REG - Keywords Studios PLC - Final Results <Origin Href="QuoteRef">KWS.L</Origin> - Part 4
04/04/2017 07:06
- Part 4: For the preceding part double click ID:nRSD4493Bc
to extend the Group's client base
in this service.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table
below:
Mindwalk
Book Fair Value Fair
Value Adjustment Value
E'000 E'000 E'000
Financial Assets
Property, plant and equipment 465 (333) 132
Identifiable intangible assets - customer relationships 1,100 1,100
Trade and other receivables 581 (39) 542
Cash and cash equivalents 442 (30) 412
Deferred tax asset 83 83
Deferred tax liabilities (137) (137)
Total identifiable assets 1,488 644 2,132
Goodwill 3,117
Total consideration 5,249
Satisfied by:
Cash 3,048
Deferred Cash Consideration 315
Shares to be Issued 1,886
Total consideration transferred 5,249
Net cash outflow arising on acquisition
Cash 3,048
Less: cash and cash equivalent balances transferred (412)
2,636
The main factors leading to recognition of goodwill on the acquisition of Mindwalk are the presence of certain intangible
assets in the acquired entity, which are not valued for separate recognition, such as the expertise in art creation service
and reputation of the staff within the industry. The fair value of the shares to be issued as part of the acquisition has
been determined as being the share price on the date of the transaction.
A fixed amount of 513,189 shares will be issued as part of the deferred consideration. The shares have been valued at the
share price at the date of acquisition, £2.80 (E3.67) and E1,886,000 has been recorded as Shares to be Issued in reserves.
Deferred Cash Consideration of USD$500,000 is due for payment on 5 April 2019 in accordance with the purchase agreement.
The deferred consideration recorded within as contingent consideration within non-current other payables on the 2016
balance sheet represented the fair value amount at the balance due.
Mindwalk contributed E3,166,196 revenue and E227,528 profit before tax to the Group between the date of acquisition and the
balance sheet date. If the acquisition had been completed on the first day of the financial year, revenue for 2016 of
E4,825,497 would have been contributed to the Group and E301,165 profit before tax.
Acquisition costs of E199,312 have been charged through to the Comprehensive Income Statement.
Acquisition of Volta Création Inc.
On 28 July 2016, the Group acquired 100% of the issued share capital of Volta Création Inc., a company registered in
Canada, which specialises in Art Creation for the Games industry. Volta was acquired to increase the capabilities and
capacity of the art creation service and in particular to strength to the Groups offering in concept art.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table
below:
Volta
Book Fair Value Fair
Value Adjustment Value
E'000 E'000 E'000
Financial Assets
Fixtures, Fittings & Equipment 74 74
Identifiable intangible assets - customer relationships 761 761
Trade and other receivable 513 513
Cash and cash equivalents (31) (31)
Trade and other Payables (322) (322)
Deferred tax liabilities (202) (202)
Total identifiable assets 234 559 793
Goodwill 2,701
Total consideration 3,494
Satisfied by:
Cash 3,324
Equity Instruments (45,192 shares of the parent company) 170
3,494
Net cash outflow arising on acquisition
Cash 3,324
Less: cash and cash equivalent balances transferred 31
3,355
The main factors leading to the recognition of goodwill on the acquisition of Volta Création Inc. are the presence of
certain intangible assets in the acquired entity, which are not valued for separate recognition, such as the expertise in
Art and Art Services and reputation of the staff within the industry.
Volta Création Inc. contributed E1,181,050 revenue and E209,305 profit before tax to the Group between the date of
acquisition and the balance sheet date. If the acquisition had been completed on the first day of the financial year,
revenue for 2016 of E2,406,878 would have been contributed to the Group and profit before tax of E277,687.
Acquisition costs of E19,298 have been charged through the Statement of Comprehensive Income.
Acquisition of Player Research Ltd
On 26 October 2016, the Group acquired 100% of the issued share capital of Player Research Ltd., a company registered in
the United Kingdom, which is an industry-leading user research and playtesting specialist. The acquisition is in line with
the Group's strategy to extend its services, with the objective of providing end to end services to its global client base
covering all aspects of game production and live operations support.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table
below:
Player Research
Book Fair Value Fair
Value Adjustment Value
E'000 E'000 E'000
Financial Assets
Fixtures, Fittings & Equipment 45 45
Identifiable intangible assets - customer relationships 158 158
Trade and other receivable 169 169
Cash and cash equivalents 489 489
Trade and other Payables (133) (133)
Deferred tax liabilities (32) (32)
Total identifiable assets 570 126 696
Goodwill 1,014
Total consideration 1,710
Satisfied by:
Cash 1,128
Deferred Cash 265
Equity Instruments (65,280 shares of the parent company) 317
1,710
Net cash outflow arising on acquisition
Cash 1,128
Less: cash and cash equivalent balances transferred (489)
639
Deferred Cash Consideration of STG £300,000 is due for payment on 26 October 2018 in accordance with the share purchase
agreement. The deferred consideration recorded within as contingent consideration within non-current other payables on the
2016 balance sheet represented the fair value amount at the balance due.
The main factors leading to the recognition of goodwill on the acquisition of Player Research Ltd. are the presence of
certain intangible assets in the acquired entity, which are not valued for separate recognition, such as the expertise in
user research and playtesting and reputation within the industry.
Player Research contributed E182,820 revenue and E64,525 profit before tax to the Group between the date of acquisition and
the balance sheet date. If the acquisition had been completed on the first day of the financial year, revenue for 2016 of
E921,339 would have been contributed to the Group and profit before tax of E307,592.
Acquisition costs of E40,785 have been charged through the Statement of Comprehensive Income.
Acquisition of Global Video-Games Services Inc., trading as Enzyme Testing Labs
On 16 November 2016, the Group acquired 100% of the issued share capital of Global Video-Games Services Inc., trading as
Enzyme Testing Labs, a company incorporated under the laws of Quebec. Enzyme's strengths are in functional QA and
localisation testing of video games for leading game publishers and developers. In addition, it provides localisation
services and focus group testing, all of which will significantly strengthen Keywords' service offerings to the global
video games market.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table
below:
Enzyme
Book Fair Value Fair
Value Adjustment Value
E'000 E'000 E'000
Financial Assets
Fixtures, Fittings & Equipment 929 (13) 916
Identifiable intangible assets - customer relationships 1,669 1,669
Trade and other receivable 2,546 2,546
Cash and cash equivalents 695 695
Trade and other Payables (2,334) (2,334)
Deferred Tax Assets 3 3
Deferred tax liabilities (761) (761)
Total identifiable assets 1,837 899 2,735
Goodwill 731
Total consideration 3,466
Satisfied by:
Cash 3,466
Net cash outflow arising on acquisition
Cash 3,466
Less: cash and cash equivalent balances transferred (695)
2,771
The main factors leading to the recognition of goodwill on the acquisition of Enzyme are the presence of certain intangible
assets in the acquired entity, which are not valued for separate recognition, such as the expertise in functional QA and
localisation testing.
Enzyme contributed E1,094,913 revenue and E59,820 profit before tax to the Group between the date of acquisition and the
balance sheet date. If the acquisition had been completed on the first day of the financial year, revenue for 2016 of
E8,632,254 would have been contributed to the Group and profit before tax of E954,332.
Acquisition costs of E243,774 have been charged through the Statement of Comprehensive Income.
Acquisition of Sonox Audio Solutions S.L.U.
On 22 December 2016, the Group acquired 100% of the issued share capital of Sonox Audio Solutions S.L.U. ("Sonox"), a
company incorporated under the laws of Spain. Sonox provides Audio and Localisation for Spain and Mexico. Sonox already
provides certain services to the Group and its acquisition will enable the Group to capture the margins on those services.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table
below:
Sonox
Book Fair Value Fair
Value Adjustment Value
E'000 E'000 E'000
Financial Assets
Fixtures, Fittings & Equipment 2 2
Identifiable intangible assets - customer relationships
Trade and other receivable 268 268
Cash and cash equivalents 177 177
Trade and other Payables (411) (411)
Deferred tax liabilities
Total identifiable assets 36 36
Goodwill 614
Total consideration 650
Satisfied by:
Cash 500
Equity Instruments (24,881 shares of the parent company) 150
650
Net cash outflow arising on acquisition
Cash 500
Less: cash and cash equivalent balances transferred (177)
323
The main factors leading to the recognition of goodwill on the acquisition of Sonox are the presence of certain intangible
assets in the acquired entity, which are not valued for separate recognition, such as the expertise in audio and
localisation.
Sonox contributed E52,032 revenue and E87,969 additional profit before tax to the Group between the date of acquisition and
the balance sheet date. If the acquisition had been completed on the first day of the financial year, revenue for 2016 of
E1,308,004 would have been contributed to the Group and profit before tax of E454,827.
Acquisition costs of E21,687 have been charged through the Statement of Comprehensive Income.
32 Business Combinations completed in 2015
Acquisition of Alchemic Dream Inc.
On 6 January, 2015 the Group acquired the entire issued share capital of Alchemic Dream Inc., a company registered in
Canada, which specialises in providing live operations support to on-line games for a number of game publishers. The
acquisition is in line with the Group's strategy to diversify into the provision of complementary services to the video
game market and strengthens the Group's service of games already in production. Additionally the acquisition leverages the
Group's existing expertise, locations, scale and global reach to extend the services provided by Alchemic Dream as well as
generating synergies.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table
below:
Alchemic Dream
Book Fair Value Fair
Value Adjustment Value
E'000 E'000 E'000
Financial Assets
Property, plant and equipment 38 (21) 17
Identifiable intangible assets - customer relationships 286 286
Trade and other receivable 802 (111) 691
Cash and cash equivalents 38 38
Trade and other Payables (802) (802)
Deferred tax liabilities (36) (36)
Total identifiable assets 75 118 194
Goodwill 690
Total consideration 883
Satisfied by:
Cash 883
Net cash outflow arising on acquisition
Cash 883
Less: cash and cash equivalent balances transferred (38)
845
The intangibles assets are to be amortised over their estimated useful lives of 5 years.
The main factors leading to recognition of goodwill on the acquisition of Alchemic Dream are the presence of certain
intangible assets in the acquired entity which do not value for separate recognition such as the expertise in customer
service, reputation within the industry, and, an unidentified proportion representing the balance contributing to profit
generation.
During 2015 Alchemic Dream contributed E4,100,036 revenue and E348,608 profit before tax to the Group. If the acquisition
had been completed on the first day of the financial year, revenue of E4,161,397 would have been contributed to the Group
and E359,996 profit before tax before taking into account fair value adjustments of E154,193 in 2015.
Acquisition costs of E67,146 were charged through the Comprehensive Income Statement in 2015.
Acquisition of Reverb Localização - Preparação de Documentos Ltda
On 18 January, 2015 the Group acquired 100% of the issued share capital of Reverb Localização - Preparação de Documentos
Ltda ("Reverb"), a company registered in Brazil. Reverb provides localisation and audio management services for Brazilian
Portuguese for some of the leading games publishers. Reverb Studios was acquired to widen the scope of the Group's services
business and to extend the Group's client base.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table
below:
Book Fair Value Fair
Value Adjustment Value
E'000 E'000 E'000
Financial Assets
Trade and other receivable 14 14
Cash and cash equivalents 12 12
Total identifiable assets 26 26
Goodwill 274
Total consideration 300
Satisfied by:
Cash 200
Deferred consideration 100
Total consideration transferred 300
Net cash outflow arising on acquisition
Cash consideration 200
Less: cash and cash equivalent balances transferred (12)
188
The main factors leading to recognition of goodwill on the acquisition of Reverb were the presence of certain intangible
assets in the acquired entity which did not value for separate recognition such as the expertise in sound recording and
localisation, reputation within the industry, and, an unidentified proportion representing the balance contributing to
profit generation.
During 2015, Reverb contributed E544,043 revenue (including E79,097 of intercompany sales subsequently billed onwards) and
E238,539 profit before tax to the Group. If the acquisition had been completed on the first day of the financial year,
revenue of E572,234 would have been contributed to the Group and E243,770 profit before tax in 2015.
Acquisition costs of E1,224 were charged through the Comprehensive Income Statement in 2015.
Acquisition of Kite Team
On 16 July, 2015 the Group acquired 50% of the issued share capital of Kite Team, a company registered in Spain. Kite
provides localisation and audio management services for some of the leading games publishers. The acquisition is in line
with the Group's strategy to diversify into the provision of complementary services to the video game market and
strengthens the Group's service of games already in production.
The Directors of the Group have reviewed IFRS 10 (Consolidated Financial Statements) and are satisfied that the Group has
effective control of Kite Team and accordingly at the date of acquisition it is treated as a subsidiary within the
consolidation. This conclusion has been determined with particular consideration given to the influence over the acquired
entity, exposure to variable returns, and the ability to influence the entity to affect the amount of the variable
returns.
At the date of acquisition the Group set up a put and call option to acquire the remaining 50% of the share capital of Kite
Team by the end of 2017. The terms of the contract are such that the original owners retain an active interest in the
business until such time that the put or call option is exercised, and have the ability to participate in the variable
returns of the business. On that basis the Directors have concluded that it is appropriate to record the remaining 50% as a
Non-controlling interest in the business.
As a consequence of the put option a financial liability was recognised as at 31 December, 2015 which was based on the
anticipated cash and share settlement, which was calculated by reference to anticipated earnings. The fair value of this
financial liability at 31 December 2015 was E1,150,000, and was recorded in other payables in accordance with IAS 32. This
amount was agreed to be settled in 2016, and was settled as E1m in cash and E150,000 in equity instruments in Keywords
Studios. As the amounts were known prior to the finalisation of the signing of the 2015 annual report, and agreed to be
settled during 2016, this represented the fair value of the liability recorded as at 31 December 2015.
During 2016, the remaining 50% interest in Kite Team was acquired via the settlement of the E1.15m liability as noted
above.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table
below:
Acquisition of Kite Team
Book Fair Value Fair
Value Adjustment Value
E'000 E'000 E'000
Financial Assets
Property, plant and equipment 322 322
Trade and other receivable 377 377
Cash and cash equivalents 117 117
Trade and other payables (291) (291)
Long term loan (625) (625)
Total identifiable liabilities (100) (100)
Less non-controlling interest 50 50
KWS share of total identifiable liabilities (50) (50)
Goodwill 550
Total consideration 500
Satisfied by:
Cash 500
Net cash outflow arising on acquisition
Cash consideration 500
Less: cash and cash equivalent balances transferred (117)
383
The main factors leading to recognition of goodwill on the acquisition of Kite are the presence of certain intangible
assets in the acquired entity which did not value for separate recognition such as the expertise in sound recording and
localisation, reputation within the industry, and, an unidentified proportion representing the balance contributing to
profit generation.
During 2015 Kite contributed E610,307 revenue (including E304,681 of intercompany sales subsequently billed onwards) and
E217,721 of a loss before non - controlling interest to the Group. If the acquisition had been completed on the first day
of the financial year, revenue of E1,149,460 would have been contributed to the Group and E301,124 of a loss before
non-controlling interest in 2015.
Acquisition costs of E70,174 were charged through the Comprehensive Income Statement in 2015.
Acquisition of Liquid Development LLC
On 20 August 2015 the Group acquired 100% of the assets of Liquid Development through the purchase of the membership
interests. The company registered in USA specialises in providing art creation services for the video games industry. The
acquisition is in line with the Group's strategy to diversify into the provision of complementary services to the video
game market and strengthens the Group's service of games already in production.
The Directors of the Group have reviewed the requirements of IFRS 3 (Business Combinations) paragraph B5 - B12 and
concluded that as Liquid Development constitutes an on-going business within the Group that it should be accounted for as a
business combination.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table
below:
Book Fair Value Fair
Value Adjustment Value
E'000 E'000 E'000
Financial Assets
Property, plant and equipment 108 108
Identifiable intangible assets - customer relationships 1,225 1,225
Trade and other receivable 340 340
Cash and cash equivalents 269 269
Trade and other payables (185) (185)
Deferred tax liabilities (541) (541)
Total identifiable liabilities 424 792 1,216
Goodwill 6,801
Total consideration 8,017
Satisfied by:
Cash 5,365
Equity instruments (1,074,440 shares of the parent company) 2,413
Deferred consideration settled in 2017 239
Total consideration transferred 8,017
Net cash outflow arising on acquisition
Cash consideration 5,365
Less: cash and cash equivalent balances transferred (269)
5,096
The deferred consideration recorded within other payables on the 2015 balance sheet represented the fair value amount of
the balance due.
The main factors leading to recognition of goodwill on the acquisition of Liquid Development are the presence of certain
intangible assets in the acquired entity which do not value for separate recognition such as the expertise in art creation
services, reputation within the industry, and, an unidentified proportion representing the balance contributing to profit
generation. The fair value of the shares issued as part of the acquisition has been determined as being the share price on
the date of the transaction.
During 2015, Liquid Development contributed E1,999,469 revenue and E345,591 profit before tax to the Group. If the
acquisition had been completed on the first day of the financial year, revenue of E6,068,150 would have been contributed to
the Group and E1,169,440 profit before tax in 2015.
Acquisition costs of E63,145 were charged through the Comprehensive Income Statement in 2015.
33 Events after the reporting date
Acquisition of Spov Ltd
On 16 February 2017 the Group acquired the entire issued share capital of Spov Ltd, a company registered in the United
Kingdom, a specialist animation studio. It is expected that the acquisition will strengthen the group's market position as
a leading global provider of digital art services and will contribute to the continuing growth in this area.
Under the terms of the acquisition, a total consideration of not more than STG 1.16m (E1.36m) was agreed. STG 0.3m
(E0.351m) was paid on acquisition, the remaining consideration will be paid to a maximum of STG 0.816m (E0.955m) over two
years to March 2018.
The book value acquired of net assets is as follows:
E'000
Financial Assets & Liabilities
Fixed Assets 30
Trade Receivables 16
Trade Payables (120)
Overdraft (18)
Net Liabilities (93)
Goodwill 1,450
Total Consideration 1,357
Satisfied by
Cash 351
Deferred Consideration 1,006
Net Cash outflow arising on acquisition
Cash 351
Overdraft 18
369
At the date of authorisation of these financial statements a detailed assessment of the fair value of the identifiable net
assets has not been completed. Information on the revenue and impact on profit due to this acquisition has not been
disclosed as it is impracticable to do so at this point in time.
Annual report and accounts
The annual report and accounts will be posted to shareholders shortly and will be available to members of the public at the
Company's registered office at 8 Clifford Street London W1S 2LQ and on the Company's website
http://www.keywordsstudios.com/en/investors.
Annual General Meeting
The Annual General Meeting of Keywords Studios plc will be held on 25 May 2017.
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