REG - Keywords Studios PLC - Half-year Report <Origin Href="QuoteRef">KWS.L</Origin> - Part 2
19/09/2017 07:07
- Part 2: For the preceding part double click ID:nRSS0936Ra
(E'000). The financial statements are presented in Euro (E) which is the
functional currency of the Group.
2 Significant accounting policies
There have been no changes to the accounting policies detailed in the 2016
Annual Report. Over the period covered by the Interim Report the company has
acquired new companies, resulting in the creation of both Intangible Assets
and Goodwill. The accounting policies relating to Intangible Assets and
Goodwill are detailed below.
Business Combinations
The consolidated financial statements incorporate the results of the business
combinations using the purchase method. In the Consolidated Statement of
Financial Position, the acquiree's identifiable assets, liabilities and
contingent liabilities are initially recognised at their fair values at the
acquisition date. The results of acquired operations are included in the
consolidated income statement from the date on which control is obtained.
Any contingent consideration payable is recognised at fair value at the
acquisition date and is split between current liabilities and long term
liabilities. When the consideration becomes more certain, the fair value of
the contingent consideration will be revalued and any change will be
recognised in the statements 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
to be classified as an Equity Arrangement and the value of the shares is fixed
at the date of the acquisition.
Goodwill
Goodwill represents the excess of the cost of a business combination over, in
the case of business combinations completed prior to 1 January 2010, the
Group's interest in the fair value of identifiable assets, liabilities and
contingent liabilities acquired and, in the case of business combinations
completed on or after 1 January 2010, the total acquisition date fair value of
the identifiable assets, liabilities and contingent liabilities acquired.
For business combinations completed prior to 1 January 2010, cost comprised
the fair value of assets given, liabilities assumed and equity instruments
issued, plus any direct costs of acquisition. Changes in the estimated value
of contingent consideration arising on business combinations completed by this
date were treated as an adjustment to cost and, in consequence, resulted in a
change in the carrying value of goodwill.
For business combinations completed on or after 1 January 2010, 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
in cost at its acquisition date fair value and, in the case of contingent
consideration classified as a financial liability, re-measured subsequently
through profit or loss. For business combinations completed on or after 1
January 2010, direct costs of acquisition are recognised immediately as an
expense.
Goodwill is capitalised as an intangible asset with any impairment in carrying
value being charged to the consolidated statement of comprehensive income.
Intangible Assets
Intangible assets, separately identified from goodwill acquired as part of a
business combination, are initially stated at fair value. The fair value
attributed is determined by discounting the expected future cashflows to be
generated from net margin on the business from the main customers taken on at
acquisition. The assets are amortised over their useful economic lives, which
is deemed to be 5 years.
Revenue Recognition
Revenue recognised represents the consideration received or receivable for the
rendering of services, net of sales taxes, rebates discounts and after
eliminating intercompany sales. Services are provided based on agreed client
instructions and when projects are in progress at the period end, revenue is
recognised to the extent that services
have been provided net of any provisions.
Revenue is recognised on the basis of words translated, studio time completed,
testing hours finished, or milestones reached in art creation as a proportion
of the estimate total to complete the projects, by the expected revenue
accruing on completion.
3 Critical accounting estimates and judgements
There has been no material revisions to the nature and amount of changes in
estimates of amounts reported in the annual financial statements 2016 for
Keywords Studios Plc.
4 Segmental analysis
Management considers that the Group's activity as a single source supplier of
Technical Services for Video Games constitutes one operating and reporting
segment, as defined under IFRS 8.
Management review the performance of the Group by reference to Group-wide
revenues derived from seven main service groupings:
· Art Creation - Art creation services relate to the production of
graphical art assets for inclusion in the video game including concept art
creation along with 2D and 3D art asset production and animation
· 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
· Localisation - Localisation services relate to translation and cultural
adaptation of in-game text and audio scripts across multiple game platforms
and genres
· Functional Testing - Functional testing relates to quality assurance
services provided to game producers to ensure games function as required
· Localisation Testing - Localisation testing involves testing the
linguistic correctness and cultural acceptability of computer games
· Customer Support - Customer support relates to the live operations
support services such as community management, player support and associated
services provided to producers of games to ensure that consumers have a
positive user experience
· Engineering - Engineering relates to software engineering services which
are integrated with client processes to develop video games
There is no allocation of operating expenses, profit measures, assets and
liabilities to individual product groupings. Accordingly, the disclosures
below are provided on an entity-wide basis.
Activities are reported in a manner consistent with the internal reporting
provided to the chief operating decision-maker. The chief operating decision
maker has been identified as the executive management team made up of the
Chief Executive Officer and the Chief Finance Officer.
Unaudited Unaudited Audited
26 weeks ended 26 weeks ended 52 weeks ended
30 Jun 17 30 Jun 16 31 Dec 16
E'000 E'000 E'000
Revenue by line of business
Art creation 12,381 6,660 16,559
Audio 8,402 9,148 17,263
Localisation 18,989 14,035 32,360
Functional testing 10,964 3,265 8,619
Localisation testing 8,682 6,928 16,204
Customer support 3,817 2,374 5,580
Engineering 525 - -
63,760 42,410 96,585
Geographical analysis of revenues by jurisdiction
Analysis by geographical regions is made according to the Group's operational
jurisdictions. This does not reflect the region of the Group's customers,
whose locations are worldwide.
Unaudited Unaudited Audited
26 weeks ended 26 weeks ended 52 weeks ended
30 Jun 17 30 Jun 16 31 Dec 16
E'000 E'000 E'000
Canada 20,689 8,297 22,053
Ireland 15,371 10,919 25,570
Switzerland 7,217 7,872 17,838
Italy 5,906 3,926 7,269
India 2,643 1,996 4,591
United States 3,079 3,372 5,250
Japan 2,652 2,392 4,886
United Kingdom 1,370 728 1,276
Spain 832 603 2,167
China 613 - 24
Singapore 2,522 1,823 4,787
Germany 483 55 163
Brazil 270 375 619
Mexico 84 52 92
France 29 - -
Total revenues 63,760 42,410 96,585
Geographical analysis of non-current assets from continuing businesses
Unaudited Unaudited Audited
26 weeks ended 26 weeks ended 52 weeks ended
30 Jun 17 30 Jun 16 31 Dec 16
E'000 E'000 E'000
Canada 8,445 2,289 8,937
Ireland 4,616 4,626 4,779
Switzerland 12,191 13,015 12,657
Italy 11,851 12,357 12,188
India 2,865 2,966 2,991
United States 12,307 8,431 8,657
Japan 327 27 43
United Kingdom 7,711 6,139 6,874
Spain 931 878 1,475
China 4,372 142 287
Singapore 52 346 60
Germany 1,205 1,283 1,241
Brazil 239 231 259
Mexico - 82 121
Philippines 392 - 424
67,504 52,812 60,993
5 Seasonal business
The video games industry and, in particular, the console sector of the games
industry, remains heavily dependent on sales of new releases of games and
consoles during the traditional holiday season, including the run up to
Thanksgiving in the United States and Christmas in other parts of the world.
As with all other service providers to the video games industry, certain of
Keywords Group's service lines typically experiences significantly higher
activity as part of this release cycle during the six months from June to
November. This activity drives increased revenues in that period and
generates higher gross profit margins compared with the first six months of
each calendar year.
Revenue for the 52 weeks ended 30 June 2017 totalled E118m (2016: 52 weeks
E76m) and gross profit totalled E44m (2016: 52 weeks E28m).
Within the six months to 30 June 2017, Keyword's Group has acquired 4 new
entities which are also included in the results above.
6 Financing income and costs
Unaudited Unaudited Audited
26 weeks ended 26 weeks ended 52 weeks ended
30-Jun-17 30-Jun-16 31-Dec-16
E'000 E'000 E'000
Finance income
Interest received 55 52 94
55 52 94
Finance cost
Bank charges (151) (101) (229)
Interest expense (240) (69) (152)
Foreign exchange losses (1,965) (1,771) (1,737)
(2,356) (1,941) (2,118)
Net financing income/(cost) (2,301) (1,889) (2,024)
7 Taxation
Unaudited Unaudited Audited
26 weeks ended 26 weeks ended 52 weeks ended
30-Jun-17 30-Jun-16 31-Dec-16
E'000 E'000 E'000
Current income tax
Income tax on profits of parent company - 3 4
Income tax on profits of subsidiaries 2,745 1,287 3,928
Deferred tax (Note 29) (720) (10) (709)
2,025 1,280 3,223
The tax is calculated for all of the Keyword's entities, across all
geographies, which have generated profits during the period, after taking into
account any tax losses brought forward. The tax is estimated in accordance
with the tax laws of each jurisdiction.
8 Dividends Paid
Dividends
Unaudited Unaudited Audited
26 weeks ended 26 weeks ended 52 weeks ended
30 Jun 2017 30 Jun 2016 31 Dec 2016
Per share Total Per share Total Per share Total
E Cent E'000 E Cent E'000 E Cent E'000
Final Dividends Paid 1.01 563 1.03 561 1.03 561
Interim Dividends Paid - - - - 0.49 264
Dividends paid to shareholders 1.01 563 1.03 561 1.52 825
In May 2016, Keywords Studios plc approved a dividend in respect of the
financial year ended 31 December 2015 of Stg0.81p/ E cent 1.034 per Ordinary
share, or E561k in total, as a final dividend for 2015. The dividend was paid
in June 2016.
In September 2016, Keywords Studios plc approved a dividend of Stg 0.44p/E
cent 0.49 per share, based on the shares in issue at that time, or E264k in
total, as an interim dividend for 2016. The dividend was paid in October
2016.
In April 2017, Keywords Studios plc approved a dividend in respect of the
financial year ended 31 December 2016 of Stg0.89p/ E cent 1.01 per Ordinary
share, or E563k in total, as a final dividend for 2016. The dividend was paid
in June 2017.
The Directors recommend an interim dividend of STG 0.48p /E cent 0.55 per
share in respect of the financial year ended 31 December 2017 to be paid on 27
October 2017 to the shareholders who are on the register at 6 October 2017.
The dividend is not reflected in the financial statements as it does not
represent a liability as at 30 June 2017. The interim proposed dividend will
reduce shareholders' funds by an estimated E317k.
9 Earnings per share
Earnings Per Share
Unaudited Unaudited Audited
26 weeks ended 26 weeks ended 52 weeks ended
30 Jun 2017 30 Jun 2016 31 Dec 2016
Basic 6.08 2.42 11.22
Diluted 5.83 2.36 10.87
E'000 E'000 E'000
Profit for the period from continuing operations 3,489 1,328 6,273
Denominator (weighted average number of equity shares) Number Number Number
Basic 57,395,949 54,979,778 55,918,481
Diluted 59,851,814 56,282,210 57,716,435
The dilutive impact of share options has been considered in calculating
diluted earnings per share.
The basic and diluted weighted average denominators include the impact of the
1,862,297 (Dec 2016 2,889,708) Shares to be issued relating to the
acquisitions of Synthesis, Mindwalk and Red Hot.
10 Share Capital
Share capital
Share capital Shares E'000
At 1 January 2016 53,837,697 646
Ordinary Shares of £0.01 issued on acquisition of Kite Team 55,508 1
At 30 June 2016 53,893,205 647
Ordinary Shares of £0.01 issued on acquisition of Volta 45,192 1
Exercise of Numis Warrants 400,324 4
Ordinary Shares of £0.01 issued on acquisition of Player Research 65,280 1
Ordinary Shares of £0.01 issued on acquisition of Sonox 24,881 1
At 31 December 2016 54,428,882 654
Ordinary Shares of £0.01 issued according to the terms of the 2016 acquisition of Synthesis 1,188,253 14
Ordinary Shares of £0.01 issued on acquisition of XLOC 19,134 -
Ordinary Shares of £0.01 issued on acquisition of Gamesim 151,725 2
At 30 June 2017 55,787,994 670
On 13 April 2017 the Group issued 1,188,253 of 1p shares in accordance with
the terms of the 2016 acquisition of the Synthesis group. These shares had
already been included in the basic EPS denominator as they were considered
'Shares to be Issued', contingent only on the passage of time. A further
1,188,253 shares will be issued in April 2018.
On 10 May 2017 the Group issued 19,134 of 1p shares at a value of 807p (E9.61)
which formed the part of the consideration for the acquisition of XLOC.
On 17 May 2017 the Group issued 151,725 of 1p shares at a value of 788p
(E9.19) which formed the part of the consideration for the acquisition of
Gamesim.
On 22 May 2017, in accordance with the terms of the acquisition of Red Hot,
the Group committed to the Issue of 160,642 shares in May 2019. This
commitment, which is only dependant on the passage of time, is recorded as
'Shares to be Issued' at a value of 804p (E9.12) per share.
There is no limit to the number of shares which the company can issue.
11 Goodwill
At 1 January 2016 23,893
Recognition on acquisition of subsidiaries 17,995
Revaluation on Exchange Rate Movement (417)
At 30 June 2016 41,471
Recognition on acquisition of subsidiaries 5,060
Revaluation on Exchange Rate Movement 268
At 31 December 2016 46,799
Recognition on acquisition of subsidiaries 7,484
Revaluation on Exchange Rate Movement (1,535)
At 30 June 2017 52,748
During the period goodwill arose on the acquisitions of Spov, XLOC, Gamesim
and Red Hot.
The goodwill is tested for impairment on an annual basis. The impairment test
will be performed as part of the year end process and any adjustment required
reported in the annual report. At 30 June 2016 the Board do not consider that
there is an impairment is required.
12 Intangible assets - customer relationships
Cost Customer Contracts Purchased Software Development Total
E'000 E'000 E'000
At 1 January 2016 5,132 5,132
Additions 3,921 3,921
Revaluation on Exchange Rate Movement (147) (147)
At 30 June 2016 8,906 8,906
Additions 2,588 2,588
Revaluation on Exchange Rate Movement 136 136
At 31 December 2016 11,630 11,630
Additions 1,465 147 1,612
Revaluation on Exchange Rate Movement (386) - (386)
12,709 147 12,856
Amortisation
E'000 E'000 E'000
At 1 January 2016 1,350 1,350
Amortisation 615 615
Exchange adjustment (50) (50)
At 30 June 2016 1,915 - 1,915
Amortisation 1,014 1,014
Exchange adjustment 5 5
At 31 December 2016 2,934 - 2,934
Amortisation 1,221 2 1,223
Exchange adjustment (106) (106)
At 30 June 2017 4,049 2 4,051
Net Book Value
At 30 June 2016 6,991 - 6,991
At 31 December 2016 8,696 - 8,696
At 30 June 2017 8,660 145 8,805
Intangible Assets are amortised over 5 years from the point of acquisition on
a straight line basis.
13 Loans and borrowings
Since the end of the period, Keywords PLC expanded the revolving credit
facility with Barclay's bank to E35,000,000 which can be used for both further
acquisitions and to fund working capital. The interest rate is 1.75% above
Euribor and there is a 0.4% margin which is charged for unutilised facility.
There are charges over the assets of Keywords Studios plc, Keywords
International Ltd, Binari Sonori S.R.L, Babel Games Services Inc., Synthesis
and Liquid Development LLC.
Loans outstanding are repayable over the following periods;
Unaudited Unaudited Audited
26 weeks ended 26 weeks ended 52 weeks ended
30-Jun-17 30-Jun-16 31-Dec-16
E'000 E'000 E'000
Expiry within 1 Year 13,043 4000 8,025
Expiry between 1 Year and 2 Years 56 - 55
Expiry over 2 Years 255 - 290
13,354 4,000 8,370
14 Share options
In July 2013, at the time of the IPO, the Company put in place a Share Option
Scheme and a Long Term Incentive Plan ("LTIP"). The charge in relation to
these arrangements is shown below, with further details of the schemes
following:
Unaudited Unaudited Audited
26 weeks ended 26 weeks ended 52 weeks ended
30-Jun-17 30-Jun-16 31-Dec-16
E'000 E'000 E'000
Share Option Scheme Expense 82 100 208
Share Option Scheme - LTIP Expense 334 184 478
416 284 686
Of the total share option charge, E85,459 relates to Directors of the Company
as at 30 June 2017, (2016: E16,170 for the period ending 30 June 2016).
Share option incentive plan scheme
Share options are granted to certain Directors and 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:
Share Option scheme Unaudited Unaudited Audited
26 weeks ended 26 weeks ended 52 weeks ended
30-Jun-17 30-Jun-16 31-Dec-16
Average exercise price in £ per share Number of options 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 1.58 1,672,056 1.44 1,642,242 1.20 1,642,242
Granted 7.76 283,500 2.45 223,200 2.45 223,200
Lapsed 1.47 (2,909) 1.72 (9,580) 1.67 (44,547)
Exercised 1.42 (85,698) 1.16 (37,842) 1.31 (148,839)
Outstanding at the end of the period 2.45 1,866,949 1.57 1,818,020 1.58 1,672,056
Exercisable at the end of the period 1.27 486,959 1.19 143,512 1.38 522,035
There were 283,500 options granted during the period and 2,909 lapsed due to
staff leaving.
On 15 May 2017, 283,500 options were granted at an exercise price of £7.755.
All options were granted to either employees or Directors of the Group. Of
the 283,500 options granted, 94,500 are exercisable from 15 May 2019 to 15 May
2024, 94,500 are exercisable from 15 May 2020 to 15 May 2024, and 94,500 are
exercisable from 15 May 2021 to 15 May 2024
Long term incentive plan scheme
An alternative share plan was introduced to give awards to Directors and staff
subject to outperforming the Numis Small Cap (excluding Investment Trusts)
index in terms of shareholder return over a three year period. A total of
2,033,469 (June 2016: 1,514,552) nil price (1p) options are available to vest
to Directors and to selected employees on the basis of the number of options
they are entitled to.
Movements in the number of share options outstanding and their related
weighted average exercise prices are as follows:
Long Term Incentive Scheme Unaudited Unaudited Audited
26 weeks ended 26 weeks ended 52 weeks ended
30-Jun-17 30-Jun-16 31-Dec-16
Average exercise price in £ per share Number of options 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 1,443,691 0.01 860,206 0.01 860,206
Granted 0.01 696,000 0.01 690,000 0.01 720,000
Lapsed 0.01 (106,222) 0.01 (35,654) 0.01 (105,654)
Exercised - - 0.01 (30,861)
Outstanding at the end of the period 0.01 2,033,469 0.01 1,514,552 0.01 1,443,691
Exercisable at the end of the period 0.01 295,365 - - 0.01 295,365
On 15 May 2017, 696,000 options were granted at an exercise price of £0.01.
All options were granted to either employees or Directors of the Group. The
696,000 options granted are exercisable from 15 May 2020 to 15 May 2024 if the
market performance conditions are met as at 15 May 2020.
15 Acquisitions
Acquisition of Spov Ltd
On 17 February 2017 the Group acquired the entire issued share capital of Spov
Ltd ("Spov") a company registered in the UK, which specialises in providing
creative development, cinematics, UI, visual effects and motion graphics
services to the video game and film markets. The acquisition will further
complement Keywords range of customer service offerings to customers with
online and mobile games.
The amounts recognised in respect of the identifiable assets acquired and
liabilities assumed are set out below:
Spov Ltd.
Book Fair Value Fair
Value Adjustment Value
E'000 E'000 E'000
Financial Assets
Property, plant and equipment 30 - 30
Trade and other receivable 16 - 16
Trade and other Payables (139) - (139)
Total identifiable assets (93) - (93)
Goodwill 491
Total consideration 398
Satisfied by:
Cash 351
Deferred consideration 47
398
Net cash outflow arising on acquisition
Cash 351
The main factors leading to recognition of goodwill on the acquisition of Spov
are the presence of intangible assets in the acquired entity which do not
qualify for separate recognition such as the expertise in Art Services and
reputation within the industry, and an unidentified proportion representing
the balance contributing to profit generation.
In the opening set up period, Spov contributed E14,805 revenue and E116,889
loss before tax to the Group between the date of acquisition and the balance
sheet date.
If the acquisition had been completed on the first day of the financial year,
total revenue for the six months of E19,143 would have been contributed to the
Group, and a corresponding loss before tax of E126,995.
Acquisition costs of E2,630 have been charged through the Statement of
Comprehensive Income.
Acquisition of XLOC
On 10 May 2017 the Group acquired the entire issued share capital of XLOC Inc,
("XLOC") a company registered in Raleigh, North Carolina, USA. XLOC has
developed the leading web-based integrated globalization content management
system for videogames (XLOC), supported by consulting and customisation
services. The acquisition of XLOC is in line with Keywords Studios' strategy
to extend its services, with the objective of providing end to end services to
its global client base covering all aspects of game production and live
operations support.
The amounts recognised in respect of the identifiable assets acquired and
liabilities assumed are set out in the table below:
XLOC Book Fair Value Fair
Value Adjustment Value
E'000 E'000 E'000
Financial Assets
Property, plant and equipment 7 - 7
Identifiable intangible assets - IP - 147 147
Trade and other receivables 33 - 33
Cash and cash equivalents 120 - 120
Trade and other Payables (73) - (73)
Deferred tax liabilities - (59) (59)
Total identifiable assets 87 88 175
Goodwill 652
Total consideration 827
Satisfied by:
Cash 643
Equity Instruments (19,134 shares of the parent company) 184
Total consideration 827
Net cash outflow arising on acquisition
Cash 643
Less: cash and cash equivalent balances transferred (120)
523
The main factors leading to the recognition of goodwill on the acquisition of
XLOC are the presence of certain intangible assets in the acquired entity,
which are not valued for separate recognition, such as the expertise in
localisation processes and reputation within the industry.
XLOC contributed E25,464 revenue and E35,320 loss before tax to the Group
between the date of acquisition and the balance sheet date. If the acquisition
had been completed on the first day of the financial year, revenue for the 6
months to 30 June 2017 of E268,534 would have been contributed to the Group
and E46,843 profit before tax.
Acquisition costs of E4,738 have been charged through to the Statement of
Comprehensive Income.
Acquisition of Gamesim
On 17 May 2017 the Group acquired the entire issued share capital of Gamesim
Inc, ("Gamesim") a company registered in Orlando, Florida, USA. Gamesim
specialise in outsourced engineering services and technology platforms for the
video games industry and other virtual simulation applications. The
acquisition is in line with its strategy of growing both organically and by
acquisition to extend the Group's client base, market penetration or service
lines, where the Group can leverage its existing expertise, multi-service
platform, scale and global reach to generate synergies.
The amounts recognised in respect of the identifiable assets acquired and
liabilities assumed are set out in the table below:
Gamesim Book Fair Value Fair
Value Adjustment Value
E'000 E'000 E'000
Financial Assets
Property, plant and equipment 13 - 13
Trade and other receivables 768 - 768
Cash and cash equivalents 26 - 26
Trade and other Payables (353) - (353)
Total identifiable assets 454 - 454
Goodwill 3,828
Total consideration 4,282
Satisfied by:
Cash 2,888
Equity Instruments (151,725 shares of the parent company) 1,394
Total consideration transferred 4,282
Net cash outflow arising on acquisition
Cash 2,888
Less: cash and cash equivalent balances transferred (26)
2,862
The main factors leading to recognition of goodwill on the acquisition of
Gamesim are the presence of certain intangible assets in the acquired entity,
which are not valued for separate recognition, such as the expertise in
simulation technology for the Games Industry and reputation.
Gamesim contributed E524,860 revenue and E87,365 profit before tax to the
Group between the date of acquisition and the balance sheet date. If the
acquisition had been completed on the first day of the financial year, revenue
for the 6 months to 30 June 2017 of E2,057,228 would have been contributed to
the Group and E151,692 profit before tax.
Acquisition costs of E4,233 have been charged through to the Comprehensive
Income Statement.
Acquisition of Red Hot
On 22 May 2017 the Group acquired the entire issued share capital of Strongbox
Ltd, a holding company with subsidiaries in China and Indonesia trading under
the Red Hot CG ("Red Hot"). Red Hot are specialists in the production of
graphical art assets for video games.
The acquisition of Red Hot is in line with Keywords' strategy of growing both
organically and by acquisition. It will increase the capacity of Keywords'
fast growing and higher margin Art Service Line, as well as bringing a number
of attractive new clients to the art business at Keywords.
The amounts recognised in respect of the identifiable assets acquired and
liabilities assumed are set out in the table below:
Red Hot Book Fair Value Fair
Value Adjustment Value
E'000 E'000 E'000
Financial Assets
Property, Plant & Equipment 230 - 230
Identifiable intangible assets - customer relationships - 1,465 1,465
Trade and other receivable 975 - 975
Cash and cash equivalents 584 - 584
Trade and other Payables (420) - (420)
Deferred tax liabilities - (366) (366)
Total identifiable assets 1,369 1,099 2,468
Goodwill 2,513
Total consideration 4,981
Satisfied by:
Cash 3,514
Shares to Be Issued 1,468
4,981
Net cash outflow arising on acquisition
Cash 3,514
Less: cash and cash equivalent balances transferred (584)
2,930
The main factors leading to recognition of goodwill on the acquisition of Red
Hot are the presence of certain intangible assets in the acquired entity,
broader access to the Chinese pool of video game art talent, which is the
largest in the world, and expertise in Art service for the Games Industry and
reputation.
A fixed amount of 160,842 shares in Keywords Studio Plc will be issued as part
of the deferred consideration. The shares have been valued at the share price
at the date of acquisition, E9.12, and E1,467,580 has been recorded as Shares
to be Issued within Equity, in accordance with IAS 32.16.
Red Hot contributed E582,168 revenue and E14,433 profit before tax to the
Group between the date of acquisition and the balance sheet date. If the
acquisition had been completed on the first day of the financial year, revenue
for the 6 months to 30 June 2017 of E2,266,180 would have been contributed to
the Group and E304,608 profit before tax.
Acquisition costs of E139,831 have been charged through to the Comprehensive
Income Statement.
16 Events after the reporting date
Acquisition after the reporting Date
On 4 August 2017, the group announced the acquisitions of La Marque Rose SARL,
Asrec SAS and the subsidiary companies of holding company, Dune Media SAS,
trading as Dune Sound and Around the Word, which are all based in Paris and
provide audio recording and localisation services to the video games industry
internationally.
The businesses being acquired have combined annual revenues of E9.0m and
profit before tax of E0.9m. The total aggregate consideration payable is E6.6m
on day one and up to a further E1.0m over the two years to 31 December 2019,
based on meeting performance targets for the combined businesses. Of the total
aggregate consideration of up to E7.6m, up to E6.7m is being satisfied in
cash, and the remainder through the issue of 75,796 new ordinary shares in
Keywords. Of this total, 9,534 new shares will be issued on day one (and are
subject to a 12 month hard lock-in) and the balance will be issued on the
first anniversary of completion.
This information is provided by RNS
The company news service from the London Stock ExchangeRecent news on Keywords Studios
See all newsREG - Keywords Studios PLC - Total Voting Rights
AnnouncementREG - Keywords Studios PLC - Block Admission
AnnouncementREG - Keywords Studios PLC - Publication of Annual Report and Accounts
AnnouncementREG - Keywords Studios PLC - Issue of Shares
AnnouncementREG - Keywords Studios PLC - Total Voting Rights
Announcement