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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IR MZGMLLVLGGZM
(END) Dow Jones Newswires
September 17, 2020 02:00 ET (06:00 GMT)
Grafico Azioni Keywords Studios (LSE:KWS)
Storico
Da Mar 2024 a Apr 2024
Grafico Azioni Keywords Studios (LSE:KWS)
Storico
Da Apr 2023 a Apr 2024
