15 January 2025

Frontier Developments plc

FY25 H1 Results - a strong turnaround

Frontier Developments plc (AIM: FDEV, 'Frontier', the 'Company', or the 'Group'), a leading developer and publisher of video games based in Cambridge, UK, publishes its unaudited interim results for the 6 months to 30 November 2024 ('H1 FY25' or the 'Period') and provides a trading update for December 2024.

H1 Financial Summary & Headlines

Frontier has delivered a strong turnaround in financial performance in H1 FY25, following the return to profitability achieved in the second half of FY24.

·   Revenue of £47.3m million was in line with management's expectations.

·   Actions taken in the preceding financial year to reduce costs and reshape the Company delivered a turnaround in profitability of over £9 million to an Adjusted EBITDA* profit of £4.4 million.

·   An improved cash position of £27.2 million at 30 November 2024 grew to £30.5 million at 31 December 2024, which is before receipt of December revenue.

*Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation and impairment charges related to game developments and game technology, less investments in game developments and game technology, and excluding restructuring costs, share-based payment charges and other non-cash items.

Game Portfolio Overview

Planet Coaster 2 achieved the #1 chart position on Steam at release on 6 November 2024, and contributed 22% of total revenue in H1 FY25, despite launching less than four weeks before the end of the Period. The game is a great addition to Frontier's portfolio of creative management simulation ('CMS') games and is set to provide significant revenue contributions over many years.

Total sales of Planet Coaster 2 across all platforms - PC, PlayStation 5 and Xbox Series S|X - exceeded 400,000 base game units within two months of release, including through planned price promotions in December. Its predecessor, Planet Coaster, also sold well during the festive period, including through a deep discount on Steam. The substantial number of new Planet Coaster players added through those price promotions provides a further opportunity to grow the Planet Coaster 2 community over time.

Planet Coaster 2 is the first of three CMS games confirmed through the strategic reset undertaken in FY23-FY24, with the next being a third Jurassic World game, coming in FY26. The long-term strength of Frontier's CMS-led strategy was again evidenced in the Period through the ongoing sales performance of Frontier's back catalogue of established CMS games, led by Planet Zoo and Jurassic World Evolution 2.

Outside of CMS games, Frontier's genre-leading space simulation game, Elite Dangerous, which celebrated its 10^th anniversary in December, achieved a substantial increase in revenue in the Period through new story elements, and the release of both free and chargeable content.

Early in the Period, on 23 July 2024, F1® Manager 2024 was released on PC, PlayStation 5, Xbox Series S|X, PlayStation 4, Xbox One and Nintendo Switch. This built on the strengths of Frontier's first two F1® Manager games with the addition of the Create A Team mode to allow players to bring their own 11^th team to the grid.

Trading Update and Outlook

After the end of the Period, strong sales across the portfolio in the Steam winter sale and other price promotion events delivered Frontier's third-highest festive sales performance, surpassed only by the stay-at-home boosted years of 2020 and 2021.

The Board remains confident of delivering FY25 revenue and profitability in line with expectations following the strong performance achieved in the first seven months.

Jonny Watts, Frontier's CEO, said:

"It was great to see Planet Coaster 2 release in November, the first of three CMS games we scheduled through our strategic reset last year. We are working hard to support and nurture the game as its player community grows.

Our established portfolio of CMS games continues to deliver and, as we begin 2025, I look ahead with excitement to our third Jurassic World game, coming in FY26.

I remain confident in our team's ability to deliver on our exciting roadmap and I look forward to the years ahead."

There will be a call for analysts and institutional investors at 9:30a.m. today. To register, please contact [email protected].

Enquiries:

Frontier Developments                                                          +44 (0)1223 394 300

Jonny Watts, CEO

Alex Bevis, CFO                                                                                        

Peel Hunt - Nomad and Joint Corporate Broker         +44 (0)20 7418 8900

Neil Patel / Ben Cryer / Kate Bannatyne

Panmure Liberum - Joint Corporate Broker                  +44 (0)20 3100 2000

Max Jones / Nikhil Varghese

Teneo                                                                                             +44 (0)20 7353 4200

Matt Low / Arthur Rogers 

About Frontier Developments plc

Frontier is a leading independent developer and publisher of video games founded in 1994 by David Braben, co-author of the iconic Elite game. Based in Cambridge, Frontier uses its proprietary COBRA game development technology to create innovative genre-leading games, primarily for personal computers and videogame consoles.

Frontier's LEI number: 213800B9LGPWUAZ9GX18.

www.frontier.co.uk

Interim Results Statement

REVENUE AND GROSS PROFIT

H1 revenue of £47.3 million (H1 FY24: £47.7 million) was in line with management's expectations, which was achieved through a strong back-catalogue performance and contributions from two new games; F1® Manager 2024 (23 July 2024) and Planet Coaster 2 (6 November 2024). Planet Coaster 2 was the strongest performer of the two games, contributing 22% of total revenue despite launching less than four weeks before the end of the Period.

The back-catalogue of games that were released before the start of the financial year continued to perform well in H1 FY25. The largest contribution came from Frontier's established portfolio of CMS games - Planet Coaster, Planet Zoo, Jurassic World Evolution and Jurassic World Evolution 2 - which together recorded £24.6 million of revenue in H1 FY25 (52% of total revenue). This represented an impressive sustain rate of 97%, versus the comparative period (H1 FY24: £25.5 million), including through the contribution of Planet Zoo: Console Edition (released March 2024). With new story elements and ships, Elite Dangerous revenue from both the base game and paid downloadable content ('PDLC') grew versus the comparative period, with PDLC sales almost doubling through strong player engagement.

PDLC and free downloadable content are important elements of Frontier's post-release nurturing strategy and, across the whole portfolio, PDLC accounted for 31% of total revenue in H1 FY25 (H1 FY24: 29%). Planet Zoo on PC and Planet Zoo: Console Edition each benefitted from new PDLC in the Period. A PDLC pack was available for the newly released Planet Coaster 2 alongside its launch in November, with a second PDLC releasing after the end of the Period in December. We also released a number of free updates for Planet Coaster 2 and look forward to engaging with the community to deliver on an exciting roadmap of content in the year ahead.

Underlying revenue, excluding subscription deals, increased by 19% from H1 FY24 to H1 FY25, with total revenue including subscription deals reducing by 1% against the comparative period to £47.3 million (H1 FY24: £47.7 million). Subscription deals contributed over £1.7 million of revenue in H1 FY25, whereas H1 FY24 revenue benefited from subscription deals of £9.2 million including for F1® Manager 2023 and Jurassic World Evolution 2 on Microsoft's Game Pass service. Subscription deals continue to provide valuable incremental income, but the timing of deals remains difficult to predict.

Gross profit of £32.9 million in H1 FY25, being revenue less distribution costs and IP royalties, was in line with the comparative period (H1 FY24: £33.0 million) with gross profit margin growing slightly to 70% (H1 FY24: 69%). Frontier's gross margin percentage tends to vary between periods based on the revenue mix between own-IP games, licenced-IP games and subscription deals.

OPERATING COSTS

Adjusted operating costs, excluding the impact of non-cash accounting adjustments, reduced by 25% from £37.9 million in H1 FY24 to £28.5 million in H1 FY25. The significant decrease was due to the cost reductions undertaken through Frontier's Organisational Review in H2 FY24 and the closure of Frontier Foundry in June 2023. Costs in H1 FY25 were slightly higher (4%) than the £27.4 million recorded in H2 FY24 through marketing costs for the two game launches in H1 FY25.

Adjusted research and development (R&D) costs fell by 21% in H1 FY25 to £19.5 million (H1 FY24: £24.7 million). The reduction mainly resulted from lower people-related costs as a result of the Organisational Review, as well as H1 FY24 including £1.5 million of external development funding in relation to the remaining Frontier Foundry projects following closure in June 2023.

Adjusted sales, marketing, and administrative costs also fell significantly, reducing by 32% to £9.0 million (H1 FY24: £13.2 million). The reduction resulted from savings on marketing costs, including through a greater focus on digital marketing, lower people-related costs, lower recruitment costs and general cost savings across all departments.

IFRS ADJUSTING ITEMS

Total IFRS operating costs in H1 FY25 of £28.4 million were 57% lower than the £66.3 million recorded in H1 FY24, due to a £26.7 million reduction in R&D amortisation and impairment charges, the £9.4 million reduction in adjusted operating costs explained above, and a £2.5 million restructuring charge in H1 FY24. The significant reduction in R&D amortisation and impairment charges resulted from the substantial charges which had been recorded in H1 FY24 against underperforming games.

FINANCIAL PERFORMANCE

Adjusted EBITDA*, which reflects cash profitability with game development costs expensed as they are incurred, was a profit of £4.4 million in H1 FY25, representing a turnaround in profitability of over £9 million compared with the loss of £4.9 million in H1 FY24 as a result of the significant reduction in operating costs.

*Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation and impairment charges related to game developments and game technology, less investments in game developments and game technology, and excluding restructuring costs, share-based payment charges and other non-cash items.

Profit was also achieved on an IFRS basis, with an operating profit of £4.5 million in H1 FY25 compared with the loss of £33.3 million in H1 FY24 which had resulted from intangible asset impairment and restructuring charges.

TAX

Consistent with H1 FY24, a nil corporation tax amount was recognised in H1 FY25. A net credit is expected to be recognised in the full-year FY25 Financial Results for the anticipated Video Games Tax Relief cash claim for qualifying development activity in the financial year. The Group will provide additional corporation tax disclosures in the FY25 Financial Statements.

PROFIT AFTER TAX AND EARNINGS PER SHARE

A profit after tax of £4.4 million was recorded in H1 FY25 (H1 FY24: loss of £33.1 million). Basic earnings per share was 11.4 pence (H1 FY24: loss per share of 85.7 pence).

BALANCE SHEET AND CASHFLOW

The Group continues to be well capitalised, with a cash balance of £27.2 million at 30 November 2024 (31 May 2024: £29.5 million). The cash balance at 31 December 2024 grew to £30.5 million through the receipt of the Planet Coaster 2 November launch revenue during December. Cash from the sales recorded in December will be received from platform and channel partners in January and February.

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

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

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

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

NOTES TO THE FINANCIAL INFORMATION

1.  CORPORATE INFORMATION                                                                                                                            

Frontier Developments plc (the 'Group' or the 'Company') develops and publishes video games for the interactive entertainment sector. The Company is a public limited company and is incorporated and domiciled in the United Kingdom.

The address of its registered office is 26 Science Park, Milton Road, Cambridge CB4 0FP.

The Group's operations are based and headquartered in the UK, with subsidiaries based in Canada and the US.

2.  BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE

Basis of preparation

The consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' (IAS 34), as issued by the International Accounting Standards Board (IASB) and as adopted by the UK, and the disclosure requirements of the Listing Rules.

The consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006 and have not been audited or reviewed by the Company's auditors.

The consolidated interim financial statements should be read in conjunction with the financial statements for the year ended 31 May 2024.

Statutory accounts for the year ended 31 May 2024 were approved by the Board of Directors on 10 September 2024 and delivered to the Registrar of Companies. The Auditor's Report was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

The financial information has been prepared under the historical cost convention except for financial instruments held at fair value. The financial information is presented in Sterling, the presentation and functional currency for the Group and Company. All values are rounded to the nearest thousand pounds (£'000) except when otherwise indicated.

Going concern basis

The Group's and Company's forecasts and projections, taking account of current cash resources and reasonably possible changes in trading performance, support the conclusion that there is a reasonable expectation that the Group and Company has adequate resources to continue in operational existence for a period of not less than 12 months from the date of the consolidated interim financial statements. The Group and Company therefore continue to adopt the going concern basis in preparing their financial statements.

3.  ACCOUNTING POLICIES

The consolidated interim financial statements have been prepared in accordance with the accounting policies adopted in the Group's most recent annual financial statements for the year ended 31 May 2024.

4.  ACCOUNTING ESTIMATES AND KEY JUDGEMENTS

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

The judgements, estimates and assumptions applied in the interim financial statements, including the key sources of estimation uncertainty, were the same as those applied in the Group's last annual financial statements for the year ended 31 May 2024.

5.  SEGMENT INFORMATION

The Group identifies operating segments based on internal management reporting that is regularly reviewed by the chief operating decision maker and reported to the Board. The chief operating decision maker is the Chief Executive Officer.                                                                                                                                                                                                         

Management information is reported as one operating segment, being revenue from publishing games and revenue from other streams such as royalties and licensing.

The Group does not provide any information on the geographical location of sales as the majority of revenue is through third-party distribution platforms which are responsible for the sales data of consumers. The cost to develop this information internally would be excessive.

The majority of the Group's non-current assets are held within the UK.

All material revenue is categorised as either publishing revenue or other revenue.                                                

The Group typically satisfies its performance obligations at the point that the product becomes available to the customer and payment is received upfront by the distributors.                                                                                          

Other revenue mainly related to royalty income in all periods.

6.  EARNINGS/(LOSS) PER SHARE

The calculation of the basic earnings/(loss) per share is based on the profits/(losses) attributable to the shareholders of Frontier Developments plc divided by the weighted average number of shares in issue during the year.

The calculation of the diluted earnings/(loss) per share is based on the profits/(losses) attributable to the shareholders of Frontier Developments plc divided by the weighted average number of shares in issue during the year as adjusted for the dilutive effect of share options.

The reconciliation of the average number of Ordinary Shares used for basic and diluted earnings/(loss) per share is as follows:

7.  OTHER INTANGIBLE ASSETS

8.  KEY PERFORMANCE INDICATORS - NON-STATUTORY MEASURES

In addition to measures of financial performance derived from IFRS-reported results - revenue, operating profit, operating profit margin percentage, earnings per share, and cash balance - we have published and provided commentary on our financial performance measurements, derived from non-statutory calculations. We believe these supplementary measures, when read in conjunction with the measures derived directly from statutory financial reporting, provide a better understanding of our overall financial performance.

EBITDA

EBITDA, being earnings before tax, interest, depreciation, and amortisation, is commonly used by investors when assessing the financial performance of companies. It attempts to arrive at a 'cash profit' figure by adjusting operating profit for non-cash depreciation and amortisation charges. In our case, EBITDA does not provide a clear picture of our cash profitability, as it adds back amortisation charges relating to game developments, but without deducting the investment costs for those developments, resulting in a profit measure which does not take into account any of the costs associated with developing games. Since EBITDA is a commonly used financial performance measure, it has been included below for the benefit of readers of the accounts who may value that measure of performance.

Adjusted EBITDA

Our Adjusted EBITDA measure, in our view, provides a better representation of 'cash profit' than EBITDA. We define Adjusted EBITDA as earnings before interest, tax, depreciation, amortisation and impairment charges related to game developments and game technology, less investments in game developments and game technology, and excluding restructuring costs, share-based payment charges and other non-cash items. This effectively provides the cash profit figure that would have been achieved if we expensed all game development investment as it was incurred, rather than capitalising those costs and amortising them over several years.