Interim Results

RNS Number : 3904W
Frontier Developments PLC
09 February 2017
 

9 February 2017

Frontier Developments plc

 

Interim results

Good progress across the business; continuing to deliver its growth strategy

Frontier Developments plc (AIM: FDEV; "Frontier" or the "Group"), a leading independent creator of video games, has published its results for the six months to 30 November 2016.

Strategic highlights

·     Frontier completed its transition from being a work-for-hire game developer to being a creator of multiple self-published video game franchises with the successful launch of its second franchise, Planet Coaster.

·     Planet Coaster received a positive reception from gamers and reviewers - by the end of December 2016 over 0.5 million paid units had been sold.

·     Elite Dangerous continues to perform well - by the end of December 2016 a total of over 2.1 million paid franchise units had been sold.

·     The Company has continued to increase its investment in supporting its game franchises, its operational infrastructure and other business activities.

·     Work on a third franchise has begun.  The Group recently announced a licence agreement for a globally renowned movie franchise from a major Hollywood studio. The Board expects this next franchise to generate revenue during calendar 2018.

Financial Highlights

 

·     Revenue £18.1m (1H 15/16: £10.9m)

·     Net cash £6.7m at 30 November 2016 (1H 15/16: £8.6m)

·     Trade receivables £9.6m (up £7.1m from May 2016)

·     Profit after tax for period £3.6m (1H 15/16: £0.4m)

·     EBITDA £5.8 m  (1H 15/16: £2.1m)

·     Adjusted Operating Result £2.2m (1H 15/16: (£1.7m))

·     Earnings per share of 10.7p (1H 15/16: 1.2p)

 

Revenue was up 66% and EBITDA up 179% on the equivalent 1H 15/16 numbers, driven by the successful launch on 17 November 2016 of the Group's second franchise, Planet Coaster. Definitions of EBITDA and Adjusted Operating Result are located elsewhere in this document.

Operational Highlights

Successful launch of our second franchise, Planet Coaster

·     Following a successful summer Alpha period, Planet Coaster pre-orders were made available in August 2016.

·     On the 17 Nov 2016, Planet Coaster was released as planned after a short, successful Beta period.

·     Planet Coaster was well received, holding the global number one position on Steam for over a week, and was one of the Steam Top 40 selling games of 2016 despite being released within six weeks of the year-end.​

·     In December 2016, the first Planet Coaster update was released; a free seasonal 'Winter' update that added significantly to all areas of the game.

Continued strengthening of our first franchise, Elite Dangerous

·     The company continued to both strengthen Elite Dangerous and deliver the Elite Dangerous: Horizons season of expansions.

·     On 3 June 2016 Elite Dangerous: Horizons was launched on Xbox One with the release of 'Planetary Landings' and 'The Engineers' expansions, both already available on PC.

·     On 25 Oct 2016 the third expansion in the Horizons season, 'The Guardians', was released simultaneously on PC and Xbox One.

·     Elite Dangerous was one of the Steam Top 100 selling games of 2016.

·     On 9 December 2016 the company announced that Elite Dangerous and the Elite Dangerous: Horizons season of expansions will be released on Sony's PlayStation 4 and Playstation 4 Pro in calendar 1H 2017.

·     This launch will mark the debut for the Company's proprietary COBRA game development technology on Playstation 4.

Other key developments in the period

·     Charles Cotton replaced Jonathan Milner as Non-Executive Director. Charles has a successful track record of successfully scaling organisations listed on both LSE and NASDAQ.

·     The company announced the appointment of Alex Bevis as CFO. Alex has extensive board experience as VP Finance and CFO of high technology growth companies from his work at CSR plc and Xaar plc, and joins Frontier in April 2017.

·     Jane Cooke, formerly of Abcam plc, was appointed Director of Organisational Development in December 2016 on a one year contract.

·     The Company has secured new leased premises on Cambridge Science Park for 2018 that provides the capacity for future expansion and will maximise efficiency of operations with all staff in one building.

Outlook

Revenues in the first half of the year exceeded the Board's expectations. Subsequent sales have been in line and the Board is confident about meeting its expectations for the full year. Looking forward, the Board is excited about the growth opportunities in the years ahead - from both strengthening and growing the Group's existing franchises and launching new franchises.

David Braben, Chief Executive of Frontier Developments, said:

"I am delighted that, as planned and on schedule, Frontier is now self-publishing multiple franchises.  This marks the end of the transition in our business model and the beginning of a new phase of growth.

Our strong financial position enables us to further our investment across the business as we scale for long-term growth. We made another important step toward that goal by recently choosing to licence a globally-renown IP from a major Hollywood studio to develop as our third franchise.  I look forward to revealing more details later this year."

 

Enquiries:

Frontier Developments

+44 (0)1223 394 300

David Braben, CEO

David Walsh, COO

 

 

 

Numis - Nomad and Joint Broker

+44 (0)20 7260 1000

Simon Willis / Jamie Lillywhite (Nomad) / Toby Adcock

 

 

 

Finncap

+44 (0) 207 220 0500

Matt Goode / Giles Rolls

 

 

 

Tulchan Communications

+44 (0) 207 353 4200

James Macey White / Matt Low

 

 

About Frontier Developments plc

Frontier Developments plc, listed on the AIM stock market (AIM: FDEV), is a leading independent creator of self-published videogame franchises founded in 1994 by David Braben, co-author of the seminal 'Elite' game. Based in Cambridge, Frontier uses its proprietary 'COBRA' game development technology to create innovative games, currently focusing on videogame consoles and personal computers.

www.frontier.co.uk                     

 

About Elite Dangerous

Elite Dangerous - available for Windows PC, Apple Macintosh, Microsoft Xbox One and coming to Sony Playstation 4 in 2Q 2017 - is the definitive massively multiplayer space epic, bringing gaming's original open world adventure to the modern generation with a connected galaxy, evolving narrative and the entirety of the Milky Way re-created at its full galactic proportions.

www.elitedangerous.com

 

About Planet Coaster

Planet Coaster - available for Windows PC - builds on Frontier's genre-defining expertise with coaster park games such as RollerCoaster Tycoon 3 and Thrillville. It further raises the bar for this popular genre, allowing players to let their imaginations run wild as they surprise, delight and thrill incredible crowds, and share their success with the world via the Steam Workshop community.

www.planetcoaster.com

Notes to Editors

Alpha and Beta are common terms used to describe pre-release versions of software. Alpha releases are typically focused on a limited feature set compared to the final version, whilst Beta releases approach full functionality with some aspects remaining work-in-progress.

 

Frontier Developments plc                                   Company registered no: 2892559

Interim management report

 

Group Financial Performance

The Group has now completed its transition to a self-publishing business model with multiple franchises in the market. The Alpha and Beta phases for the Group's second franchise were completed successfully and Planet Coaster was launched on 17 November 2016. Elite Dangerous: Horizons was released on Xbox One in June 2016, and the Group continued to deliver the Horizons season of expansions on PC and Xbox One with 'The Guardians' being launched in October. The Group will continue to strengthen and develop the Elite Dangerous and Planet Coaster franchises whilst investing in the development of future franchises.

The goal of business model transition has been achieved and the Group is continuing to invest in the development of future franchises. Consequently, the Board still considers the statement of cashflows to be the most appropriate way of illustrating the Group's financial performance, given the substantial investment in games development, which is capitalised.

Revenue for the period is £18.1m (2015: £10.9m), an increase of 66% compared with the first six months of the previous financial year - in respect of self-published titles the increase was 61%.  The increase in self-published revenue is due to the successful launch of Planet Coaster on 17 November 2016 therefore the Group now has revenue streams from two self-published franchises.

Looking at the financial performance in the first six months of the financial year to 30 November 2016, the Group recorded an operating profit of £3.6m (2015: £0.4m). EBITDA increased to £5.8m in comparison with the prior year amount of £2.1m. The adjusted operating result was a profit of £2.2m (2015; loss of £1.7m). This measure is to reflect the investment in development of self-published titles by expensing capitalised development costs and excluding certain non-cash items from expenses on the income statement (shown in the table in the Profitability, EBITDA and Adjusted Operating profit section).

Cash and cash equivalents decreased by £1.9m (30 November 2015: decrease of £2.0m). During the period a significant amount of development staff worked on Planet Coaster which, apart from £1.8m of recognised revenue associated with early-access offerings to customers, only became cash generative in November 2016. A significant proportion of the Planet Coaster sales are via third party distribution and cash from such November sales is not included in the closing balance, being remitted within 30 days after the period end. Trade and other receivables rose by £7.1m to £9.6m in the six months since May 2016.

In addition to Planet Coaster, the Group continued to invest in the development of Elite Dangerous and COBRA technology. Elite Dangerous continued to be cash generative throughout the period, with the launch of Elite Dangerous: Horizons on Xbox One in June 2016 and 'The Guardians' expansion launched on PC and Xbox One in October 2016.

Cash and Cashflow

The Group generated £3.6m from continuing operations, invested £5.0m in non-current assets and incurred foreign exchange losses of £0.5m from currency hedges resulting in a net decrease in cash of £1.9m to £6.7m at the period end as Planet Coaster cash from its distribution via third party channels was remitted post-period (2015: net cash £8.6m). Trade and other receivables increased by £7.1m due to Planet Coaster revenue  being driven through third party platforms where cash is typically received 30 to 60 days after the month end. This increased third party distribution also resulted in an increase in trade and other payables, as revenues from third parties are received net of commissions.

The proportion of non-Sterling sales proceeds rose to 90% (2015: 74%), again reflecting increased sales via third party distribution channels. The Group's current policy is to hedge at least 50% of its forecast net currency exposure on a rolling 12 months basis.

The Elite Dangerous franchise represented 45% of self-published sales, and the Planet Coaster franchise 54%. Self-published revenues represent sales where Frontier is the sole developer and determines the route to market. Royalties and physical merchandise represent income streams for royalties of previous work-for-hire games (including RollerCoaster Tycoon 3) and physical merchandise sales.

Revenue from work-for-hire activities with external publishers has now reduced to zero as planned, reflecting the Group's successful transition to generating substantially all its revenue from self-published titles.

 

Revenue mix £'000

For the six months ended November

 

2016

2015

%

Self-published

17,302

10,740

61%

Royalties & physical merchandise

253

178

42%

Technology platform licence fee

519

-

100%

Total Revenue

18,074

10,918

66%

In the period a publisher partner took up two options under previous work-for-hire contracts to license COBRA to facilitate ports of existing games to new platforms, shown in the table above as 'Other income'. Licensing our COBRA technology to new customers is not a current focus and remains a future strategic opportunity that we will continue to evaluate.

In December 2016 the Company issued a complaint in New York, USA, court against Atari Interactive Inc., related to underpaid ongoing royalties from the RollerCoaster Tycoon 3 game which the Company developed and licensed to Atari to publish in 2004. After attempting to resolve this issue without legal action since April 2016 and having so far been denied the contractual right to audit by Atari, the Company was unfortunately left with no other way to resolve its concerns.

Intangible Assets and Research & Development Expenditure

Investment in the Group's own IP capitalised in the period was up 14% at £4.9m (2015: £4.3m). This reflects the continued development in both franchises and COBRA technology. Costs within software development projects of £0.5m (2015: £0.5m) were expensed.

Gross Margin and nature of expenses

Gross margin was 74% (2015: 71%). The 3% increase in 2016 is due to the one-off COBRA licence option payment of £0.5m from a publisher partner during the period to 30th November 2016 at a gross margin of 100% and a small increase in sales being made through Frontier's distribution channel at a higher margin, including early access products for Planet Coaster that were sold exclusively on the Frontier store.

Gross margin is aligned to the reporting format mainly used in the sector; cost of sales represents commissions from third party developers, royalties payable on the RollerCoaster Tycoon 3 IP license, merchandise costs and e-commerce payment charges. Cost of goods sold does not include any staff costs

The Group has provided details of the nature of its £14.4m of expenses (2015: £10.5m) in note 8. Within the analysis commissions and royalties paid increased to £4.6m from £3.1m as a result of an increase in revenue during the period. A substantial proportion of revenue has arisen from sales through third party distributors who typically charge a commission in the region of 30% of net revenue. Employee benefit costs have increased during the period partly due to an increase in headcount (average headcount increased from 268 employees to 305). Sales and Marketing costs decreased to £1.2m from £2.0m, due to a shift in the profile of the Company's attendance at trade and consumer events and a highly focused approach to the initial target audience for Planet Coaster. R&D capitalised increased from £4.3m to £4.9m, reflecting the continued investment in Elite Dangerous and the ongoing development of Planet Coaster prior to launch in November 2016. Administration and other overheads have increased significantly from £1.8m to £3.3m due primarily to actual and fair value currency losses on forward currency hedges. The Group has benefitted from the decrease in value of the British Pound as a significant proportion of revenue is remitted in US Dollars, approximately offsetting the currency losses.

Depreciation and amortisation has increased during the period from £1.6m to £2.1m due to the amortisation of the additional capitalised development costs of the Elite Dangerous franchise and the release of Planet Coaster. The Group's depreciation policy is to amortise capitalised development costs of self-published titles from the release of the game. Management have agreed that, as with Elite Dangerous, assets developed for the first Planet Coaster release will be used across the franchise and therefore depreciated over six years. Amortisation for the acquisition of David Braben's royalty rights to the Elite franchise IP of £5.1m commenced on a straight line basis from December 2014 over eight years.

Profitability, EBITDA and Adjusted Operating profit

During the initial transition phase of the Group's business model to self-publishing multiple franchises the Board monitored performance on three levels, operating profit, EBITDA and adjusted operating profit.  Although this transition is complete the Board still considers these metrics to be useful performance measure whilst the Group continues to invest in further franchises. The reconciliation from Operating profit through to adjusted operating profit is as follows:

 

For the six months ended November 

2016

2015

%

£'000

£'000

 

Operating result before interest and tax

3,641

430

747%

Depreciation

127

131

(3%)

Amortisation and impairment

1,982

1,501

32%

EBITDA

5,750

2,062

179%

Share based compensation

340

418

(19%)

Fair Value adjustments

932

137

580%

Dilapidations provision

2

11

(82%)

EBITDA adjusted

7,024

2,628

167%

R&D capitalised

(4,864)

(4,305)

(13%)

Adjusted Operating result

2,160

(1,677)

229%

 

Earnings per Share and Dividend

The basic Earnings per share was 10.7 pence per share (2015: 1.2 pence) based on a weighted average number of shares of 33.9m (2015: 33.6m). Diluted basic earnings per share was 10.3 pence per share (2015: 1.1pence) based on a weighted average of 35.3m shares (2015: 35.1m).

The fully adjusted earnings per share moved to 6.4 from a loss of (5.0) pence per share on an undiluted basis (note 9).

The Board seeks to strike a balance between the needs of the business in terms of investment and the desire to provide a high level of return to shareholders. Considering the significant investment the Group continues to make in franchise development the Board has decided not to pay a dividend for the period (2015: nil).

Share issues & Employee Benefit Trust

The Group operates an Employee Benefit Trust. During the period no ordinary shares were issued to the Trust in order to meet share options exercised by employees (2015: 300,000 ordinary shares at 80 pence were issued to the Trust). The Employee Benefit Trust had an interest in 218,400 shares at the end of the period   The Group granted 344,000 share options under the Company Share Option Plan and an unapproved share plan in the period at a total expected fair value of £0.3m. The Employee Benefit Trust did not undertake any market purchases during the period.

Other Key Performance Indicators

In addition to the Revenue and profitability measures mentioned previously as a key indicator of growth and profitability, the Group has transitioned to investing in its own self-published content:

 

% of revenue by segment for the six months ending November

2015

2016

Self-published

98%

96%

Publishing

-

-

Royalties & physical merchandise

2%

1%

Technology platform licence fee

-

3%

Total

100%

100%

Although self-published revenues have increased in value their proportion of total revenue decreased to 96%. This is primarily due to the £0.5m one off COBRA licensing income which accounted for 3% of the total revenue.  Royalties from legacy work-for-hire contracts continue to constitute a decreasing proportion of the total revenue. Although such royalties are expected to generally decrease as a proportion of total revenue the Board does expect to continue receiving such royalties in future years.

Risk and Uncertainties

The Board continuously monitors and assesses the key risks of the business. The key risks that could affect the Group's financial performance and their associated mitigating factors, have not significantly changed from those set out on pages 20 and 21 of the Group's Annual Report for 2016, a copy of which is available from the Frontier Developments website: 

 http://ar2016.frontier.co.uk/

 

 

Frontier Developments plc                                   Company registered no: 2892559

Consolidated Statement of Cash Flows

 

 

 

 

Audited 12 months to

 

Nov 2016

£'000

Nov 2015

£'000

May 2016

£'000

Cash flow from operating activities (see below)

3,602

2,661

7,317

 

 

 

 

Investing activities

 

 

 

Purchase of property, plant and equipment

(96)

(123)

(233)

Expenditure on intangible assets

(4,967)

(4,407)

(8,965)

Employee benefit trust investment

11

(400)

(563)

Interest received

7

10

37

Cash flow from investing activities

(5,045)

(9,724)

 

 

 

 

Financing activities

 

 

 

Proceeds from issue of share capital

20

276

276

Cash flow from financing activities

20

276

 

 

 

 

Net change in cash and cash equivalents from continuing operations

(1,423)

(1,983)

(2,131)

Cash and cash equivalents at beginning of period

8,610

10,478

10,478

Exchange differences on cash and cash equivalents

(440)

148

263

 

 

 

 

Cash and cash equivalents at end of period

6,747

8,643

8,610

 

The accompanying accounting policies and notes form part of this financial information.

 

The following non-cashflow adjustments and adjustments for changes in working capital have been made to profit before tax to arrive at operating cashflow:

 

 

 

 

 

 

 

Audited 12 months to

 

Nov 2016

£'000

Nov 2015

£'000

May 2016

£'000

 

 

 

 

Cash generated from operations

 

 

 

Profit/(loss) after tax

3,636

395

1,432

Depreciation, amortisation and impairment

2,109

1,632

3,638

Fair value movement on currency contracts

932

-

551

Share-based payment expenses

340

418

738

Interest expense

-

-

-

Taxation

13

45

(162)

Foreign exchange

462

(190)

(267)

Operating cash flow before changes in working capital

7,492

2,300

5,930

Net changes in working capital:

 

 

 

Change in inventories

9

(24)

4

Change in trade and other receivables

(7,140)

(2,289)

603

Change in trade and other payables

3,079

2,670

925

Change in provisions

2

10

13

Cash generated from operations

3,442

2,667

7,475

Finance income

(7)

(10)

(37)

Taxes

167

4

(121)

Cash flow from operating activities

3,602

2,661

7,317

 

Frontier Developments plc                                   Company registered no: 2892559

Consolidated Income Statement

 

 

 

 

 

Audited 12 months to

 

Notes

30/11/16

£'000

30/11/15

£'000

31/5/16

£'000

 

 

 

 

 

Revenue

7

18,074

10,918

21,363

 

 

 

 

 

Cost of sales

 

(4,618)

(3,132)

(5,098)

 

 

 

 

 

Gross profit

 

13,456

7,786

16,265

Other income

 

-

-

3

Selling and distribution expenses

 

(1,213)

(2,024)

(3,887)

Administrative expenses

 

(4,653)

(2,052)

(4,154)

Research and development expenses

 

(3,949)

(3,280)

(6,989)

Operating Profit

 

3,641

430

1,238

 

 

 

 

 

 

 

 

 

 

Finance income

 

7

10

37

 

 

 

 

 

Profit before tax

 

3,648

440

1,275

 

 

 

 

 

Income tax

 

(12)

(45)

157

 

 

 

 

 

Profit for the period

 

3,636

395

1,432

All the activities of the Group are classified as continuing.

 

Earnings per share (pence)

9

 

 

 

Basic earnings per share

 

10.7

1.2

4.2

Diluted earnings per share

 

10.3

1.1

4.0

 

      Statement of Comprehensive Income

 

 

 

Audited 12 months to

 

30/11/16

£'000

30/11/15

£'000

31/5/16

£'000

Profit for the period

3,636

395

1,432

Items that will be reclassified to the profit and loss

Exchange differences on translation of foreign operations

 

 

58

(99)

 

 

(4)

Total comprehensive income for the period attributable to the owners of the Group

 

3,694

296

 

1,428

The accompanying accounting policies and notes form part of this financial information

 

Frontier Developments plc                                   Company registered no: 2892559

Consolidated Statement of Financial Position

 

 

 

 

 

Audited 12 months to

 

Notes

30 Nov

2016

£'000

30 Nov

2015

£'000

31 May

2016

£'000

Non-current assets

 

 

 

 

Intangible assets

10

19,675

14,006

16,690

Property, plant and equipment

 

275

325

304

Total non-current assets

 

19,950

14,331

16,994

 

 

 

 

 

Current assets

 

 

 

 

Inventories

 

-

37

9

Trade and other receivables

 

9,584

5,336

2,443

Other short-term assets

 

154

44

376

Cash and cash equivalents

 

6,747

8,643

8,610

Current assets

 

16,485

14,060

11,438

 

 

 

 

 

Total assets

 

36,435

28,391

28,432

 

 

 

 

 

Equity and liabilities

 

 

 

 

Equity

 

 

 

 

Share capital

11

171

170

170

Share premium account

 

14,496

14,476

14,476

Equity reserve

 

911

162

579

Foreign exchange reserve

 

(3)

(99)

(61)

Retained earnings

 

11,255

6,825

7,600

Total equity

 

26,830

21,534

22,764

 

 

 

 

 

Liabilities

 

 

 

 

Current

 

 

 

 

Trade and other payables

 

7,743

3,645

3,073

Other short-term financial liabilities

 

15

-

89

Deferred income

 

406

1,379

1,085

 

 

8,164

5,024

4,247

Non-current

 

 

 

 

Provisions

 

275

270

273

Deferred income (non- current)

 

1,166

1,477

1,148

Deferred tax

 

-

86

-

 

 

1,441

1,833

1,421

 

 

 

 

 

Total liabilities

 

9,605

6,857

5,668

Total equity and liabilities

 

36,435

28,391

28,432

 

The accompanying accounting policies and notes form part of this financial information

 

Frontier Developments plc                                   Company registered no: 2892559

Consolidated Statement of Changes in Equity

 

 

Share capital

Share premium account

Equity reserve

Foreign exchange reserve

Retained earnings

Total Equity

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

At 1 June 2015

168

13,963

633

(57)

6,180

20,887

Increase in equity in relation to options issued

-

-

738

-

-

738

Own shares held by the EBT

-

-

(804)

-

-

(804)

Share based payment transfer

-

-

12

-

(12)

-

Issue of share capital

2

513

-

-

-

515

Transactions with owners

2

513

(54)

-

(12)

449

Profit for the year

-

-

-

-

1,432

1,432

Other comprehensive income:

Exchange differences on translation of foreign operations

-

-

-

(4)

-

(4)

Total comprehensive income for the period

-

-

-

(4)

-

(4)

At 31 May 2016

170

14,476

579

(61)

7,600

22,764

 

 

 

 

 

 

 

At 1 June 2015

168

13,963

633

(57)

6,180

20,887

Increase in equity in relation to options issued

-

-

418

-

-

418

Own shares held by the EBT

-

-

(639)

-

-

(639)

Share based payment transfer

-

-

(250)

-

250

-

Issue of share capital

2

513

-

-

-

515

Transactions with owners

2

513

(471)

-

249

294

Profit for the period

-

-

-

-

395

395

Other comprehensive income:

Exchange differences on translation of foreign operations

 

-

 

-

 

-

 

(42)

 

-

 

(42)

Total comprehensive income for the period

-

-

-

(42)

-

(42)

At 30 Nov 2015 - Unaudited

170

14,476

162

(99)

6,825

21,534

 

At 1 June 2016

170

14,476

579

(61)

7,600

22,764

Increase in equity in relation to options issued

-

-

340

-

-

340

Own shares held by the EBT

-

-

11

-

-

11

Share based payment transfer

-

-

(19)

-

19

-

Issue of share capital

1

20

-

-

-

21

Transactions with owners

1

20

332

-

19

372

Profit for the period

-

-

-

-

3,636

3,636

Other comprehensive income:

Exchange differences on translation of foreign operations

-

-

-

58

-

58

Total comprehensive income for the period

-

-

-

58

3,636

3,694

At 30 Nov 2016 - Unaudited

171

14,496

911

(3)

11,255

26,830

 

The accompanying accounting policies and notes form part of this financial information.

 

Frontier Developments plc                                                                                       

Notes to the Financial Statements

1.      Financial Information

 

The financial information set out below of the Group and its subsidiary undertaking for the six months ended 30 November 2016 and 30 November 2015 has been prepared by the Directors of the Group on the basis set out in note 3.

 

2.      Corporate Information

 

Frontier Developments plc ("the Group") develops non-game applications and 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 306 Science Park, Milton Road, Cambridge CB4 0WG.

The Group's operations are based in the UK and its North American subsidiary, Frontier Developments Inc., based in the US. Frontier Developments Inc Canada is no longer operational and was liquidated in January 2017.

The condensed consolidated interim financial statements were approved by the Board of Directors for issue on 9 February 2017.

 

The condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 May 2016 were approved by the Board of Directors on 6 September 2016 and delivered to the Registrar of Companies. The report of the auditors on those accounts 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 condensed consolidated interim financial statements have been reviewed, not audited.

 

3.      Basis of Preparation and Statement of Compliance

 

The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements of the group and are prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and 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. All values are rounded to the nearest thousand pounds (£'000) except when otherwise indicated.

 

Going concern basis

 

The Group's forecasts and projections, taking account of current cash resources and reasonably possible changes in trading performance, support the conclusion that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its financial statements. The Group maintains a revolving credit facility to support its plans, and is debt free. 

4.      Accounting Policies

The accounting policies adopted in the preparation of the condensed consolidated interim financial statements are unchanged from those set out in the Group's consolidated financial statements for the year ended 31 May 2016. These policies have been consistently applied to all the periods presented.

 

5.      Significant Accounting Estimates and Key Judgements

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

The key assumptions concerning the future and other key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed  within notes 7 and 10 below. These significant estimates and judgements remain the same as those included in the financial statements for the year ended May 2016.

 

6.      Risks and uncertainties

An outline of the key risks and uncertainties of the Group was described in the 2016 financial statements, including strategic, execution and financial risks associated with the Group's transition as it seeks to diversify its business base. Risk is an inherent part of doing business but the strong cash position, successful launch of Planet Coaster and continued interest in the Elite Dangerous offering leads the Directors to believe that the Group is well placed to manage business risks successfully.

7.      Segment Information

The Group identifies reportable 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 a single operating segment being the design and production of computer software irrespective of platform or route to market. Resources are managed on the basis of the Group as a whole.

The Group's revenues from external customers are divided into the following geographical areas:

 

 

 

 

 

November

 2016

November

 2015

Audited year ended

 May 2016

 

£'000

£'000

£'000

United Kingdom (country of domicile)

2,100

1,555

3,271

United States of America

7,035

4,309

8,787

Rest of the World

8,939

5,054

9,305

 

18,074

10,918

21,363

 

Accounting policies

Revenue recognition

 

Where self-published titles have pre-orders, recognition is made by reference to delivery of performance obligations. Revenue stemming from the sale of 'early versions' of a game are recognised at the date of release of the 'early access versions'. Where pre-orders include delivery of the final version of the game, an estimate is made of this final element, which is included in deferred income until the final version is released to the public.

Adjusted operating profit/(loss) costs are adjusted for non cash expenses and funding items as a key performance indicator for the group and are also used by the Chief Executive Officer. EBITDA and Adjusted EBITDA were monitored in prior years and have been included as subtotals and are calculated as follows:

 

 

 

Adjusted profit

November

 2016

November

 2015

Audited year ended

 May 2016

 

£'000

£'000

£'000

Operating profit

3,641

430

1,238

Depreciation

127

131

262

Amortisation

1,982

1,501

3,376

EBITDA

5,750

2,062

4,876

Share based compensation

340

418

738

Dilapidations provision

2

11

13

Fair value movement on forward currency contracts

932

137

551

Adjusted EBITDA

7,024

2,628

6,178

R&D Capitalised

(4,864)

(4,305)

(8,857)

Tax credits deducted from administration costs

-

-

(13)

Adjusted profit/(loss)

2,160

(1,677)

(2,692)

8.         Nature of expenses

The Group's operating costs have been divided into the following categories:

 

November

 2016

November

 2015

Audited year ended

 May 2016

 

£'000

£'000

£'000

Commissions, charges and royalties paid

4,618

3,107

5,012

Depreciation and amortisation

2,109

1,632

3,637

Employee benefits

8,073

6,254

12,634

Sales and marketing

1,190

1,974

3,794

Merchandise costs

30

54

145

Administration and other overheads

3,277

1,773

3,764

R&D Capitalised

(4,864)

(4,305)

(8,857)

 

14,433

10,489

20,129

9.         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 period excluding the shares held by the Employee Benefit Trust. Separate calculations have been performed to a profit taking out the adjusted items included in the note below.

 

November

 2016

November

 2015

Audited year ended

 May 2016

Profit  attributable to shareholders (£'000)

3,636

395

1,432

Weighted average number of shares

33,880,435

33,597,276

33,812,840

Basic earnings per share (pence)

10.7

1.2

4.2

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 dilutive share options.

 

November

 2016

November

 2015

Audited year ended

 May 2016

Profit attributable to shareholders (£'000)

3,636

395

1,432

Weighted average number of shares

35,341,966

35,149,828

35,445,808

Diluted Basic earnings per share (pence)

10.3

1.1

4.0

 

The calculation of the adjusted earnings per share, based on adjusted operating profit/(loss) as shown in detail in note 7, is as follows:

 

November

 2016

November

 2015

Audited year ended

 May 2016

 

Adjusted profit/(loss) (£'000)

 

2,160

 

(1,677)

 

(2,692)

Weighted average number of shares

33,880,435

33,597,276

33,812,840

Adjusted Basic earnings per share (pence)

6.4

(5.0)

(8.0)

 

 

 

 

Weighted average number of shares (diluted)

35,341,966

35,149,828

35,445,808

Adjusted diluted earnings per share (pence)

6.1

(5.0)

(8.0)

 

10.       Intangible assets

The Group's Intangible assets comprise capitalised development tools and acquired software licences and self-published software games. The carrying amounts for the reporting periods under review can be analysed as follows:

  

 

 

Development tools

& licences

Self-published software

Third party software

Total

 

£'000

£'000

£'000

£'000

Cost

 

 

 

 

At 31 May 2015

4,342

13,141

994

18,477

Additions

144

4,161

101

4,406

Disposals

-

-

-

-

At  30 Nov 2015 - Unaudited

4,486

17,302

1,095

22,883

Additions

254

4,298

7

4,559

Disposals

(774)

-

-

(774)

At 31 May 2016

3,966

21,600

1,102

26,668

Additions

271

4,593

103

4,967

Disposals

-

-

-

-

At  30 Nov 2016 - Unaudited

4,237

26,193

1,205

31,635

 

 

 

 

 

Amortisation and impairment

 

 

 

 

At 31 May 2015

2,252

4,221

903

7,376

Charge for the period

563

886

52

1,501

Disposal

-

-

-

-

At  30 Nov 2015 - Unaudited

2,815

5,107

955

8,877

Charge for the period

564

1,267

44

1,875

Disposals

(774)

-

-

(774)

At 31 May 2016

2,605

6,374

999

9,978

Charge for the period

437

1,507

38

1,982

Disposal

-

-

-

-

At  30 Nov 2016 - Unaudited

3,042

7,881

1,037

11,960

 

 

 

 

 

Net Book Value at 30 Nov 2016- Unaudited

1,195

18,312

168

19,675

Net Book Value at 31 May 2016

1,361

15,226

103

16,690

Net Book Value at 30 Nov 2015 - Unaudited

1,671

12,195

140

14,006

Net Book Value at 31 May 2015

2,090

8,920

91

11,101

 

Accounting policies

Intangible assets

The Group invests heavily in research and development. The identification of development costs that meet the criteria for capitalisation is dependent on management's judgement and knowledge of the work done. Development costs of software tools within a project that can be utilised generically are separately identified. Judgements are based on the information available at each period end. Economic success of any development is assessed based on discounting cash flows from predicted revenue forecasts but remains uncertain at the time of recognition as it may be subject to future technical problems and therefore a review for indicators of impairment is completed by product at each period end date. The net book values of the Group and Company intangible assets including rights acquired, at 30 November 2016 are  £19.7m (November 2015: £14.0m).

 

Intangible assets are subject to amortisation and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, for example, a decision to suspend a self-published title under development.

An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are reviewed by project for which there are separately identifiable cash flows.

Games developed to be self-published are reviewed for impairment based on the status at the end of each financial year and at the half year against a prudent level of the projected net earnings.

 

Self-published titles are amortised on completion of the game.

 

 

11.       Equity

11.1     Share Capital

 

 

 

November

2016

November

2015

Audited year ended

May 2016

 

£'000

£'000

£'000

Called up, allotted and fully paid

£0.005 each

£0.005 each

£0.005 each

Ordinary shares

171

170

170

 

 

 

 

11.2     Movements in share capital

 

 

Movements in number of Ordinary Shares

November

2016

November

2015

Audited year ended

May 2016

 

£'000

£'000

  £'000

Number of shares at beginning of period

34,097

33,580

33,580

Shares issued to Employee Benefit Trust

-

300

300

Shares issued on share option and warrants exercises

16

217

217

At the end of the period

34,113

34,097

34,097

During the period to 30 November 2016:

15,748 Ordinary shares of 0.5 pence were allotted as fully paid at an average premium of 126.5 pence being the exercise of warrants issued to a third party at IPO. The average market value was 127 pence on the days of exercise.

12.       Cautionary statement

Sections of this Interim Financial report contain certain forward-looking statements with respect of the Group's financial condition, results, operations and business. These forward-looking statements involve risk and uncertainties because they relate to events that may or may not occur in the future. There are a number of factors that could cause the actual results of developments to differ materially from those expressed or implied by these forward-looking statements. Nothing in this document should be construed as a profit forecast.


This information is provided by RNS
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