REG - Keywords Studios PLC - Final Results
13/03/2024 07:00
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RNS Number : 6024G Keywords Studios PLC 13 March 2024
13 March 2024
Keywords Studios plc ("Keywords Studios", "Keywords", the "Group")
Full Year Results for the period to 31 December 2023
Resilient performance, extending our market leadership position
Keywords Studios, the global provider of creative and technology-enabled
solutions to the video games and entertainment industries, is pleased to
announce its results for the twelve months to 31 December 2023.
Financial Overview:
Results for the twelve-months ended 31 Dec 2023 2022 Change
Group revenue € 780.4m € 690.7m + 13.0%
Organic revenue growth 1 + 5.6%
Adjusted EBITDA 2 € 158.3m € 146.9m + 7.8%
Adjusted EBITDA margin 20.3% 21.3%
EBITDA 2 € 109.2m € 120.9m (9.7)%
Adjusted operating profit 3 € 122.0m € 114.6m + 6.5%
Adjusted operating profit margin 15.6% 16.6%
Operating profit € 46.8m € 71.8m (34.8)%
Adjusted earnings per share 4 112.9c 113.5c (0.5)%
Earnings per share 25.3c 61.5c (58.9)%
Final dividend per share 1.76p 1.60p + 10.0%
Adjusted cash conversion rate 5 82.3% 100.1%
Net cash / (net debt) € (67.5)m € 81.8m
Finance and Operating Highlights:
· Full year revenue growth of 13% to €780m (2022: €691m), 17% on a
constant currency basis, driven by robust organic growth and acquisitions.
· Organic revenue growth(1), excluding impact of US strikes and FX,
of ~9% (6% on a reported basis).
· Adjusted operating profit rose 6% to €122m (2022: €115m),
with margin of 15.6%, ahead of guidance (2022: 16.6%), reflecting good cost
control.
· Good Adjusted free cash flow(6) of €94m (2022: €112m) was
driven by strong H2 cash generation, with Adjusted cash conversion of 82%, in
line with guidance.
· Net debt of €68m (2022: net cash of €82m) primarily
reflecting another year of strong acquisition activity.
· Recommended Final dividend of 1.76p per share (2022: 1.60p),
giving a total 2023 dividend of 2.61p (2022: 2.37p), an increase of 10%.
Strategic Highlights:
· Continue to outperform the market due to our diversified, global
platform, and strong strategic execution.
· Strategic partnerships bearing fruit, with revenues from Top 25
clients increasing comfortably ahead of the Group.
· Good traction with clients as we further develop and scale our AI
post-production technology platform across Globalize and Engage.
· Record year for M&A, with five high-quality acquisitions for
maximum consideration of €225m, extending high-value offerings in Create and
Engage and adding €90m of pro-forma revenues.
· RCF increased to $400m, with maturity extended to 2027, cementing
our long-term liquidity and flexibility to pursue our strong M&A pipeline.
· Positive recognition of ESG practices, with rating increased to
AA at MSCI.
Current trading and outlook
· We expect to deliver strong revenue and profit growth and further
extend our market leadership position in 2024.
· Driven by improving organic growth, recent M&A, and the
maintenance of adjusted operating profit margins above 15% as we continue to
manage our cost base and drive efficiencies across the Group.
· Our organic growth expectations are unchanged, progressively
improving from H2 23 levels as we move through the year and as the industry's
appetite for new content returns, as well as allowing time for the output from
Hollywood to increase post the 2023 strikes.
· Extensive M&A pipeline of opportunities in 2024 and confident
of continuing our long track record of adding significant value to our
business and our clients through our highly value accretive acquisition
strategy.
Bertrand Bodson, Chief Executive Officer of Keywords Studios, commented:
"In what was a difficult year for the industry, we delivered resilient
performance in 2023 and continued to extend our market leadership position,
reflecting our role as a diversified enabler of the industry. Whilst the
industry back-drop remains tough in the near term, our diversified
technology-enabled offering and strong client relationships means that we are
incredibly well-positioned to continue to grow our market share as we support
clients in the creation of ever more exciting and immersive experiences.
We made considerable progress against our strategic objectives and delivered a
record year of M&A, bringing greater exposure to higher growth and margin
Create services, and have an extensive pipeline of acquisitions in 2024. We
will continue to successfully navigate the current market conditions and are
excited by the opportunities that lie ahead as we deliver against our plans
and become a +€1bn revenue business in the coming years."
Presentation and Webcast
A presentation of the full results will be made to analysts and investors at
9.00am this morning and the live webcast can be accessed via this link:
https://brrmedia.news/KWS_FYR23 (https://brrmedia.news/KWS_FYR23)
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:
Keywords Studios Deutsche Numis
Giles Blackham Nomad & Joint Corporate Broker
Director of Investor Relations Stuart Skinner / Will Baunton
+44 7714 134 681 +44 20 7260 1000
gblackham@keywordsstudios.com (mailto:gblackham@keywordsstudios.com)
MHP Group Barclays
Financial Communications Joint Corporate Broker
Katie Hunt / Eleni Menikou / Charles Hirst Tom Macdonald / Stuart Jempson
+44 7884 494 112 / +44 20 3128 8100 +44 20 7029 8000
keywords@mhpgroup.com (mailto:keywords@mhpgroup.com)
About Keywords Studios (www.keywordsstudios.com
(http://www.keywordsstudios.com/) )
Keywords Studios is a global provider of creative and technology-enabled
solutions to the 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
Divisions 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 and contributing to over 70% of the 2023
Game Awards winners. Across the games and entertainment industry, clients
include Activision Blizzard, Bandai Namco, Bethesda, Electronic Arts, Epic
Games, Konami, Microsoft, Netflix, Riot Games, Square Enix, Supercell,
TakeTwo, Tencent and Ubisoft. Recent titles worked on include Starfield,
Baldur's Gate 3, Diablo IV, Hogwarts Legacy, Elden Ring, Fortnite, Valorant,
League of Legends and Clash Royale. Keywords Studios is listed on AIM, the
London Stock Exchange regulated market (KWS.L).
The Group reports a number of alternative performance measures (APMs) to
present the financial performance of the business which are not GAAP measures
as defined by International Financial Reporting Standards (IFRS). The
Directors believe these measures provide valuable additional information for
the users of the financial information to understand the underlying trading
performance of the business. In particular, adjusted profit measures are used
to provide the users of the financial statements a clear understanding of the
underlying profitability of the business over time. For full definitions and
explanations of these measures and a reconciliation to the most directly
referenceable IFRS line item, please refer to the APMs section at end of the
statement.
(1) Organic revenue at constant exchange rates is calculated by adjusting the
prior year revenues, adding pre-acquisition revenues for the corresponding
period of ownership, and applying the 2022 foreign exchange rates to both
years, when translating studio results into the euro reporting currency.
(2) EBITDA comprises Operating profit as reported in the Consolidated statement of
comprehensive income, adjusted for amortisation of intangible assets,
depreciation and impairment, and deducting bank charges. Adjusted EBITDA
comprises EBITDA, adjusted for share-based payments expense, costs of
acquisition and integration and non-controlling interest. In order to present
the measure consistently year-on-year, the impact of other income is also
excluded.
(3) Adjusted operating profit consists of the Operating profit as reported in the
Consolidated statement of comprehensive income, adjusted for share-based
payments expense, costs of acquisition and integration, and amortisation of
intangible assets. In order to present the measure consistently year-on-year,
the impact of other income is also excluded.
(4) The Adjusted earnings per share comprises the Adjusted profit after tax
divided by the non-diluted weighted average number of shares as reported. The
Adjusted profit after tax comprises the Adjusted profit before tax, less the
Taxation expense as reported in the Consolidated statement of comprehensive
income, adjusted for the tax impact of the adjusting items in arriving at
Adjusted profit before tax.
(5) The Adjusted cash conversion rate is the Adjusted free cash flow as a
percentage of the Adjusted profit before tax.
(6) Adjusted free cash flow is a measure of cash flow adjusting for capital
expenditure that is supporting growth in future periods (as measured by
capital expenditure in excess of maintenance capital expenditure).
CEO Statement
Performance
The Group delivered resilient performance in 2023, with revenues growing 13%
to €780m, despite a 4% headwind from foreign exchange, further extending our
market leadership position.
Reported organic revenue growth of 6% included a 3% combined impact from the
US entertainment strikes on our media and entertainment businesses, and
foreign exchange movements. Excluding these factors, organic growth would have
been around 9%, slightly behind our medium-term guidance, reflecting the
current market and macro dynamics, which have led to pressures on certain
parts of the business.
Operating margins were ahead of expectations at 15.6%, due to good cost
control, which delivered adjusted operating profit of €122m (reported
operating profit was €47m). This was 6% higher than 2022, despite the higher
margin experienced in the comparative period.
The performance of each of the Group's three Divisions reflected the varied
conditions in the market. We continued to see strong demand in Create, which
now accounts for over 50% of Group profitability, offset by a temporary
moderation of demand in our Globalize and, to a lesser extent, Engage
Divisions, due to the current market conditions.
Cash generation remained strong, and as normal, was H2 weighted, primarily due
to the timing of working capital, and we delivered adjusted free cash flow of
€94m, giving an adjusted cash conversion rate of 82%.
We had another successful year of M&A, supported by our strong balance
sheet, cash generation and expanded revolving credit facility, adding three
high-quality game development studios to Create, and broadening Engage's
digital and PR offerings, with two new US studios. As a result of this
activity, we moved from a net cash position of €82m at December 2022 to a
year-end net debt position of €68m, with significant headroom remaining in
our facilities for further selective acquisitions.
Market opportunity
After a number of extremely strong years of growth, in 2023, the video gaming
industry saw a mixed performance. Major titles that had been in production for
a number of years were released to commercial success, such as Hogwarts
Legacy, Starfield, Diablo IV and Baldur's Gate 3, but the broader industry saw
publishers focus more on profitability than on taking risks around new
content. This meant that we saw a focus on core IPs and smaller scopes for the
launch of some titles, with an increase in the number of games being delayed
or cancelled.
As we move into 2024, we expect a gradual improvement to market conditions and
we remain confident in the medium-term market backdrop. Player numbers
continue to rise, with another record year of average in-game players on
Steam, and games such as Fortnite have attracted their highest ever monthly
average users during Q4, demonstrating the popularity and longevity of
high-quality games. The mobile market, which has been through a difficult
period, also appears to be returning to growth after six consecutive quarters
of declines. Hardware challenges have eased, with the PS5 now readily
available and there is a market expectation that when Nintendo launches new
hardware this will also drive further growth in content.
Industry forecasts point to continuing long term growth in the vast
video-gaming market, with growth in the content creation segment expected to
be above the overall market, with a five-year CAGR of 8%. External service
provision is still expected to be the fastest growing segment, with a
five-year CAGR of over 9% (Source: IDG) and this underpins our medium-term
organic growth expectations.
Delivering against strategy
As the key player in this market, at more than 3x the size of the next largest
competitor, yet with market share of 6%, we believe we remain incredibly well
placed to grow our market share in a highly fragmented market. To do so, we
are making good progress against the five pillars of our strategy, including
utilising the power of our platform to drive strategic partnerships with the
key market players, and investing in leading technology solutions to better
serve our clients and enhance our economic and technology moat against
competitors.
We have continued to work more closely with our largest clients as we seek to
evolve our relationships to more strategic partnerships. This has seen
increased access to CXO suites, more in-depth strategic partner reviews, and
sessions with key partners on developments around AI, strengthening our
position as thought-leaders in this field. These enhanced relationships are
giving us the opportunity to partner with our clients on more projects, as
well as taking on larger, longer-term projects. During the year, we were
pleased to see revenues from our Top 25 clients grow meaningfully faster than
the Group, demonstrating the power of the relationships and helping us to
outperform the market.
Technology, the second major pillar of our strategy, goes hand-in-hand with
our strategic partnership initiatives, as an important differentiator in the
market, providing real benefits to clients, whether large or small. Our 4,500
dedicated engineers and technical experts in Create have a long track record
of unlocking the benefits of multiple generations of new technologies to
support the industry's "race to the top" to create the most immersive
experience for players and we continue to build on our focus on responsibly
harnessing AI and other technologies in recent years.
Through a combination of M&A and internal development, the business has
also been building a post-production platform of AI-enabled products to meet
client needs, supported by over 250 product engineers, enhancing our existing
Globalize and Engage services, and enabling us to do more, faster, and more
efficiently whilst enhancing quality for clients.
We saw good traction with Mighty Games' innovative AI-based testing solution,
Mighty Build & Test, who have scaled their footprint and product offering,
so that they are now able to test on any game engine. Mighty is increasingly
becoming our internal testing solution, increasing automation across our game
development studios globally and has an exciting client pipeline and product
development roadmap ahead.
Helpshift, our digital first customer support solution saw good growth,
powered by its ability to swiftly scale support for certain high performing
mobile games in H2. The business has continued to broaden its offering whilst
delivering an average of over 60% AI automation to clients. It is integrating
Gen AI to aid the customer support journey, providing enhanced first contact
resolution, delivering insights and providing sentiment analysis for clients.
We were also excited to launch LanguageAI during the year, which is powered by
KantanAI's machine translation technology to enable more languages to be
supported within the Helpshift solution, and in early 2024, a VIP Services
offering, utilising Helpshift's data insights to better support high-spending
players.
KantanAI has continued to grow its partnership with Microsoft, and due to the
benefits of its unique AI-assisted workflow with improved turn-around times
and quality of service, has become increasingly embedded in service delivery
for other clients. We have also broadened the Kantan suite of products, with
Kantan Audiomate, which manages and stores audio digital assets, whilst
automating and enhancing audio workflows, now in production with clients.
During the year, we recruited the former Head of Gaming AI from AWS Games to
spearhead our AI Centre of Excellence ("CoE"), as part of our Innovation at
Keywords team, led by Jamie Campbell. The CoE is continually mapping the
landscape for AI tools that can be deployed in the game development cycle,
knowledge sharing and coordinating the many initiatives across our studios and
building partnerships, so that we can help clients navigate the fast-moving
landscape and shape their AI strategies.
An example R&D initiative, sponsored by the Innovation team was Project
Ava, where a team, initially from Electric Square Malta, attempted to create a
2D game solely using Gen AI. Over the six-month process, the team shared their
findings across the Group, highlighting where Gen AI has the potential to
augment the game development process, and where it lags behind. Whilst the
project team started small, it identified over 400 tools, evaluating and
utilising those with the best potential. Despite this, we ultimately utilised
bench resource from seven different game development studios as part of the
project, as the tooling was unable to replace talent.
One of the key learnings was that whilst Gen AI may simplify or accelerate
certain processes, the best results and quality needed can only be achieved by
experts in their field utilising Gen AI as a new, powerful tool in their
creative process. As a research project, the game will not be released to the
public, but has been an excellent initiative to rapidly spread tangible
learnings across the Group, provide insights to clients and it demonstrates
the power and level of cross-studio collaboration that currently exists.
Alongside Project Ava, the team is undertaking a range of Gen AI R&D
projects, including around 3D assets, to ensure that we are able to provide
current insights in an ever-evolving part of the market.
An important element of our technology journey has been to ensure we have a
strong technology spine within the Group. During the year, we have reshaped
our internal teams to ensure we can support the different needs of each
Division better and have made targeted investments to consolidate systems and
begin to create a global platform that will, over time, enable enhanced
customer experiences, data insights and increasingly frictionless customer
collaboration.
Whilst the initiatives I have picked out are not exhaustive, this gives a good
flavour of the success of the One Keywords pillar in driving collaboration and
advantage across the Group. The consolidation of our service lines into
Divisions has been a foundational step, for example in the Create Division
alone, over 30% of projects had multiple studios working on them. With the
support of operational excellence initiatives such as HR and IT business
partnering and cross-studio initiatives like Project Ava, increased
collaboration across our global platform is set to continue and with it the
unique advantages it brings. We have also continued to embed our new
Leadership Principles across the organisation, with a broad-ranging
communications programme, and were very pleased with the seamless transition
of Sperasoft into four new operating hubs in Eastern Europe, with production
in Russia ceasing.
Even in a year of wide-spread job losses, it remains difficult to find high
quality engineering talent and capabilities across the industry. Despite this,
Keywords continued to grow, with our talent acquisition programmes, supporting
good growth in this part of our business, with targeted efforts to identify
and attract talent on a global basis. The recruitment of Rob Kingston as CFO
in July meant that Jon Hauck was able to move across to the COO role to
support the long-term growth of the business and complete the evolution of the
leadership team. I believe we are building a leadership team and structure,
with good strength in depth, to drive the future success of the business.
Our progress in adjacent markets has also been very encouraging with Lively,
our dedicated LiveOps studio, experiencing strong growth and demand from a
wide variety of clients. We also believe there is a significant opportunity
within virtual production, both for turn-key services, and as a virtual art
department within the broader production process and have launched services to
address this opportunity. Towards the end of the year, we won virtual
production and animation client mandates through both our Engage and Create
Divisions.
We extended our media and entertainment offering in the US, through the
acquisition of Digital Media Management, which works with some of the world's
biggest franchises, including the recent Barbie movie, to enhance their reach
online and in social media. With the convergence of gaming and film and
television, as underscored by Disney's recent $1.5bn investment in Epic Games,
we see meaningful opportunities ahead for us here.
M&A
A key and long-standing element of our strategy is to add significant value by
reinvesting our free cash flow into consolidating a fragmented market in four
M&A focus areas: game development, marketing, technology and adjacent
markets. We were pleased to deliver a record year of M&A, acquiring five
studios for total maximum consideration, including performance related
contingent deferred consideration, of €225m. In 2023, the cash component of
both the current and previous years' transactions amounted to €195m.
In line with our focus areas, three of the acquisitions broadened our game
development capabilities, with The Multiplayer Group bringing extensive
multiplayer game expertise, Hardsuit Labs bringing a deep understanding of
Unreal Engine and Playboss Interactive providing one of our leading UK
studios, Climax, a second location to grow from. We also broadened our Engage
offering in the US, the largest global market for gaming, with the
acquisitions of 47 Communications and Digital Media Management (DMM), with
both enhancing our media and entertainment offering, and DMM bringing
market-leading social media capabilities and an innovative Creator-focused
technology platform.
The five acquisitions delivered pro forma revenues of €90m in 2023
(including pre-acquisition revenues), at margins above the current Group, and
are expected to grow strongly in the coming years as we continue to evolve the
Group towards higher-value services. We have a strong balance sheet and an
extensive pipeline of opportunities that will lead to further attractive
acquisitions during 2024. We expect to continue our long track record of
adding significant value to our business and our clients through our highly
value accretive acquisition strategy for many years.
Responsible business
Our responsible business agenda is centred around five key areas; our people,
planet, community and our clients, underpinned by our commitment to good
governance and ethics. We have made solid progress against our main priorities
across the year, with a range of initiatives designed to enhance culture,
employee engagement and diversity and inclusion. These included the expansion
of our employee engagement initiatives, together with the continuing roll-out
of our Leadership Principles across the Group. We continued to make progress
with our diversity, equity, inclusion and belonging agenda, increasing the
proportion of women in the Group once again, supporting the growth of the
Women in Games Ambassador programme to more than 1,700 people, and hosting a
very successful Women's Summit in Asia. We also began to increase efforts
around broader diversity, especially given the prevalence of neurodiversity
within the video gaming sector, and undertook training, and launched a
thriving affinity group - Brain Space - which is providing the opportunity for
connections and support.
In May, we celebrated 25 years of Keywords by planting 25,000 trees across the
world and have continued to win a range of Best Company to Work For awards in
a number of locations. We have continued our climate journey, expanding our
emissions reporting, and enhancing our climate-related risk reporting, within
our annual report. Our progress against our priorities has been increasingly
recognised by third party ESG rating agencies, with MSCI now rating the
business AA, the joint highest rating in our category.
US entertainment strikes
Whilst Keywords' primary market is video gaming, it has an increasing exposure
to the broader media and entertainment industry, with the crossover between
the two industries growing. Both our Globalize and Engage Divisions generate
revenues from the media and entertainment industry, with a large proportion of
this in post-production audio services and marketing in the US. In May, the
Writers Guild of America (WGA) union commenced strike action following the
failure of union negotiations around working conditions, residuals and AI
usage. The WGA was followed on strike by the SAG-AFTRA union in mid-July,
which meant a near complete stoppage of content generation in Hollywood.
These strikes continued for a number of months, with the WGA returning to work
in September and SAG-AFTRA in November. As a result, our US businesses saw
substantially reduced work volume, leading to around €20 million in lost
second-half 2023 revenue. Whilst the strikes are now over, there remains
considerable uncertainty around the pace of ramp-up in 2024, as the industry
returns to normal, given the logistics involved in each project. However, the
Group believes it is very well placed to benefit from the surge in demand, as
the industry looks to increase its content output to meet viewer needs.
Driving efficiencies
2023 was a difficult year for our Globalize Division, and specifically for our
Localization and Localization Testing businesses, as clients were particularly
cost conscious, and looked to manage budgets carefully by focusing solely on
those languages with the highest return on investment. During 2023, we
carefully managed our cost base, more deeply integrating technology and
enhancing collaboration across our locations. This process is continuing in
2024 and regrettably, we have rightsized headcount in Globalize by around 5%
as we look to balance our costs and locations with meeting client
requirements. It is expected that this programme, together with other changes,
will lead to a one-time exceptional charge of €5m during 2024. Against this
backdrop, and changes in post-Covid working patterns, we have also taken a
non-cash impairment charge of €10m relating to onerous right-of-use leases,
associated office improvements and historic IT investments. We have also
launched a multi-year efficiency programme to enhance our operating model as
we continue to look to provide best-in-class delivery for our clients and
expect these actions to deliver meaningful annual savings, with the majority
of the benefits being reinvested into growth.
Outlook
In a challenging year for the industry, we delivered resilient performance in
2023, continuing to grow our leadership position, reflecting our role as a
diversified enabler of the industry. Whilst the industry back-drop remains
tough in the near term, our leading technology-enabled global platform and
strong client relationships means that we are incredibly well-positioned to
continue to grow our market share as we support clients in the creation of
ever more exciting and immersive experiences.
We had a record year of M&A in 2023, which has brought greater exposure to
higher value Create services, and have an extensive pipeline of acquisitions
for 2024, with our expanded RCF providing enhanced flexibility to invest.
Having made significant strategic progress, we are better positioned than ever
to benefit as content production in the video games and entertainment
industries re-accelerates. We remain confident in our medium-term targets,
expect to deliver strong revenue and profit growth in 2024 and are firmly on
track to become a +€1bn revenue business.
I am, therefore, convinced that our unique position at the heart of the
largest entertainment industries in the world, combined with our ongoing
investments to augment our human creativity with leading technology, will
create significant value for clients and shareholders.
Bertrand Bodson
Chief Executive Officer
Divisional Review
Create
Create combines Game Development and Art Services to deliver a range of
content production services to clients and partners globally. It represents
around 4,500 people across 4 continents.
2023 2022 Change
Revenue €m 336.1 275.5 22.0%
Organic Revenue growth % 17.3% 25.9%
Adjusted EBITDA €m 94.1 69.7 35.0%
Adjusted EBITDA margin % 28.0% 25.3% 2.7%
2023 Performance
Create performed strongly during the year, with total revenues up by 22% to
€336m (2022: €276m) and Organic Revenue, which excludes the impact of
acquisitions, growing by 17%, as we continued to see strong demand for our
high-end services. H1 performance was exceptionally strong, with H2
normalising, as expected, given current industry dynamics.
This growth was primarily driven by our Australian and UK game development
hubs, as we continued to expand our footprint in each region through a
combination of new satellite studios and headcount additions.
We also won a number of larger engagements with key clients, both single
studio and wider collaborative efforts, as we continue to demonstrate the
benefits of working with a multi-studio or geographic set up to clients. Our
art studios also performed strongly across the period, with enhanced
collaboration between our game development and art studios supported our
overall growth.
Aside from good execution at the studio level, which contributed to this
success, we increased collaborations within the Division as we reacted to the
changes in the market dynamics, keeping our utilisation high by using bench
resources and managing recruitment cadence.
During the first half, Sperasoft completed its transition out of Russia into
four new operating hubs in Eastern Europe. This was a major undertaking, and
we are delighted that we were able to complete this with limited disruption to
existing projects for our clients. Once the transition was complete, we were
able to take on new work and were pleased with the growth during the second
half of the year as the team won a number of new projects.
Adjusted EBITDA in Create grew 35% to €94m in 2023 (2022: €70m), with the
Adjusted EBITDA margin of 28.0% in 2023 higher than the previous period (2022:
25.3%). This was primarily due to the increased weighting of game development
in the Division, good central cost control and strong revenue growth.
We welcomed three new game development studios this year, The Multiplayer
Group ("MPG") in Nottingham, Hardsuit Labs in Seattle, and Playboss
Interactive in Liverpool. Together, these acquisitions broadened our service
offering, footprint and added nearly 450 high-quality game engineers and
artists to the Division. MPG is a market leader in providing multiplayer
services, Hardsuit has deep expertise in Unreal Engine, and Playboss provides
Climax, one of our largest UK studios, with a second location from which to
continue its growth trajectory.
Outlook
Our expanded Create Division remains well positioned to capitalise on the
continuing demand for its high-end services. We have good pipeline visibility
into 2024 across both game development and art, with growth weighted towards
the second half of the year. The increasing scale and depth of our expertise
in Create means we believe we are uniquely placed to harness the benefits of
Generative AI as a tool to support our clients if they wish to utilise it. We
are seeing limited utilisation to date, with copyright and quality concerns
currently a barrier to adoption for AAA publishers. Over time, we believe
these technology advancements will be able to augment the creativity of our
clients and teams and enable the delivery of ever more content for our
clients.
Globalize
Globalize brings together our Audio, Testing and Localization businesses to
create a global provider, with around 5,000 people across 5 continents.
2023 2022 Change
Revenue €m 279.5 300.9 (7.1)%
Organic Revenue growth % (4.3)% 23.4%
Adjusted EBITDA €m 48.5 61.6 (21.3%)
Adjusted EBITDA margin % 17.4% 20.5% (3.1%)
2023 Performance
Globalize experienced more difficult trading conditions in 2023 and was
impacted by the US entertainment strikes and foreign exchange movements, with
total revenues falling by 7% to €280m (2022: €301m). Organic Revenue
declined by 4% and excluding the impact of the strikes, organic growth would
have declined slightly, significantly outperforming the core gaming
post-production market, which was estimated to have declined by 5% in 2023
(Source: IDG).
Whilst performance was below expectations at the start of the year, it was a
resilient result given market conditions, as there has been an elevated level
of project cancellations, delays and reduced scopes which has impacted the
Division given its broad reach across the industry. In addition to this, the
US entertainment strikes, had a significant impact on our audio businesses
during the second half of the year.
We were, however, pleased that Functional testing continued to deliver robust
results, with the addition of some larger scale contracts in lower cost
locations such as Poland and with our operations in Mexico beginning to scale
up. This was offset by our embedded services testing business and our
localization businesses which experienced a tougher period. Localization
clients were particularly cost conscious and looked to manage their budgets
carefully, by only focusing on key languages where the best returns could be
generated. Audio faced tough comparators in H1 and then was heavily impacted
by the US entertainment strikes, which are now resolved.
We have continued to make good progress in developing and integrating our
post-production technology platform. As part of this we developed our Mighty
Build and Test solution and significantly scaled the team and the product
offering during 2023. Mighty is now able to operate on Unreal, Unity and
custom/proprietary game engines and has expanded its external client base as
well as operating as the QA tool at a number of our large internal studios. We
have an exciting pipeline of client opportunities as we move into 2024 and are
continuing to deliver against our product development roadmap to broaden its
functionality.
Adjusted EBITDA of €49m was 21% lower than 2022 (€62m), with Adjusted
EBITDA margins of 17.4% moderately lower than 2022 (20.5%). Margins were
expected to normalise following exceptional demand in 2022 and were impacted
by the lower utilisation of resources compared to the 2022, with pricing more
of a focus for clients.
During 2023, we carefully managed our cost base, whilst integrating technology
more deeply and enhancing collaboration across studios. This process is
continuing in 2024, and, regrettably, we have rightsized the headcount in
Globalize by around 5% as we look to balance our costs and locations with
client demands. We continuously look to enhance our operating model to
generate efficiencies and provide best-in-class delivery for our clients,
reinvesting savings into growth.
Outlook
Globalize has a leading position with major publishers within the industry and
is well placed to benefit when the content cycle turns and as Hollywood
rebounds to previous output levels through the year. We also believe that
there is a significant opportunity over time to support clients moving from
fixed to variable costs as they look to manage their budgets and cost base. We
will continue to carefully manage our cost base, enhancing our delivery model
and efficiencies across our global footprint, and will further integrate
technology into our workflows to differentiate our offering in the market.
Engage
Our Engage Division brings together our Marketing Services and Player
Engagement businesses to create a holistic offering focused on attracting,
retaining, and supporting fans across the video games and entertainment
industries, encompassing around 2,500 people across 3 continents.
2023 2022 Change
Revenue €m 164.8 114.3 44.2%
Organic Revenue growth % 2.3% 9.7%
Adjusted EBITDA €m 15.7 15.6 0.6%
Adjusted EBITDA margin % 9.5% 13.6%
2023 Performance
Engage saw a resilient performance during the year, with the higher revenue
growth of 44% to €165m (2022: €114m) driven by a number of acquisitions as
we built out the capabilities of the Division. Organic Revenue, which excludes
the impact of acquisitions, grew by 2% despite the backdrop and the
significant impact from the US entertainment strike. Excluding the impact of
the strikes, organic growth would have been around 9%.
Marketing delivered a robust performance, despite the macroeconomic
environment leading to publishers reducing their marketing activity, with
lower budgets and delays to projects. The US entertainment strikes had a major
impact on organic revenue growth in H2, and despite the continued subdued
level of activity, we still delivered strong underlying organic growth, with
large projects being delivered for clients during the period.
We continue to enhance collaboration across our studios, both in the UK and in
the US, in order to provide a more solution-based model for our clients' needs
and enhance the cross-selling of multiple services. We were delighted to bring
two high quality US studios into the service line during the period, with
Digital Media Management (DMM) and 47 Communications greatly enhancing our
social media, influencer and PR offerings respectively. We believe that DMM in
particular is exceptionally well placed to benefit from the increasing share
of social media in overall marketing budgets.
Player Engagement is primarily focused on the mobile market and was impacted
by reduced player numbers and spend across the broader mobile market, although
this stabilised during the second half. This meant that certain clients
reduced the scale of the teams working on their games to reflect the reduced
activity, although new business wins mitigated the reduced demand. We saw very
good traction, despite the market, for our Helpshift AI solution, which we
acquired in late 2022, and fully integrated into our existing offering to
create a unique end-to-end technology enabled solution for clients. During the
year we launched Language AI, to enhance our multi-lingual support offering,
made good progress with our trust and safety offering in tandem with a number
of technology partners and launched our VIP concierge service.
Adjusted EBITDA of €16m was slightly higher than 2022 (€16m), with the
Adjusted EBITDA margin of 9.5% behind the prior year period (2022: 13.6%).
Margins were impacted as the business has relatively fixed costs and was
scaled for growth, but experienced lower utilisation rates as projects were
delayed and lower revenues due to the US strikes. We have implemented cost
control measures in certain studios and have reduced marketing headcount by
approximately 8%, whilst retaining our capacity to support growth in future
periods, as well as rationalising our footprint into larger hubs in London and
Los Angeles.
Outlook
We continue to scale the Engage Division, by building out the full-service
capabilities of our marketing offering and by creating a holistic
technology-enabled player engagement offering through the addition of
Helpshift's automated solutions. Whilst the current market backdrop remains
tougher, and it will take time for Hollywood to return to normal output, our
Marketing studios are increasingly well placed with clients, our collaborative
solutions are gaining traction, and we are exploring the use of AI and
technology to support our client offerings. The technology first approach to
Player Engagement, powered by Helpshift and a range of partnerships supporting
offerings such as Trust & Safety and VIP services, is expected to enable
continuing growth.
Financial and operating overview
Revenue
Revenue for 2023 increased by 13% to €780m (2022: €691m). This performance
included the impact of acquisitions in 2022 and 2023 and a ~4% headwind from
the impact of currency movements, when translating studio results from local
currency into the euro reporting currency.
Reported Organic Revenue growth (which adjusts for the impact of acquisitions)
was 6%. However, adjusting for the significant impact from the US
entertainment strikes and from foreign exchange movements, organic revenue
growth would have been 9%. Continuing strong performance in Create, was offset
by more muted performance in Engage and difficult trading conditions in
Globalize. Further details of the trading performances of each of the
Divisions are provided in the Divisional Review.
Gross profit and margin
Gross profit in 2023 was €299m (2022: €267m), representing an increase of
12%. The gross margin of 38.3% was broadly in line with 2022 (38.7%) as the
increased weighting of the higher margin Create Division largely offset lower
margins in Globalize and Engage.
Operating costs
Adjusted operating costs increased by 17% to €141m (2022: €120m),
reflecting the larger Group, but at 18.0% of revenue were slightly higher than
2022 (17.4%). This was due to continuing investment in the business, the
larger office footprint, and the post-Covid return to normal of travel and
business development costs.
EBITDA
EBITDA of €109m was 10% behind 2022 (€121m). Adjusted EBITDA increased 8%
to €158m compared with €147m in 2022. The Adjusted EBITDA margin in 2023
of 20.3% was slightly lower than 2022 (21.3%), as expected, reflecting the
lower gross margin and higher operating costs.
Net finance costs
Net finance costs of €12m compared to €4m in 2022. The €8m increase was
primarily driven by interest costs due to the drawdown on the RCF to fund
acquisitions, together with a €3m negative year-on-year foreign exchange
impact.
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:
2023 2022
€m
€m
Share-based payments expense 22.0 18.7
Costs of acquisition and integration 27.1 8.4
Amortisation of intangible assets 26.1 16.8
Foreign exchange and other items 4.5 0.1
Total 79.7 44.0
A total of 1.37m options were granted under incentive plans in 2023. This,
together with grants from previous years, has resulted in a non-cash
share-based payments expense of €22m in 2023 (2022: €19m).
Costs associated with the acquisition and integration of businesses amounted
to €27m (2022: €8m). Of this, €10m was related to Globalize
restructuring costs associated with onerous leases, office improvements and
historic IT spend. The balance was primarily due to the accounting treatment
of deferred consideration related to continuing employment, which has led to a
charge of €9m, and the costs associated with the exit from Russia of €4m.
Amortisation of intangible assets increased by €9m to €26m (2022: €17m)
due to the increased acquisition activity in recent years.
Foreign exchange and other items amounted to a net loss of €5m (2022: flat).
This includes €3m for the unwinding of discounted liabilities on deferred
consideration (2022: €3m) and a net foreign exchange loss of €1m (2022:
gain of €2m). Keywords does not hedge foreign currency exposures in relation
to net current assets. Whilst more material movements in foreign exchange can
be impactful on revenues and expenses, the net impact on the Group's results
of movements in exchange rates and the foreign exchange gains and losses
incurred during the year mainly relate to the effect of translating net
current assets held in foreign currencies.
A more detailed explanation of the measures used together with a
reconciliation to the corresponding GAAP measures is provided in the APMs
section at the end of the report.
Operating Profit
Reported Operating profit of €47m in 2023 was 35% lower than 2022 (€72m).
Adjusted operating profit, which adjusts for the items described in the APMs
section above increased to €122m, 6% ahead of 2022 (€115m). Adjusted
operating profit margin of 15.6% was ahead of guidance, albeit slightly behind
2022 (16.6%) due to continuing investment in the business, the larger office
footprint, and the post-Covid return to normal of travel and business
development costs.
Profit before taxation
Reported Profit before tax of €35m in 2023 was 49% lower than 2022 (€68m).
Adjusted profit before tax, which adjusts for the items described in the APMs
section above increased to €115m, 2% ahead of 2022 (€112m). This reflects
lower Adjusted operating profit margins and increased interest payments linked
to acquisition activity.
Taxation
The tax charge reduced to €15m from €21m in 2022, largely reflecting the
reduction in the Profit before tax of the business. After adjusting for the
items noted in the APMs section above and the tax impact arising on these
items, the Adjusted effective tax rate for 2023 was 22.3%, in line with 2022
(22.0%).
Earnings per share
Basic earnings per share of 25 cents was lower than 2022 (62 cents), primarily
reflecting the reduction in the statutory Profit after tax. Adjusted earnings
per share, which adjusts for the items noted in the APMs section above and the
tax impact arising on these items, was 113 cents (2022: 114c), broadly flat
year-on-year, with both Adjusted profit before tax and the basic weighted
average number of shares increasing in similar proportions.
Cash flow and net debt
2023 2022 Change
€m
€m
€m
Adjusted EBITDA 158.3 146.9 11.4
MMTC, VGTR and similar incentives (11.3) (3.6) (7.7)
Working capital and other items (4.3) 0.6 (4.9)
Capex - property, plant and equipment (PPE) (30.7) (27.0) (3.7)
Capex - intangible assets (3.1) (0.5) (2.6)
Payments of principal on lease liabilities (15.0) (11.4) (3.6)
Operating cash flows 93.9 105.0 (11.1)
Interest paid net of received (7.1) (1.5) (5.6)
Free cash flow before tax 86.8 103.5 (16.7)
Taxation paid (20.9) (17.5) (3.4)
Free cash flow 65.9 86.0 (20.1)
M&A - acquisition spend (194.7) (113.3) (81.4)
M&A - cost of acquisition and integration cash outlay (7.8) (3.1) (4.7)
Cash proceeds arising from share-based payments 2.6 7.3 (4.7)
Other income - 1.1 (1.1)
Company funded acquisition of shares by EBT (14.8) - (14.8)
Dividends paid (2.2) (2.0) (0.2)
Underlying increase / (decrease) in net cash / (debt) (151.0) (24.0) (127.0)
FX and other items 1.6 0.2 1.4
Increase in net cash / (debt) (149.4) (23.8) (125.6)
Opening net cash / (debt) 81.8 105.6
Closing net cash / (debt) (67.6) 81.8
The Group generated Adjusted EBITDA of €158m in 2023, an increase of €11m
from €147m in 2022. There was an €8m increase in respect of the amounts
due for Multi-Media Tax Credits (MMTCs) and Video Game Tax Credits (VGTRs),
higher than 2022 (€4m), primarily due to timing of receipts under new
incentive regimes in Australia and Serbia. Other working capital increased by
€5m as we saw an outflow of €4m, compared to a small inflow in 2022,
mainly due to an increase in accrued income from work in progress.
Investment in property, plant and equipment increased by €4m to €31m
(2022: €27m) as we continued to invest in the footprint of the business, the
new sites required to exit Russia, and took advantage of favourable pricing to
purchase longer-term software licences. In addition, we incurred €3m of
capitalised research and development costs as we developed our technology
platform. Property lease payments of principal of €15m were €4m higher
than the prior period (2022: €11m) mainly related to acquisitions in the
period.
Operating cash flows of €94m were behind 2022 (€105m), primarily due to
the change in working capital and the increased capex during the period.
There was a €3m increase in cash tax paid to €21m (2022: €18m) as
payment schedules return to a more normal pattern. Net interest payments,
which largely relate to interest from drawdowns on the RCF, and arrangement
costs for the facility, were €7m compared to €2m in 2022.
This resulted in Free cash flow of €66m, €20m behind 2022 (€86m).
Adjusted free cash flow, which adjusts for capital expenditure that is
supporting growth in future periods, was €94m in 2023, behind 2022
(€112m), which resulted in an Adjusted cash conversion rate of 82%, in
line with guidance.
Cash spent on acquisitions totalled €203m, of which €34m was in respect of
the cash component of prior year acquisitions and €8m was in relation to
acquisition and integration costs. This was €86m higher than the spend in
2022 due to the increased size and scale of acquisitions. The Group also spent
€15m purchasing shares of behalf of the Employee Benefit Trust, to manage
dilution at current share prices from long term incentive plans.
This resulted in an increase in net debt of €149m in 2023, leading to
closing net debt of €68m (2022: net cash €82m).
Balance sheet and liquidity
The Group funds itself primarily through cash generation and a syndicated
multi-currency Revolving Credit Facility. In July 2023, the Group entered a
new RCF of $400m that matures in July 2027, replacing the previous €150m
facility. The new RCF includes an accordion option to increase the facility up
to $500m and an option to extend the expiry date by a further one-year period
(both subject to lender consent). The majority of Group borrowings are subject
to two financial covenants, minimum interest cover of 4x and maximum net
leverage of 3x, that are calculated in accordance with the
facility agreement. The Group retained considerable headroom against both of
these covenants at year-end.
The Group entered the year with a strong balance sheet and deployed €195m of
cash in the period to support its value accretive M&A programme and made
€15m of share purchases on behalf of the Employee Benefit Trust. At the end
of 2023, Keywords had net debt (excluding IFRS 16 leases) of €68m (31
December 2022: net cash of €82m) and undrawn committed facilities of $260m.
The undrawn facilities, together with strong cash generation, leaves us well
placed to continue to execute on our M&A programme.
Capital allocation
The Group continues be disciplined as it allocates capital to drive
shareholder value creation. Its key priorities are to invest in driving
organic growth, delivering value accretive M&A, whilst maintaining a
strong balance sheet and delivering shareholder cash returns.
The Board is pleased to recommend a final dividend of 1.76p per share (2022:
1.60p) representing an increase of 10% on the 2022 final dividend. Together
with the interim dividend of 0.85p this will bring the total dividend to 2.61p
(2022: 2.37p). This is in line with the Board's progressive dividend policy
which seeks to reflect the Group's continued growth in earnings and strong
cash generation, balanced with the need to retain the resources to fund growth
opportunities, particularly M&A, in line with our strategy.
Payments will be made on 28 June 2024 to shareholders on the register on 24
May 2024 and the shares will go ex-dividend on 23 May 2024. The final dividend
payment will represent a total cost of approximately €1.6m of cash
resources. Link Market Services Trustees Limited (Link) operates a Dividend
Reinvestment Plan (DRIP) for the Group's shareholders and instructions for
shareholders on how to apply for the DRIP will be included in communications
regarding the dividend, and any queries regarding the DRIP should be directed
to Link.
Following the €15m of purchases for the Employee Benefit Trust in 2023, the
Group intends to use its Employee Benefit Trust to undertake further market
purchases of Company shares in H1 2024, amounting to an aggregate of up to
€5m, in order to satisfy future exercises of LTIPs or stock options pursuant
to relevant share plans, and may look to increase this amount during the year.
Guidance for 2024
We continue to trade robustly across the Group in continuing tough markets and
expect to deliver strong revenue and profit growth in 2024, driven by
improving organic growth, recent M&A, and the maintenance of adjusted
operating profit margins above 15% as we continue to manage our cost base and
drive efficiencies across the Group.
Our organic growth expectations are unchanged, progressively improving from H2
23 levels as we move through the year and as the industry's appetite for new
content returns, as well as allowing time for the output from Hollywood to
increase post the 2023 strikes.
The adjusted Effective Tax rate for the full year is expected to be in line
with 2023 at around 22%. We continue to anticipate capex to be between 4.5-5%
of annual revenues, as we continue to invest in the business, but we still
expect a full year Adjusted Cash Conversion rate of around 80%. Net finance
charges will fluctuate, depending on scale and timing of acquisition activity,
but based on the current debt profile, we would expect the charge to be
approximately €10m for the year.
Rob Kingston
Chief Financial Officer
Consolidated statement of comprehensive income
Years ended 31 December
2023 2022
Note €'000 €'000
Revenue from contracts with customers 4 780,445 690,718
Cost of sales 5 (481,340) (423,452)
Gross profit 299,105 267,266
Other income 5 - 1,098
Share-based payments expense 23 (21,964) (18,678)
Costs of acquisition and integration 5 (27,140) (8,413)
Amortisation of intangible assets 11 (26,060) (16,810)
Total of items excluded from adjusted profit measures (75,164) (43,901)
Other administration expenses (177,111) (152,653)
Administrative expenses (252,275) (196,554)
Operating profit 46,830 71,810
Financing income 6 614 1,986
Financing cost 6 (12,450) (5,814)
Profit before taxation 34,994 67,982
Taxation 7 (15,042) (20,612)
Profit after taxation 19,952 47,370
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss
Actuarial gain / (loss) on defined benefit plans 12 286
Items that may be reclassified subsequently to profit or loss
Exchange gain / (loss) in net investment in foreign operations (8,317) (7,947)
Exchange gain / (loss) on translation of foreign operations (2,518) 6,144
Non-controlling interest; recycled on disposal of subsidiary - 162
Tax related to items taken to other comprehensive income 7 1,238 -
Total comprehensive income / (expense) 10,367 46,015
Profit / (loss) for the period attributable to:
Owners of the parent 19,952 47,415
Non-controlling interest - (45)
19,952 47,370
Total comprehensive income / (expense) attributable to:
Owners of the parent 10,367 46,015
10,367 46,015
Earnings per share € cent € cent
Basic earnings per ordinary share 8 25.28 61.54
Diluted earnings per ordinary share 8 24.94 58.86
The notes 1 to 29 form an integral part of these consolidated financial
statements.
On behalf of the Board
Bertrand
Bodson
Rob Kingston
Director
Director
12 March 2024
Consolidated statement of financial position
At 31 December
2023 2022
Restated
(note 21)
Note €'000 €'000
Non-current assets
Intangible assets 11 632,176 469,953
Right of use assets 12 41,950 37,672
Property, plant and equipment 13 50,237 44,784
Deferred tax assets 21 32,751 31,157
Investments 14 175 175
757,289 583,741
Current assets
Cash and cash equivalents 59,862 81,886
Trade receivables 15 89,940 81,563
Other receivables 16 83,993 61,415
Corporation tax recoverable 5,991 6,503
239,786 231,367
Current liabilities
Trade payables 14,294 15,878
Other payables 17 155,970 139,355
Loans and borrowings 18 - 45
Corporation tax liabilities 27,081 22,028
Lease liabilities 19 13,865 12,414
211,210 189,720
Net current assets / (liabilities) 28,576 41,647
Non-current liabilities
Other payables 17 12,002 18,308
Employee defined benefit plans 20 4,030 2,861
Loans and borrowings 18 127,380 6
Deferred tax liabilities 21 10,307 17,017
Lease liabilities 19 33,107 30,105
186,826 68,297
Net assets 599,039 557,091
Equity
Share capital 22 939 924
Share capital - to be issued 22 321 2,467
Share premium 22 54,518 47,021
Merger reserve 22 306,837 286,655
Foreign exchange reserve 183 11,018
Shares held in Employee Benefit Trust ("EBT") 22 (6,774) -
Share-based payments reserve 80,416 65,379
Retained earnings 162,599 143,627
Total equity 599,039 557,091
The notes 1 to 29 form an integral part of these consolidated financial
statements. The financial statements were approved and authorised for issue by
the Board on 12 March 2024.
On behalf of the Board
Bertrand
Bodson
Rob Kingston
Director
Director
12 March 2024
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 2022 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
Profit / (loss) for the period - - - - - - - 19,952 19,952 - 19,952
Other comprehensive income - - - - (10,835) - - 1,250 (9,585) - (9,585)
Total comprehensive income for the period - - - - (10,835) - - 21,202 10,367 - 10,367
Contributions by and contributions to the owners:
Share-based payments expense - - - - - - 21,964 - 21,964 - 21,964
Cash proceeds arising from share-based payments 5 - 1,462 - - - 1,145 - 2,612 - 2,612
Company funded acquisition of shares (note 22) - - - - - (6,774) (8,072) - (14,846) - (14,846)
Dividends - - - - - - - (2,230) (2,230) - (2,230)
Acquisition-related issuance of shares 10 (2,146) 6,035 20,182 - - - - 24,081 - 24,081
Contributions by and contributions to the owners 15 (2,146) 7,497 20,182 - (6,774) 15,037 (2,230) 31,581 - 31,581
At 31 December 2023 939 321 54,518 306,837 183 (6,774) 80,416 162,599 599,039 - 599,039
Consolidated statement of cash flows
Years ended 31 December
2023 2022
Note €'000 €'000
Cash flows from operating activities
Profit after taxation 19,952 47,370
Income and expenses not affecting operating cash flows
Depreciation and impairment - property, plant and equipment 13 28,903 18,365
Depreciation and impairment - right of use assets 12 15,948 14,585
Amortisation and impairment of intangible assets 11 26,060 16,810
Taxation 7 15,042 20,612
Share-based payments expense 23 21,964 18,678
Fair value movements in deferred and contingent consideration 5 9,177 2,282
Non-cash movements included in costs of acquisition and integration 5 2,677 -
Unwinding of discounted liabilities - deferred consideration 6 3,279 2,922
Unwinding of discounted liabilities - lease liabilities 6 1,447 969
Interest receivable 6 (614) (309)
Fair value adjustments to employee defined benefit plans 1,025 514
Interest expense 6 5,768 1,261
Unrealised foreign exchange (gain) / loss (4,559) 766
126,117 97,455
Changes in operating assets and liabilities
Decrease / (increase) in trade receivables (284) (11,771)
Decrease / (increase) in MMTC and VGTR receivable (11,260) (3,591)
Decrease / (increase) in other receivables (6,785) (6,457)
(Decrease) / increase in accruals, trade and other payables 7,470 18,785
(10,859) (3,034)
Taxation paid (20,853) (17,505)
Settlement of deferred and contingent consideration related to continuous 17 (3,900) -
employment
Net cash generated by / (used in) operating activities 110,457 124,286
Cash flows from investing activities
Current year acquisition of subsidiaries net of cash acquired 27 (160,380) (87,494)
Settlement of deferred liabilities on acquisitions 17 (30,428) (25,800)
Acquisition of property, plant and equipment 13 (30,689) (27,007)
Investment in intangible assets 11 (3,052) (501)
Interest received 614 309
Net cash generated by / (used in) investing activities (223,935) (140,493)
Cash flows from financing activities
Cash proceeds, where EBT shares were utilised for the exercise of share-based 1,145 505
payments
Repayment of loans 18 (97,379) (79)
Drawdown of loans 18 227,322 -
Payments of principal on lease liabilities 19 (15,038) (11,361)
Interest paid on principal of lease liabilities 19 (1,447) (969)
Dividends paid 9 (2,230) (1,979)
Company funded acquisition of shares by EBT (14,846) -
Shares issued for cash 22 1,467 6,785
Interest paid (6,282) (828)
Net cash generated by / (used in) financing activities 92,712 (7,926)
Increase / (decrease) in cash and cash equivalents (20,766) (24,133)
Exchange gain / (loss) on cash and cash equivalents (1,258) 309
Cash and cash equivalents at beginning of the period 81,886 105,710
Cash and cash equivalents at end of the period 59,862 81,886
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 2023.
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 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
cash and cash equivalents of €60m as at 31 December 2023, and committed
undrawn facilities of €237m 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 2023
The following amendments effective for the period beginning 01 January 2023
are expected to be impactful on the Group moving forward:
· Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2): The Group has implemented amendments to IAS 1 related
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.
Whereas all Significant Accounting Policies were disclosed in the past, the
Group now discloses only material accounting policies in note 2.
· 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 are now
recognised gross from the beginning of the earliest comparative period
presented, As outlined in note 21, the comparative periods presented have been
re-stated to reflect the impact of adoption on the carrying value of Right of
Use Assets and Lease Liabilities, with any cumulative effect recognised as an
adjustment to retained earnings or other components of equity.
New standards, interpretations and amendments not yet effective
There are a number of standards, amendments to standards, and interpretations
which have been issued by the IASB that are effective in future accounting
periods that the Group has decided not to adopt early.
The following amendments effective for the period beginning 01 January 2024:
· Lease Liability in a Sale and Leaseback (Amendment to IFRS 16);
and
· IAS 1 Presentation of Financial Statements (Amendment -
Classification of Liabilities as Current or Non-Current, with Covenants).
The Group does not expect these other amendments, or any other standards
issued by the IASB but not yet effective, to have a material impact on the
Group.
2 Material 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. In general, in order for contingent
consideration to become payable, pre-defined profit and / or revenue targets
must be exceeded. The fair value of contingent consideration at acquisition
date is arrived at through discounting the expected payment (based on scenario
modelling) to present value. Where contingent consideration is dependent on
the recipient remaining in employment, the payment is accounted for as
post-acquisition remuneration accrued over the retention period, as required
under IFRS 3. At each balance sheet date, the fair value of the contingent
consideration liabilities are 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.
Acquisition-related costs are recognised immediately as an expense in the
periods in which the costs are incurred and the services are received.
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. 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 once
they meet the criteria under IAS 38, and are amortised on a straight-line
basis over the period of its expected benefit, starting from the date of full
commercial use of the product. Residual amounts, useful lives and the
amortisation methods are reviewed at the end of every accounting period.
Following initial recognition of development expenditure as an intangible
asset, the cost model is applied requiring the intangible asset to be carried
at cost, less any accumulated amortisation and accumulated impairment losses.
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.
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.
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.
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 lines:
· Art Services - Art 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.
· 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.
· 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.
· Player Engagement - Player Engagement relates to the live
operations support services such as community management, player engagement
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 Engagement contracts may
also involve digital support platform software as a service. Revenue is
recognised as the related services are rendered.
Multimedia Tax Credits / Video Games Tax Relief and other tax credits related to staff costs
The multimedia tax credits ("MMTC") received in Canada, and video games tax
relief in the UK together with similar reliefs in other jurisdictions
("VGTR"), 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.
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 certain vesting conditions. 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 prorated 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
prorated 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 prorated 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.
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.
Deferred tax assets and liabilities associated with leases and decommissioning
liabilities are recognised on a gross basis, in accordance with IAS 12.
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.
Accrued Income from Contracts with Customers
Other receivables include Accrued income from contracts with customers. The
Group also applies the simplified approach to assessing expected credit losses
in relation to such assets, as their maturities are less than twelve months.
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
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. Where such shares are
utilised for employee share schemes, the cost of the shares is transferred to
the Share-based payment reserve, with any cash proceeds credited directly to
the Share-based payment reserve.
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 and Presentation 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 of the Company. 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
mainly 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 when all factors are considered. The Directors have
determined the euro as the most appropriate presentation currency of the
consolidated financial statements.
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 after 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 are recognised in the Consolidated statement
of comprehensive income.
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
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 games 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
2023 2022
€'000 €'000
Revenue from external customers
Create 336,069 275,570
Globalize 279,490 300,875
Engage 164,886 114,273
780,445 690,718
Segment operating profit
Create 94,118 69,748
Globalize 48,477 61,577
Engage 15,710 15,576
158,305 146,901
Reconciliation of Segment operating profit
Adjusted EBITDA^ 158,305 146,901
Share-based payments expense (21,964) (18,678)
Costs of acquisition and integration (27,140) (8,413)
Amortisation of intangible assets (26,060) (16,810)
Depreciation - property, plant and equipment (23,128) (18,365)
Depreciation - right of use assets (13,907) (14,585)
Bank charges 724 662
Other income - 1,098
Operating profit 46,830 71,810
Financing income 614 1,986
Financing cost (12,450) (5,814)
Profit before taxation 34,994 67,982
^ The Group reports a number of alternative performance measures ("APMs"),
including Adjusted EBITDA, to present the financial performance of the
business, that are not GAAP measures as defined under IFRS. Segmental results
are reported in a manner consistent with these measures, with Segment
operating profit equating to Adjusted EBITDA. A reconciliation of Adjusted
EBITDA to the relevant GAAP measure is presented in the APMs section.
The Group is organised into three operating segments (as identified under IFRS
8 Operating Segments), and generates revenue across eight service lines under
three divisions:
· Create - Game Development and Art Services;
· Globalize - Functional Testing, Localization Testing, Audio and
Localization; and
· Engage - Marketing and Player Engagement.
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, the Chief Operating Officer and
the Chief Financial Officer.
Intersegment revenue is not material and thus not subject to separate
disclosure.
Geographical analysis of non-current assets from continuing businesses*
2023 2022
€'000 €'000
United States 351,240 264,117
United Kingdom 216,416 121,556
Canada 49,997 57,652
Australia 49,179 51,869
Italy 15,308 16,471
Poland 12,859 12,561
Switzerland 9,786 10,025
China 9,573 9,296
India 7,495 4,974
France 7,044 7,150
Other 28,392 28,070
757,289 583,741
*The prior year comparatives have been re-classified to align to the current
year ranking.
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*
2023 2022
€'000 €'000
United States 174,550 120,722
Canada 158,199 155,509
United Kingdom 130,016 115,017
Poland 40,988 42,731
Australia 34,425 22,211
Italy 34,114 39,195
China 29,061 26,759
India 27,872 25,290
Japan 21,237 22,716
Philippines 20,591 20,074
Other 109,392 100,494
780,445 690,718
*The prior year comparatives have been re-classified to align to the current
year 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.
One customer was above 10% of revenues in 2023, accounting for 19.1% of total
revenue (2022: 13.4%), with revenues spread across all divisions and service
lines. The increase in concentration has been primarily due to the customer's
acquisition activity over the past year.
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 2023 69,113 57,712 10,947 454
At 31 December 2022 82,060 77,448 4,612 -
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
2023 2022
Cost of sales €'000 €'000
Operating expenses 499,186 430,475
Multimedia tax credits / video games tax relief (38,215) (21,540)
Other direct costs 20,369 14,517
481,340 423,452
2023 2022
Operating profit is stated after charging / (crediting): €'000 €'000
Depreciation - property, plant and equipment 23,128 18,365
Depreciation - right of use assets 13,907 14,585
Amortisation of intangible assets 26,060 16,810
Costs of acquisition and integration 27,140 8,413
Auditor's remuneration 870 689
Short-term leases 2,550 2,140
Other income - (1,098)
2023 2022
Costs of acquisition and integration €'000 €'000
Acquisition and integrations costs re: current year acquisitions (note 27) 2,345 1,177
Acquisition and integrations costs re: prior acquisitions 390 631
Fair value adjustments to contingent consideration (note 17) 300 2,282
Deferred consideration related to continuing employment 8,877 3,266
Costs associated with ceasing operations in Russia (note 29) 3,893 -
Acquisition team and related costs 593 671
Globalize restructuring - Right of use assets impairment 2,041 -
Globalize restructuring - Property, plant and equipment impairment 5,755 -
Globalize restructuring - Other provisions 2,677 -
Other reorganisation and restructuring costs 269 386
27,140 8,413
In December 2023, the Board approved an initiative to enhance the Globalize
operating model, by managing its cost base, more deeply integrating technology
and enhancing collaboration across our locations to provide best in class
service delivery for clients. Against this backdrop there was a charge of
€10.5m relating to restructuring of the Globalize service line arising from
€2.0m in Right of use assets, €5.8m relating to property, plant and
equipment and €2.7m of other related contracts that were identified as
onerous or impaired.
2023 2022
Auditor's remuneration €'000 €'000
Audit services:
Parent company and Group audit 387 318
Subsidiary companies audit 496 358
Non-audit services:
Audit-related assurance services 11 13
894 689
2023 2022
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
2023 2022
€'000 €'000
Financing income
Interest received 614 309
Foreign exchange gain - 1,677
614 1,986
Financing cost
Bank charges (724) (662)
Interest expense (5,768) (1,261)
Unwinding of discounted liabilities - lease liabilities (1,447) (969)
Unwinding of discounted liabilities - deferred consideration (3,279) (2,922)
Foreign exchange loss (1,232) -
(12,450) (5,814)
Net financing income / (cost) (11,836) (3,828)
7 Taxation
2023 2022
€'000 €'000
Current income tax
Income tax on profits 26,469 25,844
Deferred tax (note 21) (11,427) (5,232)
15,042 20,612
The tax charge for the year can be reconciled to accounting profit as follows:
2023 2022
€'000 €'000
Profit before tax 34,994 67,982
Tax charge based on the Effective tax rate* 6,582 12,156
Income tax prior year (over) / under provision 1,524 (653)
Deferred tax prior year (over) / under provision and impact of change in tax (602) (204)
rates
Items disallowed for tax purposes 11,826 7,468
Exempt and non-taxable income 26 (72)
Tax incentives (4,220) (924)
Current year tax losses utilised (17) (250)
Current year tax losses where deferred tax has not been provided 54 346
State and other direct taxes 869 932
Other differences - net (1,000) 1,813
Total tax charge 15,042 20,612
*Effective tax rate - being the statutory tax rate relative to the profit 18.8% 17.9%
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.
2023 2022
Tax effects relating to each component of other comprehensive income €'000 €'000
Exchange gain / (loss) in net investment in foreign operations (8,317) (7,947)
Tax (expense) / benefit 1,238 993
Net of tax amount (7,079) (6,954)
Actuarial gain / (loss) on defined benefit plans 12 286
Tax (expense) / benefit - -
Net of tax amount 12 286
Exchange gain / (loss) on translation of foreign operations (2,518) 6,144
Tax (expense) / benefit - -
Net of tax amount (2,518) 6,144
8 Earnings per Share
2023 2022
€ cent € cent
Basic 25.28 61.54
Diluted 24.94 58.86
Earnings €'000 €'000
Profit for the period from continuing operations 19,952 47,370
Weighted average number of equity shares Number Number
Basic (i) 78,910,471 76,979,596
Diluting impact of share options (ii) 1,084,796 3,502,301
Diluted (i) 79,995,267 80,481,897
(i) Includes (weighted average) shares to be issued:
Number Number
67,827 67,802
(ii) Contingently issuable ordinary shares have been excluded where the
conditions governing exercisability have not been satisfied:
Number Number
LTIPs 3,334,569 409,728
Share options 450,994 511,411
3,785,563 921,139
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
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
Final 2022 Mar-23 1.85 1.60 1,461 Jun-23
Interim 2023 Sep-23 0.97 0.85 769 Oct-23
Dividends paid to shareholders 2023 2.82 2.45 2,230
In respect of Approval date Expected € cent per share Pence STG per share Expected total dividend €'000 Expected payment date
Recommended
Final 2023 Mar-24 2.03 1.76 1,609 Jun-24
At 31 December 2023, Retained earnings available for distribution (being
Retained earnings plus Share-based payments reserve) in the Company were
€94.5m (2022: €77.6m). In addition, certain amounts within Merger reserve
are considered distributable (see note 22).
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
2023 2022
Total staff costs (including Directors) €'000 €'000
Salaries and related costs 414,818 345,857
Social welfare costs 37,926 27,788
Pension costs 8,167 7,222
Share-based payments expense 21,964 18,678
482,875 399,545
Average number of employees 2023 2022
Operations 11,307 10,272
General and administration 1,033 869
12,340 11,141
2023 2022
Key management compensation €'000 €'000
Salaries and related costs 2,452 2,258
Social welfare costs 323 431
Pension costs 75 54
Share-based payments expense 2,025 1,142
4,875 3,885
The key management compensation comprises compensation to nine Directors of
Keywords Studios plc during the year (2022: ten).
11 Intangible Assets
Goodwill Customer relationships Intellectual property / Development costs Total
€'000 €'000 €'000 €'000
Cost
At 01 January 2022 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
Recognition on acquisition of subsidiaries 152,001 45,859 - 197,860
Additions - - 3,052 3,052
Adjustment to the carrying value of prior year business combinations (2,967) - - (2,967)
Exchange rate movement (7,352) (3,353) (899) (11,604)
At 31 December 2023 538,415 146,843 32,548 717,806
Accumulated amortisation
At 01 January 2022 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
Amortisation charge - 20,142 5,918 26,060
Exchange rate movement - (1,826) (116) (1,942)
At 31 December 2023 - 76,617 9,013 85,630
Net book value
At 01 January 2023 396,733 46,036 27,184 469,953
At 31 December 2023 538,415 70,226 23,535 632,176
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.
Adjustment to the carrying value of prior year business combinations
IFRS 3 allows a twelve-month measurement period from acquisition date to
complete the initial accounting. When Keywords acquired Helpshift in December
2022, a provisional estimate of deferred tax assets ("DTA") was recognised
related to pre-acquisition tax losses. As US regulations limit the use of net
operating losses in certain cases following ownership changes, an expert
report was commissioned to clarify the availability of the pre-acquisition
losses to offset future tax liabilities. Following this study, an uplift of
€3.0m in Helpshift DTAs was recorded with a corresponding reduction in the
Goodwill recognised on the Helpshift acquisition. As the adjustment is not
significant the prior period has not been restated.
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 1 to 5 year growth
rate and a terminal value calculated using a long-term growth rate projection.
The (pre-tax) discount rate used of 10.0% (2022: 10.0%) 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 CGUs 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, as
outlined in note 4, determined in accordance with IFRS 8 Operating Segments.
The Board have determined the service lines as CGUs, 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:
2023 2022
Segment CGU €m €m
Create: Game Development 296 218
Art Services 19 19
Globalize: Functional Testing 14 15
Localization Testing 14 14
Audio 33 33
Localization 18 19
Engage: Marketing 110 35
Player Engagement 34 44
538 397
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
2023 2022 2023 2022 2023 2022
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 1,369 1,295 1,641 1,552 1,159 1,096
Carrying value - goodwill (€m) 538 397
Sensitivity analysis has been performed across all the CGUs 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.
2023 2022
€'000 €'000
Cost
At 01 January 65,849 63,840
Additions 14,074 15,249
Recognition on acquisition of subsidiaries 6,151 580
De-recognition of expired leases (9,993) (14,186)
Exchange rate movement (389) 366
At 31 December 75,692 65,849
Accumulated depreciation
At 01 January 28,177 27,849
Depreciation charge 13,907 11,753
De-recognition of expired leases (9,993) (14,186)
Impairment charge (note 5) 2,041 2,832
Exchange rate movement (390) (71)
At 31 December 33,742 28,177
Net book value
At 01 January 37,672 35,991
At 31 December 41,950 37,672
13 Property, Plant and Equipment
Computers and software Office furniture and equipment Leasehold improvements Total
€'000 €'000 €'000 €'000
Cost
At 01 January 2022 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
Exchange rate movement (1,509) (165) (394) (2,068)
Additions 25,974 2,136 2,579 30,689
Acquisitions through business combinations at fair value 2,792 393 277 3,462
Disposals (3,757) (304) (450) (4,511)
At 31 December 2023 87,528 11,935 20,181 119,644
Accumulated depreciation
At 01 January 2022 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
Exchange rate movement (2,084) (51) (138) (2,273)
Depreciation charge 18,255 1,276 3,597 23,128
Impairment charge (note 5) 3,572 - 2,203 5,775
Disposals (3,757) (304) (450) (4,511)
At 31 December 2023 52,007 5,611 11,789 69,407
Net book value
At 01 January 2023 28,007 5,185 11,592 44,784
At 31 December 2023 35,521 6,324 8,392 50,237
14 Investments
2023 2022
€'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
2023 2022
€'000 €'000
Trade receivables 94,189 85,012
Provision for bad debts (note 24) (4,249) (3,449)
Financial asset held at amortised cost 89,940 81,563
Trade receivables arise from revenues derived from contracts with customers.
16 Other Receivables
2023 2022
Current €'000 €'000
Multimedia tax credits / video games tax relief 37,081 25,756
Accrued income from contracts with customers 18,307 13,220
Prepayments and rent deposits 14,362 10,527
Tax and social security 7,263 6,538
Other receivables 6,980 5,374
83,993 61,415
Accrued income from contracts with customers represent mainly contract assets
in process and related items.
17 Other Payables
2023 2022
€'000 €'000
Current liabilities
Accrued expenses* 76,970 61,155
Deferred and contingent consideration (i) 36,550 44,945
Other payables (ii) 30,105 26,099
Deferred and contingent consideration related to continuous employment (i)* 7,273 3,579
Payroll taxes 5,072 3,577
155,970 139,355
Non-current liabilities
Deferred and contingent consideration (i) 12,002 18,308
12,002 18,308
* Please note in 2022 Deferred and contingent consideration related to
continuous employment was disclosed within Accrued expenses.
The movement in deferred and contingent consideration during the financial
year was as follows:
2023 2022
€'000 €'000 €'000 €'000
Deferred and contingent consideration Deferred and contingent consideration related to continuous employment Deferred and contingent consideration Deferred and contingent consideration related to continuous employment
Carrying amount at the beginning of the period 63,253 3,579 54,142 -
Consideration settled by cash (30,428) (3,900) (25,800) -
Consideration settled by shares (11,716) (1,238) (8,040) -
Unwinding of discount (note 6) 3,279 - 2,922 -
Additional liabilities from current year acquisitions (note 27) 25,790 315 37,950 -
Fair value movements in contingent consideration 300 - 2,282 -
Fair value movements in deferred consideration related to continuous - 8,562 - 3,579
employment
Exchange rate movement (1,926) (45) (203) -
Carrying amount at the end of the period 48,552 7,273 63,253 3,579
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
Deferred and contingent consideration by €5.8m, while a 10% reduction in
expected performance would decrease the carrying value by €7.7m. A 10%
increase in expected performance would increase the carrying value of Deferred
and contingent consideration related to continuous employment by €0.3m,
while a 10% reduction in expected performance would decrease the carrying
value by €0.8m.
On an undiscounted basis, the Group may be liable for deferred and contingent
consideration ranging from €9.4m to a maximum of €89.3m.
(i) Other payables include deferred
income from contracts with customers of €13.1m (2022: €9.1m), which mainly
comprise items invoiced prior to services being delivered. Excluding amounts
recognised on acquisition of subsidiaries (€5,360k, 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
2023 2022
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 127,380 51
127,380 51
127,380 51
Currency denomination
US dollar 35,129 -
Sterling 92,251 -
Canadian dollar - 51
127,380 51
The carrying amount at the beginning of the period represents loans owed by
Keywords Studios QC-Interactive Inc. These balances were repaid in the period.
During July 2023, the Group negotiated a new unsecured multi-currency
revolving credit facility agreement ("RCF") of US$400m that matures in July
2027. The new RCF includes an accordion option to increase the facility up to
US$500m and an option to extend the expiry date by a further one-year period
(both subject to lender consent). The new facility is supported by a group of
seven global lenders and replaces the Group's previous €150m unsecured
multi-currency revolving credit facility. The RCF's financial covenants remain
consistent with the previous facility. The new facility is denominated in US
dollars to match the expected predominant currency of future borrowings.
The previous RCF allowed the Group to access financing of up to €150m, which
could be drawn down in euro, sterling, US dollars or Canadian dollars, and
included an option to increase the facility by up to €50m to a total of
€200m (subject to lender consent), at interest rates based on a margin over
currency benchmark rates, plus a separate margin charged for the unutilised
facility.
Both the new and previous RCFs contain representations, warranties and
financial covenants customary for facilities of this type. 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. In connection with the
financial covenants, the Group is required to comply with and report interest
cover and leverage ratios, each half calendar year, calculated in accordance
with the lenders' facility agreement. The covenants provide that Net debt to
an adjusted EBITDA metric shall not exceed 3.0x and that EBIT to Net Finance
Charges will be a minimum of 4.0x. Throughout the period, the Group operated
well within the applicable ratio terms of both the new and previous RCF
agreements, with Net Debt to Adjusted EBITDA of 0.1x at the end of H1 and 0.4x
at the end of H2, and with EBIT to Net Finance Charges of 18.1x and 16.6x
respectively.
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 RCF liabilities as non-current.
The movements in Loans and borrowings are as follows:
Current Non-current Total
€'000 €'000 €'000
At 01 January 2022 81 48 129
Cash flows:
Repayments (37) (42) (79)
Non-cash flows:
Exchange rate movement 1 - 1
At 31 December 2022 45 6 51
Cash flows:
Drawdowns - 227,322 227,322
Repayments (45) (97,334) (97,379)
Non-cash flows:
Exchange rate movement - (2,614) (2,614)
At 31 December 2023 - 127,380 127,380
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:
2023 2022
€'000 €'000
Carrying amount at the beginning of the year 42,519 37,635
Recognition on acquisition of subsidiaries (note 27) 6,151 580
Liabilities recognised on new leases in the period 14,074 15,244
Unwinding of discounted liabilities - lease liabilities 1,447 969
Payment of principal and interest on lease liabilities (16,485) (12,330)
Exchange rate movement (734) 421
Carrying amount at the end of the year 46,972 42,519
The value of leases not yet commenced to which the lessee is committed, which
are not included in lease liabilities at 31 December 2023, was €3.6m (2022:
€nil).
2023 2023 2023 2022 2022 2022
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 15,164 1,299 13,865 12,740 326 12,414
Non-current
Later than one year and not later than five years 30,546 2,189 28,357 26,491 1,447 25,044
Later than five years 4,900 150 4,750 5,317 256 5,061
35,446 2,339 33,107 31,808 1,703 30,105
At 31 December 50,610 3,638 46,972 44,548 2,029 42,519
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:
2023 2022
Lease payments not recognised as a liability €'000 €'000
Short-term leases 2,550 2,140
Leases of low value assets - -
2,550 2,140
The future minimum lease payments related to these leases
Not later than one year 1,081 1,282
Later than one year and not later than five years - -
Later than five years - -
1,081 1,282
The effect of variable lease payments and reinstatement costs on future cash
outflows arising from leases is not material for the Group.
20 Employee Defined Benefit Plans
2023 2022
€'000 €'000
Liabilities under Employee defined benefit plans 4,030 2,861
In line with statutory requirements in France, Italy and India, we are
required to maintain employee defined benefit termination payment schemes. The
Group commissions an actuarial valuation of the related liabilities in each
jurisdiction annually. The liabilities at year end are recorded as long term,
while the actuarial gain or loss is recorded separately within Other
comprehensive income.
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 and other disclosures required by IAS 19
are 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.
Substantially all of the pension costs of €8.2m (2022: €7.2m) disclosed in
note 10 relate to the Group's defined contribution pension plans.
21 Deferred Tax
Details of the deferred tax assets and liabilities, and amounts recognised in
the Consolidated statement of comprehensive income are as follows:
2023 2023 2023 2022 2022 2022
€'000 €'000 €'000 €'000 €'000 €'000
Restated Restated Restated
Assets Liabilities Net Assets Liabilities Net
Employee defined benefit plans 125 10 115 308 124 184
Unused tax losses 13,417 - 13,417 10,664 13 10,651
Provisions 466 43 423 258 - 258
Property, plant and equipment 780 1,715 (935) 1,092 1,983 (891)
Multimedia tax credits / video games tax relief 171 6,406 (6,235) - 3,879 (3,879)
Share-based payments 15,591 - 15,591 8,879 2,091 6,788
Goodwill 21,159 - 21,159 18,176 - 18,176
Customer relationships - 21,091 (21,091) - 17,147 (17,147)
Right of use assets and Lease liabilities 9,867 9,867 - 8,400 8,400 -
Offset where legally enforceable right of set off exists (28,825) (28,825) - (16,620) (16,620) -
32,751 10,307 22,444 31,157 17,017 14,140
01 January 2022* Recognised in the income statement (note 7)* Recognised in business combinations (note 27)* 31 December 2022* Recognised in the income statement (note 7) Recognised in business combinations (note 11, 27) 31 December 2023
Restated Restated Restated Restated
€'000 €'000 €'000 €'000 €'000 €'000 €'000
Employee defined benefit plans 328 (144) - 184 (69) - 115
Unused tax losses 1,077 1,000 8,574 10,651 (201) 2,967 13,417
Provisions 222 36 - 258 165 - 423
Property, plant and equipment 116 (1,007) - (891) (44) - (935)
Multimedia tax credits / video games tax relief (3,570) (309) - (3,879) (2,356) - (6,235)
Share-based payments 3,796 2,992 - 6,788 8,803 - 15,591
Goodwill 11,551 (194) 6,819 18,176 (2,030) 5,013 21,159
Customer relationships (5,892) 2,086 (13,341) (17,147) 7,159 (11,103) (21,091)
7,628 4,460 2,052 14,140 11,427 (3,123) 22,444
Other amounts recognised in the income statement:
Effect of tax rate change (13)
Adjustment in respect of prior years 785
5,232
*The prior year has been restated to the current year presentation as the
Directors believe this to be more meaningful.
The deferred tax asset not recognised on available losses at the period end is €3.3m (2022: €3.8m). 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.
The Group has adopted Deferred Tax related to Assets and Liabilities arising
from a Single Transaction (Amendments to IAS 12) from 01 January 2023. These
amendments narrow the scope of the initial recognition exemption so that it
does not apply to transactions that give rise to equal and offsetting
temporary differences e.g. Right of use assets and Lease liabilities. As a
result for leases and decommissioning liabilities, an entity is required to
recognise the associated deferred tax assets and liabilities on a gross basis
from the beginning of the earliest comparative period presented, with any
cumulative effect recognised as an adjustment to retained earnings or other
components of equity at that date.
The Group previously accounted for the deferred tax on leases and
decommissioning liabilities on a net basis. Following the amendments, the
Group has recognised a separate deferred tax asset in relation to its lease
liabilities and a deferred tax liability in relation to its right of use
assets. There was no impact on the opening retained earnings at 01 January in
any period presented as a result of this change. The impact on deferred tax
assets and liabilities in each comparative period presented is detailed below.
Deferred tax assets Deferred tax liabilities Retained earnings
€'000 €'000 €'000
At 31 December 2022 - as reported 22,757 8,617 143,627
Adoption of Deferred Tax related to Assets and Liabilities arising from a 8,400 8,400 -
Single Transaction (Amendments to IAS 12)
At 31 December 2022 - as restated 31,157 17,017 143,627
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 2022 76,275,775 70,144 904 2,185 38,549 273,677
Acquisition-related issuance of shares:
Waste Creative 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 Studios 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
Acquisition-related issuance of shares:
Heavy Iron 20-Jan-23 34.67 93,856 - 1 - - 3,254
Climax Studios 17-Feb-23 27.18 21,428 - - - - 582
Waste Creative 15-Mar-23 31.52 26,600 - - - - 838
Digital Media Management 29-Mar-23 30.92 - 301,170 - 9,311 - -
Digital Media Management 06-Apr-23 30.92 301,170 (301,170) 3 (9,311) - 9,308
Hardsuit Labs 10-May-23 28.17 - 53,482 - 1,507 - -
Hardsuit Labs 30-May-23 28.17 53,482 (53,482) 1 (1,507) - 1,506
Tantalus Media 15-Jun-23 27.48 191,722 - 2 - 5,986 -
Playboss Interactive 30-Jun-23 24.48 - 13,118 - 321 - -
Forgotten Empires LLC 03-Aug-23 28.41 60,856 (60,856) 1 (1,729) - 1,728
Forgotten Empires LLC 03-Aug-23 30.72 59,559 - 1 - - 1,828
Forgotten Software SL 03-Aug-23 27.45 26,881 (26,881) - (738) - 738
Mighty Games 21-Nov-23 18.58 2,585 - - - 49 -
Kantan 12-Dec-23 32.56 12,254 - 1 - - 400
Acquisition-related issuance of shares 850,393 (74,619) 10 (2,146) 6,035 20,182
Exercise of share options 446,786 - 5 - 1,462 -
At 31 December 2023 79,287,236 13,119 939 321 54,518 306,837
Subject to applicable law, the Company's articles of association and any
relevant authority of the Company passed by the shareholders in general
meeting, there is no limit to the number of shares which the Company can
issue, nor are there are any restrictions on dividends or distributions on
such shares. In the context of the Company's general meeting authorities, at
the Company's AGM on 26 May 2023 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 3,912,987 shares in respect of the Company's incentive plans in place
from time to time (5% of the Company's issued share capital as at 24 March
2023); and
b) Otherwise, up to 26,086,581 shares (33.3% of the Company's issued share
capital as at 24 March 2023).
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 2023 AGM will expire on the earlier of (i) the
close of business on 26 August 2024; and (ii) the conclusion of the 2024 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")
2023 2022
Shares €'000 Shares €'000
Carrying amount at the beginning of the year - - - -
Company funded acquisition of shares 748,655 14,846 - -
Utilization for the exercise of share-based payment plans (340,170) (8,072) - -
Carrying amount at the end of the year 408,485 6,774 - -
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, net of
the cost of EBT shares utilised for employee share schemes less any related
cash proceeds.
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:
2023 2022
€'000 €'000
Share option scheme expense 1,354 2,689
LTIP option scheme expense 20,485 15,888
Employee Share Purchase Plan 125 101
Share-based payments expense 21,964 18,678
Of the total Share-based payments expense, €2,025k relates to Directors of
the Company (2022: €1,142k).
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:
2023 2022
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 18.78 1,585,819 15.65 2,423,568
Granted - - - -
Lapsed 19.79 (125,282) 19.17 (133,323)
Exercised 14.71 (102,197) 7.88 (704,426)
Outstanding at the end of the period 18.99 1,358,340 18.78 1,585,819
Exercisable at the end of the period 17.45 873,025 15.19 481,319
Weighted average share price at date of exercise 25.87 23.57
Summary by year
Year of Option 2016 2017 2018 2019 2020 2021 2022 2023 Total
Exercise price £2.54 £7.76 £17.10 £15.88 £15.93 £25.48 - -
Outstanding at the beginning of the period 14,339 41,550 151,519 320,650 546,350 511,411 - - 1,585,819
Granted - - - - - - - - -
Lapsed (6,938) - - (9,500) (48,427) (60,417) - - (125,282)
Exercised (7,401) (6,800) (22,845) (36,428) (28,723) - - - (102,197)
Outstanding at the end of the period - 34,750 128,674 274,722 469,200 450,994 - - 1,358,340
Exercisable at 31 December 2023 - 34,750 128,674 274,722 280,700 154,179 - - 873,025
Exercisable 2024 - - - - 188,500 148,408 - - 336,908
Exercisable 2025 - - - - - 148,407 - - 148,407
Exercisable 2026 - - - - - - - - -
Exercisable 2027 - - - - - - - - -
The inputs into the Black-Scholes model, used to value the options, are as
follows:
Year of Option 2016 2017 2018 2019 2020 2021 2022 2023 Weighted average
Weighted average share price (£) £2.54 £7.75 £17.22 £16.09 £16.00 £26.42 - -
Weighted average exercise price (£) £2.54 £7.76 £17.10 £15.88 £15.93 £25.48 - -
Fair value at measurement date (€) €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 - -
Expected volatility 27.17% 24.79% 35.87% 45.23% 50.15% 47.70% - -
Risk-free rates 0.58% 0.16% 0.89% 0.81% 0.07% 0.15% - -
Average expected dividend yield 0.55% 0.21% 0.10% 0.10% 0.10% 0.10% - -
Weighted average remaining life of options in months - - - - 4 16 - - 7
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:
2023 2022
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 3,648,173 0.01 3,704,898
Granted 0.01 720,680 0.01 901,690
Lapsed 0.01 (124,047) 0.01 (130,241)
Exercised 0.01 (615,373) 0.01 (828,174)
Outstanding at the end of the period 0.01 3,629,433 0.01 3,648,173
Exercisable at the end of the period 0.01 1,276,229 0.01 741,212
Weighted average share price at date of exercise 21.96 24.73
Summary by year
Year of Option 2016 2017 2018 2019 2020 2021 2022 2023 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 21,688 44,743 186,000 488,781 1,170,790 845,307 890,864 - 3,648,173
Granted - - - - - - - 720,680 720,680
Lapsed - - - - (25,400) (49,500) (41,750) (7,397) (124,047)
Exercised (21,688) (14,000) (51,572) (169,738) (353,375) (2,500) (2,500) - (615,373)
Outstanding at the end of the period - 30,743 134,428 319,043 792,015 793,307 846,614 713,283 3,629,433
Exercisable at 31 December 2023 - 30,743 134,428 319,043 792,015 - - - 1,276,229
Exercisable 2024 - - - - - 793,307 - - 793,307
Exercisable 2025 - - - - - - 846,614 - 846,614
Exercisable 2026 - - - - - - - 713,283 713,283
The inputs into the Monte Carlo binomial model, used to value the options, are
as follows:
Year of Option 2016 2017 2018 2019 2020 2021 2022 2023 Weighted average
Weighted average share price (£) £2.56 £7.75 £17.24 £16.05 £16.00 £26.42 £22.31 £22.46
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 (€) €1.74 €4.96 €11.83 €13.98 €13.28 €16.73 €15.70 €21.02
Average expected life 3 Years 3 Years 3 Years 3 Years 3 Years 3 Years 3 Years 3 Years
Expected volatility 27.11% 24.79% 35.87% 45.26% 50.15% 47.70% 41.22% 38.05%
Risk-free rates 0.54% 0.16% 0.89% 0.81% 0.07% 0.13% 1.59% 3.58%
Weighted average remaining life of options in months - - - - - 4 17 29 11
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 reinvested
into the business, the impact of dividends has been ignored in the calculation
of the LTIP share option charge.
LTIPs 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:
2023 2022
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 0.01 259,623 0.01 26,738
Granted 0.01 622,627 0.01 237,676
Lapsed 0.01 (31,509) 0.01 (953)
Vested 0.01 (8,150) 0.01 (3,838)
Outstanding at the end of the period 0.01 842,591 0.01 259,623
Summary by year
Year of Option 2021 2022 2023 Total
Exercise price £0.01 £0.01 £0.01
Outstanding at the beginning of the period 24,147 235,476 - 259,623
Granted - - 622,627 622,627
Lapsed - (22,105) (9,404) (31,509)
Vested (953) (7,197) - (8,150)
Outstanding at the end of the period 23,194 206,174 613,223 842,591
Vesting 2024 23,194 203,635 - 226,829
Vesting 2025 - 2,539 573,342 575,881
Vesting 2026 - - 39,881 39,881
Details of the awards by year are as follows:
Year of Option 2021 2022 2023 Weighted average
Weighted average share price (£) £27.40 £22.41 £22.08
Weighted average exercise price (£) £0.01 £0.01 £0.01
Fair value at measurement date (€) €32.08 €26.47 €25.41
Average expected life 3 Years 2 Years 3 Years
Weighted average remaining life of options in months 8 5 23 18
24 Financial Instruments and Risk Management
Interest Rate Risk
Interest rate risk is the risk that the value of financial instruments will
fluctuate due to changes in market interest rates. The Group's income and
operating cash flows are substantially independent of changes in market
interest rates. The management monitors interest rate fluctuations on a
continuous basis and acts accordingly.
Where the Group has a significant amount of surplus cash, it invests in higher
earning interest deposit accounts. Due to interest rate conditions, the
interest rates for short-term deposits are at similar levels to those achieved
for longer terms.
The effect of a strengthening or a weakening of 1% in interest rates charged
during the reporting period on the interest expense would have resulted in the
following pre-tax profit / (loss) impact for the year:
1% 1% 1% 1%
Strengthening Weakening Strengthening Weakening
2023 2023 2022 2022
€'000 €'000 €'000 €'000
Interest expense 1,274 (1,274) - -
In 2022, there were no drawdowns on the RCF, therefore any strengthening or
weakening of interest rates would have had no impact.
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 78.9% of the total trade receivables balance at
the balance sheet date (2022: 73.0%).
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 2023 89,940 70,995 18,945 -
At 31 December 2022 81,563 59,532 16,803 5,228
A provision for doubtful debtors is included within trade receivables and can
be reconciled as follows:
2023 2022
€'000 €'000
Provision at the beginning of the year 3,449 1,768
Impairment of financial assets (trade receivables) charged to administration 531 1,733
expenses
Foreign exchange movement in the year 275 79
Recognition on acquisition of subsidiaries 331 -
Utilised (337) (131)
Provision at the end of the year 4,249 3,449
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% (2022: 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 94,189 71,712 19,680 2,797
Credit impaired (3,307) - (538) (2,769)
Expected credit losses (942) (717) (197) (28)
At 31 December 2023 89,940 70,995 18,945 -
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
Accrued income from contracts with customers
Accrued income from contracts with customers 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 67.4% of the balance at
the balance sheet date (2022: 76.6%).
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 2023 18,307 12,340 4,134 1,833
At 31 December 2022 13,220 10,124 3,096 -
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% (2022: 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 19,651 12,465 4,176 3,010
Credit impaired (1,147) - - (1,147)
Expected credit losses (197) (125) (42) (30)
At 31 December 2023 18,307 12,340 4,134 1,833
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 -
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:
2023 2023 2022 2022
€'000 €'000 €'000 €'000
10% 10% 10% 10%
Strengthening
Weakening
Strengthening
Weakening
US dollar to euro 4,182 (4,617) 5,981 (4,894)
Sterling to euro 174 (254) 365 (299)
Canadian dollar to euro 301 (261) 591 (483)
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 €239.8m of
current assets, including cash of €59.9m 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 2023 €'000 €'000 €'000 €'000 €'000 €'000
Trade payables 14,294 14,294 14,294 - - -
Deferred and contingent consideration (i) 55,825 89,347 53,653 33,764 1,930 -
Other payables 112,147 112,147 112,147 - - -
Loans and borrowings 127,380 127,380 - - 127,380 -
Loan interest - 26,418 8,806 8,806 8,806 -
Lease liabilities 46,972 50,609 15,164 11,117 19,428 4,900
Total 356,618 420,195 204,064 53,687 157,544 4,900
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 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
(i) Deferred and contingent consideration at 31 December 2023 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 €89.3m.
For further details see note 17.
25 Capital Management
2023 2022
Group €'000 €'000
Loans and borrowings (note 18) 127,380 51
Less: cash and cash equivalents (59,862) (81,886)
Net debt / (net cash) position 67,518 (81,835)
Total equity 599,039 557,091
Net debt / (net cash) to capital ratio 11.3% (14.7)%
The Group manages capital by monitoring debt to capital and net debt ratios.
This debt to capital ratio is calculated as net debt to total equity. Net debt
is calculated as loans and borrowings (as shown in the Consolidated statement
of financial position) less cash and cash equivalents. The liquidity risk and
cash management for the Group is managed centrally by the Group Treasury
function. Group Treasury manage bank balances centrally, and monitors the
credit rating and stability of the institutions the Group banks with. The
Board receives projections on a monthly basis as well as information regarding
cash balances. The Group's strategy is to preserve a strong cash base and
secure access to finance at reasonable cost by maintaining a good credit
rating.
26 Related Parties and Shareholders
The details of key management compensation (being the remuneration of the
Directors) are set out in note 10.
27 Business Combinations
Digital Media Management The Multiplayer Group Other acquisitions 2023 2022
€'000 €'000 €'000 €'000 €'000
Details of goodwill and the fair value of net assets acquired
Book value:
Property, plant and equipment 608 2,492 362 3,462 422
Right of use assets 5,714 54 383 6,151 580
Trade and other receivables - gross 3,321 6,800 2,702 12,823 6,145
Bad debt provision (23) (308) - (331) -
Cash and cash equivalents 14,296 9,025 3,628 26,949 5,401
Trade and other payables (1,340) (2,928) (787) (5,055) (4,762)
Deferred income (1,120) (4,240) - (5,360) (3,461)
Lease liabilities (5,714) (54) (383) (6,151) (580)
Book value of identifiable assets and liabilities acquired 15,742 10,841 5,905 32,488 3,745
Fair value adjustments:
Identifiable intangible assets - Customer relationships 22,148 21,200 2,511 45,859 34,695
Identifiable intangible assets - Intellectual property - - - - 25,914
Deferred tax assets - - 5,013 5,013 15,393
Deferred tax liabilities (4,994) (4,982) (1,127) (11,103) (13,341)
Total fair value adjustments 17,154 16,218 6,397 39,769 62,661
Net assets acquired 32,896 27,059 12,302 72,257 66,406
Goodwill from current year acquisitions 55,229 68,677 28,095 152,001 70,482
Total purchase consideration 88,125 95,736 40,397 224,258 136,888
% Share capital acquired 100% 100% 100%
Details of purchase consideration and outflows from current acquisitions
Cash 65,677 93,729 27,923 187,329 92,895
Equity instruments 9,311 - 1,507 10,818 -
Deferred cash - 2,007 914 2,921 8,993
Deferred consideration contingent on performance 13,137 - 9,732 22,869 28,957
Shares to be issued - - 321 321 6,043
Total purchase consideration 88,125 95,736 40,397 224,258 136,888
Related acquisition costs charged to the Consolidated statement of 560 1,470 315 2,345 1,177
comprehensive income:
Number of shares:
Shares issued on acquisition 301,170 - 53,482 354,652 135,468
Fixed number of shares to be issued - - 13,118 13,118 87,738
Net cash outflow arising on acquisition:
Cash paid in the period 65,677 93,729 27,923 187,329 92,895
Less: cash and cash equivalent balances transferred (14,296) (9,025) (3,628) (26,949) (5,401)
Net cash outflow arising on acquisition 51,381 84,704 24,295 160,380 87,494
Details of pro forma revenues and profitability of current acquisitions
Pre-acquisition revenue in H1 6,413 19,648 5,644 31,705 19,329
Pre-acquisition revenue in H2 - 19,453 - 19,453 12,070
Pre-acquisition revenue 6,413 39,101 5,644 51,158 31,399
Post-acquisition revenue 19,165 1,165 18,894 39,224 9,106
Pro forma revenue 25,578 40,266 24,538 90,382 40,505
Pre-acquisition profit / (loss) before tax 1,650 7,869 136 9,655 1,601
Post-acquisition profit / (loss) before tax 2,154 290 5,144 7,588 3,440
Pro forma profit / (loss) before tax 3,804 8,159 5,280 17,243 5,041
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%*, or the impact on goodwill is greater than 10% of the closing balance for
the period. Two of the business combinations completed during the prior period
were considered individually material and therefore warrant separate
disclosure.
During the period, the Group completed five acquisitions, 47 Communications,
Digital Media Management, Hardsuit Labs, Playboss and The Multiplayer Group
purchasing 100% of these businesses. The aggregate amounts recognised in
respect of the identifiable assets acquired and liabilities assumed on
acquisitions completed in the period are set out in the table above. Details
of the purchase consideration and other information relevant to the evaluation
of the financial effect of the acquisitions are also presented.
Total purchase consideration of €224.3m includes amounts attributable to
Digital Media Management €88.1m, Hardsuit Labs €15.7m, The Multiplayer
Group €95.7m and other acquisitions €24.8m, while Goodwill from current
year acquisitions of €152.0m includes amounts related to Digital Media
Management €55.2m, Hardsuit Labs €12.8m, The Multiplayer Group €68.7m
and other acquisitions of €15.3m. Identifiable intangible assets - Customer
relationships of €45.9m includes amounts attributable to Digital Media
Management €22.2m and The Multiplayer Group €21.2m. The consideration and
goodwill for Playboss is deemed immaterial to the accounts.
Please note that Total purchase consideration excludes €22.9m of Deferred
and contingent consideration related to continuous employment, where the
purchase agreement includes deferred consideration contingent on both
pre-defined profit and / or revenue targets being exceeded and which is also
tied to the retention of key staff, that are considered post-acquisition
expenses under IFRS 3 (note 17).
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 €22.2m (for which a
deferred tax asset has been recognised of €5.0m).
*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 2023 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
47 Communications LLC USA 31-Jan-23 100% 5455 Wilshire Blvd, 22nd Fl, Los Angeles, CA 90036, USA
9409-2954 Québec Inc. Canada 04-Dec-19 100% 1751 Richardson, Suite 8400, Montreal, QC H3K 1G6, Canada
Alset LTD UK 17-Aug-18 100% 4th Floor, 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% 4th Floor, 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% 4th Floor, 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% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
Climax Studios Limited UK 22-Apr-21 100% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
Coconut Lizard LTD UK 25-Jun-20 100% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
Cord Worldwide LTD UK 07-Apr-18 100% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
d3t Development Limited UK 30-Aug-18 100% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
d3t LTD UK 19-Oct-17 100% 4th Floor, 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
Digital Media Management Inc USA 29-Mar-23 100% 6555 Barton Ave., Suite 190 Los Angeles, CA 90038, USA
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% 4th Floor, 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 LTD UK 29-May-18 100% 4th Floor, 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
Hardsuit Labs, Inc USA 10-May-23 100% 4025 Delridge Way SW, #210, Seattle 98106, United States
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
Keywords UK Limited (formerly Helpshift UK Ltd) UK 15-Dec-22 100% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
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 LTD UK 26-Nov-19 100% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
Indigo Pearl Limited UK 15-Dec-20 100% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
Itsy SGD Limited UK 17-Aug-18 100% 4th Floor, 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% 4th Floor, 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% 2700 Commerce Place 10155 - 102 Street, Edmonton, AB, T5J 4G8
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% Van Limburg Stirumstraat 19, Hilversum 1215HP, 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% 4th Floor, 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% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
Laboratorio Comunicazione S.r.l. Italy 04-Nov-22 100% Via Egadi 2, Milano, MI, 20144, Italy
Laced Music LTD UK 07-Apr-18 100% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
Laced Publishing Limited UK 07-Apr-18 100% 4th Floor, 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 LTD * UK 15-Jan-14 100% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
Lonsdale Miller Limited UK 15-Dec-20 100% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
Maverick Media Limited UK 27-Aug-20 100% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
Mighty Developments Pty Limited ~~ Australia 03-Aug-22 85% 422 Brunswick Street, Fitzroy, VIC 3065, Australia
Mighty Games Group Pty Limited ~~ Australia 03-Aug-22 85% 422 Brunswick Street, Fitzroy, VIC 3065, Australia
Mighty Games Productions Pty Limited ~~ Australia 03-Aug-22 85% 422 Brunswick Street, Fitzroy, VIC 3065, Australia
Player Research LTD UK 26-Oct-16 100% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
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% 4th Floor, 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% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
Sunny Side Up Creative Inc. Canada 03-Jan-19 100% 1751 Richardson, Suite 8400, Montreal, QC H3K 1G6, 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 Multiplayer Games Group (Spain) S.R.L Spain 16-Dec-23 100% Calle Ferraz 11, 2nd Floor, left, Madrid, 28008
The Multiplayer Group (Canada) Inc. Canada 16-Dec-23 100% 2700-10155, 102 Street NW, Edmonton, Alberta, T5J 4G8.
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The Multiplayer Group Ltd UK 16-Dec-23 100% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
The Sound Lab LLC USA 29-Sep-22 100% 3830 Monte Villa Parkway, Suite 200, Bothell, WA 98021
The Trailerfarm Limited UK 13-Sep-18 100% 4th Floor, 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% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
Waste Holdings Limited UK 16-Dec-21 100% 4th Floor, 110 High Holborn, London, WC1V 6JS, UK
Wicked Witch Software Pty Limited ~~ Australia 20-Dec-21 85% Level 5, 990 Whitehorse Road, Box Hill, Melbourne, VIC 3128, 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% DCU Alpha Innovation Campus, Old Finglas Road, Glasnevin, Dublin 11, D11 KXN4,
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
~ 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
PT Limitless Indonesia Indonesia 19-May-17 100% 23-Aug-23 Dissolved
29 Significant Events and Events after the Reporting Date
Crisis in Ukraine
Since the crisis in Ukraine began in 2022, our priority has been to support
our personnel and freelance suppliers located in the affected area, while also
contributing to broader humanitarian efforts in the region. As our Group had
no business operations in Ukraine, the crisis primarily impacted our Game
Development teams in Russia, as well as our collaboration with several
freelance suppliers based in Ukraine.
Through this period, we have continued to work with our customers, supporting
their preferences for where their work should be performed, while also
remaining focused on mitigating any potential business interruption or other
risks associated with our activities in Russia. As a result, the volume of
work produced in Russia has continued to reduce over time and we have been
scaling down our operations accordingly.
In the period, the Group produced €4.9m of Revenue in Russia, which
represents approximately 0.6% of Group revenue, down from 3.8% in 2022. During
the year, we continued to transfer projects supported in Russia to other parts
of the Group, as we further ramped up production capacity in these locations
with a combination of employees relocating from Russia and local hires. All
production studios located in Russia have now been closed. Costs of
acquisition and integration includes severance and rationalisation costs of
€3.9m associated with ceasing operations in Russia.
The Group has never had significant receivables exposure in Russia, as work
produced in Russia was contracted and collected in other territories. The
Group does not have significant amounts of working capital or non-current
assets located in Russia. Thus, any exposure to impairment of assets located
in Russia is not considered material.
Events after the Reporting Date
There have been no significant events since the reporting date.
Alternative performance measures
The Group reports a number of alternative performance measures ("APMs") to
present the financial performance of the business, that are not GAAP measures
as defined under IFRS. The Directors believe that these measures, in
conjunction with the IFRS financial information, provide the users of the
financial statements with additional information to provide a more meaningful
understanding of the underlying financial and operating performance of the
Group. The measures are also used in the Group's internal strategic planning
and budgeting processes and for setting internal management targets.
These measures can have limitations as analytical tools and therefore should
not be considered in isolation, or as a substitute for IFRS measures. APM's
may not be calculated uniformly by all companies and therefore may not be
directly comparable with similarly titled measures and disclosures of other
companies. As these measures frequently exclude significant recurring
transactions that impact financial performance (e.g. share-based payments
expense), the adjusted measures will typically be higher than the
corresponding IFRS measures and should not be regarded as a complete picture
of the Group's financial performance, which is presented in the Total
comprehensive income / (expense) of the Group.
The principal measures used by the Group are set out below:
Organic revenue growth - Acquisitions are a core part of the Group's growth
strategy. Organic revenue growth measures are used to help understand the
underlying trading performance of the Group excluding the impact of
acquisitions. Organic revenue growth is calculated by adjusting the prior year
revenues, adding pre-acquisition revenues for the corresponding period of
ownership to provide a like-for-like comparison with the current year, and
applying the prior year's foreign exchange rates to both years, when
translating studio results into the euro reporting currency.
Constant exchange rates ("CER") - Given the international nature of the
Group's operations, foreign exchange movements can have an impact on the
reported results of the Group when they are translated into the Group's
reporting currency, the euro. In order to understand the underlying trading
performance of the business, revenue is also presented using rates consistent
with the prior year in order to provide year- over-year comparability.
Adjusted profit and earnings per share measures - Adjusted profit and earnings
per share measures are used to provide management and other users of the
financial statements with a clear understanding of the underlying
profitability of the business over time. Adjusted profit measures are
calculated by adding the following items back to the equivalent GAAP profit
measures:
· Amortisation of intangible assets - Customer relationships and
music licence amortisation commences on acquisition, whereas intellectual
property / development costs amortisation commences when the product is
launched. These costs, by their nature, can vary by size and amount each year.
As a result, amortisation of intangibles is added back to assist with the
understanding of the underlying trading performance of the business and to
allow comparability across regions and categories.
· Costs of acquisition and integration - The level of acquisition
activity can vary each year and therefore the costs associated with acquiring
and integrating businesses are added back to assist with the understanding of
the underlying trading performance of the Group.
· Share-based payments - The Group uses share-based payments as
part of remuneration to align the interests of senior management and employees
with shareholders. These are non-cash charges, and the charge is based on the
Group's share price which can change. The costs are therefore added back to
assist with the understanding of the underlying trading performance.
· Foreign exchange gains and losses - The Group does not hedge
foreign currency translation exposures. The effect on the Group's results of
movements in exchange rates can vary each year and are therefore added back to
assist with understanding the underlying trading performance of the
business.
· Other income - Other income comprises gains on investments or
other non-trading income. As the gains have arisen outside the normal trading
activities of the Group, the income has been added back to assist with the
understanding of the underlying trading performance.
Free cash flow measures - The Group aims to generate sustainable cash flow
(free cash flow) in order to support its acquisition programme and to fund
dividend payments to shareholders. Free cash flow is measured as net cash
generated by / (used in) operating activities after capital expenditure,
payments of principal on lease liabilities, interest and tax payments,
settlement of deferred consideration related to continuous employment 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.
Divisional analysis
The following table presents revenue growth by division at both actual
exchange rates ("AER") and constant exchange rates ("CER"). Constant exchange
rates are calculated by retranslating current year reported numbers at the
corresponding 2022 foreign exchange rates, in order to give management and
other users of the financial statements better visibility of underlying
trading performance against the prior year.
2023 2023 2022 2023 2023
Revenue Revenue Revenue Growth Growth
AER CER AER AER CER
€m €m €m % %
Create 336.1 350.5 275.5 22.0% 27.2%
Globalize 279.5 287.9 300.9 (7.1)% (4.3)%
Engage 164.8 171.1 114.3 44.2% 49.7%
780.4 809.5 690.7 13.0% 17.2%
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.
2023 2023 2023
Revenue Pre-acquisition revenue Pro forma revenue
AER AER AER
€m €m €m
Create 336.1 43.8 379.9
Globalize 279.5 1.0 280.5
Engage 164.8 6.4 171.2
780.4 51.2 831.6
Organic revenue at constant exchange rates
Organic revenue at constant exchange rates is calculated by adjusting the
prior year revenues, adding pre-acquisition revenues for the corresponding
period of ownership, and applying the 2022 foreign exchange rates to both
years, when translating studio results into the euro reporting currency.
2022 2022 2022 2023 2023 2023
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 275.5 23.2 298.7 51.8 350.5 17.3%
Globalize 300.9 - 300.9 (13.0) 287.9 (4.3)%
Engage 114.3 52.9 167.2 3.9 171.1 2.3%
690.7 76.1 766.8 42.7 809.5 5.6%
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, and deducting bank charges.
2023 2022
Calculation €'000 €'000
Administrative expenses Consolidated statement of comprehensive income (252,275) (196,554)
Share-based payments expense Consolidated statement of comprehensive income 21,964 18,678
Costs of acquisition and integration Consolidated statement of comprehensive income 27,140 8,413
Amortisation of intangible assets Consolidated statement of comprehensive income 26,060 16,810
Depreciation - property, plant and equipment Note 13 23,128 18,365
Depreciation - right of use assets Note 12 13,907 14,585
Bank charges Note 6 (724) (662)
Adjusted operating costs (140,800) (120,365)
Adjusted operating costs as a % of revenue 18.0% 17.4%
Adjusted operating profit
The Adjusted operating profit consists of the Operating profit as reported in
the Consolidated statement of comprehensive income, adjusted for share-based
payments expense, costs of acquisition and integration, and amortisation of
intangible assets. In order to present the measure consistently year-on-year,
the impact of other income is also excluded.
2023 2022
Calculation €'000 €'000
Operating profit Consolidated statement of comprehensive income 46,830 71,810
Share-based payments expense Consolidated statement of comprehensive income 21,964 18,678
Costs of acquisition and integration Consolidated statement of comprehensive income 27,140 8,413
Amortisation of intangible assets Consolidated statement of comprehensive income 26,060 16,810
Other income Consolidated statement of comprehensive income - (1,098)
Adjusted operating profit 121,994 114,613
Adjusted operating profit as a % of revenue 15.6% 16.6%
EBITDA
EBITDA comprises Operating profit as reported in the Consolidated statement of
comprehensive income, adjusted for amortisation of intangible assets,
depreciation and impairment, and deducting bank charges.
2023 2022
Calculation €'000 €'000
Operating profit Consolidated statement of comprehensive income 46,830 71,810
Amortisation of intangible assets Consolidated statement of comprehensive income 26,060 16,810
Depreciation - property plant and equipment Note 13 23,128 18,365
Depreciation - right of use assets Note 12 13,907 14,585
Bank charges Note 6 (724) (662)
EBITDA 109,201 120,908
Adjusted EBITDA
Adjusted EBITDA comprises EBITDA, adjusted for share-based payments expense,
and costs of acquisition and integration. In order to present the measure
consistently year-on-year, the impact of other income is also excluded.
2023 2022
Calculation €'000 €'000
EBITDA As above 109,201 120,908
Share-based payments expense Consolidated statement of comprehensive income 21,964 18,678
Costs of acquisition and integration Consolidated statement of comprehensive income 27,140 8,413
Other income Consolidated statement of comprehensive income - (1,098)
Adjusted EBITDA 158,305 146,901
Adjusted EBITDA as a % of revenue 20.3% 21.3%
Adjusted profit before tax
Adjusted profit before tax comprises Profit before taxation as reported in the
Consolidated statement of comprehensive income, adjusted for share-based
payments expense, costs of acquisition and integration, amortisation of
intangible assets, non-controlling interest, foreign exchange gains and
losses, and unwinding of discounted liabilities. In order to present the
measure consistently year-on-year, the impact of other income is also
excluded.
2023 2022
Calculation €'000 €'000
Profit before taxation Consolidated statement of comprehensive income 34,994 67,982
Share-based payments expense Consolidated statement of comprehensive income 21,964 18,678
Costs of acquisition and integration Consolidated statement of comprehensive income 27,140 8,413
Amortisation of intangible assets Consolidated statement of comprehensive income 26,060 16,810
Foreign exchange (gain) / loss Note 6 1,232 (1,677)
Unwinding of discounted liabilities - deferred consideration Note 6 3,279 2,922
Other income Consolidated statement of comprehensive income - (1,098)
Adjusted profit before tax 114,669 112,030
Adjusted profit before tax as a % of revenue 14.7% 16.2%
Adjusted effective tax rate
The Adjusted effective tax rate is the Taxation expense as reported in the
Consolidated statement of comprehensive income, adjusted for the tax impact of
the adjusting items in arriving at Adjusted profit before tax, as a percentage
of the Adjusted profit before tax.
2023 2022
Calculation €'000 €'000
Adjusted profit before tax As above 114,669 112,030
Taxation Consolidated statement of comprehensive income 15,042 20,612
Effective tax rate before tax on adjusting items Taxation / Adjusted profit before tax 13.1% 18.4%
Tax arising on bridging items to Adjusted profit before tax^ 10,539 4,043
Adjusted taxation 25,581 24,655
Adjusted effective tax rate Adjusted taxation / Adjusted profit before tax 22.3% 22.0%
^Being mainly the tax impact of share-based payments expense €4.2m,
amortisation of intangible assets €4.4m and acquisition related costs
€1.5m, with the prior period being mainly the tax impact of share-based
payments expense €0.4m and amortisation of intangible assets €4.0m less
foreign exchange €0.4m.
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 either the basic or diluted weighted average number of equity
shares, as reported in note 8.
2023 2022
Calculation €'000 €'000
Adjusted profit before tax As above 114,669 112,030
Taxation Consolidated statement of comprehensive income (15,042) (20,612)
Tax arising on bridging items to Adjusted profit before tax^ (10,539) (4,043)
Adjusted profit after tax 89,088 87,375
Weighted average number of equity shares Number Number
Basic Note 8 78,910,471 76,979,596
Diluted Note 8 79,995,267 80,481,897
Adjusted earnings per share € c € c
Basic 112.90 113.50
% growth (0.5%) 27.2%
Diluted 111.37 108.56
% growth 2.6% 27.8%
^Being mainly the tax impact of share-based payments expense €4.2m,
amortisation of intangible assets €4.4m and acquisition related costs
€1.5m, with the prior period being mainly the tax impact of share-based
payments expense €0.4m and amortisation of intangible assets €4.0m less
foreign exchange €0.4m.
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.
2023 2022
Calculation €'000 €'000
Adjusted profit before tax As above 114,669 112,030
Interest received Note 6 (614) (309)
Bank charges Note 6 724 662
Interest expense Note 6 5,768 1,261
Unwinding of discounted liabilities - lease liabilities Note 6 1,447 969
Pre-acquisition profits of current year acquisitions Note 27 9,655 1,601
Adjusted profit before tax including pre-acquisition profit and excluding net 131,649 116,214
interest
Total equity Consolidated statement of financial position 599,039 557,091
Employee defined benefit plans Consolidated statement of financial position 4,030 2,861
Cumulative amortisation of intangibles assets (customer relationships) Note 11 76,617 58,301
Deferred and contingent consideration Note 17 55,825 63,253
Loans and borrowings Note 18 127,380 51
Cash and cash equivalents Consolidated statement of financial position (59,862) (81,886)
Capital employed 803,029 599,671
Return on capital employed Adjusted profit before tax including pre-acquisition profit and excluding net 16.4% 19.4%
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, settlement
of deferred 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.
2023 2022
Calculation €'000 €'000
Net cash generated by / (used in) operating activities Consolidated statement of cash flows 110,457 124,286
Acquisition and integration cash outlay:
Costs of acquisition and integration Consolidated statement of comprehensive income 27,140 8,413
Fair value adjustments to contingent consideration Consolidated statement of cash flows (300) (2,282)
Non-cash movements in Deferred and contingent Consolidated statement of cash flows (8,877) (3,000)
consideration related to continuous employment
Fair value adjustments to property, plant Note 5 (5,755) -
and equipment
Fair value adjustments to right of use assets Note 5 (2,041) -
Other fair value movements within Cost of acquisition and integration Note 5 (2,677) -
Acquisition of property, plant and equipment Consolidated statement of cash flows (30,689) (27,007)
Investment in intangible assets Consolidated statement of cash flows (3,052) (501)
Other income Consolidated statement of comprehensive income - (1,098)
Settlement of deferred and contingent consideration related to continuous Consolidated statement of cash flows 3,900 -
employment
Interest received Consolidated statement of cash flows 614 309
Interest paid Consolidated statement of cash flows (7,729) (1,797)
Payments of principal on lease liabilities Consolidated statement of cash flows (15,038) (11,361)
Free cash flow after tax 65,953 85,962
Taxation paid Consolidated statement of cash flows 20,853 17,505
Free cash flow before tax 86,806 103,467
Adjusted free cash flow
Adjusted free cash flow is a measure of cash flow adjusting for capital
expenditure that is supporting growth in future periods (as measured by
capital expenditure in excess of maintenance capital expenditure).
2023 2022
Calculation €'000 €'000
Free cash flow before tax As above 86,806 103,467
Capital expenditure in excess of depreciation:
Acquisition of property, plant and equipment Consolidated statement of cash flows 30,689 27,007
Depreciation - property, plant and equipment Note 5 (23,128) (18,365)
Capital expenditure in excess of depreciation 7,561 8,642
Adjusted free cash flow 94,367 112,109
Adjusted cash conversion rate
The Adjusted cash conversion rate is the Adjusted free cash flow as a
percentage of the Adjusted profit before tax:
2023 2022
Calculation €'000 €'000
Adjusted free cash flow As above 94,367 112,109
Adjusted profit before tax As above 114,669 112,030
Adjusted cash conversion ratio Free cash flow before tax and capital expenditure in excess of depreciation, 82.3% 100.1%
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.
2023 2022
Calculation €'000 €'000
Loans and borrowings Consolidated statement of financial position 127,380 51
Cash and cash equivalents Consolidated statement of financial position (59,862) (81,886)
Net debt / (net cash) position 67,518 (81,835)
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