ANNUAL REPORT 2016 omslag Annual Report 2016 *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 • Västgötagatan 5, 6th floor • S-118 27 Stockholm • www.paradoxinteractive.com 1 ANNUAL REPORT 2016 Annual Report 2016 TABLE OF CONTENTS 3. ABOUT PARADOX INTERACTIVE 20. MARKET 4. WORDS FROM THE CEO 20. THE GLOBAL GAME MARKET 7. THE YEAR IN BRIEF 21. THE GAME INDUSTRY VALUE CHAIN 7. THE GAMES 22. THE PEOPLE AND THE PLAYERS 8. IPO - THE PARADOX WAY 22. THE PEOPLE AND THE PLAYERS 9. PARADOX + TENCENT 23. THE COMMUNITY 10. OTHER INITIATIVES 24. FINANCIAL STATEMENTS 11. FINANCIAL DEVELOPMENT 25. ADMINISTRATION REPORT 12. PORTFOLIO 37. INCOME STATEMENT 12.ACTIVE BRANDS 38. BALANCE SHEET 13. RELEASES DURING 2016 40. EQUITY CHANGE 14. STELLARIS 42. CASH FLOW STATEMNET 15. HEARTS OF IRON 43. NOTES 16. TYRANNY 62. AUDITOR'S REPORT 17. EXPANSIONS 19. COMING RELEASES Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Västgötagatan 5, 6th floor • S-118 27 Stockholm • www.paradoxinteractive.com 2 ANNUAL REPORT 2016 About Paradox Interactive PUBLISHER, DEVELOPER OCH LICENSING The Paradox Interactive group includes publishing lis, Hearts of Iron, Crusader Kings, Cities: Skylines, company has released games on console and and internal development of games and licensing Tyranny and Magicka. mobile platforms as well. The largest markets today of White Wolf’s brands. The publishing operation include the US, UK, Germany, France, Russia and publishes both internally developed titles and titles From the start over ten years ago, the company Scandinavia. Today, close to 1.5 million gamers play developed by independent studios as well as music has published its games all over the world, initially a Paradox game each month and the number of and books. The game portfolio includes more than through physical distribution using partners, but Paradox registered users exceeds six million. 75 titles and Paradox Interactive owns the most im- from 2006 digitally using its own publishing arm. portant brands, including Stellaris, Europa Universa- The development platform is primarily PC, but the Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Västgötagatan 5, 6th floor • S-118 27 Stockholm • www.paradoxinteractive.com 3 ANNUAL REPORT 2016 Words from the CEO STRONG AND EVENTFUL YEAR FOR PARADOX We have reached year's end and can now see that our fourth quarter has closed much in the same way as the year at large – with a steady growth in turnover and profit compared to last year. At the same time it’s important to remember that we will continue to have stronger quarters and less strong quarters, just like we’ve previously communicated. We are cash flow positive and already have a good cash position, enabling us to do larger investments and look at interesting acquisitions. However, it’s important to stress that we are in no hurry. Making the right decisions for Paradox of today and Paradox of tomorrow is the priority above all. Over the past five years or so, Paradox has followed a clear path with one of the main principles being growth while being profitable and where the foundation is our existing target audience and our Paradox formula (the Paradox game pillars). In addition, we will use strategic acquisitions and partnerships, like the acquisition of White Wolf, to give ourselves additio- nal strategic height to continue developing and challenging ourselves to create even better products. A testament to the success of our work can be found on the website Metacritic, which summarizes reviews for games and more. On it, Paradox is listed as number one with best reviews during 2016 among mid-sized publishers. Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Västgötagatan 5, 6th floor • S-118 27 Stockholm • www.paradoxinteractive.com 4 WORDS FROM THE CEO - ANNUAL REPORT 2016 Another indication can be found on Steam, our pectations, but it also became the fastest-selling shareholders. Since our goal was to invite more largest distribution partner, who released their historical strategy game from Paradox to date. people on our journey in the long term, we were top list at the end of December with the 100 User reviews and media reviews show that the particularly excited to see so many fans and best selling games of 2016. Paradox had no less team managed to both meet the high customer employees among the new shareholders. The than 5 titles on the list (Stellaris, Cities: Skylines, expectations and, much like with Stellaris, attract development for the stock price has been posi- Hearts of Iron IV, Europa Universalis IV and Cru- many new players. tive and at year end shares were traded at 54 % sader Kings II), a clear indication of the strength above the introductory price. and range in our portfolio. That both new and existing players appreciate both games is a good example of how we as a After the IPO one of the most frequently asked A strong product portfolio reduces risk by ma- company can capitalize on our existing strengths questions I receive is “when are you planning to king us less vulnerable during any single game while at the same time develop and challenge exit”? As an entrepreneur and CEO it’s hard for release. However, any successful game launch ourselves. me to understand that question. A more suitable naturally increases our ability to invest more, question in my opinion would be “how do you continuously develop and improve ourselves We continuously release expansions and new plan to scale”? In many ways we are just getting with regards to quality and ultimately create content to our active game titles. During the started on our journey. better products. year we have released expansion to Europa Universalis IV, Crusader Kings II, Cities: Skylines, The listing of Paradox has also had a very positi- During the year we released two internally de- Stellaris and Hearts of Iron IV. The active dia- ve impact on our visibility in Sweden. In the past, veloped games within the niche which is is our logue between our development teams and the we have focused much of our communication on greatest strength, which in turn has contributed community has contributes to a general increase the international market, but following our mar- greatly to the results of the year. The releases of engagement for Paradox in all of our channels ket debut the awareness of our business, what turned our second quarter into the strongest as well as an increased monthly activity in each type of company we are, and the fact that we quarter in our company history. respective game. are Sweden’s fourth-largest games company by revenue has increased quite a bit. This has been Stellaris has received a very positive reception We also released a larger title in November, Ty- particularly helpful for our recruiting: we are se- on the market and beat the previously held com- ranny. Tyranny is developed by Obsidian Enter- eing greater numbers of applications for almost pany revenue record for sales the first 24 hours tainment and has received a warm reception by all of our advertised roles, and we continue to after release. Even though the game to some critics and gamers all over the world. We believe grow in order to be able to execute on our plans. extent builds on the formula that has made Pa- Tyranny is a game where the sales will stretch radox Development Studio a world leader within over a longer period of time and where the For this reason we gathered the entire company their niche, the game has several elements whe- positive reception will be a contributing factor. for a four day conference at the end of the year. re the team has pushed boundaries, tested new Just like with our other titles, the developers are The focus of the conference was to discuss com- things and implemented changes. continuing to develop the game in dialogue with pany direction, identify our internal goals and its community, something that also contributes to also put into words the company culture we are Hearts of Iron is one of our biggest and most its long-tail potential. so keen to keep as we continue to grow. We are successful brands, and with so many existing very happy with the outcome of the conference fans, expectations for a new title were gigantic. On May 31, Paradox was listed on First North and for me personally, after 13 years at Paradox, Not only did Hearts of Iron IV meet these ex- Premier and we received more than 22,000 new it was very gratifying to recognize our Paradox Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Västgötagatan 5, 6th floor • S-118 27 Stockholm • www.paradoxinteractive.com 5 WORDS FROM THE CEO - ANNUAL REPORT 2016 DNA among so many new employees. A clear with our players through our social channels. We During GDC 2017 we announced a new part- validation that we have the right team with us on also have a long history of providing players op- nership with Eugene Systems, a developer who, the road ahead. portunities to modify our games and create their like Paradox, has carved a niche for themselves own content which they can also share with other and became a world leader within their area of During the year we have participated in a number players. expertise. The announcement that we are now of annual trade shows like the Games Developers involved in the release of Steel Division: Norman- Conference in the US and Gamescom in Ger- Our modding community has contributed tremen- dy 44 was received very positively.