Frontier Developments swings to first-half operating loss

Video games developer and publisher Frontier Developments reported a 33% improvement in first-half revenue year-on-year in its interim results on Wednesday, to £49.1m, although higher costs saw it swing to an operating loss.

The AIM-traded firm said that growth came on the back of the release of Jurassic World Evolution 2 in November, and the ongoing performance of its existing game portfolio

Its gross profit margin came in at 63%, down from 71% in the first half of the 2021 financial year, which the board put down to a higher proportion of its revenue attracting intellectual property licensing royalties, and console physical discs sales of Jurassic World Evolution 2, which achieve lower profit margins compared with digital sales.

The combination of a lower gross profit margin percentage and game release-related marketing costs resulted in a “slightly lower” EBITDA of £14.1m for the six months ended 30 Novemebr, versus £15.5m in the first half of the prior year.

Its operating cash inflow in the period totalled £0.7m, falling from £3.1m.

Exceptional non-cash foreign exchange and amortisation charges resulted in a small operating loss of £1.3m, swinging from a profit of £6.9m a year ago.

Frontier said its net cash balance totalled £33.6m at period end, down from £42.4m at the start of the period.

The board said the net cash outflow of £8.8m was primarily due to an increase in working capital, with “significant” net cash receipts for November sales receivable from channel partners, including for the launch of Jurassic World Evolution 2, in December and January.

“We have had an unprecedented couple of years because of coronavirus and the resulting changes, both positive and negative,” said chief executive officer David Braben.

“We have seen increased sales and changes to purchasing patterns, the acceleration of the transition towards interactive entertainment and digital purchasing, and changes to production that embrace home-working.

“Although coronavirus challenges remain, we believe we now have sound production processes that work in the new hybrid world, as demonstrated by the on-time and high quality delivery of the excellent Jurassic World Evolution 2, and this sets us up for future success.”

Braben said the company’s staff had adapted well to the challenges, finding new ways of working.

“We have the potential for much greater growth in the next few years as we reap the benefits of all the hard work we have done to adapt to these changes and capitalise on a great portfolio of existing games together with the exciting new franchises such as Formula 1 management games and our Warhammer Age of Sigmar real-time strategy game.

“We are well set up with a great portfolio for an exciting future.”

At 1152 GMT, shares in Frontier Developments were down 25.73% at 1,316p.