TIDMFDEV
RNS Number : 2247M
Frontier Developments PLC
13 September 2023
13 September 2023
Frontier Developments plc
FY23 Financial 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 full-year results for the 12
months ended 31 May 2023 ('FY23'). This announcement contains
inside information.
Financial Highlights
FY23 FY22
(12 months to (12 months to
31 May 2023) 31 May 2022)
Revenue GBP104.6m GBP114.0m
--------------- ---------------
EBITDA* GBP33.0m GBP41.1m
--------------- ---------------
Adjusted EBITDA** (GBP4.6m) GBP6.7m
--------------- ---------------
Operating (loss)/profit (GBP26.6m) GBP1.5m
--------------- ---------------
EPS (basic) (53.6p) 24.6p
--------------- ---------------
Cash balance at year GBP28.3m GBP38.7m
end
--------------- ---------------
-- Revenue of GBP104.6 million (FY22: GBP114.0 million) was
achieved through the ongoing performance of games which released in
earlier financial years, sales from F1(R) Manager 2022 which
released in August 2022, and modest contributions from new Foundry
titles released during the period.
-- Adjusted EBITDA** was a loss of GBP4.6 million (FY22: profit
of GBP6.7 million), reflecting lower revenues achieved in FY23
versus the prior period and investment in titles for release in
future years as Frontier gears up to deliver two new game releases
per financial year from FY24 onwards.
-- Operating profit in FY23 was negatively impacted by GBP28.7
million of non-cash intangible asset impairment and accelerated
amortisation charges resulting from the closure of Foundry and a
prudent re-assessment of the overall future performance of the
F1(R) Manager franchise following lower than expected initial sales
of F1(R) Manager 2023. The incremental non-cash charges resulted in
an operating loss of GBP26.6 million in the period (FY22: profit of
GBP1.5 million).
-- Frontier continues to be well capitalised, with a cash
balance at the end of FY23 (on 31 May 2023) of GBP28.3 million and
GBP24.8 million as at the end of August 2023. The net cash outflow
of GBP10.4 million in FY23 was after outflows of GBP10.9 million
for the acquisition of Complex and GBP3.0 million for the purchase
of shares in the Employee Benefit Trust. Cash would have grown in
FY23 if the acquisition and share purchases are disregarded.
*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
impairment charges, share-based payment charges and other non-cash
items.
Operational & Strategic Highlights
A thriving and growing game portfolio
-- Frontier's post-launch nurturing strategy delivered another
strong performance in FY23, with games released before the start of
the financial year delivering 72% of the total revenue in the
period.
-- Jurassic World Evolution 2 , created in collaboration with
Universal Products & Experiences and released in November 2021,
was the biggest revenue contributor in the portfolio for FY23,
benefitting from new content in the period including two major PDLC
packs inspired by Universal Pictures and Amblin Entertainment's
Jurassic World franchise.
-- In August 2022 Frontier further expanded its portfolio with
the release of F1(R) Manager 2022, the first title in an annual
series of Formula 1(R) management games, which sold over 800,000
units in FY23.
-- The second annual title in the Formula 1(R) series, F1(R)
Manager 2023, released in July 2023 (in FY24). This second
iteration of the series has achieved good reviews and a positive
reception from players, although initial sales were lower than
expected.
-- Support for F1(R) Manager 2023 continues whilst plans for
F1(R) Manager in 2024 are developed.
-- In November 2023, Frontier's first entry into the popular
real-time strategy (RTS) genre will be released. Warhammer Age of
Sigmar: Realms of Ruin, set within Games Workshop's globally
popular Warhammer IP, gives unique perspectives on the in-game
action with unprecedented visual fidelity, and introduces an
innovative control system to the proven gameplay mechanics of the
genre, allowing console players to fully experience the RTS genre
for the first time.
-- Frontier has a strong position in the creative management
simulation (CMS) genre, and development of further CMS games
continues - the first is on track for release in FY25, with another
title now in development for release in FY26.
First acquisition
-- In November 2022, Frontier added a new development team
through the acquisition of experienced game development studio
Complex Games Inc. (Complex). This followed the successful
collaboration between Complex and Frontier on the development and
publication of the turn-based strategy game Warhammer 40,000: Chaos
Gate - Daemonhunters, the biggest selling title in the portfolio of
games published by Foundry.
-- The acquisition has created a core development footprint for
Frontier in Canada, a region with an extensive and growing talent
pool for video game development, and the team is in the process of
scaling-up to support future growth.
-- Integration activities and growth plans for Complex are on
track, and the acquisition delivered modest accretive financial
benefits in FY23, as expected.
Closure of Frontier Foundry
-- In June 2023 Frontier confirmed the closure of its
third-party publishing label, Frontier Foundry (Foundry), following
the completion of a strategic review.
-- The decision has already enabled a heightened level of
operational focus to be applied to Frontier's own internally
developed portfolio of titles.
Current Trading and Outlook
We have achieved a solid start to FY24, which began on 1 June
2023, through the ongoing performance of the existing portfolio
over the summer.
The release of F1(R) Manager 2023 in July 2023 has so far not
delivered the expected sales contribution, but any revenue
shortfall in FY24 is expected to be offset by continued strong
performance across the rest of the portfolio, as well as confirmed
but as yet unannounced additional revenue streams, including for
F1(R) Manager 2023.
The big new game release for FY24 is still to come, with
Warhammer Age of Sigmar: Realms of Ruin scheduled for release in
November 2023. Our marketing campaign for launch kicked off
strongly with our presence at Gamescom at the end of August.
The Board continues to be comfortable with market expectations
for FY24, with consensus revenue at GBP108 million and consensus
Adjusted EBITDA* loss of GBP9 million.
The Board is confident that the Company can return to attractive
levels of financial performance over the medium-term, based on the
strength of its existing portfolio and planned new releases,
underpinned by the refocusing of its strategy.
* 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
impairment charges, share-based payment charges and other non-cash
items.
Jonny Watts , CEO, said:
"I would like to thank our team of over 900 people who have
worked tirelessly over the past year and beyond to deliver great
content to our players. The last twelve months has been a
challenging time for Frontier, and as we approach our 30(th)
birthday we have drawn on that longevity and success to refine our
strategy. I am confident that the heightened focus we are applying
to project selection and development priorities will return us to
attractive levels of financial performance. We'll shortly be
entering the RTS genre with the release of Warhammer Age of Sigmar:
Realms of Ruin in November, and I look forward to the reaction from
our players."
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
Alex Bevis, CFO
Peel Hunt - Nomad and Joint Corporate Broker +44 (0)20 7418 8900
Neil Patel / Paul Gillam / James Smith
Liberum - Joint Corporate Broker +44 (0)20 3100 2000
Max Jones / Nikhil Varghese
Teneo +44 (0)20 7353 4200
Mark Burgess / Matt Low / 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.
Frontier's LEI number: 213800B9LGPWUAZ9GX18.
www.frontier.co.uk
Chairman's Statement
It has been an interesting and eventful time at Frontier. I
joined the Board on 22 September 2022 and became Chairman at the
start of December 2022, succeeding David Gammon, who had been
Chairman for 10 years. My thanks go to my predecessor for his
significant contribution to the evolution of Frontier throughout
his tenure. There have been several other changes to the Board with
Jonny Watts becoming Chief Executive Officer and David Braben
moving to the role of President and Founder in August 2022.
Alongside those changes, James Dixon stepped up to join the Board
as Chief Operating Officer and Jessica Bourne was promoted to the
role of General Counsel and Company Secretary. More recently, on 1
June, Charles Cotton retired as a Non-Executive Director after
nearly seven years on the Board, and I thank him for his
contribution. On the same day, Leslie-Ann Reed joined the Board as
Non-Executive Director and Chair of the Audit Committee.
I have long admired Frontier and the games it develops and
publishes, and I am honoured to have been asked to join the team. I
believe in Frontier's strategy to Select, Develop, Launch, &
Nurture genre-leading games that best fit Frontier's expertise and
competitive advantages to deliver long-term value to our
stakeholders.
The financial year that ended 31 May 2023 was a challenging one.
In January 2023 we announced a reset of our revenue expectations
following a lower-than-expected sales contribution from F1(R)
Manager 2022, the general sales underperformance across the
portfolio during the Christmas holiday period, and the poorer than
expected performance of the Foundry games. Subsequently, we took
the difficult decision to cease all activity relating to acquiring
new third-party titles within Foundry. We took this opportunity to
refocus and reset, with all of the Group's efforts on Frontier's
own internally developed portfolio of titles.
For FY23 we are reporting a loss before interest and taxation of
GBP26.6 million after incremental non-cash charges totalling
GBP28.7 million relating to the closure of Foundry and a cautious
assessment of the future performance of the F1(R) Manager franchise
following the initial underperformance of F1(R) Manager 2023 which
released in July 2023.
The Board is confident that the Company can return to attractive
levels of financial performance over the medium-term, based on the
strength of its existing portfolio and planned new releases.
Frontier is a people business. We have a team of talented people
who work hard to develop and publish our games. I am very grateful
to them for their dedication and commitment. We now have more than
900 people, some of whom are working in the studio, some remotely
and others on a hybrid basis. In common with many businesses
post-pandemic, we are constantly considering how best to operate to
safeguard and accommodate the preferences of our people while
efficiently managing the business. For the first time we have had
people join us through acquisition, when on 1 November 2022 we
completed the acquisition of developer Complex Games. I welcome all
our new joiners to the Frontier team.
We want to ensure that the Board's time and expertise is
utilised to support the strategic development of the Group. We
consider updates on industry developments and market trends. The
Board takes its governance responsibilities very seriously. The
structures and processes we have in place are summarised in this
Annual Report. We are placing increasing emphasis on environmental,
social, and governance (ESG) matters to ensure we have the right
framework in place to enable our business to operate in a
sustainable and responsible way.
I would like to thank all our stakeholders, including our
people, our players, and our shareholders, for their support.
Chief Executive Officer's Statement
I was delighted to step up to the role of CEO in August 2022,
having worked with David Braben and the team at Frontier for many
years. I continue to be amazed every day by what our talented teams
are able to deliver - we have terrific people and an exceptional
culture of quality and creativity.
Since I took up the baton from David last summer, our Board and
our senior management team have been investing more time in
reviewing our future plans. We are conscious that our financial
performance over the last two years has not been good enough, and
although there is always room for improvement on project execution
and operational delivery, I firmly believe that the majority of our
financial challenges have been driven by some of the decisions that
we collectively made over the last five to six years, which did not
always result in the expected financial outcomes for the Company.
Foundry is an obvious recent example of this, where our financial
and operational investments across seven diverse, externally
developed games over a four-year period did not deliver a positive
return.
With a greater focus on decision making, particularly around
project selection, the good news is that we remain very positive
about the internal project decisions that we have taken in the last
two to three years. In particular, we are excited about the
upcoming release of Warhammer Age of Sigmar: Realms of Ruin and the
own-IP creative management simulation game we are developing for
release in FY25.
I am delighted to announce that we are now starting work on a
further creative management simulation game for release in FY26, a
genre where we have a strong track record.
Game selection
In January 2024 we'll be celebrating 30 years since David Braben
founded Frontier in 1994. That has provided the perfect context in
which to look back at our games, and re-evaluate what makes a
'Frontier' game when it comes to our project selection
decisions.
Analysing our successes, and also where we have had our greatest
challenges, we have defined four project selection pillars:
Strategic, Experience, Gameplay, and Longevity.
1. Strategic - we need to be strategic in our selection process.
We seek out opportunities to achieve 'first' or 'best' status in
viable, currently under-served, market segments where we can be the
top title in that segment. We choose projects which build upon
existing IP, Frontier experience or technology. We aim to select
projects which have strong potential to be profitable within one
month of launch and to achieve 100% return on investment within one
year. So far, we have achieved this with open-world simulations of
galaxies, rollercoasters, zoos, and dinosaurs.
2. Experience - it is all about the player's experience. We want
to deliver a game which is authentic and accurate to its subject
matter, and to nurture or engage with existing communities around
those games. We provide non-linear emergent gameplay, with
player-enhanced experiences and player-led narratives. We seek an
engaging and satisfying player onboarding experience both at launch
and post-release.
3. Gameplay - we make sophisticated and challenging games that
provide player agency and choice. We offer deeply rewarding
playstyles, with multiple options for problem-solving. To support
the principles of 'easy to pick up, challenging to master', our
games have layered complexity.
4. Longevity - we seek to provide open-ended experiences, with
the potential for substantial, sustainable, and profitable
post-release content. We nurture our games post-release with
ongoing live project support, often through both free and paid
content. We enjoy making games that offer creative building,
especially where communities of players can share their creations.
We aim to support competitive and cooperative play and
socialisation both in and out of game. We actively seek to create
hooks that keep our communities engaged.
Our game genres
These four game selection pillars align strongly with our most
successful segment, which we call creative management simulation
(CMS). We consider ourselves to be leaders in CMS games, as
evidenced by our success with Planet Coaster, Planet Zoo, Jurassic
World Evolution and Jurassic World Evolution 2. This is a market
space where we know we can find opportunities to deliver
genre-leading games, and we will continue to focus on this segment.
We are in full development for a CMS game for release in FY25 and
we have another CMS game scheduled for FY26.
Alongside our strategy for CMS games, we will continue to expand
into carefully selected new genres, with a focus on segments which
share characteristics with the CMS genre and which therefore align
closely to the four selection pillars.
Our F1(R) Manager game series, being an annual sport management
game, leverages our CMS expertise. We delivered a solid first game
with F1(R) Manager 2022, with over 850,000 units sold. For F1(R)
Manager 2023, which released in July 2023, initial sales have been
below the level achieved by the first game, despite good reviews
and a positive reception from players. We continue to support F1(R)
Manager 2023 as we develop our plans for F1(R) Manager in 2024.
Looking ahead to November 2023, I am excited about the release
of Warhammer Age of Sigmar: Realms of Ruin, our first foray into
the real-time strategy genre. We are pleased with the early
pre-release reaction to the game and are excited to continue to
work to build real-time strategy into a strategic pillar for the
Company.
We were pleased to welcome the team from Complex Games,
developers of Warhammer 40,000: Chaos Gate - Daemonhunters, to
Frontier in November 2022 through our first acquisition. Their
expertise in turn-based strategy games has given us a strong entry
into another new genre, which we are already working to build
upon.
The final genre is open-world space simulation. With Elite
Dangerous, our first self-published game which fully released on PC
in December 2014, we captured the imagination of space simulation
fans around the world. After nearly 10 years since its first public
beta, we have greatly exceeded the original vision for the
game.
Our people
During FY23 we grew our headcount through both the 800 and the
900 people milestones, finishing with 915 people as at 31 May 2023,
across all of our teams. Organic growth is as strong as ever, with
over 230 people choosing to join us during the period, and a
further 18 people joining us from Complex Games through the
acquisition we completed in November 2022.
Growing and investing in our people is a crucial element of our
strategy, as we seek to both nurture and expand our game portfolio.
For some of our development teams that means growth in terms of
both headcount and capability, and over time we will look to
increase the number of our development teams in order to grow the
number of projects that we can support at any one time.
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 hub for talent.
In the last few years, engagement and communication has emerged
as an important element of our people strategy, which was vital
during the pandemic and with the emergence of hybrid and remote
working as new models of collaboration. It's important that
everyone across Frontier understands and is excited by our current
projects and our future plans, so we invest time in communicating
to everyone across the studio through regular internal livestreams,
along with offering regular opportunities to celebrate, socialise
and learn.
I'd like to take the opportunity to thank everyone at Frontier
for their hard work and support during the year.
Our players
Our players continue to respond positively to the content that
we provide to them, through new game releases, free content and
updates, and paid content like PDLC packs. Our publishing strategy
is very much community focused - we aim to identify, create and
nurture communities of players for each of our titles. That aim is
best supported where we have opportunities to provide engaging new
content, with Planet Zoo and Jurassic World Evolution 2 being
particularly good examples of that in FY23, with multiple packs
releasing for each title during the period.
We were pleased to add a new player community in the last 12
months, with the release of F1(R) Manager 2022 in August 2022 and
F1(R) Manager 2023 which released in July 2023.
We are currently in the midst of creating what we hope will be
another big new community of players, with Warhammer Age of Sigmar:
Realms of Ruin scheduled for release in November 2023.
As ever, we remain very much player focused, since ultimately
all of our success is dependent on what we deliver and how we
deliver to our target audiences, and I would like to thank all our
players for their continued support.
Our shareholders
Our financial performance over the last two financial years has
been disappointing, and I'd like to thank our shareholders for
their patience and support during what has been a challenging time
for us. We continue to believe that we have a solid strategic plan,
with a pipeline of releases which will get us back on track to
deliver the sustainable and growing revenue and profitability that
we should be able to achieve with our world-class team of
people.
Chief Financial Officer's Statement
Overview
FY23 revenue of GBP104.6 million (FY22: GBP114.0 million) was
delivered through a solid performance from the existing portfolio
of games (released prior to 1 June 2022), which accounted for 72%
of revenue during the financial year, together with contributions
from games released during the period. Jurassic World Evolution 2,
which released in November 2021 through collaboration with
Universal Products & Experiences, was the strongest performer
in the portfolio, with revenue in its first 18 months exceeding the
performance of the first Jurassic World Evolution game during its
first 18 months. F1(R) Manager 2022 was the leading revenue
generator amongst new games, selling over 800,000 units in its
first nine months following its release in late August 2022 up to
the end of the financial year on 31 May 2023.
Adjusted EBITDA*, a measure of cash profitability, was a loss of
GBP4.6 million in FY23 (FY22: profit of GBP6.7 million), which
reflects the decrease in revenue, an increase in costs, and
continued investment in future games as Frontier gears up to
deliver two new game releases per financial year from FY24
onwards.
* 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
impairment charges, share-based payment charges and other non-cash
items.
Operating profit as reported under IFRS was adversely impacted
by non-cash intangible asset impairment and accelerated
amortisation charges totalling GBP28.7 million in the year arising
from two events: the underperformance and subsequent closure of
Foundry, and a prudent re-assessment of the future financial
performance of the F1(R) Manager franchise following a lower than
expected initial sales contribution from F1(R) Manager 2023 which
released in July 2023, after the end of the financial year.
These non-cash intangible asset impairment and accelerated
amortisation charges led to an operating profit before those
adjustments of GBP2.1 million becoming a reported operating loss of
GBP26.6 million. The non-cash intangible asset impairment and
accelerated amortisation charges had no impact on cashflow, cash
balances or Adjusted EBITDA.
In November 2022 Frontier added a new development team with the
acquisition of experienced game development studio Complex Games
Inc. (Complex), following the successful collaboration between
Complex and Frontier on the development and publication of
turn-based strategy game Warhammer 40,000: Chaos Gate -
Daemonhunters. Integration activities and growth plans for Complex
are on track, and the acquisition delivered modest accretive
financial benefits in FY23, as expected.
Frontier continues to be well capitalised, with total cash
balances on 31 May 2023 of GBP28.3 million (31 May 2022: GBP38.7
million) and GBP24.8 million on 31 August 2023. The reduction in
cash during FY23 reflected a greater investment in significant game
developments for release in future years, GBP10.9 million for the
acquisition of Complex, and the GBP3.0 million purchase of shares
by the Employee Benefit Trust undertaken in May 2023 to satisfy
future share option exercises by employees. Cash would have grown
in FY23 if the acquisition and share purchases are disregarded.
We're confident that our renewed and proven strategy of
selecting, developing, launching, and nurturing genre-leading games
will get us back on track in terms of our financial
performance.
Our existing game portfolio
Our portfolio of titles which released before FY23 - Elite
Dangerous, Planet Coaster, Planet Zoo, Jurassic World Evolution,
Jurassic World Evolution 2 and Warhammer 40,000: Chaos Gate -
Daemonhunters - continues to reach new audiences, and each
delivered material revenues in FY23. Jurassic World Evolution 2 and
Planet Zoo performed especially well, each supported by four new
PDLC packs releasing in FY23, alongside free content. In FY24 new
PDLC packs and free content for both Jurassic World Evolution 2 and
Planet Zoo have already been released, with more planned during
this financial year.
Jurassic World Evolution 2 was the strongest performer in the
portfolio, with revenue in its first 18 months exceeding the
performance of Frontier's all-time leading revenue generator, the
first Jurassic World Evolution game, during its first 18
months.
F1(R) Manager
FY23 benefited from the release of another new Frontier game in
late August 2022, F1(R) Manager 2022, the first annual title in a
major new sports franchise for Frontier. By 31 May 2023 F1(R)
Manager 2022 had achieved over 800,000 units sold across all
platforms and formats, with strong engagement at release. This
level of sales was a solid performance for the first game in the
series but was below Frontier's original expectations.
Our second title in the series, F1(R) Manager 2023, released
after the end of the financial year in July 2023. Sales during the
pre-order phase for F1(R) Manager 2023 were below the level
achieved by F1(R) Manager 2022, and although the sales performance
post-launch has been more encouraging, the current revenue
projections for F1(R) Manager 2023 in FY24 are now below the level
achieved by F1(R) Manager 2022 in FY23. The Company will continue
to build on the more positive recent sales trends, including
through support of the title through the remainder of the 2023
F1(R) season. We are currently developing our plans for F1(R)
Manager in 2024.
As part of the annual audit process for FY23 we reviewed the
carrying values of our intangible assets across the portfolio, with
a particular focus on the F1(R) Manager series due to the
performance of both F1(R) Manager 2022 and F1(R) Manager 2023.
Following a prudent re-assessment of the overall future performance
of the F1(R) Manager franchise a non-cash impairment charge of
GBP15.0 million was recorded in the FY23 financial statements
against the intangible assets relating to the franchise.
Foundry
Foundry is Frontier's game label for publishing games developed
by external partners.
Financial performance across the Foundry game portfolio has been
disappointing and, overall, the business has not delivered
Frontier's expectations of a positive return on investment within
the first year of each title.
As a result of this financial underperformance, and an increased
level of competition amongst third-party publishers, in June 2023
Frontier announced the decision to cease all activity relating to
acquiring new third-party titles and instead re-focus on internal
titles.
This decision has enabled an increased level of operational
focus to be applied to Frontier's own internally developed
portfolio of titles, which has delivered a strong return on
investment. Foundry games which have already been released will
continue to be supported, including those in active post-release
development.
The disappointing financial performance of games published under
the Foundry games label resulted in non-cash intangible asset
impairment and accelerated amortisation charges totalling GBP13.7
million being recorded in FY23, with GBP10.6 million being
accelerated amortisation charges reflecting the relatively steep
decline of Foundry game sales post-release compared with the more
sustained trends for Frontier developed games, together with
Foundry game asset impairments totalling GBP3.1 million.
Complex Games
In November 2022 Frontier added a new development team with the
acquisition of experienced game development studio Complex Games,
following the successful collaboration between Complex and Frontier
on the development and publication of turn-based strategy game
Warhammer 40,000: Chaos Gate - Daemonhunters, which is the biggest
selling game published under the Foundry games label.
Founded in 2001 by Noah Decter-Jackson and Adrian Cheater,
Complex has over 21 years of experience in a wide variety of game
genres and platforms. The studio is based in Winnipeg, in the
Canadian Province of Manitoba, and at acquisition Complex employed
18 talented people, primarily developers. As at 31 August 2023 the
team had grown to 25.
The acquisition, which is Frontier's first, supports Frontier's
strategic objectives through the creation of a core development
footprint for Frontier in, Canada, a region with an extensive and
growing talent pool for video game development. Frontier intends to
grow the development team in Winnipeg to support future growth.
Having worked closely during the development and launch of
Warhammer 40,000: Chaos Gate - Daemonhunters, the acquisition had
been de-risked through a deep mutual understanding and alignment of
the culture, ability and ambition of the two companies, and the
closer collaboration achieved by the acquisition has enabled
Complex and Frontier to more effectively nurture Warhammer 40,000:
Chaos Gate - Daemonhunters.
In the medium to long term, the growing development team in
Winnipeg will add to Frontier's game portfolio through the
application of Frontier's Select, Develop, Launch, & Nurture
strategy, which will support Frontier's continued delivery of
sustainable and profitable growth.
Frontier acquired 100% of the shares in Complex for an upfront
cash consideration of CAD$13.3 million (GBP8.4 million).
Conditional deferred cash consideration of up to CAD$5.2 million
(GBP3.3 million) will be 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 five-year
profit-share cash earn-out scheme, which aligns with Frontier's
strategy to Select, Develop, Launch, & Nurture new games
developed by the Winnipeg studio.
The total maximum upfront and deferred consideration of up to
CAD$18.4 million (GBP11.7 million) will be funded from Frontier's
existing cash resources. The additional profit-share earn-out of up
to CAD$11.8 million (GBP7.5 million) payable annually over five
years to the four employee shareholders will be funded from future
cash profits generated from games developed by the Winnipeg
studio.
Net identifiable assets and liabilities on acquisition totalled
net assets of GBP1.2 million and fair value adjustments in respect
of assets identified through the purchase price allocation (PPA)
process totalled GBP2.9 million. This resulted in a goodwill
balance of GBP7.7 million being recognised on the consolidated
statement of financial position on acquisition. Further information
is included in note 9 of the financial statements.
Integration activities and growth plans for Complex are on
track, and the acquisition delivered modest accretive financial
benefits in FY23, as expected.
Following Foundry activity ceasing, the operations of Complex,
including Warhammer 40,000: Chaos Gate - Daemonhunters and future
games developed, will be reclassified into our portfolio of
internally developed titles.
Financial performance
FY23 revenue of GBP104.6 million fell short of our record
revenue of GBP114.0 million in FY22 following the underperformance
of F1(R) Manager 2022 against original expectations, the general
sales underperformance across the portfolio during the Christmas
holiday period and disappointing sales for Foundry games. As a
result of this, gross profit decreased to GBP67.3 million (FY22:
GBP73.6 million) with a gross profit margin of 64% (FY22: 65%). The
small reduction in our gross profit margin percentage in FY23
versus FY22 was mainly due to subscription deals, which do not
attract commission payable, representing a higher proportion of
revenue in FY22 than in FY23.
Gross research and development (R&D) expenses in the period
grew by 11% to GBP52.9 million (FY22: GBP47.5 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; the staff costs
in respect to Complex Games from November 2022; and investment in
Foundry development partner projects.
Development costs for supporting Foundry games in FY23 were
GBP9.6 million, representing 18% of total gross R&D investment.
Following the decision to cease activities for any new games for
Foundry, there will be a significant reduction in this spend in
FY24, although post-release development funding and support are
being provided in FY24 for Stranded: Alien Dawn and The Great War:
Western Front.
Capitalisation of costs for game development related intangible
assets, together with continued investment in our leading game
technology, accounted for GBP37.6 million in the year (FY22:
GBP35.2 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 FY23 represented 71% of gross R&D expenditure
which was similar to FY22 (74%).
Amortisation and impairment charges for intangible assets
related to game developments and Frontier's game technology grew to
GBP52.6 million in total for the year (FY22: GBP33.9 million)
including the additional one-off non-cash Foundry intangible asset
impairment and accelerated amortisation charges of GBP13.7 million
and the F1(R) Manager non-cash impairment charge of GBP15.0
million. In the prior year, FY22, a one-off, non-cash impairment
charge of GBP7.4 million was recorded for Elite Dangerous:
Odyssey.
For FY24 the Company has reviewed and updated its approach to
intangible asset identification and amortisation following the
incremental accounting charges suffered in FY22 and FY23. As a
result of this review, intangible assets related to games and PDLC
which release after 1 June 2023 will be amortised more rapidly in
the first 12 months following their release, through the adoption
of a steeper amortisation charge profile than the previous default
method of straight-line amortisation. This updated approach will
not impact Adjusted EBITDA, which is a measure of cash profit, but
it may have a short-term adverse impact on reported operating
profit in FY24 as we transition from the previous amortisation
profile to the updated model. Updated amortisation profiles were
applied in FY23 to Foundry games which released in the period and
to the F1(R) Manager game franchise.
Net research and development expenses recorded in the
consolidated income statement, being gross spend, less capitalised
costs, plus amortisation and impairment charges, increased to
GBP67.9 million in FY23 (FY22: GBP46.2 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 Foundry and F1(R) Manager intangible asset impairment and
accelerated amortisation charges.
Sales, marketing, and administrative expenses remained largely
the same at GBP26.1 million in FY23 (FY22: GBP25.9 million) as a
result of sustained investment in marketing to support the launch
of F1(R) Manager 2022, our major new game release in the year, new
Foundry titles, and our existing game portfolio, including new PDLC
releases and price promotion events, as well as slightly higher
administration costs due to the continued growth of the
business.
Overall, net operating expenditure in FY23 grew to GBP93.9
million (FY22: GBP72.1 million), mainly as a result of higher net
research and development expenses, along with the additional
non-cash intangible asset impairment and accelerated amortisation
charges of GBP28.7 million which were due to the financial
performance of Foundry and the F1(R) Manager series. After taking
account of those charges, this resulted in an operating loss as
reported under IFRS of GBP26.6 million (FY22: profit of GBP1.5
million).
Adjusted EBITDA*, a measure of cash profitability whereby game
development costs are expensed as they are incurred, was in line
with the expectations set in January 2023, being a loss of GBP4.6
million (FY22: profit of GBP6.7 million). The year-on-year
reduction reflected the decrease in revenue, an increase in costs,
and continued investment in future games as Frontier gears up to
deliver two new game releases per financial year from FY24
onwards.
On corporation tax, Frontier continues to benefit strongly from
HMRC incentive schemes, specifically Video Games Tax Relief (VGTR),
R&D tax credits and Patent Box. Frontier receives enhanced
corporate tax deductions on certain expenditures under the VGTR and
R&D tax credit schemes, both of which help to reduce taxable
profits.
Frontier elected into HMRC's Patent Box regime in FY21, making
claims for patent-related profits from FY19 onwards. Patent Box has
delivered benefits from FY21 onwards, 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 benefited 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 GBP5.6 million in
the consolidated income statement in FY23 (FY22: GBP8.7
million).
Loss after tax for FY23 was GBP20.9 million (FY22: profit of
GBP9.6 million) and the basic loss per share was 53.6p (FY22:
earnings per share of 24.6p).
Balance sheet and cashflow
We are well capitalised, with GBP28.3 million of cash at 31 May
2023 (31 May 2022: GBP38.7 million) and GBP24.8 million at 31
August 2023. The GBP10.4 million reduction in cash during FY23
reflected a greater investment in significant game developments for
release in future years, working capital movements, GBP10.9 million
for the acquisition of Complex, and the GBP3.0 million purchase of
shares by the Employee Benefit Trust undertaken in May 2023. Cash
would have grown in FY23 if the acquisition and share purchases are
disregarded.
Goodwill relates wholly to the acquisition of Complex Games in
November 2022, with a balance of GBP7.2 million at 31 May 2023
following a GBP0.5 million exchange rate movement in the period (31
May 2022: GBPnil).
Our other intangible asset values include game technology,
internal game developments, Foundry game developments, third-party
software, and IP licences. Total other intangible assets decreased
during the year to GBP57.0 million at 31 May 2023 (31 May 2022:
GBP70.8 million) as a result of the Foundry and F1(R) Manager
intangible asset charges. Our investments in the year related to
our own internally developed titles, including new content for our
existing portfolio, our technology, and support for our Foundry
partner developments. Those investments in new content and
technology were more than offset by amortisation and impairment
charges which included the one-off GBP28.7 million adjustment for
Foundry and F1(R) Manager 2023.
Property, plant and equipment relate mainly to IT equipment and
the fit-out of the leased studio facility, which the Group has
occupied from April 2018. The net balance at 31 May 2023 was GBP5.7
million (31 May 2022: GBP6.6 million).
Following the adoption of IFRS 16 "Leases" effective for
Frontier from 1 June 2019, the consolidated statement of financial
position at 31 May 2023 includes a right-of-use asset valued at
GBP17.9 million (31 May 2022: GBP19.5 million) for the Group's
lease over its headquarters studio building in Cambridge. A similar
figure (the difference related to timing of actual rental payments)
of GBP19.3 million at 31 May 2023 (31 May 2022: GBP20.7 million) is
recorded on the consolidated statement of financial position as a
lease liability, split between current and non-current
liabilities.
Trade and other receivables due within one year totalled GBP15.6
million at 31 May 2023 (31 May 2022: GBP24.7 million) with the
majority of the balance related to gross revenue due from digital
distribution partners. The year-on-year decrease primarily relates
to higher revenue in the final months of FY22 versus FY23, which
included Jurassic World Evolution 2 entering Microsoft's Game Pass
subscription service in May 2022.
Trade and other payables due within one year totalled GBP16.5
million at 31 May 2023 (31 May 2022: GBP21.8 million), being mostly
made up of distribution platform commissions, IP licence royalties
and developer royalties due on the sales transactions not yet
settled, and other staff-related accruals. The decrease in
liabilities largely relates to the year-end revenue variances
mentioned above and the absence of a bonus provision being included
at 31 May 2023 due to the minimum bonus performance payout not
being achieved.
Within non-current liabilities (amounts due after 12 months) a
balance of GBP4.2 million is held at 31 May 2023 (31 May 2022:
GBP6.1 million) which includes IP licence costs for the minimum
guaranteed royalties payable on the licences with Formula 1(R) and
Games Workshop.
The current tax asset balance at 31 May 2023 of GBP9.4 million
(31 May 2022: GBP7.9 million) relates to the filed tax returns,
including VGTR claims, for FY22, and the draft tax returns for
FY23. In June 2023, GBP3.9 million was received from HMRC related
to the FY22 tax returns.
The net balance for deferred tax assets less deferred tax
liabilities recorded at 31 May 2023 was a liability GBP0.4 million
(31 May 2022: GBP1.3 million asset). Deferred tax assets and
liabilities have been recorded at 31 May 2023 for the estimated
values of temporary differences, the potential value of tax
deductions relating to future share option exercises, and a portion
of carried forward tax losses in the Group.
The Group's tax arrangements concerning income streams under
VGTR and Patent Box enhancements can be complex, and at 31 May 2023
there was insufficient certainty concerning the utilisation of
other tax losses to create any other deferred tax assets related to
accumulated losses. The Group's total unrecognised tax losses as at
31 May 2023 were GBP80.2 million (31 May 2022: GBP50.2
million).
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 MAY 2023
12 months 12 months
to 31 May to 31 May
2023 2022
Notes GBP'000 GBP'000
----------------------------------------------- ------ ------------- -------------
Revenue 3 104,575 114,032
Cost of sales (37,230) (40,420)
----------------------------------------------- ------ ------------- -------------
Gross profit 67,345 73,612
Research and development expenses (67,857) (46,179)
Sales and marketing expenses (12,012) (12,339)
Administrative expenses (14,056) (13,558)
----------------------------------------------- ------ ------------- -------------
Operating (loss)/profit (26,580) 1,536
Net finance income/(costs) 71 (592)
----------------------------------------------- ------ ------------- -------------
(Loss)/profit before tax (26,509) 944
Income tax credit 4 5,604 8,684
----------------------------------------------- ------ ------------- -------------
(Loss)/profit for the year attributable
to shareholders (20,905) 9,628
----------------------------------------------- ------ ------------- -------------
(Loss)/earnings per share
Basic (loss)/earnings per share 5 (53.6) 24.6
Diluted (loss)/earnings per share 5 (53.6) 23.7
----------------------------------------------- ------ ------------- -------------
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 2023
12 months 12 months
to to
31 May 2023 31 May 2022
GBP'000 GBP'000
----------------------------------------------- ------ ------------- -------------
(Loss)/profit for the year (20,905) 9,628
Other comprehensive income
Items that will be reclassified subsequently
to profit or loss:
Exchange differences on translation of
foreign operations (578) (19)
----------------------------------------------- ------ ------------- -------------
Total comprehensive (loss)/income for
the year attributable to the equity holders
of the parent (21,483) 9,609
----------------------------------------------- ------ ------------- -------------
The accompanying accounting policies and notes form part of this
financial information.
CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
AS AT 31 MAY 2023
(REGISTERED COMPANY NO: 02892559)
31 May 2023 31 May 2022
Notes GBP'000 GBP'000
-------------------------------------- -------- ------------ ------------
Non-current assets
Goodwill 7 7,160 -
Other intangible assets 8 56,987 70,833
Property, plant and equipment 5,696 6,640
Right-of-use asset 17,860 19,484
Deferred tax assets - 1,348
Total non-current assets 87,703 98,305
-------------------------------------- -------- ------------ ------------
Current assets
Trade and other receivables 15,558 24,705
Current tax assets 9,438 7,867
Cash and cash equivalents 28,311 38,699
-------------------------------------- -------- ------------ ------------
Total current assets 53,307 71,271
-------------------------------------- -------- ------------ ------------
Total assets 141,010 169,576
-------------------------------------- -------- ------------ ------------
Current liabilities
Trade and other payables (16,521) (21,797)
Lease liability (1,505) (1,461)
Deferred income (4,355) (2,466)
Total current liabilities (22,381) (25,724)
-------------------------------------- -------- ------------ ------------
Net current assets 30,926 45,547
-------------------------------------- -------- ------------ ------------
Non-current liabilities
Provisions (71) (56)
Lease liability (17,773) (19,278)
Other payables (4,235) (6,148)
Deferred income (163) -
Deferred tax liabilities (419) -
Total non-current liabilities (22,661) (25,482)
-------------------------------------- -------- ------------ ------------
Total liabilities (45,042) (51,206)
-------------------------------------- -------- ------------ ------------
Net assets 95,968 118,370
-------------------------------------- -------- ------------ ------------
Equity
Share capital 197 197
Share premium account 36,547 36,468
Equity reserve (14,553) (12,769)
Foreign exchange reserve (596) (18)
Retained earnings 74,373 94,492
-------------------------------------- -------- ------------ ------------
Total equity 95,968 118,370
-------------------------------------- -------- ------------ ------------
The accompanying accounting policies and notes form part of this
financial information.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 MAY 2023
Share Foreign
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
------------------ -------------- --------------- --------------- --------------- -------------- ---------------
Profit for the
year - - - - 9,628 9,628
Other
comprehensive
income:
Exchange
differences on
translation
of foreign
operations - - - (19) - (19)
Total
comprehensive
income/(loss)
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
------------------ -------------- --------------- --------------- --------------- -------------- ---------------
Loss for the year - - - - (20,905) (20,905)
Other
comprehensive
income:
Exchange
differences on
translation
of foreign
operations - - - (578) - (578)
Total
comprehensive
loss
for the year - - - (578) (20,905) (21,483)
------------------ -------------- --------------- --------------- --------------- -------------- ---------------
Issue of share
capital net
of expenses - 79 - - - 79
Share-based
payment charges - - 3,340 - - 3,340
Share-based
payment transfer
relating to
option exercises
and lapses - - (2,357) - 2,357 -
Employee Benefit
Trust cash
outflows from
share purchases - - (3,000) - - (3,000)
Employee Benefit
Trust net
cash inflows
from option
exercises - - 233 - - 233
Deferred tax
movements posted
directly to
reserves - - - - (1,571) (1,571)
------------------ -------------- --------------- --------------- --------------- -------------- ---------------
Transactions with
owners - 79 (1,784) - 786 (919)
------------------ -------------- --------------- --------------- --------------- -------------- ---------------
At 31 May 2023 197 36,547 (14,553) (596) 74,373 95,968
------------------ -------------- --------------- --------------- --------------- -------------- ---------------
The accompanying accounting policies and notes form part of this
financial information.
CONSOLIDATED STATEMENT OF CASHFLOWS
FOR THE YEARED 31 MAY 2023
12 months 12 months
to to
31 May 2023 31 May 2022
GBP'000 GBP'000
---------------------------------------------------------- ------------- -------------
(Loss)/profit before taxation (26,509) 944
Adjustments for :
Depreciation and amortisation 41,438 32,199
Impairment of other intangible assets 18,117 7,398
Movement in unrealised exchange (gains)/losses
on forward contracts (239) 474
Share-based payment expenses 3,340 2,452
Interest received (677) (57)
Payment of interest element of lease liabilities 607 649
Canadian Scientific Research and Experimental (365) -
Development (SRED) credit
Research and Development Expenditure Credit
(RDEC) (116) (375)
Working capital changes:
Change in trade and other receivables 11,084 (10,964)
Change in trade and other payables (3,114) 4,465
Change in provisions 15 15
---------------------------------------------------------- ------------- -------------
Cash generated from operations 43,581 37,200
Taxes received 4,294 3,956
Net cash flows from operating activities 47,875 41,156
---------------------------------------------------------- ------------- -------------
Investing activities
Purchase of property, plant and equipment (1,335) (2,500)
Expenditure on other intangible assets (42,046) (36,243)
Acquisition of subsidiaries (net of cash acquired) (9,606) -
Interest received 677 57
Net cash flows used in investing activities (52,310) (38,686)
---------------------------------------------------------- ------------- -------------
Financing activities
Proceeds from issue of share capital 79 389
Employee Benefit Trust cash outflows from share
purchases (3,000) (5,000)
Employee Benefit Trust cash inflows from option
exercises 233 506
Repayment of loans (1,260) -
Payment of principal element of lease liabilities (1,461) (1,419)
Payment of interest element of lease liabilities (607) (649)
Net cash flows used in financing activities (6,016) (6,173)
---------------------------------------------------------- ------------- -------------
Net change in cash and cash equivalents from
continuing operations (10,451) (3,703)
Cash and cash equivalents at beginning of year 38,699 42,423
Exchange differences on cash and cash equivalents 63 (21)
Cash and cash equivalents at end of year 28,311 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 'Group' or the 'Company')
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 and headquartered in the UK,
with subsidiaries based in Canada and 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 2023 and 31 May 2022.
The accounts for the year ended 31 May 2022 have been delivered to
the Registrar of Companies. The statutory accounts for the year
ended 31 May 2023 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 2023 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 1 November 2023.
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.
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 have adequate
resources to continue in operational existence for the period to 31
December 2024. 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 cash and cash equivalent resources (including
treasury deposits) at the balance sheet date of 31 May 2023 of
GBP28.3 million along with expected cash inflows from current
business activities. Cash and cash equivalent resources (including
treasury deposits) at 31 August 2023 were GBP24.8 million. The
Annual Budget approved by the Board of Directors, which has been
used to assess going concern, 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 Budget
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 has 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 31 December 2024. Consideration has
also been made over the impairment charges (as disclosed in note
8), however given these are accounting charges as opposed to cash
outflows do not materially change the forecasts for going concern
purposes. The forecasts reflect the latest expectation of revenues
across all key titles, including those which were subject to
impairment in 2023.
The sensitivities included in the stress testing include the
following potential scenarios for 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;
-- the development and publishing of titles has progressed as expected; and
-- should a more extreme downside scenario occur the Group could
take further mitigating actions by reducing discretionary
spend.
Having considered all 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 31 December 2024. The financial
statements for the year ended 31 May 2023 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.
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 and
payment is received upfront by the distributors.
Other revenue mainly related to royalty income in both FY23 and
FY22.
12 months 12 months
to 31 May to 31 May
2023 2022
GBP'000 GBP'000
-------------------------------------------- ----------- -----------
Publishing revenue 104,084 113,555
Other revenue 491 477
-------------------------------------------- ----------- -----------
Total revenue 104,575 114,032
Cost of sales (37,230) (40,420)
-------------------------------------------- ----------- -----------
Gross profit 67,345 73,612
Research and development expenses (67,857) (46,179)
Sales and marketing expenses (12,012) (12,339)
Administrative expenses (14,056) (13,558)
-------------------------------------------- ----------- -----------
Operating (loss)/profit (26,580) 1,536
Net finance income/(costs) 71 (592)
-------------------------------------------- ----------- -----------
(Loss)/profit before tax (26,509) 944
Income tax credit 5,604 8,684
-------------------------------------------- ----------- -----------
(Loss)/profit for the year attributable to
shareholders (20,905) 9,628
-------------------------------------------- ----------- -----------
4. TAXATION ON ORDINARY ACTIVITIES
The major components of the income tax credit for FY23 and FY22
are:
12 months 12 months
Consolidated income statement to 31 May to 31 May
2023 2022
GBP'000 GBP'000
---------------------------------------------- ----------- -----------
Current tax:
Credit in respect of current year (4,749) (3,471)
Adjustments in respect of prior years (68) (1,509)
---------------------------------------------- ----------- -----------
Total current tax (4,817) (4,980)
---------------------------------------------- ----------- -----------
Deferred tax:
Credit in respect of current year (610) (4,507)
Adjustments in respect of prior years (9) 552
Relating to changes in tax rates (168) 251
---------------------------------------------- ----------- -----------
Total deferred tax (787) (3,704)
---------------------------------------------- ----------- -----------
Total taxation credit reported in the income
statement (5,604) (8,684)
---------------------------------------------- ----------- -----------
Consolidated equity 12 months 12 months
to 31 May to 31 May
2023 2022
GBP'000 GBP'000
---------------------------------------------- ----------- -----------
Deferred tax related to items recognised in
equity during the year:
Net change in share option exercises 1,571 2,740
---------------------------------------------- ----------- -----------
Reconciliation of total tax credit at statutory tax rates:
12 months 12 months
to 31 May to 31 May
2023 2022
GBP'000 GBP'000
---------------------------------------------------- ----------- -----------
(Loss)/profit on ordinary activities before
taxation (26,509) 944
Tax on (loss)/profit on ordinary activities
at standard statutory tax rate of 20% (2022:
19%) (5,302) 179
Factors affecting tax expense for the year:
Expenses not deductible for tax purposes 73 80
Adjustments in respect of prior years (77) (957)
Tax rate benefit on surrender of tax losses (972) (850)
Video Games Tax Relief enhanced deductions
on which credits claimed (4,963) (3,864)
Benefit of Patent Box (234) (2,665)
Deferred tax not recognised 6,163 (858)
Effect of changes in tax rate (168) 251
Effect of higher tax rates in Canada (124) -
---------------------------------------------------- ----------- -----------
Total taxation credit reported in the consolidated
income statement (5,604) (8,684)
---------------------------------------------------- ----------- -----------
In the Spring Budget 2021, the Government announced that from 1
April 2023 the corporation tax rate increased to 25%. On 31 May
2023, tax on profit on ordinary activities was therefore being
measured at a hybrid rate of 20% and the deferred taxes have been
measured using the tax rate at the date that the deferred tax asset
or liability unwinds of 20-25% (31 May 2022: 19-25%).
For FY23 the Group has recorded a total corporation tax credit
of GBP5.6 million (FY22: GBP8.7 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 2 during FY23.
The Group recognised a prior year adjustment of GBP77k during
FY23 due to additional core expenditure in the Elite Dangerous VGTR
claim and brought forward balances on Complex Games Inc. The Group
recognised a prior year adjustment of GBP957k during FY22 as a
result of Jurassic World Evolution 2's VGTR 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 losses
not utilised were carried forward.
The tax rate benefit on surrender of tax losses of GBP972k
during FY23 is the additional 5% 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 franchise,
Warhammer Age of Sigmar: Realms of Ruin, and a new creative
management simulation game trade scheduled for release in FY25. The
tax rate benefit on surrender of tax losses of GBP850k during FY22
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: Realms of Ruin.
The Group benefits from VGTR and can claim an additional
(enhanced) deduction from its taxable profits relating to the video
game trades. In FY23, the additional deduction in respect of VGTR
was GBP24.1 million at a tax rate of 20% (FY22: GBP20.3 million at
19%). The increase year on year of the additional deduction of
GBP3.8 million was due to the increase in core development
expenditure in respect of video games that are subject to VGTR.
During FY23 deferred tax not recognised of GBP6.2 million
relates to the tax effected saving on the employee share scheme
deduction of GBP0.9 million, temporary difference arising on the
deferred income in respect of the Research and Development
Expenditure (RDEC) grant of GBP0.1 million, and unrecognised tax
losses movement of GBP5.2 million.
The unrecognised tax losses movement of GBP5.2 million is the
GBP29.1 million of current year losses less GBP3.1 million of
losses carried forward recognised during FY23 to offset the
deferred tax liability to GBPnil due to the unlikelihood of the
Company having a taxable profit in the foreseeable future to
utilise the additional losses, at a tax rate of 20%. Refer to note
20 for more details on tax losses.
In November 2022, Frontier acquired Complex Games Inc which is
based in Manitoba, Canada. The Province of Manitoba has a combined
corporation tax rate of 27% (31 May 2022: 27%) and therefore the
effect of the higher tax rate in respect of Complex Games Inc is
recognised in FY23.
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
2023 31 May 2022
--------------------------------------------- ------------- ---------------
(Loss)/profit attributable to shareholders
(GBP'000) (20,905) 9,628
Weighted average number of shares 39,025,746 39,172,987
--------------------------------------------- ------------- ---------------
Basic (loss)/earnings per share (p) (53.6) 24.6
--------------------------------------------- ------------- ---------------
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
2023 31 May 2022
--------------------------------------------- ------------- -------------
(Loss)/profit attributable to shareholders
(GBP'000) (20,905) 9,628
Diluted weighted average number of shares 39,025,746 40,606,756
--------------------------------------------- ------------- -------------
Diluted (loss)/earnings per share (p) (53.6) 23.7
--------------------------------------------- ------------- -------------
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 2023 31 May 2022
--------------------------------------------- ------------- -------------
Weighted average number of shares 39,025,746 39,172,987
Dilutive effect of share options - 1,433,769
--------------------------------------------- ------------- -------------
Diluted average number of shares 39,025,746 40,606,756
--------------------------------------------- ------------- -------------
For the 12 months to 31 May 2023, there are 1,878,211 options
that have not been included in the table above as they would be
anti-dilutive, however could potentially dilute basic earnings per
share in future years.
6. BUSINESS COMBINATIONS
On 1 November 2022 the Group acquired experienced game
development studio Complex Games Inc 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$13.3 million (GBP8.4 million) and
conditional deferred cash consideration of up to CAD$5.2 million
(GBP3.3 million), which is payable subject to Complex meeting
certain operational milestones during the period to 31 December
2023. The deferred cash consideration will be payable regardless of
the employment status of the sellers.
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$11.8 million (GBP7.5 million) payable
annually over five years. The purchase agreement stipulates that
the profit-share earn-out will only be paid to each employee if
they remain employed by the Group and therefore this purchase
consideration is deemed to be post-acquisition expenses under IFRS
3.
The finalised fair values of identifiable assets acquired and
liabilities assumed at the acquisition date are:
Carrying value Fair value
at acquisition adjustment Fair value
GBP'000 GBP'000 GBP'000
----------------------------------------- ---------------- ------------ -------------
Non-current assets
Intangible assets - 3,910 3,910
Property, plant and equipment 6 - 6
----------------------------------------- ---------------- ------------ -------------
Total non-current assets 6 3,910 3,916
----------------------------------------- ---------------- ------------ -------------
Current assets
Trade and other receivables 2,216 - 2,216
Cash and cash equivalents 411 - 411
Current tax assets 143 - 143
----------------------------------------- ---------------- ------------ -------------
Total current assets 2,770 - 2,770
----------------------------------------- ---------------- ------------ -------------
Current liabilities
Trade and other payables (330) - (330)
Loans payable (1,260) - (1,260)
----------------------------------------- ---------------- ------------ -------------
Total current liabilities (1,590) - (1,590)
----------------------------------------- ---------------- ------------ -------------
Non-current liabilities
Deferred tax liability - (1,056) (1,056)
----------------------------------------- ---------------- ------------ -------------
Total non-current liabilities - (1,056) (1,056)
----------------------------------------- ---------------- ------------ -------------
Net identifiable assets and liabilities 1,186 2,854 4,040
Goodwill (note 7) 7,685
----------------------------------------- ---------------- ------------ -------------
Total consideration 11,725
----------------------------------------- ---------------- ------------ -------------
A technology-based intangible asset of GBP3.9 million has been
recognised on acquisition in game developments within other
intangible assets, which relates to the software IP behind
Warhammer 40,000: Chaos Gate - Daemonhunters. The recognition of
the intangible asset also generated a deferred tax liability of
GBP1.1 million, being the asset value at a tax rate of 27%, which
is the corporation tax rate in the Province of Manitoba.
The main factors leading to the recognition of goodwill on the
acquisitions are the presence of certain intangible assets in the
acquired entity, which are not valued for separate recognition.
These include expertise in the acquired entity, enhancing and
growing our development capabilities, broadening our portfolio, and
extending our geographical footprint.
The goodwill balance has not resulted in a deferred tax asset as
the goodwill balance is not tax deductible in the UK.
Advisor fees incurred in respect of the acquisition totalled
GBP0.3 million in FY23 (FY22: GBPnil) and were charged to the
consolidated income statement, with no further costs
anticipated.
Deferred cash consideration of GBP1.6 million was paid during
FY23, with a further GBP1.5 million due for payment during FY24 and
is included within trade and other payables. The probability of the
remaining deferred cash consideration being paid is highly
likely.
From acquisition date to 31 May 2023, Complex Games Inc
contributed revenue and loss after tax of GBPnil and GBP2.7 million
respectively in the consolidated income statement. IP royalties
payable to Complex Games Inc from Frontier Developments plc in
relation Warhammer 40,000: Chaos Gate - Daemonhunters totalled
GBP1.1 million from the acquisition date to 31 May 2023, which were
retained within the Group. These IP royalties retained within the
Group are not included within Complex's contributed revenue and
loss after tax reported above. If the acquisition had occurred on 1
June 2022, the consolidated income statement would have presented
revenue of GBP0.1 million and loss after tax of GBP2.9 million in
FY23.
7. GOODWILL
2023 2022
GBP'000 GBP'000
----------------------------------------------- --------- ---------
At 1 June - -
Recognition on acquisition of subsidiary (note 7,685 -
6)
Exchange rate movement (525) -
At 31 May 7,160 -
----------------------------------------------- --------- ---------
The Group tests goodwill for impairment annually, or more
frequently if there are indications that goodwill might be
impaired. Goodwill acquired in a business combination is allocated
to the CGUs that are expected to benefit from that business
combination. The Group has one CGU for goodwill purposes, defined
as the one operating segment as disclosed in note 3.
Goodwill impairment tests were carried out at 31 May 2023 in
line with the impairment tests carried out on other intangible
assets and therefore further detail is included within note 8 in
respect of these tests.
As a result of these tests, no impairment charge was
required.
8. OTHER INTANGIBLE ASSETS
The Group's other 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 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
Additions 3,449 34,182 429 - 38,060
Acquisition of a subsidiary - 3,910 58 - 3,968
Exchange rate movement - (300) - - (300)
----------------------------- ---------------- ------------------ ------------ -------------- ----------
At 31 May 2023 23,182 167,185 2,877 11,185 204,429
----------------------------- ---------------- ------------------ ------------ -------------- ----------
Amortisation and impairment
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
Amortisation charges 3,869 31,898 421 1,341 37,529
Acquisition of a subsidiary - - 58 - 58
Impairment charges 3,919 12,474 - 1,724 18,117
Exchange rate movement - (130) - - (130)
----------------------------- ---------------- ------------------ ------------ -------------- ----------
At 31 May 2023 16,961 122,212 2,130 6,139 147,442
----------------------------- ---------------- ------------------ ------------ -------------- ----------
Net book value at 31
May 2023 6,221 44,973 747 5,046 56,987
----------------------------- ---------------- ------------------ ------------ -------------- ----------
Net book value at 31
May 2022 10,560 51,423 739 8,111 70,833
----------------------------- ---------------- ------------------ ------------ -------------- ----------
Amortisation charges for other intangible assets that relate to
game technology, game developments and third-party software 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 recoverable amount of each of the assets at 31 May 2023 is
determined from the value in use. The key assumption in calculating
the value in use was the expected future cashflows. A five-year
bottom up forecast for FY24 to FY28 inclusive has been created as a
basis of the expected future cashflows, with a pre-tax discount
rate of 10% (31 May 2022: 9%) being applied to the future
cashflows. The Directors have assessed the sensitivity of the
impairment test to incorporate reasonable possible changes in the
key assumptions and noted that no material impairment exists in any
cases. Climate change is not expected to have a material impact on
future cashflows. Impairments disclosed below were recognised in
FY23 as a result of the impairment tests at 31 May 2023.
The Group recognised an impairment charge of GBP15.0 million in
FY23 in respect of intangible assets relating to the F1(R) Manager
franchise following an assessment of the overall future performance
of the F1(R) Manager franchise following the release of F1(R)
Manager 2022 (August 2022 - FY23) and F1(R) Manager 2023 (July 2023
- FY24). We are currently developing our plans for the F1(R)
Manager franchise in 2024.
The Group recognised an impairment charge of GBP3.1 million in
FY23 in respect of games published under the Foundry games label
following disappointing financial performance following release. As
a result of this financial underperformance, and an increased level
of competition amongst third-party publishers, in June 2023
Frontier announced the decision to cease all activity relating to
acquiring new third-party titles and instead re-focus on internal
titles.
Game developments include a technology-based asset with a fair
value of GBP3.9 million acquired through business combinations
(note 6).
9 . 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 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 2023 31 May 2022
GBP'000 GBP'000
--------------------------------------- ------------- -------------
Operating (loss)/profit (26,580) 1,536
Depreciation and amortisation 41,438 32,199
Impairment of other intangible assets 18,117 7,398
EBITDA 32,975 41,133
--------------------------------------- ------------- -------------
Adjusted EBITDA
Frontier also discloses an Adjusted EBITDA measure which, in the
Group'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 impairment charges, 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 12 months
to to 31 May
31 May 2023 2022
GBP'000 GBP'000
---------------------------------------------------- ------------- ------------
Operating (loss)/profit (26,580) 1,536
Add back non-cash intangible asset amortisation
charges for game developments and Frontier's
game technology 34,490 26,475
Add back non-cash intangible asset impairment
charges 18,117 7,398
Deduct capitalised investment costs in game
developments and Frontier's game technology (37,632) (35,220)
Add back non-cash depreciation charges 3,909 3,562
Add back non-cash movements in unrealised exchange
losses/(gains) on forward contracts (239) 474
Add back non-cash share-based payment expenses 3,340 2,452
Adjusted EBITDA (loss)/profit (4,595) 6,677
---------------------------------------------------- ------------- ------------
Research and development (R&D) expenses
Research and development (R&D) expenses recorded in
Frontier's consolidated 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 consolidated 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 2023 31 May 2022
GBP'000 GBP'000
--------------------------------------------------- --------------- -------------
Gross R&D expenses 52,882 47,526
Capitalised investment costs in game developments
and Frontier's game technology (37,632) (35,220)
Amortisation charges for game developments and
Frontier's game technology 34,490 26,475
Impairment of other intangible assets 18,117 7,398
Net R&D expenses 67,857 46,179
--------------------------------------------------- --------------- -------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR SFFFWEEDSEFU
(END) Dow Jones Newswires
September 13, 2023 02:00 ET (06:00 GMT)
Frontier Developments (LSE:FDEV)
Gráfica de Acción Histórica
De Nov 2024 a Dic 2024
Frontier Developments (LSE:FDEV)
Gráfica de Acción Histórica
De Dic 2023 a Dic 2024
