Coronavirus » Frontier Developments CFO on strength of video games market

Frontier Developments CFO on strength of video games market

Finance head Alex Bevis reveals in an interview how the video games firm surged to a £1bn valuation during the coronavirus lockdown

Alex Bevis didn’t have far to travel when he joined Frontier Developments, the Cambridge-based video games developer, in April 2017.

In fact, his last two positions were also based in the city’s science park, leading him to remark that he has spent his entire corporate life- a total of 20 years- in a space of less than a square mile, after leaving accountants Deloitte.

In a sense that is no great surprise, given that a multitude of technology-based businesses based in or near the park, often spun out of the University of Cambridge, have been high achievers in recent years.

By any estimation Frontier has been a success story since it listed in 2013- its share price has grown almost 20-fold since. Most significantly the group’s market cap breached the highly symbolic £1bn threshold during early months of the pandemic- demonstrating the huge popularity of video games in a period of increasing personal isolation.

CFO Alex Bevis says he had a limited understanding of the video game market when he joined Frontier, through only his experiences as a casual player of games. He recalls playing the space epic Elite, co-authored in the 1980s by David Braben, still the company’s CEO.

Following his success with the original Elite, Braben founded Frontier in 1994 and over 20 years became a trusted development partner working with big name publishers, before transitioning to publishing Frontier’s own games from 2014 onwards.  Frontier has now released four successful self-published titles, with Elite Dangerous (a major reboot of Elite), Planet Coaster which Bevis describes as “a strong sharing game that’s really done very well during lockdown,” 2018’s Jurassic World Evolution that has sold three million units and last year’s Planet Zoo, which sold a million in its first six months.

Frontier’s games are continually finessed in what Bevis describes as a “launch and nurture model” where a title is continually supported and refined over the years to continually support players and drive revenues. “It means we can continue to generate very strong sales for many years. We’ve now generated more than £100m of revenue from Elite Dangerous which first released in December 2014,” says Bevis

Through Frontier’s long experience in the industry the company has developed leading technology which has helped it benefit from the transition to digital distribution.

“It’s really interesting to see how that model has evolved, particularly the shift away from physical media to digital media that has unlocked a lot of potential for game developers to produce content at less risk and with more return. By working with an experienced digital publisher, all parties are able to achieve a much better financial outcome” says Bevis.

“We get ongoing revenue, not just from a game launch in the first few months, but from people coming to the base game over time, and also buying PDLC (paid downloadable content),” he says.

Growth enabler

The critical role Bevis plays is being an enabler to make smart decisions around the allocation of capital and other resources, and to also understand and develop strategies for success with different kinds of project.

“My role is to know what is going on, and then to secondly have as positive an influence of the outcome as possible by challenging, by asking questions or by digging for information. It’s always useful to have a slightly pessimistic, sceptical finance guy in the corner just to ask the obvious question like, how much will that cost or, how much revenue will that generate?

“What really helps us become successful is making the right decisions at the right time by picking the right game opportunity or picking the right partner, picking the right platform, setting the price at the right level, making the M&A decision in the right way. That’s really what where I think I can add value,” says Bevis.

Those judgements then determine what he describes as a stack rack- in which projects are prioritised based on potential outcome, risk and opportunity cost- whether they or internally or externally sourced ideas. “It’s about getting that balance right and having a range of different projects and making sure always that we are picking the right thing to do at the right time,” says Bevis.

The challenge of making the correct decisions is complicated by a growing array of operating formats and marketing options. “We are constantly refining and checking as we go through to make sure that our long-term plan is moderated and adjusted,” he says.

For Bevis it has meant having to invest time to understand how best to capture market share. For example, his initial reticence about signing up to a subscription deal with a major platform, effectively allowing “free” access to a game, was overturned when it was revealed that this kind of model can result in increased take up of the game. ”You have so many eyeballs on the game, so many people playing at the same time, that it’s a great way of promoting the game which ultimately provides for an exit rate which is actually stronger than the entry rate into the subscription period,” he says.

“That’s an example where you can have strong views as a CFO about what seems to make logical sense but you do have to listen to others and learn and accept that sometimes actually you might not have quite the right view,” he says.

Where finance has been able to bring about greater effectiveness in decision-making is through developing a growing set of non-financial metrics including usage patterns that add to financial metrics using revenue data. “We look at sentiment quite closely, by monitoring forums and message boards to see what kinds of things people are talking about and developed a sentiment tracker. That helps us build up a picture to make decisions,” says Bevis.

Career development

After studying economics at University of Nottingham “an enabling subject which gave me a broad understanding of how things worked in the world”, Bevis was hired by Deloitte’s Cambridge office.

But despite the location, the set of clients he worked on “wasn’t as exciting as you’d expect” Bevis says, prompting a move to the corporate world once he had qualified.

Landing a management accounting position at Bluetooth technology leader CSR (Cambridge Silicon Radio), a FTSE 250 member until it was acquired by US tech giant Qualcomm in 2015. For Bevis it was the start of a relationship with Cambridge-based tech firms that has lasted two decades.

Bevis progressed to a commercial accounting role undertaking budgeting, forecasting planning, analysis and working in contract negotiations, at the firm which missed the boat to IPO in 2000 when the dotcom boom turned to bust.

Four years later CSR listed, at a time when it was working closely with Nokia, then the world’s biggest mobile phone company. In 2009 a reverse takeover of US GPS technology developer SiRF, meant CSR had to delist and relist on NASDAQ and at the same time and implement Sarbanes-Oxley Act governance requirements.

It was a fast-moving environment that helped shape the skill set of Bevis, who became controller and then eventually VP for finance at the firm. “You can keep your head down and stick to your current role or you can look around and absorb more responsibility and take on more,” he says of his 10 years at CSR.

An opportunity to become CFO of a listed company came at Xaar, a supplier of industrial inkjet printheads, also based on Cambridge Science Park. Bevis fitted the bill of someone who had the skills to finesse the finance function to support a fast growth business model based on the firm’s disruptive proposition. “They needed someone to look at their systems and processes, to get ready for anticipated growth,” he says.

Although he was confident of his core finance abilities, Bevis says he was initially concerned about the market-facing aspects of stepping up to become a CFO. But once he became comfortable with Xaar’s financials- that required getting to grips with accounting of the firm’s complicated manufacturing process everything fell into place.

“If you know the story and you know the kind of questions that people are going to be interested in, and you have answers ready, you can you can be very confident in yourself,” he says.

Xaar’s offer, replacing analogue technology in areas such as screen printing or roller printing, saw a spike in revenues and profits, but once some of those markets had been successfully transitioned then sales levels fell away. At the time the firm was seeking new sectors to transform, Bevis had been approached to join Frontier which offered a very different proposition. “I wanted to come to a business to consumer model where making a successful product meant we could see the benefits straight away,” he says

Rather like Xaar, Frontier was looking for a CFO to implement the systems and people to support strong growth potential, says Bevis. Given the trajectory of growth since 2017 when Bevis joined, things have worked out well.

Product pipeline

One of the core aspects of any CFO role is updating the market on future prospects. In the video game world, evidence of a strong pipeline of new products is constantly sought by analysts and shareholders as the sector has matured.

For Bevis, whose mantra when communicating is “keep it simple and consistent”, a series of major launches is what he is constantly keeping external parties updated on.

A strong roster for the next few years is a big reason for upward share price trajectory, despite a fall in operating profit for 2020 of £16.6m from the previous year’s figure of £19.4m on revenue that fell from £89.7m to £76.1m over the same period. At the time of results this decrease, which was expected, was attributed to timing of game releases, with the blockbuster Jurassic World Evolution having made the previous year a tough comparator.

Amongst the new releases are a major expansion for Elite Dangerous, a series of Formula One games and a deal with Games Workshop to release a game based on its Warhammer IP. In addition, there’s new formats planned for Jurassic World Evolution and Planet Coaster as well as ambitious plans for the Frontier Foundry party publishing model. “They develop the game and then we publish the game and we share its financial success.” says Bevis.

“We’re always keen to engage with financial analysts to make sure that they’re not getting too excited and putting in numbers that are too big. But with our strong future pipeline of games it is quite hard to not get excited,” he enthuses.

Key to continued success is harnessing the creative strengths of the 580 staff that normally work out of one building in the Cambridge Science Park, but have been working from home, to deliver the best quality product in a highly competitive market.

In such a creative sector there are challenges around so many staff working from home, including 100 starters since the start of lockdown who have yet to set foot in the office. “We’re putting a lot a lot of effort into making sure people are connected, with physical collaboration meetings as well as plenty of video meetings of course,” says Bevis.

When it comes to future demand, he believes any trends toward players becoming more price conscious as the economy is impacted will be countered by the effects of lockdowns over the winter. “People will continue to turn to video games – it’s such a great form of really engaging entertainment which is relatively cheap,” he adds.

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