G5 Entertainment Follow

Important events after the end of the period
* Historically, G5 has seen pronounced seasonality Q1 to Q2, where the first quarter would be strong due to inflow of new users after the holiday period, and then the second quarter would be weaker. The decline in revenue 13Q1 to 13Q2 constituted 21%. In 2014 no such pronounced seasonality is evident. While the organic inflow of new users has declined in Q2, the increased user acquisition expenses (almost five-fold growth April 2013 to April 2014) now produce substantial inflow of new users. A larger percentage of free-to-play games in the portfolio helps maintain the revenue, as in free-to-play games players are monetized over much longer periods of time compared to unlockable games.

* The group’s office in Kharkov continues business as usual. It is the group's policy to keep critical code and materials backed up outside Ukraine, keep intellectual property rights in EU entities, and transfer funds to subsidiaries on as-needed basis.

InquiriesVlad Suglobov, CEO, investor@g5e.com
Odd Bolin, CFO, +46 70 428 3173

G5 Entertainment AB is a developer and publisher of high quality downloadable games for iOS, Android, Kindle Fire, Mac, and Windows 8 devices. 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 a number of popular games like The Secret Society, Virtual City, Special Enquiry Detail, Supermarket Mania, Stand O’ Food, and Mahjongg Artifacts. G5 Entertainment AB is listed on Aktietorget in Stockholm since 2008.

Comments by the Chief Executive Officer14Q1 is the new record revenue quarter for the company. After mixed performance during transitional 13Q3 and 13Q4, G5 is growing profitably while generating record cash flow before financial activities. The management is satisfied with the results of the quarter and considers the transition to a business driven by free-to-play games accomplished. The result of the quarter proves the viability of the free-to-play business model for G5 games. While the company still has a smaller part of its revenue coming from unlockable games, the growth comes from free-to-play-games.

The operating margin in 14Q1 is lower than in the corresponding period last year due to specifics of the now-prevalent free-to-play business model and because of higher administrative costs this year. As G5 releases new free-to-play-games and scales free-to-play games revenue, fixed administrative costs will affect the bottom line less, and we aim to gradually achieve 30% operating margin over time. The management however retains the flexibility to increase or decrease user acquisition spending (Sales and Marketing expense category) as it deems fit for the purpose of balancing growth, profitability, and cash flow. This may have both positive and negative effects on the operating margin in the short term.

We are seeing some seasonal effect after the end of Q1, however, it is limited to the number of new downloads, while it does not yet have an effect on revenue as in previous years. We believe it’s due to better revenue stability of free-to-play-games, which generate the major part of the group’s revenue now. Based on what we see so far and also that 13Q2 is low base compared to 13Q1, management is optimistic about the development of 14Q2. Preliminary sales figures for January-June will be communicated in the first days of July.

Stockholm May 14, 2014Vlad Suglobov, Chief Executive Officer, co-founder

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