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Wednesday, 4 May 2022

Review of the 2021 CCP Report & Accounts

The CCP Report & Accounts for the year to December 2021 came out on 30 April 2022.

Much more relevant, the Pearl Abyss Iceland 2021 Report & Accounts also came out on 30 April 2022.  This includes CCP Iceland as well as the subsidiaries in the UK.

Therefore, it is the Pearl Abyss Iceland 2021 Report & Accounts that i will focus on here.

You can access the Pearl Abyss Iceland 2021 Report & Accounts hereThey are also available for free from the Internal Revenue Directorate (RSK) in Iceland.

  • Revenues rose 2.4% to $63.9m
  • But looks like Eve Online revenues fell 3.6% to $53.8m
  • It was the NetEase business rose strongly from $6.5m revenues to $10.0m
  • CCP made a loss of $8.0m vs a loss in 2020 of $1.7m
  • Cash generated was negative $7.0m vs a positive $0.6m last year
  • 301 people are employed at CCP (actually, i think it is nearer 330, not sure)
Tucked away in there on page 32 is the total remuneration of the Directors and i would imagine you can safely assume the Korean directors are not paid by CCP therefore it looks like to me you can see the combined remuneration of the two CCP directors.  But i will let you dig into the Accounts to see that rather than me plastering it here.

Worth noting that had CCP put price rises of 30% for Eve Online on 1 January 2021 and assuming they had stuck and no players cancelled subs then additional revenues would have been around $15m give or take small related costs.  In other words, Profits before Tax would be around $3m and that is in danger of being pressured in 2022 by wage inflation.

Review of Revenues

Revenues grew 2.4% to $63.9m.

However, we can go one step further:

the $63.9m is made up from $10m Royalties / Licences and $53.8m from Subscriptions / in-game sales.

the $10m comes from one customer so i am going to guess this is NetEase in China.

Within the $53.8m is Eve Online, Valkyrie, Gunjack, Sparc - but i suspect Eve Online is almost all of it.

Therefore, we can say that the revenues from Eve Online fell 3.6% to $53.8m

Turning to how Eve Online revenues looked around the world:

North America fell 6.6% to $31.4m whereas Europe rose 1.1% to $17.2m.  Most of Asia will be the Net Ease but if we strip that out then Asia fell 5.2% ($3.0m to $2.9m) and the "Other Regions" fell 5.1% to $2.4m.

But, overall, everything included, revenues were up 2.4%

. . . . . . so what deepened the loss in 2021?

Review of Costs

total operating costs were $73.9m which was a 18% rise on 2020.  Right here is the pressure.

Salaries, as you would expect, are the biggest item at $41.5m which is an increase of 20% on 2020.  However, the average number of employees rose 11% and therefore  the underlying wage rise & mix combined was 9%.  From what i know of other Games Developers, the cost of the coding staff is rising strongly.

In all, Salaries rose from $34.5m to $41.5m, an increase of $7m.

Depreciation and Amortisation (that is expensing the cost of buildings, software etc over time came to $8.8m vs $8.3m in 2020 - that is expected, the business did not splurge out on new computers / premises last year.

There is no other disclosure on costs so we must infer from what we have:

Research and Development, which will include a large Salary element was the largest rise by 36.6% (=$10m), followed by Marketing which rose 15.4% (=$2m).  So fair to say the business is investment for growth.

Publishing was flat and General & Administrative was down by around $0.5m to $18.1m.

I will call this right out - $18.1m is a huge number for General & Administrative.  I would expect a number closer to $3.2m (i.e. 5% of revenues).  There is no sign of any "management fee" from Pearl Abyss so the extra $15m has to be something else.  Going back in my notes, the General & Administrative fee has always been large.  Interesting.  I don't really know what it could be.

Other Income

There was $5m-$6m of Other Income in each year which is Government Grants

Operating Profit

And therefore, before we think about paying interest and tax, the business had made a loss of $9.4m vs a small profit of $64.6k in 2020.

Finance costs

On top of all that, the business pays finance costs of around $2m in 2021 vs $3m in 2020.

Now, it appears in 2018 banks loaned the business $50m at an interest rate of 1.57% (=$0.8m pa) and it was due for repayment in 2021.  It now looks like the lender is The Korea Development Bank, the loan is extended to 2024 and the business pays $0.2m warranty fees ($1.0m).

The business also has leases (i.e. like most businesses, they do not own their buildings, the lease them) which costs $0.7m ($0.5m) of interest.

Profit before Tax

Those additional finance costs there take the Profit before Tax was a loss of $11.8m compared to a loss of $4.0m in 2020.

Profit after Tax

Its a loss make business so it gets a tax credit.  Hence the final loss is reduced to $8.0m in 2021 vs $1.7m in 2020.

Review of the Balance Sheet

Nothing jumps out - i would need longer to go through this in dept.

Review of the Cashflow Statement

As we would expect, given the nature of the business that earnings are close to cash then there was a $8.5m cash outflow in 2021 vs $0.3m outflow in 2020.

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