Company Announcements

10 September 2019

Team17 Group plc

("Team17", the "Group" or the "Company")

Half year results

New content momentum delivering record breaking performance

Team17, a global games label, creative partner and developer of independent ("indie") premium video games, is pleased to announce its unaudited interim results for the six months ended 30 June 2019 ("H1 2019").

Financial highlights:

·    Revenues increased 97% to £30.4m (H1 2018: £15.4m)

o  Revenue profile across FY19 more H1 weighted than previous years due to release schedule

·    Gross profit up 119% to £15.1m (H1 2018: £6.9m)

·    Gross profit margin of 49.8% (H1 2018: 44.4%)

·    Adjusted EBITDA* up 145% to £12.0m (H1 2018: £4.9m)

·    Adjusted Earnings per share ("EPS")** up 356% to 7.31 pence (H1 2018: 1.63 pence)

·    Operating cash conversion of 109% (H1 2018: 200%)***

·    Net cash and cash equivalents of £35.8m (H1 2018: £16.7m)

Operational highlights:

·    Launched several new releases in the first half, including:

o  Genesis Alpha One and My Time at Portia, both early launch titles on the new Epic Game Store

o  My Time at Portia successfully exited Early Access on Steam, achieving global #1 in January; a successful launch on console followed in April 2019

o  Hell Let Loose, the WW2 military simulation and our Games Label's first 100-person multiplayer game, successfully released via Steam Early Access in June, reaching #1 globally

·    Continued strong performance from our back-catalogue portfolio of over 100 games

·    Ongoing investment in our facilities, alongside increased recruitment of new commercial and creative talent:

o  Development studio relocation planned for H2 2019; a larger site with increased capacity to accommodate Team17's growth ambitions

o  Headcount increased to 164 (H1 2018: 154)

·    Industry recognition at key global awards

o  Yoku's Island Express won the BAFTA for Best Debut Game in April 2019

o  Overcooked! 2 won Game of the Year at the Develop: Star Awards in July 2019

•     Board strengthened with the appointment of Jennifer Lawrence as Non-Executive Director and Chair of the Remuneration committee and the appointment of Martin Hellawell as Non-executive Director, announced in September 2019

Outlook:

·    Solid selection of third-party releases planned for H2 2019 from across our global developer network

·    The Board looks ahead with confidence and is comfortable with full year expectations

Debbie Bestwick MBE, Chief Executive Officer of Team17, commented:

"Our results during the first six months really underline the dedication and hard work of our people and external Games Label partners, and I want to thank every one of them.

I'm delighted with the excellent start to FY2019, delivering record revenues and operating profit in the period as well as successfully launching several high-profile games.

We have a solid line up of new games to release in H2 2019 and look forward to updating our shareholders on our continued progress in due course".

*Adjusted EBITDA is defined as operating profit adjusted to add back depreciation of property, plant and equipment, amortisation of brands and impairment of intangible assets (excluding capitalised development costs), share based payments and any exceptional items. Exceptional items are those items believed to be exceptional in nature by virtue of their size and or incidence. Exceptional items are detailed in note 4.

** Adjusted EPS is defined as profit after tax adjusted to add back any exceptional items divided by the Weighted Average Number of Shares. Exceptional items are those items believed to be exceptional in nature by virtue of their size and or incidence. Exceptional items are detailed in note 4.

*** Operating cash conversion is defined as cash generated from operating activities as per the statement of cash flows, divided by EBITDA including the add back of amortisation of development costs (not normally included in EBITDA) 

Enquiries:

About Team17

Founded in 1990, Team17 Group plc is a leading international premium video games label and creative partner for independent developers.

Beyond developing and publishing its own IP in-house, Team17 is also a premium video games label and creative partner for developers across the world. Team17 leverages its unique go-to-market expertise to support its partners in the development and publishing of games across multiple platforms, typically for a fixed revenue share post game launch. All investments are undertaken in a low risk manner, typically using milestone payments during the development process.

The portfolio comprises over 100 games, including The Escapists, Genesis Alpha One, My Time at Portia, Overcooked, Yoku's Island Express, Yooka-Laylee, the Worms franchise and many more from developers around the world. Visit www.team17.com for more info.

OPERATIONAL REVIEW

Summary

Last year's momentum has continued into 2019, with strong growth in the first half of the year; revenues are up 97.4% to £30.4m (H1 2018: £15.4m) and gross profit up 118.8% to £15.1m (H1 2018: £6.9m). We expect the 2019 revenue profile to be more weighted towards H1 due to the profile of scheduled releases.

Since our inception, we have launched over 100 games, all focused on the premium rather than free-to-play-market. This extensive back catalogue, including iconic titles such as Worms, Overcooked, The Escapists and Yooka-Laylee, continues to generate significant revenues.

Our first half has been driven by a mix of new launches and a strong performance from back catalogue titles. In H1 2019, 73.7% of revenues came from our back catalogue (H1 2018: 79.5%), with the remainder of revenue from new game launches.

We are well positioned to capitalise on the continuing growth of digital distribution channels, enabling us to open our extensive library of games to the widest possible audience, and maximise both the life cycle and revenue generation of each individual game.

Our ongoing commitment to growth is based around the following strategic pillars, namely:

·    New games & content - to maintain a steady flow of high-quality new releases alongside additional digital content launches;

·    Technology - to remain at the forefront of innovation, leveraging digital distribution and new emerging digital platforms;

·   IP back catalogue - to continue to capitalise on back catalogue opportunities and to optimise life cycle management revenue streams;

·    M&A - to consider selective acquisition opportunities that complement our strategy and align with our values; and

·    People & skills - to continue to strengthen our team to support all our growth aspirations.

We have actively released several new games and post-launch content across multiple platforms during the first half of 2019, including:

In June, we launched Hell Let Loose into Early Access on Steam, a 100 player, military simulation, first person, WW2 shooter. This is our first game launch in this genre and our first on this scale and relies on strong communication and strategy between players.  Since its Early Access debut we've seen positive and encouraging player feedback from the game's growing community, improving Hell Let Loose as it gets closer to leaving Early Access in 2020.

As part of our life cycle management, we have also developed and launched new downloadable content ("DLC") to extend player engagement and grow our fanbases. In February 2019, we celebrated Chinese New Year with a free update for Overcooked! 2, which led to an ongoing demand for the game.

Throughout the rest of 2019, we will continue to launch games and DLC content for existing titles:

Digital distribution from established brands - such as Valve's Steam and new digital platforms like the Epic Games Store - has significantly reduced barriers to entry for developers looking to bring games to market. Through our Games Label, we can support independent developers of all sizes (wherever they are located in the world) to launch their titles and maximise their commercial value.

We continue to evaluate a large number of opportunities and potential partnerships through the label's greenlight process. Promising games are identified through our people's existing relationships within the games industry, desk research, crowdfunding platforms or direct submission to the Company itself. Our rigorous screening process ensures opportunities that do progress have the highest chance of success at launch and post launch, through DLC and updates.

In February 2019, we announced a new partnership with Blacklight Interactive on the successful mini-golf game, Golf With Your Friends!. We will continue to work as a full creative partner with Blacklight Interactive, developing updates and new content for the game, as well as publishing it via our Games Label. Initial feedback on Golf With Your Friends!, which is currently available on Steam Early Access, has been positive.

Wider market dynamics

According to a recent report from Newzoo¹, the global games market is expected to grow to over $150 billion in 2019 and over $196 billion by 2022.

In H1 2019, Sony and Microsoft both announced they will be launching their next generation consoles in 2020, which will incorporate upgraded technology, architecture and graphics capabilities. We are also seeing technology giants entering the market. In March, Apple announced it would be launching Apple Arcade later in 2019, its video game subscription service. Google has announced Stadia, which is due for launch in November 2019. The level of impact caused by the services remains to be seen, but we are well-placed to benefit due to the increased number of distribution channels and IP we look after.

The proliferation of PC digital distribution continues apace, with Steam and the Epic Games store now boasting over 90 million active users and 85 million active users² respectively. The evolution of digital distribution has lowered the barriers to entry for independent developers looking to launch games to a wider market. Furthermore, gaming development tools are also now more accessible, enabling independent developers to quickly and inexpensively convert concept to reality.

We will remain focused on the premium indie market. The increasing number of distribution channels only serves to increase the potential addressable market for our games. Our portfolio approach - which remains genre agnostic - means we are able to fully capitalise on this increasing audience.

[1] https://newzoo.com/insights/articles/the-global-games-market-will-generate-152-1-billion-in-2019-as-the-u-s-overtakes-china-as-the-biggest-market/

[2] https://www.businessinsider.com/epic-games-store-total-users-2019-3?r=US&IR=T

Current trading and outlook

We are delighted with the progress made in the first half of 2019, delivering a record H1 performance and successfully launching several new games. We have a solid line up of new releases in H2 from our partners and remain fully focused on our back-catalogue lifecycle as we continue to maximise revenue with existing and new distribution partners.   

As said at FY18 year end, our exciting industry continues to grow at a rapid pace. We believe there are more opportunities than ever before for controllers of IP; content creators and publishers. Our ever-growing portfolio, we believe, places us in a strong position to benefit from additional activity in areas such as subscription and the cloud. All channels will need content and looking ahead, these channels will need ongoing content to replenish their stores and offerings.

We equally continue to invest in both commercial and creative talent across both our Wakefield and Nottingham offices.

Therefore, I look forward to the second half of the year and I and the board are confident we can continue to deliver shareholders value in 2019 and well beyond.

Debbie Bestwick MBE

Chief Executive Officer

9 September 2019

Condensed Consolidated Statement of Comprehensive Income

All results relate to continuing activities.

Condensed Consolidated Statement of Financial Position

Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Statement of Cash Flows

Notes to the Condensed Consolidated Interim Financial Statements

1. Nature of operations and general information

Team17 Group PLC and its subsidiaries (The Group) are a global games label, creative partner and developer of independent ("indie"), premium video games.

2. Basis of preparation

This interim report has been prepared in accordance with the AIM rules and IAS 34 "Interim Financial Reporting" as adopted by the European Union. The condensed consolidated financial statements for the 6 months ended 30 June 2019 should be read in conjunction with the financial statements of Team 17 Group Plc for the year ended 31 December 2018 (the "Prior year financial statements") which includes the financial results of the group prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The report of the auditors for the prior year financial statements for the year ended 31 December 2018 was unqualified, did not contain an emphasis of matter paragraph and did not include a statement under Section 498 of the Companies Act 2006. The Group's interim condensed consolidated financial information is not audited and does not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. These condensed interim financial statements were approved for issue on xx xxx 2019.

Going concern

The Directors are satisfied that the Group has adequate resources to continue in business for the foreseeable future, and accordingly continue to adopt the going concern basis in preparing the accounts.

Accounting policies

The Group's principal accounting policies used in preparing this information are as stated on pages 24 to 29 of the prior year financial statements with the exception of the Group reorganisation as described below. There has been no change to any accounting policy from the date of the prior year financial statements. In connection with the admission to AIM on 23 May 2018, the Group undertook a reorganisation of its corporate structure which resulted in the Company becoming the ultimate holding company of the Group. Prior to the reorganisation the ultimate holding company was Team 17 Holdings Limited.

The group has adopted IFRS 16 - Leases retrospectively from 1 January 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019. The total value of Right of use assets recognised at 1 January 2019 was £92,000.

3. Segmental information

The Board considers this business as a single operating segment, however this information is voluntarily disclosed.

Revenue by Third Party/Own IP:

4. Exceptional items

There were no exceptional items in the 6 months ending 30 June 2019.

Exceptional items in the 6 months ending 30 June 2018 relate to significant one-off costs, which have not been deducted from equity, associated with the Group's admission onto AIM in May 2018. The costs comprise advisors fees (£1,323,000), the write off of unamortised loan note fees (£240,000), stock exchange listing fees (£43,000), other IPO costs (£29,000) and bonuses payable to Directors which were contingent on admission to AIM (£917,000). Costs totalling £730,000 incurred in association with the IPO which met IAS 32 definition of transaction costs (being incremental and directly related to the issuance of new equity instruments and which would have been avoided had the instruments not been issued) have been deducted from share premium.

5. Adjusted EBITDA Calculation

Revision of accounting estimate

During 2018 the group revised its approach to the recognition of recoupable costs within its Intellectual Property and its amortisation of development costs - adopting an 85% reducing balance approach over 2 years in the case of the latter (previously straight line over 2 years) and retaining the former within capitalised development costs (previously derecognised when recovered from the third party) and amortising over the useful economic life of the game in line with all other costs.  The impact of this revision of accounting estimate was an increase to capitalised costs of £1,720,000 and a corresponding increase in amortisation of £1,983,000 giving an overall reduction in net book value of £263,000. This revision in accounting estimate was accounted for as at 31 December 2018 and then prospectively. 

6. EPS

The calculation of the basic earnings per share is based on the profits attributable to the shareholders of Team17 Group plc divided by the weighted average number of shares in issue. The weighted average number of shares takes into account treasury shares held by the Team 17 Employee Benefit Trust.

The calculation of the diluted earnings per share is based on the profits attributable to the shareholders of Team17 Group plc divided by the weighted average number of shares in issue as adjusted for any dilutive effect of share options. At 31 December 2018 the performance criteria for issuing the share options had not been met and therefore there is no dilutive effect.

The calculation of adjusted earnings per share is based on the profit attributable to shareholders as shown above plus additional costs added back during the year (Note 5). The weighted average number of shares uses the number of shares in issue post listing on AIM on 23 May 2018. This has been applied retrospectively to the number of shares in issue at 1 January 2018 and the metric has been restated to ensure that the adjusted earnings per share figures are comparable over the two periods.

7. Intangibles

Goodwill

The Group tests annually for impairment, or more frequently if there are indicators that goodwill might be impaired.