Unaudited Final Results

RNS Number : 4759G

Team17 Group PLC

30 March 2022

 

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.

30 March 2022

Team17 Group plc

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

Unaudited Final Results for the year ended 31 December 2021

Record results from a strengthened content portfolio aligned with transformative acquisitions

Team17 , a global games label, creative partner and developer of independent ("indie") premium video games and developer of educational entertainment ("edutainment") apps for children and a leading working simulation games developer and publisher, is pleased to announce its full year preliminary results for the year ended 31 December 2021.

Financial highlights:

	12 Months ended
	31 December 2021 (unaudited)		31 December 2020 (audited)		Growth
Revenue	90.5m		£83.0m		9%
Gross Profit	45.5m		£39.1m		16%
Gross Profit Margin	50%		47%
Adjusted EBITDA1	£35.8m		£30.3m		18%
Profit Before Tax	£29.1m		£26.2m		11%
Cash and cash equivalents	£55.3m		£61.5m		(10%)
Basic Earnings per Share ("EPS")	18.3 pence		17.0 pence		8%
Diluted EPS	18.2 pence		16.8 pence		8%
Basic Adjusted EPS ("AEPS")2	22.1 pence		19.1 pence		16%
Diluted AEPS2	22.1 pence		19.0 pence		16%
Operating Cash Conversion3	101%		109%

Operational and strategic highlights:

●  Ongoing strengthening of the Group portfolios, continuing to build a very diverse offering that appeals to many age ranges and variety of platforms and commercial models:

o  12 new games released in year (2020: 12)

o  4 existing titles launched on wider platforms (2020: 2)

o  supported by an increasing depth of back catalogue titles, representing 77% of revenues

o  c.500 digital revenue lines delivered across the Games Label portfolio

o  Owned IP increased to 22% of total revenues (2020: 21%)

o  Increased commercial experience in mobile in-app and subscription models

●Embraced remote, studio and hybrid working across 2021, ensuring the safety of our Teamsters remained paramount during the ongoing impact of the pandemic

●£12m acquisition of Golf With Your Friends ("GWYF") in January 2021, strengthening Team17 Games Label's owned IP portfolio

●Acquired StoryToys for an initial cash payment of £19.2m (US$26.5m) in July 2021, a world-class developer and publisher of edutainment apps, creating a new highly complementary edutainment vertical

● Strengthened executive leadership team:

o  Emmet O'Neil, CEO of the StoryToys business acquired in July 2021

o  Appointment of Michael Pattison from Sony Interactive Entertainment as CEO of Team 17's Games Label in October 2021

●Continued investment in Finance, HR & IT to build group infrastructure and also enabling remote, studio or hybrid working supporting our ability to hire the best talent across the globe

●Group headcount grown to 265 at year end (2020: 250)

Post Period End & Outlook:

●Completed three strategic acquisitions in January 2022, which combined are expected to be immediately earnings accretive in FY22

o Acquisition of astragon, a well-known developer, publisher and distributor of sophisticated 'working' simulation games based in Germany, for an initial payment of £63m (€75m), adding 4 key owned franchises, led by a very strong joint CEO team who have each been with the business over a decade and as CEO's for the 5 years 

o Acquisition of The Label, a USA based indie publisher specialising in mobile subscription games content for an initial payment of £18m (US$24m), adding additional portfolio games and talent knowledge in Subscription and gaming trends. We look forward to working with them across a number of Group IP's but also launching new IP with their partners

o Acquisition of all rights and assets of Hell Let Loose, adding another existing third-party title to the Group's first-party content portfolio, for an initial payment of £31.0m with the continued strong relationship between Black Matter and Team17's Games Label, both with big ambitions for the Hell Let Loose franchise

● To support the astragon acquisition, the Group raised £78.6m of gross proceeds on 18 January 2022, following a successful placing of 11,010,999 ordinary shares at £7.14 per share which was oversubscribed with considerable support from existing shareholders

●The year has started well in the existing businesses, with contributions from the newly acquired businesses which are operating in line with expectations alongside the planned light touch integration into the Group

●The Board continues to be mindful of the ongoing impact of the pandemic including uncertain working environments alongside cost of living and wage inflation, the combination of which are expected to increase Group costs in FY22 by c.£1.7m and the ongoing conflict in Ukraine/Russia is currently estimated to impact Group revenues by c.£4m and EBIT by c.£2.5m

●In spite of unforeseen headwinds, the Group remains well positioned to continue to deliver on our growth plans, supported by the recent acquisitions coupled with the underlying strength and continued momentum of the Group's broadening games portfolio and healthy development pipeline across the enlarged Group

●We will be making all Group employees shareholders in April 2022, funded by the "Employee Benefit Trust"

●The Directors remain confident that as a growing Group with a diverse and ever-growing portfolio appealing to wider age groups and a diversifying customer base, led by a stronger and enlarged leadership team, Team17 will continue to deliver its ambitious growth plans 

Debbie Bestwick MBE, Chief Executive Officer of Team17, commented:

"2021 was unquestionably a key year for the Group in terms of handling a second year under pandemic restrictions that has affected every one of us - be that our people, development, licensing, platform or outsourcing partners. I can't thank each of them enough for their support as we build out towards our long-term strategic goals, building a Group that we can all take pride in.

"We've invested heavily across our business in terms of people, processes and infrastructure and will continue to do so; we have a substantial, fully funded Employee Benefit Trust ("EBT"), set up in 2018 and we will ensure that 100% of our Group employees are shareholders by April 2022, funded by the EBT as in previous years.

"We collectively have a fantastic opportunity to build a remarkable Group and I'm delighted to say we have delivered another year of growth, which is testament to the contributions made by all our people across the group and the success of our growing content portfolio.

"Our Group now has its most diverse range of owned IP; third-party and licensed IP targeting the broadest audiences across multiple platforms. We have made great strides over the last few years to build out our portfolios, laying strong foundations for future years. I really look forward to sharing more from Team17, astragon, StoryToys and The Label throughout 2022. The acquisitions have enabled us to expand not just our content portfolio but also our skillset and customer reach, taking us into new territories and markets, and enabling us to leverage the Group collectively in a way we could never have imagined a few years ago.

"I look forward to updating our shareholders on our progress across 2022 and beyond."

Footnotes:

¹ Adjusted 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 payment costs and all acquisition related adjustments and fees. This has been restated to include the add back of acquisition related fees not previously included in the definition as described in note 6.

² Adjusted earnings per share is calculated by dividing the adjusted profit after tax (note 6) by the weighted average number of ordinary shares. This is adjusted for the effect of share options when calculating the diluted adjusted earnings per share (note 7). Adjusted earnings per share has been restated for the add back of acquisition related fees to adjusted profit after tax not previously included in the definition.

³ Operating 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").

Enquiries:

Team17 Group plc Debbie Bestwick MBE, Chief Executive Officer Mark Crawford, Chief Financial Officer	via Vigo Consulting
GCA Altium (Nominated Adviser) Adrian Reed / Paul Lines	[phone]
Berenberg (Broker) Chris Bowman / Toby Flaux / Marie Moy / Alix Mecklenburg-Solodkoff	[phone]
Vigo Consulting  (Financial Public Relations) Jeremy Garcia / 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, 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 and Chief Executive's Review

Introduction

Following a solid first half of the year, the Group was pleased to continue this performance in H2, trading above Management's expectations and ahead of FY20 - a significant achievement given the one-off commercial benefit driven in the prior year by pandemic-related lockdown restrictions seen across the entertainment sector. As a Group we have delivered another year of improved financial results, our seventh consecutive year of profit growth. That growth came from the underlying strength in our Games Label's expanding portfolio as well as a second half contribution from StoryToys.

The breadth of our portfolio is key to the success of the Group, and we've invested heavily over the last 12 months in strengthening owned evergreen IP alongside investment in third-party IP, licensed IP and most importantly our own people across the Group. We have built an enviable breadth of talent within the Group and operational CEO level with collectively well over 100 years' experience of leading companies and a wealth of knowledge of the games industry. Our leadership teams value people first and are equally passionate about their specific areas of expertise and the content they create and publish.

The Group is pleased to report revenues of £90.5m up 9% (2020: £83.0m), an increase of 16% in gross profit to £45.5m (2020: £39.1m) and a 18% increase in adjusted EBITDA to £35.8m (2020: £30.3m). The business remains highly cash generative, ending the year after acquisitions with a strong balance sheet with cash and cash equivalents of £55.3m (2020: £61.5m) providing the Group with the ongoing resources for investment in its organic growth and acquisition strategy.

Our People

2021 marked the second year of managing with challenging COVID-19 impacts not only to our people but our development, business and licensing partners and we thank all of them for the support.  We have engaged with our teamsters throughout 2020 and 2021 to support them through the challenges of lock down and uncertainty of moving back to the studios and office and then entering lock down again.

During the year, we sought feedback from our Teamsters through separate internal surveys on Reward & Recognition and Employee Engagement. The results told us many great things and that our teams feel incredibly proud of the business and feel part of the Team17 family, but it also pointed to some areas that we can continue to improve upon, and we are actively working on these. We will repeat this engagement survey on a regular basis going forwards and introduce external benchmark input, and updates from these surveys will be published on our website.

Similar to our peers, we experienced increased competition to recruit and retain team members in 2021 and saw increased employee turnover in the last quarter of the year, however this pressure has since reduced within Team17 and for the first quarter of 2022 are back in line with historic levels, below 10%.

In 2021, salaries at Team17 increased on average by a low double digit percentage, and as part of the planned review for the current year, our existing remuneration and benefits package have been appropriately externally benchmarked to ensure that we continue to incentivise and retain our talented teams. Our focus remains as it always has been, to make Team17 an attractive and exciting place for our all our teams (existing and new) and as a result, we believe that we have stable and motivated teams.

Overall, combining the actions we have taken on our salary and benefits with the unforeseen inflation/cost of living headwinds, we now expect salary increases (on top of planned inflation) to impact costs in the current financial year by c.£1.7m.

On top of basic salary and benefits, we have provided annual bonus payments aligned to company performance each year since the Games Label was established in 2014/15 in order to incentivise and retain the best talent. We continue to have a zero "crunch time" working hours policy - for example our QA analyst teams have worked low single digit percentage overtime hours over the past few years. Additionally, for the last three years, we have utilised a growing level of managed outsourced suppliers to support QA and Development as part of the studio resource model to help provide support to our internal teams during game development and title releases.

Our portfolio model gives our Teamsters the unmatched opportunity to work on a varied range of games, across genres and styles and our working culture is something we are particularly proud of. Whilst attracting and retaining talent remains an important focus for us to meet our growth ambitions, we believe we are well placed to continue to meet this challenge.

M&A

Accelerating portfolio growth through M&A has always been part of our growth strategy and we have always taken careful consideration to identify the right companies, with the best teams/people and IP's over the last 4 years. Our key pillars for M&A are:

· Like minded Leadership - with a shared vision

· Earnings accretive - growth companies

· Group benefits synergies - building stronger together

· IP ownership - games IP or tech

We've been very selective over the teams we have added to the Group all with our longer-term plans at the forefront. Building a portfolio of content that is flexible across platforms and business models but also reaches the widest audience possible is crucial to our long-term content strategy.

StoryToys is aimed at pre-school children achieving incredible things through positive play.  Enhanced by licenses with world class kids brands the business operates in a market well understood through Team17's Indie Games legacy in family entertainment and experiences launching new IP with partners around the globe.  Sitting alongside Team17's Indie Games Label, StoryToys will benefit from support to continue to develop their presence in this market segment building on the Group's established reputations.  We announced in January 2022 that we will be launching a new mature label for core gamers within the Team17 Indie Games Label this year where games like Hell Let Loose and others will sit - providing a clear brand identity for this audience.  The recently acquired astragon business will sit alongside both Team17's Games Label and StoryToys and continue to focus on its established working simulations reaching enthusiasts, specialist hobbyists and more casual gamers of all ages.

The cumulative impact of the Group's recent M&A activity has transformed the internal structure and significantly strengthened the senior leadership capability within the Group. The resulting enlarged Group benefits from additional experienced and talented teams with technological capabilities, and grounded by a shared, collective vision for the future. Through the strong leadership teams, our commitment remains to ensuring the overarching synergy of brand values and company culture remains intact across the Group.

Our Key Business Priorities

The core pillars of the Group's business model remain unchanged, and we venture into 2022 as ever with a sharp focus on our key business priorities:

· Building out our diverse content portfolio of titles for the widest possible audiences

· Developing and nurturing strategic partnerships with developers, platforms and suppliers

· Harnessing new technology, business models and platforms

· Continue to invest and build the infrastructure supporting the underlying growth ambitions of the Group and integration of acquired businesses

· Maximising the benefits of our Group through each vertical to build stronger pipelines, leverage terms and conditions and expand relationships

·    Continually evaluating selective M&A opportunities to further diversify our digital entertainment offering

· A "People First" approach to investing in our talented teams and infrastructure and nurturing our next generation of creative and commercial talent

2022 Pipeline

Team17's Games Label starts the year with a solid pipeline of new IP to launch across 2022 with exciting new titles such as Thymesia, Batora: Lost Haven, Marauders, Ship of Fools and Trepang 2 with further new titles yet to be announced. In addition, we expect to see existing titles coming out of Early Access into Full Release which include Age of Darkness, Hokko Life and Honey I Joined a Cult.

With the addition of The Label in January 2022, there are exciting opportunities to explore combining the enlarged portfolio across all platforms in particular bringing the mobile subscription knowledge, experience and existing commercial partnerships to our growing portfolio.

StoryToys starts the year following the successful launch of LEGO DUPLO Marvel in December 2021 with new updates across their portfolio of children's apps including a breakout hit with Encanto in Disney Coloring World and has created a range of In-App Events that utilise a new App Store feature from Apple. There is a solid pipeline of new sets for the LEGO DUPLO range of apps including the highly anticipated Hulk Smash set in April. 

astragon have started the year with a number of updates across Police Simulator and Bus Simulator. Besides the steady third-party physical product distribution business there is a pipeline of owned IP projects in the field of working simulations and additional support of existing products through several unannounced paid for Downloadable Content ("DLC") and updates for 2022.

The range of new titles speaks to the continued diversification of genres within our portfolio. Such diversity underpins our core business strategy: expanding the breadth of our digital content offering to consistently grow our audience reach. 

We look forward to strengthening our existing relationships with our partners whilst actively exploring new opportunities to collaborate with the best up-and-coming industry talent to further broaden our genre and platform agnostic digital entertainment portfolio.

As always, we look forward to updating our shareholders throughout the year with further news on unannounced titles to be released in 2022, across the Group's wider portfolio.

Global Socio-Economic Challenges

Whilst COVID-19 resulted in spiked engagement and spending in 2020, the pandemic's negative secondary effects became more apparent in 2021. More specifically, remote working and disrupted supply lines continued to cause challenges.

We continue to support and engage with all our teams either working from home or as they transition back to the studios, or via a form of hybrid working combining working partly in the studio and partly at home. After a prolonged period of work from home guidance, throughout which we have continued to engage with our teams, while remaining sensitive to specific individual needs, we are prepared for any future disruption should the pandemic continue to pose challenges in 2022. 

As with all game companies, we experienced a number of game slippages across our Games Label during FY21 and a number of titles were moved out of the year including Thymesia and The Unliving. Alongside these, a larger number of titles were given extra development time to focus on meeting quality expectations with Epic Chef,HoneyI Joined A Cult, Worms Rumble (Xbox), Hell Let Loose (console) delayed in FY21. We see these challenges continuing in FY22. Creating and launching games has not been easy, however due to the nature of our broader portfolio business model we delivered another year of growth.

We are very mindful that we are entering a new period of uncertainty with local inflationary pressures and major international geo-political unrest with the highly distressing conflict in the Ukraine. The Group has already seen the closure of platform sales to Russia and Belarus.

In addition, Team17's Games Label has two development partners based in Ukraine with titles previously expected to be released in 2022, that we continue to remain in contact with and support. Currently, one partner has insisted that we continue with the planned release and in that instance Team17 will commit to donate a proportion of our net profits from this title in FY22 to go to humanitarian aid alongside donations already made to the Red Cross earlier in March this year. Given the circumstances, it is unlikely that the other title will now be released in 2022.

Taking into account the impact of the Russia and Belarus platform sales and the Ukraine developer title uncertainties, these are expected to impact Group revenues by c.£4m in FY22.

A part owned subsidiary of astragon, owns a small QA team based in the Ukraine where there is clearly major concern for their wellbeing. Currently we believe they are all safe, and we will continue to provide support wherever possible including ongoing financial support. In the meantime, alternative outsourced supply has been established.

The combined impact of these global socio-economic challenges on EBIT is expected to be c.£2.5m.

Our primary focus remains the wellbeing of the people and teams in Ukraine, and we will continue to monitor the situation and any change to the ongoing impact over the coming months.

Market Overview

The NewZoo 2021 global market January report estimated that the global games market generated $180.3 billion in 2021, representing a small increase of 1.4% year on-year with the PC/console market showing a 4% decline reflecting the challenges faced within the gaming sector in 2021.

NewZoo forecasts the global market to recover from its reduced growth rates in 2021 and expects the market to grow with a compound average growth rate ("CAGR") 2021 to 2024 of 7% to reach $219 billion in 2024, passing $200 billion in 2023.

There is now a recognised blurring of lines between all platforms as the gaming sector continues to push towards platform agnosticism. In the past, each of the platforms were treated completely separately however due to the continual innovations in cross platform play and subscription models these separations are becoming less apparent and cross play in particular is growing and becoming a fundamental requirement for future game developers.

Team17's Games Label has invested to create in-house capability in this area and already utilises its proprietary cross play technology on titles such as Worms Rumble and Overcooked! All You Can Eat.

Outlook

The Group has started 2022 well, supported by our longstanding Games Label core business but is also benefiting from the acquisition of GWYF and StoryToys last year and our most recent acquisitions in January 2022. In The Label and astragon, we have acquired two outstanding businesses, which when aligned with the IP acquisition of Hell Let Loose, create a significant growth engine from which to leverage and see tangible commercial benefit from in 2022 and beyond.

Management is focused on ensuring the successful integration of the acquired businesses and IP, as well as exploring the number of cross promotional opportunities that now exist within Team17's enlarged, multi-platform business and sharing the depth of experience, knowledge and best practice across the Group.

Over the past two years we have seen the exceptional resilience of the gaming industry and the wider digital entertainment sector. Team17 has closely tracked this steady forward momentum, once again delivering year on year record profits and looks forward to seeing this continue in 2022, in spite of the unforeseen headwinds associated with short term cost pressures and the Ukraine conflict, with the continued growth in the core business and incremental profits generated from the acquisitions.

Over the course of 2022 and beyond, we look forward to continuing to maximise our ever-growing content portfolio and operational footprint, motivating and inspiring the highly creative, world class talent pool that underpins the business in order to meet and exceed our ambitious growth and performance goals.

Debbie Bestwick MBE   Chris Bell

Chief Executive Officer                                 Non-Executive Chair

30 March 2022

 

Chief Financial Officer's Review

Performance Overview

The Group continued to perform well throughout a challenging year in 2021. The Group continues to focus on its core activities of identifying, developing and publishing of high-quality games. With underlying growth in the core Games Label business combined with the addition in the second half of StoryToys, the Group once again reported improved revenues across a growing portfolio with a continued solid performance of back catalogue sales alongside the launch of twelve new games (2020: 10) with three existing titles released on new platforms. As a result, the Group's revenues grew 9% to £90.5m (2020: £83.0m) for the FY21 with StoryToys contributing £4.2m in the period following the acquisition in July. Owned IP now makes up 22% of revenues in the period (2020: 21%) which includes GWYF that was acquired in January 2021.

Gross Profit

Gross profit grew by 16% to £45.5m (2020: £39.1m) with an improved gross margin percentage of 50% (2020: 47%). The movement in gross margins reflect a combination of the sales mix with an increase in the proportion of owned IP sales in the current year, the age profile of the titles within our portfolio and the ongoing support provided to titles post launch where costs are fully expensed. The combination of sales mix between back catalogue and new releases together with associated amortisation charges is subject to the scale and timing of new game releases and will vary from year to year, thus dictating the gross margin. Costs incurred to support an increasing number of live games within the portfolio as well as delivering new content as DLC are fully expensed in the period.

We invested in our outsource management capability within the Games Label in 2020 to build a better network of partners to manage studio workflow pressures within QA and development services. As a result of this prior year investment, we saw an 18% increase in outsourcing of QA in the period to £2.0m (2020: £1.7m) alongside an increase in outsourced development services of 42% to £3.3m (2020: £2.3m). The spend in this area increased compared to the prior year due to the complexity and volume of work across new releases and DLC and the Group expects to continue to use a balanced model of internal and outsourced development supply in 2022.

With a strengthening development pipeline of new titles in production combined with technical complexity in title development across multiple platforms alongside the growing owned IP portfolio where we incur 100% of all costs, development costs capitalised in the period increased by 24% to £9.3m (2020: £7.5m). 

In 2021, the development costs capitalisation policy and the related amortisation profile were refined with the capitialisation policy now reflecting the growing importance and use of early access where a title is launched during its development phase and significant further costs are incurred up to the full launch release. As a result, development costs between early access and full launch are now capitalised where previously these were expensed. (See note 2 for further details).

Whilst we still believe it is appropriate to amortise all development costs over the first two years after launch, we have reduced the charge in the first year from 83% to 70%, with a higher percentage at the point of release to more accurately reflect the profile of demand in the first two years post full launch.

Amortisation charges on development costs have continued to rise as a result of the growing investment in the number and technical complexity of titles launched in the period and relevant prior periods under the amortisation policy.

Team17's amortisation policy still 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.

Administration Expenses

Administration expenses grew by 25% to £16.3m (2020: £13.0m) which this year includes acquisition related adjustments and fees of £1.5m (2020: £0.1m) alongside the impact of half a year with the StoryToys team as part of the group post the acquisition in July 2021 which accounted for £1.0m in the period (2020: £Nil). Team17's Games Label underlying costs increased by 10% compared to the prior year driven in part by salary cost per head increases, the rise in average headcount compared to the prior year and investment in new senior leadership.

The previously outlined increase in outsourced services supported a more flexible and managed approach to workflows also ensured a reduced requirement to continue the significant growth in internal Studio headcount experienced in prior years. Whilst there was a small overall drop in headcount within the Games Label, notably experienced in the last quarter, total headcount for the Group grew to 265 at 31 December 2021 (2020: 250). This includes 21 heads at year end through the addition of the StoryToys team, noting that their resource model also utilises contract development staff working fully remotely. Average headcount increased by 13% to 263 during the period (2020: 233).

We are extremely conscious of the growing financial pressures on our team and the full benchmark salary review along with an updated assessment of the cost-of-living impact predicted in 2022 formed the basis of annual salary reviews held as normal in Q1 2022. In order to support our teams at this time, we took the decision to increase our planned cost of living inflation from 4% to a 6% annual increase and this came into effect a month early from 1 March 2022. Marketing costs remained broadly in line with the levels from the prior year with the ongoing reduction in costs vs pre-covid levels linked to virtual events, this is already starting to reverse in 2022 as we see more live gaming events so will expect costs to increase in this area.

The business remained debt free in the period (with the exception of the lease liabilities included under IFRS 16); with global interest rates remaining extremely low, bank interest generated zero net finance income in the period (2020: £0.1m).

Adjusted EBITDA (restated)

Adjusted EBITDA was £35.8m which grew 18% year on year (2020: £30.3m) and the Adjusted EBITDA margin as expressed as a percentage of revenue increased to 39% (2020: 37%) continuing to support the underlying profitability of the portfolio business model and benefiting from the addition of GWYF as an owned IP title in 2021. Adjusted EBITDA includes the add back for share-based payment charges (net of tax) of £0.8m (2020: £1.3m) associated with share awards used to reward and incentivise Team17 employees, the add back of £2.7m (2020: £1.4m) of amortisation of acquired intangibles (net of tax), previously referenced as "amortisation of brands" and now also includes other acquisition related adjustments and costs incurred in the period of £1.5m (2020: £0.1m).

The Directors believe that these adjustments provide meaningful Alternative Performance Measures ("APM's") to support the statutory financial information and provide an understanding of the underlying business trading performance and profitability and these adjustments have been applied to FY20 to provide an accurate comparison (note 6 provides a breakdown of the APM adjustments).

Profit Before Tax

Profit Before Tax increased 11% to £29.1m (2020: £26.2m) reflecting the gross margin gains partially offset by increased administration costs which were impacted by the acquisition related costs incurred in the period, outlined in note 4.

Adjusted Profit Before Tax in the period increased 17% to £35.0m (2020: £29.8m) at a higher level reflecting the APM adjustments related to share-based payment charges, acquisition intangibles amortisation and non-trading acquisition related adjustments and costs, detailed in note 6.

The tax charge increased to £5.4m (2020: £4.3m) with an effective tax rate after Video Games Tax Relief (VGTR) of 18.4% (2020: 16.4%) reflecting the impact of future tax rate changes on deferred tax charges and the effect of tax on profits from becoming an international Group

Earnings Per Share

Basic earnings per share increased by 8% to 18.3 pence (2020: 17.0 pence) reflecting the increase in the statutory profit after tax.

Adjusted earnings per share, which is calculated using adjusted profit after tax was 22.1 pence representing an increase of 16.0% (2020: 19.1 pence).

Statement of Financial Position

Team17 continues to manage a strong balance sheet, remaining highly cash generative with an operating cash conversion of 101% (2020: 109%). Cash generated from operations was £35.0m (2020: £35.4m) and overall, there was a net decrease in cash and cash equivalents of £6.2m (2020: increase of £19.6m) however this resulted from the net cash outflow of £31.5m associated with the combined consideration paid during the period for the acquisitions of GWYF and StoryToys. Net cash and cash equivalents at 31 December 2021 were £55.3m (2020: £61.5m) which included £3.1m (2020: £3.2m) held in the Employee Benefit Trust ("EBT") which is used to support employee share awards and incentivise Team17 employees.

The Board expects the Group to remain highly cash generative in 2022.

Intangible assets are reviewed for indicators of impairment annually, or more frequently if there are indicators of impairment. As at 31 December 2021 the net book value was £41.4m (2020: £22.4m) for goodwill reflecting the addition to goodwill associated with the acquisition of StoryToys, £24.0m (2020: £14.3m) for brands and also includes £9.8m (2020: £6.3m) of capitalised development costs relating to unreleased titles and titles that have been launched within the previous two years.

Trade and other receivables increased to £17.8m (2020: £16.4m) in line with trading. Trade and other payables increased to £24.3m (2020: £17.2m) in line with trading however also includes provision of £5.0m for the first Earn Out payment for StoryToys due in H1 2022.

Acquisitions in the Year

On 21 January, Team17 announced the acquisition of all rights and assets for GWYF, an existing third-party title to become a fully owned IP for a total consideration of £12.0m.

StoryToys, a world-class developer and publisher of educational entertainment ("edutainment") apps for children was purchased on 1 July for an initial outflow of £19.2m (US$26.5 m), with up to a possible further maximum £16.3m (US$22.5m) payable in cash on delivery of challenging EBITDA performance targets within three years.

The full consideration for GWYF and the initial consideration for StoryToys were funded from Team17's existing cash reserves (more detail is included in note 10).

Share Issues

At 31 December 2021, the Group's issued share capital comprised 131,473,222 ordinary shares of £0.01 each. A total of 176,100 share options were issued during the year to the executive directors with a 3-year vesting period and another 56,883 share options have been issued to staff under a variety of schemes which will be satisfied by shares held in the EBT.

After the year end 11,010,999 shares were issued at a gross proceeds of £78.6m to support the Group's strategy on acquiring new businesses and titles through M&A and a further 2,136,323 shares were issued for part consideration in respect of two of the below acquisitions. Following the issue of consideration shares and placing in January, the Company has a total of 144,620,544 ordinary shares in issue (Note 11 provides the full details of the fund raise and share issue in January 2022).

The Group continues to manage a Deferred Bonus Share Plan for its senior management as well as an All-Employee Share Incentive Plan ("SIP"). Team17 runs an employee SIP with matching shares, and this continues to be well supported by Team17 Games Label employees making monthly contributions. Combining the employee SIP members and existing employee share option holders, 55% of the Games Label team were shareholders as of 31 December 2021.

As outlined in the CEO's comments, by April 2022, all employees of the Group will be shareholders following a planned share option grant with a three-year vesting period, that will be funded from the EBT and therefore will not result in the issue of shares to satisfy the options.

Events After the Reporting Date

As previously reported in January 2022, the Group completed three strategic acquisitions, which combined are expected to be earnings accretive in FY22:

astragon Entertainment GmbH ("astragon"), is a well-known developer, publisher and distributor of sophisticated 'working' simulation games based in Germany.

To support the astragon acquisition, the Group raised £78.6m of gross proceeds on 18 January 2022, following a successful placing of 11,010,999 ordinary shares at £7.14 per share which was oversubscribed with considerable support from existing shareholders.

The Label, is a USA based indie publisher specialising in mobile subscription games content.

Hell Let Loose IP (all rights and assets) was acquired adding an existing third-party title to the Group's first-party content portfolio.

(Details of these acquisitions can be found in note 11)

Mark Crawford

Chief Financial Officer

30 March 2022

 

Unaudited Consolidated Income Statement

			Unaudited Year ended 31 December 2021	Audited Year ended 31 December 2020
	Note		£'000	£'000
Revenue	3		90,509	82,969
Cost of sales			(44,989)	(43,823)
Gross profit			45,520	39,146
Administrative expenses			(16,277)	(12,979)
Operating profit	4		29,243	26,167
Finance income			10	112
Finance cost			(144)	(43)
Profit before tax			29,109	26,236
Taxation	5		(5,370)	(4,292)
Profit for the year			23,739	21,944
Basic earnings per share	7		18.3 Pence	17.0 Pence
Diluted earnings per share	7		18.2 Pence	16.8 Pence
Basic adjusted earnings per share (restated)	7		22.1 Pence	19.1 Pence
Diluted adjusted earnings per share (restated)	7		22.1 Pence	19.0 Pence

Unaudited Consolidated Statement of Comprehensive Income

			Unaudited Year ended 31 December 2021	Unaudited Year ended 31 December 2020
			£'000	£'000
Profit for the year			23,739	21,944
Items which might be potentially reclassified to profit or loss:
Exchange difference on translation of foreign operations			(100)	-
Total comprehensive income for the year			23,639	21,944

 

Unaudited Consolidated Statement of Financial Position

			Unaudited 31 December 2021	Audited 31 December 2020
	Note		£'000	£'000
ASSETS
Non-current assets
Intangible fixed assets	8		81,308	42,921
Property, plant and equipment			1,446	1,353
Right-of-use asset			2,189	1,378
Deferred tax asset			561	-
			85,504	45,652
Current assets
Trade and other receivables			17,825	16,430
Tax receivables			-	670
Cash and cash equivalents	10		55,302	61,470
			73,127	78,570
Total assets			158,631	124,222
EQUITY AND LIABILITIES
Non-current liabilities
Lease liabilities			2,042	1,320
Provisions			109	76
Deferred tax liabilities			3,550	2,126
Total non-current liabilities			5,701	3,522
Current liabilities
Trade and other payables			24,315	17,206
Tax payables			678	-
Lease liabilities			301	145
Total current liabilities			25,294	17,351
Total liabilities			30,995	20,873
Equity
Share capital			1,315	1,315
Share premium			44,084	44,084
Merger reserve			(153,822)	(153,822)
Currency translation reserve			(100)	-
Other reserve			159,296	159,296
Retained earnings			76,863	52,476
Total equity			127,636	103,349
Total equity and liabilities			158,631	124,222

Unaudited Consolidated Statement of Changes in Equity

		Share capital	Share premium		Merger reserve		Currency translation reserve	Other reserves	Retained earnings	Total
Year to 31 December 2020		£'000	£'000		£'000		£'000	£'000	£'000	£'000
Balance at 1 January 2020		1,313	44,084		(153,822)		-	158,864	29,710	80,149
Share based compensation		-	-		-		-	-	822	822
Issue of shares on exercise of options		1	-		-		-	-	-	1
Issue of shares on acquisition of subsidiary		1	-		-		-	432	-	433
Total transactions with owners		2	-		-		-	432	822	1,256
Profit and total comprehensive income for the year		-	-		-		-	-	21,944	21,944
Balance at 31 December 2020 (audited)		1,315	44,084		(153,822)		-	159,296	52,476	103,349
Year to 31 December 2021
Balance at 1 January 2021		1,315	44,084		(153,822)		-	159,296	52,476	103,349
Share based compensation		-	-		-		-	-	648	648
Total transactions with owners		-	-		-		-	-	648	648
Profit for the year		-	-		-		-	-	23,739	23,739
Other comprehensive income		-	-		-		(100)	-	-	(100)
Balance at 31 December 2021 (unaudited)		1,315	44,084		(153,822)		(100)	159,296	76,863	127,636

Unaudited Consolidated Statement of Cash Flows

			Unaudited Year ended 31 December 2021	Audited Year ended 31 December 2020
	Note		£'000	'000
Operating activities
Profit before tax			29,109	26,236
Adjustments for:
Depreciation of property, plant and equipment			413	404
Depreciation of right-of-use assets			311	135
Amortisation of intangible fixed assets	8		8,630	5,812
Share-based compensation			648	822
Finance income			(10)	(112)
Finance cost			144	43
Loss on disposal of property, plant and equipment			36	24
Decrease/(Increase) in trade and other receivables			509	(4,908)
Increase in trade and other payables			(4,742)	6,908
Increase in provisions			33	50
Cash generated from operating activities			35,081	35,414
Tax paid			(4,091)	(7,125)
Net cash inflow from operating activities			30,990	28,289
Cash flow from investing activities
Acquisition of subsidiary (net of cash received)			(15,093)	(813)
Purchase of IP	8		(12,000)	-
Purchase of other intangibles	8		(107)
Purchase of property, plant and equipment			(573)	(338)
Sale of property, plant and equipment			-	43
Capitalised development costs	8		(9,257)	(7,512)
Interest received			10	112
Net cash from investing activities			(37,020)	(8,508)
Cash flow from financing activities
Interest paid			(144)	(43)
Repayment of lease liabilities			(264)	(121)
Net cash from financing activities			(408)	(164)
Net (decrease)/increase in cash and cash equivalents			(6,438)	19,617
Cash and cash equivalents at beginning of period			61,470	41,853
Effects of exchange rates on cash and cash equivalents			270	-
Cash and cash equivalents at end of period	10		55,302	61,470

Notes to the Unaudited Consolidated 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 of educational entertainment ("edutainment") apps for children.

2. Basis of preparation

The preliminary results for the year ended 31 December 2021 are unaudited. The financial information set out in this announcement does not constitute the Group's financial statements for the year ended 31 December 2021 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 2020 (the "Prior year financial statements"), which are available from the Registrar of Companies. The Prior year financial statements which were prepared in accordance with IFRS in conformity with the requirements of the Companies Act 2006 and IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. This change in basis of preparation is required by UK company law for the purposes of financial reporting as a result of the UK's exit from the EU on 31 January 2020 and the cessation of the transition period on 31 December 2020. This change does not constitute a change in accounting policy but rather a change in framework which is required to ground the use of IFRS in company law. There is no impact on recognition, measurement or disclosure between the two frameworks in the year reported. 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 2021 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.

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. These demonstrate the Group is forecast to generate profits and cash in the year ending 31 December 2022 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 financial statements. 

Accounting policies

The Group's principal accounting policies used in preparing this information are as stated on pages 51 to 59 of the prior year financial statements. The following changes to accounting policies and estimates have been implemented since the date of the prior year financial statements:

Capitalisation of Development Costs

As part of the review of development costs undertaken during the year, the capitalisation policy was refined with the costs incurred between the early access and full release games now being capitalised if they meet the criteria to be capitalised. This has been applied since 1 January 2021. See note 8 for further details of the impact.

The policy is expanded to capitalise spend on titles between early access and full release. Where development costs incurred do not meet the recognition criteria set out, expenditure is recognised as an expense in cost of sales in the period in which it is incurred.

Amortisation on development costs

Amortisation of development costs commences upon completion of the asset. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the Income Statement in cost of sales for development costs.

As part of the current year review, an adjustment to the amortisation policy is needed to ensure that the rate and period of amortisation applied is in line with the consumption of benefits. As per the stages of development identified above, the following amortisation policies will be applied:

Stages of development	Start of amortisation	End of amortisation	Amortisation policy	Previous policy
Development costs until release into early access	Early access release date	Earlier of 2 years (as per policy) or Full release date1	Over 2 years Month 1 - 30% Month 2-12 - 40% Month 13-24 - 30%	85% Reducing balance over 2 years
Development costs between early access and full release	Full release date	2 years (as per policy)	Over 2 years Month 1 - 30% Month 2-12 - 40% Month 13-24 - 30%	Not previously capitalised
Console Porting	Launch on platform	2 years (as per policy)	Over 2 years Month 1 - 30% Month 2-12 - 40% Month 13-24 - 30%	85% Reducing balance over 2 years
Licence Contract Costs	Launch on platform	Launch on platform	Fully released at launch	Fully released at launch

¹ At the point of full release of a title, any unamortised balance of development costs incurred prior to early access release are combined with the development costs incurred between early access and full release making a single asset.

The revision to the amortisation policy has been treated as a revision in accounting estimate and therefore the adjustment has been included in the current year results and not retrospectively adjusted. The revised amortisation profile reduced the amortisation by £702,000 for the year ended 31 December 2021.

3. Segmental information

Whilst the chief operating decision maker considers there to be only one materially reportable segment, the Company's portfolio of games is split between those based on IP owned by the Group and IP owned by a third-party and hence to aid the readers understanding of our results, the split of revenue from these two categories are shown below:

Revenue by first-party/third-party IP:

		Unaudited Year ended 31 December 2021	Audited Year ended 31 December 2020
		£'000	'000
First-party IP		20,133	17,310
Third-party IP		70,376	65,659
		90,509	82,969

4. Operating profit 

		Unaudited   Year ended   31 December 2021	Audited    Year ended   31 December 2020
		£'000	'000
The following items are included in profit before tax:
Amortisation of development costs - cost of sales		5,296	4,028
Amortisation of brands - administrative expenses		3,021	1,784
Amortisation of acquired apps - administrative expenses		311	-
Amortisation of other intangibles - administrative expenses		2	-
Depreciation of property, plant and equipment		413	404
Depreciation of right-of-use assets		311	135
Operating lease rentals		5	20
Acquisition fees		1,131	108

5. Taxation 

		Unaudited   Year ended   31 December 2021	Audited    Year ended   31 December 2020
		£'000	£'000
Current tax:
Current year tax		6,634	5,539
Video Games Tax Relief		(652)	(1,018)
Adjustments in respect of prior periods:
Video Games Tax Relief		245	134
Other		(651)	270
Deferred tax:
Origination and reversal of temporary differences		(206)	(633)
Total tax charge		5,370	4,292

		Unaudited   Year ended   31 December 2021	Audited    Year ended   31 December 2020
		£'000	£'000
Reconciliation of total tax charge:
Profit before tax		29,109	26,236
Taxation using the UK Corporation Tax rate of 19% (2019: 19%)		5,531	4,985
Effects of:
Expenses not deductible for tax purposes		350	19
R&D Relief		(101)	(97)
Video Games Tax Relief		(652)	(1,018)
Adjustments in respect of prior periods		(406)	91
Change in deferred tax rate		588	312
Overseas tax on profits		60	-
Total tax charge		5,370	4,292

6. Alternative performance measures

Adjusted EBITDA (restated)

During the year the Group has made changes to adjustments made when calculating its Adjusted Performance Measures (APM's) in order to provide a better understanding of the underlying business trading performance and profitability. Acquisition fees and adjustments have been adjusted for as shown in the table below and 2020 figures have also been adjusted. In addition, the tax effect of any adjustments as shown have been taken into account when calculating the adjusted profit after tax.

	Note	Unaudited Year ended 31 December 2021	Audited Year ended 31 December 2020 (restated)
		£'000	£'000
Profit attributable to shareholders		23,739	21,944
Share based compensation (net of tax)		813	1,346
Acquisition related adjustments:
Acquisition fees	9	1,131	108
Fair value movement on acquired assets (net of tax)		117	-
Interest on consideration	9	51	-
Other acquisition related adjustments (net of tax)		206	-
Amortisation on recognised intangible assets (net of tax)		2,679	1,445
Adjusted profit after tax		28,736	24,843
Taxation (net of tax adjustments above)		6,264	4,947
Adjusted profit before tax		35,000	29,790
Finance income		(10)	(112)
Finance cost		93	43
Amortisation of other intangibles	8	2	-
Depreciation		724	539
Loss on disposal of property, plant and equipment		36	67
Adjusted EBITDA		35,844	30,327

Adjusted EBITDA now also includes acquisition related adjustments and fees incurred in the period of £1.5m (2020: £0.1m).

Operating cash conversion

Operating cash conversion is defined as cash generated from operating activities as per the statement of cash flows activities adjusted to add back payments made to satisfy pre-acquisition liabilities recognised under IFRS 3 Business Combinations (note 9), divided by earnings before interest, tax depreciation and amortisation ("EBITDA").

	Unaudited Year ended  31 December  2021 £'000	Audited Year ended  31 December  2020 £'000
Cash generated from operating activities	35,081	35,414
Payments made to satisfy pre-acquisition liabilities recognised under IFRS3 Business Combinations (note 9)	3,691	-
Adjusted cash generated from operating activities	38,772	35,414
EBITDA	38,518	32,581
Adjusted operating cash conversion	101%	109%

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  2021	Audited Year ended  31 December  2020
Profit attributable to shareholders £'000	23,739	21,944
Weighted average number of shares	130,002,844	129,398,375
Weighted average diluted number of shares	130,146,649	130,607,624
Basic earnings per share (pence)	18.3	17.0
Diluted earnings per share (pence)	18.2	16.8

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

	Unaudited Year ended  31 December  2021	Audited Year ended  31 December  2020 (restated)
Adjusted profit after tax £'000	28,736	24,843
Weighted average number of shares	130,002,844	129,398,375
Weighted average diluted number of shares	130,146,649	130,607,624
Basic adjusted earnings per share (pence)	22.1	19.1
Diluted adjusted earnings per share (pence)	22.1	19.0

8. Intangibles

	Development costs	Brands	Acquired Apps		Goodwill	Other intangibles		Total
	£'000	£'000	£'000		£'000	£'000		£'000
Cost
At 1 January 2020	13,830	21,983	-		21,083	-		56,896
Additions	7,512	-	-		-	-		7,512
Amounts arising on acquisitions	-	-	-		1,296	-		1,296
At 31 December 2020	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
Translation 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
Accumulated amortisation
At 1 January 2020	11,027	5,944	-		-	-		16,971
Charge for the year	4,028	1,784	-		-	-		5,812
At 31 December 2020	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
Net carrying amount
At 31 December 2021	9,848	23,989	5,917		41,449	105		81,308
At 31 December 2020	6,287	14,255	-		22,379	-		42,921

Development costs

During the year, the capitalisation policy was refined to capitalise development costs from early access of a title up until its full release. In addition, costs incurred in porting games to new platforms are also capitalised where the expenditure is expected to be significant.

The amortisation policy has also been revised to amortise the asset over 2 years split as follows:

· Month 1 - 30%

· Month 2-12 - 40%

· Month 13-24 - 30%

Brands 

As part of the acquisition of StoryToys, separately identifiable intangibles of £755,000 were recognised relating to the StoryToys brand. This represents the value of the brand in the edutainment marketplace. Amortisation is calculated over the assets estimated useful life using the following policy: 

StoryToys Brand    20 years straight line 

Acquisition of Golf With Your Friends  

On 4 January 2021, Team 17 Digital acquired the Golf With Your Friends IP from Entertainment Holdings Pty Ltd a company incorporated in Australia for £12m. This consideration is made up of an initial cash payment of £9m and deferred cash consideration of £3m paid within 12 months of the acquisition date. 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 "Intangible Assets" IAS 38. Amortisation is calculated over the assets estimated useful life using the following policy: 

Golf With Your Friends Brand                        10 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                                                10 years straight line

Goodwill

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

The recoverable amount of the cash generating unit ("CGU") at 31 December 2021 is determined from the value in use. The key assumption in calculating the fair value was the expected future cashflows at 31 December 2021. No impairment is considered necessary at 31 December 2021.

Other intangibles

These are made up of capitalised software and are amortised under the following policies:

  Capitalised software                                     2 years straight line

9. Acquisition of subsidiary

On 1 July 2021 Team17 Group Plc acquired 100% of the share capital of the StoryToys Group for a maximum cash payment of £35.5m ($49.0m) subject to normal cash, net debt and working capital adjustments. The initial payment for the Acquisition is £19.2m ($26.5m), with a further maximum £16.3m ($22.5m) payable in cash on delivery of certain targets by the vendors within three years following completion of the Acquisition. There was no minimum due on the deferred consideration.

The StoryToys Group consists of Touch Press Inc. and Touch Press (Ireland) Limited. StoryToys is a world-class developer and publisher of educational entertainment ("edutainment") apps for children, and the Acquisition establishes a new highly complementary and fast-growing edutainment vertical for Team17, strengthening the enlarged Group's position as a leading games entertainment business.

The initial cash payment of £19.2m consists of £16.9m consideration and £2.3m to settle pre-acquisition liabilities. Additional payments during the year totalled £2.7m consisting of £1.3m of consideration and £1.4m to settle pre-acquisition liabilities. Details of the purchase consideration, net assets acquired and goodwill are as follows:

	£'000
Purchase consideration
Cash consideration (inclusive of working capital payment)	16,865
Deferred cash consideration	5,990
Total cash consideration	22,855

Deferred consideration consists of the earn out for the sellers along with two additional contingent liabilities all included at fair value and payable based on the acquired business reaching certain results. The fair value of the purchase consideration takes into account the following assumptions and estimates:

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

Interest costs of £51,000 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	3,113	-	3,113
Property, plant and equipment	9	-	9
Right of use asset	1,015	-	1,015
Acquired apps	-	6,228	6,228
Brands	-	755	755
Other intangibles	130	(130)	-
Receivables	1,796	(323)	1,473
Deferred tax asset	780	-	780
Deferred tax liability	-	(1,751)	(1,751)
Payables	(8,733)	557	(8,176)
Net identifiable assets acquired	(1,890)	5,336	3,446
Add: Goodwill			19,409
			22,855

The value of Brands acquired was estimated using the relief from royalties valuation technique.  

The goodwill is attributable to Touch Press Inc.'s talented development team and experience in the edutainment market. It has been allocated to the edutainment segment of the business which is the production and publishing of video games. None of the goodwill is expected to be deductible for tax purposes.

Acquisition related costs for the year ended 31 December 2021 of £1.1m (2020: £0.1m) are included in administrative expenses in the Income Statement.

The StoryToys Group for the 6 months since acquisition contributed revenues of £4.2m and profit before tax of £1.4m to the Team17 Group Plc consolidated results. If StoryToys had been part of the Group for the full year the revenue contribution would have been £9.1m and profit before tax £1.2m.

10. Cash and cash equivalents

		Unaudited 31 December 2021	Audited 31 December 2020
		£'000	'000
Cash at bank and in hand		15,213	58,314
Cash equivalents		40,089	3,156
		55,302	61,470

Included within the cash equivalents balance above is £3.1m (2020: £3.2m) owned by the EBT. 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 an appropriate cash equivalent.

The remaining cash equivalents balance of £37.0m (2020: £Nil) represents an amount held by our solicitors for the purchase of the Hell Let Loose IP and shares of The Label Inc in January 2022.

11 . Post balance sheet events

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 up to £46.0m. This is made up of an initial balance of £31.0m and a deferred payment of up to £15.0m due within 30 months of the acquisition. Initial outflow was satisfied through a combination of £19.8m in cash and the issue of 1,531,780 shares valued at £11.2m which are subject to a lock-in period of 12 months from the date of acquisition. Deferred payments of up to £15.0m will be satisfied in cash based on meeting revenue performance targets over the financial years ending 31 December 2022 and 2023.

Also on 6 January, Team17 (USA) Inc. (a wholly owned Subsidiary incorporated on 15 December 2021 for the purposes of acquiring the Label Inc.) acquired 100% of the share capital of The Label Inc. for up to £29.6m (US$40.0m). This consists of an initial balance of £17.8m (US$24.0m) made up of £13.3m (US$18.0m) in cash and the issue of 604,543 shares valued at £4.5m (US$6.0m). Deferred balances of up to £11.8m ($16.0m) will be settled through cash and shares within 42 months based on meeting EBITDA performance targets over the financial years ending 31 December 2022, 2023 and 2024.

On 13 January 2022, Team17 Group Plc acquired 100% of the share capital in astragon Entertainment GmbH for up to £83.0m (€100.0m). Initial cash outflows of £63.0m (€75.0m) were settled from the proceeds of a share issue detailed below. Deferred cash outflows of up to £20.0m (€25.0m) are payable on the delivery of EBITDA performance targets for the financial years ending 31 December 2021 and 2022. An additional £6.3m (€7.5m) has been committed as a management incentive plan for the benefit of existing management and employees of astragon for the delivery of these EBITDA targets.

Team17 Group Plc raised £78.6m of gross proceeds on 18 January 2022 after a successful placing of 11,010,999 ordinary shares at £7.14 per share.

These acquisitions underline part of the Company's strategy to make value enhancing acquisitions that will support the growth ambitions alongside organic growth and the Board expects this to be an ongoing part of the growth strategy.

At the time when these financial statements are authorised for issue, the Group had not yet completed the accounting for the acquisitions and hence the fair values of assets acquired have not been disclosed.

 

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