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Saturday, 30 May 2015

CCP Financial Statements for 2014 - a review

The CCP 2014 Financial Statements were filed at the Directorate of Internal Revenue on 19 May 2015.  I have a (legally) obtained copy and discuss them below.

I have filled in the main numbers on my CCP Financials (as published) page to allow a quick comparison to prior years.

I have also created new page "CCP hf. Consolidated Financial Statements for 2014"
 that recreates the 2014 accounts as near as practicable to their original form (omitting parts that are largely irrelevant for our purposes) and so to allow others to take the information and analyse it themselves.

A bit of background

Iceland, much like the UK and other countries, requires all companies (both public and private) to file their Accounts within a certain time such that they be kept on record and can be viewed by the public.  There are good reasons for this which are beyond this post.  For the UK, anyone can go online to Companies House, or private websites, and download a copy of any UK company for £1.  In Iceland, you need to fill out a form and, for the required payment, they email you the accounts.

The 2014 CCP hf. Accounts can be found on the website of Directorate of Internal Revenue, click on the "+" sign beside the phrase "
Gögn úr ársreikningaskrá".

And if you brush up on your Icelandic you can find the right form to fill in and the accounts will be emailed to you for a fee.  Note, you need to navigate the Icelandic version of this site (google translated if required), the English version seems to bypass all the company data pages.

And so onto the 2014 Accounts

For the record, I maintain that Eve Online is a very profitable, cash generative and low growth game which is standing the test of time (up their with very few other games).  Perhaps where CCP has fallen down is how it uses that cash on other projects - and 2013 and 2014 was all about cleaning up that mess.

Remember, we already had the accounts for the 6 months to June 2014, so the focus is on the 6 months to December 2014.

The Summary

As a result of all the write-offs of Dust514 and World of Darkness, some general cleaning up of the Balance Sheet, and i suspect some accelerated amortisation of Eve Online Development costs, CCP reported a loss of $65.6m.

It is hard to separate out totally the write-offs to get an underlying feel of how Eve Online is doing - if i could, i greatly suspect we would see a nice profit.  We won't really know until the June 2015 accounts are released by CCP.

If i had to estimate the underlying profits then i would add back:
- $29m write-off of Dust514 and World of Darkness
- $46m accelerated amortisation of Eve Online Development Costs (my estimate)
- $3m additional interest cost

. . . . . and that would give me pre-tax profits of $11m.

The feeling here is that CCP have rebased the company and Financial Statements back to something more conservative and solid.  Which is sensible ahead of what looks like the recapitalisation of CCP, which is what i suspected back in April when CCP announced it was repaying its expensive Convertible Bond.

For what looks like a large loss, the company did actually generate a little cash in the year!


Full year revenues fell 10.6% to $68.6m.  In the second half of 2014 revenues fell 19.9% when compared to the second half of 2013.

It has hard to know how much of these revenues were in China, personally i estimate strong Chinese growth from $1.8m in 2013 to $3.5m in 2014.

Broadly, all the gains in revenues made in 2013 were given back in 2014.  Revenues in 2012 were $65.3m which is broadly where 2014 ended up.

Revenues fell in all geographies - so we witnessed a broad based pull back.

Don't forget that the US$ was strengthening against the Euro - so European sales will have this headwind against them.


The accounts themselves do not state the number of subscribers in Eve Online.


Now, working out what is linked to writing off Dust514 and World of Darkness and what is linked to Eve Online and Valkyrie is key to working out what is the ongoing underlying level of R&D and therefore what the profitability is of the rebased CCP business.

However, it is not clear in the Financial Statements but i can tell that not only has CCP written off all the Dust514 and World of Darkness but it appears also to have accelerated the amortisation of some of the Eve Online development.  This may reflect the new policy of releasing content more frequently.

That is the only way for now i can explain Development Cost on the Balance Sheet being $13.6m.  It has never been that low.  Back in 2009 it was $37.6m.  This may also reflect CCP just clearing the decks ahead of a recapitalisation.

(The $14.3m Carrying Amount includes a Trademark of $0.7m).

In the full year the company charged $86m to R&D.  I am confident that $29m were write-offs (most likely Dust514 and World of Darkness).  So what started in 2009 has no come to an end.

That leaves $57m.  I greatly suspect most of that related to an accelerated amortisation of Eve Online Development costs.

In 2014, $7.9m of staff costs were capitalised (i.e. classed as Development Costs) vs $20.1m in 2013.  I suspect that gives a good indication of the R&D cost going forwards.  i.e. nearer $10m vs $17m we saw in 2012.

Other costs

In the second half of the year the CCP cut back on Publishing and Marketing, taking down to 8.9% and 15.3% of revenues respectively (vs 11.4% and 18.1% in the second half of 2013) which perhaps reflects no more Dust514 and World of Darkness.

G&A (General & Admin) costs though went up to $19.8m (=28.8% of sales) - which is odd.  Perhaps some of cost of the work done in relation to paying back the Convertible Bond is in there?

Staff numbers

To put the re-focus of the company into perspective, the number of staff fell from 508 in December 2013 to 339 in December 2014.

In September 2013 CCP employed 553 staff and in December 2010 CCP employed 603 staff which was the start of the ramp up of employees for the Dust514 and World of Darkness development.

Finance Costs

Technical accounting bit here: given the Convertible Bond was repaid early it had to be restated at $20m on the balance sheet vs the $16.7m it was held at before and this difference was put through the Finance Cost on the Income Statement.  Hence, interest costs were about $3m higher than normal.

Balance sheet

There has been a lot of cleaning up: some goodwill has been written to zero; the Development cost on the Balance Sheet has fallen from $72m to $14m (as discussed above); inventories written down to zero.

What that all means is that the Total Equity in the company has gone negative to the tune of $15.3m.

I would expect to see a capital reorganisation in the June 2015 Financial Statements to turn that back positive.


Working out the net debt of CCP is surprisingly hard but i estimate it was $12.4m in 2012, $15.9m in 2013 and $16.0m in 2014.

Cash Flows

It looks like CCP generated a small positive cash flow of $238k in 2014 - not much else to say, things are messy this year.  But if CCP has a lower cost of debt and some other costs come down then we may even get positive cash flows in 2015.

Bond refinancing

I was somewhat surprised to see no mention of the Bond being repaid in April this year.  In my mind this is a key post balance sheet event - even though it occurred after 31 December 2014 there are plenty of indications in the Accounts that it was about to happen and, to me, some sort of explanation would add further clarity.  So, The Accounts don't give any clue as to how the convertible bond was repaid - I.e. With new debt or new shareholders putting in new equity.

However, the Accounts also comes with the complete list of Shareholders attached which I can compare to the main shareholders listed in the September 2013 Prospectus which dealt with the Convertible Bond Placing.


As ever, to get an idea of how much Plex is sitting in hangers we look at the Deferred Income line in the balance sheet.  As a reminder, CCP books Plex sold for US$ as revenues when it is finally converted into game time etc (I.e. used up).  Otherwise, the cash received for the sale of the Plex sits in Deferred Income.

Also potentially sitting in Deferred Income is any Aurum bought from the Store - but I assume that the purchase of Aurum is used immediately.

See my reasoning in this post i wrote back in September 2014 for linking Deferred Income to Plex price movements.

Looking at the "In-game purchases not yet consumed" line indicates that the US$ value of Plex sitting in hangers has risen from $2.1m to $3.0m.  If we assume each Plex costs $15 then that indicates the number of Plex sitting in hangers has risen from 140.5k to 197.7k (using the same methodology in December 2012 there was 71k Plex sitting in hangers).

In some ways this does not add much to the debate on the price of Plex though it does suggest a net 57,200 additional Plex were created in the last year (= Gross creations of Plex less Gross usage of Plex).  In the first 6 months i estimated that about 13,000 additional Plex had been created and therefore this indicates the second half of 2014 saw more investor buying.


  1. Very good analysis - thanks!

  2. I have a question about one of the top 10 investors. The company in your copy and paste is "Alamina Ltd", but I can only find 1 reference to the company (apart from your article) on the internet. Is that the correct name of the company or is it possible a Unicode character got mixed up in the copy and paste?

    1. Alamina Ltd is indeed the correct spelling (though the second letter could of course be a capital “i”)

      The December 2013 Financial Statements had a company called Meson Holdings S.A. owning 2.5% of CCP. This is a company that is owned, or controlled by, Vilhjálmur Thorsteinsson who used to be the Chairman of CCP. (source: 2013 CCP Prospectus).

      Indeed, in the 2013 Prospectus Meson held 242,325 shares in CCP – which is the exact same amount now held by Alamina.

      Meson Holdings S.A. is no longer on the shareholder register and therefore looks to have been replaced by Alamina Ltd.

      It appears that Alamina Ltd is a company registered in Cyprus (Reg Number 309680)

      Other than that – I can not find out anymore so far, including who is behind the company.

      I would speculate that either Meson and Alamina are the same / related or that Meson sold its stake to Alamina.

  3. I think your comment system ate my comment.

    DUST 514 isn't "written off". It's gotten more development this year than it did last year. If you want to look at the company realistically, you need to look at the WHOLE company, not just EVE.

    1. I believe that he is saying that DUST's original development costs have been written off, as a loss on CCP's financials.

      That is pretty standard practice in accounting, particularly with a product for which there is not much hope of ever recovering the development costs via product revenue.

      DUST development work, since its original release, has all been pretty minor stuff, from a cost POV. Fixing bugs, tweaking databases to add items, writing shaders, adding a few new graphics - all pretty cheap to do. But, we're unlikely to ever see DUST expand to become more of an integral part of EVE Online, as was CCP's original plan. Revenue from DUST is simply too low to justify any further large investment in its development.

    2. I don't think they can write off a current asset, larryb. Writing it off essentially means that asset no longer exists or has value. As in the World of Darkness code.

      DUST certainly is an asset that still has value, and an increasing value in light of it's now profitable status.

    3. well, the asset was created by capitalising the salaries of the developers onto the Balance Sheet with the view to amortising it over time as players paid their subs.

      Unfortunately, the prospects for Dust514 is not as strong as was expected and therefore those capitalised salaries have now been charged through the Income Statement in one go (that is the write-off).

      Of course, the code still exists but it is not now expected to generate the income once hoped. It would not have been profitable at the current subs levels, now with the cost written off (so no amortisation) it may be profitable.

  4. One thing to note:

    Private companies in Iceland, aren't required to post accounts.

    CCP was required because it had some bonds out. It no longer does, so it's not required any more.

    1. If you take a look, you'll see that the records are on file and available, even for years when CCP didn't have bonds out.

      CCP may not have to publish them to the public, but it looks like they need to submit their records to the tax authority due to their status as a private limited liability company.

    2. also, see which details that private companies must submit their Accounts at least 1 month after adoption but no later than 8 months after the year end (i.e. CCP could file their December 2015 Accounts at the end of August 2016).

      The text also goes on to say the public can inspect these accounts once filed or apply for a copy for a fee (which is what i did).

  5. "It looks like CCP generated a small positive cash flow of $238k in 2014"

    As usual, I think you are trying to put rose-colored glasses over a B/W picture. :)

    Yes, they had a small positive cash flow, but they only did so by laying off 1/3 of their staff: as you noted, 508 in December 2013 to 339 in December 2014. And, we know that only about 50-60 of these people were from WoD.

    1. i am guessing that whoever loaned CCP the money to repay the Convertible Bond will have taken a very close look at the forecasts. Though we will not really have a clear picture until the June 2015 accounts are released - though even then things may look messy due to the Bond repayment.

    2. Would CCP have been able to get a loan to pay off the convertible bonds if the loan with Silicon Valley Bank were still outstanding?

      For those trying to follow along at home, that's line (i) under Borrowings.

    3. As far as I can tell the loan from Silicon Valley Bank was secured on Company property (at least part or all of which is in the UK). Looking at UK Companies House information it looks like that mortgage is still outstanding which would indicate that the loan is still in place.

      I suspect as long as the new loan was not secured on those properties then they would be able to get one.

      Also, I imagine that the Silicon Valley Bank loan had its own set of covenants (I don't know what they were) but maybe CCP had to vary them or the Bank waive them temporarily (I don't know).

      In any event, the loan was $6.3m on 31 December 2014 - so perhaps CCP could have just repaid it early as part of the general refinancing of the business (though we would expect to see the Mortgage on the company Property removed some time soon).

  6. Ultimately, it was a terrible year for CCP.

    But in the long run, all that matters is revenue, and that was way way down over the previous year. Now, assuming CCP maintains the same revenue as 2014, they would be OK for 2015 and onwards, given as you said they they seem to have small positive cash flow. But their margin for error is tiny. Based on what I am seeing in the 1st half of 2015 , PCU wise, they are in worse shape than 2014, and I am betting that revenue is shrinking again in 2015. If the new null sec sov mechanics are a disaster, and they don't draw back a whole bunch of subs in 2nd half 2015, I think this time next year we will be looking at some scary looking numbers.

    If that happens, the null sec idiots will only have themselves to blame. I am talking about the bunch who work for CCP and the ones on the CSM that drove the changes with Crius that gutted high sec industry and started an exodus of subs.

  7. I hope theses loses will FINALLY get them to relinquish the World of Darkness IP to a competent developer!! Ten years and NO Video Games developed or even Kickstarted!!!

    While Shadowrun's IP has produced FIVE in the last NINE Years!!!