REG - Keywords Studios PLC - Interim Results
12/09/2023 07:00
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RNS Number : 0838M Keywords Studios PLC 12 September 2023
12 September 2023
Keywords Studios plc ("Keywords Studios", "Keywords", the "Group")
Half Year Results for the period to 30 June 2023
Good H1 trading performance, in line with guidance and growing ahead of the
market
Keywords Studios, the international provider of creative and
technology-enabled solutions to the global video games and entertainment
industries, is pleased to announce its unaudited half-year results for the six
months to 30 June 2023.
Financial Overview:
Results for the six-months ended 30 June H1 2023 H1 2022 Change
Group revenue € 383.5m € 321.1m + 19.4%
Organic revenue growth 1 + 10.4%
Adjusted EBITDA 2 € 77.3m € 70.1m + 10.3%
Adjusted EBITDA margin 20.1% 21.8%
EBITDA 2 € 60.5m € 61.0m (0.8)%
Adjusted operating profit 3 € 58.9m € 56.0m + 5.2%
Adjusted operating profit margin 15.4% 17.5%
Operating profit € 29.3m € 39.5m (25.8)%
Adjusted earnings per share 4 55.60c 55.89c (0.5)%
Earnings per share 18.48c 36.80c (39.8)%
Interim dividend per share 0.85p 0.77p
Adjusted cash conversion rate 5 33.2% 57.9%
Net cash / (net debt) € (11.4)m € 121.3m
Finance and Operating Highlights:
Good trading performance reflecting the benefits of diversification across
full game development cycle
· Group revenue up 19.4% to €383.5m (H1 2022: €321.1m), driven
by robust organic growth and supplemented by acquisitions
· Organic revenue growth of 10.4%, driven primarily by strong
growth in Create
· Adjusted operating profit margin of 15.4%, in-line with guidance
and H2 22 (H1 22: 17.5%), with adjusted operating profit rising 5.2% to
€58.9m
· Adjusted free cash flow(6) of €18.5m (H1 2022: €31.7m) due to
timing of working capital
· Adjusted cash conversion full year expectations unchanged at
~80%, H1 rate of 33.2% (H1 2022: 57.9%), would have been ~16% pts higher but
£7.5m of VGTR payments were delayed into Q3
· Net debt of €11.4m (FY 2022: net cash of €81.8m) reflecting
acquisition activity and EBT share buybacks
· Interim dividend of 0.85p per share, an increase of 10% on the
2022 interim dividend (H1 2022: 0.77p)
Strategic Highlights:
Delivering against strategy and investing in technology offering
· Strategic partner relationships increasingly opening long-term
opportunities for collaboration
· Increasing traction with AAA clients with our AI-led product
families across Globalize and Engage
· Expansion of Keywords Labs into an AI Centre of Excellence, with
key hires made
· Good progress in adjacent markets; strong growth in our LiveOps
studio, launched a dedicated studio for in-game cinematics and virtual
production, with acquisition of DMM extending entertainment offering
· Executing on our acquisition strategy, delivering four
high-quality acquisitions for a total maximum consideration of ~€130m year
to date
· RCF increased to $400m, with maturity extended to 2027, providing
long-term liquidity and flexibility to pursue M&A opportunities in the
pipeline
· Positive recognition of ESG practices, with rating increased to
AA at MSCI
Current trading and outlook
· Continue to grow faster than the market, with organic growth
supplemented by acquisitions
· Monitoring US entertainment strikes, which have begun to impact
performance in early H2, with potential to impact organic growth by around
2-2.5% for the full year
· Expecting full year underlying organic growth (excluding the
strike impact) to be broadly similar to the first half, with H2 growth
weighted to the fourth quarter; mindful of continuing currency volatility
· Adjusted operating margins expected to remain above 15% for the
full year, with cost control measures largely mitigating the impact of the
strikes
· Remain confident in the long-term growth trajectory of the
business
Bertrand Bodson, Chief Executive Officer of Keywords Studios, commented:
"Keywords delivered good H1 growth despite the current industry backdrop,
benefitting from our focus on strategic partnerships and our unique provision
of solutions across the full game development cycle. We have continued to
broaden our offering through high-quality targeted acquisitions and are
excited about the pipeline ahead. We are on track to deliver underlying
organic growth (excluding the unfortunate impact of the US entertainment
strikes) and operating margins in line with our guidance for the year.
We are uniquely placed to capture the opportunities that technology
advancement creates over time as it constantly increases the bounds of
possibility, leading to a proliferation of ever improving content as our
clients seek to engage the three billion gamers globally. We are excited about
the opportunities that lie ahead and are building for the future whilst we
continue to grow market share and deliver against our plans for 2023 and
beyond."
Presentation and Webcast
A presentation of the full results will be made to analysts and investors at
9.00am this morning and the live webcast can be accessed via this link:
https://brrmedia.news/KWS_HY23 (https://brrmedia.news/KWS_HY23)
To register for dial in access, or for any enquiries, please contact MHP Group
on keywords@mhpgroup.com (mailto:keywords@mhpgroup.com) .
For further information, please contact:
Investor Contacts: Media Contacts:
Keywords Studios MHP Group
Giles Blackham Katie Hunt / Eleni Menikou / Charles Hirst
Director of Investor Relations +44 20 3128 8794
+44 7714 134 681 keywords@mhpgroup.com (mailto:keywords@mhpgroup.com)
gblackham@keywordsstudios.com (mailto:gblackham@keywordsstudios.com)
Numis Securities
Nominated Adviser & Broker
Stuart Skinner / Will Baunton
+44 20 7260 1000
About Keywords Studios (www.keywordsstudios.com
(http://www.keywordsstudios.com/) )
Keywords Studios is an international provider of creative and
technology-enabled solutions to the global video games and entertainment
industries. Established in 1998, and now with over 70 facilities in 26
countries strategically located in Asia, Australia, the Americas, and Europe,
it provides services across the entire content development life cycle through
its Create, Globalize and Engage service lines to a large blue-chip client
base across the globe.
Keywords Studios has a strong market position, providing services to 24 of the
top 25 most prominent games companies. Across the games and entertainment
industry, clients include Activision Blizzard, Bandai Namco, Bethesda,
Electronic Arts, Epic Games, Konami, Microsoft, Netflix, Riot Games, Square
Enix, Supercell, TakeTwo, Tencent and Ubisoft. Recent titles worked on include
Starfield, Diablo IV, Hogwarts Legacy, Elden Ring, Fortnite, Valorant, League
of Legends, Clash Royale and Doom Eternal. Keywords Studios is listed on AIM,
the London Stock Exchange regulated market (KWS.L).
The Group reports a number of alternative performance measures (APMs) to
present the financial performance of the business which are not GAAP measures
as defined by International Financial Reporting Standards (IFRS). The
Directors believe these measures provide valuable additional information for
the users of the financial information to understand the underlying trading
performance of the business. In particular, adjusted profit measures are used
to provide the users of the financial statements a clear understanding of the
underlying profitability of the business over time. For full definitions and
explanations of these measures and a reconciliation to the most directly
referenceable IFRS line item, please refer to the APMs section at end of the
statement.
(1) Organic revenue at constant exchange rates is calculated by adjusting the
prior year revenues, adding pre-acquisition revenues for the corresponding
period of ownership, and applying the 2022 foreign exchange rates to both
years, when translating studio results into the euro reporting currency.
(2) EBITDA comprises Operating profit as reported in the Consolidated statement of
comprehensive income, adjusted for amortisation of intangible assets,
depreciation and impairment, and deducting bank charges. Adjusted EBITDA
comprises EBITDA, adjusted for share-based payments expense, costs of
acquisition and integration and non-controlling interest. In order to present
the measure consistently year-on-year, the impact of other income is also
excluded.
(3) Adjusted operating profit consists of the Operating profit as reported in the
Consolidated statement of comprehensive income, adjusted for share-based
payments expense, costs of acquisition and integration, and amortisation of
intangible assets. In order to present the measure consistently year-on-year,
the impact of other income is also excluded.
(4) The Adjusted earnings per share comprises the Adjusted profit after tax
divided by the non-diluted weighted average number of shares as reported. The
Adjusted profit after tax comprises the Adjusted profit before tax, less the
Taxation expense as reported in the Consolidated statement of comprehensive
income, adjusted for the tax impact of the adjusting items in arriving at
Adjusted profit before tax.
(5) The Adjusted cash conversion rate is the Adjusted free cash flow as a
percentage of the Adjusted profit before tax.
(6) Adjusted free cash flow is a measure of cash flow adjusting for capital
expenditure that is supporting growth in future periods (as measured by
capital expenditure in excess of maintenance capital expenditure).
CEO Statement
Performance
The business performed well over the first half of the year delivering
revenues of €383.5m, representing growth of 19.4%. Organic revenue growth of
10.4% was in line with guidance and reflected the current market backdrop,
with the industry in a reset year, having experienced exceptional growth over
the past few years. We have continued to grow market share in the first half,
with our overall growth being faster than the expected mid-single digit growth
in the external service provision market this year (Source: IDG Consulting).
Operating margins, as expected, were in line with the second half of 2022 at
15.4%, which meant that the business delivered adjusted operating profit of
€58.9m (operating profit was €29.3m). This was 5% higher than H1 2022,
despite the higher margin experienced in the comparative period, as we
continued to invest in the business and pre-COVID-19 costs fully returned.
Last year we consolidated our business in a simplified structure of three
service lines. The performance of each segment, which will be discussed in
more detail later in this report, reflected the varied conditions in the
market. We saw strong demand in Create, and more moderate demand in our
Globalize and Engage service lines, but we remain confident in the long-term
opportunity across all of our service offerings.
We continued to invest in growing the platform through M&A, supported by
our strong balance sheet and recently expanded revolving credit facility. In
H1 we spent approximately €92m on four high-quality acquisitions (net of
cash acquired), representing the total of the cash component of both the
current and previous years' transactions. As a result we moved from a net cash
position of €82m at December 2022 to a net debt position of €11m. Cash
generation is generally H2 weighted, and due to our investment in the
business, and timing of working capital, we delivered H1 adjusted free cash
flow of €18.5m. We remain on track to deliver full year adjusted cash
conversion of ~80%.
Market opportunity
After a number of extremely strong years of growth, 2023 is proving to be a
year where the video gaming industry pauses for breath. Whilst major titles
such as Hogwarts Legacy, Diablo IV and Baldur's Gate 3, have delivered record
performance (Keywords worked on all three), and overall player numbers
continue to rise, the broader industry is currently seeing publishers reducing
the number of game launches and focusing on core IPs. They have also looked to
de-risk their return on investment, which has led to smaller scopes for some
titles and delays or cancellations of others.
Beyond 2023, we are increasingly optimistic about the market back-drop. The
mobile market, which has been through a difficult period, appears to be close
to returning to growth after 6 consecutive quarters of declines. Hardware
challenges have also eased, with the PS5 now readily available. Industry
forecasts point to continuing long-term growth in the video-gaming space, with
growth in the external service provision market still expected to outstrip
overall industry growth.
As the key player in this market, at more than 3x the size of the next largest
competitor, yet with just a 6% share, we believe we are incredibly well placed
to grow our market share into the significant white space in the industry. To
do so, we are driving strategic partnerships with the key market players, and
investing in leading technology solutions to better serve our customers and
enhance our economic and technology moat against competitors.
Delivering against strategy
Against that market backdrop, we have a very clear strategy from which to
scale our industry leading platform, by Imagining More across our strategic
pillars: strategic partnerships, technology, One Keywords, talent development
and adjacent markets. The ultimate goal is to become a true partner to our
clients and to create a platform providing holistic solutions to enable them
to make the best games and entertainment.
We are making good progress against all aspects of the strategy. We have
continued to get closer to our largest clients as we seek to evolve our
relationships to more strategic partnerships. This is giving us the
opportunity to support our clients on larger, long-term projects and we have
recently completed several substantial long-term agreements to provide
functional testing and game development services. This is a continuous
process, but is increasingly important and will differentiate us in the
market, as we look to help our clients to navigate the evolving technological
landscape and create bigger and better games. We have increased our focus on
technology, scaling our AI product portfolio, whilst driving automation across
service lines and launched our "Accelerating Accessibility" initiative out of
our innovation team, harnessing the work of five studios.
We launched and embedded our new Leadership Principles across the
organisation, a critical element of our One Keywords initiative and during the
period Sperasoft completed its transition into four new operating hubs in
Eastern Europe, with production in Russia ceasing. This has been a major One
Keywords undertaking, with a multi-disciplinary team from across the
organisation working together to make this a success. We are now excited to
see Sperasoft 2.0 ready to move back into a growth phase from its four new
hubs.
We continued to broaden our talent acquisition and development programmes, as
well as continuing to enhance our employee engagement. In addition, we have
continued to bring senior talent into the organisation, with Rob Kingston
joining the Group as CFO in July, with Jon Hauck moving across to the COO role
to support the long-term growth of the business. In August, we hired Stephen
Peacock as Head of Gaming AI, to spearhead our AI Centre of Excellence and
expect further hires to follow in due course.
Our progress in adjacent markets has also been very encouraging, with Lively,
our dedicated LiveOps studio, experiencing strong growth and demand from a
wide variety of clients, and at the end of the period we launched Big Farmer,
a dedicated studio focused on in-game cinematics and virtual production to
capitalise on the broader opportunities that our mastery of game engines will
provide. We have also extended our media and entertainment offering in the US,
through the acquisition of Digital Media Management, who work with some of the
world's biggest franchises, including the recent Barbie movie, to enhance
their reach online and in social media. With the convergence of gaming and
film and television, we see meaningful opportunities ahead for us.
Focus on Technology
Technology and innovation is a key part of our strategy and a big opportunity
for future growth. We have had a focus on responsibly harnessing AI and other
technologies for a number of years and it is part and parcel of what our 4,000
dedicated engineers and technical experts in Create do every day. The teams
have a strong track record of unlocking and deploying multiple generations of
new technologies and supporting the industry's "race to the top" to create the
most immersive experience for players.
Through a combination of M&A and internal development, the business has
also been building a portfolio of AI-led product families that meet critical
post-production client needs whilst complementing our existing service
offerings. These offerings, which span across the key Globalize and Engage
offerings, such as functional testing, localization, localization testing and
player support, are designed so that we can do more, faster, whilst enhancing
the quality of service for clients.
There are a number of workstreams underway across each of these domains. In
Localization, at the beginning of the year, we formed our Localization
Research Labs team to accelerate this work. This team has a broad mandate of
ensuring that we are developing and delivering leading production offerings to
clients, whilst pursuing internal automation opportunities within text and
audio localization and localization QA. The team now has over 60 product
engineers and in the last 6 months has developed and enhanced a range of
AI-led tools that will be marketed under the "Kantan" brand. KantanStream, a
text localization workflow automation tool, currently in use to complete over
3,000 projects a week, is gaining traction with AAA clients and continues to
be developed to support their differing needs. The move to this innovative way
of working will continue in H2 and beyond. KantanAudiomate, which manages and
stores audio digital assets, whilst automating and enhancing audio workflows,
is currently being piloted by a further AAA client, and in H2 will integrate
an innovative internally developed AI-tool that has the potential to reduce
QA/QC requirements on audio files significantly.
We have also made great strides in developing the Mighty Build and Test
platform ("Mighty") in the 12 months we have owned the business. A small
Australian based business, Mighty has a 10 year track record in the automated
testing and development of mobile games space. On acquisition, they had four
developers in Australia, operating solely on the Unity game engine, with a
number of small mobile clients. In the past 12 months, we have grown the team
to 40 people across 5 countries, developed the platform to be able to work on
Unreal Engine as well as any custom engine, and started to take on larger AAA
mandates. Clients are increasingly seeing the benefits that automated testing,
earlier in the development cycle can bring to the quality of the game, whilst
still utilising human testers to test other elements of games.
We are increasingly seeing our solutions becoming interconnected. An example
of this is one of Mighty's automated testing solutions, the Proofbot, which
provides a localization testing solution, now being integrated with XLOC, our
proprietary localization content management system. Together they provide a
visual overview of all of the localized content in a game, and enhance the
testing of that content. A further example is of the integration of KantanMT
with the Helpshift platform in player engagement, enabling more languages to
be supported through the platform, and for mono-lingual customer support
agents to be able to support multiple languages. This holistic solution
enabled us to reduce our cost to serve a major mobile client by increasing
efficiency, whilst maintaining excellent customer satisfaction scores. Our
scale and ability to invest means that we have a leading position from which
to create joined up solutions like this.
As we move forward we will continue to build out an industry leading
technology platform to enable us to take on more work and better serve our
clients. This will be both under the existing product umbrellas of Kantan,
Mighty and Helpshift, and by looking for new ways to support our customers,
whether by owning, partnering or licensing the technology and tools that are
best suited to the tasks that our clients need us for. In order to do this as
effectively as possible, we are creating an AI Centre of Excellence, that will
sit within our innovation team, led by Jamie Campbell. This team will draw on
both internal and external expertise to assess and develop AI tools across the
game development landscape, providing a conduit for knowledge sharing across
the organisation and supporting customers in building their AI strategies. To
support this initiative, we are delighted to have made the key hire of Stephen
Peacock as Head of Gaming AI, previously at Amazon as Head of ML/AI of AWS
Gaming, who brings unparalleled knowledge across the gaming value chain from
an integral player in the industry.
M&A
Complementing our strategy, we continue to add significant value by
consolidating a fragmented market in our four M&A focus areas: game
development, marketing, technology and adjacent markets. During the first
half, the Group completed four high-quality acquisitions, for total maximum
consideration, including performance related contingent deferred
consideration, of ~€130m.
In line with our focus areas, two acquisitions broadened our Engage offering
in the US, the largest global market for gaming, 47 Communications and Digital
Media Management (DMM), with both enhancing our media and entertainment
offering, and DMM bringing market leading social media capabilities and an
innovative Creator-focused technology platform. In game development we
acquired Hardsuit Labs, a 70-person studio focused on AAA games and
specialising in the Unreal engine. In addition, we expanded our Climax game
development studio through the acquisition of Playboss Interactive in the UK,
providing Climax with a second location to grow from.
Responsible Business
Our responsible business agenda is centred around five key areas; our people,
planet, community and our clients, underpinned by our commitment to good
governance and ethics. We have made solid progress against our main
priorities in the first half, with a range of initiatives designed to enhance
culture, employee engagement and diversity and inclusion. These included our
third Women's Summit held in Asia, growth of the ambassador programme with
Women in Games, and a range of Keywords diversity and inclusion trainings.
Aligned to this, we continued to roll-out our Leadership Principles, which are
designed to support the One Keywords culture across the group and stepped up
employee engagement ranging from group wide townhalls to small bespoke
sessions with the CEO. In May, we celebrated 25 years of Keywords by planting
25,000 trees across the world and have continued to win a range of Best
Company to work for awards in a number of locations. Our progress against our
priorities has been increasingly recognised by third party rating agencies,
with MSCI now rating the business AA, the joint highest rating in our
category.
US Entertainment Strikes
In the US, there are currently a number of entertainment union strikes, that
have begun to have an impact on our performance in certain parts of the
business. These strikes started as a SAG-AFTRA writers' strike in May, which
had limited direct impact on our business. In July, the strikes expanded to
include SAG-AFTRA actors, and stopped work which was already underway. This
has a more direct impact on our media and entertainment focused audio
businesses and our US marketing studios, who due to the increasing cross-over
between video gaming and TV/film work with a range of entertainment houses. A
third segment of the entertainment industry, the SAG-AFTRA Interactive Media
performers, focused on video games, are currently balloting for strike action.
If successful, strike action could commence at the end of September, although
would have limited direct impact for this year as the majority of our audio
localization work is done outside of Hollywood. At this stage it is not clear
when the strikes will be resolved, but for planning purposes, we assume that
they will lead to disruption until the end of the year.
Outlook
Despite the current challenging industry backdrop and macroeconomic
conditions, the Group is trading robustly and growing faster than the market,
reflecting our position as a diversified enabler of the industry, providing
services and solutions across the content generation cycle rather than being
exposed to the IP of individual games.
Over the medium-term we remain uniquely placed to capture the opportunities in
our markets, due to our scale and provision of diversified solutions for the
major developers and publishers of the highest quality franchises. We are
gaining traction with cementing strategic partnerships with our clients,
harnessing and broadening our AI-led product suite, and expanding our
activities in adjacent markets. We have also extended our offering through
high-quality targeted acquisitions and continue to have a busy pipeline, with
our recently expanded RCF providing enhanced flexibility to execute our
M&A strategy.
We are excited about the opportunities ahead, as new technologies lead to a
proliferation of ever improving content as our clients seek to engage the
three billion gamers globally. We expect to continue to grow our market share
whilst investing to harness the symbiosis of cutting-edge technology and human
creativity to lead the content creation industries in the future and create
significant value for shareholders."
Bertrand Bodson
Chief Executive Officer
Service Line Review
Create
Create combines Art Services and Game Development to deliver a range of
services to clients and partners globally. It represents over 4,000 people
across 4 continents.
H1 2023 H1 2022* Change
Revenue €m 162.9 124.3 31.1%
Organic Revenue growth % 22.1% 23.3% (1.2%)
Adjusted EBITDA €m 41.7 32.4 28.7%
Adjusted EBITDA margin % 25.6% 26.1% (0.5%)
*H1 2022 restated to reflect updated FY 2022 allocation of costs, please see
note 4 for more information
H1 2023 Performance
Create performed strongly during the first half, with total revenues up by
31.1% to €162.9m (H1 2022: €124.3m) and Organic Revenue, which excludes
the impact of acquisitions, growing by 22.1%, as we continued to see strong
demand for our high-end services.
The performance was driven by growth in a number of regions, with the UK and
Australia seeing excellent growth, as increased headcount enabled our studios
to take on more work. In Australia, we have seen the business grow from zero
to over 200 game developers in recent years through both acquisitions and
organic growth. Our Art studios also performed strongly across the period, as
the high-end art that we provide across both our concept art and asset
production businesses remained in demand.
Whilst there have been industry lay-offs over the past six months,
high-quality talent continues to be a scarce resource. Our recently formed
talent acquisition team, in tandem with studio-led efforts, and our academy
initiatives, have driven the continued expansion of our team across our
various geographies, enabling us to better support clients and our future
growth.
During the period Sperasoft completed its transition into four new operating
hubs in Eastern Europe. This was a major undertaking, and we are delighted
that we were able to complete this with limited disruption to our clients. The
business is now well positioned for future growth, and we are taking advantage
of the access to high quality talent in the new regions and began to take on
new work during the half.
Adjusted EBITDA in Create grew 28.7% to €41.7m in H1 2023 (H1 2022:
€32.4m), with the Adjusted EBITDA margin of 25.6% in H1 2023 slightly lower
than the previous period (H1 2022: 26.1%) due to the increased footprint
outside of Russia, partially offset by the increased weighting of game
development in the service line following the acquisitions in 2022.
We welcomed two new Game Development studios this year, Hardsuit Labs, in
Seattle, and Playboss Interactive in Liverpool. Hardsuit has deep expertise in
Unreal Engine, delivering full-stack development services, and multi-SKU,
cross-platform execution to AAA clients such as Activision and Epic and is our
first game development studio in Seattle. Playboss is a small UK studio that
has worked closely with Climax, one of our largest UK studios, for a number of
years. The acquisition allows Climax to expand to a second UK location in a
vibrant, city centre game development hub and to continue its growth
trajectory.
Outlook
Our Create service line remains extremely well positioned to capitalise on the
strong demand for its high-end services. The industry continues to be capacity
constrained and our geographic spread and ability to grow capacity means we
are able to serve our clients as they look for support on more and more
complex projects.
We believe Generative AI will be used as another tool to enable the production
of more and higher quality content over time, although copyright and quality
concerns are currently a barrier to adoption for AAA publishers. The scale and
depth of our engineering and technical expertise in Create means we are
uniquely well placed to harness this when clients are ready. Together with
other technology advancements these tools will be able to augment the
creativity of our clients and teams, and enable the delivery of ever more
content.
Globalize
Globalize brings together our Audio, Testing and Localization businesses to
create a global business with around 5,500 people across 5 continents.
H1 2023 H1 2022* Change
Revenue €m 145.7 141.5 3.0%
Organic Revenue growth % 4.7% 25.7% (21.0%)
Adjusted EBITDA €m 27.7 29.6 (6.4%)
Adjusted EBITDA margin % 19.0% 20.9% (1.9%)
*H1 2022 restated to reflect updated FY 2022 allocation of costs, please see
note 4 for more information
H1 2023 Performance
Globalize performed robustly in H1 2023 with total revenues up by 3.0% to
€145.7m (H1 22: €141.5m). Organic Revenue, which excludes the impact of
acquisitions, grew by 4.7%, outperforming the market, which is forecast to
decline this year (Source: IDG).
The current industry backdrop, where there have been a number of project
cancellations and delays, has impacted the performance of Globalize as the
service line works across a large number of clients and titles given its
strong position in the market. Functional testing continued to deliver robust
results, with growth in lower cost locations such as Poland and with our
operations in Mexico beginning to scale up. Localization and Localization QA
had a tougher period, with clients looking to reduce costs by only focusing on
key languages where the best returns could be generated. Audio delivered a
solid performance given the current game release cycle, but this compared
negatively to an exceptional H1 2022 performance. We saw limited impact in the
first half from the entertainment industry strikes in the US, but they have
begun to impact our H2 performance in our media and entertainment audio
business.
We continue to build for the future and during the period have expanded our
technology offering within Globalize. Mighty Games' "Build and Test" solutions
can operate across both FQA and LQA and we are seeing positive traction with
clients looking to pilot the technology in order to automate certain elements
of the testing process. We have also made excellent progress through our
Localization Research Labs initiative, to build on the initial success of
KantanStream's automated localization solution with a large industry player.
We are in the process of transitioning a number of existing text localization
clients to KantanStream, which will enable us to offer a more streamlined
service, with faster turnaround times, and take on more work, as well as
building out other audio localization solutions under the Kantan brand that
are already being utilized by large clients.
Adjusted EBITDA of €27.7m was 6.4% lower than H1 2022 (€29.6m), with
Adjusted EBITDA margins of 19.0% slightly lower than H1 2022 (20.9%). Margins
were expected to normalise following exceptional demand in 2022, and were
impacted by the lower utilization of resources compared to the prior year, as
we maintained our capacity to be ready to take advantage of future
improvements in market conditions, and with pricing currently more of a focus
for clients.
Outlook
Globalize's position within the industry means that it is well placed to
benefit when the content cycle turns, and as publishers increasingly move from
fixed to variable costs for their testing operations. We continue to look to
optimise costs and collaborate across the service lines to offer the best
service to customers. As we continue to build out our technology offering to
augment the service we offer, we are increasingly differentiated in the
market.
Engage
Our Engage service line brings together our Marketing Services and Player
Engagement businesses to create a holistic offering focused on player
engagement, encompassing around 2,500 people across 3 continents.
H1 2023 H1 2022* Change
Revenue €m 74.9 55.3 35.4%
Organic Revenue growth % - 9.8% (9.8%)
Adjusted EBITDA €m 7.9 8.1 (2.5%)
Adjusted EBITDA margin % 10.5% 14.6% (4.1%)
*H1 2022 restated to reflect updated FY 2022 allocation of costs, please see
note 4 for more information
H1 2023 Performance
Engage saw good overall growth during the year, with revenues up by 35.4% to
€74.9m (H1 22: €55.3m) driven by a number of acquisitions as we built out
the capabilities of the service line. Organic Revenue, which excludes the
impact of acquisitions, was flat year on year.
Player Engagement is primarily focused on supporting player communities of
mobile titles and saw a contraction in demand as the broader mobile market
continued to experience a reduction in player spend. This meant that certain
clients reduced the scale of the teams working on their games to reflect the
reduced activity. New business wins through the year mitigated a portion of
the reduced demand, and we have continued to see positive traction for our
Helpshift solution, which we acquired in late 2022. Helpshift, uses
intelligent bots integrated in mobile apps and consoles to automate ~30% of
support tickets in real-time, while giving a highly personalised experience
and together with our player engagement teams, and our KantanMT solution,
provides a unique holistic offering for clients.
In Marketing we experienced a tougher period, as the macro-economic
environment meant that publishers looked to reduce activity, and we saw a
number of late notice delays of projects from the first half into the second
half. During the period, we saw increased collaboration across the studios
following the creation of a London marketing hub, where we brought all of our
studios into one office, and are following the same model in Los Angeles where
we now have three major studios offering differentiated services.
We were delighted to bring two high quality studios into the service line
during the period, with Digital Media Management and 47 Communications greatly
enhancing our social media and PR offering respectively. During the period we
also enhanced our client service offering, by expanding the team, and are
looking to provide a more holistic offering to our clients, taking advantage
of the breath of our capabilities following our recent acquisitions.
Adjusted EBITDA of €7.9m was 2.5% lower than H1 2022 (€8.1m), with the
Adjusted EBITDA margin of 10.5% behind the prior year period (H1 2022: 14.6%).
Margins were impacted as the business has relatively fixed costs and was
scaled for growth, but experienced lower utilisation rates as projects were
delayed. We have implemented cost control measures in certain studios and are
exploring broader cost saving initiatives across the service line, whilst
retaining our capacity to support growth in future periods.
Outlook
We continue to scale the Engage service line, by building out the full-service
capabilities of the marketing offering and by creating a holistic
technology-enabled player engagement offering through the addition of
Helpshift's automated solutions. Marketing experienced a number of project
delays into H2 and has a strong pipeline of work for the period, although is
being impacted by the ongoing entertainment strikes through its US studios,
and the mobile market, which drives Player Engagement demand, appears to be
improving following a period of contraction.
Financial and operating overview
Revenue
Revenue for H1 2023 increased by 19.4% to €383.5m (H1 2022: €321.1m). This
performance included the impact of acquisitions in 2022 and H1 2023 and a ~2%
headwind from the impact of currency movements, when translating studio
results from local currency into the euro reporting currency.
Organic Revenue growth (which adjusts for the impact of acquisitions) was
10.4%. This was driven by continuing strong performance in Create, offset by
more muted performance in Globalize and Engage. 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 2023 was €145.2m (H1 2022: €124.5m) representing an
increase of 16.6%. The gross margin of 37.9% was slightly below H1 2022
(38.8%) due to lower than planned utilisation rates in the short-term in
Globalize and Engage.
Operating costs
Adjusted operating costs increased by 24.8% to €67.9m (H1 22: €54.4m),
reflecting the larger Group, but at 17.7% of revenue were in line with H2
2022, although slightly higher than H1 2022 (16.9%). This was due to
continuing investment in the business, the larger office footprint post
COVID-19, and the return to normal of travel and business development costs.
EBITDA
EBITDA of €60.5m was in line with H1 2022 (€61.0m). Adjusted EBITDA
increased 10.3% to €77.3m compared with €70.1m for H1 2022. The Adjusted
EBITDA margin in H1 2023 of 20.1% was slightly lower than H1 2022 (21.8%), as
expected, reflecting the lower gross margin.
Net finance costs
Net finance costs of €6.1m compared to H1 2022 of €0.4m. The increase was
primarily driven by a €3.7m negative swing in foreign exchange movements,
and €1.6m increase in interest costs relating to the drawdown on the RCF.
Alternative performance measures (APMs)
The Group reports a number of APMs to present the financial performance of the
business which are not GAAP measures as defined by IFRS. The Directors believe
these measures provide valuable additional information for the users of the
financial information to understand the underlying trading performance of the
business. In particular, adjusted profit measures are used to provide the
users of the financial statements a clear understanding of the underlying
profitability of the business over time. A breakdown of the adjusting factors
is provided in the table below:
H1 2023 H1 2022
€m
€m
Share-based payments expense 9.4 8.9
Costs of acquisition and integration 7.3 1.3
Amortisation of intangible assets 12.8 7.5
Foreign exchange and other items 3.1 (2.0)
Total 32.6 15.7
A total 1.21m options were granted under incentive plans in H1 2023. This,
together with grants from previous years, has resulted in a non-cash
share-based payments expense of €9.4m in H1 23 (H1 2022: €8.9m).
One-off costs associated with the acquisition and integration of businesses
amounted to €7.3m (H1 2022: €1.3m), mainly due to an increase in deferred
consideration related to continuing employment of €4.2m, and re-structuring
costs associated with exiting Russia of €1.3m. Amortisation of intangible
assets increased by €5.3m to €12.8m (H1 2022: €7.5m).
Foreign exchange and other items amounted to a net loss of €3.1m (H1 2022:
gain of €2.0m). This includes €1.8m for the unwinding of discounted
liabilities on deferred consideration (H1 2022: €1.5m) and a net foreign
exchange loss of €1.3m (H1 2022: gain of €2.4m). Keywords does not hedge
foreign currency exposures in relation to net current assets. While more
material movements in foreign exchange can be impactful on revenues and
expenses, the net impact on the Group's results of movements in exchange rates
and the foreign exchange gains and losses incurred during the year mainly
relate to the effect of translating net current assets held in
foreign currencies.
A more detailed explanation of the measures used together with a
reconciliation to the corresponding GAAP measures is provided in the APMs
section at the end of the report.
Operating Profit
Operating profit of €29.3m in H1 2023, was 25.8% lower than H1 2022
(€39.5m). Adjusted operating profit, which adjusts for the items described
in the APMs section above increased to €58.9m, 5.2% ahead of H1 2022
(€56.0m). Adjusted operating profit margin of 15.4% was in line with
guidance, and largely in line with the margins achieved in H2 2022, as we
continue to invest into the business, albeit behind H1 2022 (17.5%).
Profit before taxation
Profit before tax of €23.2m in H1 2023 was 40.7% lower than H1 2022
(€39.1m). Adjusted profit before tax, which adjusts for the items described
in the APMs section above increased to €55.8m, slightly ahead of H1 2022
(€54.8m). This reflects a reduction in the Adjusted profit before tax margin
to 14.6% from H1 2022 of 17.1% due to lower Adjusted Operating margins and
increased interest payments linked to acquisition activity.
Taxation
The tax charge reduced to €8.7m from €10.9m in H1 2022, largely reflecting
the reduction in the Profit before tax of the business. After adjusting for
the items noted in the APMs section above and the tax impact arising on these
items, the Adjusted effective tax rate for H1 2023 was 21.7%, slightly below
the rate of 22.0% in H1 2022.
Earnings per share
Basic earnings per share of 18.48c was lower than H1 2022 (36.80c), primarily
reflecting the reduction in the statutory Profit after tax. Adjusted earnings
per share, which adjusts for the items noted in the APMs section above and the
tax impact arising on these items was 55.60c (H1 2022: 55.89c), flat
year-on-year, with both Adjusted profit before tax and the basic weighted
average number of shares largely in line with the previous year.
Cash flow and net debt
H1 23 H1 22 Change
€m
€m
€m
Adjusted EBITDA 77.3 70.1 7.2
MMTC and VGTR (16.6) (10.4) (6.2)
Working capital and other items (20.9) (12.7) (8.2)
Capex - property, plant and equipment (PPE) (18.8) (10.0) (8.8)
Capex - intangible assets (1.3) (0.2) (1.1)
Payments of principal on lease liabilities (6.8) (5.5) (1.3)
Operating cash flows 12.9 31.3 (18.4)
Net interest paid (2.2) (0.8) (1.4)
Free cash flow before tax 10.7 30.5 (19.8)
Tax (7.9) (6.2) (1.7)
Free cash flow 2.8 24.3 (21.5)
M&A - acquisition spend (88.9) (13.6) (75.3)
M&A - acquisition and integration costs (3.0) (1.3) (1.7)
Funding EBT Purchases (4.7) - (4.7)
Other income and other items - 1.1 (1.1)
Dividends paid (1.5) (1.3) (0.2)
Shares issued for cash 1.4 2.4 (1.0)
Underlying increase / (decrease) in net cash / (debt) (93.9) 11.6 (105.5)
FX and other items 0.7 4.1 (3.4)
Increase in net cash / (debt) (93.2) 15.7 (108.9)
Opening net cash / (debt) 81.8 105.6
Closing net cash / (debt) (11.4) 121.3
The Group generated Adjusted EBITDA of €77.3m in H1 2023, an increase of
€7.2m from €70.1m in H1 2022. There was a €6.2m increase in respect of
the amounts due for Multi-Media Tax Credits (MMTCs) and Video Game Tax Credits
(VGTRs), higher than H1 2022 (€10.4m), as we saw delays to the receipt of
historic VGTRs that had been expected in H1 2023 and were subsequently
received in Q3 2023. In general, MMTCs and VGTRs are subsidies that are
recognised as work is performed but are typically paid in the second half of
the following year. Other working capital saw an outflow of €20.9m, an
€8.2m change from H1 2022, mainly due to an increase in trade receivables
and accrued income.
Investment in property, plant and equipment increased by €8.8m to €18.8m
(H1 2022: €10.0m) as we continued to invest in the footprint of the
business, the new sites required to exit Russia, and took advantage of
favourable pricing to purchase longer-term software licences. In addition, we
incurred €1.3m of capitalised research and development costs as we developed
our technology platform. Property lease payments of principal of €6.8m were
€1.3m higher than the prior period (H2 2022: €5.5m) mainly related to
acquisitions in the period.
Operating cash flows of €12.9m were behind H1 2022 (€31.3m), primarily due
to the change in working capital and the increased capex during the period.
There was a €1.7m increase in cash tax paid to €7.9m (H1 2022: €6.2m) as
payment schedules return to a more normal pattern. Net interest payments,
which largely relate to interest from drawdowns on the Revolving Credit
Facility (RCF), were €2.2m compared to €0.8m in H1 2022.
This resulted in Free cash flow of €2.8m, €21.5m behind H1 22 (€24.3m).
Adjusted free cash flow, which adjusts for capital expenditure that is
supporting growth in future periods was €18.5m in H1 2023, behind H1 2022
(€31.7m). The Adjusted cash conversion rate of 33.2% was below H1 2022
(57.9%), but would have been approximately 49% without a delay in receipts of
expected VGTR in the UK, which have now largely been received in Q3.
Cash spent on acquisitions totalled €91.9m, of which €12.7m was in respect
of the cash component of prior year acquisitions and €3.0m was in relation
to acquisition and integration costs. This was €77.0m higher than the spend
in H1 2022 due to the timing of acquisitions.
This resulted in a reduction in net cash of €93.2m in H1 23, leading to
closing net debt of €11.4m (Dec 2022: net cash €81.8m).
Balance sheet and liquidity
The Group funds itself primarily through cash generation and a syndicated RCF.
In July 2023, the Group put in place a new RCF of $400m that matures in July
2027, replacing the previous €150m facility. The new RCF includes an
accordion option to increase the facility up to $500m and an option to extend
the term by a further one-year period (both subject to lender consent). The
majority of Group borrowings are subject to two financial covenants that are
calculated in accordance with the facility agreement:
Leverage: Maximum Total Net Borrowings to Adjusted EBITDA ratio of three
times; and
Interest cover: Minimum Adjusted Operating Profit to Net Finance Costs ratio
of four times.
The Group entered the year with a strong balance sheet and deployed €96.6m
of cash in the period to support its value accretive M&A programme and
share purchases on behalf of the Employee Benefit Trust. As such at the end of
H1 2023, Keywords had net debt (excluding IFRS 16 leases) of €11.4m (31
December 2022: net cash of €81.8m) and undrawn committed facilities of
$340m. The undrawn facilities, together with cash generation leaves us well
placed to continue to execute on our M&A programme.
Capital Allocation
The Board is pleased to declare an interim dividend of 0.85p per share (H1
2022: 0.77p) representing an increase of 10.0% on the 2022 interim dividend.
This is in line with the Board's progressive dividend policy which seeks to
reflect the Group's continued growth in earnings and strong cash generation,
balanced with the need to retain the resources to fund growth opportunities,
particularly M&A, in line with our strategy.
Payments will be made on 27 October 2023 to shareholders on the register on 6
October 2023 and will go ex-dividend on 5 October 2023. The interim dividend
payment will represent a total cost of approximately €0.8m of cash
resources.
Keywords has authorised the Link Market Services Trustees Limited ('Link') to
operate a Dividend Reinvestment Plan (DRIP) for the Group's shareholders for
the interim dividend and going forward, to provide greater flexibility for
shareholders to manage their dividends. Instructions for shareholders on how
to apply for the DRIP will be included in communications regarding the
dividend, and any queries regarding the DRIP should be directed to Link.
The Group also intends to use its Employee Benefit Trust to undertake market
purchases of Company shares in H2 2023, amounting to an aggregate of up to
€10m, bringing the total purchases in the year to €15m, in order to
satisfy future exercises of LTIPs or stock options pursuant to the relevant
share plan.
Guidance for remainder of 2023
We continue to trade robustly across our video gaming focused studios, but
have begun to see an impact in H2 from the unforeseen US entertainment strikes
on our US media and entertainment exposed businesses. We believe these have
the potential to impact organic revenue growth by around 2-2.5% for the full
year depending on how long they persist.
Excluding the impact of the strikes, we expect full year underlying organic
revenue growth to be broadly similar to the first half, with H2 growth
weighted to the fourth quarter as clients remain budget conscious. Adjusted
operating margins are expected to remain above 15% in 2023, as we expect cost
control measures to largely mitigate the impact of the strikes on
profitability.
During 2022, we benefited from the strength of the US dollar and are mindful
that there remains potential volatility in the foreign exchange markets beyond
our control that can impact performance through the year.
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 2022 relative to revenue, reflecting some expansionary capex and
foreign exchange movements, but we still expect a full year Adjusted Cash
Conversion rate of around 80%.
Rob Kingston
Chief Financial Officer
Condensed interim consolidated statement of comprehensive income
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
Note €'000 €'000 €'000
Revenue from contracts with customers 5 383,526 321,140 690,718
Cost of sales (238,344) (196,642) (423,452)
Gross profit 145,182 124,498 267,266
Other income - 1,107 1,098
Share-based payments expense (9,438) (8,940) (18,678)
Costs of acquisition and integration (7,335) (1,284) (8,413)
Amortisation of intangible assets 9 (12,775) (7,469) (16,810)
Total of items excluded from adjusted profit measures (29,548) (17,693) (43,901)
Other administration expenses (86,307) (68,459) (152,653)
Administrative expenses (115,855) (86,152) (196,554)
Operating profit 29,327 39,453 71,810
Financing income 6 154 2,514 1,986
Financing cost 6 (6,292) (2,889) (5,814)
Profit before taxation 23,189 39,078 67,982
Taxation (8,669) (10,937) (20,612)
Profit after taxation 14,520 28,141 47,370
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss
Actuarial gain / (loss) on defined benefit plans (150) - 286
Items that may be reclassified subsequently to profit or loss
Exchange gain / (loss) in net investment in foreign operations (4,215) 11,875 (7,947)
Exchange gain / (loss) on translation of foreign operations 872 7,148 6,144
Non-controlling interest; recycled on disposal of subsidiary - 162 162
Total comprehensive income / (expense) 11,027 47,326 46,015
Profit / (loss) for the period attributable to:
Owners of the parent 14,520 28,186 47,415
Non-controlling interest - (45) (45)
14,520 28,141 47,370
Total comprehensive income / (expense) attributable to:
Owners of the parent 11,027 47,209 46,015
Non-controlling interest - 117 -
11,027 47,326 46,015
Earnings per share € cent € cent € cent
Basic earnings per ordinary share 7 18.48 36.80 61.54
Diluted earnings per ordinary share 7 17.80 35.52 58.86
Condensed interim consolidated statement of financial position
Unaudited Unaudited Audited
At At At
30 Jun 23 30 Jun 22 31 Dec 22
Re-stated Re-stated
(note 19)
(note 19)
Note €'000 €'000 €'000
Non-current assets
Intangible assets 9 574,627 361,510 469,953
Right of use assets 9 44,295 34,014 37,672
Property, plant and equipment 9 53,553 38,319 44,784
Deferred tax assets 30,657 29,886 31,157
Investments 175 175 175
703,307 463,904 583,741
Current assets
Cash and cash equivalents 43,804 121,395 81,886
Trade receivables 10 95,042 88,387 81,563
Other receivables 10 90,253 72,225 61,415
Corporation tax recoverable 5,883 6,361 6,503
234,982 288,368 231,367
Current liabilities
Trade payables 14,798 11,392 15,878
Other payables 13 161,093 122,723 139,355
Loans and borrowings 14 - 64 45
Corporation tax liabilities 24,134 15,473 22,028
Lease liabilities 16 15,426 11,101 12,414
215,451 160,753 189,720
Net current assets / (liabilities) 19,531 127,615 41,647
Non-current liabilities
Other payables 13 19,388 8,007 18,308
Employee defined benefit plans 3,601 3,270 2,861
Loans and borrowings 14 55,215 31 6
Deferred tax liabilities 15,772 25,116 17,017
Lease liabilities 16 34,223 24,766 30,105
128,199 61,190 68,297
Net assets 594,639 530,329 557,091
Equity
Share capital 11 937 912 924
Share capital - to be issued 11 2,788 810 2,467
Share premium 11 54,439 40,984 47,021
Merger reserve 11 302,146 275,021 286,655
Foreign exchange reserve 7,675 31,844 11,018
Shares held in Employee Benefit Trust ("EBT") (974) - -
Share-based payments reserve 71,091 55,970 65,379
Retained earnings 156,537 124,788 143,627
Total equity 594,639 530,329 557,091
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 2022 904 2,185 38,549 273,677 12,821 (1,997) 48,193 97,905 472,237 (117) 472,120
Profit 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:
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 1 (1,375) - 1,344 - - - - (30) - (30)
Contributions by and contributions to the 8 (1,375) 2,435 1,344 - 1,997 7,777 (1,303) 10,883 - 10,883
owners
At 30 June 2022 912 810 40,984 275,021 31,844 - 55,970 124,788 530,329 - 530,329
Profit / (loss) for the period - - - - - - - 19,229 19,229 - 19,229
Other comprehensive income - - - - (20,826) - - 286 (20,540) - (20,540)
Total comprehensive income for the period - - - - (20,826) - - 19,515 (1,311) - (1,311)
Contributions by and contributions to the
owners:
Share-based payments expense - - - - - - 9,691 - 9,691 - 9,691
Share options exercised 7 - 3,909 - - - (329) - 3,587 - 3,587
Employee Share Purchase Plan - - 427 - - - 47 - 474 - 474
Dividends - - - - - - - (676) (676) - (676)
Acquisition related issuance of shares 5 1,657 1,701 11,634 - - - - 14,997 - 14,997
Contributions by and contributions to the 12 1,657 6,037 11,634 - - 9,409 (676) 28,073 - 28,073
owners
At 31 December 2022 924 2,467 47,021 286,655 11,018 - 65,379 143,627 557,091 - 557,091
Profit / (loss) for the period - - - - - - - 14,520 14,520 - 14,520
Other comprehensive income - - - - (3,343) - - (150) (3,493) - (3,493)
Total comprehensive income for the period - - - - (3,343) - - 14,370 11,027 - 11,027
Contributions by and contributions to the
owners:
Share-based payments expense - - - - - - 9,438 - 9,438 - 9,438
Share options exercised 6 - 1,432 - - 4,026 (3,726) - 1,738 - 1,738
Funding of EBT - - - - - (5,000) - - (5,000) - (5,000)
Dividends - - - - - - - (1,460) (1,460) - (1,460)
Acquisition related issuance of shares 7 321 5,986 15,491 - - - - 21,805 - 21,805
(note 11)
Contributions by and contributions to the 13 321 7,418 15,491 - (974) 5,712 (1,460) 26,521 - 26,521
owners
At 30 June 2023 937 2,788 54,439 302,146 7,675 (974) 71,091 156,537 594,639 - 594,639
Condensed interim consolidated statement of cash flows
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
Note €'000 €'000 €'000
Cash flows from operating activities
Profit after taxation 14,520 28,141 47,370
Income and expenses not affecting operating cash flows
Depreciation - property, plant and equipment 9 10,907 8,790 18,365
Depreciation and impairment - right of use assets 9 7,821 5,591 14,585
Amortisation and impairment of intangible assets 9 12,775 7,469 16,810
Taxation 8,669 10,937 20,612
Share-based payments expense 9,438 8,940 18,678
Fair value adjustments to contingent consideration 4,332 - 2,282
Unwinding of discounted liabilities - deferred consideration 6 1,817 1,478 2,922
Unwinding of discounted liabilities - lease liabilities 6 631 465 969
Interest receivable 6 (154) (102) (309)
Fair value adjustments to employee defined benefit plans 740 - 514
Interest expense 6 2,231 629 1,261
Unrealised foreign exchange (gain) / loss (4,443) 2,774 766
54,764 46,971 97,455
Changes in operating assets and liabilities
Decrease / (increase) in trade receivables (9,229) (19,725) (11,771)
Decrease / (increase) in MMTC and VGTR receivable (16,613) (10,384) (3,591)
Decrease / (increase) in other receivables (11,504) (9,935) (6,457)
(Decrease) / increase in accruals, trade and other payables 4,880 11,679 18,785
(32,466) (28,365) (3,034)
Taxation paid (7,913) (6,181) (17,505)
Net cash generated by / (used in) operating activities 28,905 40,566 124,286
Cash flows from investing activities
Current year acquisition of subsidiaries net of cash acquired 17 (76,217) - (87,494)
Settlement of deferred liabilities on acquisitions 13 (12,704) (13,579) (25,800)
Acquisition of property, plant and equipment 9 (18,799) (9,997) (27,007)
Investment in intangible assets 9 (1,325) (178) (501)
Interest received 154 102 309
Net cash generated by / (used in) investing activities (108,891) (23,652) (140,493)
Cash flows from financing activities
Cash proceeds, where EBT shares were utilised for the exercise of share 300 - 505
options
Repayment of loans 14 (32,730) (42) (79)
Drawdown of loans 14 89,379 - -
Payments of principal on lease liabilities 16 (6,822) (5,453) (11,361)
Interest paid on principal of lease liabilities 16 (631) (465) (969)
Dividends paid (1,460) (1,303) (1,979)
Cash advanced to EBT (5,000) - -
Shares issued for cash 11 1,438 2,435 6,785
Interest paid (1,745) (413) (828)
Net cash generated by / (used in) financing activities 42,729 (5,241) (7,926)
Increase / (decrease) in cash and cash equivalents (37,257) 11,673 (24,133)
Exchange gain / (loss) on cash and cash equivalents (825) 4,012 309
Cash and cash equivalents at beginning of the period 81,886 105,710 105,710
Cash and cash equivalents at end of the period 43,804 121,395 81,886
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 2023.
The interim results for the half year ended 30 June 2023 and the half year
ended 30 June 2022 are not audited 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 2022, 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 2023 and the Disclosure Guidance and Transparency
Rules of the UK's Financial Conduct Authority.
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
2022 and are disclosed in the Annual Report for that year.
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 following:
· The strong cash flow performance of the Group through the year;
· The continued demand for the Group's services;
· The historical resilience of the broader video games industry in
times of economic downturn; and
· The ability of the Group to flex its cost base in response to a
reduction in trading activity.
The Directors have also considered the Group's strong liquidity position with
net debt of €11.4m as at 30 June 2023, and committed undrawn facilities of
€94.8m under the €150m Revolving Credit Facility ("RCF") in place at 30
June 2023. As outlined in note 14, a new RCF was put in place in July 2023
with an increased facility of $400m.
The Directors have applied downside sensitivities to the Group's cash flow
projections to assess the Group's resilience to adverse outcomes. This
assessment included a reasonable worst-case scenario in which the Group's
principal risks manifest to a severe but plausible level. Even under the most
severe case, the Group would have sufficient liquidity and remain within its
banking covenants. The Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue to operate and meet
liabilities as they fall due for the foreseeable future, a period considered
to be at least twelve months from the date of these financial statements and
therefore the going concern basis of preparation continues to be appropriate.
The Condensed interim consolidated financial statements made up to 30 June
2023 were approved by the Board of Directors on 11 September 2023.
2 Changes in Significant Accounting Policies
New Standards, Interpretations and Amendments effective 1 January 2023
The following amendments effective for the period beginning 01 January 2023
are expected to be impactful on the Group moving forward:
· Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2): 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): These amendments narrow the scope
of the initial recognition exemption so that it does not apply to transactions
that give rise to equal and offsetting temporary differences e.g. Right of use
assets and Lease liabilities. As a result, deferred tax assets and liabilities
associated with leases are now recognised gross from the beginning of the
earliest comparative period presented. As outlined in note 19, the comparative
periods presented have been re-stated to reflect the impact of adoption on the
carrying value of Right of Use Assets and Lease Liabilities, with any
cumulative effect recognised as an adjustment to retained earnings or other
components of equity.
Other amendments effective for the period beginning 01 January 2023:
· Classification of Liabilities as Current or Non-current -
Amendments to IAS 1; and
· 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.
New standards, interpretations and amendments not yet effective
There are a number of standards, amendments to standards, and interpretations
which have been issued by the IASB that are effective in future accounting
periods that the Group has decided not to adopt early.
The following amendments effective for the period beginning 01 January 2024:
· Lease Liability in a Sale and Leaseback (Amendment to IFRS 16);
and
· IAS 1 Presentation of Financial Statements (Amendment -
Classification of Liabilities as Current or Non-Current, with Covenants).
The Group does not expect these 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
Except as described in note 19, the accounting policies applied in these
interim financial statements are the same as those applied in the Group's most
recent annual financial statements as at and for the year ended 31 December
2022.
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 2022. 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.
5 Segmental Analysis and Revenue from Contracts with Customers
Segmental Analysis
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
€'000 €'000 €'000
Revenue from external customers Re-stated
Create 162,916 124,280 275,570
Globalize 145,701 141,585 300,875
Engage 74,909 55,275 114,273
383,526 321,140 690,718
Segment operating profit
Create ~ 41,687 32,406 69,748
Globalize ~ 27,682 29,630 61,577
Engage 7,881 8,112 15,576
77,250 70,148 146,901
Reconciliation of Segment operating profit
Adjusted EBITDA^ 77,250 70,148 146,901
Share-based payments expense (9,438) (8,940) (18,678)
Costs of acquisition and integration (7,335) (1,284) (8,413)
Non-controlling interest - (45) -
Other income - 1,107 1,098
Amortisation of intangible assets (12,775) (7,469) (16,810)
Depreciation - property plant and equipment (10,907) (8,790) (18,365)
Depreciation and impairment - right of use assets (7,821) (5,591) (14,585)
Bank charges 353 317 662
Operating profit 29,327 39,453 71,810
Financing income 154 2,514 1,986
Financing cost (6,292) (2,889) (5,814)
Profit before taxation 23,189 39,078 67,982
^ The Group reports a number of alternative performance measures ("APMs"),
including Adjusted EBITDA, to present the financial performance of the
business, that are not GAAP measures as defined under IFRS. Segmental results
are reported in a manner consistent with these measures. A reconciliation of
Adjusted EBITDA to the relevant GAAP measure is presented in the APM's section
below.
~ The prior half year comparatives have been updated to reflect the full year
2022 cost allocation methodology, as the Directors' consider this to be more
precise.
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.
Unaudited Unaudited Audited
Geographical analysis of revenues, by production location* Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
€'000 €'000 €'000
Canada 81,130 70,151 155,509
United States 75,942 56,407 120,722
United Kingdom 62,934 57,666 115,017
Poland 19,595 13,917 42,731
Australia 18,531 8,064 22,211
Italy 18,100 17,338 39,195
China 15,017 11,478 26,759
India 13,530 12,290 25,290
Ireland 10,974 6,727 13,449
Japan 9,722 11,181 22,716
Other 58,051 55,921 107,119
383,526 321,140 690,718
*The prior year comparatives have been re-classified to align to the current
year 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 2023 27,528 27,151 283 94
At 30 June 2022 62,442 48,679 12,719 1,044
At 31 December 2022 82,060 77,448 4,612 -
Unaudited Unaudited Audited
Geographical analysis of non-current assets from continuing businesses* Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
€'000 €'000 €'000
United States 365,989 176,906 264,117
United Kingdom 128,315 119,682 121,556
Canada 56,405 28,444 57,652
Australia 49,546 48,132 51,869
Italy 16,246 15,610 16,471
Poland 14,248 4,070 12,561
China 10,567 9,081 9,296
Switzerland 10,025 10,025 10,025
Ireland 8,702 9,994 10,311
France 7,254 7,472 7,150
Other 36,010 34,488 22,733
703,307 463,904 583,741
*The prior year comparatives have been re-classified to align to the current
year ranking.
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. More recently, the rise of
streaming has shifted the video game industry away from a strict seasonal
cycle. In addition, 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 23 30 Jun 22
€'m €'m
Revenue 753 595
Gross profit 288 233
6 Financing Income and Cost
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
€'000 €'000 €'000
Financing income
Interest received 154 102 309
Foreign exchange gain - 2,412 1,677
154 2,514 1,986
Financing cost
Bank charges (353) (317) (662)
Interest expense (2,231) (629) (1,261)
Unwinding of discounted liabilities - lease liabilities (631) (465) (969)
Unwinding of discounted liabilities - deferred consideration (1,817) (1,478) (2,922)
Foreign exchange loss (1,260) - -
(6,292) (2,889) (5,814)
Net financing income / (cost) (6,138) (375) (3,828)
7 Earnings per Share
Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
€ cent € cent € cent
Basic 18.48 36.80 61.54
Diluted 17.80 35.52 58.86
Earnings €'000 €'000 €'000
Profit for the period from continuing operations 14,520 28,141 47,370
Weighted average number of equity shares Number Number Number
Basic (i) 78,558,801 76,478,194 76,979,596
Diluting impact of share options (ii) 2,993,709 2,756,818 3,502,301
Diluted (i) 81,552,510 79,235,012 80,481,897
(i) Includes (weighted average) shares to be issued:
Number Number Number
106,959 34,709 67,802
(ii) Contingently issuable ordinary shares have been excluded where the
conditions governing exercisability have not been satisfied:
Number Number Number
LTIPs 1,233,865 1,720,825 409,728
Share options - 519,000 511,411
1,233,865 2,239,825 921,139
8 Dividends
Dividends recommended In respect of Expected € cent per share Pence STG per share Expected interim dividend €'000 Expected payment date
Interim 2023 0.99 0.85 780 Oct-23
At 30 June 2023, Retained earnings available for distribution (being Retained
earnings plus Share-based payments reserve) in the Company were €84.4m. 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 23 30 Jun 23 30 Jun 23 30 Jun 23 30 Jun 23
€'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 44,784 37,672 396,733 73,220 469,953
Arising on acquisitions 970 6,097 90,678 27,317 117,995
Additions 18,799 8,058 - 1,325 1,325
Depreciation charge (10,907) (7,821) - - -
Amortisation charge - - - (12,775) (12,775)
Exchange rate movement (93) 289 (800) (1,071) (1,871)
Carrying amount at the end of the period 53,553 44,295 486,611 88,016 574,627
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. 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 Unaudited Audited
Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
€'m €'m €'m
Create: Game Development 232 185 218
Art Services 19 20 19
Globalize: Functional Testing 15 15 15
Localization Testing 14 14 14
Audio 33 34 33
Localization 18 19 19
Engage: Marketing 119 39 35
Player Engagement 37 12 44
487 338 397
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 2023 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 23 30 Jun 22 31 Dec 22
€'000 €'000 €'000
Trade receivables derived from contracts with customers 99,012 90,270 85,012
Provision for bad debts (i) (ii) (3,970) (1,883) (3,449)
Financial asset held at amortised cost 95,042 88,387 81,563
Accrued income from contracts with customers - gross 20,593 15,886 16,652
Accrued income from contracts with customers - loss allowance (1,819) - (3,432)
Financial asset held at amortised cost (iii) 18,774 15,886 13,220
Multimedia tax credits / video games tax relief 43,051 34,452 25,756
Prepayments and rent deposits 14,085 10,414 10,527
Tax and social security 8,811 6,729 6,538
Other receivables 5,532 4,744 5,374
Other receivables 90,253 72,225 61,415
(i) The movements in the provision for
bad debts in the current period were as follows:
Unaudited
Half Year
30 Jun 23
€'000
Provision at the beginning of the period (3,449)
Recognition on acquisition of subsidiaries (412)
Impairment of financial assets (trade receivables) charged to other (237)
administration expenses
Amounts written off against the provision in the period 81
Exchange rate movement 47
Provision at the end of the period (3,970)
Credit loss experience 1.0%
(ii) The composition of the provision for
bad debts at period end was as follows:
Unaudited
At
30 Jun 23
€'000
Credit impaired (2,991)
Expected credit losses (979)
Provision at the end of the period (3,970)
(iii) Accrued income from contracts with
customers represent mainly contract assets in process and related items.
Excluding movements in the provision, the movement in the period comprises
transfers in and out as items are accrued and subsequently invoiced to
customers, with no significant amounts recognised on the acquisition of
subsidiaries. The movements in the provision in the period were provisions
utilised of €1.6m and movement in expected credit losses of €0.04m.
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 2023 77,990,057 87,738 924 2,467 47,021 286,655
Acquisition related issuance of shares:
Heavy Iron 20-Jan-23 34.67 93,856 - 1 - - 3,254
Climax Studios 17-Feb-23 27.18 21,428 - - - - 582
Waste Creative 15-Mar-23 31.52 26,600 - - - - 841
Digital Media Management 29-Mar-23 30.92 - 301,170 - 9,311 - -
Digital Media Management 06-Apr-23 30.92 301,170 (301,170) 3 (9,311) - 9,308
Hardsuit Labs 10-May-23 28.17 - 53,482 - 1,507 - -
Hardsuit Labs 30-May-23 28.17 53,482 (53,482) 1 (1,507) - 1,506
Tantalus Media 15-Jun-23 27.48 191,722 - 2 - 5,986 -
Playboss Interactive 30-Jun-23 24.48 - 13,118 - 321 - -
Acquisition related issuance of shares 688,258 13,118 7 321 5,986 15,491
Issue of shares on exercise of share options 406,302 - 6 - 1,432 -
At 30 June 2023 79,084,617 100,856 937 2,788 54,439 302,146
* 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 2023 18.78 1,585,819 0.01 3,648,173 0.01 259,623
Granted - - 0.01 657,157 0.01 557,007
Lapsed 19.57 (107,776) 0.01 (65,150) 0.01 (17,808)
Exercised 14.80 (97,519) 0.01 (443,452) 0.01 (7,740)
At 30 June 2023 19.02 1,380,524 0.01 3,796,728 0.01 791,082
Exercisable at 30 June 2023 17.43 876,703 0.01 1,447,150 0.01 -
Weighted average share price at date of exercise 26.08 23.43 n/a
Number of options Number of options Number of options
Analysis of Shares Exercised
Exercised via issuance of new shares 81,269 317,293 7,740
Exercised via utilisation of shares held in EBT 16,250 126,159 -
97,519 443,452 7,740
13 Other Payables
Unaudited Unaudited Audited
At At At
30 Jun 23 30 Jun 22 31 Dec 22
€'000 €'000 €'000
Current liabilities
Accrued expenses 67,979 63,226 61,155
Payroll taxes 5,068 3,591 3,577
Other payables (ii) 26,170 19,886 26,099
Deferred and contingent consideration (i) 57,256 36,020 44,945
Deferred and contingent consideration related to continuous employment (i) 4,620 - 3,579
161,093 122,723 139,355
Non-current liabilities
Deferred and contingent consideration (i) 19,388 8,007 18,308
19,388 8,007 18,308
Deferred and contingent consideration becomes payable where the purchase
agreement includes deferred consideration contingent on both pre-defined
profit and / or revenue targets being 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). Liabilities for deferred consideration are recognised at
their fair value on the acquisition date, however where deferred and
contingent consideration is also tied to the retention of key staff, these
liabilities are considered post-acquisition expenses under IFRS 3, with
liabilities for deferred and contingent consideration related to continuous
employment accrued over the post-acquisition retention period.
(i) The movements in deferred and
contingent consideration during the period were as follows:
Unaudited Unaudited
Half Year Half Year
30 Jun 23 30 Jun 23
€'000 €'000
Deferred and contingent consideration Deferred and contingent consideration related to continuous employment
Carrying amount at the beginning of the period 63,253 3,579
Consideration settled by cash (10,201) (2,503)
Consideration settled by shares (9,838) (839)
Unwinding of discount (note 6) 1,817 -
Additional liabilities from current year acquisitions (note 17) 32,656 134
Additional liabilities from prior acquisitions - 4,198
Exchange rate movement (1,043) 51
Carrying amount at the end of the period 76,644 4,620
A 10% movement in expected performance would impact the fair value of the
contingent consideration as follows:
Unaudited Unaudited
At At
30 Jun 23 30 Jun 23
Increase / (decrease) in carrying amount €'000 €'000
Deferred and contingent consideration Deferred and contingent consideration related to continuous employment
Increase in expected performance - 10% 7,583 -
Decrease in expected performance - 10% (9,681) (688)
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 €7.9m to a maximum of €95.9m.
The contractual maturities (representing undiscounted contractual cash flows)
of the Group's deferred and contingent consideration liabilities were as
follows:
Unaudited Unaudited
At At
30 Jun 23 30 Jun 23
€'000 €'000
Deferred and contingent consideration Deferred and contingent consideration related to continuous employment
Not later than one year 58,135 9,558
Later than one year and not later than two years 19,418 5,080
Later than two years and not later than five years 3,352 350
Total undiscounted contractual cash flows 80,905 14,988
(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 23
€'000
Carrying amount at the beginning of the period 51
Drawdowns 89,379
Repayments (32,730)
Exchange rate movement (1,485)
Carrying amount at the end of the period 55,215
The carrying amount at the beginning of the period represent loans owed by
Keywords Studios QC-Interactive Inc. These balances were repaid in the period.
During July 2023, the Group negotiated a new unsecured multi-currency
revolving credit facility agreement ("RCF") of $400 million. The new RCF is
for an initial four-year tenor, with an option to extend the term by a further
one year period, subject to lender consent. The new facility is supported by a
group of seven global lenders and replaces the Group's previous €150 million
unsecured multi-currency revolving credit facility. The RCF's financial
covenants remain consistent with the previous facility. The new facility is
denominated in US dollars to match the expected predominant currency of future
borrowings.
The previous RCF allowed the Group to access financing of up to €150m, which
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.
Throughout the period, the Group operated well within the interest cover and
leverage ratio terms of the previous RCF agreement.
At the period end the net debt ratio was as follows:
Unaudited
At
30 Jun 23
€'000
Loans and borrowings 55,215
Less: cash and cash equivalents (43,804)
Net debt / (net cash) position 11,411
Total equity 594,639
Net debt / (net cash) to capital ratio (%) 2%
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 23
€'000
Carrying amount at the beginning of the period 42,519
Recognition on acquisition of subsidiaries (note 17) 6,097
Liabilities recognised on new leases in the period 8,058
Unwinding of discounted liabilities - lease liabilities 631
Payment of principal and interest on lease liabilities (7,453)
Exchange rate movement (203)
Carrying amount at the end of the period 49,649
The value of leases not yet commenced to which the lessee is committed, which
are not included in the lease liability at 30 June 2023, were €nil.
17 Business Combinations
Digital Media Management Other acquisitions 2023
€'000 €'000 €'000
Details of goodwill and the fair value of net assets acquired
Book value:
Property, plant and equipment 608 362 970
Right of use assets 5,714 383 6,097
Trade and other receivables - gross 3,321 2,491 5,812
Bad debt provision (23) (389) (412)
Cash and cash equivalents 14,296 3,628 17,924
Trade and other payables (2,458) (787) (3,245)
Lease liabilities (5,714) (383) (6,097)
Book value of identifiable assets and liabilities acquired 15,744 5,305 21,049
Fair value adjustments:
Identifiable intangible assets - Customer relationships 24,806 2,511 27,317
Deferred tax assets - 5,013 5,013
Deferred tax liabilities (5,594) (527) (6,121)
Total fair value adjustments 19,212 6,997 26,209
Net assets acquired 34,956 12,302 47,258
Goodwill from current year acquisitions 62,583 28,095 90,678
Total purchase consideration 97,539 40,397 137,936
Details of purchase consideration and outflows from current acquisitions
Cash 66,218 27,923 94,141
Equity instruments 9,311 1,507 10,818
Deferred cash - 914 914
Deferred consideration contingent on performance 22,010 9,732 31,742
Shares to be issued - 321 321
Total purchase consideration 97,539 40,397 137,936
Related acquisition costs charged to the Consolidated statement of 624 269 893
comprehensive income:
Number of shares:
Shares issued on acquisition 301,170 53,482 354,652
Fixed number of shares to be issued - 13,118 13,118
Net cash outflow arising on acquisition:
Cash paid in the period 66,218 27,923 94,141
Less: cash and cash equivalent balances transferred (14,296) (3,628) (17,924)
Net cash outflow arising on acquisition 51,922 24,295 76,217
Details of pro forma revenues and profitability of current acquisitions
Pre-acquisition revenue 6,413 5,644 12,057
Post-acquisition revenue 6,574 6,655 13,229
Pro forma revenue 12,987 12,299 25,286
Pre-acquisition profit / (loss) before tax 1,650 (393) 1,257
Post-acquisition profit / (loss) before tax 492 2,166 2,658
Pro forma profit / (loss) before tax 2,142 1,773 3,915
During the period, the Group completed four acquisitions, 47 Communications,
Digital Media Management, Hardsuit Labs and Playboss, purchasing 100% of these
businesses. The aggregate amounts recognised in respect of the identifiable
assets acquired and liabilities assumed on acquisitions completed in the
period are set out in the table above. Details of the purchase consideration
and other information relevant to the evaluation of the financial effect of
the acquisitions are also presented.
Please note that Total purchase consideration excludes €1.2m of Deferred and
contingent consideration related to continuous employment, where the purchase
agreement includes deferred consideration contingent on both pre-defined
profit and / or revenue targets being exceeded and which is also tied to the
retention of key staff, that are considered post-acquisition expenses under
IFRS 3 (note 13).
The main factors leading to the recognition of goodwill on the acquisitions
are the presence of certain intangible assets in the acquired entities, which
are not valued for separate recognition. These include expertise in the
acquired entities, enhancing and growing our service capabilities, broadening
our service offering, and extending our geographical footprint, further
building out our global platform.
The goodwill that arose from business combinations completed in the period
that is expected to be deductible for tax purposes was €22.2m (for which a
deferred tax asset has been recognised of €5.0m).
18 Significant Events
Crisis in Ukraine
Since the crisis in Ukraine began in 2022, our priority has been to support
our personnel and freelance suppliers located in the affected area, while also
contributing to broader humanitarian efforts in the region. As our Group had
no business operations in Ukraine, the crisis primarily impacted our Game
Development teams in Russia, as well as our collaboration with several
freelance suppliers based in Ukraine.
Throughout this period, we have continued to work with our customers
supporting their preferences for where their work should be performed, while
also remaining focused on mitigating any potential business interruption or
other risks associated with our activities in Russia. As a result, the volume
of work produced in Russia has continued to reduce over time and we have been
scaling down our operations accordingly.
In the period, the Group produced €4.2m of Revenue in Russia, which
represents approximately 1.1% of Group revenue, down from 5.5% in the half
year to June 2022, and down on 3.8% in full year 2022. During the period, we
continued to transfer projects supported in Russia to other parts of the
Group, as we further ramped up production capacity in these locations with a
combination of employees relocating from Russia and local hires. As a
consequence, revenues produced in Russia were approximately 0.3% of Group
revenue in June 2023. Production in Russia has now ceased. Costs of
acquisition and integration includes severance and rationalisation costs of
€1.5m incurred in the period, associated with ceasing operations in
Russia.
The Group has never had significant receivables exposure in Russia, as work
produced in Russia was contracted and collected in other territories. The
Group does not have significant amounts of working capital or non-current
assets located in Russia. Thus any exposure to impairment of assets located in
Russia is not considered material.
19 Change in Accounting Policy
The Group has adopted Deferred Tax related to Assets and Liabilities arising
from a Single Transaction (Amendments to IAS 12) from 01 January 2023. These
amendments narrow the scope of the initial recognition exemption so that it
does not apply to transactions that give rise to equal and offsetting
temporary differences e.g. Right of use assets and Lease liabilities. As a
result for leases and decommissioning liabilities, an entity is required to
recognise the associated deferred tax assets and liabilities on a gross basis
from the beginning of the earliest comparative period presented, with any
cumulative effect recognised as an adjustment to retained earnings or other
components of equity at that date.
The Group previously accounted for the deferred tax on leases and
decommissioning liabilities on a net basis. Following the amendments, the
Group has recognised a separate deferred tax asset in relation to its lease
liabilities and a deferred tax liability in relation to its right-of-use
assets. There was no impact on the opening retained earnings at 01 January in
any period presented, as a result of this change. The impact on deferred tax
assets and liabilities in each comparative period presented, is detailed
below.
Unaudited Unaudited Unaudited
€'000 €'000 €'000
Deferred tax assets Deferred tax liabilities Retained earnings
At 30 June 2022 - as reported 21,786 17,016 124,788
Adoption of Deferred Tax related to Assets and Liabilities arising from a 8,100 8,100 -
Single Transaction (Amendments to IAS 12)
At 30 June 2022 - as restated 29,886 25,116 124,788
Unaudited Unaudited Unaudited
€'000 €'000 €'000
Deferred tax assets Deferred tax liabilities Retained earnings
At 31 December 2022 - as reported 22,757 8,617 143,627
Adoption of Deferred Tax related to Assets and Liabilities arising from a 8,400 8,400 -
Single Transaction (Amendments to IAS 12)
At 31 December 2022 - as restated 31,157 17,017 143,627
20 Events after the Reporting Date
During July 2023, the Group negotiated a new unsecured multi-currency
revolving credit facility agreement ("RCF") of $400 million. See note 14 for
further details. There have been no other significant events since the
reporting date.
Alternative performance measures
The Group reports a number of alternative performance measures ("APMs") to
present the financial performance of the business, that are not GAAP measures
as defined under IFRS. The Directors believe that these measures, in
conjunction with the IFRS financial information, provide the users of the
financial statements with additional information to provide a more meaningful
understanding of the underlying financial and operating performance of the
Group. The measures are also used in the Group's internal strategic planning
and budgeting processes and for setting internal management targets. These
measures can have limitations as analytical tools and therefore should not be
considered in isolation, or as a substitute for IFRS measures.
The principal measures used by the Group are set out below:
Organic revenue growth - Acquisitions are a core part of the Group's growth
strategy. Organic revenue growth measures are used to help understand the
underlying trading performance of the Group excluding the impact of
acquisitions. Organic revenue growth is calculated by adjusting the prior year
revenues, adding pre-acquisition revenues for the corresponding period of
ownership to provide a like-for-like comparison with the current year, and
applying the prior year's foreign exchange rates to both years, when
translating studio results into the euro reporting currency.
Constant exchange rates ("CER") - Given the international nature of the
Group's operations, foreign exchange movements can have an impact on the
reported results of the Group when they are translated into the Group's
reporting currency, the euro. In order to understand the underlying trading
performance of the business, revenue is also presented using rates consistent
with the prior year in order to provide year- over-year comparability.
Adjusted profit and earnings per share measures - Adjusted profit and earnings
per share measures are used to provide management and other users of the
financial statements with a clear understanding of the underlying
profitability of the business over time. Adjusted profit measures are
calculated by adding the following items back to the equivalent GAAP profit
measures:
· Amortisation of intangible assets - Customer relationships and
music licence amortisation commences on acquisition, whereas intellectual
property / development costs amortisation commences when the product is
launched. These costs, by their nature, can vary by size and amount each year.
As a result, amortisation of intangibles is added back to assist with the
understanding of the underlying trading performance of the business and to
allow comparability across regions and categories.
· Costs of acquisition and integration - The level of acquisition
activity can vary each year and therefore the costs associated with acquiring
and integrating businesses are added back to assist with the understanding of
the underlying trading performance of the Group.
· Share-based payments - The Group uses share-based payments as
part of remuneration to align the interests of senior management and employees
with shareholders. These are non-cash charges and the charge is based on the
Group's share price which can change. The costs are therefore added back to
assist with the understanding of the underlying trading performance.
· Foreign exchange gains and losses - The Group does not hedge
foreign currency translation exposures. The effect on the Group's results of
movements in exchange rates can vary each year and are therefore added back to
assist with understanding the underlying trading performance of the
business.
· Other income - Other income comprises gains on investments or
other non-trading income. As the gains have arisen outside the normal trading
activities of the Group, the income has been added back to assist with the
understanding of the underlying trading performance.
Free cash flow measures - The Group aims to generate sustainable cash flow
(free cash flow) in order to support its acquisition programme and to fund
dividend payments to shareholders. Free cash flow is measured as net cash
generated by / (used in) operating activities after capital expenditure,
payments of principal on lease liabilities, interest and tax payments, but
before acquisition and integration cash outlay, other income and dividend
payments. Adjusted free cash flow is a measure of cash flow adjusting for
capital expenditure that is supporting growth in future periods (represented
by capital expenditure in excess of depreciation).
Net debt - The Group manages capital by monitoring debt to capital and net debt ratios. Net debt is calculated as loans and borrowings less cash and cash equivalents, and excludes lease liabilities. The debt to capital ratio is calculated as net debt as a percentage of total equity.
The remainder of this section provides a reconciliation of the APMs with the
relevant IFRS GAAP equivalent.
Service line analysis
The following table presents revenue growth by service line at both actual
exchange rates ("AER") and constant exchange rates ("CER"). Constant exchange
rates are calculated by retranslating current-year reported numbers at the
corresponding 2022 foreign exchange rates, in order to give management and
other users of the financial statements better visibility of underlying
trading performance against the prior year.
Half Year Half Year Half Year Half Year Half Year
30 Jun 23 30 Jun 23 30 Jun 22 30 Jun 23 30 Jun 23
Revenue Revenue Revenue Growth Growth
AER CER AER AER CER
€m €m €m % %
Create 162.9 166.8 124.3 31.1% 34.2%
Globalize 145.7 148.2 141.5 3.0% 4.7%
Engage 74.9 76.2 55.3 35.4% 37.8%
383.5 391.2 321.1 19.4% 21.8%
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 23 30 Jun 23 30 Jun 23 30 Jun 23
Revenue Pre-acquisition revenue Pro forma revenue Pro forma revenue
AER AER AER AER
€m €m €m €m
Create 162.9 7.4 170.3 321.6
Globalize 145.7 - 145.7 305.0
Engage 74.9 4.7 79.6 138.6
383.5 12.1 395.6 765.2
Organic revenue at constant exchange rates
Organic revenue at constant exchange rates is calculated by adjusting the
prior year revenues, adding pre-acquisition revenues for the corresponding
period of ownership, and applying the 2022 foreign exchange rates to both
years, when translating studio results into the euro reporting currency.
Half Year Half Year Half Year Half Year Half Year Half Year
30 Jun 22 30 Jun 22 30 Jun 22 30 Jun 23 30 Jun 23 30 Jun 23
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 124.3 12.3 136.6 30.2 166.8 22.1%
Globalize 141.5 - 141.5 6.7 148.2 4.7%
Engage 55.3 20.9 76.2 - 76.2 -
321.1 33.2 354.3 36.9 391.2 10.4%
Adjusted operating costs
This comprises Administrative expenses as reported in the Consolidated
statement of comprehensive income, adding back share-based payments expense,
costs of acquisition and integration, amortisation of intangible assets,
depreciation and impairment, non-controlling interest and deducting bank
charges.
Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
Calculation €'000 €'000 €'000
Administrative expenses Consolidated statement of comprehensive income (115,855) (86,152) (196,554)
Share-based payments expense Consolidated statement of comprehensive income 9,438 8,940 18,678
Costs of acquisition and integration Consolidated statement of comprehensive income 7,335 1,284 8,413
Amortisation of intangible assets Consolidated statement of comprehensive income 12,775 7,469 16,810
Depreciation - property, plant and equipment Note 9 10,907 8,790 18,365
Depreciation and impairment - right of use assets Note 9 7,821 5,591 14,585
Non-controlling interest Consolidated statement of comprehensive income - 45 -
Bank charges Note 6 (353) (317) (662)
Adjusted operating costs (67,932) (54,350) (120,365)
Adjusted operating costs as a % of revenue 17.7% 16.9% 17.4%
Adjusted operating profit
The Adjusted operating profit consists of the Operating profit as reported in
the Consolidated statement of comprehensive income, adjusted for share-based
payments expense, costs of acquisition and integration, and amortisation of
intangible assets. In order to present the measure consistently year-on-year,
the impact of other income is also excluded.
Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
Calculation €'000 €'000 €'000
Operating profit Consolidated statement of comprehensive income 29,327 39,453 71,810
Share-based payments expense Consolidated statement of comprehensive income 9,438 8,940 18,678
Costs of acquisition and integration Consolidated statement of comprehensive income 7,335 1,284 8,413
Amortisation of intangible assets Consolidated statement of comprehensive income 12,775 7,469 16,810
Other income Consolidated statement of comprehensive income - (1,107) (1,098)
Adjusted operating profit 58,875 56,039 114,613
Adjusted operating profit as a % of revenue 15.4% 17.5% 16.6%
EBITDA
EBITDA comprises Operating profit as reported in the Consolidated statement of
comprehensive income, adjusted for amortisation of intangible assets,
depreciation and impairment, and deducting bank charges.
Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
Calculation €'000 €'000 €'000
Operating profit Consolidated statement of comprehensive income 29,327 39,453 71,810
Amortisation of intangible assets Consolidated statement of comprehensive income 12,775 7,469 16,810
Depreciation - property plant and equipment Note 9 10,907 8,790 18,365
Depreciation and impairment - right of use assets Note 9 7,821 5,591 14,585
Bank charges Note 6 (353) (317) (662)
EBITDA 60,477 60,986 120,908
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 23 30 Jun 22 31 Dec 22
Calculation €'000 €'000 €'000
EBITDA As above 60,477 60,986 120,908
Share-based payments expense Consolidated statement of comprehensive income 9,438 8,940 18,678
Costs of acquisition and integration Consolidated statement of comprehensive income 7,335 1,284 8,413
Non-controlling interest Consolidated statement of comprehensive income - 45 -
Other income Consolidated statement of comprehensive income - (1,107) (1,098)
Adjusted EBITDA 77,250 70,148 146,901
Adjusted EBITDA as a % of revenue 20.1% 21.8% 21.3%
Adjusted profit before tax
Adjusted profit before tax comprises Profit before taxation as reported in the
Consolidated statement of comprehensive income, adjusted for share-based
payments expense, costs of acquisition and integration, amortisation of
intangible assets, non-controlling interest, foreign exchange gains and
losses, and unwinding of discounted liabilities. In order to present the
measure consistently year-on-year, the impact of other income is also
excluded.
Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
Calculation €'000 €'000 €'000
Profit before taxation Consolidated statement of comprehensive income 23,189 39,078 67,982
Share-based payments expense Consolidated statement of comprehensive income 9,438 8,940 18,678
Costs of acquisition and integration Consolidated statement of comprehensive income 7,335 1,284 8,413
Amortisation of intangible assets Consolidated statement of comprehensive income 12,775 7,469 16,810
Non-controlling interest Consolidated statement of comprehensive income - 45 -
Foreign exchange (gain) / loss Note 6 1,260 (2,412) (1,677)
Unwinding of discounted liabilities - deferred consideration Note 6 1,817 1,478 2,922
Other income Consolidated statement of comprehensive income - (1,107) (1,098)
Adjusted profit before tax 55,814 54,775 112,030
Adjusted profit before tax as a % of revenue 14.6% 17.1% 16.2%
Adjusted effective tax rate
The Adjusted effective tax rate is the Taxation expense as reported in the
Consolidated statement of comprehensive income, adjusted for the tax impact of
the adjusting items in arriving at Adjusted profit before tax, as a percentage
of the Adjusted profit before tax.
Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
Calculation €'000 €'000 €'000
Adjusted profit before tax As above 55,814 54,775 112,030
Taxation Consolidated statement of comprehensive income 8,669 10,937 20,612
Effective tax rate before tax on adjusting items Taxation / Adjusted profit before tax 15.5% 20.0% 18.4%
Tax arising on bridging items to Adjusted profit before tax^ 3,464 1,092 4,043
Adjusted taxation 12,133 12,029 24,655
Adjusted effective tax rate Adjusted taxation / Adjusted profit before tax 21.7% 22.0% 22.0%
^Being mainly the tax impact of share-based payments expense €1.5m and
amortisation of intangible assets €1.9m, with the prior period being mainly
the tax impact of share-based payments expense €0.9m, amortisation of
intangible assets €0.9m, less foreign exchange €0.9m.
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 23 30 Jun 22 31 Dec 22
Calculation €'000 €'000 €'000
Adjusted profit before tax As above 55,814 54,775 112,030
Taxation Consolidated statement of comprehensive income (8,669) (10,937) (20,612)
Tax arising on bridging items to Adjusted profit before tax^ (3,464) (1,092) (4,043)
Adjusted profit after tax 43,681 42,746 87,375
Denominator (weighted average number of equity shares) Note 7 78,558,801 76,478,194 76,979,596
€ c € c € c
Adjusted earnings per share 55.60 55.89 113.50
Adjusted earnings per share % growth (0.5%) 34.4% 27.2%
^Being mainly the tax impact of share-based payments expense €1.5m and
amortisation of intangible assets €1.9m, with the prior period being mainly
the tax impact of share-based payments expense €0.9m, amortisation of
intangible assets €0.9m, less foreign exchange €0.9m.
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 23 30 Jun 22 31 Dec 22
Calculation €'000 €'000 €'000
Adjusted profit before tax As above 55,814 54,775 112,030
Interest received Note 6 (154) (102) (309)
Bank charges Note 6 353 317 662
Interest expense Note 6 2,231 629 1,261
Unwinding of discounted liabilities - lease liabilities Note 6 631 465 969
Pre-acquisition profits of current year acquisitions Note 17 1,257 - 1,601
Adjusted profit before tax including pre-acquisition profit excluding interest 60,132 56,084 116,214
for the period
Rolling 12 month adjustment 60,130 48,115 -
Adjusted profit before tax including pre-acquisition profit and excluding net 120,262 104,199 116,214
interest
Total equity Consolidated statement of financial position 594,639 530,329 557,091
Employee defined benefit plans Consolidated statement of financial position 3,601 3,270 2,861
Cumulative amortisation of intangibles assets (customer relationships) 67,490 51,087 58,301
Deferred and contingent consideration Note 13 76,644 44,027 63,253
Loans and borrowings Note 14 55,215 95 51
Cash and cash equivalents Consolidated statement of financial position (43,804) (121,395) (81,886)
Capital employed 753,785 507,413 599,671
Return on capital employed Adjusted profit before tax including pre-acquisition profit and excluding net 16.0% 20.5% 19.4%
interest expense / capital employed
Free cash flow
Free cash flow represents Net cash generated by / (used in) operating
activities as reported in the Consolidated statement of cash flows, adjusted
for acquisition and integration cash outlay, capital expenditure, 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 23 30 Jun 22 31 Dec 22
Calculation €'000 €'000 €'000
Net cash generated by / (used in) operating activities Consolidated statement of cash flows 28,905 40,565 124,286
Acquisition and integration cash outlay:
Costs of acquisition and integration Consolidated statement of comprehensive income 7,335 1,284 8,413
Fair value adjustments to contingent consideration Consolidated statement of cash flows - - (2,282)
Non-cash movements in Deferred and contingent consideration related to (4,332) - (3,000)
continuous employment
Acquisition of property, plant and equipment Consolidated statement of cash flows (18,799) (9,997) (27,007)
Investment in intangible assets Consolidated statement of cash flows (1,325) (178) (501)
Other income Consolidated statement of comprehensive income - (1,107) (1,098)
Interest received Consolidated statement of cash flows 154 102 309
Interest paid Consolidated statement of cash flows (2,376) (878) (1,797)
Payments of principal on lease liabilities Consolidated statement of cash flows (6,822) (5,453) (11,361)
Free cash flow after tax 2,740 24,338 85,962
Taxation paid Consolidated statement of cash flows 7,913 6,181 17,505
Free cash flow before tax 10,653 30,519 103,467
Adjusted free cash flow
Adjusted free cash flow is a measure of cash flow adjusting for capital
expenditure that is supporting growth in future periods (as measured by
capital expenditure in excess of maintenance capital expenditure).
Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
Calculation €'000 €'000 €'000
Free cash flow before tax As above 10,653 30,519 103,467
Capital expenditure in excess of depreciation:
Acquisition of property, plant and equipment Consolidated statement of cash flows 18,799 9,997 27,007
Depreciation - property, plant and equipment Consolidated statement of cash flows (10,907) (8,790) (18,365)
Capital expenditure in excess of depreciation 7,892 1,207 8,642
Adjusted free cash flow 18,545 31,726 112,109
Adjusted cash conversion rate
The Adjusted cash conversion rate is the Adjusted free cash flow as a
percentage of the Adjusted profit before tax:
Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
Calculation €'000 €'000 €'000
Adjusted free cash flow As above 18,545 31,726 112,109
Adjusted profit before tax As above 55,814 54,775 112,030
Adjusted cash conversion ratio Free cash flow before tax and capital expenditure in excess of depreciation, 33.2% 57.9% 100.1%
as a % of Adjusted profit before tax
Net debt
The Group manages capital by monitoring debt to capital and net debt ratios.
Net debt is calculated as Loans and borrowings (as shown in the Consolidated
statement of financial position) less Cash and cash equivalents, and excludes
Lease liabilities.
Half Year Half Year Year
30 Jun 23 30 Jun 22 31 Dec 22
Calculation €'000 €'000 €'000
Loans and borrowings Consolidated statement of financial position 55,215 95 51
Cash and cash equivalents Consolidated statement of financial position (43,804) (121,395) (81,886)
Net debt / (net cash) position 11,411 (121,300) (81,835)
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