Team17 Regulatory News (TM17)

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 

596/2014. Upon the publication of this announcement, this information is now considered to be in the public domain. 

16 April 2024 

Team17 Group plc 

("Team17", the "Group" or the "Company") 

Unaudited Final Results for the year ended 31 December 2023 

· Delivered a solid revenue performance in FY 2023

· Strong balance sheet and renewed rigour around cost controls and working practices

· Games pipeline and lifecycle management will deliver continued growth in FY 2024

Team17 Group plc, a leading global independent ("Indie") games label developer and publisher of premium video games and apps, is pleased to announce its unaudited final results for the year ended 31 December 2023 ("FY 2023"). 

Financial summary: 

*Adjusted EBITDA excluding title impairments was £41.0 million (FY 2022: £48.8 million) 

· The review of the carrying value of intangible assets resulted in one-off non-cash charges of £11.1 million relating to games title impairments and a £20.9 million goodwill impairment charge relating to the acquisition of The Label Inc.

Operational summary: 

· Revenues grew 12% to £159.1 million (FY 2022: £142.3 million) with 17 new games and apps released in the period (FY 2022: 12) alongside 6 existing games released on additional platforms (FY 2022: 6).

· Revenues from the back catalogue grew 10%, accounting for 71% of Group revenues (FY 2022: 73%), while the Group's first-party IP represented 35% of total revenues (FY 2022: 40%).

· Games Label showed revenue growth of 12%, launching 11 new games (FY 2022: 11) including the multi award-winning 2023 game Dredge, which has sold over one million units, along with Blasphemous 2, Headbangers: Rhythm Royale, Killer Frequency, Moving Out 2 and Trepang 2. In addition, five existing titles were released on new platforms. Games Label's content portfolio now comprises over 900 digital revenue lines (FY 2022: over 700 digital revenue lines).

· astragon delivered revenue growth of 5%, launching 3 new games (FY 2022: 3) - Tram Sim, ABRISS and Howl - as well as 1 additional existing first-party IP game released on additional platforms and 16 paid DLCs3 across its existing IP. It completed the acquisition of Independent Arts Software GmbH ("IAS") in April 2023, expanding the working simulation development team to accelerate the creation and launch of a new first-party IP game.

· StoryToys posted revenue growth of 26%. It developed and launched 3 new apps, including BarbieTM Color Creations, LEGO® DUPLO® DISNEY - MICKEY AND FRIENDS and Marvel HQ and 327 apps updates across its existing titles (FY 2022: 216). Active subscribers continue to grow and now exceed 320,000 (FY 2022: over 300,000).

· FY 2023 was a strong year for gaming awards across the Group, with multiple awards for Dredge (including Best Indie Game - IGN & Windows Central, Best Setting - PC Gamer) and Blasphemous 2 (including Best Game - IndieDevDay2023, Best Game Rising Star Award - TGBUS), with Moving Out 2 winning Best Strategy Game (Playstation Universe) and LEGO® DUPLO® DISNEY (Google Play Best of 2023, Best for Families, Honourable Mention).

· A thorough review of the Games Label strategic direction (now re-focussed on its core Indie games roots), cost base structure and processes was completed in the last quarter of FY 2023.

· Headcount reduced to 348 as of 31 December 2023 (as at 31 December 2022: 392), reflecting the impact of the Games Label restructuring review and increased utilisation of an outsourced studio resourcing model.

· Continued to strengthen the Board and leadership team, bringing in operational depth and video gaming experience. Frank Sagnier joined the Board as Chair, with Debbie Bestwick moving to a Non-Executive Director role, also joined by Peter Whiting. Steve Bell joined as Group Chief Executive Officer. Other additions include a Group People & Culture Director and Group Investor Relations Director.

Outlook: 

· The Group has made a pleasing start to FY 2024, although we remain mindful of the challenging competitive landscape, the ongoing cost of living pressures affecting discretionary spending and geopolitical uncertainty weighing on global markets more broadly.

· We have a solid pipeline of at least 10 new games and apps expected to launch in FY 2024 (skewed to third-party IP) and beyond, and we will continue to use our exceptional lifecycle management capabilities to drive sales growth across our back catalogue.

· Following the restructuring of Games Label, including its strategic refocus on Indie titles and the impairment of the development costs of certain titles, we enter FY 2024 on a more appropriate cost base with stricter cost controls in place.

· In addition, an action plan is in place to accelerate revenue and profit growth, which includes increasing the proportion of revenues from first-party IP over time, sharpening our greenlight process, more innovative marketing and publishing models, while pursuing an active M&A agenda.

· We remain confident that the Group can deliver an improved underlying trading performance in FY 2024, in line with current market expectations, and remains well positioned for continued growth over the mid to long term.

Steve Bell, Chief Executive Officer of Team17, commented: 

"While 2023 presented some challenges for the Games Label, the speed and tenacity with which the teams have responded has demonstrated the exceptional talent we have at Team17.

"The Games Label is now realigned to its proven low-risk Indie model, tighter cost controls have been enforced and one-off actions taken to clean up the balance sheet.

"We are back on form in 2024, with a solid slate of games and apps, our exceptional back catalogue and a clear plan for growth across the Games Label, astragon and StoryToys. The year has started well." 

Footnotes: 

1 A full description of Alternative Performance Measures, the rationale for their use, and reconciliation between adjusted and reported statutory measures can be found within the Chief Financial Officer's Report.

Adjusted profit before tax excludes acquisition-related costs and adjustments, amortisation and impairment of acquired intangible assets, share-based compensation and one-off Games Label restructuring costs from the statutory measure whilst adding back development cost amortisation eliminated through acquisition fair value adjustments.

Adjusted profit after tax excludes the same items as adjusted profit before tax removing corporation tax net of any tax effects on these items.

Adjusted EBITDA can be calculated from adjusted profit after tax by adding back all remaining finance income and costs, tax, depreciation, amortisation and impairment except for those on development costs.

The calculation of adjusted earnings per share is based on the adjusted profit after tax divided by the weighted average number of shares (either basic or diluted).

2Operating cash conversion is defined as cash generated from operating activities adjusted to add back payments made to satisfy pre-acquisition liabilities recognised under IFRS 3 "Business Combinations" divided by earnings before interest, tax, depreciation and amortisation ("EBITDA"). 

3Downloadable content. 

Analyst and institutional investor webcast 

A presentation for analysts will be held on Tuesday, 16 April 2024 at 08.30 BST. The event will also be webcast. To register for this event and join the stream on the day, please click the following link: 

https://brrmedia.news/TM17_FY  

Retail investor webcast 

A webcast for retail investors will be held on Friday 19 April at 1.00 p.m. BST. The presentation will be hosted on the Investor Meet Company platform. Questions can be submitted pre-event via the Investor Meet Company dashboard up until 9.00 a.m. the day before the meeting or at any time during the live presentation.

Investors can sign up for free and add to meet Team17 via: https://www.investormeetcompany.com/team17-group-plc/register-investor

Enquiries:

About Team17

Team17 Group plc is a leading global developer and publisher of video games entertainment to a broad audience. The Group includes a games entertainment label and creative partner for Indie developers, a developer of educational apps appealing to children under the age of eight, and a working simulation games developer and publisher.

Visit www.team17.com for more info. 

Chair's Statement

I have been involved in the games industry for over 25 years and have long admired the Team17 Group as a business, as well as the passion and dedication of the team behind the name. When the opportunity arose to join the Group as Chair, I was delighted to accept and to support on the next phase of its growth.

The Group has an enviable track record of discovering innovative new games, bringing them to market, and nurturing many of them into enduring, quality franchises. As a leading Indie games developer and publisher, the Group has built a solid foundation for the business to scale upon. I am excited to be part of this journey going forward.

I would like to personally thank Chris Bell for his significant contribution to the Group throughout his tenure as Chair. Chris joined the business pre-IPO to provide guidance and insight during the process of transitioning from a private to public business, which has been invaluable. I have had the pleasure of working with Chris as we undertook a thorough handover, and I wish him every success with his future endeavours.

In the year ended 31 December 2023, the Group generated revenues of £159.1 million (FY 2022: £142.3 million), gross profit of £57.5 million (FY 2022: £69.6 million) and adjusted EBITDA of £29.9 million (FY 2022: £48.8 million). Despite our strong revenue performance, we are disappointed to deliver this level of adjusted EBITDA alongside a reported statutory loss, both of which were significantly impacted by one off non-cash impairment charges. More detail is provided later in the Chief Financial Officer's review. We feel these results fall short of our own expectations and do not reflect the potential of the Group. We have proactively sought to realign our underlying cost base and development costs to support an improvement in the future underlying trading performance of the Group.

The Group continues to boast a strong balance sheet, with £42.8 million of cash and cash equivalents at 31 December 2023 (FY 2022: £50.8 million). The senior team is firmly focused on ensuring the Group's cash position is leveraged effectively to expand the business' existing operational capabilities and support enhanced revenue generation across the Group. The performance of astragon and StoryToys highlights the importance of quality M&A as a pillar in the Group's strategy to complement the existing business as and when compelling opportunities arise.

The Group has created a uniquely diversified portfolio of games and IP over the last 30 years, which reaches and engages with a growing global audience. The team has successfully expanded its footprint through a number of highly targeted acquisitions, which further strengthened its commercial position. These acquisitions are delivering new customer segments and gaming genres, alongside providing a reliable contribution to Group revenues. In addition, the Group has also grown its back catalogue, which represents 71% of total Group revenues, demonstrating its ability to successfully manage product lifecycle.

More people than ever are playing games, with 3.3 billion1 gamers in 2023 rising to an estimated 3.8 billion by 2026, supporting a global games market generating revenues of $184 billion1 in 2023 expected to rise to $205 billion1 by 2026. This growth is underpinned by increasing demand for interactive entertainment, advancements in technology, growth in new geographies, expanding demographics, and the rise of new gaming platforms and business models.

1 https://newzoo.com/resources/blog/explore-the-global-games-market-in-2023

At the same time, the number of games coming to the market is currently growing at a faster rate than revenues, and the quality of the top games is getting higher. Competition for gamers' time and disposable income is intense, and the current headwinds from the cost of living crisis clearly remain an obstacle.

In a market where launching new IP is challenging, the Group is, more than ever, the partner of choice thanks to its experience, know-how and proven track record of working alongside independent developers to create long-running, successful projects and franchises. There are plenty of talented developers who will look for a trusted partner for their games. Major releases such as Hell Let Loose (full release launched at the end of FY 2021), Blasphemous 2 and Dredge (both launched in FY 2023) are just a few examples of successes we have brought to market.

From game design to production processes and technology, we assist talented developers in optimising their game's quality while providing the full suite of publishing services and leveraging our extensive relationships in the global gaming eco-system to maximise success.

Last year saw quite a few changes at the Group, and we entered 2024 with several new team members ready to support the business on its next stage of growth. During 2023, Chris Bell, Martin Hellawell and Jennifer Lawrence stepped down from the Board. Debbie Bestwick also stepped down as CEO of the business and has transitioned to a Non-Executive Director role. As founder and former CEO, as well as the biggest shareholder, Debbie will continue to help guide the business, albeit on a more strategic level. Chris, Martin and Jennifer worked alongside Debbie during the period after the Group's IPO, and the Group would not be where it is today without their valuable insights and contributions.

The renewed Board will bring deeper insights and knowledge from their games industry experience, guiding management to scale the business and build on the strong foundations in place.

We have proven talent across the senior management team, and I look forward in particular to working alongside our Group CEO Steve Bell, an entrepreneur with a proven pedigree for scaling and managing businesses. With Steve - and supported by our outstanding divisional leaders - I believe the team is well positioned to guide the Group forwards, to maximise our growth potential. I have been particularly impressed with the thoroughness and rigour demonstrated by the senior management team and am confident with the strategic plans that have been put together for FY 2024 and beyond.

Following Michael Pattison's departure as CEO of our Games Label, Ann Hurley, a highly experienced games industry veteran, has been overseeing the division on an interim basis. Following the review of a range of potential candidates by a global search agency, Ann has formally been confirmed as General Manager for the Games Label on a permanent basis with immediate effect. In her role she will continue to lead the great team we have in place to deliver on our near-term release roadmap.

Publishing games remains a highly competitive and complex process. Today's market is now highly challenging, with consumers splitting their time between gaming and other entertainment activities, alongside the pressures created by the ongoing cost of living crisis reducing historic levels of discretionary spending. Set against this backdrop, the Group's track record of successfully bringing products to market should ensure it remains well positioned to continue to gain market share over the coming years.

We look forward to driving and scaling the business in the medium term through both organic growth and, where appropriate, selective, value-accretive acquisitions.

Frank Sagnier

Chair

Group Chief Executive Officer's Review

Introduction

I was excited to join Team17 Group plc as the Group's Chief Executive Officer designate in September 2023, and since my arrival I have been hugely impressed by the talent and enthusiasm that defines our team. We are proudly committed to producing market leading, engaging, high-quality Indie games, working simulation experiences and edutainment apps that appeal to a broad demographic across multiple genres. The shared drive of our people to deliver this has been evident to me from the very outset of my time at the Group. 

The market backdrop this year has been immensely challenging, with exceptional competition in the sector throughout the year. In this context, we delivered a strong revenue performance with Group revenues of £159.1 million (FY 2022: £142.3 million).

Profits came in below our initial expectations, with gross profit of £57.5 million (FY 2022: £69.5 million), and adjusted EBITDA of £29.9 million (FY 2022: £48.8 million), driven by certain games within the Games Label not meeting internal expectations. The outcome also reflects the result of the review of the carrying value of intangible assets which led to an impairment charge on some launched games and on some games currently under development. Reported profit before tax was significantly impacted by one off non-cash impairment charges which resulted in a reported loss of £1.1 million (FY 2022: £28.7 million profit). More detail is provided later in the Chief Financial Officer's review.

In the second half of the year, we undertook a comprehensive review of our cost base within the Games Label, which was completed in November 2023. Whilst this unfortunately resulted in redundancies, we believe our cost base is now aligned to our core Indie strategy, and the business is now even better placed to capitalise on future opportunities while continuing to optimise our existing pipeline.

The Group retains a strong balance sheet, with £42.8 million of cash and cash equivalents at 31 December 2023 (FY 2022: £50.8 million).

The senior team is firmly focused on effectively leveraging the business' operational capabilities to support enhanced revenue generation across the Group. The successful addition of astragon and StoryToys to the Group, highlights the importance of identifying quality acquisitions that complement the existing business as and when compelling opportunities arise.

As at 31 December 2023, the Group had 348 employees (FY 2022: 392), spread across 8 locations in 5 countries. Over the course of FY 2023, we invested in our senior leadership team, including the recruitment of a Group People & Culture Director and Group Investor Relations Director, and now benefit from a strengthened divisional management structure to support all team members across all locations.  

Operational review 

The Games Label launched 11 new games in the period, including the hugely successful Dredge, which has sold over one million copies to date and has received high praise from critics and players alike. More generally, the average review score on Steam for our 5 bestselling new releases during FY 2023 was 91%. Other major releases included Moving Out 2, Blasphemous 2, Killer Frequency, Trepang 2, Gord and Headbangers - Rhythm Royale, along with additional content for games including Golf With Your Friends. The Games Label also released multiple content updates for its existing portfolio, demonstrating the strength of its back catalogue and the focus of the team on maximising the lifecycle of games within the portfolio.

StoryToys' content portfolio continued to expand this year, with the launch of new apps, such as Marvel HQ in May and BarbieTM Color Creations in July, and a further 327 app updates across nine apps, including Iron Man Target Game, which was added to the Marvel HQ app in October. Additionally, we have increased the number of platforms on which our products are available, with users now able to access BarbieTM Color Creations and Lego® Duplo® World via Apple Arcade. StoryToys strengthened its licensing partnerships with leading, international brands in the period, notably adding Mattel to its existing roster, which to date includes: The LEGO Group, Disney, Pixar, Marvel Entertainment, Penguin Books, and Dick Bruna. These partnerships are a testament to StoryToys' strong track record and growing reputation as an established, reliable partner for international companies looking to expand their trusted and iconic brands into the edutainment space.

astragon's working simulation games continued to perform strongly in FY 2023, driven by the launch of additional content across numerous games, including Police Simulator - Crime Scene Update and Firefighting Simulator - The Squad. In addition, ABRISS - Build to Destroy, an atmospheric physics-destruction building game developed by Randwerk Games and published by astragon, was launched across all platforms in FY 2023, receiving positive user reviews as well as critical acclaim, having been awarded the title of Best Graphic Design at the German Computer Game Awards. FY 2023 also saw the successful introduction of season passes, 16 paid DLCs across first-party IP games and the introduction of five new brand licenses.

3 of the top 5 game revenues across the Group come from first-party IP games and within the top 10 selling games there is a spread of games from each division with 5 from Games Label- 3 from astragon and 3 from StoryToys, demonstrating the breadth of the portfolio across the Group. The top ten selling games represent 60% of total revenues in FY 2023, which compares with 65% in FY 2022.

The Team

The quality of our games is testament to the exceptional talent and depth of experience across our business. The team's unwavering dedication and technical prowess are essential to developing games that immerse and captivate their audiences. I have particular respect and understanding for the creative process, gained from my own experience working for over 25 years across the branding and digital marketing arena, which has enabled an instant connection to the team. I have been extremely impressed by their ability to craft compelling narratives and to design captivating user journeys that are both seamless and intricately detailed. Each game and content release showcases the immense passion of those in the Group and their commitment to continually enhance the games within our broader portfolio.

The Group benefits enormously from its dedicated divisional leaders - Ann, Emmet, Tim and Julia - who, along with their senior leadership teams, bring well over 200 years of specialised sector and market expertise as well as industry relationships. This is crucial in identifying key trends in their respective market segments, and in delivering unique and captivating content to their distinct target audiences, from multi-genre Indie games in the Games Label, to working simulation experiences in astragon, and children's edutainment apps in StoryToys. This agility in the face of rapidly evolving market dynamics ensures the Group is able to capitalise on new opportunities and stay ahead of the curve when it comes to producing innovative, exciting content for our diverse customer base.

Our leadership team will also benefit from the valuable industry experience offered from our new Board members, especially our Chair, Frank Sagnier, and from the strategic rigour and gaming knowledge Debbie Bestwick will provide in her new role as a Non-Executive Director.

2023 was one of the most competitive and challenging years seen in the games industry in terms of high-quality launches and aggressive product discounting, set against the well documented cost of living crisis. Like its peers in the sector, the Games Label felt the pressure associated with these challenges acutely. Combining the external market conditions with an internal strategic review, the Group made the difficult decision to initiate a reorganisation of the division in October, resulting in a reduction in headcount. Management is confident that the business' cost base is now aligned with the Group's long-term focus, enabling it to better leverage both fixed and flexible resources and invest in the games and teams of the future.

At a broader, Group level, the business remains cognisant of the inherently higher attrition levels observed across the games industry, and the detrimental impact this can have on preserving the quality and drive of our teams if not managed proactively. To this end, we continue to implement internal programmes and processes to ensure high retention levels and a positive working environment for our people. 

Strong communication is integral to the culture within the Group, both in terms of employee engagement but critically in terms of superior market execution. We are committed to keeping pace with changing expectations within workplaces to facilitate a range of office, home-based, and hybrid working, and support multiple flexible working arrangements for our people. However, we have implemented various initiatives to preserve a collaborative, collegiate environment amongst our teams. We have regular town hall meetings - online and in-person events for both team members and their families - and multiple social groups that are all supported by management. In addition, our employee-led environmental groups, including Green17 in the UK, continue to raise awareness and drive the Group's ESG strategy.

Strategy and business priorities 

I firmly believe the Group provides a differentiated and compelling investment proposition within the games industry. Alongside the development of high-quality, engaging games and apps, we have a track record of consistently leveraging the strength of our back catalogue to drive additional, reliable revenue streams from our existing content portfolio. In addition, the Group benefits from a distinct divisional structure, wherein each of the distinct business offerings is headed by talented industry leaders who are all experts in their respective fields.

As we seek to move the business forward, I will be focusing on five core strategic pillars, namely:

· Building relationships; to be the leading Indie publisher, nurturing world-class partnerships with developers, platforms or licenses.

· Creating evergreen brands; to focus on our original first-party IP games while fully leveraging our lifecycle management skills.

· Powering up; to foster greater collaboration between teams and divisions, fully harnessing our collective skills and strengths to optimise efficiencies.

· Attracting talent; to deliver our strategic and financial ambition by nurturing a culture that enables ambition, creativity and belonging.

· Leveraging our pioneering minds; to drive growth into new markets, audiences & IP organically and through M&A.

StoryToys and astragon are focused on developing and bringing the highest quality working simulation games and edutainment apps to our users, the latter collaborating with some of the best known and most loved brands in the world.

Amongst our peers, the Games Label remains a market leader within the Indie games community, developing games in-house while also acting as a co-developer and publisher for independent developers looking for a partner to support them in bringing games to market. We have an exceptional game scouting team, which continuously assesses vast numbers of game submissions through the Games Label's greenlight process.

Whilst we had seen an increase in the budgets of games we developed in the Games Label over the last couple of years, during the second half of FY 2023 we sought to realign our strategy to focus on our core strength of developing and publishing Indie games. While we will continue to invest in our established and highly profitable larger first-party IP franchises, the focus of new third-party game releases will in future be firmly in the Indie space, where we believe we can make the highest returns from our investment. This return to our historic strengths should ensure that only the very best games make it through our extensive quality control processes and into our launch schedule.

I am excited to explore how my experience within digital marketing can further support discoverability of our content in an ever expanding and rapidly evolving marketplace.

The Group has long been an advocate of first-class lifecycle management as a means to expand and enhance returns on its back catalogue of existing titles, ensuring the generation of sustained revenues through the launch of engaging new content and continuous improvements to user experience. This core component of the business model is as important as it has ever been, driving multi-year revenue generation and underpinning profits well into the future. Following multiple game and app launches over the course of FY 2023, in the Games Label alone our back catalogue has grown, to over 900 digital revenue lines ("DRL") (FY 2022: over 700 DRL), which will continue to expand in the years to come.

We have already developed collaboration and cross-selling opportunities between our divisions, and the potential for additional synergies and sharing of resources, best practice and industry relationships will only accelerate as the business grows. Driving operational efficiencies across the Group has always been a key business focus, and I believe there is still much more to be gained from our broader operational footprint. A key part of my role as Group CEO will be finding ways to capitalise on these priorities to drive further innovation and efficiencies across all segments of the business, drawing on my experience of acquiring, integrating and further developing businesses in my previous role. We have invested in "Group-wide" functions to step up our performance, drive greater levels of efficiencies and reposition the business back to strong growth and improved profitability over the mid-term. 

We have taken considerable steps to strengthen our rigour around commercial governance and controls, in particular new game development costs. This includes implementing a more comprehensive contract review process, updating our milestone payments process, and ensuring more rigorous internal procedures are in place.

Outlook

The Group has made a pleasing start to FY 2024, although we remain mindful of the challenging near-term competitive landscape; we know of a number of high-quality new games releases that have been delayed into the current calendar year; the cost of living pressure continues to impact discretionary spending across the board; and geopolitical uncertainty continues to weigh on global markets more broadly.

However, the vision for the Group remains clear - to accompany our gamers through a lifetime of play, creating pioneering and captivating experiences that enrich and inspire players around the world. This will be achieved through the release of new games and apps, as well as continuing to innovate lifecycle management strategies, supported by the launch of additional content updates across the portfolio to capitalise on the existing audience demand for our games.

In addition, an action plan is in place to accelerate revenue and profit growth, which includes increasing the proportion of revenues from first-party IP over time, sharpening our greenlight process, more innovative marketing and publishing models, while pursuing an active M&A agenda. 

We have a strong pipeline of new games and apps scheduled for launch in FY 2024 and beyond, and we will continue to develop and launch additional content across the existing portfolio.

We remain confident that the Group can deliver an improved underlying trading performance in FY 2024 and is well positioned for growth over the mid to long term. We look forward to updating all stakeholders on our progress as the year continues.  

Steve Bell

Chief Executive Officer

Chief Financial Officer's Report

Performance Overview

FY 2023 was a challenging and highly competitive year for the gaming sector. Against this backdrop, the Group increased revenue by +12% compared to the prior year. This growth was generated solely through revenues from existing businesses. The Group saw strong sales growth delivered through a combination of new releases alongside continued strengthening and broadening of the back catalogue. However, reported results were impacted by lower margins, weak cost controls and one-off non-cash impairment charges meaning that the Group delivered an overall loss before tax of £1.1 million (FY 2022: £28.7 million profit).

Towards the back end of FY 2023, management identified a number of operational issues within the Games Label and implemented a series of more rigorous cost controls and strategic initiatives to address areas that had impacted the profitability of the division. A thorough review of the strategic direction of the Games Label, its cost base structure and processes was completed in the last quarter of FY 2023, resulting in a restructuring program that impacted both headcount and cost control processes. Most notably, the Games Label has re-focussed back to its core Indie games roots, resulting in changes to games scouting and increased rigour around development spend. These changes were implemented to ensure that the Games Label can return to its historical track record as a consistent performer and one of the leading developer and publishers of Indie games.

Revenue

100% of the revenues1 in the period were generated from existing businesses, with all three divisions contributing in line with expectations and delivering a pleasing uplift in trading across the Black Friday and festive seasonal periods resulting in Group revenues up 12% to £159.1 million (FY 2022: 142.3 million). The Games Label contributed £103.6 million (FY 2022: £92.8 million) growing 12% and astragon delivered £36.0 million (FY 2022: £34.1 million) showing growth of 5% against a very strong revenue comparative in FY 2022 whilst StoryToys revenue grew 26% with revenues of £19.5 million (FY 2022: £15.4 million).

Overall Group first-party IP revenues were £55.8 million (FY 2022: £56.4 million) reflecting a solid performance on games such as Hell Let Loose which remains one of the Group's top selling individual games together with astragon's Construction Simulator and Police Simulator. Third-party game revenues grew 20% to £103.3 million (FY 2022: £85.8 million). There were pleasing performances across the portfolio led by the standout third-party game Dredge which was released on 30 March 2023. Growth was also seen in new release revenues to £45.5 million (FY 2022: £38.8 million) in FY 2023, a growth of 17%, coming from games including Trepang 2 and Blasphemous 2 alongside the aforementioned Dredge.

In a highly competitive market that was reported to have grown2 at

(1 Due to a change in accounting policy, revenue recognition on digital sales through Apple and Google app stores is now recognised gross of any platform fees charged where historically the net amount was recognised. For these platforms only, the platforms are deemed to be an agent in the transaction under IFRS15, this change has no impact on profits in either the current or prior year, however, does impact both gross margin and adjusted EBITDA margin percentages, see note 2)

(2 NewZoo global games report January 2024 Update)

Gross Profit 

Gross profit in the year fell to £57.5 million (FY 2022: £69.6 million). The reported gross margin fell to 36% from 49%, having been impacted by a number of factors, some one-off in nature. These included: a one-off impairment charge; a higher proportion of third-party revenue; higher development cost amortisation charges; and higher expensed development costs which include the studio related one-off restructuring costs. These are dealt with in turn below.

A full review was undertaken of the value of intangible assets held on the balance sheet which included both released games with a residual net book value as well as future games. As a result of the review, an impairment charge of £11.1 million was made in FY 2023. This one-off non-cash charge correspondingly reduced the intangible assets value held on the balance sheet at year end.

As outlined in our November 2023 trading update, whilst the Group delivered revenues in line with expectations, a higher proportion of third-party games (which generate higher levels of royalty payments) impacted gross margins in the period. Revenues from astragon's first-party IP simulation games represented 47% (FY 2022: 44%) of the Group's first-party IP revenues and unlike the Games Label first-party IP games, these attract a royalty paid to astragon's dedicated development partners, which in turn further reduced the overall gross profit margin. 

Development cost amortisation charges grew to £12.7 million (FY 2022: £9.3 million). This results from an increase in capitalised development costs within astragon (which has typically larger development spend by game, similar to that invested in the Games Label's first-party IP games), together with an increase in development budgets for some larger third-party games within the Games Label division.

The Group's overall amortisation policy is to charge back a high proportion of the capitalised development costs within the first twelve months after launch (Games Label 70% in year 1 and astragon 50% in year 1) and correspondingly the annual amortisation charge reflects not only the level of historic investment but also the timing and quantity of games launched in the period and in the prior year.

The final driver of gross margin pressure came from expensed development costs which were also elevated in the year. This reflected increased support costs post launch including investment in free DLC within the Games Label; post launch support to live games such as Hell Let Loose. In addition, expensed development costs included £1.0 million out of a total £1.2 million costs associated with the restructuring within Games Label.

Capitalised development costs

IAS 38 requires development costs to be capitalised during the process of creating a game until its launch. If a game is launched on Early Access, then the incremental costs of developing the title to full release are also capitalised. Development costs that were capitalised in the year increased to £32.2 million (FY 2022: £26.1 million) of which £22.5 million (FY 2022: £18.3 million) related to Games Label, £7.1 million (FY 2022: £6.3 million) related to astragon and £2.6 million (FY 2022: £1.4 million) related to StoryToys. As outlined above, the review of intangible assets resulted in £11.1 million of the carrying value of capitalised development costs being impaired. As a result of the capitalisation, the one-off impairment and development cost amortisation charges, capitalised development costs on the balance sheet at the end of the period stood at £35.1 million (FY 2022: £26.8 million).

The levels of investment in capitalised development costs have increased significantly over the last two years. This resulted in part from the acquisitions - astragon in particular has a higher investment per game, similar to the levels of Games Label's first-party IP investment. Further increases resulted from the shift by the Games Label over the last two years to larger third-party game development investments, a move which took the business away from its core Indie-focused business model and one that, as outlined above, has been reversed towards the end of FY 2023. As a result of that reversal, the majority of third-party game investments are expected once more to fall in or below the range £1.0 million to £1.5 million. A small number of games may exceed that range should they meet the relevant internal investment hurdles. Investment in the Games Label's first-party IP (which is entirely internal) will be higher, as has been the case historically. These changes are expected to result in lower investment in development costs within the Games Label.

Within StoryToys, our strategy has been to broaden our licence partners and subsequent apps, and within astragon, our focus has been to grow our content portfolio with new first-party IP simulation games. In the short term, reductions in investment in the Games Label will be offset by increased investment in the two other divisions, enabling both StoryToys and astragon to continue to deliver on their growth ambitions.

Administrative Expenses

Total costs in the period increased to £57.6 million (FY 2022: £37.8 million). Within this total are acquisition-related adjustments, costs and amortisation of £9.2 million (FY 2022: £15.2 million) and a £20.9 million (FY 2022: nil) one off non-cash impairment of goodwill charge relating to The Label Inc., following the annual review of the carrying value on all acquisitions. This is covered in more detail below.

Marketing costs were elevated in H1 2023 in particular, however, tighter controls were implemented in H2 2023 to help reduce the overall increase in spend in the year to £0.8 million and importantly to ensure that these costs are better aligned to the Indie model and reduced in FY 2024 and beyond. Some FX cost pressure was experienced in year compared with a positive FX tailwind in FY 2022. However other costs including premises, professional fees and travel & entertainment were lower than the prior year demonstrating tighter controls in place particularly in the latter part of the year.

Staff costs within administrative expenses were lower in the period reflecting the fact that performance bonus payments were not made within the Games Label nor at Group level. They include £0.2 million out of a total £1.2 million costs associated with the restructuring within Games Label.

Headcount for the Group at year end reflects the impact of the Games Label restructuring review as well as reflecting the move to increase the utilisation of an outsourced studio resourcing model in areas such as QA (game testing), localisation and console porting. As a result, the total headcount for the Group at 31 December 2023 was 348 (31 December 2022: 392) with the average headcount higher at 380 (FY 2022: 351) resulting from the timing of the restructuring within the UK Games Label team.

The annualised cost reduction impact of the restructuring within the UK Games Label business administrative expenses is anticipated to be £0.7 million. Additional savings in studio headcount costs have been partly offset by increased spend on outsourced providers. The restructuring was completed mid-November so had a relatively small impact on operational costs in the period. The associated one-off costs of the restructuring are not included within the adjusted EBITDA measure which is covered in more detail in the Alternative Performance Measures (APMs) below. 

The headcount totals also reflect the addition of 45 employees that joined the astragon business following the acquisition of Independent Arts Software GmBH ("IAS") earlier in the year together with growth in headcount across astragon and StoryToys to support the broadening of the content portfolio in both businesses.

Following the annual impairment review, the goodwill associated with the acquisition of The Label Inc. (re-named Team17 USA) was impaired. The impairment charge of £20.9 million is marginally offset by the release of £2.6 million contingent consideration previously held on the balance sheet relating to earn-out targets for FY 2023 not being met. Both items reflect the reduced performance of the business compared with expectations at the time of the acquisition. Over the last two years the mobile subscription market has seen increased competition reducing the ongoing performance income received for launched games as well as reduced third-party new mobile games being secured for development.

The Team17 USA business continues to be an important part of the Games Label, offering strategic expertise to identify, develop and bring to market mobile subscription games from third-party developers but importantly also provides a route for the Games Label's own back catalogue portfolio where the potential exists to bring key games to mobile subscription platforms. The first of the Games Label games entered this development pipeline towards the end of FY 2023.

Alternative Performance Measures ("APMs")

The Directors believe that the reported APMs provide meaningful performance information to aid the understanding of the underlying business trading performance and profitability. Although these are not GAAP measures as defined by IFRS, they have been applied to provide an accurate comparison as well as provide readers of the financial statements a clear understanding of the underlying profitability of the business and more consistent comparisons over time. A breakdown of the adjusting factors is provided in the table below.

Adjusted EBITDA reflects the EBITDA of the Group in a steady state, without the impact of acquisition-related costs which vary year on year based on acquisition activity. In addition, we include the impact of amortisation and impairment of development costs as this reflects the primary costs incurred by the Group in generating revenue. In the current year, restructuring costs have also been excluded as this is also considered a one-off cost impact which is not reflective of the underlying performance of the Group.

Adjusted Profit before tax reflects the profitability of the Group, adjusted for the impact on profit of acquisition-related costs which vary year on year based on acquisition activity. This is also adjusted for the goodwill impairment which arose in the year which is not a recurring cost to the Group.

A breakdown of the adjusting factors is provided in the table below:

Note: amortisation and impairment on development costs are included in the calculation of adjusted EBITDA, adjusted profit before tax and adjusted profit after tax.

1 Share-based compensation charges include employers' national insurance contributions due on the exercising of the share options.

2 The calculation of adjusted earnings per share is based on the adjusted profit after tax divided by the weighted average number of shares (either basic or diluted).

Share-based compensation charges of £0.4 million (FY 2022: £0.1 million credit) relate to options that were granted to the Executive Directors, the senior leadership team and other members of the team under a variety of schemes which other than in the case of the Executive Directors will be satisfied by shares held in the Employee Benefit Trust ("EBT"). The charge in the period was impacted by a credit which relates to the Executive options granted in 2021 that have failed to meet the minimum performance criteria. The credit in the prior year relates to the reversal of a national insurance accrual made in FY 2021 reflecting a lower actual charge in FY 2022.

Acquisition-related adjustments created a net benefit in the period compared to a cost impact in the prior year with a credit of £2.7 million (FY 2022: £9.2 million debit) relating to one-off costs directly associated with the acquisitions made over the last two years. Fair value movements in respect of contingent consideration payments gave rise to a £5.1 million credit (FY 2022: £0.9 million cost). There were no associated management incentive payments in FY 2023 (FY 2022: £3.8 million) and other acquisition costs and fair value adjustments totalled £1.4 million (FY 2022: £1.1 million). Finance costs relating to contingent consideration fell to £1.0 million (FY 2022: £3.4 million) reflecting the lower balances outstanding.

Adjusted EBITDA

Adjusted EBITDA was £29.9 million (FY 2022: £48.8 million) reflecting the pressure on gross margins and administrative expenses and including the non-cash title impairment charges as outlined above. Adjusted EBITDA excludes acquisition related adjustments and fees, amortisation on and impairment of acquired intangible assets, share-based compensation, one-off Games Label restructuring costs and tax.

Loss Before Tax

The non-cash impairment charges outlined above totalling £32.0 million (FY 2022: £nil) had a significant impact in the period resulting in a reported pre-tax loss of £1.1 million (FY 2022: £28.7 million profit). This also reflects the reduced gross margins and the acquisition-related costs that are required to be taken through the profit and loss account. Adjusted profit before tax, adjusting for the items outlined in the APMs table above, was £28.7 million (FY 2022: £47.1 million).

The tax charge for the year was £2.7 million (FY 2022: £5.2 million). There were two significant non-taxable items during the year that affected loss before tax which were goodwill impairment and fair value adjustments on contingent consideration from business acquisitions totalling £18.3 million (FY 2022: negative £0.9 million). Removing these from the loss before tax gives an effective tax rate for the year of 16% (FY 2022: 18%).

Earnings Per Share ("EPS")

Basic EPS was (2.6) pence (FY 2022: 16.5 pence) and reflects the impact of one-off acquisition-related adjustments and fees (net of tax) described in the APMs table above as well as being materially impacted by the non-cash impairment charges. Basic adjusted EPS, reflecting the APM adjustments noted above and calculated using the adjusted profit after tax was 17.5 pence (FY 2022: 27.8 pence).

Statement of Financial Position 

The Group remains highly cash generative with an operating cash conversion of 87% (FY 2022: 108%), and a net inflow of cash from operations of £41.4 million (FY 2022: £49.4 million). As a result of the outflow of acquisition-related payments for IAS (£1.8m), cash earn-out payments in the period for astragon, Team17 USA, HLL and IAS (£18.6 million) and investment in capitalised development costs (£32.2 million), there was an overall net decrease in cash and cash equivalents to £42.8 million (FY 2022: £50.8 million) which includes £2.9 million (FY 2022: £3.0 million) held in the Employee Benefit Trust.

The EBT remains an important fund established at IPO to support employee share awards and incentivise team members across the Group. All UK and EU employees across the Group continue to be awarded share options on joining, noting that the use of the EBT ensures that this avoids the issue of new shares to satisfy these and other employee options.

Goodwill and intangible assets now total £210.0 million (FY 2022: £234.1 million) following the impairment reviews outlined above. As at 31 December 2023, the net book value of goodwill was £86.2 million (FY 2022: £113.4 million) which reflects the impairment of goodwill associated with Team17 USA. The value of the Group's brands now stands at £57.6 million (FY 2022: £63.8 million) which takes into account the annual brand amortisation charge. The current net book value of capitalised development costs at year end stands at £35.1 million (FY 2022: £26.8 million).

There were no material trading-related movements in working capital. Trade and other payables reduced significantly at the year end to £35.4 million (FY 2022: £52.3 million) primarily driven by the reduction in contingent consideration reflecting the final anticipated earn-out payment due to be made in the first half of FY 2024.

As a result of the ending of payments related to past acquisitions, and subject to the level of future M&A activity, the Group expects to be cash generative in FY 2024.

Acquisition in the year

As previously announced on 28 April 2023, astragon Entertainment GmbH completed the acquisition of 100% of the share capital of Independent Arts Software GmbH ("IAS") for a maximum payment of £3.1 million (€3.5 million) subject to the seller and business meeting certain requirements. IAS is a games development studio based in Germany and is now supporting astragon's strategic development of first-party IP simulation games.

Share Issues 

As at 31 December 2023, the Group's issued share capital comprised 145,803,620 ordinary shares of £0.01 each (FY 2022: 145,593,271). A total of 210,349 shares were issued during the year as part of the FY 2022 earn-out relating to the acquisition of Team17 USA.

A total of 294,535 (FY 2022: 313,500) share options were issued during the year to the Executive Directors with a three-year vesting period with performance criteria and a further 532,858 (FY 2022: 131,300) share options were issued to other employees across the Group also with a similar three-year vesting period and performance criteria.

The Group has extended the use of its Long-Term Incentive Plan with performance criteria across its senior divisional leadership team together with the deferred bonus share plan for senior management. The Games Label continues to administer an All-Employee Share Incentive Plan ("SIP") which is a UK employee SIP with matching shares open to all UK employees and which continues to be well supported.

Mark Crawford 

Chief Financial Officer 

Team17 Group plc

Unaudited Consolidated Income Statement

Certain comparative balances included within the consolidated income statement have been restated as disclosed in note 2.

Team17 Group plc

Unaudited Consolidated Statement of Comprehensive Income

Team17 Group plc

Unaudited Consolidated Statement of Financial Position

Certain comparative balances included within the consolidated statement of financial position have been reallocated as disclosed in note 2.

Team17 Group plc  Unaudited Consolidated Statement of Changes in Equity

Certain comparative balances included within the consolidated statement of changes in equity have been reallocated as disclosed in note 2.

Team17 Group plc

Unaudited Consolidated Statement of Cash Flows

Notes to the Unaudited Consolidated Financial Statements

1. Nature of operations and general information

The principal activity of Team17 Group plc and its subsidiaries (the Group) is the development and publishing of independent ("Indie') premium video games and development of educational entertainment apps for children and a leading working simulation games developer and publisher.

2. Basis of preparation

The preliminary results for the year ended 31 December 2023 are unaudited. The financial information set out in this announcement does not constitute the Group's financial statements for the year ended 31 December 2023 as defined by Section 434 of the Companies Act. This financial information has been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. It has been prepared on the historical cost basis, except for those items which are measured at fair value.

This financial information should be read in conjunction with the financial statements of Team17 Group plc for the year ended 31 December 2022 (the "Prior year financial statements"), which are available from the Registrar of Companies. The Prior year financial statements which were prepared in accordance with UK adopted international accounting standards (UK IFRS) and the applicable legal requirements of the Companies Act 2006. The auditors, PricewaterhouseCoopers LLP, reported on those accounts and their report was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 (2) or (3) of the Companies Act 2006.

The Group's financial statements for the year ended 31 December 2023 will be finalised on the basis of the financial information presented by the Directors in these preliminary results and will be delivered to the Registrar of Companies following the Annual General Meeting of Team17 Group plc.

Reclassification of comparatives

The Group previously presented merger reserve and currency translation reserve separately in the Consolidated Statement of Financial Position and Consolidated Statement of Changes in Equity. Management believes it to be more relevant to amalgamate these reserves into "other reserves". Prior year comparatives as at 31 December 2022 have been restated to conform with current year presentation.

Accounting policies

The Group's principal accounting policies used in preparing this information are as stated on pages 55 to 63 of the prior year financial statements. There have been no changes to accounting policies implemented since the date of the prior year financial statement except as disclosed below:

Revenue recognition and restatement

The Group is constantly reviewing revenue contracts to assess whether the Group is acting as an agent or a principal. As part of this review, it has been determined that the Group acts as a principal in contracts generating digital sales through the Apple and Google app stores. Revenue from these contracts should be recognised gross of platform fees with the corresponding platform fees being included in cost of sales to better reflect the substance of the transaction whereas historically revenue was recognised net of platform fees. This restatement has no impact on profits in either the current or prior year. For consistency, the revenue balances for the year ending 31 December 2022 have been restated increasing revenue by £4,838,000 with a corresponding increase in cost of sales. There are no further changes to the revenue recognition policies in the year.

Going Concern

Management has produced a Group forecast that has also been sensitised to reflect a severe but plausible downside scenario, which has been reviewed by the Directors. This demonstrates the Group is forecast to generate profits and cash in the year ending 31 December 2024 and beyond and that the Group has sufficient cash reserves to enable the Group to meet its obligations as they fall due for a period of at least 12 months from the release of these results.

As such, the Directors are satisfied that the Group has adequate resources to continue to operate for the foreseeable future. For this reason, they continue to adopt the going concern basis for preparing these results.

3. Segmental information

The Group has three different operating segments within the business which are as follows:

● Games Label - Developing and publishing video games for the digital and physical market

● Simulation - Developing and publishing simulation games for the digital and physical market

● Edutainment - Developing educational entertainment apps for children

The chief operating decision maker ("CODM") of the Group is considered to be the Group CEO and CFO, the group executive directors. The CODM reviews the Group's internal reporting in order to assess performance and allocate resources. The CODM determines the operating segments based on these reports and on the internal reporting structure.

The CODM considered the aggregation criteria set out within IFRS 8 "Operating Segments" where two or more operating segments can be combined for reporting purposes so long as aggregation provides financial statement users with information to evaluate the business and the environment in which it operates.

After assessing this criteria, the CODM deems it appropriate for all three operating segments to be aggregated and reported as a single segment. Each segment develops and publishes games and apps using own and third-party IP through similar distribution methods with similar margins in the same regulatory environments. Therefore, all figures reported in the annual report are reported as a single aggregated reporting segment.

Non-current assets are located in the following locations:

4. Revenue

All revenue was generated by the sale of goods.

Whilst the CODM considers there to be only one reportable segment, the Company's portfolio of games is split between first-party IP (those based on IP owned by the Group) and third-party IP incurring royalties. Therefore, to aid the readers understanding of our results, the split of revenue from these two categories is shown below:

The Group is constantly reviewing contracts in line with the significant estimates and judgements as set out in note 2. As part of this review, it has been determined that the Group acts as a principal for digital sales through the Apple and Google app stores. Revenue from these contracts should be recognised gross of platform fees with the corresponding platform fees being included in cost of sales to better reflect the substance of the transaction. Historically revenue was recognised net of platform fees. This restatement has no impact on profits in either the current or prior year. For consistency, the revenue balances for the year ending 31 December 2022 have been restated increasing revenue by £4,838,000 with a corresponding increase in cost of sales.

The Group does not provide any information on the geographical location of sales as the majority of revenue is through third-party distribution platforms which are responsible for the sales data of consumers.

All committed revenue contracts in progress at the 31 December 2023 are expected to be completed and recognised in revenue within one year or less. As permitted under IFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed. All brought forward accrued income and deferred income has been recognised or released during the year.

The following customers each contributed over 10% of the total revenue in FY 2023:

5. Operating profit

6. Taxation

Deferred taxes at the balance sheet date have been measured using the enacted tax rates of between 12.5% and 30% (2022: 12.5% and 30%).

In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax rate would increase to 25%. This was substantively enacted on 24 May 2021 as part of Finance Bill 2021. During the year a hybrid rate of 23.5% has been used representing 3 months at the previous tax rate of 19% and 9 months at the new rate of 25%.

7. Earnings per share

The calculation of the basic earnings per share is based on the (loss) / profit attributable to the shareholders of Team17 Group plc divided by the weighted average number of shares in issue. The weighted average number of shares takes into account treasury shares held by the Team17 Employee Benefit Trust. The diluted earnings per share uses the same calculation however the number of shares in issue are adjusted to include shares considered to be dilutive under the treasury stock method. An option is considered to be dilutive when the total proceeds per option is less than the average share price for the period.

8. Intangible assets

Adjustments

During the year the valuation of brands related to the acquisition of astragon Entertainment GmbH was reassessed and an adjustment was identified in the valuation model after the permitted IFRS 3 measurement period for determining fair value. This reassessment increased the valuation of the acquired apps asset by £8,269,000, whilst decreasing the value of Goodwill by £5,561,000 and increasing the related deferred tax liability by £2,708,000. These reclassification adjustments have been made in the current year accordingly.

Development costs

The Group capitalises the costs of developing new games for release to the market. The balance consists of internal salary costs, advances payable to external developers under development agreements and other external payments. Amortisation is calculated over the assets useful life of between 2 to 5 years. The assets are tested for impairment annually or more frequently if there are indicators of impairment.

The recoverable amount of development cost assets at 31 December 2023 are determined from the value in use. In arriving at a value in use, management has used a 2 to 3 year cashflow forecast in line with the expected useful life of the assets. These cashflows are not discounted due to the short term nature of the assets. Through this process, impairment of £11,121,000 was recognised on development cost assets. This impairment is due to the titles not meeting their full market potential in a congested marketplace.

Key assumptions used for value-in use calculations

Management considers the projected future cash inflows to be the key assumption in calculating the value in use of each asset. Budgeting is done on a game by game basis, with game revenues varying based on management's best estimates.

Impact of possible changes in key assumptions

In assessing the carrying value of Development costs, management performed sensitivity analysis on each of the key assumptions. In assessing the sensitivity of projected future cash inflows the effects of a decrease in revenue of 10% were modelled and this would cause an additional impairment of £604,000.

Brands

These reflect the value of brands acquired either through direct purchases of IP recognised under IAS 38 "Intangible Assets" or brands recognised under IFRS 3 "Business Combinations". Amortisation on brands are calculated on a straight-line basis over the assets estimated useful life of between 10 and 15 years.

Acquired games and apps

These represent the fair value of games and apps arising at acquisition. The assets are tested for impairment annually or more frequently if there are indicators of impairment. Amortisation is calculated over the estimated useful life using the following policy:

Acquired Apps 7 to 10 years straight-line

Indicators of impairment

The financial performance of games and apps were assessed against the forecasts produced at the point of acquisition for indicators of impairment. Where an impairment trigger was identified due to under performance, a 10 year cashflow forecast was produced to measure the value in use. No impairment was identified through this process.

Key assumptions used for value-in use calculations

Management consider the pre-tax discount rate to be a key assumption in the calculation of value in use and the rate used in the model is 17.5%. We reviewed sensitivities to this and any increase of the discount rate to over 18.4% would reduce the headroom in the value in use model over the carrying value to £Nil.

Projected future cash inflows (revenue) from unreleased titles are also considered to be a key assumption. Budgeting is done on a game by game basis, with game revenues varying based on management's best estimates. A reduction of 3% to future unreleased sequel revenue in the model would reduce the headroom over the carrying value to £Nil.

Customer and developer relationships

This is the fair value of relationships held with customers and developers acquired through business combinations. Group capitalises the costs of developing new games for release to the market. Amortisation is calculated over the assets estimated useful life of 10 years. The assets are tested for impairment annually or more frequently if there are indicators of impairment.

Customer and developer relationships 10 years straight-line

Goodwill

The Group tests for impairment annually, or more frequently if there are indicators that goodwill might be impaired. There are 4 cash-generating units ("CGUs") in the Group which are as follows:

· Team 17 Digital (Indie Games)

· StoryToys (Edutainment)

· Astragon (Simulation)

· Team17 (USA) (Mobile licence)

The carrying value of Goodwill allocated to those CGU's is split as follows:

The recoverable amount of each of the cash-generating units ("CGUs") at 31 December 2023 is determined from the value in use which is higher than the fair value less costs of disposal. In arriving at a value in use management has used a discounted 5-year bottom up forecast before applying a long-term growth assumption. The discount rates and terminal growth used in the impairment assessment of each CGU is as follows:

Key assumptions used for value-in use calculations

When reviewing for impairment of goodwill in CGU's, management prepare cashflow forecasts to estimate the value in use. Management consider the following to be the key assumptions in the cashflow:

· Pre-Tax discount rate

· Terminal growth rate

During the year the pre-tax discount rate has been adjusted to take into account the Group's size risk premium which is based on the market cap for the Group.

Projected future cash inflows (revenue) are also considered to be a key assumption. Budgeting is done on a game by game basis, with game revenues varying based on management's best estimates.

Impact of possible changes in key assumptions

In assessing the carrying value of Goodwill management performed sensitivity analysis on each of the key assumptions. The result of the sensitivity tests on each CGU are detailed below. In assessing the sensitivity of projected future cash inflows the sensitivity test was split between new release revenue and back catalogue revenue. New release revenue is deemed to be inherently riskier in nature and as such a higher level of sensitivity was applied to new release cash inflows than to back catalogue cash inflows.

The recoverable amount of each CGU would equal its carrying amount if the key assumptions were to change as follows:

*In the case of a 100% reduction in new release revenue the recoverable amount of the CGU would still exceed its carrying value.

Impairment of Team17 (USA) Goodwill

The impairment review of Team17 (USA) identified impairment of £20,879,000. Team17 (USA) is focussed on developing games for the mobile subscription market. During the last two years the mobile subscription market has seen increased competition reducing the ongoing performance income received for launched games as well as reduced third-party new games being secured for development. The below table shows the increase in impairment from changes to the key estimates disclosed above:

Other intangibles

These are made up of capitalised software and are amortised under the following policies:

Capitalised software 2 years straight-line

9. Business combinations

Acquisition of Independent Arts Software GmbH

On 27 April 2023 astragon Entertainment GmbH acquired 100% of the share capital of Independent Arts Software GmbH for a maximum payment of £3.1m (€3.5m) subject to the seller and Company meeting certain requirements. The initial payment for the acquisition was £1.8m (€2.0m) in cash. A further payment of up to £1.3m (€1.5m) is payable in cash based on the seller meeting certain requirements following completion of the acquisition. There was no minimum due on the contingent payment. The results of the business have been included in the Consolidated Statement of Profit or Loss from the date of acquisition. In the period from 1 January 2023 to the date of acquisition, the results of the business were wholly immaterial and therefore not disclosed.

Independent Arts Software GmbH is a talented video game developer based in Germany. The acquisition increases astragon's development capabilities in the simulation space. Independent Arts Software GmbH is a talented video game developer based in Germany. The acquisition increases astragon's development capabilities in the simulation space. The total consideration was made up of £1,792,000 of initial consideration and £964,000 of contingent consideration. Details of the movement in contingent consideration can be found in note 11.

Deferred and contingent consideration has been recognised at present value which has been calculated using a discount rate of 14.5%. Details of the purchase consideration at initial recognition are as follows:

Contingent consideration consists of the payments to the sellers included at fair value and payable based on them and the Company meeting certain requirements.

Contingent consideration requirements - Management have assessed the likelihood of these requirements being met. At acquisition, management assessed the fair value of the contingent consideration using a risk weighted model. This will be reassessed at each reporting date and the movement in the fair value of the consideration amount recognised in the Consolidated Statement of Profit or Loss.

The assets and liabilities recognised as a result of the acquisition are as follows:

The goodwill is attributable to Independent Arts Software's talented development team. It has been allocated to the Simulation segment of the business led by astragon Entertainment GmbH which is the development and publishing of simulation games for the digital and physical market. None of the goodwill is expected to be deductible for tax purposes.

Acquisition fees

Total acquisition fees for the year ended 31 December 2023 of £44,000 (2022: £863,000) are included in administrative expenses in the Consolidated Statement of Profit or Loss.

Results from acquisitions

Financial performance of Independent Arts Software GmbH has not been disclosed as it was wholly immaterial to the results for the year ended 31 December 2023. The business was acquired in order to provide development support to the astragon (Simulation) CGU and received no significant revenues from outside of Group companies.

10. Cash and cash equivalents

Included within the cash equivalents balance above is £2,901,000 (2022: £2,953,000) held by the Team17 Employment Benefit Trust. This cash is not readily available for use by the Group to meet its everyday operating costs but can be spent for the benefit of the employees and as such is considered restricted cash.

11. Contingent consideration

Included within trade and other payables is £4,944,000 (FY 2022: £17,965,000) of contingent consideration. Contingent consideration is broken down as follows: