TIDMSUMO
RNS Number : 0362U
Sumo Group PLC
31 March 2021
31 March 2021
SUMO GROUP PLC
("Sumo Group", the "Group" or the "Company")
AIM: SUMO
FINAL RESULTS 2020
Sumo Group, the award-winning provider of creative and
development services to the video games and entertainment
industries, announces its final results for the year ended 31
December 2020 ("FY20"), which show substantial growth in revenue
and Adjusted EBITDA and further outperform consensus market
expectations for FY20, which were upgraded in January 2021
following the Group's positive trading update.
Financials
Reported results 2020 2019 Change
Revenue GBP68.9m GBP49.0m + 40.7%
Gross profit GBP31.5m GBP23.9m + 31.5%
Gross margin 45.7% 48.9%
Profit before taxation(1) GBP0.9m GBP7.4m
Cash flow from operations GBP13.0m GBP14.4m
Net cash GBP6.8m GBP12.9m
Basic earnings per share 1.08p 5.19p
Diluted earnings per share 1.01p 5.07p
Underlying results 2020 2019 Change
Adjusted gross profit(2) GBP31.7m GBP25.2m + 25.8%
Adjusted gross margin(3) 41.8% 44.8%
Adjusted EBITDA(4) GBP16.5m GBP14.1m + 17.1%
The statutory profit before taxation of GBP0.9m in 2020 is
(1) stated after charging an amount of GBP7.3m arising on the
acquisition of Pipeworks consisting of the GBP2.7m fair value
loss on contingent consideration, GBP1.7m of amortisation
of customer contracts and customer relationships and GBP2.9m
of transactions costs on that acquisition. In addition, the
statutory profit before taxation is stated after charging
exceptional items other than the costs incurred on the acquisition
of Pipeworks of GBP1.2m (2019: GBP0.5m) and the share-based
payment charge of GBP5.0m (2019: GBP2.7m) and the unrealised
gain on foreign currency derivative contracts of GBP1.0m.
Adjusted gross profit is a non-GAAP metric used by management
(2) and is not an IFRS disclosure. It is stated after adding
back GBP0.2m (2019: GBP1.3m) investment in co-funded games
expensed.
Adjusted gross margin is a non-GAAP metric used by management
(3) and is not an IFRS disclosure. It is stated after adding
back to gross profit the investment in co-funded games expensed
and, for Sumo Digital, adding to revenue amounts in respect
of Video Games Tax Relief ("VGTR") and with no adjustment
to either revenue or gross profit in respect of royalty income.
It should be noted the definition of adjusted gross margin
has changed this year following the acquisition of Pipeworks.
Adjusted EBITDA is a non-GAAP metric used by management and
(4) is not an IFRS disclosure. It is defined as statutory operating
profit adding back amortisation, depreciation, share-based
payment charge, investment in co-funded games expensed, exceptional
items, the fair value loss on contingent consideration less
the operating lease costs capitalised under IFRS 16 and foreign
currency derivative contracts.
2020 highlights
-- Revenue growth of over 40%, comprising of 24% organic and
16% acquisitive growth, delivered in a year impacted by the
COVID-19 pandemic
-- Adjusted EBITDA growth of 17.1%
-- Adjusted gross margin of 41.8% (2019: 44.8%), using a new
definition following the acquisition of Pipeworks and the
evolution of the royalty model. The underlying adjusted gross
margin remains strong at 43.2%. The gross margin was impacted
by two specific matters both of which were flagged at the
half year being the cost expensed on Snake Pass 2 and the
higher than usual holiday pay accrual as a result of the
pandemic
-- 279 milestones delivered and 12 games launched or announced
during the year including five Own-IP games
-- First major acquisition completed in October 2020 - Pipeworks
Inc ("Pipeworks"), an innovative and well-established West
Coast US games developer, for an enterprise value, calculated
at the time of acquisition, of up to $99.5m
-- Lab42, a cross-platform work for hire studio in Leamington
Spa, acquired in May 2020, performing ahead of expectations
-- Total headcount increased to 1,043 at the year end (31 Dec
2019: 766), despite pandemic restrictions, including an aggregate
of 163 people who joined through the acquisition of Lab42
and Pipeworks
-- Net cash at 31 December 2020 ahead of management expectations
at GBP6.8m due to a number of timing effects
Post year end activity
-- Strategic acquisition of PixelAnt Games in Wroclaw, Poland,
completed in January 2021, providing an established, low-risk
base for growth in a video games talent hot-spot
-- 3 Star Accreditation achieved in the Best Companies Survey
-- Two BAFTA wins for Sackboy A Big Adventure in March 2021
and two further nominations
-- Increasing emphasis on ESG, to ensure the business continues
to grow and flourish in a sustainable way
-- Launch of Secret Mode, the Group's new publishing division,
focused on bringing fresh, smaller games, developed either
internally or by independent developers, to market
-- Now working on more than 40 projects with 28 different clients
up from 21 projects with 12 different clients at April 2020
Outlook
-- Advancing technology and new platforms fuelling market trends,
bolstering publisher confidence to increase the scope and
spend on games and underpinning the Group's long-term growth
-- Global demand for quality premium content is constrained
only by industry capacity
-- Ongoing Group focus on increasing headcount organically and
via acquisition
-- Strong acquisition pipeline with a number of targets being
actively pursued
-- Very strong pipeline of business development opportunities
on major new projects, with both existing and new clients
-- A number of interesting Own-IP concepts being explored
-- Investment in the development of Secret Mode for its mid
to long-term success
-- Strong visibility with 85% of Sumo Digital's budgeted development
fees for FY21 contracted or near-contracted(5) at end February
2021 (FY20: 73% at 31 March 2020) and, on a broadly comparable
basis, Pipeworks is at 50%, similar level as the prior year
-- The Board views the opportunities for the Group in the year
ahead and beyond extremely positively
Revenue is referred to as near contracted when management
(5) has a high degree of confidence in a project's size, scope,
and timing. Typically, this would be when the key commercial
terms have been agreed in principle and reflected in a draft
contract which has undergone a legal review and does not
contain any terms that are unacceptable to the Company.
Carl Cavers, Chief Executive Officer of Sumo Group, said:
"2020 has been an extraordinary year for us in so many ways. Our
people have responded brilliantly to the pandemic restrictions,
delivering many fantastic games and winning some incredible awards,
including two BAFTAs. We also completed a major acquisition in the
US and generated financial results ahead of everyone's
expectations.
"Achieving 3 Star Accreditation in the Best Companies Survey,
announced in February 2021, was a massive achievement for the Group
but we won't rest on our laurels. Attracting and retaining the best
talent lie at the heart of our future growth plans and we will
continue adapting and improving to make Sumo Group the best place
to work in video games.
"The year ahead is packed with even more exciting opportunities
for our talent to shine, and we are excited about the launch of
Secret Mode, our new publishing business, announced earlier this
month. Our focus remains on delivering further strong growth
organically and by acquisition, and the pipeline of opportunities
remains strong. We have an enviable level of visibility on
development fees in 2021 and, with our markets continuing to
perform strongly, are increasingly confident about the future of
the business."
Enquiries:
Sumo Group plc Via Belvedere Communications
Carl Cavers, Chief Executive Officer Tel: +44 (0) 7715 769
078
David Wilton, Chief Financial Officer
Zeus Capital Limited (Nominated Adviser
& Joint Broker)
Nick Cowles / Andrew Jones Tel: +44 (0) 161 831
1512
Ben Robertson / John Goold Tel: +44 (0) 203 829
5000
Investec Corporate & Investment Banking
(Joint Broker)
David Flin/Bruce Garrow Tel: +44 (0) 207 597
5970
Belvedere Communications Limited
Cat Valentine Tel: +44 (0) 7715 769
078
Keeley Clarke Tel: +44 (0) 7967 816
525
Llew Angus Tel: +44 (0) 7407 023
147
SumoPR@belvederepr.com
About Sumo Group plc
Sumo Group's businesses provide acclaimed development, design
and publishing services to the video games and entertainment
industries from studios in the UK, India, Canada, the US, and
Poland.
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, Leamington Spa,
Warrington and Pune, India. The business has acquired three studios
since IPO, which operate under their own names, BAFTA award-winning
The Chinese Room in Brighton, Red Kite Games in Leeds, Lab42 in
Leamington Spa and PixelAnt Games in Wroclaw, Poland. Sumo Digital
provides turnkey and co-development solutions to a global blue-chip
client base.
Pipeworks is an innovative, well-established, and respected US
video games developer based in Eugene, Oregon. It provides full
development, co-development, and live operations to premier video
game publishers and other partners.
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.
Secret Mode is a video games publisher, focused on delivering
fresh and new gaming experiences to players and building expansive
and fulfilling communities around those games. It will publish
titles developed within Sumo Group and also by independent
developers.
CHAIRMAN'S STATEMENT
In my statement last year, I referred to the uncertainty caused
by the COVID-19 pandemic, not anticipating that this would persist
into 2021. The fact that I am able to report such a strong set of
results, which outperformed market expectations, and introduce this
statement so positively, is a testament to the people who make up
Sumo Group. It is their dedication, creativity and skill that have
made this possible and I am very proud of each and every one.
Aside from very small numbers of team members working in our
studios in COVID-secure bubbles, where essential, we continued to
work from home throughout the year. Our IT colleagues responded
brilliantly to enable this, and our teams diligently and
successfully continued to deliver the high-quality services our
clients expect, and to create and launch wonderful Own-IP games.
The games we create are winning some outstanding awards. In
particular, Sackboy A Big Adventure winning two BAFTAs earlier this
month with two further nominations was a tremendous endorsement of
our creative talent and recognition for our great people.
The Group has done everything in its power to support our people
in these unusual circumstances, providing suitable office equipment
to their homes; delivering care packages; and encouraging those
suffering mental health challenges to access the internal or
external assistance offered. We also worked hard to maintain some
of our annual social events, hosting virtual summer and Christmas
parties.
Talent is the Group's most important asset and key to our growth
plans. The high value we place on our people has been demonstrated
this year not only by the Group's response to COVID-19 but also by
a major review of our employee benefits package. Our aim is to
ensure that Sumo's offer is at least as good as any offered
elsewhere in the industry, and that it provides flexibility,
enabling our people to choose the benefits that are most important
to them and their families. This new flexible package will be fully
implemented during 2021.
We were absolutely delighted to be awarded 3 Star Accreditation
in the Best Companies Survey in February 2021, up from 1 Star in
2020. This amazing achievement reflects our commitment to listening
to our people and reacting to their feedback, particularly
important during a lengthy period of working from home, ensuring
that Sumo is known across the industry as a great place to work. We
will not rest on our laurels, however. We will work hard to improve
further and to cement our reputation in the talent market, which is
so crucial to our success.
As our financial results show, 2020 was another year of
significant growth for Sumo Group. Sumo Digital ended the year with
eight studios in the UK and one in India, adding a new studio in
the talent hot-spot of Poland in January 2021, with the acquisition
of PixelAnt Games. Atomhawk also expanded during the year, adding
to its teams in the UK and Canada. In October, we were delighted to
welcome Oregon-based studio, Pipeworks Inc, to the Sumo family. I
am pleased to report that, despite recruitment challenges imposed
by the COVID-19 restrictions, the Group ended the year with over
1,000 colleagues.
The Group delivered an excellent financial performance, both in
terms of its profitability and liquidity, continuing to operate
successfully throughout the year without accessing emergency
Government funding or the need to furlough any of our people.
While continuing to make innovative games for the most
prestigious publishers in the world, we have an increasing number
of titles based on our original Own-IP concepts. Spyder and Little
Orpheus were both launched on Apple Arcade during the year,
receiving extremely positive reviews and winning a number of
awards. We intend to build on these successes and to capitalise
further on the opportunities generated by our highly creative
people. On 11 March 2021, we launched Secret Mode, our new
publishing division, led by a highly experienced management team.
Secret Mode will focus on bringing fresh, smaller games, developed
either internally or by independent developers, to market and
provide a great platform for our talented people to demonstrate
their creativity further. In line with the Group's overall strategy
on risk, we are taking a very measured approach on this venture,
carefully matching the opportunity of bringing games directly to
market within a managed risk framework. We believe that having
complete responsibility for a small number of carefully selected
titles will allow the Group to benefit from the continuing rapid
growth of the video games market. Online multiplayer games have
increasingly become a location for social networking, accelerated
by COVID-19, with the World Health Organisation supporting the
industry initiative "play apart together".
As Chairman, I want to ensure that the Board's time and
expertise is utilised to support the strategic development of the
Group. With that in mind, the Board has received regular
demonstrations of games in development and updates on industry
developments and market trends. The Board also spent time across
two days in a "virtual" strategy review. As we are all now well
aware, long meetings by video conference can be productive, but
present their own challenges. I would like to thank all of my Board
colleagues for their flexibility and contribution throughout the
year.
The Board takes its governance responsibilities very seriously
and this Annual Report details the structures and processes that we
have in place. As I mentioned in my statement last year, we are
placing increasing emphasis on Environmental, Social and Governance
(ESG) matters, to ensure that we have the right framework in place
to enable our business and talent to continue to grow and flourish
in a sustainable way. More detail is provided in the ESG section of
this Report.
2020 was a very productive and successful year for the Group
and, on behalf of the Board, I thank everyone who contributed to
that success. While we continue to face uncertainty as a result of
this pandemic, our performance in 2020 and the very strong level of
visibility we have on 2021 revenues, give me and the rest of the
Board great confidence for the future.
Ian Livingstone
Chairman
CHIEF EXECUTIVE'S REPORT
Introduction
For many reasons 2020 was an extraordinary year. We delivered
279 project milestones and launched or announced a total of 12
games, a record for Sumo, including five Own-IP, as well as
completing our first major acquisition, facing the challenges of
the pandemic restrictions head on. The incredible commitment of our
people, virtually all of whom are continuing to work remotely,
never ceases to impress me. I am grateful to everyone for their
individual efforts under such challenging circumstances. Our
operational performance in these extraordinary circumstances is
testament to our collective talent, flexibility, and dedication
throughout the Company.
In January 2021, we announced that FY20 revenue and Adjusted
EBITDA were expected to be ahead of consensus market expectations
with Adjusted EBITDA of at least GBP16.0m. I am pleased to report
that revenue increased by more than 40% to GBP68.9m (2019:
GBP49.0m) and Adjusted EBITDA by 17.1% to GBP16.5m (2019:
GBP14.1m), driven primarily by strong organic growth and the
contribution from our recent acquisitions. The statutory profit
before taxation of GBP0.9m (2019: GBP7.4m) is stated after charging
an amount of GBP7.3m arising on the acquisition of Pipeworks, and
after charging exceptional items, other than the costs incurred on
that acquisition, of GBP1.2m (2019: GBP0.5m), and the share-based
payment charge of GBP5.0m (2019: GBP2.7m) and an unrealised gain on
foreign currency derivative contracts of GBP1.0m (2019: zero).
We made significant progress on the M&A element of our
growth strategy, with the acquisition of a further studio in the
UK, Lab42, in May 2020, followed by the purchase of a stand-alone
US-based studio, Pipeworks, in October. Both these businesses are
performing well. We were also pleased to add another studio to Sumo
Digital's growing portfolio, when we acquired PixelAnt Games, in
Poland in January 2021. We now total 13 studios in five
countries.
Despite the previously indicated challenges in recruitment which
have resulted from the COVID 19 disruption, Group headcount
increased by 277 to 1,043 at 31 December 2020, including an
aggregate of 163 people who joined through the acquisitions of
Lab42 and Pipeworks.
Our market continues to grow apace, with increasing demand for
high quality, interactive content, driven by advancing technology
and new platforms and boosted by a material increase in the numbers
of video gamers globally during the pandemic. Our very strong
pipeline of business development opportunities on major new
projects, with both existing and new clients, reflects confidence
in our capabilities and we continue to sign significant contracts.
In addition, we are exploring a number of interesting Own-IP
concepts and the delayed contract execution to which we referred in
our half-year results has now been signed.
We continue to develop great games, both Client-IP and Own-IP,
and successfully recruit talent, which lies at the heart of our
growth ambitions. The Board is delighted with the achievements of
the business under difficult circumstances.
Games launched or announced in 2020
We launched or announced an unusually large number of both
Client-IP and Own-IP games in 2020.
Client-IP games included:
-- Two Point Hospital, a simulation game ported to new platforms
by Red Kite Games and published by Sega for PlayStation
4, Xbox One and Nintendo Switch, was released in February
2020;
-- Sackboy A Big Adventure, a turnkey project developed by
our Sheffield studio for Sony, was announced at the PlayStation
5 reveal event in June 2020 and launched with this new console
and PlayStation 4 in November 2020;
-- Hotshot Racing, an arcade-style racing game developed in
our Nottingham studio and published by Curve Digital was
released on Xbox One, PlayStation 4, Nintendo Switch and
PC;
-- Rival Peak, an exclusive title for Facebook Watch utilising
Genvid's cloud gaming platform, developed by Pipeworks with
Genvid Technologies was released in December; and
-- Football Manager 2021, the latest in the series from Sega
that involved some development from our Warrington studio
alongside Sports Interactive.
Own-IP games were:
-- Spyder and Little Orpheus, developed in our Sheffield studio
and The Chinese Room in Brighton respectively, were launched
on Apple Arcade;
-- WST Snooker, the official video game of the World Snooker
Tour developed by Lab42 was launched in July for iOS, tvOS
and Android mobile devices;
-- Hood, a dark re-imagining of the Robin Hood legend, developed
in our Newcastle studio and to be published by Focus Home
Interactive, was announced in August; and
-- Pass the Punch launched in December 2020.
Our strategy and Own-IP
Our stated strategic objectives are to expand; to win new
clients; to develop complementary new revenue streams; and to
develop our own IP - both self-funded and co-funded. We achieve
this by making more great games both Client-IP and Own-IP; through
acquisitions that add services, new geographies, and clients and
through continued organic growth, adding people and studios.
We remain firmly committed to our relatively low risk, high
visibility business model, which generates both cash and
sustainable profit margins with royalty opportunities. Our creative
talent continues to make great content and our work is respected
globally. The Group is rarely directly exposed to the commercial
success of Client-IP games but can benefit from upside where
royalty agreements are in place.
Our primary focus remains developing Client-IP. However, as the
Group expands, we expect to work increasingly on Own-IP, without
taking undue risk, to generate greater financial returns and to
provide a creative outlet for our highly talented people. Our plan
is to accelerate the Group's growth, through the development of
Own-IP games, either self-funded, co-funded or fully-funded, and
through acquisition. We are gradually building a catalogue of
valuable Own-IP titles and have, as previously announced, appointed
a very experienced Director of Publishing, who joined us in
November 2020, and we have announced the launch of Secret Mode.
Concepts are created predominately by our concept team and
development studios, but also from Game Jams, which we are now
running remotely.
Visibility
We have invested in our business development capability by
increasing the size of the team and investing in systems, and this
has contributed to an increase in our win percentage. Despite the
restrictions on travel and trade events, we are continuing to see
business development opportunities on major new projects with both
existing and new clients. Our pipeline of opportunities at the end
of February 2021 comprised a total contract value of GBP429m and we
are seeing a pronounced upward trend in the number of new
opportunities each month. In 2020, we saw the highest volume of
project opportunities for the past four years. During the year, we
fully executed 49 development agreements in Sumo Digital, of which
34 were in the second half of the year.
One of the great strengths of Sumo is the high visibility of our
development fees from our long-term contracted business model. We
have, in the past, disclosed the contracted or near-contracted
visibility of budgeted development fees for Sumo Digital. At 28
February 2021, this figure stood at 85% of Sumo Digital's budgeted
development fees for FY21, up from the 73% we had secured by 31
March 2020 for FY20. On a broadly comparable basis, Pipeworks has
50% visibility of its budgeted development fees for 2021, the same
level as the prior year. Sumo Digital and Pipeworks are now working
on more than 40 projects with 28 clients, of which eight games or
publisher partnerships have been announced.
These figures bear testament to the strength of the underlying
market for high quality creative content and underpin the Board's
confidence in the out turn for 2021.
Acquisitions
Lab42
Lab42 is a cross-platform work for hire studio, providing
co-development and full game development services and was acquired
for a total cash consideration of $0.6m in May 2020. The studio has
integrated well and is performing strongly and ahead of
expectations. Having hired 11 people since the acquisition, the
team now totals 40.
Pipeworks
Pipeworks is an innovative, well-established, and respected West
Coast US games developer, acquired by the Group for an original
deal value of up to $99.5m in October 2020. Further details on the
fair value of the consideration are set out later in this document.
We have known the team for many years and are very pleased with the
cultural alignment. Pipeworks operates as a standalone business
under its own management team. We have made good progress with the
integration of the IT support and finance functions. Pipeworks
performed strongly in the period post-acquisition to the year
end.
PixelAnt Games
Post the year end, we announced the strategic acquisition of
PixelAnt Games, based in Wroclaw in Poland. The team at PixelAnt is
presently working entirely on Sumo Digital projects. The intention
is to expand the studio's headcount, accessing the growing pool of
high-quality developers in the Polish market and focus on winning
third party contracts, while continuing to work on Sumo Digital
projects. The PixelAnt team will also work on Own-IP opportunities.
We are encouraged by the performance of PixelAnt in the short
period it has been part of Sumo Group.
Results
We grew rapidly in 2020. Revenue rose by 40.7% to GBP68.9m
(2019: GBP49.0m). Since 2017, we have achieved a revenue CAGR of
more than 34%. The increase in revenue was driven by continuing
strong organic growth together with the acquisitions of Pipeworks
and Lab42, which generated post-acquisition revenue in 2020 of
GBP6.1m and GBP2.2m respectively. Excluding Pipeworks and Lab42,
the Group's revenue increased by 24%. Utilisation across the group
was 92.6% (2019: 95.8%).
The Group reported a statutory profit before taxation of GBP0.9m
(2019: GBP7.4m) and achieved Adjusted EBITDA of GBP16.5m in 2020,
an increase of 17.1% on the figure of GBP14.1m in 2019.
Further details of the financial results are set out in the
Chief Financial Officer's Review.
Operational review
Sumo Digital - representing 87% of Group revenue
Sumo Digital ended the year with nine studios, eight in the UK
and one in India, with the acquisition of PixelAnt post year end
taking the total to ten. How and when we return to working from our
studios is currently under consideration, but we expect to combine
it with flexible and remote working, subject to client consent. In
anticipation of this we are managing our portfolio of premises.
Sumo Digital's Newcastle studio has moved to the newly built
facility in Gateshead, alongside Atomhawk. The Chinese Room has
moved to a new and larger studio in central Brighton. In Sheffield,
we have completed a new audio suite, which has three edit studios,
a Foley studio, for creating everyday sounds, and a mixing
room.
During the year, we appointed a new Studio Director in Pune and
recruited 25 people, taking the team to 137.
The utilisation rate across the UK studios in the year was 95.7%
(2019: 96.9%). In Pune, the rate was 79.3% (2019: 91.3%), which is
comparable with historical levels of utilisation. The utilisation
for Sumo Digital overall was 92.8% (2019: 95.9%).
As usual, we are constrained in disclosing all of our clients,
but we are able to say that we worked with 2K, Apple, Aspyr,
Codemasters, Curve Digital, Dovetail, Focus Home Interactive, Rare,
SEGA, Sony, and Sports Interactive (also part of SEGA) in 2020.
We were delighted with the award nominations and wins achieved
across the Group in 2020. Sumo Leamington won The Diversity Award
in the GI.biz Awards 2020 and Red Kite Games secured Best Small
Company. Both these studios, along with Lab42, achieved a "Best
Places to Work" award. Sumo Digital was awarded Best External
Development Partner of the Year at the MCV/Develop Awards 2020. The
Chinese Room's Little Orpheus won a TIGA Award for Best Casual
Game. More recently, Little Orpheus has been selected as a finalist
for the 24(th) Annual D.I.C.E. Awards in the Mobile Game of the
Year and Outstanding Achievement in Original Music Composition
categories.
Sackboy A Big Adventure won two BAFTAs earlier this month, Best
British Game and Best Family Game, and two further nominations, and
is in contention for Outstanding Achievement in Audio Design and
Family Game of the Year at next month's Annual D.I.C.E Awards.
Pipeworks - representing 9% of Group revenue in the ten weeks
post acquisition
Pipeworks has strong client relationships and, prior to the
acquisition, co-developed Madden NFL 21 with EA Sports, launched
Terraria 1.3.5 for Switch, Xbox One and PlayStation 4 with Relogic
and 505 Games and relaunched Superfight as a free-to-play game. As
part of the acquisition, Pipeworks reacquired the rights to
Prominence Poker, the poker simulation game, from 505 Games and
subsequently Rival Peak was launched with Genvid, Facebook and DJ2
Entertainment. This game has received a lot of positive press
comments for its ground-breaking AI.
Pipeworks is developing Magic the Gathering: Spellslingers for
Wizards of the Coast and is working on two Own-IP games among other
projects. Other clients include 505 Games, Age of Learning,
Carnival Corporation, EA Sports, Genvid/Facebook, Google, and
NASA.
During the year, Pipeworks recruited 34 people and there were a
number of internal promotions. The team achieved the accolade of
Best Tech Company in the Best of Eugene Awards.
In the year ahead, we plan to renovate the 45,000 sq ft studio
in Eugene.
Atomhawk - representing 4% of Group revenue
Atomhawk worked on more than 50 projects in 2020, the large
majority of which are as yet unannounced AAA titles and franchises.
We are able to report, however, that Atomhawk provided visual
development for FIFA '21 (for EA), Puzzle Combat (Small Giant Games
/ Zynga), XCOM: Chimera Squad (2K), PlayerUnknown's Battlegrounds
(PUBG Corp.) and Call of Duty: Black Ops - Cold War (Activision
Treyarch) all of which were launched or received content updates in
2020. Clients include 2K, Activision, EA, Games Workshop, Hasbro,
WB Interactive Entertainment, XBOX Game Studios, and Zenimax
Online. Atomhawk has worked on multiple collaborations with Sumo
Digital including Spyder, Little Orpheus and Hood, as well as other
unannounced games.
In anticipation of, and to facilitate further growth, Atomhawk
moved both the UK and Canada studios in the autumn to new, larger,
state-of-the-art custom locations in Gateshead, near Newcastle, and
Vancouver respectively. Darren Yeomans was appointed as UK Studio
Director during the year, bringing extensive experience from
previous roles at Ubisoft, Codemasters and Starbreeze.
Atomhawk was shortlisted for four TIGA awards in 2020 and Tim
Wilson, Managing Director of Atomhawk, won an External Development
Summit (XDS) award and was invited to join BAFTA's 2021 membership
intake.
To mark its 10-year anniversary in 2019, Atomhawk sponsored the
exhibition Other Worlds: The Art of Atomhawk at Great North Museum:
Hancock. This installation provides an insight into the processes
used by digital artists, along with examples from the studio's
first decade. The exhibition has a comprehensive local engagement
programme, working with local schools and communities to provide
education on creative and digital skills on offer in the North East
economy. This engagement programme went digital as a result of the
COVID-19 restrictions, which will remain so until mid-June 2021 at
the earliest.
People
Our continuing growth and success are entirely dependent on
recruiting and retaining talented people. Total Group headcount
increased from 766 at 31 December 2019 and 853 at 31 August 2020 to
1,043 at 31 December 2020. Direct headcount at 31 December 2020 was
869 (31 December 2019: 634).
Staff attrition rates in the UK and India ran at 9.3% and 8.3%
respectively (2019: 8.6% and 11.5% respectively). We continue to
work with valued and proven contractor colleagues alongside our own
people.
While it is our expectation and intention to return to some form
of studio-based working and expand our studios both in size and
number of locations, the expedited move to working from home
brought about by COVID-19 has opened up a new raft of
possibilities. Flexible working potentially widens the pool of
talent from which we are able to recruit. Employee location to the
studio will become less relevant, as they may not need to be studio
based every day. This is an exciting opportunity for us as a
business to attract a more diverse pool of talent into the
industry.
Sumo is a people business and, while the Group has enjoyed
considerable success during these challenging times, we appreciate
the tremendous strain the pandemic has placed on some of our
stakeholders and employees. Once again, I would like to give my
heartfelt thanks to everyone at Sumo for their creativity, passion,
and commitment and for their support and resilience in the face of
the COVID-19 situation.
The award of 3 Star Accreditation in the Best Companies Survey
2021 was a fantastic achievement for the Group, especially under
such challenging circumstances. Employee engagement in the survey
was higher than it has ever been, with 88% of our people
contributing. We will continue listening to our people and adapting
to meet their needs, as we strive to make Sumo the best place to
work in video games.
The Group has not used, and does not expect to use, any
furloughing arrangements or other government COVID-19 support
measures.
Environmental, Social and Governance ("ESG")
ESG is increasingly important to all our stakeholders and is at
the heart of our business. The Board has reviewed and refined its
approach to ESG, obtaining feedback from colleagues and investors.
This has emphasised the areas of greatest importance to Sumo and
where the organisation can have the greatest impact. As a people
business, this is in the "social" element. The result is a set of
clear targets for the year ahead that will be set out in the ESG
section of the Annual Report and Accounts and on the Group website.
We will regularly report on progress against these and will review
them again towards the end of 2021 to ensure they remain
relevant.
We have carefully considered whether there is a single,
overarching third party accreditation that would be suitable. Our
conclusion was that there is currently a myriad of standards, none
having universal recognition amongst our stakeholders, and we have
therefore decided to set our own framework at this stage.
The 2020 Annual Report and Accounts will include our first
Streamlined Energy and Carbon Report ("SECR").
On 9 September 2020, we announced the launch of the Sumo Digital
Academy, a training scheme to bring new talent into the games
industry by recruiting from outside of traditional education
channels. The first five programmer trainees have joined the scheme
and are helping to shape the Academy programme in advance of plans
for a formal apprenticeship scheme. We plan for trainees from the
Academy to work on developing games at Secret Mode, our newly
announced publishing division.
The market
The pandemic has undoubtedly accelerated the already strong
growth in the global video games market. In November 2020, Newzoo
increased its revenue projections for 2020 from $159.3bn to
$174.9bn and forecast that this will grow to $217.9bn in 2023,
representing a CAGR of 7.6%. There are estimated to be more than
two billion people playing video games globally, and the evidence
suggests that more people are playing games and consumers are
spending more time playing and more money buying video games than
ever before.
The trend towards digitalization and the proliferation of new
platforms is making video gaming ever more accessible and the
technological progress has improved the gaming experience. The year
was notable for the launch of the next generation of the
PlayStation and Xbox consoles. In February 2021, Sony revealed that
4.5 million PlayStation 5 units had been sold in just under two
months, following the new console's launch in November 2020, with
the PlayStation 4 also enjoying 1.4 million unit sales in the same
period. Microsoft reported that the Xbox Series X/S saw the largest
sales on the launch day of any console in the company's history.
Meanwhile the Nintendo Switch went from strength to strength,
selling 23.5 million units in 2020, taking total unit sales to c.80
million since launch. Connection quality is improving and bandwidth
increasing. The new subscription models and additional new
platforms have significantly driven the demand for premium content
and strengthened the position of the video game developers. It is
notable that during a period of sustained and wide-ranging
restrictions on physical movement, gaming has become even more
important as a means of providing social contact and interaction.
The model continues to move away from being hit driven and the
relationship between developers, publishers and players is
evolving, creating more opportunities.
We expect the strong underlying growth in the video games
market, demonstrated in the years prior to the pandemic, to be
sustained in the long term, driven by these fundamental
factors.
There continues to be a significant amount of acquisition
activity in the video games sector, as investors target strong
growth opportunities. The industry, however, remains highly
fragmented, presenting further opportunities for the Group.
Outlook
The advancement of technology and new platforms are fuelling
market trends. O n the back of this, game publishers' confidence to
increase the scope and spend on games continues to grow ,
underpinning the long-term growth of the Group, as global demand
for reliable providers of premium content with a proven reputation
for quality remains constrained only by capacity.
Our new publishing division, Secret Mode, has been established
to enable the Group to capitalise further on the insatiable demand
for fresh and innovative games. We look forward to updating our
shareholders on its progress in the year ahead, as we invest in the
mid to long-term success of this venture.
Our acquisition pipeline is strong, and we are actively pursuing
a number of targets. We are keen to acquire owner-managed
businesses, where the vendors and key people remain with the
business post acquisition and where we can use our listed shares to
provide attractive ongoing incentive arrangements.
While the pandemic has undoubtedly turbo charged the video games
market, the foundation of our increasing confidence is based on
underlying market growth trends that show no sign of abating. We
have a very strong pipeline of opportunities and excellent levels
of visibility. Accordingly, the Board views the prospects for the
Group in the year ahead and beyond extremely positively.
Carl Cavers
Chief Executive Officer
FINANCIAL REVIEW
The Group performed strongly in 2020, delivering revenue of
GBP68.9m and Adjusted EBITDA of GBP16.5m, outperforming consensus
market expectations, which had already been upgraded in January
2021 following the Group's positive trading update.
Revenue
Our revenue is disclosed, once again, under five categories,
distinguishing between revenue generated from Client-IP and that
generated from Own-IP. The former consists of development fees and
royalties, and the latter consists of development fees, royalties,
and game revenues. We have always been clear that the mix of
Client-IP and Own-IP revenue will vary, depending on project mix
and status during a particular financial period, and the six or 12
monthly reporting periods are much shorter than the typical period
for the development of a single video game.
Most of the Group's revenue is generated from turnkey projects,
developing the entire game, although we continue to do some
co-development work.
The analysis of revenue for 2020, together with the 2019
comparative figures, is as follows:
Revenue 2020 2019
Client-IP Development GBP55.4m GBP31.3m
----------- -----------
Client-IP Royalty GBP1.3m GBP1.3m
----------- -----------
Total Client-IP GBP56.7m GBP32.6m
----------- -----------
% of total revenue 82% 67%
----------- -----------
Own-IP Development GBP9.9m GBP16.0m
----------- -----------
Own-IP Royalty GBP1.9m -
----------- -----------
Own-IP Game Revenues GBP0.4m GBP0.4m
----------- -----------
Total Own-IP GBP12.2m GBP16.4m
----------- -----------
% of total revenue 18% 33%
----------- -----------
Total revenue GBP68.9m GBP49.0m
----------- -----------
In 2020, 18% of revenue was generated from Own-IP (2019: 33%),
reflecting the changes in project mix and status year on year. Our
strategy remains to move towards more Own-IP projects on a
relatively low risk basis, where we see longer term opportunities
to earn higher returns, but we retain a strong focus on quality
Client-IP projects, including both turnkey and co-development work,
for which we have a longstanding strong reputation.
Royalty income in the year includes an amount of GBP0.3m (2019:
GBP1.0m) 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 year was GBP31.5m, an increase of
31.5% on the GBP23.9m in the prior year.
Statutory gross margin was 45.7% (2019: 48.9%).
Statutory gross profit includes royalty income of GBP3.2m (2019:
GBP1.3m). In previous years, royalty income flowed entirely through
to gross profit. In the year ended 31 December 2020, we recognised
royalties on eight games and, for the first time, we incurred costs
to generate these royalties, including some of the amounts
previously disclosed as investment in co-funded games.
Following the acquisition of Pipeworks, we have also taken the
opportunity to analyse the costs that we classify as direct in
calculating gross profit. We have made some changes, primarily to
Sumo Digital in respect of facilities charges, studio management
costs and bonus costs. The effect of these classification changes
has not been material in either 2019 or 2020.
With the expected evolution of royalty income referred to above,
we now consider the appropriate alternative performance measure for
gross profit and gross margin to be the statutory figures adjusted
for the net investment in co-funded games and, for Sumo Digital,
amounts in respect of Video Games Tax Relief ("VGTR") and with no
adjustment in respect of royalty income. We adjust for VGTR because
whether Sumo retains the VGTR or not has an impact on the level of
development fees that we charge on a project, and hence it is
something of a proxy for revenue. There is no equivalent of VGTR
for Pipeworks in the state of Oregon in the US.
For the year ended 31 December 2020, the Adjusted Gross Profit
and Adjusted Gross Margin for the Group were GBP31.7m (2019:
GBP25.2m) and 41.8% (2019: 44.8%). The figures for 2020 include
Pipeworks, following the completion of its acquisition in
mid-October. The gross margin for Pipeworks is lower than that at
Sumo Digital principally because Pipeworks has higher employment
costs and uses more lower margin external contractors. The
underlying gross profit per direct head is at least in line with
Sumo Digital.
The underlying adjusted gross margin remains strong at 43.2%.
(2019: 44.8%). As reported in the announcement of the unaudited
half year results on 30 September 2020, the gross margin in Sumo
Digital was impacted by the cost expensed on Snake Pass 2 of
GBP0.9m in the first half of 2020 and the higher than usual holiday
pay accrual, as a result of the pandemic. This holiday pay accrual
reduced significantly from that at 30 June 2020 and the average
unused holiday entitlement outstanding in Sumo Digital at 31
December 2020 was 2.5 days per person which is approximately 1.5
days higher than usual. The post acquisition inclusion of Pipeworks
has a circa one percentage point impact on the gross margin.
Operating expenses
Operating expenses were GBP30.1m (2019: GBP16.4m). Included
within operating expenses were amortisation and depreciation of
GBP2.1m and GBP3.5m respectively (2019: GBP0.8m and GBP2.2m). The
depreciation charge of GBP3.5m (2019: GBP2.2m) includes GBP1.4m
(2019: GBP0.9m), relating to the right of use asset relating to
property leases under IFRS 16.
In 2020 operating expenses include a charge of GBP2.7m, as a
fair value loss on contingent consideration which may be payable
for the acquisition of Pipeworks. This is a non-cash charge,
arising as a result of Sumo Group's share price performance in the
period from the completion of the acquisition to the financial year
end and foreign exchange rate movements.
There was a non-cash charge of GBP5.0m (2019: GBP2.7m) to
reflect the cost of the Sumo Group plc Long Term Incentive Plan
("LTIP") and the Sumo Group plc Share Incentive Plan (the
"SIP").
If amortisation, depreciation, the share-based payment charge,
exceptional items, the fair value loss on contingent consideration
and unrealised gains on foreign currency derivative contracts are
excluded and the operating lease costs capitalised under IFRS 16
are deducted, operating expenses increased by GBP4.1m from 2019 to
GBP12.3m.
Adjusted EBITDA and margin
As set out in Note 17, Adjusted EBITDA is a non-GAAP metric used
by management and is not an IFRS disclosure. It is defined as
statutory operating profit adding back amortisation, depreciation,
share-based payment charge, investment in co-funded games expensed,
exceptional items, the fair value loss on contingent consideration
less the operating lease costs capitalised under IFRS 16 and
foreign currency derivative contracts.
Adjusted EBITDA margin was 23.9% (2019: 28.7%). The decline in
Adjusted EBITDA margin is largely driven by the reduction in gross
margin, which is explained above.
The financial results for 2020 were, as expected, weighted
towards the second half of the year. This was flagged in our Final
Results 2019 announcement on 21 April 2020 and our Half Yearly
results announced on 30 September 2020. We expect the financial
results for 2021 also to be weighted towards the second half of the
year.
Profit before taxation
The statutory profit before taxation was GBP0.9m (2019:
GBP7.4m). Included in charges for 2020 is an amount of GBP7.3m
arising on the acquisition of Pipeworks, consisting of the GBP2.7m
fair value loss on contingent consideration, GBP1.7m of
amortisation of customer contracts and customer relationships and
GBP2.9m of transactions costs on that acquisition. In addition, the
statutory profit is stated after charging exceptional items other
than the costs incurred on the acquisition of Pipeworks of GBP1.2m
(2019: GBP0.5m) and the share-based payment charge of GBP5.0m
(2019: GBP2.7m) and the unrealised gain on foreign currency
derivative contracts of GBP1.0m.
Taxation
The Corporation Tax credit for the year was GBP0.8m (2019:
credit of GBP0.1m).
Earnings per share
The basic and diluted earnings per share for 2020 were 1.08p and
1.01p respectively (2019: 5.19p and 5.07p respectively).
The adjusted basic earnings per share was 7.93p (2019: 6.99p)
and the adjusted diluted earnings per share was 6.48p (2019:
6.46p). Further details, including the basis of calculating the
number of shares which is different to the statutory basis, are set
out in Note 17.
Client concentration
During the year, two major clients individually accounted for at
least 10% of total revenues (2019: four clients). In aggregate,
these two clients accounted for 39.7% of total revenue in 2020,
compared to the four clients in 2019 accounting for 74.3% of total
revenue.
The Group worked on 11 projects for the top three clients who
collectively accounted for 48% of total revenue (2019: 7 projects
and 64% of total revenue). These figures for 2020 reflect the
post-acquisition performance of Pipeworks.
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
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 2020 and 2019 are GBP6.9m and GBP7.4m
respectively.
The evidence continues to support the view that VGTR is a key
catalyst in enabling job creation and investment in the UK and
continues to have broad political support. It is interesting to
note the effectiveness of the VGTR regime in promoting a sector
which has proved resilient and has continued to grow through the
COVID-19 pandemic.
Treatment of acquisition costs and exceptional items
We completed the acquisition of Pipeworks in October 2020,
paying initial consideration of $59.5m in a mixture of cash and
Sumo shares, with additional consideration calculated at the time
of acquisition at up to $40m payable based on the performance of
Pipeworks in the years to 31 December 2020 and 31 December 2021.
This additional consideration will be settled partly in cash with
the balance being settled in Sumo Group shares. The fair value of
the consideration in accounting terms was GBP80.2m, comprising cash
of GBP26.2m (GBP25.0m net of cash acquired), Sumo shares issued of
GBP25.5m and additional earnout consideration with a fair value of
GBP28.5m. This fair value takes into account movements in the share
price, which impact the shares component of the consideration, as
well as the movement in the sterling to dollar exchange rate.
Acquisition related costs, amounting to GBP2.9m, were recognised as
expenses. The intangible assets arising on the acquisition amounted
to GBP83.3m, which includes goodwill of GBP61.8m, GBP13.4m in
respect of customer relationships, GBP2.8m in respect of customer
contracts, GBP4.8m in respect of trademarks and GBP0.5m in respect
of IP. The intangible assets other than goodwill will be amortised
and will result in a significant amortisation charge each year for
several years.
The total consideration for the acquisition of Lab42 was GBP0.5m
and the consideration net of acquired cash was GBP0.2m. Acquisition
related costs amounting to GBP0.1m were recognised as expenses.
The exceptional items charged in 2020 of GBP4.1m consist of
professional adviser and other transaction costs, including those
incurred on the acquisition of Lab42 and Pipeworks.
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 17.
Cash flow
The net cash generated from operating activities for the year
was GBP13.0m (2019: GBP14.4m). The net cash balances at 31 December
2020 were GBP6.8m (31 December 2019: GBP12.9m, and 30 June 2020:
GBP15.2m). The year end net cash balances were significantly ahead
of management expectations, due to a number of timing effects which
will reverse during 2021. These include a substantial milestone
receipt and payments in respect of the Pipeworks acquisition and
capital expenditure.
The Group has a GBP30m revolving credit facility agreement with
Clydesdale Bank plc. The facility was extended from GBP13m to
GBP30m on 16 October 2020 to support the enlarged Group's financial
liquidity position, post the acquisition of Pipeworks. Interest is
payable on amounts drawn down at the rate of one and a half to two
percent above LIBOR and the agreement runs to 30 November 2022. At
31 December 2020, the facility was drawn US$5.5m. On 24 March 2020,
as part of the mitigation actions taken for COVID-19, the Group
drew down GBP10m from this facility. This amount was repaid on 30
June 2020.
On 16 July 2020, we raised approximately GBP13.1m of net
proceeds from the equity placing of 7,588,500 shares.
Capital expenditure on tangible assets in the year was GBP4.2m
(2019: GBP3.7m), of which GBP2.1m was on leasehold improvements and
fixtures and fittings and GBP2.0m was on IT hardware. A further
GBP1.4m was spent on the purchase of intangible assets (2019:
GBP0.8m), of which GBP0.2m related to software and GBP1.2m was on
intellectual property on Own-IP games.
The cash cost, net of cash acquired and excluding transaction
costs, of the acquisitions of Pipeworks and Lab42 were GBP25.0m and
GBP0.2m respectively.
Deferred consideration of GBP0.1m was also paid to the vendors
of Red Kite Games.
The net finance charge for the year was GBP0.5m (2019: GBP0.1m).
The finance cost consists of IFRS 16 lease interest of GBP0.2m
(2019: GBP0.1m), bank and other interest of GBP0.1m (2019: GBP0.1m)
and the unwind of interest on contingent consideration GBP0.1m.
Balance sheet
Goodwill and other intangibles at 31 December 2020 were
GBP102.2m. This is an increase of GBP78.2m from 31 December 2019
and consists mainly of the increase in goodwill and other
intangibles arising from the acquisition of Pipeworks.
Current assets were GBP41.8m (31 December 2019: GBP37.3m). Trade
and other receivables were GBP31.0m an increase of GBP7.3m from the
figure of GBP23.7m at 31 December 2019 and trade and other payables
were GBP21.0m (31 December 2019: GBP14.2m).
As at 31 December 2020 the net working capital position
(excluding the IFRS 16 lease liability due within one year of
GBP1.4m) was GBP11.4m, up from GBP10.2m at 31 December 2019.
Foreign currency
During the year, the Group generated US dollar denominated
revenue of $15.4m including $8.1m of revenue for Pipeworks in the
period since acquisition.
Dividend
In line with the strategy set out at the time of the flotation,
the Directors intend to reinvest a significant portion of the
Group's earnings to facilitate plans for future growth.
Accordingly, the Directors do not propose a dividend at the present
time but it remains the Board's intention, should the Group
generate a sustained level of distributable profits, to consider a
dividend policy in future years.
Share issues and options
During the year, 16,005 shares in aggregate were issued under
the Sumo Group plc Share Incentive Plan (the "SIP"). A further
40,000 shares were issued following the exercise of options.
As at 31 December 2020, options were granted or remain
outstanding under the LTIP over an aggregate of 10,081,153 shares.
As previously reported, 4,618,735 shares were issued on 9 March
2018 to be held in order to satisfy the element of the proposed
LTIP awards which are held under a joint ownership arrangement.
Further options were outstanding over 410,000 shares and there were
warrants over 1,450,000 shares.
On 31 January 2020, being the first anniversary of completion of
the acquisition of Red Kite Games, 1,162,791 shares were issued to
the vendors of that business.
On 16 July 2020, we raised approximately GBP13.1m of net cash
proceeds from the placing of 7,588,500 shares.
On 15 October 2020, 9,893,940 shares were issued in part
satisfaction of the initial consideration for the acquisition of
Pipeworks.
Since 31 December 2020, 4,878 shares have been issued to date
under the terms of the SIP and, on 27 January 2020, 1,450,000
shares were issued upon the exercise of the warrants referred to
above.
Post balance sheet event
Following the year end, on 27 January 2021, The Group's joint
brokers and NOMAD, Zeus Capital, exercised warrants to subscribe
for 1,450,000 shares for GBP1 each, generating proceeds of
GBP1,450,000 for the Group.
On 1 February 2021, we announced the strategic acquisition of
PixelAnt Games, based in Wroclaw, Poland for an initial cash
consideration of GBP250,000. A further amount may be payable, in
Sumo Group shares, depending on the EBITDA achieved in the two
years to 31 March 2023. PixelAnt was founded in July 2020 and has a
team of 13 developers, currently working entirely on Sumo Digital
projects. The strategy is to expand the studio's headcount rapidly,
accessing the growing pool of high-quality developers in the Polish
market and focus on winning third party contracts, while continuing
to work on Sumo Digital projects. The PixelAnt team will also work
on Own-IP opportunities.
David Wilton
Chief Financial Officer
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
Note GBP'000 GBP'000
--------------------------------------------- ----- ------------- -------------
Revenue 5 68,948 48,987
--------------------------------------------- ----- ------------- -------------
Direct costs (44,414) (32,409)
Video Games Tax Relief 6,942 7,350
--------------------------------------------- ----- ------------- -------------
Direct costs (net) 6 (37,472) (25,059)
--------------------------------------------- ----- ------------- -------------
Gross profit 31,476 23,928
Operating expenses 7 (23,325) (15,906)
Operating expenses - exceptional 7 (4,115) (523)
Operating expenses - fair value loss
on contingent consideration 7 (2,706) -
--------------------------------------------- ----- ------------- -------------
Operating expenses - total (30,146) (16,429)
Group operating Profit 1,330 7,499
Analysed as:
--------------------------------------------- ----- ------------- -------------
Adjusted EBITDA ([1]) 16,472 14,072
Amortisation 10 (2,089) (834)
Depreciation 11 (3,524) (2,226)
Share-based payment charge 13 (4,977) (2,684)
Investment in co-funded games expensed 17 (245) (1,292)
Operating lease costs capitalised under
IFRS16 17 1,548 986
Foreign currency derivative contracts 17 966 -
Exceptional items 7 (4,115) (523)
Fair value loss on contingent consideration 7 (2,706) -
------------- -------------
Group operating Profit 1,330 7,499
--------------------------------------------- ----- ------------- -------------
Finance cost (474) (313)
Finance income 4 253
--------------------------------------------- ----- ------------- -------------
Profit before taxation 860 7,439
Taxation 8 785 117
--------------------------------------------- ----- ------------- -------------
Profit for the year attributable to
equity shareholders 1,645 7,556
--------------------------------------------- ----- ------------- -------------
Profit per share (pence)
Basic 9 1.08 5.19
Diluted 1.01 5.07
--------------------------------------------- ----- ------------- -------------
Note 1: Adjusted EBITDA is a non-GAAP metric used by management
and is not an IFRS disclosure. It is defined as statutory operating
profit adding back amortisation, depreciation, share-based payment
charge, investment in co-funded games expensed, exceptional items,
the fair value loss on contingent consideration less the operating
lease costs capitalised under IFRS 16 and foreign currency
derivative contracts.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
--------------------------------------- -------------- --------------
Profit for the year attributable
to equity shareholders 1,645 7,556
Other comprehensive expense
Exchange differences on retranslation
of foreign operations (4,146) (89)
----------------------------------------- -------------- --------------
Total other comprehensive expense (4,146) (89)
----------------------------------------- -------------- --------------
Total comprehensive (expense)/income
for the year (2,501) 7,467
----------------------------------------- -------------- --------------
CONSOLIDATED BALANCE SHEET
as at 31 December 2020
2020 2019
Note GBP'000 GBP'000
-------------------------------------- ----- ---------- ----------
Non-current assets
Goodwill and other intangible assets 10 102,172 23,975
Property, plant and equipment 11 20,578 11,715
Deferred tax asset 14 5,349 2,512
Total non-current assets 128,099 38,202
-------------------------------------- ----- ---------- ----------
Current assets
Trade and other receivables 30,993 23,732
Corporation tax receivable - 703
Cash and cash equivalents 10,816 12,890
Total current assets 41,809 37,325
-------------------------------------- ----- ---------- ----------
Total assets 169,908 75,527
-------------------------------------- ----- ---------- ----------
Current liabilities
Trade and other payables 21,034 14,246
Short term borrowings 4,025 -
Corporation tax payable 381 -
Total current liabilities 25,440 14,246
-------------------------------------- ----- ---------- ----------
Non-current liabilities
IFRS16 lease liabilities 12 12,267 6,524
Contingent consideration payable 15 31,313 -
Deferred tax liability 14 5,037 -
-------------------------------------- ----- ---------- ----------
Total liabilities 74,057 20,770
-------------------------------------- ----- ---------- ----------
Net assets 95,851 54,757
-------------------------------------- ----- ---------- ----------
Equity
Share capital 1,693 1,506
Share premium 81,574 41,605
Reverse acquisition reserve (60,623) (60,623)
Merger relief reserve 590 590
Foreign currency translation reserve (4,256) (110)
Own shares (4,919) (4,919)
Shares to be issued - 1,514
Retained earnings 81,792 75,194
-------------------------------------- ----- ---------- ----------
Total equity 95,851 54,757
-------------------------------------- ----- ---------- ----------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2020
Foreign
Reverse Merger currency Shares
Share Share acquisition relief translation Own to be Retained Total
capital premium reserve reserve reserve shares issued earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- -------- -------- ------------ --------- ------------ --------- --------- --------- ---------
Balance at 1
January 2019 1,501 40,994 (60,623) 590 (21) (4,919) - 65,944 43,466
--------------- -------- -------- ------------ --------- ------------ --------- --------- --------- ---------
Profit for the
year - - - - - - - 7,556 7,556
Exchange
differences
on
retranslation
of foreign
operations - - - - (89) - - - (89)
Total
comprehensive
income for
the
year - - - - (89) - - 7,556 7,467
--------------- -------- -------- ------------ --------- ------------ --------- --------- --------- ---------
Transactions
with owners:
Issue of
shares in
year 5 611 - - - - - (616) -
Shares to be
issued in
respect of
deferred
consideration - - - - - - 1,514 - 1,514
Share-based
payment
transactions - - - - - - - 2,310 2,310
Balance at 31
December 2019 1,506 41,605 (60,623) 590 (110) (4,919) 1,514 75,194 54,757
--------------- -------- -------- ------------ --------- ------------ --------- --------- --------- ---------
Profit for the
year - - - - - - - 1,645 1,645
Exchange
differences
on
retranslation
of foreign
operations - - - - (4,146) - - - (4,146)
Total
comprehensive
expense for
the year - - - - (4,146) - - 1,645 (2,501)
--------------- -------- -------- ------------ --------- ------------ --------- --------- --------- ---------
Transactions
with owners:
Issue of
shares in
year - share
placing 76 13,040 - - - - - - 13,116
Issue of
shares in
year -
acquisition
of Red Kite
Games Ltd 12 1,502 - - - - (1,514) - -
Issue of
shares in
year -
acquisition
of Pipeworks 99 25,427 - - - - - - 25,526
Share-based
payment
transactions - - - - - - - 4,953 4,953
Balance at 31
December 2020 1,693 81,574 (60,623) 590 (4,256) (4,919) - 81,792 95,851
--------------- -------- -------- ------------ --------- ------------ --------- --------- --------- ---------
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
Note GBP'000 GBP'000
--------------------------------------------- ----- -------------- --------------
Profit for the financial year 1,645 7,556
Income tax 8 (785) (117)
Finance income (4) (253)
Finance costs 474 313
--------------------------------------------- ----- -------------- --------------
Operating profit 1,330 7,499
Depreciation charge 11 3,524 2,226
Amortisation of intangible assets 10 2,089 834
Amortisation of intangible assets
- cost of sales 10 161 -
Fair value loss on contingent consideration 7 2,706 -
Decrease in bad debt provision - (6)
Share-based payments charge 13 4,962 2,580
(Increase)/decrease in trade and
other receivables (3,759) 1,814
Increase in trade and other payables 1,686 1,304
Cash flows from operating activities 12,699 16,251
Finance income 4 9
Finance costs (328) (216)
Tax received/(paid) 601 (1,605)
--------------------------------------------- ----- -------------- --------------
Net cash generated from operating
activities 12,976 14,439
Cash flows from investing activities
Purchase of intangible assets 10 (1,404) (824)
Purchase of property, plant and
equipment 11 (4,333) (3,272)
Acquisition of subsidiary - net
of cash acquired 15 (25,330) 38
--------------------------------------------- ----- -------------- --------------
Net cash used in investing activities (31,067) (4,058)
--------------------------------------------- ----- -------------- --------------
Cash flows from financing activities
Proceeds from issue of shares 13,659 -
Transaction costs relating to the (543) -
issue of shares
Proceeds of borrowings 14,216 -
Repayment of borrowings (10,000) -
Lease payments (1,003) (1,021)
Net cash generated from/(used in)
financing activities 16,329 (1,021)
--------------------------------------------- ----- -------------- --------------
Net (decrease)/increase in cash
and cash equivalents (1,762) 9,360
--------------------------------------------- ----- -------------- --------------
Cash and cash equivalents at the
beginning of the year 12,890 3,730
Foreign exchange (312) (200)
--------------------------------------------- ----- -------------- --------------
Cash and cash equivalents at the
end of the year 10,816 12,890
--------------------------------------------- ----- -------------- --------------
NOTES
1. GENERAL INFORMATION
Sumo Group plc (the 'Company') is registered in England and
Wales as a public limited company limited by shares. The address of
its registered office is 32 Jessops Riverside, Brightside Lane,
Sheffield S9 2RX.
The principal activity of the Company and its subsidiaries
(together the 'Group') is that of video games development.
The Group financial statements present 12 months results for the
year ended 31 December 2020, and were approved
by the Directors on 30 March 2021.
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES
The Group's principal accounting policies, all of which have
been applied consistently to all the periods presented, are set out
below.
Basis of preparation
The Group financial statements have been prepared in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006 as applicable to companies
reporting under IFRS. The Group financial statements have been
prepared on the going concern basis and on the historical cost
convention modified for the revaluation of certain financial
instruments.
The preparation of Group financial statements in conformity with
IFRS requires the use of certain critical accounting estimates,
which are outlined in the critical accounting estimates and
judgements section of these accounting policies. It also requires
management to exercise its judgement in the process of applying the
Group's accounting policies.
Going concern
These Group financial statements have been prepared on the going
concern basis.
Directors' assessment of going concern:
The Group made a net profit before tax for the year of GBP0.9m,
had Net Current Assets at the period end of GBP16.4m and a Net Cash
Inflow from Operating Activities of GBP13.0m. The Group had gross
cash balances of GBP15.0m at 30 March 2021, which includes an
amount of GBP4.0m (USD $5.5m) drawn down on the Group's GBP30m bank
facilities (GBP27m RCF; GBP3m overdraft), which are committed until
November 2022 and require compliance with quarterly covenants.
Whilst the covid-19 situation is ongoing, the Group continues to
maintain operational effectiveness and the Directors have
considered the risks posed by the pandemic in the preparation of
its financial forecasts. The Group did not take up any UK
Government emergency funding or access related business assistance
programmes (one VAT payment was deferred but paid in full before
the end of the next VAT quarter). Primarily, the Group's day to day
working capital requirements are expected to be met through
existing cash resources and cash equivalents and receipts from its
continuing business activities. The Group expects to have
sufficient income and cash resources to fund operations at least
until 30 September 2022. The Directors have reviewed the forecasts
for this period and consider them to be achievable, given the high
level of contracted and near contracted revenue visibility on its
long term development contracts. The financial forecasts assess the
impact on the Group's cash flow, banking facilities and headroom
within its banking covenants. Furthermore, the Directors have
assessed the future funding requirements of the Group and compared
them with the level of available borrowing facilities.
As well as the strong liquidity position of the Group, other key
factors supporting this conclusion are:
-- The Group has strong revenue visibility, with 85% for Sumo
Digital and 50% for Pipeworks of 2021 development revenue either
contracted or near contracted.
-- The business development pipeline is very strong reflecting
the strength of the underlying market served by the Group.
Sensitivities have been applied to the Group's projections to
assess the Group's ability to continue operating as a going concern
until 30 September 2022. This process included a reverse 'stress
test', whereby forecast future revenues are sensitised downwards
with no mitigating cost control measures, to identify the break
points in the Group's liquidity or banking covenants compliance.
The break points identified in this exercise are considered to be
remote scenarios as they are triggered only by a severe reduction
in forecast revenue below that which is expected from existing
contracted and near contracted projects. Any mitigating cost
control measures have not been considered in the 'stress test' but
would provide additional headroom. The reverse 'stress tests'
include an estimated cash payment in May 2022 in relation to
contingent consideration on the acquisition of Pipeworks. Due to
the severity of the break point scenarios modelled, it is assumed
that Pipeworks' 2021 earnout performance criteria would not be met
and contingent consideration relating to 2020 performance would be
satisfied by the minimum amount of cash allowed under the Pipeworks
acquisition agreement.
Accordingly, the Directors have a reasonable expectation that
the Company and the Group have adequate resources to continue in
operational existence for the foreseeable future and they have
adopted the going concern basis of accounting in preparing the
annual Group financial statements.
New and amended standards and interpretations
There are no new or amended standards applicable in the year
which have a material impact on the Group. The Group has not early
adopted any standards, interpretations or amendments that have been
issued but are not yet effective.
Basis of consolidation
Subsidiaries are all entities (including structured entities)
over which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group and are deconsolidated from the date control ceases.
Inter-company transactions, balances and unrealised gains and
losses on transactions between Group companies are eliminated.
Revenue
Revenue arises from the provision of game development services.
To determine whether to recognise revenue, the Group follows a
5-step process as follows:
1. Identifying the contract with a customer
2. Identifying the performance obligations
3. Determining the transaction price
4. Allocating the transaction price to the performance obligations
5. Recognising revenue when/as performance obligation(s) are satisfied
Revenue is measured at transaction price, stated net of VAT and
other sales related taxes.
Third party funded game development
There is generally one performance obligation with clients,
being the development of a completed project or game and as such,
the transaction price is allocated to the single distinct
performance obligation. The transaction price is set out in the
contract and is made up of fixed elements in the form of the
development fee and guaranteed royalties and variable elements
typically in the form of future royalties. At inception of each
contract the Group begins by estimating the amount of the royalty
to be received generally using the "expected value amount"
approach. This amount is then included in the Group's estimate of
the transaction price only to the extent that it is highly probable
that a significant reversal of revenue will not occur once any
uncertainty surrounding the royalty is resolved. In making this
assessment, the Group considers the length of the royalty period,
the extent of external factors including how the publisher brings
the game to market, expected critic scores and other expected game
launches. The highly probable nature of the variable consideration
is reviewed for each game at each reporting cycle.
As the Group's development activity creates and enhances the
game that the customer controls as the game is developed, revenue
is recognised over time as the Group satisfies performance
obligations by transferring the promised services to its clients in
accordance with paragraph 35(b) of IFRS 15. The amount of revenue
to recognise is determined based upon the input method that
calculates actual costs incurred relative to the total budgeted
costs for the project based upon a percentage of completion
calculation.
Estimates of revenues, costs or the extent of progress towards
completion are revised if circumstances change. Any resulting
increases or decreases in estimated revenues or costs are reflected
in profit or loss in the period in which the circumstances that
give rise to the revision become known.
Where the original contract is modified, for example for a
change to the scope or price of the contract, the nature of
modification is considered as to whether it gives rise to a
performance obligation distinct from the promises in the original
contract. In cases where the modification gives rise to a distinct
performance obligation, the modification is treated as a new
contract in its own right and the 5-step model considered for this
new contract. Where it does not, the modification is accounted for
as if it was part of the original contract. The effect that the
modifications have on the transaction price and the measure of
progress towards the complete satisfaction of the performance
obligation is recognised as an adjustment to revenue at the date of
the contract modification. The adjustment to revenue is made on a
cumulative catch-up basis.
The fixed elements of the transaction price are invoiced based
upon a payment schedule. If the services rendered by the Group
exceed the payments, a contract asset for amounts recoverable on
contracts is recognised. If the payments exceed the services
rendered, a contract liability representing advances for game
development is recognised.
At 31 December 2020 there are no (2019: one) contracts that
contain a financing component where the customer receives a benefit
from the Group financing the transfer of services to the customer,
generally over a period of time extending beyond 12 months. For
arrangements with a significant financing component the transaction
price is adjusted for both the length of time between when the
Group delivers the services and when the customer pays for those
services, and the effects of the time value of money using
prevailing interest rates.
When determining what rate to use, management considers the rate
that would be reflected in a separate financing transaction between
the Group and the customer at contract inception taking into
account the credit characteristics of the customer.
Own-IP
The Group also creates its own concepts and IP. The accounting
for Own-IP differs depending on whether the Group retains control
over the IP or passes control over to clients.
Own-IP - Development revenues and royalties
Where the Group passes control of IP over to its client during
development, fixed and variable revenues are recognised over time,
consistent with third party-funded game development revenues.
Own-IP - Game revenues
Where the Group retains control of its own IP, during the
development phase no revenue is recognised. Once the game is
completed and launched the Group recognises the revenues as they
are earned (at a point in time).
Intangible assets relating to Own-IP controlled by the Group are
measured at cost and tested for impairment. Once the game is
launched the intangible asset is amortised as the game generates
revenues and is subject to review for impairment at all times.
The Group may opt to licence its Own-IP games to publishers.
There is generally a single performance obligation to grant a
licence over the developed game. The transaction price includes
only fixed elements, typically in the form of a guaranteed royalty.
Revenue is recognised at a point in time when the completed game is
delivered and the customer has the right to use the asset. As the
fixed element of the transaction price will be recognised in
advance of payments being received, a contract asset will be
recognised. Game revenues from the right to use asset will be
recognised as earned, based upon the future sales of the game in
accordance with paragraphs B63-B63B of IFRS 15.
At the point at which a contract is established with a
publisher, the Own-IP intangible asset will be converted to a work
in progress contract asset. In this scenario the asset would be
derecognised at the point the game is handed over to the
publisher.
EBITDA and Adjusted EBITDA
Adjusted EBITDA is a non-GAAP metric used by management and is
not an IFRS disclosure. It is defined as statutory operating profit
adding back amortisation, depreciation, share-based payment charge,
investment in co-funded games expensed, exceptional items, the fair
value loss on contingent consideration less the operating lease
costs capitalised under IFRS 16 and foreign currency derivative
contracts.
Earnings before Interest, Taxation, Depreciation and
Amortisation (EBITDA) and Adjusted EBITDA are non-GAAP measures
used by management to assess the operating performance of the
Group. Exceptional items, share-based payment charges, fair value
movements on contingent consideration, the impact of IFRS 16
adoption and the investment in co-funded games expensed are
excluded from EBITDA to calculate Adjusted EBITDA. For further
explanation and details see Note 17 and the Consolidated Income
Statement.
The Directors primarily use the Adjusted EBITDA measure when
making decisions about the Group's activities. As these are
non-GAAP measures, EBITDA and Adjusted EBITDA measures used by
other entities may not be calculated in the same way and hence may
not be directly comparable.
Foreign currency
Transactions in foreign currencies are translated into the
Group's presentational currency at the foreign exchange rate ruling
at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are
translated at the foreign exchange rate ruling at that date.
Foreign exchange differences arising on translation are recognised
in profit or loss.
On consolidation, the assets and liabilities of foreign
operations which have a functional currency other than sterling are
translated into sterling at foreign exchange rates ruling at the
balance sheet date. The revenues and expenses of these subsidiary
undertakings are translated at average rates applicable in the
period. All resulting exchange differences are recognised in other
comprehensive income and documented in a separate component of
equity.
Classification of instruments issued by the Group
Instruments issued by the Group are treated as equity (i.e.
forming part of shareholders' funds) only to the extent that they
meet the following two conditions:
-- they include no contractual obligations upon the Group to
deliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions
that are potentially unfavourable to the Group; and
-- where the instrument will or may be settled in the Company's
own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Company's own
equity instruments or is a derivative that will be settled by the
Company exchanging a fixed amount of cash or other financial assets
for a fixed number of its own equity instruments.
Finance payments associated with financial liabilities are dealt
with as part of finance expenses. Finance payments associated with
financial instruments that are classified in equity are dividends
and are recorded directly in equity.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation. Where parts of an item of property, plant
and equipment have different useful lives, they are accounted for
as separate items.
Depreciation is charged to profit or loss on a straight-line
basis over the estimated useful lives of each part of an item of
property, plant and equipment. Depreciation is provided on the
following basis:
Leasehold improvements Over period of
lease
Fixtures and fittings 25% straight line
Computer hardware 3 to 5 years
Right of use assets Over period of
lease
It has been assumed that all assets will be used until the end
of their economic life. Freehold land is not depreciated.
Intangible assets
All business combinations are accounted for by applying the
purchase method. Goodwill represents the difference between the
cost of the acquisition and the fair value of the net identifiable
assets acquired. Identifiable intangibles are those which can be
sold separately, or which arise from legal or contractual rights
regardless of whether those rights are separable, and are initially
recognised at fair value.
Goodwill is stated at cost less any accumulated impairment
losses. Goodwill is not amortised but is tested annually for
impairment.
Other intangible assets that are acquired by the Group are
stated at cost less accumulated amortisation and accumulated
impairment losses.
Computer software purchased separately, that does not form an
integral part of related hardware, is capitalised at cost.
Amortisation is charged to profit or loss over the estimated useful
lives of intangible assets and is presented within operating
expenses. Intangible assets are amortised from the date they are
available for use.
The estimated useful lives, are as follows:
Customer relationships 5 years
Customer contracts Over period of contract
Trademarks 5 years
Game IP acquired Over expected period of
cash flows
Software 2 years
Impairment
For goodwill that has an indefinite useful life, the recoverable
amount is estimated annually. For other assets, the recoverable
amount is only estimated when there is an indication that an
impairment may have occurred. The recoverable amount is the higher
of fair value less costs to sell and value in use.
An impairment loss is recognised whenever the carrying amount of
an asset exceeds its recoverable amount. Impairment losses are
recognised in profit or loss.
Impairment losses recognised in respect of cash-generating units
are allocated first to reduce the carrying amount of any goodwill
allocated to the cash-generating unit and then to reduce the
carrying amount of the other assets in the unit on a pro rata
basis. A cash generating unit is the smallest identifiable group of
assets that generates cash inflows that are largely independent of
the cash inflows from other assets or groups of assets.
Post-employment benefits
Obligations for contributions to defined contribution pension
plans are recognised as an expense in profit or loss as
incurred.
Provisions
A provision is recognised in the balance sheet when the Group
has a present legal or constructive obligation as a result of a
past event, and it is probable that an outflow of economic benefits
will be required to settle the obligation. If the effect is
material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where appropriate, the
risks specific to the liability.
Business combinations
When the Group completes a Business Combination, the
consideration transferred for the acquisition and the identifiable
assets and liabilities acquired are recognised at their fair
values. The amount by which the consideration exceeds the net
assets acquired is recognised as Goodwill. Where consideration is
contingent on future events, an estimate is made of the most likely
outcome in determining the fair value at the acquisition date.
Contingent consideration classified as a liability is discounted to
present value, and is remeasured to fair value at each reporting
date and recognised in the P&L.
Leases
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 the end of the lease term.
If ownership of the leased asset transfers to the Group at the
end of the lease term or the cost reflects the exercise of a
purchase option, depreciation is calculated using the estimated
useful life of the asset. In addition, the right-of-use asset is
periodically reduced by impairment losses, if any, and adjusted for
certain remeasurements of the lease liabilities.
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. In calculating the present value of
lease payments, the Group uses its incremental borrowing rate at
the lease commencement date because the interest rate implicit in
the lease is not readily determinable. After the commencement date,
the amount of lease liabilities is increased to reflect the
accretion of interest and reduced for the lease payments made. In
addition, the carrying amount of lease liabilities is remeasured if
there is a modification, a change in the lease term, a change in
the lease payments (e.g., changes to future payments resulting from
a change in an index or rate used to determine such lease payments)
or a change in the assessment of an option to purchase the
underlying asset.
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 for assets with a value of less than
GBP5,000. These lease payments are expensed on a straight-line
basis over the lease term.
Taxation
Tax on the profit or loss for the period comprises current and
deferred tax. Tax is recognised in profit or loss except to the
extent that it relates to items recognised in other comprehensive
income or directly in equity, in which case it is recognised in
other comprehensive income or in equity, respectively.
Current tax is the expected tax payable on the taxable income
for the period, using tax rates enacted or substantively enacted at
the balance sheet date, and any adjustment to tax payable in
respect of previous years.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes, except to the
extent that it arises on:
-- the initial recognition of goodwill where the initial recognition exemption applies;
-- the initial recognition of assets or liabilities that affect
neither accounting nor taxable profit other than in a business
combination;
-- differences relating to investments in subsidiaries to the
extent that they will probably not reverse in the foreseeable
future.
The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantively
enacted at the balance sheet date. A deferred tax asset in respect
of tax losses is recognised only to the extent that it is probable
that future taxable profits will be available against which the
asset can be utilised.
Video Game Tax Relief
Video Game Tax Relief has only been recognised where management
believe that a tax credit will be recoverable based on their
experience of obtaining the relevant certification and the success
of similar historical claims. Where the Group benefits from the
VGTR claimed, such credits are recognised as part of direct costs,
in order to reflect the substance of these credits to the Group and
cash flows are presented within operating activities. The debit is
recorded on the balance sheet as "VGTR recoverable" within current
assets.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits. Bank borrowings that are repayable on demand and form an
integral part of the Group's cash management are included as a
component of cash and cash equivalents for the purpose only of the
statement of cash flows.
Trade and other receivables
Trade and other receivables are initially recorded at fair value
and thereafter are measured at amortised cost using the effective
interest rate. A loss allowance for expected credit losses is
recognised based upon the lifetime expected credit losses. This
assessment is performed on a collective basis considering
forward-looking information.
Financial derivatives
The Group uses derivative financial instruments to hedge its
exposure to risks arising from operational activities, principally
foreign exchange risk. In accordance with treasury policy, the
Group does not hold or issue derivative financial instruments for
trading purposes. The Group does not hedge account for these items.
Any gain or loss arising from derivative financial instruments is
based on changes in fair value, which is determined by direct
reference to active market transactions or using a valuation
technique where no active market exists. At certain times the Group
has foreign currency forward contracts that fall into this
category.
Trade and other payables
Trade payables are initially recorded at fair value and
thereafter at amortised cost using the effective interest rate
method.
Segmental reporting
The Group reports its business activities in one area: video
games development, which is reported in a manner consistent with
the internal reporting to the Board of Directors, which has been
identified as the chief operating decision maker. The Board of
Directors consists of the Executive Directors and the Non-Executive
Directors.
Exceptional costs
The Group presents as exceptional costs on the face of the
income statement, those significant items of expense, which,
because of their size, nature and infrequency of the events giving
rise to them, merit separate presentation to allow shareholders to
understand better the elements of financial performance in the
period.
This facilitates comparison with prior periods and trends in
financial performance more readily. Such costs include professional
fees and other costs, directly related to the purchase of
businesses and to restructuring within the group. Further
information is provided in Note 7.
Own shares
The Group holds shares in an employee benefit trust. The
consideration paid for the purchase of these shares is recognised
directly in equity. Any disposals are calculated on a weighted
average method with any gain or loss being recognised through
reserves.
The assets and liabilities of the Employee Benefit Trust (EBT)
have been included in the Group financial statements. Any assets
held by the EBT cease to be recognised on the group balance sheet
when the assets vest unconditionally in identified beneficiaries.
The cost of purchasing own shares held by the EBT are shown as a
deduction within shareholder's equity. The proceeds from the sale
of own shares are recognised in shareholder's equity. Neither the
purchase nor sale of own shares leads to a gain or loss being
recognised in the income statement.
Shares to be issued
Deferred shares represent deferred consideration on the
acquisition of a subsidiary and have been classified as equity
instruments. The shares are measured at fair value at the
acquisition date. No gain or loss is recognised in profit or loss
on the purchase, sale, issue or cancellation of the equity
instruments.
Retained earnings
Retained earnings includes all current and previous periods
retained profits.
Direct costs
Included within direct costs are all costs in connection with
the development of games, including an allocation of studio
management costs. Video Games Tax Relief is presented within direct
costs as it is directly related to the level of expenditure
incurred .
Share-based payments
The Group operates equity-settled share-based remuneration plans
for its employees. None of the Group's plans are cash-settled.
All goods and services received in exchange for the grant of any
share-based payment are measured at their fair values using the
Monte Carlo and Black Scholes models.
Where employees are rewarded using share-based payments, the
fair value of employees' services is determined indirectly by
reference to the fair value of the equity instruments granted. This
fair value is appraised at the grant date and excludes the impact
of non-market vesting conditions (for example profitability and
sales growth targets and performance conditions). The fair value of
the options, appraised at the grant date, includes the impact of
market based vesting conditions.
All share-based remuneration is ultimately recognised as an
expense in staff costs with a corresponding credit to retained
earnings. Where vesting periods or other vesting conditions apply,
the expense is allocated over the vesting period, based on the best
available estimate of the number of share options expected to vest.
The expense or credit in the statement of profit or loss for a
period represents the movement in cumulative expense recognised as
at the beginning and end of that period.
Non-market vesting conditions are included in assumptions about
the number of options that are expected to become exercisable.
Estimates are subsequently revised if there is any indication that
the number of share options expected to vest differs from previous
estimates. Any adjustment to cumulative share-based compensation
resulting from a revision is recognised in the current period. The
number of vested options ultimately exercised by holders does not
impact the expense recorded in any period.
Upon exercise of share options, the proceeds received, net of
any directly attributable transaction costs, are allocated to share
capital up to the nominal (or par) value of the shares issued with
any excess being recorded as share premium.
No expense is recognised for awards that do not ultimately vest
because non-market performance and/or service conditions have not
been met. Where awards include a market or non-vesting condition,
the transactions are treated as vested irrespective of whether the
market or non-vesting condition is satisfied, provided that all
other performance and/or service conditions are satisfied.
The dilutive effect of outstanding options is reflected as
additional share dilution in the computation of diluted earnings
per share (further details are given in Note 9)
The group provides for National Insurance liabilities on the
exercise of share based payments over time, using the best estimate
of the liability at the balance sheet date.
3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of the Group's consolidated financial statements
requires management to make judgements, estimates and assumptions
that affect the reported amounts of revenues, expenses, assets and
liabilities, and the accompanying disclosures, and the disclosure
of contingent liabilities. Uncertainty about these assumptions and
estimates could result in outcomes that require a material
adjustment to the carrying amount of assets or liabilities affected
in future periods.
Critical accounting estimates
Revenue recognition on development contracts
There are estimates made in respect of the recognition of
revenue on customer contracts, including:
-- Development revenue recognised over time is determined based
upon estimates on the overall contract margin and percentage of
completion of the contract at each period end. These estimates are
based on contract value, historical experience and forecasts of
future outcomes. These include specific estimates in respect of
contracts for which variations may be in the process of being
negotiated, and so the contracts are accounted for on the basis of
the best estimate of the revenue expected to be received on the
contract, which are all expected to be resolved relatively shortly
after the financial year end. A reduction of 1% of the revenue
recognised on contracts which were not complete at 31 December 2020
(and therefore subject to these estimates) would result in a
GBP570,000reduction in revenue;
-- Certain development contracts include an element of variable
consideration, such as royalty income, which is contingent on
future game sales. Such variable consideration is only recognised
to the extent that it is highly probable that a significant
reversal of cumulative revenue recognised will not occur once the
certainty related to the variable consideration is subsequently
resolved . 2020 revenue includes GBP 0.3m of variable consideration
not yet received and contingent on future sales.
Business combinations
When the Group completes a Business Combination, the
consideration transferred for the acquisition and the identifiable
assets and liabilities acquired are recognised at their fair
values. The amount by which the consideration exceeds the net
assets acquired is recognised as Goodwill. The application of
accounting policies to business combinations involves the use of
estimates. During the year the Group made one significant business
combination when it acquired Pipeworks, Inc. The aspects of the
transactions that required significant judgement were the
measurement of intangible assets acquired, and the measurement of
the fair value of contingent consideration.
The Group engaged external experts to support the valuations of
intangible assets acquired. Management concluded that the
intangibles acquired separate from Goodwill were Customer
Contracts, Customer Relationships, Trademarks and Game IP. The fair
values of these assets were determined with reference to the
forecast future cashflows. These valuations involved the use of a
number of assumptions including revenue forecasts, customer
attrition and the application of an appropriate discount rate to
future cash flows. The total fair value of intangible assets
recognised on the acquisition of Pipeworks Inc was GBP21,425,000.
Full analysis of the consideration transferred, assets and
liabilities acquired and Goodwill recognised in business
combinations are set out in Note 15. Amounts recognised at 31
December 2020 are provisional due to the proximity of the
acquisition date to the year end and will be finalised in the
coming year.
The Directors review customer contracts and customer
relationship assets on an annual basis which also involves an
estimation of the length of the contract, an assessment of the
relationship and an expected level of customer attrition. Details
of the period end impairment review of Goodwill have been disclosed
in Note 10 to the Financial statements.
In determining the fair value of acquisition consideration which
is contingent on future events, management is required to make
estimates of earn out targets that will be achieved in the future.
Estimates in respect of the achievement of earn outs are determined
with reference to the budgets and forecasts of the acquired
business. Management have prepared a number of scenarios and
applied a weighting to these based on the expected likelihood of
that scenario in determining the expected earn out. As some
contingent consideration will be settled in shares, the fair value
of the resulting liability is also measured with reference to the
share price of the Group. The fair value of contingent
consideration recognised on acquisition of Pipeworks was
GBP28.5m.
Contingent consideration recognised as a liability is remeasured
to fair value at each reporting date. During the period following
acquisition, the Group recognised a loss due to an increase in the
fair value of the liability of GBP4.2m driven by the increase in
the market value of the Group's shares, offset by a foreign
exchange gain as a result of the movement in exchange rates as the
liability is denominated in US dollars. The Group also recognised
GBP0.1m of interest on the unwinding of discounting on the
liability.
Video Games Tax Relief
The process of claiming Video Game Tax Relief requires estimates
to be accrued at the period end. Whilst the Company undertakes a
detailed exercise involving external professional support in
calculating the accrual, these claims are subject to review and
approval by HMRC prior to payment . In 2020, GBP 3,910,000 of Video
Game Tax Relief income has been recognised in respect of claims not
yet reviewed and approved by HMRC, being GBP 7,381,000 of Video
Game Tax Relief receivable at the balance sheet date, of which GBP
3,607,000 is reimbursable to clients on receipt.
Share-based payments
Estimating fair value for share-based payment transactions
requires determination of the most appropriate valuation model,
which depends on the terms and conditions of the grant. This
estimate also requires determination of the most appropriate inputs
to the valuation model including the expected life of the share
option or appreciation right, volatility and dividend yield and
making assumptions about them. Options with both market and
non-market conditions are most impacted by these estimates. An
increase in the assumption of fair value at grant date of 10% for
this category of options would result in an increase in the
cumulative IFRS2 charge of GBP 85,000.
The share options charge is subject to an assumption about the
number of options that will vest as a result of the expected
achievement of certain non-market conditions. A 1% reduction in the
percentage of lapses assumed in each option category in respect of
the achievement of performance conditions would result in an
increase in the cumulative IFRS2 charge of GBP 48,000 .
Recognition of Deferred Tax assets
Deferred tax assets are recognised for unused tax losses to the
extent that it is probable that taxable profit will be available
against which the losses can be utilised. Significant management
judgement is required to determine the amount of deferred tax
assets that can be recognised, based upon the likely timing and the
level of future taxable profits, together with future tax planning
strategies . A proportion of the deferred tax asset at 31 December
2020 is subject to a restricted period of overlapping profits. A
reduction in future taxable profits of 10% would result in a
reduction in the deferred tax asset recognised of GBP 16,000 .
Accounting judgements
Judgements in applying accounting policies and key sources of
estimation uncertainty
The following are the areas requiring the use of judgement that
may significantly impact the financial statements.
Revenue recognition on development contracts
There are a number of judgements in respect of the recognition
of revenue on development contracts, including:
-- the determination of the number of distinct separate
performance obligations in a contract. This is based upon judgement
around whether the customer can benefit from the use of the service
on its own or together with other resources that are readily
available to it, and also whether the promise to transfer the
service is separately identifiable from other promises in the
contract. As explained in the accounting policy for revenue, in
most cases this results in the identification of a single
performance obligation, being the development of a completed
project or game;
-- Whether the Group transfers control of the game over time,
and therefore satisfies the performance obligation and recognises
revenue over time. This requires judgement as to whether the
customer controls the game as it is created and enhanced. As the
customer approves the development work as it progresses, and is
involved in directing the development activity, it is generally
considered that control is transferred over time and revenue is
recognised accordingly; for revenue contracts with a significant
financing component the transaction price is adjusted for both the
length of time between when the Group delivers the services and
when the customer pays for those services, and the effects of the
time value of money using prevailing interest rates. When
determining what rate to use, management consider the rate that
would be reflected in a separate financing transaction between the
Group and the customer at contract inception taking into account
the credit characteristics of the customer. This involves a certain
degree of judgement;
-- variable consideration is constrained on contract inception
until the time at which it is considered highly probable that the
revenue will not reverse in future periods. As this determination
includes a number of factors outside the control of the Group, the
recognition of this revenue is an inherently difficult judgement,
and may result in revenues being recognised in a later period than
when the performance obligations were satisfied.
Video Game Tax Relief
It is in the Directors' judgement that presenting Video Game Tax
Relief as a deduction from direct costs best reflects the substance
and nature of these Credits. The Directors have considered the
requirements and key accounting indicators of both IAS20
(Accounting for Government Grants) and IAS12 (Income Taxes) and
have determined that Video Game Tax Relief is most appropriately
accounted for under IAS20.
4. GROUP ANNUAL REPORT AND STATUTORY ACCOUNTS
The financial information set out in the preliminary
announcement does not constitute the Group's statutory accounts for
the year ended 31 December 2020 and the year ended 31 December
2019. The statutory accounts for 2020 will be delivered to the
Registrar of Companies following the Annual General Meeting. The
auditors, Ernst & Young LLP, have reported on these accounts,
their report is unmodified, 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.
The Annual Report and full financial statements for the year
ended 31 December 2020 will be available on the Company's website (
www.sumogroupplc.com ) in due course, at which time a notification
will be sent to shareholders.
5. SEGMENTAL REPORTING
The trading operations of the Group are predominantly in video
games development and are all continuing. This includes the
activities of Sumo Digital Limited, Pipeworks Inc., Mistral
Entertainment Limited, Sumo Video Games Private Limited, Cirrus
Development Limited, Sumo Digital (Genus) Limited, Sumo Digital
(Chili) Limited, Sumo Digital (Locus) Limited, Sumo Games
Development Limited, Atomhawk Design Limited, Atomhawk Canada
Limited, The Chinese Room Limited, Red Kite Games Limited and Lab42
Limited. The central activities, comprising services and assets
provided to Group companies, are considered incidental to the
activities of this single segment and have therefore not been shown
as a separate operating segment but have been subsumed within video
games development. The assets of the Group reside predominantly in
the UK, with the exception of non-current and current assets with a
net book value of GBP8.9m (2019: GBP0.4m) located in USA, India and
Canada.
Major clients
In 2020 there were 2 major clients that individually accounted
for at least 10 percent of total revenues (2019: four clients). The
revenues relating to these clients in 2020 were GBP17.3m and
GBP10.0m (2019: GBP12.8m, GBP10.9m, GBP7.5m and GBP5.2m).
Analysis of revenue
The amount of revenue from external clients can be disaggregated
by location of the clients as shown below:
Year ended Year ended
31 December 31 December
2020 2019
------------- -------------
GBP'000 GBP'000
UK & Ireland 13,707 16,622
Europe 5,543 5,440
North America 42,225 26,457
Rest of the World 7,473 468
------------- -------------
68,948 48,987
------------- -------------
Revenue by IP origination
The Group's revenue can be disaggregated by considering the
source of created intellectual property (IP) as shown below:
Year ended Year ended
31 December 31 December
2020 2019
------------- -------------
GBP'000 GBP'000
Client-IP - Development 55,367 31,315
Client-IP - Royalty 1,375 1,309
------------- -------------
Total Client-IP 56,742 32,624
Own-IP - Development 9,885 15,998
Own-IP - Royalty 1,855 -
Own-IP - Game Revenues 466 365
------------- -------------
Total Own-IP 12,206 16,364
Total Revenue 68,948 48,987
------------- -------------
The above categories of revenue are recognised over time, with
the exception of 'Own-IP', which is recognised at a point in
time.
On third party game development contracts, the estimated
transaction price for the performance obligation includes both
fixed ('development fees') and variable revenues (such as
'royalties') and is reassessed at each reporting date (with changes
in the estimate recognised in the income statement), and recognised
over time.
Client-IP includes concepts and IP commissioned or originated by
clients for development by, or in partnership with, the Group and
for which clients retain ownership of such IP after development is
complete.
Own-IP includes concepts and IP originated by the Group. In some
instances, the Group may transfer certain rights to such IP,
originated by the Group, to the client for a finite period or in
perpetuity, typically earning a combination of fixed consideration
in the form of development revenues and variable consideration such
as royalties or similar income.
Where the Group fully funds the development of its Own-IP and
retains legal title to such IP, it will earn game revenues or
similar income. The Group may, at times, licence such IP to clients
with a view to maximising game revenues.
Royalty revenue of GBP3.2m (2019: GBP1.3m) includes GBP0.3m
(2019: GBP1.0m) of variable consideration identified as part of the
transaction price for performance obligations already satisfied at
the year-end date. The amount has been constrained to reflect
uncertainty in the variable consideration which will be resolved in
future periods. This uncertainty relates to circumstances outside
of the group's control such as future success of video games which
the group has developed. Royalties also include amounts recognised
in revenue in 2020 relating to performance obligations satisfied in
previous periods for which the outcome was uncertain totalling
GBP0.9m (2019: GBP0.3m).
The following aggregated amounts of transaction prices relate to
the performance obligations from existing contracts that are
unsatisfied or partially unsatisfied at 31 December 2020.
2021 2022
-------- --------
GBP'000 GBP'000
Revenue expected to be recognised 58,280 38,457
-------- --------
Assets and liabilities relating to contracts with clients
The Group has recognised the following asset and liabilities
relating to contracts with clients:
2020 2019
GBP'000 GBP'000
--------------------------------------- --------- ---------
Contract assets - amounts recoverable
on contracts 10,015 9,847
Contract liabilities - advances
for game development 874 394
---------------------------------------- --------- ---------
Contract assets - amounts recoverable on contracts represents
contracts whereby the services rendered by the Group at the
reporting date exceed the customer payments. Included within the
above contract assets are amounts of variable consideration that
are highly probable of not reversing of GBP0.3m (2019: GBP1.0m). In
the event that this variable consideration is no longer considered
probable, a provision for credit losses will be recorded. There are
no provisions for credit losses in respect of contract assets at
either year end.
In cases where the payments exceed the services rendered as at
the balance sheet date, a contract liability is recognised for
advances for game development.
Contract liabilities - advances for game development represent
customer payments received in advance of performance obligations
that are expected to be recognised as revenue in 2021. These
amounts recognised will generally be utilised within the next
reporting period.
6. DIRECT COSTS (NET)
Year ended Year ended
31 December 31 December
2020 2019
------------- -------------
GBP'000 GBP'000
Direct costs 44,414 32,409
Video Games Tax Relief (6,942) (7,350)
------------- -------------
37,472 25,059
------------- -------------
7. EXPENSES BY NATURE
Year ended Year ended
31 December 31 December
2020 2019
------------ ---------------------------
GBP'000 GBP'000
Exceptional items 4,115 523
Employee benefit expense 47,478 34,091
Depreciation charges (Note 11) 3,524 2,226
Amortisation and impairment charges
(Note 10) 2,089 834
Fair value loss on contingent consideration 2,706 -
Operating lease payments 212 200
------------ ---------------------------
Exceptional items
Exceptional items include external costs in relation to:
-- 2019 - professional advisor fees associated with the acquisition
of Red Kite Games Limited (GBP157,000), transactions relating
to restructuring costs (GBP153,000) and other ongoing acquisition
activity (GBP213,000)
-- 2020 - professional advisor fees associated with the acquisition
of Pipeworks Inc (GBP2,889,000) the acquisition of Lab42
Limited (GBP119,000), and other ongoing acquisition activity
(GBP1,107,000)
These items are considered to be material and exceptional in
nature as they are non-recurring and are significant in size
respective to the ongoing expenses of the group.
Fair value loss on contingent consideration
Fair value loss on contingent consideration reflects the
restatement to fair value of the liability recognised for
consideration paid in 2022 which is contingent on future events. In
2020, this movement consists of an increase in the fair value of
the liability of GBP4,205,000, offset by a gain on retranslation to
year end foreign exchange rates of GBP1,499,000.
8. TAXATION
The effective tax rate of the group for the period ended 31
December 2020 is (91)% (2019: (1.6)%)
Analysis of credit in year
Year ended Year ended
31 December 31 December
2020 2019
-------------- --------------
GBP'000 GBP'000
Current tax
Current taxation charge for the year 975 92
Adjustments for prior periods (61) (22)
-------------- --------------
Total current tax 914 70
-------------- --------------
Deferred tax
Origination and reversal of timing
differences (1001) (68)
Effect of changes in tax rates (296) -
Adjustments in respect of prior periods (402) (119)
-------------- --------------
Total deferred tax (1,699) (187)
-------------- --------------
Income tax credit reported in income
statement (785) (117)
-------------- --------------
Reconciliation of total tax (credit):
Profit/(loss)on ordinary activities
before tax 860 7,439
-------------- --------------
Profit/(loss) on ordinary activities
multiplied by the rate of corporation
tax in the UK of 19.00% (2019: 19.00%) 163 1,413
Effects of:
Permanent differences 1,751 192
Share-based payments (19) (121)
Unrecognised deferred tax 178 156
Effects of different tax rates in
overseas jurisdictions (91) 19
Non-taxable income (2,008) (1,656)
Effect of change in rates (296) 21
Adjustments in respect of previous
periods (463) (141)
-------------- --------------
Total taxation (credit) (785) (117)
-------------- --------------
Non-taxable income relates primarily to VGTR. Permanent
differences relate primarily to exceptional items and fair value
movements on contingent consideration.
Taxation on items taken directly to equity was a credit of
GBP1,575,000 (2019: GBP272,000) and relates to deferred tax on
share option schemes and transitional adjustments on the
implementation of IFRS16.
Adjustments in respect of prior periods relate to the
utilisation losses for which the deferred tax asset was
unrecognised at 31 December 2019 due to uncertainty over
recoverability.
Factors that may affect future tax charges
The standard rate of UK corporation tax is 19% and this took
effect from 1 April 2017. The 2016 Finance Act introduced a UK
corporation tax rate of 17% from 1 April 2020. However on 11 March
2020, the 2020 UK Budget reversed the reduction in the corporation
tax rate from 19% to 17%. This reversal was substantively enacted
on the same date.
Accordingly, these rates are applicable in the measurements of
the deferred tax assets and liabilities at 31 December 2020.
9. EARNINGS PER SHARE
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 (4,618,735 at 31 December 2020 and 31
December 2019).
When calculating diluted earnings per share, the weighted
average number of shares is adjusted to assume conversion of
8,203,478 (2019: 689,726) of potentially dilutive options granted
to employees and 460,175 of shares to be issued in respect of
deferred and contingent consideration on acquisition of Red Kite
Games Limited and Pipeworks Inc where conditions upon which the
shares will be issued have been met.
The calculation of basic and diluted profit/(loss) per share is
based on the following data:
Year ended Year ended
31 December 31 December
2020 2019
-------------- ----------------------------
Earnings (GBP'000)
Earnings for the purposes of basic and
diluted earnings per
share being profit for the year attributable
to equity shareholders 1,645 7,556
-------------- ----------------------------
Number of shares
Weighted average number of shares for
the purposes of basic earnings per share 152,500,624 145,720,683
Weighted average dilutive effect of warrants 1,450,000 1,450,000
Weighted average dilutive effect of conditional
share awards 8,203,478 689,727
Weighted average dilutive effect of deferred
consideration 460,175 1,064,033
-------------- ----------------------------
Weighted average number of shares for
the purposes of diluted earnings per
share 162,614,277 148,924,443
-------------- ----------------------------
Earnings/(losses) per ordinary share
(pence)
Basic earnings/ (loss) per ordinary share 1.08 5.19
Diluted earnings/ (loss) per ordinary
share 1.01 5.07
-------------- ----------------------------
10. GOODWILL AND OTHER INTANGIBLE ASSETS
Intellectual Customer Customer Trademarks
Software Property contracts relationships Goodwill Total
--------------------------- -------------------------- -------------- -------------- ----------- --------------- ------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
COST
As at 1
January 2019 882 - 14,722 21,678 - 21,379 58,661
Additions 476 348 - - - 15 839
Acquisition of
subsidiary - - 135 - - 1,457 1,592
As at 31
December
2019 1,358 348 14,857 21,678 - 22,851 61,092
--------------------------- -------------------------- -------------- -------------- ----------- --------------- ------------
Additions 248 1,156 - - - - 1,404
Acquisition of
subsidiary
(note 15) 33 25 5 63
Acquisition of
subsidiary
(note 15) 9 465 2,792 13,408 4,750 61,841 83,265
Effects of
translation
to
presentation
currency - (22) (98) (676) (239) (3,250) (4,285)
Derecognition - - (14,857) (21,678) - - (36,535)
--------------------------- -------------------------- -------------- -------------- ----------- --------------- ------------
As at 31
December
2020 1,615 1,947 2,727 12,757 4,511 81,447 105,004
--------------------------- -------------------------- -------------- -------------- ----------- --------------- ------------
AMORTISATION
As at 1
January 2019 368 - 14,298 21,617 - 36,283
Charge for the
year 214 - 559 61 - 834
As at 31
December
2019 582 - 14,857 21,678 - 37,117
--------------------------- -------------------------- -------------- -------------- ----------- --------------- ------------
Charge for the
year 347 - 962 584 196 - 2,089
Charge for the
year
- cost of
sales - 161 - - - - 161
Derecognition - - (14,857) (21,678) - - (36,535)
As at 31
December
2020 929 161 962 584 196 - 2,832
--------------------------- -------------------------- -------------- -------------- ----------- --------------- ------------
NET BOOK VALUE
--------------------------- -------------------------- -------------- -------------- ----------- --------------- ------------
As at 31
December
2019 776 348 - - 22,851 23,975
--------------------------- -------------------------- -------------- -------------- ----------- --------------- ------------
As at 31
December
2020 686 1,786 1,765 12,173 4,315 81,447 102,172
--------------------------- -------------------------- -------------- -------------- ----------- --------------- ------------
The customer contracts represent contracted revenues acquired as
part of business combinations, and customer relationships represent
the expected future cash flows from revenues with existing
customers that are uncontracted at the acquisition date. Where the
impact of discounting is significant, the valuation used the
discounted cash flow method, based on estimated operating business
profit margins. The discount rate applied at the time to the future
cash flows was 12.1%
Goodwill and other intangible assets have been tested for
impairment. The method, key assumptions and results of the
impairment review are detailed below:
Goodwill is attributed to two cash generating units - UK and US
operating businesses. Goodwill and other intangible assets of the
UK cash generating unit have been tested for impairment by
assessing the value in use of the CGU. The value-in-use
calculations were based on projected cash flows in perpetuity. Cash
flows were based on a three-year forecast with growth rates between
10% and 15%. Subsequent years were based on a reduced rate of
growth of 2.0% into perpetuity. These growth rates are based on
past experience, and market conditions and discount rates are
consistent with external information. The growth rates shown are
the average applied to the cash flows of the individual CGUs and do
not form a basis for estimating the consolidated profits of the
Group in the future.
The discount rate used to test the cash generating units was the
Group's pre-tax WACC of 12% (2019: 11%).
As a result of these tests no impairment was considered
necessary. Due to the proximity of the acquisition to the reporting
date, no impairment test has been performed on Goodwill arising on
the acquisition of the US cash generating unit.
All amortisation charges have been treated as an expense and
charged to operating expenses in the income statement.
11. PROPERTY, PLANT AND EQUIPMENT
Right
Leasehold Fixtures Computer of use
improvements and fittings hardware asset Total
-------------- -------------- ---------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
COST
As at 1 January 2019 1,312 734 2,409 - 4,455
Additions 584 210 2,894 7,725 11,413
Transfers (409) 409 - - -
Acquisition of subsidiary
(note 15) - - 25 - 25
As at 31 December
2019 1,487 1,353 5,328 7,725 15,893
-------------- -------------- ---------- -------- --------
Adjustment to opening
position ([1]) - - - (685) (685)
Additions 2,029 114 2,048 4,358 8,549
Transfers (18) 18 - - -
Acquisition of subsidiary
(note 15) - - 9 135 144
Acquisition of subsidiary
(note 15) 625 64 232 3,479 4,400
Effect of translation
to presentation currency - - - (25) (25)
Disposals - - - (288) (288)
As at 31 December
2020 4,123 1,549 7,617 14,699 27,988
-------------- -------------- ---------- -------- --------
DEPRECIATION
As at 1 January 2019 278 227 1,454 - 1,959
Charge for the period 290 269 762 905 2,226
Effect of translation
to presentation currency - - (7) - (7)
As at 31 December
2019 568 496 2,209 905 4,178
-------------- -------------- ---------- -------- --------
Charge for the period 392 354 1,423 1,355 3,524
Effect of translation
to presentation currency - - 5 (9) (4)
Disposals - - - (288) (288)
-------------- -------------- ---------- -------- --------
As at 31 December
2020 960 850 3,637 1,963 7,410
-------------- -------------- ---------- -------- --------
NET BOOK VALUE
As at 31 December
2019 919 857 3,119 6,820 11,715
As at 31 December
2020 3,163 699 3,980 12,736 20,578
-------------- -------------- ---------- -------- --------
Note 1: The comparative amounts have not been restated for this
adjustment as, in the directors' opinion, this is immaterial to the
Financial Statements
Depreciation charges are allocated to operating expenses in the
income statement.
12. LEASES
IFRS 16 Lease liability
The leases held by the Group relate to leased land and
buildings, plant and machinery and motor vehicles, as set out
below. There are no variable lease payments, extension or
termination options or residual value guarantees and there are no
leases not yet commenced to which the Group is committed.
Amounts recognised in the Consolidated Statement of Financial
Position
The balance sheet shows the following amounts relating to
leases:
31 December 31 December
2020 2019
GBP'000 GBP'000
------------ ------------
Right of use assets
Leased land and buildings 12,849 6,791
Motor vehicles - 29
------------ ------------
12,849 6,820
These are included within "Property, plant and equipment" in the
Consolidated Statement of Financial Position.
31 December 31 December
2020 2019
GBP'000 GBP'000
------------ ------------
Lease liabilities
Maturity analysis
Within one year 1,376 816
In one to five years 5,975 3,436
In more than five years 6,292 3,088
------------------------- ------------ ------------
Total lease liabilities 13,643 7,340
------------------------- ------------ ------------
Current 1,376 816
Non-current 12,267 6,524
------------------------- ------------ ------------
Amounts recognised in the Consolidated Income Statement
The Consolidated Income Statement shows the following amounts
relating to leases:
31 December 31 December
2020 2019
GBP'000 GBP'000
------------ ------------
Depreciation charge of right
of use assets
Leased land and buildings 1,335 882
Motor vehicles - 23
------------ ------------
1,335 905
Interest expense (included
in finance costs) 196 149
Expenses relating to short
term/low value leases
(included in direct costs
/ operating expenses) 212 200
13. SHARE-BASED PAYMENTS
In the year ended 31 December 2020 the Group operated two
equity-settled share-based payment plans as described below.
The Group recognised total expenses of GBP4,977,000 (2019:
GBP2,684,000) in respect of equity-settled share-based payment
transactions in the year ended 31 December 2020 of which
GBP1,597,000 related to accrued national insurance costs (2019:
GBP531,000).
The Sumo Group plc Long Term Incentive Plan (the 'LTIP')
The Group operates a long-term incentive plan for senior
executives, further details of which can be found in the Directors'
Remuneration Report in the Group financial statements.
The Group has made awards to certain Directors and
employees.
The vesting of some of these awards is subject to the Group
achieving certain performance targets under the LTIP, as set out in
the Directors' Remuneration Report and are based on the Group
meeting the adjusted earnings per share (AEPS) and (in some cases)
total shareholder return (TSR) conditions in the following
weightings.
2018 and early 2019 awards:
Performance condition Tier 2-4 participants Tier 1 participants
Proportion of Proportion of
award award
----------------------- ---------------------- --------------------
Cumulative AEPS 100% 35%
Cumulative TSR - 65%
------------------------ ---------------------- --------------------
December 2019 and 2020 awards:
Performance condition Part A participants Part B Participants Part C participants
----------------------- -------------------- -------------------- --------------------
Continued employment
only 100% 50% -
Cumulative TSR - 50% 100%
----------------------- -------------------- -------------------- --------------------
Details of the maximum total number of ordinary shares, which
may be issued in future periods in respect of awards outstanding at
31 December 2020 is shown below.
31 December 31 December
2020 2019
Number of Number of
shares shares
------------- -------------
At 1 January 9,640,194 9,581,278
Granted in the year 1,417,060 1,009,371
Exercised in the year (40,000) (519,961)
Lapsed/forfeited in the year - leavers (281,135) (430,494)
Lapsed/forfeited in the year - performance (654,966) -
conditions not satisfied
At 31 December 10,081,153 9,640,194
------------- -------------
Options over 3,060,342 shares are subject to TSR performance
conditions, options over 5,525,226 shares are subject to AEPS
performance conditions, and the remaining shares are subject only
to continued employment by the Group (2019: Options over 3,708,435
shares are subject to both the AEPS and TSR performance conditions
and the remainder were subject only to the AEPS performance
condition)
The estimate of the fair value of the services received in
return for the awards is measured based on the Black Scholes or
Monte Carlo model. The aggregate of the estimated fair values of
the awards at 31 December 2020 shown above is GBP1.01 (2019:
GBP0.95). The fair value of the TSR award takes into account the
likelihood of achieving the performance conditions.
The weighted average remaining contractual life for the share
options outstanding as at 31 December 2020 was 0.4 years (2019: 1.3
years).
The weighted average fair value of options granted during the
year was GBP1.56 (2019: GBP1.39).
All options have an exercise price of GBPnil.
For awards granted in the current year, the inputs into the
Monte Carlo models are as follows:
TSR condition AEPS condition TSR condition AEPS condition
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2020 2020 2019 2019
--------------- --------------- --------------- -----------------
Share price at GBP2.00 n/a n/a GBP1.27
grant date to GBP2.55 to GBP1.60
Exercise price nil n/a n/a GBPnil
Expected volatility 46% n/a n/a -
Expected life 3 years n/a n/a 3 years
Expected dividend nil n/a n/a -
yield
Risk-free interest 0.86% n/a n/a -
rate
Fair value per GBP1.07 to n/a n/a GBP1.26
option GBP1.63 to GBP1.60
--------------- --------------- --------------- -----------------
Expected volatility was determined using the Group's own share
price volatility. The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations.
Share Incentive Plan (SIP)
The Group operates an all-employee share ownership plan. Under
the SIP, the Group has made awards of matching shares to certain
employees which are conditional on length of service.
Details of the maximum total number of ordinary shares subject
to conditional share awards outstanding at 31 December 2020 is
shown below.
31 December 31 December
2020 2019
Number of Number of
conditional conditional
shares shares
-------------- --------------
At 1 January 108,856 86,087
Granted in the year 16,005 24,455
Lapsed/forfeited in the year - (1,686)
At 31 December 124,861 108,856
-------------- --------------
The estimate of the fair value of the services received in
return for the conditional share awards is measured based on a
Black Scholes model. The aggregate of the estimated fair values of
the awards at 31 December 2020 shown above is GBP2.05 (2019:
GBP1.69), before taking into account the likelihood of achieving
non-market-based performance conditions.
For awards granted in the 2020 year, the inputs into the Black
Scholes model are as follows:
31 December 31 December
2020 2019
------------ ------------
GBP1.87 to GBP1.28 to
Share price at grant date GBP3.37 GBP1.67
Exercise price GBPnil GBPnil
Expected volatility - -
Expected life 3 years 3 years
Expected dividend yield - -
Risk-free interest rate - -
Fair value per option GBP1.87 to GBP1.28 to
GBP3.37 GBP1.67
Expected volatility was determined using the median volatility
of comparator sector companies. The expected life used in the model
has been adjusted, based on management's best estimate, for the
effects of non-transferability, exercise restrictions and
behavioural considerations.
14. DEFERRED TAX
2020 2019
-------- --------
GBP'000 GBP'000
Asset at beginning of period 2,512 2,053
Credit to income statement 831 187
Credit to equity 1,575 272
Adjustments in respect of prior periods 402 -
Foreign exchange adjustments 2 2
On acquisition of subsidiary 27 (2)
-------- --------
Asset at 31 December 5,349 2,512
-------- --------
The deferred tax asset relates to
the following:
Accelerated capital allowances on
property, plant & equipment 249 (53)
On losses 967 1,110
On share-based payments and other
timing differences 4,133 1,455
5,349 2,512
-------- --------
2020 2019
-------- --------
GBP'000 GBP'000
Liability at beginning of period - -
On acquisition of subsidiary 5,782 -
Charge to income statement (465) -
Foreign exchange adjustments (in equity) (280) -
Asset at 31 December 5,037 -
-------- --------
The deferred tax liability relates to intangible assets arising
on acquisition of a subsidiary.
The Group has unrecognised deferred tax assets on losses of
GBP1,132,000 (2019: GBP977,000)
15. BUSINESS COMBINATIONS
Acquisition of Pipeworks Inc
On 30 September 2020 the Group announced its conditional
acquisition of Pipeworks, Inc (Pipeworks). The acquisition was
completed on 16 October 2020. Consideration agreed was $35.0m cash
on completion subject to normal cash, net debt and working capital
adjustments and $24.5m in Sumo shares on completion, with
additional consideration of up to $40m payable based on the
performance of Pipeworks in the years to 31 December 2020 and 31
December 2021. The fair value of the consideration was assessed as
GBP80.2m ($103.7m), comprising cash of GBP26.2m ($33.9m) (GBP25.0m
net of cash acquired), Ordinary shares issued GBP25.5m ($33.0m) and
additional earnout consideration contingent on future performance
with an estimated fair value at the acquisition date of GBP28.5m
($36.8m).
Consideration transferred
Completion consideration
On 16 October 2020 the acquisition of Pipeworks, Inc was settled
in cash of $33.9m (GBP26.2m) after adjustments for cash, debt and
normalised working capital, and in 9,893,940 shares with a fair
value of GBP25.5m ($33.0m) on the completion date based on the
Group's share price on 16 October of GBP2.58 per share. The number
of shares issued was determined as a value of $24.5m based on the
'reference share price' (the average share price on the 30 trading
days preceding 28 September 2020) determined on completion to be
$2.48/ GBP1.90.
Contingent consideration
In addition to the consideration payable on completion,
additional consideration may be payable based on earnout targets
for Pipeworks, Inc. for the financial years ending 31 December 2020
and 31 December 2021. The maximum earnout consideration is $8m in
respect of 2020 and $32m in respect of 2021 based on the reference
share price of $2.48/GBP1.90. The total earnout consideration will
be settled in one instalment following the signing of the audited
accounts of the Group for the year ending 31 December 2021. At
least 30% of the earnout consideration will be settled in cash, and
at least 30% settled in Sumo shares, with the final split of cash
and shares at the Group's discretion. 35% of the total earnout
consideration is variable based on movements in the Group's share
price in comparison to the reference share price.
Management determined that the fair value of contingent
consideration on acquisition was $36.8m (GBP28.5m). In determining
the fair value of the contingent consideration on acquisition,
management have made a number of assumptions:
Financial targets - management have made an assessment of the
likelihood of earnout targets being met. The earnout for the year
ended December 2020 has been determined based on the actual trading
results for the period. The earnout for the year ended December
2021 has been calculated using a risk weighted average forecast.
This assumption will be reassessed at each reporting date and any
movements in the fair value of the consideration amount recognised
in the income statement.
Fair value of shares - a proportion of the earn out
consideration results in a fixed number of shares (or cash
equivalent value) using the earn out amount divided by the
'reference share price' of GBP1.90. The fair value of this
proportion of the consideration was determined with reference to
the Group's market share price on completion. The fair value will
be reassessed at each reporting date, and at 31 December 2020 this
has resulted in an increase in the fair value of the consideration
of GBP4,205,000 which has been recognised as an expense in the
income statement. This expense is offset by a foreign exchange gain
on retranslation of the liability of GBP1,499,000.
Discount rate - the liability for contingent consideration has
been discounted to present value using a rate of 2.5%. Interest
costs of GBP146,000 have been recognised in the income statement.
The undiscounted value of the contingent consideration at
acquisition was $38.2m (GBP29.5m).
Goodwill and intangible assets
Goodwill of GBP61,841,000 is primarily related to growth,
technical knowledge and market diversification, as well as the
acquisition of an assembled and trained workforce. Other intangible
assets had a fair value of GBP21,425,000 and include Customer
Contracts, Customer relationships, Trademarks and Intellectual
property.
Contribution to the Group results
Pipeworks, Inc generated a profit before tax of GBP1.2m for the
2.5 months from acquisition. Revenue for the period was GBP6.1m. If
Pipeworks had been part of the Group for the full year, profit
would have been GBP3.7m.
The draft fair values of the assets and liabilities acquired are
set out below:
Fair value
-----------
GBP'000
Assets
Intangible assets 21,425
Property, plant and equipment 4,400
Trade and other receivables 3,223
Cash and cash equivalents 1,247
30,295
Liabilities
Corporation tax payable (16)
Trade and other payables (6,131)
Deferred tax (5,755)
(11,902)
-----------
18,393
-----------
Goodwill 61,841
-----------
80,234
-----------
Summary of net cash inflow
from acquisition
Cash paid 26,246
Cash acquired (1,247)
-----------
Cash consideration transferred 24,999
-----------
Purchase consideration
Cash paid 26,246
Ordinary shares 25,526
Contingent consideration 28,462
Total purchase consideration 80,234
-----------
Acquisition costs charged
to expenses 2,889
-----------
Acquisition of Lab42 Limited
On 14 May 2020, the Group acquired Lab42 Limited (Lab42) for
consideration of $600,000 (GBP493,000). Net consideration was
GBP197,000, as Lab42 had GBP296,000 of cash on the balance sheet at
the date of acquisition. The Company will continue to operate under
the Lab42 name, as a wholly owned subsidiary of Sumo Digital
Limited.
Contribution to the Group results
Lab 42 Limited generated a profit before tax of GBP0.5m for the
7.5 months from acquisition. Revenue for the period was GBP2.6m,
including GBP0.4m of intercompany revenue. If Lab42 had been part
of the Group for the full year, profit would have been GBP0.6m.
The draft fair values of the assets and liabilities acquired are
set out below:
Fair value
-----------
GBP'000
Assets
Intangible assets 58
Property, plant and equipment 145
Trade and other receivables 415
Cash and cash equivalents 296
914
Liabilities
Trade and other payables (426)
488
-----------
Goodwill 5
493
-----------
Summary of net cash inflow
from acquisition
Cash paid 493
Cash acquired (296)
-----------
Cash consideration transferred 197
-----------
Purchase consideration
Cash paid 493
-----------
Acquisition costs charged
to expenses 119
-----------
Acquisition of Red Kite Games Limited
In the year ended 31 December 2019 the Group acquired Red Kite
Games Limited. During the year ended December 2020, the Group paid
GBP134,000 of deferred cash consideration and issued 1,162,791
shares as deferred consideration.
Cash flows on acquisition of subsidiaries - net of cash
acquired:
Year ended Year ended
31 December 31 December
2020 2019
------------- -------------
GBP'000 GBP'000
Red Kite Games Limited 134 38
Lab 42 Limited 197 -
Pipeworks, Inc 24,999 -
------------- -------------
25,330 38
------------- -------------
16. POST BALANCE SHEET EVENTS
Following the year end, on 27 January 2021, The Group's joint
brokers and NOMAD, Zeus Capital, exercised warrants to subscribe
for 1,450,000 shares for GBP1 each, generating proceeds of
GBP1,450,000 for the Group.
On 31 January 2021, the Group acquired PixelAnt Games sp. z o.
o. ("PixelAnt"), based in Wroclaw, Poland for a total consideration
of GBP250,000. A further amount may be payable, in Sumo Group
shares, depending on the EBITDA achieved in the two years to 31
March 2023. The company will continue to operate under the PixelAnt
name, as a wholly owned subsidiary of Sumo Digital Limited.
17. ALTERNATIVE PERFORMANCE MEASURES
The Group reports certain alternative performance measures
(APMs) that management believes provide valuable additional
information for the users of this report to understand the
underlying trading performance of the business. In particular,
Adjusted EBITDA is used to provide the users of the accounts a
clear understanding of the underlying profitability of the business
over time. These APMs, described below, are not GAAP measures as
defined by IFRS. A reconciliation of statutory profit to underlying
profit is provided below.
Adjusted EBITDA
Adjusted earnings before interest, tax, depreciation and
amortisation (Adjusted EBITDA) also excludes:
-- Share based payments charges of GBP4,977,000 (2019: 2,684,000).
-- Foreign currency derivative contracts gain of GBP966,000
(2019: nil). This adjustment represents net gains or losses on
economic foreign currency hedges, recognised at fair value within
statutory operating profit, but which are not yet realised through
actual currency receipts. These gains or losses are excluded from
Adjusted EBITDA, which recognises profit on economic foreign
currency hedges at a constant currency hedged rate and includes
only gains and losses on realised currency receipts.
-- Exceptional costs of GBP4,115,000 (2019: GBP523,000) for
professional advisor fees associated with acquisitions.
-- Fair value movements on contingent consideration of
GBP2,706,000 (2019: GBPnil) associated with acquisitions.
-- Investment in co-funded games expensed of GBP245,000 (2019:
GBP1,292,000), being the Group's contribution to the cost of
developing games which are co-funded with clients and which are
required to be expensed under IFRS, offset by the unwind of any
such costs adjusted in previous periods on games which have
subsequently launched.
Adjusted EBITDA also includes:
-- Operating lease costs capitalised under IFRS16 of
GBP1,548,000 (2019: GBP986,000) which represents the rental costs
payable on leases applied on a straight line basis over the life of
the lease.
Adjusted profit before tax
Adjusted profit before tax excludes share based payment charges,
exceptional costs, fair value movements on contingent consideration
and investment in co-funded games expensed, and includes operating
lease costs, as described above.
Adjusted profit before tax also excludes:
-- Depreciation of GBP1,355,000 (2019: GBP905,000) associated with IFRS16.
-- Finance costs of GBP342,000, being interest charges
associated with IFRS16 of GBP196,000 (2019: GBP149,000) and the
unwind of interest on the Group's liability for contingent
consideration of GBP146,000 (2019: GBPnil).
-- Amortisation of GBP1,742,000 (2019: 621,000) on intangible
assets recognised on acquisition.
Adjusted Earnings Per Share
Basic adjusted earnings per share is calculated by dividing the
adjusted profit attributable to equity shareholders by the adjusted
weighted average number of ordinary shares in issue at the
reporting date.
Adjusted profit attributable to equity shareholders is
calculated as a djusted profit before tax after applying a
pro-forma rate of tax of 19%.
Adjusted weighted average number of shares differs from the
statutory measure (Note 9) as it includes 950,000 nil cost options
issued on IPO which have no outstanding performance conditions as
part of share capital. Only 540,000 were exercised as at 2020
(2019: 500,000). Adjusted weighted average number of shares in 2020
also assumes 7,588,500 of share placing shares issued on 21 July
2020 were tied to the Pipeworks acquisition on 16 October and are
included in the weighted average only from that date.
Diluted adjusted earnings per share is calculated by dividing
adjusted earnings attributable to equity shareholders by the total
number of potential future shares, including all those in granted
in respect of Share Option schemes where performance conditions
have not yet been met.
When calculating adjusted diluted earnings per share, the number
of shares is adjusted to assume conversion of 9,603,033 (2018:
9,640,194) of potentially dilutive options granted to employees,
8,715,519 (2019: 1,162,791) shares to be issued in respect of
deferred consideration on acquisition and 1,450,000 (2019:
1,450,000) of warrants.
Year ended Year ended
31 December 31 December
2020 2019
------------ ---------------------------
Adjusted earnings per share
Weighted average number of shares
for the purposes of basic adjusted
earnings per share 151,138,164 146,410,409
Fully dilutive potential number
of shares 184,934,211 158,239,287
Basic AEPS (pence) 7.93 6.99
Diluted AEPS (pence) 6.48 6.46
------------ ---------------------------
A reconciliation of IFRS reported results to the unaudited
underlying income statement is shown below.
Year ended 31 December Year ended 31 December
2020 2019
Reported Adjustments Underlying Reported Adjustments Underlying
------------- ------------- ----------- ------------- ------------- -------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 68,948 - 68,948 48,987 - 48,987
------------- ------------- ----------- ------------- ------------- -------------
Gross profit 31,476 245 31,721 23,928 1,292 25,220
Operating expenses
excluding depreciation,
amortisation, share based
payments, foreign
currency derivative
contracts, exceptional
items and fair value loss
on contingent
consideration (13,701) - (13,701) (10,162) - (10,162)
Investment in co-funded
games expensed 245 (245) - 1,292 (1,292) -
Operating lease costs
capitalised under
IFRS16 (1,548) - (1,548) (986) - (986)
Adjusted EBITDA 16,472 - 16,472 14,072 - 14,072
Depreciation (3,524) 1,355 (2,169) (2,226) 905 (1,321)
Amortisation of software (347) - (347) (213) - (213)
Foreign currency derivative
contracts 966 - 966
Investment in co-funded
games expensed (245) 245 - (1,292) 1,292 -
Operating lease costs
capitalised under
IFRS16 1,548 (1,548) - 986 (986) -
Net finance costs (470) 342 (128) (60) 149 89
------------- ------------- ----------- ------------- ------------- -------------
Adjusted profit before tax 14,400 394 14,794 11,267 1,360 12,627
Amortisation of intangibles
arising on acquisition (1,742) (621)
Share based payment charge (4,977) (2,684)
Operating expenses -
exceptional (4,115) (523)
Fair value losses on (2,706) -
contingent consideration
Profit/(loss) before
taxation 860 7,439
------------- -------------
Financial calendar
Financial year end 31 December 2020
Announcement of full-year results 31 March 2021
Publication of Annual Report May 2021
and Accounts
Annual General Meeting June 2021
Announcement of half-year results Late September 2021
Publication of Interim Report Mid October 2021
Financial year end 31 December 2021
Announcement of full-year results April 2022
Publication of Annual Report May 2022
and Accounts
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END
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