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Codemasters Grp Hldg (CDM)

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Monday 23 November, 2020

Codemasters Grp Hldg

Interim Results

RNS Number : 0926G
Codemasters Group Holdings PLC
23 November 2020
 

Codemasters Group Holdings Plc

("Codemasters" or the "Company")

Interim Results

 

Codemasters (AIM: CDM), the award-winning British video game developer and publisher specialising in high quality racing games, announces unaudited results for the six months ended 30 September 2020 ("H1 2021").

 

Financial highlights:

· Revenues of £80.5 million with three game releases in the period (H1 2020: £39.8 million with one game release)

· Trading gross margin* of 88.9% (H1 2020: 89.0%), underpinned by accelerated digital sales growth, representing 72.9% of total revenue (H1 2020: 61.7%)*

· Reported gross margin* of 70.9% as a result of non-recurring accounting classification of development costs on Slightly Mad Studios ("SMS") game where IP is not owned

· Adjusted EBITDA1 of £21.2 million (H1 2020: £9.4 million)

· Reported operating profit of £20.3 million (H1 2020: £12.0 million)

· Adjusted earnings per share2 ("Adjusted EPS") of 13.3 pence (H1 2020: 6.7 pence)

· Net cash of £50.1 million at 30 September 2020 being cash held less right of use liability (30 September 2019: net cash £24.6 million)

 

Strategic and operational highlights:

· Successfully launched three titles

F1® 2020

Fast & Furious Crossroads

o Project CARS 3

· The Group's back catalogue continues to contribute significant sales

· Increased focus on Games as a Service ("GaaS") is delivering positive results by driving player engagement and extending each game's lifecycle

 

Business Development progress:

· Continued progress with the commercial partnership with Netease

o On course for mobile IP launch in FY2022

· Signed 5-year agreement with WRC Promoter GmbH ("WRC Promoter") for the exclusive rights to develop and publish the FIA World Rally Championship ("WRC") videogames and esports tournaments

Annual iterations of the FIA and support categories from 2023 through 2027

 

Post-period:

· DiRT 5 released on 6 November 2020

· Project CARS GO went into closed beta testing in October 2020 with encouraging initial results

· On 10 November 2020 the Company announced that the Board had reached an agreement with the Board of Directors of Take-Two Interactive Software, Inc ("Take-Two") on the terms of a recommended cash and shares offer to be made by Take-Two to acquire the Company (the "Acquisition"):

The Board believes that Codemasters will benefit by leveraging Take-Two's global distribution and marketing infrastructure, and its core operating expertise in live operations, analytics, product development, and brand and performance marketing​

Codemasters' Directors intend to recommend unanimously that Codemasters Shareholders vote in favour of the Scheme at the Court Meeting and the resolution to be proposed at the Codemasters General Meeting​

It is anticipated that the Acquisition will complete in the first quarter of calendar year 2021​

 

Outlook:

· Trading in the second half of the year has begun well, including the successful release of DiRT 5 on 6 November 2020

· Project CARS GO scheduled for release in H2 2021

· Expect to launch three new titles in H1 2022, including the first iteration of the F1® franchise on the next generation consoles

 

Frank Sagnier, CEO of Codemasters, commented:

"I am delighted to report a record first half in which we benefitted from three game launches, including our most successful iteration of the F1®   franchise. We continued to make significant progress against our strategic objectives, to strengthen the Group's overall leadership position in racing, grow the audience and increase average revenue per user.

We are fortunate to operate in an industry which has shown incredible resilience over the course of the year, shielding us from the impacts of COVID-19. During the period we continued to see an accelerated shift to digital delivery, supported by a decline in traditional retail and boxed sales which were affected by COVID-19.

The offer received from Take-Two Interactive Software, Inc post-period end demonstrates the strength of our offering and our reputation as leaders in the racing genre."

 

*See CFO Review for further detail on trading and reported gross margin

 

This announcement is released by Codemasters Group Holdings Plc and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

For the purposes of MAR and Articles 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of the Company by Rashid Varachia, Chief Financial Officer.

 

Notes:

1 Adjusted EBITDA, is a non-GAAP measure used by the Group, which is defined as profit before finance costs on borrowings (restricted to represent cash basis), tax, capitalisation, depreciation, amortisation, non-recurring items, share based payments, the phasing of milestone payments received from publishers and takes into account the contract accounting where game IP is not owned by the Group.

2 Adjusted earnings per share is a non-GAAP measure presented as a meaningful comparison of earnings per share across periods. It is defined as Adjusted net income per share (which is a non-GAAP measure used as a proxy for cash earnings), where the number of shares across each period is the outstanding Ordinary Shares in issue at the end of each period. Given the significant variance in average number of shares in issue between periods, an adjusted measure has been presented. Adjusted net income is defined as Adjusted EBITDA less cash interest and tax paid.

Enquiries

 

 

Codemasters Group Holdings Plc

Frank Sagnier, CEO 

Rashid Varachia, CFO 

Via Alma PR 

Liberum (Nominated Adviser and Joint Corporate Broker)

Neil Patel 

Cameron Duncan 

William Hall 

 

Jefferies International Ltd (Joint Corporate Broker)

Ed Matthews 

William Brown 

+44 (0) 20 3100 2000 

+44 (0) 20 7029 8000 

 

Alma PR Limited

Josh Royston 

Rebecca Sanders-Hewett 

Helena Bogle 

Sam Modlin 

+44 (0) 20 3405 0205 

[email protected]

 

ABOUT CODEMASTERS:

Codemasters (AIM:CDM) is an award-winning British video game developer and publisher with over 30 years of heritage. The company specialises in high-quality racing games including DiRT, GRID and the BAFTA award-winning official F1® series of videogames.  In November 2019, Codemasters acquired Slightly Mad Studios, creators and developers of award-winning IP including the Project CARS franchise and Fast & Furious Crossroads.

Codemasters' LEI number is: 213800NOITSDQVNP5W91  

 

Chief Executive Officer's Review

Strategic progress

I am pleased to report on an exceptional period for the Group and one in which the business has outperformed against the expectations set at the start of the financial year. Revenue more than doubled to £80.5 million (H1 2020: £39.8 million), with Adjusted EBITDA of £21.2 million (H1 2020: £9.4 million). As previously announced, COVID-19 substantially affected the sales mix, accelerating the shift to digital delivery and impacting traditional retail and box sales, exacerbated by the closure of the majority of game retailers globally. As a result, digital sales as a proportion of revenue represented 72.9% of total sales in the period (H1 2020: 61.7%), leading to a trading gross margin of 88.9% (H1 2020: 89.0%). The trading gross margin of 88.9% is in line with the prior year, with the greater proportion of higher margin digital revenue being offset by higher licence royalties as a result of the strong performance of F1® 2020. This trading gross margin of 88.9% is lower than the 92.9% incorrectly reported in the Company's trading update on 7 October 2020. This discrepancy is due to licence costs not being included in the margin disclosed on 7 October.

These strong results were driven by the release of three titles in the period: F1® 2020, Fast & Furious Crossroads and Project CARS 3, as well as the continued success of the Group's back catalogue of games (titles released in prior periods) . DiRT Rally 2.0 recently passed 9 million players, and F1® 2019 benefitted from F1® drivers competing in Virtual Grand Prix Series which replaced the postponed start to the 2020 F1® season and delivered 30 million views across digital platforms and linear TV.

The performance also demonstrates the continued progress being made against our strategic objectives: strengthen the Group's overall leadership position in racing, grow the audience and increase average revenue per user.

Through the acquisition of Slightly Mad Studios ("SMS"), we have cemented our leadership in racing. The SMS team is now fully integrated and the performance of their titles met our expectations in H1 2021. The addition of SMS brought diversified revenue streams via Project CARS and access to a licenced blockbuster IP with the launch of Fast & Furious Crossroads in August.

Esports continues to be a high growth area for the Group and we expect to create revenue from sponsorship and broadcast opportunities as the market matures. The opportunities available to us through esports were highlighted during the early months of the COVID-19 pandemic - esports helped fill the void of real-life F1® Grand Prix with virtual races aired on both streaming platforms and linear TV. It also underlined the symbiotic nature of the relationship as stars from different sports and entertainment fields introduced their fans to our games.

Our nascent Games as a Service ("GaaS") strategy is performing well, driving player engagement, satisfaction and retention, resulting in a longer lifecycle for our games. We anticipate GaaS to form an increasing share of our revenue going forward. We are seeing rapid growth, although revenues currently remain small.

Further progress is being made in the commercial partnership with Netease and this is on track to deliver a new mobile IP to the market in the financial year 2022. We remain excited about the game's potential, both in China and global markets.

Looking further to the future we were pleased to sign a licence agreement with WRC Promoter GmbH ("WRC Promoter") for the exclusive rights to develop and publish the FIA World Rally Championship ("WRC") videogames and esports tournaments. This allows the Group to release videogames based on the franchise including its support categories (e.g. the FIA WRC 2, WRC 3 and Junior WRC Championships) across console, PC and mobile platforms, including annual iterations for the five seasons from 2023 through to 2027. The Group expects to release the first title in this series in the financial year ending 31 March 2024.

In April, we were pleased to announce that Lisa Thomas had joined our Board as a Non-Executive Director. With over 32 years of experience and featured in Campaign's Power 100 for 2019, she is a highly talented consumer marketer and has already brought insight into consumer behaviour and the relationship between brands and their customers.

The above progress would not have been possible without the unwavering dedication and support of our employees, who have risen to the challenges presented by the pandemic. Our teams continue to work remotely as a result of COVID-19 and we are pleased to report that the Group has not seen any material disruption or loss of efficiency as a result of these different working environments. I thank them all.

 

Operational review

Codemasters has a portfolio of games and is renowned for developing high quality, AAA rated games, focused solely on the racing category.

F1® 2020 was released on 10 July 2020 on PlayStation 4, Xbox One, PC and Stadia. This year's iteration materially over-performed compared to the previous year and is one of the highest-scoring games of 2020 according to aggregator site Metacritic, averaging 91% on Xbox, 89% on PC and 86% on PlayStation 4. The superior quality of the game and the growth of the sport, especially in the United States, helped to attract new players. The game catered for race fans of all levels and experience with two new circuits, the introduction of the driver-manager feature, My Team, improved on-track options, and the reintroduction of split-screen and more. The Company anticipates that F1® 2020 will continue to perform strongly throughout the Black Friday, Christmas and New Year promotional periods, which have historically delivered strong sales for prior versions of the F1® game.

F1® Mobile Racing, our free to play mobile game for Apple and Android devices continues to grow and has attracted over 25 million players since launch and the game is now on its 15th update. We will continue to invest in this mobile title over the coming years, releasing regular updates to satiate demand.

H1 2021 also saw the release of the first two titles developed by SMS since the Company acquired the studio in November 2019. Both titles were published by Bandai Namco Entertainment on PlayStation 4, Xbox One and PC. Revenues from these titles in H1 2021 principally coming in the form of milestone payments and royalties as disclosed at the time of the SMS acquisition, were in line with the Company's expectations for H1 2021.

Fast & Furious Crossroads, a team-based, vehicular-heist action game set in the adrenaline-fueled Fast & Furious universe, was launched on 7 August 2020. Packed with gadgets, heists and iconic vehicles, Fast & Furious Crossroads puts players in the driver's seat of the non-stop cinematic-style action of the Fast & Furious saga. Whilst the critical reception was disappointing, the Company expects sales of the game to be positively impacted by the upcoming holiday period, post launch downloadable content and following the release of the next film in the Fast and Furious franchise.

Project CARS 3 was launched on 28 August 2020 boasting the biggest car roster in franchise history, new tracks, including the home of the Brazilian Grand Prix, Interlagos, and the roads of Tuscany. The game delivered an authentic motorsport simulation tailored for every type of racer and featured a fully-fledged career mode. It received the gamescom Award for "Best Simulation Game" and is a Finalist for "Best Racing Game" at the TIGA Awards​.

The Group's back catalogue continues to perform strongly. This is driven by the accelerated growth of the digital business reflecting the longer lifecycle of high-quality products and well-established IP, together with the ever-increasing number of digital channels for exploitation. The Board expects digital growth to continue with future releases.

 

Post period

DiRT 5 was released on 6 November 2020 on PlayStation®4 computer entertainment system, the Xbox One family of devices including the Xbox One X and PC. The revised launch date (originally scheduled for 16 October 2020) has enabled the Group to release all versions of the game in a shorter timeframe, with the next generation of consoles (Xbox Series X/S and PlayStation®5) launched on 10 November and 19 November 2020 respectively. A Google Stadia version will also launch later in H2 2021.

Project CARS GO went into closed beta testing in October with encouraging results. We look forward to its launch in H2 2021.

On 10 November 2020 the Company reached agreement on the terms of a recommended cash and shares offer by Take-Two for the entire issued and to be issued share capital of Codemasters. Take-Two believes that the combination of Take-Two and Codemasters would bring together two world-class interactive entertainment portfolios, with a highly complementary fit between Take-Two's 2K label and Codemasters. Take-Two believes that it can bring benefits to Codemasters' performance by leveraging its global distribution and marketing infrastructure, together with its core operating expertise in live operations, analytics, product development, and brand and performance marketing. The Codemasters' Directors intend to recommend unanimously that Codemasters' Shareholders vote in favour of the Scheme at the Court Meeting and the resolution to be proposed at the Codemasters General Meeting. It is anticipated that the Acquisition will complete in the first quarter of 2021.

 

Outlook

H1 2021 has been a milestone period for the Group in which we delivered a record performance with further growth in revenues and Adjusted EBITDA. We are fortunate to operate in an industry which has shown incredible resilience over the course of the year, shielding us from the wider impacts of COVID-19.

Trading in the second half of the year has begun well with the release of DiRT 5 on 6 November 2020 and Project CARS GO due for release in H2 2021 which are both expected to contribute to the full year results. Beyond the current financial year, we expect to launch three new titles in H1 2022, including the first iteration of the F1® franchise on the next generation consoles.

The long-term structural growth drivers in our sector remain strong with the launch of the next generation consoles, the accelerated shift to digital sales and services, and the roll out of 5G all likely to drive more opportunity for greater engagement with our audiences. As our industry grows, so does the level of investment needed to meet increasing consumer expectations. The Board has recommended that shareholders vote in favour of the offer we received from Take-Two as it believes Take-Two's broad capabilities will help propel the long-term success of Codemasters.

We remain excited about what the future holds and would like to thank our teams, once again, for their hard work and dedication.

 

Frank Sagnier

Chief Executive Officer

23 November 2020

 

 

 

Chief Financial Officer's Review

 

Overview

As referred to in the Chief Executive Officer's review, the Group has delivered record performance in H1 2021 with revenue of £80.5 million (£39.8 million in H1 2020). The H1 2021 numbers also incorporate the results of the SMS group which was acquired on 28 November 2019 (in H2 2020).

 

The impact of COVID-19 has accelerated the growth in the proportion of digital sales from 61.7% in H1 2020 to 72.9% in H1 2021. The trading gross margin of 88.9% is in line with the prior year, with the greater proportion of higher margin digital revenue being offset by higher licence royalties as a result of the strong performance of F1® 2020. This trading gross margin of 88.9% is lower than the 92.9% incorrectly reported in the Company's trading update on 7 October 2020. This discrepancy is due to licence costs not being included in the margin disclosed on 7 October 2020.

 

Impact of SMS Acquisition

Following the interim review of contract accounting on the SMS acquisition by the Company's auditors, as mentioned below, development costs in relation to Fast & Furious Crossroads, where SMS does not own the game IP, have been reclassified from Administrative Expenses to Cost of Sales. The impact of this is to reduce the reported gross margin from 88.9% to 70.9%. There is no impact on Operating profit or Adjusted EBITDA of this non-recurring accounting reclassification.

 

The deferred contingent consideration on the acquisition of SMS has been reviewed as at the end of H1 2021 in line with the future expected performance of the SMS group and as a result the goodwill and corresponding liability have both been reduced by £12.2 million. An impairment review of the intangible assets was also undertaken which resulted in no impairment being necessary.

 

The Statement of financial position as at 31 March 2020 has been restated following a review of the contract accounting on acquisition. This has resulted in additional IP being recognised along with a reclassification of IP and development costs on Fast & Furious Crossroads into contract assets. Additional deferred income and contract liabilities have also been recognised. The overall impact on both assets and liabilities is an increase of £13.6 million. This amount is the milestone payments that have been received by SMS prior to its acquisition. It is important to note that there is no impact on profit or net assets as a result of this restatement.

 

Adjusted EBITDA, Adjusted EPS and Cash

Adjusted EBITDA of £21.2 million (H1 2020: £9.4 million) is significantly higher than the prior period as a result of the strong sales performance of both new releases and the back catalogue.

 

Adjusted EPS of 13.3 pence has increased by 6.6 pence from 6.7 pence per share in H1 2020 (again driven by the strong sales performance).

 

Net cash as at 30 September 2020 was £50.1 million, £0.3 million higher than the number disclosed in the Company's trading update on 7 October 2020. This slight discrepancy is due to the reduction in the right of use liability following notice being given on the SMS offices shortly before the period end. This reflects an increase of £25.5 million since 30 September 2019.

 

 

 

 

 

6 months

6 months

Year

 

 

 ended

 ended

 ended

 

 

30 Sep 2020

30 Sep 2019

31 Mar 2020

 

 

£000

£000

£000

Revenue

 

80,519

39,793

76,049

Gross profit

 

  57,118

  35,415

  65,188

Gross Margin %

 

70.9%

89.0%

85.7%

Operating profit

 

  20,277

  12,007

  15,864

  - non-recurring items

 

115

  -

1,415

  - amortisation & impairment of development costs and computer software

 

  17,273

  9,303

  24,521

  - interest on unwinding of licensing agreements (restricted to represent cash)

 

(1,366)

(824)

(1,274)

 - depreciation

 

  1,240

  1,001

  2,155

 - capitalisation of development costs

 

(16,500)

(12,767)

(27,055)

 - share based payments

 

  446

  645

  1,135

 - SMS milestone payment adjustment

 

(13,333)

  -

1,391

 - SMS contract accounting adjustment

 

13,014

  -

-

 

 

 

 

 

Adjusted EBITDA

 

  21,166

  9,365

  18,152

Tax (charge) on profit on ordinary activities

 

(577)

(415)

(777)

Less non-cash tax items (deferred tax & corporation tax accruals)

 

(263)

415

  58

Cash interest

 

  10

  35

  98

Adjusted net income

 

20,336

9,400

17,531

 

 

 

Trading

The Group delivered £80.5 million of revenue in H1 2021, driven by the release of F1®2020, Fast & Furious Crossroads and Project CARS 3 coupled with the continued strength of the Group's back catalogue. In the prior period H1 2020, only F1® 2019® was released.

 

The Group continues to benefit from the market shift toward digitally downloaded games, with 72.9% of revenue delivered via digital channels (H1 2020: 61.7% and 2020 full year delivering 67.7%). This has benefitted the Group's trading gross margin and enabled greater shelf life of the back catalogue. However, this benefit to trading gross margin from a greater proportion of digital sales in H1 2021 has been offset by higher licence costs as a result of strong sales performance from F1® 2020.

 

H2 2021 trading prospects are encouraging, with an exciting post launch schedule of content and features for DiRT, and the expected release of Project CARS GO, a mobile version of the Project CARS franchise. Additionally, with further offerings for F1® 2020, additional content in F1® Mobile Racing and further GaaS updates from DiRT, the Board looks to the future with confidence.

 

As mentioned in the Group's 2020 Annual Report, the Company's Board of Directors use Adjusted EBITDA as a key trading performance indicator. This provides a meaningful measure of the underlying operational cash generation of the Group.

 

As noted above, Adjusted EBITDA of £21.2 million (H1 2020: £9.4 million) is significantly higher than the prior period and reflects the underlying strength of the F1® 2020 title supported by the release of Fast & Furious Crossroads and Project CARS 3 coupled with the strength of the back catalogue, in a period where the impact of COVID-19 has meant more people being at home having time to play games.

 

Regarding the reconciling items between operating profit and Adjusted EBITDA (which includes cost of sales, development costs and sales, general and administrative costs), the key observations are as follows:

 

· Amortisation (which includes long-term amortisation of capitalised development costs and long-term licence contracts). The key component is amortisation of capitalised development costs, whereby the development costs of each title are released over a 12-month period into the income statement, 65% in the first month, with the remainder split equally over the eleven remaining months. Amortisation is a non-cash accounting entry and is dictated by the timing of releases.

· Amortisation of £17.3 million has been incurred in H1 2021, the release of F1® 2020, Project CARS 3 and Fast & Furious Crossroads being the key drivers. However, whilst there is a significant variance between the two periods driven by timing of releases, there is an underlying increase in the level of investment in current titles, reflecting the Group's continued commitment to deliver products of the highest quality.

· Interest on unwinding of licensing agreements of £1.4 million (H1 2020: £0.8 million) form a recurring licensing cost, which is necessary for the Group to be able to release certain titles. Whilst the cost is recognised within interest expense it is added back into the Adjusted EBITDA calculation. All licensing costs are considered together by the Board of Directors and are included in the Adjusted EBITDA calculation. The increase when compared to the prior period reflects the number of contracts unwinding across the two periods.

· Depreciation of £1.2 million (H1 2020: £1.0 million) includes £0.5 million (H1 2020: £0.2 million) associated with Right of Use assets under IFRS 16. As part of the Group's capitalisation policy certain overheads, including depreciation are capitalised where they are directly related to developing the Group's games. In the period £0.9 million (H1 2020: £0.6 million) of depreciation was capitalised within capitalised development costs.

· Capitalisation is the measure of development costs incurred that are held as an intangible asset prior to release of the applicable title. Certain long-term licences entered into are also capitalised (none in the current and prior period). Both are non-cash measures.

· Capitalisation of £16.5 million has increased by £3.7 million from H1 2020, where £12.8 million was capitalised. This reflects the increased in investment in the Group's releases.

· Share-based payments charge of £0.4 million (H1 2020: £0.6 million) represents a non-cash charge.

· The adjustment for SMS milestone payments received arises as SMS develop their titles on behalf of a publisher. They receive milestone payments which are not reflected within revenue until the games are released. Therefore, the net movement in these payments is adjusted for to reflect the cash position. The costs incurred in developing the games are included within the capitalisation of development costs.

· The SMS contract accounting adjustment reflects the net costs of development where the IP is not owned by SMS.

 

 

Creative sector relief

Creative sector relief recognised in the period of £5.0 million (H1 2020: £4.2 million) represents the expected receivable for H1 2021 based upon the qualifying costs incurred in the period with the increase being partly attributable to the impact of the SMS acquisition. The claims in respect of the 2020 financial year were submitted in August 2020 and settled in August and September 2020.

 

Operating profit

Operating profit of £20.3 million has increased by £8.3 million from H1 2020. The key driver of this is the success of F1® 2020, coupled with the sales performance of the back catalogue.

 

Interest receivable / payable

Net interest receivable of £0.2 million in H1 2021 includes £1.4 million (H1 2020: £0.8 million) in relation to the unwinding of licensing agreements and interest on the unwinding of leases under IFRS 16. There are also £1.6 million of foreign exchange gains (H1 2020: £0.6 million loss) associated with the licensing agreements.

 

Profit after tax

The Group continues to benefit from tax losses brought forward of approximately £125 million. As such, corporation tax charges reflect the ability of the Group to utilise these losses. There has been a £0.6 million charge recognised in the period reflecting the expected tax rate applicable to the Group for the full year.

 

Deferred tax has been reviewed and no adjustments were required to the underlying value held.

 

H1 2021 profit after tax was £19.9 million (H1 2020: £10.1 million).

 

Basic earnings per share was 13.1 pence (H1 2020: 7.3 pence).

 

Adjusted EPS was 13.3 pence (H1 2020: 6.7 pence). This is a non-GAAP measure presented as a meaningful comparison of earnings per share across periods. It is defined as adjusted net income per share (which is also a non-GAAP measure used as a proxy for cash earnings), where the number of shares across each period is the number of Ordinary shares in issue at the end of each period.

 

Adjusted net income is defined as Adjusted EBITDA less cash interest and tax paid.

 

Statement of Financial Position and Cash flow

There are £77.0 million of intangible fixed assets as at 30 September 2020 (31 March 2020: £92.2 million). The reduction is mainly attributable to the amortisation of the development costs of the F1® 2020 and Project CRAS 3 games released in the period offset by the capitalised spend on games yet to be released. It has also been impacted by the reduction in the expected earnout following the SMS acquisition.

 

There are £10.6 million of tangible fixed assets as at 30 September 2020 (31 March 2020: £10.4 million).

 

There were £20.8 million trade and other receivables at 30 September 2020 (31 March 2020: £33.5 million). The reduction is driven by the release of contract assets and the settlement of trade receivables.

 

Within trade and other payables there is £32.1 million that is payable in a period greater than one year (31 March 2020: £45.5 million). The reasons for the reduction are the lower earnout following the SMS acquisition and the impact of being six months later on the timing of the long-term contract liabilities.

 

Trade and other payables falling due within one year of £23.7 million have reduced by £18.1 million from the year end. The reduction is a mix of the payment of deferred consideration due on the release of Fast & Furious Crossroads and the settlement of year end trade creditors and the release of contract liabilities.

 

As at 30 September 2020 the Group had £50.1 million of net cash, £0.3 million higher than the number disclosed in the Company's trading update on 7 October 2020. This slight discrepancy is due to the reduction in the right of use liability following notice being given on the SMS office shortly before the period end . This reflects an increase of £25.5 million since 30 September 2019.

 

 The Group continues to build its portfolio of titles, invest in its products and has sufficient strength in its balance sheet to take advantage of investment opportunities.

 

 

Rashid Varachia

Chief Financial Officer

23 November 2020

 

 

 

 

Unaudited condensed consolidated income statement

 

 

 

Note

6 months

6 months

Year

 

 

 

 

 ended

 ended

 ended

 

 

 

 

30 Sep 2020

30 Sep 2019

31 Mar 2020

 

 

 

 

£000

£000

£000

 

 

Revenue

 

80,519

39,793

76,049

 

 

Cost of sales

 

(23,401)

(4,378)

(10,861)

 

 

Gross profit

 

  57,118

  35,415

  65,188

 

 

Distribution costs

 

(6,687)

(5,163)

(9,272)

 

 

Administrative expenses:

 

 

 

 

 

 

 - research expenses, amortisation and impairment of intangible assets

(26,688)

(18,094)

(38,447)

 

 

 - creative sector relief

 

  5,033

4,204

9,113

 

 

 - other administrative expenses

 

(7,938)

(3,710)

(8,168)

 

 

 - share based payments

 

(446)

(645)

(1,135)

 

 

Total administrative expenses

 

(30,039)

(18,245)

(38,637)

 

 

Non-recurring items

4

(115)

  -

(1,415)

 

 

Operating profit

 

  20,277

  12,007

  15,864

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analysed as:

 

 

 

 

 

 

  - operating profit

 

  20,277

  12,007

  15,864

 

 

  - non-recurring items

 

  115

  -

  1,415

 

 

  - amortisation & impairment of capitalised development costs, game IP and computer software

 

  17,273

  9,303

  24,521

 

 

  - interest on unwinding of licensing agreements (restricted to represent cash)

 

(1,366)

(824)

(1,274)

 

 

 - depreciation of tangible fixed assets

 

  1,240

  1,001

2,155

 

 

 - capitalisation of development costs

 

(16,500)

(12,767)

(27,055)

 

 

 - share based payments

 

  446

  645

  1,135

 

 

 - SMS milestone payment adjustment

 

(13,333)

  -

1,391

 

 

 - SMS contract accounting adjustment

 

13,014

  -

-

 

 

Adjusted EBITDA*

 

  21,166

  9,365

  18,152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest receivable and similar income

 

  1,647

  43

110

 

 

Interest payable and similar charges

 

(1,462)

(1,494)

(3,729)

 

 

Net interest payable

 

185

(1,451)

(3,619)

 

 

Profit/ on ordinary activities before taxation

 

  20,462

  10,556

12,245

 

 

Tax (charge) on profit on ordinary activities

 

(577)

(415)

(777)

 

 

Profit on ordinary activities after taxation

 

19,885

10,141

11,468

 

 

 

 

 

 

 

 

 

Profit attributable to:

 

 

 

 

 

 

Owners of the parent

 

19,942

10,171

11,571

 

 

Non-controlling interest

 

(57)

(30)

(103)

 

 

Profit for the financial period

 

19,885

10,141

11,468

 

 

 

 

 

 

 

 

 

 

 

Pence

Pence

 

 

Earnings per share

5

 

 

 

 

Basic earnings per share

 

7.3

8.1

 

 

Diluted earnings per share

 

7.1

8.0

 

 

 

*Adjusted EBITDA is a non-GAAP measure used by the Group, which is defined as profit before finance costs on borrowings, tax and capitalisation of development costs, depreciation, amortisation, non-recurring items, SMS milestone payments received and SMS contract accounting adjustments.

 

Unaudited condensed consolidated statement of comprehensive income

 

 

 

6 months

6 months

Year

 

 

ended

 ended

ended

 

 

30 Sep 2020

30 Sep 2019

31 Mar 2020

 

 

£000

£000

£000

Profit for the financial period

 

  19,885

  10,141

  11,468

Other comprehensive (loss):

 

 

 

 

 

 

 

 

 

Items that will be reclassified subsequently to profit or loss:

 

 

 

 

Currency translation of foreign subsidiaries

 

(199)

(39)

(154)

Total comprehensive income for the period

 

19,686

10,102

11,314

Total comprehensive income attributable to:

 

 

 

 

Owners of the parent

 

19,743

10,132

11,417

Non-controlling interests

 

(57)

(30)

(103)

Total comprehensive income

 

19,686

10,102

11,314

 

 

Unaudited condensed consolidated statement of changes in equity

 

Called up

Share

 

 

Profit

Currency

Total attributable

Non-

 

share

premium

Merger

Other

and loss

translation

to owners of the

controlling

Total

capital

account

reserve

reserve

account

Reserve

 parent

Interest

equity

 

£000

£000

£000

£000

£000

£000

£000

£000

£000

At 1 April 2019

1,400

  14,751

 8,816

 1,243

 25,141

(1,114)

  50,237

(503)

 49,734

Profit / (loss) for the period

  -

  -

  -

  -

  10,171

  -

  10,171

(30)

  10,141

Other comprehensive income:

 

 

 

 

 

 

Net exchange differences on translation of foreign subsidiaries

  -

 

 -

 

  -

 

  -

  -

 

(39)

 

(39)

 

 -

 

(39)

Total comprehensive income/(loss) for the period

  -

 

  -

 

  -

 

  -

  10,171

 

(39)

  10,132

 

(30)

 

 10,102

Transactions with owners:

 

 

 

 

 

 

 

 

 

Charge for equity-settled share-based payments

  -

 

  -

 

  -

 

 645

  -

 

  -

 

  645

 

  -

  645

Total from transactions with owners

  -

 

  -

 

  -

 

  645

  -

 

  -

 

645

 

  -

 

645

At 30 September 2019

 1,400

  14,751

  8,816

  1,888

 35,312

(1,153)

  61,014

(533)

 60,481

 

 

 

 

 

 

 

 

 

 

At 1 April 2020

1,513

34,116

12,681

2,378

36,712

(1,268)

86,132

(606)

85,526

Profit/(loss) for the period

  -

  -

  -

  -

  19,942

  -

  19,942

(57)

  19,885

Other comprehensive loss:

 

 

 

 

 

 

 

 

Net exchange differences on translation of foreign subsidiaries

  -

 

 -

 

  -

 

  -

  -

 

(199)

 

(199)

 

  -

 

(199)

Total comprehensive income/(loss) for the period

  -

 

  -

 

  -

 

  -

  19,942

 

(199)

  19,743

 

(57)

 

 19,686

Transactions with owners:

 

 

 

 

 

 

 

 

 

Charge for equity-settled share-based payments

  -

  -

  -

  446

  -

  -

  446

  -

  446

Issue of 1,038,438 ordinary shares of 1p as deferred consideration for the acquisition of SMS

  10

  -

  3,730

  -

  -

  -

  3,740

  -

  3,740

Issue of 44,065 ordinary shares of 1p each for employee exercise of options

  1

  88

  -

  -

  -

  -

  89

  -

  89

 

 

 

 

 

 

 

 

 

 

Total from transactions with owners

  11

  88

  3,730

  446

  -

  -

  4,275

  -

  4,275

 

 

 

 

 

 

 

 

 

 

At 30 September 2020

 1,524

  34,204

 16,411

  2,824

 56,654

(1,467)

  110,150

(663)

 109,487

 

 

 

Unaudited condensed consolidated statement of financial position

 

 

 

Note

30 Sep 2020

30 Sep 2019

31 Mar 2020 (restated)

 

 

£000

£000

£000

Non-current Assets

 

 

 

 

Intangible assets

3

76,980

 30,775

 92,242

Tangible assets

 

10,625

  9,992

 10,390

Deferred tax asset

 

1,958

  3,247

 1,958

 

 

89,563

44,014

104,590

Current assets

 

 

 

 

Inventories

 

934

  1,833

  622

Trade and other receivables

 

20,775

  8,483

 33,512

Creative Sector tax credit receivable

 

7,162

 4,050

 11,830

Cash at bank and in hand

 

51,097

 24,800

 25,563

 

 

79,968

39,166

71,527

 

 

 

 

 

 

 

 

 

 

Total Assets

 

169,531

83,180

176,117

 

 

 

 

 

Non-current liabilities

 

 

 

 

Loans and borrowings

 

(414)

(19)

(752)

Trade and other payables

 

(32,141)

(3,950)

(45,515)

 

 

(32,555)

(3,969)

(46,267)

Current liabilities

 

 

 

 

Loans and borrowings

 

(599)

(156)

(1,633)

Trade and other payables

 

(23,663)

(16,435)

(41,819)

Provisions for liabilities

 

(3,227)

(2,139)

(872)

 

 

(27,489)

(18,730)

(44,324)

 

 

 

 

 

Total Liabilities

 

(60,044)

(22,699)

(90,591)

 

 

 

 

 

Net assets

 

109,487

60,481

85,526

Capital and reserves

 

 

 

 

Called up share capital

 

  1,524

1,400

1,513

Share premium account

 

 34,204

14,751

34,116

Merger reserve

 

 16,411

8,816

12,681

Other reserve

 

  2,824

 1,888

  2,378

Profit and loss account

 

 56,654

 35,312

 36,712

Currency translation reserve

 

(1,467)

(1,153)

(1,268)

Total shareholders' surplus attributable to owners of the parent

 

110,150

61,014

86,132

Non-controlling interest

 

(663)

(533)

(606)

Total equity

 

109,487

60,481

85,526

Unaudited condensed consolidated cash flow statement

 

6 months

6 months

 

 

ended

ended

Year ended

 

30 Sep 2020

30 Sep 2019

31 Mar 2020

 

£000

£000

£000

Cash flows from operating activities

 

 

 

Profit for the financial year before taxation

  20,462

  10,556

12,245

Adjustments for:

 

 

 

Amortisation of intangible fixed assets

  22,475

  11,790

27,557

Depreciation of tangible fixed assets

  587

  447

784

Profit on disposal of tangible fixed assets

  -

(3)

  -

Creative sector relief recognised

(5,033)

(4,204)

(9,113)

Share based payments

  446

  646

1,135

Interest receivable

(1,647)

(43)

(110)

Interest charged

  3,092

  873

2,326

Exchange movement on borrowings

(1,631)

  621

1,403

Exchange losses

  -

  543

479

Amounts representing net changes in working capital:

 

 

 

(Increase) / decrease in trade and other receivables

  (3,226)

  723

(8,740)

(Increase) in inventories

(312)

(1,482)

(271)

(Decrease) in trade and other payables

(523)

(8,940)

(898)

Increase / (decrease) in provisions

  2,355

  694

(573)

 

 

 

 

Cash from operations

  37,045

12,221

26,224

Creative sector relief received

  9,773

  7,236

7,236

Income taxes paid

(840)

(1)

(286)

Net cash generated from operating activities

45,978

19,456

33,174

 

 

 

 

Cash flow from Investing activities

 

 

 

Interest received

  16

  43

  110

Payments to acquire tangible fixed assets

(1,711)

(599)

(1,484)

Net cash in respect of acquisition

  -

  -

(16,243)

Payments to acquire or develop intangible fixed assets

(17,433)

(12,392)

(26,272)

Net cash used in investing activities

(19,128)

(12,948)

(43,889)

 

 

 

 

Cash flow from financing activities

 

 

 

Loan repayments

(752)

(97)

(719)

IFRS 16 lease repayments

(448)

  -

(774)

Interest paid

(6)

(8)

(12)

Proceeds from issue of share capital

  89

  -

  20,035

Costs of issuing share capital

  -

  -

(575)

 

 

 

 

Net cash (used in)/generated from financing activities

(1,117)

(105)

17,955

 

 

 

 

Net increase in cash and cash equivalents

  25,733

  6,403

7,240

Cash and cash equivalents at the beginning of the period

25,563

  18,436

18,436

Exchange loss on cash and cash equivalents

(199)

(39)

(113)

Cash and cash equivalents at the end of the period

  51,097

  24,800

25,563

 

 

 

 

Cash and cash equivalents consist of:

 

 

 

Cash at bank and in hand

  23,921

  7,707

8,403

Short term deposits

  27,176

  17,093

  17,160

Cash and cash equivalents at the end of the period

  51,097

  24,800

25,563

 

 

Notes to the unaudited condensed consolidated interim financial statements

Nature of operations and general information

Codemasters Group Holdings Plc is a public limited company incorporated in England. The Registered Number is 06123106 and the Registered Office is Codemasters Campus, Stoneythorpe, Southam Warwickshire, CV47 2DL.

 

Codemasters Group Holdings Plc and its subsidiaries (the "Group") is an award-winning British video game developer and publisher with over 30 years of heritage. The Group specialises in high quality racing games including DiRT, GRID, ONRUSH and the BAFTA award-winning official F1® series of videogames. Following the acquisition of Slightly Mad Studios Pte Ltd in November 2019, the group also owns the Project CARS franchise.

 

Basis of preparation

These interim condensed consolidated financial statements have been prepared in accordance with the AIM rules and IAS 34 "Interim Financial Reporting" as adopted by the European Union.

 

The condensed consolidated financial statements for the six months ended 30 September 2020 should be read in conjunction with the Group's Annual Report for the year ended 31 March 2020, which includes the financial results of the Group prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU").

 

The report of the auditors for the Group's Annual Report for the year ended 31 March 2020 was unqualified, did not contain an emphasis of matter paragraph and did not include a statement under Section 498 of the Companies Act 2006.

 

The Group's interim condensed consolidated financial statements are not audited and do not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. The interim condensed consolidated financial statements are prepared under the historical cost convention and are presented in Sterling, which is the functional currency of the Company. The figures presented are round to the nearest £000, except for earnings per share.

 

The condensed consolidated interim financial statements were approved for issue on 20 November 2020.

 

Going concern

The Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future, being a period of at least 12 months from the date of signing these condensed consolidated financial statements. Accordingly, they continue to adopt the going concern basis in preparing these condensed consolidated interim financial statements.

 

Accounting policies

The Group's principal accounting policies used in preparing this information are as stated in the Group's Annual Report for the year ended 31 March 2020. There has been no change to any accounting policy from the date of that report with the exception of the SMS intangible amortisation policy being brought in line with that of Codemasters.

 

As disclosed in the Annual Report, the Directors have identified only one operating segment in the business, being the sale of internally developed video games. The single operating segment is reported in a manner consistent with the internal reporting to the Board for monitoring and strategic decisions.

 

Accounting estimates and key judgements

When preparing these condensed consolidated interim financial statements, the Directors make a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses. The actual results may differ from these estimates.

 

The judgements, estimates and assumptions applied in the condensed consolidated interim financial statements, including the key sources of estimation uncertainty, were the same as those applied in the 2020 Annual Report.

 

 

 

Intangible fixed assets 

 

 

Development Costs (restated)

Licences Patents & Trade Marks (restated)

Computer Software

Goodwill

Total

 

£000

£000

£000

£000

£000

Cost

 

 

 

 

 

At 31 March 2019

 83,143

  18,995

  811

  -

102,949

Additions

  12,767

  -

  179

  -

 12,946

(10,018)

  -

  -

  -

(10,018)

At 30 September 2019

  85,892

  18,995

990

-

105,877

On acquisition

  -

  10,895

  -

 24,027

 34,922

Additions

  12,737

  29,167

  408

  -

 42,312

(4,824)

  -

  -

  -

(4,824)

At 31 March 2020

  93,805

59,057

  1,398

 24,027

178,287

Additions

16,500

  -

  371

  -

16,871

Disposals

(21,419)

  -

  -

 

(21,419)

At 30 September 2020

88,886

59,057

  1,769

 24,027

173,739

Accumulated amortisation

 

 

 

 

 

At 31 March 2019

  61,788

  10,993

  549

  -

 73,330

Amortisation

  9,180

  2,487

  123

  -

 11,790

(10,018)

  -

  -

  -

(10,018)

At 30 September 2019

  60,950

  13,480

  672

  -

 75,102

Amortisation

  15,043

  549

  175

  -

 15,767

(4,824)

  -

  -

  -

(4,824)

At 31 March 2020

  71,169

  14,029

  847

  -

 86,045

Amortisation

  12,203

7,526

  225

-

19,954

Impairment

  -

  -

-

 12,179

 12,179

Disposals

(21,419)

  -

  -

  -

(21,419)

At 30 September 2020

61,953

21,555

  1,072

 12,179

96,759

Net book amount

 

 

 

 

 

At 30 September 2020

26,933

37,502

  697

11,848

76,980

At 31 March 2020

22,636

45,028

  551

 24,027

92,242

At 30 September 2019

  24,942

  5,515

  318

  -

 30,775

At 31 March 2019

  21,355

  8,002

  262

  -

 29,619

 

Non-recurring costs

 

6 months

6 months

Year

 

 ended

 ended

 ended

 

30 Sep 2020

30 Sep 2019

31 Mar 2020

 

£000

£000

£000

Professional fees associated with acquisition

  115

  -

  1,415

Reduction in deferred consideration liability

(12,179)

  -

  -

Reduction in goodwill due to reduced deferred consideration liability

  12,179

  -

  -

 

  115

  -

  1,415

 

 

 

Earnings per share

Both the basic and diluted earnings per share have been calculated using the profit attributable to shareholders of Codemasters Group Holdings Plc as the numerator. No adjustments to profit were necessary.

 

The reconciliation of the weighted average number of shares for the purpose of diluted earnings per share in the calculation of basic earnings per share is as follows:

 

 

Weighted number of shares in issue

 

30 Sep 2020

30 Sep 2019

31 Mar 2020

Total of shares in issue (1p ordinary)

 

151,652,825

140,000,000

143,680,295

LTIP

 

 1,322,695

 2,072,758

  1,212,975

NED

 

222,840

 506,304

  67,409

ESOP

 

 296,221

1,241,842

  143,771

Total warrants and options not exercised

 

1,841,756

3,820,904

1,424,155

 

 

 

 

 

Total diluted shares

 

153,494,581

143,820,904

145,104,450

 

 

 

 

 

Adjusted earnings per share

 

£000

£000

£000

Adjusted EBITDA

 

  21,166

  9,365

  18,152

Tax (charge) on profit/(loss) on ordinary activities

 

(577)

(415)

(777)

Less non-cash tax items (deferred tax & corporation tax accruals)

 

  (263)

  415

58

Cash interest

 

  10

  35

  98

Adjusted net income

 

20,336

9,400

17,531

 

 

 

 

 

 

 

Pence

Pence

Pence

Basic earnings per share (pence)

 

13.1

7.3

8.1

Diluted earnings per share (pence)

 

13.0

7.1

8.0

Adjusted earnings per share (pence)

 

13.3

6.7

11.6

 

 

 

For diluted earnings per share, the weighted average number of shares in issue has been adjusted to assume conversion of all potentially dilutive options and warrants for the applicable period.

 

Given the variances in shares in issue across the presented periods, adjusted earnings per share is presented. Adjusted earnings per share is Adjusted net income across the presented periods divided by the number of shares in issue at the end of each period.

 

Adjusted net income is a non-GAAP measure, which is defined as Adjusted EBITDA (see accounting policies), less cash interest and tax paid. Deferred shares that were in issue in the prior year have not been included in the calculation for weighted average number of shares.

 

The basic adjusted earnings per share calculation in accordance with IAS 33 is 13.1 pence per share (H1 2020: 7.3 pence per share).

 

The adjusted diluted earnings per share calculation in accordance with IAS 33 is 13.0 pence per share (H1 2020: 7.1 pence per share).

 

However, the Board presented adjusted earnings per share using a fixed number of shares across the two periods in order to present comparable earnings by removing the impact of the movements in the Company's share capital as a result of the pre - IPO group restructuring.

 

In the above years there were no dividends issued.

 

 

 

 

Financial instruments

 

 

 

 

30 Sep 2020

30 Sep 2019

31 Mar 2020

 

£000

£000

£000

Financial assets held at amortised cost:

 

 

 

Trade receivables

 2,489

257

 6,686

Cash and cash equivalents

51,097

24,800

 25,563

 

53,586

25,057

 32,249

 

 

 

 

 

30 Sep 2020

30 Sep 2019

31 Mar 2020

 

£000

£000

£000

Financial assets held at fair value:

 

 

 

Forward foreign exchange contracts

 88

  -

  -

 

88

-

  -

 

 

 

 

 

 

 

 

 

30 Sep 2020

30 Sep 2019

31 Mar 2020

 

£000

£000

£000

Financial liabilities held at amortised cost:

 

 

 

Loans and borrowings

(1,013)

(175)

(2,385)

Trade payables

(2,734)

(1,319)

(5,858)

Other payables

(36,677)

(11,573)

(41,294)

 

(40,424)

(13,067)

(49,537)

 

 

 

 

 

30 Sep 2020

30 Sep 2019

31 Mar 2020

 

£000

£000

£000

Financial liabilities held at fair value:

 

 

 

Other payables

-

  -

(15,932)

 

 

 

 

 

  -

-

(15,932)

 

 

 

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