Sumo Group plc (LON:SUMO), the provider of acclaimed development, design and publishing services to the video games and entertainment industries, has announced the unaudited half year results for the six months ended 30 June 2021.
Sumo Group also provides an update on the recommended cash acquisition of the Group by Sixjoy Hong Kong Limited, an indirect subsidiary of Tencent Holdings Limited.
Update on the Acquisition
It was announced on 19 July 2021 that the boards of Tencent Holdings Limited and Sumo Group had reached an agreement on the terms of a recommended all cash acquisition by Tencent, through its indirect wholly-owned subsidiary, Sixjoy Hong Kong Limited, of the entire issued and to be issued ordinary share capital of Sumo Group which members of the Tencent Group do not already own. The Acquisition is to be implemented by way of a scheme of arrangement. Under the terms of the Acquisition, Sumo Group Shareholders will be entitled to receive 513 pence in cash for each Sumo Group share and the entire issued and to be issued share capital of Sumo Group is valued at approximately £919 million on a fully diluted basis.
On 10 September we announced that at the Court Meeting and General Meeting each held that day the requisite majority of shareholders voted in favour of the Scheme and to pass the Resolution in connection with Scheme. The Acquisition remains subject to the satisfaction or (if capable of waiver) waiver of the remaining conditions set out in the Scheme document, including the remaining Anti-trust and FDI conditions, the Court’s sanction of the Scheme at the Scheme Sanction Hearing and the delivery of a copy of the Court Order to the Registrar of Companies. We continue to expect the Acquisition to complete towards the end of the fourth quarter of 2021.
Unaudited half year results 2021
| Reported results | H1 21 | H1 20 | FY 20 | Change |
| Revenue | £50.4m | £26.3m | £68.9m | 91.7% |
| Gross profit | £21.9m | £10.8m | £31.5m | 102.4% |
| Gross margin | 43.5% | 41.2% | 45.7% | |
| Profit before taxation (1) | £3.7m | £2.8m | £0.9m | 32.9% |
| Cash flow from operations | £5.7m | £4.9m | £12.7m | |
| Net cash | £4.4m | £15.2m | £6.8m | |
| Basic earnings per share | 2.20p | 2.11p | 1.08p | 4.3% |
| Underlying results | H1 21 | H1 20 | FY 20 | Change |
| Revenue – like for like | £38.6m | £26.0m | n/a | 48.4% |
| Adjusted gross profit (2) | £21.6 m | £11.5m | £31.7m | 86.9% |
| Adjusted gross margin (3) | 40.2% | 38.7% | 41.8% | |
| Adjusted EBITDA (4) | £11.4m | £6.0m | £16.5m | 89.6% |
- The statutory profit before taxation of £3.7m in H1 21 is stated after charging an amount of £4.0m of fair value movements and amortisation of intangible assets arising on the acquisition of Pipeworks. In addition, the statutory profit before taxation is stated after charging exceptional items of £0.4m, the share-based payment charge of £1.8m and the unrealised loss on foreign currency derivative contracts of £0.2m.
- Adjusted gross profit is a non-GAAP metric used by management and is not an IFRS disclosure. It is stated after expensing £0.4m of investment in co-funded games expensed added back in previous years (H1 20: £0.7m added back).
- 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.
- 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 payments charge, foreign currency derivative contracts, exceptional items and the fair value loss on contingent consideration less the investment in co-funded games expensed and operating lease costs capitalised under IFRS 16.
Financial key points
• H1 21 results include Pipeworks which was acquired in October 2020
• 48% organic growth in like for like revenue for H1 21 £38.6m (H1 20: £26.0m)
• Adjusted EBITDA increased to £11.4m (H1 20: £6.0m)
• Pipeworks performed well in first full six-month period under Sumo ownership – revenue $14.1m
• Adjusted Gross Margin was 40.2% (H1 20: 38.7%) – Pipeworks, not included in H1 20 figure, has a lower GM than Sumo Digital due to higher employment costs and use of lower margin contractors
Operational highlights
• Additional capacity secured through acquisition of PixelAnt Games in Poland in January 2021
• Hood, an Own-IP title shared with Focus Home Interactive released in May 2021, performing well and in line with the Board’s expectations
• Group headcount increased by 160 in the Period to 1,203, including 13 people through PixelAnt
• Timbre Games, a Pipeworks company focusing on action-adventure and simulation games for the PC and consoles, launched in Vancouver in July 2021
• Secret Mode, which now totals 10 people, published Zool in August 2021, an updated concept created by the first intake at the Sumo Digital Academy
• Acquisition of Auroch Digital, a Bristol-based videogame developer and publisher with a focus on original IP creation, completed on 13 September 2021 – bringing a further 48 talented people to the Group
• Lab42 and Red Kite Games awarded GamesIndustry.biz Best Places to Work. Sumo Digital won The Education Award and Harinder Sangha, Operations Director at Sumo Leamington, was voted The Best Boss
• Sumo Digital Academy celebrated its first anniversary on 1 September 2021
• Second India studio in Bangalore announced in September 2021 – planned opening H1 22
• The Group now comprises 15 studios in five countries
Current trading and outlook
• Strong underlying growth in videogames market expected to continue in the long-term
• Pipeline of business development opportunities at the end of August 2021, had a total contract value of over £540m
• Acquisition pipeline remains strong and the Group continues to evaluate new acquisition opportunities in line with its strategic priorities and growth strategy
• The Board views the prospects for the Group for FY 21 and beyond with confidence
Carl Cavers, Chief Executive Officer of Sumo Group, said:
“The extraordinary has become the norm at Sumo Group. The business has been going from strength to strength, expanding as demand increases in this large and fast-growing global market. Our great people continue to deliver great games, which, in turn, are generating strong financial results for the Group. Then, shortly after the half year end, we announced the recommended all cash acquisition of Sumo Group by Tencent, valuing the business at over £900 million and delivering a very positive outcome for all our stakeholders. This process is ongoing and is expected to complete towards the end of Q4 FY 21.
Since the start of 2021, we have increased the Group’s capacity through the acquisition of PixelAnt and added an exciting new publishing element to the business, through the launch of Secret Mode in March. Timbre Games was launched by Pipeworks in Vancouver in July and, earlier this month, we added Auroch Digital to our growing portfolio of studios via acquisition. Auroch Digital supports our publishing ambition and brings further talent acquisition opportunities in the South West to provide further capacity in games development. We are also expanding with the opening of our second Sumo Digital studio in India next year.
As ever, our focus remains on delivering further strong growth organically and by acquisition and the pipeline of opportunities remains strong. We have an encouraging level of visibility on development fees for both 2021 and 2022 and, with our markets continuing to perform strongly, are very confident about the future of the business, which we expect to be under the ownership of Tencent.”
