Interim Report 2020-01-01 - 2020-09-30
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INTERIM REPORT 2020-01-01 - 2020-09-30 Interim Report 2020-01-01 - 2020-09-30 *Please note that this is a translation for information purposes only - in case of any discrepancies between this version and the Swedish, the Swedish version shall prevail. Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 1 INTERIM REPORT 2020-01-01 - 2020-09-30 INTERIM REPORT 2020-01-01 - 2020-09-30 THIRD QUARTER 2020 IMPORTANT EVENTS IN THE THIRD QUARTER 2020 • Revenues amounted to MSEK 494.8 (MSEK 282.6), an increase by 75 % • The new game Crusader Kings III was released September 1, 2020. The game compared to the same period last year. is amortised using a degressive amortisation method over 18 months, where • Operating profit amounted to MSEK 187.7 (MSEK 93.1), an increase by 102 %. 1/3 of the development cost is amortised in the first month after release. • Profit after financial items amounted to MSEK 187.0 (MSEK 92.9), and profit • The Group’s employees continue to work from home to reduce the spread of after tax amounted to MSEK 148.5 (MSEK 74.0). Covid-19. • Cash flow from operating activities amounted to MSEK 213.0 (MSEK 73.4), and • The Paris-based development studio Playrion Game Studio was acquired on cash flow from investing activities amounted to MSEK -236.4 (MSEK -32.5). July 1, 2020. • By the end of the period cash amounted to MSEK 600.0 (MSEK 434.6). • The Finland-based development studio Iceflake Studios was acquired on July • Earnings per share amounted to SEK 1.40 (0.70) after dilution. 16, 2020. • Revenues in the quarter are mainly attributable to Cities: Skylines, Crusader Kings III, Europa Universalis IV, Hearts of Iron IV and Stellaris. AFTER THE END OF THE PERIOD • No significant events have occurred after the end of the period. FIRST NINE MONTHS 2020 • Revenues amounted to MSEK 1,360.1 (MSEK 908.0), an increase by 50 % compared to the same period last year. • Operating profit amounted to MSEK 552.6 (MSEK 310.0), an increase by 78 %. • Profit after financial items amounted to MSEK 549.4 (MSEK 310.1), and profit after tax amounted to MSEK 431.0 (MSEK 243.6). • Earnings per share amounted to SEK 4.07 (2.31) after dilution. ABOUT PARADOX The Paradox group today consists of both publishing and internal development of games and brands. The game portfolio includes more than 100 titles and Paradox owns the most important brands, including Stellaris, Europa Universalis, Hearts of Iron, Crusader Kings, Cities: Skylines, Surviving Mars, Prison Architect, Magicka, Age of Wonders and the World of Darkness catalogue of brands. From the start in 2004, the company has published its games all over the world, initially through physical distribution but since 2006 primarily in digital channels. Paradox games are developed primarily for PC and console platforms, but the company also releases games on mobile. The largest markets today include the US, UK, China, Germany, France, Russia and Scandinavia. Today, over four million gamers play a Paradox game each month and the number of registered Paradox users exceeds 14 million. Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 2 INTERIM REPORT 2020-01-01 - 2020-09-30 CEO WORD ROYAL QUARTER PROVIDES NEW REVENUE RECORDS The third quarter of the year has for us to a large quarter was 101% higher than the same quarter extent been about the launch of Crusader Kings III. last year and for the last twelve-month period, Crusader Kings III is the third edition of our success- profit before tax was 55% higher than a year ago. ful Grand Strategy franchise based on a player’s However, I would like to point out, in the usual way, personal journey through the Middle Ages. When that our quarters are seldom comparable with each the review embargo was released shortly before other since our business is not cyclical. launch, the game received an aggregate score of 91/100 on Metacritic, which is a collected rating An important task in our business is to decide when of industry and gaming media reviews. It is our we should continue to develop a game to take highest rating ever on Metacritic and it is, of course, advantage of the long-term potential we see in the extremely positive, but what makes me happiest of franchise, and when it is better to cancel further all is that the game was received with remarkable development and instead reallocate resources enthusiasm by our players. Over 19,000 reviews on to projects that are expected to provide better Steam and over 1,000,000 units sold paints a clear returns. During the quarter, we decided to cancel picture: We have created a really good game! further development of an unannounced externally developed game. As a consequence, we wrote down The successful launch of Crusader Kings III is the full value of the game in September, which has another proof of the value in owning and methodi- reduced the quarter's earnings by SEK 28 million. cally developing our franchises. Crusader Kings III is, like most of our successful games, the result of During the development phase of our games, for several iterations of the game. Often the first game both games developed by our own studios and in a franchise is not a success, but instead lays the games developed by our external partner studios, foundation for future sequels by building a player we capitalise the development costs which are base, a brand, and the knowledge to gradually de- then amortised over 18 months from the game's velop better games. launch. For the games we have launched so far, we have applied a linear amortisation model through During the third quarter of the year, we once again which equal amortisation is made in each of the delivered a record quarter in terms of revenue. 18 months. For Crusader Kings III, we are instead Compared with the same quarter last year, our applying a degressive amortisation model, where revenue increased by 75%, while revenue for the we have written off 1/3 of the game's development past twelve months has increased by 40% compa- costs already during the game's launch month, 1/3 red with the previous year. Profit before tax for the evenly distributed during months 2-6, and 1/3 even- Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 666 Stockholm • www.paradoxinteractive.com 3 INTERIM REPORT 2020-01-01 - 2020-09-30 ly distributed during months 7-18 after the game's launch. This more forward-leaning amortisation model is more in line with how we expect revenue from Crusader Kings III, and similar games we plan to launch in the future, to be distributed. In the short term, the amortisation model means that the result decreases compared with a linear amortisation model, while the result is equally higher during the latter part of the amortisation period. We continue to adapt our operations to the prevail- ing pandemic and, as an employer, do what we can to ensure the well-being of our employees while we continue to work from home. During the quarter, we organized webinars on the theme of mental health and initiated several different health-promoting activities. In December, we will launch a new strategy game - Empire of Sin - which we have developed together with Romero Games. Empire of Sin follows Paradox's classic design philosophy: the game can be replayed several times with a new gaming experience each time, and as with many Paradox games, players are given the opportunity to modify the game themsel- ves and share these mods with other players. While Empire of Sin retains these core Paradox features, it represents a step outside our usual comfort zone with its role-playing elements and 1920s gangster theme. In this way, the game is a natural and smooth step for us to expand our portfolio. I am delighted to end this very special, and in many ways challen- ging, year by launching a new game and I hope our players will enjoy it. Ebba Ljungerud, CEO Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholmtockholm • www.paradoxinteractive.com 4 INTERIM REPORT 2020-01-01 - 2020-09-30 RELEASES DURING THE QUARTER CRUSADER KINGS III Release date: September 1, 2020 Platform: PC Description: Paradox Development Studio brings you the sequel to one of the most popular strategy games ever made. Crusader Kings III is the heir to a long legacy of historical grand strategy experiences and arrives with a host of new ways to ensure the success of your royal house. Developer: Paradox Development Studio Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 5 INTERIM REPORT 2020-01-01 - 2020-09-30 REVENUE AND PROFIT THIRD QUARTER REVENUE AND PROFIT THIRD QUARTER Selling expenses for the period amounted to MSEK Licenses, brands and similar rights amounted to Revenues amounted to MSEK 494.8 (MSEK 282.6), an 50.9 (MSEK 40.4). Selling expenses increased due to MSEK 337.7 (MSEK 221.2). increase by 75 % compared to the same period last increased investments in marketing and sales. year. The new game Crusader Kings III was released Goodwill amounted to MSEK 21.1 (MSEK 0.0) attribu- September 1, 2020. Revenues in the quarter are mainly Administrative expenses for the period amounted to table to the acquisition of Iceflake Studios.