Sumo Group (LON:SUMO), the provider of award-winning creative and development services to the video games and entertainment industries, announced today its unaudited half year results for the six months ended 30 June 2019, which are in line with management expectations.
Carl Cavers, Chief Executive Officer of Sumo Group, said:
“H1 19 has been another successful six months for Sumo Group. We have grown the business and delivered financial results in line with our expectations. Our market remains buoyant and we are seeing many exciting opportunities.
“We love to make great games. This is our primary motivation and we are very pleased with the games in our current development pipeline and with the new client partnerships we are building. The Group’s business model is developing in a way which allows us to capitalise on our flourishing own-IP capabilities, whilst maintaining an appropriate risk profile. Sumo Group has exceptional people and I am very grateful to the whole team for the passion and dedication they continue to demonstrate.
“The foundations of our business comprise both exceptional talent and valuable proprietary systems. These, combined with the tremendous growth opportunities presented by our markets, give me confidence in the financial prospects of the Group for this year and beyond.”
During the Period, Sumo Group continued to deliver on its stated strategic objectives: to expand; to win new clients; to develop complementary new revenue streams; and to develop its own IP – both self-funded and co-funded.
The Group has strong revenue visibility for the year ending 31 December 2019 (“FY 19”) and beyond and these results reflect the significant H2 performance weighting expected in this year’s financial results. The Group remains on track to meet consensus market forecasts for FY19.
Operational highlights
• Headcount increased by 15% from 592 at 31 December 2018 to 679 at 30 June 2019
• Red Kite Games acquired in January 2019, adding 27 people and new talent pool
• New studio opened in Leamington Spa to focus on the mobile games market
• Board and senior management team expanded and strengthened
• Expanded client base: Apple and Focus Home Interactive
• New partnership announced with publisher 2K
Financial key points
• H1 19 results in line with management expectations – considerable H2 weighting in FY 19
• Adjusted gross profit rose by 13.7% to £9.8m (H1 18: £8.6m)
• Adjusted gross margin excluding royalties increased to 46.3% (H1 18: 43.6%)
• Reported revenue £20.8m (H1 18: £19.3m), reported gross profit £9.3m (H1 18: £8.3m) and reported profit before taxation £1.3m (H1 18: loss before taxation £2.1m)
Current trading and outlook
• Strong cash and working capital performance post Period end: net cash of £8.9m at 31 August 2019 (30 June 2019: £4.3m)
• Further increase in headcount to 711 at 31 August 2019
• Two own-IP games announced: “Pass The Punch” and the acclaimed “Dear Esther” expanding to iOS
• Strong acquisition pipeline
• On track to meet consensus market forecasts for FY 19 and outlook remains positive
• Strong visibility on FY 20 revenue with more than 41% of forecast development fee revenue already contracted or near-contracted
Financials
| Underlying results | H1 19 | H1 18 (Restated) | Change |
| Adjusted revenue1 | £20.8m | £19.6m | 6.1% |
| Adjusted gross profit2 | £9.8m | £8.6m | 13.7% |
| Adjusted gross margin excluding royalties3 | 46.3% | 43.6% | |
| Adjusted EBITDA4 | £5.2m | £5.0m | 4.5% |
| Adjusted profit before tax5 | £4.5m | £4.3m |
| Reported results | H1 19 | H1 18 | Change |
| Revenue | £20.8m | £19.3m | 7.5% |
| Gross profit | £9.3m | £8.3m | 11.7% |
| Gross margin | 44.8% | 43.1% | |
| Profit/(loss) before taxation | £1.3m | (£2.1m) | |
| Cash flow from operations | £3.5m | (£3.4m) | |
| Net cash | £4.3m | £6.5m | |
| Basic earnings/(loss) per share | 0.56p | (1.20p) | |
| Diluted earnings/(loss) per share | 0.54p | (1.20p) |
1 Adjusted revenue is stated after inclusion of £0.3m of customer revenue included in finance income in H1 18 as required by IFRS 15. No adjustment has been made for H1 19.
2 Adjusted gross profit is stated after the adjustment to revenue included in note 1 above and excluding expenses incurred on investment in co-funded games (H1 19 £0.5m, H1 18 £Nil).
3 Adjusted gross margin excluding royalties is calculated as adjusted gross profit excluding royalty income, as a percentage of adjusted revenue excluding royalty income.
4 Adjusted EBITDA is profit before tax stated after the adjustments in notes 1 and 2 above and before finance costs, depreciation, amortisation, share based payment charges, exceptional costs of £0.3m (H1 18: nil) and the impact of IFRS 16 on operating expenses.
5 Adjusted profit before tax is stated after adjustments included in notes 1 and 2 above, excluding share based payment charges, exceptional costs and the amortisation of customer contracts and relationships of £0.5m (H1 2018: £4.9m).
6 The H1 18 comparatives are restated for pass-through revenues and costs upon which Sumo does not make a margin. During the year ended 31 December 2018, the Directors reassessed their accounting policy for certain “pass-through” costs which are recharged at nil margin and concluded that it would be appropriate for these costs to be netted against recharged income. The change in presentation reduced revenue and direct costs for H1 18 by £3.6m but had no impact on gross profit, earnings or the financial position. In addition, £0.4m of costs incurred in H1 18 were reclassified from direct costs to operating expenses. For both H1 18 and FY18 the results and financial position have been restated to recognise a provision for national insurance contributions due on the future vesting of share based payments. During H1 19 the Directors considered their accounting policy for the recognition of these costs and elected to spread the costs over the vesting period of share based payments.
