TIDMKWS
RNS Number : 2516T
Keywords Studios PLC
24 March 2021
24 March 2021
Keywords Studios PLC ("Keywords Studios", "Keywords", the
"Group")
Full year results for the year to 31 December 2020
Strong performance, despite COVID-19 constraints
Keywords Studios, the international technical and creative
services provider to the global video games industry, today
announces its full year results for the year to 31 December
2020.
Financial Overview:
Results for the year to 31 December 2020 2019 % change
2020
----------- ------------ ----------
Group revenue EUR373.5m EUR326.5m +14.4%
Organic Revenue growth (1) +11.7% +15.5%
Adjusted EBITDA (2) EUR74.2m EUR57.6m +28.8%
Adjusted EBITDA margin 19.9% 17.6%
EBITDA (2) EUR66.8m EUR43.4m +53.9%
Adjusted profit before tax (3) EUR55.0m EUR40.9m +34.5%
Profit before tax EUR32.5m EUR17.4m +86.8%
Adjusted earnings per share (4) 60.93c 48.78c +24.9%
Earnings per share 30.32c 15.23c +99.1%
Total dividend per share 0.0p 0.58p
Adjusted cash conversion rate (5) 97.2% 80.2%
Net cash / (net debt) EUR102.9m (EUR17.9m)
Highlights :
Strong revenue growth, despite COVID-19 disruptions, with
healthy market backdrop
-- Organic Revenue up 11.7% despite operational and content flow
constraints in some service lines, particularly Testing, Audio and
Localization
-- Keywordians worked hard to deliver on robust demand, whilst
the video games industry enjoyed significant increases in players
and gameplay during lockdowns
-- At the end of 2020, c. 6,900 Keywordians were working from
home, representing a dramatic change in our working environment
Increased profitability and cash generation driving strong
balance sheet and liquidity
-- Adjusted EBITDA up 28.8% to EUR74.2m, with margin up 2.3% pts to 19.9% (2019: 17.6%)
-- Strong cash conversion with Adjusted Free Cash Flow (6) of
EUR53.4m (2019: EUR32.8m) and an Adjusted Cash Conversion rate of
97.2% (2019: 80.2%)
-- Strong cash generation and EUR110m placing in May led to net
cash of EUR102.9m (2019: EUR17.9m net debt) and a EUR100m undrawn
Revolving Credit Facility, despite EUR39.9m net cash spend on
acquisitions in the year
Delivered on our acquisition strategy following placing in
May
-- Seven highly complementary acquisitions announced in 2020,
with total maximum consideration of up to EUR97.2m:
-- Maverick Media, g-Net and Indigo Pearl added significant
scale to Marketing Services
-- Coconut Lizard, High Voltage, and Heavy Iron brought three
high quality studios into Game Development
-- Jinglebell enhanced our offering in Audio
-- In line with our strategy to strengthen Game Development and
Marketing Services and become the suppliers of choice for our
global client base, whilst selectively acquiring in other service
lines
-- Exited the year with Pro Forma Revenue (7) of EUR409.2m (2019: EUR333.6m)
-- Recent post year end acquisition of an 85% share in Tantalus
provides entry point into the Australian Game Development market,
for total maximum consideration of up to US$46.8m
-- Net cash and undrawn RCF provide significant resources for further selective acquisitions
Senior Management Update
-- Sonia Sedler appointed as COO on 18 January 2021, to lead the
organic business growth strategy and the operational performance of
the business, bringing deep experience in driving operational
excellence across an international footprint and delivering world
class client services
-- On 15 March 2021 the Board announced that Andrew Day, CEO,
would take a temporary leave of absence from the business for
health reasons, with immediate effect
-- During this period, Jon Hauck, CFO, and Sonia Sedler, COO,
have been appointed as joint interim CEOs, supported by the Group's
strong service line and regional management team. The Board will
continue to determine the Group's strategic direction
-- Andrew Day is expected to return to his position following a
period of recovery and he will remain a member of the Board of
Directors
Strong demand in 2021 and beyond, supported by new generation
console launches
-- Trading in Q1 has started well with the momentum in the
second half continuing into 2021, despite the ongoing COVID-19
related constraints
-- Stronger demand across our service lines following newly
launched PlayStation 5 and Xbox X|S Series consoles, alongside the
ongoing development of new subscription based and streaming
platforms
-- Publishers expected to focus more on developing new content,
to keep gamers engaged following increases in both numbers of
gamers and gameplay
-- With the continued strong trend towards outsourcing, Sonia
Sedler brings significant experience in large, global outsourced
professional services
-- Well-funded to deliver on our value accretive acquisition
strategy and continue to actively engage with selected targets from
a healthy pipeline of opportunities
-- The Board intends to resume its progressive dividend policy in 2021
Jon Hauck, Joint Interim CEO of Keywords Studios commented:
"The Group achieved a strong performance in a year that was
heavily impacted by the global pandemic and, on behalf of the
Board, we are prouder than ever of the dedication of all our
talented Keywordians through this challenging year. We reacted with
agility to fundamental changes to our ways of working, whilst
continuing to deliver the excellent service that our clients have
come to expect.
"The Group's strong position in the buoyant video games market,
our increasingly sought after 9,000 people strong resource base, a
robust business model that has proven capable of continued growth
in the face of the pandemic, together with our financial strength,
places us well for further growth and long-term success.
"As we enter 2021, we are very confident in the Group's
opportunity for growth due to the continued trend towards
outsourcing and an increased focus on content creation in a growing
video games market. This combined with our ability to increase our
market share and to selectively acquire high quality businesses
will allow us to further cement our position as the 'go to'
provider of technical and creative services to a global client
base."
A presentation of the full year results will be made to analysts
at 9.30am this morning and the live webcast can be accessed via
this link: http://bit.ly/KWS_FY20_results . To register for dial in
access, or for any enquiries, please contact Charles Hirst or
Isabella Grace at MHP Communications on +44 7595 461 231 / +44 7860
821978 or email keywords@mhpc.com.
For further information, please contact:
Keywords Studios ( www.keywordsstudios.com
)
Jon Hauck, Joint Interim Chief Executive Officer
Sonia Sedler, Joint Interim Chief Executive
Officer
Joseph Quinn, Investor Relations +353 190 22 730
Numis (Financial Adviser, Nominated Adviser
and Corporate Broker)
Stuart Skinner/Kevin Cruickshank/Will Baunton 020 7260 1000
MHP Communications (Financial PR) 020 3128 8100
Katie Hunt/James Midmer/Charles Hirst keywords@mhpc.com
About Keywords Studios ( www.keywordsstudios.com )
Keywords Studios is an international technical services provider
to the global video games industry. Established in 1998, and now
with over 65 facilities in 22 countries strategically located in
Asia, Australia, the Americas and Europe, it provides integrated
art creation, marketing services, software engineering, testing,
localization, audio and customer care services across more than 50
languages and 16 games platforms to a blue-chip client base of over
950 clients across the globe.
Keywords Studios has a strong market position, providing
services to 23 of the top 25 most prominent games companies,
including Activision Blizzard, Bandai Namco, Bethesda, Electronic
Arts, Konami, Microsoft, Riot Games, Square Enix, Supercell,
TakeTwo, Epic Games and Ubisoft. Recent titles worked on include
Call of Duty: Modern Warfare, Anthem, Star Wars Jedi: Fallen Order,
Assassin's Creed Odyssey, Valorant, League of Legends, Fortnite,
Clash Royale and Doom Eternal. Keywords Studios is listed on AIM,
the London Stock Exchange regulated market (KWS.L).
The Group reports a number of alternative performance measures
(APMs) to present the financial performance of the business which
are not GAAP measures as defined by International Financial
Reporting Standards (IFRS). The Directors believe these measures
provide valuable additional information for the users of the
financial information to understand the underlying trading
performance of the business. In particular, adjusted profit
measures are used to provide the users of the accounts a clear
understanding of the underlying profitability of the business over
time. For full definitions and explanations of these measures and a
reconciliation to the most directly referenceable IFRS line item,
please refer to the APMs section at end of the statement.
(1) Organic Revenue at constant exchange rates is calculated by adjusting
the prior year revenues, adding pre-acquisition revenues for the corresponding
period of ownership, and applying the prior year foreign exchange rates
to both years.
(2) EBITDA comprises Operating profit as reported in the Consolidated
statement of comprehensive income, adjusted for amortisation and impairment
of intangible assets, depreciation, and deducting bank charges. Adjusted
EBITDA comprises EBITDA, adjusted for share option expense, costs of
acquisition and integration and non-controlling interest. In order
to present the measure consistently year-on-year, the impact of COVID-19
government subsidies claimed and investment income are also excluded.
(3) Adjusted profit before tax comprises Profit before taxation as reported
in the Consolidated statement of comprehensive income, adjusted for
share option expense, costs of acquisition and integration, amortisation
and impairment of intangible assets, non-controlling interest, foreign
exchange gains and losses, and unwinding of discounted liabilities.
In order to present the measure consistently year-on-year, the impact
of COVID-19 government subsidies claimed and investment income are
also excluded.
(4) Adjusted earnings per share comprises the adjusted profit after tax
divided by the non-diluted weighted average number of shares as reported.
The adjusted profit after tax comprises the adjusted profit before
tax, less the tax expense as reported in the Consolidated statement
of comprehensive income, adjusted for the tax impact of the adjusting
items in arriving at adjusted profit before tax.
(5) Adjusted cash conversion rate is the adjusted free cash flow as a
percentage of the adjusted profit before tax.
(6) Adjusted free cash flow is a measure of cash flow adjusting for capital
expenditure that is supporting growth in future periods (as measured
by capital expenditure in excess of maintenance capital expenditure).
In order to present the measure consistently year-on-year, the impact
of COVID-19 government subsidies claimed is also excluded.
(7) Pro Forma Revenue is calculated by adding pre-acquisition revenues
of current year acquisitions to the current year revenue numbers, to
illustrate the size of the Group had the acquisitions been included
for a full financial year.
Chairman's Statement 2020
This time last year no one predicted the difficult conditions
brought about by the pandemic. Yet, many of the strengths of
Keywords' business model have shone through, as it moved quickly to
remote working, putting the wellbeing of our people first, and
delivering the projects entrusted to us.
The flexibility shown by management and staff alike in adapting
to new business practices, the continued strong demand for our
services and the discipline shown over managing our cost base,
enabled underlying revenues, margin and profit growth. This was
despite organic growth having been held back by the COVID-19
production constraints that faced the Group.
Early in the crisis, the Board recognised the potential that
this crisis gave us for enhanced expansion. Accordingly, EUR110m
was raised in an equity placing, well supported by shareholders, to
provide the Company with flexibility to capitalise on the strong
pipeline and a unique opportunity in the market.
This support was vindicated both by the Group's performance in
the year and by the eight acquisitions since the placing, which
further strengthen our Game Development, Marketing and Audio
services in line with our strategy. In other ways, the teams in
Keywords very much "stood up to the plate", as shown in the annual
employee survey. The results showed a welcome appreciation of the
efforts made to improve communication, staff recognition and
engagement. This remains a focus, as does our Responsible Business
agenda more broadly.
We were fortunate to have held our annual Strategy Conference in
London in February 2020 before the pandemic really took hold.
Thereafter the Board has not been able to make its customary visits
to overseas locations and so much reliance has been placed on
technologies such as Zoom and Teams to facilitate virtual
face-to-face contact. It is our fervent hope that we shall be
allowed to meet our colleagues in person before long and we look
forward to the enhanced camaraderie and informal intellectual
stimulation that this brings.
The video games industry has benefited from an expanded gaming
population as more people have spent more of their leisure time on
gaming. For our part, we continue to build scale in our existing
activities and to identify new facets of video games service
infrastructure that we can assist our clients with, supporting our
continued expansion within video games. In addition, we continue to
examine opportunities in adjacent sectors and our work in the
broader media and entertainment sector with Netflix, Amazon, Apple
TV+ and others has increased accordingly. We will continue to
review opportunities that supplement our growth in video games to
ensure we take advantage of the increasing convergence of content
and leverage our mastery of the most interactive of all mediums,
video games.
Every year I look back and think "we have done pretty well, but
it could have been better". It is this determination for continuous
improvement that helps underpin the Keywords' culture which views
each year as a stepping stone to the next.
The appointment, in January, of a top class Chief Operating
Officer, Sonia Sedler, with relevant experience in global
outsourced professional services, is another important step in the
quest to continually improve the Group's operational excellence.
With around 9,000 employees in 22 different countries Keywords is
becoming a sizeable enterprise and the internal operational
infrastructure needs to be fit for purpose. I am delighted to
welcome Sonia who in the short period since her appointment in
mid-January has already started to make an appreciable
difference.
On 15 March 2021, we announced that we have agreed for Andrew
Day, CEO, to take a temporary leave of absence from the business
for health reasons, with immediate effect. During the interim
period, Jon Hauck, who has become a key member of the senior team
driving the Group's strategic development since he joined in 2019
as CFO, and Sonia Sedler have been appointed as joint interim CEOs
by the Board, ably supported by the Group's strong service line and
regional management teams. Whilst Andrew has been a driving force
in building Keywords, a key part of his role has been the
development of an exceptional leadership team who we are confident
are well equipped to continue to both drive the Company's strategy
forward and manage the Group's operational performance. Andrew is
expected to return to his position following a period of recovery
and he will remain a member of the Board of Directors.
As mentioned earlier, our management and staff have both
performed admirably during an unprecedented year and the financial
results are a testimony to the commitment of everyone involved, all
of whom deserve a round of applause. Interestingly some of the new
ways of working have also identified opportunities to improve the
way we do things for the benefit of both ourselves and our
clients.
Having previously suspended our dividend programme, we continue
to expect to resume our progressive dividend policy in the 2021
financial year.
On behalf of the Board, we are extremely appreciative of the
efforts across the business in the past year. This dedication,
combined with our strong market position and scale, leaves Keywords
well placed in a buoyant video games market which is driving
increased demand for content creation and a structural trend
towards outsourcing. With a strong balance sheet and an excellent
leadership team in place, we look forward to the coming year with
confidence as we continue to actively review a healthy pipeline of
acquisition opportunities and cement our status as the 'go to'
global video games services platform.
Ross Graham
Chairman
CEO Review
Strong performance, despite COVID-19 constraints
Keywords delivered a strong performance in FY2020, with revenues
up by 14.4% to EUR373.5m, or by 11.7% on an organic constant
currency basis. This performance reflected our team's hard work to
deliver on the continued robust demand for our services, despite
significant COVID-19 related production constraints which delayed
the flow of some content in certain service lines. We are prouder
than ever of the dedication of all our talented Keywordians through
this challenging year, as we reacted with agility to fundamental
changes to our ways of working, whilst continuing to deliver the
excellent service which our clients have come to expect.
The Group's global footprint meant that we first experienced
disruption from the COVID-19 pandemic in China from January, before
experiencing a broader shutdown of the majority of its studios
across the Group from March. Having learnt from our experience
early on in China, we were able to quickly move the vast majority
of our business to a remote working model. However, this was more
of a challenge in our Testing and Audio businesses which had
previously required work to be performed in secure or physical
studios. During this period, the Group received EUR9.2m of COVID-19
related subsidies, largely in the Americas, which supported the
continued employment of staff despite the interruption to the flow
of work. The Group has since been able to facilitate and agree
alternative solutions with our clients, allowing us to provide
remote testing services in a work from home model and undertake
some audio recordings virtually. This enabled us to stabilise
trading at the end of the first half of the year and deliver 15.0%
Organic Revenue growth in the second half of the year (H1: 8.0%),
despite some ongoing operational constraints. Having exited 2020
with the majority of our business still working remotely, these
workarounds are proving highly effective and will enable us to
support customers for as long as remote working is needed.
Demand remained robust throughout the year and the video games
industry has enjoyed significant increases in both player
acquisition and gameplay during lockdowns. However, our business
relies on the production of content and both we, and publishers,
have been held back by operational constraints which have limited
the flow of new content, as set out in more detail in our service
line reviews. We do expect that, with the benefit of increased
players and funds following recent demand, the current year will
see publishers focus more on developing new content to keep gamers
engaged.
Game Development continued its strong performance with Organic
Revenues growing by 17.1% which, combined with recent acquisitions,
positions it as a market leader of some scale with Pro Forma
Revenues of EUR98m at the end of 2020 (before the inclusion of
Heavy Iron and Tantalus Media that completed in January and March
2021, respectively). This excellent performance was delivered
despite strong comparatives as we moved into the second half and
the obvious challenges of recruiting and managing complex projects
in a work from home model. Game Development received significant
further investment during the year as we continue to build this
business to scale across the major geographic territories. We were
pleased, therefore, to be able to welcome to the Group through
acquisition, Coconut Lizard (Newcastle, UK), High Voltage (Chicago
and New Orleans, USA), Heavy Iron (Los Angeles, USA) and our recent
acquisition Tantalus that gives us our first market entry into the
Australian game development market. We enter 2021 with Game
Development being our largest service line and, with a healthy
acquisitions pipeline, we hope to see further development of this
service line through the year.
Our Art Creation & Marketing service line also performed
well in the period, despite some significant early COVID-19 impact
particularly affecting our businesses in China and India. Our
Marketing Services businesses have continued to benefit from
ongoing investment in acquisitions and we were delighted to welcome
Maverick Media in London, UK, g-Net (Los Angeles, USA) and Indigo
Pearl (London, UK) into this group during the year. As a result,
Marketing Services has now achieved sufficient scale, with Pro
Forma Revenues of c. EUR35m and over 190 people employed globally
across 8 studios, and we intend to report on it as a separate
service line from the first half of 2021.
As expected, our Player Support business returned to growth
during the year benefitting from new business wins and some
increase in demand from certain of its existing contracts as they
benefited from increased game playing activity since lockdown
commenced.
Whilst demand was strong for most of our services, COVID-19
related operational and market disruption was particularly apparent
in our Localization service line, where the flow of content into
the business was affected, and in our Testing and Audio service
lines, where the use of facilities was significantly curtailed.
However, the strong operational response to these challenges led to
significantly higher Organic Revenue growth in Functional Testing
and Audio in H2, of 20.6% (H1: 10.7%) and 8.7% (H1: 0.5%)
respectively, while our Localization Testing business delivered
growth of 5.9% and Localization returned to growth in H2. As a
result, we enter 2021 in a much better position and do not expect
to be impacted in the same way, despite the continued COVID-19
related challenges ahead.
The Group's Adjusted EBITDA increased by 28.8% to EUR74.2m,
representing a 2.3 % pts improvement in margin to 19.9%. This was
driven by some operational leverage despite the recruitment
constraints experienced in the year and continued good cost
control, together with a reduction in certain costs due to
COVID-19, such as travel and marketing costs.
We are pleased that this profit performance has also resulted in
strong cash generation, with EUR53.4m of Adjusted Free Cash Flow
representing a 97.2% Adjusted Cash Conversion rate in the period
(2019: 80.2%), albeit 2020 included some phasing benefits as a
result of COVID-19. This demonstrates the strong cash generating
characteristics of the business in a challenging period which
provides the Group with further resources to fund its acquisition
strategy.
We enter 2021 very confident in the Group's opportunity for
growth through a continued trend towards outsourcing, an increased
focus on content creation in a growing video games market, and in
our ability to increase our market share.
Delivering on our strategy
Structural trends to outsourcing driving organic growth
Keywords strategy is to become the 'go to' provider of technical
and creative services to the video games industry in a market where
increased outsourcing has become a structural trend.
Through successful development both organically and through
acquisitions, the Group increasingly stands out as the leader in a
market characterised by highly fragmented, local, single-service
providers, despite the growing needs of the major video games
publishers and developers who act globally.
These customers are increasingly turning to external development
and support services as a way of managing the demands of generating
more sophisticated content whilst limiting their fixed costs, and
so they require the quality, flexibility, and security of a full
service provider of scale.
New consoles spearheading increased demands for content and
support
Demand for video games has accelerated during the pandemic, with
International Data Corporation (IDC) estimating that global
revenues grew by 20% in 2020. For 2021, this is being driven
forward by the launch of next generation games consoles, which is
expected to refresh the entire console based gaming sector after a
seven year run of the PS4 and Xbox One console generation. This is
likely to result in an enlarged market for video games content over
the coming years and an associated demand for new content creation,
which in turn drives demand for Keywords services. Further
development of new and existing video games streaming platforms
will also increase demand for content and its ongoing support in
live operation.
Keywords provides services to the leading game developers and
publishers across all platforms including mobile, console, PC,
streaming, and VR. The Group, therefore, benefits from the secular
trends in gaming, with exposure to all the major gaming companies
and all the leading platforms without the 'hit or miss' risk often
associated with an individual platform or franchise.
Highly successful M&A programme continuing
We remain determined not to allow COVID-19 to halt our highly
successful M&A programme that has always been an integral part
of our strategy. Since our strongly supported EUR110m placing in
May, we are pleased to have been able to welcome eight high quality
new companies to the Keywords family, further strengthening the
breadth and depth of the Group's value-added services.
These brought three high quality studios into Game Development
(High Voltage, Heavy Iron, Coconut Lizard), added significant scale
to Marketing Services (g-Net, Maverick Media, Indigo Pearl) and
enhanced our offering in Audio (Jinglebell). This has been
supplemented by the recent acquisition of Tantalus which gives us
our first entry point into the Australian Game Development market
and provides us with a further platform for both organic and
acquisition led growth in the region.
These acquisitions have been in line with our stated strategy to
focus on building out our Game Development and Marketing service
lines, as we seek to grow these services to become the suppliers of
choice for our global client base, whilst selectively acquiring in
other service lines.
The total consideration for these acquisitions including
performance related contingent deferred consideration elements
(including the acquisition of Heavy Iron that completed in January
2021 and more recently Tantalus in March 2021) is up to a maximum
of c. EUR137m. This is comprised of EUR66m in cash, EUR23m through
the issue of shares and EUR48m payable in a mixture of cash and
shares subject to the businesses meeting certain performance
targets or other conditions over the first 24 months post
completion. We continue to actively review a healthy pipeline of
further acquisition opportunities.
Embracing new ways of working
The senior management team at Keywords has long been used to
working distanced from one another but, like many other businesses,
COVID-19 has forced the same ways of working on the majority of
Keywordians around the globe. In fact, by the end of the year, out
of approximately 9,000 Keywordians, c.6,900 were working from home
representing a dramatic change in the working environment.
We continue to review how we can best utilise our physical
studio footprint once we are through COVID-19 restrictions, and we
are constantly consulting those who really matter, our Keywordians.
In our recent annual employee survey, 43% of people expressed a
preference to continue to work from home, 10% would rather return
to office based working, with 47% preferring a combination of
working from the office and from home.
We see the future as a hybrid of creating vibrant, engaging and
safe studio space, and enabling people to work securely and
constructively from home. There is clearly a role for physical
studios for the Group, particularly to allow for the exchange of
creative ideas, for training, and in our Testing and Audio service
lines. We have, therefore, continued to invest in new studios in
Mexico City, New Delhi, Katowice and Singapore as well as opening a
sixth studio in China in order to support our growth today and into
the future.
We also continue to work hard to engage with and recognise the
efforts of our Keywordians and to support their wellbeing,
including communication to increase the awareness of Employee
Assistance Programmes, with a number of new initiatives having been
introduced during the year including guest speakers on mental
health, virtual yoga and dance lessons, Friday evening online
events, and team quiz nights to name but a few.
Responsible Business
At Keywords we have always been committed to conducting our
business responsibly and operating to the highest standards of
honesty, integrity and ethical conduct. We take our wider corporate
responsibility seriously and are conscious of the role that our
business plays in our communities and the impact it has on the
environment. During 2020 we made good progress on our 6 priority
areas of People, Diversity, Customer Centricity & Innovation,
Communities and the Environment, underlined by Corporate Governance
and Business Ethics:
-- Our Code of Conduct was refreshed and relaunched and is now
available on our website in 12 languages
-- We have established a Global Diversity & Inclusivity
Counsel and introduced unconscious bias training for individuals in
hiring roles
-- The Keywords Cares matching program was launched in which
Keywords will match funds raised for good causes by our teams
around the world
-- We put in place a US$500,000 hardship fund to support
colleagues experiencing financial hardship as a result of
COVID-19
-- For the first time we have quantified our greenhouse gas
emissions focusing on scope 1 and 2 emissions
We have established a Responsible Business Board Committee and
we look forward to reporting on the progress in each of our
priority areas going forward.
Service line review
With the exception of our Localization business, which was held
back by scheduling delays further upstream, all our services lines
grew during 2020, despite the pandemic and the operational
challenges it continues to present.
The following table provides a summary of our revenues by
service line, their growth rates on a reported basis and Organic
Revenue growth. We have also presented Pro Forma Revenue by service
line, which includes the annualised revenue of all acquisitions
made in the year, to provide a better overview of the size and
balance of the business at the end of the year, together with the
average number of operational staff in each service line, excluding
managerial and support staff.
2020 2019 2020 2020
Organic Pro
Change Revenue Forma
% of 2020 Revenue Revenue from 2019 growth Revenue
2020 Average
number of
operational
staff by
Group service
Revenue revenue EURm EURm % % EURm line
Art Creation
& Marketing 15.3% 57.3 43.6 31.4% 17.9% 73.2 1,294
----------- ----------- ----------- ------------ ----------- ----------- --------------
Game Development 21.4% 80.0 66.3 20.7% 17.1% 98.0 1,036
----------- ----------- ----------- ------------ ----------- ----------- --------------
Audio* 12.6% 47.2 41.9 12.6% 5.8% 48.6 230
----------- ----------- ----------- ------------ ----------- ----------- --------------
Functional Testing 21.0% 78.5 68.9 13.9% 16.1% 78.5 2,703
----------- ----------- ----------- ------------ ----------- ----------- --------------
Localization* 12.2% 45.4 47.1 (3.6)% (4.0)% 45.8 375
----------- ----------- ----------- ------------ ----------- ----------- --------------
Localization
Testing 6.3% 23.3 22.6 3.1% 4.4% 23.3 591
----------- ----------- ----------- ------------ ----------- ----------- --------------
Player Support 11.2% 41.8 36.1 15.8% 17.5% 41.8 1,539
----------- ----------- ----------- ------------ ----------- ----------- --------------
Total 100.0% 373.5 326.5 14.4% 11.7% 409.2
----------- ----------- ----------- ------------ ----------- ----------- --------------
* The prior year comparative has been re-classified to reflect
the current year presentation as the Directors consider this to be
more meaningful.
Art Creation & Marketing (15.3% of Group revenues for the
year)
Our Art Creation service line creates graphical art assets for
video games including concept art creation, 2D and 3D art asset
production and animation. Also included under Art Creation is
Marketing services including game trailers, marketing art and
materials, PR and full brand campaign strategies which we are
building through acquisitions, and subsequent organic growth.
FY 2020 performance
Following some initial operational and commercial disruption
from the very early stages of the COVID-19 pandemic, which forced
the closure of studios in China and India particularly and some
delays to early stage marketing planning, Art Creation has seen
strong demand across all of its businesses and has settled firmly
into new ways of working.
Art Creation & Marketing revenues grew by 31.4% to EUR57.3m
(2019: EUR43.6m) with the benefit of full year contributions from
2019 acquisitions, Sunny Side Up and Ichi, and from the
acquisitions of Maverick Media, g-Net and Indigo Pearl, made in
August, November and December 2020 respectively. Organic Revenue,
which excludes the impact of currency movements and acquisitions,
grew by 17.9% for Art Creation & Marketing with a marked
acceleration in H2, where revenues grew by 28.3% organically,
reflecting more settled operations, some catch up demand from H1
and strong underlying client demand.
During the year we added significant scale to our Marketing
services line with the acquisition of three high quality
businesses:
-- Maverick Media - one of the longest established video game
creative agencies in Europe, based in London. It has an impressive
25-year track record in TV commercials, live action projects, video
game trailers, key art and social media work for some of the
world's leading games publishers, developers and brands.
-- g-Net - a Los Angeles based, multi-award-winning studio
providing creative and strategic marketing services for leading
games publishers and media and entertainment companies. The
85-strong talented team bring significant scale and experience of
working with some of the most iconic games franchises to the
Group's Marketing Services line.
-- Indigo Pearl - a full service PR agency specialising in the
video game sector, based in London. It supports its clients across
traditional PR, social media and influencer driven campaigns, and
technology-enabled PR and marketing asset management solutions.
The market opportunity and outlook
Art Creation & Marketing services operate in large
addressable markets which remain highly fragmented. This is
particularly true of Marketing, given the range of services
provided both internally and externally which range from key art,
trailer creation, advertising, PR, branding, campaign management,
influencer marketing and management through to marketing analytics
and community management. Our broad geographical spread enables us
to transfer work between locations as needed, thereby offering
greater business continuity than many of our competitors and
positioning us well with our customers.
Through our ongoing organic efforts and further acquisitions,
our aim is to establish our highly specialised video games
Marketing Services business as the partner of choice for games
publishers and developers when looking for global reach and deep
expertise in a sector, which itself stands out due to the
interactive nature of the product and the strength of the gaming
communities that form around the games.
For both Art and Marketing we are starting 2021 with better than
normal revenue visibility partly due to some carry forward from
2020 but perhaps also signalling a year of even stronger demand
ahead.
As previously stated, we will be reporting separately on our
Marketing service line at our first half 2021 results.
Game Development (21.4% of Group revenue for the year)
Our Game Development service line provides external development
services to game developers and publishers including full game
development, co-development, porting and general software
engineering consultancy.
FY 2020 performance
Now our largest service line, Game Development increased
revenues by 20.7% to EUR80.0m (2019: EUR66.3m). This increase
reflected a full contribution from Wizcorp, which was acquired in
April 2019 and contributions from Coconut Lizard and High Voltage
acquired in June and December 2020 respectively. Game Development
transitioned smoothly to a work from home model from March onwards
in response to COVID-19 related lockdowns in the various cities in
which we operate. Whilst we continue to work under restrictions in
most of the countries in which we operate, Game Development
achieved a 17.1% increase in Organic Revenue (which excludes the
impact of currency movements and acquisitions), compared to FY
2019, despite strong comparatives as we moved into the second half
of the year. As with other parts of our Group, Game Development was
held back in 2020 due to the challenges of COVID-19, which affected
our recruitment, training and on-boarding activities as well as
curtailing our usual trade show-centric, business development
activities. Nonetheless, we have started to benefit from our
expansion in the latter part of 2019 and early in 2020 into
Leamington Spa in the UK, Singapore and Austin, Texas.
Despite the challenges of the global pandemic, demand for these
services remains very strong and we are continuing to build our
Game Development service line through organic expansion as well as
through acquisitions, where we maintain a focus on accessing pools
of talent from which we can expand organically, as the industry
continues to make greater use of external development services.
During the year we have announced three high quality businesses
to grow and diversify our Game Development offering:
-- Coconut Lizard - a well-regarded provider with particularly
deep expertise in the video game development environment, Unreal
Engine. Based in Gateshead near Newcastle, UK, Coconut Lizard draws
from a regional talent pool that is well served by the local
universities in the area.
-- Heavy Iron - a specialised game development business
primarily focused on high end console and PC games, based in Los
Angeles. The acquisition was announced in September 2020 and closed
in January 2021.
-- High Voltage - an end to end full service AAA game developer
with a 27 year track record of game development across all platform
types and genres of games, based in Chicago, Illinois and New
Orleans, Louisiana. High Voltage fits well geographically with our
other North American studios, which are based in Orlando, Austin,
Los Angeles and Ottawa, enabling us to draw on a broader spread of
local talent.
In addition, we recently announce the acquisition of an 85%
stake in Tantalus. Tantalus is a leading and prolific developer of
high quality, multi-platform titles based in Melbourne, Australia
and provides us with access to a new talent pool and offers an
excellent entry point into the Australian market for further
expansion in the region, both organically and through a healthy
pipeline of acquisition opportunities.
The market opportunity and outlook
Game Development is our largest addressable market. The market
is growing strongly and has the lowest proportion of services
outsourced of all of the Group's service lines. Characterised by
'per project' engagements, rather than the ongoing service
provision for many of our other service lines, Game Development
revenues can be impacted by the transitions from one project to
another. As a result of COVID-19, we have witnessed some delays in
new projects flowing to our Game Development team, which may hold
this service line back from maintaining the previously very strong
growth rates, particularly against strong comparatives, albeit the
underlying trend in this area of our business remains extremely
positive with demand for its services very strong.
As previously communicated, Game Development remains an area of
particular focus in our M&A programme, where we continue to
assess companies that provide access to strong pools of talent to
help support the fast pace of organic growth.
Audio (12.6% of Group revenue for the year)
Our Audio service line provides multi language voice-over,
original language voice recording, music, sound design,
accessibility and related services to the Video Games and Film and
TV industries.
FY 2020 performance
Audio revenues rose by 12.6% in the period to EUR47.2m (2019:
EUR41.9m), with the benefit of full contributions from the 2019
acquisitions of Descriptive Video Works, TV+SYNCHRON, and Syllabes
and just a few days of contribution from the December 2020
acquisition of Jinglebell in Milan, Italy. Jinglebell added a
boutique recording studio that provides audio recording, music
production and sound design for video games and advertisements to a
strong client base. Organic Revenue, which excludes the impact of
currency movements and acquisitions, increased by 5.8% compared to
FY 2019.
Our Audio services business was held back throughout the year
but particularly in the first half by the closure of their
recording studios during the lockdowns in their respective cities.
We were able to partially mitigate the effects of these closures by
introducing a remote recording solution. Whilst this is not our
preferred method, it has proved a very reliable alternative. H2
Organic Revenue growth improved to 8.7%, following the 0.5% growth
achieved in H1.
The market opportunity and outlook
Whilst COVID-19 restrictions continue during 2021, our adoption
of a reliable remote recording solution will enable us to continue
to deliver on our clients' needs.
Beyond the near term, the audio services market remains highly
fragmented in terms of service provision, with clients and voice
actors favouring professional, high quality sound studios for
optimal voice recording. This represents an opportunity for us to
grow our market share organically, as well as make acquisitions
over time as we did with the acquisition of Jinglebell at the end
of the year.
Our music management services, sound design and sound effects
businesses have continued to grow as did our work in subtitling and
dubbing of film and TV content where we serve clients such as
Netflix, Amazon and other streaming providers.
Functional Testing (21.0% of Group revenue for the year)
Functional Testing is our second largest service line and
provides quality assurance including the discovery and
documentation of game defects; testing to ensure games are
compatible with the various hardware devices and configurations
they are played on; and testing to verify that games comply with
console manufacturers' specifications.
FY 2020 performance
Functional Testing revenues increased by 13.9% to EUR78.5m
(2019: EUR68.9m). Organic Revenue, which excludes the
impact of currency movements and acquisitions, increased by 16.1%.
This represented a strong performance, given that this service
line was considerably constrained at the beginning of the lockdowns
in H1, as we worked through our agreements with our clients to
reflect the new security protocols required in a remote working
environment, rather than our norm of conducting these services in
our secure testing studios. During H2 and into 2021, we are
continuing to operate this business with a remote working
structure, focusing our limited use of our secure facilities for
recruitment, training and a limited amount of testing, where it is
safe to do so.
The market opportunity and outlook
Despite the limited use of our facilities and some constraints
on our ability to recruit and train staff, Functional Testing
scaled well into the seasonal peak months of September and October,
delivering a strong 20.6% Organic Revenue growth rate in H2,
despite the strong comparatives of H2 2019.
We remain a leading player in this large and growing area of the
market that is seeing an accelerating trend towards outsourcing.
Our scale, flexibility, geographical spread and proven robustness,
even in the most challenging of circumstances, positions us well as
games companies continue to increase the proportion of functional
testing that they outsource.
Localization (12.2% of Group revenue for the year)
Our Localization service line provides translation of in-game
text, audio scripts, cultural and local adaptation, packaging and
marketing materials. We have also recently added neural machine
translation technology and a global crowd sourcing translation
platform, through the acquisition of Kantan in December 2019.
FY 2020 performance
Localization revenues were down by 3.6% to EUR45.4m (2019:
EUR47.1m). Organic Revenue, which excludes the impact of currency
movements and acquisitions, was down by 4.0%. This reflected some
delays in the receipt of content in H1, as production schedules
further upstream were disrupted at some of our clients. However,
Localization returned to Organic Revenue growth in H2, which was up
0.3% on the comparative period in 2019.
The market opportunity and outlook
Having strengthened our sales efforts, we expect to build on the
improvement seen in H2 2020 as we move into 2021.
The Localization market remains highly fragmented and
characterized by most competitors being single language providers
without the scale to deliver simultaneous multi-jurisdictional
localization projects for our global video games customer base. In
this context, we plan to build on our team's leading market
position through an increasingly differentiated offering. This
combines the market leading expertise we have built up in
localization over the past 20 years, with proprietary software
tools, like XLoc, and the recently acquired Artificial Intelligence
(AI) and Machine Learning (ML) technology from Kantan, which
enables us to manage a greater volume of content for our
clients.
Localization Testing (6.3% of Group revenue for the year)
Our Localization Testing service line identifies out of context
translations, truncations, overlaps, spelling, grammar, age-rating
and cultural issues and tests for console manufacturer compliance
requirements in over 30 languages using native speakers.
FY 2020 performance
Localization Testing revenue increased by 3.1% to EUR23.3m
(2019: EUR22.6m). On an Organic basis, which excludes the impact of
currency movements, Localization Testing was 4.4% higher compared
to FY 2019.
Localization Testing experienced the same operational disruption
and constraints seen in our Functional Testing division during H1,
compounded by some lack of availability of native language
resources due to people returning to be with their families in
their home countries and the subsequent travel restrictions.
However, as in the case of Functional Testing, we have successfully
transitioned the majority of people to remote working and are also
now using our studios for priority activities, where it is safe to
do so.
Localization Testing experienced good demand in the second half
in relation to a number of AAA game releases, including some for
the new Microsoft and Sony console releases. Whilst the pandemic
continues to present challenges for the recruitment and training of
native language testers, our efforts to mitigate these enabled
higher Organic Revenue growth in H2 2020 of 5.9% compared to H2
2019.
The market opportunity and outlook
Having worked to mitigate the operational constraints
experienced in 2020, we expect Localization Testing to build on the
momentum seen in H2 during 2021.
In this service line, the Group's scale, breadth of languages,
multi-location operations and resourcing agility enable it to offer
a cost effective, flexible and high quality service which is
difficult for smaller competitors to replicate. Our market
leadership positions us well for further growth as we continue to
develop our operations in Montreal, Dublin, Katowice, Milan,
Singapore and Tokyo.
Player Support (11.2% of Group revenue for the year)
Our Player Support service line provides multi-lingual, cost
effective and flexible customer care services including managing
communities of gamers across all forms of social media, within the
games themselves and on the official game forums.
FY 2020 performance
Player Support increased revenue by 15.8% to EUR41.8m (2019:
EUR36.1m) and Organic Revenue, which is on a constant currency
basis, by 17.5%.
Player Support returned to growth in H1, and successfully
transitioned its teams around the world to remote working
arrangements enabling it to provide continuous support to its
clients. Good demand throughout H2, with this service line being a
more direct beneficiary of increased game play, combined with
well-focussed business development campaigns, helped Organic
Revenues grow 29.7% in H2 compared to H2 2019.
The market opportunity and outlook
Player Support's progress in the year, demonstrates the benefits
of our strategy to differentiate it from the large generalist call
centre operators and immerse ourselves even further into gaming
communities. This has been achieved by extending our services to
cover more 'touch points' of gamer engagement, and by developing
our systems and tools to enable us to manage increased volumes of
transactions efficiently.
Our specialist video games "DNA", extensive range of
capabilities and fundamental understanding of what is important to
players, continues to position us well in terms of the quality of
our service delivery compared to more generalist providers, and we
expect to make further progress in 2021 albeit at a more moderate
growth rate.
Outlook
Trading in 2021 has started well despite the ongoing COVID-19
related constraints. The vast majority of our business continues to
operate a remote working model that we have supported efficiently
and robustly and, having put in place effective alternative remote
solutions for our Audio and Testing service lines, the Group is
well placed to support its clients through further
restrictions.
On an ongoing basis, we are adopting an approach tailored to a
studio's needs in each of the 65+ locations in which we have our
production operations. Each studio continually assesses the needs
and desires of its staff, local guidelines, and the requirements of
our customers in determining how much, if any, of its operations
move back into studios. As such, we are retaining a very flexible
approach to where and how we work in order to adapt to the evolving
COVID-19 related challenges and keep Keywordians safe over the
months ahead.
The underlying drivers of growth across the video games market
have been accentuated during the pandemic. Publishers have
experienced strong growth in both the number of players and the
amount of game play, yet they have faced content production
constraints through the pandemic. As such, we expect them to turn
their focus in the near to medium term to increased development of
new content to keep their expanded player base engaged.
We are already experiencing strong demand across all our service
lines, as we are starting to see the benefit of the newly launched
PlayStation 5 and Xbox Series X|S consoles, alongside the ongoing
development of new subscription and streaming platforms.
We also continue to see strong evidence of the trend to
outsourcing, in which context we are delighted to have been joined
on the Board by Sonia Sedler as Group COO, and subsequently as
Joint Interim CEO. Sonia brings significant operational and
business development experience for large, global professional
services and BPO companies such as Accenture, Sutherland and
Diebold Nixdorf to the Group. Her appointment provides further
breadth to the management team, as we drive the Group's continued
organic and acquisition led growth in the years ahead.
Having acquired eight high quality businesses since our
successful placing in May, deploying total capital of up to c.
EUR137m, the cash generative nature of the business means we remain
well placed to continue to execute on selective acquisition
opportunities. We have a dedicated acquisition team who work with
the Service Line Directors and the Regional Managing Directors to
identify high quality targets to help build out our global service
platform. We will continue to invest in scaling our Marketing
Services and Game Development businesses to the point where they
are seen as the "go to" providers. We will also seek to acquire
businesses in our service lines to add specific expertise, access
to new talent pools or where doing so leads to meaningful
operational synergies.
We maintain an active interest in neighbouring markets such as
film and television services where we are seeing an increased
convergence towards game technology and where our mastery of AI
game engines, localization, audio, visual effects and art creation
for the most complex and interactive form of content can be readily
deployed. Throughout 2020, we have made steady progress in
developing our subtitling, dubbing, audio description and sound
design services primarily for over the top (OTT) providers such as
Netflix and Amazon, and we are pleased to see the increasing
adoption of video game based production techniques as these
industries look for faster and more cost effective ways of
generating content.
The Group's strong position in the buoyant video games market,
our increasingly sought after 9,000-people strong resource base, a
robust business model that has proven to be not just resilient in
the face of the pandemic but capable of continued rapid growth,
together with our financial strength place us well for further
growth and long-term success.
Jon Hauck
Joint Interim CEO
Financial and Operating Review
Resilient performance in a period of significant disruption
Revenue
Revenue for 2020 increased by 14.4% to EUR373.5m (2019:
EUR326.5m). This growth was supplemented by the full year impact of
acquisitions in 2019 and the acquisitions made in 2020, but offset
by the impact of currency movements, particularly the weakening of
the US dollar in the second half of the year, and certain service
lines having been held back by COVID-19 disruptions during the
year.
Organic Revenue growth (which adjusts for the impact of currency
movements and acquisitions) was up 11.7%. This was driven by a
robust performance in most service lines, despite being held back
in the first half of the year due to the studio closures,
particularly in our Testing and Audio businesses, and short term
client side disruption to content flowing into Localization. The
business delivered a stronger performance in the second half of the
year with Organic Revenue growth of 15.0% (H1: 8.0%) driven by
continued strong demand for most of our services and with all
businesses settling down into the new ways of working.
Gross margin
Gross margin in 2020 was EUR141.8m (2019: EUR120.2m)
representing an increase of 17.9%. The gross margin improved by
1.2% pts to 38.0% (2019: 36.8%) despite the margin improvement
having been held back by the revenue shortfalls from March onwards
compared to pre-COVID-19 expectations, particularly in our Testing,
Audio and Localization service lines.
Operating costs
Adjusted operating costs increased by 7.9% to EUR67.6m (2019:
EUR62.6m), reflecting a larger Group, but reduced to 18.1% of
revenue versus 19.2% in 2019. This was driven by operational
leverage and good cost control, together with a reduction in
certain costs due to COVID-19, such as travel and marketing costs
.
EBITDA
Adjusted EBITDA increased 28.8% to EUR74.2m compared with
EUR57.6m for 2019 resulting in an improvement in Adjusted EBITDA
margin of 2.3% pts to 19.9% (2019: 17.6%). As noted above, the
margin partly benefited from a reduction in certain costs during
COVID-19, albeit it was held back by the revenue shortfalls from
March onwards versus previously anticipated levels.
Net finance costs
Net finance costs increased by EUR4.4m to EUR8.6m (2019:
EUR4.2m) largely driven by a EUR4.4m increase in the net foreign
exchange loss which is described in more detail below. Underlying
interest costs on bank debt (excluding IFRS 16 interest, deferred
consideration discount unwind, bank charges and foreign exchange)
increased by EUR0.1m to EUR1.0m (2019: EUR0.9m). This reflected the
repayment of drawings on the RCF following the successful EUR110m
placing in May, since when we have maintained a strong net cash
position despite the Group's acquisition spend.
Alternative performance measures (APMs)
The Group reports a number of APMs to present the financial
performance of the business which are not GAAP measures as defined
by IFRS. The Directors believe these measures provide valuable
additional information for the users of the financial information
to understand the underlying trading performance of the business.
In particular, adjusted profit measures are used to provide the
users of the accounts a clear understanding of the underlying
profitability of the business over time. A breakdown of the
adjusting factors is provided in the table below:
2020 2019
EURm EURm
Share option expense 15.4 9.8
Acquisition and integration costs 2.6 4.3
Amortisation and impairment of intangible assets 8.8 7.3
COVID-19 government subsidies claimed (9.2) -
Investment income (1.4) -
Foreign exchange and other items 6.3 2.1
------- -------
22.5 23.5
------- -------
2.3m of options were granted under the Share Option Scheme and
Long Term Incentive Plan in H1 2020. This, together with grants
from previous years, has resulted in a non-cash share option
expense of EUR15.4m in 2020 (2019: EUR9.8m). The increase is
largely due to an increase in the fair value charge for the more
recent grants compared to previous years reflecting the increase in
the share price.
One-off costs associated with the acquisition and integration of
businesses amounted to EUR2.6m (2019: EUR4.3m).
The amortisation and impairment charge of EUR8.8m (2019:
EUR7.3m) includes a EUR2.1m non-cash charge relating to an
impairment of intangible assets in certain pre-revenue businesses.
These businesses have potentially exciting prospects but their
speed to market has been hampered by COVID-19.
During the year the Group benefited from EUR9.2m of COVID-19
related government subsidies, largely in the Americas aimed at
supporting employment during the COVID-19 crisis. In addition, the
Group made a EUR1.4m gain on the disposal of an investment in Hutch
Games that was acquired with the acquisition of Liquid Development
in 2015. Due to the one off nature of both items the income was
excluded in arriving at the adjusted profit measures in order to
assist with the understanding of the underlying trading
performance.
Foreign exchange and other items amounted to a net charge of
EUR6.3m (2019: EUR2.1m). Keywords does not hedge foreign currency
exposures. The effect on the Group's results of movements in
exchange rates and the foreign exchange gains and losses incurred
during the year mainly relate to the effect of translating net
current assets held in foreign currencies. This resulted in a net
foreign exchange loss of EUR6.1m, recorded within financing cost
(2019: EUR1.7m loss).
A more detailed explanation of the measures used together with a
reconciliation to the corresponding GAAP measures is provided in
the APMs section at the end of the statement.
Profit before taxation
Profit before tax increased by EUR15.1m (+87.1% year on year) to
EUR32.5m (2019: EUR17.4m). Adjusted Profit Before Tax, which
adjusts for the items described in the APMs section above increased
by EUR14.1m (+34.5% year on year) to EUR55.0m compared with
EUR40.9m in 2019. This represents an improvement in Adjusted profit
before tax margin of 2.2% pts to 14.7% (2019: 12.5%) and is in line
with our historical margin delivery of between 14-15%.
Taxation
The tax charge increased by EUR3.5m to EUR11.0m (2019: EUR7.5m)
largely reflecting the increase in the profit before tax of the
business. After adjusting for the items noted in the APMs section
above and the tax impact arising on the bridging items, the
Adjusted Effective Tax Rate for 2020 was 21.5% (H1 2020: 21.5%)
compared with the rate of 22.4% in 2019. This improvement was
partly driven by the non-repeat of a legacy pre-acquisition tax
charge of EUR0.5m incurred in the prior year.
Earnings per share
Basic earnings per share increased by 99.1% to 30.32c (2019:
15.23c) reflecting the increase in the statutory profit after tax
of 116.6%, partially offset by an 8.8% increase in the weighted
average number of shares following the 10.5% equity placing in May
of 2020. Fully diluted earnings per share, reflecting the impact of
unvested share options, increased by 94.9% to 28.71c (2019:
14.73c)
Adjusted earnings per share which adjusts for the items noted in
the APMs section and the tax impact arising on the bridging items
above was 60.93c representing an increase of 24.9% (2019:
48.78c).
Cash flow and net debt
2020 2019 Change
Cash flow statement EURm EURm EURm
Adjusted EBITDA 74.2 57.6 16.6
MMTC and VGTR 0.6 (5.9) 6.5
Working capital and other items (2.2) (1.7) (0.5)
Capex - property, plant and equipment
(PPE) (13.9) (13.1) (0.8)
Capex - intangible assets (0.3) (0.4) 0.1
Payments of principal on lease
liabilities (8.2) (7.4) (0.8)
COVID-19 employment support subsidies 9.2 - 9.2
-------- --------- ----------
Operating cash flows 59.4 29.1 30.3
Net Interest paid (1.6) (2.1) 0.5
-------- --------- ----------
Free cash flow before tax 57.8 27.0 30.8
Tax (4.5) (13.3) 8.8
-------- --------- ----------
Free cash flow 53.3 13.7 39.6
M&A - acquisition spend (39.9) (27.8) (12.1)
M&A - acquisition and integration
costs (2.3) (3.8) 1.5
Investment income 1.4 - 1.4
Dividends paid - (1.2) 1.2
Shares issued for cash 111.7 0.8 110.9
-------- --------- ----------
Underlying increase / (decrease)
in net cash / (debt) 124.3 (18.3) 142.5
FX and other items (3.4) 0.8 (4.2)
-------- --------- ----------
Increase in net cash / (debt) 120.8 (17.5) 138.3
Opening net cash / (debt) (17.9) (0.4)
Closing net cash / (debt) 102.9 (17.9)
-------- ---------
The Group generated Adjusted EBITDA of EUR74.2m in 2020, an
increase of EUR16.6m from EUR57.6m in 2019. There was a EUR0.6m
inflow in respect of the amounts due for Multi-Media Tax Credits
(MMTC) that are earned in the year of production, and are collected
a year in arrears, and Video Games Tax Relief (VGTR). This includes
EUR2.5m of accelerated receipts as a result of COVID-19 that would
otherwise have been received in 2021. Other working capital
outflows of EUR2.2m were broadly in line with the prior year with
trade receivable days improving by 2 days to 42 days (2019: 44
days).
Investment in property, plant and equipment amounted to EUR13.9m
(2019: EUR13.1m) reflecting a 22.3% increase in the level of
equipment expenditure driven by the increased revenues of the
business and the working from home arrangements that required some
additional investment in equipment, partially offset by a reduction
in the level of expansionary capex relative to the prior year.
Property lease payments of principal of EUR8.2m were 10.8% higher
than the prior year (2019: EUR7.4m) reflecting the increased size
of the business.
COVID-19 government employment retention subsidies amounted to
EUR9.2m, resulting in operating cash flows of EUR59.4m (2019:
EUR29.1m), an increase of EUR30.3m on 2019.
Interest payments were EUR1.6m, a decrease of EUR0.5m on 2019 as
a result of the repayment of drawings on the RCF following the
placing in May. Tax payments amounted to EUR4.5m (2019: EUR13.3m) a
reduction of EUR8.8m on 2019. 2019 included tax payments of
approximately EUR5m relating to previous years and the Group has
benefitted from other timing differences resulting in less payments
in the year in respect of the 2020 tax payable.
This resulted in Free Cash Flow of EUR53.3m (2019: EUR13.7m), an
increase of EUR39.6m on 2019. Adjusted Free Cash Flow, which
adjusts for capital expenditure that is supporting growth in future
periods and the COVID-19 government employment retention subsidies,
was EUR53.4m in 2020, an increase of EUR20.6m (+62.8%) on the
levels delivered in 2019. This resulted in an Adjusted Cash
Conversion rate of 97.2% (2019: 80.2%) albeit as noted above 2020
benefited from some timing differences as a result of COVID-19.
Cash spent on acquisitions totalled EUR42.2m of which EUR39.9m
was in respect of the cash component of both current and prior year
acquisitions and EUR2.3m was in relation to acquisition and
integration costs. In addition, the Group received EUR1.4m from the
disposal of an investment in Hutch Games that was brought into the
Group via an acquisition in 2015, as noted earlier. These items,
together with the strong Free Cash Flow generation and the EUR110m
received from the successful equity placing in May and foreign
exchange movements of EUR3.4m resulted in an increase in cash of
EUR120.8m in 2020 (2019: increase in net debt: EUR17.5m) and
resulted in closing net cash of EUR102.9m (2019: net debt
EUR17.9m).
Balance sheet and liquidity
The Group funds itself primarily through cash generation and a
syndicated revolving credit facility (RCF) of EUR100m, with an
accordion option to increase this up to EUR140m. The RCF matures in
October 2022 with an option to extend it for up to a further 2
years.
The majority of Group borrowings are subject to two financial
covenants that are calculated in accordance with the facility
agreement:
-- Leverage: Maximum Total Net Borrowings to Adjusted EBITDA ratio of 3 times; and
-- Interest cover: Minimum Adjusted Operating Profit to Net Finance Costs ratio of 4 times.
The Group entered the year with a strong balance sheet, with net
debt (excluding IFRS 16 leases) of EUR17.9m as at 31 December 2019
representing a net debt to Adjusted EBITDA ratio of 0.3x. In May,
the Group placed 6,900,000 new ordinary shares representing c.10.5%
of the Group's issued share capital, generating net proceeds of
approximately EUR110m. The placing has allowed the Group to
continue to pursue its value accretive acquisition strategy whilst
maintaining a strong balance sheet.
The funds were used to repay drawings under the RCF and to
support the value accretive M&A programme, with EUR40m of cash
deployed in the year. At the end of 2020, the Group had net cash of
EUR102.9m and undrawn committed facilities of EUR100m.
Dividend
The Group has delivered a robust performance in the year and has
demonstrated the resilience of the Group's business model, the
benefit of its diversified services platform, and the continued
strong demand for its services. Our service lines have performed
well given the operational and market disruption caused by
COVID-19, delivering revenue and profit growth along with continued
cash generation. The Board intends to resume its progressive
dividend policy in 2021.
Guidance for 2021
We have made a good start to the year with the Organic Revenue
growth momentum in the second half of 2020 flowing into 2021,
offset by the full year impact of the weakening of the US dollar in
the second half of 2020 assuming rates remain at their current
levels. In addition, 2021 revenue will benefit from the additional
contribution from the Tantalus acquisition announced in March.
Adjusted profit before tax margins are expected to be maintained
following the improvements in 2020 and within the 14 - 15%
historical range and the Adjusted Effective Tax rate is expected to
be in line with the 2020 rate of 21%.
We are anticipating capex at a higher level to 2020 relative to
revenue reflecting some expansionary capex and investment in
equipment to support the new console cycle and an overall Adjusted
Cash Conversion rate of 80% representing a slight reduction on 2020
and reflecting the unwinding of some of the phasing benefits in
2020 as a result of COVID-19.
With the exception of the incremental impact of the Tantalus
acquisition announced recently all of the above items are reflected
in the current revenue and profit market consensus for 2021.
Jon Hauck
Chief Financial Officer
Consolidated statement of comprehensive income
Years ended 31 December
---------------------------
2020 2019
Note EUR'000 EUR'000
-------------------------------------------------------- ------ ------------- ------------
Revenue from contracts with customers 4 373,538 326,463
Cost of sales 5 (231,766) (206,234)
-------------------------------------------------------- ------ ------------- ------------
Gross profit 141,772 120,229
Investment income 5 1,437 -
Share option expense 17 (15,350) (9,775)
Costs of acquisition and integration 5 (2,650) (4,348)
Amortisation and impairment of intangible assets 11 (8,808) (7,318)
COVID-19 government subsidies claimed 28 9,231 -
-------------------------------------------------------- ------ ------------- ------------
Total of items excluded from adjusted profit
measures (17,577) (21,441)
Other administration expenses (84,513) (77,246)
-------------------------------------------------------- ------ ------------- ------------
Administrative expenses (102,090) (98,687)
-------------------------------------------------------- ------ ------------- ------------
Operating profit 41,119 21,542
Financing income 6 76 74
Financing cost 6 (8,701) (4,245)
Profit before taxation 32,494 17,371
Taxation 7 (11,027) (7,462)
-------------------------------------------------------- ------------- ------------
Profit 21,467 9,909
Other comprehensive income:
Items that will not be reclassified subsequently
to profit or loss
Actuarial gain / (loss) on defined benefit plans 19 (421) (167)
Items that may be reclassified subsequently
to profit or loss
Exchange gain / (loss) in net investment in
foreign operations (4,909) 1,267
Exchange gain / (loss) on translation of foreign
operations (10,843) 5,960
Total comprehensive income / (expense) 5,294 16,969
-------------------------------------------------------- ------ ------------- ------------
Profit / (loss) for the period attributable
to:
Owners of the parent 21,552 10,022
Non-controlling interest (85) (113)
-------------------------------------------------------- ------ ------------- ------------
21,467 9,909
-------------------------------------------------------- ------ ------------- ------------
Total comprehensive income / (expense) attributable
to:
Owners of the parent 5,379 17,082
Non-controlling interest (85) (113)
-------------
5,294 16,969
-------------------------------------------------------- ------ ------------- ------------
Earnings per share EUR cent EUR cent
-------------------------------------------------------- ------ ------------- ------------
Basic earnings per ordinary share 8 30.32 15.23
Diluted earnings per ordinary share 8 28.71 14.73
-------------------------------------------------------- ------ ------------- ------------
The notes form an integral part of these consolidated financial
statements.
On behalf of the Board
Sonia Sedler Jon Hauck
Director Director
24 March 2021
Consolidated statement of financial position
At 31 December
-----------------------
2020 2019
Restated
(note 16)
Note EUR'000 EUR'000
Non-current assets
Property, plant and equipment 13 26,419 22,163
Right of use assets 12 27,807 21,469
Intangible assets 11 240,810 196,769
Deferred tax assets 22 14,649 5,060
------------------------------------------------
309,685 245,461
------------------------------------------------ ------ --------- ------------
Current assets
Trade receivables 14 47,832 43,243
Other receivables 15 38,665 35,413
Cash and cash equivalents 103,070 41,827
------------------------------------------------ --------- ------------
189,567 120,483
------------------------------------------------ ------ --------- ------------
Current liabilities
Trade payables 8,170 8,027
Other payables 18 62,958 38,712
Loans and borrowings 20 73 80
Corporation tax liabilities 12,568 2,732
Lease liabilities 21 7,361 7,741
91,130 57,292
------------------------------------------------ ------ --------- ------------
Net current assets/(liabilities) 98,437 63,191
------------------------------------------------ ------ --------- ------------
Non-current liabilities
Other payables 18 1,994 285
Employee defined benefit plans 19 2,693 2,049
Loans and borrowings 20 122 59,671
Deferred tax liabilities 22 10,575 9,523
Lease liabilities 21 21,503 14,166
--------- ------------
36,887 85,694
------------------------------------------------ ------ --------- ------------
Net assets 371,235 222,958
------------------------------------------------ ------ --------- ------------
Equity
Share capital 16 879 780
Share capital - to be issued 16 13,047 5,310
Share premium 16 22,951 20,718
Merger reserve 16 250,276 132,712
Foreign exchange reserve (9,988) 5,764
Shares held in Employee Benefit Trust ("EBT") (1,997) (1,997)
Share option reserve 31,799 16,449
Retained earnings 64,318 43,187
------------------------------------------------ ------ --------- ------------
371,285 222,923
Non-controlling interest (50) 35
------------------------------------------------ ------
Total equity 371,235 222,958
------------------------------------------------ ------ --------- ------------
The notes form an integral part of these consolidated financial
statements. The financial statements were approved and authorised
for issue by the Board on 24 March 2021.
On behalf of the Board
Sonia Sedler Jon Hauck
Director Director
24 March 2021
Consolidated statement of changes in equity
Total
Share attributable
capital Shares to
- to Foreign held Share owners
Share be Share Merger exchange in option Retained of Non-controlling Total
capital issued premium reserve reserve EBT reserve earnings parent interest equity
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
------------------- --------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------------- ------------------ ----------------- -----------
At 01 January
2019 763 15,648 102,225 35,996 (1,463) (1,997) 6,674 34,529 192,375 - 192,375
Reclassification
of Share premium
within Reserves
(note 16) - - (82,261) 82,261 - - - - - - -
--------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------------- ------------------ ----------------- -----------
At 01 January
2019 (restated) 763 15,648 19,964 118,257 (1,463) (1,997) 6,674 34,529 192,375 - 192,375
------------------- --------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------------- ------------------ ----------------- -----------
Profit / (loss)
for the period - - - - - - - 10,022 10,022 (113) 9,909
Other
comprehensive
income - - - - 7,227 - - (167) 7,060 - 7,060
------------------- --------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------------- -----------------
Total
comprehensive
income for
the period - - - - 7,227 - - 9,855 17,082 (113) 16,969
------------------- --------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------------- ----------------- -----------
Contributions
by and
contributions
to the owners:
Share option
expense - - - - - - 9,775 - 9,775 - 9,775
Share options
exercised 7 - 754 - - - - - 761 - 761
Dividends - - - - - - - (1,197) (1,197) - (1,197)
Acquisition
related issuance
of shares 10 (10,338) - 14,455 - - - - 4,127 - 4,127
Net assets
on acquisition
of AppSecTest - - - - - - - - - 148 148
--------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------------- ----------------- -----------
Contributions
by and
contributions
to the owners 17 (10,338) 754 14,455 - - 9,775 (1,197) 13,466 148 13,614
------------------- --------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------------- ----------------- -----------
At 31 December
2019 (restated) 780 5,310 20,718 132,712 5,764 (1,997) 16,449 43,187 222,923 35 222,958
------------------- --------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------------- ------------------ ----------------- -----------
Profit / (loss)
for the period - - - - - - - 21,552 21,552 (85) 21,467
Other
comprehensive
income - - - - (15,752) - - (421) (16,173) - (16,173)
------------------- -----------------
Total
comprehensive
income for
the period - - - - (15,752) - - 21,131 5,379 (85) 5,294
------------------- --------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------------- ----------------- -----------
Contributions
by and
contributions
to the owners:
Shares issued
for cash 77 - - 109,372 - - - - 109,449 - 109,449
Share option
expense - - - - - - 15,350 - 15,350 - 15,350
Share options
exercised 16 - 2,233 - - - - - 2,249 - 2,249
Acquisition
related issuance
of shares 6 7,737 - 8,192 - - - - 15,935 - 15,935
------------------- --------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------------- ------------------ ----------------- -----------
Contributions
by and
contributions
to the owners 99 7,737 2,233 117,564 - - 15,350 - 142,983 - 142,983
------------------- --------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------------- ------------------ ----------------- -----------
At 31 December
2020 879 13,047 22,951 250,276 (9,988) (1,997) 31,799 64,318 371,285 (50) 371,235
------------------- --------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------------- ------------------ ----------------- -----------
Consolidated statement of cash flows
Years ended 31 December
---------------------------
2020 2019
Note EUR'000 EUR'000
------------------------------------------------------ ------ ------------- ------------
Cash flows from operating activities
Profit after tax 21,467 9,909
------------------------------------------------------ ------ ------------- ------------
Income and expenses not affecting operating
cash flows
Depreciation - property, plant and equipment 13 8,983 7,295
Depreciation - right of use assets 12 8,402 7,849
Amortisation and impairment of intangible
assets 11 8,808 7,318
Taxation 7 11,027 7,462
Share option expense 17 15,350 9,775
Fair value adjustments to contingent consideration 5 (66) 493
Fair value adjustments to right of use assets 12 434 -
Disposal of property, plant and equipment 13 - 200
Unwinding of discounted liabilities - deferred
consideration 6 132 330
Unwinding of discounted liabilities - lease
liabilities 6 843 694
Interest receivable 6 (76) (74)
Fair value adjustments to employee defined
benefit plans 19 354 504
Interest expense 6 1,071 934
Unrealised foreign exchange (gain) / loss 1,874 (577)
------------------------------------------------------ ------
57,136 42,203
------------------------------------------------------ ------ ------------- ------------
Changes in operating assets and liabilities
Decrease / (increase) in trade receivables (4,255) (4,370)
Decrease / (increase) in MMTC and VGTR receivable 555 (5,913)
Decrease / (increase) in other receivables (3,902) (2,162)
(Decrease) / increase in accruals, trade
and other payables 9,878 6,402
------------------------------------------------------
2,276 (6,043)
------------------------------------------------------ ------ ------------- ------------
Taxation paid (4,459) (13,288)
Net cash generated by / (used in) operating
activities 76,420 32,781
------------------------------------------------------ ------ ------------- ------------
Cash flows from investing activities
Current year acquisition of subsidiaries
net of cash acquired 27 (37,447) (13,051)
Settlement of deferred liabilities on acquisitions 18 (2,489) (14,711)
Acquisition of property, plant and equipment 13 (13,908) (13,145)
Investment in intangible assets 11 (259) (391)
Interest received 76 74
Net cash generated by / (used in) investing
activities (54,027) (41,224)
------------------------------------------------------ ------ ------------- ------------
Cash flows from financing activities
Repayment of loans 20 (64,030) (7,973)
Drawdown of loans 20 4,500 27,000
Payments of principal on lease liabilities (8,170) (7,355)
Interest paid on principal of lease liabilities 6 (843) (694)
Dividends paid - (1,197)
Shares issued for cash* 16 111,698 761
Interest paid (879) (1,436)
Net cash generated by / (used in) financing
activities 42,276 9,106
------------------------------------------------------ ------ ------------- ------------
Increase / (decrease) in cash and cash equivalents 64,669 663
Exchange gain / (loss) on cash and cash equivalents (3,426) 1,293
Cash and cash equivalents at beginning of
the period 41,827 39,871
Cash and cash equivalents at end of the period 103,070 41,827
------------------------------------------------------ ------ ------------- ------------
* Please note Shares issued for cash includes net proceeds of
EUR109.5m related to the share placing in May 2020 (see note 16),
being gross proceeds of EUR111.7m (GBP100m ) less transaction costs
of EUR2.2m (GBP2m).
Notes forming part of the consolidated financial statements
1 Basis of Preparation
Keywords Studios PLC (the "Company") is a company incorporated
in the UK. The consolidated financial statements include the
financial statements of the Company and its subsidiaries (the
"Group") made up to 31 December 2020. The Group was formed on 8
July 2013 when Keywords Studios PLC (formerly Keywords Studios
Limited) acquired the entire share capital of Keywords
International Limited through the issue of 31,901,332 ordinary
shares.
The consolidated financial statements have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006.
The financial statements have been prepared in thousands ('000)
and the financial statements are presented in Euro (EUR) which is
the functional currency of the Group.
Please note there has been an amendment to the previous year
reserves to reclassify certain reserves within Share premium to
Merger reserve, as outlined in note 16.
Going Concern Basis of Accounting
After making enquiries, the Directors consider it appropriate to
continue to adopt the going concern basis in preparing the
consolidated financial statements. In doing so, the Directors have
considered the uncertain nature of the current COVID-19 pandemic,
but have noted:
-- the strong cash flow performance of the Group through the year;
-- the continued demand for the Group's services;
-- the ability to operate most of its services in a work from
home model where studios are temporarily closed;
-- the historical resilience of the broader video games industry
in times of economic downturn; and,
-- the ability of the Group to flex its cost base in response to
a reduction in trading activity.
The Directors have also considered the Group's strong liquidity
position with net cash of EUR102.9m as at 31 December 2020, and
committed undrawn facilities of EUR100m under the Revolving Credit
Facility ("RCF").
The Directors have applied downside sensitivities to the Group's
cash flow projections to evaluate the Group's ability to withstand
a further prolonged period of studio closures as a result of the
COVID-19 pandemic, leading to a reduction in production capability.
Under this severe case the Group would have sufficient liquidity
and remain within its banking covenants. The Directors have a
reasonable expectation that the Group has adequate resources to
continue to operate and meet liabilities as they fall due for the
foreseeable future, a period considered to be at least 12 months
from the date of these financial statements and therefore the going
concern basis of preparation continues to be appropriate.
New Standards, Interpretations and Amendments effective 1
January 2020
A number of new amendments and interpretations to accounting
standards are effective from 1 January 2020 including:
-- Definition of Material - amendments to IAS 1 and IAS 8
-- Definition of a Business - amendments to IFRS 3
-- Revised Conceptual Framework for Financial Reporting
-- Interest Rate Benchmark Reform - amendments to IFRS 9, IAS 39 and IFRS 7
These amendments and interpretations would not have resulted in
the accounting applied by the Group changing and would not have had
a material effect on the Group's financial statements.
On 28 May 2020, the IASB issued amendments to IFRS 16: COVID-19
Related Rent Concessions. These amendments introduce a practical
expedient available to lessees in accounting for rent concessions
(e.g. rent holidays and deferrals of lease payments) that are a
direct consequence of the COVID-19 pandemic and that satisfy
certain other criteria. As the relevant topics have not had a
material impact on the Group's financial statements, the Group has
not availed of these practical expedients.
Other accounting pronouncements which have become effective from
1 January 2020 have not had a material impact on the Group.
New standards, interpretations and amendments not yet
effective
There are a number of standards, amendments to standards, and
interpretations which have been issued by the IASB that are
effective in future accounting periods that the Group has decided
not to adopt early.
The following amendments are effective for the period beginning
1 January 2022:
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37);
-- Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);
-- Annual Improvements to IFRS Standards 2018-2020 (Amendments
to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and
-- References to Conceptual Framework (Amendments to IFRS 3).
The Group does not expect any other standards issued by the
IASB, but not yet effective, to have a material impact on the
Group.
2 Significant Accounting Policies
Basis of Consolidation
Where the Company has control over an investee, it is classified
as a subsidiary. The Company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
De-facto control exists in situations where the Company has the
practical ability to direct the relevant activities of the investee
without holding the majority of the voting rights. In determining
whether de-facto control exists, the Company considers all relevant
facts and circumstances, including:
-- The size of the Company's voting rights relative to both the
size and dispersion of other parties who hold voting rights;
-- Substantive potential voting rights held by the Company and by other parties;
-- Other contractual arrangements; and
-- Historic patterns in voting attendance.
The consolidated financial statements present the results of the
Company and its subsidiaries ("the Group") as if they formed a
single entity. Intercompany transactions and balances between Group
companies are eliminated in full.
Business Combinations
The consolidated financial statements incorporate the results of
business combinations using the purchase method. In the
Consolidated Statement of Financial Position, the acquired
identifiable assets, liabilities and contingent liabilities are
initially recognised at their fair values at the acquisition date.
The results of acquired operations are included in the consolidated
income statement from the date on which control is obtained. They
are consolidated until the date on which control ceases.
Any contingent consideration payable is recognised at fair value
at the acquisition date and is split between current liabilities
and long-term liabilities depending on when it is due. The fair
value of contingent consideration at acquisition date is arrived at
through discounting the expected payment (based on scenario
modelling) to present value. In general, in order for contingent
consideration to become payable, pre-defined profit and / or
revenue targets must be exceeded. At each balance sheet date, the
fair value of the contingent consideration is revalued, with the
expected pay-out determined separately in respect of each
individual acquisition and any change recognised in the Statements
of Comprehensive Income.
For deferred consideration which is to be provided for by the
issue of a fixed number of shares at a future defined date, where
there is no obligation on Keywords to offer a variable number of
shares, the deferred consideration is classified as an equity
arrangement and the value of the shares is fixed at the date of the
acquisition. Deferred consideration may also be in the form of cash
consideration payable at a future defined date. Such consideration
is recognised at fair value at the acquisition date and is split
between current liabilities and non-current liabilities depending
on when it is due.
Intangible Assets
The Group's Intangible Assets comprise Goodwill, Customer
Relationships and Other Intangible Assets.
Goodwill
Goodwill represents the excess of the cost of a business
combination over the total acquisition date fair value of the
identifiable assets, liabilities and contingent liabilities
acquired. The cost comprises the fair value of assets given,
liabilities assumed and equity instruments issued, plus the amount
of any non-controlling interests in the acquiree plus, if the
business combination is achieved in stages, the fair value of the
existing equity interest in the acquiree. Contingent consideration
is included at fair value on the acquisition date and, in the case
of contingent consideration classified as a financial liability,
re-measured subsequently through the profit and loss.
Acquisition-related costs are recognised immediately as an expense
in the periods in which the costs are incurred and the services are
received. Goodwill is capitalised as an intangible asset with any
impairment in carrying value being charged to the consolidated
statement of comprehensive income.
Customer Relationships
Intangible assets, separately identified from goodwill acquired
as part of a business combination (mainly Customer Relationships),
are initially stated at fair value. The fair value attributed is
determined by discounting the expected future cash flows generated
from the net margin of the business from the main customers taken
on at acquisition. The assets are amortised on a straight-line
basis (to administration expenses) over their useful economic lives
(typically five years is deemed appropriate, however, this is
re-examined for each acquisition).
Other Intangible Assets
Other intangible assets include Intellectual Property and Music
Licences, both acquired and internally developed. Other intangible
assets are recognised as assets where it is probable that the use
of the asset will generate future economic benefits and where the
costs of the asset can be determined reliably. Other intangible
assets that are acquired by the Group are stated at cost less
accumulated amortization (see below) and impairment losses, if any.
Subsequent expenditures on capitalised intangible assets are
capitalised only when they increase the future economic benefits
embodied in the specific assets to which they relate. All other
expenditure is expensed as incurred. Other intangible assets with
definite useful lives are amortised from the date they are
available for use on a straight-line basis over their useful lives,
being the estimated period over which the Group will use the
assets. Residual amounts, useful lives and the amortization methods
are reviewed at the end of every accounting period.
Development costs are capitalised as an intangible asset if all
of the following criteria are met:
-- The technical feasibility of completing the intangible asset
so that it will be available for use or sale;
-- The intention to complete the intangible asset and use or sell it;
-- The ability to use or sell the intangible asset;
-- The asset will generate probable future economic benefits and
demonstrate the existence of a market or the usefulness of the
intangible asset if it is to be used internally;
-- The availability of adequate technical, financial and other
resources to complete the development and to use or sell it;
-- The ability to measure reliably the expenditure attributable
to the intangible asset during its development.
Following initial recognition of the development expenditure as
an intangible asset, the cost model is applied requiring the
intangible asset to be carried at cost, less any accumulated
amortization and accumulated impairment losses. The intangible
asset is amortised on a straight-line basis over the period of its
expected benefit, starting from the date of full commercial use of
the product. During the period of development, the asset is tested
for impairment annually. If specific events indicate that
impairment of an item of intangible asset may have taken place, the
item's recoverability is assessed by comparing its carrying amount
with its recoverable amount. The recoverable amount is the higher
of the fair value net of disposal costs and the value in use.
Impairment
Impairment tests on goodwill and other intangible assets with
indefinite useful economic lives are undertaken annually at the
financial year end. Other non-financial assets are subject to
impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Where
the carrying value of an asset exceeds its recoverable amount (i.e.
the higher of value in use and fair value less costs to sell), the
asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of
an individual asset, the impairment test is carried out on the
smallest group of assets to which it belongs for which there are
separately identifiable cash flows; its cash generating units
("CGUs"). Goodwill is allocated on initial recognition to each of
the Group's CGUs that are expected to benefit from a business
combination that gives rise to the goodwill.
The Group has one CGU. This CGU represents the lowest level at
which goodwill is monitored by the Group and the lowest level at
which management captures information for internal management
reporting purposes about the benefits of the goodwill. Impairment
charges are included in profit or loss, except to the extent they
reverse gains previously recognised in other comprehensive income.
An impairment loss recognised for goodwill is not reversed.
Cash and Cash Equivalents
For the purpose of presentation in the Statements of financial
position and on the Statements of cash flows, cash and cash
equivalents include cash on hand and on call deposits with
financial institutions.
Foreign Currency
The Consolidated Financial Statements are presented in Euro,
which is the presentation currency of the Group and the functional
currency of the Parent Company.
Transactions entered into by Group entities in a currency other
than the currency of the primary economic environment in which they
operate (their "functional currency") are recorded at the rates
ruling when the transactions occur. Foreign currency monetary
assets and liabilities are translated at the rates ruling at the
reporting date. Exchange differences arising on the retranslation
of unsettled monetary assets and liabilities are recognised
immediately in profit or loss.
On consolidation, the results of overseas operations are
translated into Euro at rates approximating to this ruling when the
transactions took place. All assets and liabilities of overseas
operations, including goodwill arising on the acquisition of those
operations, are translated at the rate ruling at the reporting
date. Exchange differences arising on translating the opening net
assets at opening rate and the results of overseas operations at
actual rate are recognised in other comprehensive income and
accumulated in the foreign exchange reserve.
Exchange differences recognised in profit or loss in Group
entities' separate financial statements on the translation of
long-term items forming part of the Group's net investment in the
overseas operation concerned are classified to other comprehensive
income and accumulated in the foreign exchange reserve on
consolidation. On disposal of a foreign operation, the cumulative
exchange differences recognised in the foreign exchange reserve
relating to that operation up to the date of disposal are
transferred to the consolidated statement of comprehensive income
as part of the profit or loss on disposal.
Revenue from Contracts with Customers
Contracts are typically for services, performing agreed-upon
tasks for a customer and can be time-and-materials or milestone
based. Most contracts are short term in duration (generally less
than one month), however milestone based contracts can be longer
term and extend to several months (or in some cases over a year).
Where there are multiple performance obligations outlined in a
contract, each performance obligation is separately assessed, the
transaction price is allocated to each obligation, and related
revenues are recognised as services or assets are transferred to
the customer. Performance obligations are typically satisfied over
time, as the majority of contracts meet the criteria outlined in
IFRS 15 paragraph 35 (a) and (c).
Due to the nature of the services provided and the competitive
nature of the market, contracts generally allocate specific
transaction prices to separate performance obligations. Individual
services or individual milestones generally involve extensive
commercial negotiation to arrive at the specific agreed-upon tasks,
and the related pricing outlined in the contract. Such negotiations
extend further for milestone based contracts to also include the
criteria involved in the periodic and regular process of milestone
acceptance by the customer. Such criteria may involve qualitative,
as well as quantitative measures and judgements.
In measuring progress towards complete satisfaction of
performance obligations, the input method is considered to be the
most appropriate method to depict the underlying nature of the
contracts with customers, the interactive way the service is
delivered and projects are managed with the customer. For
time-and-materials contracts, other than tracking and valuing time
expended, significant judgement is not normally involved. For
milestone based contracts, progress is generally measured based on
the proportion of contract costs incurred at the balance sheet
date, (e.g. worked days) relative to the total estimated costs of
the contract, involving estimates of the cost to completion etc.
Added to this significant judgement can be involved in measuring
progress towards customer acceptance of the milestone. Significant
judgement may also be involved where circumstances arise that may
change the original estimates of revenues, costs or extent of
progress towards complete satisfaction of the performance
obligations. In such circumstances estimates are revised. These
revisions may result in increases or decreases in revenue or costs
and are reflected in income in the period in which the
circumstances that give rise to the revision became known. When the
outcome of a contract cannot be measured reliably, contract revenue
is recognised only to the extent that milestone have been accepted
by the customer. Contract costs are recognised as incurred. When it
is probable that total contract costs will exceed total contract
revenue, the expected loss is recognised immediately.
Revenue recognised represents the consideration received or
receivable, net of sales taxes, rebates discounts and after
eliminating intercompany sales. Revenue is recognised only where it
is probable that consideration will be received. Where
consideration is received and the related revenue has not been
recognised, the consideration received is recognised as a contract
liability (Deferred Revenue), until either revenue is recognised or
the consideration is refunded.
Revenue is derived from seven main service groupings:
-- Art Creation & Marketing - Art Creation & Marketing
services relate to the production of graphical art assets for
inclusion in the video game including concept art creation along
with 2D and 3D art asset production and animation. Contracts can be
either time-and-materials based or milestone based, with
performance obligations satisfied over time. Contracts are
generally short term in duration, however for longer term contracts
the input method is used to measure progress (e.g. worked days
relative to the total expected inputs). Time and materials based
contract revenue is recognised as the related services are
rendered. For milestone based contracts where progress can be
measured reliably towards complete satisfaction of the performance
obligation, revenue is recognised using the input method to measure
progress. Where progress cannot be measured reliably, revenue is
recognised on milestone acceptance.
-- Game Development - Game Development relates to software
engineering services which are integrated with client processes to
develop video games. Contracts can be either time-and-materials
based or milestone based, with performance obligations satisfied
over time. Contracts are generally longer term in duration. Time
and materials based contract revenue is recognised as the related
services are rendered. For milestone based contracts where progress
can be measured reliably towards complete satisfaction of the
performance obligation, revenue is recognised using the input
method to measure progress. Where progress cannot be measured
reliably, revenue is recognised on milestone acceptance.
-- Audio - Audio services relate to the audio production process
for computer games and includes script translation, actor selection
and talent management through pre-production, audio direction,
recording, and post-production, including native language quality
assurance of the recordings. Audio contracts may also involve music
licencing or selling music soundtracks. Audio service contracts are
typically milestone based, with performance obligations satisfied
over time. Audio services contracts are generally short term in
duration, however for longer term contracts where progress towards
complete satisfaction of the performance obligation can be measured
reliably, revenue is recognised using the input method to measure
progress. Where progress cannot be measured reliably, audio
services revenue is recognised on milestone acceptance. Music
licencing and music soundtracks performance obligations are
assessed separately, and related revenue is recognised on licence
inception and on delivery of the soundtracks, respectively.
-- Functional Testing - Functional Testing relates to quality
assurance services provided to game producers to ensure games
function as required. Contracts are typically time-and-materials
based and performance obligations are satisfied over time.
Contracts are generally short term in duration, however for longer
term contracts the input method is used to measure progress.
Revenue is recognised as the related services are rendered.
-- Localization - Localization services relate to translation
and cultural adaptation of in-game text and audio scripts across
multiple game platforms and genres. Contracts are typically
time-and-materials based and performance obligations are satisfied
over time. Contracts are generally short term in duration, however
for longer contracts the input method is used to measure progress.
Localization contracts may also involve licencing translation
software as a service. Such revenue is assessed separately. Revenue
is recognised as the related services are rendered.
-- Localization Testing - Localization Testing involves testing
the linguistic correctness and cultural acceptability of computer
games. Contracts are typically time-and-materials based and
performance obligations are satisfied over time. Contracts are
generally short term in duration, however for longer term contracts
the input method is used to measure progress. Revenue is recognised
as the related services are rendered.
-- Player Support - Player Support relates to the live
operations support services such as community management, player
support and associated services provided to producers of games to
ensure that consumers have a positive user experience. Contracts
are typically time-and-materials based and performance obligations
are satisfied over time. Contracts are generally long term with the
input method used to measure progress. Revenue is recognised as the
related services are rendered.
Mu ltime dia Tax Credits / Video Game Tax Relief
The multimedia tax credits ("MMTC") received in Canada and video
games tax relief ("VGTR") in the UK, are a tax credit related to
staff costs. Tax credits are recognised as income over the periods
necessary to match the credit on a systematic basis with the costs
that it is intended to compensate. Thus credits are taken as a
deduction against direct costs each period, but typically paid in
the following financial year once the claims have been submitted
and agreed. The nature of the grants is such that they are not
dependent on taxable profits, and are recognised (under IAS 20), at
their fair value when there is a reasonable assurance that the
grant will be received and all attaching conditions have been
complied with.
Government Subsidies
Government subsidies are recognised at their fair value when
there is a reasonable assurance that the subsidy will be received
and all attaching conditions have been complied with. Subsidies are
recognised in the period the subsidy is designated to
compensate.
Share-based Payments
The Company issues equity settled share-based payments to
certain employees and Directors under a share options plan and a
Long-Term Incentive Plan ("LTIP").
The fair value determined at the grant date is expensed on a
straight-line basis over the vesting period. Other than continuous
service, grants do not have non-market-based vesting conditions. At
each reporting date the Company adjusts for unvested forfeitures
and the impact is recognised in profit or loss, with a
corresponding adjustment to equity reserves. The Company has no
legal or constructive obligation to repurchase or settle the
options in cash.
Where share-based payments are issued to employees of subsidiary
companies, the annual cost of the options are recharged to the
subsidiary company through an inter-company re-charge.
Share Option Plan
These are measured at fair value on the grant date using a
Black-Scholes option pricing model which calculates the fair value
of an option by using the vesting period, the expected volatility
of the share price, the current share price, the exercise price and
the risk-free interest rate. The fair value of the option is
amortised over the vesting period, with one-third of the options
vesting after two years, one-third after three years, and the
balance vest after four years. The only vesting condition is
continuous service. There is no requirement to revalue the option
at any subsequent date.
LTIP
The exercise of LTIP awards are subject to the Company's share
price (stock symbol: KWS) performance versus the designated Share
Index in terms of shareholder return over a three-year period. For
the awards granted up to 2015, one-third of the share options
vested if the Company exceeded the Total Shareholder Returns (TSR)
of the Numis Small Cap Index (excluding Investment Trusts) by 10%,
two-thirds if the TSR exceeded the Index by 20% and full vesting if
the TSR exceeded the Index by 30%. This was amended for the 2016
and 2017 awards to 100% vesting if the shareholder return exceeds
the Index by 45%, and a pro-rated return between 10% if the TSR
matches the Index, to 100% if the TSR exceeds the Index by 45%. The
scheme was further amended in 2018 to 100% vesting if the TSR
exceeds the Index by 20%, and a pro-rated return between 10% and
100% if the TSR exceeds by between 0% and 20%. In 2019 the
benchmark Index was amended for future grants to be the FTSE Small
Cap Index, with the same performance conditions as 2018.
These are measured at fair value, taking into account market
vesting conditions but not non-market vesting conditions, at the
date of grant, measured by using the Monte Carlo binomial
model.
Dividend Distribution
Final dividends are recorded in the Group's financial statements
in the period in which they are approved by the Group's
shareholders. Interim dividends are recognised when paid.
Income Taxes and Deferred Taxation
Provision for income taxes is calculated in accordance with the
tax legislations and applicable tax rates in force at the reporting
date in the countries in which the Group companies have been
incorporated.
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the consolidated
statement of financial position differs from its tax base, except
for differences arising on:
-- The initial recognition of an asset or liability in a
transaction which is not a business combination and at the time of
the transaction affects neither accounting or taxable profit;
and
-- Investments in subsidiaries and jointly controlled entities
where the Group is able to control the timing of the reversal of
the difference and it is probable that the difference will not
reverse in the foreseeable future.
The amount of the asset or liability is determined using tax
rates that have been enacted or substantively enacted by the
reporting date and are expected to apply when the deferred tax
liabilities / (assets) are settled / (recovered).
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority on either:
-- The same taxable Group company; or
-- Different Group entities which intend either to settle
current tax assets and liabilities on a net basis, or to realise
the assets and settle the liabilities simultaneously, in each
future period in which significant amounts of deferred tax assets
or liabilities are expected to be settled or recovered.
Property, Plant and Equipment
Property, plant and equipment comprise computers, leasehold
improvements, and office furniture and equipment, and are stated at
cost less accumulated depreciation. Carrying amounts are reviewed
for impairment whenever events or changes in circumstances indicate
that their carrying amount may not be recoverable. Where the
carrying amount of an asset is greater than its estimated
recoverable amount, it is written down immediately to its
recoverable amount.
Property, plant and equipment acquired through business
combinations are valued at fair value on the date of
acquisition.
Depreciation is calculated to write off the cost of fixed assets
on a straight-line basis over the expected useful lives of the
assets concerned. The principal annual rates used for this purpose
are:
Computers and software 3 - 5 years
Office furniture and equipment 10 years
over the length
Leasehold improvements of the lease
------------------------------ -----------------
Gains and losses on disposals are determined by comparing
proceeds with carrying amount and are included in the Consolidated
statement of comprehensive income.
Financial Assets
The Group's most significant financial assets comprise trade and
other receivables and cash and cash equivalents in the Consolidated
statement of financial position.
Trade Receivables
Trade receivables, which principally represent amounts due from
customers, are recognised at amortised cost as they meet the IFRS 9
classification test of being held to collect, and the cash flow
characteristics represent solely payments of principal and
interest.
The Group's impairment methodology is in line with the
requirements of IFRS 9. The simplified approach to providing for
expected credit losses has been applied to trade receivables, which
requires the use of a lifetime expected loss provision.
Intercompany Receivables
Intercompany receivables are recognised at amortised cost as
they meet the IFRS 9 classification test of being held to collect,
and the cash flow characteristics represent solely payments of
principal and interest.
The Group applies the general approach to applying the expected
credit losses to its related party loans. Under the General
Approach, at each reporting date, the Group determines whether
there has been a Significant Increase in Credit Risk (SICR) since
initial recognition and whether any balances are credit impaired.
This determines the amount, if any, of expected credit losses to be
recognised.
Cash and Cash Equivalents
Cash and cash equivalents are held to meet the working capital
requirements of the Group. They include cash in hand, deposits held
at call with banks and other short-term highly liquid investments.
Where cash is on deposit with maturity dates greater than three
months, it is disclosed as short-term investments.
Accrued Income from Contracts with Customers
Accrued income from contracts with customers, arising from
Revenue from Contracts with Customers, is recognised in accordance
with our Revenue Recognition policy, as discussed separately in
this note. The Group applies the simplified approach to assessing
expected credit losses in relation to such assets, as their
maturities are less than 12 months. Based upon the recoverability
of contract assets at year end, no significant expected credit loss
provision has been applied.
Share Capital
Financial instruments issued by the Group are treated as equity
only to the extent that they do not meet the definition of a
financial liability. The Group's ordinary shares are classified as
equity instruments.
Financial Liabilities
Contingent consideration is initially recognised at fair value
and subsequently re-measured through the profit and loss. Trade
payables, bank borrowings and other monetary liabilities are
initially recognised at fair value and subsequently carried at
amortised cost using the effective interest rate method.
Leased Assets
A lease is defined as 'a contract, or part of a contract, that
conveys the right to use an asset (the underlying asset) for a
period of time in exchange for consideration'.
At lease commencement date, the Group recognises a right of use
asset and a lease liability on the balance sheet. The right of use
asset is measured at cost, which is made up of the initial
measurement of the lease liability, any initial direct costs
incurred by the Group, an estimate of any costs to dismantle and
remove the asset at the end of the lease, and any lease payments
made in advance of the lease commencement date (net of any
incentives received).
The Group depreciates the right of use assets on a straight-line
basis from the lease commencement date to the earlier of the end of
the useful life of the right of use asset or the end of the lease
term. The Group also assesses the right of use asset for impairment
when such indicators exist. At the commencement date, the Group
measures the lease liability at the present value of the lease
payments unpaid at that date, discounted using the interest rate
implicit in the lease if that rate is readily available or the
Group's incremental borrowing rate. Lease payments included in the
measurement of the lease liability are made up of fixed payments
(including in substance fixed), variable payments based on an index
or rate, amounts expected to be payable under a residual value
guarantee, and payments arising from purchase and extension options
reasonably certain to be exercised.
Subsequent to initial measurement, the liability will be reduced
for payments made and increased for interest. It is remeasured to
reflect any reassessment or modification, or if there are changes
to in substance fixed payments. When the lease liability is
remeasured, the corresponding adjustment is reflected in the right
of use asset, or profit and loss if the right of use asset is
already reduced to zero.
The Group has elected to account for short-term leases and
leases of low value assets using the practical expedients. Instead
of recognising a right of use asset and lease liability, the
payments in relation to these are recognised as an expense in
profit or loss on a straight-line basis over the lease term.
The Group has applied judgement to determine the lease term for
contracts in which it is a lessee that include renewal options. The
assessment of whether the Group is reasonably certain to exercise
such options impacts the lease term, which significantly affects
the lease liabilities and right of use assets recognised.
Employee Benefit Trust
Ordinary shares purchased by the Employee Benefit Trust on
behalf of the parent company under the Terms of the Share Option
Plan are deducted from equity on the face of the Consolidated
Statement of Financial Position. No gain or loss is recognised in
relation to the purchase, sale, issue or cancellation of the parent
company's ordinary shares.
3 Critical Accounting Estimates and Judgements
The Group makes certain estimates and assumptions regarding the
future. Estimates and judgements are continually evaluated based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances. In the future, actual experience may differ from
these estimates and assumptions.
Judgements
The judgements, apart from those involving estimations, that
management have made in the process of applying the Group's
accounting policies and that have the most significant effect on
the amounts recognised in the financial statement, are outlined
below.
-- Group
o Functional Currency : The Directors have considered the
requirements of IAS 21 in determining the currency that most
faithfully represents the economic effects of the underlying
transactions, events and conditions to determine the Group's
functional currency. Detailed consideration has been given to both
the Primary and Secondary Indicators in forming this conclusion.
The Primary Indicators relate to revenues, regulation, competitive
forces and costs, while the Secondary Indicators are primarily
concerned with financing the business and the currency in which
receipts from operating activities are usually retained. With a mix
of currencies dominating the indicators, there is no clear single
currency that influences the Group, however the EUR remains
marginally the most dominant when all factors are considered.
Therefore the Directors consider the EUR as the currency that most
faithfully represents the economic effects of the underlying
transactions, events and conditions.
o Business Combinations : When acquiring a business, the Group
is required to identify and recognise intangible assets, the
determination of which requires a significant degree of judgement.
Acquisitions may also result in intangible benefits being brought
into the Group, some of which qualify for recognition as intangible
assets while other such benefits do not meet the recognition
requirements of IFRS and therefore form part of goodwill. Customer
relationships are recognised as separate assets where revenues are
recurring in nature and material revenues have been generated with
the customer for a continuous period of 3 years. For the Game
Development service line, the key asset acquired is typically
"know-how", an asset that is not readily measurable and thus
intrinsically linked to goodwill. Relationships are typically short
term contract based rather than relationship based. Therefore
neither customer contracts nor customer relationships are typically
recognised on the acquisition of a Game Development business.
o IFRS 16 Leases: The Group has determined that the Group's
incremental borrowing rate is the appropriate rate to use to
discount lease liabilities. The Group has applied judgement to
determine the lease term for contracts in which it is a lessee that
include renewal options. The assessment of whether the Group is
reasonably certain to exercise such options impacts the lease term,
which significantly affects the lease liabilities and right of use
assets recognised.
o Significant Events and Transactions: The effects of COVID-19
have required significant judgements and estimates to be made.
These issues are considered in note 28 in the context of the impact
the pandemic has had on the Group.
Estimates and assumptions
The Group makes certain estimates and assumptions regarding the
future. Estimates and judgements are continually evaluated based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances. In the future, actual experience may differ from
these estimates and assumptions.
A number of areas requiring the use of estimates and critical
judgements impact the Group's earnings and financial position.
These include revenue recognition, the computation of income taxes,
the value of goodwill and intangible assets arising on
acquisitions, the valuation of multimedia tax credits / video game
tax relief, leasing and the valuation of defined retirement
benefits. The Directors consider that no reasonably possible
changes to any of the assumptions used in the estimates would in
the view of the Directors give rise to significant risk of a
material adjustment to the carrying value of the associated
balances in the subsequent financial year.
4 Revenue from Contracts with Customers and Segmental Analysis
Revenue from Contracts with Customers
Revenue recognised in the reporting period arises from contracts
with customers, and is predominantly recognised over time. There
were no significant amounts of revenue recognised in the reporting
period that were included in a contract liability balance at the
beginning of the reporting period, or from performance obligations
satisfied in the previous reporting period.
Revenue by line of business
2020 2019
EUR'000 EUR'000
------------------------------ --------- ---------
Art Creation & Marketing 57,324 43,601
Game Development 80,017 66,290
Audio* 47,232 41,856
Functional Testing 78,479 68,930
Localization* 45,357 47,060
Localization Testing 23,323 22,638
Player Support 41,806 36,088
373,538 326,463
------------------------------ --------- ---------
*The prior year comparative has been re-classified to reflect
the current year presentation as the Directors consider this to be
more meaningful.
Analysis by geographical regions is made according to the
Group's operational jurisdictions. For many contracts, operations
are completed in multiple sites. Revenue is associated with the
jurisdiction from which the final invoice to the client is raised.
This does not reflect the region of the Group's customers; whose
locations are worldwide.
Geographical analysis of revenues
2020 2019
EUR'000 EUR'000
------------------------------------ --------- ---------
Ireland 149,185 118,095
United States 62,890 52,265
United Kingdom 56,932 41,768
Canada 37,564 48,112
Switzerland 17,823 19,045
Japan 17,518 15,501
Italy 7,960 9,395
France 6,341 7,606
India 5,171 6,355
Germany 4,973 1,920
Singapore 2,159 1,637
Spain 1,293 1,588
Mexico 1,158 398
Poland 943 1,285
China 857 691
Brazil 771 802
373,538 326,463
------------------------------------ --------- ---------
No single customer accounted for more than 10% of the Group's
revenue during the year in either year presented.
Revenue Expected to be Recognised
For Game Development, games are developed to an agreed
specification and time schedule, and often have delivery schedules
and / or milestones that extend well into the future. The following
are Game Development revenues expected to be recognised for
contracts with a schedule of work that extends beyond one year,
representing the aggregate amount of the transaction price
allocated to the performance obligations that are unsatisfied (or
partially unsatisfied) as of the end of the reporting period:
Scheduled
completion Scheduled
within completion
Revenue expected to be recognised Total undelivered 1 year 1-2 years
EUR'000 EUR'000 EUR'000
------------------------------------ ------------------- ------------- -------------
At 31 December 2020 13,538 12,991 547
At 31 December 2019 24,645 23,593 1,052
------------------------------------- ------------------- ------------- -------------
For all service lines excluding Game Development, contracts do
not extend to more than one year, therefore information concerning
unsatisfied performance obligations are not disclosed, as allowed
under the practical expedient exemption under IFRS 15. This
practical expedient is also availed of for Game Development
contracts of less than one year in duration.
Segmental Analysis
Management considers that the Group's activity as a single
source supplier of Services to the gaming industry constitutes one
operating and reporting segment, as defined under IFRS 8.
Management review the performance of the Group by reference to
Group-wide profit measures and the revenues derived from seven main
service groupings.
There is no allocation of operating expenses, profit measures,
assets and liabilities to individual product groupings.
Accordingly, the disclosures above are provided on a Group-wide
basis.
Activities are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief
operating decision-maker has been identified as the executive
management team made up of the Chief Executive Officer and the
Chief Financial Officer.
Geographical analysis of non-current assets
from continuing businesses
2020 2019
EUR'000 EUR'000
---------------------------------------------- --------- ---------
United States 131,405 84,139
United Kingdom 57,611 52,233
Canada 27,094 29,772
Italy 13,480 12,222
Switzerland 10,116 10,644
Ireland 13,514 9,296
China 7,491 8,776
France 7,302 6,725
Spain 5,101 5,924
Germany 5,291 5,250
Japan 5,551 3,905
Philippines 2,110 2,798
India 2,182 2,526
Mexico 1,901 2,164
Poland 1,777 1,563
Brazil 835 1,247
Russia 681 925
Singapore 1,532 225
Netherlands 59 64
Taiwan 3 3
295,036 240,401
---------------------------------------------- --------- ---------
Geographical analysis of non-current assets
from continuing businesses 295,036 240,401
Deferred tax assets 14,649 5,060
Non-current assets 309,685 245,461
----------------------------------------------- --------- ---------
5 Cost of Sales and Operating Profit
2020 2019
Cost of sales EUR'000 EUR'000
-------------------------------------------------- ---------- ----------
Operating expenses 238,664 213,011
Multimedia tax credits / video game tax relief (15,593) (16,063)
Other direct costs 8,695 9,286
-------------------------------------------------- ---------- ----------
231,766 206,234
------------------------------------------------- ---------- ----------
2020 2019
Operating profit is stated after charging /
(crediting): EUR'000 EUR'000
------------------------------------------------ --------- ---------
Depreciation - property, plant and equipment 8,983 7,295
Depreciation - right of use assets 8,402 7,849
Amortisation of intangible assets 8,808 7,318
Costs of acquisition and integration 2,650 4,348
Auditor's remuneration 553 499
Short term leases 1,747 1,616
Investment income (1,437) -
------------------------------------------------ --------- ---------
2020 2019
Costs of acquisition and integration EUR'000 EUR'000
------------------------------------------------------ --------- ---------
Acquisition and integrations costs re: current
year acquisitions (note 27) 307 535
Acquisition and integrations costs re: prior
acquisitions 743 406
Fair value adjustments to contingent consideration
(note 18) (66) 493
Deferred consideration related to continuing
employment 649 567
Acquisition related and other borrowing costs - 262
Acquisition team and related costs 247 550
Fair value adjustments to right of use assets
(note 12) 434 -
Other re-organisation and restructuring costs 336 1,535
------------------------------------------------------ --------- ---------
2,650 4,348
----------------------------------------------------- --------- ---------
2020 2019
Auditor's remuneration EUR'000 EUR'000
--------------------------------------- --------- ---------
Audit services:
Parent company and Group audit 290 285
Subsidiary companies audit 250 202
Non-audit services:
Audit related assurance services 13 12
553 499
-------------------------------------- --------- ---------
2020 2019
Investment income EUR'000 EUR'000
---------------------------------- --------- ---------
Gain on disposal of investment (1,437) -
---------------------------------- --------- ---------
(1,437) -
--------------------------------- --------- ---------
The Group acquired a minor holding in Hutch Games Limited, when
Keywords purchased Liquid Development studio in 2015. During 2020,
Hutch Games was acquired and the Group received proceeds of
USD$1.7m (EUR1.4m) in December, and will become entitled to receive
further consideration of up to USD$450K over the period 2022
through 2025, subject to earn out targets being met.
6 Financing Income and Cost
2020 2019
EUR'000 EUR'000
------------------------------------------------- --------- ---------
Financing income
Interest received 76 74
-------------------------------------------------- --------- ---------
76 74
------------------------------------------------- --------- ---------
Financing cost
Bank charges (552) (629)
Interest expense (1,071) (934)
Unwinding of discounted liabilities - lease
liabilities (843) (694)
Unwinding of discounted liabilities - deferred
consideration (132) (330)
Foreign exchange loss (6,103) (1,658)
-------------------------------------------------- --------- ---------
(8,701) (4,245)
------------------------------------------------- --------- ---------
Net financing income / (cost) (8,625) (4,171)
-------------------------------------------------- --------- ---------
7 Taxation
2020 2019
EUR'000 EUR'000
------------------------------------------ --------- ---------
Current income tax
Income tax on profits of parent company - (3)
Income tax on profits of subsidiaries 13,899 8,523
Deferred tax (note 22) (2,872) (1,058)
------------------------------------------- --------- ---------
11,027 7,462
------------------------------------------ --------- ---------
The tax charge for the year can be reconciled to accounting
profit as follows:
2020 2019
EUR'000 EUR'000
---------------------------------------------------------- --------- ---------
Profit before tax 32,494 17,371
----------------------------------------------------------- --------- ---------
Tax charge based on the Effective Tax Rate* 8,071 4,519
Tax settlement regarding a pre-acquisition issue - 491
Income tax prior year (over) / under provision (1,302) (929)
Deferred tax prior year (over) / under provision
and impact of change in tax rates 402 (369)
Items disallowed for tax purposes 3,846 4,354
Exempt and non-taxable income 258 (133)
Tax incentives (892) (1,524)
Current year tax losses utilised (3) (1,176)
Current year tax losses where deferred tax has
not been provided 477 1,064
State and other direct taxes 548 1,473
Other differences - net (378) (308)
-----------------------------------------------------------
Total tax charge 11,027 7,462
----------------------------------------------------------- --------- ---------
*Effective tax rate - being the statutory tax rate
relative to the profit before tax in each jurisdiction 24.8% 26.0%
----------------------------------------------------------- --------- ---------
The Group's subsidiaries are located in different jurisdictions
and are taxed on their residual profit in those jurisdictions. The
effective tax rate will vary year on year due to the effect of
changes in tax rates and changes in the proportion of profits in
each jurisdiction.
2020 2019
Tax effects relating to each component of other
comprehensive income EUR'000 EUR'000
----------------------------------------------------- ---------- ---------
Exchange gain / (loss) in net investments foreign
operations (4,909) 1,267
Tax (expense) / benefit 614 -
Net of tax amount (4,295) 1,267
----------------------------------------------------- ---------- ---------
Actuarial gain / (loss) on defined benefit plans (421) (167)
Tax (expense) / benefit - 5
Net of tax amount (421) (162)
----------------------------------------------------- ---------- ---------
Exchange gain / (loss) on translation of foreign
operations (10,843) 5,960
Tax (expense) / benefit - -
---------------------------------------------------- ---------
Net of tax amount (10,843) 5,960
----------------------------------------------------- ---------- ---------
8 Earnings per Share
2020 2019
EUR cent EUR cent
--------------------------------------------------- ------------ ------------
Basic 30.32 15.23
Diluted 28.71 14.73
---------------------------------------------------- ------------ ------------
Earnings EUR'000 EUR'000
---------------------------------------------------- ------------ ------------
Profit for the period from continuing operations 21,467 9,909
---------------------------------------------------- ------------ ------------
Weighted average number of equity shares Number Number
--------------------------------------------------- ------------ ------------
Basic (i) 70,800,455 65,081,403
Diluting impact of Share options (ii) 3,959,878 2,187,083
---------------------------------------------------- ------------ ------------
Diluted (i) 74,760,333 67,268,486
---------------------------------------------------- ------------ ------------
(i) Includes (weighted average) shares to be
issued:
Number Number
--------------------------------------------------- ------------ ------------
242,077 510,350
--------------------------------------------------- ------------ ------------
(ii) Contingently issuable Ordinary Shares have been excluded where the
conditions governing exercisability have not been satisfied:
Number Number
--------------------------------------------------- ------------ ------------
LTIPs - 2,067,536
Share options - 1,128,000
---------------------------------------------------- ------------ ------------
- 3,195,536
--------------------------------------------------- ------------ ------------
Details of the number of share options outstanding at the
year-end are set out in note 17.
9 Dividends
EUR Pence
cent STG Total
In respect Approval per per dividend Payment
Dividends paid of date share share EUR'000 date
-------------------------------------- ------------- ----------- -------- -------- ----------- ---------
Final 2018 Apr-19 1.21 1.08 773 Jun-19
Interim 2019 Sep-19 0.65 0.58 424 Oct-19
Dividends paid to shareholders 2019 1.86 1.66 1,197
------------------------------------------------------------------- -------- -------- ----------- ---------
At 31 December 2020, Retained earnings available for
distribution (being retained earnings plus share option reserve) in
the Company were EUR25.5m (2019: EUR16.4m). In addition, certain
amounts within Merger reserve are considered distributable (see
note 16).
In light of COVID-19 the Directors have not recommended any
dividend payments for 2020, however the Directors do not foresee
any impediment in continuing to implement the dividend policy of
the Group moving forward.
The Group does not recognise deferred tax on unremitted retained
earnings, as in general, retained earnings (as dividends) are only
remitted where there are minimal or no tax consequences.
10 Staff Costs
Group
--------------------
2020 2019
Total staff costs (including
Directors) EUR'000 EUR'000
-------------------------------- --------- ---------
Salaries and related costs 198,064 177,156
Social welfare costs 21,623 19,340
Pension costs 5,212 4,662
Share option expense 15,350 9,775
--------------------------------
240,249 210,933
------------------------------- --------- ---------
Group
----------------
Average number of employees 2020 2019
------------------------------ ------- -------
Operations 7,768 6,778
General and administration* 585 646
-------------------------------
8,353 7,424
------------------------------ ------- -------
* In 2020 certain support functions (approximately 80 staff)
that are managed by Operations were re-designated to
Operations.
2020 2019
Key management compensation EUR'000 EUR'000
---------------------------------- --------- ---------
Salaries and related costs 1,188 1,384
Social welfare costs 366 140
Pension costs 45 35
Share option expense 1,604 943
---------------------------------- ---------
3,203 2,502
------------------------------ --------- ---------
The key management compensation includes compensation to seven
Directors of Keywords Studios PLC during the year (2019: eight),
and also includes additional executives of the Group.
11 Intangible Assets
Goodwill Customer Intellectual Music licences Total
relationships property
/ Development
costs
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
----------------------------- ---------- ---------------- ---------------- ---------------- ----------
Cost
At 1 January 2019 154,202 36,713 1,521 436 192,872
Recognition on acquisition
of subsidiaries 16,950 - 1,615 - 18,565
Additions - - 391 - 391
Exchange rate movement 4,487 907 - 18 5,412
At 31 December 2019 175,639 37,620 3,527 454 217,240
Recognition on acquisition
of subsidiaries 47,112 17,673 - - 64,785
Additions - - 259 - 259
Exchange rate movement (10,587) (2,870) 13 - (13,444)
At 31 December 2020 212,164 52,423 3,799 454 268,840
------------------------------ ---------- ---------------- ---------------- ---------------- ----------
Accumulated amortisation
At 1 January 2019 - 12,671 - 115 12,786
Amortisation charge - 7,001 - 317 7,318
Exchange rate movement - 346 - 21 367
At 31 December 2019 - 20,018 - 453 20,471
Amortisation charge - 6,421 327 - 6,748
Impairment charge 147 - 1,913 - 2,060
Exchange rate movement - (1,261) 11 1 (1,249)
At 31 December 2020 147 25,178 2,251 454 28,030
------------------------------ ---------- ---------------- ---------------- ---------------- ----------
Net book value
At 1 January 2020 175,639 17,602 3,527 1 196,769
At 31 December 2020 212,017 27,245 1,548 - 240,810
------------------------------ ---------- ---------------- ---------------- ---------------- ----------
Customer relationships, intellectual property / development
costs and music licences are amortised on a straight-line basis
over five years. Customer relationships and music licence
amortisation commences on acquisition, whereas intellectual
property / development costs amortisation commences when the
product is launched.
Impairment tests for goodwill
The Group assesses the carrying value of goodwill each year on
the basis of budget projections for the coming year extrapolated
using a one to five year growth rate and a terminal value
calculated using a long term growth rate projection. The discount
rate used of 12.5% (2019: 12.5%) is based on the Board's assessment
of the weighted average cost of capital ("WACC") of the Group. The
WACC assessment is supported by an annual independently calculated
report, using the Capital Asset Pricing Model. However, the Board
have excluded the impact of short term market volatility on these
calculations in determining the Group WACC.
Key assumptions
Actual Sensitivity analysis
-------------- ------------------------------
2020 2019 2020 2019 2020 2019
---------------------------- ------ ------ ------ ------ ------ ------
1 to 5 year growth
rate assumption 10% 10% 15% 15% 5% 5%
Long term growth rate
assumption 2% 2% 2% 2% 2% 2%
Value in use (EURm) 532 469 636 560 452 398
Carrying value - goodwill
(EURm) 212 176
----------------------------- ------ ------ ------ ------ ------ ------
The value in use calculations were consistently calculated year
over year, with no significant changes in the assumptions made. The
result of the value in use calculations was that no impairment is
required in this period. The Directors consider that no reasonably
probable change in the assumptions would result in an
impairment.
Specific impairment reviews
S pecific impairment reviews were performed for other intangible
asset classes where it was considered COVID-19 had the potential to
trigger an impairment. Due to the uncertainty caused by COVID-19 an
impairment charge of EUR2,060k (2019: EURnil) was recognised in the
period, related to intangible assets in certain early technology
pre-revenue businesses, fully impairing their carrying value.
12 Right of Use Assets
The Group has entered into leases, across the business,
principally relating to property. These property leases have
varying terms and renewal rights.
Group
--------------------
2020 2019
EUR'000 EUR'000
----------------------------- --------- ---------
Cost
At 1 January 29,384 -
Adjustments from adoption
of IFRS 16 - 23,138
Additions 15,035 4,315
Recognition on acquisition
of subsidiaries 2,376 990
Exchange rate movement (2,703) 941
At 31 December 44,092 29,384
------------------------------ --------- ---------
Accumulated depreciation
At 1 January 7,915 -
Depreciation charge 8,402 7,849
Impairment charge 434 -
Exchange rate movement (466) 66
At 31 December 16,285 7,915
------------------------------ --------- ---------
Net book value
At 1 January 21,469 -
At 31 December 27,807 21,469
------------------------------ --------- ---------
13 Property, Plant and Equipment
Group
Computers Office Leasehold Total
and software furniture improvements
and equipment
EUR'000 EUR'000 EUR'000 EUR'000
-------------------------------- --------------- ---------------- --------------- ---------
Cost
At 1 January 2019 18,325 5,407 5,804 29,536
Exchange rate movement 1,042 275 497 1,814
Additions 6,815 1,657 4,673 13,145
Acquisitions through business
combinations at fair value 300 232 231 763
Disposals (1,639) (824) (44) (2,507)
At 31 December 2019 24,843 6,747 11,161 42,751
Exchange rate movement (2,058) (155) (1,339) (3,552)
Additions 8,338 541 5,029 13,908
Acquisitions through business
combinations at fair value 523 125 197 845
Disposals (2,440) (352) (136) (2,928)
At 31 December 2020 29,206 6,906 14,912 51,024
--------------------------------- --------------- ---------------- --------------- ---------
Accumulated depreciation
At 1 January 2019 10,361 2,691 1,482 14,534
Exchange rate movement 639 160 267 1,066
Depreciation charge 5,226 703 1,366 7,295
Disposals (1,501) (803) (3) (2,307)
At 31 December 2019 14,725 2,751 3,112 20,588
Exchange rate movement (1,378) 35 (695) (2,038)
Depreciation charge 5,979 868 2,136 8,983
Disposals (2,440) (352) (136) (2,928)
At 31 December 2020 16,886 3,302 4,417 24,605
--------------------------------- --------------- ---------------- --------------- ---------
Net book value
At 1 January 2020 10,118 3,996 8,049 22,163
At 31 December 2020 12,320 3,604 10,495 26,419
--------------------------------- --------------- ---------------- --------------- ---------
14 Trade Receivables
2020 2019
EUR'000 EUR'000
----------------------------------------- --------- ---------
Trade receivables 49,814 44,526
Provision for bad debts (note 23) (1,982) (1,283)
------------------------------------------ --------- ---------
Financial asset held at amortised cost 47,832 43,243
------------------------------------------ --------- ---------
Trade receivables arise from revenues derived from contracts
with customers.
15 Other Receivables
2020 2019
Group - Short term EUR'000 EUR'000
--------------------------------------------------- --------- ---------
Accrued income from contracts with customers 9,202 7,010
Prepayments 4,608 4,089
Rent deposits and other receivables 4,816 3,151
Multimedia tax credits / video games tax relief 16,668 17,626
Tax and social security 3,371 3,537
--------------------------------------------------- ---------
38,665 35,413
-------------------------------------------------- --------- ---------
Accrued income from contracts with customers, represent mainly
contract assets in process and related items. The movement in the
year is comprised of transfers in and out as items are accrued and
subsequently invoiced to customers, with no significant amounts
written off or impaired in the period, or no significant amounts
recognised on the acquisition of subsidiaries.
16 Shareholders' Equity and Prior Year Restatement of Share Premium to Merger Reserve
Share Capital
Number
of ordinary Share
Number GBP0.01 capital
Per of ordinary shares Share - to Share Merger
Issue share GBP0.01 - to capital be issued premium reserve
date EUR shares be issued EUR'000 EUR'000 EUR'000 EUR'000
At 01 January 2019
(restated) 63,788,286 923,139 763 15,648 19,964 118,257
---------------------------- -------- ------------- ------------- ---------- ------------ ---------- ----------
Acquisition
related
issuance of
shares:
Sunny Side
Up 04-Jan-19 12.46 - 60,179 - 750 - -
Sperasoft 16-Jan-19 16.48 243,442 (243,442) 3 (4,013) - 4,010
Sperasoft
re: bonus
to
employees 16-Jan-19 14.13 7,801 - - - - 110
Fire Without
Smoke 04-Jun-19 20.12 77,006 (77,006) 1 (1,549) - 1,548
Red Hot 06-Jun-19 9.12 160,297 (160,842) 2 (1,468) - 1,461
Descriptive
Video
Works 11-Jun-19 17.93 - 35,560 - 638 - -
Blindlight 26-Jun-19 20.57 64,521 (64,521) 1 (1,327) - 1,326
Snowed in 12-Aug-19 19.55 37,983 (37,983) - (743) - 743
Studio Gobo
and
Electric
Square 20-Aug-19 19.74 254,949 (254,529) 3 (5,024) - 5,021
The
Trailerfarm 24-Sep-19 21.31 11,070 (11,070) - (236) - 236
TV+SYNCHRON 01-Oct-19 13.12 - 68,608 - 900 - -
Ichi 26-Nov-19 15.94 - 70,246 - 1,120 - -
Kantan 12-Dec-19 15.86 - 41,382 - 614 - -
Acquisition related
issuance of shares 857,069 (573,418) 10 (10,338) - 14,455
---------------------------- -------- ------------- ------------- ---------- ------------ ---------- ----------
Issue of shares on
exercise of share
options 1.34 567,160 - 7 - 754 -
At 31 December 2019
(restated) 65,212,515 349,721 780 5,310 20,718 132,712
---------------------------- -------- ------------- ------------- ---------- ------------ ---------- ----------
Acquisition
related
issuance of
shares:
Sunny Side
Up 06-Jan-20 12.46 60,179 (60,179) 1 (750) - 749
Laced 14-Apr-20 17.48 8,194 (8,194) - (143) - 143
Cord
Worldwide 14-Apr-20 17.48 65,550 (65,550) 1 (1,145) - 1,145
Descriptive
Video
Works 12-Jun-20 17.93 35,560 (35,560) - (638) - 637
Coconut
Lizard 25-Jun-20 20.23 - 19,739 - 399 - -
Studio Gobo
and
Electric
Square 19-Aug-20 16.72 198,576 - 2 - - 3,319
Maverick
Media 26-Aug-20 24.63 - 13,579 - 334 - -
TV+SYNCHRON 05-Oct-20 13.12 68,608 (68,608) 1 (900) - 899
Ichi 02-Dec-20 15.95 55,612 (55,612) 1 (886) - 886
G-Net Media 24-Nov-20 23.26 - 130,448 - 3,034 - -
Jinglebell 10-Dec-20 25.94 - 11,564 - 300 - -
High Voltage
Software 14-Dec-20 26.06 - 307,597 - 8,017 - -
Indigo Pearl 15-Dec-20 26.27 - 20,125 - 529 - -
Kantan 22-Dec-20 15.86 26,085 (26,085) - (414) - 414
Acquisition related
issuance of shares 518,364 183,264 6 7,737 - 8,192
---------------------------- -------- ------------- ------------- ---------- ------------ ---------- ----------
Share
placing 20-May-20 16.23 6,900,000 - 77 - - 109,372
Issue of shares on
exercise of share
options 0.96 1,448,364 - 16 - 2,233 -
At 31 December 2020 74,079,243 532,985 879 13,047 22,951 250,276
---------------------------- -------- ------------- ------------- ---------- ------------ ---------- ----------
Subject to applicable law, the Company's articles of association
and any relevant authority of the Company passed by the
shareholders in general meeting, there is no limit to the number of
shares which the Company can issue, nor are there are any
restrictions on dividends or distributions on such shares. In the
context of the Company's general meeting authorities, at the AGM of
27 May 2020, shareholders gave the Directors the authority to allot
shares (or grant rights to subscribe for, or convert any security
into, shares) in the Company up to:
a) 3,283,791 shares in respect of the Company's Long Term
Incentive Plan and Share Option Plan (5% of the Company's issued
share capital as at 20 April 2020); and
b) otherwise, up to 21,870,054 shares (33.3% of the Company's
issued share capital as at 20 April 2020).
This authority is considered prudent as it gives the Company
flexibility to take advantage of possible opportunities which may
arise from time to time. The authority granted at the 2020 AGM will
expire on the earlier of (i) 15 months after 27 May 2020; and (ii)
the conclusion of the 2021 AGM.
Shares to be issued are valued at the share price at the date of
acquisition, and are recorded in accordance with IAS 32.16.
Shares held in the Employee Benefit Trust ("EBT")
2020 2019
-------------------- --------------------
Shares EUR'000 Shares EUR'000
------------------------------ --------- --------- --------- ---------
Ordinary shares held in the
EBT 335,425 1,997 335,425 1,997
------------------------------- --------- --------- --------- ---------
Reserves
The following describes the nature and purpose of each reserve
within owners' equity:
Reserve Description and purpose
-------------------- ------------------------------------------------------
Cumulative net gains and losses recognised in
the Consolidated Statement of Comprehensive
Retained earnings Income.
Gains or losses arising on retranslation of
Foreign exchange the net assets of the overseas operations into
reserve Euro.
Share premium The share premium account is the amount received
for shares issued in excess of their nominal
value, net of share issuance costs.
Share option reserve The share option reserve is the credit arising
on share-based payment charges in relation to
the Company's share option schemes.
Shares to be issued For deferred consideration which is to be provided
for by the issue of a fixed number of shares
at a future defined date, where there is no
obligation on Keywords to offer a variable number
of shares, the deferred consideration is classified
as an Equity Arrangement and the value of the
shares is fixed at the date of the acquisition.
Merger reserve The merger reserve was initially created following
the Group reconstruction, when Keywords Studios
PLC acquired the Keywords International Limited
group of companies.
When the Group uses Keywords Studios PLC shares
as consideration for the acquisition of an entity,
the value of the shares in excess of the nominal
value (net of share issuance costs) is also
recorded within this reserve, in line with S612
of the Companies Act 2006.
Prior Year Restatement of Share Premium to Merger Reserve
In May 2020, the Company completed a placing of 6,900,000 new
ordinary shares issued at a price of EUR16.23 (GBP14.50) per share,
representing approximately 10.5% of the issued share capital prior
to the placing. Net of transaction costs, the placing raised
proceeds of approximately EUR110m (GBP98m). The placing was made
via a cash box structure, resulting in the Company acquiring the
proceeds via a share for share exchange and hence the premium on
the issuance of new shares of EUR109.5m has been credited to Merger
reserve (in accordance with S610 of the Companies Act 2006). At the
time of the placement, the proceeds were not allocated to a
specific acquisition or specific purpose, and thus this reserve is
considered distributable. The new shares rank pari passu in all
respects with the existing ordinary shares of the Company,
including the right to receive all future dividends and other
distributions declared or paid after the date of placing.
Following completion of the share placement via the cash box
structure in May 2020, a review of the Company's merger reserves
was performed. It was identified that the premium on shares issued
as part of the share placement in 2017 of EUR82.3m, was incorrectly
recorded in non-distributable share premium. As the placing was
also made via a cash box structure, resulting in the Company
acquiring the proceeds via a share for share exchange, the premium
on the issuance of new shares of EUR82.3m should have been credited
to Merger reserve (in accordance with S610 of the Companies Act
2006). At the time of the placing the proceeds were identified as
allocated to specific acquisitions. Hence the reserve is not
considered distributable, but may become distributable in the
future. The premium has been re-designated to Merger reserve and
the prior period balances have been restated accordingly.
Merger
Share premium reserve
Prior period restatement EUR'000 EUR'000
----------------------------------------------------- --------------- ----------
At 1 January 2019 - as reported 102,225 35,996
Reclassification of Share premium within Reserves (82,261) 82,261
At 1 January 2019 - as restated 19,964 118,257
----------------------------------------------------- --------------- ----------
It was further identified that the share premium of EUR14.4m on
the share placement in 2015, again via a cash box structure, that
was posted to Merger reserve in 2015, is in fact distributable (as
at the time of the placement the proceeds were not allocated to a
specific purpose). For clarity, this transaction for EUR14.4m,
together with the EUR109.5m from the share placement in 2020
(totalling EUR123.9m) that are included in the Merger reserve, are
considered distributable.
17 Share Options
In July 2013, at the time of the IPO, the Company put in place a
Share Option Scheme and a Long-Term Incentive Plan ("LTIP"). The
charge in relation to these arrangements is as follows:
2020 2019
EUR'000 EUR'000
------------------------------ --------- ---------
Share option scheme expense 2,576 1,520
LTIP option expense 12,774 8,255
------------------------------- --------- ---------
15,350 9,775
------------------------------ --------- ---------
Of the total share option expense, EUR1,007k relates to
Directors of the Company (2019: EUR754k).
Share Option Scheme
Share options are granted to Executive Directors and to
permanent employees. The exercise price of the granted options is
equal to the market price of the shares at the time of the award of
the options. The Company has no legal or constructive obligation to
repurchase or settle the options in cash.
Movements in the number of share options outstanding and their
related weighted average exercise prices are as follows:
2020 2019
------------------------ ------------------------
Average Average
exercise exercise
price in price in
GBP per Number of GBP per Number of
share options share options
-------------------------------- ----------- ----------- ----------- -----------
Outstanding at the beginning
of the period 9.97 2,148,102 7.11 1,832,701
Granted 15.93 822,000 15.88 729,000
Lapsed 15.64 (179,151) 14.74 (175,807)
Exercised 4.55 (445,713) 2.66 (237,792)
--------------------------------- ----------- ----------- -----------
Outstanding at the end of the
period 12.66 2,345,238 9.96 2,148,102
--------------------------------- ----------- ----------- ----------- -----------
Exercisable at the end of the
period 4.39 638,238 1.89 809,440
--------------------------------- ----------- ----------- ----------- -----------
Weighted average share price
at date of exercise 17.91 15.98
--------------------------------- ----------- ----------- ----------- -----------
Summary by year
Year of Option 2013 2015 2016 2017 2018 2019 2020 Total
Exercise price GBP1.23 GBP1.58 GBP2.54 GBP7.76 GBP17.10 GBP15.88 GBP15.93
-------------------- ----------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
Outstanding at the
beginning
of the period 178,559 544,481 91,229 205,833 469,500 658,500 - 2,148,102
Granted - - - - - - 822,000 822,000
Lapsed - (1,420) (1,601) (10,139) (36,839) (69,713) (59,439) (179,151)
Exercised (178,559) (84,448) (55,332) (68,660) (57,679) (787) (248) (445,713)
Outstanding at the
end
of the period - 458,613 34,296 127,034 374,982 588,000 762,313 2,345,238
-------------------- ----------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
Exercisable at 31
December
2020 - 458,613 34,296 53,034 91,982 - 313 638,238
Exercisable 2021 - - - 74,000 141,500 196,000 - 411,500
Exercisable 2022 - - - - 141,500 196,000 254,000 591,500
Exercisable 2023 - - - - - 196,000 254,000 450,000
Exercisable 2024 - - - - - - 254,000 254,000
-------------------- ----------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
The inputs into the Black-Scholes model, used to value the
options are as follows:
Year of Option 2013 2015 2016 2017 2018 2019 2020 Total
----------------------------- --------- --------- --------- --------- ---------- ---------- ---------- -------
Weighted average share
price (GBP) GBP1.23 GBP1.64 GBP2.54 GBP7.75 GBP17.22 GBP16.09 GBP16.00
Weighted average exercise
price (GBP) GBP1.23 GBP1.58 GBP2.54 GBP7.76 GBP17.10 GBP15.88 GBP15.93
Fair value at measurement
date (EUR) EUR0.81 EUR0.56 EUR0.40 EUR1.13 EUR3.79 EUR5.72 EUR6.06
Average expected life 4 Years 4 Years 4 Years 4 Years 4 Years 4 Years 4 Years
Expected volatility 36.12% 28.03% 27.17% 24.79% 35.87% 45.23% 50.15%
Risk free rates 0.50% 0.90% 0.58% 0.16% 0.89% 0.81% 0.07%
Average expected dividend
yield 1.00% 0.75% 0.55% 0.21% 0.10% 0.10% 0.10%
Weighted average remaining
life of options in months - - - 5 17 29 41 24
----------------------------- --------- --------- --------- --------- ---------- ---------- ---------- -------
Expected volatility was determined by reference to KWS
volatility. The expected life used in the model has been adjusted
based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations.
Long-term Incentive Plan Scheme
LTIP share awards are subject to KWS performance versus the
designated share index over a three-year period.
Movements in the number of share options outstanding and their
related weighted average exercise prices are as follows:
2020 2019
-------------------------- ------------------------
Average Average
exercise exercise
price in price in
GBP per Number of GBP per Number of
share options share options
-------------------------------- ----------- ------------- ----------- -----------
Outstanding at the beginning
of the period 0.01 3,445,868 0.01 2,677,467
Granted 0.01 1,428,000 0.01 1,298,136
Lapsed 0.01 (178,400) 0.01 (200,367)
Exercised 0.01 (1,002,651) 0.01 (329,368)
--------------------------------- ----------- ------------- -----------
Outstanding at the end of the
period 0.01 3,692,817 0.01 3,445,868
--------------------------------- ----------- ------------- ----------- -----------
Exercisable at the end of the
period 0.01 373,648 0.01 732,299
--------------------------------- ----------- ------------- ----------- -----------
Weighted average share price
at date of exercise 17.34 16.17
--------------------------------- ----------- ------------- ----------- -----------
Summary by year
Year of
Option 2013 2015 2016 2017 2018 2019 2020 Total
----------- ----------- ----------- ----------- ---------- ----------- ----------- -------------
Exercise
price GBP0.01 GBP0.01 GBP0.01 GBP0.01 GBP0.01 GBP0.01 GBP0.01
-------------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- -------------
Outstanding
at the
beginning
of the
period 204,273 200,959 327,067 644,000 857,000 1,212,569 - 3,445,868
Granted - - - - - - 1,428,000 1,428,000
Lapsed - - - - (58,000) (76,600) (43,800) (178,400)
Exercised (204,273) (153,601) (196,807) (447,970) - - - (1,002,651)
Outstanding
at the end
of the
period - 47,358 130,260 196,030 799,000 1,135,969 1,384,200 3,692,817
-------------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- -------------
Exercisable
at 31
December
2020 - 47,358 130,260 196,030 - - - 373,648
Exercisable
2021 - - - - 799,000 - - 799,000
Exercisable
2022 - - - - - 1,135,969 - 1,135,969
Exercisable
2023 - - - - - - 1,384,200 1,384,200
-------------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- -------------
The inputs into the Monte Carlo binomial model, used to value
the options are as follows:
Year of Option 2013 2015 2016 2017 2018 2019 2020 Total
----------------------------- --------- --------- --------- --------- ---------- ---------- ---------- -------
Weighted average share
price (GBP) GBP1.23 GBP1.60 GBP2.56 GBP7.75 GBP17.24 GBP16.05 GBP16.00
Weighted average exercise
price (GBP) GBP0.01 GBP0.01 GBP0.01 GBP0.01 GBP0.01 GBP0.01 GBP0.01
Fair value at measurement
date (EUR) EUR0.62 EUR1.38 EUR1.74 EUR4.96 EUR11.83 EUR13.98 EUR13.28
Average expected life 3 Years 3 Years 3 Years 3 Years 3 Years 3 Years 3 Years
Expected volatility 36.12% 28.21% 27.11% 24.79% 35.87% 45.26% 50.15%
Risk free rates 0.50% 0.88% 0.54% 0.16% 0.89% 0.81% 0.07%
Weighted average remaining
life of options in months - - - - 5 17 29 17
----------------------------- --------- --------- --------- --------- ---------- ---------- ---------- -------
Expected volatility was determined by reference to KWS
volatility. The expected life used in the model has been adjusted
based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations. As any dividends earned are to be re-invested into
the business the impact of dividends has been ignored in the
calculation of the LTIP share option charge.
LTIP's vest on the third anniversary of the grant, if the market
performance criteria are met. LTIPs must be exercised before the
seventh anniversary of the grant.
18 Other Payables
Group
--------------------
2020 2019
EUR'000 EUR'000
-------------------------- --------- ---------
Current liabilities
Accrued expenses 31,086 22,809
Payroll taxes 2,563 3,833
Other payables (ii) 10,501 6,104
Deferred and contingent
consideration (i) 18,808 5,966
62,958 38,712
-------------------------- --------- ---------
Non-current liabilities
Other payables (ii) - 216
Deferred and contingent
consideration (i) 1,994 69
1,994 285
-------------------------- --------- ---------
(i) The movement in deferred and contingent consideration during
the financial year was as follows:
Group
---------------------
2020 2019
EUR'000 EUR'000
----------------------------------- --------- ----------
Carrying amount at the
beginning of the year 6,035 19,306
Consideration settled by
cash (2,489) (14,711)
Consideration settled by
shares (3,321) -
Unwinding of discount (note
6) 132 330
Additional liabilities from
current year acquisitions (note
27) 21,131 238
Fair value adjustments (66) 493
Exchange rate movement (620) 379
Carrying amount at the
end of the year 20,802 6,035
------------------------------------ --------- ----------
In general, in order for contingent consideration to become
payable, pre-defined profit and / or revenue targets must be
exceeded. The valuation of contingent consideration is derived
using data from sources that are not widely available to the public
and involves a degree of judgement (Level 3 input in the fair value
hierarchy). On an undiscounted basis, the Group may be liable for
deferred and contingent consideration ranging from EUR0.2m to a
maximum of EUR26.4m. A 10% movement in expected performance
results, has no impact on the fair value of the contingent
consideration, and hence there are no reasonably probable changes
to the assumptions and inputs (including the discount rate), that
would lead to a material change to the fair value of the total
amount payable.
(ii) Other payables includes deferred income from contracts with
customers of EUR2,967k (2019: EUR2,609k), which mainly comprise
items invoiced prior to services being delivered. The movement in
the year is comprised of transfers in and out as items are deferred
and subsequently recognised as revenue.
19 Employee Defined Benefit Plans
In line with statutory requirements in France, Italy and India,
we are required to maintain employee defined benefit termination
payment schemes.
In France, employees are entitled to a lump-sum on retirement or
early termination, based on salary and length of service
('Indemnité de Fin de Carrière' or IFC), entitling the Group's
French employees to benefits of up to 2 month's salary per year of
service.
In Italy, on leaving employment, each employee is entitled to
1/13.5 of their final salary for each year of service ('Trattamento
di Fine Rapporto' or TFR).
In India, in compliance with statutory requirements, employees
with over 5 years service are entitled a termination benefit of
15/26 of monthly salary for each year of service ('Gratuity'
benefits).
The Group commissions an actuarial valuation of the related
liabilities in each jurisdiction annually.
The liabilities at year end are recorded as long term. The
actuarial gain or loss is recorded separately within Other
comprehensive income. The movements through the year are as
follows:
2020 2019
EUR'000 EUR'000
------------------------------------------------ --------- ---------
Opening liabilities at 1 January 2,049 1,378
Liabilities in France recognised at 1 January
2019 - 210
Service cost 354 307
Interest cost 30 35
Benefits paid (110) (48)
Actuarial (gain) / loss recorded 421 167
Exchange rate movement (51) -
Closing liabilities at 31 December 2,693 2,049
------------------------------------------------- --------- ---------
The Directors have considered the key specific risk factors
which the Group faces due to the employee defined benefit plans
which are in place. Having fully considered all specific elements
of these plans the Directors believe that the key issues faced are
as follows:
-- The plan is currently 100% unfunded, there are no specific
assets to meet the future liabilities as they fall due, as such
there will be a cash flow impact as the liabilities must be met
with current working capital as they fall due.
The Group has taken no specific actions to mitigate against
these factors as due to the long-term nature of the plans it is
expected that there will be no sudden financial impact on the
Group's results caused by any of these factors. A maturity profile
of the obligation is not presented as the liability is not
significant in the context of the Group, and due to the age profile
of employees a significant outlay is not anticipated for the
foreseeable future.
In 2021, the Group expects the costs of the employee benefit
plan to be in line with current year levels, as staff levels are
anticipated to not change significantly in the period.
The actuarial valuation is based on the Projected Unit Credit
Method, in line with IAS 19.
2020 2019
Cost for year EUR'000 EUR'000
------------------------------------------------- --------- ---------
Service cost 354 307
Interest cost 30 35
Liabilities in France recognised at 1 January
2019 - 210
Actuarial (gain) / loss 421 167
805 719
------------------------------------------------ --------- ---------
2020 2019
Actuarial (gain) / loss EUR'000 EUR'000
------------------------------------------- --------- ---------
Change due to experience 98 28
Change due to demographical assumptions (93) (24)
Change due to financial assumptions 416 163
421 167
------------------------------------------ --------- ---------
Assumptions Underlying the Actuarial Valuations and
Sensitivities of the Assumptions
For the actuarial valuations the following demographic and
economic and financial assumptions were applied:
-- Mortality probabilities were derived from the population
demographics, as recorded by the Government Statistics Offices in
each jurisdiction.
-- Disability, retirement age and other relevant demographic
assumptions were taken from relevant life assurance statistics.
-- Certain inputs were estimated by management including
o Employee attrition rates, estimated based on company
experience in each jurisdiction.
o In Italy, TFR rules allow for early drawdown of benefits in
certain circumstances. Such advances were estimated on the basis of
company experience.
Economic and Financial Assumptions 2020 2019
------------------------------------------ --------- ---------
Staff salary increase rate 3.63% 3.38%
Inflation rate 2.93% 2.06%
Discount rate 1.23% 1.64%
------------------------------------------ --------- ---------
Key Statistics 2020 2019
------------------------------------------ --------- ---------
Staff (number) 782 749
Average age (years) 31 31
Average service (years) 4 4
------------------------------------------ --------- ---------
2020 2019
Interest Rate Sensitivities EUR'000 EUR'000
------------------------------------------ --------- ---------
(0.25)% 2,842 2,179
0.25% 2,568 1,964
------------------------------------------ --------- ---------
2020 2019
Mortality Rate Sensitivities EUR'000 EUR'000
------------------------------------------ --------- ---------
(0.025)% 2,696 2,056
0.025% 2,693 2,054
------------------------------------------ --------- ---------
2020 2019
Staff Turn Over Rate Sensitivities EUR'000 EUR'000
------------------------------------------ --------- ---------
(0.50)% 2,726 2,090
0.50% 2,664 2,046
------------------------------------------ --------- ---------
2020 2019
Staff Salary Increase Rate Sensitivities EUR'000 EUR'000
------------------------------------------ --------- ---------
(0.50)% 2,703 2,033
0.50% 2,745 2,103
------------------------------------------ --------- ---------
20 Loans and Borrowings
Group
--------------------
2020 2019
Maturity analysis of Loans
and borrowings EUR'000 EUR'000
------------------------------ --------- ---------
Current
Expiry within 1 year - 80
--------- ---------
Non-current
Expiry between 1 and 2
years - -
Expiry over 2 years 195 59,671
195 59,671
--------- ---------
195 59,751
----------------------------- --------- ---------
Currency denomination
----------------------------- --------- ---------
Euro - 59,500
Canadian Dollars 195 251
195 59,751
----------------------------- --------- ---------
In 2019 the Company amended and extended it's existing
Syndicated Bank revolving credit facility ('RCF'). The RCF allows
financing of up to EUR100m, with an option to increase this by up
to EUR40m to a total of EUR140m, at a rate based on a margin over
EURIBOR, plus a separate margin charged for the unutilised
facility. The RCF extends to October 2022, with an option to extend
this maturity date by up to a further 2 years. While technically
any borrowings are repaid and re-borrowed multiple times during the
term of the RCF, so long as the Group remains compliant with the
financial covenants and certain other terms of the RCF, the debt is
rolled from one period to another, with the legal and commercial
substance of a multi-year committed facility. Hence the Group
presents liabilities under the RCF as non-current. In the prior
period, the original RCF arrangement which was presented as a
current liability during the process of being re-negotiated, was
re-designated to non-current following re-negotiation.
In connection with the RCF, security has been granted over the
major subsidiaries of the Group and the lenders also require the
Group to comply with and report interest cover and leverage ratios
in connection with its financial covenants. Non-compliance with
terms of the RCF could result in lenders refusing to advance more
funds, or in the worst case, calling in outstanding loans.
Throughout the period, the Group operated well within the interest
cover and leverage ratio terms of the RCF agreement.
The movements in loans and borrowings is as follows:
Group
-------------------------------------
Current Non-current Total
EUR'000 EUR'000 EUR'000
------------------------------- ---------- ------------- ----------
At 1 January 2019 40,071 230 40,301
Cash flows:
Drawdowns 27,000 27,000
Repayments (71) (7,902) (7,973)
Non-cash flows:
Recognition on acquisition
of subsidiaries - 402 402
Current re-designated
to non-current (39,920) 39,920 -
Exchange rate movement - 21 21
-------------------------------- ---------- ------------- ----------
At 31 December 2019 80 59,671 59,751
Cash flows:
Drawdowns - 4,500 4,500
Repayments - (64,030) (64,030)
Non-cash flows:
Exchange rate movement (7) (19) (26)
--------------------------------
At 31 December 2020 73 122 195
-------------------------------- ---------- ------------- ----------
Following the share placing in May 2020, the balance of the RCF
was repaid in June 2020, with the residual balance being loans owed
by Keywords Studios QC-Interactive Inc.
Loans and borrowings (classified as financial liabilities under
IFRS 9), are held at amortised cost. Interest expenses which are
calculated using the effective interest method, are disclosed in
note 6.
21 Lease Liabilities
The Group has entered into leases, across the business,
principally relating to property. These property leases have
varying terms and renewal rights. Management applies judgement in
determining whether it is reasonably certain that a renewal or
termination option will be exercised.
The movement in lease liabilities during the financial year was
as follows:
Group
--------------------
2020 2019
EUR'000 EUR'000
----------------------------------- --------- ---------
Carrying amount at the
beginning of the year 21,907 -
Recognition on acquisition
of subsidiaries (note 27) 2,376 990
Adjustments from adoption
of IFRS 16 23,138
Liabilities recognised
on new leases in the period 15,035 4,315
Unwinding of discounted
liabilities - lease liabilities 843 694
Payment of principal and
interest on lease liabilities (9,013) (8,049)
Exchange rate movement (2,284) 819
Carrying amount at the
end of the year 28,864 21,907
------------------------------------ --------- ---------
The value of leases not yet commenced to which the lessee is
committed, which are not included in lease liabilities at 31
December 2020, were EUR10.3m (2019: EURnil).
Group
2020 2020 2020 2019 2019 2019
Maturity analysis of
lease liabilities EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
------------------------------ ----------- ---------- -------------- ----------- ---------- --------------
Lease Finance Lease Lease Finance Lease
payments charges liabilities payments charges liabilities
----------- ---------- -------------- ----------- ---------- --------------
Current
Not later than one year 8,291 930 7,361 8,281 582 7,741
----------- ---------- -------------- ----------- ---------- --------------
Non-current
Later than one year and
not later than five years 18,715 1,013 17,702 12,321 216 12,152
Later than five years 5,307 1,506 3,801 2,718 703 2,014
24,022 2,519 21,503 15,039 919 14,166
----------- ---------- -------------- ----------- ---------- --------------
At 31 December 32,313 3,449 28,864 23,320 1,501 21,907
------------------------------ ----------- ---------- -------------- ----------- ---------- --------------
The Group has elected not to recognise a lease liability for
short term leases (leases with an expected term of 12 months or
less) or for leases of low value assets. Payments made under such
leases are expensed on a straight-line basis. The expenses in the
period relating to payments not included in the measurement of the
lease liability were as follows:
Group
--------------------
2020 2019
Lease payments not recognised
as a liability EUR'000 EUR'000
------------------------------------- --------- ---------
Short-term leases 1,747 1,616
Leases of low value assets - -
1,747 1,616
------------------------------------ --------- ---------
The future minimum lease payments
related to these leases
------------------------------------- --------- ---------
Not later than one year 991 651
Later than one year and
not later than five years - -
Later than five years - -
991 651
------------------------------------ --------- ---------
The effect of variable lease payments and re-instatement costs
on future cash outflows arising from leases, is not material for
the Group.
22 Deferred Tax
Details of the deferred tax assets and liabilities, and amounts
recognised in the Income statement are as follows:
2020 2020 2020 2020
EUR'000 EUR'000 EUR'000 EUR'000
--------- ------------- --------- ------------
Assets Liabilities Net (Credited)
/ charged
to income
statement
-------------------------------------- --------- ------------- --------- ------------
Defined benefit termination
payments 69 - 69 (19)
Available losses 1,157 - 1,157 293
Rent free period provisions 75 - 75 (64)
Fixed asset tax base versus
accounting book value 603 704 (101) 104
Deferred tax related to tax
credits 38 2,144 (2,106) (1,057)
Deferred tax arising on items
deductible on a paid basis 3,344 1,405 1,939 (949)
Recognition on acquisition of
subsidiaries 9,363 3,970 5,393 -
Deferred tax arising on intangibles - 2,352 (2,352) (1,451)
--------------------------------------- --------- ------------- --------- ------------
Net tax assets / liabilities 14,649 10,575 4,074 (3,143)
--------------------------------------- --------- ------------- --------- ------------
Impact of change in tax rates 289
Prior year (over) / under provision (18)
Total (credited) / charged to
income statement (2,872)
--------------------------------------- --------- ------------- --------- ------------
2019 2019 2019 2019
EUR'000 EUR'000 EUR'000 EUR'000
--------- ------------- --------- ------------
Assets Liabilities Net (Credited)
/ charged
to income
statement
-------------------------------------- --------- ------------- --------- ------------
Accelerated capital allowances - - - (1)
Defined benefit termination
payments 50 - 50 16
Available losses 1,450 - 1,450 (575)
Rent free period provisions 11 - 11 19
Fixed asset tax base versus
accounting book value 578 575 3 484
Deferred tax related to tax
credits 474 3,637 (3,163) 695
Deferred tax arising on items
deductible on a paid basis 2,497 1,507 990 469
Deferred tax arising on intangibles - 3,803 (3,803) (1,990)
--------------------------------------- --------- ------------- --------- ------------
Net tax assets / (liabilities) 5,060 9,522 (4,462) (883)
--------------------------------------- --------- ------------- --------- ------------
Impact of change in tax rates (80)
Prior year (over) / under provision (95)
Total (credited) / charged to
income statement (1,058)
--------------------------------------- --------- ------------- --------- ------------
The deferred tax asset not recognised on available losses at the
period end is EUR3.2m (2019: EUR3.1m).
23 Financial Instruments and Risk Management
Interest Rate Risk
Interest rate risk is the risk that the value of financial
instruments will fluctuate due to changes in market interest rates.
The Group's income and operating cash flows are substantially
independent of changes in market interest rates. The management
monitors interest rate fluctuations on a continuous basis and acts
accordingly.
Where the Group has a significant amount of surplus cash, it
invests in higher earning interest deposit accounts.
Due to interest rate conditions, the interest rates for
short-term deposits are at similar levels to those achieved for
longer-terms.
The effect of a strengthening or a weakening of 1% in interest
rates charged during the reporting period on the interest expense
would have resulted in the following pre-tax profit / (loss) impact
for the year:
1% 1% 1% 1%
Strengthening Weakening Strengthening Weakening
2020 2020 2019 2019
EUR'000 EUR'000 EUR'000 EUR'000
------------------- --------------- ----------- --------------- -----------
Interest expense (290) 257 (503) 503
-------------------- --------------- ----------- --------------- -----------
Credit Risk
The Group's main financial assets are cash and cash equivalents,
as well as trade and other receivables which represent the Group's
maximum exposure to credit risk in connection with its financial
assets.
Credit risk arises when a failure by counterparties to discharge
their obligations could reduce the amount of future cash inflows
from financial assets on hand at the reporting date. Credit risk
arising in the context of the Group's operations is not significant
with the total bad debt provision at the balance sheet date
amounting to 4% of net trade receivables (2019: 3.0%). Customer
credit risk is managed at appropriate Group locations according to
established policies, procedures and controls. Customer credit
quality is assessed and credit limits are established where
appropriate. Outstanding customer balances are regularly monitored
and a review for indicators of impairment (evidence of financial
difficulty of the customer, payment default, breach of contract
etc.) is carried out at each reporting date. Significant balances
are reviewed individually while smaller balances are grouped and
assessed collectively. Receivables balances are unsecured and
non-interest-bearing. The trade receivables balances disclosed
comprise a large number of customers spread across the Group's
activities and geographies with balances classified as "Not past
due" representing 79% of the total trade receivables balance at the
balance sheet date (2019: 84%). Trade and other receivables are
carried on the Consolidated statement of financial position net of
bad debt provisions.
The ageing of trade receivables can be analysed as follows:
Group
Total Not past 1-2 months More than
due past due 2 months
past due
EUR'000 EUR'000 EUR'000 EUR'000
---------------------- --------- ---------- ------------ -----------
At 31 December 2020 47,832 37,936 7,678 2,218
At 31 December 2019 43,243 36,208 6,136 899
A provision for doubtful debtors is included within trade
receivables and can be reconciled as follows:
2020 2019
EUR'000 EUR'000
----------------------------------------------------- --------- ---------
Provision at the beginning of
the year 1,283 1,717
Impairment of financial assets (trade receivables)
charged to administration expenses 1,293 500
Foreign exchange movement in
the year (284) 54
Utilised (310) (988)
-------------------------------------------------------- --------- ---------
Provision at end of the year 1,982 1,283
-------------------------------------------------------- --------- ---------
Trade receivables loss allowance is estimated using a practical
expedient to arrive at lifetime expected credit losses. Overdue
receivables are evaluated to calculate an expected credit loss
using a historical credit loss experience of 0.5% (2019: 0.5%).
Taking into account internal and external information, the
historical credit loss experience may be adjusted where it is
determined that there has been a significant increase in credit
risk. Where a receivable is credit impaired, the impairment is
recognised immediately, and impaired balances are removed from the
expected credit loss calculation. Due to the pandemic, Credit
impaired receivables provisions were increased to EUR1.7m at 31
December 2020.
Total Not past 1-2 months More than
due past due 2 months
past due
EUR'000 EUR'000 EUR'000 EUR'000
-------------------------- --------- ---------- ------------ -----------
Trade receivables gross 49,814 38,150 7,887 3,777
Credit impaired (1,733) (23) (170) (1,540)
Expected credit losses (249) (191) (39) (19)
At 31 December 2020 47,832 37,936 7,678 2,218
--------------------------- --------- ---------- ------------ -----------
Total Not past 1-2 months More than
due past due 2 months
past due
EUR'000 EUR'000 EUR'000 EUR'000
-------------------------- --------- ---------- ------------ -----------
Trade receivables gross 44,526 36,386 6,166 1,974
Credit impaired (1,071) - - (1,071)
Expected credit losses (212) (178) (30) (4)
At 31 December 2019 43,243 36,208 6,136 899
--------------------------- --------- ---------- ------------ -----------
Related party receivables of EURnil were past due at 31 December
2020 (2019: EURnil).
Currency Risk
Currency risk is the risk that the value of financial
instruments will fluctuate due to changes in foreign exchange
rates. The foreign exchange risk arises for the Group where assets
and liabilities arise in a currency other than the functional
currency of the entity.
The Group's policy, where possible, is for Group entities to
manage foreign exchange risk at a local level by matching the
currency in which revenue is generated with the expenses incurred
and by settling liabilities denominated in their functional
currency with cash generated from their own operations in that
currency. Where Group entities have liabilities denominated in a
currency other than their functional currency (and have
insufficient reserves of that currency to settle them), cash
already denominated in that currency will, where possible, be
transferred from elsewhere within the Group.
The Group is predominantly exposed to currency risk on the
balances held within working capital across the Group and the
exposure is concentrated in the movement of the Canadian Dollar, US
Dollar and Sterling against the Euro. The effect of a strengthening
or weakening of 10% in those currencies against the Euro at the
reporting date on the working capital balances would, all other
variables held constant, have resulted in the following pre-tax
profit / (loss) impact for the year:
2020 2020 2019 2019
EUR'000 EUR'000 EUR'000 EUR'000
---------------- ------------ ---------------- ------------
10% 10% 10% 10%
Strengthening Weakening Strengthening Weakening
-------------------------- ---------------- ------------ ---------------- ------------
US Dollar to Euro 4,712 (3,855) 3,052 (2,497)
Canadian Dollar to Euro 594 (486) 1,779 (1,455)
Sterling to Euro 835 (683) 1,535 (1,256)
--------------------------- ---------------- ------------ ---------------- ------------
Total Financial Assets and Liabilities
The carrying amount of the financial assets and liabilities
shown in the Consolidated Statements of financial position are
stated at amortised costs, with the exception of contingent
consideration held at fair value.
Liquidity Risk
Liquidity risk arises from the Group's management of working
capital and the financial charges on its debt instruments.
The Group's policy is to ensure that it will have sufficient
cash to allow it to meet its liabilities when they become due. The
Directors consider liquidity risk is mitigated by the strong
working capital position, with EUR190m of current assets, including
cash of EUR103m available to settle liabilities as they fall
due.
The following are the contractual maturities (representing
undiscounted contractual cash flows) of the Group's financial
liabilities:
Group
Carrying Contractual cash flows
value
---------- ---------------------------------------------------------
Total Total Within 1-2 years 2-5 years Over 5
1 year years
At 31 December 2020 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
--------------------------- ---------- --------- --------- ----------- ----------- ---------
Trade payables 8,170 8,170 8,170 - - -
Deferred and contingent
consideration (i) 20,802 26,442 20,699 5,743 - -
Other payables 44,150 44,150 44,150 - - -
Loans and borrowings 195 195 73 122 - -
Loan interest 10 10 5 5 - -
Lease liabilities 28,864 32,313 8,291 7,153 11,562 5,307
Total 102,191 111,280 81,388 13,023 11,562 5,307
--------------------------- ---------- --------- --------- ----------- ----------- ---------
Carrying Contractual cash flows*
value
---------- ---------------------------------------------------------
Total Total Within 1-2 years 2-5 years Over 5
1 year years
At 31 December 2019 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
--------------------------- ---------- --------- --------- ----------- ----------- ---------
Trade payables 8,027 8,027 8,027 - - -
Deferred and contingent
consideration (i) 6,035 6,035 5,966 69 - -
Other payables 32,962 32,962 32,746 216 - -
Loans and borrowings 59,751 59,751 80 - 59,671 -
Loan interest 102 102 102 - - -
Lease liabilities 21,907 23,320 8,240 5,078 7,858 2,144
Total 128,784 130,197 55,161 5,363 67,529 2,144
--------------------------- ---------- --------- --------- ----------- ----------- ---------
* Please note the prior year comparative has been re-designated
to reflect the current year presentation as the Directors consider
this to be more appropriate.
(i) Deferred and contingent consideration at 31 December 2020
has arisen on business combinations, and is based on set amounts to
be paid in the future to sellers under share purchase agreements.
In general, in order for contingent consideration to become
payable, pre-defined profit and / or revenue targets must be
exceeded. On an undiscounted basis, the Group may be liable for
deferred and contingent consideration up to a maximum of
EUR26.4m.
24 Capital Management
2020 2019
Group EUR'000 EUR'000
---------------------------------------------- ----------- ----------
Loans and borrowings (note 20) 195 59,751
Less: cash and cash equivalents (103,070) (41,827)
Net debt / (net cash) position (102,875) 17,924
---------------------------------------------- ----------- ----------
Total equity 371,235 222,958
---------------------------------------------- ----------- ----------
Net debt / (net cash) to capital ratio (%) (27.7)% 8.0%
---------------------------------------------- ----------- ----------
The Group manages capital by monitoring debt to capital and net
debt ratios. This debt to capital ratio is calculated as net debt
to total equity. Net debt is calculated as loans and borrowings (as
shown in the Consolidated statement of financial position) less
cash and cash equivalents. The liquidity risk and cash management
for the Group is managed centrally by the Group Treasury function.
Group Treasury manage bank balances centrally, and monitors the
credit rating and stability of the institutions the Group banks
with. The Board receives projections on a monthly basis as well as
information regarding cash balances. The Group's strategy is to
preserve a strong cash base and secure access to finance at
reasonable cost by maintaining a good credit rating.
25 Investment in Subsidiaries
The results and financial position of all the subsidiaries are
included in the consolidated financial statements.
Details of the Group as at 31 December 2020 are set out
below:
Name Country Date of Ownership Registered office
of incorporation incorporation ^
/ acquisition
---------------------------- ------------------- ---------------- ----------- ------------------------------------
Keywords International Ireland 13-May-98 100% Whelan House, South County
Ltd Business Park, Dublin 18, Ireland.
Keywords International Japan 30-Nov-10 100% 2-3-1 Kudanminami, Chiyoda-ku,
Co., Ltd. Tokyo 102-0074, Japan
Keywords International, USA 26-Sep-12 100% 251 Little Falls Drive,
Inc. Wilmington,
New Castle, DE 19808, USA
Liquid Violet Ltd UK 15-Jan-14 100% 201 Temple Chambers, 3-7 Temple
* Avenue, London, England, EC4Y
0DT
Keywords Studios Canada 17-Feb-14 100% 1751 Richardson, suite 8400,
QC-Games Inc. (Quebec) Montréal, Québec,
Canada H3K1G6
Babel Media USA, USA 17-Feb-14 100% 251 Little Falls Drive,
Inc. Wilmington,
New Castle, DE 19808, USA
Babel Media India India 17-Feb-14 100% 3rd floor, Vardhman Orchard
Private Limited Plaza, Plot No 4, LSC, West
Enclave, Pitampura, New Delhi,
110034, India
Babel Media Ltd UK 17-Feb-14 100% 201 Temple Chambers, 3-7 Temple
* Avenue, London, England, EC4Y
0DT
Keywords International Singapore 24-Apr-14 100% 20 Kallang Avenue, #06-6A,
Pte. Limited Lobby B, Pico Creative Centre,
Singapore 339411
Keywords Studios Italy 08-May-14 100% Via Egadi 2, Milano, MI, 20144,
Italy S.R.L. Italy
Keywords Studios USA 08-May-14 100% 350 N. Glenoaks Blvd., Suite
Los Angeles, Inc. 305, Burbank, CA 91502, USA
Lakshya Digital India 09-Oct-14 100% 3rd floor, Vardhman Orchard
Private Limited Plaza, Plot No 4, LSC, West
* Enclave, Pitampura, New Delhi,
110034, India
Edugame Solutions India 09-Oct-14 100% D - 3/C, Munirka Flats, New
Private Limited Delhi - 110067
Lakshya Digital Singapore 09-Oct-14 100% 20 Kallang Avenue, #06-6A,
Singapore Pte. Ltd Lobby B, Pico Creative Centre,
Singapore 339411
Keywords Studios Canada 06-Jan-15 100% 1751 Richardson, suite 8400,
QC-Tech Inc. (Quebec) Montréal, Québec,
Canada H3K1G6
Keywords International Spain 09-Jan-15 100% Passeig de Gràcia 49,
Barcelona SL 1er2a, 08007 Barcelona, Catalonia,
Spain
Keywords do Brasil Brazil 18-Jan-15 100% Av. Churchill, 109 - Sala 204
Localizacao e Traducao - Centro, Rio de Janeiro-RJ,
Ltda Brazil CEP: 20020-050
Keywords (Shanghai) China 02-Apr-15 100% 7TH Floor, Building A, Dong
Information Technology Ti YuHui Road, Hongkou District,
Ltd Shanghai, China
Keywords Studios Spain 16-Jul-15 100% Julián Camarillo 6A, 3B,
Spain SLU 28037 Madrid, Spain
Keywords Studios Mexico 16-Jul-15 100% Torrente #75, Colonia
México, S. Ampliación
de R.L. de C.V. Alpes, Del. Álvaro
Obregón,
CP. 01710, Ciudad de México,
México
Liquid Development, USA 19-Aug-15 100% 411 SW 2nd Ave Ste 300, Portland,
LLC OR 97204, USA.
Keywords Asia Private Singapore 15-Mar-16 100% 20 Kallang Avenue, #06-6A,
Ltd Lobby B, Pico Creative Centre,
Singapore 339411
Synthesis Deutschland Germany 12-Apr-16 100% Holstenkamp 46 A, Bahrenfeld,
GmbH * 22525 Hamburg, Germany
Synthesis Global Switzerland 12-Apr-16 100% Corso Elvezia 16, 6900 Lugano,
Solutions SA * Ticino, Switzerland
Keywords Studios France 08-Jun-16 100% 59 Boulevard Exelmans, 75016
France SAS Paris, France
Player Research UK 26-Oct-16 100% 201 Temple Chambers, 3-7 Temple
Ltd Avenue, London, England, EC4Y
0DT
Keywords Studios Canada 16-Nov-16 100% 2031 boul. du Curé-Labelle,
QC-Interactive Inc. (Quebec) Saint-Jérôme
(Québec)
J7Y1S5, Canada
SPOV Ltd UK 16-Feb-17 100% 201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y
0DT
Xloc , Inc. USA 08-May-17 100% 8801 Fast Park Drive, Suite
301, Raleigh, NC 27617, USA
GameSim Inc. USA 16-May-17 100% 13501 Ingenuity Drive, Suite
310, Orlando, FL 32826, USA
.
Strongbox Ltd Seychelles 19-May-17 100% Suites 103, 106 and 107 Premier
Building, Victoria, Mahe,
Seychelles
Red Hot Software China 19-May-17 100% 7TH Floor, Building A, Dong
(Shanghai) Ltd Ti YuHui Road, Hongkou District,
Shanghai, China
Red Hot Software China 19-May-17 100% Room 207, 11th Floor, Building
(Zhengzhou) Ltd No. 3, No. 57 Ke Xue Da Dao,
Zheng Zhou, He Nan, China
Eastern New Media Hong Kong 19-May-17 100% Flat/Rm 4304, 43F, China Resources
Limited Building, 26 Harbour Road,
Wanchai, Hong Kong
PT Limitless Indonesia Indonesia 19-May-17 100% JI. Timoho II, No. 32, Yogyakarta,
Indonesia
Around the Word Germany 03-Aug 100% Rosenstrasse 2, D-10178 Berlin
GmbH l -17
d3t Ltd UK 19-Oct-17 100% 201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y
0DT
Keywords US Holdings USA 23-Oct-17 100% 251 Little Falls Drive,
Inc. Wilmington,
New Castle, DE 19808, USA
Keywords Canada Canada 27-Oct-17 100% 1751 Richardson Street Suite
Holdings Inc. (Quebec) 8400 Montreal QC H3K 1G6 Canada
Keywords Studios Canada 27-Oct-17 100% 1700-1075 West Georgia Street,
B.C., Inc. (BC) Vancouver, BC, Canada V6E 3C9
VMC Consulting Corporation USA 24-Oct-17 100% 251 Little Falls Drive,
Wilmington,
New Castle, DE 19808, USA
Sperasoft Poland Poland 13-Dec-17 100% Ul. Na Koz ówce 27, 30-664
Spólka z.o.o. Kraków, Poland
Sperasoft Studios Russia 13-Dec-17 100% 196084, Russia, Saint-Petersburg,
LLC Kievskaya street, 5 - building
Sperasoft , Inc. USA 13-Dec-17 100% 251 Little Falls Drive,
Wilmington,
New Castle, DE 19808, USA
SperaSystems LLC USA 13-Dec-17 100% 2033 Gateway Pl Ste 500 San
Jose, CA 95110-3712, USA
Keywords Studios Ireland 27-Mar-18 100% Whelan House, South County
Ltd * Business Park, Dublin 18, Ireland.
Keywords UK Holdings UK 28-Mar-18 100% 201 Temple Chambers, 3-7 Temple
Limited Avenue, London, England, EC4Y
0DT
Keywords Ventures UK 06-Apr-18 100% 201 Temple Chambers, 3-7 Temple
Limited Avenue, London, England, EC4Y
0DT
Laced Music Ltd UK 07-Apr-18 100% 201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y
0DT
Cord Worldwide Ltd UK 07-Apr-18 100% 201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y
0DT
Paleblue Limited UK 07-Apr-18 100% 201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y
0DT
Fire Without Smoke UK 29-May-18 100% 201 Temple Chambers, 3-7 Temple
Ltd Avenue, London, England, EC4Y
0DT
Fire Without Smoke USA 29-May-18 100% 251 Little Falls Drive,
Inc Wilmington,
New Castle, DE 19808, USA
Blindlight, LLC USA 08-Jun-18 100% 8335 Sunset Blvd, West Hollywood,
CA 90069, USA.
Snowed In Studios, Canada 19-Jul-18 100% 400-981 Wellington Street West,
Inc Ottawa, Ontario, K1Y 2Y1
Studio Gobo Limited UK 17-Aug-18 100% 201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y
0DT
Bitsy SG Limited UK 17-Aug-18 100% 201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y
0DT
Electric Square UK 17-Aug-18 100% 201 Temple Chambers, 3-7 Temple
Limited Avenue, London, England, EC4Y
0DT
Alset Ltd UK 17-Aug-18 100% 201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y
0DT
Itsy SGD Limited UK 17-Aug-18 100% 201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y
0DT
d3t Development UK 30-Aug-18 100% 201 Temple Chambers, 3-7 Temple
Ltd Avenue, London, England, EC4Y
0DT
The Trailerfarm UK 13-Sep-18 100% 201 Temple Chambers, 3-7 Temple
Limited Avenue, London, England, EC4Y
0DT
Sunny Side Up Creative Canada 03-Jan-19 100% 410 Boulevard Charest Est,
Inc. Suite 410, Québec,
Québec,
Canada, G1K 8G3.
Appsectest Ltd UK 22-Jan-19 48% Unit 13 Orton Enterprise Centre,
Bakewell Road, Peterborough,
Cambridgeshire, United Kingdom,
PE2 6XU
Keywords Studios Netherlands 05-Feb-19 100% Wilhelmina van Pruisenweg 35,
Netherlands B.V. 2595AN The Hague, the Netherlands
Wizcorp Inc. Japan 18-Apr-19 100% 3-10-14, Higashi-Nihonbashi
3-chome, Sunrise Tachibana
6F, Chuo-ku, Tokyo ZIP 103-0004
Descriptive Video Canada 11-Jun-19 100% 400-725 Granville Street, PO
Works Inc. Box 10325, Vancouver BC V7Y
1G5, Canada
Keywords Germany Germany 06-Sep-19 100% Moriz-Seeler-Strasse 5-7, Franz
Holdings GmbH Ehrlich Haus,12489 Berlin,
Germany
TV+SYNCHRON Berlin Germany 01-Oct-19 100% Moriz-Seeler-Strasse 5-7, Franz
GmbH Ehrlich Haus,12489 Berlin,
Germany
Ichi Holdings Limited UK 26-Nov-19 100% 201 Temple Chambers, 3-7 Temple
(in liquidation) Avenue, London, England, EC4Y
0DT
Ichi Limited UK 26-Nov-19 100% 201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y
0DT
Ichi Creative Ltd USA 26-Nov-19 100% 251 Little Falls Drive,
Wilmington,
New Castle, DE 19808, USA
9409-2954 Québec Canada 04-Dec-19 100% 1751 Richardson Street, Suite
Inc. 8400, Montreal, Quebec, H3K
1G6, Canada
Xcelerator Machine Ireland 12-Dec-19 100% Invent, Dublin City University,
Translations Limited Glasnevin, Dublin 9, Ireland
Marching Cube, LLC USA 22-Jan-20 100% 815A Brazos #334 Austin, TX
78701-2502, USA
Coconut Lizard Limited UK 25-Jun-20 100% 201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y
0DT
Maverick Media Limited UK 27-Aug-20 100% 201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y
0DT
g-Net Media, Inc. USA 24-Nov-20 100% 251 Little Falls Drive,
Wilmington,
New Castle, DE 19808, USA
3455 Productions, USA 24-Nov-20 100% 251 Little Falls Drive,
LLC Wilmington,
New Castle, DE 19808, USA
Jinglebell S.r.l. Italy 10-Dec-20 100% Via Marco d'Oggiono 12, Milan,
Italy
High Voltage Software, USA 14-Dec-20 100% 2345 Pembroke Ave., Hoffman
Inc. Estates, IL 60169, USA
HVS Nola LLC USA 14-Dec-20 100% 201 St. Charles Ave., Suite
2220, New Orleans, LA 70170,
USA
Indigo Pearl Limited UK 15-Dec-20 100% 201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y
0DT
Lonsdale Miller UK 15-Dec-20 100% 201 Temple Chambers, 3-7 Temple
Limited Avenue, London, England, EC4Y
0DT
---------------------------- ------------------- ---------------- ----------- ------------------------------------
* indicates a direct subsidiary (all other holdings are indirect, being
subsidiaries of various intermediate group holding companies).
^ Proportion of voting rights and ordinary share capital held
Post-acquisition, the Group reviews entities to streamline
activities and close any dormant entities acquired or restructured
entities. Re-structuring details are set out below:
Name Country Date of Ownership Date of Re-structuring
of incorporation incorporation ^ re-structuring details
/ acquisition
----------------------- ------------------- ---------------- ----------- ----------------------- ----------------
Project Titanium Jersey 06-May-20 100% 22-May-20 Liquidated
Funding Limited
Binari Sonori Audio USA 08-May-14 100% 06-Sep-20 Dissolved
Productions LLC
Descriptive Video USA 11-Jun-19 100% 07-Oct-20 Dissolved
Works USA Inc.
KW Studios Limited UK 29-May-13 100% 24-Nov-20 Struck off
*
Cord Artists UK 07-Apr-18 100% 24-Nov-20 Struck off
Management
Limited
----------------------- ------------------- ---------------- ----------- ----------------------- ----------------
26 Related Parties and Shareholders
Italicatessen Limited, a company registered in Ireland, is
related by virtue of a common significant shareholder. P.E.Q.
Holdings Limited is 100% owner of Italicatessen Limited. At 31
December 2020, P.E.Q. Holdings Limited owned 4.73% (2019: 5.37%) of
the Company. In addition, Mr. Giorgio Guastalla is a Director of
Italicatessen Limited, P.E.Q. Holdings Limited and the Company, and
owns, or controls, 90% of the share capital of P.E.Q. Holdings
Limited.
The following transactions arose with Italicatessen Limited,
which provides canteen services to Keywords International Limited,
on an arm's length basis:
2020 2019
EUR'000 EUR'000
--------------------- --------- ---------
Operating expenses
Canteen charges 13 73
13 73
--------------------- --------- ---------
The following are year-end balances owing by the Group:
2020 2019
EUR'000 EUR'000
------------------------ --------- ---------
Italicatessen Limited - 13
- 13
------------------------ --------- ---------
The Group paid the following amounts, on an arm's length basis,
to Mr. Giorgio Guastalla, Director of the Company, and shareholder
of P.E.Q. Holdings Limited, in respect of rent on premises occupied
by employees of the Group in Dublin.
2020 2019
EUR'000 EUR'000
--------------------- --------- ---------
Operating expenses
Rental payments 22 25
22 25
--------------------- --------- ---------
The details of key management compensation (being the
remuneration of the Directors) are set out in note 10.
27 Business Combinations
2020 2019
EUR'000 EUR'000
Details of goodwill and the fair value of net assets acquired
---------------------------------------------------------------- --------- ---------------------
Book value:
Property, plant and equipment 872 722
Right of use assets 2,376 990
Intangible assets - 125
Trade and other receivables - gross 4,069 1,559
Bad debt provision - -
Cash and cash equivalents 9,477 2,112
Trade and other payables (4,904) (3,295)
Lease liabilities (2,376) (990)
Loan - (402)
Book value of identifiable assets and liabilities acquired 9,514 821
---------------------------------------------------------------- --------- ---------------------
Fair value adjustments:
Identifiable intangible assets 17,673 1,490
Identifiable tangible assets (27) 41
Deferred tax assets 9,363 -
Trade and other payables 1,003 432
Deferred tax liabilities (3,970) -
Total fair value adjustments 24,042 1,963
---------------------------------------------------------------- --------- ---------------------
Net assets acquired 33,556 2,784
Non-controlling interest - (148)
Goodwill from current year acquisitions 47,112 16,950
---------------------------------------------------------------- --------- ---------------------
Total purchase consideration 80,668 19,586
================================================================ ========= =====================
Details of purchase consideration and cash outflows from
current acquisitions
---------------------------------------------------------------- --------- ---------------------
Cash 46,924 15,323
Deferred cash 41 238
Deferred consideration contingent on performance 21,090 -
Shares to be issued 12,613 4,025
---------------------------------------------------------------- --------- ---------------------
Total purchase consideration 80,668 19,586
================================================================ ========= =====================
Fixed number of shares to be issued 503,052 275,975
---------------------------------------------------------------- --------- ---------------------
Cash paid in the period 46,924 15,163
Less: cash and cash equivalent balances transferred (9,477) (2,112)
---------------------------------------------------------------- --------- ---------------------
Net cash outflow arising on acquisition 37,447 13,051
---------------------------------------------------------------- --------- ---------------------
Related acquisition costs charged through to the Consolidated
statement of comprehensive income 307 535
---------------------------------------------------------------- --------- ---------------------
Details of pro forma revenues and profitability of current
acquisitions
---------------------------------------------------------------- --------- ---------------------
Pre-acquisition revenue 35,729 7,167
Pre-acquisition revenue with Keywords Group - (68)
Post-acquisition revenue 7,208 6,066
---------------------------------------------------------------- --------- ---------------------
Pro forma revenue 42,937 13,165
---------------------------------------------------------------- --------- ---------------------
Pre-acquisition profit before tax 9,399 151
Post-acquisition profit before tax 2,561 (170)
--------- ---------------------
Pro forma profit before tax 11,960 (19)
---------------------------------------------------------------- --------- ---------------------
The acquisitions made in the year are in line with the Group's
strategy to grow organically and by acquisition, as it selectively
consolidates the highly fragmented market for video game services.
The companies will bring additional talent, expertise and industry
experience to Keywords' client base. Being able to offer the
additional services to our clients will further enhance our
reputation as the leading provider of services to the global video
games industry.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed of acquisitions in the year are
set out in the table above.
The main factors leading to the recognition of goodwill on the
acquisitions are the presence of certain intangible assets in the
acquired entities, which are not valued for separate recognition.
These include expertise in the acquired entities, enhancing and
growing our services capabilities, broadening our service offering,
and extending our geographical footprint, further building out our
global platform.
The total amount of goodwill arising on business combinations
completed in 2020, that is expected to be deductible for tax
purposes was EUR21.6m.
28 Significant Events and Transactions
The COVID-19 pandemic resulted in restrictions being put in
place requiring most of the Group's studios to be temporarily
closed from March onwards. The Group has been able to move most
employees to work from home arrangements and whilst this has
resulted in some short term disruption, particularly in the Audio
and Testing service lines, it has allowed production to continue
across most of the Group's operations. Since June, most of the
Group's Audio studios have reopened and from July some activities
started to operate from Testing studios, however at the year end
the majority of employees were still working from home.
The Group has demonstrated a strong financial resilience during
the period, with continued demand for most of the Group's services
albeit certain service lines have been held back by COVID-19
operational and market disruption particularly in Testing, Audio
and Localization. The significant events and transactions (together
with relevant judgements, estimates and assumptions) that have
occurred in the period relating to the effects of the COVID-19
pandemic are summarised below:
Impairment review:
As presented in note 11, the Group performs a full assessment of
the carrying value of goodwill on an annual basis. Through the year
interim assessments were made using updated forecasts and
projections taking into account the impact of COVID-19. The result
of these assessments was that no impairment was required .
In addition specific impairment reviews were performed for other
intangible asset classes where it was considered COVID-19 had the
potential to trigger an impairment. As outlined in note 11, due to
the uncertainty caused by COVID-19 an impairment charge of
EUR2,060k was recognised in the period, related to intangible
assets in certain early technology pre-revenue businesses.
Credit risk:
The Group's exposure to credit risk is limited to the carrying
amount of financial assets (Trade receivables) recognised at the
balance sheet date. The Group has not seen a significant increase
in credit risk during the pandemic, largely due to the resilience
of the broader video games industry. However as outlined in note
23, due to the uncertainty caused by the pandemic, the Group has
taken a conservative view on the recoverability of overdue
receivables, when calculating Credit impaired receivables, and thus
impaired receivables have increased to EUR1.7m at 31 December 2020.
Credit risk continues to be monitored and managed closely by the
Group, with a heightened awareness due to the pandemic.
Government subsidies claimed:
The Group applied for COVID-19 government subsidies in various
jurisdictions, introduced in response to the global pandemic.
Judgement has been applied in determining both the eligibility for
these programs, and the presentation of the subsidies in the
financial statements. In certain jurisdictions COVID-19 supports
displaced ongoing government incentives and reliefs, principally
MMTC. In these instances, the Group has elected to present the
ongoing incentives as if they have been received, reducing the
amounts recognised as COVID-19 government subsidies accordingly.
Included in the Consolidated statement of comprehensive income are
government subsidies recognised of EUR9.2m (net of amounts
recognised as other government incentives). The supports relate to
wage subsidies designed to help prevent job losses and better
position companies to resume normal operations following the
crisis.
29 Events after the Reporting Date
Acquisition of Heavy Iron
On 17 September 2020, the Group announced that it had entered
into a conditional agreement to acquire the entire issued share
capital of Heavy Iron Studios, Inc. ("Heavy Iron"), a provider of
specialised game development services, for total consideration of
up to US$13.3m. Under the terms of the acquisition, subject to
certain closing conditions, Keywords agreed to pay initial
consideration of US$4m in cash and the equivalent of US$0.5m in new
ordinary shares to the seller on the first anniversary of the
acquisition. In addition, deferred consideration of up to US$8.8m
is payable to the seller, in a mix of cash and shares, based on
performance targets being met by the first and second year
anniversaries of the acquisition. Following on the resolution of
the closing conditions, on 13 January 2021 Keywords announced that
it completed the acquisition of Heavy Iron for the terms envisaged
under the conditional agreement.
Acquisition of Tantalus
On 18 March 2021, the Group announced the acquisition of
Tantalus Media Pty Ltd ("Tantalus"), for a total consideration of
up to US$46.8m. Tantalus is a leading and prolific developer of
high quality, multi-platform titles. The acquisition marks Keywords
Studios' entry into the Australian video games market. Under the
terms of the 85% investment, Keywords Studios will pay a maximum
amount of US$46.8m, comprising initial consideration of US$30.6m
(US$18.4m in cash from existing resources and the equivalent of
US$12.2m in new ordinary shares) and deferred consideration of up
to US$16.2m, in a mix of cash and new ordinary shares, based on
performance targets for Tantalus over two years. The new ordinary
shares to be issued as part of the initial consideration and the
deferred consideration will be subject to a one-year lock-in period
and orderly market provisions for a further one year period.
Keywords has acquired 85% of the issued share capital of Tantalus'
parent company, Keywords Australia Pty Ltd ("Keywords Australia"),
a new company set up for this transaction. Put and call options are
in place that would allow the Group to buy the 15% shareholding in
Keywords Australia in 3 years from the vendor's wholly owned
investment company.
Alternative performance measures
The Group reports a number of alternative performance measures
('APMs') to present the financial performance of the business, that
are not GAAP measures as defined under IFRS. The Directors believe
that these measures, in conjunction with the IFRS financial
information, provide the users of the financial statements with
additional information to provide a more meaningful understanding
of the underlying financial and operating performance of the Group.
The measures are also used in the Group's internal strategic
planning and budgeting processes and for setting internal
management targets. These measures can have limitations as
analytical tools and therefore should not be considered in
isolation, or as a substitute for IFRS measures.
The principal measures used by the Group are set out below:
Organic revenue growth - Acquisitions are a core part of the
Group's growth strategy. Organic revenue growth measures are used
to help understand the underlying trading performance of the Group
excluding the impact of acquisitions. Organic revenue growth is
calculated by adjusting the prior year revenues, adding
pre-acquisition revenues for the corresponding period of ownership
to provide a like for like comparison with the current year, and
applying the prior year's foreign exchange rates to both years
.
Constant exchange rates ('CER') - Given the international nature
of the Group's operations, foreign exchange movements can have an
impact on the reported results of the Group when they are
translated into the Group's reporting currency of Euros. In order
to understand the underlying trading performance of the business,
revenue is also presented using rates consistent with the prior
year in order to provide year over year comparability.
Adjusted profit and earnings per share measures - Adjusted
profit and earnings per share measures are used to provide
management and other users of the financial statements with a clear
understanding of the underlying profitability of the business over
time. Adjusted profit measures are calculated by adding the
following items back to the equivalent GAAP profit measures:
-- Amortisation of intangible assets - Customer relationships
and music licence amortisation commences on acquisition, whereas
intellectual property / development costs amortisation commences
when the product is launched. These costs, by their nature, can
vary by size and amount each year. As a result, amortisation of
intangibles is added back to assist with the understanding of the
underlying trading performance of the business and to allow
comparability across regions and categories.
-- Costs of acquisition and integration - The level of
acquisition activity can vary each year and therefore the costs
associated with acquiring and integrating businesses are added back
to assist with the understanding of the underlying trading
performance of the Group.
-- Share-based payments - The Group uses share-based payments as
part of remuneration to align the interests of senior management
and employees with shareholders. These are non-cash charges and the
charge is based on the Group's share price which can change. The
costs are therefore added back to assist with the understanding of
the underlying trading performance.
-- Foreign exchange gains and losses - The Group does not hedge
foreign currency translation exposures. The effect on the Group's
results of movements in exchange rates can vary each year and are
therefore added back to assist with understanding the underlying
trading performance of the business.
-- COVID-19 government subsidies claimed - The Group applied for
COVID-19 government subsidies in various jurisdictions, introduced
in response to the global pandemic. These subsidies have been added
back in order to present adjusted profit and cash flow measures
consistently year-on-year.
-- Investment income - The Group acquired a minor holding in
Hutch Games Limited, when Keywords purchased Liquid Development
studio in 2015. In 2020 Hutch Games Limited was acquired and the
Group received EUR1.4m proceeds in December. As the gain has arisen
outside the normal trading activities of the Group, the income has
been added back to assist with the understanding of the underlying
trading performance.
Free cash flow measures - The Group aims to generate sustainable
cash flow (Free cash flow) in order to support its acquisition
program and to fund dividend payments to shareholders. Free cash
flow is measured as Net cash generated by / (used in) operating
activities after capital expenditure, payments of principal on
lease liabilities, interest and tax payments, but before
acquisition and integration cash outlay, investment income and
dividend payments. Adjusted free cash flow is a measure of cash
flow adjusting for capital expenditure that is supporting growth in
future periods (represented by capital expenditure in excess of
depreciation). In the current year the measure has also been
adjusted for COVID-19 subsidies claimed given the one-time nature
of the income.
The remainder of this section provides a reconciliation of the
APMs with the relevant IFRS GAAP equivalent.
Service line analysis
The following table presents revenue growth by service line at
both actual exchange rates ('AER') and constant exchange rates
('CER'). Constant exchange rates are calculated by retranslating
current year reported numbers at the corresponding 2019 foreign
exchange rates, in order to give management and other users of the
financial statements better visibility of underlying trading
performance against the prior year .
2020 2020 2019 FY 2020 FY 2020
Revenue Revenue Revenue Growth Growth
AER CER AER AER CER
EURm EURm EURm % %
--------------------------- --------- --------- --------- --------- ---------
Art Creation & Marketing 57.3 58.5 43.6 31.4% 34.2%
Game Development 80.0 81.0 66.3 20.7% 22.2%
Audio* 47.2 47.8 41.9 12.6% 14.1%
Functional Testing 78.5 80.0 68.9 13.9% 16.1%
Localization* 45.4 45.9 47.1 (3.6)% (2.5)%
Localization Testing 23.3 23.6 22.6 3.1% 4.4%
Player Support 41.8 42.4 36.1 15.8% 17.5%
373.5 379.2 326.5 14.4% 16.1%
--------------------------- --------- --------- --------- --------- ---------
*The prior year comparative has been re-classified to reflect
the current year presentation as the Directors consider this to be
more meaningful.
Pro forma revenue
Pro forma revenue is calculated by adding pre-acquisition
revenues of current year acquisitions to the current year revenue
numbers, to illustrate the size of the Group had the acquisitions
been included for a full financial year.
2020 2020 2020
Revenue Pre-acquisition Pro forma
revenue revenue
AER AER AER
EURm EURm EURm
--------------------------- --------- ----------------- -----------
Art Creation & Marketing 57.3 15.9 73.2
Game Development 80.0 18.0 98.0
Audio 47.2 1.4 48.6
Functional Testing 78.5 - 78.5
Localization 45.4 0.4 45.8
Localization Testing 23.3 - 23.3
Player Support 41.8 - 41.8
373.5 35.7 409.2
--------------------------- --------- ----------------- -----------
Organic revenue at constant exchange rates
Organic revenue at constant exchange rates is calculated by
adjusting the prior year revenues, adding pre-acquisition revenues
for the corresponding period of ownership, and applying the 2019
foreign exchange rates to both years .
2019 2019 2019 2020 2020 2020
Revenue Pre-acquisition Like Revenue Revenue Organic
revenue for like growth revenue
revenue growth
AER AER AER CER CER CER
EURm EURm EURm EURm EURm %
--------------------------- --------- ----------------- ----------- ---------- --------- -----------
Art Creation & Marketing 43.6 6.0 49.6 8.9 58.5 17.9%
Game Development 66.3 2.9 69.2 11.8 81.0 17.1%
Audio* 41.9 3.3 45.2 2.6 47.8 5.8%
Functional Testing 68.9 - 68.9 11.1 80.0 16.1%
Localization* 47.1 0.7 47.8 (1.9) 45.9 (4.0)%
Localization Testing 22.6 - 22.6 1.0 23.6 4.4%
Player Support 36.1 - 36.1 6.3 42.4 17.5%
326.5 12.9 339.4 39.8 379.2 11.7%
--------------------------- --------- ----------------- ----------- ---------- --------- -----------
*The prior year comparative has been re-classified to reflect
the current year presentation as the Directors consider this to be
more meaningful.
Adjusted operating costs
This comprises Administrative expenses as reported in the
Consolidated statement of comprehensive income, adding back share
option expense, costs of acquisition and integration, amortisation
and impairment of intangible assets, depreciation, non-controlling
interest and deducting bank charges . In order to present the
measure consistently year-on-year, the impact of COVID-19
government subsidies claimed is also excluded.
2020 2019
Calculation EUR'000 EUR'000
----------------------------------------------------------------------------------- ----------- ----------
Consolidated statement of comprehensive
Administrative expenses income (102,090) (98,687)
Consolidated statement of comprehensive
Share option expense income 15,350 9,775
Consolidated statement of comprehensive
Costs of acquisition and integration income 2,650 4,348
Amortisation and impairment Consolidated statement of comprehensive
of intangible assets income 8,808 7,318
Depreciation - property, plant
and equipment Note 13 8,983 7,295
Depreciation - right of use
assets Note 12 8,402 7,849
Consolidated statement of comprehensive
Non-controlling interest income 85 113
Bank charges Note 6 (552) (629)
COVID-19 government subsidies Consolidated statement of comprehensive (9,231) -
claimed income
Adjusted operating costs (67,595) (62,618)
----------------------------------------------------------------------------------- ----------- ----------
Revenue from contracts with Consolidated statement of comprehensive
customers income 373,538 326,463
Adjusted operating costs as
a % of revenue 18.1% 19.2%
----------------------------------------------------------------------------------- ----------- ----------
Adjusted operating profit
The Adjusted operating profit consists of the Operating profit
as reported in the Consolidated statement of comprehensive income,
adjusted for share option expense, costs of acquisition and
integration and amortisation and impairment of intangible assets.
In order to present the measure consistently year-on-year, the
impact of investment income and COVID-19 government subsidies
claimed are also excluded.
2020 2019
Calculation EUR'000 EUR'000
----------------------------------------------------------------------------------- --------- ---------
Consolidated statement of comprehensive
Operating profit income 41,119 21,542
Consolidated statement of comprehensive
Share option expense income 15,350 9,775
Consolidated statement of comprehensive
Costs of acquisition and integration income 2,650 4,348
Amortisation and impairment Consolidated statement of comprehensive
of intangible assets income 8,808 7,318
Investment income Consolidated statement of comprehensive (1,437) -
income
COVID-19 government subsidies Consolidated statement of comprehensive (9,231) -
claimed income
Adjusted operating profit 57,259 42,983
----------------------------------------------------------------------------------- --------- ---------
Revenue from contracts with Consolidated statement of comprehensive
customers income 373,538 326,463
Adjusted operating profit as
a % of revenue 15.3% 13.2%
----------------------------------------------------------------------------------- --------- ---------
EBITDA
EBITDA comprises Operating profit as reported in the
Consolidated statement of comprehensive income, adjusted for
amortisation and impairment of intangible assets, depreciation, and
deducting bank charges .
2020 2019
Calculation EUR'000 EUR'000
----------------------------------------------------------------------------- --------- ---------
Consolidated statement of comprehensive
Operating profit income 41,119 21,542
Amortisation and impairment Consolidated statement of comprehensive
of intangible assets income 8,808 7,318
Depreciation on property plant
and equipment Note 13 8,983 7,295
Depreciation on right of use
assets Note 12 8,402 7,849
Bank charges Note 6 (552) (629)
EBITDA 66,760 43,375
----------------------------------------------------------------------------- --------- ---------
Adjusted EBITDA
Adjusted EBITDA comprises EBITDA, adjusted for share option
expense, costs of acquisition and integration and non-controlling
interest . In order to present the measure consistently
year-on-year, the impact of investment income and COVID-19
government subsidies claimed are also excluded.
2020 2019
Calculation EUR'000 EUR'000
----------------------------------------------------------------------------------- --------- ---------
EBITDA As above 66,760 43,375
Consolidated statement of comprehensive
Share option expense income 15,350 9,775
Consolidated statement of comprehensive
Costs of acquisition and integration income 2,650 4,348
Consolidated statement of comprehensive
Non-controlling interest income 85 113
Investment income Consolidated statement of comprehensive (1,437) -
income
COVID-19 government subsidies Consolidated statement of comprehensive (9,231) -
claimed income
Adjusted EBITDA 74,177 57,611
----------------------------------------------------------------------------------- --------- ---------
Revenue from contracts with Consolidated statement of comprehensive
customers income 373,538 326,463
Adjusted EBITDA as a % of revenue 19.9% 17.6%
----------------------------------------------------------------------------------- --------- ---------
Adjusted profit before tax
Adjusted profit before tax comprises Profit before taxation as
reported in the Consolidated statement of comprehensive income,
adjusted for share option expense, costs of acquisition and
integration, amortisation and impairment of intangible assets,
non-controlling interest, foreign exchange gains and losses, and
unwinding of discounted liabilities. In order to present the
measure consistently year-on-year, the impact of investment income
and COVID-19 government subsidies claimed are also excluded.
2020 2019
Calculation EUR'000 EUR'000
----------------------------------------------------------------------------------- --------- ---------
Consolidated statement of comprehensive
Profit before tax income 32,494 17,371
Consolidated statement of comprehensive
Share option expense income 15,350 9,775
Consolidated statement of comprehensive
Costs of acquisition and integration income 2,650 4,348
Amortisation and impairment Consolidated statement of comprehensive
of intangible assets income 8,808 7,318
Consolidated statement of comprehensive
Non-controlling interest income 85 113
Foreign exchange (gain) / loss Note 6 6,103 1,658
Unwinding of discounted liabilities
- deferred consideration Note 6 132 330
Investment income Consolidated statement of comprehensive (1,437) -
income
COVID-19 government subsidies Consolidated statement of comprehensive (9,231) -
claimed income
Adjusted profit before tax 54,954 40,913
----------------------------------------------------------------------------------- --------- ---------
Revenue from contracts with Consolidated statement of comprehensive
customers income 373,538 326,463
Adjusted profit before tax
as a % of revenue 14.7% 12.5%
----------------------------------------------------------------------------------- --------- ---------
Adjusted effective tax rate
The Adjusted effective tax rate is the Taxation expense as
reported in the Consolidated statement of comprehensive income,
adjusted for the tax impact of the adjusting items in arriving at
Adjusted profit before tax, as a percentage of the Adjusted profit
before tax.
2020 2019
Calculation EUR'000 EUR'000
------------------------------------------------------------------------------ --------- ---------
Adjusted profit before tax As above 54,954 40,913
---------------------------------- ------------------------------------------ --------- ---------
Consolidated statement of comprehensive
Taxation income 11,027 7,462
--------- ---------
Effective tax rate before tax Taxation / Adjusted profit
on adjusting items before tax 20.1% 18.2%
---------------------------------- ------------------------------------------ --------- ---------
Tax arising on bridging items
to Adjusted profit before tax^ 785 1,703
------------------------------------------------------------------------------ --------- ---------
Adjusted taxation 11,812 9,165
--------- ---------
Adjusted taxation / Adjusted
Adjusted effective tax rate profit before tax 21.5% 22.4%
---------------------------------- ------------------------------------------ --------- ---------
^Being mainly the tax impact of amortisation of intangible
assets EUR1.8m, foreign exchange EUR1.2m, share option expense
EUR0.7m, less COVID-19 government subsidies claimed EUR2.6m and
investment income EUR0.3m, while in the prior year the tax impact
was mainly due to amortisation of intangible assets EUR1.7m.
Adjusted earnings per share
The Adjusted profit after tax comprises the Adjusted profit
before tax, less the Taxation expense as reported in the
Consolidated statement of comprehensive income, adjusted for the
tax impact of the adjusting items in arriving at Adjusted profit
before tax.
The Adjusted earnings per share comprises the Adjusted profit
after tax divided by the non-diluted weighted average number of
shares as reported in note 8 .
2020 2019
Calculation EUR'000 EUR'000
------------------------------------------------------------------------------ ------------ ------------
Adjusted profit before tax As above 54,954 40,913
Consolidated statement of comprehensive
Taxation income (11,027) (7,462)
Tax arising on bridging items
to Adjusted profit before tax^ (785) (1,703)
------------------------------------------------------------------------------ ------------ ------------
Adjusted profit after tax 43,142 31,748
Denominator (weighted average
number of equity shares) Note 8 70,800,455 65,081,403
---------------------------------- ------------------------------------------ ------------ ------------
EUR c EUR c
---------------------------------- ------------------------------------------ ------------ ------------
Adjusted earnings per share 60.93 48.78
Adjusted earnings per share
% growth 24.9% 7.2%
------------------------------------------------------------------------------ ------------ ------------
^Being mainly the tax impact of amortisation of intangible
assets EUR1.8m, foreign exchange EUR1.2m, share option expense
EUR0.7m, less COVID-19 government subsidies claimed EUR2.6m and
investment income EUR0.3m, while in the prior year the tax impact
was mainly due to amortisation of intangible assets EUR1.7m.
Return on capital employed (ROCE)
ROCE represents the Adjusted profit before tax (excluding net
interest costs, unwinding of discounted lease liabilities and bank
charges, and also adjusted to include pre-acquisition profits of
current year acquisitions), expressed as a percentage of the
capital employed. As the Group continues to make multiple
acquisitions each year, the calculation further adjusts the
Adjusted profit before tax and the capital employed as if all the
acquisitions made during each year were made at the start of that
year.
Capital employed represents Total equity as reported on the
Consolidated statement of financial position adding back employee
defined benefit plan liabilities, cumulative amortisation of
intangible assets (customer relationships), acquisition related
liabilities (deferred and contingent consideration), together with
loans and borrowings, while deducting cash and cash
equivalents.
2020 2019
Calculation EUR'000 EUR'000
-------------------------------------------------------------------------------- ----------- ----------
Adjusted profit before tax As above 54,954 40,913
Interest received Note 6 (76) (74)
Bank charges Note 6 552 629
Interest expense Note 6 1,071 934
Unwinding of discounted liabilities
- lease liabilities Note 6 843 694
Pre-acquisition profits of
current year acquisitions Note 27 9,399 151
---------------------------------------- ----------- ----------
Adjusted profit before tax
including pre-acquisition profit
and excluding net interest 66,743 43,247
-------------------------------------------------------------------------------- ----------- ----------
Consolidated statement of financial
Total equity position 371,235 222,958
Consolidated statement of financial
Employee defined benefit plans position 2,693 2,049
Cumulative amortisation of
intangibles assets (customer
relationships) Note 11 25,178 20,017
Deferred and contingent consideration Note 18 20,802 6,035
Loans and borrowings Note 20 195 59,751
Consolidated statement of financial
Cash and cash equivalents position (103,070) (41,827)
Capital employed 317,033 268,983
-------------------------------------------------------------------------------- ----------- ----------
Adjusted profit before tax
including pre acquisition profit
and excluding net interest
Return on capital employed expense / capital employed 21.1% 16.1%
---------------------------------------- -------------------------------------- ----------- ----------
Free cash flow*
Free cash flow represents Net cash generated by / (used in)
operating activities as reported in the Consolidated statement of
cash flows, adjusted for acquisition and integration cash outlay,
capital expenditure, net interest paid, payments of principal on
lease liabilities and is presented both before and after taxation
paid. In order to present the measure consistently year-on-year,
the impact of investment income is also excluded.
2020 2019
Calculation EUR'000 EUR'000
------------------------------------------------------------------------------------- ---------- ----------
Net cash generated by / (used Consolidated statement of cash
in) operating activities flows 76,420 32,781
Acquisition and integration
cash outlay:
Consolidated statement of comprehensive
Costs of acquisition and integration income 2,650 4,348
Fair value adjustments to contingent Consolidated statement of cash
consideration flows 66 (493)
Fair value adjustments to right Consolidated statement of cash (434) -
of use assets flows
Acquisition of property, plant Consolidated statement of cash
and equipment flows (13,908) (13,145)
Consolidated statement of cash
Investment in intangible assets flows (259) (391)
Investment income Consolidated statement of comprehensive (1,437) -
income
Consolidated statement of cash
Interest received flows 76 74
Consolidated statement of cash
Interest paid flows (1,722) (2,130)
Payments of principal on lease Consolidated statement of cash
liabilities flows (8,170) (7,355)
----------------------------------------- ------------------------------------------ ---------- ----------
Free cash flow after tax 53,282 13,689
Consolidated statement of cash
Taxation paid flows 4,459 13,288
Free cash flow before tax 57,741 26,977
------------------------------------------------------------------------------------- ---------- ----------
*Please note Free cash flow is presented on a pre IFRS 16 basis
as the Directors consider this to be more meaningful.
Adjusted free cash flow*
Adjusted free cash flow is a measure of cash flow adjusting for
capital expenditure that is supporting growth in future periods (as
measured by capital expenditure in excess of maintenance capital
expenditure). In order to present the measure consistently
year-on-year, the impact of COVID-19 government subsidies claimed
is also excluded.
2020 2019
Calculation EUR'000 EUR'000
------------------------------------------------------------------------------- --------- ---------
Free cash flow before tax As above 57,741 26,977
----------------------------------- ------------------------------------------ --------- ---------
Capital expenditure in excess
of depreciation:
Acquisition of property, plant Consolidated statement of cash
and equipment flows 13,908 13,145
Depreciation - property, plant Consolidated statement of cash
and equipment flows (8,983) (7,295)
----------------------------------- ------------------------------------------ --------- ---------
Capital expenditure in excess
of depreciation 4,925 5,850
------------------------------------------------------------------------------- --------- ---------
COVID-19 government subsidies Consolidated statement of comprehensive (9,231) -
claimed income
Adjusted free cash flow 53,435 32,827
------------------------------------------------------------------------------- --------- ---------
*Please note Adjusted free cash flow is presented on a pre IFRS
16 basis as the Directors consider this to be more meaningful.
Adjusted cash conversion rate*
The Adjusted cash conversion rate is the Adjusted free cash flow
as a percentage of the Adjusted profit before tax:
2020 2019
Calculation EUR'000 EUR'000
-------------------------------------------------------------------- --------- ---------
Adjusted free cash flow As above 53,435 32,827
Adjusted profit before tax As above 54,954 40,913
--------------------------------- --------------------------------- --------- ---------
Free cash flow before tax and
capital expenditure in excess
of depreciation, as a % of
Adjusted cash conversion ratio Adjusted profit before tax 97.2% 80.2%
--------------------------------- --------------------------------- --------- ---------
*Please note the prior year has been adjusted to the current
year presentation as the Directors consider this to be more
meaningful.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR DZGZFRFLGMZM
(END) Dow Jones Newswires
March 24, 2021 03:00 ET (07:00 GMT)
Grafico Azioni Keywords Studios (LSE:KWS)
Storico
Da Feb 2024 a Mar 2024
Grafico Azioni Keywords Studios (LSE:KWS)
Storico
Da Mar 2023 a Mar 2024