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Saturday 29 March 2014

Seeding a new market

I have decided to seed the Lonetrek market with the items that i manufacture.

I honestly don't know how this will go, it is not a trade hub.  But if it fails i know i can move the items to another area or send them to replace items i have sold in one of the current trade hubs.

I am hoping i will intercept buyers coming in to Jita and so allow them to make purchases instead of having to try to get to Jita.  Well, that is the plan anyway!

The Lonetrek region one jump out of Jita and so i am using my manufacturer to put the sell orders up.

In all, i have set up 38 items in Lonetrek (as per usual they are slow moving but high margin) which i would hope to sell for c3bn ISK making me a profit of c1.5bn ISK.

My strategy is to put 1 of each item up.  As an item sells, i will be replacing it with 3 of that item.

So far, i have made sales of c700m ISK.  Slow going to date.

Wednesday 26 March 2014

CCP - 2013 Results

The CCP 2013 results are out - not the full Report & Accounts where we can learn all about subscribers etc - only the financial statements.

  • 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 up most since 2009: Against what i was expecting the Revenues where slightly less than hoped, though after a rise of +7.1% in 2010, +10.2% in 2011 and no rise at all in 2012 then a rise of +17.5% in 2013 is most welcome.

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.

Most costs under control: Most of the costs such as Publishing, Marketing and G&A seem to be under control.  In fact, G&A (General and Admin - so read as all costs not associated directly with programming, marketing, publishing, selling) was actually down 1% which is very impressing given the rise in revenues.  It looks like salaries in G&A fell by almost $1m from $9.8m to $8.9m which suggests some lay offs.

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.

Drama in the R&D department: The two stand out items were the write-off of R&D of $21.5m and the increase in underlying R&D from $16.5m to $35.1m, as shown in the table below:

From the notes in the statement we know that the write-off of $21.5m occurred in Iceland (sort of suggests Eve Online or Dust514 related).  We can but speculate what this related to but personally i would put it down to either World of Darkness being canned (this has programmers in Iceland?) or much of the Dust514 capitalised costs being written-off - the latter is looking likely.  The accounting rules only allow R&D costs to be capitalised if the profits from the sale of the product over future years are expected to cover these capitalised costs.  We will learn more when the full Report & Accounts come out but i am leaning towards an accelerated write-off of Dust514 capitalised costs - more below.

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.

Saturday 22 March 2014

Eve Online Music

Just a short post to remind everyone, and tell those that do not know, that the Eve music can be found at soundcloud.

My current playlist is:

I have included it in the "Useful Links" section of my blog on the right which includes the Urls to Push Industries, Eve Central and the Eve Online Server Status Monitor.

Sunday 16 March 2014

Margin Scams in Local Chat

The famed "margin scam" - this is what it is all about.

In the local chat window in Amarr the below comment appears:

and clicking on the link brings you to the market window:

So, on the face of it i could buy this item for 1.5bn x2 at this station and haul it to another station in the same solar system and sell for 3.0bn x2, and so netting me a profit of 3.0bn before taxes in under a minute.  Notice the minimum volume that i have to sell for 3.0bn is 2 items.

Unfortunately, that is somewhat unlikely.

What has happened here is that the buy order is likely set up on margin and the character that set it up will not have the funds to complete the buy order.  In other words the character has only had to put 600m ISK as escrow and the ISK remaining on the character is nil.

The scam part is because the same player has another character that has put the two items up for sale - most likely bought for much less in the first place.

The victim will buy those two items for 1.5bn and attempt to sell them for 3.0bn each and the sell order will fail leaving the victim with 2 overpriced items in their inventory!

The Scammer will then have sold 2x 1.5bn for the cost of 120m ISK purchase price + 600m ISK escrow.

and to prove the point, the character in the comment is barely 9 days old:

Sunday 9 March 2014

February Update

As expected, a slow month with profits of 10.0bn ISK.  I had expected nearer 7bn but my manufacturing business is really going well.

February, March and April will be slow given real life commitments are taking over.  Indeed, i don't expect to log in much during March at all.

Therefore, during these months i am only selling the T1 items i manufacture and only trading other items where i make at least 15m ISK profits and 20% margins.

My strategy is to focus on low volume but high margin items that i either manufacture or buy (off sell orders) in Jita to sell in Dodixie / Hek / Rens / Amarr.

I don't have standings of note.

Despite being away from Eve for 2 weeks in February or so my wealth increased by 10.0bn ISK to 83.9bn ISK, which is an average of 321m ISK per day.  I made a blunder which cost me 800m ISK.

For those able to devote much more time to Eve, one way of reading this blog is to see how little time is required to generate sufficient ISK to plex your own account.

I have 2 accounts with 6 alts in total.
  • One one account: I have a trader at Dodixie and a trader at Hek which sell items that have been hauled there from Jita; and I have a manufacturer in the Lonetrek region that sells items in Jita and sends items to the traders in Dodixie, Hek, Amarr and Rens to sell.
  • On the other account: I have a buyer in Jita that is is only there to buy items in Jita to send to the traders in Dodixie, Hek, Amarr and Rens; I have an alt that is skilling up in Invention which currently sits in Amarr to sell the items manufactured by my Lonetrek manufacturer; and i now also have an alt that sits in Rens to also sell the items manufactured by my Lonetrek manufacturer.
All my hauling is done by third parties, namely PushX Industries - the time required to haul items from Jita to my traders in Dodixie and Hek would take up too much time.  Better to let these third parties do the hauling (for a fee, of course) whilst i am offline.  All my hauling is "Rush Jobs" and generally takes no less than 5 hours (often in under an hour) to haul from Jita to my four locations in Dodixie / Hek / Amarr / Rens (which are also the other trade hubs).  On average i pay 25m ISK per haul but it is well worth it given i can get those items bought in Jita onto the market in the other trade hubs very quickly and the hauling costs make up 1 to 3% of my sales price.  Not much given i aim to make 20% margins before all costs (hauling, broker fees, sales taxes).  I wrote a post on Rush Jobs which details why it is more profitable paying up.

I am now buying 2 Plex a month to finance my two accounts.  Up until December 2013 i had only needed to buy 1 Plex per month.  So, 1.2bn ISK per month costs going forwards.  This month i benefited from some kind soul upgrading their account having used the link to the right >>>>>>>>>

I biggest headache was that i was sitting on too much ISK which was not invested in the market.  I am sitting on 25bn ISK which is dead money.  I know two things about that ISK.  Firstly, it will be there tomorrow with no chance of making a profit (or a loss).  Secondly, there is inflation in Eve so in effect it is not keeping up with the cost of living in Eve - in other words, its value to me in the future is lower than its value to me today.

I decided to invest 8.5bn ISK in 10 Plex and indeed have increased this investment into a further 20 Plex.  As of writing this post, i now have 30 Plex worth 19.1bn ISK.  At some stage i will write a post detailing my thinking behind this - but i expect to continue to invest all profits made each month into Plex from here.

Dodixie trader: Life remains good for this trader.

Items for sale rose back to December's level of 22.0bn ISK from the prior month's 17.7bn ISK.

I sell manufactured items that my manufacturer makes in Lonetrek, and any item i can find that makes profits of over 15m ISK, has a profit margin of over 20% and is a slow seller.  I.e. ship equipment, implants, ship modifications, a few skillbooks and a few blueprints.

I am now completely out of station trading.

The alt is currently using 80 of the 141 trading slots - that may go down in February.

This alt pays 0.80% broker fees to post an order and a further 0.90% sales tax on a successful sale.  No longer training.

There are no medium term goals for this alt – for now i will focus on the manufactured items from my alt in Lonetrek and selling expensive items hauled from Jita.

Hek trader: Life remains good.

Items for sale rose to December's level of 14.2bn from the prior month's 12.8bn ISK.

Much like the Dodixie trader I sell manufactured items that my manufacturer makes in Lonetrek, and any item i can find that makes profits of over 15m ISK, has a profit margin of over 20% and is a slow seller.  I.e. ship equipment, implants, ship modifications, a few skillbooks and a few blueprints.  Other than the manufacturer items, there are very few common items i sell in Dodixie and Hek.

Following this move i now use 63 of the 129 available sell slots - this may fall as i focus on the more expensive items to sell.

Pays 0.80% broker fees to post an order and a further 0.90% sales tax on a successful sale.  No longer training.

Amarr Trader: Going very well.

Only really fully started up in mid December and focuses solely on items manufactured by my alt in the Lonetrek region.  During February this alt's sales were 5.6bn ISK (7.3bn prior month) and i suspect the profits were 2.8bn ISK.  Items for sale at the month end were 9.7bn ISK.

At present, i have no plans to expand into selling other items - i will stick to selling the items my manufacturer produces.  Amarr, being the second largest trade hub, can be very competitive.

Following this move i now use 23 of the 37 available sell slots - i am increasing the number of available slots and looking for a few expensive items to sell.

Pays 1.0% broker fees to post an order and a further 1.5% sales tax on a successful sale.  No longer training.

The main aim of this alt is to train up for Invention, and here the training goes on.  Needless to say, with being busy in rl this whole invention thing has been on the back burner!

Rens Trader: second full month

Started just before xmas and also focuses solely on items manufactured by my alt in the Lonetrek region.  During January this alt made sales of 2.1bn ISK (3.7bn prior month) and i suspect profits of 1.0bn ISK.  Items for sale at the month end were 6.7bn ISK.

Rens is a slower trade up so i did not expect to see great things - but this is much better than i thought.  I was hoping for this alt to earn the Plex per month for this account but is infact earning 3 Plex per month.

I have no plans to expand into selling other items - i will stick to selling the items my manufacturer produces.

Following this move i now use 37 of the 37 available sell slots.

Pays 1.0% broker fees to post an order and a further 1.5% sales tax on a successful sale.  No longer training.

Manufacturing alt: This alt does all my manufacturing from the Lonetrek region which is within easy access to Jita.  Not much has changed since November.

This alt sells its items in Jita and contracts to Push Industries to haul items to the traders in Dodixie / Hek / Amarr / Rens to sell.

I have a list of 59 items i focus on to sell, currently selling 27 of them in Jita and 33 in Dodixie, Hek, Amarr and Rens.  The other items that i watch have too low a profitability.

I own 44 blueprints worth over 1bn ISK, most of which have already comfortably paid for themselves.

This alt may have plateaued at 6 to 8bn ISK sales per month for now.  During the month it made sales of 6.7bn (vs 7.9bn ISK in the prior month) and estimated profits of 3.3bn ISK.  It currently has 7.3bn ISK of sell orders.

My expansion into manufacturing has been a great success so far.  I am now training this alt up to manufacture T2 items and i am in the process of manufacturing my first T2 items at present - though this has not made me much so far.

And all this takes is 15 minutes update time a day.

The current near term goals is to find other T1 items to sell as well as expanding into T2 items.

I have seeded a new market in Lonetrek - lets see how that goes.  Very slow so far!

Outlook: March and April are going to be busy times for me in RL, hence i suspect i will be back to making 7bn ISK per month.

Current Wealth:

Expected business purchases in the next 30 days
  • Plex x2 = 1.2bn ISK

I don't count assets I use in the course of my business such as ships, fittings etc nor do I add back any expenses such as skills purchased etc.  The wealth I disclose is made up of items that are ISK or are in the process of being converted to ISK.

* I take a 20% provision against the items I am selling.  Eve calculates wealth by adding up the value of the sell orders hence it is possible to increase your wealth by buying an item for 100m ISK and putting a sell order for 120m ISK (in this case your wealth would increase by 20m ISK).  For me, I want my wealth to be calculated at cost until i finally hold it as ISK.  I know that the value of my sell orders will likely fall over time as I update my orders downwards as competition reduces their prices before my items are sold.  Hence the 20% provision is my best guess as to what cost is or at least the maximum reduction I would need to make to my sell orders as a whole before they are sold.

Sunday 2 March 2014

Creating an Eve Financial System - or how to create more enjoyable ISK sinks

The Eve Online economy has a financial system of sorts but none in which the mass player base can participate in.

The forums are a venue for the issuance of loans but a select few participate given the risks involved (theft).  There is no banking system (tried, failed though some trying to start) and there is no easy way to issue shares or bonds.

The main issue is trust - i.e. the likelihood that the borrower just walks off with the ISK and refuses to repay is quite high in Eve (Jita local chat is a case in point).  There are trusted third parties that can act as an escrow but they are limited.

However, if players or corporations could issue shares or bonds (i.e. borrow from others) and there was some enforcement mechanics behind it, much like the current contract system or market escrow system, then i suspect this would lead to a major ISK sink , but an enjoyable one.  It could also lead to the start of a financial system in Eve Online in which the mass player base could participate in.

More in the Sink below (i suspect it would come from lost ventures) but first the mechanics.

Or - how to enhance the current contract system to make loans work mechanically:

Lets say i was willing to lend someone 1bn ISK at 10% interest for 3 months, secured on 1.3bn ISK of items as collateral.  The trick is to ensure i can't just run off with the 1.3bn of items if the borrower is able to pay me the loan + interest within 3 months.

I would need an item exchange contract (we can do that) combined with a time based item exchange contract (we can't do that right now), and issued at the same time as part of a combined contract (i.e. the borrower and lender must enter into both contracts at the same time to make this work - we can't do that either).

Step 1 - The item exchange contract would see me pay the borrower 1bn ISK and the borrower give me 1.3bn of Items (specified by me).  We can do that today with the current contract system.

Step 2 - The time based item exchange contact (set up at the same time) would be for the borrower to pay me 1.1bn within 3 months (i.e. the 1bn ISK + 10%) in exchange for those same 1.3bn of items.

Hence, on day 1 the borrower receives 1bn of ISK and 1.3bn of items are effectively put into escrow and only come to me after 3 months if the other player has not repaid me 1.1bn ISK.

Assuming my thinking is correct - the mechanics should hold.  It is in the borrowers interest to pay me the 1.1bn ISK and i can't touch the 1.3bn ISK of items until 3 months is up and the borrower has not repaid me.

ISK Sink:

And this is where it would get interesting.  There would now be a clear financial incentive for the borrower to repay the ISK + interest and the lender would be well protected (essentially via an over collateralized loan).

Therefore, unless the lender does not mess up with their collateral requirements they will not lose ISK.

The borrower, if unable to pay, would though lose their items and they would be sold by the lender to (hopefully) buy orders in the market.  Using the above example essentially 1.3bn ISK of items are now longer available to the borrower to use as new collateral to get new loans + 1.3bn of buy orders have gone and so presumably those prices have fallen + therefore there is not a requirement to manufacture those 1.3bn of items.  In all, the Eve economy has shrunk due to this borrower defaulting which leads to an effective ISK sink . . . . . though admittedly in the beginning it will really be items not in use being re-circulated into the Eve market - but this would allow corporations to put those dead assets in play to allow them to borrow funds to wage war!

Worth noting, that the appearance of this mechanic in the game would create much more than just the ability to issue loans.  It would also allow the appearance of forward trades (i.e. derivatives).

Lets say that you wanted to buy 1bn of Tritanium at todays prices, paying in 1 months time for your manufacturing schedule but you feared the price was going to go up by 10%.  And lets say that I took the view that the price of Tritanium was going to be flat or be lower in 1 months time.

Hence, as we stand today i would be happy to deliver to you the Tritanium in a months time for 1bn ISK at todays prices. . . . . i believe i would make a profit and you would feel you saved from buying at a higher price.

And lets also say that you were willing to pay 20m ISK now to guarantee paying that price for the Tritanium (i.e. you pay 2% of the buy price = 1.02bn ISK in total).

Using the above mechanics:

Step 1 - the first item exchange contact would be for you to pay me 20m ISK and for me to exchange 300m ISK of items.

Step 2 - the second time based contract (but issued at the same time) would be in a months time you paying me 1bn ISK (so 1.02bn ISK in total) and the 300m ISK of items returned for me exchanging with you the 1bn worth of Tritanium at day 1 prices.

(If i break the second time based contract you get 300m ISK of items for 20m ISK which will cover the rise in the price of the Titanium.)

So, if the price has indeed gone up by say 15% you will have saved 13% (15% price rise less the 2% cost of this contract).  If the price has fallen by 5% then i will have gained 7% (5% less cost to buy the tritanium + the 2% fee paid to me).

Of course, if the price is more than 30% higher then i will not pay the second part of the contract and so lose the 300m ISK of items and we both lose but you are least are 280m (300 - 20) better off.