TIDMKWS

RNS Number : 2331Z

Keywords Studios PLC

17 September 2020

17 September 2020

Keywords Studios PLC ("Keywords Studios", "the Group")

Half year results for the six months to 30 June 2020

Robust revenue growth driven by strong demand and flexible, resilient business model

Keywords Studios, the international technical and creative services provider to the global video games industry, today announces its half year results for the six months to 30 June 2020.

Financial overview:

 
 
  Results for the six month ended 30      H1 2020      H1 2019     % change 
   June 
                                       -----------  -----------  ---------- 
 
  Group revenue                          EUR173.5m    EUR153.2m     +13.3% 
  Organic Revenue growth (1)               +8.0%       +17.3% 
 
  Adjusted EBITDA (2)                    EUR30.8m     EUR25.8m      +19.3% 
  Adjusted EBITDA margin                   17.8%        16.9% 
 
  Adjusted profit before tax (3)         EUR21.7m     EUR18.4m      +17.9% 
  Profit before tax                      EUR11.1m      EUR6.7m      +66.0% 
 
  Adjusted earnings per share (4)         25.25c       21.53c       +17.3% 
  Earnings per share                       9.49         4.69c      +102.3% 
 
  Dividend per share                        n/a         0.58p 
 
  Adjusted cash conversion rate (5)        50.2%        30.0% 
 
  Net cash / (net debt)                  EUR101.0m    EUR(9.0)m 
 
 

Highlights:

Robust H1 revenue growth (+13.3% to EUR173.5m ) despite COVID-19 disruptions

-- 8.0% Organic Revenue growth (H1 2019: 17.3%) supported by growth across all service lines with the exception of Localization. Particularly strong growth in the Group's largest service line, Game Development

-- Strong demand for most of our services throughout the period, albeit certain services were held back by COVID-19 related supply side constraints, particularly in Testing and Audio, while Localization suffered from postponements on the demand side

-- By May, we had transitioned the majority of our people to remote working, following some short-term disruption

-- Since June, we have been able to reopen most of our Audio studios and are performing certain tasks from our Testing studios

Increased margins despite revenue being held back by COVID-19

-- Increase in Adjusted EBITDA of 19.3% to EUR30.8m, represented a 0.9% pts increase in margin to 17.8% (H1 2019: 16.9%)

Good cash generation

   --    Increase in Adjusted Free Cash Flow (6) of EUR5.4m to EUR10.9m (H1 2019: EUR5.5m) 

-- Improvement in adjusted cash flow conversion rate to 50.2% ( H1 2019: 30%, FY 2019: 80.2.%) for the seasonally lighter first half

-- Driven by the timing of MMTC/VGTR receipts, a reduction in tax payments and a small reduction in capex as a result of lower equipment purchases due to the COVID-19 disruption and reduced levels of expansionary capex

Robust balance sheet and liquidity

-- Robust balance sheet with net cash of EUR101.0m (H1 2019: net debt EUR9.0m), strengthened by our well supported placing in May that raised net proceeds of EUR110m

-- EUR100m of further funds available from undrawn committed facilities under the Group's Revolving Credit Facility (RCF)

Delivering on our acquisition strategy

-- Completed the acquisition of Coconut Lizard in June, strengthening Game Development with a high quality Unreal Engine development specialist

-- Maverick Media, acquired in August, adding scale and a sixth studio to our Marketing services business, with one of the longest established video game creative agencies in Europe

-- Announced separately today, the acquisition of Heavy Iron, further enlarging and bringing a new base on the West Coast for our Game Development services

Current trading, COVID-19 update and outlook

-- Trading in the second half has started well with continued growth across all service lines, despite ongoing headwinds from the disruption caused by COVID-19

-- Anticipate continued strong demand for our services, aided by the upcoming new console launches, increased game play and further development of new streaming platforms driving content demand

-- Expect good revenue growth in the second half despite some COVID-related hiring constraints in our Testing businesses in the Americas, restricted use of our studios, stronger comparatives in the second half and the impact of the recent weakening of the US dollar

-- Anticipate maintaining effective remote working model in the majority of locations for the rest of the year, with a focus on certain priority activities taking place in studios

-- Expect to continue to drive incremental margin increases in the second half and beyond towards historic norms by the end of 2021

-- Well-funded to deliver on our value accretive acquisition strategy and we are actively engaging with selected targets from an expanded pipeline of opportunities

   --    The Board remains committed to resuming its progressive dividend policy in 2021 

Andrew Day, Chief Executive of Keywords Studios, commented:

"The resilience of our business continues to shine through as we delivered growth despite the restricted use of our 60+ studios around the world, recruiting and training challenges, and some short term disruption to content flowing into the business. The resolve, continued passion and professionalism of Keywordians around the globe to do the best we can for each and every project entrusted to us helps ensure we are the global supplier of choice to the industry. We are incredibly proud of the contribution we make to creating, adapting and supporting the majority of the world's leading video games.

We are delighted to announce the acquisition of Heavy Iron today, joining recently added Coconut Lizard in our Game Development service line and to have added Maverick Media to our expanding Marketing services business. Our strong balance sheet and continued good cash generation places us in a strong position to continue our highly successful acquisition strategy as we selectively welcome new companies into the Keywords family.

The growth drivers across our underlying video games market remain intact and we anticipate continued strong demand across all our service lines, including some pent-up demand from our clients as our operating environment continues to normalise. As governments around the world ease support measures for the unemployed or furloughed workers, we expect to be better able to recruit at the entry level positions that fuel growth in our testing and player support businesses. We believe Keywords will be seen as an even more attractive employer, with a hybrid model of remote and socially distanced, in-studio working in a thriving interactive entertainment sector.

While margins were held back by lower volumes compared to our original plans for the year, outweighing the benefits of COVID-19 related cost savings, we expect our margins to move towards our historic norms as we settle into this hybrid working model to serve the strong demand we are seeing from our customers."

A presentation of the half 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_H120_Webinar . 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 .

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 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 is also excluded. Both EBITDA and Adjusted EBITDA 
              include the impact of IFRS 16 in the current and prior year periods. 
  (3)        Adjusted profit before tax comprises Profit before taxation as reported 
              in the Consolidated statement of comprehensive income, adjusted for 
              costs including share option expense, costs of acquisitions and integration, 
              amortisation 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 is 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. 
 
 

For further information, please contact:

 
  Keywords Studios ( www.keywordsstudios.com 
   ) 
   Andrew Day, Chief Executive Officer 
   Jon Hauck, Chief Financial 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                keywords@mhpc.com 
    Hirst 
 

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 62 facilities in 21 countries strategically located in Asia, 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).

CEO Review

Robust revenue growth driven by strong demand

Keywords delivered a robust performance in H1 2020, with revenues up 13.3% to EUR173.5m, as we worked hard in the context of COVID-19 disruptions to deliver on the strong demand for our services as our clients, in turn, experienced accelerated demand for their content, and some constraints to their production and support.

I am exceptionally proud of the efforts of all our people through this challenging period, as we reacted with agility to fundamental changes to our ways of working, whilst continuing to deliver the high quality of service for which we have become well-known.

The Group delivered 8.0% Organic Revenue growth including, in particular, a continued strong performance from our largest service line, Game Development, which grew Organic Revenues by 25.7%. The Group's Organic Revenue growth was complemented by contributions from prior year acquisitions.

Whilst we experienced strong demand for most of our services, revenues were held back by some operational and market disruption caused by COVID-19. This was particularly apparent in Testing which historically is done in secure facilities and Audio services which generally requires actors, directors and audio engineers to be in recording studios. We were able to move the vast majority of our Testing operations to work-from-home arrangements albeit with some short term delays as we put in place the IT infrastructure to support this and secured client consents. Our Localization business, which saw some short term disruption to content flowing into it in the first half, has seen a marked increase in volume in the early part of the second half.

Since June we have been able to reopen most of our Audio studios and from July we have started to operate certain activities from our Testing studios, albeit recently extended unemployment support measures have been constraining our ability to recruit at the entry level, particularly in our testing operations in the Americas.

Our Art Creation service performed well in the period, given that some of its later stage marketing activities were held back by COVID-19 and we lost around two weeks of production in China as it went into lockdown first, earlier in the year. Player Support returned to growth, as expected, with some benefit from increased game playing activity since lockdown commenced.

The Group's Adjusted EBITDA increased by 19.3% to EUR30.8m, representing a 0.9% pts increase in margin . The operational investments made in 2019 such as increased seat numbers and more efficient recruitment aided growth and margins in the first two months of the year but have since been nullified by the effects of COVID-19 as we continue to pay our rents and associated property costs and deal with some recruitment headwinds as previously reported. We look forward to being able to fully capitalise on these investments as we ease back into greater use of our studios, and we have indeed continued to invest prudently in 2020 in expanding capacity at studios including Mexico City, New Delhi and Katowice. We were also pleased to continue to expand Electric Square with the opening of a new studio in Singapore, which extends our Game Development capabilities in this important market.

Delivering on our strategy

As we continue to build our services platform into the 'go to' provider to the video games industry in accordance with our strategy, the Group is increasingly standing 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 to manage 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. This trend has been particularly evident through the COVID-19 situation, where Keywords has been able to support its clients' business continuity.

Demand for video games has accelerated during the pandemic which is likely to result in an enlarged market for video games content going forward. We are continuing to invest, as appropriate, to position the Group as an increasingly integral partner to our clients, ahead of the launch of next generation games consoles later in 2020 and through the important growth period that should follow this refresh. Further development of new and existing video games streaming platforms will also increase demand for content and its ongoing support.

We have been determined not to allow COVID-19 to halt our highly successful M&A program that has always been an integral part of our strategy. Following our strongly supported EUR110m placing in May, we are delighted to have been able to welcome three new companies to the Keywords family since June and continue to systematically work through a healthy pipeline of further acquisition opportunities.

The acquisitions of Coconut Lizard in June and Heavy Iron today have brought two high quality game development studios into the Keywords family, whilst Maverick Media, acquired in August, added scale and a sixth studio to our Marketing services business, in line with our stated strategy to have a particular focus on acquisitions in these areas of expertise.

Supporting our people, clients and communities

Keywords' ongoing success is based on its people, and I am exceptionally proud of the way that all Keywordians around the world have responded to the challenges and the changes to our ways of working to keep everybody safe in the context of COVID-19.

Where we were not able to provide work for all our colleagues, particularly in the earlier months of the pandemic, we were fortunate in being able to help them access enhanced unemployment benefits in various territories in which we operate while they were temporarily laid off, and we are pleased to have been able to bring the vast majority of our people back to work and to have begun hiring in earnest as we scale into the consistently busier second half of the year. In addition, we established our own US $500,000 hardship fund to support those experiencing more acute financial issues as a result of COVID-19.

We constantly strive to provide great work and career development opportunities for Keywordians in a supportive, relaxed but professional culture. We believe that our business model provides structural advantages for both our colleagues and our clients. Our broad pool of highly experienced and games-passionate talent provides a tremendous resource that our customers can access in a flexible and cost-efficient manner across the globe and in convenient time zones. For our colleagues, we work on over 200 game titles from game developers and publishers around the world at any one time, providing a steady stream of engaging work for our full-time staff, our flexible workers and our freelance collaborators.

During the period, our studios have implemented various local initiatives to help colleagues feel connected, engaged and appreciated while working from home. Gift packs, online social events, access to wellbeing counselling and the provision of helplines are just some of these many initiatives. Additionally, we have deployed several measures to enhance the working experience at Keywords, including our new e-card which allows colleagues to show gratitude and appreciation for one another and the launch of a fund under the 'Keywords Cares' banner that matches funds raised by Keywordians for their local community outreach and charitable initiatives.

Service line review

With the exception of our Localization business which was held back by scheduling delays further upstream, all our services lines grew despite the pandemic and the operational challenges it has created.

The following table provides a summary of our revenues by service line, including their growth rates on a reported and Organic Revenue** basis. We have also presented pro forma revenues by service line, which includes the annualised revenue of Coconut Lizard, in line with our practice in prior periods to provide an overview of the size and balance of the business at the end of the period. The service line commentary which follows reports on the statutory reported revenues unless otherwise stated.

 
 
  Revenue                                                                      H1 2020 
                                                                                Organic       H1 2020 
                       % of H1 2020    H1 2020     H1 2019*    Change year     Revenue**     Pro forma** 
                           Group        Revenue     Revenue      on year        growth         Revenue 
                          revenue        EURm        EURm           %              %            EURm 
                     --------------  ----------  ----------  -------------  ------------  -------------- 
 
  Art Creation            15.2%          26.3        22.2         18.5%          7.9%           26.3 
  Game Development        22.3%          38.7        29.6         30.7%         25.7%           39.7 
  Audio                   11.9%          20.6        18.3         12.6%          0.5%           20.6 
  Functional 
   Testing                20.6%          35.8        31.8         12.6%         10.7%           35.8 
  Localization            12.4%          21.6        22.7        (4.8%)         (7.4%)          21.6 
  Localization 
   Testing                 6.2%          10.7        10.3         3.9%           1.9%           10.7 
  Player Support          11.4%          19.8        18.3         8.2%           5.5%           19.8 
  Total                   100.0%        173.5       153.2         13.3%          8.0%          174.5 
                     --------------  ----------  ----------  -------------  ------------  -------------- 
 

* The prior year comparatives for Audio and Localization have been re-classified to reflect the current year presentation as the Directors consider this to be more meaningful.

** The group reports certain Alternative performance measures (APMs) which the Directors believe provide valuable additional information for the users of the financial information to understand the underlying trading performance of the business. For full definitions and explanations of these measures and a reconciliation to the most directly referenceable IFRS line item, please see the APMs section at the end of the statement.

Art Creation (15.2% of Group revenues for the half 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 the Marketing services business we are building through acquisitions, and subsequent organic growth.

H1 2020 performance

Art Creation revenues grew by 18.5% to EUR26.3m (H1 2019: EUR22.2m) with the benefit of contributions from 2019 acquisitions, Sunny Side Up and Ichi. Organic Revenue, which excludes the impact of currency movements and acquisitions, grew by 7.9% for Art Creation.

This was a good performance given that the Art Creation team saw some disruption from the very early stages of the COVID-19 pandemic in China, that affected five of its studios, before lockdowns became more widespread, and as some of the earlier stage Marketing services were held back by COVID-19 as game developers and publishers paused early stage marketing planning while assessing the implications of COVID-19. However, demand across all of these businesses is now strong and they have settled into their new ways of working.

The market opportunity and outlook

Art Creation and Marketing services operate in large addressable markets which remain highly fragmented, particularly given the range of Marketing 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.

Marketing services remains a particular area of focus for acquisitions, and we expect to report this business separately once it achieves scale.

While we continue to work within the operational constraints of COVID-19, demand for all our services in this area has been building into the second half of the year and we expect to maintain good levels of activity through to the end of the year, including our newly acquired Maverick Media business.

Game Development (22.3% of Group revenue for the half 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.

H1 2020 performance

Now our largest service line, Game Development increased revenues by 30.7% to EUR38.7m (H1 2019: EUR29.6m). This increase reflected a full contribution from Wizcorp, which was acquired in April 2019. Organic Revenue, which excludes the impact of currency movements and acquisitions, increased very strongly for Game Development, up 25.7% compared to H1 2019.

Our investments in the latter part of 2019 and early in 2020 in new studios in Leamington Spa, UK, in Singapore and in Austin, Texas, and the access to talent that they have provided, along with successfully moving to remote working and continued recruitment across all our Game Development studios, have enabled us to meet much of the strong demand we are seeing for our services.

We are continuing to build this service line through organic expansion as well as through acquisitions with 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.

At the very end of June we acquired Coconut Lizard, a well-regarded provider of game development engineering services with particularly deep expertise in the video game development environment, Unreal Engine. Importantly, in addition to expanding Game Development's services, Coconut Lizard brings with it good access to talent including graduates from the specialised video game development and engineering degree courses at the University of Sunderland and Newcastle University.

The market opportunity and outlook

Game Development is our largest addressable market; a market that is growing strongly and has the lowest proportion of services outsourced of all of the Group's market segments. Characterised by per project engagements, rather than the ongoing service provision of 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 getting new projects started which may hold this service line back from maintaining the very strong growth rate seen in the first half, albeit the underlying trend in this area of our business remains extremely positive. As previously communicated, Game Development remains an area of particular focus in our M&A program, where we target companies that provide access to strong pools of talent to help support the fast pace of organic growth.

Audio (11.9% of Group revenue for the half year)

Our Audio service line provides multi language voice-over, original language voice recording, music, sound design, accessibility and related services.

H1 2020 performance

Audio revenues rose by 12.6% in the period to EUR20.6m (H1 2019: EUR18.3m), with the benefit of full contributions from the 2019 acquisitions of Descriptive Video Works, TV+SYNCHRON, and Syllabes. Organic Revenue, which excludes the impact of currency movements and acquisitions, increased by 0.5% compared to H1 2019.

Our Audio services businesses were held back in the period 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 with some level of remote recording and, since June, most of our studios have been operational albeit at reduced capacity levels due to the extra measures in place to safeguard our staff and recording artists.

The market opportunity and outlook

The audio localization services market remains highly fragmented in terms of service provision, with clients requiring state of the art studios for optimal sound quality. This represents an opportunity for us to grow our market share organically, as well as make acquisitions over time, and with the majority of our studios now open we expect to be able to deliver against pent up demand in the second half of the year and beyond.

Assuming the environment continues to normalise in relation to COVID-19 measures, our Audio service line should also benefit from a better second half of 2020 for AAA game releases, to coincide with the anticipated new console launches from Microsoft and Sony, as well as continued content generation for the streaming services, with some of our studios benefitting from Netflix preferred vendor status.

Functional Testing (20.6% of Group revenue for the half 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.

H1 2020 performance

Functional Testing revenues increased by 12.6% to EUR35.8m (H1 2019: EUR31.8m). Organic Revenue, which excludes

the impact of currency movements   and acquisitions, increased by 10.7%. 

This represented a strong performance, given the operational constraints created by the COVID-19 lockdown measures. This service line had been severely constrained at the beginning of the lockdown, as the security implications of working on valuable, pre-release content meant the work needed to be conducted from within our security audited testing studios. However, in consultation with our clients, we worked quickly to move the majority of our team to remote working arrangements. We now have access to our studios again and are cautiously deploying testing teams there, as well as using the studios for training and testing purposes and for housing particularly sensitive projects such as those requiring new generation console test kits.

The market opportunity and outlook

In the second half, we are already seeing an increase in demand as anticipated and this is now coming at a time where we are beginning, as from August, to see an easing in the recruitment constraints we had been experiencing. We therefore expect to be able to scale quickly into the peak months of September and October, albeit we will be trading against stronger comparatives.

We are a leading player in this large and growing market segment of the market which is seeing a trend towards outsourcing. Our scale, flexibility 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 (12.4% of Group revenue for the half 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.

H1 2020 performance

Localization revenues were down by 4.8% to EUR21.6m (H1 2019: EUR22.7m). Organic Revenue, which excludes the impact of currency movements and acquisitions, was down by 7.4% as we experienced some delays in the receipt of content as production schedules further upstream were disrupted by work from home transitions at some of our clients.

The market opportunity and outlook

We have seen an improvement in Localization's performance in the second half to date as the volumes of content flowing to us have picked up, leaving it on track to return to organic growth in the second half, with its flexible production model able to respond quickly to an increase in demand for its services.

Service provision in this segment of the market remains highly fragmented, with 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 expect Localization to continue to build on its leading market position as it increasingly differentiates itself by combining proprietary software tools like XLoc, and recently acquired Artificial Intelligence (AI) and Machine Learning (ML) technology from Kantan, with its market leading expertise in games localization built up over the past 20 years. We have made steady progress in developing our AI/ML capabilities for the very challenging specific requirements of the games industry and we expect to see this technology being adopted by our clients as an integral part of our partnership arrangements with them going forward.

Localization Testing (6.2% of Group revenue for the half 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.

H1 2020 performance

Localization Testing revenue increased by 3.9% to EUR10.7m (H1 2019: EUR10.3m). On an organic basis, which also excludes the impact of currency movements, Localization Testing was 1.9% higher compared to H1 2019.

Localization Testing experienced the same operational constraints seen in our Functional Testing division during the period, 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.

The market opportunity and outlook

We would expect strong demand for Localization Testing's services as it benefits from a stronger second half for AAA game releases including some demand related to the anticipated new console launches from Microsoft and Sony. Our ability to meet that demand will be subject to the availability of language skills as described above, albeit we hope these constraints will continue to ease as we move through the second half.

As market leader in this segment, for which scale, breadth of languages, and the agility of a larger player is critical to customers, we look forward to building on our leadership during an anticipated busy period for the industry.

Player Support (11.4% of Group revenue for the half 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.

H1 2020 performance

Player Support increased revenue by 8.2% to EUR19.8m (H1 2019: EUR18.3m) and Organic Revenue, which is on a constant currency basis, by 5.5%.

Player Support returned to growth in H1, representing a good performance in the context of the COVID-19 disruption. During the period, it successfully transitioned its teams around the world to remote working arrangements enabling it to provide continuous support to its clients.

The market opportunity and outlook

We continue to aim to differentiate ourselves from the large generalist call centre operators who have benefited from video game operators turning to them for support as they have developed 'games as a service' products, requiring player support for the first time. Our specialist video games "DNA", our extensive range of capabilities and our fundamental understanding of what is important to players shows through in the quality of our service delivery compared to these generalist providers. We continue to extend our services to cover more 'touch points' of gamer engagement, and develop our technological tools, in order to make further progress in this market.

Our focused business development activities in this area, following a period in which the operations settled into the new COVID-19 era regime, have started to produce interesting new business prospects and we expect Player Support to trade strongly through the second half.

COVID-19, current trading and outlook

Trading in July and August has started strongly with all our service lines performing well, even with the continued operational and market disruption resulting from COVID-19. We are still seeing some constraints particularly to our recruitment efforts but these should ease as governments rein in some of the COVID-19 specific support measures to individuals, thereby encouraging them back into the work place.

Since April, the vast majority of our business has operated a remote working model that we have supported efficiently and robustly. On an ongoing basis, we have adopted an approach tailored to each studios' needs in each of the 60+ locations in which we have our production operations. Each studio continually assesses the needs and desires of its staff 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 COVID-19 related challenges over the months ahead.

The underlying drivers of growth across the video games market remain intact and we anticipate continued strong demand across all our service lines further aided by the market refresh in the console games sector that will follow the launch of the PlayStation (TM)5 and Xbox X Series consoles towards the end of 2020, by the ongoing development of new streaming platforms, and by increased game playing on current platforms which is driving demand for ever more content. We also hope to continue to benefit from pent up demand from our clients as our operating environment continues to normalise.

We expect to continue to drive incremental margin increases in the second half and beyond towards historic norms by the end of 2021, benefitting from our previous investment in expanding and diversifying the business, improving our technology, strengthening our management team and extending our functional support. The investments made in expanding studio capacity in many of our studios in 2019, in order to support continued growth, have yet to be put to work with only marginal occupancy rates in all but our China based studios at present, due to COVID-19. Nevertheless, these previous investments did provide us with broader access to talent and the infrastructure to enable us to operate well through the lockdowns.

Our recent placing and revolving credit facility mean we are well-funded to deliver on our value accretive acquisition strategy and we are actively engaging with selected targets from an expanded pipeline of opportunities . We remain ideally placed to capitalise on our clear opportunity to take a leading share of the increasingly outsourced video games services market both organically and via acquisitions, as we further enhance shareholder value.

Thanks to the robustness of the Group's model and its proven business continuity capability, the growth characteristics of our end markets and the strength of our market position, we are confident that the Group is well positioned for growth and long-term success.

Andrew Day

Group Chief Executive Officer

Financial and Operating Review

Resilient performance in period of significant disruption

Revenue

Despite the COVID-19 disruptions, revenue for H1 2020 increased by 13.3% to EUR173.5m (H1 2019: EUR153.2m). Total revenue growth was supplemented by the impact of acquisitions made in 2019 and the impact of currency movements, in particular the strengthening of the US dollar against the Euro between H1 2019 and H1 2020 which contributed 1.7% pts of the growth in the first half.

Organic Revenue growth (which adjusts for the impact of currency movements and acquisitions) was 8.0% driven by a robust performance in most service lines, despite the closure of most of our studios in March and the move to work from home arrangements, and a particularly strong performance in Game Development which delivered organic growth of 25.7%. Whilst we saw continued strong demand for most of our services, all of our service lines were held back due to studio closures, particularly in our Testing and Audio businesses, while Localization was held back by some short term client disruption which caused delays to content flowing into the service line.

Gross margin

Gross profit in H1 2020 was EUR62.9m (H1 2019: EUR55.2m) representing an increase of 13.9%. The gross profit margin improved by 0.2% pts to 36.3% (H1 2019: 36.1%) albeit the margin improvement was 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 9.1% in the first half of the year to EUR32.1m (H1 2019: EUR29.4m) representing 18.5% of revenue versus 19.2% in H1 2019. This was partly driven a reduction in certain costs including travel and marketing as a result of the lockdown restrictions.

EBITDA

Adjusted EBITDA increased 19.3% to EUR30.8m compared with EUR25.8m for H1 2019 resulting in an improvement in Adjusted EBITDA margin of 0.9% pts to 17.8% (H1 2019: 16.9%). 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 reduced by EUR0.8m to EUR1.6m (H1 2019: EUR2.4m largely driven by a reduction on the net foreign exchange loss of EUR0.9m which is described in more detail below). Underlying interest costs (excluding IFRS 16 interest, deferred consideration discount unwind and foreign exchange) increased by EUR0.2m to EUR0.6m (H1 2019: EUR0.4m) reflecting the increase in drawings in the RCF entering into the year which was repaid in May following the successful EUR110m placing.

Alternative performance measures

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 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:

 
 
                                                 H1      H1 2019 
                                                2020       EURm     FY 2019 
                                                EURm                  EURm 
  Share option expense                           6.8       4.0        9.8 
  Costs of acquisition and integration           1.2       2.8        4.3 
  Amortisation and impairment of intangible 
   assets                                        5.7       3.5        7.3 
  COVID-19 related subsidies claimed            (3.4)       -          - 
  Foreign exchange and other items               0.4       1.4        2.1 
                                                10.7      11.7       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 EUR6.8m in H1 2020 (H1 2019: EUR4.0m). The increase is largely due to an increase in the fair value charge for the more recent grants compared to previous years.

One-off costs associated with the acquisition and integration of businesses of EUR1.2m (H1 2019: EUR2.8m) were incurred in the period, including deferred consideration true ups for acquisitions made in earlier periods.

The amortisation charge of EUR5.7m (H1 2019: EUR3.5m) for the period includes a EUR1.9m non-cash charge relating to an impairment of intangible assets in certain pre-revenue businesses. These businesses have potentially exciting prospects but the speed to market has been hampered by COVID-19.

During the first half the group benefited from EUR3.4m of COVID-19 related government subsidies largely in the Americas aimed at supporting employment retention during the COVID-19 crisis. Due to the temporary nature of the support the income was excluded in arriving at the adjusted profit measures.

Foreign exchange and other items amounted to a net charge of EUR0.4m (H1 2019: net charge of EUR1.4m). 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 EUR0.3m in the first half, recorded within financing cost (H1 2019: EUR1.2m).

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 EUR4.4m to EUR11.1m (H1 2019: EUR6.7m). Adjusted Profit Before Tax, which adjusts for share option charge, costs of acquisition and integration, amortisation and impairment of intangibles (as described above), non-controlling interest, foreign currency exchange movements, unwinding of discounted liabilities, and COVID-19 government employment retention subsidies increased by 17.9% to EUR21.7m compared with EUR18.4m in H1 2019, representing an improvement in net margin of 0.5% pts to 12.5% (H1 2019: 12.0%).

Taxation

The tax charge in the period was EUR4.7m (H1 2019: EUR3.6m) resulting in a reduction in the Adjusted Effective Tax Rate to 21.5% of Adjusted Profit Before Tax versus the full year rate of 22.4% in 2019, largely due to the non-repeat of a legacy pre-acquisition tax charge of EUR0.5m in the prior year.

Basic earnings per share

Basic earnings per share increased by 102.3% to 9.49c (H1 2019: 4.69c) reflecting the increase in the statutory profit after tax of 110.6% and a 4.1% increase in the weighted average number of shares in issue which does not yet include the full impact of the 10.5% equity placing in May of this year.

Adjusted earnings per share which adjusts for the items noted in the APM section above was 25.25c representing an increase of 17.3% (H1 2019: 21.53c).

Acquisitions

The Group entered the year with a strong acquisition pipeline but progress was slowed due to COVID-19 disruption. Following the successful equity placing in May, the Group completed its first acquisition in June, the Game Development business Coconut Lizard for an initial consideration of EUR1.7m comprising cash of EUR1.3m and shares of EUR0.4m. Up to a further EUR0.7m is payable in a mixture of cash and shares subject to the business meeting certain performance conditions over the first 12 months post completion.

Going forward we will continue to execute our targeted and disciplined approach to M&A to build out our global services platform to enhance further our position as the 'go to' provider for technical and creative services to the video games industry.

Cash flow and net debt

 
 
                                                 H1              H1 
                                                 2020           2019           Change 
  Cash flow statement                            EURm           EURm            EURm 
  Adjusted EBITDA                               30.8            25.8            5.0 
  MMTC and VGTR                                (4.3)           (7.0)            2.7 
  Working capital and other 
   items                                       (6.6)           (5.8)           (0.8) 
  Capex - property, plant and 
   equipment (PPE)                             (4.9)           (5.1)            0.2 
  Capex - intangible assets                      -             (0.3)            0.3 
  Payments of principal on lease 
   liabilities                                 (3.9)           (3.2)           (0.7) 
  COVID-19 employment support 
   subsidies                                    3.4              -              3.4 
                                             --------  ----  --------  ----  -------- 
  Operating cash flows                          14.5            4.4             10.1 
  Interest paid                                (0.9)           (0.7)           (0.2) 
                                             --------  ----  --------  ----  -------- 
  Free cash flow before tax                     13.6            3.7             9.9 
  Tax                                          (2.0)           (3.8)            1.8 
                                             --------  ----  --------  ----  -------- 
  Free cash flow                                11.6           (0.1)            11.7 
  M&A - acquisition spend                      (1.3)           (7.0)           (5.7) 
  M&A - acquisition and integration 
   costs                                       (1.2)           (1.7)            0.5 
  Dividends paid                                 -             (0.8)            0.8 
  Shares issue for cash                        110.7            0.6            110.1 
                                             --------  ----  --------  ----  -------- 
  Underlying increase / (decrease) 
   in net cash / (debt)                        119.8           (9.0)           128.8 
  FX and other items                           (0.9)            0.4            (1.3) 
                                             --------  ----  --------  ----  -------- 
  Increase in net cash / (debt)                118.9           (8.6)           127.5 
  Opening net cash / (debt)                    (17.9)          (0.4) 
                                                                       ----  -------- 
  Closing net cash / (debt)                     101.0           (9.0) 
                                             --------  ----  --------  ----  -------- 
 

The Group generated Adjusted EBITDA of EUR30.8m in H1, an increase of EUR5.0m from EUR25.8m in H1 2019. This was reduced by an increase in the amounts due in respect of 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). Other working capital outflows increased by EUR0.8m compared to H1 2019, with trade receivable days of 46 in line with H1 2019.

Investment in property, plant and equipment amounted to EUR4.9m (H1 2019: EUR5.1m), a slight reduction on H1 2019 reflecting a lower relative level of equipment spend as a result of the COVID-19 disruption and a reduction in the level of expansionary capex. Lease payments increased by EUR0.7m as a result of the flow through of the studio expansions in the prior year.

Cash received in respect of COVID-19 government employment retention subsidies amounted to EUR3.4m in the period, resulting in operating cash flows of EUR14.5m (H1 2019: EUR4.4m), an increase of EUR10.1m on H1 2019.

Interest payments were EUR0.9m in the first half, an increase of EUR0.2m reflecting the increased level of debt at the start of the year prior to it being repaid in May following the placing. Tax payments amounted to EUR2.0m (H1 2019: EUR3.8m) a reduction of EUR1.8m on H1 2019 driven by the increase in taxable profits offset by tax settlements in the prior year.

This resulted in Free Cash Flow of EUR11.6m, an increase of EUR11.7m on H1 2019 and an adjusted cash conversion rate (which adjusts for capital expenditure that is supporting growth in future periods and the COVID-19 government employment retention subsidies) of 50% (H1 2019: 30%).

Cash spent on acquisitions totalled EUR2.5m and this together with the EUR110m received from the successful equity placing results in an underlying increase in cash of EUR119.8m (H1 2019 increase in net debt: EUR9.0m). This, together with foreign exchange and other items, resulted in closing net cash of EUR101.0m (H1 2019: net debt EUR9.0m).

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 0.4x. 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 EUR110m. The placing allows 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 at the end of June the group had net cash of EUR101.0m and undrawn committed facilities of EUR100m. As a result of the equity placing, the process to exercise the accordion option under the RCF has been halted.

Dividend

The Group has delivered a robust performance in the first half of 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 most of its services. Our service lines have performed well given the operational and market disruption caused by COVID-19, delivering revenue and profit growth and the Group has continued to generate cash in the period. The Board intends to resume its progressive dividend policy in 2021.

Jon Hauck

Chief Financial Officer

Condensed interim consolidated statement of comprehensive income

 
                                                             Unaudited    Unaudited      Audited 
                                                              26 weeks     26 weeks     52 weeks 
                                                                 ended        ended        ended 
                                                                30 Jun       30 Jun       31 Dec 
                                                                    20           19           19 
                                                     Note      EUR'000      EUR'000      EUR'000 
-------------------------------------------------  ------  -----------  -----------  ----------- 
  Revenue from contracts with customers               5        173,485      153,190      326,463 
  Cost of sales                                              (110,565)     (97,950)    (206,234) 
-------------------------------------------------  ------  -----------  -----------  ----------- 
  Gross profit                                                  62,920       55,240      120,229 
-------------------------------------------------  ------  -----------  -----------  ----------- 
       Share option expense                                    (6,750)      (4,011)      (9,775) 
       Costs of acquisition and integration                    (1,185)      (2,804)      (4,348) 
       Amortisation and impairment of intangible 
        assets                                        10       (5,662)      (3,491)      (7,318) 
       COVID-19 government subsidies claimed          19         3,411            -            - 
-------------------------------------------------  ------  -----------  -----------  ----------- 
       Total of items excluded from adjusted 
        profit measures                                       (10,186)     (10,306)     (21,441) 
       Other administration expenses                          (39,997)     (35,897)     (77,246) 
-------------------------------------------------  ------  -----------  -----------  ----------- 
  Administrative expenses                                     (50,183)     (46,203)     (98,687) 
-------------------------------------------------  ------  -----------  -----------  ----------- 
  Operating profit                                              12,737        9,037       21,542 
 
  Financing income                                    6             31            -           74 
  Financing cost                                      6        (1,674)      (2,354)      (4,245) 
  Profit before taxation                                        11,094        6,683       17,371 
  Taxation                                                     (4,691)      (3,643)      (7,462) 
-------------------------------------------------  ------  -----------  -----------  ----------- 
  Profit                                                         6,403        3,040        9,909 
 
  Other comprehensive income: 
    Items that will not be reclassified 
     subsequently to profit or loss 
       Actuarial gain / (loss) on defined 
        benefit plans                                             (82)           13        (167) 
    Items that may be reclassified subsequently 
     to profit or loss 
       Exchange gain / (loss) in net investment 
        in foreign operations                                    (304)          620        1,267 
       Exchange gain / (loss) on translation 
        of foreign operations                                  (7,297)        2,895        5,960 
  Total comprehensive income / (expense)                       (1,280)        6,568       16,969 
-------------------------------------------------  ------  -----------  -----------  ----------- 
 
  Profit / (loss) for the period attributable 
   to: 
  Owners of the parent                                           6,453        3,132       10,022 
  Non-controlling interest                                        (50)         (92)        (113) 
-------------------------------------------------  ------  -----------  -----------  ----------- 
                                                                 6,403        3,040        9,909 
-------------------------------------------------  ------  -----------  -----------  ----------- 
 
  Total comprehensive income / (expense) 
   attributable to: 
  Owners of the parent                                         (1,230)        6,660       17,082 
  Non-controlling interest                                        (50)         (92)        (113) 
                                                           ----------- 
                                                               (1,280)        6,568       16,969 
-------------------------------------------------  ------  -----------  -----------  ----------- 
 
  Earnings per share                                          EUR cent     EUR cent     EUR cent 
-------------------------------------------------  ------  -----------  -----------  ----------- 
  Basic earnings per ordinary share                   8           9.49         4.69        15.23 
  Diluted earnings per ordinary share                 8           9.11         4.50        14.73 
-------------------------------------------------  ------  -----------  -----------  ----------- 
 

Condensed interim consolidated statement of financial position

 
                                                    Unaudited    Unaudited     Audited 
                                                     26 weeks     26 weeks    52 weeks 
                                                        ended        ended       ended 
                                                       30 Jun       30 Jun      31 Dec 
                                                           20           19          19 
                                                                  Restated    Restated 
                                                                     (note       (note 
                                                                       12)         12) 
                                            Note      EUR'000      EUR'000     EUR'000 
  Non-current assets 
  Property, plant and equipment              10        21,988       17,666      22,163 
  Right of use assets                        10        31,321       20,410      21,469 
  Intangible assets                          10       188,657      186,432     196,769 
  Deferred tax assets                                   5,698        3,340       5,060 
---------------------------------------- 
                                                      247,664      227,848     245,461 
----------------------------------------  ------  -----------  -----------  ---------- 
  Current assets 
  Trade receivables                          11        44,941       43,094      43,243 
  Other receivables                          11        43,941       37,238      35,413 
  Cash and cash equivalents                           101,213       37,763      41,827 
----------------------------------------  ------               -----------  ---------- 
                                                      190,095      118,095     120,483 
----------------------------------------  ------  -----------  -----------  ---------- 
  Total assets                                        437,759      345,943     365,944 
----------------------------------------  ------  -----------  -----------  ---------- 
  Equity 
  Share capital                              12           872          773         780 
  Share capital - to be issued               12         3,033        8,679       5,310 
  Share premium                              12        21,836       20,617      20,718 
  Merger reserve                             12       244,845      126,603     132,712 
  Foreign exchange reserve                            (1,837)        2,052       5,764 
  Shares held in Employee Benefit Trust 
   ("EBT")                                            (1,997)      (1,997)     (1,997) 
  Share option reserve                                 23,199       10,685      16,449 
  Retained earnings                                    49,558       36,901      43,187 
----------------------------------------  ------  -----------  -----------  ---------- 
                                                      339,509      204,313     222,923 
  Non-controlling interest                               (15)           56          35 
----------------------------------------  ------ 
  Total equity                                        339,494      204,369     222,958 
----------------------------------------  ------  -----------  -----------  ---------- 
  Current liabilities 
  Trade payables                                        6,434        7,068       8,027 
  Other payables                             14        42,703       50,642      38,712 
  Loans and borrowings                       15            76       46,584          80 
  Corporation tax liabilities                           5,984        6,249       2,732 
  Lease liabilities                          17         8,186        7,268       7,741 
                                                       63,383      117,811      57,292 
----------------------------------------  ------  -----------  -----------  ---------- 
  Non-current liabilities 
  Other payables                             14            11        1,496         285 
  Employee defined benefit plans                        2,049        1,489       2,049 
  Loans and borrowings                       15           142          208      59,671 
  Deferred tax liabilities                              8,879        7,196       9,523 
  Lease liabilities                          17        23,801       13,374      14,166 
                                                  -----------  -----------  ---------- 
                                                       34,882       23,763      85,694 
----------------------------------------  ------ 
  Total equity and liabilities                        437,759      345,943     365,944 
----------------------------------------  ------  -----------  -----------  ---------- 
 

Condensed interim 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 12)                              -                     -              (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 for 
   the period                             -                     -                     -                     -                     -                     -                     -                  3,132              3,132               (92)        3,040 
  Other 
   comprehensive 
   income                                 -                     -                     -                     -                 3,515                     -                     -                     13              3,528                  -        3,528 
-------------------  ----------------------  --------------------  --------------------  --------------------                        --------------------  --------------------  ---------------------                     ----------------- 
  Total 
   comprehensive 
   income for 
   the period                             -                     -                     -                     -                 3,515                     -                     -                  3,145              6,660               (92)        6,568 
-------------------  ----------------------  --------------------  --------------------  --------------------  --------------------  --------------------  --------------------  ---------------------                     -----------------  ----------- 
  Contributions 
  by and 
  contributions 
  to the owners: 
  Share option 
   expense                                -                     -                     -                     -                     -                     -                 4,011                      -              4,011                  -        4,011 
  Share options 
   exercised                              4                     -                   543                     -                     -                     -                     -                      -                547                  -          547 
  Dividends                               -                     -                     -                     -                     -                     -                     -                  (773)              (773)                  -        (773) 
  Acquisition 
   related issuance 
   of shares                              6               (6,969)                   110                 8,346                     -                     -                     -                      -              1,493                  -        1,493 
  Net assets 
   on acquisition 
   of AppSecTest                          -                     -                     -                     -                     -                     -                     -                      -                  -                148          148 
                     ----------------------  --------------------  --------------------  --------------------  --------------------  --------------------  --------------------  ---------------------                     -----------------  ----------- 
  Contributions 
   by and 
   contributions 
   to the owners                         10               (6,969)                   653                 8,346                     -                     -                 4,011                  (773)              5,278                148        5,426 
-------------------  ----------------------  --------------------  --------------------  --------------------  --------------------  --------------------  --------------------  ---------------------                     -----------------  ----------- 
  At 30 June 
   2019 (restated)                      773                 8,679                20,617               126,603                 2,052               (1,997)                10,685                 36,901            204,313                 56      204,369 
-------------------  ----------------------  --------------------  --------------------  --------------------  --------------------  --------------------  --------------------  ---------------------  -----------------  -----------------  ----------- 
  Profit for 
   the period                             -                     -                     -                     -                     -                     -                     -                  6,890              6,890               (21)        6,869 
  Other 
   comprehensive 
   income                                 -                     -                     -                     -                 3,712                     -                     -                  (180)              3,532                  -        3,532 
-------------------  ----------------------  --------------------  --------------------  --------------------                        --------------------  --------------------                                            ----------------- 
  Total 
   comprehensive 
   income for 
   the period                             -                     -                     -                     -                 3,712                     -                     -                  6,710             10,422               (21)       10,401 
-------------------  ----------------------  --------------------  --------------------  --------------------  --------------------  --------------------  --------------------  ---------------------                     -----------------  ----------- 
  Contributions 
  by and 
  contributions 
  to the owners: 
  Share option 
   expense                                -                     -                     -                     -                     -                     -                 5,764                      -              5,764                  -        5,764 
  Share options 
   exercised                              3                     -                   211                     -                     -                     -                     -                      -                214                  -          214 
  Dividends                               -                     -                     -                     -                     -                     -                     -                  (424)              (424)                  -        (424) 
  Acquisition 
   related issuance 
   of shares                              4               (3,369)                 (110)                 6,109                     -                     -                     -                      -              2,634                  -        2,634 
                     ----------------------  --------------------  --------------------  --------------------  --------------------  --------------------  --------------------  ---------------------  -----------------  -----------------  ----------- 
  Contributions 
   by and 
   contributions 
   to the owners                          7               (3,369)                   101                 6,109                     -                     -                 5,764                  (424)              8,188                  -        8,188 
-------------------  ----------------------  --------------------  --------------------  --------------------  --------------------  --------------------  --------------------  ---------------------  -----------------  -----------------  ----------- 
  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 for 
   the period                             -                     -                     -                     -                     -                     -                     -                  6,453              6,453               (50)        6,403 
  Other 
   comprehensive 
   income                                 -                     -                     -                     -               (7,601)                     -                     -                   (82)            (7,683)                  -      (7,683) 
-------------------  ----------------------  --------------------  --------------------  --------------------                        --------------------  --------------------                                            -----------------  ----------- 
  Total 
   comprehensive 
   income for 
   the period                             -                     -                     -                     -               (7,601)                     -                     -                  6,371            (1,230)               (50)      (1,280) 
-------------------  ----------------------  --------------------  --------------------  --------------------  --------------------  --------------------  --------------------  ---------------------                     -----------------  ----------- 
  Contributions 
  by and 
  contributions 
  to the owners: 
  Shares issued 
   for cash                              77                     -                     -               109,459                     -                     -                     -                      -            109,536                  -      109,536 
  Share option 
   expense                                -                     -                     -                     -                     -                     -                 6,750                      -              6,750                  -        6,750 
  Share options 
   exercised                             13                     -                 1,118                     -                     -                     -                     -                      -              1,131                  -        1,131 
  Acquisition 
   related issuance 
   of shares 
   (note 12)                              2              ( 2,277)                     -                 2,674                     -                     -                     -                      -                399                  -          399 
-------------------  ----------------------  --------------------  --------------------  --------------------                        --------------------  --------------------                                            -----------------  ----------- 
  Contributions 
   by and 
   contributions 
   to the owners                         92               (2,277)                 1,118               112,133                     -                     -                 6,750                      -            117,816                  -      117,816 
-------------------  ----------------------  --------------------  --------------------  --------------------  --------------------  --------------------  --------------------  ---------------------                     -----------------  ----------- 
  At 30 June 
   2020                                 872                 3,033                21,836               244,845               (1,837)               (1,997)                23,199                 49,558            339,509               (15)      339,494 
-------------------  ----------------------  --------------------  --------------------  --------------------  --------------------  --------------------  --------------------  ---------------------  -----------------  -----------------  ----------- 
 

Condensed interim consolidated statement of cash flows

 
                                                          Unaudited    Unaudited     Audited 
                                                           26 weeks     26 weeks    52 weeks 
                                                              ended      ended *       ended 
                                                             30 Jun       30 Jun      31 Dec 
                                                                 20           19          19 
                                                  Note      EUR'000      EUR'000     EUR'000 
----------------------------------------------  ------  -----------  -----------  ---------- 
  Cash flows from operating activities 
  Profit after tax                                            6,403        3,040       9,909 
----------------------------------------------  ------  -----------  -----------  ---------- 
  Income and expenses not affecting operating 
   cash flows 
  Depreciation - property, plant and 
   equipment                                       10         4,209        3,168       7,295 
  Depreciation - right of use assets               10         3,935        3,467       7,849 
  Amortisation and impairment of intangible 
   assets                                          10         5,662        3,491       7,318 
  Taxation                                                    4,691        3,643       7,462 
  Share option expense                                        6,750        4,011       9,775 
  Fair value adjustments to contingent 
   consideration                                               (34)        1,127         493 
  Fair value adjustments to right of 
   use assets                                      10           239            -           - 
  Disposal of property, plant and equipment                       -            -         200 
  Unwinding of discounted liabilities 
   - deferred consideration                        6            119          177         330 
  Unwinding of discounted liabilities 
   - lease liabilities                             6            344          338         694 
  Interest receivable                              6           (31)            -        (74) 
  Fair value adjustments to employee 
   defined benefit plans                                         84          138         504 
  Interest expense                                 6            645          434         934 
  Unrealised foreign exchange (gain) 
   / loss                                                     (378)        1,669       (577) 
----------------------------------------------  ------ 
                                                             26,235       21,663      42,203 
----------------------------------------------  ------  -----------  -----------  ---------- 
  Changes in operating assets and liabilities 
  Decrease / (increase) in trade receivables                (2,276)      (5,521)     (4,370) 
  Decrease / (increase) in MMTC and VGTR 
   receivable                                               (4,267)      (7,048)     (5,913) 
  Decrease / (increase) in other receivables                (6,033)      (5,129)     (2,162) 
  (Decrease) / increase in accruals, 
   trade and other payables                                   2,028        4,320       6,402 
---------------------------------------------- 
                                                           (10,548)     (13,378)     (6,043) 
----------------------------------------------  ------  -----------  -----------  ---------- 
  Taxation paid                                             (1,961)      (3,769)    (13,288) 
  Net cash generated by / (used in) operating 
   activities                                                20,129        7,556      32,781 
==============================================  ======  ===========  ===========  ========== 
  Cash flows from investing activities 
  Current year acquisition of subsidiaries 
   net of cash acquired                            18       (1,027)      (5,156)    (13,051) 
  Settlement of deferred liabilities 
   on acquisitions                                            (237)      (1,808)    (14,711) 
  Acquisition of property, plant and 
   equipment                                       10       (4,888)      (5,061)    (13,145) 
  Investment in intangible assets                  10             -        (332)       (391) 
  Interest received                                              31            -          74 
  Net cash generated by / (used in) investing 
   activities                                               (6,121)     (12,357)    (41,224) 
==============================================  ======  ===========  ===========  ========== 
  Cash flows from financing activities 
  Repayment of loans                               15      (64,022)        (500)     (7,973) 
  Drawdown of loans                                15         4,500        7,001      27,000 
  Payments of principal on lease liabilities       17       (3,930)      (3,236)     (7,355) 
  Interest paid on principal of lease 
   liabilities                                     17         (344)        (338)       (694) 
  Dividends paid                                                  -        (773)     (1,197) 
  Shares issued for cash                           12       110,667          547         761 
  Interest paid                                               (553)        (394)     (1,436) 
  Net cash generated by / (used in) financing 
   activities                                                46,318        2,307       9,106 
==============================================  ======  ===========  ===========  ========== 
  Increase / (decrease) in cash and cash 
   equivalents                                               60,326      (2,494)         663 
  Exchange gain / (loss) on cash and 
   cash equivalents                                           (940)          386       1,293 
  Cash and cash equivalents at beginning 
   of the period                                             41,827       39,871      39,871 
  Cash and cash equivalents at end of 
   the period                                               101,213       37,763      41,827 
==============================================  ======  ===========  ===========  ========== 
 

* Please note that the comparative period to 30 June 2019 has been re-classified to reflect the presentation in the Annual Report 2019

Notes forming part of the Condensed interim consolidated financial statements

1 Basis of Preparation

Keywords Studios PLC (the "Company") is a company incorporated in the United Kingdom. The consolidated financial statements include the financial statements of the Company and its subsidiaries (the "Group") made up to 30 June 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 interim results for the 26 weeks ended 30 June 2020 and the 26 weeks ended 30 June 2019 are neither audited nor reviewed by our auditors and the accounts in this interim report do not therefore constitute statutory accounts in accordance with Section 434 of the Companies Act 2006. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the latest annual audited financial statements of Keywords Studios PLC for the year ended 31 December 2019, which have been filed with Companies House. The report of the auditors on those accounts was unqualified, did not contain any statements under Section 498 (2) or (3) of the Companies Act 2006 and did not contain any matters to which the auditors drew attention without qualifying their report.

There have been no changes in the principal risks and uncertainties during the period and therefore these remain consistent with the year ended 31 December 2019 and are disclosed in the Annual Report for that year. The Directors have considered the impact of COVID-19 and do not consider that it has (at this point in time) changed the principal risks and uncertainties which the Group is facing. The directors continue to monitor the impact of COVID-19 on the principal risks and uncertainties.

After making enquiries, the Directors consider it appropriate to continue to adopt the going concern basis in preparing the Condensed interim 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 in the first half of the year; 
   --      the continued demand for the Group's services; 

-- the ability to operate most of its services in a work from home model whilst 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 EUR101m and committed undrawn facilities under the Revolving Credit Facility (RCF) of EUR100m as at 30 June 2020.

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 Company and the Group have adequate resources to continue to operate and meet their liabilities as they fall due for the foreseeable future, a period considered to be at least 12 months from the date of these interim financial statements and therefore the going concern basis of preparation continues to be appropriate.

The interim financial statements made up to 30 June 2020 were approved by the Board of Directors on 16 September 2020.

2 Changes in Significant Accounting Policies

The Group has not applied early adoption of any standards not yet effective.

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.

3 Significant Accounting Policies

These financial statements have been prepared in accordance with the accounting policies adopted in the Group's most recent annual financial statements for the year ended 31 December 2019, with the exception of the issues highlighted in note 4 below.

4 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.

The judgements, estimates and assumptions applied in these interim financial statements, including the key sources of estimation uncertainty, were the same as those applied in the Group's last annual financial statements for the year ended 31 December 2019. The only exceptions are:

-- The estimate of tax liabilities which are determined in these interim financial statements using the estimated annual effective tax rate applied to the pre-tax income of the interim period.

-- The effects of COVID-19 have required judgements and estimates to be made. These issues are considered in note 19 in the context of the impact the pandemic has had on the Group.

5 Revenue from Contracts With Customers and Segmental Analysis

Revenue from Contracts With Customers

 
  Revenue by line of business      Unaudited    Unaudited     Audited 
                                    26 weeks     26 weeks    52 weeks 
                                       ended      ended *     ended * 
                                      30 Jun       30 Jun      31 Dec 
                                          20           19          19 
                                     EUR'000      EUR'000     EUR'000 
 ------------------------------  -----------  -----------  ---------- 
  Art creation                        26,280       22,245      43,601 
  Game development                    38,715       29,567      66,290 
  Audio                               20,599       18,288      41,856 
  Functional testing                  35,789       31,815      68,930 
  Localisation                        21,595       22,666      47,060 
  Localisation testing                10,701       10,288      22,638 
  Player support                      19,806       18,321      36,088 
                                     173,485      153,190     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.

Revenue is earned from external customers, with no individual customer accounting for 10% or more of the Group's revenue in any period presented.

 
  Geographical analysis of revenues      Unaudited    Unaudited     Audited 
                                          26 weeks     26 weeks    52 weeks 
                                             ended        ended       ended 
                                            30 Jun       30 Jun      31 Dec 
                                                20           19          19 
                                           EUR'000      EUR'000     EUR'000 
 ------------------------------------  -----------  -----------  ---------- 
  Ireland                                   66,991       49,337     118,095 
  United States                             29,759       24,747      52,265 
  Canada                                    18,228       26,283      48,112 
  United Kingdom                            27,574       20,242      41,768 
  Switzerland                                7,331        8,411      19,045 
  Japan                                      7,919        7,051      15,501 
  Italy                                      4,272        6,056       9,395 
  France                                     3,170        3,430       7,606 
  India                                      2,611        2,225       6,355 
  Germany                                    2,579          396       1,920 
  Singapore                                  1,084        2,199       1,637 
  Spain                                        502          775       1,588 
  Poland                                       465          754       1,285 
  Brazil                                       355          422         802 
  China                                        359          339         691 
  Mexico                                       286          523         398 
                                           173,485      153,190     326,463 
 ------------------------------------  -----------  -----------  ---------- 
 

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 at the end of the reporting period:

 
                                                                Scheduled 
                                                               completion      Scheduled      Scheduled 
                                                                   within     completion     completion 
  Revenue expected to be recognised      Total undelivered         1 year      1-2 years      2-5 years 
                                                   EUR'000        EUR'000        EUR'000        EUR'000 
 ------------------------------------  -------------------  -------------  -------------  ------------- 
  At 30 June 2020                                   18,571         16,065          2,219            287 
  At 30 June 2019                                   38,859         31,523          6,893            443 
  At 31 December 2019                               24,645         23,593          1,052              - 
-------------------------------------  -------------------  -------------  -------------  ------------- 
 

Segmental Analysis

 
  Geographical analysis of non-current 
   assets from continuing businesses        Unaudited    Unaudited     Audited 
                                             26 weeks     26 weeks    52 weeks 
                                                ended        ended       ended 
                                               30 Jun       30 Jun      31 Dec 
                                                   20           19          19 
                                              EUR'000      EUR'000     EUR'000 
 ---------------------------------------  -----------  -----------  ---------- 
  United States                                86,129       85,941      84,139 
  United Kingdom                               55,334       48,656      52,233 
  Canada                                       29,424       22,338      29,772 
  Italy                                        11,900       12,554      12,222 
  Switzerland                                  10,381       12,264      10,644 
  Ireland                                      10,645        4,694       9,296 
  China                                         8,249        8,999       8,776 
  France                                        6,729        6,531       6,725 
  Spain                                         5,333        5,776       5,924 
  Germany                                       5,227        1,184       5,250 
  Japan                                         3,436        4,542       3,905 
  Philippines                                   2,449        2,356       2,798 
  India                                         2,350        2,723       2,526 
  Mexico                                        1,783        2,062       2,164 
  Poland                                        1,547        1,318       1,563 
  Brazil                                          885        1,303       1,247 
  Russia                                          821          926         925 
  Singapore                                     1,341          271         225 
  Netherlands                                      61           66          64 
  Taiwan                                            2            4           3 
                                              244,026      224,508     240,401 
 ---------------------------------------  -----------  -----------  ---------- 
 
  Geographical analysis of non-current 
   assets from continuing businesses          244,026      224,508     240,401 
  Deferred tax assets                           5,698        3,340       5,060 
  Non-current assets                          249,724      227,848     245,461 
----------------------------------------  -----------  -----------  ---------- 
 

6 Financing Income and Cost

 
                                           Unaudited    Unaudited     Audited 
                                            26 weeks     26 weeks    52 weeks 
                                               ended        ended       ended 
                                              30 Jun       30 Jun      31 Dec 
                                                  20           19          19 
                                             EUR'000      EUR'000     EUR'000 
 --------------------------------------  -----------  -----------  ---------- 
  Financing income 
  Interest received                               31            -          74 
---------------------------------------  -----------  -----------  ---------- 
                                                  31            -          74 
 --------------------------------------  -----------  -----------  ---------- 
  Financing cost 
  Bank charges                                 (302)        (246)       (629) 
  Interest expense                             (645)        (434)       (934) 
  Unwinding of discounted liabilities 
   - lease liabilities                         (344)        (338)       (694) 
  Unwinding of discounted liabilities 
   - deferred consideration                    (119)        (177)       (330) 
  Foreign exchange loss                        (264)      (1,159)     (1,658) 
---------------------------------------  -----------  -----------  ---------- 
                                             (1,674)      (2,354)     (4,245) 
 --------------------------------------  -----------  -----------  ---------- 
  Net financing income / (cost)              (1,643)      (2,354)     (4,171) 
---------------------------------------  -----------  -----------  ---------- 
 

7 Seasonal Business

The video games industry is heavily impacted by sales of new releases of games and platforms during the traditional holiday season, including the run up to Thanksgiving in the United States and Christmas in other parts of the world. As with all other service providers to the video games industry, certain of Keywords Group's service lines typically experience significantly higher activity as part of this release cycle, during the six months from June to November. This activity drives increased revenues in that period and generates higher gross profit margins compared with the first six months of each calendar year.

Revenue and Gross profit for the twelve months up to the end of the interim period and comparative information for the prior twelve-month period are presented below, which include the post-acquisition results of acquisitions completed in the current period.

 
                     Unaudited    Unaudited 
                      52 weeks     52 weeks 
                         ended        ended 
                        30 Jun       30 Jun 
                            20           19 
                         EUR'm        EUR'm 
---------------    -----------  ----------- 
  Revenue                  347          294 
  Gross profit             128          110 
-----------------  -----------  ----------- 
 

8 Earnings per Share

 
                                                 Unaudited     Unaudited       Audited 
                                                  26 weeks      26 weeks      52 weeks 
                                                     ended         ended         ended 
                                                    30 Jun        30 Jun        31 Dec 
                                                        20            19            19 
 
                                                  EUR cent      EUR cent      EUR cent 
-------------------------------------------   ------------  ------------  ------------ 
  Basic                                               9.49          4.69         15.23 
  Diluted                                             9.11          4.50         14.73 
--------------------------------------------  ------------  ------------  ------------ 
 
 
  Earnings                                         EUR'000       EUR'000       EUR'000 
--------------------------------------------  ------------  ------------  ------------ 
  Profit for the period from continuing 
   operations                                        6,403         3,040         9,909 
--------------------------------------------  ------------  ------------  ------------ 
 
  Weighted average number of equity shares          Number        Number        Number 
-------------------------------------------   ------------  ------------  ------------ 
  Basic (i)                                     67,506,245    64,845,831    65,081,403 
  Diluting impact of Share options (ii)          2,770,558     2,674,175     2,187,083 
--------------------------------------------  ------------  ------------  ------------ 
  Diluted (i)                                   70,276,803    67,520,006    67,268,486 
--------------------------------------------  ------------  ------------  ------------ 
 
  (i) Includes (weighted average) shares 
   to be issued: 
                                                    Number        Number        Number 
-------------------------------------------   ------------  ------------  ------------ 
                                                   259,900       733,900       510,350 
 -------------------------------------------  ------------  ------------  ------------ 
 
  (ii) Contingently issuable Ordinary Shares have been excluded where 
   the conditions governing exercisability have not been satisfied: 
                                                    Number        Number        Number 
-------------------------------------------   ------------  ------------  ------------ 
  LTIPs                                          1,910,100       948,200     2,067,536 
  Share options                                    289,397     1,239,400     1,128,000 
--------------------------------------------  ------------  ------------  ------------ 
                                                 2,199,497     2,187,600     3,195,536 
 -------------------------------------------  ------------  ------------  ------------ 
 

9 Dividends

The Board remains committed to resuming its progressive dividend policy in 2021 but does not believe it would be appropriate to propose an interim dividend at this time.

10 Non-current Assets

 
                                             Unaudited    Unaudited      Unaudited     Unaudited     Unaudited 
                                              26 weeks     26 weeks       26 weeks      26 weeks      26 weeks 
                                                 ended        ended          ended         ended         ended 
                                                30 Jun       30 Jun         30 Jun        30 Jun        30 Jun 
                                                    20           20             20            20            20 
                                               EUR'000      EUR'000        EUR'000       EUR'000       EUR'000 
 -----------------------------------  ----------------  -----------  -------------  ------------  ------------ 
 
  Movement of the carrying                   Property,        Right     Intangible    Intangible    Intangible 
   value of Non-current assets                   plant       of use         assets        assets        assets 
                                         and equipment       assets     - goodwill             -             - 
                                                                                           other        total* 
-----------------------------------   ----------------  -----------  -------------  ------------  ------------ 
  Carrying amount at the beginning 
   of the period                                22,163       21,469        175,639        21,130       196,769 
  Recognition on acquisition 
   of subsidiaries (note 18)                       165          331          1,746             -         1,746 
  Other additions                                4,888       14,711              -             -             - 
  Depreciation charge                          (4,209)      (3,935)              -             -             - 
  Amortisation charge                                -            -              -       (3,602)       (3,602) 
  Impairment charge                                  -        (239)          (147)       (1,913)       (2,060) 
  Exchange rate movement                       (1,019)      (1,016)        (4,158)          (38)       (4,196) 
------------------------------------ 
  Carrying amount at the 
   end of the period                            21,988       31,321        173,080        15,577       188,657 
------------------------------------  ----------------  -----------  -------------  ------------  ------------ 
 

*Please note that goodwill and other intangible assets have been amalgamated for presentation purposes in the Consolidated statement of financial position, for both current and comparative periods presented.

While the Group performs a full assessment of the carrying value of goodwill and intangible assets on an annual basis, at 30 June 2020 an interim assessment was made taking into account the potential impact of COVID-19 (see note 19). Based on this interim review, an impairment charge of approximately EUR2m was made in the period to intangible assets, in relation to certain early technology pre-revenue businesses.

11 Trade and Other Receivables

 
                                                Unaudited    Unaudited     Audited 
                                                 26 weeks     26 weeks    52 weeks 
                                                    ended        ended       ended 
                                                   30 Jun       30 Jun      31 Dec 
                                                       20           19          19 
                                                  EUR'000      EUR'000     EUR'000 
 -------------------------------------------  -----------  -----------  ---------- 
 
  Trade receivables derived from contracts 
   with customers                                  45,940       44,058      44,526 
  Provision for bad debts (i) (ii)                  (999)        (964)     (1,283) 
--------------------------------------------  -----------  -----------  ---------- 
  Financial asset held at amortised cost           44,941       43,094      43,243 
--------------------------------------------  -----------  -----------  ---------- 
 
  Accrued income from contracts with 
   customers                                       10,569        8,029       7,010 
  Prepayments and rent deposits                     4,714        3,002       4,089 
  Other receivables                                 4,346        4,534       3,151 
  Multimedia tax credits / video games 
   tax relief                                      20,838       18,232      17,626 
  Tax and social security                           3,474        3,441       3,537 
--------------------------------------------  -----------  -----------  ---------- 
  Other receivables - short term                   43,941       37,238      35,413 
--------------------------------------------  -----------  -----------  ---------- 
 
   (i)            The movements in provision for bad debts in the current period were as follows: 
 
                                                     Unaudited 
                                                      26 weeks 
                                                         ended 
                                                        30 Jun 
                                                            20 
                                                       EUR'000 
 ------------------------------------------------  ----------- 
  Provision at the beginning of the period             (1,283) 
  Impairment of financial assets (trade 
   receivables) charged to other administration 
   expenses                                              (236) 
  Amounts written off against the provision 
   in the period                                           490 
  Exchange rate movement                                    30 
------------------------------------------------- 
  Provision at end of the period                         (999) 
-------------------------------------------------  ----------- 
  Credit loss experience                                  0.5% 
-------------------------------------------------  ----------- 
 
   (ii)           The composition of the provision for bad debts at period end was as follows: 
 
                                      Unaudited 
                                         30 Jun 
                                             20 
                                        EUR'000 
 ---------------------------------  ----------- 
  Credit impaired                         (774) 
  Expected credit losses                  (225) 
---------------------------------- 
  Provision at end of the period          (999) 
----------------------------------  ----------- 
 

12 Share Capital and Prior Year Restatement of Share Premium to Merger Reserve

 
 
 
                                                              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 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 
  Cord and 
   Laced          14-Apr-20      17.48         73,744       (73,744)           1       (1,289)           -       1,288 
  Descriptive 
   Video 
   Works          12-Jun-20      17.93         35,560       (35,560)           -         (637)           -         637 
  Coconut 
   Lizard         25-Jun-20      20.23              -         19,739           -           399           -           - 
 
  Acquisition related 
   issuance of shares                         169,483      (149,744)           2       (2,277)           -       2,674 
----------------------------  --------  -------------  -------------  ----------  ------------  ----------  ---------- 
  Share 
   placing        20-May-20      16.23      6,900,000              -          77             -           -     109,459 
  Issue of shares on 
   exercise of share 
   options                        0.96      1,182,408              -          13             -       1,118           - 
  At 30 June 2020                          73,464,406        199,977         872         3,033      21,836     244,845 
----------------------------  --------  -------------  -------------  ----------  ------------  ----------  ---------- 
 

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.

 
                                                Share premium      Merger 
  Prior period restatement                                        reserve 
                                                      EUR'000     EUR'000 
 -------------------------------------------  ---------------  ---------- 
  At 01 January 2019 - as reported                    102,225      35,996 
  Reclassification of Share premium within 
   Reserves                                          (82,261)      82,261 
  At 01 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 together with the EUR109.5m from the share placement in 2020, or EUR123.9m included in the Merger reserve, is considered distributable.

13 Share Options

 
                                                 Share Option              Long Term Incentive 
                                                     Scheme                        Plan 
                                         ---------------------------  --------------------------- 
 
                                              Average                      Average 
                                             exercise                     exercise 
                                                price                        price 
                                               in GBP         Number        in GBP         Number 
                                            per share     of options     per share     of options 
---------------------------------------  ------------  -------------  ------------  ------------- 
  Outstanding at 01 January 2020                 9.96      2,148,102          0.01      3,445,868 
  Granted                                       15.93        822,000          0.01      1,428,000 
  Lapsed                                        15.20       (43,487)          0.01       (71,600) 
  Exercised                                      2.85      (350,018)          0.01      (832,390) 
--------------------------------------- 
  Outstanding at 30 June 2020                   12.72      2,576,597          0.01      3,969,878 
---------------------------------------  ------------  -------------  ------------  ------------- 
  Exercisable at 30 June 2020                    5.15        737,097          0.01        545,942 
---------------------------------------  ------------  -------------  ------------  ------------- 
  Weighted average share price at date 
   of exercise                                  16.89                        16.62 
---------------------------------------  ------------  -------------  ------------  ------------- 
 

14 Other Payables

 
                                             Unaudited    Unaudited     Audited 
                                              26 weeks     26 weeks    52 weeks 
                                                 ended        ended       ended 
                                                30 Jun       30 Jun      31 Dec 
                                                    20           19          19 
                                               EUR'000      EUR'000     EUR'000 
 ----------------------------------------  -----------  -----------  ---------- 
  Current liabilities 
  Accrued expenses                              23,382       21,697      22,809 
  Payroll taxes                                  2,886        3,553       3,833 
  Other payables                                10,081        6,643       6,104 
  Deferred and contingent consideration 
   (i)                                           6,354       18,749       5,966 
  Related party payable (ii)                         -            -           - 
----------------------------------------   -----------  -----------  ---------- 
                                                42,703       50,642      38,712 
 ----------------------------------------  -----------  -----------  ---------- 
  Non-current liabilities 
  Other payables                                    11        1,383         216 
  Deferred and contingent consideration 
   (i)                                               -          113          69 
-----------------------------------------  -----------  -----------  ---------- 
                                                    11        1,496         285 
 ----------------------------------------  -----------  -----------  ---------- 
 

(i) The movements in deferred and contingent consideration (Level 3 input in the fair value hierarchy), in the current period were as follows:

 
                                                Unaudited 
                                                 26 weeks 
                                                    ended 
                                                   30 Jun 
                                                       20 
                                                  EUR'000 
 -------------------------------------------  ----------- 
  Carrying amount at the beginning of 
   the period                                       6,035 
  Consideration settled by cash                     (237) 
  Unwinding of discount (note 6)                      119 
  Additional liabilities from current 
   year acquisitions (note 18)                        721 
  Fair value adjustments                             (34) 
  Exchange rate movement                            (250) 
 
  Carrying amount at the end of the period          6,354 
--------------------------------------------  ----------- 
 

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, at period end the Group may be liable for deferred and contingent consideration ranging from EUR5.6m to a maximum of EUR6.4m. 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.

The contractual maturities of the Group's deferred and contingent consideration liabilities were as follows:

 
                                                Unaudited 
                                                   30 Jun 
                                                       20 
                                                  EUR'000 
 -------------------------------------------  ----------- 
  Not later than one year                           6,354 
  Later than one year and not later than 
   two years                                            - 
  Later than two years and not later 
   than five years                                      - 
------------------------------------------- 
  Carrying amount at the end of the period          6,354 
--------------------------------------------  ----------- 
 
   (ii)           The related party transactions in the current period were as follows: 
 
                       Unaudited 
                        26 weeks 
                           ended 
                          30 Jun 
                              20 
                         EUR'000 
 ------------------  ----------- 
  Canteen charges             13 
  Rental payments             13 
-------------------  ----------- 
 

15 Loans and Borrowings and Capital Management

The movements in loans and borrowings (classified as financial liabilities, held at amortised cost under IFRS 9), in the current period were as follows:

 
                                                Unaudited 
                                                 26 weeks 
                                                    ended 
                                                   30 Jun 
                                                       20 
                                                  EUR'000 
 -------------------------------------------  ----------- 
  Carrying amount at the beginning of 
   the period                                      59,751 
  Drawdowns                                         4,500 
  Repayments                                     (64,022) 
  Exchange rate movement                             (11) 
  Carrying amount at the end of the period            218 
--------------------------------------------  ----------- 
 

There were a number of drawdowns during the period mainly to fund payments of deferred consideration on acquisitions. Following on the share placing in May 2020, the balance of the revolving credit facility ("RCF") was repaid in June 2020, with the residual balance being loans owed by Keywords Studios QC-Interactive Inc. Throughout the period, the Group operated well within the interest cover and leverage ratio terms of the RCF agreement. The RCF remains in place allowing the Group to access financing of up to EUR100m (with an option to increase this by up to EUR40m to a total of EUR140m, subject to lender consent), extending to October 2022 (with an option to extend this maturity date by up to a further 2 years).

At the period end the net debt and the debt to capital ratio were as follows:

 
                                              Unaudited 
                                                 30 Jun 
                                                     20 
                                                EUR'000 
 -----------------------------------------  ----------- 
  Loans and borrowings                              218 
  Less: cash and cash equivalents             (101,213) 
------------------------------------------ 
  Net debt / (net cash) position              (100,995) 
------------------------------------------  ----------- 
  Total equity                                  339,494 
  Net debt / (net cash) to capital ratio 
   (%)                                            (30%) 
------------------------------------------  ----------- 
 

16 Financial Instruments

During the period there has been no change in the measurement basis of the financial assets and liabilities shown in the Consolidated statement of financial position. The carrying amounts of the financial assets and liabilities are stated at amortised costs, with the exception of contingent consideration (note 14) held at fair value.

17 Lease Liabilities

 
                                                  Unaudited 
                                                   26 weeks 
                                                      ended 
                                                     30 Jun 
                                                         20 
                                                    EUR'000 
 ---------------------------------------------  ----------- 
  Carrying amount at the beginning of 
   the period                                        21,907 
  Recognition on acquisition of subsidiaries 
   (note 18)                                            331 
  Liabilities recognised on new leases 
   in the period                                     14,711 
  Unwinding of discounted liabilities 
   - lease liabilities                                  344 
  Payment of principal and interest on 
   lease liabilities                                (4,274) 
  Exchange rate movement                            (1,032) 
  Carrying amount at the end of the period           31,987 
----------------------------------------------  ----------- 
 

The value of leases not yet commenced to which the lessee is committed, which are not included in the lease liability at 30 June 2020, were EURNil.

18 Business Combinations / Acquisitions Completed in the Current Period

 
                                        Coconut 
                                         Lizard 
                                        EUR'000 
  Date of acquisition                 25-Jun-20 
----------------------------------  ----------- 
  Acquisition company                        UK 
   jurisdiction 
----------------------------------  ----------- 
  Book value of identifiable 
   assets and liabilities 
  Property, plant and 
   equipment                                192 
  Right of use assets                       331 
  Trade and other receivables 
   - gross                                  325 
  Bad debt provision                          - 
  Cash and cash equivalents                 232 
  Trade and other payables                 (56) 
  Lease liabilities                       (331) 
---------------------------------- 
   Net book value                           693 
----------------------------------  ----------- 
  Fair value adjustments 
  Identifiable tangible 
   assets                                  (27) 
  Trade and other payables                 (33) 
---------------------------------- 
  Total fair value adjustments             (60) 
----------------------------------  ----------- 
  Total identifiable assets                 633 
  Goodwill                                1,746 
---------------------------------- 
  Total consideration                     2,379 
----------------------------------  ----------- 
  % Share capital acquired                 100% 
  Satisfied by: 
  Cash                                    1,259 
  Deferred cash contingent 
   on performance                           721 
  Shares to be issued                       399 
---------------------------------- 
  Total consideration 
   transferred                            2,379 
----------------------------------  ----------- 
  Number of shares 
----------------------------------  ----------- 
  Fixed amount agreed 
   to be issued                          19,739 
----------------------------------  ----------- 
  Net cash outflow arising 
   on acquisition 
  Cash paid in the period                 1,259 
  Less: cash and cash 
   equivalent balances 
   transferred                            (232) 
----------------------------------  ----------- 
  Net cash outflow - acquisitions         1,027 
----------------------------------  ----------- 
  Related acquisition 
   costs charged through 
   to the Consolidated 
   Statement of Comprehensive 
   Income                                    32 
----------------------------------  ----------- 
  Pre-acquisition revenue 
   in H1                                  1,007 
  Post-acquisition revenue                   38 
                                    ----------- 
  Pro forma revenue                       1,045 
----------------------------------  ----------- 
  Pre-acquisition profit 
   / (loss) before tax                      181 
  Post-acquisition profit 
   / (loss) before tax                        8 
                                    ----------- 
  Pro forma profit / (loss) 
   before tax                               189 
----------------------------------  ----------- 
 

The main factors leading to the recognition of goodwill on the acquisition is the presence of certain intangible assets in the acquired entity, which are not valued for separate recognition, such as:

-- The experience and expertise in game development services at Coconut Lizard, in particular their deep expertise in the video game development engine, Unreal Engine.

The goodwill that arose from this business combination is not expected to be deductible for tax purposes.

19 Significant Events and Transactions

During the first half of the year, the Group's operations have been impacted by the COVID-19 pandemic. This has 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 have started to operate from Testing studios.

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 Localisation. 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:

While the Group performs a full assessment of the carrying value of goodwill on an annual basis, at 30 June 2020 an interim assessment was made based on the same underlying assumptions used in the last Annual Report, but using updated forecasts and projections taking into account the impact of COVID-19. Based on this interim review, an impairment charge of approximately EUR2m was made in the period to intangible assets in relation to 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 during the period. However 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 has received 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. 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 received of EUR3.4m (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. Given the temporary nature of the subsidies, the amounts received have been added back when arriving at the Group's adjusted profit measures (see Alternative performance measures section).

20 Events after the Reporting Date

Acquisition of Maverick Media Limited

On 27 August 2020, the Group announced the acquisition of the entire issued share capital of Maverick Media Limited ("Maverick"), for an amount of up to STGGBP3.6m. Maverick produces marketing campaigns and related services for some of the world's leading games publishers, developers and brands. The Group will pay non-contingent consideration of STGGBP2.7m, comprising STGGBP2.4m upfront in cash and the remainder through the issue of 13,579 new ordinary shares to the sellers on the first anniversary of completion. The remaining consideration of up to STGGBP0.9m will become payable to the sellers, in a mixture of cash and up to 22,632 shares, based upon performance targets over the first six months post completion.

Acquisition of Heavy Iron Studios

On 17 September 2020, the Group announced that it has entered into a conditional agreement to acquire the entire issued share capital of Heavy Iron Studios, Inc., a provider of specialised game development services, for total consideration of up to US$13.3m. Keywords will 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, which will then be subject to orderly market provisions for a further year. The deferred consideration of up to US$8.8m will be 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. The acquisition will further the Group's strategy to become the 'go to' technical and creative services platform for the global video games industry.

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 - 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 accounts 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 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 has received 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.

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, and before acquisition and integration cash outlay. 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) and also adjusted for COVID-19 subsidies claimed.

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 accounts better visibility of underlying trading performance against the prior period.

 
                            26 weeks    26 weeks    26 weeks 
                               ended       ended       ended 
                              30 Jun      30 Jun      30 Jun 
                                  20          20          19    HY 2020    HY 2020 
                             Revenue     Revenue     Revenue     Growth     Growth 
                                 AER         CER         AER        AER        CER 
                                EURm        EURm        EURm          %          % 
-----------------------   ----------  ----------  ----------  ---------  --------- 
  Art creation                  26.3        26.0        22.2      18.5%      17.1% 
  Game development              38.7        38.1        29.6      30.7%      28.7% 
  Audio*                        20.6        20.5        18.3      12.6%      12.0% 
  Functional testing            35.8        35.2        31.8      12.6%      10.7% 
  Localisation*                 21.6        21.3        22.7     (4.8%)     (6.2%) 
  Localisation testing          10.7        10.5        10.3       3.9%       1.9% 
  Player support                19.8        19.3        18.3       8.2%       5.5% 
                               173.5       170.9       153.2      13.3%      11.6% 
 -----------------------  ----------  ----------  ----------  ---------  --------- 
 

*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, excluding any pre-acquisition revenues with the Keywords Group, to the current year revenue numbers.

 
                              26 weeks            26 weeks     26 weeks 
                                 ended               ended        ended 
                                30 Jun              30 Jun       30 Jun 
                                    20                  20           20 
                                                                    Pro 
                                           Pre-acquisition        forma 
                               Revenue             revenue      Revenue 
                                   AER                 AER          AER 
                                  EURm                EURm         EURm 
-----------------------     ----------  ------------------  ----------- 
  Art creation                    26.3                   -         26.3 
  Game development                38.7                 1.0         39.7 
  Audio                           20.6                   -         20.6 
  Functional testing              35.8                   -         35.8 
  Localisation                    21.6                   -         21.6 
  Localisation testing            10.7                   -         10.7 
  Player support                  19.8                   -         19.8 
                                 173.5                 1.0        174.5 
   -----------------------  ----------  ------------------  ----------- 
 

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.

 
                           26 weeks           26 weeks     26 weeks    26 weeks    26 weeks     26 weeks 
                              ended              ended        ended       ended       ended        ended 
                             30 Jun             30 Jun       30 Jun      30 Jun      30 Jun       30 Jun 
                                 19                 19           19          20          20           20 
                                                               Like                              Organic 
                                       Pre-acquisition     for like     Revenue                  revenue 
                            Revenue            revenue      revenue      growth     Revenue       growth 
                                AER                AER          AER         CER         CER          CER 
                               EURm               EURm         EURm        EURm        EURm            % 
-----------------------  ----------  -----------------  -----------  ----------  ----------  ----------- 
  Art creation                 22.2                1.9         24.1         1.9        26.0         7.9% 
  Game development             29.6                0.7         30.3         7.8        38.1        25.7% 
  Audio*                       18.3                2.1         20.4         0.1        20.5         0.5% 
  Functional testing           31.8                  -         31.8         3.4        35.2        10.7% 
  Localisation*                22.7                0.3         23.0       (1.7)        21.3       (7.4%) 
  Localisation testing         10.3                  -         10.3         0.2        10.5         1.9% 
  Player support               18.3                  -         18.3         1.0        19.3         5.5% 
                              153.2                5.0        158.2        12.7       170.9         8.0% 
-----------------------  ----------  -----------------  -----------  ----------  ----------  ----------- 
 

*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 acquisitions and integration, amortisation 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.

 
                                                                 26 weeks    26 weeks    52 weeks 
                                                                    ended       ended       ended 
                                                                   30 Jun      30 Jun      31 Dec 
                                                                       20          19          19 
  Calculation                                                     EUR'000     EUR'000     EUR'000 
-------------------------------------------------------------  ----------  ----------  ---------- 
                                    Consolidated statement 
  Administrative expenses            of comprehensive income     (50,183)    (46,203)    (98,687) 
                                    Consolidated statement 
  Share option expense               of comprehensive income        6,750       4,011       9,775 
  Costs of acquisition and          Consolidated statement 
   integration                       of comprehensive income        1,185       2,804       4,348 
  Amortisation and impairment       Consolidated statement 
   of intangible assets              of comprehensive income        5,662       3,491       7,318 
  Depreciation - property, 
   plant and equipment              Note 10                         4,209       3,168       7,295 
  Depreciation - right of use 
   assets                           Note 10                         3,935       3,467       7,849 
                                    Consolidated statement 
  Non-controlling interest           of comprehensive income           50          92         113 
  Bank charges                      Note 6                          (302)       (246)       (629) 
  COVID-19 government subsidies     Consolidated statement        (3,411)           -           - 
   claimed                           of comprehensive income 
  Adjusted operating costs                                       (32,105)    (29,416)    (62,618) 
-------------------------------------------------------------  ----------  ----------  ---------- 
  Revenue from contracts with       Consolidated statement 
   customers                         of comprehensive income      173,485     153,190     326,463 
  Adjusted operating costs 
   as a % of revenue                                                18.5%       19.2%       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 of intangible assets. In order to present the measure consistently year-on-year, the impact of COVID-19 government subsidies claimed is also excluded.

 
                                                                 26 weeks    26 weeks    52 weeks 
                                                                    ended       ended       ended 
                                                                   30 Jun      30 Jun      31 Dec 
                                                                       20          19          19 
  Calculation                                                     EUR'000     EUR'000     EUR'000 
-------------------------------------------------------------  ----------  ----------  ---------- 
                                    Consolidated statement 
  Operating profit                   of comprehensive income       12,737       9,037      21,542 
                                    Consolidated statement 
  Share option expense               of comprehensive income        6,750       4,011       9,775 
  Costs of acquisition and          Consolidated statement 
   integration                       of comprehensive income        1,185       2,804       4,348 
  Amortisation and impairment       Consolidated statement 
   of intangible assets              of comprehensive income        5,662       3,491       7,318 
  COVID-19 government subsidies     Consolidated statement        (3,411)           -           - 
   claimed                           of comprehensive income 
  Adjusted operating profit                                        22,923      19,343      42,983 
-------------------------------------------------------------  ----------  ----------  ---------- 
  Revenue from contracts with       Consolidated statement 
   customers                         of comprehensive income      173,485     153,190     326,463 
  Adjusted operating profit 
   as a % of revenue                                                13.2%       12.6%       13.2% 
-------------------------------------------------------------  ----------  ----------  ---------- 
 

EBITDA

EBITDA comprises Operating profit as reported in the Consolidated statement of comprehensive income, adjusted for amortisation of intangible assets, depreciation, and deducting bank charges.

 
                                                               26 weeks    26 weeks    52 weeks 
                                                                  ended       ended       ended 
                                                                 30 Jun      30 Jun      31 Dec 
                                                                     20          19          19 
  Calculation                                                   EUR'000     EUR'000     EUR'000 
-----------------------------------------------------------  ----------  ----------  ---------- 
                                  Consolidated statement 
  Operating profit                 of comprehensive income       12,737       9,037      21,542 
  Amortisation and impairment     Consolidated statement 
   of intangible assets            of comprehensive income        5,662       3,491       7,318 
  Depreciation on property 
   plant and equipment            Note 10                         4,209       3,168       7,295 
  Depreciation on right of 
   use assets                     Note 10                         3,935       3,467       7,849 
  Bank charges                    Note 6                          (302)       (246)       (629) 
  EBITDA                                                         26,241      18,917      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 COVID-19 government subsidies claimed is also excluded.

 
                                                                 26 weeks    26 weeks    52 weeks 
                                                                    ended       ended       ended 
                                                                   30 Jun      30 Jun      31 Dec 
                                                                       20          19          19 
  Calculation                                                     EUR'000     EUR'000     EUR'000 
-------------------------------------------------------------  ----------  ----------  ---------- 
  EBITDA                            As above                       26,241      18,917      43,375 
                                    Consolidated statement 
  Share option expense               of comprehensive income        6,750       4,011       9,775 
  Costs of acquisition and          Consolidated statement 
   integration                       of comprehensive income        1,185       2,804       4,348 
                                    Consolidated statement 
  Non-controlling interest           of comprehensive income           50          92         113 
  COVID-19 government subsidies     Consolidated statement        (3,411)           -           - 
   claimed                           of comprehensive income 
  Adjusted EBITDA                                                  30,815      25,824      57,611 
-------------------------------------------------------------  ----------  ----------  ---------- 
  Revenue from contracts with       Consolidated statement 
   customers                         of comprehensive income      173,485     153,190     326,463 
  Adjusted EBITDA as a % of 
   revenue                                                          17.8%       16.9%       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 costs including share option expense, costs of acquisitions and integration, amortisation 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 is also excluded.

 
                                                                       26 weeks    26 weeks    52 weeks 
                                                                          ended       ended       ended 
                                                                         30 Jun      30 Jun      31 Dec 
                                                                             20          19          19 
  Calculation                                                           EUR'000     EUR'000     EUR'000 
-------------------------------------------------------------------  ----------  ----------  ---------- 
                                          Consolidated statement 
  Profit before tax                        of comprehensive income       11,094       6,683      17,371 
                                          Consolidated statement 
  Share option expense                     of comprehensive income        6,750       4,011       9,775 
  Costs of acquisition and                Consolidated statement 
   integration                             of comprehensive income        1,185       2,804       4,348 
  Amortisation and impairment             Consolidated statement 
   of intangible assets                    of comprehensive income        5,662       3,491       7,318 
                                          Consolidated statement 
  Non-controlling interest                 of comprehensive income           50          92         113 
  Foreign exchange (gain) / 
   loss                                   Note 6                            264       1,159       1,658 
  Unwinding of discounted liabilities 
   - deferred consideration               Note 6                            119         177         330 
  COVID-19 government subsidies           Consolidated statement        (3,411)           -           - 
   claimed                                 of comprehensive income 
  Adjusted profit before tax                                             21,713      18,417      40,913 
-------------------------------------------------------------------  ----------  ----------  ---------- 
  Revenue from contracts with             Consolidated statement 
   customers                               of comprehensive income      173,485     153,190     326,463 
  Adjusted profit before tax 
   as a % of revenue                                                      12.5%       12.0%       12.5% 
-------------------------------------------------------------------  ----------  ----------  ---------- 
 

Adjusted effective tax rate

The adjusted effective tax rate is 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, as a percentage of the adjusted profit before tax.

 
                                                                      26 weeks    26 weeks    52 weeks 
                                                                         ended      ended*       ended 
                                                                        30 Jun      30 Jun      31 Dec 
                                                                            20          19          19 
  Calculation                                                          EUR'000     EUR'000     EUR'000 
------------------------------------------------------------------  ----------  ----------  ---------- 
  Adjusted profit before tax      As above                              21,713      18,417      40,913 
------------------------------  ----------------------------------  ----------  ----------  ---------- 
                                  Consolidated statement of 
  Tax expense                      comprehensive income                  4,691       3,643       7,462 
                                                                    ----------  ----------  ---------- 
  Effective tax rate before       Tax expense / Adjusted profit 
   tax on adjusting items          before tax                            21.6%       19.8%       18.2% 
------------------------------  ----------------------------------  ----------  ----------  ---------- 
  Tax arising on bridging items to adjusted profit 
   before tax^                                                            (21)         813       1,703 
------------------------------------------------------------------  ----------  ----------  ---------- 
  Adjusted tax expense                                                   4,670       4,456       9,165 
                                                                    ----------  ----------  ---------- 
                                  Adjusted tax expense / Adjusted 
  Adjusted effective tax rate      profit before tax                     21.5%       24.2%       22.4% 
------------------------------  ----------------------------------  ----------  ----------  ---------- 
 

*The prior year comparative has been restated to reflect to reflect the presentation in the Annual Report 2019.

^Being mainly the tax impact of amortisation of intangible assets EUR0.90m (2019: EUR0.81m) and COVID-19 government subsidies claimed EUR0.92m (2019: NIL).

Adjusted earnings per share

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.

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.

 
                                                                   26 weeks      26 weeks      52 weeks 
                                                                      ended        ended*         ended 
                                                                     30 Jun        30 Jun        31 Dec 
                                                                         20            19            19 
  Calculation                                                       EUR'000       EUR'000       EUR'000 
-------------------------------------------------------------  ------------  ------------  ------------ 
  Adjusted profit before tax        As above                         21,713        18,417        40,913 
                                    Consolidated statement 
  Tax expense                        of comprehensive income        (4,691)       (3,643)       (7,462) 
  Tax arising on bridging items 
   to adjusted profit before 
   tax^                                                                  21         (813)       (1,703) 
-------------------------------------------------------------  ------------  ------------  ------------ 
  Adjusted profit after tax                                          17,043        13,961        31,748 
  Denominator (weighted average 
   number of equity shares)         Note 8                       67,506,245    64,845,831    65,081,403 
--------------------------------  ---------------------------  ------------  ------------  ------------ 
                                                                      EUR c         EUR c         EUR c 
--------------------------------  ---------------------------  ------------  ------------  ------------ 
  Adjusted earnings per share                                         25.25         21.53         48.78 
                                                                                           ------------ 
  Adjusted earnings per share 
   % growth                                                           17.3%         11.8%          7.2% 
-------------------------------------------------------------  ------------  ------------  ------------ 
 

*The prior year comparative has been restated to reflect to reflect the presentation in the Annual Report 2019.

^Being mainly the tax impact of amortisation of intangible assets EUR0.90m (2019: EUR0.81m) and COVID-19 government subsidies claimed EUR0.92m (2019: NIL).

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. In order to present the measure consistently, the half year adjusted profits are presented on a rolling 12 month basis.

Capital employed represents Total equity as reported on the Consolidated statement of financial position adding back employee defined benefit 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.

 
                                                                                26 weeks    26 weeks    52 weeks 
                                                                                   ended      ended*       ended 
                                                                                  30 Jun      30 Jun      31 Dec 
                                                                                      20          19          19 
  Calculation                                                                    EUR'000     EUR'000     EUR'000 
---------------------------------------------------------------------------  -----------  ----------  ---------- 
  Adjusted profit before tax                As above                              21,713      18,417      40,913 
  Interest received                         Note 6                                  (31)           -        (74) 
  Bank charges                              Note 6                                   302         246         629 
  Interest expense                          Note 6                                   645         434         934 
  Unwinding of discounted liabilities 
   - lease liabilities                      Note 6                                   344         338         694 
  Pre-acquisition profits of 
   current year acquisitions                Note 18                                  181        (15)         151 
----------------------------------------  ---------------------------------  -----------  ----------  ---------- 
  Adjusted profit before tax 
   including pre acquisition 
   profit excluding interest 
   for the period                                                                 23,154      19,420      43,247 
  Rolling 12 month adjustment                                                     23,827      27,188           - 
  Adjusted profit before tax 
   including pre acquisition 
   profit excluding net interest 
   on a rolling 12 month basis                                                    46,981      46,608      43,247 
---------------------------------------------------------------------------  -----------  ----------  ---------- 
 
                                            Consolidated statement 
  Total equity                               of financial position               339,494     204,369     222,958 
  Employee defined benefit                  Consolidated statement 
   plans                                     of financial position                 2,049       1,489       2,049 
  Cumulative amortisation of 
   intangibles assets (customer 
   relationships)                                                                 23,157      16,476      20,017 
  Deferred and contingent consideration     Note 14                                6,354      18,862       6,035 
  Loans and borrowings                      Note 15                                  218      46,792      59,751 
                                            Consolidated statement 
  Cash and cash equivalents                  of financial position             (101,213)    (37,763)    (41,827) 
  Capital employed                                                               270,059     250,225     268,983 
---------------------------------------------------------------------------  -----------  ----------  ---------- 
 
                                            Adjusted profit before 
                                             tax including pre acquisition 
                                             profit excluding net interest 
                                             expense on a rolling 12 
                                             month basis / capital 
  Return on capital employed                 employed                              17.4%       18.6%       16.1% 
----------------------------------------  ---------------------------------  -----------  ----------  ---------- 
 

*The prior year comparative has been restated to reflect to reflect the presentation in the Annual Report 2019.

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.

 
                                                                 26 weeks    26 weeks    52 weeks 
                                                                    ended      ended*      ended* 
                                                                   30 Jun      30 Jun      31 Dec 
                                                                       20          19          19 
  Calculation                                                     EUR'000     EUR'000     EUR'000 
-------------------------------------------------------------  ----------  ----------  ---------- 
  Net cash generated by / (used     Consolidated statement 
   in) operating activities          of cash flows                 20,129       7,556      32,781 
  Acquisition and integration 
   cash outlay: 
    Costs of acquisition and        Consolidated statement 
     integration                     of comprehensive income        1,185       2,804       4,348 
    Fair value adjustments to       Consolidated statement 
     contingent consideration        of cash flows                     34     (1,127)       (493) 
  Acquisition of property,          Consolidated statement 
   plant and equipment               of cash flows                (4,888)     (5,061)    (13,145) 
  Investment in intangible          Consolidated statement 
   assets                            of cash flows                      -       (332)       (391) 
                                    Consolidated statement 
  Interest received                  of cash flows                     31           -          74 
                                    Consolidated statement 
  Interest paid                      of cash flows                  (897)       (732)     (2,130) 
  Payments of principal on          Consolidated statement 
   lease liabilities                 of cash flows                (3,930)     (3,236)     (7,355) 
--------------------------------  ---------------------------  ----------  ----------  ---------- 
  Free cash flow after tax                                         11,664       (128)      13,689 
  Taxation paid                                                     1,961       3,769      13,288 
  Free cash flow before tax                                        13,625       3,641      26,977 
-------------------------------------------------------------  ----------  ----------  ---------- 
 

* The presentation of the 2019 comparatives have been re-stated to align to the pre IFRS 16 reported measures in the Annual Report 2019, 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.

 
                                                                 26 weeks    26 weeks    52 weeks 
                                                                    ended      ended*      ended* 
                                                                   30 Jun      30 Jun      31 Dec 
                                                                       20          19          19 
  Calculation                                                     EUR'000     EUR'000     EUR'000 
-------------------------------------------------------------  ----------  ----------  ---------- 
  Free cash flow before tax         As above                       13,625       3,641      26,977 
--------------------------------  ---------------------------  ----------  ----------  ---------- 
  Capital expenditure in excess 
   of depreciation: 
    Acquisition of property,        Consolidated statement 
     plant and equipment             of cash flows                  4,888       5,061      13,145 
    Depreciation on property,       Consolidated statement 
     plant and equipment             of cash flows                (4,209)     (3,168)     (7,295) 
--------------------------------  ---------------------------  ----------  ----------  ---------- 
  Capital expenditure in excess 
   of depreciation                                                    679       1,893       5,850 
-------------------------------------------------------------  ----------  ----------  ---------- 
  COVID-19 government subsidies     Consolidated statement        (3,411)           -           - 
   claimed                           of comprehensive income 
  Adjusted free cash flow                                          10,893       5,534      32,827 
-------------------------------------------------------------  ----------  ----------  ---------- 
 

* The presentation of the 2019 comparatives have been re-stated to align to the pre IFRS 16 reported measures in the Annual Report 2019, as the Directors consider this to be more meaningful.

Adjusted cash conversion rate

Adjusted cash conversion rate is the adjusted free cash flow as a percentage of the adjusted profit before tax:

 
                                                                  26 weeks    26 weeks    52 weeks 
                                                                     ended      ended*      ended* 
                                                                    30 Jun      30 Jun      31 Dec 
                                                                        20          19          19 
  Calculation                                                      EUR'000     EUR'000     EUR'000 
--------------------------------------------------------------  ----------  ----------  ---------- 
  Adjusted free cash flow        As above                           10,893       5,534      32,827 
  Adjusted profit before tax     As above                           21,713      18,417      40,913 
-----------------------------  -------------------------------  ----------  ----------  ---------- 
                                 Free cash flow before 
                                  tax and capital expenditure 
                                  in excess of depreciation, 
  Adjusted cash conversion        as a % of adjusted profit 
   ratio                          before tax                         50.2%       30.0%       80.2% 
-----------------------------  -------------------------------  ----------  ----------  ---------- 
 

* The presentation of the 2019 comparatives have been re-stated to align to the pre IFRS 16 reported measures in the Annual Report 2019, as the Directors consider this to be more meaningful.

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END

IR MZGMLLVLGGZM

(END) Dow Jones Newswires

September 17, 2020 02:00 ET (06:00 GMT)