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Frontier Dev PLC - Half Yearly Report

RNS Number : 5852O
Frontier Developments PLC
10 February 2016
 

10 February 2016

                                      Frontier Developments plc                     

Half yearly results

Frontier Developments plc (AIM: FDEV; "Frontier" or the "Group"), a leading independent developer of video games has published its results for the six months to 30 November 2015.

Operational Highlights

 

·     Elite Dangerous franchise continues to grow - 1.2 million units sold by the period end and 1.4 million by end December 2015

·     Recognised revenues for the half-year £10.9m, up 50% from the first six months of FY14/15.

·     Good progress through transition, due to complete with the release of its second self-published franchise Planet Coaster

·     Continuing significant investment in Planet Coaster, representing half of development staff, with associated revenues to follow the launch in 4Q'16

·     Working with key industry partners to increase Frontier's reach - Microsoft, Amazon added

 

Financial highlights (comparisons with six months to 30 Nov 2014)

 

·     Net cash £8.6m at 30 November 2015 (1H 14/15: £9.8m)

·     Revenue up 50% to £10.9m (1H 14/15: £7.3m)

·     Profit/loss for period £0.4m (1H 14/15: (£1.9m))

·     EBITDA £2.1m  (1H 14/15: £0.5m)

·     Adjusted Operating Result (£1.7m) (1H 14/15: (£1.4m))

·     Earnings per share of 1.2p (1H 14/15: (5.7p))

 

David Braben, Chief Executive of Frontier Developments, said:

 

"We are making good progress through our transition. All our development teams are now working on self-published projects and with the release of Planet Coaster in calendar Q4 2016 our investment phase will complete and we will be generating revenues from both our major franchises. We remain in a good cash position, and were profitable in the half year."

 

 

Enquiries:

Frontier Developments

+44 (0)1223 394 300

David Braben, CEO

David Walsh, COO

Neil Armstrong, CFO

 

 

 

 

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 game developer 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 across videogame consoles, computers, smartphones and tablets.

www.frontier.co.uk                        

 

Frontier Developments plc                                   Company registered no: 2892559

Interim management report

 

Strategic overview

Frontier Developments is a leading developer of video games, with a proven track record of software technology development and innovation spanning several decades of rapid technological change. The Group has leveraged its technology to develop innovative video games across a wide variety of different genres and platforms, and has established relationships with globally renowned partners.

The key pillars of the Group's strategy are to:

·      complete  the transition to a self-published company with multiple revenue-generating franchises

·      maximise revenues from each franchise

·      increase the number of franchises

·      continue to improve its COBRA technology

·      further strengthen organisational capability

The board will report progress against each of these pillars going forwards.

Frontier's decisions to invest in Elite Dangerous and Planet Coaster are the result of the current focus on leveraging its proven strengths to build strong game franchises. Frontier's online store and the successful further leveraging of its COBRA software exploitation are considered to be longer-term growth opportunities.

Frontier's current key differentiators are its franchise IP (such as Elite Dangerous) and unique expertise in certain genres of game (such as 'Tycoon' games), its COBRA game development technology that facilitates unique core gaming experiences across multiple platforms, and its ability to deliver quality games for specific target audiences on both the PC and console platforms. The digital games market was $61 billion in 2015, with PC rising to over 50% share ($32 billion) - more than console and mobile put together.

The Group is pleased to report significant progress regarding the transition of the business, which is due to complete in calendar Q4 2016. Elite Dangerous has continued to perform well, with sales of 1.4 million franchise units of Elite Dangerous by the end of December 2015.

Business review

Elite Dangerous

In the period, Frontier continued to release updates for Elite Dangerous that significantly expanded the gameplay offering.

Elite Dangerous became the first game to go through Microsoft's Game Preview Programme (GPP) for the Xbox One. It was made available on the GPP in June 2015, with the full title launching in October 2015.

Frontier announced its paid-for second season of expansions, Elite Dangerous: Horizons, in August 2015. Updates within a season of expansions are free of charge however each season is charged separately. Frontier released the first expansion in the Horizons season (Planetary Landings) in December 2015 as an early access product.

At the end of the half-year, 30 November 2015, Frontier had sold 1.2 million units of Elite Dangerous franchise games.

Elite Dangerous is recognized as the first top quality game to support Virtual Reality (e.g. Oculus Rift and Valve's Steam VR), which the board believes differentiates the title and will provide sales opportunities as uptake of those devices grows.

The Group continues to work on future expansions for Elite Dangerous to be released in 2016 as part of the Horizons season and beyond, with further announced Horizons expansions including The Engineers (Spring 2016), Guardians (Summer 2016), and The Commanders (Fall 2016) plus an as yet untitled fifth expansion.

Planet Coaster

The Group has a very successful track record in developing games of the strategy / simulation genre. Frontier became the acknowledged leading developer of Tycoon games for its work on the RollerCoaster Tycoon franchise, particularly its development of 2004's c.10 million unit-selling PC game RollerCoaster Tycoon 3. This is still considered the benchmark of the Tycoon genre, more than ten years after its release.

An announcement trailer video of Planet Coaster was shown for the first time at E3's inaugural PC Gaming Show in June 2015. Subsequently Frontier has started to release 'development diary' online videos for Planet Coaster, each explaining different features of the game.

Planet Coaster has been well received. Frontier believes it has been successful in establishing its position in the market as a modern-day continuation of the Group's previous work on high-quality strategy / simulation titles, intended to further raise its own benchmark for 'Tycoon' gameplay by combining accessible creative features with a sophisticated simulation. The January 2016 videos and social media activities for Planet Coaster reached 1.5 million people.

The Group expects to ship the first early access builds of Planet Coaster to customers in March 2016, with first launch for the game in 4Q16.

Current Trading and Outlook

Sales of Elite Dangerous season one performed better than expected in the run up to Christmas, so by the end of December 2015 the Group had sold a total of 1.4 million units of Elite Dangerous franchise games. A 'Black Friday' sale of season one was particularly effective, which had the effect of pulling forward some of the expected season one revenue into H1.

The uptake of Horizons by Elite Dangerous season one customers is expected to continue throughout 2016, and is a clear focus of the Group. Going forward the Group will also continue to promote and develop additional channels and platforms for and versions of Elite Dangerous, as well as developing features and content for the Horizons and subsequent seasons.

The Group will also continue its investment in the development of Planet Coaster, its second major franchise, and release its first early access builds to customers. After Planet Coaster has launched the Group plans to start development of a third franchise.

Group Financial Performance

The Group continues to invest in the transition to self-publishing multiple self-developed computer game franchises, supported by proprietary technology, with the first public release of Elite Dangerous: Horizons in December 2015 and significant ongoing development geared towards the planned release of Planet Coaster in calendar Q4 of 2016. 

The Board considers that the most appropriate way of illustrating the performance of Frontier through this transition phase is through a statement of cash flows. The consolidated statement of cash flows is therefore the first primary statement displayed in the interim report.

Looking at the financial performance in the first six months of the financial year, to 30 November 2015, cash and cash equivalents decreased by £2.0m (30 November 2014: increase £1.3m) during this investment phase, as the majority of development staff worked on content for future release. With the focus on investing in our own technology and IP, the cash flow attributed to the sales of digital content and merchandise of released computer games, such as Elite Dangerous and pre orders of Elite Dangerous: Horizons was £8.8m (2014: £6.3m and £3.0m from external publishing contracts), Staff salaries and development overhead of both the Elite Dangerous and Planet Coaster franchises amounted to £6.4m (2014: £5.5m), and marketing, capital expenditure and administration overhead incurred was £4.2m (2014: £2.4m), reflecting the shift to a self-publishing business operation.

Revenues increased 50% compared with the first six months of the previous financial year - in respect of self-published titles the increase was 179%. The self-published revenue mix was impacted by successful sales undertaken in the period which increased volume at a lower price point. Future revenue relating to 'early access' versions and pre-orders of Elite Dangerous: Horizons held within deferred income at November 2015 was £2.8m (2014: £3.3m).

The Group recorded an operating profit of £0.4m (2014: Operating loss £1.9m). EBITDA improved to £2.1m in comparison with the prior year amount of £0.5m. The adjusted Operating result was, as expected a loss of £1.7m (2014; loss £1.4m).This measure is stated after expensing capitalised development costs and excludes certain non-cash items from within expenses on the income statement. As such it reflects the investment phase being undertaken.

Cash and Cashflow

The Group generated £2.7m from continuing operations, and invested £4.5m in non-current assets resulting in a net decrease in cash of £1.9m to £8.6m at the period end. (2014: net cash £9.8m). Within working capital movements, cash received on pre orders was £2.1m. Trade and other receivables increased by £2.3m being a shift in the mix of revenue through third party platforms, where cash is typically received 30 to 60 days after the period end.

Frontier recorded a 50% increase in revenue in the six months to November 2015 compared to the six months to November 2014, with the reported figure standing at £10.9m. The proportion of sales proceeds from non-reporting currency rose to 74% (2014: full year 33%). The Group seeks to hedge at least 50% of its forecast net currency exposure on a rolling 12 months basis.

The Elite Dangerous franchise represented 98% of digital self-published sales. Self-published revenues represent digital content sales where Frontier is the sole developer and determines the route to market. Royalties and other income represent mainly income streams for royalties distributed via Atari for RollerCoaster Tycoon 3 and physical merchandise sales.

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

The 6 months to end November 2014 saw significant revenue generated from the recognition of revenue associated with items shipped to fulfil the Group's crowd-funding commitments. 2015 did not have a similar release of deferred revenue, and so as expected the total revenue from royalties, physical merchandise & other income fell, by 50% compared to the previous period.

 

 

Revenue mix £'000

For the six months ended November

2015

2014

%

Self-published

10,740

3,848

179

External Publishing

-

3,070

(100)

Royalties, Physical Merchandise & Other income

178

357

(50)

Total Revenue

10,918

7,275

50

 Intangible Assets and Research & Development Expenditure

Investment in the Group's own IP capitalised in the period was up 72% at £4.3m (2014: £2.5m) reflecting Frontier's commitment to a strategic software development programme in respect of COBRA technology and self-published titles.

Frontier expensed £0.6m (2014: £0.5m) of costs within software development projects.

Gross Margin and nature of expenses

Gross margins were 71% (2014: 94%) reflecting a higher proportion of recognised sales from third party distribution platforms such as Steam and Xbox Live, as the Group added new distribution channels to address new audiences.

Gross margin has been aligned to the reporting format mainly used in the sector; cost of sales represents commissions from third party developers, royalties payable to the co-developer of RollerCoaster Tycoon 3, merchandise costs and e-commerce payment charges, with all staff costs now incorporated within operating costs.

The Group has provided details of the nature of its £10.5m of expenses (2014: £9.1m) in note 8. Within the analysis Commissions and royalties paid increased to £3.1m from £0.3m as a result of third party distribution of Elite Dangerous. Employee benefit costs (including wages and salaries) were in line with the prior year based on a similar headcount (268 staff vs 272 staff). Sales and Marketing costs increased to £2.0m from £0.8m, related to the increase in self-publishing activity. R&D capitalised increased from £2.5m to £4.3m in line with our franchise investment activity.

The useful economic lives of self-publishing assets were re-assessed at public release of Elite Dangerous in December 2014. Up to that point amortisation against pre-release revenue streams had been rightly prudent.  Internal development costs of £7.3m are now being amortised over a period of up to six years on a straight line basis, as adjusted for assessments of useful economic life. £4.0m of internal development costs are for work that had yet to be released at the period end, mainly Elite Dangerous: Horizons and Planet Coaster. The balance of £0.9m of internal development cost representing LostWinds and Coaster Crazy are fully amortised. Amortisation for the acquired royalty streams of £5.1m commenced on a straight line basis from December 2014 over the expected useful life of the franchise, estimated at eight years.

  

Profitability, EBITDA and Adjusted Operating profit

During the transition phase of the business the Board monitors performance on three levels, Operating profit, EBITDA and adjusted operating profit.  The reconciliation from Operating profit through to adjusted operating profit is as follows:

 

For the six months ended November 

2015

2014

%

£'000

£'000

 

Operating result before interest and tax

430

(1,899)

123

Depreciation

131

138

 

Amortisation and impairment

1,501

2,274

 

EBITDA

2,062

513

302%

Share based compensation

418

305

 

Fair Value adjustments

137

255

 

Loss on disposal of assets and investments

-

2

 

Dilapidations provision

11

18

 

Subsidiary set up fees

-

13

 

EBITDA adjusted

2,628

1,106

138%

R&D capitalised

(4,305)

(2,506)

 

Tax credits deducted from Administration expenses

-

-

 

Adjusted Operating result

(1,677)

(1,400)

(20%)

 

Earnings per Share and Dividend

The basic Earnings per share was 1.2 pence per share (2014: (5.7) pence) based on a weighted average number of shares of 33.6m (2014: 33.5m). Diluted basic earnings per share was 1.1 pence per share (2014: (5.7 pence) based on a weighted average of 34.9m shares (2014: 33.5m).

The fully adjusted earnings per share moved to (5.0) from (4.2) 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 is making in the release of its second major franchise the Board has decided not to pay a dividend for the period (2014: nil). 

Share issues & Employee Benefit Trust

The Group operates an Employee Benefit Trust. During the period 300,000 ordinary shares at 80 pence were issued to the Trust in order to meet share options exercised by employees. The Employee Benefit Trust has an interest in 291,957 shares at the end of the period   The Group granted 193,200 share options under the Company Share Option Plan and an unapproved share plan in the period at a fair value of £0.2m. The Employee Benefit Trust undertook market purchases of 0.1m shares. 217,084 ordinary shares at £1.27 were issued to a third party against warrants originally issued at IPO.

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

2014

2013

Self-published

98%

55%

3%

Publishing

-

42%

91%

Work for hire royalties & other income

2%

3%

6%

Total

100%

100%

100%

The reducing trend in royalties and other income is the result of a combination of the recognition of revenue associated with the fulfilment of crowd-funding obligations in 2014 and a natural reduction in royalty earned by prior work-for-hire products which are aging and not now being replaced as the Group's focus has switched to developing self-published titles.    

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 12 and 13 of the Group's Annual Report for 2015, a copy of which is available from the Frontier Developments website: 

http://www.frontier.co.uk/docs/files/Frontier%20Developments%20Annual%20Report%202015.pdf

 

Frontier Developments plc                                    Company registered no: 2892559

Interim management report

 

 

Unaudited 6 months ended

Audited 12 months to

 

Nov 2015

£'000

Nov 2014

£'000

May 2015

£'000

 

 

 

 

Operating activities

 

 

 

Cash generated from operations (see below)

2,667

3,758

7,334

Finance income

(10)

(7)

(53)

Taxes received/(paid)

4

42

23

Cash flow from operating activities

2,661

3,793

7,304

 

 

 

 

Investing activities

 

 

 

Purchase of property, plant and equipment

(123)

(172)

(289)

Expenditure on intangible assets

(4,407)

(2,527)

(4,385)

Proceeds from disposal of other long-term financial assets

-

36

36

Employee benefit trust investment

(400)

-

(551)

Interest received

10

7

53

Cash flow from investing activities

(4,920)

(2,656)

(5,136)

 

 

 

 

Financing activities

 

 

 

(Repayment)/proceeds from interest free loan

-

-

(158)

Proceeds from issue of share capital

276

158

159

Cash flow from financing activities

276

158

1

 

 

 

 

Net change in cash and cash equivalents from continuing operations

(1,983)

1,295

2,169

Cash and cash equivalents at beginning of period

10,478

8,612

8,612

Exchange differences on cash and cash equivalents

148

58

(303)

 

 

 

 

Cash and cash equivalents at end of period

8,643

9,965

10,478

 

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:

 

 

 

Unaudited 6 months ended

Audited 12 months to

 

Nov 2015

£'000

Nov 2014

£'000

May 2015

£'000

 

 

 

 

Cash generated from operations

 

 

 

Profit/(loss) after tax

395

(1,892)

1,647

Depreciation, amortisation and impairment

1,632

2,412

4,517

Fair value adjustments

-

-

31

Profit on disposal of fixed assets and available for sale assets

-

3

1

Proceeds from the sale of non current assets

-

-

16

Share-based payment expenses

418

305

767

Interest expense

-

3

-

Taxation

45

-

(190)

Foreign exchange

(190)

(49)

242

Operating cash flow before changes in working capital

2,300

782

7,031

Net changes in working capital:

 

 

 

Change in inventories

(24)

(14)

2

Change in trade and other receivables

(2,289)

685

74

Change in trade and other payables

2,670

2,287

190

Change in provisions

10

18

37

Cash generated from operations

2,667

3,758

7,334

Frontier Developments plc                                   Company registered no: 2892559

Consolidated Income Statement 

__________________________________________________________________________

 

 

Unaudited 6 months ended

Audited 12 months to

 

Notes

30/11/15

£'000

30/11/14

£'000

31/5/15

£'000

 

 

 

 

 

Revenue

7

10,918

7,275

22,763

 

 

 

 

 

Cost of sales

 

(3,132)

(471)

(2,119)

 

 

 

 

 

Gross profit

 

7,786

6,804

20,644

Other income

 

-

1

3

Selling and distribution expenses

 

(2,024)

(865)

(2,749)

Administrative expenses

 

(2,052)

(2,308)

(4,561)

Research and development expenses

 

(3,280)

(5,531)

(11,771)

Other expenses

 

-

-

-

Operating Profit/(loss)

 

430

(1,899)

1,566

 

 

 

 

 

 

 

 

 

 

Finance income

 

10

7

53

 

 

 

 

 

Profit/(loss) before tax

 

440

(1,892)

1,619

 

 

 

 

 

Income tax

 

(45)

-

28

 

 

 

 

 

Profit/(loss) for the period

 

395

(1,892)

1,647

 

 

 

 

 

 

 

 

 

 

All the activities of the Group are classified as continuing.

 

Earnings per share

9

 

 

Basic earnings per share

 

1.2

(5.7p)

Diluted earnings per share

 

1.1

(5.7p)

4.7

 

      Statement of Comprehensive Income

 

Unaudited 6 months ended

Audited 12 months to

 

30/11/15

£'000

30/11/14

£'000

31/5/15

£'000

Profit/(loss) for the period

395

(1,892)

1,647

Items that will be reclassified to the profit and loss

Exchange differences on translation of foreign operations

(99)

8

 

 

(57)

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

296

(1,884)

 

1,590

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

 

Frontier Developments plc                                             Company registered no: 2892559

Consolidated Statement of Financial Position

 

 

 

Unaudited

 

Notes

30 Nov

2015

£'000

30 Nov

2014

£'000

Non-current assets

 

 

 

Intangible assets

10

14,006

11,215

Property, plant and equipment

 

325

360

Total non-current assets

 

14,331

11,575

11,434

 

 

 

 

Current assets

 

 

 

Inventories

 

37

29

Trade and other receivables

 

5,336

2,280

Other short-term assets

 

44

25

Cash and cash equivalents

 

8,643

9,965

10,478

Current assets

 

14,060

12,299

13,588

 

 

 

 

 

Total assets

 

28,391

23,874

25,022

 

 

 

 

 

Equity and liabilities

 

 

 

Equity

 

 

 

Share capital

11

170

168

Share premium account

 

14,476

13,962

Equity reserve

 

162

971

Foreign exchange reserve

 

(99)

(22)

Retained earnings

 

6,825

2,392

6,180

Total equity

 

21,534

17,471

20,887

 

 

 

 

Liabilities

 

 

 

Current

 

 

 

Trade and other payables

 

3,645

2,748

Provisions

 

-

241

Other short-term financial liabilities

 

-

-

Deferred income

 

1,379

3,339

724

 

 

5,024

6,328

3,831

Non-current

 

 

 

 

Provisions

 

270

-

260

Deferred income (non- current)

 

1,477

-

-

Deferred tax

 

86

75

44

 

 

1,833

75

304

 

 

 

 

 

Total liabilities

 

6,857

6,403

4,135

Total equity and liabilities

 

28,391

23,874

25,022

 

 

 

 

 

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

Option reserve

Foreign exchange reserve

Retained earnings

Total Equity

 

£'000

£'000

£'000

£'000

£'000

£'000

At 31 May 2014

167

13,805

790

(30)

4,160

18,892

Increase in equity in relation to options issued

-

-

767

-

-

767

Own shares held by the EBT

-

-

(551)

-

-

(551)

Share based payment transfer

-

-

(373)

-

373

-

Issue of share capital

1

158

-

-

-

159

Transactions with owners

1

158

(157)

-

373

375

Profit for the year

-

-

-

-

1,647

1,647

Other comprehensive income:

 

 

 

 

 

 

Exchange differences on translation of foreign operations

-

-

-

(27)

-

(27)

Total comprehensive income for the year

-

-

-

(27)

1,647

1,620

At 31 May 2015

168

13,963

633

(57)

6,180

20,887

 

 

 

 

 

 

 

At 1 June 2014

167

13,805

790

(30)

4,160

18,892

Increase in equity in relation to options issued

-

-

305

-

-

305

Share based payment transfer

-

-

(124)

-

124

-

Issue of share capital

1

157

-

-

-

158

Transactions with owners

1

157

181

-

124

463

Loss for the period

 

 

 

 

(1,892)

(1,892)

Other comprehensive income:

Exchange differences on translation of foreign operations

 

-

 

-

 

-

 

8

 

-

 

8

Total comprehensive income for the period

-

-

-

8

(1,892)

(1,884)

At 30 Nov 2014 - Unaudited

168

13,962

971

(22)

2,392

17,471

 

 

 

 

 

 

 

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

 

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

 

 

      Frontier Developments plc                                      Company registered no: 2892559

 

      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 2015 and 30 November 2014 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 subsidiaries, Frontier Developments Inc., based in Canada and Frontier Developments Inc. in the US.

The condensed consolidated interim financial statements were approved by the Board of Directors for issue on 10 February 2016.

 

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 2015 were approved by the Board of Directors on 8 September 2015 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 and Company. 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 2015. 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 below. These significant estimates and judgements remain the same as those included in the financial statements for the year ended May 2015:

 

a) 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 2015 are  £14.0m (November 2014: £11.2m).

 

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.

 

b) 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.

 

6.      Risks and uncertainties

An outline of the key risks and uncertainties of the Group was described in the 2015 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 and 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:

 

 

Unaudited 6 months ended

Audited year ended

 

30/11/15
£'000

30/11/14
£'000

31/5/15
£'000

United Kingdom (country of domicile)

1,555

2,858

5,795

United States of America

4,309

2,461

7,687

Rest of the World

5,054

1,956

9,281

 

10,918

7,275

22,763

At November 2015 £nil (2014: £24,250) of non-current assets are based in Canada, with the remainder in the UK.

EBITDA before material exceptional items is a key performance indicator for the Group as a whole, and is calculated as follows:

 

Unaudited 6 months ended

Audited year ended

 

30/11/15
£'000

30/11/14
£'000

31/5/15
£'000

Operating Profit/(loss) before interest and tax

430

(1,899)

1,566

Depreciation

131

138

271

Amortisation and impairment

1,501

2,274

4,246

EBITDA

2,062

513

6,083

 

 

 

 

 

 

 

 

8.         Nature of expenses

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

 

Unaudited 6 months ended

Audited year ended

 

30/11/15
£'000

30/11/14
£'000

31/5/15
£'000

Commissions, charges and royalties paid

3,107

318

1,824

Depreciation and amortisation

1,632

2,412

4,517

Employee benefits

6,254

6,358

13,015

Sales and marketing

1,974

841

2,513

Merchandise costs

54

68

526

Administration and other overheads

1,773

1,579

3,298

R&D Capitalised

(4,305)

(2,506)

(4,338)

 

10,488

9,070

21,355

 

 

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 2015

November 2014

May 2015

Profit/(loss) attributable to shareholders (£'000)

395

(1,892)

1,647

Weighted average number of shares

33,597,276

33,468,590

33,513,575

Basic earnings per share (pence)

1.2

(5.7)

4.9

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  2015

November  2014

May 2015

Profit/(loss) attributable to shareholders (£'000)

395

(1,892)

1,647

Weighted average number of shares

34,929,115

33,468,590

35,346,221

Diluted Basic earnings per share (pence)

1.1

(5.7)

4.7

 

The calculation of the adjusted earnings per share, as often calculated by external analysts, is based on the adjusted profit after tax. Separate calculations have been performed to a profit taking out adjusted items:

 

November  2015

November  2014

May 2015

 

Adjusted (loss)/profit (£'000)

 

(1,677)

 

(1,406)

 

2,466

Weighted average number of shares

33,597,276

33,468,590

33,513,575

Adjusted Basic earnings per share (pence)

(5.0)

(4.2)

7.4

 

 

 

 

Weighted average number of shares (diluted)

33,597,276

33,468,590

35,346,221

Adjusted diluted earnings per share (pence)

(5.0)

(4.2)

7.0

 

Adjusted profit

November 2015

November 2014

May 2015

 

£'000

£'000

£'000

Operating profit/(loss)

430

(1,899)

1,566

Depreciation

131

138

271

Amortisation

1,501

2,274

4,246

EBITDA

2,062

513

6,083

Share based compensation

418

305

767

Dilapidations provision

11

18

37

Fair value adjustment

137

255

72

U.S Entity set up fees

-

13

7

Investment loss

-

2

1

Adjusted EBITDA

2,628

1,106

6,967

R&D Capitalised

(4,305)

(2,506)

(4,338)

Tax credits deducted from administration costs

-

 

(163)

Adjusted (loss)/profit

(1,677)

(1,400)

2,466

 

 

 

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 2014

4,527

9,466

956

14,949

Additions

448

2,058

21

2,527

Disposals

-

-

(9)

(9)

At  30 Nov 2014 - Unaudited

4,975

11,524

968

17,467

Additions

215

1,617

26

1,858

Disposals

(848)

-

-

(848)

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

 

 

 

 

 

Amortisation and impairment

 

 

 

 

At 31 May 2014

2,025

1,166

796

3,987

Charge for the period

538

1,674

62

2,274

Disposal

-

-

(9)

(9)

At  30 Nov 2014 - Unaudited

2,563

2,840

849

6,252

Charge for the period

537

1,381

54

1,972

Disposals

(848)

-

-

(848)

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

 

 

 

 

 

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

Net Book Value at 30 Nov 2014 - Unaudited

2,412

8,684

119

11,215

Net Book Value at 31 May 2014

2,502

8,300

160

10,962

.

 

 

11.       Equity

11.1     Share Capital

 

Unaudited

Audited

 

30 November 2015

30 November 2014

31 May 2015

 

£'000

£'000

£'000

Called up, allotted and fully paid

£0.005 each

£0.005 each

£0.005 each

Ordinary shares

170

168

168

11.2     Movements in share capital

 

 

Unaudited 6 months ended

Audited year ended

Movements in number of Ordinary Shares

30 November 2015

'000

30 November 2014

'000

31 May

2015

'000

Number of shares at beginning of period

33,580

33,384

33,384

Issued on share option and warrants exercises

517

195

196

At the end of the period

34,097

33,579

33,580

During the period to 30 November 2015:

517,084 Ordinary shares of 0.5 pence were allotted as fully paid at an average premium of 103 pence being the exercise of warrants issued to a third party at IPO and to the Employee Benefit Trust (EBT). The average market value was 223.25 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
The company news service from the London Stock Exchange
 
END
 
 
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