Sumo Group PLC FY19 results update, COVID-19 and current trading (4687H)

TIDMSUMO

RNS Number : 4687H

Sumo Group PLC

25 March 2020

25 March 2020

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

SUMO GROUP PLC

("Sumo Group", the "Group" or the "Company")

AIM: SUMO

FCA request for postponement of final results, COVID-19 and trading update

Sumo Group, the award-winning provider of creative and development services to the video games and entertainment industries, confirms that it will comply with the FCA's request that all listed companies observe a moratorium on the publication of preliminary financial statements for at least two weeks and postpone the announcement of the Group's final results for the year ended 31 December 2019 ("FY19"), which was scheduled for 1 April 2020.

As previously announced on 22 January 2020, FY19 results are expected to be at least in line with market expectations. The Group is today providing an update on its unaudited results in FY19, the effects of COVID-19 and current trading in the year ending 31 December 2020 ("FY20").

Key financials (unaudited):

 
 --   Revenue increased to GBP49.0m (FY18: GBP38.7m) - up 26.6% 
 --   Adjusted gross margin excluding royalties(1) was 50.2% (FY18: 
       47.1%) - up 310 bps 
 --   Adjusted EBITDA(2) was slightly ahead of expectations at GBP14.1m 
       (FY18: GBP10.2m) - up 37.5% 
 --   Net cash at 31 December 2019 GBP12.9m (FY18: GBP3.7m) 
 

The Group's liquidity position remains robust with cash balances of GBP23.6m at 24 March 2020, which includes an amount of GBP10m drawn down on the Company's GBP13m committed revolving credit facility.

Current trading and COVID-19

The Group has enjoyed a positive start to the new financial year ending 31 December 2020 and already has a high degree of earnings visibility on contracted or near contracted revenue of approximately 71%.

Our teams are currently working on 21 projects with 12 different clients, of which seven games or publisher partnerships have been announced. In February, Curve Digital announced Hotshot Racing, the arcade-style racing game, and Sega launched console versions of Two Point Hospital. It was particularly pleasing to see Apple Arcade launch our co-funded Own-IP game, Spyder, last week, the idea for which was generated during one of our Game Jams.

We are now facing the unprecedented challenge of dealing with the COVID-19 pandemic, the scale and nature of which is constantly changing and, as yet, we have no clear visibility of its likely duration. Sumo Group is a people business and our absolute priority is to safeguard, where possible, the well-being of our people, their families and our other stakeholders. Accordingly, we a re following UK, Indian and Canadian Governments' advice and communicating regularly with all our people. Over the last few weeks and in close co-operation with our clients and with their consent, we have moved to working from home across the Group. Whilst there has been some disruption and loss of efficiency, as project teams were migrated away from our ten studios to remote Cloud based working from home, early indications are encouraging. We expect a manageable level of disruption and loss of efficiency to continue, as we re-calibrate our project management controls and internal management systems.

Paradoxically, the COVID-19 pandemic is expected to increase global video games software revenues, as people staying at home play more games. As such, it is reasonable to expect some improvement in royalty income on games already published and which have increased sales or usage with the current restrictions on movement in many countries. The quantum of such improvement is not yet clear.

A number of major industry trade events have been cancelled or postponed across the globe, most notably GDC and E3, and increasingly severe restrictions are being placed on travel to protect people worldwide. We are managing to mitigate the loss of face time through increased use of telephone and video conferencing. Our efforts are beginning to bear fruit and the Group is continuing to generate business development opportunities on major new projects from both existing and potential new clients.

Prior to COVID-19 being classified as a pandemic and with strong visibility on development fees , we were confidently on track to deliver further double-digit growth in 2020 . While the Group is liquid and our relatively low risk business model provides a good foundation to withstand the challenges presented by the pandemic, it is too early to quantify the likely financial impact with any degree of certainty. Our exposure is primarily on the supply side with some potential loss of efficiency during the unprecedented restrictions delaying milestone payments, although the Group is taking all steps possible to mitigate and limit this risk. We are also seeing a slow-down in our new talent recruitment rate, which we expect to continue for the foreseeable future. This is likely to be partially offset by lower attrition rates.

We look forward to announcing our audited FY19 results in due course and will provide further updates on trading, as the situation develops, in a timely manner.

Carl Cavers, Chief Executive Officer of Sumo Group, said:

"Our people are adapting well to home working and we have a strong and resilient business with GBP23.6m cash and a relatively low risk business model. Demand for great video games content is forecast to grow and may even strengthen as a result of the "stay at home" measures taken to protect our health through the COVID-19 pandemic. As such, we are confident in our strategy and ability to continue generating strong returns for our stakeholders in the longer term. We are grateful to our team for their resilience, our clients for their support and our investors for their forbearance."

 
      Adjusted gross margin excluding royalties is stated after the 
 (1)   exclusion of royalties and the investment in co-funded games 
       expensed and is a non-GAAP metric used by management and is 
       not an IFRS disclosure. 
      Adjusted EBITDA, which is defined as profit before finance costs, 
 (2)   tax, depreciation, amortisation, exceptional items, share based 
       payment charge, the investment in co-funded games expensed and, 
       in 2019, the impact of IFRS 16, is a non-GAAP metric used by 
       management and is not an IFRS disclosure. 
      In the FY 18 results adjusted gross profit and adjusted EBITDA 
       were both stated after adjusting for customer revenue included 
       within finance income (FY 18: GBP0.4m) and accrued royalty not 
       yet received and contingent on future sales (FY 18: (GBP0.2m)). 
       When we announced our half year results on 26 September 2019 
       we stated that we would not in future be making any adjustments 
       to gross profit or EBITDA for the effect of IFRS 15. 
 
 
 Enquiries: 
 
 Sumo Group plc                                                           Tel: [phone] 
 Carl Cavers, Chief Executive Officer 
 David Wilton, Chief Financial Officer 
 
 Zeus Capital Limited (Nominated Adviser & Joint Broker) 
 Nick Cowles / Andrew Jones                                               Tel: [phone] 
 Ben Robertson / John Goold                                               Tel: [phone] 
 
 Investec Corporate & Investment Banking (Joint Broker) 
 David Flin                                                               Tel: [phone] 
 
 Belvedere Communications Limited 
 Cat Valentine                                                            Tel: [phone] 
 Keeley Clarke                                                            Tel: [phone] 
 Llew Angus                                                               Tel: [phone] 
                                                                             [e-mail] 
 

About Sumo Group - www.sumogroupplc.com

Sumo Group's businesses provide acclaimed development and design services to the video games and entertainment industries from studios in the UK, India, and Canada.

Sumo Digital, as the Group's primary business, is one of the UK's largest independent developers of AAA-rated video games, having studios in Sheffield, Newcastle, Nottingham, Leamington Spa, Warrington and Pune, India. The business has acquired two studios since IPO, which operate under their own names, BAFTA award-winning The Chinese Room in Brighton and Red Kite Games in Leeds. Sumo Digital provides turnkey and co-development solutions to a global blue-chip client base.

Atomhawk is a multi-award-winning visual design company, with studios in Newcastle and in Vancouver (Canada), servicing the games, film and visual effects industries.

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March 25, 2020 03:00 ET (07:00 GMT)