REG - Frontier Developmnts - FY23 Interim Results
19/01/2023 07:00
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RNS Number : 1884N Frontier Developments PLC 19 January 2023
Frontier Developments plc
FY23 Interim Results
Frontier Developments plc (AIM: FDEV, 'Frontier', the 'Company', or the
'Group'), a leading developer and publisher of video games based in
Cambridge, UK, publishes its unaudited interim results for the 6 months to 30
November 2022 ('H1 FY23').
Financial Headlines
H1 FY23 H1 FY22 FY22
(6 months to 30 November 2022) (6 months to 30 November 2021) (12 months to 31 May 2022)
Revenue £57.1m £49.1m £114.0m
Operating profit/(loss) £6.9m (£1.3m) £1.5m
EBITDA* £19.1m £14.1m £41.1m
Adjusted EBITDA** (£0.6m) (£0.9m) £6.7m
EPS (basic) 17.2p (4.2p) 24.6p
Net cash balance at period end £42.6m £33.6m £38.7m
*Earnings before interest, tax, depreciation and amortisation.
** Adjusted EBITDA is earnings before interest, tax, depreciation and
amortisation charges related to game developments and Frontier's game
technology, less investments in game developments and Frontier's game
technology, and excluding share-based payment charges and other non-cash
items.
· Revenue increased by 16% over the comparative period to £57.1 million
(H1 FY22: 49.1 million) through the release of F1® Manager 2022 in August
2022, ongoing sales of the current portfolio and new PDLC (paid-downloadable
content) for existing games
· Gross profit margin of 63% was consistent with the comparative period
(H1 FY22: 63%), underpinned by the continued contribution from the existing
portfolio
· Net R&D expenses reduced by £2.5 million to £16.1 million (H1
FY22: £18.6 million) mainly as a result of the full amortisation of Elite
Dangerous: Odyssey during FY22
· Operating profit rebounded to £6.9 million (H1 FY22: a loss of £1.3
million) through a combination of a higher revenue and lower R&D costs
· Adjusted EBITDA, a measure of cash profit, remained as a small net
outflow (an outflow of £0.6 million versus an outflow of £0.9 million in H1
FY22), reflecting continued investment in future titles and support for
existing games
· Net cash balance was £42.6 million at 30 November 2022 (31 May 2022:
£38.7 million). Net cash grew by £3.9 million during the period despite an
£8.8 million cash outflow in November 2022 for the acquisition of Complex
Games
Operational & Strategic Headlines
· Frontier's develop, launch and nurture strategy continues to deliver
material annual revenue from each game over many years
o As expected, the strongest performers in FY23 to date from our existing
portfolio are Jurassic World Evolution 2 and Planet Zoo, which continue to be
supported with free updates and multiple PDLC packs
o Jurassic World Evolution 2, which released in November 2021, delivered £73
million in its first 14 months (to 31 December 2022), which is 96% of the
revenue achieved by 2018's Jurassic World Evolution in its first 14 months
(£76 million)
o Planet Zoo, launched in November 2019, continues to contribute strong annual
sales, with revenue in CY2022 at 82% of the revenue recorded in CY2021
o As reported in the trading update on 9 January 2023, sales performance
during key price promotions in December 2022 (after the reported period) fell
below expectations, with some evidence of increased player price sensitivity
adversely impacting sales across the portfolio
· F1® Manager 2022, the first annual title in a major new sports
franchise for Frontier, was released at the end of August 2022;
o Player engagement at release in August 2022 and during the initial period
after release was strong, and broadly in-line with original expectations
o Over 600,000 units have been sold to date across PC, Xbox and PlayStation,
including both digital and physical unit sales on console
o Metacritic ratings are between 74 and 80 across the three platforms
o Unfortunately, sales performance during key holiday season price promotions
(after the reported period) fell materially below original expectations, as
reported in the trading update on 9 January 2023, potentially due in part to
increased player price sensitivity related to worsening economic conditions
o F1® Manager 2022 remains a good first game in an important new annual
franchise for Frontier
o We will continue to enhance the F1® Manager franchise over the coming years
on the solid foundations provided by the first game
· We are assessing our strategy for Frontier Foundry, our games label for
third-party publishing;
o Foundry has supported eight different games to date, with six released games
and two titles launching in the next few months
o Given our mixed financial success to date and in the context of increased
competition in the third-party publishing market, we are assessing our
strategy for Foundry. In particular, we are focussing on return on investment
o Whilst we remain committed to, and excited by, the titles currently in
development for release in FY23, we currently do not have any Foundry titles
scheduled for release in FY24, although we will continue to earn revenue from
titles released prior to FY24
o The assessment of the strategy for Foundry is expected to complete by the
end of May 2023
Current Trading and Outlook
Following a lower sales performance in December than expected, and the ongoing
assessment of Foundry, the Board reset its financial expectations for FY23 and
FY24 in a trading update on 9 January 2023.
The outturn over the five remaining months of this financial year is dependent
on a number of variables, including the timing and contribution from the
scheduled Foundry releases and the macro-economic environment. The Board
believes it is still possible to surpass last year's record revenue
performance of £114 million, particularly if one of the upcoming Foundry
titles is a conspicuous success. However, given the number of variables and
the more challenging economic outlook, the Board have set a minimum
expectation of delivering revenue of not less than £100 million in FY23.
The Board's expectation for revenue for FY23 of £100 million to £114
million, would deliver an IFRS operating profit in the range £2 million to
£10 million.
The Board has set its expectations for FY24 revenue growth at 5% above the
eventual revenue outcome for FY23, in light of current market and portfolio
uncertainties, and the absence of new titles from Foundry releasing in FY24.
FY24 will benefit from the release of our Warhammer Age of Sigmar real-time
strategy game and F1® Manager 2023.
For FY25 we have two new game releases planned, with F1® Manager 2024 plus an
own-IP creative management simulation game.
Jonny Watts, Frontier's CEO, said
"I would like to thank our teams for their hard work and dedication during a
busy 2022 for Frontier. During the first half of the financial year our game
portfolio performed largely in line with expectations. However, the key
December trading period was below expectations and we believe this was partly
due to increased player price sensitivity.
As we look forward, there are important lessons we have learned for the F1®
Manager franchise, including making the game more accessible and engaging to a
wider audience. I am confident that we have delivered a good first game to
build upon.
We have announced a review of Frontier Foundry, which we expect to complete by
the end of the financial year, as a result of the financial challenges and
competition for that third-party publishing business model. We continue to
look forward to the releases of Deliver us Mars and The Great War: Western
Front in the next few months. They offer upside potential but we are being
cautious given our experience of the market in December.
Our Warhammer Age of Sigmar real-time strategy game remains on track for
release in FY24 and I look forward to sharing more details in due course.
Overall we believe our core strategy remains sound. We have a strong portfolio
of good games and a large and talented team of people. We will continue to
work together to navigate our challenges and deliver on our opportunities."
There will be a call for analysts and institutional investors at 9:30a.m.
today. To register please contact frontier@tulchangroup.com
Enquiries:
Frontier
Developments +44
(0)1223 394 300
Jonny Watts, CEO
Alex Bevis,
CFO
Liberum - Nomad and Joint
Broker +44
(0)20 3100 2000
Neil Patel / Cameron Duncan
Jefferies - Joint
Broker +44
(0)20 7029 8000
Philip Noblet / William Brown
Tulchan
Communications +44
(0)20 7353 4200
Matt Low / Mark Burgess / Alex Dart
About Frontier Developments plc
Frontier is a leading independent developer and publisher of videogames
founded in 1994 by David Braben, co-author of the iconic Elite game. Based in
Cambridge, Frontier uses its proprietary COBRA game development technology to
create innovative genre-leading games, primarily for personal computers and
videogame consoles. As well as self-publishing internally developed games,
Frontier also publishes games developed by carefully selected partner studios
under its Frontier Foundry games label.
Frontier's LEI number: 213800B9LGPWUAZ9GX18.
www.frontier.co.uk (http://www.frontier.co.uk/)
Interim Results Statement
REVENUE
Total revenue in H1 FY23 grew to £57.1 million, 16% ahead of the comparative
period (H1 FY22: £49.1 million). Two-thirds of revenue in the period was
generated by existing games which had been released before June 2022, with
one-third of revenue coming from new games released in the period, namely F1®
Manager 2022 and Foundry title Stranded: Alien Dawn.
Ongoing material revenue contributions from the genre-leading games in the
existing portfolio shows the strength of Frontier's develop, launch and
nurture strategy. As expected, the strongest performers in the period from the
existing portfolio were Jurassic World Evolution 2 and Planet Zoo, which were
both supported with free updates and multiple PDLC packs. During 2022,
Jurassic World Evolution 2 benefitted from two large expansions inspired by
the content and themes from the June 2022 release of the Jurassic World
Dominion film, with the Jurassic World Evolution 2: Dominion Biosyn Expansion
in June 2022 (H1 FY23) and the Jurassic World Evolution 2: Dominion Malta
Expansion in December 2022 (H2 FY23). Across the whole portfolio, PDLC
accounted for 30% of total revenue in H1 FY23 (H1 FY22: 25%).
COSTS AND PROFITABILITY
Gross profit grew to £36.1 million in the period (H1 FY22: £30.8 million)
through the increased level of sales, with the gross profit margin percentage
maintained at 63% (H1 FY22: 63%) as a result of the strong performance of the
existing portfolio. Frontier's gross margin percentage tends to vary between
periods based on the revenue mix of own-IP games, licenced-IP games and
Foundry titles.
Gross research and development expenses in the period increased by 16% to
£25.9 million (H1 FY22: £22.2 million). The increase was driven by the
continued rise in people costs to support Frontier's development plans,
including headcount growth. Partly offsetting the increased investment in
internal people costs, was a planned reduction in outsourced development
costs. Significant outsource costs were incurred during the development of
F1® Manager 2022, mainly during FY22, to deliver the large number of assets
required for the twenty-two circuits which featured during the 2022 F1®
season. The Group will continue to benefit from this initial investment, as
the majority of those assets will be utilised in future F1® Manager titles.
Capitalisation of development costs on game developments and Frontier's game
technology accounted for £18.4 million in the period (H1 FY22: £15.8
million). The percentage of gross research and development costs which were
capitalised was maintained at 71% (H1 FY22: 71%). Providing free updates and
content post-release is an important element of Frontier's nurturing strategy,
generating return on investment. Development costs for free updates and
content are expensed as they are incurred, with only development cost for
chargeable content being capitalised. During H1 FY23, free updates and content
were developed and released for Jurassic World Evolution 2, Planet Zoo, and
Elite Dangerous, often alongside chargeable content. Frontier's normal
expectations for capitalisation is 70-90% of gross development spending.
R&D amortisation charges related to previously capitalised game
developments and Frontier's game technology reduced to £8.6 million (H1 FY22:
£12.2 million). Charges in H1 FY22 included a full six months of
amortisation for major expansion Elite Dangerous: Odyssey (a May 2021 release)
which temporarily boosted amortisation charges. Elite Dangerous: Odyssey was
eventually fully amortised in FY22, with additional charges being recorded in
H2 FY22.
As a result of the lower level of amortisation charges in H1 FY23 versus the
comparative period, net research and development expenses as recorded in the
Income Statement fell by 14% to £16.1 million (H1 FY22: £18.6 million),
being gross spend of £25.9 million, less capitalised costs of £18.4 million,
plus amortisation charges of £8.6 million.
Sales and marketing expenses in the period reduced slightly to £6.9 million
(H1 FY22: £7.5 million), with administrative expenses increasing slightly to
£6.3 million in the period (H1 FY22: £6.0 million), partly related to
professional costs for the acquisition of Complex Games in November 2022.
With higher revenue and lower R&D costs, operating profit rebounded to a
profit of £6.9 million in the period versus a £1.3 million operating loss in
H1 FY22.
Adjusted EBITDA, a measure of cash profit, remained as a small net outflow in
the period (an outflow of £0.6 million versus an outflow of £0.9 million in
H1 FY22), as Frontier continues to invest strongly in future titles whilst
supporting existing games.
A net zero corporation tax charge was recorded in the Income Statement for the
period (H1 FY22: £nil), since for the full financial year enhanced
deductions from the Video Game Tax Relief scheme are expected to offset any
tax charges on profits. The Group expects to provide additional corporation
tax disclosures in the FY23 financial statements.
A profit after tax of £6.7 million was recorded in the period (H1 FY22: loss
of £1.7 million). Basic earnings per share was 17.2 pence (H1 FY22: loss
per share of 4.2 pence).
BALANCE SHEET AND CASH FLOW
The Group continues to benefit from a strong balance sheet, with cash balances
of £42.6 million at 30 November 2022 (31 May 2022: £38.7 million; 30
November 2021: £33.6 million). The acquisition of Complex Games in November
2022 resulted in a net cash outflow of £8.8 million. Excluding that outflow,
cash would have increased by £12.7 million during H1 FY23. That increase in
cash came mainly from working capital movements and tax; cash balances were
boosted by a £9 million net working capital inflow, as high levels of
receivables as at 31 May 2022 unwound, and £4 million was received from HMRC
for Video Game Tax relief claims relating to FY21. Adjusted EBITDA, a measure
of cash profitability, was a small net outflow (£0.6 million) in H1 HY23 as
Frontier continues to invest strongly in new titles whilst supporting existing
games.
CONSOLIDATED INCOME STATEMENT
FOR THE PERIOD ENDED 30 NOVEMBER 2022
Notes 6 months to 6 months to 12 months to 31 May 2022
£'000
30 November 2022 30 November 2021
£'000
£'000
Revenue 6 57,118 49,116 114,032
Cost of sales (20,984) (18,326) (40,420)
Gross profit 36,134 30,790 73,612
Research and development expenses 12 (16,052) (18,593) (46,179)
Sales and marketing expenses (6,893) (7,503) (12,339)
Administrative expenses (6,333) (6,037) (13,558)
Operating profit/(loss) 6,856 (1,343) 1,536
Net finance costs (137) (310) (592)
Profit/(loss) before tax 6,719 (1,653) 944
Income tax - - 8,684
Profit/(loss) for the period attributable to shareholders 6,719 (1,653) 9,628
Earnings per share
Basic earnings per share 7 17.2p (4.2p) 24.6p
Diluted earnings per share 7 16.5p (4.2p) 23.7p
All the activities of the Group are classified as continuing.
The accompanying accounting policies and notes form part of this financial
information.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD ENDED 30 NOVEMBER 2022
All the activities of the Group are classified as continuing.
The accompanying accounting policies and notes form part of this financial
information.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD ENDED 30 NOVEMBER 2022
6 months to 6 months to 12 months to
30 November 2022 30 November 2021 31 May 2022
£'000 £'000 £'000
Profit/(loss) for the period 6,719 (1,653) 9,628
Other comprehensive income
Items that will be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations 23 (12) (19)
Total comprehensive income/(loss) for the period attributable to the equity 6,742 (1,665) 9,609
holders of the parent
The accompanying accounting policies and notes form part of this financial
information.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 NOVEMBER 2022
(REGISTERED COMPANY NO: 02892559)
30 November 2022 30 November 2021 31 May 2022
£'000
£'000
£'000
Notes
Non-current assets
Intangible assets 8 79,012 73,508 70,833
Property, plant and equipment 9 6,171 6,967 6,640
Goodwill 11 10,385 - -
Right-of-use asset 18,673 20,296 19,484
Deferred tax asset 1,349 384 1,348
Total non-current assets 115,590 101,155 98,305
Current assets
Trade and other receivables 11,191 27,845 24,705
Current tax asset 4,094 2,511 7,867
Cash and cash equivalents 42,639 33,561 38,699
Total current assets 57,924 63,917 71,271
Total assets 173,514 165,072 169,576
Current liabilities
Trade and other payables (18,430) (20,167) (21,797)
Lease liability (1,483) (1,440) (1,461)
Deferred income (2,769) (1,327) (2,466)
Total current liabilities (22,682) (22,934) (25,724)
Net current assets 35,242 40,983 45,547
Non-current liabilities
Provisions (63) (49) (56)
Lease liability (18,525) (20,008) (19,278)
Other payables (5,547) (8,825) (6,148)
Total non-current liabilities (24,135) (28,882) (25,482)
Total liabilities (46,817) (51,816) (51,206)
Net assets 126,697 113,256 118,370
Equity
Share capital 10 197 197 197
Share premium account 36,468 36,368 36,468
Equity reserve (11,998) (8,635) (12,769)
Foreign exchange reserve 5 (11) (18)
Retained earnings 102,025 85,337 94,492
Total equity 126,697 113,256 118,370
The accompanying accounting policies and notes form part of this financial
information.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD ENDED 30 NOVEMBER 2022
Share capital £'000 Share premium account £'000 Equity reserve £'000 Foreign exchange reserve £'000 Retained earnings £'000 Total equity £'000
At 31 May 2021 197 36,079 (9,351) 1 86,228 113,154
Loss for the period - - - - (1,653) (1,653)
Other comprehensive income:
Exchange differences on translation of foreign operations - - - (12) - (12)
Total comprehensive loss for the period - - - (12) (1,653) (1,665)
Issue of share capital net of expenses - 289 - - - 289
Share-based payment charges - - 1,175 - - 1,175
Share-based payment transfer relating to option exercises and lapses - - (762) - 762 -
Employee Benefit Trust net cash inflows from option exercises - - 303 - - 303
Transactions with owners - 289 716 - 762 1,767
At 30 November 2021 197 36,368 (8,635) (11) 85,337 113,256
Profit for the period - - - - 11,281 11,281
Other comprehensive income:
Exchange differences on translation of foreign operations - - - (7) - (7)
Total comprehensive income for the period - - - (7) 11,281 11,274
Issue of share capital net of expenses - 100 - - - 100
Share-based payment charges - - 1,277 - - 1,277
Share-based payment transfer relating to option exercises and lapses - - (614) - 614 -
Employee Benefit Trust cash outflows from share purchases - - (5,000) - - (5,000)
Employee Benefit Trust net cash inflows from option exercises - - 203 - - 203
Deferred tax movements posted directly to reserves - - - - (2,740) (2,740)
Transactions with owners - 100 (4,134) - (2,126) (6,160)
At 31 May 2022 197 36,468 (12,769) (18) 94,492 118,370
Profit for the period - - - - 6,719 6,719
Other comprehensive income:
Exchange differences on translation of foreign operations - - - 23 - 23
Total comprehensive income for the period - - - 23 6,719 6,742
Share-based payment charges - - 1,305 - - 1,305
Share-based payment transfer relating to option exercises and lapses - - (814) - 814 -
Employee Benefit Trust net cash inflows from option exercises - - 280 - - 280
Transactions with owners - - 771 - 814 1,585
At 30 November 2022 197 36,468 (11,998) 5 102,025 126,697
The accompanying accounting policies and notes form part of this financial
information.
CONSOLIDATED STATEMENT OF CASHFLOWS
FOR THE PERIOD ENDED 30 NOVEMBER 2022
6 months to 6 months to 12 months to
30 November 2022 30 November 2021 31 May 2022
£'000
£'000
£'000
Profit before taxation 6,719 (1,653) 944
Adjustments for:
Depreciation and amortisation 12,289 15,481 32,199
Impairment of intangible assets - - 7,398
Movement in unrealised exchange (gains)/losses on forward contracts (817) 1,224 474
Share-based payment expenses 1,305 1,175 2,452
Interest received (166) (14) (57)
Payment of interest element of lease liabilities 303 325 649
Research and Development Expenditure Credit (RDEC) - - (375)
Working capital changes:
Change in trade and other receivables 15,451 (14,105) (10,964)
Change in trade and other payables (6,228) 2,929 4,465
Change in provisions 7 7 15
Cash generated from operations 28,863 5,369 37,200
Taxes received 4,021 3,957 3,956
Net cash flows from operating activities 32,884 9,326 41,156
Investing activities
Purchase of property, plant and equipment (645) (1,779) (2,500)
Expenditure on intangible assets (18,895) (15,969) (36,243)
Acquisition of subsidiaries (net of cash acquired) (8,847) - -
Interest received 166 14 57
Net cash flows used in investing activities (28,221) (17,734) (38,686)
Financing activities
Proceeds from issue of share capital - 289 389
Employee Benefit Trust cash outflows from share purchases - - (5,000)
Employee Benefit Trust cash inflows from option exercises 280 303 506
Payment of principal element of lease liabilities (731) (709) (1,419)
Payment of interest element of lease liabilities (303) (325) (649)
Net cash flows used in financing activities (754) (442) (6,173)
Net change in cash and cash equivalents from continuing operations 3,909 (8,850) (3,703)
Cash and cash equivalents at beginning of period 38,699 42,423 42,423
Exchange differences on cash and cash equivalents 31 (12) (21)
Cash and cash equivalents at end of period 42,639 33,561 38,699
The accompanying accounting policies and notes form part of this financial
information.
NOTES TO THE FINANCIAL INFORMATION
1. CORPORATE
INFORMATION
Frontier Developments plc (the 'Company') and its subsidiaries (together, the
'Group') develops and publishes video games for the interactive entertainment
sector. The Company is a public limited company and is incorporated and
domiciled in the United Kingdom.
The address of its registered office is 26 Science Park, Milton Road,
Cambridge CB4 0FP.
The Group's operations are based in the UK, with subsidiaries based in Canada
and the US.
2. BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE
Basis of preparation
The consolidated interim financial statements have been prepared in accordance
with International Accounting Standard 34 'Interim Financial Reporting' (IAS
34), as issued by the International Accounting Standards Board (IASB) and as
adopted by the UK, and the disclosure requirements of the Listing Rules.
The consolidated interim financial statements do not comprise statutory
accounts within the meaning of section 434 of the Companies Act 2006, and have
not been audited or reviewed by the Company's auditors.
The consolidated interim financial statements should be read in conjunction
with the financial statements for the year ended 31 May 2022.
Statutory accounts for the year ended 31 May 2022 were approved by the Board
of Directors on 21 September 2022 and delivered to the Registrar of Companies.
The Auditor's Report was unqualified, did not contain an emphasis of matter
paragraph and did not contain any statement under section 498 of the Companies
Act 2006.
The financial information has been prepared under the historical cost
convention except for financial instruments held at fair value. The financial
information is presented in Sterling, the presentation and functional currency
for the Group and Company. All values are rounded to the nearest thousand
pounds (£'000) except when otherwise indicated.
Going concern basis
The Group's forecasts and projections, taking account of current cash
resources and reasonably possible changes in trading performance, support the
conclusion that there is a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future, a
period of not less than 12 months from the date of approval of these financial
statements. The Group therefore continues to adopt the going concern basis in
preparing its financial statements.
3. ACCOUNTING POLICIES
Except for the application for UK-adopted international accounting standards,
for which there are no material differences from International Financial
Reporting Standards as issued by the IASB and adopted by the EU when applied
to the Group, the consolidated interim financial statements have been prepared
in accordance with the accounting policies adopted in the Group's most recent
annual financial statements for the year ended 31 May 2022.
4. ACCOUNTING ESTIMATES AND KEY JUDGEMENTS
When preparing the interim financial statements, management undertakes a
number of judgements, estimates and assumptions about recognition and
measurements of assets, liabilities, income and expenses. The actual results
may differ from these estimates.
The judgements, estimates and assumptions applied in the interim financial
statements, including the key sources of estimation uncertainty, were the same
as those applied in the Group's last annual financial statements for the year
ended 31 May 2022.
5. SIGNIFICANT EVENTS AND TRANSACTIONS
There were no significant events or transactions in the interim period (1 June
2022 to 30 November 2022) which were not included within the interim financial
statements. There have been no significant events or transactions during the
period from the end of the interim period to the day preceding the date of
this report (1 December 2022 to 18 January 2023).
6. SEGMENT INFORMATION
The Group identifies operating segments based on internal management reporting
that is regularly reviewed by the chief operating decision maker and reported
to the Board. The chief operating decision maker is the Chief Executive
Officer.
Management information is reported as one operating segment, being revenue
from publishing games and revenue from other streams such as royalties and
licensing.
The Group does not provide any information on the geographical location of
sales as the majority of revenue is through third-party distribution platforms
which are responsible for the sales data of consumers. The cost to develop
this information internally would be excessive.
The majority of the Group's non-current assets are held within the UK.
All material revenue is categorised as either publishing revenue or other
revenue.
The Group typically satisfies its performance obligations at the point that
the product becomes available to the
customer.
Other revenue mainly related to royalty income in H1 FY23, H1 FY22 and FY22.
6 months to 30 November 2022 6 months to 30 November 2021 12 months to 31 May 2022
£'000
£'000
£'000
Publishing revenue 56,971 48,893 113,555
Other revenue 147 223 477
Total revenue 57,118 49,116 114,032
Cost of sales (20,984) (18,326) (40,420)
Gross profit 36,134 30,790 73,612
Research and development expenses (16,052) (18,593) (46,179)
Sales and marketing expenses (6,893) (7,503) (12,339)
Administrative expenses (6,333) (6,037) (13,558)
Operating profit/(loss) 6,856 (1,343) 1,536
Net finance costs (137) (310) (592)
Profit/(loss) before tax 6,719 (1,653) 944
Income tax - - 8,684
Profit/(loss) for the period attributable to shareholders 6,719 (1,653) 9,628
7. EARNINGS PER SHARE
The calculation of the basic earnings per share is based on the profit/(loss)
attributable to the shareholders of Frontier Developments plc divided by the
weighted average number of shares in issue during the period.
6 months to 30 November 2022 6 months to 30 November 2021 12 months to 31 May 2022
Profit/(loss) attributable to shareholders (£'000) 6,719 (1,653) 9,628
Weighted average number of shares 39,018,948 39,162,921 39,172,987
Basic earnings per share (p) 17.2 (4.2) 24.6
The calculation of the diluted earnings per share is based on the
profit/(loss) attributable to the shareholders of Frontier Developments plc
divided by the weighted average number of shares in issue during the period as
adjusted for the dilutive effect of share options.
6 months to 30 November 2022 6 months to 30 November 2021 12 months to 31 May 2022
Profit/(loss) attributable to shareholders (£'000) 6,719 (1,653) 9,628
Diluted weighted average number of shares 40,598,671 39,162,921 40,606,756
Diluted earnings per share (p) 16.5 (4.2) 23.7
The reconciliation of the average number of Ordinary Shares used for basic and
diluted earnings per share is as follows:
6 months to 30 November 2022 6 months to 30 November 2021 12 months to
31 May 2022
Weighted average number of shares 39,018,948 39,162,921 39,172,987
Dilutive effect of share options 1,579,723 - 1,433,769
Diluted average number of shares 40,598,671 39,162,921 40,606,756
The dilutive effect of share options is nil for the 6 months to 30
November 2021 because a loss was recorded for that period.
8. INTANGIBLE ASSETS
Game technology £'000 Game developments £'000 Third-party software £'000
IP licences Total
£'000 £'000
Cost
At 31 May 2021 17,009 97,119 2,060 11,185 127,373
Additions 1,254 14,557 158 - 15,969
At 30 November 2021 18,263 111,676 2,218 11,185 143,342
Additions 1,470 17,939 172 - 19,581
Disposals - (222) - - (222)
At 31 May 2022 19,733 129,393 2,390 11,185 162,701
Additions 1,643 16,786 106 - 18,535
On acquisition - - 62 - 62
At 30 November 2022 21,376 146,179 2,558 11,185 181,298
Amortisation and impairment
At 31 May 2021 7,058 46,434 1,227 1,336 56,055
Amortisation charges 1,058 11,115 229 1,377 13,779
At 30 November 2021 8,116 57,549 1,456 2,713 69,834
Amortisation charges 1,057 13,245 195 361 14,858
Impairment charge - 7,398 - - 7,398
Disposals - (222) - - (222)
At 31 May 2022 9,173 77,970 1,651 3,074 91,868
Amortisation charges 1,512 7,293 210 1,341 10,356
On acquisition - - 62 - 62
At 30 November 2022 10,685 85,263 1,923 4,415 102,286
Net book value
Net book value at 30 November 2022 10,691 60,916 635 6,770 79,012
Net book value at 31 May 2022 10,560 51,423 739 8,111 70,833
Net book value at 30 November 2021 10,147 54,127 762 8,472 73,508
Net book value at 31 May 2021 9,951 50,685 833 9,849 71,318
9. PROPERTY, PLANT AND EQUIPMENT
Fixtures and fittings Computer equipment Leasehold improvements Total
£'000 £'000 £'000 £'000
Cost
At 31 May 2021 863 4,156 5,358 10,377
Additions - 1,779 - 1,779
At 30 November 2021 863 5,935 5,358 12,156
Additions 5 716 - 721
At 31 May 2022 868 6,651 5,358 12,877
Additions - 606 39 645
On acquisition 12 98 53 163
At 30 November 2022 880 7,355 5,450 13,685
Depreciation
At 31 May 2021 546 2,737 1,016 4,299
Charge for the period 75 648 167 890
At 30 November 2021 621 3,385 1,183 5,189
Charge for the period 75 805 168 1,048
At 31 May 2022 696 4,190 1,351 6,237
Charge for the period 75 878 168 1,121
On acquisition 5 98 53 156
At 30 November 2022 776 5,166 1,572 7,514
Net book value
Net book value at 30 November 2022 104 2,189 3,878 6,171
Net book value at 31 May 2022 172 2,461 4,007 6,640
Net book value at 30 November 2021 242 2,550 4,175 6,967
Net book value at 31 May 2021 317 1,419 4,342 6,078
10. SHARE CAPITAL
Number Nominal Value £
At 1 June 2021 39,343,604 196,718
Shares issued on option exercises and warrants 49,651 248
At 30 November 2021 39,393,255 196,966
Shares issued on option exercises and warrants 30,094 151
At 31 May 2022 39,423,349 197,117
Shares issued on option exercises and warrants - -
At 30 November 2022 39,423,349 197,117
11. ACQUISITION OF COMPLEX GAMES INC
On 1 November 2022, Frontier Developments plc acquired experienced game
development studio Complex Games Inc ('Complex') following a successful
collaboration with the development and launch of Warhammer 40,000: Chaos Gate
- Daemonhunters.
Frontier acquired 100% of the share capital in Complex for an upfront cash
consideration of CAD$13 million (GBP£8.3 million) and conditional deferred
cash consideration of up to CAD$5.16 million (GBP£3.3 million), which is
payable subject to Complex meeting certain operational milestones during the
period to 31 December 2023.
In addition, the four employee shareholders - the two founders and the two
studio principals - will participate in a profit-share earn-out of up
to CAD$11.76 million (GBP£7.5 million) payable over 5 years.
Acquisition accounting in the H1 FY23 financial results is provisional, due to
the short time since the acquisition of Complex and the date of the interim
financial statements. The assessment of the fair value of the assets acquired
is subject to change, since the purchase price allocation review is still in
progress. It is expected that this work will be completed by 31 May 2023 to
enable the acquisition accounting to be finalised in the full year FY23
financial results.
In the H1 FY23 financial results, a provisional fair value of the assets of
Complex as at 1 November 2022 of CAD$2.0 million (GBP£1.3 million) has been
applied. After adjusting the total of the upfront consideration (CAD$13
million, GBP£8.3 million) and deferred consideration (CAD$5.16 million,
GBP£3.3 million) for the net position on cash and working capital, the total
consideration accounted for was CAD$18.4 million (GBP£11.7 million). This
has resulted in a provisional goodwill balance of GBP£10.4 million, which is
included on the Consolidated Statement of Financial Position in the interim
financial statements.
12. KEY PERFORMANCE INDICATORS - NON-STATUTORY MEASURES
In addition to measures of financial performance derived from IFRS reported
results - revenue, operating profit, operating profit margin percentage,
earnings per share and net cash balance - Frontier publishes, and provides
commentary on, financial performance measurements derived from non-statutory
calculations. Frontier believes these supplementary measures, when read in
conjunction with the measures derived directly from statutory financial
reporting, provide a better understanding of Frontier's overall financial
performance.
EBITDA
EBITDA, being earnings before tax, interest, depreciation and amortisation, is
commonly used by investors when assessing the financial performance of
companies. It attempts to arrive at a 'cash profit' figure by adjusting
operating profit for non-cash depreciation and amortisation charges. In
Frontier's case, EBITDA does not provide a clear picture of the Group's cash
profitability, as it adds back amortisation charges relating to game
developments, but without deducting the investment costs for those
developments, resulting in a profit measure which does not take into account
any of the costs associated with developing games. Since EBITDA is a commonly
used financial performance measure, it has been included below for the benefit
of readers of the accounts who may value that measure of performance.
6 months to 6 months to 12 months to
30 November 2022 30 November 2021 31 May 2022
£'000
£'000
£'000
Operating profit/(loss) 6,856 (1,343) 1,536
Depreciation and amortisation 12,291 15,481 32,199
Impairment of intangible assets - - 7,398
EBITDA 19,147 14,138 41,133
Adjusted EBITDA
Frontier also discloses an Adjusted EBITDA measure which, in the Company's
view, provides a better representation of 'cash profit' than EBITDA. Adjusted
EBITDA for Frontier is defined as earnings before interest, tax, depreciation
and amortisation charges related to game developments and Frontier's game
technology, less investments in game developments and Frontier's game
technology, and excluding share-based payment charges and other non-cash
items. This effectively provides the cash profit figure that would have been
achieved if Frontier expensed all game development investment as it was
incurred, rather than capitalising those costs and amortising them over
several years.
6 months to 6 months to 12 months to 31 May 2022
£'000
30 November 2022 30 November 2021
£'000
£'000
Operating profit/(loss) 6,856 (1,343) 1,536
Add back non-cash intangible asset amortisation charges for game developments
and Frontier's game technology
8,589 12,173 26,475
Add back non-cash intangible asset impairment charge for game developments
- - 7,398
Deduct capitalised investment costs in game developments and Frontier's game
technology
(18,429) (15,811) (35,220)
Add back non-cash depreciation charges 1,934 1,702 3,562
Add back non-cash movements in unrealised exchange (gains)/losses on forward
contracts
(817) 1,224 474
Add back non-cash share-based payment expenses 1,305 1,175 2,452
Adjusted EBITDA (562) (880) 6,677
Research and development (R&D) expenses
Research and development (R&D) expenses recorded in Frontier's Income
Statement are arrived at after capitalising game development costs and after
recording amortisation charges for games which have been released. Similar to
the principles of the Adjusted EBITDA measure showing financial performance as
if all game development investments were expensed as incurred, Frontier
provides commentary on the difference between gross R&D expenses (before
capitalisation/amortisation) and net R&D expenses (after
capitalisation/amortisation). The net R&D expenses figure aligns with the
R&D expenses recorded in the Income Statement, whereas the gross R&D
expenses figure provides a better representation of 'cash spend' on R&D
activities.
6 months to 6 months to 12 months to
30 November 2022 30 November 2021 31 May 2022
£'000
£'000
£'000
Gross R&D expenses 25,892 22,231 47,526
Capitalised investment costs in game developments and Frontier's game
technology
(18,429) (15,811) (35,220)
Amortisation charges for game developments and Frontier's game technology
8,589 12,173 26,475
Impairment of intangible assets - - 7,398
Net R&D expenses 16,052 18,593 46,179
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