Keywords Studios PLC – Half-year Report

Keywords Studios PLC – Half-year Report

Keywords Studios, the international technical and creative services provider to the global video games industry, today provides its half year results for the six months to 30 June 2019.


Financial overview:

Strong like for like growth, complemented by acquisitions

·    Revenue, including contribution from acquisitions, increased by 39.3% to €153.2m (H1 2018: €110.0m)

Like-for-like revenue at constant currency exchange rates, increased by 17.3%1 to €146.4m (H1 2018: €124.8m)

·    Gross profit margin of 36.1% (H1 2018: 37.4%) as a result of rapid recruitment and training, staffing of new facilities, and the impact of one significant project brought in through an acquisition

·    Adjusted EBITDA2 was €25.8m, on a pre IFRS 16 basis it was €22.3m (H1 2018: €18.7m)

·    Adjusted profit before tax3 was up 14.3% to €18.4m, on a pre IFRS 16 basis it was €18.6m (H1 2018: €16.1m)

·    Adjusted earnings per share4 was 18.36c, on a pre IFRS 16 basis it was 18.71c (H1 2018: 18.30c), resulting from the higher tax charge combined with the increase in the tax related to adjusted items offsetting the growth in Adjusted profit before tax

·    Annualised return on capital employed (ROCE)5 YE 30 June 2019 of 19.7% (YE 30 June 2018: 17.6%)

·    Operating cash conversion6 of 53%, on a pre IFRS 16 basis it was 34% (H1 2018: 40%)

·    Net debt of €9.0m (net cash H1 2018: €0.1m; net debt FY 2018: €0.4m) after €7.0m7 of net cash outlay on acquisitions and €5.1m capital expenditure on expanding facilities for future growth

·    10% increase in interim dividend to 0.58p per share (H1 2018: 0.53p)


Operational overview:

Investment in our platform to capture accelerating outsourcing demand in the growing video games market

·    Continued investment for growth:

Approximately 1,400 new work stations under preparation for 2019, representing approximately 25% of existing capacity, of which only c.200 were partially available during H1

The major beneficiaries of expansion investment are our studios in Montreal, Katowice, Manila, Brighton, Mexico City, Tokyo, Sao Paolo and New Delhi

Continued to develop the Group through acquisitions:

Four acquisitions during the half: Sunny Side Up, GetSocial, Wizcorp and Descriptive Video Works

Added scale and diversified Keywords’ Marketing, Audio and Game Development service offerings

·    Considerable progress in cross-selling services with a 14% increase in clients buying 3 or more services to 113 (FY 2018: 99)

·    New revolving credit facility agreed for up to €140m with Barclays, HSBC, Citibank and Silicon Valley Bank


Post period end, current trading and outlook:

·    Trading in the second half has started well. The Board expects:

Strong organic revenue growth, at slightly slower growth rates than the first half, with particularly strong growth in Functional Testing, Game Development and Art Creation whilst Audio and Localisation Testing are not expected to see their typical seasonal peak in activity in the second half due to certain clients’ shift to focus on new consoles expected in 2020.

Stronger margins in the second half as we incrementally benefit from first half investments in capacity expansion partially offset by an underperforming contract and continued commissioning of new facilities.

·    Announced separately today:

Acquisition of TV Synchron, a Berlin based dubbing and voice-over studio

·    We continue to selectively review a strong acquisition pipeline with an anticipated emphasis on Game Development and Marketing services


Andrew Day, Chief Executive of Keywords Studios, commented:

“The Group grew very strongly in the first half with increased demand across all of our service lines, and particularly strong performances from Functional Testing and Game Development, as the market accelerates its use of external development and service partners. 

“We invested in capacity to match this accelerating trend, with significant investments in new and enlarged and improved facilities which will come on stream incrementally during the second half and into 2020. This investment, combined with a ramp up in staffing to meet faster and earlier growth than previously expected in our Functional Testing service line, meant we carried additional direct and indirect operational costs in the first half. However, underlying margins remain in line with historic norms and we,therefore, expect margins to progress in the second half and through 2020 as we benefit from our first half and ongoing investments. 

“Trading in the second half has started well, with continued strong performances from our Game Development, Functional Testing and Art Creation service lines in particular.  Overall, this leaves us well placed to deliver revenues for the full year at the upper end of current market expectatons with our profit expectations broadly unchanged.

“Our organic investments leave us well positioned to capture the clear opportunity for Keywords to grow our relationships with the major games companies through increased capacity, new services and dedicated outsourced services and to increase margins to normal Group levels as we benefit from these investments during 2020.

“Our acquisition pipeline is very healthy and we are actively reviewing a number of attractive acquisition opportunities that would add critical mass, capacity, and extend our service offering or geographical penetration.”

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