Interim Financial Report for the 3 rd Quarter and First Nine Months of 2010 For the period from January 1, 2010 to September 30, 2010

Transcription

1 Catalis SE Geldropseweg SJ Eindhoven The Netherlands t +31 (0) f +31 (0) info@catalisgroup.com Interim Financial Report for the 3 rd Quarter and First Nine Months of 2010 For the period from January 1, 2010 to September 30, 2010

2 Contents / Key Figures

3 Contents / Key Figures Contents Key Figures...5 To Our Shareholders...6 Key Figures (unaudited) k Q Q M M 2009 Revenues (A) 7,691 8,224 19,678 25,275 Introduction...14 Management Report...14 Subcontracting and cost of materials (B) ,811 2,727 Financial Information...28 Additional Information...36 Gross Profit (A B) 7,012 7,542 17,867 22,548 Gross Margin 91.2% 91.7% 90.8% 89.2% Operating Income (EBIT) (1,232) 1,038 Non-recurring Costs ,425 EBIT after Non-recurring Costs (1,934) (387) Operating Margin 6.6% 3.8% n. a. n. a. Income Before Tax (EBT) (2,234) (777) Pre-tax Margin 5.3% 2.2% n. a. n. a. Net Income (2,234) (677) Net Income Margin 5.3% 1.9% n. a. n. a. Operating Cash Flow 119 1,046 (1,433) (43) Number of shares outstanding 37,878,999 37,878,999 37,878,999 37,878,999 Earnings per Share (basic) 0,01 0,00 (0,06) (0,02) Earnings per Share (diluted) 0,01 0,00 (0,06) (0,02) Solvability (Equity / Total Assets) 45.6% 48.2% 45.6% 48.2% 4 Catalis SE nine months financial report

4 To Our Shareholders

5 To Our Shareholders To Our Shareholders Third Quarter and Nine Month Results Successful Return to Profitability I am pleased to report that in the third quarter 2010, Kuju and Testronic as well as Catalis Group as a whole, successfully returned to profitability. As can be seen in the below diagrams, it is also good to note that the third quarter profits of Testronic and Catalis Group not only greatly exceeded those of the second quarter but also exceeded those of the third quarter in Kuju also made great progress returning to profit after losses in the second quarter. Although in general the market environment remains weak, Catalis Group benefitted from the previous rigorous structural and organisational adjustments it made to its business in the past four quarters. Customer demand for our services has also been stronger in the third quarter partly driven by the upcoming holiday season when a large number of home entertainment products are traditionally brought to the market. In the third quarter of the fiscal year 2010, revenues of Catalis Group were down 6.5% from 8.2m in 2009 to 7.7m. In light of a still difficult industry environment we have seen a significant turnaround from the development of the previous quarters. The EBIT (operating profit) before non-recurring costs, increased from 0.3m to 0.7m. The non-recurring costs amounted to 0.2m and were attributable to further adjustments at both Kuju and Testronic. Despite the 6.5% fall in revenues EBIT after these costs was 0.5m (2009: 0.3m), an increase of 62.2%. Earnings per share for the third quarter amounted to 0.01 compared to 0.00 for the third quarter of For the first nine months of 2010, revenues of Catalis Group amounted to 19.7m (2009: 25.3m). This is a decrease of 22.1%. EBIT before non-recurring costs was down to -1.2m (2009: 1.0m). Non-recurring costs amounted to 0.7m (2009: 1.4m) resulting from structural and organisational adjustments at Kuju and Testronic. Including these costs, EBIT was -1.9m (2009: -0.4m). Including the financial result of -0.3m (2009: -0.4m), pre-tax earnings amounted to -2.2m (2009: -0.8m). Net income for the period amounted to -2.2m (2009: -0.7m). Earnings per share for the first nine months of the fiscal year 2010 amounted to (2009: -0.02). 8 Catalis SE nine months financial report

6 To Our Shareholders Testronic has seen revenues for the third quarter of 2010 move up from 3.6m in 2009 to 4.4m. This represents an increase of 21.1% which is due to a consolidation of the DVD testing business and the strong development of Testronic s European business. Testronic generated an EBIT before non-recurring costs of 0.8m (2009: 0.5m). Non-recurring costs amounted to 0.1m (2009: 0.0m). EBIT after such costs was 0.7m (2009: 0.5m). For the first nine months of 2010, revenues at Testronic amounted to 9.9m (2009: 10.1m), a decrease of 2.1% from the previous year. Testronic s EBIT before non-recurring costs for the first nine months of 2010, amounted to 0.6m (2009: 0.9m). Non-recurring costs amounted to 0.1m (2009: 0.8m). EBIT after such costs was 0.5m (2009: 0.1m). In the third quarter of 2010, Kuju generated revenues of 3.3m (2009: 4.6m), representing a decrease of 28.5%. EBIT before non-recurring costs for the period showed a slight profit and amounted to 0.1m (2009: 0.1m). Despite the large fall in revenues (which were in line with the general market declines) including non-recurring costs of 0.1m, EBIT was just positive at 0.0m (2009: 0.1m). In the first nine months of 2010, Kuju generated revenues of 9.8m (2009: 15.2m), representing a decrease of 35.5%. Kuju s EBIT before non-recurring costs for the first nine months of the fiscal year 2010 amounted to -1.1m (2009: 1.0m). Including non-recurring costs of 0.6m (2009: 0.6m), EBIT was -1.7m (2009: 0.4m). In total, the third quarter of 2010 has been busy for Testronic as many film studios were and still are preparing discs for the upcoming holiday season. They were especially bullish for Blu-ray discs. The 3D segment was also strong and Testronic was working on more than 25 3D Blu-ray projects in the quarter. While Testronic s US business was rather flat, its European operations have seen strong growth in the quarter and have performed much better than in the same period last year. In fact, Testronic has experienced the best quarter in the past two years. Apart from the strong Blu-ray and 3D business, Testronic has also seen a positive development in its other business fields. Home entertainment consultancy has seen strong growth in the third quarter and Testronic expects this trend to continue as customers continue to outsource work previously done by inhouse departments for testing and quality assurance. Testronic has also seen more activity of film studios in preparing their websites for movie downloads / direct to customer distribution while two big studios actually had their movie download websites tested by Testronic in the third quarter. Hardware testing continued to grow as producers are currently pushing products into the European TV and home entertainment market. The same pattern holds true for software testing and games testing where Testronic has also started a browser games testing initiative to expand its business. Recent highlights for Testronic include: Digital TV business developed well in the third quarter, especially with German cable operators Increasing workload with film studios in the area of digital distribution, movie downloads, direct to customer Achieving official certification test lab status for SATA 1.4 test specification Good growth in home entertainment consultancy Expanding digital entertainment test lab in response to customer requirements including movie downloads and device interoperability Started work on a six month contract with EA New customers include creators of casual games, providers of video game streaming technology and authoring and encoding service providers for DVD, Blu-ray and video-on-demand (VOD) The market environment in the video games industry remained challenging throughout the third quarter. Sony s Move controller was released in the quarter however the main marketing push will be towards Christmas. The general parameters for the work for hire industry in producing boxed product for retail are basically still the same with sales figures in all major markets weakening. The software segment has been dominated by a few big budget titles like Halo:Reach or FIFA Soccer 11, as well as downloadable games for consoles in addition to handheld devices such as iphone and games on social network sites like Facebook. However, the overall market situation is still putting pressure on margins. In a recent study, NPD Group estimated non-retail video game sales for the first half year 2010 to approx. USD 2.6bn which is about 75% of the USD 3.5bn new software retail market or 40% of the combined new market size of USD 6.1bn. Non-retail video game sales include consumer spending on video games through mobile phones, social networks, digital download, subscriptions and used video games. The majority of these sales are still derived from used video game software. Thus, the market environment provided a difficult framework for Kuju s work for hire business but also indicates the strategic value of establishing Doublesix Digital Publishing (DDP) as a pure play self-publisher of downloadable entertainment software for console, mobile and online platforms. 10 Catalis SE nine months financial report

7 To Our Shareholders Recent highlights for Kuju include: Major critical and commercial success of Art Academy for the Nintendo DS/DSi. The game has sold more than 390,000 units in Japan and the EMEA region in the first 18 weeks on sale. Cubed Three commented on this game: Headstrong Games is renowned for working with Nintendo on the Battalion Wars series, as well as with SEGA on House of the Dead: Overkill. Now it has helped Nintendo transfer the two DSiWare Art Academy games over to a full retail package, and done so in fantastic style. US-release of Lord of the Rings: Aragorn s Quest First social game for Facebook called Office Daze has reached Beta-status New development contracts have been signed in the last 8 weeks with 4 major publishers. These include: o Signing contracts for new versions of Grease with 505 Games o Contract signing for Haunt o Signing of movie franchise game for PS3, Xbox 360 and PC o Signing of a new singing game with a major US customer As recently announced, Doublesix Digital Publishing has been established as a separate entity alongside sister company, Kuju Entertainment, as the group looks to build on its successful self-published digital games strategy. DDP is working on three co-funded self-published new games, including a new compelling space game, a new zombie shooter and Who Wants to be a Millionaire (WWTBAM) special editions with co-branding partners. Outlook In the fourth quarter of 2010, we expect the business of Testronic to slow as the seasonal holiday rush subsides. However, we expect Testronic to improve against the fourth quarter of 2009 and to be profitable in that quarter as well. At Kuju, we also expect to retain profitability on the third quarter level and to end the second half of the year with a better than break-even result. DDP will concentrate on the further build-up and expansion of its pure self-publishing business where the division is currently working on a number of promising own and co-funded titles and is in discussions about several new compelling licences for As DDP was officially constituted in late August 2010, it will be reported as a separate division from the current fourth quarter onwards. A pro-forma breakdown of its performance to date is in this report showing the high margin nature of this new and expanding business area. Following from the above, we expect to retain profitability in the fourth quarter also on the Group level further indicating the successful turnaround of our Group in the second half of this year. Markets remain somewhat unpredictable however, based on the results of the first nine months of 2010 and our expectations for the fourth quarter we expect full fiscal year 2010 revenues of approximately 26.0 m and an EBIT of -1.7 m. In 2011, we currently expect revenues to grow to approximately 29.0 m and an EBIT of 1.5 m. Yours sincerely Jeremy Lewis (Executive Director) Eindhoven, November 16, Catalis SE nine months financial report

8 Management Report

9 Management Report Management Report Introduction Catalis SE yearly financial reporting is based on the International Financial Reporting Standards (IFRS) as adopted by the European Union. The consolidated condensed interim reporting for the nine months ending September 30, 2010 is prepared as an update of the business report focusing on the current reporting period and does not include all the information and disclosures required in the annual report. It should be read in conjunction with the consolidated annual report Management Report Market & Industry Environment Video Games Industry The market environment in the video games industry remained challenging throughout the third quarter. Sony s Move controller was released in the quarter however the main marketing push will be towards Christmas. The general parameters for the work for hire industry in producing boxed product for retail are basically still the same with sales figures in all major markets weakening. The software segment has been dominated by a few big budget titles like Halo:Reach or FIFA Soccer 11, as well as downloadable games for consoles in addition to handheld devices such as iphone and games on social network sites like Facebook. However, the overall market situation is still putting pressure on margins. In the US, total revenues in the industry for the first nine months were down 8.5% to USD 9.5bn. Hardware sales were down 13% to USD 3.1bn while software sales were reduced by 8% to USD 4.9bn. The accessories segment was up approx. 3% to USD 1.5bn. So far, eight out of the past nine months have seen declines in revenues for the video games industry, which is partly due to significant cuts in prices and partly due to a reduced demand for new video game software. In a recent study, NPD Group estimated non-retail video game sales for the first half year 2010 to approx. USD 2.6bn which is about 75% of the USD 3.5bn new software retail market or 40% of the combined new market size of USD 6.1bn. Non-retail video game sales include consumer spending on video games through mobile phones, social networks, digital download, subscriptions and used video games. The majority of these sales are still derived from used video game software. According to NPD, the new approach allows them to assess total consumer spending across the growing number of ways to acquire and experience gaming. Recently, many publishers have started to charge used game purchasers for access to online functions and downloadable content that is included for free with new purchases. Also, the industry has difficulties in capturing accurately the size of the market for social and mobile games, where revenues are often generated from in-game item purchases and downloadable content rather than direct sales. The business information company emarketer has estimated the US mobile gaming market to be worth USD $849 million in 2010, or 55 percent of the overall market for games, video and music on mobiles. In the UK, retail sales of video games software were down 16% to GBP 761.5m according to research report from Chart-Track. However, the industry is expected to generate another GBP 700m over the next three months with a number of multiplatform blockbusters waiting to come into the market: Pro Evolution Soccer, Medal of Honor, Fallout: New Vegas, Wii Party, Just Dance 2, The Sims 3, Gran Turismo 5, Assassin s Creed and Call of Duty: Black Ops. Thus, according to Chart-Track, the UK video games software market is expected to generate just under GBP 1.5bn in 2010 which is a decrease of 9% against the previous year. As for digital sales, Chart-Track figures suggest that such sales accounted for only 4% of the total market in the first half year Ian Shephard, chief executive of UK s leading games retailer GAME commented: It is easy to overstate the magnitude and speed of that change consumers still overwhelmingly prefer to buy video games as physical boxed product and the view of our industry is that this is likely to remain the case for some time. However, even as we are cautious about the speed with which the download revolution will happen, we must be bold in preparing for it. GAME has made investments this year in a wide range of new technologies including mobile apps, digital downloading on the web and even a presence directly in the virtual malls on consoles themselves. But in the end, this statement also leads back to the one fundamental truth in the media industry: Whatever distribution channel will prevail in the future - Content will still be King. On September 30, market research company Enterbrain revealed the sales figures of the Japanese video games industry for the first half of the Japanese financial year (April to September). According to these figures, the overall market was down 13% to JPY 186.6bn (approx. USD 2.2bn). About two thirds of the market was made up from software sales which were 6% lower than in the previous year. The top five of the software market were dominated by Nintendo, lead by Pocket Monsters Black and White that sold 3.4m units in just eight days. The hardware market declined 24% where the Nintendo DS was the best selling gaming device. Thus, the market environment provided a difficult framework for Kuju s work for hire business but also indicates the strategic value of establishing Doublesix Digital Publishing (DDP) as a pure play self-publisher of downloadable entertainment software for console, mobile and online platforms. DVD & Blu-ray According to information from DEG (The Digital Entertainment Group) total US spending on home entertainment film products for the first nine months of 2010 was down 4% from the previous year and amounted to USD 12.6bn. While the DVD segment remained the problem child of the market, the strong positive development of the Blu-ray disc segment continued in the third quarter and the same holds true for the digital distribution channels. Blu-ray disc sales in the first nine months of 2010 were up 80% against the previous year and reached a total of USD 1.0bn. At the same time, combined packaged media sell-through of DVD and Blu-ray discs was down 8%, indicating the poor performance of the DVD segment. The strong electronic sell-through (EST) provides a bit of an improvement here, bringing overall sell-through to a decline of 6%. 16 Catalis SE nine months financial report

10 Management Report Digital distribution channels, including EST and VOD (video-on-demand) is also well established and accounted for 13.5% of overall consumer spending on home entertainment products. EST was up 37% to USD 432m and VOD increased 20% to USD 1.2bn. Thus, in total, digital distribution was up 23% to USD 1.7bn. Blu-ray hardware sales also more than doubled to a total of more than 3.0m units in the first nine months. This brings the total installed base of Blu-ray disc playback devices in the US up to 21.1m units, being proof of the significant future potential of the Blu-ray disc market. In spite of the ongoing steady decline of the DVD segment, the continuous growth of the Blu-ray segment, introduction of 3D in the home, HDTV and the growing digital distribution business provide some promising growth opportunities for Testronic s quality assurance services in the future. Business Development Segment Information Testronic The quality assurance business of Catalis SE is the historical core business of the group and is operated through the company s subsidiary Testronic, which runs the entire quality assurance operations through its internationally located sites. Testronic specialises in quality control of any content (video film, video game, music, software) for any communication medium (DVD, Blu-ray, CD, online, wireless) for all end devices, ranging from DVD and Blu-ray players, personal computers and mobile devices to video game consoles and much more. Testronic is the leading testing service provider active in both the film and game industries. In total, the third quarter of 2010 has been busy for Testronic as many film studios were and still are preparing discs for the upcoming holiday season. They were especially bullish for Blu-ray discs. The 3D segment was also strong and Testronic was working on more than 25 3D Blu-ray projects in the quarter. While Testronic s US business was rather flat, its European operations have seen strong growth in the quarter and have performed much better than in the same period last year. In fact, Testronic has experienced the best quarter in the past two years. Apart from the strong Blu-ray and 3D business, Testronic has also seen a positive development in its other business fields. Home entertainment consultancy has seen strong growth in the third quarter and Testronic expects this trend to continue as customers continue to outsource work previously done by inhouse departments for testing and quality assurance. Testronic has also seen more activity of film studios in preparing their websites for movie downloads / direct to customer distribution while two big studios actually had their movie download websites tested by Testronic in the third quarter. Hardware testing continued to grow as producers are currently pushing products into the European TV and home entertainment market. The same pattern holds true for software testing and games testing where Testronic has also started a browser games testing initiative to expand its business. In the hardware testing and consultancy space, Testronic continued the strong performance of its cable operator and Digital TV business in Europe, especially with its German customers. In terms of new customers, Testronic started to work on a longer term project with EA and has also expanded its relationship with Warner Bros. in Europe as well as in the US where it is working with GDMX, the Warner subsidiary and global leader in digital video compression, DVD and Blu-ray authoring and digital content distribution services. New customers also include GaiKai, provider of a cloud-based gaming technology that allows users to play major PC and console games, and PopCap Games, a creator of casual video games. Due to the increased activity of film studios in the fields of movie downloads / direct to customer, Testronic is expanding its digital entertainment test lab and building on its services to meet customer s new requirements, including device interoperability. Testronic is also evaluating opportunities to push its services up the film and TV value creation chain deeper into the production and post-production space, in order to further broaden its quality assurance approach. As for competition, Testronic is still facing a demanding business environment. However, customers are appreciating the fact that Testronic is offering more value to its clients as a result of their long history in the business and their scope of services. In summary, the third quarter has been the best quarter for Testronic for the past two years and the division is well positioned with its services to benefit from the future developments in the digital media and entertainment market and the further evolving new distribution channels. Kuju The work for hire video games development services business of Catalis SE is undertaken by our Kuju division, one of Europe s leading game developers. Kuju studios develop all genres of video games for a variety of consoles, PC and handheld platforms. In the third quarter of 2010, the market environment for Kuju s work for hire development services remained challenging as the market was dominated by only a few big titles like Halo: Reach and FIFA Soccer 11. Nonetheless, Kuju has seen some good success with both its finished work and the signing of new contracts. On top of this list is the critical and commercial success of Art Academy for the Nintendo DS/DSi. The game has already sold more than 390,000 units in Japan and the EMEA region in the first 18 weeks on sale and other markets are yet to come. Cubed Three commented on this game: Headstrong Games is renowned for working with Nintendo on the Battalion Wars series, as well as with SEGA on House of the Dead: Overkill. Now it has helped Nintendo transfer the two DSiWare Art Academy games over to a full retail package, and done so in fantastic style. 18 Catalis SE nine months financial report

11 Management Report The majority of recently signed contracts in Kuju were with existing customers indicating the strong relationship between developer and publisher that has been built up over many years. In total, Kuju has successfully adjusted to the difficult market conditions in the work for hire business and is continuously delivering high quality titles increasing the likelihood of repeat business and fostering long term relationships. Doublesix Digital Publishing (DDP) Doublesix Digital Publishing is the most recent division of Catalis SE and addresses the Group s activities in the development and distribution of self-published digital games. As recently announced, DDP has been established as a separate entity alongside sister division, Kuju Entertainment, as the Group looks to build on its successful self-published digital games strategy. In the third quarter of 2010, DDP was working on a number of new titles, including the Who Wants to be a Millionaire special editions together with co-branding partners, a new compelling space game and a zombie shooter. Moreover, DDP is already in discussions about several new compelling licences for the fiscal year Investments Total investments in the first nine months of the fiscal year amounted to 0.8m and were attributable to the purchase of property, plant and equipment. At Testronic, investments in the third quarter comprised mainly testing equipment for video games and hardware. At Kuju and DDP there were no significant investments in the purchase of property, plant and equipment in the third quarter. Development of Earnings, Financial and Asset Situation Earnings Situation Catalis Group In the third quarter of 2010, total revenues of Catalis Group amounted to 7.7m (2009: 8.2m). This represents a decrease of 6.5% from the previous year which is due to further reduced revenues at Kuju whereas Testronic has experienced a significant increase in revenues. EBIT (operating result) for the reporting period before non-recurring costs amounted to 0.7m (2009: 0.3m). Non-recurring costs amounted to 0.2m resulting from further adjustments at both Kuju and Testronic. EBIT after these costs was 0.5m (2009: 0.3m). Taking into account a financial result of -0.1m, the company s pre-tax result amounted to 0.4m compared to 0.2m in the previous year. Net income for the period amounted to 0.4m (2009: 0.2m). This equals earnings per share of 0.01 (2009: 0.00). Thus, Catalis Group has successfully returned to profitability in the third quarter For the first nine months of 2010, revenues of Catalis Group amounted to 19.7m (2009: 25.3m). This is a decrease of 22.1%. EBIT before non-recurring costs was down to -1.2m (2009: 1.0m). Non-recurring costs amounted to 0.7m (2009: 1.4m) resulting from structural and organisational adjustments at Kuju and Testronic. Including these costs, EBIT was -1.9m (2009: -0.4m). Including the financial result of -0.3m (2009: -0.4m), pre-tax earnings amounted to -2.2m (2009: -0.8m). Net income for the period amounted to -2.2m (2009: -0.7m). Earnings per share for the first nine months of the fiscal year 2010 amounted to (2009: -0.02). Testronic Testronic has seen revenues for the third quarter of 2010 move up from 3.6m to 4.4m. This represents an increase of 21.1% which is due to a consolidation of the DVD testing business and the strong development of Testronic s European business. Testronic generated an EBIT before non-recurring costs of 0.8m (2009: 0.5m). Non-recurring costs amounted to 0.1m (2009: 0.0m). EBIT after such costs was 0.7m (2009: 0.5m). For the first nine months of 2010, revenues at Testronic amounted to 9.9m (2009: 10.1m), a decrease of 2.1% from the previous year. Testronic s EBIT before non-recurring costs for the first nine months of 2010, amounted to 0.6m (2009: 0.9m). Non-recurring costs amounted to 0.1m (2009: 0.8m). EBIT after such costs was 0.5m (2009: 0.1m). Kuju In the third quarter of 2010, Kuju generated revenues of 3.3m (2009: 4.6m), representing a decrease of 28.5%. EBIT before non-recurring costs for the period showed a profit and amounted to 0.1m (2009: 0.1m). Including non-recurring costs of 0.1m, EBIT was just positive at 0.0m (2009: 0.1m). In the first nine months of 2010, Kuju generated revenues of 9.8m (2009: 15.2m), representing a decrease of 35.5%. Kuju s EBIT before non-recurring costs for the first nine months of the fiscal year 2010 amounted to -1.1m (2009: 1.0m). Including non-recurring costs of 0.6m (2009: 0.6m), EBIT was -1.7m (2009: 0.4m). DDP The formation of the new DDP division was announced on 31 August 2010 and in the period to 30 September the company incurred certain overhead costs and costs relating to its set up. The division is currently working on three new co-funded self-published video games, including a space game, a zombie shooter and Who Wants to be a Millionaire (WWTBAM) which in addition to a Classic edition will include special editions with co-branding partners. In accordance with IAS 38, the recognition of the costs and revenues associated with these titles is deferred and will commence on their first commercial release and will take place over the expected commercial life-span of the games. The first of these games is scheduled for release in 2011 and therefore no costs or revenues will be recognised in respect of WWTBAM or the other two titles until then. 20 Catalis SE nine months financial report

12 Management Report The group undertakes periodic impairment tests on the carrying value of the underlying intangible assets created in these titles in accordance with IAS 38 and where necessary, provisions against the recoverability of the assets will be made. In addition to the three games described above the division is also working on Office Daze, a new Facebook game, however since this will be the Group s first release on a social networking platform, all of the costs associated with this title have been expensed as incurred. The Board have prepared pro-forma income statements showing what the financial performance of the DDP division would have been, had it have been in existence from 1 January, These include the revenues from self-published titles generated in the period and the costs and overheads associated with those titles and with the self-publishing activities in the period. Prior to the establishment of the DDP division these costs and revenues were recognised fully in the reported results of Kuju Entertainment Ltd for the period in question. In 2010 the revenues and costs associated with a smaller- budget release, Chime, are shown along with the investment in Office Daze for Facebook and the minor continuing costs and revenues on Burn Zombie Burn, a game that was released in Therefore, revenues attributable to DDP as of September 30, 2010, amounted to 0.2m whereas total costs incurred also amounted to 0.2m. Thus the operating profit at DDP for the first nine months of the fiscal year 2010 amounted to 0.0m. Based on the above explanations, the following table provides a pro-forma segment overview for the fiscal year In future quarterly reporting we will report on DDP as a separate entity. Pro-forma Segment Overview k Testing WFH Games DDP Corporate Total Nine months to September 2010 Revenues from external customers 9,890 9, ,678 Operating profit (EBIT) 612 (1,135) 41 (750) (1,232) Non-recurring costs EBIT after non-recurring costs 508 (1,733) 41 (750) (1,934) EBIT margin % 5.1 (18.0) 22.8 (9.8) Financial Situation Cash flow In the first nine months of the fiscal year 2010, Catalis Group generated an operating cash flow of -1.4m (2009: -0.0m). This is mainly composed of the period s net income ( -2.2m), depreciation of tangible fixed assets ( 0.9m) and an increase in current assets ( -0.3m). Cash flow from investing activities amounted to -0.8m (2009: -1.4m) and is attributable to the purchase of property, plant & equipment resulting from testing equipment. Cash flow from financing activities amounted to 0.0m (2009: 0.5m). Taking into account effects from currency translations, the company s total cash flow in the first nine months of 2010 amounted to -1.7m (2009: -0.9m), resulting in a net cash position at the end of the reporting period of -1.7m. Due to the low cash position, all cash ratios for the Group are substantially below their target values. Nonetheless, Catalis Group has managed its cash position prudently and is still within its facilities. Asset Situation Balance Sheet As of September 30, 2010, total assets of Catalis Group amounted to 27.3m. This is a slight decrease from the 27.7m at December 31, The company s fixed assets decreased slightly to 18.9m (2009: 19.1m). This is mainly due to reduced property, plant & equipment, now amounting to 2.1m (2009: 2.2m). Current assets also decreased from 8.6m at the end of 2009 to 8.4m at the end of September This is mainly due to reduced other current assets ( 4.0m vs. 4.4m) while trade receivables were up from 2.8m to 3.5m. Cash and cash equivalents were down from 1.1m to 0.6m. On the equity and liabilities side, the company s total equity decreased from 14.1m to 12.5m. This equals 0.33 per share (2009: 0.37), based on the number of shares outstanding of 37,878,999 (2009: 37,878,999). This development reflects mainly the negative income for the period. Long term liabilities were stable at 0.2m. Current liabilities increased from 13.4m to 14.7m. Here, trade and other payables were down from 3.8m to 3.6m and the bank overdraft increased to 2.3m (2009: 1.1m), while liabilities from taxes and social securities were up from 0.6m to 1.9m and loans were reduced from 6.4m to 5.5m. 22 Catalis SE nine months financial report

13 Management Report Employees As of September 30, 2010, there were 353 ( : 408) permanent employees working for Catalis Group. The total is composed of 207 ( : 212) employees working at Testronic and 144 ( : 194) at Kuju as well as two employees ( : 2) at Catalis SE. In general, the permanent work force of both Testronic and Kuju has been reduced significantly over the past quarters with the intention to have a highly flexible work force with minimal fixed costs. As Kuju had to cope with some excess capacity in the first nine months of the year 2010, the work force has been further reduced. We expect the work force to remain stable until the end of the year. Supplementary Report There are no important events to be reported after the balance sheet date. Risk Report Within the scope of its operating activities in a variety of markets, Catalis SE is exposed to various risks connected with technological, entrepreneurial and investment transactions. A full risk report can be found in our Annual Report for the fiscal year The report is available for download on our corporate website at in the investor relations / financial publications section. Management Statement We declare, pursuant to section 5:25d of the Wet op het financieel toezicht (Wft), that to the best of our knowledge and in accordance with the applicable reporting principles: the condensed consolidated interim financial statements as of September 30, 2010 give a true and fair view of the assets, liabilities, the financial position and the profit and loss of Catalis SE and its consolidated operations; and the management report includes a true and fair review of the position as per September 30, 2010 and of the development and performance during the first nine months of the fiscal year 2010 of Catalis SE and its related participations of which the data have been included in the financial statements, together with a true and fair presentation of the expected future developments. Eindhoven, November 16, 2010 The Board of Directors: Dr. Jens Bodenkamp (Chairman, Non-Executive) Jeremy Lewis (Executive) Dr. Michael Hasenstab (Non-Executive) Robert Kaess (Non-Executive) Dominic Wheatley (Non-Executive) 24 Catalis SE nine months financial report

14 Management Report Directors Holdings As of September 30, 2010, the following number of shares and options is held by the directors of the company: Shareholder Jens Bodenkamp 89,167 0 Jens Bodenkamp Audit Statement Chairman of the Board Jeremy Lewis 177,235 1,100,000 Jeremy Lewis Executive Director Dr. Michael Hasenstab No. of Options Controlled Function Shares by 50,000 0 Dr. Michael Hasenstab Non-Executive Director Robert Kaess 50,000 0 Robert Kaess Non-Executive Director Dominic Wheatley 50,000 0 Dominic Wheatley Non-Executive Director The interim financial report for the nine months ended September 30, 2010, consists of the condensed consolidated interim financial statements, the interim management report and responsibility statement by the company s Board of Directors. The information in this interim report is unaudited. Our group auditor has neither performed an audit nor a review of these financial statements. Forecast Report In October 2010, the International Monetary Fund (IMF) published its new World Economic Outlook. Principally, the IMF points out that the global economic recovery is proceeding as expected, which is mainly due to growing inventories and fixed investments. However, low consumer confidence as well as reduced household incomes and wealth are holding private consumption down in many advanced economies. Generally, the recovery is doing much better in emerging and developing countries than in the advanced economies which can also be seen from growth projections of 2.7% (advanced economies) and 7.1% (emerging and developing countries) respectively. In the fourth quarter of 2010, we expect the business of Testronic to slow as the seasonal holiday rush subsides. However, we expect Testronic to improve against the fourth quarter of 2009 and to be profitable in that quarter as well. At Kuju, we also expect to retain profitability on the third quarter level and to end the second half of the year with a better than break-even result. DDP will concentrate on the further build-up and expansion of its pure self-publishing business where the division is currently working on a number of promising own and co-funded titles and is in discussions about several new compelling licences for As DDP was officially constituted in late August 2010, it will be reported as a separate division from the current fourth quarter onwards. A pro-forma breakdown of its performance to date is in this report showing the high margin nature of this new and expanding business area. Following from the above, we expect to retain profitability in the fourth quarter also on the Group level further indicating the successful turnaround of our Group in the second half of this year. Markets remain somewhat unpredictable however, based on the results of the first nine months of 2010 and our expectations for the fourth quarter we expect full fiscal year 2010 revenues of approximately 26.0 m and an EBIT of -1.7 m. In 2011, we currently expect revenues to grow to approximately 29.0 m and an EBIT of 1.5 m. 26 Catalis SE nine months financial report

15 Financial Information

16 Financial Information Financial Information Condensed Consolidated Statement of Financial Position of Catalis Group (unaudited) as of September 30, 2010 and December 31, 2009 k ASSETS Current Assets Cash and cash equivalents 640 1,100 Trade receivables 3,517 2,817 Income tax receivable Other current assets 3,950 4,366 Total Current Assets 8,391 8,567 Non-Current Assets Intangible assets Goodwill 13,461 13,461 Property, plant and equipment at cost - net 2,068 2,246 Deferred tax 3,312 3,312 Total Non-Current Assets 18,910 19,148 TOTAL ASSETS 27,301 27,715 LIABILITES & EQUITY Current Liabilities Trade and other payables 3,623 3,779 Taxes and social securities 1, Income tax payable Provisions 1,242 1,242 Bank overdraft 2,296 1,084 Loans 5,540 6,420 Finance lease Total Current Liabilities 14,654 13,415 Non-Curent Liabilities Finance lease obligation Deferred tax liability Total Non-Current Liabilities Total Equity 12,460 14,113 TOTAL LIABILITIES & EQUITY 27,301 27, Catalis SE nine months financial report

17 Financial Information Condensed Consolidated Income Statement of Catalis Group (unaudited) for the periods ended September 30, 2010 and September 30, 2009 k Q Q M M 2009 Revenues 7,691 8,224 19,678 25,275 Total revenues 7,691 8,224 19,678 25,275 Subcontracting and cost of materials ,811 2,727 Personnel costs 4,621 5,421 14,205 16,824 Depreciation fixed assets ,054 Amortisation intangible assets Impairment of goodwill General and administration 1,564 1,427 4,598 4,984 Total expenses 7,185 7,912 21,612 25,662 Profit/ loss from operations (1,934) (387) Interest income Interest expense (67) (130) (232) (390) Currency translation difference (33) (68) Total financial income (100) (130) (300) (390) Income tax 0 (25) Profit for the period (2,234) (677) 32 Catalis SE nine months financial report

18 Financial Information Condensed Consolidated Cash Flow Statement of Catalis Group (unaudited) for the periods ended September 30, 2009 and 2010 k Cash Flow from operating Activities Net Income (2,234) (677) Depreciation of tangible fixed assets 938 1,054 Amortisation intangible assets Change in provisions 0 0 Change in share based payment Change in current assets (284) 310 Change in current liabilities 27 (882) Change in deferred taxes 0 (100) Net cash (used in) / provided by operating activities (1,433) (43) Cash Flow from investing activities Purchase of property, plant & equipment (760) (1,397) Net Cash (used in) / provided by investing actitivies (760) (1,397) Cash Flow from financing activities Proceeds from issuance of share capital 0 1,349 Change of long term debt 0 (833) Net Cash (used in) / provided by financing activities Net effect of currency translation in cash and cash equivalents Net Increase in cash and cash equivalents (1,672) (924) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of period (1,656) (746) 34 Catalis SE nine months financial report

19 Additional Information

20 Additional Information Additional Information Forward-looking Statements This report contains forward-looking statements. These statements are based on current expectations, estimates and projections of Catalis SE management and information currently available to the company. The statements involve certain risks and uncertainties that are difficult to predict and therefore Catalis SE does not guarantee that its expectations will be realized. Furthermore, Catalis SE has no obligation to update the statements contained in this report. Imprint Issuer: Catalis SE Headquarters Geldropseweg SJ Eindhoven Netherlands t +31 (0) f +31 (0) info@catalisgroup.com Layout 38 Catalis SE nine months financial report