TIDMFDEV
RNS Number : 1884N
Frontier Developments PLC
19 January 2023
Frontier Developments plc
FY23 Interim Results
Frontier Developments plc (AIM: FDEV, 'Frontier', the 'Company',
or the 'Group'), a leading developer and publisher of video games
based in Cambridge, UK, publishes its unaudited interim results for
the 6 months to 30 November 2022 ('H1 FY23').
Financial Headlines
H1 FY23 H1 FY22 FY22
(6 months to (6 months to (12 months
30 November 2022) 30 November to 31 May 2022)
2021)
Revenue GBP57.1m GBP49.1m GBP114.0m
----------------------- ----------------- ---------------------
Operating profit/(loss) GBP6.9m (GBP1.3m) GBP1.5m
----------------------- ----------------- ---------------------
EBITDA* GBP19.1m GBP14.1m GBP41.1m
----------------------- ----------------- ---------------------
Adjusted EBITDA** (GBP0.6m) (GBP0.9m) GBP6.7m
----------------------- ----------------- ---------------------
EPS (basic) 17.2p (4.2p) 24.6p
----------------------- ----------------- ---------------------
Net cash balance at GBP42.6m GBP33.6m GBP38.7m
period end
----------------------- ----------------- ---------------------
*Earnings before interest, tax, depreciation and
amortisation.
** Adjusted EBITDA is earnings before interest, tax,
depreciation and amortisation charges related to game developments
and Frontier's game technology, less investments in game
developments and Frontier's game technology, and excluding
share-based payment charges and other non-cash items.
-- Revenue increased by 16% over the comparative period to
GBP57.1 million (H1 FY22: 49.1 million) through the release of
F1(R) Manager 2022 in August 2022, ongoing sales of the current
portfolio and new PDLC (paid-downloadable content) for existing
games
-- Gross profit margin of 63% was consistent with the
comparative period (H1 FY22: 63%), underpinned by the continued
contribution from the existing portfolio
-- Net R&D expenses reduced by GBP2.5 million to GBP16.1
million (H1 FY22: GBP18.6 million) mainly as a result of the full
amortisation of Elite Dangerous: Odyssey during FY22
-- Operating profit rebounded to GBP6.9 million (H1 FY22: a loss
of GBP1.3 million) through a combination of a higher revenue and
lower R&D costs
-- Adjusted EBITDA, a measure of cash profit, remained as a
small net outflow (an outflow of GBP0.6 million versus an outflow
of GBP0.9 million in H1 FY22), reflecting continued investment in
future titles and support for existing games
-- Net cash balance was GBP42.6 million at 30 November 2022 (31
May 2022: GBP38.7 million). Net cash grew by GBP3.9 million during
the period despite an GBP8.8 million cash outflow in November 2022
for the acquisition of Complex Games
Operational & Strategic Headlines
-- Frontier's develop, launch and nurture strategy continues to
deliver material annual revenue from each game over many years
o As expected, the strongest performers in FY23 to date from our
existing portfolio are Jurassic World Evolution 2 and Planet Zoo ,
which continue to be supported with free updates and multiple PDLC
packs
o Jurassic World Evolution 2 , which released in November 2021,
delivered GBP73 million in its first 14 months (to 31 December
2022), which is 96% of the revenue achieved by 2018's Jurassic
World Evolution in its first 14 months (GBP76 million)
o Planet Zoo, launched in November 2019, continues to contribute
strong annual sales, with revenue in CY2022 at 82% of the revenue
recorded in CY2021
o As reported in the trading update on 9 January 2023, sales
performance during key price promotions in December 2022 (after the
reported period) fell below expectations, with some evidence of
increased player price sensitivity adversely impacting sales across
the portfolio
-- F1(R) Manager 2022 , the first annual title in a major new
sports franchise for Frontier, was released at the end of August
2022;
o Player engagement at release in August 2022 and during the
initial period after release was strong, and broadly in-line with
original expectations
o Over 600,000 units have been sold to date across PC, Xbox and
PlayStation, including both digital and physical unit sales on
console
o Metacritic ratings are between 74 and 80 across the three
platforms
o Unfortunately, sales performance during key holiday season
price promotions (after the reported period) fell materially below
original expectations, as reported in the trading update on 9
January 2023, potentially due in part to increased player price
sensitivity related to worsening economic conditions
o F1(R) Manager 2022 remains a good first game in an important
new annual franchise for Frontier
o We will continue to enhance the F1(R) Manager franchise over
the coming years on the solid foundations provided by the first
game
-- We are assessing our strategy for Frontier Foundry, our games
label for third-party publishing;
o Foundry has supported eight different games to date, with six
released games and two titles launching in the next few months
o Given our mixed financial success to date and in the context
of increased competition in the third-party publishing market, we
are assessing our strategy for Foundry. In particular, we are
focussing on return on investment
o Whilst we remain committed to, and excited by, the titles
currently in development for release in FY23, we currently do not
have any Foundry titles scheduled for release in FY24, although we
will continue to earn revenue from titles released prior to
FY24
o The assessment of the strategy for Foundry is expected to
complete by the end of May 2023
Current Trading and Outlook
Following a lower sales performance in December than expected,
and the ongoing assessment of Foundry, the Board reset its
financial expectations for FY23 and FY24 in a trading update on 9
January 2023.
The outturn over the five remaining months of this financial
year is dependent on a number of variables, including the timing
and contribution from the scheduled Foundry releases and the
macro-economic environment. The Board believes it is still possible
to surpass last year's record revenue performance of GBP114
million, particularly if one of the upcoming Foundry titles is a
conspicuous success. However, given the number of variables and the
more challenging economic outlook, the Board have set a minimum
expectation of delivering revenue of not less than GBP100 million
in FY23.
The Board's expectation for revenue for FY23 of GBP100 million
to GBP114 million, would deliver an IFRS operating profit in the
range GBP2 million to GBP10 million.
The Board has set its expectations for FY24 revenue growth at 5%
above the eventual revenue outcome for FY23, in light of current
market and portfolio uncertainties, and the absence of new titles
from Foundry releasing in FY24.
FY24 will benefit from the release of our Warhammer Age of
Sigmar real-time strategy game and F1(R) Manager 2023.
For FY25 we have two new game releases planned, with F1(R)
Manager 2024 plus an own-IP creative management simulation
game.
Jonny Watts, Frontier's CEO, said
"I would like to thank our teams for their hard work and
dedication during a busy 2022 for Frontier. During the first half
of the financial year our game portfolio performed largely in line
with expectations. However, the key December trading period was
below expectations and we believe this was partly due to increased
player price sensitivity.
As we look forward, there are important lessons we have learned
for the F1(R) Manager franchise, including making the game more
accessible and engaging to a wider audience. I am confident that we
have delivered a good first game to build upon.
We have announced a review of Frontier Foundry, which we expect
to complete by the end of the financial year, as a result of the
financial challenges and competition for that third-party
publishing business model. We continue to look forward to the
releases of Deliver us Mars and The Great War: Western Front in the
next few months. They offer upside potential but we are being
cautious given our experience of the market in December.
Our Warhammer Age of Sigmar real-time strategy game remains on
track for release in FY24 and I look forward to sharing more
details in due course.
Overall we believe our core strategy remains sound. We have a
strong portfolio of good games and a large and talented team of
people. We will continue to work together to navigate our
challenges and deliver on our opportunities."
There will be a call for analysts and institutional investors at
9:30a.m. today. To register please contact
frontier@tulchangroup.com
Enquiries :
Frontier Developments +44 (0)1223 394 300
Jonny Watts, CEO
Alex Bevis, CFO
Liberum - Nomad and Joint Broker +44 (0)20 3100 2000
Neil Patel / Cameron Duncan
Jefferies - Joint Broker +44 (0)20 7029 8000
Philip Noblet / William Brown
Tulchan Communications +44 (0)20 7353 4200
Matt Low / Mark Burgess / Alex Dart
About Frontier Developments plc
Frontier is a leading independent developer and publisher of
videogames founded in 1994 by David Braben, co-author of the iconic
Elite game. Based in Cambridge, Frontier uses its proprietary COBRA
game development technology to create innovative genre-leading
games, primarily for personal computers and videogame consoles. As
well as self-publishing internally developed games, Frontier also
publishes games developed by carefully selected partner studios
under its Frontier Foundry games label.
Frontier's LEI number: 213800B9LGPWUAZ9GX18.
www.frontier.co.uk
Interim Results Statement
REVENUE
Total revenue in H1 FY23 grew to GBP57.1 million, 16% ahead of
the comparative period (H1 FY22: GBP49.1 million). Two-thirds of
revenue in the period was generated by existing games which had
been released before June 2022, with one-third of revenue coming
from new games released in the period, namely F1 (R) Manager 2022
and Foundry title Stranded: Alien Dawn .
Ongoing material revenue contributions from the genre-leading
games in the existing portfolio shows the strength of Frontier's
develop, launch and nurture strategy. As expected, the strongest
performers in the period from the existing portfolio were Jurassic
World Evolution 2 and Planet Zoo , which were both supported with
free updates and multiple PDLC packs. During 2022, Jurassic World
Evolution 2 benefitted from two large expansions inspired by the
content and themes from the June 2022 release of the Jurassic World
Dominion film, with the Jurassic World Evolution 2: Dominion Biosyn
Expansion in June 2022 (H1 FY23) and the Jurassic World Evolution
2: Dominion Malta Expansion in December 2022 (H2 FY23). Across the
whole portfolio, PDLC accounted for 30% of total revenue in H1 FY23
(H1 FY22: 25%).
COSTS AND PROFITABILITY
Gross profit grew to GBP36.1 million in the period (H1 FY22:
GBP30.8 million) through the increased level of sales, with the
gross profit margin percentage maintained at 63% (H1 FY22: 63%) as
a result of the strong performance of the existing portfolio.
Frontier's gross margin percentage tends to vary between periods
based on the revenue mix of own-IP games, licenced-IP games and
Foundry titles.
Gross research and development expenses in the period increased
by 16% to GBP25.9 million (H1 FY22: GBP22.2 million). The increase
was driven by the continued rise in people costs to support
Frontier's development plans, including headcount growth. Partly
offsetting the increased investment in internal people costs, was a
planned reduction in outsourced development costs. Significant
outsource costs were incurred during the development of F1 (R)
Manager 2022 , mainly during FY22, to deliver the large number of
assets required for the twenty-two circuits which featured during
the 2022 F1 (R) season. The Group will continue to benefit from
this initial investment, as the majority of those assets will be
utilised in future F1 (R) Manager titles.
Capitalisation of development costs on game developments and
Frontier's game technology accounted for GBP18.4 million in the
period (H1 FY22: GBP15.8 million). The percentage of gross research
and development costs which were capitalised was maintained at 71%
(H1 FY22: 71%). Providing free updates and content post-release is
an important element of Frontier's nurturing strategy, generating
return on investment. Development costs for free updates and
content are expensed as they are incurred, with only development
cost for chargeable content being capitalised. During H1 FY23, free
updates and content were developed and released for Jurassic World
Evolution 2, Planet Zoo, and Elite Dangerous , often alongside
chargeable content. Frontier's normal expectations for
capitalisation is 70-90% of gross development spending.
R&D amortisation charges related to previously capitalised
game developments and Frontier's game technology reduced to GBP8.6
million (H1 FY22: GBP12.2 million). Charges in H1 FY22 included a
full six months of amortisation for major expansion Elite
Dangerous: Odyssey (a May 2021 release) which temporarily boosted
amortisation charges. Elite Dangerous: Odyssey was eventually fully
amortised in FY22, with additional charges being recorded in H2
FY22.
As a result of the lower level of amortisation charges in H1
FY23 versus the comparative period, net research and development
expenses as recorded in the Income Statement fell by 14% to GBP16.1
million (H1 FY22: GBP18.6 million), being gross spend of GBP25.9
million, less capitalised costs of GBP18.4 million, plus
amortisation charges of GBP8.6 million.
Sales and marketing expenses in the period reduced slightly to
GBP6.9 million (H1 FY22: GBP7.5 million), with administrative
expenses increasing slightly to GBP6.3 million in the period (H1
FY22: GBP6.0 million), partly related to professional costs for the
acquisition of Complex Games in November 2022.
With higher revenue and lower R&D costs, operating profit
rebounded to a profit of GBP6.9 million in the period versus a
GBP1.3 million operating loss in H1 FY22.
Adjusted EBITDA, a measure of cash profit, remained as a small
net outflow in the period (an outflow of GBP0.6 million versus an
outflow of GBP0.9 million in H1 FY22), as Frontier continues to
invest strongly in future titles whilst supporting existing
games.
A net zero corporation tax charge was recorded in the Income
Statement for the period (H1 FY22: GBPnil), since for the full
financial year enhanced deductions from the Video Game Tax Relief
scheme are expected to offset any tax charges on profits. The Group
expects to provide additional corporation tax disclosures in the
FY23 financial statements.
A profit after tax of GBP6.7 million was recorded in the period
(H1 FY22: loss of GBP1.7 million). Basic earnings per share was
17.2 pence (H1 FY22: loss per share of 4.2 pence).
BALANCE SHEET AND CASH FLOW
The Group continues to benefit from a strong balance sheet, with
cash balances of GBP42.6 million at 30 November 2022 (31 May 2022:
GBP38.7 million; 30 November 2021: GBP33.6 million). The
acquisition of Complex Games in November 2022 resulted in a net
cash outflow of GBP8.8 million. Excluding that outflow, cash would
have increased by GBP12.7 million during H1 FY23. That increase in
cash came mainly from working capital movements and tax; cash
balances were boosted by a GBP9 million net working capital inflow,
as high levels of receivables as at 31 May 2022 unwound, and GBP4
million was received from HMRC for Video Game Tax relief claims
relating to FY21. Adjusted EBITDA, a measure of cash profitability,
was a small net outflow (GBP0.6 million) in H1 HY23 as Frontier
continues to invest strongly in new titles whilst supporting
existing games.
CONSOLIDATED INCOME STATEMENT
FOR THE PERIODED 30 NOVEMBER 2022
6 months to 6 months to 12 months
30 November 30 November to 31 May
2022 2021 2022
Notes GBP'000 GBP'000 GBP'000
----------------------------------- ------ ------------- ------------- -----------
Revenue 6 57,118 49,116 114,032
Cost of sales (20,984) (18,326) (40,420)
----------------------------------- ------ ------------- ------------- -----------
Gross profit 36,134 30,790 73,612
Research and development expenses 12 (16,052) (18,593) (46,179)
Sales and marketing expenses (6,893) (7,503) (12,339)
Administrative expenses (6,333) (6,037) (13,558)
----------------------------------- ------ ------------- ------------- -----------
Operating profit/(loss) 6,856 (1,343) 1,536
Net finance costs (137) (310) (592)
----------------------------------- ------ ------------- ------------- -----------
Profit/(loss) before tax 6,719 (1,653) 944
Income tax - - 8,684
----------------------------------- ------ ------------- ------------- -----------
Profit/(loss) for the period
attributable to shareholders 6,719 (1,653) 9,628
----------------------------------- ------ ------------- ------------- -----------
Earnings per share
Basic earnings per share 7 17.2p (4.2p) 24.6p
Diluted earnings per share 7 16.5p (4.2p) 23.7p
All the activities of the Group are classified as continuing.
The accompanying accounting policies and notes form part of this financial information.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIODED 30 NOVEMBER 2022
6 months to 6 months to 12 months
to
30 November 30 November 31 May 2022
2022 2021
GBP'000 GBP'000 GBP'000
---------------------------------------------- ------------ ------------ ------------
Profit/(loss) for the period 6,719 (1,653) 9,628
Other comprehensive income
Items that will be reclassified subsequently
to profit or loss:
Exchange differences on translation
of foreign operations 23 (12) (19)
---------------------------------------------- ------------ ------------ ------------
Total comprehensive income/(loss) for
the period attributable to the equity
holders of the parent 6,742 (1,665) 9,609
---------------------------------------------- ------------ ------------ ------------
The accompanying accounting policies and notes form part of this
financial information.
CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
AS AT 30 NOVEMBER 2022
(REGISTERED COMPANY NO: 02892559)
30 November 30 November
Notes 2022 2021 31 May 2022
GBP'000 GBP'000 GBP'000
------------------------------- -------- --------------- -------------- --------------
Non-current assets
Intangible assets 8 79,012 73,508 70,833
Property, plant and equipment 9 6,171 6,967 6,640
Goodwill 11 10,385 - -
Right-of-use asset 18,673 20,296 19,484
Deferred tax asset 1,349 384 1,348
Total non-current assets 115,590 101,155 98,305
------------------------------- -------- --------------- -------------- --------------
Current assets
Trade and other receivables 11,191 27,845 24,705
Current tax asset 4,094 2,511 7,867
Cash and cash equivalents 42,639 33,561 38,699
------------------------------- -------- --------------- -------------- --------------
Total current assets 57,924 63,917 71,271
------------------------------- -------- --------------- -------------- --------------
Total assets 173,514 165,072 169,576
------------------------------- -------- --------------- -------------- --------------
Current liabilities
Trade and other payables (18,430) (20,167) (21,797)
Lease liability (1,483) (1,440) (1,461)
Deferred income (2,769) (1,327) (2,466)
Total current liabilities (22,682) (22,934) (25,724)
------------------------------- -------- --------------- -------------- --------------
Net current assets 35,242 40,983 45,547
------------------------------- -------- --------------- -------------- --------------
Non-current liabilities
Provisions (63) (49) (56)
Lease liability (18,525) (20,008) (19,278)
Other payables (5,547) (8,825) (6,148)
Total non-current liabilities (24,135) (28,882) (25,482)
------------------------------- -------- --------------- -------------- --------------
Total liabilities (46,817) (51,816) (51,206)
------------------------------- -------- --------------- -------------- --------------
Net assets 126,697 113,256 118,370
------------------------------- -------- --------------- -------------- --------------
Equity
Share capital 10 197 197 197
Share premium account 36,468 36,368 36,468
Equity reserve (11,998) (8,635) (12,769)
Foreign exchange reserve 5 (11) (18)
Retained earnings 102,025 85,337 94,492
------------------------------- -------- --------------- -------------- --------------
Total equity 126,697 113,256 118,370
------------------------------- -------- --------------- -------------- --------------
The accompanying accounting policies and notes form part of this
financial information.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIODED 30 NOVEMBER 2022
Foreign
Share Share premium Equity exchange Retained Total
capital account reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 May 2021 197 36,079 (9,351) 1 86,228 113,154
---------------------------- -------------- --------------- --------------- --------------- ---------- ---------
Loss for the period - - - - (1,653) (1,653)
Other comprehensive income:
Exchange differences on
translation
of foreign operations - - - (12) - (12)
Total comprehensive loss
for
the period - - - (12) (1,653) (1,665)
---------------------------- -------------- --------------- --------------- --------------- ---------- ---------
Issue of share capital net
of expenses - 289 - - - 289
Share-based payment charges - - 1,175 - - 1,175
Share-based payment
transfer
relating to option
exercises
and lapses - - (762) - 762 -
Employee Benefit Trust net
cash inflows from option
exercises - - 303 - - 303
Transactions with owners - 289 716 - 762 1,767
---------------------------- -------------- --------------- --------------- --------------- ---------- ---------
At 30 November 2021 197 36,368 (8,635) (11) 85,337 113,256
---------------------------- -------------- --------------- --------------- --------------- ---------- ---------
Profit for the period - - - - 11,281 11,281
Other comprehensive income:
Exchange differences on
translation
of foreign operations - - - (7) - (7)
Total comprehensive income
for the period - - - (7) 11,281 11,274
---------------------------- -------------- --------------- --------------- --------------- ---------- ---------
Issue of share capital net
of expenses - 100 - - - 100
Share-based payment charges - - 1,277 - - 1,277
Share-based payment
transfer
relating to option
exercises
and lapses - - (614) - 614 -
Employee Benefit Trust cash
outflows from share
purchases - - (5,000) - - (5,000)
Employee Benefit Trust net
cash inflows from option
exercises - - 203 - - 203
Deferred tax movements
posted
directly to reserves - - - - (2,740) (2,740)
---------------------------- -------------- --------------- --------------- --------------- ---------- ---------
Transactions with owners - 100 (4,134) - (2,126) (6,160)
---------------------------- -------------- --------------- --------------- --------------- ---------- ---------
At 31 May 2022 197 36,468 (12,769) (18) 94,492 118,370
---------------------------- -------------- --------------- --------------- --------------- ---------- ---------
Profit for the period - - - - 6,719 6,719
Other comprehensive income:
Exchange differences on
translation
of foreign operations - - - 23 - 23
Total comprehensive income
for the period - - - 23 6,719 6,742
---------------------------- -------------- --------------- --------------- --------------- ---------- ---------
Share-based payment charges - - 1,305 - - 1,305
Share-based payment
transfer
relating to option
exercises
and lapses - - (814) - 814 -
Employee Benefit Trust net
cash inflows from option
exercises - - 280 - - 280
Transactions with owners - - 771 - 814 1,585
---------------------------- -------------- --------------- --------------- --------------- ---------- ---------
At 30 November 2022 197 36,468 (11,998) 5 102,025 126,697
---------------------------- -------------- --------------- --------------- --------------- ---------- ---------
The accompanying accounting policies and notes form part of this
financial information.
CONSOLIDATED STATEMENT OF CASHFLOWS
FOR THE PERIODED 30 NOVEMBER 2022
6 months to 6 months to 12 months
30 November 30 November to
2022 2021 31 May 2022
GBP'000 GBP'000 GBP'000
------------------------------------------------- ------------- ------------- ---------------
Profit before taxation 6,719 (1,653) 944
Adjustments for:
Depreciation and amortisation 12,289 15,481 32,199
Impairment of intangible assets - - 7,398
Movement in unrealised exchange (gains)/losses
on forward contracts (817) 1,224 474
Share-based payment expenses 1,305 1,175 2,452
Interest received (166) (14) (57)
Payment of interest element of lease
liabilities 303 325 649
Research and Development Expenditure
Credit (RDEC) - - (375)
Working capital changes:
Change in trade and other receivables 15,451 (14,105) (10,964)
Change in trade and other payables (6,228) 2,929 4,465
Change in provisions 7 7 15
------------------------------------------------- ------------- ------------- ---------------
Cash generated from operations 28,863 5,369 37,200
Taxes received 4,021 3,957 3,956
Net cash flows from operating activities 32,884 9,326 41,156
------------------------------------------------- ------------- ------------- ---------------
Investing activities
Purchase of property, plant and equipment (645) (1,779) (2,500)
Expenditure on intangible assets (18,895) (15,969) (36,243)
Acquisition of subsidiaries (net of (8,847) - -
cash acquired)
Interest received 166 14 57
Net cash flows used in investing activities (28,221) (17,734) (38,686)
------------------------------------------------- ------------- ------------- ---------------
Financing activities
Proceeds from issue of share capital - 289 389
Employee Benefit Trust cash outflows
from share purchases - - (5,000)
Employee Benefit Trust cash inflows
from option exercises 280 303 506
Payment of principal element of lease
liabilities (731) (709) (1,419)
Payment of interest element of lease
liabilities (303) (325) (649)
Net cash flows used in financing activities (754) (442) (6,173)
------------------------------------------------- ------------- ------------- ---------------
Net change in cash and cash equivalents
from continuing operations 3,909 (8,850) (3,703)
Cash and cash equivalents at beginning
of period 38,699 42,423 42,423
Exchange differences on cash and cash
equivalents 31 (12) (21)
Cash and cash equivalents at end of
period 42,639 33,561 38,699
------------------------------------------------- ------------- ------------- ---------------
The accompanying accounting policies and notes form part
of this financial information.
NOTES TO THE FINANCIAL INFORMATION
1. CORPORATE INFORMATION
Frontier Developments plc (the 'Company') and its subsidiaries
(together, the 'Group') develops and publishes video games for the
interactive entertainment sector. The Company is a public limited
company and is incorporated and domiciled in the United
Kingdom.
The address of its registered office is 26 Science Park, Milton
Road, Cambridge CB4 0FP.
The Group's operations are based in the UK, with subsidiaries
based in Canada and the US.
2. BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE
Basis of preparation
The consolidated interim financial statements have been prepared
in accordance with International Accounting Standard 34 'Interim
Financial Reporting' (IAS 34), as issued by the International
Accounting Standards Board (IASB) and as adopted by the UK, and the
disclosure requirements of the Listing Rules.
The consolidated interim financial statements do not comprise
statutory accounts within the meaning of section 434 of the
Companies Act 2006, and have not been audited or reviewed by the
Company's auditors.
The consolidated interim financial statements should be read in
conjunction with the financial statements for the year ended 31 May
2022.
Statutory accounts for the year ended 31 May 2022 were approved
by the Board of Directors on 21 September 2022 and delivered to the
Registrar of Companies. The Auditor's Report was unqualified, did
not contain an emphasis of matter paragraph and did not contain any
statement under section 498 of the Companies Act 2006.
The financial information has been prepared under the historical
cost convention except for financial instruments held at fair
value. The financial information is presented in Sterling, the
presentation and functional currency for the Group and Company. All
values are rounded to the nearest thousand pounds (GBP'000) except
when otherwise indicated.
Going concern basis
The Group's forecasts and projections, taking account of current
cash resources and reasonably possible changes in trading
performance, support the conclusion that there is a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future, a period of not
less than 12 months from the date of approval of these financial
statements. The Group therefore continues to adopt the going
concern basis in preparing its financial statements.
3. ACCOUNTING POLICIES
Except for the application for UK-adopted international
accounting standards, for which there are no material differences
from International Financial Reporting Standards as issued by the
IASB and adopted by the EU when applied to the Group, the
consolidated interim financial statements have been prepared in
accordance with the accounting policies adopted in the Group's most
recent annual financial statements for the year ended 31 May
2022.
4. ACCOUNTING ESTIMATES AND KEY JUDGEMENTS
When preparing the interim financial statements, management
undertakes a number of judgements, estimates and assumptions about
recognition and measurements of assets, liabilities, income and
expenses. The actual results may differ from these estimates.
The judgements, estimates and assumptions applied in the interim
financial statements, including the key sources of estimation
uncertainty, were the same as those applied in the Group's last
annual financial statements for the year ended 31 May 2022.
5. SIGNIFICANT EVENTS AND TRANSACTIONS
There were no significant events or transactions in the interim
period (1 June 2022 to 30 November 2022) which were not included
within the interim financial statements. There have been no
significant events or transactions during the period from the end
of the interim period to the day preceding the date of this report
(1 December 2022 to 18 January 2023).
6. SEGMENT INFORMATION
The Group identifies operating segments based on internal
management reporting that is regularly reviewed by the chief
operating decision maker and reported to the Board. The chief
operating decision maker is the Chief Executive Officer.
Management information is reported as one operating segment,
being revenue from publishing games and revenue from other streams
such as royalties and licensing.
The Group does not provide any information on the geographical
location of sales as the majority of revenue is through third-party
distribution platforms which are responsible for the sales data of
consumers. The cost to develop this information internally would be
excessive.
The majority of the Group's non-current assets are held within
the UK.
All material revenue is categorised as either publishing revenue
or other revenue.
The Group typically satisfies its performance obligations at the
point that the product becomes available to the customer.
Other revenue mainly related to royalty income in H1 FY23, H1
FY22 and FY22.
6 months to 6 months to 12 months
30 November 30 November to 31 May
2022 2021 2022
GBP'000 GBP'000 GBP'000
------------------------------------------- ------------- ------------- -----------
Publishing revenue 56,971 48,893 113,555
Other revenue 147 223 477
------------------------------------------- ------------- ------------- -----------
Total revenue 57,118 49,116 114,032
------------------------------------------- ------------- ------------- -----------
Cost of sales (20,984) (18,326) (40,420)
------------------------------------------- ------------- ------------- -----------
Gross profit 36,134 30,790 73,612
------------------------------------------- ------------- ------------- -----------
Research and development expenses (16,052) (18,593) (46,179)
Sales and marketing expenses (6,893) (7,503) (12,339)
Administrative expenses (6,333) (6,037) (13,558)
------------------------------------------- ------------- ------------- -----------
Operating profit/(loss) 6,856 (1,343) 1,536
------------------------------------------- ------------- ------------- -----------
Net finance costs (137) (310) (592)
------------------------------------------- ------------- ------------- -----------
Profit/(loss) before tax 6,719 (1,653) 944
------------------------------------------- ------------- ------------- -----------
Income tax - - 8,684
------------------------------------------- ------------- ------------- -----------
Profit/(loss) for the period attributable
to shareholders 6,719 (1,653) 9,628
------------------------------------------- ------------- ------------- -----------
7. EARNINGS PER SHARE
The calculation of the basic earnings per share is based on the
profit/(loss) attributable to the shareholders of Frontier
Developments plc divided by the weighted average number of shares
in issue during the period.
6 months 6 months to 12 months
to 30 November 30 November to 31 May
2022 2021 2022
-------------------------------------------- ---------------- ---------------- ----------------
Profit/(loss) attributable to shareholders
(GBP'000) 6,719 (1,653) 9,628
Weighted average number of shares 39,018,948 39,162,921 39,172,987
-------------------------------------------- ---------------- ---------------- ----------------
Basic earnings per share (p) 17.2 (4.2) 24.6
-------------------------------------------- ---------------- ---------------- ----------------
The calculation of the diluted earnings per share is based on the profit/(loss)
attributable to the shareholders of Frontier Developments plc divided
by the weighted average number of shares in issue during the period
as adjusted for the dilutive effect of share options.
6 months 6 months 12 months
to 30 November to 30 November to 31 May
2022 2021 2022
-------------------------------------------- ---------------- ---------------- --------------
Profit/(loss) attributable to shareholders
(GBP'000) 6,719 (1,653) 9,628
Diluted weighted average number of
shares 40,598,671 39,162,921 40,606,756
-------------------------------------------- ---------------- ---------------- --------------
Diluted earnings per share (p) 16.5 (4.2) 23.7
-------------------------------------------- ---------------- ---------------- --------------
The reconciliation of the average number of Ordinary Shares used for
basic and diluted earnings per share is as follows:
------------------------------------------------------------------------------------------------
6 months 6 months 12 months
to 30 November to 30 November to
2022 2021 31 May 2022
-------------------------------------------- ---------------- ---------------- --------------
Weighted average number of shares 39,018,948 39,162,921 39,172,987
Dilutive effect of share options 1,579,723 - 1,433,769
-------------------------------------------- ---------------- ---------------- --------------
Diluted average number of shares 40,598,671 39,162,921 40,606,756
-------------------------------------------- ---------------- ---------------- --------------
The dilutive effect of share options is nil for the 6 months to
30 November 2021 because a loss was recorded for that period.
8. INTANGIBLE ASSETS
Game technology Game developments Third-party
GBP'000 GBP'000 software IP licences Total
GBP'000 GBP'000 GBP'000
------------------------------- ---------------- ------------------ ------------ -------------- ----------
Cost
At 31 May 2021 17,009 97,119 2,060 11,185 127,373
Additions 1,254 14,557 158 - 15,969
At 30 November 2021 18,263 111,676 2,218 11,185 143,342
Additions 1,470 17,939 172 - 19,581
Disposals - (222) - - (222)
------------------------------- ---------------- ------------------ ------------ -------------- ----------
At 31 May 2022 19,733 129,393 2,390 11,185 162,701
Additions 1,643 16,786 106 - 18,535
On acquisition - - 62 - 62
------------------------------- ---------------- ------------------ ------------ -------------- ----------
At 30 November 2022 21,376 146,179 2,558 11,185 181,298
------------------------------- ---------------- ------------------ ------------ -------------- ----------
Amortisation and impairment
At 31 May 2021 7,058 46,434 1,227 1,336 56,055
Amortisation charges 1,058 11,115 229 1,377 13,779
------------------------------- ---------------- ------------------ ------------ -------------- ----------
At 30 November 2021 8,116 57,549 1,456 2,713 69,834
Amortisation charges 1,057 13,245 195 361 14,858
Impairment charge - 7,398 - - 7,398
Disposals - (222) - - (222)
------------------------------- ---------------- ------------------ ------------ -------------- ----------
At 31 May 2022 9,173 77,970 1,651 3,074 91,868
Amortisation charges 1,512 7,293 210 1,341 10,356
On acquisition - - 62 - 62
------------------------------- ---------------- ------------------ ------------ -------------- ----------
At 30 November 2022 10,685 85,263 1,923 4,415 102,286
------------------------------- ---------------- ------------------ ------------ -------------- ----------
Net book value
Net book value at 30 November
2022 10,691 60,916 635 6,770 79,012
------------------------------- ---------------- ------------------ ------------ -------------- ----------
Net book value at 31 May
2022 10,560 51,423 739 8,111 70,833
------------------------------- ---------------- ------------------ ------------ -------------- ----------
Net book value at 30 November
2021 10,147 54,127 762 8,472 73,508
------------------------------- ---------------- ------------------ ------------ -------------- ----------
Net book value at 31 May
2021 9,951 50,685 833 9,849 71,318
------------------------------- ---------------- ------------------ ------------ -------------- ----------
9. PROPERTY, PLANT AND EQUIPMENT
Fixtures Computer Leasehold Total
and fittings equipment improvements
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------------- ----------- -------------- --------
Cost
At 31 May 2021 863 4,156 5,358 10,377
Additions - 1,779 - 1,779
------------------------------- -------------- ----------- -------------- --------
At 30 November 2021 863 5,935 5,358 12,156
Additions 5 716 - 721
------------------------------- -------------- ----------- -------------- --------
At 31 May 2022 868 6,651 5,358 12,877
Additions - 606 39 645
On acquisition 12 98 53 163
------------------------------- -------------- ----------- -------------- --------
At 30 November 2022 880 7,355 5,450 13,685
------------------------------- -------------- ----------- -------------- --------
Depreciation
At 31 May 2021 546 2,737 1,016 4,299
Charge for the period 75 648 167 890
------------------------------- -------------- ----------- -------------- --------
At 30 November 2021 621 3,385 1,183 5,189
Charge for the period 75 805 168 1,048
------------------------------- -------------- ----------- -------------- --------
At 31 May 2022 696 4,190 1,351 6,237
Charge for the period 75 878 168 1,121
On acquisition 5 98 53 156
------------------------------- -------------- ----------- -------------- --------
At 30 November 2022 776 5,166 1,572 7,514
------------------------------- -------------- ----------- -------------- --------
Net book value
Net book value at 30 November
2022 104 2,189 3,878 6,171
-------------------------------
Net book value at 31 May 2022 172 2,461 4,007 6,640
------------------------------- -------------- ----------- -------------- --------
Net book value at 30 November
2021 242 2,550 4,175 6,967
------------------------------- -------------- ----------- -------------- --------
Net book value at 31 May 2021 317 1,419 4,342 6,078
------------------------------- -------------- ----------- -------------- --------
10. SHARE CAPITAL
Number Nominal Value
GBP
------------------------------------------------ ----------- --------------
At 1 June 2021 39,343,604 196,718
------------------------------------------------ ----------- --------------
Shares issued on option exercises and warrants 49,651 248
------------------------------------------------ ----------- --------------
At 30 November 2021 39,393,255 196,966
------------------------------------------------ ----------- --------------
Shares issued on option exercises and warrants 30,094 151
------------------------------------------------ ----------- --------------
At 31 May 2022 39,423,349 197,117
------------------------------------------------ ----------- --------------
Shares issued on option exercises and warrants - -
------------------------------------------------ ----------- --------------
At 30 November 2022 39,423,349 197,117
------------------------------------------------ ----------- --------------
11. ACQUISITION OF COMPLEX GAMES INC
On 1 November 2022, Frontier Developments plc acquired
experienced game development studio Complex Games Inc ('Complex')
following a successful collaboration with the development and
launch of Warhammer 40,000: Chaos Gate - Daemonhunters.
Frontier acquired 100% of the share capital in Complex for an
upfront cash consideration of CAD$13 million (GBPGBP8.3 million)
and conditional deferred cash consideration of up to CAD$5.16
million (GBPGBP3.3 million), which is payable subject to Complex
meeting certain operational milestones during the period to 31
December 2023.
In addition, the four employee shareholders - the two founders
and the two studio principals - will participate in a profit-share
earn-out of up to CAD$11.76 million (GBPGBP7.5 million) payable
over 5 years.
Acquisition accounting in the H1 FY23 financial results is
provisional, due to the short time since the acquisition of Complex
and the date of the interim financial statements. The assessment of
the fair value of the assets acquired is subject to change, since
the purchase price allocation review is still in progress. It is
expected that this work will be completed by 31 May 2023 to enable
the acquisition accounting to be finalised in the full year FY23
financial results.
In the H1 FY23 financial results, a provisional fair value of
the assets of Complex as at 1 November 2022 of CAD$2.0 million
(GBPGBP1.3 million) has been applied. After adjusting the total of
the upfront consideration (CAD$13 million, GBPGBP8.3 million) and
deferred consideration (CAD$5.16 million, GBPGBP3.3 million) for
the net position on cash and working capital, the total
consideration accounted for was CAD$18.4 million (GBPGBP11.7
million). This has resulted in a provisional goodwill balance of
GBPGBP10.4 million, which is included on the Consolidated Statement
of Financial Position in the interim financial statements.
12. KEY PERFORMANCE INDICATORS - NON-STATUTORY MEASURES
In addition to measures of financial performance derived from
IFRS reported results - revenue, operating profit, operating profit
margin percentage, earnings per share and net cash balance -
Frontier publishes, and provides commentary on, financial
performance measurements derived from non-statutory calculations.
Frontier believes these supplementary measures, when read in
conjunction with the measures derived directly from statutory
financial reporting, provide a better understanding of Frontier's
overall financial performance.
EBITDA
EBITDA, being earnings before tax, interest, depreciation and
amortisation, is commonly used by investors when assessing the
financial performance of companies. It attempts to arrive at a
'cash profit' figure by adjusting operating profit for non-cash
depreciation and amortisation charges. In Frontier's case, EBITDA
does not provide a clear picture of the Group's cash profitability,
as it adds back amortisation charges relating to game developments,
but without deducting the investment costs for those developments,
resulting in a profit measure which does not take into account any
of the costs associated with developing games. Since EBITDA is a
commonly used financial performance measure, it has been included
below for the benefit of readers of the accounts who may value that
measure of performance.
6 months to 12 months
30 November 6 months to to
2022 30 November 2021 31 May 2022
GBP'000 GBP'000 GBP'000
------------------------------- ------------- ------------------ -------------
Operating profit/(loss) 6,856 (1,343) 1,536
Depreciation and amortisation 12,291 15,481 32,199
Impairment of intangible
assets - - 7,398
EBITDA 19,147 14,138 41,133
------------------------------- ------------- ------------------ -------------
Adjusted EBITDA
Frontier also discloses an Adjusted EBITDA measure which, in the
Company's view, provides a better representation of 'cash profit'
than EBITDA. Adjusted EBITDA for Frontier is defined as earnings
before interest, tax, depreciation and amortisation charges related
to game developments and Frontier's game technology, less
investments in game developments and Frontier's game technology,
and excluding share-based payment charges and other non-cash items.
This effectively provides the cash profit figure that would have
been achieved if Frontier expensed all game development investment
as it was incurred, rather than capitalising those costs and
amortising them over several years.
6 months
to 6 months to 12 months
30 November 30 November to 31 May
2022 2021 2022
GBP'000 GBP'000 GBP'000
--------------------------------------------- -------------- ------------- ------------------------
Operating profit/(loss) 6,856 (1,343) 1,536
Add back non-cash intangible asset
amortisation charges for game developments
and Frontier's game technology 8,589 12,173 26,475
Add back non-cash intangible asset
impairment charge for game developments - - 7,398
Deduct capitalised investment costs
in game developments and Frontier's
game technology (18,429) (15,811) (35,220)
Add back non-cash depreciation charges 1,934 1,702 3,562
Add back non-cash movements in unrealised
exchange (gains)/losses on forward
contracts (817) 1,224 474
Add back non-cash share-based payment
expenses 1,305 1,175 2,452
Adjusted EBITDA (562) (880) 6,677
--------------------------------------------- -------------- ------------- ------------------------
Research and development (R&D) expenses
Research and development (R&D) expenses recorded in
Frontier's Income Statement are arrived at after capitalising game
development costs and after recording amortisation charges for
games which have been released. Similar to the principles of the
Adjusted EBITDA measure showing financial performance as if all
game development investments were expensed as incurred, Frontier
provides commentary on the difference between gross R&D
expenses (before capitalisation/amortisation) and net R&D
expenses (after capitalisation/amortisation). The net R&D
expenses figure aligns with the R&D expenses recorded in the
Income Statement, whereas the gross R&D expenses figure
provides a better representation of 'cash spend' on R&D
activities.
6 months 6 months
to to 12 months
30 November 30 November to
2022 2021 31 May 2022
GBP'000 GBP'000 GBP'000
-------------------------------------------- --------------- ------------- -------------
Gross R&D expenses 25,892 22,231 47,526
Capitalised investment costs in
game developments and Frontier's
game technology (18,429) (15,811) (35,220)
Amortisation charges for game developments
and Frontier's game technology 8,589 12,173 26,475
Impairment of intangible assets - - 7,398
Net R&D expenses 16,052 18,593 46,179
-------------------------------------------- --------------- ------------- -------------
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END
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January 19, 2023 02:00 ET (07:00 GMT)
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