Digital sales boost games developer’s bottom line

Warwickshire-based Codemasters, which develops the official range of Formula One games, has reported a strong half year performance as it said the shift to digital sales is expected to continue, further increasing gross margins.

The company, which floated on London Stock Exchange’s junior market last May with a valuation of £280m, reported revenues of £39.8m for the six months to the end of September (H1 2020) with one game release in the period compared to £39.7m with two game releases in H1 2019.

Codemasters reported an increased gross margin of 89.0% in H1 2020 (H1 2019: 88.5%), underpinned by continued digital sales growth, now representing 61.7% of total revenue in H1 2020 (H1 2019: 53.4%).

Adjusted EBITDA came in at £9.4m in H1 2020, (H1 2019: £10.0m), with the variance with comparative period reflecting timing of games releases.

The business reported operating profit of £12m in H1 2020, compared to an operating loss of £3m in the prior year period, saying the significant increase was driven by underlying trading, £11m of capitalisation/amortisation variances (mostly timing related) and £5.1m less share-based payments charges when compared with H1 2019.

The group has extended its exclusive license agreement with Formula One until December 2025, representing the longest single license extension between the parties since the partnership began in 2009.

Frank Sagnier, CEO of Codemasters, said: “I am delighted to be able to report strong half year results which are in line with expectations. The ongoing shift to digital delivery is helping both our margin and bottom line performance, a trend that we expect to continue. With only one new release in H1 2020 we have marginally exceeded the revenue generated in H1 2019 where two games were released, thanks to a successful F1 2019, the delivery of a significant GaaS programme for DiRT Rally 2.0 and strong sales from our digital back catalogue.   The success of F1 2019 has come from a much earlier release in the season to benefit from the major European Grands Prix including those in our two biggest sales territories, combined with our strongest ever feature set and the inclusion of the game’s first deluxe edition.

“The extension to our F1 contract, which runs until 2025 with a further two-year option based on meeting performance KPI, underlines the strength of our relationship with the world’s most successful motorsport, and provides further evidence of our consistent ability to deliver the highest quality AAA rated games. We are also excited by the recent launch of GRID® which appears for the first time on the current generation of PlayStation and Xbox consoles alongside PC – and also as a select list of titles currently available on Google Stadia following its launch in November 2019.

“The drivers within our industry remain strong and we expect the continuing shift into digital distribution, the launch of streaming platforms, next generation consoles, the emergence of esports and our Netease mobile partnership to continue to provide further opportunities for Codemasters going forward. The early results from our GaaS investment in DiRT Rally 2.0 demonstrates that there is still significant headroom for growth across our entire portfolio. As a result of these factors we remain confident for the year ahead and beyond.”