The directors present the strategic report on NaturalMotion Limited ("the company") for the Period ended 31 March 2023. The registered number of incorporation of the company is 04304578.
Principal activities
The principal activity of the company is that of the licensing of its intellectual property for use in the development and publishing of video games for mobile devices. The company mainly earns intercompany revenue from its parent company, Zynga Inc. (“Zynga”) for the provision of the aforementioned services.
The business has switched its focus from systematically growing and improving upon its 3D animation and simulation technology to downscale in this area, and support the group containing its mobile game R&D subsidiary. The company’s technology does not represent an area of focus for the directors given the higher returns envisaged elsewhere across the group and the rise of well backed competitors providing off the shelf solutions to studios. Whilst the company’s technology is highly valued amongst its existing customer base, identifying and attracting new customers is challenging in a consolidating gaming market.
The company’s profit before taxation for the financial year was £48,949 (2021: loss of £65,249). After charging (2021: crediting) taxation of £nil (2021: £27,907) an amount of £48,949 (2021: £37,341) was credited (2021: charged) to reserves.
The directors recommend an interim ordinary dividend of £nil for the financial year (2021: nil).
A standard set of key performance indicators, including revenue, expense, and gross profit margin metrics are consistently applied at the company. Financial control is exercised through a rigorous annual budgeting process and timely monthly financial reporting. The directors are satisfied that reviews of such business and financial results reflect good business practice and that such reviews are performed in a timely manner to allow any required necessary corrective action to be taken.
The principal risks and uncertainties have been identified as the emergence of rival game developers, global recession reducing spending on mobile gaming, and the ability to grow or maintain the Zynga group’s audience through the release of new games. In addition, there is a risk that the services provided by the company to Zynga Inc. may no longer be required by the parent company.
Staff remuneration and benefits are constantly monitored and actively benchmarked to ensure the company is offering fair compensation for the efforts of its employees. Staff training is of primary importance to the directors to ensure its employees remain at the cutting edge of mobile game development.
The company operates a framework for employee information and consultation which complies with the Information and Consultation of Employees Regulations 2004. During the year, the policy of providing employees with information about the company continued through the fortnightly studio updates, quarterly all hands meetings, and regular CEO lunches, in which employees have been encouraged to ask any questions they may have and share their views on the company’s activities and performance.
The company gives full consideration to applications for employment from disabled persons where the candidate’s particular aptitudes and abilities are consistent with adequately meeting the requirements of the job. Opportunities are available to disabled employees for training, career development, and promotion.
Where existing employees become disabled, it is the company’s policy to provide continuing employment wherever practicable in the same or alternative position and to provide appropriate training to achieve this aim.
The company’s sole customer is Zynga and regular communication is maintained directly between the management teams of both the company and Zynga. Feedback received from Zynga on title delivery is analysed and implemented in a timely fashion, with the results are communicated back to Zynga management. For all development activity the ultimate customer can be considered to be the player. All teams within the company develop titles according to a set of criteria that respect our players as partners, delivering them high quality, stable releases which add value to their experience.
Suppliers are where possible paid within their credit terms so the company can maintain good working relationships with those it considers critical to its success. The company continues to work with a list of suppliers it has worked with for many years, who understand the needs of the company and who have experience of the working practices of the company. The company along with Zynga maintains a team of individuals dedicated to the maintenance of existing supplier relationships and establishment of new ones.
On behalf of the board
The directors present their annual report and financial statements for the Period ended 31 March 2023. The registered number of incorporation of the company is 04304578.
The results for the Period are set out on page 8.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the Period and up to the date of signature of the financial statements were as follows:
None of the directors who held office at the end of the financial year or at the date of the approval of the financial statements had any disclosable interest in the shares of the company.
Directors’ liabilities
No liabilities subsisted to directors of the company throughout the year, and no indemnity provisions have been granted to any director during the year. No such indemnity provisions are in force as at the signing of the director’s report.
Throughout the year, the company derived all its revenue from its subsidiary, NaturalMotion Software Limited, its parent company Zynga Game International Limited, and its ultimate parent Zynga Inc. The company has no plans to market its products and intellectual property to other parties.
All of the cash assets held at the period ended 31 March 2023 are immediately available and not on long term deposits.
The financial statements are prepared on a going concern basis. The directors have reviewed the going concern basis in light of the expected future trading results of the company and the cash position of the company, believing the company to have a positive trading outlook. The ultimate parent company, Take-Two Interactive Software Inc, has confirmed its intention to provide the necessary financial support to enable the company to trade for at least a period of 12 months from the date of approval of these financial statements and consequently the directors have prepared the financial statements on a going concern basis.
In accordance with s485 of the Companies Act 2006, a resolution is proposed at the next board meeting for the re-appointment of Alliotts LLP, as auditor of the company.
As the company has not consumed more than 40,000 kWh of energy in this reporting period, it qualifies as a low energy user under these regulations and is not required to report on its emissions, energy consumption or energy efficiency activities.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial Period for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows:
the engagement partner ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations;
we identified the laws and regulations applicable to the company through discussions with directors and other management, and from our commercial knowledge and experience of the sector;
we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the company, including the Companies Act 2006, taxation legislation, data protection, anti-bribery, employment, environmental and health and safety legislation;
we assessed the extent of compliance with the laws and regulations identified above through making enquiries of management and inspecting legal correspondence; and
identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit.
We assessed the susceptibility of the company’s financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by:
making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud;
considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations, and
understanding the design of the company's remuneration policies.
To address the risk of fraud through management bias and override of controls, we:
performed analytical procedures to identify any unusual or unexpected relationships;
tested journal entries to identify unusual transactions;
assessed whether judgements and assumptions made in determining the accounting estimates were indicative of potential bias; and
investigated the rationale behind significant or unusual transactions.
In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to:
agreeing financial statement disclosures to underlying supporting documentation;
enquiring of management as to actual and potential litigation and claims; and
reviewed legal expenses for indications of non-compliance or legal action.
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any.
Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
Naturalmotion Limited is a private company limited by shares incorporated in England and Wales. The registered office is 7 Savoy Court, London, WC2R 0EX.
The financial statements are presented for a period of more than one year in order to align with group companies. Therefore amounts presented under comparatives may not be entirely comparable.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues: The disclosure requirements of paragraphs 11.42, 11.44, 11.45, 11.47, 11.48(a)(iii), 11.48(a)(iv), 11.48(b), 11.48(c), 12.26, 12.27, 12.29(a), 12.29(b), and 12.29A;
Section 26 ‘Share based Payment’: Share based payment arrangements required under FRS 102 paragraphs 26.18(b), 26.19 to 26.21 and 26.23;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The financial statements of the company are consolidated in the financial statements of Take-Two Interactive Software, Inc., available at www.sec.gov.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The average monthly number of persons (including directors) employed by the company during the Period was:
Their aggregate remuneration comprised:
The directors did not receive any emoluments in respect of their services to the company in the current or prior year. There was no director in the company that accrued any benefit under the defined contribution pension scheme during the current or prior year.
The actual charge/(credit) for the Period can be reconciled to the expected charge/(credit) for the Period based on the profit or loss and the standard rate of tax as follows:
Details of the company's subsidiaries at 31 March 2023 are as follows:
Amounts due from group undertakings are repayable on demand.
Amounts due to group undertakings are repayable on demand.
During the year the company continued to act as a guarantor for an office rental lease agreement on behalf of its subsidiary NaturalMotion Games Limited, guaranteeing that the company will meet the obligations udner the lease should NaturalMotion Games Limited fail to.
The company, a wholly owned subsidiary of ZINT Holdings LLC, has taken advantage of the exemption under FRS 102 not to disclose transactions with other group companies as related party transactions.
The ultimate controlling party of the company is Zynga Inc, a company incorporated in the USA. Zynga Inc prepares consolidated accounts and its registered office is 699 8th Street, San Francisco, California, 94103.
On 23rd May 2022 the parent company Zynga Inc. was acquired by Take-Two Interactive Software, Inc. and therefore the ultimate controlling party as at the date of signing the financial statements is Take-Two Interactive Software, Inc., its registered office is 110 West 44th Street, New York, New York, 10036.