TEAM17 GROUP PLC - Earnings Release 2022

National Storage Mechanism | Additional information

RNS Number : 1882Z

Team17 Group PLC

13 September 2022

Team17 Group plc

("Team17", the "Group" or the "Company")

Half year results

Expanded operational platform underpinned by solid Games Label back

catalogue portfolio - underpins another record financial performance

Team17 Group, a global games label, creative partner and developer of independent ("indie") premium video games and developer and publisher of educational entertainment ("edutainment") apps for children and a leading working simulation games developer and publisher, is pleased to announce its unaudited results for the six months ended 30 June 2022 ("H1 2022").

H1 2022 financial highlights:

· Revenues grew 33% to a record £53.2m (H1 2021: £40.1m)

· Gross profit up 26% to a record £25.5m (H1 2021: £20.2m)

· Adjusted EBITDA1 up 10% to a record £18.2m (H1 2021: £16.5m)

· Profit before tax decreased to £11.2m (H1 2021: £14.0m)

· Adjusted profit before tax2 increased 7% to £17.3m (H1 2021: £16.2m)

· Earnings per share ("EPS") decreased to 6.5 pence (H1 2021: 8.6 pence)

· Adjusted earnings per share3 ("AEPS") increased to 10.4 pence (H1 2021: 10.1 pence)

· Operating cash conversion4 of 139% (H1 2021: 108%)

· Net cash and cash equivalents at half year end of £51.3m (H1 2021: £66.6m)

H1 2022 operational highlights:

· Completed a number of high quality acquisitions, focused on broadening the Group's geographical footprint and operational reach, alongside adding high quality first party IP

· Consistent consumer traction across Team17 Games Label ("Games Label"), driven by portfolio life cycle management:

o 20 (H1 2021: 17) new downloadable content ("DLC") packages released across 12 (H1 2021: 9) titles

o content portfolio now comprises over 600 digital revenue lines.

o 1 (H1 2021: 6) new title released in H1 with an exciting H2 pipeline

· Good performance from StoryToys with significant growth in payable active subscribers which now exceeds 250,000 (H1 2021: over 130,000)

o developed and launched 108 (H1 2021: 58) app updates

o entered a long-term extension with the LEGO Group for multiple apps over multiple future years

· astragon performing in line with expectations supported by its first party IP titles:

o Police Simulator: Patrol Officers released into early access in 2021, continued to build momentum in H1 2022

o astragon's physical distribution revenues remain strong, boosted by a range of diverse titles across its portfolio including Farming Simulator, which continues to experience significant customer adoption in Germany

o 10 DLC & content updates to first party IP titles in H1 2022

· Ongoing investment in Group people saw headcount increase to 345 from 265 at the end of FY 2021 including 52 heads from acquisitions, with attrition rates back at historic single digit levels

Outlook

· Exciting pipeline of new releases for H2 combined with continued back catalogue performance to deliver second half weighted results

· H2 has started well with Sweet Transit (July) and Thymesia (August) launched by Games Label both performing inline with expectations, Sweet Transit achieved top 5 Global Game at launch whilst Thymesia reached No.1 Global Games on Steam

· Games Label plans to launch seven new titles in total in H2 including Marauders (which continues to track ahead on internal metrics) and Sunday Gold amongst other and astragon will release the latest version of Construction Simulator

· Whilst mindful of the potential impact of ongoing macro-economic uncertainty and inflationary pressures, the Board remains confident that the Group will continue to trade in line with its expectations

Debbie Bestwick, Chief Executive Officer of Team17 Group plc, commented:

'We are pleased with the Group's first half performance, trading in line with our expectations. Our new acquisitions, led by our talented and committed management teams, have worked incredibly well together across all parts of the Group, and we are all looking forward to a busy and productive second half.

The Group now has more evergreen first party IP's than ever before, alongside a phenomenal back catalogue portfolio, and in StoryToys, a growing subscription revenue model. New releases include additions to many established franchises and licensed global brands as well as exciting new original IP's that are tracking well.

Complementing our first half performance, we have made an encouraging start to the second half of FY 2022 and we remain confident about the Group's prospects going forwards.'

1Adjusted EBITDA is defined as operating profit adjusted to add back depreciation of property, plant and equipment, amortisation of intangible assets (excluding capitalised development costs), share based compensation and all acquisition related adjustments and fees. This has been restated to include the add back of acquisition related fees not previously included in the definition as described in Note 4 below.

2Adjusted profit before tax is defined as profit before tax adjusted to add back share based compensation and all acquisition related adjustments and fees (see Note 4 below).

3Adjusted earnings per share is calculated by dividing the adjusted profit for the year by the weighted average number of ordinary shares (see Note 5 below). Adjusted profit for the year is defined as profit after tax adjusted to add back share based compensation and all acquisition related adjustments and fees (see Note 4 below). The weighted average number of shares is adjusted for the effect of share options when calculating the diluted adjusted earnings per share (see Note 5 below). Adjusted earnings per share has been restated for the add back of acquisition related adjustments and fees to adjusted profit after tax not previously included in the definition as described in Note 4 below.

4Operating cash conversion is defined as cash generated from operating activities as per the unaudited consolidated statement of cash flows adjusted to add back payments made to satisfy pre-acquisition liabilities recognised under IFRS 3 Business Combinations (see note 6 below), divided by earnings before interest, tax depreciation and amortisation ("EBITDA").

H1 2022 Results webcast details can be found in the notice published on 5th Sept, accessible via the following link:

https://www.team17groupplc.com/rns-announcements/

Enquiries:


Team17 Group plc Debbie Bestwick MBE, Chief Executive Officer Mark Crawford, Chief Financial Officer	via Vigo Consulting
Houlihan Lokey (Nominated Adviser) Adrian Reed / Tim Richardson	+44 (0)16 1250 3577 / +44 (0)20 7484 4044
Berenberg (Broker) Chris Bowman / Toby Flaux / Marie Moy / Alix Mecklenburg-Solodkoff	+44 (0)20 3207 7800
Vigo Consulting (Financial Public Relations) Jeremy Garcia / Kate Kilgallen team17@vigocon sulting.com	+44 (0)20 7390 0233

About Team17

Team17 Group plc is a global provider of games entertainment to a broad audience. The Group now includes a games entertainment label and creative partner for indie developers, a leading developer of educational apps for children under the age of eight, and a leading working simulation games developer and publisher.

Our business has grown significantly since the IPO in 2018 and includes three growth engines after recent acquisitions:

· Team17 Games Label - owns and manages multiple IP titles published across over 600 digital revenue lines, including our owned IP franchises; Worms, Escapists, Golf With Your Friends ("GWYF") and Hell Let Loose ("HLL"). Team17 USA (formerly 'The Label') acquired in January 2022, is actively exploring future opportunities to bring Team17 IP to mobile platforms alongside its own third-party subscription license titles.

· StoryToys - acquired in July 2021, StoryToys is a world class developer and publisher of educational entertainment ("edutainment") apps for children, working with several leading brands, including The Walt Disney Company, The LEGO Group, Penguin Random House, Sesame Workshop, Apple, Amazon, and Google. Founded in 2008 and based in Ireland, StoryToys apps have been downloaded over 150 million times across 120 countries, and its educational entertainment apps are produced in as many as 28 different languages.

· astragon - acquired in January 2022, astragon is a well-known developer, publisher and distributor of sophisticated 'working' simulation games based in Germany. astragon's well known IPs, such as Firefighting Simulator, Police Simulator, Bus Simulator and Construction Simulator, focus on nonviolent cooperative gameplay with exceptionally detailed, technical, and realistic environments across PC, Console, and Mobile gameplay for millions of enthusiastic customers.

Visit www.team17groupplc.com for more information

Operational Review

H1 2022 saw the Group deliver a solid performance, supported by the underlying strength of our core business reinforced by the positive impact of our recent acquisitions. This encouraging performance has seen the Group deliver impressive growth against H1 2021, once again producing record levels of revenue and adjusted EBITDA.

The evolution and enlargement of the Group has created a significant geographical footprint with expanded operational scale and reach which benefits from multiple revenue models and gaming genres and lays the foundations for us to expand further our high quality first and third party IP portfolio. Equally as importantly, we have an outstanding team which boasts an excellent blend of skills and experience and an extensive and growing internal knowledge base that will be truly game changing for the Group. The combined headcount now totals 345 up from 265 at the end of FY 2021 including 52 heads from acquisitions made in the early part of the year and reflects an increase in each of the businesses within the Group since the start of FY 2022. Attrition rates in the first six months of the year are in line with historic single digit levels and lower than recently reported industry market rates.

Revenues grew 33% to a record £53.2m (H1 2021: £40.1m) with gross profit reaching £25.5m (H1 2021: £20.2m), demonstrating considerable H1 growth compared to prior years. First party revenues rose to £20.4m (H1 2021: £11.3m) benefiting from the addition of Hell Let Loose and astragon's first party simulation IP.

Administration expenses have risen to £13.6m (H1 2021: £6.2m) partly as a result of the increased headcount and larger cost base linked to the newly acquired businesses, but also include £5.5m acquisition related adjustments and (H1 2021: £1.8m). A full breakdown of these costs is shown in Note 4 below.

Adjusted EBITDA increased by 10% to £18.2m (H1 2021: £16.5m), with our adjusted EBITDA margin5 at 34% (H1 2021: 41%) in line with previous guidance.

5Adjusted EBITDA margin is calculated as adjusted EBITDA divided by Revenue

EPS of 6.5p (H1 2021: 8.6p) reflects in part the impact of the 14.1m new shares issued in the period to support the acquisitions combined with the impact of acquisition related costs and the second half weighting of earnings, however the adjusted EPS (adding back share-based compensation costs, acquisition related costs and adjustments) of 10.4p (H1 2021: 10.1p) better reflects the growth in earnings in the period across the enlarged Group.

Operating cash conversion of 139% is impacted by the acquisitions and their working capital movements. Adjusting out the impact of the acquisitions would show an operating cash conversion of 111% and provide a more direct comparison to H1 2021 (H1 2021: 108%).

The Group's core activity remains the identification, development and publishing of content across an expansive range of genre and platforms, appealing to a wide age range of gamers. This activity is managed through the enlarged Group's subsidiary businesses in order to deliver its strategic goals and ambitions.

Games Label

With one new title launch (H1 2021: 6) alongside 20 DLC updates in the period, the underlying quality of the Games Label's back catalogue has again helped to deliver solid results and is a testament to our lifecycle management expertise and ambitious portfolio and franchise building strategy. This, alongside a significant growth in the proportion of revenues derived from first party IP, has helped to create a resilient, highly stable revenue of £40.8m (H1 2021: £40.1m) and gross profit base.

StoryToys

StoryToys is now embedded in the Group and continues to perform in line with expectations, generating revenues of £4.6m (H1 2021: £Nil). H1 2022 saw Hulk and Iron Man content updates following the launch of LEGO® DUPLO® Marvel in December 2021, StoryToys' biggest release to date.

Total subscriptions and subscription revenues have both grown significantly in H1 2022, with the StoryToys platform now attracting over 250,000 active subscribers (H1 2021: over 130,000).

StoryToys has also entered a longer term extension with the LEGO Group for multiple apps over multiple future years, reinforcing a highly strategic and successful long term partnership for the division.

astragon

astragon is performing in line with expectations formed at the time of acquisition, generating revenues of £7.8m (H1 2021: £Nil). First party IP titles, in particular Police Simulator: Patrol Officers, which was released into early access on PC in FY 2021, continue to experience positive sales momentum, adding incremental value to astragon's growing first party IP portfolio. In addition, 10 DLC and content updates were developed and published on first party IP titles in the first half.

Physical distribution, which remains an important revenue stream, also delivered a strong performance across the portfolio of titles, especially in the case of Farming Simulator, which continues to see significant traction in Germany.

Current Trading and Outlook

The Group has made a solid start to the year and entered the second half with significant traction across all parts of the business. The combination of the Group's high quality portfolio of new releases and continued contribution from the back catalogue is expected to underpin performance in the second half.

Games Label has already launched two games in the second half; Sweet Transit (July) and Thymesia (August). Both performing in line with management's expectations with Thymesia achieving No1 Global Game on Steam and Sweet Transit achieved top 5 Global Game at launch. Games Label plans to launch seven new titles in total in H2 including Marauders (which continues to track ahead of internal metrics) and Sunday Gold. These launches will be combined with Hokko Life and Honey, I Joined A Cult that will launch out of Early Access alongside continued support for Hell Let Loose and Golf With Your Friends with new content and other planned updates across the back catalogue. Team17 USA's planned development for mobile title releases is on track and the latest update 'Wimblegolf' for What the Golf? continues to have good visibility and traction on mobile.

StoryToys plans to deliver more than ten major app updates, alongside multiple smaller updates across its portfolio, and will continue to strengthen its subscription app offering and network of global license partners.

The astragon pipeline remains active and will predominantly be driven by the latest version of Construction Simulator, due to launch on PC and console on 20 September 2022. The title continues to experience strong customer adoption eight years on from its initial release and has the potential to be the biggest release of astragon's first party IP in recent years. Bus Simulator: City Ride is due to launch on mobile and Switch in October, and the highly rated Police Simulation: Patrol Officers will leave Steam's Early access and launch on consoles later in this year in November.

astragon has confirmed they will be taking over responsibility for worldwide digital and physical publishing for Railroads Online, a promising Early Access simulation title which will be joining their third party title portfolio.

Whilst mindful of the potential impact of ongoing macro-economic uncertainty and inflationary pressures, the Board remains confident that the Group will continue to trade in line with its expectations.

Debbie Bestwick MBE

Chief Executive Officer

12 September 2022

Condensed Consolidated Income Statement


		Unaudited Six months ended 30 June 2022	Unaudited Six months ended 30 June 2021
	Note	£'000	£'000

Revenue	3	53,249	40,110

Cost of sales		(27,705)	(19,921)

Gross profit		25,544	20,189
Gross profit %		48.0%	50.3%

Administrative expenses		(13,639)	(6,188)
Other Income		257	-
Operating profit		12,162	14,001

Amortisation of intangibles		16	-
Depreciation	4	577	266
Loss on disposal of property, plant and equipment	4	-	(9)
Share based compensation	4	(69)	433
Acquisition-related adjustments	4	5,539	1,788
Adjusted EBITDA1	4	18,225	16,479

Finance income		7	7
Finance cost		(1,000)	(20)

Profit before tax		11,169	13,988
Taxation		(2,262)	(2,808)

Profit for the period		8,907	11,180

Basic earnings per share	5	6.5 Pence	8.6 Pence
Diluted earnings per share	5	6.4 Pence	8.6 Pence
Basic adjusted earnings per share	5	10.4 Pence	10.1 Pence
Diluted adjusted earnings per share	5	10.3 Pence	10.1 Pence

All results relate to continuing activities.

Condensed Consolidated Statement of Comprehensive Income


	Unaudited Six months ended 30 June 2022 £'000	Unaudited Six months ended 30 June 2021 £'000
Profit for the period	8,907	11,180

Items which might be potentially reclassified to profit or loss:
Exchange difference on translation of foreign operations	5,345	-
Total comprehensive income for the period	14,252	11,180

Condensed Consolidated Statement of Financial Position


		Unaudited 30 June 2022	Unaudited 30 June 2021	Audited 31 December 2021
	Note	£'000	£'000	£'000
ASSETS
Non-current assets
Investments in associates		645	-	-
Intangible fixed assets	6	225,989	54,350	81,308
Property, plant and equipment		1,933	1,432	1,446
Right of use assets		2,818	1,311	2,189
Deferred tax asset		14	-	561
		231,399	57,093	85,504
Current assets
Trade and other receivables		18,966	11,400	17,825
Inventories		969	-	-
Tax receivables		-	257	-
Cash and cash equivalents		51,295	66,591	55,302
		71,230	78,248	73,127
Total assets		302,629	135,341	158,631
EQUITY AND LIABILITIES
Equity
Share capital		1,456	1,315	1,315
Share premium		136,775	44,084	44,084
Merger reserve		(153,822)	(153,822)	(153,822)
Currency translation reserve		5,245	-	(100)
Other reserves		159,296	159,296	159,296
Retained earnings		86,200	64,020	76,863
Total equity		235,150	114,893	127,636
Non-current liabilities
Lease liabilities		2,689	1,247	2,042
Other payables		25,242	-	-
Provisions		124	91	109
Deferred tax liabilities		8,624	2,631	3,550
Total non-current liabilities		36,679	3,969	5,701
Current liabilities
Trade and other payables		28,722	16,334	24,315
Current tax liabilities		1,718	-	678
Lease liabilities		360	145	301
Total current liabilities		30,800	16,479	25,294
Total liabilities		67,479	20,448	30,995
Total equity and liabilities		302,629	135,341	158,631

Condensed Consolidated Statement of Changes in Equity


		Share capital	Share premium	Merger reserve	Currency translation reserve	Other reserves	Retained earnings	Total
Six months to 30 June 2021	Note	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2021 (audited)		1,315	44,084	(153,822)	-	159,296	52,476	103,349
Profit and total comprehensive income for the period		-	-	-	-	-	11,180	11,180
Transactions with owners
Share based compensation		-	-	-	-	-	364	364
Total transactions with owners		-	-	-	-	-	364	364
Balance at 30 June 2021 (unaudited)		1,315	44,084	(153,822)	-	159,296	64,020	114,893
Six months to 31 December 2021
Balance at 1 July 2021 (unaudited)		1,315	44,084	(153,822)	-	159,296	64,020	114,893
Profit for the period		-	-	-	-	-	12,559	12,559
Other comprehensive expense for the period		-	-	-	(100)	-	-	(100)
Transactions with owners
Share based compensation		-	-	-	-	-	284	284
Total transactions with owners		-	-	-	-	-	284	284
Balance at 31 December 2021 (audited)		1,315	44,084	(153,822)	(100)	159,296	76,863	127,636


Six months to 30 June 2022
Balance at 1 January 2022 (audited)	1,315	44,084	(153,822)	(100)	159,296	76,863	127,636
Profit for the period	-	-	-	-	-	8,907	8,907
Other comprehensive income for the period	-	-	-	5,345	-	-	5,345
Transactions with owners
Share based compensation	-	-	-	-	-	430	430
Issue of ordinary shares	141	92,691	-	-	-	-	92,832
Total transactions with owners	141	92,691	-	-	-	430	93,262
Balance at 30 June 2022 (unaudited)	1,456	136,775	(153,822)	5,245	159,296	86,200	235,150

Condensed Consolidated Statement of Cash Flows


		Unaudited Six months ended 30 June 2022	Unaudited Six months ended 30 June 2021
	Note	£'000	£'000
Operating activities
Profit before tax		11,169	13,988
Adjustments for:
Depreciation of property, plant and equipment		355	198
Depreciation of right-of-use assets		222	68
Amortisation of intangible fixed assets	6	8,463	4,236
(Profit)/loss on disposal of fixed assets		-	(10)
Share-based compensation		440	364
Finance income		(7)	(7)
Financial expenses		1,000	20
Decrease/(increase) in trade and other receivables		17,757	5,030
(Decrease)/increase in trade and other payables		(10,555)	(3,872)
Decrease/(increase) in inventory		(521)
Increase in provisions		15	16
Cash generated from operating activities		28,338	20,031
Tax paid		(3,430)	(1,890)
Net cash inflow from operating activities		24,908	18,141

Cash flow from investing activities
Acquisition of subsidiaries (net of cash acquired)		(74,313)	-
Purchase of property, plant and equipment		(726)	(280)
Sale of property, plant and equipment		-	10
Purchase of Intellectual Property	6	(18,750)	(9,000)
Capitalisation of development costs	6	(10,018)	(3,665)
Interest received		7	7
Net cash outflow from investing activities		(103,807)	(12,928)
Cash flow from financing activities
Interest paid		(361)	(20)
Proceeds from issues of shares		76,372	-
Repayment of lease liabilities		(121)	(72)
Net cash outflow from financing activities		75,890	(92)

Net (decrease)/increase in cash and cash equivalents		(3,009)	5,121
Cash and cash equivalents at beginning of period		55,302	61,470
Effect of exchange rates on cash and cash equivalents		(998)	-
Cash and cash equivalents at end of period		51,295	66,591

Notes to the Condensed Consolidated Interim Financial Statements

1. Nature of operations and general information

Team17 Group Plc and its subsidiaries (The Group) are a global games label, creative partner and developer of independent ("indie"), premium video games and developer and publisher of educational entertainment ("edutainment") apps for children and a leading working simulation games developer and publisher.

2. Basis of preparation

These condensed consolidated interim financial statements have been prepared in accordance with the AIM rules and UK adopted IAS 34 "Interim Financial Reporting". The condensed consolidated interim financial statements for the 6 months ended 30 June 2022 should be read in conjunction with the financial statements of Team17 Group Plc for the year ended 31 December 2021 (the "Prior year financial statements") which includes the financial results of the Group prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 ('IFRS') and the applicable legal requirements of the Companies Act 2006.

The report of the auditors for the prior year financial statements for the year ended 31 December 2021 was unqualified, did not contain an emphasis of matter paragraph and did not include a statement under Section 498 of the Companies Act 2006. The Group's condensed consolidated interim financial statements is not audited and does not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. These condensed consolidated interim financial statements were approved for issue on 12 September 2022.

Going concern

Management has produced forecasts that have also been sensitised to reflect plausible downside scenarios which have been reviewed by the directors. These demonstrate the Group is forecast to generate profits and cash in the year ending 31 December 2023 and beyond and that the Group has sufficient cash reserves to enable the Group to meet its obligations as they fall due for a period of at least 12 months from the release of these results.

As such, the directors are satisfied that the Group has adequate resources to continue to operate for the foreseeable future. For this reason they continue to adopt the going concern basis for preparing this interim report.

Accounting policies

The Group's principal accounting policies used in preparing this information are as stated on pages 58 to 66 of the prior year financial statements. There has been changes and additions to the accounting policies as a result of acquisitions in the Group from the date of the prior year financial statements. The new accounting policies are listed below:

Revenue recognition

Where the Group distributes physical products and is deemed as a principal in the contract, physical revenue is recognised when the performance of the obligation is satisfied which is normally when control of the goods is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods. Revenue is based on the invoiced sale price of goods.

Certain contracts provide customers with a right to return the goods within a specified period. The Group uses the expected value method to estimate the goods that will not be returned because this method best predicts the amount of variable consideration to which the Group will be entitled. For goods that are expected to be returned, instead of revenue, the Group recognises a refund liability. A right of return asset (and corresponding adjustment to cost of sales) is also recognised for the right to recover products from a customer.

The Group provides retrospective volume rebates to certain customers once the quantity of products purchased during the period exceeds a threshold specified in the contract. Rebates are offset against amounts payable by the customer. To estimate the variable consideration for the expected future rebates, the Group applies the most likely amount method for contracts with a single volume threshold and the expected value method for contracts with more than one volume threshold. The Group recognises a refund liability for the expected future rebates.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is based on the first in first out principle and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs in bringing them to their existing location and condition.

Investments in Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost, and the carrying amount is increased or decreased to recognise the Group's share of the profit or loss after the date of acquisition.

The Group's share of the associates post-acquisition profits or losses are recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in other comprehensive income. Where the Group's interest has been reduced to £Nil, additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in associates.

3. Segmental information

Materially, the Group's core activity remains the identification, development and publishing of content across an expansive range of genres and platforms, appealing to a wide range of gamers. This supplies a single product range into a single marketplace and so there is considered to be only one segment. For management purposes the Group is considered to comprise only one segment for reporting to the chief operating decision maker. A review of the Group's segmentation is currently underway considering the Group's recent acquisitions.

The Group does not provide any information on the geographical location of sales as the majority of revenue is through third-party distribution platforms which are responsible for the data of consumers.

The Group's portfolio of games is split between those based on IP owned by the Group and IP owned by a third party and hence to aid the readers' understanding of our results, the split of revenue from these two categories is shown below:

Revenue by First Party/Third Party IP:


	Unaudited Six months ended 30 June 2022	Unaudited Six months ended 30 June 2021
	£'000	£'000
First Party IP	20,414	11,338
Third Party IP	32,835	28,772
	53,249	40,110

4. Alternative Performance Measures

During H2 in the year ending 31 December 2021, the Group made changes to adjustments made when calculating its Alternative Performance Measures ("APMs") in order to provide a better understanding of the underlying business trading performance and profitability. Further details of this can be found in the 2021 Annual Report. The measures for the six months ended 30 June 2021 have therefore been restated to reflect this.

Adjusted EBITDA (Restated)


	Unaudited Six months ended 30 June 2022 £'000	Unaudited Six months ended 30 June 2021 (restated) £'000
Profit for the period	8,907	11,180
Share based compensation	(69)	433
Acquisition-related adjustments:
Acquisition fees (Admin expenses)	550	297
Fair value movement on acquired assets (Admin expenses)	118	-
Other acquisition-related adjustments (Admin expenses)	188	-
Amortisation on recognised intangible assets (Admin expenses)	4,683	1,491
Interest on consideration (Finance cost)	700	-
Tax effect on acquisition-related adjustments (Taxation)	(769)	(283)
Adjusted profit for the period	14,308	13,118
Taxation (net of adjustments above)	3,031	3,091
Adjusted profit before tax	17,339	16,209
Finance income	(7)	(7)
Finance cost	300	20
Amortisation of other intangibles	16	-
Depreciation	577	266
Loss on disposal of property, plant and equipment	-	(9)
Adjusted EBITDA	18,225	16,479

The share based compensation figure includes the add back of Employers' National Insurance contributions due upon exercise of the share options and included net of corporation tax.

Operating cash conversion (restated)

Operating cash conversion is defined as cash generated from operating activities as per the statement of cash flows activities adjusted to add back payments made to satisfy pre-acquisition liabilities recognised under IFRS 3 "Business Combinations", divided by earnings before interest, tax, depreciation and amortisation ("EBITDA").


	Unaudited Six months ended 30 June 2022	Unaudited Six months ended 30 June 2021
Cash generated from operating activities	28,338	20,031
Payments made to satisfy pre-acquisition liabilities recognised under IFRS 3 "Business Combinations"	1,036	-
Adjusted cash generated from operating activities	29,374	20,031
EBITDA	21,202	18,503
Adjusted operating cash conversion	139%*	108%

*The operating cash conversion metric was impacted by the acquisitions made in the period and the acquired working capital. Adjusting the metric to remove operating cashflows from businesses acquired from the operating cash conversion calculation in the period to 30 June 2022 would be 111%.

5. Earnings per share

The calculation of the basic earnings per share is based on the profits attributable to the shareholders of Team17 Group plc divided by the weighted average number of shares in issue. The weighted average number of shares takes into account treasury shares held by the Team17 Employee Benefit Trust. The diluted earnings per share uses the same calculation however the number of shares in issue are adjusted to include shares considered to be dilutive under the treasury stock method. An option is considered to be dilutive when the total proceeds per option is less than the average share price for the period. At 30 June 2022, 8,184 (30 June 2021: 972,727) outstanding share options had met the required performance criteria.


	Unaudited Six months ended 30 June 2022	Unaudited Six months ended 30 June 2021
Profit for the period £'000	8,907	11,180
Weighted average number of shares	137,624,741	129,431,328
Weighted average diluted number of shares	138,720,958	130,404,055
Basic earnings per share (pence)	6.5	8.6
Diluted earnings per share (pence)	6.4	8.6

The calculation of adjusted earnings per share is based on the profit attributable to shareholders as shown in the Statement of Comprehensive Income plus additional costs added back during the year as shown in note 4. The weighted average diluted number of shares includes share options considered to be dilutive under the treasury stock method as described above.


	Unaudited Six months ended 30 June 2022	Unaudited Six months ended 30 June 2021
Adjusted profit for the period £'000	14,308	13,118
Weighted average number of shares	137,624,741	129,431,328
Weighted average diluted number of shares	138,720,958	130,404,055
Adjusted basic earnings per share (pence)	10.4	10.1
Adjusted diluted earnings per share (pence)	10.3	10.1

6. Intangibles


	Development costs £'000	Brands £'000	Acquired Apps and Franchises £'0000	Customer and Developer Relationships £'000	Other Intangibles £'0000	Goodwill £'000	Total £'000
Cost
At 1 January 2021 (audited)	21,342	21,983	-	-	-	22,379	65,704
Additions	3,665	12,000	-	-	-	-	15,665
At 30 June 2021 (unaudited)	25,007	33,983	-	-	-	22,379	81,369
Additions	5,592	755	6,228	-	107	19,409	32,091
Disposals	(1,002)	-	-	-	-	-	(1,002)
Translation on foreign operations	-	-	-	-	-	(339)	(339)
At 31 December 2021 (audited)	29,597	34,738	6,228	-	107	41,449	112,119
Additions	10,018	43,773	-	-	-	-	53,791
Acquisitions	-	2,034	21,716	4,720	-	65,971	94,441
Disposals	(440)	-	-	-	-	-	(440)
Translation on foreign operations	145	48	407	545	-	3,830	4,975
At 30 June 2022 (unaudited)	39,320	80,593	28,351	5,265	107	111,250	264,886

Amortisation
At 1 January 2021 (audited)	15,055	7,728	-	-	-	-	22,783
Charge for the period	2,745	1,491	-	-	-	-	4,236
At 30 June 2021 (unaudited)	17,800	9,219	-	-	-	-	27,019
Charge for the period	2,551	1,530	311	-	2	-	4,394
Disposals	(602)	-	-	-	-	-	(602)
At 31 December 2021 (audited)	19,749	10,749	311	-	2	-	30,811
Charge for the period	2,804	3,097	2,298	248	16	-	8,463
Disposals	(440)	-	-	-	-	-	(440)
Translation on foreign operations	3	2	43	15	-	-	63
At 30 June 2022 (unaudited)	22,116	13,848	2,652	263	18	-	38,897


Net Book Value
At 30 June 2022 (unaudited)	17,204	66,745	25,699	5,002	89	111,250	225,989
At 1 January 2022 (audited)	9,848	23,989	5,917	-	105	41,4419	81,308

The following acquisitions have taken place during the year and the details of the accounting should be considered provisional:

Acquisition of Hell Let Loose

On 6 January 2022, Team 17 Digital Limited acquired the Hell Let Loose IP from Black Matter Pty. Ltd, a company incorporated in Australia for a maximum payment of £46m. This is made up of an initial cash payment of £19.8m and an issue of shares valued at £11.2m with deferred consideration of £5m and up to £10m of contingent consideration payable in cash if revenues from the IP exceed certain targets in FY22.

The initial cash payment included £1m in lieu of unpaid royalties which is not part of the consideration. The calculation of the number of shares to be issued used the share price several days prior to the acquisition date which has led to a £11.8m valuation of the share issue for accounting purposes. Deferred and contingent consideration has been recognised at present value which has been calculated using a discount rate of 7.2%. Details of the consideration are as follows:


	£'000
Initial cash payment	18,750
Initial share issue	11,795
Deferred and contingent consideration	13,228
Total consideration	43,773

The purchase is not being accounted for as a business combination under IFRS 3 due to the assets being acquired comprising a single group of assets under the concentration test as set out in "Definition of a Business (Amendments to IFRS 3)" by the IASB issued in October 2018. As such the acquisition is considered an asset purchase under IAS 38 "Intangible Assets". Amortisation is calculated over the assets' estimated useful life using the following policy:

Hell Let Loose Brand 15 years straight-line

Acquisition of the astragon entertainment GmbH

On 13 January 2022 Team 17 Group Plc acquired 100% of the share capital of astragon entertainment GmbH ("astragon") for a maximum payment of £83.0m (€100.0m) subject to normal cash, net debt and working capital adjustments. The initial payment for the acquisition is £63.0m (€75.0m) in cash. A further payment of up to £20.0m (€25.0m) is payable in cash if the Company meets certain targets during FY21 to FY23 following completion of the acquisition. There was no minimum due on the contingent consideration.

astragon is a publisher and distributor of sophisticated 'working' simulation games based in Germany. The acquisition allows Team17 to enter a new and complementary simulation game category whilst with its strong back catalogue of evergreen owned franchises and a solid pipeline of products in development. This will further expand Team17's appeal to the widest ever cross section of gamers, spanning multiple genres and age groups.

The initial payment totalled £64.8m (€77.1m) after including the estimated completion payment of £1.8m (€2.1m) covering the acquired working capital, cash and financial debt. This initial payment consists solely of £64.8m (€77.1m) consideration settled in cash. Details of the purchase consideration are as follows:


	£'000
Initial consideration	63,030
Contingent consideration	7,820
Total consideration	70,850

Contingent consideration consists of the earn-out for the sellers included at fair value and payable based on the acquired business reaching certain results.

The fair value of the purchase consideration takes into account the following assumptions and estimates:

· Earn-out targets - Management have assessed the likelihood of targets being met. For FY21 this is based on the trading results for the period. For FY22 earn-out targets, management have reviewed a risk weighted forecast for the period. This will be reassessed at each reporting date and any movements in the fair value of the consideration amount will be recognised in the Income Statement.

· Interest costs of £0.4m have been included in the Income Statement for the year.

The assets and liabilities recognised as a result of the acquisition are as follows:


	Book value £'000	Fair value adjustment £'000	Fair value acquired £'000
Cash and cash equivalents	2,261	-	2,261
Franchises	-	19,939	19,939
Brand	-	2,034	2,034
Investments	323	307	630
Property, plant & equipment	110	-	110
Development costs	5,563	(5,563)	-
Right of use assets	814	-	814
Inventories	438	-	438
Receivables	17,399	-	17,399
Deferred tax liability	-	(5,333)	(5,333)
Lease liabilities	(868)		(868)
Payables	(8,099)	-	(8,099)
Provisions	(1,791)	-	(1,791)
Bank loans	(2,101)	-	(2,101)
Net identifiable assets acquired	14,049	11,384	25,433
Add: Goodwill			45,417
Total consideration			70,850

The goodwill is attributable to astragon's experience in the simulation games and physical distribution markets. It has been allocated to the sole segment of the business which is the identification, development and publishing of content across an expansive range of genres and platforms. None of the goodwill is expected to be deductible for tax purposes.

Acquisition of the Label Inc

On 6 January 2022 Team 17 Digital Limited acquired 100% of the share capital of The Label Inc through Team17 USA Inc (a newly incorporated subsidiary setup solely to acquire this business) for a maximum payment of £29.6m ($40.0m) subject to normal cash, net debt and working capital adjustments. The initial payment for the acquisition was £13.2m ($18.0m) in cash and £4.6m ($6.3m) through the issue of shares. A further payment of up to £11.8m ($16.0m) is payable via a mix of cash shares based on the meeting of certain targets by the Company within three years following completion of the acquisition. There was no minimum due on the contingent consideration.

The Label is a USA based indie publisher specialising in mobile subscription games content and will further expand Team17's capabilities across the digital entertainment space, consolidating the Group's position as a leading gaming and entertainment business and providing a wealth of opportunities for significant further growth.

The initial payment of £17.9m ($24.3m) consists of £17.8m ($24.1m) consideration and £0.1m ($0.2m) deemed to be remuneration. Details of the purchase consideration are as follows:


	£'000
Purchase consideration
Initial consideration	17,796
Contingent consideration	6,531
Total consideration	24,327

Contingent consideration consists of the earn-out for the sellers included at fair value and payable based on the acquired business reaching certain results.

The fair value of the purchase consideration takes into account the following assumptions and estimates:

· Earn-out targets - Management have assessed the likelihood of targets being met. For FY21 this is based on the trading results for the period. For FY22 and FY23 earn-out targets, management have reviewed a risk weighted forecast for the period. This will be reassessed at each reporting date and any movements in the fair value of the consideration amount will be recognised in the Income Statement.

· Interest costs of £0.3m have been included in the Income Statement for the year.

The assets and liabilities recognised as a result of the acquisition are as follows:


	Book value £'000	Fair value adjustment £'000	Fair value acquired £'000
Cash and cash equivalents	1,366	-	1,366
Customer relationship and development contracts	-	4,720	4,720
Contract cost asset	118	(118)	-
Receivables	1,189	(357)	832
Deferred tax liability	-	(1,416)	(1,416)
Payables	(888)	(841)	(1,729)
Net identifiable assets acquired	1,785	1,988	3,773
Add: Goodwill			20,554
Total consideration			24,327

The goodwill is attributable to The Labels' talented development team and experience in the mobile subscription market. It has been allocated to the sole segment of the business which is the identification, development and publishing of content across an expansive range of genres and platforms. None of the goodwill is expected to be deductible for tax purposes.

Acquisition fees

Total acquisition fees for the period ended 30 June 2022 of £0.6m (2021: £1.1m) are included in administrative expenses in the Income Statement.

Goodwill

The Group tests for impairment annually, or more frequently if there are indicators that goodwill might be impaired.

7. Share Capital


	Unaudited Six months ended 30 June 2022	Unaudited Six months ended 30 June 2021	Audited Year ended 31 December 2021
	£'000	£'000	£'000
Authorised, allotted, called up and fully paid
145,593,271 (2021: 131,473,222) ordinary shares of 1p each	1,456	1,315	1,315
	1,456	1,315	1,315

During the period Team17 Group Plc issued a total of 14,120,049 ordinary shares as part of 3 issues. These were as follows:


Date	Description	Quantity	Total £'000	Share Capital £'000	Share Premium £'000
11 January 2022	Consideration for the purchase of the Label and acquisition of the Hell Let Loose IP	2,136,323	16,450	21	16,429
18 January 2022	Placing to raise funds for the purchase of astragon	11,010,999	76,372	110	76,262
20 May 2022	Exercise of LTIP options	972,727	10	10	-
		14,120,049	92,832	141	92,691

On 11 January 2022 the Company issued 604,543 to the sellers of the Label and 1,531,780 shares to the sellers of Hell Let Loose. These shares were valued at £7.70 per share.

On 18 January 2022 the Company placed an additional 11,010,999 shares at the price of £7.14 per share with gross proceeds of £78.6m. Directly attributable fees of the placing totalled £2.2m for net proceeds of £76.4m.

Debbie Bestwick, a director of Team17 Group Plc, received 972,727 share options on 23 May 2018 which fully vested on 23 May 2021. These Nil cost options were then exercised and the shares were issued on 20 May 2022.

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