January December 2012 - Summary Consolidated revenue for the period is 80 928 KSEK, up 74% compared to 46 611 KSEK for the same period of 2011. This is in line with the previously communicated forecast of 80 MSEK. Operating result for the period is 25 804 KSEK, up 46% compared to 17 666 KSEK for the same period of 2011. This result is in line with the previously communicated forecast of 25 MSEK. Earnings per share for the period are 2.77 SEK. During the period, the group had negative cash flow of 4 176 KSEK, as the group continued to invest for future growth. Cash reserves on December 31 st 2012 amounted to 13 365 KSEK. Current assets of the group as of December 31 st 2012 were 39 263 KSEK. Current liabilities: 17 339 KSEK. Working capital (CA-CL): 21 924 KSEK. Current ratio (CA divided by CL): 2.26. The group does not have any long-term liabilities, and has strong liquidity position. 2012 became the third year of G5 s fast-paced growth in smartphone and tablet games publishing business, and the group invested record amounts into the development of new games for release in 2013 and 2014. G5 has contractual relationships with over 80 game development studios from around the world. These studios are supplying casual and free-to-play games that G5 is going to publish, in addition to games developed internally by G5. As the market of smartphones and tablets goes from strength to strength, the management aims to eventually achieve revenue of 300 MSEK with operating result of 100 MSEK, while keeping the growth at historic 2010-2012 levels. The group s weaker revenue in Q4 12 compared to Q3 12 was caused by two reasons: (a) Apple s promotion of Virtual City Playground (VCP), G5 s first free-to-play game, during Q3, which resulted in record revenue coming from a single game in Q3. VCP was not promoted in Q4, so VCP sales in Q4 went back to normal; (b) the lack of Android game releases after G5 has released all of its own games on Android and has been waiting to start receiving new Android games licensed from 3 rd party developers. In December 3 rd party development studios started to deliver Android versions of their games regularly, and the management expects to have no substantial gaps in Android game releases going forward. As G5 releases more free-to-play games, quarterly sales can be more volatile than previously because of higher per-game revenue of free-to-play games. With the start of the holiday period in December, the group's daily sales grew 60% from pre-holiday average, when comparing two weeks before and after the start of holidays. The increased level of daily sales continued into January and February 2013. Management believes that Q1 13 is going to be record for the group, and expects year-on-year growth in Q1 13 to be in line with historic 2010-2012 levels. Virtual City Playground, the group s first and best-selling free-to-play game became the highlight of the year 2012. The game has been Top 10 Grossing Game on ipad in over 100 countries, and achieved record monthly revenue in July 2012, 11 months after its initial release, accounting for over 30% of the group s revenue in some months of Q3. In the first year of sales, VCP has generated more revenue than any other game in G5 s portfolio has generated over its lifetime. Accordingly, the management believes that going forward, free-to-play games can become major growth driver for the group s business. In November, G5 released two new free-to-play games on ios: The Secret Society, hidden object free-to-play game, and Doomsday Preppers, a free-to-play game based on popular TV show of National Geographic Channel. Both games show encouraging results and have been gradually gaining audience and increasing daily revenue since launch. The Secret Society is already displaying monetization and engagement parameters similar to Virtual City Playground. All free-to-play games will receive multiple regular updates during 2013 to ensure continuous engagement of the audience and growth of revenue. As part of the updates, the management plans to roll out social features across free-to-play portfolio. The group is also working on a number of new free-to-play games to be released during 2013 and 2014 in order to further expand the group s free-to-play portfolio. 2
During Q4, G5 continued releasing multiple games every week. G5 released games for ios, Google Play, Mac, Kindle Fire and Nook stores. In addition to free-to-play game releases named above, the most successful games of the quarter included Dark Arcana: The Carnival (ios), Nightmares From the Deep: The Cursed Heart (Android), Lost Souls (Android), and Whisper of Fear (ios). The extraordinary general meeting held on 31 st October 2012 approved the board of director s proposal to issue no more than 160 000 warrants in order to establish share-based incentive program in the company ( Warrant Program 2012 ). The right to acquire warrants shall, with deviation from the shareholder s preferential right, belong to executives and key employees in the group. The program shall include maximum 16 persons. Each warrant gives the holder a right to subscribe for one share in the company to a strike price amounting to 250% of the volume weighted average of the listed settled prices during the period between November 1, 2012, and November 14, 2012 - according to Aktietorget s stock exchange list for shares in G5 Entertainment AB (publ.). It will be possible to exercise warrants only after three years. In case all warrants are exercised, at the most 160 000 shares may be issued (with reservation for possible recalculation) in three years from now, which corresponds to approximately two percent of the total number of currently outstanding shares and votes. Except for the managing director, the members of the board of directors shall not have a right to subscribe for warrants. This interim report has not been reviewed by company s auditor. Important Events After the End of The Period The Board of Directors of G5 Entertainment has decided to apply for a listing of the company's shares on NASDAQ OMX Stockholm in the second half of 2013. A listing on NASDAQ OMX Stockholm will increase opportunities for institutional investors to invest in G5 Entertainment and create better liquidity in the share. It is also a further seal of approval for the company in terms of its operations and information disclosures. G5 Entertainment has appointed Carnegie Investment Bank as its financial advisor and Delphi as legal advisor in connection with the listing process. Warrant Program 2012, as adopted by the Extraordinary General Meeting held on October 31st 2012, has been fully subscribed by managers and senior executives of G5 Entertainment group. Board members except CEO were not entitled to subscribe. Accordingly, G5 Entertainment AB has issued 160 000 warrants. Each warrant entitles the holder to subscribe to one share in the company at an issue price of 106.48 Kr. The period for the warrants is 3 years and 3 months, and it will be possible to exercise warrants after 3 years. Upon full exercise of the warrants, up to 160 000 shares, which represents about two percent of the total number of outstanding shares, will be issued. On 30 th January 2013, G5 Entertainment AB (G5) has completed a directed share issue of 800 000 shares, corresponding to 10 percent of the number of shares outstanding in the Company before the directed share issue. The directed share issue provided the Company with approximately SEK 37.6 million before deductions for issue expenses. There was a strong interest for the transaction and the directed share issue was oversubscribed. The Company retained Carnegie Investment Bank as placing agent in relation to the directed share issue, which was primarily directed towards institutional investors in the Nordic region. The subscription price was SEK 47 per share, corresponding to a discount of 2.3 percent to the closing price on January 29, 2013. As a result of the directed share issue, the total number of outstanding shares increased from 8 000 000 shares to 8 800 000 shares and the share capital increased from SEK 800 000 to SEK 880 000. The proceeds from the directed share issue will allow G5 to capitalize on a positive outlook of the mobile gaming app market and continue its strong historical growth, by increasing the number of external and internal development projects and focusing more on high-quality free-to-play games. The total number of downloads of G5 games on ios and Android (not counting update downloads) surpassed 95 million. 3
The Company G5 Entertainment AB (publ) unites a group of companies: G5 Holdings Limited (Malta), G5 Entertainment, Inc. (USA), G5 Holding RUS LLC (Russia), and G5 Holding UKR LLC (Ukraine), all of which are wholly owned subsidiaries of G5 Entertainment AB (publ). G5 Entertainment AB (publ) is listed on Aktietorget exchange in Stockholm since November 19 th 2008. Before that, G5 Entertainment AB was listed on NGM Nordic MTF since 2 nd October 2006. G5 Entertainment AB acts as a holding company and provides managerial services to the rest of the group. Further, the parent company develops a number of the company s games and invoices almost all of the Groups external revenue. G5 Entertainment Group is a developer and publisher of high quality downloadable casual games for iphone, ipad, Android, and Mac. G5 Entertainment started as one of the world s leading mobile game development studios, developing games based on popular licenses for the largest mobile game publishers during 2001-2008. Since 2009, G5 is developing and publishing downloadable games for iphone, ipad, Android, and Mac. G5 s portfolio includes popular casual games like Supermarket Mania, Special Enquiry Detail, Virtual City, Stand O Food, and Mahjongg Artifacts. G5 also develops games based on third party licenses, and publishes games developed by third party developers in both cases, on certain revenue share terms. G5 s development studio has extensive experience of development for smartphones and tablets. One of the group s main competitive advantages is its proprietary Talisman cross-platform technology, which allows effective development and deployment of games across numerous platforms and devices, including iphone, ipad, Android, Windows Mobile, Mac OS. Talisman technology, in combination with G5 s established processes for the development, porting, adaptation, and quality assurance of games, allows G5 to deploy high quality games to multiple platforms in reduced time. The creative and development teams at G5 are also capable of producing original intellectual property and best-selling casual and free-to-play games like Supermarket Mania 2, Stand O Food 3, Virtual City, and Virtual City Playground. Assessment of risk environment There have been no significant changes regarding the risks and uncertainties to which G5 Entertainment is exposed since the publication of the previous quarterly and annual reports. G5 Entertainment Group is active in the development and publishing of games for smartphones and tablets (mobile games). Main operational risks lie in the areas of dependency on strategic distribution partners (Apple, Google, Amazon), possible delay of releases of games, changes in technology, key employee termination, licensing partnerships termination, forecasting reliability and regional risks. Main financial risks lie in the areas of currency translation and exposure, insurance and risks related to the need for additional capital. Related party transactions Except for ordinary remuneration to senior executives, there have been no material transactions with related parties outside the Group s activities. Accounting Principles G5 Entertainment AB s consolidated accounts have been prepared in accordance with International Financial Reporting Standards (IFRS). This Year End Report was prepared for the group in accordance with the IAS 34 Interim Financial Reporting and the Swedish Annual Accounts Act. The accounting and calculation principles used in the Year End report for the group are identical to those used in the Annual Report 2011. None of the new and changed standards from IFRS, applicable from 1st of January 2012, has had any effect on the Financial Statements as of 31st December 2012. 4
Capitalized expenditure Capitalized expenditure consists of expenses related to the development of new games. Expenses are capitalized only if the expenses are expected to result in identifiable future financial benefits that are under the control of the group. Depreciation is calculated using the straight-line method during a period of two years after the release of the game. Additional Information Any forward-looking statements in this report are based on the management knowledge of the quantity, release dates, and anticipated sales of games which were already released and which are going to be released by the group in the future. Sales for the yet unreleased games are estimated based on historical sales patterns for released games of similar genre and quality level since 2009, also taking into account current market situation and trends. The accuracy of forecasts for yet unreleased games is affected by: a) game release delays due to 3 rd party (Apple, Google, Amazon, etc) reviews and approvals on the way to the market; b) game release delays due to group s when it s done approach to game development crucial to create high quality games with long tail of sales; c) low prediction accuracy when it comes to forecasting sales of games in new genres or on new platforms, when there is no accumulated statistics from similar previously released games; d) general difficulty with predicting sales of a particular game precisely; e) changes in the development plans because of new business opportunities, like new platform announcements, new API releases, and such other important events requiring immediate action and change of development plans. The Shares The number of outstanding shares at the end of the period: 8 000 000 shares. The average number of outstanding shares during the period: 8 000 000 shares. The extraordinary general meeting held on 31 st October 2012 approved the board of director s proposal to issue no more than 160 000 warrants in order to establish share-based incentive program in the company. The right to acquire warrants shall, with deviation from the shareholder s preferential right, belong to executives and key employees in the group. The program shall include maximum 16 persons. Each warrant gives the holder a right to subscribe for one share in the company to a strike price amounting to 250% of the volume weighted average of the listed settled prices during the period between November 1, 2012, and November 14, 2012 - according to Aktietorget s stock exchange list for shares in G5 Entertainment AB (publ.). It will be possible to exercise warrants only after three years. In case all warrants are exercised, at the most 160 000 shares may be issued (with reservation for possible recalculation) in three years from now, which corresponds to approximately two percent of the total number of currently outstanding shares and votes. Except for the managing director, the members of the board of directors shall not have a right to subscribe for warrants. Warrant Program 2012, as adopted by the Extraordinary General Meeting held on October 31st 2012, has been fully subscribed by managers and senior executives of G5 Entertainment group. Board members except CEO were not entitled to subscribe. Accordingly, G5 Entertainment AB has issued 160 000 warrants. Each warrant entitles the holder to subscribe to one share in the company at an issue price of 106.48 Kr. The period for the warrants is 3 years and 3 months, and it will be possible to exercise warrants after 3 years. Upon full exercise of the warrants, up to 160 000 shares, which represents about two percent of the total number of outstanding shares, will be issued. 5
On 30 th January 2013, G5 Entertainment AB (G5) has completed a directed share issue of 800 000 shares, corresponding to 10 percent of the number of shares outstanding in the Company before the directed share issue. The directed share issue provided the Company with approximately SEK 37.6 million before deductions for issue expenses. There was a strong interest for the transaction and the directed share issue was oversubscribed. The Company retained Carnegie Investment Bank as placing agent in relation to the directed share issue, which was primarily directed towards institutional investors in the Nordic region. The subscription price was SEK 47 per share, corresponding to a discount of 2.3 percent to the closing price on January 29, 2013. As a result of the directed share issue, the total number of outstanding shares increased from 8 000 000 shares to 8 800 000 shares and the share capital increased from SEK 800 000 to SEK 880 000. The proceeds from the directed share issue will allow G5 to capitalize on a positive outlook of the mobile gaming app market and continue its strong historical growth, by increasing the number of external and internal development projects and focusing more on high-quality free-to-play games. Proposed Dividend The Board of Directors will propose paying no dividend for 2012 to the Annual General Meeting. Annual General Meeting Preliminarily, the date for the Annual General Meeting is set for 19 th June, 2013. The Annual Report 2012 is going to be available on the group s web-site on 24 th May 2013. Stockholm, February 25, 2013 Board of Directors G5 Entertainment AB (publ) This year-end report has not been reviewed by company's auditor. This year-end report is published in Swedish and English. In the event of any difference between the English version and the Swedish original, the Swedish version shall prevail. 6
Consolidated Group Income Statement January-December 2012 GROUP INCOME STATEMENT 2012-Q4 2011-Q4 2012 2011 Net turnover (revenue) 20 689 15 404 80 928 46 611 Production cost * -6 361-4 056-37 638-19 199 Gross Profit 14 328 11 348 43 290 27 412 General and administrative expenses -2 999-4 873-15 713-9 911 Other operating gains 33 54 33 496 Other operating losses -1 725-275 -1 749-275 Operating Result before financial items 9 637 6 254 25 861 17 722 Financial income 53 37 53 37 Financial expenses -87-93 -110-93 Operating Result after financial items 9 603 6 198 25 804 17 666 Taxes -708-1 452-3 624-3 524 NET RESULT FOR THE PERIOD 8 895 4 746 22 180 14 142 Earnings per share 1.11 0.60 2.77 1.86 STATEMENT OF COMPREHENSIVE INCOME 2012-Q4 2011-Q4 2012 2011 Income for the period 8 895 4 746 22 180 14 142 Recalculation Difference -242 83-427 2 Total other comprehensive income for the period -242 83-427 2 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 8 653 4 829 21 753 14 144 * Production cost consists of: 2012-Q4 2011-Q4 2012 2011 Production expenses -10 342-6 153-37 944-18 840 Royalty to developers -4 204-1 358-21 386-9 333 Capitalized development costs 11 238 5 517 32 299 14 624 Depreciation of Capitalized development costs ** -3 053-2 062-10 607-5 650 Total production cost -6 361-4 056-37 638-19 199 ** Capitalized development costs for the game are evenly depreciated over 2 years period following the day of commercial release of the game 7
Consolidated Group Balance Sheet January-December 2012 GROUP BALANCE SHEET 2012-12-31 2011-12-31 ASSETS Fixed Assets Intangible fixed assets Capitalized development costs 39 078 17 386 Goodwill 2 272 2 322 41 350 19 708 Tangible fixed assets Equipment 2 872 1 539 2 872 1 539 Total fixed assets 44 222 21 247 Current assets Accounts receivable 9 766 4 459 Developer Royalty Advance 9 513 4 187 Other receivable 6 619 6 412 Cash at bank 13 365 17 541 Total Current assets 39 263 32 599 TOTAL ASSETS 83 485 53 846 Equity Share capital 800 800 Other capital contribution 19 971 19 872 Other reserves -347 80 Profit\Loss Brought Forward 45 722 23 542 Total shareholder s equity 66 146 44 294 Current liabilities Accounts payable 6 759 2 267 Other liabilities 39 99 Tax liabilities 6 400 6 457 Accrued expenses 4 141 729 Total current liabilities 17 339 9 552 TOTAL EQUITY AND LIABILITIES 83 485 53 846 8
Consolidated Group Cash Flow Statement January-December 2012 GROUP CASH FLOW 2012-01-01 2012-12-31 2011-01-01 2011-12-31 Operating activities Profit after financial items 25 804 17 666 Adjusting items not included in cash flow 11 537 6 587 37 341 24 253 Taxes paid -4 306-721 Cash flow before changes in working capital 33 035 23 532 Cash flow from changes in working capital Decrease in operating receivables -5 049-8 088 Increase in operating liabilities 7 841 5 168 Developer Royalty Advance -5 790-4 187 Cash flow from operating activities 30 037 16 425 Investing activities Purchase of property and equipment -2 263-1 347 Capitalized development costs -32 299-14 624 Purchase \ Sale of subsidiary - 589 Cash flow from investing activities -34 562-15 382 Financial activities New share issue - 12 479 Purchase from non-controlling interest - -863 Cash flow from financial activities - 11 616 CASH FLOW -4 525 12 659 Cash at the beginning of the year 17 541 4 892 Cash flow -4 525 12 659 Exchange Rate diff 349-10 CASH AT THE END OF THE PERIOD 13 365 17 541 9
Consolidated Group Changes in Equity Statement January-December 2012 GROUP CHANGES IN EQUITY Share Capital Other Capital Contribution Other Reserves Proft/loss brought forward Shareholders equity Shareholder s Equity as of 2011-01-01 742 7 451 78 9 400 17 671 Total comprehensive 2 14 142 14 144 income New Issue 58 12 421 12 479 Shareholder s Equity as of 2012-01-01 Total comprehensive income 800 19 872 80 23 542 44 294-427 22 180 21 753 Incentive Program 99 99 Shareholder's Equity as of 2012-12-31 800 19 971-347 45 722 66 146 Insiders Name Shares Change since Dec 2011 VLADISLAV SUGLOBOV (through company) 721 000 0 SERGEY SHULTS (through company) 675 000 + 2 000 ALEXANDER TABUNOV (through company) 660 000 0 EIN STADALNINKAS 0 0 JOHAN WRANG 0 0 PÄR SUNDBERG 2 000 + 2 000 JEFFREY ROSE 0 0 With the questions regarding this report please make contact by email at investors@g5e.se G5 Entertainment will be publishing Q1 2013 report on 15 th May 2013, Q2 2013 report on 15 th August 2013, Q3 2013 report on 15 th November 2013, Q4 report on 24 th February 2014. 10
G5 Entertainment AB (publ) unites a group of companies: G5 Holdings Limited (Malta), G5 Entertainment, Inc. (USA), G5 Holding RUS LLC (Russia), G5 Holding UKR LLC (Ukraine). G5 Entertainment Group (G5) is a developer and publisher of high quality casual and free-to-play games for smartphones and tablets. The group distributes games through ios, Google Play, Kindle Fire, Nook, and Mac application stores. G5 develops and publishes games that are family-friendly, easy to learn, and targeted at the widest audience of experienced and novice players. G5 s portfolio includes popular games like Virtual City, Supermarket Mania, Special Enquiry Detail, Stand O Food, and Mahjongg Artifacts. G5 also develops games based on third party licenses, and publishes games developed by third party developers. G5 ENTERTAINMENT AB (publ) GREV TUREGATAN 14, STOCKHOLM SWEDEN 114 46 PHONE: +7 495 210 97 94 FAX: +46-8 545 075 49, +7 495 637 62 98 E-MAIL: CONTACT@G5E.SE ORG.NR. 556680-8878 HTTP://WWW.G5E.SE