REG - Keywords Studios PLC - Final Results
30/03/2022 07:00
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RNS Number : 4699G Keywords Studios PLC 30 March 2022
30 March 2022
Keywords Studios PLC ("Keywords Studios", "Keywords", the "Group")
Full year results for the year to 31 December 2021
Strong growth supported by a buoyant video games industry
Keywords Studios, the international technical and creative services provider
to the global video games industry, today announces its full year results for
the year to 31 December 2021.
Financial Overview:
Results for the year to 31 December 2021 2021 2020 % change
Group revenue €512.2m €373.5m +37.1%
Organic Revenue growth(1) +19.0% +11.7%
Adjusted EBITDA(2) €110.1m €74.2m +48.4%
Adjusted EBITDA margin 21.5% 19.9%
EBITDA(2) €85.7m €66.8m +28.3%
Adjusted profit before tax(3) €86.0m €55.0m +56.4%
Adjusted profit before tax margin 16.8% 14.7%
Profit before tax €48.0m €32.5m +47.7%
Adjusted earnings per share(4) 89.24c 60.93c +46.5%
Earnings per share 45.16c 30.32c +48.9%
Total dividend per share 2.15p 0.00p
Adjusted cash conversion rate(5) 107.3% 97.2%
Net cash / (net debt) €105.6m €102.9m
Highlights:
Strong revenue growth (+37.1% to €512.2m) supported by a buoyant video games
industry
· Organic Revenue up 19.0% (H1 2021: 22.9%, FY 2020: 11.7%) with all
service lines performing well against the comparative period, when a number
were held back by COVID-19 related production delays and disruption
· Performance driven by high levels of demand, supported by a buoyant
video games market refocused on new content creation and a continued trend
towards external service provision
Continued profitability growth and strong cash generation provides a balance
sheet able to support investment and shareholder returns
· Adjusted profit before tax up 56.4% to €86.0m, with margin up 2.1%
pts to 16.8% (2020: 14.7%)
· Strong cash conversion with Adjusted Free Cash Flow(6) of €92.3m
(2020: €53.4m) and an Adjusted Cash Conversion rate of 107.3% (2020: 97.2%)
· Net cash of €105.6m (2020: €102.9m), after €65.5m net cash
spend on acquisitions in 2021, and a renewed €150m undrawn Revolving Credit
Facility
· As part of our progressive dividend policy, the Board has recommended
a final dividend of 1.45p per share, which will make the total dividend for
2021 of 2.15p per share (2020: nil)
Acquisition strategy delivering expanded geographical reach
· Completed six high quality acquisitions in Australia, UK, Romania,
and the US in 2021, for a total maximum consideration of up to €126m:
§ Climax Studios, Heavy Iron Studios, Tantalus and Wicked Witch add
substantial scale and capabilities to Game Development, while expanding our
presence into Australia
§ AMC adds significant expertise to Art Creation and a new presence in
Romania for the Group
§ Waste Creative brings player acquisition and community management expertise
to Marketing
· Our near term strategy remains strengthening Game Development and
Marketing Services and becoming the external provider of choice for our global
client base, while selectively acquiring in other service lines
· Exited the year with Pro Forma Revenue(7) of €528.5m (2020:
€409.2m)
· We continue to actively review a healthy pipeline and our strong
financial resources enables Keywords to comfortably support further
acquisition opportunities
Making good progress with our Responsible Business agenda
· 2021 MSCI ESG Ratings assessment improved to a rating of 'A', up from
BBB previously
· Established a new partnership with Women in Games, a not-for-profit
organisation that seeks a game industry, culture and community free from
gender discrimination. Planning a number of initiatives to leverage our global
platform and client relationships in 2022
· Developed our first Group Environmental policy covering our energy
and recycling practices, which will further develop our Sustainable Studios
programme
· Hardship fund available to help affected employees of the unfolding
humanitarian crisis in Ukraine and Keywords Care CSR fund increased
CEO Update: Evolving our strategy
· After a rigorous selection process, Keywords appointed Bertrand
Bodson as the Group's new CEO, with effect from 1 December 2021
· Together with 60 leaders from across every service line, five
workstreams have been put in place to kick-start the process for taking
Keywords to the next level in the following areas:
§ Developing strategic partnerships; harnessing technology; addressing
adjacent markets; supporting our "One Keywords" culture; and attracting and
nurturing talent
· A further update on these strategic workstreams will be provided at
our Capital Markets Day in London on 8 June
Current trading and outlook
· Trading in the first quarter has started well with strong demand
across all of our service lines
· Expect to continue to benefit from an underlying video games market
that remains buoyant, with 2022 expected to be a particularly strong year for
new game launches
· While we are not immune to the inflationary pressures and competition
for talent, we continue to enhance our position as an attractive employer and
to take account of our costs as we agree projects with our clients, who are
well aware of the industry-wide talent challenge
· We are monitoring the situation in Russia, where our teams continue
to work but entirely focused on critical work for non-Russian clients. In
parallel, and in close partnership with our clients, we have been actively
looking at relocating work to other locations across the Group, benefiting
from our global footprint
· We are confident of delivering a performance for the full year
towards the top end of current market expectations(8), notwithstanding the
situation in Russia, given the strong underlying trading across the Group
aided, in part, by favourable currency movements
· Well-funded to continue to invest in our platform and people and
actively reviewing acquisitions that would add expertise, particularly in Game
Development and Marketing, whilst retaining an interest in adjacent markets
such as media and entertainment
Bertrand Bodson, Chief Executive Officer of Keywords Studios, commented:
"I am delighted to have joined Keywords at a time when the business is
performing so well. The Group has delivered strong organic growth, driven by
high levels of demand for our services, and further extended our capabilities,
reach and scale through selective acquisitions.
"The underlying video games market remains buoyant, with 2022 expected to be a
particularly strong year for new game launches, as developers and publishers
look to capitalise on higher player numbers and create ever more sophisticated
content to engage players in their games for longer.
"Trading in the first quarter has started well, and we continue to see strong
demand across all of our service lines, underpinning our confidence in
delivering a performance for the full year towards the top end of current
market expectations(8). We expect the Group's trading momentum to continue
through 2022, with the increased flow of content to our later stage service
lines seen in the second half of 2021 continuing into this year, alongside
further strong demand for our earlier stage services such as Game Development,
Art Creation and Marketing.
"We are confident Keywords remains well placed to continue its rapid growth
and in its long-term success thanks to its strong position in a buoyant video
games market, its increasingly sought after 10,000-people strong resource
base, its robust business model with a diversified range of services that are
well balanced across the video games development cycle, and the financial
strength to invest in our platform and people to build further on the
Group's successful organic and acquisitive growth track record."
A presentation of the full year results will be made to analysts at 9.30am
this morning and the live webcast can be accessed via this link:
https://webcasting.brrmedia.co.uk/broadcast/6227906361bd9a4d10286ff6. To
register for dial in access, or for any enquiries, please contact MHP
Communications on keywords@mhpc.com.
For further information, please contact:
Keywords Studios (www.keywordsstudios.com (http://www.keywordsstudios.com) ) +353 190 22 730
Bertrand Bodson, Chief Executive Officer
Jon Hauck, Chief Financial Officer
Joseph Quinn, Investor Relations
Numis (Financial Adviser, Nominated Adviser and Corporate Broker) +44 20 7260 1000
Stuart Skinner/Kevin Cruickshank/Will Baunton
MHP Communications (Financial PR) +44 20 3128 8193
Katie Hunt/Charles Hirst keywords@mhpc.com (mailto:keywords@mhpc.com)
About Keywords Studios ( www.keywordsstudios.com
(http://www.keywordsstudios.com/) )
Keywords Studios is an international technical services provider to the global
video games industry. Established in 1998, and now with over 70 facilities in
23 countries strategically located in Asia, Australia, the Americas and
Europe, it provides integrated art creation, marketing services, game
development, testing, localization, audio and player support services across
more than 50 languages and 16 games platforms to a blue-chip client base of
over 950 clients across the globe.
Keywords Studios has a strong market position, providing services to 23 of the
top 25 most prominent games companies. Across the games and entertainment
industry, clients include Activision Blizzard, Bandai Namco, Bethesda,
Electronic Arts, Epic Games, Konami, Microsoft, Netflix, Riot Games, Square
Enix, Supercell, TakeTwo, Tencent and Ubisoft. Recent titles worked on include
Anthem, Star Wars Jedi: Fallen Order, Valorant, League of Legends, Fortnite,
Clash Royale and Doom Eternal. Keywords Studios is listed on AIM, the London
Stock Exchange regulated market (KWS.L).
The Group reports a number of alternative performance measures (APMs) to
present the financial performance of the business which are not GAAP measures
as defined by International Financial Reporting Standards (IFRS). The
Directors believe these measures provide valuable additional information for
the users of the financial information to understand the underlying trading
performance of the business. In particular, adjusted profit measures are used
to provide the users of the accounts a clear understanding of the underlying
profitability of the business over time. For full definitions and explanations
of these measures and a reconciliation to the most directly referenceable IFRS
line item, please refer to the APMs section at end of the statement.
(1) Organic Revenue at constant exchange rates is calculated by adjusting the
prior year revenues, adding pre-acquisition revenues for the corresponding
period of ownership, and applying the prior year foreign exchange rates to
both years.
(2) EBITDA comprises Operating profit as reported in the Consolidated statement
of comprehensive income, adjusted for amortisation and impairment of
intangible assets, depreciation, and deducting bank charges. Adjusted EBITDA
comprises EBITDA, adjusted for share option expense, costs of acquisition and
integration and non-controlling interest. In order to present the measure
consistently year-on-year, the impact of COVID-19 government subsidies claimed
and investment income are also excluded.
(3) Adjusted profit before tax comprises Profit before taxation as reported in
the Consolidated statement of comprehensive income, adjusted for share option
expense, costs of acquisition and integration, amortisation and impairment of
intangible assets, non-controlling interest, foreign exchange gains and
losses, and unwinding of discounted liabilities. In order to present the
measure consistently year-on-year, the impact of COVID-19 government subsidies
claimed and investment income are also excluded.
(4) Adjusted earnings per share comprises the adjusted profit after tax divided
by the non-diluted weighted average number of shares as reported. The adjusted
profit after tax comprises the adjusted profit before tax, less the tax
expense as reported in the Consolidated statement of comprehensive income,
adjusted for the tax impact of the adjusting items in arriving at adjusted
profit before tax.
(5) Adjusted cash conversion rate is the adjusted free cash flow as a percentage
of the adjusted profit before tax.
(6) Adjusted free cash flow is a measure of cash flow adjusting for capital
expenditure that is supporting growth in future periods (as measured by
capital expenditure in excess of maintenance capital expenditure). In order to
present the measure consistently year-on-year, the impact of COVID-19
government subsidies claimed is also excluded.
(7) 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 for a full financial year.
(8) As at 28 March 2022, company compiled analysts' forecasts gave a consensus for
FY 2022 of €597m of revenue (range: €587-610m) and €92m of adjusted
profit before tax (range: €90-95m).
Chairman's Statement 2021
This, my ninth Chairman's statement since Keywords' IPO in July 2013, looks
back on another year of strong results and delivery on our strategy, and looks
forward to one of re-energisation with new ambition.
The increase in revenues to €512.2m represented actual growth of 37.1% and
Organic Revenue growth of 19.0%. Adjusted EBITDA grew 48.4% versus 2020,
albeit assisted by a low level of costs as a result of COVID-19. While the
final Adjusted PBT margin of 16.8% benefitted from these reduced costs, it
nonetheless evidences our medium to long-term margin expectations of c.15% is
very achievable.
The Group completed six high quality acquisitions in Australia, UK, Romania,
and the US in 2021, extending its scale and capabilities to Game Development,
Art Creation and Marketing, in line with our strategy to become the external
provider of choice across all our service lines for our global client base and
giving the Group Pro Forma Revenue(7) of €528.5m as it exited 2021 (2020:
€409.2m).
In the context of the Group's ongoing strong financial performance we are
recommending a final dividend of 1.45p, giving a total dividend of 2.15p for
the full year (having suspended our dividend programme in 2020).
Following the early retirement for health reasons of Andrew Day, I would like
to express the Board's gratitude to all of Keywords' Senior Management Team
for ensuring that the Group continued to deliver exceptional results in 2021
and for enabling a smooth transition to the appointment of Bertrand Bodson as
the Group's new CEO in December 2021. In Bertrand, the Group has a new CEO
whose talents, expertise and leadership skills are uniquely tailored to take
Keywords forward for the next phase of its remarkable journey. Indeed, it is
testimony to the unparalleled positioning of Keywords in the video games world
that we have been able to attract someone of Bertrand's calibre.
My fellow Non-Executive Directors also deserve my thanks for their support in
directing the business during the transition to a new CEO, and ensuring we had
an effective CEO recruitment process. In addition, we have recruited two new
Non-Executive Directors in anticipation of the retirements of David Reeves
(Senior Independent Director and Chair of the Remuneration Committee) at the
next AGM and of Giorgio Guastalla, the Keywords founder, as announced
recently. In Marion Sears, who is going to take over the role of Chairman of
the Remuneration Committee, and Neil Thompson we have, I believe, found two
exceptional Directors who will be well able to provide the necessary support
to the Executives. When David Reeves stands down at the next AGM, Charlotta
Ginman will be appointed as Senior Independent Director; she has served with
distinction on the Keywords Board for four years and is Chair of the Audit
Committee. On behalf of the Board, I would like to thank David for his
considerable contributions to the Group and to Giorgio; without him and his
wife Teresa there would not be a Keywords. Given the changes to the Board
during the year, the Board has requested, and I have agreed, that I extend my
chairmanship by a year beyond a nine-year term, with the view to retiring at
the 2023 AGM.
In a year when we have seen the transition of CEOs, the Keywords staff of some
10,000 have also very much put their collective "shoulder to the wheel". My
thanks go to each and every Keywordian who has supported the business in the
last 12 months.
In October 2021, an Executive Summit took place which was designed to act as a
celebration of the achievements of Keywords over the last few years and to
re-calibrate the strategic direction of the business. We were fortunate that
Bertrand was able to attend the Summit and have his first taste of the
culture, talent and ambition within the Senior Management Team. A further
strategy conference is planned in the near future to build on the actions from
the Executive Summit and to act as a springboard for Bertrand's vision on how
the business should evolve.
As the Group continues to grow, Bertrand and the executive team will be
focussed on driving operational efficiency, making better use of technology in
the way services are delivered, and establishing a more strategic relationship
with the major publishers, our clients.
Having completed his first 100 days at the helm of Keywords, Bertrand has
already earned the respect of staff and customers alike. He is incredibly
excited and enthused by the prospects for, and opportunities available to, the
business and I share that enthusiasm. These opportunities are not limited to
the video games industry, where Keywords now has a pivotal role in the way
services are delivered, but also in adjacent markets where "gamification"
know-how and expertise in effectively delivering content to multiple markets
can have a real influence. Indeed, I believe that Keywords has really only
just started its remarkable story and will continue to go from strength to
strength as it builds on its strong platform to grow organically and by
acquisition.
Since the year end Sonia Sedler, our COO, has left the business and her role
on the Board for personal reasons. Having joined the business as COO during
the COVID-19 pandemic, Sonia became joint interim CEO with Jon Hauck at short
notice when Andrew Day retired early. We are grateful for her contribution and
she leaves with our best wishes for the future.
Summary
We have a strong and energized leadership team in place and are well
positioned to continue to execute on our clear opportunities in the buoyant
video games market, as we capitalize on the Group's unique full service
platform, powered by our incredibly talented team of Keywordians. Our strong
balance sheet will enable us to continue to execute on a healthy pipeline of
acquisition opportunities, complementing our ongoing organic growth.
Ross Graham
Chairman
CEO Review
I am delighted to have joined Keywords at a time when the business is
performing so well. The Group has delivered strong organic growth, driven by
high levels of demand for our services, and further extended our capabilities,
reach and scale through selective acquisitions.
While it is early days for me as a Keywordian, I have spent a great deal of my
time meeting people across the business, visiting studios around the world and
speaking to our clients and it has made a few things abundantly clear.
First, Keywords is full of incredibly talented, experienced and
entrepreneurial leaders who have a serious passion for video games and a clear
desire to take the business forward.
Second, the Group is in an enviable market leading position, in a high growth
industry that continues to move towards external service provision and for
which access to talent is becoming ever more critical. Keywords is proud to
count almost all the leading publishers and developers as its clients and
proud also that these longstanding clients put their trust in Keywords to get
their ever-advancing content to market and to meet and exceed the exacting
standards of video gamers today.
Third, while Keywords already has scale with over 10,000 talented people
across the business there are clear opportunities to capitalise on the Group's
unique full service platform to continue to drive significant and sustainable
growth.
I'll come on to set out some initial thoughts on ways in which we can continue
to deliver an ever-more compelling proposition globally for our partners in
the buoyant video games market, and adjacent content industries, and
to invest in the platform and our people to build further on the Group's
successful organic and acquisitive growth track record.
We are very mindful of the tragic events in Ukraine, which we are deeply
saddened by and our thoughts are with all those affected. While we have no
operations in Ukraine, our US Game Development business, Sperasoft, continues
to operate from Russia but entirely focused on critical work for non-Russian
clients. In parallel, and in close partnership with our clients, we have been
actively looking at relocating work to other locations across the Group,
benefiting from our global footprint (including in Poland, across Europe, and
the KWS network more broadly). We are monitoring the situation very closely,
and I will come on to provide more detail on our support for both our people
and others that have been affected in the region. Our colleagues across the
region are all valued members of Keywords and our priority is to do all that
we can to support our people, and freelancers, wherever they are located,
while contributing to wider humanitarian efforts in the region.
The Group has started 2022 well, with strong demand across all of our
service lines. We are very confident in the Group's opportunity for growth
as we continue to capitalise on our clients' focus on selecting the right
external services provider, increased expenditure on content creation in a
growing video games market, and our ability to increase our market share both
through organic growth and the execution of our acquisition strategy.
Excellent growth supported by a buoyant video games market
Keywords delivered a strong performance in FY2021, with revenues up by 37.1%
to €512.2m. Organic Revenue for the Group, which excludes the impact of
acquisitions and currency movements, grew by 19.0% in 2021 (FY 2020: 11.7%),
with all service lines performing well against the comparative period. This
strong performance reflects the high levels of demand for all service lines,
driven by the buoyant video games market, the industry's focus on new content
creation, the continued trend in the industry towards external service
provision supported by a softer comparative in the first half of 2020 when the
Group experienced disruption to our services at the earlier stages of the
COVID-19 pandemic. The Group's strong organic growth was complemented by
contributions from the six acquisitions we completed through the year.
While all of our service lines experienced growth, our Marketing and Game
Development service lines delivered exceptional growth, of 151.1% and 73.6%
respectively, reflecting strong organic performances (33.7% and 16.0%
respectively) complemented by contributions from acquisitions. These service
lines have been a particular focus of our acquisition strategy in recent years
and, as they have a significant role at the earlier stages of a video game's
development cycle, have benefitted through the year from the industry
returning to focus on creating new content to keep its expanding player base
engaged in exciting new games. The performance by each service line is set out
in more detail later in this review.
The Group's Adjusted PBT increased by 56.4% to €86.0m, representing a 2.1%
pts improvement in margin to 16.8%. This reflected operational leverage and
continued good cost control, and the benefit of reduced costs due to COVID-19,
primarily relating to remote working and reduced property, travel and business
development costs, which we expect to return with the anticipated easing of
restrictions in 2022, alongside further investment in our platform and people.
Our robust business model has ensured this profit performance translated into
strong cash generation, with €92.3m of Adjusted Free Cash Flow (FY 2020:
€53.4m) representing a 107.3% Adjusted Cash Conversion rate in the period
(FY 2020: 97.2%). This demonstrates the strong cash-generating characteristics
of the business and provides the Group with further resources to continue to
invest in the business and fund our acquisition strategy.
We are exceptionally proud of the efforts of our talented Keywordians who have
worked tirelessly throughout this period to support our clients while
continuing to deliver the excellent quality of service for which we are known.
Delivering on our strategy
The continued buoyant demand for video games, our clients' renewed focus on
content creation and the impetus for external service provision have only
accentuated the opportunities afforded by our strategy.
In a fragmented market characterised by predominantly local, single-service
providers, Keywords continues to build its market-leading services platform
and cement its position as the partner of choice for games publishers and
developers when looking for global reach and deep expertise in video games.
This, together with the scale to deliver the quality, flexibility and security
of service required to meet high levels of demand for ever more sophisticated
and immersive content, differentiates Keywords from its competitors. We
continue to leverage the unique breadth of our platform by bringing the right
combination of capabilities to support customers' individual objectives,
enabling us to cross-sell a broader range of our services.
The strength and breadth of our platform is enabling us to capitalise on
increased demand for our services due to a number of key trends in our market:
· The industry's focus returning to content creation in 2021, having had
to concentrate on the monetisation of existing content due to production
constraints across the industry in the earlier stages of the pandemic
· The number of players and amount of game play having expanded during
the pandemic
· The shift towards "Games as a service", which requires ongoing content
expansion to continuously deepen the gaming experience and extend the lifespan
of a game, creating higher levels of continuous activity
· The launch and subsequent maturing of the next generation games
consoles, PlayStation 5 and Xbox Series X/S. While the launch of the new
consoles has been held back by supply constraints, we are seeing a refresh of
the entire console-based gaming sector after a seven-year run of the PS4 and
Xbox One console generation, which we expect to result in an enlarged market
for video games content over the coming years and an associated demand for new
content creation
· Further development of new and existing video games streaming
platforms increasing demand for both content generation and ongoing in game
support
We continue to invest in the business, both organically and through targeted
acquisitions to position the Group as an increasingly strategic partner to our
clients and as the "go to" provider to the video games industry across our
service lines and key geographies.
During the year, we have invested in new studios in Bangalore and Manila, as
well as in two new studios in second-tier cities in China, and refurbished
some of our sites while the studios have been quieter, to support our growth
today and into the future. We have upgraded and expanded studios in a number
of locations including Quebec, Austin, Los Angeles and Tokyo and brought
together certain studios where consolidation into one, larger space made
sense, in Los Angeles and Milan. We also agreed leases for new, expanded
facilities in Katowice, Warsaw and Ottawa that will support expansion in the
current financial year.
We are also delighted to have welcomed six new businesses to the Keywords
family in 2021. Heavy Iron Studios, Tantalus, Climax Studios and Wicked Witch
add substantial scale and capabilities to our Game Development service line as
well as reach into, and access to talent in, the US West Coast and Australia.
AMC adds significant expertise to Art Creation and a new presence in Romania
for the Group, from which we can access a new talent pool and build out our
other service lines. We have also continued to enhance our Marketing service
line, which we split out as a standalone service line for the first time at
the interim results in September, having completed the acquisition of Waste
Creative, a London-based studio, at the end of the year. Waste Creative brings
expertise in strategy and creative production services, including player
community management, for mobile video game creators, which will help us meet
the growing demand from our clients for games as a service marketing support
with a focus on community growth and fan retention. We continue to actively
review a healthy pipeline of further acquisition opportunities.
Evolving our strategy
One of the things that attracted me to Keywords was the Board's vision for the
business; I share its plan to grow the platform on a global scale and I
believe Keywords has huge potential in the video games industry, and that it
can also operate just as effectively in many adjacent content sectors.
I am privileged to have joined a business that has such strong foundations in
that it is already a proven market leader with unrivalled scale, reach and
range of capabilities across its 74 studios in 23 countries. It also already
supplies almost all of the major developers in a sector that has huge growth
potential.
The quality of the platform that has been built, and its attractiveness to
potential partners and acquisition targets, provides the Group with a clear
opportunity to continue to grow its services and scale in a global market for
which service provision remains highly fragmented.
I'm looking forward to leading the Group's ambitious team to deliver an ever
more compelling proposition for the buoyant video games market, and beyond.
As part of my first 100 days programme in the business, I have been looking at
how we build on the Group's incredibly strong foundations to take it forward
to new levels of scale and success.
Right at the start of this process, I brought 60 leaders from across the
business together as part of my induction, to ensure we drive the evolution
of the strategy together. Working closely with them, we have launched five
workstreams across the business to kickstart the process for taking Keywords
to the next level, as follows:
1. Strategic partnerships: As we enter 2022, Keywords has over 900 clients
and 23 of the top 25 publishers are our customers. Moving forward, we will
look to build on these relationships so we can create and capture more value
together. To do this, we will ascertain the areas in our service line offering
that are currently missing so we can continue to build the platform of choice
for our clients and learn how Keywords can be an increasingly attractive
strategic partner which should in turn enable us to capture more value. Also,
we are re-examining our various "customer propositions" to ensure a proper
correspondence between the services we can provide and the value customers
should expect.
2. Technology: We will explore how to deploy the right tools and technology
to enable our studios to continue to enhance their performance so that they
can bring more value to our clients, while at the same time ensuring our
internal operational structures can scale to support Keywords' growth
ambitions.
3. Adjacent markets: We continue to examine opportunities in adjacent
sectors and our work in the broader media and entertainment sector with
Netflix and others has increased accordingly. We will continue to review
opportunities that supplement our growth in video games to ensure we take
advantage of the increasing convergence of content and leverage our mastery of
this most interactive of all mediums, as gamification is increasingly seen as
a route to delivering content in a more engaging way for a whole range of
applications including education, retail and construction, and, of course, for
the many potential applications in the metaverse.
4. One Keywords: Keywords has a unique and entrepreneurial culture and is
full of highly talented, driven people across many different geographies. It
remains vital that we retain this core of "One Keywords" that will help us to
keep growing. So, we are looking at how we can preserve this entrepreneurial
culture, while continuing to build an operational backbone that supports the
growth of the business into the future thereby enabling us to take advantage
of all the different skill sets across the business.
5. Talent: In 2021, we grew the number of people in this business to over
10,000 at the end of the year, which makes it clear that this business is able
to attract talented people. Our employee net promoter score (eNPS) increased
to 42 last year (from 22 in 2020), demonstrating high levels of engagement and
satisfaction. Despite this, there has never been demand like there is today
for talent in this industry. As such, we are looking at how we can continue to
be an attractive destination for talent, what we can do to enhance career
journeys at Keywords and how we can elevate the right people across our
service lines to help propel us forward.
We will provide a further update on our progress with these five strategic
work streams, as well as some of the outcomes, at our Capital Markets Day in
London this Summer.
Evolving our ways of working
Our remote working capabilities remain highly effective, enabling us to
support customers for as long as remote working is needed, and where returning
to studios is not feasible. As restrictions lift around our geographies and,
having consulted those who really matter- our Keywordians - we are now
adopting a hybrid model of offering vibrant, engaging and safe studio space,
while also enabling our people to work securely and constructively from home.
There remains a clear role for physical studios for the Group, particularly to
support a strong, collaborative culture and enhance the exchange of creative
ideas, for training, and in our Testing and Audio service lines, where certain
clients continue, for reasons of security, to prefer a studio-based service.
We have, therefore, continued to invest in new studios and to refurbish some
of our sites while the studios have been quieter, to ensure our studios remain
attractive places for our people to come together.
Responsible Business
We remain committed to conducting our business responsibly and operating to
the highest levels of honesty, integrity and ethical conduct.
Having set out in 2020 our five priority areas of People (including DE&I),
Customer Centricity & Innovation, Communities and the Planet, underlined
by Corporate Governance and Business Ethics, we have continued to make
progress with these in 2021.
We have received a rating of 'A' (on a scale of AAA-CCC) in our 2021 MSCI ESG
Ratings assessment, which has improved from BBB previously. This rating, which
analyses our resilience to long-term, industry material environmental, social
and governance risks, was pleasing but clearly shows there is more we can do
if we are to become a leader within the industry.
Leading this work is our ESG Committee and we were pleased to announce in 2021
that in addition to Bertrand Bodson, both of our most recently appointed
Non-Executive Directors, Marion Sears and Neil Thompson, have joined the
Committee, bringing strong expertise and experience to this important area of
focus for the Group.
The gender diversity of our business is a focus for the Board and we monitor
appointments by gender. The diversity of our Board changed in 2022 due to
changes to the Board's composition. Following the departure of Sonia Sedler,
female directors now represent 25% of the Board but this percentage will rise
to 29% when David Reeves retires at the forthcoming AGM and we will continue
to consider diversity as part of our decision making in any future
appointments.
We have also shown our commitment to improving diversity across the video
games industry by entering into a partnership with Women in Games in 2021,
which sees Keywords help power their 500 strong Ambassador programme across 52
countries, allowing us to be more active in addressing the underrepresentation
of women in our industry. Women in Games is a not-for-profit organisation
founded in 2009, with the mission to identify and effect the lasting change
needed to bring about full gender equality, equity and parity of opportunity
within the gaming sector and to encourage more women to consider games and
eSports as a career.
With this partnership now established, we have a number of planned initiatives
to leverage our global platform and client relationships in 2022 and beyond to
enhance and accelerate the popular ambassador initiative, enabling it to scale
through additional projects and research, events, exclusive materials and
services for Women in Games ambassadors.
Following the quantification of our greenhouse gas emissions for the first
time in 2020, in 2021 we have developed the Group's first Environmental Policy
covering our energy and recycling practices. The policy will help further
develop our Sustainable Studios programme and support our studios in their
efforts to minimise energy usage and to reduce, recycle and reuse wherever
possible.
As we look to achieve net zero, we recognise these initiatives for Sustainable
Studios will take time. Therefore, we will initially offset our carbon impact
with credits towards the Ntakata Mountains REDD+ project, which protects
forests. The revenue earned from the sale of certified carbon credits is paid
directly to forest communities in Tanzania, empowering them to manage their
own development needs.
We continue to work hard to make Keywords a great place to work, with some of
our initiatives recognised through accolades such as Manila having been
certified by Great Place To Work® Philippines, Keywords being named among
Ireland's 150 Best Employers for 2021 and a number of our UK studios winning
UK GamesIndustry.biz Best Places To Work Awards during the year. Since the
year end, we were delighted that Keywords Studios in Mexico has been awarded
the Socially Responsible Company (SRC) badge.
We also launched various initiatives to help support colleagues, including
through COVID-19 vaccine clinics which, for instance, have provided vaccines
for colleagues and their families in India, support for colleagues impacted by
the hurricane in New Orleans, including re-housing some of our colleagues, and
through the hardship fund that we launched at the beginning of the pandemic to
support colleagues experiencing financial hardship as a result of COVID-19.
Following recent events, supporting our people as the humanitarian crisis
unfolds in Ukraine is our top priority. We have established an employee
hardship fund to provide support to the small number of colleagues directly
impacted by this crisis.
We are also doing all that we can to provide broader support to those affected
by the tragic situation in Ukraine. We have boosted our corporate social
responsibility (CSR) fund to €250k, which we will dedicate to humanitarian
causes in support of Ukraine. We are also creating jobs for refugees as they
move into neighbouring countries, and we are providing support at the
Ukrainian border through the donations of essential items.
Further updates will be made on the progress we are making against our six
priority areas at our Capital Markets Day later this year.
Service line review
All our service lines grew well during 2021, despite the ongoing impact of the
pandemic and the operational challenges it continues to present. The following
table provides a summary of our revenues by service line, with growth rates on
a reported and Organic Revenue growth basis.
Revenue % of 2021 2021 2020 Change from 2020 2021 2021 2021 Average number of operational staff by service line
Group revenue
Revenue
Revenue
%
Organic Revenue growth
Pro Forma Revenue
€m
€m
%
€m
Art Creation* 9.6% 49.3 38.9 26.7% 24.4% 50.9 1,309
Marketing* 9.0% 46.2 18.4 151.1% 33.7% 52.4 189
Game Development 27.1% 138.9 80.0 73.6% 16.0% 147.4 1,396
Audio 12.0% 61.3 47.2 29.9% 27.4% 61.3 245
Functional Testing 18.1% 92.7 78.5 18.1% 17.2% 92.7 2,996
Localization 9.9% 50.8 45.4 11.9% 12.2% 50.8 382
Localization Testing 5.3% 27.1 23.3 16.3% 16.7% 27.1 646
Player Support 9.0% 45.9 41.8 9.8% 12.7% 45.9 1,702
Total 100.0% 512.2 373.5 37.1% 19.0% 528.5
*The prior year comparatives have been re-classified to separately report
Marketing services, previously reported within the Art Creation service line.
Art Creation (9.6% of Group revenue for the year)
Our Art Creation service line creates graphical art assets for video games
including concept art creation, 2D and 3D art asset production and animation.
FY 2021 performance
Art Creation performed well with revenues up by 26.7% to €49.3m (FY 2020:
€38.9m). Organic Revenue, which excludes the impact of currency movements
and acquisitions, grew by 24.4% for Art Creation, following a continuation of
strong underlying client demand across all art studios.
This strong performance was driven by exceptional growth in India where the
studios were able to effectively manage the increased demand by rapidly hiring
new talent, something that is not as easily replicated in other markets. In
other territories, our North American studios also benefitted from remote
working and the ability to extend remote teams through freelancers and sister
studios, which enabled studios to meet the increased demand in the market.
We have continued to expand this service line, with the addition of two new
studios in second-tier cities in China and new studios in Bangalore and
Manila, which provide us with additional access to talent to support the work
for our clients.
In August, we added the Group's first presence in Romania through the
acquisition of AMC. AMC is a long-established, high-quality specialist art
studio servicing both US and European clients and we believe it will add
significant expertise and experience to this service line, as well as access
to an attractive market for talent in Romania.
The market opportunity and outlook
Art Creation operates in a large addressable market, which remains highly
fragmented. Increasingly, clients seek partners who are able to deliver higher
value solutions through more creative, technical, and managed services.
Our clients' needs also continue to evolve and we expect the demand for
real-time 3D art to grow through the year ahead and beyond. While it is very
early days we expect that the development of the metaverse will drive even
more demand for digital and related content and we are committed to helping
our clients navigate through this opportunity.
This year, we have already seen many more cross studio and cross-service line
collaborations and we expect Art Creation to continue to deliver strong growth
in 2022 with our global platform positioning Keywords in a strong position to
scale up to meet continued buoyant client demand.
Marketing (9.0% of Group revenue for the year)
Following its recent growth and scale within the Group, Marketing was reported
as a standalone service line for the first time at the interim results in
September 2021, so this represents its maiden year as a separately reported
service line.
Marketing services includes PR and full brand campaign strategies, game
trailers and marketing art and materials, which we are building through
acquisitions, and subsequent organic growth.
FY 2021 performance
FY 2021 was a transformational year for our Marketing service line. Revenues
grew by 151.1% to €46.2m (FY 2020: €18.4m) in 2021 following a period of
fantastic growth. On an organic basis, which excludes the impact of currency
movements and acquisitions, revenues were up 33.7% during the year.
The service line performed exceptionally well despite the absence of in-person
events and a more limited number of game launches due to delays. In 2021,
Marketing also benefited from the successful integration of the acquisitions
of Maverick Media and g-Net, now the two largest studios in the service line,
and Indigo Pearl, which was completed in the second half of 2020.
During the year, we continued to add scale to our Marketing services line
through the acquisition of Waste Creative, a digital creative marketing agency
based in London. The studio expands our mobile marketing capabilities in
player acquisition and retention, community management and rapid, high quality
content creation.
The market opportunity and outlook
Having transformed the scale of our Marketing services business, it has
already become the provider of choice for games publishers and developers
looking for a partner with deep specialist expertise in the sector, a broad
range of the services that will enable the success of their games, and the
global reach to execute across different time zones and cultures.
In a highly fragmented industry, this scale and reach will provide real
competitive advantage as we bring together more of our services to meet our
client's objectives. As many of the marketing services help clients at the
very early stages of game development, when concepts are being developed and
positioned for greenlighting, our marketing colleagues also have the
opportunity to offer and cross-sell other Keywords' services, as appropriate,
at the outset for new titles.
An extensive range of marketing services are currently provided in this
fragmented market both internally and externally from key art, trailer
creation, advertising, PR, branding, campaign management, influencer marketing
and social media management through to marketing analytics and community
management. So, while 2021 represented a transformational year in building out
our Marketing services platform, there is a substantial opportunity to build
further, so we will continue to seek to grow the business through selective
acquisitions in order to enable us to provide a full suite of services at
scale and across different time zones.
We expect Marketing will continue to grow strongly in FY 2022, albeit with
growth rates moderating from the exceptionally high levels of growth seen in
2021.
Game Development (27.1% of Group revenue for the year)
Our largest service line, Game Development, provides external development
services to game developers and publishers including full game development,
co-development, porting and general software engineering consultancy.
FY 2021 performance
Game Development increased revenues by 73.6% to €138.9m (FY 2020: €80.0m).
This increase partly reflected contributions from acquisitions made in 2021,
including Heavy Iron, Tantalus, and Climax, with Wicked Witch having been
acquired at the very end of the year. Game Development remains our largest
service line with 16 studios in nine countries and over 1,500 developers.
Organic Revenue (which excludes the impact of currency movements and
acquisitions) grew by 16.0% driven by the renewed focus on content creation,
meaning strong demand for our services around the world despite the
curtailment of our usual tradeshow-centric, business development activities.
With game lifecycles now extending through downloadable content and live- ops
and the next generation of consoles now maturing following the late 2020
release, there is an ever-increasing variety of opportunities for our Game
Development studios.
While our ability to meet demand is constrained by a challenging recruitment
climate, we were able to continue to recruit skilled professionals who are
attracted to the range of high profile, exciting projects we work on for our
clients.
In FY 2021, we completed the acquisition of four high quality businesses to
grow and diversify our Game Development offering further:
· Heavy Iron - based in Los Angeles, California, the industry veteran's
team of 43 developers has provided full game development, co-development, live
operations and porting services for the video games industry since 1999.
· Tantalus - a leading and prolific developer of high quality,
multi-platform titles based in Melbourne, Australia which provides us with
access to a new talent pool and offers an excellent entry point into the
Australian market for further expansion in the Pacific region, both
organically and through acquisitions.
· Climax - one of the longest established game development businesses in
the UK, offering full game development, co-development, porting and technical
consulting services to some of the world's largest games publishers through a
team of 109 talented developers.
· Wicked Witch - our second acquisition in Melbourne, Australia, Wicked
Witch is a 73-person video game development studio which has an established
track record in video game and graphic application development on a range of
platforms including PC, mobile, PlayStation, Xbox and Switch.
The market opportunity and outlook
Game Development is our largest addressable market. The market is growing
strongly and, of all of the Group's service lines, this market has the lowest
proportion of external service provision. There is a high level of demand for
talented developers and our studios will remain focused on recruitment and
retention throughout 2022.
We remain a highly attractive prospect for game developer talent, who
recognise the opportunities that Keywords provides for a sustainable variety
of exciting work, as well as good career advancement, including the option to
work across our expanding international footprint, and to be part of a strong
culture amongst like-minded, games-passionate colleagues. Given the strong
demand for talent, we expect to see some wage inflation and we will continue
to take account of our cost structure as we agree each project with our
clients, who are only too aware of the talent challenge themselves.
Our US Game Development business, Sperasoft, is the only studio within
Keywords to operate in Russia with locations in St Petersburg, Volgograd and
Moscow. Revenues from these studios are entirely from non-Russian clients. We
continue to monitor the situation closely and in close partnership with our
clients, we have been actively looking at relocating work to other locations
across the Group, benefiting from our global footprint (including in Poland,
across Europe, and the KWS network more broadly).
Demand remains very strong and we entered 2022 with a higher than normal level
of confirmed revenue, so we expect continued growth for Game Development
during the year as we use our global platform to enable the business to
service as much of that demand as possible.
As previously communicated, Game Development remains an area of particular
focus in our M&A programme, where we continue to assess companies that
provide access to strong pools of talent to help support the fast pace of
organic growth.
Audio (12.0% of Group revenue for the year)
Our Audio service line provides multi language voice-over, original language
voice recording, music, sound design, accessibility and related services to
the video games and film and TV industries.
FY 2021 performance
Audio revenues rose by 29.9% in the period to €61.3m (FY 2020: €47.2m),
with Organic Revenue, which excludes the impact of currency movements and
acquisitions, increasing by 27.4% compared to FY 2020.
Despite the challenges presented by the global pandemic and the need for our
studios to adapt to various lockdowns and changes in local health and safety
guidelines, our Audio services business saw a strong performance in 2021. This
performance was delivered across all the studios and the business was able to
expand through the addition of new clients and the growth of all its core
services (subtitling, accessibility, dubbing, voice over, audio post and
music).
Our music management services, sound design and sound effects businesses have
continued to grow, as did our work in subtitling and dubbing of film and TV
content where we serve clients such as Netflix, as well as many of the other
key streaming providers, which have invested heavily in their original content
strategy which helped to drive higher demand for our services.
The market opportunity and outlook
Our Audio services business has started 2022 well, with high levels of demand
for our studios continuing into the first quarter. Our ability to produce
industry leading quality for our clients means Keywords remains the partner of
choice for video games clients seeking partners who can support them on all of
their audio needs. We expect the streaming platforms to continue to drive
strong demand for our Audio services line too.
Beyond the near term, we expect our Audio business to continue to be in high
demand and the market remains highly fragmented in terms of service provision,
with clients and voice actors favouring professional, high quality sound
studios for optimal voice recording. This represents an opportunity for us to
grow our market share organically, as well as make select acquisitions over
time, as we seek to expand into new geographies to meet the growing demand, as
audio content increases for both console and mobile games.
Functional Testing (18.1% of Group revenue for the year)
Functional Testing is our second largest service line and provides quality
assurance, including discovery and documentation of game defects and testing
to verify the game's compliance with hardware manufacturers' and distribution
platforms' specifications, as well as test automation tools and services,
crowd-based and focus group testing solutions.
FY 2021 performance
Functional Testing revenues increased by 18.1% to €92.7m (FY 2020: €78.5m)
and Organic Revenue, which excludes the impact of currency movements and
acquisitions, increased by 17.2%. The growth was supported by a weaker
comparative in H1 2020 which was particularly disrupted at the early stages of
the COVID-19 pandemic. Demand for our Functional Testing services improved as
we moved through the year, as this service line started to benefit more fully
from content flowing to the later stage service lines in the second half of
2021, following the industry's return to focus on new content creation in the
first half of 2021.
We have built out our Functional Testing operations over time, beyond
Montreal, to include Tokyo, New Delhi, Singapore, Katowice, Saint Jerome
(Canada), Mexico City and Seattle, giving us a well-diversified production
base, with "follow the sun" time zones and some lower cost production sites.
Our strong relationships with clients and the optimisation of capacity across
these studios enabled the Functional Testing business to meet growing demand
and it was pleasing to see volumes in studios across Poland, India and Mexico
double in 2021.
The market opportunity and outlook
As the newer generation of consoles mature, the industry's drive to create new
content for this generation is expected to increase further, something that
will continue to benefit our Functional Testing business which operates at the
later stages of the game development cycle.
In 2022, we expect our global footprint with studios in the key locations for
talent around the world will continue to appeal to our clients, as we are able
to offer flexible solutions depending on our customer needs, timelines and
budgets.
We remain a leading player in this large and growing area of the market that
is seeing an accelerating trend towards external service provision. Our scale,
flexibility, geographical spread and proven robustness, even in the most
challenging of circumstances, positions us well as games companies continue to
increase the proportion of functional testing that they work with external
providers on.
We expect to deliver continued growth into 2022 as more content flows to our
later stage service lines following the return to new content creation in 2021
and as we see more new content being launched during the year.
Localization (9.9% of Group revenue for the year)
Our Localization service line provides translation of in-game text, audio
scripts, cultural and local adaptation, accreditation, packaging and marketing
materials in over 50 languages. It includes our proprietary technologies for
content management, machine translation, crowd sourcing and workflow
management.
FY 2021 performance
Localization revenues were up 11.9% to €50.8m (FY 2020: €45.4m) and
Organic Revenue, which excludes the impact of currency movements and
acquisitions, was up by 12.2%. This reflected a higher level of demand for our
Localization services as we moved through the year, as this service line
started to benefit more fully from content flowing to the later stage service
lines in the second half of 2021, following the industry's return to focus on
new content creation in the first half of 2021.
In October, we announced that Romina Franceschina joined Keywords to lead our
Localization service line, bringing more than 20 years' experience in the
localization industry and in delivering operational excellence and
innovation, across a number of industries.
In 2021, Localization launched KantanStream, a crowd-sourced machine
translation management platform that combines artificial intelligence and our
global community of professional translators to deliver the speed and
flexibility of machine translation with the quality only native speakers can
deliver.
Localization's strong relationships with clients and exceptional output saw it
receive awards from Tencent and Yozoo for being the best audio services
provider and the business also won the Best Localization and QA Provider at
Star Awards 2021.
The market opportunity and outlook
The Localization market remains highly fragmented and characterized by most
competitors being single language providers without the scale to deliver
simultaneous multi-jurisdictional localization projects for our global video
games customer base.
Our clients are increasingly looking to Keywords for a more streamlined and
distributed production process so internal innovation to introduce workflow
efficiencies and automation will be a key area of focus for Localization.
Clients are already adopting our game asset management system, XLoc, which in
turn ensures we are ever more integrated into their workflows. Combining the
market leading expertise we have built up in localization over the past 20
years, with proprietary software tools, like XLoc, and artificial intelligence
(AI) and machine learning (ML) technology from Kantan, will enable us to
effectively manage a greater volume of content for our clients, at a greater
speed, and in more languages.
We expect to deliver continued growth into 2022 as more content flows to our
later stage service lines following the return to new content creation in
2021, alongside the underlying momentum in a video games market that is
producing an ever increasing level of content, that is localised to a greater
degree, for communities of video game players that reside in every corner of
the world.
Localization Testing (5.3% of Group revenue for the year)
Our Localization Testing service line identifies out of context translations,
truncations, overlaps, spelling, grammar, age rating issues, geopolitical and
cultural sensitivities, and console manufacturer compliance requirements in
over 30 languages using native speakers.
FY 2021 performance
Localization Testing revenue increased by 16.3% to €27.1m (FY 2020:
€23.3m). On an organic basis, which excludes the impact of currency
movements, Localization Testing was 16.7% higher compared to FY 2020.
As in the case of Functional Testing, Localisation Testing started to benefit
more fully from content flowing into our later stage services in H2 2021,
following the industry's return to focusing on new content generation in H1
2021 after the disruption to game production cycles caused by the pandemic in
2020.
Localization Testing benefitted from improvements to its global resourcing
market, an increasingly flexible team structure and a higher proportion of
work being shared across multiple studios in different geographies, which
aided capacity and enabled the service line to meet heightened demand in a
timely, flexible manner.
The market opportunity and outlook
In this service line, we continue to develop our operations in Tokyo,
Singapore, Katowice, Milan, Dublin, Montreal and Ottawa, which gives us the
scale, breadth of languages, multi-location and time zone operations, and
resourcing agility to enable it to offer a flexible, high quality and
cost-effective service which is difficult for competitors to replicate.
With our offering well established as a leading global player, we expect the
Localization Testing service line to benefit from the strong underlying
market, a continued rise in external service provision, and an increased flow
of content to our later stage services in 2022. We are already receiving ever
larger opportunities from our clients who recognise Keywords as a global
partner of choice.
Player Support (9.0% of Group revenue for the year)
Our Player Support service line provides multi-lingual, cost effective and
flexible customer care services, including managing communities of gamers
across all forms of social media, within the games themselves and on the
official game forums, ensuring our customers have a safe player environment.
FY 2021 performance
Player Support increased revenue by 9.8% to €45.9m (FY 2020: €41.8m) and
Organic Revenue, which is on a constant currency basis, by 12.7%.
Player Support brought on a significant number of new clients and continued to
strengthen its services in areas such as social media, quality control and
consulting. It has continued to grow revenues from its social media services
in particular, which have a high level of synergy with the Group's Marketing
Studios. For instance, our acquisition of Waste Creative in December 2021
provides particular opportunities for synergies with Player Support due to its
focus on player community management and retention for mobile video game
creators. Together, our services offer a compelling and highly differentiated
proposition to our clients who are ever more focused on keeping gamers happy
and engaged with their games.
Our remote working arrangements have continued to prove highly effective,
enabling us to seamlessly support clients across the world without any
disruption, and Player Support has above industry average levels of employee
retention, with the strength of its culture also borne out in a strong
employee net promoter score.
The market opportunity and outlook
Player Support growth is expected to continue in 2022, with the benefit of an
expanded client base and more diverse services.
As gaming becomes ever more social, our capacity to moderate user generated
content is becoming critical for our clients. In this context, social media is
expected to continue its progression in 2022, while adding trust & safety
services to our unique offer will address increasing demand from our clients.
Having launched consulting services in 2021, we plan to support more of our
clients with this, to help them shape how customer support can be better
integrated to their upcoming games and be supported by the most relevant tools
available.
Keywords' deep games knowledge and focus, combined with its global footprint,
means we remain the most appropriate cultural fit for our clients for these
services.
Our capacity to recruit from more countries will improve our recruitment
pipeline and enable us to help our clients scale in their desired languages,
while our machine translation engine, Kantan, provides an effective and
efficient tool to support people-driven services.
Outlook
Trading in the first quarter has started well, and we continue to see strong
demand across all of our service lines. We expect the Group's trading momentum
in the second half of 2021 to continue through 2022, with the increased flow
of content to our later stage service lines alongside further strong demand
for our earlier stage services such as Game Development, Art Creation and
Marketing.
The underlying video games market remains buoyant, with 2022 expected to be a
particularly strong year for new game launches, as developers and publishers
look to capitalise on higher player numbers and create ever more sophisticated
content to engage players in their games for longer.
While we are not immune to the inflationary pressures and competition for
talent being seen in some of our earlier stage services lines, we are well
positioned to continue to attract skilled professionals due to the unrivalled,
sustained variety of exciting work we do for our clients and the opportunities
for career advancement and working internationally we are able to offer, and
we will continue to take account of our costs as we agree projects with our
clients, who are well aware of the industry-wide talent challenge.
Our flexible hybrid working model is now well established across all of our
service lines and 70+ locations, and with the lifting of restrictions around
the world, we will see studios reopen and the previously experienced
limitations in some service lines removed. We are encouraged by the number of
Keywordians returning to studios around the world and look forward to seeing
levels increase in the months to come.
Notwithstanding the situation in Russia, given the strong underlying trading
across the Group aided, in part, by favourable currency movements, we are
confident of delivering a performance for the full year towards the top end of
current market expectations.
As we continue to build our platform, we are actively reviewing acquisitions
that would add expertise, particularly in Game Development and Marketing,
access to talent or technology, while retaining an interest in adjacent
markets such as media and entertainment, which are increasingly converging
with video game development technology and marketing strategies.
The Board is confident Keywords remains well placed to continue its rapid
growth and in its long-term success thanks to its strong position in a buoyant
video games market, its increasingly sought after 10,000-people strong
resource base, its robust business model with a diversified range of services
that are well balanced across the video games development cycle, and the
financial strength to invest in our platform and people to build further on
the Group's successful organic and acquisitive growth track record.
Bertrand Bodson
Chief Executive Officer
Financial and Operating Review
Resilient performance in a period of significant disruption
Revenue
Revenue for 2021 increased by 37.1% to €512.2m (2020: €373.5m). This
growth was supplemented by the full year impact of acquisitions in 2020 and
the acquisitions made in 2021, but offset by the impact of currency movements,
particularly the weakening of the US dollar in the second half of the year.
Organic Revenue growth (which adjusts for the impact of currency movements and
acquisitions) was up 19.0% (H1: 22.9%, H2: 15.5%, 2020: 11.7%). This was
driven by a robust performance across all service lines, against a comparative
period where, in H1 2020, certain service lines were more severely held back
at the early stages of COVID-19, particularly in our Testing and Audio
businesses. Further details of the trading performances of each of the service
lines are provided in the CEO Review.
Gross margin
Gross margin in 2021 was €200.1m (2020: €141.8m) representing an increase
of 41.1%. The gross margin improved by 1.1% pts to 39.1% (2020: 38.0%) driven
by certain cost savings as a result of working from home measures and the
revenue shortfalls in the early stages of the pandemic in the prior year,
particularly in our Testing, Audio and Localization service lines that held
back margins in 2020.
Operating costs
Adjusted operating costs increased by 33.1% to €90.0m (2020: €67.6m),
reflecting a larger Group, but reduced to 17.6% of revenue versus 18.1% in
2020. This reduction was driven by continued good cost control, together
with reductions in certain costs due to COVID-19, primarily resulting from
remote working and lower travel, business development and marketing costs.
Adjusted EBITDA
Adjusted EBITDA increased 48.4% to €110.1m compared with €74.2m for 2020.
The Adjusted EBITDA margin in 2021 reflects the improved revenue noted above
and this, combined with the benefit of ongoing reduction in certain costs due
to COVID-19, resulted in an improvement in Adjusted EBITDA margin of 1.6% pts
to 21.5% (2020: 19.9%).
Net finance costs
Net finance costs reduced by €6.2m to €2.4m (2020: €8.6m), largely
driven by a €8.1m swing in the net foreign exchange loss which is described
in more detail below. Underlying interest costs on bank debt (excluding IFRS
16 interest, deferred consideration discount unwind, bank charges and foreign
exchange) remained in line with the prior year at €1.0m (2020: €1.0m).
Alternative performance measures (APMs)
The Group reports a number of APMs to present the financial performance of the
business which are not GAAP measures as defined by IFRS. The Directors believe
these measures provide valuable additional information for the users of the
financial information to understand the underlying trading performance of the
business. In particular, adjusted profit measures are used to provide the
users of the accounts a clear understanding of the underlying profitability of
the business over time. A breakdown of the adjusting factors is provided in
the table below:
2021 2020
€m €m
Share option expense 16.4 15.4
Acquisition and integration costs 8.0 2.6
Amortisation and impairment of intangible assets 13.7 8.8
COVID-19 government subsidies claimed - (9.2)
Foreign exchange and other items - 4.9
38.1 22.5
1.58m of options were granted under the Share Option Scheme and Long-Term
Incentive Plan in 2021. This, together with grants from previous years, has
resulted in a non-cash share option expense of €16.4m in 2021 (2020:
€15.4m). The increase is largely due to an increase in the fair value charge
for the more recent grants compared to previous years reflecting the increase
in the share price.
One-off costs associated with the acquisition and integration of businesses
amounted to €8.0m (2020: €2.6m). This includes a one-off charge for fair
value movements in respect of deferred consideration of €5.6m that is
required to be taken through the profit and loss account (and therefore the
cash outlay is €2.4m). Amortisation and impairment of intangible assets
charge increased by €4.9m to €13.7m (2020: €8.8m), reflecting the recent
increased levels of acquisition activity.
Foreign exchange and other items amounted to a net charge of zero (2020:
€4.9m). This includes €1.9m for the unwinding of discount liabilities on
deferred consideration (2020: €0.1m) offset by a net foreign exchange gain
of €2.0m (2020: €6.1m loss). Keywords does not hedge foreign currency
exposures. The effect on the Group's results of movements in exchange rates
and the foreign exchange gains and losses incurred during the year mainly
relate to the effect of translating net current assets held in foreign
currencies.
A more detailed explanation of the measures used together with a
reconciliation to the corresponding GAAP measures is provided in the APMs
section at the end of the statement.
Profit before taxation
Profit before tax increased by €15.5m (+47.7% year on year) to €48.0m
(2020: €32.5m). Adjusted Profit Before Tax, which adjusts for the items
described in the APMs section above increased by €31.0m (+56.4% year on
year) to €86.0m compared with €55.0m in 2020. This represents an
improvement in Adjusted profit before tax margin of 2.1% pts to 16.8% (2020:
14.7%). This is above the Group's historical margin delivery of between 14%
and 15% and partly reflects the short-term benefit from certain costs savings
as a result of COVID-19 noted earlier that are not expected to continue.
Taxation
The tax charge increased by €2.9m to €13.9m (2020: €11.0m), largely
reflecting the increase in the profit before tax of the business. After
adjusting for the items noted in the APMs section above and the tax impact
arising on the bridging items, the Adjusted Effective Tax Rate for 2021 was
21.6% compared with the rate of 21.5% in 2020.
Earnings per share
Basic earnings per share increased by 48.9% to 45.16c (2020: 30.32c),
reflecting the increase in the statutory profit after tax of 58.9%, partially
offset by an 6.7% increase in the weighted average number of shares reflecting
the full year impact of the 10.5% equity placing in May of 2020. Fully diluted
earnings per share, reflecting the impact of unvested share options, increased
by 49.7% to 42.98c (2020: 28.71c).
Adjusted earnings per share, which adjusts for the items noted in the APMs
section and the tax impact arising on the bridging items above, was 89.24c,
representing an increase of 46.5% (2020: 60.93c).
Cash flow and net debt
Cash flow statement
2020 Change
2021 €m €m
€m
Adjusted EBITDA 110.1 74.2 35.9
MMTC and VGTR (4.5) 0.6 (5.1)
Working capital and other items 11.3 (2.2) 13.5
Capex - property, plant and equipment (PPE) (19.4) (13.9) (5.5)
Capex - intangible assets (0.3) (0.3) 0.0
Payments of principal on lease liabilities (10.0) (8.2) (1.8)
COVID-19 employment support subsidies - 9.2 (9.2)
Operating cash flows 87.2 59.4 27.8
Net Interest paid (2.7) (1.6) (1.1)
Free cash flow before tax 84.5 57.8 26.7
Tax (23.9) (4.5) (19.4)
Free cash flow 60.6 53.3 7.3
M&A - acquisition spend (63.1) (39.9) (23.2)
M&A - acquisition and integration costs (2.4) (2.3) (0.1)
Investment income - 1.4 (1.4)
Dividends paid (0.6) - (0.6)
Shares issued for cash 5.3 111.7 (106.4)
Underlying increase / (decrease) in net cash / (debt) (0.2) 124.2 (124.4)
FX and other items 2.9 (3.4) 6.3
Increase in net cash / (debt) 2.7 120.8 (118.1)
Opening net cash / (debt) 102.9 (17.9)
Closing net cash / (debt) 105.6 102.9
The Group generated Adjusted EBITDA of €110.1m in 2021, an increase of
€35.9m from €74.2m in 2020. There was a €5.1m decrease in respect of the
amounts due for Multi-Media Tax Credits (MMTC) that are earned in the year of
production and are collected a year in arrears, and Video Games Tax Relief
(VGTR). Working capital and other items resulted in an increase of €13.5m
compared to 2020 with working capital increasing by €6.7m, mainly due to
lower accrued income, while other items improved by €6.8m from phasing
differences.
Investment in property, plant and equipment amounted to €19.4m (2020:
€13.9m), reflecting a 39.60% increase and reflecting a return to more normal
levels of spending following the COVID-19 disruption in the prior period that
resulted in a reduction in both the level of equipment expenditure and
expansionary capex. Property lease payments of principal of €10.0m were
22.0% higher than the prior period (2020: €8.2m), mainly related to
acquisitions in the period.
The Group received no COVID-19 government employment retention subsidies in
2021, resulting in operating cash flows of €87.2m (2020: €59.4m), and an
increase of €27.8m on 2020.
Net interest payments were €2.7m, an increase of €1.1m on 2020 as a result
of the fees associated with the refinancing of the Revolving Credit Facility
which is discussed further below. Tax payments amounted to €23.9m (2020:
€4.5m) an increase of €19.4m on the same period when the Group benefitted
from timing differences that resulted in fewer payments in the period in
respect of the 2020 tax payable which were subsequently settled in 2021.
This resulted in Free Cash Flow of €60.6m (2020: €53.3m), an increase of
€7.3m on the prior period. Adjusted Free Cash Flow before tax, which adjusts
for capital expenditure that is supporting growth in future periods and the
COVID-19 government employment retention subsidies in the prior year, was
€92.3m in 2021, an increase of €38.9m (+72.8%) on the levels delivered in
2020. This resulted in an Adjusted Cash Conversion rate of 107.3% (2020:
97.2%). A reconciliation of Free Cash Flow to Adjusted Free Cash flow before
tax is provided in the Alternative Performance Measures (APMs) note.
Cash spent on acquisitions totalled €65.5m of which €63.1m was in respect
of the cash component of both current and prior year acquisitions and €2.4m
was in relation to acquisition and integration costs.
These items, together with foreign exchange movements of €2.9m resulted in
an increase of net cash of €2.7m in 2021 (2020: increase in net cash:
€120.8m) and a closing net cash of €105.6m (2020: net cash €102.9m).
Balance sheet and liquidity
The Group funds itself primarily through cash generation and a Revolving
Credit Facility (RCF). In December 2021, the Group entered into a new €150m
unsecured multicurrency RCF with a syndicate of four lenders, which replaces
the Company's previous €100 million secured RCF. The lender group is made up
of Citi Commercial Bank, Fifth Third Bank, National Association, HSBC
Continental Europe and ING Bank N.V., Dublin Branch. The new facility is for
an initial three-year tenor to December 2024, with an option to extend the
term by two further one-year periods at the Company's request, subject to
lender consent. The new RCF has financial covenants that are consistent with
the previous facility and has an accordion feature that allows it to be
increased by a further €50 million again subject to lender consent. The RCF
is subject to two financial covenants that are calculated in accordance with
the facility agreement:
Leverage: Maximum Total Net Borrowings to Adjusted EBITDA ratio of 3 times;
and
Interest cover: Minimum Adjusted Operating Profit to Net Finance Costs ratio
of 4 times.
The Group entered the year with a strong balance sheet, with net cash
(excluding IFRS 16 leases) of €102.9m as at 31 December 2020. Following
€65.5m of cash deployed in the period to support the Group's value accretive
M&A programme, at the end of 2021, the Group had net cash (excluding IFRS
16 leases) of €105.6m and undrawn committed facilities of €150m.
Dividend
The Board's progressive dividend policy seeks to reflect the Group's continued
growth in earnings and strong cash generation, balanced with the need to
retain the resources to fund growth opportunities, in line with our strategy.
Following the interim dividend payment of 0.70p per share in October 2021, the
Board has recommended a final dividend of 1.45p per share, which will make the
total dividend for the year ending 31 December 2021, 2.15p per share, an
increase of 10% per annum over the 2018 full year dividend (2018: 1.61p per
share). Subject to shareholder approval at the Annual General Meeting, the
final dividend will be paid on 17 June 2022 to all shareholders on the
register at 27 May 2022 and the shares will trade ex-dividend on 26 May 2022.
The cash cost of the final proposed dividend will be an estimated €1.3m,
subject to currency fluctuations.
Guidance for 2022
We have made a good start to the year with the Organic Revenue growth momentum
in the second half of 2021 flowing into 2022, and total revenue benefitting
from favourable currency movements compared to 2021.
2021 Adjusted profit before tax margins have benefitted from certain COVID-19
costs savings that are not sustainable and are hence expected to move back
towards the 14-15% historical range during 2022 and the Adjusted Effective Tax
rate is expected to be in line with the 2021 rate of ~21%.
We are anticipating capex in line with 2021 relative to revenue, reflecting
continued expansionary capex and investment in equipment to support the new
console cycle and an overall Adjusted Cash Conversion rate of ~80%,
representing a reduction on 2021 as some of the phasing benefits in 2021
unwind.
Notwithstanding the situation in Russia, given the strong underlying trading
across the Group aided, in part, by favourable currency movements, we are
confident of delivering a performance for the full year towards the top end of
current market expectations*.
Jon Hauck
Chief Financial Officer
* As at 28 March 2022, company compiled analysts' forecasts gave a consensus
for FY 2022 of €597m of revenue (range: €587-610m) and €92m of adjusted
profit before tax (range: €90-95m).
Consolidated statement of comprehensive income
Years ended 31 December
2021 2020
Note €'000 €'000
Revenue from contracts with customers 4 512,200 373,538
Cost of sales 5 (312,086) (231,766)
Gross profit 200,114 141,772
Investment income 5 - 1,437
Share-based payments expense 23 (16,394) (15,350)
Costs of acquisition and integration 5 (7,972) (2,650)
Amortisation and impairment of intangible assets 11 (13,688) (8,808)
COVID-19 government subsidies claimed - 9,231
Total of items excluded from adjusted profit measures (38,054) (17,577)
Other administration expenses (111,695) (84,513)
Administrative expenses (149,749) (102,090)
Operating profit 50,365 41,119
Financing income 6 2,045 76
Financing cost 6 (4,427) (8,701)
Profit before taxation 47,983 32,494
Taxation 7 (13,875) (11,027)
Profit after taxation 34,108 21,467
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss
Actuarial gain / (loss) on defined benefit plans 20 27 (421)
Items that may be reclassified subsequently to profit or loss
Exchange gain / (loss) in net investment in foreign operations 8,228 (4,909)
Exchange gain / (loss) on translation of foreign operations 14,581 (10,843)
Total comprehensive income / (expense) 56,944 5,294
Profit / (loss) for the period attributable to:
Owners of the parent 34,175 21,552
Non-controlling interest (67) (85)
34,108 21,467
Total comprehensive income / (expense) attributable to:
Owners of the parent 57,011 5,379
Non-controlling interest (67) (85)
56,944 5,294
Earnings per share € cent € cent
Basic earnings per ordinary share 8 45.16 30.32
Diluted earnings per ordinary share 8 42.98 28.71
The notes form an integral part of these consolidated financial statements.
On behalf of the Board
Bertrand
Bodson Jon
Hauck
Director
Director
30 March 2022
Consolidated statement of financial position
At 31 December
2021 2020
Note €'000 €'000
Non-current assets
Intangible assets 11 353,943 240,810
Right of use assets 12 35,991 27,807
Property, plant and equipment 13 36,018 26,419
Deferred tax assets 21 21,468 14,649
Investments 14 175 -
447,595 309,685
Current assets
Cash and cash equivalents 105,710 103,070
Trade receivables 15 68,067 47,832
Other receivables 16 49,110 38,665
Corporation tax recoverable 6,764 -
229,651 189,567
Current liabilities
Trade payables 11,122 8,170
Other payables 17 108,423 62,958
Loans and borrowings 18 81 73
Corporation tax liabilities 12,635 12,568
Lease liabilities 19 11,217 7,361
143,478 91,130
Net current assets / (liabilities) 86,173 98,437
Non-current liabilities
Other payables 17 18,254 1,994
Employee defined benefit plans 20 3,088 2,693
Loans and borrowings 18 48 122
Deferred tax liabilities 21 13,840 10,575
Lease liabilities 19 26,418 21,503
61,648 36,887
Net assets 472,120 371,235
Equity
Share capital 22 904 879
Share capital - to be issued 22 2,185 13,047
Share premium 22 38,549 22,951
Merger reserve 22 273,677 250,276
Foreign exchange reserve 12,821 (9,988)
Shares held in Employee Benefit Trust ("EBT") 22 (1,997) (1,997)
Share-based payment reserve 48,193 31,799
Retained earnings 97,905 64,318
472,237 371,285
Non-controlling interest (117) (50)
Total equity 472,120 371,235
The notes form an integral part of these consolidated financial statements.
The financial statements were approved and authorised for issue by the Board
on 30 March 2022.
On behalf of the Board
Bertrand
Bodson Jon
Hauck
Director
Director
30 March 2022
Consolidated statement of changes in equity
Share capital Share capital - to be issued Share premium Merger reserve Foreign exchange reserve Shares held in EBT Share-based payments reserve Retained earnings Total attributable to owners of parent Non-controlling interest Total equity
€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
At 01 January 2020 780 5,310 20,718 132,712 5,764 (1,997) 16,449 43,187 222,923 35 222,958
Profit / (loss) for the period - - - - - - - 21,552 21,552 (85) 21,467
Other comprehensive income - - - - (15,752) - - (421) (16,173) - (16,173)
Total comprehensive income for the period - - - - (15,752) - - 21,131 5,379 (85) 5,294
Contributions by and contributions to the owners:
Shares issued for cash 77 - - 109,372 - - - - 109,449 - 109,449
Share-based payments expense - - - - - - 15,350 - 15,350 - 15,350
Share options exercised 16 - 2,233 - - - - - 2,249 - 2,249
Acquisition-related issuance of shares 6 7,737 - 8,192 - - - - 15,935 - 15,935
Contributions by and contributions to the owners 99 7,737 2,233 117,564 - - 15,350 - 142,983 - 142,983
At 31 December 2020 879 13,047 22,951 250,276 (9,988) (1,997) 31,799 64,318 371,285 (50) 371,235
Profit / (loss) for the period - - - - - - - 34,175 34,175 (67) 34,108
Other comprehensive income - - - - 22,809 - - 27 22,836 - 22,836
Total comprehensive income for the period - - - - 22,809 - - 34,202 57,011 (67) 56,944
Contributions by and contributions to the owners:
Share-based payments expense - - - - - - 16,394 - 16,394 - 16,394
Share options exercised 11 - 4,929 - - - - - 4,940 - 4,940
Employee Share Purchase Plan - - 398 - - - - - 398 - 398
Dividends - - - - - - - (615) (615) - (615)
Acquisition-related issuance of shares 14 (10,862) 10,271 23,401 - - - - 22,824 - 22,824
Contributions by and contributions to the owners 25 (10,862) 15,598 23,401 - - 16,394 (615) 43,941 - 43,941
At 31 December 2021 904 2,185 38,549 273,677 12,821 (1,997) 48,193 97,905 472,237 (117) 472,120
Consolidated statement of cash flows
Years ended 31 December
2021 2020
Note €'000 €'000
Cash flows from operating activities
Profit after taxation 34,108 21,467
Income and expenses not affecting operating cash flows
Depreciation - property, plant and equipment 13 11,661 8,983
Depreciation - right of use assets 12 10,473 8,402
Amortisation and impairment of intangible assets 11 13,688 8,808
Taxation 7 13,875 11,027
Share-based payments expense 23 16,394 15,350
Fair value adjustments to contingent consideration 5 5,567 (66)
Fair value adjustments to right of use assets 12 - 434
Unwinding of discounted liabilities - deferred consideration 6 1,882 132
Unwinding of discounted liabilities - lease liabilities 6 985 843
Interest receivable 6 (62) (76)
Fair value adjustments to employee defined benefit plans 20 419 354
Interest expense 6 1,040 1,071
Unrealised foreign exchange (gain) / loss 583 1,874
76,505 57,136
Changes in operating assets and liabilities
Decrease / (increase) in trade receivables (15,117) (4,255)
Decrease / (increase) in MMTC and VGTR receivable (4,502) 555
Decrease / (increase) in other receivables 3,341 (3,902)
(Decrease) / increase in accruals, trade and other payables 20,158 9,878
3,880 2,276
Taxation paid (23,948) (4,459)
Net cash generated by / (used in) operating activities 90,545 76,420
Cash flows from investing activities
Current year acquisition of subsidiaries net of cash acquired 27 (48,697) (37,447)
Settlement of deferred liabilities on acquisitions 17 (14,393) (2,489)
Acquisition of property, plant and equipment 13 (19,360) (13,908)
Investment in intangible assets 11 (315) (259)
Other investment (175) -
Interest received 62 76
Net cash generated by / (used in) investing activities (82,878) (54,027)
Cash flows from financing activities
Repayment of loans 18 (80) (64,030)
Drawdown of loans 18 - 4,500
Payments of principal on lease liabilities (9,953) (8,170)
Interest paid on principal of lease liabilities 6 (985) (843)
Dividends paid (615) -
Shares issued for cash 22 5,338 111,698
Interest paid (1,753) (879)
Net cash generated by / (used in) financing activities (8,048) 42,276
Increase / (decrease) in cash and cash equivalents (381) 64,669
Exchange gain / (loss) on cash and cash equivalents 3,021 (3,426)
Cash and cash equivalents at beginning of the period 103,070 41,827
Cash and cash equivalents at end of the period 105,710 103,070
Notes forming part of the consolidated financial statements
1 Basis of Preparation
Keywords Studios plc (the "Company") is a company incorporated in the United
Kingdom. The consolidated financial statements include the financial
statements of the Company and its subsidiaries (the "Group") made up to 31
December 2021.
The consolidated financial statements have been prepared in accordance with
UK-adopted international accounting standards, and in conformity with the
requirements of the Companies Act 2006.
Unless otherwise stated, the financial statements have been prepared in
thousands ('000) and the financial statements are presented in euro (€)
which is the functional currency of the Group.
Going Concern Basis of Accounting
After making enquiries, the Directors consider it appropriate to continue to
adopt the going concern basis in preparing the Consolidated and Company
financial statements. In doing so, the Directors have considered the uncertain
nature of the Ukranian crisis and the COVID-19 pandemic, but have noted:
· The net cash position of the Group
· The strong cash flow performance of the Group through the year;
· The continued demand for the Group's services;
· The ability to operate most of its services in a work from home model
and to move work to other locations where studios are temporarily closed;
· The historical resilience of the broader video games industry in
times of economic downturn; and
· The ability of the Group to flex its cost base in response to a
reduction in trading activity.
The Directors have also considered the Group's strong liquidity position with
net cash of €105.6m as at 31 December 2021, and committed undrawn facilities
of €150m under the Revolving Credit Facility ("RCF").
The Directors have applied downside sensitivities to the Group's cash flow
projections to evaluate the Group's ability to withstand a further prolonged
period of studio closures as a result of the COVID-19 pandemic, leading to a
reduction in production capability and a worst case scenario where all Russian
production capacity was excluded from the projections. Under this severe case,
the Group would have sufficient liquidity and remain within its banking
covenants. The Directors have a reasonable expectation that the Company and
the Group have adequate resources to continue to operate and meet liabilities
as they fall due for the foreseeable future, a period considered to be at
least twelve months from the date of these financial statements and therefore
the going concern basis of preparation continues to be appropriate.
New Standards, Interpretations and Amendments effective 01 January 2021
A number of new amendments and interpretations to accounting standards are
effective from 01 January 2021, including:
· COVID-19-Related Rent Concessions - further amendment to IFRS 16;
· Interest Rate Benchmark Reform - further amendments to IFRS 9, IAS 39
and IFRS 7.
These amendments and interpretations have not resulted in any Group accounting
policy changes, and have not had a material effect on the Group's financial
statements.
New Standards, Interpretations and Amendments not yet effective
There are a number of standards, amendments to standards, and interpretations
which have been issued by the IASB that are effective in future accounting
periods that the Group has decided not to adopt early.
The following amendments are effective for the period beginning 01 January
2022:
· Onerous Contracts - Cost of Fulfilling a Contract - amendments to IAS
37;
· Property, Plant and Equipment: Proceeds before Intended Use -
amendments to IAS 16;
· Annual Improvements to IFRS Standards 2018-2020 - amendments to IFRS
1, IFRS 9, IFRS 16 and IAS 41; and
· References to Conceptual Framework - amendments to IFRS 3.
The Group does not expect these amendments or any other standards issued by
the IASB, but not yet effective, to have a material impact on the Group.
2 Significant Accounting Policies
Basis of Consolidation
Where the Company has control over an investee, it is classified as a
subsidiary. The Company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable returns
from the investee, and the ability of the investor to use its power to affect
those variable returns. Control is reassessed whenever facts and circumstances
indicate that there may be a change in any of these elements of control.
De-facto control exists in situations where the Company has the practical
ability to direct the relevant activities of the investee without holding the
majority of the voting rights. In determining whether de-facto control exists,
the Company considers all relevant facts and circumstances, including:
· The size of the Company's voting rights relative to both the size
and dispersion of other parties who hold voting rights;
· Substantive potential voting rights held by the Company and by
other parties;
· Other contractual arrangements; and
· Historic patterns in voting attendance.
The consolidated financial statements present the results of the Company and
its subsidiaries ("the Group") as if they formed a single entity. Intercompany
transactions and balances between Group companies are eliminated in full.
Business Combinations
The consolidated financial statements incorporate the results of business
combinations using the purchase method. The results of acquired operations are
included in the consolidated financial statements from the date on which
control is obtained. They are consolidated until the date on which control
ceases. In the Consolidated statement of financial position, the acquired
identifiable assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. If the initial
accounting for a business combination is incomplete by the end of the
reporting period in which the combination occurs, the Group reports
provisional amounts for the items for which the valuation of the fair value of
assets and liabilities acquired is still in progress. Those provisional
amounts are adjusted when additional information is obtained about facts and
circumstances which would have affected the amounts recognised as of that
date, and any adjustments to the provisional values allocated to the
consideration, identifiable assets or liabilities (and contingent liabilities,
if relevant) are made within the measurement period, a period of no more than
one year from the acquisition date.
Any contingent consideration payable is recognised at fair value at the
acquisition date and is split between current liabilities and long-term
liabilities depending on when it is due. The fair value of contingent
consideration at acquisition date is arrived at through discounting the
expected payment (based on scenario modelling) to present value. In general,
in order for contingent consideration to become payable, pre-defined profit
and / or revenue targets must be exceeded. At each balance sheet date, the
fair value of the contingent consideration is revalued, with the expected
pay-out determined separately in respect of each individual acquisition and
any change recognised in the statement of comprehensive income.
For deferred consideration which is to be provided for by the issue of a fixed
number of shares at a future defined date, where there is no obligation on
Keywords to offer a variable number of shares, the deferred consideration is
classified as an equity arrangement and the value of the shares is fixed at
the date of the acquisition. Deferred consideration may also be in the form of
cash consideration payable at a future defined date. Such consideration is
recognised at fair value at the acquisition date and is split between current
liabilities and non-current liabilities depending on when it is due.
Intangible Assets
The Group's Intangible Assets comprise Goodwill, Customer Relationships and Other Intangible Assets.
Goodwill
Goodwill represents the excess of the cost of a business combination over the
total acquisition date fair value of the identifiable assets, liabilities and
contingent liabilities acquired. The cost comprises the fair value of assets
given, liabilities assumed and equity instruments issued, plus the amount of
any non-controlling interests in the acquiree plus, if the business
combination is achieved in stages, the fair value of the existing equity
interest in the acquiree. Contingent consideration is included at fair value
on the acquisition date and, in the case of contingent consideration
classified as a financial liability, re-measured subsequently through the
profit and loss. Acquisition-related costs are recognised immediately as an
expense in the periods in which the costs are incurred and the services are
received. Goodwill is capitalised as an intangible asset with any impairment
in carrying value being charged to the consolidated statement of comprehensive
income.
Customer Relationships
Intangible assets, separately identified from goodwill acquired as part of a
business combination (mainly Customer Relationships), are initially stated at
fair value. The fair value attributed is determined by discounting the
expected future cash flows generated from the net margin of the business from
the main customers taken on at acquisition. The assets are amortised on a
straight-line basis (to administration expenses) over their useful economic
lives (typically five years is deemed appropriate, however, this is
re-examined for each acquisition).
Other Intangible Assets
Other intangible assets include Intellectual Property and Music Licences, both
acquired and internally developed. Other intangible assets are recognised as
assets where it is probable that the use of the asset will generate future
economic benefits and where the costs of the asset can be determined reliably.
Other intangible assets that are acquired by the Group are stated at cost less
accumulated amortization (see below) and impairment losses, if any. Subsequent
expenditures on capitalised intangible assets are capitalised only when they
increase the future economic benefits embodied in the specific assets to which
they relate. All other expenditure is expensed as incurred. Other intangible
assets with definite useful lives are amortised from the date they are
available for use on a straight-line basis over their useful lives, being the
estimated period over which the Group will use the assets. Residual amounts,
useful lives and the amortization methods are reviewed at the end of every
accounting period.
Development costs are capitalised as an intangible asset if all of the
following criteria are met:
· The technical feasibility of completing the intangible asset so
that it will be available for use or sale;
· The intention to complete the intangible asset and use or sell
it;
· The ability to use or sell the intangible asset;
· The asset will generate probable future economic benefits and
demonstrate the existence of a market or the usefulness of the intangible
asset if it is to be used internally;
· The availability of adequate technical, financial and other
resources to complete the development and to use or sell it; and
· The ability to measure reliably the expenditure attributable to
the intangible asset during its development.
Following initial recognition of the development expenditure as an intangible
asset, the cost model is applied requiring the intangible asset to be carried
at cost, less any accumulated amortization and accumulated impairment losses.
The intangible asset is amortised on a straight-line basis over the period of
its expected benefit, starting from the date of full commercial use of the
product. During the period of development, the asset is tested for impairment
annually. If specific events indicate that impairment of an item of intangible
asset may have taken place, the item's recoverability is assessed by comparing
its carrying amount with its recoverable amount. The recoverable amount is the
higher of the fair value net of disposal costs and the value in use.
Impairment
Impairment tests on goodwill and other intangible assets with indefinite
useful economic lives are undertaken annually at the financial year end. Other
non-financial assets are subject to impairment tests whenever events or
changes in circumstances indicate that their carrying amount may not be
recoverable. Where the carrying value of an asset exceeds its recoverable
amount (i.e. the higher of value in use and fair value less costs to sell),
the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual
asset, the impairment test is carried out on the smallest group of assets to
which it belongs for which there are separately identifiable cash flows; its
cash generating units ("CGUs"). Goodwill is allocated on initial recognition
to each of the Group's CGUs that are expected to benefit from a business
combination that gives rise to the goodwill.
The Group has one CGU. This CGU represents the lowest level at which goodwill
is monitored by the Group and the lowest level at which management captures
information for internal management reporting purposes about the benefits of
the goodwill. Impairment charges are included in profit or loss, except to the
extent they reverse gains previously recognised in other comprehensive income.
An impairment loss recognised for goodwill is not reversed.
Investments
Investments are held at cost where the Group does not have control and is not
able to exercise significant influence over the investee.
Cash and Cash Equivalents
For the purpose of presentation in the Statements of financial position and on
the Statements of cash flows, cash and cash equivalents include cash on hand
and on call deposits with financial institutions.
Foreign Currency
The consolidated financial statements are presented in euro, which is the
presentation currency of the Group and the functional currency of the Parent
Company.
Transactions entered into by Group entities in a currency other than the
currency of the primary economic environment in which they operate (their
"functional currency") are recorded at the rates ruling when the transactions
occur. Foreign currency monetary assets and liabilities are translated at the
rates ruling at the reporting date. Exchange differences arising on the
retranslation of unsettled monetary assets and liabilities are recognised
immediately in profit or loss.
On consolidation, the results of overseas operations are translated into euro
at rates approximating when the transactions took place. All assets and
liabilities of overseas operations, including goodwill arising on the
acquisition of those operations, are translated at the rate ruling at the
reporting date. Exchange differences arising on translating the opening net
assets at opening rate and the results of overseas operations at actual rate
are recognised in other comprehensive income and accumulated in the foreign
exchange reserve.
Exchange differences recognised in profit or loss in Group entities' separate
financial statements on the translation of long-term items forming part of the
Group's net investment in the overseas operation concerned are classified to
other comprehensive income and accumulated in the foreign exchange reserve on
consolidation. On disposal of a foreign operation, the cumulative exchange
differences recognised in the foreign exchange reserve relating to that
operation up to the date of disposal are transferred to the consolidated
statement of comprehensive income as part of the profit or loss on disposal.
Revenue from Contracts with Customers
Contracts are typically for services, performing agreed-upon tasks for a
customer and can be time-and-materials or milestone based. Most contracts are
short term in duration (generally less than one month); however, milestone
based contracts can be longer term and extend to several months (or in some
cases over a year). Where there are multiple performance obligations outlined
in a contract, each performance obligation is separately assessed, the
transaction price is allocated to each obligation, and related revenues are
recognised as services or assets are transferred to the customer. Performance
obligations are typically satisfied over time, as the majority of contracts
meet the criteria outlined in IFRS 15 paragraph 35 (a) and (c).
Due to the nature of the services provided and the competitive nature of the
market, contracts generally allocate specific transaction prices to separate
performance obligations. Individual services or individual milestones
generally involve extensive commercial negotiation to arrive at the specific
agreed-upon tasks, and the related pricing outlined in the contract. Such
negotiations extend further for milestone based contracts to also include the
criteria involved in the periodic and regular process of milestone acceptance
by the customer. Such criteria may involve qualitative, as well as
quantitative measures and judgements.
In measuring progress towards complete satisfaction of performance
obligations, the input method is considered to be the most appropriate method
to depict the underlying nature of the contracts with customers, the
interactive way the service is delivered and projects are managed with the
customer. For time-and-materials contracts, other than tracking and valuing
time expended, significant judgement is not normally involved. For milestone
based contracts, progress is generally measured based on the proportion of
contract costs incurred at the balance sheet date, (e.g. worked days) relative
to the total estimated costs of the contract, involving estimates of the cost
to completion etc. Added to this, significant judgement can be involved in
measuring progress towards customer acceptance of the milestone. Significant
judgement may also be involved where circumstances arise that may change the
original estimates of revenues, costs or extent of progress towards complete
satisfaction of the performance obligations. In such circumstances estimates
are revised. These revisions may result in increases or decreases in revenue
or costs and are reflected in income in the period in which the circumstances
that give rise to the revision became known. When the outcome of a contract
cannot be measured reliably, contract revenue is recognised only to the extent
that milestones have been accepted by the customer. Contract costs are
recognised as incurred. When it is probable that total contract costs will
exceed total contract revenue, the expected loss is recognised immediately.
Revenue recognised represents the consideration received or receivable, net of
sales taxes, rebates discounts and after eliminating intercompany sales.
Revenue is recognised only where it is probable that consideration will be
received. Where consideration is received and the related revenue has not been
recognised, the consideration received is recognised as a contract liability
(Deferred Revenue), until either revenue is recognised or the consideration is
refunded.
Revenue is derived from eight main service groupings:
· Art Creation - Art Creation services relate to the production of
graphical art assets for inclusion in the video game, including concept art
creation along with 2D and 3D art asset production and animation. Contracts
can be either time-and-materials based or milestone based, with performance
obligations satisfied over time. Contracts are generally short term in
duration; however, for longer contracts the input method is used to measure
progress (e.g. worked days relative to the total expected inputs).
Time-and-materials based contract revenue is recognised as the related
services are rendered. For milestone based contracts where progress can be
measured reliably towards complete satisfaction of the performance obligation,
revenue is recognised using the input method to measure progress. Where
progress cannot be measured reliably, revenue is recognised on milestone
acceptance.
· Marketing - Marketing services include game trailers, marketing
art and materials, PR and full brand campaign strategies. Contracts can be
either time-and-materials based or milestone based, with performance
obligations satisfied over time. Contracts are generally short term in
duration; however, for longer contracts the input method is used to measure
progress. Time-and-materials based contract revenue is recognised as the
related services are rendered. For milestone based contracts where progress
can be measured reliably towards complete satisfaction of the performance
obligation, revenue is recognised using the input method to measure progress.
Where progress cannot be measured reliably, revenue is recognised on milestone
acceptance.
· Game Development - Game Development relates to software
engineering services which are integrated with client processes to develop
video games. Contracts can be either time-and-materials based or milestone
based, with performance obligations satisfied over time. Contracts are
generally longer term in duration. Time-and-materials based contract revenue
is recognised as the related services are rendered. For milestone based
contracts where progress can be measured reliably towards complete
satisfaction of the performance obligation, revenue is recognised using the
input method to measure progress. Where progress cannot be measured reliably,
revenue is recognised on milestone acceptance.
· Audio - Audio services relate to the audio production process for
computer games and includes script translation, actor selection and talent
management through pre-production, audio direction, recording, and
post-production, including native language quality assurance of the
recordings. Audio contracts may also involve music licensing or selling music
soundtracks. Audio service contracts are typically milestone based, with
performance obligations satisfied over time. Audio services contracts are
generally short term in duration; however, for longer contracts where progress
towards complete satisfaction of the performance obligation can be measured
reliably, revenue is recognised using the input method to measure progress.
Where progress cannot be measured reliably, audio services revenue is
recognised on milestone acceptance. Music licensing and music soundtracks
performance obligations are assessed separately, and related revenue is
recognised on licence inception and on delivery of the soundtracks,
respectively.
· Functional Testing - Functional Testing relates to quality
assurance services provided to game producers to ensure games function as
required. Contracts are typically time-and-materials based and performance
obligations are satisfied over time. Contracts are generally short term in
duration. Revenue is recognised as the related services are rendered.
· Localization - Localization services relate to translation and
cultural adaptation of in-game text and audio scripts across multiple game
platforms and genres. Contracts are typically time-and-materials based and
performance obligations are satisfied over time. Contracts are generally short
term in duration; however, for longer contracts the input method is used to
measure progress. Localization contracts may also involve licensing
translation software as a service. Such revenue is assessed separately.
Revenue is recognised as the related services are rendered.
· Localization Testing - Localization Testing involves testing the
linguistic correctness and cultural acceptability of computer games. Contracts
are typically time-and-materials based and performance obligations are
satisfied over time. Contracts are generally short term in duration. Revenue
is recognised as the related services are rendered.
· Player Support - Player Support relates to the live operations
support services such as community management, player support and associated
services provided to producers of games to ensure that consumers have a
positive user experience. Contracts are typically time-and-materials based and
performance obligations are satisfied over time. Contracts are generally long
term in duration. Revenue is recognised as the related services are rendered.
Multimedia Tax Credits / Video Game Tax Relief
The multimedia tax credits ("MMTC") received in Canada and video games tax
relief ("VGTR") in the UK are tax credits related to staff costs. Tax credits
are recognised as income over the periods necessary to match the credit on a
systematic basis with the costs that it is intended to compensate. Thus,
credits are taken as a deduction against direct costs each period, but
typically paid in the following financial year once the claims have been
submitted and agreed. The nature of the grants is such that they are not
dependent on taxable profits, and are recognised (under IAS 20), at their fair
value when there is a reasonable assurance that the grant will be received and
all attaching conditions have been complied with.
Share-based Payments
The Company issues equity-settled share-based payments to certain employees
and Directors under a share options plan and a Long-Term Incentive Plan
("LTIP"). In 2022, a number of Executive Directors also received conditional
awards under the rules of the LTIP Plan ("Salary Shares").
The fair value determined at the grant date is expensed on a straight-line
basis over the vesting period. Other than continuous service, grants do not
have non-market-based vesting conditions. At each reporting date the Company
adjusts for unvested forfeitures and the impact is recognised in profit or
loss, with a corresponding adjustment to equity reserves. The Company has no
legal or constructive obligation to repurchase or settle the options in cash.
Additional employer costs, including social security taxes, in respect of
options and awards are expensed over the vesting period with a corresponding
liability recognised. The liability recognised depends on the number of
options that are expected to be exercised, and the liability is adjusted by
reference to the fair value of the options at the end of each reporting
period.
Where share-based payments are issued to employees of subsidiary companies,
the annual cost of the options are recharged to the subsidiary company through
an inter-company recharge.
Employee Share Purchase Plan
In 2021, the Group introduced an Employee Share Purchase Plan ("ESPP"). The
ESPP allows individual employees the possibility to save up to €500 monthly
and acquire KWS shares discounted by 10% on the market price at the date of
purchase. The plan has bi-annual purchase periods, with share-based benefits
expensed within the period.
Share Option Plan
These are measured at fair value on the grant date using a Black-Scholes
option pricing model which calculates the fair value of an option by using the
vesting period, the expected volatility of the share price, the current share
price, the exercise price and the risk-free interest rate. The fair value of
the option is amortised over the vesting period, with one-third of the options
vesting after two years, one-third after three years, and the balance vesting
after four years. The only vesting condition is continuous service. There is
no requirement to revalue the option at any subsequent date.
LTIP
The exercise of LTIP awards is subject to the Company's share price (stock
symbol: KWS) performance versus the designated Share Index in terms of
shareholder return over a three-year period. For the awards granted up to
2015, one-third of the share options vested if the Company exceeded the Total
Shareholder Returns ("TSR") of the Numis Small Cap Index (excluding Investment
Trusts) by 10%, two-thirds if the TSR exceeded the Index by 20% and full
vesting if the TSR exceeded the Index by 30%. This was amended for the 2016
and 2017 awards to 100% vesting if the shareholder return exceeds the Index by
45%, and a pro-rated return between 10% if the TSR matches the Index, to 100%
if the TSR exceeds the Index by 45%. The scheme was further amended in 2018 to
100% vesting if the TSR exceeds the Index by 20%, and a pro-rated return
between 10% and 100% if the TSR exceeds the Index by between 0% and 20%. In
2019, the benchmark Index was amended for future grants to be the FTSE Small
Cap Index, with the same performance conditions as 2018. In 2021, the
benchmark Index was amended to be the FTSE250 Index (excluding investment
trusts) and threshold vesting (25% of the award) will be earned for TSR in
line with the Index and full vesting will be earned for exceeding the Index
TSR by 20% over the performance period. A pro-rated return will be earned
between 25% and 100% if the TSR exceeds the Index by between 0% and 20%.
These are measured at fair value, taking into account market vesting
conditions but not non-market vesting conditions, at the date of grant,
measured by using the Monte Carlo binomial model.
Salary Shares
Salary shares are measured at fair value on the grant date. As the only
vesting condition is continuous service, the fair value of the shares is
amortised over the vesting period.
Dividend Distribution
Final dividends are recorded in the Group's financial statements in the period
in which they are approved by the Group's shareholders. Interim dividends are
recognised when paid.
Income Taxes and Deferred Taxation
Provision for income taxes is calculated in accordance with the tax
legislations and applicable tax rates in force at the reporting date in the
countries in which the Group companies have been incorporated.
Deferred tax assets and liabilities are recognised where the carrying amount
of an asset or liability in the consolidated statement of financial position
differs from its tax base, except for differences arising on:
· The initial recognition of an asset or liability in a transaction
which is not a business combination and at the time of the transaction affects
neither accounting or taxable profit; and
· Investments in subsidiaries and jointly controlled entities where
the Group is able to control the timing of the reversal of the difference and
it is probable that the difference will not reverse in the foreseeable future.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the reporting date and are expected
to apply when the deferred tax liabilities / (assets) are settled /
(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the
deferred tax assets and liabilities relate to taxes levied by the same tax
authority on either:
· The same taxable Group company; or
· Different Group entities which intend either to settle current
tax assets and liabilities on a net basis, or to realise the assets and settle
the liabilities simultaneously, in each future period in which significant
amounts of deferred tax assets or liabilities are expected to be settled or
recovered.
Government Subsidies
Government subsidies are recognised at their fair value when there is a
reasonable assurance that the subsidy will be received and all attaching
conditions have been complied with. Subsidies are recognised in the period the
subsidy is designated to compensate.
Property, Plant and Equipment
Property, plant and equipment comprise computers, leasehold improvements, and
office furniture and equipment, and are stated at cost less accumulated
depreciation. Carrying amounts are reviewed for impairment whenever events or
changes in circumstances indicate that their carrying amount may not be
recoverable. Where the carrying amount of an asset is greater than its
estimated recoverable amount, it is written down immediately to its
recoverable amount.
Property, plant and equipment acquired through business combinations are
valued at fair value on the date of acquisition.
Depreciation is calculated to write off the cost of fixed assets on a
straight-line basis over the expected useful lives of the assets concerned.
The principal annual rates used for this purpose are:
Computers and software 3 - 5 years
Office furniture and equipment 10 years
Leasehold improvements over the length of the lease
Gains and losses on disposals are determined by comparing proceeds with
carrying amount and are included in the Consolidated statement of
comprehensive income.
Financial Assets
The Group's most significant financial assets comprise trade and other
receivables and cash and cash equivalents in the Consolidated statement of
financial position, whereas the Company's most significant financial assets
comprise inter-group receivables.
Trade Receivables
Trade receivables, which principally represent amounts due from customers, are
recognised at amortised cost as they meet the IFRS 9 classification test of
being held to collect, and the cash flow characteristics represent solely
payments of principal and interest. The Group's impairment methodology is in
line with the requirements of IFRS 9. The simplified approach to providing for
expected credit losses has been applied to trade receivables, which requires
the use of a lifetime expected loss provision.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash in hand, deposits held on call with
banks and other short-term highly liquid investments. Where cash is on deposit
with maturity dates greater than three months, it is disclosed as short-term
investments.
Accrued Income from Contracts with Customers
Accrued income from contracts with customers, arising from Revenue from
Contracts with Customers, is recognised in accordance with our Revenue
Recognition policy, as discussed separately in this note. The Group applies
the simplified approach to assessing expected credit losses in relation to
such assets, as their maturities are less than twelve months. Based upon the
recoverability of contract assets at year end, no significant expected credit
loss provision has been applied.
Share Capital
Financial instruments issued by the Group are treated as equity only to the
extent that they do not meet the definition of a financial liability. The
Group's ordinary shares are classified as equity instruments.
Financial Liabilities
Contingent consideration is initially recognised at fair value and
subsequently re-measured through the profit and loss. Trade payables, bank
borrowings and other monetary liabilities are initially recognised at fair
value and subsequently carried at amortised cost using the effective interest
rate method.
Leased Assets
A lease is defined as 'a contract, or part of a contract, that conveys the
right to use an asset (the underlying asset) for a period of time in exchange
for consideration'.
At lease commencement date, the Group recognises a right of use asset and a
lease liability on the balance sheet. The right of use asset is measured at
cost, which is made up of the initial measurement of the lease liability, any
initial direct costs incurred by the Group, an estimate of any costs to
dismantle and remove the asset at the end of the lease, and any lease payments
made in advance of the lease commencement date (net of any incentives
received).
The Group depreciates the right of use assets on a straight-line basis from
the lease commencement date to the earlier of the end of the useful life of
the right of use asset or the end of the lease term. The Group also assesses
the right of use asset for impairment when such indicators exist. At the
commencement date, the Group measures the lease liability at the present value
of the lease payments unpaid at that date, discounted using the interest rate
implicit in the lease if that rate is readily available or at the Group's
incremental borrowing rate.
Lease payments included in the measurement of the lease liability are made up
of fixed payments (including in-substance fixed), variable payments based on
an index or rate, amounts expected to be payable under a residual value
guarantee, and payments arising from purchase and extension options reasonably
certain to be exercised.
Subsequent to initial measurement, the liability will be reduced for payments
made and increased for interest. It is remeasured to reflect any reassessment
or modification, or if there are changes to in-substance fixed payments. When
the lease liability is remeasured, the corresponding adjustment is reflected
in the right of use asset, or profit and loss if the right of use asset is
already reduced to zero.
The Group has elected to account for short-term leases and leases of low-value
assets using the practical expedients. Instead of recognising a right of use
asset and lease liability, the payments in relation to these are recognised as
an expense in profit or loss on a straight-line basis over the lease term.
The Group has applied judgement to determine the lease term for contracts in
which it is a lessee that include renewal options. The assessment of whether
the Group is reasonably certain to exercise such options impacts the lease
term, which significantly affects the lease liabilities and right of use
assets recognised.
Employee Benefit Trust
Ordinary shares purchased by the Employee Benefit Trust on behalf of the
parent company under the Terms of the Share Option Plan are deducted from
equity on the face of the Consolidated statement of financial position. No
gain or loss is recognised in relation to the purchase, sale, issue or
cancellation of the parent company's ordinary shares.
3 Critical Accounting Estimates and Judgements
The 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.
Judgements
The judgements, apart from those involving estimations, that management have
made in the process of applying the Group's accounting policies and that have
the most significant effect on the amounts recognised in the financial
statements, are outlined below.
· Group
o Functional Currency: The Directors have considered the requirements of IAS
21 in determining the currency that most faithfully represents the economic
effects of the underlying transactions, events and conditions to determine the
Group's functional currency. Detailed consideration has been given to both the
Primary and Secondary Indicators in forming this conclusion. The Primary
Indicators relate to revenues, regulation, competitive forces and costs, while
the Secondary Indicators are primarily concerned with financing the business
and the currency in which receipts from operating activities are usually
retained. With a mix of currencies dominating the indicators, there is no
clear single currency that influences the Group; however, the euro remains
marginally the most dominant when all factors are considered. Therefore, the
Directors consider the euro as the currency that most faithfully represents
the economic effects of the underlying transactions, events and conditions.
o Business Combinations (Customer relationships): When acquiring a business,
the Group is required to identify and recognise intangible assets, the
determination of which requires a significant degree of judgement.
Acquisitions may also result in intangible benefits being brought into the
Group, some of which qualify for recognition as intangible assets while other
such benefits do not meet the recognition requirements of IFRS and therefore
form part of goodwill. Customer relationships are recognised as separate
assets where revenues are recurring in nature and material revenues have been
generated with the customer for a continuous period of three years. For the
Game Development service line, the key asset acquired is typically "know-how",
an asset that is not readily measurable and thus intrinsically linked to
goodwill. Relationships are typically fixed term contract based rather than
relationship based. Therefore, neither customer contracts nor customer
relationships are typically recognised on the acquisition of a Game
Development business.
o IFRS 16 Leases: The Group has determined that the Group's incremental
borrowing rate is the appropriate rate to use to discount lease liabilities.
The Group has applied judgement to determine the lease term for contracts in
which it is a lessee that include renewal options. The assessment of whether
the Group is reasonably certain to exercise such options impacts the lease
term, which significantly affects the lease liabilities and right of use
assets recognised.
o Business Combinations (Put and call options over Non-controlling
interest): The Group acquired an 85% interest in Tantalus in March 2021, with
the sellers retaining a minority shareholding. The shareholder agreement
(signed with the purchase agreement) includes put and call options ("the
Forward") that require the sellers to sell, or require the Group to buy, the
remaining 15% shareholding in three years using a pre-determined valuation
methodology linked to post-acquisition performance. IFRS 3 does not provide
specific guidance on how such contracts should be accounted for in a business
combination. The Board determined, taking into consideration all the
contracts' terms and conditions, that the impact of the Forward put the Group
in a similar position as if the Group had acquired a 100% interest in the
subsidiary on the acquisition date, with deferred contingent consideration
payable at a future date. In doing so, the Board considered whether the risks
and rewards of ownership reside with the Non-controlling interest or had
effectively transferred to the Group, and concluded that the Non-controlling
interest arising on the acquisition had been extinguished by a combination of
the Forward and other conditions in the agreements. Therefore, the Group has
accounted for the acquisition as if a 100% interest was acquired on
acquisition, accounting for the initial investment and the Forward as a single
linked transaction in which 100% control is gained, with the Forward
recognised at fair value, as a financial liability within Deferred and
contingent consideration (note 17), and no Non-controlling interest recognised
on the acquisition. Any subsequent re-measurement required due to changes in
the fair value of the liability will be recognised in the Consolidated
statement of comprehensive income.
Estimates and Assumptions
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.
A number of areas requiring the use of estimates and critical judgements
impact the Group's earnings and financial position. These include revenue
recognition, the computation of income taxes, the value of goodwill and
intangible assets arising on acquisitions, the valuation of multimedia tax
credits / video game tax relief, leasing and the valuation of defined
retirement benefits. The Directors consider that no reasonably possible
changes to any of the assumptions used in the estimates would in the view of
the Directors give rise to significant risk of a material adjustment to the
carrying value of the associated balances in the subsequent financial year.
4 Revenue from Contracts with Customers and Segmental Analysis
Revenue from Contracts with Customers
Revenue recognised in the reporting period arises from contracts with
customers, and is predominantly recognised over time. There were no
significant amounts of revenue recognised in the reporting period that were
included in a contract liability balance at the beginning of the reporting
period, or from performance obligations satisfied in the previous reporting
period.
Revenue by line of business
2021 2020
€'000 €'000
Art Creation* 49,326 38,903
Marketing* 46,183 18,421
Game Development 138,852 80,017
Audio 61,333 47,232
Functional Testing 92,686 78,479
Localization 50,791 45,357
Localization Testing 27,091 23,323
Player Support 45,938 41,806
512,200 373,538
*The prior year comparatives have been re-classified to separately report
Marketing services, previously reported within the Art Creation service line.
For many contracts, operations are completed across multiple sites. Analysis
of revenues by geographical regions is presented by producing location, which
may not reflect the jurisdiction from which the final invoice to the client is
raised, or the region of the Group's customers, whose locations are worldwide.
Geographical analysis of revenues, by producing location *
2021 2020
€'000 €'000
Canada 97,748 88,713
United States 96,060 50,504
United Kingdom 94,426 58,645
Italy 32,448 25,210
Russia 29,424 27,987
Japan 21,898 20,944
Poland 21,397 12,121
China 20,350 18,429
India 18,640 11,369
Ireland 13,948 12,291
Philippines 13,461 12,021
Spain 10,331 7,642
France 8,436 7,771
Singapore 7,856 6,798
Australia 7,408 -
Other 18,369 13,093
512,200 373,538
*The prior year comparatives have been re-classified from billing entity
location to producing entity location to align to the current year
presentation, as the Directors consider this measure to be more meaningful.
No single customer accounted for more than 10% of the Group's revenue in
either year presented.
Revenue Expected to be Recognised
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:
Revenue expected to be recognised Total undelivered Scheduled completion within 1 year Scheduled completion Scheduled completion
1-2 years
2-5 years
€'000 €'000 €'000 €'000
At 31 December 2021 55,294 44,973 9,319 1,002
At 31 December 2020 13,538 12,991 547 -
For all service lines excluding Game Development, contracts do not extend to
more than one year, therefore information concerning unsatisfied performance
obligations are not disclosed, as allowed under the practical expedient
exemption under IFRS 15. This practical expedient is also availed of for Game
Development contracts of less than one year in duration.
Segmental Analysis
Management considers that the Group's activity as a single source supplier of
services to the gaming industry constitutes one operating and reporting
segment, as defined under IFRS 8.
Management reviews the performance of the Group by reference to Group-wide
profit measures and the revenues derived from seven main service groupings.
There is no allocation of operating expenses, profit measures, assets and
liabilities to individual product groupings. Accordingly, the disclosures
above are provided on a Group-wide basis.
Activities are reported in a manner consistent with the internal reporting
provided to the chief operating decision-maker. The chief operating
decision-maker has been identified as the executive management team made up of
the Chief Executive Officer and the Chief Financial Officer.
Geographical analysis of non-current assets from continuing businesses *
2021 2020
€'000 €'000
United States 171,126 133,026
United Kingdom 114,871 58,414
Australia 45,528 -
Canada 31,096 27,882
Italy 15,612 13,928
Switzerland 10,025 10,117
France 7,548 7,302
China 8,296 7,492
Ireland 8,422 22,860
Germany 5,336 5,391
Spain 4,988 5,502
Japan 6,955 6,359
India 4,001 2,379
Romania 2,763 -
Poland 3,275 1,839
Mexico 2,452 1,958
Other 5,301 5,236
447,595 309,685
*The prior year comparatives have been re-classified to align to the current
year presentation, as the Directors consider this measure to be more
meaningful.
5 Cost of Sales and Operating Profit
2021 2020
Cost of sales €'000 €'000
Operating expenses 320,159 238,664
Multimedia tax credits / video game tax relief (20,966) (15,593)
Other direct costs 12,893 8,695
312,086 231,766
2021 2020
Operating profit is stated after charging / (crediting): €'000 €'000
Depreciation - property, plant and equipment 11,661 8,983
Depreciation - right of use assets 10,473 8,402
Amortisation of intangible assets 13,688 8,808
Costs of acquisition and integration 7,972 2,650
Auditor's remuneration 605 553
Short-term leases 1,531 1,747
Investment income - (1,437)
2021 2020
Costs of acquisition and integration €'000 €'000
Acquisition and integrations costs re: current year acquisitions (note 27) 1,099 307
Acquisition and integrations costs re: prior acquisitions 191 743
Fair value adjustments to contingent consideration (note 17) 5,567 (66)
Deferred consideration related to continuing employment 454 649
Acquisition team and related costs 313 247
Fair value adjustments to right of use assets (note 12) - 434
Other re-organisation and restructuring costs 348 336
7,972 2,650
2021 2020
Auditor's remuneration €'000 €'000
Audit services:
Parent company and Group audit 314 290
Subsidiary companies audit 278 250
Non-audit services:
Audit-related assurance services 13 13
605 553
2021 2020
Investment income €'000 €'000
Gain on disposal of investment - (1,437)
- (1,437)
The Group acquired a minor holding in Hutch Games Limited, when Keywords
purchased Liquid Development studio in 2015. During 2020, Hutch Games was
acquired and the Group received proceeds of USD$1.7m (€1.4m) in December
2020, and will become entitled to receive further consideration of up to
USD$450K over the period 2022 through 2025, subject to earnout targets being
met.
6 Financing Income and Cost
2021 2020
€'000 €'000
Financing income
Interest received 62 76
Foreign exchange gain 1,983 -
2,045 76
Financing cost
Bank charges (520) (552)
Interest expense (1,040) (1,071)
Unwinding of discounted liabilities - lease liabilities (985) (843)
Unwinding of discounted liabilities - deferred consideration (1,882) (132)
Foreign exchange loss - (6,103)
(4,427) (8,701)
Net financing income / (cost) (2,382) (8,625)
7 Taxation
2021 2020
€'000 €'000
Current income tax
Income tax on profits of subsidiaries 17,632 13,899
Deferred tax (note 21) (3,757) (2,872)
13,875 11,027
The tax charge for the year can be reconciled to accounting profit as follows:
2021 2020
€'000 €'000
Profit before tax 47,983 32,494
Tax charge based on the Effective tax rate* 10,527 8,071
Income tax prior year (over) / under provision (261) (1,302)
Deferred tax prior year (over) / under provision and impact of change in tax 148 402
rates
Items disallowed for tax purposes 3,430 3,846
Exempt and non-taxable income (174) 258
Tax incentives (951) (892)
Current year tax losses utilised (363) (3)
Current year tax losses where deferred tax has not been provided 204 477
State and other direct taxes 658 548
Other differences - net 657 (378)
Total tax charge 13,875 11,027
*Effective tax rate - being the statutory tax rate relative to the profit 21.9% 24.8%
before tax in each jurisdiction
The Group's subsidiaries are located in different jurisdictions and are taxed
on their residual profit in those jurisdictions. The effective tax rate will
vary year on year due to the effect of changes in tax rates and changes in the
proportion of profits in each jurisdiction.
2021 2020
Tax effects relating to each component of other comprehensive income €'000 €'000
Exchange gain / (loss) in net investments foreign operations 8,228 (4,909)
Tax (expense) / benefit (1,029) 614
Net of tax amount 7,199 (4,295)
Actuarial gain / (loss) on defined benefit plans 27 (421)
Tax (expense) / benefit - -
Net of tax amount 27 (421)
Exchange gain / (loss) on translation of foreign operations 14,581 (10,843)
Tax (expense) / benefit - -
Net of tax amount 14,581 (10,843)
8 Earnings per Share
2021 2020
€ cent € cent
Basic 45.16 30.32
Diluted 42.98 28.71
Earnings €'000 €'000
Profit for the period from continuing operations 34,108 21,467
Weighted average number of equity shares Number Number
Basic (i) 75,526,296 70,800,455
Diluting impact of share options (ii) 3,826,990 3,959,878
Diluted (i) 79,353,286 74,760,333
(i) Includes (weighted average) shares to be issued:
Number Number
219,146 242,077
(ii) Contingently issuable ordinary shares have been excluded where the
conditions governing exercisability have not been satisfied:
Number Number
LTIPs 903,656 -
Share options - -
903,656 -
Details of the number of share options outstanding at the year-end are set out
in note 23.
9 Dividends
In respect of Approval date € cent per share Pence STG per share Total dividend €'000 Payment date
Dividends paid
Interim 2021 Sep-21 0.81 0.70 615 Oct-21
Dividends paid to shareholders 2021 0.81 0.70 615
In respect of Approval date Expected € cent per share Pence STG per share Expected total dividend €'000 Expected payment date
Recommended
Final 2021 Mar-22 1.72 1.45 1,299 Jul-22
At 31 December 2021, Retained earnings available for distribution (being
Retained earnings plus Share-based payments reserve) in the Company were
€47.7m (2020: €25.5m). In addition, certain amounts within Merger reserve
are considered distributable (see note 22).
In light of COVID-19, the Directors did not recommend any dividend payments
for 2020. Dividend payments were resumed in 2021, and the Directors do not
foresee any impediment in continuing to implement the dividend policy of the
Group moving forward.
The Group does not recognise deferred tax on unremitted retained earnings, as,
in general, retained earnings (as dividends) are only remitted where there are
minimal or no tax consequences.
10 Staff Costs
2021 2020
Total staff costs (including Directors) €'000 €'000
Salaries and related costs 263,036 198,064
Social welfare costs 30,455 21,623
Pension costs 6,685 5,212
Share-based payments expense 16,394 15,350
316,570 240,249
Average number of employees 2021 2020
Operations 8,821 7,768
General and administration 672 585
9,493 8,353
2021 2020
Key management compensation €'000 €'000
Salaries and related costs 1,569 1,188
Social welfare costs 201 366
Pension costs 25 45
Share-based payments expense 698 1,604
2,493 3,203
The key management compensation comprises compensation to eleven Directors of
Keywords Studios plc during the year (2020: seven).
11 Intangible Assets
Goodwill Customer relationships Intellectual property / Development costs Total*
€'000 €'000 €'000 €'000
Cost
At 01 January 2020 175,639 37,620 3,527 216,786
Recognition on acquisition of subsidiaries 47,112 17,673 - 64,785
Additions - - 259 259
Exchange rate movement (10,587) (2,870) 13 (13,444)
At 31 December 2020 212,164 52,423 3,799 268,386
Recognition on acquisition of subsidiaries 97,918 11,502 - 109,420
Additions - - 315 315
Exchange rate movement 14,955 4,400 - 19,355
At 31 December 2021 325,037 68,325 4,114 397,476
Accumulated amortisation
At 01 January 2020 - 20,018 - 20,018
Amortisation charge - 6,421 327 6,748
Impairment charge 147 - 1,913 2,060
Exchange rate movement - (1,261) 11 (1,250)
At 31 December 2020 147 25,178 2,251 27,576
Amortisation charge - 13,261 427 13,688
Exchange rate movement - 2,269 - 2,269
At 31 December 2021 147 40,708 2,678 43,533
Net book value
At 01 January 2021 212,017 27,245 1,548 240,810
At 31 December 2021 324,890 27,617 1,436 353,943
* Please note: fully depreciated Music licences have been removed from the
prior year comparatives.
Customer relationships and intellectual property / development costs are
amortised on a straight-line basis over five years. Customer relationships
amortisation commences on acquisition, whereas intellectual property /
development costs amortisation commences when the product is launched.
Impairment tests for goodwill
The Group assesses the carrying value of goodwill each year on the basis of
budget projections for the coming year extrapolated using a one to five year
growth rate and a terminal value calculated using a long-term growth rate
projection. The discount rate used of 12.5% (2020: 12.5%) is based on the
Board's assessment of the weighted average cost of capital ("WACC") of the
Group. The WACC assessment is supported by an annual independently calculated
report, using the Capital Asset Pricing Model. However, the Board has excluded
the impact of short-term market volatility on these calculations in
determining the Group WACC.
Key assumptions
Actual Sensitivity analysis
2021 2020 2021 2020 2021 2020
1 to 5 year growth rate assumption 10% 10% 15% 15% 5% 5%
Long-term growth rate assumption 2% 2% 2% 2% 2% 2%
Value in use (€m) 792 532 947 636 673 452
Carrying value - goodwill (€m) 325 212
The value in use calculations were consistently calculated year over year,
with no significant changes in the assumptions made. The result of the value
in use calculations was that no impairment is required in this period. The
Directors consider that no reasonably probable change in the assumptions would
result in an impairment.
Specific impairment reviews
In the prior year, due to the uncertainty caused by COVID-19, an impairment
charge of €2,060k was recognised, related to intangible assets in certain
early technology pre-revenue businesses, fully impairing their carrying value.
12 Right of Use Assets
The Group has entered into leases, across the business, principally relating
to property. These property leases have varying terms and renewal rights.
2021 2020
€'000 €'000
Cost
At 01 January 44,092 29,384
Additions 15,392 15,035
Recognition on acquisition of subsidiaries 1,402 2,376
Exchange rate movement 2,954 (2,703)
At 31 December 63,840 44,092
Accumulated depreciation
At 01 January 16,285 7,915
Depreciation charge 10,473 8,402
Impairment charge - 434
Exchange rate movement 1,091 (466)
At 31 December 27,849 16,285
Net book value
At 01 January 27,807 21,469
At 31 December 35,991 27,807
13 Property, Plant and Equipment
Computers and software Office furniture and equipment Leasehold improvements Total
€'000 €'000 €'000 €'000
Cost
At 01 January 2020 24,843 6,747 11,161 42,751
Exchange rate movement (2,058) (155) (1,339) (3,552)
Additions 8,338 541 5,029 13,908
Acquisitions through business combinations at fair value 523 125 197 845
Disposals (2,440) (352) (136) (2,928)
At 31 December 2020 29,206 6,906 14,912 51,024
Exchange rate movement 2,877 783 1,289 4,949
Additions 13,492 1,444 4,424 19,360
Acquisitions through business combinations at fair value 304 266 2 572
Disposals (2,830) (185) (5,699) (8,714)
At 31 December 2021 43,049 9,214 14,928 67,191
Accumulated depreciation
At 01 January 2020 14,725 2,751 3,112 20,588
Exchange rate movement (1,378) 35 (695) (2,038)
Depreciation charge 5,979 868 2,136 8,983
Disposals (2,440) (352) (136) (2,928)
At 31 December 2020 16,886 3,302 4,417 24,605
Exchange rate movement 2,342 603 676 3,621
Depreciation charge 8,170 590 2,901 11,661
Disposals (2,830) (185) (5,699) (8,714)
At 31 December 2021 24,568 4,310 2,295 31,173
Net book value
At 01 January 2021 12,320 3,604 10,495 26,419
At 31 December 2021 18,481 4,904 12,633 36,018
14 Investments
2021 2020
€'000 €'000
Investments 175 -
From time to time, the Group (via Keywords Ventures Limited) has made modest
investments in businesses developing innovative technologies and services that
will benefit its clients, while further accelerating the success of investee
companies through access to its global platform and relationships.
15 Trade Receivables
2021 2020
€'000 €'000
Trade receivables 69,835 49,814
Provision for bad debts (note 24) (1,768) (1,982)
Financial asset held at amortised cost 68,067 47,832
Trade receivables arise from revenues derived from contracts with customers.
16 Other Receivables
2021 2020
Current €'000 €'000
Accrued income from contracts with customers 9,997 9,202
Prepayments 7,114 4,608
Rent deposits and other receivables 4,203 4,816
Multimedia tax credits / video games tax relief 22,860 16,668
Tax and social security 4,936 3,371
49,110 38,665
Accrued income from contracts with customers represent mainly contract assets
in process and related items. The movement in the year comprises transfers in
and out as items are accrued and subsequently invoiced to customers, with no
significant amounts written off or impaired in the period, or no significant
amounts recognised on the acquisition of subsidiaries.
17 Other Payables
2021 2020
€'000 €'000
Current liabilities
Accrued expenses 53,526 31,086
Payroll taxes 2,666 2,563
Deferred and contingent consideration (i) 35,888 18,808
Other payables (ii) 16,343 10,501
108,423 62,958
Non-current liabilities
Deferred and contingent consideration (i) 18,254 1,994
18,254 1,994
(i) The movement in deferred and contingent
consideration during the financial year was as follows:
2021 2020
€'000 €'000
Carrying amount at the beginning of the year 20,802 6,035
Consideration settled by cash (14,393) (2,489)
Consideration settled by shares (2,838) (3,321)
Unwinding of discount (note 6) 1,882 132
Additional liabilities from current year acquisitions (note 27) 40,059 21,131
Adjustment arising from prior year business combinations 5,567 -
Fair value adjustments - (66)
Exchange rate movement 3,063 (620)
Carrying amount at the end of the year 54,142 20,802
In general, in order for contingent consideration to become payable,
pre-defined profit and / or revenue targets must be exceeded. The valuation of
contingent consideration is derived using data from sources that are not
widely available to the public and involves a degree of judgement (Level 3
input in the fair value hierarchy). A 10% increase in expected performance
would increase the carrying value of contingent consideration by €1.7m,
while a 10% reduction in expected performance would decrease the carrying
value by €6.3m. On an undiscounted basis, the Group may be liable for
deferred and contingent consideration ranging from €0.2m to a maximum of
€61.2m.
(ii) Other payables includes deferred income from
contracts with customers of €3,470k (2020: €2,967k), which mainly comprise
items invoiced prior to services being delivered. The movement in the year
comprises transfers in and out as items are deferred and subsequently
recognised as revenue.
18 Loans and Borrowings
2021 2020
Maturity analysis of Loans and borrowings €'000 €'000
Current
Expiry within 1 year - -
Non-current
Expiry between 1 and 2 years - -
Expiry over 2 years 129 195
129 195
129 195
Currency denomination
Euro - -
Canadian dollars 129 195
129 195
In December 2021 the Company put a new unsecured revolving credit facility
("RCF") in place with a syndicate of four lenders, which replaced its previous
€100m secured revolving credit facility. The new RCF is a committed facility
that allows financing of up to €150m, 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 €50m to a total of €200m, at
interest rates based on a margin over currency benchmark rates, plus a
separate margin charged for the unutilised facility. The new RCF extends to
December 2024, with an option to extend the term by two further one-year
periods.
Under the previous RCF, security was granted over the major subsidiaries of
the Group. As part of putting the new unsecured RCF in place, all security
arrangements relating to the previous revolving credit facility have now been
released.
In connection with the financial covenants of both the new and previous RCF,
the Group are required to comply with and report certain interest cover and
leverage ratios. Non-compliance with RCF terms could result in lenders
refusing to advance funds under the facility or, in the worst case, calling in
outstanding loans. Throughout the period, the Group operated well within the
applicable ratio terms of both the new and previous RCF agreements.
While technically any borrowings are repaid and re-borrowed multiple times
during the term of the RCF, so long as the Group remains compliant with the
financial covenants and certain other terms of the RCF, any debt is rolled
from one period to another, with the legal and commercial substance of a
multi-year committed facility. Hence the Group presents any RCF liabilities as
non-current.
The movements in Loans and borrowings are as follows:
Current Non-current Total
€'000 €'000 €'000
At 01 January 2020 80 59,671 59,751
Cash flows:
Drawdowns - 4,500 4,500
Repayments - (64,030) (64,030)
Non-cash flows:
Exchange rate movement (7) (19) (26)
At 31 December 2020 73 122 195
Cash flows:
Repayments - (80) (80)
Non-cash flows:
Exchange rate movement 8 6 14
At 31 December 2021 81 48 129
Following the share placing in May 2020, the balance of the previous RCF was
repaid in June 2020, with the residual balance being loans owed by Keywords
Studios QC-Interactive Inc.
Loans and borrowings (classified as financial liabilities under IFRS 9), are
held at amortised cost. Interest expenses which are calculated using the
effective interest method are disclosed in note 6.
19 Lease Liabilities
The Group has entered into leases, across the business, principally relating
to property. These property leases have varying terms and renewal rights.
Management applies judgement in determining whether it is reasonably certain
that a renewal or termination option will be exercised.
The movement in lease liabilities during the financial year was as follows:
2021 2020
€'000 €'000
Carrying amount at the beginning of the year 28,864 21,907
Recognition on acquisition of subsidiaries (note 27) 1,402 2,376
Liabilities recognised on new leases in the period 15,392 15,035
Unwinding of discounted liabilities - lease liabilities 985 843
Payment of principal and interest on lease liabilities (10,938) (9,013)
Exchange rate movement 1,930 (2,284)
Carrying amount at the end of the year 37,635 28,864
The value of leases not yet commenced to which the lessee is committed, which
are not included in lease liabilities at 31 December 2021, was €nil (2020:
€10.3m).
2021 2021 2021 2020 2020 2020
Maturity analysis of lease liabilities €'000 €'000 €'000 €'000 €'000 €'000
Lease payments Finance charges Lease liabilities Lease payments Finance charges Lease liabilities
Current
Not later than one year 12,059 842 11,217 8,291 930 7,361
Non-current
Later than one year and not later than five years 21,299 1,488 19,811 18,715 1,013 17,702
Later than five years 7,000 393 6,607 5,307 1,506 3,801
28,299 1,881 26,418 24,022 2,519 21,503
At 31 December 40,358 2,723 37,635 32,313 3,449 28,864
The Group has elected not to recognise a lease liability for short-term leases
(leases with an expected term of twelve months or less) or for leases of
low-value assets. Payments made under such leases are expensed on a
straight-line basis. The expenses in the period relating to payments not
included in the measurement of the lease liability were as follows:
2021 2020
Lease payments not recognised as a liability €'000 €'000
Short-term leases 1,531 1,747
Leases of low value assets - -
1,531 1,747
The future minimum lease payments related to these leases
Not later than one year 516 991
Later than one year and not later than five years - -
Later than five years - -
516 991
The effect of variable lease payments and re-instatement costs on future cash
outflows arising from leases is not material for the Group.
20 Employee Defined Benefit Plans
In line with statutory requirements in France, Italy and India, we are
required to maintain employee defined benefit termination payment schemes.
In France, employees are entitled to a lump-sum on retirement or early
termination, based on salary and length of service ("Indemnité de Fin de
Carrière" or "IFC"), entitling the Group's French employees to benefits of up
to two months' salary per year of service.
In Italy, on leaving employment, each employee is entitled to 1/13.5 of their
final salary for each year of service ("Trattamento di Fine Rapporto"
or "TFR").
In India, in compliance with statutory requirements, employees with over five
years' service are entitled to a termination benefit of 15/26 of monthly
salary for each year of service ("Gratuity" benefits).
The Group commissions an actuarial valuation of the related liabilities in
each jurisdiction annually.
The liabilities at year end are recorded as long term. The actuarial gain or
loss is recorded separately within Other comprehensive income. The movements
through the year are as follows:
2021 2020
€'000 €'000
Opening liabilities at 01 January 2,693 2,049
Service cost 419 354
Interest cost 33 30
Benefits paid (141) (110)
Actuarial (gain) / loss (27) 421
Exchange rate movement 111 (51)
Closing liabilities at 31 December 3,088 2,693
The Directors have considered the key specific risk factors which the Group
faces due to the employee defined benefit plans which are in place. Having
fully considered all specific elements of these plans, the Directors believe
that the key issues faced are as follows:
· The plan is currently 100% unfunded, there are no specific assets
to meet the future liabilities as they fall due; as such, there will be a cash
flow impact as the liabilities must be met with current working capital as
they fall due.
The Group has taken no specific actions to mitigate these factors as due to
the long-term nature of the plans it is expected that there will be no sudden
financial impact on the Group's results caused by any of these factors. A
maturity profile of the obligation is not presented as the liability is not
significant in the context of the Group, and due to the age profile of
employees a significant outlay is not anticipated for the foreseeable future.
In 2022, the Group expects the costs of the employee defined benefit plan to
be in line with current year levels, as staff levels are not anticipated to
change significantly in the period.
The actuarial valuation is based on the Projected Unit Credit Method, in line
with IAS 19.
2021 2020
Cost for year €'000 €'000
Service cost 419 354
Interest cost 33 30
Actuarial (gain) / loss (27) 421
425 805
2021 2020
Actuarial (gain) / loss €'000 €'000
Change due to experience 41 98
Change due to demographical assumptions (9) (93)
Change due to financial assumptions (59) 416
(27) 421
Assumptions Underlying the Actuarial Valuations and Sensitivities of the
Assumptions
For the actuarial valuations, the following demographic and economic and financial assumptions were applied:
· Mortality probabilities were derived from the population
demographics, as recorded by the government statistics offices in each
jurisdiction.
· Disability, retirement age and other relevant demographic
assumptions were taken from relevant life assurance statistics.
· Certain inputs were estimated by management, including:
o Employee attrition rates, estimated based on company experience in each
jurisdiction.
o In Italy, TFR rules allow for early drawdown of benefits in certain
circumstances. Such advances were estimated on the basis of company
experience.
Economic and financial assumptions 2021 2020
Staff salary increase rate 4.07% 3.63%
Inflation rate 3.04% 2.93%
Discount rate 1.67% 1.23%
Key statistics 2021 2020
Staff (number) 874 782
Average age (years) 31 31
Average service (years) 4 4
2021 2020
Interest rate sensitivities €'000 €'000
(0.25)% 3,176 2,842
0.25% 2,880 2,568
2021 2020
Mortality rate sensitivities €'000 €'000
(0.025)% 3,018 2,696
0.025% 3,015 2,693
2021 2020
Staff turnover rate sensitivities €'000 €'000
(0.50)% 3,049 2,726
0.50% 2,985 2,664
2021 2020
Staff salary increase rate sensitivities €'000 €'000
(0.50)% 2,976 2,703
0.50% 3,072 2,745
21 Deferred Tax
Details of the deferred tax assets and liabilities, and amounts recognised in
the Consolidated statement of comprehensive income are as follows:
2021 2021 2021 2021
€'000 €'000 €'000 €'000
Assets Liabilities Net (Credited) / charged to income statement
Defined benefit termination payments 328 - 328 (259)
Available losses 1,817 - 1,817 (660)
Rent-free period provisions 222 - 222 (147)
Fixed asset tax base versus accounting book value 1,818 1,702 116 (217)
Deferred tax related to tax credits - 3,570 (3,570) 1,464
Deferred tax arising on items deductible on a paid basis 5,557 1,761 3,796 (1,857)
Recognition on acquisition of subsidiaries 2,539 3,006 (467) -
Deferred tax arising on intangibles 9,187 3,801 5,386 (2,345)
Net tax assets / liabilities 21,468 13,840 7,628 (4,021)
Impact of change in tax rates 189
Prior year (over) / under provision 75
Total (credited) / charged to income statement (3,757)
2020 2020 2020 2020
€'000 €'000 €'000 €'000
Assets Liabilities Net (Credited) / charged to income statement
Defined benefit termination payments 69 - 69 (19)
Available losses 1,157 - 1,157 293
Rent-free period provisions 75 - 75 (64)
Fixed asset tax base versus accounting book value 603 704 (101) 104
Deferred tax related to tax credits 38 2,144 (2,106) (1,057)
Deferred tax arising on items deductible on a paid basis 3,344 1,405 1,939 (949)
Recognition on acquisition of subsidiaries 9,363 3,970 5,393 -
Deferred tax arising on intangibles - 2,352 (2,352) (1,451)
Net tax assets / liabilities 14,649 10,575 4,074 (3,143)
Impact of change in tax rates 289
Prior year (over) / under provision (18)
Total (credited) / charged to income statement (2,872)
The deferred tax asset not recognised on available losses at the period end is €3.2m (2020: €3.2m).
22 Shareholders' Equity
Share Capital
Issue date Per share € Number of ordinary Number of ordinary Share capital Share capital - to be issued Share premium Merger reserve
£0.01 shares
£0.01 shares - to be issued
€'000
€'000
€'000
€'000
At 01 January 2020 65,212,515 349,721 780 5,310 20,718 132,712
Acquisition-related issuance of shares:
Sunny Side Up 06-Jan-20 12.46 60,179 (60,179) 1 (750) - 749
Laced 14-Apr-20 17.48 8,194 (8,194) - (143) - 143
Cord Worldwide 14-Apr-20 17.48 65,550 (65,550) 1 (1,145) - 1,145
Descriptive Video Works 12-Jun-20 17.93 35,560 (35,560) - (638) - 637
Coconut Lizard 25-Jun-20 20.23 - 19,739 - 399 - -
Studio Gobo and Electric Square 19-Aug-20 16.72 198,576 - 2 - - 3,319
Maverick Media 26-Aug-20 24.63 - 13,579 - 334 - -
TV+SYNCHRON 05-Oct-20 13.12 68,608 (68,608) 1 (900) - 899
G-Net Media 24-Nov-20 23.26 - 130,448 - 3,034 - -
Ichi 02-Dec-20 15.95 55,612 (55,612) 1 (886) - 886
Jinglebell 10-Dec-20 25.94 - 11,564 - 300 - -
High Voltage Software 14-Dec-20 26.06 - 307,597 - 8,017 - -
Indigo Pearl 15-Dec-20 26.27 - 20,125 - 529 - -
Kantan 22-Dec-20 15.86 26,085 (26,085) - (414) - 414
Acquisition-related issuance of shares 518,364 183,264 6 7,737 - 8,192
Share placing 20-May-20 16.23 6,900,000 - 77 - - 109,372
Exercise of share options 0.96 1,448,364 - 16 - 2,233 -
At 31 December 2020 74,079,243 532,985 879 13,047 22,951 250,276
Acquisition-related issuance of shares:
High Voltage Software 12-Jan-21 26.06 307,597 (307,597) 4 (8,017) - 8,013
Heavy Iron 12-Jan-21 31.84 - 12,914 - 411 - -
Tantalus 18-Mar-21 27.87 - 368,750 - 10,275 - -
Tantalus 15-Apr-21 27.87 368,750 (368,750) 4 (10,275) 10,271 -
Climax Studios 21-Apr-21 33.53 - 232,517 - 7,797 - -
Climax Studios 17-May-21 33.53 232,517 (232,517) 3 (7,797) - 7,794
Ichi 28-May-21 15.94 14,635 (14,635) - (233) - 233
Coconut Lizard 25-Jun-21 18.24 19,739 (19,739) - (399) - 399
Kantan 02-Jul-21 15.86 12,614 (12,614) - (200) - 200
Kantan related adjustment 02-Jul-21 15.86 - (2,683) - - - -
AMC 11-Aug-21 33.49 - 25,080 - 840 - -
Maverick Media 27-Aug-21 25.35 36,211 (13,579) - (334) - 918
Coconut Lizard 07-Sep-21 28.44 7,962 - - - - 227
G-Net Media 06-Dec-21 23.26 130,410 (130,410) 2 (3,034) - 3,032
G-Net Media related adjustment 06-Dec-21 23.26 - (38) - (1) - -
Waste 16-Dec-21 30.78 - 20,585 - 634 - -
Indigo Pearl 22-Dec-21 26.27 20,125 (20,125) - (529) - 528
High Voltage Software 24-Dec-21 29.77 69,130 - 1 - - 2,057
Acquisition-related issuance of shares 1,219,690 (462,841) 14 (10,862) 10,271 23,401
Employee Share Purchase Plan 13,982 - - - 398 -
Exercise of share options 962,860 - 11 - 4,929 -
At 31 December 2021 76,275,775 70,144 904 2,185 38,549 273,677
Subject to applicable law, the Company's articles of association and any
relevant authority of the Company passed by the shareholders in general
meeting, there is no limit to the number of shares which the Company can
issue, nor are there are any restrictions on dividends or distributions on
such shares. In the context of the Company's general meeting authorities, at
the Company's AGM on 26 May 2021 its shareholders gave the Directors the
authority to allot the following number of shares (or grant rights to
subscribe for, or convert any security into, shares) in the capital of the
Company:
a) Up to 3,723,243 shares in respect of the Company's Long Term
Incentive Plan and Share Option Plan (5% of the Company's issued share capital
as at 8 April 2021); and
b) Otherwise, up to 24,796,802 shares (33.3% of the Company's issued
share capital as at 8 April 2021).
This authority is considered prudent as it gives the Company flexibility to
take advantage of possible opportunities which may arise from time to time.
The authority granted at the 2021 AGM will expire on the earlier of (i)
fifteen months after 26 May 2021; and (ii) the conclusion of the 2022 AGM.
Shares to be issued are valued at the share price at the date of acquisition,
and are recorded in accordance with IAS 32.16.
Shares held in the Employee Benefit Trust ("EBT")
2021 2020
Shares €'000 Shares €'000
Ordinary shares held in the EBT 335,425 1,997 335,425 1,997
Reserves
The following describes the nature and purpose of each reserve within owners'
equity:
Reserve Description and purpose
Retained earnings Cumulative net gains and losses recognised in the Consolidated Statement of
Comprehensive Income.
Foreign exchange reserve Gains or losses arising on retranslation of the net assets of the overseas
operations into euro.
Share premium The share premium account is the amount received for shares issued in excess
of their nominal value, net of share issuance costs.
Share-based payments reserve The Share-based payments reserve is the credit arising on share-based payment
charges in relation to the Company's share and share option schemes.
Shares to be issued For deferred consideration which is to be provided for by the issue of a fixed
number of shares at a future defined date, where there is no obligation on
Keywords to offer a variable number of shares, the deferred consideration is
classified as an Equity Arrangement and the value of the shares is fixed at
the date of the acquisition.
Merger reserve The merger reserve was initially created following the Group reconstruction,
when Keywords Studios plc acquired the Keywords International Limited group of
companies.
When the Group uses Keywords Studios plc shares as consideration for the
acquisition of an entity and has secured at least a 90% equity holding in the
acquisition, the value of the shares in excess of the nominal value (net of
share issuance costs) is also recorded within this reserve, in line with S612
of the Companies Act 2006.
Within Merger reserve are balances related to the share premium on the share
placements in 2015 and 2020, of €14.4m and €109.5m respectively, both
completed via a cash box structure, with the Company acquiring the net
proceeds via a share for share exchange. In both cases, the share premium on
the issuance of new shares was credited to Merger reserve (in accordance with
S610 of the Companies Act 2006). At the time of the placements, the proceeds
were not allocated to a specific acquisition or specific purpose, and thus,
amounts totalling €123.9m included in the Merger reserve are considered
distributable.
23 Share Incentive Schemes
In July 2013, at the time of the IPO, a Share Option Scheme and a Long-Term
Incentive Plan ("LTIP") was put in place, while in 2021, the Group introduced
an Employee Share Purchase Plan. The charge in relation to these arrangements
is as follows:
2021 2020
€'000 €'000
Share option scheme expense 3,446 2,576
LTIP option expense 12,904 12,774
Employee Share Purchase Plan 44 -
Share-based payments expense 16,394 15,350
Of the total Share-based payments expense, €698k relates to Directors of the
Company (2020: €1,007k).
Share Option Scheme
Share options are granted to Executive Directors and to permanent employees.
The exercise price of the granted options is equal to the market price of the
shares at the time of the award of the options. The Company has no legal or
constructive obligation to repurchase or settle the options in cash.
Movements in the number of share options outstanding and their related
weighted average exercise prices are as follows:
2021 2020
Average exercise price in £ per share Number of options Average exercise price in £ per share Number of options
Outstanding at the beginning of the period 12.66 2,345,238 9.97 2,148,102
Granted 25.48 616,000 15.93 822,000
Lapsed 18.96 (163,791) 15.64 (179,151)
Exercised 11.46 (373,879) 4.55 (445,713)
Outstanding at the end of the period 15.68 2,423,568 12.66 2,345,238
Exercisable at the end of the period 6.74 668,734 4.39 638,238
Weighted average share price at date of exercise 27.42 17.91
Summary by year
Year of Option 2015 2016 2017 2018 2019 2020 2021 Total
Exercise price £1.58 £2.54 £7.76 £17.10 £15.88 £15.93 £25.48
Outstanding at the beginning of the period 458,613 34,296 127,034 374,982 588,000 762,313 - 2,345,238
Granted - - - - - - 616,000 616,000
Lapsed - - (500) (11,000) (37,000) (64,291) (51,000) (163,791)
Exercised (73,318) (13,719) (69,534) (119,058) (98,250) - - (373,879)
Outstanding at the end of the period 385,295 20,577 57,000 244,924 452,750 698,022 565,000 2,423,568
Exercisable at 31 December 2021 385,295 20,577 57,000 111,590 93,750 522 - 668,734
Exercisable 2022 - - - 133,334 179,500 232,500 - 545,334
Exercisable 2023 - - - - 179,500 232,500 188,333 600,333
Exercisable 2024 - - - - - 232,500 188,333 420,833
Exercisable 2025 - - - - - - 188,334 188,334
The inputs into the Black-Scholes model, used to value the options are as
follows:
Year of Option 2015 2016 2017 2018 2019 2020 2021 Weighted average
Weighted average share price (£) £1.64 £2.54 £7.75 £17.22 £16.09 £16.00 £26.42
Weighted average exercise price (£) £1.58 £2.54 £7.76 £17.10 £15.88 £15.93 £25.48
Fair value at measurement date (€) €0.56 €0.40 €1.13 €3.79 €5.72 €6.06 €9.32
Average expected life 4 Years 4 Years 4 Years 4 Years 4 Years 4 Years 4 Years
Expected volatility 28.03% 27.17% 24.79% 35.87% 45.23% 50.15% 47.70%
Risk-free rates 0.90% 0.58% 0.16% 0.89% 0.81% 0.07% 0.15%
Average expected dividend yield 0.75% 0.55% 0.21% 0.10% 0.10% 0.10% 0.10%
Weighted average remaining life of options in months - - - 5 17 29 41 22
Expected volatility was determined by reference to KWS volatility. The
expected life used in the model has been adjusted based on management's best
estimate, for the effects of non-transferability, exercise restrictions and
behavioural considerations.
Long-term Incentive Plan Scheme
LTIP share awards are subject to KWS performance versus the designated share
index over a three-year period.
Movements in the number of share options outstanding and their related
weighted average exercise prices are as follows:
2021 2020
Average exercise price in £ per share Number of options Average exercise price in £ per share Number of options
Outstanding at the beginning of the period 0.01 3,692,817 0.01 3,445,868
Granted 0.01 932,656 0.01 1,428,000
Lapsed 0.01 (312,006) 0.01 (178,400)
Exercised 0.01 (608,569) 0.01 (1,002,651)
Outstanding at the end of the period 0.01 3,704,898 0.01 3,692,817
Exercisable at the end of the period 0.01 559,506 0.01 373,648
Weighted average share price at date of exercise 27.62 17.34
Summary by year
Year of Option 2015 2016 2017 2018 2019 2020 2021 Total
Exercise price £0.01 £0.01 £0.01 £0.01 £0.01 £0.01 £0.01
Outstanding at the beginning of the period 47,358 132,293 196,030 799,000 1,133,936 1,384,200 - 3,692,817
Granted - - - - - - 932,656 932,656
Lapsed - - - (6,606) (115,400) (161,000) (29,000) (312,006)
Exercised (8,358) (46,405) (90,994) (462,812) - - - (608,569)
Outstanding at the end of the period 39,000 85,888 105,036 329,582 1,018,536 1,223,200 903,656 3,704,898
Exercisable at 31 December 2021 39,000 85,888 105,036 329,582 - - - 559,506
Exercisable 2022 - - - - 1,018,536 - - 1,018,536
Exercisable 2023 - - - - - 1,223,200 - 1,223,200
Exercisable 2024 - - - - - - 903,656 903,656
The inputs into the Monte Carlo binomial model, used to value the options, are
as follows:
Year of Option 2015 2016 2017 2018 2019 2020 2021 Weighted average
Weighted average share price (£) £1.60 £2.56 £7.75 £17.24 £16.05 £16.00 £26.42
Weighted average exercise price (£) £0.01 £0.01 £0.01 £0.01 £0.01 £0.01 £0.01
Fair value at measurement date (€) €1.38 €1.74 €4.96 €11.83 €13.98 €13.28 €16.73
Average expected life 3 Years 3 Years 3 Years 3 Years 3 Years 3 Years 3 Years
Expected volatility 28.21% 27.11% 24.79% 35.87% 45.26% 50.15% 47.70%
Risk-free rates 0.88% 0.54% 0.16% 0.89% 0.81% 0.07% 0.13%
Weighted average remaining life of options in months - - - - 5 17 29 14
Expected volatility was determined by reference to KWS share price volatility.
The expected life used in the model has been adjusted based on management's
best estimate, for the effects of non-transferability, exercise restrictions
and behavioural considerations. As any dividends earned are to be re-invested
into the business, the impact of dividends has been ignored in the calculation
of the LTIP share option charge.
LTIP's vest on the third anniversary of the grant, if the market performance
criteria are met. LTIPs must be exercised before the seventh anniversary of
the grant.
Salary Shares
In 2021, a total of 26,738 Salary Shares were granted to a number of Executive
Directors under the LTIP plan, with 2,462 shares vesting two years after the
grant date, and 24,276 shares vesting three years after the grant date. The
average fair value of the shares at the grant date was €32.08.
24 Financial Instruments and Risk Management
Interest Rate Risk
Interest rate risk is the risk that the value of financial instruments will
fluctuate due to changes in market interest rates. The Group's income and
operating cash flows are substantially independent of changes in market
interest rates. The management monitors interest rate fluctuations on a
continuous basis and acts accordingly.
Where the Group has a significant amount of surplus cash, it invests in higher
earning interest deposit accounts. Due to interest rate conditions, the
interest rates for short-term deposits are at similar levels to those achieved
for longer terms.
The effect of a strengthening or a weakening of 1% in interest rates charged
during the reporting period on the interest expense would have resulted in the
following pre-tax profit / (loss) impact for the year:
1% 1% 1% 1%
Strengthening Weakening Strengthening Weakening
2021 2021 2020 2020
€'000 €'000 €'000 €'000
Interest expense - - (290) 257
Credit Risk
The Group's main financial assets are cash and cash equivalents, as well as
trade and other receivables which represent the Group's maximum exposure to
credit risk in connection with its financial assets.
Credit risk arises when a failure by counterparties to discharge their
obligations could reduce the amount of future cash inflows from financial
assets on hand at the reporting date. Credit risk arising in the context of
the Group's operations is not significant with the total bad debt provision at
the balance sheet date amounting to 2.5% of net trade receivables (2020: 4%).
Customer credit risk is managed at appropriate Group locations according to
established policies, procedures and controls. Customer credit quality is
assessed and credit limits are established where appropriate. Outstanding
customer balances are regularly monitored and a review for indicators of
impairment (evidence of financial difficulty of the customer, payment default,
breach of contract, etc.) is carried out at each reporting date. Significant
balances are reviewed individually while smaller balances are grouped and
assessed collectively. Receivables balances are unsecured and
non-interest-bearing. The trade receivables balances disclosed comprise a
large number of customers spread across the Group's activities and geographies
with balances classified as "Not past due" representing 77.5% of the total
trade receivables balance at the balance sheet date (2020: 79%). Trade and
other receivables are carried on the Consolidated statement of financial
position net of bad debt provisions.
The ageing of trade receivables can be analysed as follows:
Total Not past due 1-2 months past due More than 2 months past due
€'000 €'000 €'000 €'000
At 31 December 2021 68,067 52,753 14,192 1,122
At 31 December 2020 47,832 37,936 7,678 2,218
A provision for doubtful debtors is included within trade receivables and can
be reconciled as follows:
2021 2020
€'000 €'000
Provision at the beginning of the year 1,982 1,283
Impairment of financial assets (trade receivables) charged to administration 821 1,293
expenses
Foreign exchange movement in the year 63 (284)
Utilised (1,098) (310)
Provision at the end of the year 1,768 1,982
Trade receivables loss allowance is estimated using a practical expedient to
arrive at lifetime expected credit losses. Overdue receivables are evaluated
to calculate an expected credit loss using a historical credit loss experience
of 1.0% (2020: 0.5%). Taking into account internal and external information,
the historical credit loss experience may be adjusted where it is determined
that there has been a significant increase in credit risk. Where a receivable
is credit impaired, the impairment is recognised immediately, and impaired
balances are removed from the expected credit loss calculation.
Total Not past due 1-2 months past due More than 2 months past due
€'000 €'000 €'000 €'000
Trade receivables gross 69,835 53,286 14,502 2,047
Credit impaired (1,070) - (165) (905)
Expected credit losses (698) (533) (145) (20)
At 31 December 2021 68,067 52,753 14,192 1,122
Total Not past due 1-2 months past due More than 2 months past due
€'000 €'000 €'000 €'000
Trade receivables gross 49,814 38,150 7,887 3,777
Credit impaired (1,733) (23) (170) (1,540)
Expected credit losses (249) (191) (39) (19)
At 31 December 2020 47,832 37,936 7,678 2,218
There were no related party receivables at the end of either period presented.
Currency Risk
Currency risk is the risk that the value of financial instruments will
fluctuate due to changes in foreign exchange rates. The foreign exchange risk
arises for the Group where assets and liabilities arise in a currency other
than the functional currency of the entity.
The Group's policy, where possible, is for Group entities to manage foreign
exchange risk at a local level by matching the currency in which revenue is
generated with the expenses incurred and by settling liabilities denominated
in their functional currency with cash generated from their own operations in
that currency. Where Group entities have liabilities denominated in a currency
other than their functional currency (and have insufficient reserves of that
currency to settle them), cash already denominated in that currency will,
where possible, be transferred from elsewhere within the Group.
The Group is predominantly exposed to currency risk on the balances held
within working capital across the Group and the exposure is concentrated in
the movement of the US dollar, sterling and Canadian dollar against the euro.
The effect of a strengthening or weakening of 10% in those currencies against
the euro at the reporting date on the working capital balances would, all
other variables held constant, have resulted in the following pre-tax profit /
(loss) impact for the year:
2021 2021 2020 2020
€'000 €'000 €'000 €'000
10% 10% 10% 10%
Strengthening
Weakening
Strengthening
Weakening
US dollar to euro 5,545 (4,536) 4,712 (3,855)
Sterling to euro (1,333) 1,091 835 (683)
Canadian dollar to euro 169 (138) 594 (486)
Total Financial Assets and Liabilities
The carrying amount of the financial assets and liabilities shown in the
Consolidated and Company Statements of financial position are stated at
amortised costs, with the exception of contingent consideration held at fair
value.
Liquidity Risk
Liquidity risk arises from the Group's management of working capital and the
financial charges on its debt instruments.
The Group's policy is to ensure that it will have sufficient cash to allow it
to meet its liabilities when they become due. The Directors consider liquidity
risk is mitigated by the strong working capital position, with €229.7m of
current assets, including cash of €105.7m available to settle liabilities as
they fall due.
The following are the contractual maturities (representing undiscounted
contractual cash flows) of the Group's financial liabilities:
Carrying value Contractual cash flows
Total Total Within 1 year 1-2 years 2-5 years Over 5 years
At 31 December 2021 €'000 €'000 €'000 €'000 €'000 €'000
Trade payables 11,122 11,122 11,122 - - -
Deferred and contingent consideration (i) 54,142 61,223 37,953 14,008 9,262 -
Other payables 72,535 72,535 72,535 - - -
Loans and borrowings 129 129 81 48 - -
Loan interest - 6 4 2 - -
Lease liabilities 37,635 40,358 12,059 8,257 13,042 7,000
Total 175,563 185,373 133,754 22,315 22,304 7,000
Carrying value Contractual cash flows
Total Total Within 1 year 1-2 years 2-5 years Over 5 years
At 31 December 2020 €'000 €'000 €'000 €'000 €'000 €'000
Trade payables 8,170 8,170 8,170 - - -
Deferred and contingent consideration (i) 20,802 26,442 20,699 5,743 - -
Other payables 44,150 44,150 44,150 - - -
Loans and borrowings 195 195 73 122 - -
Loan interest 10 10 5 5 - -
Lease liabilities 28,864 32,313 8,291 7,153 11,562 5,307
Total 102,191 111,280 81,388 13,023 11,562 5,307
(i) Deferred and contingent consideration at 31 December 2021 has arisen on
business combinations, and is based on contracted amounts to be paid in the
future to sellers under share purchase agreements. In general, in order for
contingent consideration to become payable, pre-defined profit and / or
revenue targets must be exceeded. On an undiscounted basis, the Group may be
liable for deferred and contingent consideration up to a maximum of €61.2m.
25 Capital Management
2021 2020
Group €'000 €'000
Loans and borrowings (note 18) 129 195
Less: cash and cash equivalents (105,710) (103,070)
Net debt / (net cash) position (105,581) (102,875)
Total equity 472,120 371,235
Net debt / (net cash) to capital ratio (22.4)% (27.7)%
The Group manages capital by monitoring debt to capital and net debt ratios.
This debt to capital ratio is calculated as net debt to total equity. Net debt
is calculated as loans and borrowings (as shown in the Consolidated statement
of financial position) less cash and cash equivalents. The liquidity risk and
cash management for the Group is managed centrally by the Group Treasury
function. Group Treasury manage bank balances centrally, and monitors the
credit rating and stability of the institutions the Group banks with. The
Board receives projections on a monthly basis as well as information regarding
cash balances. The Group's strategy is to preserve a strong cash base and
secure access to finance at reasonable cost by maintaining a good credit
rating.
26 Related Parties and Shareholders
Italicatessen Limited, a company registered in Ireland, is related by virtue
of a common significant shareholder. P.E.Q. Holdings Limited is 100% owner of
Italicatessen Limited. At 31 December 2021, P.E.Q. Holdings Limited owned
0.66% (2020: 4.73%) of the Company. In addition, Mr. Giorgio Guastalla is a
Director of Italicatessen Limited, P.E.Q. Holdings Limited and the Company,
and owns, or controls, 90% of the share capital of P.E.Q. Holdings Limited.
Mr. Giorgio Guastalla retired from the Board of the Company in January 2022.
There were no transactions in the period with Italicatessen Limited (2020:
€13k), who provided canteen services to Keywords International Limited on an
arm's length basis. This activity ceased in 2020, and there were no balances
owing to Italicatessen Limited at the end of either period presented.
In addition, on an arm's length basis, the Group paid rent of €22k in 2020,
in respect of premises occupied by employees of the Group in Dublin to Mr.
Giorgio Guastalla, Director of the Company, and shareholder of P.E.Q. Holdings
Limited. This activity also ceased in 2020, and there were no balances owing
at the end of either period presented in respect of this activity.
The details of key management compensation (being the remuneration of the
Directors) are set out in note 10.
27 Business Combinations
2021 2020
€'000 €'000
Details of goodwill and the fair value of net assets acquired
Book value:
Property, plant and equipment 572 872
Right of use assets 1,402 2,376
Trade and other receivables - gross 7,439 4,069
Bad debt provision (7) -
Cash and cash equivalents 10,618 9,477
Trade and other payables (8,245) (4,904)
Lease liabilities (1,402) (2,376)
Book value of identifiable assets and liabilities acquired 10,377 9,514
Fair value adjustments:
Identifiable intangible assets 11,502 17,673
Identifiable tangible assets - (27)
Deferred tax assets 2,539 9,363
Trade and other payables - 1,003
Deferred tax liabilities (3,006) (3,970)
Total fair value adjustments 11,035 24,042
Net assets acquired 21,412 33,556
Goodwill from current year acquisitions 97,918 47,112
Total purchase consideration 119,330 80,668
Details of purchase consideration and outflows from current acquisitions
Cash 59,314 46,924
Deferred cash 1,565 41
Deferred consideration contingent on performance 33,726 21,090
Combination put / call options to acquire residual 15% of Tantalus 4,768 -
Shares to be issued 19,957 12,613
Total purchase consideration 119,330 80,668
Related acquisition costs charged through to the Statement of comprehensive 1,099 307
income:
Number of shares:
Shares issued on acquisition 621,852 -
Fixed number of shares to be issued 37,994 503,052
Net cash outflow arising on acquisition:
Cash paid in the period 59,314 46,924
Less: cash and cash equivalent balances transferred (10,617) (9,477)
Net cash outflow arising on acquisition 48,697 37,447
Details of pro forma revenues and profitability of current acquisitions
Pre-acquisition revenue 16,345 35,729
Pre-acquisition revenue with Keywords Group (1,908) -
Post-acquisition revenue 24,990 7,208
Pro forma revenue 39,427 42,937
Pre-acquisition profit before tax 2,573 9,399
Post-acquisition profit before tax 9,653 2,561
Pro forma profit before tax 12,226 11,960
During the period, the Group completed six acquisitions, Heavy Iron, Tantalus,
Climax Studios, AMC, Waste and Wicked Witch, purchasing 100% of the share
capital of these businesses, except in the case of Tantalus where the Group
acquired an 85% interest. A combination of put and call options are in place
requiring the sellers to sell, or the Group to buy, the remaining 15%
shareholding in three years. The Group has recognised a contingent
consideration liability at fair value, being the Group's estimate of the
present value of the amount required to settle the liability, and has
accounted for the acquisition as if a 100% interest was acquired on
acquisition (see note 3).
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.
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 €9.1m.
28 Subsidiaries
The results and financial position of all the subsidiaries are included in the
consolidated financial statements. Details of the Company's direct and
indirect subsidiaries as at 31 December 2021 are set out below:
Name Country of incorporation Date of incorporation / acquisition Ownership ^ Registered office
3455 Productions, LLC USA 24-Nov-20 100% 251 Little Falls Drive, Wilmington, New Castle, DE 19808, USA
9409-2954 Québec Inc. Canada 04-Dec-19 100% 1751 Richardson Street, Suite 8400, Montreal, Quebec, H3K 1G6, Canada
Alset Limited UK 17-Aug-18 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Appsectest Limited UK 22-Jan-19 48.8% Unit 13 Orton Enterprise Centre, Bakewell Road, Peterborough, Cambridgeshire,
PE2 6XU, UK
Babel Media India Private Limited India 17-Feb-14 100% 3rd floor, Vardhman Orchard Plaza, Plot No 4, LSC, West Enclave, Pitampura,
New Delhi, 110034, India
Babel Media Limited * UK 17-Feb-14 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Babel Media USA, Inc. USA 17-Feb-14 100% 251 Little Falls Drive, Wilmington, New Castle, DE 19808, USA
Bitsy SG Limited UK 17-Aug-18 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Blindlight, LLC USA 08-Jun-18 100% 8335 Sunset Blvd, Ste 307, West Hollywood, CA 90069, USA
Climax Development Limited UK 22-Apr-21 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Climax Studios Limited UK 22-Apr-21 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Coconut Lizard Limited UK 25-Jun-20 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Cord Worldwide Limited UK 07-Apr-18 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
d3t Development Limited UK 30-Aug-18 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
d3t Limited UK 19-Oct-17 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Descriptive Video Works Inc. Canada 11-Jun-19 100% 400-725 Granville Street, PO Box 10325, Vancouver BC V7Y 1G5, Canada
Eastern New Media Limited Hong Kong 19-May-17 100% 4404, 44/F Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong
Edugame Solutions Private Limited India 09-Oct-14 100% D - 3/C, Munirka Flats, New Delhi, 110067, India
Electric Square Limited UK 17-Aug-18 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Fire Without Smoke Inc USA 29-May-18 100% 251 Little Falls Drive, Wilmington, New Castle, DE 19808, USA
Fire Without Smoke Limited UK 29-May-18 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
GameSim Inc. USA 16-May-17 100% 13501 Ingenuity Drive, Suite 310, Orlando, FL 32826, USA
g-Net Media, Inc. USA 24-Nov-20 100% 251 Little Falls Drive, Wilmington, New Castle, DE 19808, USA
High Voltage Software, Inc. USA 14-Dec-20 100% 2345 Pembroke Ave., Hoffman Estates, IL 60169, USA
HVS Nola LLC USA 14-Dec-20 100% 201 St. Charles Ave., Suite 2220, New Orleans, LA 70170, USA
Ichi Creative Limited USA 26-Nov-19 100% 251 Little Falls Drive, Wilmington, New Castle, DE 19808, USA
Ichi Limited UK 26-Nov-19 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Indigo Pearl Limited UK 15-Dec-20 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Itsy SGD Limited UK 17-Aug-18 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Jinglebell S.r.l. Italy 10-Dec-20 100% Via Marco d'Oggiono 12, Milan, Italy
Jurango Pty Limited ~~ Australia 20-Dec-21 100% 29 Thornton Crescent, Mitcham, VIC 3132, Australia
Keywords (Shanghai) Information Technology Limited China 02-Apr-15 100% 7th Floor, Building A, Dong Ti YuHui Road, Hongkou District, Shanghai, China
Keywords Asia Private Limited Singapore 15-Mar-16 100% 20 Kallang Avenue, #06-6A, Lobby B, Pico Creative Centre, 339411, Singapore
Keywords Australia Holdings Limited UK 17-Mar-21 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Keywords Australia Pty Limited ~ Australia 18-Mar-21 85% 12 Spring Street, Fitzroy, Victoria, 3065, Australia
Keywords Canada Holdings Inc. Canada 27-Oct-17 100% 1751 Richardson Street Suite 8400, Montreal QC, H3K 1G6, Canada
Keywords do Brasil Localização e Tradução Ltda Brazil 18-Jan-15 100% Av. Churchill, 109 - Sala 204 - Centro, Rio de Janeiro-RJ, CEP: 20020-050,
Brazil
Keywords Germany Holdings GmbH Germany 06-Sep-19 100% Moriz-Seeler-Strasse 5-7, Franz Ehrlich Haus,12489 Berlin, Germany
Keywords International Co., Limited. Japan 30-Nov-10 100% 2-3-1 Kudanminami, Chiyoda-ku, Tokyo 102-0074, Japan
Keywords International Limited Ireland 13-May-98 100% Whelan House, South County Business Park, Dublin 18, Ireland
Keywords International Pte. Limited Singapore 24-Apr-14 100% 20 Kallang Avenue, #06-6A, Lobby B, Pico Creative Centre, 339411, Singapore
Keywords International, Inc. USA 26-Sep-12 100% 251 Little Falls Drive, Wilmington, New Castle, DE 19808, USA
Keywords Studios B.C., Inc. Canada 27-Oct-17 100% 1700-1075 West Georgia Street, Vancouver, BC, V6E 3C, Canada
Keywords Studios France SAS France 08-Jun-16 100% 59 Boulevard Exelmans, 75016 Paris, France
Keywords Studios Italy S.R.L. Italy 08-May-14 100% Via Egadi 2, Milano, MI, 20144, Italy
Keywords Studios Korea Corporation South Korea 11-Jan-21 100% 16th Floor, Gangnam Building, 1321-1, Seocho-dong, Seocho-gu, Seoul 137-070,
South Korea
Keywords Studios Los Angeles, Inc. USA 08-May-14 100% 1115 Flower Street, Burbank, CA 91502, USA
Keywords Studios Limited * Ireland 27-Mar-18 100% Whelan House, South County Business Park, Dublin 18, Ireland
Keywords Studios México, S. de R.L. de C.V. Mexico 16-Jul-15 100% Torrente #75, Colonia Ampliación Alpes, Del. Álvaro Obregón, CP. 01710,
Ciudad de México, México
Keywords Studios Netherlands B.V. Netherlands 05-Feb-19 100% Wilhelmina van Pruisenweg 35, 2595AN The Hague, The Netherlands
Keywords Studios Poland Spolka z.o.o. Poland 04-Feb-21 100% 11 Ul. Na Zjezdzie, Krakow 30-527, Poland
Keywords Studios QC-Games Inc. Canada 17-Feb-14 100% 1751 Richardson, suite 8400, Montréal, Québec, H3K1G6, Canada
Keywords Studios QC-Interactive Inc. Canada 16-Nov-16 100% 1751 Richardson, suite 8400, Montréal, Québec, H3K1G6, Canada
Keywords Studios QC-Tech Inc. Canada 06-Jan-15 100% 1751 Richardson, suite 8400, Montréal, Québec, H3K1G6, Canada
Keywords Studios Spain SLU Spain 16-Jul-15 100% Julián Camarillo 6A, 3B, 28037 Madrid, Spain
Keywords UK Holdings Limited UK 28-Mar-18 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Keywords US Holdings Inc. USA 23-Oct-17 100% 251 Little Falls Drive, Wilmington, New Castle, DE 19808, USA
Keywords Ventures Limited UK 06-Apr-18 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Laced Music Limited UK 07-Apr-18 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Lakshya Digital Private Limited * India 09-Oct-14 100% 3rd floor, Vardhman Orchard Plaza, Plot No 4, LSC, West Enclave, Pitampura,
New Delhi, 110034, India
Lakshya Digital Singapore Pte. Limited Singapore 09-Oct-14 100% 20 Kallang Avenue, #06-6A, Lobby B, Pico Creative Centre, 339411, Singapore
Liquid Development, LLC USA 19-Aug-15 100% 411 SW 2nd Ave Ste 300, Portland, OR 97204, USA
Liquid Violet Limited * UK 15-Jan-14 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Lonsdale Miller Limited UK 15-Dec-20 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Marching Cube, LLC USA 22-Jan-20 100% 815A Brazos #334, Austin, TX 78701, USA
Maverick Media Limited UK 27-Aug-20 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Paleblue Limited UK 07-Apr-18 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Player Research Limited UK 26-Oct-16 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
PT Limitless Indonesia Indonesia 19-May-17 100% JI. Timoho II, No. 32, Yogyakarta, Indonesia
Snowed In Studios, Inc Canada 19-Jul-18 100% 400-981 Wellington Street West, Ottawa, Ontario, K1Y 2Y1, Canada
Sperasoft Poland Spólka z.o.o. Poland 13-Dec-17 100% Ul. Na Kozłówce 27, 30-664 Kraków, Poland
Sperasoft Studios LLC Russia 13-Dec-17 100% 196084, Russia, Saint-Petersburg, Kievskaya street, 5 - building
Sperasoft, Inc. USA 13-Dec-17 100% 251 Little Falls Drive, Wilmington, New Castle, DE 19808, USA
SperaSystems LLC USA 13-Dec-17 100% 2033 Gateway Pl Ste 500 San Jose, CA 95110-3712, USA
SPOV Limited UK 16-Feb-17 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Strongbox Limited Seychelles 19-May-17 100% 306 Victoria House, Victoria, Mahe, Seychelles
Studio Gobo Limited UK 17-Aug-18 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Sunny Side Up Creative Inc. Canada 03-Jan-19 100% 410 Boulevard Charest Est, Suite 410, Québec, Québec, G1K 8G3, Canada
Synthesis Deutschland GmbH * Germany 12-Apr-16 100% Holstenkamp 46 A, Bahrenfeld, 22525 Hamburg, Germany
Synthesis Global Solutions SA * Switzerland 12-Apr-16 100% Corso Elvezia 16, 6900 Lugano, Ticino, Switzerland
Tantalus Media Pty Limited ~ Australia 18-Mar-21 100% 13 Spring Street, Fitzroy, Victoria, 3065, Australia
The Trailerfarm Limited UK 13-Sep-18 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
TV+SYNCHRON Berlin GmbH Germany 01-Oct-19 100% Moriz-Seeler-Strasse 5-7, Franz Ehrlich Haus, 12489, Berlin, Germany
VMC Consulting Corporation USA 24-Oct-17 100% 251 Little Falls Drive, Wilmington, New Castle, DE 19808, USA
Waste Creative Limited UK 16-Dec-21 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Waste Holdings Limited UK 16-Dec-21 100% 1st Floor, 39 Earlham Street, London, WC2H 9LT, UK
Wicked Witch Software Pty Limited ~~ Australia 20-Dec-21 100% 29 Thornton Crescent, Mitcham, VIC 3132, Australia
Wizcorp Inc. Japan 18-Apr-19 100% 3-10-14, Higashi-Nihonbashi 3-chome, Sunrise Tachibana 6F, Chuo-ku, 103-0004,
Tokyo, Japan
Xcelerator Machine Translations Limited Ireland 12-Dec-19 100% Invent, Dublin City University, Glasnevin, Dublin 9, Ireland
Xloc, Inc. USA 08-May-17 100% 8801 Fast Park Drive, Suite 301, Raleigh, NC 27617, USA
* Indicates a direct subsidiary (all other holdings are indirect, being
subsidiaries of various intermediate group holding companies)
^ Proportion of voting rights and ordinary share capital ultimately held by
Keywords Group
+ The registered office address was changed from 201 Temple Chambers, 3-7
Temple Avenue, London, EC4Y 0DT , England, on 26 January 2022
~ A combination of put and call options are in place requiring the sellers to
sell, or the Group to buy the remaining 15% shareholding in three years. The
Group has accounted for the acquisition as if a 100% interest was acquired on
acquisition (see note 3).
~~ Acquired by Keywords Australia Pty Limited
Post-acquisition, the Group reviews entities to streamline activities and
close any dormant entities acquired or re-structured entities. Restructuring
details are set out below:
Name Country of incorporation Date of incorporation / acquisition Ownership Date of re-structuring Re-structuring details
Ichi Holdings Limited UK 26-Nov-19 100% 16-Dec-21 Liquidated
Keywords International Barcelona SL Spain 09-Jan-15 100% 23-Nov-21 Merged
Red Hot Software (Shanghai) Limited China 19-May-17 100% 30-Jun-21 Dissolved
Red Hot Software (Zhengzhou) Limited China 19-May-17 100% 21-Oct-21 Dissolved
29 Events after the Reporting Date
Crisis in Ukraine
Since the year end, the Group's operations have been impacted by the tragic
events in Ukraine. While the Group does not have operations in Ukraine, the
Group does have Game Development teams in a number of locations in Russia
working exclusively for customers located outside of the country. The Group
also works with a number of freelance suppliers in Ukraine. Our immediate
priority has been to do all that we can to support our people and our
freelance suppliers in the territory, while contributing to the wider
humanitarian efforts in the region.
Revenues delivered from the Group's operations in Russia are presented in note
4. In 2021, the Group delivered €29.4m of revenue in Russia, up from
€28.0m in 2020, and represents approximately 5.7% of Group revenue. While we
continue to focus on serving our customers, we are also focused on mitigating
any potential business interruption or other risks associated with this
activity.
Geographical analysis of non-current assets from continuing businesses is also
presented in note 4. Approximately €1.4m of the amount presented within the
"Other" category relates to Russian located property, plant and equipment,
being mainly computer equipment. The Group does not have significant
receivables exposure in Russia, as work produced in Russia is contracted and
collected in other territories. In addition, the Group does not have
significant amounts of other current assets or right of use assets located in
Russia. Thus, any exposure to impairment of assets located in Russia is not
considered material.
The Directors have applied downside sensitivities to the Group's projections
to evaluate any potential goodwill impairment resulting from the crisis. The
result of the value in use calculations was that no impairment would be
required even in a worst case scenario where all Russian located production
capacity was excluded from projections.
Alternative performance measures
The Group reports a number of alternative performance measures ("APMs") to
present the financial performance of the business, that are not GAAP measures
as defined under IFRS. The Directors believe that these measures, in
conjunction with the IFRS financial information, provide the users of the
financial statements with additional information to provide a more meaningful
understanding of the underlying financial and operating performance of the
Group. The measures are also used in the Group's internal strategic planning
and budgeting processes and for setting internal management targets. These
measures can have limitations as analytical tools and therefore should not be
considered in isolation, or as a substitute for IFRS measures.
The principal measures used by the Group are set out below:
Organic revenue growth - Acquisitions are a core part of the Group's growth
strategy. Organic revenue growth measures are used to help understand the
underlying trading performance of the Group excluding the impact of
acquisitions. Organic revenue growth is calculated by adjusting the prior year
revenues, adding pre-acquisition revenues for the corresponding period of
ownership to provide a like-for-like comparison with the current year, and
applying the prior year's foreign exchange rates to both years.
Constant exchange rates ("CER") - Given the international nature of the
Group's operations, foreign exchange movements can have an impact on the
reported results of the Group when they are translated into the Group's
reporting currency, 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.
· COVID-19 government subsidies claimed - In 2020 the Group applied for
COVID-19 government subsidies in various jurisdictions, introduced in response
to the global pandemic. These subsidies have been added back in order to
present adjusted profit and cash flow measures consistently year-on-year.
· Investment income - The Group acquired a minor holding in Hutch Games
Limited, when Keywords purchased Liquid Development studio in 2015. In 2020,
Hutch Games Limited was acquired and the Group received €1.4m proceeds in
December 2020. As the gain has arisen outside the normal trading activities of
the Group, the income has been added back to assist with the understanding of
the underlying trading performance.
Free cash flow measures - The Group aims to generate sustainable cash flow
(Free cash flow) in order to support its acquisition program and to fund
dividend payments to shareholders. Free cash flow is measured as Net cash
generated by / (used in) operating activities after capital expenditure,
payments of principal on lease liabilities, interest and tax payments, but
before acquisition and integration cash outlay, investment income and dividend
payments. Adjusted free cash flow is a measure of cash flow adjusting for
capital expenditure that is supporting growth in future periods (represented
by capital expenditure in excess of depreciation). In the prior year, the
measure has also been adjusted for COVID-19 subsidies claimed given the
one-time nature of this income.
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 2020 foreign exchange rates, in order to give management and
other users of the financial statements better visibility of underlying
trading performance against the prior year.
2021 2021 2020 2021 2021
Revenue Revenue Revenue Growth Growth
AER CER AER AER CER
€m €m €m % %
Art Creation* 49.3 49.5 38.9 26.7% 27.2%
Marketing* 46.2 46.4 18.4 151.1% 152.2%
Game Development 138.9 140.0 80.0 73.6% 75.0%
Audio 61.3 61.9 47.2 29.9% 31.1%
Functional Testing 92.7 92.0 78.5 18.1% 17.2%
Localization 50.8 51.4 45.4 11.9% 13.2%
Localization Testing 27.1 27.2 23.3 16.3% 16.7%
Player Support 45.9 47.1 41.8 9.8% 12.7%
512.2 515.5 373.5 37.1% 38.0%
*The prior year comparatives have been re-classified to separately report
Marketing services, previously reported within the Art Creation service line.
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.
2021 2021 2021
Revenue Pre-acquisition revenue Pro forma Revenue
AER AER AER
€m €m €m
Art Creation 49.3 1.6 50.9
Marketing 46.2 6.2 52.4
Game Development 138.9 8.5 147.4
Audio 61.3 - 61.3
Functional Testing 92.7 - 92.7
Localization 50.8 - 50.8
Localization Testing 27.1 - 27.1
Player Support 45.9 - 45.9
512.2 16.3 528.5
Organic revenue at constant exchange rates
Organic revenue at constant exchange rates is calculated by adjusting the
prior year revenues, adding pre-acquisition revenues for the corresponding
period of ownership, and applying the 2020 foreign exchange rates to both
years.
2020 2020 2020 2021 2021 2021
Revenue Pre-acquisition revenue Like for like revenue Revenue growth Revenue Organic revenue growth
AER AER AER CER CER CER
€m €m €m €m €m %
Art Creation* 38.9 0.9 39.8 9.7 49.5 24.4%
Marketing* 18.4 16.3 34.7 11.7 46.4 33.7%
Game Development 80.0 40.7 120.7 19.3 140.0 16.0%
Audio 47.2 1.4 48.6 13.3 61.9 27.4%
Functional Testing 78.5 - 78.5 13.5 92.0 17.2%
Localization 45.4 0.4 45.8 5.6 51.4 12.2%
Localization Testing 23.3 - 23.3 3.9 27.2 16.7%
Player Support 41.8 - 41.8 5.3 47.1 12.7%
373.5 59.7 433.2 82.3 515.5 19.0%
* The prior year comparatives have been re-classified to separately report
Marketing services, previously reported within the Art Creation service line.
The equivalent 2020 organic growth rates were 30.8% for Marketing and 13.0%
for Art Creation respectively.
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 and impairment of
intangible assets, depreciation, non-controlling interest and deducting bank
charges. In order to present the measure consistently year-on-year, the impact
of COVID-19 government subsidies claimed is also excluded.
2021 2020
Calculation €'000 €'000
Administrative expenses Consolidated statement of comprehensive income (149,749) (102,090)
Share-based payments expense Consolidated statement of comprehensive income 16,394 15,350
Costs of acquisition and integration Consolidated statement of comprehensive income 7,972 2,650
Amortisation and impairment of intangible assets Consolidated statement of comprehensive income 13,688 8,808
Depreciation - property, plant and equipment Note 13 11,661 8,983
Depreciation - right of use assets Note 12 10,473 8,402
Non-controlling interest Consolidated statement of comprehensive income 67 85
Bank charges Note 6 (520) (552)
COVID-19 government subsidies claimed Consolidated statement of comprehensive income - (9,231)
Adjusted operating costs (90,014) (67,595)
Adjusted operating costs as a % of revenue 17.6% 18.1%
Adjusted operating profit
The Adjusted operating profit consists of the Operating profit as reported in
the Consolidated statement of comprehensive income, adjusted for share-based
payments expense, costs of acquisition and integration, and amortisation and
impairment of intangible assets. In order to present the measure consistently
year-on-year, the impact of investment income and COVID-19 government
subsidies claimed are also excluded.
2021 2020
Calculation €'000 €'000
Operating profit Consolidated statement of comprehensive income 50,365 41,119
Share-based payments expense Consolidated statement of comprehensive income 16,394 15,350
Costs of acquisition and integration Consolidated statement of comprehensive income 7,972 2,650
Amortisation and impairment of intangible assets Consolidated statement of comprehensive income 13,688 8,808
Investment income Consolidated statement of comprehensive income - (1,437)
COVID-19 government subsidies claimed Consolidated statement of comprehensive income - (9,231)
Adjusted operating profit 88,419 57,259
Adjusted operating profit as a % of revenue 17.3% 15.3%
EBITDA
EBITDA comprises Operating profit as reported in the Consolidated statement of
comprehensive income, adjusted for amortisation and impairment of intangible
assets, depreciation, and deducting bank charges.
2021 2020
Calculation €'000 €'000
Operating profit Consolidated statement of comprehensive income 50,365 41,119
Amortisation and impairment of intangible assets Consolidated statement of comprehensive income 13,688 8,808
Depreciation - property plant and equipment Note 13 11,661 8,983
Depreciation - right of use assets Note 12 10,473 8,402
Bank charges Note 6 (520) (552)
EBITDA 85,667 66,760
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 investment income
and COVID-19 government subsidies claimed are also excluded.
2021 2020
Calculation €'000 €'000
EBITDA As above 85,667 66,760
Share-based payments expense Consolidated statement of comprehensive income 16,394 15,350
Costs of acquisition and integration Consolidated statement of comprehensive income 7,972 2,650
Non-controlling interest Consolidated statement of comprehensive income 67 85
Investment income Consolidated statement of comprehensive income - (1,437)
COVID-19 government subsidies claimed Consolidated statement of comprehensive income - (9,231)
Adjusted EBITDA 110,100 74,177
Adjusted EBITDA as a % of revenue 21.5% 19.9%
Adjusted profit before tax
Adjusted profit before tax comprises Profit before taxation as reported in the
Consolidated statement of comprehensive income, adjusted for share-based
payments expense, costs of acquisition and integration, amortisation and
impairment of intangible assets, non-controlling interest, foreign exchange
gains and losses, and unwinding of discounted liabilities. In order to present
the measure consistently year-on-year, the impact of investment income and
COVID-19 government subsidies claimed are also excluded.
2021 2020
Calculation €'000 €'000
Profit before taxation Consolidated statement of comprehensive income 47,983 32,494
Share-based payments expense Consolidated statement of comprehensive income 16,394 15,350
Costs of acquisition and integration Consolidated statement of comprehensive income 7,972 2,650
Amortisation and impairment of intangible assets Consolidated statement of comprehensive income 13,688 8,808
Non-controlling interest Consolidated statement of comprehensive income 67 85
Foreign exchange (gain) / loss Note 6 (1,983) 6,103
Unwinding of discounted liabilities - deferred consideration Note 6 1,882 132
Investment income Consolidated statement of comprehensive income - (1,437)
COVID-19 government subsidies claimed Consolidated statement of comprehensive income - (9,231)
Adjusted profit before tax 86,003 54,954
Adjusted profit before tax as a % of revenue 16.8% 14.7%
Adjusted effective tax rate
The Adjusted effective tax rate is the Taxation expense as reported in the
Consolidated statement of comprehensive income, adjusted for the tax impact of
the adjusting items in arriving at Adjusted profit before tax, as a percentage
of the Adjusted profit before tax.
2021 2020
Calculation €'000 €'000
Adjusted profit before tax As above 86,003 54,954
Taxation Consolidated statement of comprehensive income 13,875 11,027
Effective tax rate before tax on adjusting items Taxation / Adjusted profit before tax 16.1% 20.1%
Tax arising on bridging items to Adjusted profit before tax^ 4,729 785
Adjusted taxation 18,604 11,812
Adjusted effective tax rate Adjusted taxation / Adjusted profit before tax 21.6% 21.5%
^Being mainly the tax impact of share-based payments expense €2.8m,
amortisation of intangible assets €2.1m, less foreign exchange €0.2m, with
the prior year being mainly the tax impact of amortisation of intangible
assets €1.8m, foreign exchange €1.2m, share-based payments expense
€0.7m, less COVID-19 government subsidies claimed €2.6m and investment
income €0.3m.
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 8.
2021 2020
Calculation €'000 €'000
Adjusted profit before tax As above 86,003 54,954
Taxation Consolidated statement of comprehensive income (13,875) (11,027)
Tax arising on bridging items to Adjusted profit before tax^ (4,729) (785)
Adjusted profit after tax 67,399 43,142
Denominator (weighted average number of equity shares) Note 8 75,526,296 70,800,455
€ c € c
Adjusted earnings per share 89.24 60.93
Adjusted earnings per share % growth 46.5% 24.9%
^Being mainly the tax impact of share-based payments expense €2.8m,
amortisation of intangible assets €2.1m, less foreign exchange €0.2m, with
the prior year being mainly the tax impact of amortisation of intangible
assets €1.8m, foreign exchange €1.2m, share-based payments expense
€0.7m, less COVID-19 government subsidies claimed €2.6m and investment
income €0.3m.
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.
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.
2021 2020
Calculation €'000 €'000
Adjusted profit before tax As above 86,003 54,954
Interest received Note 6 (62) (76)
Bank charges Note 6 520 552
Interest expense Note 6 1,040 1,071
Unwinding of discounted liabilities - lease liabilities Note 6 985 843
Pre-acquisition profits of current year acquisitions Note 27 2,573 9,399
Adjusted profit before tax including pre-acquisition profit and excluding net 91,059 66,743
interest
Total equity Consolidated statement of financial position 472,120 371,235
Employee defined benefit plans Consolidated statement of financial position 3,088 2,693
Cumulative amortisation of intangibles assets (customer relationships) Note 11 40,708 25,178
Deferred and contingent consideration Note 17 54,142 20,802
Loans and borrowings Note 18 129 195
Cash and cash equivalents Consolidated statement of financial position (105,710) (103,070)
Capital employed 464,477 317,033
Return on capital employed Adjusted profit before tax including pre-acquisition profit and excluding net 19.6% 21.1%
interest expense / capital employed
Free cash flow
Free cash flow represents Net cash generated by / (used in) operating
activities as reported in the Consolidated statement of cash flows, adjusted
for acquisition and integration cash outlay, capital expenditure, net interest
paid, payments of principal on lease liabilities and is presented both before
and after taxation paid. In order to present the measure consistently
year-on-year, the impact of investment income is also excluded.
2021 2020
Calculation €'000 €'000
Net cash generated by / (used in) operating activities Consolidated statement of cash flows 90,545 76,420
Acquisition and integration cash outlay:
Costs of acquisition and integration Consolidated statement of comprehensive income 7,972 2,650
Fair value adjustments to contingent consideration Consolidated statement of cash flows (5,567) 66
Fair value adjustments to right of use assets Consolidated statement of cash flows - (434)
Acquisition of property, plant and equipment Consolidated statement of cash flows (19,360) (13,908)
Investment in intangible assets Consolidated statement of cash flows (315) (259)
Investment income Consolidated statement of comprehensive income - (1,437)
Interest received Consolidated statement of cash flows 62 76
Interest paid Consolidated statement of cash flows (2,738) (1,722)
Payments of principal on lease liabilities Consolidated statement of cash flows (9,953) (8,170)
Free cash flow after tax 60,646 53,282
Taxation paid Consolidated statement of cash flows 23,948 4,459
Free cash flow before tax 84,594 57,741
Adjusted free cash flow
Adjusted free cash flow is a measure of cash flow adjusting for capital
expenditure that is supporting growth in future periods (as measured by
capital expenditure in excess of maintenance capital expenditure). In order to
present the measure consistently year-on-year, the impact of COVID-19
government subsidies claimed is also excluded.
2021 2020
Calculation €'000 €'000
Free cash flow before tax As above 84,594 57,741
Capital expenditure in excess of depreciation:
Acquisition of property, plant and equipment Consolidated statement of cash flows 19,360 13,908
Depreciation - property, plant and equipment Consolidated statement of cash flows (11,661) (8,983)
Capital expenditure in excess of depreciation 7,699 4,925
COVID-19 government subsidies claimed Consolidated statement of comprehensive income - (9,231)
Adjusted free cash flow 92,293 53,435
Adjusted cash conversion rate
The Adjusted cash conversion rate is the Adjusted free cash flow as a
percentage of the Adjusted profit before tax:
2021 2020
Calculation €'000 €'000
Adjusted free cash flow As above 92,293 53,435
Adjusted profit before tax As above 86,003 54,954
Adjusted cash conversion ratio Free cash flow before tax and capital expenditure in excess of depreciation, 107.3% 97.2%
as a % of Adjusted profit before tax
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.
2021 2020
Calculation €'000 €'000
Loans and borrowings Note 18 129 195
Cash and cash equivalents Consolidated statement of financial position (105,710) (103,070)
Net debt / (net cash) position (105,581) (102,875)
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