Frontier Developments on Thursday said that misguided portfolio diversification and costly game development marred its recent performance, but retained its guidance for the full year.
Shares in Frontier Developments were up 10.3% at 130.40 pence each in London on Wednesday morning.
The Cambridge, England-based video games developer and publisher earned £47.7 million in revenue for the six months to November 30, down 16% from £57.1 million a year before.
A loss after tax of £33.1 million was reported for the half-year, swung back from a profit of £6.7 million a year ago. This contributed to a basic loss per share of 85.7 pence, compared to earnings of 17.2 pence.
The group said that it continues to be ‘well capitalised’, with a cash balance of £17.1 million at the end of November. However, this is down from £42.6 million in November 2022.
The group said that losses were largely the result of amortisation and impairment charges, which rose to a total of £37.6 million from £8.6 million.
These stemmed from research and development of ‘Realms of Ruin’, the latest edition in the Warhammer games portfolio, which launched in November to disappointing sales. The game’s development cost the company £16.9 million in impairment charges, while amortisation charges accounted for the remaining £20.7 million.
The company also adopted an updated approach to amortisation profiles, according to which assets are quickly amortised in the year following their release, as opposed to the previous, default method of ‘straight-line amortisation’.
While the total cost of sales narrowed to £14.7 million from £21.0 million, the above factors resulted in net research and development costs for the period increasing to £48.1 million from £16.1 million a year before.
The company also stated that its attempt to diversify its game portfolio ‘has not delivered the anticipated success’. The company therefore intends to focus on creative management simulation games, which have previously delivered more consistent returns and in which Frontier possesses expertise. CMS games accounted for £26.3 million, or 55% of Frontier’s total revenue in the period, and the company said this was able to ‘offset’ the poor performance in other departments.
Looking ahead, the company still expects full-year revenue to be in line with its November guidance of £80 million to £95 million. Frontier’s guidance of an adjusted Ebitda of around £9 million remains unchanged.
The company also said it will be bringing two ‘successful PC games’ to consoles before the end of the financial year, one of which is another Warhammer edition, while the other will be confirmed in the next few weeks.
Chief Executive Officer Jonny Watts said: ‘2023 was a challenging year for Frontier and for many companies across the games’ industry. The last few months have been a tough period of change for everyone at Frontier, and of course it’s been particularly difficult for those people in teams who have suffered redundancies. I’d like to thank everyone for their hard work and patience while we make the necessary changes.
‘We are confident that our renewed focus on our world-class CMS games is getting us back on track, and it’s pleasing to see the strong ongoing performance of our established portfolio of games... I’d like to thank our players across our whole portfolio for their ongoing engagement and support.’
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