As we have commented on earlier today, G5 Entertainment announced this morning its preliminary numbers for its Q3 2012 and invited to an extra-ordinary general meeting in order to introduce a share-based incentive program.
Nordic Investor got hold of CEO Vlad Suglobov who commented on today’s announcement:
Nordic Investor (NI): Today’s numbers imply an EBIT margin of 27.5% during Q3. Can you break down the costs a bit more in order for us to understand where you experience the biggest inflation. Have production cost increased substantially from the 11.4m seen in Q2?
Vlad Suglobov (VS): For the breakdown on costs, you will have to wait until we release interim report on 15 November. As we continue to invest in new games and publish more games from other developers, you can expect that costs are going to go up across the board: marketing, development, product acquisition. We keep the balance to maintain healthy margin, but we prioritize the group’s strategic position and building the company for the long term, so you might see occasional hiccups. In a particular quarter, margin depends on numerous factors including how well the back catalogue and new game releases performed, what was the own/external games mix, how intensive was our investment in new games, whether or not we were adding more “infrastructure” positions like marketing and management, etc.
NI: Nice to see that you are re-iterating your FY 2012 guidance. As the numbers look after 9-months you would need to record an EBIT margin of almost 52% in Q4, which would be the highest level since Q3 2010. Besides a favourable topline development in Q4 (seasonally strong etc.) what makes you so confident that you will get such a leverage in Q4? are you considering to give a target for 2013 in connection with the Q3 report maybe?
VS: The goal for 2012 is a goal, and the result can be both above and below this goal depending on the performance of the games that we are going to release before the end of the year. We have some strong games coming out, so we did not feel like adjusting the goal.
(VS): The purpose of EGM is definitely to consider share-based incentive program in the company. As I understand, the board wants to make sure that key employees of the group have alignment of interests with the shareholders. Key employees of the group without share interest in the company can make wrong short-sighted decisions based on cash bonuses they have, or be distracted by opportunities outside the company. The idea then is to provide them with the ability to benefit from the appreciation of the company’s share and therefore have their focus more aligned with building mid-term value in the company. At the same time, the board wanted the program to be fair to the shareholders, hence high strike price of 250% from current level. Regarding the timeline – there is no particular rush, but the board felt it would be good to have this in place in 2012 already. The discussion started in early 2012, but it took some time to sort out the details, that’s why we do it now instead of AGM.