- Revenues up 17.5% to $76.7m
- Large write-off of $21.5m Research & Development work
- EBITDA [earnings before interest, tax, depreciation and amortisation] (ignoring this write-off) rose 20.5%
- Operating losses of $8.0m, ignoring this write-off
- Post tax profits of $0.1m thanks to a tax credit., ignoring this write-off
- Net cash spent during the year of $2.6m
- Net debt rose to $16.5m
- Net debt to ebitda 1.0x (vs covenants of 1.5x)
Revenues in CCPs largest market, the US, rose 11.6% to $37.4m whilst Europe showed a much faster growth of 17.9% to $29.6m.
We don't yet know how much came from China though Asian sales rose from $2.4m in 2012 to $5.2m in 2013 - i would assume c75% of that is from China (Australia is not counted as part of Asia). We know that Chinese subscriber numbers doubled over 2013.
Profitable only because of a tax credit and tax to be deferred: CCP has a subsidiary based in the US state of Georgia which has a film tax credit which can be sold to third parties. This year this generated $3.5m income (vs $2.5m in 2012). The remaining $6m benefit came from the tax to be deferred into future years on underlying losses and the R&D amount written-off.
The general rise from $16.5m to $35.1m is due to Dust514 coming online and so those prior capitalised R&D costs are now being amortised.
In 2012 the amortised R&D related almost entirely to Eve Online = $11.2m. Therefore, the increase in amortisation to $25.4m reflects the inclusion of Dust514 for 6 months only.
In the first 6 months of the year, the amount amortised was $7.6m which related to Eve Online and therefore that would indicate that the full year amount for Eve-Online $15.2m. This would suggest that 6 months of Dust514 amortisation was $10.2m ($25.4m - $15.2m). Hence, the indicated full year rate for Dust514 is $20.4m. Therefore, the annual amortisation charge would now be $15.2m + $20.4m = $35.6m.
Firstly, that is a very high annual amortisation amount for Dust514 ($20.4m) and feels like CCP has decided to accelerate the write-off period (they can choose to write-off the capitalised costs in anywhere from 1 to 6 years).
Secondly, the entire remain capitalised R&D is now $59.6m vs an underlying P&L R&D cost of $35.6m pa - that suggests that the entire amount would be written off in under 2 years. However, the Eve Online costs that are being capitalised i suspect will be written-off over the full 6 years and so i suspect most of the remaining $59.6m is now Eve Online / Valkyrie related and so i would be expecting a much lower R&D cost in the P&L going forwards.
In all, i suspect CCP has decided that a large amount of the capitalised Dust514 R&D is unlikely to be covered by future profits from Dust514 hence the write-off and all the R&D spent in 2013 on Dust514 was put straight through the P&L. Note, this is not the same as saying Dust514 will be scrapped - just that prior costs can no longer be justified.
Hence, i suspect the Dust514 related R&D as at June 2013 (i.e. before it was reduced) was $10.2m + $21.5m = $31.7m at the upper end to $21.5m at the lower end.
None of this R&D written-off is cash related in 2013 - it instead relates to cash that was spent in the years leading up to 2013.
What is cash related though is the $30.5m salaries pa spent on R&D people (for that i assume programmers etc). In 2013 $20.1m of that was capitalised - it will be interesting to see what will be capitalised in 2014.
. . . . . . as a final comment, the convertible bonds which are listed on the Nordic Nasdaq did not move an inch - infact, as far as i can tell, not a single bond has been bought or sold since they listed in June 2013.