CI Games — Strategic roadmap to 2028

CI Games’ H124 results showcased the success of the LotF 2023 release. Net revenues were up 162% to PLN58.3m (H123: PLN22.2m), with LotF accounting for 72% of revenues, SGW Contracts 2 accounting for 14% of revenues, 4% from United Labels and the remaining 10% generated from back catalogue titles. The quality of CI Games’ back catalogue (particularly SGW Contracts 2) continues to support sales throughout the long tail. Higher amortisation from both LotF and SGW Contracts 2 resulted in a lower gross margin of 29.3% (H123: 61.1%). However, due to the ramp up in marketing expenses related to the release of LotF in the prior period, selling costs in H124 were substantially lower. Reflecting the higher amortisation charges relating to LotF, EBITDA came in above gross profit at PLN38.0m (H123: loss of PLN0.2m), at a margin of 65.1% (H123: negative 0.9%).

Operating cash flows benefited from the higher profitability in the period, although there was a working capital outflow as the conversion of trade receivables into cash was more than offset by a higher fall in trade payables. Net debt fell from PLN46.3m in H123 to PLN33.8m in the period as CI Games repaid two bank facilities worth PLN30.9m and drew down on a new overdraft facility of PLN15m.

The focus of the results was on CI Games’ updated strategy, which the company outlined for 2025–28, with a major release planned for each year from 2026 to 2028. Management has reorganised its structure to create a more efficient model within its studio teams to generate operational leverage and a greater return on investment, while utilising data-driven insights to ensure its major releases are player-focused. CI Games also outlined how it would finance the roadmap, through co-publishing or co-distributing partnerships, alongside existing operating cash flows and greater efficiencies.

CI Games plans three product releases from 2026 to 2028, shifting from its original product timeline of a release of Project Survive in 2025, as the company focuses on its core existing IP and new ARPG. The releases will be put through CI Games’ new player-first development approach, whereby the game in development will be tested at every stage for consumer insights and appeal. These data-driven, actionable insights will then be fed back to the development team. This should give rise to games that are more appealing to a wider range of engaged players and that will include additional features, such as difficulty settings.

The new games will utilise Epic’s Unreal Engine 5 (UE5), which will enable next-generation graphics and realistic physics simulation. Although LotF sales in 2023 suffered initially from UE5 compatibility issues with legacy hardware, CI Games has been working closely with NVIDIA and Advanced Micro Devices to improve UE5 optimisation. The company should be able to leverage the experience of producing a game on UE5 for these upcoming titles.

The first product launch, scheduled for 2026, is provisionally named Project III. This is the next iteration of the LotF franchise, CI Games’ own IP, which sold 1.3m units at end-FY23 following its major release in the year. The game is in full production through the company’s internal studio, Hexworks, which was launched in 2020 to specialise in the soulslike genre. Building on the 2023 LotF, Project III will look to appeal to a broader audience through greater optionality and accessibility. From a game development perspective, the new title will focus on a more commercial style and narrative, as well as elevated production values. The title will also have a full shared progression co-op player campaign alongside a single player campaign, a new feature from the single player-only format of the 2023 LotF.

Importantly, CI Games announced in June that Epic Games, the developer and publisher of Fortnite, had signed a binding term sheet for the global exclusive distribution rights for the PC version of Project III. While no commercial terms have been disclosed, previous exclusivity agreements between developers and Epic would indicate a significant upfront commitment alongside a profit share. The production budget for Remedy Entertainment’s Alan Wake II was a reported €50m, following an exclusive agreement with Epic. While we do not believe the commitment from Epic will be this exact figure, there will be a significant upfront investment from Epic, which would help to finance the development of the game. This upfront investment would be recognised in FY26. Aside from financing, the deal with Epic is significant from a technological perspective as Epic owns UE5 and will be able to support the game through its development. This should enable the studio team to leverage the full potential of the engine by working closely with the Epic team.

The 2023 LotF release cost PLN178m (c US$44m) to produce, with an additional PLN81.5m (c US$20m) spent on a marketing a campaign that was 2.7x larger than that of CI Games’ previous largest title. The expected marketing spend for Project III will be substantially lower owing to management’s more streamlined approach, which is discussed later in this report. Coupled with this, the launch will be the second iteration of the LotF franchise, so CI Games will be marketing to an already engaged fanbase following the successful global awareness created with the 2023 launch.

CI Games’ second launch will be Project SGW Evolved, targeted for release in 2027. The game will be developed by CI Games alongside a partner studio and it is currently in the pre-production phase. Project SGW Evolved is the next release within the SGW franchise and is another example of CI Games leveraging its existing IP. The Project Survive game that was originally scheduled for release in 2025 has been rescheduled for a later date, although many of its components have been utilised within Project SGW Evolved. Management believes this will speed up the development of this project.

The final product launch CI Games has signposted is Project H, scheduled for release in 2028. Project H will be a new ARPG IP, focused on a commercial fantasy genre, and management believes it could be the largest release for the company. This release will be produced by CI Games’ internal studio, Underdog Studio. The project is in the pre-production phase, with a fully qualified vertical slice expected in mid-2026. Management’s new cross-studio talent sharing structure will mean that the initial production team will be relatively lean. However, once Project III is released, the team will be bolstered by developers from Hexworks, who will join the project.

Alongside its main releases, CI Games will continue to be supported by its indie publisher, United Label, as well expanding into new media forms to widen its audience base. These could include licensing its IP in new formats (eg mobile, virtual reality), new media (eg film, TV) and other entertainment products (eg books, table-top games).

United Label is CI Games’ indie publisher. Indie games are lower-budget titles created by small independent development teams. The company has historically focused on a low number of quality indie games, with three previous titles (Röki, Tails of Iron and Eldest Souls) released in FY21. United Label published a new title, Beyond Galaxyland in September and will publish a Tails of Iron 2 sequel in the next six months. CI Games is targeting for United Labels to release one to three high-quality titles a year, with the publisher already signing a third Tails of Iron game and a new IP from an Argentinian studio.

CI Games is exploring the potential to partner with strong IP, bringing its proven development expertise and re-purposing its existing franchise engines and technology to create a game based around the new IP.

Project Expand looks to capitalise on the success of the company’s games by licensing its own IP to external partners (eg CD Projekt’s The Witcher). Although CI Games has no firm plans, options could include taking existing IP to new formats (eg mobile, VR), as well as potentially to new media (eg film, TV) or into other entertainment products (eg table-top games, books). Companies such as Rebellion have been very successful with such multimedia strategies.

One of management’s focus areas is on efficiencies to drive operational leverage with the same cost base. The company has created a Development Management & Support Office, led by Tom O’Connor, senior vice president of development, who was appointed in June. Tom previously worked at Tencent Games and PlayStation on some of their leading franchises. The office will have a centralised team, with all CI Games studios and projects reporting to it (Exhibit 2).

The updated model will allow for a greater level of cross-studio talent and knowledge sharing as the studios become more agile in supporting CI Games’ various products. For example, management plans to move members of the Hexworks team across to Underdog for the development of Project H once Project III is in the off-ramp phase. Management believes the ability to re-allocate talent will reduce project fatigue as developers move on to fresh projects, while remaining within its core genre of ARPG or first-person shooter games.

CI Games expects the new centralised model to generate efficiencies through improvement in quality, as well as predictability.

CI Games’ marketing spend on its 2023 LotF title was PLN81.5m (c US$20m), significantly higher than any previous release. Having driven a large marketing campaign, management believes it can leverage the global awareness of the franchise to deliver more streamlined and efficient marketing. The company will use the lessons taken from this release, coupled with more data-driven advertising, to drive better engagement and more cost-efficient advertising spend.

Management expects to fund the strategy through three avenues: operating cash flows, further partnerships (such as the Epic Games exclusive distribution deal) and increasing the level of debt.

With the new organisational structure, there should be an improvement in operating cash flows due to better cost efficiencies.

Potential partnerships, such as the Epic deal for Project III or the Microsoft agreement to have LotF and SGW Contracts 2 on Game Pass, provide capital for the development of future games. Highlighting the potential bridge financing these partnerships can provide, management cited the Epic Games deal as the reason for not continuing with the capital raise announced in March 2024, which would have raised c PLN55m.

Finally, having opened a one-year PLN15m credit facility with Powszechna Kasa Oszczędności Bank Polski in April to provide sufficient liquidity, management believes it has the headroom to raise additional debt. CI Games has previously held a higher level of debt on the balance sheet, including in FY23 when total debt was PLN60.1m, versus PLN45.2m at end-H124.