Consolidated Financial Statements for the Financial Year from 1 January to 31 December 2018 Page
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Consolidated Financial Statements for the Financial Year from 1 January to 31 December 2018 gamigo AG Behringstrasse 16b 22765 Hamburg/Germany Content Consolidated Financial Statements for the Financial Year from 1 January to 31 December 2018 Page Consolidated management report of gamigo AG for the Financial Year from 1 January to 31 December 2018 1-39 Consolidated Statement of Financial Position as at 31 December 2018 40-41 Consolidated Statement of Profit and Loss and Comprehensive Income for the Financial Year from 1 January to 31 December 2018 42 Consolidated Statement of Changes in Equity from 1 January to 31 December 2018 43 Consolidated Statement of Cash Flows from 1 January to 31 December 2018 44 Notes to the Consolidated Financial Statements of gamigo AG for the Financial Year from 1 January to 31 December 2018 45-126 Independent Auditor’s Report gamigo group Consolidated management report 2018 Consolidated management report of the gamigo group for the year ended 31 December 2018 I. Fundamentals of the gamigo group ...................................................................................... 2 A. Business operations and corporate structure ..................................................................................... 2 B. Business activities and organisation .................................................................................................. 3 C. Objectives and strategies .................................................................................................................. 7 D. Management system ........................................................................................................................ 7 E. Internal control system .................................................................................................................... 8 F. Research and development .............................................................................................................. 9 II. Economic report ................................................................................................................. 9 A. Macroeconomic environment ........................................................................................................... 9 B. Industry-related environment ......................................................................................................... 10 C. Business development ................................................................................................................... 14 D. Profit, net worth and financial situation ........................................................................................... 15 III. Forecast, opportunities and risk report ................................................................................19 A. Forecast report .............................................................................................................................. 19 B. Underlying assumptions ................................................................................................................. 19 C. Opportunities report ...................................................................................................................... 20 D. Risk report..................................................................................................................................... 21 1 gamigo group Consolidated management report 2018 I. Fundamentals of the gamigo group A. Business operations and corporate structure The gamigo group is one of the leading gaming companies in Europe and North America. gamigo is also a consolidator in the booming but competitive gaming market. With over 20 M&A transactions, as well as consistent integration and a focus on exploiting synergies, the group has grown rapidly in the last few years, both in revenue and in earnings. In addition to growth through M&A, gamigo is increasingly relying on organic growth by launching games and improving games that are already in the portfolio. Because of certain risk-related considerations, gamigo does not develop new games itself, but instead concentrates in its M&A transactions on acquiring games that are already live, or on licensed games ready to be launched. gamigo was one of the first companies to discover the booming market segment of online games, and in 2000 published the first localised massively multiplayer online game (MMOG) entirely in Germany. Its roughly 350 employees in Hamburg (HQ), Berlin, Cologne, Münster and Darmstadt/Germany; War- saw/Poland; Istanbul/Turkey; Chicago, Redwood City and Austin/USA; and Seoul/South Korea are fo- cused on the B2C business sector of games publishing and the B2B business sector of media and plat- form services. The games publishing sector focuses primarily on a wide portfolio of online and console games, as well as some mobile games, most of them free-to-play MMOGs. The games are licensed exclusively for certain regional territories (mostly Europe and North America). Furthermore, gamigo procures new game licences by acquiring game companies with games that are already established in the market and obtains worldwide rights for new games that are ready to bring to market. Some of the games with higher revenue are then further developed in-house. Through this combination, the gamigo group has built up a broad games portfolio which is being consistently expanded, meaning the group has a long-standing, loyal customer base with several millions of registered user accounts. The core portfolio of the entity includes successful games such as Aura Kingdom, Desert Operations, Die Ratten, Dragon’s Prophet, Fiesta Online, Goal One, Grand Fantasia, Last Chaos, Shaiya, Ironsight and Twin Saga. During 2018, the exclusive rights to further successful titles – such as RIFT, ArcheAge, Trove and Defiance – were acquired for Europe and America, among other regions. The entire gamigo portfolio has over 30 multiplayer games and over 500 casual games. The area of B2B services concentrates on media services, especially online advertising and marketing, with a strong focus on influencer, social and product marketing. The most important activities in this field are affiliated to adspree media GmbH and the Mediakraft Group. While adspree media GmbH is focused on lead generation and advertising for game providers and operating portals such as MMORPG.de, MMOGames.com and Browsergames.de, the Mediakraft Group is a specialist agency for video and influencer marketing that offers a full product range in this field, with advice, design, pro- duction, media purchasing and performance measurement. The expansion of software as a service (SaaS) offerings, which also falls within this area, has been deferred because of the focus on improving the entity’s own technology for the field of B2C. 2 gamigo group Consolidated management report 2018 gamigo AG (“gamigo” for short), with its headquarters in Hamburg/Germany, is the parent company of the group. In this role, it handles its own operational business as well as the central management and control functions for the group entities. Through centralisation, the gamigo group is able to exploit synergies within the entities it holds and structure all business processes efficiently. B. Business activities and organisation The range of services of the gamigo group, which are divided into the business divisions B2C/Game Publishing and B2B/Platform Services, includes the operation and the further development of online and mobile games (publishing) in the B2C division and all B2B media services for marketing games and other products and services, as well as other B2B platform services, in the B2B division. Efforts are being made to bring the B2C and B2B activities together on one platform to the greatest extent possi- ble in order to achieve a strong focus and maximum economies of scale and efficiency. Besides the interdivisional operating and organic development of the business segments, a policy of a consequent acquisition strategy by purchasing favourable companies and assets is also pursued. B2C/Game Publishing business division In the Game Publishing business division, online and mobile games are supplied, supported, operated and sometimes even developed further within the entity for end customers. In 2018, the gamigo group earned about 65 % of its revenue in this business segment. It has a broad portfolio of online and con- sole games, including casual games, role-playing games and strategy games. It markets its products and services to gamers in Europe, North America and South America, as well as Australia, with the focus being on Europe and North America. In most cases, the games are licensed exclusively, either worldwide or for certain regional territories. In Asia, gamigo does not market its games directly, but instead works with licence partners. The free-to-play MMOGs in the portfolio of the gamigo group account for the significant share of rev- enue. Free-to-play means that consumers fundamentally play free of charge but for a fee can acquire goods (known as “items”) that increase the enjoyment of the game and/or facilitate faster success, in particular through new equipment or new functions for game characters. Thanks to this business model, revenue has the potential to scale better, as customers usually do not just pay once but, thanks to various incentives in the games, are motivated to invest money in the games on a continuous basis and over a longer period of time. MMOG means that often several thousand players meet and interact with