Half Year Results 2018 - Keywords Studios · 2018. 9. 1. · Yokozuna Data –brings industry...

Full Year Results 2017Andrew Day, CEO

David Broderick, CFO

9 April 2018

Half Year Results 2018

Andrew Day, CEO


18 September 2018

Half Year Results 2018

Andrew Day, CEO


18 September 2018

2

Achievements in 2018 so far – strong progress

I

Overview II III IV V VI

© 2018 Keywords Studios PLC - CONFIDENTIAL

Acquisitions and investment

• 8 acquisitions to date to expand service line scale and capabilities and extend our geographical reach

• €3.8m capital investment to develop facilities and add 660 seats across all 7 service lines

• Launch of Keywords Ventures to invest in innovative technology and services

Expanded service offering to clients

• Increased offering includes:

• Music composition and licencing

• Marketing services

• Hollywood production talent and services

• Advanced machine learning and predictive analytics for video games

• Automated testing for GDPR compliance of mobile apps

Progress with integration and infrastructure

• Good progress with integration of VMC and Sperasoft

• Successfully progressed amalgamation of operations in Madrid, Seattle, Mexico City and Paris

• Further strengthened the senior management team with newly created positions

Strong growth

• The Group grew revenue (up 72% to €110m ) and profit before tax (up 67% to €16m)

• 19% growth in clients using three or more

services, now at 100

• Expanded 10 of the 50 studios in the Group

• Coped well with the ‘Fortnite effect’

Clear opportunity in the growing video games market

3

I


Source: NewZoo Global Games Market Report, June 2018


Video games are a rapidly growing almost $140bn

p.a. niche global market – Growing +9% p.a

• Increased complexity, volume and speed of

content generation has driven the trend towards

outsourcing - most of it on a tactical basis

• Going forward there will be more strategic

outsourcing as publishers need to focus on what

makes their IP unique - vertically integrated

models can be a distraction

• We estimate the services market to be worth $6bn

in total with 50% of that outsourced today. In film

and TV, 90%+ of production is outsourced.

Keywords - Creating Value along the Video Games Lifecycle

4

1. Pre-production- Concept art

- Level design

2. Early stage game

development - Programming/co-development

- Full game development

- Art production

- Cinematics/visual effects

- Audio production

- Original language voice

production

- Development quality assurance

- Story writing

- Motion capture

- Game demo trailers

- Music scoring

- Sound design

3. Later stage game

development - Functional testing

- Text localisation

- Audio localisation

- Localisation testing

- Player research

- Game porting

4. Launch- Certification testing

- Beta testing

- Official game trailers

- Marketing art

5. Ongoing live

operations support- Customer support

- Community management

- Data analytics

- Payments processing

- Promotions management

6. New content for games- Game extensions

- Level expansions

- Issue patches

- Live operations support


Services currently offered by Keywords Services added by Keywords in 2018 Services not currently offered by Keywords

I


12.0%

21.0%

20.0%9.0%

14.0%

16.0%

8.0%

Keywords Global Service Delivery Platform

Engineering

Development, porting of games from one platform to

another, software consulting, data analytics

Audio Services Multilanguage voiceover

recording, original language

voice production, Hollywood

production, music & related

services

Functional TestingQuality assurance including

discovery and documentation of

game bugs & testing to verify the

game’s compliance with console

manufacturers specifications

Player Support 24/7, In-live operation multilingual customer

support, forum moderation services, & social

media engagement on behalf of the game

brand.

Art Creation

Creation of video game graphical

art, including concept art, 2D/3D

art asset production & animation.

Marketing services including

game trailers, marketing art and

materials

Localisation

Translation in over 50 languages of

in-game text, audio scripts, marketing

materials, cultural and local

adaptation & accreditation

Localisation Testing

Testing for out of context translations, truncations,

overlaps, spelling, grammar, age rating issues &

console manufacturer compliance requirements in

over 30 languages using native speakers

5

I



% H1 2018 revenue

International scale & flexibility across markets is key

6 © 2018 Keywords Studios PLC – CONFIDENTIAL

I


Over 5,000 people on the payroll at peak times working in over 50 languages

50 studios, 20 countries, 4 continents

Market Leading Position


We work with 23 of the top 25 games companies by revenue and 9 of the top 10 mobile games publishers by revenue.*

* Newzoo, Top 25 Games Companies by Revenue, Dec 2017 and App

Annie, Top 52 Publishers of 2017, February 2018

I


Delivering consistent and diversified growth

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I


30

5164

93100

0

50

100

150

FY 14 FY 15 FY 16 FY 17 H1 18

No of clients using 3 or more services

0

5

10

15

20

2014A 2015A 2016A 2017A H1 20180

50

100

150

200

Revenue (€m) Adj. EBIT Margin (%)

0

1

2

3

2014A 2015A 2016A 2017A H1 20180%

20%

40%

60%

80%

% Revenue top 5 customers No of customers over 10% of revenue

0

10

20

30

40

50

Art Creation AudioProduction

Localisation FunctionalTesting

LocalisationTesting

CustomerSupport

Engineering

Revenue by service line (€m)

2014A 2015A 2016A 2017A H1 2018

Limited customer concentration

Revenue and margin growth


€m % €m

Financial overview – David Broderick

9 © 2018 Keywords Studios PLC - CONFIDENTIAL

Revenue up 72%€110.0m or

€117.5m (constant FX)

(H1 2017: €63.8m)

10

First half financial highlights

Adj. PBT up 67%

€16.0m

(H1 2017: €9.6m)

Adj. EPS up 53%

20.1c

(H1 2017: 13.2c)

DPS up 10%

0.53p

(H1 2017: 0.48p)

Net cash of €0.1m

After €10.6m

acquisition spend

(H1 2017: €1.1m,

FY 2017 €11.1m)

New credit facility

RCF up to 5 years and €105m

Financial ReviewI III IV V VI


▪ Revenue up 72% to €110.0m

▪ Gross margins up to 37.4% (H1 2017: 35.6%)

▪ Overheads increased to 22.5% of revenue (H1 2017: 20.1%) in line with investments in facilities and management

▪ Adjusted profit before tax increased 67% to €16.0m excluding the following costs:

▪ Effective tax rate reduced to 19.3% (FY 2017: 20.5%)

▪ Adjusted EPS up 53% to 20.1c

Income statement


€k H1 2018 H1 2017 FY 2017

Revenue 109,951 63,760 151,430

Direct costs (68,791) (41,062) (96,345)

Gross Profit 41,160 22,698 55,085

% margin 37.4% 35.6% 36.4%

Other administrative expenses (24,742) (12,782) (31,170)

Operating profit 16,418 9,916 23,915

Net finance cost (438) (336) (872)

Profit before Tax – Group basis 15,980 9,580 23,043

Items excluded from Group measurement of PBT (5,142) (4,065) (11,049)

Profit before Tax – Statutory basis 10,838 5,515 11,944

Tax expense (3,088) (2,025) (4,731)

Net income 7,750 3,490 (7,263)

Basic EPS – Group measurement basis (c) 20.13 13.16 31.18

Basic EPS – Statutory basis (c) 12.10 6.08 12.37

Diluted EPS (c) 11.62 5.83 11.87

€k H1 2018 H1 2017 FY 2017

Cost of Acquisition & Integration 2,006 461 3,016

Share option expense 835 416 1,426

Amortisation of intangible assets 3,095 1,223 3,038

Foreign exchange (gain)/losses (794) 1,965 3,569

5,142 4,065 11,049


Balance sheet

• Net cash of €0.1m (2017 H1: €1.1m, FY 2017: €11.1m) after:

▪ €10.6m cash consideration for acquisitions

▪ Costs of acquisition and integration €2m

• Accrued MMTC* grant claims of €14.4m

▪ No MMTC payments received in the period

• €3.8m capital expenditure (2017 H1: €1.8m) included:

▪ Continued investment in software and computer equipment primarily for Testing, Art and Engineering (€1.7m)

▪ Investment in new and expanded facilities particularly in Montreal, Tokyo, London and Dublin (€2.1m)

*MMTC – ‘Multimedia tax credits’ are employment grants provided in Quebec Province


€k H1 2018 H1 2017 FY 2017

Non-current assets

Property, plant & equipment 11,422 5,951 10,111

Goodwill 124,416 52,748 109,007

Intangible assets 27,201 8,805 23,548Investment in Associate 114 - -

Deferred tax assets 1,265 1,329 1,206

164,418 68,833 143,872

Current Assets

Trade receivables 36,226 18,766 27,743

Other receivables 30,118 10,505 22,335

Cash & cash equivalents 32,184 14,482 30,374

98,528 43,753 80,182

Current Liabilities

Trade payables 7,268 5,408 7,310

Other payables 33,676 14,193 23,005

Loans and borrowings 32,084 13,043 18,943

Corporation Tax Liability 2,877 3,058 3,245

75,905 35,702 52,503

Non-Current Liabilities

Other payables 1,035 930 1,233

Employee Defined Benefit 1,233 1,025 1,055

Loans and borrowings 45 311 337

Deferred tax liabilities 9,560 3,439 7,795

11,873 5,705 10,420

Net Assets 175,168 71,179 161,131


Cashflow

• Adjusted cash inflow from operations of €6.1m (H1 2017: €2.8m)

• Adds back:

• Acquisition related expenses of €2m (H1 2017: €0.5m)

• MMTCs of €3.7m accrued in the period

• Maximum working capital typically at H1

• H1 2018 dividend of 0.53p (H1 2017: 0.48p) in line with progressive dividend policy, with a cash cost of €0.4m in H2 2018


€k H1 2018 H1 2017 FY 2017

Profit after tax 7,570 3,490 7,263

Net Income/expenses not affecting operating cash flows 8,679 5,653 14,822Net changes in operating assets / liabilities (9,447) (4,645) (2,989)Income taxes paid (2,891) (2,204) (5,454)Net cash inflow from operating activities 4,091 2,294 13,642

Acquisition of subsidiaries (10,625) (6,666) (86,776)Settlement of deferred liabilities on acquisitions (1,011) (283) (298)Acquisition of fixed assets (3,791) (1,824) (3,803)Acquisition of Associate (114) - -Interest Received - - 26Net cash used in investing activities (15,541) (8,773) (90,851)

Loan to finance acquisitions 13,755 5,000 10,250Repayment of loans (853) - (23)Shares Issued 1,203 - 82,936Dividends paid (696) (563) (867)EBT Share Purchase - (613) (563)Interest paid (144) (79) (279)

Net cash provided by (used in) financing activities 13,265 3,745 91,454

Increase /(Decrease) in cash 1,815 (2,734) 14,245

Exchange gain/(loss) on cash and cash equivalents (5) 196 (891)Opening cash 30,374 17,020 17,020Closing cash 32,184 14,482 30,374

H1 2018 H1 2017 FY 2017

Debtor Days 49 45 40

Work completion to cash collection days 60 53 48



H2 guidance

14

▪ Strong organic and acquisitive growth expected

▪ Benefit more from late 2017 and H1 2018 capacity and infrastructure investments

▪ Full six month contribution from first half acquisitions

▪ Strengthening dollar

▪ Interest expense to rise as we utilise our new increased bank facility for acquisition growth

▪ Slight reduction in effective tax rate expected again

▪ Traditional H2 positive cash conversion expected to continue


Operational review – Andrew Day


Our strategy is to be the “go to” global service delivery platform for the video games industry

Since Jan 2018 successfully acquired eight businesses:

▪ Maximal – adds scale to our Audio capabilities in South America

▪ Cord & Laced – extends our audio offering in to the provision of composed or licensed music

▪ Fire Without Smoke – provides a full suite of creative and marketing services

▪ Blindlight – gives us Hollywood production and services

▪ Snowed In – adds strength and scale to Engineering Service Line

▪ Yokozuna Data – brings industry leading technology and expertise in video game analytics

▪ Studio Gobo & Electric Square – enhances our game development services with scale and expertise

▪ TrailerFarm – adds to our creative and marketing offering

Grown organically… and by acquisition…

Delivering on our strategy

8.6% exchange adjusted like for like* revenue growth in H1

▪ Increase in number of clients using three or more services to 100

▪ Expanded 10 facilities adding 660 seats across all Service Lines

16

* Calculated on the basis that the H1 2017 comparative includes all other of the 2017 and 2018 acquisitions as if they had been owned for the same period in 2017 as they have been in 2018.

Operational ReviewI II IV V VI


A strong performance complemented by acquisitions

Audio Services

Art Creation

17


Localisation

16% of revenue

12% of revenue 20% of revenue

€ 12.4m€ 18.1m

H1 2017 H1 2018

Revenue

€ 8.4m€ 13.6m

H1 2017 H1 2018

Revenue

€ 19.0m€ 21.4m

H1 2017 H1 2018

Revenue


Localisation Testing

€ 8.7m€ 9.6m

H1 2017 H1 2018

Revenue

9% of revenue

▪ Revenues increased by 61% including contributions from Cord, Laced and Blindlight

▪ Added music services with Cord & Laced

▪ New London recording studios built and operational

▪ Acquired recording studio in Sao Paulo increasing capabilities in South American market and capturing margin

▪ Blindlight provides expertise in Hollywood based production

▪ Revenues grown 47%.

▪ Entered marketing services with Fire Without

Smoke acquisition in 2018

▪ Keywords one of the largest providers to the

outsourced market in terms of capacity with

1,200 artists plus further freelance

collaborators

▪ Revenues up 13% including contributions from

French acquisitions, VMC and XLOC

▪ As the leading games localisation provider

benefiting from trend towards continuous content

▪ Launched XLOC 6.0 with new features

▪ Focused on consolidating and streamlining internal

production systems

▪ Revenues increased 10%

▪ Largest provider in the market

▪ Integration of VMC completed

▪ Continued development of our talent pool of games passionate professionals of over 30 different nationalities

A strong performance complemented by acquisitions

Functional Testing

€ 11.0m€ 23.0m

H1 2017 H1 2018

Revenue

Player Support

€ 3.8m

€ 15.3m

H1 2017 H1 2018

Revenue

18


Engineering

€ 8.8m

H1 2017 H1 2018

Revenue

21% of revenue 14% of revenue

8% of revenue


€ 0.5m

▪ Revenues increased 110%

▪ Integration of VMC completed

▪ With VMC significant increase in volumes from

managed services arrangements with clients

▪ Expanded service offering with GBTN

▪ Expanding capacity in Montreal

▪ Exploring Volgograd studio for functional

testing

▪ Revenues grown 302%

▪ Acquisition of VMC big driver in growth of service

line, integration completed

▪ Continued expansion in Katowice and Manila

▪ Teams with a deep knowledge of games offer an

attractive alternative to traditional call centres

▪ New service line has expanded rapidly since it

started in May 17

▪ Revenues increased versus H1 last year

through the acquisition of d3t and Sperasoft

▪ Growth continued since the H1 2018 period

end with the Snowed In, Studio Gobo and

Electric Square acquisitions

▪ Data analytics ability with Yokozuna Data

Strategy – Andrew Day


Mid term organic growth opportunities

Benefitting from upcoming developments in the games industry▪ Streaming of games appears to be becoming a real prospect. Expected competition for content for competing

platforms should benefit Keywords

▪ Rumours of new console releases over the next 2 years should be good for Keywords as publishers rely on support for games on existing platforms and make content for the new devices

Extending our services▪ Build on game development services – engineering support, co-development and full game development

▪ Further extend services into new areas such as AI,

▪ Provide single language audio options for French, Italian, Spanish, Latin American Spanish, Brazilian Portuguese and Japanese languages

▪ Launched Keywords Ventures to invest in innovative technologies and services

Increasing market share▪ Continue to extend the number of cross selling opportunities

▪ Possible spin outs from clients

▪ Live operations opportunity to manage games on behalf of clients

▪ Acquihire possibilities such as Sound Lab

▪ Talent acquisition and facility expansion

20

StrategyI II III V VI


Selective consolidation

▪ Continue investing in Engineering – engineering support, porting, co-development and full game development

▪ Art production – South East Asia, Latin America

▪ Audio – key single language studios – Europe, Asia

New services

▪ Analytics and AI

▪ Expand initial entry in marketing services

Geographic expansion

▪ Eastern Europe and Asia – engineering

▪ Eastern Europe game testing

Acquisition strategy



Managing growth

© 2018 Keywords Studios PLC – CONFIDENTIAL 22

Group

Region

Service

Line

Andrew DayCEO

Jaime GineChief Customer

Officer

David BroderickChief Financial

Officer

Mike WallenSales Director

Giacomo DurantiChief Operating

Officer

Chris KennedyRMD Asia

Gerry ClearyGlobal HR Director

Nicolas LiorzouRMD Americas

Fulvio SioliRMD Europe

Fabio MinazziLocalization

Mathieu LachanceFQA

Gary MerriganGroup IT Director

Ashley LiuArt

Fred ArensPlayer Support

Andrea BallistaAudio

Thommy BarthLOC QA

Jamie CampbellEngineering

Andrew BrownChief Marketing

Officer

Igor EfremovChief Commercial

Officer

Global PMO

Mark RizzoGlobal Operations

Director

▪ New management structure and appointments to strengthen business and support growth

▪ Investment in newly created positions ▪ Chief Commercial Officer

▪ Chief Marketing Officer

▪ Global Operations Director

▪ Engineering Service Line Director



Outlook – Andrew Day

Outlook

OutlookI II III IV VI


A strengthened services platform from which to grow

▪ Trading in first three months of the second half has been in line with the Board’s expectations as volumes increase

▪ Previous investment in people and facilities now in place to capitalise on growth opportunities ahead

▪ Expect to make good progress in the remainder of 2018 and into next year

▪ Continued organic growth

▪ Capitalising on the synergies from previous acquisitions and driving operational efficiencies

▪ Leveraging client relationships

▪ Integrated sales and marketing

▪ Sharing talent and production facilities

▪ Continued progress with cross selling

▪ Healthy pipeline of acquisition opportunities

Access to a large, high growth market


Investment summary

Business model and management structure that supports growth

Significant opportunity to continue grow our geographical penetration, service capabilities and client relationships

Strong track record of growth, both organically and through acquisition

Key drivers: Market growth; continuous & higher definition content; outsourcing trend; streaming of games

25

OutlookI II III IV VI

Appendix


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AppendixI II III IV VI

Acquisition History

* Includes all cash, deferred and equity portions of consideration © 2018 Keywords Studios PLC - CONFIDENTIAL

Year Art Creation Software

Engineering

Audio Functional

Testing

Localisation Localisation

Testing

Customer

Support

Total Cost*

2014 Lakshya Digital Liquid Violet

Binari Sonori

Babel Media Babel Media

Binari Sonori

Babel Media €19.0m

2015 Liquid Development Reverb

Kite Team

Reverb

Kite Team

Alchemic Dream €10.9m

2016 Mindwalk

Volta

Synthesis

Sonox

Enzyme

Player Research

Synthesis

Sonox

Synthesis

Enzyme

Ankama €32.6m

2017 SPOV

RedHot

GameSim

d3t

Sperasoft

La Marque

Rose

Dune Sound

AsRec

VMC VMC

XLOC

Around the Word

La Marque Rose

Dune Sound

AsRec

LOLA

VMC VMC €102.4m

2018 Fire Without Smoke

Trailer Farm

Snowed In

Studio Gobo

Electric Square

Yokozuna Data

Maximal

Cord

Laced

Blindlight

€59.5m

Keywords Studios




Major Shareholders*


Shareholder Shares % Holding

P.E.Q Holdings Limited4,000,736 6.31

Octopus Investment Partners3,508,558 5.53

Andrew Day 3,296,573 5.20

Canaccord Genuity Wealth3,178,403 5.01

JPMorgan Asset Management2,596,527 4.09

Oberweiss Asset Management2,458,200 3.87

T Rowe Price Global Investments2,438,885 3.84

Blackrock1,877,763 2.94

Kames1,867,530 2.94

* Based on latest available disclosures to company as at the 31st July 2018

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Half Year Results 2018 - Keywords Studios · 2018. 9. 1. · Yokozuna Data –brings industry...

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