TIDMFDEV
RNS Number : 0588A
Frontier Developments PLC
21 September 2022
Frontier Developments plc
FY22 Financial Results
Frontier's game portfolio continues to thrive and expand
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 2022 ('FY22').
Financial Highlights
FY22 FY21 Year-on-year
change (%)
(12 months (12 months
to 31 May 2022) to 31 May
2021)
Revenue GBP114.0m GBP90.7m 26%
--------------------- --------------- ----------------
Operating Profit GBP1.5m GBP19.9m (92%)
--------------------- --------------- ----------------
EBITDA* GBP41.1m GBP38.1m 8%
--------------------- --------------- ----------------
Adjusted EBITDA** GBP6.7m GBP11.8m (43%)
--------------------- --------------- ----------------
EPS (basic) 24.6p 55.4p (56%)
--------------------- --------------- ----------------
Net Cash Balance at
year end GBP38.7m GBP42.4m (9%)
--------------------- --------------- ----------------
-- The successful release of Jurassic World Evolution 2,
together with the ongoing performance of our established portfolio
of genre-leading games and our Foundry titles, delivered record
revenue in FY22 of GBP114.0 million (growth of 26% over GBP90.7
million in FY21)
-- Adjusted EBITDA** in FY22 was in line with expectations at
GBP6.7 million (FY21: GBP11.8 million), with EBITDA* at GBP41.1
million (FY21: GBP38.1 million)
-- Operating profit in FY22 was reduced to GBP1.5 million
following the previously announced one-off non-cash accounting
charge following the under-performance of the major Elite
Dangerous: Odyssey expansion which released in May 2021 (FY21:
GBP19.9 million)
-- Cash resources remain strong with GBP38.7 million at 31 May
2022 (31 May 2021: GBP42.4 million). The GBP3.7 million reduction
during FY22 reflected a greater investment in significant game
developments for release in future years, working capital
movements, and the GBP5.0 million purchase of shares by the
Employee Benefit Trust undertaken in April 2022. Cash balances at
31 August 2022 were GBP53.1 million
*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
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 using a strategic mix of in-house and
licensed IP that builds on its proven capabilities and unique track
record
-- Post-launch, Frontier nurtures its games for many years
through community engagement and additional content
-- Our major game release in FY22, Jurassic World Evolution 2
(November 2021), was the biggest sales contributor to FY22, and in
June 2022, after the end of FY22, we successfully launched a major
themed expansion alongside the Jurassic World Dominion film.
Jurassic World Evolution 2 has so far delivered over GBP60 million
of revenue (as at 31 August 2022)
-- Our portfolio of established titles which released before the
start of FY22 each achieved material revenues in FY22, and each
game continues to deliver sales and reach new players. Planet Zoo
performed especially well in FY22 with an annual revenue sustain
rate of 94%, supported by four new paid-downloadable content (PDLC)
packs released in FY22, alongside free content
-- In August 2022 we successfully released F1(R) Manager 2022.
As expected, initial sales have been strong for this major new
annual game franchise
Frontier Foundry achieves success
-- Our games label for publishing carefully selected partner
developments made good progress in FY22, with three new games
released
-- Warhammer 40,000: Chaos Gate - Daemonhunters has been our
biggest Foundry title to date, releasing in May 2022, to a very
positive reception
-- Foundry is set for future success as a material part of our
business with three more titles releasing in FY23
A strong portfolio and future roadmap
-- Our existing portfolio of games and PDLC continues to perform
well, supported by planned new PDLC for Jurassic World Evolution 2
and Planet Zoo
-- Initial sales for F1(R) Manager 2022, the first title in our
annual Formula 1(R) management game series, have been strong and in
line with our expectations, giving us further confidence as we
continue to develop F1(R) Manager 2023 (for release in FY24)
-- Our first real-time strategy game, using Warhammer Age of
Sigmar IP licensed from Games Workshop(R) will launch in FY24
-- We are already in development for a new title for FY25, as
well as early-stage scoping for another new game in FY26
Current Trading and Outlook
We have achieved a pleasing start to FY23. Our existing
portfolio continues to perform, with Jurassic World Evolution 2
benefitting from our themed PDLC and the hype around the Jurassic
World Dominion film in June 2022, and Planet Zoo also seeing new
PDLC. Our major new game release in FY23, F1(R) Manager 2022,
launched a few weeks ago on 30 August, and initial sales have been
strong, as expected. Foundry looks set for a good year with ongoing
sales from Warhammer 40,000: Chaos Gate - Daemonhunters and three
more titles to come in FY23.
Based on trading performance to date, the Board remains
confident of delivering on current analyst expectations for
FY23.
Over the medium term, the Board expects Frontier to continue to
grow revenue by around 20% on average per annum, with any annual
growth rate variability largely driven by the timing and scale of
new releases in each year.
Jonny Watts , CEO from 10 August 2022, said:
"Our team did a terrific job during FY22 and we were delighted
to achieve record annual revenue with growth of 26%. In the last 12
months we have successfully released three new games with each
achieving chart-topping success; Jurassic World Evolution 2 in
November 2021; Warhammer 40,000: Chaos Gate - Daemonhunters (a
Foundry title) in May 2022; and F1(R) Manager 22, which released
just a few weeks ago at the end of August. We have three more
exciting titles coming in FY23 from Foundry, as well as PDLC for
Jurassic World Evolution 2 and Planet Zoo. For FY24 we have two
more major internally developed titles - our Warhammer Age of
Sigmar real-time strategy game, and F1(R) Manager 23. We look
forward with confidence based on our strong existing portfolio, and
our exciting roadmap of new releases which includes unrevealed
future developments."
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
Jonny Watts, CEO
David Braben, President and Founder
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 / 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
Chairman's Statement - David Gammon
In FY22 we achieved record revenue for the second consecutive
year, growing by 26%. This was achieved through the strength in
depth of our portfolio and the success of new titles, most notably
Jurassic World Evolution 2. Our most recent new game release, F1(R)
Manager 2022, launched successfully at the end of August and is set
to deliver a substantial contribution in FY23.
As ever, our financial success is a testament to the talent and
hard work of our great team of people. I'd like to thank everyone
at Frontier for their dedication and teamwork, continuing to
support our games, our players and each other.
I believe our chosen business model and strategy - developing,
launching and nurturing genre-leading games which best fit our
expertise and competitive advantages - will continue to deliver
long-term value to our stakeholders. We have an exciting roadmap of
future content alongside our existing portfolio.
As announced on 10 August, in December 2022 I will be retiring
from Frontier's Board after 10 years, most of which I have spent as
Chairman. I am privileged to have been a witness to the success of
Frontier's transition from a third-party developer to a publisher
of its own titles. I am delighted to be passing my Chairman
responsibility to the excellent David Wilton, who joins our Board
as Non-Executive Director and Chairman Designate on 22 September
2022.
The news of my planned retirement has coincided with the
announcement of another significant Board change. On 10 August
2022, Frontier's Founder, David Braben, who has been CEO since the
foundation of the Company in 1994, passed the CEO baton to his
long-time colleague, and proven deliverer of multiple genre-leading
games, Jonny Watts, our former Chief Creative Officer. David will
continue to add huge strategic value to Frontier in his new role of
President and Founder. He will remain an Executive Director on the
Board.
As CEO, Jonny has assumed responsibility for day-to-day
management of the business and delivery of Frontier's operational
and longer-term strategic plans. I am looking forward to seeing
Jonny now take the Company on to even greater success.
On 10 August 2022 we also announced two further Board-related
changes, with James Dixon stepping up to become Chief Operating
Officer (an Executive Director position on the Board), and Jessica
Bourne promoted to General Counsel and Company Secretary, taking on
company secretarial responsibilities from our Chief Financial
Officer, Alex Bevis.
Our Board has always benefitted from a diverse membership of
highly experienced, capable and motivated individuals. I believe
the changes we have announced in the last 12 months, including the
appointment of the terrific Ilse Howling as a Non-Executive
Director in March 2022, have, and will, strengthen it even
further.
It is with sadness that I sign off my last Chairman's Statement
for Frontier's Annual Report. I'd like to thank David Braben for
his entrepreneurial brilliance and support throughout my tenure. I
cannot thank my Board colleagues enough for letting me watch, learn
at and chair their meetings. I leave Frontier in a confident mood
with a very talented senior leadership team. I look forward to
watching Frontier's continued growth and evolution!
Chief Executive Officer's Statement - David Braben (CEO for
FY22, President and Founder from 10 August 2022)
Our great teams have worked hard and successfully delivered
another great year. It has been a year of change - with Frontier
adapting successfully to new working practices and moving into new
adjacent game genres - while growing and delivering great new games
like Jurassic World Evolution 2. Revenue was up by 26%
year-on-year, and headcount grew by over 25% - which is a real
investment, increasing our development firepower for future
titles.
Hybrid working
During FY22 we emerged from the 2020 and 2021 Covid-19
restrictions of home working and into the new mixed model of hybrid
working of in the office and at home. Our diverse teams of people
were able to connect with each other both virtually and in person,
with the ability once again to use our splendid studio facility. I
feel those opportunities to reconnect are important for people's
personal development and wellbeing, as well as being important for
successful delivery of our complex content.
Like many companies we are still refining the new ways of remote
and hybrid working, but we believe we are getting the balance
right, which puts us in a strong position to continue to deliver
great games and content which benefits all of our stakeholders. We
put a lot of effort into fostering team engagement through
communication and social opportunities. In July 2022 we held our
biggest ever party, which saw almost 900 people (staff plus
partners/families) attend a summer event which celebrated all of
our games with themed zones.
Our people
We saw record numbers of people join us during the last 12
months, with net headcount growing by 158 people or over 25% during
FY22. The benefit of this increased headcount will help us grow in
future years. Growing and investing in our people is a crucial
element of our strategy, and like many companies we have
experienced strong competition for talent, which when combined with
the negative impact of coronavirus on staff engagement and
connectivity has created some challenges for staff retention. We
continue to believe that our sophisticated and diverse portfolio of
genre-leading games, together with our self-publishing business
model and our competitive reward packages, provides an attractive
home for talent, but of course we can never be complacent and we
will continue to review opportunities to improve our offering.
Our players
Our players have continued to support us, and the wonderful
communities around each of our games have continued to grow, with
total all-time base game unit sales having increased by over 30% in
the period. Though there is some overlap between our different
titles, many of these are new players joining these communities for
the first time. These communities continue to evolve over the years
- many players have been members of the Elite Dangerous community
for around 10 years since it started in 2012, while other
communities, like that for F1(R) Manager are still in their early
stages. I would like to thank all our players for their continued
support, and we look forward to many further adventures together in
the future.
Our portfolio
FY22 saw the delivery of great games and content from our teams,
most notably with Jurassic World Evolution 2 releasing in November
2021 and Planet Zoo benefitting from four new PDLC packs during the
financial year. The success of these new releases, when combined
with our existing portfolio, drove a 26% growth in revenue to a
record GBP114.0 million in FY22, and we are well set to deliver
another record performance in FY23.
Our teams have delivered more great content already in FY23,
with the Jurassic World Evolution 2: Dominion Biosyn Expansion
releasing in June 2022 alongside Universal Pictures and Amblin
Entertainment's Jurassic World Dominion film, another excellent
PDLC pack for Planet Zoo, and a major new game release through the
launch of F1(R) Manager 2022 at the end of August 2022 (all after
the end of FY22). I am particularly pleased with initial player
engagement with F1(R) Manager 2022, since this is a major new
sports franchise for Frontier, with annual titles scheduled for at
least the next three years (2023, 2024 and 2025).
As previously reported, the one area of disappointment in FY22
was the lower than expected level of player engagement with our
major Elite Dangerous: Odyssey expansion. Our team did a terrific
job with that very ambitious expansion, which made the decision to
cancel future console development and to focus our attention on PC
even more difficult. We are supporting and growing our Elite
Dangerous player community and will build on the narrative aspects
of Elite Dangerous during FY23.
During FY22 our team working on our Warhammer Age of Sigmar
real-time strategy game made good progress, and we look forward to
bringing that game to market in FY24. Looking a little further out,
we have now started development of a new internal title for FY25
and are scoping out another new game for FY26.
I think it's fair to say that we have our strongest ever release
line-up, supported by our superb 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 being a developer under a variety of different
business models.
Foundry released three titles in FY22, with Warhammer 40,000:
Chaos Gate - Daemonhunters quickly becoming our biggest selling
Foundry title to date. Our approach to third-party publishing is
resonating well with our existing and potential new partners. We
have three games releasing from Foundry in FY23, Stranded: Alien
Dawn (from Haemimont Games), Deliver Us Mars (from KeokeN
Interactive) and The Great War: The Western Front (from Petroglyph
Games), and we continue to expect Foundry to build and become a
material part of our overall business over time.
Our strategy and business model
We have a repeatable business model of releasing and supporting
high- quality games in under-served genres where we have relevant
experience, and where there is a reasonable expectation of our
title becoming the dominant game in that sector. We build a
community around the title, and continue to support it with free
and paid content over many years, to create the longevity we have
already seen with our existing titles, and hope to see with those
in the future. We will use our key expertise and where applicable
valuable external IP to deliver highly differentiated,
best-in-class player experiences. Frontier's games are set in rich
environments and take a long time to fully master, thereby yielding
longevity and great value for players. This long-term engagement
and loyalty of our passionate player communities will help further
build the Company over the long term.
We believe that publishing our own games, and selectively those
of other high-quality development studios, is the best way to
maximise the benefit of our core skills, our assets and our COBRA
game development technology platform. The Company's focus is on
identifying, developing and delivering top-quality titles with long
play times.
We will continue to follow our repeatable model to support our
games over many years with new releases and updates to create
long-term sustainable growth which benefits all of our key
stakeholders, through successfully publishing a growing portfolio
of games. To achieve our strategic objective, we focus on three key
areas:
-- our portfolio strategy for our internal developments;
-- our strategy for our Foundry games label; and
-- our people strategy
This third key area is crucial for our long-term success. We
must continue to grow and invest in our teams so that we can
continue to support our existing games while also increasing the
frequency of major new releases. The increase in the number of
releases supporting our existing games, such as major PDLC
launches, helps to smooth revenue, but major releases of new games
are still a significant factor in the revenue stream, as we have
just seen with Jurassic World Evolution 2 in FY22 and we are seeing
with F1(R) Manager 2022 in FY23.
We are growing our portfolio, and consequently we are increasing
our development, publishing and other teams to enable us to support
additional games while generating new updates for our existing
titles. We will continue to grow our resources and capability to
enable us to scale-up the number of major releases we are able to
deliver each year. This will not require us to increase our
workforce linearly because supporting an existing title typically
requires fewer staff than creating a new one.
Board changes
As previously announced, after over 28 years as Frontier's CEO,
in August 2022 I changed my role to become President and Founder.
The excellent Jonny Watts has taken over as CEO, taking over the
day-to-day Company activities, many of which he has already been
doing. I will remain at Frontier, and will still be actively
involved, retaining oversight and involvement in strategic
direction and key external relationships.
I'd like to say a massive thank you to David Gammon, our
departing Chairman, and a big welcome to David Wilton, our new
Chairman. This will be my last CEO's Statement in our Annual
Report, and I'd just like to thank everyone at Frontier and all of
our partners and stakeholders, for your support over my many
decades as Frontier's CEO. I will be actively engaged with Frontier
for the foreseeable future, so you will still hear from me on a
regular basis.
Chief Financial Officer's Statement - Alex Bevis
The combination of ongoing contributions from our existing
titles (games which released in earlier financial years), the
significant sales delivered by new game Jurassic World Evolution 2,
and revenue achieved by our Foundry games label resulted in a
record revenue performance in FY22 of GBP114.0 million, 26% ahead
of the preceding financial year (FY21: GBP90.7 million).
Our strategy of developing, launching and nurturing
genre-leading games continues to deliver financial performance for
our shareholders, financial returns and audience expansions for our
IP partners, compelling content for our players, and engaging and
challenging projects for our people.
Adjusted EBITDA*, a measure of cash operating profit whereby
game development costs are expensed as they are incurred, was in
line with expectations in FY22 at GBP6.7 million (FY21: GBP11.8
million). The year-on-year reduction reflects greater investment in
significant game developments for release in future years,
including F1(R) Manager 2022 which successfully released in August
2022 (in FY23), and our Warhammer Age of Sigmar real-time strategy
game for FY24.
Due to the lower than expected engagement with Elite Dangerous:
Odyssey on PC, and the decision to cancel further console
development of this major expansion, the Elite Dangerous: Odyssey
capitalised intangible asset was fully amortised in FY22, resulting
in an additional one-off impairment charge of GBP7.4 million.
This non-cash accounting adjustment had no impact on cashflow,
cash balances or Adjusted EBITDA, but reduced operating profit as
reported under IFRS to GBP1.5 million (FY21: GBP19.9 million).
Frontier continues to benefit from a strong balance sheet, with
total cash balances at 31 May 2022 of GBP38.7 million (31 May 2021:
GBP42.4 million) and balances of GBP53.1 million at 31 August 2022.
The small reduction in cash during FY22 reflected a greater
investment in significant game developments for release in future
years, and the GBP5.0 million purchase of shares by the Employee
Benefit Trust undertaken in April 2022 to satisfy future share
option exercises by employees.
* 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
Trading
Jurassic World Evolution 2
FY22 benefitted from the release of another successful new
Frontier title, Jurassic World Evolution 2, which has continued to
attract an expanding player base since its launch in November 2021.
By 31 May 2022 Jurassic World Evolution 2 had achieved over 1.3
million base game units sold across all platforms and formats,
excluding base game digital downloads through Microsoft's Game Pass
subscription service, through which the base game became available
on 17 May 2022.
The development and release of paid-downloadable content (PDLC)
and free content has, as usual, been an important element of our
strategy in continuing to engage and entertain existing Jurassic
World Evolution 2 players while attracting new ones. We saw strong
uptake of the three separate PDLC packs available as at 31 May
2022.
In June 2022, after the end of FY22, we saw strong engagement
with our compelling new PDLC, the Jurassic World Evolution 2:
Dominion Biosyn Expansion, which released alongside Universal
Pictures and Amblin Entertainment's Jurassic World Dominion film.
This major new expansion for Jurassic World Evolution 2 delivered a
strong start for FY23, and additional PDLC will be released during
FY23.
Jurassic World Evolution 2 had so far delivered over GBP60
million of total cumulative revenue as at 31 August 2022, a period
covering its first 10 months from release.
Our existing game portfolio
Our portfolio of internally developed titles which released
before FY22 - Elite Dangerous, Planet Coaster, Jurassic World
Evolution and Planet Zoo - continues to reach new audiences, and
each delivered material revenues in FY22. Most notably, Planet Zoo
performed especially well, with an annual revenue sustain rate of
94% (FY22 vs. FY21), supported by four new PDLC packs releasing in
FY22, alongside free content. We have new PDLC packs for Planet Zoo
in FY23.
As previously reported, following the launch of the major
Odyssey expansion in May 2021, Elite Dangerous revenue in FY22 fell
below our original expectations. We are focussing on supporting and
growing our player community, and will build on the narrative
aspects of Elite Dangerous during FY23.
Frontier Foundry
Alongside our internally developed titles, Frontier Foundry, our
games label for publishing carefully selected partner developments,
made good progress in FY22, with three new game releases.
Our most recent Frontier Foundry title, Warhammer 40,000: Chaos
Gate - Daemonhunters, received a very positive reception at its
launch on 5 May 2022. It quickly became our most successful
Frontier Foundry title to date, with performance above
expectations.
We have three more Frontier Foundry titles planned for release
in FY23, and we continue to expect Frontier Foundry to become a
material part of our business.
Financial Performance
Our record revenue of GBP114.0 million in FY22 (FY21: GBP90.7
million) delivered a record gross profit of GBP73.6 million (FY21:
GBP63.2 million) with gross margin of 65% (FY21: 70%). Our gross
margin percentage tends to vary across different periods based on
five factors: the split of own-IP versus licensed IP game revenue
(since licensing IP attracts royalty costs), the proportion of
revenue from Foundry (which tends to attract developer royalties),
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. The reduction in our gross margin percentage in
FY22 versus FY21 was mainly the result of a higher proportion of
sales from licensed IP games, most notably through the release of
Jurassic World Evolution 2.
Gross research and development (R&D) expenses in the period
grew by 37% to GBP47.5 million (FY21: GBP34.9 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.
Outsourced work for our F1(R) Manager 2022 game was particularly
significant, driven by the need to deliver a large volume of assets
to support the modelling of 22 race circuits and their surrounding
environments. We'll be able to leverage that investment across our
future F1(R) Manager titles.
Capitalisation of costs for game development related intangible
assets, together with continued investment in our leading game
technology, accounted for GBP35.2 million in the period (FY21:
GBP27.8 million). Costs related to the development of new
chargeable Frontier or Foundry content, or the development of
technology to support new content, 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 FY22 represented 74% of gross R&D expenditure
which is broadly consistent with prior periods (FY21: 80%, FY20:
80%).
Amortisation and impairment charges for game developments and
Frontier's game technology related intangible assets grew
significantly to GBP33.9 million in total for the period (FY21:
GBP14.9 million), with Elite Dangerous: Odyssey accounting for the
majority of the increase.
Amortisation charges for the Elite Dangerous: Odyssey expansion
accounted for GBP8.4 million in FY22. Additionally, a one-off,
non-cash impairment charge of GBP7.4 million was recorded in FY22,
which resulted from lower than expected engagement with Elite
Dangerous: Odyssey on PC following its launch in May 2021, and the
decision to cancel further console development of this major
expansion.
New games and PDLC content released in FY22 was also a factor in
the year-on-year growth in the total amortisation charge, with the
launch of Jurassic World Evolution 2, three Foundry titles, and
PDLC packs for Planet Zoo and Jurassic World Evolution 2.
Net research and development expenses recorded in the income
statement, being gross spend, less capitalised costs, plus
amortisation and impairment charges, increased to GBP46.2 million
in FY22 (FY21: GBP22.0 million). The substantial rise reflected a
combination of our increased investment in newly released and
future content, together with the large one-off, non-cash Elite
Dangerous: Odyssey charge.
Sales, marketing and administrative expenses grew to GBP25.9
million in FY22 (FY21: GBP21.2 million) as a result of greater
investment in marketing to support the launch of Jurassic World
Evolution 2, our major new game release in the year, new Foundry
titles, and our existing game portfolio including new PDLC releases
and price promotion events.
Overall net operating expenditure in FY22 grew to GBP72.1
million (FY21: GBP43.2 million) with higher costs across all three
areas: R&D, sales and marketing, and administration. The Elite
Dangerous: Odyssey charge was also a large factor in the increase.
After taking account of that charge, operating profit as reported
under IFRS was reduced to GBP1.5 million (FY21: GBP19.9
million).
Adjusted EBITDA*, a measure of cash operating profit whereby
game development costs are expensed as they are incurred, was in
line with expectations in FY22 at GBP6.7 million (FY21: GBP11.8
million). The year-on-year reduction reflects greater investment in
significant game developments for release in future years,
including F1(R) Manager 2022 which successfully released in August
2022 (in FY23), and our Warhammer Age of Sigmar real-time strategy
game for FY24.
During FY21, Frontier elected into HMRC's Patent Box regime and
made a Patent Box claim on patent-related profits from FY19
onwards. Patent Box has delivered future benefits in FY21 and FY22,
including in the form of enhancements to the value of tax losses
carried forward to future periods. The full effect of the benefits
of the Patent Box claim will therefore be realised through cash tax
benefits in the future.
Frontier also 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 GBP8.7 million in the income statement in FY22 (FY21: GBP2.4
million).
Profit after tax for FY22 was GBP9.6 million (FY21: GBP21.6
million) and basic earnings per share was 24.6p (FY21: 55.4p).
Balance sheet and cashflow
We continue to benefit from a strong balance sheet, with GBP38.7
million of cash at 31 May 2022 (31 May 2021: GBP42.4 million) and
GBP53.1 million at 31 August 2022. The GBP3.7 million reduction
during FY22 reflected a greater investment in significant game
developments for release in future years, working capital
movements, and the GBP5.0 million purchase of shares by the
Employee Benefit Trust undertaken in April 2022.
Our intangible asset values include game technology, internal
game developments, Frontier Foundry game developments, third-party
software and IP licences. Total intangible assets actually reduced
slightly during the period to GBP70.8 million at 31 May 2022 (31
May 2021: GBP71.3 million). Significant investments in new content
and technology were offset by total amortisation and impairment
charges of GBP15.8 million for Elite Dangerous: Odyssey. Our
investments in the period related to our own internally developed
titles, including new content for our existing portfolio, our
technology, and support for our 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 2022 was GBP6.6 million (31 May
2021: GBP6.1 million).
Following the adoption of IFRS 16 "Leases" effective for
Frontier from 1 June 2019, the Company's balance sheet at 31 May
2022 includes a right-of-use asset valued at GBP19.5 million (31
May 2021: GBP21.1 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 GBP20.7
million at 31 May 2022 (31 May 2021: GBP22.2 million) is recorded
on the balance sheet as a lease liability, split between current
and non-current liabilities.
Trade and other receivables due within one year totalled GBP24.7
million at 31 May 2022 (31 May 2021: GBP13.7 million) with the
majority of the balance related to gross revenue due from digital
distribution partners. The year-on-year increase reflected strong
sales activity and content releases towards the end of FY22,
including the launch of Warhammer: Chaos Gate - Daemonhunters in
May 2022, and amounts due for Jurassic World Evolution 2 entering
Microsoft's Game Pass subscription service in May 2022.
Trade and other payables due within one year totalled GBP21.8
million at 31 May 2022 (31 May 2021: GBP14.8 million), being mostly
made up of distribution platform commissions, IP licence royalties
and developer royalties due on the sales transactions not yet
settled, and bonus costs and other staff-related accruals. The
increase in liabilities reflected the strong trading performance
towards the end of the financial year, as mentioned above.
Within non-current liabilities (amounts due after 12 months) a
balance of GBP6.1 million is held at 31 May 2022 (31 May 2021:
GBP9.2 million) which includes IP licence costs for the minimum
guaranteed royalties payable on the licences with Formula 1(R) and
Games Workshop(R).
The current tax asset balance as at 31 May 2022 of GBP7.9
million (31 May 2021: GBP6.5 million) relates to the filed tax
returns, including VGTR claims, for FY21, and the draft tax returns
for FY22. In July 2022, GBP4.0 million was received from HMRC
related to the FY21 tax returns.
The net balance for deferred tax assets less deferred tax
liabilities recorded as at 31 May 2022 totalled GBP1.3 million (31
May 2021: GBP0.4 million). Deferred tax assets and liabilities have
been recorded as at 31 May 2022 for the estimated values of
temporary differences, and the potential value of tax deductions
relating to future share option exercises. A deferred tax asset
valued at GBP1.0 million was recognised as at 31 May 2022 for
carried forward tax losses from the Jurassic World Evolution 2 VGTR
income stream. The recognition of this asset is based on a high
level of certainty that the accumulated losses will be utilised
against the taxable profits projected to be generated in FY23 and
FY24 by Jurassic World Evolution 2.
Frontier's tax arrangements concerning income streams under VGTR
and Patent Box enhancements can be complex, and as at 31 May 2022
there was insufficient certainty concerning the utilisation of
other tax losses to create any other deferred tax assets related to
accumulated losses. Frontier's total unrecognised tax losses as at
31 May 2022 were GBP50.2 million (31 May 2021: GBP55.1
million).
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 MAY 2022
12 months 12 months
to 31 May to 31 May
2022 2021
Notes GBP'000 GBP'000
-------------------------------------------------- ------ ------------- -------------
Revenue 3 114,032 90,688
Cost of sales (40,420) (27,538)
-------------------------------------------------- ------ ------------- -------------
Gross profit 73,612 63,150
Research and development expenses (46,179) (22,025)
Sales and marketing expenses (12,339) (7,269)
Administrative expenses (13,558) (13,940)
-------------------------------------------------- ------ ------------- -------------
Operating profit 1,536 19,916
Net finance costs (592) (731)
-------------------------------------------------- ------ ------------- -------------
Profit before tax 944 19,185
Income tax 4 8,684 2,373
-------------------------------------------------- ------ ------------- -------------
Profit for the year attributable to shareholders 9,628 21,558
-------------------------------------------------- ------ ------------- -------------
Earnings per share
Basic earnings per share 5 24.6 55.4
Diluted earnings per share 5 23.7 53.3
-------------------------------------------------- ------ ------------- -------------
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 YEARED 31 MAY 2022
12 months 12 months
to to
31 May 2022 31 May 2021
GBP'000 GBP'000
-------------------------------------------------- ------ ------------- -------------
Profit for the year 9,628 21,558
Other comprehensive income
Items that will be reclassified subsequently
to profit or loss:
Exchange differences on translation of
foreign operations (19) 23
-------------------------------------------------- ------ ------------- -------------
Total comprehensive income for the year
attributable to the equity holders of
the parent 9,609 21,581
-------------------------------------------------- ------ ------------- -------------
The accompanying accounting policies and notes form part of this
financial information.
CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
AS AT 31 MAY 2022
(REGISTERED COMPANY NO: 02892559)
31 May 2022 31 May 2021
Notes GBP'000 GBP'000
--------------------------------------------- -------- ------------ ------------
Non-current assets
Intangible assets 6 70,833 71,318
Property, plant and equipment 6,640 6,078
Right-of-use asset 19,484 21,108
Deferred tax asset 1,348 384
Total non-current assets 98,305 98,888
--------------------------------------------- -------- ------------ ------------
Current assets
Trade and other receivables 24,705 13,741
Current tax asset 7,867 6,468
Cash and cash equivalents 38,699 42,423
--------------------------------------------- -------- ------------ ------------
Total current assets 71,271 62,632
--------------------------------------------- -------- ------------ ------------
Total assets 169,576 161,520
--------------------------------------------- -------- ------------ ------------
Current liabilities
Trade and other payables (21,797) (14,768)
Lease liability (1,461) (1,419)
Deferred income (2,466) (2,180)
Total current liabilities (25,724) (18,367)
--------------------------------------------- -------- ------------ ------------
Net current assets 45,547 44,265
--------------------------------------------- -------- ------------ ------------
Non-current liabilities
Provisions (56) (41)
Lease liability (19,278) (20,739)
Other payables (6,148) (9,219)
Total non-current liabilities (25,482) (29,999)
--------------------------------------------- -------- ------------ ------------
Total liabilities (51,206) (48,366)
--------------------------------------------- -------- ------------ ------------
Net assets 118,370 113,154
--------------------------------------------- -------- ------------ ------------
Equity
Share capital 197 197
Share premium account 36,468 36,079
Equity reserve (12,769) (9,351)
Foreign exchange reserve (18) 1
Retained earnings 94,492 86,228
--------------------------------------------- -------- ------------ ------------
Total equity 118,370 113,154
--------------------------------------------- -------- ------------ ------------
The accompanying accounting policies and notes form part of this
financial information.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 MAY 2022
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 31 May 2020 195 34,589 (925) (22) 62,897 96,734
-------------------------- -------------- --------------- --------------- --------------- --------------- -------------
Profit for the year - - - - 21,558 21,558
Other comprehensive
income:
Exchange differences on
translation
of foreign operations - - - 23 - 23
Total comprehensive
income
for the year - - - 23 21,558 21,581
-------------------------- -------------- --------------- --------------- --------------- --------------- -------------
Issue of share capital
net
of expenses 2 1,490 - - - 1,492
Share-based payment
charges - - 2,155 - - 2,155
Share-based payment
transfer
relating to option
exercises
and lapses - - (1,770) - 1,770 -
Employee Benefit Trust
cash
outflows from share
purchases - - (10,000) - - (10,000)
Employee Benefit Trust
net
cash inflows from option
exercises - - 1,189 - - 1,189
Deferred tax movements
posted
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
-------------------------- -------------- --------------- --------------- --------------- --------------- -------------
Profit for the year - - - - 9,628 9,628
Other comprehensive
income:
Exchange differences on
translation
of foreign operations - - - (19) - (19)
Total comprehensive
income
for the year - - - (19) 9,628 9,609
-------------------------- -------------- --------------- --------------- --------------- --------------- -------------
Issue of share capital
net
of expenses - 389 - - - 389
Share-based payment
charges - - 2,452 - - 2,452
Share-based payment
transfer
relating to option
exercises
and lapses - - (1,376) - 1,376 -
Employee Benefit Trust
cash
outflows from share
purchases - - (5,000) - - (5,000)
Employee Benefit Trust
net
cash inflows from option
exercises - - 506 - - 506
Deferred tax movements
posted
directly to reserves - - - - (2,740) (2,740)
-------------------------- -------------- --------------- --------------- --------------- --------------- -------------
Transactions with owners - 389 (3,418) - (1,364) (4,393)
-------------------------- -------------- --------------- --------------- --------------- --------------- -------------
At 31 May 2022 197 36,468 (12,769) (18) 94,492 118,370
-------------------------- -------------- --------------- --------------- --------------- --------------- -------------
The accompanying accounting policies and notes form part of this
financial information.
CONSOLIDATED STATEMENT OF CASHFLOWS
FOR THE YEARED 31 MAY 2022
12 months 12 months
to to
31 May 2022 31 May 2021
GBP'000 GBP'000
--------------------------------------------------- --------------- -------------
Profit before taxation 944 19,185
Adjustments for :
Depreciation and amortisation 32,199 18,167
Impairment of intangible assets 7,398 -
Movement in unrealised exchange losses/(gains)
on forward contracts 474 (223)
Share-based payment expenses 2,452 2,155
Interest expense - 88
Interest received (57) (48)
Payment of interest element of lease liabilities 649 691
Research and Development Expenditure Credit (375)
(RDEC) -
Working capital changes:
Change in trade and other receivables (10,964) (1,233)
Change in trade and other payables 4,465 119
Change in provisions 15 15
--------------------------------------------------- --------------- -------------
Cash generated from operations 37,200 38,916
Taxes received 3,956 38
Net cash flows from operating activities 41,156 38,954
--------------------------------------------------- --------------- -------------
Investing activities
Purchase of property, plant and equipment (2,500) (1,375)
Expenditure on intangible assets (36,243) (31,502)
Interest received 57 48
Net cash flows used in investing activities (38,686) (32,829)
--------------------------------------------------- --------------- -------------
Financing activities
Proceeds from issue of share capital 389 1,492
Employee Benefit Trust cash outflows from share
purchases (5,000) (10,000)
Employee Benefit Trust cash inflows from option
exercises 506 1,189
Payment of principal element of lease liabilities (1,419) (1,377)
Payment of interest element of lease liabilities (649) (691)
Interest paid - (88)
Net cash flows used in financing activities (6,173) (9,475)
--------------------------------------------------- --------------- -------------
Net change in cash and cash equivalents from
continuing operations (3,703) (3,350)
Cash and cash equivalents at beginning of year 42,423 45,751
Exchange differences on cash and cash equivalents (21) 22
Cash and cash equivalents at end of year 38,699 42,423
--------------------------------------------------- --------------- -------------
The accompanying accounting policies and notes form part
of this financial information.
NOTES TO THE FINANCIAL INFORMATION
1. CORPORATE INFORMATION
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.
2. BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE
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 2022 and 31 May 2021.
The accounts for the year ended 31 May 2021 have been delivered to
the Registrar of Companies. The statutory accounts for the year
ended 31 May 2022 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 2022 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 on 8 November 2022.
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 UK-adopted IASs. The financial
information has been prepared on the basis of all applicable IFRSs,
including all IASs, Standing Interpretations Committee (SIC)
interpretations and International Financial Reporting
Interpretations Committee (IFRIC) interpretations issued by the
International Accounting Standards Board (IASB) that are applicable
to the financial period.
Except for the application of UK-adopted IASs, for which there
are no material differences from IFRSs as issued by the IASB and
adopted by the EU when applied to the Group, accounting policies
have been applied consistently to all years presented unless
otherwise stated.
The financial information has been prepared on a going concern
basis 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.
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 period to 30
November 2023 ('the going concern period'). The Group and Company
therefore continue to adopt the going concern basis in preparing
their financial statements.
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
2022 of GBP38.7 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 and the current macroeconomic conditions arising
from the ongoing Ukraine crisis. 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 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 2023.
The sensitivities included in the 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; and
-- 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; and
-- 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 2023. The financial
statements for the year ended 31 May 2022 are therefore prepared
under the going concern basis.
3. 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.
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.
Other revenue mainly related to royalty income in both FY22 and
FY21.
12 months 12 months
to 31 May to 31 May
2022 2021
GBP'000 GBP'000
-------------------------------------------------- ----------- -----------
Publishing revenue 113,555 90,471
Other revenue 477 217
-------------------------------------------------- ----------- -----------
Total revenue 114,032 90,688
-------------------------------------------------- ----------- -----------
Cost of sales (40,420) (27,538)
-------------------------------------------------- ----------- -----------
Gross profit 73,612 63,150
-------------------------------------------------- ----------- -----------
Research and development expenses (46,179) (22,025)
Sales and marketing expenses (12,339) (7,269)
Administrative expenses (13,558) (13,940)
-------------------------------------------------- ----------- -----------
Operating profit 1,536 19,916
-------------------------------------------------- ----------- -----------
Net finance costs (592) (731)
-------------------------------------------------- ----------- -----------
Profit before tax 944 19,185
-------------------------------------------------- ----------- -----------
Income tax 8,684 2,373
-------------------------------------------------- ----------- -----------
Profit for the year attributable to shareholders 9,628 21,558
-------------------------------------------------- ----------- -----------
4. TAXATION ON ORDINARY ACTIVITIES
The major components of the income tax credit for FY22 and FY21
are:
12 months 12 months
Consolidated income statement to 31 May to 31 May
2022 2021
GBP'000 GBP'000
---------------------------------------------- ----------- -----------
Current tax:
Credit in respect of current year (3,471) (2,512)
Adjustments in respect of prior years (1,509) (1,616)
---------------------------------------------- ----------- -----------
Total current tax (4,980) (4,128)
---------------------------------------------- ----------- -----------
Deferred tax:
(Credit)/charge in respect of current year (4,507) 684
Adjustments in respect of prior years 552 1,071
Relating to changes in tax rates 251 -
---------------------------------------------- ----------- -----------
Total deferred tax (3,704) 1,755
---------------------------------------------- ----------- -----------
Total taxation credit reported in the income
statement (8,684) (2,373)
---------------------------------------------- ----------- -----------
Consolidated equity 12 months 12 months
to 31 May to 31 May
2022 2021
GBP'000 GBP'000
---------------------------------------------- ----------- -----------
Deferred tax related to items recognised in
equity during the year:
Net change in share option exercises 2,740 (3)
---------------------------------------------- ----------- -----------
Reconciliation of total tax credit at statutory tax rates:
12 months 12 months
to 31 May to 31 May
2022 2021
GBP'000 GBP'000
-------------------------------------------------- ----------- -----------
Profit on ordinary activities before taxation 944 19,185
Tax on profit on ordinary activities at standard
statutory tax rate 19% (2021: 19%) 179 3,652
Factors affecting tax expense for the year:
Expenses not deductible for tax purposes 80 13
Adjustments in respect of prior years (957) (545)
Tax rate benefit on surrender of tax losses (850) (415)
Losses on which deferred tax previously not (878) -
recognised
Research and development tax credits - (816)
Video Games Tax Relief enhanced deductions
on which credits claimed (3,864) (2,430)
Benefit of Patent Box (2,665) (1,430)
Deferred tax not recognised 20 (402)
Effect of changes in tax rate 251 -
-------------------------------------------------- ----------- -----------
Taxation credit (8,684) (2,373)
-------------------------------------------------- ----------- -----------
In the Spring Budget 2021, the Government announced that from 1
April 2023 the corporation tax rate will increase to 25%. At the
balance sheet date, deferred taxes have therefore been measured
using the tax rate at the date that the deferred tax asset or
liability unwinds of 19-25% (31 May 2021: 19%).
For FY22 the Group has recorded a total corporation tax credit
of GBP8.7 million (FY21: GBP2.4 million). The Group benefits from
the enhanced tax deductions available from the Video Games Tax
Relief (VGTR) scheme. The Group also benefits from the Patent Box
relief that reduced the taxable profits for Jurassic World
Evolution, Jurassic World Evolution 2 and Planet Zoo during the
year.
The Group recognised a prior year adjustment of GBP957k during
the year as a result of Jurassic World Evolution 2's Video Games
Tax Relief claim in the final FY21 corporation tax return after
receiving the final certificate from the British Film Institute
(BFI) in March 2022, in which the surrender of losses were carried
forward.
The tax rate benefit on surrender of tax losses of GBP850k is
the additional 6% tax benefit received in respect of surrendering
the current year losses for the VGTR tax credit at 25% for the
following trades: Elite Dangerous, F1(R) Manager 2022 and Warhammer
Age of Sigmar.
Due to the increased certainty of the Jurassic World Evolution 2
forecast for FY23 and FY24, the Group recognised a deferred tax
asset of GBP878k in respect of the GBP4.6 million of losses carried
forward for this VGTR trade.
The Group claimed research and development tax relief under the
Small or Medium-sized Enterprise (SME) scheme in FY21. The Group
elected into the Research and Development Expenditure Credit (RDEC)
scheme in FY22. The Research and Development (R&D) tax credit
in FY22 is offset against and recognised in research and
development expenses. The tax charge applied to R&D tax credit
is currently included within the deferred tax assets, which is due
to the Group making a taxable loss in FY22.
During the year, deferred tax not recognised relates to the tax
effected tax saving on the employee share scheme deduction of
GBP78k, netting off with the unrecognised tax losses movement of
GBP58k for trades other than Jurassic World Evolution 2. The
movement on employee share scheme deduction of GBP78k is the
deferred tax movement of GBP306k posted to the income statement at
a tax rate of 19%, less the current tax deduction of GBP228k.
Unrecognised tax losses movement of GBP58k is the net of GBP5.0
million brought forward losses now utilised and the GBP4.7 million
current year loss carried forward, tax effected at 19%.
The losses do not have an expiry date.
5. EARNINGS PER SHARE
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.
12 months 12 months
to 31 May to
2022 31 May 2021
----------------------------------------------- ------------- ---------------
Profit attributable to shareholders (GBP'000) 9,628 21,558
Weighted average number of shares 39,172,987 38,909,932
----------------------------------------------- ------------- ---------------
Basic earnings per share (p) 24.6 55.4
----------------------------------------------- ------------- ---------------
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.
12 months 12 months
to 31 May to
2022 31 May 2021
----------------------------------------------- ------------- -------------
Profit attributable to shareholders (GBP'000) 9,628 21,558
Diluted weighted average number of shares 40,606,756 40,471,633
----------------------------------------------- ------------- -------------
Diluted earnings per share (p) 23.7 53.3
----------------------------------------------- ------------- -------------
The reconciliation of the average number of Ordinary Shares used for
basic and diluted earnings per share is as follows:
-----------------------------------------------------------------------------
12 months 12 months
to to
31 May 2022 31 May 2021
----------------------------------------------- ------------- -------------
Weighted average number of shares 39,172,987 38,909,932
Dilutive effect of share options 1,433,769 1,561,701
----------------------------------------------- ------------- -------------
Diluted average number of shares 40,606,756 40,471,633
----------------------------------------------- ------------- -------------
6. INTANGIBLE ASSETS
GROUP AND COMPANY
The Group and Company intangible assets comprise game
technology, game developments, third-party software and IP
licences. Game technology includes Frontier's COBRA game engine and
other technology which supports the development and publication of
games. The game developments category includes capitalised
development costs for base game and PDLC assets for both internally
developed games and games developed by partners within the Frontier
Foundry third-party publishing games label. Third-party software
includes subscriptions to development and business software.
Intangible assets for IP licences are recognised at the execution
of the licence, based on the minimum guarantees payable by Frontier
to the IP owner.
Game technology Game developments Third-party
GBP'000 GBP'000 software IP licences Total
GBP'000 GBP'000 GBP'000
----------------------------- ---------------- ------------------ ------------ -------------- ----------
Cost
At 31 May 2020 9,158 72,328 1,093 10,824 93,403
Additions 7,851 25,138 620 361 33,970
Transfer - (347) 347 - -
----------------------------- ---------------- ------------------ ------------ -------------- ----------
At 31 May 2021 17,009 97,119 2,060 11,185 127,373
Additions 2,724 32,496 330 - 35,550
Disposals - (222) - - (222)
----------------------------- ---------------- ------------------ ------------ -------------- ----------
At 31 May 2022 19,733 129,393 2,390 11,185 162,701
----------------------------- ---------------- ------------------ ------------ -------------- ----------
Amortisation and impairment
At 31 May 2020 5,589 33,007 803 1,336 40,735
Amortisation charges 1,469 13,427 424 - 15,320
----------------------------- ---------------- ------------------ ------------ -------------- ----------
At 31 May 2021 7,058 46,434 1,227 1,336 56,055
Amortisation charges 2,115 24,360 424 1,738 28,637
Impairment charge - 7,398 - - 7,398
Disposals - (222) - - (222)
----------------------------- ---------------- ------------------ ------------ -------------- ----------
At 31 May 2022 9,173 77,970 1,651 3,074 91,868
Net book value at 31
May 2022 10,560 51,423 739 8,111 70,833
----------------------------- ---------------- ------------------ ------------ -------------- ----------
Net book value at 31
May 2021 9,951 50,685 833 9,849 71,318
----------------------------- ---------------- ------------------ ------------ -------------- ----------
The majority of amortisation charges for intangible assets are
expensed within research and development expenses. Amortisation
charges for IP licences are typically charged to cost of sales,
which reflects the IP licence royalties which the minimum
guarantees relate to.
The Group recognised an impairment loss of GBP7.4 million during
FY22 in respect of Elite Dangerous: Odyssey as a result of lower
than expected engagement with Elite Dangerous: Odyssey on PC
following its launch in May 2021 and the decision to cancel further
console development of this major expansion. The value in use
recoverable amount of Elite Dangerous: Odyssey at 31 May 2022 is
GBPnil (31 May 2021: no impairment charge) using a pre-tax discount
rate of 9% (31 May 2021: 9%). No reasonable possible change in key
assumptions for other intangible assets would result in an
impairment charge.
7. 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.
12 months 12 months
to to
31 May 2022 31 May 2021
GBP'000 GBP'000
--------------------------------- ------------- -------------
Operating profit 1,536 19,916
Depreciation and amortisation 32,199 18,167
Impairment of intangible assets 7,398 -
EBITDA 41,133 38,083
--------------------------------- ------------- -------------
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.
12 months
to 12 months
31 May to 31 May
2022 2021
GBP'000 GBP'000
---------------------------------------------------- ------------ ------------
Operating profit 1,536 19,916
Add back non-cash intangible asset amortisation
charges for game developments and Frontier's
game technology 26,475 14,896
Add back non-cash intangible asset impairment 7,398 -
charge for game developments
Deduct capitalised investment costs in game
developments and Frontier's game technology (35,220) (27,793)
Add back non-cash depreciation charges 3,562 2,847
Add back non-cash movements in unrealised exchange
losses/(gains) on forward contracts 474 (223)
Add back non-cash share-based payment expenses 2,452 2,155
Adjusted EBITDA 6,677 11,798
---------------------------------------------------- ------------ ------------
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.
12 months 12 months
to to
31 May 2022 31 May 2021
GBP'000 GBP'000
--------------------------------------------------- --------------- -------------
Gross R&D expenses 47,526 34,922
Capitalised investment costs in game developments
and Frontier's game technology (35,220) (27,793)
Amortisation charges for game developments and
Frontier's game technology 26,475 14,896
Impairment of intangible assets 7,398 -
Net R&D expenses 46,179 22,025
--------------------------------------------------- --------------- -------------
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END
FR LMMPTMTTTBLT
(END) Dow Jones Newswires
September 21, 2022 02:02 ET (06:02 GMT)
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