Sumo Group PLC Unaudited Half Year Results 2019 (6982N)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Sumo Group Plc	LSE:SUMO	London	Ordinary Share	GB00BD3HV384	ORD GBP0.01

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	0.00	0.00%	512.00	512.00	513.00				0.00	01:00:00

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
	0	0		N/A	0

Sumo (LSE:SUMO)
Historical Stock Chart

From Apr 2019 to Apr 2024

TIDMSUMO

RNS Number : 6982N

Sumo Group PLC

26 September 2019

SUMO GROUP PLC

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

AIM: SUMO

UNAUDITED HALF YEAR RESULTS 2019

Sumo Group, the provider of award-winning creative and development services to the video games and entertainment industries, announces its unaudited half year results for the six months ended 30 June 2019 ("H1 19" or the "Period"), which are in line with management expectations.

During the Period, Sumo Group continued to deliver on its stated strategic objectives: to expand; to win new clients; to develop complementary new revenue streams; and to develop its own IP - both self-funded and co-funded.

The Group has strong revenue visibility for the year ending 31 December 2019 ("FY 19") and beyond and these results reflect the significant H2 performance weighting expected in this year's financial results. The Group remains on track to meet consensus market forecasts for FY19.

Operational highlights

 
 --   Headcount increased by 15% from 592 at 31 December 2018 to 
       679 at 30 June 2019 
 --   Red Kite Games acquired in January 2019, adding 27 people 
       and new talent pool 
 --   New studio opened in Leamington Spa to focus on the mobile 
       games market 
 --   Board and senior management team expanded and strengthened 
 --   Expanded client base: Apple and Focus Home Interactive 
 --   New partnership announced with publisher 2K

Financial key points

 
 --   H1 19 results in line with management expectations - considerable 
       H2 weighting in FY 19 
 --   Adjusted gross profit rose by 13.7% to GBP9.8m (H1 18: GBP8.6m) 
 --   Adjusted gross margin excluding royalties increased to 46.3% 
       (H1 18: 43.6%) 
 --   Reported revenue GBP20.8m (H1 18: GBP19.3m), reported gross 
       profit GBP9.3m (H1 18: GBP8.3m) and reported profit before 
       taxation GBP1.3m (H1 18: loss before taxation GBP2.1m)

Current trading and outlook

 
 --   Strong cash and working capital performance post Period end: 
       net cash of GBP8.9m at 31 August 2019 (30 June 2019: GBP4.3m) 
 --   Further increase in headcount to 711 at 31 August 2019 
 --   Two own-IP games announced: "Pass The Punch" and the acclaimed 
       "Dear Esther" expanding to iOS 
 --   Strong acquisition pipeline 
 --   On track to meet consensus market forecasts for FY 19 and outlook 
       remains positive 
 --   Strong visibility on FY 20 revenue with more than 41% of forecast 
       development fee revenue already contracted or near-contracted

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

"H1 19 has been another successful six months for Sumo Group. We have grown the business and delivered financial results in line with our expectations. Our market remains buoyant and we are seeing many exciting opportunities.

"We love to make great games. This is our primary motivation and we are very pleased with the games in our current development pipeline and with the new client partnerships we are building. The Group's business model is developing in a way which allows us to capitalise on our flourishing own-IP capabilities, whilst maintaining an appropriate risk profile. Sumo Group has exceptional people and I am very grateful to the whole team for the passion and dedication they continue to demonstrate.

"The foundations of our business comprise both exceptional talent and valuable proprietary systems. These, combined with the tremendous growth opportunities presented by our markets, give me confidence in the financial prospects of the Group for this year and beyond."

Financials

 
Underlying results                                H1 19       H1 18  Change 
                                                         (Restated) 
Adjusted revenue(1)                            GBP20.8m    GBP19.6m    6.1% 
Adjusted gross profit(2)                        GBP9.8m     GBP8.6m   13.7% 
Adjusted gross margin excluding royalties(3)      46.3%       43.6% 
Adjusted EBITDA(4)                              GBP5.2m     GBP5.0m    4.5% 
Adjusted profit before tax(5)                   GBP4.5m     GBP4.3m 
 
 
Reported results                       H1 19      H1 18  Change 
 
Revenue                             GBP20.8m   GBP19.3m    7.5% 
Gross profit                         GBP9.3m    GBP8.3m   11.7% 
Gross margin                           44.8%      43.1% 
Profit/(loss) before taxation        GBP1.3m  (GBP2.1m) 
Cash flow from operations            GBP3.5m  (GBP3.4m) 
Net cash                             GBP4.3m    GBP6.5m 
Basic earnings/(loss) per share        0.56p    (1.20p) 
Diluted earnings/(loss) per share      0.54p    (1.20p) 
 
 
The following alternative performance measures are non-GAAP metrics 
 used by management. A full reconciliation to IFRS disclosed figures 
 is included in note 15 to the interim financial statements. 
 
(1)  Adjusted revenue is stated after inclusion of GBP0.3m of customer 
      revenue included in finance income in H1 18 as required by IFRS 15. 
      No adjustment has been made for H1 19. 
(2)  Adjusted gross profit is stated after the adjustment to revenue included 
      in note 1 above and excluding expenses incurred on investment in co-funded 
      games (H1 19 GBP0.5m, H1 18 GBPNil). 
(3)  Adjusted gross margin excluding royalties is calculated as adjusted 
      gross profit excluding royalty income, as a percentage of adjusted 
      revenue excluding royalty income. 
(4)  Adjusted EBITDA is profit before tax stated after the adjustments 
      in notes 1 and 2 above and before finance costs, depreciation, amortisation, 
      share based payment charges, exceptional costs of GBP0.3m (H1 18: 
      nil) and the impact of IFRS 16 on operating expenses. 
(5)  Adjusted profit before tax is stated after adjustments included in 
      notes 1 and 2 above, excluding share based payment charges, exceptional 
      costs and the amortisation of customer contracts and relationships 
      of GBP0.5m (H1 2018: GBP4.9m). 
(6)  The H1 18 comparatives are restated for pass-through revenues and 
      costs upon which Sumo does not make a margin. During the year ended 
      31 December 2018, the Directors reassessed their accounting policy 
      for certain "pass-through" costs which are recharged at nil margin 
      and concluded that it would be appropriate for these costs to be netted 
      against recharged income. The change in presentation reduced revenue 
      and direct costs for H1 18 by GBP3.6m but had no impact on gross profit, 
      earnings or the financial position. In addition, GBP0.4m of costs 
      incurred in H1 18 were reclassified from direct costs to operating 
      expenses. For both H1 18 and FY18 the results and financial position 
      have been restated to recognise a provision for national insurance 
      contributions due on the future vesting of share based payments. During 
      H1 19 the Directors considered their accounting policy for the recognition 
      of these costs and elected to spread the costs over the vesting period 
      of share based payments. 
 
 
Enquiries: 
 
Sumo Group plc                                     Tel: +44 (0) 114 242 
                                                                   6766 
Carl Cavers, Chief Executive Officer 
David Wilton, Chief Financial Officer 
 
Zeus Capital Limited (Nominated Adviser & Broker) 
Nick Cowles / Richard Darlington / Andrew Jones        Tel: +44 (0) 161 
                                                               831 1512 
Ben Robertson / John Goold                         Tel: +44 (0) 203 829 
                                                                   5000 
 
Belvedere Communications Limited 
Cat Valentine (cvalentine@belvederepr.com)            Tel: +44 (0) 7715 
                                                                769 078 
Keeley Clarke (kclarke@belvederepr.com)               Tel: +44 (0) 7967 
                                                                816 525 
Llew Angus (langus@belvederepr.com)                   Tel: +44 (0) 7407 
                                                                023 147

About Sumo Group - www.sumogroupplc.com

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

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

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

Together, the Group delivers full-spectrum visual and development solutions, which include initial visual concepts, conceiving new products and game development involving all aspects of pre-production, production & development, as well as supporting games as a service.

CHIEF EXECUTIVE'S REPORT

The Board is pleased to report the unaudited half year results for the six months ended 30 June 2019 ("H1 19"), which are in line with management expectations and reflect the significant H2 performance weighting expected in this year's financial results. The Group has strong revenue visibility for the year ending 31 December 2019 ("FY 19) and beyond and is on track to meet consensus market forecasts for FY19.

Since the beginning of 2019, the Group has continued to make progress on all its strategic objectives:

 
--  To deliver and expand by developing subsequent franchise titles and 
     downloadable content, through the management of online communities 
     (collectively referred to as Games As A Service) and by generating 
     royalties, where our interests are clearly aligned with our clients; 
--  To win new clients through the expansion of our publisher portfolio, 
     collaborating with other publishers and extending our co-development 
     relationships, and through selective acquisitions; 
--  To develop complementary revenue streams by moving into new premium 
     services, possibly through acquisition; and 
--  To continue to develop our own-IP, following the highly successful 
     release of Snake Pass in 2017.

In January, we acquired Red Kite Games, a work-for-hire studio focusing on engineering and code support services, adding 27 talented colleagues to the business, increasing our technical/engineering capacity and providing access to a new talent pool in West Yorkshire. A new studio, dedicated to the mobile game development market, was established in Leamington Spa in March. This studio is performing well and now employs 13 people, led by a highly regarded studio director. By the Period end Sumo Group employed 679 people (30 June 2018: 592), in nine studios (30 June 2018: six) situated in three countries.

The Group has been successful in winning work from new clients, including Apple and 2K, a video games publisher managing some of the most creative and respected brands in the market today. In August, we announced the planned launch of Pass the Punch, a self-funded own-IP "beat 'em up" title, on PC, Nintendo Switch, Xbox One and PlayStation 4 and of the much acclaimed own-IP game, developed by The Chinese Room, Dear Esther on iOS.

Our market

The video games market is strong and growing. The Association for UK Interactive Entertainment ("UKIE") reports that the UK market for games was valued at a record of GBP5.7bn in 2018, representing +10.0% growth on the previous year. Newzoo expects the global games market to grow from $152.1bn in 2019 to $196bn by 2022. In a recent article published by Yahoo, Purpose Investments, a Canadian investment company, estimated the combined video game and exports revenue to be $149bn this year with the potential to grow to $300bn in five years. Six of the largest businesses in the world, Apple, Microsoft, Google, Amazon, Facebook and Tencent are actively driving growth in our industry, so the demand for content has never been higher. This leaves us full of optimism for the future of our business and we are pleased to report that the Group's business development pipeline has never been so strong.

Business model

Sumo Group's business model is relatively low risk. The Group is generally not directly exposed to the commercial success of a game but can benefit from upside where royalties are in place. We are generating new opportunities to accelerate the Group's growth and increase margins, through the development of own-IP games, either self-funded, co-funded or fully-funded, and through acquisition. The Group benefits commercially and financially from being able to use proprietary technologies developed over many years and from its significant presence in India, which provides valuable talent on a lower cost base.

In our Final Results 2018, we reported that we had begun work on a new type of co-development contract, under which external funding is provided by a publisher for all, or the majority of, the development costs for a game, conceptualised by Sumo Group. This new approach is enabling us to generate returns which best reflect the value of a Sumo Group concept, whilst keeping our principal risk relatively low. Contracts covering three games were signed in the latter stages of 2018, for projects on which the publishers will pay for the majority of the development costs, in exchange for the right to access or use the IP created, and Sumo Group will fund a smaller proportion of the costs. The revenue and profit from these games are recognised on the development fees payable by the publisher during the term of the contract but the costs incurred by Sumo Group are expensed. During H1 19, the costs incurred on these three projects amounted to GBP0.5m in aggregate.

Financial review

Revenue

The underlying trading of the Group was in line with management's expectations and reflects the timing of royalty receipts, as well as the heavy weighting of costs in H1 and revenue in H2 relating to own-IP. Reported revenue was GBP20.8m. Our revenue figures are now stated excluding pass-through revenues, upon which Sumo does not make a margin, and the H1 18 comparative figure has been restated accordingly as GBP19.3m. Atomhawk generated revenue of GBP1.5m (H1 18: GBP1.3m). The Chinese Room and Red Kite Games, acquired in August 2018 and January 2019 respectively, generated revenue in the Period of GBP1.1m. On a like for like basis excluding The Chinese Room and Red Kite Games, the Group's revenue increased by 2.0%.

We entered the Period having agreed terms or signed contracts on four new major projects in the final weeks of 2018, including developing two new games for Apple's subscription gaming service, Apple Arcade. As we reported in our Final Results 2018 announced on 9 April 2019, the Group had contracted or near contracted visibility on 88.7% of forecast development fees for Sumo Digital for 2019. This level of forward cover was unprecedented for the business and a considerable achievement. The Board is delighted to report that, at this relatively early stage, the Group already has strong visibility for the year ending 31 December 2020 of more than 41%.

Development fees in the Period were GBP20.4m, an increase of 7.6% on the comparable figure of GBP19.0m in 2018.

The Group generated own intellectual property ("own-IP") title revenue of GBP0.1m (H1 18: GBP0.3m). Royalty income was GBP0.3m (H1 18: GBP0.1m). Both these revenue figures are in line with management expectations. Own-IP revenue is generated from the ongoing sales of Snake Pass, launched in March 2017, and Dear Esther, which was acquired with The Chinese Room. Royalty income includes an amount of GBP0.1m in recognition of variable consideration under IFRS 15, which is future royalty income expected to be received.

Gross profit and margin

Statutory gross profit for the Period was GBP9.3m, an increase of 11.7% on the GBP8.3m in the prior half year.

Statutory gross margin for the half year was 44.8% (H1 18: 43.1%). This includes royalty income of GBP0.3m (H1 18: GBP0.1m) in the half year, which flowed directly through to gross profit. The gross margin adjusted for the investment in co-funded games expensed and excluding royalties was 46.3% (H1 18: 43.6%).

Operating expenses

Operating expenses were GBP7.6m (H1 18: GBP10.5m). Included within operating expenses were amortisation and depreciation of GBP0.6m and GBP1.0m respectively (H1 18: GBP5.0m and GBP0.5m respectively). The Group spent GBP0.6m (FY 18: GBP0.7m) on research and development, all of which has been expensed.

Non-cash charges

The non-cash charges included in the H1 19 results relate to the amortisation of intangibles and to share based payments. There was a non-cash charge of GBP2.0m in the Period (H1 18: GBP1.3m) to reflect the cost of the Sumo Group plc Long Term Incentive Plan and the Sumo Group plc Share Incentive Plan, which were launched in March 2018 and July 2018 respectively.

IFRS 16

In these financial statements the Group has, with effect from 1 January 2019, adopted IFRS 16. Under the new standard, the distinction between operating and finance leases is removed and most leases will be brought onto the statement of financial position, as both a right-of-use asset and a largely offsetting lease liability. The right-of-use asset will be depreciated and the liability will be increased for the accumulation of interest and reduced by lease payments. There is no impact on cashflow. The Company opted not to early adopt IFRS 16 and prior year financial information will not be restated, resulting in no impact on retained earnings as at 1 January 2019 on transition. During the Period, there was a GBP0.5m addition to right-of-use assets, which represents primarily property leases for the Group's studio premises, under IFRS 16.

Adjusted EBITDA and margin

Adjusted EBITDA was in line with management expectations at GBP5.2m (H1 2018: GBP5.0m). In our Final Results 2018, announced on 9 April 2019, we flagged that we expected the financial performance for 2019 to be weighted towards the second half, due to the timing of royalty receipts, the costs and revenue from own-IP and the increasing headcount through the year. In arriving at adjusted EBITDA adjustments have been made for depreciation, amortisation, share based payments, in H1 18 for the financing of the one contract under IFRS 15, for H1 19 for the costs expensed on the development of the games referred to above and the impact of IFRS 16 and, in H1 19, transaction costs.

The underlying adjusted profit before tax, share based payment charge, adjustment for customer revenue included within finance income in H1 18, investment in co-funded games expensed, exceptional items and amortisation for the half year was GBP4.5m (H1 18: GBP4.3m) and reported profit before tax was GBP1.3m (H1 18: loss of GBP2.1m).

Adjusted EBITDA margin was 25.1% (H1 2018: 25.5%).

Cashflow

The net cash generated from operating activities for the Period was GBP3.5m (H1 18: outflow of GBP3.4m), which was in line with management expectations set at the beginning of the year. Cash balances at 30 June 2019 were GBP4.3m (30 June 2018: GBP6.5m and 31 December 2018 GBP3.7m). In the first ten working days of July 2019, the Group received in excess of GBP10m of cash receipts, including GBP3.2m of VGTR receipts. At 31 August 2019, Sumo Group had cash balances of GBP8.9m. The Board expects the business to continue to generate significant cash in the second half of 2019.

Capital expenditure in the Period was GBP1.6m (H1 18: GBP1.5m), most of which related to computer hardware.

The cash cost, excluding transaction costs, of the acquisition of Red Kite Games was GBP0.5m and it had cash balances of GBP0.5m at the date of acquisition.

The net finance charge for the half year was GBP0.2m (H1 18: net finance income GBP0.1m). The Group had no borrowings during the Period and the net finance charge consists of the accounting charge for the foreign currency hedging, the IFRS 16 interest charge and the bank commitment fee payable, partially offset by the IFRS 15 financing income and a very small amount of interest income.

Taxation

The Corporation Tax charge for the half year was GBP0.5m (H1 18: credit GBP0.5m).

Balance sheet

Goodwill and other intangibles were GBP23.4m. This is an increase of GBP1.1m from 31 December 2018 and reflects the increase in goodwill and other intangibles arising from the acquisition of Red Kite Games in the Period partially offset by the amortisation charge of GBP0.6m.

Current assets were GBP33.6m (30 June 2018: GBP24.7m). Trade and other receivables were GBP29.3m an increase of GBP4.1m from the figure of GBP25.2m at 31 December 2018 and trade and other payables were GBP15.6m (30 June 2018: GBP11.0m). Included within the revenue in excess of billings at 30 June 2019 was an amount of GBP2.3m on one contract for which the equivalent figure at 31 December 2018 was GBP7.8m. A further amount of GBP3.5m was included in debtors for which the cash was received on 9 July 2019. As at 30 June 2019 the net working capital position (excluding the IFRS 16 current lease liability of GBP1.0m) was GBP14.7m up from GBP13.7m at 31 December 2018. The net working capital had reduced to GBP9.0m at 31 August 2019.

As at 30 June 2019 the consolidated balance sheet included an asset of GBP0.3m in respect of a game being developed from a Sumo concept in conjunction with a publisher for which the approval process has been delayed and Sumo has used the opportunity to demonstrate this game to other publishers. Interest in the game has been strong and we expect to agree attractive commercial terms for the development of this game by the end of this financial year. The asset increased to GBP0.5m at the end of August.

The consolidated balance sheet at 30 June 2019 includes own shares of GBP4.9m within equity, which relates to shares issued under the terms of the Sumo Group plc Long Term Incentive Plan.

Alternative performance measures

The Board believes that it is helpful to include alternative performance measures which exclude certain non-cash charges and are adjusted for the matters referred to above to present the underlying results of the Group. These measures are reconciled to the income statement in note 15.

Client concentration

During the Period, four major clients individually accounted for at least 10% of total revenues (FY 2018: four clients). In aggregate, these four clients accounted for 75% of total revenue and the top three accounted for 65%.

Sumo Group's business model is to provide turnkey and co-development services and solutions to the video games industry. Most of the games are AAA or AA rated and projects tend to be large in size and long-term in duration. The Group typically works on between ten and 15 major projects at one time, with varying sizes of teams on each project. This provides an inherent tendency to client concentration, particularly as there may be more than one project for a client. During the period Sumo Digital worked on eight projects for the top three clients. This concentration has been mitigated as the business has grown, although this is somewhat counteracted by the increase in the magnitude of the games over time. The Board does not consider client concentration to be a major risk. It has reduced over time and should continue to do so in the longer term but Sumo Digital is likely to continue to work on a relatively small number of large projects. It is worth noting that several contracts secured in the final weeks of 2018 are with significant clients with whom the Group has not worked before, including Apple.

Video Games Tax Relief ("VGTR")

Sumo Digital continues to claim and receive significant amounts under VGTR. We include VGTR within our direct costs and accordingly, for both half years, our gross profit and gross margin reflect these amounts. We believe this is the appropriate treatment of these credits, as gross margin is best considered after taking account of the effect of VGTR. The amounts included for H1 2018 and H1 2019 are GBP3.0m and GBP3.7m respectively. The latest report from UK Interactive Entertainment ("UKIE") underlines that VGTR is a key catalyst in enabling job creation and investment in the UK and continues to have broad political support.

Foreign currency

During the Period, the Group generated US dollar denominated revenue of $7m. It is Sumo Group's policy to hedge such revenues to protect the Group from fluctuations in exchange rates and these revenues have been hedged accordingly.

Share issues and options

During the half year 7,399 shares in aggregate were issued under the Sumo Group plc Share Incentive Plan. A further 500,000 shares were issued following the exercise of options.

As at 30 June 2019, options were granted or remain outstanding under the LTIP over an aggregate of 8,839,215 shares.

Operational review

Sumo Digital - representing 93% of Group revenue

Sumo Digital provides a full-service development solution, including initial concept and pre-production, production and development and post-release support (end to end full development lifecycle for games). It uses leading edge technology, much of which is proprietary, to provide high value-added services to leading publishers with whom we have an ingrained and intertwined relationship. Our proprietary technology includes an in-house game engine, an editing tool, project management software and the profiling and telemetry tool, which, as previously mentioned, give the Group a competitive edge and create financial benefits.

Sheffield continues to be our largest studio, as well as the Group's central support location. The team in Sheffield is currently working on several exciting projects, including "Spyder" for Apple Arcade and we have taken on the lease of a further adjacent unit on this site. Our Nottingham, Newcastle and Brighton studios all continued to expand in the period.

Red Kite Games, acquired in January, comprises a talented and highly experienced development team, working with some of the industry's best-known publishers and developers. Whilst the business retains its identity and branding, the integration with Sumo Digital has gone smoothly and to plan. Red Kite Games has recently relocated from Huddersfield to larger premises, in the centre of Leeds. This move into a talent hot spot further supports our growth strategy and is expected to facilitate further expansion.

A new studio was opened in Leamington Spa in March 2019, led by a highly regarded studio director, to focus on mobile game development. This studio now has a strong leadership team in place, which is focused on building its talented development team. The Sumo Digital management team is actively exploring other opportunities to open new UK studios in key talent hot spots to support its growth plans.

The utilisation rate across the UK studios in the period was 97.0%. The long-established India studio in Pune, which has been working on Pass the Punch, continues to perform strongly. The utilisation rate at this studio was 85.0% in the period and the utilisation for Sumo Digital overall was 94.8%.

Operating from multiple locations gives us the capacity to deliver our headcount growth targets and we are constantly reviewing opportunities to accelerate growth by opening studios in other strategic locations. We are actively considering new locations both in the UK and abroad, as well as looking at potential acquisition opportunities.

Over the past few years, Sumo Digital has worked with Sony, Microsoft (including Turn 10 Studios), Sega, IO Interactive and CCP Games. Apple was added to this illustrious client list late in 2018 and, in July 2019, we also announced a partnership with 2K. The business is currently working on 18 live projects, including Spyder, Pass the Punch and Little Orpheus.

During the period, the shift towards more royalty arrangements as part of our contracts continued. We remain keen to align our interests with those of our clients and see the opportunity for financial out-performance on new iterations of proven games.

Atomhawk - representing 7% of Group revenue

Operating from Newcastle and Vancouver, Atomhawk provides visual development concept art and marketing art, as well as motion graphics and user interface design. Its expertise is in helping customers define a visual look for their products, from inception through development and, at the final point of sale, through marketing imagery, videos and box packaging design. It primarily serves the creative industries, working with video games studios, as well as film and television. Atomhawk has international clients across the entertainment sector.

The business delivered a strong performance in the Period and the team was strengthened further with a number of key hires, including a Client Service Director, Lead Artists, Art Director and a Creative Development Director.

New games on which Atomhawk has worked have been well received, including Mortal Kombat 11 for WB Games/NetherRealm Studio and Minecraft: Earth for Microsoft. Atomhawk has ongoing project work with major international clients including 2K, WB Games, Microsoft, EA and Zynga.

We are delighted to report that Atomhawk won the 2019 Prolific North Animation/Graphics Company of the Year Award and was shortlisted for the Best Small Company in the North East Best Places to Work Awards. The team ran a successful Kickstarter campaign to fund Atomhawk's latest book, The Art of Atomhawk: Volume 3, in the Period and launched the "Solarpunk" art competition with Artstation.

People

Sumo Group is a people business and its continuing success is entirely dependent on recruiting and retaining talented people. I am pleased to report that, at the end of August 2019, headcount had increased to 711, an increase of 20% from 592 at the end of December 2018. The Group continues to meet challenging recruitment targets, as it has done successfully over many years.

Paul Porter, one of the co-founders of Sumo Digital, was appointed Chief Operating Officer of Sumo Group on 1 April 2019 and he joined the Board on 9 April. Gary Dunn has taken on Paul's previous role as Managing Director of Sumo Digital.

We have also, today, announced the appointment of Ian Livingstone, as the Group's new Chairman. Ian is a pioneer of the global video game industry and was made a Commander of the British Empire (CBE) for his services to the computer gaming industry in 2013. He has been a valued member of the Board for many years and we are looking forward to an exciting future with Ian as our Chair. On behalf of all the team at Sumo Group, I thank Ken Beaty, who stepped down from the role of Chairman today, for his considerable contribution to the growth of the business over the last five years and our successful IPO.

We are committed to maintaining Sumo Group's creative culture as we grow. Exceptional talent drives opportunity and, on behalf of the Board, I would like to thank everyone at Sumo Group for their passion, commitment and desire to create outstanding games and imagery.

Acquisitions

We have a strong pipeline of acquisition opportunities ranging in activities, sizes and locations and are actively pursuing these opportunities. We remain keen to acquire owner-managed businesses, where the vendors remain with the business post acquisition and where we can use our listed shares to provide suitable ongoing incentive arrangements.

Outlook

The key driver for revenue growth is increasing headcount; our markets are growing and our business development pipeline is strong, supporting our continued investment in talented people. We continue to recruit and will see the benefits of this expansion in the current year, through into 2020 and beyond.

We have excellent visibility on development fees for H2 19 and the Board is pleased to report that the Group is on track to deliver full year results in line with consensus market forecasts. Furthermore, visibility on our FY 20 order book is already at more than 41% of forecast development fees and this strong trading position is underpinned by the Group's current cash position.

The Board is actively exploring opportunities to expand the business both organically and through acquisition and remains confident about the prospects of the Group.

Carl Cavers

Chief Executive Officer

26 September 2019

CONSOLIDATED INTERIM INCOME STATEMENT

 
                                                   Unaudited       Unaudited         Audited 
                                                   Half year       Half year      Year ended 
                                                       ended           ended     31 December 
                                                     30 June         30 June            2018 
                                                        2019            2018   (Restated)(3) 
                                                               (Restated)(3)         GBP'000 
                                            Note     GBP'000         GBP'000 
------------------------------------------  ----  ----------  --------------  -------------- 
Revenue                                      4        20,766          19,311          38,696 
------------------------------------------  ----  ----------  --------------  -------------- 
Direct costs                                        (15,147)        (13,989)        (27,191) 
Video Games Tax Relief                                 3,678           3,000           6,898 
------------------------------------------  ----  ----------  --------------  -------------- 
Direct costs (net)                                  (11,469)        (10,989)        (20,293) 
Gross profit                                           9,297           8,322          18,403 
Operating expenses                                   (7,580)        (10,470)        (19,430) 
Operating expenses - exceptional                       (311)               -            (94) 
------------------------------------------  ----  ----------  --------------  -------------- 
Operating expenses - total                           (7,891)        (10,470)        (19,524) 
Group operating profit/(loss)                          1,406         (2,148)         (1,121) 
Analysed as: 
------------------------------------------  ----  ----------  --------------  -------------- 
Adjusted EBITDA(1)                           15        5,214           4,990          10,407 
Amortisation                                           (559)         (5,036)         (6,947) 
Depreciation                                 9         (985)           (525)         (1,104) 
Share based payments charge                  11      (2,002)         (1,317)         (3,004) 
Customer revenue included within finance 
 income                                                    -           (260)           (421) 
Accrued royalty not yet received and 
 contingent on future sales(2)                             -               -             250 
Investment in co-funded games expensed                 (464)               -           (208) 
Operating lease costs capitalised under 
 IFRS 16                                     14          513               -               - 
Exceptional items                                      (311)               -            (94) 
------------------------------------------  ----  ----------  --------------  -------------- 
Group operating profit/(loss)                          1,406         (2,148)         (1,121) 
------------------------------------------  ----  ----------  --------------  -------------- 
Finance cost                                 5         (344)            (54)            (99) 
Finance income                               6           189             120             311 
------------------------------------------  ----  ----------  --------------  -------------- 
Profit/(loss) before taxation                          1,251         (2,082)           (909) 
Taxation                                     7         (510)             535             304 
------------------------------------------  ----  ----------  --------------  -------------- 
Profit/(loss) for the period attributable 
 to equity shareholders                                  741         (1,547)           (605) 
------------------------------------------  ----  ----------  --------------  -------------- 
Profit/(loss) per share (pence) 
Basic                                        8          0.56          (1.20)          (0.47) 
Diluted                                      8          0.54          (1.20)          (0.47) 
------------------------------------------  ----  ----------  --------------  -------------- 
 
 
1  Adjusted EBITDA, which is defined as profit before finance costs, tax, 
    depreciation, amortisation, exceptional items, share-based payment 
    charge, IFRS16 impact, and the investment in co-funded games expensed, 
    is a non-GAAP metric used by management and is not an IFRS disclosure. 
    Adjusted EBITDA in H1 18 and 2018 is stated before the impact of IFRS15 
    financing recognition. 
2  Adjusted EBITDA for the period to 30 June 2019 includes GBP91k of accrued 
    royalty not yet received and contingent on future sales. Comparative 
    results exclude this from underlying earnings. 
3  The H1 18 comparatives are restated for pass-through revenues and costs 
    upon which Sumo does not make a margin. During the year ended 31 December 
    2018 the Directors reassessed their accounting policy for certain "pass-through" 
    costs which are recharged at nil margin and concluded that it would 
    be appropriate for these costs to be netted against recharged income. 
    The change in presentation reduced revenue and direct costs for H1 
    18 by GBP3.6m but had no impact on gross profit, earnings or the financial 
    position. In addition, GBP0.4m of costs incurred in H1 18 were reclassified 
    from direct costs to operating expenses. For both H1 18 and FY18 the 
    results and financial position have been restated to recognise a provision 
    for national insurance contributions due on the future vesting of share 
    based payments. During H1 19 the Directors considered their accounting 
    policy for the recognition of these costs and elected to spread the 
    costs over the vesting period of share based payments. Details of the 
    impact of the adjustment are set out in note 11.