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TEAM17 GROUP PLC Earnings Release 2022
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Earnings Release
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RNS Number : 4411U
Team17 Group PLC
28 March 2023
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014. Upon the publication of this announcement, this information is now considered to be in the public domain.
28 March 2023
Team17 Group plc
("Team17", the "Group" or the "Company")
Unaudited Final Results for the year ended 31 December 2022
Team17's expanded operational footprint delivering
significant revenue and adjusted EBITDA growth
Team17, a global games label, creative partner, and developer of independent ("indie") premium video games and developer of educational entertainment apps for children and a leading working simulation games developer and publisher, is pleased to announce its full year unaudited final results for the year ended 31 December 2022 ("FY22").
Financial highlights:
| 12 Months ended | |||||
| 31 December 2022 (unaudited) |
31 December 2021 (audited) |
% Change |
|||
| Revenue | £137.4m | £90.5m | 52% | ||
| Gross Profit | £69.6m | £45.5m | 53% | ||
| Gross Profit Margin | 51% | 50% | |||
| Adjusted EBITDA1 | £48.8m | £35.8m | 36% | ||
| Adjusted Profit Before Tax | £47.1m | £35.0m | 35% | ||
| Profit Before Tax | £28.7m | £29.1m | (1%) | ||
| Basic Earnings per Share ("EPS") | 16.5 pence | 18.3 pence | (10%) | ||
| Adjusted Basic EPS ("AEPS")2 | 27.8 pence | 22.1 pence | 26% | ||
| Operating Cash Conversion3 | 108% | 101% | |||
| Cash and cash equivalents | £50.8m | £55.3m | (8%) |
● One-off acquisition related adjustments and fees of £9.2m (2021: £1.6m) are included within the statutory profit before tax and EPS measures which include elevated earn out related payments as a result of the strong results in the acquired businesses in FY22.
Operational highlights:
● Completed three strategic acquisitions in January 2022 - Hell Let Loose ("HLL") (IP and assets), astragon ('working' simulation games) and The Label (USA-based indie publisher).
● Organic underlying like for like revenues grew 3% to £93.2m (2021: £90.5m) with an additional £44.2m in revenue from the business acquisitions completed over the last eighteen months.
● Group's own IP now represents 41% of total revenues (2021: 22%) benefiting from the acquisition of HLL and astragon's own IP working simulation portfolio.
● Team17 Games Label's owned and third-party IP portfolio continues to grow, delivering over 700 digital revenues lines (2021: c.500):
o 11 new games released in the period (2021: 11) and 3 existing titles launched on wider platforms.
● StoryToys saw continued growth in payable active subscribers which now exceeds 300,000 (2021: over 180,000).
o Developed and launched 216 (2021 H2: 88) app updates across its existing titles including multiple updates for LEGO® DUPLO® MARVEL, LEGO® DUPLO® WORLD and Disney Coloring World.
● astragon delivered one major own IP new title release with Construction Simulator launched in Q3, breaking astragon's all-time own IP day one concurrent users record on Steam.
o 3 additional existing own IP titles released on wider platforms including the impressive Police Simulator: Patrol Officers (out of early access & console launch). Signed first third-party Simulation Label title Railroads Online.
● Strengthened Group senior leadership team with the addition of Julia Pfiffer and Tim Schmitz, joint CEOs of the astragon business acquired in January 2022.
● Group headcount grew to 392 at year end (2021: 265) with 53 joining as a direct result of the acquisitions.
Post Balance Sheet Events:
● StoryToys extended commercial agreements with existing partners and signed new license agreements with major global children's entertainment and toy companies, Mattel, and Sesame Workshop.
● Games Label's FARMSIDE developed and released by Team17 USA in FY22, was subsequently launched by Apple Arcade in February 2023 and has a strong pipeline of planned new releases including sequels to Blasphemous and Moving Out.
● astragon will introduce a number of season passes to select owned IP alongside high-quality downloadable content ("DLC") during 2023 whilst also planning to expand their third-party simulation label.
Outlook:
● The Board remains mindful of the current global macro-economic pressures affecting all businesses but is focussed across the Group on the areas that can be controlled and looks forward to continuing to deliver great gaming experiences for Team17's customers, and in turn delivering increased shareholder value.
● Team17 Group remains well positioned to continue to deliver on our growth plans through:
o the delivery of new titles from the enlarged games pipeline and ongoing lifecycle management of the Group's broadened portfolio.
o ongoing review and assessment of potential acquisition opportunities.
Debbie Bestwick MBE, Chief Executive Officer of Team17, commented:
"2022 was unquestionably a transformational year with a strong performance for the Group. Personally, I feel it was characterised by the delivery of our highly selective M&A strategy, alongside our team's successful lifecycle management across our portfolio. Last year we collectively focused in on our long-term strategy on a division-by-division basis and doubled down on future pipeline roadmaps.
"It's a privilege to work with the leadership team within the Group, as well as their individual teams; they are passionately committed to the Group's values, core business model, and future ambitions.
"As the Team17 family grew in 2022, it was a priority for us to ensure everyone in our team felt equally part of the broader Group. To this end we were delighted to extend our fully funded Employee Benefit Trust ("EBT"), to ensure all our UK and European team members have the opportunity to be shareholders.
"Team17 now has its most diverse range of owned, third-party, and licensed IP yet, targeting the broadest audiences across multiple platforms with a clear, deliverable roadmap ahead and we look forward to updating our shareholders on our progress throughout 2023."
Footnotes:
1Adjusted EBITDA is defined as operating profit adjusted to add back depreciation of property, plant and equipment, and right of use assets, amortisation of intangible assets (excluding capitalised development costs), share based payment costs and all acquisition related adjustments and fees.
2Adjusted earnings per share is calculated by dividing the adjusted profit after tax (breakdown included in Chief Financial Officer's Report) by the weighted average number of ordinary shares.
3Operating 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 (as per note 9), divided by earnings before interest, tax depreciation and amortisation ("EBITDA").
Analyst and institutional investor webcast
A webcast presentation for analysts and institutional investors will be held on Tuesday, 28 March 2023 at 8.00 a.m. BST. To register for this event and join the stream on the day, please click the following link:
https://brrmedia.news/Team17_FY_Results
Retail investor webcast
A webcast for retail investors will be held on Thursday, 30 March 2023 at 2.00 p.m. BST. The presentation will be hosted on the Investor Meet Company platform. Questions can be submitted pre-event via your Investor Meet Company dashboard up until 9.00 a.m. the day before the meeting or at any time during the live presentation.
Investors can sign-up for free and add to meet Team17 via:
https://www.investormeetcompany.com/team17-group-plc/register-investor
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)161 250 3577 |
| Berenberg (Broker) Chris Bowman / Toby Flaux / Marie Moy / Alix Mecklenburg-Solodkoff |
+44 (0)20 3207 7800 |
| Vigo Consulting (Financial Public Relations) Jeremy Garcia / Fiona Hetherington / Kate Kilgallen [email protected] |
+44 (0)20 7390 0238 |
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, aimed at children under the age of eight and a leading working simulation games developer and publisher.
Visit www.team17.com for more info.
Chair's Statement
I am pleased to report that Team17 has continued its growth trajectory across FY22, underpinned by a combination of organic growth initiatives and the positive impact from the acquisitions of StoryToys, astragon, and Team17 USA (formerly The Label).
As expected with Team17, our people have played a pivotal role in delivering these results, and I would like to personally thank all our team members across the Group for their outstanding contribution to our business over the last 12 months. Our senior teams have worked tirelessly to bring our expanded family together under one roof and I'm pleased to say that they have all settled well into the business.
It is the unwavering focus on our core business objectives that has enabled the enlarged Group to deliver such a strong financial performance, with revenues for the period up 52% to £137.4m (2021: £90.5m) and an increase in Adjusted EBITDA to £48.8m (2021: £35.8m) both ahead of market expectations, as highlighted in the trading update announced in January 2023.
We are privileged to have a hugely talented and vibrant senior management team working closely together to deliver on our strategic ambitions. Our continued investment in the business since our 2018 IPO has enabled us to expand both operationally and on a global scale. We now operate across 5 regional hubs, supporting activities that span multiple gaming genres, platforms, and demographics. The Team17 Games Label ("Games Label") has expanded at pace and our commitment to producing high quality content remains the cornerstone of our business strategy.
Under the expert guidance of Debbie Bestwick and the broader senior team, the evolution of Team17 has been marked. Our investment in the core business has seen us expand the Games Label, which controls a content portfolio comprising over 700 digital revenue lines, acquired two successful third-party titles to add to its own IP portfolio over the last two years, and now also includes Team17 USA (formerly 'The Label'), acquired in January 2022. The Games Label is actively exploring future opportunities to fully exploit mobile subscription channels, be this through expanding its existing model via additional third-party titles or leveraging existing Team17 IP.
StoryToys, our world-class developer and publisher of educational entertainment apps for children that was acquired in July 2021, continues to benefit from being part of a larger group and is being supported to accelerate its own growth ambitions. Acquired in January 2022, astragon, our sophisticated 'working' simulation games division, has enabled Team17 to broaden our reach into a highly prized segment of the games arena, delivering iconic own IPs, the Firefighting, Police, Bus Simulator games, and launching the latest update to its largest title, Construction Simulator.
All these pleasing performances are, of course, underpinned by the exceptional talent of our people which continues to grow with the addition of new talent as a direct result of the acquisitions. As a Board, we are keenly focused on ensuring the Company creates the ideal working environment to nurture talent, alongside ensuring our remuneration policies align with those of our peers. To this end, our 'Employee Benefit Trust' has ensured all our UK and European team members are offered the opportunity to become shareholders in the Company with free share options, and our Reward & Recognition and Employee Engagement internal surveys have provided invaluable feedback to ensure our teams feel connected to the business. Career development, retention, and succession planning are all key areas of focus, and it is this ongoing emphasis on people-focussed forward planning that enables us to attract and retain the right talent to deliver on our strategic ambitions. We have also undertaken an internal board review in 2022 alongside ongoing succession planning at the senior management level and subsequently identified specific areas to focus on throughout the coming year.
Our forward-looking, community-focused approach also flows into our ESG and responsible business commitments. Our green initiatives are driven by an employee led Green17 group first established in 2020, and in 2022 we adopted the Greenhouse Gas Protocol to guide our emissions disclosures. We continue to evaluate our environmental management and reporting systems and recently established a new ESG Board Committee to be led by Penny Judd, one of our Non-Executive Directors, which will increase the visibility and focus on these important matters going forwards.
The Group has made a solid start to 2023, carrying on our positive momentum and underpinning the Board and management team's confidence in our ability to deliver on our strategic ambitions.
As outlined in the early part of 2022, the Group has very limited operational and financial exposure to both Ukraine and Russia, and despite the uncertain macroeconomic backdrop, the Board believes the associated geopolitical uncertainty is unlikely to have a material impact on Group performance.
On behalf of the Board of Directors, I would like to thank every member of the individual teams across the Group for their unwavering dedication to our business during 2022. The significant operational progress we deliver year after year continues to underpin our ambitions to further extend our reach across the international digital entertainment arena.
Chris Bell
Chair
Group Chief Executive Officer's Review
Introduction
2022 marked our fifth year as a listed company, our eighth consecutive year as a growth business and a little over a decade since I stepped up to take the reins as CEO after completing an MBO of the company then known as 'the people who made Worms'. We are proud of our long-term track record of consistent growth, and specifically since listing on AIM, with revenue and adjusted EBITDA now more than 200% of the levels recorded in 2018, with compound average growth rates over that time of 34% and 33% respectively.
Today we are unrecognisable from the company a decade ago and I'm very proud of what we have collectively achieved in that time. I want to take the opportunity to thank all our people and development/business partners for their fantastic support since our IPO and over the last decade. Both myself and the leadership team across the Group have never taken that support for granted. Our Group has one of the strongest leadership teams in the games sector and it's a privilege to work with every one of them. More than ever they are wholly focused on delivering upon our collective ambitions and growth plans, while remaining true to our Group core values.
2022 was a transformational year for the Group. In January, we completed our strategic business acquisitions of astragon, The Label (USA) alongside acquiring the HLL IP. This intense period of M&A activity at the beginning of the year, building on the two acquisitions in the prior year, would not have been possible had it not been for the investment in people within Team17's Games Label and strength and resilience of our existing back catalogue and proven track record in integrating previous acquisitions. Our internal structure has been transformed with a strengthened senior leadership team, additional divisions and technological capabilities, and a reinvigorated, ambitious vision for the future rooted in the overarching synergy of our Company culture and core values.
Following a solid performance in the first half of the year, primarily driven by the back catalogue portfolio performance, in a heavily weighted second half of the year, the Group released ten new games as well as six existing games launched onto wider platforms from the Games Label and astragon as planned. I'm pleased to report the Group has maintained its consistent record of outperforming prior years and delivering improved levels of revenue and adjusted EBITDA with another record year.
The Group benefited from positive contributions from all three of its Q1 2022 acquisitions as well as the additional first half impact of StoryToys (acquired in July 2021), generating total revenues up 52% to £137.4m (2021: £90.5m). Of this £93.2m came from existing business on a like for like basis and an incremental £44.2m from business acquisitions. Gross profit increased by 53% to £69.6m (2021: £45.5m), and adjusted EBITDA grew 36% to £48.8m (2021: £35.8m).
Despite allocating significant capital to fund M&A activity in early 2022, the Group continues to enjoy a strong balance sheet, ending the year with cash and cash equivalents of £50.8m (2021: £55.3m). Management will seek to continue to leverage the highly cash-generative nature of the business to drive further organic growth across all Group divisions and continues to evaluate selective M&A targets.
We have been particularly delighted to welcome on board our new divisional CEOs, all of whom are experts in their respective fields and bring a wealth of knowledge from across the breadth of the digital entertainment industry. The Group's total headcount as at 31 December 2022 stood at 392 employees (2021: 265) which includes 53 as a result of the acquisitions in 2022 and 74 new team members added across the Group during the period. Overall, the headcount has grown by 48% on FY21 and boasts a first-class blend of skills and experience that will be vital in enabling us to execute on our ambitious growth objectives moving forwards.
In addition to expanding our talent pool and diversifying our customer offering, the acquisitions have significantly grown Team17's international footprint, with hubs now in Dublin, Germany, Canada, and the US, working alongside our existing UK studios in Wakefield and Manchester and commercial hub in Nottingham. This rapid growth is a testament to the success of our model, experienced leadership, and the resilience of the global digital entertainment industry despite a challenging macro environment.
As we move further into 2023, our emphasis will remain on supporting our business teams to continue to scale and develop excellent first and third-party IP whilst leveraging the collective knowledge and experience of the Group's internal structure to grow their businesses organically and continually evaluate selective M&A opportunities. Additionally, with the integration of the acquisitions now largely complete, we look forward to turning our focus to sharing best practice on development, title launches, life cycle management and exploiting synergy opportunities across the Group as the divisions continue to flourish both as businesses in their own right, and as integral components in the underlying fabric of the Group.
Our Key Business Priorities
Despite the Group's transformation in the last 12 months, the core pillars of our business model, which have enabled us to deliver the excellent results we have seen over the last five years, remain unchanged. As a team, we are as keenly focused as ever on delivering on our collective business priorities:
· Maximising the benefits of the Group's structure through each of our new business divisions to expand our reach, strengthen our pipelines, and develop our strategic partnerships with platforms, license partners and developers;
· Leveraging Group footprint and synergy opportunities to drive long-term organic growth;
· Expanding our audience by continually improving the quality and diversity of our content portfolio;
· Investing further in our underlying Group infrastructure to accelerate the performance of our business divisions and support our overarching growth ambitions;
· Maintaining our core focus on promoting our 'People First' Company culture and nurturing our next generation of in-house industry expertise; and
· Routinely evaluating selective M&A opportunities to support the future growth of the Group.
Operational review
The Games Label continues to demonstrate the strength of Team17's signature expertise in back catalogue management. Year-on-year growth has been consistently strong - a testament to the success of our industry-leading approach to lifecycle management. The Games Label released eleven new games alongside three existing titles released on wider platforms in the year. New games included the eagerly anticipated Marauders and Thymesia, along with additional content and updates for the popular Hell Let Loose, and Golf With Your Friends franchises.
Following the integration of Team17 USA (formerly The Label), the Games Label is actively seeking opportunities to leverage its wealth of in-house knowledge in subscription-based mobile gaming to launch existing Team17 IP on mobile platforms, as well as additional third-party titles. Team17 USA has itself delivered its planned core updates release schedule, with the latest Wimblegolf update for What the Golf? gaining particular traction.
astragon has performed exceptionally well in its first year as part of the Group, driving further sales momentum from own IP titles, including the popular Construction Simulator and Police Simulator: Patrol Officers, amongst others. Physical distribution remains an important revenue stream across astragon's portfolio with titles such as Farming Simulator continuing to experience significant customer adoption in Germany.
In the second half, astragon launched the latest version of its best-selling own IP title Construction Simulator, as well as Bus Simulator: City Ride on mobile and Switch - the first mobile launch for the franchise. In addition, it released Police Simulator: Patrol Officers on consoles following its initial launch in 2021 on Steam's Early access. Firefighting Simulator - The Squad, which was first launched in 2020 on PC, was also released on console towards the end of the year.
FY22 sees StoryToys' first full-year contribution to the Group as a fully embedded business division. We have been delighted to see active subscribers and subscriptions revenues flourish in the period, thanks in part to strong traction for LEGO DUPLO® Marvel, first released in FY21, and the Hulk and Iron Man updates that have launched following the initial release. As previously announced, the extension of StoryToys' contract with LEGO Group to produce multiple future apps has helped to further strengthen this successful partnership for the business.
StoryToys' remains focussed upon nurturing its strategic brand relationships to continue to build out its portfolio of apps and deliver the highest quality possible for its young audience going forwards.
LEGO®, DUPLO®, the LEGO logo and the DUPLO logo are trademarks and/or copyrights of the LEGO Group. ©2022 The LEGO Group. All rights reserved.
© 2022 MARVEL
Our people
As ever, our people are at the centre of everything we do. Following the disruption of the Covid pandemic over the past two years, FY22 represented the first financial year largely unaffected by lockdowns and social distancing measures. While we have been delighted to welcome our people back into offices both here in the UK and overseas, we remain sensitive to the wishes of some colleagues to continue to embrace hybrid and remote working, recognising the benefits this flexibility presents to the business.
Within the Games Label, a review has recently been initiated to re-align the UK studio operating business model to ensure it is equipped to meet fluctuating work demands, and the continually evolving needs of our development partners and growth in own IP, remaining agile and cost effective. Whilst any impact to headcount in specific roles is expected to be minor, where possible we will look to identify other opportunities for individuals within the wider Group.
Investing in and developing our people has always been a priority for the Group. With our expanded headcount and senior leadership team, we have an excellent platform upon which to continue to grow our team's skill sets and accelerate professional development across the Group to nurture our next generation of industry experts.
Competition to recruit and retain talent has always been competitive in gaming, and, like our peers, Team17 Group has not been immune to the higher levels of attrition. The levels we experienced and that peaked towards the end of 2021 were a direct function of industry pressure. We have taken considerable steps over the last twelve months to increase our engagement with our people and act on their feedback, implementing a number of initiatives to ensure the Group remains an exciting and attractive place to work. The Group headcount now totals 392 (2021: 265), and we were pleased to see attrition remain below market levels in FY22.
As announced in March 2022, following the acquisitions we introduced a Group-wide employee free share award using our existing Employee Benefit Trust ("EBT"). This is currently open to every UK and European member of our team so that they can become a shareholder and benefit from joining us in our journey as we grow the value of the Group over time.
We will continue to externally benchmark our employee remuneration and benefits package to further incentivise and retain our talented teams.
As a Group, we have been particularly proud of the strides we have made in furthering our collective Diversity, Equality & Inclusion ("DE&I") agenda over the last year. Change starts at the top, and we are delighted that both our expanded senior leadership team and Board of Directors have a balanced male and female representation. Recognising the importance of creating community spaces for our people to connect and socialise, we have established a number of popular employee-led groups. We believe these groups will play a vital role in helping to instil an overarching culture of collaboration and inclusivity across the Group's divisions and look forward to seeing them continue to thrive in the years to come.
Green initiatives have also been at the forefront of our ESG strategy. Green17, an employee-led group established in 2020, meets monthly to promote and address environmental issues and we are now spreading this initiative across our businesses within the Group, supply chain partnerships, and customer base. Improving disclosure in this area has been a particular focus, and our emissions reporting is now calculated using the Greenhouse Gas Protocol, a standard defined by the World Resources Institute and World Business Council for Sustainable Development ("WRI" and "WBCSD").
Market overview
During 2020 and 2021, the global games market continued to see year-on-year growth despite the marked macro challenges and supply-chain constraints presented by the pandemic. In FY22, according to the NewZoo Global Games Market Report January 2023, the overall games market declined by 4%, with global revenues down from $193bn to $184bn. While pandemic headwinds gradually subsided during 2022, including pressures associated with the global chip shortage, we remain mindful of the continuing macro socio-economic uncertainty, particularly given the considerable rise in the cost of living, both in the UK and abroad.
As a developer and publisher of mid-price games and apps that combine our signature high-quality with excellent customer value, we believe Team17 is uniquely placed to weather the challenges posed by the inflationary pressures seen in 2022 and anticipated to extend further into 2023. Unlike many of our peers who employ premium pricing strategies, at Team17 we have worked hard to ensure our portfolio has remained inclusive and accessible to our broad customer base, which has in turn helped to build further resilience into the business. The gaming sector has historically performed well during economic hardships, but we do not take the loyalty of our customers for granted and continue to work hard to create engaging content.
Team17's growing subscription revenue model, particularly in StoryToys, is also expected to help insulate the business from cost-of-living related headwinds, with subscription-based products offering consumers an attractive way to manage discretionary spending and spread costs on a monthly basis at a time when disposable income is under pressure.
Outlook
FY22 represented an inflection point for Team17 with all acquisitions now embedded in the Group and performing well, alongside Team17 Games Label. We enter 2023 confident in our growing back catalogue portfolio as well as our pipeline of new releases and updates, both of which provide a diverse and stable platform for growth.
Post year end StoryToys signed new license agreements; LEGO® DUPLO® DISNEY Mickey and Friends, entered into a new agreement with Mattel for multiple future titles, extended their agreement with Marvel Entertainment to include a new Marvel HQ hub and signed a new agreement with Sesame Workshop. All of this helps to support their growth ambitions to diversify and broaden the license base and will deliver some initial benefit in 2023, but like all their apps lifecycles will add greater upside in future years' value.
Games Label's FARMSIDE, developed and released by Team17 USA in FY22, was launched by Apple Arcade in February 2023 with solid top 5 engagement levels based on week one early game session levels and a 4.2 out of 5-star rating. This year will also see the sequels to Blasphemous and Moving Out (both original titles have already surpassed seven figure unit sales levels) along with an exciting and diverse new IP line up including the titles Gord, Trepang 2, Dredge and many more.
astragon will introduce a number of season passes to select owned IP within their niche's and bring much in demand high quality DLC during 2023; alongside expanding their third-party label and bringing new IPs to market in future years.
Management continues to review and assess potential acquisition opportunities looking at both title IP and businesses that fit within the Group from a financial and importantly cultural fit as identified through its now tried and tested M&A due diligence process.
Over the last year our exceptional senior leadership teams have worked incredibly hard to integrate Team17's three business divisions into the Group family we see today. Going forwards, management's primary focus is on leveraging our expanded talent base, industry reach, and technological capabilities as well as capitalising on sharing best practice and synergy opportunities that now present themselves.
I would like to thank all the individual teams across the Group for their outstanding contributions and commitment to the business, without whom, the success we experienced in FY22 simply would not have been possible. I look forward to seeing the Group continue to move from strength to strength as we work together to execute on our ambitious growth strategy for 2023 and beyond.
Although we have little influence over the global macro and socio-economic factors having ongoing impact in the world through 2023, we remain cognisant of these factors and collectively as a Group will continue to be very focused on what we can control within our business and look forward to continuing the focus on delivering great gaming experiences for our customers and in turn delivering increased shareholder value.
Debbie Bestwick MBE
Chief Executive Officer
Chief Financial Officer's Report
Performance Overview
The Group has performed well in the last year against a backdrop of a challenging macro-economic and market competitive environment and led to Group results that exceeded both management and market expectations. We continue to focus on our core activities of identifying, developing and publishing high-quality games. The Group now benefits from the strength of the underlying Games Label, which includes the recently acquired Hell Let Loose IP and The Label, alongside StoryToys and astragon giving the Group a wider and growing portfolio with owned and third-party IP content appealing to all ages and genres across multiple platforms and sales channels.
Revenue
With the addition of the acquisitions made in January 2022 and a full year contribution from StoryToys, the Group saw revenues increase by 52% to £137.4m (2021: £90.5m) for FY22. StoryToys contributed full year revenues of £10.9m (2021: £4.2m post acquisition in July 2021) and astragon delivered an impressive £33.9m (2021: £Nil). The Games Label, which now includes Team17 USA contributed £92.6m (2021: £86.3m) in revenues. In total, £44.2m (2021: £4.2m) incremental revenues came from the impact of business acquisitions in 2022.
The organic underlying performance in the period from the Games Label together with the second half contribution from StoryToys (acquired July 2021) resulted in 3% growth with combined like for like revenues of £93.2m (2021: £90.5m). Overall, the resulting revenue for the Group was a very pleasing performance against the backdrop of a total games market reported to have declined over 4% in 2022 compared to 2021 according to the NewZoo Global Games Market Report January 2023.
New release revenues were £38.8m (2021: £20.1m) representing 28% of total Group revenues demonstrating the continued additions to the Group's portfolio with new games introduced across the Group as well as existing titles launched on wider platforms. The back catalogue continues to grow and now benefits from the additions through the acquired businesses with revenues of £98.6m (2021: £70.4m), representing 72% of total Group revenues.
Own IP titles represented 41% of total Group revenues in the period (2021: 22%) which includes the Hell Let Loose title that converted from third party to own IP following the acquisition in January 2022 alongside the own IP simulation games within astragon. Four of the top five Group franchise titles by revenue are now owned IP.
Gross Profit
Gross profit grew by 53% to £69.6m (2021: £45.5m) with a slight increased gross margin percentage of 51% (2021: 50%). Gross margin partly reflects the impact of royalty savings after the acquisition of Hell Let Loose, now an important part of the Group's own IP portfolio but also the addition of the mix of margins across the divisions within the enlarged Group. Year on year underlying movements in gross margin are expected and result from the combination of the sales mix between own IP, third party IP and sales channels, the age profile of the titles within our portfolio and the ongoing support provided to titles post full launch where costs are fully expensed.
The development pipeline has increased significantly in FY22 combining new titles in production across the divisions within the enlarged Group alongside ongoing development of major new content updates. Notably, the addition of astragon in January with larger development costs for new own IP titles alongside its other own IP title updates added additional development costs. As a result, the total capitalised development costs in the period increased to £26.0m (2021: £9.3m), and the underlying Games Label development costs increased to £18.3m (2021: £9.1m) reflecting a continued and growing investment in the games development pipeline of the division for future years' growth.
Capitalised expenditure on development costs supports future growth through investment in the enlarged games and apps pipeline. Team17's amortisation policy means that a high proportion of the capitalised development costs for a title are written off in the 12 months after the title is launched. The amortisation charge will vary year to year in accordance with the timing and quantity of titles launched alongside the level of development costs capitalised.
Administrative Expenses
Excluding the total acquisition related adjustments, costs and amortisation included in administrative expenses of £14.9m (2021: £4.5m), underlying administrative expenses were £22.9m (2021: £12.8m) partly reflecting the enlarged Group infrastructure. Of these, underlying costs of £16.2m related to the like for like business cost base representing increases which were driven by a combination of three factors 1) people cost increases driven by incremental headcount, salary benchmarking and cost of living increases 2) marketing costs to support title and content update releases as well as attendance at global live events which increased as pandemic restrictions relaxed and 3) general inflationary pressures on other administration costs. The balance of £6.7m (2021: £1.0m) resulted from the incremental impact of the administration costs of the businesses acquired.
Overall, the Group's headcount has increased as a result of additional investment in the Games Label as well as the new business acquisitions and has therefore grown to 392 as of 31 December 2022 (2021: 265). This includes 53 additional employees directly resulting from the acquisitions at the start of the year alongside a net increase of 74 new team members across the Group throughout the year. Average headcount for the Group increased by 33% to 351 during the year (2021: 263).
The Group remained debt free at the end of the year (except for the lease liabilities included under IFRS 16).
Adjusted EBITDA
Adjusted EBITDA, which excludes acquisition related adjustments and fees, amortisation on acquired intangible assets, share-based compensation, amortisation of capitalised development costs and tax was £48.8m (2021: £35.8m) which represents an increase of 36% year on year. The Adjusted EBITDA margin, expressed as a percentage of revenue, was 36% (2021: 39%), reflecting the changes in revenues, gross margin and administration expenses outlined above.
Alternative Performance Measures ("APMs")
The Directors believe that the reported APMs provide meaningful performance information to aid the understanding of the underlying business trading performance and profitability. Although these are not GAAP measures as defined by IFRS, they have been applied to provide an accurate comparison as well as provide readers of the accounts a clear understanding of the underlying profitability of the business and more consistent comparisons over time.
A breakdown of the adjusting factors is provided in the table below:
| FY22 £'000 |
FY21 £'000 |
|
| Profit Before Tax | 28,665 | 29,109 |
| Share Based Compensation1 | (93) | 1,004 |
| Acquisition Related Adjustments & Fees | 9,206 | 1,580 |
| Amortisation on acquired intangible assets | 9,339 | 3,307 |
| Adjusted Profit Before Tax | 47,117 | 35,000 |
| Taxation (net of impacts on adjustments) | (7,457) | (6,264) |
| Adjusted Profit After Tax | 39,660 | 28,736 |
| Adjusted Basic EPS2 | 27.8p | 22.1p |
1Share based compensation includes employers national insurance contributions due on the exercising of the share options
2The calculation of adjusted earnings per share is based on the adjusted profit after tax divided by the weighted average number of shares (either basis or diluted)
Adjusted EBITDA
| FY22 £'000 |
FY21 £'000 |
|
| Profit Before Tax | 28,665 | 29,109 |
| Finance costs (net)3 | 3,948 | 134 |
| Depreciation (including (gain)/loss on disposals) | 1,085 | 760 |
| Adjustments4 | 15,076 | 5,842 |
| Adjusted EBITDA | 48,774 | 35,845 |
3 Finance costs is the net of finance income and costs from the Statement of Consolidated Income after deducting £2.3m (2021: £0.6m) of acquisition related interest costs
4 Adjustments are defined as share-based compensation and all acquisition related adjustments and fees as outlined in the adjusted PBT reconciliation above
Non-cash share-based compensation credit of £0.1m (2021: £1.0m charge) relating to options that were granted to staff under a variety of schemes which will be satisfied by shares held in the EBT (outlined in the section below on Share Issues). The credit balance reflects the reduction in the national insurance accrual which is based on the share price and number of outstanding share options at the balance sheet date after the market correction in 2022 and 1.0m of options exercised in the year. The combination of these factors has led to a reversal of the accrual creating a negative charge for the year.
Acquisition related adjustments and fees affecting profit include £9.2m (2021: £1.6m) of one-off costs directly associated with the acquisitions. This is made up of £0.9m (2021: £0.1m) of fair value movements in respect of contingent consideration payments, £3.8m (2021: £Nil) of management incentive payments linked to the strong performance of the acquisitions in the year. In addition, it includes £1.1m (2021: £1.4m) of acquisition costs and other acquisition related adjustments and £3.4m (2021: £0.1) relates to finance costs in respect of contingent consideration.
Amortisation on intangible assets (excluding capitalised development costs) increased by £7.0m to £10.3m (2021: £3.3m) reflecting the significant increase in levels of recent acquisitions made.
Operating cash conversion
Operating cash conversion was 108% (2021: 101%) and is defined as adjusted cash from operations divided by EBITDA. Cash from operations as per the cash flow statement is adjusted by £1.0m (2021: £3.7m) for the effects of paying pre-acquisition liabilities recognised at acquisition. Adjusted cash generated from operations during the period was therefore £57.2m (2021: £38.8m) and EBITDA was £52.9m (2021: £38.5m).
Profit Before Tax
Profit Before Tax was £28.7m (2021: £29.1m) reflecting the gross margin gains partially offset by increased operational costs and acquisition-related costs that are required to be taken through the profit and loss account, as outlined in the table above. Adjusted Profit Before Tax, which adjusts for items outlined in the APMs section above increased in the period by £12.1m to £47.1m (2021: £35.0m) representing a 35% increase year on year.
The tax charge decreased to £5.2m (2021: £5.4m) with an effective tax rate after Video Games Tax Relief ("VGTR") of 18% (2021: 18%) also reflecting the impact of future tax rate changes on deferred tax charges and the combined effect of tax on profits from becoming an international Group.
Earnings Per Share ("EPS")
Basic EPS was 16.5 pence (2021: 18.3 pence) reflecting the impact of one-off acquisition related adjustments and fees (net of tax) of £8.0m (2021: £1.5m) described in the APMs section above, as well as the increase in weighted average shares resulting from the shares issued in connection with equity placing in January 2022.
Basic adjusted EPS, which reflects the adjustments noted in the APMs section and calculated using adjusted profit after tax was 27.8 pence (2021: 22.1 pence) representing an increase of 26%.
Statement of Financial Position
Team17 continues to manage a strong balance sheet, remaining highly cash generative with an operating cash conversion of 112% (2021: 101%) and net cash inflow from operations of £49.4m (2021: £31.0m). Overall, there was a net decrease in cash and cash equivalents of £4.5m (2021: £6.2m) taking into account payments for capitalised development costs and acquisition payments net of funds received as part of the share placing during the year.
Net cash and cash equivalents at 31 December 2022 were £50.8m (2021: £55.3m) which included £3.0m (2021: £3.1m) held in the Employee Benefit Trust ("EBT") which is used to support employee share awards and incentivise Team17 employees. During the year, we updated our policy to ensure that every UK and European team member of the Group is offered free share options to enable them to become shareholders.
The Board expects the Group to remain highly cash generative in 2023 before any payments for any M&A activity.
Goodwill and other intangible assets now total £234.1m (2021: £81.3m) and are reviewed for indicators of impairment annually. As at 31 December 2022 the net book value of goodwill was £113.4m (2021: £41.4m) reflecting the addition to goodwill associated with the acquisitions of The Label and astragon of £66.0m (2021: £19.4m). Brands now represent £63.8m (2021: £24.0m) through the addition of the Hell Let Loose IP and the acquired businesses. The current net book value of capitalised development costs at year end is £26.8m (2021: £9.8m) through the addition of £26.0m (2021: £9.3m) of capitalised development costs.
Trade and other receivables increased to £36.0m (2021: £17.8m) reflecting the increased size of the Group following the acquisitions. Trade and other payables increased to £52.3m (2021: £24.3m) also in line with the increased size of the Group, however, includes £18.0m for the earn out payments due in H1 2023.
Acquisitions in the Year
As reported in January 2022, the Group completed three strategic acquisitions:
On 6 January 2022, Team 17 Digital Limited acquired the Hell Let Loose IP (all rights and assets) adding this existing third-party title to the Group's own IP content portfolio. The cash element of the acquisition was funded from the Group's existing cash reserves. The Hell Let Loose IP has performed well within the Group's portfolio and resulted in meeting the 2022 contingent consideration target with the cash payment due in 2023. One final contingent consideration payment remains linked to performance targets relating to 2023.
Also on 6 January 2022, Team17 Digital acquired The Label, a USA based Indie publisher specialising in mobile subscription games content to compliment and become an intrinsic part of the core Games Label. The cash element of the acquisition was funded from the Group's existing cash reserves. In 2022, The Label met the first of three annual contingent consideration targets and is due to be settled with cash and shares payment in 2023, the remaining contingent consideration relates to performance in 2023 and 2024.
On 13 January 2022, Team17 Group plc acquired astragon Entertainment GmbH, a globally renowned publisher, developer, and distributor of working simulation games, based in Germany. The acquisition was funded directly from the proceeds of a successful equity fund raise on 18 January 2022. In the first year of ownership by the Group, astragon has delivered an outstanding performance resulting in an elevated anticipated final earn out payment and heavily first year-weighted Management Incentive Plan award, both of which are due for payment in 2023.
Share Issues
At 31 December 2022, the Group's issued share capital comprised 145,593,271 ordinary shares of £0.01 each. A total of 14,120,049 new shares were issued during the year which included 972,727 shares issued for the exercise of Debbie Bestwick's IPO options, 2,136,323 issued as part of the initial consideration made in shares for the acquisitions of Hell Let Loose IP and The Label as well as 11,010,999 ordinary shares placed at £7.14 per share to raise £78.6m gross proceeds to support the acquisition of astragon.
A total of 313,500 share options were issued during the year to the Executive Directors and the Team17 Games Label CEO with a three-year vesting period with performance criteria. A further 131,300 share options have been issued to our people under a variety of schemes which will be satisfied by shares held in the EBT.
The Group continues to manage a broadening Deferred Bonus Share Plan for its senior management as well as a Team17 Games Label All-Employee Share Incentive Plan ("SIP") which is a UK employee SIP with matching shares, and this continues to be well supported by the UK employees making monthly contributions.
During FY22, all UK and European team members of the Group were given the option to become shareholders through share option grants with a three-year vesting period. This scheme remains in place to be offered to all new joiners as we continue to invest in growing our teams across the Group. This scheme is funded by the EBT and therefore does not result in the issue of shares to satisfy the options.
Mark Crawford
Chief Financial Officer
Team17 Group plc
Unaudited Consolidated Income Statement
| Unaudited Year ended 31 December 2022 |
Audited Year ended 31 December 2021 |
|||
| Note | £'000 | £'000 | ||
| Revenue | 4 | 137,444 | 90,509 | |
| Cost of sales | (67,828) | (44,989) | ||
| Gross profit | 69,616 | 45,520 | ||
| Other income | 469 | - | ||
| Administrative expenses | (37,819) | (16,277) | ||
| Operating profit | 5 | 32,266 | 29,243 | |
| Finance income | 34 | 10 | ||
| Finance cost | (3,982) | (144) | ||
| Share of net profit of associates accounted for using the equity method | 347 | - | ||
| Profit before tax | 28,665 | 29,109 | ||
| Taxation | 6 | (5,187) | (5,370) | |
| Profit for the year | 23,478 | 23,739 | ||
| Basic earnings per share | 7 | 16.5 Pence | 18.3 Pence | |
| Diluted earnings per share | 7 | 16.4 Pence | 18.2 Pence |
Team17 Group plc
Unaudited Consolidated Statement of Comprehensive Income
| Unaudited Year ended 31 December 2022 |
Unaudited Year ended 31 December 2021 |
|||
| £'000 | £'000 | |||
| Profit for the year | 23,478 | 23,739 | ||
| Items which might be reclassified to profit or loss: | ||||
| Exchange difference on translation of foreign operations | 8,070 | (100) | ||
| Total comprehensive income for the year | 31,548 | 23,639 |
Team17 Group plc
Unaudited Consolidated Statement of Financial Position
| Unaudited 31 December 2022 |
Audited 31 December 2021 |
|||
| Note | £'000 | £'000 | ||
| ASSETS | ||||
| Non-current assets | ||||
| Goodwill | 8 | 113,424 | 41,449 | |
| Other intangible assets | 8 | 120,685 | 39,859 | |
| Investments accounted for using the equity method |
1,045 | - | ||
| Property, plant and equipment | 1,692 | 1,446 | ||
| Right-of-use assets | 2,785 | 2,189 | ||
| Deferred tax asset | - | 561 | ||
| 239,631 | 85,504 | |||
| Current assets | ||||
| Inventories | 1,225 | - | ||
| Trade and other receivables | 36,044 | 17,825 | ||
| Cash and cash equivalents | 10 | 50,828 | 55,302 | |
| 88,097 | 73,127 | |||
| Total assets | 327,728 | 158,631 | ||
| EQUITY AND LIABILITIES | ||||
| Equity | ||||
| Share capital | 1,456 | 1,315 | ||
| Share premium | 132,126 | 44,084 | ||
| Merger reserve | (149,173) | (153,822) | ||
| Currency translation reserve | 7,970 | (100) | ||
| Other reserves | 159,296 | 159,296 | ||
| Retained earnings | 100,785 | 76,863 | ||
| Total equity | 252,460 | 127,636 | ||
| Non-Current liabilities | ||||
| Lease liabilities | 2,625 | 2,042 | ||
| Contingent consideration | 9,369 | - | ||
| Provisions | 140 | 109 | ||
| Deferred tax liabilities | 9,169 | 3,550 | ||
| Total non-current liabilities | 21,303 | 5,701 | ||
| Current liabilities | ||||
| Trade and other payables | 52,339 | 24,315 | ||
| Tax payables | 1,262 | 678 | ||
| Lease liabilities | 364 | 301 | ||
| Total current liabilities | 53,965 | 25,294 | ||
| Total liabilities | 75,268 | 30,995 | ||
| Total equity and liabilities | 327,728 | 158,631 |
Certain comparative balances included within the consolidated statement of final position have been reallocated as disclosed in note 2.
Team17 Group plc
Unaudited Consolidated Statement of Changes in Equity
| Share capital | Share premium | Merger reserve | Currency translation reserve | Other reserves | Retained earnings | Total | |
| £'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 |
| Comprehensive income | |||||||
| Profit for the year | - | - | - | - | - | 23,739 | 23,739 |
| Other comprehensive expense for the year | - | - | - | (100) | - | - | (100) |
| Total comprehensive income | - | - | - | (100) | - | 23,739 | 23,639 |
| Transactions with owners | |||||||
| Share based compensation | - | - | - | - | - | 648 | 648 |
| Total transactions with owners | - | - | - | - | - | 648 | 648 |
| Balance at 31 December 2021 (audited) |
1,315 | 44,084 | (153,822) | (100) | 159,296 | 76,863 | 127,636 |
| Comprehensive income | |||||||
| Profit for the year | - | - | - | - | - | 23,478 | 23,478 |
| Other comprehensive expense for the year | - | - | - | 8,070 | - | - | 8,070 |
| Total comprehensive income | - | - | - | 8,070 | - | 23,478 | 31,548 |
| Transactions with owners | |||||||
| Issue of shares for a business combination | 6 | - | 4,649 | - | - | - | 4,655 |
| Issue of shares for acquisition of IP | 15 | 11,779 | - | - | - | - | 11,794 |
| Issue of shares to satisfy share options | 10 | - | - | - | - | - | 10 |
| Contributions of equity | 110 | 76,263 | - | - | - | - | 76,373 |
| Share based compensation | - | - | - | - | - | 444 | 444 |
| Total transactions with owners | 141 | 88,042 | 4,649 | - | - | 444 | 93,276 |
| Balance at 31 December 2022 (unaudited) |
1,456 | 132,126 | (149,173) | 7,970 | 159,296 | 100,785 | 252,460 |
Team17 Group plc
Unaudited Consolidated Statement of Cash Flows
| Unaudited Year ended 31 December 2022 |
Audited Year ended 31 December 2021 |
|||
| Note | £'000 | £'000 | ||
| Operating activities | ||||
| Profit before tax | 28,665 | 29,109 | ||
| Adjustments for: | ||||
| Depreciation of property, plant and equipment | 625 | 413 | ||
| Depreciation of right-of-use assets | 461 | 311 | ||
| Amortisation of intangible assets | 8 | 19,593 | 8,630 | |
| Fair value movement in contingent consideration |
884 | - | ||
| Share of profits of associates | (347) | - | ||
| Share-based compensation | 443 | 648 | ||
| Finance income | (34) | (10) | ||
| Finance cost | 3,983 | 144 | ||
| Loss on disposal of property, plant and equipment | - | 36 | ||
| Decrease/(Increase) in trade and other receivables | (1,892) | 509 | ||
| Increase in inventories | (735) | - | ||
| Increase/(Decrease) in trade and other payables | 4,510 | (4,743) | ||
| Increase in provisions | 31 | 33 | ||
| Cash generated from operating activities | 56,187 | 35,081 | ||
| Tax paid | (6,761) | (4,091) | ||
| Net cash inflow from operating activities | 49,426 | 30,990 | ||
| Cash flow from investing activities | ||||
| Acquisition of astragon (net of cash received) | (65,024) | - | ||
| Acquisition of the Label (net of cash acquired) | (12,134) | - | ||
| Acquisition of StoryToys (net of cash acquired) | - | (15,093) | ||
| Payment of contingent consideration on acquisitions | (5,236) | - | ||
| Purchase of IP | 8 | (18,750) | (12,000) | |
| Purchase of other intangibles | 8 | - | (107) | |
| Purchase of property, plant and equipment | (723) | (573) | ||
| Capitalised development costs | 8 | (26,110) | (9,257) | |
| Interest received | 34 | 10 | ||
| Net cash from investing activities | (127,943) | (37,020) | ||
| Cash flow from financing activities | ||||
| Proceeds from issue of shares | 76,397 | - | ||
| Interest paid | (131) | (144) | ||
| Principal elements of lease payments | (417) | (264) | ||
| Repayment of bank loans | (2,136) | - | ||
| Net cash from financing activities | 73,713 | (408) | ||
| Net decrease in cash and cash equivalents | (4,804) | (6,438) | ||
| Cash and cash equivalents at beginning of period | 55,302 | 61,470 | ||
| Effects of exchange rates on cash and cash equivalents | 330 | 270 | ||
| Cash and cash equivalents at end of period | 10 | 50,828 | 55,302 |
Notes to the Unaudited Consolidated Financial Statements
1. Nature of operations and general information
The principal activity of Team17 Group plc and its subsidiaries (the Group) is the development and publishing of independent ("indie') premium video games and development of educational entertainment apps for children and a leading working simulation games developer and publisher.
2. Basis of preparation
The preliminary results for the year ended 31 December 2022 are unaudited. The financial information set out in this announcement does not constitute the Group's financial statements for the year ended 31 December 2022 as defined by Section 434 of the Companies Act. This financial information has been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. It has been prepared on the historical cost basis, except for those items which are measured at fair value.
This financial information 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 are available from the Registrar of Companies. The Prior year financial statements which were prepared in accordance with UK adopted international accounting standards (UK IFRS) and the applicable legal requirements of the Companies Act 2006. The auditors, PricewaterhouseCoopers LLP, reported on those accounts and their report was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 (2) or (3) of the Companies Act 2006.
The Group's financial statements for the year ended 31 December 2022 will be finalised on the basis of the financial information presented by the Directors in these preliminary results and will be delivered to the Registrar of Companies following the Annual General Meeting of Team17 Group plc.
Reclassification of comparatives
The Group previously presented its Goodwill and Other intangible assets together as Intangible fixed assets on the Consolidated balance sheet. Management considers it to be more relevant to separately disclose these items following the business acquisitions in the year. Prior year comparatives as at 31 December 2021 have been restated to conform with current year presentation.
Going Concern
Management has produced a Group forecast that has also been sensitised to reflect a severe but plausible downside scenario, which has been reviewed by the Directors. This demonstrates 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 these results.
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 have been no changes to accounting policies implemented since the date of the prior year financial statements.
3. Segmental information
The Group has three different operating segments within the business which are as follows:
● Games Label - Developing and publishing video games for the digital and physical market
● Simulation - Developing and publishing simulation games for the digital and physical market
● Edutainment - Developing educational entertainment apps for children
The chief operating decision maker ("CODM") of the Group is considered to be Debbie Bestwick and Mark Crawford, the group executive directors. The CODM reviews the Group's internal reporting in order to assess performance and allocate resources. The CODM determines the operating segments based on these reports and on the internal reporting structure.
The CODM considered the aggregation criteria set out within IFRS 8 "Operating Segments" where two or more operating segments can be combined for reporting purposes so long as aggregation provides financial statement users with information to evaluate the business and the environment in which it operates.
After assessing this criteria, the CODM deems it appropriate for all three operating segments to be aggregated and reported as a single segment. Each segment develops and publishes games and apps using own and third-party IP through similar distribution methods with similar margins in the same regulatory environments. Therefore, all figures reported in the annual report are reported as a single aggregated reporting segment.
Non-current assets are located in the following locations:
| Unaudited Year ended 31 December 2022 |
Audited Year ended 31 December 2021 |
||
| £'000 | £'000 | ||
| UK | 226,145 | 80,438 | |
| EU | 11,350 | 5,066 | |
| Rest of World | 2,136 | - | |
| 239,631 | 85,504 |
4. Revenue
All revenue was generated by the sale of goods.
Whilst the CODM considers there to be only one reportable segment, the Company's portfolio of games is split between internal IP (those based on IP owned by the Group) and third party IP incurring royalties. Therefore to aid the readers understanding of our results, the split of revenue from these two categories is shown below:
| Unaudited Year ended 31 December 2022 |
Audited Year ended 31 December 2021 |
||
| £'000 | £'000 | ||
| Internal IP | 56,050 | 20,133 | |
| Third Party IP | 81,394 | 70,376 | |
| 137,444 | 90,509 |
Four (2021: four) customers each contributed over 10% of the total revenue in 2022 with total revenue derived from these customers being £89,446,000 (2021: £70,244,000).
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 sales data of consumers.
All committed revenue contracts in progress at the 31 December 2022 are expected to be completed and recognised in revenue within one year or less. As permitted under IFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed. All brought forward accrued income and deferred income has been recognised or released during the year.
5. Operating profit
| Unaudited Year ended 31 December 2022 |
Audited Year ended 31 December 2021 |
||
| £'000 | £'000 | ||
| The following items are included in profit before tax: | |||
| Cost of sales | |||
| Amortisation | 9,277 | 5,296 | |
| Administrative expenses | |||
| Amortisation | 10,316 | 3,334 | |
| Depreciation of property, plant and equipment | 625 | 413 | |
| Depreciation of right-of-use assets | 461 | 311 | |
| Loss on disposal of property, plant and equipment | - | 27 | |
| Acquisition fees | 863 | 1,131 | |
| Fair value adjustment on contingent consideration | 883 | - | |
| Finance costs | |||
| Loss on foreign exchange | 1,513 | 598 |
6. Taxation
| Unaudited Year ended 31 December 2022 |
Audited Year ended 31 December 2021 |
||
| £'000 | £'000 | ||
| Current tax: | |||
| Current year tax | 7,284 | 6,634 | |
| Video Games Tax Relief | (455) | (652) | |
| Research & Development Relief | (75) | - | |
| Adjustments in respect of prior periods: | |||
| Video Games Tax Relief | (453) | 245 | |
| Other | (127) | (651) | |
| Deferred tax: | |||
| Origination and reversal of temporary differences | (987) | (206) | |
| Total tax charge | 5,187 | 5,370 |
| Unaudited Year ended 31 December 2022 |
Audited Year ended 31 December 2021 |
||
| £'000 | £'000 | ||
| Reconciliation of total tax charge: | |||
| Profit before tax | 28,665 | 29,109 | |
| Taxation using the UK Corporation Tax rate of 19% (2019: 19%) | 5,446 | 5,531 | |
| Effects of: | |||
| Expenses not deductible for tax purposes | 164 | 350 | |
| R&D Relief | (75) | (101) | |
| Video Games Tax Relief | (455) | (652) | |
| Adjustments in respect of prior periods | (580) | (406) | |
| Change in deferred tax rate | (372) | 588 | |
| Overseas tax on profits | 1,059 | 60 | |
| Total tax charge | 5,187 | 5,370 |
Deferred taxes at the balance sheet date have been measured using the enacted tax rates of between 12.5% and 30% (2021: 19%).
In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax rate would increase to 25%. This was substantively enacted on 24 May 2021 as part of Finance Bill 2021.
7. 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.
| Unaudited Year ended 31 December 2022 |
Audited Year ended 31 December 2021 |
|
| Profit attributable to shareholders £'000 | 23,478 | 23,739 |
| Weighted average number of shares | 142,644,403 | 130,002,844 |
| Weighted average diluted number of shares | 143,247,940 | 130,146,649 |
| Basic earnings per share (pence) | 16.5 | 18.3 |
| Diluted earnings per share (pence) | 16.4 | 18.2 |
8. Goodwill and other Intangibles
| Development costs | Brands | Acquired Apps | Customer and developer relationships | Goodwill | Other intangibles | Total | |||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||
| Cost | |||||||||||
| At 1 January 2021 | 21,342 | 21,983 | - | - | 22,379 | - | 65,704 | ||||
| Additions | 9,257 | 12,000 | - | - | 107 | 21,364 | |||||
| Amounts arising on acquisitions | - | 755 | 6,228 | - | 19,409 | - | 26,392 | ||||
| Translations on foreign operations | - | - | - | - | (339) | - | (339) | ||||
| Disposals | (1,002) | - | - | - | - | - | (1,002) | ||||
| At 31 December 2021 | 29,597 | 34,738 | 6,228 | - | 41,449 | 107 | 112,119 | ||||
| Additions | 26,032 | 43,773 | - | - | - | 11 | 69,816 | ||||
| Amounts arising on acquisitions | - | 2,034 | 21,716 | 4,720 | 65,964 | - | 94,434 | ||||
| Translation on foreign operations | 303 | 138 | 1,410 | 560 | 6,011 | 6 | 8,428 | ||||
| Disposals | (440) | - | - | - | - | (440) | |||||
| At 31 December 2022 | 55,492 | 80,683 | 29,354 | 5,280 | 113,424 | 124 | 284,357 | ||||
| Amortisation | |||||||||||
| At 1 January 2021 | 15,055 | 7,728 | - | - | - | - | 22,783 | ||||
| Charge for the year | 5,296 | 3,021 | 311 | - | - | 2 | 8,630 | ||||
| Disposals | (602) | - | - | - | - | - | (602) | ||||
| At 31 December 2021 | 19,749 | 10,749 | 311 | - | - | 2 | 30,811 | ||||
| Charge for the year | 9,277 | 6,115 | 3,669 | 516 | - | 16 | 19,593 | ||||
| Translation on foreign operations | 76 | 9 | 164 | 12 | - | 23 | 284 | ||||
| Disposals | (440) | - | - | - | - | - | (440) | ||||
| At 31 December 2022 | 28,662 | 16,873 | 4,144 | 528 | - | 41 | 50,248 | ||||
| Net carrying amount | |||||||||||
| At 31 December 2022 | 26,830 | 63,810 | 25,210 | 4,752 | 113,424 | 83 | 234,109 | ||||
| At 31 December 2021 | 9,848 | 23,989 | 5,917 | - | 41,449 | 105 | 81,308 | ||||
Brands - 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 £45.6m. This is made up of an initial cash payment of £18.8m and an issue of shares valued at £11.8m with up to £15m of contingent consideration payable in cash if revenues from the IP exceed certain targets in FY22 and FY23.
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 |
| Contingent consideration | 13,228 |
| 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
Brands - astragon
As part of the acquisition of astragon Entertainment GmbH, separately identifiable intangibles of £2.0m were recognised relating to the astragon brand. This represents the value of the brand in the simulation game marketplace. Amortisation on the astragon brand is calculated on a straight-line basis over the assets estimated useful life of 15 years.
Astragon Brand 15 years straight-line
Acquired Apps
These represent the fair value of games and apps arising at acquisition. The assets are tested for impairment annually or more frequently if there are indicators of impairment. Amortisation is calculated over the estimated useful life using the following policy:
Acquired Apps 7 to 10 years straight-line
Goodwill
The Group tests for impairment annually, or more frequently if there are indicators that goodwill might be impaired.
The Group has 4 cash-generating units ("CGUs") which are as follows:
· Team 17 Digital Limited
· StoryToys Limited
· Astragon entertainment GmbH
· Team17 (USA) Inc
The recoverable amount of each of the cash-generating units ("CGUs") at 31 December 2022 is determined from the value in use. The key assumption in calculating the value in use was the expected future cash flows. The pre-tax discount rate applied to the future cash flows was between 12.5% and 27.8%. A 5 year bottom up forecast for the years ending 31 December 2023 to 2027 inclusive has been created before applying long term growth rates of between 2% and 3%. The Directors have assessed the sensitivity of the impairment test to reasonably possible changes in the key assumptions and noted that no material impairment exists in any cases.
No impairment was indicated when assessing the value in use of the Group's intangible assets, therefore fair value less costs of disposal was not assessed.
Other intangibles
These are made up of capitalised software and are amortised under the following policies:
Capitalised software 2 years straight-line
9. Business combinations
Acquisition of astragon Entertainment GmbH
On 13 January 2022 Team17 Group plc acquired 100% of the share capital of astragon entertainment GmbH ("astragon") for a maximum payment of £82.3m (€98.0m) subject to cash, net debt and working capital adjustments. The preliminary purchase price for the acquisition is £63.0m (€75.0m) in cash. Further payments of up to £19.3m (€23.0m) are payable in cash if astragon meets certain targets during FY21 and FY22 following completion of the acquisition. There was no minimum due on the contingent consideration. The full results of the business have been included in the Consolidated Statement of Profit or Loss for the year as there was no material results between the start of the year and the date of acquisition.
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 a wide 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 assets and liabilities. This initial payment was settled in cash. Contingent consideration consists of the earn-out for the sellers included at fair value and payable based on the acquired business reaching certain results during FY21 and FY22.
Deferred and contingent consideration has been recognised at present value which has been calculated using a discount rate of 14.5%. Details of the purchase consideration at initial recognition are as follows:
| Initial consideration | Deferred consideration | Contingent consideration | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Initial recognition | 63,030 | 1,800 | 6,067 | 70,897 |
| Fair value adjustment | - | - | 4,309 | 4,309 |
| Balance outstanding at 31 December 2022 | - | - | 8,607 | 8,607 |
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 year. For FY22 earn-out targets, at acquisition management have reviewed a risk weighted forecast for the year. This was reassessed as at 31 December 2022 and the movements in the fair value of the consideration have been recognised in the Income Statement.
· Interest costs of £0.6m (2021: £Nil) from the unwinding of the discount rate 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 | Fair value adjustment | Fair value acquired | ||||
| £'000 | £'000 | £'000 | ||||
| Cash and cash equivalents | 2,261 | - | 2,261 | |||
| Acquired apps | - | 21,716 | 21,716 | |||
| Brand | - | 2,034 | 2,034 | |||
| Investments | 323 | 307 | 630 | |||
| Property, plant and equipment | 110 | - | 110 | |||
| Development costs | 5,563 | (5,563) | - | |||
| Right-of-use assets | 964 | - | 964 | |||
| Inventories | 438 | - | 438 | |||
| Trade and other receivables | 16,114 | (1,777) | 14,337 | |||
| Deferred tax liability | - | (5,333) | (5,333) | |||
| Lease liabilities | (964) | - | (964) | |||
| Trade and other payables | (8,605) | - | (8,605) | |||
| Bank loans | (2,101) | - | (2,101) | |||
| Net identifiable assets acquired | 14,103 | 11,384 | 25,487 | |||
| Add: Goodwill | 45,410 | |||||
| 70,897 | ||||||
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 ($40.3m) subject to 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 and 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 payment. The full results of the business have been included in the Consolidated Statement of Profit or Loss for the year as there was no material results between the start of the year and the date of acquisition.
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 from the acceleration of outstanding share options. Details of the purchase consideration are as follows:
| Initial consideration | Contingent consideration | Total | |
| £'000 | £'000 | £'000 | |
| Initial recognition | 17,796 | 6,531 | 24,327 |
| Fair value adjustment | - | (3,582) | (3,582) |
| Balance outstanding at 31 December 2022 | - | 4,419 | 4,419 |
Contingent consideration consists of the earn-out for the sellers included at fair value and payable based on the acquired business reaching certain results. During the year £1.0m was paid to satisfy pre-acquisition liabilities recognised as part of the acquisition under IFRS 3.
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 FY22, FY23 and FY24 earn-out targets, at acquisition management have reviewed a risk weighted forecast for the year. This will be (and has been for FY22) reassessed at each reporting date and the movement in the fair value of the consideration amount has been recognised in the Consolidated Statement of Profit or Loss.
· Interest costs of £0.7m (2021: £Nil) from the unwinding of the 8.4% discount rate have been included in the Consolidated Statement of Profit or Loss for the year.
The assets and liabilities recognised as a result of the acquisition are as follows:
| Book value | Fair value adjustment | Fair value acquired | ||
| £'000 | £'000 | £'000 | ||
| Cash and cash equivalents | 1,366 | - | 1,366 | |
| Customer and developer relationships | - | 4,720 | 4,720 | |
| Contract cost asset | 118 | (118) | - | |
| Trade and other receivables | 1,189 | (357) | 832 | |
| Deferred tax liability | - | (1,416) | (1,416) | |
| Trade and other payables | (888) | (841) | (1,729) | |
| Net identifiable assets acquired | 1,785 | 1,988 | 3,773 | |
| Add: Goodwill | 20,554 | |||
| 24,327 |
The goodwill is attributable to The Label's 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 year ended 31 December 2022 of £863,000 (2021: £1,131,000) are included in administrative expenses in the Consolidated Statement of Profit or Loss. These costs are added back when arriving at our adjusted EBITDA measure.
Results from acquisitions
In total, incremental revenues of £44.8m and profit before tax of £14.6m came from the impact of business acquisitions reflecting the full year results of astragon and The Label and H1 results of StoryToys acquired on 1 July 2021.
10. Cash and cash equivalents
| Unaudited 31 December 2022 |
Audited 31 December 2021 |
||
| £'000 | £'000 | ||
| Cash at bank and in hand | 47,875 | 15,213 | |
| Cash equivalents | 2,953 | 40,089 | |
| 50,828 | 55,302 |
Included within the cash equivalents balance above is £2,953,000 (2021: £3,115,000) owned by the Team17 Employment Benefit Trust. This cash is not readily available for use by the Group to meet its everyday operating costs but can be spent for the benefit of the employees and as such is considered restricted cash.
Included within cash equivalents on 31 December 2021 was £36,974,000 held by the Group's solicitors for the purchase of the Hell Let Loose IP and shares of The Label Inc. during January 2022.
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