TIDMKWS
RNS Number : 7813L
Keywords Studios PLC
15 September 2021
15 September 2021
Keywords Studios PLC ("Keywords Studios", "Keywords", the
"Group")
Interim results for the six months to 30 June 2021
Strong Organic Revenue growth and margin performance
Keywords Studios, the international technical and creative
services provider to the global video games industry, today
announces its Interim results for the six months to 30 June
2021.
Financial Overview:
Results for the six months ended H1 2021 H1 2020 % change
30 June
Group revenue EUR238.7m EUR173.5m +37.6%
Organic Revenue growth (1) +22.9% +8.0%
Adjusted EBITDA (2) EUR50.7m EUR30.8m +64.6%
Adjusted EBITDA margin 21.2% 17.8%
EBITDA (2) EUR40.8m EUR26.2m +55.7%
Adjusted profit before tax (3) EUR39.7m EUR21.7m +82.9%
Profit before tax EUR21.9m EUR11.1m +97.3%
Adjusted earnings per share (4) 41.57c 25.25c +64.6%
Earnings per share 20.86c 9.49c +119.8%
Interim dividend per share 0.70p 0.00p
Adjusted cash conversion rate (5) 94.9% 50.2%
Net cash / (net debt) EUR84.1m EUR101.0m
Highlights :
Strong H1 revenue growth (+37.6% to EUR238.7m), despite some
continued COVID-19 related operational constraints
-- Organic Revenue up 22.9% (H1 2020: 8.0%, FY 2020: 11.7%) with
all service lines performing well against the comparative period,
when a number were held back by COVID-19 constraints
-- Growth driven by robust demand, supported by a buoyant video
games market focused on a return to developing new content
following production delays and disruption in 2020
-- Some ongoing operational disruption as a result of local
COVID-19 measures, but the Group continues to operate flexibly
across all service lines to deliver market-leading service to
clients
Continued growth in profitability and cash generation driving
strong balance sheet and liquidity
-- Adjusted EBITDA up 64.6% to EUR50.7m, with margin up 3.4% pts to 21.2% (H1 2020: 17.8%)
-- Strong cash conversion with Adjusted Free Cash Flow(6) of
EUR37.7m (H1 2020: EUR10.9m) and an Adjusted Cash Conversion rate
of 94.9% (H1 2020: 50.2%)
-- Net cash of EUR84.1m (H1 2020: EUR101.0m, FY 2020:
EUR102.9m), after EUR44.7m net cash spend on acquisitions in H1,
and a EUR100m undrawn Revolving Credit Facility
Resumed progressive dividend policy
-- Interim dividend of 0.70p per share declared representing an
increase of 20.7% on the 2019 interim dividend (H1 2020: 0.00p, H1
2019: 0.58p)
Continued delivery of our acquisition strategy
-- Four high quality acquisitions completed so far in 2021 for
total consideration of up to EUR105m
-- Expanded Game Development services, adding a new presence in
the US West Coast, with the completion of the acquisition of Heavy
Iron Studios in January
-- Entered Australia with the acquisition of Tantalus in March
providing a platform for Game Development's expansion in the
Pacific region
-- Added strong capabilities in full game development,
co-development, porting and technical consulting services with
Climax Studios acquisition in April
-- Entered an attractive market for talent, with a new presence
in Romania, and added significant expertise to Art Creation through
the acquisition of AMC in August
-- We continue to actively review a healthy pipeline with strong
financial resources to support further acquisition
opportunities
Making good progress with our Responsible Business agenda
-- Published a new Group Environmental policy, which will
further develop our Sustainable Studios programme
-- Established a new partnership with Women in Games, a
not-for-profit organisation that seeks a game industry, culture and
community free from gender discrimination. The partnership will
help power their 500 strong Ambassador programme across 52
countries and allow Keywords to be more active in addressing the
underrepresentation of women in the Games industry
CEO Succession and Board Update
-- Following the retirement in June 2021 of Andrew Day the
search process for his successor is very well advanced - further
announcement expected in the coming weeks
-- The Group continues to drive its strategy forward with Jon
Hauck, CFO, and Sonia Sedler, COO, as joint interim CEOs, supported
by the broader leadership team
-- Strengthened the Board with the Non-Executive Director
appointments of Marion Sears, who brings extensive governance and
M&A expertise, and Neil Thompson, who brings deep experience in
the sector gained at Microsoft
Current trading and outlook
-- Trading has started well in H2, with strong demand for most
services driven by the buoyant video games market and the
industry's renewed focus on new content creation
-- Expect to benefit from our well-balanced range of services
across the game development lifecycle, with strong demand for early
stage service lines such as Game Development, Marketing and Art
Creation throughout H2, and with Testing and Localization service
lines benefitting as content reflows into later stage services as
we move through H2
-- Continue to review a strong pipeline of acquisition
opportunities, focusing on adding specific expertise and talent,
particularly as we build our Game Development and Marketing service
lines
-- The Board is confident in delivering recently increased
market expectations for the full year, with H2 growth rates
moderating against a stronger comparative as anticipated
Jon Hauck, CFO & Joint Interim CEO of Keywords Studios
commented:
"The Group has delivered another strong performance and we are
seeing ongoing high levels of demand for our services, driven by a
buoyant wider video games market which has a renewed focus on
content creation.
"We have continued our acquisition strategy which is building
the Group into the 'go to' service provider globally, with the
recent acquisitions of Tantalus Media, Climax Studios and AMC
taking us into new geographies and deepening our Game Development
and Art Creation capabilities.
"Looking forward, we expect the strong demand to continue,
giving us confidence in delivering a full year performance in line
with recently increased market expectations, and our financial
strength leaves us well placed to continue to complement organic
growth with value-accretive acquisitions."
Sonia Sedler, COO & Joint Interim CEO of Keywords Studios
commented:
"We are proud of the Group's strong organic growth performance
in the first half, as our global sales and local teams continue to
build upon our deep, long-standing relationships with our broad
client base. As the structural trend in the industry towards
outsourcing continues, our integrated services are addressing our
clients' needs more effectively than ever.
"We would like to thank all of our 9,000+ Keywordians across the
globe who, despite the ongoing operational challenges, have
continued to tirelessly show resourcefulness, passion and
dedication in delivering excellent quality service to support our
clients."
A presentation of Keywords Interim results will be made to
analysts at 9.30am this morning and the live webcast can be
accessed via this link:
https://www.keywordsstudios.com/H1-2021-results/ . To register for
dial in access, or for any enquiries, please contact MHP
Communications on keywords@mhpc.com .
For further information, please contact:
Keywords Studios ( www.keywordsstudios.com
)
Jon Hauck, Joint Interim Chief Executive Officer
Sonia Sedler, Joint Interim Chief Executive
Officer
Joseph Quinn, Investor Relations +353 190 22 730
Numis (Financial Adviser, Nominated Adviser
and Corporate Broker)
Stuart Skinner/Kevin Cruickshank/Will Baunton +44 20 7260 1000
MHP Communications (Financial PR) +44 20 3128 8193
Katie Hunt/James Midmer/Charles Hirst keywords@mhpc.com
About Keywords Studios ( www.keywordsstudios.com )
Keywords Studios is an international technical services provider
to the global video games industry. Established in 1998, and now
with over 70 facilities in 23 countries strategically located in
Asia, Australia, the Americas and Europe, it provides integrated
art creation, marketing services, game development, testing,
localization, audio and player support 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. Across
the games and entertainment industry, clients include Activision
Blizzard, Bandai Namco, Bethesda, Electronic Arts, Epic Games,
Konami, Microsoft, Netflix, Riot Games, Square Enix, Supercell,
TakeTwo, Tencent and Ubisoft. Recent titles worked on include
Anthem, Star Wars Jedi: Fallen Order, Valorant, League of Legends,
Fortnite, Clash Royale and Doom Eternal. Keywords Studios is listed
on AIM, the London Stock Exchange regulated market (KWS.L).
The Group reports a number of alternative performance measures
(APMs) to present the financial performance of the business which
are not GAAP measures as defined by International Financial
Reporting Standards (IFRS). The Directors believe these measures
provide valuable additional information for the users of the
financial information to understand the underlying trading
performance of the business. In particular, adjusted profit
measures are used to provide the users of the accounts a clear
understanding of the underlying profitability of the business over
time. For full definitions and explanations of these measures and a
reconciliation to the most directly referenceable IFRS line item,
please refer to the APMs section at end of the statement.
(1) Organic Revenue at constant exchange rates is calculated by adjusting
the prior year revenues, adding pre-acquisition revenues for the corresponding
period of ownership, and applying the prior year foreign exchange rates
to both years.
(2) EBITDA comprises Operating profit as reported in the Consolidated
statement of comprehensive income, adjusted for amortisation and impairment
of intangible assets, depreciation, and deducting bank charges. Adjusted
EBITDA comprises EBITDA, adjusted for share option expense, costs of
acquisition and integration and non-controlling interest. In order
to present the measure consistently year-on-year, the impact of COVID-19
government subsidies claimed in the prior year and investment income
are also excluded.
(3) Adjusted profit before tax comprises Profit before taxation as reported
in the Consolidated statement of comprehensive income, adjusted for
share option expense, costs of acquisition and integration, amortisation
and impairment of intangible assets, non-controlling interest, foreign
exchange gains and losses, and unwinding of discounted liabilities.
In order to present the measure consistently year-on-year, the impact
of COVID-19 government subsidies claimed in the prior year and investment
income are also excluded.
(4) Adjusted earnings per share comprises the adjusted profit after tax
divided by the non-diluted weighted average number of shares as reported.
The adjusted profit after tax comprises the adjusted profit before
tax, less the tax expense as reported in the Consolidated statement
of comprehensive income, adjusted for the tax impact of the adjusting
items in arriving at adjusted profit before tax.
(5) Adjusted cash conversion rate is the adjusted free cash flow as a
percentage of the adjusted profit before tax.
(6) Adjusted free cash flow is a measure of cash flow adjusting for capital
expenditure that is supporting growth in future periods (as measured
by capital expenditure in excess of maintenance capital expenditure).
In order to present the measure consistently year-on-year, the impact
of COVID-19 government subsidies claimed in the prior year is also
excluded.
Chairman's statement
Keywords has delivered another strong period of growth in the
first half, in the face of some operational constraints relating to
the global pandemic, and, on behalf of the Board, I would like to
say how grateful we are for the tireless efforts of over 9,000
Keywordians around the globe. It is thanks to their expertise,
incredible hard work and dedication that we have been able to
deliver the highest quality of work for our clients and address
their ever-expanding needs.
Following the announcement of Andrew Day's retirement as CEO in
June this year, the search process for his successor is very well
advanced and has attracted some very high calibre candidates and we
are confident that we will be able to make a further announcement
in the coming weeks.
During this interim period, we are very fortunate to have an
extremely strong senior management team, with Jon Hauck and Sonia
Sedler continuing as joint interim CEOs, who are well supported by
the broader leadership team across the Group. Together, they have
continued to both drive the Company's strategy forward and enhance
its operational performance.
With our interim leadership team in place, our strong
performance, leading market position, and strong balance sheet, we
are well placed to continue to capitalise on the organic and
acquisitive growth opportunities in our buoyant video games market
and adjacent content industries.
Ross Graham
Chairman
CEO Review
Strong performance, despite some COVID-19 constraints
The Group performed strongly in H1 2021, with revenues up by
37.6% to EUR238.7m. This performance reflected our team's hard work
to deliver on the continued robust demand for our services, driven
by a return to content creation following the disruption across the
industry in 2020, complemented by growth through the recent high
quality acquisitions.
Our remote working capabilities are proving highly effective,
enabling us to support customers for as long as remote working is
needed, and where returning to studios is not feasible. We are
exceptionally proud of the efforts of our 9,000+ talented
Keywordians who have worked tirelessly throughout this period to
support our clients while continuing to deliver the excellent
quality of service for which we have become well known.
Organic Revenue grew 22.9% for the Group in H1 (H1 2020: 8.0%,
FY 2021: 11.7%), with all service lines performing well against the
comparative period, during which certain service lines were held
back by COVID-19 constraints . Audio and Testing delivered strong
performances, with these service lines having seen more severe
disruption in the prior year, whilst Art Creation, Marketing and
Game Development have continued to grow strongly as the industry
turned its attention to creating new content to keep its expanded
player base engaged in games.
The Group's Adjusted EBITDA increased by 64.6% to EUR50.7m,
representing a 3.4 % pts improvement in margin to 21.2%. This was
driven by operational leverage and continued good cost control,
together with a reduction in certain costs due to COVID-19,
primarily resulting from a higher proportion of remote working and
lower costs relating to travel, business development and marketing.
This translated into an increase in Adjusted Profit before Tax of
82.9% to EUR39.7m and an adjusted net profit before tax margin of
16.6%.
We are pleased that this profit performance has also translated
into strong cash generation, with EUR37.7m of Adjusted Free Cash
Flow (H1 2020: EUR10.9m) representing a 94.9% Adjusted Cash
Conversion rate in the period (H1 2020: 50.2%). This demonstrates
the strong cash generating characteristics of the business and
provides the Group with further resources to fund its acquisition
strategy.
We remain very confident in the Group's opportunity for growth
as we capitalise on the continued trend towards outsourcing, an
increased focus on content creation in a growing video games
market, and our ability to increase our market share both through
organic growth and the execution of our acquisition strategy.
Delivering on our strategy
The pandemic has only accentuated the opportunities afforded by
our strategy, given the acceleration in demand for video games, our
clients' renewed focus on content creation and the impetus for
outsourcing having been exacerbated by clients' need for business
continuity.
As we build our services platform, the Group continues to cement
its position as the leader in a highly fragmented market, becoming
the partner of choice for games publishers and developers when
looking for global reach and deep expertise in video games. Against
the backdrop of predominantly local, single-service providers,
Keywords is increasingly benefitting from being the first choice
external development and professional service provider of scale
which can deliver the quality, flexibility, and security of service
required to meet our global clients' growing demand for generating
ever more sophisticated and immersive content. We continue to
leverage the unique breadth of our platform by bringing the right
combination of capabilities to support customers' individual
objectives, enabling us to cross sell a broader range of our
services.
Demand for video games accelerated during the pandemic, with an
expansion of both the number of players and amount of game play,
albeit this was primarily driven by the monetisation of existing
content, with new content being held back and delayed due the
production constraints across the industry. In 2021, we have seen
an acceleration in demand for content production, particularly in
the 'early stages' of the game development cycle, benefitting our
Game Development and Art Services teams. Industry activity has been
further boosted by a continued shift towards 'Games as a service',
which requires ongoing content expansion to extend the lifespan of
a game, creating continuous demand for the Group's services.
Demand for our services is also being driven by the launch of
next generation games consoles, PlayStation 5 and Xbox Series X|S.
Whilst the launch of the new consoles has been held back by supply
constraints, we expect this to drive a refresh of the entire
console based gaming sector after a seven year run of the PS4 and
Xbox One console generation. This is likely to result in an
enlarged market for video games content over the coming years and
an associated demand for new content creation, which in turn drives
demand for Keywords' services. Further development of new and
existing video games streaming platforms also continues to increase
demand for content and its ongoing support in live operation. We
note the recent regulatory developments in the domestic Chinese
video game market, and whilst we have a strong and expanding
footprint in China, our work with Chinese customers (<5% of
Group revenues) largely relates to content targeted at overseas
markets and not domestic China.
We continue to invest in the business, both organically and
through targeted acquisitions to position the Group as an
increasingly strategic partner to our clients and as the 'go to'
provider to the video games industry across our service lines and
key geographies.
We are delighted to have welcomed four new companies to the
Keywords family since the beginning of the year. Heavy Iron
Studios, Tantalus and Climax Studios add substantial scale and
capabilities to our Game Development Service line as well as reach
into, and access to talent in, the US West Coast and Australia.
Whilst AMC adds significant expertise to Art Creation and access to
talent though a new presence in Romania for the Group.
We continue to actively review a healthy pipeline of further
acquisition opportunities.
Embracing new ways of working
Our remote working capabilities are proving highly effective,
enabling us to support customers for as long as remote working is
needed, and where returning to studios is not feasible. Having
consulted those who really matter, our Keywordians, our employee
survey showed a spread of opinion, with 43% preferring to continue
to work from home, 10% wishing to return to office based working,
and 47% preferring a combination. We therefore expect that, once we
are through COVID-19 restrictions, we will adopt a hybrid model of
offering vibrant, engaging and safe studio space, whilst also
enabling our people to work securely and constructively from
home.
We continue to believe that there is a clear role for physical
studios for the Group, particularly to allow for the exchange of
creative ideas, for training, and in our Testing and Audio service
lines. We have, therefore, continued to invest in new studios in
Bangalore and Manila, as well as two new studios in second-tier
cities in China, to support our growth today and into the
future.
In the short term, we anticipate maintaining our effective
remote working model in the majority of locations for the rest of
the year, whilst retaining a flexible approach tailored to studios'
needs in each of the 70+ locations and prioritising activities in
studios that are harder to perform remotely. We have worked hard to
engage with and recognise the efforts of our Keywordians and to
support their wellbeing in this remote working environment. This
includes increasing the awareness of our Employee Assistance
Programmes that provide support services and training on wellbeing,
and introducing a number of initiatives to help foster engagement
and personal support, such as guest speakers on mental health,
wellbeing habits, nutrition talks, virtual yoga and dance lessons,
Friday evening online events, and team quiz nights to name but a
few.
Responsible Business
We remain committed to conducting our business responsibly and
operating to the highest levels of honesty, integrity and ethical
conduct. We have all been shocked and saddened to see the news
stories of psychological, physical, and sexual harassment within
certain parts of the gaming industry . At Keywords we do not
tolerate any form of abuse, discrimination, or harassment. Human
talent is our most valuable asset and as a multi-cultural business
we thrive in diversity and continually challenge ourselves to
ensure we provide a working environment that treats people with
dignity and respect, is free from any form of discrimination, and
promotes fairness and equal opportunities. W e cannot and will not
be complacent and, throughout the Company, we are committed to
actions that will protect an inclusive working environment.
We are continuing to make progress on our six priority areas of
People, Diversity, Customer Centricity & Innovation,
Communities and the Environment, underlined by Corporate Governance
and Business Ethics.
We are excited to announce our partnership with Women in Games,
which sees Keywords help power their 500 strong Ambassador
programme across 52 countries which allow us to be more active in
addressing the underrepresentation of women in our industry. Women
in Games is a not-for-profit organisation founded in 2009, with the
mission to identify and effect the lasting change needed to bring
about full gender equality, equity and parity of opportunity within
the gaming sector and to encourage more women to consider games and
eSports as a career. T hrough this partnership, we will leverage
our global platform and client relationships to enhance and
accelerate the popular ambassador initiative, enabling it to scale
through additional projects and research, events, exclusive
materials and services for Women in Games ambassadors.
The gender diversity of our Board has continued to improve in
the period and female Directors now make up 33% of the Board
(versus 25% in January 2021).
Following the quantification of our greenhouse gas emissions for
the first time in 2020, in 2021 we have developed the Group's first
Environmental Policy covering our Energy and Recycling practices.
The policy will help further develop our Sustainable Studios
programme and support our studios in their efforts to minimise
energy usage and to reduce, recycle and reuse wherever
possible.
Various initiatives were rolled out to help support colleagues,
including through COVID-19 vaccine clinics and more recently, the
support for colleagues impacted by hurricane in New Orleans.
Both our recently announced NEDs, Marion Sears and Neil
Thompson, have joined our ESG Board Committee, bringing strong
expertise and experience to the Committee.
Service line review
All our services lines grew during H1 2021, despite the pandemic
and the operational challenges it continues to present.
The following table provides a summary of our revenues by
service line, with growth rates on a reported and Organic Revenue
growth basis, and breaking out Marketing for the first time. We
have also presented a trailing twelve month Pro Forma Revenue by
service line, which includes the annualised revenue of all
acquisitions made in H1, to provide a better overview of the size
and balance of the business at the end of the period. The service
line commentary below reports on the statutory reported revenues,
unless otherwise stated.
12 months
H1 2021 to 30 June
% of H1 Change Organic 2021
2021 H1 2021 H1 2020 year on Revenue Pro Forma
Group Revenue Revenue year growth Revenue
Revenue revenue EURm EURm % % EURm
Art Creation* 9.5% 22.7 18.9 20.1% 25.4% 42.7
---------- ---------- ---------- ---------- ---------- -------------
Marketing* 9.7% 23.2 7.4 213.5% 50.6% 34.2
---------- ---------- ---------- ---------- ---------- -------------
Game Development 26.5% 63.3 38.7 63.6% 15.5% 123.6
---------- ---------- ---------- ---------- ---------- -------------
Audio* 11.9% 28.3 20.9 35.4% 36.4% 54.6
---------- ---------- ---------- ---------- ---------- -------------
Functional Testing 18.1% 43.3 35.8 20.9% 24.3% 86.0
---------- ---------- ---------- ---------- ---------- -------------
Localization* 9.7% 23.2 21.3 8.9% 10.7% 47.3
---------- ---------- ---------- ---------- ---------- -------------
Localization Testing 5.3% 12.6 10.7 17.8% 19.6% 25.2
---------- ---------- ---------- ---------- ---------- -------------
Player Support 9.3% 22.1 19.8 11.6% 17.7% 44.1
---------- ---------- ---------- ---------- ---------- -------------
Total 100.0% 238.7 173.5 37.6% 22.9% 457.7
---------- ---------- ---------- ---------- ---------- -------------
* The prior year comparative has been re-classified to
separately report Marketing services, previously reported within
the Art creation service line. In addition, there was a minor
re-classification between Audio and Localization.
Art Creation (9.5% of Group revenues for H1)
Our Art Creation service line creates graphical art assets for
video games including concept art creation, 2D and 3D art asset
production and animation.
H1 2021 performance
Art Creation performed well with revenues up by 20.1% to
EUR22.7m (H1 2020: EUR18.9m). Organic Revenue, which excludes the
impact of currency movements and acquisitions, grew by 25.4% for
Art Creation, following a continuation in strong underlying client
demand across all art studios.
We have continued to expand this service line, with the addition
of two new studios in second-tier cities in China, which provide us
with additional access to talent to support the work for our
clients, as well as two new studios in Bangalore and Manila. While
our artists in China have fully returned to studios following the
initial stages of the COVID-19 pandemic in 2020, our Indian artists
continue to work from home, delivering excellent growth despite the
ongoing constraints.
In August, we added the Group's first presence in Romania
through the high quality acquisition of AMC. AMC is a long
established, high quality specialist art studio servicing both US
and European clients and we believe it will add significant
expertise and experience to this service line, as well as access to
an attractive market for talent in Romania.
The market opportunity and outlook
Art Creation operates in a large addressable market, which
remains highly fragmented yet clients seek partners that are able
to deliver increasingly added value through more creative,
technical, and managed services.
We expect Art Creation to continue to deliver strong growth in
the second half given that we have better than normal visibility
and as this service line is well placed to scale up to meet
continued buoyant client demand.
Marketing (9.7% of Group revenues for H1)
Following its recent growth and scale within the Group, we are
now reporting Marketing as a standalone service line for the first
time in these results.
Marketing services including game trailers, marketing art and
materials, PR and full brand campaign strategies which we are
building through acquisitions, and subsequent organic growth.
H1 2021 performance
Marketing revenues grew by 213.5% to EUR23.2m (H1 2020: EUR7.4m)
with the benefit of contributions from the acquisitions of Maverick
Media, g-Net and Indigo Pearl, made in the second half of 2020.
Organic Revenue, which excludes the impact of currency movements
and acquisitions, grew by 50.6% with clients switching their focus
to online and digital marketing in the absence of physical industry
events.
The market opportunity and outlook
The Marketing services sector is particularly fragmented, given
the range of services provided both internally and externally from
key art, trailer creation, advertising, PR, branding, campaign
management, influencer marketing and social media management
through to marketing analytics and community management.
Our aim is to establish our highly specialised video games
Marketing Services business as the partner of choice for games
publishers and developers when looking for global reach and deep
expertise in a sector, which is unique by virtue of the interactive
nature of the product and the strength of the gaming communities
that form around the games. The acquisitions of g-Net and Maverick,
now the two largest studios in the service line, and Indigo Pearl
in 2020 have secured Keywords' place as the dominant player in the
industry for video games marketing and we now have a considerably
expanded platform from which to further build the breadth of our
capabilities, organically and through selective acquisitions.
We expect marketing to build on a successful H1 with continued
growth in H2, albeit at a more moderate level given the exceptional
organic growth in H1 and the stronger comparatives in H2 of the
prior year.
Game Development (26.5% of Group revenue for H1)
Our largest service line, Game Development, provides external
development services to game developers and publishers including
full game development, co-development, porting and general software
engineering consultancy.
H1 2021 performance
Game Development, increased revenues by 63.6% to EUR63.3m (H1
2020: EUR38.7m). This increase reflected contributions from Coconut
Lizard and High Voltage acquired in 2020, and Heavy Iron, Tantalus
and Climax which all completed in H1 2021. Game Development is now
our largest service line with 16 studios in 9 countries and over
1,350 developers.
Game Development achieved a 15.5% increase in Organic Revenue
(which excludes the impact of currency movements and acquisitions)
with a renewed focus on content creation driving strong demand for
our services despite the curtailment of our usual
tradeshow-centric, business development activities. Our ability to
meet demand is constrained by a challenging recruitment climate,
where skilled resources are in high demand and COVID-19 adds
additional challenges around training and on-boarding
activities.
In H1 2021, we announced two high quality businesses to grow and
diversify our Game Development offering further:
-- Tantalus - a leading and prolific developer of high quality,
multi-platform titles based in Melbourne, Australia which provides
us with access to a new talent pool and offers an excellent entry
point into the Australian market for further expansion in the
Pacific region, both organically and through acquisitions.
-- Climax - one of the longest established game development
businesses in the UK, offering full game development,
co-development, porting and technical consulting services to some
of the world's largest games publishers through a team of 109
talented developers.
The market opportunity and outlook
Game Development is our largest addressable market. The market
is growing strongly and has the lowest proportion of services
outsourced of all of the Group's service lines.
Demand remains very strong and we expect continued good growth
for Game Development in H2 as we focus on talent acquisition, and
using the resources we have globally, to enable the business to
service as much of that demand as possible. We remain a highly
attractive prospect for games developers, who recognise the
opportunities that Keywords provides for a sustainable variety of
exciting work, as well as good career advancement, including the
option to work across our expanding international footprint, and to
be part of a strong culture amongst like-minded, games-passionate
colleagues. Given the strong demand for talent, we expect to see
some wage inflation as we move through the second half and beyond
and we will continue to take account of our cost structure as we
negotiate each project with our clients, who are only too aware of
the talent challenge themselves.
As previously communicated, Game Development remains an area of
particular focus in our M&A programme, where we continue to
assess companies that provide access to strong pools of talent to
help support the fast pace of organic growth.
Audio (11.9% of Group revenue for H1)
Our Audio service line provides multi language voice-over,
original language voice recording, music, sound design,
accessibility and related services to the Video Games and Film and
TV industries.
H1 2021 performance
Audio revenues rose by 35.4% in the period to EUR28.3m (H1 2020:
EUR20.9m), with Organic Revenue, which excludes the impact of
currency movements and acquisitions, increasing by 36.4% compared
to H1 2020.
Our Audio services business recovered strongly following
COVID-19 impacts throughout 2020 but particularly in H1 2020 when a
number of our recording studios closed during the lockdowns and as
it took time to put in place remote solutions. Our music management
services, sound design and sound effects businesses have continued
to grow, as did our work in subtitling and dubbing of film and TV
content where we serve clients such as Netflix and other streaming
providers, albeit growth has been constrained by ongoing delays to
filming of new content.
The market opportunity and outlook
Demand for our Audio services remains strong albeit we are
expecting growth rates to moderate in H2 due to the stronger
comparatives in H2 of the prior year. Whilst all of our recording
studios have now reopened, our investment in a reliable remote
recording solution enables us to continue to deliver on our
clients' needs in the event of further Studio closures.
Beyond the near term, the audio services market remains highly
fragmented in terms of service provision, with clients and voice
actors favouring professional, high quality sound studios for
optimal voice recording. This represents an opportunity for us to
grow our market share organically, as well as make select
acquisitions over time, as audio content increases for both console
and mobile games.
Functional Testing (18.1% of Group revenue for the year)
Functional Testing is our second largest service line and
provides quality assurance, including discovery and documentation
of game defects and testing to verify the game's compliance with
hardware manufacturers' and distribution platforms' specifications,
as well as test automation tools and services, crowd-based and
focus group testing solutions.
H1 2021 performance
Functional Testing revenues increased by 20.9% to EUR43.3m (H1
2020: EUR35.8m). Organic Revenue, which excludes the impact of
currency movements and acquisitions, increased by 24.3%. This
strong performance was delivered against softer comparators given
the service line was considerably constrained at the beginning of
the lockdowns in H1 2020, as we needed to work through our
agreements with our clients to reflect the new security protocols
required in a remote working environment, rather than our norm of
conducting these services in our secure testing studios.
The market opportunity and outlook
We remain a leading player in this large and growing area of the
market that is seeing an accelerating trend towards outsourcing.
Our scale, flexibility, geographical spread and proven robustness,
even in the most challenging of circumstances, positions us well as
games companies continue to increase the proportion of functional
testing that they outsource.
Our testing services operate at the later stages of the game
development cycle and are experiencing some delays in content
flowing to us following the previous disruption to earlier stage
content creation. As the content production cycle works through, we
expect testing activity to pick up we move through the second half
and we remain ready to scale quickly as demand returns.
Localization (9.7% of Group revenue for the year)
Our Localization service line provides translation of in-game
text, audio scripts, cultural and local adaptation, accreditation,
packaging and marketing materials in over 50 languages. It includes
our proprietary technologies for content management, machine
translation, crowd sourcing and workflow management.
H1 2021 performance
Localization revenues were up 8.9% to EUR23.2m (H1 2020:
EUR21.3m). Organic Revenue, which excludes the impact of currency
movements and acquisitions, was up by 10.7%, against softer
comparatives. This improvement reflects the reflow of projects
delayed in 2020, when production schedules were disrupted at some
of our clients.
The market opportunity and outlook
The Localization market remains highly fragmented and
characterized by most competitors being single language providers
without the scale to deliver simultaneous multi-jurisdictional
localization projects for our global video games customer base. Our
clients are increasingly looking to Keywords for a more streamlined
and distributed production process, resulting in the adoption of
our game asset management system, XLoc, which in turn ensures we
are ever more integrated into their workflows. Combining the market
leading expertise we have built up in localization over the past 20
years, with proprietary software tools, like XLoc, and Artificial
Intelligence (AI) and Machine Learning (ML) technology from Kantan,
enables us to effectively manage a greater volume of content for
our clients.
Having strengthened our sales efforts last year, we expect to
continue to deliver growth into H2 2021 reflecting underlying
momentum moderated by some delays in the flow of content to this
late stage service line, as is being seen in Testing.
Localization Testing (5.3% of Group revenue for the year)
Our Localization Testing service line identifies out of context
translations, truncations, overlaps, spelling, grammar, age rating
issues, geopolitical and cultural sensitivities, and console
manufacturer compliance requirements in over 30 languages using
native speakers.
H1 2021 performance
Localization Testing revenue increased by 17.8% to EUR12.6m (H1
2020: EUR10.7m). On an Organic basis, which excludes the impact of
currency movements, Localization Testing was 19.6% higher compared
to H1 2020.
This better performance was delivered against softer comparators
as Localization Testing experienced the same initial operational
disruption and constraints seen in our Functional Testing division
during H1 2020, but 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.
The market opportunity and outlook
In this service line, the Group's scale, breadth of languages,
multi-location operations and resourcing agility enable it to offer
a cost effective, flexible and high quality service which is
difficult for smaller competitors to replicate. Our market
leadership positions us well for further growth as we continue to
develop our operations in Montreal, Dublin, Katowice, Milan,
Singapore and Tokyo.
As with Functional testing, we are not expecting to see the
typically higher seasonal activity in the second half of the year
due to a shift in the flow of content into these later stage
service lines, which will hold back revenue growth in H2 overall
but is expected to recover as content reflows in to these services
lines during H2.
Player Support (9.3% of Group revenue for the year)
Our Player Support service line provides multi-lingual, cost
effective and flexible customer care services including managing
communities of gamers across all forms of social media, within the
games themselves and on the official game forums, ensuring our
customers have a safe player environment.
H1 2021 performance
Player Support increased revenue by 11.6% to EUR22.1m (H1 2020:
EUR19.8m) and Organic Revenue, which is on a constant currency
basis, by 17.7%.
The nature of Player Support's services mean that it has
benefitted more directly from the increase in game players that the
industry has seen, as it continues to deliver further client growth
and strengthen its services in areas such as social media, quality
control and consulting. Having successfully transitioned teams in
2020 to remote working that enabled us to provide continuous
support to our clients, we are planning to retain some flexibility
between working in the office and from home.
The market opportunity and outlook
Player Support's growth demonstrates the benefits of our
strategy to differentiate it from the large generalist call centre
operators and immerse ourselves even further into gaming
communities with complete player experience coverage. This has been
achieved by extending our services to cover more 'touch points' of
gamer engagement, and by developing our systems and tools to enable
us to manage increased volumes of transactions efficiently.
Our specialist video games "DNA", extensive range of
capabilities and fundamental understanding of what is important to
players, continues to position us well in terms of the quality of
our service delivery compared to more generalist providers, and we
expect to make further progress in H2, albeit at a more moderate
growth rate.
Outlook
Trading has started well in H2, as we continue to see strong
demand across most of our service lines and the benefit from a
highly diversified range of services which are well balanced across
the game development lifecycle. We expect growth rates to moderate
in H2, given stronger comparatives in H2 2020, and we are working
to mitigate recruitment constraints as we seek to meet strong
demand. Whilst it is encouraging to be able to start utilising our
physical studio locations, our flexible hybrid working model is now
well established across all of our service lines and 70+ locations,
so we would not expect our ability to service our clients to be as
operationally constrained as we saw last year, even if further
government restrictions are applied.
The underlying drivers of growth in the video games market
remain in place, with strong growth in player numbers, the impact
of newly launched consoles, and a renewed focus on new and ever
more sophisticated content, following the delays caused by
COVID-19, all creating significant demand for our services. Our
Game Development, Marketing and Art Creation service lines, which
work at the earlier stages and throughout the content creation
cycle, are particularly expected to benefit from this increased
activity throughout H2. Whilst we anticipate that demand for our
later stage services, Testing and Localization, will build as
content flows into them as we move through the second half and
beyond.
Beyond those underlying growth drivers, the strong trend towards
outsourcing has only been accentuated by COVID-19, which brought in
to focus our clients' need for high quality, flexible support from
scale operators who can deliver their needs, even in the most
extreme circumstances. As we continue to build our platform, we are
actively reviewing acquisitions that would add expertise,
particularly in Game Development and Marketing, access to talent or
meaningful synergies, whilst retaining an interest in adjacent
markets such as film and television services, which are
increasingly converging towards video game development
technology.
The Board is confident in delivering recently increased
expectations for the full year and we believe our strategy, our
sought after team of 9,000+ specialists, and strong structural
drivers leave Keywords well positioned to benefit from the buoyant
video games market.
Jon Hauck and Sonia Sedler
Joint Interim CEOs
Financial and Operating Review
Strong revenue growth and margin performance
Revenue
Revenue for H1 2021 increased by 37.6% to EUR238.7m (H1 2020:
EUR173.5m). This growth was supplemented by the impact of
acquisitions in 2020 and 2021, but offset by the impact of currency
movements, particularly the weakening of the US dollar against the
Euro in the period.
Organic Revenue growth (which adjusts for the impact of currency
movements and acquisitions) was up 22.9%. This was driven by a
robust performance across all service lines, against the
comparative period in H1 2020 where certain service lines were more
severely held back by COVID-19 constraints, particularly in our
Testing and Audio businesses. Further details of the trading
performances of each of the Service Lines are provided in the CEO
Review.
Gross margin
Gross margin in H1 2021 was EUR91.1m (H1 2020: EUR62.9m)
representing an increase of 44.8%. The gross margin improved by
1.9% pts to 38.2% (H1 2020: 36.3%) compared to the prior period
that was held back by the revenue shortfalls in the early stages of
the pandemic, particularly in our Testing, Audio and Localization
service lines.
Operating costs
Adjusted operating costs increased by 25.9% to EUR40.4m (H1
2020: EUR32.1m), reflecting the larger Group, but reduced to 16.9%
of revenue versus 18.5% in H1 2020. This reduction was driven by
continued good cost control, together with reductions in certain
costs due to COVID-19, primarily resulting from remote working and
lower travel, business development and marketing costs.
EBITDA
Adjusted EBITDA increased 64.6% to EUR50.7m compared with
EUR30.8m for H1 2020. The EBITDA margin in H1 2021 reflects the
improved revenue noted above and this, combined with the benefit of
a full six months of the ongoing reduction in certain costs due to
COVID-19, resulted in an improvement in Adjusted EBITDA margin of
3.4% pts to 21.2% (H1 2020: 17.8%).
Net finance costs
Net finance costs increased by EUR0.8m to EUR2.4m (H1 2020:
EUR1.6m), driven by an EUR0.7m increase in unwinding of discounted
liabilities and a EUR0.3m increase in net foreign exchange loss
(which is described in more detail below) offset by a EUR0.2m
decrease in underlying interest costs on bank debt (which excludes
unwinding of discounted liabilities, bank charges and foreign
exchange) to EUR0.4m (H1 2020: EUR0.6m). This reflected the
repayment of drawings on the RCF following the placing in May 2020
and, since then, the Group has maintained a strong net cash
position despite the Group's acquisition spend.
Alternative performance measures (APMs)
The Group reports a number of APMs to present the financial
performance of the business which are not GAAP measures as defined
by IFRS. The Directors believe these measures provide valuable
additional information for the users of the financial information
to understand the underlying trading performance of the business.
In particular, adjusted profit measures are used to provide the
users of the accounts a clear understanding of the underlying
profitability of the business over time. A breakdown of the
adjusting factors is provided in the table below:
H1 2021 H1 2020
EURm EURm
Share option expense 8.5 6.8
Acquisition and integration costs 1.5 1.2
Amortisation and impairment of intangible
assets 6.6 5.7
COVID-19 government subsidies claimed - (3.4)
Foreign exchange and other items 1.2 0.3
--------- ---------
17.8 10.6
--------- ---------
1.5m of options were granted under the Share Option Scheme and
Long Term Incentive Plan in H1 2021. This, together with grants
from previous years, has resulted in a non-cash share option
expense of EUR8.5m in H1 2021 (H1 2020: EUR6.8m). The increase is
largely due to an increase in the fair value charge for the more
recent grants compared to previous years reflecting the increase in
the share price.
One-off costs associated with the acquisition and integration of
businesses amounted to EUR1.5m (H1 2020: EUR1.2m). Amortisation and
impairment of intangible assets charge increased by EUR0.9m to
EUR6.6m (H1 2020: EUR5.7m) reflecting the recent levels of
acquisition activity.
Foreign exchange and other items amounted to a net charge of
EUR1.2m (H1 2020: EUR0.3m). This includes EUR0.7m for the unwinding
of discount liabilities on deferred consideration. 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
EUR0.5m, recorded within financing cost (H1 2020: EUR0.3m
loss).
A more detailed explanation of the measures used together with a
reconciliation to the corresponding GAAP measures is provided in
the APMs section at the end of the statement.
Profit before taxation
Profit before tax increased by EUR10.8m (+97.3% year on year) to
EUR21.9m (H1 2020: EUR11.1m). Adjusted Profit Before Tax, which
adjusts for the items described in the APMs section above increased
by EUR18.0m (+82.9% year on year) to EUR39.7m compared with
EUR21.7m in H1 2020. This represents an improvement in Adjusted
profit before tax margin of 4.1% pts to 16.6% (H1 2020: 12.5%).
This is above the Group's historical margin delivery of between
14-15% and partly reflects the short-term benefit from certain
costs savings as a result of COVID-19 that are not expected to be
sustainable.
Taxation
The tax charge increased by EUR1.6m to EUR6.3m (H1 2020:
EUR4.7m) largely reflecting the increase in the profit before tax
of the business. After adjusting for the items noted in the APMs
section above and the tax impact arising on these items, the
Adjusted Effective Tax Rate for H1 2021 was 21.5% (H1 2020: 21.5%),
in line with the rate of 21.5% in 2020.
Earnings per share
Basic earnings per share increased by 119.8% to 20.86c (H1 2020:
9.49c) reflecting the increase in the statutory profit after tax of
144.3%, partially offset by an 11.1% increase in the basic weighted
average number of shares following the 10.5% equity placing in May
2020. Fully diluted earnings per share, reflecting the impact of
unvested share options, increased by 116.6% to 19.73c (H1 2020:
9.11c)
Adjusted earnings per share which adjusts for the items noted in
the APMs section and the tax impact arising on these items above
was 41.57c representing an increase of 64.6% (H1 2020: 25.25c).
Cash flow and net debt
H1 2021 H1 2020 Change
Cash flow statement EURm EURm EURm
Adjusted EBITDA 50.7 30.8 19.9
MMTC and VGTR (3.8) (4.3) 0.5
Working capital and other items 1.7 (6.6) 8.3
Capex - property, plant and equipment
(PPE) (9.4) (4.9) (4.5)
Capex - intangible assets (0.2) - (0.2)
Payments of principal on lease
liabilities (4.6) (3.9) (0.7)
COVID-19 employment support subsidies - 3.4 (3.4)
---------- --------- ----------
Operating cash flows 34.4 14.5 19.9
Net Interest paid (0.8) (0.9) 0.1
---------- --------- ----------
Free cash flow before tax 33.6 13.6 20.0
Tax (9.8) (2.0) (7.8)
---------- --------- ----------
Free cash flow 23.8 11.6 12.2
M&A - acquisition spend (44.7) (1.3) (43.4)
M&A - acquisition and integration
costs (1.5) (1.2) (0.3)
Dividends paid - - -
Shares issued for cash 2.3 110.7 (108.4)
---------- --------- ----------
Underlying increase / (decrease)
in net cash / (debt) (20.1) 119.8 (139.9)
FX and other items 1.3 (0.9) 2.2
---------- --------- ----------
Increase in net cash / (debt) (18.8) 118.9 (137.7)
Opening net cash / (debt) 102.9 (17.9)
Closing net cash / (debt) 84.1 101.0
---------- ---------
The Group generated Adjusted EBITDA of EUR50.7m in H1 2021, an
increase of EUR19.9m from EUR30.8m in H1 2020. There was a EUR3.8m
outflow in respect of the amounts due for Multi-Media Tax Credits
(MMTC) that are earned in the year of production, and are collected
a year in arrears, and Video Games Tax Relief (VGTR). Other working
capital improved by EUR8.3m compared to H1 2020 due to trade
receivable days improving by 5 days to 41 days (H1 2020: 46
days).
Investment in property, plant and equipment increased by EUR4.5m
(91.8%) to EUR9.4m (H1 2020: EUR4.9). This reflects a return to
more normal levels of spending following the COVID-19 disruption in
the prior period that resulted in a reduction in both the level of
equipment expenditure and expansionary capex. Property lease
payments of principal of EUR4.6m were 17.9% higher than the prior
period (H1 2020: EUR3.9m) mainly related to acquisitions in the
period.
The Group received no COVID-19 government employment retention
subsidies in H1 2021, resulting in operating cash flows of EUR34.4m
(H1 2020: EUR14.5m), an increase of EUR19.9m on H1 2020.
Net interest payments were EUR0.8m, a decrease of EUR0.1m on H1
2020 as a result of the repayment of drawings on the RCF following
the placing in May 2020. Tax payments amounted to EUR9.8m (H1 2020:
EUR2.0m) an increase of EUR7.8m on the same period when the Group
benefitted from timing differences that resulted in less payments
in the period in respect of the 2020 tax payable.
This resulted in Free Cash Flow of EUR23.8m (H1 2020: EUR11.6m),
an increase of EUR12.2m on the prior period. Adjusted Free Cash
Flow, which adjusts for capital expenditure that is supporting
growth in future periods and the COVID-19 government employment
retention subsidies in the prior year, was EUR37.7m in H1 2021, an
increase of EUR26.8m (+245.9%) on the levels delivered in H1 2020.
This resulted in an Adjusted Cash Conversion rate of 94.9% (H1
2020: 50.2%).
Cash spent on acquisitions totalled EUR46.2m of which EUR44.7m
was in respect of the cash component of both current and prior year
acquisitions and EUR1.5m was in relation to acquisition and
integration costs. These items, together with foreign exchange
movements of EUR1.3m resulted in a decrease in net cash of EUR18.8m
in H1 2021 (H1 2020: increase in net cash: EUR118.9m) and a closing
net cash of EUR84.1m (H1 2020: net cash EUR101.0m, FY 2020: net
cash EUR102.9m).
Balance sheet and liquidity
The Group funds itself primarily through cash generation and a
syndicated revolving credit facility (RCF) of EUR100m, with an
accordion option to increase this up to EUR140m. The RCF matures in
October 2022 with an option to extend it for up to a further
year.
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
cash (excluding IFRS 16 leases) of EUR102.9m as at 31 December
2020. Following EUR46.2m of cash deployed in the period to support
the Group's value accretive M&A programme, at the end of H1
2021, Keywords had net cash (excluding IFRS 16 leases) of EUR84.1m
and undrawn committed facilities of EUR100m.
Dividend
Following a period of robust growth and increased profitability
and cash generation, and reflecting the Board's confidence in the
future, the Board is pleased to declare an interim dividend of
0.70p per share (H1 2020: 0.00p, H1 2019: 0.58p) representing an
increase of 20.7% on the 2019 interim dividend. The Board's
progressive dividend policy seeks to reflect the Group's continued
growth in earnings and strong cash generation, balanced with the
need to retain the resources to fund growth opportunities, in line
with our strategy .
Payments will be made on 29 October 2021 to shareholders on the
register on 8 October 2021 and will go ex-dividend on 7 October
2021. The interim dividend payment will represent a total cost of
approximately EUR0.6m of cash resources.
Guidance for remainder of 2021
We have made a strong start to the year and expect demand to
continue across most service lines, albeit with organic growth
rates and margins moderating against stronger H2 2020 comparatives,
and as some costs return with the easing of restrictions.
Full year adjusted profit before tax margins are now expected to
exceed our 14 - 15% historical range but we expect margins to
return towards this range in 2022 as we continue to invest in the
business and with a return of certain costs with the easing of
restrictions. Adjusted Effective Tax rate is expected to be remain
in line with the 2020 rate of 21%.
We continue to anticipate capex at a higher level than in 2020
relative to revenue, reflecting some expansionary capex and
investment in equipment to support the new console cycle, and we
are targeting an overall Adjusted Cash Conversion rate in excess of
80%.
Following the trading update in early August, all of the above
items are reflected in the current revenue and profit market
consensus* for 2021.
Jon Hauck
Chief Financial Officer
*As at 14(th) September 2021, company compiled analysts'
expectations gave a consensus for FY 2021 of EUR498m of revenue and
EUR79m of adjusted profit before tax.
Condensed interim consolidated statement of comprehensive
income
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 21 30 Jun 20 31 Dec 20
Note EUR'000 EUR'000 EUR'000
------------------------------------------------- ------ ----------- ----------- -----------
Revenue from contracts with customers 5 238,664 173,485 373,538
Cost of sales (147,541) (110,565) (231,766)
------------------------------------------------- ------ ----------- ----------- -----------
Gross profit 91,123 62,920 141,772
Investment income - - 1,437
-----------
Share option expense (8,454) (6,750) (15,350)
Costs of acquisition and integration (1,464) (1,185) (2,650)
Amortisation and impairment of intangible
assets 9 (6,553) (5,662) (8,808)
COVID-19 government subsidies claimed - 3,411 9,231
------------------------------------------------- ------ ----------- ----------- -----------
Total of items excluded from adjusted
profit measures (16,471) (10,186) (17,577)
Other administration expenses (50,331) (39,997) (84,513)
------------------------------------------------- ------ ----------- ----------- -----------
Administrative expenses (66,802) (50,183) (102,090)
------------------------------------------------- ------ ----------- ----------- -----------
Operating profit 24,321 12,737 41,119
Financing income 6 49 31 76
Financing cost 6 (2,442) (1,674) (8,701)
Profit before taxation 21,928 11,094 32,494
Taxation (6,286) (4,691) (11,027)
------------------------------------------------- ----------- ----------- -----------
Profit 15,642 6,403 21,467
Other comprehensive income:
Items that will not be reclassified
subsequently to profit or loss
Actuarial gain / (loss) on defined
benefit plans (100) (82) (421)
Items that may be reclassified subsequently
to profit or loss
Exchange gain / (loss) in net investment
in foreign operations 3,118 (304) (4,909)
Exchange gain / (loss) on translation
of foreign operations 8,713 (7,297) (10,843)
Total comprehensive income / (expense) 27,373 (1,280) 5,294
------------------------------------------------- ------ ----------- ----------- -----------
Profit / (loss) for the period attributable
to:
Owners of the parent 15,675 6,453 21,552
Non-controlling interest (33) (50) (85)
------------------------------------------------- ------ ----------- ----------- -----------
15,642 6,403 21,467
------------------------------------------------- ------ ----------- ----------- -----------
Total comprehensive income / (expense)
attributable to:
Owners of the parent 27,406 (1,230) 5,379
Non-controlling interest (33) (50) (85)
-----------
27,373 (1,280) 5,294
------------------------------------------------- ------ ----------- ----------- -----------
Earnings per share EUR cent EUR cent EUR cent
------------------------------------------------- ------ ----------- ----------- -----------
Basic earnings per ordinary share 7 20.86 9.49 30.32
Diluted earnings per ordinary share 7 19.73 9.11 28.71
------------------------------------------------- ------ ----------- ----------- -----------
Condensed interim consolidated statement of financial
position
Unaudited Unaudited Audited
At At At
30 Jun 21 30 Jun 20 31 Dec 20
Note EUR'000 EUR'000 EUR'000
Non-current assets
Property, plant and equipment 9 31,443 21,988 26,419
Right of use assets 9 39,453 31,321 27,807
Intangible assets 9 343,273 188,657 240,810
Deferred tax assets 18,494 5,698 14,649
----------------------------------------
432,663 247,664 309,685
---------------------------------------- ------ ----------- ----------- -----------
Current assets
Trade receivables 10 62,405 44,941 47,832
Other receivables 10 46,988 43,941 38,665
Cash and cash equivalents 84,285 101,213 103,070
---------------------------------------- ----------- -----------
193,678 190,095 189,567
---------------------------------------- ------ ----------- ----------- -----------
Current liabilities
Trade payables 9,060 6,434 8,170
Other payables 13 98,286 42,703 62,958
Loans and borrowings 14 - 76 73
Corporation tax liabilities 9,112 5,984 12,568
Lease liabilities 16 11,353 8,186 7,361
127,811 63,383 91,130
---------------------------------------- ------ ----------- ----------- -----------
Net current assets / (liabilities) 65,867 126,712 98,437
---------------------------------------- ------ ----------- ----------- -----------
Non-current liabilities
Other payables 13 21,659 11 1,994
Employee defined benefit plans 2,989 2,049 2,693
Loans and borrowings 14 165 142 122
Deferred tax liabilities 16,485 8,879 10,575
Lease liabilities 16 29,434 23,801 21,503
----------- ----------- -----------
70,732 34,882 36,887
---------------------------------------- ------ ----------- ----------- -----------
Net assets 427,798 339,494 371,235
---------------------------------------- ------ ----------- ----------- -----------
Equity
Share capital 11 896 872 879
Share capital - to be issued 11 4,808 3,033 13,047
Share premium 11 25,198 21,836 22,951
Merger reserve 11 276,987 244,845 250,276
Foreign exchange reserve 1,843 (1,837) (9,988)
Shares held in Employee Benefit Trust
("EBT") (1,997) (1,997) (1,997)
Share option reserve 40,253 23,199 31,799
Retained earnings 79,893 49,558 64,318
---------------------------------------- ------ ----------- ----------- -----------
427,881 339,509 371,285
Non-controlling interest (83) (15) (50)
---------------------------------------- ------
Total equity 427,798 339,494 371,235
---------------------------------------- ------ ----------- ----------- -----------
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
2020 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 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
---------------- ---------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ----------------- ----------------- ----------------- ------------------
Profit for
the period - - - - - - - 15,099 15,099 (35) 15,064
Other
comprehensive
income - - - - (8,151) - - (339) (8,490) - (8,490)
---------------- ------------------
Total
comprehensive
income for
the period - - - - (8,151) - - 14,760 6,609 (35) 6,574
---------------- ---------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ----------------- ------------------
Contributions
by and
contributions
to the owners:
Shares issued
for cash - - - (87) - - - - (87) - (87)
Share option
expense - - - - - - 8,600 - 8,600 - 8,600
Share options
exercised 3 - 1,115 - - - - - 1,118 - 1,118
Acquisition
related
issuance
of shares 4 10,014 - 5,518 - - - - 15,536 - 15,536
Contributions
by and
contributions
to the owners 7 10,014 1,115 5,431 - - 8,600 - 25,167 - 25,167
---------------- ---------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ----------------- ------------------
At 31 December
2020 879 13,047 22,951 250,276 (9,988) (1,997) 31,799 64,318 371,285 (50) 371,235
---------------- ---------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ----------------- ----------------- ----------------- ------------------
Profit for
the period - - - - - - - 15,675 15,675 (33) 15,642
Other
comprehensive
income - - - - 11,831 - - (100) 11,731 - 11,731
---------------- ----------------- ------------------
Total
comprehensive
income for
the period - - - - 11,831 - - 15,575 27,406 (33) 27,373
---------------- ---------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ----------------- ----------------- ------------------
Contributions
by and
contributions
to the owners:
Shares issued
for cash 6 - 2,247 - - - - - 2,253 - 2,253
Share option
expense - - - - - - 8,454 - 8,454 - 8,454
Acquisition
related
issuance
of shares
(note 11) 11 (8,239) - 26,711 - - - - 18,483 - 18,483
---------------- ---------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ----------------- ----------------- ------------------
Contributions
by and
contributions
to the owners 17 (8,239) 2,247 26,711 - - 8,454 - 29,190 - 29,190
---------------- ---------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ----------------- ----------------- ------------------
At 30 June
2021 896 4,808 25,198 276,987 1,843 (1,997) 40,253 79,893 427,881 (83) 427,798
---------------- ---------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ----------------- ----------------- ----------------- ------------------
Condensed interim consolidated statement of cash flows
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 21 30 Jun 20 31 Dec 20
Note EUR'000 EUR'000 EUR'000
---------------------------------------------- ------ ----------- ----------- -----------
Cash flows from operating activities
Profit after tax 15,642 6,403 21,467
---------------------------------------------- ------ ----------- ----------- -----------
Income and expenses not affecting operating
cash flows
Depreciation - property, plant and
equipment 9 5,347 4,209 8,983
Depreciation - right of use assets 9 4,789 3,935 8,402
Amortisation and impairment of intangible
assets 9 6,553 5,662 8,808
Taxation 6,286 4,691 11,027
Share option expense 8,454 6,750 15,350
Fair value adjustments to contingent
consideration - (34) (66)
Fair value adjustments to right of
use assets - 239 434
Unwinding of discounted liabilities
- deferred consideration 6 736 119 132
Unwinding of discounted liabilities
- lease liabilities 6 484 344 843
Interest receivable 6 (49) (31) (76)
Fair value adjustments to employee
defined benefit plans (136) 84 354
Interest expense 6 433 645 1,071
Unrealised foreign exchange (gain)
/ loss 1,752 (378) 1,874
---------------------------------------------- ------
34,649 26,235 57,136
---------------------------------------------- ------ ----------- ----------- -----------
Changes in operating assets and liabilities
Decrease / (increase) in trade receivables (8,316) (2,276) (4,255)
Decrease / (increase) in MMTC and VGTR
receivable (3,844) (4,267) 555
Decrease / (increase) in other receivables (2,340) (6,033) (3,902)
(Decrease) / increase in accruals,
trade and other payables 11,236 2,028 9,878
----------------------------------------------
(3,264) (10,548) 2,276
---------------------------------------------- ------ ----------- ----------- -----------
Taxation paid (9,791) (1,961) (4,459)
Net cash generated by / (used in) operating
activities 37,236 20,129 76,420
---------------------------------------------- ------ ----------- ----------- -----------
Cash flows from investing activities
Current year acquisition of subsidiaries
net of cash acquired 17 (39,539) (1,027) (37,447)
Settlement of deferred liabilities
on acquisitions 13 (5,158) (237) (2,489)
Acquisition of property, plant and
equipment 9 (9,378) (4,888) (13,908)
Investment in intangible assets 9 (157) - (259)
Interest received 49 31 76
Net cash generated by / (used in) investing
activities (54,183) (6,121) (54,027)
---------------------------------------------- ------ ----------- ----------- -----------
Cash flows from financing activities
Repayment of loans 14 (37) (64,022) (64,030)
Drawdown of loans - 4,500 4,500
Payments of principal on lease liabilities 16 (4,551) (3,930) (8,170)
Interest paid on principal of lease
liabilities 16 (484) (344) (843)
Shares issued for cash 11 2,253 110,667 111,698
Interest paid (337) (553) (879)
Net cash generated by / (used in) financing
activities (3,156) 46,318 42,276
---------------------------------------------- ------ ----------- ----------- -----------
Increase / (decrease) in cash and cash
equivalents (20,103) 60,326 64,669
Exchange gain / (loss) on cash and
cash equivalents 1,318 (940) (3,426)
Cash and cash equivalents at beginning
of the period 103,070 41,827 41,827
Cash and cash equivalents at end of
the period 84,285 101,213 103,070
---------------------------------------------- ------ ----------- ----------- -----------
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 Condensed interim consolidated financial
statements include the financial statements of the Company and its
subsidiaries (the "Group") made up to 30 June 2021.
The interim results for the half year ended 30 June 2021 and the
half year ended 30 June 2020 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 2020, 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.
The interim financial statements presented in this financial
report have been prepared in accordance with International
Financial Reporting Standards (IFRS) and the IFRS Interpretations
Committee (IFRIC) interpretations that are expected to be
applicable to the consolidated financial statements for the period
ending 31 December 2021.
The principal risk and uncertanties are disclosed in the Annual
Report for the year ended 31 December 2020. The directors continue
to monitor principal risks and uncertainties including the ongoing
impact of COVID-19. There have been no changes in the principal
risks and uncertainties during the period but the Directors
recognise the increasing prevalence of cyber attacks and security
threats to businesses generally, and advances in technology in our
industry.
Going Concern Basis of Accounting
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 COVID-19
pandemic, but have noted:
-- the strong cash flow performance of the Group;
-- the continued demand for the Group's services;
-- the ability to operate most of its services in a work from
home model where studios are temporarily closed;
-- the historical resilience of the broader video games industry
in times of economic downturn; and,
-- the ability of the Group to flex its cost base in response to
a reduction in trading activity.
The Directors have also considered the Group's strong liquidity
position with net cash of EUR84.1m as at 30 June 2021, and
committed undrawn facilities of EUR100m under the Revolving Credit
Facility ("RCF").
The Directors have applied downside sensitivities to the Group's
cash flow projections to evaluate the Group's ability to withstand
a significant and prolonged downturn in trading (being a 25%
reduction in Group revenue in 2022). 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 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 Condensed interim consolidated financial statements made up
to 30 June 2021 were approved by the Board of Directors on 14
September 2021.
2 Changes in Significant Accounting Policies
New Standards, Interpretations and Amendments effective 1
January 2021
A number of new amendments and interpretations to accounting
standards are effective from 1 January 2021 including:
-- COVID-19-Related Rent Concessions - amendment to IFRS 16;
-- Interest Rate Benchmark Reform - amendments to IFRS 9, IAS 39 and IFRS 7.
These amendments and interpretations have not resulted in the
accounting applied by the Group changing and have not had a
material effect on the Group's financial statements.
Other accounting pronouncements which have become effective from
1 January 2021 have not had a material impact on the Group.
New standards, interpretations and amendments not yet
effective
There are a number of standards, amendments to standards, and
interpretations which have been issued by the IASB that are
effective in future accounting periods that the Group has decided
not to adopt early.
The following amendments are effective for the period beginning
1 January 2022:
-- Onerous Contracts - Cost of Fulfilling a Contract - amendments to IAS 37;
-- Property, Plant and Equipment: Proceeds before Intended Use - amendments to IAS 16;
-- Annual Improvements to IFRS Standards 2018-2020 - amendments
to IFRS 1, IFRS 9, IFRS 16 and IAS 41; and
-- References to Conceptual Framework - amendments to IFRS 3.
The Group does not expect these amendments or any other
standards issued by the IASB, but not yet effective, to have a
material impact on the Group.
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 2020, 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 2020. The only exceptions are:
-- Tax Liabilities - determined using the estimated annual effective tax rate:
o 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.
-- Business Combinations - combination of put and call options
over Non-controlling interest in connection with the Tantalus
acquisition:
o The Group acquired an 85% interest in Tantalus in March 2021,
with the sellers retaining a minority shareholding. The shareholder
agreement (signed with the purchase agreement), includes put and
call options ("the Forward") , that require the sellers to sell, or
require the Group to buy the remaining 15% shareholding in 3 years
using a pre-determined valuation methodology linked to
post-acquisition performance. IFRS 3 does not provide specific
guidance on how such contracts should be accounted for in a
business combination. The Board determined, taking into
consideration all the contracts' terms and conditions, that the
impact of the Forward put the Group in a similar position as if the
Group had acquired a 100% interest in the subsidiary on the
acquisition date, with deferred contingent consideration payable at
a future date. In doing so, the Board considered whether the risks
and rewards of ownership reside with the Non-controlling interest
or had effectively transferred to the Group, and concluded that the
Non-controlling interest arising on the acquisition had been
extinguished by a combination of the Forward, and other conditions
in the agreements. Therefore, the Group has accounted for the
acquisition as if a 100% interest was acquired on acquisition,
accounting for the initial investment and the Forward as a single
linked transaction in which 100% control is gained, with the
Forward recognised at fair value, as a financial liability within
Deferred and contingent consideration (note 13), and no
Non-controlling interest recognised on the acquisition. Any
subsequent re-measurement required due to changes in the fair value
of the liability will be recognised in the statement of
comprehensive income.
5 Revenue from Contracts with Customers and Segmental
Analysis
Revenue from Contracts with Customers
Revenue by line of business Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 21 30 Jun 20 31 Dec 20
EUR'000 EUR'000 EUR'000
------------------------------ ----------- ----------- -----------
Art Creation* 22,695 18,875 38,903
Marketing* 23,164 7,405 18,421
Game Development 63,267 38,715 80,017
Audio* 28,262 20,907 47,232
Functional Testing 43,345 35,789 78,479
Localization* 23,219 21,287 45,357
Localization Testing 12,584 10,701 23,323
Player Support 22,128 19,806 41,806
238,664 173,485 373,538
------------------------------ ----------- ----------- -----------
*The prior year comparatives has been re-classified to
separately report Marketing services, previously reported within
the Art Creation service line. In addition, there was a minor
re-classification between Audio and Localization in the Half Year
2020.
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
by producing location
Half Year Half Year* Year*
30 Jun 21 30 Jun 20 31 Dec 20
EUR'000 EUR'000 EUR'000
------------------------------------- ----------- ------------ -----------
Canada 46,783 41,598 88,713
United Kingdom 44,744 27,730 58,645
United States 44,309 23,209 50,504
Italy 16,331 10,932 25,210
Russia 15,244 14,691 29,839
Japan 10,623 9,645 20,944
China 9,646 8,850 18,429
India 8,762 5,017 11,369
Poland 7,936 3,683 10,269
Ireland 6,260 6,601 12,291
Philippines 6,155 6,041 12,021
Spain 4,552 3,240 7,642
France 4,049 3,572 7,771
Singapore 3,689 3,104 6,798
Mexico 2,899 1,210 3,549
Other 6,682 4,362 9,544
238,664 173,485 373,538
------------------------------------- ----------- ------------ -----------
*The prior year comparatives have been re-classified from
billing entity to producing entity to align to the current year
presentation, as the directors consider this measure to be more
meaningful.
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 2021 22,799 14,617 7,190 992
At 30 June 2020 18,571 16,065 2,219 287
At 31 December 2020 13,538 12,991 547 -
------------------------------------- ------------------- ------------- ------------- -------------
Segmental Analysis
Geographical analysis of non-current Unaudited Unaudited Audited
assets from continuing businesses
Half Year Half Year Year
30 Jun 21 30 Jun 20 31 Dec 20
EUR'000 EUR'000 EUR'000
--------------------------------------- ----------- ----------- -----------
United States 165,615 86,129 131,405
United Kingdom 99,500 55,187 57,611
Australia 40,124 - -
Canada 28,888 29,424 27,094
Italy 15,464 11,900 13,480
Switzerland 10,025 10,381 10,116
Ireland 8,524 8,732 13,514
China 8,294 8,249 7,491
France 7,867 6,729 7,302
Japan 6,201 3,436 5,551
Germany 5,186 5,227 5,291
Spain 4,954 5,333 5,101
India 3,180 2,350 2,182
Poland 3,151 1,547 1,777
Mexico 2,247 1,783 1,901
Philippines 1,820 2,449 2,110
Other 3,129 3,110 3,110
414,169 241,966 295,036
--------------------------------------- ----------- ----------- -----------
Geographical analysis of non-current
assets from continuing businesses 414,169 241,966 295,036
Deferred tax assets 18,494 5,698 14,649
Non-current assets 432,663 247,664 309,685
---------------------------------------- ----------- ----------- -----------
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 in the second half
compared with the first half 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
Year Year
30 Jun 21 30 Jun 20
EUR'm EUR'm
--------------- ----------- -----------
Revenue 439 347
Gross profit 170 128
----------------- ----------- -----------
6 Financing Income and Cost
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 21 30 Jun 20 31 Dec 20
EUR'000 EUR'000 EUR'000
-------------------------------------- ----------- ----------- -----------
Financing income
Interest received 49 31 76
--------------------------------------- ----------- ----------- -----------
49 31 76
-------------------------------------- ----------- ----------- -----------
Financing cost
Bank charges (249) (302) (552)
Interest expense (433) (645) (1,071)
Unwinding of discounted liabilities
- lease liabilities (484) (344) (843)
Unwinding of discounted liabilities
- deferred consideration (736) (119) (132)
Foreign exchange loss (540) (264) (6,103)
--------------------------------------- ----------- ----------- -----------
(2,442) (1,674) (8,701)
-------------------------------------- ----------- ----------- -----------
Net financing income / (cost) (2,393) (1,643) (8,625)
--------------------------------------- ----------- ----------- -----------
7 Earnings per Share
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 21 30 Jun 20 31 Dec 20
EUR cent EUR cent EUR cent
------------------------------------------- ------------ ------------ ------------
Basic 20.86 9.49 30.32
Diluted 19.73 9.11 28.71
-------------------------------------------- ------------ ------------ ------------
Earnings EUR'000 EUR'000 EUR'000
-------------------------------------------- ------------ ------------ ------------
Profit for the period from continuing
operations 15,642 6,403 21,467
-------------------------------------------- ------------ ------------ ------------
Weighted average number of equity shares Number Number Number
------------------------------------------- ------------ ------------ ------------
Basic (i) 74,980,344 67,506,245 70,800,455
Diluting impact of Share options (ii) 4,312,961 2,770,558 3,959,878
-------------------------------------------- ------------ ------------ ------------
Diluted (i) 79,293,305 70,276,803 74,760,333
-------------------------------------------- ------------ ------------ ------------
(i) Includes (weighted average) shares
to be issued:
Number Number Number
------------------------------------------- ------------ ------------ ------------
254,383 259,900 242,077
------------------------------------------- ------------ ------------ ------------
(ii) Contingently issuable Ordinary Shares have been excluded where
the conditions governing exercisability have not been satisfied:
Number Number Number
------------------------------------------- ------------ ------------ ------------
LTIPs 862,000 1,910,100 -
Share options - 289,397 -
------------------------------------------- ------------ ------------ ------------
862,000 2,199,497 -
------------------------------------------- ------------ ------------ ------------
8 Dividends
Expected
EUR Pence Expected
cent STG total Expected
In respect per per dividend payment
Dividends recommended of share share EUR'000 date
------------------------ ------------- ---------- -------- ----------- ----------
Interim 2021 0.82 0.70 616 Oct-21
------------------------- -------------- ---------- -------- ----------- ----------
At 30 June 2021, Retained earnings available for distribution
(being Retained earnings plus Share option reserve) in the Company
were EUR30.3m. In addition, the Company has amounts included in the
Merger reserve of EUR123.9m that are considered distributable (note
11).
Interim accounts for the Company have been filed at Companies
House to support the payment of an interim dividend in 2021.
9 Non-current Assets
Unaudited Unaudited Unaudited Unaudited Unaudited
At At At At At
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
21 21 21 21 21
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
----------------------------------- ---------------- ----------- ------------- ------------ ------------
Intangible Intangible
Property, Right Intangible assets assets
Movement of the carrying plant of use assets - -
value of Non-current assets and equipment assets - goodwill other total
----------------------------------- ---------------- ----------- ------------- ------------ ------------
Carrying amount at the beginning
of the period 26,419 27,807 212,017 28,793 240,810
Recognition on acquisition
of subsidiaries (note 17) 277 1,179 89,391 9,651 99,042
Other additions 9,378 14,325 - 157 157
Depreciation charge (5,347) (4,789) - - -
Amortisation charge - - - (6,553) (6,553)
Exchange rate movement 716 931 8,853 964 9,817
------------------------------------
Carrying amount at the
end of the period 31,443 39,453 310,261 33,012 343,273
------------------------------------ ---------------- ----------- ------------- ------------ ------------
While the Group performs a full assessment of the carrying value
of goodwill, intangible assets and other assets on an annual basis,
at 30 June 2021 an interim assessment was made based on the same
underlying assumptions used in the last Annual Report, but using
updated forecasts and projections. Based on this interim review of
the value in use calculations, no impairment is required in the
period.
10 Trade and Other Receivables
Unaudited Unaudited Audited
At At At
30 Jun 21 30 Jun 20 31 Dec 20
EUR'000 EUR'000 EUR'000
------------------------------------------- ----------- ----------- -----------
Trade receivables derived from contracts
with customers 64,752 45,940 49,814
Provision for bad debts (i) (ii) (2,347) (999) (1,982)
-------------------------------------------- ----------- ----------- -----------
Financial asset held at amortised cost 62,405 44,941 47,832
-------------------------------------------- ----------- ----------- -----------
Accrued income from contracts with
customers 12,152 10,569 9,202
Prepayments 5,128 4,714 4,608
Rent deposits and other receivables 4,134 4,346 4,816
Multimedia tax credits / video games
tax relief 21,671 20,838 16,668
Tax and social security 3,903 3,474 3,371
-------------------------------------------- ----------- -----------
Other receivables 46,988 43,941 38,665
-------------------------------------------- ----------- ----------- -----------
(i) The movements in the provision for bad debts in the current period were as follows:
Unaudited
Half Year
30 Jun 21
EUR'000
------------------------------------------------ -----------
Provision at the beginning of the period (1,982)
Impairment of financial assets (trade
receivables) charged to other administration
expenses (451)
Amounts written off against the provision
in the period 108
Exchange rate movement (22)
-------------------------------------------------
Provision at the end of the period (2,347)
------------------------------------------------- -----------
Credit loss experience 0.5%
------------------------------------------------- -----------
(ii) The composition of the provision for bad debts at period end was as follows:
Unaudited
At
30 Jun 21
EUR'000
------------------------------------- -----------
Credit impaired (2,023)
Expected credit losses (324)
--------------------------------------
Provision at the end of the period (2,347)
-------------------------------------- -----------
11 Share Capital
Number
Number of ordinary Share
of GBP0.01 capital
Per ordinary shares Share - to Share Merger
Issue share GBP0.01 - to capital be issued premium reserve*
date EUR shares be issued EUR'000 EUR'000 EUR'000 EUR'000
At 01 January 2021 74,079,243 532,985 879 13,047 22,951 250,276
---------------------------- -------- ------------ ------------- ---------- ------------ ---------- -----------
Acquisition
related
issuance of
shares:
High Voltage
Software 12-Jan-21 26.06 307,597 (307,597) 3 (8,017) - 8,013
Heavy Iron 12-Jan-21 31.84 - 12,914 - 411 - -
Tantalus 15-Apr-21 27.87 368,750 - 4 - - 10,271
Climax
Studios 17-May-21 33.53 232,517 - 3 - - 7,794
ICHI 28-May-21 15.94 14,635 (14,635) - (233) - 233
Coconut
Lizard 25-Jun-21 20.23 19,739 (19,739) 1 (400) - 400
Acquisition related
issuance of shares 943,238 (329,057) 11 (8,239) - 26,711
---------------------------- -------- ------------ ------------- ---------- ------------ ---------- -----------
Issue of shares on
exercise of share
options 4.37 514,990 - 6 - 2,247 -
At 30 June 2021 75,537,471 203,928 896 4,808 25,198 276,987
---------------------------- -------- ------------ ------------- ---------- ------------ ---------- -----------
* Included in the Merger reserve are amounts of EUR14.4m (being
the premium arising on the share placement in 2015) and EUR109.5m
(being the premium arising on the share placement in 2020),
totalling EUR123.9m, that are considered distributable. At the time
of the placements, the proceeds were not allocated to a specific
acquisition or specific purpose, and thus these amounts included in
the Merger reserve are considered distributable.
12 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
--------------------------------------- ------------ ------------- ------------ -------------
At 01 January 2021 12.66 2,345,238 0.01 3,692,817
Granted 25.48 618,000 0.01 862,000
Lapsed 15.79 (14,478) 0.01 (150,400)
Exercised 9.75 (200,616) 0.01 (314,374)
---------------------------------------
At 30 June 2021 15.74 2,748,144 0.01 4,090,043
--------------------------------------- ------------ ------------- ------------ -------------
Exercisable at 30 June 2021 8.17 846,810 0.01 838,907
--------------------------------------- ------------ ------------- ------------ -------------
Weighted average share price at date
of exercise 25.59 26.09
--------------------------------------- ------------ ------------- ------------ -------------
13 Other Payables
Unaudited Unaudited Audited
At At At
30 Jun 21 30 Jun 20 31 Dec 20
EUR'000 EUR'000 EUR'000
---------------------------------------- ----------- ----------- -----------
Current liabilities
Accrued expenses 38,591 23,382 31,086
Payroll taxes 3,067 2,886 2,563
Other payables (ii) 20,346 10,081 10,501
Deferred and contingent consideration
(i) 36,282 6,354 18,808
98,286 42,703 62,958
---------------------------------------- ----------- ----------- -----------
Non-current liabilities
Other payables - 11 -
Deferred and contingent consideration
(i) 21,659 - 1,994
----------------------------------------- ----------- ----------- -----------
21,659 11 1,994
---------------------------------------- ----------- ----------- -----------
(i) The movements in deferred and contingent consideration
(Level 3 input in the fair value hierarchy), in the current period
were as follows:
Unaudited
Half Year
30 Jun 21
EUR'000
-------------------------------------------- -----------
Carrying amount at the beginning of
the period 20,802
Consideration settled by cash (5,158)
Unwinding of discount (note 6) 736
Additional liabilities from current
year acquisitions (note 17) 36,010
Combination put / call options to acquire
residual 15% of Tantalus (note 4, 17) 4,768
Exchange rate movement 783
Carrying amount at the end of the period 57,941
--------------------------------------------- -----------
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).
A 10% movement in expected performance would impact the fair
value of the contingent consideration as follows:
Unaudited
At
30 Jun 21
Increase (decrease) in carrying amount EUR'000
------------------------------------------ -----------
Increase in expected performance - 10% 2,956
Decrease in expected performance - 10% (11,471)
------------------------------------------ -----------
There are no other 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.
On an undiscounted basis, at period end the Group may be liable
for deferred and contingent consideration ranging from EURNil to a
maximum of EUR70.2m. The contractual maturities (representing
undiscounted contractual cash flows) of the Group's deferred and
contingent consideration liabilities were as follows:
Unaudited
At
30 Jun 21
EUR'000
------------------------------------------ -----------
Not later than one year 40,477
Later than one year and not later than
two years 20,873
Later than two years and not later than
five years 8,828
-------------------------------------------
Total undiscounted contractual cash
flows 70,178
------------------------------------------- -----------
(ii) The Group's related party transactions are with key
management personnel and other related parties as disclosed in the
Group's Annual Report. There have been no material changes to the
Group's related party transactions with key management personnel
during the period, while there were no transactions with other
related parties in the period.
14 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
Half Year
30 Jun 21
EUR'000
------------------------------------------- -----------
Carrying amount at the beginning of
the period 195
Repayments (37)
Exchange rate movement 7
Carrying amount at the end of the period 165
-------------------------------------------- -----------
These balances represent loans owed by Keywords Studios
QC-Interactive Inc.
The Syndicated Bank revolving credit facility ("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),
extending to October 2022 (with an option to extend this maturity
date by up to a further 2 years). Throughout the period, the Group
operated well within the interest cover and leverage ratio terms of
the RCF agreement.
At the period end the net debt and the debt to capital ratio
were as follows:
Unaudited
At
30 Jun 21
EUR'000
----------------------------------------- -----------
Loans and borrowings 165
Less: cash and cash equivalents (84,285)
------------------------------------------
Net debt / (net cash) position (84,120)
------------------------------------------ -----------
Total equity 427,798
Net debt / (net cash) to capital ratio
(%) (20%)
------------------------------------------ -----------
15 Financial Instruments
During the period there has been no change in the measurement
basis of the financial assets and liabilities shown in the
Condensed interim consolidated statement of financial position.
16 Lease Liabilities
The movements in lease liabilities in the current period were as
follows:
Unaudited
Half Year
30 Jun 21
EUR'000
--------------------------------------------- -----------
Carrying amount at the beginning of
the period 28,864
Recognition on acquisition of subsidiaries
(note 17) 1,179
Liabilities recognised on new leases
in the period 14,324
Unwinding of discounted liabilities
- lease liabilities 484
Payment of principal and interest on
lease liabilities (5,035)
Exchange rate movement 971
Carrying amount at the end of the period 40,787
---------------------------------------------- -----------
The value of leases not yet commenced to which the lessee is
committed, which are not included in the lease liability at 30 June
2021, were EURNil.
17 Business Combinations / Acquisitions Completed in the Current
Period
During the period the Group completed three acquisitions, Heavy
Iron, Tantalus and Climax Studios, purchasing 100% of the share
capital of these businesses, except in the case of Tantalus where
the Group acquired an 85% interest. A combination of put and call
options are in place requiring the sellers to sell, or the Group to
buy the remaining 15% shareholding in 3 years. The Group has
recognised a contingent consideration liability at fair value,
being the Group's estimate of the present value of the amount
required to settle the liability, and has accounted for the
acquisition as if a 100% interest was acquired on acquisition (see
note 4).
The aggregate amounts recognised in respect of the identifiable
assets acquired and liabilities assumed on acquisitions completed
in the period are set out in the table below. Details of the
purchase consideration and other information relevant to the
evaluation of the financial effect of the acquisitions, are also
presented.
The main factors leading to the recognition of goodwill on the
acquisitions are the presence of certain intangible assets in the
acquired entities, which are not valued for separate recognition.
These include expertise in the acquired entities, enhancing and
growing our services capabilities, broadening our service offering,
and extending our geographical footprint, further building out our
global platform.
Unaudited
At
30 Jun
21
EUR'000
Details of goodwill and the fair value of net assets acquired
---------------------------------------------------------------- -----------
Book value:
Property, plant and equipment 277
Right of use assets 1,179
Trade and other receivables - gross 5,432
Bad debt provision -
Cash and cash equivalents 8,729
Trade and other payables (5,927)
Lease liabilities (1,179)
Book value of identifiable assets and liabilities acquired 8,511
---------------------------------------------------------------- -----------
Fair value adjustments:
Identifiable intangible assets 9,651
Deferred tax assets 2,629
Deferred tax liabilities (2,654)
Total fair value adjustments 9,626
---------------------------------------------------------------- -----------
Net assets acquired 18,137
Goodwill from current year acquisitions 89,391
---------------------------------------------------------------- -----------
Total purchase consideration 107,528
================================================================ ===========
Details of purchase consideration and cash outflows from
current acquisitions
---------------------------------------------------------------- -----------
Cash 48,267
Deferred cash 1,270
Deferred consideration contingent on performance 34,740
Combination put / call options to acquire residual 15%
of Tantalus 4,768
Shares to be issued 18,483
Total purchase consideration 107,528
================================================================ ===========
Number of shares
---------------------------------------------------------------- -----------
Shares issued on acquisition 601,267
Fixed number of shares to be issued 12,914
---------------------------------------------------------------- -----------
Cash paid in the period 48,267
Less: cash and cash equivalent balances transferred (8,728)
---------------------------------------------------------------- -----------
Net cash outflow arising on acquisition 39,539
---------------------------------------------------------------- -----------
Related acquisition costs charged through to the statement
of comprehensive income 645
---------------------------------------------------------------- -----------
Details of pro forma revenues and profitability of current
acquisitions
---------------------------------------------------------------- -----------
Pre-acquisition revenue 5,067
Post-acquisition revenue 8,093
---------------------------------------------------------------- -----------
Pro forma revenue 13,160
---------------------------------------------------------------- -----------
Pre-acquisition profit before tax 2,119
Post-acquisition profit before tax 3,616
-----------
Pro forma profit before tax 5,735
---------------------------------------------------------------- -----------
The goodwill that arose from business combinations completed in
the period that is expected to be deductible for tax purposes was
EUR9.4m.
18 Events after the Reporting Date
Acquisition of AMC Ro Studio SRL
On 12 August 2021 the Group announced the acquisition of AMC Ro
Studio SRL ("AMC"), a video game art creation studio for a total
consideration of EUR2.8m. Founded in 2009 and based in Bucharest,
Romania, AMC is a long established, high quality specialist art
studio servicing both US and European clients. Under the terms of
the acquisition, Keywords will pay an initial cash consideration of
EUR2.0m and the equivalent of EUR0.8m in new ordinary shares to be
issued on the first anniversary of completion. The new ordinary
shares to be issued are subject to one-year orderly market
provisions.
Alternative performance measures
The Group reports a number of alternative performance measures
('APMs') to present the financial performance of the business, that
are not GAAP measures as defined under IFRS. The Directors believe
that these measures, in conjunction with the IFRS financial
information, provide the users of the financial statements with
additional information to provide a more meaningful understanding
of the underlying financial and operating performance of the Group.
The measures are also used in the Group's internal strategic
planning and budgeting processes and for setting internal
management targets. These measures can have limitations as
analytical tools and therefore should not be considered in
isolation, or as a substitute for IFRS measures.
The principal measures used by the Group are set out below:
Organic revenue growth - Acquisitions are a core part of the
Group's growth strategy. Organic revenue growth measures are used
to help understand the underlying trading performance of the Group
excluding the impact of acquisitions. Organic revenue growth is
calculated by adjusting the prior year revenues, adding
pre-acquisition revenues for the corresponding period of ownership
to provide a like for like comparison with the current year, and
applying the prior year's foreign exchange rates to both years.
Constant exchange rates ('CER') - Given the international nature
of the Group's operations, foreign exchange movements can have an
impact on the reported results of the Group when they are
translated into the Group's reporting currency of Euros. In order
to understand the underlying trading performance of the business,
revenue is also presented using rates consistent with the prior
year in order to provide year over year comparability.
Adjusted profit and earnings per share measures - Adjusted
profit and earnings per share measures are used to provide
management and other users of the financial statements with a clear
understanding of the underlying profitability of the business over
time. Adjusted profit measures are calculated by adding the
following items back to the equivalent GAAP profit measures:
-- Amortisation of intangible assets - Customer relationships
and music licence amortisation commences on acquisition, whereas
intellectual property / development costs amortisation commences
when the product is launched. These costs, by their nature, can
vary by size and amount each year. As a result, amortisation of
intangibles is added back to assist with the understanding of the
underlying trading performance of the business and to allow
comparability across regions and categories.
-- Costs of acquisition and integration - The level of
acquisition activity can vary each year and therefore the costs
associated with acquiring and integrating businesses are added back
to assist with the understanding of the underlying trading
performance of the Group.
-- Share-based payments - The Group uses share-based payments as
part of remuneration to align the interests of senior management
and employees with shareholders. These are non-cash charges and the
charge is based on the Group's share price which can change. The
costs are therefore added back to assist with the understanding of
the underlying trading performance.
-- Foreign exchange gains and losses - The Group does not hedge
foreign currency translation exposures. The effect on the Group's
results of movements in exchange rates can vary each year and are
therefore added back to assist with understanding the underlying
trading performance of the business.
-- COVID-19 government subsidies claimed - In 2020 the Group
applied for COVID-19 government subsidies in various jurisdictions,
introduced in response to the global pandemic. These subsidies have
been added back in order to present adjusted profit and cash flow
measures consistently year-on-year.
-- Investment income - The Group acquired a minor holding in
Hutch Games Limited, when Keywords purchased Liquid Development
studio in 2015. In 2020 Hutch Games Limited was acquired and the
Group received EUR1.4m proceeds in December. As the gain has arisen
outside the normal trading activities of the Group, the income has
been added back to assist with the understanding of the underlying
trading performance.
Free cash flow measures - The Group aims to generate sustainable
cash flow (Free cash flow) in order to support its acquisition
program and to fund dividend payments to shareholders. Free cash
flow is measured as Net cash generated by / (used in) operating
activities after capital expenditure, payments of principal on
lease liabilities, interest and tax payments, but before
acquisition and integration cash outlay, investment income and
dividend payments. Adjusted free cash flow is a measure of cash
flow adjusting for capital expenditure that is supporting growth in
future periods (represented by capital expenditure in excess of
depreciation). In the prior year the measure has also been adjusted
for COVID-19 subsidies claimed given the one-time nature of the
income.
The remainder of this section provides a reconciliation of the
APMs with the relevant IFRS GAAP equivalent.
Service line analysis
The following table presents revenue growth by service line at
both actual exchange rates ('AER') and constant exchange rates
('CER'). Constant exchange rates are calculated by retranslating
current year reported numbers at the corresponding 2020 foreign
exchange rates, in order to give management and other users of the
financial statements better visibility of underlying trading
performance against the prior year.
Half Half Half Half Half
Year Year Year Year Year
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
21 21 20 21 21
Revenue Revenue Revenue Growth Growth
AER CER AER AER CER
EURm EURm EURm % %
----------------------- --------- --------- --------- -------- --------
Art creation* 22.7 23.7 18.9 20.1% 25.4%
Marketing* 23.2 24.1 7.4 213.5% 225.7%
Game development 63.3 66.3 38.7 63.6% 71.3%
Audio* 28.3 29.2 20.9 35.4% 39.7%
Functional testing 43.3 44.5 35.8 20.9% 24.3%
Localization* 23.2 23.8 21.3 8.9% 11.7%
Localization testing 12.6 12.8 10.7 17.8% 19.6%
Player support 22.1 23.3 19.8 11.6% 17.7%
238.7 247.7 173.5 37.6% 42.8%
----------------------- --------- --------- --------- -------- --------
*The prior year comparatives has been re-classified to
separately report Marketing services, previously reported within
the Art Creation service line. The equivalent organic growth rates
for the half year to 30 June 20 were 30.8% for Marketing and 13.0%
for Art creation respectively. Please also note, there was a minor
re-classification between Audio and Localization in the Half Year
2020.
Pro forma revenue
Pro forma revenue is calculated by adding pre-acquisition
revenues of current year acquisitions to the current year revenue
numbers, to illustrate the size of the Group had the acquisitions
been included from the start of the financial year.
Half Half Half
Year Year Year Year
30 Jun 30 Jun 30 Jun 30 Jun
21 21 21 21
Revenue Pre-acquisition Pro Pro
revenue forma forma
Revenue Revenue
AER AER AER AER
EURm EURm EURm EURm
----------------------- ---------- ------------------ ----------- -----------
Art creation 22.7 - 22.7 42.7
Marketing 23.2 - 23.2 34.2
Game development 63.3 5.1 68.4 123.6
Audio 28.3 - 28.3 54.6
Functional testing 43.3 - 43.3 86.0
Localization 23.2 - 23.2 47.3
Localization testing 12.6 - 12.6 25.2
Player support 22.1 - 22.1 44.1
238.7 5.1 243.8 457.7
----------------------- ---------- ------------------ ----------- -----------
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 2020
foreign exchange rates to both years.
Half Half Half Half Half Half
Year Year Year Year Year Year
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
20 20 20 21 21 21
Revenue Pre-acquisition Like Revenue Revenue Organic
revenue for like growth revenue
revenue growth
AER AER AER CER CER CER
EURm EURm EURm EURm EURm %
----------------------- --------- ----------------- ----------- ---------- --------- -----------
Art creation* 18.9 - 18.9 4.8 23.7 25.4%
Marketing* 7.4 8.6 16.0 8.1 24.1 50.6%
Game development 38.7 18.7 57.4 8.9 66.3 15.5%
Audio* 20.9 0.5 21.4 7.8 29.2 36.4%
Functional testing 35.8 - 35.8 8.7 44.5 24.3%
Localization* 21.3 0.2 21.5 2.3 23.8 10.7%
Localization testing 10.7 - 10.7 2.1 12.8 19.6%
Player support 19.8 - 19.8 3.5 23.3 17.7%
173.5 28.0 201.5 46.2 247.7 22.9%
----------------------- --------- ----------------- ----------- ---------- --------- -----------
* The prior year comparatives has been re-classified to
separately report Marketing services, previously reported within
the Art Creation service line. In addition, there was a minor
re-classification between Audio and Localization in the Half Year
2020.
Adjusted operating costs
This comprises Administrative expenses as reported in the
Consolidated statement of comprehensive income, adding back share
option expense, costs of acquisition and integration, amortisation
and impairment of intangible assets, depreciation, non-controlling
interest and deducting bank charges. In order to present the
measure consistently year-on-year, the impact of COVID-19
government subsidies claimed is also excluded.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
21 20 20
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------- ---------- ---------- -----------
Consolidated statement
Administrative expenses of comprehensive income (66,802) (50,183) (102,090)
Consolidated statement
Share option expense of comprehensive income 8,454 6,750 15,350
Costs of acquisition and Consolidated statement
integration of comprehensive income 1,464 1,185 2,650
Amortisation and impairment Consolidated statement
of intangible assets of comprehensive income 6,553 5,662 8,808
Depreciation - property,
plant and equipment Note 9 5,347 4,209 8,983
Depreciation - right of use
assets Note 9 4,789 3,935 8,402
Consolidated statement
Non-controlling interest of comprehensive income 33 50 85
Bank charges Note 6 (249) (302) (552)
COVID-19 government subsidies Consolidated statement
claimed of comprehensive income - (3,411) (9,231)
Adjusted operating costs (40,411) (32,105) (67,595)
------------------------------------------------------------- ---------- ---------- -----------
Revenue from contracts with Consolidated statement
customers of comprehensive income 238,664 173,485 373,538
Adjusted operating costs
as a % of revenue 16.9% 18.5% 18.1%
------------------------------------------------------------- ---------- ---------- -----------
Adjusted operating profit
The Adjusted operating profit consists of the Operating profit
as reported in the Consolidated statement of comprehensive income,
adjusted for share option expense, costs of acquisition and
integration and amortisation and impairment of intangible assets.
In order to present the measure consistently year-on-year, the
impact of investment income and COVID-19 government subsidies
claimed are also excluded.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
21 20 20
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------- --------- --------- ---------
Consolidated statement
Operating profit of comprehensive income 24,321 12,737 41,119
Consolidated statement
Share option expense of comprehensive income 8,454 6,750 15,350
Costs of acquisition and Consolidated statement
integration of comprehensive income 1,464 1,185 2,650
Amortisation and impairment Consolidated statement
of intangible assets of comprehensive income 6,553 5,662 8,808
Consolidated statement
Investment income of comprehensive income - - (1,437)
COVID-19 government subsidies Consolidated statement
claimed of comprehensive income - (3,411) (9,231)
Adjusted operating profit 40,792 22,923 57,259
------------------------------------------------------------- --------- --------- ---------
Revenue from contracts with Consolidated statement
customers of comprehensive income 238,664 173,485 373,538
Adjusted operating profit
as a % of revenue 17.1% 13.2% 15.3%
------------------------------------------------------------- --------- --------- ---------
EBITDA
EBITDA comprises Operating profit as reported in the
Consolidated statement of comprehensive income, adjusted for
amortisation and impairment of intangible assets, depreciation, and
deducting bank charges.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
21 20 20
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------- --------- --------- ---------
Consolidated statement
Operating profit of comprehensive income 24,321 12,737 41,119
Amortisation and impairment Consolidated statement
of intangible assets of comprehensive income 6,553 5,662 8,808
Depreciation - property plant
and equipment Note 9 5,347 4,209 8,983
Depreciation - right of use
assets Note 9 4,789 3,935 8,402
Bank charges Note 6 (249) (302) (552)
EBITDA 40,761 26,241 66,760
------------------------------------------------------------- --------- --------- ---------
Adjusted EBITDA
Adjusted EBITDA comprises EBITDA, adjusted for share option
expense, costs of acquisition and integration and non-controlling
interest. In order to present the measure consistently
year-on-year, the impact of investment income and COVID-19
government subsidies claimed are also excluded.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
21 20 20
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------- --------- --------- ---------
EBITDA As above 40,761 26,241 66,760
Consolidated statement
Share option expense of comprehensive income 8,454 6,750 15,350
Costs of acquisition and Consolidated statement
integration of comprehensive income 1,464 1,185 2,650
Consolidated statement
Non-controlling interest of comprehensive income 33 50 85
Consolidated statement
Investment income of comprehensive income - - (1,437)
COVID-19 government subsidies Consolidated statement
claimed of comprehensive income - (3,411) (9,231)
Adjusted EBITDA 50,712 30,815 74,177
------------------------------------------------------------- --------- --------- ---------
Revenue from contracts with Consolidated statement
customers of comprehensive income 238,664 173,485 373,538
Adjusted EBITDA as a % of
revenue 21.2% 17.8% 19.9%
------------------------------------------------------------- --------- --------- ---------
Adjusted profit before tax
Adjusted profit before tax comprises Profit before taxation as
reported in the Consolidated statement of comprehensive income,
adjusted for share option expense, costs of acquisition and
integration, amortisation and impairment of intangible assets,
non-controlling interest, foreign exchange gains and losses, and
unwinding of discounted liabilities. In order to present the
measure consistently year-on-year, the impact of investment income
and COVID-19 government subsidies claimed are also excluded.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
21 20 20
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------------- --------- --------- ---------
Consolidated statement
Profit before taxation of comprehensive income 21,928 11,094 32,494
Consolidated statement
Share option expense of comprehensive income 8,454 6,750 15,350
Costs of acquisition and Consolidated statement
integration of comprehensive income 1,464 1,185 2,650
Amortisation and impairment Consolidated statement
of intangible assets of comprehensive income 6,553 5,662 8,808
Consolidated statement
Non-controlling interest of comprehensive income 33 50 85
Foreign exchange (gain) /
loss Note 6 540 264 6,103
Unwinding of discounted liabilities
- deferred consideration Note 6 736 119 132
Consolidated statement
Investment income of comprehensive income - - (1,437)
COVID-19 government subsidies Consolidated statement
claimed of comprehensive income - (3,411) (9,231)
Adjusted profit before tax 39,708 21,713 54,954
------------------------------------------------------------------- --------- --------- ---------
Revenue from contracts with Consolidated statement
customers of comprehensive income 238,664 173,485 373,538
Adjusted profit before tax
as a % of revenue 16.6% 12.5% 14.7%
------------------------------------------------------------------- --------- --------- ---------
Adjusted effective tax rate
The Adjusted effective tax rate is the Taxation expense as
reported in the Consolidated statement of comprehensive income,
adjusted for the tax impact of the adjusting items in arriving at
Adjusted profit before tax, as a percentage of the Adjusted profit
before tax.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
21 20 20
Calculation EUR'000 EUR'000 EUR'000
----------------------------------------------------------------- --------- --------- ---------
Adjusted profit before tax As above 39,708 21,713 54,954
-------------------------------- ------------------------------- --------- --------- ---------
Consolidated statement
Taxation of comprehensive income 6,286 4,691 11,027
--------- --------- ---------
Effective tax rate before Taxation / Adjusted profit
tax on adjusting items before tax 15.8% 21.6% 20.1%
-------------------------------- ------------------------------- --------- --------- ---------
Tax arising on bridging items
to Adjusted profit before
tax^ 2,252 (21) 785
----------------------------------------------------------------- --------- --------- ---------
Adjusted taxation 8,538 4,670 11,812
--------- --------- ---------
Adjusted taxation / Adjusted
Adjusted effective tax rate profit before tax 21.5% 21.5% 21.5%
-------------------------------- ------------------------------- --------- --------- ---------
^Being mainly the tax impact of amortisation of intangible
assets EUR1.6m and share option expense EUR1.3m, with the prior
Half Year being mainly the tax impact of amortisation of intangible
assets EUR0.90m and COVID-19 government subsidies claimed
EUR0.92m.
Adjusted earnings per share
The Adjusted profit after tax comprises the Adjusted profit
before tax, less the Taxation expense as reported in the
Consolidated statement of comprehensive income, adjusted for the
tax impact of the adjusting items in arriving at Adjusted profit
before tax.
The Adjusted earnings per share comprises the Adjusted profit
after tax divided by the non-diluted weighted average number of
shares as reported in note 7.
Half Year Half Year Year
30 Jun 30 Jun 31 Dec
21 20 20
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------- ------------ ------------ ------------
Adjusted profit before tax As above 39,708 21,713 54,954
Consolidated statement
Taxation of comprehensive income (6,286) (4,691) (11,027)
Tax arising on bridging items
to Adjusted profit before
tax^ (2,252) 21 (785)
------------------------------------------------------------- ------------ ------------ ------------
Adjusted profit after tax 31,170 17,043 43,142
Denominator (weighted average
number of equity shares) Note 7 74,980,344 67,506,245 70,800,455
-------------------------------- --------------------------- ------------ ------------ ------------
EUR c EUR c EUR c
-------------------------------- --------------------------- ------------ ------------ ------------
Adjusted earnings per share 41.57 25.25 60.93
------------
Adjusted earnings per share
% growth 64.6% 17.3% 24.9%
------------------------------------------------------------- ------------ ------------ ------------
^Being mainly the tax impact of amortisation of intangible
assets EUR1.6m and share option expense EUR1.3m, with the prior
Half Year being mainly the tax impact of amortisation of intangible
assets EUR0.90m and COVID-19 government subsidies claimed
EUR0.92m.
Return on capital employed (ROCE)
ROCE represents the Adjusted profit before tax (excluding net
interest costs, unwinding of discounted lease liabilities and bank
charges, and also adjusted to include pre-acquisition profits of
current year acquisitions), expressed as a percentage of the
capital employed. As the Group continues to make multiple
acquisitions each year, the calculation further adjusts the
Adjusted profit before tax and the capital employed as if all the
acquisitions made during each year were made at the start of that
year. 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 plan liabilities, cumulative amortisation of
intangible assets (customer relationships), acquisition related
liabilities (deferred and contingent consideration), together with
loans and borrowings, while deducting cash and cash
equivalents.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
21 20 20
Calculation EUR'000 EUR'000 EUR'000
--------------------------------------------------------------------------- ---------- ----------- -----------
Adjusted profit before tax As above 39,708 21,713 54,954
Interest received Note 6 (49) (31) (76)
Bank charges Note 6 249 302 552
Interest expense Note 6 433 645 1,071
Unwinding of discounted liabilities
- lease liabilities Note 6 484 344 843
Pre-acquisition profits of
current year acquisitions Note 17 2,119 181 9,399
---------------------------------------- --------------------------------- ---------- ----------- -----------
Adjusted profit before tax
including pre acquisition
profit excluding interest
for the period 42,944 23,154 66,743
Rolling 12 month adjustment 43,589 23,827 -
Adjusted profit before tax
including pre-acquisition
profit and excluding net
interest 86,533 46,981 66,743
--------------------------------------------------------------------------- ---------- ----------- -----------
Consolidated statement
Total equity of financial position 427,798 339,494 371,235
Employee defined benefit Consolidated statement
plans of financial position 2,989 2,049 2,693
Cumulative amortisation of
intangibles assets (customer
relationships) 32,411 23,157 25,178
Deferred and contingent consideration Note 13 57,941 6,354 20,802
Loans and borrowings Note 14 165 218 195
Consolidated statement
Cash and cash equivalents of financial position (84,285) (101,213) (103,070)
Capital employed 437,019 270,059 317,033
--------------------------------------------------------------------------- ---------- ----------- -----------
Adjusted profit before
tax including pre acquisition
profit and excluding net
interest expense (on a
rolling 12 month basis)
Return on capital employed / capital employed 19.8% 17.4% 21.1%
---------------------------------------- --------------------------------- ---------- ----------- -----------
Free cash flow
Free cash flow represents Net cash generated by / (used in)
operating activities as reported in the Consolidated statement of
cash flows, adjusted for acquisition and integration cash outlay,
capital expenditure, net interest paid, payments of principal on
lease liabilities and is presented both before and after taxation
paid. In order to present the measure consistently year-on-year,
the impact of investment income is also excluded.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
21 20 20
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------- --------- --------- ----------
Net cash generated by / (used Consolidated statement
in) operating activities of cash flows 37,236 20,129 76,420
Acquisition and integration
cash outlay:
Costs of acquisition and Consolidated statement
integration of comprehensive income 1,464 1,185 2,650
Fair value adjustments to Consolidated statement
contingent consideration of cash flows - 34 66
Fair value adjustments to Consolidated statement
right of use assets of cash flows - - (434)
Acquisition of property, Consolidated statement
plant and equipment of cash flows (9,378) (4,888) (13,908)
Investment in intangible Consolidated statement
assets of cash flows (157) - (259)
Consolidated statement
Investment income of comprehensive income - - (1,437)
Consolidated statement
Interest received of cash flows 49 31 76
Consolidated statement
Interest paid of cash flows (821) (897) (1,722)
Payments of principal on Consolidated statement
lease liabilities of cash flows (4,551) (3,930) (8,170)
-------------------------------- --------------------------- --------- --------- ----------
Free cash flow after tax 23,842 11,664 53,282
Consolidated statement
Taxation paid of cash flows 9,791 1,961 4,459
Free cash flow before tax 33,633 13,625 57,741
------------------------------------------------------------- --------- --------- ----------
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.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
21 20 20
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------- --------- --------- ---------
Free cash flow before tax As above 33,633 13,625 57,741
-------------------------------- --------------------------- --------- --------- ---------
Capital expenditure in excess
of depreciation:
Acquisition of property, Consolidated statement
plant and equipment of cash flows 9,378 4,888 13,908
Depreciation - property, Consolidated statement
plant and equipment of cash flows (5,347) (4,209) (8,983)
-------------------------------- --------------------------- --------- --------- ---------
Capital expenditure in excess
of depreciation 4,031 679 4,925
------------------------------------------------------------- --------- --------- ---------
COVID-19 government subsidies Consolidated statement
claimed of comprehensive income - (3,411) (9,231)
Adjusted free cash flow 37,664 10,893 53,435
------------------------------------------------------------- --------- --------- ---------
Adjusted cash conversion rate
The Adjusted cash conversion rate is the Adjusted free cash flow
as a percentage of the Adjusted profit before tax:
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
21 20 20
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------- --------- --------- ---------
Adjusted free cash flow As above 37,664 10,893 53,435
Adjusted profit before tax As above 39,708 21,713 54,954
----------------------------- ------------------------------ --------- --------- ---------
Free cash flow before tax
and capital expenditure
in excess of depreciation,
Adjusted cash conversion as a % of Adjusted profit
ratio before tax 94.9% 50.2% 97.2%
----------------------------- ------------------------------ --------- --------- ---------
Net debt
The Group manages capital by monitoring debt to capital and net
debt ratios. This debt to capital ratio is calculated as net debt
to total equity. Net debt is calculated as Loans and borrowings (as
shown in the Consolidated statement of financial position) less
Cash and cash equivalents, and excludes Lease liabilities. At the
period end the net debt and the debt to capital ratio were as
follows:
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
21 20 20
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------ ---------- ----------- -----------
Loans and borrowings Note 14 165 218 195
Consolidated statement
Cash and cash equivalents of financial position (84,285) (101,213) (103,070)
Net debt / (net cash) position (84,120) (100,995) (102,875)
------------------------------------------------------------ ---------- ----------- -----------
Consolidated statement
Total equity of financial position 427,798 339,494 371,235
Net debt / (net cash) to
capital ratio (%) (19.7%) (29.7%) (27.7%)
------------------------------------------------------------ ---------- ----------- -----------
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END
IR VZLFFFKLZBBD
(END) Dow Jones Newswires
September 15, 2021 02:00 ET (06:00 GMT)
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