Separating trading from credits

Frontier Developments, the Cambridge-based maker of creative management simulation games such as Planet Coaster, Planet Zoo and Jurassic World Evolution, and a FTSE AIM UK 50 member, has issued no regulatory news since its AGM results on 29 October 2026. (LSE:FDEV) This article returns to its FY26 results, published on 9 September, to examine a question that the headline profit figures do not answer on their own: how much of the record year came from government-backed tax and expenditure credits rather than game sales.

On the LSE delayed price for the 3 November session, the shares were 506p, down 1.75%.

The headline numbers

For the year to 31 May 2026, Revenue rose 16% to £104.8m, adjusted operating profit increased 62% to £21.4m and statutory operating profit almost doubled to £25.0m. (LSE:FDEV) Basic Earnings Per Share climbed 76% to 74.6p, helped by Buybacks that reduced the share count by 10%. Cash was £44.0m at the year end and £51.4m at 31 August.

How the credits work

UK games developers can claim support on qualifying development spending. (LSE:FDEV) Frontier explains that the newer Video Game Expenditure Credit, or VGEC, is recorded within operating profit as other operating income, whereas most benefit under the older Video Games Tax Relief appeared in the tax line. On our reading, that presentational shift lifts statutory operating profit relative to earlier years, before any change in the underlying benefit.

Under IFRS, Frontier recognised £10.0m of VGEC and Research and Development expenditure credits in other Operating Income in FY26, against nil in FY25. (LSE:FDEV) That £10.0m included a one-off £4.4m transitional Credit from moving certain games from the old scheme to the new. A further net tax credit of £1.9m sat in the tax line.

What adjusted profit includes

The adjusted measure treats credits differently. It recognises development-related credits as qualifying spending is incurred and excludes the £4.4m transitional item. On that basis, credits contributed £12.8m to adjusted operating profit in FY26, compared with £6.8m in FY25.

By our calculation, adjusted operating profit excluding credits would have been about £8.6m in FY26 and £6.4m in FY25. On our reading, the Business still improved on that basis, but credits account for roughly 60% of FY26 adjusted operating profit and most of the year's increase. However, the FY25 adjusted figure included a £3.9m gain from selling publishing rights, so the underlying trading improvement is larger than this simple comparison suggests; Frontier says that, excluding the gain, adjusted operating profit more than doubled. Management itself lists higher tax and expenditure credits, alongside strong trading and cost control, as drivers of the record result.

Why it matters and what could change

Credits are a legitimate and recurring feature of UK game development, but they depend on government policy and on continued qualifying spending. A change to scheme rates or eligibility would affect reported profit directly. The transitional credit will not repeat, so statutory comparisons for FY27 face a tougher base. Credits also scale with development investment, which means profit support is linked to spending on games whose commercial success is not assured.

Gross Margin fell to 67% from 70%, reflecting higher intellectual property royalties and physical disc distribution, which is another reason to look beyond headline profit growth.

Next steps

Planet Zoo 2 launched on 13 October 2026, and Warhammer 40,000: Chaos Gate - Deathwatch is scheduled before the end of FY27; a new Planet Franchise is planned for FY28. The board said it was confident of delivering FY27 in line with expectations, and indicated further buybacks were expected, subject to market conditions and Shareholder approval. Interim results for the six months to 30 November 2026 should show how the credit contribution evolves alongside sales from the new release.