TIDMKWS
RNS Number : 0838M
Keywords Studios PLC
12 September 2023
12 September 2023
Keywords Studios plc ("Keywords Studios", "Keywords", the
"Group")
Half Year Results for the period to 30 June 2023
Good H1 trading performance, in line with guidance and growing
ahead of the market
Keywords Studios, the international provider of creative and
technology-enabled solutions to the global video games and
entertainment industries, is pleased to announce its unaudited
half-year results for the six months to 30 June 2023.
Financial Overview:
Results for the six-months H1 2023 H1 2022 Change
ended 30 June
Group revenue EUR 383.5m EUR 321.1m + 19.4%
Organic revenue growth 1 + 10.4%
Adjusted EBITDA 2 EUR 77.3m EUR 70.1m + 10.3%
Adjusted EBITDA margin 20.1% 21.8%
EBITDA 2 EUR 60.5m EUR 61.0m (0.8)%
Adjusted operating
profit 3 EUR 58.9m EUR 56.0m + 5.2%
Adjusted operating profit
margin 15.4% 17.5%
Operating profit EUR 29.3m EUR 39.5m (25.8)%
Adjusted earnings per
share 4 55.60c 55.89c (0.5)%
Earnings per share 18.48c 36.80c (39.8)%
Interim dividend per
share 0.85p 0.77p
Adjusted cash conversion
rate 5 33.2% 57.9%
Net cash / (net debt) EUR (11.4)m EUR 121.3m
Finance and Operating Highlights:
Good trading performance reflecting the benefits of
diversification across full game development cycle
-- Group revenue up 19.4% to EUR383.5m (H1 2022: EUR321.1m),
driven by robust organic growth and supplemented by
acquisitions
-- Organic revenue growth of 10.4%, driven primarily by strong growth in Create
-- Adjusted operating profit margin of 15.4%, in-line with
guidance and H2 22 (H1 22: 17.5%), with adjusted operating profit
rising 5.2% to EUR58.9m
-- Adjusted free cash flow(6) of EUR18.5m (H1 2022: EUR31.7m) due to timing of working capital
-- Adjusted cash conversion full year expectations unchanged at
80%, H1 rate of 33.2% (H1 2022: 57.9%), would have been 16% pts
higher but GBP7.5m of VGTR payments were delayed into Q3
-- Net debt of EUR11.4m (FY 2022: net cash of EUR81.8m)
reflecting acquisition activity and EBT share buybacks
-- Interim dividend of 0.85p per share, an increase of 10% on
the 2022 interim dividend (H1 2022: 0.77p)
Strategic Highlights:
Delivering against strategy and investing in technology
offering
-- Strategic partner relationships increasingly opening
long-term opportunities for collaboration
-- Increasing traction with AAA clients with our AI-led product
families across Globalize and Engage
-- Expansion of Keywords Labs into an AI Centre of Excellence, with key hires made
-- Good progress in adjacent markets; strong growth in our
LiveOps studio, launched a dedicated studio for in-game cinematics
and virtual production, with acquisition of DMM extending
entertainment offering
-- Executing on our acquisition strategy, delivering four
high-quality acquisitions for a total maximum consideration of
EUR130m year to date
-- RCF increased to $400m, with maturity extended to 2027,
providing long-term liquidity and flexibility to pursue M&A
opportunities in the pipeline
-- Positive recognition of ESG practices, with rating increased to AA at MSCI
Current trading and outlook
-- Continue to grow faster than the market, with organic growth supplemented by acquisitions
-- Monitoring US entertainment strikes, which have begun to
impact performance in early H2, with potential to impact organic
growth by around 2-2.5% for the full year
-- Expecting full year underlying organic growth (excluding the
strike impact) to be broadly similar to the first half, with H2
growth weighted to the fourth quarter; mindful of continuing
currency volatility
-- Adjusted operating margins expected to remain above 15% for
the full year, with cost control measures largely mitigating the
impact of the strikes
-- Remain confident in the long-term growth trajectory of the business
Bertrand Bodson, Chief Executive Officer of Keywords Studios,
commented:
"Keywords delivered good H1 growth despite the current industry
backdrop, benefitting from our focus on strategic partnerships and
our unique provision of solutions across the full game development
cycle. We have continued to broaden our offering through
high-quality targeted acquisitions and are excited about the
pipeline ahead. We are on track to deliver underlying organic
growth (excluding the unfortunate impact of the US entertainment
strikes) and operating margins in line with our guidance for the
year.
We are uniquely placed to capture the opportunities that
technology advancement creates over time as it constantly increases
the bounds of possibility, leading to a proliferation of ever
improving content as our clients seek to engage the three billion
gamers globally. We are excited about the opportunities that lie
ahead and are building for the future whilst we continue to grow
market share and deliver against our plans for 2023 and
beyond."
Presentation and Webcast
A presentation of the full results will be made to analysts and
investors at 9.00am this morning and the live webcast can be
accessed via this link: https://brrmedia.news/KWS_HY23
To register for dial in access, or for any enquiries, please
contact MHP Group on keywords@mhpgroup.com .
For further information, please contact:
Investor Contacts: Media Contacts:
Keywords Studios MHP Group
Giles Blackham Katie Hunt / Eleni
Director of Investor Menikou / Charles Hirst
Relations +44 20 3128 8794
+44 7714 134 681 keywords@mhpgroup.com
gblackham@keywordsstudios.com
Numis Securities
Nominated Adviser & Broker
Stuart Skinner / Will
Baunton
+44 20 7260 1000
About Keywords Studios ( www.keywordsstudios.com )
Keywords Studios is an international provider of creative and
technology-enabled solutions to the global video games and
entertainment industries . Established in 1998, and now with over
70 facilities in 26 countries strategically located in Asia,
Australia, the Americas, and Europe, it provides services across
the entire content development life cycle through its Create,
Globalize and Engage service lines to a large blue-chip client base
across the globe.
Keywords Studios has a strong market position, providing
services to 24 of the top 25 most prominent games companies. Across
the games and entertainment industry, clients include Activision
Blizzard, Bandai Namco, Bethesda, Electronic Arts, Epic Games,
Konami, Microsoft, Netflix, Riot Games, Square Enix, Supercell,
TakeTwo, Tencent and Ubisoft. Recent titles worked on include
Starfield, Diablo IV, Hogwarts Legacy, Elden Ring, Fortnite,
Valorant, League of Legends, Clash Royale and Doom Eternal.
Keywords Studios is listed on AIM, the London Stock Exchange
regulated market (KWS.L).
The Group reports a number of alternative performance measures
(APMs) to present the financial performance of the business which
are not GAAP measures as defined by International Financial
Reporting Standards (IFRS). The Directors believe these measures
provide valuable additional information for the users of the
financial information to understand the underlying trading
performance of the business. In particular, adjusted profit
measures are used to provide the users of the financial statements
a clear understanding of the underlying profitability of the
business over time. For full definitions and explanations of these
measures and a reconciliation to the most directly referenceable
IFRS line item, please refer to the APMs section at end of the
statement.
(1) Organic revenue at constant exchange rates is calculated by adjusting
the prior year revenues, adding pre-acquisition revenues for the
corresponding period of ownership, and applying the 2022 foreign
exchange rates to both years, when translating studio results into
the euro reporting currency.
(2) EBITDA comprises Operating profit as reported in the Consolidated
statement of comprehensive income, adjusted for amortisation of intangible
assets, depreciation and impairment, and deducting bank charges.
Adjusted EBITDA comprises EBITDA, adjusted for share-based payments
expense, costs of acquisition and integration and non-controlling
interest. In order to present the measure consistently year-on-year,
the impact of other income is also excluded.
(3) Adjusted operating profit consists of the Operating profit as reported
in the Consolidated statement of comprehensive income, adjusted for
share-based payments expense, costs of acquisition and integration,
and amortisation of intangible assets. In order to present the measure
consistently year-on-year, the impact of other income is also excluded.
(4) The Adjusted earnings per share comprises the Adjusted profit after
tax divided by the non-diluted weighted average number of shares
as reported. The Adjusted profit after tax comprises the Adjusted
profit before tax, less the Taxation expense as reported in the Consolidated
statement of comprehensive income, adjusted for the tax impact of
the adjusting items in arriving at Adjusted profit before tax.
(5) The Adjusted cash conversion rate is the Adjusted free cash flow
as a percentage of the Adjusted profit before tax.
(6) Adjusted free cash flow is a measure of cash flow adjusting for
capital expenditure that is supporting growth in future periods (as
measured by capital expenditure in excess of maintenance capital
expenditure).
CEO Statement
Performance
The business performed well over the first half of the year
delivering revenues of EUR383.5m, representing growth of 19.4%.
Organic revenue growth of 10.4% was in line with guidance and
reflected the current market backdrop, with the industry in a reset
year, having experienced exceptional growth over the past few
years. We have continued to grow market share in the first half,
with our overall growth being faster than the expected mid-single
digit growth in the external service provision market this year
(Source: IDG Consulting).
Operating margins, as expected, were in line with the second
half of 2022 at 15.4%, which meant that the business delivered
adjusted operating profit of EUR58.9m (operating profit was
EUR29.3m). This was 5% higher than H1 2022, despite the higher
margin experienced in the comparative period, as we continued to
invest in the business and pre-COVID-19 costs fully returned.
Last year we consolidated our business in a simplified structure
of three service lines. The performance of each segment, which will
be discussed in more detail later in this report, reflected the
varied conditions in the market. We saw strong demand in Create,
and more moderate demand in our Globalize and Engage service lines,
but we remain confident in the long-term opportunity across all of
our service offerings.
We continued to invest in growing the platform through M&A,
supported by our strong balance sheet and recently expanded
revolving credit facility. In H1 we spent approximately EUR92m on
four high-quality acquisitions (net of cash acquired), representing
the total of the cash component of both the current and previous
years' transactions. As a result we moved from a net cash position
of EUR82m at December 2022 to a net debt position of EUR11m. Cash
generation is generally H2 weighted, and due to our investment in
the business, and timing of working capital, we delivered H1
adjusted free cash flow of EUR18.5m. We remain on track to deliver
full year adjusted cash conversion of 80%.
Market opportunity
After a number of extremely strong years of growth, 2023 is
proving to be a year where the video gaming industry pauses for
breath. Whilst major titles such as Hogwarts Legacy, Diablo IV and
Baldur's Gate 3, have delivered record performance (Keywords worked
on all three), and overall player numbers continue to rise, the
broader industry is currently seeing publishers reducing the number
of game launches and focusing on core IPs. They have also looked to
de-risk their return on investment, which has led to smaller scopes
for some titles and delays or cancellations of others.
Beyond 2023, we are increasingly optimistic about the market
back-drop. The mobile market, which has been through a difficult
period, appears to be close to returning to growth after 6
consecutive quarters of declines. Hardware challenges have also
eased, with the PS5 now readily available. Industry forecasts point
to continuing long-term growth in the video-gaming space, with
growth in the external service provision market still expected to
outstrip overall industry growth.
As the key player in this market, at more than 3x the size of
the next largest competitor, yet with just a 6% share, we believe
we are incredibly well placed to grow our market share into the
significant white space in the industry. To do so, we are driving
strategic partnerships with the key market players, and investing
in leading technology solutions to better serve our customers and
enhance our economic and technology moat against competitors.
Delivering against strategy
Against that market backdrop, we have a very clear strategy from
which to scale our industry leading platform, by Imagining More
across our strategic pillars: strategic partnerships, technology,
One Keywords, talent development and adjacent markets. The ultimate
goal is to become a true partner to our clients and to create a
platform providing holistic solutions to enable them to make the
best games and entertainment.
We are making good progress against all aspects of the strategy.
We have continued to get closer to our largest clients as we seek
to evolve our relationships to more strategic partnerships. This is
giving us the opportunity to support our clients on larger,
long-term projects and we have recently completed several
substantial long-term agreements to provide functional testing and
game development services. This is a continuous process, but is
increasingly important and will differentiate us in the market, as
we look to help our clients to navigate the evolving technological
landscape and create bigger and better games. We have increased our
focus on technology, scaling our AI product portfolio, whilst
driving automation across service lines and launched our
"Accelerating Accessibility" initiative out of our innovation team,
harnessing the work of five studios.
We launched and embedded our new Leadership Principles across
the organisation, a critical element of our One Keywords initiative
and during the period Sperasoft completed its transition into four
new operating hubs in Eastern Europe, with production in Russia
ceasing. This has been a major One Keywords undertaking, with a
multi-disciplinary team from across the organisation working
together to make this a success. We are now excited to see
Sperasoft 2.0 ready to move back into a growth phase from its four
new hubs.
We continued to broaden our talent acquisition and development
programmes, as well as continuing to enhance our employee
engagement. In addition, we have continued to bring senior talent
into the organisation, with Rob Kingston joining the Group as CFO
in July, with Jon Hauck moving across to the COO role to support
the long-term growth of the business. In August, we hired Stephen
Peacock as Head of Gaming AI, to spearhead our AI Centre of
Excellence and expect further hires to follow in due course.
Our progress in adjacent markets has also been very encouraging,
with Lively, our dedicated LiveOps studio, experiencing strong
growth and demand from a wide variety of clients, and at the end of
the period we launched Big Farmer, a dedicated studio focused on
in-game cinematics and virtual production to capitalise on the
broader opportunities that our mastery of game engines will
provide. We have also extended our media and entertainment offering
in the US, through the acquisition of Digital Media Management, who
work with some of the world's biggest franchises, including the
recent Barbie movie, to enhance their reach online and in social
media. With the convergence of gaming and film and television, we
see meaningful opportunities ahead for us.
Focus on Technology
Technology and innovation is a key part of our strategy and a
big opportunity for future growth. We have had a focus on
responsibly harnessing AI and other technologies for a number of
years and it is part and parcel of what our 4,000 dedicated
engineers and technical experts in Create do every day. The teams
have a strong track record of unlocking and deploying multiple
generations of new technologies and supporting the industry's "race
to the top" to create the most immersive experience for
players.
Through a combination of M&A and internal development, the
business has also been building a portfolio of AI-led product
families that meet critical post-production client needs whilst
complementing our existing service offerings. These offerings,
which span across the key Globalize and Engage offerings, such as
functional testing, localization, localization testing and player
support, are designed so that we can do more, faster, whilst
enhancing the quality of service for clients.
There are a number of workstreams underway across each of these
domains. In Localization, at the beginning of the year, we formed
our Localization Research Labs team to accelerate this work. This
team has a broad mandate of ensuring that we are developing and
delivering leading production offerings to clients, whilst pursuing
internal automation opportunities within text and audio
localization and localization QA. The team now has over 60 product
engineers and in the last 6 months has developed and enhanced a
range of AI-led tools that will be marketed under the "Kantan"
brand. KantanStream, a text localization workflow automation tool,
currently in use to complete over 3,000 projects a week, is gaining
traction with AAA clients and continues to be developed to support
their differing needs. The move to this innovative way of working
will continue in H2 and beyond. KantanAudiomate, which manages and
stores audio digital assets, whilst automating and enhancing audio
workflows, is currently being piloted by a further AAA client, and
in H2 will integrate an innovative internally developed AI-tool
that has the potential to reduce QA/QC requirements on audio files
significantly.
We have also made great strides in developing the Mighty Build
and Test platform ("Mighty") in the 12 months we have owned the
business. A small Australian based business, Mighty has a 10 year
track record in the automated testing and development of mobile
games space. On acquisition, they had four developers in Australia,
operating solely on the Unity game engine, with a number of small
mobile clients. In the past 12 months, we have grown the team to 40
people across 5 countries, developed the platform to be able to
work on Unreal Engine as well as any custom engine, and started to
take on larger AAA mandates. Clients are increasingly seeing the
benefits that automated testing, earlier in the development cycle
can bring to the quality of the game, whilst still utilising human
testers to test other elements of games.
We are increasingly seeing our solutions becoming
interconnected. An example of this is one of Mighty's automated
testing solutions, the Proofbot, which provides a localization
testing solution, now being integrated with XLOC, our proprietary
localization content management system. Together they provide a
visual overview of all of the localized content in a game, and
enhance the testing of that content. A further example is of the
integration of KantanMT with the Helpshift platform in player
engagement, enabling more languages to be supported through the
platform, and for mono-lingual customer support agents to be able
to support multiple languages. This holistic solution enabled us to
reduce our cost to serve a major mobile client by increasing
efficiency, whilst maintaining excellent customer satisfaction
scores. Our scale and ability to invest means that we have a
leading position from which to create joined up solutions like
this.
As we move forward we will continue to build out an industry
leading technology platform to enable us to take on more work and
better serve our clients. This will be both under the existing
product umbrellas of Kantan, Mighty and Helpshift, and by looking
for new ways to support our customers, whether by owning,
partnering or licensing the technology and tools that are best
suited to the tasks that our clients need us for. In order to do
this as effectively as possible, we are creating an AI Centre of
Excellence, that will sit within our innovation team, led by Jamie
Campbell. This team will draw on both internal and external
expertise to assess and develop AI tools across the game
development landscape, providing a conduit for knowledge sharing
across the organisation and supporting customers in building their
AI strategies . To support this initiative, we are delighted to
have made the key hire of Stephen Peacock as Head of Gaming AI,
previously at Amazon as Head of ML/AI of AWS Gaming, who brings
unparalleled knowledge across the gaming value chain from an
integral player in the industry.
M&A
Complementing our strategy, we continue to add significant value
by consolidating a fragmented market in our four M&A focus
areas: game development, marketing, technology and adjacent
markets. During the first half, the Group completed four
high-quality acquisitions, for total maximum consideration,
including performance related contingent deferred consideration, of
EUR130m.
In line with our focus areas, two acquisitions broadened our
Engage offering in the US, the largest global market for gaming, 47
Communications and Digital Media Management (DMM), with both
enhancing our media and entertainment offering, and DMM bringing
market leading social media capabilities and an innovative
Creator-focused technology platform. In game development we
acquired Hardsuit Labs, a 70-person studio focused on AAA games and
specialising in the Unreal engine. In addition, we expanded our
Climax game development studio through the acquisition of Playboss
Interactive in the UK, providing Climax with a second location to
grow from.
Responsible Business
Our responsible business agenda is centred around five key
areas; our people, planet, community and our clients, underpinned
by our commitment to good governance and ethics. We have made solid
progress against our main priorities in the first half, with a
range of initiatives designed to enhance culture, employee
engagement and diversity and inclusion. These included our third
Women's Summit held in Asia, growth of the ambassador programme
with Women in Games, and a range of Keywords diversity and
inclusion trainings. Aligned to this, we continued to roll-out our
Leadership Principles, which are designed to support the One
Keywords culture across the group and stepped up employee
engagement ranging from group wide townhalls to small bespoke
sessions with the CEO. In May, we celebrated 25 years of Keywords
by planting 25,000 trees across the world and have continued to win
a range of Best Company to work for awards in a number of
locations. Our progress against our priorities has been
increasingly recognised by third party rating agencies, with MSCI
now rating the business AA, the joint highest rating in our
category.
US Entertainment Strikes
In the US, there are currently a number of entertainment union
strikes, that have begun to have an impact on our performance in
certain parts of the business. These strikes started as a SAG-AFTRA
writers' strike in May, which had limited direct impact on our
business. In July, the strikes expanded to include SAG-AFTRA
actors, and stopped work which was already underway. This has a
more direct impact on our media and entertainment focused audio
businesses and our US marketing studios, who due to the increasing
cross-over between video gaming and TV/film work with a range of
entertainment houses. A third segment of the entertainment
industry, the SAG-AFTRA Interactive Media performers, focused on
video games, are currently balloting for strike action. If
successful, strike action could commence at the end of September,
although would have limited direct impact for this year as the
majority of our audio localization work is done outside of
Hollywood. At this stage it is not clear when the strikes will be
resolved, but for planning purposes, we assume that they will lead
to disruption until the end of the year.
Outlook
Despite the current challenging industry backdrop and
macroeconomic conditions, the Group is trading robustly and growing
faster than the market, reflecting our position as a diversified
enabler of the industry, providing services and solutions across
the content generation cycle rather than being exposed to the IP of
individual games.
Over the medium-term we remain uniquely placed to capture the
opportunities in our markets, due to our scale and provision of
diversified solutions for the major developers and publishers of
the highest quality franchises. We are gaining traction with
cementing strategic partnerships with our clients, harnessing and
broadening our AI-led product suite, and expanding our activities
in adjacent markets. We have also extended our offering through
high-quality targeted acquisitions and continue to have a busy
pipeline, with our recently expanded RCF providing enhanced
flexibility to execute our M&A strategy.
We are excited about the opportunities ahead , as new
technologies lead to a proliferation of ever improving content as
our clients seek to engage the three billion gamers globally. We
expect to continue to grow our market share whilst investing to
harness the symbiosis of cutting-edge technology and human
creativity to lead the content creation industries in the future
and create significant value for shareholders."
Bertrand Bodson
Chief Executive Officer
Service Line Review
Create
Create combines Art Services and Game Development to deliver a
range of services to clients and partners globally. It represents
over 4,000 people across 4 continents.
H1 2023 H1 2022* Change
--------- ---------- --------
Revenue EURm 162.9 124.3 31.1%
========= ========== ========
Organic Revenue growth
% 22.1% 23.3% (1.2%)
========= ========== ========
Adjusted EBITDA EURm 41.7 32.4 28.7%
========= ========== ========
Adjusted EBITDA margin
% 25.6% 26.1% (0.5%)
-------------------------- --------- ---------- --------
*H1 2022 restated to reflect updated FY 2022 allocation of
costs, please see note 4 for more information
H1 2023 Performance
Create performed strongly during the first half, with total
revenues up by 31.1% to EUR162.9m (H1 2022: EUR124.3m) and Organic
Revenue, which excludes the impact of acquisitions, growing by
22.1%, as we continued to see strong demand for our high-end
services.
The performance was driven by growth in a number of regions,
with the UK and Australia seeing excellent growth, as increased
headcount enabled our studios to take on more work. In Australia,
we have seen the business grow from zero to over 200 game
developers in recent years through both acquisitions and organic
growth. Our Art studios also performed strongly across the period,
as the high-end art that we provide across both our concept art and
asset production businesses remained in demand.
Whilst there have been industry lay-offs over the past six
months, high-quality talent continues to be a scarce resource. Our
recently formed talent acquisition team, in tandem with studio-led
efforts, and our academy initiatives, have driven the continued
expansion of our team across our various geographies, enabling us
to better support clients and our future growth.
During the period Sperasoft completed its transition into four
new operating hubs in Eastern Europe. This was a major undertaking,
and we are delighted that we were able to complete this with
limited disruption to our clients. The business is now well
positioned for future growth, and we are taking advantage of the
access to high quality talent in the new regions and began to take
on new work during the half.
Adjusted EBITDA in Create grew 28.7% to EUR41.7m in H1 2023 (H1
2022: EUR32.4m), with the Adjusted EBITDA margin of 25.6% in H1
2023 slightly lower than the previous period (H1 2022: 26.1%) due
to the increased footprint outside of Russia, partially offset by
the increased weighting of game development in the service line
following the acquisitions in 2022.
We welcomed two new Game Development studios this year, Hardsuit
Labs, in Seattle, and Playboss Interactive in Liverpool. Hardsuit
has deep expertise in Unreal Engine, delivering full-stack
development services, and multi-SKU, cross-platform execution to
AAA clients such as Activision and Epic and is our first game
development studio in Seattle. Playboss is a small UK studio that
has worked closely with Climax, one of our largest UK studios, for
a number of years. The acquisition allows Climax to expand to a
second UK location in a vibrant, city centre game development hub
and to continue its growth trajectory.
Outlook
Our Create service line remains extremely well positioned to
capitalise on the strong demand for its high-end services. The
industry continues to be capacity constrained and our geographic
spread and ability to grow capacity means we are able to serve our
clients as they look for support on more and more complex
projects.
We believe Generative AI will be used as another tool to enable
the production of more and higher quality content over time,
although copyright and quality concerns are currently a barrier to
adoption for AAA publishers. The scale and depth of our engineering
and technical expertise in Create means we are uniquely well placed
to harness this when clients are ready. Together with other
technology advancements these tools will be able to augment the
creativity of our clients and teams, and enable the delivery of
ever more content.
Globalize
Globalize brings together our Audio, Testing and Localization
businesses to create a global business with around 5,500 people
across 5 continents.
H1 2023 H1 2022* Change
--------- ---------- ---------
Revenue EURm 145.7 141.5 3.0%
========= ========== =========
Organic Revenue growth
% 4.7% 25.7% (21.0%)
========= ========== =========
Adjusted EBITDA EURm 27.7 29.6 (6.4%)
========= ========== =========
Adjusted EBITDA margin
% 19.0% 20.9% (1.9%)
------------------------- --------- ---------- ---------
*H1 2022 restated to reflect updated FY 2022 allocation of
costs, please see note 4 for more information
H1 2023 Performance
Globalize performed robustly in H1 2023 with total revenues up
by 3.0% to EUR145.7m (H1 22: EUR141.5m). Organic Revenue, which
excludes the impact of acquisitions, grew by 4.7%, outperforming
the market, which is forecast to decline this year (Source:
IDG).
The current industry backdrop, where there have been a number of
project cancellations and delays, has impacted the performance of
Globalize as the service line works across a large number of
clients and titles given its strong position in the market.
Functional testing continued to deliver robust results, with growth
in lower cost locations such as Poland and with our operations in
Mexico beginning to scale up. Localization and Localization QA had
a tougher period, with clients looking to reduce costs by only
focusing on key languages where the best returns could be
generated. Audio delivered a solid performance given the current
game release cycle, but this compared negatively to an exceptional
H1 2022 performance. We saw limited impact in the first half from
the entertainment industry strikes in the US, but they have begun
to impact our H2 performance in our media and entertainment audio
business.
We continue to build for the future and during the period have
expanded our technology offering within Globalize. Mighty Games'
"Build and Test" solutions can operate across both FQA and LQA and
we are seeing positive traction with clients looking to pilot the
technology in order to automate certain elements of the testing
process. We have also made excellent progress through our
Localization Research Labs initiative, to build on the initial
success of KantanStream's automated localization solution with a
large industry player. We are in the process of transitioning a
number of existing text localization clients to KantanStream, which
will enable us to offer a more streamlined service, with faster
turnaround times, and take on more work, as well as building out
other audio localization solutions under the Kantan brand that are
already being utilized by large clients.
Adjusted EBITDA of EUR27.7m was 6.4% lower than H1 2022
(EUR29.6m), with Adjusted EBITDA margins of 19.0% slightly lower
than H1 2022 (20.9%). Margins were expected to normalise following
exceptional demand in 2022, and were impacted by the lower
utilization of resources compared to the prior year, as we
maintained our capacity to be ready to take advantage of future
improvements in market conditions, and with pricing currently more
of a focus for clients.
Outlook
Globalize's position within the industry means that it is well
placed to benefit when the content cycle turns, and as publishers
increasingly move from fixed to variable costs for their testing
operations. We continue to look to optimise costs and collaborate
across the service lines to offer the best service to customers. As
we continue to build out our technology offering to augment the
service we offer, we are increasingly differentiated in the
market.
Engage
Our Engage service line brings together our Marketing Services
and Player Engagement businesses to create a holistic offering
focused on player engagement, encompassing around 2,500 people
across 3 continents.
H1 2023 H1 2022* Change
--------- ---------- ---------
Revenue EURm 74.9 55.3 35.4%
========= ========== =========
Organic Revenue growth
% - 9.8% (9.8%)
========= ========== =========
Adjusted EBITDA EURm 7.9 8.1 (2.5%)
========= ========== =========
Adjusted EBITDA margin
% 10.5% 14.6% ( 4.1%)
------------------------- --------- ---------- ---------
*H1 2022 restated to reflect updated FY 2022 allocation of
costs, please see note 4 for more information
H1 2023 Performance
Engage saw good overall growth during the year, with revenues up
by 35.4% to EUR74.9m (H1 22: EUR55.3m) driven by a number of
acquisitions as we built out the capabilities of the service line.
Organic Revenue, which excludes the impact of acquisitions, was
flat year on year.
Player Engagement is primarily focused on supporting player
communities of mobile titles and saw a contraction in demand as the
broader mobile market continued to experience a reduction in player
spend. This meant that certain clients reduced the scale of the
teams working on their games to reflect the reduced activity. New
business wins through the year mitigated a portion of the reduced
demand, and we have continued to see positive traction for our
Helpshift solution, which we acquired in late 2022. Helpshift, uses
intelligent bots integrated in mobile apps and consoles to automate
30% of support tickets in real-time, while giving a highly
personalised experience and together with our player engagement
teams, and our KantanMT solution, provides a unique holistic
offering for clients.
In Marketing we experienced a tougher period, as the
macro-economic environment meant that publishers looked to reduce
activity, and we saw a number of late notice delays of projects
from the first half into the second half. During the period, we saw
increased collaboration across the studios following the creation
of a London marketing hub, where we brought all of our studios into
one office, and are following the same model in Los Angeles where
we now have three major studios offering differentiated
services.
We were delighted to bring two high quality studios into the
service line during the period, with Digital Media Management and
47 Communications greatly enhancing our social media and PR
offering respectively. During the period we also enhanced our
client service offering, by expanding the team, and are looking to
provide a more holistic offering to our clients, taking advantage
of the breath of our capabilities following our recent
acquisitions.
Adjusted EBITDA of EUR7.9m was 2.5% lower than H1 2022
(EUR8.1m), with the Adjusted EBITDA margin of 10.5% behind the
prior year period (H1 2022: 14.6%). Margins were impacted as the
business has relatively fixed costs and was scaled for growth, but
experienced lower utilisation rates as projects were delayed. We
have implemented cost control measures in certain studios and are
exploring broader cost saving initiatives across the service line,
whilst retaining our capacity to support growth in future
periods.
Outlook
We continue to scale the Engage service line, by building out
the full-service capabilities of the marketing offering and by
creating a holistic technology-enabled player engagement offering
through the addition of Helpshift's automated solutions. Marketing
experienced a number of project delays into H2 and has a strong
pipeline of work for the period, although is being impacted by the
ongoing entertainment strikes through its US studios, and the
mobile market, which drives Player Engagement demand, appears to be
improving following a period of contraction.
Financial and operating overview
Revenue
Revenue for H1 2023 increased by 19.4% to EUR383.5m (H1 2022:
EUR321.1m). This performance included the impact of acquisitions in
2022 and H1 2023 and a 2% headwind from the impact of currency
movements, when translating studio results from local currency into
the euro reporting currency.
Organic Revenue growth (which adjusts for the impact of
acquisitions) was 10.4%. This was driven by continuing strong
performance in Create, offset by more muted performance in
Globalize and Engage. Further details of the trading performances
of each of the Service Lines are provided in the Service Line
Review.
Gross profit and margin
Gross profit in H1 2023 was EUR145.2m (H1 2022: EUR124.5m)
representing an increase of 16.6%. The gross margin of 37.9% was
slightly below H1 2022 (38.8%) due to lower than planned
utilisation rates in the short-term in Globalize and Engage.
Operating costs
Adjusted operating costs increased by 24.8% to EUR67.9m (H1 22:
EUR54.4m), reflecting the larger Group, but at 17.7% of revenue
were in line with H2 2022, although slightly higher than H1 2022
(16.9%). This was due to continuing investment in the business, the
larger office footprint post COVID-19, and the return to normal of
travel and business development costs.
EBITDA
EBITDA of EUR60.5m was in line with H1 2022 (EUR61.0m). Adjusted
EBITDA increased 10.3% to EUR77.3m compared with EUR70.1m for H1
2022. The Adjusted EBITDA margin in H1 2023 of 20.1% was slightly
lower than H1 2022 (21.8%), as expected, reflecting the lower gross
margin.
Net finance costs
Net finance costs of EUR6.1m compared to H1 2022 of EUR0.4m. The
increase was primarily driven by a EUR3.7m negative swing in
foreign exchange movements, and EUR1.6m increase in interest costs
relating to the drawdown on the RCF.
Alternative performance measures (APMs)
The Group reports a number of APMs to present the financial
performance of the business which are not GAAP measures as defined
by IFRS. The Directors believe these measures provide valuable
additional information for the users of the financial information
to understand the underlying trading performance of the business.
In particular, adjusted profit measures are used to provide the
users of the financial statements a clear understanding of the
underlying profitability of the business over time. A breakdown of
the adjusting factors is provided in the table below:
H1 2023 H1 2022
EURm EURm
------------------------------- --------- ---------
Share-based payments expense 9.4 8.9
========= =========
Costs of acquisition and
integration 7.3 1.3
========= =========
Amortisation of intangible
assets 12.8 7.5
========= =========
Foreign exchange and other
items 3.1 (2.0)
========= =========
Total 32.6 15.7
------------------------------- --------- ---------
A total 1.21m options were granted under incentive plans in H1
2023. This, together with grants from previous years, has resulted
in a non-cash share-based payments expense of EUR9.4m in H1 23 (H1
2022: EUR8.9m).
One-off costs associated with the acquisition and integration of
businesses amounted to EUR7.3m (H1 2022: EUR1.3m), mainly due to an
increase in deferred consideration related to continuing employment
of EUR4.2m, and re-structuring costs associated with exiting Russia
of EUR1.3m. Amortisation of intangible assets increased by EUR5.3m
to EUR12.8m (H1 2022: EUR7.5m).
Foreign exchange and other items amounted to a net loss of
EUR3.1m (H1 2022: gain of EUR2.0m). This includes EUR1.8m for the
unwinding of discounted liabilities on deferred consideration (H1
2022: EUR1.5m) and a net foreign exchange loss of EUR1.3m (H1 2022:
gain of EUR2.4m). Keywords does not hedge foreign currency
exposures in relation to net current assets. While more material
movements in foreign exchange can be impactful on revenues and
expenses, the net impact on the Group's results of movements in
exchange rates and the foreign exchange gains and losses incurred
during the year mainly relate to the effect of translating net
current assets held in foreign currencies.
A more detailed explanation of the measures used together with a
reconciliation to the corresponding GAAP measures is provided in
the APMs section at the end of the report.
Operating Profit
Operating profit of EUR29.3m in H1 2023, was 25.8% lower than H1
2022 (EUR39.5m). Adjusted operating profit, which adjusts for the
items described in the APMs section above increased to EUR58.9m,
5.2% ahead of H1 2022 (EUR56.0m). Adjusted operating profit margin
of 15.4% was in line with guidance, and largely in line with the
margins achieved in H2 2022, as we continue to invest into the
business, albeit behind H1 2022 (17.5%).
Profit before taxation
Profit before tax of EUR23.2m in H1 2023 was 40.7% lower than H1
2022 (EUR39.1m). Adjusted profit before tax, which adjusts for the
items described in the APMs section above increased to EUR55.8m,
slightly ahead of H1 2022 (EUR54.8m). This reflects a reduction in
the Adjusted profit before tax margin to 14.6% from H1 2022 of
17.1% due to lower Adjusted Operating margins and increased
interest payments linked to acquisition activity.
Taxation
The tax charge reduced to EUR8.7m from EUR10.9m in H1 2022,
largely reflecting the reduction in the Profit before tax of the
business. After adjusting for the items noted in the APMs section
above and the tax impact arising on these items, the Adjusted
effective tax rate for H1 2023 was 21.7%, slightly below the rate
of 22.0% in H1 2022.
Earnings per share
Basic earnings per share of 18.48c was lower than H1 2022
(36.80c), primarily reflecting the reduction in the statutory
Profit after tax. Adjusted earnings per share, which adjusts for
the items noted in the APMs section above and the tax impact
arising on these items was 55.60c (H1 2022: 55.89c), flat
year-on-year, with both Adjusted profit before tax and the basic
weighted average number of shares largely in line with the previous
year.
Cash flow and net debt
H1 23 H1 22 Change
EURm EURm EURm
--------------------------------------------- -------- -------- ---------
Adjusted EBITDA 77.3 70.1 7.2
======== ======== =========
MMTC and VGTR (16.6) (10.4) (6.2)
======== ======== =========
Working capital and other items (20.9) (12.7) (8.2)
======== ======== =========
Capex - property, plant and equipment
(PPE) (18.8) (10.0) (8.8)
======== ======== =========
Capex - intangible assets (1.3) (0.2) (1.1)
======== ======== =========
Payments of principal on lease liabilities (6.8) (5.5) (1.3)
======== ======== =========
Operating cash flows 12.9 31.3 (18.4)
======== ======== =========
Net interest paid (2.2) (0.8) (1.4)
======== ======== =========
Free cash flow before tax 10.7 30.5 (19.8)
======== ======== =========
Tax (7.9) (6.2) (1.7)
======== ======== =========
Free cash flow 2.8 24.3 (21.5)
======== ======== =========
M&A - acquisition spend (88.9) (13.6) (75.3)
======== ======== =========
M&A - acquisition and integration
costs (3.0) (1.3) (1.7)
======== ======== =========
Funding EBT Purchases (4.7) - (4.7)
======== ======== =========
Other income and other items - 1.1 (1.1)
======== ======== =========
Dividends paid (1.5) (1.3) (0.2)
======== ======== =========
Shares issued for cash 1.4 2.4 (1.0)
======== ======== =========
Underlying increase / (decrease)
in net cash / (debt) (93.9) 11.6 (105.5)
======== ======== =========
FX and other items 0.7 4.1 (3.4)
======== ======== =========
Increase in net cash / (debt) (93.2) 15.7 (108.9)
======== ======== =========
Opening net cash / (debt) 81.8 105.6
======== ======== =========
Closing net cash / (debt) (11.4) 121.3
--------------------------------------------- -------- -------- ---------
The Group generated Adjusted EBITDA of EUR77.3m in H1 2023, an
increase of EUR7.2m from EUR70.1m in H1 2022. There was a EUR6.2m
increase in respect of the amounts due for Multi-Media Tax Credits
(MMTCs) and Video Game Tax Credits (VGTRs), higher than H1 2022
(EUR10.4m), as we saw delays to the receipt of historic VGTRs that
had been expected in H1 2023 and were subsequently received in Q3
2023. In general, MMTCs and VGTRs are subsidies that are recognised
as work is performed but are typically paid in the second half of
the following year. Other working capital saw an outflow of
EUR20.9m, an EUR8.2m change from H1 2022, mainly due to an increase
in trade receivables and accrued income.
Investment in property, plant and equipment increased by EUR8.8m
to EUR18.8m (H1 2022: EUR10.0m) as we continued to invest in the
footprint of the business, the new sites required to exit Russia,
and took advantage of favourable pricing to purchase longer-term
software licences. In addition, we incurred EUR1.3m of capitalised
research and development costs as we developed our technology
platform. Property lease payments of principal of EUR6.8m were
EUR1.3m higher than the prior period (H2 2022: EUR5.5m) mainly
related to acquisitions in the period.
Operating cash flows of EUR12.9m were behind H1 2022 (EUR31.3m),
primarily due to the change in working capital and the increased
capex during the period.
There was a EUR1.7m increase in cash tax paid to EUR7.9m (H1
2022: EUR6.2m) as payment schedules return to a more normal
pattern. Net interest payments, which largely relate to interest
from drawdowns on the Revolving Credit Facility (RCF), were EUR2.2m
compared to EUR0.8m in H1 2022.
This resulted in Free cash flow of EUR2.8m, EUR21.5m behind H1
22 (EUR24.3m). Adjusted free cash flow, which adjusts for capital
expenditure that is supporting growth in future periods was
EUR18.5m in H1 2023, behind H1 2022 (EUR31.7m). The Adjusted cash
conversion rate of 33.2% was below H1 2022 (57.9%), but would have
been approximately 49% without a delay in receipts of expected VGTR
in the UK, which have now largely been received in Q3.
Cash spent on acquisitions totalled EUR91.9m, of which EUR12.7m
was in respect of the cash component of prior year acquisitions and
EUR3.0m was in relation to acquisition and integration costs. This
was EUR77.0m higher than the spend in H1 2022 due to the timing of
acquisitions.
This resulted in a reduction in net cash of EUR93.2m in H1 23,
leading to closing net debt of EUR11.4m (Dec 2022: net cash
EUR81.8m).
Balance sheet and liquidity
The Group funds itself primarily through cash generation and a
syndicated RCF. In July 2023, the Group put in place a new RCF of
$400m that matures in July 2027, replacing the previous EUR150m
facility. The new RCF includes an accordion option to increase the
facility up to $500m and an option to extend the term by a further
one-year period (both subject to lender consent). The majority of
Group borrowings are subject to two financial covenants that are
calculated in accordance with the facility agreement:
Leverage: Maximum Total Net Borrowings to Adjusted EBITDA ratio
of three times; and
Interest cover: Minimum Adjusted Operating Profit to Net Finance
Costs ratio of four times.
The Group entered the year with a strong balance sheet and
deployed EUR96.6m of cash in the period to support its value
accretive M&A programme and share purchases on behalf of the
Employee Benefit Trust. As such at the end of H1 2023, Keywords had
net debt (excluding IFRS 16 leases) of EUR11.4m (31 December 2022:
net cash of EUR81.8m) and undrawn committed facilities of $340m.
The undrawn facilities, together with cash generation leaves us
well placed to continue to execute on our M&A programme.
Capital Allocation
The Board is pleased to declare an interim dividend of 0.85p per
share (H1 2022: 0.77p) representing an increase of 10.0% on the
2022 interim dividend. This is in line with the Board's progressive
dividend policy which seeks to reflect the Group's continued growth
in earnings and strong cash generation, balanced with the need to
retain the resources to fund growth opportunities, particularly
M&A, in line with our strategy.
Payments will be made on 27 October 2023 to shareholders on the
register on 6 October 2023 and will go ex-dividend on 5 October
2023. The interim dividend payment will represent a total cost of
approximately EUR0.8m of cash resources.
Keywords has authorised the Link Market Services Trustees
Limited ('Link') to operate a Dividend Reinvestment Plan (DRIP) for
the Group's shareholders for the interim dividend and going
forward, to provide greater flexibility for shareholders to manage
their dividends. Instructions for shareholders on how to apply for
the DRIP will be included in communications regarding the dividend,
and any queries regarding the DRIP should be directed to Link.
The Group also intends to use its Employee Benefit Trust to
undertake market purchases of Company shares in H2 2023, amounting
to an aggregate of up to EUR10m, bringing the total purchases in
the year to EUR15m, in order to satisfy future exercises of LTIPs
or stock options pursuant to the relevant share plan.
Guidance for remainder of 2023
We continue to trade robustly across our video gaming focused
studios, but have begun to see an impact in H2 from the unforeseen
US entertainment strikes on our US media and entertainment exposed
businesses. We believe these have the potential to impact organic
revenue growth by around 2-2.5% for the full year depending on how
long they persist.
Excluding the impact of the strikes, we expect full year
underlying organic revenue growth to be broadly similar to the
first half, with H2 growth weighted to the fourth quarter as
clients remain budget conscious . Adjusted operating margins are
expected to remain above 15% in 2023, as we expect cost control
measures to largely mitigate the impact of the strikes on
profitability.
During 2022, we benefited from the strength of the US dollar and
are mindful that there remains potential volatility in the foreign
exchange markets beyond our control that can impact performance
through the year.
The adjusted Effective Tax rate for the full year is expected to
be in line with the first half rate of 22%. We continue to
anticipate capex at a higher level than in 2022 relative to
revenue, reflecting some expansionary capex and foreign exchange
movements, but we still expect a full year Adjusted Cash Conversion
rate of around 80%.
Rob Kingston
Chief Financial Officer
Condensed interim consolidated statement of comprehensive
income
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 30 Jun 22 31 Dec 22
23
Note EUR'000 EUR'000 EUR'000
------------------------------------------------ ------ ----------- ----------- -----------
Revenue from contracts with customers 5 383,526 321,140 690,718
Cost of sales (238,344) (196,642) (423,452)
------------------------------------------------ ------ ----------- ----------- -----------
Gross profit 145,182 124,498 267,266
Other income - 1,107 1,098
-----------
Share-based payments expense (9,438) (8,940) (18,678)
Costs of acquisition and integration (7,335) (1,284) (8,413)
Amortisation of intangible assets 9 (12,775) (7,469) (16,810)
------------------------------------------------ ------ ----------- ----------- -----------
Total of items excluded from adjusted
profit measures (29,548) (17,693) (43,901)
Other administration expenses (86,307) (68,459) (152,653)
------------------------------------------------ ------ ----------- ----------- -----------
Administrative expenses (115,855) (86,152) (196,554)
------------------------------------------------ ------ ----------- ----------- -----------
Operating profit 29,327 39,453 71,810
Financing income 6 154 2,514 1,986
Financing cost 6 (6,292) (2,889) (5,814)
Profit before taxation 23,189 39,078 67,982
Taxation (8,669) (10,937) (20,612)
------------------------------------------------ ----------- ----------- -----------
Profit after taxation 14,520 28,141 47,370
Other comprehensive income:
Items that will not be reclassified
subsequently to profit or loss
Actuarial gain / (loss) on defined
benefit plans (150) - 286
Items that may be reclassified subsequently
to profit or loss
Exchange gain / (loss) in net investment
in foreign operations (4,215) 11,875 (7,947)
Exchange gain / (loss) on translation
of foreign operations 872 7,148 6,144
Non-controlling interest; recycled
on disposal of subsidiary - 162 162
Total comprehensive income / (expense) 11,027 47,326 46,015
------------------------------------------------ ------ ----------- ----------- -----------
Profit / (loss) for the period attributable
to:
Owners of the parent 14,520 28,186 47,415
Non-controlling interest - (45) (45)
------------------------------------------------ ------ ----------- ----------- -----------
14,520 28,141 47,370
------------------------------------------------ ------ ----------- ----------- -----------
Total comprehensive income / (expense)
attributable to:
Owners of the parent 11,027 47,209 46,015
Non-controlling interest - 117 -
-----------
11,027 47,326 46,015
------------------------------------------------ ------ ----------- ----------- -----------
Earnings per share EUR cent EUR cent EUR cent
------------------------------------------------ ------ ----------- ----------- -----------
Basic earnings per ordinary share 7 18.48 36.80 61.54
Diluted earnings per ordinary share 7 17.80 35.52 58.86
------------------------------------------------ ------ ----------- ----------- -----------
Condensed interim consolidated statement of financial
position
Unaudited Unaudited Audited
At At At
30 Jun 30 Jun 22 31 Dec 22
23
Re-stated Re-stated
(note 19) (note 19)
Note EUR'000 EUR'000 EUR'000
Non-current assets
Intangible assets 9 574,627 361,510 469,953
Right of use assets 9 44,295 34,014 37,672
Property, plant and equipment 9 53,553 38,319 44,784
Deferred tax assets 30,657 29,886 31,157
Investments 175 175 175
---------------------------------------- ------------
703,307 463,904 583,741
---------------------------------------- ------ ----------- ------------ ------------
Current assets
Cash and cash equivalents 43,804 121,395 81,886
Trade receivables 10 95,042 88,387 81,563
Other receivables 10 90,253 72,225 61,415
Corporation tax recoverable 5,883 6,361 6,503
234,982 288,368 231,367
---------------------------------------- ------ ----------- ------------ ------------
Current liabilities
Trade payables 14,798 11,392 15,878
Other payables 13 161,093 122,723 139,355
Loans and borrowings 14 - 64 45
Corporation tax liabilities 24,134 15,473 22,028
Lease liabilities 16 15,426 11,101 12,414
215,451 160,753 189,720
---------------------------------------- ------ ----------- ------------ ------------
Net current assets / (liabilities) 19,531 127,615 41,647
---------------------------------------- ------ ----------- ------------ ------------
Non-current liabilities
Other payables 13 19,388 8,007 18,308
Employee defined benefit plans 3,601 3,270 2,861
Loans and borrowings 14 55,215 31 6
Deferred tax liabilities 15,772 25,116 17,017
Lease liabilities 16 34,223 24,766 30,105
----------- ------------
128,199 61,190 68,297
---------------------------------------- ------ ----------- ------------ ------------
Net assets 594,639 530,329 557,091
---------------------------------------- ------ ----------- ------------ ------------
Equity
Share capital 11 937 912 924
Share capital - to be issued 11 2,788 810 2,467
Share premium 11 54,439 40,984 47,021
Merger reserve 11 302,146 275,021 286,655
Foreign exchange reserve 7,675 31,844 11,018
Shares held in Employee Benefit Trust
("EBT") (974) - -
Share-based payments reserve 71,091 55,970 65,379
Retained earnings 156,537 124,788 143,627
---------------------------------------- ------ ----------- ------------ ------------
Total equity 594,639 530,329 557,091
---------------------------------------- ------ ----------- ------------ ------------
Condensed interim consolidated statement of changes in
equity
Total
Share attributable
capital Shares to
- to Foreign held Share-based owners
Share be Share Merger exchange in payments Retained of Non-controlling Total
capital issued premium reserve reserve EBT reserve earnings parent interest equity
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
---------------- ---------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- -------------- ----------------- -------------------------
At 01 January
2022 904 2,185 38,549 273,677 12,821 (1,997) 48,193 97,905 472,237 (117) 472,120
---------------- ---------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- -------------- ----------------- -------------------------
Profit for
the period - - - - - - - 28,186 28,186 (45) 28,141
Recycled on
disposal of
subsidiary - - - - - - - - - 162 162
Other
comprehensive
income - - - - 19,023 - - - 19,023 - 19,023
---------------- ---------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- -------------- -------------------------
Total
comprehensive
income for
the period - - - - 19,023 - - 28,186 47,209 117 47,326
---------------- ---------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- -------------- -------------------------
Contributions
by and
contributions
to the owners:
Share-based
payments
expense - - - - - - 8,886 - 8,886 - 8,886
Share options
exercised 7 - 1,953 - - 1,997 (1,163) - 2,794 - 2,794
Employee Share
Purchase Plan - - 482 - - - 54 - 536 - 536
Dividends - - - - - - - (1,303) (1,303) - (1,303)
Acquisition
related
issuance
of shares 1 (1,375) - 1,344 - - - - (30) - (30)
---------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- -------------- ----------------- -------------------------
Contributions
by and
contributions
to the owners 8 (1,375) 2,435 1,344 - 1,997 7,777 (1,303) 10,883 - 10,883
---------------- ---------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- -------------- ----------------- -------------------------
At 30 June
2022 912 810 40,984 275,021 31,844 - 55,970 124,788 530,329 - 530,329
---------------- ---------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- -------------- ----------------- -------------------------
Profit /
(loss)
for the
period - - - - - - - 19,229 19,229 - 19,229
Other
comprehensive
income - - - - (20,826) - - 286 (20,540) - (20,540)
---------------- -------------------------
Total
comprehensive
income for
the period - - - - (20,826) - - 19,515 (1,311) - (1,311)
---------------- ---------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- -------------------------
Contributions
by and
contributions
to the owners:
Share-based
payments
expense - - - - - - 9,691 - 9,691 - 9,691
Share options
exercised 7 - 3,909 - - - (329) - 3,587 - 3,587
Employee Share
Purchase Plan - - 427 - - - 47 - 474 - 474
Dividends - - - - - - - (676) (676) - (676)
Acquisition
related
issuance
of shares 5 1,657 1,701 11,634 - - - - 14,997 - 14,997
Contributions
by and
contributions
to the owners 12 1,657 6,037 11,634 - - 9,409 (676) 28,073 - 28,073
---------------- ---------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- -------------------------
At 31 December
2022 924 2,467 47,021 286,655 11,018 - 65,379 143,627 557,091 - 557,091
---------------- ---------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- -------------- ----------------- -------------------------
Profit /
(loss)
for the
period - - - - - - - 14,520 14,520 - 14,520
Other
comprehensive
income - - - - (3,343) - - (150) (3,493) - (3,493)
---------------- ----------------- -------------------------
Total
comprehensive
income for
the period - - - - (3,343) - - 14,370 11,027 - 11,027
---------------- ---------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- ----------------- -------------------------
Contributions
by and
contributions
to the owners:
Share-based
payments
expense - - - - - - 9,438 - 9,438 - 9,438
Share options
exercised 6 - 1,432 - - 4,026 (3,726) - 1,738 - 1,738
Funding of
EBT - - - - - (5,000) - - (5,000) - (5,000)
Dividends - - - - - - - (1,460) (1,460) - (1,460)
Acquisition
related
issuance
of shares
(note 11) 7 321 5,986 15,491 - - - - 21,805 - 21,805
---------------- ---------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- ----------------- -------------------------
Contributions
by and
contributions
to the owners 13 321 7,418 15,491 - (974) 5,712 (1,460) 26,521 - 26,521
---------------- ---------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- ----------------- -------------------------
At 30 June
2023 937 2,788 54,439 302,146 7,675 (974) 71,091 156,537 594,639 - 594,639
---------------- ---------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- -------------- ----------------- -------------------------
Condensed interim consolidated statement of cash flows
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 30 Jun 22 31 Dec 22
23
Note EUR'000 EUR'000 EUR'000
-------------------------------------------------- ------ ----------- ----------- -----------
Cash flows from operating activities
Profit after taxation 14,520 28,141 47,370
-------------------------------------------------- ------ ----------- ----------- -----------
Income and expenses not affecting operating
cash flows
Depreciation - property, plant and equipment 9 10,907 8,790 18,365
Depreciation and impairment - right of
use assets 9 7,821 5,591 14,585
Amortisation and impairment of intangible
assets 9 12,775 7,469 16,810
Taxation 8,669 10,937 20,612
Share-based payments expense 9,438 8,940 18,678
Fair value adjustments to contingent
consideration 4,332 - 2,282
Unwinding of discounted liabilities -
deferred consideration 6 1,817 1,478 2,922
Unwinding of discounted liabilities -
lease liabilities 6 631 465 969
Interest receivable 6 (154) (102) (309)
Fair value adjustments to employee defined
benefit plans 740 - 514
Interest expense 6 2,231 629 1,261
Unrealised foreign exchange (gain) /
loss (4,443) 2,774 766
-------------------------------------------------- ------
54,764 46,971 97,455
-------------------------------------------------- ------ ----------- ----------- -----------
Changes in operating assets and liabilities
Decrease / (increase) in trade receivables (9,229) (19,725) (11,771)
Decrease / (increase) in MMTC and VGTR
receivable (16,613) (10,384) (3,591)
Decrease / (increase) in other receivables (11,504) (9,935) (6,457)
(Decrease) / increase in accruals, trade
and other payables 4,880 11,679 18,785
--------------------------------------------------
(32,466) (28,365) (3,034)
-------------------------------------------------- ------ ----------- ----------- -----------
Taxation paid (7,913) (6,181) (17,505)
Net cash generated by / (used in) operating
activities 28,905 40,566 124,286
-------------------------------------------------- ------ ----------- ----------- -----------
Cash flows from investing activities
Current year acquisition of subsidiaries
net of cash acquired 17 (76,217) - (87,494)
Settlement of deferred liabilities on
acquisitions 13 (12,704) (13,579) (25,800)
Acquisition of property, plant and equipment 9 (18,799) (9,997) (27,007)
Investment in intangible assets 9 (1,325) (178) (501)
Interest received 154 102 309
Net cash generated by / (used in) investing
activities (108,891) (23,652) (140,493)
-------------------------------------------------- ------ ----------- ----------- -----------
Cash flows from financing activities
Cash proceeds, where EBT shares were
utilised for the exercise of share options 300 - 505
Repayment of loans 14 (32,730) (42) (79)
Drawdown of loans 14 89,379 - -
Payments of principal on lease liabilities 16 (6,822) (5,453) (11,361)
Interest paid on principal of lease liabilities 16 (631) (465) (969)
Dividends paid (1,460) (1,303) (1,979)
Cash advanced to EBT (5,000) - -
Shares issued for cash 11 1,438 2,435 6,785
Interest paid (1,745) (413) (828)
Net cash generated by / (used in) financing
activities 42,729 (5,241) (7,926)
-------------------------------------------------- ------ ----------- ----------- -----------
Increase / (decrease) in cash and cash
equivalents (37,257) 11,673 (24,133)
Exchange gain / (loss) on cash and cash
equivalents (825) 4,012 309
Cash and cash equivalents at beginning
of the period 81,886 105,710 105,710
Cash and cash equivalents at end of the
period 43,804 121,395 81,886
-------------------------------------------------- ------ ----------- ----------- -----------
Notes forming part of the Condensed interim consolidated
financial statements
1 Basis of Preparation
Keywords Studios PLC (the "Company") is a company incorporated
in the United Kingdom. The Condensed interim consolidated financial
statements include the financial statements of the Company and its
subsidiaries (the "Group") made up to 30 June 2023.
The interim results for the half year ended 30 June 2023 and the
half year ended 30 June 2022 are not audited by our auditors and
the accounts in this interim report do not therefore constitute
statutory accounts in accordance with Section 434 of the Companies
Act 2006. They do not include all of the information required for
full annual financial statements, and should be read in conjunction
with the latest annual audited financial statements of Keywords
Studios PLC for the year ended 31 December 2022, which have been
filed with Companies House. The report of the auditors on those
accounts was unqualified, did not contain any statements under
Section 498 (2) or (3) of the Companies Act 2006 and did not
contain any matters to which the auditors drew attention without
qualifying their report.
The interim financial statements presented in this financial
report have been prepared in accordance with International
Financial Reporting Standards (IFRS) and the IFRS Interpretations
Committee (IFRIC) interpretations that are expected to be
applicable to the consolidated financial statements for the period
ending 31 December 2023 and the Disclosure Guidance and
Transparency Rules of the UK's Financial Conduct Authority.
There have been no changes in the principal risks and
uncertainties during the period and therefore these remain
consistent with the year ended 31 December 2022 and are disclosed
in the Annual Report for that year.
Going Concern Basis of Accounting
After making enquiries, the Directors consider it appropriate to
continue to adopt the going concern basis in preparing the interim
financial statements. In doing so, the Directors have considered
the following:
-- The strong cash flow performance of the Group through the year;
-- The continued demand for the Group's services;
-- The historical resilience of the broader video games industry
in times of economic downturn; and
-- The ability of the Group to flex its cost base in response to
a reduction in trading activity.
The Directors have also considered the Group's strong liquidity
position with net debt of EUR11.4m as at 30 June 2023, and
committed undrawn facilities of EUR94.8m under the EUR150m
Revolving Credit Facility ("RCF") in place at 30 June 2023. As
outlined in note 14, a new RCF was put in place in July 2023 with
an increased facility of $400m.
The Directors have applied downside sensitivities to the Group's
cash flow projections to assess the Group's resilience to adverse
outcomes. This assessment included a reasonable worst-case scenario
in which the Group's principal risks manifest to a severe but
plausible level. Even under the most severe case, the Group would
have sufficient liquidity and remain within its banking covenants.
The Directors have a reasonable expectation that the Company and
the Group have adequate resources to continue to operate and meet
liabilities as they fall due for the foreseeable future, a period
considered to be at least twelve months from the date of these
financial statements and therefore the going concern basis of
preparation continues to be appropriate.
The Condensed interim consolidated financial statements made up
to 30 June 2023 were approved by the Board of Directors on 11
September 2023.
2 Changes in Significant Accounting Policies
New Standards, Interpretations and Amendments effective 1
January 2023
The following amendments effective for the period beginning 01
January 2023 are expected to be impactful on the Group moving
forward:
-- Disclosure of Accounting Policies (Amendments to IAS 1 and
IFRS Practice Statement 2): These amendments relate to the
application of materiality in relation to the disclosure of
accounting policies, requiring companies to disclose their material
accounting policies rather than their significant accounting
policies, clarifying that accounting policies related to immaterial
transactions, other events or conditions are themselves immaterial
and as such need not be disclosed; and clarifying that not all
accounting policies that relate to material transactions, other
events or conditions are themselves material to a company's
financial statements. The Board will consider these amendments in
the context of the 2023 Annual Report.
-- Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12): These amendments narrow
the scope of the initial recognition exemption so that it does not
apply to transactions that give rise to equal and offsetting
temporary differences e.g. Right of use assets and Lease
liabilities. As a result, deferred tax assets and liabilities
associated with leases are now recognised gross from the beginning
of the earliest comparative period presented. As outlined in note
19, the comparative periods presented have been re-stated to
reflect the impact of adoption on the carrying value of Right of
Use Assets and Lease Liabilities, with any cumulative effect
recognised as an adjustment to retained earnings or other
components of equity.
Other amendments effective for the period beginning 01 January
2023:
-- Classification of Liabilities as Current or Non-current - Amendments to IAS 1; and
-- Definition of Accounting Estimate - Amendments to IAS 8;
The Group does not expect these other amendments, or any other
standards issued by the IASB but not yet effective, to have a
material impact on the Group.
New standards, interpretations and amendments not yet
effective
There are a number of standards, amendments to standards, and
interpretations which have been issued by the IASB that are
effective in future accounting periods that the Group has decided
not to adopt early.
The following amendments effective for the period beginning 01
January 2024:
-- Lease Liability in a Sale and Leaseback (Amendment to IFRS 16); and
-- IAS 1 Presentation of Financial Statements (Amendment -
Classification of Liabilities as Current or Non-Current, with
Covenants).
The Group does not expect these amendments, or any other
standards issued by the IASB but not yet effective, to have a
material impact on the Group.
3 Significant Accounting Policies
Except as described in note 19, the accounting policies applied
in these interim financial statements are the same as those applied
in the Group's most recent annual financial statements as at and
for the year ended 31 December 2022.
4 Critical Accounting Estimates and Judgements
The Group makes certain estimates and assumptions regarding the
future. Estimates and judgements are continually evaluated based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances. In the future, actual experience may differ from
these estimates and assumptions.
The judgements, estimates and assumptions applied in these
interim financial statements, including the key sources of
estimation uncertainty, were the same as those applied in the
Group's last annual financial statements for the year ended 31
December 2022. The only exceptions are:
-- Tax Liabilities - determined using the estimated annual effective tax rate:
o The estimate of tax liabilities which are determined in these
interim financial statements using the estimated annual effective
tax rate applied to the pre-tax income of the interim period.
5 Segmental Analysis and Revenue from Contracts with
Customers
Segmental Analysis
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 30 Jun 22 31 Dec 22
23
EUR'000 EUR'000 EUR'000
Revenue from external customers Re-stated
---------------------------------------------- ----------- ----------- -----------
Create 162,916 124,280 275,570
Globalize 145,701 141,585 300,875
Engage 74,909 55,275 114,273
383,526 321,140 690,718
---------------------------------------------- ----------- ----------- -----------
Segment operating profit
---------------------------------------------- ----------- ----------- -----------
Create 41,687 32,406 69,748
Globalize 27,682 29,630 61,577
Engage 7,881 8,112 15,576
77,250 70,148 146,901
---------------------------------------------- ----------- ----------- -----------
Reconciliation of Segment operating
profit
---------------------------------------------- ----------- ----------- -----------
Adjusted EBITDA^ 77,250 70,148 146,901
Share-based payments expense (9,438) (8,940) (18,678)
Costs of acquisition and integration (7,335) (1,284) (8,413)
Non-controlling interest - (45) -
Other income - 1,107 1,098
Amortisation of intangible assets (12,775) (7,469) (16,810)
Depreciation - property plant and equipment (10,907) (8,790) (18,365)
Depreciation and impairment - right
of use assets (7,821) (5,591) (14,585)
Bank charges 353 317 662
----------------------------------------------- ----------- ----------- -----------
Operating profit 29,327 39,453 71,810
Financing income 154 2,514 1,986
Financing cost (6,292) (2,889) (5,814)
Profit before taxation 23,189 39,078 67,982
----------------------------------------------- ----------- ----------- -----------
^ The Group reports a number of alternative performance measures
("APMs"), including Adjusted EBITDA, to present the financial
performance of the business, that are not GAAP measures as defined
under IFRS. Segmental results are reported in a manner consistent
with these measures. A reconciliation of Adjusted EBITDA to the
relevant GAAP measure is presented in the APM's section below.
The prior half year comparatives have been updated to reflect
the full year 2022 cost allocation methodology, as the Directors'
consider this to be more precise.
Revenues are recognised as services are delivered by the
relevant producing segment, and while there is significant
sub-contracting across production locations around the Group,
inter-segment revenues are not significant. Assets and liabilities
are not allocated by segment.
Revenue is earned from external customers, with no individual
customer accounting for 10% or more of the Group's revenue in any
period presented.
Unaudited Unaudited Audited
Geographical analysis of revenues, Half Year Half Year Year
by production location*
30 Jun 30 Jun 22 31 Dec 22
23
EUR'000 EUR'000 EUR'000
------------------------------------- ----------- ----------- -----------
Canada 81,130 70,151 155,509
United States 75,942 56,407 120,722
United Kingdom 62,934 57,666 115,017
Poland 19,595 13,917 42,731
Australia 18,531 8,064 22,211
Italy 18,100 17,338 39,195
China 15,017 11,478 26,759
India 13,530 12,290 25,290
Ireland 10,974 6,727 13,449
Japan 9,722 11,181 22,716
Other 58,051 55,921 107,119
383,526 321,140 690,718
------------------------------------- ----------- ----------- -----------
*The prior year comparatives have been re-classified to align to
the current year ranking by production location.
For Game Development, games are developed to an agreed
specification and time schedule, and often have delivery schedules
and / or milestones that extend well into the future. The following
are Game Development revenues expected to be recognised for
contracts with a schedule of work that extends beyond one year,
representing the aggregate amount of the transaction price
allocated to the performance obligations that are unsatisfied (or
partially unsatisfied) as at the end of the reporting period:
Scheduled
completion Scheduled Scheduled
Total within completion completion
Revenue expected to be recognised undelivered 1 year 1-2 years 2-5 years
EUR'000 EUR'000 EUR'000 EUR'000
------------------------------------ -------------- ------------- ------------- -------------
At 30 June 2023 27,528 27,151 283 94
At 30 June 2022 62,442 48,679 12,719 1,044
At 31 December 2022 82,060 77,448 4,612 -
------------------------------------- -------------- ------------- ------------- -------------
Unaudited Unaudited Audited
Geographical analysis of non-current Half Year Half Year Year
assets from continuing businesses*
30 Jun 30 Jun 22 31 Dec 22
23
EUR'000 EUR'000 EUR'000
--------------------------------------- ----------- ----------- -----------
United States 365,989 176,906 264,117
United Kingdom 128,315 119,682 121,556
Canada 56,405 28,444 57,652
Australia 49,546 48,132 51,869
Italy 16,246 15,610 16,471
Poland 14,248 4,070 12,561
China 10,567 9,081 9,296
Switzerland 10,025 10,025 10,025
Ireland 8,702 9,994 10,311
France 7,254 7,472 7,150
Other 36,010 34,488 22,733
703,307 463,904 583,741
--------------------------------------- ----------- ----------- -----------
*The prior year comparatives have been re-classified to align to
the current year ranking.
Seasonal Business
Historically the video games industry has been heavily impacted
by sales of new releases of games and platforms during the
traditional holiday season, including the run up to Thanksgiving in
the United States and Christmas in other parts of the world. As
with all other service providers to the video games industry,
certain of Keywords' service lines typically experience
significantly higher activity as part of this release cycle, during
the six months from June to November. This activity drives
increased revenues in that period and generates higher gross profit
margins in the second half compared with the first half of each
calendar year. More recently, the rise of streaming has shifted the
video game industry away from a strict seasonal cycle. In addition,
as Keywords continues to build on our platform, and our presence in
each stage of the games development cycle increases, the impact of
seasonality on our business is reducing over time.
Revenue and Gross profit for the twelve months up to the end of
the interim period and comparative information for the prior
twelve-month period are presented below, which include the
post-acquisition results of acquisitions completed in the relevant
period.
Unaudited Unaudited
Year Year
30 Jun 30 Jun 22
23
EUR'm EUR'm
--------------- ----------- -----------
Revenue 753 595
Gross profit 288 233
----------------- ----------- -----------
6 Financing Income and Cost
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 30 Jun 22 31 Dec 22
23
EUR'000 EUR'000 EUR'000
-------------------------------------- ----------- ----------- -----------
Financing income
Interest received 154 102 309
Foreign exchange gain - 2,412 1,677
--------------------------------------- ----------- ----------- -----------
154 2,514 1,986
-------------------------------------- ----------- ----------- -----------
Financing cost
Bank charges (353) (317) (662)
Interest expense (2,231) (629) (1,261)
Unwinding of discounted liabilities
- lease liabilities (631) (465) (969)
Unwinding of discounted liabilities
- deferred consideration (1,817) (1,478) (2,922)
Foreign exchange loss (1,260) - -
-------------------------------------- ----------- -----------
(6,292) (2,889) (5,814)
-------------------------------------- ----------- ----------- -----------
Net financing income / (cost) (6,138) (375) (3,828)
--------------------------------------- ----------- ----------- -----------
7 Earnings per Share
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 30 Jun 22 31 Dec 22
23
EUR cent EUR cent EUR cent
------------------------------------------- ------------ ------------ ------------
Basic 18.48 36.80 61.54
Diluted 17.80 35.52 58.86
-------------------------------------------- ------------ ------------ ------------
Earnings EUR'000 EUR'000 EUR'000
-------------------------------------------- ------------ ------------ ------------
Profit for the period from continuing
operations 14,520 28,141 47,370
-------------------------------------------- ------------ ------------ ------------
Weighted average number of equity shares Number Number Number
------------------------------------------- ------------ ------------ ------------
Basic (i) 78,558,801 76,478,194 76,979,596
Diluting impact of share options (ii) 2,993,709 2,756,818 3,502,301
-------------------------------------------- ------------ ------------ ------------
Diluted (i) 81,552,510 79,235,012 80,481,897
-------------------------------------------- ------------ ------------ ------------
(i) Includes (weighted average) shares
to be issued:
Number Number Number
------------------------------------------- ------------ ------------ ------------
106,959 34,709 67,802
------------------------------------------- ------------ ------------ ------------
(ii) Contingently issuable ordinary shares have been excluded
where the conditions governing exercisability have not been satisfied:
Number Number Number
------------------------------------------- ------------ ------------ ------------
LTIPs 1,233,865 1,720,825 409,728
Share options - 519,000 511,411
-------------------------------------------- ------------ ------------ ------------
1,233,865 2,239,825 921,139
------------------------------------------- ------------ ------------ ------------
8 Dividends
Expected
EUR Pence Expected
In cent STG interim Expected
respect per per dividend payment
Dividends recommended of share share EUR'000 date
------------------------ ----------- ---------- -------- ----------- ----------
Interim 2023 0.99 0.85 780 Oct-23
------------------------- ------------ ---------- -------- ----------- ----------
At 30 June 2023, Retained earnings available for distribution
(being Retained earnings plus Share-based payments reserve) in the
Company were EUR84.4m. In addition, the Company has amounts
included in the Merger reserve of EUR123.9m that are considered
distributable (note 11).
9 Non-current Assets
Unaudited Unaudited Unaudited Unaudited Unaudited
Half Half Half Half Half
Year Year Year Year Year
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
23 23 23 23 23
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
------------------------------- ---------------- ----------- ------------- ------------ ------------
Intangible Intangible
Property, Right Intangible assets assets
Movement of the carrying plant of use assets - -
value of Non-current assets and equipment assets - goodwill other total
------------------------------- ---------------- ----------- ------------- ------------ ------------
Carrying amount at the
beginning of the period 44,784 37,672 396,733 73,220 469,953
Arising on acquisitions 970 6,097 90,678 27,317 117,995
Additions 18,799 8,058 - 1,325 1,325
Depreciation charge (10,907) (7,821) - - -
Amortisation charge - - - (12,775) (12,775)
Exchange rate movement (93) 289 (800) (1,071) (1,871)
--------------------------------
Carrying amount at the
end of the period 53,553 44,295 486,611 88,016 574,627
-------------------------------- ---------------- ----------- ------------- ------------ ------------
A cash-generating unit ("CGU") is the smallest identifiable
group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or group of
assets. The CGU's represent the lowest level within the Group at
which the associated goodwill is assessed for internal management
purposes and are not larger than the operating segments determined
in accordance with IFRS 8 Operating Segments. The Board have
determined the lines of business as CGU's, and Goodwill acquired in
business combinations has been allocated to the CGUs that are
expected to benefit from business combinations to date.
A summary of the allocation of the carrying value of goodwill by
CGU and by segment is presented below:
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 30 Jun 22 31 Dec 22
23
EUR'm EUR'm EUR'm
------------- ----------------------- ----------- ----------- -----------
Create: Game Development 232 185 218
Art Services 19 20 19
Globalize: Functional Testing 15 15 15
Localization Testing 14 14 14
Audio 33 34 33
Localization 18 19 19
Engage: Marketing 119 39 35
Player Engagement 37 12 44
487 338 397
------------------------------------- ----------- ----------- -----------
While the Group performs a full assessment of the carrying value
of goodwill, intangible assets and other assets on an annual basis,
at 30 June 2023 an interim assessment by CGU was made based on the
same underlying assumptions used in the last Annual Report, but
using updated forecasts and projections. Based on this interim
review of the value in use calculations, no impairment is required
in the period. The Directors consider that no reasonably probable
change in assumptions would result in an impairment.
10 Trade and Other Receivables
Unaudited Unaudited Audited
At At At
30 Jun 30 Jun 22 31 Dec 22
23
EUR'000 EUR'000 EUR'000
------------------------------------------- ----------- ----------- -----------
Trade receivables derived from contracts
with customers 99,012 90,270 85,012
Provision for bad debts (i) (ii) (3,970) (1,883) (3,449)
-------------------------------------------- ----------- ----------- -----------
Financial asset held at amortised
cost 95,042 88,387 81,563
-------------------------------------------- ----------- ----------- -----------
Accrued income from contracts with
customers - gross 20,593 15,886 16,652
Accrued income from contracts with
customers - loss allowance (1,819) - (3,432)
-------------------------------------------- ----------- ----------- -----------
Financial asset held at amortised cost
(iii) 18,774 15,886 13,220
Multimedia tax credits / video games
tax relief 43,051 34,452 25,756
Prepayments and rent deposits 14,085 10,414 10,527
Tax and social security 8,811 6,729 6,538
Other receivables 5,532 4,744 5,374
-------------------------------------------- ----------- -----------
Other receivables 90,253 72,225 61,415
-------------------------------------------- ----------- ----------- -----------
(i) The movements in the provision for bad debts in the current
period were as follows:
Unaudited
Half Year
30 Jun
23
EUR'000
------------------------------------------------ -----------
Provision at the beginning of the period (3,449)
Recognition on acquisition of subsidiaries (412)
Impairment of financial assets (trade
receivables) charged to other administration
expenses (237)
Amounts written off against the provision
in the period 81
Exchange rate movement 47
-------------------------------------------------
Provision at the end of the period (3,970)
------------------------------------------------- -----------
Credit loss experience 1.0%
------------------------------------------------- -----------
(ii) The composition of the provision for bad debts at period end was as follows:
Unaudited
At
30 Jun
23
EUR'000
------------------------------------- -----------
Credit impaired (2,991)
Expected credit losses (979)
--------------------------------------
(3,970
Provision at the end of the period )
-------------------------------------- -----------
(iii) Accrued income from contracts with customers represent
mainly contract assets in process and related items. Excluding
movements in the provision, the movement in the period comprises
transfers in and out as items are accrued and subsequently invoiced
to customers, with no significant amounts recognised on the
acquisition of subsidiaries. The movements in the provision in the
period were provisions utilised of EUR1.6m and movement in expected
credit losses of EUR0.04m.
11 Share Capital
Number
Number of ordinary Share
of GBP0.01 capital
Per ordinary shares Share - to Share Merger
Issue share GBP0.01 - to capital be issued premium reserve*
date EUR shares be issued EUR'000 EUR'000 EUR'000 EUR'000
At 01 January 2023 77,990,057 87,738 924 2,467 47,021 286,655
---------------------------- -------- ------------ ------------- ---------- ------------ ---------- -----------
Acquisition
related
issuance of
shares:
Heavy Iron 20-Jan-23 34.67 93,856 - 1 - - 3,254
Climax
Studios 17-Feb-23 27.18 21,428 - - - - 582
Waste
Creative 15-Mar-23 31.52 26,600 - - - - 841
Digital
Media
Management 29-Mar-23 30.92 - 301,170 - 9,311 - -
Digital
Media
Management 06-Apr-23 30.92 301,170 (301,170) 3 (9,311) - 9,308
Hardsuit
Labs 10-May-23 28.17 - 53,482 - 1,507 - -
Hardsuit
Labs 30-May-23 28.17 53,482 (53,482) 1 (1,507) - 1,506
Tantalus
Media 15-Jun-23 27.48 191,722 - 2 - 5,986 -
Playboss
Interactive 30-Jun-23 24.48 - 13,118 - 321 - -
Acquisition related
issuance of shares 688,258 13,118 7 321 5,986 15,491
---------------------------- -------- ------------ ------------- ---------- ------------ ---------- -----------
Issue of shares on
exercise of share
options 406,302 - 6 - 1,432 -
At 30 June 2023 79,084,617 100,856 937 2,788 54,439 302,146
---------------------------- -------- ------------ ------------- ---------- ------------ ---------- -----------
* Included in the Merger reserve are amounts of EUR14.4m (being
the premium arising on the share placement in 2015) and EUR109.5m
(being the premium arising on the share placement in 2020),
totalling EUR123.9m, that are considered distributable. At the time
of the placements, the proceeds were not allocated to a specific
acquisition or specific purpose, and thus these amounts included in
the Merger reserve are considered distributable.
12 Share Options
Share Option Long Term Incentive
Scheme Plan Salary Shares
--------------------------- --------------------------- ---------------------------
Average Average Average
exercise exercise exercise
price price price
in GBP Number in GBP Number in GBP Number
per share of options per share of options per share of options
--------------------------- ------------ ------------- ------------ ------------- ------------ -------------
At 01 January 2023 18.78 1,585,819 0.01 3,648,173 0.01 259,623
Granted - - 0.01 657,157 0.01 557,007
Lapsed 19.57 (107,776) 0.01 (65,150) 0.01 (17,808)
Exercised 14.80 (97,519) 0.01 (443,452) 0.01 (7,740)
---------------------------
At 30 June 2023 19.02 1,380,524 0.01 3,796,728 0.01 791,082
--------------------------- ------------ ------------- ------------ ------------- ------------ -------------
Exercisable at 30 June
2023 17.43 876,703 0.01 1,447,150 0.01 -
--------------------------- ------------ ------------- ------------ ------------- ------------ -------------
Weighted average share
price at date of
exercise 26.08 23.43 n/a
--------------------------- ------------ ------------- ------------ ------------- ------------ -------------
Analysis of Shares Number Number Number
Exercised of options of options of options
--------------------------- ------------ ------------- ------------ ------------- ------------ -------------
Exercised via issuance
of new shares 81,269 317,293 7,740
Exercised via utilisation
of shares held in EBT 16,250 126,159 -
97,519 443,452 7,740
--------------------------- ------------ ------------- ------------ ------------- ------------ -------------
13 Other Payables
Unaudited Unaudited Audited
At At At
30 Jun 30 Jun 22 31 Dec 22
23
EUR'000 EUR'000 EUR'000
---------------------------------------- ----------- ----------- -----------
Current liabilities
Accrued expenses 67,979 63,226 61,155
Payroll taxes 5,068 3,591 3,577
Other payables (ii) 26,170 19,886 26,099
Deferred and contingent consideration
(i) 57,256 36,020 44,945
Deferred and contingent consideration
related to continuous employment (i) 4,620 - 3,579
161,093 122,723 139,355
---------------------------------------- ----------- ----------- -----------
Non-current liabilities
Deferred and contingent consideration
(i) 19,388 8,007 18,308
19,388 8,007 18,308
---------------------------------------- ----------- ----------- -----------
Deferred and contingent consideration becomes payable where the
purchase agreement includes deferred consideration contingent on
both pre-defined profit and / or revenue targets being exceeded.
The valuation of contingent consideration is derived using data
from sources that are not widely available to the public and
involves a degree of judgement (Level 3 input in the fair value
hierarchy). Liabilities for deferred consideration are recognised
at their fair value on the acquisition date, however where deferred
and contingent consideration is also tied to the retention of key
staff, these liabilities are considered post-acquisition expenses
under IFRS 3, with liabilities for deferred and contingent
consideration related to continuous employment accrued over the
post-acquisition retention period.
(i) The movements in deferred and contingent consideration
during the period were as follows:
Unaudited Unaudited
Half Year Half Year
30 Jun 30 Jun
23 23
EUR'000 EUR'000
----------------- -----------------
Deferred
and contingent
consideration
Deferred related
and contingent to continuous
consideration employment
------------------------------------------------- ----------------- -----------------
Carrying amount at the beginning of
the period 63,253 3,579
Consideration settled by cash (10,201) (2,503)
Consideration settled by shares (9,838) (839)
Unwinding of discount (note 6) 1,817 -
Additional liabilities from current
year acquisitions (note 17) 32,656 134
Additional liabilities from prior acquisitions - 4,198
Exchange rate movement (1,043) 51
Carrying amount at the end of the period 76,644 4,620
--------------------------------------------------- ----------------- -----------------
A 10% movement in expected performance would impact the fair
value of the contingent consideration as follows:
Unaudited Unaudited
At At
30 Jun 30 Jun
23 23
Increase / (decrease) in carrying amount EUR'000 EUR'000
--------------------------------------------- ----------------- -----------------
Deferred
and contingent
consideration
Deferred related
and contingent to continuous
consideration employment
------------------------------------------- ----------------- -----------------
Increase in expected performance - 10% 7,583 -
Decrease in expected performance - 10% (9,681) (688)
--------------------------------------------- ----------------- -----------------
There are no other reasonably probable changes to the
assumptions and inputs (including the discount rate) that would
lead to a material change to the fair value of the total amount
payable.
On an undiscounted basis, at period end the Group may be liable
for deferred and contingent consideration ranging from EUR7.9m to a
maximum of EUR95.9m. The contractual maturities (representing
undiscounted contractual cash flows) of the Group's deferred and
contingent consideration liabilities were as follows:
Unaudited Unaudited
At At
30 Jun 30 Jun
23 23
EUR'000 EUR'000
------------------------------------------ ----------------- -----------------
Deferred
and contingent
consideration
Deferred related
and contingent to continuous
consideration employment
------------------------------------------ ----------------- -----------------
Not later than one year 58,135 9,558
Later than one year and not later than
two years 19,418 5,080
Later than two years and not later than
five years 3,352 350
--------------------------------------------
Total undiscounted contractual cash
flows 80,905 14,988
-------------------------------------------- ----------------- -----------------
(ii) The Group's related party transactions are with key
management personnel as disclosed in the Group's Annual Report.
There have been no material changes to the Group's related party
transactions with key management personnel during the period.
14 Loans and Borrowings and Capital Management
The movements in loans and borrowings (classified as financial
liabilities, held at amortised cost under IFRS 9) , in the current
period were as follows:
Unaudited
Half Year
30 Jun
23
EUR'000
-------------------------------------- -----------
Carrying amount at the beginning of
the period 51
Drawdowns 89,379
Repayments (32,730)
Exchange rate movement (1,485)
Carrying amount at the end of the
period 55,215
----------------------------------------- -----------
The carrying amount at the beginning of the period represent
loans owed by Keywords Studios QC-Interactive Inc. These balances
were repaid in the period.
During July 2023, the Group negotiated a new unsecured
multi-currency revolving credit facility agreement ("RCF") of $400
million. The new RCF is for an initial four-year tenor, with an
option to extend the term by a further one year period, subject to
lender consent. The new facility is supported by a group of seven
global lenders and replaces the Group's previous EUR150 million
unsecured multi-currency revolving credit facility. The RCF's
financial covenants remain consistent with the previous facility.
The new facility is denominated in US dollars to match the expected
predominant currency of future borrowings.
The previous RCF allowed the Group to access financing of up to
EUR150m, which may be drawn down in euro, sterling, US dollars or
Canadian dollars, with an option (subject to lender consent), to
increase the facility by up to EUR50m to a total of EUR200m, at
interest rates based on a margin over currency benchmark rates,
plus a separate margin charged for the unutilised facility.
Throughout the period, the Group operated well within the interest
cover and leverage ratio terms of the previous RCF agreement.
At the period end the net debt ratio was as follows:
Unaudited
At
30 Jun
23
EUR'000
----------------------------------------- -----------
Loans and borrowings 55,215
Less: cash and cash equivalents (43,804)
--------------------------------------------
Net debt / (net cash) position 11,411
-------------------------------------------- -----------
Total equity 594,639
Net debt / (net cash) to capital ratio
(%) 2%
-------------------------------------------- -----------
15 Financial Instruments
During the period there has been no change in the measurement
basis of the financial assets and liabilities shown in the
Condensed interim consolidated statement of financial position.
16 Lease Liabilities
The movements in lease liabilities in the current period were as
follows:
Unaudited
Half Year
30 Jun
23
EUR'000
--------------------------------------------- -----------
Carrying amount at the beginning of
the period 42,519
Recognition on acquisition of subsidiaries
(note 17) 6,097
Liabilities recognised on new leases
in the period 8,058
Unwinding of discounted liabilities
- lease liabilities 631
Payment of principal and interest on
lease liabilities (7,453)
Exchange rate movement (203)
Carrying amount at the end of the
period 49,649
------------------------------------------------ -----------
The value of leases not yet commenced to which the lessee is
committed, which are not included in the lease liability at 30 June
2023, were EURnil.
17 Business Combinations
Digital
Media Other
Management acquisitions 2023
EUR'000 EUR'000 EUR'000
Details of goodwill and the fair value of net
assets acquired
------------------------------------------------------------ ------------- --------------- ----------
Book value:
Property, plant and equipment 608 362 970
Right of use assets 5,714 383 6,097
Trade and other receivables - gross 3,321 2,491 5,812
Bad debt provision (23) (389) (412)
Cash and cash equivalents 14,296 3,628 17,924
Trade and other payables (2,458) (787) (3,245)
Lease liabilities (5,714) (383) (6,097)
Book value of identifiable assets and liabilities
acquired 15,744 5,305 21,049
------------------------------------------------------------ ------------- --------------- ----------
Fair value adjustments:
Identifiable intangible assets - Customer relationships 24,806 2,511 27,317
Deferred tax assets - 5,013 5,013
Deferred tax liabilities (5,594) (527) (6,121)
Total fair value adjustments 19,212 6,997 26,209
------------------------------------------------------------ ------------- --------------- ----------
Net assets acquired 34,956 12,302 47,258
Goodwill from current year acquisitions 62,583 28,095 90,678
------------------------------------------------------------ ------------- --------------- ----------
Total purchase consideration 97,539 40,397 137,936
------------------------------------------------------------ ------------- --------------- ----------
Details of purchase consideration and outflows
from current acquisitions
------------------------------------------------------------ ------------- --------------- ----------
Cash 66,218 27,923 94,141
Equity instruments 9,311 1,507 10,818
Deferred cash - 914 914
Deferred consideration contingent on performance 22,010 9,732 31,742
Shares to be issued - 321 321
Total purchase consideration 97,539 40,397 137,936
------------------------------------------------------------ ------------- --------------- ----------
Related acquisition costs charged to the Consolidated
statement of comprehensive income: 624 269 893
Number of shares:
Shares issued on acquisition 301,170 53,482 354,652
Fixed number of shares to be issued - 13,118 13,118
Net cash outflow arising on acquisition:
Cash paid in the period 66,218 27,923 94,141
Less: cash and cash equivalent balances transferred (14,296) (3,628) (17,924)
------------------------------------------------------------ ------------- --------------- ----------
Net cash outflow arising on acquisition 51,922 24,295 76,217
------------------------------------------------------------ ------------- --------------- ----------
Details of pro forma revenues and profitability
of current acquisitions
------------------------------------------------------------ ------------- --------------- ----------
Pre-acquisition revenue 6,413 5,644 12,057
Post-acquisition revenue 6,574 6,655 13,229
------------------------------------------------------------ ------------- --------------- ----------
Pro forma revenue 12,987 12,299 25,286
------------------------------------------------------------ ------------- --------------- ----------
Pre-acquisition profit / (loss) before tax 1,650 (393) 1,257
Post-acquisition profit / (loss) before tax 492 2,166 2,658
------------- --------------- ----------
Pro forma profit / (loss) before tax 2,142 1,773 3,915
------------------------------------------------------------ ------------- --------------- ----------
During the period, the Group completed four acquisitions, 47
Communications, Digital Media Management, Hardsuit Labs and
Playboss, purchasing 100% of these businesses. The aggregate
amounts recognised in respect of the identifiable assets acquired
and liabilities assumed on acquisitions completed in the period are
set out in the table above. Details of the purchase consideration
and other information relevant to the evaluation of the financial
effect of the acquisitions are also presented.
Please note that Total purchase consideration excludes EUR1.2m
of Deferred and contingent consideration related to continuous
employment, where the purchase agreement includes deferred
consideration contingent on both pre-defined profit and / or
revenue targets being exceeded and which is also tied to the
retention of key staff, that are considered post-acquisition
expenses under IFRS 3 (note 13).
The main factors leading to the recognition of goodwill on the
acquisitions are the presence of certain intangible assets in the
acquired entities, which are not valued for separate recognition.
These include expertise in the acquired entities, enhancing and
growing our service capabilities, broadening our service offering,
and extending our geographical footprint, further building out our
global platform.
The goodwill that arose from business combinations completed in
the period that is expected to be deductible for tax purposes was
EUR22.2m (for which a deferred tax asset has been recognised of
EUR5.0m).
18 Significant Events
Crisis in Ukraine
Since the crisis in Ukraine began in 2022, our priority has been
to support our personnel and freelance suppliers located in the
affected area, while also contributing to broader humanitarian
efforts in the region. As our Group had no business operations in
Ukraine, the crisis primarily impacted our Game Development teams
in Russia, as well as our collaboration with several freelance
suppliers based in Ukraine.
Throughout this period, we have continued to work with our
customers supporting their preferences for where their work should
be performed, while also remaining focused on mitigating any
potential business interruption or other risks associated with our
activities in Russia. As a result, the volume of work produced in
Russia has continued to reduce over time and we have been scaling
down our operations accordingly.
In the period, the Group produced EUR4.2m of Revenue in Russia,
which represents approximately 1.1% of Group revenue, down from
5.5% in the half year to June 2022, and down on 3.8% in full year
2022. During the period, we continued to transfer projects
supported in Russia to other parts of the Group, as we further
ramped up production capacity in these locations with a combination
of employees relocating from Russia and local hires. As a
consequence, revenues produced in Russia were approximately 0.3% of
Group revenue in June 2023. Production in Russia has now ceased.
Costs of acquisition and integration includes severance and
rationalisation costs of EUR1.5m incurred in the period, associated
with ceasing operations in Russia.
The Group has never had significant receivables exposure in
Russia, as work produced in Russia was contracted and collected in
other territories. The Group does not have significant amounts of
working capital or non-current assets located in Russia. Thus any
exposure to impairment of assets located in Russia is not
considered material.
19 Change in Accounting Policy
The Group has adopted Deferred Tax related to Assets and
Liabilities arising from a Single Transaction (Amendments to IAS
12) from 01 January 2023. These amendments narrow the scope of the
initial recognition exemption so that it does not apply to
transactions that give rise to equal and offsetting temporary
differences e.g. Right of use assets and Lease liabilities. As a
result for leases and decommissioning liabilities, an entity is
required to recognise the associated deferred tax assets and
liabilities on a gross basis from the beginning of the earliest
comparative period presented, with any cumulative effect recognised
as an adjustment to retained earnings or other components of equity
at that date.
The Group previously accounted for the deferred tax on leases
and decommissioning liabilities on a net basis. Following the
amendments, the Group has recognised a separate deferred tax asset
in relation to its lease liabilities and a deferred tax liability
in relation to its right-of-use assets. There was no impact on the
opening retained earnings at 01 January in any period presented, as
a result of this change. The impact on deferred tax assets and
liabilities in each comparative period presented, is detailed
below.
Unaudited Unaudited Unaudited
EUR'000 EUR'000 EUR'000
--------------------------------------- ------------- ------------------ -----------
Deferred Deferred Retained
tax assets tax liabilities earnings
--------------------------------------- ------------- ------------------ -----------
At 30 June 2022 - as reported 21,786 17,016 124,788
Adoption of Deferred Tax related to
Assets and Liabilities arising from
a Single Transaction (Amendments to
IAS 12) 8,100 8,100 -
At 30 June 2022 - as restated 29,886 25,116 124,788
---------------------------------------- ------------- ------------------ -----------
Unaudited Unaudited Unaudited
EUR'000 EUR'000 EUR'000
--------------------------------------- ------------- ------------------ -----------
Deferred Deferred Retained
tax assets tax liabilities earnings
--------------------------------------- ------------- ------------------ -----------
At 31 December 2022 - as reported 22,757 8,617 143,627
Adoption of Deferred Tax related to
Assets and Liabilities arising from
a Single Transaction (Amendments to
IAS 12) 8,400 8,400 -
At 31 December 2022 - as restated 31,157 17,017 143,627
---------------------------------------- ------------- ------------------ -----------
20 Events after the Reporting Date
During July 2023, the Group negotiated a new unsecured
multi-currency revolving credit facility agreement ("RCF") of $400
million. See note 14 for further details. There have been no other
significant events since the reporting date.
Alternative performance measures
The Group reports a number of alternative performance measures
("APMs") to present the financial performance of the business, that
are not GAAP measures as defined under IFRS. The Directors believe
that these measures, in conjunction with the IFRS financial
information, provide the users of the financial statements with
additional information to provide a more meaningful understanding
of the underlying financial and operating performance of the Group.
The measures are also used in the Group's internal strategic
planning and budgeting processes and for setting internal
management targets. These measures can have limitations as
analytical tools and therefore should not be considered in
isolation, or as a substitute for IFRS measures.
The principal measures used by the Group are set out below:
Organic revenue growth - Acquisitions are a core part of the
Group's growth strategy. Organic revenue growth measures are used
to help understand the underlying trading performance of the Group
excluding the impact of acquisitions. Organic revenue growth is
calculated by adjusting the prior year revenues, adding
pre-acquisition revenues for the corresponding period of ownership
to provide a like-for-like comparison with the current year, and
applying the prior year's foreign exchange rates to both years,
when translating studio results into the euro reporting currency
.
Constant exchange rates ("CER") - Given the international nature
of the Group's operations, foreign exchange movements can have an
impact on the reported results of the Group when they are
translated into the Group's reporting currency, the euro. In order
to understand the underlying trading performance of the business,
revenue is also presented using rates consistent with the prior
year in order to provide year- over-year comparability.
Adjusted profit and earnings per share measures - Adjusted
profit and earnings per share measures are used to provide
management and other users of the financial statements with a clear
understanding of the underlying profitability of the business over
time. Adjusted profit measures are calculated by adding the
following items back to the equivalent GAAP profit measures:
-- Amortisation of intangible assets - Customer relationships
and music licence amortisation commences on acquisition, whereas
intellectual property / development costs amortisation commences
when the product is launched. These costs, by their nature, can
vary by size and amount each year. As a result, amortisation of
intangibles is added back to assist with the understanding of the
underlying trading performance of the business and to allow
comparability across regions and categories.
-- Costs of acquisition and integration - The level of
acquisition activity can vary each year and therefore the costs
associated with acquiring and integrating businesses are added back
to assist with the understanding of the underlying trading
performance of the Group.
-- Share-based payments - The Group uses share-based payments as
part of remuneration to align the interests of senior management
and employees with shareholders. These are non-cash charges and the
charge is based on the Group's share price which can change. The
costs are therefore added back to assist with the understanding of
the underlying trading performance.
-- Foreign exchange gains and losses - The Group does not hedge
foreign currency translation exposures. The effect on the Group's
results of movements in exchange rates can vary each year and are
therefore added back to assist with understanding the underlying
trading performance of the business.
-- Other income - Other income comprises gains on investments or
other non-trading income. As the gains have arisen outside the
normal trading activities of the Group, the income has been added
back to assist with the understanding of the underlying trading
performance.
Free cash flow measures - The Group aims to generate sustainable
cash flow (free cash flow) in order to support its acquisition
programme and to fund dividend payments to shareholders. Free cash
flow is measured as net cash generated by / (used in) operating
activities after capital expenditure, payments of principal on
lease liabilities, interest and tax payments, but before
acquisition and integration cash outlay, other income and dividend
payments. Adjusted free cash flow is a measure of cash flow
adjusting for capital expenditure that is supporting growth in
future periods (represented by capital expenditure in excess of
depreciation).
Net debt - The Group manages capital by monitoring debt to
capital and net debt ratios. Net debt is calculated as loans and
borrowings less cash and cash equivalents, and excludes lease
liabilities. The debt to capital ratio is calculated as net debt as
a percentage of total equity.
The remainder of this section provides a reconciliation of the
APMs with the relevant IFRS GAAP equivalent.
Service line analysis
The following table presents revenue growth by service line at
both actual exchange rates ("AER") and constant exchange rates
("CER"). Constant exchange rates are calculated by retranslating
current-year reported numbers at the corresponding 2022 foreign
exchange rates, in order to give management and other users of the
financial statements better visibility of underlying trading
performance against the prior year.
Half Half Half Half Half
Year Year Year Year Year
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
23 23 22 23 23
Revenue Revenue Revenue Growth Growth
AER CER AER AER CER
EURm EURm EURm % %
------------ --------- --------- --------- -------- --------
Create 162.9 166.8 124.3 31.1% 34.2%
Globalize 145.7 148.2 141.5 3.0% 4.7%
Engage 74.9 76.2 55.3 35.4% 37.8%
383.5 391.2 321.1 19.4% 21.8%
------------ --------- --------- --------- -------- --------
Pro forma revenue
Pro forma revenue is calculated by adding pre-acquisition
revenues of current year acquisitions to the current year revenue
numbers, to illustrate the size of the Group had the acquisitions
been included from the start of the financial year.
Half Half Half
Year Year Year Year
30 Jun 30 Jun 30 Jun 30 Jun
23 23 23 23
Pro Pro
Pre-acquisition forma forma
Revenue revenue revenue revenue
AER AER AER AER
EURm EURm EURm EURm
------------ --------- ----------------- ---------- ----------
Create 162.9 7.4 170.3 321.6
Globalize 145.7 - 145.7 305.0
Engage 74.9 4.7 79.6 138.6
383.5 12.1 395.6 765.2
------------ --------- ----------------- ---------- ----------
Organic revenue at constant exchange rates
Organic revenue at constant exchange rates is calculated by
adjusting the prior year revenues, adding pre-acquisition revenues
for the corresponding period of ownership, and applying the 2022
foreign exchange rates to both years, when translating studio
results into the euro reporting currency.
Half Half Half Half Half Half
Year Year Year Year Year Year
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
22 22 22 23 23 23
Like Organic
Pre-acquisition for like Revenue revenue
Revenue revenue revenue growth Revenue growth
AER AER AER CER CER CER
EURm EURm EURm EURm EURm %
------------ --------- ----------------- ----------- ---------- --------- -----------
Create 124.3 12.3 136.6 30.2 166.8 22.1%
Globalize 141.5 - 141.5 6.7 148.2 4.7%
Engage 55.3 20.9 76.2 - 76.2 -
321.1 33.2 354.3 36.9 391.2 10.4%
------------ --------- ----------------- ----------- ---------- --------- -----------
Adjusted operating costs
This comprises Administrative expenses as reported in the
Consolidated statement of comprehensive income, adding back
share-based payments expense, costs of acquisition and integration,
amortisation of intangible assets, depreciation and impairment,
non-controlling interest and deducting bank charges.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
23 22 22
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------- ----------- ---------- -----------
Consolidated statement of
Administrative expenses comprehensive income (115,855) (86,152) (196,554)
Consolidated statement of
Share-based payments expense comprehensive income 9,438 8,940 18,678
Costs of acquisition and Consolidated statement of
integration comprehensive income 7,335 1,284 8,413
Amortisation of intangible Consolidated statement of
assets comprehensive income 12,775 7,469 16,810
Depreciation - property,
plant and equipment Note 9 10,907 8,790 18,365
Depreciation and impairment
- right of use assets Note 9 7,821 5,591 14,585
Consolidated statement of
Non-controlling interest comprehensive income - 45 -
Bank charges Note 6 (353) (317) (662)
Adjusted operating costs (67,932) (54,350) (120,365)
------------------------------------------------------------- ----------- ---------- -----------
Adjusted operating costs
as a % of revenue 17.7% 16.9% 17.4%
------------------------------------------------------------- ----------- ---------- -----------
Adjusted operating profit
The Adjusted operating profit consists of the Operating profit
as reported in the Consolidated statement of comprehensive income,
adjusted for share-based payments expense, costs of acquisition and
integration, and amortisation of intangible assets. In order to
present the measure consistently year-on-year, the impact of other
income is also excluded.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
23 22 22
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------- --------- --------- ---------
Consolidated statement of
Operating profit comprehensive income 29,327 39,453 71,810
Consolidated statement of
Share-based payments expense comprehensive income 9,438 8,940 18,678
Costs of acquisition and Consolidated statement of
integration comprehensive income 7,335 1,284 8,413
Amortisation of intangible Consolidated statement of
assets comprehensive income 12,775 7,469 16,810
Consolidated statement of
Other income comprehensive income - (1,107) (1,098)
Adjusted operating profit 58,875 56,039 114,613
------------------------------------------------------------- --------- --------- ---------
Adjusted operating profit
as a % of revenue 15.4% 17.5% 16.6%
------------------------------------------------------------- --------- --------- ---------
EBITDA
EBITDA comprises Operating profit as reported in the
Consolidated statement of comprehensive income, adjusted for
amortisation of intangible assets, depreciation and impairment, and
deducting bank charges.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
23 22 22
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------ --------- --------- ---------
Consolidated statement of
Operating profit comprehensive income 29,327 39,453 71,810
Amortisation of intangible Consolidated statement of
assets comprehensive income 12,775 7,469 16,810
Depreciation - property
plant and equipment Note 9 10,907 8,790 18,365
Depreciation and impairment
- right of use assets Note 9 7,821 5,591 14,585
Bank charges Note 6 (353) (317) (662)
EBITDA 60,477 60,986 120,908
------------------------------------------------------------ --------- --------- ---------
Adjusted EBITDA
Adjusted EBITDA comprises EBITDA, adjusted for share-based
payments expense, costs of acquisition and integration and
non-controlling interest. In order to present the measure
consistently year-on-year, the impact of other income is also
excluded.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
23 22 22
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------- --------- --------- ---------
EBITDA As above 60,477 60,986 120,908
Consolidated statement of
Share-based payments expense comprehensive income 9,438 8,940 18,678
Costs of acquisition and Consolidated statement of
integration comprehensive income 7,335 1,284 8,413
Consolidated statement of
Non-controlling interest comprehensive income - 45 -
Consolidated statement of
Other income comprehensive income - (1,107) (1,098)
Adjusted EBITDA 77,250 70,148 146,901
------------------------------------------------------------- --------- --------- ---------
Adjusted EBITDA as a %
of revenue 20.1% 21.8% 21.3%
------------------------------------------------------------- --------- --------- ---------
Adjusted profit before tax
Adjusted profit before tax comprises Profit before taxation as
reported in the Consolidated statement of comprehensive income,
adjusted for share-based payments expense, costs of acquisition and
integration, amortisation of intangible assets, non-controlling
interest, foreign exchange gains and losses, and unwinding of
discounted liabilities. In order to present the measure
consistently year-on-year, the impact of other income is also
excluded.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
23 22 22
Calculation EUR'000 EUR'000 EUR'000
---------------------------------------------------------------------- --------- --------- ---------
Consolidated statement of
Profit before taxation comprehensive income 23,189 39,078 67,982
Consolidated statement of
Share-based payments expense comprehensive income 9,438 8,940 18,678
Costs of acquisition and Consolidated statement of
integration comprehensive income 7,335 1,284 8,413
Amortisation of intangible Consolidated statement of
assets comprehensive income 12,775 7,469 16,810
Consolidated statement of
Non-controlling interest comprehensive income - 45 -
Foreign exchange (gain)
/ loss Note 6 1,260 (2,412) (1,677)
Unwinding of discounted
liabilities - deferred consideration Note 6 1,817 1,478 2,922
Consolidated statement of
Other income comprehensive income - (1,107) (1,098)
Adjusted profit before
tax 55,814 54,775 112,030
---------------------------------------------------------------------- --------- --------- ---------
Adjusted profit before
tax as a % of revenue 14.6% 17.1% 16.2%
---------------------------------------------------------------------- --------- --------- ---------
Adjusted effective tax rate
The Adjusted effective tax rate is the Taxation expense as
reported in the Consolidated statement of comprehensive income,
adjusted for the tax impact of the adjusting items in arriving at
Adjusted profit before tax, as a percentage of the Adjusted profit
before tax.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
23 22 22
Calculation EUR'000 EUR'000 EUR'000
-------------------------------------------------------------- --------- --------- ---------
Adjusted profit before tax As above 55,814 54,775 112,030
----------------------------- ------------------------------- --------- --------- ---------
Consolidated statement of
Taxation comprehensive income 8,669 10,937 20,612
--------- --------- ---------
Effective tax rate before Taxation / Adjusted profit
tax on adjusting items before tax 15.5% 20.0% 18.4%
----------------------------- ------------------------------- --------- --------- ---------
Tax arising on bridging
items to Adjusted profit
before tax^ 3,464 1,092 4,043
-------------------------------------------------------------- --------- --------- ---------
Adjusted taxation 12,133 12,029 24,655
--------- --------- ---------
Adjusted effective tax Adjusted taxation / Adjusted
rate profit before tax 21.7% 22.0% 22.0%
----------------------------- ------------------------------- --------- --------- ---------
^Being mainly the tax impact of share-based payments expense
EUR1.5m and amortisation of intangible assets EUR1.9m, with the
prior period being mainly the tax impact of share-based payments
expense EUR0.9m, amortisation of intangible assets EUR0.9m, less
foreign exchange EUR0.9m .
Adjusted earnings per share
The Adjusted profit after tax comprises the Adjusted profit
before tax, less the Taxation expense as reported in the
Consolidated statement of comprehensive income, adjusted for the
tax impact of the adjusting items in arriving at Adjusted profit
before tax.
The Adjusted earnings per share comprises the Adjusted profit
after tax divided by the non-diluted weighted average number of
shares as reported in note 7.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
23 22 22
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------- ------------ ------------ ------------
Adjusted profit before tax As above 55,814 54,775 112,030
Consolidated statement
Taxation of comprehensive income (8,669) (10,937) (20,612)
Tax arising on bridging
items to Adjusted profit
before tax^ (3,464) (1,092) (4,043)
------------------------------------------------------------- ------------ ------------ ------------
Adjusted profit after tax 43,681 42,746 87,375
Denominator (weighted average
number of equity shares) Note 7 78,558,801 76,478,194 76,979,596
-------------------------------- --------------------------- ------------ ------------ ------------
EUR
c EUR c EUR c
-------------------------------- --------------------------- ------------ ------------ ------------
Adjusted earnings per share 55.60 55.89 113.50
------------
Adjusted earnings per share
% growth (0.5%) 34.4% 27.2%
------------------------------------------------------------- ------------ ------------ ------------
^Being mainly the tax impact of share-based payments expense
EUR1.5m and amortisation of intangible assets EUR1.9m, with the
prior period being mainly the tax impact of share-based payments
expense EUR0.9m, amortisation of intangible assets EUR0.9m, less
foreign exchange EUR0.9m .
Return on capital employed (ROCE)
ROCE represents the Adjusted profit before tax (excluding net
interest costs, unwinding of discounted lease liabilities and bank
charges, and also adjusted to include pre-acquisition profits of
current-year acquisitions), expressed as a percentage of the
capital employed. As the Group continues to make multiple
acquisitions each year, the calculation further adjusts the
Adjusted profit before tax and the capital employed as if all the
acquisitions made during each year were made at the start of that
year. In order to present the measure consistently, the half year
adjusted profits are presented on a rolling 12 month basis.
Capital employed represents Total equity as reported on the
Consolidated statement of financial position, adding back employee
defined benefit plan liabilities, cumulative amortisation of
intangible assets (customer relationships), acquisition-related
liabilities (deferred and contingent consideration), together with
loans and borrowings, while deducting cash and cash
equivalents.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
23 22 22
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------------- ---------- ----------- ----------
Adjusted profit before tax As above 55,814 54,775 112,030
Interest received Note 6 (154) (102) (309)
Bank charges Note 6 353 317 662
Interest expense Note 6 2,231 629 1,261
Unwinding of discounted
liabilities - lease liabilities Note 6 631 465 969
Pre-acquisition profits
of current year acquisitions Note 17 1,257 - 1,601
----------------------------------- ------------------------------ ---------- ----------- ----------
Adjusted profit before tax
including pre-acquisition
profit excluding interest
for the period 60,132 56,084 116,214
Rolling 12 month adjustment 60,130 48,115 -
Adjusted profit before
tax including pre-acquisition
profit and excluding net
interest 120,262 104,199 116,214
------------------------------------------------------------------- ---------- ----------- ----------
Consolidated statement of
Total equity financial position 594,639 530,329 557,091
Employee defined benefit Consolidated statement of
plans financial position 3,601 3,270 2,861
Cumulative amortisation
of intangibles assets (customer
relationships) 67,490 51,087 58,301
Deferred and contingent
consideration Note 13 76,644 44,027 63,253
Loans and borrowings Note 14 55,215 95 51
Consolidated statement of
Cash and cash equivalents financial position (43,804) (121,395) (81,886)
Capital employed 753,785 507,413 599,671
------------------------------------------------------------------- ---------- ----------- ----------
Adjusted profit before tax
including pre-acquisition
profit and excluding net
interest expense / capital
Return on capital employed employed 16.0% 20.5% 19.4%
----------------------------------- ------------------------------ ---------- ----------- ----------
Free cash flow
Free cash flow represents Net cash generated by / (used in)
operating activities as reported in the Consolidated statement of
cash flows, adjusted for acquisition and integration cash outlay,
capital expenditure, net interest paid, payments of principal on
lease liabilities and is presented both before and after taxation
paid. In order to present the measure consistently year-on-year,
the impact of other income is also excluded.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
23 22 22
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------------ ---------- --------- ----------
Net cash generated by / Consolidated statement of
(used in) operating activities cash flows 28,905 40,565 124,286
Acquisition and integration
cash outlay:
Costs of acquisition and Consolidated statement of
integration comprehensive income 7,335 1,284 8,413
Fair value adjustments to Consolidated statement of
contingent consideration cash flows - - (2,282)
Non-cash movements in Deferred
and contingent consideration
related to continuous employment (4,332) - (3,000)
Acquisition of property, Consolidated statement of
plant and equipment cash flows (18,799) (9,997) (27,007)
Investment in intangible Consolidated statement of
assets cash flows (1,325) (178) (501)
Consolidated statement of
Other income comprehensive income - (1,107) (1,098)
Consolidated statement of
Interest received cash flows 154 102 309
Consolidated statement of
Interest paid cash flows (2,376) (878) (1,797)
Payments of principal on Consolidated statement of
lease liabilities cash flows (6,822) (5,453) (11,361)
------------------------------------ ---------------------------- ---------- --------- ----------
Free cash flow after tax 2,740 24,338 85,962
Consolidated statement of
Taxation paid cash flows 7,913 6,181 17,505
Free cash flow before tax 10,653 30,519 103,467
------------------------------------------------------------------ ---------- --------- ----------
Adjusted free cash flow
Adjusted free cash flow is a measure of cash flow adjusting for
capital expenditure that is supporting growth in future periods (as
measured by capital expenditure in excess of maintenance capital
expenditure).
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
23 22 22
Calculation EUR'000 EUR'000 EUR'000
-------------------------------------------------------------- ---------- --------- ----------
Free cash flow before tax As above 10,653 30,519 103,467
-------------------------------- ---------------------------- ---------- --------- ----------
Capital expenditure in excess
of depreciation:
Acquisition of property, Consolidated statement of
plant and equipment cash flows 18,799 9,997 27,007
Depreciation - property, Consolidated statement of
plant and equipment cash flows (10,907) (8,790) (18,365)
-------------------------------- ---------------------------- ---------- --------- ----------
Capital expenditure in excess
of depreciation 7,892 1,207 8,642
-------------------------------------------------------------- ---------- --------- ----------
Adjusted free cash flow 18,545 31,726 112,109
-------------------------------------------------------------- ---------- --------- ----------
Adjusted cash conversion rate
The Adjusted cash conversion rate is the Adjusted free cash flow
as a percentage of the Adjusted profit before tax:
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
23 22 22
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------------- --------- --------- ---------
Adjusted free cash flow As above 18,545 31,726 112,109
Adjusted profit before tax As above 55,814 54,775 112,030
----------------------------- ------------------------------ --------- --------- ---------
Free cash flow before tax
and capital expenditure
in excess of depreciation,
Adjusted cash conversion as a % of Adjusted profit
ratio before tax 33.2% 57.9% 100.1%
----------------------------- ------------------------------ --------- --------- ---------
Net debt
The Group manages capital by monitoring debt to capital and net
debt ratios. Net debt is calculated as Loans and borrowings (as
shown in the Consolidated statement of financial position) less
Cash and cash equivalents, and excludes Lease liabilities.
Half Half
Year Year Year
30 Jun 30 Jun 31 Dec
23 22 22
Calculation EUR'000 EUR'000 EUR'000
------------------------------------------------------- ---------- ----------- ----------
Consolidated statement
Loans and borrowings of financial position 55,215 95 51
Consolidated statement
Cash and cash equivalents of financial position (43,804) (121,395) (81,886)
Net debt / (net cash)
position 11,411 (121,300) (81,835)
------------------------------------------------------- ---------- ----------- ----------
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END
IR FFLLFXKLBBBZ
(END) Dow Jones Newswires
September 12, 2023 02:00 ET (06:00 GMT)
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