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GROWING
OUR PORTFOLIO
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
A MULTI-FRANCHISE
SUCCESS STORY
Frontier Developments plc (‘Frontier’), listed on the AIM stock
market (AIM: FDEV), is a world-class video game developer
and publisher with multiple revenue generating franchises.
Founded in 1994 by David Braben, co-author of the seminal Elite game and based
in Cambridge, Frontier uses its proprietary ‘COBRA’ game development technology
to create innovative games, currently focusing on video game consoles and
personal computers.
Having successfully completed a transition to a self-publishing model with its first two franchises,
Frontier is scaling up to expand its franchise portfolio in order to deliver long-term revenue
and earnings growth.
In the financial year ended 31 May 2018, the ongoing success of Frontier’s first two franchises,
Elite Dangerous (launched December 2014) and Planet Coaster (launched November 2016)
supported the investment in Jurassic World Evolution, which launched successfully in June
2018 (after the end of the financial year) and will deliver the next step up in financial
performance for the Company.
We have a proven track record of sustaining and nurturing existing franchises to deliver multi-year
revenues, with each new franchise release providing a step-up in overall Company financial
performance, and we have proven our ability to successfully launch franchises for a third
time with Jurassic World Evolution. Our ambition is to create a multi-franchise success
story, and we remain excited about the prospects for our industry and for our Company.
STRATEGIC REPORT
01 Highlights
02 Frontier at a glance
03 Chairman’s statement
04 Chief Executive’s statement
06 Our business model and strategy
08 Our franchises
08 Elite Dangerous
10 Planet Coaster
12 Jurassic World Evolution
14 Financial review
16 Principal risks and uncertainties
CORPORATE GOVERNANCE
18 Board of Directors
20 Report of the Directors
22 Corporate governance report
27 Remuneration report
FINANCIAL STATEMENTS
29 Independent Auditor’s report
34 Consolidated income statement
34 Consolidated statement of comprehensive income
35 Consolidated statement of financial position
36 Consolidated statement of changes in equity
37 Consolidated statement of cashflows
38 Notes to the financial statements
58 Company statement of financial position
59 Company statement of cashflows
60 Company statement of changes in equity
ADDITIONAL INFORMATION
61 Notice of Annual General Meeting
IBC Five-year summary
IBC Advisors and Company information
Read this report online:
AR.FRONTIER.CO.UK
STRATEGIC REPORT
HIGHLIGHTS
WE CONTINUE
TO SCALE UP
Financial KPIs
Total revenue (£m)
£34.2m
34.2
37.4
18
17
16
15
14
9.5
21.4
22.8
Operating profit (£m)
£2.8m
2.8
18
17
16
15
(1.7) 14
1.2
1.6
7.8
Operating margin (%)
8%
21
8
6
7
18
17
16
15
14
(18)
EBITDA* (£m)
£9.4m
18
17
4.9
6.1
16
15
0.3
14
9.4
12.7
Operating cash flow** (£m)
£(2.8)m
(2.8)
18
(2.7)
(3.4)
3.4
2.6
17
16
15
14
EPS (basic) (p)
9.6p
9.6
4.2
4.9
18
17
16
15
14
(5.8)
Net cash balance (£m)
£24.1m
18
17
16
15
14
12.6
8.6
10.5
8.6
22.7
24.1
*
Earnings before interest, tax, depreciation and amortisation
** Operating profit excluding non-cash items, less investments in franchises
and other intangible assets
Operational highlights
• Frontier’s strategy of sustaining and nurturing its franchises
continues to deliver, as both Elite Dangerous and Planet Coaster
continue to thrive.
• Elite Dangerous, which launched in December 2014, delivered
its fourth year of sustained substantial revenue generation in FY18.
In June 2017 the franchise’s addressable audience was further
expanded with its release on the Sony PlayStation 4 platform,
and we launched the Beyond season of free updates to continue
to appeal to new and existing players by providing additional
gameplay features and further narrative.
• Planet Coaster, which launched in November 2016, continues
its genre-leading popularity. During the year we started to
release chargeable themed expansion packs, each of which
adds substantial features and content for players and generates
additional sales for the franchise beyond the initial game purchase.
• Towards the end of FY18 we completed the development of
our third franchise, Jurassic World Evolution, as planned
and, in June 2018 (after the end of FY18), achieved a third
successful franchise launch with its release alongside
the launch of the Jurassic World: Fallen Kingdom film.
• £17.7 million was raised in July 2017 through a strategic
investment from Tencent, a leading internet and interactive
entertainment company based in China, to improve and
accelerate Frontier’s growth into the key Chinese market
and help drive scale-up of the business.
• In October 2017 the first Frontier Expo was held, a Frontier-specific
event which brought together Frontier’s developers, player
community members and media to spotlight major franchise
announcements, maximising awareness and further
building Frontier’s profile.
Financial highlights
• Total revenue of £34.2 million in FY18 reflected sustained sales
performances for both Elite Dangerous and Planet Coaster
following the step-up in sales in the prior period from the
launch of Planet Coaster in November 2016 (FY17 revenue
grew 75% over FY16).
• As anticipated, a combination of slightly lower annual sales
resulting from no new franchise launch in FY18 and our planned
increased investment in development and marketing saw
operating profit reduce to £2.8 million (FY17: £7.8 million)
and EBITDA reduce to £9.4 million (FY17: £12.7 million).
• Operating cash flow (operating profit excluding non-cash items,
less investments in franchises and other intangible assets)
was an outflow of £2.8 million (FY17: inflow of £3.4 million),
reflecting the investment in Jurassic World Evolution.
• Cash balances increased by £11.5 million during the year
to £24.1 million (FY17: £12.6 million) following the £17.7 million
strategic investment by Tencent in July 2017.
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 01
FRONTIER AT A GLANCE
WE HAVE PROVEN OUR ABILITY
TO LAUNCH SUCCESSFUL FRANCHISES
CHAIRMAN’S STATEMENT
DAVID GAMMON, NON-EXECUTIVE CHAIRMAN
DELIVERING FOR
OUR STAKEHOLDERS
Elite Dangerous
Planet Coaster
Jurassic World Evolution
Available for Windows PC, Microsoft Xbox
One and Sony PlayStation 4 – is the definitive
massively multiplayer space epic, bringing
gaming’s original open world adventure to
the modern generation with a connected
galaxy, evolving narrative and the entirety
of the Milky Way recreated at its full
galactic proportions.
Available for Windows PC – builds on Frontier’s
genre-defining expertise with coaster park
games such as RollerCoaster Tycoon 3 and
Thrillville. It further raises the bar for this
popular genre, allowing players to let their
imaginations run wild as they surprise, delight
and thrill incredible crowds, and share their
success with the world via the Steam
Workshop community.
Read more from page 8
ELITEDANGEROUS.COM
Read more from page 10
PLANETCOASTER.COM
Available for Windows PC, Microsoft Xbox
One and Sony PlayStation 4 – evolves
players’ relationships with the Jurassic
World film franchise, placing them in control
of operations on the legendary island of Isla
Nublar and the surrounding islands of the
Muertes Archipelago. Players will create
and manage their own Jurassic World as
they bioengineer new dinosaur breeds,
and construct attractions, containment and
research facilities. Every choice leads to a
different path and spectacular challenges
arise when ‘life finds a way’.
Read more from page 12
JURASSICWORLDEVOLUTION.COM
Revenue history (£m)
FY18
1.5
FY17
1.0
FY16
0.3
3.8
FY15
FY14
9.0
0.5
32.7
36.4
21.1
19.0
Revenue from work-for-hire
Revenue from self-publishing
02
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
We are well positioned
for the future.
I am pleased to report on another healthy
year for Frontier. Our first two franchises
continued to perform well, and our
team did a terrific job on the development
and successful launch of Jurassic
World Evolution in June 2018. Our chosen
business model of multi-franchise
self-publishing is delivering well for
our Company and all of its stakeholders,
including our community of players,
our employees and our investors.
Our long-term ambition to become a global
leader in entertainment remains on plan.
We are scaling up to continue our multi-franchise
success story through the development and
growth of our internal capabilities together
with an expanding use of external resources.
Our proven ability to both launch and sustain
franchises within a self-publishing model,
as well as our long history of delivery and
capability, positions us very well to continue
our organisational development. It is pleasing
to see both Elite Dangerous and Planet Coaster
selling strongly in their fourth and second
financial years respectively. This validates
our model of establishing franchises with
enduring appeal rather than for the short
term. Franchises four, five and six are all
at different stages of development, from
full scale production to conceptual design
stage. In addition we have exciting plans
for our three existing franchises.
We benefit from a highly experienced
team at Board level. In September 2017
our Board was further strengthened
through the appointment of James Mitchell
as a Non-Executive Director. We invited James,
who is Chief Strategy Officer at Tencent,
to join the Board in order to gain his
insights into the Chinese market and the
wider global entertainment industry,
following the £17.7 million strategic investment
made by Tencent in July 2017. James has
already proven to be an invaluable member
of the Board and we are delighted with
his appointment.
At the AGM in October 2018 our Chief Operating
Officer, David Walsh, will transition to a
Non-Executive Director role in order to
focus his attention on a start-up opportunity
outside of the games industry. I would like
to thank David for his 17 years of excellent
service to Frontier, and I am delighted that
he will continue to contribute in a Non-Executive
role. David’s responsibilities are being allocated
between James Dixon, Director of Operations,
Stewart Stanbury, Director of Marketing and
Alex Bevis, CFO. James Dixon has been with
the Company for over 20 years and has
a wealth of experience of both the game
development and operational aspects of the
company. Stewart Stanbury joined Frontier
in September 2017 from Google, where he
specialised in digital marketing, brand and
strategy for top games industry clients including
Activision, EA, Ubisoft and Wargaming as
Games Industry Manager for the Media &
Entertainment Sector.
We have already achieved a lot since we
started our transition to a self-publishing
multi-franchise model, but there is much
more to come. We are well positioned for
the future as a result of the dedication,
engagement, skill and professionalism of
our amazing team, and I would like to take
this opportunity, on behalf of the Board, to
thank them for their tremendous efforts.
DAVID GAMMON
NON-EXECUTIVE CHAIRMAN
5 September 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 03
STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT
DAVID BRABEN, FOUNDER & CEO
GROWING OUR
PORTFOLIO
I would like to thank everyone
at Frontier and all our players
around the world.
In January 2019 Frontier will celebrate
its 25th anniversary since I founded
the company in January 1994. Both
the industry and our Company have
undergone significant change throughout
that time, and I am personally very
proud of all of our achievements. I am
particularly pleased with the success
of our transition to self-publishing over
the last five years. The rise of digital
distribution was the catalyst for our
change, and our extensive experience
in the games industry gave us the
confidence to make the switch. I believe
our decision has been proved correct
by the ongoing performance of our first
two franchises, Elite Dangerous and
Planet Coaster, and the successful
launch of Jurassic World Evolution.
I would like to thank everyone at
Frontier for their continued contribution
and hard work and thank our players
around the world who continue to make
all this possible.
THE GAMES MARKET
We operate in an exciting and growing industry
that continues to see rapid change. The games
market is already the premier form of
entertainment worldwide, worth over
$100 billion per year within the wider
$300 billion entertainment industry. That
is larger than each of the film, TV or music
industries. The games sector is growing fast
too, increasing at around 10% last year,
whilst some other entertainment sectors,
such as TV, have experienced declines. The
lines between entertainment sectors
continue to blur, as audiences crave greater
levels of interactivity within their
entertainment experiences; more than just
shouting at their TVs! These are exciting
times and Frontier is well placed to both
drive and support future changes in the
wider entertainment industry, including the
potential addition of whole new forms
of entertainment.
The games market is typically seen as three
different sectors: PC, console and mobile/
tablet. The characteristics of each sector
are quite different. Our development focus
is currently on PC and console titles, as the
audiences on these platforms highly value
games exhibiting Frontier’s key development
strengths such as compelling gameplay and
high production quality. In contrast the mobile
sector is overcrowded, with a very low barrier
to entry, so success is both much less
predictable and much less influenced by
quality. ‘Discoverability’ (the ability to find
a title) is also better on PC and console, with
excellent support from reviewers, ‘youtubers’
and social media.
The whole market is moving rapidly towards
digital download as the primary delivery model.
Mobile and PC are now almost 100% digital,
and the console audience is quickly adopting
digital downloads too, as market focus moves
to the new generation of hardware and older
business models are replaced.
There are already some very large and
well-established companies in the games
market, with a number of companies
supporting $1 billion+ valuations. Two of
the largest publishers and developers, EA
and Activision Blizzard, both based in the
US, have a combined value of around $100
billion. However, our industry has always
thrived on disruption, in terms of individual
games, game genres, charging models,
technology and routes to market, and it has
been interesting to observe the impact of
some of those disrupting factors in the last
12 months. Our chosen model – supporting
our games and their communities with
regular updates, essentially ‘games as
a service’ – is working very well, producing
three out of three successful franchises so
far, but we will continue to monitor and
consider different options as the industry
continues to evolve.
04
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
STRATEGY
We believe that publishing our own franchises
is the best way to maximise the benefit of
our core skills, our assets and our COBRA
technology platform. The Company’s focus
is on developing top-quality self-published
PC and console titles for digital distribution.
Generally the audiences on these platforms
value the types of high-quality games that
Frontier is able to deliver.
We will also continue to follow our repeatable
model, to create further franchises in popular
game genres where we can use our key
expertise and knowledge and/or IP to deliver
highly differentiated, best-in-class player
experiences, and further build our revenue
pipeline over the long term.
Our strategic objective is to create long-term
sustainable growth through success by
publishing a growing number of franchises.
Our strategic focus is on two key areas:
• developing our business to achieve
repeatable success; and
• creating and managing franchises.
Frontier is scaling up to build a broad portfolio
of franchises, each different to the last, and
each with the capability to offer sustained
revenue streams as already seen with Elite
Dangerous and Planet Coaster. Releases of
new franchises can be expected to drive
steps up in the Group’s financial performance.
Because of the small number of franchises
and relatively infrequent major releases
Frontier is currently able to make, revenue
is sensitive to the specific schedule of such
releases and may therefore exhibit ‘stepped’
behaviour across financial years, as those
new franchises are released. In the future,
as we successfully scale the number and
frequency of franchise releases, annual
revenue growth should accelerate and our
dependency on each major release
should decrease.
We aim to accelerate our output to achieve
one major launch every 12 months or so,
but this will not require us to increase our
workforce linearly because supporting existing
franchises typically requires less resource
than creating new ones.
Overall we will continue to focus on
opportunities which leverage our existing
expertise, intellectual property, publishing
presence, relationships and financial
position. As stated in the Group’s previous
Annual Reports and other communications,
in addition to the current core model of using
internal resources supplemented by outsourced
services, the Group will continue to explore
other opportunities to accelerate its scale-up.
External partnerships are an important element
within our plans and such opportunities
are likely to include third party publishing
(controlling the promotion and distribution
of other developers’ games), commissioning
(outsourcing the majority of development
of Frontier games to other developers), and
enhancing the Group’s franchise portfolio
or capabilities via acquisitions.
I look forward to working with Frontier’s
fantastic team and our partners to build on
our early self-publishing success and establish
a new long-term, self-published track record
of quality, innovation and delivery as we
scale-up to continue our multi-franchise
success story.
Current trading and outlook
The launch of Jurassic World Evolution,
in June 2018 has led a record trading
performance during the period from the
year end (31 May 2018). Digital sales of
Jurassic World Evolution have been
substantial across all three platforms, (PC,
PlayStation 4 and Xbox One) and physical
disc sales on PlayStation 4 and Xbox One
have also been significant. On 19 July 2018
Frontier announced that cumulative sales
on all formats had passed 1 million units,
just 5 weeks after the digital launch on
12 June 2018.
We are pleased with the positive early sales
and player feedback for Jurassic World
Evolution. This initial success further
demonstrates our ability to add new franchises
to our portfolio and emphasises our capability
to both develop and publish top tier IP,
reinforcing our appeal as a partner to IP
holders. The timing of our launch to
coincide with the film release of Jurassic
World: Fallen Kingdom confirms our ability
to ship a new game on a hard deadline
simultaneously across three high-end
gaming platforms (PC, PlayStation 4 and
Xbox One).
Our first two franchises, Elite Dangerous
and Planet Coaster, both supported by our
strategy of ongoing development, continue
to perform well, delivering a sustained
revenue contribution during the period
from 31 May 2018.
Although it is still early in terms of both
Frontier’s financial year and the life-cycle
of Jurassic World Evolution, the Board
is comfortable with the current range of
analyst revenue projections of £75 million
to £88 million for FY19 (the year ending
31 May 2019), a substantial increase over
the £34 million achieved in FY18.
David Braben, Chief Executive, said:
“ Jurassic World Evolution has achieved our
biggest launch to date, and we are now very
well positioned with three successful revenue
generating franchises. We will continue to
support and enhance all three of our existing
franchises (Elite Dangerous, Planet Coaster
and Jurassic World Evolution), and we’ll be
making a number of exciting announcements
about each franchise in due course. Franchise
four, which is based on our own un-announced
IP, is now in full development and targeted
for release in FY20, and two more
new franchises are in earlier stages
of development.”
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 05
STRATEGIC REPORT OUR BUSINESS MODEL AND STRATEGY
OUR MULTI-FRANCHISE
MODEL
What we do
Employees
R&D
In-house technology
Audience
Partnerships
CREATE
Frontier uses experience gained from
a track record in the games industry over
three decades to create franchises that
build on our world-class expertise.
High quality
Innovative experiences
BUILDING PLAYER
NUMBERS AND
ENGAGEMENT
NURTURE
Frontier avoids ‘pay-to-win’ features,
instead continuing to expand each franchise
offering through an ongoing program of free
and paid-for expansions and add-ons.
Boost player experience
Increasing awareness
CREATING AND NURTURING TO ACHIEVE REPEATABLE SUCCESS
Creating and managing franchises
OVERVIEW
In order to maximise the return on our core
skills and assets we target game genres on
PC and Console platforms where we believe
we can both i) deliver high-quality, differentiated
offerings using established expertise and
intellectual property, and ii) have a strong
chance of successful market entry, based on
past experience or knowledge of that sector.
We use this repeatable model to invest our
resources with the intention of creating
world-class games with strong franchise
potential and plan for strong post-launch
franchise support to further help realise
this potential.
OUR SCALE-UP MODEL
We will continue to grow the capacity
and capability of our organisation in both
commercial and development areas in
order to further the successful evolution
of our franchises.
As part of this process, we will explore
potential partnerships and licensing
opportunities. We will also continue to
review potential acquisition targets that
could augment our capacity or add new
capabilities as well as IP that may help
us achieve our goals.
We will endeavour to enhance and expand
our franchises and grow their audiences
using appropriate additional products,
platforms, media, marketing, distribution
channels and charging models through
investing in the necessary people, organisation,
resources and infrastructure.
JURASSIC WORLD EVOLUTION (2018+)
FUTURE FRANCHISES
PLANET COASTER (2016+)
ELITE DANGEROUS (2014+)
06
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
Developing our business to achieve repeatable success
INVEST
We invest our development resources in
games with strong franchise potential. In
order to maximise the return on our core
skills and assets we target game genres
where we have established expertise
and/or intellectual property.
We continue to invest in our organisation
to create a model of repeatable success.
To accelerate our progress and increase
the frequency of launches we are scaling
up our organisation, not just in terms of
staff numbers, but also in terms of leadership
skills, training, organisational structure,
process and external partnerships.
We also invest in the necessary facilities to
support our world-class team. In April 2018
we moved all of our staff into a brand new
office space on the Cambridge Science Park.
It is our belief that having all our people in
Cambridge working together in a single
building helps to maximise our operational
effectiveness and efficiency.
DEVELOP
Our development focus is on PC and console.
Audiences on these platforms tend to value
games that exhibit Frontier’s key
development strengths.
We use online channels to create and
engage with a player community during
game development, which provides a
valuable source of both feedback and
advocacy for each franchise before
first release.
Our development process uses our proprietary
COBRA development tools and technology to
facilitate innovative features and the creation
of top-quality self-published games with
strong differentiation for the PC and console
audiences. Our control of this technology also
removes the risk related to ongoing access
to third party licensed technology alternatives,
the risk relating to the ability to fix uncovered
problems in that technology and the risk
related to the lack of control over the delivery
dates and new feature roadmap of such
solutions. It also facilitates rapid response
to market opportunities, for example as
happened with support for Virtual Reality
and Augmented Reality.
PUBLISH
We continue to assess the distribution
channels and platforms we use to achieve
an optimal addressable audience for each
game, and the monetisation strategy for
each franchise. We participate in price
promotions on each of the distribution
platforms we use for each of our games as
appropriate to its life-cycle stage, allowing
us to reach the widest possible audience
over time.
We also monitor the geographical performance
of our franchises, understanding and
monitoring under and over performance
versus expectations in each territory, and
will continue to look for opportunities to
tailor our local price to a level more appropriate
to each local economy. In particular we note
the rapidly growing Chinese market for
premium PC games, and we expect our strong
relationship with Tencent to help us to take
advantage of its unparalleled expertise and
distribution capabilities in its home market
for our franchises.
Future franchises
We are building a broad portfolio of
franchises, each different to the last and
each with the capabilities to expand over
time. All future franchises will be selected
using the same approach described above
that was used for Elite Dangerous, Planet
Coaster and Jurassic World Evolution. We are
scaling up for the future so we can release
games more frequently, and we already have
future franchises in different phases
of development.
Subject to Frontier’s disclosure obligations as
an AIM company, it is the Board’s intention to
make announcements about future franchises
at the optimum time for the success of that
particular franchise. This may be some time
after the start of a particular project, and not
necessarily at the time of the signature of an
agreement with a development or IP partner.
Our future franchise portfolio is likely to
contain a mixture of owned IP (like Elite
Dangerous and Planet Coaster) and licensed
IP (like Jurassic World Evolution). We are
pleased with the initial sales and feedback
for Jurassic World Evolution, which illustrates
that we can develop and publish world-leading
IP alongside a major film launch; we will
review the value of licensing proven third
party IP versus developing our own IP for
each potential future franchise on a
case-by-case basis.
Franchise four, which is based on our own
un-announced IP, is now in full development
and targeted for release in FY20, and two
more new franchises are in earlier stages
of development.
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 07
STRATEGIC REPORT OUR FRANCHISES
ELITE DANGEROUS
BLAZING A TRAIL
INTO THE BEYOND
Each Beyond update is free for all players,
regardless of whether they have the Horizons
season pass. Beyond focuses on enhancements
to the overall player experience, bringing
foundational changes to the core systems of
Elite Dangerous and delivering new in-game
content for Commanders to experience as
they explore the massively multiplayer galaxy.
The Elite Dangerous franchise continues
to perform strongly and we continue to
focus on enhancements within the strategy
of further improving perceived quality and
sentiment, adding significant long-term
new features and supporting the unique
evolving player-driven story, which all
players experience together. We expect
to further expand the player base over
the next financial year, adding new content
and increasing the audience.
We continue to invest significant effort into
Elite Dangerous which we expect to yield some
exciting future developments – more to come!
ELITEDANGEROUS.COM
Elite Dangerous is now in its fifth financial
year since release in December 2014.
Since launch we have continued to release
expansions to the original Elite Dangerous
game, simultaneously on PC, Xbox One and
PlayStation 4 as those platforms have
been added.
Simultaneous releases on all supported
platforms are planned to continue going
forward, including Sony’s PlayStation 4
following the franchise’s debut on the
platform in June 2017 which significantly
expanded its addressable audience.
These updates add to the quality of the game,
renew the interest of existing players and
also generate additional coverage, resulting
in new sales. The attach rate of Elite Dangerous:
Horizons to the base game continues to grow
steadily, helped by the regular updates.
Having the base game and Horizons expansions
in the market covers mid-price entry to the
franchise with an upgrade path, and we bundle
the two together and add some digital items
to create a Deluxe edition for a premium
price point entry. We believe each product
in the franchise offers great value.
The third Elite Dangerous season, Beyond,
was announced in October 2017 at Frontier
Expo 17. Chapter 1 launched in February 2018,
Chapter 2 launched in June 2018 and
Chapter 3 launched in August 2018.
08
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
Ongoing development
THE HORIZONS SEASON OF EXPANSIONS
Each expansion offers new headline gameplay features
plus a large number of quality of life enhancements and
other tweaks, fixes and improvements, and there is an
accompanying update to the base game.
2.0
DECEMBER 2015
Planetary Landings was launched in December 2015
and expanded gameplay to planetary surfaces for the
first time.
2.1
MAY – JUNE 2016
The Engineers was launched on PC in May 2016 and Xbox
One in June 2016 and added loot and crafting mechanics
to the game to allow players to upgrade the performance
of their ship and weapons.
2.2
OCTOBER 2016
The Guardians was launched in October 2016 and
expanded the gameplay possibilities of each ship
by adding ship-launched fighters.
2.3
APRIL 2017
The Commanders was launched in April 2017 and
offered the ability for multiple players to crew a ship
and represented player characters in game with
sophisticated customisation options.
2.4
SEPTEMBER 2017
The Return was released in September 2017 and supported
the ongoing story arc related to Thargoids, the franchise’s
first alien species, and their interactions with humans
in the Elite Dangerous galaxy.
The release of 2.4 The Return completed the Horizons
season of expansions.
BEYOND UPDATES
Each Beyond update is free for all players. Beyond
focuses on enhancements to the overall player experience,
bringing foundational changes to the core systems of
Elite Dangerous and delivering new in-game content
for Commanders to experience as they explore the
massively multiplayer galaxy.
BEYOND CHAPTER 1
FEBRUARY 2018
BEYOND CHAPTER 2
JUNE 2018
BEYOND CHAPTER 3
AUGUST 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 09
STRATEGIC REPORT OUR FRANCHISES CONTINUED
PLANET COASTER
EVOLVING COASTER
PARK SIMULATION
Planet Coaster was successfully launched
in November 2016 after a short Beta period,
achieving the global #1 position on the
Steam distribution channel and continuing
to sell strongly through the subsequent
holiday period. In accordance with our
strategy, we began to release free updates,
each of which adds headline features but
also expands and improves different creative
and management aspects of the game.
The Winter Update was released in December
2016 with something for all players. In addition
to new rides being added, there were further
improvements to streamline management
operations within parks, new scenarios, new
shops, new transport rides and a new snowy
winter theme.
The Spring Update was released in April 2017
and added security guard staff members
and go-kart track rides for players to use in
their parks, along with more rides, coasters,
scenarios and further management
improvements, as well as doubling the
maximum size of blueprints that can be shared
via the Steam workshop to 4,000 pieces.
The Summer Update was released in
June 2017 and added customisable firework
displays and video billboards for players
to place in their parks, as well as more
rides, coasters, scenarios and further
management improvements, plus a
new Stars and Stripes scenery set.
In November 2017 the Planet Coaster
Anniversary Update was released, in
celebration of one year since the game’s
launch. It was the fourth major free update
and provided new rides, features and gameplay.
In December 2017 we released
the Planet Coaster Adventure Pack
with new rides, new scenery and
a new entertainer for players to
discover on an all-new creative journey.
In March 2018 the Planet Coaster Studios
Pack was launched, bringing the blockbuster
experience to life with spectacular stunts,
earth-shaking explosions, hotels and rides
that put park guests at the heart of the action.
In July 2018 the Planet Coaster Vintage
Pack was launched, offering nostalgic
classic coasters and rides plus authentic
period scenery that is filled to the brim
with Victorian touches and timeless charm.
We will continue to support Planet Coaster
going forwards; it has a long future ahead
of it!
PLANETCOASTER.COM
This update strategy is intended to further
improve perceived quality and sentiment
by adding significant long-term new features.
Such updates add to the quality of the game,
renew the interest of existing players and
also generate additional coverage, resulting
in new sales.
In July 2017 we released our first three paid
downloadable content (PDLC) packs – all
three involving Universal IP – Back to the
Future, The Munsters, and Knight Rider.
As with Elite Dangerous, this uses a model
that provides an accompanying free feature
update to the base game for all players.
In September 2017 we launched the Planet
Coaster Spooky Pack – the first paid-for
expansion pack – introducing new rides, a new
entertainer, an all-new theme and bold new
creative options. The pack enables players
to mix and match hundreds of new scenery
pieces, two new rides and new building
components with Planet Coaster’s other
unique themed building components.
Ongoing development
WINTER UPDATE
DECEMBER 2016
SPRING UPDATE
APRIL 2017
SUMMER UPDATE
JUNE 2017
FIRST PDLC PACKS
JULY 2017
Involving iconic Universal IP – Back to the Future,
The Munsters, and Knight Rider.
SPOOKY PACK
SEPTEMBER 2017
The first paid-for expansion pack - introducing new rides,
a new entertainer, an all-new theme and bold new
creative options. The pack enables players to mix and
match hundreds of new scenery pieces, two new rides
and new building components with Planet Coaster’s
other unique themed building components.
ANNIVERSARY UPDATE
NOVEMBER 2017
Added the Scenario Editor, giving players tools to
create their own custom scenarios and share them
on the Steam Workshop with friends.
ADVENTURE PACK
DECEMBER 2017
Discover more on your jungle-themed adventure with
thrilling rides, exciting scenery to create your own
pyramids & temples, and lure your guests into ancient
traps and have them encounter some truly scary creatures!
STUDIOS PACK
MARCH 2018
Bring glitzy Hollywood glamour to your park, build the
ultimate backlot tour and bring the blockbuster experience
to life with spectacular stunts, dramatic effects and
rides that put park guests in the heart of the action.
VINTAGE PACK
JULY 2018
Build nostalgic buildings and fairground-style areas
using new vintage looking scenery. Have your guests
try out the classic rides and traditional attractions
reminiscent of old school town fairs.
10
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 11
STRATEGIC REPORT OUR FRANCHISES CONTINUED
JURASSIC WORLD EVOLUTION
BUILD YOUR OWN
JURASSIC WORLD
Jurassic World Evolution, launched on 12
June 2018. It was our first self-published
title (although not our first game) to debut
on PC, PlayStation and Xbox simultaneously,
and the first to benefit from such a major
marketing event as the simultaneous
launch of the latest film in the franchise,
Jurassic World: Fallen Kingdom at the start
of the biggest games industry show of the
year – the E3 show in Los Angeles.
The opportunity was identified using the
same approach described above for Elite
Dangerous and Planet Coaster. Jurassic
World Evolution leverages our management
and builder game expertise, plus our unrivalled
expertise in implementing believable in-game
animals from games such as Dog’s Life,
Kinectimals and Zoo Tycoon. In this case we
determined that being able to use the Jurassic
World IP would significantly benefit awareness
with the most recent movie in the franchise
released in June 2018, around the 25th
anniversary of the original movie. In fact,
our digital launch on 12 June coincided with
the US film premiere in Los Angeles.
Jurassic World Evolution evolves players’
relationship with the Jurassic World film
franchise, placing them in control of operations
on the legendary island of Isla Nublar and
the surrounding islands of the Muertes
Archipelago. Players create and manage
their own Jurassic World as they bioengineer
new dinosaur breeds and construct attractions,
containment and research facilities. Every
choice leads to a different path and
spectacular challenges arise when ‘life
finds a way.’
Jurassic World Evolution was announced
in August 2017, with pre-order announced
on 28 March 2018 for a digital launch on
12 June 2018 on all three platforms. In addition,
physical discs went on sale for Xbox One
and PlayStation 4 on 3 July 2018 for those
who still prefer physical media.
Initial player reaction and engagement with
Jurassic World Evolution has been very positive.
On 19 July 2018 Frontier announced that
cumulative sales on all formats had passed
1 million units, just 5 weeks after the digital
launch on 12 June 2018.
Jurassic World Evolution’s first PDLC pack
was available at launch and as a bundle during
pre-order, and we plan to add further free
updates and paid-for content in the future,
as we have for our other franchises.
JURASSICWORLDEVOLUTION.COM
Ongoing development
DINOSAUR UPDATE
JUNE 2018
This update introduced three new dig sites, a
cast of new dinosaurs which you can bring to
your island, and new InGen database entries.
SEPTEMBER 2018 UPDATE
On 29 August 2018 we announced a free update for
Jurassic World Evolution for release on 13 September
2018. The update will include enhancements to gameplay
including an all new Challenge Mode, more Sandbox
options and new contract types. It will also include visual
enhancements such as sizing adjustments for certain
dinosaurs, lighting options and new viewing cameras.
Two more languages will also be added in the update:
Korean and Italian.
Jurassic World
Evolution’s first PDLC
pack was available at
launch and as a bundle
during pre-order, and we
plan to add further free
updates and paid-for
content in the future,
as we have for our
other franchises.
12
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 13
STRATEGIC REPORT FINANCIAL REVIEW
ALEX BEVIS, CFO & COMPANY SECRETARY
A SOLID SET
OF RESULTS
Elite Dangerous and Planet
Coaster continue to deliver.
OVERVIEW
The ongoing performance of Elite
Dangerous and Planet Coaster delivered
a solid set of financial results for the
12 months ending 31 May 2018 (‘FY18’),
following the significant step-up in
financial performance achieved in the
prior period (‘FY17’) which resulted
from the launch of Planet Coaster in
November 2016. The Group generated
operating profits of £2.8 million (FY17:
£7.8 million) despite increased investments
in development and marketing, particularly
for Jurassic World Evolution. Cash
balances were boosted in the period by
the £17.7 million strategic investment by
Tencent in July 2017; cash balances
at 31 May 2018 were £24.1 million.
TRADING
Total annual revenue was £34.2 million in
the period (FY17: £37.4 million) with both
Elite Dangerous and Planet Coaster continuing
to deliver sustained revenue from both
sales of the game and PDLC. The ongoing
performance of both titles reflects Frontier’s
approach to sustaining and nurturing existing
franchises. It is worth noting that Elite Dangerous
achieved its highest annual revenues to date
in FY18 following a successful launch on
PlayStation 4 in June 2017.
Self-publishing revenue accounted for 95%
of sales (FY17: 97%) with the balance being
related to our legacy work-for-hire business.
This legacy revenue included income from a
royalty dispute which was settled in the period.
Gross profit was £24.1 million in the year
(FY17: £27.4 million) with gross margin at
70.5% (FY17: 73.2%). The largest element of
cost of sales is the margin payable to our
digital distribution partners. The reduced
margin in FY18 largely resulted from the
launch of Elite Dangerous on PlayStation 4
and the release of lower margin physical
disc sales of Elite Dangerous on Xbox One
and PlayStation 4.
Gross research and development
expenses in the period were £15.9 million
(FY17: £12.7 million). The majority of spend
related to internal staff costs, and the increase
in the year largely reflects headcount increases.
However, outsourcing is becoming a more
significant cost element and accounts for
some of the increase in total gross spend
in the period. Capitalisation of development
costs on franchise assets and other intangibles
accounted for £13.4 million in the period
(FY17: £9.6 million), with development costs
of Jurassic World Evolution being the largest
element. Amortisation charges grew to
£6.0 million for the period (FY17: £4.5 million)
reflecting a full year of amortisation charges for
Planet Coaster. Net research and development
expenses recorded in the income statement
in the year were therefore £8.5 million
(FY17: £7.6 million), being gross spend, less
capitalised costs, plus amortisation charges.
Sales, marketing and administrative expenses
grew to £12.8 million (FY17: £11.9 million).
Increases in marketing and facilities costs
were partially offset by lower foreign exchange
charges and a lower level of profit related
bonus accrual. The increased investment in
marketing supported the ongoing success
of existing franchises as well as the launch
of Jurassic World Evolution in June 2018,
with some of the E3 event related marketing
costs falling in June 2018 (and therefore the
FY19 income statement).
As anticipated, the lower level of annual
sales, lower gross profit margin and higher
level of operating costs resulted in a reduction
in operating profit in the period to £2.8 million
(FY17: £7.8 million). EBITDA (earnings before
interest, tax, depreciation and amortisation)
reduced to £9.4 million (FY17: £12.7 million).
A corporation tax credit of £0.7 million was
recorded in the year (FY17: a charge of
£0.1 million). The credit resulted from the
release of a prior year accrual following
completion of the FY17 tax return. The
Group benefits from Video Games Tax Relief
and has accrued tax losses estimated to be
in excess of £10 million as at 31 May 2018.
Profit after tax for FY18 was £3.6 million
(FY17: £7.7 million) and basic earnings per
share was 9.6p (FY17: 22.7p).
BALANCE SHEET AND CASHFLOW
The Company continued to run a robust
balance sheet during the financial year, and
this was further boosted by the strategic
investment from Tencent completed in
July 2017.
Tangible assets increased to £5.0 million
(FY17: £0.7 million) as a result of the fit-out
of the new leased office facility, which the
Company occupied in April 2018.
Intangible assets increased by £7.3 million
to £29.2 million at 31 May 2018 (FY17:
£21.9 million) as investments in franchise
assets, particularly Jurassic World Evolution,
and other intangibles exceeded
amortisation charges.
Trade and other receivables was £6.7 million
at the end of the period (FY17: £2.9 million)
with the increase largely due to pre-order
sales for Jurassic World Evolution. Total
deferred income showed a similar change
for the same reason, with an increase to
£4.3 million (FY17: £1.4 million).
Trade and other payables totalled £5.9 million
(FY17: £4.9 million) with the increase reflecting
accrued distribution costs on Jurassic
World Evolution pre-order sales, partly
offset by a lower level of profit related
bonus accrual.
Cash balances increased £11.5 million during
the year to £24.1 million (FY17: £12.6 million),
as a result of the Tencent strategic investment
of £17.7 million. Operating cash flow (operating
profit excluding non-cash items, less investments
in franchises and other intangible assets)
was an outflow of £2.8 million in the period
(FY17: an operating cash inflow of £3.4 million),
with the change reflecting lower sales and
higher levels of investment.
SHARE ISSUES
Employees exercised options over 1,051,117
Ordinary Shares during the 12 months to
the end of May 2018. Of this total, 985,517
were newly issued shares with the remaining
65,600 resulting from transfers under
arrangements with the Employee
Benefit Trust.
In July 2017 the Company completed a
strategic investment with Tencent Holdings
Limited. Tencent acquired 3,386,252 newly
issued Ordinary Shares at 523.2p per share,
generating proceeds of £17,716,870.
ALEX BEVIS
CFO & COMPANY SECRETARY
5 September 2018
Financial KPIs
Total revenue (£m)
£34.2m
34.2
37.4
18
17
16
15
14
9.5
21.4
22.8
Operating profit (£m)
£2.8m
2.8
18
17
16
15
(1.7) 14
1.2
1.6
7.8
Operating margin (%)
8%
21
8
6
7
18
17
16
15
14
(18)
EBITDA* (£m)
£9.4m
18
17
4.9
6.1
16
15
0.3
14
9.4
12.7
Operating cash flow** (£m)
£(2.8)m
(2.8)
18
(2.7)
(3.4)
3.4
2.6
17
16
15
14
EPS (basic) (p)
9.6p
9.6
4.2
4.9
18
17
16
15
14
(5.8)
Net cash balance (£m)
£24.1m
18
17
16
15
14
12.6
8.6
10.5
8.6
22.7
24.1
*
Earnings before interest, tax, depreciation and amortisation
** Operating profit excluding non-cash items, less investments
in franchises and other intangible assets
14
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 15
STRATEGIC REPORT
PRINCIPAL RISKS AND UNCERTAINTIES
WE EFFECTIVELY IDENTIFY
AND MANAGE RISKS
The Group faces competitive, strategic and financial risks that are
inherent in a rapidly growing emerging market. The executive team
maintains the risk register and escalates the key risks for further
consideration at full Board level on a regular basis.
The key business and financial risks for the Group are set out below:
Description
Mitigation
Change
Description
Mitigation
Change
Staff availability
If the Group does not have the correct numbers
of people with the correct skills available,
the execution of its business plan will
be compromised.
Links to strategy
INVEST DEVELOP PUBLISH
The Group continues to prioritise direct recruitment and outreach.
We have visibility of our future needs via a regularly reviewed plan
of record and undertake analysis of potential bottlenecks. We seek
to minimise days lost to sickness via healthcare benefits and general
morale and wellbeing initiatives. The Group is a Tier 2 visa sponsor,
to facilitate its objective to employ the best possible people from the
worldwide talent pool. In 2017 we expanded our HR team to add
dedicated talent acquisition resources. We also balance internal
and external resources through outsourcing. Brexit is an obvious
concern in respect of sourcing and retaining talent from the EU,
and we continue to monitor this issue.
Staff retention
Staff departures could create staff and key skill/
experience shortages and compromise the
execution of the Group’s business plan.
Links to strategy
INVEST DEVELOP PUBLISH
Whilst there will unavoidably be some level of staff turnover, the
Group believes that its attractive project portfolio, talented staff
and good quality leadership make Frontier a place where talented
people want to build their careers. We use our business success
to deliver benefits to our people, and the Group is undertaking a
programme of improving incentives and leadership skills which
is intended to further enhance its attractiveness as an employer.
We review our security provisions regularly and believe them to be
in accordance with industry best practices.
Cybersecurity
A breach of security could take many forms and
could significantly impact the business and impair
its self-publishing plans.
Exposure includes that of failure of security at our
partners, including Amazon, Valve, Microsoft and Sony.
Links to strategy
INVEST DEVELOP PUBLISH
Execution risk
The Group has transitioned from a work-for-hire
model to a multi-franchise self-publishing model.
Whilst successful project execution is very important
under both models, inherently both the rewards
and the risks under a self-publishing model are
probably greater.
Frontier has a long history of strong project execution. Nevertheless,
it is vital Frontier continues to push itself and so avoid complacency
to retain its excellent execution record. It must continue to challenge
its own internal assumptions and those about the industry trends to
remain at the forefront of the industry. The Group remains confident
that it can use its experience and expertise to continue to deliver on
the product, technology, commercial and operational aspects that
support its strategy.
Links to strategy
INVEST DEVELOP PUBLISH
Change in risk
No change
Increase
Decrease
16
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
The Group has expanded its revenue sources and there has been a
subsequent increase in revenue from non-GBP currencies in the last
few years. Whilst the longer-term economic risks of selling globally
cannot be avoided, forward contracts have been used to gain certainty
over the rate of conversion of foreign currency income. The Group
will continue to review the most effective way of managing
transaction and translation risks.
In order to mitigate the risk, the Group has invested in suitable
training for key staff and key internal systems. The Group’s Board
includes experienced Non-Executive Directors who ensure risks are
managed regularly and objectively. The Group prudently manages
its liquidity by monitoring forecast cash inflows and outflows both
in the short and medium terms, as well as its long-term investment
needs and opportunities.
Currency risk
The majority of Frontier’s resources are located
in the UK and therefore the Group’s operating
costs are mainly in Pounds Sterling (GBP). Sales
are global, in multiple countries and in multiple
currencies. The Group therefore has short-term
transaction and translation risks, in addition to the
longer-term economic risk of developing in the UK
and selling worldwide. The largest exposure is
the US Dollar (USD).
Links to strategy
INVEST DEVELOP PUBLISH
Growth management
The Group’s future success will depend on its
ability to manage and fund its anticipated expansion
through the utilisation of internal resources together
with the realisation of external opportunities such
as outsourcing, commissioning and publishing.
These external opportunities may also include
acquisitions. Such expansion and investment are
expected to place demands on management, support
functions and working capital. If the Group is unable
to manage and fund its expansion effectively, its
business and financial results could suffer.
Links to strategy
INVEST DEVELOP PUBLISH
Market disruption
The Group operates in a fast-moving industry
where competitive products, larger competitors,
new market trends or disruptive technology may
emerge which reduce its ability to compete and
execute its business plan.
Investing in its own COBRA technology and self-published games
allows the Group to continue to innovate, and we seek to make our
processes and business decisions agile and well informed so we can
anticipate and exploit such changes. We believe this risk is mitigated
by our track record of execution on new platforms and the flexibility
demonstrated by the diverse range of video games we have
successfully developed in the past.
Links to strategy
INVEST DEVELOP PUBLISH
This strategic report was approved by the Board and signed on its behalf by
ALEX BEVIS
CFO & COMPANY SECRETARY
5 September 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 17
STRATEGIC REPORT BOARD OF DIRECTORS
AN EXPERIENCED
TEAM
DAVID BRABEN
FOUNDER & CEO
David was the founding
shareholder of Frontier
in January 1994
David is the co-author of the seminal
Elite title and has over 35 years’
experience in the games industry.
David is also one of the six founding
trustees of the Raspberry Pi
Foundation, a charity which aims
to inspire a new generation of
children to get interested in computer
science through the use of a low
cost credit-card sized computer
that plugs into your TV and
a keyboard.
David is also a member of
Cambridge Angels, investing and
supporting early stage companies.
David is a Fellow of the Royal
Academy of Engineering, was
honoured with a Fellowship of
BAFTA in 2015, the recipient of
three honorary doctorates (from
Abertay University, The Open
University and York University),
and was honoured with an OBE
in the 2014 Birthday Honours
for services to the UK computer
and video games industry.
Committee membership
Nominations
DAVID WALSH
CHIEF OPERATIONS OFFICER
David joined the Board
in September 2001
JONNY WATTS
CHIEF CREATIVE OFFICER
Jonny joined the Board
in February 2012
David has over 25 years’ experience
of engineering and commercial
management roles in high-growth
technology companies. In 2001
David joined Frontier from ARM,
the FTSE/NASDAQ listed
microprocessor IP licensing
company where he served for
six years, helping to grow the
company and, as Director of
Software Systems, setting up
a division of the company to
facilitate adoption of the architecture
in key target market segments.
David is President of Frontier
Developments Inc, Frontier’s
wholly owned US subsidiary.
At the AGM in October 2018 our
Chief Operating Officer, David
Walsh, will transition to a
Non-Executive Director role in
order to focus his attention on
a start-up opportunity outside
of the games industry.
Jonny has over 30 years’
experience in gaming. He joined
Frontier Developments in 1998
from Sensible Software. Over the
course of his career he has been
involved in all aspects of the
creation of over 30 published
games such as Sensible Soccer
and Cannon Fodder, along
with Frontier’s suite of games,
including RollerCoaster Tycoon 3,
Elite: Dangerous, Planet Coaster
and Jurassic World Evolution.
Jonny’s titles span the full range
from independent development
to 400-person projects, encompass
a diverse range of genres, and
together have been enjoyed by
over 40 million people worldwide.
Jonny holds zoology and computer
science degrees and is an active
member of BAFTA, serving as a
judge for nine years. He is
committed to supporting future
developers, including initiatives
such as Brains Eden.
DAVID GAMMON
NON-EXECUTIVE CHAIRMAN
David joined the Board
in February 2012
David has widespread experience
in developing and building technology
based businesses. Since 2001, David
has focused on finding, advising
and investing in UK technology
companies. David is CEO founder
of Rockspring, an advisory and
investment firm, which focuses on
early stage technology companies.
Other current positions include
non-executive directorship at
Accesso Technologies plc,
Raspberry Pi Trading Limited and
he acts as an advisor to Marshall
of Cambridge (Holdings) Limited.
In 2017 David was elected as an
Hon Fellow of the Royal Academy
of Engineering and in 2018 a member
of the Scale Up Institute.
Previous experience includes
Non-Executive Director (NED)
and advisor at artificial general
intelligence company DeepMind
Technologies Limited, advisor to
Hawkwood Capital LLP, NED at
real-time location technology
specialist Ubisense Trading
Limited, NED at internet TV
specialist Amino Technologies plc,
NED at smart metering and
software company BGlobal plc
and acting CFO at internet
specialist Envisional Solutions
Limited. Earlier in his career,
David worked as an investment
banker for over 15 years.
Committee membership
Audit (Chair)
Nominations (Chair)
Remuneration (Chair)
CHARLES COTTON
NON-EXECUTIVE DIRECTOR
Charles joined the Board
in July 2016
ALEX BEVIS
CFO & COMPANY SECRETARY
Alex joined the Board
in April 2017
JAMES MITCHELL
NON-EXECUTIVE DIRECTOR
James joined the Board
in September 2017
Alex has over 17 years’ experience
in high growth technology
businesses. Alex joined Frontier
from Xaar plc (FTSE: XAR), a
world leader in industrial inkjet
technology, where he was Chief
Financial Officer from February
2011. Prior to this, Alex rose to VP
Finance of Cambridge fabless
semiconductor company CSR plc
during a 10 year period during
which CSR listed on the main
market, and grew significantly
both organically and through
acquisition. Alex qualified as a
Chartered Accountant with
Deloitte in Cambridge prior
to joining CSR in 2000.
James is Chief Strategy Officer
and Senior Executive Vice
President at Tencent. He is
responsible for various functions,
including the strategic planning
and implementation, investor
relationships, and mergers,
acquisitions and investments
activity. James joined Tencent in
2011. Prior to this James was a
managing director at Goldman
Sachs in New York, leading the
bank’s communications, media
and entertainment research
team, which analysed internet,
entertainment and media
companies globally. James
received a degree from Oxford
University and holds a Chartered
Financial Analyst Certification.
Charles has a successful worldwide
track record in high-growth
technology companies. He was a
Supervisory Board member of
Euronext Amsterdam listed Tele
Atlas which was sold to TomTom
for €2.8 billion in 2008; Executive
Chairman of NASDAQ listed
GlobespanVirata Inc.; and CEO of
Virata Corp. which he took public
on NASDAQ in 1999 and achieved
a market capitalisation of $5 billion
in 2000.
Charles is an active member
of the Cambridge technology
community holding a number of
strategic, technical and financial
roles including as a director
of Cambridge Enterprise
and chairing the Scientific
Advisory Panel for Cambridge
Innovation Capital. He also
founded and is chairman of
Cambridge Phenomenon Ltd. and
has co-authored two books; The
Cambridge Phenomenon 50 Years
of Innovation and Enterprise and
The Cambridge Phenomenon:
Global Impact.
Committee membership
Audit
Nominations
Remuneration
18
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 19
CORPORATE GOVERNANCE REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 MAY 2018
The Directors present their report for the
Group and Company together with the financial
statements for the year to 31 May 2018. The
financial statements are prepared under
International Financial Reporting Standards
as adopted by the EU.
BUSINESS REVIEW
A review of the Group’s development
performance and future development is
provided in the Strategic Report (see pages
1 to 17). Information on the financial risk
management strategy is given within that
report and in note 24 to the financial statements.
GOING CONCERN
The Group’s forecasts lead to a reasonable
expectation that the Group has adequate
resources to continue business for the
foreseeable future. In July 2017 the Group
received a strategic investment of £17.7 million
from Tencent Holdings Limited. As at
31 August 2018 the Group’s cash balances
totalled £46.2 million. In addition the Group
has a revolving credit facility with Barclays
Bank plc of £4 million.
SHARE ISSUES
Details of shares issued during the year are
given in the Financial Review and in note 19
to the financial statements. The Company
has one class of Ordinary Shares which
carries no right to fixed income. Each share
carries the right to one vote at general meetings
of the Company, with the exception of shares
held by the Employee Benefit Trust that are
not eligible to vote under the Trust deed.
DIRECTORS’ REMUNERATION AND
SHARE OPTIONS
Details of Directors’ remuneration and share
options are provided within the Remuneration
Report and are in addition to the interests in
shares shown below.
The following Directors’ share transactions
occurred during the year:
David Braben sold 3,000,000 shares in
September 2017 for a price of 920p per share.
Jonny Watts exercised options over 100,000
shares in September 2017 at a price of 257.5p
per share. Following the exercises, Mr. Watts
sold 127,838 shares for 920p per share,
therefore reducing his net shareholding by
27,838 shares.
David Walsh exercised options over 20,000
shares in September 2017 at a price of 89p
per share, 180,000 shares at a price of 95p
per share and 100,000 shares at a price of
257.5p per share. Following these exercises,
all 300,000 of these shares were sold at a
price of 920p per share, in addition to a
further 422,910 shares, which were also
sold for 920p per share. These sales of
shares by Mr. Walsh concluded his obligations
under a court order related to his divorce
settlement. In November 2017 Mr. Walsh
purchased 3,500 shares for a price of
1304p per share.
Alex Bevis purchased 2,000 shares in
September 2017 for a price of 978p per share.
Charles Cotton purchased 3,700 shares in
September 2017 for a price of 1350p per share.
In November 2017 Mr. Cotton purchased
8,067 and 8,850 shares for a price of 1335p
and 1296p per share respectively. These
transactions included purchases made by
Mr. Cotton’s wife.
DIRECTORS
The Directors who held office at 31 May 2018 and their interest in the share capital of the Company were as follows:
Name
David Gammon*
David Braben*
David Walsh*
Jonathan Watts
Charles Cotton*
Alex Bevis
Total
2018
Number
341,720
14,149,953
3,500
40,000
156,586
17,000
2018
%
0.9
36.5
0.0
0.1
0.4
0.0
2017
Number
341,720
17,160,953
422,910
67,838
135,969
15,000
14,708,759
38.0
18,144,390
2017
%
1.0
50.1
1.2
0.2
0.4
0.0
53.0
*
Including direct family holdings where applicable.
DIRECTORS’ RESPONSIBILITIES FOR THE
FINANCIAL STATEMENTS
The Directors are responsible for preparing
the Strategic Report, the Report of the Directors
and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to
prepare such financial statements for
each financial year. Under that law, the
Directors have prepared the Company
financial statements in accordance with
International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Under company law the Directors must not
approve the financial statements unless
they are satisfied that they give a true and
fair view of the state of affairs and of the
profit or loss of the Company and Group
for that year. In preparing these financial
statements, the Directors are required to:
• select suitable accounting policies and
then apply them consistently;
• make judgements and accounting estimates
that are reasonable and prudent;
• state whether the applicable IFRSs have
been followed, subject to any material
departures disclosed and explained in the
Company’s financial statements; and
• prepare the financial statements on
a going concern basis unless it is
inappropriate to presume that the
Company will continue in business.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the
Company’s transactions and disclose
20
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
Frontier Developments plc recognises
its duty to comply and operate within the
requirements of statutory environmental
legislation and is committed to minimising
the environmental impacts of its business
operations. The Directors of the Group will
support this policy with this commitment
in mind.
SUBSTANTIAL SHAREHOLDERS
At 1 September 2018 the following, other
than the Directors whose shareholdings
are listed on page 20, had notified the
Company of disclosable interests in 3% or
more of the issued share capital of Frontier
Developments plc:
Name
Tencent Holdings
Lansdowne Partners
Swedbank Robur
OppenheimerFunds
Polar Capital
Shareholding
%
3,386,252 8.74
2,644,138 6.83
2,451,273 6.33
2,000,000 5.16
1,691,446 4.37
AUDITOR
A resolution to reappoint Grant Thornton
UK LLP as the Company’s Auditor will
be proposed at the forthcoming Annual
General Meeting. In accordance with normal
practice, the Directors will be authorised to
determine the Auditor’s remuneration.
Approved by the Board of Directors and
signed on behalf of the Board.
ALEX BEVIS
DIRECTOR AND COMPANY SECRETARY
5 September 2018
with reasonable accuracy at any time the
financial position of the Company and to
enable them to ensure that the financial
statements comply with the Companies
Act 2006. They are also responsible for
safeguarding the assets of the Company
and hence for taking reasonable steps for
the prevention and detection of fraud and
other irregularities.
The Directors confirm that:
• so far as each Director is aware, there is
no relevant audit information of which the
Company’s Auditor is unaware; and
• the Directors have taken all steps that
they ought to have taken as Directors to
make themselves aware of any relevant
audit information and to establish that the
Auditor is aware of that information.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the
United Kingdom governing the preparation
and dissemination of financial statements may
differ from legislation in other jurisdictions.
DIRECTORS’ INDEMNITY
ARRANGEMENTS
During the year the Company purchased
directors’ and officers’ liability insurance in
respect of itself and its Directors.
INTELLECTUAL PROPERTY AND
RESEARCH AND DEVELOPMENT
The Group actively protects its intellectual
property via trademark registrations.
Whilst the Directors consider these to be
of significant value, the costs associated
with registrations are expensed.
The Group invests significant resources into
the development of franchise assets and in
research and development through the COBRA
engine and associated development tools.
Costs that meet the criteria for capitalisation
are included in intangible assets (see note
10 of the financial statements). The Group’s
gross research and development spend to
support its strategy was £15.9 million in the
year (FY17: £12.7 million).
DIVIDEND
The Directors are not recommending the
payment of a dividend (2017: £nil).
EMPLOYEE INVOLVEMENT
The Group seeks to encourage and promote
an agile, open, fair and meritocratic culture
of engagement, achievement and fun.
The Group is committed to the principle
of equal opportunities in employment.
Its aim is to ensure that no job applicant
or employee receives less favourable
treatment or is placed at a disadvantage
by requirements or conditions that
cannot be shown to be justifiable and
thereby promote equality of opportunity for
employment within the Group on grounds
such as sex, disability, marital status, religion,
colour, race, nationality, ethnic or national
grounds, age, or sexual orientation.
The Group’s policies and procedures are
created and administered in such a way
that they do not tolerate or foster such
discrimination. The Group has an Employee
Consultation Group that meets regularly
with senior management.
The Group encourages employee involvement
in the Group’s performance by using a bonus
scheme for all staff. In addition, it seeks to
issue share options at relevant times or to
utilise other equity plans where appropriate.
EMPLOYMENT POLICIES
The Group is committed to following UK
employment law for its Cambridge-based
operations and applicable labor codes for its
US operations based in Nevada and Kansas.
Where possible the Group strives for similar
employment and benefit arrangements
between territories.
HEALTH AND SAFETY AND ENVIRONMENT
The aim of the Directors is to provide
healthy, safe and congenial working
conditions, equipment and systems of
work for all employees.
The Directors further intend to provide
sufficient information, training and supervision
to enable employees to do their work safely,
effectively and without risk to themselves
or to others.
We acknowledge that we are responsible
for the safety of visitors, both professional
and social, who enter the premises.
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 21
CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT
FOR THE YEAR ENDED 31 MAY 2018
EFFECTIVE AND
EFFICIENT GOVERNANCE
CHAIRMAN’S INTRODUCTION AND SUMMARY
Since joining the Company in 2012 it has been my responsibility, as Chairman, to ensure that the Company has appropriate corporate
governance arrangements in place and that those arrangements are effective and efficient through regular review. In 2013 the Company
listed on AIM, and as a result I led the Board to establish corporate governance arrangements through the consideration of best practice
guidelines and aspects of the UK Corporate Governance Code relevant to the Company. Prior to 2018, as an AIM-listed company, Frontier
was not required to comply with a corporate governance code but we reviewed our arrangements against the Quoted Companies Alliance
(QCA) Corporate Governance Code for Small and Mid-Sized Companies. The AIM rules changed in 2018 and as a result the Board has
refined the Company’s corporate governance arrangements in order to follow the ten principles of the QCA Corporate Governance Code.
The table below sets out the ten principles of the QCA Code and provides direction to the relevant section in this Annual Report.
1
2
3
4
5
6
7
8
9
QCA Code principle
Relevant section(s) of the Annual Report
A strategy and business model
for long-term value creation
CEO Review (page 4)
Strategic Review (pages 1–17)
Understand and meet shareholder
needs and expectations
Investor relations – Corporate Governance Report (page 25)
Understand and meet wider
stakeholder needs and social
responsibilities
Strategy and business model – Strategic Review (pages 6–7)
Corporate culture and social responsibility – Corporate Governance Report (page 26)
Embedded risk management
Strategy and business model – Strategic Review (pages 6–7)
Risk Review (pages 16–17)
Internal control and business risk – Corporate Governance Report (page 25)
A well-functioning and
balanced Board
Board experience, skills
and capabilities
Performance of the Board and
continuous improvement
Corporate culture based on ethical
values and behaviours
Effective governance structures
which support good decision making
Board of Directors (pages 18–19)
Board overview – Corporate Governance Report (pages 23–24)
Board of Directors (pages 18–19)
Board overview – Corporate Governance Report (pages 23–24)
Board overview – Corporate Governance Report (pages 23–24)
Corporate culture and social responsibility – Corporate Governance Report (page 26)
Chairman’s introduction and summary – Corporate Governance Report (page 22)
Board overview – Corporate Governance Report (pages 23–24)
Board Committee reports – Corporate Governance Report (page 24)
10
Communication of Company
governance and performance
Chairman’s introduction and summary – Corporate Governance Report (page 22)
Board Committee reports – Corporate Governance Report (page 24)
BOARD OVERVIEW
The Board is responsible for the
long-term growth and profitability of
Frontier Developments plc. Among its
responsibilities it works with management
to set corporate values and to develop strategy,
including deciding its risk management
policy and financial objectives.
A schedule of matters reserved for the
Board’s resolution details key aspects
of the Company’s affairs that are not
delegated beyond the Board (including,
among other things, approval of business
plans and budgets, material expenditure
and alterations to share capital).
The Board seeks to meet regularly during
the year and the entire Board is invited to
attend all meetings. In the financial year to
31 May 2018 the Board met on nine occasions.
Approximately half of the time at Board
meetings is set aside for core strategic
issues. At least two meetings a year have
extended time allowed where the focus is
predominantly on core strategic issues.
The Chairman and the Company Secretary
plan the agenda for each Board meeting
in consultation with all other Directors.
The agenda is issued with supporting
papers ahead of the Board meetings, along
with appropriate information required to
enable the Board to discharge its duties.
The matters reserved for the attention of
the Board include:
• overall business strategy;
• review of key operational and
commercial matters;
• review of key finance matters, including
approval of financial plans, changes to
capital structure, acquisitions and disposals
of businesses, material capital expenditure
and dividends;
• governance: Board membership and
powers including the appointment and
removal of Board members, the set-up
and delegation of matters to appropriate
Committees, and the reviewing of
reporting back thereof;
• approval of financial statements, both
interim and year end;
• stock exchange related issues including
the approval of communications to the
stock exchange and communications
with shareholders in conjunction with
any financial public relations firm;
of the Chairman is the effective operation
of the Board of Directors, whilst the Chief
Executive is responsible for the operation
of the Company to deliver on its
strategic objectives.
• subsidiary Board appointments, as the
100% shareholder, and review of key
decisions at their Board meetings;
• approval of acquisitions, disposals, borrowing
facilities, premises and matters proposed
by the corporate lawyer and nominated
advisor and broker;
• appointment and performance review of
key advisors; and
• approval of letters of recommendation
for the Employee Benefit Trust in respect
of the operation of share option schemes.
The composition of the Board of Directors
is illustrated on pages 18 and 19. The
Board of Frontier Developments plc is
currently comprised of seven Directors:
the Non-Executive Chairman, two further
Non-Executive Directors and four Executive
Directors, the Chief Executive Officer, Chief
Operating Officer, Chief Creative Officer
and Chief Financial Officer (who is also the
Company Secretary). As per the individual
biographies, the Directors have a range of
experience and provide a balance of skills,
experience and knowledge to the Board.
The Board, led by the Chairman, regularly
reviews the overall performance of the Board
and makes adjustments to ensure the
structure and focus of the Board meet the
evolving requirements of the Company. In
2018 the Board established a formal Board
assessment process based on a QCA structured
questionnaire. As a result of this assessment,
actions were taken to improve and formalise
certain Board processes and reports.
All Directors are subject to election at the first
Annual General Meeting following their
appointment and to re-election
annually thereafter.
The Chairman and Chief Executive have
distinct roles; the principle responsibility
The role of the Company Secretary is to
ensure reliable and regular information
flows to the Board and its Committees and
to ensure applicable rules and regulations
are followed. The Company Secretary is
available to all Directors to provide advice
and assistance and is responsible for providing
governance advice to the Board.
The Board considers all three Non-Executive
Directors (the Non-Executive Chairman
and the two Non-Executive Directors) to
be independent in terms of their ability
to make unencumbered decisions for the
long-term success of the Company:
DAVID GAMMON
David joined the Board in 2012 as Chairman
to define and support the Company’s transition
plans. Rockspring, a company connected to
David, was issued with warrants and share
options in connection with work Rockspring
undertook in relation to Frontier’s pre-IPO
funding and IPO in 2013. David has a diverse
range of business interests and it is the
Board’s belief that the warrants and options
granted to Rockspring have not prevented
David from making independent decisions;
in fact, it is the Board’s belief that such
arrangements can support a greater
alignment of Non-Executive Director
interests with the long-term interests
of the Company.
CHARLES COTTON
Charles joined the Board in 2016. Share
options were awarded in 2016 and 2017 to
Charles in relation to his recruitment into
the role. The Board does not consider that
these option awards have, or will, encumber
Charles’ ability to make independent, effective
decisions that benefit the long-term success
of the Company; in fact, it is the Board’s
belief that such arrangements can support
a greater alignment of Non-Executive
Director interests with the long-term
interests of the Company.
22
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 23
CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT CONTINUED
FOR THE YEAR ENDED 31 MAY 2018
BOARD OVERVIEW CONTINUED
JAMES MITCHELL
James is Chief Strategy Officer at Tencent
and was invited to join the Board in 2017
following Tencent’s £17.7 million strategic
investment in Frontier. Tencent owns
approximately 9% of Frontier’s issued
share capital. The Board does not consider
that this shareholding encumbers James’
ability to make independent, effective decisions
that benefit the long-term success of the
Company. Tencent is one of the largest
companies in the world and it has a broad
and diverse range of interests.
BOARD COMMITTEES
The Committees report regularly to the
Board on the performance of the activities
they have been assigned.
AUDIT COMMITTEE
The Audit Committee comprises only
independent Non-Executive Directors; its
members are David Gammon (Committee
Chair) and Charles Cotton. The Committee
is supported by Alex Bevis, CFO and
Company Secretary.
The Audit Committee determines the terms
of engagement of the Company’s Auditor
and, in consultation with the Auditor, the
scope of the audit. It will receive and review
reports from management and the Auditor
relating to the interim and annual accounts
as well as the accounting and internal control
systems in use by the Company and Group.
The Audit Committee has unrestricted
access to the Company’s Auditor. The Audit
Committee also reviews accounting and
treasury policies, financial reporting including
key performance indicators and supporting
key areas of management judgements, and
corporate governance standards. The Audit
Committee is open to attendance by any
Director and reports its key issues at
Board meetings.
In the financial year to 31 May 2018 the
Remuneration Committee met on
five occasions.
In the financial year to 31 May 2018 the
Audit Committee met on three occasions,
and all three meetings were attended by
the external Auditor (Grant Thornton).
Key areas of activity
• Financial reporting
• Internal control and risk
management reviews
• External audit
Key areas of activity
• Review of Director remuneration against
benchmark data
• Review of staff benefits through
employee surveys and benchmarking
• Equity scheme establishment; Sharesave
and LTIP
• Pension planning and execution
• Bonus scheme assessment and
• Significant audit issues
implementation
• Treasury policy and foreign exchange
risk review
REMUNERATION COMMITTEE
The Remuneration Committee comprises
only independent Non-Executive Directors;
its members are David Gammon (Committee
Chair) and Charles Cotton. The Committee
is supported by Alex Bevis, CFO and Company
Secretary, and Yvonne Dawes, HR Manager.
The Remuneration Committee reviews
the scale and structure of the Executive
Directors’ future remuneration and the
terms of the service agreements with due
regard to the interests of shareholders.
No Director is permitted to participate in
discussions or decisions concerning their
own remuneration.
The Remuneration Committee also
approves annual salary review limits,
bonus schemes and payment limits, in
addition to significant employee benefits,
such as pensions, medical insurance and
share option schemes.
NOMINATIONS COMMITTEE
The Nominations Committee comprises
David Gammon (Committee Chair),
Charles Cotton and David Braben.
The Nominations Committee reviews
the constituents of the Board and its
Committees to ensure appropriate
balanced representation.
In the financial year to 31 May 2018
the Nominations Committee met on
two occasions.
Key areas of activity
• Assessment of the need for further
Non-Executives
• Appointment of James Mitchell as
Non-Executive Director
• Review of senior positions required
to strengthen the organisation and
succession planning
ATTENDANCE AT MEETINGS DURING THE PERIOD
Board
Remuneration Committee
Nominations Committee
Audit Committee
Number of meetings
David Gammon
David Braben
David Walsh
Alex Bevis
Jonathan Watts
Charles Cotton
James Mitchell
24
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
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INVESTOR RELATIONS
The Company places considerable importance
on communication with shareholders and
maintains regular contact with both current
and potential shareholders through investor
roadshows linked to annual and interim
results, investor conferences and ad-hoc
meetings and conference calls. In addition
to externally located meetings, the Company
also hosts investors for on-site meetings.
Investor relations activity is led by the CFO,
and meetings are typically presented by
the CEO and CFO. The Chairman regularly
meets with investors as required and the other
Directors also participate in investor activity.
The Company’s website has a dedicated
investor page which contains the latest
information including the most recent
results presentation.
The Company’s overall risk assessment
process is facilitated by the COO, who runs
weekly operational progress meetings and
holds and appraises the Corporate Risk
Register (CRR) with the Executive Directors
at least once a year.
A further review is then undertaken with
senior management and the CRR itself is
updated for the executive team to consider.
Once the review has concluded the revised
CRR is forwarded to the Audit Committee,
which assesses the updated register and
confirms the key risks. A proposal for updating
the risks reported in the Annual Report is
then drawn up; the Audit Committee will
then take its recommendations to the Board
on key risks and the reporting thereof.
CONTROL ENVIRONMENT AND
INTERNAL AUDIT
The Group has established operating
procedures appropriate to its size and
structure for reporting both financial and
non-financial information to the Board.
These include, but are not limited to:
• operating guidelines and procedures
with approval limits;
• accounting policies, controls
and procedures;
• performance monitoring systems updated
monthly for review at Board meetings; and
• regulatory and legal changes that may
materially impact on the business.
Due to the Executive Directors’ close involvement
in business activities, the Group does not
currently believe that an internal audit
function would be cost effective. The Audit
Committee considers the need annually
and will advise the Board as and when
it feels this position is required.
AUDITOR INDEPENDENCE
Frontier Developments’ external Auditor is
Grant Thornton UK LLP, who has served
the Company since 2012. The external audit
function provides independent review and
audit. It is the responsibility of the Audit
Committee to review and monitor the external
Auditor’s independence, objectivity and the
effectiveness of the audit process, taking
into consideration relevant UK professional
and regulatory requirements as well as
developing and implementing policy on the
engagement of the external Auditor to supply
non-audit services.
The Audit Committee monitors procedures
to ensure the rotation of external audit
partners every five years and audit managers
every seven years. James Brown of Grant
Thornton has been the audit partner since
2017 (the first period of his tenure being for
the 12 months ended 31 May 2017).
SENIOR MANAGEMENT AND GROUP
FUNCTIONS
Frontier’s senior management is involved
in multiple functions within the Company.
It is responsible for reviewing the overall
organisational structure of the Company,
as well as refining and implementing the
recruitment and retention programme in
order to identify and hire the right candidates
as required in addition to retaining existing
staff members.
INTERNAL CONTROL AND ASSESSMENT
OF BUSINESS RISK
The systems for internal control and risk
management processes are designed to
manage and mitigate risks that may impact
achievement of the Company’s strategic
objectives. Such systems can only provide
a reasonable but not absolute level of
assurance against material misstatement
or loss.
Project and departmental risks are assessed
and presented at weekly progress meetings.
Strategic risks are regularly reviewed by
the Board and a Corporate Risk Register
(CRR) is maintained.
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 25
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED
FOR THE YEAR ENDED 31 MAY 2018
REMUNERATION REPORT
FOR THE YEAR ENDED 31 MAY 2018
ANNUAL GENERAL MEETING
The AGM will be held at:
Grant Thornton UK LLP
101 Cambridge Science Park
Milton Road
Cambridge
CB4 0FY
On:
Tuesday 16 October 2018
At: 9.15 am
The Company’s Annual General Meeting
(AGM) affords shareholders the opportunity
to question the Chairman and the Board.
All voting at the meeting will be conducted
on a poll where every shareholder present
in person or via proxy will have one vote
per share held. The Group will convey the
results of the poll via RNS following the AGM.
Shareholders are invited to submit written
questions in advance of the meeting. Questions
should be sent to the Company Secretary,
Alex Bevis, Frontier Developments plc,
26 Cambridge Science Park, Milton Road,
Cambridge CB4 0FP, UK, or via email to
IR@frontier.co.uk.
Details of resolutions to be proposed at the
meeting are set out in the Notice of Annual
General Meeting on pages 61 to 64.
Notice of the AGM, the Form of Proxy and
the Annual Report are sent to shareholders
at least 21 days before the AGM via post.
CORPORATE CULTURE AND SOCIAL
RESPONSIBILITY
The Company operates in the competitive,
technically challenging and highly creative
games industry. Successful projects in this
constantly evolving industry require clear
and ambitious creative vision, keen awareness
of customer preferences and habits, very high
attention to detail, world-class multi-disciplinary
ability and effective project management
skills. These characteristics have defined
the culture of the Company and the Board,
and we believe that our inclusive, meritocratic
high-performance culture supports the
ambitious vision for the Company that we
have established.
Although the Board considers that Frontier’s
four key stakeholder groups are its players,
its shareholders, its staff and its business
partners, it acknowledges the Company’s
responsibilities to the local community in
which it has major operations, principally
Cambridge, and the wider video games industry.
The Company participates in local and
national events which promote the video
games industry and computer science,
such as Games Eden, as well as establishing
relationships with students in partner
universities by contributing to courses and
mentoring projects. The Company recruits
a large number of graduates and takes its
responsibility seriously to support and mentor
its recruits. The Company also undertakes
charity activity such as supporting Special
Effect, a charity which puts the fun and
inclusion back into the lives of people with
physical disabilities by helping them to play
video games. Our Chief Executive, David
Braben, is personally active in the promotion
of computer science in the UK, including
through his role as a founder and director
of the Raspberry Pi foundation and by
contributing to discussions on local and
national government policy.
REMUNERATION REPORT
As Frontier Developments is an AIM-listed
company it is not required to disclose all
the information included in this Remuneration
Report; however, in the interests of transparency
the Board has chosen to provide the following
details as a voluntary disclosure.
The Auditor is not required and has not, except
where indicated, audited the information
included in the Remuneration Report.
The Remuneration Committee is responsible
to the Board for developing remuneration
policy. The Report of the Remuneration
Committee has been approved by the Board
of Directors for submission for shareholders’
approval at the Annual General Meeting.
REMUNERATION COMMITTEE TERMS
OF REFERENCE
The Remuneration Committee comprises
two Non-Executive Directors of the Company,
David Gammon (Company and Committee
Chairman) and Charles Cotton. The Committee
is supported by Alex Bevis, CFO and Company
Secretary. The Remuneration Committee
meets at least twice a year.
The Remuneration Committee is
responsible for the following functions:
• setting of remuneration for Directors
and officers, including pay, annual
cash bonuses and long-term
incentive arrangements;
• approval of the overall increase for annual
pay and bonus levels for all other staff;
• approval of share option plans
or arrangements;
• setting of overall share option issues;
• approval of any significant employee
benefit arrangements; and
• reviewing the Committee’s terms of
reference and submitting to the Board
for subsequent approval.
REMUNERATION POLICY
The Remuneration Committee approved
the following policy:
“Frontier endeavours to pay salaries and
benefits around the median level for relevant
skills. Where there is a material gap in
remuneration, it is the policy of the Group
to close this over time and subject
to affordability.”
In 2016 the Remuneration Committee
commissioned a report from KPMG LLP on
executive incentives, bonus schemes and
Long Term Incentive Plans in order to bring
incentives in line with the Group’s strategic
objectives and investor interests by way of
linking the majority of remuneration with
market-based performance criteria and
structure commonly operated by AIM and
FTSE 350 companies. This was supplemented
with ad-hoc benchmarking reports in 2017
and 2018.
Having reviewed the reports, the Remuneration
Committee made changes to the various
components of Directors’ remuneration in
FY16, FY17 and FY18. No substantial
changes are planned for FY19.
COMPONENTS OF EXECUTIVE
DIRECTORS’ REMUNERATION
OVERVIEW
The remuneration policy is to establish
and maintain arrangements and individual
packages which attract, retain and motivate
the talent necessary to support the Company’s
strategy. The Committee believes it is
important to achieve an appropriate balance
between fixed elements of remuneration
and performance related elements, with
a particular focus on the latter given the
Company’s growth aspirations.
Directors and staff are all encouraged to acquire
shares in the Company and to hold these
shares for the long term. This participatory
element is an important aspect of the Group’s
culture and its focus on long-term performance.
SERVICE CONTRACTS
The service agreements adopted on 1 July 2013
for the Executive Directors can be terminated
by either party, provided at least six months’
notice has been given.
BASIC PAY
For FY18 all four Executive Directors were
paid an annual salary of £200,000, which
was broadly in line with benchmarking
analysis at the start of the period (June 2017).
ANNUAL BONUS
In December 2017 bonuses of £200,000 (being
100% of salary) were paid to each of the four
Executive Directors in relation to performance
in the 12 months ended 31 May 2017. In the
case of Alex Bevis, our CFO who joined in
April 2017, the bonus payment related in
part to contractual recruitment arrangements.
To support the Company’s scale-up a new
scheme covering the two-year period starting
1 June 2017 and ending on 31 May 2019 was
established for all employees, including the
Executive Directors. Bonus payouts will be
determined by individual performance and
by the Company’s financial performance
against a target range. The chosen financial
performance measure is operating profit
as reported under IFRS. An interim payment
will be made in December 2018 with the
final payment in September 2019. It is
anticipated that following this two-year
period, the Company will return to a more
typical annual bonus scheme but with
similar performance-based characteristics.
EQUITY
The Company runs an HMRC-approved
Company Share Option Plan (CSOP). In
the year to 31 May 2018 David Walsh
and Jonathan Watts were each awarded
approved options over 2,742 Ordinary
Shares at an exercise price of 1094p per
share under the CSOP.
During the 12 months ended 31 May 2018,
the Committee established two new schemes.
The first scheme was an all-employee
HMRC-approved Sharesave scheme which
rewards participants for committing to a
monthly savings contract over a three-year
period with a discounted share option which
is granted at the start of the savings contract.
This scheme encourages share ownership
and commitment to the Company, whilst
providing another opportunity for our people
to share in the success of the Company.
In the year to 31 May 2018 David Walsh,
Jonathan Watts, David Braben and Alex Bevis
were each awarded options over 1,890
Ordinary Shares at an exercise price of
952p per share under the Sharesave scheme.
The second scheme established in the year
to 31 May 2018 was a Long Term Incentive
Plan (LTIP) targeted at Executive Directors
and senior management. Under the scheme,
share options with zero exercise price
are issued, with vesting after three years
dependent on appropriate performance
criteria. For the Executive Directors the
performance criteria is shareholder return.
The LTIP scheme largely replaces the CSOP
scheme, although the CSOP will continue
to be used in certain circumstances.
26
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 27
CORPORATE GOVERNANCE REMUNERATION REPORT CONTINUED
FOR THE YEAR ENDED 31 MAY 2018
COMPONENTS OF EXECUTIVE DIRECTORS’
REMUNERATION CONTINUED
EQUITY CONTINUED
In the year to 31 May 2018 David Walsh
and Jonathan Watts were each awarded
options over 19,016 Ordinary Shares and
David Braben and Alex Bevis were each
awarded options over 19,930 Ordinary
Shares under the LTIP.
salary and additional units above this
amount can be purchased through salary
sacrifice arrangements and one Director
elected into this. From 1 October 2017 basic
health cash plan cover commenced for all
employees including Executive Directors.
Additional cover above this amount can be
purchased through payroll deductions and
one Director elected into this.
PENSION CONTRIBUTIONS, MEDICAL
INSURANCE AND OTHER BENEFITS
Three of the Executive Directors are
members of the Group’s pension scheme,
but all four Executive Directors receive
pension benefits. All of the Executive
Directors participate in all-staff benefit
arrangements. A basic life cover sum of
£25,000 per person was adopted from
1 October 2013. From 1 October 2017 the
basic life cover was three times annual
From August 2014, medical insurance
including family cover was offered to all
employees including Executive Directors.
All Executive Directors elected to take up
these arrangements.
Pension auto-enrolment of a 3% employer
contribution commenced from 1 September
2017. Effective 1 August 2018 the rate
increased to 5%. These benefits are the
same as adopted for all UK-based staff.
NON-EXECUTIVE DIRECTORS’
REMUNERATION
The remuneration of Non-Executive
Directors is determined by the Board and
reflects their anticipated time commitment
to fulfil their duties. The Non-Executive
Directors’ remuneration is subject to the
same principles of the remuneration policy
for the Group and the same transitional
phase of alignment to median market
rates was undertaken. The letters of
appointment of Non-Executive Directors
can be terminated with six months’ notice
for the Chairman and three months’ notice
for all other Non-Executives under notice
given by either party.
Share warrants were issued to the
Non-Executive Directors in connection with
the IPO in 2013 (see note 19 to the accounts).
DIRECTORS’ REMUNERATION (AUDITED)
The remuneration of the Directors is as follows:
Current Directors
Executive
David Braben
David Walsh*
Jonathan Watts
Alexander Bevis
Non-Executive
David Gammon
Charles Cotton
James Mitchell**
Total
Salary/fee
£’000
Bonus
£’000
Pension
contribution
£’000
Taxable
benefits
£’000
200
173
200
200
55
30
—
858
200
200
200
200
—
—
—
800
5
4
5
10
—
—
—
24
2
2
1
1
—
—
—
6
FY18
Total
£’000
407
379
406
411
55
30
—
1,688
FY17
Total
£’000
232
232
232
33
55
28
—
812
* David Walsh reducing his working hours during FY18, with approval of the Chairman.
** James Mitchell waived his fee.
The expense recognised in the statement of
comprehensive income for the Directors’
share options (including Non-Executive
Directors) was £346,852 (2017: £147,752),
with the amount attributable to the highest
paid Director being £220,675 (2017: £91,083).
The gain attributable to Directors on share
options in the year at the date of exercise
was £3,110,205 (2017: £279,662).
A resolution to accept the Report of the
Remuneration Committee will be put to
shareholders at the Annual General Meeting.
DAVID GAMMON
CHAIRMAN, REMUNERATION
COMMITTEE
5 September 2018
28
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF FRONTIER DEVELOPMENTS PLC
(REGISTERED NO: 02892559)
OPINION
OUR OPINION ON THE FINANCIAL STATEMENTS IS UNMODIFIED
We have audited the financial statements of Frontier Developments plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year
ended 31 May 2018, which comprise the consolidated income statement, the consolidated statement of comprehensive income, the
consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cashflows, the
company statement of financial position, the company statement of cashflows, the company of statement of changes in equity and notes to
the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in
the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by
the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
In our opinion:
• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 May 2018 and of
the group’s profit for the year then ended;
• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with IFRS as adopted by the European Union and
as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.
WHO WE ARE REPORTING TO
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
CONCLUSIONS RELATING TO GOING CONCERN
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the
group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months
from the date when the financial statements are authorised for issue.
OVERVIEW OF OUR AUDIT APPROACH
• Overall materiality: £234,000, which was determined at the planning stage, based on 2.5% of the group’s
earnings before interest, taxes, depreciation and amortisation;
• Key audit matters were identified as improper revenue recognition, impairment of intangible assets and
capitalisation of intangible assets; and
• Full-scope audit procedures were performed by the audit team over the financial statements of the parent company,
Frontier Developments plc, with targeted procedures performed over the financial information of its subsidiary
undertaking, Frontier Developments Inc.
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 29
FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF FRONTIER DEVELOPMENTS PLC
(REGISTERED NO: 02892559)
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as
a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter – Group
How the matter was addressed in the audit – Group
IMPROPER REVENUE RECOGNITION
Under ISA (UK) 240 ‘The Auditor’s Responsibilities Relating to
Fraud in an Audit of Financial Statements’, there is a rebuttable
presumed risk that revenue may be misstated due to the improper
recognition of revenue due to fraud.
The group has two revenue streams: self-published franchises and
other revenue such as royalties. The accounting policy is to recognise
self-published revenue on download of the game or upon purchase
of in-game digital items. The nature of the group’s revenue involves
the processing of a high volume of transactions and deferral of
revenue where pre-orders are received. Revenue earned from
royalties is estimated on an accruals basis.
As the group’s revenue is material to the financial statements and
involves deferral of revenue and multiple recognition policies, we
identified the risk of improper revenue recognition as a significant
risk, which was one of the most significant assessed risks of
material misstatement.
Our audit work included, but was not restricted to:
• considering the stated accounting policy in respect of revenue
recognition, testing whether revenue had been accounted for in
accordance with the accounting policy and evaluating whether
these are consistent with IAS 18 ‘Revenue’;
• performance of analytical procedures over revenue throughout
the year, with additional focus on revenue recognised in the final
quarter, to identify and corroborate significant or unusual trends
in revenue outside of our expectations;
• performing detailed testing of revenue from self-published software
by agreeing a sample of transactions to supporting third party
sales reports;
• testing of royalty revenue by agreeing a sample of transactions to
third party sales reports and royalty agreements; and
• testing appropriate cut-off of revenue by testing sales
transactions occurring near the year-end to supporting reports to
confirm the sale and related debtor has been recorded in the
correct accounting period.
The group’s accounting policy on revenue recognition is shown in
note 3 to the financial statements and related disclosures are
included in note 4.
Key observations
Our audit testing did not identify any material deviations in the
group’s revenue recognition accounting policy from IAS 18. In
addition, our audit work did not identify any material errors in the
occurrence of revenue recognised in the year or any material
instances of revenue not being recognised in accordance with
stated accounting policies.
KEY AUDIT MATTERS CONTINUED
Key Audit Matter – Group
How the matter was addressed in the audit – Group
IMPAIRMENT OF INTANGIBLES
At the year end, the group had intangible assets with a net book
value of £29,197,000 (2017: £21,871,000). Of this, the carrying value
of capitalised franchise assets related to self-published software
amounts to £28,035,000 (2017: £20,647,000). These costs are amortised
by the group to ensure the capitalised cost reflects the anticipated
benefit of the franchise asset to the group over time. There is a risk
that these capitalised costs may be impaired, if the value of the
asset cannot be supported by the net realisable value.
In accordance with IAS 36 ‘Impairment of Assets,’ the directors and
management have performed an annual impairment review, which
compares the net book value of the assets plus the estimated costs
to complete to the net realisable value, calculated by determining
future revenues discounted to present value. This assessment
performed by management incorporates key assumptions over the
timing and extent of future revenues, costs to complete, and the
discount rate used.
Due to the inherent uncertainty involved in forecasting and
discounting future cash flows, we identified the impairment of
intangible assets as a significant risk, which was one of the most
significant assessed risks of material misstatement.
CAPITALISATION OF INTANGIBLE ASSETS
During the year, the group has capitalised £12,489,000 (2017: £9,076,000)
of development costs in relation to various projects.
The directors and management assess each project according to
IAS 38 ‘Intangible Assets’ criteria throughout the project life.
Judgement is required to determine whether criteria are met, in
particular the future economic benefits that will be generated and
the intention of the group to complete development and use or sell
the asset. These judgements are dependent on expectations of
future events.
There is a risk that the costs capitalised do not meet the criteria for
capitalisation in accordance with IAS 38. We therefore identified the
capitalisation of intangible assets as a significant risk, which was
one of the most significant assessed risks of material misstatement.
Our audit work included, but was not restricted to:
• obtaining management’s impairment assessment and verifying its
mathematical accuracy;
• checking the estimated costs to complete the franchise asset by
corroborating the inputs into the calculation and comparing to
historical data;
• obtaining an understanding of the basis used in management’s
revenue forecast for each franchise asset and challenged the
estimates used through comparison of prior year budgets to
actual performance and 2019 budgets against actual revenue; and
• evaluating and challenging the information included in the
impairment models through our knowledge of the business
gained through reviewing trading plans for each franchise asset
and discussions with management.
The group’s accounting policy on intangibles is shown in note 3 to the
financial statements and related disclosures are included in note 10.
Key observations
Our audit testing did not identify any indicators of impairment impacting
the carrying value of capitalised development costs. We found no
material errors in calculations completed.
Our audit work included, but was not restricted to:
• assessing whether the accounting policy was in accordance the
financial reporting framework and testing whether the capitalisation
of intangible assets had been accounted for in accordance with
that policy;
• assessing product development activities against the qualifying
nature of the projects to ensure that capitalisation is in accordance
with the appropriate criteria under IAS 38;
• checking the mathematical accuracy of calculations;
• performing detailed substantive testing of additions in the year,
through tracing a sample of capitalised labour costs to supporting
payroll records and non-payroll costs to invoices; and
• obtaining an understanding from management of the costs capitalised
and challenging where amounts are being capitalised for franchise
assets subsequent to their release and corroborating that the
additional costs relate to enhancements.
The group’s accounting policy on intangible assets is shown in note
3 to the financial statements and related disclosures are included in
note 10.
Key observations
Based on our audit work, we found that intangible assets capitalised
during the year were in accordance with stated accounting policies
and corroborating documentation. We found no errors in the calculations.
We did not identify any separate key audit matters relating to the audit of the financial statements of the parent company.
30
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 31
FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF FRONTIER DEVELOPMENTS PLC
(REGISTERED NO: 02892559)
OUR APPLICATION OF MATERIALITY
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our
audit work and in evaluating the results of that work.
Materiality was determined as follows:
Materiality measure
Group
Parent
Financial statements as a whole
Performance materiality used to
drive the extent of our testing
Specific materiality
£234,000, which was determined at the planning stage
of the audit based on 2.5% of the group’s earnings
before interest, taxes, depreciation and amortisation
(EBITDA). This benchmark is considered the most
appropriate because group EBITDA is a key
performance indicator (KPI) for the group.
Materiality for the current year is lower than the level
that we determined for the year ended 31 May 2017,
which reflects change in benchmark and measurement
percentage from the prior year, when 4% of group profit
before tax (PBT) was used. A lower measurement
percentage of 2.5% was used in the current year, and
when this is applied to the current year’s group EBITDA,
this gives a lower materiality for the current year. The
benchmark was changed from group PBT as group
EBITDA is considered to be less volatile to the
development cycle for new games.
£210,000, which was determined at the planning stage of
the audit based on 2.5% of the company’s EBITDA. This
benchmark is considered the most appropriate because
company EBITDA is a KPI for the company.
Materiality for the current year is lower than the level that
we determined for the year ended 31 May 2017, which
reflects change in benchmark and measurement percentage
from the prior year, when 4% of company profit before tax
(PBT) was used. A lower measurement percentage of 2.5%
was used in the current year, and when this is applied to
the current year’s company EBITDA, this gives a lower
materiality for the current year. The benchmark was changed
from company PBT as company EBITDA is considered to be
less volatile to the development cycle for new games.
75% of financial statement materiality.
75% of financial statement materiality.
We also determine a lower level of specific materiality
for certain areas such as directors’ remuneration and
related party transactions.
We also determine a lower level of specific materiality for
certain areas such as directors’ remuneration and related
party transactions.
OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the information included in the annual report,
other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to
report that fact.
We have nothing to report in this regard.
OUR OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 IS UNMODIFIED
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the report of the directors for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
• the strategic report and the report of the directors have been prepared in accordance with applicable legal requirements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT UNDER THE COMPANIES ACT 2006
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic report or the report of the directors.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns; or
Communication of misstatements to
the audit committee
£11,700 and misstatements below that threshold that, in our
view, warrant reporting on qualitative grounds.
£10,500 and misstatements below that threshold that, in our
view, warrant reporting on qualitative grounds.
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential
uncorrected misstatements.
OVERALL MATERIALITY – GROUP
OVERALL MATERIALITY – PARENT
25%
25%
Tolerance for potential
uncorrected misstatements
Performance materiality
75%
75%
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our audit approach was a risk-based approach founded on a thorough understanding of the group’s business, its environment and risk
profile and in particular included:
• evaluation by the audit team of identified components to assess the significance of that component and to determine the planned audit
response based on a measure of materiality. Significance was determined as a percentage of the group’s total assets, revenues and
profit before taxation;
• full scope audit procedures were performed by the audit team over the financial statements of the parent company, Frontier Developments plc;
• targeted audit procedures were performed by the audit team over the financial information of the parent company’s subsidiary
undertaking, Frontier Developments Inc.; and
• this approach has resulted in audit procedures being performed over 100% of the group’s total revenues and 99.5% of the group’s total
assets. There was no change in scope of the audit over the prior year.
32
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
RESPONSIBILITIES OF DIRECTORS FOR THE FINANCIAL STATEMENTS
As explained more fully in the directors’ responsibilities statement set out on page 20 and 21, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the
directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website
at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
JAMES BROWN
SENIOR STATUTORY AUDITOR
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Cambridge
5 September 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 33
FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 MAY 2018
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MAY 2018
(REGISTERED COMPANY NO: 02892559)
Revenue
Cost of sales
Gross profit
Research and development expenses
Sales and marketing expenses
Administrative expenses
Operating profit
Finance income
Profit before tax
Income tax
Profit for the period attributable to shareholders
All the activities of the Group are classified as continuing.
Earnings per share
Basic earnings per share
Diluted earnings per share
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MAY 2018
Notes
4
7
8
Notes
9
31 May 2018
£’000
31 May 2017
£’000
34,192
(10,092)
24,100
(8,500)
(6,076)
(6,724)
2,800
81
2,881
713
3,594
37,363
(10,007)
27,356
(7,630)
(4,310)
(7,624)
7,792
21
7,813
(102)
7,711
31 May 2018
p
31 May 2017
p
9.6
9.1
22.7
22.4
Profit for the period
Other comprehensive income
Items that will be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Total comprehensive income for the period attributable to the equity holders of the parent
31 May 2018
£’000
31 May 2017
£’000
3,594
7,711
2
3,596
57
7,768
Non-current assets
Intangible assets
Property, plant and equipment
Current assets
Trade and other receivables
Other short-term assets
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Deferred income
Current tax liabilities
Provisions
Net current assets
Non-current liabilities
Deferred income
Total liabilities
Net assets
Equity
Share capital
Share premium account
Equity reserve
Foreign exchange reserve
Retained earnings
Total equity
Notes
31 May 2018
£’000
31 May 2017
£’000
10
11
12
13
14
15
16
17
15
19
29,197
4,966
34,163
6,733
523
24,124
31,380
65,543
(5,920)
(3,634)
—
(11)
(9,565)
21,815
(690)
(690)
(10,255)
55,288
193
34,132
780
(12)
20,195
55,288
21,871
696
22,567
2,941
510
12,579
16,030
38,597
(4,894)
(459)
(747)
(275)
(6,375)
9,655
(927)
(927)
(7,302)
31,295
171
14,601
972
(4)
15,555
31,295
These financial statements were approved by the Directors on 5 September 2018 and signed on their behalf by:
ALEX BEVIS
DIRECTOR AND COMPANY SECRETARY
The accompanying accounting policies and notes form part of this financial information.
34
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 35
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MAY 2018
CONSOLIDATED STATEMENT OF CASHFLOWS
FOR THE YEAR ENDED 31 MAY 2018
At 31 May 2016
Profit for the year
Other comprehensive income:
Exchange differences on translation of
foreign operations
Total comprehensive income for the year
Issue of share capital net of expenses
Share-based payment charges
Share-based payment transfer relating to
option exercises and lapses
EBT share inflows from issues and/or purchases
EBT share outflows from option exercises
Transaction with owners
At 31 May 2017
Profit for the year
Other comprehensive income:
Exchange differences on translation of
foreign operations
Exchange differences on translation of
net investment
Total comprehensive income for the year
Issue of share capital net of expenses
Share-based payment charges
Share-based payment transfer relating to option
exercises and lapses
EBT share inflows from issues and/or purchases
EBT share outflows from option exercises
Transaction with owners
At 31 May 2018
Share
capital
£’000
170
—
—
—
1
—
—
—
—
1
171
—
—
—
—
22
—
—
—
—
22
Share
premium
account
£’000
14,476
—
—
—
125
—
—
—
—
125
14,601
—
—
—
—
19,531
—
—
—
—
19,531
193
34,132
Equity
reserve
£’000
579
—
—
—
—
687
(244)
(318)
268
393
972
—
—
—
—
—
992
(1,036)
(263)
115
(192)
780
Foreign
exchange
reserve
£’000
(61)
—
57
57
—
—
—
—
—
—
(4)
—
(8)
—
(8)
—
—
—
—
—
—
Retained
earnings
£’000
7,600
7,711
—
7,711
—
—
244
—
—
244
15,555
3,594
—
10
3,604
—
—
1,036
—
—
Total
equity
£’000
22,764
7,711
57
7,768
126
687
—
(318)
268
763
31,295
3,594
(8)
10
3,596
19,553
992
—
(263)
115
1,036
20,397
(12)
20,195
55,288
The accompanying accounting policies and notes form part of this financial information.
Cash generated from operations
Taxes (paid)/received
Cashflow from operating activities
Investing activities
Purchase of property, plant and equipment
Expenditure on intangible assets
Interest received
Cashflow from investing activities
Financing activities
Proceeds from issue of share capital
Employee Benefit Trust net investment
Cashflow from financing activities
Net change in cash and cash equivalents from continuing operations
Cash and cash equivalents at beginning of period
Exchange differences on cash and cash equivalents
Cash and cash equivalents at end of period
The accompanying accounting policies and notes form part of this financial information.
RECONCILIATION OF OPERATING PROFIT TO CASH GENERATED FROM OPERATIONS
Operating profit
Depreciation and amortisation
EBITDA
Movement in unrealised exchange (gains)/losses on forward contracts
Share-based payment expenses
Operating cash flow before movements in working capital
Net changes in working capital:
Change in inventories
Change in trade and other receivables
Change in trade and other payables
Change in provisions
Cash generated from operations
Capitalised development costs have been reclassified from operating activities to investing activities.
31 May 2018
£’000
10,252
(41)
10,211
(4,660)
(13,503)
81
Restated
31 May 2017
£’000
13,831
456
14,287
(633)
(9,804)
21
(18,082)
(10,416)
19,553
(148)
19,405
11,534
12,579
11
24,124
125
(50)
75
3,946
8,610
23
12,579
31 May 2018
£’000
Restated
31 May 2017
£’000
2,800
6,567
9,367
287
992
7,792
4,864
12,656
(337)
687
10,646
13,006
—
(4,069)
3,939
(264)
9
(479)
1,293
2
10,252
13,831
36
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 37
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2018
1. CORPORATE INFORMATION
Frontier Developments plc (the ‘Group’) develops video games for the interactive entertainment sector. The Company is a public limited
company and is incorporated and domiciled in the United Kingdom.
The address of its registered office is 26 Science Park, Milton Road, Cambridge CB4 0FP.
The Group’s operations are based in the UK and its North American subsidiary, Frontier Developments Inc, in the US.
2. BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE
The basis of preparation and going concern policies applied in the preparation of this financial information are set out below. These policies
have been consistently applied to all the periods presented, unless otherwise stated.
BASIS OF PREPARATION
The financial information of Frontier Developments plc has been prepared in accordance with International Financial Reporting Standards
as adopted by the European Union (IFRSs as adopted by the EU) and the Companies Act 2006 applicable to companies reporting under IFRSs.
The financial information has been prepared under the historical cost convention, except for financial instruments held at fair value. The
financial information is presented in Sterling, the presentation and functional currency for the Group and Company. All values are rounded
to the nearest thousand pounds (£’000) except when otherwise indicated.
GOING CONCERN BASIS
The Group’s forecasts and projections, taking account of current cash resources and reasonably possible changes in trading performance,
support the conclusion that there is a reasonable expectation that the Group has adequate resources to continue in operational existence
for the foreseeable future, a period of not less than 12 months from the date of approval of these financial statements. The Group therefore
continues to adopt the going concern basis in preparing its financial statements.
3. ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements incorporate those of the Group and all entities controlled by it, after eliminating internal transactions.
Control is achieved where the Group is exposed or has rights to variable returns from its involvement with the investee and has the ability
to affect those returns through its power over the investee. Subsidiaries are consolidated from the date on which control is obtained by the
Group and cease to be consolidated from the date on which control is transferred out of the Group. The entities’ results are adjusted,
where appropriate, to conform to Group accounting policies.
BUSINESS COMBINATIONS
Business combinations are accounted for using the acquisition method under the revised IFRS 3 “Business Combinations” (IFRS 3R).
The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair value of
assets transferred, liabilities incurred and equity interests issued by the Group, which includes the fair value of any asset or liability arising
from a contingent consideration agreement. Acquisition costs are expensed as incurred.
STANDARDS AND INTERPRETATIONS NOT YET APPLIED
• IFRS 9 “Financial Instruments” (IASB effective date 1 January 2018)
• IFRS 15 “Revenue from Contracts with Customers” (effective 1 January 2018)
• IFRS 16 “Leases” (effective 1 January 2019)
• Disclosure Initiative Amendments to IAS 27 “Statement of Cash Flows” (effective 1 January 2017)
• Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealised Losses” (effective 1 January 2017)
• IFRIC Interpretation 22 “Foreign Currency Transactions and Advance Considerations” (issued on 8 December 2016) (effective 1 January 2018)
(not yet endorsed)
• Amendments to IFRS 2 “Classification and Measurement of Share-based Payment Transactions” (issued on 20 June 2016)
(effective 1 January 2018) (not yet endorsed)
IFRS 15 “REVENUE FROM CONTRACTS WITH CUSTOMERS”
IFRS 15 “Revenue from Contracts with Customers” is effective for periods beginning on or after 1 January 2018. The standard establishes
a principles-based approach for revenue recognition and is based on the concept of recognising revenue for obligations only when they are
satisfied and the control of goods or services is transferred. It applies to all contracts with customers, except those in the scope of other
standards. It replaces the separate models for goods, services and construction contracts under the current accounting standards.
The Group has reviewed IFRS 15 and there is no impact. The Group’s current revenue model already recognises revenue at the point
the obligation has been satisfied and no changes are proposed to the current model based on the implementation of IFRS 15.
3. ACCOUNTING POLICIES CONTINUED
IFRS 16 “LEASES”
IFRS 16 “Leases” was issued on 13 January 2016 and is effective for periods beginning on or after 1 January 2019. Early adoption is permitted
if IFRS 15 “Revenue from Contracts with Customers” has also been applied. IFRS 16 is endorsed by the EU. The standard represents a
significant change in the accounting and reporting of leases for lessees as it provides a single lessee accounting model and, as such, requires
lessees to recognise assets and liabilities for all leases unless the underlying asset has a low value or the lease term is 12 months or less.
The standard may also require the capitalisation of a lease element of contracts held by the Group which under the existing accounting standard
would not be considered a lease.
The Group is currently assessing the impact of the new standard. Work performed includes assessing the accounting impacts of the change
and the data required. From work performed to date it is expected implementation of the new standard will have a significant impact on the
consolidated results of the Group. On adoption, lease agreements will give rise to both a right-of-use asset and a lease liability for future
lease payables. Depreciation of the right-of-use asset will be recognised in the income statement on a straight line basis, with interest
recognised on the lease liability which will result in a change to the profile of the net charge taken to the income statement over the life
of the lease. These charges will replace the lease costs currently charged to the income statement.
IFRS 9 “FINANCIAL INSTRUMENTS”
The new standard for financial instruments replaces IAS 39 “Financial Instruments: Recognition and Measurement”. It makes major changes
to the previous guidance on the classification and measurement of financial assets and introduces an ‘expected credit loss’ model for the
impairment of financial assets.
IFRS 9 also contains new requirements on the application of hedge accounting. The new requirements look to align hedge accounting more
closely with entities’ risk management activities by increasing the eligibility of both hedged items and hedging instruments and introducing
a more principles-based approach to assessing hedge effectiveness.
Management are reviewing the impact of the standard and the Group’s financial assets and liabilities which will be affected.
SIGNIFICANT ACCOUNTING ESTIMATES AND KEY JUDGEMENTS
Revenue recognition
Where self-published titles have pre-orders, recognition is made by reference to delivery of performance obligations. Revenue stemming
from the sale of ‘early versions’ of a game is recognised from the date of release of the ‘early access versions’. Where pre-orders include
delivery of the final version of the game, an estimate is made of this final element and moved to deferred income. An estimate of the final
element is based on the number of man-months it would take to complete the development and is released from deferred income when
the final version is released to the public.
Intangible assets capitalisation
The Group invests heavily in research and development. The identification of development costs that meet the criteria for capitalisation is
dependent on management’s judgement and knowledge of the work done. Development costs of software tools within a project that can be
utilised generically are separately identified. Judgements are based on the information available at each period end. Economic success of
any development is assessed on a reasonable basis but remains uncertain at the time of recognition as it may be subject to future technical
problems and therefore a review for indicators of impairment is completed by product at each period-end date. The net book values of the
Group and Company intangible assets including rights acquired at 31 May 2018 are £29,197,270 (2017: £21,870,689).
Intangible assets are subject to amortisation and reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable, for example a decision to suspend a self-published title under development.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment,
assets are reviewed by project for which there are separately identifiable cashflows.
Games developed to be self-published are reviewed for impairment based on the status at the end of each financial year and at the half
year against a prudent level of the projected net earnings.
In respect to amortisation, normally self-published titles are amortised on completion of the game on a straight line basis.
38
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 39
FINANCIAL STATEMENTS 3. ACCOUNTING POLICIES CONTINUED
SIGNIFICANT ACCOUNTING ESTIMATES AND KEY JUDGEMENTS CONTINUED
Deferred tax
A deferred tax asset is recognised where the Group considers it probable that future tax profits will be available against which the tax credit
will be utilised in the future. This specifically applies to tax losses and to outstanding vested share options at the statement of financial position
date. In estimating the amount of the deferred tax asset that should be recognised, the Directors make judgements based on current forecasts
about the amount of future taxable profits and the timings of when these will be realised. A deferred tax asset is currently not being
recognised in full due to the unpredictability of future taxable trading profits.
Intangible assets
Intangible assets are measured at historical cost and are amortised on a straight line basis over their expected useful economic life.
They comprise three categories:
• development tools;
• software (self-published games); and
• software (third-party software bought from suppliers for use within the Group’s activities).
An internally generated intangible asset arising from the Group’s development activities is recognised only if all of the following conditions
are met:
• completion of the intangible asset is technically feasible so that it will be available for use in developing games (in respect of development
tools) or for sale of games (in respect of self-published software);
• the Group intends to complete the intangible asset and has the ability to use or license it as indicated above, thus generating probable
future economic benefits;
• the expenditure attributable to the intangible asset during its development, mainly salary costs, can be measured reliably; and
• the Group has adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.
Internally generated intangible assets, consisting of direct labour costs, other specific direct project costs and attributable project support
costs, are amortised on a straight line basis over their useful economic lives. The estimated useful lives of current development projects
are between three and five years. When a self-published game is intended for release on multiple platforms without material content change,
amortisation is based on the length of time in which that game is expected to be supported in an unchanged format with a limit of up to six
years. Acquired rights are assessed for their useful ‘franchise life’. For Elite Dangerous this is prudently estimated at eight years; within the
sector successful franchises normally have useful lives of over ten years. Until completion, the assets are subject to annual impairment
testing. In most circumstances amortisation commences upon completion of the asset and is shown within research and development
expenses in the income statement.
Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the period
in which it is incurred.
Research activities
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
Impairment of intangible assets
At each balance sheet date, the Group reviews the carrying amounts of its individual intangible assets for any indication that these assets
have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the
extent of the impairment loss, if any. The recoverable amount is the higher of the fair value less costs to sell or value in use.
Fair value is measured for self-published games by discounting future cashflows.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is
charged to the income statement so as to write off the cost less estimated residual values over their expected useful lives on a straight
line basis over the following periods:
Fixtures and fittings – 5 years
Computer equipment – 2.5 years–5 years
Leasehold improvements – length of the lease
Residual values and useful economic lives are assessed annually. The gain or loss on the disposal or retirement of an asset is determined
as the difference between the sales proceeds and the carrying amount of the asset and is recognised in administrative expenses.
40
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
3. ACCOUNTING POLICIES CONTINUED
SIGNIFICANT ACCOUNTING ESTIMATES AND KEY JUDGEMENTS CONTINUED
Impairment of property, plant and equipment
At each balance sheet date, the Group reviews the carrying amounts of its individual property, plant and equipment for any indication that
these assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss, if any. The recoverable amount is the higher of the fair value less costs to sell or value in use.
Fair value is measured by a review of the expected useful economic life compared to that implied in the amortisation rate.
Assets in the course of construction
Assets in the course of construction are stated at cost. Once the asset has been completed the carrying value of the asset is transferred
and categorised into leasehold improvements. The asset is depreciated over the remaining life of the lease.
Financial assets
Loans and receivables comprise trade receivables, other receivables and cash and cash equivalents.
Financial assets classified as loans and receivables are recognised initially at fair value and measured subsequent to initial recognition at
amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal
of impairment is recognised in the income statement.
Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due to it
in accordance with the original terms of those receivables. The amount of the write down is determined as the difference between the asset’s
carrying amount and the present value of estimated future cashflows discounted at the financial asset’s original effective interest rate.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and bank deposits available on demand.
Financial instruments
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its financial liabilities. Equity
instruments do not include a contractual obligation to deliver cash or other financial assets to another entity. Any instrument that does
have the obligation to deliver cash or another financial asset to another entity is classified as a financial liability.
Financial liabilities are presented under liabilities on the statement of financial position.
Financial liabilities
The Group’s other financial liabilities include trade and other payables.
Financial liabilities are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate
method, except for financial liabilities designated at fair value through profit and loss (FVTPL).
Employee benefits
All accumulating employee compensated absences that are unused at the balance sheet date are recognised as a liability within trade and
other payables.
The parent company operates a defined contribution retirement benefit scheme which was commenced on 1 January 2014 ahead of the
Company’s expected auto-enrolment date. Payments to defined contribution retirement benefit schemes are charged as an expense in the
period to which they relate.
Provisions
Provisions for dilapidations are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is
probable that an outflow of economic resources will be required from the Group and amounts can be estimated reliably. Timing or amount
of the outflow may be uncertain.
Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence
available at the reporting date, including the risks and uncertainties associated with the present obligation.
Share capital and reserves
Share capital represents the nominal value of the shares that have been issued.
Share premium – Share premium represents the excess over nominal value of the fair value of consideration received for equity shares,
net of expenses of the share issue.
Equity reserve – This represents the value of the Employee Benefit Trust (EBT) that is offset against distributable reserves and equity-
settled share-based employee remuneration until such share options are exercised.
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 41
FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MAY 2018 3. ACCOUNTING POLICIES CONTINUED
SIGNIFICANT ACCOUNTING ESTIMATES AND KEY JUDGEMENTS CONTINUED
Share capital and reserves continued
Foreign exchange reserve – This represents the exchange difference on consolidation of overseas subsidiaries.
Retained earnings – Retained earnings include all current and prior period retained earnings.
Employee Benefit Trust
As the Company is deemed to have control of its Employee Benefit Trust (EBT), it is treated as a subsidiary and consolidated for the purposes
of the consolidated financial statements. The EBT’s assets (other than investments in the Company’s shares), liabilities, income and expenses
are included on a line-by-line basis in the consolidated financial statements. The EBT’s investment in the Company’s shares is deducted
from equity in the consolidated statement of financial position as if they were treasury shares. The gain or loss on transfer of the shares
from the EBT to employees is recognised within equity.
Revenue
Revenue represents amounts derived from the design, production and sale of computer games software and related technology which fall
within the Group’s ordinary activities, exclusive of value-added tax and other similar sales taxes. Revenue is measured by reference to the
fair value of consideration received or receivable.
Revenue includes income from the release of full games and early access versions of self-published games, royalties from published
games and associated merchandise, both physical and digital.
Revenue from released self-published titles is recognised on download of the game or upon purchase of in-game digital items.
Revenue from pre-orders of games and crowdfunding for self-published titles is normally deferred, then recognised when the Group meets
its performance obligations. Where there is no clear performance obligation, for example if a customer buys membership to a development
forum, this is taken as revenue over the expected development period of the game on a straight line basis.
Revenue earned from royalties under distribution agreements is recognised in the period that the sales to the end customer are made,
estimated on an accruals basis as royalty reports are received on a monthly or calendar-quarter basis.
Segment reporting
The Group identifies one operating segment as the business is managed as a whole, reflecting the transition of the Group from an external
publisher to self-publishing. For management purposes the chief operating decision maker reviews the financial information, which is consistent
with that reported in its financial statements, with financial performance measured on the basis of contribution before central costs. Assets
are not fully directly attributable to any separable activity, other than to self-published software intangibles.
Share-based payment transactions
Share options are periodically granted to staff. Share options are measured at fair value at the date of grant and recognised over the vesting
period of the option. Fair value is measured using the Black-Scholes option pricing model. The expected life used in the model is an estimate
of the likely average expiry date of the options by reference to the current rate of exercise by employees. The share-based payment is recognised
as an expense in profit or loss, together with a corresponding credit to an equity reserve. This expense is recognised on a straight line
basis based on the Group’s estimate of the number of shares that will vest. Estimates are subsequently revised if there is any indication
that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised
in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different
to that estimated on vesting. Upon exercise of share options, the proceeds received up to the nominal value of the shares issued are
allocated to share capital with any excess being recorded as share premium. Upon the exercise or lapsing of the grant a transfer of the
cumulative value of the grant is made from the equity reserve to the profit and loss reserve.
Income taxes
Income tax expense comprises the current and deferred tax.
Current income tax liabilities comprise those obligations to fiscal authorities relating to the current or prior reporting period that are unpaid
at the statement of financial position date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to
which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a component of
tax expense in the income statement, except where it relates to items outside profit or loss. Tax relating to items in other comprehensive
income is recognised in other comprehensive income and tax relating to items directly in equity is recognised directly in equity.
Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying
amounts of assets and liabilities in the financial statements with their respective tax bases. In addition, tax losses available to be carried
forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets. However, deferred tax is not
provided on the initial recognition of an asset or liability, unless the related transaction is a business combination or affects tax or
accounting profit.
42
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
3. ACCOUNTING POLICIES CONTINUED
SIGNIFICANT ACCOUNTING ESTIMATES AND KEY JUDGEMENTS CONTINUED
Income taxes continued
Deferred tax liabilities are always provided in full. Deferred tax assets are recognised to the extent that it is probable that the underlying
deductible temporary differences will be able to be offset against future taxable income. Deferred tax assets and liabilities are calculated,
without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively
enacted at the reporting date.
Deferred tax is recognised as a component of tax expense in the income statement. Deferred tax relating to items directly in equity is
recognised directly in equity and deferred tax relating to items recognised in other comprehensive income is recognised in other
comprehensive income.
Research and Development tax credits (R&D tax credits) are claimed by the Group for qualifying expenditure. If the R&D tax credit is
claimed as a cash benefit this is recognised through the profit and loss in the period it is received.
Operating lease agreements
Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged
to the income statement net of any incentives received from the lessor on a straight line basis over the period of the lease.
Foreign currencies
The assets and liabilities in the financial statements of foreign subsidiaries are translated at the rate of exchange ruling at the statement of
financial position date. Income and expenses are translated at the average exchange rate. The exchange differences arising from the retranslation
of the opening net investment in subsidiaries are recognised in other comprehensive income and are accumulated in the foreign currency
reserve in equity. On disposal of a foreign operation, the cumulative translation differences are transferred to the profit and loss as a
reclassification adjustment as part of the gain or loss on disposal.
Transactions denominated in a foreign currency are translated at the rate of exchange ruling at a month-end rate in order to approximate
to the actual rate for the relevant transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at the
rate of exchange ruling at the statement of financial position date.
Foreign exchange differences are charged to the income statement in the period in which they arise.
Financial assets and liabilities at FVTPL
Derivative financial instruments are financial assets and liabilities measured at fair value through profit and loss (FVTPL) and are financial
instruments that are either classified as held for trading or that meet certain conditions and are designated at FVTPL upon initial
recognition. All derivative instruments fall into this category.
Financial instruments in this category are measured at fair value with gains or losses recognised in profit or loss. The fair values of financial
assets and liabilities in this category are determined by reference to active market transactions or using a valuation technique where no
active market exists.
4. SEGMENT INFORMATION
The Group identifies operating segments based on internal management reporting that is regularly reviewed by the chief operating decision
maker and reported to the Board. The chief operating decision maker is the Chief Executive Officer.
Management information is reported as one operating segment, being revenue from self-published franchises and other revenue streams
such as royalties and licensing.
The Group does not provide any information on the geographical location of sales as the majority of revenue is through third-party
distribution platforms which are responsible for the sales data of consumers.
All of the Group’s non-current assets are held within the UK.
All material revenue is categorised as either self-publishing revenue or other revenue.
In the period ending 31 May 2018 the majority of other revenue relates to royalties received from sales of RollerCoaster Tycoon 3
(31 May 2017: ‘Licensing revenue’ £520k).
Self-publishing revenue
Other revenue
12 months to
31 May 2018
£’000
12 months to
31 May 2017
£’000
32,644
1,548
34,192
36,357
1,006
37,363
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 43
FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MAY 2018 5. EMPLOYEE REMUNERATION
Staff costs for all employees, including Directors, consist of:
Staff remuneration
Social security costs
Pension costs
Share-based compensation
31 May 2018
£’000
31 May 2017
£’000
13,179
1,399
712
992
13,877
1,236
109
687
16,282
15,909
Included in the above payroll costs for the year ended 31 May 2018 is £9,654,702 (2017: £8,460,312) capitalised within intangible fixed
assets (see note 10). Pension costs relate to contributions to the Company’s defined contribution scheme for auto-enrolment.
The average number of employees, including Directors, during the period was:
Research and development
Sales, marketing and administrative
REMUNERATION OF DIRECTORS
Directors’ emoluments
Non-Executive fees
Non-Executive consultancy fees
EMOLUMENTS OF HIGHEST PAID DIRECTOR
Emoluments
Pension
For detailed Directors’ remuneration refer to page 28 of the financial statements.
6. OPERATING LEASES
GROUP AND COMPANY
At each period end the future operating lease payments were as follows:
Minimum lease payments due within one year
Minimum lease payments due within one to five years
Minimum lease payments due in greater than five years
Total
31 May 2018
31 May 2017
300
45
345
277
35
312
31 May 2018
£’000
31 May 2017
£’000
1,483
40
45
720
38
45
31 May 2018
£’000
31 May 2017
£’000
400
10
230
2
Group and Company year ended
31 May 2018
£’000
31 May 2017
£’000
1,911
7,636
21,475
31,022
692
1,344
—
2,036
Group lease payments recognised as an expense during the year ended 31 May 2018 amounted to £1,133,561 (31 May 2017: £685,000).
The lease payments in the period relate to office equipment, vehicles and lease agreements for office buildings. During February 2018,
a 16-year lease was entered into for a new commercial office building and occupation commenced in April 2018. All existing property
leases were terminated early in April 2018 as part of the terms of the new lease.
7. PROFIT BEFORE TAX
This is stated after charging:
Amortisation of intangible assets
Depreciation of tangible assets
Research and development costs expensed
Foreign exchange losses
Auditor remuneration:
Audit of the parent and Group
Audit related assurance services
Other assurance services
Operating leases
8. TAXATION ON ORDINARY ACTIVITIES
ANALYSIS OF THE (CREDIT)/CHARGE IN THE PERIOD
UK corporation tax based on the results for the year
Adjustments for prior periods
Video Games Tax Relief credits (UK)
Withholding tax
Tax on profit on ordinary activities
31 May 2018
£’000
31 May 2017
£’000
6,177
390
2,450
137
52
9
1
1,134
4,623
241
3,101
1,671
40
9
1
685
31 May 2018
£’000
31 May 2017
£’000
34
(747)
—
—
(713)
660
87
(664)
19
102
FACTORS AFFECTING TAX EXPENSES
The tax assessed on the profit on ordinary activities for the year differs from the effective rate of corporation tax of 19% (2017: 19.83%)
as follows:
Profit on ordinary activities before taxation
Tax on profit on ordinary activities at standard rate
Factors affecting tax expense for the year:
Expenses not deductible for tax purposes
Adjustments to tax charge in respect of previous periods
Research and development tax credits
Video Games Tax Relief credits (UK)
Video Games Tax Relief enhanced deductions
Deferred tax – utilisation of tax losses
Deferred tax movements
Corporation tax deductions for employee share option exercises
Losses to carry forward
Total amount of tax
31 May 2018
£’000
31 May 2017
£’000
2,880
547
381
(747)
(235)
—
(608)
—
—
(1,820)
1,769
(713)
7,813
1,549
203
87
—
(645)
—
(928)
(39)
(125)
—
102
44
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 45
FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MAY 2018 8. TAXATION ON ORDINARY ACTIVITIES CONTINUED
FACTORS AFFECTING TAX EXPENSES CONTINUED
The Group benefits from the enhanced tax deductions available from the Video Games Tax Relief (VGTR) scheme as well as enhanced tax
deductions for research and development expenditure (where costs are not included in the VGTR regime). For the financial year 2018 the
Group expects to be able to process a substantial tax deduction for employee share option gains achieved in the period. As a result of all
these factors, as at 31 May 2018 the Group had tax losses which are estimated to be in excess of £10 million in total. The application of these
estimated tax losses against future financial flows can be complex because of the nature of the streaming of revenue and costs for the different
game franchises between the main trade for tax (i.e. outside the VGTR regime) and each VGTR stream. No deferred tax assets have been
recognised for the estimated losses as there is no certainty of when they will be utilised and the estimated corporation tax deductions for
employee share option gains has not been processed in this set of accounts. The Group expects to provide additional details on its tax status
in the FY19 financial statements.
9. EARNINGS PER SHARE
The calculation of the basic earnings per share is based on the profits attributable to the shareholders of Frontier Developments plc
divided by the weighted average number of shares in issue during the year.
Profit attributable to shareholders (£’000)
Weighted average number of shares
Basic earnings per share (pence)
31 May 2018
31 May 2017
3,594
7,711
37,519,639
33,943,972
9.6
22.7
The calculation of the diluted earnings per share is based on the profits attributable to the shareholders of Frontier Developments plc
divided by the weighted average number of shares in issue during the year as adjusted for the dilutive effect of share options.
Profit attributable to shareholders (£’000)
Diluted weighted average number of shares
Diluted earnings per share (pence)
31 May 2018
31 May 2017
3,594
7,711
39,485,283
34,446,017
9.1
22.4
The reconciliation of the average number of Ordinary Shares used for basic and diluted earnings per share is as follows:
Weighted average number of shares
Dilutive effect of share options
Diluted average number of shares
31 May 2018
31 May 2017
37,519,639
33,943,972
1,965,644
502,045
39,485,283
34,446,017
10. INTANGIBLE ASSETS
GROUP AND COMPANY
The Group and Company intangible assets comprise capitalised development tools and self-published software from internal development
activities and acquired software licences.
Cost
At 31 May 2016
Additions
Disposals
At 31 May 2017
Additions
Disposals
At 31 May 2018
Amortisation and impairment
At 31 May 2016
Amortisation charges
Disposals
At 31 May 2017
Amortisation charges
Disposals
At 31 May 2018
Net book value at 31 May 2018
Net book value at 31 May 2017
Development
tools and
licences
£’000
Self-published
software and
licences
£’000
Third-party
software
£’000
3,966
571
—
4,537
930
—
21,600
9,076
—
30,676
12,489
—
5,467
43,165
2,605
874
—
3,479
949
—
4,428
1,039
1,058
6,374
3,655
—
10,029
5,101
—
15,130
28,035
20,647
1,102
157
(915)
344
84
—
428
999
94
(915)
178
127
—
305
123
166
Total
£’000
26,668
9,804
(915)
35,557
13,503
—
49,060
9,978
4,623
(915)
13,686
6,177
—
19,863
29,197
21,871
The majority of amortisation charges for intangible assets are expensed within research and development expenses. A small proportion
of amortisation charges for third-party software is charged to administrative expenses.
In 2014 rights including the Elite brand were acquired from Professional Practice Automation LLP. These acquired rights are included
within self-published software. The net book value of the acquired rights at 31 May 2018 was £2.8 million (2017: £3.5 million).
46
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 47
FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MAY 2018 11. PROPERTY, PLANT AND EQUIPMENT
GROUP AND COMPANY
Cost
At 31 May 2016
Additions
Disposals
At 31 May 2017
Additions
Transfer
At 31 May 2018
Depreciation
At 31 May 2016
Charge for the period
Disposals
At 31 May 2017
Charge for the period
Transfer
At 31 May 2018
Net book value at 31 May 2018
Net book value at 31 May 2017
Fixtures
and fittings
£’000
Computer
equipment
£’000
Leasehold
improvements
£’000
Assets in the
course of
construction
£’000
235
1
(121)
115
—
459
574
213
14
(121)
106
19
—
125
449
9
1,576
238
(916)
898
317
307
1,522
1,294
227
(916)
605
309
—
914
608
293
4
—
(4)
—
—
3,971
3,971
4
—
(4)
—
62
—
62
3,909
—
—
394
—
394
4,343
(4,737)
—
—
—
—
—
—
—
—
—
394
Total
£’000
1,815
633
(1,041)
1,407
4,660
—
6,067
1,511
241
(1,041)
711
390
—
1,101
4,966
696
Assets in the course of construction relates to the fit-out of a new leased building in the Science Park in Cambridge which was occupied
from April 2018.
Depreciation charges were apportioned to the income statement as follows:
Research and development expenses
Administration expenses
Total
Year ended
31 May 2018
£’000
Year ended
31 May 2017
£’000
260
130
390
239
2
241
12. TRADE AND OTHER RECEIVABLES
Trade and other receivables, gross
Intercompany receivable
Financial assets
Prepayments and other debtors
Social security and other taxes
Non-financial assets
Total trade and other receivables
Consolidated year ended
Company year ended
31 May 2018
£’000
31 May 2017
£’000
31 May 2018
£’000
31 May 2017
£’000
4,130
—
4,130
2,148
455
2,603
6,733
1,736
—
1,736
921
284
1,205
2,941
4,137
158
4,295
2,126
456
2,582
6,877
1,725
91
1,816
899
284
1,183
2,999
All amounts are short term. The net carrying value of trade receivables is considered a reasonable approximation of fair value.
No receivables are past their due date. The majority of receivables are balances with third-party distributors.
13. CASH AND CASH EQUIVALENTS
Cash and cash equivalents included the following balances by currency:
Cash at bank and in hand
Great British Pounds (GBP)
US Dollars (USD)
Euros (EUR)
Canadian Dollars (CAD)
Financial assets
Consolidated year ended
Company year ended
31 May 2018
£’000
31 May 2017
£’000
31 May 2018
£’000
31 May 2017
£’000
20,916
2,447
755
6
6,991
5,372
116
100
20,916
2,247
755
6
6,991
5,207
116
100
24,124
12,579
23,924
12,414
48
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 49
FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MAY 2018 14. TRADE AND OTHER PAYABLES
Trade payables
Intercompany payable
Accruals
Financial liabilities
Derivative financial instruments
Other taxation and social security
Total trade and other payables
Consolidated year ended
Company year ended
31 May 2018
£’000
31 May 2017
£’000
31 May 2018
£’000
31 May 2017
£’000
1,492
—
3,541
5,033
373
514
5,920
1,003
—
3,426
4,429
70
395
4,894
1,458
44
3,531
5,033
373
514
5,920
1,003
9
3,419
4,431
70
395
4,896
Trade and other payables are due within one year. The carrying values of trade and other payables are considered to be a reasonable
approximation of fair value.
15. DEFERRED INCOME
Deferred income in the statement of financial position can be analysed as follows:
Deferred income – current
Deferred income – non-current
Total deferred income
Consolidated year ended
Company year ended
31 May 2018
£’000
31 May 2017
£’000
31 May 2018
£’000
31 May 2017
£’000
3,634
690
4,324
459
927
1,386
3,589
555
4,144
390
740
1,130
Non-current deferred income is due to be recognised over the expected remaining life of the franchise period. At 31 May 2018 the expected
remaining life of the franchise is considered to be three and a half years.
The deferred revenue is in respect of Elite Dangerous lifetime expansion passes and digital pre-order sales of Jurassic World Evolution.
Jurassic World Evolution launched on 12 June 2018, at which time all deferred revenue was released.
The carrying values of deferred income are considered to be a reasonable approximation of fair value.
16. CURRENT TAX LIABILITIES
Current tax liabilities in the statement of financial position were as follows:
Current tax liability
Consolidated year ended
Company year ended
31 May 2018
£’000
31 May 2017
£’000
31 May 2018
£’000
31 May 2017
£’000
—
747
—
747
17. PROVISIONS
PROVISIONS FOR DILAPIDATIONS
Opening balance
Provision utilised
Provision released
Provided for in the period
At period end
Group and Company year ended
31 May 2018
£’000
31 May 2017
£’000
275
—
(264)
—
11
273
—
—
2
275
The dilapidation provision relates to the rental contracts for the previously leased office buildings. The provision is based on the estimated
costs of work to be performed to bring the buildings back to a state of repair and condition similar to the start of the lease. The reduced
dilapidations cost was negotiated as part of the new lease agreements entered into during February 2018.
18. DEFERRED TAX ASSETS AND LIABILITIES
Accelerated capital allowances
Short-term temporary differences (restricted)
Total liability
Balance brought forward
Movement in year
Balance carried forward liability
Group and Company year ended
31 May 2018
£’000
31 May 2017
£’000
109
(109)
—
—
—
—
310
(310)
—
—
—
—
No deferred tax assets or liabilities have been recognised in the statement of financial position for the Group and Company as at 31 May 2018
or 31 May 2017 as there is uncertainty as to when the tax losses are anticipated to crystallise.
UK tax losses available at 31 May 2018 are provisionally estimated to be in excess of £10 million (31 May 2017: £1.9 million).
19. SHARE CAPITAL
GROUP AND COMPANY
Balances and movement in share capital, being Ordinary Shares of 0.5 p each.
At 31 May 2016
Shares issued on option exercises and warrants
As at 31 May 2017
Shares issued on option exercises and warrants
Tencent investment
As at 31 May 2018
Number
Nominal value
£
34,096,781
170,484
133,748
669
34,230,529
171,153
985,517
3,386,252
4,928
16,931
38,602,298
193,012
From 1 June 2017 to 31 May 2018 4,371,769 Ordinary Shares of 0.5p were allotted as fully paid at an average premium of 447p, being the
issue of shares to Tencent following the strategic investment and the exercise of share options by employees. The average market value
was 737.7p on the days of allotment.
50
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 51
FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MAY 2018 20. FINANCIAL ASSETS AND LIABILITIES
The carrying amounts presented in the statement of financial position relate to the following categories of financial assets and liabilities:
Financial assets
Trade and other receivables
Cash and cash equivalents
Total
Consolidated year ended
Company year ended
31 May 2018
£’000
31 May 2017
£’000
31 May 2018
£’000
31 May 2017
£’000
4,130
24,124
28,254
1,736
12,579
14,315
4,295
23,924
28,219
1,816
12,414
14,230
DERIVATIVE FINANCIAL INSTRUMENTS
The Group’s financial instruments measured at fair value are summarised below:
Consolidated year ended
Company year ended
31 May 2018
£’000
31 May 2017
£’000
31 May 2018
£’000
31 May 2017
£’000
Derivative financial liabilities
Forward foreign exchange contracts – held for trading
(373)
(70)
(373)
(70)
The Group used forward foreign exchange contracts to mitigate exchange rate exposure arising from forecast sales in US Dollars. The
forward contracts are considered by management to be part of economic hedge arrangements but have not been formally designated.
All forward contracts are held at fair value through the profit and loss by reference to the exchange rate at the balance sheet date.
The Group’s foreign currency forward contracts have been fair valued using observable forward exchange rates corresponding to the
maturity of the contract. The observable forward exchange rates are provided by a third party. They are defined as level 2 within the fair
value hierarchy. There were no transfers between levels in 2018 or 2017.
Financial liabilities
Trade and other payables
Total
Consolidated year ended
Company year ended
31 May 2018
£’000
31 May 2017
£’000
31 May 2018
£’000
31 May 2017
£’000
5,033
5,033
4,429
4,429
5,033
5,033
4,431
4,431
21. INVESTMENT IN SUBSIDIARY UNDERTAKINGS
The Company holds a £6 investment in Frontier Developments Inc., a company registered in the US. This represents 100% of the Ordinary
Share capital of the company, which is engaged in publisher support services for the Group.
22. SHARE OPTIONS
The Group has a number of share schemes whereby options may be granted to employees (including Directors) to subscribe for Ordinary
Shares in the Group.
The Group operates two EMI schemes (pre-July 2013), a HMRC-approved Company Share Option Plan (from January 2014), two unapproved
schemes (one pre-July 2013 and one post-January 2014), a HMRC-approved Sharesave scheme (October 2017 and May 2018) and a Long
Term Incentive Plan (November 2017, January 2018 and May 2018). The share option grants for employees typically vest after three years with
a contractual term of ten years. The option holder must be employed by the Group at the time of exercise. The unapproved options carry similar
conditions to the main Company Share Option Plan, except for one tranche issued on 15 September 2014 that had a shorter vesting period
of one year. The Long Term Incentive Plan has a vesting period of three years and has performance conditions attached to the options.
Date of grant
Scheme or warrant type
30 July 2012
15 May 2013
8 July 2013
15 July 2013
2013 EMI scheme
2013 EMI scheme
Unapproved pre-IPO warrants
Unapproved IPO warrants
21 March 2014
Company Share Option Plan
15 September 2014
Company Share Option Plan
15 September 2014
Unapproved options
15 September 2014
Unapproved options
10 March 2015
10 March 2015
Company Share Option Plan
Unapproved options
21 September 2015
Company Share Option Plan
21 September 2015
Unapproved options
8 September 2016
8 September 2016
9 February 2017
9 February 2017
31 May 2017
31 May 2017
31 May 2017
01 November 2017
10 November 2017
10 November 2017
1 January 2018
1 January 2018
8 May 2018
Company Share Option Plan
Unapproved options
Company Share Option Plan
Unapproved options
Company Share Option Plan
Unapproved options
Unapproved options
Sharesave
Company Share Option Plan
Long Term Incentive Plan
Unapproved options
Long Term Incentive Plan
Sharesave
Period when
exercisable
2012–2022
2014–2023
2013–2023
2013–2023
2017–2024
2017–2024
2017–2024
2015–2024
2018–2025
2018–2025
2018–2025
2018–2025
2019–2026
2019–2026
2020–2027
2020–2027
2020–2027
2020–2027
2020–2027
2020–2027
2020–2027
2020–2027
2021–2028
2021–2028
2021–2028
Price in pence
89
95
95
127
224.5
257.5
257.5
257.5
230
230
193.5
193.5
174
174
278
278
406
406
250
952
1,094
0.5
300
0.5
1,044
2018
Number
130,193
4,000
65,790
147,638
80,850
156,380
213,100
288,350
97,230
30,200
124,000
39,400
160,000
176,000
89,000
35,000
7,389
22,167
300,000
84,719
108,491
148,408
50,000
12,000
24,783
2017
Number
396,273
210,000
65,790
147,638
165,100
266,300
588,500
288,350
163,100
33,200
128,800
39,400
164,000
176,000
95,000
35,000
7,389
22,167
300,000
—
—
—
—
—
—
2,595,088
3,292,007
52
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 53
FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MAY 2018 22. SHARE OPTIONS CONTINUED
Movements in the number of share options and warrants outstanding:
Opening balance
Granted
Exercised
Lapsed
Closing balance
Weighted average exercise price on closing balance
Group and Company year ended
2018
Number
2017
Number
3,292,007
2,981,849
433,468
(1,108,520)
(21,867)
799,556
(374,898)
(114,500)
2,595,088
3,292,007
271.9p
204.0p
The share-based compensation charge in the profit and loss was £991,724 (31 May 2017: £687,465), of which £24,427 (31 May 2017: £18,458)
was in respect of warrants.
Under the rules of the Company Share Option Plan, typically options are not exercisable until three years from the date of the grant. There
are no performance conditions attaching to the options. The only vesting condition is continued service in the Company.
Under the rules of the Long Term Incentive Plan, typically options are not exercisable until three years from the date of the grant. There
are performance conditions attached to the options related to both profit and share price performance during the vesting period. The
option holder must also be employed by the Group at time of exercise.
FAIR VALUE ASSUMPTIONS OF SHARE-BASED PAYMENTS
The fair value of services received in return for share options is measured by reference to the fair value of share options granted.
The estimate of fair value is measured using the Black-Scholes model. Details of the fair value granted in the period, together with the
assumptions used in determining the fair value, are summarised below:
Sharesave
May 2017
LTIP
January 2018
Unapproved
January 2018
LTIP
November 2017
LTIP
November 2017
CSOP
November 2017
Sharesave
November 2017
LTIP
May 2017
May 2017
Share price at date of grant (p)
Exercise price (p)
Expected time to expiry (years)
1,044
1,044
3.6
1,325
1,325
1,094
1,094
0.5
3.6
300
3.6
0.5
3.6
0.5
3.6
1,094
1,094
3.6
952
952
3.6
406
250
3.6
406
406
3.6
Risk-free interest rate (%)
2.2837
2.2837
2.2837
2.2837
2.2837
2.2837
2.2837
2.2837
2.2837
Expected dividend yield
on shares (%)
Expected volatility of
share price (%)
Fair value of options granted (p)
—
—
—
—
—
—
—
—
—
41.26
343.3
40.46
40.46
1,271.5
1,009.9
39.87
612.4
39.87
1,049.8
39.87
340.4
39.55
294.3
31.84
184.8
31.84
105.0
Share options granted on 31 May 2017 have been included in the fair value calculations above. Due to the date of grant being 31 May 2017,
these options were deemed to be granted on 1 June 2017 for accounting purposes and are therefore reflected in these financial statements.
EMPLOYEE BENEFIT TRUST (EBT)
On 5 December 2014, the Company set up an EBT for the purposes of allowing employees to exercise their share options, including
the choice of being able to do this on a cashless exercise basis. The exercise of options is approved by the Board at each Board meeting,
outside of share dealing closed periods, under a letter of recommendation to the Trustees of the EBT. The fulfilment of the share option
conversions, whether by issue of shares to the EBT or market purchases, is also made at the same time. The EBT is limited under ABI
guidelines to holding not more than 10% of the Ordinary Share capital of the Group. The Trustees are appointed by Estera Trust (Jersey)
Limited (formerly Appleby Trust (Jersey) Limited), which administers the Trust. The number of share options exercised by employees in the
year and fulfilled as part of these arrangements was 65,600 Ordinary Shares. The EBT purchased 64,600 Ordinary Shares from employees
exercising under the cashless options. The EBT had no other assets or liabilities at 31 May 2018 outside of its interest in 104,645 Ordinary
Shares, and a voluntary contribution was made to the Trust to repay the outstanding loan balance in full in June 2017 from the £10 million
facility provided by the Company.
23. RELATED PARTY TRANSACTIONS
Two shareholders receive ongoing royalties or commission as a percentage of royalty sales for some of the Group’s video games launched
in prior periods.
Connected party
Chris Sawyer – royalties
Marjacq Micro Limited – sales commission
Group and Company year ended
Expense paid
31 May 2018
£’000
Creditor balance
31 May 2018
£’000
Expense paid
31 May 2017
£’000
Creditor balance
31 May 2017
£’000
268
118
24
26
154
59
—
—
Connected party
EBT – share options exercised by employees
Voluntary contribution to the Trust to repay outstanding loan balance during year ended 31 May 2018
Movement in year
Opening loan balance
Closing loan balance
Group and Company year ended
Change in value of
loan expense paid
31 May 2018
£’000
Change in value
of loan expense
31 May 2017
£’000
148
(148)
—
—
—
50
(1,404)
(1,354)
1,354
—
KEY MANAGEMENT COMPENSATION
Key management is the Executive and Non-Executive Directors of the Group. The compensation paid to key management for employee
services is shown below:
Directors’ emoluments (including bonuses)
Non-Executive fees
Non-Executive consultancy fees
31 May 2018
£’000
31 May 2017
£’000
1,483
40
45
720
38
45
24. FINANCIAL INSTRUMENT RISKS
RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group is exposed to various risks in relation to financial assets and liabilities. Financial assets and liabilities by category are
summarised in note 20. The main types of risks are credit risk, currency risk and liquidity risk.
The Group’s risk management is co-ordinated in close co-operation with the Board of Directors.
The Group does not actively engage in the trading of financial assets for speculative purposes. The most significant financial risks to which
the Group is exposed are described below.
CREDIT RISK
The Group’s exposure is limited to the carrying amount of financial assets and cash and cash equivalents recognised at the year-end date
(as summarised in note 20).
The Group’s management considers all financial assets, not impaired, for each reporting date to be of good credit quality, including those
past due. In respect of trade and other receivables, the Group is exposed to significant credit risk for a single counterparty. The Board
monitors the credit risk by reference to the date of receipt compared to the contractual terms.
The Group considers it has minimal credit risk for liquid funds and other short-term financial assets as cash is held with reputable UK
and US banks.
At the year end the Group’s financial assets are secured by a debenture issued in favour of Barclays Bank plc.
54
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 55
FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MAY 2018 24. FINANCIAL INSTRUMENT RISKS CONTINUED
LIQUIDITY RISK ANALYSIS CONTINUED
The Company’s financial liabilities have contractual maturities as summarised below:
As at 31 May 2018
Trade and other payables
As at 31 May 2017
Trade and other payables
Current
Non-current
Within
6 months
£’000
Between 6
and 12 months
£’000
Between 1
and 5 years
£’000
Later than
5 years
£’000
4,543
490
4,333
98
—
—
—
—
Financial assets used for managing liquidity risk
Cashflows from trade and other receivables are contractually due within six months.
Cash is generally held in accounts with immediate notice. Where surplus cash deposits are identified these are placed in accounts with
access terms of no more than three months.
24. FINANCIAL INSTRUMENT RISKS CONTINUED
FOREIGN CURRENCY RISK
The Group’s reporting currency is Sterling. Exposure to currency exchange rates arises where transactions are in a currency other than
the functional currency of the entity, primarily US Dollars (USD) and Euros (EUR).
The Group has entered into several forward contracts during the financial year in order to mitigate the risk of US currency movements.
The closing value of the contracts has been disclosed within financial assets, and accounted for at fair value through the profit and loss.
The carrying amounts of the Group’s Canadian Dollar, US Dollar and Euro-denominated monetary assets outside the functional currency
of the entity at the reporting date are as follows:
Consolidated year ended 31 May 2018
Consolidated year ended 31 May 2017
Company year ended 31 May 2018
Company year ended 31 May 2017
CAD
£’000
USD
£’000
Assets
6
2,447
EUR
£’000
755
CAD
£’000
USD
£’000
100
5,372
EUR
£’000
116
CAD
£’000
USD
£’000
6
2,247
EUR
£’000
755
CAD
£’000
USD
£’000
100
5,208
EUR
£’000
116
In addition, some of the Group’s revenue and overhead transactions are completed in a foreign currency.
Foreign currency sensitivity analysis
The following table details the Group’s sensitivity to a 5% increase or decrease in the Sterling exchange rate against all relevant
currencies, albeit the main exposures are to US Dollars and Euros. An increase in Sterling would lead to a decrease in income and a
decrease in equity.
Effect of a 5% change in relevant exchange rate on:
Income statement
Equity
Consolidated year ended
Company year ended
31 May 2018
£’000
31 May 2017
£’000
31 May 2018
£’000
31 May 2017
£’000
841
367
1,023
381
987
354
1,218
368
LIQUIDITY RISK ANALYSIS
Liquidity risk is the risk arising from the Group not being able to meet its obligations as they fall due. The Group manages its liquidity
needs by carefully monitoring forecast cash inflows and outflows due in day-to-day business. Net cash requirements determine headroom
or any shortfalls over the medium term. This analysis shows if there is a need to use the revolving credit facility or seek external funding
or the need for secure finance from its shareholder base.
The Group’s financial liabilities have contractual maturities as summarised below:
As at 31 May 2018
Trade and other payables
As at 31 May 2017
Trade and other payables
Current
Non-current
Within
6 months
£’000
Between 6
and 12 months
£’000
Between 1
and 5 years
£’000
Later than
5 years
£’000
4,543
490
4,331
98
—
—
—
—
56
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 57
FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MAY 2018 COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 MAY 2018
(REGISTERED COMPANY NO: 02892559)
COMPANY STATEMENT OF CASHFLOWS
FOR THE YEAR ENDED 31 MAY 2018
Non-current assets
Intangible assets
Property, plant and equipment
Current assets
Trade and other receivables
Other short-term assets
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Deferred income
Current tax liabilities
Provisions
Net current assets
Non-current liabilities
Deferred income
Total liabilities
Net assets
Equity
Share capital
Share premium account
Equity reserve
Retained earnings
Total equity
Notes
31 May 2018
£’000
31 May 2017
£’000
10
11
12
13
14
15
16
17
15
19
29,197
4,966
34,163
6,877
466
23,924
31,267
65,430
(5,920)
(3,589)
—
(11)
(9,520)
21,747
(555)
(555)
(10,075)
55,355
193
34,132
780
20,250
55,355
21,871
696
22,567
2,999
456
12,414
15,869
38,436
(4,896)
(390)
(747)
(275)
(6,308)
9,561
(740)
(740)
(7,048)
31,388
171
14,601
972
15,644
31,388
The Company has taken the exemption under Section 408 of the Companies Act 2006 not to present a full income statement, but the profit
for the Company was £3,570,558 (2017: £8,268,195).
These financial statements were approved by the Directors on their behalf by:
ALEX BEVIS
DIRECTOR AND COMPANY SECRETARY
5 September 2018
58
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
Cash generated from operations
Taxes (paid)/received
Cashflow from operating activities
Investing activities
Purchase of property, plant and equipment
Expenditure on intangible assets
Interest received
Cashflow from investing activities
Financing activities
Proceeds from issue of share capital
Employee Benefit Trust net investment
Cashflow from financing activities
Net change in cash and cash equivalents from continuing operations
Cash and cash equivalents at beginning of period
Exchange differences on cash and cash equivalents
Cash and cash equivalents at end of period
The accompanying accounting policies and notes form part of this financial information.
RECONCILIATION OF OPERATING PROFIT TO CASH GENERATED FROM OPERATIONS
Operating profit
Depreciation and amortisation
EBITDA
Movement in unrealised exchange losses/(gains) on forward contracts
Share-based payment expenses
31 May 2018
£’000
10,221
(34)
10,187
(4,660)
(13,503)
81
Restated
31 May 2017
£’000
14,664
564
15,228
(633)
(9,804)
19
(18,082)
(10,418)
19,553
(148)
19,405
11,510
12,414
—
125
(50)
75
4,885
7,531
(2)
23,924
12,414
31 May 2018
£’000
Restated
31 May 2017
£’000
2,777
6,567
9,344
292
992
8,353
4,864
13,217
(337)
687
Operating cash flow before movements in working capital
10,628
13,567
Net changes in working capital:
Change in inventories
Change in trade and other receivables
Change in trade and other payables
Change in provisions
Cash generated from operations
Capitalised development costs have been reclassified from operating activities to investing activities.
—
(4,155)
4,012
(264)
9
(394)
1,480
2
10,221
14,664
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 59
FINANCIAL STATEMENTS COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MAY 2018
NOTICE OF ANNUAL GENERAL MEETING
At 31 May 2016
Profit for the year
Total comprehensive income for the year
Issue of share capital net of expenses
Share-based payment charges
Share-based payment transfer relating to option lapses
EBT share inflows from issues and/or purchases
EBT share outflows from option exercises
Transactions with owners
At 31 May 2017
Profit for the year
Total comprehensive income for the year
Issue of share capital net of expenses
Share-based payment charges
Share-based payment transfer relating to option lapses
EBT share inflows from issues and/or purchases
EBT share outflows from option exercises
Transactions with owners
At 31 May 2018
Share
capital
£’000
170
—
—
1
—
—
—
—
1
Share
premium
account
£’000
14,476
—
—
125
—
—
—
—
125
171
14,601
—
—
22
—
—
—
—
22
—
—
19,531
—
—
—
—
19,531
193
34,132
Equity
reserve
£’000
579
—
—
—
687
(244)
(318)
268
393
972
—
—
—
992
(1,036)
(263)
115
(192)
780
Retained
earnings
£’000
7,133
8,268
8,268
—
—
244
—
—
244
Total
equity
£’000
22,358
8,268
8,268
126
687
—
(318)
268
763
15,644
31,388
3,570
3,570
—
—
1,036
—
—
3,570
3,570
19,553
992
—
(263)
115
1,036
20,397
20,250
55,355
FRONTIER DEVELOPMENTS PLC
(INCORPORATED AND REGISTERED IN ENGLAND AND WALES WITH NO. 02892559)
(THE ‘COMPANY’)
Notice is hereby given that the Annual General Meeting of the Company will be held at the offices of Grant Thornton UK LLP at 101
Cambridge Science Park, Milton Road, Cambridge CB4 0FY on Tuesday 16 October 2018 at 9.15 am (BST) for the following purposes:
ORDINARY RESOLUTIONS
To consider and, if thought fit, pass the following resolutions as ordinary resolutions:
Resolution 1.
Resolution 2.
Resolution 3.
Resolution 4.
Resolution 5.
Resolution 6.
Resolution 7.
Resolution 8.
Resolution 9.
Resolution 10.
Resolution 11.
To receive and adopt the financial statements for the year ended 31 May 2018 together with the Reports of the
Directors and Auditor thereon.
To re-appoint Alexander Bevis, who retires and offers himself for re-appointment, as a Director.
To re-appoint David Braben, who retires and offers himself for re-appointment, as a Director.
To re-appoint Charles Cotton, who retires and offers himself for re-appointment, as a Director.
To re-appoint David Gammon, who retires and offers himself for re-appointment, as a Director.
To re-appoint James Mitchell, who retires and offers himself for re-appointment, as a Director.
To re-appoint David Walsh, who retires and offers himself for re-appointment, as a Director.
To re-appoint Jonathan Watts, who retires and offers himself for re-appointment, as a Director.
To re-appoint Grant Thornton UK LLP as the Company’s Auditor in accordance with Section 489 of the
Companies Act 2006 (the ‘Act’) to hold office until the conclusion of the next Annual General Meeting at
which the accounts of the Company are laid.
To authorise the directors of the Company (the ‘Directors’) to determine the Auditors’ remuneration for the
ensuing year.
That the Directors be and are hereby generally and unconditionally authorised to exercise all powers of the Company,
pursuant to Section 551 of the Act, to allot equity securities (within the meaning of Section 560 of the Act) up to
an aggregate nominal amount of £64,568.45, which represents one-third of the nominal value of the Company’s
issued share capital at the date of this notice, provided that this authority, unless renewed, varied or revoked by
the Company in a general meeting, shall expire on the earlier of 15 months after the passing of this resolution
or the conclusion of the Annual General Meeting of the Company to be held in 2019, save that the Company may
before such expiry make an offer or agreement which would or might require equity securities to be allotted after
such expiry and the Directors may allot equity securities in pursuance of such an offer or agreement as if the
authority conferred hereby had not expired. This authority is in substitution for all previous authorities conferred
upon the Directors pursuant to Section 551 of the Act, but without prejudice to the allotment of any equity
securities already made or to be made pursuant to such authorities.
60
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 61
ADDITIONAL INFORMATION NOTICE OF ANNUAL GENERAL MEETING CONTINUED
SPECIAL RESOLUTION
To consider and, if thought fit, pass the following resolution as a special resolution:
Resolution 12.
That, subject to the passing of resolution 11 above, the Directors be empowered in accordance with Section 570
of the Act to allot equity securities (within the meaning of Section 560 of the Act) wholly for cash pursuant to the
authority conferred on them pursuant to resolution 11 above as if Section 561(1) of the Act or any pre-emption
provisions contained in the Articles did not apply to any such allotment, provided that this power shall be limited
to the allotment of equity securities:
(a) in connection with an open offer of equity securities by way of rights issue to holders of equity securities in
proportion (as nearly as may be practicable) to their respective holdings of such equity securities, but subject
to such exclusions or other arrangements as the Directors may consider appropriate to deal with fractional
entitlements or problems arising in any territory or with the requirements of any recognised regulatory
body or stock exchange in any territory; and
(b) otherwise than pursuant to sub-paragraph (a) above, up to an aggregate nominal amount of £19,370.53, which
represents one-tenth of the nominal value of the Company’s issued share capital as at the date of this notice.
Such power shall expire on the earlier of 15 months after the passing of this resolution or the conclusion of the Annual General Meeting of
the Company to be held in 2019, save that the Company may before such expiry make an offer or agreement which would or might require
equity securities to be allotted after such expiry and the Board may allot equity securities in pursuance of such an offer or agreement as
if the authority conferred hereby had not expired.
By order of the Board
DAVID GAMMON
CHAIRMAN
FRONTIER DEVELOPMENTS PLC
26 Science Park
Milton Road
Cambridge
CB4 0FP
EXPLANATORY NOTES
To the notice of Annual General Meeting
NOTES
To the Notice of Annual General Meeting
1.
2.
3.
4.
5.
6.
A member entitled to attend and vote at the meeting is also entitled to appoint one or more proxies to attend, speak and vote instead
of him. A member may appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to exercise the
rights attached to a different share or shares held by that member. The proxy need not be a member of the Company but must attend
the meeting to represent you.
You may not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy, you will need
to complete a separate Form of Proxy in relation to each appointment. To request additional Forms of Proxy, please contact the Company
Secretary on 01223 394300 or Frontier Developments plc, at 26 Science Park, Milton Road, Cambridge CB4 0FP. You will need to state
clearly on each Form of Proxy the number of shares in relation to which the proxy is appointed. Failure to specify the number of shares a
proxy appointment relates to or specifying a number of shares in excess of those held by the member will result in the proxy
appointment being invalid.
If you wish your proxy to speak on your behalf at the meeting, you will need to appoint your own choice of proxy (not the Chairman)
and give your instructions directly to them. If you wish to appoint a proxy other than the Chairman, write the full name of your proxy
in the box provided in the Form of Proxy.
A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution.
In the absence of instructions, the person appointed proxy may vote or abstain from voting as he/she thinks fit on the specified resolutions
and, unless otherwise instructed, may also vote or abstain from voting on any other matter (including amendments to resolutions)
which may properly come before the meeting.
In the case of joint holders, the signature of any one of them will suffice but the names of all joint holders should be stated. The vote
of the senior who tenders a vote (whether in person or by proxy) will be accepted to the exclusion of the votes of the other holders.
For this purpose, seniority is determined by the order in which the names stand in the register of members in respect of the joint holding.
To be effective, the Form of Proxy must be duly completed and deposited together with any power of attorney or other authority (if any)
under which it is executed (or a duly certified copy of such power or authority) and lodged at Link Market Services Limited, The Registry,
34 Beckenham Road, Beckenham, Kent BR3 4TU no later than 9.15 a.m. on 12 October 2018 (being not more than 48 hours (excluding
non-working days) prior to the time fixed for the meeting).
62
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018 63
ADDITIONAL INFORMATION
NOTICE OF ANNUAL GENERAL MEETING CONTINUED
EXPLANATORY NOTES CONTINUED
NOTES CONTINUED
7.
Whether or not you propose to attend the Annual General Meeting, please complete, sign and submit a Form of Proxy to our registrars,
Link Market Services Limited, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, by no later than the time and date
specified above.
8.
9.
Completion and return of the Form of Proxy will not preclude a shareholder from attending and voting in person at the meeting. If you
have appointed a proxy and attend the meeting in person, your proxy appointment will automatically be terminated.
The Company, pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, specifies that only those members entered
on the register of members of the Company by 6.30 p.m. (BST) on 12 October 2018 (being not more than 48 hours (excluding non-working
days) prior to the time fixed for the meeting) shall be entitled to attend and vote at the meeting or, if the meeting is adjourned, by 6.30 p.m.
(BST) on such date being not more than 48 hours (excluding non-working days) prior to the date fixed for the adjourned meeting. Changes
to entries on the register of members after such time shall be disregarded in determining the right of any person to attend or vote at
the meeting.
10. The following documents will be available for inspection from the date of this notice until the meeting at the Company’s registered
office and at the meeting convened by this notice:
• register of Directors’ share interests;
• copies of the Directors’ service contracts and letters of appointment (as applicable); and
• a copy of the Company’s articles of association.
11. A corporation which is a member can appoint one or more corporate representatives who may exercise, on its behalf, all its powers as
a member.
64
FRONTIER DEVELOPMENTS PLC
ANNUAL REPORT AND ACCOUNTS 2018
FIVE-YEAR SUMMARY
12 MONTHS TO 31 MAY
Revenue
Operating profit
Operating margin (%)
EBITDA
EPS (basic)
Operating cash flow
Net cash balance
ADDITIONAL INFORMATION
31 May 2018
31 May 2017
31 May 2016
31 May 2015
31 May 2014
£34.2m
£2.8m
8%
£9.4m
9.6p
(£2.8m)
£24.1m
£37.4m
£7.8m
21%
£12.7m
22.7p
£3.4m
£12.6m
£21.4m
£1.2m
6%
£4.9m
4.2p
(£2.7m)
£8.6m
£22.8m
£1.6m
7%
£6.1m
4.9p
£2.6m
£10.5m
£9.5m
(£1.7m)
(18%)
£0.3m
(5.8p)
(£3.4m)
£8.6m
ADVISORS AND COMPANY INFORMATION
COMPANY SECRETARY AND CFO
Alexander Bevis
REGISTERED ADDRESS
26 Science Park
Milton Road
Cambridge CB4 0FP
WEBSITE
www.frontier.co.uk
REGISTERED NUMBER
2892559
(Incorporated and registered in
England and Wales)
BROKER AND NOMINATED ADVISOR
LIBERUM CAPITAL LIMITED
Ropemaker Place, Level 12
25 Ropemaker Street
London EC2Y 9LY
JOINT BROKER
FINNCAP LIMITED
60 New Broad Street
London EC2M 1JJ
AUDITOR
GRANT THORNTON UK LLP
101 Cambridge Science Park
Milton Road
Cambridge CB4 0FY
LEGAL ADVISORS TO THE COMPANY
BIRD & BIRD LLP
15 Fetter Lane
London EC4A 1JP
REGISTRARS
LINK MARKET SERVICES LIMITED
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom
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8
FRONTIER DEVELOPMENTS PLC
26 Science Park
Milton Road
Cambridge CB4 0FP