Management Reports • May 18, 2017
Management Reports
Open in ViewerOpens in native device viewer
Digital Bros S.p.A.
Via Tortona, 37 – 20144 Milan, Italy VAT No. and tax code 09554160151 Authorised share capital: Euro 6,024,334.80 Milan Companies Register No. 290680 - Vol. 7394 Chamber of Commerce No. 1302132
This report can be downloaded from the Investors section of the Company's website www.digitalbros.
(this page intentionally left blank)
| Board of directors and supervisory bodies | 4 | |
|---|---|---|
| Directors' report | 6 | |
| 1. | Group structure | 6 |
| 2. | The video games market | 10 |
| 3. | Market seasonality | 13 |
| 4. | Analysis of results for the period ended 31 March 2017 | 14 |
| 5. | Analysis of the statement of financial position as at 31 March 2017 | 18 |
| 6. | Results of operating segments | 20 |
| 7. | Analysis of results for the third quarter of the financial year 2016/2017 | 32 |
| 8. | Treasury shares | 38 |
| 9. | Research and development | 38 |
| 10. | Contingent assets and liabilities | 38 |
| 11. | Subsequent events | 39 |
| 12. | Business outlook | 40 |
| 13. | Other information | 41 |
| Condensed consolidated financial statements for the period ended 31 March 2017 | 43 | |
| Consolidated statement of financial position as at 31 March 2017 | 45 | |
| Consolidated statement of profit or loss for the period ended 31 March 2017 Consolidated statement of comprehensive income for the period ended 31 March |
46 | |
Contents
Consolidated statement of comprehensive income for the period ended 31 March 2017 47 Consolidated statement of cash flows for the period ended 31 March 2017 48 Consolidated statement of changes in equity 50 Notes to the condensed consolidated financial statements for the period ended 31 March 2017 51 1. Introductory note 52 2. Analysis of the statement of financial position 53 3. Analysis of the statement of profit or loss 59
4. Non-recurring income and expenses 61 5. Other information 61 6. Related party transactions 62 Statement pursuant to Art. 154- Bis (5) of the Consolidated Finance Act 62
3
(2) Non-executive directors
| Internal control and risk committee | Remuneration committee |
|---|---|
| Guido Guetta (Chairman) | Guido Guetta (Chairman) |
| Elena Morini | Elena Morini |
| Bruno Soresina | Bruno Soresina |
| Board of statutory auditors |
| Emanuela Maria Conti | Acting auditor |
|---|---|
| Simone Luigi Dalledonne | Acting auditor |
| Paolo Villa | Chairman |
| Vincenzo Miceli | Alternate auditor |
| Patrizia Riva | Alternate auditor |
The shareholders' meeting of 28 October 2014 appointed the members of the Board of Directors and Board of Statutory Auditors. The terms of office of the directors and statutory auditors will end with the shareholders' meeting held to approve the financial statements for the year ending 30 June 2017.
On 28 October 2016 the shareholders in general meeting approved the appointment of Paolo Villa as Chairman of the Board of Statutory Auditors and the appointment of Emanuela Maria Conti and Simone Luigi Dalledonne as acting auditors up to the end of the Board of Statutory Auditors' mandate. At the same time, the shareholders appointed Vincenzo Miceli and Patrizia Riva as alternate auditors and they shall remain in office up to the end of the Board of Statutory Auditors' mandate.
On 7 August 2007 the Board of Directors appointed the board member Stefano Salbe to the position of financial reporting manager pursuant to Art. 154 bis of Legislative Decree 58/98 and granted him adequate powers.
Deloitte & Touche S.p.A.
On 26 October 2012 the shareholders in general meeting appointed Deloitte & Touche S.p.A, Via Tortona 25, Milan, as external auditors up to the approval of the financial statements for the year ending 30 June 2021.
Publication of the interim management report of Digital Bros Group for the period ended 31 March 2017 was authorised by resolution of the Board of Directors on 12 November 2017. Digital Bros S.p.A. is a company limited by shares incorporated and domiciled in Italy. It is listed on the STAR segment of the MTA market managed by Borsa Italiana S.p.A.
Digital Bros Group develops, publishes, distributes and markets video games on an international scale.
During the course of the previous financial year, the Group's organisational structure and operating segments were revised. The previous organisation was structured based on its distribution channels, International Publishing and Mobile, whereas it has been decided to focus on the type of games, namely Premium Games and Free to Play. The structure of the Development, Italian Distribution, Other Activities and Holding operating segments has remained unchanged.
Accordingly, the Group is organised into five operating segments:
Development: the Development operating segment designs and develops video games and similar applications. Its operations are conducted through a dedicated organisational structure. The operating segment undertakes development projects on behalf of Group companies and external customers. This work is performed exclusively by Pipeworks Inc.
Premium Games: its operations consist of the acquisition of video game content exploitation rights from developers and the subsequent distribution of the games through a traditional international sales network and via digital marketplaces such as Steam, Sony PlayStation Network and Microsoft Xbox Live.
The video games are normally acquired under exclusive licence and with international exploitations rights valid for several years. The Group operates globally in the Premium Games segment under the 505 Games brand.
Premium Games' operations were conducted during the period by the subsidiary 505 Games S.p.A., which coordinates the operating segment, together with 505 Games France S.a.s., 505 Games Ltd., 505 Games (US) Inc., 505 Games Spain Slu and 505 Games GmbH, which operate in the French, UK, U.S., Spanish and German markets, respectively. 505 Games Interactive (US) Inc. provides consulting services on behalf of 505 Games S.p.A. During the course of the period, the liquidation process concerning the Swedish company 505 Games Nordic AB was completed.
On 15 March 2017, the acquisition was completed of Kunos Simulazioni S.r.l., the Italian developer and publisher of the Assetto Corsa video game.
Free to Play: Its operations consist of the development and the publishing of video games that are made available free of charge, but which allow the gamer to make purchases during the various stages of the game. With respect to Premium video games, Free to Play games are generally simpler and have a longer lifespan, since the video game is continuously developed and improved subsequent to its launch, in order to gain the public's loyalty.
The operating segment is coordinated by the subsidiary 505 Mobile S.r.l. and by the U.S. company 505 Mobile (US) Inc., which provides internal consulting services, by the UK company DR Studios Ltd., which is a developer of Free to Play games and by the newly formed company Hawken Entertainment Inc., which is the developer of the Hawken video game.
The Group operates globally in this segment under the 505 Mobile brand.
Italian Distribution: this consists of the distribution in Italy of video games purchased from international publishers.
Business operations are conducted by the parent, Digital Bros S.p.A., under the Halifax brand and by the subsidiary Game Entertainment S.r.l., which handles distribution via the newsstand distribution channel.
The Group also distributes the Yu-Gi-Oh! trading card game in Italy.
Other Activities: this operating segment handles all of the Group's less significant activities, which are thus grouped within a separate operating segment for a logical presentation of the results. It includes the operations of the subsidiary Game Network S.r.l., which manages paid games under concession from AAMS (Italian State Monopoly Administration) and the operations of the subsidiary Digital Bros Game Academy S.r.l., which organises specialisation courses and training on video games.
Holding: this includes all the coordinating functions carried out by Digital Bros S.p.A. on behalf of the various operating segments. The Holding operating segment also handles administration, management control and business development. Digital Bros China Ltd. operated in the period as a business developer for the Asian markets.
Details are provided below of the Group structure at 31 March 2017. All the investee companies shown are 100% held.
7
During the period, the Group operated from the following locations:
| Company | Address | Function |
|---|---|---|
| Digital Bros S.p.A. | Via Tortona 37, Milan | Offices |
| Digital Bros S.p.A. | Via Boccaccio 95, Trezzano sul Naviglio (MI) | Logistics |
| 133 W. Broadway, Inc. | 133 W. Broadway, Suite 200, Eugene, Oregon, U.S.A. | Offices |
| Digital Bros China (Shenzhen) Ltd. | Tao Yuan Road, Nanshan district, Shenzhen 518062, China | Offices |
| Digital Bros Game Academy S.r.l. | Via Labus, 15 Milan | Offices |
| Digital Bros Holdings Ltd. | 402 Silbury Court, Silbury Boulevard, Milton Keynes, UK | Offices |
| DR Studios Ltd. | 4 Linford Forum, Rockingham Drive, Milton Keynes, U.K. | Offices |
| Game Entertainment S.r.l. | Via Tortona 37, Milan | Offices |
| 505 Games S.p.A. | Via Tortona 37, Milan | Offices |
| 505 Games France S.a.s. | 2, Chemin de la Chauderaie, Francheville, France | Offices |
| 505 Games Spain Slu | Calle Cabo Rufino Lazaro 15, Las Rozas de Madrid, Spain | Offices |
| 505 Games Ltd. | 402 Silbury Court, Silbury Boulevard, Milton Keynes, UK | Offices |
| 505 Games (US) Inc. | 5145 Douglas Fir Road, Calabasas, California, U.S.A. | Offices |
| 505 Games GmbH | Brunnfeld 2-6, Burglengenfeld, Germany | Offices |
| 505 Games Interactive (US) Inc. | 5145 Douglas Fir Road, Calabasas, California, U.S.A. | Offices |
| Game Network S.r.l. | Via Tortona 37, Milan | Offices |
| Game Service S.r.l. | Via Tortona 37, Milan | Offices |
| Hawken Entertainment Inc. (1) | 5145 Douglas Fir Road, Calabasas, California, U.S.A. | Offices |
| Kunos Simulazioni S.r.l. (2) | Via degli Olmetti 39, Formello (Rome) | Offices |
| Pipeworks Inc. | 133 W. Broadway, Suite 200, Eugene, Oregon, U.S.A. | Offices |
| 505 Mobile S.r.l. | Via Tortona 37, Milan | Offices |
| 505 Mobile (US) Inc. | 5145 Douglas Fir Road, Calabasas, California, U.S.A. | Offices |
(1) Hawken Entertainment Inc., which is based in the United States and which was set up on 28 September 2016, commenced operations in the second quarter of the financial year.
(2) Kunos Simulazioni S.r.l. has been consolidated as of its acquisition date of 15 March 2017.
Details are provided below of the Group's equity investments in associates at 31 March 2017 together with their respective carrying amounts (in Euro thousand):
| Name | Location | Holding | Carrying amount |
|---|---|---|---|
| Delta DNA Ltd. | Edinburgh, UK | 1.04% | 60 |
| Ebooks&Kids S.r.l. | Milan | 16% | 200 |
| Cityglance S.r.l. in liquidation | Milan | 42.5% | 45 |
| Ovosonico S.r.l. | Varese | 42.87% | 630 |
| Seekhana Ltd. | Milton Keynes, UK | 31.57% | 435 |
| Total equity investments | 1,370 |
The video games market is part of the broader entertainment industry. Films, publishing, video games and toys are sectors that share the same characters, brands, distinctive features and intellectual property.
The market is in constant flux and its growth rate is driven by non-stop technological advances. Gaming is no longer limited to traditional consoles, such as the various iterations of Sony Playstation and Microsoft Xbox, but has expanded to mobile phones and tablets. Widespread connectivity at increasingly lower costs and the availability of fibre optic networks and high speed mobile phones enable video games to become increasingly diversified, sophisticated and interactive. The widespread use of smartphones by the population, of all ages and walks of life, has led to creativity being expressed in a completely innovative manner that is also suitable for adults and females.
As is the case for almost all technological markets, the video games market for the Sony Playstation and Microsoft Xbox is cyclical as it is linked to the stage of development of the consoles for which the video games are developed. With the rollout of a given console, prices of the hardware and the video games designed therefor are high and relatively small quantities are sold. During their lifespan, console and game prices gradually go down, as they progress from new releases to maturity and the quantities sold increase along with a simultaneous increase in the quality of the video games.
High quality video games with high sales potential, in addition to being marketed on the digital marketplace, are also produced physically and distributed through traditional sales networks. In this case, the value chain is as follows:
Developers are those who create and program a game, which is usually based on an original idea, a successful brand, a film or sports simulations, etc. The developers retain the intellectual property rights, but they transfer the exploitation rights for a limited amount of time, as agreed by contract, to international video game publishers, which are therefore a key element in the value chain when it comes to completing the game, enhancing its reputation and distributing it internationally thanks to their direct and indirect international sales networks.
Publishers usually finance the development phases of a video game. The publisher decides on a game's release schedule, its global pricing and sales policy and studies its product positioning and package design, while taking on all of the risks and, jointly with the developer, benefiting from all the opportunities that the video game may generate if it is a success.
The console manufacturer is the company that designs, engineers, produces and markets the hardware or platform on which consumers play the game. Sony is the Sony Playstation 4 console manufacturer, Microsoft is the Microsoft Xbox One console manufacturer and Nintendo is the Nintendo 3 DS and Nintendo Switch console manufacturer. The console manufacturer stamps the game on behalf of publishers in facilities dedicated to the reproduction of software on the various physical storage devices used. The console manufacturer and the video game publisher are often one and the same.
The role of the distributor varies from country to country. The more a market is fragmented, such as the Italian market, the more the distributor's role is integrated with that of the publisher, with the implementation of communication policies for the local market and the undertaking of public relations. In certain markets, such as the UK and the U.S., due to a high concentration of retailers, publishers usually have a direct presence.
The retailer is the outlet where the end consumer purchases a game. Retailers may be international chains specialised in the sale of video games, mass retail stores, specialised independent shops, or even online shopping web sites that sell directly to the public.
Consumers are moving more towards purchases of games on digital platforms and, accordingly, console manufacturers have developed marketplaces whereby video games can be sold directly to the end consumer without the need for a distributor or retailer.
The value chain is less complex for games distributed in digital format in the marketplaces and for those designed for smartphones and tablets, as indicated below:
The main marketplaces through which video games for consoles are sold to end consumers are: Sony's PlayStation Store, Microsoft's Xbox Live and Nintendo's eShop. Steam marketplace is the global leader in the digital distribution of games for personal computers.
The increased weighting of sales via digital marketplaces has made it possible for publishers to extend the lifespan of products by the distribution of additional game episodes (so-called DLC, or downloadable content).
Free to Play video games are offered to the public solely in a digital format. The marketplaces used are the App Store for iPhone and iPad video games and the Play Store for Android video games. Free to Play video games are also available on Sony's and Microsoft's marketplaces for consoles and on Steam for personal computers.
Digital distribution has made it possible to significantly extend the lifespan of each video game. In fact, a product's availability is not strictly limited to the launch period, as is the case with the retail market, but it remains available in individual marketplaces thereafter, thus, ensuring a continuous flow of sales that may be significantly affected by temporary promotional policies.
Seasonality is influenced by the launch of successful products. Quarter-on-quarter results can be volatile depending on whether or not a popular new game is released. In fact, the launch of these products leads to a concentration of sales in the first few days following their release.
The seasonal pattern is even more pronounced for a video game publisher, which usually releases a limited number of games over a 12-month period, whereas a distributor can count on a steady stream of new products, as its business is to sell different publishers' games in a given geographical market.
The publication and distribution of video games in the digital marketplace mitigates the volatility of a publisher's results from one quarter to the next. In fact, in the event of digital distribution, revenue is recognised when the end consumer purchases a game from the marketplace. This process occurs more gradually over time and not prevalently in the days immediately after the launch, unlike traditional distribution, for which revenue is recognised at the time of shipment of the finished product to the distributor/dealer, regardless of whether it has been purchased by the end consumer. The fact that it is possible to offer product promotions on the main marketplaces in a fairly rapid and effective manner tends to concentrate revenue during such periods. It is evident that publishers try to plan their promotional campaigns for the more favourable phases of the market, such as the Christmas season for European markets or Black Friday for the American market.
The trend in Free to Play video games revenue is less influenced by seasonality factors than Premium video games, given that, up till now, successful Free to Play video games have achieved revenue growth over time without any particular peaks over the launch period, with certain rare exceptions relating to Free to Play video games that had been highly anticipated and with well known brands. The impact of promotions on revenue trends is significant, but, unlike the Premium video games market, promotions are frequently repeated after fairly short intervals and thus do not create distortive effects on the revenue trend for each video game.
The financial position is also closely linked to the revenue trend. The physical distribution of a product in a quarter entails the concentration of net working capital investment, which is temporarily reflected by the level of net cash/debt until such time as the related sales revenue is collected. This factor is accentuated by the launch of Premium products, which also require net working capital investment for the physical production of a game.
| 4. ANALYSIS OF RESULTS FOR THE PERIOD ENDED 31 MARCH 2017 |
|
|---|---|
| -------------------------------------------------------------- | -- |
| Period ended | Period ended | ||||||
|---|---|---|---|---|---|---|---|
| Euro thousand | 31 March 2017 | 31 March 2016 | Change | ||||
| 1 | Gross revenue | 99,012 | 105.0% | 61,281 | 104.6% | 37,731 | 61.6% |
| 2 | Revenue adjustments | (4,700) | -5.0% | (2,680) | -4.6% | (2,020) | 75.3% |
| 3 | Net revenue | 94,312 | 100.0% | 58,601 | 100.0% | 35,711 | 60.9% |
| 4 | Purchase of products for resale | (24,857) | -26.4% | (16,372) | -27.9% | (8,485) | 51.8% |
| 5 | Purchase of services for resale | (7,394) | -7.8% | (4,438) | -7.6% | (2,956) | 66.6% |
| 6 | Royalties | (27,379) | -29.0% | (14,648) | -25.0% | (12,731) | 86.9% |
| Changes in inventories of finished | |||||||
| 7 | products | 3,404 | 3.6% | (1,164) | -2.0% | 4,568 | n.m. |
| 8 | Total cost of sales | (56,226) | -59.6% | (36,622) | -62.5% | (19,604) | 53.5% |
| 9 | Gross profit (3+8) | 38,086 | 40.4% | 21,979 | 37.5% | 16,107 | 73.3% |
| 10 | Other income | 1,433 | 1.5% | 4,366 | 7.5% | (2,933) | -67.2% |
| 11 | Cost of services | (9,237) | -9.8% | (9,847) | -16.8% | 610 | -6.2% |
| 12 | Lease and rental charges | (1,104) | -1.2% | (1,159) | -2.0% | 55 | -4.7% |
| 13 | Labour costs | (16,206) | -17.2% | (14,601) | -24.9% | (1,605) | 11.0% |
| 14 | Other operating costs | (1,557) | -1.7% | (1,136) | -1.9% | (421) | 37.1% |
| 15 | Total operating costs | (28,104) | -29.8% | (26,743) | -45.6% | (1,361) | 5.1% |
| Gross operating margin (EBITDA) | |||||||
| 16 | (9+10+15) | 11,415 | 12.1% | (398) | -0.7% | 11,813 | n.m. |
| 17 | Depreciation and amortisation | (4,948) | -5.2% | (2,798) | -4.8% | (2,150) | 76.8% |
| 18 | Allocations to provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 19 | Impairment losses recognised on assets | (432) | -0.5% | (425) | -0.7% | (7) | 1.8% |
| 20 | Reversal of impairment losses and non monetary income |
0 | 0.0% | 588 | 1.0% | (588) | 0.0% |
| Total non-monetary income and | |||||||
| 21 | operating costs | (5,380) | -5.7% | (2,635) | -4.5% | (2,745) | n.m. |
| 22 | Operating margin (EBIT) (16+21) | 6,035 | 6.4% | (3,033) | -5.2% | 9,068 | n.m. |
| 23 | Interest and finance income | 8,154 | 8.6% | 2,574 | 4.4% | 5,580 | n.m. |
| 24 | Interest expense and finance costs | (2,398) | -2.5% | (1,222) | -2.1% | (1,176) | 96.3% |
| 25 | Net finance income (costs) | 5,756 | 6.1% | 1,352 | 2.3% | 4,404 | n.m. |
| 26 | Profit before tax (22+25) | 11,791 | 12.5% | (1,681) | -2.9% | 13,472 | n.m. |
| 27 | Current tax | (4,277) | -4.5% | (1,116) | -1.9% | (3,161) | n.m. |
| 28 | Deferred tax | 270 | 0.3% | 1,506 | 2.6% | (1,236) | -82.1% |
| 29 | Total income tax income (expense) | (4,007) | -4.2% | 390 | 0.7% | (4,397) | n.m. |
| 30 | Profit for the period (26+29) | 7,784 | 8.3% | (1,291) | -2.2% | 9,075 | n.m. |
| Earnings per share: | |||||||
| 33 | Basic earnings per share (in euros) | 0.55 | (0.09) | 0.65 | n.m. | ||
| 34 | Diluted earnings per share (in euros) | 0.55 | (0.09) | 0.65 | n.m. |
Note: "n.m." in this and the tables which follow stands for not meaningful
Gross consolidated revenue for the first nine months of the financial year amounted to Euro 99,012 thousand, representing an increase of 61.6% on the figure for the comparative prior year period of Euro 61,281 thousand. The contributory factors to the positive performance in the period include the launch of the console versions of the Assetto Corsa video game, the continuous revenue stream generated by the Rocket League video game, which was launched at the prior financial year end, and video game contract revenue generated by the Development operating segment. In addition to the positive trend in revenue reported by the Premium Games operating segment that grew by Euro 30,799 thousand, the period also benefited from growth in revenue reported by the Free to Play and Development operating segments that was up by Euro 2,419 thousand and Euro 5,737 thousand, respectively. The Italian Distribution operating segment reported a falling trend with a loss in turnover in the period of Euro 1,334 thousand.
A breakdown is provided below of revenue by operating segment for the periods ended 31 March 2017 and 2016:
| Euro thousand | Gross revenue | Net revenue | ||||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | Change | 2016 | Change | ||||
| Premium Games | 70,749 | 39,950 | 30,799 | 77.1% | 67,740 | 38,347 | 29,393 | 76.7% |
| Italian Distribution | 14,959 | 16,293 | (1,334) | -8.2% | 13,598 | 15,267 | (1,669) | -10.9% |
| Free to Play | 5,845 | 3,426 | 2,419 | 70.6% | 5,845 | 3,426 | 2,419 | 70.6% |
| Development | 6,839 | 1,102 | 5,737 | n.m. | 6,839 | 1,102 | 5,737 | n.m. |
| Other Activities | 620 | 510 | 110 | 21.6% | 290 | 459 | (169) | -36.8% |
| Total gross revenue | 99,012 | 61,281 | 37,731 | 61.6% | 94,312 | 58,601 | 35,711 | 60.9% |
Revenue reported by the Premium Games operating segment amounted to Euro 70,749 thousand and was the major contributor to consolidated revenue, as had also been the case in prior years. Details are provided below of revenue by video game:
| Amounts in Euro thousand | Period ended 31 March 2017 |
Period ended 31 March 2016 |
Change |
|---|---|---|---|
| Rocket League | 23,197 | 0 | 23,197 |
| Terraria | 10,718 | 13,779 | (3,061) |
| Assetto Corsa | 10,339 | 0 | 10,339 |
| PAYDAY 2 | 10,050 | 14,260 | (4,210) |
| Sniper Elite V3 | 4,586 | 6,618 | (2,032) |
| Abzu | 4,218 | 0 | 4,218 |
| How to Survive | 1,774 | 954 | 820 |
| Portal Knights | 1,504 | 758 | 746 |
| Brothers | 1,025 | 2,092 | (1,067) |
| Other products | 3,338 | 1,489 | 1,849 |
| Total Premium Games gross revenue | 70,749 | 39,950 | 30,799 |
The operating segment's revenue was substantially boosted by sales of products launched in the period, namely Assetto Corsa (Euro 10,339 thousand) and Abzu (Euro 4,218 thousand). However, the product that generated the highest volumes in the period was Rocket League (retail versions for the Sony Playstation 4 and Microsoft Xbox One platforms), which produced revenue of Euro 23,197 thousand. This video game, which was launched in June 2016, has remained in the international video games sales charts throughout the period.
The video games that have been drivers of the Group's results in recent years, that is, PAYDAY 2 and Terraria, continued to generate revenue in the period of Euro 10,050 thousand and Euro 10,718 thousand, respectively, despite the fact that they were launched years ago, providing proof of the extremely long lifespan that products may now count on following the digitalisation of the market.
Of note, with a view to the future, is the trend in sales of Portal Knights, which was conceived and created internally and the intellectual property of which is fully held by the Group. During the period, only an Early Access PC version of the game was available on the Steam marketplace and it generated revenue of Euro 1,504 thousand. The final PC version of the video game, together with the brand new console versions, shall be available as from the fourth quarter.
The revenue trend reported by the Italian Distribution operating segment was attributable to a fall in revenue generated by the retail distribution of video games in Italy. In the comparative prior year period the operating segment had in fact benefited from the simultaneous launch of PES 2016 and Metal Gear Solid. Trading cards revenue, however, grew by 21.9%.
Worthy of note is the percentage growth in revenue reported by the Free to Play operating segment that increased by 70% from Euro 3,426 thousand reported in the comparative first nine months to Euro 5,845 thousand in the period just ended. This operating segment also benefited from the launch of new products such as Hawken and Prominence Poker, even though the video game that generated the largest portion of revenue was Gems of War, which, despite having been launched in November 2014, generated revenue in the period of Euro 2,476 thousand.
The focus of the U.S. subsidiary Pipeworks' operations primarily on job orders for non-Group third party customers made it possible to significantly increase revenue achieved by the Development operating segment that went from Euro 1,102 thousand for the comparative first nine months to Euro 6,839 thousand for the period ended 31 March 2017.
The Other Activities operating segment's revenue amounted to Euro 620 thousand and related to sales generated by the Daily Fantasy Sport Fantasfida and revenue generated by specialisation courses organised by Digital Bros Game Academy S.r.l.
Cost of sales amounted to Euro 56,226 thousand in the period. The percentage increase therein was lower than the percentage increase in revenue.
Other income went from Euro 4,366 thousand to Euro 1,433 thousand in the first nine months of the current financial year and which consists of the capitalisation of internal development costs for video games in a development phase by the subsidiaries DR Studios Ltd. and Pipeworks Inc.; the significant decrease is in line with a lower use of resources by the latter on Group products.
Operating costs increased by 5.1% (Euro 5.1 thousand), which was significantly lower than the turnover trend. In addition to the normal effect of operating leverage triggered by revenue growth, there was a decrease in advertising expenditure on the Daily Fantasy Sport Fantasfida that had characterised the first nine months of the last financial year and that amounted to Euro 1,965 thousand.
The gross operating margin for the period amounted to Euro 11,415 thousand, compared to the negative margin reported for the period ended 31 March 2016 of Euro 398 thousand.
Non-monetary operating costs, net of non-monetary income, increased by Euro 2,745 thousand due to an increase in amortisation relating to intellectual property and in line with capital expenditure made by the Group in relation thereto.
The operating margin (EBIT) increased by Euro 9,069 thousand, having gone from a negative margin of Euro 3,033 thousand for the period ended 31 March 2016 to a positive margin of Euro 6,036 thousand for the period just ended.
Net finance income amounted to Euro 5,756 thousand, compared to Euro 1,352 thousand for the comparative prior year period. Interest and finance income increased by Euro 5,580 thousand compared to the comparative prior year period. This mainly consisted of gains recognised in the period on the sale and purchase of Starbreeze shares of Euro 6,891 thousand and exchange gains of Euro 1,156 thousand. Interest expense and finance costs amounted to Euro 2,398 thousand, representing an increase of Euro 1,176 thousand compared to the figure reported for the period ended 31 March 2016, attributable to losses recognised in the period on the measurement of Starbreeze shares and higher exchange losses.
Profit before tax for the period ended 31 March 2017 came to Euro 11,791 thousand, up by Euro 13,472 thousand compared to the loss reported for the period ended 31 March 2016 of Euro 1,681 thousand.
Profit for the period amounted to Euro 7,784 thousand, having increased by Euro 9,075 thousand compared to the loss for the period ended 31 March 2016 of Euro 1,291 thousand.
Basic and diluted earnings per share came to Euro 0.55, compared to loss per share for the comparative prior year period of Euro 0.09.
| Euro thousand | 31 March 2017 | 30 June 2016 | Change | ||
|---|---|---|---|---|---|
| Non-current assets | |||||
| 1 | Property, plant and equipment | 6,895 | 7,032 | (137) | -1.9% |
| 2 | Investment property | 0 | 0 | 0 | 0.0% |
| 3 | Intangible assets | 21,459 | 10,458 | 11,001 | n.m. |
| 4 | Equity investments | 1,370 | 898 | 472 | 52.6% |
| 5 | Non-current receivables and other assets | 1,064 | 1,056 | 8 | 0.8% |
| 6 | Deferred tax assets | 1,419 | 2,619 | (1,200) | -45.8% |
| Total non-current assets | 32,207 | 22,063 | 10,144 | 46.0% | |
| Non-current liabilities | |||||
| 7 | Employee benefits | (552) | (529) | (23) | 4.4% |
| 8 | Non-current provisions | (27) | (36) | 9 | -25.3% |
| 9 | Other non-current payables and liabilities | 0 | (252) | 252 | n.m. |
| Total non-current liabilities | (579) | (817) | 238 | -29.1% | |
| Net working capital | |||||
| 10 | Inventories | 15,337 | 11,933 | 3,404 | 28.5% |
| 11 | Trade receivables | 34,168 | 34,840 | (672) | -1.9% |
| 12 | Current tax assets | 2,330 | 2,019 | 311 | 15.4% |
| 13 | Other current assets | 4,005 | 5,034 | (1,029) | -20.4% |
| 14 | Trade payables | (31,174) | (21,712) | (9,462) | 43.6% |
| 15 | Current tax liabilities | (5,151) | (6,211) | 1,060 | -17.1% |
| 16 | Current provisions | 0 | 0 | (0) | n.m. |
| 17 | Other current liabilities | (3,682) | (2,312) | (1,370) | 59.3% |
| Total net working capital | 15,833 | 23,591 | (7,758) | -32.9% | |
| Capital and reserves | |||||
| 18 | Share capital | (5,704) | (5,644) | (60) | n.m. |
| 19 | Reserves | (20,208) | (20,804) | 596 | -2.9% |
| 20 | Treasury shares | 0 | 390 | (390) | n.m. |
| 21 | Retained earnings (accumulated losses) | (29,753) | (22,290) | (7,463) | 33.5% |
| Total equity | (55,665) | (48,348) | (7,317) | 15.1% | |
| Total net assets | (8,204) | (3,511) | (4,693) | n.m. | |
| 22 | Cash and cash equivalents | 8,985 | 2,785 | 6,200 | n.m. |
| 23 | Current bank debt | (2,422) | (25,929) | 23,507 | -90.7% |
| 24 | Other current financial assets and liabilities | 754 | 28,913 | (28,159) | -97.4% |
| Current net cash/debt | 7,317 | 5,769 | 1,548 | 26.8% | |
| 25 | Non-current financial assets | 1,374 | 1,195 | 179 | 14.9% |
| 26 | Non-current bank debt | (443) | (1,558) | 1,115 | -71.6% |
| 27 | Other non-current financial liabilities | (44) | (1,895) | 1,851 | -97.7% |
| Non-current net debt | 887 | (2,258) | 3,145 | n.m. | |
| Total net cash/debt | 8,204 | 3,511 | 4,693 | n.m. |
Non-current assets increased with respect to the balance at 30 June 2016 by Euro 10,144 thousand mainly due to net expenditure on intangible assets of Euro 11,001 thousand relating to the acquisition and production of intellectual property only partially offset by a decrease in deferred tax assets of Euro 1,200 thousand. Equity investments increased by Euro 472 thousand due to the subscription to further portions of the capital of Seekhana Ltd. and Ovosonico S.r.l. for amounts of Euro 262 thousand and Euro 210 thousand, respectively.
Non-current liabilities decreased by Euro 238 thousand due to the classification within working capital payables of the variable remuneration linked to the medium/long-term incentive scheme for directors and key managers that will be paid in September 2017.
Net working capital decreased in the period by Euro 7,758 thousand. An analysis of net working capital together with comparative figures at 30 June 2016 is provided below:
| Euro thousand | 31 March 2017 | 30 June 2016 | Change | |
|---|---|---|---|---|
| Inventories | 15,337 | 11,933 | 3,404 | 28.5% |
| Trade receivables | 34,168 | 34,840 | (672) | -1.9% |
| Current tax assets | 2,330 | 2,019 | 311 | 15.4% |
| Other current assets | 4,005 | 5,034 | (1,029) | -20.4% |
| Trade payables | (31,174) | (21,712) | (9,462) | 43.6% |
| Current tax liabilities | (5,151) | (6,211) | 1,060 | -17.1% |
| Current provisions | 0 | 0 | 0 | n.m. |
| Other current liabilities | (3,682) | (2,312) | (1,370) | 59.3% |
| Total net working capital | 15,833 | 23,591 | (7,758) | -32.9% |
Net cash amounted to Euro 8,204 thousand, representing an improvement of Euro 4,693 thousand compared to net cash of Euro 3,511 thousand at 30 June 2016.
An analysis of net cash/debt together with comparative figures at 30 June 2016 is provided below:
| Euro thousand | 31 March 2017 | 30 June 2016 | Change | |
|---|---|---|---|---|
| Cash and cash equivalents | 8,985 | 2,785 | 6,200 | n.m. |
| Current bank debt | (2,422) | (25,929) | 23,507 | -90.7% |
| Other current financial assets and liabilities | 754 | 28,913 | (28,159) | -97.4% |
| Current net cash/debt | 7,317 | 5,769 | 1,548 | 26.8% |
| Non-current financial assets | 1,374 | 1,195 | 179 | 14.9% |
| Non-current bank debt | (443) | (1,558) | 1,115 | -71.6% |
| Other non-current financial liabilities | (44) | (1,895) | 1,851 | -97.7% |
| Non-current net debt | 887 | (2,258) | 3,145 | n.m. |
| Total net cash/debt | 8,204 | 3,511 | 4,693 | n.m. |
Following the changes made to the operating segments' structure as explained in the paragraph on Group structure, the prior year figures have been restated to reflect the current operating segments.
Financial highlights (reclassified)
| Amounts in Euro thousand | Development | ||||||
|---|---|---|---|---|---|---|---|
| Period ended 31 | Period ended 31 | ||||||
| March 2017 | March 2016 | Change | |||||
| 1 | Gross revenue | 6,839 | 100.0% | 1,102 | 100.0% | 5,737 | n.m. |
| 2 | Revenue adjustments | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 3 | Net revenue | 6,839 | 100.0% | 1,102 | 100.0% | 5,737 | n.m. |
| 4 | Purchase of products for resale | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 5 | Purchase of services for resale | (1,969) | -28.8% | (408) | -37.0% | (1,561) | n.m. |
| 6 | Royalties | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 7 | Changes in inventories of finished products | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 8 | Total cost of sales | (1,969) | -28.8% | (408) | -37.0% | (1,561) | n.m. |
| 9 | Gross profit (3+8) | 4,870 | 71.2% | 694 | 63.0% | 4,176 | n.m. |
| 10 | Other income | 607 | 8.9% | 3,365 | 305.4% | (2,758) | -82.0% |
| 11 | Cost of services | (305) | -4.5% | (213) | -19.3% | (92) | 43.4% |
| 12 | Lease and rental charges | (0) | 0.0% | (109) | -9.9% | 109 | n.m. |
| 13 | Labour costs | (3,409) | -49.9% | (3,804) | -345.3% | 395 | -10.4% |
| 14 | Other operating costs | (103) | -1.5% | (134) | -12.1% | 31 | -23.3% |
| 15 | Total operating costs | (3,817) | -55.8% | (4,260) | -386.6% | 443 | -10.4% |
| Gross operating margin (EBITDA) | |||||||
| 16 | (9+10+15) | 1,660 | 24.3% | (201) | -18.2% | 1,861 | n.m. |
| 17 | Depreciation and amortisation | (446) | -6.5% | (453) | -41.1% | 7 | -1.4% |
| 18 | Allocations to provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 19 | Impairment losses recognised on assets | (0) | 0.0% | 0 | 0.0% | (0) | 0.0% |
| Reversal of impairment losses and non | |||||||
| 20 | monetary income | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 21 | Total non-monetary income and operating costs |
(446) | -6.5% | (453) | -41.1% | 7 | -1.4% |
| 22 | Operating margin (EBIT) (16+21) | 1,214 | 17.8% | (654) | -59.3% | 1,868 | n.m. |
This operating segment comprises the business operations of the U.S. subsidiary Pipeworks Inc.
The Development operating segment's revenue relates to development contracts that the subsidiary has entered into with non-Group customers, whereas revenue consisting of the capitalisation of internal
20
development costs for video games on behalf of the Group is classified as other income, net of realised intercompany margins.
The focus of the U.S. subsidiary Pipeworks' operations almost entirely on job orders for non-Group third party customers made it possible to significantly increase revenue achieved by the Development operating segment that went from Euro 1,102 thousand for the comparative first nine months to Euro 6,839 thousand for the period ended 31 March 2017. In fact, during the period, Pipeworks Inc. solely performed services for the Group, consisting of quality assurance and live support for the Prominence Poker video game.
The increase in purchase of services for resale is attributable to a greater use of external professional resources driven by increased activity in the period.
Labour costs were the most significant component of operating costs and amounted to Euro 3,409 thousand, which was lower than the figure reported for the period ended 31 March 2016 of Euro 3,804 thousand.
Depreciation and amortisation expense consists of the amortisation of intangible assets of Euro 117 thousand and the amortisation of development contracts arising from the allocation of goodwill recognised upon acquisition of Euro 329 thousand.
Higher margins generated by non-Group job orders in comparison to the favourable conditions pertaining to intercompany contracts enabled the operating segment to recognise a positive net operating margin of Euro 1,214 thousand compared to the negative margin of Euro 654 thousand reported for the comparative period.
Financial highlights (reclassified)
| Amounts in Euro thousand | Premium Games | ||||||
|---|---|---|---|---|---|---|---|
| Period ended 31 | Period ended 31 | ||||||
| March 2017 | March 2016 | Change | |||||
| 1 | Gross revenue | 70,749 | 104.4% | 39,950 | 104.2% | 30,799 | 77.1% |
| 2 | Revenue adjustments | (3,009) | -4.4% | (1,603) | -4.2% | (1,406) | 87.7% |
| 3 | Net revenue | 67,740 | 100.0% | 38,347 | 100.0% | 29,393 | 76.6% |
| 4 | Purchase of products for resale | (14,683) | -21.7% | (4,963) | -12.9% | (9,720) | n.m. |
| 5 | Purchase of services for resale | (2,834) | -4.2% | (2,972) | -7.7% | 138 | -4.6% |
| 6 | Royalties | (27,114) | -40.0% | (11,911) | -31.1% | (15,203) | n.m. |
| 7 | Changes in inventories of finished products |
2,098 | 3.1% | (1,011) | -2.6% | 3,109 | n.m. |
| 8 | Total cost of sales | (42,533) | -62.8% | (20,857) | -54.4% | (21,676) | n.m. |
| 9 | Gross profit (3+8) | 25,207 | 37.2% | 17,490 | 45.6% | 7,717 | 44.1% |
| 22 | 0.0% | 86 | 0.2% | (64) | -74.4% | ||
| 10 | Other income | ||||||
| 11 | Cost of services | (4,874) | -7.2% | (4,027) | -10.5% | (847) | 21.0% |
| 12 | Lease and rental charges | (447) | -0.7% | (385) | -1.0% | (62) | 16.2% |
| 13 | Labour costs | (5,505) | -8.1% | (4,881) | -12.7% | (624) | 12.8% |
| 14 | Other operating costs | (368) | -0.5% | (373) | -1.0% | 5 | -1.5% |
| 15 | Total operating costs | (11,194) | -16.5% | (9,666) | -25.2% | (1,528) | 15.8% |
| Gross operating margin (EBITDA) | |||||||
| 16 | (9+10+15) | 14,035 | 20.7% | 7,910 | 20.6% | 6,125 | 77.4% |
| 17 | Depreciation and amortisation | (1,849) | -2.7% | (883) | -2.3% | (966) | n.m. |
| 18 | Allocations to provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 19 | Impairment losses recognised on assets | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| Reversal of impairment losses and non | |||||||
| 20 | monetary income | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 21 | Total non-monetary income and operating costs |
(1,849) | -2.7% | (883) | -2.3% | (966) | n.m. |
| 22 | Operating margin (EBIT) (16+21) | 12,186 | 18.0% | 7,027 | 18.3% | 5,159 | 73.4% |
Revenue reported by the Premium Games operating segment amounted to Euro 70,749 thousand, having increased by 77.1%, that is, by Euro 30,799 thousand with respect to the amount reported for the period ended 31 March 2016 of Euro 39,950 thousand.
Details are provided below of gross revenue by video game:
| Amounts in Euro thousand | Period ended 31 March 2017 |
Period ended 31 March 2016 |
Change |
|---|---|---|---|
| Rocket League | 23,197 | 0 | 23,197 |
| Terraria | 10,718 | 13,779 | (3,061) |
| Assetto Corsa | 10,339 | 0 | 10,339 |
| PAYDAY 2 | 10,050 | 14,260 | (4,210) |
| Sniper Elite V3 | 4,586 | 6,618 | (2,032) |
| Abzu | 4,218 | 0 | 4,218 |
| How to Survive | 1,774 | 954 | 820 |
| Portal Knights | 1,504 | 758 | 746 |
| Brothers | 1,025 | 2,092 | (1,067) |
| Other products | 3,338 | 1,489 | 1,849 |
| Total Premium Games gross revenue | 70,749 | 39,950 | 30,799 |
The operating segment's revenue was substantially boosted by sales of products launched in the period, namely Assetto Corsa (Euro 10,339 thousand) and Abzu (Euro 4,218 thousand). However, the product that generated the highest volumes in the period was Rocket League (retail versions for the Sony Playstation 4 and Microsoft Xbox One platforms), which produced revenue of Euro 23,197 thousand. This video game, which was launched in June 2016, has remained in the international video games sales charts throughout the period.
The video games, which have been drivers of the Group's results in recent years, that is, PAYDAY 2 and Terraria, continued to generate revenue in the period of Euro 10,050 thousand and Euro 10,718 thousand, respectively, despite the fact that they were launched years ago, providing proof of the extremely long lifespan that products may now count on following the digitalisation of the market.
Of note, with a view to the future, is the trend in sales of Portal Knights, which was designed and created internally and the intellectual property of which is fully held by the Group. During the period, only an Early Access PC version of the game was available on the Steam marketplace and it generated revenue of Euro 1,504 thousand. The final PC version of the video game, together with the brand new console versions, shall be available as from the fourth quarter.
In line with the positive trend of the Rocket league video game, for which the Group holds the publishing rights only for the retail version thereof, the revenue generated by retail distribution made it the best performing distribution channel in the period. Details are provided below of revenue by distribution channel together with comparative prior year figures:
| Revenue (in Euro thousand) | Period ended 31 March 2017 |
Period ended 31 March 2016 |
Change | |
|---|---|---|---|---|
| Retail distribution revenue | 41,987 | 14,752 | 27,235 | n.m. |
| Digital distribution revenue | 25,300 | 24,962 | 338 | 1.4% |
| Sub-licensing revenue | 3,462 | 236 | 3,226 | n.m. |
| Total Premium Games revenue | 70,749 | 39,950 | 30,799 | 77.1% |
Details are provided below of digital distribution revenue by digital marketplace for the period ended 31 March 2017:
| Revenue (in Euro thousand) | Period ended 31 March 2017 |
Period ended 31 March 2016 |
Change |
|---|---|---|---|
| Sony Playstation Network | 10,642 | 6,342 | 4,300 |
| Microsoft Xbox Live | 6,771 | 6,508 | 263 |
| Steam | 4,417 | 7,544 | (3,127) |
| iTunes | 1,433 | 2,284 | (851) |
| 714 | 955 | (241) | |
| Other marketplaces | 1,323 | 1,329 | (6) |
| Total digital distribution revenue | 25,300 | 24,962 | 338 |
Sub-licensing revenue grew significantly by Euro 3,226 thousand and arose from the sale of exploitation rights for the Terraria video game for China and from the recent sale of Terraria and PAYDAY 2 rights for the Microsoft Game Pass platform.
Revenue adjustments have gone from Euro 1,603 thousand to Euro 3,009 thousand for the period ended 31 March 2017. This line item includes an estimate of credit notes for unsold products that the Group has forecast that it will have to issue to customers in the near future. Expressed as a percentage of retail distribution revenue, the figure for the period of 4.4% is in line with market trends, especially following the launch of new products, and is also in line with the prior year figure of 4.2%. The operating segment's net revenue grew by 76.6%.
The significant increase in royalty costs of Euro 15,203 thousand, which have more than doubled compared to prior year, is attributable to an increased weighting of revenue from products, which, due to the nature of the contracts entered into and the lower risks that the Group assumes, have higher than average royalty percentages applied thereto. Cost of sales increased by Euro 21,676 thousand, thus giving rise to growth in the operating segment's gross profit of 44.1% to Euro 25,207 thousand.
Operating costs increased by Euro 1,528 thousand, mainly due to an increase in cost of services of Euro 847 thousand, which was attributable to higher advertising expenditure following the launch of new products.
The gross operating margin amounted to Euro 14,035 thousand and increased by 77.4%.
Non-monetary operating costs rose by Euro 966 thousand due to an increase in amortisation of intellectual property acquired by the Group, bringing the operating margin to Euro 12,186 thousand, representing an increase of 73.4% and equating to 18% of net revenue.
| Amounts in Euro thousand | Free to Play | |||||||
|---|---|---|---|---|---|---|---|---|
| Period ended | Period ended | |||||||
| 31 March 2017 | 31 March 2016 | Change | ||||||
| 1 | Gross revenue | 5,845 | 100.0% | 3,426 | 100.0% | 2,419 | 70.6% | |
| 2 | Revenue adjustments | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% | |
| 3 | Net revenue | 5,845 | 100.0% | 3,426 | 100.0% | 2,419 | n.m. | |
| 4 | Purchase of products for resale | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% | |
| 5 | Purchase of services for resale | (1,929) | -33.0% | (980) | -28.6% | (949) | n.m. | |
| 6 | Royalties | (207) | -3.5% | (2,645) | -77.2% | 2,438 | -92.2% | |
| Changes in inventories of finished | ||||||||
| 7 | products | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% | |
| 8 | Total cost of sales | (2,136) | -36.5% | (3,625) | -105.8% | 1,489 | -41.1% | |
| 9 | Gross profit (3+8) | 3,709 | 63.5% | (199) | -5.8% | 3,908 | n.m. | |
| 10 | Other income | 776 | 13.3% | 685 | 20.0% | 91 | 13.2% | |
| 11 | Cost of services | (844) | -14.4% | (641) | -18.7% | (203) | 31.8% | |
| 12 | Lease and rental charges | (49) | -0.8% | (55) | -1.6% | 6 | -11.0% | |
| 13 | Labour costs | (3,310) | -56.6% | (2,178) | -63.6% | (1,132) | 52.0% | |
| 14 | Other operating costs | (55) | -0.9% | (51) | -1.5% | (4) | 6.3% | |
| 15 | Total operating costs | (4,258) | -72.8% | (2,925) | -85.4% | (1,333) | 45.6% | |
| Gross operating margin (EBITDA) | ||||||||
| 16 | (9+10+15) | 227 | 3.9% | (2,439) | -71.2% | 2,666 | n.m. | |
| 17 | Depreciation and amortisation | (2,020) | -34.6% | (1,036) | -30.2% | (984) | 95.0% | |
| 18 | Allocations to provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% | |
| 19 | Impairment losses recognised on assets | (27) | -0.5% | (425) | -12.4% | 398 | 0.0% | |
| Reversal of impairment losses and non | ||||||||
| 20 | monetary income | 0 | 0.0% | 588 | 17.2% | (588) | 0.0% | |
| 21 | Total non-monetary income and operating costs |
(2,047) | -35.0% | (873) | -25.5% | (1,174) | n.m. | |
| (1,820) | -31.1% | (3,312) | -96.7% | 1,492 | -45.0% | |||
| 22 | Operating margin (EBIT) (16+21) |
The percentage growth in revenue reported by the Free to Play operating segment was significant and, in fact, it increased by 70% from Euro 3,426 thousand reported in the comparative first nine months to Euro 5,845 thousand in the period just ended. This operating segment also benefited from the launch of new products such as Hawken and Prominence Poker, even though the video game that generated the largest portion of revenue was Gems of War, which was launched in November 2014 and which generated revenue in the period of Euro 2,476 thousand.
Details are provided below of revenue for the period together with comparative prior year figures:
| Period ended | Period ended | Change | |
|---|---|---|---|
| Revenue (in Euro thousand) | 31 March 2017 | 31 March 2016 | |
| Gems of War | 2,476 | 893 | 1,583 |
| Battle Ages | 847 | 0 | 847 |
| Battle Islands | 935 | 2,070 | (1,135) |
| Prominence Poker | 838 | 0 | 838 |
| Hawken | 569 | 0 | 569 |
| Other products | 180 | 463 | (283) |
| Total Free to Play revenue | 5,845 | 3,426 | 2,419 |
The Battle Ages and Battle Islands video games, which were developed by the subsidiary DR Studios Ltd., contributed revenue for the period of Euro 847 thousand and Euro 935 thousand, respectively.
The impact on revenue for the period generated by the two games launched in the period, Prominence Poker and Hawken, was Euro 838 thousand and Euro 569 thousand, respectively. With specific reference to the second of the two, in view of the potential that the video game is deemed to have, a new organisational unit, Hawken Entertainment Inc., has been set up, through which the exploitation rights for the intellectual property have been purchased.
Cost of sales solely consists of purchases of services and royalties. The former, which amounted to Euro 1,929 thousand in the period, consist of localisation, ratings and quality assurance costs, as well as costs incurred for live support services. Details are provided below of cost of services by category:
| Amounts in Euro thousand | Period ended 31 March 2017 |
Period ended 31 March 2016 |
Change |
|---|---|---|---|
| Live support | 897 | 466 | 431 |
| Quality assurance | 139 | 198 | -59 |
| Hosting | 685 | 179 | 506 |
| Other | 208 | 137 | 71 |
| Total | 1,929 | 980 | 949 |
The significant increase in hosting costs is due to the fact that the two recently launched games have a greater need for game server capacity to be made available to gamers.
The capitalisation of internal development costs incurred for the game in the period has been recognised as other income.
Operating costs mainly consist of advertising costs incurred to acquire new gamers, as well as labour costs. The former increased in the period by Euro 203 thousand, whereas the latter increased by Euro 1,132 thousand (52%) compared to comparative prior year figures, in line with the increase in the number of the operating segment's employees, partially impacted by professional staff hired by the newly formed Hawken Entertainment Inc.
Depreciation and amortisation increased by Euro 984 thousand and consisted of the following:
| Period ended | Period ended | ||
|---|---|---|---|
| Amounts in Euro thousand | 31 March 2017 | 31 March 2016 | Change |
| Amortisation of Battle Islands | 327 | 667 | (340) |
| Amortisation of intangible assets | 1,669 | 328 | 1,341 |
| Depreciation of property, plant and equipment | 24 | 41 | (17) |
| Total | 2,020 | 1,036 | 984 |
The increase in amortisation of intangible assets occurred as a result of having put into production the Battle Ages video game in the second half of the prior financial year and Prominence Poker and Hawken during the first quarter of the current financial year.
The operating loss for the period amounted to Euro 1,820 thousand, being a significant improvement on the operating loss for the period ended 31 March 2016 of Euro 3,312 thousand.
Financial highlights (reclassified)
| Amounts in Euro thousand | Italian Distribution | |||||||
|---|---|---|---|---|---|---|---|---|
| Period ended | Period ended | |||||||
| 31 March 2017 | 31 March 2016 | Change | ||||||
| 1 | Gross revenue | 14,959 | 110.0% | 16,293 | 106.7% | (1,334) | -8.2% | |
| 2 | Revenue adjustments | (1,361) | -10.0% | (1,026) | -6.7% | (335) | 32.6% | |
| 3 | Net revenue | 13,598 | 100.0% | 15,267 | 100.0% | (1,669) | -10.9% | |
| 4 | Purchase of products for resale | (10,174) | -74.8% | (11,409) | -74.7% | 1,235 | -10.8% | |
| 5 | Purchase of services for resale | (517) | -3.8% | 0 | 0.0% | (517) | n.m. | |
| 6 | Royalties | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% | |
| Changes in inventories of finished | ||||||||
| 7 | products | 1,306 | 9.6% | (153) | -1.0% | 1,459 | n.m. | |
| 8 | Total cost of sales | (9,385) | -69.0% | (11,562) | -75.7% | 2,177 | -18.8% | |
| 9 | Gross profit (3+8) | 4,213 | 31.0% | 3,705 | 24.3% | 508 | 13.7% | |
| 10 | Other income | 28 | 0.2% | 53 | 0.3% | (25) | -46.4% | |
| 11 | Cost of services | (1,251) | -9.2% | (1,563) | -10.2% | 312 | -20.0% | |
| 12 | Lease and rental charges | (33) | -0.2% | (46) | -0.3% | 13 | -28.6% | |
| 13 | Labour costs | (1,183) | -8.7% | (1,277) | -8.4% | 94 | -7.4% | |
| 14 | Other operating costs | (156) | -1.1% | (178) | -1.2% | 22 | -12.6% | |
| 15 | Total operating costs | (2,623) | -19.3% | (3,064) | -20.1% | 441 | -14.4% | |
| Gross operating margin (EBITDA) | ||||||||
| 16 | (9+10+15) | 1,618 | 11.9% | 694 | 4.5% | 924 | n.m. | |
| 17 | Depreciation and amortisation | (184) | -1.3% | (135) | -0.9% | (49) | 35.8% | |
| 18 | Allocations to provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% | |
| 19 | Impairment losses recognised on assets | (405) | -3.0% | 0 | 0.0% | (405) | 0.0% | |
| Reversal of impairment losses and non | ||||||||
| 20 | monetary income | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% | |
| Total non-monetary income and | ||||||||
| 21 | operating costs | (589) | -4.3% | (135) | -0.9% | (454) | n.m. | |
| 22 | Operating margin (EBIT) (16+21) | 1,029 | 7.6% | 559 | 3.7% | 470 | 84.0% |
The decrease in revenue reported by the Italian Distribution operating segment was attributable to a fall in revenue generated by the distribution of video games. In the comparative prior year period the operating segment had in fact benefited from the simultaneous launch of PES 2016 and Metal Gear Solid. Trading cards revenue, however, grew by 21.9%.
| Euro thousand | Period ended 31 March 2017 |
Period ended 31 March 2016 |
Change | |
|---|---|---|---|---|
| Distribution of video games for consoles | 9,230 | 11,474 | (2,244) | -19.6% |
| Distribution of video games for PC | 604 | 452 | 152 | 33.6% |
| Distribution of trading cards | 4,726 | 3,879 | 847 | 21.8% |
| Distribution of other products and services | 418 | 519 | (101) | -19.4% |
| Cash discounts | (19) | (31) | 12 | -39.8% |
| Total gross Italian Distribution revenue | 14,959 | 16,293 | (1,334) | -8.2% |
Details are provided below of gross revenue by type of video game distributed:
The trend in gross revenue from the distribution of video games for consoles is as follows:
| Revenue (in Euro thousand) | Period ended 31 March 2017 |
Period ended 31 March 2016 |
Change | ||||
|---|---|---|---|---|---|---|---|
| Units | Revenue | Units Revenue |
Units | Revenue | |||
| Sony Playstation 4 | 196,269 | 6,436 | 154,989 | 6,281 | 26.6% | 2.5% | |
| Sony Playstation 3 | 38,147 | 908 | 112,348 | 2,530 | -66.0% | -64.1% | |
| Microsoft Xbox One | 34,926 | 1,174 | 30,969 | 1,165 | 12.8% | 0.7% | |
| Microsoft Xbox 360 | 25,090 | 416 | 63,795 | 1,235 | -60.7% | -66.3% | |
| Other consoles | 67,626 | 297 | 32,983 | 263 | n.m. | n.m. | |
| Total console revenue | 362,058 | 9,231 | 395,084 | 11,474 | -8.4% | -19.6% |
The operating segment reported a decrease in revenue arising from the distribution of video games for consoles of Euro 2,249 thousand. Sales of Yu-Gi-Oh! trading cards increased by Euro 848 thousand.
Net revenue amounted to Euro 13,598 thousand, down by 10.9% on the prior year figure.
The 18.8% decrease in cost of sales, which exceeded the percentage fall in revenue, gave rise to an increase in the operating segment's gross profit of 13.7% to Euro 4,213 thousand.
Operating costs fell by 14.4% in the period to Euro 441 thousand. The decrease was mainly due to a reduction in cost of services of Euro 312 thousand and in labour costs of Euro 94 thousand.
Non-monetary operating costs rose by Euro 454 thousand mainly due to the impact of the allocation to the provision for doubtful debts, to take account of the potential loss arising from the bankruptcy of certain customers.
The operating margin increased by Euro 470 thousand, having gone from the figure reported for the period ended 31 March 2016 of Euro 559 thousand to Euro 1,029 thousand for the period just ended.
Financial highlights (reclassified)
| Amounts in Euro thousand | Other Activities | ||||||
|---|---|---|---|---|---|---|---|
| Period ended | Period ended | ||||||
| 31 March 2017 | 31 March 2016 | Change | |||||
| 1 | Gross revenue | 620 | 214.1% | 510 | 111.2% | 110 | 21.5% |
| 2 | Revenue adjustments | (330) | -114.1% | (51) | -11.2% | (279) | n.m. |
| 3 | Net revenue | 290 | 100.0% | 459 | 100.0% | (169) | -36.9% |
| 4 | Purchase of products for resale | 0 | 0.1% | 0 | 0.1% | 0 | 0.0% |
| 5 | Purchase of services for resale | (145) | -50.0% | (78) | -17.0% | (67) | 85.2% |
| 6 | Royalties | (58) | -20.0% | (92) | -20.1% | 34 | -37.2% |
| 7 | Changes in inventories of finished products | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 8 | Total cost of sales | (203) | -70.2% | (170) | -37.0% | (33) | 19.6% |
| 9 | Gross profit (3+8) | 87 | 30.2% | 289 | 63.0% | (202) | -69.8% |
| 10 | Other income | 0 | 0.0% | 177 | 38.5% | (177) | 0.0% |
| 11 | Cost of services | (799) | -275.9% | (2,468) | -537.8% | 1,669 | -67.6% |
| 12 | Lease and rental charges | (15) | -5.1% | (16) | -3.6% | 1 | -10.1% |
| 13 | Labour costs | (615) | -212.3% | (400) | -87.1% | (215) | 53.8% |
| 14 | Other operating costs | (36) | -12.5% | (54) | -11.8% | 18 | -33.0% |
| 15 | Total operating costs | (1,465) | -505.9% | (2,938) | -640.3% | 1,473 | -50.1% |
| 16 | Gross operating margin (EBITDA) (9+10+15) | (1,378) | -476.0% | (2,472) | -538.6% | 1,094 | -44.2% |
| 17 | Depreciation and amortisation | (282) | -97.5% | (188) | -40.9% | (94) | 50.4% |
| 18 | Allocations to provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 19 | Impairment losses recognised on assets | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 20 | Reversal of impairment losses and non-monetary income | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 21 | Total non-monetary income and operating costs | (282) | -97.5% | (188) | -40.9% | (94) | 50.4% |
| 22 | Operating margin (EBIT) (16+21) | (1,660) | -573.1% | (2,660) | -579.7% | 1,000 | -37.6% |
The Other Activities operating segment's revenue amounted to Euro 620 thousand and related to sales generated by the Daily Fantasy Sport Fantasfida and revenue generated by specialisation courses organised by Digital Bros Game Academy S.r.l.
Revenue adjustments consist entirely of taxes paid on revenues earned by the portals www.gameplaza.it and www.fantasfida.it.
Operating costs decreased by Euro 1,473 thousand from Euro 2,938 thousand to Euro 1,465 thousand due to the fact that in the comparative prior year period significant costs had been incurred of Euro 2,572 thousand for the Italian launch of Fantasfida.
The negative operating margin amounted to Euro 1,660 thousand compared to the negative operating margin of Euro 2,660 thousand reported for the period ended 31 March 2016, representing an improvement of Euro 1,000 thousand.
Financial highlights (reclassified)
| Amounts in Euro thousand | Holding | ||||||
|---|---|---|---|---|---|---|---|
| Period ended | Period ended | ||||||
| 31 March 2017 | 31 March 2016 | Change | |||||
| 1 | Gross revenue | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 2 | Revenue adjustments | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 3 | Net revenue | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 4 | Purchase of products for resale | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 5 | Purchase of services for resale | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 6 | Royalties | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 7 | Changes in inventories of finished products | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 8 | Total cost of sales | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 9 | Gross profit (3+8) | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 10 | Other income | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 11 | Cost of services | (1,164) | 0.0% | (935) | 0.0% | (229) | 24.5% |
| 12 | Lease and rental charges | (560) | 0.0% | (548) | 0.0% | (12) | 2.3% |
| 13 | Labour costs | (2,184) | 0.0% | (2,061) | 0.0% | (123) | 5.9% |
| 14 | Other operating costs | (839) | 0.0% | (346) | 0.0% | (493) | n.m. |
| 15 | Total operating costs | (4,747) | 0.0% | (3,890) | 0.0% | (857) | 22.0% |
| 16 | Gross operating margin (EBITDA) (9+10+15) | (4,747) | 0.0% | (3,890) | 0.0% | (857) | 22.0% |
| 17 | Depreciation and amortisation | (167) | 0.0% | (103) | 0.0% | (64) | 61.5% |
| 18 | Allocations to provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 19 | Impairment losses recognised on assets | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 20 | Reversal of impairment losses and non-monetary income | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 21 | Total non-monetary income and operating costs | (167) | 0.0% | (103) | 0.0% | (64) | 61.5% |
| 22 | Operating margin (EBIT) (16+21) | (4,914) | 0.0% | (3,993) | 0.0% | (921) | 23.0% |
Operating costs amounted to Euro 4,747 thousand, representing an increase compared to the comparative prior year figure of Euro 857 thousand. The increase is mainly due to fees of Euro 516 thousand incurred by 505 Games S.p.A. in connection with the sale and purchase of Starbreeze shares during the course of the period as well as costs incurred for the preparation of the share incentive plan and for the acquisition of Kunos Simulazioni S.r.l.
Depreciation and amortisation increased by Euro 64 thousand due to the depreciation of the Eugene property, which is used by the subsidiary Pipeworks Inc., and the amortisation of expenditure incurred by the Group on ERP systems in the second half of the last financial year.
The results posted by the Group in the third quarter of the year, compared with the third quarter of the previous year, are shown below:
| 3rd quarter | 3rd quarter 2015/2016 |
||||||
|---|---|---|---|---|---|---|---|
| Euro thousand | 2016/2017 | Change | |||||
| 1 | Gross revenue | 33,869 | 103.8% | 15,991 | 101.8% | 17,878 | n.m. |
| 2 | Revenue adjustments | (1,247) | -3.8% | (284) | -1.8% | (963) | n.m. |
| 3 | Net revenue | 32,622 | 100.0% | 15,707 | 100.0% | 16,915 | n.m. |
| 4 | Purchase of products for resale | (9,170) | -28.1% | (4,282) | -27.3% | (4,888) | n.m. |
| 5 | Purchase of services for resale | (3,341) | -10.2% | (1,153) | -7.3% | (2,189) | n.m. |
| 6 | Royalties | (9,466) | -29.0% | (6,679) | -42.5% | (2,787) | 41.7% |
| 7 | Changes in inventories of finished | 2,257 | 6.9% | 521 | 3.3% | 1,736 | n.m. |
| 8 | products Total cost of sales |
(19,720) | -60.4% | (11,592) | -73.8% | (8,127) | 70.1% |
| 9 | Gross profit (3+8) | 12,902 | 39.5% | 4,115 | 26.2% | 8,787 | n.m. |
| 10 | Other income | 550 | 1.7% | 1,602 | 10.2% | (1,052) | -65.7% |
| 11 | Cost of services | (3,021) | -9.3% | (3,103) | -19.8% | 82 | -2.6% |
| 12 | Lease and rental charges | (376) | -1.2% | (375) | -2.4% | (2) | 0.5% |
| 13 | Labour costs | (5,803) | -17.8% | (4,765) | -30.3% | (1,038) | 21.8% |
| 14 | Other operating costs | (348) | -1.1% | (369) | -2.4% | 22 | -5.8% |
| 15 | Total operating costs | (9,548) | -29.3% | (8,612) | -54.8% | (936) | 10.9% |
| Gross operating margin (EBITDA) | |||||||
| 16 | (9+10+15) | 3,904 | 12.0% | (2,895) | -18.4% | 6,799 | n.m. |
| 17 | Depreciation and amortisation | (1,753) | -5.4% | (1,007) | -6.4% | (746) | 74.1% |
| 18 | Allocations to provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 19 | Impairment losses recognised on assets | (27) | -0.1% | 0 | 0.0% | (27) | n.m. |
| 20 | Reversal of impairment losses | (0) | 0.0% | 0 | 0.0% | (0) | 0.0% |
| 21 | Total non-monetary operating costs | (1,780) | -5.5% | (1,007) | -6.4% | (773) | n.m. |
| 22 | Operating margin (EBIT) (16+21) | 2,124 | 6.5% | (3,902) | -24.8% | 6,026 | n.m. |
| 23 | Interest income | 137 | 0.4% | 602 | 3.8% | (465) | -77.2% |
| 24 | Interest expense | (1,143) | -3.5% | (357) | -2.3% | (786) | n.m. |
| 25 | Total net interest | (1,006) | -3.1% | 245 | 1.6% | (1,251) | n.m. |
| 26 | Profit before tax (22+25) | 1,118 | 3.4% | (3,657) | -23.3% | 4,775 | n.m. |
| 27 | Current tax | (848) | -2.6% | 549 | 3.5% | (1,397) | n.m. |
| 28 | Deferred tax | 118 | 0.4% | 568 | 3.6% | (450) | -79.1% |
| 29 | Total income tax expense | (730) | -2.2% | 1,117 | 7.1% | (1,848) | n.m. |
| 30 | Profit for the period (26+29) | 388 | 1.2% | (2,540) | -16.2% | 2,929 | n.m. |
| Earnings per share: | |||||||
| 33 | Basic earnings per share (in euros) | 0.03 | (0.18) | 0.21 | n.m. | ||
| 34 | Diluted earnings per share (in euros) | 0.03 | (0.18) | 0.21 | n.m. |
Revenue for the third quarter more than doubled, having gone from Euro 15,991 thousand to Euro 33,869 thousand Euro.
The increase in cost of sales of 70.1% was lower than the increase in revenue, giving rise to an upturn in gross profit of Euro 8,787 thousand.
Operating costs increased by 10.9% to Euro 9,548 thousand. The gross operating margin amounted to Euro 3,904 thousand compared to the negative margin reported for the prior year third quarter of Euro 3,904 thousand.
Profit for the quarter came to Euro 388 thousand compared to a loss of Euro 2,540 thousand for the prior year third quarter following the recognition of a loss arising from the measurement of Starbreeze shares of Euro 831 thousand.
Commentary on the performances of the three main business segments in the third quarter is provided below.
The Premium Games operating segment's results for the third quarter, together with prior year comparatives, are set out below:
| Amounts in Euro thousand | Premium Games | ||||||
|---|---|---|---|---|---|---|---|
| 3rd quarter | 3rd quarter | ||||||
| 2016/2017 | 2015/2016 | Change | |||||
| 1 | Revenue | 23,214 | 103.0% | 11,732 | 102.4% | 11,482 | 97.9% |
| 2 | Revenue adjustments | (676) | -3.0% | (275) | -2.4% | (401) | 0.0% |
| 3 | Total revenue | 22,538 | 100.0% | 11,457 | 100.0% | 11,081 | 96.7% |
| 4 | Purchase of products for resale | (5,616) | -24.9% | (1,067) | -9.3% | (4,549) | n.m. |
| 5 | Purchase of services for resale | (689) | -3.1% | (600) | -5.2% | (90) | 15.0% |
| 6 | Royalties | (9,447) | -41.9% | (4,359) | -38.0% | (5,088) | n.m. |
| 7 | Changes in inventories of finished | ||||||
| products | 1,451 | 6.4% | (527) | -4.6% | 1,979 | n.m. | |
| 8 | Total cost of sales | (14,301) | -63.5% | (6,553) | -57.2% | (7,748) | n.m. |
| 9 | Gross profit (3+8) | 8,238 | 36.5% | 4,904 | 42.8% | 3,333 | 68.0% |
| 10 | Other income | 8 | 0.0% | 48 | 0.4% | (39) | -82.8% |
| 11 | Cost of services | (1,528) | -6.8% | (1,739) | -15.2% | 211 | -12.1% |
| 12 | Lease and rental charges | (154) | -0.7% | (134) | -1.2% | (20) | 15.0% |
| 13 | Labour costs | (1,893) | -8.4% | (1,512) | -13.2% | (381) | 25.2% |
| 14 | Other operating costs | (121) | -0.5% | (117) | -1.0% | (4) | 3.8% |
| 15 | Total operating costs | (3,697) | -16.4% | (3,502) | -30.6% | (195) | 5.6% |
| Gross operating margin (EBITDA) | |||||||
| 16 | (9+10+15) | 4,549 | 20.2% | 1,450 | 12.7% | 3,099 | n.m. |
| 17 | Depreciation and amortisation | (635) | -2.8% | (308) | -2.7% | (327) | n.m. |
| 18 | Allocations to provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 19 | Impairment losses recognised on assets | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 20 | Reversal of impairment losses | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 21 | Total non-monetary operating costs | (635) | -2.8% | (308) | -2.7% | (327) | n.m. |
| 22 | Operating margin (EBIT) (16+21) | 3,914 | 17.4% | 1,142 | 10.0% | 2,772 | n.m. |
Gross revenue reported by the Premium Games operating segment increased by Euro 11,482 thousand compared to the prior year third quarter, whereas net revenue increased by Euro 11,081 thousand, having gone from Euro 11,457 thousand to Euro 22,538 thousand for the quarter just ended. Gross profit amounted to Euro 8,238 thousand versus Euro 4,904 thousand reported for the prior year third quarter.
Operating costs increased by just Euro 195 thousand, whereas non-monetary operating costs increased by Euro 327 thousand, resulting in an operating margin of Euro 3,914 thousand, compared to a negative operating margin of Euro 1,142 thousand for the prior year third quarter.
The Free to Play operating segment's results for the third quarter, together with prior year comparatives, are set out below:
| Amounts in Euro thousand | Free to Play | ||||||
|---|---|---|---|---|---|---|---|
| 3rd quarter 3rd quarter |
|||||||
| 2016/2017 | 2015/2016 | Change | |||||
| 1 | Revenue | 1,979 | 100.0% | 1,543 | 100.0% | 436 | 28.2% |
| 2 | Revenue adjustments | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 3 | Total revenue | 1,979 | 100.0% | 1,543 | 100.0% | 436 | 28.2% |
| 4 | Purchase of products for resale | 0 | 0.0% | (0) | 0.0% | 0 | 0.0% |
| 5 | Purchase of services for resale | (677) | -34.2% | (447) | -28.9% | (230) | 51.6% |
| 6 | Royalties | 0 | 0.0% | (2,285) | -148.1% | 2,285 | 0.0% |
| 7 | Changes in inventories of finished | ||||||
| products | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% | |
| 8 | Total cost of sales | (677) | -34.2% | (2,732) | -177.0% | 2,055 | -75.2% |
| 9 | Gross profit (3+8) | 1,302 | 65.8% | (1,188) | -77.0% | 2,491 | n.m. |
| 10 | Other income | 279 | 14.1% | 283 | 18.4% | (4) | -1.5% |
| 11 | Cost of services | (371) | -18.7% | (168) | -10.9% | (203) | n.m. |
| 12 | Lease and rental charges | (16) | -0.8% | (15) | -1.0% | (1) | 1.9% |
| 13 | Labour costs | (1,062) | -53.7% | (706) | -45.8% | (356) | 50.5% |
| 14 | Other operating costs | (20) | -1.0% | (15) | -0.9% | (6) | 38.2% |
| 15 | Total operating costs | (1,469) | -74.2% | (904) | -58.6% | (565) | 62.4% |
| Gross operating margin (EBITDA) | |||||||
| 16 | (9+10+15) | 112 | 5.7% | (1,809) | -117.2% | 1,922 | n.m. |
| 17 | Depreciation and amortisation | (730) | -36.9% | (377) | -24.5% | (353) | 93.5% |
| 18 | Allocations to provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 19 | Impairment losses recognised on assets | (27) | -1.4% | (0) | 0.0% | (27) | 0.0% |
| 20 | Reversal of impairment losses | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 21 | Total non-monetary operating costs | (757) | -38.3% | (378) | -24.5% | (380) | n.m. |
| 22 | Operating margin (EBIT) (16+21) | (645) | -32.6% | (2,187) | -141.7% | 1,542 | -70.5% |
Revenue reported by the Free to Play operating segment amounted to Euro 1,979 thousand, having increased by 28.2% compared to the prior year third quarter.
The most significant component consists of revenue arising from sales of the Gems of War video game, which generated revenue of Euro 974 thousand.
Cost of sales fell by Euro 2,055 thousand, as a result of a decrease in royalty costs of Euro 2,285 thousand only partially countered by an increase in the cost of services for resale of Euro 230 thousand. Royalty costs for the prior year third quarter were significantly influenced by costs triggered by the early termination of development contracts that did not recur in the current period. Despite the revenue growth, no royalty costs were incurred, given that the revenue was generated by products for which the intellectual property belonged to the Group, such as Battle Islands, Battle Ages and Prominence Poker or products such as Gems of War, for which the intellectual property does not belong to the Group, but for which net revenue was not sufficient enough to trigger royalty payments.
Gross profit for the third quarter came to Euro 1,302 thousand, compared to a prior year gross loss of Euro 1,188 thousand.
Operating costs increased by Euro 565 thousand compared to the same prior year period and nonmonetary operating costs increased by Euro 380 thousand, resulting in a negative operating margin of Euro 645 thousand, representing a marked improvement compared to the negative operating margin of Euro 2,187 thousand euros for the prior year third quarter.
The Italian Distribution operating segment's results for the third quarter, together with prior year comparatives, are set out below:
| Amounts in Euro thousand | Italian Distribution | ||||||
|---|---|---|---|---|---|---|---|
| 3rd quarter | 3rd quarter | ||||||
| 2016/2017 | 2015/2016 | Change | |||||
| 1 | Revenue | 4,484 | 111.6% | 2,356 | 100.1% | 2,127 | 90.3% |
| 2 | Revenue adjustments | (466) | -11.6% | (2) | -0.1% | (465) | 0.0% |
| 3 | Total revenue | 4,018 | 100.0% | 2,355 | 100.0% | 1,663 | 70.6% |
| 4 | Purchase of products for resale | (3,554) | -88.5% | (3,212) | -136.4% | (342) | 0.0% |
| 5 | Purchase of services for resale | (265) | -6.6% | 0 | 0.0% | (265) | n.m. |
| 6 | Royalties | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 7 | Changes in inventories of finished | ||||||
| products | 805 | 20.0% | 1,048 | 44.5% | (244) | 0.0% | |
| 8 | Total cost of sales | (3,014) | -75.0% | (2,164) | -91.9% | (850) | 39.3% |
| 9 | Gross profit (3+8) | 1,004 | 25.0% | 191 | 8.1% | 813 | n.m. |
| 10 | Other income | 6 | 0.2% | 35 | 1.5% | (29) | -82.8% |
| 11 | Cost of services | (397) | -9.9% | (359) | -15.3% | (38) | 10.6% |
| 12 | Lease and rental charges | (10) | -0.3% | (15) | -0.6% | 5 | -32.2% |
| 13 | Labour costs | (416) | -10.3% | (382) | -16.2% | (34) | 8.8% |
| 14 | Other operating costs | (64) | -1.6% | (58) | -2.5% | (6) | 10.3% |
| 15 | Total operating costs | (887) | -22.1% | (814) | -34.6% | (73) | 8.9% |
| Gross operating margin (EBITDA) | |||||||
| 16 | (9+10+15) | 122 | 3.0% | (588) | -25.0% | 711 | n.m. |
| 17 | Depreciation and amortisation | (82) | -2.0% | (49) | -2.1% | (32) | 64.9% |
| 18 | Allocations to provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 19 | Impairment losses recognised on assets | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 20 | Reversal of impairment losses | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 21 | Total non-monetary operating costs | (82) | -2.0% | (49) | -2.1% | (32) | 64.9% |
| 22 | Operating margin (EBIT) (16+21) | 41 | 1.0% | (638) | -27.1% | 679 | n.m. |
36
The significant growth in revenue arising from the distribution of trading cards in the quarter gave rise to growth in gross revenue in the quarter of 90.2% as detailed below:
| Euro thousand | 3rd quarter 2015/2016 |
3rd quarter 2014/2015 |
Change | |
|---|---|---|---|---|
| Distribution of video games for consoles | 1,661 | 1,369 | 292 | 21.3% |
| Distribution of video games for PC-CDRom | 36 | 53 | -17 | -32.1% |
| Distribution of trading cards | 2,642 | 858 | 1,784 | n.m. |
| Distribution of other products and services | 151 | 83 | 68 | 81.9% |
| Cash discounts | (6) | (6) | 0 | 0.0% |
| Total gross Italian Distribution revenue | 4,484 | 2,357 | 2,127 | 90.2% |
The operating segment's cost of sales for the quarter increased by Euro 850 thousand, which was lower than the increase in revenue, giving rise to an increase in gross profit of Euro 813 thousand to Euro 1,004 thousand compared with that reported for the prior year third quarter of Euro 191 thousand.
Operating costs increased by Euro 73 thousand, giving rise to a positive operating margin of Euro 41 thousand, representing an improvement of Euro 679 thousand compared to the operating loss of Euro 638 thousand reported for the prior year third quarter.
Pursuant to Art. 2428 paragraph 2.3 of the Italian Civil Code, it is hereby disclosed that at 31 March 2017 Digital Bros S.p.A. did not hold any treasury shares, given that the 130,247 treasury shares held at 30 June 2016 were sold during the period just ended.
During the period, the Group incurred research expenses of Euro 306 thousand and development expenses of Euro 3,727 thousand. The amounts incurred in the period ended 31 March 2016 were Euro 40 thousand and Euro 4,847 thousand, respectively.
The research relates to the preliminary stages of the conception of new video games and is performed by the subsidiaries Pipeworks Inc., DR Studios Ltd. and Kunos Simulazioni S.r.l., which also carry out any development subsequent to the research phase.
One of the key financial terms of the sale of PAYDAY2 rights to Starbreeze by the Group in May 2016 provided the Group with the chance to earn up to a maximum of 40 million U.S. dollars to be computed as 33% of net revenue that Starbreeze shall recognise on sales of PAYDAY3. On 16 February 2017, upon the approval of Starbreeze's financial statements, its CEO officially announced that the game had entered into its production phase, without specifying the timing of its release.
As at the period end reporting date, the Group has deemed the foregoing to be a contingent asset, as was also the case at the prior financial year end.
No contingent liabilities exist, as was the case at the prior financial year end.
Details of subsequent events are as follows:
In the Premium Games operating segment, the Group, on the back of the excellent performance achieved by the Rocket League video game, has accelerated its search for potential products that have already been successfully launched in digital marketplaces and which are capable of replicating their performance in traditional international retail markets, having identified products such as Stardew Valley and Dead by Daylight, which will be released in the fourth quarter of the current financial year. In the fourth quarter, the Premium Games operating segment will also benefit from the launch of PC and console versions of Portal Knights, the intellectual property of which is owned by the Group.
Also in the fourth quarter, the American subsidiary Pipeworks Inc. will continue to deliver on contracts already acquired and will commence the development of Terraria: Otherworld, the evolution of the successful product produced by the Group in the last few years. The significant improvement in earnings that has already been achieved is expected to continue for the remainder of the financial year. An improvement in earnings is also expected to be achieved by the Italian Distribution and Free to Play operating segments, driven by expected revenue growth.
The Daily Fantasy Sport, Fantasfida, will continue to generate negative margins, but decidedly lower than those recognised last year.
As a consequence of the foregoing, the Group's outlook is for turnover growth by the financial year end and a significant profit for the period, although the result will not replicate that achieved in the prior year, which had benefited from the sale of PAYDAY2 rights.
Net cash/debt is expected to remain broadly stable through to the financial year end despite net working capital investment needed in the last quarter for the global distribution of retail products and, thus, the foregoing is an improvement on that previously communicated.
Below are details of the workforce at 31 March 2017 with comparative figures at 31 March 2016:
| Category | 31 March 2017 | 31 March 2016 | Change |
|---|---|---|---|
| Managers | 10 | 10 | 0 |
| Office workers | 234 | 228 | 6 |
| Blue-collar workers and apprentices | 4 | 4 | 0 |
| Total employees | 248 | 242 | 6 |
The same details for employees of the Group's foreign companies at 31 March 2017 with comparative figures at 31 March 2016 are as follows:
| Category | 31 March 2017 | 31 March 2016 | Change |
|---|---|---|---|
| Managers | 5 | 5 | 0 |
| Office workers | 171 | 172 | (1) |
| Total employees abroad | 176 | 177 | (1) |
The average headcount for the period, calculated as the average number of employees in service at the end of every month, is shown below with prior year comparative figures:
| Category | 2017 average | 2016 average | Change |
|---|---|---|---|
| Managers | 10 | 10 | 0 |
| Office workers | 229 | 220 | 9 |
| Blue-collar workers and apprentices | 4 | 4 | 0 |
| Total employees | 243 | 234 | 9 |
The average headcount at foreign companies is as follows:
| Category | 2017 average | 2016 average | Change |
|---|---|---|---|
| Managers | 5 | 5 | 0 |
| Office workers | 170 | 164 | 6 |
| Total employees abroad | 175 | 169 | 6 |
The increase in the number of employees abroad is due to growth in the international structure of the Premium Games and Free to Play operating segments.
The Group's Italian companies apply the current Confcommercio national collective employment contract for the commercial, distribution and services sector.
At 31 March 2017, there were no issues of an environmental nature and as the Group's environmentrelated activities consist chiefly of packing and shipping video games and affixing labels to packaging, there is no reason any such problems should arise in the future.
(this page intentionally left blank)
(this page intentionally left blank)
Digital Bros Group
| Euro thousand | 31 March 2017 | 30 June 2016 | Change | ||
|---|---|---|---|---|---|
| Non-current assets | |||||
| 1 | Property, plant and equipment | 6,895 | 7,032 | (137) | -1.9% |
| 2 | Investment property | 0 | 0 | 0 | 0.0% |
| 3 | Intangible assets | 21,459 | 10,458 | 11,001 | n.m. |
| 4 | Equity investments | 1,370 | 898 | 472 | 52.6% |
| 5 | Non-current receivables and other assets | 1,064 | 1,056 | 8 | 0.8% |
| 6 | Deferred tax assets | 1,419 | 2,619 | (1,200) | -45.8% |
| Total non-current assets | 32,207 | 22,063 | 10,144 | 46.0% | |
| Non-current liabilities | |||||
| 7 | Employee benefits | (552) | (529) | (23) | 4.4% |
| 8 | Non-current provisions | (27) | (36) | 9 | -25.3% |
| 9 | Other non-current payables and liabilities | 0 | (252) | 252 | n.m. |
| Total non-current liabilities | (579) | (817) | 238 | -29.1% | |
| Net working capital | |||||
| 10 | Inventories | 15,337 | 11,933 | 3,404 | 28.5% |
| 11 | Trade receivables | 34,168 | 34,840 | (672) | -1.9% |
| 12 | Current tax assets | 2,330 | 2,019 | 311 | 15.4% |
| 13 | Other current assets | 4,005 | 5,034 | (1,029) | -20.4% |
| 14 | Trade payables | (31,174) | (21,712) | (9,462) | 43.6% |
| 15 | Current tax liabilities | (5,151) | (6,211) | 1,060 | -17.1% |
| 16 | Current provisions | 0 | 0 | (0) | n.m. |
| 17 | Other current liabilities | (3,682) | (2,312) | (1,370) | 59.3% |
| Total net working capital | 15,833 | 23,591 | (7,758) | -32.9% | |
| Capital and reserves | |||||
| 18 | Share capital | (5,704) | (5,644) | (60) | n.m. |
| 19 | Reserves | (20,208) | (20,804) | 596 | -2.9% |
| 20 | Treasury shares | 0 | 390 | (390) | n.m. |
| 21 | Retained earnings (accumulated losses) | (29,753) | (22,290) | (7,463) | 33.5% |
| Total equity | (55,665) | (48,348) | (7,317) | 15.1% | |
| Total net assets | (8,204) | (3,511) | (4,693) | n.m. | |
| 22 | Cash and cash equivalents | 8,985 | 2,785 | 6,200 | n.m. |
| 23 | Current bank debt | (2,422) | (25,929) | 23,507 | -90.7% |
| 24 | Other current financial assets and liabilities | 754 | 28,913 | (28,159) | -97.4% |
| Current net cash/debt | 7,317 | 5,769 | 1,548 | 26.8% | |
| 25 | Non-current financial assets | 1,374 | 1,195 | 179 | 14.9% |
| 26 | Non-current bank debt | (443) | (1,558) | 1,115 | -71.6% |
| 27 | Other non-current financial liabilities | (44) | (1,895) | 1,851 | -97.7% |
| Non-current net cash/debt | 887 | (2,258) | 3,145 | n.m. | |
| Total net cash/debt | 8,204 | 3,511 | 4,693 | n.m. |
| Consolidated statement of profit or loss for the period ended 31 March 2017 | |||
|---|---|---|---|
| ----------------------------------------------------------------------------- | -- | -- | -- |
| Period ended | Period ended | ||||||
|---|---|---|---|---|---|---|---|
| Euro thousand | 31 March 2017 | 31 March 2016 | Change | ||||
| 1 | Gross revenue | 99,012 | 105.0% | 61,281 | 104.6% | 37,731 | 61.6% |
| 2 | Revenue adjustments | (4,700) | -5.0% | (2,680) | -4.6% | (2,020) | 75.3% |
| 3 | Net revenue | 94,312 | 100.0% | 58,601 | 100.0% | 35,711 | 60.9% |
| 4 | Purchase of products for resale | (24,857) | -26.4% | (16,372) | -27.9% | (8,485) | 51.8% |
| 5 | Purchase of services for resale | (7,394) | -7.8% | (4,438) | -7.6% | (2,956) | 66.6% |
| 6 | Royalties Changes in inventories of finished |
(27,379) | -29.0% | (14,648) | -25.0% | (12,731) | 86.9% |
| 7 | products | 3,404 | 3.6% | (1,164) | -2.0% | 4,568 | n.m. |
| 8 | Total cost of sales | (56,226) | -59.6% | (36,622) | -62.5% | (19,604) | 53.5% |
| 9 | Gross profit (3+8) | 38,086 | 40.4% | 21,979 | 37.5% | 16,107 | 73.3% |
| 10 | Other income | 1,433 | 1.5% | 4,366 | 7.5% | (2,933) | -67.2% |
| 11 | Cost of services | (9,237) | -9.8% | (9,847) | -16.8% | 610 | -6.2% |
| 12 | Lease and rental charges | (1,104) | -1.2% | (1,159) | -2.0% | 55 | -4.7% |
| 13 | Labour costs | (16,206) | -17.2% | (14,601) | -24.9% | (1,605) | 11.0% |
| 14 | Other operating costs | (1,557) | -1.7% | (1,136) | -1.9% | (421) | 37.1% |
| 15 | Total operating costs | (28,104) | -29.8% | (26,743) | -45.6% | (1,361) | 5.1% |
| 16 | Gross operating margin (EBITDA) (9+10+15) |
11,415 | 12.1% | (398) | -0.7% | 11,813 | n.m. |
| 17 | Depreciation and amortisation | (4,948) | -5.2% | (2,798) | -4.8% | (2,150) | 76.8% |
| 18 | Allocations to provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 19 | Impairment losses recognised on assets | (432) | -0.5% | (425) | -0.7% | (7) | 1.8% |
| Reversal of impairment losses and non | |||||||
| 20 | monetary income | 0 | 0.0% | 588 | 1.0% | (588) | 0.0% |
| 21 | Total non-monetary income and operating costs |
(5,380) | -5.7% | (2,635) | -4.5% | (2,745) | n.m. |
| 22 | Operating margin (EBIT) (16+21) | 6,035 | 6.4% | (3,033) | -5.2% | 9,068 | n.m. |
| 23 | Interest and finance income | 8,154 | 8.6% | 2,574 | 4.4% | 5,580 | n.m. |
| 24 | Interest expense and finance costs | (2,398) | -2.5% | (1,222) | -2.1% | (1,176) | 96.3% |
| 25 | Net finance income (costs) | 5,756 | 6.1% | 1,352 | 2.3% | 4,404 | n.m. |
| 26 | Profit before tax (22+25) | 11,791 | 12.5% | (1,681) | -2.9% | 13,472 | n.m. |
| 27 | Current tax | (4,277) | -4.5% | (1,116) | -1.9% | (3,161) | n.m. |
| 28 | Deferred tax | 270 | 0.3% | 1,506 | 2.6% | (1,236) | -82.1% |
| 29 | Total income tax expense | (4,007) | -4.2% | 390 | 0.7% | (4,397) | n.m. |
| 30 | Profit for the period (26+29) | 7,784 | 8.3% | (1,291) | -2.2% | 9,075 | n.m. |
| Earnings per share: | |||||||
| 33 | Basic earnings per share (in euros) | 0.55 | (0.09) | 0.65 | n.m. | ||
| 34 | Diluted earnings per share (in euros) | 0.55 | (0.09) | 0.65 | n.m. |
Consolidated statement of comprehensive income for the period ended 31 March 2017
| Period ended | Period ended | ||
|---|---|---|---|
| Euro thousand | 31 March 2017 | 31 March 2016 | Change |
| Profit (loss) for the period (A) | 7,784 | (1,291) | 9,075 |
| Items that will not be reclassified | |||
| subsequently to profit or loss (B) | |||
| Actuarial gain (loss) | 8 | (4) | 12 |
| Income tax relating to the actuarial gain (loss) | (2) | 1 | (3) |
| Exchange differences on translation of foreign | |||
| operations | 152 | (554) | 706 |
| Income tax relating to exchange differences on | |||
| translation of foreign operations | 0 | 0 | 0 |
| Fair value measurement of shares designated as | |||
| available for sale | (3,075) | 1,472 | (4,547) |
| Income tax relating to the fair value | |||
| measurement of shares designated as available | |||
| for sale | 845 | (405) | 1,250 |
| Items that may be reclassified subsequently | |||
| to profit or loss (C) | (2,072) | 510 | (2,582) |
| Total other comprehensive income D = | |||
| (B)+(C) | (2,072) | 510 | (2,582) |
| Total comprehensive income (loss) (A)+(D) | 5,712 | (781) | 6,493 |
| Attributable to: | |||
| Owners of the Company | 5,712 | (781) | 6,493 |
| Non-controlling interests | 0 | 0 | 0 |
| Euro thousand | Period ended 31 March 2017 |
Period ended 31 March 2016 |
|
|---|---|---|---|
| A. | Opening net cash/debt | 3,511 | (8,333) |
| B. | Cash flows from operating activities | ||
| Profit (loss) for the period attributable to the Group | 7,784 | (1,291) | |
| Depreciation, amortisation and non-monetary costs: | |||
| Provisions and impairment losses | 0 | 0 | |
| Amortisation of intangible assets | 4,370 | 2,283 | |
| Depreciation of property, plant and equipment | 578 | 515 | |
| Net change in other provisions | (9) | (82) | |
| Net change in employee benefit provisions | 23 | (6) | |
| Net change in other non-current liabilities | (252) | (589) | |
| SUBTOTAL B. | 12,494 | 830 | |
| C. | Change in net working capital | ||
| Inventories | (3,404) | 1,164 | |
| Trade receivables | 672 | 4,667 | |
| Current tax assets | (311) | (942) | |
| Other current assets | 1,029 | 1,639 | |
| Trade payables | 9,462 | (8,925) | |
| Current tax liabilities | (1,060) | (1,127) | |
| Current provisions | 0 | 0 | |
| Other current liabilities | 1,370 | (687) | |
| SUBTOTAL C. | 7,758 | (4,211) | |
| D. | Cash flows from investing activities | ||
| Net payments for intangible assets | (15,371) | (4,271) | |
| Net payments for property, plant and equipment | (441) | (2,974) | |
| Net payments for non-current financial assets | 721 | (753) | |
| SUBTOTAL D. | (15,091) | (7,998) | |
| E. | Cash flows from financing activities | ||
| Proceeds from capital increases | 60 | 0 | |
| Proceeds from share premium | 1,532 | 0 | |
| SUBTOTAL E. | 1,592 | 0 | |
| F. | Changes in consolidated equity | ||
| Dividends distributed | (1,834) | (1,818) | |
| Changes in treasury shares held | 390 | 809 | |
| Increases (decreases) in other equity components | (616) | 2,746 | |
| SUBTOTAL F. | (2,060) | 1,737 | |
| G. | Cash flow for the period (B+C+D+E+F) | 4,693 | (9,642) |
| H. | Closing net cash/debt (A+G) | 8,204 | (17,975) |
48
| Euro thousand | Period ended 31 March 2017 |
Period ended 31 March 2016 |
|---|---|---|
| Increase (decrease) in securities and cash and cash equivalents | 6,200 | (2,142) |
| Decrease (increase) in current bank debt | 23,507 | (9,398) |
| Decrease (increase) in other current financial assets and liabilities | (28,159) | 2,472 |
| Cash flow for the period pertaining to current net cash/debt | 1,548 | (9,068) |
| Cash flow for the period pertaining to non-current net cash/debt | 3,145 | (574) |
| Cash flow for the period | 4,693 | (9,642) |
| Consolidated | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Retained | Profit | Total | equity | |||||||||
| Share | IAS | Currency | Total | Treasury | earnings | (loss) for | retained | attributable | ||||
| capital | Share | Legal | transition | translation | Other | reserves | shares | (accumulated | the | earnings | to Group | |
| Euro thousand | (A) | premium | reserve | reserve | reserve | reserves | (B) | (C) | losses) | period | (D) | (A+B+C+D) |
| As at 1 July 2015 | 5,644 | 16,954 | 1,129 | 1,367 | (244) | 211 | 19,417 | (1,199) | (3,006) | 12,953 | 9,947 | 33,809 |
| Allocation of profit | 0 | 9,105 | (9,105) | 0 | 0 | |||||||
| Payment of dividends | (1,818) | (1,818) | (1,818) | |||||||||
| Other changes | 0 | 809 | 2,236 | 2,236 | 3,045 | |||||||
| Comprehensive income (loss) | (554) | 1,064 | 510 | (1,291) | (1,291) | (781) | ||||||
| As at 31 March 2016 | 5,644 | 16,954 | 1,129 | 1,367 | (798) | 1,275 | 19,927 | (390) | 6,517 | 2,557 | 9,074 | 34,255 |
| As at 1 July 2016 | 5,644 | 16,954 | 1,129 | 1,367 | (813) | 2,167 | 20,804 | (390) | 5,903 | 16,387 | 22,290 | 48,348 |
| Capital increase | 60 | 1,532 | 1,532 | 0 | 1,592 | |||||||
| Allocation of profit | 0 | 16,387 | (16,387) | 0 | 0 | |||||||
| Payment of dividends | 0 | (1,834) | (1,834) | (1,834) | ||||||||
| Other changes | (56) | (56) | 390 | 1,512 | 1,512 | 1,846 | ||||||
| Comprehensive income (loss) | 152 | (2,224) | (2,072) | 7,784 | 7,784 | 5,712 | ||||||
| As at 31 March 2017 | 5,704 | 18,486 | 1,129 | 1,367 | (661) | (113) | 20,208 | 0 | 21,968 | 7,785 | 29,753 | 55,665 |
For information concerning form, content and other general information, accounting policies, the use of estimates, basis of consolidation, investments in associates and other entities and business combinations, reference should be made to the notes to the consolidated financial statements for the year ended 30 June 2016.
The consolidated statement of financial position at 31 March 2017 is set out below together with comparative figures at 30 June 2016:
| Euro thousand | 31 March 2017 | 30 June 2016 | Change | ||
|---|---|---|---|---|---|
| Non-current assets | |||||
| 1 | Property, plant and equipment | 6,895 | 7,032 | (137) | -1.9% |
| 2 | Investment property | 0 | 0 | 0 | 0.0% |
| 3 | Intangible assets | 21,459 | 10,458 | 11,001 | n.m. |
| 4 | Equity investments | 1,370 | 898 | 472 | 52.6% |
| 5 | Non-current receivables and other assets | 1,064 | 1,056 | 8 | 0.8% |
| 6 | Deferred tax assets | 1,419 | 2,619 | (1,200) | -45.8% |
| Total non-current assets | 32,207 | 22,063 | 10,144 | 46.0% | |
| Non-current liabilities | |||||
| 7 | Employee benefits | (552) | (529) | (23) | 4.4% |
| 8 | Non-current provisions | (27) | (36) | 9 | -25.3% |
| 9 | Other non-current payables and liabilities | 0 | (252) | 252 | n.m. |
| Total non-current liabilities | (579) | (817) | 238 | -29.1% | |
| Net working capital | |||||
| 10 | Inventories | 15,337 | 11,933 | 3,404 | 28.5% |
| 11 | Trade receivables | 34,168 | 34,840 | (672) | -1.9% |
| 12 | Current tax assets | 2,330 | 2,019 | 311 | 15.4% |
| 13 | Other current assets | 4,005 | 5,034 | (1,029) | -20.4% |
| 14 | Trade payables | (31,174) | (21,712) | (9,462) | 43.6% |
| 15 | Current tax liabilities | (5,151) | (6,211) | 1,060 | -17.1% |
| 16 | Current provisions | 0 | 0 | (0) | n.m. |
| 17 | Other current liabilities | (3,682) | (2,312) | (1,370) | 59.3% |
| Total net working capital | 15,833 | 23,591 | (7,758) | -32.9% | |
| Capital and reserves | |||||
| 18 | Share capital | (5,704) | (5,644) | (60) | n.m. |
| 19 | Reserves | (20,208) | (20,804) | 596 | -2.9% |
| 20 | Treasury shares | 0 | 390 | (390) | n.m. |
| 21 | Retained earnings (accumulated losses) | (29,753) | (22,290) | (7,463) | 33.5% |
| Total equity | (55,665) | (48,348) | (7,317) | 15.1% | |
| Total net assets | (8,204) | (3,511) | (4,693) | n.m. | |
| 22 | Cash and cash equivalents | 8,985 | 2,785 | 6,200 | n.m. |
| 23 | Current bank debt | (2,422) | (25,929) | 23,507 | -90.7% |
| 24 | Other current financial assets and liabilities | 754 | 28,913 | (28,159) | -97.4% |
| Current net cash/debt | 7,317 | 5,769 | 1,548 | 26.8% | |
| 25 | Non-current financial assets | 1,374 | 1,195 | 179 | 14.9% |
| 26 | Non-current bank debt | (443) | (1,558) | 1,115 | -71.6% |
| 27 | Other non-current financial liabilities | (44) | (1,895) | 1,851 | -97.7% |
| Non-current net debt | 887 | (2,258) | 3,145 | n.m. | |
| Total net cash/debt | 8,204 | 3,511 | 4,693 | n.m. |
Capital expenditure in the period amounted to Euro 441 thousand on property, plant and equipment and Euro 15,371 thousand on intangible assets.
Expenditure on property, plant and equipment during the period was as follows:
| Euro thousand | Period ended 31 March 2017 |
Period ended 31 March 2016 |
|---|---|---|
| Purchase of Eugene property used as office of Pipeworks Inc. | 160 | 2,196 |
| Improvements made to new building used by 505 Games (US) | ||
| Inc. | 0 | 402 |
| Office automation equipment | 89 | 309 |
| Equipment and machinery | 68 | 0 |
| Improvements made to building used by 505 Games Ltd. | 61 | 0 |
| Furnishings | 52 | 33 |
| Property, plant and equipment contributed by Kunos Simulazioni | ||
| S.r.l. | 11 | 0 |
| Other | 0 | 34 |
| Total capital expenditure in the period | 441 | 2,974 |
Expenditure on intangible assets during the period was as follows:
| Euro thousand | Period ended 31 March 2017 |
Period ended 31 March 2016 |
|---|---|---|
| Premium Games usage rights | 4,603 | 0 |
| Expenditure on development of ERP systems | 120 | 177 |
| Acquisition of Hawken rights | 759 | 0 |
| Fantasfida | 49 | 639 |
| Free to Play usage rights | 2,180 | 1,208 |
| Other usage rights | 17 | 59 |
| Total additions to concessions and licences | 7,728 | 2,083 |
| Internal development contracts in progress | 633 | 3,333 |
| Internally developed asset: Premium Games | 4,110 | 0 |
| Internally developed asset: Free to Play | 291 | 0 |
| Total additions to internally developed assets | 5,034 | 3,333 |
| Kunos Goodwill | 2,609 | 0 |
| Total additions to intangible assets | 15,371 | 5,416 |
Internally developed assets consist of costs incurred by the Group for the purchase of intellectual property as well as costs incurred by DR Studios Ltd., Pipeworks Inc. and Kunos Simulazioni S.r.l. in connection with video game development contracts for other Group companies and which were not yet completed at the reporting date.
Kunos goodwill is the difference between the purchase price paid by Digital Bros S.p.A. and the equity of the company at 15 March 2017, the date of first-time consolidation.
Equity investments increased by Euro 472 thousand due to the subscription to further portions of the capital of Seekhana Ltd. and Ovosonico S.r.l. for amounts of Euro 262 thousand and Euro 210 thousand, respectively. The equity interests held in the two companies at the period end were 31.57% and 42.87%, respectively.
The components thereof that consist of cautionary deposits pertaining to contractual obligations are as follows:
| Euro thousand | 31 March 2017 |
30 June 2016 |
Change |
|---|---|---|---|
| Cautionary deposits for the rental of office premises used by Italian | |||
| companies | 635 | 635 | 0 |
| Cautionary deposits for the rental of office premises used by foreign | |||
| companies | 203 | 192 | 11 |
| Cautionary deposits for utilities | 5 | 5 | 0 |
| Cautionary deposits for the AAMS and Bingo concessions | 220 | 220 | 0 |
| Other cautionary deposits | 1 | 4 | (3) |
| Total non-current receivables and other assets | 1,064 | 1,056 | 8 |
Deferred tax assets are calculated on tax loss carryforwards and temporary differences between the carrying amount of an asset or liability in the statement of financial position and its tax basis. They are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates/laws that have been enacted or substantively enacted by the end of the reporting period.
Employee benefits reflects the actuarial value of the Group's actual employee liability, calculated by an independent actuary in accordance with IAS 19.
Non-current provisions consist entirely of the provision for agents' indemnities.
Other non-current payables and liabilities had a nil balance at 31 March 2017, whereas the balance at the 2016 year end consisted entirely of variable remuneration linked to the medium/long-term incentive scheme for directors and key managers that will be paid in September 2017. Accordingly, the payable has been classified within working capital payables.
Net working capital decreased in the period by Euro 7,758 thousand mainly due to an increase in trade payables of Euro 9,462 thousand only partially offset by an increase in inventories of Euro 3,404 thousand.
| Euro thousand | 31 March 2017 | 30 June 2016 | Change | |
|---|---|---|---|---|
| Inventories | 15,337 | 11,933 | 3,404 | 28.5% |
| Trade receivables | 34,168 | 34,840 | (672) | -1.9% |
| Current tax assets | 2,330 | 2,019 | 311 | 15.4% |
| Other current assets | 4,005 | 5,034 | (1,029) | -20.4% |
| Trade payables | (31,174) | (21,712) | (9,462) | 43.6% |
| Current tax liabilities | (5,151) | (6,211) | 1,060 | -17.1% |
| Current provisions | 0 | 0 | 0 | n.m. |
| Other current liabilities | (3,682) | (2,312) | (1,370) | 59.3% |
| Total net working capital | 15,833 | 23,591 | (7,758) | -32.9% |
An analysis of net working capital together with comparative figures at 30 June 2016 is provided below:
As shown by the following table, there has been an increase in receivables due from customers, in line with the growth in turnover coupled with a decrease in receivables pertaining to advances for video games user licences. The decrease is mainly due to the classification as intangible assets of video games that constitute intellectual property of the Group and, accordingly, they have been more correctly stated as non-current assets. Details of trade receivables are provided below:
| Euro thousand | 31 March 2017 | 30 June 2016 | Change |
|---|---|---|---|
| Receivables due from customers | 19,179 | 14,963 | 4,216 |
| Receivables pertaining to video game user licenses | 14,989 | 19,877 | (4,888) |
| Total trade receivables | 34,168 | 34,840 | (672) |
| Euro thousand | Share capital (A) |
Share premium |
Legal reserve |
IAS transition reserve |
Currency translation reserve |
Other reserves |
Total reserves (B) |
Treasury shares (C) |
Retained earnings (accumulated losses) |
Profit (loss) for the period |
Total retained earnings (D) |
Consolidated equity attributable to Group (A+B+C+D) |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As at 1 July 2016 | 5,644 | 16,954 | 1,129 | 1,367 | (813) | 2,167 | 20,804 | (390) | 5,903 | 16,387 | 22,290 | 48,348 |
| Capital increase | 60 | 1,532 | 1,532 | 0 | 1,592 | |||||||
| Allocation of profit | 0 | 16,387 | (16,387) | 0 | 0 | |||||||
| Payment of dividends | 0 | (1,834) | (1,834) | (1,834) | ||||||||
| Other changes | (56) | (56) | 390 | 1,512 | 1,512 | 1,846 | ||||||
| Comprehensive income (loss) | 152 | (2,224) | (2,072) | 7,784 | 7,784 | 5,712 | ||||||
| As at 31 March 2017 | 5,704 | 18,486 | 1,129 | 1,367 | (661) | (113) | 20,208 | 0 | 21,968 | 7,785 | 29,753 | 55,665 |
Details of changes in equity are reported in the consolidated statement of changes in equity. A summary thereof is provided below:
As at 31 March 2017, share capital, which had increased in the period by Euro 60 thousand, consisted of 14,260,837 ordinary shares with a par value of Euro 0.4 each, amounting to Euro 5,704,334.8. No other types of shares are outstanding. There are no rights, liens or restrictions associated with the ordinary shares.
In connection with the acquisition of Kunos Simulazioni S.r.l., an extraordinary general meeting of the shareholders of Digital Bros Group held on 13 March approved a capital increase with disapplication of pre-emption rights of Euro 60,000 via the issue of 150,000 shares with a par value of Euro 0.40 each, with the application of a premium of Euro 10.21 per share and thus with a total premium of Euro 1,531,500.00, to be subscribed and paid by Stefano Casillo and Marco Massarutto, equity interest holders of Kunos Simulazioni S.r.l.
On 11 January 2017, as part of the approval process for the "2016-2026 Stock Option Plan", Digital Bros Group's shareholders in extraordinary general meeting granted a mandate to the Board of Directors to increase the capital, in various tranches, with the disapplication of pre-emption rights pursuant to Art. 2441, paragraph 8, of the Italian Civil Code, up to a total maximum nominal amount of Euro 320,000.00, via the issue, which may be in one or more lots, of a maximum number of 800,000 ordinary shares with a par value of Euro 0.4 each, to be reserved for the beneficiaries of the plan. The shares had not yet been issued as at the reporting date, given that the first deadline is 1 July 2019.
No specific uses or objectives have been designated for individual equity reserves, other than those laid down by law.
Changes in reserves in the period were:
The breakdown of the Group's net financial position as at 31 March 2017 as compared with the same data at 30 June 2016 is as follows:
| Euro thousand | 31 March 2017 | 30 June 2016 | Change | |
|---|---|---|---|---|
| 22 | Cash and cash equivalents | 8,985 | 2,785 | 6,200 |
| 23 | Current bank debt | (2,422) | (25,929) | 23,507 |
| 24 | Other current financial assets and liabilities | 754 | 28,913 | (28,159) |
| Current net cash/debt | 7,317 | 5,769 | 1,548 | |
| 25 | Non-current financial assets | 1,374 | 1,195 | 179 |
| 26 | Non-current bank debt | (443) | (1,558) | 1,115 |
| 27 | Other non-current financial liabilities | (44) | (1,895) | 1,851 |
| Non-current net cash/debt | 887 | (2,258) | 3,145 | |
| Total net cash/debt | 8,204 | 3,511 | 4,693 |
Net cash increased in the period by Euro 4,693 thousand mainly due to an increase in cash and cash equivalents of Euro 6,200 thousand, a decrease in current bank debt of Euro 23,507 thousand, a decrease in non-current bank debt of Euro 1,115 thousand and in other non-current financial liabilities of Euro 1,851 thousand, only partially offset by a decrease in other current financial assets and liabilities of Euro 28,159 thousand.
The carrying amount of cash and cash equivalents is a reasonable approximation of fair value since these are highly liquid forms of investment, while the carrying amount of finance lease obligations (included in other financial liabilities) is a reasonable approximation of fair value.
The following table shows the Group's financial liabilities as at 31 March 2017, grouped by maturity:
| Within 1 | 1 - 5 | Beyond 5 | ||
|---|---|---|---|---|
| Euro thousand | year | years | years | Total |
| Bank overdrafts | (31) | 0 | 0 | (31) |
| Unsecured bank loans | (2,391) | (443) | 0 | (2,834) |
| Total bank debt (A) | (2,422) | (443) | 0 | (2,865) |
| Other financial liabilities (B) | (44) | 0 | 0 | (44) |
| Total financial liabilities (A) + (B) | (2,466) | (443) | 0 | (2,909) |
Details are provided below of revenue by operating segment, except for the Holding segment, which does not generate revenue:
| Free to | Premium | Italian | Other | ||||
|---|---|---|---|---|---|---|---|
| Euro thousand | Development | Play | Games | Distribution | Activities | Total | |
| 1 Gross revenue | 6,839 | 5,845 | 70,749 | 14,959 | 620 | 99,012 | |
| Revenue | |||||||
| 2 | adjustments | 0 | 0 | (3,009) | (1,361) | (330) | (4,700) |
| 3 Net revenue | 6,839 | 5,845 | 67,740 | 13,598 | 290 | 94,312 |
The same details for the period ended 31 March 2016 are as follows:
| Euro thousand | Development | Free to Play |
Premium Games |
Italian Distribution |
Other Activities |
Total | |
|---|---|---|---|---|---|---|---|
| 1 | Gross revenue | 1,102 | 3,426 | 39,950 | 16,293 | 510 | 61,281 |
| Revenue | |||||||
| 2 | adjustments | 0 | 0 | (1,603) | (1,026) | (51) | (2,680) |
| 3 | Net revenue | 1,102 | 3,426 | 38,347 | 15,267 | 459 | 58,601 |
For comments on net revenue, reference should be made to paragraph 5 of the directors' report "Analysis of results for the period ended 5 March 2017".
This consists of:
| Euro thousand | Period ended 31 March 2017 |
Period ended 31 March 2016 |
Change | % | |
|---|---|---|---|---|---|
| 23 | Interest and finance income | 8,154 | 2,574 | 5,580 | n.m. |
| 24 | Interest expense and finance costs | (2,398) | (1,222) | (1,176) | 96.3% |
| 25 | Net finance income (costs) | 5,756 | 1,352 | 4,404 | n.m. |
Net finance income amounted to Euro 5,756 thousand, compared to Euro 1,352 thousand for the comparative prior year period.
Details of interest and finance income are provided below:
| Euro thousand | Period ended 31 March 2017 |
Period ended 31 March 2016 |
Change | % |
|---|---|---|---|---|
| Exchange gains | 1,156 | 1,054 | 102 | 9.7% |
| Finance income | 6,899 | 1,495 | 5,404 | n.m. |
| Other | 98 | 25 | 73 | n.m. |
| Total interest and financial income | 8,154 | 2,574 | 5,580 | n.m. |
Interest and finance income increased by Euro 5,580 thousand compared to the comparative prior year period. This mainly consisted of gains recognised in the period on the sale and purchase of Starbreeze shares of Euro 6,891 thousand and exchange gains of Euro 1,156 thousand.
Interest expense and finance costs amounted to Euro 2,398 thousand, representing an increase of Euro 1,176 thousand compared to the figure reported for the period ended 31 December 2016, attributable to losses recognised in the period on the sale and purchase of Starbreeze shares and higher exchange losses.
Details are provided below of interest expense:
| Euro thousand | Period ended 31 March 2017 |
Period ended 31 March 2016 |
Change | % |
|---|---|---|---|---|
| Interest charged by banks on current accounts | ||||
| and trade finance | (317) | (347) | 30 | -8.7% |
| Interest on loans and leases | (166) | (80) | (86) | n.m. |
| Factoring interest | (13) | (14) | 1 | -6.4% |
| Total interest expense payable to lenders | (496) | (441) | (55) | n.m. |
| Exchange losses | (1,020) | (781) | (239) | 30.6% |
| Loss on asset disposals and finance costs | (882) | 0 | (882) | n.m. |
| Total interest expense | (2,398) | (1,222) | (1,176) | 96.3% |
Details of current and deferred taxes for the period ended 31 March 2017 are provided below:
| Euro thousand | Period ended 31 March 2017 |
Period ended 31 March 2016 |
Change | % |
|---|---|---|---|---|
| Current tax | (4,277) | (1,116) | (3,161) | n.m. |
| Deferred tax | 270 | 1,506 | (1,236) | -82.1% |
| Total income tax expense | (4,007) | 390 | (4,397) | n.m. |
The increase in the period in net tax expense is in line with the income trend.
As required by Consob Resolution 15519 of 27 July 2006, non-recurring income and expenses are shown separately in the statement of profit or loss. These are generated by transactions or events that by nature do not occur on a regular basis in the ordinary course of business.
The Group did not recognise any non-recurring income and expenses in the period.
Details are provided below of gross revenue by geographical segment:
| Euro thousand | Period ended 3 1 March 2017 |
Period ended 31 March 2016 |
Change | |||
|---|---|---|---|---|---|---|
| Europe | 27,052 | 27% | 8,820 | 17% | 18,232 | n.m. |
| The Americas | 51,624 | 52% | 21,445 | 44% | 30,179 | n.m. |
| Rest of the world | 4,757 | 5% | 752 | 2% | 4,005 | n.m. |
| Total foreign revenue | 83,433 | 84% | 31,017 | 63% | 52,416 | n.m. |
| Italy | 15,579 | 16% | 14,273 | 37% | 1,306 | 9.1% |
| Total gross consolidated revenue | 99,012 | 100% | 45,290 | 100% | 53,722 | n.m. |
Foreign revenue accounted for 84% of gross consolidated revenue compared to the comparative prior year figure of 63%.
Rest of the world revenue relates to sales made by the subsidiary 505 Games Ltd., mainly in Australia, the Middle East and South Africa.
The most significant portion of foreign revenue is generated by the Premium Games operating segment, which generated foreign revenue of Euro 70,749 thousand, accounting for 84.8% of total foreign revenue.
Details are provided below of gross foreign revenue by operating segment:
| Euro thousand | Period ended 31 March 2017 |
Period ended 31 March 2016 |
Change | |||
|---|---|---|---|---|---|---|
| Free to Play | 5,845 | 7% | 1,883 | 15% | 3,962 | n.m. |
| Premium Games | 70,749 | 85% | 28,218 | 83% | 42,531 | n.m. |
| Development | 6,839 | 8% | 916 | 2% | 5,923 | n.m. |
| Total gross foreign revenue | 83,433 | 100% | 31,017 | 100% | 52,416 | n.m. |
The Development operating segment's revenue includes revenue earned by Pipeworks Inc. from development contracts with non-Group customers.
There were no unusual or significant related party transactions in the period ended 31 March 2017 other than those of a continuous nature.
We, the undersigned, Abramo Galante, chairman of the Board of Directors and Stefano Salbe, financial reporting manager of Digital Bros Group, hereby declare, including in accordance with Art. 154-bis (3) and (4) of Legislative Decree 58 of 24 February 1998:
We also confirm that:
Milan, 12 May 2017
Signed
Chairman of the Board of Directors Financial Reporting Manager Abramo Galante Stefano Salbe
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.