Positive start to the year for Sumo Group despite outbreak

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Sumo Group, the Sheffield-headquartered video games specialist, has seen its revenues rise as it outlines the effects of the Covid-19 outbreak and its response.

For the financial year 2018, the Group posted a 26.6% rise in revenue from £38.7 million to £49 million. Adjusted EBITDA meanwhile, was “slightly ahead of expectations” at £14.1 million, up 37.5% from £10.2 million.

The firm noted that it has witnessed a positive start to the new financial year ending 31 December 2020, and already has a high degree of earnings visibility on contracted or near contracted revenue of approximately 71%.

In a trading update, the Group said: “Our teams are currently working on 21 projects with 12 different clients, of which seven games or publisher partnerships have been announced.

“We are now facing the unprecedented challenge of dealing with the COVID-19 pandemic, the scale and nature of which is constantly changing and, as yet, we have no clear visibility of its likely duration.

“Sumo Group is a people business and our absolute priority is to safeguard, where possible, the well-being of our people, their families and our other stakeholders. Accordingly, we are following UK, Indian and Canadian Governments’ advice and communicating regularly with all our people.

“Over the last few weeks and in close co-operation with our clients and with their consent, we have moved to working from home across the Group. Whilst there has been some disruption and loss of efficiency, as project teams were migrated away from our ten studios to remote Cloud based working from home, early indications are encouraging.

“We expect a manageable level of disruption and loss of efficiency to continue, as we re-calibrate our project management controls and internal management systems.

“Paradoxically, the Covid-19 pandemic is expected to increase global video games software revenues, as people staying at home play more games. As such, it is reasonable to expect some improvement in royalty income on games already published and which have increased sales or usage with the current restrictions on movement in many countries. The quantum of such improvement is not yet clear.

“Prior to Covid-19 being classified as a pandemic and with strong visibility on development fees, we were confidently on track to deliver further double-digit growth in 2020. While the Group is liquid and our relatively low risk business model provides a good foundation to withstand the challenges presented by the pandemic, it is too early to quantify the likely financial impact with any degree of certainty.

“Our exposure is primarily on the supply side with some potential loss of efficiency during the unprecedented restrictions delaying milestone payments, although the Group is taking all steps possible to mitigate and limit this risk. We are also seeing a slow-down in our new talent recruitment rate, which we expect to continue for the foreseeable future. This is likely to be partially offset by lower attrition rates.”

Carl Cavers, CEO of Sumo Group, said: “Our people are adapting well to home working and we have a strong and resilient business with £23.6m cash and a relatively low risk business model.

“Demand for great video games content is forecast to grow and may even strengthen as a result of the ‘stay at home’ measures taken to protect our health through the Covid-19 pandemic.

“As such, we are confident in our strategy and ability to continue generating strong returns for our stakeholders in the longer term. We are grateful to our team for their resilience, our clients for their support and our investors for their forbearance.”