Frontier Developments cheers strong first half

Video games developer and publisher Frontier Developments reported a 16% improvement in revenue in its first half on Thursday, to £57.1m.

The AIM-traded firm put the performance down to the release of F1 Manager 2022 in August, ongoing sales of its current portfolio, and new paid downloadable content (PDLC) for existing games.

Its gross profit margin of 63% for the six months ended 30 November was “consistent” with the prior-year period, underpinned by a continued contribution from its existing portfolio.

Net research and development expenses reduced by £2.5m to £16.1m, primarily as a result of the full amortisation of Elite Dangerous: Odyssey during the 2022 financial year.

Operating profit rebounded to £6.9m, from a first-half loss of £1.3m a year ago, through a combination of a higher revenue and lower research and development costs.

The board said adjusted EBITDA, which it called “a measure of cash profit”, remained as a small net outflow of £0.6m, versus an outflow of £0.9m a year earlier, after continued investment in future titles and support for existing games.

Its net cash balance was £42.6m at period-end on 30 November, up from £38.7m at the end of May.

Net cash grew £3.9m during the period, despite an £8.8m cash outflow in November for the acquisition of Complex Games.

“During the first half of the financial year our game portfolio performed largely in line with expectations,” said chief executive officer Jonny Watts.

“However, the key December trading period was below expectations and we believe this was partly due to increased player price sensitivity.

“As we look forward, there are important lessons we have learned for the F1 Manager franchise, including making the game more accessible and engaging to a wider audience.”

Watts said he was “confident” that the firm delivered a good first game to build upon.

“We have announced a review of Frontier Foundry, which we expect to complete by the end of the financial year, as a result of the financial challenges and competition for that third-party publishing business model.

“We continue to look forward to the releases of Deliver us Mars and The Great War: Western Front in the next few months.

“They offer upside potential but we are being cautious given our experience of the market in December.”

Jonny Watts said the Warhammer Age of Sigmar real-time strategy game remained on track for release in the 2024 financial year.

“Overall we believe our core strategy remains sound.

“We have a strong portfolio of good games and a large and talented team of people.

“We will continue to work together to navigate our challenges and deliver on our opportunities.”

At 1524 GMT, shares in Frontier Developments were up 2.66% at 483p.

Reporting by Josh White for Sharecast.com.