RNS Number : 0563L

Frontier Developments PLC

08 September 2021

Frontier Developments plc

FY21 Financial Results

Record financial results from a strong and sustaining portfolio

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 full-year results for the 12 months to 31 May 2021 ('FY21').

Financial Highlights

                                   FY21          FY20       Year-on-year 
                                                              change (%) 
                          (12 months to    (12 months 
                           31 May 2021)     to 31 May 
 Revenue                       GBP90.7m      GBP76.1m                19% 
                         --------------  ------------      ------------- 
 Operating Profit              GBP19.9m      GBP16.6m                20% 
                         --------------  ------------      ------------- 
 Operating Margin %                 22%           22%                  - 
                         --------------  ------------      ------------- 
 EPS (basic)                      55.4p         41.3p                34% 
                         --------------  ------------      ------------- 
 EBITDA*                       GBP38.1m      GBP31.5m                21% 
                         --------------  ------------      ------------- 
 Operating Cash Flow**         GBP12.2m      GBP13.6m              (10%) 
                         --------------  ------------      ------------- 
 Net Cash Balance at 
  period end                   GBP42.4m      GBP45.8m               (7%) 
                         --------------  ------------      ------------- 

*Earnings before interest, tax, depreciation and amortisation

** EBITDA excluding non-cash items less investments in game developments and Frontier's game technology

-- Our established portfolio of genre-leading games, supported by our nurturing approach to post-release development, delivered record financial results in FY21, through continued strong engagement with our games and our downloadable content on new and existing platforms

-- Record revenue of GBP90.7 million (FY20: GBP76.1 million) reflected substantial contributions from all four of our existing game franchises, together with our first revenues from Frontier Foundry, our games label for third-party publishing

-- Strong trading performance and effective portfolio management delivered record operating profit, as reported under IFRS, of GBP19.9 million for FY21 (FY20: GBP16.6 million), with operating profit margin maintained at 22%, matching the performance achieved in both FY20 and FY19

-- Cash balances of GBP42.4 million at 31 May 2021 (31 May 2020: GBP45.8 million) even after investment of GBP14.0 million during the year in Frontier and Frontier Foundry games planned for release in future periods

Operational & Strategic Highlights

Frontier's launch and nurture portfolio strategy continues to deliver

-- Frontier plays to its strengths by creating deep, immersive and high fidelity games that build on its proven capabilities and unique track record

-- Post-launch, Frontier nurtures its games for many years through community engagement and additional content

-- FY21 saw the announcement and release of Elite Dangerous: Odyssey, our most ambitious expansion yet for our iconic space simulation franchise

-- Planet Coaster expanded its audience through its release on Xbox Series X|S, Xbox One, PlayStation 4 and PlayStation 5

-- Jurassic World Evolution accelerated the growth of its player base by launching on Nintendo Switch

-- Planet Zoo continued to delight existing fans and attract new players, supported by a range of popular PDLC packs

   --    All four games continued to deliver strong sales on existing platforms 

Frontier Foundry builds momentum

   --    First revenue in Frontier Foundry in FY21, our games label for third-party publishing 

-- Six titles signed for future release, with at least three in FY22, including: Lemnis Gate; FAR: Changing Tides and Warhammer 40,000: Chaos Gate - Daemonhunters

-- Set for future success as a material part of our business, with a target of at least four titles expected to launch per year from FY23 onwards

Our strongest ever future roadmap

-- Jurassic World Evolution 2 revealed for release on 9 November 2021 (in FY22) - a much-anticipated sequel which builds upon our ground-breaking and immersive 2018 management simulation

-- The first of our annual Formula 1(R) management games will release during the 2022 F1 season, as part of our exclusive licence for Formula 1(R) management games

-- Our Warhammer Age of Sigmar IP real-time strategy game, licenced from Games Workshop, will launch in FY23

Current Trading and Outlook

Our existing game franchise portfolio continues to perform well. Engagement with our Elite Dangerous player community is gradually improving, and we remain confident that more and more players will upgrade to Odyssey over time as we continue to improve and refine the experience. We continue to see strong sales of Planet Zoo (supported by new PDLC), Planet Coaster and Jurassic World Evolution, illustrating the benefits of our multi-franchise launch and nurture model.

Our biggest launch in FY22, Jurassic World Evolution 2, will release on 9 November 2021, and we expect it to deliver a strong performance over the Holiday season (Thanksgiving and Christmas). In FY22 we'll continue to support all of our existing titles. In particular, Planet Zoo will benefit from engaging new PDLC content; we already have seven popular packs with the Africa pack the latest to be released in June 2021, at the start of FY22. Frontier Foundry will deliver at least three new releases in FY22, with Lemnis Gate, FAR: Changing Tides and Warhammer 40,000: Chaos Gate - Daemonhunters all announced for release in this financial year.

Based on the anticipated ongoing performance of our existing portfolio, combined with an exciting new release schedule for FY22, the Board's projected revenue range for FY22 is GBP130 million to GBP150 million, implying an annual growth rate of 43% to 65% above the record revenue reported for FY21.

Looking further out, for FY23, the Board's projected revenue range is GBP160 million to GBP180 million, based on the anticipated performance of our current and future game franchises, together with a growing contribution from our games label for third-party publishing, Frontier Foundry.

David Braben, Chief Executive, said:

"Our team did a terrific job during FY21 - creating new content and delivering new platforms for our existing games to support and grow our passionate player communities. We were delighted to achieve record financial results in FY21 from our existing portfolio of games franchises. Our team has also been busy on our future titles, and we look forward with confidence based on our strong existing portfolio and our exciting roadmap of new releases."

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 as amended by The Market Abuse (Amendment) (EU Exit) Regulations 2019. The person responsible for making this announcement on behalf of the Company is Alex Bevis.

Enquiries :

Frontier Developments +44 (0)1223 394 300

David Braben, 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

Max Jones / William Brown

Tulchan Communications +44 (0)20 7353 4200

Matt Low / Jordan McCulla / Olivia Lucas

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.


Chairman's Statement

Delivering record financial results in FY21 is a testament to the strength of our portfolio of game franchises which is a product of the talent and hard work of our great team of people. I'd like to thank everyone at Frontier for their dedication and teamwork; supporting our games, our players and each other through the challenges of 2020 and 2021.

As we begin a trial of hybrid office/home working we can reflect back on the terrific output from our teams in FY21 whilst almost exclusively working from home: the continued support of Planet Zoo through new content as it entered its second year; reaching new audiences for both Planet Coaster and Jurassic World Evolution as a result of adding new digital platforms to their distribution; the successful release and remarkable technical achievement of Elite Dangerous: Odyssey; and launching our first Frontier Foundry titles.

Frontier's 'Launch & Nurture' strategy continues to deliver, with our four game franchises together reporting record revenues of GBP91 million in FY21. We believe our proven model of identifying, and then executing upon, opportunities to establish and maintain ourselves as genre leaders, creates one of the lowest risk and consistently high return business models in the games industry.

Building on an existing successful game with a compelling sequel is an example of our desire to maintain genre leadership, reduce risk and deliver strong margins. We were therefore very pleased to announce Jurassic World Evolution 2 in June 2021 for release later in calendar year 2021. This launch, now confirmed for 9 November 2021, builds on the strong foundations of Jurassic World Evolution, which we released in 2018 and is our biggest selling game to date.

Our future roadmap is an exciting mix of support and expansion for our existing franchises whilst creating new genre-leading titles. We look forward to bringing our first Formula 1(R) management game to PC and console during the 2022 F1 season as part of our licence to release a game each year over at least four F1 seasons. In FY23 (the 12 months to 31 May 2023) we have our exciting Warhammer Age of Sigmar real-time strategy game scheduled for release.

Alongside our internally developed games we have a rich portfolio of future titles through development partnerships under our Frontier Foundry games label. We have at least three games planned for release in FY22 which have now all been announced: Lemnis Gate; FAR: Changing Tides and Warhammer 40,000: Chaos Gate - Daemonhunters. Our strategy to engage our resources and experience to bring carefully selected opportunities from other development studios is now ready and set up for success.

We have always taken a responsible and considerate approach to running our business, with our strategy of growing and nurturing our games and our staff being a critical pillar to achieving long-term sustainable success. ESG (Environmental, Social, Governance) has emerged in recent years as a key consolidation of important topics for consideration by company stakeholders - usually employees, customers and investors - for many businesses and industries. Recently we created a dedicated section of our website which consolidates all of our ESG information into one place. This new ESG hub enables our investors, our players and our people to access all of the latest Frontier news, data, statements and policies relating to ESG topics. Find out more by heading to https://www.frontier.co.uk/ESG-hub

We have a strong and well-aligned Board of Directors, with seven highly experienced, capable and motivated individuals. During FY21 we continued to engage together through regular meetings, almost all through video conference calls. With the lifting of restrictions we look forward to more opportunities to again hold in-person Board meetings. Regardless of the format of our interaction, there is always debate and challenge, supported by detailed management information and facilitated by each of our different areas of expertise, business experiences and individual perspectives.

As a Board we believe that we have the optimal model and long-term strategy for Frontier, which builds upon our strengths and manages our risks. The successful execution of that strategy is achieved through our great people, and I'd like to thank them again for their tremendous professionalism and contribution in FY21. We look to the future with confidence based on our great team, our successful portfolio, our passionate player communities, our very supportive national and international shareholders, and our exciting roadmap of games.

Chief Executive's Statement

The games industry has always experienced, and driven, significant change, adaptation and evolution over its many decades within the wider entertainment industry. I believe it's that long experience and expectation of change that has allowed the games industry to deal positively with the challenges from the coronavirus pandemic, that has created so much disruption and change to the world in the last 18 months.

At Frontier we had grown used to our teams working together closely in the same physical space to create amazing, complex and immersive game experiences for our communities of players. In March 2020 this quickly changed to almost 100% home working - we changed our long-established processes dramatically, with our teams continuing to connect and collaborate with each other, but through video conference calls and other sharing tools.

I am proud of how well everyone has made the best of the change in our working arrangements, and we know that for some people it has provided them with greater personal flexibility whilst also allowing greater focus on individual tasks - with task-based working hardly affected. For other things, particularly when people work together as a creative group, we have found that there is no substitute for collaboration within the same physical space. On our large and complex projects, which regularly require a lot of teamwork to identify and overcome technical and creative challenges, human interactions work better face-to-face.

There is also the challenge of training and mentoring staff, and enabling everyone to establish new working connections whilst maintaining their existing ones - team building at its core. Learning by osmosis has always been a very important element of the development of our people alongside more structured training, particularly for our graduates and more junior staff, but also for new joiners at all levels. Needless to say, attempting to learn by osmosis through Teams or Zoom calls during the pandemic has been less than ideal.

We will soon be starting a trial period of a hybrid working model which is a blend of studio based working and remote working which we hope will deliver the best of both worlds; the benefits of home working combined with the physical collaboration opportunities that working together in the studio delivers.

Our excellent team continues to grow, increasing 22% during FY21 to 634 as at 31 May 2021 (31 May 2020: 520). By 31 August 2021 we had further expanded to 680 people, and we continue to recruit talented individuals to nurture our existing portfolio and support our roadmap of future titles. We have successfully added well over 200 people to the team remotely during the extended period of home working over the last 18 months, which is a testament to the efforts of our managers and our onboarding process.

Our portfolio

FY21 saw the announcement (in June 2020) and release (in May 2021) of Elite Dangerous: Odyssey on PC, our most ambitious development project to date: the addition of first-person on-foot gameplay into our 1:1 galactic simulation of the whole Milky Way. This meant bringing the human scale to a galaxy nearly 100,000 light years across. Completing this large and complex expansion without the benefits of face-to-face collaboration was challenging, and despite a successful alpha period, unfortunately the launch was hindered by connectivity issues, and this turned the positive reception of the alpha to one of negativity. Despite its initial challenges, hundreds of thousands of players are enjoying the experience. I am delighted with the underlying achievement by our team, and remain confident that more and more players will upgrade to Odyssey over time as we continue to refine the experience.

Our releases in FY21 related to existing games, which is a great illustration of our model of nurturing genre-leading game franchises post-launch. I have already mentioned the ambitious Odyssey expansion for Elite Dangerous, and our other three successful game franchises delivered new content too; Planet Zoo saw three new PDLC packs during the financial year alongside free updates; Planet Coaster came to console with Planet Coaster: Console Edition for the Xbox Series X|S, Xbox One, PlayStation 4 and PlayStation 5; and Jurassic World Evolution benefitted from a major new platform launch in the period, with Jurassic World Evolution: Complete Edition coming to Nintendo Switch. I am delighted that our post-launch support model continues to support both our players and our investors, with a record revenue performance delivered in FY21 from our four existing successful franchises.

Turning to our future releases, I am really excited about our roadmap of future releases. We have been working on Jurassic World Evolution 2 for around two years, and so it was a lovely moment to reveal the news in June 2021 that we would be releasing a sequel to our best-selling game to date. It's now in its final stages of development and will be released into the wild on 9 November 2021. With our annual Formula 1(R) management game series starting in calendar year 2022, and our first ever real-time strategy game which utilises Warhammer Age of Sigmar IP a little further out, I think it's fair to say that we have our strongest ever release line-up, supported by our strongest ever existing portfolio. Looking further out into 2023 and beyond, I am delighted to say that we continue to have even more great game opportunities.

Frontier Foundry

Frontier Foundry is our own games label for third-party publishing, which leverages our publishing capability, industry experience, commercial partnerships, and financial resources to supplement our own development roadmap by partnering with other high-quality developers to bring more games to market. We take a developer-led approach to publishing, benefitting from our long and varied experience of a being a developer under a variety of different business models. Our approach is resonating well with potential partners, and we are delighted with our future line-up, with six great titles scheduled from six different teams, including at least three titles coming in this financial year. This makes FY22 an important year for Frontier Foundry, as it builds to become a material part of our overall business.

Chief Financial Officer's Statement

Our existing portfolio of games, supported by new content and new platforms for those games through our nurturing post-release model, delivered record financial results in FY21 with revenue of GBP90.7 million (FY20: GBP76.1 million) and operating profit of GBP19.9 million (FY20: GBP16.6 million). The fact that we delivered record numbers without releasing a major new game demonstrates the success of our 'Launch and Nurture' model. As ever our financial performance reflects the hard work of our talented people who continue to support our global game communities. We look to the future with confidence based on our growing team, our great portfolio, our exciting roadmap and our strong financials.


All four of our genre-leading game franchises benefitted from new content and/or new platforms during FY21. Our strategy of supporting and nurturing our titles post-release continues to pay dividends, with all of our titles providing material financial contributions in FY21 through both base game sales and PDLC. We supported our growing Planet Zoo player community, our most recent game which released in November 2019, with three PDLC packs in FY21. We now have seven packs in total as at 8 September 2021. Alongside free content, PDLC packs help to keep the game fresh for existing players while helping to entice new players to join the Planet Zoo community, resulting in additional revenue from the newly released PDLC as well as existing PDLC and the base game. Planet Coaster and Jurassic World Evolution revenues benefitted from new platforms, while sales on their existing platforms continue to perform strongly. Planet Coaster, which launched on PC in November 2016, come to console in November 2020 with Planet Coaster: Console Edition for Xbox Series X|S, Xbox One, PlayStation 4 and PlayStation 5. Jurassic World Evolution, which released in June 2018 on PC, Xbox One and PlayStation 4, further expanded its audience through the launch of Jurassic World Evolution: Complete Edition on Nintendo Switch in November 2020. Elite Dangerous benefitted from both new channels and new content in the period. In November 2020 Elite Dangerous released on the Epic Games Store, including participation in Epic's Free Games Week at launch which significantly increased the player base whilst generating additional revenue. In May 2021 we released our most ambitious expansion to date for Elite Dangerous, Elite Dangerous: Odyssey, which generated launch revenues on PC in that month. The overall reception to this major content update has been disappointing, but we are confident that as we improve and enhance the Odyssey experience that we will see more and more Commanders engaging with the expansion.

Alongside our internally developed portfolio, Frontier Foundry, our games label for third-party publishing, delivered its first revenues in FY21 through the release of Struggling and RollerCoaster Tycoon(R) 3: Complete Edition , with each title launching on PC and Nintendo Switch. Frontier Foundry is set to grow significantly in FY22 with the release of at least three new titles.

The performance of our four game franchises together with Frontier Foundry generated total revenue in FY21 of GBP90.7 million (FY20: GBP76.1 million). Delivering a record sales performance without a major new game launch shows the strength of our strategy to support our games post-launch. Our primary sales strategy is through digital distribution, working with key partners like Steam, Epic, Humble and Genba on PC and with console owners: Microsoft for Xbox, Sony for PlayStation and more recently Nintendo for Switch. Digital sales represented 96% of revenue in FY21, with only 4% from sales of physical discs (FY20: 3%), despite the release of physical discs for Planet Coaster on its release on Xbox and PlayStation in November 2020.

Gross profit was GBP63.1 million in the year (FY20: GBP51.6 million) with gross margin at 70% (FY20: 68%). Our gross margin percentage tends to vary across different periods based on four main factors: the split of own-IP versus licensed IP game revenue (since licensing IP attracts royalty costs), variations in commission rates on digital stores (for example Steam versus Epic), revenue from subscription models such as Microsoft's Game Pass, and the proportion of revenue derived from the sale of physical discs. Our gross margin percentage in FY21 increased by 2% versus FY20 mainly through a higher proportion of sales from own-IP games together with higher subscription model revenue from Microsoft and Epic.

Gross research and development (R&D) expenses in the period grew by 42% to GBP34.9 million (FY20: GBP24.6 million). The substantial year-on-year growth reflected our continued investment to support our growth strategy through three main areas: investment in our team including significant headcount growth; investment in our portfolio through greater outsourcing activity which allows our internal teams to focus on the most value-adding development work; and investment in Frontier Foundry development partner projects.

Capitalisation of costs for game development related intangible assets, together with continued investment in our leading game technology, accounted for GBP27.8 million in the period (FY20: GBP19.8 million). Costs related to new chargeable products, or the development of technology to support new chargeable products, are typically capitalised, subject to the usual criteria set out under accounting standard IAS 38. Development costs associated with the development or support of existing products are generally expensed as incurred. Costs capitalised in FY21 represented 80% of gross R&D expenditure which is consistent with prior periods (FY20: 80%).

Amortisation charges for game development and game technology related intangibles grew to GBP14.9 million for the period (FY20: GBP11.2 million). The increase reflected a full year of amortisation for Planet Zoo, which released half way through FY20, together with amortisation charges for releases during FY21; Planet Zoo PDLC packs; new platform launches for Planet Coaster and Jurassic World Evolution; and Elite Dangerous: Odyssey.

Net research and development expenses recorded in the income statement, being gross spend, less capitalised costs, plus amortisation charges, increased to GBP22.0 million in FY21 (FY20: GBP16.0 million) with the majority of the rise related to amortisation charges.

Sales, marketing and administrative expenses totalled GBP21.2 million in FY21 (FY20: GBP18.9 million) as a result of greater investment in marketing to support our portfolio combined with the slightly higher administration costs.

Overall net operating expenditure in FY21 grew to GBP43.2 million (FY20: GBP34.9 million) with higher costs across all three areas: R&D, Sales & Marketing, and Administration.

Operating profit grew by 20% to GBP19.9 million in FY21 (FY20: GBP16.6 million) which is a company record. Operating margin of 22% was achieved in FY21, which is consistent with the performance in both FY20 and FY19.

EBITDA (earnings before interest, tax, depreciation and amortisation) increased to GBP38.1 million (FY20: GBP31.5 million). However, the Company does not consider this to be a particularly useful 'cash profit' measure of performance since it adds back amortisation charges relating to game developments and game technology but without also adjusting for (i.e. deducting) the costs capitalised in the period related to those intangible assets, producing a one-sided measure. The operating cashflow measure, described in the later cash section, is a more appropriate measure of 'cash profit'.

Frontier benefits from enhanced corporate tax deductions on certain expenditures under the Video Games Tax Relief (VGTR) scheme and under the R&D Tax Credits scheme, both of which help to reduce taxable profits. Frontier also benefitted during the period from tax deductions related to employee share option gains. The combination of the enhanced tax deductions on expenditures and share option tax deductions in the period, together with tax adjustments for prior periods, generated a corporation tax credit of GBP2.4 million in the income statement in FY21 (FY20: corporation tax charge of GBP0.3 million).

During FY21, Frontier elected into HMRC's Patent Box Regime and made a patent box claim on patent-related profits from FY19 onwards. The patent box claim had little impact on the FY21 income statement tax credit, however, as the benefits were realised through a substantial increase in the tax losses carried forward to future periods. The effect of the patent box claim will therefore be realised through cash tax benefits in the future.

Profit after tax for FY21 grew by 36% to GBP21.6 million (FY20: GBP15.9 million) and basic earnings per share increased 34% to 55.4p (FY20: 41.3p).

Balance sheet and cashflow

We continue to benefit from a strong balance sheet, with GBP42.4 million of cash at 31 May 2021 (31 May 2020: GBP45.8 million). The total net cash outflow during the year of GBP3.3 million (FY20: net cash inflow of GBP10.4 million) included GBP10 million of investment in Frontier shares purchased by our Employee Benefit Trust, and therefore net cash would have grown by GBP6.7 million in FY21 excluding those shares purchases. Operating cashflow, which is effectively a measure of 'cash profit' being EBITDA excluding non-cash items less investments in game developments and Frontier's game technology related intangible assets, was GBP12.2 million in FY21 (FY20: GBP13.6 million).

Intangible assets includes game technology, internal game developments, Frontier Foundry game developments, third-party software and IP licences. Total intangible assets increased by GBP18.6 million to GBP71.3 million at 31 May 2021 (31 May 2020: GBP52.7 million). The majority of the growth related to investments in our own internally developed titles, including new content and platform releases for our existing portfolio, together with investments in Frontier Foundry partner developments.

Tangible assets relate mainly to IT equipment and the fit-out of the leased office facility, which the Company occupied in April 2018. The net balance at 31 May 2021 was GBP6.1 million (31 May 2020: GBP5.9 million).

Following the adoption of IFRS 16 "Leases" effective for Frontier from 1 June 2019, the Company's balance sheet at 31 May 2021 includes a right-of-use asset valued at GBP21.1 million (FY20: GBP22.7 million) for the Company's lease over its headquarters office building in Cambridge. A similar figure (the difference related to timing of actual rental payments) of GBP22.2 million at 31 May 2021 (31 May 2020: GBP23.5 million), is recorded on the balance sheet as a lease liability, split between current and non-current liabilities.

Trade and other receivables totalled GBP13.7 million at the end of the period (31 May 2020: GBP12.3 million) with the majority of the balance related to gross revenue due from digital distribution partners.

Trade and other payables totalled GBP14.8 million (31 May 2020: GBP13.7 million) being mostly made up of distribution platform commissions due on the sales transactions not yet settled, and bonus costs and other staff related accruals.

Within non-current liabilities (amounts due after 12 months) a balance of GBP9.2 million is held at 31 May 2021 (31 May 2020: GBP8.2 million) which includes IP licence costs for the minimum guaranteed royalties payable on the licences signed with Formula 1(R) and Games Workshop in FY20.

The current tax asset balance as at 31 May 2021 of GBP6.5 million (31 May 2020: GBP2.4 million) relates to the tax returns, including VGTR claims, for FY19 and FY20, and for the draft tax return for FY21. In June 2021 GBP4.0 million was received from HMRC related to the FY19 and FY20 tax returns.

Deferred tax assets and liabilities have been recorded as at 31 May 2021 for the estimated values of temporary timing differences, and the potential value of tax deductions relating to future share option exercises. The net asset balance for deferred tax assets less deferred tax liabilities recorded as at 31 May 2021 totalled GBP0.4 million (31 May 2020: GBP2.1 million). Due to the expected continued benefit from enhanced tax deduction schemes in future periods and the streaming of profits and losses in different trades, a deferred tax asset for carried forward tax losses has not been recognised as at 31 May 2021 as it is uncertain when they will be utilised. The same situation applied at 31 May 2020. The estimated tax value of losses carried forward at 31 May 2021 is GBP10 million (31 May 2020: GBP4 million).

                                                           31 May 2021   31 May 2020 
                                                   Notes       GBP'000       GBP'000 
------------------------------------------------  ------  ------------  ------------ 
 Revenue                                             3          90,688        76,089 
 Cost of sales                                                (27,538)      (24,532) 
------------------------------------------------  ------  ------------  ------------ 
 Gross profit                                                   63,150        51,557 
 Research and development expenses                            (22,025)      (16,014) 
 Sales and marketing expenses                                  (7,269)       (5,747) 
 Administrative expenses                                      (13,940)      (13,172) 
------------------------------------------------  ------  ------------  ------------ 
 Operating profit                                               19,916        16,624 
 Finance costs                                                   (731)         (401) 
------------------------------------------------  ------  ------------  ------------ 
 Profit before tax                                              19,185        16,223 
 Income tax                                                      2,373         (329) 
------------------------------------------------  ------  ------------  ------------ 
 Profit for the period attributable to 
  shareholders                                                  21,558        15,894 
------------------------------------------------  ------  ------------  ------------ 
 Earnings per share 
 Basic earnings per share                            4            55.4          41.3 
 Diluted earnings per share                          4            53.3          39.4 
------------------------------------------------  ------  ------------  ------------ 
 All the activities of the Group are classified 
  as continuing. 
                                                           31 May 2021   31 May 2020 
                                                               GBP'000       GBP'000 
------------------------------------------------  ------  ------------  ------------ 
 Profit for the period                                          21,558        15,894 
 Other comprehensive income 
  Items that will be reclassified subsequently 
  to profit or loss 
 Exchange differences on translation of 
  foreign operations                                                23           (6) 
------------------------------------------------  ------  ------------  ------------ 
 Total comprehensive income for the period 
  attributable to the equity holders of 
  the parent                                                    21,581        15,888 
------------------------------------------------  ------  ------------  ------------ 
 AS AT 31 MAY 2021 
                                        31 May 2021   31 May 2020 
                                            GBP'000       GBP'000 
-------------------------------------  ------------  ------------ 
 Non-current assets 
 Intangible assets                           71,318        52,668 
 Property, plant and equipment                6,078         5,926 
 Right-of-use asset                          21,108        22,732 
 Deferred tax asset                             384         2,137 
                                             98,888        83,463 
-------------------------------------  ------------  ------------ 
 Current assets 
 Trade and other receivables                 13,741        12,284 
 Current tax asset                            6,468         2,377 
 Cash and cash equivalents                   42,423        45,751 
-------------------------------------  ------------  ------------ 
                                             62,632        60,412 
-------------------------------------  ------------  ------------ 
 Total assets                               161,520       143,875 
-------------------------------------  ------------  ------------ 
 Current liabilities 
 Trade and other payables                  (14,768)      (13,669) 
 Lease liability                            (1,419)       (1,337) 
 Deferred income                            (2,180)       (1,439) 
                                           (18,367)      (16,445) 
-------------------------------------  ------------  ------------ 
 Net current assets                          44,265        43,967 
-------------------------------------  ------------  ------------ 
 Non-current liabilities 
 Provisions                                    (41)          (27) 
 Lease liability                           (20,739)      (22,198) 
 Deferred income                                  -         (234) 
 Other payables                             (9,219)       (8,237) 
                                           (29,999)      (30,696) 
-------------------------------------  ------------  ------------ 
 Total liabilities                         (48,366)      (47,141) 
-------------------------------------  ------------  ------------ 
 Net assets                                 113,154        96,734 
-------------------------------------  ------------  ------------ 
 Share capital                                  197           195 
 Share premium account                       36,079        34,589 
 Equity reserve                             (9,351)         (925) 
 Foreign exchange reserve                         1          (22) 
 Retained earnings                           86,228        62,897 
-------------------------------------  ------------  ------------ 
 Total equity                               113,154        96,734 
-------------------------------------  ------------  ------------ 

* Restated for a presentation adjustment as per note 2.

                                                       Share                           Foreign 
                                      Share          premium           Equity         exchange         Retained 
                                    capital          account          reserve          reserve         earnings   Total equity 
                                    GBP'000          GBP'000          GBP'000          GBP'000          GBP'000        GBP'000 
 At 1 June 2019                         194           34,390          (3,073)             (16)           44,011         75,506 
--------------------------  ---------------  ---------------  ---------------  ---------------  ---------------  ------------- 
 Profit for the year                      -                -                -                -           15,894         15,894 
 Other comprehensive 
 Exchange differences on 
  of foreign operations                   -                -                -              (6)                -            (6) 
 Total comprehensive 
  for the year                            -                -                -              (6)           15,894         15,888 
--------------------------  ---------------  ---------------  ---------------  ---------------  ---------------  ------------- 
 Issue of share capital 
  of expenses                             1              199                -                -                -            200 
 Share-based payment 
  charges                                 -                -            1,947                -                -          1,947 
 Share-based payment 
  relating to option 
  and lapses                              -                -            (510)                -              510              - 
 EBT net cash inflows from 
  option exercises                        -                -              711                -                -            711 
 Deferred tax movements 
  directly to reserves                    -                -                -                -            2,482          2,482 
--------------------------  ---------------  ---------------  ---------------  ---------------  ---------------  ------------- 
 Transactions with owners                 1              199            2,148                -            2,992          5,340 
--------------------------  ---------------  ---------------  ---------------  ---------------  ---------------  ------------- 
 At 31 May 2020                         195           34,589            (925)             (22)           62,897         96,734 
--------------------------  ---------------  ---------------  ---------------  ---------------  ---------------  ------------- 
 Profit for the year                      -                -                -                -           21,558         21,558 
 Other comprehensive 
 Exchange differences on 
  of foreign operations                   -                -                -               23                -             23 
 Total comprehensive 
  for the year                            -                -                -               23           21,558         21,581 
--------------------------  ---------------  ---------------  ---------------  ---------------  ---------------  ------------- 
 Issue of share capital 
  of expenses                             2            1,490                -                -                -          1,492 
 Share-based payment 
  charges                                 -                -            2,155                -                -          2,155 
 Share-based payment 
  relating to option 
  and lapses                              -                -          (1,770)                -            1,770              - 
 EBT cash outflows from 
  purchases                               -                -         (10,000)                -                -       (10,000) 
 EBT net cash inflows from 
  option exercises                        -                -            1,189                -                -          1,189 
 Deferred tax movements 
  directly to reserves                    -                -                -                -                3              3 
--------------------------  ---------------  ---------------  ---------------  ---------------  ---------------  ------------- 
 Transactions with owners                 2            1,490          (8,426)                -            1,773        (5,161) 
--------------------------  ---------------  ---------------  ---------------  ---------------  ---------------  ------------- 
 At 31 May 2021                         197           36,079          (9,351)                1           86,228        113,154 
--------------------------  ---------------  ---------------  ---------------  ---------------  ---------------  ------------- 
                                                         31 May 2021    31 May 2020 
                                                             GBP'000        GBP'000 
------------------------------------------------------  ------------  ------------- 
 Cash generated from operations                               38,916         32,415 
 Taxes received                                                   38              - 
 Cashflow from operating activities                           38,954         32,415 
------------------------------------------------------  ------------  ------------- 
 Investing activities 
 Purchase of property, plant and equipment                   (1,375)          (666) 
 Expenditure on intangible assets                           (31,502)       (21,044) 
 Interest received                                                48            330 
 Cashflow from investing activities                         (32,829)       (21,380) 
------------------------------------------------------  ------------  ------------- 
 Financing activities 
 Proceeds from issue of share capital                          1,492            200 
 Employee Benefit Trust cash outflows from share 
  purchases                                                 (10,000)              - 
 Employee Benefit Trust cash inflows from option 
  exercises                                                    1,189            711 
 Payment of principal element of lease liabilities           (1,377)          (820) 
 Payment of interest element of lease liabilities              (691)          (731) 
 Interest paid                                                  (88)              - 
 Cashflow from financing activities                          (9,475)          (640) 
------------------------------------------------------  ------------  ------------- 
 Net change in cash and cash equivalents from 
  continuing operations                                      (3,350)         10,395 
 Cash and cash equivalents at beginning of period             45,751         35,332 
 Exchange differences on cash and cash equivalents                22             24 
 Cash and cash equivalents at end of period                   42,423         45,751 
------------------------------------------------------  ------------  ------------- 
 The accompanying accounting policies and notes form part 
  of this financial information. 
 Reconciliation of operating profit to cash generated 
  from operations 
                                                         31 May 2021    31 May 2020 
                                                             GBP'000        GBP'000 
------------------------------------------------------  ------------  ------------- 
 Operating profit                                             19,916         16,624 
 Depreciation and amortisation                                18,167         14,870 
------------------------------------------------------  ------------  ------------- 
 EBITDA                                                       38,083         31,494 
------------------------------------------------------  ------------  ------------- 
 Movement in unrealised exchange gains on forward 
  contracts                                                    (223)           (91) 
 Share-based payment expenses                                  2,155          1,947 
------------------------------------------------------  ------------  ------------- 
 Operating cashflows before movements in working 
  capital                                                     40,015         33,350 
------------------------------------------------------  ------------  ------------- 
 Net changes in working capital: 
 Change in trade and other receivables                       (1,233)        (7,046) 
 Change in trade and other payables                              119          6,097 
 Change in provisions                                             15             14 
------------------------------------------------------  ------------  ------------- 
 Cash generated from operations                               38,916         32,415 
------------------------------------------------------  ------------  ------------- 



Frontier Developments plc (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 and its North American subsidiary, Frontier Developments Inc., in the US.


The financial information contained in this preliminary announcement of audited results does not constitute the Group's statutory accounts for the years ended 31 May 2021 or 31 May 2020. The accounts for the year ended 31 May 2020 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 May 2021 have been reported on by the Company's auditors; the report on these accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain any statement under section 498(2) or (3) of the Companies Act 2006 or equivalent preceding legislation.

The statutory accounts for the year ended 31 May 2021 are expected to be posted to shareholders in due course and will be delivered to the Registrar of Companies after they have been laid before the shareholders in a general meeting in October 2021 (date to be confirmed in due course). Copies will be available from the registered office of the Company, 26 Science Park, Milton Road, Cambridge CB4 0FP and will be accessible on the Frontier Developments website, https://www.frontier.co.uk. The registered number of Frontier Developments plc is 02892559.

The basis of preparation and going concern policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

Basis of preparation

The Consolidated Financial Statements of the Group have been prepared in accordance with International Accounting Standards (IASs) in conformity with the requirements of the Companies Act 2006 and in accordance with International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

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 (GBP'000) except when otherwise indicated.

Prior year adjustment

During the preparation of the tax accounting for the Group and Company for FY21, an error was identified in relation to the presentation of deferred tax in the prior year.

The presentation error identified does not change the tax reporting to the tax authorities, nor is there any income statement or earnings per share impact. It only affects the Statement of Financial Position.

IAS 12 requires that deferred tax balances are presented on a net basis where there is a legally enforceable right to offset and the balances relate to the same tax jurisdiction. As the deferred tax balances relate to the UK and the future recoverable and payable amounts can be legally offset, an adjustment has therefore been recorded to present the deferred tax on a net basis on the face of the Consolidated Statement of Financial Position and the Company Statement of Financial Position.

This presentation adjustment has the impact of reducing deferred tax liabilities at 31 May 2020 from GBP4,038,000 previously stated to GBPnil, and reducing deferred tax assets by GBP4,038,000 from GBP6,175,000 previously stated to GBP2,037,000.

There is no change to the nature and values of the underlying deferred tax assets and liabilities at 31 May 2020 as set out in note 19 of the FY20 Annual Report and Accounts.

Going concern basis

The Group and Company'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 and Company has adequate resources to continue in operational existence for the foreseeable future, based on the Group's forecasts and projections for the period to 30 November 2022. The Group and Company therefore continue to adopt the going concern basis in preparing their financial statements.

Assessment of going concern due to Covid-19

The Group's day-to-day working capital requirements are expected to be met through the current cash and cash equivalent resources (including treasury deposits) at the balance sheet date of 31 May 2021 of GBP42.4 million along with expected cash inflows from current business activities. The Annual Plan approved by the Board of Directors, which has been used to assess going concern, incorporates the impacts and considerations to revenue and costs due to Covid-19. The Annual Plan also reflects assessments of current and future market conditions and the impact this may have on cash resources.

The Group has also performed reverse stress testing on the Annual Plan in respect of potential downside scenarios to identify the break point of current cash resources and to identify when current liquidity resources may fall short of requirements.

The scenarios both consider a reduction in predicted revenues, however the reduction would need to be severe in order to prevent the Group from continuing as a going concern and is considered to be highly unlikely to occur. The Group have also identified mitigating actions that could be reasonably taken, if required, to offset the reduction of cash inflows, to enable it to continue its operations for the period to 30 November 2022.

The sensitivities included in the reverse stress testing include the following potential scenarios to revenue:

-- Severe operational disruption across all third-party distributors resulting in a significant reduction of revenue for the Group

-- Some operational disruption across all third-party distributors resulting in a reduction of revenue for the Group

As expected, the scenarios resulted in an accelerated use of current cash resources however, in all scenarios tested the current cash resources were sufficient to support the Group's activities. This is due to a variety of factors:

-- The Group currently has significant cash reserves to maintain the current level of operations

-- The Group has been able to continue with current headcount growth plans and has sustained a high level of recruitment to support the roadmap

   --       There has been no impact to debtor recoverability 

-- Should a more extreme downside scenario occur the Group could take further mitigating actions by reducing discretionary spend

Having considered all of the above, including the current strong cash position, no current impact on debtor recoverability and the continued strong trading performance for the Group, the Directors are satisfied that there are sufficient resources to continue operations for the period to 30 November 2022. The financial statements for the year ended 31 May 2021 are therefore prepared under the going concern basis.


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.

All 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 and payment has been received upfront.

In both the period ended 31 May 2021 and the period ended 31 May 2020, 'Other Revenue' mainly related to royalty income.

                        12 months    12 months 
                        to 31 May    to 31 May 
                             2021         2020 
                          GBP'000      GBP'000 
--------------------  -----------  ----------- 
 Publishing revenue        90,471       75,924 
 Other revenue                217          165 
--------------------  -----------  ----------- 
                           90,688       76,089 
--------------------  -----------  ----------- 


The calculation of the basic earnings per share is based on the profits attributable to the shareholders of Frontier Developments plc divided by the weighted average number of shares in issue during the year.

                                                  31 May 2021   31 May 2020 
-----------------------------------------------  ------------  ------------ 
 Profit attributable to shareholders (GBP'000)         21,558        15,894 
 Weighted average number of shares                 38,909,932    38,483,762 
-----------------------------------------------  ------------  ------------ 
 Basic earnings per share (pence)                        55.4          41.3 
-----------------------------------------------  ------------  ------------ 
 The calculation of the diluted earnings per share is based on the 
  profits attributable to the shareholders of Frontier Developments 
  plc divided by the weighted average number of shares in issue during 
  the year as adjusted for the dilutive effect of share options. 
                                                  31 May 2021   31 May 2020 
-----------------------------------------------  ------------  ------------ 
 Profit attributable to shareholders (GBP'000)         21,558        15,894 
 Diluted weighted average number of shares         40,471,633    40,316,894 
-----------------------------------------------  ------------  ------------ 
 Diluted earnings per share (pence)                      53.3          39.4 
-----------------------------------------------  ------------  ------------ 
 The reconciliation of the average number of Ordinary Shares used for 
  basic and diluted earnings per share is as follows: 
                                                  31 May 2021   31 May 2020 
-----------------------------------------------  ------------  ------------ 
 Weighted average number of shares                 38,909,932    38,483,762 
 Dilutive effect of share options                   1,561,701     1,833,132 
-----------------------------------------------  ------------  ------------ 
 Diluted average number of shares                  40,471,633    40,316,849 
-----------------------------------------------  ------------  ------------ 

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(END) Dow Jones Newswires

September 08, 2021 02:00 ET (06:00 GMT)

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