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Wednesday, 30 October 2013

CCP Financial Position

I am introducing a new feature in my Blog which will look at the financial position of CCP, the producer of Eve Online.

I have introduced two new pages:

CCP Financials (as Published) which shows the Profit & Loss Account, Balance Sheet and Cash Flow Statement as published by CCP for 2009 to 2012.

CCP Financials (my forecasts) which shows the last 2 years of the published financials and my efforts at forecasting the next 2, so 2011 to 2014.

All posts on the CCP financial position will come under the label <CCP Financials>

Given CCP issued a $20m convertible bond in July 2012 and listed it on the NASDAQ OMX exchange in July 2013 we have more financial data available to work with.

There will be many more posts on this including discussions on how I arrived at my forecasts and observations into the published CCP financials - my next post on the CCP Financials will look at how I determined the Eve Online revenues forecasts.

For now though, in Summary, we are looking at a profitable company that is spending more cash than it generates to develop new games - hence it is having to borrow money to maintain its spending plans.  2014 will be a key year in proving the profitability of CCP - the company needs EVE Online to continue to grow at the very least through 2013 and into 2014.  It does not need any of its other ventures to come through to be a viable company.

Don't confuse profits with cash - there are differences.  CCP generates profits but it does not generate cash at this stage.  Eventually, a company has to generate cash or it goes insolvent  I expect CCP to generate cash in 2014.  In the last 5 years CCP has only generated cash in one year and that was 2009.  The main difference between cash and profits is the costs of developing new games and expansion packs are not expensed until later but of course the cash has to be paid now.

Net debt at the end of 2012 (i.e. all borrowings less cash) was $12.4m and I expect this to rise to $17.1m in 2013 before falling back in 2014 [in my pages I refer to Net Cash which is the -ve of Net Debt].  I don't see any problem at this stage with refinancing the convertible bond which is due in July 2016.

My forecasts may be a little too high on the revenues though I have nothing in for Dust at this stage.

Revenues in 2012 were $65.3m off 355,000 subscribers and I expect this to rise to $80.7m off 483,100 subscribers in 2013 (includes China).  However, profits after all costs in 2012 were $4.7m and I expect this to fall to $1.9m in 2013 due to rising Development amortisation for the launch of Dust (i.e. once Dust was launched all the Development spending can now be expensed through the Profit & Loss account over 4 years which in the initial years will be higher than the revenues Dust brings in - hence, Dust is loss making in its first year or two).

2012 did not see any growth in the number of subscribers and hence no growth in revenues.  However, a rise in Marketing costs and a rise in amortisation of prior Development costs (poor expansion packs have a cost but little revenue generation!) caused profits to almost halve to $4.7m, and hence net debt rose from $8.9m to $12.4m.

Below the operating profit line the accounts are messy with currency movements and tax credits all over the place.  If I focused on operating profits then in 2012 operating profits fell from $7.8m to $2.8m . . . . . that gives a better idea of the effect of a poor expansion pack and the launch of Dust.

The charts below give a brief summary of the historic and forecasts Profits and Cash Flows:

Free Cash Flow is cash flow after all costs but before payments to shareholders - i.e. it is the cash flow the company generates.  Operating Cash Flow is the cash flow a company generates before spending on expansion programs.  Net Cash is the cash less all borrowings - when it is -ve then the company is carrying net debt.


  1. Is there anyway to tell how much of its workforce is dedicated to EVE vs DUST / World of Darkness ETC.

    I'm curious as to how much they are working on EVE vs using that income to develop other properties.

    1. not obvious. CCP employed an average number of 505 people in 2012 and paid them $34.0m. Of that $34.0m there was $24.3m relating to Research & Development which indicates that c361 people work in Research & Development (that of course wrongly assumes that everyone is paid the same . . . . but lets go with that for now).

      of that $24.3m there was $18.6m that was capitalised as development costs which indicates that there are 276 people working in Development leaving the other 85 working (I assume) on research and Eve Online.

      It is not clear to me if CCP capitalises Eve Expansion pack costs. But, if they do not then that would indicate that CCP has 276 people working on Dust / World of Darkness.