Sumo Group plc (LON:SUMO), the award-winning provider of creative and development services to the video games and entertainment industries, has announced its final results for the year ended 31 December 2020, which show substantial growth in revenue and Adjusted EBITDA and further outperform consensus market expectations for FY20, which were upgraded in January 2021 following the Group’s positive trading update.
Financials
| Reported results | 2020 | 2019 | Change |
| Revenue | £68.9m | £49.0m | + 40.7% |
| Gross profit | £31.5m | £23.9m | + 31.5% |
| Gross margin | 45.7% | 48.9% | |
| Profit before taxation1 | £0.9m | £7.4m | |
| Cash flow from operations | £13.0m | £14.4m | |
| Net cash | £6.8m | £12.9m | |
| Basic earnings per share | 1.08p | 5.19p | |
| Diluted earnings per share | 1.01p | 5.07p |
| Underlying results | 2020 | 2019 | Change |
| Adjusted gross profit2 | £31.7m | £25.2m | + 25.8% |
| Adjusted gross margin3 | 41.8% | 44.8% | |
| Adjusted EBITDA4 | £16.5m | £14.1m | + 17.1% |
1 The statutory profit before taxation of £0.9m in 2020 is stated after charging an amount of £7.3m arising on the acquisition of Pipeworks consisting of the £2.7m fair value loss on contingent consideration, £1.7m of amortisation of customer contracts and customer relationships and £2.9m of transactions costs on that acquisition. In addition, the statutory profit before taxation is stated after charging exceptional items other than the costs incurred on the acquisition of Pipeworks of £1.2m (2019: £0.5m) and the share-based payment charge of £5.0m (2019: £2.7m) and the unrealised gain on foreign currency derivative contracts of £1.0m.
2 Adjusted gross profit is a non-GAAP metric used by management and is not an IFRS disclosure. It is stated after adding back £0.2m (2019: £1.3m) investment in co-funded games expensed.
3 Adjusted gross margin is a non-GAAP metric used by management and is not an IFRS disclosure. It is stated after adding back to gross profit the investment in co-funded games expensed and, for Sumo Digital, adding to revenue amounts in respect of Video Games Tax Relief (“VGTR”) and with no adjustment to either revenue or gross profit in respect of royalty income. It should be noted the definition of adjusted gross margin has changed this year following the acquisition of Pipeworks.
4 Adjusted EBITDA is a non-GAAP metric used by management and is not an IFRS disclosure. It is defined as statutory operating profit adding back amortisation, depreciation, share-based payment charge, investment in co-funded games expensed, exceptional items, the fair value loss on contingent consideration less the operating lease costs capitalised under IFRS 16 and foreign currency derivative contracts.
2020 highlights
· Revenue growth of over 40%, comprising of 24% organic and 16% acquisitive growth, delivered in a year impacted by the COVID-19 pandemic
· Adjusted EBITDA growth of 17.1%
· Adjusted gross margin of 41.8% (2019: 44.8%), using a new definition following the acquisition of Pipeworks and the evolution of the royalty model. The underlying adjusted gross margin remains strong at 43.2%. The gross margin was impacted by two specific matters both of which were flagged at the half year being the cost expensed on Snake Pass 2 and the higher than usual holiday pay accrual as a result of the pandemic
· 279 milestones delivered and 12 games launched or announced during the year including five Own-IP games
· First major acquisition completed in October 2020 – Pipeworks Inc (“Pipeworks”), an innovative and well-established West Coast US games developer, for an enterprise value, calculated at the time of acquisition, of up to $99.5m
· Lab42, a cross-platform work for hire studio in Leamington Spa, acquired in May 2020, performing ahead of expectations
· Total headcount increased to 1,043 at the year end (31 Dec 2019: 766), despite pandemic restrictions, including an aggregate of 163 people who joined through the acquisition of Lab42 and Pipeworks
· Net cash at 31 December 2020 ahead of management expectations at £6.8m due to a number of timing effects
Post year end activity
· Strategic acquisition of PixelAnt Games in Wroclaw, Poland, completed in January 2021, providing an established, low-risk base for growth in a video games talent hot-spot
· 3 Star Accreditation achieved in the Best Companies Survey
· Two BAFTA wins for Sackboy A Big Adventure in March 2021 and two further nominations
· Increasing emphasis on ESG, to ensure the business continues to grow and flourish in a sustainable way
· Launch of Secret Mode, the Group’s new publishing division, focused on bringing fresh, smaller games, developed either internally or by independent developers, to market
· Now working on more than 40 projects with 28 different clients up from 21 projects with 12 different clients at April 2020
Outlook
· Advancing technology and new platforms fuelling market trends, bolstering publisher confidence to increase the scope and spend on games and underpinning the Group’s long-term growth
· Global demand for quality premium content is constrained only by industry capacity
· Ongoing Group focus on increasing headcount organically and via acquisition
· Strong acquisition pipeline with a number of targets being actively pursued
· Very strong pipeline of business development opportunities on major new projects, with both existing and new clients
· A number of interesting Own-IP concepts being explored
· Investment in the development of Secret Mode for its mid to long-term success
· Strong visibility with 85% of Sumo Digital’s budgeted development fees for FY21 contracted or near-contracted5 at end February 2021 (FY20: 73% at 31 March 2020) and, on a broadly comparable basis, Pipeworks is at 50%, similar level as the prior year
· The Board views the opportunities for the Group in the year ahead and beyond extremely positively
5 Revenue is referred to as near contracted when management has a high degree of confidence in a project’s size, scope, and timing. Typically, this would be when the key commercial terms have been agreed in principle and reflected in a draft contract which has undergone a legal review and does not contain any terms that are unacceptable to the Company.
Carl Cavers, Chief Executive Officer of Sumo Group, said:
“2020 has been an extraordinary year for us in so many ways. Our people have responded brilliantly to the pandemic restrictions, delivering many fantastic games and winning some incredible awards, including two BAFTAs. We also completed a major acquisition in the US and generated financial results ahead of everyone’s expectations.
“Achieving 3 Star Accreditation in the Best Companies Survey, announced in February 2021, was a massive achievement for the Group but we won’t rest on our laurels. Attracting and retaining the best talent lie at the heart of our future growth plans and we will continue adapting and improving to make Sumo Group the best place to work in video games.
“The year ahead is packed with even more exciting opportunities for our talent to shine, and we are excited about the launch of Secret Mode, our new publishing business, announced earlier this month. Our focus remains on delivering further strong growth organically and by acquisition, and the pipeline of opportunities remains strong. We have an enviable level of visibility on development fees in 2021 and, with our markets continuing to perform strongly, are increasingly confident about the future of the business.”
