Sumo Group Annual Report & Accounts 2020 Sumo Report & Accounts Annual Group sumogroupplc.com Annual Report & Accounts 2020 We are one of the UK’s largest providers of end-to-end creative development and co-development services to the video games and entertainment industries. We make highly innovative games for the most prestigious publishers in the world, with an increasing number of titles based on original concepts developed by Sumo. Strategic Report Governance Financial Statements At a Glance 2 Introduction to Governance 45 Independent Auditor’s report 68 Chairman’s Statement 4 Corporate Governance 46 Consolidated Income Statement 76 Business Model 6 Board of Directors 50 Consolidated Statement of Our Businesses 14 Operating Board 52 Comprehensive Income 77 Our Markets 20 Audit and Risk Committee Report 54 Consolidated Balance Sheet 78 Our Strategy 22 Directors’ Remuneration Report 56 Consolidated Statement of Chief Executive’s review 23 Directors’ Report 64 Changes in Equity 79 Group Financial Review 29 Statement of Directors’ Consolidated Cash Flow Section 172 Statement 34 Responsibilities 66 Statement 80 Environmental, Social Notes to the Group Financial and Governance 38 Statements 81 Energy and Carbon Report 40 Parent Company Balance Sheet 114 Risks & Uncertainties 41 Parent Company Statement of Changes in Equity 115 Notes to the Parent Company Financial Statements 116 Financial Calendar and Company Information 119-120 Designed and printed by Perivan STRATEGICSTRATEGIC REPORTREPORT Highlights Our vision Achieving wonder together. Revenue £68.9m 2019: £49.0m +40.7% Gross profit Our mission £31.5m 2019: £23.9m Grow a sustainable business, providing security to our +31.5% people and shareholders, whilst delivering a first-class experience to our partners and players. Adjusted EBITDA1 £16.5m 2019: £14.1m Revenue Streams +17.1% We distinguish between revenue generated from work on Client-IP and that generated through work on Own-IP. Gross margin £16,364 £12,206 45.7% 2019: 48.9% Adjusted gross margin2 2019 2020 £,000 £,000 41.8% 2019: 44.8% £32,624 £56,742 Net cash Total Own IP Total Client IP £6.8m 2019: £12.9m 1 Adjusted EBITDA is a non-GAAP metric used by management and is not an IFRS disclosure. It is defined as statutory operating Contracted or near profit adding back amortisation, depreciation, share-based payment charge, investment in co-funded games expensed, 3 exceptional items, the fair value loss on contingent consideration less the operating lease costs capitalised under IFRS 16 and contracted revenue foreign currency derivative contracts. 2 Adjusted gross margin is a non-GAAP metric used by management and is not an IFRS disclosure. It is stated after adding back to gross profit the investment in co-funded games expensed and, for Sumo Digital, adding to revenue amounts in respect of Video Games Tax Relief (“VGTR”) and with no adjustment to either revenue or gross profit in respect of royalty income. It should 85% 50% be noted the definition of adjusted gross margin has changed this year following the acquisition of Pipeworks. Sumo Digital Pipeworks 3 Revenue is referred to as near contracted when management has a high degree of confidence in a project’s size, scope and timing. Typically, this would be when the key commercial terms have been agreed in principle and reflected in a draft contract which has undergone a legal review and does not contain any terms that are unacceptable to the Company. Sumo Group plc Annual Report & Accounts 2020 1 STRATEGIC REPORT At a glance Two BAFTAs won for Sackboy, A Big Adventure, best British game and Rapid growth best family game, in March 2021 continued in 2020 It’s been an incredibly busy year for the Group, with 12 games announced or launched in the year, including five Own-IP titles: Spyder, Little Orpheus, WST Snooker, Hood and Pass the Punch, which is an incredible achievement during a global pandemic. Our Clients and Partners We have developed deep relationships with some of the world’s largest computer games publishers, developers, platform manufacturers and entertainment brands including: 2020 in review 766 Headcount 10 Studios 3 Countries Jan Feb Mar Apr May Jun Jenny Muhlwa Sumo Successful Acquisition of appointed to Sumo Warrington transition to Lab42 Group as Learning moves into new work from and Development Studio home Manager Dr Jake Habgood Co-founder appointed to Sumo Darren Mills Group as Director becomes Director of Education of Excellence and Partnerships Integration, Sumo Group 2 Sumo Group plc Annual Report & Accounts 2020 STRATEGIC REPORT Revenue CAGR >34% since 2017 Adjusted EBITDA >25% CAGR since 2017 >34% Revenue CAGR Organic revenue Sumo Group Since the IPO 24% growth 2019 to 2020 since 2017 1043 >25% Adjusted EBITDA CAGR since 2017 Total heads 766 869 Direct heads Number 24% Organic revenue of people 592 634 68.9 growth 2019 to 489 2020L 488 49.0 415 38.7 Revenue 28.6 (in £m) 14.1 16.5 8.4 10.2 Adjusted EBITDA (in £m) December 2017 December 2018 December 2019 December 2020 Year end studios: 57 10 12 13 (March 2021) Acquisitions: 1,043 Headcount 12 Studios 4 Countries Jul Aug Sep Oct Nov Dec Acquisition of US West Coast based Pipeworks launched Director of Publishing appointed Sumo Group plc Annual Report & Accounts 2020 3 STRATEGIC REPORT Chairman’s statement Building a Global Business In my statement last year, I referred and encouraging those suffering As our financial results show, 2020 was to the uncertainty caused by the mental health challenges to access the another year of significant growth for COVID-19 pandemic, not anticipating internal or external assistance offered. Sumo Group. Sumo Digital ended the that this would persist into 2021. We also worked hard to maintain some year with eight studios in the UK and The fact that I am able to report of our annual social events, hosting one in India, adding a new studio in the such a strong set of results, which virtual summer and Christmas parties. talent hot-spot of Poland in January outperformed market expectations, 2021, with the acquisition of PixelAnt Talent is the Group’s most important and introduce this statement so Games. Atomhawk also expanded asset and key to our growth plans. positively, is a testament to the during the year, adding to its teams The high value we place on our people people who make up Sumo Group. It in the UK and Canada. In October, we has been demonstrated this year is their dedication, creativity and skill were delighted to welcome Oregon- not only by the Group’s response to that have made this possible and I am based studio, Pipeworks Inc, to the COVID-19 but also by a major review very proud of each and every one. Sumo family. I am pleased to report of our employee benefits package. that, despite recruitment challenges Aside from very small numbers of team Our aim is to ensure that Sumo’s offer imposed by the COVID-19 restrictions, members working in our studios in is at least as good as any offered the Group ended the year with over COVID-secure bubbles, where essential, elsewhere in the industry, and that it 1,000 colleagues. we continued to work from home provides flexibility, enabling our people throughout the year. Our IT colleagues to choose the benefits that are most The Group delivered an excellent responded brilliantly to enable this, and important to them and their families. financial performance, both in terms of our teams diligently and successfully This new flexible package will be fully its profitability and liquidity, continuing continued to deliver the high-quality implemented during 2021. to operate successfully throughout services our clients expect, and to the year without accessing emergency We were absolutely delighted to be create and launch wonderful Own- Government funding or the need to awarded 3 Star Accreditation in the Best IP games. The games we create are furlough any of our people. Companies Survey in February 2021, winning some outstanding awards. In up from 1 Star in 2020. This amazing While continuing to make innovative particular, Sackboy A Big Adventure achievement reflects our commitment games for the most prestigious winning two BAFTAs earlier this month to listening to our people and reacting publishers in the world, we have an with two further nominations was to their feedback, particularly important increasing number of titles based on our a tremendous endorsement of our during a lengthy period of working from original Own-IP concepts. Spyder and creative talent and recognition for our home, ensuring that Sumo is known Little Orpheus were both launched on great people. across the industry as a great place to Apple Arcade during the year, receiving The Group has done everything in its work. We will not rest on our laurels, extremely positive reviews and winning power to support our people in these however. We will work hard to improve a number of awards. We intend to build unusual circumstances, providing further and to cement our reputation in on these successes and to capitalise suitable office equipment to their the talent market, which is so crucial to further on the opportunities generated homes; delivering care packages; our success. by our highly creative people. 4 Sumo Group plc Annual Report & Accounts 2020 STRATEGIC REPORT Why Invest? What we offer Growth potential The video games market is vast and fast growing with ever-increasing demand for new content. $175 bn value of the global market4 2.7bn gamers worldwide Capabilities and scale Our competitive advantage lies in our scale, management systems, technology and our On 11 March 2021, we launched I would like to thank all of my Board ability to attract the best creative talent.