ANNUAL REPORT & ACCOUNTS 2017
CONTENTS
OUR BUSINESS
Strategic report
02 Group at a glance
04 People
05 Clients
06 Markets
07 Driving innovation
08 Chairman’s statement
10 Chief Executive’s review
14 Group financial review
18 Principal risks and uncertainties
Governance
20 Board of Directors
21 Operating Board
22 Audit Committee report
23 Corporate governance
25 Directors’ Remuneration report
30 Directors’ report
32 Statement of Directors’ responsibilities
Financial statements
Independent auditor’s report
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37 Consolidated Income Statement
37 Consolidated Statement of Comprehensive Income
38 Consolidated Balance Sheet
39 Consolidated Statement of Changes in Equity
40 Consolidated Cash Flow Statement
41 Notes to the Group financial statements
66 Company Balance Sheet
67 Company Statement of Changes in Equity
68 Notes to the Company financial statements
72 Financial calendar
IBC Company information
I am delighted to introduce Sumo Group’s
first Annual Report. We made great
progress during 2017 and Sumo Group
is well-positioned to repeat this as we
move forward.
Ken Beaty
Chairman
FINANCIAL HIGHLIGHTS
2017 Revenue
£30.6m
Audited statutory 2016: £8.6m
Unaudited pro forma 2016: £24.1m1
2017 Gross profit
£13.3m
Audited statutory 2016: £3.6m
Unaudited pro forma 2016: £9.0m1
2017 Gross margin
43.3%
Audited statutory 2016: 41.9%
Unaudited pro forma 2016: 37.4%1
2017 Adjusted EBITDA2
£8.4m
Audited statutory 2016: £2.2m
Unaudited pro forma 2016: £6.0m1
2017 Cash flow from operations
£3.3m
Audited statutory 2016: £2.7m
Unaudited pro forma 2016: £3.3m1
2017 Exceptional items and amortisation
£30.3m
Audited statutory 2016: £2.3m
Unaudited pro forma 2016: £4.6m1
1 Figures are calculated from the unaudited pro forma information set out in note 30.
2 Adjusted EBITDA, which is defined as profit before finance costs, tax, depreciation, amortisation,
and exceptional items, is a non-GAAP metric used by management and is not an IFRS disclosure.
View more on our website
www.sumogroupplc.com
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Sumo Group plc Annual Report 2017 REALISING
OUR VISION
Our aim is to become a global leader
in premium development and creative
services to the video game and wider
entertainment industries.
Carl Cavers
CEO
WE ARE PEOPLE
GAMING IS WHAT
WE DO
Read more on
Page 04
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BROADENING AND
STRENGTHENING
OUR CLIENT
RELATIONSHIPS
Read more on
Page 05
BREAKING
NEW GROUND
DRIVING MARKET
GROWTH
Read more on
Page 06
CREATING GAMING
EXPERIENCES
STAYING AHEAD
Read more on
Page 07
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Sumo Group plc Annual Report 2017
GROUP AT A GLANCE
GOING FROM
STRENGTH TO STRENGTH
We are one of Europe's largest providers of creative and development
services to the video games and entertainment industries, delivering
full-service visual and development solutions from initial concepts to
development and post-release support.
Both companies have developed deep
relationships with some of the world’s largest
computer games publishers, developers,
platform manufacturers and entertainment
brands, including Microsoft, Sony, Sega,
Warner Brothers and Marvel. Together
they have worked on some of the biggest
franchises in the entertainment industry,
such as Avengers, Mortal Kombat, Hitman,
Sonic All-Stars and Harry Potter.
The Group offers end-to-end services to the
video games industry and beyond from visual
concept design and pre-production through
to development, user-interface design,
marketing and post-release support.
LOCATED IN FIVE CITIES
IN THREE COUNTRIES
534*
talented people in Sheffield,
Nottingham, Newcastle, Pune
(India) and Vancouver (Canada)
* As at 31 March 2018.
Sumo Group plc, which floated on AIM in
December 2017, was established in 2003
and now has two operating businesses,
Sumo Digital and Atomhawk, which together
employ 534 people across studios and offices
in Sheffield, Nottingham, Newcastle, Pune
(India) and Vancouver (Canada).
Sumo Digital, established in 2003, is one
of Europe's largest independent developers
of AAA-rated video games, providing both
turnkey and co-development solutions
to an international blue-chip client base.
Atomhawk, which was acquired by Sumo
Digital in June 2017, is a visual design
company providing creative services to the
full spectrum of the entertainment industry,
including games, TV and film.
OUR JOURNEY SO FAR
2003
2007
2008
Sumo Digital founded
in Sheffield 2003
Studio in Pune, India
opened in 2007
Acquired by
Foundation 9
2014
MBO backed by
NorthEdge
From 'work to hire' game developer to a strategic
partner with some of videogaming's biggest players
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Sumo Group plc Annual Report 2017
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SERVICING CLIENTS GLOBALLY
PUSHING THE BOUNDARIES TO
CREATE GROUNDBREAKING GAMES
SERVICING MORE SECTORS
BY EXPANDING OUR SERVICES
Key: Clients in 2017
Sumo Digital
Atomhawk
Awards
Nominations
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Multiple-time award winners/nominees at
BAFTA, DICE, TIGA, and Gamescom
January
Pune studio
10th anniversary
June
Acquisition
of Atomhawk
Atomhawk
Atomhawk and Sumo Digital join forces to
create a powerhouse for high quality creative
and development services that will benefit
current and future clients across all sectors
Read more on
Page 09
September
Management team
strengthened
Took on Newcastle Studio
of CCP Games
2018
2016
2017
SBO backed by Perwyn
Nottingham
studio established
March
Snake Pass
launched
August
Atomhawk
Vancouver opened
December
IPO and Board strengthened
Listed on LSE‘s AIM market
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Sumo Group plc Annual Report 2017
PEOPLE
WE ARE PEOPLE
GAMING IS WHAT WE DO
At the heart of the Sumo Group, you will find its people.
At the core of everything that Sumo Group works on, every title,
every design, you will find a host of talented and creative individuals
rallying to ensure its continued success. As we continue to grow the
Sumo Group, it becomes more important than ever to nurture our
culture and develop talent. We are committed to equal opportunities
and developing our people, helping them flourish and remain
challenged throughout their entire Sumo career.
28%
net growth in employees
Sumo Group FY 2017.
Our aim is excellence,
our people are
our inspiration.
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Sumo Group plc Annual Report 2017
CLIENTS
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Group clients in 2017.
BROADENING AND STRENGTHENING
OUR CLIENT RELATIONSHIPS
In 2017, Sumo Digital continued to work with Microsoft Game
Studios on the eagerly anticipated Crackdown 3, which had
a strong presence at the annual industry showcase, E3.
We also built on our co-development relationships with Turn10 and
Deep Silver and, in October 2017, our newest partner, CCP Games,
announced that Sumo Digital is co-developing Project Nova.
Atomhawk’s strong relationship with Warner Brothers continued in
2017, working with two of the publisher’s studios, NetherRealm and
Turbine, on Injustice 2 and Game of Thrones: Conquest. Injustice 2
is the fourth major game Atomhawk and NetherRealm have worked
on together. Other key projects in 2017 included Materfall for
Sony and Housemarque and Elderscrolls for Bethesda.
Sumo is a fantastic partner
for IO Interactive. We’ve fostered
an ethos of working openly and
collaboratively and that really
shows through in the results.
Hakan Abrak, Production Director, IO Interactive.
Sumo Group plc Annual Report 2017
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MARKETS
BREAKING NEW GROUND
DRIVING MARKET GROWTH
The biggest subset of the video games industry is the video
games software market, which was valued at more than
$90bn in 2016 and is forecast to grow at a compound annual
growth rate of 9.2% to more than $140bn by 2021.
The buoyancy of consumer demand in the market was reinforced in
2017 by the launch of the Nintendo Switch™ and Microsoft’s Xbox One X
consoles. Sony’s Playstation® VR also enjoyed its first full year of sales
in 2017.
The strength and innovation in our market was also evident at the key
industry events held during the year, most notably D.I.C.E in Las Vegas,
GDC (Game Developers Conference) in San Francisco, Gamescom
in Cologne and E3 in Los Angeles.
Sources: McKinsey Global Media Report 2017, PwC Entertainment and Media Outlook, Euromonitor.
Estimated growth in global video
games software market
by hardware platform
FY16 FY21E
Console
$23bn
PC
$25bn
VR
$3bn
Mobile/Other
$42bn
$26bn
$32bn
$15bn
$75bn
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Sumo Group plc Annual Report 2017
$113bn
The video games industry is the
largest entertainment market
in the world, valued in excess
of $113bn and growing at 8.4%
DRIVING INNOVATION
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CREATING GAMING EXPERIENCES
STAYING AHEAD
Sumo Digital continued to build upon its core technology
during 2017, maintaining its position at the cutting edge
of video game development.
Working closely with Epic Games, Sumo Digital’s own-IP game Snake
Pass was successfully released on the Nintendo Switch platform within
a month of this new console’s release. Not only was the game launched
very early in the new console’s lifecycle, PC Steam, Xbox One and
PlayStation 4 versions of Snake Pass were released on the same day.
Atomhawk made a significant contribution to the artistic vision and
visual design of Warner Brothers’ major 2017 release, Injustice 2. We
worked with Warner Brothers’ NetherRealm studio for over three years,
helping to set the visual style, designing characters and environments
and animating key scenes within the game.
From a visual standpoint, this vibrant
platforming romp is basically what would
happen if Pixar were given free aesthetic
reign over a digital wildlife simulator.
Source: Forbes.com, on Snake Pass, Sumo Digital's first own-IP game.
Sumo Group plc Annual Report 2017
Sumo Group plc Annual Report 2017
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7
CHAIRMAN’S STATEMENT
BUILDING VALUE
TOGETHER
2017 PROGRESS
Management team and Board strengthened.
Successful IPO: new structure to facilitate
further growth.
Since IPO, the Board has begun a process
to enable widescale employee participation
in the Group’s shares.
08
The source of our success is our
people; we value them highly
and are committed to providing
a positive working environment.
Ken Beaty
Chairman
I am delighted to introduce Sumo Group’s first Annual Report
as a quoted company, which shows the material progress
made by the business in 2017.
The year under review was a significant one. Having
completed a secondary management buyout, backed by
Perwyn LLP, in September 2016, the business entered 2017
energised and with a clear plan to deliver strong organic and
acquisitive growth. Not only were both these objectives met
but the year culminated with the successful admission of
shares in Sumo Group plc to AIM on 21 December 2017.
The listing route was chosen to provide a new and ready
source of capital with which to deleverage the balance sheet,
raise the profile of the Company, enable the incentivisation
of its people and allow the management to execute its
growth strategy. You will see from the rest of this Annual
Report how those objectives have been achieved or are being
advanced. I thank my Board colleagues and pay tribute to
the wider management team for their dedication and hard
work, throughout the year, which has allowed us to complete
the highly time-consuming admission process while at the
same time delivering an excellent operating performance.
Sumo Group plc’s flotation also enabled private equity
investor, Perwyn, to realise some of its investment,
while keeping a significant shareholding in the newly
quoted business going forward. We are grateful for their
ongoing support.
In preparation for IPO, we welcomed David Wilton as Chief
Financial Officer and, upon admission, Michael Sherwin
also joined the Board as Senior Independent Non-Executive
Director. Their profiles, which appear on page 20 and are
available on www.sumogroupplc.com/about/board-of-
directors/, demonstrate the breadth of relevant experience
they bring to the PLC Board.
Sumo Group plc Annual Report 2017 S
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We completed the acquisition of Atomhawk
Design Limited, a multi award winning visual
design company, servicing the video games,
film and visual effects industries, in June 2017,
extending the range of premium services
Sumo Group provides. Atomhawk had a
very strong second half, out-performing our
pre-acquisition expectations. Immediately
after the year end, Sumo Group also took
on the Newcastle studio of CCP Games,
bringing a number of talented colleagues into
the business and increasing our capacity to
deliver high quality services to our clients.
As well as expanding and deepening client
relationships throughout the year, Sumo Digital
successfully launched its first own-IP game,
Snake Pass, generating revenue of £1.7m in
2017. On the back of this success, the Group
intends to continue the selective development
of independent games based on original IP.
One of the important functions of any board
is governance. You will see, in this, our first
Annual Report, the structure and processes
that have been put in place or extended by the
Board, as part of the move to becoming a listed
company. These will continue to develop over
the coming year.
The source of our success is our people;
we value them highly and are committed to
providing a positive working environment. We
have invested significantly in our premises in
Sheffield and recently moved the Atomhawk
Canada operations into a larger site in
Vancouver. Since IPO, the Board has begun
a process to enable widescale employee
participation in the Group’s shares.
In summary, we made great progress
during 2017 and Sumo Group is well-
positioned to repeat this in 2018 and beyond.
Our success is due to the skill and dedication
of colleagues across the Group and, on behalf
of the Board, I would like to thank them all
for their contribution.
Ken Beaty
Chairman
ACQUISITION OF ATOMHAWK
In June 2017 Sumo Digital acquired
Atomhawk, a multi-award winning
visual design company servicing the
entertainment industry.
Founded in 2009 by Cumron Ashtiani,
Atomhawk now has studios in Newcastle
and Vancouver (Canada), employing 36
people as at 31 March 2018. Key services
include visual development (concept art),
marketing art as well as motion graphics
and user interface design.
The business helps its clients to define
the visual style of a product, delivering art
and design throughout the development
cycle and beyond, also creating marketing
imagery, video content and packaging
design. Atomhawk primarily serves
the creative industries, working with
video games studios, as well as film
and television production companies.
Atomhawk has been involved in the creation
of many high profile projects, including
movies Guardians of the Galaxy, Thor II
and Avengers II, J.K. Rowling’s online
experience, Pottermore, and games
such as Mortal Kombat, Injustice, Game
of Thrones: Conquest and Eve: Valkyrie.
Atomhawk is a regular creative vendor for
global brands such as Lego, Microsoft,
Sony, Amazon and Warner Bros, with a
client list incorporating a number of high
profile video game developers, movie
studios and product designers, including
Marvel, Zynga, CCP Games, Ninja Theory,
BBC, Ubisoft and Costa Coffee.
The acquisition was funded through
a mixture of cash and equity. Cumron
continues to lead Atomhawk and has
a shareholding in the Company.
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Sumo Group plc Annual Report 2017
CHIEF EXECUTIVE’S REVIEW
STRONG START
GOING FORWARD
Joining AIM is a significant step forward
in Sumo Group's journey to becoming a
global leader in premium development and
creative services to the video game and
wider entertainment industries. We had an
overwhelmingly positive response to the
Placing and, on behalf of the Board, I would like
to thank all our investors for their support and
our advisers for helping us make this happen.
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Sumo Digital remains focused on
investing in its key relationships
to develop and deliver high quality
video games, while maintaining a
high level of staff utilisation. This
proven model gives Sumo Digital
high quality and visible earnings.
Carl Cavers
Chief Executive Officer
Introduction
This is my first statement as CEO of Sumo Group plc and
it gives me great pleasure to update our shareholders on
what has been a momentous year for the Group.
In June 2018 we will celebrate the 15th anniversary of
the foundation of Sumo Digital. The business has grown
consistently throughout its history and it is now one of
Europe’s largest independent video games developers.
In June 2017 we acquired Atomhawk Design Limited, a multi
award-winning visual design company, servicing the games,
film and visual effects industries. This acquisition expanded
our integrated video game service offering and strengthens
the Group's position in offering premium services to
our clients.
Just prior to the close of the financial year, the Group
achieved one of its key strategic ambitions and, following
a successful IPO, was admitted to the London Stock
Exchange’s Alternative Investment Market (AIM) on
21 December 2017. Having been through three changes
of ownership in the last three years, we are looking forward
to the stability that this platform brings and the opportunity
to focus wholly on the development of the business. Sumo
Group is a people business offering premium video game
development services to its clients. Following the IPO, we
have a strong balance sheet and a structure with which we
can incentivise our people, as we continue to drive growth
in the business.
We entered 2017 with 382 people operating from three
locations in two countries. The year concluded with Sumo
Group plc employing 489 people operating at five locations
in three countries. Post year end, the Group extended its
operations further when it took over the Newcastle studio
of CCP Games, bringing a further 34 people to the business
and an additional studio location.
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Results
In the year ended 31 December 2017, revenue
rose by 27% to £30.6m (unaudited pro forma
2016: £24.1m). This was driven by continuing
strong organic growth at Sumo Digital, the
release of its first own IP title, Snake Pass, and
the acquisition of Atomhawk, which contributed
revenue of £1.3m in the six months following
its acquisition on 29 June 2017. Development
fees for the year were £28.4m (unaudited pro
forma 2016: £23.8m), an increase of 19.5%
on the prior year and an increase of 33.5% on
a like for like basis excluding pass-through
revenue. The Group generated own intellectual
property title revenue for the first time in 2017
of £1.7m (2016: nil) and royalty income was
£0.5m (unaudited pro forma 2016: £0.3m).
Gross profit for the year was £13.3m
(unaudited pro forma 2016: £9.0m), an increase
of 47.2% on the prior year, and we achieved a
gross margin of 43.3% (unaudited pro forma
2016: 37.4%).
The Group achieved Adjusted EBITDA1 of
£8.4m in 2017, a substantial increase on the
unaudited pro forma £6.0m reported in 2016.
Cash flow was strong during the year with cash
generated from operations of £3.3m (unaudited
pro forma 2016: £3.3m). Cash balances at the
year end were £12.4m, following the repayment
of bank and shareholder debt with the
proceeds of the IPO.
Further details of the Group’s financial results
including the non-cash cost arising on the
amortisation of intangible assets are set
out in the Chief Financial Officer’s Review,
which follows.
Operational review
Sumo Digital
Sumo Digital, the Group’s largest business
representing 96% of revenue, is a developer
of AAA-rated video games, providing both
turnkey and co-development solutions to an
international blue-chip client base. Its full-
service development solution includes initial
concept and pre-production, production and
development and post release support.
Following the post year end takeover of
CCP’s Newcastle studio on 1 January 2018,
the business now operates from studios in
Sheffield, Nottingham, Newcastle and Pune
in India.
1 Adjusted EBITDA, which is defined as profit before finance
costs, tax, depreciation, amortisation and exceptional items,
is a non GAAP metric used by management and is not an
IFRS disclosure.
We acquired an additional 11,000 sq ft of office
space in Sheffield during the year and began
a significant refurbishment programme in
September 2017 to provide a larger and better
working environment for our people. This work
is ongoing and completion is expected shortly.
We also acquired a further 2,700 sq ft of space
in Nottingham in May 2017, which gives us the
capacity to deliver headcount growth, although
we are constantly reviewing opportunities to
accelerate growth by opening studios in other
key locations.
In January 2017, Sumo Digital celebrated ten
years of operating in India. Our India studio was
founded to provide additional skilled resources.
Pune offered an appealing cost base to help
underpin EBITDA performance. This part of
the business has grown consistently since its
foundation, relocating to larger premises in
December 2016, which allows for growth in line
with our other territories. This studio continues
to perform strongly.
It is always pleasing when a business’
strengths are recognised externally. In January
2017, Sumo Digital was awarded a 1 star
rating in the Best Companies™ Survey. This
accreditation demonstrates “very good levels
of workplace engagement”. We shall continue
to strive for excellence and the associated 3
star rating. In November, Sumo Digital’s first
revenue generating own-IP game, Snake Pass,
won the industry accolade of Best Arcade
Game at the much coveted TIGA Awards.
TIGA is The Independent Game Developers’
Association, a network for games developers
and digital publishers and a trade association
representing the video games industry.
Throughout the year under review, Sumo
Digital continued to work with some of the
largest publishers in the world. Over the
past few years, we have worked with Sony,
Microsoft, Sega, Deep Silver, IO Interactive
and CCP Games, who announced their co-
development relationship with Sumo Digital
in October 2017.
Sumo Digital remains focused on investing in
its key relationships to develop and deliver high
quality video games, while maintaining a high
level of staff utilisation: in excess of 95% in the
UK over recent years. This proven model gives
Sumo Digital high quality and visible earnings.
During the year, the shift towards more
royalty arrangements as part of our contracts
continued. We are always keen to align our
interests with those of our clients and see the
opportunity for financial out-performance on
new iterations of proven games.
SNAKE PASS TAKES HOME
THE AWARD FOR BEST ARCADE
GAME AT THE TIGA AWARDS
A unique, physics-based puzzle platform
game, Snake Pass challenges players to
‘think like a snake’ as they tackle precarious
puzzles as only a snake can. Slither through
long grass, coil around bamboo and climb
out of trouble in the latest game from award
winning independent studio Sumo Digital.
The winner of Sumo Digital’s inaugural
Game Jam, Snake Pass was created
by Seb Liese as a love-letter to both the
favourite games of his youth and his
childhood pet snake.
After winning, a full demo was produced
and taken around various public shows
where it was met with great enthusiasm
by gamers of all ages.
Buoyed by its success, full production
began when the team returned home
to Sumo HQ.
Atomhawk Design
Atomhawk Design Limited was acquired
on 29 June 2017, at which time it was
operating from a single studio in Newcastle.
We announced the opening of Atomhawk’s
new Vancouver studio in September and,
in February 2018 the team moved to larger
premises in the city.
This business provides visual development
(concept art) and marketing art, as well as
motion graphics and user interface design.
Its expertise is in helping customers define a
visual look for their products, from inception
through development and, at the final point of
sale, through marketing imagery, videos and
box packaging design. Atomhawk primarily
serves the creative industries, working
with video games studios, as well as in
film and television.
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Sumo Group plc Annual Report 2017
CHIEF EXECUTIVE’S REVIEW CONTINUED
OUR BUSINESS MODEL
AND STRATEGY
Sumo Digital’s core strategy is
to continue to grow organically as
one of the leading co-developers
of AA/AAA-rated gaming titles in the
world, primarily using its contracted
development fee model to minimise
risk, and taking advantage of the
forecast growth in the global
gaming market.
Lower risk co-development
operating model
Sumo Digital operates a lower risk contracting
model than the majority of other developers
and publishers who are more exposed to the
commercial success or failure of the game.
The Directors believe these long-term
contracts de-risk the Group’s model by
securing that payment is made in accordance
with the achievement of a number of key
milestones, during and following release
of the game which are agreed prior to the
start of the project, rather than on completion
and/or sales performance.
Atomhawk has been involved in the creation
of many high profile projects, including the
movies Guardians of the Galaxy, Thor II and
Avengers II, as well as the games Mortal
Kombat, Injustice, RYSE and Killzone.
Atomhawk also provides creative design and
content for J.K. Rowling’s Pottermore and is a
regular creative vendor for global brands such
as Lego, Microsoft, Sony, Amazon, Marvel and
Warner Bros.
Atomhawk’s customers include a number
of high profile video game developers, movie
studios and product designers, including
NetherRealm Studios, CCP, Rebellion, Deep
Silver, Rock Steady Studios, Square Enix, Ninja
Theory, BBC, Rare and Ubisoft.
Atomhawk delivered a strong performance
in the six months to 31 December 2017, well
ahead of the Board’s original expectations at
the time of acquisition.
Strategy
There are four parts to Sumo Group’s strategy:
to deliver and expand, to win new clients,
to add complementary revenue streams and
to develop our own IP.
• We plan to deliver and expand by developing
subsequent franchise titles, by developing
downloadable content, managing online
communities (collectively referred to as
‘games as a service’) and generating
royalties, where our interests are clearly
aligned with our clients;
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Deliver and expand
• Well placed to deliver significant growth
through developing new franchise titles
as the demand for creative content
continues to grow;
• Develop downloadable content for
existing titles that can be used to extend
further the revenue generating capability
of games for publishers; and
• Continue to recruit, retain, incentivise
and develop the Group’s talent pool
in order to increase the Group’s core
development capacity and capability.
New strategic partners
• Continue to win new clients and extend
the Group's publisher portfolio;
• Collaboration with other co-developers
and extending existing co-development
relationships; and
• Potential to open or acquire new studios
to enable recruitment from further
pools of talent and gain exposure to new
publishers and game genres.
Acquisition of complementary
revenue streams
• Consider earnings enhancing
acquisitions of premium video game
service providers and complementary
video game developers.
Own intellectual property
• Following the successful launch of
Snake Pass, which has generated a
return on investment in excess of 83%
since launch, the Directors intend to
continue to operate Group-wide Game
Jams and selectively develop ‘Indie
Games’.
• We plan to win new clients through the
expansion of our publisher portfolio,
collaborating with other developers and
extending our co-development relationships,
and also through selective acquisitions;
• We seek to develop complementary revenue
streams through moving into new premium
services, possibly through acquisition, as we
have successfully done with Atomhawk; and
• Following the highly successful release
of Snake Pass in 2017, we will continue
to develop our own-IP through applying
AAA mentality to indie games, although no
releases are planned in 2018. It is important
to emphasise that own-IP is expected to
remain a relatively small part of the Group’s
overall activities. It is, however, a useful
activity that provides an additional, creative
outlet for our highly talented people,
while generating a significant return on
investment. In 2017, Snake Pass received
critical acclaim and became No.1 on the
Nintendo e-shop charts in Europe.
Acquisitions
We are very pleased with Atomhawk, which
performed strongly in the six months following
its acquisition. This was the first acquisition
completed by Sumo Digital and has provided a
useful template for future acquisitions which
complement Sumo Digital’s proven organic
growth model.
The Board is particularly keen to acquire
owner-managed businesses, where the
vendors remain with the business post
acquisition and where we can use our quoted
share structure to provide suitable ongoing
incentive arrangements.
The IPO
We were delighted to achieve a successful
IPO and join AIM in December 2017. This was
a longstanding objective and an important
milestone in the development of Sumo Group.
The management team holds a significant
shareholding in the business and I am
grateful to our people and our advisers,
who worked so hard to make the IPO happen,
and also to Perwyn and our new investors
for their support.
People
Sumo Group is a people business and we
are investing in our people and will continue
to do so. This investment includes recruiting
new joiners and incentivising our staff.
During the year, our headcount increased
by 107, appointing new people in each of our
operating locations. The management team
was strengthened to address our market
opportunities and to prepare for the IPO.
New roles were created, including Portfolio
Director, Senior Development Director and
General Counsel & Company Secretary.
Sumo Group plc Annual Report 2017 S
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MARKET DRIVERS
Shift to digital
The proliferation of online distribution
platforms has resulted in significant growth
in the sale of digitally distributed games.
Historically, games have been sold through
physical retail channels. An increase in digital
downloads has resulted in a reduced cost of
distribution, greater ease of self-publishing
and promotion, the potential for dynamic
pricing and the potential for games to move
from a product to a service. A ‘games-as-a-
service’ role allows us to extend the lifespan
and revenue generation of a game title.
Embedded user base
Historically, there has been a clearly defined
console hardware cycle, which in turn defined
the software cycle. Third party publishers
would wait for the market to be in a favourable
position before investing in software. Gamers
would also be less inclined to purchase
new games at the end of one console’s life
cycle. The current installed console base has
seen an increase in the ability to play games
from previous generation consoles on new
generation consoles.
This increased backward compatibility has
substantial benefits for developers and
provides the opportunity for constant mass
market penetration.
Geographic expansion
The video games market is benefiting from
global emerging markets. In China, the sale
of games consoles was banned in 2000 but
the ban was lifted in January 2014. There
is also huge potential demand from South
America (+15% CAGR for retail sales,
FY16-21), the fastest of all geographies.¹
Broadening demographics
The age demographics of video gamers
continues to broaden. Consumers remain
engaged past adolescence due to continued
innovation. Video games attract a wide mix
of consumers, who are typically ‘sticky’ over
time. The current average video game player
is 35 years old. The video games market has
also become non-gender specific with over
40% being female gamers.²
1 Source: Newzoo.
2 Source: Entertainment Software Association Survey.
We expect to continue
our organic growth and
are also keen to acquire
suitable, complementary
businesses. My Board
colleagues and I are
confident about the
outlook for the Group
in the year ahead.
hardware under the Xbox One name, confirms
Microsoft’s commitment to iterative hardware.
Nintendo SwitchTM has proved to be a prime
target for ‘indie developers’. 25 of the Top 301
most downloaded titles were developed by
‘Indies’. Sumo Digital directly benefited from
this platform, being rewarded with a No.1 for
Snake Pass on Nintendo Europe’s eShop.
2017 was also the first full year of sales for
Sony’s Playstation® VR, for which Sumo
Newcastle, under its previous owners CCP
Games, saw the release of their critically
acclaimed title “Eve Valkyrie”. Sumo Digital
is well positioned to pursue opportunities
in this space as the installed base grows to
what will eventually become a mass-market
proposition. Another exciting platform for
Sumo Digital is Esports, where we were part
of the team that developed Forza Motorsport
in 2017.
With the global video games market worth
over $113bn in 2017 (up c.8% on 2016) with
a forecast CAGR of c. 8% to 20212, this is
an exciting time to be providing video game
development services.
Outlook
The new financial year ending 31 December
2018 has started strongly. Whilst it is still early
in the year, the Board already expects to deliver
results slightly ahead of market expectations.
We are continuing to see strong demand
for the Group’s services and we are well
placed to take advantage of the considerable
opportunities. Those of us who were at GDC
(Game Developers Conference) in March
2018 saw at first hand the strength of growth
in our chosen markets, with the associated
opportunities this brings, and the Group’s
business development pipeline reflects this.
We expect to continue our organic growth and
are also keen to accelerate this by acquiring
suitable, complementary businesses. My
Board colleagues and I are confident about
the outlook for the Group in the year ahead.
Carl Cavers
Chief Executive Officer
Since IPO, we have taken steps to incentivise
our staff, which include providing opportunities
to participate in our newly listed equity, and
we are investing in our premises to provide a
quality working environment.
It was pleasing for Darren Mills, a co-founder
of Sumo Digital, and me to feature in Games
Industry.biz’s Top 100 Most Influential in 2017
and I was particularly gratified to receive an
honorary doctorate from Sheffield Hallam
University. Sheffield is a burgeoning tech hub
in the UK and we take our local heritage
very seriously.
I would like to extend my personal thanks and
appreciation to all our people for their hard
work in 2017. In August, we had our regular
Sumo Big Day Out, which is a celebration event
for all the families involved with making Sumo
great! I am already looking forward to our next
Big Day Out this coming summer.
The market
2017 lived up to expectations, proving to be
a productive year for video game developers
and publishers. The launch of the Nintendo
SwitchTM and Microsoft’s Xbox One X
demonstrated the buoyancy of the premium
console market and demand for premium
content on these devices reached an all-time
high. Xbox One X, the third release of new
1 UKIE.
2 PwC Global Media and Entertainment Outlook.
13
Sumo Group plc Annual Report 2017
GROUP FINANCIAL REVIEW
GROUP FINANCIAL
REVIEW
These financial statements are the first to be prepared since Sumo Group's IPO
in December 2017. They cover the period in which the Group transitioned from
the previous ownership structure, when it was majority owned by funds under
the management of Perwyn LLP for more than 11 months, to the new status as
a listed company 10 days before the financial year end. Accordingly, the financial
information reflects the leveraged structure in place for most of the year and also
the reorganisation of the Group in preparation for the IPO, together with the significant
costs incurred in this process and also the non-cash and non-recurring amortisation
charge from a change of accounting estimate regarding the useful economic life
of intangible assets arising on the transaction with Perwyn in September 2016.
Basis of preparation
of the financial statements
Sumo Group plc was incorporated as a private
limited company with the name Aghoco
1611 Limited on 20 November 2017; was re-
registered as a public limited company with the
name Sumo Group plc on 14 December 2017
and was inserted as a new holding company
by way of a share for share exchange which
constituted a Group reorganisation.
The transaction is accounted for as a capital
reorganisation and merger accounting applied.
Accordingly, the financial statements present
12 months' results for the year ended 31
December 2017 with a comparative period
for the four months from 26 August 2016,
the date shortly before the transaction with
Perwyn, to 31 December 2016. For the purpose
of providing full year information for 2016 and
to help users of this information to assess the
underlying financial performance of the Group,
we have set out in note 30 unaudited pro forma
information derived from Part Three: Historical
Financial Information of the Admission
Document dated 15 December 2017.
Results overview
The underlying trading of the Group was strong
in the year under review. Revenue for the
year was £30.6m (unaudited pro forma 2016:
£24.1m), which includes £2.0m (unaudited pro
forma 2016: £3.6m) of pass-through revenue
on which Sumo Digital does not charge
a margin.
These figures reflect continuing strong organic
growth at Sumo Digital and the acquisition
of Atomhawk on 29 June 2017. Atomhawk
contributed £1.3m and £0.4m of revenue
and EBITDA respectively in the period since
acquisition. The like for like increase in
revenue, excluding pass-through revenue, was
£6.9m, an increase on the prior year of 33.5%.
Adjusted EBITDA was £8.4m on revenue of
£30.6m. This was in line with the Board’s
expectation at the time of the IPO and was
significantly ahead of the unaudited pro forma
Adjusted EBITDA in 2016 of £6.0m.
14
Sumo Group plc Annual Report 2017
Revenue
Gross profit
Gross margin
Adjusted EBITDA1
Loss before tax
Exceptional items and
amortisation charges
Cash flow from operations
Audited
2017
£’000
Unaudited
pro forma 2016
£’000
30,612
13,252
43.29%
8,356
(27,973)
(30,282)
24,106
9,005
37.36%
6,045
(2,112)
(4,604)
Audited
2016
£’000
8,629
3,618
41.93%
2,199
(1,818)
(2,320)
Increase/
(decrease)
£’0002
6,506
4,247
–
2,311
(25,861)
(25,678)
3,252
3,327
2,733
(75)
1 Adjusted EBITDA, which is defined as profit before finance costs, tax, depreciation, amortisation, and exceptional items, is a non-GAAP
metric used by management and is not an IFRS disclosure.
2 Figures are calculated from the unaudited pro forma information set out in note 30.
The underlying adjusted profit before tax,
exceptional items and amortisation of customer
contracts and relationships for the year was
£7.5m (2016: £5.3m) and reported loss before
tax was £28.0m (2016: loss of £2.1m), as set out
in the table opposite.
Cash flow was strong with cash generated from
operations of £3.3m (unaudited pro forma 2016:
£3.3m). Cash balances at the year end were
£12.4m, following the repayment of bank and
shareholder debt from the proceeds of the IPO.
Trading
Development fees for the year were £28.4m,
an increase of 19.5% on the unaudited pro
forma figure of £23.8m in 2016. In 2017 Sumo
Digital successfully released its first own
intellectual property title, Snake Pass, which
generated £1.7m of revenue in the year. Sumo
Group also received £0.5m (unaudited pro
forma 2016: £0.3m) of royalty income.
Gross profit for the year was £13.3m, an
increase of 47.2% on the unaudited proforma
gross profit of £9.0m in the prior year. We
include Video Game Tax Relief (‘VGTR’) within
our cost of sales and accordingly, for both
years, our gross profit and gross margin
reflect these amounts. We believe this is the
appropriate treatment of these credits, as
gross margin is best considered after taking
account of the effect of VGTR.
Gross margin was 43.3% (unaudited pro
forma 2016: 37.4%). If we exclude pass-
through revenue the gross margin was 46.4%
(unaudited pro forma 2016: 44.0%).
Operating expenses for the year were £35.8m
(unaudited pro forma 2016: £8.1m). Included
within operating expenses were amortisation
and depreciation of £27.6m and £0.7m
respectively (unaudited pro forma 2016:
£3.7m and £0.6m respectively). The non-cash
amortisation charge is explained below. The
overall increase in operating expenses other
than amortisation and depreciation was
primarily due to investment in people and
systems ahead and in anticipation of the IPO,
the inclusion of Atomhawk for the second six
months of the year and increased premises
costs on the newly acquired leasehold units
in Sheffield. The Group spent £0.9m on
research and development, all of which
has been expensed.
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KEY PERFORMANCE INDICATORS
The Group’s strategy is aligned to its overall
financial goal to deliver increasing returns to
shareholders over the long term. We present
the key KPIs the Board reviews during the year:
Gross margin
Adjusted EBITDA
Operating cash flow
43.3%
Audited 2016: 41.9%
Unaudited pro forma 2016: 37.4%
£8.4m
Audited 2016: £2.2m
Unaudited pro forma 2016: £6.0m
£3.3m
Audited 2016: £2.7m
Unaudited pro forma 2016: £3.3m
The net finance charge for the year was £5.4m
(unaudited pro forma 2016: £3.0m), arising on
the debt structure in place until the receipt of
the proceeds of the IPO. The Corporation Tax
credit for the year was £4.5m (unaudited pro
forma 2016: £0.9m credit).
The consideration of £2.9m paid for the
acquisition of Atomhawk has been capitalised
and goodwill and other intangibles of £2.2m
are carried on the balance sheet as at 31
December 2017. £0.2m of transaction costs
were charged through the income statement.
Treatment of IPO and acquisition costs
Transaction costs were incurred in a number
of areas in relation to the IPO and raising
of new financing. The accounting treatment
is governed by IFRS 3. Accordingly, £1.9m
and £2.5m of transaction costs were charged
to equity and through the income statement
respectively.
Cash flow
The cash performance in the year was strong.
Cash generated from operations was £3.3m
(unaudited pro forma 2016: £3.3m). Capital
expenditure in the year was £1.6m (unaudited
pro forma 2016: £0.9m) most of which related
either to the refitting of the premises in
Sheffield, which was ongoing over the year
end, or to the purchase of IT equipment and
systems. The cash cost of the acquisition
of Atomhawk was £2.9m and it had cash
balances of £0.6m at the date of acquisition.
Balance sheet
Sumo Group is a people business and as such
has a relatively simple balance sheet. The
balance sheet has been dominated by the
intangible assets arising from the acquisition
by Perwyn in September 2016, more than
15 months before the accounting reference
date. These intangible assets consisted of
client contracts, client relationships and
goodwill. In the past the intangible assets
held in respect of the former two categories
were amortised over five years and ten years
respectively while goodwill was tested annually
for impairment. The assets arose in respect of
contracts and relationships as at September
2016 and do not reflect contracts signed or
relationships developed since that date.
Revenue
Gross profit
Operating expenses excluding exceptional
items, depreciation and amortisation
Adjusted EBITDA
Depreciation
Net finance costs
Amortisation of software
Adjusted profit before tax, exceptional
items and amortisation of customer
contracts and relationships
Operating expenses – exceptional
Amortisation of customer contracts
and relationships
Loss before taxation
Adjustments
£’000
(2,021)
5,378
Unaudited
underlying
2017
£’000
28,591
13,252
(4,896)
8,356
(669)
0
(162)
5,378
7,525
Audited
2017
£’000
30,612
13,252
(4,896)
8,356
(669)
(5,378)
(162)
2,147
(2,656)
(27,464)
(27,973)
Adjustments
£’000
(3,644)
2,982
Unaudited
underlying
2016
£’000
20,462
9,005
(2,960)
6,045
(571)
0
(159)
2,982
5,315
Unaudited
pro forma
2016
£’000
24,106
9,005
(2,960)
6,045
(571)
(2,982)
(159)
2,333
(912)
(3,533)
(2,112)
The unaudited pro forma 2016 figures are extracted from note 30.
The adjustment to revenue is in respect of pass-through revenue on which Sumo Digital does not charge a margin.
The adjustment in respect of interest cost is to reflect the ungeared structure of the Group as it is following the IPO in December 2017.
The amortisation charge in respect of software in 2016 is extracted from Historical Financial Information in the Admission Document dated 15 December 2017.
This table is presented to help users of this information to assess the underlying financial performance of the Group in a period of significant change, mainly arising from the IPO and where the comparative period is
unusual. At the time of the IPO, the pass-through revenue was separately identified in the Admission Document and hence consistent disclosure is considered appropriate. The adjustment in respect of net finance
costs is to illustrate how the results may have been impacted if the Group had operated with no net debt as was the position at 31 December 2017 following the IPO.
Sumo Group plc Annual Report 2017
15
GROUP FINANCIAL REVIEW CONTINUED
As a public listed company, we have reviewed
the policy for these historical intangible
assets in respect of client contracts and client
relationships. Following the review, we now
value these intangible assets by reference to
the specific time period for each of the client
contracts in place at September 2016 and an
assessment of the appropriate time period for
the client relationship from that date which we
now consider to be two years. We have also
taken account of changes in the scope of the
client contracts and client relationships.
These amendments constitute a change
in accounting estimate, not a change in
policy, and the effect is to amortise the
historical intangible assets arising on the
September 2016 change of ownership over
a shorter period.
Goodwill and other intangibles reduced by
£25.3m, reflecting the non-cash goodwill
and amortisation charge of £27.6m less the
increase in other intangibles arising from the
acquisition of Atomhawk in the period.
Interest is payable on amounts drawn down
at the rate of one and a half to two percent
above LIBOR and the term of the agreement
is five years. As at the date of these financial
statements, this facility remains undrawn.
Current assets increased to £22.6m (2016:
£14.6m). Cash increased from £4.5m at 31
December 2016 to £12.4m at 31 December
2017. Trade and other receivables were
£10.2m (2016: £10.1m).
The Group used some of the proceeds of the
IPO to repay its bank borrowings and finished
the year with net cash of £12.4m. At the prior
year end, it had borrowings of £56.7m. On
15 December 2017, the Group entered into
a £13m revolving credit facilities agreement
with Clydesdale Bank plc.
Trade and other payables increased by £3.4m
from £7.4m at 31 December 2016.
Dividend
In line with the strategy set out at the time
of the flotation, the Directors intend to
reinvest a significant portion of the Group’s
earnings to facilitate plans for future growth.
Accordingly, the Directors do not propose a
dividend at the present time but it remains the
Board’s intention, should the Group generate
a sustained level of distributable profits, to
consider a dividend policy in future years.
16
Sumo Group plc Annual Report 2017
Share issues
Following the IPO, options were granted under
the LTIP on 21 December 2017 to myself, David
Wilton, over 500,000 shares and to two other
employees over an aggregate of 450,000. These
options are exercisable in respect of 875,000
and 75,000 shares on 21 June 2019 and 21
December 2020 respectively.
Subsequent to the year end, further options
over 7,891,246 shares in aggregate have been
granted to employees including Carl Cavers
and myself, David Wilton.
The Group is in the process of implementing
a Group-wide Share Incentive Plan.
Post balance sheet date events
On 1 January 2018, Sumo Digital Limited
took on the Newcastle studio of CCP Games
under an asset purchase agreement for
nominal consideration. All 34 staff working
at the studio became employees of the Group
on that date and the lease for the property in
which the studio was located was assigned to
Sumo Digital Limited, although the vendor will
continue to pay the rent until 23 July 2018.
David Wilton
Chief Financial Officer
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Sumo Group plc Annual Report 2017
17
PRINCIPAL RISKS AND UNCERTAINTIES
EFFECTIVELY
MANAGING OUR RISKS
As part of the process for admission to AIM, the Group reviewed and updated its principal risks and
uncertainties and associated mitigation activity. These risks were considered again by the Board in
preparing this Annual Report and those considered most important are set out below. As part of the
Group’s structured risk management process, the Board will regularly consider those risks that might
impact performance of the Group and will monitor mitigating actions being taken.
The key business and financial risks for the Group are set out below:
Risk
Description and mitigation
Dependence on the video games development market
The Group derives a significant proportion of its revenues from the co-development work it carries out for video games
developers and publishers. The success of the Group will continue to depend on its ability to be engaged to develop
video games for such third parties. There can be no assurance that these client relationships will continue, or that the
revenue that the Directors expect to generate from these relationships will materialise.
To mitigate this risk, the Group places considerable emphasis on maintaining positive working relationships with its
existing clients and on its strategic intent of extending the number of key client relationships.
Dependence on a concentrated client base
In the year ended 31 December 2017, the Group generated the majority of its revenue from three clients who each
accounted for at least 10% of total revenues. This included revenue from multiple projects with different entities within
each client’s group. The loss of any of the key clients could have a material impact on the Group’s financial results.
The Group is reliant on the long-term commercial success of its clients. The performance of such clients will have a
significant bearing on the success of the Group in terms of the requirement for future video games to be developed and
released, however their performance cannot be guaranteed. Underperformance of the Group’s clients could have a
material adverse effect on the Group’s business, operations, revenues or prospects. The Group looks to mitigate such
risks through having strong relationships with some of the world’s largest publishers who have a strong track record of
launching successful games and by attracting new clients.
Market growth, new developments and technological trends
The global video games market has seen consistent growth for many years. There is, however, a risk to the Group that
trends may reverse or continue at slower rates than expected. The video games market is competitive and selective
and is subject to concentration and economic fluctuations, with rapid technological changes requiring significant
research and development investment.
The industry also faces challenges such as the shift towards digital online distribution, a second-hand market, piracy
and emerging competitors. In order to remain competitive, the Group will need to continue to select the projects it
works on and their target format(s) carefully and adapt how it derives revenues from its games and technology. If the
Group is not successful in doing so, this could have a material adverse effect on the financial and trading position of
the Group.
Video Game Tax Relief (‘VGTR’)
The Group benefits from the VGTR regime that came into force in 2014 and to date the majority of games the Group
works on qualify for VGTR. There can be no guarantee that future games will qualify for VGTR or that all current claims
will be successful. If changes to VGTR policy were made in the future, it could potentially restrict how the Group could
work with its clients and remain eligible for VGTR. If current or future games were not able to benefit from VGTR, this
could materially impact the Group’s financial performance.
Foreign exchange risk
The Group has certain contracts priced in foreign currencies and also has employees based overseas paid in foreign
currencies. It is therefore exposed to the risk that adverse exchange rate movements could cause its costs to increase
relative to its reporting currency resulting in reduced profitability. The Group, where deemed relevant, takes steps to
mitigate this risk by putting in place hedging arrangements to reduce exposure to currency risk, however these may
not always be entirely effective and residual currency risk may exist.
STRATEGIC
FINANCIAL
18
Sumo Group plc Annual Report 2017 S
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Risk
Description and mitigation
OPERATIONAL
COMPLIANCE
BREXIT
Ability to recruit and retain skilled personnel
The Company’s operational and financial performance is dependent upon its ability to attract and retain effective
personnel. The Directors believe that the Group is putting in place the appropriate remuneration and other
incentivisation structures and processes to attract and retain the calibre of employees necessary to ensure the efficient
management and development of the Group. However, any difficulties encountered in hiring and retaining appropriate
employees and the failure to do so may have a detrimental effect upon the trading performance of the Group. The ability
to attract and retain employees with the appropriate expertise and skills cannot be guaranteed. This risk
may be exacerbated by the uncertainty surrounding Brexit.
Overseas operations
The Group currently has two overseas operations, one in Pune (India) and the other in Vancouver (Canada). These
jurisdictions have different regulatory, financial and legal environments that could change in the future and could affect
how the Group conducts its business in these countries. If the Group fails to comply with the laws and regulations
applicable to its overseas operations, it could be subject to reputational and legal risks, including government
enforcement action and/or fines.
IT security risks
The video game industry is subject to the threat of IT security breaches, unauthorised copying and software piracy.
The Group’s hardware and software are typically subject to copy protection technology or other technological protection
measures intended to prevent software piracy but these measures may not be adequate to do so. Unauthorised copying
of the Group’s own intellectual property games, or games produced by the Group for which the Group may be entitled to
revenue-based royalties, could have an adverse effect on the Group’s ability to generate revenues and profits. Complete
protection cannot be guaranteed and an IT security breach could cause significant disruption to the Group’s operations.
Intellectual property
The Group relies on a combination of trade secret, copyright, non-disclosure laws and other contractual agreements
and technical measures to protect its own and its clients’ intellectual property. The Group has entered into
confidentiality provisions as part of its arrangements with its employees and consultants. Despite the Group’s efforts
to protect its and its clients’ proprietary rights, unauthorised third parties may attempt to copy or use information from
the video games the Group is working on. If the Group cannot successfully enforce its intellectual property rights or if
a client’s intellectual property is damaged, this could have a material adverse effect on the Group’s business, financial
condition and prospects.
There are significant uncertainties in relation to the terms and timeframe within which the United Kingdom’s exit from
the European Union will be effected, and there are significant uncertainties as to what the impact will be on the fiscal,
monetary and regulatory landscape in the UK, including inter alia, the UK’s tax system, the conduct of cross-border
business and export and import tariffs. There is also uncertainty in relation to how, when and to what extent these
developments will impact on the economy in the UK and the future growth of its various industries and on levels of
investor activity and confidence, on market performance and on exchange rates. There is also a risk that the vote by
the UK to leave could result in other member states re-considering their respective membership of the European
Union. Although it is not possible to predict fully the effects of the UK’s exit from the European Union, any of these risks
could have a material adverse impact on the financial condition, profitability and share price of the Group.
The Strategic Report, which includes the Chairman’s statement, the Chief Executive’s review, Our business model and strategy,
the Group financial review and the Principal risks and uncertainties, was approved by the Board and signed on its behalf by:
Carl Cavers
23 April 2018
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Sumo Group plc Annual Report 2017
BOARD OF DIRECTORS
Ken Beaty (49)
Non-Executive
Chairman of the Board
Committee membership
Audit Committee
Nomination Committee
Ken works as a Chairman and Non-Executive Director following
a 20-year private equity career. He has extensive experience
working with high growth private equity backed and entrepreneurial
businesses. Ken has been a Non-Executive Director of the Group
since December 2014. Ken is the director nominated to the Board
by Perwyn Bidco (UK) Limited under the terms of the Relationship
Agreement put in place at the time of Admission.
Carl Cavers (50)
Chief Executive Officer
David Wilton (55)
Chief Financial Officer
Carl co-founded Sumo Digital in 2003, which quickly became a
multi-project, multi-genre solution provider, developing award
winning titles for every gaming platform. Having steered the
business through a trade sale to Foundation 9, Carl led an MBO
with NorthEdge Capital in 2014, followed by a SBO backed by
Perwyn in 2016 and the acquisition of Atomhawk, a visual design
company, in 2017. Sumo Group plc floated on AIM in December
2017. Carl received TIGA’s coveted Most Outstanding Individual
Award in 2015 and he holds an honorary doctorate from Sheffield
Hallam University.
David was appointed Chief Financial Officer in September 2017.
He is a ‘Big Four’ qualified chartered accountant with approximately
30 years’ post-qualification experience as Finance Director,
Non-Executive Director and consultant, having previously worked
in mergers and acquisitions with Rothschild. David has experience
of plc and private equity roles, including as Group Finance Director
of WYG plc, and as Non-Executive Director and Chair of the Audit
Committee of Sweett Group plc.
Ian Livingstone CBE (67)
Independent
Non-Executive Director
Committee membership
Remuneration Committee
(Chair)
Audit Committee
Nomination Committee
Michael Sherwin (59)
Independent
Non-Executive Director
Committee membership
Audit Committee (Chair)
Remuneration Committee
Nomination Committee
Ian is one of the founding fathers of the UK gaming industry, with
over 40 years’ of games industry experience. He is former Executive
Chairman of Eidos plc, where he was behind major franchises such
as Tomb Raider. Ian also co-founded the games company Games
Workshop in 1975, responsible for the successful Warhammer
franchise, and co-created the Fighting Fantasy gamebook series
in 1982. In 2002, Ian won the BAFTA Interactive Special Award for
outstanding contribution to the video games industry, and was
appointed CBE in 2013. Ian has been a Non-Executive Director
of the Group since December 2015.
Michael is currently Chief Financial Officer of Vertu Motors plc and
has extensive retail, transactional and public market experience.
From 1999 to 2008, Michael was Group Finance Director of Games
Workshop PLC, a FTSE listed consumer goods company. Michael
is a qualified chartered accountant having trained with Price
Waterhouse, where he held positions in the UK, Paris and Sydney.
He was also Non-Executive Director of Plusnet plc, an AIM listed
internet business, from 2004 to 2007. Michael was appointed to
the Board in December 2017.
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Sumo Group plc Annual Report 2017
Sumo Digital plc Annual Report 2017
OPERATING BOARD
Carl Cavers (50)
Chief Executive Officer
David Wilton (55)
Chief Financial Officer
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Cumron Ashtiani (40)
Founder and Managing
Director
Atomhawk
Paul Porter (46)
Co-founder
and Managing Director
Sumo Digital
Ron founded Atomhawk in 2009, having previously worked as a
creative leader and director for major games and entertainment
companies. He has played a key role in the running of several
studios, as well as having been involved in the development and
creative direction of a vast range of high profile projects spanning
games, digital media and film. At Atomhawk, Ron is responsible for
top line creative leadership, strategy and new business development.
Paul has over 25 years’ experience in developing video games.
Starting out as a self-taught programmer, his first game was
released in 1991. He joined Gremlin Interactive as Head of Core
Technology in 1997, before co-founding Sumo Digital in 2003. As
Managing Director, Paul has overall responsibility for development
across Sumo Digital.
Karen McLoughlin (46)
Group Director of HR
Steven Webb (55)
General Counsel
and Company Secretary
Karen began her career in the video games industry in 1996 at
Gremlin Interactive, where she gained extensive experience in
a gaming and software development environment. In 2005, as
Sumo Digital was expanding, Karen joined as Office Manager in
Sheffield. In 2011, she was promoted to HR Manager for Sumo
Digital, reporting to the VP of HR for Foundation 9. Karen is a CIPD
qualified HR professional and has been instrumental in the growth
of the Sumo Group. Having worked alongside some of the staff and
management spanning a period of almost 20 years, she is a highly
respected and trusted member of the leadership team.
Steven was appointed as General Counsel and Company Secretary
in 2017. After qualifying as a solicitor with Norton Rose, he spent
a number of years in private practice specialising in corporate and
commercial matters, before moving to his first company secretary
role with Kalon Group plc in 1994. He became Company Secretary
and General Counsel of Yorkshire Water plc (later Kelda Group
plc) in 1997 and most recently spent 16 years in the same role at
Premier Farnell plc, during which time he was involved in multiple
acquisitions and disposals, including in the UK, US, Germany,
China and Eastern Europe. Steven is also a member (and Deputy
Chairman) of the Board of Governors of Leeds Beckett University.
21
Sumo Group plc Annual Report 2017
AUDIT COMMITTEE REPORT
Dear shareholder,
I am pleased to present the Audit Committee Report for the year ended 31 December 2017. As the Committee was only established shortly before
the year end, and only held its first meeting during early 2018, this report necessarily includes some actions taken since the year end or planned
to occur during 2018.
The Audit Committee is chaired by myself as an independent Non-Executive Director and consists of all three Non-Executive Directors.
Responsibilities
The Audit Committee has primary responsibility for reviewing the effectiveness of the Group’s internal controls, monitoring the integrity of the
Group’s financial statements and external announcements of the Group’s results and approving the appointment and remuneration of the
Group’s external auditor, reviewing their reports and ensuring their independence is maintained, in all cases having due regard to the interests
of shareholders. The Audit Committee reports to the Board on all these matters and meets at least three times a year.
Experience
I am a qualified chartered accountant and the Chief Financial Officer of another listed company and my Committee colleagues have considerable
experience in senior financial or operational roles.
External audit
The Audit Committee approves the appointment and remuneration of the Group’s external auditor and satisfies itself that they maintain their
independence regardless of any non-audit work performed by them. The Group has adopted a formal policy governing the performance of non-
audit work by the auditor. The auditor is permitted to provide non-audit services which are not, and are not perceived to be, in conflict with auditor
independence, providing it has the skill, competence and integrity to carry out the work and is considered to be the most appropriate to undertake
such work in the best interests of the Group. All assignments are monitored by the Committee.
The respective responsibilities of the Directors and external auditor in connection with the Group financial statements are explained in the Statement
of Directors’ Responsibilities on page 32 and the Auditor's Report on pages 33 to 36. Details of services provided by and fees payable
to the auditor are shown in note 10 of the Group financial statements.
Whilst the Audit Committee has not adopted a formal policy in respect of the rotation of the external auditor, one of its principal duties is to make
recommendations to the Board in relation to the appointment of the external auditor. Various factors would be taken into account by the Committee
in this respect, including the quality of the reports provided to the Committee and the level of understanding of the Group’s business.
Internal control and risk management
The Audit Committee supports the Board in reviewing the risk management methodology and the effectiveness of internal control. Regular internal
control updates will be provided to the Audit Committee. These will include reviewing and updating the risk register and assessing the mitigating
actions in place and updates to action plans agreed in previous meetings.
Internal audit
The Group does not currently have an internal audit function but acknowledges the importance that internal audit can play in establishing an effective
control environment. A formal Internal Audit function, including either internal or outsourced external support, is being considered and will be put in
place during the 2018 financial year.
Significant issues considered in relation to the financial statements
At the request of the Board, the Audit Committee considered whether the 2017 Annual Report was fair, balanced and understandable and whether
it provided the necessary information for Shareholders to assess the Group’s performance, business model and strategy. The Committee was
satisfied that, taken as a whole, the 2017 Annual Report is fair, balanced and understandable.
The Audit Committee assesses whether suitable accounting policies have been adopted and whether appropriate estimates and judgements have
been made by management. The Committee also reviews accounting papers prepared by management, and reviews reports by the external auditor.
The specific areas reviewed by the Committee in respect of the year were:
• appropriateness of the merger accounting principles in the preparation of the Group financial statements,
• appropriateness of the treatment of costs in relation to the IPO and the presentation in the Group financial statements,
• appropriateness of the disclosure in the financial statements, given the first period as a listed Group,
• the recognition of contract revenue,
• the useful economic lives of intangible assets,
• the accounting treatment of Video Games Tax Relief Credits.
Michael Sherwin
Chair of the Audit Committee
23 April 2018
22
Sumo Group plc Annual Report 2017 S
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CORPORATE GOVERNANCE
The Board is committed to effective corporate governance as the basis for delivering long-term
value growth and for meeting shareholder expectations for proper leadership and oversight
of the business.
Under the rules of AIM, the Group is not required to comply with the UK Corporate Governance Code 2016, but the Board has chosen to apply the
Corporate Governance Code for Small and Mid-Size Quoted Companies 2013 published by the Quoted Companies Alliance (the ‘QCA Code’), as far as
it considers appropriate for a company of the Company’s size and nature.
The Company and its current Board and Board Committees were constituted in December 2017 as part of the preparation for admission to AIM and
therefore this report relates to the few days to the end of 2017 and makes reference to actions planned for the current year and therefore does not
specifically disclose non-compliance with the adopted code.
Board composition and operation
The Board comprises three Non-Executive and two Executive Directors. The Board has an annual schedule of meetings and, to enable the Board
to discharge its duties, all Directors receive appropriate and timely information. Briefing papers are distributed to all Directors in advance of
Board meetings.
All Directors have access to the advice and services of the Company Secretary, who is responsible for ensuring that the Board procedures are
followed, and that applicable rules and regulations are complied with. In addition, the Company’s Articles of Association allow Directors to obtain
independent professional advice in the furtherance of their duties, if necessary, at the Company’s expense.
The Board will conduct an appraisal of its own performance and that of each Director during the 2018 financial year. This is expected to include
the use of prescribed questionnaires that are completed by all Directors. The results will be reviewed, and individual feedback will be given by an
independent Non-Executive Director in respect of assessments of the Chairman, and by the Chairman in respect of assessments of each of the
other Directors and the Board as a whole.
Board Committees
Audit Committee
The Audit Committee is chaired by Michael Sherwin and has primary responsibility for monitoring the quality of internal controls, ensuring that the
financial performance of the Group is properly measured and reported on and reviewing reports from the Group’s auditor, in all cases having due
regard to the interests of Shareholders. The Audit Committee reports to the Board on all these matters and will meet at least three times a year.
The Audit Committee has terms of reference in place which have been formally approved by the Board. Ken Beaty and Ian Livingstone are the other
members of the Audit Committee. Further information is set out in the Audit Committee Report on page 22.
Remuneration Committee
The Remuneration Committee is chaired by Ian Livingstone and determines the terms and conditions of service of the Executive Directors and other
senior management, including their remuneration and annual and long-term incentive arrangements. The Remuneration Committee meets at least
twice a year and has terms of reference in place that have been approved by the Board. Michael Sherwin is the other member of the Remuneration
Committee. Further information is set out in the Directors’ Remuneration Report on pages 25 to 29.
Nomination Committee
The Nomination Committee is chaired by Ken Beaty, and its primary purpose is to identify and nominate, for the approval of the Board, candidates
to fill board vacancies as and when they arise. The Nomination Committee will meet as required, and at least once a year. Michael Sherwin and
Ian Livingstone are the other members of the Nomination Committee. The Committee has terms of reference in place which have been formally
approved by the Board.
The Committee also reviews the structure, size, diversity and composition of the Board and makes recommendations concerning the annual re-
appointment of any Non-Executive Director and the identification and nomination of new Directors. The Committee will retain external search and
selection consultants as appropriate.
In respect of new appointments, following an evaluation, it will prepare, in conjunction with the Board, a detailed job description of the role with a
candidate profile and the capabilities required for a particular appointment. In drafting this, consideration will be given to the existing experience,
knowledge and background of board members as well as the strategic and business objectives of the Group. It determines the scope of the role of a
new Director, the skills and time commitment required and is actively involved in the recruitment process.
On appointment, new Directors will receive a full, formal and tailored induction. Training sessions are organised during the year for the Board on
matters considered relevant to the discharge of the Directors’ duties and Directors may take additional training where necessary as part of their
continuing development at the expense of the Company.
23
Sumo Group plc Annual Report 2017
CORPORATE GOVERNANCE CONTINUED
Attendance at meetings
In future years, the Company intends to report the number of scheduled meetings of the Board (excluding such ad hoc meetings as were necessary
during the year to address specific matters arising) and of each of the Board Committees, together with a record of the attendance of the current
Directors who are their respective members. During 2017 all meetings of the Board that took place were specifically in respect of preparations for
the admission of the Company to AIM and there were no meetings of any of the Board Committees.
Internal control
The Board has overall responsibility for ensuring that the Group maintains a system of internal control, to provide it with reasonable assurance
regarding the reliability of financial information that is used within the business and for publication and the safeguarding of assets. There are
inherent limitations in any system of internal control and accordingly even the most effective system can provide only reasonable, and not absolute,
assurance against material misstatement or loss. Some examples of internal controls operated by the Group are given below.
During the year the Group’s financial information, system of controls, risks and risk management were subject to significant scrutiny by a number
of professional advisers as part of the process for admission to AIM. This included:
• The preparation of a Financial Prospects and Procedures Memorandum which included a full assessment of internal controls;
• A report on the Group’s financial history and on its unaudited interim financial information by reporting accountants;
• Legal, commercial and IT due diligence reports;
• The preparation and issue of the Admission Document following a rigorous verification process.
The Financial Prospects and Procedures Memorandum included a number of recommendations, most of which were implemented prior to
Admission. The few remaining recommendations have now been, or are very nearly completed.
The Board has an ongoing process for identifying, evaluating and managing the Group’s significant risks. The process includes:
• Preparation and approval of budgets and regular monitoring of actual performance against budget;
• Preparation of monthly consolidated management accounts;
• Preparation of updated profitability and cash flow forecasts to reflect actual performance and revised outlook as the year progresses,
including an assessment of the adequacy of funds for the foreseeable future;
• Monitoring the status of projects in development and future development opportunities.
During the year the Board adopted a risk management framework and a risk register and both will be kept under regular review by the Audit
Committee.
The Group will continue to take steps to embed internal control and risk management further into the operations of the business and to deal with
areas for improvement which come to the attention of management and the Board.
Shareholders
The Chairman and the other Non-Executive Directors will always make themselves available to meet with shareholders. Each AGM is a particular
opportunity for this. In addition, the Executive Directors are in frequent contact with the Company’s shareholders and brief the Board on shareholder
issues. The Board believes that the disclosures set out on pages 02 to 19 of this Annual Report provide the information necessary for shareholders to
assess the Company’s performance, business model and strategy.
Share capital structure
Details of the Company’s share capital can be found in the Directors’ Report and in note 24 of the Group financial statements.
Going concern basis
The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the Group
financial review, together with the financial position of the Group, its cash flows, liquidity position and borrowing facilities. Financial projections
have been prepared to December 2019 which show positive earnings and cash flow generation and project compliance with banking covenants at
each testing date. Accordingly, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future and they have adopted the going concern basis of accounting in preparing the annual Group
financial statements.
Forward-looking statements
This Annual Report contains forward-looking statements that involve risk and uncertainties. The Group’s actual results could differ materially from
those estimated or anticipated in the forward-looking statements as a result of many factors. Information contained in this Annual Report and
Accounts relating to the Company should not be relied upon as a guide to future performance.
Annual General Meeting
The business to be conducted at the Annual General Meeting of the Company is set out in the separate Notice of Annual General Meeting which
accompanies this Annual Report.
24
Sumo Group plc Annual Report 2017
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DIRECTORS’ REMUNERATION REPORT
Dear shareholder,
I am pleased to present the Directors’ Remuneration Report for the year ended 31 December 2017.
I chair the Remuneration Committee as an Independent Non-Executive Director and Michael Sherwin, who is also an independent Non-Executive
Director is the other member of the Committee. We are supported by Steven Webb as Company Secretary and, since the end of the year, the
Committee has appointed PwC to provide it with external remuneration advice. During the financial year, PwC advised the Company on all aspects
of remuneration policy for Executive Directors and the associated drafting for the Admission Document. PwC also provided advice to the Company
in relation to the drafting and implementation of Executive and all-employee incentives. The Remuneration Committee is satisfied that the advice
received was objective and independent. PwC is a member of the Remuneration Consultants Group and the voluntary code of conduct of that body is
designed to ensure objective and independent advice is given to remuneration committees. PwC received a fee of £59,750 for their advice during the
year to 31 December 2017.
The aim of this report is to provide shareholders with information to understand our remuneration strategy and its linkage to the Group’s financial
performance. As this is our first Annual Report, there are some elements of remuneration reporting, such as multi-year share price performance against
a comparator group, that are not possible to include. Our intention is to add these in future years once they become meaningful for shareholders.
In preparing the report, we have taken account of the guidance issued by the Quoted Companies Alliance, as the Company has chosen to apply
the Corporate Governance Code for Small and Mid-Size Quoted Companies published by the QCA, so far as the Directors consider appropriate for
a company of the Company’s size and nature.
Responsibilities
The Committee’s terms of reference are to review the performance of the Executive Directors and of the members of the Operating Board and
determine their terms and conditions of service, including their short and long-term rewards, having due regard to the interests of shareholders
and to any risks that might arise to the Company. In doing so, the Committee will have regard to the position of employees across the Group.
The Remuneration Committee will meet at least twice a year.
Our performance in 2017
The successful IPO was a major achievement during the year and this signalled the achievement of several performance objectives which had
been set under the Group’s previous ownership structure for the purposes of annual bonuses. The design and detail of the post-IPO remuneration
packages for the Executive Directors and Operating Board members reflect the needs of the Company as a member of AIM and the growth strategy
described in the Admission Document.
Key pay out-turns for 2017
Each of the Executive Directors was entitled to receive an accrued bonus on their pre-IPO terms equating to 50% of annual salary. In the case of
David Wilton, this was based on a pro-rated amount to reflect that he was not with the Group for the full year.
Looking forward to 2018
The key terms of the remuneration policy are set out on pages 26 to 28 and the key components of Executive packages are summarised as follows:
• Base salary, pension and benefits positioned competitively to the market in which the Company operates.
• Annual bonus – an annual bonus with performance criteria based on a mixture of profit-based and personal objectives as set by the
Remuneration Committee.
• Long-term incentive plan (‘LTIP’) – share-based awards with three-year performance criteria based on EPS growth and total shareholder
return over the performance period, with a further one year holding period for 50% of the grant.
I do hope that this Report clearly explains our approach to remuneration and enables you to appreciate how it underpins our business
growth strategy.
Ian Livingstone
Chair of the Remuneration Committee
23 April 2018
25
Sumo Group plc Annual Report 2017
REMUNERATION POLICY
As a company listed on AIM, the Company is not required to provide all of the information included in this Report. However, in the interests
of transparency this has been included as a voluntary disclosure. The Report is unaudited, unless otherwise stated.
Our overall remuneration policy is to:
Be consistent and principled
• maintain a consistent Executive compensation strategy, based on
clear principles and objectives
Link pay to strategy
• support the Company’s strategy and its execution
Align with shareholders’ interests
• closely align executive reward with shareholder returns
Be competitive
Link pay to performance
Reflect the internal landscape
• ensure that the organisation can attract, motivate and retain
high-calibre talent, to enable it to compete successfully in
an international market
• provide the opportunity for executives and other colleagues to receive
competitive rewards for performance, aligned to the sustained
success of the overall Group, paying what is commensurate with
achieving these aims
• operate broadly-based incentives to recognise talented performers
throughout the Group and take account of pay and conditions for all
employees in the Group when setting Executive remuneration
• the Committee has regard to pay structures across the wider Group
when setting the remuneration policy for Executive Directors. In
particular the general basic salary increase for the broader workforce
is considered when determining the annual salary review for the
Executive Directors. While participation in the Group’s long-term
incentive plans is limited to those employees considered to have the
greatest potential to influence overall levels of performance, the
Group will encourage equity ownership at all levels through our use
of a tax-advantaged All Employee Share Incentive Plan
And be clear
• be easy to understand and supported by clear communication
It has these elements:
Fixed
Variable based on performance
Salary
Benefits
Pension or pension allowance
Annual bonus
Long-term incentive plan
26
Sumo Group plc Annual Report 2017
The table below provides more detail on the key features of our remuneration policy:
Element
Base salary
Policy
Purpose and link to strategy
Positioned competitively in line with the market.
For 2018, Executive Directors’ salaries will be as follows:
• CEO £240,000
• CFO £177,000
Discretionary annual
bonus
Maximum opportunity for Executive Directors is 100% of base salary.
• Performance is measured over one financial year.
• Weightings and targets are reviewed and set at the start of each
financial year.
• For 2018, 75% of the bonus will be based on Adjusted EBITDA
performance with the remaining 25% based on the achievement
of strategic objectives.
• Malus and clawback provisions apply in the case of:
– a material misstatement resulting in an adjustment in the audited
accounts of the Group or any Group company; or
– action or conduct, which, in the reasonable opinion of the Board,
amounts to fraud or gross misconduct.
Long-term Incentive
Plan (‘LTIP’)
• As disclosed in the Admission Document, a nil-cost option
was granted to the CFO on Admission over 500,000 shares and
becomes exercisable in June 2019, subject to remaining
in employment
• In accordance with the intention referred to in the Admission
Document, awards under the LTIP were also granted to the
CEO and CFO in March 2018 under which:
– Performance against earnings per share and total shareholder
return targets is measured over three years.
– 50% of any part of the awards that vest is exercisable once
the performance has been confirmed, with the balance not
exercisable for a further year.
• Malus and clawback provisions apply in the case of:
– a material misstatement resulting in an adjustment in the
audited accounts of the Group or any Group company; or
– action or conduct, which, in the reasonable opinion of the Board,
amounts to fraud or gross misconduct.
• The Remuneration Committee will consider annually whether
further awards will be made to Executive Directors.
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A
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To provide an appropriate level of fixed cash
income to recruit and retain talent through
the provision of competitively positioned
base salaries. It is critical to the success of the
business that it can recruit talented individuals
at all levels.
Designed to motivate Executive Directors to
focus on annual goals and milestones which
are consistent with the Group’s longer-term
strategic aims. Forms part of the significant
weighting of overall remuneration to variable
elements with stretching performance
measures.
Payment is dependent on achieving profitable
growth and strategic objectives that are
essential to deliver the strategy.
To ensure that the CFO, who had joined
the Company shortly before Admission,
has a significant interest in the Company’s
performance aligned with shareholders.
Aligns the interests of the Executive Directors
with shareholders over the long-term.
Incentivises delivery of stretching financial
targets that will provide value to shareholders.
Acts as a retention mechanism for key talent.
Further element of variable pay with stretching
performance measures.
Additional period post-vesting acts as a
retention mechanism.
27
Sumo Group plc Annual Report 2017
REMUNERATION POLICY CONTINUED
The table below provides more detail on the key features of our remuneration policy:
Element
Pension
Policy
Purpose and link to strategy
• Both Executive Directors are entitled to receive pension
contributions from the Company which are equal to 5%
of the base salary delivered as:
To recruit and retain the right people to deliver
the strategy.
– Money purchase benefits; or
– A cash equivalent
Not included as salary for the purposes of annual bonus or
LTIP awards.
Benefits
Termination
The Executives are entitled to a standard Director benefits package
including a car allowance, private medical expenses insurance and
life assurance cover.
To recruit and retain the right people to deliver
the strategy.
Information on the service contracts for Executive Directors
and letters of appointment for Non-Executive Directors is
provided below.
On a termination, the Company would be obliged to meet its
contractual obligations, but would apply a robust approach
to the relevant individual mitigating any losses.
Honour contractual commitments while not
paying more than is necessary.
Recruitment remuneration arrangements
When hiring a new Executive Director, the Committee will set the director’s ongoing remuneration in a manner consistent with the policy described
above. To facilitate the hiring of candidates of the appropriate calibre required, the Committee may make an award to ‘buy-out’ variable remuneration
arrangements forfeited on leaving a previous employer. In doing so, the Committee will take account of relevant factors including the form of award,
any performance conditions and the time over which the award would have vested. Recruitment awards will normally be liable to forfeiture or
‘clawback’ on early departure.
Appropriate costs and support will be covered if the recruitment requires relocation of the individual.
Communication with Shareholders
The Remuneration Committee is committed to an ongoing dialogue with shareholders and will seek the views of significant shareholders when
formulating and implementing any changes to the remuneration policy, including when any major changes are being made to remuneration
arrangements. The Remuneration Committee Chair will be available to answer questions from shareholders regarding remuneration at the
Company’s Annual General Meeting.
Executive Director contracts and loss of office payments
Both Executive Directors entered into service agreements on 15 December 2017, which became effective upon Admission. The agreements require a
notice period of one year from the Company and from the Executive. It is the Committee’s intention that any future service contracts will be subject to
similar notice periods.
Other than payment of salary and benefits in lieu of notice, the Directors’ service agreements and letters of appointment do not provide for benefits
on termination of employment.
Outstanding awards made under the LTIP would normally lapse on an Executive leaving employment. However, there are specific rules of the plan
dealing with the treatment of awards on leaving. In summary, if an Executive were a ‘good leaver’, he or she may be entitled to retain his or her
award, although, for unvested awards:
• the number of shares under an award may be reduced to reflect any unexpired performance period (referred to as pro rating); and
• the award would normally remain subject to any applicable performance condition.
A ‘good leaver’ is someone who leaves by reason of injury, disability, redundancy, on the sale or transfer out of the Group of his or her employing
business, on retirement with the agreement of the Committee or in other special circumstances at the Committee’s discretion. (Someone dying in
service would also be a good leaver, with their personal representatives assuming their rights in respect of their awards).
Terms and conditions for Non-Executive Directors
Non-Executive Directors do not have service contracts but appointment letters setting out their terms of appointment. Ken Beaty and Ian Livingstone
were appointed on 15 December 2017 and Michael Sherwin on 21 December 2017. The appointments may be terminated on one month’s notice by
either party.
The Board considers that Michael Sherwin and Ian Livingstone are independent Non-Executive Directors.
The Non-Executive Directors do not receive any benefits in addition to their fees, nor are they eligible to participate in any pension, bonus or
share-based incentive arrangements.
28
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DIRECTORS’ REMUNERATION REPORT
Directors’ emoluments – audited information
Name of Director
C Cavers
D Wilton¹,²
Non-Executive
K Beaty
I Livingstone
M Sherwin³
Aggregate
emoluments
Benefits (2016)
£’000
Bonus (2016)
£’000
LTIP
£’000
Pension (2016)
£’000
2017 total
£’000
Fees/basic
salary (2016)
£’000
189 (50)
54 (–)
98 (21)
55 (17)
7 (–)
18 (6)
4 (–)
101 (8)
44 (–)
–
–
–
–
–
–
2016
4 month total
£’000
67
–
21
17
–
9 (3)
1 (–)
–
–
–
317
103
98
55
7
–
–
–
–
–
–
403 (88)
22 (6)
145 (8)
10 (3)
580
105
1 Part year only – appointed as a Director of Group companies in September 2017.
2 Details of a nil-cost option granted to David Wilton during the year appear below.
3 Part year only – appointed December 2017.
Long-term incentive plan (‘LTIP’)
The table below summarises the awards made to Executive Directors under the plan:
Nil-cost with no performance conditions outstanding as at 31 December 2017
D Wilton
21 December 2017
100p
500,000
£500,000
21 June 2019
Award date Share price at date of grant
¹
No of shares vesting at
maximum
Face value of shares
vesting at maximum
Vesting date
Nil-cost awards with performance conditions granted since 31 December 2017²
Award date
Share price at
date of grant
No of shares
vesting at
maximum
Face value of
shares vesting at
3
maximum £
EPS/annualised
TSR for
maximum
4
vesting
No of shares
vesting at
threshold (8.75
of maximum%)
EPS/annualised
TSR for
threshold vesting
Performance
period ending
C Cavers
9 March 2018
106.5p
1,200,000
1,200,000
20.65p/30%
105,000
D Wilton
9 March 2018
106.5p
885,000
885,000
20.65p/30%
77,437
17.83p/20% 31 December
2020
2
17.83p/20% 31 December
2020
2
1 The IPO award referred to in the Admission Document.
2 The further awards referred to in the Admission Document.
3 Using the value of £1 per share used to determine the number of shares awarded.
4 EPS target based on cumulative adjusted EPS (as defined in the LTIP Rules, which excludes share-based payment costs and amortisation) for the years ending 31 December
2018, 2019 and 2020. TSR target based on increase in return between the average over 30 days prior to 1 January 2018 and the average for the calendar month of December 2020.
There is no charge in the accounts for any share-based payments, as all awards made in the year were so close to the year end.
29
Sumo Group plc Annual Report 2017
DIRECTORS’ REPORT
for the year ended 31 December 2017
The Directors present their report together with the audited Group financial statements of the Parent Company (‘the Company’) and the Group
for the year ended 31 December 2017.
Business review and future developments
A review of the performance of the Group during the year, including principal risks and uncertainties, key performance indicators and comments
on future developments, is given in the Strategic Report.
Results and dividends
The Group recorded revenue in the year of £30.6m (Audited 2016: £8.6m and unaudited pro forma 2016 £24.1m) and loss after tax of £23.4m
(Audited 2016: £1.4m and unaudited pro forma 2016 £1.2m).
No dividends have been paid or are proposed.
Events after the balance sheet date
On 1 January 2018, Sumo Digital Limited took on the Newcastle studio of CCP Games under an asset purchase agreement for nominal
consideration. All 34 staff working at the studio became employees of the Group and the lease for the property in which the studio was located
was assigned to Sumo Digital Limited.
Financial risk management
Information relating to the principal risks and uncertainties of the Group have been included within the Strategic Report. Further information relating
to the financial risks of the Group have been included within note 23, Financial risk management.
Directors and their interests
The Directors of the Company who were in office during the year and up to the date of signing the Group financial statements were:
• Ken Beaty
appointed 20 November 2017
• Carl Cavers
appointed 20 November 2017
• David Wilton
appointed 20 November 2017
• Ian Livingstone
appointed 20 November 2017
• Michael Sherwin
appointed 21 December 2017
All the Directors are subject to election by shareholders at the forthcoming AGM following their appointment during the year.
The Directors who held office during the year and as at 31 December 2017 had the following interests in the Ordinary Shares of the Company:
Name of Director
Carl Cavers1
David Wilton2
Ken Beaty
Ian Livingstone
Michael Sherwin
31 December 2017
Number
6,601,907
50,000
1,463,639
2,153,287
20,000
1 The interests of Carl Cavers in Ordinary Shares set out above include his interests in 6,601,907 Ordinary Shares held by Aghoco 1337 Limited (as trustee of the Sumo Group plc Employee Benefit Trust).
2 The interests of David Wilton in Ordinary Shares set out above include his interests in 19,000 Ordinary Shares held in the name of his wife.
In addition to the interests in Ordinary Shares shown above, the Group operates a long-term incentive plan (‘the LTIP’) for senior executives, under
which awards may be granted over shares in the Company. The maximum number of Ordinary Shares which could be issued to Directors in the
future under such awards at 31 December 2017 is shown below:
Name of Director
David Wilton
Number
500,000
Between 31 December 2017 and the date of signing the Group financial statements the interests of Carl Cavers and David Wilton changed as a result
of the LTIP share awards made on 9 March 2018 and detailed in the Directors’ Remuneration Report.
The market price of the Company’s shares at the end of the financial year was 115p (On IPO date 21 December 2017: 100.0p) and the range of market
prices during the year was between 114p and 115p.
Further details on related party transactions with Directors are provided in note 25 of the Group financial statements.
Directors’ indemnities and insurance
The Company has made qualifying third party indemnity provisions for the benefit of the Directors, which were in force from their dates
of appointment and up to the date of this report.
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Sumo Group plc Annual Report 2017
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DIRECTORS’ REPORT CONTINUED
for the year ended 31 December 2017
Significant shareholdings
As at 23 April 2018, the Company has been advised, in accordance with the Disclosure and Transparency Rules of the Financial Conduct
Authority, or was made aware through the IPO process of the following notifiable interests in 3% or more of its voting rights:
Perwyn Bidco (UK) Limited
Aghoco 1337 Limited (as Trustee of the Sumo Group plc Employee Benefit Trust)
BlackRock Investment Management (UK) Limited
Liontrust Investment Partners LLP
Schroder Investment Management
41,170,961
21,235,933
16,124,718
8,000,000
6,500,000
27.5 %
14.2%
10.8%
5.4%
4.3%
Employees
The Group regularly provides employees with information on matters of concern to them, consulting them or their representatives regularly, so
that their views can be taken into account when making decisions that are likely to affect their interests. Employee involvement in the Group is
encouraged, as achieving a common awareness on the part of all employees of the financial and economic factors affecting the Group plays a major
role in its performance.
The Group recognises its responsibility to employ disabled persons in suitable employment and gives full and fair consideration to such persons,
including any employee who becomes disabled, having regard to their particular aptitudes and abilities. Where practicable, disabled employees are
treated equally with all other employees in respect of their eligibility for training, career development and promotion.
Share capital and voting
The Company has one class of equity share, namely 0.01p Ordinary Shares. The shares have equal voting rights and there are no special rights or
restrictions attaching to any of them or their transfer to other persons. The rights and obligations attaching to these shares are governed by the
Companies Act 2006 and the Company’s Articles.
Appointment and replacement of Directors and changes to constitution
Rules governing the appointment and replacement of Directors, and those relating to the amendment of the Company’s Articles of Association,
are contained within those Articles of Association, a copy of which is located on the Company’s website (www.sumogroupplc.com).
Notice of Annual General Meeting
A Notice of AGM, with explanatory notes, accompanies this Annual Report.
Corporate governance
The Group’s statement on Corporate Governance can be found in the Corporate Governance section of this Annual Report which is incorporated
by reference and forms part of this Directors’ Report.
Disclosure of information to auditor
The Directors of the Company at the date of the approval of this report confirm that:
• so far as each Director is aware, there is no relevant audit information of which the Company’s auditor are unaware; and
• each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information
and to establish that the Company’s auditor are aware of that information.
Independent auditor
The auditor, Grant Thornton UK LLP, have indicated their willingness to continue in office and a resolution concerning their reappointment will be
proposed at the AGM.
By order of the Board
Steven Webb
Company Secretary
Sumo Group plc
Unit 32 Jessops Riverside
Brightside Lane
Sheffield
S9 2RX
Registered number: 11071913
23 April 2018
31
Sumo Group plc Annual Report 2017
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
for the year ended 31 December 2017
The Directors are responsible for preparing the Directors’ Report and the financial statements in accordance with applicable law and regulations.
In addition, the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted
by the EU.
The financial statements are required to give a true and fair view of the state of affairs of the Group and Parent Company and of the profit or loss
of the Group for that period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with International Financial Reporting Standards as adopted by the EU; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company
will continue in business.
The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Parent Company’s transactions and
disclose with reasonable accuracy at any time its financial position. They have general responsibility for taking such steps as are reasonably open
to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.
Legislation governing the preparation and dissemination of financial statements may differ from one jurisdiction to another.
Steven Webb
Company Secretary
Sumo Group plc
Unit 32 Jessops Riverside
Brightside Lane
Sheffield
S9 2RX
Registered number: 11071913
23 April 2018
32
Sumo Group plc Annual Report 2017 INDEPENDENT AUDITOR’S REPORT
to the members of Sumo Group plc
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Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Sumo Group plc (the ‘Company’) and its subsidiaries (together the ‘Group’) for the year ended
31 December 2017 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the
consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement, the Company balance
sheet, the Company 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. The financial reporting framework that has been
applied in the preparation of the Company financial statements is applicable law and United Kingdom Accounting Standards, including
Financial Reporting Standard 101 ‘Reduced Disclosures Framework’ (United Kingdom Generally Accepted Accounting Practice).
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2017 and of the
Group’s loss for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice;
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 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 Company’s ability to continue to adopt the going concern basis of accounting for a period of at least 12 months from the date when the
financial statements are authorised for issue.
Overview of our audit approach
• Overall materiality: £333,000, which represents approximately 4% of the Group’s adjusted EBITDA;
• Key Audit Matters were identified as the recognition of contract revenue, the useful economic lives of intangible assets, and the accounting
treatment of Video Games Tax Relief Credits; and
• A full scope audit was performed of the financial statements of the Company, and all components determined to be significant. Full scope
procedures were performed for entities comprising 100% of total revenues. A targeted approach was adopted for components not considered
to be significant.
33
Sumo Group plc Annual Report 2017
INDEPENDENT AUDITOR’S REPORT CONTINUED
to the members of Sumo Group plc
Key Audit Matters
Key Audit Matters are those matters that, in our professional judgement, 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
The recognition of contract revenue
There is a risk that revenue may be misstated due to the improper
recognition of revenue.
Specifically in respect of the Group’s contractual arrangements with
clients there is a risk that revenue is misstated as each contract’s
outcome and stage of completion requires significant management
judgement.
We therefore identified the recognition of contract revenue as a
significant risk, which was one of the most significant assessed risks
of material misstatement.
The useful economic lives of intangible assets
In accordance with (IAS) 38 ‘Intangible Assets’, management have
performed a review of the amortisation periods of the Group’s
intangible assets. This review concluded that it would be appropriate to
reduce the useful economic lives of customer contracts and customer
relationships. This constitutes a change in accounting estimate,
resulting in an increased amortisation charge for the year.
The determination of intangible assets’ useful economic lives is often a
matter of significant judgement, as was the case in this situation.
We therefore identified the useful economic lives 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:
• Assessing whether the Group’s revenue recognition accounting
policy is in accordance with International Accounting Standard
(IAS) 11 ‘Construction Contracts’;
• Comparing a sample of contract revenue to the Group’s accounting
policy to verify it was in line with the policy, and challenging the
percentage of completion assessment made by management;
• Selecting a sample of contracts and agreeing to original signed
documentation to confirm that a client agreement exists; and
• Agreeing a sample of revenue transactions to invoice and
client confirmations.
The Group’s accounting policy on the recognition of contract revenue
is shown in note 2 to the financial statements and related disclosures
are included in note 4.
Key observations
Based on our audit work, we have not found any indication that revenue
has not been recognised in accordance with the Group’s accounting
policy and the requirements of IAS 11 ‘Construction Contracts’.
Our audit work included, but was not restricted to:
• Assessing whether the Group’s accounting policy for the
amortisation of intangible assets is in line with International
Accounting Standard (IAS) 38 ‘Intangible Assets’;
• Understanding the justification provided by management for the
revised useful economic lives, the key assumptions underpinning the
assessment, agreeing to supporting documentation where relevant,
and challenging the useful lives management have arrived at, based
on our understanding of the Group’s business operations; and
• Re-performing the calculation of the amortisation charge, and
investigating any differences identified.
The Group’s accounting policy on intangible assets is shown in
note 2 to the financial statements and related disclosures are included
in note 13.
Key observations
Based on our audit work, we have not found any indication that the
useful economic lives of intangible assets are not in accordance with
the Group’s accounting policies and in line with the requirements of
IAS 38 ‘Intangible Assets’.
34
Sumo Group plc Annual Report 2017
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Key Audit Matter – Group
How the matter was addressed in the audit – Group
The accounting treatment of Video Games Tax Relief Credits
The directors are of the opinion that Video Games Tax Relief Credits
(VGTCs) are most appropriately recognised as a deduction from direct
cost, rather than an element of taxation within the consolidated income
statement. VGTCs are material to the Group financial statements and
key to the financial structuring of the Group’s games development
contracts.
There is currently diversity in practice regarding the financial
reporting of VGTCs. As this is a tax credit, it may be expected that the
accounting treatment is set out in IAS 12 ‘Income Taxes’. However,
a key judgement is whether VGTCs constitute investment tax credits,
which are not defined within IFRS yet are specifically excluded from the
scope of IAS 12 ‘Income Taxes’ and IAS 20 ‘Accounting for Government
Grants and Disclosure of Government Assistance’.
We therefore identified the accounting treatment of VGTCs as one
of the matters of most significance in the audit of the Group
financial statements.
Our audit work included, but was not restricted to:
• Understanding the technical arguments relating to the accounting
treatment of VGTCs;
• Assessing and challenging the appropriateness of management’s
inclusion of VGTCs as a deduction from direct costs in the light of the
nature of the Group’s business;
• Assessing the appropriateness of the Group’s accounting policy
relating to VGTCs to ensure disclosures are in line with relevant
accounting standards; and
• Using tax specialists to perform an assessment of the treatment
of qualifying costs within the VGTC computations.
The Group’s accounting policy for VGTCs is shown in note 2 to the
financial statements and related disclosures are included in note 3
and note 6.
Key observations
Based on our audit work, we have found that the accounting treatment
for VGTCs is in accordance with the Group’s accounting policies and in
line with the requirements of relevant accounting standards.
No Key Audit Matters were identified that are unique to the Company.
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
Company
Financial statements as a whole
Performance materiality used to drive
the extent of our testing
Specific materiality
£333,000 which is approximately 4% of
adjusted EBITDA. This benchmark is
considered the most appropriate because,
whilst the Group is focused on delivering
a profit, it has incurred disproportionate
interest and amortisation charges during
the year having spent over 11 months of the
year as a Private Equity backed operation.
The Group was formed in December 2017,
and therefore a comparison to prior year
materiality is not relevant.
£300,000 which is based on 1% of total
assets, capped to 90% of Group materiality.
This benchmark is considered the most
appropriate because the Company acts
as a holding company and does not trade.
The Company was incorporated in
November 2017, and therefore a
comparison to prior year materiality
is not relevant.
75% of financial statement materiality.
75% of financial statement materiality.
£5,000 has been used for directors’
remuneration and related party
transactions.
£5,000 has been used for directors’
remuneration and related party
transactions.
Communication of misstatements
to the Audit Committee
£16,650 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
£15,000 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
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 Group 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. For example, significance as a percentage of the Group’s total assets, revenues and profit before
taxation or significance based on qualitative factors, such as specific use is or concerns over specific components;
35
Sumo Group plc Annual Report 2017
INDEPENDENT AUDITOR’S REPORT CONTINUED
to the members of Sumo Group plc
• we performed a full scope audit of the financial statements of the Company, and all components determined to be significant based on their
relative materiality to the Group and assessment of audit risk. Full scope procedures were performed for entities comprising 100% of total
revenues;
• a targeted approach was adopted for components with no external revenue and not considered to be significant.
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 Directors’ Report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
• the Strategic Report and the Directors’ Report 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 Company and its environment obtained in the course of the audit, we have not
identified material misstatements in the Strategic Report or the Directors’ Report.
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 Company, or returns adequate for our audit have not been received from branches not
visited by us; or
• the Company financial statements are not in agreement with the accounting records and returns; or
• 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
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 32, 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 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 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.
Paul Houghton
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Sheffield
23 April 2018
36
Sumo Group plc Annual Report 2017 CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2017
Revenue
Direct costs (net)
Gross profit
Operating expenses
Operating expenses – exceptional
Operating expenses – total
Group operating loss
Analysed as:
Adjusted EBITDA1
Amortisation
Depreciation
Exceptional items
Group operating loss
Net finance costs
Loss before taxation
Taxation
Loss for the year attributable to equity shareholders
Loss per share (pence)
Basic
Diluted
Year ended
31 December
2017
£’000
4 month
period ended
31 December
2016
Restated2
£’000
30,612
(17,360)
13,252
(33,191)
(2,656)
(35,847)
(22,595)
8,356
(27,626)
(669)
(2,656)
(22,595)
(5,378)
(27,973)
4,538
(23,435)
8,629
(5,011)
3,618
(3,350)
(599)
(3,949)
(331)
2,199
(1,721)
(210)
(599)
(331)
(1,487)
(1,818)
433
(1,385)
(389.40)
(389.40)
(13,205.57)
(13,205.57)
Note
4
6
7
13
14
7
8 & 9
11
12
12
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C
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P
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O
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S
1 Adjusted EBITDA, which is defined as profit before finance costs, tax, depreciation, amortisation, and exceptional items, is a non-GAAP metric used by management and is not an IFRS disclosure.
2 As explained in note 28, the presentation of Video Game Tax Credit has been restated and is now presented within Direct costs (net) rather than operating expenses.
The notes on pages 41 to 65 form part of these Group financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Loss for the year attributable to equity shareholders
Other comprehensive income:
Exchange differences on retranslation of foreign operations
Total other comprehensive (expense)/income
Total comprehensive expense for the year
Year ended
31 December
2017
£’000
4 month
period ended
31 December
2016
£’000
(23,435)
(1,385)
(16)
(16)
43
43
(23,451)
(1,342)
Items in the statement above are disclosed net of tax. The notes on pages 41 to 65 form part of these Group financial statements.
37
Sumo Group plc Annual Report 2017
CONSOLIDATED BALANCE SHEET
as at 31 December 2017
Non-current assets
Goodwill and other intangible assets
Property, plant and equipment
Deferred tax asset
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Borrowings
Trade and other payables
Corporation tax payable
Derivative financial instruments
Total current liabilities
Non-current liabilities
Borrowings
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets/(liabilities)
Equity
Share capital
Share premium
Reverse acquisition reserve
Foreign currency translation reserve
Retained earnings
Total equity
Note
13
14
21
16
17
19
18
23
19
21
24
24
2017
£’000
28,213
1,835
474
30,522
10,155
12,424
22,579
53,101
–
10,763
1,316
–
12,079
–
–
–
12,079
41,022
1,450
36,121
(60,623)
27
64,047
41,022
2016
£’000
53,470
901
–
54,371
10,101
4,482
14,583
68,954
4,088
7,388
623
207
12,306
52,630
4,963
57,593
69,899
(945)
45
352
–
43
(1,385)
(945)
The Group financial statements on pages 37 to 65 were approved by the Board of Directors on 23 April 2018 and were signed on its behalf by:
Carl Cavers
Director
David Wilton
Director
The notes on pages 41 to 65 form part of these Group financial statements.
38
Sumo Group plc Annual Report 2017
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2017
Loss for the period ended 31 December 2016
Exchange differences on retranslation of foreign operations
Total comprehensive income/(expense) for the period
Transactions with owners:
Issue of share capital
Balance at 31 December 2016
Loss for the year
Exchange differences on retranslation of foreign operations
Total comprehensive expense for the year
Transactions with owners:
Issue of shares in year
Issue of shares on conversion of debt
Issue of shares pre IPO
Group reorganisation (note 24)
Capital reduction
Issue of shares on IPO
Expenses of the IPO
Balance at 31 December 2017
Share
capital
£’000
Share
premium
£’000
Reverse
acquisition
reserve
£’000
Foreign
currency
translation
reserve
£’000
–
–
–
45
45
45
–
–
–
1
18
1,065
(64)
–
385
–
1,405
1,450
–
–
–
352
352
352
–
–
–
7
28,879
88,867
(29,238)
(88,867)
38,061
(1,940)
35,769
36,121
–
–
–
–
–
–
–
–
–
–
–
–
(60,623)
–
–
–
(60,623)
–
43
43
–
–
43
–
(16)
(16)
–
–
–
–
–
–
–
–
(60,623)
27
Retained
earnings
£’000
(1,385)
–
(1,385)
–
–
(1,385)
(23,435)
–
(23,435)
–
–
–
–
88,867
–
–
88,867
64,047
Total
equity
£’000
(1,385)
43
(1,342)
397
397
(945)
(23,435)
(16)
(23,451)
8
28,897
89,932
(89,925)
–
38,446
(1,940)
65,418
41,022
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The notes on pages 41 to 65 form part of these Group financial statements.
39
Sumo Group plc Annual Report 2017
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2017
Cash flows from operating activities
Net finance costs
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of intangible assets
Purchase of property, plant and equipment
Proceeds on sale of property, plant and equipment
Acquisition of subsidiary – net of cash acquired
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Transaction costs relating to the issue of shares
Proceeds of borrowings
Repayments of borrowings
Transaction costs related to borrowings
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Foreign exchange
Cash and cash equivalents at the end of the year
The notes on pages 41 to 65 form part of these Group financial statements.
Note
27
13
14
26
27
Year ended
31 December
2017
£’000
4 month
period ended
31 December
2016
£’000
9,105
(5,378)
(475)
3,252
(120)
(1,586)
–
(2,287)
(3,993)
67,358
(1,940)
–
(56,718)
–
8,700
7,959
4,482
(17)
3,276
(423)
(120)
2,733
(54)
(283)
1,572
(41,535)
(40,300)
397
–
60,126
(17,499)
(975)
42,049
4,482
–
–
12,424
4,482
40
Sumo Group plc Annual Report 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2017
1 General information
Sumo Group plc (‘the Company’) was incorporated and registered in England and Wales on 20 November 2017 as a private company limited
by shares under the Companies Act 2006 with the name Aghoco 1611 Limited and with the registered number 11071913. The Company was
re-registered as a public limited company with the name Sumo Group plc on 14 December 2017. The address of its registered office is
32 Jessops Riverside, Brightside Lane, Sheffield S9 2RX.
The principal activity of the Company and its subsidiaries (together the ‘Group’) is that of video games development.
The Group financial statements present 12 months results for the year ended 31 December 2017, with a comparative period for the four months
from 26 August 2016 to 31 December 2016, and were approved by the Directors on 23 April 2018.
26 August 2016 is the date shortly before ownership of the former Sumo Group, then headed by Sumo Digital Holdings Limited, passed to its new
owners. At the date of the reorganisation the ownership of the new entity was the same as the previous group. Because of this, the accounts have
been prepared as if the Group had existed in its current form from the date (26 August 2016) shortly before ownership last changed. Therefore, the
Group is presented as if it had existed from 26 August 2016. To help users understand the performance of the operating business, proforma details
for the operating activities are shown in note 30.
The Company financial statements are on pages 66 to 71.
Initial public offering (‘IPO’)
The Company’s shares were admitted to trading on AIM, a market operated by the London Stock Exchange, on 21 December 2017. These Group
financial statements are the Company’s first subsequent to its admission to AIM and followed a Group reorganisation to facilitate the IPO.
The Group financial statements have been prepared under merger accounting principles because the transaction under which the Company became
the holding company of Project Republica Topco Limited (‘Topco’), the previous parent undertaking of the Sumo trading operations, was a group
reorganisation with no change in the ultimate ownership of the Sumo trading operations. All the shareholdings in Project Republica Topco Limited
were exchanged via a share-for-share transfer on 13 December 2017. The Company did not actively trade at that time.
The result of the application of the capital reorganisation is to present the financial statements as if the Company had always owned the Sumo
trading operations. Topco was incorporated on 26 August 2016 and itself acquired the Sumo companies on 8 September 2016 and therefore the
comparative information presented is for the four months trading post acquisition.
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Group reorganisation
The principal steps of the group reorganisation were as follows:
The Company was incorporated on 20 November 2017 as a private company limited by shares in England and Wales, with share capital
of £390 divided into 39,000,000 Ordinary Shares of £0.00001 each.
The Company became the ultimate holding company of the Group with Topco becoming the Company’s direct subsidiary on 13 December 2017
by the issue of 3,900 Ordinary Shares of £0.00001 each to the existing shareholders of Topco in return for the entire issued share capital of Topco.
The shares were issued to each of the shareholders in proportion to the relative value of each of their shareholdings in Topco.
On 13 December 2017 the Company capitalised amounts of £1,065,216 standing on the share premium account and utilised the amount for
distribution amongst the shareholders of the Company in proportion to the number of shares held by them respectively on the basis of 2,731 bonus
shares for every 1 share held, such that an aggregate of 106,521,617,940 new Ordinary Shares of £0.00001 each were issued. Following this issue and
allotment, all the issued Ordinary Shares of £0.00001 each were then consolidated into 106,554,131 Ordinary Shares of £0.010000609158926 each.
On 13 December 2017, the Company undertook a reduction of share capital in accordance with Section 643 of the Companies Act, in which the
nominal value of the Ordinary Shares was reduced to £0.01 each, which had the effect of reducing the share premium to £nil, with the balance
credited to retained earnings.
The insertion of the Company as a new holding company by way of a share-for-share exchange constitutes a group reorganisation and the
transaction is accounted for as a capital reorganisation.
Under merger accounting principles, the assets and liabilities of the subsidiaries are consolidated at book value in the Group financial statements
and the consolidated reserves of the Group are adjusted to reflect the statutory share capital, share premium and reverse acquisition reserve of the
Company as if it had always existed.
On 21 December 2017 the Company issued 38,445,869 Ordinary Shares of £0.01 each, for consideration of £38,445,869 in an IPO, with the balance
recorded as share premium. £1,940,000 of the IPO costs have been charged to the share premium account.
41
Sumo Group plc Annual Report 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2017
2 Basis of preparation and accounting policies
The Group’s principal accounting policies, all of which have been applied consistently to all the periods presented, are set out below.
Basis of preparation
The Group financial statements have been prepared in accordance with International Financial Reporting Standards as endorsed by the
European Union (‘IFRS’), International Financial Reporting Standards Interpretation Committee (‘IFRS IC’) interpretations and those provisions
of the Companies Act 2006 applicable to companies reporting under IFRS. The Group financial statements have been prepared on the going
concern basis and on the historical cost convention modified for the revaluation of certain financial instruments.
The preparation of Group financial statements in conformity with IFRS requires the use of certain critical accounting estimates, which are outlined
in the critical accounting estimates and judgements section of these accounting policies. It also requires management to exercise its judgement
in the process of applying the Group’s accounting policies.
Going concern
These Group financial statements have been prepared on the going concern basis.
The Directors have reviewed the forecasts for the years ending 31 December 2018 and 31 December 2019 and consider the forecasts to be prudent
and have assessed the impact of them on the Group’s cash flow, facilities and headroom within its banking covenants. Furthermore, the Directors
have assessed the future funding requirements of the Group and compared them with the level of available borrowing facilities. Based on this work,
the Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they
continue to adopt the going concern basis in preparing the financial statements.
Standards, amendments and interpretations which are not effective or early adopted:
At the date of authorisation of the Group financial statements, the following new standards and interpretations which have not been applied in this
financial information were in issue but not yet effective (and in some cases, had not yet been adopted by the EU):
• IFRS 15 – Revenue from Contracts with Customers (effective 1 January 2018)
• IFRS 9 – Financial instruments (effective 1 January 2018)
• IFRS 16 – Leases (effective 1 January 2019)
The adoption of IFRS 15 and IFRS 9 is not expected to have a material impact on the financial information of the Group in the period of initial
application when the relevant standards come into effect. The Directors have reviewed the Group’s activities using the five-step model set out in
IFRS 15 and as a result consider that adoption of this standard is not expected to have a material impact.
The Directors are still assessing the impact of IFRS 16 which is expected to increase the carrying value of property, plant, and equipment, and lease
liabilities by a range of £3.5m to £4.5m. There are other standards in issue which are not expected to have an impact on the Group and therefore have
not been included in the list above.
Basis of consolidation
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed
to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are deconsolidated from the date control ceases.
Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated.
Revenue
Revenue is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business
and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and
volume rebates.
Where a contract is executed or where reasonable certainty exists that a contract will be executed for the provision of professional services, then
revenue is recognised by reference to the stage of completion, if this can be reliably estimated. Revenue for such contracts is stated as a proportion
of the contract revenue appropriate to the stage of completion, less amounts recognised in previous years.
Where the outcome cannot be estimated reliably and work is at the Group’s risk then costs will be expensed. Royalties are recognised in the period
in which they are earned as designated in the contract.
EBITDA and Adjusted EBITDA
Earnings before Interest, Taxation, Depreciation and Amortisation (‘EBITDA’) and Adjusted EBITDA are non-GAAP measures used by management to
assess the operating performance of the Group. Exceptional items are excluded from EBITDA to calculate Adjusted EBITDA.
The Directors primarily use the Adjusted EBITDA measure when making decisions about the Group’s activities. As these are non-GAAP measures,
EBITDA and Adjusted EBITDA measures used by other entities may not be calculated in the same way and hence may not be directly comparable.
42
Sumo Group plc Annual Report 2017 2 Basis of preparation and accounting policies continued
Foreign currency
Transactions in foreign currencies are translated into the Group’s functional currency at the foreign exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate
ruling at that date. Foreign exchange differences arising on translation are recognised in profit or loss.
On consolidation, the assets and liabilities of foreign operations which have a functional currency other than Sterling are translated into Sterling
at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of these subsidiary undertakings are translated at average
rates applicable in the period. All resulting exchange differences are recognised in other comprehensive income and documented in a separate
component of equity.
Classification of instruments issued by the Group
Instruments issued by the Group are treated as equity (i.e. forming part of shareholders’ funds) only to the extent that they meet the following
two conditions:
• they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities
with another party under conditions that are potentially unfavourable to the Group; and
• where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no obligation
to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company exchanging a fixed
amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the items are classified as a financial liability. Where the instrument so classified takes the legal form
of the Company’s own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude
amounts in relation to those shares.
Finance payments associated with financial liabilities are dealt with as part of finance expenses. Finance payments associated with financial
instruments that are classified in equity are dividends and are recorded directly in equity.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property,
plant and equipment.
Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and
equipment. Depreciation is provided on the following basis:
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Leasehold improvements
Over period of lease
Fixtures and fittings
Computer hardware
25% straight line
50% straight line
It has been assumed that all assets will be used until the end of their economic life. Freehold land is not depreciated.
Intangible assets
All business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the acquisition
and the fair value of the net identifiable assets acquired. Identifiable intangibles are those which can be sold separately or which arise from legal or
contractual rights regardless of whether those rights are separable, and are initially recognised at fair value.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested
annually for impairment.
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses.
Computer software purchased separately, that does not form an integral part of related hardware, is capitalised at cost. Amortisation is charged
to profit or loss on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite and is presented within
operating expenses. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each balance sheet date.
Other intangible assets are amortised from the date they are available for use.
The estimated useful lives, which were reviewed and amended in the year resulting in an accelerated amortisation charge, are as follows:
Customer relationships
2 years
Customer contracts
Over period of contract
Software
2 years
43
Sumo Group plc Annual Report 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2017
2 Basis of preparation and accounting policies continued
Impairment
For goodwill that has an indefinite useful life, the recoverable amount is estimated annually. For other assets, the recoverable amount is only
estimated when there is an indication that an impairment may have occurred. The recoverable amount is the higher of fair value less costs to sell
and value in use.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
Impairment losses are recognised in profit or loss.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated
to the cash-generating unit and then to reduce the carrying amount of the other assets in the unit on a pro rata basis. A cash generating unit
is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets
or groups of assets.
Inventories
Work in progress is valued on the basis of direct costs plus attributable overheads based on normal levels of activity on a first in first out basis.
Provision is made for any foreseeable losses where appropriate. No element of profit is included in the valuation of work in progress.
Post-employment benefits
Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in profit or loss as incurred.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it
is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability.
Operating lease payments
Operating leases are leases in which substantially all the risks and rewards of ownership related to the asset are not transferred to the Group.
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received
are recognised in profit or loss as an integral part of the total lease expense.
Net financing costs
Net financing costs comprise interest payable and interest receivable on funds invested. Interest income and interest payable are recognised
in profit or loss as they accrue using the effective interest method. Foreign exchange differences on monetary assets and liabilities are also
presented within financing.
Taxation
Tax on the profit or loss for the period comprises current and deferred tax. Tax is recognised in profit or loss except to the extent that it relates
to items recognised in other comprehensive income or directly in equity, in which case it is recognised in other comprehensive income or in
equity, respectively.
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet
date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes, except to the extent that it arises on:
• the initial recognition of goodwill;
• the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination;
• differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset in respect of tax losses is recognised only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised.
Video Games Tax Relief Credits
Video Games Tax Relief Credits have only been recognised where management believe that a tax credit will be recoverable based on their experience
of obtaining the relevant certification and the success of similar historical claims. Such credits are recognised as part of direct costs in order to
reflect the substance of these credits to the Group and cash flows are presented within operating activities. The debit is recorded on the balance
sheet as ‘VGTC recoverable’ within current assets.
44
Sumo Group plc Annual Report 2017 S
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2 Basis of preparation and accounting policies continued
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank borrowings that are repayable on demand and form an integral part
of the Group’s cash management are included as a component of cash and cash equivalents for the purpose only of the statement of cash flows.
Trade and other receivables
Trade and other receivables are initially recorded at fair value and thereafter are measured at amortised cost using the effective interest rate.
A provision for impairment is made where there is objective evidence (including clients with financial difficulties or in default on payments) that
amounts will not be recovered in accordance with the original terms of the agreement. A provision for impairment is established when the carrying
value of the receivable exceeds the present value of the future cash flow discounted using the original effective interest rate. The carrying value
of the receivable is reduced through the use of an allowance account and any impairment loss is recognised in profit or loss.
Financial derivatives
The Group uses derivative financial instruments to hedge its exposure to risks arising from operational activities, principally foreign exchange risk.
In accordance with treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. The Group does not hedge
account for these items. Any gain or loss arising from derivative financial instruments is based on changes in fair value, which is determined by direct
reference to active market transactions or using a valuation technique where no active market exists. At certain times the Group has foreign currency
forward contracts that fall into this category.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing
borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in profit or loss over the period of
the borrowings on an effective interest basis.
Trade and other payables
Trade payables are initially recorded at fair value and thereafter at amortised cost using the effective interest rate method.
Segmental reporting
The Group reports its business activities in one area: video games development, which is reported in a manner consistent with the internal reporting
to the Board of Directors, which has been identified as the chief operating decision maker. The Board of Directors consists of the Executive Directors
and the Non-Executive Directors.
Exceptional costs
The Group presents as exceptional costs on the face of the income statement, those significant items of expense, which, because of their size, nature
and infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial
performance in the period. This facilitates comparison with prior periods and trends in financial performance more readily. Such costs include
professional fees and other costs, directly related to the change in ownership during the period, including those advisor fees paid as a result of the
IPO which have not been included within Share Premium.
Share capital
Share capital represents the nominal value of shares that have been issued.
Share premium
Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted
from share premium, net of any related income tax benefits.
Reverse acquisition reserve
The reverse acquisition reserve was created as a result of the share for share exchange under which Sumo Group plc became the parent
undertaking prior to the IPO. Under merger accounting principles, the assets and liabilities of the subsidiaries were consolidated at book value
in the Group financial statements and the consolidated reserves of the Group were adjusted to reflect the statutory share capital, share premium
and other reserves of the Company as if it had always existed, with the difference presented as the reverse acquisition reserve.
Foreign currency translation reserve
Represents the exchange differences on retranslation of foreign operations.
Retained earnings
Retained earnings includes all current period retained profits.
Direct costs
Included within direct costs are all costs in connection with the development of games, including an allocation of studio management costs.
Video Games Tax Relief Credits are presented within direct costs as they are directly related to the level of expenditure incurred.
45
Sumo Group plc Annual Report 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2017
2 Basis of preparation and accounting policies continued
Share based payments
The Group operates equity-settled share-based remuneration plans for its employees. None of the Group’s plans are cash-settled.
All goods and services received in exchange for the grant of any share-based payment are measured at their fair values using the Black Scholes model.
Where employees are rewarded using share-based payments, the fair value of employees’ services is determined indirectly by reference to the
fair value of the equity instruments granted. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions
(for example profitability and sales growth targets and performance conditions).
All share-based remuneration is ultimately recognised as an expense in profit or loss with a corresponding credit to retained earnings. Where vesting
periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of
share options expected to vest.
Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are
subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any adjustment
to cumulative share-based compensation resulting from a revision is recognised in the current period. The number of vested options ultimately
exercised by holders does not impact the expense recorded in any period.
Upon exercise of share options, the proceeds received, net of any directly attributable transaction costs, are allocated to share capital up to the
nominal (or par) value of the shares issued with any excess being recorded as share premium.
3 Critical accounting judgements and estimates
Accounting estimates
Impairment of goodwill and other intangible assets
The carrying amount of goodwill is £20,791,000 (2016: £19,225,000) and the carrying amount of other intangible assets is £7,422,000
(2016: £34,245,000) as at 31 December 2017. The Directors are confident that the carrying amount of goodwill and other intangible assets
is fairly stated, and have carried out an impairment review. The forecast cash generation for each Cash Generating Unit (‘CGU’) and the
Weighted Average Cost of Capital (‘WACC’) represent significant assumptions and should the assumptions prove to be incorrect there would
be a significant risk of a material adjustment within the next financial year.
The cash flows are based on a three-year forecast with growth between 9.7% and 36.1%. Subsequent years are based on a reduced growth rate
of 2% into perpetuity.
The discount rate used was the Group’s pre-tax WACC of 9.75%.
Given the significant headroom in the carrying value of goodwill compared to the calculation of the net present value of the future cash flows,
and bearing in mind the market value of the Group, the Directors cannot foresee a reasonable downside scenario in which the goodwill would be
impaired in the foreseeable future and hence detailed sensitivity disclosures have not been presented.
Accounting judgements
Judgements in applying accounting policies and key sources of estimation uncertainty
In the preparation of the Group financial statements, the Directors, in applying the accounting policies of the Group, make some judgements and
estimates that affect the reported amounts in the financial statements. The following are the areas requiring the use of judgement and estimates
that may significantly impact the financial statements.
Goodwill and Intangible assets arising on acquisition
The process of estimating the value of customer contracts and customer relationships on acquisition includes an element of forecasting and
judgement. The Directors review customer contracts and customer relationships on an annual basis which also involves an element of judgement
as to the length of the contract and relationship. These judgements concerning the length of customer contracts and relationships will largely be
resolved during 2018 as the balances naturally unwind through the amortisation charge, given the relatively short length of the customer contracts.
Details of the period end impairment review of Goodwill have been disclosed in note 13 to the Financial statements.
Revenue recognition on development contracts
The recognition of revenue on development contracts requires judgement and estimates on the overall contract margin and percentage of
completion of the contract at each period end. These judgements are based on contract value, historical experience and forecasts of future
outcomes. These include specific judgement in respect of contracts for which variations may be in the process of being negotiated, and so the
contracts are accounted for on the basis of the best estimate of the revenue expected to be received on the contract, which are all expected to be
resolved relatively shortly after the financial year end.
Video Games Tax Relief Credits
The process of claiming Video Games Tax Relief Credits requires estimates to be accrued at the period end. Whilst the Company undertakes a
detailed exercise involving external professional support in calculating the accrual, these claims are subject to review and approval by HMRC prior
to payment. It is also in the Directors’ judgement that presenting Video Games Tax Relief Credits as a deduction from direct costs best reflects the
substance and nature of these Credits.
46
Sumo Group plc Annual Report 2017
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4 Segmental reporting
The trading operations of the Group are only in video games development, and are all continuing. This includes the activities of Sumo Digital Limited,
Mistral Entertainment Limited, Sumo Video Games Private Limited, Cirrus Development Limited, Sumo Digital (Genus) Limited, Sumo Digital
(Atlantis) Limited, Atomhawk Design Limited and Atomhawk Canada Limited. The central activities, comprising services and assets provided to
Group companies, are considered incidental to the activities of the Group and have therefore not been shown as a separate operating segment but
have been subsumed within video games development. All assets of the Group reside in the UK, with the exception of non-current assets with a net
book value of £400,000 (2016: £242,000) which were located in India and Canada.
Major clients
In 2017 there were three major clients that individually accounted for at least 10% of total revenues (2016: four clients). The revenues relating to these
clients in 2017 were £9.7m, £4.7m and £3.2m (2016: £3.4m, £1.6m, £1.4m, and £1.0m).
Analysis of revenue
UK & Ireland
Europe
Rest of the World
Revenue by category
Development fees
Video Game Industry
Art & Leisure
Film & TV
Retail
Total development fees
Own IP
Royalties
Total Revenue
5 Employees and Directors
The average monthly number of persons (including Directors) employed in the Group during the period was:
Management (Directors)
Non-executives (Directors)
Development
Administration
Year ended
31 December
2017
£’000
4 month
period ended
31 December
2016
£’000
10,248
10,861
9,503
30,612
5,816
2,116
697
8,629
Year ended
31 December
2017
£’000
4 month
period ended
31 December
2016
£’000
28,303
96
15
25
28,439
1,695
478
30,612
8,375
–
–
–
8,375
–
254
8,629
Year ended
31 December
2017
£’000
4 month
period ended
31 December
2016
£’000
4
4
383
53
444
4
4
279
44
331
47
Sumo Group plc Annual Report 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2017
5 Employees and Directors continued
Staff costs (including Directors) are outlined below. Directors’ remuneration is also set out in the Remuneration Report on page 29:
Wages and salaries
Other long-term employee benefits
Defined contribution pension cost
Social security costs
Other
Year ended
31 December
2017
£’000
4 month
period ended
31 December
2016
£’000
15,785
–
509
1,497
9
17,800
3,420
–
129
341
5
3,895
Key management compensation
The following table details the aggregate compensation paid in respect of the key management, which is considered to be the Board.
Salaries and other short-term employee benefits
Post-employment benefits
Year ended
31 December
2017
£’000
4 month
period ended
31 December
2016
£’000
1,152
37
1,189
277
10
287
There are no defined benefit schemes for key management. Pension costs under defined contribution schemes are included in the
post-employment benefits disclosed above.
6 Direct costs (net)
Direct costs
Video Games Tax Relief Credits
7 Expenses by nature
Exceptional items
Employee benefit expense (note 5)
Depreciation charges (note 14)
Amortisation and impairment charges (note 13)
Operating lease payments
Other expenses
Total direct costs and operating expenses
Exceptional items
Exceptional items include external costs in relation to:
• 2016 – the Perwyn acquisition and related group reorganisation (£599,000)
• 2017 – the IPO and reorganisation in 2017 which primarily relate to professional fees (£2,453,000)
• 2017 – the acquisition of Atomhawk Design Limited and Atomhawk Canada Limited (£203,000)
48
Year ended
31 December
2017
£’000
25,656
(8,296)
17,360
4 month
period ended
31 December
2016
£’000
6,967
(1,956)
5,011
Year ended
31 December
2017
£’000
4 month
period ended
31 December
2016
£’000
2,656
17,800
669
27,626
876
3,580
53,207
599
3,895
210
1,721
136
2,399
8,960
Sumo Group plc Annual Report 2017
8 Finance costs
Fair value movement on foreign exchange forward contracts
Debt refinancing cost release
Bank and other interest
Finance costs
9 Finance income
Interest income
10 Auditor’s remuneration
Year ended
31 December
2017
£’000
4 month
period ended
31 December
2016
£’000
(53)
841
4,593
5,381
207
–
1,280
1,487
Year ended
31 December
2017
£’000
4 month
period ended
31 December
2016
£’000
3
–
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditors at costs as
detailed below:
Year ended
31 December
2017
£’000
4 month
period ended
31 December
2016
£’000
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Fees payable to Company’s auditor and its associates for the audit of financial statements
Fees payable to Company’s auditor and its associates for other services:
The audit of subsidiary financial statements
Fees for taxation compliance services
Fees for taxation advisory services
Other assurance services
Acquisition and IPO related
35
60
32
42
24
500
Amounts paid to the Group’s auditor in respect of services to the Company, other than the audit of the Company’s financial statements, have not
been disclosed separately as the information is required to be disclosed on a consolidated basis.
10
45
20
–
–
–
49
Sumo Group plc Annual Report 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2017
11 Taxation
Analysis of credit in year
Current tax
Current taxation charge for the year
Adjustments for prior periods
Total current tax
Deferred tax
Origination and reversal of timing differences
Adjustments in respect of prior periods
Total deferred tax
Tax on loss on ordinary activities
Reconciliation of total tax (credit):
Loss on ordinary activities before tax
Loss on ordinary activities multiplied by the rate of corporation tax in the UK of 19.25% (2016: 20.00%)
Effects of:
Non-deductible expenses
Fixed asset permanent differences
Effects of different tax rates in overseas jurisdictions
Non-taxable income
Effect of change in rates
Adjustments in respect of previous periods
Total taxation (credit)
Year ended
31 December
2017
£’000
4 month
period ended
31 December
2016
£’000
1,080
(58)
1,022
(5,622)
62
(5,560)
(4,538)
(27,973)
(5,384)
968
(40)
50
(475)
339
4
(4,538)
52
–
52
(485)
–
(485)
(433)
(1,818)
(364)
445
(107)
–
(407)
–
–
(433)
Factors that may affect future tax charges
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2015 (on 26 October 2015) and Finance Bill 2016
(on 7 September 2016). These included reductions to the main rate to reduce the rate to 19% from 1 April 2017 and to 17% from 1 April 2020,
and this has been reflected in these financial statements.
50
Sumo Group plc Annual Report 2017
12 Earnings per share
Basic and diluted earnings per share are calculated by dividing the earnings attributable to equity shareholders by the weighted average number of
Ordinary Shares in issue from the date of the IPO to 31 December 2017. The weighted average number of shares for both the current and preceding
years has been stated as if the Group reorganisation had occurred at the beginning of the comparative period.
When calculating diluted earnings per share, the weighted average number of shares is adjusted to assume conversion of 950,000 of potentially
dilutive shares. These represent share options granted to employees.
The calculation of basic and diluted loss per share is based on the following data:
Earnings (£’000)
Earnings for the purposes of basic and diluted earnings per share
being profit for the year attributable to equity shareholders
Number of shares
Weighted average number of shares for the purposes of basic earnings per share
Weighted average dilutive effect of conditional share awards
Weighted average number of shares for the purposes of diluted earnings per share
Loss per Ordinary Share (pence)
Basic loss per Ordinary Share
Diluted loss per Ordinary Share
Adjusted earnings per Ordinary Share (pence)
Basic adjusted earnings per Ordinary Share
Diluted adjusted earnings per Ordinary Share
The calculation of basic and diluted adjusted earnings per share is based on the following data:
Loss for the period attributable to equity shareholders
Add back/(deduct):
Depreciation and amortisation charges
Exceptional items
Tax effect of the above
Adjusted earnings
Year ended
31 December
2017
4 month
period ended
31 December
2016
(23,435)
(1,385)
6,018,226
950,000
6,968,226
10,488
–
10,488
(389.40)
(389.40)
(13,205.57)
(13,205.57)
42.75
36.92
7,808.92
7,808.92
Year ended
31 December
2017
£’000
4 month
period ended
31 December
2016
£’000
(23,435)
(1,385)
28,295
2,656
(4,943)
2,573
1,931
599
(326)
819
The denominators used to calculate both basic and adjusted earnings per share are the same as those shown above for both basic and diluted
earnings per share.
S
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51
Sumo Group plc Annual Report 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2017
13 Goodwill and other intangible assets
Cost
Additions
Arising on acquisition on 8 September 2016
As at 31 December 2016
Additions
Acquisition of subsidiary (note 26)
As at 31 December 2017
Amortisation
Charge for the year
As at 31 December 2016
Charge for the year
As at 31 December 2017
Net book value
As at 31 December 2016
As at 31 December 2017
Software
£’000
Customer
contracts
£’000
Customer
relationships
£’000
–
14,285
14,285
–
437
–
21,432
21,432
–
246
Goodwill
£’000
–
19,225
19,225
–
1,566
Total
£’000
54
55,137
55,191
120
2,249
14,722
21,678
20,791
57,560
952
952
12,646
13,598
715
715
14,818
15,533
–
–
–
–
13,333
1,124
20,717
6,145
19,225
20,791
1,721
1,721
27,626
29,347
53,470
28,213
54
195
249
120
–
369
54
54
162
216
195
153
These financial statements are the first to be prepared since Sumo Group’s IPO in December 2017. They cover the period in which the Group
transitioned from the previous ownership structure when it was majority owned by funds under the management of Perwyn for more than
11 months of 2017 to its new status as a listed company 10 days before the financial year end. The intangible assets on the balance sheet arise
from the acquisition by Perwyn in September 2016, more than 15 months before the December 2017 accounting reference date. These intangible
assets consisted of customer contracts, customer relationships and goodwill. The intangible assets held in respect of the former two categories
were being amortised over useful economic lives of five years and ten years respectively, while goodwill was tested annually for impairment.
The assets arose in respect of contracts and relationships as at September 2016 and do not reflect contracts signed or relationships developed
since that date. As a public listed company Sumo Group has decided to change the approach to these historical intangible assets by reference to the
length of each customer contract in place at September 2016 and an assessment of the appropriate time period for the customer relationship from
that date. The time periods are between four and 37 months for customer contracts and 24 months for customer relationships. This is a change to
an accounting estimate, not policy, and the effect is to amortise the historical intangible assets arising on the September 2016 change of ownership
over a shorter period from 1 January 2017. The impact of this change in the useful lives of the assets is to accelerate the amortisation charge in the
year ended 31 December 2017 by £22,099,000.
The cost of customer relationships was determined as at the date of the respective changes in ownership by reference to expected future contracts.
The valuations used the discounted cash flow method. The discount rate applied at that time to the future cash flows was 9.75%.
The customer contracts represent contracted revenues. The valuation used the discounted cash flow method, based on estimated profit margins
considered on a contract by contract basis. The discount rate applied at that time to the future cash flows was 9.75%.
Goodwill and other intangible assets have been tested for impairment. The method, key assumptions and results of the impairment review are
detailed below:
Goodwill is attributed to the only CGU within the Group, video games development. Goodwill and other intangible assets have been tested for
impairment by assessing the value in use of the cash generating unit. The value-in-use calculations were based on projected cash flows in
perpetuity. Budgeted cash flows for 2017 to 2019 were used. These were based on a three-year forecast with growth rates of 9.7% to 36.1% applied
for the following years. Subsequent years were based on a reduced rate of growth of 2.0% into perpetuity.
These growth rates are based on past experience and market conditions and discount rates are consistent with external information. The growth
rates shown are the average applied to the cash flows of the individual cash generating units and do not form a basis for estimating the consolidated
profits of the Group in the future.
The discount rate used to test the cash generating units was the Group’s pre-tax WACC of 9.75%.
On the basis of this review, it has been concluded that there is no need to impair the carrying value of goodwill and other intangible assets.
All amortisation charges have been treated as an expense and charged to operating expenses in the income statement.
52
Sumo Group plc Annual Report 2017
14 Property, plant and equipment
Cost
Additions
Arising on acquisition on 8 September 2016
Disposals
As at 31 December 2016
Acquisition of subsidiary (note 26)
Additions
As at 31 December 2017
Depreciation
Charge for the period
Eliminated on disposals
As at 31 December 2016
Charge for the period
As at 31 December 2017
Net book value
As at 31 December 2016
As at 31 December 2017
Land and
buildings
£’000
Leasehold
improvements
£’000
Fixtures and
fittings
£’000
Computer
hardware
£’000
–
1,573
(1,573)
–
–
–
–
3
(3)
–
–
–
–
–
3
184
–
187
–
607
794
19
–
19
45
64
168
730
30
83
–
113
2
100
215
16
–
16
54
70
97
145
250
558
–
808
15
879
1,702
172
–
172
570
742
636
960
S
T
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A
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E
G
C
I
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E
P
O
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T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
Total
£’000
283
2,398
(1,573)
1,108
17
1,586
2,711
210
(3)
207
669
876
901
1,835
Depreciation charges are allocated to direct costs and operating expenses in the income statement.
15 Investments
Details of the investments in which the Group holds 20% or more of the nominal value of any class of share capital are as follows:
Project Republica Topco Limited
Project Republica Bidco Limited
Sumo Digital Holdings Limited
Sumo Digital Group Limited
Sumo Digital Entertainment Limited
Sumo Digital Limited
Sumo Digital (Genus) Limited
Sumo Digital (Atlantis) Limited
Cirrus Development Limited
Aghoco 1337 Limited
Mistral Entertainment Limited
Sumo Video Games Private Limited
Riverside Games Limited
Atomhawk Design Limited
Atomhawk Canada Limited
Class of share capital held
By Parent Company
By the Group
Nature of Business
Proportion held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
84%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Holding company
84%
Holding company
84%
Holding company
84%
Holding company
84%
Holding company
84%
Video game development
84%
Video game development
84%
Video game development
84%
84%
Video game development
84% Employee benefit trust trustee
Video game development
84%
Video game development
84%
Dormant
84%
Visual design
84%
Visual design
84%
An employee benefit trust, Sumo Group plc Employee Benefit Trust, was set up on 13 December 2017. This holds the remaining 16% of the entities
listed above. The shares are subject to put and call options with the shareholders, and as such beneficial control remains with the Group. On this
basis there has been no accounting for non-controlling interest.
53
Sumo Group plc Annual Report 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2017
15 Investments continued
All the companies listed above are incorporated in England and Wales, and have a registered address of 32 Jessops Riverside, Brightside Lane,
Sheffield, S9 2RX, with the following exceptions:
Company
Country of incorporation
Address
Sumo Video Games Private Limited
Atomhawk Design Limited
Atomhawk Canada Limited
India
UK
Canada
MCCIA Trade Tower, B Building,
205-206, Senapati Bapat Rd, Chattushringi,
Gokhalenagar, Pune, Maharashtra 411016
Northern Design Centre Abbott’s Hill,
Baltic Business Quarter, Gateshead,
Tyne and Wear, NE8 3DF
8th Floor, 543 Granville Street,
Vancouver, British Colombia, V6C 1X8
There are no restrictions on the Group’s ability to access or use the assets and settle the liabilities of the Group’s subsidiaries.
16 Trade and other receivables
Amounts falling due within one year:
Trade receivables not past due
Trade receivables past due
Trade receivables past due and impaired
Less provision for trade receivables
Trade receivables net
Prepayments and accrued income
Other debtors
VGTC recoverable
Amounts recoverable on contracts
Work in progress on self-published titles
As at
31 December
2017
£’000
As at
31 December
2016
£’000
1,151
185
19
(19)
1,336
1,654
304
4,659
2,202
–
825
585
–
–
1,410
1,193
–
5,732
1,299
467
10,155
10,101
Trade and other receivables are all current and any fair value difference is not material. Trade and other receivables are considered past due once
they have passed their contracted due date. Trade receivables are reviewed for impairment if they are past due beyond 30 days.
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
Euro
United States Dollar
Movements on the Group’s provision for impairment of trade receivables are as follows:
At beginning of period
Provision for receivables impairment
Receivables written-off during the year as uncollectable
Unused amounts reversed
At 31 December
As at
31 December
2017
£’000
As at
31 December
2016
£’000
4
178
182
2017
£’000
–
19
–
–
19
372
–
372
2016
£’000
–
–
–
–
–
The creation and release of provision for impaired receivables have been included in ‘other expenses’ in the income statement (note 7). Amounts
charged to the allowance account are generally written-off, when there is no expectation of recovering additional cash.
The other classes within trade and other receivables do not contain impaired assets.
54
Sumo Group plc Annual Report 2017
17 Cash and cash equivalents
Cash and cash equivalents
Cash at bank and in hand
The following amounts were held in foreign currencies:
British Pound
Canadian Dollar
United States Dollar
Indian Rupee
18 Trade and other payables
Trade payables
Tax and social security
Other payables, accruals and deferred income
The fair value of financial liabilities approximates their carrying value due to short maturities.
The carrying amounts of the Group’s trade and other payables are denominated in the following currencies:
British Pound
Euro
United States Dollar
Indian Rupee
19 Borrowings
Current
Bank loans and overdrafts
Term loan
Loan notes
Non-current
Bank loans and overdrafts
Term loan
Loan notes
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
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A
T
E
M
E
N
T
S
2017
£’000
2016
£’000
12,424
4,482
2017
£’000
11,937
30
335
122
12,424
2017
£’000
2,468
474
7,821
10,763
2017
£’000
10,647
27
25
64
10,763
2016
£’000
4,226
–
134
122
4,482
2016
£’000
764
961
5,663
7,388
2016
£’000
7,302
8
–
78
7,388
As at
31 December
2017
£’000
As at
31 December
2016
£’000
–
–
–
–
–
–
–
–
–
4,088
–
4,088
–
18,305
34,325
52,630
55
Sumo Group plc Annual Report 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2017
19 Borrowings continued
Amount repayable
Within one year
In more than one year but less than two years
In more than two years but less than three years
In more than three years but less than four years
In more than four years but less than five years
As at
31 December
2017
£’000
As at
31 December
2016
£’000
–
–
–
–
–
–
4,088
1,610
1,633
1,657
47,730
56,718
The above carrying values of the borrowings equate to the fair values. Borrowings are secured against the assets of the Group.
Average interest rates at the balance sheet date
Term loan
Bank loan
Loan notes
As at
31 December
2017
%
As at
31 December
2016
%
–
1.50-2.50
–
4.25
–
10.00
The above borrowings are denominated in Sterling. The fair value of borrowings equals their carrying amount, as the impact of discounting
is not significant.
20 Share-based payments
The Performance Share Plan (the ‘LTIP’)
The Group operates a performance share plan for senior executives, further details of which can be found in the Directors’ Remuneration Report
in the Group financial statements.
Under the LTIP, the Group has made awards over 950,000 conditional shares to certain Directors and employees.
The maximum charge in respect of the LTIP’s equity-settled share-based payment transactions in the year ended 31 December 2017 is immaterial
and hence has not been recognised.
Management are in the process of obtaining a full valuation, under IFRS 2, and the impact of current and future awards will be recognised in next
year’s financial statements.
21 Deferred tax
Liability at beginning of period
Credit to income statement
On acquisition on 8 September 2016
On acquisition of subsidiary
Asset/(liability) at 31 December
The deferred tax asset/(liability) relates to the following:
Accelerated capital allowances on property, plant & equipment
On intangible assets
On losses
56
2017
£’000
(4,963)
5,560
–
(123)
474
17
(1,284)
1,741
474
2016
£’000
–
484
(5,447)
–
(4,963)
7
(6,095)
1,125
(4,963)
Sumo Group plc Annual Report 2017
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22 Commitments and contingencies
Capital commitments
Contracted for but not provided in the financial statements
Operating lease commitments
Within 1 year
Later than 1 year and less than 5 years
After 5 years
As at
31 December
2017
£’000
As at
31 December
2016
£’000
693
–
825
2,949
3,002
6,776
625
2,168
1,797
4,590
The Group leases various office units under non-cancellable operating lease agreements. The lease terms are between 1 month and 15 years.
The Group also leases various plant and machinery and vehicles, with terms between 4 months and 3 years. The lease expenditure charged to the
income statement during the year is disclosed in note 7.
23 Financial risk management
The Group uses various financial instruments. These include loans, cash, forward foreign exchange contracts, issued equity investments and various
items, such as trade receivables and trade payables that arise directly from its operations. The main purpose of these financial instruments is to
raise finance for the Group’s operations.
The existence of these financial instruments exposes the Group to a number of financial risks, which are described in more detail below.
The main risks arising from the Group’s financial instruments are market risk, cash flow interest rate risk, credit risk and liquidity risk. The Directors
review and agree policies for managing each of these risks and they are summarised below.
Market risk
Market risk encompasses three types of risk, being currency risk, interest rate risk and price risk. In this instance price risk has been ignored
as it is not considered a material risk to the business. The Group’s policies for managing interest rate risk are set out in the subsection entitled
‘interest rate risk’ below.
Currency risk
The Group contracts with certain clients in Euros and US Dollars and manages this foreign currency risk using forward foreign exchange contracts
which match the expected receipt of foreign currency income. As at 31 December 2016 this covers the period up to June 2018.
Liquidity risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs by closely managing the cash
balance and by investing cash assets safely and profitably.
The Group policy throughout the period has been to ensure continuity of funding. Short-term flexibility is achieved by revolving working capital
facilities. The maturity of borrowings is set out in note 19.
The table below analyses the Group’s non-derivative and derivative financial liabilities into relevant maturity groupings based on the remaining period
at the balance sheet date to the contractual maturity date. Derivative financial liabilities are included in the analysis if their contractual maturities are
essential for an understanding of the timing of cash flows. The amounts disclosed in the table are the contractual undiscounted cash flows.
At 31 December 2017
Borrowings
Forward foreign exchange contracts
Trade and other payables
At 31 December 2016
Borrowings
Forward foreign exchange contracts
Trade and other payables
Less than
1 year
£’000
Between
1 and 2 years
£’000
Between
2 and 5 years
£’000
Over 5 years
£’000
–
–
10,738
–
–
–
–
–
–
–
–
25
Less than
1 year
£’000
Between
1 and 2 years
£’000
Between
2 and 5 years
£’000
Over 5 years
£’000
4,088
207
7,362
1,610
–
–
51,020
–
–
–
–
26
57
Sumo Group plc Annual Report 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2017
23 Financial risk management continued
Interest rate risk
The Group finances its operations through a mixture of retained profits, bank borrowings and loan notes. The Directors’ policy to manage interest
rate fluctuations is to regularly review the costs of capital and the risks associated with each class of capital, and to maintain an appropriate mix
between fixed and floating rate borrowings.
Sensitivity to interest rate fluctuations
As the debt was settled as part of the IPO proceeds there is minimal interest rate risk, and therefore sensitivity to interest rate disclosures have not
been made.
Credit risk
The Group’s principal financial assets are cash and trade receivables. The credit risk associated with cash is limited, as the counterparties have high
credit ratings assigned by international credit-rating agencies. The principal credit risk arises therefore from the Group’s trade receivables. In order
to manage credit risk the Directors set limits for clients based on a combination of payment history and third party credit references. Credit limits are
reviewed on a regular basis in conjunction with debt ageing and collection history.
The Directors consider that the Group’s trade receivables were impaired for the period ended 31 December 2017 and, accordingly, a provision of
£19,000 has been created. See note 16 for further information on financial assets that are past due.
Summary of financial assets and liabilities by category
The carrying amount of financial assets and liabilities recognised at the balance sheet date of the reporting periods under review may also be
categorised as follows:
Financial assets
Trade and other receivables
Cash and cash equivalents
Financial liabilities
Financial liabilities measured at fair value through profit or loss
Forward foreign exchange contracts
Financial liabilities measured at amortised cost
Non-current:
Borrowings
Current:
Borrowings
Trade and other payables
Net financial assets and liabilities
Non-financial assets and liabilities
Plant, property and equipment
Goodwill
Other intangible assets
Prepayments and accrued income
Amounts recoverable on contracts
Work in progress on self-published titles
VGTC recoverable
Corporation tax payable
Provisions for deferred tax
Total equity/(deficit)
As at
31 December
2017
£’000
As at
31 December
2016
£’000
1,640
12,424
14,064
–
–
–
(10,763)
(10,763)
3,301
1,835
20,791
7,422
1,654
2,202
–
4,659
(1,316)
474
37,721
41,022
1,410
4,482
5,892
(207)
(52,630)
(4,088)
(7,388)
(64,313)
(58,421)
901
19,225
34,245
1,193
1,299
467
5,732
(623)
(4,963)
57,476
(945)
Financial instruments carried at fair value include forward foreign exchange contracts which are valued using Level 2 inputs in accordance with
IFRS 13.
58
Sumo Group plc Annual Report 2017
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23 Financial risk management continued
Capital management policies and procedures
The Group’s capital management objectives are:
• To ensure the Group’s ability to continue as a going concern; and
• To provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.
This is achieved through close management of working capital and regular reviews of pricing. Decisions on whether to raise funding using debt or
equity are made by the Board based on the requirements of the business.
Capital for the reporting period under review is shown as total equity in the table above.
24 Share capital
Ordinary
Shares
1.00
A
Ordinary
Shares
0.0125
B1
Ordinary
Shares
0.016
B2
Ordinary
Shares
0.016
C
Ordinary
Shares
0.00001
Ordinary
Ordinary
Shares
Shares
0.00001 0.010000609158926
Ordinary
Shares
0.01
At 26 August 2016
Converted during
the period
Issued on
8 September 2016
Issued during the period
1
(1)
–
80
–
–
–
–
–
–
– 2,036,934
248,407
–
734,137
–
313,499
–
–
637,892
At 31 December 2016
– 2,285,421
734,137
313,499
637,892
Total
Share
Capital
£
1
–
Share
Premium
£
–
–
42,224
3,111
266,233
85,518
45,336
351,751
1
7,938
390
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Issued on 27 June 2017
Issued on
20 November 2017
Issued on conversion
of debt
Issue, including bonus
Share consolidation
Group reorganisation
Group reorganisation
Capital reduction
Issue on IPO
IPO costs charged
to share premium
At 31 December 2017
–
–
–
–
–
–
–
79,390
–
–
39,000,000
– 1,453,322
–
–
–
–
– (3,738,743)
–
–
–
–
–
–
–
–
–
(734,137)
–
–
–
–
–
–
(313,499)
–
–
–
–
–
– 106,521,617,940
– (106,560,621,840)
–
3,900
–
–
(717,282)
–
–
–
–
–
106,554,131
–
–
–
– 1,065,216
–
–
–
–
(106,554,131) 106,554,131
– 38,445,869
18,166 28,879,142
(1,065,216)
–
(63,503) (29,238,831)
– 89,931,686
(65) (88,866,470)
384,459 38,061,410
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,940,000)
– 145,000,000 1,450,000 36,121,410
The Company was incorporated on 20 November 2017 as a private company limited by shares in England and Wales, with share capital of £390
divided into 39,000,000 Ordinary Shares of £0.00001 each.
The Company became the ultimate holding company of the Group with Project Republica Topco Limited (‘Topco’) becoming the Company’s direct
subsidiary on 13 December 2017 by the issue of 3,900 Ordinary Shares of £0.00001 each to the existing shareholders of Topco in return for the entire
issued share capital of Topco. The shares were issued to each of the shareholders in proportion to the relative value of each of their shareholdings
in Topco.
On 13 December 2017 the Company capitalised amounts of £1,065,216 standing on the share premium account and utilised the amount for
distribution amongst the shareholders of the Company in proportion to the number of shares held by them respectively on the basis of 2,731 bonus
shares for every 1 share held, such that an aggregate of 106,521,617,940 new Ordinary Shares of £0.00001 each were issued. Following this issue and
allotment, all the issued Ordinary Shares of £0.00001 each were then consolidated into 106,554,131 Ordinary Shares of £0.010000609158926 each.
On 13 December 2017, the Company undertook a reduction of share capital in accordance with Section 643 of the Companies Act, in which the
nominal value of the Ordinary Shares was reduced to £0.01 each, which had the effect of reducing the share premium to £nil, with the balance
credited to retained earnings.
The insertion of the Company as a new holding company by way of a share-for-share exchange constitutes a Group reorganisation and the
transaction is accounted for as a capital reorganisation.
59
Sumo Group plc Annual Report 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2017
24 Share capital continued
Under merger accounting principles, the shares issued in this transaction were recorded in the consolidated balance sheet at the nominal value
of the shares issued plus the fair value of any additional consideration, which was recorded as a reverse acquisition reserve in the Group financial
statements. The assets and liabilities of the subsidiaries are consolidated at book value in the Group financial statements and the consolidated
reserves of the Group are adjusted to reflect the statutory share capital, share premium and reverse acquisition reserve of the Company as if it had
always existed.
On 21 December 2017 the Company issued 38,445,869 Ordinary Shares of £0.01 each, for consideration of £38,445,869 in an IPO, with the balance
recorded as share premium. £1,940,000 of the IPO costs have been charged to the share premium account.
A reverse acquisition reserve of £60,623,000 was created during the year as a result of the share for share exchange under which Sumo Group plc
became the parent undertaking prior to the IPO. Under merger accounting principles, the assets and liabilities of the subsidiaries were consolidated
at book value in the Group financial statements and the consolidated reserves of the Group were adjusted to reflect the statutory share capital, share
premium and other reserves of the Company as if it had always existed, with the difference presented as the reverse acquisition reserve.
The foreign currency translation reserve of £27,000 as at 31 December 2017 (31 December 2016: £43,000) comprises foreign currency translation
differences arising from the translation of financial statements of the Group’s Indian operations into GBP.
25 Related party transactions
Identity of related parties
The Directors consider there to be no ultimate controlling party during the period. Related parties include representatives of major shareholders and
parent and intermediate parent entities ultimately owned by the same shareholders. Related party balances with the Company are as follows:
Trading balances
Related party
NorthEdge Capital LLP
Perwyn LLP
PIF Republica S.a.r.l
Cragg Wood Limited
Gealka Limited
Purchases made from
Balance due to
2017
£’000
–
185
24
81
16
As at
31 December
2017
£’000
As at
31 December
2016
£’000
–
–
–
6
–
–
13
2
6
–
2016
£’000
6
141
8
18
–
In addition to the above, interest on loans from related parties was charged throughout the period.
Related party
Atomhawk Loan Notes – interest charge
Other Loan Notes – Ken Beaty interest charge
Other Loan Notes – Ian Livingstone interest charge
NorthEdge – Loan Note A – interest charge
Perwyn – A1 Loan Note – interest charge
Perwyn – A1 Loan Note – balance
Perwyn – PIF Loan – interest charge
Perwyn – PIF Loan – balance
Key management compensation is disclosed in note 5.
To/ as at
31 December
2017
£’000
To/ as at
31 December
2016
£’000
60
–
–
–
1,840
–
1,021
–
–
4
7
5,498
510
18,682
219
7,374
60
Sumo Group plc Annual Report 2017
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26 Business combinations
Acquisition of Atomhawk Design Limited
Under an agreement dated 29 June 2017, the Group acquired the share capital of Atomhawk Design Limited, a visual design company registered in
the United Kingdom for consideration of £2.9m.
The book and fair values of the assets and liabilities acquired are set out below:
Book value
recognised at
acquisition
£’000
Fair value
adjustments
£’000
Fair value
£’000
Assets
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Liabilities
Corporation tax payable
Trade and other payables
Deferred tax
Goodwill
Summary of net cash outflow from acquisition
Cash paid
Cash acquired
Cash consideration transferred
Acquisition costs charged to expenses
–
17
346
613
976
(146)
(56)
–
(202)
774
683
–
–
–
683
–
–
(123)
(123)
560
683
17
346
613
1,659
(146)
(56)
(123)
(325)
1,334
1,566
2,900
2,900
(613)
2,287
2,900
203
Consideration transferred
The acquisition of Atomhawk was settled in cash amounting to £2,900,000. There is no contingent consideration.
Acquisition related costs amounting to £203,000 are not included as part of consideration transferred and have been recognised as an expense in the
income statement as part of operating expenses – exceptional.
Following the acquisition a former key shareholder of Atomhawk invested £1,300,000 into the Sumo Group.
Goodwill
Goodwill of £1,566,000 is primarily related to growth, technical knowledge, and market diversification.
Contribution to the Group results
Atomhawk generated a profit of £331,000 for the six months from acquisition. Revenue for the period was £1,276,000. If Atomhawk had been
acquired at the beginning of the period then revenue would have increased by £916,000 and profit by £249,000.
61
Sumo Group plc Annual Report 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2017
27 Notes to the cash flow statement
Loss for the financial year/period
Income tax
Net finance costs
Operating loss
Depreciation charge (note 14)
Amortisation of intangible assets (note 13)
Post-employment benefits less payments
Increase in bad debt provision
Decrease in trade and other receivables
Increase in trade and other payables
Loss on disposal of fixed assets
Net cash inflow from operating activities
Non-current borrowings
Current borrowings
28 Prior year adjustment
Year ended
31 December
2017
£’000
4 month
period ended
31 December
2016
£’000
(23,435)
(4,538)
5,378
(22,595)
669
27,626
–
19
273
3,113
–
9,105
(1,385)
(433)
1,487
(331)
210
1,721
12
–
1,637
23
4
3,276
As at
1 January
2017
£’000
52,630
4,088
56,718
As at
31 December
2017
£’000
–
–
–
Cash flows
£’000
(52,630)
(4,088)
(56,718)
The Group has adjusted the accounting disclosure of Video Games Tax Relief Credits. This has historically been shown in other operating income and
is now shown within Direct costs (net) – see note 6.
The reason for the change is that Video Games Tax Relief Credits are closely related to the production of the games and therefore should be reflected
in the gross margin reported.
The impact this has had on the income statement is to increase gross margin by £1,956,000 in the comparative period. There is no impact
on the net profit.
The VGTC amounts recoverable which were previously presented within ‘Corporation tax recoverable’ on the balance sheet are now presented as
‘VGTC recoverable’ within ‘Trade and other receivables’, and the cash flows are now presented as operating cash flows (previously tax cash flows).
This has had no impact on the net assets of the Group.
29 Post balance sheet events
On 1 January 2018, the Group, through its wholly-owned subsidiary Sumo Digital Limited took on the Newcastle studio of CCP Games under an asset
purchase agreement for nominal consideration. All 34 staff working at the studio became employees of the Group and the lease for the property in
which the studio was located was assigned to Sumo Digital Limited.
62
Sumo Group plc Annual Report 2017
30 Pro forma information
The comparative information presented in the income statement represents the period from 8 September 2016 to 31 December 2016, and the results
and cash flows for the 12 month period from 1 January 2016 to 31 December 2016 have therefore been presented below to allow comparability
across the two years. The 12-month figures for 2016 have been extracted, without exception, from the Admission Document submitted for the
purposes of the Initial Public Offering on 21 December 2017. As indicated, these pro forma amounts are unaudited.
Income statement
Revenue
Direct costs (net)
Gross profit
Operating expenses
Operating expenses – exceptional
Operating expenses – total
Group operating (loss)/profit
Analysed as:
Adjusted EBITDA1
Amortisation
Depreciation
Exceptional items
Group operating loss
Net finance costs
Loss before taxation
Taxation
Loss for the year attributable to equity shareholders
Year ended
31 December
2017
£’000
Year ended
31 December
2016
Unaudited
£’000
30,612
(17,360)
13,252
(33,191)
(2,656)
(35,847)
(22,595)
8,356
(27,626)
(669)
(2,656)
(22,595)
(5,378)
(27,973)
4,538
(23,435)
24,106
(15,101)
9,005
(7,223)
(912)
(8,135)
870
6,045
(3,692)
(571)
(912)
870
(2,982)
(2,112)
866
(1,246)
1 Adjusted EBITDA, which is defined as profit before finance costs, tax, depreciation, amortisation, and exceptional items, is a non-GAAP metric used by management and is not an IFRS disclosure.
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Sumo Group plc Annual Report 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2017
30 Pro forma information continued
Cash flow statement
Cash flows from operating activities
Loss before taxation
Adjustments for:
Depreciation
Amortisation of intangible assets
Movement in provisions
Movement in derivative financial instruments
Profit on disposal of property, plant and equipment
Finance costs
Finance income
Changes in working capital:
Decrease in trade and other receivables
Increase in trade and other payables
Cash flows from operating activities
Interest paid
Tax (paid)/recovered1
Net cash inflow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds on sale of property, plant and equipment
Acquisition of subsidiary – net of cash acquired
Net cash outflows on change of ownership
Net cash outflow from investing activities
Cash flows from financing activities
Repayment of borrowings
Proceeds from borrowings
Proceeds from issues of shares
Transaction costs relating to the issue of shares
Payment of loan arrangement fees
Dividends paid
Net cash inflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Foreign exchange
Cash and cash equivalents at end of period
1 The presentation of cash flows relating to VGTC amounts has been restated – refer note 28.
64
Year ended
31 December
2017
£’000
Year ended
31 December
2016
Unaudited
Restated1
£’000
(27,973)
(2,112)
669
27,626
19
–
–
5,381
(3)
5,719
273
3,113
9,105
(5,378)
(475)
3,252
(1,586)
(120)
–
(2,287)
–
(3,993)
(56,718)
–
67,358
(1,940)
–
–
8,700
7,959
4,482
(17)
12,424
571
3,692
13
207
(560)
2,991
(9)
4,793
274
1,224
6,291
(3,031)
67
3,327
(885)
(227)
1,632
–
(43,944)
(43,424)
(15,571)
56,719
397
–
(975)
(404)
40,166
69
4,347
66
4,482
Sumo Group plc Annual Report 2017
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30 Pro forma information continued
Earnings per share
The below presents the earnings per share figures using the post-IPO capital structure. The weighted average number of shares is restricted by the
6,082,069 shares held by the EBT, as these shares are not freely available on the open market.
The earnings have been taken from the pro forma income statement above, and adjusted earnings exclude depreciation and amortisation charges,
exceptional items, and their associated tax effect.
Earnings (£’000)
Earnings for the purposes of basic and diluted earnings per
share being profit for the year attributable to equity shareholders
Number of shares
Weighted average number of shares for the purposes of basic earnings per share
Weighted average dilutive effect of conditional share awards
Weighted average number of shares for the purposes of diluted earnings per share
Loss per Ordinary Share (pence)
Basic loss per Ordinary Share
Diluted loss per Ordinary Share
Adjusted earnings per Ordinary Share (pence)
Basic adjusted earnings per Ordinary Share
Diluted adjusted earnings per Ordinary Share
The calculation of basic and diluted adjusted earnings per share is based on the following data:
Loss for the period attributable to equity shareholders
Add back/(deduct):
Depreciation and amortisation charges
Exceptional items
Tax effect of the above
Adjusted earnings
Year ended
31 December
2017
Unaudited
Year ended
31 December
2016
Unaudited
(23,435)
(1,246)
138,917,931
950,000
138,917,931
950,000
139,867,931
139,867,931
(16.87)
(16.87)
1.85
1.84
(0.90)
(0.90)
2.59
2.58
2017
Unaudited
£’000
2016
Unaudited
£’000
(23,435)
(1,246)
28,295
2,656
(4,943)
2,573
4,263
912
(326)
3,603
The denominators used to calculate both basic and adjusted earnings per share are the same as those shown above for both basic and diluted
earnings per share.
Revenue by category
Development fees
Own IP
Royalties
Total revenue
Year ended
31 December
2017
£’000
Year ended
31 December
2016
Unaudited
£’000
28,439
1,695
478
30,612
23,800
–
306
24,106
The development fees include £2,021,000 (Unaudited pro forma 2016: £3,644,000) of pass-through revenue on which the Group does not charge
a margin.
65
Sumo Group plc Annual Report 2017
COMPANY BALANCE SHEET
as at 31 December 2017
Fixed assets
Investments – shares in subsidiary undertakings
Current assets
Trade and other receivables
Cash and cash equivalents
Current liabilities
Trade and other payables
Net current assets
Total assets less current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium
Retained earnings
Total shareholders’ funds
Note
3
4
5
6
6
2017
£’000
89,932
89,932
29,806
7,117
36,923
(2,267)
34,656
124,588
1,450
36,121
87,017
124,588
The Company loss for the period was £1,850,000.
The Company financial statements on pages 66 to 71 were approved by the Board of Directors on 23 April 2018 and were signed on its behalf by:
Carl Cavers
Director
David Wilton
Director
The notes on pages 68 to 71 form part of these Company financial statements.
66
Sumo Group plc Annual Report 2017
COMPANY STATEMENT OF CHANGES IN EQUITY
for the 42 day period ended 31 December 2017
On incorporation on 20 November 2017
Loss for the period
Total comprehensive expense for the year
Transactions with owners:
Issue of shares
Capital reduction
Issue of shares on IPO
Share issue expenses
Balance at 31 December 2017
The notes on pages 68 to 71 form part of these Company financial statements.
Share
capital
£’000
Share
premium
£’000
–
–
–
1,065
–
385
–
1,450
1,450
–
–
–
88,867
(88,867)
38,061
(1,940)
36,121
36,121
Retained
earnings
£’000
–
(1,850)
(1,850)
–
88,867
–
–
88,867
Total
equity
£’000
–
(1,850)
(1,850)
89,932
–
38,446
(1,940)
126,438
87,017
124,588
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67
Sumo Group plc Annual Report 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2017
1 Basis of preparation and accounting policies
Basis of preparation
Sumo Group plc (‘the Company’) was incorporated and registered in England and Wales on 20 November 2017 as a private company limited
by shares under the Companies Act 2006 with the name Aghoco 1611 Limited and with the registered number 11071913. The Company was
re-registered as a public limited company with the name Sumo Group plc on 14 December 2017. The address of its registered office is
32 Jessops Riverside, Brightside Lane, Sheffield S9 2RX.
The principal activities of Sumo Group plc and its subsidiaries (together the ‘Group’) are that of video games development. The principal activity
of the Company is that of a holding company.
The Company’s shares were admitted to trading on AIM, a market operated by the London Stock Exchange on 21 December 2017. These Group
financial statements are the Company’s first subsequent to its admission to AIM and followed a Group reorganisation to facilitate the IPO.
The Group financial statements have been prepared under the merger method of accounting principles because the transaction under which
the Company became the holding company of Project Republica Topco Limited (‘Topco’), the previous parent undertaking of the Sumo Group,
was a Group reconstruction with no change in the ultimate ownership of the Sumo Group. All the shareholdings in Topco were exchanged via
a share-for-share transfer on 13 December 2017. The Company did not actively trade at that time.
The separate financial statements of the Company have been prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure
Framework’ (‘FRS 101’), on the going concern basis under the historical cost convention, and in accordance with the Companies Act 2006 and
applicable Accounting Standards in the UK. The principal accounting policies, which have been applied consistently to all the years presented,
are set out below.
The following exemptions from the requirements in IFRS have been applied in the preparation of these financial statements, in accordance with
FRS 101:
• The following paragraphs of IAS 1 ‘Presentation of Financial Statements’
– 10(d) (statement of cash flows);
– 16 (statement of compliance with all IFRS);
– 11 (cash flow statement information); and
– 134-136 (capital management disclosures)
• IFRS 7 ‘Financial Instruments: Disclosures’;
• IAS 7 ‘Statement of Cash Flows’;
• IAS 24 (paragraphs 17 and 18a) ‘Related Party Disclosures’ (key management compensation); and
• IAS 24 ‘Related Party Disclosures’ – the requirement to disclose related party transactions between two or more members of a group.
As the Group financial statements include the equivalent disclosures, the Company has taken the exemptions available under FRS 101 in respect
of the following disclosures:
• IFRS 2 ‘Share Based Payments’ in respect of Group settled equity share-based payments; and
• Certain disclosures required by IFRS 13 ‘Fair Value Measurement’ and disclosures required by IFRS 7 ‘Financial Instruments: Disclosures’.
Company profit and loss account
The Company has not presented its own profit and loss account as permitted by Section 408 of the Companies Act 2006. The Company’s loss after
taxation for the year was £1.85m. There are no material differences between the profit after taxation in the current and prior year and its historical
cost equivalent. Accordingly, no note of historical cost profits and losses has been presented.
Dividend distribution
The distribution of a dividend to the Company’s shareholders is recognised as a liability in the Company’s financial statements in the period in which
it is approved by the Company’s shareholders.
Investment in subsidiary undertakings
Investments in Group undertakings are stated at cost, unless their value has been impaired in which case they are valued at the lower of their
realisable value or value in use.
Deferred taxation
Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions
or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.
Deferred tax assets are regarded as recoverable and recognised in the Group financial statements when, on the basis of available evidence, it is more
likely than not that there will be suitable taxable profits from which the future reversal of the timing differences can be deducted. The recoverability
of tax losses is assessed by reference to forecasts which have been prepared and approved by the Board. No timing differences are recognised in
respect of revalued tangible fixed assets or fair value adjustments to acquired tangible fixed assets where there is no commitment to sell the asset.
The deferred tax assets and liabilities are not discounted.
68
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1 Basis of preparation and accounting policies continued
Provisions
Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, it is probable that an
outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future
operating losses.
Share-based payments
In the year ended 31 December 2017, the Company operated an equity-settled share-based payment plan. Equity-settled share-based payments
are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant.
The fair value determined at the grant date of equity-settled share-based payments issued to the Company’s employees is expensed on a straight-
line basis over the vesting period, based on the Company’s estimate of shares that will eventually vest and adjusted for the effect of non-market-
based vesting conditions.
The fair value determined at the grant date of equity-settled share-based payments issued to employees of subsidiary undertakings is recognised
as an addition to the cost of investment in subsidiary undertakings on a straight-line basis over the vesting period, based on the Company’s estimate
of shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions.
Fair value is measured by the use of a Black Scholes model. The expected life used in the model has been adjusted, based on management’s best
estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
Employer social security contributions payable in connection with the grant of share awards are considered an integral part of the grant itself and
the charge is treated as a cash-settled transaction.
Share capital
Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction,
net of tax, from the proceeds of issue.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less.
Financial assets
Classification
The Company classifies its financial assets as loans and receivables. Management determines the classification of its financial assets at
initial recognition.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that arise principally through the provision of services
to clients. They are initially recognised at fair value, and are subsequently stated at amortised cost using the effective interest method. They are
included in current assets, except for maturities greater than 12 months after the end of the reporting period. Loans and receivables comprise
mainly cash and cash equivalents and trade and other receivables, including amounts owed by related entities. Trade and other receivables relate
mainly to the sale of products to trade clients.
Impairment of financial assets
Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty
or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount
of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with
the impaired receivable.
For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within
cost of sales and administrative expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross
carrying value of the asset is written-off against the associated provision.
Financial liabilities
The Company initially recognises its financial liabilities at fair value net of transaction costs where applicable and subsequently they are measured
at amortised cost using the effective interest method. Financial liabilities comprise trade and other payables, amounts owed to Group undertakings,
other liabilities and accruals and deferred income and are initially recognised at transaction price, unless the arrangement constitutes a financing
transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest.
Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers.
Trade payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.
Other liabilities include payments in advance from clients and rebates.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any
difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the
borrowings using the effective interest method.
Critical accounting estimates and judgements
The critical accounting estimates set out in the Group accounts also apply to the Company.
69
Sumo Group plc Annual Report 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2017
2 Remuneration of Directors and auditors
Details of Directors’ remuneration are shown in the Directors’ Remuneration Report on page 29 of the Group financial statements. Details of auditor
remuneration are shown in note 10 of the Group financial statements.
3 Investments in subsidiary undertakings
Cost and carrying amount
On incorporation
Additions
At 31 December 2017
£’000
–
89,932
89,932
On 13 December 2017, the Company acquired 84% of the share capital of Project Republica Topco Limited by way of a share-for-share exchange,
with the issue of 3,900 Ordinary Share of £.000001 nominal value at a premium of £89,931,686.
The Directors believe that the carrying value of the investments is supported by their underlying net assets.
The Company directly or indirectly owns 84% of the issued Ordinary Shares of the following subsidiary undertakings:
Class of share capital held
By Parent Company
By the Group
Nature of business
Proportion held
Project Republica Topco Limited
Project Republica Bidco Limited
Sumo Digital Holdings Limited
Sumo Digital Group Limited
Sumo Digital Entertainment Limited
Sumo Digital Limited
Sumo Digital (Genus) Limited
Sumo Digital (Atlantis) Limited
Cirrus Development Limited
Aghoco 1337 Limited
Mistral Entertainment Limited
Sumo Video Games Private Limited
Riverside Games Limited
Atomhawk Design Limited
Atomhawk Canada Limited
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
84%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Holding company
84%
Holding company
84%
Holding company
84%
Holding company
84%
Holding company
84%
Video game development
84%
Video game development
84%
Video game development
84%
84%
Video game development
84% Employee benefit trust trustee
Video game development
84%
Video game development
84%
Dormant
84%
Visual design
84%
Visual design
84%
An employee benefit trust, Sumo Group plc Employee Benefit Trust, was set up on 13 December 2017. This holds the remaining 16% of the shares
in Project Republica Topco Limited. The shares are subject to put and call options with the shareholders, and as such beneficial control remains
with the Group. On this basis there has been no accounting for non-controlling interest.
All the companies listed above are incorporated in England and Wales, and have a registered address of 32 Jessops Riverside, Brightside Lane,
Sheffield, S9 2RX, with the following exceptions:
Company
Country of incorporation
Address
Sumo Video Games Private Limited
Atomhawk Design Limited
Atomhawk Canada Limited
India
UK
Canada
MCCIA Trade Tower, B Building,
205-206, Senapati Bapat Rd, Chattushringi,
Gokhalenagar, Pune, Maharashtra 411016
Northern Design Centre Abbott’s Hill,
Baltic Business Quarter, Gateshead,
Tyne and Wear, NE8 3DF
8th Floor, 543 Granville Street,
Vancouver, British Colombia, V6C 1X8
70
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4 Trade and other receivables
Amounts owed by Group undertakings
Prepayments and accrued income
All of the amounts owed by Group undertakings shown above are repayable on demand.
5 Creditors: amounts falling due within one year
Trade payables
Amounts owed to related entities
Accruals and deferred income
2017
£’000
29,756
50
29,806
2017
£’000
815
633
819
2,267
The Company is party to a Group banking arrangement, which is a £13,000,000 revolving credit facility.
6 Share capital
Details of movements in shares are set out in note 24 to the Group financial statements.
7 Related party transactions
The Company has taken advantage of the exemption included in IAS 24 ‘Related Party Disclosures’ to not disclose details of transactions with
Group undertakings, on the grounds that it is the parent company of a Group whose accounts are publicly available.
Directors’ transactions
Details of the Directors’ interests in the Ordinary Share capital of the Company are provided in the Directors’ Report.
8 Share-based payments
The Performance Share Plan (the ‘LTIP’)
The Company operates a performance share plan for senior executives, further details of which can be found in the Directors’ Remuneration Report
in the Group financial statements.
Under the LTIP, the Company has made awards of conditional shares to certain Directors and employees, details of which can be found in note 20
of the Group financial statements.
The Company recognised total expenses of £nil in respect of the LTIP’s equity-settled share-based payment transactions in the year ended
31 December 2017.
9 Contingent liabilities
The Company is party to a Group Revolving Credit Facility with Clydesdale Bank plc of up to £13,000,000 together with certain subsidiary companies.
The amounts drawn down at 31 December 2017 were £nil.
10 Post balance sheet events
On 1 January 2018, the Company, through its wholly-owned subsidiary Sumo Digital Limited took on the Newcastle studio of CCP Games under
an asset purchase agreement for nominal consideration. All 34 staff working at the studio became employees of the Group and the lease for the
property in which the studio was located was assigned to Sumo Digital Limited.
71
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FINANCIAL CALENDAR
Financial year end
Preliminary announcement of full-year results
Publication of Annual Report and Accounts
Annual General Meeting
Preliminary announcement of half-year results
Publication of Interim Report
Financial year end
Preliminary announcement of full-year results
Publication of Annual Report and Accounts
31 December 2017
24 April 2018
May 2018
27 June 2018
Late September 2018
Mid October 2018
31 December 2018
April 2019
May 2019
72
Sumo Group plc Annual Report 2017
COMPANY INFORMATION
Registrars
Link Market Services Limited
The Registry 34
Beckenham Road
Beckenham
Kent BR3 4TU
Independent auditor
Grant Thornton UK LLP
2 Broadfield Court
Sheffield
S8 0XF
Principal bankers
Clydesdale Bank PLC
94-96 Briggate
Leeds
LS1 6NP
Nominated advisor and broker
Zeus Capital Limited
82 King Street
Manchester
M2 4WQ
Solicitors
Addleshaw Goddard LLP
One St Peter’s Square
Manchester
M2 3DE
Sheridans
76 Wardour Street
London
W1F 0UR
Financial PR
Belvedere Communications Limited
Enterprise House
1-2 Hatfields
London
SE1 9PG
Registered office
Sumo Group plc
Unit 32
Jessops Riverside
Brightside Lane
Sheffield
S9 2RX
Registered number: 11071913
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Design and Production
www.carrkamasa.co.uk
This report is printed on Galerie Satin which is manufactured from pulp from
sustainable mixed sources. The manufacturing mill is FSC accredited.
The printing factory uses vegetable based inks and is also FSC accredited.
Registered Office
Unit 32 Jessops Riverside
Brightside Lane
Sheffield S9 2RX
www.sumogroupplc.com