REG - Keywords Studios PLC - Interim Results
16/09/2024 07:00
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RNS Number : 2309E Keywords Studios PLC 16 September 2024
16 September 2024
Keywords Studios plc ("Keywords Studios", "Keywords", the "Group")
Half Year Results for the period to 30 June 2024
Solid trading performance in mixed underlying markets, in line with July
update
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 2024. The results are presented in US Dollars as the Group
moved to US Dollars as its presentational currency as of 1 January 2024, with
the previous period re-presented accordingly.
Financial Overview:
Results for the six-months ended 30 June H1 2024 H1 2023 Change
Group revenue $440.4m $413.3m +6.6%
Organic revenue growth 1 (1.9)%
Adjusted EBITDA 2 $77.8m $83.3m (6.6)%
Adjusted EBITDA margin 17.7% 20.2%
EBITDA* 2 $15.4m $65.3m (76.4)%
Adjusted operating profit 3 $57.4m $63.5m (9.6)%
Adjusted operating profit margin 13.0% 15.4%
Operating profit / (loss)* $(18.7)m $31.7m -
Adjusted earnings per share 4 49.77c 59.92c (16.9)%
Earnings / (loss) per share* (38.82)c 19.93c -
Adjusted cash conversion rate 5 31.0% 30.5%
Net (cash) / debt $102.4m $12.4m
* EBITDA, Operating profit and Earnings per share were impacted by a several
exceptional items including expenses associated with the Transaction (as
defined below) and the re-organisation of Globalize, which together amounted
to $47m
Finance and Strategic Highlights:
· Group revenue up 7% to $440m (H1 2023: $413m), reflecting
acquisitions, with organic growth of -2%
· Adjusted operating profit of $57m (H1 2023: $64m), impacted by the
moderation of growth, and the timing of the realisation of savings from cost
programmes underway, with margins of 13%
· Adjusted free cash flow(6) of $16m (H1 2023: $18m) and adjusted cash
conversion of 31% (H1 23: 31%), which is traditionally H2 weighted due to the
timing of working capital
· Net debt of $102m (FY 2023: $75m), primarily reflecting deferred
consideration payments
· Spend from larger strategic partner relationships continued to grow
well during the first half
· Good traction with clients with our AI-led product solutions across
Globalize and Engage
· Restructuring of the go-to-market approach in Globalize set out at
the full year results is progressing well
· Continued disciplined acquisition strategy, with three acquisitions
agreed year-to-date
Current trading and outlook
· We remain confident in delivering good overall revenue growth in 2024
· Performance expected to improve in the second half as the sector
starts to emerge from the slower content creation trends that are currently
dampening industry spend and therefore Keywords' growth
· Continue to actively manage costs, with a broad range of actions
expected to support margins
· Remain confident in the Group's long-term growth trajectory and
ability to outperform the market
· Continue to have an active pipeline of acquisition opportunities
Recommended final cash acquisition of Keywords and dividend
· On 3 July 2024, the boards of Keywords and Houting UK Limited
("Bidco") (a newly formed company indirectly wholly-owned by EQT's BPEA Fund
VIII ("EQT"), and equity co-investors (i) CPP Investments (acting through its
wholly-owned subsidiary CPPIB PHI4) and (ii) Rosa Investments), reached an
agreement on the terms of a recommended final cash acquisition of the entire
issued and to be issued ordinary share capital of Keywords by Bidco for a
price of £24.50 per share (the "Transaction").
· EQT's offer of £24.50 per share followed numerous previous
unsolicited proposals from EQT and represents a significant increase from
their initial proposal.
· The offer values the entire issued and to be issued ordinary
share capital of the Group at approximately £2.1 billion on a fully diluted
basis.
· In line with the terms of the Transaction, the Keywords Board
have not declared an interim dividend.
· On 30 August 2024, Keywords shareholders voted in favour of the
Transaction and all applicable anti-trust approvals have been granted, or
applicable waited periods (as relevant) have expired.
· The Scheme of Arrangement is expected to become effective on the
23 October with the trading of the shares expected to be cancelled on 24
October 2024.
Bertrand Bodson, Chief Executive Officer of Keywords Studios, commented:
"Keywords delivered solid growth in the first half despite the current mixed
market backdrop. This has resulted in lower activity levels across the
industry, as clients recalibrated their operations and game portfolios, and
meant that our organic growth was lower than originally anticipated, as
flagged in July.
We continued to make good progress against our strategy, enhancing our leading
position in the market whilst expanding the use of technology within our
business and on behalf of clients. We have begun to see the results of actions
we have taken on costs and expect to see a pick-up in activity levels as we
move into 2025.
The Transaction represents an exciting new chapter for the business as we
continue our journey. There is no question that the long-standing support we
received as a public company provided the fuel for our growth over the last
ten years, and we wanted to take this opportunity to thank all of the
shareholders who have supported us since we listed on AIM in 2013 with just
€16m of revenue, many of whom are still on the shareholder register."
For further information, please contact:
Keywords Studios Deutsche Numis
Giles Blackham Nomad & Joint Corporate Broker
Director of Investor Relations Stuart Skinner / Will Baunton
+44 7714 134 681 +44 20 7260 1000
gblackham@keywordsstudios.com (mailto:gblackham@keywordsstudios.com)
MHP Group Barclays
Financial Communications Joint Corporate Broker
Katie Hunt / Eleni Menikou / Charles Hirst Tom Macdonald / Stuart Jempson
+44 7884 494 112 / +44 20 3128 8100 +44 20 7029 8000
keywords@mhpgroup.com (mailto:keywords@mhpgroup.com)
About Keywords Studios (www.keywordsstudios.com
(https://protect.checkpoint.com/v2/___http:/www.keywordsstudios.com/___.bXQtcHJvZC1jcC1ldXcyLTE6bmV4dDE1OmM6bzphNDA0OGFmZDNlNDdjM2Q5MzRjZGM0NDA4N2E2MGNmYzo2OjIzZTE6OWFkODkzZWRkNDg5OWUxMGM4MmFiMGRmMTBmYjQ4MzRmZjkwNmVkMmUwYjY0MDExZWFkMDliM2QyZmM1Mjk5MTpwOkY6Tg)
)
Keywords Studios is a global provider of creative and technology-enabled
solutions to the video games and entertainment industries. Established in
1998, and now with over 70 facilities in 26 countries strategically located in
Asia, Australia, the Americas, and Europe, it provides services across the
entire content development life cycle through its Create, Globalize and Engage
Divisions to a large blue-chip client base across the globe.
Keywords Studios has a strong market position, providing services to 24 of the
top 25 most prominent games companies and contributing to over 70% of the 2023
Game Awards winners. Across the games and entertainment industry, clients
include Activision Blizzard, Bandai Namco, Bethesda, Electronic Arts, Epic
Games, Konami, Microsoft, Netflix, Riot Games, Square Enix, Supercell,
Take-Two, Tencent and Ubisoft. Recent titles worked on include Starfield,
Baldur's Gate 3, Diablo IV, Hogwarts Legacy, Elden Ring, Fortnite, Valorant,
League of Legends and Clash Royale. Keywords Studios is listed on AIM, the
London Stock Exchange regulated market (KWS.L).
The Group reports a number of alternative performance measures (APMs) to
present the financial performance of the business which are not GAAP measures
as defined by International Financial Reporting Standards (IFRS). The
Directors believe these measures provide valuable additional information for
the users of the financial information to understand the underlying trading
performance of the business. In particular, adjusted profit measures are used
to provide the users of the financial statements a clear understanding of the
underlying profitability of the business over time. For full definitions and
explanations of these measures and a reconciliation to the most directly
referenceable IFRS line item, please refer to the APMs section at end of the
statement.
(1) Organic revenue at constant exchange rates is calculated by adjusting the
prior year revenues, adding pre-acquisition revenues for the corresponding
period of ownership, and applying the 2023 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 and costs of
acquisition and integration.
(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.
(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
Keywords delivered solid growth in the first half of the year against a mixed
market backdrop. The industry continues to recalibrate, a process that started
in 2023, and that we had anticipated would continue through much of the first
half of 2024.
Our Create division continues to deliver incredibly high-quality work for our
clients and has grown strongly over the past three years. During the first
half, our game development business in particular was impacted by the
cancellation of several large full development projects, and a number of other
projects being delayed or re-scoped in light of clients' budget constraints.
This meant a more muted performance from a Division that has been a key growth
driver for the business, and therefore was scaling for further growth,
impacting both organic growth and operating margins.
As expected, Globalize continues to be impacted by the lower activity levels
in the market, which has put pressure on both revenues and margins. In
response to this, earlier this year, we announced a restructuring to enhance
our go-to-market approach and improve efficiency and collaboration, to ensure
that we continue to deliver world class services to our world class clients.
The changes have regrettably led to the departure of a number of our valued
colleagues across a range of geographies and I would like to thank everybody
who has been impacted by these changes for all that they have done for
Keywords.
In Engage, it has been very pleasing to see a strong performance in the
Division in the period, across both marketing and player engagement with these
two service lines returning to organic growth in a difficult market. This is a
result of both our strategy of embedding technology into our player engagement
business and the transition to a more solutions-based offering within our
marketing business. This performance was delivered without yet seeing the
meaningful pick-up in activity that we anticipated would flow through after
the strikes in Hollywood ended. This is taking longer to materialise than any
market participant envisaged and whilst we are seeing improvements, at this
stage these are more gradual than a step change in activity.
Whilst our short-term results have not been as strong as we would have liked,
we continue to make good progress against our long-term strategy. We have seen
good revenue growth from our largest clients with whom we are building
strategic partnerships and are ensuring that our business development efforts
are tailored accordingly. We have continued to expand our technology offering
by further developing our client solutions such as Helpshift, Mighty and
Kantan, as well as more deeply integrating technology into our workflows. We
have also signed agreements with a number of technology businesses that will
enable us to act as an implementer of their technology on behalf of clients
across game development services, audio, and trust and safety.
M&A
A key part of our strategy continues to be focused on enhancing our market
position by consolidating a fragmented market. During the first half, the
Group completed the acquisition of Robot Circus, a small game development
studio in Australia, that will form part of our Tantalus group and support
growth in Asia. Post period end we added Bright White, a small UK design
business which supports our innovation plans, and Wushu Studios, a large UK
game development studio. We continue to have an active pipeline of
opportunities and are excited about the potential value we can add to the
Group as we continue our long-standing and successful M&A strategy.
Recommended final cash acquisition by EQT
On 3 July 2024, the boards of Keywords and Houting UK Limited ("Bidco") (a
newly formed company indirectly wholly-owned by EQT's BPEA Fund VIII ("EQT"),
and equity co-investors (i) CPP Investments (acting through its wholly-owned
subsidiary CPPIB PHI4) and (ii) Rosa Investments), reached an agreement on
the terms of a recommended final cash acquisition of the entire issued and to
be issued ordinary share capital of Keywords by Bidco for a price of £24.50
per share. EQT's offer of £24.50 per share followed numerous previous
unsolicited proposals from EQT and represents a significant increase from
their initial proposal. The offer values the entire issued and to be issued
ordinary share capital of the Group at approximately £2.1 billion on a fully
diluted basis. On 30 August 2024, Keywords shareholders voted in favour of the
Transaction and all applicable anti-trust clearances have been received or
applicable waiting periods (as relevant) have expired. The Scheme of
Arrangement is expected to become effective on the 23 October with the trading
of the shares expected to be cancelled on 24 October 2024.
Outlook
We remain confident in delivering good overall revenue growth in 2024, with
performance expected to be second half weighted as the sector starts to emerge
from the slower content creation trends that are currently dampening industry
spend and therefore Keywords' growth.
The Group has seen spend from larger clients continue to grow well during the
first half, and anticipates some recovery from the US entertainment strikes in
H2, reinforcing our confidence in an improved second half performance,
although further delays and project scope reductions are still expected to
temper H2 organic growth.
We continue to actively manage costs, taking a broad range of cost actions,
including the restructuring of the go-to-market approach in Globalize set out
at the full year results, and expect margins to improve as the impact of the
cost savings programmes and pick-up in volumes flow through.
The Board remains confident in the Group's long-term growth trajectory and
ability to outperform the market.
Bertrand Bodson
Chief Executive Officer
Divisional Review
Create
Create combines Game Development and Art Services to deliver a range of
content production services to clients and partners globally. It represents
around 4,500 people across four continents.
H1 2024 H1 2023 Change
Revenue $m 205.0 175.5 16.8%
Organic Revenue growth % 1.1%
Adjusted EBITDA $m 46.6 45.7 2.0%
Adjusted EBITDA margin % 22.7% 26.0%
H1 2024 Performance
Create saw strong revenue growth with total revenues up by 17% to $205m (H1
2023: $176m) driven by acquisitions completed in 2023. Organic Revenue, which
excludes the impact of acquisitions, was more muted, growing by 1% against a
tough comparative period (H1 2023: Organic growth of 22%), due to several
large project cancellations and delays. The Division continued to enhance its
cross-studio collaboration during H1 and saw good growth in a number of
studios including Climax, which expanded into a third UK location, and
Hardsuit Labs, which was acquired in H1 23.
Adjusted EBITDA in Create grew 2% to $47m in H1 2024 (H1 2023: $46m), with the
23% Adjusted EBITDA margin lower than the previous period (H1 2023: 26%) due
to lower than planned utilisation rates resulting from cancellations and
delays as we held on to our talent in order to maintain capacity ahead of the
anticipated future ramp up in demand.
During H1 we welcomed Robot Circus, a small Australian game development
studio, that will support the expansion of Tantalus in Asia, and in August we
completed the acquisition of Wushu Studios, a UK game development studio with
160 people, which offers services across the full development and
co-development spectrum to AAA clients.
Globalize
Globalize brings together our Audio, Testing and Localization businesses to
create a global provider with around 4,500 people across five continents.
H1 2024 H1 2023 Change
Revenue $m 139.0 156.9 (11.4)%
Organic Revenue growth % (11.9)%
Adjusted EBITDA $m 21.6 29.5 (26.8)%
Adjusted EBITDA margin % 15.5% 18.8%
H1 2024 Performance
Globalize continues to be impacted by lower activity levels in the market,
with revenues falling by 11% to $139m. Organic Revenue, which excludes the
impact of acquisitions, fell by 12%.
As highlighted previously, Localization and Localization QA continues to
experience challenging trading conditions, but we have seen good performance
from our Media & Entertainment businesses driven by some of our
accessibility offerings despite the slow ramp-up in Hollywood. There was no
impact from the Interactive Performers strike in H1, and even if it persists
for the duration of the year, it is not expected to have a material impact on
performance.
Adjusted EBITDA was $22m (H1 2023: $30m), with Adjusted EBITDA margins of 16%,
lower than H1 2023 (19%). Margins were impacted by the lower activity levels
with pricing continuing to be a focus for clients. As announced earlier in the
year we are in the process of re-organising parts of our Globalize Division to
enhance its go-to-market-offering, drive efficiencies and ensure we can offer
best-in-class services to our clients in an evolving market. The timing of
this process means that the cost savings are expected to be felt in H2.
Engage
Our Engage Division brings together our Marketing Services and Player
Engagement businesses to create a holistic offering focused on attracting,
retaining and supporting fans across the video games and entertainment
industries, encompassing around 3,000 people across three continents.
H1 2024 H1 2023 Change
Revenue $m 96.4 80.9 19.2%
Organic Revenue growth % 8.7%
Adjusted EBITDA $m 9.6 8.1 18.5%
Adjusted EBITDA margin % 10.0% 10.0%
H1 2024 Performance
Engage saw strong growth during the period, with revenues up by 19% to $96m
(H1 23: $81m) driven by a combination of the positive impact of prior year
acquisitions and Organic Revenue growth, which grew 9% during the period.
The positive performance was felt across both Player Engagement and Marketing,
with particularly strong growth in Player Engagement, driven by the unique
end-to-end customer support solution we can now provide to clients following
the integration of the Helpshift technology into our offering. We did not see
a meaningful pick-up in activity in Hollywood during the period but expect a
gradual improvement as we move through the year.
Adjusted EBITDA of $10m was 18% higher than H1 2023 ($8m) driven by the higher
revenues, with the Adjusted EBITDA margin of 10% in line with the prior year
period.
Financial and operating overview
As announced on 28 June 2024, the Group changed its presentational currency
from euro to US Dollar with effect from 1 January 2024 and therefore the
results set out below are presented in US Dollars for the first time, with the
prior year period re-presented accordingly.
Revenue
Revenue for H1 2024 increased by 7% to $440m (H1 2023: $413m). This
performance included the impact of acquisitions in 2023. Organic Revenue
growth (which adjusts for the impact of acquisitions) was -2%. This was
impacted by ongoing challenges in Globalize and a more muted performance in
Create, partially offset by strong performance in Engage. Further details of
the trading performances of each of the Divisions are provided in the
Divisional Review.
Gross profit and margin
Gross profit in H1 2024 was $152m (H1 2023: $157m) representing a reduction of
3%. The gross margin of 34.5% was below H1 2023 (37.9%) due to lower than
planned utilisation rates in Create and Globalize.
Operating costs
Adjusted operating costs increased by 1% to $74m (H1 23: $73m), reflecting
good cost control across a larger Group which meant that these costs
represented 16.9% of revenue compared to 17.7% in H1 2023.
EBITDA
EBITDA of $15m was below H1 2023 ($65m), primarily due to the impact of
one-time expenses associated with the Transaction fees and the restructuring
of Globalize which together amounted to $47m. Adjusted EBITDA of $78m compared
with $83m for H1 2023. The Adjusted EBITDA margin in H1 2024 of 17.7% was
lower than H1 2023 (20.2%), reflecting the lower gross margin.
Net finance costs
Net finance costs of $7m were in line with H1 2023. A $3m increase in interest
costs relating to the drawdown on the RCF was offset by a positive foreign
exchange impact of $3m.
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 with 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 2024 H1 2023
$m
$m
Share-based payments expense 13.0 10.2
Costs of acquisition and integration 49.3 7.9
Amortisation of intangible assets 13.7 13.8
Foreign exchange and other items 0.3 3.1
Total 76.3 35.0
A total of 2.56m options were granted under incentive plans in H1 2024. This,
together with grants from previous years, has resulted in a non-cash
share-based payments expense of $13m in H1 2024 (H1 2023: $10m).
Costs associated with the acquisition and integration of businesses amounted
to $49m (H1 2023: $8m), mainly due to the Transaction related costs of $32m
and costs linked to severance and the restructuring of Globalize of $15m, with
the balance of the costs relating to acquisition activity. Amortisation of
intangible assets were flat at $14m.
Foreign exchange and other items were flat (H1 2023: loss of $3m), with the
unwinding of discounted liabilities on deferred consideration of $2m and
realised foreign exchange gains. 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 / (Loss)
Operating loss of $19m in H1 2024, compared to an operating profit of $32m in
H1 2023, was primarily due to the impact of one-off expenses linked to the
Transaction and the restructuring of Globalize. Adjusted operating profit,
which adjusts for the items described in the APMs section above was $57m,
slightly behind H1 2023 ($64m). Adjusted operating profit margin of 13.0% was
impacted by the lower growth impacting utilisation and was behind the 15.4%
margins achieved in H1 2023 as the timing of cost savings actions mean that
their benefit is only expected to be fully realised in H2.
(Loss) / Profit before taxation
Loss before tax of $25m in H1 2024 compared to profit before tax in H1 2023 of
$25m. Adjusted profit before tax, which adjusts for the items described in the
APMs section above was $51m, lower than H1 2023 ($60m). This primarily
reflects a reduction in the Adjusted profit before tax margin to 11.6% from H1
2023 of 14.6% due to lower Adjusted Operating margins.
Taxation
The tax charge reduced to $6m from $9m in H1 2023, largely reflecting the
reduction in the Profit before tax (excluding Transaction fees, that are
largely non tax deductible). 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 22.5%, slightly above the rate of 21.8% in
H1 2023.
(Loss) / Earnings per share
Basic loss per share of 38.82c was lower than the H1 2023 earnings per share
of 19.93c, primarily reflecting the Loss after tax experienced in the period.
Adjusted earnings per share, which adjusts for the items noted in the APMs
section above and the tax impact arising on these items was 49.77c compared to
59.92c in H1 2023, with Adjusted profit after tax lower and the basic weighted
average number of shares higher than the previous year.
Cash flow and net debt
H1 24 H1 23 Change
$m
$m
$m
Adjusted EBITDA 77.8 83.3 (5.5)
MMTC and VGTR (10.7) (17.9) 7.2
Working capital and other items (22.5) (23.9) 1.4
Capex - property, plant and equipment (PPE) (17.4) (20.4) 3.0
Capex - intangible assets (2.3) (1.4) (0.9)
Payments of principal on lease liabilities (7.3) (7.3) 0.0
Operating cash flows 17.6 12.4 5.2
Interest paid (6.1) (2.6) (3.5)
Free cash flow before tax 11.5 9.8 1.7
Tax (5.7) (8.6) 2.9
Free cash flow 5.8 1.2 4.6
M&A - acquisition spend (24.0) (93.1) 69.1
M&A - acquisition and integration costs (8.8) (3.2) (5.6)
Cash proceeds, where EBT shares were utilised for the exercise of share 3.3 0.3 3.0
options
Funding of EBT (5.4) (5.4) -
Dividends paid (1.8) (1.6) (0.2)
Shares issued for cash 3.9 1.6 2.3
Underlying increase / (decrease) in net cash / (debt) (27.0) (100.2) 73.2
FX and other items (0.9) 0.8 (1.7)
Increase in net cash / (debt) (27.9) (99.4) 71.5
Opening net cash / (debt) (74.5) 87.1
Closing net cash / (debt) (102.4) (12.3)
The Group generated Adjusted EBITDA of $78m in H1 2024, a reduction of $6m
from H1 2023. There was a $7m reduction in respect of the amounts due for
Multi-Media Tax Credits (MMTCs) and Video Game Tax Credits (VGTRs), lower than
H1 2023 ($18m), which benefitted from receipts of credits due in Q2 2023 being
deferred into 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 $23m, a $1m change
from H1 2023, mainly due to foreign exchange movements.
Investment in property, plant and equipment reduced by $3m to $17m (H1 2023:
$20m) due to H1 2023 being impacted by the requirement to invest in new sites
required to exit Russia. In addition, we incurred $2m of capitalised research
and development costs as we developed our technology platform. Property lease
payments of principal of $7m were in line with the prior year period.
Operating cash flows of $18m were $6m ahead of H1 2023 ($12m), primarily due
to the change in working capital and the reduced capex during the period.
There was a $3m reduction in cash tax paid to $6m (H1 2023: $9m) due to minor
year on year variations in timing of tax deposits and final settlements of
liabilities. Net interest payments, which largely relate to interest from
drawdowns on the Revolving Credit Facility ("RCF"), were $6m compared to $3m
in H1 2023.
This resulted in Free cash flow of $6m, ahead of H1 23 ($1m). Adjusted free
cash flow, which adjusts for capital expenditure that is supporting growth in
future periods was $16m in H1 2024, behind H1 2023 ($18m). The Adjusted cash
conversion rate of 31.0% was slightly ahead of H1 2023 (30.5%).
Cash spent on acquisitions totalled $33m, of which $24m was in respect of the
cash component of prior year acquisitions and $9m was in relation to
acquisition and integration costs. This was $64m lower than the spend in H1
2023 due to the timing of acquisitions.
This resulted in an increase in net debt of $27m in H1 24, leading to closing
net debt of $102m (Dec 2023: net debt $75m).
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). Group
borrowings under the RCF are subject to two financial covenants, minimum
interest cover of 4x and maximum net leverage of 3x, that are calculated in
accordance with the facility agreement.
The Group entered the year with a strong balance sheet and deployed $29m 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
2024, Keywords had net debt (excluding IFRS 16 leases) of $102m (31 December
2023: net debt of $75m) and undrawn committed facilities of $268m. The undrawn
facilities, together with ongoing cash generation leaves us well placed to
continue to execute on our M&A programme.
Capital Allocation
In line with the terms of the Transaction, the Board is not declaring a
dividend for the period ending 30 June 2024.
During the first half of the year the Group used the Employee Benefit Trust to
undertake market purchases of Company shares amounting to $5m.
2024 Guidance
We remain confident in delivering good overall revenue growth in 2024, with
performance expected to be second half weighted as the sector starts to emerge
from the slower content creation trends that are currently dampening industry
spend and therefore Keywords' growth. We continue to closely manage costs and
are taking a broad range of cost actions and expect margins to improve as the
impact of the cost savings programmes and pick-up in volumes flow through.
Rob Kingston
Chief Financial Officer
Condensed interim consolidated statement of comprehensive income
Note Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 24 30 Jun 23 31 Dec 23
Re-presented Re-presented
$ 000 $ 000 $ 000
Revenue from contracts with customers 5 440,428 413,274 842,609
Cost of sales (288,425) (256,743) (519,696)
Gross profit 152,003 156,531 322,913
Share-based payments expense (13,022) (10,177) (23,743)
Costs of acquisition and integration 6 (49,330) (7,876) (29,424)
Amortisation of intangible assets 10 (13,743) (13,771) (28,150)
Total of items excluded from adjusted profit measures (76,095) (31,824) (81,317)
Other administration expenses (94,642) (93,017) (192,339)
Administrative expenses (170,737) (124,841) (273,656)
Operating (loss)/profit (18,734) 31,690 49,257
Financing income 7 1,997 165 666
Financing cost 7 (8,517) (6,789) (13,453)
(Loss)/profit before taxation (25,254) 25,066 36,470
Taxation (5,629) (9,407) (16,226)
(Loss)/profit after taxation (30,883) 15,659 20,244
(Loss)/profit attributable to:
Owners of the parent (30,883) 15,659 20,244
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Actuarial (loss)/gain on defined benefit plans (200) (160) 17
Items that may be reclassified subsequently to profit or loss
Exchange (loss)/gain in net investment in foreign operations (6,789) 1,201 4,026
Exchange (loss)/gain on translation of foreign operations (3,133) 6,745 6,116
Tax related to items taken to other comprehensive income 1,731 - 1,337
Total comprehensive (expense)/income for the period (39,274) 23,445 31,740
Total comprehensive (expense)/income attributable to:
Owners of the parent (39,274) 23,445 31,740
$ cent $ cent $ cent
Earnings per Share
Basic earnings per ordinary share 8 (38.82) 19.93 25.65
Diluted earnings per ordinary share 8 (38.19) 19.20 25.31
Condensed interim consolidated statement of financial position
Note Unaudited Unaudited Audited
At At At
30 Jun 24 30 Jun 23 31 Dec 23
Re-presented Re-presented
$ 000 $ 000 $ 000
Non-current assets
Intangible assets 10 681,672 624,354 697,772
Right of use assets 10 42,006 48,131 46,362
Property, plant and equipment 10 57,111 58,191 55,458
Deferred tax assets 40,237 33,311 36,155
Investments 187 190 193
821,213 764,177 835,940
Current assets
Cash and cash equivalents 29,941 47,632 66,083
Trade receivables 11 98,039 103,345 99,275
Other receivables 11 113,098 98,185 91,992
Corporation tax recoverable 7,043 6,392 6,614
248,121 255,554 263,964
Current liabilities
Trade payables 15,525 16,081 15,780
Other payables 14 169,130 175,100 172,168
Corporation tax liabilities 27,793 26,224 29,895
Lease liabilities 17 14,880 16,762 15,302
227,328 234,167 233,145
Net current assets 20,793 21,387 30,819
Non-current liabilities
Other payables 14 16,642 21,067 13,251
Employee defined benefit plans 5,185 3,913 4,448
Loans and borrowings 15 132,329 59,997 140,618
Deferred tax liabilities 15,504 17,138 11,378
Lease liabilities 17 33,430 37,186 36,549
203,090 139,301 206,244
Net assets 638,916 646,263 660,515
Equity
Share capital 12 1,044 1,153 1,155
Share capital - to be issued 12 354 2,849 349
Share premium 12 64,163 64,906 64,956
Merger reserve 12 342,171 347,573 352,504
Foreign exchange reserve (19,810) (33,376) (31,180)
Shares held in Employee Benefit Trust ("EBT") - (1,050) (7,251)
Share-based payments reserve 92,144 79,580 90,005
Retained earnings 158,850 184,628 189,977
Total equity 638,916 646,263 660,515
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 equity
$ 000
$ 000
$ 000
$ 000
$ 000
$ 000
$ 000
$ 000
$ 000
At 01 January 2023 (Re-presented) 1,139 2,462 56,795 330,645 (41,322) - 73,786 170,690 594,195
Profit for the period - - - - - - - 15,659 15,659
Other comprehensive income - - - - 7,946 - - (160) 7,786
Total comprehensive income for the period - - - - 7,946 - - 15,499 23,445
Contributions by and contributions to the owners
Share-based payments expense - - - - - - 10,177 - 10,177
Cash proceeds arising from share-based payments 5 - 1,543 - - 4,380 (4,383) - 1,545
Company funded acquisition of shares - - - - - (5,430) - - (5,430)
Dividends - - - - - - - (1,561) (1,561)
Acquisition-related issuance of shares 9 387 6,568 16,928 - - - - 23,892
At 30 June 2023 (Re-presented) 1,153 2,849 64,906 347,573 (33,376) (1,050) 79,580 184,628 646,263
Profit for the period - - - - - - - 4,585 4,585
Other comprehensive income - - - - 2,196 - - 1,514 3,710
Total comprehensive income - - - - 2,196 - - 6,099 8,295
Contributions by and contributions to the owners
Share-based payments expense - - - - - - 13,566 - 13,566
Cash proceeds arising from share-based payments - - 36 - - (4,380) 5,576 - 1,232
Company funded acquisition of shares - - - - - (1,821) (8,717) - (10,538)
Dividends - - - - - - - (750) (750)
Acquisition-related issuance of shares 2 (2,500) 14 4,931 - - - - 2,447
At 31 December 2023 (Re-presented) 1,155 349 64,956 352,504 (31,180) (7,251) 90,005 189,977 660,515
Change in functional currency (of the Company) (119) 5 (4,771) (14,922) 21,292 (227) (1,258) - -
At 01 January 2024 1,036 354 60,185 337,582 (9,888) (7,478) 88,747 189,977 660,515
Loss for the period - - - - - - - (30,883) (30,883)
Other comprehensive expense - - - - (9,922) - - 1,531 (8,391)
Total comprehensive expense - - - - (9,922) - - (29,352) (39,274)
Contributions by and contributions to the owner
Share-based payments expense - - - - - - 13,022 - 13,022
Cash proceeds arising from share-based payments 5 - 3,978 - - - 3,294 - 7,277
Dividends - - - - - - - (1,775) (1,775)
Company funded acquisition of shares - - - - - 7,478 (12,919) - (5,441)
Acquisition-related issuance of shares 3 - - 4,589 - - - - 4,592
At 30 June 2024 1,044 354 64,163 342,171 (19,810) - 92,144 158,850 638,916
Condensed interim consolidated statement of cash flows
Cash flows from operating activities Note Unaudited Unaudited Audited
Half Year Half Year Year
30 Jun 24 30 Jun 23 31 Dec 23
Re-presented Re-presented
$ 000 $ 000 $ 000
(Loss)/profit after taxation (30,883) 15,659 20,244
Income and expenses not affecting operating cash flows
Depreciation and impairment - property, plant and equipment 10 14,720 11,769 31,225
Depreciation and impairment - right of use assets 10 10,008 8,422 17,205
Amortisation of intangible assets 10 13,743 13,771 28,150
Taxation 5,629 9,407 16,226
Share-based payments expense 13,022 10,177 23,743
Fair value movements in deferred and contingent consideration 6 1,478 4,668 9,945
Non-cash movements included in costs of acquisition and integration 6 35,188 - 2,899
Unwinding of discounted liabilities - deferred consideration 7 1,940 1,963 3,543
Unwinding of discounted liabilities - lease liabilities 7 862 680 1,562
Interest receivable 7 (265) (165) (666)
Fair value adjustment to employee defined benefit plans 536 721 1,243
Interest expense 7 5,280 2,408 6,235
Unrealised foreign exchange (gain) / loss 914 (3,762) (1,201)
103,055 60,059 140,109
Changes in operating assets and liabilities
Increase in trade receivables (853) (9,994) (228)
Increase in MMTC and VGTR receivable (10,675) (17,917) (12,159)
Increase in other receivables (11,049) (12,397) (7,672)
(Decrease)/increase in accruals, trade and other payables (13,725) 2,697 8,206
(36,302) (37,611) (11,853)
Taxation paid (5,746) (8,575) (22,645)
Settlement of deferred and contingent consideration related to continuous 14 (1,967) - (4,222)
employment
Net cash generated by operating activities 28,157 29,532 121,633
Cash flows from investing activities
Current year acquisition of subsidiaries net of cash acquired 18 (323) (82,183) (174,479)
Settlement of deferred liabilities on acquisitions 14 (21,663) (10,943) (33,020)
Acquisition of property, plant and equipment 10 (17,443) (20,350) (33,204)
Investment in intangible assets 10 (2,294) (1,428) (3,305)
Interest received 7 265 165 666
Net cash used in investing activities (41,458) (114,739) (243,342)
Cash flows from financing activities
Cash proceeds, where EBT shares are utilised for the exercise of share-based 3,294 323 1,240
payments
Repayment of loans 15 (81,650) (35,047) (105,176)
Drawdown of loans 15 74,000 95,000 244,804
Payments of principal on lease liabilities 17 (7,283) (7,351) (16,476)
Interest paid on principal of lease liabilities 17 (862) (680) (1,562)
Company funded acquisition of shares by EBT (5,441) (5,430) (15,968)
Shares issued for cash 12 3,983 1,222 1,647
Dividends paid (1,775) (1,561) (2,311)
Interest paid (5,464) (1,887) (6,796)
Net cash (used in)/generated by financing activities (21,198) 44,589 99,402
Decrease in cash and cash equivalents (34,499) (40,618) (22,307)
Exchange gain / (loss) on cash and cash equivalents (1,643) 911 1,051
Cash and cash equivalents at beginning of the period 66,083 87,339 87,339
Cash and cash equivalents at end of the period 29,941 47,632 66,083
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 2024.
The interim results for the half year ended 30 June 2024 and the half year
ended 30 June 2023 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 2023, 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 2024 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
2023 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 good cash flow performance of the Group through the period;
· The continued demand for the Group's services;
· The ability to operate most of its services in a work from home
model where studios are temporarily closed;
· The historical resilience of the broader video games industry in
times of economic downturn; and
· The ability of the Group to flex its cost base in response to a
reduction in trading activity.
The Directors have also considered the Group's strong liquidity position with
net debt of $102.4m as at 30 June 2024, and committed undrawn facilities of
$267.7m under the $400m Revolving Credit Facility ("RCF") in place at 30 June
2024.
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
2024 were approved by the Board of Directors on 15 September 2024.
2 Material Accounting Policies
New Standards, Interpretations and Amendments effective 1 January 2024
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.
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 amendment
effective for the period beginning 01 January 2025:
· Lack of Exchangeability (Amendment to IAS 21, The Effects of
Changes in Foreign Exchange Rates)
The Group does not expect this amendment, or any other standards issued by the
IASB but not yet effective, to have a material impact on the Group.
Changes in Material Accounting Policies
Except as described in note 3, 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
2023.
3 Change in Functional and Presentation Currency
The Group decided to change its presentation currency to US dollars with
effect from 01 January 2024. Given the current composition of the Group's
activities, this change is expected to reduce the impact of currency movements
on reported results. In accordance with IAS 8, Accounting Policies, Changes in
Accounting Estimates and Errors, a change in presentation currency is applied
retrospectively.
In accordance with the provisions of IAS 21, the Effects of Changes in Foreign
Exchange Rates, in respect of changes in presentation currency, financial
information has been restated from Euro to US dollars as follows:
· assets and liabilities in non-US denominated currencies were
translated into US dollars at the rates of exchange ruling at the relevant
balance sheet date;
· non-US dollar income statements and cash flows were translated
into US dollars at average rates of exchange for the relevant period;
· share capital, share premium and all other equity items were
translated at the historical rates prevailing at 1 January 2013, the date of
transition to IFRS, or the subsequent rates prevailing on the date of each
relevant transaction; and
· the cumulative foreign exchange translation reserve was set to
zero on 1 January 2013, the date of transition to IFRS and this reserve has
been restated on the basis that the Group has reported in US dollars since
that date.
Half Year Year
30 Jun 23
31 Dec 23
Average
Euro 1.08 1.08
Sterling 1.23 1.23
Canadian dollar 0.74 0.74
Period end
Euro 1.09 1.10
Sterling 1.27 1.27
Canada 0.75 0.75
On 01 January 2024, the functional currency of the Company was changed from
Euro to US dollars, a change which is applied prospectively. All items were
translated using the exchange rate at the date of the change, which resulted
in a re-statement of the Share Capital of the Company on 01 January 2024, with
the resulting translation difference recorded in the Foreign exchange reserve.
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 2023. The only exceptions are:
· Tax Liabilities - determined using the estimated annual effective
tax rate
· 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
Revenue from external customers Unaudited Unaudited Audited
Half Year
Half Year
Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
Create 204,979 175,489 362,960
Globalize 139,041 156,922 301,628
Engage 96,408 80,863 178,021
440,428 413,274 842,609
Segment operating profit
Create 46,586 45,718 101,484
Globalize 21,573 29,484 51,709
Engage 9,615 8,123 16,591
77,774 83,325 169,784
Reconciliation of Segment operating profit
Adjusted EBITDA^ 77,774 83,325 169,784
Share-based payments expense (13,022) (10,177) (23,743)
Costs of acquisition and integration (49,330) (7,876) (29,424)
Amortisation of intangible assets (13,743) (13,771) (28,150)
Depreciation - property, plant and equipment (13,180) (11,769) (24,996)
Depreciation - right of use assets (7,668) (8,422) (14,995)
Bank charges 435 380 781
Operating (loss)/profit (18,734) 31,690 49,257
Financing income 1,997 165 666
Financing costs (8,517) (6,789) (13,453)
(Loss)/profit before taxation (25,254) 25,066 36,470
^ The Group reports a number of alternative performance measures ("APMs"),
including Adjusted EBITDA, to present the financial performance of the
business, that are not GAAP measures as defined under IFRS. Segmental results
are reported in a manner consistent with these measures. A reconciliation of
Adjusted EBITDA to the relevant GAAP measure is presented in the APM's section
below.
Revenues are recognised as services are delivered by the relevant producing
segment, and while there is significant sub-contracting across production
locations around the Group, inter-segment revenues are not significant. Assets
and liabilities are not allocated by segment.
One customer was above 10% of revenues in H1 2024, accounting for 21.0% of
total revenue (2023: 19.1%), with revenues spread across all divisions and
service lines. The increase in concentration is primarily due to the timing of
the customer's development and game release cycle.
Unaudited Unaudited Audited
Half Year
Half Year
Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
Geographical analysis of revenues, by production location*
United Kingdom 99,152 67,968 140,417
United States 98,018 82,017 188,514
Canada 77,349 87,620 170,854
Poland 20,474 21,163 44,267
Italy 19,545 19,548 36,843
India 16,465 14,612 30,102
China 15,801 16,218 31,386
Philippines 15,604 9,907 22,239
Australia 14,975 20,014 37,179
Mexico 9,372 7,296 16,814
Other 53,673 66,911 123,994
440,428 413,274 842,609
*The prior year comparatives have been re-classified to align to the current
year ranking.
Revenue Expected to be Recognised
For Game Development, games are developed to an agreed specification and time
schedule, and often have delivery schedules and/or milestones that extend well
into the future. The following are Game Development revenues expected to be
recognised for contracts with a schedule of work that extends beyond one year,
representing the aggregate amount of the transaction price allocated to the
performance obligations that are unsatisfied (or partially unsatisfied) as at
the end of the reporting period:
At At At
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
Scheduled completion within 1 year 34,917 29,502 63,709
Scheduled completion 1-2 years - 308 12,085
Scheduled completion 2-5 years - 102 501
Total undelivered 34,917 29,912 76,295
Unaudited Unaudited Audited
Half Year
Half Year
Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
Geographical analysis of non-current assets from continuing businesses*
United States 368,878 396,336 378,485
United Kingdom 236,830 140,725 241,305
Australia 54,752 53,825 55,338
Canada 50,783 58,553 53,850
Italy 16,566 17,948 17,704
Poland 15,170 17,576 16,436
Switzerland 10,744 10,897 11,071
China 9,705 11,743 10,917
India 8,172 6,232 8,445
France 7,541 8,040 7,991
Other 42,072 42,302 34,398
821,213 764,177 835,940
*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 24
30 Jun 23
$ m
$ m
Revenue 870 786
Gross profit 318 300
Costs of acquisition and integration
Unaudited Unaudited Audited
Half Year
Half Year
Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
Acquisition and integration costs re: current year acquisitions 662 183 3,006
Fair value adjustments to contingent consideration 890 - 334
Deferred consideration related to continuous employment 588 4,668 9,611
Acquisition team and related costs 346 383 640
EQT bid costs 31,617 - -
Other restructuring - Severance 7,752 1,638 4,203
Globalize restructuring - Right of use assets impairment 2,340 - 2,210
Globalize restructuring - Property, plant and equipment impairment 1,540 - 6,231
Globalize restructuring - Other provisions 3,571 - 2,899
Other 24 1,004 290
49,330 7,876 29,424
6 Financing Income and Cost
Unaudited Unaudited Audited
Half Year
Half Year
Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
Financing income
Interest received 265 165 666
Foreign exchange gain 1,732 - -
1,997 165 666
Financing cost
Bank charges (435) (380) (781)
Interest expense (5,280) (2,408) (6,235)
Unwinding of discounted liabilities - lease liabilities (862) (680) (1,562)
Unwinding of discounted liabilities - deferred consideration (1,940) (1,963) (3,543)
Foreign exchange loss - (1,358) (1,332)
(8,517) (6,789) (13,453)
Net financing cost (6,520) (6,624) (12,787)
7 Earnings per Share
Unaudited Unaudited Audited
Half Year
Half Year
Year
30 Jun 24
30 Jun 23
31 Dec 23
$ cent
$ cent
$ cent
Basic (38.82) 19.93 25.65
Diluted (38.19) 19.20 25.31
Earnings $ 000 $ 000 $'000
(Loss)/profit for the period from continuing operations (30,883) 15,659 20,244
Weighted average number of equity shares Number Number Number
Basic (i) 79,546,471 78,558,801 78,910,471
Diluting impact of share options (ii) 1,315,883 2,993,709 1,084,796
Diluted (i) 80,862,354 81,552,510 79,995,267
(i) Includes (weighted average) shares to be issued:
Number Number Number
13,119 106,959 67,827
(ii) Contingently issuable ordinary shares have been excluded where the
conditions governing exercisability have not been satisfied:
Number Number Number
LTIPs 2,588,384 1,233,865 3,334,569
Share options 501,095 - 450,994
3,089,479 1,233,865 3,785,563
8 Dividends
The Board has decided not to declare an interim dividend for the period ending
30 June 2024, due to the impending takeover of the Group.
At 30 June 2024, Retained earnings available for distribution (being Retained
earnings plus Share-based payments reserve) in the Company were $72.0m. In
addition, the Company has amounts included in the Merger reserve of $136.8m
that are considered distributable (note 12).
9 Non-current Assets
Property, plant and equipment Right of use assets Intangible assets goodwill Intangible assets other Intangible assets total
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Half Year
Half Year
Half Year
Half Year
Half Year
30 Jun 24
30 Jun 24
30 Jun 24
30 Jun 24
30 Jun 24
$ 000
$ 000
$ 000
$ 000
$ 000
Movement of the carrying value of Non-current Assets
55,458 46,362 594,265 103,507 697,772
Carrying amount at the beginning of the period
Additions 17,443 6,285 - 2,294 2,294
Arising on acquisitions - - 383 - 383
Depreciation charge (13,180) (7,668) - - -
Amortisation charge - - - (13,743) (13,743)
Impairment charge (1,540) (2,340) - - -
Exchange rate movement (1,070) (633) (4,611) (423) (5,034)
Carrying amount at the end of the period 57,111 42,006 590,037 91,635 681,672
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 has determined the
service lines 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 24
30 Jun 23
31 Dec 23
$ m
$ m
$ m
Create: Game Development 327 252 328
Art Services 21 21 21
Globalize: Functional Testing 16 16 15
Localization Testing 15 15 15
Audio 35 36 36
Localization 19 20 20
Engage: Marketing 120 129 121
Player Engagement 37 40 38
590 529 594
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 2024 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 30 Jun 24
At 30 Jun 23
At 31 Dec 23
$ 000
$ 000
$ 000
Trade receivables derived from contracts with customers 101,590 107,659 103,966
Provision for bad debts (i) (ii) (3,551) (4,314) (4,691)
Financial asset held at amortised cost 98,039 103,345 99,275
Accrued income from contracts with customers - gross 32,763 22,377 21,693
Accrued income from contracts with customers - loss allowance (3,115) (1,977) (1,484)
Financial asset held at amortised cost (iii) 29,648 20,400 20,209
Multimedia tax credits/video games tax relief 50,604 46,780 40,938
Prepayments and rent deposits 17,906 15,304 15,854
Tax and social security 7,898 9,574 8,018
Other receivables 7,042 6,127 6,973
Other receivables 113,098 98,185 91,992
(i) The movements in the provision for bad debts in the
current period were as follows:
Unaudited
At 30 Jun 24
$ 000
Provision at the beginning of the period (4,691)
Amounts written off against provision in the period 1,091
Exchange rate movement 49
Provision at the end of the period (3,551)
Credit loss experience 1%
(ii) The composition of the provision for bad debts at period
end was as follows:
Unaudited
At 30 Jun 24
$ 000
Credit impaired (2,535)
Expected credit losses (1,016)
Provision at the end of the period (3,551)
(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 additional provisions of $1.5m and movement in expected credit losses of
$0.1m, totalling $1.6m.
12 Share Capital
Issue date Per share Number of ordinary £0.01 shares Number of ordinary £0.01 shares - to be issued Share capital Share capital - to be issued Share premium Merger reserve*
$
$ 000
$ 000
$ 000
$ 000
At 1 January 2024 (re-stated)^ 79,287,236 13,119 1,036 354 60,185 337,582
Acquisition-related issuance of shares:
Smoking Gun 05/01/2024 19.00 124,221 - 2 - - 2,358
Waste Creative 19/03/2024 20.77 1,245 - - - - 26
47 Communications 15/04/2024 19.92 87,648 - 1 - - 1,745
Helpshift 15/05/2024 17.07 27,045 - - - - 460
Acquisition-related issuance of shares 240,159 - 3 - - 4,589
Exercise of share options 417,848 - 5 - 3,978 -
At 30 June 2024 79,945,243 13,119 1,044 354 64,163 342,171
^As outlined in note 3, balances have been re-translated on 01 January 2024
due to the change in the functional currency of the Company.
* Included in the Merger reserve are amounts of $15.9m (being the premium
arising on the share placement in 2015) and $120.9m (being the premium arising
on the share placement in 2020), totalling $136.8m, 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.
13 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 2024 18.99 1,358,340 0.01 3,629,433 0.01 842,591
Granted 0.00 - 0.01 1,647,981 0.01 913,602
Lapsed 18.41 (65,145) 0.01 (919,692) 0.01 (51,008)
Exercised 15.57 (354,329) 0.01 (583,955) 0.01 (186,890)
At 30 June 2024 20.45 938,866 0.01 3,773,767 0.01 1,518,295
Exercisable at 30 June 2024 19.55 772,863 0.01 617,907 0.01 -
Weighted average share price at date of exercise 22.08 17.82 n/a
Analysis of Shares Exercised Number of options Number of options Number of options
Exercised via issuance of new shares 196,860 220,988 -
Exercised via utilisation of shares held in EBT 157,469 362,967 186,890
354,329 583,955 186,890
14 Other payables
Unaudited Audited Unaudited
At 30 Jun 24
At 30 Jun 23
At 31 Dec 23
$ 000
$ 000
$ 000
Current liabilities
Accrued expenses 110,278 73,865 84,972
Payroll taxes 7,606 5,507 5,599
Other payables (ii) 31,345 28,493 33,221
Deferred and contingent consideration (i) 13,920 62,214 40,348
Deferred and contingent consideration related to continuous employment (i) 5,981 5,021 8,028
169,130 175,100 172,168
Non-current liabilities
Deferred and contingent consideration (i) 16,642 21,067 13,251
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:
Deferred and contingent consideration Deferred and contingent consideration related to continuous employment
Unaudited
Unaudited
At 30 Jun 24
At 30 Jun 24
$ 000
$ 000
Carrying amount at the beginning of the period 53,599 8,028
Consideration settled by cash (21,663) (1,967)
Consideration settled by shares (3,940) (652)
Unwinding of discount (note 7) 1,940 -
Accrued liabilities from prior acquisitions (note 6) - 3,860
Fair value movements in contingent consideration (note 6) 890 (3,272)
Exchange rate movement (264) (16)
Carrying amount at the end of the period 30,562 5,981
A 10% movement in expected performance would impact the fair value of deferred
and contingent consideration as follows:
Increase / (decrease) in carrying amount Deferred and contingent consideration Deferred and contingent consideration related to continuous employment
Unaudited
Unaudited
At 30 Jun 24
At 30 Jun 24
$ 000
$ 000
Increase in expected performance - 10% 5,425 -
Decrease in expected performance - 10% (5,616) (2,579)
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 $1.1m to a maximum of $63.3m. The
contractual maturities (representing undiscounted contractual cash flows) of
the Group's deferred and contingent consideration liabilities were as follows:
Deferred and contingent consideration Deferred and contingent consideration related to continuous employment
Unaudited
Unaudited
At 30 Jun 24
At 30 Jun 24
$ 000
$ 000
Not later than one year 11,590 9,158
Later than one year and not later than two years 33,121 9,290
Later than two years and not later than five years - 161
Total undiscounted contractual cash flows 44,711 18,609
(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.
15 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
At 30 Jun 24
$ 000
Carrying amount as the beginning of the period 140,618
Drawdowns 74,000
Repayments (81,650)
Exchange rate movement (639)
Carrying amount at the end of the period 132,329
In 2023, the Group negotiated a new unsecured multi-currency revolving credit
facility agreement ("RCF") of US$400m that matures in July 2027. The RCF
includes an accordion option to increase the facility up to US$500m and an
option to extend the expiry date by a further one-year period (both subject to
lender consent). The RCF contains representations, warranties, and financial
covenants customary for facilities of this type. Non-compliance with RCF terms
could result in lenders refusing to advance funds under the facility or, in
the worst case, calling in outstanding loans.
In connection with the financial covenants, the Group is required to comply
with and report interest cover and leverage ratios, each half calendar year,
calculated in accordance with the lenders' facility agreement. The covenants
provide that a leverage measure (Net debt to Adjusted EBITDA ratio) shall not
exceed 3.0x and an interest cover measure (EBIT to Net Finance Charges ratio)
will be a minimum of 4.0x.
During the period the RCF agreement was amended to align the interest cover
ratio to market standards, changing the basis of calculation from EBIT to Net
Finance Charges, to Adjusted EBITDA to Net Finance Charges (again with a
minimum threshold of 4.0x). Both covenant measures are now calculated on a
consistent basis, and both measures are now more closely aligned with the key
metrics used to manage the business. Throughout the period, the Group operated
well within the revised RCF ratio terms, with Net Debt to Adjusted EBITDA of
0.7x and with Adjusted EBITDA to Net Finance Charges of 17.8x for H1-24.
At the period end the net debt ratio was as follows:
Unaudited
At 30 Jun 24
$ 000
Loans and borrowings 132,329
Less: cash and short-term deposits (29,941)
Net debt / (net cash) position 102,388
Total equity 638,916
Net debt / (net cash) to capital ratio (%) 16.0%
16 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.
17 Lease Liabilities
The Group has entered into leases, across the business, principally relating
to property. These property leases have varying terms and renewal rights.
Management applies judgement in determining whether it is reasonably certain
that a renewal or termination option will be exercised.
The movement in lease liabilities during the current period was as follows:
Unaudited
At 30 Jun 24
$ 000
Carrying amount at the beginning of the period 51,851
Liabilities recognised on new leases in the period 6,285
Modifications to lease liabilities (1,785)
Unwinding of discounted liabilities - lease liabilities 862
Payment of principal and interest on lease liabilities (8,145)
Exchange rate movement (758)
Carrying amount at the end of the period 48,310
The value of leases not yet commenced to which the lessee is committed, which
are not included in the lease liability at 30 June 2024, were $nil.
18 Business Combinations
In June 2024, Keywords completed the acquisition of a small game development
studio in Australia as it continues to build out its offering there,
purchasing 100% of the business. The total purchase consideration for this
acquisition was $0.3m.
19 Significant Events
On 3 July, the boards of Keywords and a newly formed company indirectly
wholly-owned by EQT's BPEA Fund VIII, reached an agreement on the terms of a
recommended final cash acquisition of the entire issued and to be issued
ordinary share capital of Keywords for a price of £24.50 per share. EQT's
offer of £24.50 per share followed numerous previous unsolicited proposals
from EQT and represents a significant increase from their initial proposal. It
values the entire issued and to be issued ordinary share capital of the Group
at approximately £2.1 billion on a fully diluted basis. On the 30 August,
shareholders voted in favour of the Transaction and all anti-trust clearances
have now been received or applicable waiting periods have expired. Following
the Sanction Hearing which is scheduled on 21 October 2024. Keywords
anticipate that the Scheme will become effective on or about 23 October 2024
with the cancellation of trading of Keywords' shares on AIM by 24 October.
20 Events after the Reporting Date
On 13 August 2024, the Group announced that it had acquired Wushu Studios
Limited. Wushu was founded in 2017, initially as an original IP studio, before
transitioning to a work-for-hire model. Wushu employs c.160 people, with
multiple project teams working closely with clients to develop a range of
high-quality games. Wushu has grown well despite current market turbulence,
with adjusted revenues of approximately £12.5m and an adjusted EBITDA margin
in line with Keywords Studios' level adjusted EBITDA of approximately £2.0m
expected in the year ending 31 August 2024. The consideration comprises an
upfront and earn-out component and is expected to fall within the Group's
targeted valuation range. The upfront consideration was paid in cash and
funded from the Group's existing revolving credit facility.
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 US dollar 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 US dollar. 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.
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,
non-cash movements in deferred and contingent consideration related to
continuous employment, payments of principal on lease liabilities, interest
and tax payments, but before acquisition and integration cash outlay and
dividend payments. Adjusted free cash flow is a measure of cash flow adjusting
for capital expenditure that is supporting growth in future periods
(represented by capital expenditure in excess of depreciation).
Net debt - The Group manages capital by monitoring debt to capital and net
debt ratios. Net debt is calculated as loans and borrowings less cash and cash
equivalents, and excludes lease liabilities. The debt to capital ratio is
calculated as net debt as a percentage of total equity.
The remainder of this section provides a reconciliation of the APMs with the
relevant IFRS GAAP equivalent.
Divisional analysis
The following table presents revenue growth by division at both actual
exchange rates ("AER") and constant exchange rates ("CER"). Constant exchange
rates are calculated by retranslating current year reported numbers at the
corresponding 2023 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 24 30 Jun 24 30 Jun 23 30 Jun 24 30 Jun 24
Revenue Revenue Revenue Growth Growth
AER CER AER AER CER
$m $m $m % %
Create 205.0 203.9 175.5 16.8% 16.2%
Globalize 139.0 138.3 156.9 (11.4%) (11.9%)
Engage 96.4 96.5 80.9 19.2% 19.3%
440.4 438.7 413.3 6.6% 6.2%
Pro forma revenue
Pro forma revenue is calculated by adding pre-acquisition revenues of current
year acquisitions to the current year revenue numbers, to illustrate the size
of the Group had the acquisitions been included from the start of the
financial year.
2024 2024 2024 Year
Revenue Pre-acquisition Pro forma 30 Jun 24
AER revenue revenue Pro forma
$m AER AER revenue
$m $m AER
$m
Create 205.0 - 205.0 392.5
Globalize 139.0 - 139.0 283.7
Engage 96.4 - 96.4 193.5
440.4 - 440.4 869.7
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 2023 foreign exchange rates to both
years, when translating studio results into the US dollar reporting currency.
2023 2023 2023 2024 2024 2024
Revenue Pre-acquisition Like-for-like Revenue Revenue Organic
AER revenue revenue growth CER revenue
$m AER AER CER $m growth
$m $m $m CER
%
Create 175.5 26.2 201.7 2.2 203.9 1.1%
Globalize 156.9 - 156.9 (18.6) 138.3 (11.9%)
Engage 80.9 7.9 88.8 7.7 96.5 8.7%
413.3 34.1 447.4 (8.7) 438.7 (1.9%)
Adjusted operating costs
This comprises Administrative expenses as reported in the Consolidated
statement of comprehensive income, adding back share-based payments expense,
costs of acquisition and integration, amortisation of intangible assets,
depreciation and impairment, and deducting bank charges.
Calculation Half Year Half Year Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
Administrative expenses Consolidated statement of comprehensive income (170,737) (124,841) (273,656)
Share-based payments expense Consolidated statement of comprehensive income 13,022 10,177 23,743
Costs of acquisition and integration Consolidated statement of comprehensive income 49,330 7,876 29,424
Amortisation of intangible assets Consolidated statement of comprehensive income 13,743 13,771 28,150
Depreciation - property, plant and equipment Note 10 13,180 11,769 24,996
Depreciation - right of use assets Note 10 7,668 8,422 14,995
Bank charges Note 7 (435) (380) (781)
Adjusted operating costs (74,229) (73,206) (153,129)
Adjusted operating costs as a % of revenue 16.9% 17.7% 18.2%
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.
Calculation Half Year Half Year Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
Operating (loss)/profit Consolidated statement of comprehensive income (18,734) 31,690 49,257
Share-based payments expense Consolidated statement of comprehensive income 13,022 10,177 23,743
Costs of acquisition and integration Consolidated statement of comprehensive income 49,330 7,876 29,424
Amortisation of intangible assets Consolidated statement of comprehensive income 13,743 13,771 28,150
Adjusted operating profit 57,361 63,514 130,574
Adjusted operating profit as a % of revenue 13.0% 15.4% 15.5%
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.
Calculation Half Year Half Year Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
Operating (loss)/profit Consolidated statement of comprehensive income (18,734) 31,690 49,257
Amortisation of intangible assets Consolidated statement of comprehensive income 13,743 13,771 28,150
Depreciation - property, plant and equipment Note 10 13,180 11,769 24,996
Depreciation - right of use assets Note 10 7,668 8,422 14,995
Bank charges Note 7 (435) (380) (781)
EBITDA 15,422 65,272 116,617
Adjusted EBITDA
Adjusted EBITDA comprises EBITDA, adjusted for share-based payments expense
and costs of acquisition and integration.
Calculation Half Year Half Year Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
EBITDA As above 15,422 65,272 116,617
Share-based payments expense Consolidated statement of comprehensive income 13,022 10,177 23,743
Costs of acquisition and integration Consolidated statement of comprehensive income 49,330 7,876 29,424
Adjusted EBITDA 77,774 83,325 169,784
Adjusted EBITDA as a % of revenue 17.7% 20.2% 20.1%
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, foreign exchange gains and losses, and unwinding of
discounted liabilities.
Calculation Half Year Half Year Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
(Loss)/profit before taxation Consolidated statement of comprehensive income (25,254) 25,066 36,470
Share-based payments expense Consolidated statement of comprehensive income 13,022 10,177 23,743
Costs of acquisition and integration Consolidated statement of comprehensive income 49,330 7,876 29,424
Amortisation of intangible assets Consolidated statement of comprehensive income 13,743 13,771 28,150
Foreign exchange (gain) / loss Note 7 (1,732) 1,358 1,332
Unwinding of discounted liabilities - deferred consideration Note 7 1,940 1,963 3,543
Adjusted profit before tax 51,049 60,211 122,662
Adjusted profit before tax as a % of revenue 11.6% 14.6% 14.6%
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.
Calculation Half Year Half Year Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
Adjusted profit before tax As above 51,049 60,211 122,662
Taxation Consolidated statement of comprehensive income 5,629 9,407 16,226
Effective tax rate before tax on adjusting items 11.0% 15.6% 13.2%
Tax arising on bridging items to Adjusted profit before tax^ 5,833 3,733 11,382
Adjusted taxation 11,462 13,140 27,608
Adjusted effective tax rate Taxation / Adjusted profit before tax 22.5% 21.8% 22.5%
^Being mainly the tax impact of share-based payments expense $2.3m and
amortisation of intangible assets $2.8m, with the prior period being mainly
the tax impact of share-based payments expense $1.6m and amortisation of
intangible assets $2.1m.
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 either the basic or diluted weighted average number of equity
shares as reported in note 8.
Calculation Half Year Half Year Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
Adjusted profit before tax As above 51,049 60,211 122,662
Taxation Consolidated statement of comprehensive income (5,629) (9,407) (16,226)
Tax arising on bridging items to Adjusted profit before tax^ (5,833) (3,733) (11,382)
Adjusted profit after tax 39,587 47,071 95,054
Number Number Number
Basic Note 8 79,546,471 78,558,801 78,910,471
Diluted Note 8 80,862,354 81,552,510 79,995,267
Adjusted earnings per share
Basic (in cents) 49.77 59.92 120.46
% growth (16.9%) (2.6%) 1.1%
Diluted (in cents) 48.96 57.72 118.82
% growth (15.2%) (2.8%) 4.3%
^Being mainly the tax impact of share-based payments expense $2.3m and
amortisation of intangible assets $2.8m, with the prior period being mainly
the tax impact of share-based payments expense $1.6m and amortisation of
intangible assets $2.1m.
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.
Calculation Half Year Half Year Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
Adjusted profit before tax As above 51,049 60,211 122,662
Interest received Note 7 (265) (165) (666)
Bank charges Note 7 435 380 781
Interest expense Note 7 5,280 2,408 6,235
Unwinding of discounted liabilities - lease liabilities Note 7 862 680 1,562
Pre-acquisition profits of current period acquisitions - 1,355 10,427
Adjusted profit before tax including pre-acquisition profit excluding interest 57,361 64,869 141,001
for the period
Rolling 12-month adjustment 76,132 69,164 -
Adjusted profit before tax including pre-acquisition profit and excluding net 133,493 134,033 141,001
interest
Total equity Consolidated statement of financial position 638,916 646,263 660,515
Employee defined benefit plans Consolidated statement of financial position 5,185 3,913 4,448
Cumulative amortisation of intangible assets (customer relationships) 94,469 73,335 84,579
Deferred and contingent consideration Note 14 36,543 83,281 61,627
Loans and borrowings Consolidated statement of financial position 132,329 59,997 140,618
Cash and cash equivalents Consolidated statement of financial position (29,941) (47,632) (66,083)
Capital employed 877,501 819,157 885,704
Return on capital employed 15.2% 16.4% 15.9%
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.
Calculation Half Year Half Year Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
Net cash generated by / (used in) operating activities Consolidated statement of cash flows 28,157 29,532 121,633
Costs of acquisition and integration Consolidated statement of comprehensive income 49,330 7,876 29,424
Fair value adjustments to contingent consideration Consolidated statement of cash flows (890) - (334)
Non-cash movements in deferred and contingent consideration related to Consolidated statement of cash flows (588) (4,668) (9,611)
continuous employment
Fair value adjustments to property, plant and equipment Consolidated statement of cash flows (1,540) - (6,231)
Fair value adjustments to right of use assets Consolidated statement of cash flows (2,340) - (2,210)
Other fair value movements within cost of acquisition and integration Consolidated statement of cash flows (3,571) - (2,899)
EQT bid costs Consolidated statement of cash flows (31,617) - -
Acquisition of property, plant and equipment Consolidated statement of cash flows (17,443) (20,350) (33,204)
Investment in intangible assets Consolidated statement of cash flows (2,294) (1,428) (3,305)
Settlement of deferred and contingent consideration related to continuous Consolidated statement of cash flows 1,967 - 4,222
employment
Interest received Note 7 265 165 666
Interest paid Consolidated statement of cash flows (6,326) (2,567) (8,358)
Payments of principal on lease liabilities Consolidated statement of cash flows (7,283) (7,351) (16,476)
Free cash flow after tax 5,827 1,209 73,317
Taxation paid Consolidated statement of cash flows 5,746 8,575 22,645
Free cash flow before tax 11,573 9,784 95,962
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).
Calculation Half Year Half Year Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
Free cash flow before tax As above 11,573 9,784 95,962
Capital expenditure in excess of depreciation:
Acquisition of property, plant and equipment Consolidated statement of cash flows 17,443 20,350 33,204
Depreciation - property, plant and equipment Note 10 (13,180) (11,769) (24,996)
Capital expenditure in excess of depreciation 4,263 8,581 8,208
Adjusted free cash flow 15,836 18,365 104,170
Adjusted cash conversion rate
The Adjusted cash conversion rate is the Adjusted free cash flow as a
percentage of the Adjusted profit before tax:
Calculation Half Year Half Year Year End
30 Jun 24 30 Jun 23 31 Dec 23
$ 000 $ 000 $ 000
Adjusted free cash flow As above 15,836 18,365 104,170
Adjusted profit before tax As above 51,049 60,211 122,662
Adjusted cash conversion ratio Free cash flow before tax and capital expenditure in excess of depreciation, 31.0% 30.5% 84.9%
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.
Calculation Half Year Half Year Year
30 Jun 24
30 Jun 23
31 Dec 23
$ 000
$ 000
$ 000
Loans and borrowings Consolidated statement of financial position 132,329 59,997 140,618
Cash and cash equivalents Consolidated statement of financial position (29,941) (47,632) (66,083)
Net debt position 102,388 12,365 74,535
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