TIDMSUMO
RNS Number : 6982N
Sumo Group PLC
26 September 2019
26 September 2019
SUMO GROUP PLC
("Sumo Group", the "Group" or the "Company")
AIM: SUMO
UNAUDITED HALF YEAR RESULTS 2019
Sumo Group, the provider of award-winning creative and
development services to the video games and entertainment
industries, announces its unaudited half year results for the six
months ended 30 June 2019 ("H1 19" or the "Period"), which are in
line with management expectations.
During the Period, Sumo Group continued to deliver on its stated
strategic objectives: to expand; to win new clients; to develop
complementary new revenue streams; and to develop its own IP - both
self-funded and co-funded.
The Group has strong revenue visibility for the year ending 31
December 2019 ("FY 19") and beyond and these results reflect the
significant H2 performance weighting expected in this year's
financial results. The Group remains on track to meet consensus
market forecasts for FY19.
Operational highlights
-- Headcount increased by 15% from 592 at 31 December 2018 to
679 at 30 June 2019
-- Red Kite Games acquired in January 2019, adding 27 people
and new talent pool
-- New studio opened in Leamington Spa to focus on the mobile
games market
-- Board and senior management team expanded and strengthened
-- Expanded client base: Apple and Focus Home Interactive
-- New partnership announced with publisher 2K
Financial key points
-- H1 19 results in line with management expectations - considerable
H2 weighting in FY 19
-- Adjusted gross profit rose by 13.7% to GBP9.8m (H1 18: GBP8.6m)
-- Adjusted gross margin excluding royalties increased to 46.3%
(H1 18: 43.6%)
-- Reported revenue GBP20.8m (H1 18: GBP19.3m), reported gross
profit GBP9.3m (H1 18: GBP8.3m) and reported profit before
taxation GBP1.3m (H1 18: loss before taxation GBP2.1m)
Current trading and outlook
-- Strong cash and working capital performance post Period end:
net cash of GBP8.9m at 31 August 2019 (30 June 2019: GBP4.3m)
-- Further increase in headcount to 711 at 31 August 2019
-- Two own-IP games announced: "Pass The Punch" and the acclaimed
"Dear Esther" expanding to iOS
-- Strong acquisition pipeline
-- On track to meet consensus market forecasts for FY 19 and outlook
remains positive
-- Strong visibility on FY 20 revenue with more than 41% of forecast
development fee revenue already contracted or near-contracted
Carl Cavers, Chief Executive Officer of Sumo Group, said:
"H1 19 has been another successful six months for Sumo Group. We
have grown the business and delivered financial results in line
with our expectations. Our market remains buoyant and we are seeing
many exciting opportunities.
"We love to make great games. This is our primary motivation and
we are very pleased with the games in our current development
pipeline and with the new client partnerships we are building. The
Group's business model is developing in a way which allows us to
capitalise on our flourishing own-IP capabilities, whilst
maintaining an appropriate risk profile. Sumo Group has exceptional
people and I am very grateful to the whole team for the passion and
dedication they continue to demonstrate.
"The foundations of our business comprise both exceptional
talent and valuable proprietary systems. These, combined with the
tremendous growth opportunities presented by our markets, give me
confidence in the financial prospects of the Group for this year
and beyond."
Financials
Underlying results H1 19 H1 18 Change
(Restated)
Adjusted revenue(1) GBP20.8m GBP19.6m 6.1%
Adjusted gross profit(2) GBP9.8m GBP8.6m 13.7%
Adjusted gross margin excluding royalties(3) 46.3% 43.6%
Adjusted EBITDA(4) GBP5.2m GBP5.0m 4.5%
Adjusted profit before tax(5) GBP4.5m GBP4.3m
Reported results H1 19 H1 18 Change
Revenue GBP20.8m GBP19.3m 7.5%
Gross profit GBP9.3m GBP8.3m 11.7%
Gross margin 44.8% 43.1%
Profit/(loss) before taxation GBP1.3m (GBP2.1m)
Cash flow from operations GBP3.5m (GBP3.4m)
Net cash GBP4.3m GBP6.5m
Basic earnings/(loss) per share 0.56p (1.20p)
Diluted earnings/(loss) per share 0.54p (1.20p)
The following alternative performance measures are non-GAAP metrics
used by management. A full reconciliation to IFRS disclosed figures
is included in note 15 to the interim financial statements.
(1) Adjusted revenue is stated after inclusion of GBP0.3m of customer
revenue included in finance income in H1 18 as required by IFRS 15.
No adjustment has been made for H1 19.
(2) Adjusted gross profit is stated after the adjustment to revenue included
in note 1 above and excluding expenses incurred on investment in co-funded
games (H1 19 GBP0.5m, H1 18 GBPNil).
(3) Adjusted gross margin excluding royalties is calculated as adjusted
gross profit excluding royalty income, as a percentage of adjusted
revenue excluding royalty income.
(4) Adjusted EBITDA is profit before tax stated after the adjustments
in notes 1 and 2 above and before finance costs, depreciation, amortisation,
share based payment charges, exceptional costs of GBP0.3m (H1 18:
nil) and the impact of IFRS 16 on operating expenses.
(5) Adjusted profit before tax is stated after adjustments included in
notes 1 and 2 above, excluding share based payment charges, exceptional
costs and the amortisation of customer contracts and relationships
of GBP0.5m (H1 2018: GBP4.9m).
(6) The H1 18 comparatives are restated for pass-through revenues and
costs upon which Sumo does not make a margin. During the year ended
31 December 2018, the Directors reassessed their accounting policy
for certain "pass-through" costs which are recharged at nil margin
and concluded that it would be appropriate for these costs to be netted
against recharged income. The change in presentation reduced revenue
and direct costs for H1 18 by GBP3.6m but had no impact on gross profit,
earnings or the financial position. In addition, GBP0.4m of costs
incurred in H1 18 were reclassified from direct costs to operating
expenses. For both H1 18 and FY18 the results and financial position
have been restated to recognise a provision for national insurance
contributions due on the future vesting of share based payments. During
H1 19 the Directors considered their accounting policy for the recognition
of these costs and elected to spread the costs over the vesting period
of share based payments.
Enquiries:
Sumo Group plc Tel: +44 (0) 114 242
6766
Carl Cavers, Chief Executive Officer
David Wilton, Chief Financial Officer
Zeus Capital Limited (Nominated Adviser & Broker)
Nick Cowles / Richard Darlington / Andrew Jones Tel: +44 (0) 161
831 1512
Ben Robertson / John Goold Tel: +44 (0) 203 829
5000
Belvedere Communications Limited
Cat Valentine (cvalentine@belvederepr.com) Tel: +44 (0) 7715
769 078
Keeley Clarke (kclarke@belvederepr.com) Tel: +44 (0) 7967
816 525
Llew Angus (langus@belvederepr.com) Tel: +44 (0) 7407
023 147
About Sumo Group - www.sumogroupplc.com
Sumo Group's businesses provide acclaimed development and design
services to the video games and entertainment industries from
studios in the UK, India, and Canada.
Sumo Digital, as the group's primary business, is one of the
UK's largest independent developers of AAA-rated video games,
having studios in Sheffield, Newcastle, Nottingham, Leeds,
Leamington Spa and Pune, India. The business has acquired two
studios since IPO, which operate under their own names, BAFTA
award-winning The Chinese Room and Red Kite Games. Sumo Digital
provides turnkey and co-development solutions to a global blue-chip
client base.
Atomhawk is a multi-award-winning visual design company, with
studios in Newcastle and in Vancouver (Canada), servicing the
games, film and visual effects industries.
Together, the Group delivers full-spectrum visual and
development solutions, which include initial visual concepts,
conceiving new products and game development involving all aspects
of pre-production, production & development, as well as
supporting games as a service.
CHIEF EXECUTIVE'S REPORT
The Board is pleased to report the unaudited half year results
for the six months ended 30 June 2019 ("H1 19"), which are in line
with management expectations and reflect the significant H2
performance weighting expected in this year's financial results.
The Group has strong revenue visibility for the year ending 31
December 2019 ("FY 19) and beyond and is on track to meet consensus
market forecasts for FY19.
Since the beginning of 2019, the Group has continued to make
progress on all its strategic objectives:
-- To deliver and expand by developing subsequent franchise titles and
downloadable content, through the management of online communities
(collectively referred to as Games As A Service) and by generating
royalties, where our interests are clearly aligned with our clients;
-- To win new clients through the expansion of our publisher portfolio,
collaborating with other publishers and extending our co-development
relationships, and through selective acquisitions;
-- To develop complementary revenue streams by moving into new premium
services, possibly through acquisition; and
-- To continue to develop our own-IP, following the highly successful
release of Snake Pass in 2017.
In January, we acquired Red Kite Games, a work-for-hire studio
focusing on engineering and code support services, adding 27
talented colleagues to the business, increasing our
technical/engineering capacity and providing access to a new talent
pool in West Yorkshire. A new studio, dedicated to the mobile game
development market, was established in Leamington Spa in March.
This studio is performing well and now employs 13 people, led by a
highly regarded studio director. By the Period end Sumo Group
employed 679 people (30 June 2018: 592), in nine studios (30 June
2018: six) situated in three countries.
The Group has been successful in winning work from new clients,
including Apple and 2K, a video games publisher managing some of
the most creative and respected brands in the market today. In
August, we announced the planned launch of Pass the Punch, a
self-funded own-IP "beat 'em up" title, on PC, Nintendo Switch,
Xbox One and PlayStation 4 and of the much acclaimed own-IP game,
developed by The Chinese Room, Dear Esther on iOS.
Our market
The video games market is strong and growing. The Association
for UK Interactive Entertainment ("UKIE") reports that the UK
market for games was valued at a record of GBP5.7bn in 2018,
representing +10.0% growth on the previous year. Newzoo expects the
global games market to grow from $152.1bn in 2019 to $196bn by
2022. In a recent article published by Yahoo, Purpose Investments,
a Canadian investment company, estimated the combined video game
and exports revenue to be $149bn this year with the potential to
grow to $300bn in five years. Six of the largest businesses in the
world, Apple, Microsoft, Google, Amazon, Facebook and Tencent are
actively driving growth in our industry, so the demand for content
has never been higher. This leaves us full of optimism for the
future of our business and we are pleased to report that the
Group's business development pipeline has never been so strong.
Business model
Sumo Group's business model is relatively low risk. The Group is
generally not directly exposed to the commercial success of a game
but can benefit from upside where royalties are in place. We are
generating new opportunities to accelerate the Group's growth and
increase margins, through the development of own-IP games, either
self-funded, co-funded or fully-funded, and through acquisition.
The Group benefits commercially and financially from being able to
use proprietary technologies developed over many years and from its
significant presence in India, which provides valuable talent on a
lower cost base.
In our Final Results 2018, we reported that we had begun work on
a new type of co-development contract, under which external funding
is provided by a publisher for all, or the majority of, the
development costs for a game, conceptualised by Sumo Group. This
new approach is enabling us to generate returns which best reflect
the value of a Sumo Group concept, whilst keeping our principal
risk relatively low. Contracts covering three games were signed in
the latter stages of 2018, for projects on which the publishers
will pay for the majority of the development costs, in exchange for
the right to access or use the IP created, and Sumo Group will fund
a smaller proportion of the costs. The revenue and profit from
these games are recognised on the development fees payable by the
publisher during the term of the contract but the costs incurred by
Sumo Group are expensed. During H1 19, the costs incurred on these
three projects amounted to GBP0.5m in aggregate.
Financial review
Revenue
The underlying trading of the Group was in line with
management's expectations and reflects the timing of royalty
receipts, as well as the heavy weighting of costs in H1 and revenue
in H2 relating to own-IP. Reported revenue was GBP20.8m. Our
revenue figures are now stated excluding pass-through revenues,
upon which Sumo does not make a margin, and the H1 18 comparative
figure has been restated accordingly as GBP19.3m. Atomhawk
generated revenue of GBP1.5m (H1 18: GBP1.3m). The Chinese Room and
Red Kite Games, acquired in August 2018 and January 2019
respectively, generated revenue in the Period of GBP1.1m. On a like
for like basis excluding The Chinese Room and Red Kite Games, the
Group's revenue increased by 2.0%.
We entered the Period having agreed terms or signed contracts on
four new major projects in the final weeks of 2018, including
developing two new games for Apple's subscription gaming service,
Apple Arcade. As we reported in our Final Results 2018 announced on
9 April 2019, the Group had contracted or near contracted
visibility on 88.7% of forecast development fees for Sumo Digital
for 2019. This level of forward cover was unprecedented for the
business and a considerable achievement. The Board is delighted to
report that, at this relatively early stage, the Group already has
strong visibility for the year ending 31 December 2020 of more than
41%.
Development fees in the Period were GBP20.4m, an increase of
7.6% on the comparable figure of GBP19.0m in 2018.
The Group generated own intellectual property ("own-IP") title
revenue of GBP0.1m (H1 18: GBP0.3m). Royalty income was GBP0.3m (H1
18: GBP0.1m). Both these revenue figures are in line with
management expectations. Own-IP revenue is generated from the
ongoing sales of Snake Pass, launched in March 2017, and Dear
Esther, which was acquired with The Chinese Room. Royalty income
includes an amount of GBP0.1m in recognition of variable
consideration under IFRS 15, which is future royalty income
expected to be received.
Gross profit and margin
Statutory gross profit for the Period was GBP9.3m, an increase
of 11.7% on the GBP8.3m in the prior half year.
Statutory gross margin for the half year was 44.8% (H1 18:
43.1%). This includes royalty income of GBP0.3m (H1 18: GBP0.1m) in
the half year, which flowed directly through to gross profit. The
gross margin adjusted for the investment in co-funded games
expensed and excluding royalties was 46.3% (H1 18: 43.6%).
Operating expenses
Operating expenses were GBP7.6m (H1 18: GBP10.5m). Included
within operating expenses were amortisation and depreciation of
GBP0.6m and GBP1.0m respectively (H1 18: GBP5.0m and GBP0.5m
respectively). The Group spent GBP0.6m (FY 18: GBP0.7m) on research
and development, all of which has been expensed.
Non-cash charges
The non-cash charges included in the H1 19 results relate to the
amortisation of intangibles and to share based payments. There was
a non-cash charge of GBP2.0m in the Period (H1 18: GBP1.3m) to
reflect the cost of the Sumo Group plc Long Term Incentive Plan and
the Sumo Group plc Share Incentive Plan, which were launched in
March 2018 and July 2018 respectively.
IFRS 16
In these financial statements the Group has, with effect from 1
January 2019, adopted IFRS 16. Under the new standard, the
distinction between operating and finance leases is removed and
most leases will be brought onto the statement of financial
position, as both a right-of-use asset and a largely offsetting
lease liability. The right-of-use asset will be depreciated and the
liability will be increased for the accumulation of interest and
reduced by lease payments. There is no impact on cashflow. The
Company opted not to early adopt IFRS 16 and prior year financial
information will not be restated, resulting in no impact on
retained earnings as at 1 January 2019 on transition. During the
Period, there was a GBP0.5m addition to right-of-use assets, which
represents primarily property leases for the Group's studio
premises, under IFRS 16.
Adjusted EBITDA and margin
Adjusted EBITDA was in line with management expectations at
GBP5.2m (H1 2018: GBP5.0m). In our Final Results 2018, announced on
9 April 2019, we flagged that we expected the financial performance
for 2019 to be weighted towards the second half, due to the timing
of royalty receipts, the costs and revenue from own-IP and the
increasing headcount through the year. In arriving at adjusted
EBITDA adjustments have been made for depreciation, amortisation,
share based payments, in H1 18 for the financing of the one
contract under IFRS 15, for H1 19 for the costs expensed on the
development of the games referred to above and the impact of IFRS
16 and, in H1 19, transaction costs.
The underlying adjusted profit before tax, share based payment
charge, adjustment for customer revenue included within finance
income in H1 18, investment in co-funded games expensed,
exceptional items and amortisation for the half year was GBP4.5m
(H1 18: GBP4.3m) and reported profit before tax was GBP1.3m (H1 18:
loss of GBP2.1m).
Adjusted EBITDA margin was 25.1% (H1 2018: 25.5%).
Cashflow
The net cash generated from operating activities for the Period
was GBP3.5m (H1 18: outflow of GBP3.4m), which was in line with
management expectations set at the beginning of the year. Cash
balances at 30 June 2019 were GBP4.3m (30 June 2018: GBP6.5m and 31
December 2018 GBP3.7m). In the first ten working days of July 2019,
the Group received in excess of GBP10m of cash receipts, including
GBP3.2m of VGTR receipts. At 31 August 2019, Sumo Group had cash
balances of GBP8.9m. The Board expects the business to continue to
generate significant cash in the second half of 2019.
Capital expenditure in the Period was GBP1.6m (H1 18: GBP1.5m),
most of which related to computer hardware.
The cash cost, excluding transaction costs, of the acquisition
of Red Kite Games was GBP0.5m and it had cash balances of GBP0.5m
at the date of acquisition.
The net finance charge for the half year was GBP0.2m (H1 18: net
finance income GBP0.1m). The Group had no borrowings during the
Period and the net finance charge consists of the accounting charge
for the foreign currency hedging, the IFRS 16 interest charge and
the bank commitment fee payable, partially offset by the IFRS 15
financing income and a very small amount of interest income.
Taxation
The Corporation Tax charge for the half year was GBP0.5m (H1 18:
credit GBP0.5m).
Balance sheet
Goodwill and other intangibles were GBP23.4m. This is an
increase of GBP1.1m from 31 December 2018 and reflects the increase
in goodwill and other intangibles arising from the acquisition of
Red Kite Games in the Period partially offset by the amortisation
charge of GBP0.6m.
Current assets were GBP33.6m (30 June 2018: GBP24.7m). Trade and
other receivables were GBP29.3m an increase of GBP4.1m from the
figure of GBP25.2m at 31 December 2018 and trade and other payables
were GBP15.6m (30 June 2018: GBP11.0m). Included within the revenue
in excess of billings at 30 June 2019 was an amount of GBP2.3m on
one contract for which the equivalent figure at 31 December 2018
was GBP7.8m. A further amount of GBP3.5m was included in debtors
for which the cash was received on 9 July 2019. As at 30 June 2019
the net working capital position (excluding the IFRS 16 current
lease liability of GBP1.0m) was GBP14.7m up from GBP13.7m at 31
December 2018. The net working capital had reduced to GBP9.0m at 31
August 2019.
As at 30 June 2019 the consolidated balance sheet included an
asset of GBP0.3m in respect of a game being developed from a Sumo
concept in conjunction with a publisher for which the approval
process has been delayed and Sumo has used the opportunity to
demonstrate this game to other publishers. Interest in the game has
been strong and we expect to agree attractive commercial terms for
the development of this game by the end of this financial year. The
asset increased to GBP0.5m at the end of August.
The consolidated balance sheet at 30 June 2019 includes own
shares of GBP4.9m within equity, which relates to shares issued
under the terms of the Sumo Group plc Long Term Incentive Plan.
Alternative performance measures
The Board believes that it is helpful to include alternative
performance measures which exclude certain non-cash charges and are
adjusted for the matters referred to above to present the
underlying results of the Group. These measures are reconciled to
the income statement in note 15.
Client concentration
During the Period, four major clients individually accounted for
at least 10% of total revenues (FY 2018: four clients). In
aggregate, these four clients accounted for 75% of total revenue
and the top three accounted for 65%.
Sumo Group's business model is to provide turnkey and
co-development services and solutions to the video games industry.
Most of the games are AAA or AA rated and projects tend to be large
in size and long-term in duration. The Group typically works on
between ten and 15 major projects at one time, with varying sizes
of teams on each project. This provides an inherent tendency to
client concentration, particularly as there may be more than one
project for a client. During the period Sumo Digital worked on
eight projects for the top three clients. This concentration has
been mitigated as the business has grown, although this is somewhat
counteracted by the increase in the magnitude of the games over
time. The Board does not consider client concentration to be a
major risk. It has reduced over time and should continue to do so
in the longer term but Sumo Digital is likely to continue to work
on a relatively small number of large projects. It is worth noting
that several contracts secured in the final weeks of 2018 are with
significant clients with whom the Group has not worked before,
including Apple.
Video Games Tax Relief ("VGTR")
Sumo Digital continues to claim and receive significant amounts
under VGTR. We include VGTR within our direct costs and
accordingly, for both half years, our gross profit and gross margin
reflect these amounts. We believe this is the appropriate treatment
of these credits, as gross margin is best considered after taking
account of the effect of VGTR. The amounts included for H1 2018 and
H1 2019 are GBP3.0m and GBP3.7m respectively. The latest report
from UK Interactive Entertainment ("UKIE") underlines that VGTR is
a key catalyst in enabling job creation and investment in the UK
and continues to have broad political support.
Foreign currency
During the Period, the Group generated US dollar denominated
revenue of $7m. It is Sumo Group's policy to hedge such revenues to
protect the Group from fluctuations in exchange rates and these
revenues have been hedged accordingly.
Share issues and options
During the half year 7,399 shares in aggregate were issued under
the Sumo Group plc Share Incentive Plan. A further 500,000 shares
were issued following the exercise of options.
As at 30 June 2019, options were granted or remain outstanding
under the LTIP over an aggregate of 8,839,215 shares.
Operational review
Sumo Digital - representing 93% of Group revenue
Sumo Digital provides a full-service development solution,
including initial concept and pre-production, production and
development and post-release support (end to end full development
lifecycle for games). It uses leading edge technology, much of
which is proprietary, to provide high value-added services to
leading publishers with whom we have an ingrained and intertwined
relationship. Our proprietary technology includes an in-house game
engine, an editing tool, project management software and the
profiling and telemetry tool, which, as previously mentioned, give
the Group a competitive edge and create financial benefits.
Sheffield continues to be our largest studio, as well as the
Group's central support location. The team in Sheffield is
currently working on several exciting projects, including "Spyder"
for Apple Arcade and we have taken on the lease of a further
adjacent unit on this site. Our Nottingham, Newcastle and Brighton
studios all continued to expand in the period.
Red Kite Games, acquired in January, comprises a talented and
highly experienced development team, working with some of the
industry's best-known publishers and developers. Whilst the
business retains its identity and branding, the integration with
Sumo Digital has gone smoothly and to plan. Red Kite Games has
recently relocated from Huddersfield to larger premises, in the
centre of Leeds. This move into a talent hot spot further supports
our growth strategy and is expected to facilitate further
expansion.
A new studio was opened in Leamington Spa in March 2019, led by
a highly regarded studio director, to focus on mobile game
development. This studio now has a strong leadership team in place,
which is focused on building its talented development team. The
Sumo Digital management team is actively exploring other
opportunities to open new UK studios in key talent hot spots to
support its growth plans.
The utilisation rate across the UK studios in the period was
97.0%. The long-established India studio in Pune, which has been
working on Pass the Punch, continues to perform strongly. The
utilisation rate at this studio was 85.0% in the period and the
utilisation for Sumo Digital overall was 94.8%.
Operating from multiple locations gives us the capacity to
deliver our headcount growth targets and we are constantly
reviewing opportunities to accelerate growth by opening studios in
other strategic locations. We are actively considering new
locations both in the UK and abroad, as well as looking at
potential acquisition opportunities.
Over the past few years, Sumo Digital has worked with Sony,
Microsoft (including Turn 10 Studios), Sega, IO Interactive and CCP
Games. Apple was added to this illustrious client list late in 2018
and, in July 2019, we also announced a partnership with 2K. The
business is currently working on 18 live projects, including
Spyder, Pass the Punch and Little Orpheus.
During the period, the shift towards more royalty arrangements
as part of our contracts continued. We remain keen to align our
interests with those of our clients and see the opportunity for
financial out-performance on new iterations of proven games.
Atomhawk - representing 7% of Group revenue
Operating from Newcastle and Vancouver, Atomhawk provides visual
development concept art and marketing art, as well as motion
graphics and user interface design. Its expertise is in helping
customers define a visual look for their products, from inception
through development and, at the final point of sale, through
marketing imagery, videos and box packaging design. It primarily
serves the creative industries, working with video games studios,
as well as film and television. Atomhawk has international clients
across the entertainment sector.
The business delivered a strong performance in the Period and
the team was strengthened further with a number of key hires,
including a Client Service Director, Lead Artists, Art Director and
a Creative Development Director.
New games on which Atomhawk has worked have been well received,
including Mortal Kombat 11 for WB Games/NetherRealm Studio and
Minecraft: Earth for Microsoft. Atomhawk has ongoing project work
with major international clients including 2K, WB Games, Microsoft,
EA and Zynga.
We are delighted to report that Atomhawk won the 2019 Prolific
North Animation/Graphics Company of the Year Award and was
shortlisted for the Best Small Company in the North East Best
Places to Work Awards. The team ran a successful Kickstarter
campaign to fund Atomhawk's latest book, The Art of Atomhawk:
Volume 3, in the Period and launched the "Solarpunk" art
competition with Artstation.
People
Sumo Group is a people business and its continuing success is
entirely dependent on recruiting and retaining talented people. I
am pleased to report that, at the end of August 2019, headcount had
increased to 711, an increase of 20% from 592 at the end of
December 2018. The Group continues to meet challenging recruitment
targets, as it has done successfully over many years.
Paul Porter, one of the co-founders of Sumo Digital, was
appointed Chief Operating Officer of Sumo Group on 1 April 2019 and
he joined the Board on 9 April. Gary Dunn has taken on Paul's
previous role as Managing Director of Sumo Digital.
We have also, today, announced the appointment of Ian
Livingstone, as the Group's new Chairman. Ian is a pioneer of the
global video game industry and was made a Commander of the British
Empire (CBE) for his services to the computer gaming industry in
2013. He has been a valued member of the Board for many years and
we are looking forward to an exciting future with Ian as our Chair.
On behalf of all the team at Sumo Group, I thank Ken Beaty, who
stepped down from the role of Chairman today, for his considerable
contribution to the growth of the business over the last five years
and our successful IPO.
We are committed to maintaining Sumo Group's creative culture as
we grow. Exceptional talent drives opportunity and, on behalf of
the Board, I would like to thank everyone at Sumo Group for their
passion, commitment and desire to create outstanding games and
imagery.
Acquisitions
We have a strong pipeline of acquisition opportunities ranging
in activities, sizes and locations and are actively pursuing these
opportunities. We remain keen to acquire owner-managed businesses,
where the vendors remain with the business post acquisition and
where we can use our listed shares to provide suitable ongoing
incentive arrangements.
Outlook
The key driver for revenue growth is increasing headcount; our
markets are growing and our business development pipeline is
strong, supporting our continued investment in talented people. We
continue to recruit and will see the benefits of this expansion in
the current year, through into 2020 and beyond.
We have excellent visibility on development fees for H2 19 and
the Board is pleased to report that the Group is on track to
deliver full year results in line with consensus market forecasts.
Furthermore, visibility on our FY 20 order book is already at more
than 41% of forecast development fees and this strong trading
position is underpinned by the Group's current cash position.
The Board is actively exploring opportunities to expand the
business both organically and through acquisition and remains
confident about the prospects of the Group.
Carl Cavers
Chief Executive Officer
26 September 2019
CONSOLIDATED INTERIM INCOME STATEMENT
Unaudited Unaudited Audited
Half year Half year Year ended
ended ended 31 December
30 June 30 June 2018
2019 2018 (Restated)(3)
(Restated)(3) GBP'000
Note GBP'000 GBP'000
------------------------------------------ ---- ---------- -------------- --------------
Revenue 4 20,766 19,311 38,696
------------------------------------------ ---- ---------- -------------- --------------
Direct costs (15,147) (13,989) (27,191)
Video Games Tax Relief 3,678 3,000 6,898
------------------------------------------ ---- ---------- -------------- --------------
Direct costs (net) (11,469) (10,989) (20,293)
Gross profit 9,297 8,322 18,403
Operating expenses (7,580) (10,470) (19,430)
Operating expenses - exceptional (311) - (94)
------------------------------------------ ---- ---------- -------------- --------------
Operating expenses - total (7,891) (10,470) (19,524)
Group operating profit/(loss) 1,406 (2,148) (1,121)
Analysed as:
------------------------------------------ ---- ---------- -------------- --------------
Adjusted EBITDA(1) 15 5,214 4,990 10,407
Amortisation (559) (5,036) (6,947)
Depreciation 9 (985) (525) (1,104)
Share based payments charge 11 (2,002) (1,317) (3,004)
Customer revenue included within finance
income - (260) (421)
Accrued royalty not yet received and
contingent on future sales(2) - - 250
Investment in co-funded games expensed (464) - (208)
Operating lease costs capitalised under
IFRS 16 14 513 - -
Exceptional items (311) - (94)
------------------------------------------ ---- ---------- -------------- --------------
Group operating profit/(loss) 1,406 (2,148) (1,121)
------------------------------------------ ---- ---------- -------------- --------------
Finance cost 5 (344) (54) (99)
Finance income 6 189 120 311
------------------------------------------ ---- ---------- -------------- --------------
Profit/(loss) before taxation 1,251 (2,082) (909)
Taxation 7 (510) 535 304
------------------------------------------ ---- ---------- -------------- --------------
Profit/(loss) for the period attributable
to equity shareholders 741 (1,547) (605)
------------------------------------------ ---- ---------- -------------- --------------
Profit/(loss) per share (pence)
Basic 8 0.56 (1.20) (0.47)
Diluted 8 0.54 (1.20) (0.47)
------------------------------------------ ---- ---------- -------------- --------------
1 Adjusted EBITDA, which is defined as profit before finance costs, tax,
depreciation, amortisation, exceptional items, share-based payment
charge, IFRS16 impact, and the investment in co-funded games expensed,
is a non-GAAP metric used by management and is not an IFRS disclosure.
Adjusted EBITDA in H1 18 and 2018 is stated before the impact of IFRS15
financing recognition.
2 Adjusted EBITDA for the period to 30 June 2019 includes GBP91k of accrued
royalty not yet received and contingent on future sales. Comparative
results exclude this from underlying earnings.
3 The H1 18 comparatives are restated for pass-through revenues and costs
upon which Sumo does not make a margin. During the year ended 31 December
2018 the Directors reassessed their accounting policy for certain "pass-through"
costs which are recharged at nil margin and concluded that it would
be appropriate for these costs to be netted against recharged income.
The change in presentation reduced revenue and direct costs for H1
18 by GBP3.6m but had no impact on gross profit, earnings or the financial
position. In addition, GBP0.4m of costs incurred in H1 18 were reclassified
from direct costs to operating expenses. For both H1 18 and FY18 the
results and financial position have been restated to recognise a provision
for national insurance contributions due on the future vesting of share
based payments. During H1 19 the Directors considered their accounting
policy for the recognition of these costs and elected to spread the
costs over the vesting period of share based payments. Details of the
impact of the adjustment are set out in note 11.
The Notes below form part of these condensed interim financial
statements.
CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE
INCOME/(EXPENSE)
Unaudited Unaudited Audited
Half year Half year Year ended
ended ended 31 December
30 June 2019 30 June 2018 2018
(Restated) (Restated)
GBP'000 GBP'000 GBP'000
------------------------------------------ ------------- ------------- ------------
Profit/(loss) for the period attributable
to equity shareholders 741 (1,547) (605)
Other comprehensive expense:
Exchange differences on retranslation
of foreign operations (20) (50) (48)
------------------------------------------ ------------- ------------- ------------
Total other comprehensive expense (20) (50) (48)
------------------------------------------ ------------- ------------- ------------
Total comprehensive income/(expense)
for the period 721 (1,597) (653)
------------------------------------------ ------------- ------------- ------------
Items in the statement above are disclosed net of tax.
The Notes below form part of these condensed interim financial
statements.
CONSOLIDATED INTERIM BALANCE SHEET
as at 30 June 2019
Unaudited Unaudited Audited
30 June 30 June 31 December
2019 2018 2018
(Restated) (Restated)
Note GBP'000 GBP'000 GBP'000
------------------------------- ----- ---------- ------------ -------------
Non-current assets
Goodwill and other intangible
assets 23,428 23,378 22,378
Property, plant and equipment 9 8,228 2,601 2,496
Deferred tax asset 2,691 1,769 2,053
Total non-current assets 34,347 27,748 26,927
------------------------------- ----- ---------- ------------ -------------
Current assets
Trade and other receivables 29,259 18,230 25,172
Cash and cash equivalents 4,310 6,503 3,730
------------------------------- ----- ---------- ------------ -------------
Total current assets 33,569 24,733 28,902
------------------------------- ----- ---------- ------------ -------------
Total assets 67,916 52,481 55,829
------------------------------- ----- ---------- ------------ -------------
Current liabilities
Trade and other payables 10 15,586 11,034 11,476
Corporation tax payable 665 926 810
Total current liabilities 16,251 11,960 12,286
------------------------------- ----- ---------- ------------ -------------
Non-current liabilities 10 4,021 - -
------------------------------- ----- ---------- ------------ -------------
Total liabilities 20,272 11,960 12,286
------------------------------- ----- ---------- ------------ -------------
Net assets 47,644 40,521 43,543
------------------------------- ----- ---------- ------------ -------------
Equity
Share capital 1,506 1,496 1,501
Share premium 41,584 40,994 40,994
Shares to be issued 1,500 - -
Reverse acquisition reserve (60,623) (60,623) (60,623)
Merger relief reserve 590 - 590
Foreign currency translation
reserve (41) (23) (21)
Own shares (4,919) (4,919) (4,919)
Retained earnings 68,047 63,596 66,021
------------------------------- ----- ---------- ------------ -------------
Total equity 47,644 40,521 43,543
------------------------------- ----- ---------- ------------ -------------
The Notes below form part of these condensed interim financial
statements.
CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
for the period ended 30 June 2019
Foreign
Shares Reverse Merger currency Retained
Share Share to be acquisition relief translation Own Earnings Total
capital premium issued reserve reserve reserve shares (Restated) equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- -------- -------- -------- ------------ -------- ------------ --------- ----------- ---------
Restated
balance
as at 1
January
2018 (audited) 1,450 36,121 - (60,623) - 27 - 63,916 40,891
Loss for the
period - - - - - - - (1,547) (1,547)
Exchange
differences
on
retranslation
of foreign
operations - - - - - (50) - - (50)
Total
comprehensive
expense for
the
period - - - - - (50) - (1,547) (1,597)
--------------- -------- -------- -------- ------------ -------- ------------ --------- ----------- ---------
Transactions
with
owners:
Issue of shares 46 4,873 - - - - - - 4,919
Share based
payment
transactions - - - - - - - 1,227 1,227
Acquisition of
shares
by the
Employee
Benefit Trust - - - - - - (4,919) - (4,919)
--------------- -------- -------- -------- ------------ -------- ------------ --------- ----------- ---------
46 4,873 - - - - (4,919) 1,227 1,227
--------------- -------- -------- -------- ------------ -------- ------------ --------- ----------- ---------
Balance at 30
June
2018 1,496 40,994 - (60,623) - (23) (4,919) 63,596 40,521
--------------- -------- -------- -------- ------------ -------- ------------ --------- ----------- ---------
Profit for the
period - - - - - - - 942 942
Exchange
differences
on
retranslation
of foreign
operations - - - - - 2 - - 2
Total
comprehensive
expense for
the
period - - - - - 2 - 942 944
--------------- -------- -------- -------- ------------ -------- ------------ --------- ----------- ---------
Transactions
with
owners:
Issue of shares 4 - - - - - - - 4
Reserve on
issue
of shares on
acquisition
of subsidiary - - - - 590 - - - 590
Share based
payment
transactions - - - - - - - 1,484 1,484
SIP share
issues
and SIP
reserve 1 - - - - - - (1) -
--------------- -------- -------- -------- ------------ -------- ------------ --------- ----------- ---------
5 - - - 590 - - 1,483 2,078
--------------- -------- -------- -------- ------------ -------- ------------ --------- ----------- ---------
Balance at 31
December
2018 (audited) 1,501 40,994 - (60,623) 590 (21) (4,919) 66,021 43,543
--------------- -------- -------- -------- ------------ -------- ------------ --------- ----------- ---------
Profit for the
period - - - - - - - 741 741
Exchange
differences
on
retranslation
of foreign
operations - - - - - (20) - - (20)
Total
comprehensive
expense for
the
period - - - - - (20) - 741 721
--------------- -------- -------- -------- ------------ -------- ------------ --------- ----------- ---------
Transactions
with
owners:
Issue of shares 5 590 - - - - - - 595
Deferred issue
of
shares related
to
business
combination - - 1,500 - - - - - 1,500
Share based
payment
transactions - - - - - - - 1,294 1,294
Impact of
adoption
of IFRS16 - - - - - - - (9) (9)
--------------- -------- -------- -------- ------------ -------- ------------ --------- ----------- ---------
5 590 1,500 - - - - 1,285 3,380
--------------- -------- -------- -------- ------------ -------- ------------ --------- ----------- ---------
Balance at 30
June
2019 1,506 41,584 1,500 (60,623) 590 (41) (4,919) 68,047 47,644
--------------- -------- -------- -------- ------------ -------- ------------ --------- ----------- ---------
The Notes below form part of these condensed interim financial
statements.
CONSOLIDATED INTERIM CASH FLOW STATEMENT
for the period ended 30 June 2019
Unaudited Unaudited Audited
Half year Half year Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
(Restated) (Restated)
Note GBP'000 GBP'000 GBP'000
---------------------------------------- ---- ---------- ----------- ------------
Profit/(Loss) for the financial
period 741 (1,547) (605)
Income tax 510 (535) (304)
Net finance costs /(income) 155 (66) (212)
---------------------------------------- ---- ---------- ----------- ------------
Operating profit/ (loss) 1,406 (2,148) (1,121)
Depreciation charge 9 985 525 1,104
Amortisation of intangible assets 559 5,036 6,947
Increase in bad debt provision - - (11)
Share based payments charge 2,002 1,317 3,004
Increase in trade and other receivables (4,097) (8,101) (13,739)
Increase/ (Decrease) in trade and
other payables 2,638 12 (1,072)
---------------------------------------- ---- ----------
Cash flows from operating activities 3,493 (3,359) (4,888)
Net finance (costs)/income (101) (39) 212
Tax paid (805) (981) (1,687)
---------------------------------------- ---- ---------- ----------- ------------
Net cash generated from / (used
in) operating activities 2,587 (4,379) (6,363)
Cash flows from investing activities
Purchase of intangible assets (223) (215) (513)
Purchase of property, plant and
equipment (1,355) (1,295) (1,740)
Acquisition of subsidiary - net
of cash acquired 37 - 1
---------------------------------------- ---- ---------- ----------- ------------
Net cash used in investing activities (1,541) (1,510) (2,252)
---------------------------------------- ---- ---------- ----------- ------------
Cash flows from financing activities
Outflow of financial debt - IFRS16 14 (445) - -
Net cash used in financing activities (445) - -
---------------------------------------- ---- ---------- ----------- ------------
Net increase/(decrease) in cash
and cash equivalents 601 (5,889) (8,615)
---------------------------------------- ---- ---------- ----------- ------------
Cash and cash equivalents at the
beginning of the period 3,730 12,424 12,424
Foreign exchange (21) (32) (79)
---------------------------------------- ---- ---------- ----------- ------------
Cash and cash equivalents at the
end of the period 4,310 6,503 3,730
---------------------------------------- ---- ---------- ----------- ------------
The Notes below form part of these condensed interim financial
statements.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
for the period ended 30 June 2019
1. GENERAL INFORMATION
Sumo Group plc ("the Company") is a public limited company
incorporated in England with the registered number 11071913. The
address of its registered office is 32 Jessops Riverside,
Brightside Lane, Sheffield S9 2RX.
The Company's shares are quoted on the Alternative Investment
Market.
The principal activity of the Company and its subsidiaries
(together "the Group") is that of video games development.
The condensed consolidated interim financial information was
approved and authorised for issue by a duly appointed and
authorised committee of the Board of Directors on 25 September
2019.
This condensed interim financial information has not been
audited or reviewed by the Company's auditors.
Forward looking statements
Certain statements in this results announcement are forward
looking. The terms "expect", "anticipate", "should be", "will be"
and similar expressions identify forward-looking statements.
Although the Board of Directors believe that the expectations
reflected in these forward-looking statements are reasonable, such
statements are subject to a number of risks and uncertainties, and
events could differ materially from these expressed or implied by
these forward-looking statements.
2. BASIS OF PREPARATION
This condensed consolidated interim financial information for
the six months ended 30 June 2019 has been prepared in accordance
with International Accounting Standard 34 "Interim Financial
Reporting". The condensed consolidated interim financial
information should be read in conjunction with the annual financial
statements for the year ended 31 December 2018, which have been
prepared in accordance with International Financial Reporting
Standards as endorsed by the European Union ('IFRS'), International
Financial Reporting Standards Interpretation Committee ('IFRS IC')
interpretations and those provisions of the Companies Act 2006
applicable to companies reporting under IFRS. The condensed
consolidated interim financial statements have been prepared on the
going concern basis and on the historical cost convention modified
for the revaluation of certain financial instruments.
This condensed consolidated interim financial information does
not constitute the Group's statutory accounts within the meaning of
section 434 of the Companies Act 2006. The comparatives for the
full year ended 31 December 2018 are not the Company's full
statutory accounts for that year. A copy of the statutory accounts
for that year has been delivered to the Registrar of Companies. The
auditors, Grant Thornton UK LLP, have reported on these accounts,
their report is unqualified, does not include a reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying their report, and does not constitute a
statement under either Section 498(2) or (3) of the Companies Act
2006.
3. ACCOUNTING POLICIES
In these unaudited half year results the Group has, with effect
from 1 January 2019, adopted IFRS 16. IFRS 16 'Leases' replaced IAS
17 'Leases' and IFRIC4 'determining whether an arrangement contains
a lease' and sets out the principles for the recognition,
measurement, presentation and disclosure of leases and has been
applied from 1 January 2019 using the modified retrospective
approach. Under IFRS 16 the main difference for the Group is that
certain leases where the Group is a lessee are recognised on the
balance sheet, as both a right-of-use asset and a lease liability.
Low value (defined as leases with an individual asset value of less
than GBP5,000 at the date of initial recognition) and short term
leases (those with a term of 12 months or less) were excluded from
these calculations under the practical expedients allowed in the
standard. The right-of-use asset is depreciated in accordance with
IAS 16 'Property, Plant and Equipment' and the liability is
increased for the accumulation of interest and reduced by cash
lease payments. There is no impact on cashflow.
On the income statement the Group recognises a depreciation
charge and an interest charge instead of a straight-line operating
cost. This changes the timing of cost recognition on the lease,
resulting in extra cost in early years of the lease, and reduced
cost towards the end of the lease.
The Group elected to exclude all short-term leases and all
leases for which the underlying asset is of low value (as
above).
The adoption of IFRS 16 resulted in the recognition of a right
of use asset with a depreciated cost of GBP5,151,000 together with
a corresponding financial liability of GBP5,413,000 as at 1 January
2019. The difference of GBP262,000 was debited to retained earnings
as at 1 January 2019. Offset against this, GBP253,000 of lease
liability accruals under the previous standard IAS17 were also
credited to retained earnings at that date.
Otherwise there are no new standards that have become effective
in the period that have had a material effect on the Group's
financial statements.
The accounting policies applied by the Group in these unaudited
half year results are consistent with those applied in the annual
financial statements for the year ended 31 December 2018 as
described in the Group's Annual Report and full financial
statements for that year and as available on the Company's website
www.sumogroupplc.com except for the introduction of IFRS 16 which
is set out in the policy below.
Taxes on income in the interim periods are accrued using the tax
rate that would be applicable to expected total annual
earnings.
Leases
The Group has applied IFRS 16 from 1 January 2019. At inception
of a contract, the Group assesses whether a contract is, or
contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration.
The Group recognises a right-of-use asset and a lease liability
at the lease commencement date. The right-of-use asset is initially
measured at cost, which comprises the initial amount of the lease
liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an
estimate of costs to restore the underlying asset, less any lease
incentives received.
The right-of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the earlier of
the end of the useful life of the right-of-use asset or the end of
the lease term. In addition, the right-of-use asset is periodically
reduced by impairment losses, if any, and adjusted for certain
remeasurements of the lease liabilities.
The lease liability is initially measured at the present value
of lease payments that were not paid at the commencement date,
discounted using the Group's incremental borrowing rate.
The lease liability is measured at amortised cost using the
effective interest method. If there is a remeasurement of the lease
liability, a corresponding adjustment is made to the carrying
amount of the right-of-use asset or is recorded directly in profit
or loss if the carrying amount of the right of use asset is
zero.
The Group presents right-of-use assets within property, plant
and equipment.
The Group has elected not to recognise right-of-use assets and
lease liabilities for short-term leases that have a lease term of
12 months or less or leases of low value assets. These lease
payments are expensed on a straight-line basis over the lease
term.
4. SEGMENTAL REPORTING - UNAUDITED
The trading operations of the Group are only in video games
development and are all continuing. This includes the activities of
Sumo Digital Limited, Mistral Entertainment Limited, Sumo Video
Games Private Limited, Cirrus Development Limited, Sumo Digital
(Genus) Limited, Sumo Digital (Atlantis) Limited, Atomhawk Design
Limited, Atomhawk Canada Limited, Red Kite Games Limited and Red
Kite Software Development Limited. The central activities,
comprising services and assets provided to Group companies, are
considered incidental to the activities of the Group and have
therefore not been shown as a separate operating segment but have
been subsumed within video games development. All assets of the
Group reside in the UK, with the exception of non-current assets
with a net book value of GBP440,000 (30 June 2018: GBP389,000, 31
December 2018: GBP397,000) which were located in India and
Canada.
Major clients
In the half year ended 30 June 2019 there were four major
customers that individually accounted for at least 10 per cent of
total revenues (year ended 31 December 2018: four customers). The
revenues relating to these customers in the half year ended 30 June
2019 were GBP5.9m, GBP5.3m, GBP2.3m and GBP2.1m (year ended 31
December 2018: GBP8.1m, GBP6.6m, GBP5.7m and GBP5.1m).
Analysis of revenue
Half year ended Half year ended Year ended
30 June 2019 30 June 2018 31 December
2018
(Restated) (1)
--------------- --------------- ------------
GBP'000 GBP'000 GBP'000
UK & Ireland 7,518 5,681 14,775
Europe 2,428 5,156 7,935
Rest of the World 10,820 8,474 15,986
--------------- --------------- ------------
20,766 19,311 38,696
=============== =============== ============
1 Half year ended June 2018 comparatives restated for pass-through
revenues and costs upon which Sumo does not make a margin.
Revenue by category
Half year ended Half year ended Year ended
30 June 30 June 31 December
2019 2018 2018
--------------- --------------- ------------
GBP'000 GBP'000 GBP'000
Development Fees
Video Game Industry 20,271 18,889 37,225
Art, Leisure, Film & TV 4 34 134
Retail 117 29 134
--------------- --------------- ------------
Total Development Fees 20,392 18,952 37,493
Own IP 115 259 438
Royalties 259 100 765
Total Revenue 20,766 19,311 38,696
=============== =============== ============
5. FINANCE COSTS - UNAUDITED
Half year ended Half year ended Year ended
30 June 2019 30 June 2018 31 December 2018
--------------- --------------- -----------------
GBP'000 GBP'000 GBP'000
IFRS16 Interest (note 11) 69 - -
Bank and other interest 32 54 99
Fair value movement on foreign
exchange contracts 243 - -
Finance costs 344 54 99
=============== =============== =================
6. FINANCE INCOME - UNAUDITED
Half year ended Half year ended Year ended
30 June 2019 30 June 2018 31 December
2018
--------------- --------------- ------------
GBP'000 GBP'000 GBP'000
Fair value movement on foreign exchange
forward contracts - 2 -
IFRS 15 financing income 186 118 309
Interest income 3 - 2
Finance income 189 120 311
=============== =============== ============
7. TAXATION - UNAUDITED
The taxation charge is recognised based on management's best
estimate of the weighted average annual tax rate expected for the
full financial year.
The tax charge for the period has been calculated at an
effective rate of 40.8% (half year ended 30 June 2018: tax credit
at an effective rate of 25.7%; year ended 31 December 2018 tax
credit at an effective rate of 2018: 33.5%). The differences to the
standard rate of 19% are due to the effects of non-taxable income,
recording of deferred tax on the share-based payment charge and
unrecognised deferred tax assets.
8. EARNINGS PER SHARE - UNAUDITED
Basic and diluted earnings per share are calculated by dividing
the earnings attributable to equity shareholders by the weighted
average number of ordinary shares in issue.
When calculating basic earnings per share, the weighted average
number of shares has been adjusted to exclude shares held in the
Employee Benefit Trust (21,235,933 at 30 June 2018 and 31 December
2018 and 4,618,735 at 1 January 2018).
When calculating diluted earnings per share, the weighted
average number of shares is adjusted to assume conversion of
933,425 (2018: 950,000) of dilutive options granted to employees.
The number of dilutive options for the half year ended June 2018
and year ended December 2018 has been restated to exclude options
previously included as dilutive, where the cumulative performance
criteria of these options have not yet been met. This change has no
effect on reported earnings per share as the shares were
antidilutive in those periods.
The calculation of basic and diluted profit/(loss) per share is
based on the following data:
Half year Half year Year ended
ended ended
30 June 2019 30 June 2018 31 December
2018
(Restated) (Restated)(1)
------------------- ------------------- -------------------
Earnings (GBP'000)
Earnings for the purposes of basic
and diluted earnings
per share being profit/(loss) for
the year attributable to equity
shareholders 741 (1,547) (605)
------------------- ------------------- -------------------
Number of shares
Weighted average number of shares
for the purposes of basic earnings
per share 132,833,314 128,382,802 128,560,945
Weighted average dilutive effects
of warrants 1,450,000 1,450,000 1,450,000
Weighted average dilutive effect
of conditional share awards 933,425 950,000 950,000
Weighted average dilutive effect 1,064,033 - -
of deferred consideration
------------------- ------------------- -------------------
Weighted average number of shares
for the purposes of diluted earnings
per share 136,280,772 130,782,802 130,960,945
------------------- ------------------- -------------------
Profit/(loss) per ordinary share
(pence)
Basic profit/(loss) per ordinary
share 0.56 (1.20) (0.47)
Diluted profit/(loss) per ordinary
share 0.54 (1.20) (0.47)
------------------- ------------------- -------------------
For the half year ended 30 June 2018 and the year ended 31
December 2018, the effects of share options that could potentially
dilute basic earnings per share in the future were not included in
the calculation of diluted earnings per share because they are
antidilutive.
9. PROPERTY, PLANT AND EQUIPMENT - UNAUDITED
IFRS 16
Leasehold Fixtures Computer Right of
improvements and fittings hardware use asset Total
------------- ------------- --------- ---------- -------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
COST
As at 1 January 2018 794 215 1,702 - 2,711
Additions 622 413 705 - 1,740
Transfers (104) 104 - - -
Acquisition of subsidiary - 2 2 - 4
As at 31 December 2018 1,312 734 2,409 - 4,455
Right of use asset adjustment - - - 5,151 5,151
Acquisition of subsidiary - - 25 - 25
Additions 194 80 1,081 186 1,541
------------- ------------- --------- ---------- -------
As at 30 June 2019 1,506 814 3,515 5,337 11,172
------------- ------------- --------- ---------- -------
DEPRECIATION
As at 1 January 2018 64 70 742 - 876
Effect of translation to
presentation currency - - (21) - (21)
Charge for the period 214 157 733 - 1,104
As at 31 December 2018 278 227 1,454 - 1,959
Right of use asset adjustment - - - -
Charge for the period 139 107 298 441 985
As at 30 June 2019 417 334 1,752 441 2,944
------------- ------------- --------- ---------- -------
NET BOOK VALUE
As at 1 January 2018 730 145 960 - 1,835
As at 31 December 2018 1,034 507 955 - 2,496
As at 30 June 2019 1,089 480 1,763 4,896 8,228
============= ============= ========= ========== =======
Depreciation charges are allocated to direct costs and operating
expenses in the income statement.
10. CURRENT AND NON-CURRENT LIABILITIES - UNAUDITED
Half year Half year Year ended
ended ended
30 June 30 June 31 December
2019 2018 2018
(Restated) (Restated)(1)
---------- ------------ ---------------
Trade and other payables
Trade payables 6,282 3,838 4,639
Contract liabilities 840 972 512
Tax and social security 1,130 567 605
Other payables, accruals and deferred
income 6,309 5,657 5,720
IFRS16 lease liabilities 1,025 - -
---------- ------------ ---------------
15,586 11,034 11,476
---------- ------------ ---------------
Non-current liabilities - IFRS16 4,021 - -
lease liabilities
---------- ------------ ---------------
11. SHARE-BASED PAYMENTS - UNAUDITED
During the period awards were made over the Company's ordinary
shares of GBP0.01 each under The Sumo Group plc Long Term Incentive
Plan (the "LTIP"). The fair value of the awards has been calculated
and a charge of GBP1,484,000 has been recognised in the income
statement with a corresponding credit to retained earnings. During
the period, 500,000 shares vested and were issued. The maximum
number of Ordinary Shares which may be issued in future periods in
respect of awards outstanding at 30 June 2019 are 8,839,215.
During the half year ended 30 June 2019, management considered
its accounting policy for the recognition of national insurance
contributions due on the future vesting of share based payments,
and has elected to provide for these costs based on management's
best estimate of the future liability, spread over the vesting
period. The previous accounting policy was to recognise these
expenses in full on the vesting date. The results for the half year
ended 30 June 2018 and the full year ended 31 December 2018 have
been restated to reflect the change in policy. This has resulted in
an increase to operating expenditure and provisions of GBP259,000
at 30 June 2018 and a corresponding deferred tax credit of
GBP44,000, and a full year increase to operating expenditure and
provisions of GBP426,000 and corresponding deferred tax credit of
GBP72,000 for the year ended 31 December 2018.
A further cost of GBP420,000 and corresponding deferred tax
credit of GBP71,000 has been recognised in the half year ended 30
June 2019 in respect of future national insurance contributions on
share based payments.
12. BUSINESS COMBINATIONS - UNAUDITED
On 31 January 2019, the Group acquired Red Kite Games Limited
(Red Kite) for a total consideration of GBP2,005,000. Net
consideration was GBP1,463,000, as Red Kite had GBP542,000 of cash
on the balance sheet at the date of acquisition. The Company will
continue to operate under the Red Kite name, as a wholly owned
subsidiary of Sumo Digital Limited.
The draft book and fair values of the Book value
assets and liabilities acquired are recognised Fair value
set out below: at acquisition adjustments Fair value
---------------- ------------- ------------
GBP'000 GBP'000 GBP'000
Assets
Intangible assets - 135 135
Property, plant and equipment 39 (13) 26
Trade and other receivables 202 - 202
Cash and cash equivalents 547 (5) 542
788 117 905
Liabilities
Corporation tax payable (23) - (23)
Trade and other payables (27) (97) (124)
Deferred tax (2) - (2)
(52) (97) (149)
---------------- ------------- ------------
756
------------
Goodwill 1,249
2,005
------------
Summary of net cash inflow from acquisition
Cash paid 505
Cash acquired (542)
------------
Cash consideration transferred (37)
------------
Purchase consideration
Cash paid 505
Ordinary shares issued 1,500
Total purchase consideration 2,005
------------
Acquisition costs charged to expenses 157
------------
13. POST BALANCE SHEET EVENTS - UNAUDITED
On 1 August 2019, the Group disposed of Sumo Digital (Atlantis)
Limited for consideration of GBP1. The net assets on completion
were GBP1.
14. TRANSITION TO IFRS16 - UNAUDITED
The Group has adopted IFRS 16 using the modified retrospective
approach. At the start of the year this led to the recognition of
right of use assets with a net book value of GBP5,151,000 and a
lease liability of GBP5,413,000. As a result of the change the
Group recognised GBP69,000 of interest expense and GBP441,000 of
depreciation, offset by a reduction in operating costs of
GBP513,000 of rental charges. As a result of timing differences
between recognition of the operating expense and depreciation and
interest related to the capitalised lease an adjustment of
GBP262,000 was required to equity. GBP253,000 of lease liability
accruals were also debited to retained earnings at that date. The
net impact of GBP9,000 can be seen in the Consolidated Interim
Statement of Changes in Equity. The right of use assets relates to
property, vehicles, and equipment. Cash flows during the year in
relation to these leases totalled GBP514,000.
Pre IFRS16 Impact of Movement Post IFRS16
Period ended transition in the period Period ended
30 June 2019 1 January 30 June 2019
2019
-------------- ----------- -------------- -------------
GBP'000 GBP'000 GBP'000 GBP'000
Income statement
Gross profit 9,297 - - 9,297
Operating expenses (excluding
depreciation) (7,419) - 513 (6,906)
Depreciation (544) - (441) (985)
Net finance costs (275) - (69) (344)
Net finance income 189 189
Profit before taxation 1,248 - 3 1,251
Balance sheet
Non-current assets 29,451 5,151 (255) 34,347
Current assets 33,676 - (107) 33,569
IFRS16 lease liabilities - (5,413) 365 (5,048)
Other liabilities (15,477) 253 - (15,224)
Net assets 47,650 (9) 3 47,644
-------------- ----------- -------------- -------------
Total equity 47,650 (9) 3 47,644
-------------- ----------- -------------- -------------
Cash flow
Cash generated from operating
activities 2,979 - 514 3,493
Operating cash flows - taxation
and interest (837) - (69) (906)
-------------- ----------- -------------- -------------
Net cash generated from operating
activities 2,142 - 445 2,587
Net cash used in investing
activities (1,541) - - (1,541)
Net cash used in financing
activities - - (445) (445)
-------------- ----------- -------------- -------------
Net increase in cash and cash
equivalents 601 - - 601
-------------- ----------- -------------- -------------
15. ALTERNATIVE PERFORMANCE MEASURES - UNAUDITED
A reconciliation of unaudited IFRS reported results to the
unaudited underlying income statement is shown below.
Customer Accrued royalty
revenue included not yet received Deferred Adjusted
Unaudited within finance and contingent costs on half year
half year ended income on future Co-funded ended
30 June 2019 sales contracts 30 June 2019
---------------- ----------------- ----------------- ----------- -------------
GBP'000 GBP'000 GBP,000 GBP'000 GBP'000
Revenue 20,766 - - - 20,766
Gross profit 9,297 - - 464 9,761
---------------- ----------------- ----------------- ----------- -------------
Customer Accrued royalty
revenue included not yet received Deferred Adjusted
Unaudited within finance and contingent costs on half year
half year ended income on future Co-funded ended
30 June 2018 sales contracts 30 June 2018
----------------- ----------------- ----------------- ----------- -------------
GBP'000 GBP'000 GBP,000 GBP'000 GBP'000
Revenue 19,311 260 - - 19,571
Gross profit 8,322 260 - - 8,582
----------------- ----------------- ----------------- ----------- -------------
Accrued royalty
Audited Customer not yet received Deferred Adjusted
year ended revenue included and contingent costs on year ended
31 December within finance on future Co-funded 31 December
2018 income sales contracts 2018
------------ ----------------- ----------------- ----------- ------------
GBP'000 GBP'000 GBP,000 GBP'000 GBP'000
Revenue 38,696 421 (250) - 38,867
Gross profit 18,403 421 (250) 208 18,782
------------ ----------------- ----------------- ----------- ------------
Results reconciliation
Half year ended 30 June 2019
Reported Adjustments Underlying
------------- ------------- -----------
GBP'000 GBP'000 GBP'000
Revenue 20,766 - 20,766
------------- ------------- -----------
Gross profit 9,297 464 9,761
Operating expenses excluding depreciation,
amortisation and exceptional items (6,036) - (6,036)
Investment in co-funded games expensed 464 (464) -
Operating lease costs capitalised under
IFRS16 (513) - (513)
Share based payments 2,002 - 2,002
------------- ------------- -----------
Adjusted EBITDA 5,214 - 5,214
Depreciation (985) (985)
Net finance costs (155) - (155)
Investment in co-funded games expensed (464) 464 -
Operating lease costs capitalised under
IFRS16 513 - 513
Amortisation of software (79) - (79)
------------- ------------- -----------
Adjusted profit before tax, share based
payment charge, exceptional items and
amortisation of customer contracts
and customer relationships 4,044 464 4,508
Operating expenses - exceptional (311)
Share based payment charge (2,002)
Amortisation of customer contracts
and relationships (480)
-------------
Profit before taxation 1,251
-------------
Half year ended 30 June 2018
(Restated)
Reported Adjustments Underlying
------------- ------------- -----------
GBP'000 GBP'000 GBP'000
Revenue 19,311 260 19,571
------------- ------------- -----------
Gross profit 8,322 260 8,582
Operating expenses excluding depreciation,
amortisation and exceptional items (4,909) - (4,909)
Customer revenue included within finance
income 260 (260) -
Share based payments 1,317 - 1,317
------------- ------------- -----------
Adjusted EBITDA 4,990 - 4,990
Depreciation (525) - (525)
Net finance income/(costs) 66 (118) (52)
Customer revenue included within finance
income (260) 260 -
Amortisation of software (87) - (87)
------------- ------------- -----------
Adjusted profit before tax, share based
payment charge, exceptional items and
amortisation of customer contracts
and customer relationships 4,184 142 4,326
Operating expenses - exceptional -
Share based payment charge (1,317)
Amortisation of customer contracts
and relationships (4,949)
-------------
Loss before taxation (2,082)
-------------
Full year ended 31 December
2018
(Restated)
Reported Adjustments Underlying
------------- ------------- -----------
GBP'000 GBP'000 GBP'000
Revenue 38,696 171 38,867
------------- ------------- -----------
Gross profit 18,403 379 18,782
Operating expenses excluding depreciation,
amortisation and exceptional items (11,379) - (11,379)
Customer revenue included within finance
income 421 (421) -
Accrued royalty not yet received and
contingent on future sales (250) 250 -
Investment in co-funded games expensed 208 (208) -
Share based payments 3,004 - 3,004
------------- ------------- -----------
Adjusted EBITDA 10,407 - 10,407
Depreciation (1,104) - (1,104)
Net finance income/(costs) 212 (309) (97)
Customer revenue included within finance
income (421) 421 -
Accrued royalty not yet received and
contingent on future sales 250 (250) -
Investment in co-funded games expensed (208) 208 -
Amortisation of software (163) - (163)
------------- ------------- -----------
Adjusted profit before tax, share based
payment charge, exceptional items and
amortisation of customer contracts
and customer relationships 8,973 70 9,043
Operating expenses - exceptional (94)
Share based payment charge (3,004)
Amortisation of customer contracts
and relationships (6,784)
-------------
Loss before taxation (909)
-------------
FINANCIAL CALENDAR
Preliminary announcement of half-year 26 September
results 2019
Financial year end 31 December
2019
Preliminary announcement of full-year April 2020
results
Publication of Annual Report and May 2020
Accounts
Annual General Meeting June 2020
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BLGDCSUDBGCU
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