REG - Keywords Studios PLC - Final Results
15/03/2023 07:00
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RNS Number : 9838S Keywords Studios PLC 15 March 2023
15 March 2023
Keywords Studios PLC ("Keywords Studios", "Keywords", the "Group")
Full Year Results for the year to 31 December 2022
Strong growth and cash generation
Keywords Studios, the international technical and creative services provider
to the global video games and entertainment industries, today announces its
full year results for the year to 31 December 2022.
Financial Overview:
Results for the year ended 31 December 2022 2021 Change
Group revenue € 690.7m € 512.2m + 34.8%
Organic Revenue growth 1 + 21.8% + 19.0%
Adjusted EBITDA 2 € 146.9m € 110.1m + 33.4%
Adjusted EBITDA margin 21.3% 21.5%
EBITDA 2 € 120.9m € 85.7m + 41.1%
Adjusted operating profit 3 € 114.6m € 88.4m + 29.6%
Adjusted operating profit margin 16.6% 17.3%
Operating profit € 71.8m € 50.4m + 42.5%
Adjusted profit before tax 4 € 112.0m € 86.0m + 30.2%
Adjusted profit before tax margin 16.2% 16.8%
Profit before tax € 68.0m € 48.0m + 41.7%
Adjusted earnings per share 5 113.50c 89.24c + 27.2%
Earnings per share 61.54c 45.16c + 36.3%
Final dividend per share 1.60p 1.45p
Adjusted cash conversion rate 6 100.1% 107.3%
Net cash / (net debt) € 81.8m € 105.6m
Finance and Operating Highlights:
Strong 2022 performance reflecting healthy underlying demand
· Group revenue up 34.8% to €690.7m (2021: €512.2m), driven by
sustained demand for high quality content and a continuing trend towards
external service provision.
· Organic Revenue growth of 21.8%, with good contributions across
all service lines.
· Adjusted profit before tax rose 30.2% to €112.0m, with Adjusted
PBT margin of 16.2% (2021: 16.8%), in line with guidance, as foreign exchange
benefits were offset by the cost of the transition out of Russia and
post-COVID-19 costs.
· Adjusted Cash Conversion rate of 100.1%, lower than 2021
(107.3%), but ahead of guidance.
· Adjusted Free Cash Flow(7) of €112.1m (2021: €92.3m) resulted
in net cash of €81.8m (2021: €105.6m), despite €116.4m net cash spend on
acquisitions.
· Final dividend of 1.60p per share, an increase of 10% (2021 final
dividend: 1.45p), bringing the total dividend in respect of 2022 to 2.37p, an
increase of 10% (2021 total dividend: 2.15p)
Strategic Highlights:
Delivering against strategy to drive long-term sustainable growth
· Enhancing our technology platform through both acquisition and
increased adoption of technologies across the business, supporting the
scalability of the business over time.
· Excellent progress on developing strategic partnerships with key
clients.
· Simplified organisation structure supporting employee engagement,
collaboration and talent acquisition.
· Delivered five acquisitions for a total maximum consideration of
€140 million, strengthening our Create, Engage and technology offerings and
capabilities.
· Tangible progress against responsible business goals, renewing
partnership with Women in Games, enhancing employee engagement, formalising
our diversity, equity, inclusion and belonging roadmap and reducing GHG
intensity by 16%
Current trading and outlook
· Trading in the current year has started well, in line with our
outlook for the year.
· Expect robust demand for content generation, with our diversified
client base, geographical reach, and skew to high-quality games, positioning
us well to navigate volatility in the scheduling of certain projects.
· Well placed to increase market share, with the potential for the
current industry backdrop to accelerate the trend to external service
provision.
· Well-funded to continue to deliver on our value accretive
acquisition strategy with a healthy number of M&A opportunities in the
pipeline.
Bertrand Bodson, Chief Executive Officer of Keywords Studios, commented:
"We delivered an excellent performance in 2022, demonstrating the strength of
our platform and the dedication and hard work of the 12,000 people within
Keywords. Whilst mindful of the increasing uncertainty within the broader
industry and potential for foreign exchange movements, we are excited about
the opportunity ahead with our business model, highly diversified client base,
adoption of technology and geographic reach. We are increasingly well
positioned to support our clients in generating engaging content for their
leading franchises and trading has started well, in line with our expectations
for the year.
We expect to continue to see robust demand for content generation as our
clients seek to capture the imagination of the three billion gamers globally.
We continue to have a healthy pipeline of acquisition opportunities to broaden
our capabilities, geographic footprint and service offerings. This, together
with our organic growth, will enable us to continue to grow market share, and
build upon our position as the partner of choice for the global video games
industry, and beyond."
Presentation and Webcast
A presentation of the full results will be made to analysts at 9.00am this
morning and the live webcast can be accessed via this link:
https://brrmedia.news/Keywords_Studios_FY
(https://brrmedia.news/Keywords_Studios_FY)
To register for dial in access, or for any enquiries, please contact MHP Group
on keywords@mhpgroup.com (mailto:keywords@mhpgroup.com) .
For further information, please contact:
Investor Contacts: Media Contacts:
Keywords Studios MHP Group
Giles Blackham Katie Hunt / Eleni Menikou / Charles Hirst
Director of Investor Relations +44 20 3128 8794
+44 7714 134 681 keywords@mhpgroup.com (mailto:keywords@mhpgroup.com)
gblackham@keywordsstudios.com (mailto:gblackham@keywordsstudios.com)
Numis Securities
Nominated Adviser & Broker
Stuart Skinner / Will Baunton
+44 20 7260 1000
About Keywords Studios (www.keywordsstudios.com
(http://www.keywordsstudios.com/) )
Keywords Studios is an international technical and creative services provider
to the global video games and entertainment industries. Established in 1998,
and now with over 70 facilities in 26 countries strategically located in Asia,
Australia, the Americas, and Europe, it provides services across the entire
content development life cycle through its Create, Globalize and Engage
service lines to a large blue-chip client base across the globe.
Keywords Studios has a strong market position, providing services to 24 of the
top 25 most prominent games companies. Across the games and entertainment
industry, clients include Activision Blizzard, Bandai Namco, Bethesda,
Electronic Arts, Epic Games, Konami, Microsoft, Netflix, Riot Games, Square
Enix, Supercell, TakeTwo, Tencent and Ubisoft. Recent titles worked on include
Elden Ring, 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 financial statements a clear understanding of the
underlying profitability of the business over time. For full definitions and
explanations of these measures and a reconciliation to the most directly
referenceable IFRS line item, please refer to the APMs section at end of the
statement.
(1) Organic revenue at constant exchange rates is calculated by adjusting the
prior year revenues, adding pre-acquisition revenues for the corresponding
period of ownership, and applying the 2021 foreign exchange rates to both
years, when translating studio results into the euro reporting currency.
(2) EBITDA comprises Operating profit as reported in the Consolidated statement of
comprehensive income, adjusted for amortisation of intangible assets,
depreciation and impairment, and deducting bank charges. Adjusted EBITDA
comprises EBITDA, adjusted for share-based payments expense, costs of
acquisition and integration and non-controlling interest. In order to present
the measure consistently year-on-year, the impact of other income is also
excluded.
(3) Adjusted operating profit consists of the Operating profit as reported in the
Consolidated statement of comprehensive income, adjusted for share-based
payments expense, costs of acquisition and integration, and amortisation of
intangible assets. In order to present the measure consistently year-on-year,
the impact of other income is also excluded.
(4) Adjusted profit before tax comprises Profit before taxation as reported in the
Consolidated statement of comprehensive income, adjusted for share-based
payments expense, costs of acquisition and integration, amortisation of
intangible assets, non-controlling interest, foreign exchange gains and
losses, and unwinding of discounted liabilities. In order to present the
measure consistently year-on-year, the impact of other income is also
excluded.
(5) The Adjusted earnings per share comprises the Adjusted profit after tax
divided by the non-diluted weighted average number of shares as reported. The
Adjusted profit after tax comprises the Adjusted profit before tax, less the
Taxation expense as reported in the Consolidated statement of comprehensive
income, adjusted for the tax impact of the adjusting items in arriving at
Adjusted profit before tax.
(6) The Adjusted cash conversion rate is the Adjusted free cash flow as a
percentage of the Adjusted profit before tax.
(7) 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).
(8) As at 14 March 2023, company compiled analysts' forecasts gave a consensus for
FY 2023 of €816m of revenue (range: €809-827m) and €123m of adjusted
profit before tax (range: €122-125m).
Chairman's Statement
This is my tenth and will be my last Chairman's statement since I joined
Keywords just before the IPO in July 2013, and what a journey it has been!
I can look back on those 10 years with a combination of pride and respect -
pride for having overseen such a remarkable journey from a small company with
three studios and a turnover of just €16m to where it is today at the very
centre of the video games industry, and respect for all the people who made
it happen.
This last year, 2022, has, in many ways, been the most rewarding of all.
Finding a new CEO is always a hazardous enterprise, especially given the
unplanned circumstances of the retirement of Andrew Day, who had been the
driving force behind the growth of Keywords until ill-health forced him to
stand down. We were fortunate to have real strength in depth across our
leadership team, allowing time to undertake a comprehensive process to appoint
a high calibre successor with the requisite experience and expertise.
In Bertrand Bodson we have found the embodiment of everything for which I was
looking for, with the enthusiasm, energy, understated charisma and ambition to
lead Keywords through the next phase of its development; the aim is simply for
Keywords to become an ever more integral part of the industry which it serves.
Rarely has the passing of a mantle been achieved with such panache.
For many companies 2022 was a difficult year. I think it says much for the
resilience of the video games industry and Keywords' positioning within it
that we are able to report another record year of results, with revenue growth
of ~35% and with the cash generation of the business continuing to impress.
For an acquisitive business this crucial dynamic is a fundamental aspect of
the business model.
Acquisition activity continued apace with five high-quality acquisitions
spread across each of our service lines. Perhaps to me the most pleasing
aspect of the acquisitions was the greater influence of technology, which will
contribute to keeping us at the forefront of our industry.
Earlier, I referred to the major influence of Bertrand in creating a new sense
of ambition within the business. The areas identified in collaboration with
senior management formed the basis for the evolved strategy set out at the
capital markets day in June 2022, and involves:
· A shift to more of a strategic partner relationship with clients.
· A focus on enhancing service delivery through greater use of
technology.
· Increased coordination of activities between service lines
through the concept of a "One Keywords" mindset.
· Talent management.
Also more analysis has been undertaken on attractive adjacent industries where
gaming technologies are already, or likely to have a major future role and
where the technology/expertise is already embedded throughout Keywords. Media
and Entertainment is a natural area to target but the management team has been
careful to balance the natural attraction of expanding our overall target
market with opportunities to extend its position as the leading service
provider to the video games industry. As Keywords still represents less than
10% of the growing market of provision of external services to the video games
industry, there remains ample scope for Keywords to continue its own exciting
growth trajectory, within this market.
From the foregoing it will be apparent that, in my opinion, the Keywords
business is better positioned than it was a year earlier, with a clear
strategy to take the business forward. What is more, the senior leadership
team under Bertrand has a far stronger sense of cohesion and common purpose.
As already announced, Jon Hauck is taking on the position of COO having
operated alongside Bertrand for most of the year and assisted in the
streamlining of the operational structures at the senior management level.
During this period Jon has also continued as CFO (helped immensely by the
finance team) and has been in charge of M&A. Our search for a CFO
continues, and the comprehensive process has identified a range of highly
qualified candidates for the role.
Success doesn't happen by chance and during 2022 some hurdles have had to be
overcome. Not least of these has been the necessary relocation of our
Russian-based game development operation - now largely completed with new
centres established in Serbia, Armenia and Malta - a major accomplishment. For
all that has been achieved overall, great credit must go to the senior
management personnel throughout the organisation and, of course, every
employee who has put in such effort. My thanks are extended to you all.
I also want to pay tribute to my fellow Directors who have been a great
support to the executives under Bertrand and to me as Chairman. Working with
these talented and hard-working people has been immensely satisfying and great
fun. Together we have visited a number of studios, including Dublin, Milan and
Tokyo, and benefited from the insights provided by the local teams - in turn,
I hope we have given something back.
Finally, and with a certain sense of sadness (but knowing the time is right
for a change), I hand over the Keywords torch to Don Robert, my successor as
Chairman. I pass to him, Bertrand, and all Keywordians, my good wishes and all
good fortune for the next phase in the life of Keywords, now in its 25th year.
During my 10-year tenure as Chairman most of the relevant statistics have
multiplied by at least 20 times - so no pressure, Don!
Ross Graham
Chairman
CEO Statement
2022 marked my first full year as CEO of Keywords, and what a year it was. We
delivered extremely strong growth and continued to build out our platform,
furthering our position at the forefront of the industry and delivering the
solutions our clients require to support the success of their games.
In June, we set out our evolved strategy to take the business to the next
level, and have made great initial progress delivering against those
ambitions. We also unveiled a new, simplified structure to strengthen
collaboration across our Group, sharpened our focus on technology, and
welcomed five high-quality businesses with over 300 employees, providing
further scale and new capabilities to build out our platform. None of this
would have been possible without the tireless efforts of our 12,000
Keywordians who consistently Imagine More to deliver high-quality, engaging
content and services for our clients.
I spent a considerable part of 2022 visiting our studios across the world with
other members of the management team; between us, we have been to Keywords
businesses across four continents. Having the opportunity to visit the vast
majority of our teams has confirmed to me the fantastic culture and leadership
across the organisation and given me great insight into the incredible energy
and enthusiasm of our people across the globe. I've also immersed myself in
the industry, as coming from a digital but non-gaming background, it was
important for me to develop a deeper understanding of the complexities of such
a vibrant industry. I thank those who have given their time to support me in
this endeavour, and of course, our clients for trusting us to work on their
precious content.
I also wholeheartedly extend my thanks to Ross Graham, our departing Chairman,
who has offered tremendous guidance to me in my first 12 months. Ross has been
with Keywords since the very beginning of our life as a public company, and it
is with sadness that we see him retire. Ross has been an exemplary guardian of
the business, and we cannot thank him enough for all that he has given to
Keywords over the last 10 years. We wish him a long and happy retirement.
Whilst we are sad to see Ross go, we are delighted that he is being replaced
by someone as experienced and talented as Don Robert. His success in scaling
global technology businesses will be invaluable for us as we look to imagine
more for this business. I look forward to working with him over the coming
years.
Performance
2022 was another exceptional year. We delivered revenues of €690.7m,
representing growth of 34.8%, with organic revenue growth of 21.8%, helped by
foreign exchange movements. We also saw a good margin performance with
adjusted profit before tax of €112.0m (profit before tax was €68.0m), a
margin of 16.2%. As guided, this margin was lower than the 16.8% that we
delivered in 2021, as a number of cost savings made due to COVID-19 naturally
dissipated, and we incurred meaningful costs relating to the change in
operating environment around our single Russia based business, and our
subsequent relocation of staff and operations out of the country. Together,
these costs offset the benefit from the strong US dollar on our margins.
During the year we consolidated our eight service lines into a more simplified
structure of just three; Create, Globalize and Engage. All three service
lines, which will be discussed in more detail later in this report,
demonstrated good growth against the previous year which had benefited
strongly from post COVID-19 trends. Organic growth was particularly pleasing
in our Create and Globalize businesses, driven by strong demand for our
services. We also delivered excellent cash generation in the year, which
supported our ongoing M&A activities. Our adjusted free cash flow of
€112.1m meant that despite spending €116.4m on acquisitions, the total of
the cash component of both the current and previous years' transactions, we
ended the year with net cash of €81.8m, providing a solid foundation for
future M&A. This demonstrates the highly cash generative nature of this
business, with cash conversion of 100.1% for the year, ahead of our guidance
of 80%.
Market opportunity
Whilst 2023 has so far seen mixed news from the video games industry, we must
not forget the industry's journey in recent years. The video gaming sector is
larger than the media and entertainment industry and has grown by over 25%
since the start of the pandemic.
In 2022, the industry consolidated gains it had made and, due to a lighter
release schedule, changes to mobile privacy and the availability of
out-of-home entertainment once again, shrank slightly compared to 2021.
Despite this, we continue to see industry forecasts for strong growth over the
medium term, with video games continuing to offer incredibly good value on a
per-hour of entertainment basis, compared to other forms of entertainment.
In the content generation segment of the industry, where we focus, we believe
demand remains robust as our clients seek to continue to engage and captivate
consumers. Demand for high quality, engaging games, which our business is
skewed towards, is still very strong as evidenced by record sales across some
of the industry's key franchises over the important holiday period.
The ongoing shift towards live operations, where games are nurtured through
regular content updates, will also mean there will be increasing demand for
new content from consumers that publishers and developers will have to meet;
we will be there to support them.
The trend towards external partnering within the industry is ongoing as it
becomes increasingly complex and challenging to bring a game to market. This
growing complexity, combined with a shortage of industry talent, means that
publishers are increasingly leaning on trusted large-scale partners like us to
help them.
We are by far the largest player in our space, and yet remain at only a 6%
share of a highly fragmented market. We believe that we have a significant
opportunity to continue to take market share organically, as larger developers
and publishers will want to work with larger providers with geographic scale,
and to consolidate through our successful acquisition programme.
Delivering against evolved strategy
As I detailed at our capital markets day in June, we have set out an evolved
strategy which seeks to build on the highly successful platform created over
the last few years. The aim of this is to better position the business to
serve our clients by enhancing collaboration and the use of technology across
our platform.
In addition, we are seeking to build our talent pool, not only by attracting
some of the best talent in the industry, but also by retaining and developing
key talent ourselves.
We also believe that there is a significant opportunity in markets closely
adjacent to gaming in which the technologies we already use are increasingly
being deployed; with a key focus on the media and entertainment space.
Across each of these areas we have dedicated project teams who are embedding
key initiatives and workstreams across the organisation in collaboration with
our leaders. Taking the core elements of the evolved strategy in turn:
Strategic partnerships
We are working hard to shift our relationships with key clients from tactical
to strategic partnerships. In this way, we can provide more value for our
clients and expand the range of services that they utilise from across our
business.
During the year, we initiated strategic partner reviews with our key clients,
where senior members from each side can come together for open discussions
about how we can work together over the longer term. This process, which is
ongoing, has already significantly improved our clients' understanding of how
we can support their growth, and in turn is improving our visibility of
activity.
We have also increased our specialist resourcing within the service lines, so
that we are better able to respond to client needs with a more holistic
offering. I have spent a significant portion of my time obsessively getting to
know our clients and their leadership teams. We believe that having both a
bottom-up, as well as a top-down approach, will best support long-term
relationship building and value creation.
Technology
The technology landscape continues to evolve at a rapid pace, and we must
continue to adopt new technologies into our workstreams to remain at the
forefront of the industry. Having a background in digital, it was immediately
clear to me that Keywords has an opportunity to better utilise the technology
that exists within the business, both to enhance its internal systems and
provide more comprehensive customer solutions. This will also support the
scalability of the business longer-term and ensure we maintain our leadership
in the industry. Through utilising existing technologies more, as we have with
the KantanAI partnership with Microsoft, and bringing exciting new
technologies into the Group through the acquisitions of Mighty Games and
Helpshift, we have already made real progress. Both of these acquisitions
complement our existing offerings and enable us to broaden our solutions for
our clients.
To support our adoption of technology, we have created a standalone innovation
team, which is scouring both our business to surface innovations within
individual studios, and the broader industry, to ensure that we are able to
continually enhance our client offering and ways of working within
our business.
One Keywords
Through our One Keywords initiative we are seeking to galvanise and leverage
the Group's culture of entrepreneurism and collaboration. We have already seen
tangible benefits from the simplification of our structure, which helps us to
serve our clients more effectively and ensure employees get the full benefit
of being part of the wider Group.
With the support of our new solution architects, we have been able to go to
our clients with broader offerings from across many studios, something that
was previously difficult to achieve. We have also refreshed our executive team
and brought in new talent to lead our Engage business, drive our technology
strategy and hired our first Chief People and Culture Officer. In addition, we
have launched a studio hub model to allow studio heads to participate in and
have a voice at leadership events.
We have also refreshed our previous set of company values, by putting in place
a simple set of five leadership principles, which are designed as a practical
tool to be applied to everyday working life:
· Power of Partnership
· One Keywords
· Raise the Game
· Embrace an Open World
· Trust through Transparency
These are guiding actions which create the conditions for us to collaborate,
and Imagine More for our partners, ourselves, the games industry and beyond,
whilst supporting the individual cultures that exist within each of our
studios and service lines.
Talent and capabilities
We have enhanced our engagement with our 12,000 employees, establishing global
town halls, a key communicators network to empower regional management and
consistent messaging across the group. We have also added dedicated resource
to address some of the industry's key issues, such as diversity, equity,
inclusion and belonging.
We have also put in place dedicated teams to support talent acquisition in an
industry where this remains a challenge, yet is critical to our growth
trajectory. Internally, we are seeking to develop our talent by expanding our
in-game academies and boot camps which offer the opportunity for people to
enter or progress within the industry. Longer-term, we are building a pipeline
of talent, specifically in India, where we have an agreement with the
government to expand our Academy, which is currently focused on art, into game
development, taking advantage of the quantity of high-quality engineering
talent emerging from Indian universities.
Adjacent markets
Gaming remains our core market, and one in which we see huge opportunity for
growth over the coming years. It is still a highly fragmented market, and our
focus remains on ensuring we grow our market leading position. However, gaming
technologies are increasingly being utilised in other industries, primarily
media and entertainment, where virtual production and visual effects (VFX) are
increasingly using game engine technology. We believe this shift will present
opportunities for us and we are looking at ways to capture these opportunities
over time. We already serve elements of this market through our Globalize
business, primarily providing dubbing and subtitling services to companies
such as Netflix, and have seen strong growth during the year.
The trend towards live operations, with the aim of keeping a game live and
engaging consumers for as long as possible, has continued during the year.
Across Keywords, we are able to support clients as they nurture games to stay
live, and we continue to augment the Group to deliver the right offering for
clients in this regard. We have also started to explore ways in which we can
service clients in respect of longer-term opportunities such as the metaverse
where we see emerging opportunities for the Group.
M&A
Complementary to the five pillars of our strategy is our M&A approach,
which has added significant value to the business over the past ten years and
something we believe is a key differentiator for us. In 2022, we completed
five high-quality acquisitions in the US, Australia, Canada and Italy, meaning
we have now completed over 60 transactions in the past 10 years. In that time,
we have carefully deployed almost €600m on M&A, predominantly funded
from free cash generation, systematically expanding our initial localization
and testing offering, into the only service provider able to deliver across
the full game development cycle.
We continue to take a strategic approach to M&A and are looking to extend
our capabilities and geographical reach in our Create and Engage service
lines, as well as scaling our technology offering and exploring opportunities
to enter adjacent markets. During 2022, three acquisitions were game
development studios (Forgotten Empires, Smoking Gun and Mighty Games), with
Mighty Games also bringing an automated testing technology solution, and one
in marketing (LabCom). We also acquired Helpshift, which has developed a
market leading software-as-a-service customer support automation tool to
resolve customer issues in real-time within its clients' mobile apps and
complements our Player Support offering within the Engage service line. In
early 2023 we acquired 47 Communications, a leading US-based PR and
communications agency to further enhance Engage's marketing and PR offering.
Russia
Sadly, the humanitarian crisis in Ukraine is ongoing. At the start of 2022, we
had one game development studio, Sperasoft, with offices in Russia and Poland,
which was purely working for international gaming businesses, rather than
serving domestic Russian clients. In discussion with our clients and to
support colleagues, in the first half of 2022 we commenced relocating the
majority of our people and work from Russia to alternative locations,
including Poland, together with Serbia, Armenia and Malta, where we have
established new operations.
This was a major project, requiring cross functional support and a project
team which has dedicated considerable time and resource to making this
transition as smooth as possible for all, with the second half of 2022 having
been the key transition phase. Their efforts enabled us to relocate over 400
people from Russia by the year-end to the new locations in Europe, a true
example of what is possible when teams come together in adversity and look for
long term solutions. We have already started to organically grow our headcount
in the new locations, with client work having transitioned to alternative
locations successfully. In H1 2023, we will continue to look to transition
further staff out of Russia, before closing our operations.
Responsible Business
Our responsible business agenda is centred around five key areas; our people,
planet, community and our clients, underpinned by our commitment to good
governance and ethics.
During the year we continued to make good progress with these priorities. In
an organisation of over 12,000 people, our people are our largest and most
valuable asset and rightly have high expectations of us. A good culture, in
which our people feel rewarded, trusted, and included, is critical for our
long-term success. We believe that having a diverse workforce is the best way
to provide highly creative solutions for our clients and have made meaningful
progress in establishing this. We have renewed our partnership with Women in
Games after a successful first year of our ambassador programme and have a
full schedule of events planned for 2023.
In 2022, the Group was composed of 26% women, 73% men, with according to
current data, a collective 1% of colleagues identifying as non-binary or
declining to disclose their gender (2021: 25%/74%/1%). Our support functions
have a more balanced split of women and men (44% and 55%, respectively, with
1% non-binary/not disclosed).
Gender diversity, and addressing under-representation remain a focus for the
Group and Board both across our business and the wider industry. Following
changes to Board composition during the year, the percentage of women
Directors on the Board at year-end of 29% was marginally lower than in 2021
(30%). We continue to apply inclusive appointment processes, in line with our
Board Diversity Policy.
Internally we have created a three-year roadmap with dedicated resourcing to
provide more structure to our diversity, equity, inclusion and belonging
(DEIB) initiatives and believe we will start to see tangible benefits from
this as we go forward. We have also continued to win best workplace awards
across the globe, demonstrating the efforts made to make sure Keywords is a
great place to work for all.
We have made positive steps in our Sustainable Studios initiative to identify
the areas where we can reduce our impact on the planet, something of
importance to all our stakeholders. During our review, we identified moving to
renewable energy supplies, wherever possible, as having the most significant
positive impact, and we are exploring this on a studio-by-studio basis. We
made progress in switching tariffs to renewable providers, with 16 of our
studios now on green tariffs. Going forward, we will also ensure that all new
office and studio space meets modern environmental building requirements.
We are working towards a target of reducing the intensity of our emissions
(tonnes of CO2e per €m of revenue) by 50% by 2030 and in 2022, achieved a
16% reduction. In the meantime, we have continued to expand the greenhouse gas
inventory that we report against and during the year, we have offset our 2021
operational emissions through a highly respected carbon offset project in
Tanzania.
We have also continued to make a positive impact through our Keywords Cares
initiative, which is an annual central fund which can be applied to match
funds raised by our local teams. This year our teams raised over €45,000 for
a range of causes across the globe, undertaking our first global initiative in
November. It was great to see so many different activities taking place across
the Group, with over 35 different charitable and community activities being
completed, more than double the number in 2021.
Outlook
We delivered an excellent performance in 2022, demonstrating the strength of
our platform and the dedication and hard work of the 12,000 people within
Keywords.
Whilst mindful of the increasing uncertainty within the broader industry and
potential for foreign exchange movements, we are excited about the opportunity
ahead with our business model, highly diversified client base, adoption of
technology and geographic reach. We are increasingly well positioned to
support our clients in generating engaging content for their leading
franchises and trading has started well, in line with our expectations for the
year.
We expect to continue to see robust demand for content generation as our
clients seek to capture the imagination of the three billion gamers globally.
We continue to have a healthy pipeline of acquisition opportunities to broaden
our capabilities, geographic footprint and service offerings. This, together
with our organic growth, will enable us to continue to grow market share, and
build upon our position as the partner of choice for the global video games
industry, and beyond.
Bertrand Bodson
Chief Executive Officer
Service Line Review
Create
The Create service line combines Art Services and Game Development to deliver
a range of services to clients and partners globally. It represents around
3,500 people in 23 studios across 42 cities.
2022 2021 Change
Revenue €m 275.5 188.2 46.4%
Organic Revenue growth % 25.9%
Adjusted EBITDA €m 69.7 49.7 40.2%
Adjusted EBITDA margin % 25.3% 26.4%
2022 Performance
Create performed strongly during the year, with total revenues up by 46.4% to
€275.5m (2021: €188.2m). Organic Revenue, which excludes the impact of
acquisitions, grew by 25.9%, as the service line continued to benefit from the
strong industry demand for new content creation and the increasing complexity
of games.
The performance was driven by strong growth in a number of Create studios,
with increased headcount enabling our game development studios to take on more
work and meet demand, with the UK and Australia seeing strong growth in
particular. In Art Services, we continued to experience very strong
performance in Quebec and in our Indian business. We have also begun to
benefit from the increased collaboration between Art Services and Game
Development, with studios increasingly utilising each other's services to
support the needs of clients.
Due to the industry-wide shortage of talent within the game development and
art sectors, we have established a dedicated talent acquisition team to
complement local efforts and have started a number of local talent development
initiatives. These combined efforts, together with our extensive geographic
footprint allowing us to hire from around the world, has meant that we have
been able to meaningfully grow our Create team during the period, and better
support our clients.
Despite Game Development being the most directly affected by the situation in
Ukraine, the scale and broad footprint of the business has meant that the
service line continued to perform well during the period. During the year, we
started to relocate people and work from our single Russia-based business,
Sperasoft, to alternative locations in Europe. Sperasoft purely works for
international gaming businesses, rather than serving domestic Russian clients.
The majority of this transition took place in the second half of the year, and
in total we have moved over 400 people to new locations as of the year end.
The situation in Ukraine meant that our initial growth plans for Sperasoft,
that had been resourced, could not be fulfilled, and the focus for the year
was on completing existing projects and undertaking the transition. This had a
meaningful impact on profitability of the business. Due to the successful
transition, and pace of new hires in the new locations, we are now able to
start to take on new projects and as well as continuing to support our
existing clients. In H1 2023, we will continue to look to transition further
staff out of Russia, before closing our operations. As a result, we will
continue to incur costs from the transition into the year, as well as a modest
one-off charge relating to the closure.
Revenues derived from Russia represented 3.8% of Group revenues (€26.3m),
down from 5.7% in 2021 and in December 2022 represented just 1.7% of Group
revenues.
Adjusted EBITDA in Create grew 40.2% to €69.7m in 2022 (2021: €49.7m),
with the Adjusted EBITDA margin of 25.3% in 2022 lower than the previous
period (2021: 26.4%) due to the impact of the transition of people and work
from Russia in the second half of the year. This was largely offset by the
benefit of foreign exchange movements.
We welcomed three new Game Development studios this year, Forgotten Empires,
the small game development team at Mighty Games and Smoking Gun Interactive.
Each of the acquisitions bring different skills and capabilities to our
business. Forgotten Empires brings extensive experience in real-time strategy
games. Smoking Gun has a long track record in developing highly rated, cross
platform games and gives access to talent in Vancouver, a game development
hub. The Mighty Games team also support the scaling of our broader Australian
business.
The market opportunity and outlook
The video games market remains robust, with strong player engagement on major
platforms and titles. Whilst there is potential for large publishers to have a
narrower focus on major titles, we continue to believe there will be a focus
on the generation of new content to ensure that players remain engaged for
longer.
We expect continued robust demand across our Create service line, as the
industry remains capacity constrained in terms of access to highly-skilled
talent as games continue to increase in complexity. This has meant that
clients are increasingly seeking external support to deliver the required,
engaging content for their projects. While we are starting to see a more
cautious approach to investment in new games at the beginning of the year, the
Create service line remains resilient, due to the quality of our studios and
talent, its strong client relationships globally, and the mix of franchises we
work on.
Globalize
Globalize brings together our Audio, Testing and Localization businesses to
create a global business with around 5,000 people in 32 studios across 27
cities.
2022 2021 Change
Revenue €m 300.9 231.9 29.8%
Organic Revenue growth % 23.4%
Adjusted EBITDA €m 61.6 47.4 30.0%
Adjusted EBITDA margin % 20.5% 20.4%
2022 Performance
Globalize performed well in 2022 with total revenues up by 29.8% to €300.9m
(2021: €231.9m). Organic Revenue, which excludes the impact of acquisitions,
grew by 23.4%.
Each of the lines of business within Globalize performed well during the year,
and our increased scale and footprint meant we were well positioned to
capitalise on the industry's healthy demand for post-production services,
despite it being a slower period for new launches.
In Functional Testing we saw strong growth, as our Polish operations relocated
to a new state-of-the-art facility enabling increased recruitment, and
Montreal performed well. We also benefitted from several large testing
contracts in the second half of the year that we were able to fulfil due to
our scale and footprint. Our broad footprint across different time zones
allows clients access to a global workflow, and access to different cost to
serve models. This enables us to continue to mitigate the impact of increasing
costs, with considered pricing adjustments. Our footprint also provides the
opportunity to grow our talent base and maintain high-quality output for our
clients.
Mighty Games was added to the portfolio to be able to offer automated games
testing solutions and expertise to our clients. This acquisition illustrates
our commitment to utilise technology to provide more value-added services to
our client base and stay at the forefront of our industry.
In Localization, performance was also strong as we benefited from the
deployment of a specific AI driven text localization workflow in H1 for a key
client. Audio localization saw a good second half of the year, which offset
weaker H1 performance from delays to certain projects. Our Audio media and
entertainment business continued to grow rapidly as we expanded our
capabilities and relationships with several large industry players, including
Netflix.
Adjusted EBITDA in Globalize grew 30.0% to €61.6m in 2022 (2021: €47.4m),
with the Adjusted EBITDA margin maintained at 20.5% in 2022 compared to 20.4%
in 2021.
The market opportunity and outlook
During the year we saw the trend towards external service provision continue
across each of our Globalize lines of business. We believe that even in a more
constrained market environment this trend will continue over the medium term,
as the opportunity to move from fixed to variable costs for certain functions
will become more attractive for clients. Due to the scale of the service line
we are now able to meet the needs of our largest clients, across the globe,
and in a rapid manner, which should further enable us to capture increasing
demand across the service line.
Engage
Our Engage service line brings together our Marketing Services and Player
Support businesses to create a holistic offering focused on player engagement,
encompassing around 2,500 people in 29 studios across 23 cities.
2022 2021 Change
Revenue €m 114.3 92.1 24.1%
Organic Revenue growth % 9.7%
Adjusted EBITDA €m 15.6 13.0 20.0%
Adjusted EBITDA margin % 13.6% 14.1%
2022 Performance
Engage saw robust growth during the year, with revenues up by 24.1% to
€114.3m (2021: €92.1m). Organic Revenue, which excludes the impact of
acquisitions, grew by 9.7%.
Player Support performed strongly across the year, with the addition of a
number of new clients and healthy growth across our top clients. Social Media
and Trust and Safety Services also continue to grow and are developing into a
key part of our offering. In December, we were delighted to announce the
acquisition of Helpshift, which will transform our player support business
into a unique market leading holistic offering for our clients. Helpshift,
brings a market leading customer support automation tool to resolve customer
issues in real-time within its clients' mobile apps, which together with our
existing player support capabilities, and KantanAI machine translation
capability, will create an unrivalled player support offering for customers.
Our Marketing studios delivered a more modest performance, in part due to the
exceptional performance in 2021, during which the business experienced
significant growth of over 150% and organic growth of ~34%. In addition, the
2022 performance was impacted by some client-specific project delays and
cancellations, particularly in our North American studios. In December, we
were pleased to extend the geographic spread of our PR offering, with the
acquisition of LabCom in Italy, complementing our UK-based PR agency, Indigo
Pearl and the January 2023 acquisition of 47 Communications in the US opens up
opportunities in the world's largest gaming market. Increasingly, our
marketing studios are collaborating to provide broader solutions to clients as
well as working with player support to provide a holistic offering.
Adjusted EBITDA grew 20.0% to €15.6m in 2022 (2021: €13.0m), with the 2022
Adjusted EBITDA margin of 13.6% slightly behind the previous year period
(2021: 14.1%).
The market opportunity and outlook
Our ambition for Engage is to create the next generation of connected
companies that encompass the marketing, communications, and player-centred
aspects of the games industry. This will enable us to offer a holistic
solution focused on driving and maintaining player engagement with our
clients' games. We will continue to broaden our marketing offerings, both
geographically and to ensure that we have all of the capabilities our global
clients need.
In Player Support, the nature of the business means that clients need to focus
on keeping players engaged and supported within their games. The Helpshift
acquisition, whilst early in its integration, provides an exciting opportunity
to scale our business, by providing a market-leading solution for clients,
although it will take the majority of 2023 before we believe we will be able
to demonstrate meaningful traction with clients due to the longer sales cycle
in this segment. As highlighted previously, the successful integration of
KantanAI, our Machine Translation solution, into Player Support, provides
further opportunities for the business to provide cost effective and
high-quality solutions to meet industry needs.
Financial and operating overview
Revenue
Revenue for 2022 increased by 34.8% to €690.7m (2021: €512.2m). This
performance included the impact of acquisitions in 2021 and 2022 and an ~8%
benefit from the impact of currency movements, when translating studio results
from local currency into the euro reporting currency, and particularly the
strengthening of the US dollar.
Organic Revenue growth (which adjusts for the impact of acquisitions) was
21.8%. This was driven by a strong performance across all service lines,
against the comparative period in 2021, particularly in our Create and
Globalize Service Lines. Excluding the impact of currency, when converting
amounts billed by studios in US dollars into local currency, organic revenue
growth would have been approximately 3% lower. Further details of the trading
performances of each of the Service Lines are provided in the Service
Line Review.
Gross profit and margin
Gross profit in 2022 was €267.3m (2021: €200.1m) representing an increase
of 33.6%. The gross margin of 38.7% was broadly in line with 2021 (39.1%).
While currency movements mentioned above were also supportive to margins, the
uplift was predominantly offset by the cost and disruption of building up our
capacity in new locations to migrate work previously performed within Russia,
to outside of the country.
Operating costs
Adjusted operating costs increased by 33.8% to €120.4m (2021: €90.0m),
reflecting the larger Group, but at 17.4% of revenue were slightly lower than
2021 (17.6%). This was driven by continued good cost control, as the Group
looked to manage the impact of increased travel and business development costs
as these activities increased with the easing of COVID-19 restrictions.
EBITDA
EBITDA increased 41.1% to €120.9m (2021: €85.7m). Adjusted EBITDA
increased 33.4% to €146.9m compared with €110.1m for 2021. The Adjusted
EBITDA margin in 2022 of 21.3% was marginally lower than 2021 (21.5%)
reflecting the lower gross margin.
Net finance costs
Net finance costs were €1.4m higher at €3.8m (2021: €2.4m), primarily
driven by a €1.0m increase in the unwinding of discounted liabilities
relating to deferred consideration.
Alternative performance measures (APMs)
The Group reports a number of APMs to present the financial performance of the
business which are not GAAP measures as defined by IFRS. The Directors believe
these measures provide valuable additional information for the users of the
financial information to understand the underlying trading performance of the
business. In particular, adjusted profit measures are used to provide the
users of the financial statements a clear understanding of the underlying
profitability of the business over time. A breakdown of the adjusting factors
is provided in the table below:
2022 2021
€m
€m
Share-based payments expense 18.7 16.4
Costs of acquisition and integration 8.4 8.0
Amortisation of intangible assets 16.8 13.7
Foreign exchange and other items 0.1 -
Total 44.0 38.1
1.14m options were granted under incentive plans in 2022. This, together with
grants from previous years, has resulted in a non-cash share-based payments
expense of €18.7m in 2022 (2021: €16.4m).
One-off costs associated with the acquisition and integration of businesses
amounted to €8.4m (2021: €8.0m). Amortisation of intangible assets
increased by €3.1m to €16.8m (2021: €13.7m) reflecting the recent levels
of acquisition activity.
Foreign exchange and other items amounted to a net loss of €0.1m (2021:
€nil). This includes €2.9m for the unwinding of discounted liabilities on
deferred consideration (2021: €1.9m) offset by a net foreign exchange gain
of €1.7m (2021: €2.0m) and other income of €1.1m (2021: €nil).
Keywords does not hedge foreign currency exposures in relation to net current
assets. While more material movements in foreign exchange can be impactful on
revenues and expenses, the net impact on the Group's results of movements in
exchange rates and the foreign exchange gains and losses incurred during the
year mainly relate to the effect of translating net current assets held in
foreign currencies.
A more detailed explanation of the measures used together with a
reconciliation to the corresponding GAAP measures is provided in the APMs
section at the end of the report.
Profit before taxation
Profit before tax increased by €20.0m (+41.7% year-on-year) to €68.0m
(2021: €48.0m). Adjusted profit before tax, which adjusts for the items
described in the APMs section above increased by €26.0m (+30.2%
year-on-year) to €112.0m compared with €86.0m in 2021. This reflects a
small reduction in Adjusted profit before tax margin of 0.6% points to 16.2% (
2021: 16.8%). This was due to costs and disruption associated with the
relocation of our Russia-based operations to outside of the country, which
impacted margins by ~2% points, together with the return of travel, business
development and return to office costs (~1%) post COVID-19. Largely offsetting
these was a ~2.5% point margin benefit from foreign exchange, particularly the
strong US dollar during the period as we invoice more than 50% of our sales in
US dollars.
Taxation
The tax charge increased by €6.7m to €20.6m (2021: €13.9m) 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 these items, the Adjusted effective tax rate for 2022 was 22.0%,
slightly higher than the rate of 21.6% in 2021.
Earnings per share
Basic earnings per share increased by 36.3% to 61.54c (2021: 45.16c) primarily
reflecting the 38.9% increase in the statutory Profit after tax. Adjusted
earnings per share which adjusts for the items noted in the APMs section above
and the tax impact arising on these items was 113.50c (2021: 89.24c),
representing an increase of 27.2%, with the rise in Adjusted profit before tax
of 30.2% partially offset by a 1.9% increase in the basic weighted average
number of shares.
Cash flow and net debt
The Group generated Adjusted EBITDA of €146.9m in 2022, an increase of
€36.8m from €110.1m in 2021. There was a €3.6m outflow in respect of the
amounts due for Multi-Media Tax Credits (MMTCs) and Video Game Tax Credits
(VGTRs), lower than 2021, as we saw a return to more normal phasing of
payments in H2 2022. MMTCs and VGTRs are subsidies that are recognised as work
is performed but are typically paid in the second half of the following year.
Other working capital saw an inflow of €0.6m, a €10.7m change from 2021,
mainly due to an increase in accrued income associated with the strong
performance of the business at the end of the year offset by a reduction in
debtor days.
Investment in property, plant and equipment increased by €7.6m to €27.0m
(2021: €19.4m) as we continued to invest in growing the business. Property
lease payments of principal of €11.4m were 14.0% higher than the prior
period (2021: €10.0m) mainly related to acquisitions in the period.
Operating cash flows of €105.0m were ahead of 2021 (€87.2m), primarily due
to the €36.8m increase in Adjusted EBITDA, partially offset by the change in
working capital.
2022 2021 Change
€m
€m
€m
Adjusted EBITDA 146.9 110.1 36.8
MMTC and VGTR (3.6) (4.5) 0.9
Working capital and other items 0.6 11.3 (10.7)
Capex - property, plant and equipment (PPE) (27.0) (19.4) (7.6)
Capex - intangible assets (0.5) (0.3) (0.2)
Payments of principal on lease liabilities (11.4) (10.0) (1.4)
Operating cash flows 105.0 87.2 17.8
Net interest paid (1.5) (2.7) 1.2
Free cash flow before tax 103.5 84.5 19.0
Tax (17.5) (23.9) 6.4
Free cash flow 86.0 60.6 25.4
M&A - acquisition spend (113.3) (63.1) (50.2)
M&A - acquisition and integration costs (3.1) (2.4) (0.7)
Other income and other items 1.6 - 1.6
Dividends paid (2.0) (0.6) (1.4)
Shares issued for cash 6.8 5.3 1.5
Underlying increase / (decrease) in net cash / (debt) (24.0) (0.2) (23.8)
FX and other items 0.2 2.9 (2.7)
Increase in net cash / (debt) (23.8) 2.7 (26.5)
Opening net cash / (debt) 105.6 102.9
Closing net cash / (debt) 81.8 105.6
There was a €6.4m reduction in cash tax paid to €17.5m (2021: €23.9m) as
payment schedules return to a more normal pattern following pandemic related
timing differences in 2021. Net interest payments, which largely relate to
fees on the Revolving Credit Facillity (RCF), were €1.5m compared to €2.7m
in 2021.
This resulted in Free cash flow of €86.0m, €25.4m ahead of 2021
(€60.6m). Adjusted free cash flow, which adjusts for capital expenditure
that is supporting growth in future periods was €112.1m in 2022, ahead of
2021 (€92.3m). The Adjusted cash conversion rate of 100.1% was below 2021
(107.3%), but ahead of our guidance for the year of 80%.
Cash spent on acquisitions totalled €116.4m, of which €25.8m was in
respect of the cash component of prior year acquisitions and €3.1m was in
relation to acquisition and integration costs. This was €50.9m higher than
the spend in 2021 due to the timing of acquisitions.
This resulted in a reduction in net cash of €23.8m in 2022, leading to
closing net cash of €81.8m (2021: €105.6m).
Balance sheet and liquidity
The Group funds itself primarily through cash generation and a syndicated RCF
of €150m that matures in December 2024. The RCF includes an accordion option
to increase the facility up to €200m and an option to extend the term by two
further one-year periods (both subject to lender consent). During the year the
first one-year extension was exercised. The majority of Group borrowings are
subject to two financial covenants that are calculated in accordance with the
facility agreement:
Leverage: Maximum Total Net Borrowings to Adjusted EBITDA ratio of three
times; and
Interest cover: Minimum Adjusted Operating Profit to Net Finance Costs ratio
of four times.
The Group entered the year with a strong balance sheet, with net cash
(excluding IFRS 16 leases) of €105.6m as at 31 December 2021. Following
€116.4m of cash deployed in the period to support the Group's value
accretive M&A programme, at the end of 2022, Keywords had net cash
(excluding IFRS 16 leases) of €81.8m and undrawn committed facilities of
€150m. The Group has no exposure to Silicon Valley Bank.
Capital Allocation
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, particularly M&A, in
line with our strategy.
Following the interim dividend payment of 0.77p per share in September 2022,
the Board has recommended a final dividend of 1.60p per share, which will make
the total dividend for the year ended 31 December 2022 of 2.37p per share, an
increase of 10% over the 2021 full year dividend (2021: 2.15p per share).
Subject to shareholder approval at the 2023 Annual General Meeting, the final
dividend will be paid on 30 June 2023 to all shareholders on the register at 2
June 2023 and the shares will trade ex-dividend on 1 June 2023 The final
dividend payment will represent a total cost of approximately €1.4m of cash
resources subject to currency fluctuations.
Keywords has authorised the Link Market Services Trustees Limited ('Link') to
operate a Dividend Reinvestment Plan (DRIP) for the Group's shareholders for
the final dividend and going forward, to provide greater flexibility for
shareholders to manage their dividends. Instructions for shareholders on how
to apply for the DRIP will be included in communications regarding the final
dividend, and any queries regarding the DRIP should be directed to Link.
The Group also intends to use its Employee Benefit Trust to undertake market
purchases of Company shares in H1 2023, amounting to an aggregate of up to
€5m, in order to satisfy future exercises of LTIPs or stock options pursuant
to the relevant share plan.
Guidance for 2023
We have made a good start to 2023, with trading in line with our expectations
for the year. As previously guided, we continue to expect organic growth to
moderate from 2022 levels but remain above the medium-term guidance of 10%+.
Adjusted profit before tax margin normalised during 2022 and is expected to
remain around 15% in 2023 as previously guided, excluding the potential impact
of any debt we take on in the future to fund acquisitions. Moving forward, and
against a backdrop of higher interest rates globally, we will focus future
guidance on Adjusted Operating Profit, which historically has been very
similar to Adjusted PBT, and we expect this to be around 15% in 2023.
During 2022, we benefited from the strength of the US dollar and are mindful
that there remains potential volatility in the foreign exchange markets beyond
our control that may impact on our performance through the year. The
transition out of Russia will also continue during 2023 and will result in a
modest one-off charge relating to the closure of our operations in the
country.
The Adjusted Effective Tax rate is expected to be in line with the 2022 rate
of ~22%. We are anticipating capex to be slightly ahead of 2022 relative to
revenue, reflecting continued expansionary capex and investment in our
platform to support future growth, with an overall Adjusted Cash Conversion
rate of at least 80%.
Jon Hauck
Chief Financial Officer
Consolidated statement of comprehensive income
Years ended 31 December
2022 2021
Note €'000 €'000
Revenue from contracts with customers 4 690,718 512,200
Cost of sales 5 (423,452) (312,086)
Gross profit 267,266 200,114
Other income 5 1,098 -
Share-based payments expense 23 (18,678) (16,394)
Costs of acquisition and integration 5 (8,413) (7,972)
Amortisation of intangible assets 11 (16,810) (13,688)
Total of items excluded from adjusted profit measures (43,901) (38,054)
Other administration expenses (152,653) (111,695)
Administrative expenses (196,554) (149,749)
Operating profit 71,810 50,365
Financing income 6 1,986 2,045
Financing cost 6 (5,814) (4,427)
Profit before taxation 67,982 47,983
Taxation 7 (20,612) (13,875)
Profit after taxation 47,370 34,108
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss
Actuarial gain / (loss) on defined benefit plans 20 286 27
Items that may be reclassified subsequently to profit or loss
Exchange gain / (loss) in net investment in foreign operations (7,947) 8,228
Exchange gain / (loss) on translation of foreign operations 6,144 14,581
Non-controlling interest; recycled on disposal of subsidiary 162 -
Total comprehensive income / (expense) 46,015 56,944
Profit / (loss) for the period attributable to:
Owners of the parent 47,415 34,175
Non-controlling interest (45) (67)
47,370 34,108
Total comprehensive income / (expense) attributable to:
Owners of the parent 46,015 57,011
Non-controlling interest - (67)
46,015 56,944
Earnings per share € cent € cent
Basic earnings per ordinary share 8 61.54 45.16
Diluted earnings per ordinary share 8 58.86 42.98
The notes 1 to 29 form an integral part of these consolidated financial
statements.
On behalf of the Board
Bertrand
Bodson
Jon Hauck
Director
Director
15 March 2023
Consolidated statement of financial position
2022 2021
Note €'000 €'000
Non-current assets
Intangible assets 11 469,953 353,943
Right of use assets 12 37,672 35,991
Property, plant and equipment 13 44,784 36,018
Deferred tax assets 21 22,757 21,468
Investments 14 175 175
575,341 447,595
Current assets
Cash and cash equivalents 81,886 105,710
Trade receivables 15 81,563 68,067
Other receivables 16 61,415 49,110
Corporation tax recoverable 6,503 6,764
231,367 229,651
Current liabilities
Trade payables 15,878 11,122
Other payables 17 139,355 108,423
Loans and borrowings 18 45 81
Corporation tax liabilities 22,028 12,635
Lease liabilities 19 12,414 11,217
189,720 143,478
Net current assets / (liabilities) 41,647 86,173
Non-current liabilities
Other payables 17 18,308 18,254
Employee defined benefit plans 20 2,861 3,088
Loans and borrowings 18 6 48
Deferred tax liabilities 21 8,617 13,840
Lease liabilities 19 30,105 26,418
59,897 61,648
Net assets 557,091 472,120
Equity
Share capital 22 924 904
Share capital - to be issued 22 2,467 2,185
Share premium 22 47,021 38,549
Merger reserve 22 286,655 273,677
Foreign exchange reserve 11,018 12,821
Shares held in Employee Benefit Trust ("EBT") 22 - (1,997)
Share-based payments reserve 65,379 48,193
Retained earnings 143,627 97,905
557,091 472,237
Non-controlling interest - (117)
Total equity 557,091 472,120
The notes 1 - 29 form an integral part of these consolidated financial
statements. The financial statements were approved and authorised for issue by
the Board on 15 March 2023.
On behalf of the Board
Bertrand
Bodson
Jon Hauck
Director
Director
15 March 2023
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 2021 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
Profit / (loss) for the period - - - - - - - 47,415 47,415 (45) 47,370
Recycled on disposal of subsidiary - - - - - - - - - 162 162
Other comprehensive income - - - - (1,803) - - 286 (1,517) - (1,517)
Total comprehensive income for the period - - - - (1,803) - - 47,701 45,898 117 46,015
Contributions by and contributions to the owners:
Share-based payments expense - - - - - - 18,577 - 18,577 - 18,577
Share options exercised 14 - 5,862 - - 1,997 (1,492) - 6,381 - 6,381
Employee Share Purchase Plan - - 909 - - - 101 - 1,010 - 1,010
Dividends - - - - - - - (1,979) (1,979) - (1,979)
Acquisition-related issuance of shares 6 282 1,701 12,978 - - - - 14,967 - 14,967
Contributions by and contributions to the owners 20 282 8,472 12,978 - 1,997 17,186 (1,979) 38,956 - 38,956
At 31 December 2022 924 2,467 47,021 286,655 11,018 - 65,379 143,627 557,091 - 557,091
Consolidated statement of cash flows
Years ended 31 December
2022 2021
Note €'000 €'000
Cash flows from operating activities
Profit after taxation 47,370 34,108
Income and expenses not affecting operating cash flows
Depreciation - property, plant and equipment 13 18,365 11,661
Depreciation and impairment - right of use assets 12 14,585 10,473
Amortisation and impairment of intangible assets 11 16,810 13,688
Taxation 7 20,612 13,875
Share-based payments expense 23 18,678 16,394
Fair value adjustments to contingent consideration 5 2,282 5,567
Unwinding of discounted liabilities - deferred consideration 6 2,922 1,882
Unwinding of discounted liabilities - lease liabilities 6 969 985
Interest receivable 6 (309) (62)
Fair value adjustments to employee defined benefit plans 20 514 419
Interest expense 6 1,261 1,040
Unrealised foreign exchange (gain) / loss 766 583
97,455 76,505
Changes in operating assets and liabilities
Decrease / (increase) in trade receivables (11,771) (15,117)
Decrease / (increase) in MMTC and VGTR receivable (3,591) (4,502)
Decrease / (increase) in other receivables (6,457) 3,341
(Decrease) / increase in accruals, trade and other payables 18,785 20,158
(3,034) 3,880
Taxation paid (17,505) (23,948)
Net cash generated by / (used in) operating activities 124,286 90,545
Cash flows from investing activities
Current year acquisition of subsidiaries net of cash acquired 27 (87,494) (48,697)
Settlement of deferred liabilities on acquisitions 17 (25,800) (14,393)
Acquisition of property, plant and equipment 13 (27,007) (19,360)
Investment in intangible assets 11 (501) (315)
Other investment 14 - (175)
Interest received 309 62
Net cash generated by / (used in) investing activities (140,493) (82,878)
Cash flows from financing activities
Cash proceeds, where EBT shares were utilised for the exercise of share 22 505 -
options
Repayment of loans 18 (79) (80)
Payments of principal on lease liabilities (11,361) (9,953)
Interest paid on principal of lease liabilities 6 (969) (985)
Dividends paid (1,979) (615)
Shares issued for cash 22 6,785 5,338
Interest paid (828) (1,753)
Net cash generated by / (used in) financing activities (7,926) (8,048)
Increase / (decrease) in cash and cash equivalents (24,133) (381)
Exchange gain / (loss) on cash and cash equivalents 309 3,021
Cash and cash equivalents at beginning of the period 105,710 103,070
Cash and cash equivalents at end of the period 81,886 105,710
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 2022.
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 Company.
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
following:
· 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 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 €81.8m as at 31 December 2022, 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 assess the Group's resilience to adverse outcomes. This
assessment included a reasonable worst-case scenario in which the Group's
principal risks manifest to a severe but plausible level. Even under the most
severe case, the Group would have sufficient liquidity and remain within its
banking covenants. The Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue to operate and meet
liabilities as they fall due for the foreseeable future, a period considered
to be at least twelve months from the date of these financial statements and
therefore the going concern basis of preparation continues to be appropriate.
New Standards, Interpretations and Amendments effective 01 January 2022
A number of new amendments and interpretations to accounting standards are
effective from 01 January 2022 including:
· 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.
These amendments and interpretations have not resulted in in any Group
accounting policy changes, and have not had a material effect on the Group's
financial statements.
Other accounting pronouncements which have become effective from 01 January 2022 have not had a material impact on the Group.
New Standards, Interpretations and Amendments not yet effective
There are a number of standards, amendments to standards, and interpretations
which have been issued by the IASB that are effective in future accounting
periods that the Group has decided not to adopt early.
The following amendments effective for the period beginning 01 January 2023
are expected to be impactful on the Group moving forward:
· Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2): These amendments relate to the application of
materiality in relation to the disclosure of accounting policies, requiring
companies to disclose their material accounting policies rather than their
significant accounting policies, clarifying that accounting policies related
to immaterial transactions, other events or conditions are themselves
immaterial and as such need not be disclosed; and clarifying that not all
accounting policies that relate to material transactions, other events or
conditions are themselves material to a company's financial statements. The
Board will consider these amendments in the context of the 2023 Annual Report.
· Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12): Amendments effective 01 January
2023, narrow the scope of the initial recognition exemption so that it does
not apply to transactions that give rise to equal and offsetting temporary
differences e.g. Right of use assets and Lease liabilities. As a result in
2023, deferred tax assets and liabilities associated with leases will need to
be recognised gross from the beginning of the earliest comparative period
presented, with any cumulative effect recognised as an adjustment to retained
earnings or other components of equity at that date. The estimated impact of
adoption based on the carrying value of Right of Use Assets and Lease
Liabilities at 31 December 2022 would result in additional Deferred tax assets
of €9.6m and Deferred tax liabilities of €8.4m being recognised.
Other amendments effective for the period beginning 01 January 2023:
· Classification of Liabilities as Current or Non-current -
Amendments to IAS 1;
· Definition of Accounting Estimate - Amendments to IAS 8
The Group does not expect these other amendments, or any other standards
issued by the IASB but not yet effective, to have a material impact on the
Group.
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.
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. Player Support contracts may also involve digital support
platform software as a service. 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 Option Scheme and a Long-Term Incentive Plan
("LTIP"). Conditional awards under the rules of the LTIP Plan ("Salary
Shares") are also issued to certain employees and Directors.
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.
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
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.
o Operating Segments: While previously it was considered that the Group's
activity, as a single source supplier of services to the gaming industry,
constituted one operating and reporting segment (as defined under IFRS 8
Operating Segments), following on recent executive and organisational changes,
the Board consider it more meaningful to present information by segment
aligning to the new organisational and reporting structures:
§ Create - Game Development and Art Creation;
§ Globalize - Functional Testing, Localization Testing, Audio and
Localization; and,
§ Engage - Marketing and Player Support.
The Operating segments are reported in note 4, in a manner consistent with the
new internal organisational and management structure, and the internal
reporting information provided to the Chief Operating Decision Maker ("CODM")
who is responsible for allocating resources and assessing performance of the
operating segments. The CODM has been identified as the executive management
team made up of the Chief Executive Officer and the Chief Financial Officer.
As a corollary, the Board also considered how the change in segmental
reporting impacted the Group's cash generating units ("CGUs"). CGUs represent
the lowest level at which goodwill is monitored for internal management
purposes and are not larger than the operating segments determined in
accordance with IFRS 8. While previously the Group was considered to have one
CGU, the change in segmental reporting requires the Group's CGU's to be
re-considered. The Board determined that monitoring goodwill for impairment at
the line of business level (i.e. Art Creation, Game Development etc.) would be
the most appropriate (see note 11).
o Goodwill: Goodwill is required to be tested for impairment at least
annually or more frequently if changes in circumstances or the occurrence of
events indicating potential impairment exist. The Group uses the present value
of future cash flows to determine recoverable amounts. In calculating the
value in use, significant judgement and estimation is required in forecasting
cash flows of CGUs, in determining terminal growth values and in selecting an
appropriate discount rate.
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 Segmental Analysis and Revenue from Contracts with Customers
Segmental Analysis*
2022 2021
€'000 €'000
Revenue from external customers
Create 275,570 188,178
Globalize 300,875 231,901
Engage 114,273 92,121
690,718 512,200
Segment operating profit
Create 69,748 49,730
Globalize 61,577 47,383
Engage 15,576 12,987
146,901 110,100
Reconciliation of Segment operating profit
Adjusted EBITDA^ 146,901 110,100
Share-based payments expense (18,678) (16,394)
Costs of acquisition and integration (8,413) (7,972)
Non-controlling interest - (67)
Other income 1,098 -
Amortisation of intangible assets (16,810) (13,688)
Depreciation - property plant and equipment (18,365) (11,661)
Depreciation and impairment - right of use assets (14,585) (10,473)
Bank charges 662 520
Operating profit 71,810 50,365
Financing income 1,986 2,045
Financing cost (5,814) (4,427)
Profit before taxation 67,982 47,983
*The prior year comparatives have been re-classified to present information by
segment, aligning to the new organisational and reporting structures (see note
3).
^ The Group reports a number of alternative performance measures ("APMs"),
including Adjusted EBITDA, to present the financial performance of the
business, that are not GAAP measures as defined under IFRS. Segmental results
are reported in a manner consistent with these measures. A reconciliation of
Adjusted EBITDA to the relevant GAAP measure is presented in the APM's
section.
Operating segments are reported in a manner consistent with the internal
organisational and management structure, and the internal reporting
information provided to the Chief Operating Decision Maker ("CODM") who is
responsible for allocating resources and assessing performance of the
operating segments. The CODM 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
2022 2021
€'000 €'000
United States 264,117 171,126
United Kingdom 121,556 114,871
Canada 57,652 31,096
Australia 51,869 45,528
Italy 16,471 15,612
Poland 12,561 3,275
Ireland 10,311 8,422
Switzerland 10,025 10,025
China 9,296 8,296
France 7,150 7,548
Other 14,333 31,796
575,341 447,595
*The prior year comparatives have been re-classified to align to the current
year presentation and ranking, as the Directors consider this measure to be
more meaningful.
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.
Geographical analysis of revenues, by production location*
2022 2021
€'000 €'000
Canada 155,509 97,748
United States 120,722 96,060
United Kingdom 115,017 94,426
Poland 42,731 21,397
Italy 39,195 32,448
China 26,759 20,350
Russia 26,281 29,424
India 25,290 18,640
Japan 22,716 21,898
Australia 22,211 7,408
Other 94,287 72,401
690,718 512,200
*The prior year comparatives have been re-classified to align to the current
year presentation and ranking by production location.
For many contracts, operations are completed across multiple sites. Analysis
of revenues by geographical regions is presented by production 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.
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 2022 82,060 77,448 4,612 -
At 31 December 2021 55,294 44,973 9,319 1,002
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.
5 Cost of Sales and Operating Profit
2022 2021
Cost of sales €'000 €'000
Operating expenses 430,475 320,159
Multimedia tax credits / video game tax relief (21,540) (20,966)
Other direct costs 14,517 12,893
423,452 312,086
2022 2021
Operating profit is stated after charging / (crediting): €'000 €'000
Depreciation - property, plant and equipment 18,365 11,661
Depreciation and impairment - right of use assets 14,585 10,473
Amortisation of intangible assets 16,810 13,688
Costs of acquisition and integration 8,413 7,972
Auditor's remuneration 671 605
Short-term leases 2,140 1,531
Other income (1,098) -
2022 2021
Costs of acquisition and integration €'000 €'000
Acquisition and integrations costs re: current year acquisitions (note 27) 1,177 1,099
Acquisition and integrations costs re: prior acquisitions 631 191
Fair value adjustments to contingent consideration (note 17) 2,282 5,567
Deferred consideration related to continuing employment 3,266 454
Acquisition team and related costs 671 313
Other re-organisation and restructuring costs 386 348
8,413 7,972
2022 2021
Auditor's remuneration €'000 €'000
Audit services:
Parent company and Group audit 318 314
Subsidiary companies audit 358 278
Non-audit services:
Audit-related assurance services 13 13
689 605
2022 2021
Other income €'000 €'000
Gain on disposal of investment (1,098) -
(1,098) -
Other income represents the gain on disposal of the Group's investment in
AppSecTest in April 2022 (including related Non-controlling interest re-cycled
on disposal).
6 Financing Income and Cost
2022 2021
€'000 €'000
Financing income
Interest received 309 62
Foreign exchange gain 1,677 1,983
1,986 2,045
Financing cost
Bank charges (662) (520)
Interest expense (1,261) (1,040)
Unwinding of discounted liabilities - lease liabilities (969) (985)
Unwinding of discounted liabilities - deferred consideration (2,922) (1,882)
(5,814) (4,427)
Net financing income / (cost) (3,828) (2,382)
7 Taxation
2022 2021
€'000 €'000
Current income tax
Income tax on profits 25,844 17,632
Deferred tax (note 21) (5,232) (3,757)
20,612 13,875
The tax charge for the year can be reconciled to accounting profit as follows:
2022 2021
€'000 €'000
Profit before tax 67,982 47,983
Tax charge based on the Effective tax rate* 12,156 10,527
Income tax prior year (over) / under provision (653) (261)
Deferred tax prior year (over) / under provision and impact of change in tax (204) 148
rates
Items disallowed for tax purposes 7,468 3,430
Exempt and non-taxable income (72) (174)
Tax incentives (924) (951)
Current year tax losses utilised (250) (363)
Current year tax losses where deferred tax has not been provided 346 204
State and other direct taxes 932 658
Other differences - net 1,813 657
Total tax charge 20,612 13,875
*Effective tax rate - being the statutory tax rate relative to the profit 17.9% 21.9%
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.
2022 2021
Tax effects relating to each component of other comprehensive income €'000 €'000
Exchange gain / (loss) in net investment in foreign operations (7,947) 8,228
Tax (expense) / benefit 993 (1,029)
Net of tax amount (6,954) 7,199
Actuarial gain / (loss) on defined benefit plans 286 27
Tax (expense) / benefit - -
Net of tax amount 286 27
Exchange gain / (loss) on translation of foreign operations 6,144 14,581
Tax (expense) / benefit - -
Net of tax amount 6,144 14,581
8 Earnings per Share
2022 2021
€ cent € cent
Basic 61.54 45.16
Diluted 58.86 42.98
Earnings €'000 €'000
Profit for the period from continuing operations 47,370 34,108
Weighted average number of equity shares Number Number
Basic (i) 76,979,596 75,526,296
Diluting impact of share options (ii) 3,502,301 3,826,990
Diluted (i) 80,481,897 79,353,286
(i) Includes (weighted average) shares to be issued:
Number Number
67,802 219,146
(ii) Contingently issuable ordinary shares have been excluded where the
conditions governing exercisability have not been satisfied:
Number Number
LTIPs 409,728 903,656
Share options 511,411 -
921,139 903,656
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
Final 2021 Mar-22 1.70 1.45 1,305 Jun-22
Interim 2022 Sep-22 0.90 0.77 674 Oct-22
Dividends paid to shareholders 2022 2.60 2.22 1,979
In respect of Approval date Expected € cent per share Pence STG per share Expected total dividend €'000 Expected payment date
Recommended
Final 2022 Mar-23 1.80 1.60 1,406 Jun-23
At 31 December 2022, Retained earnings available for distribution (being
Retained earnings plus Share-based payments reserve) in the Company were
€77.6m (2021: €47.7m). 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
2022 2021
Total staff costs (including Directors) €'000 €'000
Salaries and related costs 345,857 263,036
Social welfare costs 27,788 30,455
Pension costs 7,222 6,685
Share-based payments expense 18,678 16,394
399,545 316,570
Average number of employees 2022 2021
Operations 10,272 8,821
General and administration 869 672
11,141 9,493
2022 2021
Key management compensation €'000 €'000
Salaries and related costs 2,258 1,569
Social welfare costs 431 201
Pension costs 54 25
Share-based payments expense 1,142 698
3,885 2,493
The key management compensation comprises compensation to ten Directors of
Keywords Studios plc during the year (2021: eleven).
11 Intangible Assets
Goodwill Customer relationships Intellectual property / Development costs Total
€'000 €'000 €'000 €'000
Cost
At 01 January 2021 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
Recognition on acquisition of subsidiaries 70,482 34,695 25,914 131,091
Additions - - 501 501
Disposals (159) - - (159)
Exchange rate movement 1,373 1,317 (134) 2,556
At 31 December 2022 396,733 104,337 30,395 531,465
Accumulated amortisation
At 01 January 2021 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
Amortisation charge - 16,285 525 16,810
Disposals (147) - - (147)
Exchange rate movement - 1,308 8 1,316
At 31 December 2022 - 58,301 3,211 61,512
Net book value
At 01 January 2022 324,890 27,617 1,436 353,943
At 31 December 2022 396,733 46,036 27,184 469,953
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 (pre-tax) discount rate used of 10.0% (2021: 12.5%) is based
on the Board's assessment of the weighted average cost of capital ("WACC") of
the Group.
A cash-generating unit ("CGU") is the smallest identifiable group of assets
that generates cash inflows that are largely independent of the cash inflows
from other assets or group of assets. The CGU's represent the lowest level
within the Group at which the associated goodwill is assessed for internal
management purposes and are not larger than the operating segments determined
in accordance with IFRS 8 Operating Segments. As outlined in note 3, the Board
have determined the lines of business as CGU's, and Goodwill acquired in
business combinations has been allocated to the CGUs that are expected to
benefit from business combinations to date.
A summary of the allocation of the carrying value of goodwill by segment and
by CGU is presented below:
2022 2021
Segment CGU €m €m
Create: Game Development 218 177
Art Creation 19 19
Globalize: Functional Testing 15 14
Localization Testing 14 13
Audio 33 32
Localization 19 17
Engage: Marketing 35 42
Player Support 44 11
397 325
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.
Key assumptions
Actual Sensitivity analysis
2022 2021 2022 2021 2022 2021
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) - all CGUs 1,295 792 1,552 947 1,096 673
Carrying value - goodwill (€m) 397 325
Sensitivity analysis has been performed across all the CGU's to flex the
growth rate by 5% and separately to flex the discount rate by 1%. Under both
scenarios there would have been no requirement for the Group to recognise any
impairment charge in either period presented, in any individual CGU. The
Directors consider that no reasonably probable change in the assumptions would
result in an impairment.
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.
2022 2021
€'000 €'000
Cost
At 01 January 63,840 44,092
Additions 15,249 15,392
Recognition on acquisition of subsidiaries 580 1,402
De-recognition of expired leases (14,186) -
Exchange rate movement 366 2,954
At 31 December 65,849 63,840
Accumulated depreciation
At 01 January 27,849 16,285
Depreciation charge 11,753 10,473
De-recognition of expired leases (14,186) -
Impairment charge 2,832 -
Exchange rate movement (71) 1,091
At 31 December 28,177 27,849
Net book value
At 01 January 35,991 27,807
At 31 December 37,672 35,991
13 Property, Plant and Equipment
Computers and software Office furniture and equipment Leasehold improvements Total
€'000 €'000 €'000 €'000
Cost
At 01 January 2021 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
Exchange rate movement (94) (109) 105 (98)
Additions 21,962 1,129 3,916 27,007
Acquisitions through business combinations at fair value 243 131 48 422
Disposals (1,132) (490) (828) (2,450)
At 31 December 2022 64,028 9,875 18,169 92,072
Accumulated depreciation
At 01 January 2021 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
Exchange rate movement 47 71 82 200
Depreciation charge 12,539 799 5,027 18,365
Disposals (1,133) (490) (827) (2,450)
At 31 December 2022 36,021 4,690 6,577 47,288
Net book value
At 01 January 2022 18,481 4,904 12,633 36,018
At 31 December 2022 28,007 5,185 11,592 44,784
14 Investments
2022 2021
€'000 €'000
Investments 175 175
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
2022 2021
€'000 €'000
Trade receivables 85,012 69,835
Provision for bad debts (note 24) (3,449) (1,768)
Financial asset held at amortised cost 81,563 68,067
Trade receivables arise from revenues derived from contracts with customers.
16 Other Receivables
2022 2021
Current €'000 €'000
Multimedia tax credits / video games tax relief 25,756 22,860
Accrued income from contracts with customers 13,220 9,997
Prepayments and rent deposits 10,527 7,114
Tax and social security 6,538 4,936
Other receivables 5,374 4,203
61,415 49,110
Accrued income from contracts with customers represent mainly contract assets
in process and related items.
17 Other Payables
2022 2021
€'000 €'000
Current liabilities
Accrued expenses 64,734 53,526
Payroll taxes 3,577 2,666
Deferred and contingent consideration (i) 44,945 35,888
Other payables (ii) 26,099 16,343
139,355 108,423
2022 2021
€'000 €'000
Non-current liabilities
Deferred and contingent consideration (i) 18,308 18,254
18,308 18,254
(i) The movement in deferred and
contingent consideration during the financial year was as follows:
2022 2021
€'000 €'000
Carrying amount at the beginning of the year 54,142 20,802
Consideration settled by cash (25,800) (14,393)
Consideration settled by shares (8,040) (2,838)
Unwinding of discount (note 6) 2,922 1,882
Additional liabilities from current year acquisitions (note 27) 37,950 40,059
Adjustment arising from prior year business combinations 2,282 5,567
Exchange rate movement (203) 3,063
Carrying amount at the end of the year 63,253 54,142
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 €1.0m,
while a 10% reduction in expected performance would decrease the carrying
value by €4.0m. On an undiscounted basis, the Group may be liable for
deferred and contingent consideration ranging from €7.7m to a maximum of
€66.6m.
(ii) Other payables includes deferred income
from contracts with customers of €9,127k (2021: €3,470k), which mainly
comprise items invoiced prior to services being delivered. Excluding amounts
recognised on acquisition of subsidiaries (€3,461k, see note 27), the
movement in the year comprises transfers in and out as items are deferred and
subsequently recognised as revenue.
18 Loans and Borrowings
2022 2021
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 51 129
51 129
51 129
Currency denomination
Canadian dollars 51 129
The Company has an unsecured revolving credit facility ("RCF") in place with a
syndicate of four lenders. The 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 RCF agreement extends to December
2024, with an option to extend the term by two further one-year periods. The
first extension (to 2025) was triggered during 2022.
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. 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.
In connection with the financial covenants of the RCF, the Group is 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.
The movements in Loans and borrowings are as follows:
Current Non-current Total
€'000 €'000 €'000
At 01 January 2021 73 122 195
Cash flows:
Drawdowns - - -
Repayments - (80) (80)
Non-cash flows:
Exchange rate movement 8 6 14
At 31 December 2021 81 48 129
Cash flows:
Drawdowns - - -
Repayments (37) (42) (79)
Non-cash flows:
Recognition on acquisition of subsidiaries (note 27) - - -
Exchange rate movement 1 - 1
At 31 December 2022 45 6 51
There were no drawdowns on the RCF during 2022. Loans outstanding refer to
amounts owed by Keywords Studios QC-Interactive Inc.
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:
2022 2021
€'000 €'000
Carrying amount at the beginning of the year 37,635 28,864
Recognition on acquisition of subsidiaries (note 27) 580 1,402
Liabilities recognised on new leases in the period 15,244 15,392
Unwinding of discounted liabilities - lease liabilities 969 985
Payment of principal and interest on lease liabilities (12,330) (10,938)
Exchange rate movement 421 1,930
Carrying amount at the end of the year 42,519 37,635
The value of leases not yet commenced to which the lessee is committed, which
are not included in lease liabilities at 31 December 2022, was €nil (2021:
€nil).
2022 2022 2022 2021 2021 2021
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 12,740 326 12,414 12,059 842 11,217
Non-current
Later than one year and not later than five years 26,491 1,447 25,044 21,299 1,488 19,811
Later than five years 5,317 256 5,061 7,000 393 6,607
31,808 1,703 30,105 28,299 1,881 26,418
At 31 December 44,548 2,029 42,519 40,358 2,723 37,635
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:
2022 2021
Lease payments not recognised as a liability €'000 €'000
Short-term leases 2,140 1,531
Leases of low value assets - -
2,140 1,531
The future minimum lease payments related to these leases
Not later than one year 1,282 516
Later than one year and not later than five years - -
Later than five years - -
1,282 516
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:
2022 2021
€'000 €'000
Opening liabilities at 01 January 3,088 2,693
Service cost 514 419
Interest cost 51 33
Benefits paid (155) (141)
Actuarial (gain) / loss (286) (27)
Exchange rate movement (351) 111
Closing liabilities at 31 December 2,861 3,088
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 2023, 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.
2022 2021
Cost for year €'000 €'000
Service cost 514 419
Interest cost 51 33
Actuarial (gain) / loss (286) (27)
279 425
2022 2021
Actuarial (gain) / loss €'000 €'000
Change due to experience 80 41
Change due to demographical assumptions (89) (9)
Change due to financial assumptions (277) (59)
(286) (27)
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 2022 2021
Staff salary increase rate 4.87% 4.07%
Inflation rate 4.87% 3.04%
Discount rate 3.62% 1.67%
Key statistics 2022 2021
Staff (number) 945 874
Average age (years) 32 31
Average service (years) 4 4
2022 2021
Interest rate sensitivities €'000 €'000
(0.25)% 2,987 3,176
0.25% 2,782 2,880
2022 2021
Mortality rate sensitivities €'000 €'000
(0.025)% 2,876 3,018
0.025% 2,875 3,015
2022 2021
Staff turnover rate sensitivities €'000 €'000
(0.50)% 2,886 3,049
0.50% 2,863 2,985
2022 2021
Staff salary increase rate sensitivities €'000 €'000
(0.50)% 2,849 2,976
0.50% 2,916 3,072
21 Deferred Tax
Details of the deferred tax assets and liabilities, and amounts recognised in
the Consolidated statement of comprehensive income are as follows:
2022 2022 2022 2022
€'000 €'000 €'000 €'000
Assets Liabilities Net (Credited) / charged to income statement
Defined benefit termination payments 308 124 184 144
Available losses 2,830 13 2,817 (1,000)
Rent-free period provisions 258 - 258 (36)
Fixed asset tax base versus accounting book value 1,092 1,983 (891) 1,007
Deferred tax related to tax credits (2) 3,877 (3,879) 309
Deferred tax arising on items deductible on a paid basis 8,879 2,091 6,788 (2,992)
Recognition on acquisition of subsidiaries 15,393 13,341 2,052 -
Deferred tax arising on intangibles 11,293 4,482 6,811 (1,892)
Offset where legally enforceable right of set off exists (17,294) (17,294) - -
Net tax assets / liabilities 22,757 8,617 14,140 (4,460)
Impact of change in tax rates 13
Prior year (over) / under provision (785)
Total (credited) / charged to income statement (5,232)
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)
Offset where legally enforceable right of set off exists - - - -
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)
The deferred tax asset not recognised on available losses at the period end is €3.8m (2021: €3.2m). Deferred tax assets and deferred tax liabilities are offset where a legally enforceable right to offset the recognised amounts exists, the deferred tax assets and deferred tax liabilities relate to taxes levied by the same taxation authority, and the Group anticipates they will be settled either at the same time or, on a net basis.
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 2021 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
Acquisition-related issuance of shares:
Waste 24-Jan-22 30.78 20,585 (20,585) - (634) - 633
Heavy Iron 03-Feb-22 31.84 12,914 (12,914) - (411) - 411
Heavy Iron related adjustment 03-Feb-22 31.84 53 - - - - -
Jinglebell 11-Mar-22 25.94 11,564 (11,564) - (300) - 300
Tantalus Media 04-Jul-22 31.03 28,473 - - - 884 -
Forgotten Empires 28-Jul-22 28.41 - 60,857 - 1,729 - -
Forgotten Empires 28-Jul-22 27.44 - 26,881 - 738 - -
Mighty Games 03-Aug-22 28.74 - 28,443 - 817 - -
Climax 08-Aug-22 28.71 135,559 - 2 - - 3,889
AMC 31-Aug-22 33.49 25,081 (25,081) - (840) - 840
Smoking Gun 05-Oct-22 25.78 - 107,025 - 2,759 - -
Mighty Games 25-Oct-22 28.74 28,443 (28,443) - (817) 817 -
Smoking Gun 25-Oct-22 25.78 107,025 (107,025) 2 (2,759) - 2,758
G-Net Media 25-Nov-22 33.56 114,038 - 2 - - 4,147
Acquisition-related issuance of shares 483,735 17,594 6 282 1,701 12,978
Employee Share Purchase Plan 33,372 - - - 909 -
Exercise of share options 1,197,175 - 14 - 5,862 -
At 31 December 2022 77,990,057 87,738 924 2,467 47,021 286,655
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 20 May 2022 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 3,818,215 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 4 April 2022); and
b) Otherwise, up to 25,454,768 shares (33.3% of the Company's
issued share capital as at 4 April 2022).
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 2022 AGM will expire on the earlier of (i)
fifteen months after 20 May 2022; and (ii) the conclusion of the 2023 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")
2022 2021
Shares €'000 Shares €'000
Ordinary shares held in the EBT - - 335,425 1,997
During the period all of the shares held in the EBT were utilised for the
exercise of share options.
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:
2022 2021
€'000 €'000
Share option scheme expense 2,689 3,446
LTIP option scheme expense 15,888 12,904
Employee Share Purchase Plan 101 44
Share-based payments expense 18,678 16,394
Of the total Share-based payments expense, €1,142k relates to Directors of
the Company (2021: €698k).
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:
2022 2021
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 15.65 2,423,568 12.66 2,345,238
Granted - - 25.48 616,000
Lapsed 19.17 (133,323) 18.96 (163,791)
Exercised 7.88 (704,426) 11.46 (373,879)
Outstanding at the end of the period 18.78 1,585,819 15.68 2,423,568
Exercisable at the end of the period 15.19 481,319 6.74 668,734
Weighted average share price at date of exercise 23.57 27.42
Summary by year
Year of Option 2015 2016 2017 2018 2019 2020 2021 2022 Total
Exercise price £1.58 £2.54 £7.76 £17.10 £15.88 £15.93 £25.48 -
Outstanding at the beginning of the period 385,295 20,577 57,000 244,924 452,750 698,022 565,000 - 2,423,568
Granted - - - - - - - - -
Lapsed (4,442) - - (8,000) (11,270) (56,022) (53,589) - (133,323)
Exercised (380,853) (6,238) (15,450) (85,405) (120,830) (95,650) - - (704,426)
Outstanding at the end of the period - 14,339 41,550 151,519 320,650 546,350 511,411 - 1,585,819
Exercisable at 31 December 2022 - 14,339 41,550 151,519 153,150 120,350 411 - 481,319
Exercisable 2023 - - - - 167,500 213,000 170,333 - 550,833
Exercisable 2024 - - - - - 213,000 170,333 - 383,333
Exercisable 2025 - - - - - - 170,334 - 170,334
Exercisable 2026 - - - - - - - - -
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 2022 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 - 16
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:
2022 2021
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 3,704,898 0.01 3,692,817
Granted 0.01 901,690 0.01 932,656
Lapsed 0.01 (130,241) 0.01 (312,006)
Exercised 0.01 (828,174) 0.01 (608,569)
Outstanding at the end of the period 0.01 3,648,173 0.01 3,704,898
Exercisable at the end of the period 0.01 741,212 0.01 559,506
Weighted average share price at date of exercise 24.73 27.62
Summary by year
Year of Option 2015 2016 2017 2018 2019 2020 2021 2022 Total
Exercise price £0.01 £0.01 £0.01 £0.01 £0.01 £0.01 £0.01 £0.01
Outstanding at the beginning of the period 39,000 85,888 105,036 329,582 1,018,536 1,223,200 903,656 - 3,704,898
Granted - - - - - - - 901,690 901,690
Lapsed - - - - (8,656) (52,410) (58,349) (10,826) (130,241)
Exercised (39,000) (64,200) (60,293) (143,582) (521,099) - - - (828,174)
Outstanding at the end of the period - 21,688 44,743 186,000 488,781 1,170,790 845,307 890,864 3,648,173
Exercisable at 31 December 2022 - 21,688 44,743 186,000 488,781 - - - 741,212
Exercisable 2023 - - - - - 1,170,790 - - 1,170,790
Exercisable 2024 - - - - - - 845,307 - 845,307
Exercisable 2025 - - - - - - - 890,864 890,864
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 2022 Weighted average
Weighted average share price (£) £1.60 £2.56 £7.75 £17.24 £16.05 £16.00 £26.42 £22.31
Weighted average exercise price (£) £0.01 £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 €15.70
Average expected life 3 Years 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% 41.22%
Risk-free rates 0.88% 0.54% 0.16% 0.89% 0.81% 0.07% 0.13% 1.59%
Weighted average remaining life of options in months - - - - - 5 17 29 13
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
Conditional awards under the rules of the LTIP Plan ("Salary Shares"), are
issued to certain employees and Directors, where the only vesting condition is
continuous service.
Movements in the number of share options outstanding and their related
weighted average exercise prices are as follows:
2022 2021
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 26,738 - -
Granted 0.01 237,676 0.01 26,738
Lapsed 0.01 (953) - -
Vested 0.01 (3,838) - -
Outstanding at the end of the period 0.01 259,623 0.01 26,738
Summary by year
Year of Option 2021 2022 Total
Exercise price £0.01 £0.01
Outstanding at the beginning of the period 26,738 - 26,738
Granted - 237,676 237,676
Lapsed (953) - (953)
Vested (1,638) (2,200) (3,838)
Outstanding at the end of the period 24,147 235,476 259,623
Vesting 2023 - 5,928 5,928
Vesting 2024 24,147 225,740 249,887
Vesting 2025 - 3,808 3,808
Details of the awards by year are as follows:
Year of Option 2021 2022 Weighted average
Weighted average share price (£) £27.40 £22.41
Weighted average exercise price (£) £0.01 £0.01
Fair value at measurement date (€) €32.08 €26.47
Average expected life 3 Years 2 Years
Weighted average remaining life of options in months 20 17 17
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.
As there were no drawdowns on the RCF in either period presented, any
strengthening or weakening of interest rates would not have been impactful on
the pre-tax profit / (loss) reported for the year.
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. 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.
Credit risk arises on trade receivables and accrued income from contracts with
customers (reported within other receivables). Trade and other receivables are
carried on the Consolidated statement of financial position net of provisions.
Trade Receivables
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 73.0% of the total trade receivables balance at
the balance sheet date (2021: 77.5%).
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 2022 81,563 59,532 16,803 5,228
At 31 December 2021 68,067 52,753 14,192 1,122
A provision for doubtful debtors is included within trade receivables and can
be reconciled as follows:
2022 2021
€'000 €'000
Provision at the beginning of the year 1,768 1,982
Impairment of financial assets (trade receivables) charged to administration 1,733 821
expenses
Foreign exchange movement in the year 79 63
Utilised (131) (1,098)
Provision at the end of the year 3,449 1,768
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% (2021: 1.0%). 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.
Total Not past due 1-2 months past due More than 2 months past due
€'000 €'000 €'000 €'000
Trade receivables gross 85,012 60,134 17,175 7,703
Credit impaired (2,598) - (200) (2,398)
Expected credit losses (851) (602) (172) (77)
At 31 December 2022 81,563 59,532 16,803 5,228
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
Accrued income from contracts with customers
Accrued income from contracts with customers balances comprise a large number
of projects in process spread across the Group's activities and geographies,
with balances classified as aged "0-30 days" representing 76.6% of the balance
at the balance sheet date (2021: 74.1%).
The ageing of accrued income from contracts with customers can be analysed as
follows:
Total 0-30 days 31-60 days 60+ days
€'000 €'000 €'000 €'000
At 31 December 2022 13,220 10,124 3,096 -
At 31 December 2021 9,997 7,412 2,162 423
Accrued income from contracts with customers loss allowance is estimated using
a practical expedient to arrive at lifetime expected credit losses using a
historical credit loss experience of 1.0% (2021: 1.0%). 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.
Total 0-30 days 31-60 days 60+ days
€'000 €'000 €'000 €'000
Accrued income from contracts with customers gross 16,652 10,227 3,897 2,528
Credit impaired (3,265) - (762) (2,503)
Expected credit losses (167) (103) (39) (25)
At 31 December 2022 13,220 10,124 3,096 -
Total 0-30 days 31-60 days 60+ days
€'000 €'000 €'000 €'000
Accrued income from contracts with customers gross 12,582 7,487 2,663 2,432
Credit impaired (2,459) - (474) (1,985)
Expected credit losses (126) (75) (27) (24)
At 31 December 2021 9,997 7,412 2,162 423
Accrued income from contracts with customers represent mainly contract assets
in process and related items. Excluding movements in the provision, the
movement in the year comprises transfers in and out as items are accrued and
subsequently invoiced to customers, with no significant amounts recognised on
the acquisition of subsidiaries.
Related Party Receivables
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:
2022 2022 2021 2021
€'000 €'000 €'000 €'000
10% 10% 10% 10%
Strengthening
Weakening
Strengthening
Weakening
US dollar to euro 5,981 (4,894) 5,545 (4,536)
Sterling to euro 365 (299) (1,333) 1,091
Canadian dollar to euro 591 (483) 169 (138)
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 €44.6m of
current assets, including cash of €81.9m 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 2022 €'000 €'000 €'000 €'000 €'000 €'000
Trade payables 15,878 15,878 15,878 - - -
Deferred and contingent consideration (i) 63,253 66,598 45,115 20,031 1,452 -
Other payables (ii) 94,410 106,410 94,410 7,000 5,000 -
Loans and borrowings 51 51 45 6 - -
Loan interest - 2 2 - - -
Lease liabilities 42,519 44,548 12,740 9,267 17,224 5,317
Total 216,111 233,487 168,190 36,304 23,676 5,317
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 (ii) 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
(i) Deferred and contingent consideration at 31 December 2022 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 €66.6m.
(ii) Other payables contractual cash flows include liabilities of
€15.0m (2021: €8.0m), for Deferred and contingent consideration related to
continuous employment at Helpshift and Waste, where the purchase agreement for
those acquisitions included deferred consideration contingent on both
pre-defined profit and / or revenue targets being exceeded and also tied to
the retention of key staff, that are considered post-acquisition expenses
under IFRS 3.
25 Capital Management
2022 2021
Group €'000 €'000
Loans and borrowings (note 18) 51 129
Less: cash and cash equivalents (81,886) (105,710)
Net debt / (net cash) position (81,835) (105,581)
Total equity 557,091 472,120
Net debt / (net cash) to capital ratio (14.7)% (22.4)%
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
The details of key management compensation (being the remuneration of the
Directors) are set out in note 10.
27 Business Combinations
2022 2021
€'000 €'000
Details of goodwill and the fair value of net assets acquired
Book value:
Property, plant and equipment 422 572
Right of use assets 580 1,402
Trade and other receivables - gross 6,145 7,439
Bad debt provision - (7)
Cash and cash equivalents 5,401 10,618
Trade and other payables (4,762) (8,245)
Deferred income (3,461) -
Lease liabilities (580) (1,402)
Book value of identifiable assets and liabilities acquired 3,745 10,377
Fair value adjustments:
Identifiable intangible assets - Customer relationships 34,695 11,502
Identifiable intangible assets - Intellectual property 25,914 -
Deferred tax assets 15,393 2,539
Deferred tax liabilities (13,341) (3,006)
Total fair value adjustments 62,661 11,035
Net assets acquired 66,406 21,412
Goodwill from current year acquisitions 70,482 97,918
Total purchase consideration 136,888 119,330
Details of purchase consideration and outflows from current acquisitions
Cash 92,895 59,314
Deferred cash 8,993 1,565
Deferred consideration contingent on performance 28,957 33,726
Combination put / call options to acquire residual 15% of Tantalus - 4,768
Shares to be issued 6,043 19,957
Total purchase consideration 136,888 119,330
Related acquisition costs charged to the Consolidated statement of 1,177 1,099
comprehensive income:
Number of shares:
Shares issued on acquisition 135,468 621,852
Fixed number of shares to be issued 87,738 37,994
Net cash outflow arising on acquisition:
Cash paid in the period 92,895 59,314
Less: cash and cash equivalent balances transferred (5,401) (10,617)
Net cash outflow arising on acquisition 87,494 48,697
Details of pro forma revenues and profitability of current acquisitions
Pre-acquisition revenue in H1 19,329 10,779
Pre-acquisition revenue in H2 12,070 5,566
Pre-acquisition revenue 31,399 16,345
Pre-acquisition revenue with Keywords Group - (1,908)
Post-acquisition revenue 9,106 24,990
Pro forma revenue 40,505 39,427
Pre-acquisition profit before tax 1,601 2,573
Post-acquisition profit before tax 3,440 9,653
Pro forma profit before tax 5,041 12,226
Disclosures required by IFRS 3 Business Combinations are provided separately
for those individual acquisitions that are considered to be material, and in
aggregate for individually immaterial acquisitions. Acquisitions are
considered individually material if the impact on the Group's Revenue and
Adjusted Profit Before Tax measures (on an annualised basis) is greater than
5%*. None of the business combinations completed during the period were
considered individually material and therefore warrant separate disclosure.
During the period, the Group completed five acquisitions, Forgotten Empires,
Mighty Games, Smoking Gun, LabCom, and Helpshift, purchasing 100% of the share
capital of these businesses. The aggregate amounts recognised in respect of
the identifiable assets acquired and liabilities assumed on acquisitions
completed in the period are set out in the table above. Details of the
purchase consideration and other information relevant to the evaluation of the
financial effect of the acquisitions are also presented.
Total purchase consideration of €136.9m includes amounts attributable to
Forgotten Empires €35.0m, Mighty Games €6.5m, Smoking Gun €30.2m and
Helpshift €63.0m, while Goodwill from current year acquisitions of €70.5m
includes amounts related to Forgotten Empires €11.8m, Mighty Games €6.1m,
Smoking Gun €22.4m, and Helpshift €29.3m. Identifiable intangible assets
- Customer relationships of €34.7m includes amounts attributable to
Forgotten Empires €17.8m, Smoking Gun €9.1m and Helpshift €7.8m, while
Identifiable intangible assets - Intellectual property of €25.9m is mainly
attributable to Helpshift.
Total purchase consideration, excludes €6.0m of Deferred and contingent
consideration related to continuous employment at Helpshift, where the
purchase agreement includes deferred consideration contingent on both
pre-defined profit and / or revenue targets being exceeded and which is also
tied to the retention of key staff, that are considered post-acquisition
expenses under IFRS 3 (note 24).
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 €30.3m (for which a
deferred tax asset has been recognised of €7.2m).
*The Group reports a number of alternative performance measures ("APMs"),
including Pro forma revenue and Adjusted Profit Before Tax, to present the
financial performance of the business, that are not GAAP measures as defined
under IFRS. A reconciliation of these measures to the relevant GAAP measure
is presented in the APM's section.
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 2022 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, Suite 8400, Montreal, QC H3K 1G6, Canada
Alset Limited UK 17-Aug-18 100% 110 High Holborn, London, WC1V 6JS, UK(+)
AMC RO Studios S.R.L Romania 11-Aug-21 100% Stirbei Voda 36, etaj 1, sector 1, Bucharest, Romania
Babel Media Limited * UK 17-Feb-14 100% 110 High Holborn, London, WC1V 6JS, 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% 110 High Holborn, London, WC1V 6JS, UK(+)
Blindlight, LLC USA 08-Jun-18 100% 1111 South Flower Street, Suite 101, Burbank, CA 91502,USA
Climax Development Limited UK 22-Apr-21 100% 110 High Holborn, London, WC1V 6JS, UK(+)
Climax Studios Limited UK 22-Apr-21 100% 110 High Holborn, London, WC1V 6JS, UK(+)
Coconut Lizard Limited UK 25-Jun-20 100% 110 High Holborn, London, WC1V 6JS, UK(+)
Cord Worldwide Limited UK 07-Apr-18 100% 110 High Holborn, London, WC1V 6JS, UK(+)
d3t Development Limited UK 30-Aug-18 100% 110 High Holborn, London, WC1V 6JS, UK(+)
d3t Limited UK 19-Oct-17 100% 110 High Holborn, London, WC1V 6JS, 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% 3rd floor, Vardhman Orchard Plaza, Plot No 4, LSC, West Enclave, Pitampura,
New Delhi, 110034, India
Electric Square Limited UK 17-Aug-18 100% 110 High Holborn, London, WC1V 6JS, 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% 110 High Holborn, London, WC1V 6JS, UK(+)
Forgotten Empires LLC USA 28-Jul-22 100% 8730 Cincinnati Dayton Rd. #1072, West Chester, OH 45071, USA
Forgotten Software S.L.U Spain 28-Jul-22 100% nº 1 - La Cala Del Moral Rincon De La Victoria calle Murillo
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
Heavy Iron Studios, Inc USA 12-Jan-21 100% 1600 Rosecrans Ave., Bldg 7 Ste 300, MBS Media Campus, Manhattan Beach CA,
90266, USA
Helpshift Inc USA 15-Dec-22 100% 343 Sansome Street, Suite 500, San Francisco, California, 94104, USA
Helpshift Information Technology (Shanghai) Co. Ltd China 15-Dec-22 100% Southwest Area, 3rd Floor, No. 2123 Pudong Avenue, Shanghai, China
Helpshift Technologies Private Limited India 15-Dec-22 100% 3rd floor, Vardhman Orchard Plaza, Plot No 4, LSC, West Enclave, Pitampura,
New Delhi, 110034, India
Helpshift UK Ltd UK 15-Dec-22 100% New Penderel House 4th Floor, 283 - 288 High Holborn, London, WC1V 7HP, United
Kingdom
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 Limited UK 26-Nov-19 100% 110 High Holborn, London, WC1V 6JS, UK(+)
Indigo Pearl Limited UK 15-Dec-20 100% 110 High Holborn, London, WC1V 6JS, UK(+)
Itsy SGD Limited UK 17-Aug-18 100% 110 High Holborn, London, WC1V 6JS, UK(+)
Jinglebell S.r.l. Italy 10-Dec-20 100% Via Marco d'Oggiono 12, 20123, Milan, Italy
Jurango Pty Limited ~~ Australia 20-Dec-21 85% 29 Thornton Crescent, Mitcham, VIC 3132, Australia
Keywords (Shanghai) Information Technology Limited China 02-Apr-15 100% Room 701, Building 5, No.860 Dong Ti Yu Hui 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% 110 High Holborn, London, WC1V 6JS, 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, Suite 8400, Montreal, QC H3K 1G6, Canada
Keywords do Brasil Localização e Tradução Ltda Brazil 18-Jan-15 100% Rua Professor Aprígio Gonzaga, 35 - 7º andar - São Judas - São Paulo - SP
CEP: 04303-000, 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% 1-22-19 Izumi, Suginami-ku, Tokyo, 168-0063 Japan
Keywords International Limited * Ireland 13-May-98 100% Whelan House, South County Business Park, Leopardstown, Dublin 18, D18 T9P8,
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 Sperasoft LLC Armenia 07-Apr-22 100% 18/1 Vardanants str., 3rd floor, Yerevan 0010, Armenia
Keywords Studios B.C., Inc. Canada 27-Oct-17 100% 1700-1075 West Georgia Street, Vancouver, BC, V6E 3C, Canada
Keywords Studios d.o.o. Beograd Serbia 18-May-22 100% Belgrade, BULEVAR MIHAJLA PUPINA 10L, floor 9, Belgrade-New Belgrade, NEW
BELGRADE, 11070, Serbia
Keywords Studios France SAS France 08-Jun-16 100% 59 Boulevard Exelmans, 75016 Paris, France
Keywords Studios India Private Limited India 17-Feb-14 100% 3rd floor, Vardhman Orchard Plaza, Plot No 4, LSC, West Enclave, Pitampura,
New Delhi, 110034, India
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 Malta Limited Malta 04-May-22 100% Level 3, Valletta Buildings, South Street, Valletta VLT 1103, Malta
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, Montreal, QC H3K 1G6, Canada
Keywords Studios QC-Interactive Inc. Canada 16-Nov-16 100% 1751 Richardson, Suite 8400, Montreal, QC H3K 1G6, Canada
Keywords Studios QC-Tech Inc. Canada 06-Jan-15 100% 1751 Richardson, Suite 8400, Montreal, QC H3K 1G6, Canada
Keywords Studios Romania S.R.L. Romania 15-Jun-21 100% 6-8 Corneliu Coposu Bvd., Unirii View Building, office 103, 1st floor, 3rd
district, Bucharest, Romania
Keywords Studios Spain SLU Spain 16-Jul-15 100% Julián Camarillo 6A, 3B, 28037 Madrid, Spain
Keywords Studios Texas, LLC USA 22-Jan-20 100% 7800 Shoal Creek Blvd. Suite 240S, Austin, Texas 78757, USA
Keywords Studios Unlimited Company * Ireland 27-Mar-18 100% Whelan House, South County Business Park, Leopardstown, Dublin 18, D18 T9P8,
Ireland
Keywords Studios US Inc USA 24-Oct-17 100% 251 Little Falls Drive, Wilmington, New Castle, DE 19808, USA
Keywords Treasury Holdings Limited Ireland 30-Nov-22 100% Whelan House, South County Business Park, Leopardstown, Dublin 18, D18 T9P8,
Ireland
Keywords UK Holdings Limited UK 28-Mar-18 100% 110 High Holborn, London, WC1V 6JS, 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% 110 High Holborn, London, WC1V 6JS, UK(+)
Laboratorio Comunicazione S.r.l. Italy 04-Nov-22 100% Via Lazzaro Spallanzani 6, 20129 Milan, Italy
Laced Music Limited UK 07-Apr-18 100% 110 High Holborn, London, WC1V 6JS, UK(+)
Laced Publishing Limited UK 07-Apr-18 100% 110 High Holborn, London, WC1V 6JS, 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% 110 High Holborn, London, WC1V 6JS, UK(+)
Lonsdale Miller Limited UK 15-Dec-20 100% 110 High Holborn, London, WC1V 6JS, UK(+)
Maverick Media Limited UK 27-Aug-20 100% 110 High Holborn, London, WC1V 6JS, UK(+)
Mighty Developments Pty Limited ~~ Australia 03-Aug-22 85% 29 Thornton Crescent, Mitcham, VIC 3132, Australia
Mighty Games Group Pty Limited ~~ Australia 03-Aug-22 85% 29 Thornton Crescent, Mitcham, VIC 3132, Australia
Mighty Games Productions Pty Limited ~~ Australia 03-Aug-22 85% 29 Thornton Crescent, Mitcham, VIC 3132, Australia
Player Research Limited UK 26-Oct-16 100% 110 High Holborn, London, WC1V 6JS, UK(+)
PT Limitless Indonesia Indonesia 19-May-17 100% JI. Timoho II, No. 32, Muja Muju, Kota Yogyakarta, Indonesia
Smoking Gun Interactive Inc Canada 05-Oct-22 100% 1100-333 Seymour St, Vancouver, BC V6B 5A6, Canada
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% Kraj Polska, woj. Małopolskie, powiat Kraków, miejsc. Kraków, ul. Na
Kozłóce 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% 110 High Holborn, London, WC1V 6JS, UK(+)
Strongbox Limited Seychelles 19-May-17 100% 306 Victoria House, Victoria, Mahe, Seychelles
Studio Gobo Limited UK 17-Aug-18 100% 110 High Holborn, London, WC1V 6JS, 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 85% 12 Spring Street, Fitzroy, Victoria, 3065, Australia
The Trailerfarm Limited UK 13-Sep-18 100% 110 High Holborn, London, WC1V 6JS, UK(+)
TV+SYNCHRON Berlin GmbH Germany 01-Oct-19 100% Moriz-Seeler-Strasse 5-7, Franz Ehrlich Haus, 12489, Berlin, Germany
Waste Creative Limited UK 16-Dec-21 100% 110 High Holborn, London, WC1V 6JS, UK(+)
Waste Holdings Limited UK 16-Dec-21 100% 110 High Holborn, London, WC1V 6JS, UK(+)
Wicked Witch Software Pty Limited ~~ Australia 20-Dec-21 85% 29 Thornton Crescent, Mitcham, VIC 3132, Australia
Wizcorp Inc. Japan 18-Apr-19 100% 1-22-19 Izumi, Suginami-ku, Tokyo, 168-0063 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 on 1 February 2023
~ A combination of put and call options are in place requiring the sellers to
sell, or the Group to buy the remaining 15% shareholding three years from
acquisition. The Group has accounted for the acquisition as if a 100% interest
was acquired on acquisition (see note 3).
~~ Wholly owned subsidiary of Keywords Australia Pty Limited. The Group has
accounted for the company as if a 100% interest was held (see note 3).
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
AppSecTest Limited UK 22-Jan-19 49% 13-Apr-22 Dissolved
Ichi Creative Limited USA 26-Nov-19 100% 15-Dec-20 Dissolved
29 Significant Events and Events after the Reporting Date
Crisis in Ukraine
In 2022, the Group's operations have been impacted by the tragic events in
Ukraine. Whilst the Group do not have operations in Ukraine, the Group does
have Game Development teams in Russia, and also works with a number of
freelance suppliers in Ukraine. Our priority has been to support our people
and our freelance suppliers in the territory, whilst contributing to the wider
humanitarian efforts in the region.
In the period, the Group produced €26.3m of Revenue in Russia, down from
€29.4m in 2021, and represents approximately 3.8% of Group revenue, down
from 5.7% in 2021. During the period, a significant number of projects
supported in Russia have been transferred to other parts of the Group, as we
ramp up production capacity in these locations with a combination of employees
relocating from Russia and local hires. As a consequence revenues produced in
Russia were approximately 1.7% of Group revenue in December 2022.
We continue to work with our customers supporting their preferences for where
their work should be performed. We also remain focused on mitigating any
potential business interruption or other risks associated with our activities
in Russia. As a consequence, we expect the volume of work produced in Russia
to continue to reduce over time.
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 net current assets or
non-current assets located in Russia. Thus any exposure to impairment of
assets located in Russia is not considered material.
As a consequence of the crisis, an additional impairment assessment was
performed in the Game Development CGU, 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 the contribution from all Russian located production capacity
was excluded from projections, assuming no further work is able to be
transferred to other parts of the Group.
Acquisition of 47 Communications
On 1 February 2023, the Group announced the acquisition of 47 Communications
LLC ("47"), a leading US-based PR and communications agency with expertise in
the video game, technology, entertainment and digital lifestyle sectors. For
the twelve months to 30 September 2022, 47 generated revenues of approximately
USD $11 million. The consideration payable for the Company is in line with
Keywords' targeted valuation range. The terms of the transaction include
contingent consideration payable in a mix of cash and new ordinary shares
depending on the future performance of the Company over the three years from
completion. The new ordinary shares to be issued will be subject to orderly
market provisions for a year.
Alternative performance measures
The Group reports a number of alternative performance measures ("APMs") to
present the financial performance of the business, that are not GAAP measures
as defined under IFRS. The Directors believe that these measures, in
conjunction with the IFRS financial information, provide the users of the
financial statements with additional information to provide a more meaningful
understanding of the underlying financial and operating performance of the
Group. The measures are also used in the Group's internal strategic planning
and budgeting processes and for setting internal management targets. These
measures can have limitations as analytical tools and therefore should not be
considered in isolation, or as a substitute for IFRS measures.
The principal measures used by the Group are set out below:
Organic revenue growth - Acquisitions are a core part of the Group's growth
strategy. Organic revenue growth measures are used to help understand the
underlying trading performance of the Group excluding the impact of
acquisitions. Organic revenue growth is calculated by adjusting the prior year
revenues, adding pre-acquisition revenues for the corresponding period of
ownership to provide a like-for-like comparison with the current year, and
applying the prior year's foreign exchange rates to both years, when
translating studio results into the euro reporting currency.
Constant exchange rates ("CER") - Given the international nature of the
Group's operations, foreign exchange movements can have an impact on the
reported results of the Group when they are translated into the Group's
reporting currency, the euro. In order to understand the underlying trading
performance of the business, revenue is also presented using rates consistent
with the prior year in order to provide year over year comparability.
Adjusted profit and earnings per share measures - Adjusted profit and earnings
per share measures are used to provide management and other users of the
financial statements with a clear understanding of the underlying
profitability of the business over time. Adjusted profit measures are
calculated by adding the following items back to the equivalent GAAP profit
measures:
· Amortisation of intangible assets - Customer relationships and
music licence amortisation commences on acquisition, whereas intellectual
property / development costs amortisation commences when the product is
launched. These costs, by their nature, can vary by size and amount each year.
As a result, amortisation of intangibles is added back to assist with the
understanding of the underlying trading performance of the business and to
allow comparability across regions and categories.
· Costs of acquisition and integration - The level of acquisition
activity can vary each year and therefore the costs associated with acquiring
and integrating businesses are added back to assist with the understanding of
the underlying trading performance of the Group.
· Share-based payments - The Group uses share-based payments as
part of remuneration to align the interests of senior management and employees
with shareholders. These are non-cash charges and the charge is based on the
Group's share price which can change. The costs are therefore added back to
assist with the understanding of the underlying trading performance.
· Foreign exchange gains and losses - The Group does not hedge
foreign currency translation exposures. The effect on the Group's results of
movements in exchange rates can vary each year and are therefore added back to
assist with understanding the underlying trading performance of the
business.
· Other income - Other income comprises gains on investments or
other non-trading income. As the gains have arisen outside the normal trading
activities of the Group, the income has been added back to assist with the
understanding of the underlying trading performance.
Free cash flow measures - The Group aims to generate sustainable cash flow
(free cash flow) in order to support its acquisition 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, other income and dividend
payments. Adjusted free cash flow is a measure of cash flow adjusting for
capital expenditure that is supporting growth in future periods (represented
by capital expenditure in excess of depreciation).
Net debt - The Group manages capital by monitoring debt to capital and net debt ratios. Net debt is calculated as loans and borrowings less cash and cash equivalents, and excludes lease liabilities. The debt to capital ratio is calculated as net debt as a percentage of total equity.
The remainder of this section provides a reconciliation of the APMs with the
relevant IFRS GAAP equivalent.
Service line analysis*
The following table presents revenue growth by service line at both actual
exchange rates ("AER") and constant exchange rates ("CER"). Constant exchange
rates are calculated by retranslating current year reported numbers at the
corresponding 2021 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.
2022 2022 2021 2022 2022
Revenue Revenue Revenue Growth Growth
AER CER AER AER CER
€m €m €m % %
Create 275.5 255.9 188.2 46.4% 36.0%
Globalize 300.9 286.2 231.9 29.8% 23.4%
Engage 114.3 108.9 92.1 24.1% 18.2%
690.7 651.0 512.2 34.8% 27.1%
*The prior year comparatives have been re-classified to present information by
service line in alignment with the new organisational and reporting structures
(see note 3).
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.
2022 2022 2022
Revenue Pre-acquisition revenue Pro forma revenue
AER AER AER
€m €m €m
Create 275.5 14.0 289.5
Globalize 300.9 - 300.9
Engage 114.3 17.4 131.7
690.7 31.4 722.1
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 2021 foreign exchange rates to both
years, when translating studio results into the euro reporting currency.
2021 2021 2021 2022 2022 2022
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 %
Create 188.2 15.0 203.2 52.7 255.9 25.9%
Globalize 231.9 - 231.9 54.3 286.2 23.4%
Engage 92.1 7.2 99.3 9.6 108.9 9.7%
512.2 22.2 534.4 116.6 651.0 21.8%
*The prior year comparatives have been re-classified to present information by
service line in alignment with the new organisational and reporting structures
(see note 3).
Adjusted operating costs
This comprises Administrative expenses as reported in the Consolidated
statement of comprehensive income, adding back share-based payments expense,
costs of acquisition and integration, amortisation of intangible assets,
depreciation and impairment, non-controlling interest and deducting bank
charges.
2022 2021
Calculation €'000 €'000
Administrative expenses Consolidated statement of comprehensive income (196,554) (149,749)
Share-based payments expense Consolidated statement of comprehensive income 18,678 16,394
Costs of acquisition and integration Consolidated statement of comprehensive income 8,413 7,972
Amortisation of intangible assets Consolidated statement of comprehensive income 16,810 13,688
Depreciation - property, plant and equipment Note 13 18,365 11,661
Depreciation and impairment - right of use assets Note 12 14,585 10,473
Non-controlling interest Consolidated statement of comprehensive income - 67
Bank charges Note 6 (662) (520)
Adjusted operating costs (120,365) (90,014)
Adjusted operating costs as a % of revenue 17.4% 17.6%
Adjusted operating profit
The Adjusted operating profit consists of the Operating profit as reported in
the Consolidated statement of comprehensive income, adjusted for share-based
payments expense, costs of acquisition and integration, and amortisation of
intangible assets. In order to present the measure consistently year-on-year,
the impact of other income is also excluded.
2022 2021
Calculation €'000 €'000
Operating profit Consolidated statement of comprehensive income 71,810 50,365
Share-based payments expense Consolidated statement of comprehensive income 18,678 16,394
Costs of acquisition and integration Consolidated statement of comprehensive income 8,413 7,972
Amortisation of intangible assets Consolidated statement of comprehensive income 16,810 13,688
Other income Consolidated statement of comprehensive income (1,098) -
Adjusted operating profit 114,613 88,419
Adjusted operating profit as a % of revenue 16.6% 17.3%
EBITDA
EBITDA comprises Operating profit as reported in the Consolidated statement of
comprehensive income, adjusted for amortisation of intangible assets,
depreciation and impairment, and deducting bank charges.
2022 2021
Calculation €'000 €'000
Operating profit Consolidated statement of comprehensive income 71,810 50,365
Amortisation of intangible assets Consolidated statement of comprehensive income 16,810 13,688
Depreciation - property plant and equipment Note 13 18,365 11,661
Depreciation and impairment - right of use assets Note 12 14,585 10,473
Bank charges Note 6 (662) (520)
EBITDA 120,908 85,667
Adjusted EBITDA
Adjusted EBITDA comprises EBITDA, adjusted for share-based payments expense,
costs of acquisition and integration and non-controlling interest. In order to
present the measure consistently year-on-year, the impact of other income is
also excluded.
2022 2021
Calculation €'000 €'000
EBITDA As above 120,908 85,667
Share-based payments expense Consolidated statement of comprehensive income 18,678 16,394
Costs of acquisition and integration Consolidated statement of comprehensive income 8,413 7,972
Non-controlling interest Consolidated statement of comprehensive income - 67
Other income Consolidated statement of comprehensive income (1,098) -
Adjusted EBITDA 146,901 110,100
Adjusted EBITDA as a % of revenue 21.3% 21.5%
Adjusted profit before tax
Adjusted profit before tax comprises Profit before taxation as reported in the
Consolidated statement of comprehensive income, adjusted for share-based
payments expense, costs of acquisition and integration, amortisation of
intangible assets, non-controlling interest, foreign exchange gains and
losses, and unwinding of discounted liabilities. In order to present the
measure consistently year-on-year, the impact of other income is also
excluded.
2022 2021
Calculation €'000 €'000
Profit before taxation Consolidated statement of comprehensive income 67,982 47,983
Share-based payments expense Consolidated statement of comprehensive income 18,678 16,394
Costs of acquisition and integration Consolidated statement of comprehensive income 8,413 7,972
Amortisation of intangible assets Consolidated statement of comprehensive income 16,810 13,688
Non-controlling interest Consolidated statement of comprehensive income - 67
Foreign exchange (gain) / loss Note 6 (1,677) (1,983)
Unwinding of discounted liabilities - deferred consideration Note 6 2,922 1,882
Other income Consolidated statement of comprehensive income (1,098) -
Adjusted profit before tax 112,030 86,003
Adjusted profit before tax as a % of revenue 16.2% 16.8%
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.
2022 2021
Calculation €'000 €'000
Adjusted profit before tax As above 112,030 86,003
Taxation Consolidated statement of comprehensive income 20,612 13,875
Effective tax rate before tax on adjusting items Taxation / Adjusted profit before tax 18.4% 16.1%
Tax arising on bridging items to Adjusted profit before tax^ 4,043 4,729
Adjusted taxation 24,655 18,604
Adjusted effective tax rate Adjusted taxation / Adjusted profit before tax 22.0% 21.6%
^Being mainly the tax impact of share-based payments expense €0.4m and
amortisation of intangible assets €4m less foreign exchange €0.4m, with
the prior period being mainly the tax impact of share-based payments expense
€2.8m, amortisation of intangible assets €2.1m, less foreign exchange
€0.2m.
Adjusted earnings per share
The Adjusted profit after tax comprises the Adjusted profit before tax, less
the Taxation expense as reported in the Consolidated statement of
comprehensive income, adjusted for the tax impact of the adjusting items in
arriving at Adjusted profit before tax.
The Adjusted earnings per share comprises the Adjusted profit after tax
divided by the non-diluted weighted average number of shares as reported in
note 7.
2022 2021
Calculation €'000 €'000
Adjusted profit before tax As above 112,030 86,003
Taxation Consolidated statement of comprehensive income (20,612) (13,875)
Tax arising on bridging items to Adjusted profit before tax^ (4,043) (4,729)
Adjusted profit after tax 87,375 67,399
Denominator (weighted average number of equity shares) Note 8 76,979,596 75,526,296
€ c € c
Adjusted earnings per share 113.50 89.24
Adjusted earnings per share % growth 27.2% 46.5%
^Being mainly the tax impact of share-based payments expense €0.4m and
amortisation of intangible assets €4m less foreign exchange €0.4m, with
the prior period being mainly the tax impact of share-based payments expense
€2.8m, amortisation of intangible assets €2.1m, less foreign exchange
€0.2m.
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.
2022 2021
Calculation €'000 €'000
Adjusted profit before tax As above 112,030 86,003
Interest received Note 6 (309) (62)
Bank charges Note 6 662 520
Interest expense Note 6 1,261 1,040
Unwinding of discounted liabilities - lease liabilities Note 6 969 985
Pre-acquisition profits of current year acquisitions Note 27 1,601 2,573
Adjusted profit before tax including pre-acquisition profit and excluding net 116,214 91,059
interest
Total equity Consolidated statement of financial position 557,091 472,120
Employee defined benefit plans Consolidated statement of financial position 2,861 3,088
Cumulative amortisation of intangibles assets (customer relationships) Note 11 58,301 40,708
Deferred and contingent consideration Note 17 63,253 54,142
Loans and borrowings Note 18 51 129
Cash and cash equivalents Consolidated statement of financial position (81,886) (105,710)
Capital employed 599,671 464,477
Return on capital employed Adjusted profit before tax including pre acquisition profit and excluding net 19.4% 19.6%
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, non-cash
movements in deferred and contingent consideration related to continuous
employment, net interest paid, payments of principal on lease liabilities and
is presented both before and after taxation paid. In order to present the
measure consistently year-on-year, the impact of other income is also
excluded.
2022 2021
Calculation €'000 €'000
Net cash generated by / (used in) operating activities Consolidated statement of cash flows 124,286 90,545
Acquisition and integration cash outlay:
Costs of acquisition and integration Consolidated statement of comprehensive income 8,413 7,972
Fair value adjustments to contingent consideration Consolidated statement of cash flows (2,282) (5,567)
Non-cash movements in deferred and contingent consideration related to (3,000) -
continuous employment
Acquisition of property, plant and equipment Consolidated statement of cash flows (27,007) (19,360)
Investment in intangible assets Consolidated statement of cash flows (501) (315)
Other income Consolidated statement of comprehensive income (1,098) -
Interest received Consolidated statement of cash flows 309 62
Interest paid Consolidated statement of cash flows (1,797) (2,738)
Payments of principal on lease liabilities Consolidated statement of cash flows (11,361) (9,953)
Free cash flow after tax 85,962 60,646
Taxation paid Consolidated statement of cash flows 17,505 23,948
Free cash flow before tax 103,467 84,594
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).
2022 2021
Calculation €'000 €'000
Free cash flow before tax As above 103,467 84,594
Capital expenditure in excess of depreciation:
Acquisition of property, plant and equipment Consolidated statement of cash flows 27,007 19,360
Depreciation - property, plant and equipment Consolidated statement of cash flows (18,365) (11,661)
Capital expenditure in excess of depreciation 8,642 7,699
Adjusted free cash flow 112,109 92,293
Adjusted cash conversion rate
The Adjusted cash conversion rate is the Adjusted free cash flow as a
percentage of the Adjusted profit before tax:
2022 2021
Calculation €'000 €'000
Adjusted free cash flow As above 112,109 92,293
Adjusted profit before tax As above 112,030 86,003
Adjusted cash conversion ratio Free cash flow before tax and capital expenditure in excess of depreciation, 100.1% 107.3%
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.
2022 2021
Calculation €'000 €'000
Loans and borrowings Consolidated statement of financial position 51 129
Cash and cash equivalents Consolidated statement of financial position (81,886) (105,710)
Net debt / (net cash) position (81,835) (105,581)
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