G5 is one of the companies in this sector most affected by the war in Ukraine, with ~50% of the workforce in Ukraine and an additional ~40% in Russia. After speaking with the CFO today, our assessment is that most people in Ukraine are not working, but many still do, especially people in management positions. Importantly, the functions based in Ukraine are customer support, back office (HR, Finance etc.) and quality testing. These are important functions long-term but not to essential to the near-term development. The UA and marketing divisions are based in Russia. Moreover, the company said that costs could increase as employees in Ukraine have received advanced salaries and bonuses as support for relocation to safer areas. This will be mitigated by lower salaries in Russia, however, that are based in Ruble and not pegged to USD.
Allocating resources to focus on top games: 75% of sales
In its comment last week, that it reiterated today, G5 assesses that it can re-allocate resources to continue developing and maintaining its largest games, which we find encouraging. Hidden City, Sherlock and the Jewels of family constituted ~75% of sales in Q4’21. Other games will continue to generate revenues as well but may lose some activity over time.
Waiting with buybacks, for now
Our assessment is that G5 is tempted to do buybacks at these levels but are waiting for now. It could be interpreted as the company want funds available until the dust settles and the visibility improves, which we find reasonable. This could of course change very quickly. In a worst-case scenario, where G5 can no longer operate in Russia, it would need the funds to move personnel from Russia or acquire/hire new staff elsewhere. In this scenario we understand that it would want to act from a position of strength.
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