Full Year Results

22 June 2020

Codemasters Group Holdings Plc

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

Full Year Results for the Year Ended 31 March 2020

Codemasters (AIM:CDM), the award-winning British videogame developer and publisher specialising in high-quality racing games, announces full year unaudited results for the year ended 31 March 2020 ("FY20").

Financial highlights

· Revenue increased 6.8% to £76.0 million (FY19: £71.2m)

· Gross profit increased 4.5% to £65.2 million (FY19: £62.4m)

· Gross margin decreased to 85.7% (FY19: 87.6%)

· Digital sales represent 67.7% of total revenue (FY19: 59.2%), amplified at the end of the period following the outbreak of COVID-19

· Adjusted EBITDA1 decreased to £18.2 million (FY19: £18.7m), which includes a loss of £0.9 million from Slightly Mad Studios, acquired in November 2019

· Adjusted earnings per share2 of 11.6p (FY19: 13.3p)

· Net cash of £24.8 million as at 31 March 2020 (31 March 2019: £18.2m); cash of £25.6 million with £0.8 million of debt within Slightly Mad Studios which is due for repayment in H1 of FY21

Strategic and Operational highlights

· Extended contract with Formula One Management for exclusive game rights for the FIA Formula One World Championship ("F1") franchise from 2021 until 2025, with a further option for the 2026 and 2027 seasons

· Successful £20 million fundraise and acquisition of Slightly Mad Studios Pte Ltd ("Slightly Mad Studios" or "SMS") in November 2019

· Exit of Reliance Big Entertainment, and the welcoming of new institutional shareholders to the register

· Successfully launched two titles

o GRID - won the prestigious Best Racing Game at the gamescom Awards 2019

o F1® 2019 - was the highest-rated racing game of 2019 with an average Metacritic score of 87%

· Increased focus on Games as a Service ("GaaS") - already delivered impressive results by driving player engagement and extending a game's lifecycle

· Continued growth of Esports

o F1® Esports Series continues to perform well with online viewership topping 5.8 million, up 76% on the previous year

o Successfully launched first DiRT Rally 2.0 World Series

· Continued to deliver on business development initiatives and signed a number of agreements during the second half of the year

Response to COVID-19

· Swift response to COVID-19 with the successful transition of all employees to remote working and minimal disruption to systems and processes

· The Company does not expect to see any material disruption or loss of efficiency as a result of the changes to the working environment

· Creation of the F1® Esports Virtual Grand Prix, during the sporting calendar blackout, which has become one of the most watched and talked about live events drawing a combined online and TV audience of 30 million

Outlook

· Strong schedule of games to be released in FY 2021

o F1® 2020

o Fast & Furious Crossroads

o DiRT 5

o Project CARS 3

· Increased growth in digital sales expected to continue, further increasing gross margin

· Significant opportunity in Mobile

o SMS expects to launch first mobile title, Project CARS GO in the second of half of this calendar year

· Continued growth in esports

o F1® Mobile Racing to launch first esports tournament in FY21

· GaaS to be rolled out across additional portfolios; expected to contribute to increasing share of revenue

· Next generation platform for Microsoft (Xbox Series X) and Sony (PlayStation 5) to launch in 2020 holiday season

· Trading in the current financial year begun well

Frank Sagnier, CEO of Codemasters, commented

"Our first full financial year since admission to AIM has been a period of significant progress across the Group. Despite only having two game launches we have delivered further growth in revenues, gross profit and digital sales increasing over the period. We have also continued to strengthen our leadership in the racing genre, achieved against the key strategic objectives that were set out at the time of IPO.

The acquisition of Slightly Mad Studios in November 2019 brought a number of strategically important benefits to the Group. It has created diversified revenue streams, through two highly rated franchises, and added over 150 product developers, and we expect it to be earnings enhancing in FY21.

This is an exciting time for the gaming sector and I believe we are well placed to take advantage of the opportunities that will arise during the next 12 months and beyond. Despite the wider macro-environment being hampered by COVID-19, we have seen minimal disruption to our business and I am confident in our growth prospects for the coming year, supported by a strong pipeline of game releases and investment in the sector."

This announcement is released by Codemasters Group Holdings plc and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

For the purposes of MAR and Articles 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of the Company by Rashid Varachia, Chief Financial Officer.

This announcement includes the primary financial statements and a number of the notes to the accounts from the unaudited Company's annual report for the year ended 31 March 2020. Please note that this is an abbreviated note, please refer to the audited annual report for the full financial statements including all supporting notes to be issued in due course.

Notes:

1 Adjusted EBITDA, is a non-GAAP measure used by the Group, which is defined as profit before finance costs on borrowings (restricted to represent cash basis), tax, capitalisation, depreciation, amortisation, non-recurring items, share based payments and takes into account the phasing of milestone payments received from publishers.

2 Adjusted earnings per share is a non-GAAP measure presented as a meaningful comparison of earnings per share across periods. It is defined as Adjusted net income per share (which is a non-GAAP measure used as a proxy for cash earnings), where the number of shares across each period is the outstanding amount of Ordinary Shares in issue as at 31 March 2020, given the significant variance in average number of shares in issue between periods, an adjusted measure has been presented. Adjusted net income is defined as Adjusted EBITDA less cash interest and tax paid.

ABOUT CODEMASTERS: 

Codemasters (AIM:CDM) is an award-winning British video game developer and publisher with over 30 years of heritage. The company specialises in high-quality racing games including DiRT, GRID and the BAFTA award-winning official F1® series of videogames. In November 2019, Codemasters acquired Slightly Mad Studios, creators and developers of award-winning IP including the Project CARS franchise and Fast & Furious Crossroads.

Codemasters' LEI number is: 213800NOITSDQVNP5W91 

Chairman's Statement

Overview

FY20 was the first full financial year following the Group's admission to trading on AIM and I am pleased to report that it was one of considerable achievement, both in terms of performance during the year and, more importantly, putting in place the building blocks for continued future success.

Results

The Group has delivered FY20 revenue of £76.0 million, Adjusted EBITDA comfortably ahead of initial expectations at £18.2 million and profit before tax of £12.2 million. At the year end, the Group had net cash of £24.8 million; cash of £25.6 million with £0.8 million of debt within SMS which is due for repayment in H1 of FY21. The results were delivered with just two titles being launched in the financial year: GRID and F1® 2019, along with the Game of the Year Edition of DiRT Rally 2.0 supported by the ongoing strength of our back catalogue of games and key partnerships. The increasing shift to digital, amplified at the end of the financial year by the outbreak of COVID-19, continues to improve margins. Digital sales represented 67.7% of the total sales in the year, up from 59.2% in FY19.

Strategy

The Group's immediate strategy remains as follows: 

· strengthen Codemasters' overall leadership position in racing; 

· grow the audience; and

· increase average revenue per user.

Significant strides were made during the past year with regards to each of these pillars, both through organic measures and through acquisition. The strategy remains based on the strength of the Group's overall leadership in racing through the Group's proven expertise in this category and the quality of its AAA franchises. Through the strengthening of our portfolio, we are increasingly well positioned to take advantage of a strong growth market and the continued shift to digital distribution and post launch services. Other opportunities include increasing the Group's penetration into existing and new markets, as well as the new opportunities from Next Gen consoles and streaming platforms. A broader IP portfolio allows us to further establish the Codemasters brand as the go to racing channel for both gamers and licensors hence raising competitive barriers to entry.

Share Placings and Acquisition

At the start of the financial year, Reliance Big Entertainment, owners of the Company prior to IPO, held 29.5% of the equity. Through placings in June and November 2019 we were able to welcome new institutional shareholders to the register whilst providing Reliance with a highly satisfactory exit and thus ending our nine-year relationship with them. An issue of additional ordinary shares, raising approximately £20 million before expenses, took place in November 2019 to finance the initial cash consideration for the acquisition of Slightly Mad Studios ("SMS"). On behalf of the Board, I would like to thank all of our shareholders, past and present, for their support.

The addition of Slightly Mad Studios was an exciting development for the Company, bringing diversified revenue streams through additional proven owned IP Project Cars, access to a licenced blockbuster movie game with the launch of the Fast & Furious Crossroads title confirmed for release on 7 August 2020, and the addition of over 150 product developers. The acquisition helped cement our leadership in the racing category and is expected to deliver adjusted earnings per share enhancement of circa 30% in FY21, being the first full year of ownership.

Board Composition

Ian Bell, who founded SMS in 2009, joined the Board as an Executive Director and maintains his role as Chief Executive of SMS. Ian is a true innovator with over 20 years' experience in the gaming industry.

Since the financial year end, Lisa Thomas has joined the Board as Non-Executive Director. Lisa is a highly experienced consumer marketer with over 32 years' experience at the forefront of consumer engagement and brand building.

In accordance with the terms of the relationship agreement with Reliance, Shibasish Sarkar left his role as Non-Executive Director following Reliance's exit referred to above.

The Board now comprises three Executive Directors and three independent, Non-Executive Directors.

COVID-19 and People

Since the outbreak of the COVID-19 pandemic our focus has been on the health and safety of our employees and I am pleased to say that we were able to act swiftly and in line with guidance to enable remote working throughout the organisation. This has been helped by the fact that SMS has always adopted a fully remote workforce. It is a great credit to all of our staff that we experienced negligible operational disruption and that they have adapted to the current environment with the utmost professionalism.

Outlook

The gaming sector is in the midst of significant change, driven by the continual shift to digital distribution and the vast opportunities arising as a result of esports, Games as a Service, the launch of Sony's and Microsoft's next generation consoles, and the emerging streaming platforms such as Google Stadia. Codemasters is well placed to take advantage of this growing market, due to its diverse racing game portfolio and associated revenue streams, key partnerships and the ongoing strength of its back catalogue. As we look ahead, I am confident that we will be able to deliver on our ambitious growth strategy and strengthen our position as a world-leader in the development of premium racing games. Signing the prestigious FIA World Rally Championship license in May 2020 continues to reinforce the company's position as the preferred destination for the world's most successful racing licenses.

Gerhard Florin

Non-Executive Chairman

22 June 2020

Chief Executive's Review

Strategic Progress

FY20 was another year of considerable progress, in which we continued to strengthen our leadership in the racing genre. This was achieved as we delivered against our key strategic directives: growing our audience and increasing average revenue per unit ("ARPU") which bodes well for sustainable future performance. Our focus on producing the highest quality games places us well to take advantage of favourable market dynamics.

Revenues for the year increased to £76.0 million, (FY19: £71.2 million) which was particularly pleasing given that there were just two game launches as well as the DiRT Rally 2.0 Game of the Year Edition during the year compared to four in the prior period. The trend towards digital sales continued, representing 67.7% of the total (FY19: 59.2%). This trend was evident throughout the financial year but accelerated in the last few weeks as the COVID-19 pandemic led to the closure of bricks and mortar retail outlets globally. Gross margin decreased to 85.7% (FY19: 87.6%), leading to Adjusted EBITDA of £18.2 million (FY19: £18.7 million), which includes a loss of £0.9 million from Slightly Mad Studios ("SMS"), acquired in November 2019. Profit before tax of £12.2 million was generated (FY19: £2.9 million) and the Group has a strong balance sheet with net cash at the year-end of £24.8 million, being £25.6 million of cash and debt of £0.8 million which was acquired with SMS and is due for repayment in H1 of FY21.

The introduction of our Games as a Service ("GaaS") strategy alongside the launch of DiRT Rally 2.0 was an important milestone for the Group and its initial success provides us with confidence for rolling this out further across our portfolio of titles, with new content released every two weeks for 12 months. In total, DiRT Rally 2.0 released four seasons of additional content, including the Colin McRae FLAT OUT pack, followed by the Game of The Year Edition which included all content from the year including 26 locations and 81 vehicles - making it the most complete rally experience on the market. The impact of this year of additional content has doubled the 90-day retention when compared to the original DiRT Rally and average session times are 34% longer. This is the most significant service programme we have embarked on at Codemasters - giving players more and more reasons to keep coming back to the game.

GaaS for Codemasters remains at a nascent stage and yet we are very pleased with the initial results. We are already seeing positive signs that it is driving player engagement, satisfaction and retention, resulting in a longer life cycle for our games. GaaS is expected to form an increasing share of our revenue going forward.

At the end of October 2019, we extended our relationship with Formula One Management ("FOM") for the exclusive video game rights for the FIA Formula One World Championship ("F1") franchise, to publish an annual title from 2020 to 2025. In addition, within the agreement there is an option to further extend until 2027 based on certain performance conditions. This represents the longest extension in the partnership's history, which dates back to 2008, and shows the strength of our relationship with Liberty Media, owners of F1® since 2017.

Under the terms of the Agreement, Codemasters will pay a higher minimum guarantee to FOM in respect of F1® 2020, which will then increase each year during the term of the Agreement. These increases in aggregate equate to a compound annual growth rate of approximately 12% between the F1® 2019 and F1® 2025 games. In return, Codemasters will receive advertising inventory and marketing support across F1® channels, including via trackside advertising at Grands Prix and a stronger presence on F1®'s fast-growing digital channels. Codemasters will also work more closely with F1® to explore additional revenue opportunities.

F1® Mobile Racing continues to go from strength to strength. To date, the game has launched in 155 countries and has over 19 million downloads, up from 9 million at the end of March 2019. A highly rated game on both iOS and Android, it is steadily growing audience and revenue as it continues to innovate with new gameplay features on a regular basis. Revenue from this free to play game is a mix of in-app purchases, subscriptions and in-game advertising. F1® Mobile Racing will also launch its first esports tournament in 2020.

The symbiotic nature of the relationship has never been more evident than since the outbreak of COVID-19. With many sports events put on hold during the COVID-19 pandemic, esports has helped fill the void with bespoke official races aired on both streaming platforms and linear TV. F1® 2019 was one of the games to benefit with Formula 1® and Codemasters filling the postponed F1® calendar with the F1® Esports Virtual Grand Prix. The events, shown live online and to TV audiences achieved 30 million views. The professional drivers have been joined by a host of household names from various sports, such as Thibaut Courtois, Ian Poulter and Ben Stokes. As well as providing much needed entertainment, the Virtual Grand Prix is helping to attract a much broader audience to the world of F1® as fans of the different sports tune in to watch the stars in action. There have also been a series of official F2 and F3 Virtual Racing events featuring the real-world drivers competing on the F1® 2019 game using the F2 cars.

Together, these initiatives are all helping to deliver F1® to an ever growing and increasingly engaged audience and we are thrilled to be at the heart of it.

According to a report by Newzoo, global esports revenues are projected to break the $1 billion barrier ($1.1 billion) for the first time in 2020, up 15.7% from the previous year. By 2023 the figure is expected to rise to $1.55 billion. The audience is also expected to grow from 495 million in 2020, up 11.7% from 2019 to 646 million by the end of 2023.

Esports continues to be a great way to unlock the full potential of a competitive gaming title. Tournaments shown on digital and linear TV helps drive engagement and increases both sales of the game and monthly average users (MAU). In a market still in its infancy, Codemasters expects to create revenue opportunities from sponsorship and broadcast as the market matures. The Group is also in a good position to start generating esports revenue from the F1® franchise on the back of the popularity of F1® Esports Series and F1® Virtual Grand Prix. In addition, over the period we also launched our first DiRT Rally 2.0 World Series: an online competition culminating in a live final at the Motorsport Show in January 2020. The introduction of esports, combined with the additional season content, has seen the DiRT community and player base continue to grow. The Group saw a large increase in MAU in March due to the COVID-19 lockdown. DiRT Rally 2.0 World Series Season 2 will commence in the second half of calendar year 2020.

In November 2019, we reached agreement to acquire Slightly Mad Studios, whose sole focus on high quality racing games mirrors our own. The acquisition was in line with our intentions set out at the time of IPO and underline the importance and benefits of our admission to trading on AIM. The addition of SMS brings a number of strategically important benefits to the Group: adding to our IP portfolio; growing our leadership in our genre; and raising competitive barriers to entry. As well as critically acclaimed and commercially successful titles, SMS also brings over 150 talented product developers into the Codemasters family, a fully distributed work force and it has been a pleasure to welcome them.

In the current financial year to 31 March 2021, SMS will bring three additional titles to our launch schedule. The first is Project CARS 3 which takes players from weekend warrior to road legend. The game has been confirmed for late summer with Project CARS GO, a new mobile version of the highly popular franchise releasing in the second half of 2020. The third is the exciting launch of Fast & Furious Crossroads, a team-based, vehicular-heist action game set in the adrenaline-fueled universe of the Hollywood Blockbuster Fast & Furious ("F&F") franchise. This licensed IP game was originally scheduled for launch in May 2020 to coincide with the planned release of the latest F&F film, with both being subsequently delayed due to COVID-19 and the ongoing disruption it has caused.

Following close consultation with our partners BANDAI NAMCO Entertainment Europe and Universal Games and Digital Platforms, the game will now launch on 7 August 2020. The game has been eagerly anticipated and with the inclusion of stars Vin Diesel, Michelle Rodriguez and Tyrese Gibson amongst others, promises to bring fans of the films an authentic storyline, packed with heroes, gadgets, cars and non-stop cinematic-style action. The inclusion of a blockbuster movie game in the portfolio means that Codemasters will now have exposure across all key segments of the racing genre.

Our mobile project with NetEase continues to progress well towards soft launch. We remain optimistic about the potential of this partnership, both in the China and global markets.

Operational Review

Codemasters is renowned for developing high quality, AAA rated games and is focused solely on the racing category for which it is best known. Its success to date has focused around its franchises, GRID, DiRT, and F1®, with the first two being fully owned IP, and F1® benefitting from exclusive rights. As the Group has invested more in these franchises and expanded its distribution agreements, their performance has continued to improve and provide growing and predictable revenue streams at increasingly profitable levels, driven by the growing trend towards digital delivery which also gives players 24/7 access to our growing back catalogue of titles.

The sales performance this year has been delivered largely due to the release of the latest annual instalment of the F1® franchise (F1® 2019), GRID (released in October 2019), the Group's back catalogue of titles and a number of business development initiatives. 

In keeping with previous releases, F1® 2019 received widespread critical acclaim. The 2019 instalment of the F1® franchise was the first year that the game benefited from a two-year development cycle, with a second team deployed. The benefits have been tangible and give us confidence for future performance under the two-team structure. For the first 90 days after launch the average Daily Active User tracked 50% above that of F1® 2018 in a comparable period highlighting how fans are continuing to become more and more engaged with the game.

We were also pleased to release the game in June 2019, two months earlier than the previous year, bringing the release date closer to the start of the season. Our intention is to continue to bring the release date forward in future seasons although the current financial year is anomalous due to the COVID-19 pandemic affecting the start of the season. This year's instalment also provided gamers with the option to buy additional content for the first time in an F1® game, enabling player recurring investment. Car liveries, helmets, suits and gloves could all be purchased in-game and the response has been encouraging. Sales remained strong throughout the year and for the third year running, our F1® release was the highest rated racing game on PlayStation 4 in its respective year.

F1® Mobile Racing, our free to play mobile game for Apple and Android devices has attracted over 19 million players in less than a year since launch and went to number one in the Racing category chart in over 150 countries. In June 2019, it launched on iOS in China and in the first half of the year we have delivered four major upgrades to the game, including Elite Leagues and a Season Championship. In May 2019, we introduced a subscription service for the game and are delighted that user acquisition is now profitable on a monthly basis. We will continue to invest in this mobile title over the coming years, releasing regular updates to satiate demand.

F1® Esports Series is now in its third season and continues to grow the number of entries and viewers. Broadcasted live across Facebook and Sky Sports TV, the 2019 Series attracted 5.5 million viewers and 100 million impressions. The first F1 Esports China Championship was completed in January 2020. The two-day final event was streamed live on HUYA, with the final race also broadcasted live on Great Sports TV. At its peak, 1.6 million people tuned in online at the same time.

In October 2019 we were pleased to re-launch the GRID® franchise for the first time since 2014 debuting on this generation of both Sony and Microsoft consoles and it was selected as the only racing launch title on Google Stadia, the streaming platform launched in November 2019.

GRID® won "Best Racing Game" at the gamescom Awards 2019 having previously picked-up "Best Racing Game" at E3, the world's premier event for computer and video games, from Game Informer and DualShockers. It is the first game to partner with Fernando Alonso as a racing consultant, and delivers genre leading racing AI, accessible handling and some of the most iconic cars ever created.

As anticipated, the performance of the Group's back catalogue continues to be strong thanks to the accelerated growth of the digital business reflecting the longer life cycle of high-quality products and well-established IP. The Group expects digital growth to continue with future releases.

COVID-19

Since the outbreak of the COVID-19 pandemic, our focus has been on the health and safety of our employees. We were able to implement remote working, in line with the UK government guidance, quickly and effectively across all of our operations. The team from SMS has always embraced remote working and we were able to learn plenty from them in a short time frame. The ability of our teams to adapt to new working practices and maintain the highest standards of performance has undoubtedly been one of the highlights of the year and I would like to thank each and every one of them.

We are incredibly fortunate to be in an industry that has been largely unaffected by this terrible pandemic. We are proud that our games have been able to bring enjoyment and escapism in such a difficult environment and have worked hard with our partners at F1® to bring alternative ways to follow sporting icons in the absence of live sport. We have also been proud to have supported Games for Carers: a UK initiative which gave free games to NHS staff to help them relieve stress amid the COVID-19 pandemic. Over 100,000 codes were committed by UK games companies.

Outlook

FY20 has been a period of growth across all parts of the business and I am confident in our growth prospects for the coming year, supported by a strong pipeline of game releases and investment in the sector. Whilst the wider macro-environment has been hampered by the COVID-19 pandemic, we have felt minimal disruption to the business, and I would like to thank all employees for their commitment in delivering these solid set of results in these challenging times.

Through SMS we acquired two highly rated franchises to add to our portfolio; Project CARS and Fast & Furious Crossroads, broadening our market share further in the racing sector. Project CARS 3 will be released in late summer 2020, while the highly anticipated Fast & Furious Crossroads will launch on 7th August 2020, both on PlayStation®4, the Xbox One family of devices and PC. We are also looking forward to the release of F1® 2020 in July, and DIRT 5™ in October 2020 and Project CARS Go in the second half of calendar year 2020.

The gaming market is rapidly growing, and we are well placed to take advantage of the opportunities that will arise during the next 12 months and beyond. We see a significant opportunity in Games as a Service, mobile gaming and esports, all of which are at a nascent stage for the Group but will form a major part of our growth strategy as we expect to see increasing revenue contributions from these parts of the business. The launch of next Gen consoles confirmed by Sony and Microsoft for the holiday 2020 will be a boost to the console market and the growth of the market overall. Additionally, the shift to digital has been amplified by the closure of bricks and mortar retail stores, and we anticipate the trend towards digital sales to continue, which will deliver higher margins for the Group.

Frank Sagnier

Chief Executive Officer

22 June 2020

Chief Financial Officer's Review

Overview

In FY20 the Group continued to deliver on its strategic objectives with growth in revenue and Adjusted EBITDA, excluding SMS. The acquisition of Slightly Mad Studios ("SMS") in November 2019 represents a key strategic acquisition enabling the Group to be the leading developer and publisher in high quality racing games.

The Group delivered revenue of £76.0 million which represented a 6.8% increase from £71.2 million in FY19. Non-boxed share of revenue has grown strongly from 59.2% in 2019 to 67.7% in FY20. Also, a positive by-product of the COVID-19 lockdowns around the world has meant that lost boxed sales have been more than replaced with higher margin digital sales.

Adjusted EBITDA is £18.2 million (2019: £18.7 million) with Adjusted EBITDA, excluding SMS, being £19.0 million, an increase of 1.6% year on year.

Adjusted EPS of 11.6 pence has decreased by 1.7 pence from 13.3 pence per share in 2019 due to the impact of the increase in share capital owing to the shares issued to fund the acquisition of SMS and the negative contribution from SMS. Net cash balances as at 31 March 2020 were £24.8 million, with cash of £25.6 million up from £18.4 million as at 31 March 2019, leaving the Group's balance Sheet in a strong position. The Group also had debt of £0.8 million which was acquired with SMS and is due for repayment in H1 of FY21. Non-recurring items in 2020 are costs incurred in relation to the acquisition of SMS, which under accounting rules are not one-off costs so are included within Operating profit. In 2019, the non-recurring items relate to the costs of the IPO which are one-off costs, so are shown after Operating profit.

Trading

The Group delivered £76.0 million of revenue in FY20 (2019: £71.2 million), primarily driven by performance of the major releases in the year (F1® 2019 and GRID) coupled with a full year's revenue from DiRT Rally 2.0 which was released in February 2019. 2019 included three major releases (F1® 2018®, DiRT Rally 2.0 and ONRUSH). The Company's back catalogue produced a material contribution to the total revenue of the period. The revenue from the SMS group was £0.8m representing income from back catalogues sales (games released in prior financial years); there were no new game releases by SMS in the period.

Sales from a number of specific agreements and from the Group's back catalogue supported the increase in revenue. The sales from specific arrangements and back catalogues sales are largely through digital channels, and consumers continue to shift towards more digital downloadable content. These trends have led to the proportion of sales from non-boxed channels increasing to 67.7% in FY20 (FY19: 59.2%). Digital sales are beneficial to the Group as they deliver an increased gross profit and EBITDA when compared to boxed titles. All the Group's content is available digitally, ensuring the strength of back catalogue sales.

In FY20 the Group achieved a gross margin of 85.7% (FY19: 87.6%). The gross margin was adversely impacted this year owing to lower gross margin achieved on boxed sales and the increase in mobile income, where the revenue is accounted for gross of fees payable to the platforms which are accounted for as a cost of sale. We expect the gross margin to increase going forward, as sales from digital channels continue to increase as a proportion of overall sales.

The Board of Directors use Adjusted EBITDA as a key trading performance indicator. The Board believes this provides a meaningful measure of the underlying operational cash earnings of the Group. The table on the previous page reconciles operating profit which is reported in the Income Statement to Adjusted EBITDA.

Adjusted EBITDA includes cost of sales, development costs and sales, general and administrative costs. In FY20 Adjusted EBITDA of approximately £18.2 million was achieved (FY19: £18.7 million), with adjusted EBITDA of £19.0 million excluding the effects of the acquisition. Growth in the Adjusted EBITDA excluding SMS, has been driven by the growth in revenue and shift to more profitable routes to market than in previous years.

Commentary regarding the key reconciling items noted above is as follows:

· Amortisation includes long-term amortisation of capitalised development costs and long-term contracts. The key component is amortisation of capitalised development costs, whereby the development costs of each title are released over a 12-month period into the Income Statement, 65% in the first month, with the remainder split equally over the eleven remaining months. Amortisation is a non-cash accounting entry and is dictated by the timing of releases.

· Amortisation costs were £24.5 million (2019: £27.5 million). The underlying amortisation is consistent year on year with the prior year's value including an impairment of £2.6 million. This reflects the continued high level of investment that the Group is making in the development of its current titles.

· Interest on unwinding of licensing agreements of £1.3 million (2019: £2.0 million) is recorded below operating profit within the Income Statement but forms a recurring cost, which is necessary for the Group to be able to release certain titles. Adjusted EBITDA includes all licensing costs in so far as to reflect their cash impact on the Group. It has been restricted to represent the cash basis.

· Depreciation of £2.2 million (2019: £1.4 million) has been recognised in the year. As part of the Group's capitalisation policy certain overheads, including depreciation are capitalised where they are directly related to developing the Group's games. In FY20 £1.4 million (2019: £1.1 million) of depreciation was capitalised within capitalised development costs.

· Capitalisation is the measure of development costs incurred that are held as an intangible asset prior to release of the applicable title. Certain long-term licences entered into in the period are also capitalised (and amortised upon release of the title associated with the licence). Both are non-cash measures. Capitalisation of £27.1 million (2019: £23.2 million) has increased year on year predominantly owing to the investment SMS has made in the development of its games which are due for release in FY21. Investment in the Group's other releases has also increased in the year, with a greater proportion of costs incurred on post release services, which are not capitalised. In October 2019 the long-term licence (which triggered a commitment to developing future titles and to payment to the licensor over a period of time greater than one year) was entered into, which led to £29.2 million being capitalised as an intangible asset.

· Share-based payments in the year of £1.1 million (2019: £6.7 million) are a non-cash charge.

· The adjustment for SMS milestone payments received arises as SMS develop their titles on behalf of a publisher. They receive milestone payments which aren't reflected within revenue until the games are released. Therefore, the net movement in these payments is adjusted for so it reflects the cash position. The costs incurred in developing the games are included within the capitalisation of development costs.

Creative sector relief

Creative sector relief recognised in the period of £9.1 million (FY19: £7.3 million) represents the expected relief receivable for FY20 based upon the qualifying costs incurred in the period. The increase in the current year reflects the increased investment in the Group's product offering. The SMS acquisition contributed £1.0 million towards the relief.

Non-recurring items

The £1.4 million non-recurring costs in the year relate to the acquisition costs of SMS. In FY19, the £1.5 million non-recurring costs relate to costs associated with the IPO.

Net interest payable

Net interest payable of £3.6 million (FY19: £3.9 million) includes £1.6 million foreign exchange movement in respect of the extended F1® licence agreement which was agreed in the year. The FY19 amount includes a £2.2 million charge relating to foreign exchange movement on the US Dollar loans held at the start of the prior period repayable to the Group's former owner Reliance Big Entertainment (Singapore) Pte. Ltd.

It also includes £2.2 million (FY19: £2.0 million) of interest on the unwinding of licensing agreements and £0.05 million on the unwinding of the of liability in respect of right of use assets following the adoption of IFRS 16 - leases. Both items are non-cash in nature.

Profit after tax

At the start of FY20 the Group had in excess of £120 million of brought forward trading losses. As such, corporation tax charges have been minimal in the year, reflecting the Group's ability to utilise brought forward losses. In FY20 a net deferred tax charge of £0.1 million (FY19: credit of £0.8 million) was recognised as an estimate of future tax saved from utilising brought forward losses in future periods.

FY20 profit after tax was £11.5 million (FY19: £3.7 million).

Basic earnings per share was 8.1 pence (FY19: 3.0 pence).

Adjusted EPS was 11.6 pence (FY19: 13.3 pence). This is a non-GAAP measure presented as a meaningful comparison of earnings per share across periods. It is defined as Adjusted net income per share (which is also a non-GAAP measure used as a proxy for cash earnings), where the number of shares across each period is the current number of Ordinary shares in issue.

Given the significant variance in the number of shares in issue during the year due to the number of shares issued to fund the initial consideration of SMS and the associated impact on weighted average number of shares in issue between the periods, an adjusted measure has been presented. Adjusted net income is defined as Adjusted EBITDA less cash interest and tax paid.

Statement of Financial Position and Cash Flow

The investment in SMS is £39.2 million, represented by initial consideration of £23.3 million (£19.4 million in cash and £3.9 million in shares) and deferred contingent consideration of £15.9 million. The deferred contingent consideration is payable over the three years to 31 December 2022 depending on the results of the SMS group (see note 17 for more details). The initial consideration was funded through the issue of 11.3 million new ordinary shares. Costs associated with the issue of the new Ordinary shares of £0.6 million were recognised directly within the share premium account. The excess consideration paid above the fair value of the net assets acquired is reflected in the Consolidated Financial Statements as Intangible assets of £11.0 million and goodwill of £24.0 million.

During the year the Group has adopted IFRS 16 accounting for leases. Assets used under operating leases are now brought into the Statement of Financial Position as a right of use asset with a corresponding liability. As at 31 March 2020, the Group's right of use assets have a net book value of £2.5 million and have a corresponding liability of £1.6 million.

There were £18.2 million trade and other receivables at 31 March 2020 (31 March 2019: £9.2 million). The variance year on year is driven by the timing of several specific agreements which were completed in the final quarter of the year, coupled with the increase in the amount of accrued income from console providers and other customers as a result of income recognition on some agreements.

Within trade and other payables there was £45.5 million that was payable in a period greater than one year as at 31 March 2020 (31 March 2019: £6.2 million). The significant increase is due to the extension of one of the licensing agreements, the liability in respect of the right of use assets following the adoption of IFRS 16 and the contingent consideration for the acquisition of SMS.

As at 31 March 2020, the Group had net cash of £24.8 million, (31 March 2019: £18.2 million) with £25.6 million in cash (31 March 2019: £18.4 million). The movement over the year represents the strength of sales of the Group's game portfolio and the timing of payments on a number of agreements entered into in the last quarter of the financial year. The Group also has debt of £0.8 million which was acquired with SMS and is due for repayment in H1 of FY21.

Rashid Varachia

Chief Financial Officer

22 June 2020

Consolidated income statement for the year ended 31 March 2020

Consolidated statement of comprehensive income for the year ended 31 March 2020

Statement of changes in equity for the year ended 31 March 2020

Consolidated cash flow statement for the year ended 31 March 2020

Notes to the Consolidated Financial Statements

1 Segmental analysis

Management identified one operating segment in the business, being the sale of internally developed video games. The single operating segment is reported in a manner consistent with the internal reporting to the Board for monitoring and strategic decisions.

2 Group revenue

Revenue is attributable to the principal continuing activity of the Group, being the sale of internally developed video games. An analysis of revenue by geographical market of destination is shown below:

An analysis of revenue by income stream is shown below:

Included in the above figures are 44.0% (2019: 29.2%) of sales concentrated across three customers in the year ended 31 March 2020 where revenue per individual customer was greater than 10% of total sales.

For some specific contracts, the performance obligations of meeting these are recognised over time. The split of revenue recognised at a point in time is shown below:

The revenue recognised over a period of time in 2020 relates to eleven separate contracts (2019: two), where the contractual revenue assigned against the performance obligation of delivering those contracts is recognised using an input method, whereby revenue is apportioned based upon the proportion of development costs incurred at the period end of the total expected costs to satisfy the applicable performance obligations of those contracts during the reporting period.

Where the Group has entered into contracts with customers and has received monies in advance of satisfying the performance obligations of those contracts, such monies are recognised as a deferred income liability. The deferred income liability as at 31 March 2020 is as follows (see note 18 for further details):

Where the Group has entered into contracts with customers and receives monies after satisfying the performance obligations of those contracts, such monies are recognised as an accrued income asset. The accrued income asset as at 31 March 2020 is as follows:

Where the Group has entered into contracts that are unsatisfied or partially satisfied, the following aggregated amounts of transaction prices will be recognised in a future period:

3 Non-recurring costs

4 Operating profit

The following items are included within operating profit in the consolidated Income Statement:

5 Directors Emoluments

During the year the Group contributed to two Directors' personal pension plans (2019: two).

The emoluments, excluding pension costs, of the highest paid Director were £987,000 (2019: £955,000). The pension contributions paid by the Group for the highest paid Director amounted to £34,000 (2019: £33,000).

In May 2018, two Directors were granted, and exercised equity-settled share options, prior to the IPO of the Company. These equity-settled share options replaced cash-settled share options that were granted to them in March 2017. Following the Company's IPO four Directors (including two Non-Executive Directors) were granted further equity-settled share-based payments as part of the LTIP, ESOP and NED schemes. Further details regarding these schemes are detailed in note 6.

In addition to the above costs a total of £620,000 (2019: £5,755,821) has been recognised in the Income Statement in respect of equity-settled share-based payments relating to four Directors (which include two Non-Executive Directors).

Details regarding the emoluments of each Director of the Group are shown within the Remuneration Committee Report on page 42 of the Annual Report which will be available in due course.

6 Share based payments

Cash-settled share-based payments - pre-IPO scheme

In March 2017 certain senior executives were awarded cash-settled share-based incentive schemes linked to various financial measures of the Group's performance. The scheme was accounted for as cash-based share-based payments in the financial statements for the year ended 31 March 2018. The total amount accrued at 31 March 2018 was £7,750,000 plus employers NIC of £1,069,500.

A new scheme was introduced on 18 May 2018 with the old scheme replaced.

The new scheme provided four senior executives with a call option to purchase a fixed number of preferred shares for £0.1339 per share at the time from the major shareholder Reliance Big Entertainment (Singapore) Pte. Ltd. ('Reliance'). A total of 12,587,500 options were granted (representing 9.5% of issued share capital at the time). The options vested immediately so could be exercised at any time up to the end of the option period, which was 31 December 2022.

As the options vested immediately and were exercised immediately, the options had no effective life; the options were also over shares not publicly traded at the time. As such, it was not appropriate to use the Black Scholes method of valuation.

Valuation of the share options was carried out using the best available market value for the shares at that time. Three days before the new scheme was granted a small number of shares were sold by a minority shareholder to Reliance. Using the price paid for these shares, a third-party valuation of the Group commissioned by the Directors indicated that the value of the Group was £156.5 million.

A share transaction on 15 May 2018 was completed at a premium when compared to underlying market value at that time. An 11% discount was applied to £156.5 million giving a valuation of £139.3 million. As the share options represented 9.5% of the Group at the time, a fair value of £13.2 million was attributed to the options.

This amount has been charged to the Income Statement in the year ended 31 March 2019 (offset by the £7.75 million accrual release associated with the cancelled cash-settled share options).

Equity-settled share-based payments - post-IPO schemes

As part of Codemasters Group Holdings plc admission to AIM on 1 June 2018, three equity-settled share option plans were created:

● ESOP scheme for all permanent employees

● NED scheme for Non-Executive Directors

● LTIP scheme for Executive management team

The ESOP scheme is available to all employees (subject to certain criteria). The options vest one third on the first anniversary of the date of grant, and then monthly thereafter to be fully vested after three years from the date of grant.

If an employee leaves the Group, the options cease to vest at the date the Group receives their resignation. The employee can then exercise any vested options up to 6 months after leaving the Group.

The NED scheme has provided share options under the same terms as the ESOP scheme and the same fair value of the options would be applied as to the ESOP scheme. Share options under the NED scheme have been made available to two of the Group's Non-Executive Directors who were in office during the year.

The executive management team each received options under the LTIP scheme to the total of 1% of issued share capital at the time of grant (1,400,000 options granted). The LTIP scheme has both market and non-market conditions for vesting and therefore has been valued separately to the ESOP and NED schemes. The market and non-market conditions relate to the Company's share price growth and the Group's adjusted EBITDA growth respectively.

The exercise price for the LTIP scheme is £0.01 per share. No shares vest until at least three years after grant. The market and non-market conditions apply to 50% of the options each therefore have been considered separately.

Further share options have been granted throughout the period to employees who met the length of service requirement at the applicable dates, as shown below.

Share options and exercise prices as follows for the current financial year:

The fair value of LTIP's was determined by using the Monte Carlo calculation method, all other options granted were determined using a Black Scholes calculation method. The following inputs have been used in carrying out the valuation of the outstanding options:

The Group have considered the volatility of comparable quoted companies as a guide for the volatility assumptions in the valuation of the incentive schemes.

7 Staff costs

Staff costs include £15.7 million (2019: £15.8 million) of costs in respect of employees whose value of time is capitalised within the development costs of games (note 12).

Share-based payments expenses are shown less £nil (2019: £nil) of estimated social security costs, which are included within those expenses accordingly.

The average monthly number of employees during the year was as follows:

8 Interest receivable and similar income

In the year ended 31 March 2019, a commercial agreement with Malta Enterprise Limited was reached in August 2018 for full and final settlement in relation to an outstanding facility payable by Codemasters (Malta) Limited. This left a residual balance of €322,000 (£278,000) in respect of the book value of principal and interest, which was released to the Income Statement.

9 Interest payable and similar charges

10 Auditors remuneration

11 Tax on profit on ordinary activities

a) Tax on profit on ordinary activities

b) Factors affecting current tax charge

The tax assessed on the profit on ordinary activities for the year differs from the main rate of corporation tax in the UK of 19.0% (2019: 19.0%). The differences are reconciled below:

As deferred tax assets and liabilities are measured at the rates that are expected to apply in the periods of the reversal, the amount of the potential recognised deferred tax asset at 31 March 2020 is computed at the rate of 19%, reflecting the fact that losses are expected to be utilised prior to 31 March 2022 and using the applicable corporation tax rate for those periods. The unrecognised deferred tax asset is computed at a rate of 19% reflecting the fact that the balances are proposed to be utilised post 1 April 2022.

c) Deferred tax

The Group has recognised deferred tax assets in relation to tax losses that are expected to be utilised in the subsequent two financial years. Due to changes in UK tax legislation introduced from 1 April 2017, these losses are limited to the first £5 million of taxable profits and 50% of any additional profits. There is now a reasonable expectation that tax will need to be paid in future periods. As at 31 March 2020 the Group has recognised a deferred tax asset of £3.2 million (2019: £3.2 million) in respect of expected tax losses that the Group expect to utilise in the subsequent two financial years. The deferred tax asset is partly offset by a deferred tax liability of £1.2 million arising on the uplift in the fair value of game IP acquired with the acquisition of SMS.

The Group has not recognised deferred tax assets in relation to accelerated capital allowances, other timing differences and any additional tax losses that are not estimated to be utilised over the subsequent two financial years.

As at 31 March 2020 and the prior period any deferred tax asset not shown on the face of the balance sheet is unrecognised.

The Group has £23.8 million of deferred tax assets unrecognised at the year-end (2019: £20.7 million).

12 Intangible fixed assets

As at 31 March 2020, included within development costs are £20.4 million of costs incurred on products yet to be released (2019: £17.3 million). £3.0 million of the increase is relation to the acquisition of SMS.

The carrying values of all intangible assets are reviewed at the end of each reporting period against the expected future cashflows from that title. In the prior year, following the release of ONRUSH in June 2018, its trading performance and associated future trading expectations of the title led to an impairment review for that asset. Following that review a £2.6 million impairment of the ONRUSH asset was recognised.

Please see note 14 for details of acquisition of SMS.

The goodwill was reviewed for impairment as at 31 March 2020. The Directors reviewed the budgets and longer-term forecasts for the underlying CGU's and the wider business. The goodwill is in respect of the workforce and IP of future games it may develop and is based on the future cashflows of SMS. These have been discounted at a WACC of 11.6% and a growth rate of 2.5%, which were determined by a firm of professional valuation experts. A period of four years was reviewed. The Directors consider that no impairment is necessary.

13 Tangible fixed assets

Included in freehold land and buildings is land with a carrying amount of £150,000 (2019: £150,000) that is not depreciated. The carrying value of right of use assets includes leasehold property of £1,391,000, motor vehicles of £45,000 and fixtures, fittings & computer equipment of £144,000.

The Group had capital commitments at the reporting date of £1,136,000 (2019: £nil).

£1,370,000 of the depreciation charge for the year has been capitalised within the capitalised development cost intangible asset (2019: £1,068,000).

14 Investments

Details of the Group's investments in which the Company held 20 percent or more of the nominal value of shares as at 31 March 2020, were as follows:

Please note that the above is reflective of the following that took place in the year ended 31 March 2020:

· Codemasters Group Holdings plc acquired the entire issued share capital of Slightly Mad Studios Pte. Ltd., and its subsidiaries on 28 November 2019.

All of above entities are consolidated into the Consolidated Financial Statements.

Codemasters Sudios Sdn Bhd is incorporated in Malaysia, its principal business address is No.91-3 Jalan Metro Perdana Barat 1, Taman Usahawan Kepong, Off Jalan Kepong, Kepong, 52100 Kuala Lumpur, Malaysia.

Slightly Mad Studios Pte. Ltd. is incorporated in the Republic of Singapore, its principal business address is 1 Scotts Road, #21-10, Shaw Centre, Singapore 228208.

IoTech Finance Sarl is incorporated in Luxemburg, its principal business address is 153-155 Rue de Kiem, L-8030 Strassen, Grand Duchy of Luxemburg.

All of the other entities above are incorporated in England and Wales and have a principal business address of Codemasters Campus, Stoneythorpe, Southam, Warwickshire, CV47 2DL.

Subsidiaries with non-controlling interests

As at 31 March 2020 the group included one subsidiary with non-controlling interests; at 31 March 2019 for part of the previous year the Group included three subsidiaries (excluding dormant entities) with non-controlling interests. As noted on the previous page, following the acquisition of shares in The Codemasters Software Company Limited (CSCL) and Codemasters Studios Sdn Bhd (CSSB) on 16 May 2018, CSCL and Codemasters Development Company Limited became wholly owned subsidiaries and the ownership of CSSB increased to 70%. The impact on the non-controlling interest percentage are summarised below:

Summarised financial information for the entities is set out below:

Additions

On 28 November 2019, Codemasters Group Holdings Plc acquired 100% of the issued share capital of Slightly Mad Studios Pte. Ltd. (SMS), a company based in Singapore, but which has its trading subsidiaries in the UK. SMS was acquired as it is another producer of AAA rated racing games, bringing diversified revenue streams through its owned IP and license to produce the Fast & Furious movie game, thus cementing the Group's leadership in the racing category of video games.

The purchase consideration includes deferred contingent consideration of £15,932,000, which is based on a multiple of the expected EBITDA, adjusted for milestone payments and capitalised development costs, expected to be achieved by the SMS group and is calculated over a three-year forecast period to 31 December 2022. In the Directors view, this basis of calculating the contingent consideration is intended to determine the fair value of the acquired business. The contingent consideration is the probability weighted average of the present value of the cash outflow and has been arrived at using a discount rate of 11.6% under a level 3 hierarchy of IFRS 13. The cash outflow will be settled 70% in cash and 30% in shares in Codemasters Group Holdings plc.

At 31 March 2020, there has been no change in the estimate of the probable cash outflow owing to the sensitivities used in the calculations.

The maximum deferred contingent consideration payable is $165 million.

The deferred consideration includes $5,000,000 in shares on the release of Fast & Furious Crossroads.

There is no expected credit loss on the cashflow of any receivables acquired.

Acquisition related costs of £1.4 million are not included as part of the consideration and have been recognised as a non-recurring expense in the Income Statement.

The intangible assets of £11,033,000 relate to the probability weighted average of the present value of the games and game engine acquired using a multi-period excess earnings model under level three of IFRS 13.

Goodwill of £24,027,000 is primarily related to the substantial skill and expertise of SMS's workforce which complement those of Codemasters current staff.

As noted above, given there is no change in the estimated future cashflows, this forms the basis of the impairment assessment at the reporting date. The inputs of this assessment are as described above.

During the period from acquisition to 31 March 2020, the SMS group contributed revenue of £764,000, Adjusted EBITDA loss of £(883,000) and a loss after tax of £(812,000). If the SMS group been acquired on 1 April 2019, it would have contributed revenue of £3,147,000, Adjusted EBITDA loss of £(2,792,000) and a loss after tax of £(1,884,000).

15 Inventories

16 Trade and other receivables

Trade receivables and accrued income are all current and any fair value difference is not material. Trade and other receivables are considered past due once they have passed their contracted due date. Trade receivables are reviewed for impairment on a customer by customer basis.

Of the net trade receivables balance 85% was concentrated across six customers (each with 5% or more), (2019: 88% across three customers).

Accrued income relates to uninvoiced business development income on contracts signed close to the reporting date and digital sales made to digital sellers (typically Sony, Microsoft and Steam), which are invoiced shortly after the period end following third party confirmation of the revenue to be recognised. There have been no historic credit losses associated with these balances, no provision for expected credit losses are required.

Credit loss allowance

Management has reviewed each of the trade and other receivables on a customer by customer basis and using a credit risk matrix has assessed the level of potential credit loss that the Group is exposed to. The majority of the Group's customers are the leading platforms in the video games industry and other blue-chip organisations, which are not considered to be a credit risk. In addition, the trading history with these businesses also assists in enabling management to assign minimal risk to these customers. The Group also takes steps to minimise its exposure to credit risk and hence following the assessment on a customer by customer basis there is only one that has been included in the credit loss allowance in the current and prior year. The loss allowance and the movement from prior reporting periods are shown on the next page.

17 Cash and cash equivalents