TIDMKWS
RNS Number : 1944K
Keywords Studios PLC
09 April 2018
9 April 2018
Keywords Studios plc ("Keywords", "the Group")
Full year results for the year to 31 December 2017
Another excellent performance reflecting strong organic and
acquisitive growth
Keywords Studios, the international technical services provider
to the global video games industry, today provides its full year
results for the year to 31 December 2017.
Financial overview:
-- Group revenue (including effect of acquisitions) increased by
57% to EUR151.4m (2016: EUR96.6m)
-- Adjusted EBITDA* up 57% to EUR26.3m (2016: EUR16.7m),
representing a margin of 17.4% (2016: 17.3%)
-- Adjusted profit before tax* increased by 55% to EUR23.0m (2016: EUR14.9m)
-- Adjusted basic earnings per share* up by 52% to 31.18c (2016: 20.59c)
-- Adjusted operating cash generation** increase of 48% to EUR21.9m (2016: EUR14.8m)
-- Net cash*** of EUR11.1m (2016: EUR8.7m)
-- Final dividend of 0.98p (2016: 0.89p); 10% increase in total
dividend to 1.46p per share (2016: 1.33p)
Operational overview:
-- 15.1% increase in like for like**** revenue
-- 11 acquisitions completed to expand our existing services
lines (including a new engineering service line) and extend our
geographical reach, including our two largest acquisitions to
date:
o Acquisition of VMC in October for $66.4m giving the Group
leadership in functional testing in North America, significantly
increased our presence in player support services, added new
service delivery models including Embedded Technical Services and
the Global Beta Test Network
o Acquisition of Sperasoft in December for $27m brought strength
in co-development, extended our Engineering and Art capabilities,
and provided entry points into Eastern Europe
-- Good progress made with integrating acquisitions, with
multiple operations being integrated together in Paris, Mexico
City, Seattle and Madrid
-- Invested in adding capacity for organic growth across multiple studios
o Continued success in cross-selling our extended services with
a 45% increase in clients using three or more services from 64 to
93
*before acquisition and integration expenses of EUR3.0m (2016:
EUR1.3m), share option charges of EUR1.4m (2016: EUR0.7m),
amortisation of intangibles of EUR3.0m (2016: EUR1.6m), and foreign
currency exchange loss of EUR3.6m (2016: loss of EUR1.7m)
**cash flow from operations plus acquisition related expenses of
EUR3.0 (2016: EUR1.3m), plus exceptional working capital costs
related to the VMC acquisition of EUR3.0m (2016: nil), plus EUR2.3m
in VMC receipts held by a third party on behalf of the Group and
passed to the Group post year end. In the comparative year,
multimedia tax credits (MMTC) of EUR1.6m were received in respect
of claims prior to 2015
***after payment of EUR87.0m net cash consideration for
acquisitions (2016: EUR21.1m), EUR3.0m of acquisition costs and
integration expenses (2016: EUR1.3m), and GBP75.0m raised (before
expenses) via an equity placing (2016: nil).
**** calculated on the basis of revenues being included for 2017
acquisitions from the date of acquisition and for the equivalent
period in the prior year.
Current trading and outlook:
-- Acquisitions announced separately today:
o Cord Worldwide Limited and Laced Music Limited for a total
consideration of GBP4.5m
o Maximal Studio for an initial cash consideration of EUR0.3m
and EUR0.2m deferred subject to performance
-- The typically quieter first quarter has seen activity levels
in line with our expectations and the positive momentum in the
business gives us confidence in the outcome for the full year
-- Encouraging early wins for new co-development services
-- Agreed heads of terms for a revolving credit facility of up to EUR105m
-- Acquisition pipeline remains healthy
Andrew Day, Chief Executive of Keywords Studios, commented:
"The Group has delivered another strong performance with good
organic growth supplemented by a number of acquisitions including
two of our largest acquisitions to date.
"Our organic investment and acquisitions have added significant
scale to our existing service lines and extended both our service
range and geographical reach, establishing a new Engineering
service line, bringing additional capabilities in co-development,
content management, and delivering services from within clients'
premises, and providing us with a presence in Eastern Europe.
"We entered 2018 with pro forma revenues of EUR225m, across
seven service lines and 42 studios in four continents, compared to
just over EUR16m derived from four service lines and five studios
in 2013 - the year of our IPO.
"We expect to make continued strong progress as we realise the
full benefits of our enhanced services platform and with the
financing in place to support further organic and acquisitive
growth in 2018."
A presentation of the full year results will be made to analysts
at 9.30am today at MHP's offices. There will also be a live, listen
only webcast of the presentation and a recording will be made
available via www.keywordsstudios.com. To register for access,
please contact Charles Hirst at MHP Communications on +44 20 3128
8193 or email keywords@mhpc.com.
For further information, please contact:
Keywords Studios (www.keywordsstudios.com)
Andrew Day, Chief Executive
Officer
David Broderick, Chief Financial
Officer +353 190 22 730
Numis (Financial Adviser)
Stuart Skinner / Kevin Cruickshank
(Nominated Adviser)
James Black / Tom Ballard
(Corporate Broker) + 44 20 7260 1000
MHP Communications (Financial + 44 20 3128 8100
PR) Keywords@mhpc.com
Katie Hunt / Ollie Hoare
/ Nessyah Hart / Charles
Hirst
Certain information contained in this announcement would have
constituted inside information (as defined by Article 7 of
Regulation (EU) No 596/2014) prior to its release as part of this
announcement.
Notes to Editors
Keywords Studios is an international technical services provider
to the global video games industry. Established in 1998, and now
with over 40 facilities in 20 countries strategically located in
Asia, the Americas and Europe, it provides integrated art creation,
software engineering, testing, localisation, audio and customer
care services across more than 50 languages and 16 games platforms
to a blue-chip client base in more than 15 countries. It has a
strong market position, providing services to 23 of the top 25 most
prominent games companies, including Activision Blizzard, Bandai
Namco, Bethesda, Electronic Arts, Konami, Riot Games, Sony, Square
Enix, Supercell, TakeTwo, and Ubisoft. Recent titles worked on
include Uncharted 4: A Thief's End, Call of Duty: Infinite Warfare,
Mortal Combat X, Assassin's Creed Syndicate, Battlefield 1,
Overwatch, World of Warcraft: Legion, Hearthstone, Clash Royale,
and Mobile Strike. Keywords Studios is listed on AIM, the London
Stock Exchange regulated market (KWS.L).
www.keywordsstudios.com
Chairman's Statement
Significant growth globally
I am delighted to report another excellent performance, with the
Group having delivered significant revenue growth, whilst
maintaining margins, to achieve a 55% increase in Adjusted profit
before tax to EUR23.0m in the year (2016: EUR14.9m).
The Group's strong performance reflects the continuation of our
proven strategy to supplement strong organic growth with
acquisitions that further extend the Group's services and
geographical reach to position us as the leading creative and
technical services provider to the global video games industry. We
made eleven acquisitions during the year, including two of our
largest to date, VMC and Sperasoft. These acquisitions have enabled
us to form a new Engineering service line of scale, add
co-development expertise, expand the capacity of and capabilities
within our existing service lines considerably and extend our
geographical reach into Eastern Europe.
In addition, we have invested in expanding capacity at many of
our studios including Montreal, Zhengzhou, Manila, Dublin, Madrid
and Tokyo during the year with further investments in expansion
planned for 2018.
Managing and Funding Growth
Part of the success of the Group can be attributed to the
ability of the management team to source, execute and integrate
acquisitions effectively across the globe and across our service
lines whilst retaining the Keywords culture, which is a particular
competency the team has built since IPO. That this has been
accomplished across all of our service lines, now embracing over 40
studios in 20 countries, during 2017 is a notable achievement.
During the year, we raised GBP75m via a placing (before
expenses), which was very well subscribed and we would like to
thank our shareholders for their continued support. Since the year
end, we have agreed terms for a new bank facility, initially for
EUR75m over a three year term with the option to extend the
facility to EUR105m and by a further two years. The new facility
replaces the existing EUR35m facility and is on improved terms.
Together with our strong cash generation (the Group finished 2017
with EUR11.1m of net cash) this gives us further headroom to make
acquisitions.
We are very comfortable with this level of debt, given that a
high proportion of the Group's revenues can be predicted with some
certainty, and seek to maintain a mix of funding for our growth
strategy which both gives us the flexibility to act on our
investment decisions and enhances shareholder value.
People and Board
The Group's progress is a great credit to every single Keywords
person who has helped make it happen. During the year our CEO,
Andrew Day, was accorded the honour of being voted as CEO of the
year at the Grant Thornton Quoted Company Awards 2018, a
much-deserved tribute for someone who has been the very essence of
Keywords - its dynamism, client focus and culture - but the award
is also a tribute to the whole Keywords team.
I would like to thank my fellow directors, whose complement has
been strengthened by the appointments of Charlotta Ginman and
Georges Fornay during the year. Both have added their own strengths
to the Board, which benefits from a diversity of views in its
highly constructive discussions which I believe ensures the Board
operates effectively, to the benefit of the Group as it grows.
Charlotta brings with her extensive investment banking, technology
and mobile industry and PLC experience whilst Georges brings with
him strong video games industry expertise.
I would also like to thank the senior management team and all
the hard working employees within the Group. There is a tremendous
spirit within the businesses which makes Keywords a success, with a
culture of continuous improvement which encourages everyone to make
their own contributions towards consistently ensuring we provide
the best service possible to our clients.
Dividend
In line with our progressive dividend policy, and allowing for
the need to retain resources to fund future growth of the Group's
business and its strategic aims, the Board is pleased to recommend
a final dividend of 0.98p per share which, following the interim
dividend payment of 0.48p per share, will make the total dividend
for the year ending 31 December 2017 1.46p per share, an increase
of 10% compared to 2016.
Summary and Outlook
Following a highly successful 2017, we entered 2018 with pro
forma revenues of EUR225m derived from a more diversified, better
balanced business with an expanded range of services and locations
that will support our aim to increasingly become a key strategic
partner to the major games companies.
It is a pleasure to Chair a Group which has a strong business
model that supports profitable growth and high cash conversion,
where the strategic aims are clearly defined, and that serves an
industry which is growing fast in which we can increase our share
by offering an expanding array of services.
The Keywords team remains highly focussed on delivering the high
standard of work we have come to be known for and maintaining the
trust and confidence of our clients as we grow both organically and
by acquisition. I am, therefore, confident that the Group will make
further progress as it continues to build upon its strengthened
services platform with considerable for further growth.
Ross Graham
Chairman
9 April 2018
Strategic Report and Chief Executive's Review
An excellent performance and a strengthened services
platform
The Group has delivered another strong performance, with good
like for like growth from the existing businesses combined with
successfully securing and integrating acquisitions that have
significantly enhanced our services platform in line with our
strategy.
Delivering on Our Strategy
We continue to execute well in pursuit of our strategy to build
the world's leading creative and technical services platform
focused on the most complex of interactive content - video
games.
We operate in a service provision industry which remains highly
fragmented despite the scale and global nature of the major video
games publishers and developers, and the trend towards those
clients outsourcing a greater proportion of their games development
and in-game support to manage the demands for increasingly
sophisticated content whilst limiting their fixed costs.
The key pillars of our strategy are, therefore, to grow
organically and by acquisition to extend the Group's service
capacity, capabilities and geographical reach - where we seek to
gain access to markets for the best talent or to be close to our
clients. By generating synergies across our expanding multi-service
global platform, we are increasingly becoming a key strategic
partner to our customers.
2017 Acquisitions
2017 saw Keywords successfully execute 11 acquisitions as we
continue to selectively consolidate our market. These businesses
are spread across multiple geographies and added to all seven of
our service lines demonstrating the strength of our leadership team
which comprises both regional and service line management. All of
the acquisitions in 2017 have been or are being integrated.
In particular, the addition of Engineering Services as our
seventh service line during 2017 has filled an important gap in our
palette of services and we look forward to continuing to build this
business in 2018 and beyond. This was initially formed by our
acquisition of GameSim in May and expanded through our acquisitions
of d3t in October and Sperasoft in December, providing the Group
with game development, game porting and live operations support
talent totalling some 400 people.
We have also successfully extended our geographic reach adding
operations in Eastern Europe for the first time through our
acquisition of Sperasoft, giving us access to talent in a market
known for strong technical skills, particularly in software
development. Sperasoft brought with it scale and expertise in
Engineering and Art services, with a particular strength in
co-development in which significant parts of or even full games are
developed on behalf of game developers or publishers. This further
enhances our positioning as a strategic partner to game developers
and publishers who are increasingly relying upon co-development
arrangements to provide them with broader development support for
their games that are increasingly bigger and higher definition,
whilst we continue to ensure we are not directly exposed to the
commercial performance of individual titles. We expect to be able
to grow this way of working with our clients, combining Sperasoft's
strength in co-development with our broader service range for a
more integrated service delivery.
Sperasoft's 370 talented engineers, game designers, artists and
project managers are based in St Petersburg, Krakow and Volgograd
and we are now looking at seeding some of our other services into
these locations.
VMC, acquired in October for $66.4mm, brought the Group
leadership and scale in functional testing and significantly
increased our presence in player support services. It also brought
to the Group specialist expertise in managing 'Embedded Technical
Services', through which VMC provides Testing, Customer Support and
other services in-situ at clients' facilities. VMC was a carve out
from the publicly quoted Volt Information Sciences Inc. Its
operations are in the US and Canada and its integration, which is
nearly complete, includes consolidation of facilities and of
management teams and the migration of the business to Keywords'
core operating IT platforms. The integration is being led by
Nicolas Liorzou, our Regional Managing Director for the Americas
who has led the successful integration of two previous
acquisitions, Babel Media (acquired in 2014) and Enzyme (acquired
in 2016).
Our simultaneous acquisitions of the Paris based audio and
localisation businesses of La Marque Rose, Around the Word, Dune
Sound and asrec in August are being integrated with our existing
audio and localisation business there, which we acquired with the
acquisition of Synthesis in 2016. Led by Michel Golgevit, CEO of
Around the Word, these businesses are planning to move to custom
built, state of the art audio recording studios in 2018. Also in
the Audio service line, Lola in Mexico City was acquired just
before the end of the year and they are working with the management
of Kite Team in Mexico, which joined the Group in 2015, to
integrate the two businesses.
In our Art Service line, which saw a change of leadership at the
end of the year with the retirement of Fred Stockton and the
appointment of Ashley Liu as Service Line Director, the
acquisitions of SPOV in London, and Red Hot with its facilities in
Shanghai, Dalian, Zhengzhou, Chengdu and Yogyakarta have performed
to expectations and are integrating well.
XLoc, a technology company with a proprietary content management
solution that helps clients manage and automate the complex process
of localising games content across multiple languages and
platforms, was acquired in May. There have already been some
successes in cross selling this platform alongside our localisation
services which we believe will further embed us in to the
localisation processes of games developers.
Organic Growth and Investment
We have continued to drive organic growth across the business,
having achieved a 15.1% increase in like for like revenue in 2017
(which is calculated on the basis of revenues being included for
2017 acquisitions from the date of acquisition and for the
equivalent period in the prior year in order to provide a clearer
measure of the organic growth of all of the businesses now within
the Group). Audio had a particularly tough comparator with
Synthesis having produced an exceptional performance in 2016 while
all other service lines posted strong like for like growth.
Functional Testing and Customer Support produced particularly
strong growth. We have seen some beneficial impact from the
burgeoning eSports market as we respond to demands for translation
services, marketing materials and customer support related to the
events being staged and we are seeing demand for our services from
outside the games industry as other industries seek out the skills
and technology to make their content interactive.
Our organic growth was driven in part by further strong progress
with extending our client relationships, as evidenced by a 45%
increase in clients using three or more services from 64 in 2016 to
93 in 2017.
As announced at the half year, we also launched an ambitious
programme of investments in many of our studios to add capacity in
locations including Montreal, Zhengzhou, Manila, Dublin, Madrid and
Tokyo, with new recording studios planned for London and Paris in
2018.
A combination of our organic and acquisitive investment meant we
finished the year with 42 operating locations in 20 countries
compared to 27 locations in 17 countries in 2016.
The acquisitions of VMC and Sperasoft will result in the Group's
share of revenue denominated in USD growing from 46% in 2017.
Recent weakness in the USD compared to a number of other currencies
in which the Group trades such as the Canadian Dollar, Euro, Yen,
Renminbi and Rupee is being monitored and some USD denominated
pricing may be adjusted accordingly.
Service Line review
Art Creation (17% of Group revenues in the year)
Art Creation services revenue grew 58% to EUR26.2m (2016:
EUR16.6m). On a like-for-like basis, Art grew by 14% year on year,
reflecting a year in which Lakshya Digital consolidated the very
strong growth of 2015 and 2016 and the remaining studios made good
progress including Red Hot which we acquired in May. Including
Sperasoft, we concluded the year with over 1,000 artists on our
payroll of which the majority are in India and China. Through
Liquid Development and Volta we manage further pools of freelance
artists numbering about 200 in total. This talent base makes
Keywords one of the largest art services businesses in the highly
fragmented global video games art services market.
Our Art studios are increasingly working with each other to
leverage their respective capacities, and capabilities, to deliver
top quality work to their global client base. Likewise, with our
recent investments in Engineering services, these two service lines
are working together in a co-development model to produce complete
game development services for game developers and publishers.
Under the leadership of Ashley Liu (previously CEO of Mindwalk),
the objective for our Art Creation services line is to continue to
grow capacity to meet demand (including internal demand from our
co-development activities), whilst maintaining our reputation for
quality and reliability of delivery to our customers' timescales.
In addition, we aim to extend our capabilities in areas such as
visual special effects, user interface design, cinematics and
motion graphics, which we have started to do with the acquisition
of Spov early in 2017.
Engineering (2% of Group revenue for the year)
With Sperasoft only being included since December, d3t from
October and GameSim from May, our Engineering service line is being
built through acquisition in much the same as we have built our Art
Creation service line which started in October 2014 with the
acquisition of Lakshya Digital. We have had some very early
successes with cross selling our engineering capabilities into
clients who use other Keywords services and we look forward to
continuing to build our Engineering service line in 2018 and
beyond.
Audio (14% of Group revenue for the year)
Our Audio service line increased revenues by 20% to EUR20.7m
(2016: EUR17.3m) including contributions from La Marque Rose,
Around the Word, Dune Sound and asrec, all of which were acquired
in August and Lola which was acquired in December. On a
like-for-like basis, revenues in our Audio service line declined by
approximately 10%, in part reflecting the exceptionally strong
performance of Synthesis in the prior year. Also, the video games
voice actors' strike which effected the video games voice recording
market in Los Angeles was resolved in September 2017 and we look
forward to more buoyant conditions there in 2018.
We opened an audio studio in Tokyo, strengthened our management
of the combined Kite Team, Synthesis and Sonox operations in Madrid
and also that of our Los Angeles studio. In 2018, we plan to invest
in state of the art audio recording facilities in Paris and
London.
Functional Testing (20% of Group revenue for the year)
Our Functional Testing services grew by 248% to EUR30.0m (2016:
EUR8.6m), including a ten-week contribution from VMC which was
acquired in October 2017, and grew by an impressive 52% on a
like-for-like basis.
Some 50% of VMC's EUR47m annual revenues fall into the
Functional Testing Service line and the service line management
team have been instrumental in integrating the functional testing
businesses in Seattle and Montreal, slimming down the combined
management team, standardising tools and processes and making
efficient use of office space. As a result, we anticipate improved
margins from the VMC business as signalled at the time of
acquisition.
The organic growth of Functional Testing has driven demand for
increased capacity in Montreal and New Delhi and we have invested
during the year in additional space in both locations and are
evaluating options for expansion in other locations.
During the year we also invested in Player Research, the play
testing business we acquired in October 2016, with the opening of a
purpose-built play test laboratory in our Montreal building.
Localisation (28% of Group revenue in the year)
Our Localisation activities, including contributions from XLoc
acquired in May, La Marque Rose, Around the Word, Dune Sound, asrec
and VMC which were acquired in August, increased revenues by 30%,
to EUR42.0m (2016: EUR32.4m), and continued its excellent record of
growth with a like-for-like increase of 20%.
The business produced around 250 million translated words during
the year as our Localisation service line continued to benefit from
the trend towards 'games as a service' which necessitates fresh
content being added to the game on a frequent basis to expand the
game worlds and keep players engaged. Another driver of growth has
been eSports where our localisation expertise has been called upon
for the production of marketing content, customer support materials
and "live translation" of event content. We are the leading
localisation provider for video games and enjoy a strong position
in the fast-growing mobile games segment of the market, where
content additions to the many leading games that we support result
in continuous localisation work for the Group in as many as 30
languages.
During the year we completed the internal rollout of our
proprietary localisation project management system, BPS, and we
continue to invest in enhancements to the software to improve the
efficiency of our localisation teams.
Localisation Testing (13% of Group revenue in the year)
Our Localisation Testing operations grew by 22% on an absolute
basis to EUR19.9m (2016: EUR16.2m) helped by the addition of
revenues from VMC and full year contributions from Synthesis and
Enzyme which were acquired in April 2016 and November 2016
respectively. On a like for like basis, growth was a more modest
3%. The integration of VMC's Localisation Testing business is
progressing well.
With secure localisation testing studios in Montreal, Dublin,
Milan, Singapore and Tokyo we believe this service line is the
largest provider of localisation testing in the video games market.
We look forward to continuing to serve our clients around the world
while optimising our production efficiency, assisted by our
increased scale, and developing our talent pool of games passionate
professionals of over 30 different nationalities.
Customer Support (6% of Group revenue for the year)
Revenues for this service line benefitted from a significant
contribution from VMC and grew by 64% to EUR9.2m (2016: EUR5.6m).
On a like-for-like basis, the business grew by 16% thanks to new
client wins and successful cross selling efforts.
Our Customer Support business which includes live operations
support functions like community management, fraud prevention, bot
hunting and VIP services, continues to perform strongly and is
achieving strong organic growth.
Among the highlights for this business line has been the growth
of the Manila based customer support operation spun out from our
client, Ankama in March 2016 from the then 23 staff to over 350
today. We've also been pleased with the success of our customer
support teams based in our studio in Tokyo, where they service both
Japanese and non-Japanese clients. During the year we opened a
multi lingual customer support studio in Madrid alongside our audio
and localisation businesses there and in 2018 we are considering
establishing a support centre in Eastern Europe as we leverage our
presence there following the Sperasoft acquisition.
Whilst our Customer Support service line remains a relatively
small part of the Group, we believe our specialist teams offer an
attractive alternative to traditional large customer support call
centres. Our customers are highly focussed on keeping gamers in
their games for longer. We believe our model of using teams of
passionate gamers with deep knowledge of the games they are
supporting provides improved user satisfaction and will enable us
to increase our share of this growing market over time.
People
The Group employed an average 3,167 people in 2017 (2016:
1,818). Well balanced across our three regions, we employed 1,142
in The Americas, 609 in Europe and 1,416 in Asia. As the growing
games industry continues to produce more content for industries as
diverse as retail, urban planning, advertising, education,
architecture and automotive which adopt the use of game engines to
make their content more interactive and engaging, so we see the
demand for human capital increase. Our broad and deep pool of
highly experienced and games passionate co-workers provide an
outsourced resource for our clients to tap into as and when they
need in order to get their content to market in a flexible and
cost-efficient manner.
Our culture acts as the glue that binds our staff around the
world together. Relaxed, professional and humble with a focus on
doing the very best we can for each project entrusted to us, this
culture creates an environment in which games passionate
individuals can work together with likeminded colleagues while
enjoying the opportunity to work on most of the world's leading
games ahead of their release. Working on around 150 games at any
time in the year and more than 500 in total throughout the year,
Keywords provides an excellent and sustainable variety of work,
good career advancement and opportunities to work in many different
locations. We are proud to serve as a stepping stone for those that
go on to make their careers in games production and publishing and
we are fortunate to have an excellent alumnus of Keywordians
employed by many of our client companies.
Our acquisition programme also brings fresh talent to the Group
at all levels and we continue to be successful at integrating our
businesses including providing opportunities for staff to move
between our various studios. This year we have added game
programmers, game designers and engineers to our ever-growing
Keywords family. This is reflected in our senior leadership team,
which comprises four people from the original Keywords business,
seven people from acquired entities as well as four externally
hired employees.
Current Market Trends
Following the refreshes of the PlayStation(R) and Xbox consoles
with the launch of the PS4 Pro and the Xbox One S in 2016, the
success of the Nintendo Switch in 2017 was a highlight of the
console market in the period benefitting Keywords as we provide
services for games made for this platform and assist developers in
repurposing existing games for the Switch.
The astounding success achieved by battle arena games led by
Fortnite and Player Unknown Battleground seem set to continue and
we are fortunate to be providing services for those games too. The
mobile games sector continues to grow faster than the other
platform types, with much of this growth originating in Asia where
we continue to expand and build upon our relationships with the
major games publishers in China, Japan and Korea.
The evolution of the console gaming sector from packaged
product, through digitally delivered content and into the
monetisation models of free to play and micro transactions that
were previously the preserve of PC and mobile gaming is interesting
to see and brings with it a requirement on the part of our game
developer and clients to continually feed their games with new
content, the challenges of which we have mastered over time with
our clients in PC, social and mobile gaming.
Augmented reality has received a lot of attention but, as with
virtual reality in 2016, we feel this technology is still early
stage and the mass adoption of both content formats is probably a
few years off. However, virtual and augmented reality games and
applications continue to generate additional demand for our
services.
The eSports market is developing strongly and, while we do
benefit to some extent from this through the provision of our
existing services to support the games being played and through
supporting the marketing and communications management of the
events themselves, we continue to seek out ways in which we could
participate in this segment in a more meaningful manner.
Outlook
As we did in 2016, in 2017 we had a strong finish to the year
particularly in our audio and testing businesses. The typically
quieter first quarter has seen activity levels in line with our
expectations and the positive momentum in the business gives us
confidence in the outcome for the full year.
Early wins of co-development projects in 2018 are encouraging
signs of the demand from game developers and publishers for
integrated delivery of Engineering and Art in the form of game
remastering and game development. We anticipate that demand for
co-development services will continue to increase as the size and
complexity of games makes it harder for any one development studio
to undertake all the development themselves. We look forward to
being able to package more of our services into co-development
style engagements, including audio, localisation and testing, to
add further value to our clients.
As a more diversified, better balanced business with an expanded
range of services and locations to offer our clients, and the
support of a global sales and marketing function, we see many
opportunities to extend our existing relationships and become a
strategic partner to major games companies, both through providing
more integrated services and through the provision of dedicated
outsourced or embedded services.
Each service line is pursuing a growth strategy formulated for
its own market opportunity, with some including a larger
acquisition component than others to add scale or capabilities that
we do not currently have within the Group, with the aim of a good
balance between all seven service lines over time.
We have entered 2018 with a considerably enhanced platform and a
healthy acquisition pipeline and we fully expect to grow our
business organically as well as through selectively acquiring
complementary businesses as we continue to consolidate the highly
fragmented market for video games services in 2018.
Andrew Day
Group Chief Executive Officer
9 April 2018
Financial and Operating Review
Group performance
2017 has seen the Group deliver another year of significant
increases in revenue, profit and underlying cash generation driven
by good organic growth, substantially complemented by acquisitions
which have further extended its service offering, market
penetration and geographic reach.
Revenue mix
Revenues increased across all lines of business in 2017,
resulting in our seven service lines accounting for the following
proportion of Group Sales in the year:
Year ended Year ended Pro forma* Pro forma*
31 Dec '17 31 Dec '16 for the for the
year ended year ended
31 Dec '17 31 Dec '17
% % % EUR'm
--------------------- ----------- ----------- ------------ ------------
Functional Testing 19.8 8.9 23.3 52.2
Localisation Testing 13.1 16.8 10.0 22.5
Localisation 27.7 33.5 19.5 43.9
Audio 13.6 17.9 11.7 26.3
Customer Support 6.1 5.8 11.7 26.3
Art Creation 17.3 17.1 14.1 31.6
Engineering 2.4 - 9.7 21.7
--------------------- ----------- ----------- ------------ ------------
Total 100 100 100 224.5
--------------------- ----------- ----------- ------------ ------------
* Pro forma includes the annualised sales of all acquisitions
made in 2017 in order to give a better overview of the balance of
the business at the start of 2018.
Revenue
Revenue for 2017 was up 57% at EUR151.4m (2016: EUR96.6m). This
growth was generated across all seven service lines of the business
through a combination both organic and acquisitive growth. The
like-for-like revenue growth rate, which provides a 2016
comparative as if all of the 2017 and 2016 acquisitions had been
owned for the same period in 2016 as they have been in 2017, was
15% for the year which was down from 24% in 2016 due to the tough
comparative as a result of the exceptional 2016 performance of
Synthesis while all other service lines grew, with Functional
Testing, Customer Support and Localisation being particularly
strong. Excluding Synthesis from both periods the like for like
growth was 18.1% which was in line with our expectations and a
strong growth rate from a larger base.
Gross margin
Gross profit for the year was EUR55.1 (2016: EUR36.7m). As
expected the gross margin percentage declined slightly to 36.4%
(2016: 38.0%) as the Group absorbed the lower margin VMC business
with its strengths in Embedded Technical Services where the
services are hosted by the client with correspondingly lower
operating costs.
Adjusted EBITDA
Adjusted EBITDA is a measure of operating profit used by the
Board, which excludes depreciation, amortisation, share option
expenses and one-time costs related to acquisitions. For 2017,
Adjusted EBITDA increased 57% to EUR26.3m compared with EUR16.7m
for 2016. As a percentage of revenue, Adjusted EBITDA has been
maintained at 17.4% compared to 17.3% for 2016.
Operating expenses, excluding depreciation, increased by EUR8.6m
to EUR28.4m (2016: EUR19.8m) mainly as a result of the new
acquisitions made during the year. The continued additional
investment in strengthening Keywords' management to successfully
manage the growth of the Group also contributed. However, the
continued drive on achieving synergies across the Group helped
these costs decrease from 20.5% to 18.8% of revenue, with teams
increasingly combining the Group's services and resources
effectively to meet clients' needs.
Adjusted profit before tax and Adjusted EBITDA for year ended 31
December 2017
Year Ended Year Ended
2017 2016
EUR'000s EUR'000s
-----------
Statutory profit before
tax 11,994 9,435
Add back costs excluded from
Adjusted profit before tax* 11,049 5,368
Add back loss attributable to
non-controlling interest 0 61
----------- -----------
Adjusted profit before
tax 23,043 14,864
Add back Depreciation
and Interest 3,282 1,861
Adjusted earnings before
Interest, tax, depreciation
and amortisation 26,325 16,725
* Before acquisition and integration expenses of EUR3.0m (2016:
EUR1.3m), share option charges of EUR1.4m (2016: EUR0.7m),
amortisation of intangibles of EUR3.0m (2016: EUR1.6m), and foreign
currency exchange loss of EUR3.6m (2016: loss of EUR1.7m).
Net finance costs
During 2017 , there was a net finance cost of EUR4.4m compared
to a cost of EUR2.0m in 2016 primarily due to the impact of foreign
exchange losses. Foreign exchange losses of EUR3.6m (2016: loss of
EUR1.7m) were in large part due to the effect of translating net
current assets held in foreign currencies. The increase in interest
expense to EUR0.6m (2016: EUR0.2m) is largely due to a secured
credit facility with Barclays of up to EUR35m over a five-year
period of which EUR18.25m was drawn down at the year end.
Adjusted Profit before Tax
Adjusted profit before tax is used by the Board to measure the
more meaningful underlying profit generation of the Group. This
measure adds back one-time expenses, such as acquisition and
integration expenses, share option charges, foreign currency
exchange gains or losses and amortisation of intangibles to the
statutory profit before tax. Adjusted profit before tax for 2017
increased by 55% to EUR23.0m compared with EUR14.9m in 2016.
Taxation
The Group's effective tax rate has decreased again in 2017. The
reduction in the federal income tax rate for businesses in the US
will further help the Group manage its effective tax rate not
withstanding some effective tax planning we were able to achieve
through the acquisition of VMC. We continue to make steady progress
in making better use of our Ireland based operational headquarters
in contracting and treasury management such that we expect our
effective tax rate to continue to reduce despite our exposure to
higher tax jurisdictions in most of the territories we operate in.
The Group's effective tax rate, based on the Adjusted measure of
profit before taxation in the period (as set out in the financial
overview above), was 20.5% (2016: 21.7%).
Basic earnings per share
Basic earnings per share for the year, before one-time costs of
acquisitions and integration, share option charges, amortisation of
intangibles, and foreign exchange movements, increased by 52% to
31.18c compared with 20.59c for 2016. Basic earnings per share
based on the statutory profit after tax was 12.37c (2016:
11.22c).
Cash flow and debt
The Group generated operating cash flow of EUR13.6m for the
year, down from EUR15.0m in 2016. A better measure of underlying
cash flow is Adjusted operating cash generation, which was EUR21.9m
in 2017, up from EUR14.8m in the prior year. This figure is cash
flow from operations plus acquisition related expenses of (2016:
EUR1.3m), plus exceptional working capital costs related to the VMC
acquisition of EUR3.0m (2016: nil), plus EUR2.3m in VMC receipts
held by a third party on behalf of the Group and passed to the
Group post year end. In the comparative year, multimedia tax
credits (MMTC) of EUR1.6m were received in respect of claims prior
to 2015.
During the year the Group also received MMTCs in Quebec of
EUR3.4m (2016: EUR2.8m). Previous delays in receiving the
multimedia tax credits were not encountered in 2017 and the total
multimedia tax credit accrual amounted to EUR10m as at 31 December
2017 (2016: EUR3m). The VMC acquisition accounted for EUR6.6m of
the closing accrual.
The Group made eleven acquisitions to strengthen the business
during the year with a net cash outflow on consideration payments
of EUR87m, and an additional EUR3.0m in acquisition and integration
expenses.
Investment in fixed assets amounted to EUR3.8m (2016: EUR2.3m)
reflecting the cost of increasing the capacity of the Montreal
studio, improvements to both the Dublin and Tokyo studios.
Additionally, there were ongoing purchases of games testing
equipment.
Following the investment of EUR87.0m net cash consideration for
acquisitions in 2017, and a successful GBP75.0m equity placing in
October 2017, cash and cash equivalents increased to EUR30.4m from
EUR17.0m excluding accrued multimedia tax credits of EUR10.0m
(2016: EUR3.0m). The loans and borrowings were EUR19.3m at 31
December 2017 (2016: EUR8.4m) having utilised EUR18.3m of its
EUR35m revolving credit facility, giving a net cash position of
EUR11.1m.
Foreign exchange
Keywords does not hedge foreign currency profit and loss
translation exposures. The effect on the Group's results of
movements in exchange rates and the foreign gains and losses
incurred during the year, which mainly relate to the effect of
translating net current assets held in foreign currencies
Dividend
The Group has a progressive dividend policy, subject to the
retention of funds needed to fund future growth of the Group's
business and its strategic aims.
Following the interim dividend payment of 0.48p per share in
September 2017, the Board has recommended a final dividend of 0.98p
per share, which will make the total dividend for the year ending
31 December 2017 1.46p per share, a 10% increase over 2016. Subject
to shareholder approval at the Annual General meeting, the final
dividend will be paid on 22 June 2018 to all shareholders on the
register at 1 June 2018 and the shares will trade ex-dividend on 31
May 2018. The cash cost of the final proposed dividend will be an
estimated EUR0.7m, subject to currency fluctuations.
Events after the reporting period
The Group has agreed heads of terms on a revolving credit
facility with Barclays Bank plc, HSBC Bank plc and Lloyds Banking
Group plc for an initial EUR75m over a three-year term, with the
option to extend the facility to EUR105m and by a further two
years. The new facility replaces the existing EUR35m facility and
is on improved terms. This increased facility is in keeping with
the growth of the Group and its financial performance and provides
support for the Group's ongoing acquisition strategy.
On 9 April 2018, we announced that the Group acquired Cord
Worldwide Limited and Laced Music Limited from the Cutting Edge
Group for a total consideration of GBP4.5m comprised of an initial
cash consideration of GBP3.375m on completion and 73,744 in shares
to be issued two years after the acquisition. Cord and Laced
generated combined revenue of GBP6.5m and EBITDA of GBP675,000 in
the year ended 30 June 2017.
On 22 March 2018, Keywords acquired Maximal Studio for an
initial cash consideration of EUR0.3m, with up to EUR0.2m of
deferred consideration due over the following two years, subject to
its performance.
Key performance indicators
We monitor our financial performance against a number of
different benchmarks. These are set in agreement with the Board and
used to evaluate progress against our strategy.
Financial performance is measured by:
Revenue growth
Revenue growth is measured by line of business and overall
against the Board's strategic goal to grow organically and by
acquisition.
Gross profit
Gross profit is a key measure of the Group's pricing strategies,
use of resources and its ability to optimise resource utilisation
while allowing for changes in the mix of business and services
delivered on client premises, where the Group's gross margin
typically reduces but our operating costs are also significantly
reduced.
Operating costs
The Board monitors the overheads to ensure the operating costs
of the Group are in line with the level of business being
generated.
Adjusted EBITDA margin
The Board uses an Adjusted measure of EBITDA to monitor the
performance of the Group. This measure excludes foreign exchange
gains or losses, any one-time expenses and the cost of employee
share option awards.
Adjusted operating profit margin
The Board also uses an Adjusted measure of operating profit to
monitor the performance of the Group. This measure similarly
excludes foreign exchange gains or losses, any one time expenses,
and the cost of employee share option awards.
Non-financial performance is measured by:
Resource deployment
The Board reviews the efficiency at which the Group is utilising
its staff resources to ensure optimum staffing strategies are
deployed and to maximise utilisation rates.
Business won/lost
The Board reviews the levels of new business won and lost, and
monitors the reasons for both, to ensure that the services being
offered to the market are appropriately priced and relevant.
Customer satisfaction and quality of service delivery
The Board monitors the quality and timeliness of service
delivery on an ongoing basis and reviews the level of repeat
revenue from existing customers, as a key measure of customer
satisfaction.
David Broderick
Chief Financial Officer
9 April 2018
Consolidated Statement of comprehensive income
Years ended 31 December
2017 2016
Note EUR'000 EUR'000
------------------------------------ ----- ------------ ------------
Revenues 4 151,430 96,585
Cost of Sales 5 (96,345) (59,907)
Gross profit 55,085 36,678
Share option expense 17 (1,426) (686)
Costs of acquisition and
integration (3,016) (1,316)
Amortisation of intangible
assets (3,038) (1,629)
------------------------------------ ----- ------------ ------------
Total of items excluded from
Adjusted profit measures (7,480) (3,631)
Other administration expenses (31,170) (21,588)
------------------------------------ ----- ------------ ------------
Administrative expenses (38,650) (25,219)
------------------------------------ ----- ------------ ------------
Operating profit 16,435 11,459
Financing income 6 26 94
Financing cost 6 (4,467) (2,118)
------------------------------------ ----- ------------ ------------
Profit before taxation 11,994 9,435
Tax expense 7 (4,731) (3,223)
------------------------------------ ----- ------------ ------------
Profit 7,263 6,212
Other comprehensive income:
Items that will not be reclassified
subsequently to profit of loss
Exchange gains / (loss) on
capital investments (893) -
Actuarial loss on defined
benefit 19 (25) (63)
Items that may be reclassified
subsequently to profit of
loss
Exchange gains / (loss) on
translation of foreign operations (3,598) 489
Total comprehensive income: 2,747 6,638
------------------------------------ ----- ------------ ------------
Profit for the period attributable
to:
Owners of the parent 7,263 6,273
Non-controlling interest - (61)
------------------------------------ ----- ------------ ------------
7,263 6,212
Total comprehensive income
attributable to:
Owners of the parent 2,747 6,699
Non-controlling interest - (61)
2,747 6,638
------------------------------------ ----- ------------ ------------
Earnings per share EUR cent EUR cent
------------------------------------ ----- ------------ ------------
Basic earnings per ordinary
share (EUR cent) 8 12.37 11.22
Diluted earnings per ordinary
share (EUR cent) 8 11.87 10.87
------------------------------------ ----- ------------ ------------
The notes set from page 20 onwards form an integral part of
these consolidated financial statements.
On Behalf of the Board
Andrew Day, Director David Broderick, Director
Date:
Consolidated Statement of financial position
2017 2016
Note EUR'000 EUR'000
Non-current assets
Property, plant and equipment 13 10,111 5,498
Goodwill 11 109,007 46,799
Intangible assets 12 23,548 8,696
Deferred tax assets 26 1,206 880
------------------------------- ----- -------- --------
143,872 61,873
------------------------------- ----- -------- --------
Current assets
Trade receivables 14 27,473 13,879
Other receivables 15 22,335 7,778
Cash and cash equivalents 30,374 17,020
-------- --------
80,182 38,677
------------------------------- ----- -------- --------
Total assets 224,054 100,550
------------------------------- ----- -------- --------
Equity
Share capital 16 737 654
Share capital - To Be Issued 11,739 8,792
Share premium 102,054 19,983
Merger reserve 28,878 22,109
Foreign exchange reserve (3,504) 987
Treasury shares held in
EBT (1,997) (1,434)
Share option reserve 2,545 1,305
Retained earnings 20,679 14,308
------------------------------- ----- -------- --------
161,131 66,704
Non-controlling interest - -
------------------------------- -----
Total equity 161,131 66,704
------------------------------- ----- -------- --------
Current Liabilities
Trade payables 7,310 4,822
Other payables 18 23,005 12,431
Loans and Borrowings 20 18,943 8,025
Corporation tax liabilities 3,245 2,552
52,503 27,830
------------------------------- ----- -------- --------
Non-current liabilities
Other payables 18 1,233 1,592
Employee Defined Benefit 19 1,055 826
Loans and Borrowings 20 337 345
Deferred tax liabilities 26 7,795 3,253
-------- --------
10,420 6,016
------------------------------- -----
Total equity and liabilities 224,054 100,550
------------------------------- ----- -------- --------
The notes on set on page 20 onwards form an integral part of
these consolidated financial statements. The financial statements
were approved and authorised for issue by the Board on 9 April
2018.
On Behalf of the Board
Andrew Day David Broderick
Director Director
Date:
Consolidated Statement of Changes in Equity
Total
Foreign Treasury Share attributable Non Total
shares to
Share Shares Share Merger exchange held option Retained equity Controlling equity
to holders
be in of
capital issued premium reserve reserve EBT reserve earnings parent Interest
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Balance at 1
January 2016 646 18,542 22,109 498 (804) 619 10,293 51,903 (1,309) 50,594
Profit for the
period 6,273 6,273 (61) 6,212
Other
comprehensive
income 489 (63) 426 426
Total
comprehensive
income for the
period 489 6,210 6,699 (61) 6,638
Contributions
by and
contributions
to the owners:
Share option
expense 686 686 686
Share Options
Exercised (632) (632) (632)
Dividends paid (825) (825) (825)
Treasury shares
ringfenced for
EBT 2 2 2
Shares issued
for cash 4 643 647 647
Shares issued
upon acquisition
- Volta Creation
Inc 1 169 170 170
Shares to be
issued (Synthesis
Acquisition) 6,906 6,906 6,906
Shares to be
issued (Mindwalk
Acquisition) 1,886 1,886 1,886
Elimination
of Minority
Interest in
Kite Team (1,370) (1,370) 1,370
Shares Issued
on settlement
with Kite Team 1 149 150 150
Keywords France
Incorporation
Shares issued
upon acquisition
- Player Research
Ltd 1 331 332 332
Shares issued
upon acquisition
- Sonox Audio
Solutions SL 149 149 149
Contributions
by and
contributions
to the owners 7 8,792 1,441 (630) 686 (2,195) 8,102 1,370 9,472
Balance at 31
December 2016 653 8,792 19,983 22,109 987 (1,434) 1,305 14,308 66,704 66,704
Profit for
the period 7,263 7,263 7,263
Other
comprehensive
income (4,491) (25) (4,516) (4,516)
Total
comprehensive
income for the
year (4,491) 7,238 2,747 2,747
Contributions
by and
contributions
to the owners:
Shares issued
for cash 61 82,261 82,322 82,322
Share Option
Expense 1,240 1,240 1,240
Share Options
Exercised 6 608 (563) 51 51
Dividends paid
(note 9) (867) (867) (867)
Shares issued
upon acquisition
- Xloc Inc 184 184 184
Shares issued
upon acquisition
- GameSim Inc 2 1,392 1,394 1,394
Shares issued
upon acquisition
- Lola 168 168 168
Shares issued
upon acquisition
- D3T 686 686 686
Shares issued
upon acquisition
- asrec 101 101 101
Shares Issued
on deferred
settlement with
Synthesis Group 14 (3,454) 3,440
Shares to be
issued (Red
Hot Acquisition) 1,468 1,468 1,468
Shares to be
issued
(Sperasoft
Acquisition) 4,133 4,133 4,133
Shares to be
issued (Around
The Word & Dune
Sound
Acquisition) 800 800 800
Reclassification
of share premium
on acquisitions
to merger
reserve (798) 798
Contributions
by and
contributions
to the owners 83 2,947 82,071 6,769 (4,491) (563) 1,240 6,371 94,427 94,427
Balance at
31 December
2017 737 11,739 102,054 28,878 (3,504) (1,997) 2,545 20,679 161,131 161,131
Consolidated statement of cash flows
Years ended
31 December
Note 2017 2016
EUR'000 EUR'000
Cash flows from operating
activities
Profit/(loss) after tax 7,263 6,212
Income and expenses not affecting
operating cash flows
Depreciation 13 2,730 1,803
Intangibles amortisation 12 3,038 1,629
Income tax expense 7 4,731 3,223
Share option expense 17 1,426 686
Loss on disposal of fixed
assets 103 -
Fair Value Adjustment on
deferred consideration 190 264
Interest receivable (26) (94)
Employee Benefit Costs 209 63
Interest expense 388 152
Unrealised Foreign Exchange
Losses 2,033 55
14,822 7,781
Changes in operating assets
and liabilities
Decrease/ (Increase) in
trade receivables 2,506 (3,788)
(Increase)/ Decrease in
other receivables (5,413) 3,245
(Decrease)/ Increase in
trade and other payables (82) 3,718
(2,989) 3,175
--------- ---------
Income taxes paid (5,454) (2,129)
Net cash provided by operating
activities 13,642 15,039
--------- ---------
Cash flows from investing
activities
Acquisition of subsidiaries
net of cash acquired (86,776) (19,109)
Acquisition of remaining
50% of Kite - (1,000)
Settlement of deferred liabilities
on acquisitions (298) (995)
(Acquisition)/disposal of
short term investments - 27
Acquisition/disposal of
property, plant and equipment 13 (3,803) (2,306)
Interest received 26 94
EBT share purchase - 2
Net cash used in investing
activities (90,851) (23,287)
--------- ---------
Cash flows from financing
activities
Loan to finance Multi Media
Tax Credits - (1,157)
Repayment of loans 30 (23) (625)
Loan to finance acquisitions 30 10,250 8,000
Dividends paid 9 (867) (825)
Financing EBT for share
options exercised (563) (632)
Shares issued 82,936 643
Share issuance expenses - -
Interest paid 6 (279) (152)
Net cash used in financing
activities 91,454 5,252
--------- ---------
Increase / (Decrease) in
cash and cash equivalents 14,245 (2,996)
Exchange (loss)/gain on
cash and cash equivalents (891) 998
Cash and cash equivalents
at beginning of the period 17,020 19,018
Cash and cash equivalents
at end of period 30,374 17,020
--------- ---------
Notes Forming part of the Consolidated Financial Statements
1 Basis of preparation
Keywords Studios plc (the "Company") is a company incorporated
in the UK. The consolidated financial statements in this
announcement include the financial statements of the Company and
its subsidiaries (the "Group") made up to 31 December 2017. The
Group was formed on 8 July 2013 when Keywords Studios Plc (formerly
Keywords Studios Limited) acquired the entire share capital of
Keywords International Limited through the issue of 31,901,332
ordinary shares.
The parent company financial statements present information
about the Company as a separate entity and not about its Group.
The consolidated and Company financial statements have been
prepared in accordance with International Financial Reporting
Standards, International Accounting Standards and interpretations
(collectively IFRS) issued by the International Accounting
Standards Board (IASB) as adopted by the European Union ("adopted
IFRSs").
The financial statements have been prepared in thousands
(EUR'000) and the financial statements are presented in Euro (EUR)
which is the functional currency of the Group.
New Standards, Interpretations and Amendments Effective from 1
January 2017
The group has applied the requirements of IAS7, Disclosure
Initiative, effective from 1 January 2017. The disclosures are
included within Note 30.
None of the amendments to Standards that are effective from 1
January 2017 had a significant effect on the Group's financial
statements.
New Standards, Interpretations and Amendments not yet
Effective
Impact of IFRS 9
IFRS 9, Financial Instruments, is mandatorily effective for
periods beginning on or after 1 January 2018, with early adoption
permitted. The group has not adopted IFRS 9 early, however is
currently assessing the impact of its implementation.
IFRS 9 establishes the measurement principles for both financial
assets and financial liabilities, at both initial recognition and
subsequent re-measurement.
Financial Assets
The majority of the group's financial assets include;
- Cash,
- Short term receivables including trade receivables, accrued
income, and multimedia tax credits.
- Intragroup balances and receivables (parent company only)
These assets are considered to be part of the "hold to collect"
model, and therefore measured at amortised cost.
Our financial assets are short term in their nature, and no
receivables have significant credit terms or interest charged
accordingly.
The group is expecting to apply the simplified approach to
applying lifetime expected credit losses on certain financial
assets, and while our assessment is ongoing, we are not expecting a
material difference to the carrying value of our financial assets
as a result of the implementation of the new standard.
From the Company Statement of Financial Position perspective, we
are assessing the impact which the standard will have on the
valuation of our receivables due from intergroup entities.
Financial Liabilities
The most significant of the group's financial liabilities
include;
- Bank loans and borrowings,
- Trade payables, and
- Contingent consideration arising as part of business combinations.
The group expects to continue to value bank loans and borrowings
at amortised cost, and to value contingent consideration at fair
value through profit and loss model ("FVTPL").
When valuing the financial liabilities under the FVTPL model,
the group will need to assess any changes in its own credit status,
however this is not expected to result in any significant changes
to the valuation of such financial liabilities.
Impact of IFRS 15
On review of IFRS 15, Revenue from Contracts with Customers, the
five key points to recognise revenue have been assessed;
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance
obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a
performance obligation
On the basis of the contracts in place, the group do not
envision a material impact on the financial statements once IFRS 15
is implemented. However, given the acquisitive nature of the group,
and the new revenue streams, this process of assessment will be
ongoing.
Impact of IFRS 16
There are a number of operating leases across the group. In
accordance with IFRS 16 Leases, their change in treatment in the
financial statements from 1 January 2019 will impact the Statement
of Financial Position, increasing both long-term assets and
liabilities.
On the adoption of IFRS 16 on Leases on 1 January 2019, the
Group will recognise right-of-use assets and related liabilities
for all material lease arrangements over 12 months in duration.
Material lease arrangements in the group relate primarily to leases
on premises. The main impact on the financial statements will be to
increase both assets and liabilities on the Statement of Financial
Position in relation to leases currently considered as operating
leases at present value. In the Statement of Changes in Equity,
leases will be recognised in the future as capital expenditure on
the purchasing side and will no longer be recorded as operating
expenses. As a result the operating expenses under otherwise
identical circumstances will decrease, while depreciation and
amortisation and the interest expense increase. This will lead to
an improvement in EBITDA. Based on leases outstanding at the end of
2017, the group's initial assessment of the impact is that the
comparable additional Asset and Liability will be in the order of
EUR17m. The Group Cash Flow statement will include additional
detail on the Cash Flow Statement to separate Interest repayments
and Capital repayments on leases.
2 Significant accounting policies
Basis of Consolidation
Where the company has control over an investee, it is classified
as a subsidiary. The company controls an investee if all three of
the following elements are present; power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
De-facto control exists in situations where the company has the
practical ability to direct the relevant activities of the investee
without holding the majority of the voting rights. In determining
whether de-facto control exists the company considers all relevant
facts and circumstances, including:
-- The size of the company's voting rights relative to both the
size and dispersion of other parties who hold voting rights;
-- Substantive potential voting rights held by the company and by other parties;
-- Other contractual arrangements; and
-- Historic patterns in voting attendance.
The consolidated financial statements present the results of the
company and its subsidiaries ("the Group") as if they formed a
single entity. Intercompany transactions and balances between Group
companies are eliminated in full.
The acquisition of Keywords International Limited was deemed to
be a 'combination under common control' as ultimate control before
and after the acquisition was the same. As a result, these
transactions were outside the scope of IFRS 3 "Business
combinations" and have been accounted for under the principles of
merger accounting as set out under UK GAAP from the date on which
control is obtained until the date on which control ceases.
As part of the Group reconstruction in 2013, the Company issued
31,901,332 shares at a value of GBP1.23 each, being the flotation
price, as part of a share for share exchange with the shareholders
of Keywords International Limited. The GBP0.01 nominal value of the
shares issues was accounted for in Issued Share Capital. On the
2013 consolidated balance sheet, the difference between the nominal
value of shares issued by the company as consideration for the
shares in Keywords International Limited, and the nominal value of
the shares in Keywords International Limited was treated as a
merger reserve arising on group reconstruction. On the Company
balance sheet, the excess of net book value of the assets held by
Keywords International Limited, at the date of the share for share
exchange, over the nominal value of the shares issued was treated
as a merger reserve.
Business Combinations
The consolidated financial statements incorporate the results of
business combinations using the purchase method. In the
Consolidated Statement of Financial Position, the acquiree's
identifiable assets, liabilities and contingent liabilities are
initially recognised at their fair values at the acquisition date.
The results of acquired operations are included in the consolidated
income statement from the date on which control is obtained. They
are deconsolidated until the date on which control ceases.
Any contingent consideration payable is recognised at fair value
at the acquisition date and is split between current liabilities
and long-term liabilities depending on when it is due. At each
balance sheet date the fair value of the contingent consideration
will be revalued and any change will be recognised in the
statements of comprehensive income.
For deferred consideration which is to be provided for by the
issue of a fixed number of shares at a future defined date, where
there is no obligation on Keywords to offer a variable number of
shares, the deferred consideration is to be classified as an Equity
Arrangement and the value of the shares is fixed at the date of the
acquisition.
Goodwill
Goodwill represents the excess of the cost of a business
combination over, in the case of business combinations completed
prior to 1 January 2010, the Group's interest in the fair value of
identifiable assets, liabilities and contingent liabilities
acquired and, in the case of business combinations completed on or
after 1 January 2010, the total acquisition date fair value of the
identifiable assets, liabilities and contingent liabilities
acquired.
For business combinations completed prior to 1 January 2010,
cost comprised the fair value of assets given, liabilities assumed
and equity instruments issued, plus any direct costs of
acquisition. Changes in the estimated value of contingent
consideration arising on business combinations completed by this
date were treated as an adjustment to cost and, in consequence,
resulted in a change in the carrying value of goodwill.
For business combinations completed on or after 1 January 2010,
cost comprises the fair value of assets given, liabilities assumed
and equity instruments issued, plus the amount of any
non-controlling interests in the acquiree plus, if the business
combination is achieved in stages, the fair value of the existing
equity interest in the acquiree. Contingent consideration is
included in cost at its acquisition date fair value and, in the
case of contingent consideration classified as a financial
liability, re-measured subsequently through profit or loss. For
business combinations completed on or after 1 January 2010, direct
costs of acquisition are recognised immediately as an expense.
Goodwill is capitalised as an intangible asset with any
impairment in carrying value being charged to the consolidated
statement of comprehensive income.
Intangible Assets
Intangible assets, separately identified from goodwill acquired
as part of a business combination, are initially stated at fair
value. The fair value attributed is determined by discounting the
expected future cashflows to be generated from net margin on the
business from the main customers taken on at acquisition. The
assets are amortised over their useful economic lives, which is
deemed to be 5 years.
There are no intangible assets with indefinite useful lives.
Impairment
Impairment tests on goodwill and other intangible assets with
indefinite useful economic lives are undertaken annually at the
financial year end. Other non-financial assets are subject to
impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Where
the carrying value of an asset exceeds its recoverable amount (i.e.
the higher of value in use and fair value less costs to sell), the
asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of
an individual asset, the impairment test is carried out on the
smallest group of assets to which it belongs for which there are
separately identifiable cash flows; its cash generating units
('CGU's). Goodwill is allocated on initial recognition to each of
the group's CGUs that are expected to benefit from a business
combination that gives rise to the goodwill.
The Group has one CGU. This CGU represents the lowest level at
which goodwill is monitored by the Group and the lowest level at
which management captures information for internal management
reporting purposes about the benefits of the goodwill. Impairment
charges are included in profit or loss, except to the extent they
reverse gains previously recognised in other comprehensive income.
An impairment loss recognised for goodwill is not reversed.
Cash & Cash Equivalents
For the purpose of presentation in the Statement of Financial
Position and on the Statement of Cash Flows, cash & cash
equivalents include cash on hand, on call deposits with financial
institutions.
Foreign Currency
Transactions entered into by Group entities in a currency other
than the currency of the primary economic environment in which they
operate (their "functional currency") are recorded at the rates
ruling when the transactions occur. The Functional currency for the
Company is euro. Foreign currency monetary assets and liabilities
are translated at the rates ruling at the reporting date. Exchange
differences arising on the retranslation of unsettled monetary
assets and liabilities are recognised immediately in profit or
loss.
On consolidation, the results of overseas operations are
translated into euro at rates approximating to this ruling when the
transactions took place. All assets and liabilities of overseas
operations, including goodwill arising on the acquisition of those
operations, are translated at the rate ruling at the reporting
date. Exchange differences arising on translating the opening net
assets at opening rate and the results of overseas operations at
actual rate are recognised in other comprehensive income and
accumulated in the foreign exchange reserve.
Notes Forming part of the Consolidated Financial Statements
continued
2 Significant accounting policies continued
Exchange differences recognised in profit or loss in Group
entities' separate financial statements on the translation of
long-term items forming part of the Group's net investment in the
overseas operation concerned are classified to other comprehensive
income and accumulated in the foreign exchange reserve on
consolidation.
Exchange differences on capital loans are recorded as other
comprehensive income.
On disposal of a foreign operation, the cumulative exchange
differences recognised in the foreign exchange reserve relating to
that operation up to the date of disposal are transferred to the
consolidated statement of comprehensive income as part of the
profit or loss on disposal.
Revenue Recognition
Revenue recognised represents the consideration received or
receivable for the rendering of services, net of sales taxes,
rebates discounts and after eliminating intercompany sales.
Services are provided based on agreed client instructions and when
projects are in progress at the period end, revenue is recognised
to the extent that services have been provided net of any
provisions.
Revenue on services provided is recognised on the basis of words
translated, studio time completed, testing hours or player support
hours finished, or milestones reached in art creation or
engineering as a proportion of the estimate total to complete the
projects, by the expected revenue accruing on completion.
This revenue recognition policy is unchanged at the full
adoption of IFRS 15 from 1 January 2018, as the performance
obligations on services provided are considered as Performance
obligations satisfied over time, in accordance with S 35 of IFRS
15, Revenue from Contracts with Customers.
Revenue in relation to software licence sales is recognised over
the period of the use by the client of the licence.
Where there are separate performance obligations inherent in a
contract, the related revenue streams are considered separately for
performance measurement.
MMTC Grants
The Multimedia tax credits received in Montreal on testing
services are a credit against staff costs. Accordingly they are
treated as a deduction against direct costs. The nature of the
grants are such that they are not dependent on taxable profits.
Share Based Payments
The Company issues equity settled share-based payments to
certain employees and Directors under a share options plan and a
long-term incentive plan ("LTIP").
The fair value determined at the grant date is expensed on a
straight line basis over the vesting period, based on the Company's
estimate of shares that will eventually vest and adjusted for the
effect of non-market-based vesting conditions. At each reporting
date, the Company revises its estimate of the number of equity
instruments expected to vest as a result of the effect of
non-market based vesting conditions. The impact of the revision of
the original estimates, if any, is recognised in profit or loss
such that the cumulative expense reflects the revised estimate,
with a corresponding adjustment to equity reserves. The Company has
no legal or constructive obligation to repurchase or settle the
options in cash.
Where share-based payments are issued to employees of subsidiary
companies, the annual cost of the option is expensed in the holding
company, and recharged to the subsidiary company through
intercompany charge.
Share Option Plan
These are measured at fair value, taking into account market
vesting conditions but not non-market vesting conditions on the
grant date using a Black-Scholes option pricing model which
calculates the fair value of an option by using the vesting period,
the expected volatility of the share price, the current share
price, the exercise price and the risk free interest rate. The fair
value of the option is amortised over the vesting period, with one
third of the options vesting after two years, one third after three
years, and the balance vest after four years. The only vesting
condition is continuous service. There is no requirement to revalue
the option at any subsequent date. The charge that is recognised is
adjusted to reflect failure to vest due to non-achievement of a
non-market vesting condition but not failure to vest due to the
non-achievement of a market vesting condition.
LTIP
An alternative share plan was introduced to give awards to
Directors and staff, subject to outperforming the Numis Small Cap
Index (excluding Investment Trusts) in terms of shareholder return
over a three year period. For the awards up to 2015, there were
three award levels; one third of the share options vest if the
company shall exceed the Total Shareholder Returns of the Numis
Small Cap Index by not less than 10%, two thirds if the shareholder
return exceeds by over 20% and 100% if the shareholder return
exceeds by over 30%. This was amended for the 2016 and 2017 awards
to 100% if the shareholder return exceeds by over 45%, and a
pro-rated return between 10% and 100% if the shareholder return
exceeds by between 0% and 45%.
These are measured at fair value, taking into account market
vesting conditions but not non-market vesting conditions, at the
date of grant, measured by using the Monte Carlo binomial model.
The charge that is recognised is adjusted to reflect failure to
vest due to non-achievement of a non-market vesting condition but
not failure to vest due to the non-achievement of a market vesting
condition.
Dividend Distribution
Final dividends are recorded in the Group's financial statements
in the period in which they are approved by the Group's
shareholders. Interim dividends are recognised when paid.
Income Taxes and Deferred Taxation
Provision for income taxes is calculated in accordance with the
tax legislations and applicable tax rates in force at the reporting
date in the countries in which the Group companies have been
incorporated.
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the consolidated
statement of financial position differs from its tax base, except
for differences arising on:
-- the initial recognition of goodwill;
-- the initial recognition of an asset or liability in a
transaction which is not a business combination and at the time of
the transaction affects neither accounting or taxable profit;
and
-- investments in subsidiaries and jointly controlled entities
where the Group is able to control the timing of the reversal of
the difference and it is probable that the difference will not
reverse in the foreseeable future.
The amount of the asset or liability is determined using tax
rates that have been enacted or substantively enacted by the
reporting date and are expected to apply when the deferred tax
liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority on either:
-- The same taxable Group company; or
-- Different Group entities which intend either to settle
current tax assets and liabilities on a net basis, or to realise
the assets and settle the liabilities simultaneously, in each
future period in which significant amounts of deferred tax assets
or liabilities are expected to be settled or recovered.
Property, Plant and Equipment
Property, plant and equipment comprise computers, leasehold
improvements, and office furniture and equipment, and are stated at
cost less accumulated depreciation. Carrying amounts are reviewed
for impairment whenever events or changes in circumstances indicate
that their carrying amount may not be recoverable. Where the
carrying amount of an asset is greater than its estimated
recoverable amount, it is written down immediately to its
recoverable amount.
Property, plant and equipment acquired through business
combinations are valued at fair value on the date of
acquisition.
Depreciation is calculated to write off the cost of fixed assets
on a straight line basis over the expected useful lives of the
assets concerned. The principal annual rates used for this purpose
are:
%
------------------------------------ ----------
Computers and Software 33.33
Office furniture and equipment 10.00
over the
length of
Building and leasehold improvements the lease
------------------------------------ ----------
Gains and losses on disposals are determined by comparing
proceeds with carrying amount and are included in the consolidated
statement of comprehensive income.
Notes Forming part of the Consolidated Financial Statements
continued
2 Significant accounting policies continued
Financial Assets
Loans and Receivables
These assets are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They
arise principally through the provision of services to customers
(e.g. trade receivables), but also incorporate other types of
contractual monetary asset. They are initially recognised at fair
value plus transaction costs that are directly attributable to
their acquisition or issue and are subsequently carried at
amortised cost using the effective interest rate method, less
provision for impairment.
The Group's receivables comprise trade and other receivables and
cash and cash equivalents in the statement of financial
position.
Trade receivables, which principally represent amounts due from
customers, are initially recognised, thereafter, are recognised at
amortised cost. An estimate for doubtful debts is made when there
is objective evidence that the Group will not be able to collect
amounts due according to the original terms of receivables. Bad
debts are written off when identified.
Cash and cash equivalents are necessary for the working capital
requirements of the group. They include cash in hand, deposits held
at call with banks and other short term highly liquid investments.
Where cash is on deposit with maturity dates greater than three
months, it is disclosed as short-term investments.
Share Capital
Financial instruments issued by the Group are treated as equity
only to the extent that they do not meet the definition of a
financial liability. The Group's ordinary shares are classified as
equity instruments.
Financial Liabilities
Trade payables and other short-term monetary liabilities are
initially recognised at fair value and subsequently carried at
amortised cost using the effective interest method.
Leased Assets
Where substantially all of the risks and rewards of ownership
are not transferred to the Group ("operating lease"), the total
rental payables are charged to the consolidated statement of
comprehensive income on a straight-line basis over the term of the
lease.
Finance Leases
Where substantially all of the risks and rewards incidental to
ownership of a leased asset have been transferred to the Group (a
"finance lease"), the asset is treated as if it had been purchased
outright. The amount initially recognised as an asset is the lower
of the fair value of the leased property and the present value of
the minimum lease payments payable over the term of the lease. The
corresponding lease commitment is shown as a liability. Lease
payments are analysed between capital and interest. The interest
element is charged to the consolidated statement of comprehensive
income over the period of the lease and is calculated so that it
represents a constant proportion of the lease liability. The
capital element reduces the balance owed to the lessor.
Employee Benefit Trust
Ordinary Shares purchased by the Employee Benefit Trust on
behalf of the Parent Company under the Terms of the Share Option
Plan are deducted from equity on the face of the Consolidated
Statement of Financial Income. No gain or loss is recognised in
relation to the purchase, sale, issue or cancellation of the Parent
Company's Ordinary Shares
3 Critical accounting estimates and judgements
The preparation of consolidated financial statements under IFRS
requires the Directors to make estimates and judgements that effect
the application of policies and reported amounts.
The areas requiring the use of estimates and critical judgements
that may significantly impact the Group's earnings and financial
position the computation of income taxes, the value of goodwill and
intangible assets arising on acquisitions, the valuation of multi
media tax credits and the valuation of the defined retirement
benefits for employees in italy. Estimates and judgements are
continually evaluated and are based on historic experience and
other factors including expectations of future events that are
believed to be reasonable. Actual results may differ from these
estimates and assumptions.
Income Taxes
The Group is subject to income tax in several jurisdictions and
judgement may be required in determining the provision for income
taxes. During the ordinary course of business, there are
transactions and calculations for which the ultimate tax
determination may be uncertain. As a result, the company recognises
tax liabilities based on an understanding of taxation legislation
in particular jurisdictions and any related estimates of whether
taxes and/or interest will be due. This assessment relies on
estimates and assumptions and may involve a series of complex
judgments about future events. To the extent that the final tax
outcome of these matters is different than the amounts recorded,
such differences will impact income tax expense in the period in
which such determination is made.
Goodwill and Intangible Assets Arising on Acquisition
The value of goodwill and intangible assets recognised on the
Group's acquisitions during 2017, at EUR67m and EUR19m
respectively, were derived from the projected cashflows for those
businesses at the time of acquisition, the balance sheet
information provided and on management forecasts. The accuracy of
the valuation would therefore be compromised by any differences
between the forecasts and the levels of business activity that the
entity may be able to generate.
On an annual basis, the full value of intangibles is assessed
through an impairment review.
Multi Media Tax Credits
The submissions for the repayment of Multi-Media Tax Credits in
Montreal are made on an annual basis to Investment Quebec and
Revenue Quebec. Both the costs and basis of the claim are subject
to audit by the authorities prior to approval and payment of the
claim. While the group complete a detailed exercise in relation to
the claim and to the accrual there may be occasions where the
actuals amounts may be more or less than accrued which will lead to
a change in the amounts recognised within the financial
statements.
Employee Defined Retirement Benefit
In line with statutory requirements in Italy, the subsidiaries
in Milan maintain Employee Defined Benefit schemes. On leaving the
company, each employee is entitled to 1/13.5 of their final salary
for each year of service.
At year end, the Group commissioned an actuarial valuation of
the related liability, based on salaries, length of service and
variables including employee turnover, estimated salary increases
and cost of capital.
The liabilities at year end are recorded as long term. The
actuarial loss is recorded separately as other comprehensive
income.
4 Segmental analysis
Management considers that the Group's activity as a single
source supplier of Services to the gaming industry constitutes one
operating and reporting segment, as defined under IFRS 8.
Management review the performance of the Group by reference to
Group-wide profit measures and the revenues derived from seven main
service groupings:
-- Localisation Services- Localisation services relate to
translation and cultural adaptation of in-game text and audio
scripts across multiple game platforms and genres.
-- Localisation Testing - Localisation Testing involves testing
the linguistic correctness and cultural acceptability of computer
games.
-- Audio/Voiceover Services - Audio Services relate to the audio
production process for computer games and includes script
translation, actor selection and talent management through
pre-production, audio direction, recording, and post-production,
including native language Quality Assurance of the recordings.
-- Functional Testing - Functional Testing relates to quality
assurance services provided to game producers to ensure games
function as required.
-- Art Creation Services - Art creation services relate to the
production of graphical art assets for inclusion in the video game
including concept art creation along with 2D and 3D art asset
production and animation.
-- Player Support - Player support relates to the live
operations support services such as community management, player
support and associated services provided to producers of games to
ensure that consumers have a positive user experience.
-- Engineering - Engineering relates to software engineering
services which are integrated with client processes to develop
video games.
There is no allocation of operating expenses, profit measures,
assets and liabilities to individual product groupings. Accordingly
the disclosures below are provided on a group-wide basis.
Activities are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief
operating decision maker has been identified as the executive
management team made up of the Chief Executive Officer and the
Finance Director.
Revenue by line of business
Years ended 31
December
2017 2016
EUR'000 EUR'000
Revenue by line of business
Art creation 26,193 16,559
Audio 20,657 17,263
Localisation 41,959 32,360
Functional testing 30,033 8,619
Localisation testing 19,848 16,204
Customer support 9,168 5,580
Engineering 3,572 -
151,430 96,585
----------------------------- --------- ---------
No single customer (2016: None) accounted for more than 10% of
the Group's revenue during the year.
Geographical Analysis of Revenues by Jurisdiction
Analysis by geographical regions is made according to the
Group's operational jurisdictions. For many contracts, operations
are completed in multiple sites. Revenue is associated with the
jurisdiction from which the final invoice to the client is raised.
This does not reflect the region of the Group's customers, whose
locations are worldwide.
31 Dec 17 31 Dec 16
EUR'000 EUR'000
---------------- ---------- ----------
Canada 45,648 22,053
Ireland 34,277 25,570
Switzerland 19,565 17,838
Italy 10,029 7,269
India 5,177 4,591
United States 12,199 5,250
Japan 6,352 4,886
United Kingdom 2,467 1,276
Spain 2,194 2,167
China 3,685 24
Singapore 4,451 4,787
Germany 928 163
Brazil 520 619
Mexico 180 92
France 3,758 -
Russia - -
Poland - -
Philippines - -
Taiwan - -
Total revenues 151,430 96,585
---------- ----------
Geographical Analysis of Non - Current Assets from Continuing
Businesses
Segmental analysis
Geographical Analysis of Non-current
Assets from Continuing Businesses
------------------------------------------
31 Dec 31 Dec
17 16
EUR'000 EUR'000
------------------ ---------- ----------
Canada 8,889 8,937
Ireland 1,064 4,779
Switzerland 11,158 12,657
Italy 11,723 12,188
India 2,588 2,991
United States 77,177 8,657
Japan 565 43
United Kingdom 10,011 6,874
Spain 1,520 1,475
China 7,707 287
Singapore 42 60
Germany 1,168 1,241
Brazil 231 259
Mexico 892 121
France 6,531 424
Russia 866 -
Poland 58 -
Philippines 472 -
Taiwan 4 -
142,666 60,993
---------- ----------
5 Cost of Sales & Operating Profit
2017 2016
Cost of Sales EUR'000 EUR'000
Staff Costs 98,850 61,232
Multi-Media Tax Grant income (4,408) (2,289)
Other Direct Costs 1,903 964
96,345 59,907
-------- --------
Operating profit is stated Years ended 31 December
after charging:
2017 2016
EUR'000 EUR'000
---------------------------- ------------ ------------
Depreciation 2,730 1,803
Amortisation of Intangible
Assets 3,038 1,630
Costs of Acquisitions &
Integration 3,016 1,316
Operating lease repayments 2,369 2,371
---------------------------- ------------ ------------
One-time costs of EUR3,016k (2016 EUR1,316k) were incurred in
acquiring and integrating the new entities into the group. The most
significant costs within the integration costs are for internal
resource who have led the activities to integrate the new
acquisitions into the Group, and legal costs in relation to
acquisitions.
Of the EUR3,016k incurred, EUR2,342k were incurred directly on
the costs of acquisitions. The costs per acquisition are set out on
note 31.
2017 2016
EUR'000 EUR'000
Auditors' remuneration
Audit services
Parent company and Group
audit 164 115
Subsidiary companies audit 99 111
Non-audit services
Acquisition related due 242 -
diligence services
Taxation compliance 73 52
578 278
--------- ---------
6 Financing income and costs
2017 2016
EUR'000 EUR'000
Finance income
Interest received 26 94
26 94
--------- ---------
Finance cost
Bank charges (320) (229)
Interest expense (578) (152)
Foreign exchange losses (3,569) (1,737)
(4,467) (2,118)
--------- ---------
Net financing (cost)/income (4,441) (2,024)
--------- ---------
7 Taxation
2017 2016
EUR'000 EUR'000
Current income tax
Income tax on profits of parent
company - 4
Income tax on profits of subsidiaries 5,762 3,928
Deferred tax (Note 26) (1,031) (709)
4,731 3,223
--------- ---------
The tax charge for the year can be reconciled to accounting
profit as follows:
Years ended 31 December
2017 2016
EUR'000 EUR'000
Profit before tax 11,994 9,435
------------ ------------
Expected tax charge based on
the standard rate of taxation
in the UK at 19.25% (2016: 20%) 2,309 1,887
Higher rates of current income
tax in overseas jurisdictions 3,759 1,331
Lower rates of current income
tax in overseas jurisdictions (257) (555)
Losses incurred (162) 998
Effects of other timing differences (918) (438)
Total tax charge 4,731 3,223
------------ ------------
The Group's subsidiaries are located in different jurisdictions
and are taxed on their residual profit in those jurisdictions.
As there are minimal taxable profits in the UK, the impact of
the drop in the corporation tax % is less than EUR10k for 2017.
Tax effects relating to each component on
other comprehensive income
2017 2016
EUR'000 EUR'000
Exchange loss on capital investments (893) -
Tax (expense) / benefit - -
(893) -
--------- ---------
Actuarial loss on defined benefit
plans (25) (63)
Tax benefit 7 18
Net of Tax Amount (18) (45)
--------- ---------
Exchange (loss) / gain on translation
of foreign operations (3,598) 489
Tax benefit / (expense) - -
Net of Tax Amount (3,598) 489
--------- ---------
8 Earnings per share
2017 2016
EUR cent EUR cent
Basic 12.37 11.22
Diluted 11.87 10.87
EUR'000 EUR'000
Profit for the period from
continuing operations 7,263 6,273
Denominator (weighted average
number of equity shares) Number Number
Basic 58,720,884 55,918,481
Diluted 61,198,672 57,716,435
The basic and diluted weighted average denominators include the
impact of the 2,188,608 shares to be issued relating to
consideration on acquisitions.
The dilutive impact of share options has been considered in
calculating diluted earnings per share. Details of the number of
share options outstanding at the year-end are set out in note
17.
9 Dividends
2017 2016
Per Per
share Total share Total
EUR EUR
Cent EUR'000 Cent EUR'000
Final Dividends
Paid 1.01 563 1.03 561
Interim Dividends
Paid 0.54 304 0.49 264
Dividends paid
to shareholders 1.55 867 1.52 825
------- --------- ------- ---------
In May 2016, Keywords Studios plc approved a dividend in respect
of the financial year ended 31 December 2015 of 0.81p/ 1.034 cent
per Ordinary share, or EUR561k in total, as a final dividend for
2015. The dividend was paid in June 2016.
In September 2016, Keywords Studios plc approved a dividend of
0.44p/0.49 cent per share, based on the shares in issue at that
time, or EUR264k in total, as an interim dividend for 2016. The
dividend was paid in October 2016.
In April 2017, Keywords Studios plc approved a dividend in
respect of the financial year ended 31 December 2016 of 0.89p/1.01
cent per Ordinary share, or EUR563k in total, as a final dividend
for 2016. The dividend was paid in June 2017.
In September 2017, Keywords Studios plc approved a dividend of
0.48p/0.54 cent per share, based on the shares in issue at that
time, or EUR304k in total, as an interim dividend for 2017. The
dividend was paid in October 2017.
The Directors' recommend a final dividend in respect of the
financial year ended 31 December 2017 of 0.98p per Ordinary share,
to be paid on 22 June 2018 to shareholders who are on the register
at 1 June 2018. This dividend is not reflected in these financial
statements as it does not represent a liability at 31 December
2017. The final proposed dividend will reduce shareholders' funds
by an estimated EUR680,000.
There are no income tax consequences for the company in respect
of the dividends proposed prior to issuance of the Consolidated
Financial Statements and for which a liability has not been
recognised.
10 Staff Costs
Total staff costs (including Directors) comprise the
following:
Group 2017 2016
EUR'000 EUR'000
Salaries & Related
Costs 81,563 41,643
Share Based Payment
Costs 1,426 686
82,989 42,329
--------- ---------
Key management compensation:
2017 2016
EUR'000 EUR'000
Salaries & Related
Costs 690 769
Social Welfare Cost 79 97
Pension Cost 4 29
Share Based Payment
Costs 141 42
914 937
--------- ---------
The key management compensation includes compensation to seven
Directors of Keywords Studios plc during the year. (2016: six).
Group 2017 2016
Average Number of
Employees
Operations 2,921 1,688
General & Administration 246 130
3,167 1,818
------ ------
11 Goodwill
EUR'000
At 1 January 2016 23,893
Recognition on acquisition of
subsidiaries 23,055
Revaluation on Exchange Rate
Movement (149)
At 31 December 2016 46,799
--------
Recognition on acquisition of
subsidiaries 66,853
Revaluation on Exchange Rate
Movement (4,645)
At 31 December 2017 109,007
--------
During the period, goodwill arose on the acquisitions of Spov,
XLOC, GameSim, Red Hot, Around the Word, asrec, Le Marque Rose,
d3t, VMC, Sperasoft and Lola.
The group assesses the carrying value of goodwill each year on
the basis of budget projections, assumptions on revenue growth
rates, current gross margins, operating expense growth and
effective tax rates. The discount rates used at 12.5% are
consistent with the latest valuation of WACC which is based on
external measures.
The carrying value at EUR109m compares to the calculated value
in use amount of EUR371m.
Key assumptions for the value in use calculations are as
follows:
1-5
Year Operating Effective
Growth Gross Expense Tax
Rate Margin Growth Rate
-------- -------- ---------- ----------
Experience in 2017 15% 36.4% 20.5%
-------- -------- ---------- ----------
Assumptions Used 10% 36.4% 6% 20%
-------- -------- ---------- ----------
Change in each assumption
that would bring the
recoverable amount to
the carrying amount (12%) (12%) 16% 51%
-------- -------- ---------- ----------
Note; Each change noted, which is a reduction or increase on the
assumption used, was calculated keeping all other assumptions
stable.
As part of the value in use calculation, management prepared an
initial cash flow forecast, approved by the Board of Directors,
covering the period to 31 December and the following five years.
The long-term growth rate of 2% has been used to determine a
terminal value for the CGU.
The result of the value in use calculations was that no
impairment is required in this period.
12 Intangible Assets - Customer Relationships
Cost EUR'000
At 1 January 2016 5,132
Additions 6,509
Revaluation on Exchange Rate
Movement (11)
At 31 December 2016 11,630
--------
Recognition on acquisition of
subsidiaries 18,962
Exchange Rate Movement (1,310)
At 31 December 2017 29,282
--------
Amortisation & Impairment
At 1 January 2016 1,350
Amortisation Charge 1,629
Revaluation on Exchange Rate
Movement (45)
At 31 December 2016 2,934
--------
Amortisation Charge 3,038
Exchange Rate Movement (238)
At 31 December 2017 5,734
--------
Net Book Value
At 31 December 2016 8,696
At 31 December 2017 23,548
--------
Customer relationships are amortised over 5 years from the point
of acquisition on a straight line basis.
13 Property, plant and equipment
Computers Office, Leasehold Total
and software furniture improvements
and equipment
EUR'000 EUR'000 EUR'000 EUR'000
Cost
At 1 January 2016 6,253 2,319 855 9,427
Currency revaluation 131 99 80 310
Additions 1,370 597 376 2,342
Acquisitions through
business combinations
at fair value 798 145 416 1,359
Disposals (67) (2) (3) (73)
-------------------------- -------------- --------------- -------------- --------
At 31 December
2016 8,485 3,158 1,724 13,367
Currency revaluation (685) (216) (222) (1,123)
Additions 2,514 772 601 3,887
Acquisitions through
business combinations
at fair value 2,214 603 1,350 4,167
Disposals (54) (1) (29) (84)
At 31 December
2017 12,474 4,316 3,424 20,214
-------------------------- -------------- --------------- -------------- --------
Accumulated depreciation
Cost
At 1 January 2016 4,669 1,136 136 5,941
Currency revaluation (73) 225 18 170
Depreciation charge 1,205 429 169 1,803
Disposals (45) (45)
-------------------------- -------------- --------------- -------------- --------
At 31 December
2016 5,756 1,790 323 7,869
Currency revaluation (293) (111) (72) (476)
Depreciation charge 1,795 543 392 2,730
Disposals (6) (14) (20)
-------------------------- -------------- --------------- -------------- --------
At 31 December
2017 7,252 2,222 629 10,103
Net book value
As at 31 December
2016 2,729 1,368 1,401 5,498
-------------------------- -------------- --------------- -------------- --------
At 31 December
2017 5,222 2,094 2,795 10,111
-------------------------- -------------- --------------- -------------- --------
14 Trade Receivables
2017 2016
Group EUR'000 EUR'000
Customers 27,891 14,347
Provision for Bad
Debts (418) (468)
27,473 13,879
-------- --------
15 Other Receivables
As of 31 December
Group 2017 2016
EUR'000 EUR'000
Accrued Income 5,140 1,661
Prepayments 3,255 1,769
Other receivables 3,958 994
Multi Media Tax
Credits, Canada 10,016 3,008
Other Tax and Social
Security (34) 346
22,335 7,778
--------- ---------
16 Shareholder's Equity
Share Capital
As at 1 January 2016 53,837,697 646
--------------------------------------- ------------ -----
Ordinary Shares of GBP0.01
issued on acquisition of remaining
50% of Kite Team shares 55,508 1
Ordinary Shares of GBP0.01
issued on acquisition of Volta 45,192 1
Exercise of Numis Warrants 400,324 4
Ordinary Shares of GBP0.01
issued on acquisition of Player
Research 65,280 1
Ordinary Shares of GBP0.01
issued on acquisition of Sonox 24,881 1
As at 31 December 2016 54,428,882 654
--------------------------------------- ------------ -----
Ordinary Shares of GBP0.01
each issued on the first anniversary
of the acquisition of Synthesis 1,188,253 14
19,134 -
Ordinary Shares of GBP0.01
issued on acquisition of Xloc
Ordinary Shares of GBP0.01
issued on acquisition of GameSim 151,725 2
9,534 -
Ordinary Shares of GBP0.01
issued on acquisition of asrec
42,368 -
Ordinary Shares of GBP0.01
issued on acquisition of d3t
10,106 -
Ordinary Shares of GBP0.01
issued on acquisition of Lola
Placing of ordinary Shares
of GBP0.01 on the market 5,357,143 61
Issue of shares on exercise
of share options 501,060 6
As at December 2017 61,708,205 737
--------------------------------------- ------------ -----
On 13 April 2017 the Group issued 1,188,253 of 1p shares at a
value of 798p (EUR9.40) as part of the consideration for
Synthesis.
On 10 May 2017, the Group issued 19,134 of 1p shares at a value
of 796p (EUR9.47) which formed the part of the consideration for
the acquisition of Xloc.
On 17 May 2017, the Group issued 151,725 of 1p shares at a value
of 792p (EUR9.20) which formed the part of the consideration for
the acquisition of GameSim.
On 4 August 2017, the Group issued 9,534 of 1p shares at a value
of 1185p (EUR13.12) which formed the part of the consideration for
the acquisition of the three French acquisitions.
On 19 October 2017, the Group issued 42,368 of 1p shares at a
value of 1416p (EUR15.89) which formed the part of the
consideration for the acquisition of d3t.
On 15 December 2017, the Group issued 10,106 of 1p shares at a
value of 1461p (EUR16.56) which formed the part of the
consideration for the acquisition of Lola.
On 24 October 2017, a total of 5,357,143 new ordinary 1p shares
were successfully placed on the market at a value of 1400p
(EUR15.62), raising proceeds of over EUR83 million before
charges.
On 1 September 2017 made a block admission in respect of
1,112,561 of 1p shares, to be issued pursuant to exercises of
options under the Company's employee share incentive and option
plans. During the year 501,060 of 1p shares were issued on the
exercise of options by employees.
There is no limit to the number of shares which the company can
issue.
Shares held by the Employee Benefit Trust (EBT)
2017 2016
Number EUR'000 Number EUR'000
Ordinary Shares held
by the EBT 335,425 1,997 399,026 1,434
Reserves
The following describes the nature and purpose of each reserve
within owner's equity:
Reserve Description and purpose
----------------- -----------------------------------------------
Retained earnings Cumulative net gains and losses recognised
in the consolidated statement of comprehensive
income.
Foreign Exchange Gains or losses arising on retranslation
Reserve of the net assets of the overseas operations
into euro.
Share premium The Share Premium account is the amount
received for shares issued in excess of
their nominal value, net of share issuance
costs.
Share option The Share option reserve is the credit
reserve arising on share based payment charges
in relation to the Company's share option
schemes.
Shares to be For deferred consideration which is to
issued be provided for by the issue of a fixed
number of shares at a future defined date,
where there is no obligation on Keywords
to offer a variable number of shares,
the deferred consideration is to be classified
as an Equity Arrangement and the value
of the shares is fixed at the date of
the acquisition.
Merger reserve The merger reserve was initially created
following the Group reconstruction, when
Keywords Studios plc acquired the Keywords
International Limited Group of companies.
When the Group uses Keywords Studios plc
shares as the 100% consideration for the
acquisition of an entity, the value of
the shares in excess of the nominal value,
net of share issuance costs are also recorded
within this reserve, in line with S612
of the 2006 UK Companies Act.
Non-Controlling The non-controlling interest reserve represents
Interest Reserve the share of net assets/(liabilities)
at the reporting date which is attributable
to the holders of the non-controlling
interest.
----------------- -----------------------------------------------
17 Share Options
In July 2013, at the time of the IPO, the Company put in place a
Share Option Scheme and a Long-Term Incentive Plan ("LTIP"). The
charge in relation to these arrangements is shown below, with
further details of the schemes following:
2017 2016
EUR'000 EUR'000
Share Option
Scheme Expense 178 208
Share Option
Scheme - LTIP
Expense 1,248 478
1,426 686
-------- --------
Of the total share option charge, EUR141k relates to Directors
of the Company as at 31 December, 2017, (2016: EUR45k).
Share Option Scheme
Share options are granted to Executive Directors and to
permanent employees. The exercise price of the granted options is
equal to the market price of the shares at the time of the award of
the options. The Company has no legal or constructive obligation to
repurchase or settle the options in cash.
Movements in the number of share options outstanding and their
related weighted average exercise prices are as follows:
2017 2016
Average Average
exercise exercise
price price
in GBP Number in GBP Number
per share of options per share of options
Outstanding at the beginning
of the period 1.58 1,672,056 1.20 1,642,242
Granted 7.76 282,000 2.45 223,200
Lapsed 3.56 (30,000) 1.67 (44,547)
Exercised 1.35 (548,855) 1.31 (148,839)
Outstanding at the end
of the period 2.79 1,375,201 1.58 1,672,056
----------- ------------ ----------- ------------
Exercisable at the end
of the period 1.30 515,296 1.38 522,035
----------- ------------ ----------- ------------
Weighted Average Share
Price at date of exercise 12.32 3.27
Summary by share option arrangement
Date of Option 12-Jul-13 01-Jun-15 10-May-16 15-May-17 Total
Exercise Price GBP1.20 GBP1.58 GBP2.54 GBP7.76
---------- ---------- ---------- ----------
Outstanding at the
beginning of the period 465,396 1,016,260 190,400 1,672,056
Granted 282,000 282,000
Lapsed (3,438) (7,236) (10,326) (9,000) (30,000)
Exercised in the year (176,647) (372,208) (548,855)
Outstanding at the
end of the period 285,311 636,816 180,074 273,000 1,375,201
---------- ---------- ---------- ---------- ----------
Exercisable at 31 Dec
2017 285,311 229,985 515,296
Exercisable 2018 353,415 60,025 413,440
Exercisable 2019 53,416 60,025 91,000 204,441
Exercisable 2020 60,024 91,000 151,024
Exercisable 2021 91,000 91,000
-------------------------- ---------- ---------- ---------- ---------- ----------
The inputs into the Black-Scholes model, used to value the
options are as follows:
Date of Option 12-Jul-13 01-Jun-15 10-May-16 15-May-17 Total
Weighted Average Share
Price (GBP) GBP1.23 GBP1.64 GBP2.54 GBP7.74
Weighted Average Exercise
Price (GBP) GBP1.20 GBP1.58 GBP2.54 GBP7.76
Average Expected Life 3 Years 3 Years 3 Years 3 Years
Expected Volatility 36.12% 28.03% 27.17% 24.79%
Risk Free Rates 0.50% 0.90% 0.55% 0.16%
Average Expected Dividends
Yield 1.00% 0.75% 0.58% 0.21%
Weighted Average Remaining
Life of Options in
Months - 5 19 32 11
Expected volatility was determined by reference to KWS
volatility. The expected life used in the model has been adjusted
based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations.
Long-term incentive plan scheme
An alternative share plan was introduced to give awards to
Directors and staff subject to outperforming the Numis Small Cap
(excluding Investment Trusts) index in terms of shareholder return
over a three year period.
Movements in the number of share options outstanding and their
related weighted average exercise prices are as follows:
2017 2016
Average Average
exercise exercise
price price
in GBP Number in GBP Number
per share of options per share of options
Outstanding at the beginning
of the period 0.01 1,443,691 0.01 860,206
Granted 0.01 696,000 0.01 720,000
Lapsed 0.01 (47,621) 0.01 (105,654)
Exercised - (115,654) 0.01 (30,861)
Outstanding at the end
of the period 0.01 1,976,416 0.01 1,443,691
----------- ------------ ----------- ------------
Exercisable at the end
of the period 0.01 222,238 0.01 295,365
----------- ------------ ----------- ------------
Weighted Average Share
Price at date of exercise 13.09 2.72
Summary by LTIP arrangement
Date of Option 08-Jul-13 06-Jan-15 01-Jun-15 10-May-16 20-Nov-16 15-May-17 Total
Exercise Price GBP0.01 GBP0.01 GBP0.01 GBP0.01 GBP0.01 GBP0.01 GBP0.01
---------- ---------- ---------- ---------- ---------- ---------- ----------
Outstanding
at the beginning
of the period 345,365 81,526 356,800 630,000 30,000 - 1,443,691
Adjustments (7,473) 19,534 (12,061) - - - -
Granted - - - - - 696,000 696,000
Lapsed - - (27,621) (20,000) - - (47,621)
Exercised (115,654) - - - - - (115,654)
Outstanding
at the end
of the period 222,238 101,060 317,118 610,000 30,000 696,000 1,976,416
---------- ---------- ---------- ---------- ---------- ---------- ----------
Exercisable
at 31 Dec 2017 222,238 222,238
Exercisable
2018 101,060 317,118 418,178
Exercisable
2019 610,000 610,000
Exercisable
2020 696,000 696,000
--------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Date of Option 08-Jul-13 06-Jan-15 01-Jun-15 10-May-16 10-May-16 15-May-17
Weighted Average
Share Price
(GBP) GBP1.23 GBP1.43 GBP1.64 GBP2.54 GBP4.15 GBP7.74
Weighted Average
Exercise Price
(GBP) GBP0.01 GBP0.01 GBP0.01 GBP0.01 GBP0.01 GBP0.01
Average Expected 3 3 3
Life Years Years Years 3 Years 3 Years 3 Years
Expected Volatility 36.12% 31.20% 28.03% 27.17% 23.31% 24.79%
Risk Free Rates 0.50% 0.58% 0.90% 0.55% 0.08% 0.16%
08-Jul-13 06-Jan-15 01-Jun-15 10-May-16 10-May-16 15-May-17 Total
Weighted Average
Remaining Life
of Options
in Months - - 5 16 23 28 16
LTIP's vest on the third anniversary of the grant,
if the performance criteria are met.
LTIP's must be exercised before the seventh anniversary
of the grant.
'Adjustments' relate to out of cycle changes and
updates.
The options were valued using a Monte Carlo binomial model using
the following inputs:
Expected volatility was determined by reference to KWS
volatility. The expected life used in the model has been adjusted
based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations.
As any dividends earned are to be re-invested into the business
the impact of dividends has been ignored in the calculation of the
LTIP share option charge.
18 Other payables
Group 2017 2016
EUR'000 EUR'000
Current
Accrued expenses 15,229 7,702
Payroll Taxes 1,530 542
Other payables 2,986 3,927
Contingent Consideration 3,251 251
Related party payable (Note
22) 9 9
23,005 12,431
--------------- ---------------
Non-current
Other payables 16 113
Contingent Consideration 1,217 1479
1,233 1,592
--------------- ---------------
19 Employee Defined Benefit Plan
In line with statutory requirements in Italy, the subsidiaries
in Milan maintain Employee Defined Benefit schemes. On leaving the
company, each employee is entitled to 1/13.5 of their final salary
for each year of service.
At year end, the Group commissioned an actuarial valuation of
the related liability, based on salaries, length of service and
variables including employee turnover, estimated salary increases
and cost of capital.
The liabilities at year end are recorded as long term. The
actuarial loss is recorded separately as other comprehensive
income. The movements through the year are detailed:
Group 2017 2016
EUR'000 EUR'000
Opening liability position as
at 1 January 826 590
Service cost 198 193
Interest cost 11 10
Benefits paid (5) (30)
Branch transfer - -
Actuarial loss recorded 25 63
Closing liability position as
at 31 December 1,055 826
======== ========
The Directors have considered the key specific risk factors
which the Group faces due to the employee defined benefit plan
which is in place. Having fully considered all specific elements of
these plans the directors believe that the key issues faced are as
follows:
-- The plan is currently 100% unfunded, there are no specific
assets to meet the future liabilities as they fall due. As such
there will be a significant cash flow impact as the liabilities
must be met with current working capital as they fall due.
The Group has taken no specific actions to mitigate against
these factors as due to the long-term nature of the plans it is
expected that there will be no sudden financial impact on the
Groups results caused by any of these factors.
In 2017, the group expects the costs of the employee benefit
plan to be in line with current year levels, as staff levels in the
Italian operations stay stable.
The actuarial valuation is based on the Projected Unit Credit
Method, in line with IAS 19.
2017 2016
Actuarial valuations EUR'000 EUR'000
Defined benefit obligations 1,055 826
Current concern provision 842 654
Current concern provision
surplus / (deficit) (213) (172)
Value of accrued benefits 4,033 3,318
Future service liability 2,977 2,492
Cost for year
Service cost 199 193
Interest cost 11 10
Actuarial loss 25 63
235 266
======== ========
Actuarial losses
Change due to experience 17 30
Change due to demographical
assumptions 30 5
Change due to financial
assumptions (22) 28
25 63
======== ========
Assumptions underlying the Actuarial Valuations and
Sensitivities of the Assumptions
For the actuarial valuations the following demographic and
economic & financial assumptions were applied:
Demographic Assumptions
-- The probabilities of death were derived from the bill of the
Italian population by age and sex, as recorded by the Government
Statistics Office in 2000 and reduced by 25%.
-- The probabilities of elimination for absolute and permanent
disability of the employee are taken from the disability tables
currently used in practice separate reinsurance for age and
sex.
-- The probabilities of employees leaving due to resignations
and dismissals in accordance with company management have been
placed at 4.25% per annum.
-- The probabilities of requesting an advance have been
estimated on the basis of company history 2010 to 2017, and placed
equal to 2.19% per annum with an average rate of advance equal to
61.99%.
-- For retirement for the general working population, it is
assumed that the first of the pension requirements is valid for the
mandatory general insurance.
Economic & Financial Assumptions 2017 2016
------------------------------------
Salary Increase 2.76% 2.50%
Inflation 1.70% 1.73%
Discount rate 1.54% 1.29%
Key Statistics
------------------------------------
Staff Number 98 97
Average Age 39.28 38.2
Average Service 4.50 3.6
Average Defined Benefit per staff 8,595 6,745
Average Salary for Defined Benefit 34,438 31,723
2017 2016
Actuarial Losses EUR'000 EUR'000
------------------------------------------
Change due to Experience 17 30
Change due to Demographical assumption 30 5
Change due to Financial assumption (22) 28
Actuarial Losses 25 63
-------- --------
Interest Rate Sensitivities
------------------------------------------
-0.50% 1,136 882
0.50% 983 776
Mortality Rate Sensitivities
------------------------------------------
-0.025% 1,056 827
0.025% 1,055 782
Staff Turn Over Rate Sensitivities
------------------------------------------
-0.50% 1,067 835
0.50% 1,045 818
Staff Salary Increases Rate Sensitivities
------------------------------------------
-0.50% 1,029 808
0.50% 1,084 845
20 Loans and borrowings
Group 2017 2016
EUR'000 EUR'000
Expiry within 1 Year 18,943 8,025
Expiry between 1 and
2 years 31 55
Expiry over 2 years 306 290
19,280 8,370
-------- --------
The company entered into a loan agreement with Barclay's Bank.
The agreement allows financing up to EUR25m. At year end, EUR18.3m
was drawn down.
The group also took on loans on the acquisition of Enzyme of CAD
$0.5m / EUR0.4m (2016 $0.5m / EUR0.4m) and Sperasoft US $0.7m/
EUR0.6m.
The currencies of these loans are as follows;
Group 2017 2016
EUR'000 EUR'000
Euro 18,301 8,000
Canadian Dollars 347 370
US Dollars 632 -
19,280 8,370
-------- --------
21 Investment in Subsidiaries
The results and financial position of all the subsidiaries are
included in the consolidated statements.
Details of the Company and Group's subsidiaries as at 31
December 2017 are set out below:
Proportion
of voting
rights
Date and ordinary
Country of incorporation share capital
Name of incorporation / acquisition held Registered Office
-------------------- ------------------ ------------------ --------------- ------------------------------------
Keywords Whelan House, South
International County Business
Limited Ireland 13/05/1998 100% Park, Dublin 18
2F Toshin Building,
Keywords 4-33-10 Yoyogi,
International Shibuya-ku, Tokyo
Co. Limited Japan 30/11/2010 100% 151-0053, Japan
Keywords 1751 Richardson,
International suite 8400,Montréal,
Corporation Québec, Canada
inc Canada 22/12/2010 100% H3K1G6
Keywords 18300 Redmond Way,
International United Suite 120, Redmond,
Inc States 26/09/2012 100% WA 98052
KW Studios United 8 Clifford Street
Limited Kingdom 29/05/2013 100% London W1S 2LQ
Flr 2, 59 Lansdowne
Place Hove, East
Liquid Violet United Sussex, BN3 1FL,London,
Limited Kingdom 15/01/2014 100% UK
Fifth Floor, 6
St. Andrew Street,
Babel Media United London, EC4A 3AE,
Limited Kingdom 17/02/2014 100% UK
1751 Richardson,
Babel Games suite 8400, Montréal,
Services Québec, Canada
Inc Canada 17/02/2014 100% H3K1G6
3rd floor, Vardhman
Orchard Plaza,
Plot No 4, LSC,
Babel Media West Enclave, Pitampura,
India Private New Delhi, 110034,
limited India 17/02/2014 100% India
1751 Richardson
Babel Media United Office 8400, Montreal,
USA Inc States 17/02/2014 100% Canada, H3K 1G6
20 Kallang Avenue,
Keywords #06-6A, Lobby B,
International Pico Creative Centre,
Pte. Limited Singapore 24/04/2014 100% Singapore 339411
Viale G.Frua 24,
Binari Sonori Milano, MI 20146,
SRL Italy 08/05/2014 100% Italy
350 N. Glenoaks
Blvd., suite 305,
Binari Sonori United Burbank, CA 91502,
Inc States 08/05/2014 100% USA
350 N. Glenoaks
Binari Sonori Blvd., suite 305,
Audio Productions United Burbank, CA 91502,
LLC States 08/05/2014 100% USA
3rd floor, Vardhman
Orchard Plaza,
Plot No 4,LSC,
Lakshya Digital West Enclave, Pitampura,
Private Limited India 10/10/2014 100% New Delhi, 110034
20 Kallang Avenue,
Lakshya Digital #06-6A, Lobby B,
Singapore Pico Creative Centre,
Pte Ltd Singapore 10/10/2014 100% Singapore 339411
Edugames D - 3/C, Munirka
Solutions Flats, New Delhi
Private Limites India 10/10/2014 100% - 110067
1751 Richardson,
suite 8400, Montréal,
Alchemic Québec, Canada
Dream Inc Canada 06/01/2015 100% H3K1G6
Keywords Passeig de Gràcia
International 49, 1er2a, 08007
Barcelona Barcelona, Catalonia,
SL Spain 09/01/2015 100% Spain
Av. Churchill,
Reverb Localizacao 109 - sala 204
- Prearacao - Centro, Rio de
de Documentos Janeiro-RJ, Brazil
Ltda Brazil 18/01/2015 100% CEP: 20020-050
Keywords 142 Room, Building
(Shanghai) 7, No.311 Jin Gao
Information Road, Pudong New
Technology China 02/04/2015 100% District, Shanghai
Julián Camarillo
Kite Team 6A, 3B, 28037 Madrid,
SL Spain 16/07/2015 100% Spain
Av. Insurgentes
Kite Team Sur 1853, Guadalupe
Mex S. de Inn, 01020 Ciudad
R.L. de. de México,
CV Mexico 16/07/2015 100% CDMX Mexico
411 SW 2nd Ave
Liquid Development United #300, Portland,
LLC States 20/08/2015 100% OR 97204, USA
12F JMT Corporate
Condominium, ADB
Ankama Asia Ave., Ortigas CBD,
Pte. Ltd Philippines 22/03/2016 100% Pasig City
Via Landriani 7,
Synthesis 6900 Lugano, Ticino,
Global Solutions Switzerland 12/04/2016 100% Switzerland
Holstenkamp 46
A, Bahrenfeld,
Synthesis 22525 Hamburg,
Deutschland Germany 12/04/2016 100% Germany
Corso Martiri 31,
Sillabit 23900 Lecco, Lombardia,
S.R.L Italy 12/04/2016 100% Italy
Keywords 15 rue de la Baume
International - 75008 Paris,
SAS France 08/06/2016 100% France
410 Charest Est,
Suite 410, Quebec
Volta Creation QC, Canada G1K
Inc Canada 29/07/2016 100% 8G3
Claremont House,
95 Queens Road,
United BN1 3XE, Brighton,
Player Research Kingdom 26/10/2016 100% UK
Global Video-Games
Services 2031 boul. du Curé-Labelle,
Inc., trading Saint-Jérôme
as Enzyme (Québec) J7Y1S5,
Testing Labs Canada 16/11/2016 100% Canada
Global Video 166, boulevard
Game Service du Montparnasse,
Europe SARL France 16/11/2016 100% 75014 Paris , France
Studio 11 The Premises,
205-209 Hackney
United Rd, London E2 8JL,
Spov Ltd Kingdom 17/02/2017 100% UK
712 Presnell Court,
Raleigh, NC 27615-1240,
XLOC Inc USA 10/05/2017 100% USA
12000 Research
Parkway, Suite
436, Orlando, FL
GameSim Inc. USA 17/05/2017 100% 32826, USA
Suites 103, 106
and 107 Premier
Strongbox Building, Victoria,
Ltd Seychelles 17/05/2017 100% Mahe, Seychelles
Flat/Rm 4304, 43F,
China Resources
Building, 26 Harbour
Eastern New Hong Road, Wanchai,
Media Limited Kong 17/05/2017 100% Hong Kong
Red Hot Software Dong Tu Yu Hiu
(Shanghai) Road #860, Building
Ltd. China 17/05/2017 100% 5, 4th Floor, Shanghai
Room 207, 11th
Floor, Building
Red Hot Software No. 3, No. 57 Ke
(Zhengzhou) Xue Da Dao, Zheng
Ltd. China 17/05/2017 100% Zhou, He Nan, China
PT Limitless JI. Timoho II,
Indonesia Indonesia 17/05/2017 100% No. 32, Yogyakarta,
20, rue de la Folie-Méricourt,
asrec SAS France 28/07/2017 100% 75011 Paris
Le Marque 11, rue Torricelli,
Rose SARL France 04/08/2018 100% 75017 Paris
Dune Sound 59 boulevard Exelmans,
SAS France 28/07/2017 100% 75016 Paris
Around the 59 boulevard Exelmans,
Word SAS France 28/07/2017 100% 75016 Paris
Around the Rosenstrasse 2,
Word GmbH Germany 28/07/2017 100% D-10178 Berlin
Around the 338 Saint-Antoine,
Word Canada bureau 207, Montréal,
Ltd Canada 28/07/2017 100% Canada
Drake House, Gadbrook
United Park, Northwich,
d3t Ltd Kingdom 19/10/2017 100% Cheshire, CW9 7RA
1209 Orange Street,
Wilmington, New
Keywords Castle County,
US Holdings Delaware 19801,
Ltd USA 27/10/2017 100% USA.
11611 Willows Road
NE, Redmond, WA
VMC Consulting 98052, United States
Corporation USA 27/10/2017 100% of America
1751 Richardson
Street Suite 8400
Volt Canada Montreal QC H3K
Inc. Canada 27/10/2017 100% 1G6 Canada
VMC Volt 1700-1075 West
Information Georgia Street,
Sciences Vancouver, BC,
BC, Inc. Canada 27/10/2017 100% V6E 3C9
2033 Gateway Place
Sperasoft Suite 500 San Jose,
Inc. USA 13/12/2017 100% CA 95110
Sperasoft ul. Na Koz ówce
Poland Spólka 27, 30-664 Kraków,
z.o.o. Poland 13/12/2017 100% Poland
5 Kievskaya Str.,
Sperasoft bld. 4, St. Petersburg,
Studio LLC Russia 13/12/2017 100% 196084
-------------------- ------------------ ------------------ ---------------
22 Related parties and shareholders
Italicatessen Limited, a company registered in Ireland is
related by virtue of a common significant shareholder. P.E.Q.
Holdings Limited is 100% owner of Italicatessen Limited. At 31
December 2017, P.E.Q Holdings Limited owned 6.5% (2016: 14.6%) of
the Company. In addition, Mr. Giorgio Guastalla is a Director of
Italicatessen Limited, P.E.Q. Holdings Limited and the Company, and
owns, or controls, 90% of the share capital of P.E.Q Holdings
Limited.
The following transactions arose with Italicatessen Limited,
which provides canteen services to Keywords International
Limited
2017 2016
EUR'000 EUR'000
Operating Expenses
Canteen Charges 57 53
57 53
-------- --------
The following are year-end balances:
2017 2016
EUR'000 EUR'000
Italicatessen Limited 10 9
10 9
-------- --------
The Company paid the following amounts to Mr. Giorgio Guastalla,
Director of the Company, and shareholder of P.E.Q Holdings Limited,
in respect of rent on premises occupied by the employees of the
Group in Dublin.
2017 2016
EUR'000 EUR'000
Operating Expenses
Rental Payment 22 22
22 22
-------- --------
The details of key management compensation (being the
remuneration of the Directors) are set out in note 10.
As at 31 December 2017 and 2016, the Company had amounts
receivable from its subsidiaries, amounting to EUR14,624k (2016:
EUR13,519k) relating to intergroup trading activities.
As at 31 December 2017 and 2016, the Company had amounts
receivable from its subsidiaries, amounting to EUR117,732k (2016:
EUR12,122k) relating to investments in relation to
acquisitions.
23 Financial instruments and risk management
Interest rate risk
Interest rate risk is the risk that the value of financial
instruments will fluctuate due to changes in market interest rates.
The Group's income and operating cash flows are substantially
independent of changes in market interest changes. The management
monitors interest rate fluctuations on a continuous basis and acts
accordingly.
Where the Group has a significant amount of surplus cash, it
will invest in higher earning interest deposit accounts.
Due to interest rate conditions, the interest rates for short
term deposits are at similar levels to those achieved for longer
terms. The Group is not unduly exposed to market interest rate
fluctuations, and no interest rate sensitivity analysis has been
presented as a result.
Credit Risk
Credit risk arises when a failure by counterparties to discharge
their obligations could reduce the amount of future cash inflows
from financial assets on hand at the reporting date.
The Group closely monitors the activities of its counterparties
and maintains regular contact which enables it to ensure the prompt
collection of customers' balances.
The Group's main financial assets are cash and cash equivalents
as well as trade and other receivables and represent the Group's
maximum exposure to credit risk in connection with its financial
assets. Trade and other receivables are carried on the statement of
financial position net of bad debt provisions estimated by the
Directors based on prior year experience and an evaluation of
prevailing economic circumstances.
Whenever possible and commercially practical the Group invests
cash with major financial institutions in each jurisdiction where
it operates. The Group periodically monitors the credit rating and
stability of these institutions.
The ageing of trade receivables that are past due but not
impaired can be analysed as follows:
Group
Total Not 1-2 More
past months than
due overdue 2 months
past
due
-------- -------- --------- ----------
EUR'000 EUR'000 EUR'000 EUR'000
As at 31 December 2017 27,473 16,713 9,126 1,634
As at 31 December 2016 13,879 12,877 907 95
The above balances relate to customers with no default
history.
A provision for doubtful debtors is included within trade
receivables that can be reconciled as follows:
2017 2016
EUR'000 EUR'000
Provision at the beginning
of the year 468 306
Charged to income statement 3 188
Utilised (53) (26)
Provision at end of
the year 418 468
-------- --------
Related party receivables of EURnil were past due at 31 December
2017 (2016: nil).
Company
Intercompany trade receivables of EUR14,624k were not past due
at 31 December 2017 (2016: EUR13,519k).
Currency Risk
Currency risk is the risk that the value of financial
instruments will fluctuate due to changes in foreign exchange
rates.
The foreign exchange risk arises for the Group where assets and
liabilities arise and are held in overseas subsidiaries in a
currency other than the euro and to a lesser extent where
individual Group entities enter into transactions denominated in
currency other that their functional currency.
The Group's policy, where possible, is for Group entities to
manage foreign exchange risk at a local level by matching the
currency in which revenue is generated and the expenses incurred
and by settling liabilities denominated in their functional
currency with cash generated from their own operations in that
currency. Where Group entities have liabilities denominated in a
currency other than their functional currency (and have
insufficient reserves of that currency to settle them), cash
already denominated in that currency will, where possible, be
transferred from elsewhere within the Group.
Over the course of the year the Group's currency has increased
and diversified due to the addition of the newly acquired
subsidiaries. The Group is predominantly exposed to currency risk
on the balances held within working capital within the Group and
the exposure is concentrated in the movement of the Canadian
Dollar, US dollar and Sterling against the Euro. The effect of a
strengthening and weakening of 10% of these currencies against the
euro at the reporting date on the working capital balances held at
this date would, all other variable held constant, have resulted in
the following pre-tax profit/(loss) impact for the year as
follows:
10% Strengthening 10% Weakening
EUR'000 EUR'000
United States Dollar
to Euro 2,363 (2,363)
Canadian Dollar to Euro 1,267 (1,267)
Sterling to Euro 620 (620)
Total financial assets and liabilities
Total financial assets and liabilities
The carrying amount of the financial assets and liabilities
shown in the Group statements of financial position are stated at
fair value.
Liquidity Risk
Liquidity risk arises from the Group's management of working
capital and the financial charges on its debt instruments.
The Group's policy is to ensure that it will have sufficient
cash to allow it to meet its liabilities when they become due.
The following are the contractual maturities (representing
undiscounted contractual cash flows) of the Group's financial
liabilities:
Group
Year ended 31 December Total Within 1-2 2-5
2017 1 year years years
-------- -------- -------- --------
EUR'000 EUR'000 EUR'000 EUR'000
Trade payables 7,310 7,310 - -
Contingent Consideration 4,468 3,251 1,217
Other accounts payable 19,770 19,754 16 -
Loans & Borrowings 19,280 18,943 31 306
Year ended 31 December Total Within 1-2 2-5
2016 1 year years years
-------- -------- -------- --------
EUR'000 EUR'000 EUR'000 EUR'000
Trade payables 4,822 4,822 - -
Contingent Consideration 1,730 251 1,479 -
Other accounts payable 12,293 12,238 55 -
Loans & Borrowings 8,370 8,025 55 290
Contingent considerations at 31 December 2017 have arisen on
business combinations. They are based on set amounts to be paid in
the future to sellers under the purchase agreements.
24 Operating Lease Commitments
The Group maintains a portfolio of leased properties. The terms
of property leases vary from country to country, although they all
tend to be tenant repairing with rent reviews every 2 to 5 years
and some have break clauses.
The total future value of the minimum lease payments is due as
follows:
Group 2017 2016
EUR'000 EUR'000
Not later than one year 4,561 2,318
Later than one year and not later
than five years 10,708 6,031
Later than five years 4,793 903
20,062 9,252
-------- --------
25 Finance Lease Commitments
The Group has leased computer equipment and office telephone
systems. Such assets are generally classified as finance leases as
the rental period amounts to the estimated useful economic life of
the assets concerned and often the Group has the right to purchase
the assets outright at the end of the minimum lease term by paying
a nominal amount.
The total future value of the minimum lease payments is due as
follows:
Minimum Interest Present
Lease Value
Group Payments
EUR'000
2017
Not later than one year 25 1 24
Later than one year and not
later than five years 20 4 16
Later than five years - - -
45 5 40
---------- --------- --------
2016
Not later than one year 31 2 29
Later than one year and not
later than five years 18 1 17
Later than five years - - -
49 3 46
---------- --------- --------
26 Deferred Tax
Details of the deferred tax assets and liabilities, and amounts
recognised in the profit or loss are as follows:
Asset Liability Net (Charged)
/ credited
to profit
or loss
2017 2017 2017 2017
EUR'000 EUR'000 EUR'000 EUR'000
Accelerated capital allowances - 1 (1) 1
Personal severance indemnity 32 - 32 (2)
Available losses 237 - 237 (162)
Rent - free inducement 17 - 17 13
Fixed asset excess of
tax over accounting 258 139 119 (33)
Deferred tax related
to Multi Media Tax Credits - 2,284 (2,284) 132
Other temporary and deductible
differences 581 112 469 (225)
Deferred Tax arising
on intangibles 81 5,259 (5,178) (700)
Net tax assets / (liabilities) 1,206 7,795 (6,589) (976)
-------- ---------- -------- ------------
Change in Tax Rate (149)
Prior year over / (under)
provision 94
Total deferred tax asset
/ (liability) (1,031)
------------
Asset Liability Net (Charged)
/ credited
to profit
or loss
2016 2016 2016 2016
EUR'000 EUR'000 EUR'000 EUR'000
Accelerated capital allowances - 9 (9) 4
Personal severance indemnity 109 - 109 100
Available losses 44 - 44 (243)
Rent - free inducement - 116 (116) (66)
Fixed asset excess of
tax over accounting 173 3 170 42
Deferred tax related
to Multi Media Tax Credits 5 796 (791) 501
Other temporary and deductible
differences 300 19 281 (88)
Deferred Tax arising
on intangibles 249 2,310 (2,061) 459
Net tax assets / (liabilities) 880 3,253 (2,373) 709
-------- ---------- -------- ------------
27 Non-Controlling Interest
2017 2016
EUR'000 EUR'000
Opening Balance - (1,309)
Liabilities of Kite Team attributable
to shareholder at the acquisition
date - -
Loss of Kite team attributable to
the shareholders of the group - (61)
Contingent Consideration for the purchase
of the remaining 50% of Kite Team - -
Settlement of Non-Controlling Interest - 1,370
- -
-------- --------
Keywords International Limited acquired 50% of the issued share
capital of Kite Team in 2015, a company registered in Spain.
In March 2016, Keywords International Limited acquired the
remaining 50% of shares in Kite Team. The settlement value was
EUR1,370,000; comprising the settlement of the put and call option
of EUR1,150,000 through EUR1,000,000 in cash and EUR150,000 in KWS
shares, plus EUR220,000 transfer of losses from Minority
Interest.
28 Acquisitions completed in the current year
Acquisition of Spov Ltd
On 17 February 2017 the Group acquired the entire issued share
capital of Spov Ltd ("Spov") a company registered in the UK, which
specialises in providing creative development, cinematics, UI,
visual effects and motion graphics services to the video game and
film markets. The acquisition will further complement Keywords
range of customer service offerings to customers with online and
mobile games.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out below:
Fair
Spov Ltd. Book Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
Financial Assets
Property, plant and
equipment 30 - 30
Trade and other receivable 16 - 16
Trade and other Payables (139) - (139)
Total identifiable
assets (93) - (93)
-------- ----------- --------
Goodwill 491
Total consideration 398
--------
Satisfied by:
Cash 351
Deferred consideration 47
398
--------
Net cash outflow
arising on acquisition
Cash 351
--------
The main factors leading to recognition of goodwill on the
acquisition of Spov are the presence of intangible assets in the
acquired entity which do not value for separate recognition such as
the expertise in Art Services and reputation within the industry,
and an unidentified proportion representing the balance
contributing to profit generation.
The deferred considerations is a guaranteed amount.
In the opening set up period, Spov contributed EUR207,920
revenue and EUR203,313 loss before tax to the Group between the
date of acquisition and the balance sheet date.
If the acquisition had been completed on the first day of the
financial year, total revenue for the six months of EUR212,258
would have been contributed to the Group, and a corresponding loss
before tax of EUR213,419.
Acquisition costs of EUR9k have been charged through the
Statement of Comprehensive Income.
Acquisition of XLOC
On 10 May 2017 the Group acquired the entire issued share
capital of XLOC Inc, ("XLOC") a company registered in Raleigh,
North Carolina, USA. XLOC has developed the leading web-based
integrated globalization content management system for videogames
(XLOC), supported by consulting and customisation services. The
acquisition of XLOC is in line with Keywords Studios' strategy to
extend its services, with the objective of providing end to end
services to its global client base covering all aspects of game
production and live operations support.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out in the table
below:
XLOC Book Fair Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
Financial Assets
Property, plant and
equipment 7 - 7
Identifiable intangible
assets - IP - 147 147
Trade and other receivables 33 - 33
Cash and cash equivalents 120 - 120
Trade and other Payables (73) - (73)
Deferred tax liabilities - (59) (59)
Total identifiable
assets 87 88 175
-------- ----------- --------
Goodwill 652
Total consideration 827
--------
Satisfied by:
Cash 643
Equity Instruments
(19,134 shares of the
parent company) 184
Total consideration 827
--------
Net cash outflow arising on acquisition
Cash 643
Less: cash and cash
equivalent balances
transferred (120)
523
--------
The main factors leading to the recognition of goodwill on the
acquisition of XLOC are the presence of certain intangible assets
in the acquired entity, which are not valued for separate
recognition, such as the expertise in localisation processes and
reputation within the industry.
XLOC contributed EUR236,376 revenue and EUR114,475 loss before
tax to the Group between the date of acquisition and the balance
sheet date. If the acquisition had been completed on the first day
of the financial year, revenue for the year to 31 Dec 2017 of
EUR479,446 would have been contributed to the Group and EUR32,312
loss before tax.
Acquisition costs of EUR9k have been charged through to the
Statement of Comprehensive Income.
Acquisition of GameSim
On 17 May 2017 the Group acquired the entire issued share
capital of GameSim Inc, ("GameSim") a company registered in
Orlando, Florida, USA. GameSim specialise in outsourced engineering
services and technology platforms for the video games industry and
other virtual simulation applications. The acquisition is in line
with its strategy of growing both organically and by acquisition to
extend the Group's client base, market penetration or service
lines, where the Group can leverage its existing expertise,
multi-service platform, scale and global reach to generate
synergies.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out in the table
below:
Fair
GameSim Book Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
Financial Assets
Property, plant and equipment 13 - 13
Identifiable intangible
assets - customer relationships - - -
Trade and other receivables 768 - 768
Cash and cash equivalents 26 - 26
Trade and other Payables (353) - (353)
Total identifiable assets 454 - 454
-------- ----------- --------
Goodwill 3,828
Total consideration 4,282
--------
Satisfied by:
Cash 2,888
Equity Instruments (151,725
shares of the parent company) 1,394
Total consideration transferred 4,282
--------
Net cash outflow arising
on acquisition
Cash 2,888
Less: cash and cash equivalent
balances transferred (26)
2,862
--------
The main factors leading to recognition of goodwill on the
acquisition of GameSim are the presence of certain intangible
assets in the acquired entity, which are not valued for separate
recognition, such as the expertise in simulation technology for the
Games Industry and reputation.
GameSim contributed EUR2,266,180 revenue and EUR397,213 profit
before tax to the Group between the date of acquisition and the
balance sheet date. If the acquisition had been completed on the
first day of the financial year, revenue for the year to 31
December 2017 of EUR3,798,549 would have been contributed to the
Group and EUR461,541 profit before tax.
Acquisition costs of EUR3k have been charged through to the
Comprehensive Income Statement.
Acquisition of Red Hot
On 22 May 2017 the Group acquired the entire issued share
capital of Strongbox Ltd, a holding company with subsidiaries in
China and Indonesia trading under the Red Hot CG ("Red Hot"). Red
Hot are specialists in the production of graphical art assets for
video games.
The acquisition of Red Hot is in line with Keywords' strategy of
growing both organically and by acquisition. It will increase the
capacity of Keywords' fast growing and higher margin Art Service
Line, as well as bringing a number of attractive new clients to the
art business at Keywords.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out in the table
below:
Fair
Red Hot Book Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
Financial Assets
Property, Plant & Equipment 230 - 230
Identifiable intangible
assets - customer relationships - 1,465 1,465
Trade and other receivable 975 - 975
Cash and cash equivalents 584 - 584
Trade and other Payables (356) - (356)
Corporation Tax (64) - (64)
Deferred tax liabilities - (366) (366)
Total identifiable assets 1,369 1,099 2,468
-------- ----------- --------
Goodwill 2,513
Total consideration 4,981
--------
Satisfied by:
Cash 3,514
Shares to Be Issued 1,468
4,981
--------
Net cash outflow arising
on acquisition
Cash 3,514
Less: cash and cash equivalent
balances transferred (584)
2,930
--------
The main factors leading to recognition of goodwill on the
acquisition of Red Hot are the presence of certain intangible
assets in the acquired entity, broader access to the Chinese pool
of video game art talent, which is the largest in the world, and
expertise in Art service for the Games Industry and reputation.
A fixed amount of 160,842 shares in Keywords Studio Plc will be
issued as part of the deferred consideration. The shares have been
valued at the share price at the date of acquisition, EUR9.12, and
EUR1,467,580 has been recorded as Shares to be Issued within
Equity, in accordance with IAS 32.16.
Red Hot contributed EUR3,979,753 revenue and EUR848,152 profit
before tax to the Group between the date of acquisition and the
balance sheet date. If the acquisition had been completed on the
first day of the financial year, revenue for the year to 31
December 2017 of EUR6,245,933 would have been contributed to the
Group and EUR1,152,760 profit before tax.
Acquisition costs of EUR70k have been charged through to the
Comprehensive Income Statement.
Acquisitions of asrec, Le Marque Rose and Around the Word
Between 28 July and on 4 August, the company acquired the entire
issued share capital of La Marque Rose SARL, asrec SAS and the
subsidiary companies of holding company, Dune Media SAS, trading as
Dune Sound and Around the Word, which are all based in Paris and
provide audio recording and localisation services to the video
games industry internationally.
The acquisitions are in line with the Keywords' strategy of
consolidating our leading position in the highly fragmented video
games services industry and generating synergies through scale in
certain services and geographies.
The amounts recognised in respect of the identifiable assets
acquired and liabilities, for each of the acquisitions, are set out
in the table below:
Fair
asrec Book Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
Financial Assets
Property, Plant & Equipment 123 - 123
Identifiable intangible assets
- customer relationships - - -
Trade and other receivable 49 - 49
Cash and cash equivalents 76 - 76
Trade and other Payables (115) - (115)
Deferred tax liabilities - - -
Total identifiable assets 133 - 133
-------- ----------- --------
Goodwill 577
Total consideration 710
--------
Satisfied by:
Cash 610
Equity Instruments (9,534 shares
of the parent company) 100
710
--------
Net cash outflow arising on
acquisition
Cash 610
Less: cash and cash equivalent
balances transferred (76)
534
--------
Fair
Le Marque Rose Book Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
Financial Assets
Property, Plant &
Equipment 148 - 148
Identifiable intangible
assets - customer
relationships - - -
Trade and other receivable 598 - 598
Cash and cash equivalents 494 - 494
Trade and other Payables (504) - (504)
Deferred tax liabilities - - -
Total identifiable
assets 736 - 736
-------- ----------- --------
Goodwill 1,293
Total consideration 2,029
--------
Satisfied by:
Cash 2,029
--------
Net cash outflow
arising on acquisition
Cash 2,029
Less: cash and cash
equivalent balances
transferred (494)
1,535
--------
Fair
Around the Word Book Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
Financial Assets
Property, Plant &
Equipment 342 - 342
Identifiable intangible
assets - customer
relationships 651 651
Trade and other receivable 2,142 - 2,142
Cash and cash equivalents 497 - 497
Trade and other Payables (2,067) - (2,067)
Deferred tax liabilities - (217) (217)
Total identifiable
assets 914 434 1,348
-------- ----------- --------
Goodwill 3,495
Total consideration 4,843
--------
Satisfied by:
Cash 2,500
Deferred Cash 1,543
Shares to Be Issued
(66,262 shares of
the parent company) 800
4,843
--------
Net cash outflow
arising on acquisition
Cash 2,500
Less: cash and cash
equivalent balances
transferred (497)
2,003
--------
The main factors leading to recognition of goodwill on the
acquisition of the French entities are the presence of certain
intangible assets in the acquired entity, including and expertise
in Audio service for the Games Industry and reputation. These
acquisitions will allow Keywords to consolidate the leading
providers of audio and localisation services in French which,
together with German, remain the most important localised languages
for games.
The deferred cash consideration elements of the Around The Word
consideration are payable over three tranches. The first tranche is
a payable on satisfaction of a working capital requirement at 31
December 2017, which has been met. The second and third tranches
are payable on set EBITDA percentage requirements on set revenue
targets. Based on trading to date, and on current projections, it
is expected that this consideration will be paid in full.
A fixed amount of 66,262 shares in Keywords Studio Plc will be
issued as part of the deferred consideration. The shares have been
valued at the share price at the date of acquisition, EUR12.07, and
EUR800,000 has been recorded as Shares to be Issued within Equity,
in accordance with IAS 32.16.
These French Acquisitions contributed EUR3,773,273 revenue and
EUR644,655 profit before tax to the Group between the dates of
acquisition and the balance sheet date. If the acquisitions had
been completed on the first day of the financial year, revenue for
the year to 31 December 2017 of EUR9,532,853 would have been
contributed to the Group and EUR148,936 profit before tax.
Acquisition costs of EUR435k have been charged through to the
Comprehensive Income Statement.
Acquisition of d3t
On 19 October 2017 the Group acquired the entire issued share
capital of d3t, a UK company. d3t delivers premium quality
outsourced software development services for video game developers
and publishers internationally.
The acquisition of d3t is in line with Keywords Studios'
strategy to grow organically and by acquisition as it selectively
consolidates the highly fragmented market for video game services.
d3t brings additional skills, client relationships and geographic
reach to Keywords, extending the strength and scale of its recently
established Engineering service line.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out in the table
below:
Fair
d3t Book Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
Financial Assets
Property, Plant
& Equipment 188 - 188
Identifiable intangible
assets - customer
relationships - - -
Trade and other
receivable 602 - 602
Cash and cash equivalents 802 - 802
Trade and other
Payables (678) - (678)
Deferred tax liabilities - - -
Total identifiable
assets 914 - 914
-------- ----------- --------
Goodwill 2,886
Total consideration 3,800
--------
Satisfied by:
Cash 3,127
Equity Instruments
(42,368 shares
of the parent company) 673
3,800
--------
Net cash outflow
arising on acquisition
Cash 3,127
Less: cash and
cash equivalent
balances transferred (802)
2,325
--------
The main factors leading to recognition of goodwill on the
acquisition of d3t are the presence of certain intangible assets in
the acquired entity, including a software development team with
capabilities including HD re-mastering, porting, optimisation,
rendering and game systems and reputation within the industry.
d3t contributed EUR560,231 revenue and EUR6,938 loss before tax
to the Group between the date of acquisition and the balance sheet
date. If the acquisition had been completed on the first day of the
financial year, revenue for the year to 31 December 2017 of
EUR3,010,726 would have been contributed to the Group and
EUR113,541 profit before tax.
Acquisition costs of EUR36k have been charged through to the
Comprehensive Income Statement.
Acquisition of VMC
On 27 October 2017 the Group acquired the entire issued share
capital of VMC Consulting Corporation, a leading provider of
Functional Testing and Customer Support in North America, and its
affiliates VMC Volt Information Sciences BC and Volt Canada
Inc.
The acquisition of VMC is in line with Keywords Studios'
strategy to grow organically and by acquisition as it selectively
consolidates the highly fragmented market for video game
services.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out in the table
below:
Fair
VMC Book Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
Financial Assets
Property, Plant & Equipment 1,834 - 1,834
Identifiable intangible
assets - customer relationships - 13,245 13,245
Trade and other receivable 18,255 - 18,255
Cash and cash equivalents - - -
Trade and other Payables (3,192) - (3,192)
Corporation Tax (150) - (150)
Deferred tax liabilities (1,408) (2,781) (4,189)
Total identifiable assets 15,339 10,464 25,803
-------- ----------- --------
Goodwill 32,128
Total consideration 57,931
--------
Satisfied by:
Cash 57,931
Net cash outflow arising
on acquisition
Cash 57,931
Less: cash and cash equivalent
balances transferred -
57,931
--------
VMC contributed EUR7,768,858 revenue and EUR824,189 profit
before tax to the Group between the date of acquisition and the
balance sheet date. If the acquisition had been completed on the
first day of the financial year, revenue for the year to 31
December 2017 of EUR50,345,062 would have been contributed to the
Group. The acquisition was a carve-out from a group of existing
companies, so the comparable pre-acquisition profit is not easily
measurable. It is expected that the comparable profit before tax
would have been in the order of 10% of revenues.
Acquisition costs of EUR1,690k have been charged through to the
Comprehensive Income Statement.
Acquisition of Sperasoft
On 13 December 2017 the Group acquired the entire issued share
capital of Sperasoft Inc. and Sperasoft LLC. Headquartered in Santa
Clara, California, Sperasoft provides game development, art
creation and software engineering services to video game developers
and publishers around the world from its production studios in St
Petersburg and Volgograd, Russia and Krakow, Poland.
The acquisition of Sperasoft is in line with Keywords Studios'
strategy to grow organically and by acquisition as it selectively
consolidates the highly fragmented market for video game services.
Sperasoft adds considerable expertise and scale to Keywords new and
growing Engineering Services business and adds additional scale to
the Art creation business.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out in the table
below:
Sperasoft Book Fair Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
Financial Assets
Property, Plant & Equipment 1,053 - 1,053
Identifiable intangible
assets - customer relationships - 3,454 3,454
Trade and other receivable 2,946 - 2,946
Cash and cash equivalents 587 - 587
Trade and other Payables (2,710) - (2,710)
Corporation Tax (86) - (86)
Loan (1,022) - (1,022)
Deferred tax liabilities (46) (691) (737)
Total identifiable assets 722 2,763 3,485
-------- ----------- --------
Goodwill 18,206
Total consideration 21,691
--------
Satisfied by:
Cash 16,733
Deferred Cash 826
Shares to Be Issued (252,248
shares of the parent company) 4,132
21,691
--------
Net cash outflow arising
on acquisition
Cash 16,733
Less: cash and cash equivalent
balances transferred (587)
16,146
--------
The main factors leading to recognition of goodwill on the
acquisition of Sperasoft are the presence of certain intangible
assets in the acquired entity, including and expertise in Art and
Engineering services for the Games Industry and reputation.
The deferred consideration is payable on the first anniversary
of trading. This is not contingent on performance of the
company.
A fixed amount of 252,248 shares in Keywords Studio Plc will be
issued as part of the deferred consideration. The shares have been
valued at the share price at the date of acquisition, EUR14.26, and
EUR4,132,584 has been recorded as Shares to be Issued within
Equity, in accordance with IAS 32.16.
Sperasoft contributed EUR797,608 revenue and EUR34,180 loss
before tax to the Group between the dates of acquisition and the
balance sheet date. If the acquisitions had been completed on the
first day of the financial year, revenue for the year to 31
December 2017 of EUR18,077,846 would have been contributed to the
Group and EUR1,040,698 loss before tax.
Acquisition costs of EUR82k have been charged through to the
Comprehensive Income Statement.
Acquisition of Lola
On 15 December 2017 the Group acquired the assets and business
of Localizadora Latam SC ("LOLA") , a Mexican company and a leading
provider of Latin American Spanish dubbing, localisation and sound
design services for the video game, film and television
markets.
The acquisition of Lola is in line with Keywords Studios'
strategy to grow organically and by acquisition as it selectively
consolidates the highly fragmented market for video game
services.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out in the table
below:
Fair
Lola Book Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
Financial Assets
Property, Plant &
Equipment 13 - 13
Identifiable intangible
assets - customer
relationships - - -
Trade and other receivable 147 - 147
Cash and cash equivalents 43 - 43
Trade and other Payables (118) - (118)
Deferred tax liabilities - - -
Total identifiable
assets 85 - 85
-------- ----------- --------
Goodwill 784
Total consideration 869
--------
Satisfied by:
Cash 405
Deferred Cash 295
Shares to Be Issued
(10,106 shares of
the parent company) 169
869
--------
Net cash outflow arising
on acquisition
Cash 405
Less: cash and cash
equivalent balances
transferred (43)
362
--------
The main factors leading to recognition of goodwill on the
acquisition of Lola are the presence of certain intangible assets
in the acquired entity, including expertise in Latin American
Spanish dubbing and sound expertise.
The deferred consideration on Lola is payable based on sales
targets. At the reporting date, there is no reason to believe that
these targets will not be met.
As the acquisition happened so close to year end, Lola
contributed minimal revenue and profit before tax to the Group
between the date of acquisition and the balance sheet date. If the
acquisition had been completed on the first day of the financial
year, revenue for the year to 31 December 2017 of EUR997,366 would
have been contributed to the Group, and EUR68,136 profit before
tax.
Acquisition costs of EUR2k have been charged through to the
Comprehensive Income Statement.
29 Business Combinations completed in 2016
Acquisition of Ankama Asia Pte Ltd.
On 22 March 2016 the Group acquired the entire issued share
capital of Ankama Asia Pte Ltd ("Ankama"), a company registered in
Singapore, which specialises in providing services to support the
live operations of the games of Ankama France. The company has a
four year agreement for the continued provision to service to
Ankama and also plans to significantly increase the scale of the
Studio, which is based in Manila, to service new and existing
clients of Keywords. The acquisition will strengthen Keywords range
of customer service offerings to customers with online and mobile
games.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out below:
Ankama Asia Pte
Book Fair Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
------------------------------------------ -------- ----------- --------
Financial Assets
Identifiable intangible assets - customer
relationships - 44 44
Trade and other receivable 6 - 6
Cash and cash equivalents 120 - 120
Trade and other Payables (81) - (81)
Deferred tax liabilities - (7) (7)
------------------------------------------ -------- ----------- --------
Total identifiable assets 45 37 82
------------------------------------------ -------- ----------- --------
Goodwill 214
------------------------------------------ -------- ----------- --------
Total consideration 296
------------------------------------------ -------- ----------- --------
Satisfied by:
Cash 296
Less: cash and cash equivalent balances
transferred (120)
------------------------------------------ -------- ----------- --------
176
------------------------------------------ -------- ----------- --------
The intangible assets are to be amortised over their estimated
useful lives of 5 years.
The main factors leading to recognition of goodwill on the
acquisition of Ankama Asia Pte Ltd are the presence of intangible
assets in the acquired entity which do not value for separate
recognition such as the expertise in customer service and an
unidentified proportion representing the balance contributing to
profit generation.
Ankama Asia Pte Ltd contributed EUR527,856 revenue and EUR17,288
loss before tax to the Group between the date of acquisition and
the balance sheet date. If the acquisition had been completed on
the first day of the financial year, revenue for 2016 of EUR540,693
would have been contributed to the Group and loss before tax of
EUR18,022.
Acquisition costs of EUR39,140 have been charged through the
Statement of Comprehensive Income.
Acquisition of Synthesis Group
The Group acquired the business of the Synthesis Group of
Companies on 12 April 2016, including:
-- 100% of the share capital of Sillabit SRL, a company registered in Italy;
-- 100% of the share capital of Synthesis Deutschland GmBH, a
company registered in Germany; and
-- 100% of the share capital of Synthesis Global Solutions SA,
(SGSS) a company registered in Switzerland.
The Synthesis Group provide localization and audio services to
some of the leading games publishers, and was acquired to extend
the Group's client base and global reach.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out in the table
below:
Synthesis Group
Book Fair Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
------------------------------------------ -------- ----------- --------
Financial Assets
Property, plant and equipment 236 - 236
Identifiable intangible assets - customer
relationships - 2,774 2,774
Trade and other receivables 1,716 (92) 1,624
Cash and cash equivalents 992 - 992
Trade and other payables (1,856) - (1,856)
Deferred tax asset - - -
Deferred tax liabilities - (538) (538)
------------------------------------------ -------- ----------- --------
Total identifiable assets 1,088 2,144 3,232
------------------------------------------ -------- ----------- --------
Goodwill 14,664
------------------------------------------ -------- ----------- --------
Total consideration 17,896
------------------------------------------ -------- ----------- --------
Satisfied by:
Cash 10,200
Shares to be Issued 6,906
Deferred consideration 790
------------------------------------------ -------- ----------- --------
Total consideration transferred 17,896
------------------------------------------ -------- ----------- --------
Net cash outflow arising on acquisition
Cash 10,200
Less: cash and cash equivalent balances
transferred (992)
------------------------------------------ -------- ----------- --------
9,208
------------------------------------------ -------- ----------- --------
Deferred Cash Consideration of EUR1,000,000 is due for payment
on 12 April 2018 in accordance with the share purchase agreement.
The deferred consideration recorded within as contingent
consideration within non-current other payables on the 2016 balance
sheet represented the fair value amount at the balance due.
The main factors leading to the recognition of goodwill on the
acquisition of the Synthesis Group are the presence of certain
intangible assets in the acquired entity, which are not valued for
separate recognition, such as the expertise in sound recording and
localisation and reputation of the staff within the industry.
A fixed amount of 2,376,518 Keywords Studios Plc shares will be
issued as part of the deferred consideration. The shares have been
valued at the share price at the date of acquisition, GBP2.32
(EUR2.91). EUR6,906,000 has been recorded as Shares to be Issued
within equity.
The Synthesis Group of companies contributed EUR18,012,547
revenue and EUR3,494,458 profit before tax to the Group between the
date of acquisition and the balance sheet date.
If the acquisition had been completed on the first day of the
financial year, total revenue for 2016 of EUR20,662,464 would have
been contributed to the Group, and a corresponding profit before
tax of EUR3,887,462.
Acquisition costs of EUR254,698 have been charged through the
Statement of Comprehensive Income.
Acquisition of Mindwalk Studios Inc. and Mindwalk Studios
Ltd.
On 31 May 2016 the Group acquired 100% of the assets, the
business and the customer contracts of Mindwalk Studios Inc., a
company registered in China, and Mindwalk Studios Ltd, a company
registered in the British Virgin Islands. The companies trade as
one business entity and specialise in the provision of art creation
services for the video games industry. The acquisition is in line
with the Group's strategy to further strengthen art services and to
extend the Group's client base in this service.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out in the table
below:
Mindwalk
Book Fair Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
------------------------------------------ -------- ----------- --------
Financial Assets
Property, plant and equipment 465 (333) 132
Identifiable intangible assets - customer
relationships - 1,100 1,100
Trade and other receivables 581 (39) 542
Cash and cash equivalents 442 (30) 412
Deferred tax asset - 83 83
Deferred tax liabilities - (137) (137)
------------------------------------------ -------- ----------- --------
Total identifiable assets 1,488 644 2,132
------------------------------------------ -------- ----------- --------
Goodwill 3,117
------------------------------------------ -------- ----------- --------
Total consideration 5,249
------------------------------------------ -------- ----------- --------
Satisfied by:
Cash 3,048
Deferred Cash Consideration 315
Shares to be Issued 1,886
------------------------------------------ -------- ----------- --------
Total consideration transferred 5,249
------------------------------------------ -------- ----------- --------
Net cash outflow arising on acquisition
Cash 3,048
Less: cash and cash equivalent balances
transferred (412)
------------------------------------------ -------- ----------- --------
2,636
------------------------------------------ -------- ----------- --------
The main factors leading to recognition of goodwill on the
acquisition of Mindwalk are the presence of certain intangible
assets in the acquired entity, which are not valued for separate
recognition, such as the expertise in art creation service and
reputation of the staff within the industry. The fair value of the
shares to be issued as part of the acquisition has been determined
as being the share price on the date of the transaction.
A fixed amount of 513,189 shares will be issued as part of the
deferred consideration. The shares have been valued at the share
price at the date of acquisition, GBP2.80 (EUR3.67) and
EUR1,886,000 has been recorded as Shares to be Issued in
reserves.
Deferred Cash Consideration of USD$500,000 is due for payment on
5 April 2019 in accordance with the purchase agreement. The
deferred consideration recorded within as contingent consideration
within non-current other payables on the 2016 balance sheet
represented the fair value amount at the balance due.
Mindwalk contributed EUR3,166,196 revenue and EUR227,528 profit
before tax to the Group between the date of acquisition and the
balance sheet date. If the acquisition had been completed on the
first day of the financial year, revenue for 2016 of EUR4,825,497
would have been contributed to the Group and EUR301,165 profit
before tax.
Acquisition costs of EUR199,312 have been charged through to the
Comprehensive Income Statement.
Acquisition of Volta Création Inc.
On 28 July 2016, the Group acquired 100% of the issued share
capital of Volta Création Inc., a company registered in Canada,
which specialises in Art Creation for the Games industry. Volta was
acquired to increase the capabilities and capacity of the art
creation service and in particular to strength to the Groups
offering in concept art.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out in the table
below:
Volta
Book Fair Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
------------------------------------------ -------- ----------- --------
Financial Assets
Fixtures, Fittings & Equipment 74 - 74
Identifiable intangible assets - customer
relationships - 761 761
Trade and other receivable 513 - 513
Cash and cash equivalents (31) - (31)
Trade and other Payables (322) - (322)
Deferred tax liabilities - (202) (202)
------------------------------------------ -------- ----------- --------
Total identifiable assets 234 559 793
------------------------------------------ -------- ----------- --------
Goodwill 2,701
------------------------------------------ -------- ----------- --------
Total consideration 3,494
------------------------------------------ -------- ----------- --------
Satisfied by:
Cash 3,324
Equity Instruments (45,192 shares
of the parent company) 170
------------------------------------------ -------- ----------- --------
3,494
------------------------------------------ -------- ----------- --------
Net cash outflow arising on acquisition
Cash 3,324
Less: cash and cash equivalent balances
transferred 31
------------------------------------------ -------- ----------- --------
3,355
------------------------------------------ -------- ----------- --------
The main factors leading to the recognition of goodwill on the
acquisition of Volta Création Inc. are the presence of certain
intangible assets in the acquired entity, which are not valued for
separate recognition, such as the expertise in Art and Art Services
and reputation of the staff within the industry.
Volta Création Inc. contributed EUR1,181,050 revenue and
EUR209,305 profit before tax to the Group between the date of
acquisition and the balance sheet date. If the acquisition had been
completed on the first day of the financial year, revenue for 2016
of EUR2,406,878 would have been contributed to the Group and profit
before tax of EUR277,687.
Acquisition costs of EUR19,298 have been charged through the
Statement of Comprehensive Income.
Acquisition of Player Research Ltd
On 26 October 2016, the Group acquired 100% of the issued share
capital of Player Research Ltd., a company registered in the United
Kingdom, which is an industry-leading user research and playtesting
specialist. The acquisition is in line with the Group's strategy to
extend its services, with the objective of providing end to end
services to its global client base covering all aspects of game
production and live operations support.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out in the table
below:
Player Research
Book Fair Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
------------------------------------------ -------- ----------- --------
Financial Assets
Fixtures, Fittings & Equipment 45 - 45
Identifiable intangible assets - customer
relationships - 158 158
Trade and other receivable 169 - 169
Cash and cash equivalents 489 - 489
Trade and other Payables (133) - (133)
Deferred tax liabilities - (32) (32)
------------------------------------------ -------- ----------- --------
Total identifiable assets 570 126 696
------------------------------------------ -------- ----------- --------
Goodwill 1,014
------------------------------------------ -------- ----------- --------
Total consideration 1,710
------------------------------------------ -------- ----------- --------
Satisfied by:
Cash 1,128
Deferred Cash 265
Equity Instruments (65,280 shares
of the parent company) 317
------------------------------------------ -------- ----------- --------
1,710
------------------------------------------ -------- ----------- --------
Net cash outflow arising on acquisition
Cash 1,128
Less: cash and cash equivalent balances
transferred (489)
------------------------------------------ -------- ----------- --------
639
------------------------------------------ -------- ----------- --------
Deferred Cash Consideration of GBP300,000 is due for payment on
26 October 2018 in accordance with the share purchase agreement.
The deferred consideration recorded within as contingent
consideration within non-current other payables on the 2016 balance
sheet represented the fair value amount at the balance due.
The main factors leading to the recognition of goodwill on the
acquisition of Player Research Ltd. are the presence of certain
intangible assets in the acquired entity, which are not valued for
separate recognition, such as the expertise in user research and
playtesting and reputation within the industry.
Player Research contributed EUR182,820 revenue and EUR64,525
profit before tax to the Group between the date of acquisition and
the balance sheet date. If the acquisition had been completed on
the first day of the financial year, revenue for 2016 of EUR921,339
would have been contributed to the Group and profit before tax of
EUR307,592.
Acquisition costs of EUR40,785 have been charged through the
Statement of Comprehensive Income.
Acquisition of Global Video-Games Services Inc., trading as
Enzyme Testing Labs
On 16 November 2016, the Group acquired 100% of the issued share
capital of Global Video-Games Services Inc., trading as Enzyme
Testing Labs, a company incorporated under the laws of Quebec.
Enzyme's strengths are in functional QA and localisation testing of
video games for leading game publishers and developers. In
addition, it provides localisation services and focus group
testing, all of which will significantly strengthen Keywords'
service offerings to the global video games market.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out in the table
below:
Enzyme
Book Fair Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
---------------------------------------- -------- ----------- --------
Financial Assets
Fixtures, Fittings & Equipment 929 (13) 916
Identifiable intangible assets -
customer relationships - 1,669 1,669
Trade and other receivable 2,546 - 2,546
Cash and cash equivalents 695 - 695
Trade and other Payables (2,334) - (2,334)
Deferred Tax Assets - 3 3
Deferred tax liabilities - (761) (761)
---------------------------------------- -------- ----------- --------
Total identifiable assets 1,837 899 2,735
---------------------------------------- -------- ----------- --------
Goodwill 731
---------------------------------------- -------- ----------- --------
Total consideration 3,466
---------------------------------------- -------- ----------- --------
Satisfied by:
Cash 3,466
---------------------------------------- -------- ----------- --------
Net cash outflow arising on acquisition
Cash 3,466
Less: cash and cash equivalent balances
transferred (695)
---------------------------------------- -------- ----------- --------
2,771
---------------------------------------- -------- ----------- --------
The main factors leading to the recognition of goodwill on the
acquisition of Enzyme are the presence of certain intangible assets
in the acquired entity, which are not valued for separate
recognition, such as the expertise in functional QA and
localisation testing.
Enzyme contributed EUR1,094,913 revenue and EUR59,820 profit
before tax to the Group between the date of acquisition and the
balance sheet date. If the acquisition had been completed on the
first day of the financial year, revenue for 2016 of EUR8,632,254
would have been contributed to the Group and profit before tax of
EUR954,332.
Acquisition costs of EUR243,774 have been charged through the
Statement of Comprehensive Income.
Acquisition of Sonox Audio Solutions S.L.U.
On 22 December 2016, the Group acquired 100% of the issued share
capital of Sonox Audio Solutions S.L.U. ("Sonox"), a company
incorporated under the laws of Spain. Sonox provides Audio and
Localisation for Spain and Mexico. Sonox already provides certain
services to the Group and its acquisition will enable the Group to
capture the margins on those services.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out in the table
below:
Sonox
Book Fair Value Fair
Value Adjustment Value
EUR'000 EUR'000 EUR'000
------------------------------------------ -------- ----------- --------
Financial Assets
Fixtures, Fittings & Equipment 2 - 2
Identifiable intangible assets - customer
relationships - - -
Trade and other receivable 268 - 268
Cash and cash equivalents 177 - 177
Trade and other Payables (411) - (411)
Deferred tax liabilities - - -
------------------------------------------ -------- ----------- --------
Total identifiable assets 36 - 36
------------------------------------------ -------- ----------- --------
Goodwill 614
------------------------------------------ -------- ----------- --------
Total consideration 650
------------------------------------------ -------- ----------- --------
Satisfied by:
Cash 500
Equity Instruments (24,881 shares
of the parent company) 150
------------------------------------------ -------- ----------- --------
650
------------------------------------------ -------- ----------- --------
Net cash outflow arising on acquisition
Cash 500
Less: cash and cash equivalent balances
transferred (177)
------------------------------------------ -------- ----------- --------
323
------------------------------------------ -------- ----------- --------
The main factors leading to the recognition of goodwill on the
acquisition of Sonox are the presence of certain intangible assets
in the acquired entity, which are not valued for separate
recognition, such as the expertise in audio and localisation.
Sonox contributed EUR52,032 revenue and EUR87,969 additional
profit before tax to the Group between the date of acquisition and
the balance sheet date. If the acquisition had been completed on
the first day of the financial year, revenue for 2016 of
EUR1,308,004 would have been contributed to the Group and profit
before tax of EUR454,827.
Acquisition costs of EUR21,687 have been charged through the
Statement of Comprehensive Income.
30 Supplementary Information to the Statement of Cash Flows
Group Movement on Loans Current Non Current Total
EUR'000 EUR'000 EUR'000
Opening loans and borrowings
1.1.2017 8,025 345 8,370
Cash Flows
Cash Received via Additional
Loans taken in the current
year 10,250 - 10,250
Repayment of Loans (23) - (23)
Non Cash Flows
Amounts recognised on Business
Combinations 632 51 683
Non Current at 1.1.2017 transferred
to current 31.12.2017 59 (59) -
Closing Loans and borrowings
31.12.2017 18,943 337 19,280
-------- ------------ --------
31 Events after the reporting date
Acquisition of Maximal
On 22 March 2018 the group completed the acquisition
of Maximal, an audio business based in Sao Paulo.
Maximal does voice over recording for the video
games and learning industries. Maximal will add
to our audio capabilities in the South American
market, providing Keywords its first recording
studio in Brazil, which will complement our localisation
operation in Rio. Under the terms of the acquisition
Keywords will pay cash consideration of up to
EUR500k; EUR300k initially plus up to EUR200k
over 2 years, contingent on results.
At the date of authorisation of these financial
statements, no further validated information was
available.
Acquisitions of Cord Worldwide Limited and Laced
Music Limited
On 6 April 2018 the Group announced that it had acquired Cord
Worldwide Limited ("Cord") and Laced Music Limited ("Laced") for a
total consideration of GBP4.5m / EUR5.2m from the Cutting Edge
Group ("Cutting Edge"). Based in London, Cord provides a range of
music focused branding and strategic consulting services to large
businesses including Shell, Lego and BT. Laced is a music services
company and record label specialising within the video games
industry. The companies will bring additional talent, expertise and
music industry experience to Keywords' client base. Being able to
offer music services to our clients will further enhance our
reputation as the leading provider of services to the global video
games industry.
Under the terms of the acquisition, which is anticipated to be
earnings enhancing, the total consideration will be GBP4.5m /
EUR5.2m. This will be satisfied by cash of GBP3.4m / EUR3.9m, and
the remainder will be issued in shares to the sellers two years
after the acquisition. At the date of authorisation of these
financial statements, no further validated information was
available.
Annual report and accounts
The annual report and accounts will be posted to shareholders
shortly and will be available to members of the public at the
Company's registered office at 8 Clifford Street London W1S 2LQ and
on the Company's website
http://www.keywordsstudios.com/en/investors.
Annual General Meeting
The Annual General Meeting of Keywords Studios plc will be held
on 25 May 2018.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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