Games development services company Sumo Group (SUMO:AIM) today reported 27% growth in 2019 revenues to £49m, and gross profits up 30% to £24m, as indicated on 25 March.

Since lock-down the company has found it more challenging to meet demand, delaying milestone payments and slowing recruitment of new talent. The shares traded 1.4% lower at 178p.

On the plus side the firm is seeing a high-level of revenue visibility with 2020 contracted revenues at 73%, up from 71% on 25 March 2020.

The company has transitioned employees to home working and re-calibrated project management controls. The high level of demand means the company doesn’t need to furlough any of its 766 staff.

OPERATIONAL DRAG

However there has been a loss of efficiency due to the disruption and the firm expects 2020 results to be ‘significantly weighted to second half, as seen previously in 2019.’

Broker Shore Capital has cautiously reduced its 2020 revenue forecast by £5m and earnings before interest, tax, depreciation and amortisation (EBITDA) by 9% to £14.5m, reducing its expected growth-rate from 13% to 10% as higher costs bite.

TAIL WIND

Shorter-term operational issues need to be weighed against longer-term support in terms of global demand for the company’s services.

The video games market is forecast to grow 9% a year over the next three years, and management believe there are already observable signs of increasing demand due to the lockdown as people have more time on their hands.

Chief executive Carl Cavers commented, ‘Whilst there will inevitably be some impact from the pandemic on the Group's performance in financial year 2020, the directors remain confident in the group's strategy and its ability to continue delivering strong returns for stakeholders in the longer term.’

As of 20 April the company had net cash of £14m, including £10m drawn from a £13m credit facility.

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Issue Date: 21 Apr 2020