REG - Keywords Studios PLC - Interim Results
21/09/2022 07:00
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RNS Number : 1138A Keywords Studios PLC 21 September 2022
21 September 2022
Keywords Studios PLC ("Keywords Studios", "Keywords", the "Group")
Interim results for the six months to 30 June 2022
Strong Organic Revenue growth and healthy demand
Keywords Studios, the international technical and creative services provider
to the global video games industry, today announces its interim results for
the six months to 30 June 2022.
Financial Overview:
Results for the six months ended 30 June H1 2022 H1 2021 % change
Group revenue € 321.1m € 238.7m + 34.5%
Organic Revenue growth 1 + 21.7% + 22.9%
Adjusted EBITDA 2 € 70.1m € 50.7m + 38.3%
Adjusted EBITDA margin 21.8% 21.2%
EBITDA 2 € 61.0m € 40.8m + 49.5%
Adjusted profit before tax 3 € 54.8m € 39.7m + 38.0%
Adjusted profit before tax margin 17.1% 16.6%
Profit before tax € 39.1m € 21.9m + 78.2%
Adjusted earnings per share 4 55.89c 41.57c + 34.4%
Earnings per share 36.80c 20.86c + 76.4%
Interim dividend per share 0.77p 0.70p
Adjusted cash conversion rate 5 57.9% 94.9%
Net cash / (net debt) € 121.3m € 84.1m
Highlights:
Strong H1 revenue growth reflecting healthy demand across a diversified
service offering
· Group revenue up 34.5% to €321.1m (H1 2021: €238.7m), driven by
sustained demand for high quality content and a continuing trend towards
external service provision
· Organic Revenue growth of 21.7% in the first half, with good
contributions across all service lines
Profitability and cash generation underpinning strong balance sheet and
liquidity
· Adjusted profit before tax rose 38.0% to €54.8m, with margin
increasing to 17.1% (H1 2021: 16.6%)
· Adjusted Free Cash Flow of €31.7m (H1 2021: €37.7m) with an
Adjusted Cash Conversion rate of 57.9%, lower than H1 2021 (94.9%), reflecting
the return to the regular H2 collection cycle of Multi-Media Tax Credits
(MMTCs) and working capital phasing. FY Adjusted cash conversion rate
expectations unchanged at ~80%
· Net cash of €121.3m (H1 2021: €84.1m), after €13.6m net cash
spend on acquisitions, and together with €150m undrawn Revolving Credit
Facility, well positioned to continue pursuing organic and acquisition growth
strategies
· Interim dividend of 0.77p per share, an increase of 10% on the 2021
interim dividend (H1 2021: 0.70p)
Set out and delivering against strategy to drive sustainable growth,
facilitated by simplified structure to enhance culture and collaboration
· Intending to drive strategic partnerships, whilst adopting new
technologies that enable us to do more for our clients as well as exploring
adjacent markets
· Simplified structure to drive culture, collaboration and support
talent acquisition
· Divisional results now reported across three segments, each of which
performed well:
o Create (Game Development and Art Services)
o Globalize (Audio Services, Localization, and Functional and Localization
Testing)
o Engage (Player Support and Marketing)
Delivering on our acquisition strategy
· Three acquisitions for a total maximum consideration of €67.2
million
· Acquisition of Forgotten Empires completed in August, enhancing the
reach and scale of the Group's Create service line
· Acquisition of Mighty Games completed in August, bringing an
innovative and proprietary AI-based Testing technology platform
· Acquisition of Smoking Gun Interactive announced today, whose game
development expertise and live operations capabilities will enhance our client
offering, and providing access to a high-quality team in Vancouver
· Actively engaging with selective targets from an extensive pipeline
of opportunities
Tangible progress against Resposible Business goals
· Sustainable Studios initiative progressed following completion of an
internal review of energy and recycling practices
· Strengthened partnership with Women in Games which seeks to
accelerate measurable improvement in opportunities for existing and future
women in Keywords and the video games industry
· Initiatives making Keywords a great place to work increasingly
recognised with studios in Mexico, Philippines and the UK all receiving
industry awards
Current trading and outlook
· Encouraging start to the second half, with continued healthy demand
across all service lines
· Mindful of a more uncertain macroeconomic environment and some
potential volatility in the scheduling of certain projects
· Confident of delivering a performance in line with recently upgraded
market expectations with H2 organic growth rates moderating and Adjusted PBT
margins moving to historic levels of c.15% as we invest in the business, as
previously guided
· Well positioned to increase market share and well-funded to continue
to deliver on our value accretive acquisition strategy
Bertrand Bodson, Chief Executive Officer of Keywords Studios, commented:
"The Group has delivered a strong performance in the first half, with a
heightened focus on high-quality content and the continued trend towards
external service provision in the industry, driving healthy demand across our
service lines. Initial trading in the second half has been encouraging and we
are confident of delivering a performance in line with the recently upgraded
market expectations for the full year.
It has been a busy period, as we set out and started to deliver against our
strategy to take Keywords to the next level by getting closer to our clients,
adopting new technologies, driving culture and talent acquisition and
exploring adjacent markets. As part of this we have simplified our structure
to facilitate deeper collaboration across the business and enhance our support
for our clients whilst continuing to deliver on our M&A strategy,
welcoming Forgotten Empires, Mighty Games and Smoking Gun Interactive to
Keywords.
Going forward, Keywords is increasingly well-positioned to capture a greater
share of our large addressable market. We are the clear market leader with
unrivalled global scale and a unique service platform across the entire
content development life cycle and will continue to cement and build upon our
position as the partner of choice for the global video games industry, and
beyond."
A presentation of the half year results will be made to analysts at 9.45am
this morning and the live webcast can be accessed via this link:
https://stream.brrmedia.co.uk/roadcast/6308c58fda906b287e9a045c
(https://stream.brrmedia.co.uk/roadcast/6308c58fda906b287e9a045c)
To register for dial in access, or for any enquiries, please contact MHP
Communications on keywords@mhpc.com (mailto:keywords@mhpc.com) .
For further information, please contact:
Keywords Studios (www.keywordsstudios.com (http://www.keywordsstudios.com) ) +353 190 22 730
Bertrand Bodson, Chief Executive Officer
Jon Hauck, Chief Financial Officer
Giles Blackham, Investor Relations
Numis (Financial Adviser, Nominated Adviser and Corporate Broker) +44 20 7260 1000
Stuart Skinner/Kevin Cruickshank/Will Baunton
MHP Communications (Financial PR) +44 20 3128 8193
Katie Hunt/Eleni Menikou/Charles Hirst keywords@mhpc.com (mailto:keywords@mhpc.com)
About Keywords Studios ( www.keywordsstudios.com
(http://www.keywordsstudios.com/) )
Keywords Studios is an international technical services provider to the global
video games industry. Established in 1998, and now with over 70 facilities in
26 countries strategically located in Asia, Australia, the Americas and
Europe, it provides integrated art creation, game development, testing,
localization, audio, marketing services and player support services across
more than 50 languages and 16 games platforms to a blue-chip client base of
over 950 clients across the globe.
Keywords Studios has a strong market position, providing services to 23 of the
top 25 most prominent games companies. Across the games and entertainment
industry, clients include Activision Blizzard, Bandai Namco, Bethesda,
Electronic Arts, Epic Games, Konami, Microsoft, Netflix, Riot Games, Square
Enix, Supercell, TakeTwo, Tencent and Ubisoft. Recent titles worked on include
Anthem, Star Wars Jedi: Fallen Order, Valorant, League of Legends, Fortnite,
Clash Royale and Doom Eternal. Keywords Studios is listed on AIM, the London
Stock Exchange regulated market (KWS.L).
The Group reports a number of alternative performance measures (APMs) to
present the financial performance of the business which are not GAAP measures
as defined by International Financial Reporting Standards (IFRS). The
Directors believe these measures provide valuable additional information for
the users of the financial information to understand the underlying trading
performance of the business. In particular, adjusted profit measures are used
to provide the users of the accounts a clear understanding of the underlying
profitability of the business over time. For full definitions and explanations
of these measures and a reconciliation to the most directly referenceable IFRS
line item, please refer to the APMs section at end of the statement.
(1) Organic Revenue at constant exchange rates is calculated by adjusting the
prior year revenues, adding pre-acquisition revenues for the corresponding
period of ownership, and applying the prior year foreign exchange rates to
both years, 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 and impairment of
intangible assets, depreciation, and deducting bank charges. Adjusted EBITDA
comprises EBITDA, adjusted for share-based paymentexpense, costs of
acquisition and integration and non-controlling interest.
(3) Adjusted profit before tax comprises Profit before taxation as reported in
the Consolidated statement of comprehensive income, adjusted for share-based
payment expense, costs of acquisition and integration, amortisation and
impairment of intangible assets, non-controlling interest, foreign exchange
gains and losses, and unwinding of discounted liabilities. In order to present
the measure consistently year-on-year, other income is excluded.
(4) Adjusted earnings per share comprises the adjusted profit after tax divided
by the non-diluted weighted average number of shares as reported. The adjusted
profit after tax comprises the adjusted profit before tax, less the tax
expense as reported in the Consolidated statement of comprehensive income,
adjusted for the tax impact of the adjusting items in arriving at adjusted
profit before tax.
(5) Adjusted cash conversion rate is the adjusted free cash flow as a percentage
of the adjusted profit before tax.
(6) Adjusted free cash flow is a measure of cash flow adjusting for capital
expenditure that is supporting growth in future periods (as measured by
capital expenditure in excess of maintenance capital expenditure).
(7) Pro Forma Revenue is calculated by adding pre-acquisition revenues of current
year acquisitions to the current year revenue numbers, to illustrate the size
of the Group had the acquisitions been included for a full financial year.
(8) As at 20 September 2022, company compiled analysts' forecasts gave a consensus
for FY 2022 of €642m of revenue and €102m of adjusted profit before tax.
CEO Review
Keywords delivered strong organic growth in the first half, reflecting healthy
demand for our services. We also expanded our solutions, reach and scale
through selective acquisitions.
Group revenues increased 34.5% to €321.1m (H1 2021: €238.7m), or 21.7% on
an Organic(1) basis, building on the strong momentum achieved in 2021 (H1
2021: 22.9%), as we continued to benefit from the renewed focus on high
quality content post pandemic, and the structural trend towards external
service provision. The strong organic growth was complemented by contributions
from the six acquisitions completed during 2021.
As announced at our Capital Markets Day (CMD) in June, we have simplified our
structure to strengthen collaboration across the business while retaining our
inherent culture of entrepreneurialism. As a result, we now report divisional
results in three segments; Create (combining the former Art Services and Game
Development service lines); Globalize (the former Audio Services,
Localization, and Functional and Localization Testing service lines); and
Engage (the former Player Support and Marketing service lines).
The Create and Globalize services lines both delivered a strong performance as
the focus on developing new content which gained momentum 2021, continued into
2022 and started to benefit our post production services (Globalize) to a
greater extent. Engage saw more modest growth, with good growth from Player
Support partially offset by Marketing, in part due to its exceptionally strong
performance in the first half of last year (H1 2021 organic growth for
Marketing was 50.6%) and the impact of certain project delays moving work into
H2 and early next year.
I am extremely proud of all our talented Keywordians who have continued to
work with such passion and commitment, delivering the consistently
high-quality service we are known for. The Group's strong start to the year,
combined with our unrivalled scale, reach and breadth of solutions, and our
strong financial position, leave Keywords well placed to continue to increase
our share of our large addressable market, including through selective
acquisitions, as we cement our position as the partner of choice for the
global video games industry and beyond.
Delivering on our strategy to capitalise on our market opportunity
The video games market is large, dynamic and growing. In 2021, the overall
video games market was estimated to be c.$240 billion and is expected to grow
at a CAGR of 5% between 2021-2024. Of this, $35bn is estimated to have been
spent on video games content in 2021 and this is predicted to grow to $48bn by
2026, of which the proportion delivered by external service providers, such as
Keywords, is expected to grow from $11bn in 2021 to $18bn in 2026,
representing a 10% CAGR over this period (Source: IDG Consulting 2021).
The scale, strength and breadth of our platform positions us to capitalise on
this increasing demand for our content development and delivery services,
driven by:
· ongoing strong demand for AAA console/PC content, with the recently
launched next-generation consoles scaling up content, which is expected to
result in an enlarged market;
· further development of new and existing video games streaming
platforms driving demand for both content generation and ongoing in-game
support, and a constantly evolving platform;
· mobile game growth, as global penetration of smartphones increases;
· the return to content creation in 2021, which primarily benefitted
earlier stage services lines, continuing into 2022 and flowing through to
later stage, postproduction services (Globalize) to a greater extent;
· increasing complexity in game development, leading to significantly
higher costs and budgets, driving demand for external providers with more
flexible access to talent and technology-enabled solutions; and
· growth in Games as a Service (GaaS) and Live Operations (LiveOps)
which drives continuous content expansion to deepen the gaming experience,
extending the lifespan of games and the levels of player engagement.
Despite the size of the external service provision market, it remains highly
fragmented and characterised by predominantly local, single-service providers.
Keywords has just a ~5% market share yet is three times the size of the next
largest provider, providing considerable scope for further growth. Our scale
and breadth of offering means we can offer solutions that our competitors
can't, enabling us to deepen long-standing relationships with the leading
publishers in the industry which in turn cements our position as the partner
of choice.
In order to capitalise on this opportunity, we continue to invest in the
business, both organically and through targeted acquisitions, to increasingly
position the Group as a strategic partner to our clients. As such, we have
continued to invest in new studios, refurbishing some sites to ensure our
studios remain attractive places for our people to come together. During the
period, we invested in a new studio in China, expanded in India, and entered a
new lease in Ottawa, adding capacity to operations in these locations. We also
renovated several sites, including in Montreal and India Gurgaon, and
transitioned our Katowice operation to a new, state-of-the-art facility.
We have continued to deliver on our acquisition strategy this year, with the
acquisitions of Forgotten Empires, Mighty Games, and Smoking Gun Interactive.
The Forgotten Empires and Smoking Gun Interactive acquisitions extend the
reach and scale of the Group's Create service line with two high-quality game
development studios. Mighty Games brings an innovative and proprietary
AI-based Testing technology platform, which will allow us to do more for our
clients and remain at the forefront of our industry, in line with our strategy
to develop more technology-enabled solutions. We continue to actively review a
healthy pipeline of acquisition opportunities.
Evolving our strategy
When I joined Keywords in December 2021, it was clear that it is a business
with incredibly strong foundations and a talented, diverse, more than
11,000-strong team delivering highly sought-after expertise. This gives the
Group unrivalled scale, as the only full-service platform spanning the entire
content development lifecycle and with the international scale to bring truly
global solutions to our clients. We have strong, long-standing relationships
with our clients, which include almost all the world's leading developers and
publishers, and for whom we work across all platforms, without carrying the
risk associated with individual games.
Having gathered the views of stakeholders and clients across the business, and
working closely with the wider senior leadership team, at our CMD in June we
set out how we intend to build on these strong foundations to further unlock
Keywords' considerable potential and deliver an ever-more compelling
proposition globally for our partners in the video games market, and adjacent
content industries.
Our key areas of focus to take Keywords forward and to drive sustainable
growth are:
· Strategic partnerships
We intend to deepen strategic customer partnerships to create and capture more
value together and drive more demand for Keywords' services.
As the leader in the industry, we already work with 23 of the top 25 games
publishers and all of the top 10 mobile publishers but there is a clear theme
from discussions with clients that they want to elevate our relationships,
make them more strategic and enhance our ability to cross-sell solutions that
benefit our customers' needs as the industry evolves.
To facilitate this, we are investing in our Strategic Partnering capability by
introducing new client-led roles which will enable us to develop a deeper
understanding of our clients' longer-term pipelines and objectives. This will
deliver a more coordinated end-to-end approach, including at the title level,
facilitating greater cross service line and studio collaboration to capture
more value throughout the Content Development Lifecycle. We are also adding
more structure into the relationships with our clients, including Annual
Business Reviews that we hold with our top clients to facilitate closer
collaboration.
· Technology
We plan to introduce new technologies that will enable Keywords to work
smarter, do more for our clients and stay at the forefront of the industry.
This includes strengthening our internal capability to support ongoing growth
and ability to deliver larger, more complex work. While we have robust systems
already in place, we are aiming to make our infrastructure more seamless
through better integration of our systems across the business.
We are also seeking to incorporate automation which will enable us to deliver
much more for clients. For example, earlier this year we built an end-to-end
automated solution for a key client to enhance their localisation using our
Kantan AI technology to deliver translations across a range of titles in over
30 languages. The solution operates continuously, with an expert from our team
overseeing it at certain touch points. This has enhanced our capabilities,
allowing us to deliver work we would not previously have been able to and to
provide a solution truly embedded in the client's workflows.
We continue to innovate to ensure Keywords is well positioned to scale,
remains at the forefront of the industry, and has the best technology in each
of our service lines. When appropriate, we will acquire innovative
technology to develop in order to benefit our clients. For example, in August,
our acquisition of Mighty Games brought a proprietary AI-based Testing
technology platform to Keywords, complementing our existing testing
capabilities.
· One Keywords
We plan to galvanise the Group's "One Keywords" culture of entrepreneurialism
and collaboration, through our new simplified structure of three new service
lines, Create, Globalize and Engage which facilitate more collaboration and
scalability.
We recognise that one of the key strengths of our business is its
entrepreneurial DNA. To retain this, we are amplifying the voice of the
studios to ensure we have a global platform that combines invaluable local
knowledge with the benefits of our strong spine (of shared services) to
support the growth of our studios.
Our executive team has been reorganised as part of the simplified structure,
with new talent joining the organisation to support our development. We also
have a strong leadership team in place that was deeply involved in the
evolution of the strategy, and we have leveraged this in our studio hub model
which is designed to both improve the support for the studios and enhance
collaboration without adding layers of management.
· Talent and Capabilities
We are establishing Keywords as the destination for talent and career
development in the industry.
We've seen a significant improvement in our employee net promoter score in
recent years demonstrating high levels of engagement and satisfaction across
the business and we continue to focus on continuously improving our employee
value proposition. All people matters now sit under our new Culture leadership
team, including talent acquisition and development, culture, engagement and
responsible business initiatives.
We are working on aligning and better communicating our incentives and are
investing in strategically acquiring and developing talent to enable our
studios to grow faster, particularly within Game Development, where demand and
competition for talent is more pronounced across the industry. We have
expanded our initiatives to develop new talent through our Academies, which
target graduates, and our 'Bootcamps' which look to provide those with some
industry experience in games with the skills to become 'AAA' game developers.
We are also seeking to replicate the success of our Art Academy, which has
been highly successful in developing talent for our studios in India, by
creating training courses across other services, particularly game
development, to develop a further pool of talent to support our game
development studios around the world. As part of this we have signed a
Memorandum of Understanding with the National Skill Development Corporation,
one of the divisions of the Ministry of Skill Development and
Entrepreneurship, Government of India. This will help jointly fund, promote,
and support the expansion of the Educational Outreach programme called
Keywords inGame Academy, as part of our Destination India initiative.
· Adjacent Markets
We will leverage the Group's capabilities to target closely adjacent markets
that are increasingly utilising video games expertise. Having considered a
number of adjacent markets, we have decided to focus on those that naturally
fit with our current offering, or where we can transfer our gaming experience
to other close verticals, many of which we are already working in.
We are developing a LiveOps offering, an interesting growth opportunity that
builds on our existing offering, as an increasing proportion of games are
released as Games as a Service (GaaS), where content is constantly iterated
and developed. While we already work on a large number of these games, we see
a clear opportunity to work more strategically with our clients on their GaaS
models and we are excited to seek new ways to support them.
In Media and Entertainment, the TV / film market is predicted to be almost
$150bn by 2025 (Source: IDG Consulting 2021) and we are seeing convergence of
both the customer base and the technology, with game engines increasingly
being used to create content. In addition, the TV/film localisation process is
much the same as in games and we are already working in dubbing and subtitling
(€16m revenue in 2021), serving streaming platforms such as Netflix and
Amazon which we will look to expand further.
Lastly, we are well positioned for the Web 3 / Metaverse and there
is an opportunity to leverage our existing service propositions (rather than
move into new areas such as infrastructure) to meet Metaverse requirements
such as large-scale art, live Q&A, and 'player/user support'. We also
see a role for us as a consultant to large non-gaming brands and retailers
looking to navigate the Metaverse and render their proposition digitally.
· Acquisitions
We will continue to build our platform through M&A,
particularly in Game Development, Marketing, technology and selected
adjacencies.
M&A remains a core part of our strategy and we will continue to build on
our track record of execution, with a disciplined and consistent process. In a
highly fragmented market, M&A enables us to build our platform and
strengthen our leadership position. By deploying capital at attractive
valuations we can add key capabilities, talent, client relationships and new
technologies which will all help to accelerate our growth.
We currently have a strong pipeline of opportunities, with a current focus on
Create (Game Development particularly) and Engage (Marketing particularly)
capabilities, Technology and selected adjacencies, albeit we will selectively
consider acquisitions which build scale and capabilities in other services
lines.
The whole management team is excited about the significant opportunities ahead
to build an ever more compelling proposition for the video games market, and
beyond.
Responsible Business
We remain committed to conducting our business responsibly and operating to
the highest standards of honesty, integrity, and ethical conduct. During the
first half, we continued to focus on our priority areas of People (including
diversity, equality, inclusion and belonging), Client, Communities, the Planet
and Corporate Governance, and we have continued to make good progress during
the period under the guidance of the ESG Committee of the Board.
During the period, our rating of 'A' (on a scale of AAA-CCC) for our 2021 MSCI
ESG Ratings was confirmed, an improvement from BBB in 2020. This rating, which
analyses our resilience to long-term, industry material environmental, social
and governance risks, was pleasing, but we recognise that there is more we can
do if we are to become a leader within the industry.
Following the quantification of our greenhouse gas emissions for the first
time in 2020, in 2021 we developed the Group's first Environmental Policy
covering our energy and recycling practices. During the first half, we
completed our first internal review of practices across our studios, the
findings of which will be used to inform our approach to reducing our carbon
intensity. This will help develop our Sustainable Studios programme further
and support our studios in their efforts to minimise energy usage and to
reduce, recycle and reuse wherever possible.
During the review, it became clear that the greatest area of opportunity will
be a move to renewable energy supplies wherever possible, something we are
exploring on a studio-by-studio basis. Going forward, we will also ensure that
all new office and studio space meets modern environmental building
requirements. We recognise that our Sustainable Studios initiatives will
take time to fully implement. We therefore continue to offset our carbon
impact with credits towards the Ntakata Mountains REDD+ project, which
protects forests. Revenue from the sale of certified carbon credits is paid
directly to forest communities in Tanzania.
In 2021 the Group was composed of 25% women and 74% men, with a collective 1%
of colleagues identifying as non-binary or declining to disclose their gender.
Gender diversity and addressing under-representation remain a focus for the
Board both across our business and the wider industry. The percentage of women
directors on the Board remains at 29% and we continue to apply inclusive
appointment processes in line with our Board Diversity Policy.
As an ambassador for Women in Games, we have strengthened this partnership in
the first half, working on future events and collaborations that proactively
seek to accelerate the measurable improvement of opportunities for existing
and future women in games, both at Keywords and across our industry. We were
very proud to see Keywordians speaking at Women in Games events around the
world during the period, and look forward to planned initiatives that will
continue to leverage our global platform and client relationships to support
this partnership in the second half and beyond.
In recognition of our commitment to improving representation and development
of women at Keywords, we have held several events, including our second
internal #Breakthebias Women's Summit in Asia. Working with Women in Games,
our goal is to enhance and accelerate the popular ambassador initiative,
enabling it to scale through additional projects and research, events,
exclusive materials, and services for Women in Games ambassadors.
We continue to work hard to make Keywords a great place to work, with our
initiatives increasingly recognised. As an example of this, we are delighted
that both our D3T Studio in Brighton and Indigo Pearl in London were included
in GamesIndustry.biz's 2022 Best Places to Work Awards. Keywords Studios in
Mexico has been awarded the Socially Responsible Company (SRC) badge and
Keywords Studios Manila has recently been recertified as one of the Great
Place to Work companies in the Philippines with 91% of employees saying it is
a great place to work.
Supporting our people affected by the tragic events unfolding in the Ukraine
remains a top priority. Our employee hardship fund provides support to the
small number of colleagues directly impacted by this crisis and we are doing
all that we can to provide broader support to those affected by this tragic
situation.
Outlook
The Group has made an encouraging start to the second half and is experiencing
healthy demand across our three service lines (Create, Globalize and Engage).
We are benefitting from the continuing growth in the broader video game market
and the increasing trend for external service provision within the industry.
As such, whilst we acknowledge ongoing uncertainties in the macro-economic
environment, the Board remains confident of delivering a performance in line
with recently raised market expectations for the full year.
Our position as the only full-service platform spanning the entire content
development lifecycle with the international scale to bring truly global
solutions to our clients means that we are very well positioned to capitalise
on our large and growing market opportunity. We are confident that the
recently announced strategy will build on our strong foundations and unlock
Keywords' considerable potential and deliver an ever-more compelling
proposition globally for our partners in the video games market, and adjacent
content industries.
Bertrand Bodson
Chief Executive Officer
Service Line Review
As announced at our CMD in June, we have simplified our structure and we now
report segmental results in three service lines; Create (the former Art
Services and Game Development service lines); Globalize (the former Audio
Services, Localization, and Functional and Localization Testing service
lines); and Engage (the former Player Support and Marketing service lines). We
now report Revenue and Adjusted EBITDA for each of the three service lines,
with H1 2021 and FY 2021 re-classified to present information aligned to the
new organisational and reporting structures and disclosed in Note 5 to the
Financial Statements.
All our service lines saw good growth in H1 2022, supported by a strong video
games market refocused on new content creation, and the continued trend
towards external service provision. The following table provides a summary
of our revenues by service line, with growth rates on a reported and Organic
Revenue growth basis as well as the Adjusted EBITDA margins for each service
line.
H1 2022 % of H1 2022 H1 2021 Change year on H1 2022 12 months to H1 2022 Adjusted EBITDA margin % H1 2021 Adjusted EBITDA margin %
Revenue
Group revenue
Revenue
year
Organic
30 June 2022
€m
€m
%
Revenue growth
Pro Forma Revenue €m
%
Create 124.3 38.7% 86.0 44.5% 23.3% 226.5 24.9% 26.7%
Globalize 141.5 44.1% 107.4 31.8% 25.7% 266.0 22.0% 19.6%
Engage 55.3 17.2% 45.3 22.1% 9.8% 102.1 14.6% 14.6%
Total 321.1 100.0% 238.7 34.5% 21.7% 594.6 21.8% 21.2%
Create (Art Services and Game Development): 38.7% of Group revenues in H1
The new Create service line combines Art Services and Game Development,
encouraging deeper collaboration between the two to deliver a range of
services to clients and partners globally. It represents over 3,000 people in
24 studios across 46 locations.
H1 2022 Performance
Create performed well in the first half with total revenues up by 44.5% to
€124.3m (H1 2021: €86.0m). Organic Revenue, which excludes the impact of
acquisitions, grew by 23.3%, as strong underlying client demand across all art
and game development studios continued.
A number of Create studios demonstrated strong growth, with some delivering
record performances, particularly in Quebec and India. Since establishing
Create, both our Art and Game Development studios have benefitted from
increased collaboration, which has yielded new opportunities with new and
existing clients.
Across the Create service line, we have a strong focus on recruitment and
retention and have established a specific talent acquisition team for the
service line, complementing local talent acquisition efforts. As competition
for talent continues our extensive geographic footprint allows us to hire from
a broad number of locations for talent around the world.
Despite being the most directly affected by the situation in the Ukraine, our
Game Development studios have performed well during the period. During the
period we started the process to relocate people and work from our single
Russia-based business, Sperasoft, to alternative locations, including Poland,
together with Serbia, Armenia and Malta, where we have established new
operations. While we have moved a significant number of people and work, this
has had a more limited impact on first half performance, with the second half
of the current financial year expected to be the key transition phase for this
process. We are focussed on making the transition as smooth as possible for
both our people and international clients. H1 revenues derived from our
Russia-based business represented 5.5% of Group revenues (€17.8m).
Adjusted EBITDA in Create grew 34.3% to €30.9m in H1 2022 (H1 2021:
€23.0m), with the Adjusted EBITDA margin of 24.9% in H1 2022 slightly lower
than the previous period (H1 2021: 26.7%) due to the stronger growth in Art
changing the mix, and Game Development investing in capacity ahead of demand.
The transition of people and work from Russia is expected to hold margins back
in H2, in line with our guidance for the Group.
We have welcomed three new Game Development studios this year, Forgotten
Empires, the small game development team at Mighty Games and the acquisition
of Smoking Gun Interactive that has been announced today. Forgotten
Empires, headquartered in Ohio, has been instrumental in creating, designing
and growing the hugely successful Age of Empires series, and its talented team
brings significant experience and expertise to Keywords, particularly in
real-time strategy games. Mighty Games' talented game development team
further strengthens our presence in Australia, following the recent
acquisitions of Tantalus and Wicked Witch. We are also delighted to welcome
Smoking Gun Interactive which has a long track record in developing, enhancing
and supporting highly rated, cross platform games and gives us access to a
high-quality team in Vancouver.
The market opportunity and outlook
The underlying video games market remains healthy and is expected to have a
strong focus on new content during the second half of the year as developers
continue to capitalise on higher player numbers and create more sophisticated
content to engage players for longer.
We expect continued strong demand across our Create service line, as the
industry seeks to source more highly-skilled, project-critical resources with
integrated, collaborative approaches and as developers seek external senior
expertise that has traditionally been kept internal. While there are
indications that some clients are taking a more cautious approach to game
investments given the current economic backdrop, the Create service line
remains resilient, due to the quality of our studios and talent and its strong
client relationships, globally.
Globalize (Audio, Localization and Testing): 44.1% of Group revenue in H1
Globalize brings together our Audio, Testing and Localization businesses to
create a global business with nearly 5,000 people in 35 studios across 45
locations.
H1 2022 Performance
Globalize performed well in the first half with total revenues up by 31.8% to
€141.5m (H1 2021: €107.4m). Organic Revenue, which excludes the impact of
acquisitions, grew by 25.7%.
All of the lines of business within Globalize performed well during the period
as the benefits from the current levels of content creation flowed through to
the later stages of the development cycle that Globalize serves.
In Functional testing we saw accelerated growth, as our Polish operations
relocated to a new state-of-the-art facility and recruitment increased, and
both India and Montreal performed well. We continued to grow our teams to meet
demand and are supporting a 'follow the sun' workflow, allowing us to
distribute resources across different geographies. We mitigated the impact of
increased costs in some territories through considered pricing adjustments,
allowing us to continue to secure talent and maintain high quality output.
In Localisation, Text Localisation more than offset slightly slower Audio
Localisation, in part due to the development of a specific AI driven workflow
that was deployed in H1 for a key client. Audio Localisation was impacted by
delays to certain projects during the period.
Adjusted EBITDA in Globalize grew 47.4% to €31.1m in H1 2022 (H1 2021:
€21.1m), with the Adjusted EBITDA margin increasing from 19.6% in H1 2021 to
22.0% in H1 2022. Globalize has benefitted from operating leverage due to its
strong growth and the strength of the US dollar in which we invoice a
proportion of our sales.
The market opportunity and outlook
We are continuing to see the trend towards external service provision continue
across the various Globalize lines of business and, with our industry
leadership position, are well-positioned to capture increasing demand across
this service line.
Activity levels across the service line remain high and we are continuing to
recruit aggressively and distribute work across studios to ensure client needs
are met. Demand for testing services continues to grow and we are expecting
audio localisation to improve in H2 as projects come through. In parallel with
this we will continue to build on the Kantan localisation technology.
Engage (Marketing and Player Experience): 17.2% of Group revenue in H1
Our Engage service line brings together our Marketing and Player Experience
services to create a service offering focused on player engagement,
encompassing over 2,000 people in 28 studios across 30 locations.
H1 2022 Performance
Engage performed well in the first half with revenues up by 22.1% to €55.3m
(H1 2021: €45.3m). Organic Revenue, which excludes the impact of
acquisitions, grew by 9.8% for Engage.
Player Support performed strongly with the addition of a number of new clients
and good growth across our top clients. Social Media and Health and Safety
Services also continue to grow and are developing into a key part of our
offering. We are also developing our Kantan AI machine translation
capability to extend the number of languages that our agents are able to
service.
Our Marketing studios delivered a more modest performance in part due to the
exceptional performance in H1 2021, during which the business experienced
significant organic growth of over 50%. In addition, the H1 2022 performance
was impacted by some client specific project delays, particularly across our
North American studios.
Adjusted EBITDA grew 22.7% to €8.1m in H1 2022 (H1 2021: €6.6m), with the
H1 2022 Adjusted EBITDA margin of 14.6% in line with the previous year period
(H1 2021: 14.6%).
The market opportunity and outlook
The creation of the Engage service line, presents an exciting opportunity to
better demonstrate the breadth of our offering to publishers. It allows us to
offer an improved portfolio of services to clients, supporting deeper
relationships.
We continue to broaden our Marketing service range, with the aim of offering
an end-to-end holistic solution and increase the number of major clients we
support. In Player Support, positive first half trends are expected to
continue in H2, with our operations in both Manila and Mexico experiencing
significant growth. As highlighted previously, the successful integration of
our Machine Translation AI, Kantan, provides further opportunities for the
business and is something we are looking to build on moving forward.
Financial and Operating Review
Strong revenue growth and margin performance
Revenue
Revenue for H1 2022 increased by 34.5% to €321.1m (H1 2021: €238.7m). This
growth was supplemented by the impact of acquisitions in 2021, and benefited
by €17.5m (~7%) from the impact of currency movements, particularly the
strengthening of the US dollar against the Euro in the period.
Organic Revenue growth (which adjusts for the impact of acquisitions) was up
21.7%. This was driven by a strong performance across all service lines,
against the comparative period in H1 2021, particularly in our Create and
Globalize Service Lines. Further details of the trading performances of each
of the Service Lines are provided in the Service Line Review.
Gross profit and margin
Gross profit in H1 2022 was €124.5m (H1 2021: €91.1m) representing an
increase of 36.7%. The gross margin improved by 0.6% points to 38.8% (H1 2021:
38.2%) compared to the prior period partly driven by a ~1% point benefit from
foreign exchange from the strong US dollar during the period in which we
invoice a proportion of our sales.
Operating costs
Adjusted operating costs increased by 34.5% to €54.4m (H1 2021: €40.4m),
reflecting the larger Group, but remained constant at 16.9% of revenue. This
was driven by continued good cost control, as the Group looked to manage the
impact of increased travel and entertainment costs as these activities
increased with the easing of COVID-19 restrictions.
EBITDA
EBITDA increased 49.5% to €61.0m (H1 2021: €40.8m). Adjusted EBITDA
increased 38.3% to €70.1m compared with €50.7m for H1 2021. The Adjusted
EBITDA margin in H1 2022 of 21.8% was 0.6% pts higher than H1 2021 (21.2%)
reflecting the strong growth in revenues whilst managing costs, together with
the favourable foreign exchange impact noted above.
Net finance costs
Net finance costs reduced by €2.0m to €0.4m (H1 2021: €2.4m), primarily
driven by a €2.4m foreign exchange gain compared to a €0.5m foreign
exchange loss in H1 2021. This benefit was partially offset by an increase in
the unwinding of discounted liabilities relating to deferred consideration of
€0.7m compared to H1 2021.
Alternative performance measures (APMs)
The Group reports a number of APMs to present the financial performance of the
business which are not GAAP measures as defined by IFRS. The Directors believe
these measures provide valuable additional information for the users of the
financial information to understand the underlying trading performance of the
business. In particular, adjusted profit measures are used to provide the
users of the accounts a clear understanding of the underlying profitability of
the business over time. A breakdown of the adjusting factors is provided in
the table below:
H1-22 H1-21
€m €m
Share based payment expense 8.9 8.5
Costs of acquisition and integration 1.3 1.5
Amortisation of intangible assets 7.5 6.6
Foreign exchange and other items (2.0) 1.2
15.7 17.8
1.1m options were granted under the Long-Term Incentive Plan in H1 2022. This,
together with grants from previous years, has resulted in a non-cash share
option expense of €8.9m in H1 2022 (H1 2021: €8.5m).
One-off costs associated with the acquisition and integration of businesses
amounted to €1.3m (H1 2021: €1.5m). Amortisation and impairment of
intangible assets charge increased by €0.9m to €7.5m (H1 2021: €6.6m)
reflecting the recent levels of acquisition activity.
Foreign exchange and other items amounted to a net gain of €2.0m (H1 2021:
€1.2m charge). Keywords does not hedge foreign currency exposures. The
effect on the Group's results of movements in exchange rates and the foreign
exchange gains and losses incurred during the year mainly relate to the effect
of translating net current assets held in foreign currencies. This resulted in
a net foreign exchange gain of €2.4m, recorded within financing income (H1
2021: €0.5m loss).
A more detailed explanation of the measures used together with a
reconciliation to the corresponding GAAP measures is provided in the APMs
section at the end of the statement.
Profit before taxation
Profit before tax increased by €17.2m (+78.2% year on year) to €39.1m (H1
2021: €21.9m). Adjusted profit before tax, which adjusts for the items
described in the APMs section above increased by €15.1m (+38.0% year on
year) to €54.8m compared with €39.7m in H1 2021. This represents an
improvement in Adjusted profit before tax margin of 0.5% pts to 17.1% (H1
2021: 16.6%), although it includes a ~1% point benefit from foreign exchange,
particularly the strong US dollar during the period as we invoice a proportion
of our sales in US dollars.
Taxation
The tax charge increased by €4.6m to €10.9m (H1 2021: €6.3m) largely
reflecting the increase in the Profit before tax of the business. After
adjusting for the items noted in the APMs section above and the tax impact
arising on these items, the Adjusted effective tax rate for H1 2022 was 22.0%
(H1 2021: 21.5%), slightly higher than the rate of 21.6% in FY 2021.
Earnings per share
Basic earnings per share increased by 76.4% to 36.80c (H1 2021: 20.86c)
primarily reflecting the increase in the statutory Profit after tax of 80.0%.
Adjusted earnings per share which adjusts for the items noted in the APMs
section above and the tax impact arising on these items was 55.89c
representing an increase of 34.4% (H1 2021: 41.57c), with the rise in Adjusted
profit before tax of 38.0% partially offset by a 2.0% increase in the basic
weighted average number of shares.
Cash flow and net debt
H1-22 H1-21 Change
€m €m €m
Adjusted EBITDA 70.1 50.7 19.4
MMTC and VGTR (10.4) (3.8) (6.6)
Working capital and other items (12.7) 1.7 (14.4)
Capex - property, plant and equipment (PPE) (10.0) (9.4) (0.6)
Capex - intangible assets (0.2) (0.2) -
Payments of principal on lease liabilities (5.5) (4.6) (0.9)
Operating cash flows 31.3 34.4 (3.1)
Interest paid (0.8) (0.8) -
Free cash flow before tax 30.5 33.6 (3.1)
Tax (6.2) (9.8) 3.6
Free cash flow 24.3 23.8 0.5
M&A - acquisition spend (13.6) (44.7) 31.1
M&A - acquisition and integration costs (1.3) (1.5) 0.2
Other Income 1.1 - 1.1
Dividends paid (1.3) - (1.3)
Shares issued for cash 2.4 2.3 0.1
Underlying increase / (decrease) in net cash / (debt) 11.6 (20.1) 31.7
FX and other items 4.1 1.3 2.8
Increase in net cash / (debt) 15.7 (18.8) 34.5
Opening net cash / (debt) 105.6 102.9
Closing net cash / (debt) 121.3 84.1
The Group generated Adjusted EBITDA of €70.1m in H1 2022, an increase of
€19.4m from €50.7m in H1 2021. There was a €10.4m outflow in respect of
the amounts due for Multi-Media Tax Credits (MMTC) as we returned to the
regular H2 collection cycle of MMTC and Video Games Tax Relief (VGTR). MMTCs
and VGTRs are subsidies that are recognised as work is performed but are
typically paid in the second half of the following year. Other working capital
increased by €12.7m compared to an inflow of €1.7m in H1 2021 due to the
strong growth in the business and working capital phasing.
Investment in property, plant and equipment increased by €0.6m to €10.0m
(H1 2021: €9.4m) as we continued to invest in growing the business. We are
opening a number of new facilities in H2 and anticipate higher capex levels.
Property lease payments of principal of €5.5m were 19.6% higher than the
prior period (H1 2021: €4.6m) mainly related to acquisitions in the period.
Operating cash flows of €31.3m were below H1 2021 (€34.4m), primarily due
to the €21.0m increase in working capital, partially offset by a €3.6m
reduction in cash tax paid to €6.2m (H1 2021: €9.8m) as the Group
benefitted from timing differences that resulted in less payments in the
period in respect of the 2021 tax payable. Net interest payments were flat at
€0.8m.
This resulted in Free cash flow of €24.3m, slightly ahead of H1 2021
(€23.8m). Adjusted free cash flow, which adjusts for capital expenditure
that is supporting growth in future periods was €31.7m in H1 2022, below H1
2021 (€37.7m) and resulted in an Adjusted cash conversion rate of 57.9% (H1
2021: 94.9%). The lower rate in the first half is largely due to the working
capital phasing noted above and we continue to expect Adjusted cash conversion
of ~80% for the full year.
Cash spent on acquisitions totalled €14.9m, of which €13.6m was in respect
of the cash component of prior year acquisitions and €1.3m was in relation
to acquisition and integration costs. This was €31.1m lower than the spend
in H1 2021 due to the timing of acquisitions. This, together with foreign
exchange and other movements of €4.1m, resulted in an increase in net cash
of €15.7m in H1 2022, leading to closing net cash of €121.3m (H1 2021: net
cash of €84.1m, FY 2021: net cash of €105.6m).
Balance sheet and liquidity
The Group funds itself primarily through cash generation and a syndicated
revolving credit facility (RCF) of €150m, with an accordion option to
increase this up to €200m. The RCF matures in December 2024 with an option
to extend the term by two further one-year periods. The majority of Group
borrowings are subject to two financial covenants that are calculated in
accordance with the facility agreement:
· Leverage: Maximum Total Net Borrowings to Adjusted EBITDA ratio of 3
times; and
· Interest cover: Minimum Adjusted Operating Profit to Net Finance
Costs ratio of 4 times.
The Group entered the year with a strong balance sheet, with net cash
(excluding IFRS 16 leases) of €105.6m as at 31 December 2021. Following
€13.6m of cash deployed in the period to support the Group's value accretive
M&A programme, at the end of H1 2022, Keywords had net cash (excluding
IFRS 16 leases) of €121.3m and undrawn committed facilities of €150m.
Dividend
Following a period of robust growth and increased profitability and cash
generation, and reflecting the Board's confidence in the future, the Board is
pleased to declare an interim dividend of 0.77p per share (H1 2021: 0.70p)
representing an increase of 10.0% on the 2021 interim dividend. The Board's
progressive dividend policy seeks to reflect the Group's continued growth in
earnings and strong cash generation, balanced with the need to retain the
resources to fund growth opportunities, in line with our long-term strategy of
driving compounded growth through carefully selected acquisitions.
Payments will be made on 28 October 2022 to shareholders on the register on 7
October 2022 and will go ex-dividend on 6 October 2022. The interim dividend
payment will represent a total cost of approximately €0.7m of cash
resources.
Guidance for remainder of 2022
We have made an encouraging start to the second half of the year and expect
demand to continue to be healthy across our service lines, albeit with organic
growth rates and margins moderating in the second half as previously guided.
Full year Adjusted Profit Before Tax margins are expected to return towards
~15% as investment in the business and the return of certain costs to
pre-COVID levels are expected to offset the FX benefits, while the increasing
transition of our people and work from Russia is also expected to hold back
margins in the second half. The adjusted Effective Tax rate for the full year
is expected to be in line with the first half rate of ~22%.
We continue to anticipate capex at a higher level than in 2021 relative to
revenue, reflecting some expansionary capex but we are still targeting a full
year Adjusted Cash Conversion rate of around ~80%.
Following the trading update in early August, all of the above items are
reflected in the recently increased current revenue and profit market
consensus* for 2022.
Jon Hauck
Chief Financial Officer
*As at 20(th) September 2022, company compiled analysts' expectations gave a
consensus for FY 2022 of €642m for revenue and €102m for Adjusted Profit
Before Tax (prior to the August trading update €612m and €94m
respectively).
Cautionary statement
This press release may contain forward-looking statements. These statements
can be identified by the fact that they do not relate only to historical or
current facts. Without limitation, forward-looking statements often use words
such as anticipate, target, expect, estimate, intend, plan, goal, believe,
will, may, should, would, could or other words of similar meaning. These
statements may (without limitation) relate to the Company's financial
position, business strategy, plans for future operations or market trends. No
assurance can be given that any particular expectation will be met or proved
accurate, and shareholders are cautioned not to place undue reliance on such
statements because, by their very nature, they may be affected by a number of
known and unknown risks, uncertainties and other important factors which could
cause actual results to differ materially from those currently anticipated.
Any forward-looking statement is made on the basis of information available to
Keywords Studios plc as of the date of the preparation of this press release.
All forward-looking statements contained in this press release are qualified
by the cautionary statements contained in this section. Other than in
accordance with its legal and regulatory obligations, Keywords Studios plc
disclaims any obligation to update or revise any forward-looking statement
contained in this press release to reflect any change in circumstances or its
expectations.
Condensed interim consolidated statement of comprehensive income
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
Note €'000 €'000 €'000
Revenue from contracts with customers 5 321,140 238,664 512,200
Cost of sales (196,642) (147,541) (312,086)
Gross profit 124,498 91,123 200,114
Other income* 1,107 - -
Share-based payments expense (8,940) (8,454) (16,394)
Costs of acquisition and integration (1,284) (1,464) (7,972)
Amortisation of intangible assets 9 (7,469) (6,553) (13,688)
Total of items excluded from adjusted profit measures (17,693) (16,471) (38,054)
Other administration expenses (68,459) (50,331) (111,695)
Administrative expenses (86,152) (66,802) (149,749)
Operating profit 39,453 24,321 50,365
Financing income 6 2,514 49 2,045
Financing cost 6 (2,889) (2,442) (4,427)
Profit before taxation 39,078 21,928 47,983
Taxation (10,937) (6,286) (13,875)
Profit after taxation 28,141 15,642 34,108
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss
Actuarial gain / (loss) on defined benefit plans - (100) 27
Items that are or may be reclassified subsequently to profit or loss
Exchange gain / (loss) in net investment in foreign operations 11,875 3,118 8,228
Exchange gain / (loss) on translation of foreign operations 7,148 8,713 14,581
Non-controlling interest; recycled on disposal of subsidiary* 162 - -
Total comprehensive income / (expense) 47,326 27,373 56,944
Profit / (loss) for the period attributable to:
Owners of the parent 28,186 15,675 34,175
Non-controlling interest (45) (33) (67)
28,141 15,642 34,108
Total comprehensive income / (expense) attributable to:
Owners of the parent 47,209 27,406 57,011
Non-controlling interest 117 (33) (67)
47,326 27,373 56,944
Earnings per share € cent € cent € cent
Basic earnings per ordinary share 7 36.80 20.86 45.16
Diluted earnings per ordinary share 7 35.52 19.73 42.98
* Other income represents the gain on disposal of the Group's investment in
AppSecTest, made in April 2022 (including related Non-controlling interest
re-cycled on disposal).
Condensed interim consolidated statement of financial position
Unaudited Unaudited Audited
At At At
30 Jun 22 30 Jun 21 31 Dec 21
Note €'000 €'000 €'000
Non-current assets
Intangible assets 9 361,510 343,273 353,943
Right of use assets 9 34,014 39,453 35,991
Property, plant and equipment 9 38,319 31,443 36,018
Deferred tax assets 21,786 18,494 21,468
Investments 175 - 175
455,804 432,663 447,595
Current assets
Cash and cash equivalents 121,395 84,285 105,710
Trade receivables 10 88,387 62,405 68,067
Other receivables 10 72,225 46,988 49,110
Corporation tax recoverable 6,361 - 6,764
288,368 193,678 229,651
Current liabilities
Trade payables 11,392 9,060 11,122
Other payables 13 122,723 98,286 108,423
Loans and borrowings 14 64 - 81
Corporation tax liabilities 15,473 9,112 12,635
Lease liabilities 16 11,101 11,353 11,217
160,753 127,811 143,478
Net current assets / (liabilities) 127,615 65,867 86,173
Non-current liabilities
Other payables 13 8,007 21,659 18,254
Employee defined benefit plans 3,270 2,989 3,088
Loans and borrowings 14 31 165 48
Deferred tax liabilities 17,016 16,485 13,840
Lease liabilities 16 24,766 29,434 26,418
53,090 70,732 61,648
Net assets 530,329 427,798 472,120
Equity
Share capital 11 912 896 904
Share capital - to be issued 11 810 4,808 2,185
Share premium 11 40,984 25,198 38,549
Merger reserve 11 275,021 276,987 273,677
Foreign exchange reserve 31,844 1,843 12,821
Shares held in Employee Benefit Trust ("EBT") - (1,997) (1,997)
Share-based payments reserve 55,970 40,253 48,193
Retained earnings 124,788 79,893 97,905
530,329 427,881 472,237
Non-controlling interest - (83) (117)
Total equity 530,329 427,798 472,120
Condensed interim consolidated statement of changes in equity
Share capital Share capital - to be issued Share premium Merger reserve Foreign exchange reserve Shares held in EBT Share-based payments reserve Retained earnings Total attributable to owners of parent Non-controlling interest Total equity
€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
At 01 January 2021 879 13,047 22,951 250,276 (9,988) (1,997) 31,799 64,318 371,285 (50) 371,235
Profit for the period - - - - - - - 15,675 15,675 (33) 15,642
Other comprehensive income - - - - 11,831 - - (100) 11,731 - 11,731
Total comprehensive income for the period - - - - 11,831 - - 15,575 27,406 (33) 27,373
Contributions by and contributions to the owners:
Shares issued for cash - - - - - - - - - - -
Share-based payments expense - - - - - - 8,454 - 8,454 - 8,454
Share options exercised 6 - 2,247 - - - - - 2,253 - 2,253
Employee Share Purchase Plan - - - - - - - - - - -
Dividends - - - - - - - - - - -
Acquisition related issuance of shares 11 (8,239) - 26,711 - - - - 18,483 - 18,483
Contributions by and contributions to the owners 17 (8,239) 2,247 26,711 - - 8,454 - 29,190 - 29,190
At 30 June 2021 896 4,808 25,198 276,987 1,843 (1,997) 40,253 79,893 427,881 (83) 427,798
Profit / (loss) for the period - - - - - - - 18,500 18,500 (34) 18,466
Other comprehensive income - - - - 10,978 - - 127 11,105 - 11,105
Total comprehensive income for the period - - - - 10,978 - - 18,627 29,605 (34) 29,571
Contributions by and contributions to the owners:
Shares issued for cash - - - - - - - - - - -
Share-based payments expense - - - - - - 7,940 - 7,940 - 7,940
Share options exercised 5 - 2,682 - - - - - 2,687 - 2,687
Employee Share Purchase Plan - - 398 - - - - - 398 - 398
Dividends - - - - - - - (615) (615) - (615)
Acquisition related issuance of shares 3 (2,623) 10,271 (3,310) - - - - 4,341 - 4,341
Contributions by and contributions to the owners 8 (2,623) 13,351 (3,310) - - 7,940 (615) 14,751 - 14,751
At 31 December 2021 904 2,185 38,549 273,677 12,821 (1,997) 48,193 97,905 472,237 (117) 472,120
Profit / (loss) for the period - - - - - - - 28,186 28,186 (45) 28,141
Recycled on disposal of subsidiary - - - - - - - - - 162 162
Other comprehensive income - - - - 19,023 - - - 19,023 - 19,023
Total comprehensive income for the period - - - - 19,023 - - 28,186 47,209 117 47,326
Contributions by and contributions to the owners:
Shares issued for cash - - - - - - - - - - -
Share-based payments expense - - - - - - 8,886 - 8,886 - 8,886
Share options exercised 7 - 1,953 - - 1,997 (1,163) - 2,794 - 2,794
Employee Share Purchase Plan - - 482 - - - 54 - 536 - 536
Dividends - - - - - - - (1,303) (1,303) - (1,303)
Acquisition related issuance of shares (note 11) 1 (1,375) - 1,344 - - - - (30) - (30)
Contributions by and contributions to the owners 8 (1,375) 2,435 1,344 - 1,997 7,777 (1,303) 10,883 - 10,883
At 30 June 2022 912 810 40,984 275,021 31,844 - 55,970 124,788 530,329 - 530,329
Condensed interim consolidated statement of cash flows
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
Note €'000 €'000 €'000
Cash flows from operating activities
Profit after taxation 28,141 15,642 34,108
Income and expenses not affecting operating cash flows
Depreciation - property, plant and equipment 9 8,790 5,347 11,661
Depreciation - right of use assets 9 5,591 4,789 10,473
Amortisation and impairment of intangible assets 9 7,469 6,553 13,688
Taxation 10,937 6,286 13,875
Share-based payments expense 8,940 8,454 16,394
Fair value adjustments to contingent consideration - - 5,567
Unwinding of discounted liabilities - deferred consideration 6 1,478 736 1,882
Unwinding of discounted liabilities - lease liabilities 6 465 484 985
Interest receivable 6 (102) (49) (62)
Fair value adjustments to employee defined benefit plans - (136) 419
Interest expense 6 629 433 1,040
Unrealised foreign exchange (gain) / loss 2,774 1,752 583
46,971 34,649 76,505
Changes in operating assets and liabilities
Decrease / (increase) in trade receivables (19,725) (8,316) (15,117)
Decrease / (increase) in MMTC and VGTR receivable (10,384) (3,844) (4,502)
Decrease / (increase) in other receivables (9,935) (2,340) 3,341
(Decrease) / increase in accruals, trade and other payables 11,679 11,236 20,158
(28,365) (3,264) 3,880
Taxation paid (6,181) (9,791) (23,948)
Net cash generated by / (used in) operating activities 40,566 37,236 90,545
Cash flows from investing activities
Current year acquisition of subsidiaries net of cash acquired 17 - (39,539) (48,697)
Settlement of deferred liabilities on acquisitions 13 (13,579) (5,158) (14,393)
Acquisition of property, plant and equipment 9 (9,997) (9,378) (19,360)
Investment in intangible assets 9 (178) (157) (315)
Other investment - - (175)
Interest received 102 49 62
Net cash generated by / (used in) investing activities (23,652) (54,183) (82,878)
Cash flows from financing activities
Repayment of loans 14 (42) (37) (80)
Payments of principal on lease liabilities 16 (5,453) (4,551) (9,953)
Interest paid on principal of lease liabilities 16 (465) (484) (985)
Dividends paid (1,303) - (615)
Shares issued for cash 11 2,435 2,253 5,338
Interest paid (413) (337) (1,753)
Net cash generated by / (used in) financing activities (5,241) (3,156) (8,048)
Increase / (decrease) in cash and cash equivalents 11,673 (20,103) (381)
Exchange gain / (loss) on cash and cash equivalents 4,012 1,318 3,021
Cash and cash equivalents at beginning of the period 105,710 103,070 103,070
Cash and cash equivalents at end of the period 121,395 84,285 105,710
Notes forming part of the Condensed interim consolidated financial statements
1 Basis of Preparation
Keywords Studios PLC (the "Company") is a company incorporated in the United
Kingdom. The Condensed interim consolidated financial statements include the
financial statements of the Company and its subsidiaries (the "Group") made up
to 30 June 2022.
The interim results for the half year ended 30 June 2022 and the half year
ended 30 June 2021 are neither audited nor reviewed by our auditors and the
accounts in this interim report do not therefore constitute statutory accounts
in accordance with Section 434 of the Companies Act 2006. They do not include
all of the information required for full annual financial statements, and
should be read in conjunction with the latest annual audited financial
statements of Keywords Studios PLC for the year ended 31 December 2021, which
have been filed with Companies House. The report of the auditors on those
accounts was unqualified, did not contain any statements under Section 498 (2)
or (3) of the Companies Act 2006 and did not contain any matters to which the
auditors drew attention without qualifying their report.
The interim financial statements presented in this financial report have been
prepared in accordance with International Financial Reporting Standards (IFRS)
and the IFRS Interpretations Committee (IFRIC) interpretations that are
expected to be applicable to the consolidated financial statements for the
period ending 31 December 2022.
There have been no changes in the principal risks and uncertainties during the
period and therefore these remain consistent with the year ended 31 December
2021 and are disclosed in the Annual Report for that year. The Directors
continue to monitor the impact of COVID-19 and the Ukraine crisis on the
principal risks and uncertainties.
Going Concern Basis of Accounting
After making enquiries, the Directors consider it appropriate to continue to
adopt the going concern basis in preparing the interim financial statements.
In doing so, the Directors have considered the uncertain nature of the current
COVID-19 pandemic and also considered the implications of the crisis in
Ukraine, but have noted:
· 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 applied downside sensitivities to the Group's cash flow
projections to evaluate the Group's ability to withstand a further prolonged
period of studio closures as a result of the COVID-19 pandemic, leading to a
reduction in production capability and a worst case scenario of withdrawing
from the Group's operations in Russia. Under this severe case, the Group would
have sufficient liquidity and remain within its banking covenants. The
Directors have a reasonable expectation that the Company and the Group have
adequate resources to continue to operate and meet liabilities as they fall
due for the foreseeable future, a period considered to be at least twelve
months from the date of these financial statements and therefore the going
concern basis of preparation continues to be appropriate.
In doing so, the Directors have also considered the Group's strong liquidity
position with net cash of €121.3m as at 30 June 2022, and committed undrawn
facilities of €150m under the Revolving Credit Facility ("RCF").
The Condensed interim consolidated financial statements made up to 30 June
2022 were approved by the Board of Directors on 20 September 2022.
2 Changes in Significant Accounting Policies
New Standards, Interpretations and Amendments effective 1 January 2022
A number of new amendments and interpretations to accounting standards are
effective from 1 January 2022 including:
· Onerous Contracts - Cost of Fulfilling a Contract - amendments to
IAS 37;
· Property, Plant and Equipment: Proceeds before Intended Use -
amendments to IAS 16;
· Annual Improvements to IFRS Standards 2018-2020 - amendments to
IFRS 1, IFRS 9, IFRS 16 and IAS 41; and
· References to Conceptual Framework - amendments to IFRS 3.
These amendments and interpretations have not resulted in the accounting
applied by the Group changing and have not had a material effect on the
Group's financial statements.
Other accounting pronouncements which have become effective from 1 January 2022 have not had a material impact on the Group.
New standards, interpretations and amendments not yet effective
There are a number of standards, amendments to standards, and interpretations
which have been issued by the IASB that are effective in future accounting
periods that the Group has decided not to adopt early.
The following amendments effective for the period beginning 1 January 2023 are
expected to be impactful on the Group moving forward:
· Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2): These amendments relate to the application of
materiality in relation to the disclosure of accounting policies, requiring
companies to disclose their material accounting policies rather than their
significant accounting policies, clarifying that accounting policies related
to immaterial transactions, other events or conditions are themselves
immaterial and as such need not be disclosed; and clarifying that not all
accounting policies that relate to material transactions, other events or
conditions are themselves material to a company's financial statements. The
Board will consider these amendments in the context of the 2023 Annual Report.
· Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12): Amendments effective 1 January
2023, narrow the scope of the initial recognition exemption so that it does
not apply to transactions that give rise to equal and offsetting temporary
differences e.g. Right of use assets and Lease liabilities. As a result in
2023, deferred tax assets and liabilities associated with leases will need to
be recognised gross from the beginning of the earliest comparative period
presented, with any cumulative effect recognised as an adjustment to retained
earnings or other components of equity at that date. The estimated impact of
adoption based on the carrying value of Right of Use Assets and Lease
Liabilities at 30 June 2022 would result in additional Deferred tax assets of
€8.5m and Deferred tax liabilities of €8.1m being recognised.
Other amendments effective for the period beginning 1 January 2023:
· Classification of Liabilities as Current or Non-current -
Amendments to IAS 1;
· Definition of Accounting Estimate - Amendments to IAS 8
The Group does not expect these other amendments, or any other standards
issued by the IASB, but not yet effective, to have a material impact on the
Group.
3 Significant Accounting Policies
These financial statements have been prepared in accordance with the
accounting policies adopted in the Group's most recent annual financial
statements for the year ended 31 December 2021, with the exception of the
issues highlighted in note 4 below.
4 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.
The judgements, estimates and assumptions applied in these interim financial
statements, including the key sources of estimation uncertainty, were the same
as those applied in the Group's last annual financial statements for the year
ended 31 December 2021. The only exceptions are:
· Tax Liabilities - determined using the estimated annual effective
tax rate:
o The estimate of tax liabilities which are determined in these interim
financial statements using the estimated annual effective tax rate applied to
the pre-tax income of the interim period.
· Operating Segments:
o While previously it was considered that the Group's activity, as a single
source supplier of services to the gaming industry, constituted one operating
and reporting segment (as defined under IFRS 8 Operating Segments), following
on recent executive and organisational changes, the Board consider it more
meaningful to present information by segment aligning to the new
organisational and reporting structures:
§ Create - Game Development and Art Creation;
§ Globalize - Functional Testing, Localization Testing, Audio and
Localization; and,
§ Engage - Marketing and Player Support.
The Operating segments are reported in note 5, in a manner consistent with the
new internal organisational and management structure, and the internal
reporting information provided to the Chief Operating Decision Maker ("CODM")
who is responsible for allocating resources and assessing performance of the
operating segments. The CODM has been identified as the executive management
team made up of the Chief Executive Officer and the Chief Financial Officer.
As a corollary, the Board also considered how the change in segmental
reporting impacted the Group's cash generating units (CGUs). CGUs represent
the lowest level at which goodwill is monitored for internal management
purposes and are not larger than the operating segments determined in
accordance with IFRS 8. While previously the Group was considered to have one
CGU, the change in segmental reporting requires the Group's CGU's to be
re-considered. The Board determined that monitoring goodwill for impairment at
the line of business level (i.e. Art, Game Development etc.) would be the most
appropriate (see note 9).
5 Segmental Analysis and Revenue from Contracts with Customers
Segmental Analysis*
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
€'000 €'000 €'000
Revenue from external customers
Create 124,280 85,962 188,178
Globalize 141,585 107,410 231,901
Engage 55,275 45,292 92,121
321,140 238,664 512,200
Segment operating profit
Create 30,906 23,039 49,730
Globalize 31,130 21,051 47,383
Engage 8,112 6,622 12,987
70,148 50,712 110,100
Reconciliation of Segment operating profit
Adjusted EBITDA^ 70,148 50,712 110,100
Share-based payments expense (8,940) (8,454) (16,394)
Costs of acquisition and integration (1,284) (1,464) (7,972)
Non-controlling interest (45) (33) (67)
Other income 1,107 - -
Amortisation of intangible assets (7,469) (6,553) (13,688)
Depreciation - property plant and equipment (8,790) (5,347) (11,661)
Depreciation - right of use assets (5,591) (4,789) (10,473)
Bank charges 317 249 520
Operating profit 39,453 24,321 50,365
Financing income 2,514 49 2,045
Financing cost (2,889) (2,442) (4,427)
Profit before taxation 39,078 21,928 47,983
*The prior year comparatives have been re-classified to present information by
segment, aligning to the new organisational and reporting structures (see note
4).
^ The Group reports a number of alternative performance measures ("APMs"),
including Adjusted EBITDA, to present the financial performance of the
business, that are not GAAP measures as defined under IFRS. Segmental results
are reported in a manner consistent with these measures. A reconciliation of
Adjusted EBITDA to the relevant GAAP measure is presented in the APM's section
below.
Revenues are recognised as services are delivered by the relevant producing
segment, and while there is significant sub-contracting across production
locations around the Group, inter-segment revenues are not significant. Assets
and liabilities are not allocated by segment.
Revenue is earned from external customers, with no individual customer
accounting for 10% or more of the Group's revenue in any period presented.
Geographical analysis of revenues, by producing location* Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
€'000 €'000 €'000
Canada 70,151 46,783 97,748
United Kingdom 57,666 44,744 94,426
United States 56,407 44,309 96,060
Russia 17,838 15,244 29,424
Italy 17,338 16,331 32,448
Poland 13,917 7,936 21,397
India 12,290 8,762 18,640
China 11,478 9,646 20,350
Japan 11,181 10,623 21,898
Other 52,874 34,286 79,809
321,140 238,664 512,200
*The prior year comparatives have been re-classified to align to the current
year presentation and ranking by production location.
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 30 June 2022 62,442 48,679 12,719 1,044
At 30 June 2021 22,799 14,617 7,190 992
At 31 December 2021 55,294 44,973 9,319 1,002
Unaudited Unaudited Audited
Geographical analysis of non-current assets from continuing businesses Half Year Half Year* Year
30 Jun 22 30 Jun 21 31 Dec 21
€'000 €'000 €'000
United States 176,906 169,855 171,126
United Kingdom 119,682 118,436 114,871
Australia 48,132 40,124 45,528
Canada 28,444 25,937 31,096
Italy 15,610 15,771 15,612
Switzerland 10,025 10,025 10,025
Ireland 9,994 9,594 8,422
China 9,081 8,736 8,296
France 7,472 7,970 7,548
Japan 4,795 6,296 6,955
Other 25,663 19,919 28,116
455,804 432,663 447,595
*The prior year comparatives have been re-classified to align to the current
year presentation, as the Directors consider this measure to be more
meaningful.
Seasonal Business
Historically the video games industry has been heavily impacted by sales of
new releases of games and platforms 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' service lines typically experience
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 in the second half compared
with the first half of each calendar year. However, as Keywords continues to
build on our platform, and our presence in each stage of the games development
cycle increases, the impact of seasonality on our business is reducing over
time.
Revenue and Gross profit for the twelve months up to the end of the interim
period and comparative information for the prior twelve-month period are
presented below, which include the post-acquisition results of acquisitions
completed in the relevant period.
Unaudited Unaudited
Year Year
30 Jun 22 30 Jun 21
€'m €'m
Revenue 595 439
Gross profit 233 170
6 Financing Income and Cost
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
€'000 €'000 €'000
Financing income
Interest received 102 49 62
Foreign exchange gain 2,412 - 1,983
2,514 49 2,045
Financing cost
Bank charges (317) (249) (520)
Interest expense (629) (433) (1,040)
Unwinding of discounted liabilities - lease liabilities (465) (484) (985)
Unwinding of discounted liabilities - deferred consideration (1,478) (736) (1,882)
Foreign exchange loss - (540) -
(2,889) (2,442) (4,427)
Net financing income / (cost) (375) (2,393) (2,382)
7 Earnings per Share
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
€ cent € cent € cent
Basic 36.80 20.86 45.16
Diluted 35.52 19.73 42.98
Earnings €'000 €'000 €'000
Profit for the period from continuing operations 28,141 15,642 34,108
Weighted average number of equity shares Number Number Number
Basic (i) 76,478,194 74,980,344 75,526,296
Diluting impact of share options (ii) 2,756,818 4,312,961 3,826,990
Diluted (i) 79,235,012 79,293,305 79,353,286
(i) Includes (weighted average) shares to be issued:
Number Number Number
34,709 254,383 219,146
(ii) Contingently issuable ordinary shares have been excluded where the
conditions governing exercisability have not been satisfied:
Number Number Number
LTIPs 1,720,825 862,000 903,656
Share options 519,000 - -
2,239,825 862,000 903,656
8 Dividends
Dividends recommended In respect of Expected € cent per share Pence STG per share Expected interim dividend €'000 Expected payment date
Interim 2022 0.90 0.77 690 Oct-22
At 30 June 2022, Retained earnings available for distribution (being Retained
earnings plus Share-based payments reserve) in the Company were €46.5m. In
addition, the Company has amounts included in the Merger reserve of €123.9m
that are considered distributable (note 11).
9 Non-current Assets
Unaudited Unaudited Unaudited Unaudited Unaudited
Half Year Half Year Half Year Half Year Half Year
30 Jun 22 30 Jun 22 30 Jun 22 30 Jun 22 30 Jun 22
€'000 €'000 €'000 €'000 €'000
Movement of the carrying value of Non-current assets Property, plant and equipment Right of use assets Intangible assets - goodwill Intangible assets - Intangible assets -
other
total
Carrying amount at the beginning of the period 36,018 35,991 324,890 29,053 353,943
Additions 9,997 1,978 - 178 178
Depreciation charge (8,790) (5,591) - - -
Amortisation charge - - - (7,469) (7,469)
Exchange rate movement 1,094 1,636 13,146 1,712 14,858
Carrying amount at the end of the period 38,319 34,014 338,036 23,474 361,510
A cash-generating unit ("CGU") is the smallest identifiable group of assets
that generates cash inflows that are largely independent of the cash inflows
from other assets or group of assets. The CGU's represent the lowest level
within the Group at which the associated goodwill is assessed for internal
management purposes and are not larger than the operating segments determined
in accordance with IFRS 8 Operating Segments. As outlined in note 4, the Board
have determined the lines of business as CGU's, and Goodwill acquired in
business combinations has been allocated to the CGUs that are expected to
benefit from business combinations to date.
A summary of the allocation of the carrying value of goodwill by CGU and by
segment is presented below:
Unaudited
At
30 Jun 22
€'m
Intangible assets - goodwill
Segment CGU
Create: Game Development 185.0
Art Creation 19.7
Globalize: Functional Testing 15.2
Localization Testing 14.4
Audio 33.6
Localization 18.5
Engage: Marketing 39.4
Player Support 12.2
338.0
While the Group performs a full assessment of the carrying value of goodwill,
intangible assets and other assets on an annual basis, at 30 June 2022 an
interim assessment by CGU was made based on the same underlying assumptions
used in the last Annual Report, but using updated forecasts and projections.
Based on this interim review of the value in use calculations, no impairment
is required in the period. The Directors consider that no reasonably probable
change in assumptions would result in an impairment.
10 Trade and Other Receivables
Unaudited Unaudited Audited
At At At
30 Jun 22 30 Jun 21 31 Dec 21
€'000 €'000 €'000
Trade receivables derived from contracts with customers 90,270 64,752 69,835
Provision for bad debts (i) (ii) (1,883) (2,347) (1,768)
Financial asset held at amortised cost 88,387 62,405 68,067
Accrued income from contracts with customers 15,886 12,152 9,997
Prepayments 10,414 5,128 7,114
Rent deposits and other receivables 4,744 4,134 4,203
Multimedia tax credits / video games tax relief 34,452 21,671 22,860
Tax and social security 6,729 3,903 4,936
Other receivables 72,225 46,988 49,110
(i) The movements in the provision for bad debts in the
current period were as follows:
Unaudited
Half Year
30 Jun 22
€'000
Provision at the beginning of the period (1,768)
Impairment of financial assets (trade receivables) charged to other (150)
administration expenses
Amounts written off against the provision in the period 8
Exchange rate movement 27
Provision at the end of the period (1,883)
Credit loss experience 1.0%
(ii) The composition of the provision for bad debts at
period end was as follows:
Unaudited
At
30 Jun 22
€'000
Credit impaired (980)
Expected credit losses (903)
Provision at the end of the period (1,883)
11 Share Capital
Issue date Per share € Number of ordinary Number of ordinary Share capital Share capital - to be issued €'000 Share premium Merger reserve*
£0.01 shares
£0.01 shares - to be issued
€'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) 1 (634) - 633
Heavy Iron 03-Feb-22 31.84 12,967 (12,914) - (411) - 411
Jinglebell 11-Mar-22 26.41 11,564 (11,564) - (330) - 300
Acquisition related issuance of shares 45,116 (45,063) 1 (1,375) - 1,344
Employee Share Purchase Plan 19,468 - - - 482 -
Issue of shares on exercise of share options 586,198 - 7 - 1,953 -
At 30 June 2022 76,926,557 25,081 912 810 40,984 275,021
* Included in the Merger reserve are amounts of €14.4m (being the premium
arising on the share placement in 2015) and €109.5m (being the premium
arising on the share placement in 2020), totalling €123.9m, that are
considered distributable. At the time of the placements, the proceeds were not
allocated to a specific acquisition or specific purpose, and thus these
amounts included in the Merger reserve are considered distributable.
12 Share Options
Share Option Scheme Long Term Incentive Plan Salary Shares
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
At 01 January 2022 15.68 2,423,568 0.01 3,704,898 0.01 26,738
Granted - - 0.01 859,690 0.01 229,676
Lapsed 19.11 (119,964) 0.01 (96,116) 0.01 (1,638)
Exercised 4.34 (473,437) 0.01 (447,643) 0.01 (543)
At 30 June 2022 18.38 1,830,167 0.01 4,020,829 0.01 254,233
Exercisable at 30 June 2022 15.28 705,167 0.01 1,052,157 0.01 -
Weighted average share price at date of exercise 22.38 23.43 22.78
Number of options Number of options Number of options
Analysis of Shares Exercised
Exercised via issuance of new shares (173,012) (412,643) (543)
Exercised via utilisation of shares held in EBT (300,425) (35,000) -
(473,437) (447,643) (543)
13 Other Payables
Unaudited Unaudited Audited
At At At
30 Jun 22 30 Jun 21 31 Dec 21
€'000 €'000 €'000
Current liabilities
Accrued expenses 63,226 38,591 53,526
Payroll taxes 3,591 3,067 2,666
Other payables (ii) 19,886 20,346 16,343
Deferred and contingent consideration (i) 36,020 36,282 35,888
122,723 98,286 108,423
Non-current liabilities
Deferred and contingent consideration (i) 8,007 21,659 18,254
8,007 21,659 18,254
(i) The movements in deferred and contingent
consideration (Level 3 input in the fair value hierarchy), in the current
period were as follows:
Unaudited
Half Year
30 Jun 22
€'000
Carrying amount at the beginning of the period 54,142
Consideration settled by cash (13,579)
Unwinding of discount (note 6) 1,478
Exchange rate movement 1,986
Carrying amount at the end of the period 44,027
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% movement in expected performance would impact the fair value of the
contingent consideration as follows:
Unaudited
At
30 Jun 22
Increase / (decrease) in carrying amount €'000
Increase in expected performance - 10% 634
Decrease in expected performance - 10% (2,291)
There are no other reasonably probable changes to the assumptions and inputs
(including the discount rate) that would lead to a material change to the fair
value of the total amount payable.
On an undiscounted basis, at period end the Group may be liable for deferred
and contingent consideration ranging from €0.2m to a maximum of €49.0m.
The contractual maturities (representing undiscounted contractual cash flows)
of the Group's deferred and contingent consideration liabilities were as
follows:
Unaudited
At
30 Jun 22
€'000
Not later than one year 36,020
Later than one year and not later than two years 1,671
Later than two years and not later than five years 6,336
Total undiscounted contractual cash flows 44,027
(ii) The Group's related party transactions are with key
management personnel as disclosed in the Group's Annual Report. There have
been no material changes to the Group's related party transactions with key
management personnel during the period.
14 Loans and Borrowings and Capital Management
The movements in loans and borrowings (classified as financial liabilities,
held at amortised cost under IFRS 9), in the current period were as follows:
Unaudited
Half Year
30 Jun 22
€'000
Carrying amount at the beginning of the period 129
Repayments (42)
Exchange rate movement 8
Carrying amount at the end of the period 95
These balances represent loans owed by Keywords Studios QC-Interactive Inc.
The Syndicated Bank revolving credit facility ("RCF") remains in place
allowing the Group to access financing of up to €150m, which may be drawn
down in euro, sterling, US dollars or Canadian dollars, with an option
(subject to lender consent), to increase the facility by up to €50m to a
total of €200m, at interest rates based on a margin over currency benchmark
rates, plus a separate margin charged for the unutilised facility. The RCF
extends to December 2024, with an option to extend the term by two further
one-year periods. Throughout the period, the Group operated well within the
interest cover and leverage ratio terms of the RCF agreement.
At the period end the net debt ratio was as follows:
Unaudited
At
30 Jun 22
€'000
Loans and borrowings 95
Less: cash and cash equivalents (121,395)
Net debt / (net cash) position (121,300)
15 Financial Instruments
During the period there has been no change in the measurement basis of the
financial assets and liabilities shown in the Condensed interim consolidated
statement of financial position.
16 Lease Liabilities
The movements in lease liabilities in the current period were as follows:
Unaudited
Half Year
30 Jun 22
€'000
Carrying amount at the beginning of the period 37,635
Liabilities recognised on new leases in the period 1,978
Unwinding of discounted liabilities - lease liabilities 465
Payment of principal and interest on lease liabilities (5,918)
Exchange rate movement 1,707
Carrying amount at the end of the period 35,867
The value of leases not yet commenced to which the lessee is committed, which
are not included in the lease liability at 30 June 2022, were €Nil.
17 Business Combinations / Events after the Reporting Date
Acquisition of Forgotten Empires, LLC
On 08 June 2022, the Group announced that it had entered into a conditional
agreement (subject to certain closing conditions) to acquire Forgotten
Empires, LLC ("Forgotten Empires"), a full service game development studio,
for a total consideration of up to US$32.5m. Headquartered in Ohio in the
United States, the studio comprises 53 game developers and specialises in the
development of real time strategy games. Forgotten Empires generated revenue
of US$7.2m in 2021. Under the terms of the acquisition, the Group will pay a
maximum amount of US$32.5m, comprised of initial cash consideration of
US$15.75m, the equivalent of US$3.75m in new ordinary shares to be issued one
year post completion (US$2m of which is contingent on targets being met in the
first six months from completion), and up to US$13m, in a mix of cash and new
ordinary shares based on growth targets being met over the year following
completion. The new ordinary shares to be issued are subject to one-year
orderly market provisions. On 03 August 2022, the Group announced that it had
completed the acquisition of Forgotten Empires under the terms previously
announced.
Acquisition of Mighty Games Group Pty Ltd
On 03 August 2022, the Group announced the acquisition of Mighty Games Group
Pty Ltd ("Mighty Games"). Based in Melbourne, Australia, the studio
specialises in the development of automated games testing solutions including
its "Build and Test" platform. Build and Test uses AI technology deployed on
multiple machines to automatically test code, detect bugs and defects and
report errors on a 24/7 basis. In addition to games testing solutions, the 21
person team provides game development services for clients including global
mobile game developers as well as Australian developers and publishers.
Under the terms of the Mighty Games acquisition, Keywords will pay a maximum
amount of AUD$10.0m, comprised of initial cash consideration of AUD$4.8m, the
equivalent of AUD$1.2m in new ordinary shares to be issued within 30 days of
completion, and up to AUD$4.0m in a mix of cash and new ordinary shares based
on growth targets being met over the three years following completion. The new
ordinary shares to be issued are subject to one-year lock in periods and
orderly market provisions for a further year.
18 Significant Events
Crisis in Ukraine
In 2022 the Group's operations have been impacted by the tragic events in
Ukraine. Whilst the Group do not have operations in Ukraine, the Group does
have Game Development teams in Russia, and also works with a number of
freelance suppliers in Ukraine. Our priority has been to support our people
and our freelance suppliers in the territory, whilst contributing to the wider
humanitarian efforts in the region.
Revenues produced in Russia are presented in note 5. In the period, the Group
produced €17.8m of Revenue in Russia, up from €15.2m in H1 2021, and
represents approximately 5.5% of Group revenue. During the period, a number of
projects supported in Russia have been transferred to other parts of the
Group. We continue to work with our customers supporting their preferences for
where their work should be performed. We also remain focused on mitigating any
potential business interruption or other risks associated with our activities
in Russia. As a consequence, we expect the volume of work produced in Russia
to continue to reduce over time.
Geographical analysis of non-current assets from continuing businesses is also
presented in note 5. Approximately €0.3m of the amount presented within the
"Other" category relates to the carrying value of Russian located Property,
plant and equipment, being mainly computer equipment. The Group does not have
significant receivables exposure in Russia, as work produced in Russia is
contracted and collected in other territories. In addition, the Group does not
have significant amounts of net current assets located in Russia. Thus any
exposure to impairment of assets located in Russia is not considered material.
As a consequence of the crisis, an additional impairment assessment was
performed in the Game Development CGU, to evaluate any potential Goodwill
impairment resulting from the crisis. The result of the value in use
calculations was that no impairment would be required even in a worst case
scenario where the contribution from all Russian located production capacity
was excluded from projections, assuming no further work is able to be
transferred to other parts of the Group.
Alternative performance measures
The Group reports a number of alternative performance measures ("APMs") to
present the financial performance of the business, that are not GAAP measures
as defined under IFRS. The Directors believe that these measures, in
conjunction with the IFRS financial information, provide the users of the
financial statements with additional information to provide a more meaningful
understanding of the underlying financial and operating performance of the
Group. The measures are also used in the Group's internal strategic planning
and budgeting processes and for setting internal management targets. These
measures can have limitations as analytical tools and therefore should not be
considered in isolation, or as a substitute for IFRS measures.
The principal measures used by the Group are set out below:
Organic revenue growth - Acquisitions are a core part of the Group's growth
strategy. Organic revenue growth measures are used to help understand the
underlying trading performance of the Group excluding the impact of
acquisitions. Organic revenue growth is calculated by adjusting the prior year
revenues, adding pre-acquisition revenues for the corresponding period of
ownership to provide a like-for-like comparison with the current year, and
applying the prior year's foreign exchange rates to both years, when
translating studio results into the euro reporting currency.
Constant exchange rates ("CER") - Given the international nature of the
Group's operations, foreign exchange movements can have an impact on the
reported results of the Group when they are translated into the Group's
reporting currency, the euro. In order to understand the underlying trading
performance of the business, revenue is also presented using rates consistent
with the prior year in order to provide year over year comparability.
Adjusted profit and earnings per share measures - Adjusted profit and earnings
per share measures are used to provide management and other users of the
financial statements with a clear understanding of the underlying
profitability of the business over time. Adjusted profit measures are
calculated by adding the following items back to the equivalent GAAP profit
measures:
· Amortisation of intangible assets - Customer relationships and
music licence amortisation commences on acquisition, whereas intellectual
property / development costs amortisation commences when the product is
launched. These costs, by their nature, can vary by size and amount each year.
As a result, amortisation of intangibles is added back to assist with the
understanding of the underlying trading performance of the business and to
allow comparability across regions and categories.
· Costs of acquisition and integration - The level of acquisition
activity can vary each year and therefore the costs associated with acquiring
and integrating businesses are added back to assist with the understanding of
the underlying trading performance of the Group.
· Share-based payments - The Group uses share-based payments as
part of remuneration to align the interests of senior management and employees
with shareholders. These are non-cash charges and the charge is based on the
Group's share price which can change. The costs are therefore added back to
assist with the understanding of the underlying trading performance.
· Foreign exchange gains and losses - The Group does not hedge
foreign currency translation exposures. The effect on the Group's results of
movements in exchange rates can vary each year and are therefore added back to
assist with understanding the underlying trading performance of the
business.
· Other income - Other income comprises gains on investments or
other non-trading income. As the gains have arisen outside the normal trading
activities of the Group, the income has been added back to assist with the
understanding of the underlying trading performance.
Free cash flow measures - The Group aims to generate sustainable cash flow
(free cash flow) in order to support its acquisition program and to fund
dividend payments to shareholders. Free cash flow is measured as net cash
generated by / (used in) operating activities after capital expenditure,
payments of principal on lease liabilities, interest and tax payments, but
before acquisition and integration cash outlay, other income and dividend
payments. Adjusted free cash flow is a measure of cash flow adjusting for
capital expenditure that is supporting growth in future periods (represented
by capital expenditure in excess of depreciation). In the prior year, the
measure has also been adjusted for COVID-19 subsidies claimed given the
one-time nature of this income.
Net debt - The Group manages capital by monitoring debt to capital and net
debt ratios. Net debt is calculated as Loans and borrowings less cash and cash
equivalents, and excludes lease liabilities. The debt to capital ratio is
calculated as net debt as a percentage of total equity.
The remainder of this section provides a reconciliation of the APMs with the
relevant IFRS GAAP equivalent.
Service line analysis
The following table presents revenue growth by service line at both actual
exchange rates ("AER") and constant exchange rates ("CER"). Constant exchange
rates are calculated by retranslating current year reported numbers at the
corresponding 2021 foreign exchange rates, in order to give management and
other users of the financial statements better visibility of underlying
trading performance against the prior year.
Half Year Half Year Half Year Half Year Half Year
30 Jun 22 30 Jun 22 30 Jun 21 30 Jun 22 30 Jun 22
Revenue Revenue Revenue Growth Growth
AER CER AER AER CER
€m €m €m % %
Create 124.3 116.0 86.0 44.5% 34.9%
Globalize 141.5 135.0 107.4 31.8% 25.7%
Engage 55.3 52.6 45.3 22.1% 16.1%
321.1 303.6 238.7 34.5% 27.2%
*The prior year comparatives have been re-classified to the current year
presentation as the Directors consider this to be more meaningful.
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.
Half Year Half Year Half Year Year
30 Jun 22 30 Jun 22 30 Jun 22 30 Jun 22
Revenue Pre-acquisition revenue Pro forma revenue Pro forma revenue
AER AER AER AER
€m €m €m €m
Create 124.3 - 124.3 226.5
Globalize 141.5 - 141.5 266.0
Engage 55.3 - 55.3 102.1
321.1 - 321.1 594.6
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 2021 foreign exchange rates to both
years, when translating studio results into the euro reporting currency.
Half Year Half Year Half Year Half Year Half Year Half Year
30 Jun 21 30 Jun 21 30 Jun 21 30 Jun 22 30 Jun 22 30 Jun 22
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 86.0 8.1 94.1 21.9 116.0 23.3%
Globalize 107.4 - 107.4 27.6 135.0 25.7%
Engage 45.3 2.6 47.9 4.7 52.6 9.8%
238.7 10.7 249.4 54.2 303.6 21.7%
*The prior year comparatives have been re-classified to the current year
presentation as the Directors consider this to be more meaningful.
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, non-controlling interest and deducting bank charges.
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
Calculation €'000 €'000 €'000
Administrative expenses Consolidated statement of comprehensive income (86,152) (66,802) (149,749)
Share-based payments expense Consolidated statement of comprehensive income 8,940 8,454 16,394
Costs of acquisition and integration Consolidated statement of comprehensive income 1,284 1,464 7,972
Amortisation of intangible assets Consolidated statement of comprehensive income 7,469 6,553 13,688
Depreciation - property, plant and equipment Note 9 8,790 5,347 11,661
Depreciation - right of use assets Note 9 5,591 4,789 10,473
Non-controlling interest Consolidated statement of comprehensive income 45 33 67
Bank charges Note 6 (317) (249) (520)
Adjusted operating costs (54,350) (40,411) (90,014)
Adjusted operating costs as a % of revenue 16.9% 16.9% 17.6%
Adjusted operating profit
The Adjusted operating profit consists of the Operating profit as reported in
the Consolidated statement of comprehensive income, adjusted for share-based
payments expense, costs of acquisition and integration, and amortisation of
intangible assets. In order to present the measure consistently year-on-year,
the impact of other income is also excluded.
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
Calculation €'000 €'000 €'000
Operating profit Consolidated statement of comprehensive income 39,453 24,321 50,365
Share-based payments expense Consolidated statement of comprehensive income 8,940 8,454 16,394
Costs of acquisition and integration Consolidated statement of comprehensive income 1,284 1,464 7,972
Amortisation of intangible assets Consolidated statement of comprehensive income 7,469 6,553 13,688
Other income Consolidated statement of comprehensive income (1,107) - -
Adjusted operating profit 56,039 40,792 88,419
Adjusted operating profit as a % of revenue 17.5% 17.1% 17.3%
EBITDA
EBITDA comprises Operating profit as reported in the Consolidated statement of
comprehensive income, adjusted for amortisation of intangible assets,
depreciation, and deducting bank charges.
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
Calculation €'000 €'000 €'000
Operating profit Consolidated statement of comprehensive income 39,453 24,321 50,365
Amortisation of intangible assets Consolidated statement of comprehensive income 7,469 6,553 13,688
Depreciation - property plant and equipment Note 9 8,790 5,347 11,661
Depreciation - right of use assets Note 9 5,591 4,789 10,473
Bank charges Note 6 (317) (249) (520)
EBITDA 60,986 40,761 85,667
Adjusted EBITDA
Adjusted EBITDA comprises EBITDA, adjusted for share-based payments expense,
costs of acquisition and integration and non-controlling interest. In order to
present the measure consistently year-on-year, the impact of other income is
also excluded.
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
Calculation €'000 €'000 €'000
EBITDA As above 60,986 40,761 85,667
Share-based payments expense Consolidated statement of comprehensive income 8,940 8,454 16,394
Costs of acquisition and integration Consolidated statement of comprehensive income 1,284 1,464 7,972
Non-controlling interest Consolidated statement of comprehensive income 45 33 67
Other income Consolidated statement of comprehensive income (1,107) - -
Adjusted EBITDA 70,148 50,712 110,100
Adjusted EBITDA as a % of revenue 21.8% 21.2% 21.5%
Adjusted profit before tax
Adjusted profit before tax comprises Profit before taxation as reported in the
Consolidated statement of comprehensive income, adjusted for share-based
payments expense, costs of acquisition and integration, amortisation of
intangible assets, non-controlling interest, foreign exchange gains and
losses, and unwinding of discounted liabilities. In order to present the
measure consistently year-on-year, the impact of other income is also
excluded.
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
Calculation €'000 €'000 €'000
Profit before taxation Consolidated statement of comprehensive income 39,078 21,928 47,983
Share-based payments expense Consolidated statement of comprehensive income 8,940 8,454 16,394
Costs of acquisition and integration Consolidated statement of comprehensive income 1,284 1,464 7,972
Amortisation of intangible assets Consolidated statement of comprehensive income 7,469 6,553 13,688
Non-controlling interest Consolidated statement of comprehensive income 45 33 67
Foreign exchange (gain) / loss Note 6 (2,412) 540 (1,983)
Unwinding of discounted liabilities - deferred consideration Note 6 1,478 736 1,882
Other income Consolidated statement of comprehensive income (1,107) - -
Adjusted profit before tax 54,775 39,708 86,003
Adjusted profit before tax as a % of revenue 17.1% 16.6% 16.8%
Adjusted effective tax rate
The Adjusted effective tax rate is the Taxation expense as reported in the
Consolidated statement of comprehensive income, adjusted for the tax impact of
the adjusting items in arriving at Adjusted profit before tax, as a percentage
of the Adjusted profit before tax.
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
Calculation €'000 €'000 €'000
Adjusted profit before tax As above 54,775 39,708 86,003
Taxation Consolidated statement of comprehensive income 10,937 6,286 13,875
Effective tax rate before tax on adjusting items Taxation / Adjusted profit before tax 20.0% 15.8% 16.1%
Tax arising on bridging items to Adjusted profit before tax^ 1,092 2,252 4,729
Adjusted taxation 12,029 8,538 18,604
Adjusted effective tax rate Adjusted taxation / Adjusted profit before tax 22.0% 21.5% 21.6%
^Being mainly the tax impact of share-based payments expense €0.9m and
amortisation of intangible assets €0.9m less foreign exchange €0.9m, with
the prior period being mainly the tax impact of share-based payments expense
€1.3m and amortisation of intangible assets €1.6m.
Adjusted earnings per share
The Adjusted profit after tax comprises the Adjusted profit before tax, less
the Taxation expense as reported in the Consolidated statement of
comprehensive income, adjusted for the tax impact of the adjusting items in
arriving at Adjusted profit before tax.
The Adjusted earnings per share comprises the Adjusted profit after tax
divided by the non-diluted weighted average number of shares as reported in
note 7.
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
Calculation €'000 €'000 €'000
Adjusted profit before tax As above 54,775 39,708 86,003
Taxation Consolidated statement of comprehensive income (10,937) (6,286) (13,875)
Tax arising on bridging items to Adjusted profit before tax^ (1,092) (2,252) (4,729)
Adjusted profit after tax 42,746 31,170 67,399
Denominator (weighted average number of equity shares) Note 7 76,478,194 74,980,344 75,526,296
€ c € c € c
Adjusted earnings per share 55.89 41.57 89.24
Adjusted earnings per share % growth 34.4% 64.6% 46.5%
^Being mainly the tax impact of share-based payments expense €0.9m and
amortisation of intangible assets €0.9m less foreign exchange €0.9m, with
the prior period being mainly the tax impact of share-based payments expense
€1.3m and amortisation of intangible assets €1.6m..
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. In order to present the measure
consistently, the half year adjusted profits are presented on a rolling 12
month basis.
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.
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
Calculation €'000 €'000 €'000
Adjusted profit before tax As above 54,775 39,708 86,003
Interest received Note 6 (102) (49) (62)
Bank charges Note 6 317 249 520
Interest expense Note 6 629 433 1,040
Unwinding of discounted liabilities - lease liabilities Note 6 465 484 985
Pre-acquisition profits of current year acquisitions - 2,119 2,573
Adjusted profit before tax including pre acquisition profit excluding interest 56,084 42,944 91,059
for the period
Rolling 12 month adjustment 48,115 43,589 -
Adjusted profit before tax including pre-acquisition profit and excluding net 104,199 86,533 91,059
interest
Total equity Consolidated statement of financial position 530,329 427,798 472,120
Employee defined benefit plans Consolidated statement of financial position 3,270 2,989 3,088
Cumulative amortisation of intangibles assets (customer relationships) 51,087 32,411 40,708
Deferred and contingent consideration Note 13 44,027 57,941 54,142
Loans and borrowings Consolidated statement of financial position 95 165 129
Cash and cash equivalents Consolidated statement of financial position (121,395) (84,285) (105,710)
Capital employed 507,413 437,019 464,477
Return on capital employed Adjusted profit before tax including pre acquisition profit and excluding net 20.5% 19.8% 19.6%
interest expense (on a rolling 12 month basis) / capital employed
Free cash flow
Free cash flow represents Net cash generated by / (used in) operating
activities as reported in the Consolidated statement of cash flows, adjusted
for acquisition and integration cash outlay, capital expenditure, net interest
paid, payments of principal on lease liabilities and is presented both before
and after taxation paid. In order to present the measure consistently
year-on-year, the impact of other income is also excluded.
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
Calculation €'000 €'000 €'000
Net cash generated by / (used in) operating activities Consolidated statement of cash flows 40,565 37,236 90,545
Acquisition and integration cash outlay:
Costs of acquisition and integration Consolidated statement of comprehensive income 1,284 1,464 7,972
Fair value adjustments to contingent consideration Consolidated statement of cash flows - - (5,567)
Acquisition of property, plant and equipment Consolidated statement of cash flows (9,997) (9,378) (19,360)
Investment in intangible assets Consolidated statement of cash flows (178) (157) (315)
Other income Consolidated statement of comprehensive income (1,107) - -
Interest received Consolidated statement of cash flows 102 49 62
Interest paid Consolidated statement of cash flows (878) (821) (2,738)
Payments of principal on lease liabilities Consolidated statement of cash flows (5,453) (4,551) (9,953)
Free cash flow after tax 24,338 23,842 60,646
Taxation paid Consolidated statement of cash flows 6,181 9,791 23,948
Free cash flow before tax 30,519 33,633 84,594
Adjusted free cash flow
Adjusted free cash flow is a measure of cash flow adjusting for capital
expenditure that is supporting growth in future periods (as measured by
capital expenditure in excess of maintenance capital expenditure).
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
Calculation €'000 €'000 €'000
Free cash flow before tax As above 30,519 33,633 84,594
Capital expenditure in excess of depreciation:
Acquisition of property, plant and equipment Consolidated statement of cash flows 9,997 9,378 19,360
Depreciation - property, plant and equipment Consolidated statement of cash flows (8,790) (5,347) (11,661)
Capital expenditure in excess of depreciation 1,207 4,031 7,699
Adjusted free cash flow 31,726 37,664 92,293
Adjusted cash conversion rate
The Adjusted cash conversion rate is the Adjusted free cash flow as a
percentage of the Adjusted profit before tax:
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
Calculation €'000 €'000 €'000
Adjusted free cash flow As above 31,726 37,664 92,293
Adjusted profit before tax As above 54,775 39,708 86,003
Adjusted cash conversion ratio Free cash flow before tax and capital expenditure in excess of depreciation, 57.9% 94.9% 107.3%
as a % of Adjusted profit before tax
Net debt
The Group manages capital by monitoring debt to capital and net debt ratios.
Net debt is calculated as Loans and borrowings (as shown in the Consolidated
statement of financial position) less Cash and cash equivalents, and excludes
Lease liabilities.
Half Year Half Year Year
30 Jun 22 30 Jun 21 31 Dec 21
Calculation €'000 €'000 €'000
Loans and borrowings Consolidated statement of financial position 95 165 129
Cash and cash equivalents Consolidated statement of financial position (121,395) (84,285) (105,710)
Net debt / (net cash) position (121,300) (84,120) (105,581)
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