SUMO GROUP PLC UNAUDITED HALF YEAR RESULTS 2018 DISCLAIMER Certain - - PowerPoint PPT Presentation

SUMO GROUP PLC

UNAUDITED HALF YEAR RESULTS 2018

DISCLAIMER

Certain statements included or incorporated by reference within this presentation may constitute “forward-looking statements” in respect of the Group’s operations, performance, prospects and/or financial condition. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions and actual results or events may differ materially from those expressed or implied by those statements. Accordingly, no assurance can be given that any particular expectation will be met and reliance should not be placed on any forward-looking statement. Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. No responsibility or obligation is accepted to update or revise any forward-looking statement resulting from new information, future events or otherwise. Nothing in this presentation should be construed as a profit forecast. This presentation does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any shares or other securities in the Company, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares and other securities of the Company. Past performance cannot be relied upon as a guide to future performance and persons needing advice should consult an independent financial adviser. Statements in this presentation reflect the knowledge and information available at the time of its preparation. Liability arising from anything in this presentation shall be governed by English Law. Nothing in this presentation shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws.

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Co-development partner to some of the world’s leading publishers, offering turnkey game development solutions. Sumo Digital develops games across all console platforms, PC, handheld and mobile devices. Now includes The Chinese Room. Visible, contracted revenue model A visual design company providing creative services to the full spectrum of the entertainment industry, including games, TV and film.

Annual General Meeting FY18 Timeline 27 June 2018 1 February 2018 24 April 2018 1 January 2018 Took on Newcastle Studio of CCP Games 2017 results announced Pre-close Trading Update Investor Day 9 July 2018 Acquisition of The Chinese Room 14 August 2018 2018 Half Year results announced 25 September 2018

WHO WE ARE

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HIGHLIGHTS

Adjusted revenue

£19.6m +48%

(H1 2017: £13.2m) Operating cash flow

£(4.4)m

(H1 2017: £2.1m) Adjusted gross profit

£8.2m +56%

(H1 2017: £5.3m) Adjusted EBITDA

£5.0m1 +46%

(H1 2017: £3.4m) Net cash

June 2018 £6.5m Dec 2017

£12.4m

1. Adjusted EBITDA is profit before finance costs, tax, depreciation, amortisation, share based payment charges, the impact of IFRS 15 financing recognition and exceptional items – a non – GAAP metric used by management and is not an IFRS disclosure 2. All figures in this presentation are unaudited and comparative figures are for the half year to 30 June 2017 unless stated otherwise 3. The adjusted or underlying figures are reconciled to the reported figures in the appendices

Adjusted gross margin excluding pass through and royalties

41.8%

(H1 2017: 38.7%) Board strengthened, adding HR expertise Appointment of Andrea Dunstan as NED and Chair

• f Remco September

2018 Took on Newcastle Studio

• f CCP Games January

2018 Acquisition of The Chinese Room August 2018

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GROSS MARGIN

H1 2018 H1 2017 FY 2017 Reported 34.8% 36.8% 43.3%

Adjusted

• Excluding pass through

42.1% 39.8% 46.4%

• Excluding pass through and

royalties

41.8% 38.7% 45.4%

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CONSOLIDATED UNAUDITED H1 2018 INCOME STATEMENT

H1 2018 H1 2017 FY 2017 Notes £m £m £m Revenue Core development fees 22.6 12.7 28.4

H1 2018 includes £3.6m of pass through (H1 2017: £1.1m)

Own IP 0.3 1.3 1.7

Snake Pass launched March 2017

Royalties 0.1 0.3 0.5 Total Revenue 23.0 14.3 30.6 Adjusted gross profit 8.2 5.3 13.3 Adjusted EBITDA 5.0 3.4 8.4 Underlying adjusted profit before tax, exceptional items, share based payments and amortisation 4.3 3.0 7.5

Reconciliation in appendix

Loss before tax (1.8) (2.0) (28.0)

Includes amortisation of £5.0m (H1 2017: £2.6m)

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IFRS 15: REVENUE FROM CONTRACTS WITH CUSTOMERS

Review using the five step model set out in IFRS 15

• Identifying the contract
• Identifying performance obligations
• Determining the transaction price
• Allocating the transaction price to performance obligations
• Recognising revenue when (or as) the entity satisfies a performance obligation

The adoption of IFRS 15 is not having a material impact for the large majority of contracts For one contract Sumo Digital is making a judgment of modification/termination with a financing component Analysts’ forecasts are stated before this financing component, which reclassifies the amounts from revenue/gross profit and EBITDA to net finance costs

£m FY 2017 H1 2018 H2 2018 H1 2019 H2 2019 Total Reduction in revenue (0.2) (0.3) (0.1) (0.6) Increase in interest income at 6%

• 0.1

0.2 0.2 0.1 0.6 Movement in retained earnings (0.1) (0.1)

• 0.2
• 6

June 2018 June 2017 December 2017 Notes £m £m £m Goodwill and intangibles 23.4 53.0 28.2 PPE 2.6 1.0 1.8 Trade and other receivables 18.2 10.1 10.2

Revenue in excess of billings £8.4m (Dec 17: £3.8m) of which £5.3m is one contract and VGTR £5.7m (Dec 17: £4.6m) – analysis in appendices

Cash 6.5 2.4 12.4 Borrowings

• (56.9)
• All debt repaid at IPO

Trade and other payables (10.8) (7.3) (10.8)

Analysis in appendices

Corporation tax payable (0.9)

• (1.3)

Other 1.7 (4.8) 0.5

Includes deferred tax assets/(liabilities)

Shareholders’ funds 40.7 (2.5) 41.0

Positive net tangible assets

CONSOLIDATED UNAUDITED H1 2018 BALANCE SHEET

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CONSOLIDATED UNAUDITED H1 2018 CASH FLOW STATEMENT

H1 2018 H1 2017 FY 2017

Notes

£m £m £m Operating (loss)/profit

(1.9) 0.4 (22.6) Depreciation 0.5 0.3 0.7 Amortisation 5.0 2.6 27.6 Accelerated amortisation in 2017 Share based payment charges 1.1

• Movement in trade and other receivables

(8.1) 0.4 0.3 £4.6m increase in revenue in excess of billings (£3.2m on one contract), £1.4m increase in debtors & £1.1m increase in VGTR Movement in trade and other payables

• (0.1)

3.1

Net cash flow from operating activities

(3.4) 3.6 9.1 Net finance costs

• (0.7)

(5.4) Leveraged structure pre IPO Tax paid (1.0) (0.7) (0.5) Capex (1.5) (0.4) (1.7) Acquisitions

• (2.3)

(2.3) Atomhawk Proceeds from issue of shares

• 67.4

Transaction costs relating to issue of shares

• (1.9)

Net repayment of borrowings

• (1.6)

(56.7) Repayment of borrowings on IPO in December 2017

Net cash flow

(5.9) (2.1) 8.0

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GUIDANCE / UPDATE

Overheads

• As previously indicated significant investment for 2018: plc costs, new roles (IT, Development Directors, Business

Development), Atomhawk full year, Newcastle Studio and redesigned bonus scheme

• >£2m increase year on year – small reduction in EBITDA margin in 2018

Tax

• Tax credit of £0.5m
• Tax charge driven by deferred tax on share based payment charge and timing of VGTR

Working capital

• Expected outflow in 2018 - investment in one contract and capex
• Change to treatment of pass through cash in H2 2018

Capex

• Expecting £3.0m to £3.5m in 2018 on premises and new systems

The Chinese Room

• Expect small operating loss through remainder of 2018 and to be profitable in 2019
• Transaction costs c. £125k
• Capital cost of investment low

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The Studio

• Took on the studio from CCP Games 1 January 2018
• Team of 34 – known to Sumo with strong leadership
• Located in Gateshead near Atomhawk – about to move to

same building

• Favourable financial terms
• Highly utilised from February
• Fully integrated

What it brings to Sumo Digital

• Technical capacity, strong creative direction and great VR

experience

• New studio location and access to new pool of talent
• Proven and highly regarded team well known to Sumo –

accelerated recruitment

• Work from CCP Games and strengthened links

SUMO NEWCASTLE STUDIO

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What it brings to Sumo Digital

Acceleration of Own IP pipeline and new intellectual property

• Dear Esther and So Let Us Melt
• Two original concepts including 13th Interior which is at prototype stage

Creative Talent

• Dr Dan Pinchbeck

New studio location

• 2,700 sqft studio in Brighton
• Studio Director appointed
• Recruitment underway
• New talent pool in creative hotspot

THE CHINESE ROOM

The Company

• Founded 2007 by Dr Dan Pinchbeck
• Award winning independent game development studio known

for experimental first-person games

• Games published: Dear Esther, Amnesia: A Machine for Pigs,

Everybody’s Gone to the Rapture and So Let Us Melt

• Multiple awards including three BAFTAs

The Deal

• Consideration £2.2m: £1.6m cash and 357,485 shares - 12

month lock in

• Acquired £1.6m cash so net consideration £0.6m in shares
• Dan Pinchbeck stays as Creative Director and participates in

LTIP

• Ownership of IP
• Retain the brand name

Financials

• Modest revenue on published games
• Expect small loss in H2 2018 while recruiting
• Capital cost low

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OPERATIONS

• 1. As at 31 August 2018.

Sumo Digital

Sheffield HQ

• Established 2003 - headquarters and primary site of Sumo’s
• perations
• Multiple, separate buildings - assists development of projects

simultaneously

Nottingham

• Established 2016 - recruit from two centres and tap into a wider

talent pool

Newcastle

• In 2018, took on the Newcastle studio of CCP Games through an asset

purchase agreement

Brighton

• Acquired with The Chinese Room in August 2018

Pune, India

• Established 2007 - provides lower cost highly skilled workforce for

premium services

Atomhawk

Newcastle

• Established 2009

Vancouver

• Established 2017
• Moved to larger premises February 2018

Group headcount1

554

+65 since 31 December 2017

Direct headcount1

456

+41 since 31 December 2017

Acquisition pipeline

Acquired The Chinese Room with studio in Brighton and considering other new studio and/or acquisition

• pportunities

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DEVELOPMENTS IN THE MARKET

• Crackdown E3 trailer well received – launch date

February 2019

• Team Sonic Racing announced – Best Racing Title by

Curse

• Hitman 2 to be published by Warner Brothers November

2018

• Microsoft announced five new first party game

development studios including four acquisitions: Playground Games, Ninja Theory, Undead Labs and Compulsion Games

• New Xbox hardware and Xbox game streaming

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IN DEVELOPMENT

The genre defining franchise returns with Super Destruction, Overkill Action and Terry Crews!

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IN DEVELOPMENT

3rd Generation Sonic Racing Title

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IN DEVELOPMENT

Co-developing the multi-million selling, cross-platform franchise with IO interactive.

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IN DEVELOPMENT

Connect to the massive EVE Online Universe through the lens of a brand new first person shooter!

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DEVELOPMENT FEES

• Good visibility
• Strong business development pipeline
• Royalty opportunity

18 2018 2019 2020

THE OWN IP OPPORTUNITY

CREATIVE SUB COMMITTEE/ CONCEPT TEAM

Dedicated resource and across site engagement

SELF FUNDED GAMES

Snake Pass/ new own - IP Likely to be c.£1m cost May self publish

GAME JAMS

Creative output from staff engagement

ACQUISITIONS

The Chinese Room

CO FUNDED GAMES

Larger games Mainly funded by third party / VGTR Pitch to publishers Upside potential

OPPORTUNITY TO OUTPERFORM WITH LOW RISK

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GROWTH STRATEGY

2018 2019 2020 2021

Studio Acquisition CCP Newcastle

2016

Nottingham Studio Opens New locations?

Deliver & Expand

1. Grow market share in existing markets 2. Grow existing client accounts by extending services 3. Grow into new territories 4. Grow into new markets Acquisition of The Chinese Room Further Acquisitions? New locations?

PC Mob PC Mob VR PC

Mob

VR

Mob

PC VR

IPO Acquisition of Atomhawk Further Acquisitions?

20 Win New Customers

New Revenue Streams Own IP

To extend global reach

SUMMARY AND OUTLOOK

• Visible contracted revenue model
• Strong first half of 2018
• Acquisition of The Chinese Room – small but exciting
• pportunity
• Delivering significant revenue and profit growth
• Investing in people and systems for future growth
• Strengthening strategic partnerships
• Strong pipeline of opportunities in growing market
• Trading in line with Board’s expectations
• Board confident in the long term prospects of the Group

WELL POSITIONED TO DELIVER THE GROWTH STRATEGY

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APPENDICES

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FINANCIAL CALENDAR

Announcement of half-year results

25 September 2018

Financial year end

31 December 2018

Preliminary announcement of full-year results

April 2019

Publication of Annual Report and Accounts

May 2019

Annual General Meeting

June 2019

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SHAREHOLDER INFORMATION

Significant shareholders Number of shares % Holding Perwyn Bidco (UK) Limited 41,170,961 27.4% Aghoco 1337 Limited (as trustee of the Sumo Group plc EBT)* 21,235,933 14.2% BlackRock Inc 14,395,963 9.6% Liontrust Investment Partners LLP 8,000,000 5.3% Swedbank Robur Fonder AB 7,807,391 5.2% Schroder Investment Management 6,500,000 4.3% Total number of shares in issue 150,063,296 Fully diluted share capital 155,698,555

*16,617,198 are owned by Carl Cavers, Paul Porter and Darren Mills. The remaining shares are held in respect of LTIP awards granted in March 2018.

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THE TEAM

• Co-founded Sumo Digital in 2003
• Over 20 years of industry experience having previously been VP of Development at Infogrames
• 2015 recipient of the TIGA Most Outstanding Individual Award
• Led secondary buy-out with Perwyn in 2016

Carl Cavers – Co-Founder & Chief Executive Officer

• Appointed CFO in 2017
• Big Four qualified chartered accountant with c.30 years post-qualified experience as Finance

Director, Non Executive Director and Consultant. Previously worked in M&A with Rothschild

• Experience of PLC and Private Equity roles including as Group Finance Director of WYG plc, and as

Non Executive Director and Chair of the Audit Committee of Sweett Group plc

David Wilton – Chief Financial Officer 25

INCENTIVES

Management incentive schemes

2018 2019 2020 2021 Total £m £m £m £m £m

Nil cost options at or after IPO 0.7 0.4

• 1.1

LTIP awards in March 2018 1.8 2.2 2.2 0.4 6.6 Share Incentive Plan with 3:1 matching and 200 free shares – launched July 2018 0.1 0.1 0.1 0.1 0.4 Total 2.6 2.7 2.3 0.5 8.1 Redesigned bonus scheme

• SMART objectives
• Broader and deeper participation – additional c.30 senior employees provided with specific targets including Operating Board, Studio Directors, Discipline Directors and Development

Directors, some of whom had smaller discretionary bonuses in the past

• Scope for self-funded element for outperformance

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SUMO DIGITAL

27

ATOMHAWK

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CORE DEVELOPMENT REVENUE MODEL

Visibility of development fees with upside from back-end royalties

Middleware/Tool Providers Game Developers Game Publishers Hardware manufacturing Retail and Distribution Consumer

Contracted Development Fees – Paid on a 4-6 week development cycle based on milestones

Royalties

Concept & Pre- Production Production and Finalisation Downloadable content & Games as a service

Sumo control production and delivery…

Illustrative Project

… and share in upside on strategic projects

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HISTORY

2003 Sumo Digital founded 2007 Acquired by Foundation 9 2014 MBO backed by NorthEdge 2016 SBO backed by Perwyn 201 7 Acquisition of Atomhawk 201 7 Successful IPO 2018 Took on Newcastle studio of CCP Games 2018 Acquisition of The Chinese Room

From a ‘work for hire’ game developer to a strategic partner with some of gaming’s biggest players Track record for delivering high quality, on budget and on schedule

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TRADE AND OTHER RECEIVABLES & TRADE AND OTHER PAYABLES

June 2018 £m June 2017 £m December 2017 £m

Revenue in excess of billings Contract 1 5.3

• 2.1

Contract 2 2.7

• 1.6

Other 0.4 0.4 0.1 Billings in excess

• (0.3)

(1.6) Trade debtors 2.7 2.7 1.3 VGTR 5.7 6.1 4.6 Other 1.4 1.2 2.1 18.2 10.1 10.2 Trade creditors (3.8) (1.3) (2.5) Billings in excess (1.0)

• Other provisions

(6.0) (6.0) (8.3) (10.8) (7.3) (10.8)

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Consolidated income statement y/e 31 December 2017 Unaudited H1 2018 IFRS 15 adjustment Other Underlying HY 18 Unaudited H1 2017 IFRS 15 adjustment Other Underlying H1 17

Revenue 22.9 0.3 (3.6) 19.6 14.3 (1.1) 13.2 Gross profit 7.9 0.3 8.2 5.3 5.3 Operating expenses excluding, depreciation, amortisation, exceptional items, share based payment charge and the impact of IFRS 15 financing recognition (2.9) (0.3) (3.2) (1.9) (1.9) Adjusted EBITDA 5.0 5.0 3.4 3.4 Depreciation (0.5) (0.5) (0.3) (0.3) Net finance costs 0.1 (0.2) (0.1) (2.4) 2.4

• IFRS 15 financing impact

(0.3) 0.3

• Amortisation of software

(0.1) (0.1) (0.1) (0.1) Adjusted Profit before tax, exceptional items and amortisation of customer contracts and customer relationships 4.2 0.1 4.3 0.6 2.4 3.0 Operating expenses - exceptional

• (0.1)

Share based payments charge (1.1)

• Amortisation of customer contracts and customer

relationships (4.9) (2.5) Loss before taxation (1.8) (2.0)

RECONCILIATIONS

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CONTACT

Sumo Group plc (LON : SUMO)

Carl Cavers, Chief Executive Officer Carl.Cavers@SumoGroupPlc.com David Wilton, Chief Financial Officer David.Wilton@SumoGroupPlc.com

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