall revenue growth. The (adjusted) EBITDA margin in this business area will be impacted by increased investments in new products, software, personnel, and marketing expenses designed to drive future growth in the e-commerce business and expansion in the Asia-Pacific region and is therefore also likely to be lower.
Against the backdrop of the global economic slowdown and rising inflation expected for the remainder of the year driven by the war in Ukraine, the ongoing supply chain disruptions due to the lockdowns in China, high customer inventory levels, and the related cyclical decline in demand for certain mechanical keyboard switches, the Management Board expects the GAMING business area's revenue for the full year to be lower than previously anticipated (previously: revenue growth in the mid-single-digit percentage range), with a lower (adjusted) EBITDA margin due to macroeconomic-related and temporary material price increases, freight costs as well as one-off marketing expenses for expansion in the Asia-Pacific region.
The unaudited 2022 half-year financial report is available on Cherry's website at https://ir.cherry.de/.
Cherry AG [ISIN: DE000A3CRRN9] is a global manufacturer of high-end mechanical keyboard switches and computer input devices. The business focus is on mechanical keyboard switches for gaming keyboards as well as various computer input devices, which are used in a wide range of applications – especially in the areas of gaming, office, industry and cybersecurity as well as solutions for the healthcare industry. Since its founding in 1953, Cherry, with its two business areas Gaming and Professional, has stood for innovative and high-quality products that are developed specifically to meet the 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 several sales offices in Auerbach (Germany), Paris, Kenosha (USA), Taipei and Hong Kong.
More information is available online at: www.cherry.de
Dr. Kai Holtmann
Einsteinstraße 174, c/o Design Offices Bogenhausen, 81677 Munich, Germany
Postal address: Cherrystrasse 2, 91275 Auerbach, Germany
T +49 (0)175-1971503
F +49 (0)9643 20 61-900
11.08.2022 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG.
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