Funcom N.V. Annual Report 2016
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Funcom N.V. Annual Report 2016 1 Contents About Funcom 3 Active game portfolio 5 The Dreamworld Technology 8 Report of the Management Board 9 Corporate Governance 15 Responsibility Statement 22 Corporate Governance Declaration 23 Report of the Supervisory Board of Directors 24 Consolidated Financial Statements: Consolidated Statement of Comprehensive Income 28 Consolidated Statement of Financial Position 30 Consolidated Statement of Cash Flows 32 Consolidated Statement of Changes in Equity 33 Notes to the Consolidated Financial Statements 34 Company Financial Statements: Statement of Financial Position 78 Statement of Comprehensive Income 79 Notes to the Company Financial Statements 80 Other information: Other information 92 Auditor’s report 93 Annexes: Annex I: Investor Relations Policy 100 Annex II: Financial Calendar for Funcom 2017 102 Annex III: Contact Details 103 Annual Report 2016 - Funcom N.V. Page 2 About Funcom Funcom® is an award-winning independent developer and publisher of computer and console games. Funcom N.V. (the Company) was founded in 1993 and during the 24 years that have followed since then, the Company has developed and published over 27 game titles across several genres and gaming platforms. The most recently release game was Conan Exiles, launched on 31 January 2017 very successfully and recouping its development costs after just a week. Previous notable games are the online MMOs The Secret World®, Age of Conan and Anarchy Online®, which despite their respective ages continue to be important, contribution-generating pillars in Funcom's live portfolio of games. Funcom has also developed several single-player classics, such as the highly critically acclaimed The Longest Journey® and Dreamfall®. In October 2015, Funcom released The Park®, its first single-player game in over ten years. In the early days, Funcom developed console games such as Pocahontas and Casper, and also created numerous ports of existing games to various platforms. As of the date of the annual report more than 100 talented individuals are working at its studios in Oslo and North Carolina. Today, Funcom is a company in a renewed growth path and in the last stages of changing to the new strategy first put forth in late 2015: · Developing small and innovative games, focused on trying new concepts, experimenting with new technology and platforms, and utilizing our IPs while keeping the investment level low. · Developing larger games, focused on genres or game types where we can create products of higher production value than the competition, using our own or 3rd party IPs and drawing from the innovation and experimentation of the smaller products to lower the risk overall. · Leveraging and growing the internal IPs such as Anarchy Online, The Longest Journey and The Secret World for both internal and 3rd party licensing. It is Funcom's vision for 2017 and onwards to be able to launch at minimum one game per year and each studio have a game in development at all times. As part of this strategy, market segments and platforms will be constantly evaluated as the trends in the gaming industry change very quickly and new opportunities are emerging such as eSports, VR and AR, among others. Under this strategy that started to be adopted during 2015 there have been three games released. The Park®, released on October 2015 and Hide & Shriek™, released on October 2016 were both small and experimental games. Conan Exiles, released on 31 January 2017, is a larger game in the open-world survival genre. Conan Exiles will see a first console release during Q3 2017 and a full launch with the second console release in Q1 2018. Funcom has two highly skilled team of developers situated in the Research Triangle Park, North Carolina, USA and Oslo, Norway. In 2016 the Oslo studio focused solely on the production of Conan Exiles and the North Carolina studio on the maintenance of the older MMOs and relaunch of The Secret World. Annual Report 2016 - Funcom N.V. Page 3 Age of Conan launched in 2008 and sold more than 1.4 million copies before it went over to a free- to-play business model. Since launch, more than four million players have signed up to experience Age of Conan. Anarchy Online, the Company's first MMO, has been in operation for 15 years and is still going strong. The Secret World is Funcom's largest MMO and is being relaunched as Secret World Legends with a new positioning and with a Free to Play (F2P) business model to attract new players and broaden the target audience. Funcom is a publicly listed company on the Oslo Stock Exchange under the ticker 'Funcom'. For more information, visit www.funcom.com. Annual Report 2016 - Funcom N.V. Page 4 Active game portfolio Annual Report 2016 - Funcom N.V. Page 5 Annual Report 2016 - Funcom N.V. Page 6 OTHER GAMES · Age of Conan o Age of Conan received several updates, most notably a major revamp of the Free to Play system, introduction of membership rewards and daily login bonuses, addition of The Pitmaster’s Arena and Slithering Chaos raid instance, and a revamp to the in-game store. · Anarchy Online o During 2016 Anarchy Online saw the release of a new starting experience – The Reck, in addition the in-game store saw a massive revamp, and finally Anarchy Online was released on the Steam platform on February 22 2017. · LEGO Minifigures Online o LEGO® Minifigures Online’s license agreement with LEGO expired on October 1 2016 and the game’s operations were terminated. · The Park o The Park launched successfully on Xbox One and PlayStation 4 on May 3 2016 and the project has met all its goals. · Hide & Shriek o Hide & Shriek was first revealed on September 29 2016 with subsequent launch on October 25 2016. This was the second of the smaller types of games developed under the new strategy. o Similar to how The Park was a project to bring the Funcom Oslo team up to speed with Unreal Engine 4 and shorter development cycles, Hide & Shriek had the same objectives but for the team in Funcom Inc. in North Carolina. o In addition, this game allowed Funcom to obtain experience in localizing a game in 11 languages and bring a game to the attention of Streamers/Youtubers, experience which was very relevant for the Conan Exiles Early Access launch in January 2017. · The Longest Journey® o Dreamfall Chapters, developed by Red Thread Games on a license from Funcom, released its fifth and final episode. Development of Xbox One and PlayStation 4 versions in progress and is planned to be released during the second quarter of 2017. Annual Report 2016 - Funcom N.V. Page 7 THE DREAMWORLD TECHNOLOGY The trademarked Dreamworld Technology® platform is the technological foundation on which the company’s MMOs are built. This proprietary technology platform provides Funcom with a unique competitive advantage by enabling more flexible, faster and more predictable development and deployment of upcoming games. A key part of Funcom's strategy has been to develop a proprietary technology platform for both online and offline games. Dreamworld Technology eases the development and deployment process of such products. This enables the Company to develop faster prototypes and early versions of new games using limited staff, to test new game concepts’ feasibility before committing more resources to the projects. Having a proprietary technology base also enables the Company to specialize and develop unique features for its games. Core components of the Dreamworld Technology platform include a flexible and powerful build and versioning system, an extensive data handling backend allowing our teams to work on extremely large datasets, as well as custom feature support in 3rd party engine extensions. Key developments in 2016 were focused on moving away from writing and maintaining a complete game engine and migrating towards developing a production framework compatible with 3rd party engines, such as Unreal Engine 4. This has enabled us to benefit from the extensive feature list of 3rd party engines while also retaining and developing further our unique technology feature set. Annual Report 2016 - Funcom N.V. Page 8 Report of the Management Board This chapter of the annual report amongst other matters, contains certain statements that are made pursuant to Section 2a of the Dutch Governmental Decree setting further regulations concerning the contents of the report of the Board of Managing Directors (Vaststellingsbesluit nadere voorschriften inhoud jaarverslag) of December 23, 2004 (Staatsblad 2004, 747), as most recently amended on December 22, 2016 (Staatsblad 2016, 559). Funcom’s business activities The operational objective of the Company, as stated in article 2 of the Articles of Association is to develop, market and carry on business in computer games, hereunder massively multiplayer online games, online role playing games and related games on electronic devices of different kinds. The objectives of the Company further include to take and grant licenses and other industrial property interests, assume commitments in the name of any enterprise within the same group of companies, to take financial interests in such enterprises and to take any other action, such as but not limited to the granting of securities or the undertaking of obligations on behalf of third parties, which in the broadest sense of the term, may be related or contribute to the aforesaid objectives. The key criteria for the overall performance of the Company are: cost of development of new products, cost of maintenance and support of live games, overall reach and sales of products, lifetime retention and revenues per customers, and lifetime of the products. The financial objective of the Company is to maximize the return on investment to the shareholders. Legal structure For an overview of the legal structure of the Company and its subsidiaries (together referred to as the ‘Group’) – please refer to note 26 Review of Funcom’s financial position and financial results for 2016 Funcom’s revenue for 2016 was USD 7,322 thousand compared to USD 10,238 thousand in 2015.