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Wednesday 3 May 2023

Review of the 2022 CCP Report & Accounts

The CCP Report & Accounts for the year to December 2022 came out today on 2 May 2023.

I suspect I will have a lot more to say in later posts but quickly going through it yields the below review.

A little bit of background as to what we are looking at and why

Now, we have to be careful here.  There are several parts to CCP mainly in Iceland but also in the UK, China and US.

Therefore, to get a combined view of all this, and a bit more, we need to look at the Pearl Abyss Iceland 2022 Report & Accounts which came out at the same time.

Pearl Abyss Iceland was the company set up by Pearl Abyss in Iceland to buy CCP back in 2019.

Therefore, this post focuses on the Pearl Abyss Iceland 2022 Report & Accounts.

You can access the Pearl Abyss Iceland 2022 Report & Accounts here and also I have a page on this blog that hosts all the Pearl Abyss Iceland from 2019 / CCP from 2013 to 2018 here.   They can also all be found and downloaded for free from the Iceland Company Register.

  • Game revenues (EVE Online, Echoes and anything else from CCP) fell 12% from $63.8m to $56.1m
  • The underlying loss rose from $8.0m to $19.0m
  • The overall loss rose from $8.0m to $70.1m (there was a $51m impairment I discuss)
  • $12.5m cash likely came in through the sale of a “token warrant”, i.e. crypto currency
  • Therefore, after a few new shares being issued the business did not lose any cash during the year!
  • The impact of the Ukraine war and the ending of sales to Russia is around $800k.
  • There is a good chance we can see the salary of the CEO (but that needs a disclaimer so see below)

Profit & Loss Account

Revenues fell 12% from $63.9m to $56.1m whilst costs fell 2% from $74.0m to $72.5m.  Government grants added around $5m income in both 2022 and 2021

Therefore, the Operating Loss rose from $9.5m in 2021 to $16.3m in 2022.  In other words, CCP has more to do to reverse this trend and then turn a loss into a profit.

Finance Costs and Currency movements took off an additional $4m in 2022 and $3m in 2021.  Add back some tax rebates and the bottom line for the underling business was $19.2m vs $8.1m in 2021.

And then, the impairment charge of $51m kicks in which is basically Pearl Abyss admitting it paid too much for CCP and can no longer justify the value of the investment in part due to rising interest rates (rising rates reduces todays value of future earnings) and in part due to CCP being unable to meet the expectations set at the time of its sale to Pearl Abyss.


Overall revenues fell 12% from $63.9m to $56.1m.

It is important to realise that if revenues in Eve Online go up or down then it does not mean the costs of the business go up or down as it would in other businesses.  The costs of this business are more about creating new content, marketing the game, running the offices.  So the costs have nothing to do with how many players are paying and what they are paying.

So, in this case of a fall in revenues it goes straight to the bottom line and increases the loss.

Now, this $56.1m is not the player base of Eve Online paying subs and utilising Plex.  It is a combination of that and Royalties & Licences and a few other minor bits and bobs, as the notes in the Accounts show below.

The largest line in revenues are players that pay money to play the game including Plex that is used in the period and that fell 12% from $53.8m to $47.3m.  For reference, in 2020 this came to $55.8m.  Recall that in January 2021 the subs price was raised 30% and again in May 2022 the subs price rose 30% whilst the effect over the two years has been for the player base revenues to fall 15%.

Revenues fell in all regions: North America fell 8%; Europe fell 18% (there will be a Russia effect in there); Asia fell 14% (actually, all the Royalties & Licences are Asia with NetEase which means the player base revenues in Asia fell 21%); and the rest of the world (which includes Australia) fell 13%.

How to think about the subs price rises vs player base numbers?  I am not sure but it is clear to me that the paying player base has clearly fallen quite a bit over the last 1 and 2 years.

The Royalties & Licences line also fell 12% from $10.0m to $8.8m.  This is paid by NetEase who distribute the game in China (which is on a separate server).  I am not looking too closely at this but the fact it declined presumably indicates there is a decline in China or the terms have been renegotiated.

Gross Profit

The cost of actually running the game (as opposed to creating new code, marketing et al) is very low at around $5m for both 2022 and 2021.  Nothing really to add here.

Operating Expenses

CCP now expense all their development costs (historical costs are still being held on the Balance Sheet and reduced over time).  This is a much cleaner way to account for these costs.

Ignore the Impairment Loss for now which means Operating Expenses in 2022 were $72.5m vs $74.0m in 2021 – i.e. a decline of 2%.  Which is impressive given the inflationary background.

Research & Development is the core of the business, this is the development of new content, expansions, the works and any new games.  This was basically flat at $37.9m and salaries will be a noticeable part of it.  Hard to know how to read this.  Presumably wages went up a decent chunk and so therefore did the number of employees in this area decline?  Not sure.

Publishing stayed flat at $4m.

Marketing fell 12% from $14.2m to $12.5m.

General & Administrative (so everything that is not coders, marketing and publishing – i.e. finance people, office services, utilities etc) fell 2% from $18.1m to $17.8m in what must have been a high inflationary environment, so that was good work by CCP though the quantum of the General & Administrative cost has always looked high to me.  It is currently 32% of revenues which is off the dials compared to other businesses i look at.

Of the $72.5m Operating Costs the largest item is Salaries (this is a people business after all):

Overall, those rose 1% to $42m whilst the average number of employees rose 8%.  Clearly a mix effect going on here – did the number of coders decline vs a rise elsewhere?  Not sure.

Worth noting that Salaries as a % of EVE Online Revenues rose to 89% vs 77% in 2021 and if we include the NetEase income then this % was 75% vs 65% in 2021.  This is getting tight.  We are closing in on the day when revenues will struggle to cover employee costs let alone everything else.

Overall, given the inflationary background it seems to me that costs were very well controlled.

The problem is not costs, it is revenues.

Other Income

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

Finance Costs

The Group has a $50m bank loan from The Korea Development Bank which is due for repayment in 2024.  Clearly, inline with global trends, the interest rate charged has gone up.  Therefore, interest paid rose to $2.4m from $1.9m.  The business pays 5.53% interest rate on that loan (that is reasonable and does not suggest the bank has any concerns - but there will be a guarantee from the parent company Pearl Abyss in Korea here).

Currency movements cost $1.6m in 2022 vs only $0.2m in 2021.


Given the business makes a loss, in Accounting the loss is reduced by a tax rebate (in actual cash flows tax is still paid given this is a global business making sales across the world – somewhere there will be profits to tax).  This accounting rebate was $1.4m in 2022 vs $3.7m in 2021.

Underlying operating loss

Add all that up and the underlying operating loss of the business rose from $8.1m to $19.2m.  And it is because of the fall in revenues.

To put this in perspective, to move back to profits and assuming costs are flat in 2023, revenues need to rise by 34% to around $75m.

Impairment charge

I have been expecting this for a while and it is interesting to note that where was no indication in the Pearl Abyss results in February that this had happened.

In fact, in the Pearl Abyss results there is no indication that CCP is loss making let alone the losses have risen.

Anyway, to put this simply, when Pearl Abyss bought CCP they have to allocate the payment between the assets of CCP they bought, a number of intangible assets (the Intellectual Property, Customer relationships) and anything left is called Goodwill.  Every year, the business must ask itself if they can still justify the value of this goodwill by looking at the expected earnings of CCP and adding it all up and comparing to the original purchase price.

There two things that can reduce the summation:  firstly, rising rates makes the value of future earnings lower in todays money (i.e. $100 next year is worth $91 today if interest rates are 10% but that $100 is worth $95 today if interest rates are 5%); secondly, CCP may decide that the earnings they expected to make in future years at the time of the sale to Pearl Abyss are now unrealistic and need to be rebased.

Both appear to have happened.

Therefore, the Goodwill of $141m has been reduced by $51m.  It is non cash but does indicate that the expected growth of the earnings of Eve Online is less than previously thought.

The Korean senior management will not be happy.

Balance Sheet

This is a bit more exciting in 2022 vs 2021.

CCP is loss making in aggregate since sale to Pearl Abyss

The standout feature is that the sum of all earnings made by Pearl Abyss Iceland (i.e. all the earnings produced by CCP since acquisition) is now negative.  And that is before we consider the $51m impairment.


Plex, as we know, is sold to the player base for real money and can be converted into ingame currency in the ingame market.  To recognise this sale as revenues then CCP needs to wait for the Plex to be used.

So, the way that Plex in inventory is accounted for is that Cash comes in and the other side of the accounting entry sits in Deferred Income.  Once it is used, the Deferred Income becomes Revenues.

It is called “In-game purchases not yet consumed”

In 2022 the amount of “In-game purchases not yet consumed” (Plex) actually fell from $4.1m to $3.6m despite all the sales in September and later.

That says a number of things to me: firstly, Plex in inventory was used during this time to convert to Omega at cheap rates; secondly, any plex bought for real money was used up quickly; thirdly, perhaps Plex sales are falling.  Personally, I think the destocking was a bigger driver.

Also, note in the table above the Subscription Deferred revenue (so people that pay for 3, 6, 12, 24 months where part of that is still to run after December 2022) is only slightly up despite the 30% increase in subs.  So, either the mix of longer term subs is down or less players are buying them overall.

Crypto Currencies

There is a non-current Deferred Revenue amount of $10m (see the above table).  This is not Plex.

In the Cashflow Statement there is an inflow of $12.5m which is stated as “Proceeds from sale of intangible assets”.

I don’t know if these amounts are related but I suspect they are (can make an argument in the other direction though).  $12.5m cash comes in and $10m of it sits on the Balance Sheet for now waiting to be moved into Revenues in the future.

In the table below, it sort of looks like the $12.5m disposal was an asset created out of thin air - which makes it more likely to be linked to the $10m above.  But i really don't know.

There is loads more to say about this from the Accounts but it seems the Group is developing a blockchain based network and planning to issue crypto tokens once the development is complete.  Ahead of this point in time the group has already sold warrants which will allow holders to convert these into the tokens when they are issued.  I.e., the group is getting some cash in now for future sales.

And to make this more intriguing / exciting, the group goes on to say that it holds other crypto assets such as Ethereum for “various business purposes” but not for resale.  I have no idea as to what their value is.

Cashflow statement

This is the sharp end of it all and the business did well to avoid losing any cash!

At the end of the day, the underlying loss of $19m caused cash to reduce by $9.4m – there are always non cash items in the Profit & Loss account such as depreciation.  In any given year cash and profits are rarely the same for any business.

And then a further $4.3m was spent on capex (office equipment, IT, intangible assets) and this was offset by the $12.5 discussed above coming in.

And then, just when you think it is all lost a further $3m of new shares were issued and taking into account lease payments of $1.4m the business did not lose any cash in the year!

That $12.5m inflow saved the day.  No idea who was the other side of that transaction.

Unless they can keep on pulling these rabbits out of the hat eventually cash will start flowing out of the business.  Hence the focus on getting those revenues back up.

CEO Salary?
Thee are two items here which give a clue.  I am not here to speculate on someone’s remuneration so I will just put the items below with a few lines of text

So, the table above merely gives the total payments made to the Directors and CEO.  I am guessing the Korean directors are not paid so this will be all the non-Korean directors which is the CEO and perhaps one other.

I have no idea what the $500k “Sales of goods / Services” is here.  Also, i don't really know if that is the business selling $500k of items to the CEO or the other way round!


  1. With the filing of PAI's financials, the Pearl Abyss earnings call will be interesting next week. Pearl Abyss revealed a ₩100.3 billion loss in the fourth quarter of 2022. But that was mostly due to the depreciation of assets at the end of the year belonging to Pearl Abyss Capital, not Pearl Abyss Iceland. At least, that's what was said on the call. At the time, KRW 100 billion was equal to around $79.5 million USD. I didn't see or hear about anything on the call stating that there was another $50 million in losses from Iceland.

    By the way, that loan from the Korean bank was taken out in 2018 or 2019 as a variable rate loan and it appears none of the principal has been paid down. In 2021, the rate was 1.57%. In 2022, the rate averaged 5.53%. That had to hurt.

    I always enjoy reading your takes on CCP's finances. Keep up the good work!