Andrew Day, CEO, discusses the services Keywords Studios (LON:KWS) provide to the video games industry; an industry worth $90m.
An overview of what he covers:
Their services are: art creation, audio services, localisation services,
localisation testing, functional testing and customer support services to the
top games companies, and mobile games developers.
It’s a highly fragmented business, and KWS provide a one-stop shop for the games providers. The business is sticky, the larger companies publish games regularly and will go back to the same suppliers, including KWS, to reduce risk; this provides a barrier to entry. Out of KWS’s 400 clients, 50 buy 3+ services.
KWS have offices throughout the world, to supply a global market. Their largest revenue is in US$: 43%, EU 38%, Canadian $ 8%, Japanese Yen 6% RoW 5%.
There have been 7 acquisitions over the last 18 months. A key criteria for selection is the cultural fit with the whole organisation. Often acquisitions have been made to expand services. It’s a highly fragmented business, so acquisition consolidates. KWS never over pay.
Revenue growth of 55% was achieved in the last FY, with organic growth making up 20%. KWS have a long-term objective of 13-15% return on sales, it’s currently 13-14%. The gross margin has increased to 37.6% due to the increase in Art, which is the highest margin service. CAPEX is relatively low, just test consoles, mobile devices and PCs.
Recently an Eu15m debt facility was put in place with Barclays Bank.
Debtor days 45. Clients are good at paying, most pay in 30 days. KWS invoice everything in the month they work.
KWS pay a dividend.
Major shareholders include: PEQ Holdings, Schroders, Hargreave Hale, Invesco. Day owns 7.2%. KWS have been back to the market twice to raise new funds, both times there was good demand. Recently Day and the founder sold down some of their holdings, with good demand.
With Q&A from the ShareSoc audience.
