Sumo Group plc Substantial growth in revenue and profitability

Sumo Group plc (LON: SUMO), the award-winning provider of creative and development services to the video games and entertainment industries, announced today its final results for the year ended 31 December 2018.

Financials

1 The adjustment to revenue is to include £0.4m of customer revenue included within finance income, and exclude £0.2m of accrued royalty income not yet received and contingent on future sales, following the adoption of IFRS 15.

2 Adjusted gross profit is stated after the £0.2m net adjustment to revenue described above and to include £0.2m investment in co-funded games expensed is a non-GAAP metric used by management and is not an IFRS disclosure.

3 Adjusted gross margin excluding royalties is stated after the exclusion of royalties, adjustment for the impact of IFRS 15 adoption and the investment in co-funded games expensed and is a non-GAAP metric used by management and is not an IFRS disclosure.

4 Adjusted EBITDA, which is defined as profit before finance costs, tax, depreciation, amortisation, exceptional items, share based payment charge, and the impacts of the adjustments to revenue and gross profit described above, is a non-GAAP metric used by management and is not an IFRS disclosure.

5 Adjusted profit before tax excludes share based payment charge £2.6m (2017: nil), the above adjustments to revenue £0.2m (2017: nil), the above adjustment to gross profit £0.2m (2017: nil), exceptional items £0.1m (2017: £2.7m), amortisation of customer contracts and relationships £6.9m (2017: £27.6m) and net finance costs relating to pre-IPO financial structure £nil (2017: £5.4m).

6 Includes amortisation of £6.9m (2017: £27.6m), a non-cash and non-recurring charge resulting from a more appropriate approach to the useful economic life of historical intangible assets arising on the September 2016 change of ownership being taken in respect of client contracts from that date post IPO; transaction costs of £0.1m (2017: IPO/transaction costs £2.7m); and, for 2017, net finance costs relating to pre-IPO financial structure £5.4m.

2018 highlights

· Substantial growth in revenue and profitability:

Adjusted revenue up 35.9% at £38.9m

Adjusted EBITDA up 24.6% at £10.4m

Strong adjusted gross margin, excluding royalties, of 47.6%

· Acquisition of The Chinese Room in August, accelerating own-concept pipeline

· Apple new client win in December – two own-concept games now under development for Apple Arcade

· Further new clients secured at the end of 2018, as yet undisclosed

· 14% organic growth in headcount – 21% increase in total headcount, including M&A, to 592 at end December 2018 (2017: 489)

· Three major projects announced or officially launched in 2018: Hitman 2 (IO Interactive) – published November 2018; Crackdown 3 (Microsoft) – published in February 2019; and Team Sonic Racing (SEGA) – planned release date May 2019

· Board strengthened further with Andrea Dunstan appointed as NED and Chair of Remuneration Committee

Post year end highlights

· Acquisition of Red Kite Games in January 2019, bringing 27 people and opening up a new talent pool

· Total headcount from IPO to 31 March 2019 increased by 33% to 650 at end March 2019

· Management structure broadened and Board strengthened further to facilitate growth

Current trading and outlook

· Positive start to the new financial year with an unusually high degree of earnings visibility

· Current trading in line with the management’s expectations and the outlook remains positive

Carl Cavers, Chief Executive Officer of Sumo Group, said:

“With the video games market forecast by Newzoo, a leader in games analytics, to grow around 30% in the next three years, driven by demand for new cloud-based subscription platform content supported by the world’s biggest publishers, we believe that the outlook for Sumo Group is as good as ever. We are successfully attracting major new global publishers, as well as strengthening our relationships with existing and previous clients, and our business development pipeline remains very healthy.

“The challenge for the business is the acquisition of talent to support and deliver on these significant growth opportunities. Our quest to attract talented people to the business, both organically and through acquisition, is delivering results and we will maintain a keen focus on this aspect of the business in 2019. Having acquired Red Kite Games at the beginning of the new financial year, we are continuing to explore further interesting acquisition opportunities.

“We have had a positive start to the new financial year and have an unusually high degree of earnings visibility with slightly over 88% of Sumo Digital’s forecast 2019 development fees being already contracted or near contracted. Current trading is in line with the management’s expectations and I remain confident that the business will continue to deliver in 2019 and beyond.”