TIDMFDEV
RNS Number : 9066Z
Frontier Developments PLC
17 January 2024
17 January 2024
Frontier Developments plc
FY24 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 2023 ('H1 FY24').
H1 FY24 Financial Headlines
H1 FY24 H1 FY23
(6 months to (6 months to
30 November 2023) 30 November
2022)
Revenue GBP47.7m GBP57.1m
----------------------- -------------
Adjusted EBITDA loss* (GBP4.9m) (GBP0.6m)
----------------------- -------------
Operating (loss)/profit before (GBP30.8m) GBP6.9m
restructuring
----------------------- -------------
Cash balance at period end GBP17.1m GBP42.6m
----------------------- -------------
*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 restructuring costs,
share-based payment charges and other non-cash items.
-- Good back-catalogue performance, with games which released
before the start of the period delivering 72% of total revenue in
H1 FY24
-- Within the back-catalogue, creative management simulation
('CMS') games achieved GBP26.3 million of revenue (55% of total
revenue), representing a sustain rate of 81% versus the comparative
period (H1 FY23: GBP32.6 million)
-- The revenue contribution from new games launching during the period was lower than expected
-- Adjusted EBITDA loss of GBP4.9 million (H1 FY23: loss of
GBP0.6 million) reflected the lower level of total revenue and a 3%
increase in cash operating costs, partially offset by a higher
gross profit margin
-- The Organisational Review announced in October is on-track,
including the planned 20% reduction in annual operating costs to
support a return to profitability in FY25
-- Non-cash amortisation and impairment charges resulted in an
operating loss before restructuring of GBP30.8 million in H1 FY24
(H1 FY23: profit of GBP6.9 million)
-- Cash balance of GBP17.1 million at 30 November 2023 (31 May 2023: GBP28.3 million)
Operational & Strategic Update
As explained in the Business Update in November, Frontier's move
to diversify its game portfolio, including through third-party
publishing and entering new genres, has not delivered the
anticipated success. As a result, the Company has refocussed on CMS
games which have delivered more predictable and recurring returns
through Frontier's expertise and leadership in that genre.
Frontier has confirmed three future CMS games with one releasing
in each of the next three financial years - FY25, FY26 and FY27.
Whilst developing those three future CMS games the Company will
continue to support and nurture its existing portfolio.
Alongside the strategic refocus to CMS games, in the last three
months the Company has undertaken an Organisational Review to
reshape Frontier to deliver on the updated strategic plan more
efficiently, return the Company to profit, and create a sustainable
foundation for the future. The cost reduction elements of the
review are now largely complete, and the targeted savings of 20% of
annual operating costs will be fully in place from the start of
FY25.
Current Trading and Outlook
Total sales during the important trading period of late November
to early January were in-line with the revised expectations set in
November, with strong sales performances across Frontier's CMS
portfolio offsetting lower sales from some other games.
Frontier has two successful PC games coming to consoles before
the end of this financial year. The first of these was confirmed on
16 January, with Warhammer 40,000: Chaos Gate - Daemonhunters
announced for release on PlayStation(R)5, Xbox Series X|S,
PlayStation(R)4 and Xbox One on 20 February 2024. The second PC
game coming to consoles will be announced in the next few
weeks.
The Board continues to expect FY24 revenue to be within the
guidance range of GBP80-95 million, and the guidance on Adjusted
EBITDA is also unchanged from the Business Update provided in
November.
Jonny Watts, Frontier's CEO, said
"2023 was a challenging year for Frontier and for many companies
across the games industry. The last few months have been a tough
period of change for everyone at Frontier, and of course it's been
particularly difficult for those people in teams who have suffered
redundancies. I'd like to thank everyone for their hard work and
patience while we make the necessary changes.
We are confident that our renewed focus on our world-class CMS
games is getting us back on track, and it's pleasing to see the
strong ongoing performance of our established portfolio of games,
led by Jurassic World Evolution 2 and Planet Zoo. I'd like to thank
our players across our whole portfolio for their ongoing engagement
and support.
We have two exciting console releases coming in the next few
months, including Warhammer 40,000: Chaos Gate- Daemonhunters, and
we are making great progress on our new own-IP CMS game for release
in FY25.
I look forward to providing further updates during 2024."
There will be a call for analysts and institutional investors at
9:30a.m. today. To register please contact Frontier@teneo.com.
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 / Richard Chambers / Kate Bannatyne
Liberum - Joint Corporate Broker +44 (0)20 3100 2000
Max Jones / Matt Hogg / Nikhil Varghese
Teneo +44 (0)20 7353 4200
Matt Low / Arthur Rogers
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
Interim Results Statement
REVENUE AND GROSS PROFIT
Revenue in H1 FY24 of GBP47.7 million was 17% lower than the
comparative period (H1 FY23: GBP57.1 million).
The back-catalogue of games which released before the start of
the financial year performed well in H1 FY24, generating 72% of
total revenue. The largest contribution came from Frontier's
established portfolio of CMS games - RollerCoaster Tycoon 3, Planet
Coaster, Planet Zoo, Jurassic World Evolution and Jurassic World
Evolution 2 - which together recorded GBP26.3 million of revenue in
H1 FY24 (55% of total revenue), representing a sustain rate of 81%
versus the comparative period (H1 FY23: GBP32.6 million).
The ongoing revenue contribution from those genre-leading CMS
games shows the strength of Frontier's select, develop, launch and
nurture strategy. As expected, the strongest performers in the
period were Jurassic World Evolution 2 and Planet Zoo, which were
both supported with free updates and multiple PDLC packs. Across
the whole portfolio, PDLC accounted for 29% of total revenue in H1
FY24 (H1 FY23: 30%).
Revenue from new game releases in the period was lower than
expected. Revenue from F1 (R) Manager reduced 34% from H1 FY23 to
H1 FY24 through lower sales of F1 (R) Manager 2023 compared with F1
(R) Manager 2022. Launch sales of Warhammer Age of Sigmar: Realms
of Ruin ('Realms of Ruin'), which released in November 2023, were
lower than expected.
Although revenue reduced by GBP9.4 million (17%) against the
comparative period, gross profit only decreased by GBP3.1 million
(9%) to GBP33.0 million (H1 FY23: GBP36.1 million) through the
positive impact of subscription fees and product mix, which boosted
the gross profit margin percentage to 69% (H1 FY23: 63%).
Frontier's gross margin percentage tends to vary between periods
based on the revenue mix of own-IP games, licenced-IP games and
subscription deals.
COSTS
In October 2023 Frontier announced an Organisational Review to
reshape the Company to deliver more efficiently on its updated
strategy. The cost-saving element of the Organisational Review is
on-track to deliver against the targeted 20% reduction in annual
operating expenditure. The timing of the cost reductions meant
limited financial benefits in H1 FY24, with the impact of
reductions starting in November and building during December and
January. Costs will continue to reduce during H2 FY24 and it's
expected that all cost reductions will be in place for the start of
the next financial year on 1 June 2024. The Company recorded a
GBP2.5 million provision for restructuring costs in H1 FY24.
Gross research and development expenses (before capitalisation
and amortisation under IAS 38) in H1 FY24 reduced slightly to
GBP25.5 million (H1 FY23: GBP25.9 million), with a rise in people
costs being more than offset by a significant reduction in
outsourced development costs and funding for Foundry games. Of the
total gross spend 59% (GBP15.1 million) was capitalised (H1 FY23:
71%, GBP18.4 million) with the development costs for F1(R) Manager
2023 and F1(R) Manager 2024 being expensed as incurred instead of
being capitalised, following the lower than expected financial
performance of F1(R) Manager 2022 in 2023.
R&D amortisation and impairment charges related to
previously capitalised game developments and Frontier's game
technology increased to GBP37.6 million (H1 FY23: GBP8.6 million).
The total charge in the period included a non-cash accounting full
impairment for Realms of Ruin of GBP16.9 million following the
lower than expected sale performance of the game at launch in
November 2023. Amortisation charges accounted for the remaining
GBP20.7 million of the total (H1 FY23: GBP8.6 million), with the
increase over the comparative period the result of the updated
approach to amortisation profiles as highlighted in the 2023 Annual
Report and Accounts. Intangible assets are now 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. The impairment charge
and the updated approach to amortisation has not impacted Adjusted
EBITDA, which is a measure of cash profitability, but has resulted
in a short-term adverse impact on the reported IFRS operating
result.
As a result of the lower level of development cost
capitalisation, the increased amortisation charges and the
impairment charge for Realms of Ruin, net research and development
expenses as recorded in the consolidated income statement increased
to GBP48.1 million (H1 FY23: GBP16.1 million), being gross spend of
GBP25.5 million, less capitalised costs of GBP15.1 million, plus
amortisation and impairment charges of GBP37.6 million.
Sales and marketing expenses in the period increased to GBP8.4
million (H1 FY23: GBP6.9 million) through two Frontier game
launches in the period (F1 (R) Manager 2023 and Realms of Ruin)
versus one launch in H1 FY23 (F1 (R) Manager 2022).
Administrative expenses of GBP7.4 million were higher than the
comparative period (H1 FY23: GBP6.3 million), largely due to
foreign exchange differences, with a foreign exchange gain of
GBP1.0 million having been recorded in H1 FY23.
A restructuring charge of GBP2.5 million was recorded in the
period following the announcement of the Organisational Review in
October 2023. The charge included a full provision for all costs
expected to be incurred through the review, which will conclude by
the end of FY24.
FINANCIAL PERFORMANCE
Although gross profit in H1 FY24 only reduced by GBP3.1 million
against the comparative period, operating performance as reported
under IFRS fell by GBP37.7 million from an operating profit of
GBP6.9 million in H1 FY23 to an operating loss before restructuring
of GBP30.8 million in H1 FY24. This was primarily due to three
factors; the Realms of Ruin impairment charge; a higher level of
amortisation from the adoption of steeper amortisation charge
profiles; and a lower level of development cost capitalisation.
In comparison to the IFRS result, performance as measured by
Adjusted EBITDA, a measure of cash profitability, only reduced by
GBP4.3 million to a loss of GBP4.9 million (H1 FY23: loss of GBP0.6
million), with gross profit reducing GBP3.1 million and cash
operating costs increasing by GBP1.2 million. 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 restructuring costs, share-based
payment charges and other non-cash items.
Consistent with H1 FY23, a nil corporation tax amount was posted
in H1 FY24. A net credit is expected to be posted in the full year
FY24 results for the anticipated Video Games Tax Relief cash claim
for qualifying development activity in the financial year. The
Group will provide additional corporation tax disclosures in the
FY24 financial statements.
A loss after tax of GBP33.1 million was recorded in the period
(H1 FY23: profit of GBP6.7 million). Basic loss per share was 85.7
pence (H1 FY23: earnings per share of 17.2 pence).
BALANCE SHEET AND CASH FLOW
The Group continues to be well capitalised, with a cash balance
of GBP17.1 million at 30 November 2023 (31 May 2023: GBP28.3
million). Microsoft Game Pass subscription fees for F1 (R) Manager
2023 and Jurassic World Evolution 2 were received in December 2023,
with cash at 31 December 2023 growing to GBP19.9 million. Cash from
the sales recorded in December will be received from platform and
channel partners in January and February.
CONSOLIDATED INCOME STATEMENT
FOR THE PERIODED 30 NOVEMBER 2023
Notes 6 months to 6 months to 12 months
30 November 30 November to 31 May
2023 2022 2023
GBP'000 GBP'000 GBP'000
----------------------------------- ------ ------------- ------------- -----------
Revenue 5 47,677 57,118 104,575
Cost of sales (14,714) (20,984) (37,230)
----------------------------------- ------ ------------- ------------- -----------
Gross profit 32,963 36,134 67,345
Research and development expenses 8 (48,060) (16,052) (67,857)
Sales and marketing expenses (8,350) (6,893) (12,012)
Administrative expenses (7,369) (6,333) (14,056)
----------------------------------- ------ ------------- ------------- -----------
Operating (loss)/pro fit before
restructuring (30,816) 6,856 (26,580)
Restructuring costs (2,500) - -
----------------------------------- ------ ------------- ------------- -----------
Operating (loss)/profit (33,316) 6,856 (26,580)
Net finance income/(costs) 217 (137) 71
----------------------------------- ------ ------------- ------------- -----------
(Loss)/profit before tax (33,099) 6,719 (26,509)
Income tax - - 5,604
----------------------------------- ------ ------------- ------------- -----------
(Loss)/profit for the period
attributable to shareholders (33,099) 6,719 (20,905)
----------------------------------- ------ ------------- ------------- -----------
Earnings per share
Basic (loss)/earnings per share 6 (85.7p) 17.2p (53.6p)
Diluted (loss)/earnings per share 6 (85.7p) 16.5p (53.6p)
----------------------------------- ------ ------------- ------------- -----------
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 2023
6 months to 6 months to 12 months
to
30 November 30 November 31 May 2023
2023 2022
GBP'000 GBP'000 GBP'000
---------------------------------------------- ------------ ------------ ------------
(Loss)/profit for the period (33,099) 6,719 (20,905)
Other comprehensive income
Items that will be reclassified subsequently
to profit or loss:
Exchange differences on translation
of foreign operations (146) 23 (578)
---------------------------------------------- ------------ ------------ ------------
Total comprehensive (loss)/income for
the period attributable to the equity
holders of the parent (33,245) 6,742 (21,483)
---------------------------------------------- ------------ ------------ ------------
The accompanying accounting policies and notes form part of this
financial information.
CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
AS AT 30 NOVEMBER 2023
(REGISTERED COMPANY NO: 02892559)
30 November 30 November 31 May 2023
Notes 2023 2022 GBP'000
GBP'000 GBP'000
------------------------------- -------- --------------- -------------- --------------
Non-current assets
Goodwill 7,027 10,385 7,160
Other intangible assets 7 33,746 79,012 56,987
Property, plant and equipment 5,415 6,171 5,696
Right-of-use assets 17,506 18,673 17,860
Deferred tax assets - 1,349 -
Total non-current assets 63,694 115,590 87,703
------------------------------- -------- --------------- -------------- --------------
Current assets
Trade and other receivables 19,132 11,191 15,558
Current tax assets 5,805 4,094 9,438
Cash and cash equivalents 17,134 42,639 28,311
------------------------------- -------- --------------- -------------- --------------
Total current assets 42,071 57,924 53,307
------------------------------- -------- --------------- -------------- --------------
Total assets 105,765 173,514 141,010
------------------------------- -------- --------------- -------------- --------------
Current liabilities
Trade and other payables (13,929) (18,430) (16,521)
Provisions (1,758) - -
Lease liabilities (1,597) (1,483) (1,505)
Deferred income (2,457) (2,769) (4,355)
Total current liabilities (19,741) (22,682) (22,381)
------------------------------- -------- --------------- -------------- --------------
Net current assets 22,330 35,242 30,926
------------------------------- -------- --------------- -------------- --------------
Non-current liabilities
Provisions (78) (63) (71)
Lease liabilities (17,416) (18,525) (17,773)
Other payables (3,836) (5,547) (4,235)
Deferred income - - (163)
Deferred tax liabilities (411) - (419)
------------------------------- -------- --------------- -------------- --------------
Total non-current liabilities (21,741) (24,135) (22,661)
------------------------------- -------- --------------- -------------- --------------
Total liabilities (41,482) (46,817) (45,042)
------------------------------- -------- --------------- -------------- --------------
Net assets 64,283 126,697 95,968
------------------------------- -------- --------------- -------------- --------------
Equity
Share capital 197 197 197
Share premium account 36,547 36,468 36,547
Equity reserve (13,953) (11,998) (14,553)
Foreign exchange reserve (742) 5 (596)
Retained earnings 42,234 102,025 74,373
------------------------------- -------- --------------- -------------- --------------
Total equity 64,283 126,697 95,968
------------------------------- -------- --------------- -------------- --------------
The accompanying accounting policies and notes form part of this
financial information.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIODED 30 NOVEMBER 2023
Share Share premium Equity Foreign Retained Total
capital account reserve exchange earnings equity
GBP'000 GBP'000 GBP'000 reserve GBP'000 GBP'000
GBP'000
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
------------------------ -------------- --------------- --------------- --------------- -------------- ---------
Loss for the period - - - - (27,624) (27,624)
Other comprehensive
income:
Exchange differences on
translation
of foreign operations - - - (601) - (601)
Total comprehensive
income
for the period - - - (601) (27,624) (28,225)
------------------------ -------------- --------------- --------------- --------------- -------------- ---------
Issue of share capital
net
of expenses - 79 - - - 79
Share-based payment
charges - - 2,035 - - 2,035
Share-based payment
transfer
relating to option
exercises
and lapses - - (1,543) - 1,543 -
Employee Benefit Trust
cash
outflows from share
purchases - - (3,000) - - (3,000)
Employee Benefit Trust
net
cash inflows from
option exercises - - (47) - - (47)
Deferred tax movements
posted
directly to reserves - - - - (1,571) (1,571)
------------------------ -------------- --------------- --------------- --------------- -------------- ---------
Transactions with
owners - 79 (2,555) - (28) (2,504)
------------------------ -------------- --------------- --------------- --------------- -------------- ---------
At 31 May 2023 197 36,547 (14,553) (596) 74,373 95,968
------------------------ -------------- --------------- --------------- --------------- -------------- ---------
Loss for the period - - - - (33,099) (33,099)
Other comprehensive
income:
Exchange differences on
translation
of foreign operations - - - (146) - (146)
Total comprehensive
income
for the period - - - (146) (33,099) (33,245)
------------------------ -------------- --------------- --------------- --------------- -------------- ---------
Share-based payment
charges - - 1,559 - - 1,559
Share-based payment
transfer
relating to option
exercises
and lapses - - (960) - 960 -
Employee Benefit Trust
net
cash inflows from
option exercises - - 1 - - 1
Transactions with
owners - - 600 - 960 1,560
------------------------ -------------- --------------- --------------- --------------- -------------- ---------
At 30 November 2023 197 36,547 (13,953) (742) 42,234 64,283
------------------------ -------------- --------------- --------------- --------------- -------------- ---------
The accompanying accounting policies and notes form part of this
financial information.
CONSOLIDATED STATEMENT OF CASHFLOWS
FOR THE PERIODED 30 NOVEMBER 2023
6 months to 6 months to 12 months to
30 November 30 November 31 May 2023
2023 2022 GBP'000
GBP'000 GBP'000
------------------------------------- ------------- --------------- ---------------
(Loss)/profit before taxation (33,099) 6,719 (26,509)
Adjustments for :
Depreciation and amortisation 24,467 12,289 41,438
Impairment of other intangible
assets 16,930 - 18,117
Movement in unrealised exchange
losses
on forward contracts (114) (817) (239)
Share-based payment expenses 1,559 1,305 3,340
Interest received (504) (166) (677)
Payment of interest element of
lease
liabilities 287 303 607
Research and Development
Expenditure
Credits (236) - (4 81 )
Working capital changes:
Change in trade and other
receivables (3,460) 15,451 11,084
Change in trade and other payables (6,150) (6,228) (3,114)
Change in provisions 1,765 7 15
------------------------------------- ------------- --------------- ---------------
Cash generated from operations 1,445 28,863 43,581
Taxes received 3,919 4,021 4,294
Net cash flows from operating
activities 5,364 32,884 47,875
------------------------------------- ------------- --------------- ---------------
Investing activities
Purchase of property, plant and
equipment (787) (645) (1,335)
Expenditure on other intangible
assets (15,227) (18,895) (42,046)
Acquisition of subsidiaries (net of
cash acquired) - (8,847) (9,606)
Interest received 504 166 677
Net cash flows used in investing
activities (15,510) (28,221) (52,310)
------------------------------------- ------------- --------------- ---------------
Financing activities
Proceeds from issue of share capital - - 79
Employee Benefit Trust cash outflows
from share purchases - - (3,000)
Employee Benefit Trust cash inflows
from option exercises 1 280 233
Repayment of loans - - (1,260)
Payment of principal element of
lease
liabilities (747) (731) (1,461)
Payment of interest element of lease
liabilities (287) (303) (607)
Net cash flows used in financing
activities (1,033) (754) (6,016)
------------------------------------- ------------- --------------- ---------------
Net change in cash and cash
equivalents
from continuing operations (11,179) 3,909 (10,451)
Cash and cash equivalents at
beginning
of period 28,311 38,699 38,699
Exchange differences on cash and
cash
equivalents 2 31 63
------------------------------------- ------------- --------------- ---------------
Cash and cash equivalents at end
of period 17,134 42,639 28,311
------------------------------------- ------------- --------------- ---------------
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
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
2023.
Statutory accounts for the year ended 31 May 2023 were approved
by the Board of Directors on 12 September 2023 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 and Company's forecasts and projections, taking
account of current cash resources and reasonably possible changes
in trading performance, support the conclusion that there is a
reasonable expectation that the Group and Company has adequate
resources to continue in operational existence for a period of not
less than 12 months from the date of the consolidated interim
financial statements. The Group and Company therefore continue to
adopt the going concern basis in preparing their financial
statements.
3. ACCOUNTING POLICIES
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
2023.
4. ACCOUNTING ESTIMATES AND KEY JUDGEMENTS
When preparing the consolidated 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 2023.
5. 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 all
periods.
6 months 6 months to 12 months
to 30 November 30 November to 31 May
2023 2022 2023
GBP'000 GBP'000 GBP'000
------------------------------------------- ---------------- ------------- -----------
Publishing revenue 46,654 56,971 104,084
Other revenue 1,023 147 491
------------------------------------------- ---------------- ------------- -----------
Total revenue 47,677 57,118 104,575
------------------------------------------- ---------------- ------------- -----------
Cost of sales (14,714) (20,984) (37,230)
------------------------------------------- ---------------- ------------- -----------
Gross profit 32,963 36,134 67,345
------------------------------------------- ---------------- ------------- -----------
Research and development expenses (48,060) (16,052) (67,857)
Sales and marketing expenses (8,350) (6,893) (12,012)
Administrative expenses (7,369) (6,333) (14,056)
------------------------------------------- ---------------- ------------- -----------
Operating (loss)/profit before
restructuring (30,816) 6,856 (26,580)
Restructuring costs (2,500) - -
------------------------------------------- ---------------- ------------- -----------
Operating (loss)/profit (33,316) 6,856 (26,580)
Net finance income/(costs) 217 (137) 71
------------------------------------------- ---------------- ------------- -----------
(Loss)/profit before tax (33,099) 6,719 (26,509)
Income tax - - 5,604
------------------------------------------- ---------------- ------------- -----------
(Loss)/profit for the period attributable
to shareholders (33,099) 6,719 (20,905)
------------------------------------------- ---------------- ------------- -----------
6. 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
2023 2022 2023
-------------------------------------------- ---------------- ---------------- ----------------
(Loss)/profit attributable to shareholders
(GBP'000) (33,099) 6,719 (20,905)
Weighted average number of shares 38,601,286 39,018,948 39,025,746
-------------------------------------------- ---------------- ---------------- ----------------
Basic (loss)/earnings per share
(p) (85.7) 17.2 (53.6)
-------------------------------------------- ---------------- ---------------- ----------------
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
2023 2022 2023
-------------------------------------------- ---------------- ---------------- --------------
(Loss)/profit attributable to shareholders
(GBP'000) (33,099) 6,719 (20,905)
Diluted weighted average number of
shares 38,601,286 40,598,671 39,025,746
-------------------------------------------- ---------------- ---------------- --------------
Diluted (loss)/earnings per share
(p) (85.7) 16.5 (53.6)
-------------------------------------------- ---------------- ---------------- --------------
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
2023 2022 31 May 2023
-------------------------------------------- ---------------- ---------------- --------------
Weighted average number of shares 38,601,286 39,018,948 39,025,746
Dilutive effect of share options - 1,579,723 -
-------------------------------------------- ---------------- ---------------- --------------
Diluted average number of shares 38,601,286 40,598,671 39,025,746
-------------------------------------------- ---------------- ---------------- --------------
The dilutive effect of share options is nil for the 6 months to
30 November 2023 because a loss was recorded for the period.
7. OTHER 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 2022 19,733 129,393 2,390 11,185 162,701
Additions 1,643 16,786 106 - 18,535
Acquisition of a subsidiary - - 62 - 62
------------------------------- ---------------- ------------------ ------------ -------------- ----------
At 30 November 2022 21,376 146,179 2,558 11,185 181,298
Additions 1,806 17,396 323 - 19,525
Acquisition of a subsidiary - 3,910 (4) - 3,906
Exchange rate movement - (300) - - (300)
------------------------------- ---------------- ------------------ ------------ -------------- ----------
At 31 May 2023 23,182 167,185 2,877 11,185 204,429
Additions 2,218 12,835 174 1,047 16,274
Exchange rate movement - (86) - - (86)
------------------------------- ---------------- ------------------ ------------ -------------- ----------
At 30 November 2023 25,400 179,934 3,051 12,232 220,617
------------------------------- ---------------- ------------------ ------------ -------------- ----------
Amortisation and impairment
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
Acquisition of a subsidiary - - 62 - 62
------------------------------- ---------------- ------------------ ------------ -------------- ----------
At 30 November 2022 10,685 85,263 1,923 4,415 102,286
Amortisation charges 2,357 24,605 211 - 27,173
Acquisition of a subsidiary - - (4) - (4)
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
Amortisation charges 1,542 19,124 211 1,686 22,563
Impairment charges - 15,502 - 1,428 16,930
Exchange rate movement - (64) - - (64)
------------------------------- ---------------- ------------------ ------------ -------------- ----------
At 30 November 2023 18,503 156,774 2,341 9,253 186,871
------------------------------- ---------------- ------------------ ------------ -------------- ----------
Net book value
Net book value at 30 November
2023 6,897 23,160 710 2,979 33,746
------------------------------- ---------------- ------------------ ------------ -------------- ----------
Net book value at 31 May
2023 6,221 44,973 747 5,046 56,987
------------------------------- ---------------- ------------------ ------------ -------------- ----------
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
------------------------------- ---------------- ------------------ ------------ -------------- ----------
8. KEY PERFORMANCE INDICATORS - NON-STATUTORY MEASURES
In addition to measures of financial performance derived from
IFRS reported results - revenue, operating profit, operating profit
margin percentage, earnings per share and net cash balance -
Frontier publishes, and provides commentary on, financial
performance measurements derived from non-statutory calculations.
Frontier believes these supplementary measures, when read in
conjunction with the measures derived directly from statutory
financial reporting, provide a better understanding of Frontier's
overall financial performance.
EBITDA
EBITDA, being earnings before tax, interest, depreciation, and
amortisation, is commonly used by investors when assessing the
financial performance of companies. It attempts to arrive at a
'cash profit' figure by adjusting operating profit for non-cash
depreciation and amortisation charges. In Frontier's case, EBITDA
does not provide a clear picture of the Group's cash profitability,
as it adds back amortisation charges relating to game developments,
but without deducting the investment costs for those developments,
resulting in a profit measure which does not take into account any
of the costs associated with developing games. Since EBITDA is a
commonly used financial performance measure, it has been included
below for the benefit of readers of the accounts who may value that
measure of performance.
6 months to 6 months to 12 months
30 November 30 November to
2023 2022 31 May 2023
GBP'000 GBP'000 GBP'000
-------------------------------- ------------- ------------- -------------
Operating (loss)/profit before
restructuring (30,816) 6,856 (26,580)
Depreciation and amortisation 24,467 12,291 41,438
Impairment of other intangible
assets 16,930 - 18,117
EBITDA 10,581 19,147 32,975
-------------------------------- ------------- ------------- -------------
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.
6 months 6 months 12 months
to to to 31 May
30 November 30 November 2023
2023 2022 GBP'000
GBP'000 GBP'000
---------------------------------------------- ------------- ------------- ------------
Operating (loss)/profit before restructuring (30,816) 6,856 (26,580)
Add back non-cash intangible asset
amortisation charges for game developments
and Frontier's game technology 20,666 8,589 34,490
Add back non-cash intangible asset
impairment charges 16,930 - 18,117
Deduct capitalised investment costs
in game developments and Frontier's
game technology (15,054) (18,429) (37,632)
Add back non-cash depreciation charges 1,904 1,934 3,909
Add back non-cash movements in unrealised
exchange (gains)/losses on forward
contracts (114) (817) (239)
Add back non-cash share-based payment
expenses 1,559 1,305 3,340
Adjusted EBITDA loss (4,925) (562) (4,595)
---------------------------------------------- ------------- ------------- ------------
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.
6 months 6 months 12 months
to to to
30 November 30 November 31 May 2023
2023 2022 GBP'000
GBP'000 GBP'000
-------------------------------------------- --------------- ------------- -------------
Gross R&D expenses 25,518 25,892 52,882
Capitalised investment costs in
game developments and Frontier's
game technology (15,054) (18,429) (37,632)
Amortisation charges for game developments
and Frontier's game technology 20,666 8,589 34,490
Impairments of other intangible
assets 16,930 - 18,117
Net R&D expenses 48,060 16,052 67,857
-------------------------------------------- --------------- ------------- -------------
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END
IR BFMRTMTABBAI
(END) Dow Jones Newswires
January 17, 2024 02:00 ET (07:00 GMT)
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