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Team17 Group PLC (TM17)

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Tuesday 11 September, 2018

Team17 Group PLC

Interim Results

RNS Number : 3378A
Team17 Group PLC
11 September 2018
 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014. Upon the publication of this announcement, this information is now considered to be in the public domain.

 

11 September 2018

Team17 Group plc

("Team17", the "Group" or the "Company")

 

Half year results

 

Record performance in H1 underpinned by strong growth across the business

 

Team17, a global games label, creative partner and developer of independent ("indie"), premium video games, is pleased to announce its maiden interim results for the six month period ended 30 June 2018.

 

Financial highlights:

·     Solid revenue growth - revenues up 48% to £15.4m (H1 2017: £10.4m)

·     Gross profit increased 25% to £6.9m (H1 2017: £5.5m)

·     Gross margin decreased to 44.4% (H1 2017: 52.4%) driven by revenue mix in H1 weighted towards third party IP

·     Adjusted EBITDA* increased 36% to £4.9m (H1 2017: £3.6m)

·     Adjusted Earnings per share ("EPS")** of 1.93 pence (H1 2017: 0.56 pence)

·     Cash flow from operations of 274.2% (H1 2017: 91.5%)***

·     Net cash (debt) of £13.4m (H1 2017: (£37.5m))

 

Operational highlights:

·     Successfully completed IPO on AIM in May 2018

Raised £107.5m through a significantly oversubscribed fundraising with institutional investors, of which £45.1m was raised for the Group to repay debt through the issuance of new shares

The IPO enables Team17 to retain its independence and enhance its profile whilst providing the ability to incentivise both current and future employees

·     My Time At Portia, the first game published by the Group with a Chinese label partner, launched in January 2018

·     Overcooked 2 was successfully launched in August 2018

·     The Group's back catalogue continues to perform strongly

·     Continued investment in both commercial and creative talent underpinning planned expansion

Commercial team relocated to larger premises allowing for growth

Evaluating larger premises for the development team

 

Outlook:

·     Performance for the full year will be second half weighted as expected in line with previous years

·     Revenue growth in the second half will be driven by new product launches and continued growth in the business

·     Gross margins will improve as expected in H2 driven by the revenue mix

·     The board remains confident in delivering full year in line with expectations

 



 

Debbie Bestwick MBE, Chief Executive Officer of Team17, commented:

 

"We are delighted to announce our maiden interim results as a public company, further demonstrating the strong progress we are making as a business. Following our successful IPO, we have a strong base from which to push forward with the business, and continue to grow the footprint and our international fan base. We continue to strengthen our international relationships and work with independent developers on exciting new games, and through lifecycle management, ensure the longevity of our back catalogue."

 

*Adjusted EBITDA is defined as operating profit adjusted to add back depreciation of property, plant and equipment, amortisation of brands and impairment of intangible assets (excluding capitalised development costs) and any exceptional items. Exceptional items are those items believed to be exceptional in nature by virtue of their size and or incidence. Exceptional items are detailed in note 4.

** Adjusted EPS is defined as profit after tax adjusted to add back any exceptional items divided by Weighted Average Number of Shares. Exceptional items are those items believed to be exceptional in nature by virtue of their size and or incidence. Exceptional items are detailed in note 4.

*** Cash flow from operations is calculated as cash flow from operating activities divided by EBITDA

 

Enquiries:

 

Team17 Group plc

Debbie Bestwick MBE, Chief Executive Officer

Paul Bray, Chief Financial Officer & Chief Operating Officer

 

via Vigo Communications

+44 (0)20 7390 0238

GCA Altium (Nominated Adviser)

Phil Adams / Adrian Reed / Paul Lines

 

+44 (0)845 505 4343

Berenberg (Broker)

Chris Bowman / Toby Flaux / Marie-Agnes Stolberg

 

+44 (0)20 3207 7800

Vigo Communications (Financial Public Relations)

Jeremy Garcia / Fiona Henson

[email protected]  

+44 (0)20 7390 0238

 

 

About Team17

 

Founded in 1990, Team17 Group plc is a leading international video games label and creative partner for independent developers. The portfolio comprises games such as The Escapists, Overcooked, Yoku's Island Express, Yooka-Laylee, My Time At Portia, the Worms franchise and many more from developers around the world. Visit www.team17.com for more info.



 

Operational review

 

Introduction

 

Following its admission to trading on AIM in May 2018, Team17 is pleased to report its maiden half year results. The Group continued to deliver growth in the first half of the year, with revenues up 48% to £15.4m (H1 2017: £10.4m) and gross profit up 25% to £6.9m versus H1 2017 at £5.5m.

 

The Group supports both owned first party IP and third party IP - through partnering with indie developers globally - in the development and publishing of games across multiple platforms typically for a fixed percentage share of revenues. The Group focuses on premium, rather than free to play games, and has launched over 100 games, including the iconic and well-established Worms franchise, as well as Overcooked and The Escapists.

 

The H1 performance has been driven by strong momentum of sales across both the Group's back catalogue of titles, as well as through sales of new titles launched in the period.

 

Strategy

 

Team17 was founded in 1990 and began launching third party games through its games label in 2014, during which time the Company has developed a strong market position, focused on the premium high-quality independent gaming market. The market for premium high quality games is seeing strong growth, driven by increased accessibility for customers through digital distribution, and reduced barriers to entry for developers with greater access to online tools and development kits.

 

Through its games label, the Company partners with indie developers across the world, from lone developers to large creative studios, to provide a full partnership offering which spans development, publishing and lifecycle management. The Company has a stringent due diligence process in place, its greenlight process which works to identify the best creative ideas and global talent.

 

Having released over 100 games to date, Team17 has developed significant experience in optimising go to market execution, through influencer marketing, social media, traditional PR and events, giving the games the best possible launch and creating strong foundations for longevity. The Company seeks to maximize long term revenues through building gaming franchises with longevity, as demonstrated through the Worms franchise, and more recently Overcooked and The Escapists.

 

Team17's significant back catalogue underpins revenues. In H1 2018 85% of revenues were derived from this channel (FY 2017: 53%). The remainder of revenue is comprised of new franchises.

 

Wider market dynamics

 

The video games market has seen significant growth in recent years, driven by advances in technology.  Digital distribution has made it easier for independent developers to launch games to a wide market. In addition, gaming development tools are now more accessible to developers and the trend of crowdfunding has enabled indie developers to raise financing to convert ideas to reality.

 

Team17 remains focused on the indie market. In H1 2018 alone there have been over 4,000 games launched on Steam, a leading digital distribution platform, compared to approximately 560 in the whole of 2013.

 

 



 

Games development and launches in H1 2018

 

Team17 has seen continued strong momentum in H1 2018. The Group is pleased to have successfully launched a number of games across multiple platforms and see a strong pipeline of launches for H2 2018. The games have been a combination of new titles, and also new franchises on existing, successful titles - all of which form an important role in Team17's 'life cycle management' activity.

 

The games launched in H1 2018 include:

 

My Time at Portia

First Chinese label partner launched in January 2018 on Steam

The Escapists 2

Launched January 2018 on Nintendo Switch

Raging Justice

Launched in May 2018 across all platforms

Yoku's Island Express

Launched in May 2018 across all platforms

Forged Battalion

Launched January 2018 on PC

Sheltered

New game mode on Steam launched in January 2018

 

The Group's launch schedule continues to be a fluid process, based on life cycle management initiatives and planning by the commercial teams. Team17 has continued its launch program in H2, and in early-September, announced the launch of PLANET ALPHA, the Company's 100th game.

 

The Group has already scheduled the launch of a number of titles throughout 2019, which will be announced at the optimum time to benefit the individual titles. The pipeline underpins management's confidence in the future prospects of the Group. The Company will also remain focused on maximising the earnings potential of the Company's portfolio.

 

As previously announced, the Group launched Overcooked 2 in August 2018 to much critical acclaim.

 

Team17 continues to assess a large number of opportunities through its games label greenlight process. With all opportunities, Team17 works to maximize the game lifecycle, thereby creating an avid platform of gamers looking for new titles from existing franchises, and updates and extensions to existing games.

 

Current trading and outlook

 

The Group is delighted with the progress it has made in the first half of the year and, as in previous years, expects a stronger performance in the second half. As well as continuing to grow the business, Team17 has undertaken a hugely successful IPO and succeeded in raising the profile of the Group.

 

In line with Team17's growth strategy, the Group has invested in both commercial and creative talent across both its Wakefield and Nottingham offices.  As such, Team17's commercial team has now relocated to larger premises near Nottingham, supporting new game launches in addition to maximising the lifecycle of the Group's established back catalogue. The Group is also currently evaluating opportunities to expand the development team and to relocate to larger premises.

 

The Group continues to see strong momentum in the indie games market and is confident it can continue to deliver significant growth to its shareholders.

 

Debbie Bestwick MBE

Chief Executive Officer

10 September 2018

 



 

Condensed Consolidated Statement of Comprehensive Income

 

 



Unaudited

Six months ended

30 June

2018

 

Unaudited

Six months ended

30 June

2017

 

Audited

Year ended

31 December

2017


Note

£'000

£'000

£'000






Revenue

3

15,439

10,430

29,634






Cost of sales


(8,579)

(4,960)

(12,782)






Gross profit


6,860

5,470

16,852

Gross profit %


44.4%

52.4%

56.9%






Administrative expenses


(2,984)

(2,850)

(5,933)

Exceptional items

4

(2,552)

-

(1,988)

Total administrative expenses


(5,536)

(2,850)

(7,921)






Operating profit


1,324

2,620

8,931






Finance income


30

3

8

Finance cost


(1,323)

(1,817)

(3,581)






Profit before tax


31

806

5,358






Taxation

6

(479)

(232)

(963)






(Loss)/profit and total comprehensive (expense)/income attributable to shareholders


(448)

574

4,395






Basic and diluted (loss)/earnings per share


(0.41) Pence

 0.56 Pence

4.26 Pence

Basic and diluted adjusted (loss)/earnings per share


1.93 Pence

 0.56 Pence

6.19 Pence

 

All results relate to continuing activities.



 

Condensed Consolidated Statement of Financial Position

 













 

Condensed Consolidated Statement of Changes in Equity


Share capital

Share premium

Merger reserve

 

Other

 Reserve

 

Retained earnings

Total

Six months to 30 June 2017

£'000

£'000

£'000

£'000

£'000

£'000

Balance at

1 January 2017                 

10

377

-

644

254

1,285

Profit and total comprehensive income for the year

-

-

-

-

574

574

Balance at

30 June 2017 (unaudited)

10

377

-

644

828

1,859

 

 

Year to 31 December 2017

 

Balance at

1 January 2017                 

10

377

-

644

254

1,285

Share based compensation

-

-

-

-

1,764

1,764

Profit and total comprehensive income for the year

-

-

-

-

4,395

4,395

Balance at

31 December 2017 (audited)

10

377

-

644

6,413

7,444

 

Six months to 30 June 2018







Balance at

1 January 2018

10

377

-

644

6,413

7,444

Capital re-organisation

1,030

(377)

(153,822)

153,169

-

-

New shares issued on the IPO

273

44,814

-

-

-

45,087

Transaction costs of new equity instruments

-

(730)

-

-

-

(730)

Total Transactions with owners recognised directly within equity

1,303

43,707

(153,822)

153,169

-

44,357

Loss and total comprehensive expense for the period

-

-

-

-

(448)

(448)

Balance at

30 June 2018 (unaudited)

1,313

44,084

(153,822)

153,813

5,965

51,353








 

 



 

Condensed Consolidated Statement of Cash Flows



Unaudited

Six months ended

30 June

2018

Unaudited

Six months ended

30 June

2017

Audited

Year ended

31 December 2017


Note

£'000

£'000

 £'000

Operating activities





Profit before tax


31

806

5,358

Adjustments for:





Depreciation of property, plant and equipment


153

96

214

Amortisation of intangible fixed assets

5

1,981

1,480

3,170

Share-based compensation

4

-

-

1,764

Finance income


(30)

(3)

(8)

Financial expenses


1,323

1,817

3,581

Financing fees written off

4

258

27

54

(Increase)/decrease in trade and other receivables


2,138

(854)

(3,401)

Increase in trade and other payables


1,049

386

2,485

Increase in provisions


7

5

10

Cash generated from operating activities


6,910

3,760

13,227

      Tax paid


(415)

(460)

(1,504)

Net cash inflow from operating activities


6,495

3,300

11,723






Cash flow from investing activities





Purchase of property, plant and equipment


(215)

(142)

(453)

Sale of property, plant and equipment


17

-

-

Capitalisation of development costs

5

(1,287)

(489)

(1,686)

Net cash from investing activities


(1,485)

(631)

(2,139)

Cash flow from financing activities





Proceeds from new equity issued (note 7)


45,087

-

-

Capitalised transaction costs of new equity instruments


(730)

-

-

Interest received


30

3

8

Interest paid (including rolled up loan note interest)


(4,843)

(436)

(921)

Repayment of directors loans (note 7)


(1,345)

(2,317)

(2,596)

Repayment of loan notes (note 7)


(38,226)

-

(4,828)

Net cash from financing activities


(27)

(2,750)

(8,337)






Net increase/(decrease) in cash and cash equivalents


4,983

(81)

1,247

Cash and cash equivalents at beginning of period


8,440

7,193

7,193

Cash and cash equivalents at end of period


13,423

7,112

8,440



 


Notes to the Condensed Consolidated Interim Financial Statements

 

1. Nature of operations and general information

Team17 Group PLC and its subsidiaries (The Group) are a global games label, creative partner and developer of independent ("indie"), premium video games.

The Group successfully floated on the UK AIM stock market on 23 May 2018.

 

2. Basis of preparation

 

This interim report has been prepared in accordance with the AIM rules and IAS 34 "Interim Financial Reporting" as adopted by the European Union. The shares in the Company were admitted to the UK AIM stock market on 23 May 2018. The condensed consolidated financial statements for the 6 months ended 30 June 2018 should be read in conjunction with the financial statements of Team 17 Holdings Limited for the year ended 31 December 2017 (the "Prior year financial statements") which includes the financial results of the group prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The report of the auditors for the prior year financial statements for the year ended 31 December 2017 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 information is not audited and does not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. These condensed interim financial statements were approved for issue on 3rd September 2018.

 

Going concern

The Directors are satisfied that the Group has adequate resources to continue in business for the foreseeable future, and accordingly continue to adopt the going concern basis in preparing the accounts.

 

Accounting policies

The Group's principal accounting policies used in preparing this information are as stated on pages 18 to 24 of the prior year financial statements with the exception of the Group reorganisation as described below. There has been no change to any accounting policy from the date of the prior year financial statements. In connection with the admission, the Group undertook a reorganisation of its corporate structure which resulted in the Company becoming the ultimate holding company of the Group. Prior to the reorganisation the ultimate holding company was Team 17 Holdings Limited.

The transaction was accounted for as a capital reorganisation rather than a reverse acquisition since it did not meet the definition of a business combination under IFRS 3. In a capital reorganisation, the consolidated financial statements of the Group reflect the predecessor carrying amounts of Team 17 Holdings Limited with comparative information of Team 17 Holdings Limited presented for all periods since no substantive economic changes have occurred.

 

The requirements of IFRS 9 - Financial Instruments and IFRS 15 - Revenue from contracts with customers have been adopted in this financial information. Both standards were adopted by Team 17 Holdings Limited in the financial statements for the year ended 31 December 2017. There was no impact of the adoption of these standards to any balances previously reported.

 

3. Segmental information

 

The Chief Operating Decision Maker considers this business as a single operating segment, however this information is voluntarily disclosed.

Revenue split by channel:


Unaudited

Six months ended

30 June 2018

Unaudited

Six months ended

30 June

2017

Unaudited

Year ended

31 December 2017

 

£'000

£'000

 £'000

Digital

14,059

8,645

26,006

Physical

1,380

1,785

3,628


15,439

10,430

29,634

 



 

3. Segmental information (continued)

 

Revenue by geographical region:


Unaudited

Six months ended

30 June 2018

Unaudited

Six months ended

30 June

2017

Unaudited

Year ended

31 December 2017

 

£'000

£'000

 £'000

USA & Canada

5,649

4,765

13,710

Europe (excl UK)

2,894

2,436

6,641

UK

1,388

1,675

3,598

Rest of world

2,039

1,108

3,529

Unidentified Location *

3,469

446

2,156


15,439

10,430

29,634

 * At the time of producing this financial information no location data was available from the customer for the digital download.

 

 

Revenue by Third Party/Own IP:


Unaudited

Six months ended

30 June 2018

Unaudited

Six months ended

30 June

2017

Unaudited

Year ended

31 December 2017

 

£'000

£'000

 £'000

Own IP

5,763

4,449

14,870

Third Party IP

9,676

5,981

14,764


15,439

10,430

29,634

 

 

Revenue by New Titles/Back catalogue:


Unaudited

Six months ended

30 June 2018

Unaudited

Six months ended

30 June

2017

Unaudited

Year ended

31 December 2017

 

£'000

£'000

 £'000

New franchise

2,239

2,179

6,350

Existing franchise new titles

-

1,045

7,548

Back catalogue

13,200

7,206

15,736


15,439

10,430

29,634

 

 

4. Exceptional items


Unaudited

Six months ended

30 June 2018

Unaudited

Six months ended

30 June

2017

Audited

Year ended

31 December 2017

 

£'000

£'000

 £'000

IPO related costs

2,552

-

-

Share-based compensation charge

-

-

1,988


2,552

-

1,988

 

Exceptional items in the 6 months ending 30 June 2018 relate to significant one-off costs, which have not been deducted from equity, associated with the Group's admission onto AIM in May 2018. The costs comprise advisors fees (£1,323,000), the write off of unamortised loan note fees (£240,000), stock exchange listing fees (£43,000), other IPO costs (£29,000) and bonuses payable to Directors which were contingent on admission to AIM (£917,000). Costs totalling £730,000 incurred in association with the IPO which met IAS 32 definition of transaction costs (being incremental and directly related to the issuance of new equity instruments and which would have been avoided had the instruments not been issued) have been deducted from share premium.

Exceptional items in 2017 relate to the estimated fair value of shares issued by the company during 2018 to the former chairman in respect of the settlement of a claim that arose in 2017. The charge of £1,988,000 included £224,000 of associated employment taxes.  

 



 

5. Intangibles

 


Development costs

Brands

Goodwill

Total


£'000

£'000

£'000

£'000

Cost





At 1 January 2017

5,021

21,983

21,083

48,087

Additions

489

-

-

489

At 30 June 2017

5,510

21,983

21,083

48,576

Additions

1,197

-

-

1,197

At 31 December 2017

6,707

21,983

21,083

49,773

Additions

1,287

-

-

1,287

At 30 June 2018

7,994

21,983

21,083

51,060






Amortisation





At 1 January 2017

2,216

594

-

2,810

Charge for the period

589

891

-

1,480

At 30 June 2017

2,805

1,485

-

4,290

Charge for the period

798

892

-

1,690

At 31 December 2017

3,603

2,377

-

5,980

Charge for the period

1,089

892

-

1,981

At 30 June 2018

4,692

3,269

-

7,961






Net carrying amount





At 30 June 2018

3,302

18,714

21,083

43,099






At 31 December 2017

3,104

19,606

21,083

43,793






At 30 June 2017

2,705

20,498

21,083

44,286






At 1 January 2017

2,805

21,389

21,083

45,277

 

Goodwill

The Group tests annually for impairment, or more frequently if there are indicators that goodwill might be impaired. There are no indicators of impairment at 30 June 2018.





 

6. Taxation

 


Unaudited

Six months ended

30 June 2018

Unaudited

Six months ended

30 June

2017

Audited

Year ended

31 December 2017

 

£'000

£'000

 £'000

Current tax:




Current year tax

423

534

2,547

Adjustment in relation of prior period *

-

-

(525)


423

534

2,022

Deferred tax:




Origination and reversal of temporary differences

56

(302)

(1,059)





Total tax charge

479

232

963

 

* The adjustment in respect of prior period relates to Video Game Tax Relief and R&D tax credits claimed on finalisation of the tax computations.


Unaudited

Six months ended

30 June 2018

Unaudited

Six months ended

30 June

2017

Audited

Year ended

31 December 2017

 

£'000

£'000

 £'000

Reconciliation of total tax charge:




Profit before tax

31

806

5,358

Taxation using the UK Corporation Tax rate of 19.00%

(2017: 19.25%)

6

 

155

1,031





Effects of:




Expenses not deductible for tax purposes

473

77

457

Adjustment in respect of prior periods

-

-

(525)


479

232

963

 

Factors that may affect future tax charges

As a result of changes to the UK corporation tax rates that were substantively enacted as part of the Finance Bill 2016 on 6 September 2016 the main rate will reduce to 17% from 1 April 2020. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these interim condensed consolidated financial statements.

 



 

7. Admission to AIM

 

This note should be read in conjunction with the consolidated statement of changes in equity and the consolidated statement of cash flows. The Group's admission onto AIM involved a number of transactions which are explained below:

i)                     Capital re-organisation

Prior to Admission the Company acquired the entire share capital of Team 17 Holdings Limited (comprising £0.01 nominal ordinary shares) in exchange for issuing the same number of its own ordinary shares (of £1 nominal ordinary shares) to the existing shareholders of Team 17 Holdings Limited. This transaction was under common control and treated as a capital restructuring and not a business combination. The Company recorded the investment at fair value and applied group reconstruction relief, leading to the creation of the merger reserve of £153,822,000. The impact of this transaction on the consolidated financial statements is disclosed as a 'Capital reorganisation' in the statement of changes in equity.

Subsequently (but prior to admission), the Company sub-divided its £1 ordinary shares into £0.01 nominal shares. The impact of this share split has been taken into account in the calculation of Earnings per share in accordance with IAS 33. The sub-division of shares has been retrospectively applied from the first day of the comparative financial period, leading to an increase in the weighted average number of shares in issue across all periods. EPS for the year ending 31 December 2017 has been restated as a result.

ii)                    New share issue

Prior to the listing the Company had in issue 103,962,794 £0.01 ordinary shares. As part of the IPO the Company issued a further 27,325,482 £0.01 ordinary shares, at £1.65 per share. This raised a total of £45,087,045. A further 37,849,200 existing sale shares were placed, at £1.65, by the existing shareholders. Following admission, the Company had in issue 131,288,276 ordinary £0.01 shares of which 65,174,682 were placed on AIM.

The £45,087,045 proceeds of the share issue were utilised by the Company to: repay shareholder loan notes (£37,970,000); repay director loans (£1,345,000); repay accrued interest on shareholder loan notes (£4,630,000); repay accrued interest on directors loans (£198,000); and settle transaction costs associated with the listing (note 4).

 

 

 


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