Half Year Results

Team17 Group PLC

19 September 2023

 

19 September 2023  

Team17 Group plc

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

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2023

Strong H1 revenue growth underpinned by new releases and portfolio, expect full year results in line with expectations

Team17, a global games label, creative partner, developer and publisher of independent ("indie") premium video games, educational entertainment apps for children, and working simulation games, is pleased to announce its unaudited results for the six months ended 30 June 2023 ("H1 2023" or the "period").  

H1 2023 financial highlights

·    Revenues increased 31% to £69.7m (H1 2022: £53.2m)

·    Gross profit increased 18% to £30.2m (H1 2022: £25.5m)

·    Adjusted EBITDA of £16.5m (H1 2022: £18.2m)

·    Profit before tax of £8.1m (H1 2022: £11.2m)

·    Adjusted profit before tax of £15.6m (H1 2022: £17.3m)

·    Earnings per share ("EPS") of 3.9 pence (H1 2022: 6.5 pence)

·    Adjusted earnings per share ("AEPS") of 8.6 pence (H1 2022: 10.4 pence)

·    Operating cash conversion of 142% (H1 2022: 139%)

·    Net cash and cash equivalents at 30 June 2023 of £45.2m (H1 2022: £51.3m)

·    Group headcount at 30 June 2023 was 438 (FY22: 392)

H1 2023 operational highlights

·    Strong H1 2023 revenue growth across the Group, driven by the diversified portfolio of games, apps and strong new release profile.

·    Group H1 2023 EBITDA performance reflects the early H2 release pipeline which drove increased marketing and operational costs in H1 to support the release profile, with these costs reducing in H2.

·    Team17 Games Label delivered strong revenue growth across its portfolio in H1 2023:

o  17 (H1 2022: 20) new downloadable content ("DLC") packages released across 13 (H1 2022: 12) titles.

o  Content portfolio now comprises over 800 digital revenue lines (H1 2022: over 600 digital revenue lines).

o  5 new titles released in H1 which included Dredge, Trepang2 and Killer Frequency.

o  2 existing titles released on additional platforms.

·    astragon delivered a strong performance underpinned by own IP revenues:

o  12 paid DLC, two season passes and free content updates launched to select own IP titles in the period (H1 2022: 10).

o  Own IP working simulation titles Construction Simulator and Police Simulator have maintained continued impressive sales momentum following Q3 & Q4 FY 2022 launches respectively.

o  Completed the acquisition of Independent Arts Software GmbH ("IAS") in April 2023, expanding the working simulation development team to accelerate the creation and launch of a new own IP title.

·    StoryToys delivered a strong performance across the portfolio with payable active subscribers continuing to grow to over 320,000 (H1 2022: over 250,000):

o  Extended and strengthened relationships with key license partners including Mattel, Marvel Entertainment, Sesame Workshop, The LEGO® Group and The Walt Disney Company.

o  Launched 3 new apps in H1 2023: Barbie Color Creations, LEGO® DUPLO® DISNEY - MICKEY AND FRIENDS and Marvel HQ.

o  Developed and launched 134 (H1 2022: 108) app updates across existing titles.

·    Continued to strengthen the leadership and Board bringing in operational depth and video gaming experience as we prepare for the next phase of diversified growth.

Outlook

·     Strong H1 revenue performance de-risks FY23 delivery with a reduced H2 weighting.

·    We expect H2 EBITDA to benefit from more favourable phasing of costs, planned cost efficiencies and controls, which together with the second half pipeline of new title releases and content updates, will deliver second half weighted results.

·    The Board therefore expects to deliver full year results in line with current market expectations.

·    The Group continues to be highly cash generative, maintains a strong balance sheet and is mindful of the acquisition and consolidation opportunities that exist in the current market.

·     Whilst cognisant of the competitive pressures in the games market with high-quality games and elevated discounting levels, the Board remains confident in the long-term trajectory of the business.

·     The Group continues to bolster and differentiate Team17's customer offering to broaden its market appeal.

·     The Board remains confident in the long-term trajectory of the business.

Debbie Bestwick MBE, CEO of Team17, said:

"We are pleased with the Group's first half performance, with strong growth delivering record revenue levels, against a backdrop of one of the most competitive years for high quality launches and deep peer discounting that I can remember. The strength of our results illustrates the success of our diverse portfolio strategy, expertise in lifecycle management and franchise building, disciplined approach to discounting, and the tireless commitment of our people across the Group.

"We are mindful that the gaming environment remains highly competitive, and we continuously review cost efficiencies to ensure we have the right balance between internal and outsourced resources in our service areas. We believe that this will enable us to remain agile and cost effective to deliver the best results for our partners and stakeholders over future years. 

"astragon and StoryToys continue to deliver strong revenue growth, high quality content and synergy opportunities. In the current environment, I believe our strong balance sheet and M&A track record puts us in an excellent position to pursue further opportunities which can support our strategy of enhancing the Group's reach across genres, platforms, and customer demographics. We are being presented with more new content opportunities of quality than ever before and will remain as highly disciplined in our approach as ever to ensure we maintain our track record of delivering exceptional games to our customers.

"I have been impressed with the passion, insight, and leadership that Steve Bell has already brought to the Group in his role as CEO designate and am delighted with Frank Sagnier's appointment as Chair designate. So finally, as I enter my last few months as CEO, I can confidently say I have never been more excited about the Group's leadership and future."

Analyst and institutional investor webcast

A webcast presentation for analysts and institutional investors will be held on Tuesday, 19 September 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/TM17_HYR23

Retail investor webcast

A webcast for retail investors will be held on Thursday, 21 September 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 the Investor Meeting 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 Steve Bell, Chief Executive Officer Designate Mark Crawford, Chief Financial Officer James Targett, Group Investor Relations Director	via Vigo Consulting
Houlihan Lokey UK Limited (Nominated Adviser) Adrian Reed / Tim Richardson	[phone]
Berenberg (Joint Corporate Broker) Toby Flaux / Ben Wright / Marie Moy / Alix Mecklenburg-Solodkoff	[phone]
Peel Hunt (Joint Corporate Broker) Neil Patel / Paul Gillam / Richard Chambers / James Smith	[phone]
Vigo Consulting (Financial Public Relations) Jeremy Garcia / Fiona Hetherington / Kate Kilgallen [e-mail]	[phone]

 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, targeting children under the age of eight, and a leading working simulation games developer and publisher.

Visit www.team17.com for more info.

Operational Review

The Group delivered another solid performance in H1 2023, reporting record revenue following strong contributions from the three divisions: Games Label, StoryToys, and astragon.

Team17 now benefits from operating across a much enlarged geographical footprint and customer demographic, and while the divisions continue to function autonomously, with their own distinct identities and audiences, they remain fully aligned to the Group's shared company values and a collective drive to deliver the highest quality games and apps for their customers.

The Group has continued to see significant traction in games and apps across the portfolio, from both customers and platform partners. Our divisions remain focused on bringing new titles to our expanded audience base, as well as maintaining engagement through additional content and where appropriate sequels for the existing titles in their portfolios.  During the period across the three divisions, the Group has launched 5 new titles, 2 existing titles on additional platforms, 3 new edutainment apps, 31 paid for and free DLC updates and 134 app updates.

Revenues in H1 2023 grew 31% to a record £69.7m (H1 2022: £53.2m), with gross profit of £30.2m (H1 2022: £25.5m). This strong performance is underpinned by the combined contribution of the Games Label, StoryToys and astragon, as well as growth in revenues from third party IP of 30% to £42.7m (H1 2022: £32.8m). This represented 61% (H1 2022: 62%) of total revenue and benefited from StoryToys app sales alongside the standout performance of the Games Label's Dredge which launched in the period. Revenues from own IP titles grew 32% in total delivering revenues of £27.0m (H1 2022: £20.4m) making up 39% of total revenues (H1 2022: 38%). Own IP titles across the Group include Golf With Your Friends ("GWYF"), Hell Let Loose ("HLL"), Construction Simulator and Police Simulator.

The Group's new release revenues contributed £14.9m (H1 2022: £0.2m) predominantly coming from the Games Label, with the back catalogue generating revenues of £54.8m (H1 2022: £53.0m) demonstrating the continued strength of the Group's broadening portfolio.

Gross margins were impacted in H1 2023 by several factors including: the sales mix between own and third party IP across the divisions and their associated royalties; ongoing investment in the back catalogue content updates; higher expensed development costs and increased amortisation charges driven in part by the timing of new titles launched in the period as well as those launched towards the end of FY 2022.

Administrative expenses for H1 2023 were £21.7m (H1 2022: £13.6m) which include £6.1m acquisition-related adjustments (H1 2022: £5.5m) which are outlined in Note 5 below. The underlying cost base saw enlarged headcount across the Group to support the increased demands to develop and launch titles across the ever-expanding portfolio. Marketing costs were more heavily first half weighted compared with the prior year supporting both the launch of titles in the period and also titles launched at the start of H2 2023. In addition, attendances at live events saw an increase in spend in H1 2023. General inflation to other costs alongside a strengthening GBP compared to the same period last year have contributed to the overall increase in administrative expenses.

Overall headcount has grown to 438 (H1 2022: 345) in part a result of the increased headcount across the existing Group in the second half of FY 2022, but also includes the development team of 45 within the Independent Arts Software GmbH ("IAS") acquired by astragon in April 2023; this accounts for almost all of the increase in headcount since the start of the year (FY2022: 392).

As a consequence of the factors influencing gross margin outlined above combined with the front loading in marketing spend and investment in people in H1, adjusted EBITDA decreased to £16.5m (H1 2022: £18.2m) with an adjusted EBITDA margin¹ of 24% (H1 2022: 34%).

Earnings per Share for the period decreased to 3.9 pence (H1 2022: 6.5 pence) reflecting the cost impacts outlined above; increase in the number of shares in issue; and also the relative impact of tax rates across the Group including the increase in UK tax rate in April 2023. The adjusted Earnings per Share (adding back share-based compensation costs, acquisition-related costs and adjustments) of 8.6 pence (H1 2022: 10.4 pence) better reflects the underlying performance in the period across the Group.

Operating cash conversion was 142% (H1 2022: 139%) elevated from the 2022 year-end and reflects seasonal working capital movements. Cash and cash equivalents at the end of the period were £45.2m (H1 2022: £51.3m) after payments for contingent consideration made in H1 2023 alongside £2.3m for the acquisition of IAS.

Following the announcement of Debbie Bestwick's intention to step down as Group Chief Executive Office to assume a Non-Executive Director ("NED") role, the Group appointed Steve Bell as her successor. Steve joined the Group earlier this month and will be working alongside Debbie until the end of the year to ensure a smooth transition ahead of Debbie assuming her NED role in January 2024.

The Board has been further strengthened with the appointment of Peter Whiting as NED/Chair of RemCom and Frank Sagnier as Chair designate, who come with a wealth of experience in various NED roles and video gaming respectively. The Group would like to thank Jennifer Lawrence, Martin Hellawell and Chris Bell for their unwavering support and contribution to Team17 and wish them all the very best in their future endeavours.

Additionally, we have strengthened the Group leadership team with the addition of Ann Hurley who joined in July 2023 as Group Commercial Operations Director. She brings over 15 years of outsourcing knowledge alongside her combined three decades of experience across the games industry in senior sales, business development, marketing, leadership and operational roles. James Targett joined in August 2023 as Group Investor Relations Director with over two decades of experience in equity research with several major investment banks. Nigel Martin joins in September 2023 as Group People and Culture Director with over three decades experience in commercial, strategic, and international HR leadership roles in large blue-chip companies as well as smaller entrepreneurial businesses.

Having undergone a sustained period of acquisitive growth, the core foundations of Team17's business strategy remain unchanged, with a focus on identifying, developing, and publishing genre agnostic content that appeals to a wide range of users and is accessible through multiple platforms.

As demonstrated by the strong revenue growth in H1 2023, the Group is also cognisant of the importance of lifecycle management of existing games in the portfolio in addition to important new title launches, and more recently, in exploring synergy opportunities across the enlarged Group This was demonstrated when astragon managed the physical launch for Team17 Games Label's Blasphemous 2. To that end, we continue to develop and launch exciting new content and extensions to our existing games and app portfolio, responding to market demand and implementing customer feedback wherever possible.

Games Label

The Games Label continues to perform well, having launched 5 new titles and 2 existing titles on to additional platforms alongside multiple DLC updates in H1 2023, delivering revenue growth of 15% to £47.1m (H1 2022: £40.8m). The Games Label continues to build out their diverse portfolio ensuring all new content is of the highest possible quality, with each new title undergoing rigorous quality assurance testing prior to release. The Games Label's continued success remains rooted in our expertise in lifecycle management, franchise building, own IP launches, and third party IP management, all of which underpin stable and scalable revenue streams. 

Titles launched in H1 2023 included Trepang 2 and Dredge, and DLC for GWYF and Marauders. Additionally, Team17 USA's Farmside title was launched on Apple Arcade in February 2023, achieving top 5 engagement levels in week one and achieving a current worldwide 4.2 out of 5-star rating. This was followed by the release from Team17 USA and subsequent launch of Summon Quest on Apple Arcade in April 2023.

Within the Games Label, Team17 Digital now boasts over 800 digital revenue lines, an increase from the prior year period (H1 2022: over 600).

The Games Label titles Farmside and Dredge, and the Games Label itself, were nominated in seven categories at the Develop:Star Awards which took place in July 2023, with the Games Label and Dredge crowned the winners in the Publishing Star and Best Small Studio categories respectively.

The Games Label has launched a number of highly anticipated sequels, including those to Moving Out and Blasphemous and launched the new title Gord, all of which were released early in the second half. The Games Label has a further 2 new title releases planned for later in the second half, including Headbangers - Rhythm Royale.

StoryToys

StoryToys has had an exceptionally busy H1 2023, delivering a solid performance in line with expectations with revenues up 39% to £6.4m (H1 2022: £4.6m). Total subscriptions and subscription revenues have continued to trend upwards in H1 2023, with StoryToys now boasting over 320,000 active subscribers (H1 2022: over 250,000).

Through the strengthening of key partner relationships, StoryToys has further consolidated their reputation with leading brands wishing to extend their reach into the edutainment space. StoryToys remains focused on providing a firm basis on which to nurture and further grow their strategic brand partnerships for years to come.  

A number of titles were released in the period, the result of new brand agreements and contract extensions with existing partners. These include:

o  New license agreement with Mattel to launch Barbie Color Creations in June 2023

o  New license agreement to launch LEGO® DUPLO® Disney Mickey and Friends in April 2023

o  Agreement extension with Marvel Entertainment to include a new Marvel HQ app, which launched in May 2023

StoryToys also launched Disney Coloring World+ on Apple Arcade in May 2023, expanding the active user base of the title.

©2023 The LEGO GROUP

© 2023 MARVEL

© 2023 Disney

StoryToys' H2 2023 pipeline is strong, with multiple new content updates planned, in addition to the launch of LEGO® DUPLO® WORLD+ on Apple Arcade in July 2023. Management is encouraged by Mattel's decision to enter a long-term licensing deal with StoryToys to build their brand in the edutainment space. Looking ahead, StoryToys will continue to actively seek additional opportunities to further expand its network of global license partners.

astragon

astragon continues to perform strongly and in line with management expectations, benefitting from the highly successful launches of Construction Simulator and Police Simulator in Q3 and Q4 2022 respectively. Overall, sales increased 109% to £16.3m in the period (H1 2022: £7.8m), noting that the prior year was heavily second half weighted with launches on all own IP titles.

Portfolio content updates were launched for a number of own IP titles across the period, including a JCB pack and Airfield Expansion for Construction Simulator, and Next Stop 21 for Bus Simulator. All titles in the portfolio continue to gain good customer traction, supported by the release of 12 DLC (H1 2022: 3) and content updates in the period.

In June 2023, astragon announced a partnership with Randwerk Games to publish their atmospheric physics-destruction building game, ABRISS - build to destroy. The game is currently available for PC in Early Access and won the Best Graphic Design award at the German Computer Game Awards in 2023. ABRISS - build to destroy saw its full launch on PC at the start of September with expectations to release on wider platforms in the near future.

Alongside the third party title launches of ABRISS - build to destroy and Howl, astragon has multiple planned updates and DLC releases across their own IP titles during the second half.

In April 2023, the Group announced that astragon had acquired Independent Arts Software ("IAS"), a long-established third party development partner of astragon. This acquisition brings a team of expert 'simulation' developers that will ultimately accelerate the development and launch of new astragon IP. The integration of IAS is now complete, with the team based in their own studio in Hamm, Germany.

Outlook

·    The games market in the second half of the year FY 2023 is expected to continue to be more competitive than it has been for a number of years in terms of high-quality games and elevated discounting levels.

·    Strong H1 revenue performance de-risks FY 2023 delivery with a reduced H2 weighting.

·    Anticipate adjusted EBITDA for FY 2023 will remain in line with current market expectations, with improved adjusted EBITDA margins in H2 due to more favourable phasing of costs, supported by planned and identified cost efficiencies and controls.

·    The Group continues to be highly cash generative, maintaining a strong balance sheet and is mindful of the ongoing acquisition and consolidation opportunities that exist in the current market.

·    We continue to focus on bolstering and differentiating Team17's customer offering to broaden our market appeal.

·    The Board remains confident in the long-term trajectory of the business.

Debbie Bestwick MBE

Group Chief Executive Officer

19 September 2023

Condensed Consolidated Income Statement

		Unaudited Six months ended 30 June 2023	Unaudited Six months ended 30 June 2022
	Note	£'000	£'000
Revenue	4	69,708	53,249
Cost of sales		(39,501)	(27,705)
Gross profit		30,207	25,544
Gross profit %		43.3%	48.0%
Administrative expenses		(21,678)	(13,639)
Other Income		2	257
Operating profit		8,531	12,162
Amortisation of other intangibles		553	16
Depreciation		644	577
Share based compensation		612	(69)
Acquisition-related adjustments (excluding interest on consideration)		6,117	5,539
Adjusted EBITDA1	5	16,457	18,225
Finance income		36	7
Finance cost		(461)	(1,000)
Profit before tax		8,106	11,169
Taxation		(2,546)	(2,262)
Profit for the period		5,560	8,907
Basic earnings per share	6	3.9 Pence	6.5 Pence
Diluted earnings per share	6	3.9 Pence	6.4 Pence
Basic adjusted earnings per share	6	8.6 Pence	10.4 Pence
Diluted adjusted earnings per share	6	8.6 Pence	10.3 Pence

All results relate to continuing activities.

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.

Condensed Consolidated Statement of Comprehensive Income

		Unaudited Six months ended 30 June 2023 £'000	Unaudited Six months ended 30 June 2022 £'000
Profit for the period		5,560	8,907
Items which might be potentially reclassified to profit or loss:
Exchange difference on translation of foreign operations		(4,105)	5,345
Total comprehensive income for the period		1,455	14,252

Condensed Consolidated Statement of Financial Position

		Unaudited 30 June 2023	Unaudited 30 June 2022	Audited 31 December 2022
	Note	£'000	£'000	£'000
ASSETS
Non-current assets
Investments in associates		832	645	1,045
Intangible fixed assets	7	239,086	225,989	234,109
Property, plant and equipment		1,782	1,933	1,692
Right of use assets		4,271	2,818	2,785
Deferred tax asset		-	14	-
		245,971	231,399	239,631
Current assets
Trade and other receivables		26,490	18,966	36,044
Inventories		929	969	1,225
Cash and cash equivalents		45,159	51,295	50,828
		72,578	71,230	88,097
Total assets		318,549	302,629	327,728
EQUITY AND LIABILITIES
Equity
Share capital		1,457	1,456	1,456
Share premium		132,923	136,775	132,126
Merger reserve (restated)		(149,173)	(153,822)	(149,173)
Currency translation reserve		3,865	5,245	7,970
Other reserves		159,296	159,296	159,296
Retained earnings		106,971	86,200	100,785
Total equity		255,339	235,150	252,460
Non-current liabilities
Lease liabilities		3,918	2,689	2,625
Other payables		-	25,242	9,369
Provisions		155	124	140
Deferred tax liabilities		8,229	8,624	9,169
Total non-current liabilities		12,302	36,679	21,303
Current liabilities
Trade and other payables		49,097	28,722	52,339
Current tax liabilities		1,081	1,718	1,262
Lease liabilities		730	360	364
Total current liabilities		50,908	30,800	53,965
Total liabilities		63,210	67,479	75,268
Total equity and liabilities		318,549	302,629	327,728

 Condensed Consolidated Statement of Changes in Equity

		Share capital	Share premium (restated)		Merger Reserve (restated)	Currency translation reserve	Other reserves	Retained earnings	Total
Six months to 30 June 2022	Note	£'000	£'000		£'000	£'000	£'000	£'000	£'000
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
Issue of shares for a business combination (restated)		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		-	-		-	-	-	430	430
Total transactions with owners (restated)		141	88,042		4,649	-	-	430	93,262
Balance at 30 June 2022 (restated) (unaudited)		1,456	132,126		(149,173)	5,245	159,296	86,200	235,150
Six months to 31 December 2022
Balance at 1 July 2022 (unaudited)		1,456	132,126		(149,173)	5,245	159,296	86,200	235,150
Profit for the period		-	-		-	-	-	14,571	14,571
Other comprehensive expense for the period		-	-		-	2,725	-	-	2,725
Transactions with owners
Share based compensation		-	-		-	-	-	14	14
Total transactions with owners		-	-		-	-	-	14	14
Balance at 31 December 2022 (audited)		1,456	132,126		(149,173)	7,970	159,296	100,785	252,460

Six months to 30 June 2023
Balance at 1 January 2023 (audited)		1,456	132,126	(149,173)	7,970	159,296	100,785	252,460
Profit for the period		-	-	-	-	-	5,560	5,560
Other comprehensive income		-	-	-	(4,105)	-	-	(4,105)
Transactions with owners
Share based compensation		-	-	-	-	-	626	626
Issue of ordinary shares		1	797	-	-	-	-	798
Total transactions with owners		1	797	-	-	-	626	1,424
Balance at 30 June 2023 (unaudited)		1,457	132,923	(149,173)	3,865	159,296	106,971	255,339

H1 22 restatement: The premium on the share for share exchange as part of a business combination was reclassified to the merger reserve instead

of the share premium reserve under the Companies Act.

Condensed Consolidated Statement of Cash Flows

		Unaudited Six months ended 30 June 2023	Unaudited Six months ended 30 June 2022
	Note	£'000	£'000
Operating activities
Profit before tax		8,106	11,169
Adjustments for:
Depreciation of property, plant and equipment		382	355
Depreciation of right-of-use assets		171	222
Amortisation of intangible fixed assets	7	12,285	8,463
Share of profits of associates		239	-
Share-based compensation		626	440
Finance income		(36)	(7)
Financial expenses		461	1,000
Decrease/(increase) in trade and other receivables		9,334	17,757
(Decrease)/increase in trade and other payables		(1,441)	(10,555)
Decrease/(increase) in inventory		262	(521)
Increase in provisions		15	15
Cash generated from operating activities		30,404	28,338
Tax paid		(3,328)	(3,430)
Net cash inflow from operating activities		27,076	24,908
Cash flow from investing activities
Acquisition of subsidiaries (net of cash acquired)		(4,875)	(74,313)
Purchase of property, plant and equipment		(392)	(733)
Purchase of Intellectual Property	7	(7,500)	(18,750)
Purchase of other intangibles		(875)	-
Capitalisation of development costs	7	(18,331)	(10,018)
Interest received		36	7
Net cash outflow from investing activities		(31,937)	(103,807)
Cash flow from financing activities
Interest paid		(68)	(361)
Proceeds from issues of shares		-	76,372
Repayment of lease liabilities		(184)	(121)
Net cash (outflow)/inflow from financing activities		(252)	75,890
Net (decrease)/increase in cash and cash equivalents		(5,113)	(3,009)
Cash and cash equivalents at beginning of period		50,828	55,302
Effect of exchange rates on cash and cash equivalents		(556)	(998)
Cash and cash equivalents at end of period		45,159	51,295

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 2023 should be read in conjunction with the financial statements of Team17 Group Plc for the year ended 31 December 2022 (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 2022 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 are not audited and do 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 2023.

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 2024 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 55 to 63 of the prior year financial statements. There has been no change to any accounting policy from the date of the prior year financial statements. A review of revenue recognition focussing on the recognition of revenue as either Gross or Net is currently underway recognising the changing nature of the games sector.

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 MBE and Mark Crawford, the group executive directors. The CODM review's 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 these results are reported as a single aggregated reporting segment.

4. Revenue

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 to the IP owner which are included in cost of sales. Therefore, to aid the readers understanding of our results, the split of revenue from these two categories is shown below:

Revenue by Own IP/Third Party IP:

	Unaudited Six months ended 30 June 2023	Unaudited Six months ended 30 June 2022
	£'000	£'000
Own IP	27,031	20,414
Third Party IP	42,677	32,835
	69,708	53,249

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.

5. Alternative Performance Measures

Adjusted Profit After Tax

		Unaudited Six months ended 30 June 2023 £'000	Unaudited Six months ended 30 June 2022 £'000
Profit before tax		8,106	11,169
Share based compensation		612	(69)
Acquisition-related adjustments:
Acquisition fees (Admin expenses)		87	550
Fair value movements on acquisition balances (Admin expenses)		1,797	118
Interest on consideration (Finance cost)		768	700
Other acquisition-related adjustments (Admin expenses)		(460)	172
Amortisation on acquired intangible assets (Admin expenses)		4,693	4,683
Adjusted profit before tax		15,603	17,323
Taxation (net of adjustments above)		(3,227)	(3,031)
Adjusted profit after tax		12,376	14,292

The share-based compensation figure includes the add back of Employers' National Insurance contributions due upon exercise of the share options.

Adjusted EBITDA

		Unaudited Six months ended 30 June 2023 £'000	Unaudited Six months ended 30 June 2022 £'000
Profit before tax		8,106	11,169
Amortisation on other intangibles		553	16
Depreciation		644	577
Net interest		(343)	293
Share based compensation		612	(69)
Acquisition-related adjustments:
Acquisition fees		87	550
Fair value movements on acquisition balances		1,797	118
Interest on consideration		768	700
Other acquisition-related adjustments		(460)	188
Amortisation on acquired intangible assets		4,693	4,683
Adjusted EBITDA		16,457	18,225

Operating cash conversion

Operating cash conversion is defined as cash generated from operating activities as per the statement of cash flows 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 2023	Unaudited Six months ended 30 June 2022
Cash generated from operating activities		30,404	28,338
Payments made to satisfy pre-acquisition liabilities recognised under IFRS 3 "Business Combinations"		-	1,036
Adjusted cash generated from operating activities		30,404	29,374
EBITDA		21,460	21,202
Adjusted operating cash conversion		142%	139%*

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

6. 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 is 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 are less than the average share price for the period.

		Unaudited Six months ended 30 June 2023	Unaudited Six months ended 30 June 2022
Profit for the period £'000		5,560	8,907
Weighted average number of shares		143,724,920	137,624,741
Weighted average diluted number of shares		143,972,343	138,720,958
Basic earnings per share (pence)		3.9	6.5
Diluted earnings per share (pence)		3.9	6.4

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 5. 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 2023	Unaudited Six months ended 30 June 2022
Adjusted profit for the period £'000		12,375	14,308
Weighted average number of shares		143,724,920	137,624,741
Weighted average diluted number of shares		143,972,343	138,720,958
Adjusted basic earnings per share (pence)		8.6	10.4
Adjusted diluted earnings per share (pence)		8.6	10.3

7. Intangibles

	Development costs £'000	Brands £'000	Acquired Apps £'0000	Customer and Developer Relationships £'000	Other Intangibles £'000	Goodwill £'000	Total £'000
Cost
At 1 January 2022 (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	-	65,964	94,434
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	111,243	264,879
Additions	16,014	-	-	-	11	-	16,025
Translation on foreign operations	158	90	1,003	15	6	2,181	3,453
At 31 December 2022 (audited)	55,492	80,683	29,354	5,280	124	113,424	284,357
Additions	18,823	-	-	-	875	-	19,698
Acquisitions	-	-	-	-	1	2,106	2,107
Disposals	(975)	-	-	-	-	-	(975)
Translation on foreign operations	(317)	(92)	(920)	(252)	(18)	(3,243)	(4,842)
At 30 June 2023 (unaudited)	73,023	80,591	28,434	5,028	982	112,287	300,345
Amortisation
At 1 January 2022 (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
Charge for the period	6,473	3,118	1,371	268	-	-	11,230
Translation on foreign operations	73	7	121	(3)	23	-	221
At 31 December 2022 (audited)	28,662	16,873	4,144	528	41	-	50,248
Charge for the period	6,543	3,059	1,879	251	553	-	12,285
Disposals	(975)	-	-	-	-	-	(975)
Translation on foreign operations	(96)	(10)	(158)	(25)	(10)	-	(299)
At 30 June 2023 (unaudited)	34,134	19,922	5,865	754	584	-	61,259

Net Book Value
At 30 June 2023 (unaudited)	38,889	60,669	22,569	4,274	398	112,287	239,086
At 1 January 2023 (audited)	26,830	63,810	25,210	4,752	83	113,424	234,109

Included within acquired apps are development costs from the acquisition of astragon. The amortisation on this asset of £0.5m (H1 2022: £1.0m) is treated as development cost amortisation for the purposes of calculating adjusted EBITDA in note 5.

Acquisition of Independent Arts Software GmbH

On 27 April 2023 astragon Entertainment GmbH acquired 100% of the share capital of Independent Arts Software GmbH for a maximum payment of £3.1m (€3.5m) subject to the seller and Company meeting certain requirements. The initial payment for the acquisition was £1.8m (€2.0m) in cash. A further payment of up to £1.3m (€1.5m) is payable in cash based on the seller meeting certain requirements following completion of the acquisition. There was no minimum due on the contingent payment. The results of the business have been included in the Consolidated Statement of Profit or Loss from the date of acquisition.

Independent Arts Software GmbH is a talented video game developer based in Germany. The acquisition increases astragon's development capabilities in the simulation space.

Contingent consideration of £1.0m (€1.1m) consists of the payments to the sellers included at fair value and payable based on them and the Company meeting certain requirements. There has been no fair value adjustment to contingent consideration post the acquisition date assessment.

The total consideration for the acquisition was £2.8m which is made up of £0.7m of assets and liabilities along with £2.1m of goodwill recognised. The goodwill is attributable to Independent Arts Software's talented development team. It has been allocated to the Simulation segment of the business led by astragon Entertainment GmbH which is the development and publishing of simulation games for the digital and physical market. None of the goodwill is expected to be deductible for tax purposes.

Acquisition fees

Total acquisition fees for the period ended 30 June 2023 of £0.1m (2022: £0.6m) 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.

8. Share Capital

	Unaudited Six months ended 30 June 2023	Unaudited Six months ended 30 June 2022	Audited Year ended 31 December 2022
	£'000	£'000	£'000
Authorised, allotted, called up and fully paid
145,803,620 (2022: 145,593,271) ordinary shares of 1p each	1,457	1,456	1,456
	1,457	1,456	1,456

 

END