Frontier Developments Interim Results: 2018

Key insights

6 takeaways

01
Frontier Developments secured a £17.7 million strategic investment from Tencent in July 2017, significantly strengthening the company's cash position to £29.1 million by November 30, 2017.See it on page 2
02
Revenue for the first half of fiscal year 2018 reached £19.0 million, a slight increase from the £18.1 million recorded in the same period of the previous year.See it on page 1
03
Operating profit was £3.0 million with a 16% margin, down from 20% in the prior year due to a 5% reduction in gross profit margin caused by digital distribution costs and physical disc sales.See it on page 4
04
The company’s core business model relies on its proprietary COBRA engine to support a multi-franchise, self-publishing strategy.See it on page 1
05
Operational performance was driven by the Elite Dangerous PlayStation 4 expansion and ongoing paid downloadable content for Planet Coaster.See it on page 1
06
Management expects the summer 2018 launch of Jurassic World Evolution to be the primary financial performance driver for the 2019 fiscal year.See it on page 2

Summary

Frontier Developments plc, a UK-based independent video game developer, maintained a stable financial performance for the six-month period ending November 30, 2017. The company’s primary objective remains the execution of a self-publishing, multi-franchise business model, supported by its proprietary COBRA engine. The period was marked by sustained revenue levels and a significant strengthening of the balance sheet following a strategic £17.7 million investment from Tencent in July 2017.

Financial results for the first half of the 2018 fiscal year show revenue of £19.0 million, compared to £18.1 million in the same period of the previous year. Operating profit reached £3.0 million, reflecting an operating margin of 16%, down from 20% in the prior year period. This margin compression was primarily attributed to a 5% reduction in gross profit margin, driven by a higher proportion of sales through digital distribution partners and the introduction of physical disc sales. Despite these shifts, the company’s cash position improved substantially, rising to £29.1 million by the end of November 2017.

Operational success continues to be anchored by the Elite Dangerous and Planet Coaster franchises. Elite Dangerous benefited from its expansion onto the PlayStation 4 platform, while Planet Coaster saw continued growth through the release of multiple paid downloadable content packs. Looking ahead, the company is focused on the summer 2018 launch of Jurassic World Evolution across PC and major consoles. Management expects this new franchise to be a primary driver of financial performance for the 2019 fiscal year, while maintaining a confident outlook for the remainder of the current fiscal year based on the established performance of existing titles.