9 January 2023
Frontier Developments plc
Trading Update and Notice of Results
Frontier Developments plc (AIM: FDEV, "Frontier" or the "Company"), a leading developer and publisher of videogames based in Cambridge, UK, provides an update on trading for the current financial year 'FY23', the period from 1 June 2022 to 31 May 2023. Frontier expects to announce interim financial results for H1 FY23, the period from 1 June 2022 to 30 November 2022, on 19 January 2023.
H1 financial performance
Frontier expects to report revenue for H1 FY23 of approximately £57 million (H1 FY22: £49.1 million). The 16% growth above the comparative period was achieved from revenue contributions from two new game releases, F1® Manager 2022 and Stranded: Alien Dawn, alongside the ongoing material revenue contributions from Frontier's portfolio of existing games, which accounted for around two-thirds of total revenue in the period.
Frontier continues to benefit from a strong balance sheet, with £42.6 million of cash as at 30 November 2022 (31 May 2022: £38.7 million) after payment of the upfront consideration for the acquisition of Complex Games in November 2022.
Portfolio update
F1® Manager 2022
F1® Manager 2022, the first annual title in a major new sports franchise for Frontier, was released at the end of August 2022. Over 600,000 units have been sold to date across PC, Xbox and PlayStation, including both digital and physical unit sales on console. Metacritic ratings are between 74 and 80 across the three platforms.
Player engagement at release in August 2022 and during the initial period after release was strong, and broadly in-line with original expectations. Unfortunately, sales performance during key holiday season price promotions fell materially below original expectations, potentially due in part to increased player price sensitivity related to worsening economic conditions.
F1® Manager 2022 remains a good first game in an important new annual franchise for Frontier. We have already learned a lot from our first F1® Manager launch, and we will build the F1® Manager franchise over the coming years.
However, as a result of the underperformance of F1® Manager 2022 during the holiday period, the Board has reduced its revenue projections for FY23 and FY24.
Our existing portfolio
The performance of Frontier's existing internally developed games which released before June 2022, namely Elite Dangerous, Planet Coaster, Jurassic World Evolution 1, Jurassic World Evolution 2 and Planet Zoo, was in-line with expectations during H1 FY23. However, sales performance during key price promotions in December 2022 fell below expectations, with some evidence of increased player price sensitivity.
As expected, the strongest performers from our existing portfolio in the financial year to date have been Jurassic World Evolution 2 and Planet Zoo, which continue to be supported with free updates and multiple PDLC (paid-downloadable content) packs.
Frontier Foundry
Frontier Foundry is our games label for publishing games developed by partner studios, which we started in summer 2019 with the signing of experienced developer Haemimont Games, based in Bulgaria.
During this financial year we successfully released Haemimont's Stranded: Alien Dawn into early access on Steam, and announced two new games for release in early calendar year 2023; Deliver us Mars and The Great War: Western Front.
Following the successful release of Warhammer 40,000: Chaos Gate - Daemonhunters in May 2022, we were pleased to complete the acquisition of developer Complex Games on 1 November 2022. The closer collaboration achieved through the pre-acquisition process and subsequent deal completion can be evidenced by the successful release of PDLC for Warhammer 40,000: Chaos Gate - Daemonhunters in December 2022, which increased player engagement with the game during the important festive trading period. Integration of the Complex team is progressing well, and we are growing headcount from the 20 people on board at acquisition.
Foundry has supported eight different games to date, with six released games and two titles launching in the next few months. Given our mixed experience of third-party publishing in terms of financial success to date, we are assessing our strategy for Foundry in light of such experiences and competitive trends in the market. In particular, we are reviewing the return on investment achieved by Foundry.
Whilst we remain committed to, and excited by, the titles currently in development for release in FY23, we currently do not have any Foundry titles scheduled for release in FY24.
Current trading and outlook
Based on the lower than expected sales contribution from F1® Manager 2022, the general sales underperformance across the whole portfolio during the holiday period, and the uncertain contribution from Foundry in the remainder of FY23, the Board no longer expects to achieve the FY23 market consensus forecasts for revenue and IFRS operating profit, being £135 million and £19 million respectively.
The outturn over the five remaining months of the financial year is dependent on a number of variables, including the timing and contribution from the scheduled Foundry releases and the macro-economic environment.
The Board believes it is still possible to surpass last year's record revenue performance of £114 million, particularly if one of the upcoming Foundry titles is a conspicuous success. However, given the number of variables and the more challenging economic outlook, the Board's revised expectation is to deliver revenue of not less than £100 million in FY23.
Profitability in FY23 will be adversely affected by the revised lower level of sales performance. The Board believe that a revenue outcome of £100 million would deliver an IFRS operating profit margin of around 2% (operating profit of c.£2 million), whilst achieving £114 million of revenue would deliver a margin of approximately 9% (operating profit of c.£10 million).
Looking further ahead into FY24, which will benefit from Frontier's Warhammer Age of Sigmar real-time strategy game and F1® Manager 2023, the Board has set its expectations for revenue growth at 5% above the eventual revenue outcome for FY23, in light of current market and portfolio uncertainties, and the absence of new titles from Foundry releasing in FY24.
Jonny Watts, Frontier's CEO, said
"It is very disappointing to be resetting our financial expectations.
As CEO, I am driving a change in emphasis to increase focus on our core strengths and skills, with particular attention to increasing the return on investment that we achieve from our world-class teams. We intend to grow the number of our development teams to increase the cadence of new releases, whilst continuing to nurture our existing portfolio, to achieve sustainable growth.
We have created a strong portfolio of games and we continue to learn and respond to challenges as we expand and nurture our portfolio. I am grateful to our talented people for their continued hard work."
There will be a call for analysts and institutional investors at 9:30a.m. today. To register please contact frontier@tulchangroup.com
The information contained within this announcement is deemed to constitute inside information as stipulated under the retained EU law version of the Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. The information is disclosed in accordance with the Company's obligations under Article 17 of the UK MAR. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
Enquiries:
Frontier Developments +44 (0)1223 394 300
Jonny Watts, CEO
Alex Bevis, CFO
Liberum - Nomad and Joint Broker +44 (0)20 3100 2000
Neil Patel / Cameron Duncan
Jefferies - Joint Broker +44 (0)20 7029 8000
Max Jones / William Brown
Tulchan Communications +44 (0)20 7353 4200
Matt Low / Mark Burgess / Alex Dart
About Frontier Developments plc
Frontier is a leading independent developer and publisher of videogames 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. As well as self-publishing internally developed games, Frontier also publishes games developed by carefully selected partner studios under its Frontier Foundry games label.
Frontier's LEI number: 213800B9LGPWUAZ9GX18.
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