REG - Keywords Studios PLC - H1 Trading Update

Keywords StudiosAnnouncement

01/08/2023 07:00

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RNS Number : 8136H  Keywords Studios PLC  01 August 2023

1 August 2023

 

Keywords Studios plc ("Keywords Studios", "Keywords", the "Group")

 

H1 Trading Update

 

Good trading performance despite current market backdrop

Keywords Studios, the international provider of creative and
technology-enabled solutions to the global video games and entertainment
industries, announces its H1 Trading Update.

Highlights

 

 * H1 Revenue of €383m representing a 19% increase on H1 2022

 * Organic revenue growth of 10% and Adjusted Operating Margin of 15%, in line
with medium-term guidance

 * Four acquisitions completed for total maximum consideration of up to c.€130m

 * Delivering against strategy, including investing in leading AI product suite
and technology

Bertrand Bodson, CEO of Keywords Studios commented:

"Keywords delivered good H1 growth despite the current industry backdrop,
benefitting from our focus on strategic partnerships and our unique provision
of solutions across the full game development cycle. We have continued to
broaden our offering through high-quality targeted acquisitions and are
excited about the pipeline ahead.

Responsibly harnessing AI and other technologies is a key element of our
strategy as we support the industry's race to create the most immersive
experience for players. We have over 4,000 dedicated engineers and technical
experts in Create with a long track record of unlocking and utilising multiple
generations of new technologies. We are also building a portfolio of
world-class AI products to address critical post-production client needs,
complementing our existing service offerings, and enabling us to do more for
our clients.

Our scale and market leadership, built on deep knowledge of our clients'
priorities and integration into their workflows, provide an unrivalled
platform from which to invest in and lead the way in deploying innovative
technologies to augment our broader offering. We have an unparalleled
opportunity to work with clients, who have been trusting us with their games
for decades, to help them navigate the complex challenges that are currently a
barrier to adoption of Generative AI in the AAA game production process.

We are uniquely placed to capture the opportunities that technology
advancement will create over time as it increases the bounds of possibility,
leading to a proliferation of ever improving content as our clients seek to
engage the three billion gamers globally. We are excited about the
opportunities that lie ahead and are preparing for the future whilst we
continue to grow market share and deliver against our plans for 2023 and
beyond."

Performance

The Group has performed well during the first half, with the Board expecting
to report revenues of approximately €383m, representing a 19% increase on
the comparative period (H1 2022: €321m). This performance included the
impact of acquisitions and reflects a 2% negative impact from translating
studio results from local currency into the euro reporting currency. On an
organic(1) basis, Group revenues are expected to have increased by 10%, in
line with our medium-term guidance, and having moderated from H1 2022's
exceptional levels, as expected.

Adjusted operating profit(2) is expected to be approximately €59m,
representing an increase of around 5% from €56m in the comparative period in
the prior year. This reflects the normalisation of margins towards 15% as
guided, and is in line with the margins achieved in the second half of 2022 as
we continue to invest into the business.

 

The Group's segmental performance reflected the varied conditions within the
video gaming market so far this year. In Create, there continued to be strong
demand for our content creation services, with organic growth only moderating
slightly from 2022 levels. In Globalize, we have seen a more pronounced
moderation, following the very strong growth levels in H1 2022. We have seen
limited impact from the entertainment industry strikes in the US, but are
monitoring the situation whilst they continue. Engage experienced a slower
period, primarily due to the weaker mobile market impacting demand for Player
Support services and Marketing services seeing certain short-notice delays
meaning some projects slipped into the second half of the year.

 

The Group continues to trade well, in line with our guidance given at the
outset of the year even with the current challenging industry backdrop and
macroeconomic conditions. As such, we expect full year organic growth to be
similar to the first half, supplemented by acquisitions, including the four
high-quality acquisitions executed in the year-to-date, and for adjusted
operating margins to remain around 15% for the year. We remain mindful of the
continuing currency volatility that may impact on our performance in the
second half, but are confident in the long-term growth trajectory of the
business.

 

Capital Allocation & Balance Sheet

During the first half, Keywords continued to deliver against our strategy of
extending our capabilities and geographical reach in our Create and Engage
service lines, as well as scaling our technology offering. The Group has
completed four high-quality acquisitions, adding approximately €50m of
annual pre-acquisition revenue(3), for total maximum consideration, including
performance related contingent deferred consideration, of up to c.€130m.

Two acquisitions broadened our Engage offering in the US, the largest global
market for gaming, 47 Communications and Digital Media Management (DMM), with
both enhancing our media and entertainment capabilities, and DMM bringing
market leading social media capabilities and an innovative technology platform
which partners content creators with brands. In game development, we acquired
Hardsuit Labs, a 70-person studio focused on AAA games and specialising in the
Unreal engine. In addition, we expanded our Climax game development studio
through the acquisition of Playboss Interactive in the UK, providing Climax
with a second location to grow from.

As of 30 June 2023, the Group had net debt of €11m, (31 December 2022: net
cash of €82m) due to its acquisition programme, EBT purchases, and an H1
weighting to capex. Cash flow and cash conversion are traditionally
significantly stronger in the second half of the year. The Group has drawn
US$60m on its committed revolving credit facility, which has recently been
extended to US$400m, and together with its strong cash generation, this leaves
the Group well placed to pursue its organic growth strategy, including through
investment in technology, and to fund our healthy acquisition pipeline.

Notification of Half Year Results

The Group expects to announce its half year results for the six months ended
30 June 2023 on 12 September 2023. To register your interest, please use the
following link:  https://brrmedia.news/KWS_HY23
(https://brrmedia.news/KWS_HY23) or contact Keywords@mhpgroup.com
(https://keywordsstudios-my.sharepoint.com/personal/gblackham_keywordsstudios_com/Documents/Keywords@mhpgroup.com)
.

For further information, please contact:

 Investor Contacts:                                                       Media Contacts:
 Keywords Studios                                                         MHP Group

 Giles Blackham                                                           Katie Hunt / Eleni Menikou / Charles Hirst

 Director of Investor Relations                                           +44 20 3128 8794

 +44 7714 134 681                                                         keywords@mhpgroup.com (mailto:keywords@mhpgroup.com)

 gblackham@keywordsstudios.com (mailto:gblackham@keywordsstudios.com)
 Numis Securities

 Nominated Adviser & Broker

 Stuart Skinner / Will Baunton

 +44 20 7260 1000

 

(1) 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.

(2) Organic Revenue at constant exchange rates is calculated by adjusting the
prior year revenues, adding pre-acquisition revenues for the corresponding
period of ownership, and applying the prior year foreign exchange rates to
both years, when translating studio results into the Euro reporting currency.

(3) Combination of 2022 revenues for each of the acquisitions.

 

About Keywords Studios (www.keywordsstudios.com
(http://www.keywordsstudios.com/) )

Keywords Studios is an international provider of creative and
technology-enabled solutions to the global video games and entertainment
industries. Established in 1998, and now with over 70 facilities in 26
countries strategically located in Asia, Australia, the Americas, and Europe,
it provides services across the entire content development life cycle through
its Create, Globalize and Engage service lines to a large blue-chip client
base across the globe.

Keywords Studios has a strong market position, providing services to 24 of the
top 25 most prominent games companies. Across the games and entertainment
industry, clients include Activision Blizzard, Bandai Namco, Bethesda,
Electronic Arts, Epic Games, Konami, Microsoft, Netflix, Riot Games, Square
Enix, Supercell, TakeTwo, Tencent and Ubisoft. Recent titles worked on include
Diablo IV, Hogwarts Legacy, Elden Ring, Fortnite, Valorant, League of Legends,
Clash Royale and Doom Eternal. Keywords Studios is listed on AIM, the London
Stock Exchange regulated market (KWS.L).

 

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