Synergistic growth
ANNUAL REPORT AND ACCOUNTS 2017

Keywords is the leadinginternational creative andtechnical services provider to theglobal video games industry.
Established in Dublin in 1998, Keywords now has 42 facilities in 20 countries
strategically placed across Europe, North and South America and Asia. It
provides integrated art creation, software engineering, testing, localisation,
audio and customer support services across more than 50 languages and
16 games platforms, to a blue-chip client base around the globe.
It has a strong market position with customers from many of the well-known
multi-national games publishers and developers including 23 out of the 25
largest games companies by revenue.

50+

Providing services across morethan 50 languages

16+

More than 16 games platforms
to a blue-chip client base ofover 600 clients

23

Serving 23 of the top 25 games
companies by revenue

Visit the website for further informationwww.keywordsstudios.com

42

Studios in 20 countries

Highlights in 2017

23.0m

151.4m31.18c
14.9m

96.6m

20.59c

58.0m

2015

8.0m

2016

2017

Revenue (m)201512.71c

2016

2015

2017

Adjusted profit before tax (m)

*

2016

2017

Adjusted earnings per share (c)*€151.4m €23.0m 31.18c+57%*(year-on-year)+55%(year-on-year)

+52%

1.21c

1.33c

1.46c

2015

2016

2017

Dividend per share (p)

1.46p

+10%

(year-on-year)(year-on-year)

Before acquisition and integration expenses, share option charges, amortisation of intangibles, and foreign currency exchange.

Strategic Report
01-31
Highlights in 2017At a Glance
Investment Summary
Chairman’s StatementMarket Overview
Our StrategyOur Business Model
Our Culture
Chief Executive’s Review
Financial and Operating ReviewPrincipal Risks and Uncertainties

Governance
32-40
01
02
04
06
08
10
12
14
16
26
30

Board of Directors
Directors’ ReportDirectors’ Remuneration ReportDirectors’ Remuneration Policy Report

Financial Statements
41-96
32
34
37
39

Independent Auditor’s Report
41
Consolidated Statement ofComprehensive Income
46
Consolidated Statementof Financial Position
47
Consolidated Statementof Changes in Equity
48
Consolidated Statement of Cash Flows
49
Company Statement of Financial Position 50
Company Statement of Changes in Equity 51Company Statement of Cash Flows
52
Notes Forming Part of the Consolidated
and Company Financial Statements
53
Company Information
IBC

ANNUAL REPORT AND ACCOUNTS 201701

Strategic Report

At a Glance

Further extended
our global reach
The Group now has over 40 studios strategically located in 35
cities worldwide to provide full, integrated services by combining
a presence that is local to our clients in key gaming clusters withlower cost production sites across four continents. Since
the beginning of 2017, we have expanded further organicallyand by acquisition into new locations including Santa Clara(California), Raleigh (North Carolina), St. Petersburg,
Volgograd and Krakow.

Keywords Studios continues
to build world-leading
capabilities in services thatvideo game and similarinteractive content creators
need. We stand shoulderto-shoulder with our clients
working as their externalor co-development partner
to provide dedicatedoutsourced or embedded
services, providing access to
our teams of experts where
and when needed. Today
we have breadth and depth
in seven service lines.

Art Creation

Revenue breakdownby service:

2017

*

The Group’s Engineering Service Linewas created in 2017 therefore there
are no figures available for 2016.

The creation of graphical art
assets for inclusion in thevideo game including concept
art creation, 2D and 3D art
asset production, animationand cinematics.
See more on page 18.

KEYWORDS STUDIOS PLC

AudioMulti-language voiceoverrecording, original language voice
production and related services.
See more on page 18.

See more on page 18.

€26.2m
+58%

17%

€3.6m
2%

€20.7m
+20%
14%

2016

17%
02

Engineering *Collaborating with clients todeliver richer definition for their
video gaming titles, learning
applications or visualisationand simulation experiences.
Provide access to development
services and exclusive technology
platforms that enhance boththe visual elements and theunseen performance aspects
of video games.

18%

9%

Eastern Europe
St. Petersburg
Volgograd

EuropeBarcelona
Brighton
DublinHamburg
Krakow
LondonLiverpool
Madrid
Milan
Paris
Rome

Americas
Los Angeles
Mexico City
Montreal
OrlandoPortlandRaleigh
Rio de Janeiro
Saint Jerome
SeattleQuebec City

Asia
BeijingChengduDalianManilaNew Delhi
Pune
ShanghaiSingapore
TaipeiTokyo
Yogyakarta
Zhengzhou

City locations
Small operations

Functional Testing

Quality assurance, including
discovery and documentationof game defects and testing toverify the game’s compliancewith hardware manufacturers’
and app stores’ specifications,as well as focus group anduser experience testing
and consulting.

Localisation

Translation of in-game text,
audio scripts, cultural andlocal adaption, accreditation,
packaging and marketing
materials in over 50 languages.
See more on page 20.

See more on page 20.

€30.0m248%

Localisation Testing
Testing for out of context
translations, truncations,overlaps, spelling, grammar,
age rating issues, geopoliticaland cultural sensitivities
and console manufacturer
compliance requirementsin over 30 languages using
native speakers.

Customer Support

24/7, multilingual support forgamers when games are in live
operation, forum monitoringand moderation services andsocial media engagement onbehalf of the game brand.
See more on page 23.

See more on page 23.

€42.0m+30%€19.9m

€9.2m

+22%

+64%

28%

20%

33%

13%

17%

6%

6%
ANNUAL REPORT AND ACCOUNTS 201703Strategic Report

Investment Summary
Keywords is better placed than ever to continue tocapture share of its high growth market by deepening
its relationships with clients that already trust it with
their high value IP, having significantly extended its
services and geographical reach during the year.

Access to high growth market

Market leading position

Strong growth record

Keywords operates in an exciting high growthmarket, without the risk of direct exposure to
the successes or failures of individual game
titles and our focus on content means that
we are platform agnostic. The increased
sophistication of games and complexity ofthe video games market is driving demand
for larger, professional, outsourced specialists,such as Keywords, in a highly fragmented
supplier market.

Keywords has a market leading position as
the only global provider of fully integrated
outsourced creative and technical services
to the global video games industry. With anindustry reputation for quality, reliability andflexibility, our scale and reputation mean weare well placed to take advantage of the trend
for clients to move to more collaborative
partnerships with fewer, larger suppliers.

In addition to delivering strong like-for-likegrowth, we have successfully acquired andintegrated 25 acquisitions since IPO adding
three new services (Art Creation, Customer
Support, and Engineering); extending
our existing service lines to bring us evencloser to our clients, by adding embedded
technical services, co-development andcontent management systems; andexpanding our geographical reach.

04

KEYWORDS STUDIOS PLC

We are a trusted partner to leading
companies around the world, with astrong market position, providing
services to 23 of the top 25 mostprominent games companies, including:Opportunity to grow further

A strong business model

Adjacent market potential

Having made strong progress in extending
the Group’s client base, market penetration,
geographic footprint and service lines, wenow see significant potential for increased
cross-pollination of our service lines andgeographic locations, including taking
advantage of our dual shore capabilities,
as we increasingly become strategic
partners to our clients.

Keywords’ flexible resourcing and charging
model, with charges levied for time or
output rather than a fixed price, combinedwith relatively low working capital andcapital expenditure requirements support
its ability to grow the business whilst alsoachieving strong cash conversion.

Our expertise in providing outsourced
solutions to the video games industry
is already being sought after in adjacentmarkets such as film and television, andKeywords is well placed to deliver this.

ANNUAL REPORT AND ACCOUNTS 201705

Strategic Report

Chairman’s Statement

Significant
growth globally

The Group’s strong performancereflects the continuation of
our proven strategy.
Ross Graham
Chairman

06

KEYWORDS STUDIOS PLC

I am delighted to report another excellent
performance, with the Group having
delivered significant revenue growth,whilst maintaining margins, to achieve
a 55% increase in adjusted profit before
tax to €23.0m in the year (2016: €14.9m).
The Group’s strong performance reflects
the continuation of our proven strategy
to supplement strong organic growth withacquisitions that further extend the Group’s
services and geographical reach to position
us as the leading creative and technicalservices provider to the global video games
industry. We made eleven acquisitions during
the year, including two of our largest to date,
VMC and Sperasoft. These acquisitions haveenabled us to form a new Engineering service
line of scale, add co-development expertise,
expand the capacity of and capabilities
within our existing service lines considerablyand extend our geographical reach into
Eastern Europe.
In addition, we have invested in expanding
capacity at many of our studios includingMontreal, Zhengzhou, Manila, Dublin, Madrid
and Tokyo during the year with further
investments in expansion planned for 2018.
Managing and funding growthPart of the success of the Group can be
attributed to the ability of the management
team to source, execute and integrateacquisitions effectively across the globe
and across our service lines whilst retaining
the Keywords culture, which is a particularcompetency the team has built since IPO.
That this has been accomplished acrossall of our service lines, now embracing
over 40 studios in 20 countries, during
2017 is a notable achievement.
During the year, we raised £75m via aplacing (before expenses), which was very
well subscribed and we would like to thankour shareholders for their continued support.
Since the year end, we have agreed terms
for a new bank facility, initially for €75m overa three-year term with the option to extend
the facility to €105m and by a further two
years. The new facility replaces the existing€35m facility and is on improved terms.
Together with our strong cash generation(the Group finished 2017 with €11.1m of
net cash) this gives us further headroom
to make acquisitions.
We are very comfortable with this level ofdebt, given that a high proportion of theGroup’s revenues can be predicted withsome certainty, and seek to maintain amix of funding for our growth strategy
which both gives us the flexibility to
act on our investment decisions andenhances shareholder value.

People and Board
The Group’s progress is a great credit toevery single Keywords person who has
helped make it happen. During the year
our CEO, Andrew Day, was accorded thehonour of being voted as CEO of the year
at the Grant Thornton Quoted Company
Awards 2018, a much-deserved tribute forsomeone who has been the very essenceof Keywords – its dynamism, client focus
and culture – but the award is also a tributeto the whole Keywords team.
I would like to thank my fellow Directors,
whose complement has been strengthenedby the appointments of Charlotta Ginman
and Georges Fornay during the year. Bothhave added their own strengths to theBoard, which benefits from a diversity ofviews in its highly constructive discussions
which I believe ensures the Board operates
effectively, to the benefit of the Group
as it grows. Charlotta brings with her
extensive investment banking, technology
and mobile industry and PLC experience
whilst Georges brings with him strong
video games industry expertise.

It is a pleasure to Chair a Group which has
a strong business model that supports
profitable growth and high cash conversion,
where the strategic aims are clearly defined,
and that serves an industry which is growing
fast in which we can increase our share byoffering an expanding array of services.
The Keywords team remains highly focussed
on delivering the high standard of work wehave come to be known for and maintaining
the trust and confidence of our clients as
we grow both organically and by acquisition.
I am, therefore, confident that the Group will
make further progress as it continues to build
upon its strengthened services platform withconsiderable scope for further growth.

Ross Graham
Chairman
9 April 2018

I would also like to thank the senior
management team and all the hard-working
employees within the Group. There is atremendous spirit within the businesses whichmakes Keywords a success, with a culture ofcontinuous improvement which encourages
everyone to make their own contributions
towards consistently ensuring we provide
the best service possible to our clients.
Dividend
In line with our progressive dividend policy,
and allowing for the need to retain resources
to fund future growth of the Group’s businessand its strategic aims, the Board is pleased
to recommend a final dividend of 0.98p
per share which, following the interim
dividend payment of 0.48p per share,
will make the total dividend for the year
ending 31 December 2017 1.46p per share,
an increase of 10% compared to 2016.
Summary and outlook
Following a highly successful 2017, weentered 2018 with pro forma revenues of€225m derived from a more diversified,better balanced business with an expanded
range of services and locations that will
support our aim to increasingly becomea key strategic partner to the major
games companies.

ANNUAL REPORT AND ACCOUNTS 201707Strategic ReportMarket Overview

The leading provider
in a growing market
Keywords operates in an exciting high growth market,
without the risk of exposure to the successes or
failures of individual game titles.
No signs of slowing

The global games market is constantly
growing and developing with consumers
spending more time than ever on games,
as regular updates to consoles smooth andlengthen their cycles, whilst a trend towards
the portability of consoles helps extend“screen time”. The millennial generationin particular are perpetuating this trend
as games now cater to a much wider
variety of interests.
This has clearly been proven in recent years
as revenues in the global games market havesurpassed the $100 billion mark (Source:
NewZoo Global Games Market Report, June2017). Data suggests this won’t be stopping
any time soon, with revenues set to reachalmost $130 billion by 2020 representing a
Compound Annual Growth Rate (“CAGR”)
of around 6%. Mobile continues to lead thecharge, with smartphones accounting for 32%
of global revenue in 2017 and representing
the largest single category contributor andthe fastest growing end-market in gaming.
Goldman Sachs anticipates this could reach
40% by 2021 (Source: Entering the halcyon
days of Gaming’s digital age, Goldman Sachs
Investment Research, September 2017).
Games companies are no longer simply
producing games and increasingly are turning
game IP into entertainment franchises which
has forced them to rethink their position in
the broader entertainment industry, which inturn increases demand to engage outsourced
service providers such as Keywords.

Global game market revenues ($bn)$122.72$115.83$108.9$101.06$91.91$84.72$70.572012$76.48

2013

2014

2016

2017

2018

2019

2020

Global gaming revenue by type, 2016-2020$101.1
5%$108.94%$115.8
4%
21%

30%

31%
32%

10%

10%

10%

Smartphone$122.73%
20%$128.5
3%
19%

23%

25%

2016

35%

32%

2017
TabletSource: NewZoo, Goldman Sachs

KEYWORDS STUDIOS PLC

2015

Source: NewZoo

29%

08

$128.462018
ConsoleBoxed/Downloaded PC

28%

10%

28%

10%

38%

40%

2019

2020

Browser PC

Service provision

The market continues to be very fragmented
with a large number of small specialist
suppliers available to choose from and,in order to meet the growing demand fromthe global video games market, companies
are having to adapt their service provision forthe most part due to the changing demands
from customers.
Increasingly customers are looking tooutsource multiple services to providers
who can offer all of these under one umbrella,by way of strategic partnerships, as well as
exploring more co-development, in whichsignificant parts of, or even full games, aredeveloped on behalf of game developers
or game publishers. This trend shift makes
groups with a diverse and broad offering
very attractive, particularly to smaller
service providers looking to become
part of a larger organisation.
According to Goldman Sachs, an M&A cycle
should benefit the scale players such as
Keywords. With rising barriers to entry acrossthe sector, they expect to see consolidationin the sector as larger firms use growing
cash balances to acquire high-quality smaller
companies, particularly in the mobile
sector – the largest and fastest-growing
gaming market (Source: Goldman Sachs,
September 2017).

ANNUAL REPORT AND ACCOUNTS 201709

Strategic Report

Our Strategy

Profitable andsynergistic growth
Our vision

To be the “go to” global service delivery
platform for the video games industry.

Our strategy

To grow organically and by acquisition toextend the Group’s client base, service
lines and geographical penetration, where
the Group can use its existing expertise,multi-service platform, scale and global
reach to generate synergies in a highly
fragmented games service industry.
Geographic reach represents an importantcomponent of our strategy, where we seek
to gain access to markets for the best talentor to be close to our clients.
As a more diversified, better balanced
business with an expanded range of services
and locations to offer our clients, we see
many opportunities to extend our existing
relationships and become a strategic partner
to major games companies, both throughproviding additional services to existingcustomers and through providing dedicatedoutsourced services.

10

KEYWORDS STUDIOS PLC

Strategic Priority

Strategic Priority

Developing customer
relationships and outsourcing

Extending our services

Progress in 2017

Progress in 2017

•

•

•
•

Good progress being made in
becoming a strategic partner
to major games companies.
Repeat business from existingcustomers accounted for 80%
of revenues (up from 72%).
93 of our 646 clients now
use three or more services.

•

Added new services to theGroup, including Engineering,co-development, Game Portingand Live Support Services,
as well as a dedicated content
management platform.
Our newer Art Creation, Customer
Support services and Engineering
service lines accounted for a total
25% of Group revenues.

Key Performance Indicators

Key Performance Indicators

45%€59.8mGrowth in clients using
three or more services

Revenues from nonlanguage-based services

See more on page 22.

See more on page 12.

Strategic Priority

Strategic Priority

Strategic Priority

Expanding our
geographical reach

Selective acquisitions

Driving operational efficiency
and synergies

Progress in 2017

Progress in 2017

Progress in 2017

•

•

•

•
•

•

Bolstered our Eastern European
presence adding sites in Krakow,
St. Petersburg and Volgograd.
Also added locations in California,
Washington and North Carolina.
Launch of an ambitious programmeof investments in many of ourstudios adding capacity in locations
including Montreal, Zhengzhou,
Manila, Dublin, Madrid and Tokyo
with new recording studios tofollow in London and Paris.
Continued to build on our strong
presence across four continents.

•

•
•

•

Acquisition of VMC, our largest todate, added scale to our Functional
Testing, Localisation Testing andCustomer Support service lines andspecialist expertise in delivering
services in-situ at clients’ facilities(“Embedded Technical Services”).
New Engineering service line createdthrough the acquisitions of Gamesim,
d3t, and Sperasoft which also broughta strength in co-development.
Extended Art offering through theacquisitions of SPOV, RedHot andSperasoft.
Strengthened Audio and Localisation
services through the acquisitionsof La Marque Rose, Dune Soundand asrec, whilst XLOC added a
specialist localisation content
management system.
Expanded range of services, locations
and ways of integrating with ourclients through co-development
and Embedded Technical Services
supports our aim to become a key
strategic partner to our clients.

•

•

•

Following the acquisition of
Localizadora Latam (LOLA), we
now plan to integrate Kite Team’s
Mexican operations with that of
LOLA in Mexico City to create themarket leading provider of services
for Latin American Spanish localised
video games.
Successfully amalgamated theoperations of Kite Team, Synthesis
Iberia and Sonox into Kite Team’s
existing premises in Madrid.
Acquisitions of the Paris-based
audio and localisation businessesof La Marque Rose, Around theWord, Dune Sound and AsRecbeing integrated with existing
Synthesis operations there.
Continued scaling of our Tokyo
operations, moving into a new
office to facilitate the introductionof a new Functional Testing facility.

Key Performance Indicators

Key Performance Indicators

Key Performance Indicators

27 to 42

11

18.8%

Grew from 27 to 42 studios
globally during 2017

We made 11 acquisitionsin 2017

Operating expenses
reduced to 18.8% ofrevenue (2016: 20.5%)

See more on page 03.

See more on page 19.

See more on page 20.

ANNUAL REPORT AND ACCOUNTS 201711

Strategic Report

Our Business Model

Drawingon our key
strengths
Global presence

Provides access to thebest talent and enables us
to deliver projects acrossstudios in multiple timezones, allowing seamless
24-hour turnarounds
whilst remaining close
to the client.

Creating value and growth through operational efficiency
The video games industry
represents the pinnacle ofinteractive digital content.
At Keywords, we are using our
passion for games, technology
and media to create a global
services platform for video
games and beyond.

By working as their external
development partner, we enableleading content creators andpublishers to leverage ourexpertise and capacity acrossthe lifecycle of interactive content.
In so doing we enable our clients
who are operating in complex
and fast-moving environments
to remain lean and agile, and to
focus on creating and monetising
the most engaging experiences.

We are trusted and relied uponby many of the world’s leading
video game companies to work
alongside them during concept,
development and live operations
by leveraging the breadth anddepth of our industry leading
service lines every step of the way.

#2
Early stage gamedevelopment#3
Later stage gamedevelopment

Keywords’ presence in each stageof the games development cycle
creates multiple opportunities forcross selling and revenue growth:

Flexibleresource model

Allows us to scale up or
down to meet demand,
mirroring the seasonalityof games production.

Knowledge
and expertise

Deep games-specificknowledge and experienceof working on multiple
instalments of AAA gamefranchises.

#1Pre-production

Reputation
for quality

Our commitment to quality,
reliability and integratingwith our clients’ processes
promotes long-term
customer relationships.

••

Concept art
Level design

Financial strength••

Our strong financial
performance and position
gives our customers
reassurance of resiliencein their supply chain andis part of our attraction
to businesses we acquire.

Acquisition
track record

We have a strong trackrecord in identifying
acquisitions with a strong
fit with Keywords in termsof culture as well as
expertise or geography andintegrating them effectively
to support their growth.

12

KEYWORDS STUDIOS PLC

•
•
•
•
•
•

•
•
•
•
•

Co-development
Programming
Art production
Cinematics/visual effects
Audio production
Original language voice
production
Engineering
Development quality
assurance
Story writing
Motion capture
Game demo trailers
Music scoring
Sound design

Services offered by Keywords
Services not currently offered by Keywords

•
•
•
•
•
•

Functional testing
Text localisation
Audio localisation
Localisation testing
Player research
Game portingCreatingvalue for our
stakeholders
Investors

Consistent track recordof delivering earningsand dividend growth.
Opportunity to invest in
the exciting video games
market, without the risk of
exposure to the successes
or failures of individual
game titles.
Increase in adjusted
EPS since 2013

* 

441%
#4
Launch•••Certification testing
Official game trailers
Marketing and PR services#5
Ongoing live
operations support

•
•
•
•
•

Customer support
Community management
Data analytics
Payments processing
Promotions management#6
New content for
games

•
•
•
•
•
•
•
•

Game extensions
Level expansions
Art
Audio
Testing
Localisation
Issue patches
MarketingCustomers

Our involvement across thevideo games cycle createsa role as a “one-stop-shop”
for our customers, allowing
us to meet their needs andrequirements.

Employees

Keywords provides
employees with anexcellent and sustainablevariety of work, good careeradvancement opportunities
and, increasingly,
opportunities to work inmany different locations.
Our customers can accessa world class talent basewithout incurring any of
the usual variable costs.
Average numberof employees

3,150*	 Before acquisition andintegration expenses, shareoption charges, amortisationof intangibles, and foreign
currency exchange.

ANNUAL REPORT AND ACCOUNTS 201713

Strategic Report

Our Culture
Our culture acts as the glue that binds our staff aroundthe world together – relaxed, professional and humble
with a focus on doing the very best we can foreach project entrusted to us.

ValuesDevelopment“There is absolutely no hierarchy whenit comes to acquired companies. From
day one, our new colleagues have theexact same status as any other existing
Keywords employee.”“Joining as a junior tester 11 years ago,
Keywords has given me the tools andsupport to grow through the ranks
to become head of our Localisation
Testing service line worldwide andour organisational structure continues
to offer similar opportunities to ourdeveloping talent.”

Nicolas Liorzou
Regional MD, Americas

Thommy BarthHead of Localisation Testing

14

KEYWORDS STUDIOS PLC

Joining the
Keywords FamilyGroup culture is at the centre ofeverything we do and ensuring thecompanies we acquire are aligned with
the Keywords culture is a crucial stepin our integration process. We havedeveloped a set of guidelines, which
we call “The Keywords Rule of Nine”,
which sets out our culture.
•
•
•
•
•
•
•
•
•

We communicate openly
We focus on projects
We act as an extension of our clients
We empower our people
We are passionate about games
We love our clients
We have a “can do” attitude
We recognise the importance of flexibility
We learn at every opportunity

With each new acquisition, we deploy our Integration
Memorandum, a unified communication package deliveredby an existing member of the Keywords executive team,in order to ensure a smooth transition.

Teamwork

Environment“We used to be fierce competitors of
Keywords so, since acquisition, our sharedvision and drive has contributed hugely
in working together to pursuing theGroup’s strategy to become the “go-to”
provider of technical services to thevideo games market.”“Standardised induction across the Group in
every studio helps ingrain our culture in new
acquisitions from the outset, and integrationof the support services such as HR and
Finance enables our team members to goout and do what they do best, be it
Localisation, Audio or Engineering.”

Max Reynaud
Co-founder, Synthesis

Gerry ClearyGroup HR Director

ANNUAL REPORT AND ACCOUNTS 201715

Strategic Report

Chief Executive’s Review

An excellent
performance anda strengthened
services platform2017 saw Keywords successfully execute11 acquisitions as we continue toselectively consolidate our market.
Andrew Day
Group Chief Executive Officer

16

KEYWORDS STUDIOS PLC

The Group has delivered another strong
performance, with good like-for-like growthfrom the existing businesses combinedwith successfully securing and integrating
acquisitions that have significantly enhanced
our services platform in line with our strategy.
Delivering on our strategy
We continue to execute well in pursuit of ourstrategy to build the world’s leading creative
and technical services platform focusedon the most complex of interactive content– video games.
We operate in a service provision industry
which remains highly fragmented despite
the scale and global nature of the major
video games publishers and developers,
and the trend towards those clientsoutsourcing a greater proportion of theirgames development and in-game support
to manage the demands for increasingly
sophisticated content whilst limiting their
fixed costs.
The key pillars of our strategy are, therefore,
to grow organically and by acquisition
to extend the Group’s service capacity,
capabilities and geographical reach –where we seek to gain access to markets
for the best talent or to be close to ourclients. By generating synergies across our
expanding multi-service global platform,
we are increasingly becoming a key strategic
partner to our customers.
2017 acquisitions
2017 saw Keywords successfully execute11 acquisitions as we continue to selectively
consolidate our market. These businesses
are spread across multiple geographies
and added to all seven of our service lines
demonstrating the strength of our leadershipteam which comprises both regional andservice line management. All of the acquisitionsin 2017 have been or are being integrated.
In particular, the addition of Engineering
services as our seventh service line during
2017 has filled an important gap in our
palette of services and we look forward tocontinuing to build this business in 2018
and beyond. This was initially formed by ouracquisition of GameSim in May and expanded
through our acquisitions of d3t in Octoberand Sperasoft in December, providing theGroup with game development, game porting
and live operations support talent totallingsome 400 people.
We have also successfully extended ourgeographic reach adding operations in
Eastern Europe for the first time through ouracquisition of Sperasoft, giving us access totalent in a market known for strong technicalskills, particularly in software development.

Sperasoft brought with it scale and expertisein Engineering and Art services, with aparticular strength in co-development inwhich significant parts of or even full games
are developed on behalf of game developers
or publishers. This further enhances ourpositioning as a strategic partner to gamedevelopers and publishers who areincreasingly relying upon co-development
arrangements to provide them with broader
development support for their games thatare increasingly bigger and higher definition,whilst we continue to ensure we are notdirectly exposed to the commercial
performance of individual titles. We expect
to be able to grow this way of working withour clients, combining Sperasoft’s strength
in co-development with our broader service
range for a more integrated service delivery.
Sperasoft’s 370 talented engineers, gamedesigners, artists and project managers
are based in St. Petersburg, Krakow andVolgograd and we are now looking at
seeding some of our other services into
these locations.
VMC, acquired in October for $66.4m,
brought the Group leadership and scale infunctional testing and significantly increased
our presence in player support services. It
also brought to the Group specialist expertisein managing “Embedded Technical Services”,
through which VMC provides Testing,Customer Support and other services in-situ
at clients’ facilities. VMC was a carve out fromthe publicly quoted Volt Information SciencesInc. Its operations are in the US and Canada
and its integration, which is nearly complete,
includes consolidation of facilities and ofmanagement teams and the migration of
the business to Keywords’ core operating
IT platforms. The integration is being led
by Nicolas Liorzou, our Regional Managing
Director for the Americas who has led thesuccessful integration of two previous
acquisitions, Babel Media (acquired in 2014)and Enzyme (acquired in 2016).

In our Art Service line, which saw a changeof leadership at the end of the year withthe retirement of Fred Stockton and theappointment of Ashley Liu as Service Line
Director, the acquisitions of SPOV in London
and Red Hot with its facilities in Shanghai,
Dalian, Zhengzhou, Chengdu and Yogyakarta
have performed to expectations and are
integrating well.
XLoc, a technology company with aproprietary content management solutionthat helps clients manage and automate thecomplex process of localising games content
across multiple languages and platforms,
was acquired in May. There have already beensome successes in cross selling this platform
alongside our localisation services which
we believe will further embed us in to the
localisation processes of games developers.
Organic growth and investment
We have continued to drive organic growthacross the business, having achieved a 15.1%
increase in like-for-like revenue in 2017 (whichis calculated on the basis of revenues being
included for 2017 acquisitions from the dateof acquisition and for the equivalent period
in the prior year in order to provide a clearer
measure of the organic growth of all of thebusinesses now within the Group). Audio
had a particularly tough comparator with
Synthesis having produced an exceptional
performance in 2016 while all other service
lines posted strong like-for-like growth.
Functional Testing and Customer Support
produced particularly strong growth. We
have seen some beneficial impact from theburgeoning eSports market as we respond to
demands for translation services, marketing
materials and customer support related tothe events being staged and we are seeing
demand for our services from outside thegames industry as other industries seekout the skills and technology to make theircontent interactive.

Our simultaneous acquisitions of theParis-based audio and localisation
businesses of La Marque Rose, Around theWord, Dune Sound and asrec in August
are being integrated with our existing audio
and localisation business there, which we
acquired with the acquisition of Synthesis in
2016. Led by Michel Golgevit, CEO of Around
the Word, these businesses are planning tomove to custom-built, state-of-the-art audio
recording studios in 2018. Also in the Audio
service line, LOLA in Mexico City was acquired
just before the end of the year and they are
working with the management of Kite Teamin Mexico, which joined the Group in 2015,
to integrate the two businesses.

ANNUAL REPORT AND ACCOUNTS 201717

Strategic Report

Chief Executive’s Review continued

Our organic growth was driven in partby further strong progress with extending
our client relationships, as evidenced by
a 45% increase in clients using three ormore services from 64 in 2016 to 93 in 2017.

A combination of our organic and acquisitive
investment meant we finished the yearwith 42 operating locations in 20 countries
compared to 27 locations in 17 countries
in 2016.

As announced at the half year, we also
launched an ambitious programme ofinvestments in many of our studios to add
capacity in locations including Montreal,
Zhengzhou, Manila, Dublin, Madrid andTokyo, with new recording studios plannedfor London and Paris in 2018.

The acquisitions of VMC and Sperasoft
will result in the Group’s share of revenue
denominated in US Dollars growing from 46%
in 2017. Recent weakness in the US Dollars
compared to a number of other currencies
in which the Group trades, such as the
Canadian Dollar, Euro, Yen, Renminbi
and Rupee, is being monitored and some
US Dollars denominated pricing may be
adjusted accordingly.

26.2m

16.6m
13
10

10

2015

2016

2017

2018

2019

Art Creation€26.2m
3.6m
3

2.9

3

0.0m

2015

2016
0

2017

2018

2019

Engineering

€3.6m
20.7m
17.3m

10

2015

2016

2017

10

10

2018

2019

Audio

€20.7m18

KEYWORDS STUDIOS PLC

Service line review
Art Creation(17% of Group revenues in the year)
Art Creation services revenue grew 58%
to €26.2m (2016: €16.6m). On a like-for-likebasis, Art grew by 14% year-on-year, reflecting
a year in which Lakshya Digital consolidated
the very strong growth of 2015 and 2016 andthe remaining studios made good progressincluding Red Hot which we acquired in May.
Including Sperasoft, we concluded the yearwith over 1,000 artists on our payroll of which
the majority are in India and China. ThroughLiquid Development and Volta we manage
further pools of freelance artists numbering
about 200 in total. This talent base makes
Keywords one of the largest art services
businesses in the highly fragmented global
video games art services market.
Our Art studios are increasingly working
with each other to leverage their respective
capacities, to deliver top quality work to theirglobal client base. Likewise, with our recent
investments in Engineering services, these
two service lines are working together in aco-development model to produce complete
game development services for gamedevelopers and publishers.
Under the leadership of Ashley Liu (previously
CEO of Mindwalk), the objective for our Art
Creation services line is to continue to growcapacity to meet demand (including internal
demand from our co-development activities),whilst maintaining our reputation for quality
and reliability of delivery to our customers’
timescales. In addition, we aim to extend ourcapabilities in areas such as visual special
effects, user interface design, cinematics andmotion graphics, which we have started to
do with the acquisition of Spov early in 2017.

Engineering(2% of Group revenue for the year)
With Sperasoft only being included since
December, d3t from October and GameSimfrom May, our Engineering service line isbeing built through acquisition in muchthe same as we have built our Art Creation
service line which started in October 2014
with the acquisition of Lakshya Digital. We
have had some very early successes withcross selling our engineering capabilities intoclients who use other Keywords services andwe look forward to continuing to build ourEngineering service line in 2018 and beyond.
Audio(14% of Group revenue for the year)
Our Audio service line increased revenues
by 20% to €20.7m (2016: €17.3m) including
contributions from La Marque Rose, Around
the Word, Dune Sound and asrec, all of whichwere acquired in August and LOLA which was
acquired in December. On a like-for-like basis,revenues in our Audio service line declined
by approximately 10%, in part reflecting
the exceptionally strong performance ofSynthesis in the prior year. Also, the video
games voice actors’ strike which effected
the video games voice recording market
in Los Angeles was resolved in September
2017 and we look forward to more buoyant
conditions there in 2018.
We opened an audio studio in Tokyo,
strengthened our management of the
combined Kite Team, Synthesis and Sonox
operations in Madrid and also that of our
Los Angeles studio. In 2018, we plan to invest
in state of the art audio recording facilities
in Paris and London.

Acquisition strategy
We continue to operate in ahighly fragmented market
As a Group we are highly selective in which companies wechose to acquire, and they must meet the following criteria:• Cultural fit – our most important:• We don’t engage if the business is clearly not a good fit;
• However, we have acquired Groups with different
cultures and successfully changed them.
• Valuation – we don’t overpay but are fair:• Most targets have a financial fragility despite being
very good suppliers;• Valuations have averaged 1x revenue or 5-10x EBITDA.
• Financial performance – the least important for us:• We know how to make money from the businesses
we operate through achieving operational excellence.
As a result, underperforming businesses represent an
opportunity for us.

Key Stat11
Acquisitions in 2017.

ANNUAL REPORT AND ACCOUNTS 201719

Strategic Report

Chief Executive’s Review continued

Functional Testing(20% of Group revenue for the year)
Our Functional Testing services grew by 248%
to €30.0m (2016: €8.6m), including a ten-weekcontribution from VMC which was acquired in
October 2017. The service line also grew by
an impressive 52% on a like-for-like basis.
Some 50% of VMC’s €47m annual revenues
fall into the Functional Testing service line
and the service line management teamhave been instrumental in integrating thefunctional testing businesses in Seattle andMontreal, slimming down the combined
management team, standardising tools andprocesses and making efficient use of officespace. As a result, we anticipate improved
margins from the VMC business as signalledat the time of acquisition.

The organic growth of Functional Testinghas driven demand for increased capacity
in Montreal and New Delhi and we haveinvested during the year in additional
space in both locations and are evaluating
options for expansion in other locations.

La Marque Rose, Around the Word, DuneSound, asrec and VMC which were acquiredin August, increased revenues by 30%, to€42.0m (2016: €32.4m), and continued its
excellent record of growth with a like-for-likeincrease of 20%.

During the year we also invested in Player
Research, the play testing business weacquired in October 2016, with the openingof a purpose-built play test laboratory
in our Montreal building.

The business produced around 250 million
translated words during the year as our
Localisation service line continued to benefit
from the trend towards “games as a service”
which necessitates fresh content being added
to the game on a frequent basis to expand
the game worlds and keep players engaged.
Another driver of growth has been eSports
where our localisation expertise has beencalled upon for the production of marketing

Localisation(28% of Group revenue in the year)
Our Localisation activities, including
contributions from XLoc acquired in May,

Integration and driving synergies
Our approach to integration, driving synergies andmargins is tailored to each type of businessType one – Standalone studios:• With new territories and new service
lines, we focus on business processes
to optimise margins over time;• Subsequently, the access to a larger
client base improves the business’
pipeline and improves utilisation rates.
Type two – Studios with strong overlap:
This is used when a business is acquired near
an existing Keywords hub, or where no newservices are added:• We focus both on gross margins andon SG&A and operational expenditure
costs, with immediate impacts;• For example, in the Montreal hub, Babelwent from making losses to achieving
20%+ EBITDA in the second year.
As a result of this, acquired companies
almost always grow revenues strongly under
Keywords ownership. We encourage them,to grow, to be bold, and to invest, and they
benefit from being part of well-respectedGroup with known behaviour; we are easy
to do business with, flexible, scalable, put theinterests of the project first, financially solid
and transparent.

Key Stat

18.8%
Operating expenses reduced
from 20.5% of revenue in 2016.

20

KEYWORDS STUDIOS PLC

content, customer support materials and“live translation” of event content. We are
the leading localisation provider for video
games and enjoy a strong position in the
fast-growing mobile games segment of
the market, where content additions to
the many leading games that we support
result in continuous localisation work for 10
the Group in as many as 30 languages.
During the year we completed the internal2015
rollout of our proprietary localisation
project management system, BPS, and wecontinue to invest in enhancements to thesoftware to improve the efficiency of our
localisation teams.

30.0m

42.0m
32.4m

10

8.6m

2016

10
10

2017

Functional Testing

2018

2019

€30.0m

2015

2016

2017

10

10

2018

2019

Localisation€42.0mANNUAL REPORT AND ACCOUNTS 201721

Strategic Report

Cross selling
The largest single opportunity for
Keywords comes from our own ability
to guide clients who already trust us toother services we could provide tothem from within the Keywords GroupThe continuous nature of game development lends
itself well to cross selling. Keywords provides services
at all six stages of the games lifecycle, creating ample
opportunities to refer business to other studios.
See pages 12 and 13 for more detail.
We have a strong and clear management structure
which encourages a culture of pursuing more and morecross selling opportunities. Approach is clearly achieving
results and we are constantly working on cross-selling
opportunities. 93 of our 646 clients now use three ormore services, up from 64 in 2016.

Key Stat45%
Increase in clients using threeor more services.

22

KEYWORDS STUDIOS PLC

Chief Executive’s Review continued

Localisation Testing(13% of Group revenue in the year)
Our Localisation Testing operations grewby 22% on an absolute basis to €19.9m(2016: €16.2m) helped by the additionof revenues from VMC and full year
contributions from Synthesis and Enzyme
which were acquired in April 2016 andNovember 2016 respectively. On a
like-for-like-basis, growth was a more modest
3%. The integration of VMC’s Localisation
Testing business is progressing well.
With secure localisation testing studios inMontreal, Dublin, Milan, Singapore and Tokyo
we believe this service line is the largest
provider of localisation testing in the video
games market. We look forward to continuing
to serve our clients around the world while
optimising our production efficiency, assisted
by our increased scale, and developing ourtalent pool of games passionate professionalsof over 30 different nationalities.
Customer Support(6% of Group revenue for the year)
Revenues for this service line benefitted
from a significant contribution from VMC
and grew by 64% to €9.2m (2016: €5.6m).
On a like-for-like basis, the business grewby 16% thanks to new client wins andsuccessful cross selling efforts.
Our Customer Support business which
includes live operations support functions
like community management, fraud
prevention, bot hunting and VIP services,
continues to perform strongly and isachieving strong organic growth.
Among the highlights for this businessline has been the growth of the Manilabased customer support operation spunout from our client, Ankama in March 2016
from the then 23 staff to over 350 today.
We’ve also been pleased with the successof our customer support teams based inour studio in Tokyo, where they service
both Japanese and non-Japanese clients.
During the year we opened a multilingual
customer support studio in Madrid alongside
our audio and localisation businesses there
and in 2018 we are considering establishinga support centre in Eastern Europe as weleverage our presence there following the
Sperasoft acquisition.
Whilst our Customer Support service
line remains a relatively small part of theGroup, we believe our specialist teams
offer an attractive alternative to traditionallarge customer support call centres. Our
customers are highly focussed on keeping
gamers in their games for longer. We believe
our model of using teams of passionate
gamers with deep knowledge of the games

they are supporting provides improved user
satisfaction and will enable us to increase
our share of this growing market over time.
PeopleThe Group employed an average 3,167
people in 2017 (2016: 1,818). Well balanced
across our three regions, we employed
1,142 in The Americas, 609 in Europe and1,416 in Asia. As the growing games industry
continues to produce more content forindustries as diverse as retail, urban planning,
advertising, education, architecture andautomotive which adopt the use of gameengines to make their content moreinteractive and engaging, so we see thedemand for human capital increase. Our
broad and deep pool of highly experienced
and games passionate co-workers provide
an outsourced resource for our clients to
tap into as and when they need in order to
get their content to market in a flexible andcost-efficient manner.
Our culture acts as the glue that binds ourstaff around the world together. Relaxed,
professional and humble with a focus on
doing the very best we can for each project
entrusted to us, this culture creates anenvironment in which games passionate
individuals can work together with likeminded
colleagues while enjoying the opportunity towork on most of the world’s leading games
ahead of their release. Working on around
150 games at any time in the year andmore than 500 in total throughout the10year, Keywords provides an excellent andsustainable variety of work, good careeradvancement and opportunities to work inmany different locations. We are proud toserve as a stepping stone for those that go2015
on to make their careers in games production
and publishing and we are fortunate tohave an excellent alumnus of Keywordians
employed by many of our client companies.
Our acquisition programme also brings
fresh talent to the Group at all levels andwe continue to be successful at integrating
our businesses, including providing
opportunities for staff to move between our
various studios. This year we have added
game programmers, game designers and 5
engineers to our ever-growing Keywords
family. This is reflected in our seniorleadership team, which comprises four
people from the original Keywords business,
2015
seven people from acquired entities as well
as four externally hired employees.
Current market trends
Following the refreshes of the PlayStation®
and Xbox consoles with the launch of thePS4 Pro and the Xbox One S in 2016, thesuccess of the Nintendo Switch in 2017 was ahighlight of the console market in the period

benefitting Keywords as we provide services
for games made for this platform and assist
developers in repurposing existing games
for the Switch.
The astounding success achieved by battle
arena games led by Fortnite and Player
Unknown Battleground seem set to continue
and we are fortunate to be providing services
for those games too. The mobile games
sector continues to grow faster than theother platform types, with much of thisgrowth originating in Asia where we continue
to expand and build upon our relationships
with the major games publishers in China,
Japan and Korea.
The evolution of the console gaming sector
from packaged product, through digitallydelivered content and into the monetisation
models of free to play and micro transactions
that were previously the preserve of PC andmobile gaming is interesting to see and brings
with it a requirement on the part of our gamedeveloper and clients to continually feed theirgames with new content, the challenges ofwhich we have mastered over time with ourclients in PC, social and mobile gaming.

19.9m
16.2m

2016

2017

10

10

2018

2019

Localisation Testing€19.9m
9.2m

5.6m

2016

2017

5

5

2018

2019

Customer Support€9.2m
ANNUAL REPORT AND ACCOUNTS 201723

Strategic Report

Chief Executive’s Review continued

Augmented reality has received a lot of
attention but, as with virtual reality in 2016,
we feel this technology is still early stage
and the mass adoption of both content
formats is probably a few years off. However,virtual and augmented reality games andapplications continue to generate additional
demand for our services.
The eSports market is developing strongly
and, while we do benefit to some extent fromthis through the provision of our existing
services to support the games being played
and through supporting the marketing and

24

KEYWORDS STUDIOS PLC

communications management of the events
themselves, we continue to seek out ways
in which we could participate in this segment
in a more meaningful manner.
OutlookAs we did in 2016, in 2017 we had a strong
finish to the year, particularly in our audio andtesting businesses. The typically quieter firstquarter has seen activity levels in line with
our expectations and the positive momentum
in the business gives us confidence in theoutcome for the full year.

Early wins of co-development projects in2018 are encouraging signs of the demand
from game developers and publishers for
integrated delivery of Engineering and Art
in the form of game remastering and gamedevelopment. We anticipate that demandfor co-development services will continue toincrease as the size and complexity of games
makes it harder for any one development
studio to undertake all the development
themselves. We look forward to being able
to package more of our services into
co-development style engagements,

including audio, localisation and testing,to add further value to our clients.
As a more diversified, better balanced
business with an expanded range of services
and locations to offer our clients, and the
support of a global sales and marketing
function, we see many opportunities toextend our existing relationships andbecome a strategic partner to major
games companies, both through providing
more integrated services and throughthe provision of dedicated outsourced
or embedded services.

Each service line is pursuing a growthstrategy formulated for its own market
opportunity, with some including a larger
acquisition component than others to add
scale or capabilities that we do not currently
have within the Group, with the aim of agood balance between all seven service
lines over time.

businesses as we continue to consolidate
the highly fragmented market for video
games services in 2018.

We have entered 2018 with a considerablyenhanced platform and a healthy acquisition
pipeline and we fully expect to grow ourbusiness organically as well as throughselectively acquiring complementary

Andrew Day
Group Chief Executive Officer
9 April 2018

Strategic partnerships
The market continues to evolve, moving towards
adopting a Strategic Partnership Model
There are currently three main models that are adopted:• Dedicated teams:
In this scenario, specialist teams worksolely on one client or project, operating
within existing Keywords offices,
however these are made to look andfeel like the client’s offices but using
Keywords platforms and expertise.
• Spin off production centres:
Here, the client transfers control of its
team and offices over to Keywords as
an outsourcing agreement, building
on existing talent and infrastructure
to create a broader service delivery
hub. The benefit of this option isthat it allows clients to focus internaltalent on core strengths. We find thatcompetitive pressures have beencausing this to be more widely adopted.

• Strategic Partnership Model:This is the next step in outsourcing,creating deep partnerships which areintegrated in technology, processes andtalent. Keywords and the client have acommon innovation roadmap, involving
multiple service lines. We take anadaptive approach to create customised
solutions, offering both regional or
global solutions on a large scale.
Keywords’ co-development expertise,
unique talent, technology, knowledge
and scale creates supplier-clientinterdependency – which we love!

ANNUAL REPORT AND ACCOUNTS 201725

Strategic Report

Financial and Operating Review

Extended service
offering, market
penetration andgeographic reach2017 has seen the Group deliver anotheryear of significant increases in revenue,
profit and underlying cash generation.
David Broderick
Chief Financial Officer

26

KEYWORDS STUDIOS PLC

Group performance2017 has seen the Group deliver another yearof significant increases in revenue, profit andunderlying cash generation driven by goodorganic growth, substantially complemented
by acquisitions which have further extended
its service offering, market penetration andgeographic reach.
Revenue
Revenue for 2017 was up 57% at €151.4m(2016: €96.6m). This growth was generated
across all seven service lines of the businessthrough a combination both organic andacquisitive growth. The like-for-like revenue
growth rate, which provides a 2016
comparative as if all of the 2017 and 2016acquisitions had been owned for the same
period in 2016 as they have been in 2017, was
15% for the year which was down from 24%
in 2016 due to the tough comparative as aresult of the exceptional 2016 performanceof Synthesis while all other service lines grew,with Functional Testing, Customer Supportand Localisation being particularly strong.
Excluding Synthesis from both periods the
like-for-like growth was 18.1% which was
in line with our expectations and a strong
growth rate from a larger base.

Gross margin
Gross profit for the year was €55.1m (2016:€36.7m). As expected the gross margin
percentage declined slightly to 36.4% (2016:
38.0%) as the Group absorbed the lower
margin VMC business with its strengths
in Embedded Technical Services where
the services are hosted by the client withcorrespondingly lower operating costs.
Adjusted EBITDA
Adjusted EBITDA is a measure of operating
profit used by the Board, which excludes
depreciation, amortisation, share option
expenses and one-time costs related toacquisitions. For 2017, Adjusted EBITDA
increased 57% to €26.3m compared with
€16.7m for 2016. As a percentage of revenue,
Adjusted EBITDA has been maintained
at 17.4% compared to 17.3% for 2016.
Operating expenses, excluding depreciation,
increased by €8.6m to €28.4m (2016: €19.8m)
mainly as a result of the new acquisitions
made during the year. The continued
additional investment in strengthening
Keywords’ management to successfully
manage the growth of the Group also
contributed. However, the continued drive on
achieving synergies across the Group helped
these costs decrease from 20.5% to 18.8% ofrevenue, with teams increasingly combining
the Group’s services and resources effectively
to meet clients’ needs.

Net finance costs
During 2017, there was a net finance costof €4.4m compared to a cost of €2.0m in
2016 primarily due to the impact of foreignexchange losses. Foreign exchange lossesof €3.6m (2016: loss of €1.7m) were in largepart due to the effect of translating net
current assets held in foreign currencies.
The increase in interest expense to €0.6m(2016: €0.2m) is largely due to a secured
credit facility with Barclays of up to €35m
over a five-year period of which €18.25m
was drawn down at the year end.
Adjusted profit before tax
Adjusted profit before tax is used by the
Board to measure the more meaningfulunderlying profit generation of the Group.
This measure adds back one-time expenses,
such as acquisition and integration expenses,
share option charges, foreign currency
exchange gains or losses and amortisationof intangibles to the statutory profit before
tax. Adjusted profit before tax for 2017
increased by 55% to €23.0m comparedwith €14.9m in 2016.

Revenue mix
Revenues increased across all lines of business in 2017, resulting in our seven service lines
accounting for the following proportion of Group sales in the year:
Year ended
31 December
2017%

Year ended
31 December
2016%

Pro forma* for theyear ended
31 December
2017%

Pro forma* for theyear ended
31 December
2017
€’m

Functional Testing
Localisation Testing
Localisation
Audio
Customer Support
Art Creation
Engineering

19.8
13.1
27.7
13.6
6.1
17.3
2.4

8.9
16.8
33.5
17.9
5.8
17.1
–

23.3
10.0
19.5
11.7
11.7
14.1
9.7

52.2
22.5
43.9
26.3
26.3
31.6
21.7

Total

100

100

100

224.5

*

Pro forma includes the annualised sales of all acquisitions made in 2017 in order to give a better overview
of the balance of the business at the start of 2018.

ANNUAL REPORT AND ACCOUNTS 201727

Strategic Report

Financial and Operating Review continued

Adjusted profit before tax and Adjusted EBITDA for year ended 31 December 2017
Year ended
2017€’000sYear ended
2016€’000sStatutory profit before tax
Add back costs excluded from adjusted profit before tax*
Add back loss attributable to non-controlling interest

11,994
11,049
–

9,435
5,368
61

Adjusted profit before tax
Add back depreciation and Interest
Adjusted earnings before interest, tax, depreciation
and amortisation

23,043
3,282

14,864
1,861

26,325

16,725*

Before acquisition and integration expenses of €3.0m (2016: €1.3m), share option charges of €1.4m(2016: €0.7m), amortisation of intangibles of €3.0m (2016: €1.6m) and foreign currency exchange lossof €3.6m (2016: loss of €1.7m).

Taxation
The Group’s effective tax rate has decreased
again in 2017. The reduction in the federal
income tax rate for businesses in the US willfurther help the Group manage its effective
tax rate not withstanding some effective tax
planning we were able to achieve throughthe acquisition of VMC. We continue to makesteady progress in making better use of ourIreland-based operational headquarters incontracting and treasury management suchthat we expect our effective tax rate tocontinue to reduce despite our exposure
to higher tax jurisdictions in most of theterritories we operate in. The Group’s
effective tax rate, based on the adjusted
measure of profit before taxation in the
period (as set out in the financial overview
above), was 20.5% (2016: 21.7%).
Basic earnings per share
Basic earnings per share for the year,
before one-time costs of acquisitions
and integration, share option charges,
amortisation of intangibles, and foreignexchange movements, increased by 52% to31.18c compared with 20.59c for 2016. Basicearnings per share based on the statutory
profit after tax was 12.37c (2016: 11.22c).

Cash flow and debt
The Group generated operating cash flowof €13.6m for the year, down from €15.0m
in 2016. A better measure of underlying cash
flow is adjusted operating cash generation,
which was €21.9m in 2017, up from €14.8m
in the prior year. This figure is cash flow fromoperations plus acquisition related expensesof €3m (2016: €1.3m), plus exceptional
working capital costs related to the VMC
acquisition of €3.0m (2016: €nil), plus €2.3m
in VMC receipts held by a third party on
behalf of the Group and passed to theGroup post year-end.
During the year the Group also received
MMTCs in Quebec of €3.4m (2016: €2.8m).
Previous delays in receiving the multimedia
tax credits were not encountered in 2017
and the total multimedia tax credit accrual
amounted to €10m as at 31 December 2017(2016: €3m). The VMC acquisition accountedfor €6.6m of the closing accrual. In thecomparative year, multimedia tax credits(“MMTC”) of €1.6m were received in respectof claims prior to 2015.
The Group made eleven acquisitions tostrengthen the business during the yearwith a net cash outflow on consideration
payments of €87m, and an additional €3.0m
in acquisition and integration expenses.
Investment in fixed assets amounted to€3.8m (2016: €2.3m) reflecting the costof increasing the capacity of the Montreal
studio, improvements to both the Dublin
and Tokyo studios. Additionally, there
were ongoing purchases of games
testing equipment.

28

KEYWORDS STUDIOS PLC

Following the investment of €87.0m net cash
consideration for acquisitions in 2017, and a
successful £75.0m equity placing in October
2017, cash and cash equivalents increasedto €30.4m from €17.0m excluding accrued
multimedia tax credits of €10.0m (2016:€3.0m). The loans and borrowings were€19.3m at 31 December 2017 (2016: €8.4m)
having utilised €18.3m of its €35m revolving
credit facility, giving a net cash positionof €11.1m.
Foreign exchange
Keywords does not hedge foreign currency
profit and loss translation exposures. The
effect on the Group’s results of movements
in exchange rates and the foreign gains andlosses incurred during the year mainly relate
to the effect of translating net current assets
held in foreign currencies.
Dividend
The Group has a progressive dividend policy,
subject to the retention of funds needed tofund future growth of the Group’s businessand its strategic aims.
Following the interim dividend paymentof 0.48p per share in October 2017, theBoard has recommended a final dividendof 0.98p per share, which will make the total
dividend for the year ending 31 December
2017 1.46p per share, a 10% increase over2016. Subject to shareholder approvalat the Annual General Meeting, the final
dividend will be paid on 22 June 2018 to allshareholders on the register at 1 June 2018
and the shares will trade ex-dividend on
31 May 2018. The cash cost of the final
proposed dividend will be an estimated€0.7m, subject to currency fluctuations.

Events after the reporting period
The Group has agreed heads of terms on arevolving credit facility with Barclays Bank plc,
HSBC Bank plc and Lloyds Banking Group plc
for an initial €75m over a three-year term,with the option to extend the facility to€105m and by a further two years. The newfacility replaces the existing €35m facility
and is on improved terms. This increased
facility is in keeping with the growth of theGroup and its financial performance andprovides support for the Group’s ongoingacquisition strategy.
On 9 April 2018, we announced that theGroup acquired Cord Worldwide Limited andLaced Music Limited from the Cutting Edge
Group for a total consideration of £4.5m
comprised of an initial cash consideration of£3.375m on completion and 73,744 in shares
to be issued two years after the acquisition.
Cord and Laced generated combined revenueof £6.5m and EBITDA of £675,000 in the year
ended 30 June 2017.
On 22 March 2018, Keywords acquired
Maximal Studio for an initial cash
consideration of €0.3m, with up to €0.2m ofdeferred consideration due over the following
two years, subject to its performance.
Key performance indicators
We monitor our financial performanceagainst a number of different benchmarks.
These are set in agreement with the Boardand used to evaluate progress against
our strategy.
Financial performance is measured by:
Revenue growth
Revenue growth is measured by line ofbusiness and overall against the Board’s
strategic goal to grow organically andby acquisition.
Gross profit
Gross profit is a key measure of the Group’s
pricing strategies, use of resources and its
ability to optimise resource utilisation whileallowing for changes in the mix of businessand services delivered on client premises,
where the Group’s gross margin typicallyreduces but our operating costs are alsosignificantly reduced.

Operating costs
The Board monitors the overheads to ensure
the operating costs of the Group are in linewith the level of business being generated.
Adjusted EBITDA margin
The Board uses an adjusted measure of
EBITDA to monitor the performance of
the Group. This measure excludes foreignexchange gains or losses, any one-time
expense and the cost of employee shareoption awards.
Adjusted operating profit margin
The Board also uses an adjusted measure ofoperating profit to monitor the performanceof the Group. This measure excludes foreignexchange gains or losses, amortisation, any
one time expenses and the cost of employee
share option awards.
Non-financial performance is measured by:
Resource deployment
The Board reviews the efficiency at which theGroup is utilising its staff resources to ensure
optimum staffing strategies are deployed andto maximise utilisation rates.
Business won/lost
The Board reviews the levels of new businesswon and lost, and monitors the reasonsfor both, to ensure that the services being
offered to the market are appropriately
priced and relevant.
Customer satisfaction and qualityof service delivery
The Board monitors the quality andtimeliness of service delivery on an ongoingbasis and reviews the level of repeat revenue
from existing customers, as a key measureof customer satisfaction.

David Broderick
Chief Financial Officer
9 April 2018

ANNUAL REPORT AND ACCOUNTS 201729

Strategic Report

Principal Risks and Uncertainties

Managing risks efficiently
Keywords is a fast-growing but relatively small Group operating
in a widespread geography. The markets we operate in are
fragmented in terms of the suppliers of services but our clientbase is relatively concentrated with a number of very large,
global companies at the head and a large tail of small,independent developers.
The market is highly dynamic, with technology,
business models and consumer tastes evolving
constantly. In this environment Keywords has
the objective of becoming the leading global
supplier of localisation, testing, audio, art,engineering and other related services tothe industry and sees the following risks
as it pursues this objective.

The principal risks associated with theGroup’s strategy can be divided into:•••

General business risks for any
international company;
Industry-related risks; andThose specific to the Keywords
Group and its strategy.

Beyond the general business risks associatedwith any international company, the principal
risks related to the industry or more specificallyto Keywords and its strategy, as identified
by the management and the Board, are set
out below.

Internal risks (including links to strategy)
Acquisitions

Keywords has an active acquisition strategy to reinforce its global growth. Managing such acquisitions
successfully and embedding the Keywords culture is a crucial ingredient of success, and as Keywords
continues to make larger acquisitions, the risk associated is heightened. Failure to do so will haveadverse consequences such as management distraction, disposal and reduced profit. Since IPO,
the Company has involved a broader number of senior managers in the acquisition and integration
process, building on the considerable experience that exists at Board level thus providing further
bandwidth to identify, execute and integrate acquisitions.

Service delivery

Most of Keywords’ services are of a time-critical nature with delays or service delivery failurespotentially impacting the development or launch plans for games. Timely delivery and the resourcing
flexibility to enable delivery to tight deadlines has been an integral part of the Company’s modus
operandi, and Keywords’ approach to project management is applied across the Group. With the
expansion of the Group, measures are being taken to assess ongoing delivery performance beyond
the regular project post-mortems that are routinely conducted.

Cross contamination

As the Group succeeds in delivering multiple services to the same clients, so the risk of failure
in one service line contaminating the relationship with the client across the other service lines
increases. Whilst the introduction of co-development adds to this risk in some respects, it also
helps to mitigate it. Adhering to Keywords’ strong standards of delivery and efficient communication
across service lines is key to managing this risk.

External risks (including links to strategy)

30

Movement

Exposure to large clients

The Company’s client base principally comprises global game companies whose revenues are in
the billions and hundreds of millions of dollars. Our top five clients account for 29% (2016: 28.4%)of the Company’s revenues. These companies have exacting standards and demand a high-qualityof service. Any failure in this regard or breakdown in the relationships at the top level could cause
considerable damage to the business. The potential impact is partially mitigated through theCompany’s highly flexible resource base and its expansion continues to reduce its exposure
to any single large client.

The City and investors

Keywords floated on AIM in July 2013 with an expressed set of objectives of growing the businessorganically and by acquisition. Should the Company lose the confidence of investors, the Company’s
rating will suffer and this in turn will affect its ability to raise money for or place shares to pay for
acquisitions. However, the Company makes every effort to communicate regularly with investors
via announcements and face-to-face contact and this effective communication of the continued
opportunities for growth in the sector, how it continues to execute on its stated strategy andsuccessfully integrate the businesses it acquires should continue to maintain the confidenceof its investors.

KEYWORDS STUDIOS PLC

Movement

External risks (including links to strategy) (continued)

Movement

Sudden businessinterruption

Keywords is a global business and needs to minimise business interruptions and be able to continue
servicing customers. This threat could be internal such as a major failure in its IT systems but also
external such as the Group experienced and managed during the 2011 Tokyo earthquake andtsunami. The Group’s multiple, full-service, delivery hubs provide for a good level of contingency
and, supported by a solid business continuity plan and comprehensive insurance, the effects ofsuch disasters can be managed.

Technology andinformation security

The Company uses various third party and proprietary tools and technologies for process control
and productivity purposes. Continued investment in these tools is important to ensure the Groups’
effectiveness. New technologies for automated testing, machine translation and crowdsourcing,
could pose a threat to the Group in the long-term. The Company participates directly and withclients in various pilot programmes for new technologies to keep abreast of the state-of-the-art.
The industry requires the highest standards of security within a company offering services suchas Keywords. Cyber security breaches may lead to piracy, disruption of clients’ marketing plans,
loss of competitive edge and could result in compensation claims. Keywords maintains physicaland data security policies and procedures which are regularly audited by its larger clients.

Global political risk
and uncertainty

We operate and own assets in a large number of geographic regions and countries, and, as a result,
we are exposed to a wide range of political, economic, regulatory, social and tax environments.
Policies or laws in the countries in which we do business may change in a manner that may be
adverse for us, even those with stable political environments e.g. many governments have sought
additional sources of revenue by increasing rates of taxation. However the diversification and spreadof activities geographically mitigates the risk of disruption in any one location and the tax strategy
adopted is designed for improved efficiency and we eschew aggressive or artificial practices.
The Board has assessed the risk of Brexit on Keywords and concluded that for now thisconstitutes a minor risk for the Group as its UK operations are small relative to the rest of
the Group.

Financial risks (including links to strategy)

Movement

Adequate financial andoperational controls

As a business like Keywords grows rapidly, global financial controls and regular audits need to
be in place to ensure smooth, timely and accurate reporting to satisfy the relevant accounting
bodies to local branches as well as the Board. Failure to accurately report or forecast financial
results through error or fraud would damage the Group’s reputation. Therefore, the Group has
invested and continues to invest in its financial reporting functions to facilitate strong reportingand management control as it grows.

Human resources/talent management

Keywords management structure has been fundamental to the Group’s success, enabled byembedding a Group culture that binds the teams together, with a common set of standards.
In addition, special emphasis is placed on workplace harmony and the prevention of any formsof discrimination, harassment or malpractice in the workplace recognising that any sense of
dissatisfaction can be very disruptive. As a separate dimension, failure to attract, retain or develop
high-quality entrepreneurial management across the business could impact on the attainmentof strategic objectives. The Group is focused on these areas with the implementation of globally
managed service lines, management development and remuneration programmes, incorporating
long and short-term incentives. Regular staff surveys are undertaken and a new Global HR Director
was appointed in 2017 to further drive improvements and be alert to employee concerns or
departures from the spirit of the Keywords culture.

Legal and ethicalstandards

A material failure to comply with applicable legal and ethical standards could result in penalties,
costs, reputational harm and damage to relationships with suppliers and customers. The Group
promotes a culture of “Doing the Right Thing” in all activities. Business conduct guidelines arein place and are supported by more detailed policies and procedures where needed, including
anti-bribery, whistleblowing, competition, inside information, confidentiality and fair dealing withcustomers and suppliers.

ANNUAL REPORT AND ACCOUNTS 201731

Governance

Board of Directors

Ourstrengthened Board
We’ve added two new Independent Non-Executive Directors
to the Board in 2017.

Ross Graham (70)
Independent NonExecutive Director
and Chairman

Andrew Day (54)Group Chief
Executive Officer

David Broderick (43)
Chief Financial Officer

David Reeves (71)
Independent NonExecutive Director
and Chairman of theRemuneration Committee

Ross has extensive executive andnon-executive experience in thetechnology sector. He worked
from 1987 to 2003 at Misys plc,
a global software product andsolutions provider. He joinedas Finance Director upon its
flotation, latterly becoming
Corporate Development Director;
throughout he played a key rolein developing and implementing
its acquisition strategy. Ross held
a non-executive directorshipat Psion plc from 2005 until
2012 when it was successfully
sold to Motorola Solutions Inc.
During his time at Psion, heheld various roles including thesenior independent directorshipand chairman of the audit andremuneration committees. He
was also a non-executive director
at Wolfson Microelectronics
Plc and was previously seniorindependent director and theaudit committee chairman prior
to its sale to Cirrus Logic Inc.
Ross was appointed Director
and Chairman of Keywords prior
to the flotation in July 2013.

Andrew has a background intechnology, manufacturing
and business services throughcorporate development andgeneral management roles withinboth publicly quoted and privatecompanies. Andrew started
his career in 1983 at Rothmans
International PLC in production
management. From 1986 to
1993 he had responsibility
for corporate development
activities at Britannia Security
Group PLC, TIP Europe PLC
and Brent International PLC
before holding the position of
Divisional Managing Director
at Brent International PLC for
six years. Andrew was Chief
Executive Officer of interactive
retail software developer,
Unipower Solutions and Headof Retail and CPG for EMEA, a
NYSE-listed advanced analytics
business, FICO, before joining
Keywords as its Chief Executive
Officer in April 2009.

David joined Keywords in 2016
from Dublin-based Arconics, ahigh-growth aviation software
company where he was Chief
Financial Officer. Prior to this,David was the Finance Director ofEuropean regional airline, Stobart
Air (formerly Aer Arann), during
a period of significant growthin 2013-2014. David previously
spent eight years at Europe’s
largest low-cost airline, Ryanair
Holdings plc, the latter six yearsof which were spent as Head ofInvestor Relations and overseeing
the group’s Inflight Sales Unit’s
finances and operations.

David has spent over 30 years
in management roles within
multinational companies.
He began his career as an
operational research consultant
before moving overseas withRJ Reynolds Nabisco where
he worked from 1979 to 1991,
becoming the Marketing Director
in 1986 and Worldwide Marketing
Director in 1989. In 1991, David
served as the General Manager
and Vice President of Marketingin Tokyo for Mitsubishi Shoji JVTechnology Company. David
has considerable experience inthe computer entertainment
industry. David was the Managing
Director for Sony ComputerEntertainment (PlayStation)from 1995 until his appointment
as its Executive Vice President
in 1999 and President in 2003.
Throughout his career, David
has developed knowledge ofthe various working styles ofEuropean, American and Asian
corporations. He was appointed
to the Board of Keywords Studios
Limited on 29 May 2013.

32

KEYWORDS STUDIOS PLC

Giorgio Guastalla (49)
Non-Executive Director

Giorgio Guastalla is co-founderof Keywords. Prior to establishing
Keywords in Ireland in 1998,
Giorgio held various positions
in marketing and IT at Brent
International PLC based in the
US, Spain, the UK and France.
In 2002 Giorgio founded
Italicatessen Ltd, a company
operating in the food sector.
Giorgio was CEO of Keywords
until 2009 before concentratingon his other business interestsand moving to a Non-Executive
Director role at Keywords Studios.

+2

Georges Fornay (61)Independent NonExecutive Director

Charlotta Ginman (52)
Independent NonExecutive Director
and Chairman of the
Audit Committee

Georges has over 30 years’
experience in the technology andvideo games sectors and currently
sits on the board of France’s
second largest Independent
games publisher, Focus HomeInteractive, which is listed on
the Alternext. Georges worked
in senior management at Sony
Computer Entertainment from1995 to 2011, including as CEOof the French and Swiss divisions
and culminating as the SeniorVice President from 2004-2011.
During this time he oversaw
the launch of the PlayStation
Portable and PlayStation 3.
Prior to this, Georges spentnine years at Commodore, thelast five years of which were as
CEO of Commodore France PC
Manufacturing and Distribution.
Georges has also held significant
industry-wide roles including
four years as President of SELL,
France’s Union of Entertainment
Software Publishers, where he
was responsible for representing
and advocating the industry’s
and its 31 members’ interests
to the government. Georges
was appointed a Director of
Keywords in September 2017.

A fellow of the Institute ofChartered Accountants in
England and Wales, Charlotta
is Chair of the Audit Committee.
She is a non-executive Director
and Chair of the Audit Committeeof Polar Capital Technology
Trust plc, Pacific Asset Trustplc and Motif Bio plc. She isalso a non-executive Directorof Consort Medical plc andUnicorn AIM VCT plc. Charlotta
has held senior positions in
the investment banking andtechnology/telecom sectors.

Number of Board
members joined sincelast year.

As three out of Charlotta’s six
non-executive directorships
are with quoted investmentcompanies that involve lesstime commitment than trading
companies, Charlotta is able todevote sufficient time to all ofher appointments. Charlotta
was appointed a Director of
Keywords in September 2017.

ANNUAL REPORT AND ACCOUNTS 201733

GovernanceDirectors’ Report

The Directors present the Annual Report together with both the audited consolidated financial statements and the parent company (Keywords
Studios PLC) financial statements for the year ended 31 December 2017.
Disclaimer
The purpose of this Annual Report & Financial Statements is to provide information to the members of the Company. The Annual Report &Financial Statements have been prepared for, and only for, the members of the Company, as a body, and no other persons. The Company, its
Directors and employees, agents or advisers do not accept or assume responsibility to any other person to whom this document is shown orinto whose hands it may come and any such responsibility or liability is expressly disclaimed.
The Annual Report & Financial Statements contain certain forward-looking statements with respect to the operations, performance andfinancial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results
and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available
at the date of preparation of this Annual Report & Financial Statements and the Company undertakes no obligation to update these forwardlooking statements. Nothing in this Annual Report & Financial Statements should be construed as a profit forecast.
Dividends
The results for the year are set out on page 46. Dividends paid and proposed are set out on page 62. The Board is proposing a final dividendof 0.98p per share following the payment of an interim dividend of 0.48p per share in October 2017.
Directors and changes to the Board
The Directors of the Company during the year were Ross Graham, Andrew Day, David Reeves, Giorgio Guastalla, Georges Fornay, Charlotta
Ginman and David Broderick.
Details of members of the Board at 31 December 2017 are set out on pages 32 to 33.
Going concern
In view of the Group’s resources, cash at 31 December 2017 of €30.4m, cash flow from operations in 2017 of €13.6m, and the overall financial
condition of the Group, the Directors have reasonable expectation that the Group has adequate resources to continue in operation for theforeseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.
Political donations
No political donations were made in the year.
Directors and their interests
A list of Directors, their interests in the ordinary share capital of the Company, their interests in its long-term performance share plan anddetails of their options over the ordinary share capital of the Company are given in the Directors’ Remuneration Report on pages 37 to 40.
No Director had a material interest in any significant contract, other than a service contract or contract for services, with the Company
or any of its operating companies at any time during the year.
The names of all persons who, at the year end, were Directors of the Company can be found on page 32 under the Board of Directors.
Corporate governanceCompliance with UK Corporate Governance Code
Keywords is committed to high standards of corporate governance throughout the Group. As a company whose shares are traded on AIM, it is
not required to comply with all the requirements of the UK Corporate Governance Code 2016 (“the Code”). However, the Board recognises theimportance of, and is committed to, ensuring that effective corporate governance procedures are in place as appropriate for a public companyof its size and complexity and in the light of the risks and challenges it faces.
The Group’s corporate governance arrangements are set out below:
The Board
The Board is comprised of two Executive and five Non-Executive Directors. The Board considers that Ross Graham, David Reeves, George
Fornay and Charlotta Ginman are independent in character and judgement and that there are no relationships or circumstances which are
likely to affect their independent judgement.
The Board is responsible for the overall management of Keywords, our strategy and long-term objectives. It provides leadership to Keywords
having regard to the interests of shareholders and other stakeholders.
Audit Committee
The Audit Committee is chaired by Charlotta Ginman. Ross Graham and David Reeves are the other Committee members. The Audit Committee
is responsible for assisting the Board in fulfilling its financial and risk responsibilities. The Audit Committee oversees the financial reporting, risk
management and internal control procedures. The Audit Committee advises the Board on the appointment and removal of the external auditor
and discusses the nature, scope and results of the audit with the auditors. The Audit Committee reviews the extent of non-audit services provided
by the auditors and reviews with them their independence and objectivity.

34

KEYWORDS STUDIOS PLC

Remuneration Committee
The Remuneration Committee is responsible for determining the remuneration of the Chairman, Executive Directors, the Company Secretaryand senior executives of Keywords.

GovernanceInternal controls and risk management
The Board has overall responsibility for the Group’s system of internal controls. The system is designed to manage, rather than eliminate therisk of failure to achieve business objectives, and can only provide reasonable assurance against material misstatement or loss.
The Directors believe that the Group has internal control systems in place appropriate to the size and nature of the business. The key elements are:••••Group Board Meetings, at a minimum of eight times per year, with reports from and discussions with senior executives on performance andkey risk areas in the business;
Monthly financial reporting, for the Group and for each subsidiary, of actual performance compared to budget and the prior year;
Annual budget setting; andA defined organisational structure with appropriate delegation of authority.

Substantial shareholdings
At 31 December 2017, the Company had been notified, in accordance with the Disclosure and Transparency Rules, of the following interests in
its ordinary share capital:
Name

P.E.Q. Holdings

Shares%4,000,736

6.5%

Octopus Investments

3,417,183

5.5%

Andrew Day

3,386,342

5.3%

Hargreaves Hale

3,379,398

5.5%

Oberweiss Asset Management

2,456,091

4.0%BlackRock

2,261,732

3.7%

T Rowe Price Global Investments

2,135,629

3.5%

JPMorgan Asset Management

2,088,897

3.4%

Future developments
Important events since the financial year end are described on page 29 of the Strategic Report and future developments are described in thestrategy section of the Strategic Report on page 10.
People and organisation
Keywords is, and always has been, dependent on the quality and commitment of its entire staff to provide and maintain the high levels ofservices expected by the Groups’ clients.
The average headcount reached a peak of 4,025 in December 2017. Keywords permanent staff complement averaged 3,167 during 2017.
This permanent headcount is supplemented with employees on short-term contracts as activity changes throughout the year.
The Group continues to give full and fair consideration to applications for employment made by disabled persons, having regard to theirrespective aptitudes and abilities. The policy includes, where practicable, the continued employment of those who may become disabledduring their employment and the provision of training and career development and promotion, where appropriate. The Group has continued
its policy of employee involvement by making information available to employees on matters of concern to them. Many employees are
stakeholders in the Company through participation in share option schemes and a long-term performance share plan.
The Group has not disclosed further details on employment of disabled persons or employee involvement as it has fewer than 250 employees
within the UK.
Corporate responsibility
Keywords seeks to be a socially responsible Group which has a positive impact on the communities in which operates. By the nature of thebusiness, we employ a diverse workforce, with many nationalities. No discrimination is tolerated and we endeavour to give all employees theopportunity to develop their capabilities. We provide an excellent working environment, the latest technology and appropriate training.

ANNUAL REPORT AND ACCOUNTS 201735

GovernanceDirectors’ Report continued

Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report & Financial Statements.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared theGroup and Company financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European
Union (“EU”).
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of thestate of affairs of the Company and the Group and of the profit or loss of the Group for that period. The Directors are also required to prepare
financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment
Market.
In preparing these financial statements the Directors are required to:••••

Select suitable accounting policies and then apply them consistently;
Make judgements and estimates that are reasonable and prudent;
State whether IFRS as adopted by the EU have been followed, subject to any material departures disclosed and explained in the Group andCompany financial statements respectively; andPrepare the financial statements on a going concern basis, unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions anddisclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial
statements and the Directors’ remuneration report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of
the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors as at the date of this report, whose names and functions are listed in the Board of Directors on page 32, confirm that:••

So far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; andThe Director has taken all the steps that he or she ought to have taken as a Director in order to make himself/herself aware of any relevant
audit information and to establish that the Company’s auditors are aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006.
Website publication
The Directors are responsible for ensuring the Annual Report and Financial Statements are made available on a website. Financial statements
are published on the Group’s websites in accordance with legislation in the United Kingdom governing the preparation and disseminationof financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group’s websites is the
responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.
By order of the Board

David BroderickCompany Secretary
9 April 2018

36

KEYWORDS STUDIOS PLC

Directors’ Remuneration Report

Dear fellow shareholder,
It is my pleasure to present the Directors’ Remuneration Report for the period ended 31 December 2017.
It is my hope that you find this a clear and comprehensive report and I look forward to hearing the views of our investors on theinformation presented here over the coming months. We will carefully monitor emerging practice in this area as well as guidancefrom investor representative groups.
We operate a simple remuneration structure made up of base salary and benefits, a bonus plan and share option scheme, and a long-term
incentive plan, which provide a clear link between pay and our key strategic priorities.
The Board of Directors
The Board of Directors have a duty to act in the best interests of their shareholders when determining remuneration. It is their responsibility
to promote the long-term success of the Company while also considering the employees, suppliers, customers and other external factors which
may be impacted by remuneration decisions.
Executive Directors will be responsible for developing and implementing remuneration strategy for the Group. Non-Executive Directors will be
responsible for constructively reviewing and contributing to this strategy.
The Remuneration Committee
The members of the Remuneration Committee are David Reeves (Committee Chairman), Giorgio Guastalla, Charlotta Ginman and Ross Graham.
The members are all Independent Non-Executive Directors with the exception of Giorgio Guastalla, who, as founder and with a shareholding of>5% is not considered independent under the Code. Other members of the Board may attend the Committee’s meetings at the request of theCommittee Chairman.
The remit of the Committee is primarily to determine and agree with the Board the framework or broad policy for the remuneration of theCompany’s Executive Directors and the Senior Management of the Group.
Non-Executive Directors, who are the members of the Remuneration Committee, are responsible for Executive remuneration. The remunerationof the Chairman of the Board is determined by the Executive Directors with the Remuneration Committee Chairman. The remuneration of the
Non-Executives is a matter for the Executive members of the Board.
No Director or Senior Manager is involved in any discussion or decision about his own remuneration.
Meetings
The Remuneration Committee is planned to meet at least three times a year. In the year ended 31 December 2017, the Remuneration Committee
met on three occasions.
Directors’ emoluments and pension contributions
The aggregate remuneration for the Directors of the Company, for service in all capacities for the period year ended 31 December 2017 was€681,818 (2016: €650,432).
The remuneration paid to Non-Executive Directors for the year ended 31 December 2017 is set out in detail in the table below. Non-Executive
Directors are paid a basic fee for carrying out their duties, together with additional fees being paid in respect of Board Committees and other
responsibilities. Any reasonable business expenses (including tax thereon) may be reimbursed.

Andrew Day
David BroderickDavid Reeves
Giorgio Guastalla
Ross Graham
Charlotta Ginman*
Georges Fornay*
Andrew Lawton**

2017

2016

Salaryor fees

Bonus

PensionShare
options

Total

Salaryor fees

Bonus

PensionShare
options

Total

208,925
141,830
64,46848,691
69,244
21,742
17,603–62,67743,050
–
–
–
–
–
–

–
3,587
–
–
–
–
–
–

–
–
–
–
–
–
–
–

271,602
188,467
64,46848,691
69,244
21,742
17,603–204,025
36,21863,81946,92667,736––
107,113

61,208
10,865–––––52,521

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

265,233
47,08363,81946,92667,736––
159,634

572,504

105,727

3,587–

681,818

525,838

124,594––

650,432* Joined 01 September 2017.
** Resigned 03 October 2016.

ANNUAL REPORT AND ACCOUNTS 201737

GovernanceDirectors’ Remuneration Report continued

Directors’ interest in shares
The interests of each person who was a Director of the Company as at 31 December 2017 (together with interests held by his or her connected
persons) were:
Giorgio Guastalla 1
Andrew Day
Ross Graham
David Reeves
Georges Fornay
Charlotta Ginman

2017
Number

2016
Number

3,600,662
3,296,573
58,44032,4003,142
1,071

7,180,862
3,796,573
58,44028,732––

6,992,288

11,064,607

		(1) Giorgio Guastalla’s indirect shareholding arises out of his 90% holding in P.E.Q. Holdings Limited.

The outstanding awards granted to each director of the Company are as follows.
Long-Term Investment Plan

Andrew Day

David Broderick

Share Option Plan
Andrew Day

Start of year
NumberAwardedNumberExercised
NumberLapsedNumberEnd of year
NumberVesting
date

86,59335,00060,000–30,000––––52,000–30,000

–
–
–
–
–
–

–
–
–
–
–
–

86,59335,00060,00052,00030,00030,00012 Jul 2016
01 Jun 2018
10 May 201915 May 2020
03 Oct 201915 May 2020

211,593

82,000––293,593

Start of year
NumberAwardedNumberExercised
NumberLapsedNumberEnd of year
NumberVesting
date

21,167
21,167
21,168

–
–
–

–
–
–

–
–
–

21,167
21,167
21,16812 Jul 2015
12 Jul 201612 Jul 2017

63,502–––63,502

Awards of shares have vested or will vest on the dates shown subject to meeting the performance criteria, of which the only vesting condition iscontinuous service. In the event that a Director ceases to be an employee of the Group for reasons other than death, retirement, redundancy,
injury, ill-health or disability before the vesting date, then the rights to the award will lapse, unless the Remuneration Committee determines
otherwise. The Option shall lapse the day before the seventh anniversary of the Date of Grant, assuming it is not exercised before then and no
event occurs to cause it to lapse earlier under the Rules. The fair value of the option is amortised over the vesting period, with one-third of theoptions vesting after two years, one-third after three years and the balance vests after four years.
Awards are not subject to further performance conditions once granted.
Transactions with Directors
During the year, there were no material transactions between the Company and the Directors, other than their emoluments.
All transactions between the Group and the Directors are set out in the Notes to the Financial Statements, including note 22 on related party
transactions.

David Reeves
Chairman of the Remuneration Committee

38

KEYWORDS STUDIOS PLC

Directors’ Remuneration Policy Report

Policy and principles
The Remuneration Committee determines the Company’s policy on the structure of Executive Directors’ and if required, senior management’s
remuneration. The objectives of this policy are to:••••

Reward Executive Directors and senior management in a manner that ensures that they are properly incentivised and motivated to performin the best interests of shareholders.
Provide a level of remuneration required to attract and motivate high-calibre Executive Directors and senior management of appropriate calibre.
Encourage value creation through consistent and transparent alignment of incentive arrangements with the agreed company strategy overthe long term.
Ensure the total remuneration packages awarded to Executive Directors, comprising both performance-related and non-performance-related
remuneration, is designed to motivate the individual, align interests with shareholders and comply with corporate governance best practice.

The Board and the Remuneration Committee believe the foregoing objectives are best achieved by a remuneration structure whereby:•••

Basic pay is set at a below median level albeit sufficient for the challenges and pressures of the role.
Annual bonuses are set at modest levels with a maximum of 30% of basic on the premise that an annual bonus doesn’t influence thebehaviour or commitment of a senior executive.
Long-term incentives are the means by which executives can earn significant rewards if, but only if, shareholders likewise have obtained
a good return.

Remuneration components
Various remuneration components are combined to ensure an appropriate and balanced remuneration package which reflects the size andimportance of the business unit, the executive’s experience, responsibility and position in the Company as well as market practice. For this the
Remuneration Committee takes into account the performance of the individual, comparisons with peer companies and, where consideredappropriate, reports from external independent consultants.
The remuneration components are comprised of the following elements:
•
•
•
•
•

Fixed remuneration (basic salary);
Performance-based remuneration (variable salary in the form of an annual bonus);
Pension contribution;
Other benefits; andLong-term incentives (in the form of performance shares or share options).

For Non-Executive Directors there is only one component, a base fee determined by the Executive Directors.
Basic salaries and benefits
Basic salaries are initially determined to reflect the role, and the responsibility of the individual within that role, while also upholding theprinciple of paying no more than is necessary (below the median).
The basic salaries of Executive Directors and senior management are reviewed annually having regard to personal performance, Company
performance, significant changes in their responsibilities and competitive market practice. With effect from 27 March 2018 salary increases of
10% have been awarded to the Executive Directors, Andrew Day and David Broderick. These are explained by the very material rise in the size ofthe business year-on-year. Even after the salary increases both Executive Directors have a base salary and maximum bonus below the mediansalary for a company of equivalent size and therefore are in line with the Remuneration Policy as set out elsewhere.
Performance-based (annual) bonus
Under current arrangements, which will be reviewed annually by the Remuneration Committee, Executive Directors and senior management are
eligible to participate in a bonus scheme. The bonus amount is a percentage of salary of up to 30% which is subject to the attainment of specifictargets set for each individual. The portion of bonus earned in any one year depends on the Remuneration Committee’s assessment of eachindividual’s performance and the overall performance of the Company against predetermined turnover and profitability targets for the year.
Performance targets are weighted 80% towards the Company’s financial performance and 20% towards personal performance (however, if theCompany’s financial performance is considered to be unsatisfactory the 20% for personal performance is likely to be foregone).
The Remuneration Committee will review targets and the weighting of performance measures each year.
The bonus may not exceed the agreed percentage of the fixed salary, which level can only be achieved at a weighted target achievement of 100%.
Pension contribution
At the discretion of the Remuneration Committee the executive directors and senior management may participate in a pension scheme
facilitated by the Company. The Company does not operate any pension scheme or make pension provision for Non-Executive Directors.

ANNUAL REPORT AND ACCOUNTS 201739

GovernanceDirectors’ Remuneration Policy Report continued

Benefits
During the period since incorporation, the Company has not contributed to any employment related benefits.
Long-term incentives
Share options
Share options programmes are in place for permanent members of staff, including the Senior Management. The focus of the share option
programmes is to retain talent and create long-term shareholder value consistent with fulfilment of the Company’s long-term strategic goals.
Long-Term Incentive Plan (“LTIP”)
The purpose of the LTIP is to incentivise delivery against total shareholder return. Share awards further the alignment of executives’ andshareholders’ interests.
LTIP grants are made annually to a range of senior employees across the Company. Awards are made in the form of nil-value share options whichvest subject to performance conditions. Performance conditions are measured over three financial years and are not retested. Conditions arereviewed annually.
Leaver treatment
Fair treatment will be extended to departing executives. Executives who resign or are dismissed for cause are, by default, not eligible for anannual bonus if they have left or are under notice at date of payment, and forfeit all unvested share options or LTIP shares.

2013-15 LTIP••

Awards of nil-cost options vesting after three-years,
subject to three-year TSR performance vs. Numis
Small Cap (excluding Investment Trusts) Index.
1/3 vests for achieving Index +10%, 2/3 forIndex +20% and full vesting for Index +30%
over three-years.

% vesting% vesting

At the Committee’s discretion good leavers (normally including such circumstances as retirement, death, disability and redundancy) may be
eligible for an annual bonus for the proportion of the bonus year served. However, performance will be tested in line with the normal performanceschedule. Similarly good leavers, including those who have served as Executive Directors, may be allowed to exercise a proportion of unvested
share options or LTIPs post-termination when, or to the extent that, the underlying options or LTIPs meet the performance criteria for vesting.
100%
100%
67%
67%
33%
33%
0%
0%

Index +10% Index +20% Index +30%
Index +10%
+20% Index+30%
3-yearTSR Index
vs. Numis
SC Index

2016-17 LTIP••

Awards of nil-cost options vesting after three-years,
subject to three-year TSR performance vs. Numis
Small Cap (excluding Investment Trusts) Index.
10% vests for performance in line with the Index
with full vesting for outperforming the index by
45% over the three-year performance period.

% vesting% vesting

3-year TSR vs. Numis SC Index
100%
100%

10%
0%
10%
0%

Index

145% of Index

IndexTSR vs. Numis
145%
Index
3-year
SC of
Index

Options

40•

KEYWORDS STUDIOS PLC

3-year TSR vs. Numis SC Index
Awards of fair market value options vesting 1/3 p.a. after two, three and four years from grant, subject to continued
employment only.

Independent Auditor’s Reportto the Members of Keywords Studios PLC
OpinionWe have audited the financial statements of Keywords Studios PLC (the “parent company”) and its subsidiaries (the “Group”) for the year ended
31 December 2017 which comprise the Group and Parent Company Statements of Financial Position, the Group Statement of Comprehensive
Income, the Group and Parent Company Statements of Cash Flows, The Group and Parent Company Statements of Changes in Equity, and theNotes to the Financial Statements including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as appliedin accordance with the provisions of the Companies Act 2006.
In our opinion:••••

the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2017 andof the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as
applied in accordance with the provisions of the Companies Act 2006; andthe financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities underthose standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are
independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance withthese requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:••

the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; orthe Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about theGroup’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months
from the date when the financial statements are authorised for issue.

Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statementsof the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified,including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the effortsof the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
1 Revenue recognition – cut-off
Key audit matter
Although the majority of the Groups revenue contracts are reasonably straightforward and non-complex in nature, there is a material work inprogress balance as at 31 December 2017 (€5.1m). We focused on this area due to the risk of management manipulation of the timing of revenue
recognition and the cut-off relating to work in progress at the year end.
Related disclosures
Refer to note 2 of the accompanying financial statements for the accounting policies of the Group in relation to Revenue Recognition.
Audit response
We have designed our audit procedures to ensure that for each material revenue stream, the correct accounting procedures have been applied andrevenue has been recognised correctly in accordance with the Group Revenue Recognition policy. We have completed a substantive based audit
approach across all full scope locations and completed specific audit procedures on a sample basis on less significant components of the Group.
Our procedures included validating a sample of transactions both throughout the year and around the year end, to ensure that the stage ofcompletion and therefore work in progress is reflective of the underling project status. We have validated these transactions to sales orders
and contracts from customers, project status evidence, and subsequent billing. When examining samples of transactions around the year end
we have ensured that the revenue has been recognised in the correct period.

ANNUAL REPORT AND ACCOUNTS 201741

Financial
Statements

Independent Auditor’s Report continued
to the Members of Keywords Studios PLC

2 Business combinations
Key audit matter
The Group has entered into a significant number of acquisitions and business combinations throughout the year, which have had a material
and extensive impact on the Groups’ financial performance and position.
Following the purchase price allocations (in which identifiable assets and liabilities assumed were recognised at fair value), €66.8m of goodwill
has been recognised. The fair value of certain identifiable assets acquired and liabilities assumed in a business combination is different fromtheir carrying amounts in the acquired statements of financial position which can give rise to fair value adjustments as part of the purchase priceallocations of these business combinations. Accordingly, the cumulative acquisitions are material and significant judgement is required in relation
to the purchase price allocations including the resulting goodwill.
Management, determined the fair value of the identifiable assets and liabilities and notably the value of the customer relationships. The valuationof these assets were primarily based upon the expected future cash flows related to these acquisitions.
A number of these acquisitions have also included deferred consideration in the form of shares and other cash payments at future dates, which
add further complexity with regard to the acquisition date fair value of such consideration as part of the consideration transferred in exchange
for the acquisitions and business combinations.
Related disclosures
Refer to note 2 of the accompanying financial statements for the accounting policy in relation to business combinations. In addition, detailed
disclosures have been made in relation to each business combination in note 28 to the financial statements.
Audit response
We have reviewed the underlying contracts and share purchase agreements to each acquisition to ensure that the basis for treatment of theacquisitions is in accordance with the accounting policy and International Financial Reporting Standard 3 – Business Combinations.
We have assessed the carrying value of each material balance at the date of acquisition, and have reviewed managements’ assessments of thefair value of the asset and liabilities acquired, and in particular, the methodology applied in the valuation of intangible assets and goodwill.
Our procedures include:••••

We reviewed the methodology applied to identify the categories of intangible assets;
We validated that the cash flow forecasts used in the valuation are consistent with information approved by the Board and have reviewed
the historical accuracy of management’s forecasts in order to assess the reliance which can be placed upon managements forecasting;
We have challenged the key assumptions such as the growth factors and discount rates by comparing them to relevant market rates andhistoric acquisitions to verify that management had been consistent in its approach to valuations; andWe evaluated the adequacy of the acquisition disclosures in the Group’s financial statements.

In addition, we have examined the terms of all business combinations to ensure that the fair value of any deferred/contingent consideration istreated appropriately in accordance with the Group accounting policy and IFRS 3.
We also examined the key post-combination employment contracts of former shareholders of the acquired entities, reviewing the substance ofthe transactions in order to ensure they have been appropriately accounted for in line with the Group accounting policy and the requirementsof IFRS 3.

42

KEYWORDS STUDIOS PLC

3 Valuation of goodwill and intangible assets
Key audit matter
As a result of both the current year, and prior year acquisitions, the Group has amassed significant intangible assets and goodwill balances.
These balances are material to the financial statements, with goodwill carrying value of €109m, and intangibles carrying value of €23.5m.
Goodwill is tested for impairment at least on an annual basis. Other intangible assets are tested for impairment when a triggering event has
been identified that indicates the carrying amount may not be recoverable. The valuation of goodwill and other intangible assets is significant
to our audit due to the fact that the impairment test calculations are based on several key assumptions which are estimated by management,
and are by nature judgemental. Key assumptions include the expected future cash flows for the forecasting period, the discount rates andperpetual growth rate.
The Directors have concluded that there is one cash generating unit (“CGU”) in the Group, for the purposes of impairment assessment.
Disclosures relating to impairment of goodwill and other intangible assets are enclosed in note 11 to the consolidated financial statements.
Related disclosures
Refer to note 2 of the accompanying financial statements for the accounting policy in relation to business combinations, intangible assets andgoodwill. In addition, detailed disclosures have been made in relation to each business combination in note 28 to the financial statements.
Detailed disclosures are made in note 11 relating to goodwill, and note 12 in relation to intangible assets.
Audit response
We have reviewed management’s assessment of the carrying value of goodwill and intangible assets. We have challenged the Directors
assumptions in relation to CGU identification, cash flow forecasting, discount rates applied, and future growth rates.
Our procedures included:
•
•
•
•
•
•

We have validated that the CGU identified is the lowest level at which management monitors goodwill and intangible assets;
We have verified the accuracy of the cash flow forecasts used, and ensured that these represent those which are reviewed by the Board;
We have reviewed and assessed the accuracy of the historical forecasts prepared by the Group to ensure that reliance can be placed upon
their accuracy;
We have assessed the key estimates and inputs into the discounted cash flow models, including the growth rates assumed, and verified thiswhere possible to supporting evidence such as post year-end activities;
We have completed our own sensitivity analyses in relation to the cash flow models and have stress tested all key assumptions used; andWe have considered the appropriateness of the disclosures relating to the valuation of goodwill and intangible assets in the financial statements.

Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluation the effect of misstatements. We consider
materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users thatare taken on the basis of the financial statements.
Importantly, misstatements below these levels will not necessarily be evaluated as immaterial, as we also take into account the nature of identified
misstatements, and in particular the circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
We determined materiality for the financial statements as a whole to be €1.2m, which represents 10% of profit before income tax and represents
less than 1% of equity. We consider profit before income tax to be the most significant determinant of the Group’s financial performance used byshareholders and other users and therefore consider this as an appropriate basis for materiality. Our materiality is higher than the level we set
for the year ended 31 December 2016 (€0.9m), due to the higher profits of the Group.
We agreed with the Audit Committee that we would report to the Committee all individual differences identified during the course of ouraudit in excess of €60,000 (2016: €47,000). We also agreed to report differences below this threshold that, in our view, warranted reportingon qualitative grounds.

ANNUAL REPORT AND ACCOUNTS 201743

Financial
Statements

Independent Auditor’s Report continued
to the Members of Keywords Studios PLC

An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group-wide controls, andassessing the risks of material misstatement identified at Group level. The Group has operations in 21 locations, and 55 wholly owned
subsidiary entities.
Based on that assessment, we have completed full scope audit procedures in relation to the following entities; Keywords Studios PLC, VMC
Consulting Corporation, Volt Canada Inc, Volt Canada Sciences BC, Keywords International Inc, Synthesis SGSS, Sillabit S.R.L and Binari Sonori
S.R.L. In addition, specific audit procedures have been completed in relation to certain material balances and transaction streams in BabelGames Services Inc, Kite Team SRL, GVGS Europe Inc and Keywords International Co. Limited (Japan) and Sperasoft Inc, Sperasoft Studio LLC,
and Alchemic Dream Inc. The above entities represent 75% of Group revenues and 87% of Group profits before tax.
Whilst materiality for the financial statements as a whole was €1.2m, each component of the Group was audited to a lower level of materiality.
Audits of these components were performed at a materiality level calculated by reference to a proportion of Group materiality appropriate to
the relative scale of the business concerned.
The Group auditor, BDO Dublin, has audited Keywords Studios PLC, Keywords International Limited, Keywords International Inc, VMC Consulting
Corporation and Volt Canada Inc directly. Their involvement in the work performed by other component auditors varies by location and involves,at a minimum, direction of the audit procedures to be completed, and review of the reports received in relation to the results of the audit work
undertaken by component audit teams.
In the current year, the Senior Statutory auditor or senior members of the Group audit team have visited the following reporting locations onplanned visits: Japan (Keywords International Co. Limited) and Spain (Kite Team SL). These visits are to direct and review the work performedby component auditors.
At the parent company level we have also tested the consolidation process and carried out additional procedures to confirm our conclusionthat there were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject
to full scope or specific procedures.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the Annual Report, otherthan the financial statements and our Auditor’s Report thereon. Our opinion on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to
be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether
there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing toreport in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:••

the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are preparedis consistent with the financial statements; andthe Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the parent company and its environment obtained in the course of the audit,
we have not identified material misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if,
in our opinion:
•
•
•
•

44

adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received frombranches not visited by us; orthe parent company financial statements are not in agreement with the accounting records and returns; orcertain disclosures of Directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.

KEYWORDS STUDIOS PLC

Responsibilities of Directors
As explained more fully in the Directors’ Responsibilities Statement set out on page 36, the Directors are responsible for the preparation of thefinancial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent company’s ability to continue as agoing concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors
either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an Auditor’sreport and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s Report.

Teresa Morahan (Senior Statutory Auditor)
For and on behalf of BDO, Statutory Auditor
Dublin 2,
Ireland9 April 2018

ANNUAL REPORT AND ACCOUNTS 201745

Financial
Statements

Consolidated Statement of Comprehensive Income

Years ended 31 December
2017
€’000

2016
€’000

151,430(96,345)
55,08596,585(59,907)
36,678(1,426)(3,016)(3,038)(686)(1,316)(1,629)(7,480)(31,170)(3,631)(21,588)

Administrative expenses(38,650)(25,219)

Operating profit

16,435

11,4596

26(4,467)94(2,118)

7

11,994(4,731)

9,435(3,223)

7,263

6,212

(893)
(25)

–
(63)

(3,598)489

Total comprehensive income:

2,747

6,638

Profit for the period attributable to:
Owners of the parent
Non-controlling interest

7,263
–

6,273
(61)

7,263

6,212

2,747
–

6,699
(61)

2,747

6,638

€ Cent€ Cent

12.37
11.87

11.22
10.87

Note

Revenues
Cost of sales
Gross profit
Share option expense
Costs of acquisition and integration
Amortisation of intangible assets

4
5

17

Total of items excluded from adjusted profit measures
Other administration expenses

Financing income
Financing cost
Profit before taxation
Tax expense

6

ProfitOther comprehensive income:Items that will not be reclassified subsequently to profit of loss
Exchange gains/(loss) on capital investments
Actuarial loss on defined benefit
Items that may be reclassified subsequently to profit of loss
Exchange gains/(loss) on translation of foreign operations

19

Total comprehensive income attributable to:
Owners of the parent
Non-controlling interest

Earnings per share

Basic earnings per ordinary share (€ cent)Diluted earnings per ordinary share (€ cent)
The notes set from page 53 onwards form an integral part of these consolidated financial statements.
On Behalf of the Board

Andrew Day				David Broderick
Director				Director
9 April 2018

46

KEYWORDS STUDIOS PLC

88

Consolidated Statement of Financial Position

Note

Non-current assets
Property, plant and equipment
Goodwill
Intangible assets
Deferred tax assets
Current assets
Trade receivables
Other receivables
Cash and cash equivalents

13
11
12
26

14
15

2017
€’000

2016
€’000

10,111109,007
23,5481,206

5,498
46,7998,696
880

143,872

61,87327,473
22,33530,374

13,8797,778
17,02080,182

38,677224,054

100,550737
11,739102,054
28,878(3,504)(1,997)
2,545
20,679654
8,792
19,983
22,109987(1,434)
1,305
14,308Non-controlling interest

161,131–

66,704–

Total equity

161,131

66,704

7,310
23,005
18,943
3,245

4,822
12,431
8,025
2,552

52,503

27,830

1,233
1,055
337
7,795

1,592
826
345
3,253

Total assets
EquityShare capital
Share capital – to be issued
Share premium
Merger reserve
Foreign exchange reserve
Treasury shares held in EBTShare option reserve
Retained earnings

Current liabilities
Trade payables
Other payables
Loans and borrowings
Corporation tax liabilities
Non-current liabilities
Other payables
Employee Defined Benefit
Loans and borrowings
Deferred tax liabilities
Total equity and liabilities

16

18
20

18
19
20
26

10,4206,016

224,054

100,550

The notes set from page 53 onwards form an integral part of these consolidated financial statements. The financial statements were approved
and authorised for issue by the Board on 9 April 2018.
On Behalf of the Board

Andrew Day				David Broderick
Director				Director
9 April 2018

ANNUAL REPORT AND ACCOUNTS 201747

Financial
Statements

Consolidated Statement of Changes in Equity

Balance at 1 January 2016
Profit for the period
Other comprehensive income
Total comprehensive income forthe period
Contributions by andcontributions to the owners:
Share option expense
Share options exercised
Dividends paid
Treasury shares ringfenced for EBT
Shares issued for cash
Shares issued upon acquisition –Volta Creation Inc
Shares to be issued (Synthesis
acquisition)
Shares to be issued (Mindwalk
acquisition)
Elimination of Minority Interest inKite Team
Shares Issued on settlement with
Kite Team
Keywords France Incorporation
Shares issued upon acquisition –Player Research Ltd
Shares issued upon acquisition –Sonox Audio Solutions SL

Share
optionreserve€’000

Retainedearnings
€’000

Total
attributable
to equity
holders ofparent€’000

Sharecapital€’000

Sharesto beissued€’000

Sharepremium€’000

Mergerreserve€’000

Foreignexchangereserve€’000

Treasurysharesheld
in EBT
€’000

646
–
–

–
–
–

18,542––

22,109
–
–

498
–
489

(804)
–
–

619
–
–

10,2936,273(63)

51,903
6,273
426

–

–

–

–

489

–

–

6,210

6,699

(61)

6,638

–
–
–
–
4

–
–
–
–
–

–
–
–
–
643

–
–
–
–
–

–
–
–
–
–

–
(632)
–
2
–

686
–
–
–
–

–
–
(825)
–
–

686
(632)
(825)
2
647

–
–
–
–
–

686
(632)
(825)
2
647

1

–

169

–

–

–

–

–

170

–

170

–

6,906

–

–

–

–

–

–

6,906

–

6,906

–

1,886

–

–

–

–

–

–

1,886

–

1,886

–

–

–

–

–

–

–

(1,370)(1,370)

1,370

–

1
–

–
–

149
–

–
–

–
–

–
–

–
–

–
–

150
–

–
–

150
–

1

–

331

–

–

–

–

–

332

–

332

Noncontrollinginterest
€’000

Total
equity€’000(1,309) 50,594
(61)
6,212
–
426

–

–

149

–

–

–

–

–

149

–

149

Contributions by andcontributions to the owners

7

8,792

1,441

–

–

(630)

686

(2,195)

8,102

1,370

9,472

Balance at 31 December 2016

653

8,792

19,983

22,109987(1,434)

1,305

14,30866,704–66,704

Profit for the period
Other comprehensive income

–
–

–
–

–
–

–
–

–
(4,491)

–
–

–
–

7,263
(25)

7,263
(4,516)––

7,263(4,516)

–

–

–

–

(4,491)

–

–

7,238

2,747

–

2,747

61
–
6
–

–
–
–
–

82,261
–
608
–

–
–
–
–

–
–
–
–

–
–
(563)
–

–
1,240
–
–

–
–
–
(867)

82,322
1,240
51
(867)

–

–

–

184

–

–

–

–

184

–

184

2
–
–
–

–
–
–
–

–
–
–
–

1,392
168
686
101

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

1,394
168
686
101

–
–
–
–

1,394
168
686
101

14

(3,454)

–

3,440

–

–

–

–

–

–

–

–

1,468

–

–

–

–

–

–

1,468

–

1,468

–

4,133

–

–

–

–

–

–

4,133

–

4,133

–

800

–

–

–

–

–

–

800

–

800

–

–

Total comprehensive income forthe yearContributions by andcontributions to the owners:
Shares issued for cash
Share option expense
Share options exercised
Dividends paid (note 9)
Shares issued upon acquisition– Xloc Inc
Shares issued upon acquisition– GameSim Inc
Shares issued upon acquisition – LOLA
Shares issued upon acquisition – d3t
Shares issued upon acquisition – asrec
Shares Issued on deferred settlementwith Synthesis Group
Shares to be issued (Red Hot
acquisition)
Shares to be issued (Sperasoft
acquisition)
Shares to be issued (Around The
Word & Dune Sound acquisition)
Reclassification of share premium on
acquisitions to merger reserve– 82,322
–
1,240
–
51
–
(867)

–

–

(798)

798

–

–

–

–

–

Contributions by andcontributions to the owners

83

2,947

82,071

6,769(4,491)

(563)

1,240

6,371

94,427– 94,427

Balance at 31 December 2017

737

11,739 102,054 28,878(3,504) (1,997)

2,545

20,679161,131– 161,13148

KEYWORDS STUDIOS PLC

Consolidated Statement of Cash Flows

Years ended 31 December
Note

Cash flows from operating activities
Profit after tax
Income and expenses not affecting operating cash flows
Depreciation
Intangibles amortisation
Income tax expense
Share option expense
Loss on disposal of fixed assets
Fair value adjustment on deferred consideration
Interest receivable
Employee benefit costs
Interest expense
Unrealised foreign exchange losses

13
12
7
17

2017
€’000

2016
€’000

7,263

6,212

2,730
3,038
4,731
1,426
103
190
(26)
209
388
2,033

1,803
1,629
3,223
686
–
264
(94)
63
152
55

14,822

7,781

Changes in operating assets and liabilities
Decrease/(Increase) in trade receivables(Increase)/Decrease in other receivables(Decrease)/Increase in trade and other payables

2,506(5,413)(82)(3,788)
3,245
3,718

Income taxes paid

(2,989)(5,454)

3,175(2,129)Net cash provided by operating activities

13,642

15,039Cash flows from investing activities
Acquisition of subsidiaries net of cash acquired
Acquisition of remaining 50% of Kite
Settlement of deferred liabilities on acquisitions
Disposal of short-term investments
Acquisition of property, plant and equipment
Interest received
EBT share purchase(86,776)–(298)–(3,803)
26–(19,109)(1,000)(995)
27(2,306)94
2(90,851)(23,287)–(23)
10,250(867)(563)
82,936(279)(1,157)
(625)
8,000
(825)
(632)
643
(152)

13

Net cash used in investing activities
Cash flows from financing activities
Loan to finance Multimedia Tax Credits
Repayment of loans
Loan to finance acquisitions
Dividends paid
Financing EBT for share options exercised
Shares issued
Interest paid

30
30
9

6

Net cash provided by financing activities

91,454

5,252

Increase/(Decrease) in cash and cash equivalents
Exchange (loss)/gain on cash and cash equivalents
Cash and cash equivalents at beginning of the period

14,245(891)
17,020(2,996)998
19,018Cash and cash equivalents at end of period

30,374

17,020ANNUAL REPORT AND ACCOUNTS 201749

Financial
Statements

Company Statement of Financial Position

Note

Non-current assets
Property, plant and equipment
Investment in subsidiaries
Other receivables
Current assets
Other receivables
Cash and cash equivalents

21
15

15

Total assets
EquityShare capital
Share capital – to be issued
Share premium
Merger reserve – acquisitions
Treasury shares held for EBT
Share option reserve
Retained earnings
Current liabilities
Trade payables
Other payables
Loans and borrowings
Corporation tax liabilities
Non-current liabilities
Other payables
Total equity and liabilities

16

18
20

18

2017
€’000

2016
€’000

1
30,6593,300

230,6594,243

33,96034,904

129,153
6,261

22,088946

135,414

23,034

169,374

57,938737
11,739102,054
34,561(1,997)
2,545
(311)

654
8,792
19,983
27,792(1,434)
1,305(8,605)

149,328

48,487215
1,578
18,250
3

175
414
8,000
2

20,046

8,591

–

860

169,374

57,938In accordance with Companies Act 2006, the Company is availing of the exemption from presenting its individual Statement of Comprehensive
Income to the Annual General Meeting and from filing it with Companies House. The amount of profit/(loss) after tax dealt with in the parent
undertaking is €9,161k (2016: loss (€5,182k).
The notes on pages 53 to 96 form an integral part of these financial statements. The financial statements were approved and authorised for
issue by the Board on 9 April 2018.
On Behalf of the Board

Andrew Day				David Broderick
Director				Director
9 April 2018

50

KEYWORDS STUDIOS PLC

Company Statement of Changes in Equity

Balance at 1 January 2016
Loss for the period
Total comprehensive income for the year
Contributions by and contributions to
the owners:
Share option expense
Share options exercised
Dividends paid (note 9)
Treasury shares ringfenced for EBT
Shares issued for cash – Numis Warrants
Shares issued upon acquisition – Volta Creation Inc
Shares to be issued (Synthesis Acquisition)
Shares to be issued (Mindwalk Acquisition)
Acquisition of Kite Team Final 50% (note 16)
Keywords France Incorporation
Shares issued upon acquisition – Player Research Ltd
Shares issued upon acquisition – Sonox Audio
Solutions SL
Contributions by and contributions to the owners

Sharecapital€’000

Sharesto be issued
€’000

Share
premium€’000

Mergerreserve€’000

Treasuryshares held
for EBT
€’000

Share
optionreserve€’000

Retainedearnings
€’000

Total
equity
€’000

646
–

–
–

18,542–

27,792
–

(804)
–

619
–

(2,598)(5,182)

44,197(5,182)

–

–

–

–

–

–

(5,182)(5,182)

–
–
–
–
5
1
–
–
1
–
1

–
–
–
–
–
–
6,906
1,886
–
–
–

–
–
–
–
643
169
–
–
149
–
331

–
–
–
–
–
–
–
–
–
–
–

–
(632)
–
2
–
–
–
–
–
–
–

686
–
–
–
–
–
–
–
–
–
–

–
–
(825)
–
–
–
–
–
–
–
–

686
(632)
(825)
2
648
170
6,906
1,886
150
–
332

–

–

149

–

–

–

–

149

8

8,792

1,441

–

(630)

686

(825)

9,472

654

8,792

19,983

27,792(1,434)

1,305(8,605)48,487

Profit for the period

–

–

–

–

–

–

9,161

9,161

Total comprehensive income for the year
Contributions by and contributions to
the owners:
Shares issued for cash
Share option expense (note 17)
Share options exercised
Dividends paid (note 9)
Shares issued upon acquisition – XLOC
Shares issued upon acquisition – GameSim Inc
Shares issued upon acquisition – asrec
Shares issued upon acquisition – d3t
Shares issued upon acquisition of – LOLA
Shares Issued on deferred settlement with
Synthesis Group
Shares to be issued – Red Hot Acquisition
Shares to be issued – Around the Word Acquisition
Shares to be issued – Sperasoft Acquisition
Reclassification of share premium on acquisitions to
distributable reserves

–

–

–

–

–

–

9,161

9,161

61
–
6
–
–
2
–
–
–

–
–
–
–
–
–
–
–
–

82,261
–
608
–
–
–
–
–
–

–
–
–
–
184
1,392
101
686
168

–
–
(563)
–
–
–
–
–
–

–
1,240
–
–
–
–
–
–
–

–
–
–
(867)
–
–
–
–
–

82,322
1,240
51
(867)
184
1,394
101
686
168

14
–
–
–

(3,454)
1,468
800
4,133

–
–
–
–

3,440
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
1,468
800
4,133

Balance at 31 December 2016

–

–

(798)

798

–

–

–

–

Contributions by and contributions to the owners

83

2,947

82,071

6,769

(563)

1,240

(867)

91,680

Balance at 31 December 2017

737

11,739102,054

34,561(1,997)2,545(311) 149,328

ANNUAL REPORT AND ACCOUNTS 201751

Financial
Statements

Company Statement of Cash Flows

Years ended 31 December
2017
€’000

2016
€’000

9,161

(5,182)

–
100
–
(268)
203
366
401

4
145
264
(17)
82
–
478

(10,400)
228

4,199
(304)

(10,172)

3,895

–

(4)

(610)

(813)

Cash flows from investing activities
Acquisition of property, plant and equipment
Interest received
EBT share purchase

–
–
–

(2)
17
2

Net cash provided by investing activities–

17(85,604)
10,250(867)
82,936(563)(229)(18,030)
8,000
(825)
1,449
(492)
(14)

Note

Cash flows from operating activities
Profit/(Loss) after tax
Income and expenses not affecting operating cash flows
Income tax expense
Share option expense
Loss on payment of deferred consideration
Interest income
Share issuance costs
Interest expense
Changes in operating assets and liabilities(Increase)/Decrease in other receivables
Increase/(Decrease) in trade and other payables
Income taxes paid
Net cash used by operating activities

Cash flows from financing activities
Financing the acquisition of subsidiaries
Loan to finance acquisitions
Dividends paid
Shares issued
Financing EBT for share options exercisedInterest paid

9

Net cash used in financing activities

5,923(9,912)

Increase/(Decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the period

5,313
948

(10,708)
11,656

Cash and cash equivalents at end of period

6,261

948

52

KEYWORDS STUDIOS PLC

Notes Forming Part of the Consolidated and Company Financial Statements

1 Basis of Preparation
Keywords Studios PLC (the “Company”) is a company incorporated in the UK. The consolidated financial statements include the financial
statements of the Company and its subsidiaries (the “Group”) made up to 31 December 2017. The Group was formed on 8 July 2013 when
Keywords Studios PLC (formerly Keywords Studios Limited) acquired the entire share capital of Keywords International Limited through theissue of 31,901,332 ordinary shares.
The parent company financial statements present information about the Company as a separate entity and not about its Group.
The consolidated and Company financial statements have been prepared in accordance with International Financial Reporting Standards,
International Accounting Standards and interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as
adopted by the European Union (“adopted IFRSs”).
The financial statements have been prepared in thousands (€’000) and the financial statements are presented in Euro (€) which is thefunctional currency of the Group.
New Standards, Interpretations and Amendments Effective from 1 January 2017
The Group has applied the requirements of IAS 7, Disclosure Initiative, effective from 1 January 2017. The disclosures are included within note 30.
None of the amendments to Standards that are effective from 1 January 2017 had a significant effect on the Group’s financial statements.
New Standards, Interpretations and Amendments Not Yet Effective
Impact of IFRS 9IFRS 9, Financial Instruments, is mandatorily effective for periods beginning on or after 1 January 2018, with early adoption permitted.
The Group has not adopted IFRS 9 early, however, is currently assessing the impact of its implementation.
IFRS 9 establishes the measurement principles for both financial assets and financial liabilities, at both initial recognition and subsequent
re-measurement.
Financial assets
The majority of the Group’s financial assets include:
•
•
•

Cash;
Short-term receivables including trade receivables, accrued income, and multimedia tax credits; andIntragroup balances and receivables (parent company only).

These assets are considered to be part of the “hold to collect” model, and therefore measured at amortised cost.
Our financial assets are short-term in their nature, and no receivables have significant credit terms or interest charged accordingly.
The Group is expecting to apply the simplified approach to applying lifetime expected credit losses on certain financial assets, and while ourassessment is ongoing, we are not expecting a material difference to the carrying value of our financial assets as a result of the implementationof the new standard.
From the Company Statement of Financial Position perspective, we are assessing the impact which the standard will have on the valuation of
our receivables due from intergroup entities.
Financial Liabilities
The most significant of the Group’s financial liabilities include:•••

Bank loans and borrowings;
Trade payables; andContingent consideration arising as part of business combinations.

The Group expects to continue to value bank loans and borrowings at amortised cost, and to value contingent consideration at fair value
through profit and loss model (“FVTPL”).
When valuing the financial liabilities under the FVTPL model, the Group will need to assess any changes in its own credit status, however, this is
not expected to result in any significant changes to the valuation of such financial liabilities.
Impact of IFRS 15
On review of IFRS 15, Revenue from Contracts with Customers, the five key points to recognise revenue have been assessed:
Step 1: Identify the contract(s) with a customer;
Step 2: Identify the performance obligations in the contract;
Step 3: Determine the transaction price;
Step 4: Allocate the transaction price to the performance obligations in the contract; andStep 5: Recognise revenue when (or as) the entity satisfies a performance obligation.

ANNUAL REPORT AND ACCOUNTS 201753

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

1 Basis of Preparation continued
On the basis of the contracts in place, the Group do not envision a material impact on the financial statements once IFRS 15 is implemented.
However, given the acquisitive nature of the Group, and the new revenue streams, this process of assessment will be ongoing.
Impact of IFRS 16
There are a number of operating leases across the Group. In accordance with IFRS 16 Leases, their change in treatment in the financial
statements from 1 January 2019 will impact the Statement of Financial Position, increasing both long-term assets and liabilities.
On the adoption of IFRS 16 on Leases on 1 January 2019, the Group will recognise right-of-use assets and related liabilities for all material leasearrangements over 12 months in duration. Material lease arrangements in the Group relate primarily to leases on premises. The main impact
on the financial statements will be to increase both assets and liabilities on the Statement of Financial Position in relation to leases currently
considered as operating leases at present value. In the Statement of Changes in Equity, leases will be recognised in the future as capital
expenditure on the purchasing side and will no longer be recorded as operating expenses. As a result the operating expenses under otherwise
identical circumstances will decrease, while depreciation and amortisation and the interest expense increase. This will lead to an improvementin EBITDA. Based on leases outstanding at the end of 2017, the Group’s initial assessment of the impact is that the comparable additional Assetand Liability will be in the order of €17m. The Groups’ Cash Flow Statement will include additional detail on the Cash Flow Statement to separate
Interest repayments and capital repayments on leases.
2 Significant Accounting Policies
Basis of Consolidation
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power
to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of theseelements of control.
De-facto control exists in situations where the Company has the practical ability to direct the relevant activities of the investee without
holding the majority of the voting rights. In determining whether de-facto control exists the Company considers all relevant facts andcircumstances, including:••••

The size of the Company’s voting rights relative to both the size and dispersion of other parties who hold voting rights;
Substantive potential voting rights held by the Company and by other parties;
Other contractual arrangements; andHistoric patterns in voting attendance.

The consolidated financial statements present the results of the Company and its subsidiaries (“the Group”) as if they formed a single entity.
Intercompany transactions and balances between Group companies are eliminated in full.
The acquisition of Keywords International Limited was deemed to be a “combination under common control” as ultimate control before andafter the acquisition was the same. As a result, these transactions were outside the scope of IFRS 3 “Business combinations” and have beenaccounted for under the principles of merger accounting as set out under UK GAAP from the date on which control is obtained until the dateon which control ceases.
As part of the Group reconstruction in 2013, the Company issued 31,901,332 shares at a value of £1.23 each, being the flotation price, as partof a share for share exchange with the shareholders of Keywords International Limited. The £0.01 nominal value of the shares issues was
accounted for in Issued Share Capital. On the 2013 consolidated balance sheet, the difference between the nominal value of shares issued by
the Company as consideration for the shares in Keywords International Limited, and the nominal value of the shares in Keywords International
Limited was treated as a merger reserve arising on Group reconstruction. On the Company balance sheet, the excess of net book value of theassets held by Keywords International Limited, at the date of the share for share exchange, over the nominal value of the shares issued wastreated as a merger reserve.
Business Combinations
The consolidated financial statements incorporate the results of business combinations using the purchase method. In the Consolidated
Statement of Financial Position, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values
at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control
is obtained. They are deconsolidated until the date on which control ceases.
Any contingent consideration payable is recognised at fair value at the acquisition date and is split between current liabilities and long-term
liabilities depending on when it is due. At each balance sheet date the fair value of the contingent consideration will be revalued and any change
will be recognised in the Statements of Comprehensive Income.
For deferred consideration which is to be provided for by the issue of a fixed number of shares at a future defined date, where there is no
obligation on Keywords to offer a variable number of shares, the deferred consideration is to be classified as an Equity Arrangement and thevalue of the shares is fixed at the date of the acquisition.

54

KEYWORDS STUDIOS PLC

Goodwill
Goodwill represents the excess of the cost of a business combination over, in the case of business combinations completed prior to 1 January
2010, the Group’s interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired and, in the case of businesscombinations completed on or after 1 January 2010, the total acquisition date fair value of the identifiable assets, liabilities and contingent
liabilities acquired.
For business combinations completed prior to 1 January 2010, cost comprised the fair value of assets given, liabilities assumed and equity
instruments issued, plus any direct costs of acquisition. Changes in the estimated value of contingent consideration arising on businesscombinations completed by this date were treated as an adjustment to cost and, in consequence, resulted in a change in the carrying valueof goodwill.
For business combinations completed on or after 1 January 2010, cost comprises the fair value of assets given, liabilities assumed and equity
instruments issued, plus the amount of any non-controlling interests in the acquiree plus, if the business combination is achieved in stages, thefair value of the existing equity interest in the acquiree. Contingent consideration is included in cost at its acquisition date fair value and, in thecase of contingent consideration classified as a financial liability, re-measured subsequently through profit or loss. For business combinations
completed on or after 1 January 2010, direct costs of acquisition are recognised immediately as an expense.
Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement ofcomprehensive income.
Intangible Assets
Intangible assets, separately identified from goodwill acquired as part of a business combination, are initially stated at fair value. The fair value
attributed is determined by discounting the expected future cashflows to be generated from net margin on the business from the main customers
taken on at acquisition. The assets are amortised over their useful economic lives, which is deemed to be five years.
There are no intangible assets with indefinite useful lives.
Impairment
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year
end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying
amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fairvalue less costs to sell), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest groupof assets to which it belongs for which there are separately identifiable cash flows; its cash generating units (“CGUs”). Goodwill is allocatedon initial recognition to each of the Group’s CGUs that are expected to benefit from a business combination that gives rise to the goodwill.
The Group has one CGU. This CGU represents the lowest level at which goodwill is monitored by the Group and the lowest level at which
management captures information for internal management reporting purposes about the benefits of the goodwill. Impairment charges areincluded in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss
recognised for goodwill is not reversed.
Cash and Cash Equivalents
For the purpose of presentation in the Statement of Financial Position and on the Statement of Cash Flows, cash and cash equivalents include
cash on hand, on call deposits with financial institutions.
Foreign Currency
Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate(their “functional currency”) are recorded at the rates ruling when the transactions occur. The functional currency for the Company is Euro.
Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on theretranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss.
On consolidation, the results of overseas operations are translated into Euro at rates approximating to this ruling when the transactions took
place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at therate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas
operations at actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve.
Exchange differences recognised in profit or loss in Group entities’ separate financial statements on the translation of long-term items forming
part of the Group’s net investment in the overseas operation concerned are classified to other comprehensive income and accumulated in theforeign exchange reserve on consolidation.
Exchange differences on capital loans are recorded as other comprehensive income.
On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation
up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal.
ANNUAL REPORT AND ACCOUNTS 201755

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

2 Significant Accounting Policies continued
Revenue Recognition
Revenue recognised represents the consideration received or receivable for the rendering of services, net of sales taxes, rebates discounts andafter eliminating intercompany sales. Services are provided based on agreed client instructions and when projects are in progress at the period
end, revenue is recognised to the extent that services have been provided net of any provisions.
Revenue on services provided is recognised on the basis of words translated, studio time completed, testing hours or player support hours
finished, or milestones reached in art creation or engineering as a proportion of the estimate total to complete the projects, by the expected
revenue accruing on completion.
This revenue recognition policy is unchanged at the full adoption of IFRS 15 from 1 January 2018, as the performance obligations onservices provided are considered as performance obligations satisfied over time, in accordance with S 35 of IFRS 15, Revenue fromContracts with Customers.
Revenue in relation to software licence sales is recognised over the period of the use by the client of the licence.
Where there are separate performance obligations inherent in a contract, the related revenue streams are considered separately for
performance measurement.
MMTC Grants
The multimedia tax credits received in Montreal on testing services are a credit against staff costs. Accordingly they are treated as a deduction
against direct costs. The nature of the grants are such that they are not dependent on taxable profits.
Share-based Payments
The Company issues equity settled share-based payments to certain employees and Directors under a share options plan and a long-term
incentive plan (“LTIP”).
The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Company’s estimate ofshares that will eventually vest and adjusted for the effect of non-market-based vesting conditions. At each reporting date, the Company revises
its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impactof the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate,with a corresponding adjustment to equity reserves. The Company has no legal or constructive obligation to repurchase or settle the options
in cash.
Where share-based payments are issued to employees of subsidiary companies, the annual cost of the option is expensed in the holding
company and recharged to the subsidiary company through intercompany charge.
Share Option Plan
These are measured at fair value, taking into account market vesting conditions but not non-market vesting conditions on the grant dateusing a Black-Scholes option pricing model which calculates the fair value of an option by using the vesting period, the expected volatility ofthe share price, the current share price, the exercise price and the risk-free interest rate. The fair value of the option is amortised over thevesting period, with one-third of the options vesting after two years, one-third after three years, and the balance vest after four years. The only
vesting condition is continuous service. There is no requirement to revalue the option at any subsequent date. The charge that is recognised isadjusted to reflect failure to vest due to non-achievement of a non-market vesting condition but not failure to vest due to the non-achievementof a market vesting condition.
LTIP
An alternative share plan was introduced to give awards to Directors and staff, subject to outperforming the Numis Small Cap Index (excluding
Investment Trusts) in terms of shareholder return over a three-year period. For the awards up to 2015, there were three award levels: one-third of
the share options vest if the Company shall exceed the Total Shareholder Returns of the Numis Small Cap Index by not less than 10%, two-thirds if
the shareholder return exceeds by over 20% and 100% if the shareholder return exceeds by over 30%. This was amended for the 2016 and 2017
awards to 100% if the shareholder return exceeds by over 45%, and a pro-rated return between 10% and 100% if the shareholder return exceeds
by between 0% and 45%.
These are measured at fair value, taking into account market vesting conditions but not non-market vesting conditions, at the date of grant,measured by using the Monte Carlo binomial model. The charge that is recognised is adjusted to reflect failure to vest due to non-achievementof a non-market vesting condition but not failure to vest due to the non-achievement of a market vesting condition.
Dividend Distribution
Final dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders. Interim
dividends are recognised when paid.
Income Taxes and Deferred Taxation
Provision for income taxes is calculated in accordance with the tax legislations and applicable tax rates in force at the reporting date in the
countries in which the Group companies have been incorporated.
56

KEYWORDS STUDIOS PLC

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial
position differs from its tax base, except for differences arising on:•••

The initial recognition of goodwill;
The initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects
neither accounting or taxable profit; andInvestments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference andit is probable that the difference will not reverse in the foreseeable future.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date andare expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and thedeferred tax assets and liabilities relate to taxes levied by the same tax authority on either:••

The same taxable Group company; orDifferent Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle theliabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled
or recovered.

Property, Plant and Equipment
Property, plant and equipment comprise computers, leasehold improvements, and office furniture and equipment, and are stated at cost lessaccumulated depreciation. Carrying amounts are reviewed for impairment whenever events or changes in circumstances indicate that theircarrying amount may not be recoverable. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written
down immediately to its recoverable amount.
Property, plant and equipment acquired through business combinations are valued at fair value on the date of acquisition.
Depreciation is calculated to write off the cost of fixed assets on a straight-line basis over the expected useful lives of the assets concerned.
The principal annual rates used for this purpose are:%

Computers and software
Office furniture and equipment
Building and leasehold improvements

33.33
10.00
over the length of the lease

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the consolidated statementof comprehensive income.
Financial Assets
Loans and Receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise
principally through the provision of services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary
asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and aresubsequently carried at amortised cost using the effective interest rate method, less provision for impairment.
The Group’s receivables comprise trade and other receivables and cash and cash equivalents in the statement of financial position.
Trade receivables, which principally represent amounts due from customers, are initially recognised, thereafter, are recognised at amortised
cost. An estimate for doubtful debts is made when there is objective evidence that the Group will not be able to collect amounts due according
to the original terms of receivables. Bad debts are written off when identified.
Cash and cash equivalents are necessary for the working capital requirements of the Group. They include cash in hand, deposits held at callwith banks and other short-term highly liquid investments. Where cash is on deposit with maturity dates greater than three months, it isdisclosed as short-term investments.
Share Capital
Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability.
The Group’s ordinary shares are classified as equity instruments.
Financial Liabilities
Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using
the effective interest method.

ANNUAL REPORT AND ACCOUNTS 201757

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

2 Significant Accounting Policies continued
Leased Assets
Where substantially all of the risks and rewards of ownership are not transferred to the Group (“operating lease”), the total rental payables arecharged to the consolidated statement of comprehensive income on a straight-line basis over the term of the lease.
Finance Leases
Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a “finance lease”),
the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased
property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment isshown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the consolidated statementof comprehensive income over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The
capital element reduces the balance owed to the lessor.
Employee Benefit Trust
Ordinary shares purchased by the Employee Benefit Trust on behalf of the parent company under the Terms of the Share Option Plan are
deducted from equity on the face of the Consolidated Statement of Financial Income. No gain or loss is recognised in relation to the purchase,sale, issue or cancellation of the parent company’s ordinary shares.
3 Critical Accounting Estimates and Judgements
The preparation of consolidated financial statements under IFRS requires the Directors to make estimates and judgements that effect theapplication of policies and reported amounts.
The areas requiring the use of estimates and critical judgements that may significantly impact the Group’s earnings and financial position thecomputation of income taxes, the value of goodwill and intangible assets arising on acquisitions, the valuation of multimedia tax credits andthe valuation of the defined retirement benefits for employees in Italy. Estimates and judgements are continually evaluated and are basedon historic experience and other factors including expectations of future events that are believed to be reasonable. Actual results may differ
from these estimates and assumptions.
Income Taxes
The Group is subject to income tax in several jurisdictions and judgement may be required in determining the provision for income taxes.
During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination may be uncertain.
As a result, the Company recognises tax liabilities based on an understanding of taxation legislation in particular jurisdictions and any related
estimates of whether taxes and/or interest will be due. This assessment relies on estimates and assumptions and may involve a series ofcomplex judgements about future events. To the extent that the final tax outcome of these matters is different than the amounts recorded,
such differences will impact income tax expense in the period in which such determination is made.
Goodwill and Intangible Assets Arising on Acquisition
The value of goodwill and intangible assets recognised on the Group’s acquisitions during 2017, at €67m and €19m respectively, were derived
from the projected cashflows for those businesses at the time of acquisition, the balance sheet information provided and on management
forecasts. The accuracy of the valuation would therefore be compromised by any differences between the forecasts and the levels of businessactivity that the entity may be able to generate.
On an annual basis, the full value of intangibles is assessed through an impairment review.
Multimedia Tax Credits
The submissions for the repayment of Multimedia Tax Credits in Montreal are made on an annual basis to Investment Quebec and Revenue
Quebec. Both the costs and basis of the claim are subject to audit by the authorities prior to approval and payment of the claim. While theGroup complete a detailed exercise in relation to the claim and to the accrual there may be occasions where the actuals amounts may be
more or less than accrued which will lead to a change in the amounts recognised within the financial statements.
Employee Defined Retirement Benefit
In line with statutory requirements in Italy, the subsidiaries in Milan maintain Employee Defined Benefit schemes. On leaving the Company,
each employee is entitled to 1/13.5 of their final salary for each year of service.
At year end, the Group commissioned an actuarial valuation of the related liability, based on salaries, length of service and variables including
employee turnover, estimated salary increases and cost of capital.
The liabilities at year end are recorded as long-term. The actuarial loss is recorded separately as other comprehensive income.
4 Segmental Analysis
Management considers that the Group’s activity as a single source supplier of Services to the gaming industry constitutes one operating andreporting segment, as defined under IFRS 8.

58

KEYWORDS STUDIOS PLC

Management review the performance of the Group by reference to Group-wide profit measures and the revenues derived from seven main
service groupings:
•
•
•
•
•
•
•

Localisation Services – Localisation services relate to translation and cultural adaptation of in-game text and audio scripts across multiple
game platforms and genres.
Localisation Testing – Localisation Testing involves testing the linguistic correctness and cultural acceptability of computer games.
Audio/Voiceover Services – Audio Services relate to the audio production process for computer games and includes script translation,
actor selection and talent management through pre-production, audio direction, recording, and post-production, including native language
Quality Assurance of the recordings.
Functional Testing – Functional Testing relates to quality assurance services provided to game producers to ensure games function
as required.
Art Creation Services – Art creation services relate to the production of graphical art assets for inclusion in the video game including concept
art creation along with 2D and 3D art asset production and animation.
Player Support – Player support relates to the live operations support services such as community management, player support andassociated services provided to producers of games to ensure that consumers have a positive user experience.
Engineering – Engineering relates to software engineering services which are integrated with client processes to develop video games.

There is no allocation of operating expenses, profit measures, assets and liabilities to individual product groupings. Accordingly the disclosures
below are provided on a Group-wide basis.
Activities are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating
decision-maker has been identified as the executive management team made up of the Chief Executive Officer and the Finance Director.
Years ended 31 December

Revenue by line of businessArt creation
Audio
Localisation
Functional testing
Localisation testing
Customer support
Engineering

2017
€’000

2016
€’000

26,193
20,657
41,95930,033
19,848
9,168
3,572

16,55917,26332,3608,619
16,204
5,580–

151,430

96,585No single customer (2016: None) accounted for more than 10% of the Group’s revenue during the year.
Geographical Analysis of Revenues by Jurisdiction
Analysis by geographical regions is made according to the Group’s operational jurisdictions. For many contracts, operations are completed
in multiple sites. Revenue is associated with the jurisdiction from which the final invoice to the client is raised. This does not reflect the regionof the Group’s customers, whose locations are worldwide.
31 December
2017
€’000

31 December
2016
€’000

CanadaIreland
Switzerland
Italy
India
United States
Japan
United Kingdom
Spain
China
Singapore
Germany
BrazilMexicoFranceRussiaPolandPhilippines
Taiwan45,64834,277
19,565
10,029
5,177
12,199
6,352
2,467
2,194
3,685
4,451
928
520
180
3,758
–
–
–
–

22,05325,57017,838
7,269
4,591
5,250
4,886
1,276
2,167
24
4,787
163
619
92
–
–
–
–
–

Total revenues

151,430

96,585

ANNUAL REPORT AND ACCOUNTS 201759

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

4 Segmental Analysis continued
Geographical Analysis of Non-Current Assets from Continuing Businesses

CanadaIreland
Switzerland
Italy
India
United States
Japan
United Kingdom
Spain
China
Singapore
Germany
BrazilMexicoFranceRussiaPolandPhilippines
Taiwan31 December
2017
€’000

31 December
2016
€’000

8,889
1,064
11,158
11,723
2,588
77,177565
10,011
1,520
7,707
42
1,168
231
892
6,531
866
58
472
4

8,937
4,779
12,657
12,188
2,991
8,657
43
6,874
1,475
287
60
1,241
259
121
424
–
–
–
–

142,666

60,993

2017
€’000

2016
€’000

98,850(4,408)
1,903

61,232(2,289)964

96,34559,907

5 Cost of Sales and Operating Profit
Cost of sales

Staff costs
Multimedia tax grant income
Other direct costs

Operating profit is stated after charging:
Years ended 31 December

Depreciation
Amortisation of intangible assets
Costs of acquisitions and integration
Operating lease repayments

2017
€’000

2016
€’000

2,730
3,038
3,016
2,369

1,803
1,630
1,316
2,371

One-time costs of €3,016k (2016 €1,316k) were incurred in acquiring and integrating the new entities into the Group. The most significant costs
within the integration costs are for internal resource who have led the activities to integrate the new acquisitions into the Group, and legal costs
in relation to acquisitions.

60

KEYWORDS STUDIOS PLC

Of the €3,016k incurred, €2,342k were incurred directly on the costs of acquisitions. The costs per acquisition are set out on note 31.
2017
€’000

2016
€’000

164
99

115
111

242
73

–
52

578

278

2017
€’000

2016
€’000

26

94

26

94

(320)
(578)
(3,569)

(229)
(152)
(1,737)

Auditors’ remuneration
Audit services
Parent company and Group audit
Subsidiary companies audit
Non-audit services
Acquisition related due diligence services
Taxation compliance

6 Financing Income and Costs

Finance income
Interest received
Finance cost
Bank charges
Interest expense
Foreign exchange losses
Net financing cost

(4,467)(2,118)(4,441)(2,024)

2017
€’000

2016
€’000

–
5,762
(1,031)

4
3,928
(709)

4,731

3,223

7 Taxation

Current income tax
Income tax on profits of parent company
Income tax on profits of subsidiaries
Deferred tax (note 26)

The tax charge for the year can be reconciled to accounting profit as follows:
Years ended 31 December
2017
€’000

2016
€’000

Profit before tax

11,994

9,435

Expected tax charge based on the standard rate of taxation in the UK at 19.25% (2016: 20%)
Higher rates of current income tax in overseas jurisdictions
Lower rates of current income tax in overseas jurisdictions
Losses incurred
Effects of other timing differences

2,309
3,759
(257)
(162)
(918)

1,887
1,331
(555)
998
(438)

Total tax charge

4,731

3,223

The Group’s subsidiaries are located in different jurisdictions and are taxed on their residual profit in those jurisdictions.
As there are minimal taxable profits in the UK, the impact of the drop in the corporation tax % is less than €10k for 2017.

ANNUAL REPORT AND ACCOUNTS 201761

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

7 Taxation continued
Tax effects relating to each component on other comprehensive income

Exchange loss on capital investments
Tax (expense)/benefit
Actuarial loss on defined benefit plans
Tax benefit

2017
€’000

2016
€’000

(893)
–

–
–

(893)

–

(25)
7

(63)
18

(18)

(45)

Exchange (loss)/gain on translation of foreign operations
Tax benefit/(expense)(3,598)–489–

Net of tax amount(3,598)489

2017€ Cent2016€ Cent

12.37
11.87

11.22
10.87

€’000

€’000

7,263

6,273

NumberNumber

58,720,884
61,198,672

55,918,481
57,716,435

Net of tax amount

8 Earnings per Share

Basic
DilutedProfit for the period from continuing operations

Denominator (weighted average number of equity shares)
Basic
DilutedThe basic and diluted weighted average denominators include the impact of the 2,188,608 shares to be issued relating to considerationon acquisitions.
The dilutive impact of share options has been considered in calculating diluted earnings per share. Details of the number of share options
outstanding at the year-end are set out in note 17.
9 Dividends
2017

2016

Per share€ Cent

Total
€’000

Per share€ Cent

Total
€’000

Final dividends paid
Interim dividends paid

1.01
0.54

563
304

1.03
0.49

561
264

Dividends paid to shareholders

1.55

867

1.52

825

In May 2016, Keywords Studios PLC approved a dividend in respect of the financial year ended 31 December 2015 of 0.81p/1.034 cent per
ordinary share, or €561k in total, as a final dividend for 2015. The dividend was paid in June 2016.
In September 2016, Keywords Studios PLC approved a dividend of 0.44p/0.49 cent per share, based on the shares in issue at that time, or€264k in total, as an interim dividend for 2016. The dividend was paid in October 2016.
In April 2017, Keywords Studios PLC approved a dividend in respect of the financial year ended 31 December 2016 of 0.89p/1.01 cent per
ordinary share, or €563k in total, as a final dividend for 2016. The dividend was paid in June 2017.
In September 2017, Keywords Studios PLC approved a dividend of 0.48p/0.54 cent per share, based on the shares in issue at that time, or€304k in total, as an interim dividend for 2017. The dividend was paid in October 2017.
The Directors’ recommend a final dividend in respect of the financial year ended 31 December 2017 of 0.98p per ordinary share, to be paid
on 22 June 2018 to shareholders who are on the register at 1 June 2018. This dividend is not reflected in these financial statements as it does
not represent a liability at 31 December 2017. The final proposed dividend will reduce shareholders’ funds by an estimated €680,000.
There are no income tax consequences for the company in respect of the dividends proposed prior to issuance of the Consolidated Financial
Statements and for which a liability has not been recognised.
62

KEYWORDS STUDIOS PLC

10		 Staff Costs
Total staff costs (including Directors) comprise the following:Group

Salaries and related costs
Share-based payment costs

2017
€’000

2016
€’000

81,563
1,426

41,643686

82,98942,329

2017
€’000

2016
€’000

1,165
1,426

1,010
145

2,591

1,155

2017
€’000

2016
€’000

690
79
4
141

769
97
29
42

914

937

Company

Salaries and related costs
Share-based payment costs

Key management compensation:

Salaries and related costs
Social welfare cost
Pension cost
Share-based payment costs

The key management compensation includes compensation to seven Directors of Keywords Studios PLC during the year. (2016: Six).
Group
Average number of employees
Operations
General and administration

2017

2016

2,921
246

1,688
130

3,167

1,818

11		 Goodwill€’000

At 1 January 2016
Recognition on acquisition of subsidiaries
Revaluation on exchange rate movement

23,89323,055(149)

At 31 December 2016
Recognition on acquisition of subsidiaries
Revaluation on exchange rate movement

46,79966,853(4,645)

At 31 December 2017

109,007

During the period, goodwill arose on the acquisitions of Spov, XLOC, GameSim, Red Hot, Around the Word, asrec, Le Marque Rose, d3t, VMC,
Sperasoft and LOLA.
The Group assesses the carrying value of goodwill each year on the basis of budget projections, assumptions on revenue growth rates, current
gross margins, operating expense growth and effective tax rates. The discount rates used at 12.5% are consistent with the latest valuation of
WACC which is based on external measures.
The carrying value at €109m compares to the calculated value in use amount of €371m.

ANNUAL REPORT AND ACCOUNTS 201763

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

11		 Goodwill continued
Key assumptions for the value in use calculations are as follows:
1-5 Year
growthrate

GrossmarginOperatingexpensegrowthEffective
tax rate

Experience in 2017

15%

36.4%

1%

20.5%

Assumptions used

10%

36.4%

6%

20%

Change in each assumption that would bring the recoverable amount to thecarrying amount

(12%)

(12%)

16%

51%

Note: Each change noted, which is a reduction or increase on the assumption used, was calculated keeping all other assumptions stable.
As part of the value in use calculation, management prepared an initial cash flow forecast, approved by the Board of Directors, covering theperiod to 31 December and the following five years. The long-term growth rate of 2% has been used to determine a terminal value for the CGU.
The result of the value in use calculations was that no impairment is required in this period.
12		 Intangible Assets – Customer Relationships
€’000

Cost
At 1 January 2016
Additions
Revaluation on exchange rate movement

5,132
6,509
(11)

At 31 December 2016
Recognition on acquisition of subsidiaries
Exchange rate movement

11,63018,962(1,310)At 31 December 2017

29,282

Amortisation and impairment
At 1 January 2016
Amortisation charge
Revaluation on exchange rate movement

1,350
1,629
(45)

At 31 December 2016
Amortisation charge
Exchange rate movement

2,934
3,038
(238)

At 31 December 2017

5,734

Net book value
At 31 December 2016

8,696

At 31 December 2017

23,548Customer relationships are amortised over five years from the point of acquisition on a straight-line basis.

64

KEYWORDS STUDIOS PLC

13		 Property, Plant and Equipment
Computers andsoftware€’000

Office, furnitureand equipment€’000

Leaseholdimprovements
€’000

Total
€’000

Cost
At 1 January 2016
Currency revaluation
Additions
Acquisitions through business combinations at fair value
Disposals

6,253
131
1,370
798
(67)

2,319
99
597
145
(2)

855
80
376
416
(3)

9,427
310
2,342
1,359
(73)

At 31 December 2016
Currency revaluation
Additions
Acquisitions through business combinations at fair value
Disposals

8,485
(685)
2,514
2,214
(54)

3,158
(216)
772
603
(1)

1,724
(222)
601
1,350
(29)

13,367(1,123)
3,887
4,167
(84)

At 31 December 201712,474

4,316

3,424

20,214

Accumulated depreciation
At 1 January 2016
Currency revaluation
Depreciation charge
Disposals

4,669
(73)
1,205
(45)

1,136
225
429
–

136
18
169
–

5,941
170
1,803
(45)

At 31 December 2016
Currency revaluation
Depreciation charge
Disposals

5,756
(293)
1,795
(6)

1,790
(111)
543
–

323
(72)
392
(14)

7,869
(476)
2,730
(20)

At 31 December 2017
Net book value
As at 31 December 2016

7,252

2,222

629

10,103

2,729

1,368

1,401

5,498

At 31 December 2017

5,222

2,094

2,795

10,111

2017
€’000

2016
€’000

27,891(418)

14,347(468)

27,473

13,87914		 Trade Receivables

Group
Customers
Provision for bad debts

15		 Other Receivables
As of 31 DecemberGroup
Accrued Income
Prepayments
Other receivablesMultimedia tax credits, Canada
Other tax and social security

2017
€’000

2016
€’000

5,140
3,255
3,958
10,016
(34)

1,661
1,769
994
3,008
346

22,335

7,778

ANNUAL REPORT AND ACCOUNTS 201765

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

15		 Other Receivables continued
Company Short-term

Intercompany receivables (note 22)
Accrued income
Prepayments
Other receivables

2017
€’000

2016
€’000

129,056–45
52

21,39824
81585

129,153

22,088

2017
€’000

2016
€’000

3,300

4,243

3,300

4,243

Company Long-term

Intercompany receivable16		 Shareholder’s Equity
Share Capital
Shares€’000

As at 1 January 2016
Ordinary shares of £0.01 issued on acquisition of remaining 50% of Kite Team shares
Ordinary shares of £0.01 issued on acquisition of Volta
Exercise of Numis warrants
Ordinary shares of £0.01 issued on acquisition of Player Research
Ordinary shares of £0.01 issued on acquisition of Sonox

53,837,697
55,50845,192400,324
65,28024,881

646
1
1
4
1
1

As at 31 December 2016

54,428,882

654

1,188,253
19,134
151,725
9,534
42,368
10,106
5,357,143
501,060

14
–
2
–
–
–
61
6

61,708,205

737

Ordinary shares of £0.01 each issued on the first anniversary of the acquisition of Synthesis
Ordinary shares of £0.01 issued on acquisition of Xloc
Ordinary shares of £0.01 issued on acquisition of GameSim
Ordinary shares of £0.01 issued on acquisition of asrec
Ordinary shares of £0.01 issued on acquisition of d3t
Ordinary shares of £0.01 issued on acquisition of LOLA
Placing of ordinary shares of £0.01 on the market
Issue of shares on exercise of share options
As at December 2017

On 13 April 2017 the Group issued 1,188,253 of 1p shares at a value of 798p (€9.40) as part of the consideration for Synthesis.
On 10 May 2017, the Group issued 19,134 of 1p shares at a value of 796p (€9.47) which formed the part of the consideration for the acquisitionof Xloc.
On 17 May 2017, the Group issued 151,725 of 1p shares at a value of 792p (€9.20) which formed the part of the consideration for the acquisitionof GameSim.
On 4 August 2017, the Group issued 9,534 of 1p shares at a value of 1185p (€13.12) which formed the part of the consideration for theacquisition of the three French acquisitions.
On 19 October 2017, the Group issued 42,368 of 1p shares at a value of 1416p (€15.89) which formed the part of the consideration for theacquisition of d3t.
On 15 December 2017, the Group issued 10,106 of 1p shares at a value of 1461p (€16.56) which formed the part of the consideration for theacquisition of LOLA.
On 24 October 2017, a total of 5,357,143 new ordinary 1p shares were successfully placed on the market at a value of 1400p (€15.62), raisingproceeds of over €83m before charges.
On 1 September 2017 made a block admission in respect of 1,112,561 of 1p shares, to be issued pursuant to exercises of options under theCompany’s employee share incentive and option plans. During the year 501,060 of 1p shares were issued on the exercise of options by employees.
There is no limit to the number of shares which the Company can issue.
66

KEYWORDS STUDIOS PLC

Shares held by the Employee Benefit Trust (“EBT”)
2017

Ordinary shares held by the EBT

2016

Number€’000

Number€’000

335,425

1,997

399,026

1,434

Reserves
The following describes the nature and purpose of each reserve within owner’s equity:
Reserve

Description and purpose

Retained earnings

Cumulative net gains and losses recognised in the Consolidated Statement of Comprehensive Income.

Foreign exchange reserve

Gains or losses arising on retranslation of the net assets of the overseas operations into Euro.

Share premium

The share premium account is the amount received for shares issued in excess of their nominal value, netof share issuance costs.

Share option reserve

The share option reserve is the credit arising on share-based payment charges in relation to the Company’s
share option schemes.

Shares to be issued

For deferred consideration which is to be provided for by the issue of a fixed number of shares at a future
defined date, where there is no obligation on Keywords to offer a variable number of shares, the deferredconsideration is to be classified as an Equity Arrangement and the value of the shares is fixed at the dateof the acquisition.

Merger reserve

The merger reserve was initially created following the Group reconstruction, when Keywords Studios PLC
acquired the Keywords International Limited Group of companies.
When the Group uses Keywords Studios PLC shares as the 100% consideration for the acquisition of anentity, the value of the shares in excess of the nominal value, net of share issuance costs are also recorded
within this reserve, in line with S612 of the 2006 UK Companies Act.

Non-controlling interest reserve

The non-controlling interest reserve represents the share of net assets/(liabilities) at the reporting date
which is attributable to the holders of the non-controlling interest.

17		 Share Options
In July 2013, at the time of the IPO, the Company put in place a Share Option Scheme and a Long-Term Incentive Plan (“LTIP”). The charge in
relation to these arrangements is shown below, with further details of the schemes following:

Share Option Scheme expense
Share Option Scheme – LTIP expense

2017
€’000

2016
€’000

178
1,248

208
478

1,426

686

Of the total share option charge, €141k relates to Directors of the Company as at 31 December 2017 (2016: €45k).
Share Option Scheme
Share options are granted to Executive Directors and to permanent employees. The exercise price of the granted options is equal to the market
price of the shares at the time of the award of the options. The Company has no legal or constructive obligation to repurchase or settle the options
in cash.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
2017
Average
exercise price in£ per share

Outstanding at the beginning of the period
Granted
LapsedExercised

2016
Number ofoptions

Average
exercise price in£ per share

Number ofoptions

1.58
7.76
3.56
1.35

1,672,056
282,000(30,000)(548,855)

1.20
2.45
1.67
1.31

1,642,242
223,200(44,547)(148,839)

Outstanding at the end of the period

2.79

1,375,201

1.58

1,672,056

Exercisable at the end of the period

1.30

515,296

1.38

522,035

Weighted average share price at date of exercise

12.32

3.27

ANNUAL REPORT AND ACCOUNTS 201767

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

17		 Share Options continued
Summary by share option arrangement
Date of option

Exercise price

12 Jul 201301 Jun 2015

10 May 2016

15 May 2017

Total

£1.20

£1.58

£2.54

£7.76

–

Outstanding at the beginning of the period
Granted
LapsedExercised in the year

465,396–(3,438)(176,647)

1,016,260–(7,236)(372,208)

190,400–(10,326)––
282,000(9,000)–1,672,056
282,000(30,000)(548,855)

Outstanding at the end of the period

285,311

636,816

180,074

273,000

1,375,201

Exercisable at 31 December 2017
Exercisable 2018
Exercisable 2019
Exercisable 2020
Exercisable 2021

285,311––––229,985
353,415
53,416–––60,02560,02560,024–––91,00091,00091,000515,296
413,440
204,441
151,024
91,000The inputs into the Black-Scholes model, used to value the options are as follows:
Date of option

12 Jul 201301 Jun 2015

10 May 2016

15 May 2017

Total

Weighted average share price (£)
Weighted average exercise price (£)
Average expected life
Expected volatility
Risk-free rates
Average expected dividends yield
Weighted average remaining life of options in months

£1.23
£1.20
3 Years
36.12%
0.50%
1.00%
–

£1.64
£1.58
3 Years
28.03%
0.90%
0.75%
5

£2.54
£2.54
3 Years
27.17%
0.55%
0.58%
19

£7.74
£7.76
3 Years
24.79%
0.16%
0.21%
32

–
–
–
–
–
–
11

Expected volatility was determined by reference to KWS volatility. The expected life used in the model has been adjusted based on management’s
best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
Long-term Incentive Plan Scheme
An alternative share plan was introduced to give awards to Directors and staff subject to outperforming the Numis Small Cap (excluding
Investment Trusts) index in terms of shareholder return over a three-year period.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
2017
Average
exercise price in£ per share

Outstanding at the beginning of the period
Granted
LapsedExercised

2016
Number ofoptions

Average
exercise price in£ per share

Number ofoptions

0.01
0.01
0.01
–

1,443,691
696,000(47,621)(115,654)

0.01
0.01
0.01
0.01

860,206
720,000(105,654)(30,861)

Outstanding at the end of the period

0.01

1,976,416

0.01

1,443,691

Exercisable at the end of the period

0.01

222,2380.01

295,365

Weighted average share price at date of exercise

13.09

–

2.72

–

68

KEYWORDS STUDIOS PLC

Summary by LTIP Arrangement
Date of option

08 Jul 201306 Jan 2015

01 Jun 2015

10 May 2016

20 Nov 2016

15 May 2017

Total

£0.01

£0.01

£0.01

£0.01

£0.01

£0.01

£0.01

Outstanding at the beginning of the period
Adjustments
Granted
LapsedExercised345,365(7,473)––(115,654)

81,526
19,534–––356,800(12,061)–(27,621)–630,000––(20,000)–

30,000––––––696,000––

1,443,691–
696,000(47,621)(115,654)

Outstanding at the end of the period

222,238

101,060

317,118

610,000

30,000696,000

1,976,416

Exercisable at 31 December 2017
Exercisable 2018
Exercisable 2019
Exercisable 2020

222,238––––
101,060–––
317,118––––
610,000
–

–
–
–
–

–
–
–
696,000

222,238
418,178
610,000
696,000

Date of option

08 Jul 201306 Jan 2015

01 Jun 2015

10 May 2016

20 Nov 2016

15 May 2017

Weighted average share price (£)
Weighted average exercise price (£)
Average expected life
Expected volatility
Risk-free rates

£1.23
£0.01
3 Years
36.12%
0.50%

£1.43
£0.01
3 Years
31.20%
0.58%

£1.64
£0.01
3 Years
28.03%
0.90%

£2.54
£0.01
3 Years
27.17%
0.55%

£4.15
£0.01
3 Years
23.31%
0.08%

£7.74
£0.01
3 Years
24.79%
0.16%

08 Jul 201306 Jan 2015

01 Jun 2015

10 May 2016

10 May 2016

15 May 2017

Total

–

–

5

16

23

28

16

Exercise Price

Weighted average remaining life of options
in months

LTIP’s vest on the third anniversary of the grant, if the performance criteria are met.
LTIP’s must be exercised before the seventh anniversary of the grant.
“Adjustments” relate to out of cycle changes and updates.
The options were valued using a Monte Carlo binomial model using the following inputs:
Expected volatility was determined by reference to KWS volatility. The expected life used in the model has been adjusted based on
management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
As any dividends earned are to be re-invested into the business the impact of dividends has been ignored in the calculation of the LTIP shareoption charge.
18		 Other Payables
Group

Current
Accrued expenses
Payroll Taxes
Other payables
Contingent consideration
Related party payable (note 22)
Non-current
Other payables
Contingent consideration

2017
€’000

2016
€’000

15,229
1,530
2,986
3,251
9

7,702
542
3,927
251
9

23,005

12,431

16
1,217

113
1,479

1,233

1,592

ANNUAL REPORT AND ACCOUNTS 201769

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

18		 Other Payables continued
Company

Current
Intercompany payable
Accrued expenses
Payroll taxes
Other payables
Contingent consideration
Non-current
Contingent consideration

2017
€’000

2016
€’000

174
382
–
51
971

70
324
20
–
–

1,578

414

–

860

–

860

19		 Employee Defined Benefit Plan
In line with statutory requirements in Italy, the subsidiaries in Milan maintain Employee Defined Benefit schemes. On leaving the Company,
each employee is entitled to 1/13.5 of their final salary for each year of service.
At year end, the Group commissioned an actuarial valuation of the related liability, based on salaries, length of service and variables including
employee turnover, estimated salary increases and cost of capital.
The liabilities at year end are recorded as long term. The actuarial loss is recorded separately as other comprehensive income. The movements
through the year are detailed:
Group
2017
€’000

2016
€’000

Opening liability position as at 1 JanuaryService cost
Interest cost
Benefits paid
Actuarial loss recorded

826
198
11
(5)
25

590
193
10
(30)
63

Closing liability position as at 31 December

1,055

826

The Directors have considered the key specific risk factors which the Group faces due to the employee defined benefit plan which is in place.
Having fully considered all specific elements of these plans the Directors believe that the key issues faced are as follows:•

The plan is currently 100% unfunded, there are no specific assets to meet the future liabilities as they fall due. As such there will be asignificant cash flow impact as the liabilities must be met with current working capital as they fall due.

The Group has taken no specific actions to mitigate against these factors as due to the long-term nature of the plans it is expected that there
will be no sudden financial impact on the Groups results caused by any of these factors.
In 2017, the Group expects the costs of the employee benefit plan to be in line with current year levels, as staff levels in the Italian operations
stay stable.

70

KEYWORDS STUDIOS PLC

The actuarial valuation is based on the Projected Unit Credit Method, in line with IAS 19.

Actuarial valuations
Defined benefit obligations
Current concern provision
Current concern provision surplus/(deficit)
Value of accrued benefits
Future service liability
Cost for year
Service cost
Interest cost
Actuarial loss
Actuarial losses
Change due to experience
Change due to demographical assumptions
Change due to financial assumptions

2017
€’000

2016
€’000

1,055
842
(213)
4,033
2,977

826
654
(172)
3,318
2,492

199
11
25

193
10
63

235

266

17
30
(22)

30
5
28

25

63

Assumptions Underlying the Actuarial Valuations and Sensitivities of the Assumptions
For the actuarial valuations the following demographic and economic and financial assumptions were applied:
Demographic Assumptions• The probabilities of death were derived from the bill of the Italian population by age and sex, as recorded by the Government Statistics
Office in 2000 and reduced by 25%.
• The probabilities of elimination for absolute and permanent disability of the employee are taken from the disability tables currently usedin practice separate reinsurance for age and sex.
• The probabilities of employees leaving due to resignations and dismissals in accordance with Company management have been placed at
4.25% per annum.
• The probabilities of requesting an advance have been estimated on the basis of Company history 2010 to 2017, and placed equal to 2.19%
per annum with an average rate of advance equal to 61.99%.
• For retirement for the general working population, it is assumed that the first of the pension requirements is valid for the mandatory
general insurance.
2017

2016

2.76%
1.70%
1.54%

2.50%
1.73%
1.29%

98
39.28
4.50
8,595
34,438

97
38.2
3.6
6,745
31,723

Economic and financial assumptions
Salary increase
Inflation
Discount rate
Key statistics
Staff number
Average age
Average service
Average defined benefit per staff
Average salary for defined benefit

ANNUAL REPORT AND ACCOUNTS 201771

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

19		 Employee Defined Benefit Plan continued
2017
€’000

2016
€’000

Actuarial losses
Change due to experience
Change due to demographical assumption
Change due to financial assumption

17
30
(22)

30
5
28

Actuarial losses

25

63-0.50%
0.50%
Mortality rate sensitivities

1,136
983

882
776

-0.025%0.025%
Staff turn over rate sensitivities

1,056
1,055

827
782

-0.50%
0.50%
Staff salary increases rate sensitivities

1,067
1,045

835
818

-0.50%
0.50%

1,029
1,084

808
845

2017
€’000

2016
€’000

18,943
31
306

8,025
55
290

19,2808,370Interest rate sensitivities

20		 Loans and Borrowings
Group

Expiry within one year
Expiry between one and two years
Expiry over two years

The Company entered into a loan agreement with Barclays Bank. The agreement allows financing up to €25m. At year end, €18.3m was
drawn down.
The Group also took on loans on the acquisition of Enzyme of CAD $0.5m/€0.4m (2016 $0.5m/€0.4m) and Sperasoft US $0.7m/€0.6m.
The currencies of these loans are as follows:
Group

Euro
Canadian Dollars
US Dollars

2017
€’000

2016
€’000

18,301
347
632

8,000
370
–

19,280

8,370

2017
€’000

2016
€’000

18,250
–
–

8,000
–
–

18,2508,000

Company

Expiry within one year
Expiry between one and two years
Expiry over two years

72

KEYWORDS STUDIOS PLC

21		 Investment in Subsidiaries
Company
2017
€’000

2016
€’000

30,65930,659The results and financial position of all the subsidiaries are included in the consolidated statements.
Details of the Company and Group’s subsidiaries as at 31 December 2017 are set out below:
Proportion of
voting rights andordinary sharecapital held

Name

Country ofincorporation

Date ofincorporation/acquisition

Keywords International Limited

Ireland

13/05/1998

100%

Keywords International Co. LimitedJapan

30/11/2010

100%

Keywords International
Corporation inc
Keywords International Inc

Canada22/12/2010

100%

USA

26/09/2012

100%

KW Studios Limited
Liquid Violet Limited

United Kingdom 29/05/2013
United Kingdom 15/01/2014

100%
100%

Babel Media Limited

United Kingdom 17/02/2014

100%

Babel Games Services Inc

Canada17/02/2014

100%

Babel Media India Private limited

India

17/02/2014

100%

Babel Media USA Inc

USA

17/02/2014

100%

Keywords International Pte. Limited

Singapore

24/04/2014

100%

Binari Sonori SRL
Binari Sonori Inc

Italy
USA

08/05/2014
08/05/2014

100%
100%

Binari Sonori Audio Productions LLC

USA

08/05/2014

100%

Lakshya Digital Private Limited

India

10/10/2014

100%

Lakshya Digital Singapore Pte Ltd

Singapore

10/10/2014

100%

Edugames Solutions Private Limites
Alchemic Dream Inc

India
Canada10/10/2014
06/01/2015

100%
100%

Keywords International Barcelona SL Spain

09/01/2015

100%

Reverb Localizacao – Prearacao deDocumentos Ltda
Keywords (Shanghai) Information
Technology
Kite Team SL
Kite Team Mex S. de R.L. de. CV

Brazil18/01/2015

100%

China

02/04/2015

100%

Spain
Mexico16/07/2015
16/07/2015

100%
100%

Liquid Development LLC
Ankama Asia Pte. Ltd

USA
Philippines

20/08/2015
22/03/2016

100%
100%

Synthesis Global Solutions
Synthesis Deutschland

Switzerland
Germany

12/04/2016
12/04/2016

100%
100%

Sillabit S.R.L
Keywords International SAS

Italy
France12/04/2016
08/06/2016

100%
100%

Registered office

Whelan House, South County Business Park,
Dublin 18
2F Toshin Building, 4-33-10 Yoyogi, Shibuya-ku,
Tokyo 151-0053, Japan
1751 Richardson, suite 8400, Montréal, Québec,Canada H3K1G6
18300 Redmond Way, Suite 120, Redmond,
WA 98052
8 Clifford Street London W1S 2LQ
Flr 2, 59 Lansdowne Place Hove, East Sussex,
BN3 1FL, London, UK
Fifth Floor, 6 St. Andrew Street, London,
EC4A 3AE, UK
1751 Richardson, suite 8400, Montréal, Québec,Canada H3K1G6
3rd floor, Vardhman Orchard Plaza, Plot No 4, LSC,
West Enclave, Pitampura, New Delhi, 110034, India
1751 Richardson Office 8400, Montreal, Canada,
H3K 1G6
20 Kallang Avenue, #06-6A, Lobby B, Pico Creative
Centre, Singapore 339411
Viale G.Frua 24, Milano, MI 20146, Italy
350 N. Glenoaks Blvd., Suite 305, Burbank, CA
91502, USA
350 N. Glenoaks Blvd., Suite 305, Burbank, CA
91502, USA
3rd floor, Vardhman Orchard Plaza, Plot No 4,LSC,
West Enclave, Pitampura, New Delhi, 110034
20 Kallang Avenue, #06-6A, Lobby B, Pico Creative
Centre, Singapore 339411
D – 3/C, Munirka Flats, New Delhi – 110067
1751 Richardson, suite 8400, Montréal, Québec,Canada H3K1G6
Passeig de Gràcia 49, 1er2a, 08007 Barcelona,
Catalonia, Spain
Av. Churchill, 109 – Sala 204 – Centro, Rio deJaneiro-RJ, Brazil CEP: 20020-050
142 Room, Building 7, No.311 Jin Gao Road, Pudong
New District, Shanghai
Julián Camarillo 6A, 3B, 28037 Madrid, Spain
Av. Insurgentes Sur 1853, Guadalupe Inn, 01020
Ciudad de México, CDMX Mexico
411 SW 2nd Ave #300, Portland, OR 97204, USA
12F JMT Corporate Condominium, ADB Ave., Ortigas
CBD, Pasig City
Via Landriani 7, 6900 Lugano, Ticino, Switzerland
Holstenkamp 46 A, Bahrenfeld, 22525 Hamburg,
Germany
Corso Martiri 31, 23900 Lecco, Lombardia, Italy
15 Rue de la Baume – 75008 Paris, France

ANNUAL REPORT AND ACCOUNTS 201773

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

21		 Investment in Subsidiaries continued

Proportion of
voting rights andordinary sharecapital held

Name

Country ofincorporation

Date ofincorporation/acquisition

Volta Creation Inc

Canada28/07/2016

100%

Player Research

United Kingdom 26/10/2016

100%

Global Video-Games Services Inc.,
trading as Enzyme Testing Labs
Global Video Game Service
Europe SARL
Spov Ltd

Canada16/11/2016

100%

France16/11/2016100%

United Kingdom 17/02/2017

100%

XLOC Inc
GameSim Inc.

USA
USA

10/05/2017
17/05/2017

100%
100%

Strongbox Ltd

Seychelles

22/05/2017

100%

Eastern New Media Limited

Hong Kong

22/05/2017

100%

Red Hot Software (Shanghai) Ltd.

China

22/05/2017

100%

Red Hot Software (Zhengzhou) Ltd.

China

22/05/2017

100%

PT Limitless Indonesia
asrec SASLe Marque Rose SARL
Dune Sound SAS
Around the Word SAS
Around the Word GmbH
Around the Word Canada Ltd
d3t Ltd

Indonesia
FranceFranceFranceFranceGermany
CanadaUnited Kingdom

22/05/2017
28/07/2017
04/08/2018
28/07/2017
28/07/2017
28/07/2017
28/07/2017
19/10/2017

100%
100%
100%
100%
100%
100%
100%
100%

Keywords US Holdings Ltd

USA

27/10/2017

100%

VMC Consulting Corporation

USA

27/10/2017

100%

Volt Canada Inc.

Canada27/10/2017

100%

VMC Volt Information Sciences
BC, Inc.
Sperasoft Inc.
Sperasoft Poland Spólka z.o.o.
Sperasoft Studio LLC

Canada27/10/2017

100%

USA
PolandRussia13/12/2017
13/12/2017
13/12/2017

100%
100%
100%

Registered office

410 Charest Est, Suite 410, Quebec QC,
Canada G1K 8G3
Claremont House, 95 Queens Road, BN1 3XE,
Brighton, UK
2031 Boulevard du Curé-Labelle, Saint-Jérôme
(Québec) J7Y1S5, Canada
166, Boulevard du Montparnasse, 75014 Paris,
FranceStudio 11 The Premises, 205-209 Hackney Rd,
London E2 8JL, UK
712 Presnell Court, Raleigh, NC 27615-1240, USA
12000 Research Parkway, Suite 436, Orlando, FL
32826, USA
Suites 103, 106 and 107 Premier Building, Victoria,
Mahe, Seychelles
Flat/Rm 4304, 43F, China Resources Building,
26 Harbour Road, Wanchai, Hong Kong
Dong Tu Yu Hiu Road #860, Building 5, 4th Floor,
ShanghaiRoom 207, 11th Floor, Building No. 3, No. 57 Ke Xue
Da Dao, Zheng Zhou, He Nan, China
JI. Timoho II, No. 32, Yogyakarta,
20, Rue de la Folie-Méricourt, 75011 Paris11, Rue Torricelli, 75017 Paris
59 Boulevard Exelmans, 75016 Paris
59 Boulevard Exelmans, 75016 Paris
Rosenstrasse 2, D-10178 Berlin
338 Saint-Antoine, bureau 207, Montréal, Canada
Drake House, Gadbrook Park, Northwich, Cheshire,
CW9 7RA1209 Orange Street, Wilmington, New Castle
County, Delaware 19801, USA.
11611 Willows Road NE, Redmond, WA 98052,
United States of America
1751 Richardson Street Suite 8400 Montreal QC
H3K 1G6 Canada
1700-1075 West Georgia Street, Vancouver, BC,
V6E 3C92033 Gateway Place Suite 500 San Jose, CA 95110
Ul. Na Kozłówce 27, 30-664 Kraków, Poland
5 Kievskaya Str., Bld. 4, St. Petersburg, 196084

22		 Related Parties and Shareholders
Italicatessen Limited, a company registered in Ireland is related by virtue of a common significant shareholder. P.E.Q. Holdings Limited is 100%
owner of Italicatessen Limited. At 31 December 2017, P.E.Q. Holdings Limited owned 6.5% (2016: 14.6%) of the Company. In addition, Mr. Giorgio
Guastalla is a Director of Italicatessen Limited, P.E.Q. Holdings Limited and the Company, and owns, or controls, 90% of the share capital of
P.E.Q. Holdings Limited.
The following transactions arose with Italicatessen Limited, which provides canteen services to Keywords International Limited

Operating expenses
Canteen charges

74

KEYWORDS STUDIOS PLC

2017
€’000

2016
€’000

57

53

57

53

The following are year-end balances:

Italicatessen Limited

2017
€’000

2016
€’000

9

9

9

9

The Company paid the following amounts to Mr. Giorgio Guastalla, Director of the Company, and shareholder of P.E.Q. Holdings Limited, inrespect of rent on premises occupied by the employees of the Group in Dublin.

Operating expenses
Rental payment

2017
€’000

2016
€’000

22

22

22

22

The details of key management compensation (being the remuneration of the Directors) are set out in note 10.
As at 31 December 2017 and 2016, the Company had amounts receivable from its subsidiaries, amounting to €14,624k (2016: €13,519k) relating
to intergroup trading activities.
As at 31 December 2017 and 2016, the Company had amounts receivable from its subsidiaries, amounting to €117,732k (2016: €12,122k) relating
to investments in relation to acquisitions.
23		 Financial Instruments and Risk Management
Interest Rate Risk
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group’s income andoperating cash flows are substantially independent of changes in market interest changes. The management monitors interest rate fluctuations
on a continuous basis and acts accordingly.
Where the Group has a significant amount of surplus cash, it will invest in higher earning interest deposit accounts.
Due to interest rate conditions, the interest rates for short-term deposits are at similar levels to those achieved for longer-terms. The Group is
not unduly exposed to market interest rate fluctuations, and no interest rate sensitivity analysis has been presented as a result.
Credit Risk
Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial
assets on hand at the reporting date.
The Group closely monitors the activities of its counterparties and maintains regular contact which enables it to ensure the prompt collectionof customers’ balances.
The Group’s main financial assets are cash and cash equivalents as well as trade and other receivables and represent the Group’s maximum
exposure to credit risk in connection with its financial assets. Trade and other receivables are carried on the statement of financial position
net of bad debt provisions estimated by the Directors based on prior year experience and an evaluation of prevailing economic circumstances.
Whenever possible and commercially practical the Group invests cash with major financial institutions in each jurisdiction where it operates.
The Group periodically monitors the credit rating and stability of these institutions.
The ageing of trade receivables that are past due but not impaired can be analysed as follows:Group

As at 31 December 2017
As at 31 December 2016

Total
€’000

Not past due€’000

1-2 months
overdue€’000

More than 2months past due€’000

27,473
13,87916,713
12,877

9,126
907

1,634
95

The above balances relate to customers with no default history.

ANNUAL REPORT AND ACCOUNTS 201775

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

23		 Financial Instruments and Risk Management continued
A provision for doubtful debtors is included within trade receivables that can be reconciled as follows:
2017
€’000

2016
€’000

Provision at the beginning of the year
Charged to income statement
Utilised

468
3
(53)

306
188
(26)

Provision at end of the year

418

468

Related party receivables of €nil were past due at 31 December 2017 (2016: €Nil).
Company
Intercompany trade receivables of €14,624k were not past due at 31 December 2017 (2016: €13,519k).
Currency Risk
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates.
The foreign exchange risk arises for the Group where assets and liabilities arise and are held in overseas subsidiaries in a currency otherthan the Euro and to a lesser extent where individual Group entities enter into transactions denominated in currency other that theirfunctional currency.
The Group’s policy, where possible, is for Group entities to manage foreign exchange risk at a local level by matching the currency in whichrevenue is generated and the expenses incurred and by settling liabilities denominated in their functional currency with cash generated fromtheir own operations in that currency. Where Group entities have liabilities denominated in a currency other than their functional currency (andhave insufficient reserves of that currency to settle them), cash already denominated in that currency will, where possible, be transferred from
elsewhere within the Group.
Over the course of the year the Group’s currency has increased and diversified due to the addition of the newly-acquired subsidiaries. The Groupis predominantly exposed to currency risk on the balances held within working capital within the Group and the exposure is concentrated in the
movement of the Canadian Dollar, US Dollar and Sterling against the Euro. The effect of a strengthening and weakening of 10% of these currencies
against the Euro at the reporting date on the working capital balances held at this date would, all other variable held constant, have resulted in thefollowing pre-tax profit/(loss) impact for the year as follows:
10%
Strengthening
€’000

10%
Weakening
€’000

2,363
1,267
620

(2,363)(1,267)(620)

United States Dollar to Euro
Canadian Dollar to Euro
Sterling to Euro

Total Financial Assets and Liabilities
The carrying amount of the financial assets and liabilities shown in the Group and Company statements of financial position are stated atfair value.
Liquidity Risk
Liquidity risk arises from the Group’s management of working capital and the financial charges on its debt instruments.
The Group’s policy is to ensure that it will have sufficient cash to allow it to meet its liabilities when they become due.
The following are the contractual maturities (representing undiscounted contractual cash flows) of the Group’s and Company’s financial liabilities:
Group
Year ended 31 December 2017

Total
€’000

Within 1 year€’000

1-2 years€’000

2-5 years€’000

Trade payables
Contingent consideration
Other accounts payable
Loans and borrowings

7,310
4,468
19,77019,2807,310
3,251
19,754
18,943

–
1,217
16
31

–
–
–
306

76

KEYWORDS STUDIOS PLC

Total€’000

Within 1 year€’000

1-2 years€’000

2-5 years
€’000

4,822
1,730
12,293
8,370

4,822
251
12,238
8,025

–
1,479
55
55

–
–
–
290

Year ended 31 December 2017

Total
€’000

Within 1 year€’000

1-2 years€’000

2-5 years€’000

Trade payables
Contingent consideration
Other payables
Loans and borrowings

215
971
607
18,250

215
971
607
392

–
–
–
–

–
–
–
–

Year ended 31 December 2016

Total
€’000

Within 1 year€’000

1-2 years€’000

2-5 years€’000

Trade payables
Contingent consideration
Other payables
Loans and borrowings

175
860
414
8,000

175
–
414
8,000

–
860
–
–

–
–
–
–

Year ended 31 December 2016

Trade payables
Contingent consideration
Other accounts payable
Loans and borrowings
Company

Contingent considerations at 31 December 2017 have arisen on business combinations. They are based on set amounts to be paid in the future
to sellers under the purchase agreements.
24		 Operating Lease Commitments
The Group maintains a portfolio of leased properties. The terms of property leases vary from country to country, although they all tend to betenant repairing with rent reviews every two to five years and some have break clauses.
The total future value of the minimum lease payments is due as follows:Group

Not later than one year
Later than one year and not later than five years
Later than five years

2017
€’000

2016
€’000

4,561
10,708
4,793

2,318
6,031
903

20,062

9,25225		 Finance Lease Commitments
The Group has leased computer equipment and office telephone systems. Such assets are generally classified as finance leases as the rental
period amounts to the estimated useful economic life of the assets concerned and often the Group has the right to purchase the assets
outright at the end of the minimum lease term by paying a nominal amount.
The total future value of the minimum lease payments is due as follows:
Group

2017
Not later than one year
Later than one year and not later than five years
Later than five years
2016
Not later than one year
Later than one year and not later than five years
Later than five years

Minimum lease
payments€’000

Interest

Present
value

25
20
–

1
4
–

24
16
–

45

5

40

31
18
–

2
1
–

29
17
–

49

3

46

ANNUAL REPORT AND ACCOUNTS 201777

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

26		 Deferred Tax
Details of the deferred tax assets and liabilities, and amounts recognised in the profit or loss are as follows:
Asset
2017
€’000

Liability
2017
€’000

Net
2017
€’000

Credited to
profit or loss
2017
€’000

–
32
237
17
258
–
581
81

1
–
–
–
139
2,284
112
5,259

(1)
32
237
17
119
(2,284)469(5,178)

1
(2)
(162)
13
(33)
132
(225)
(700)

1,206

7,795

(6,589)(976)

Change in tax rate
Prior year over/(under) provision

–
–

–
–

–
–

(149)
94

Total deferred tax asset/(liability)

–

–

–

(1,031)

Asset
2016
€’000

Liability
2016
€’000

Net
2016
€’000

Credited to
profit or loss
2016
€’000

Accelerated capital allowances
Personal severance indemnity
Available losses
Rent-free inducement
Fixed asset excess of tax over accounting
Deferred tax related to multimedia tax credits
Other temporary and deductible differences
Deferred tax arising on intangibles

–
109
44
–
173
5
300
249

9
–
–
116
3
796
19
2,310

(9)
109
44
(116)
170
(791)
281
(2,061)

4
100
(243)
(66)
42
501
(88)
459

Net tax assets/(liabilities)

880

3,253

(2,373)

709

2017
€’000

2016
€’000

–
–
–
–
–

(1,309)
–
(61)
–
1,370

–

–

Accelerated capital allowances
Personal severance indemnity
Available losses
Rent-free inducement
Fixed asset excess of tax over accounting
Deferred tax related to multimedia tax credits
Other temporary and deductible differences
Deferred tax arising on intangibles
Net tax assets/(liabilities)

27		 Non-Controlling Interest

Opening balance
Liabilities of Kite Team attributable to shareholder at the acquisition date
Loss of Kite team attributable to the shareholders of the Group
Contingent consideration for the purchase of the remaining 50% of Kite Team
Settlement of non-controlling interest

Keywords International Limited acquired 50% of the issued share capital of Kite Team in 2015, a company registered in Spain.
In March 2016, Keywords International Limited acquired the remaining 50% of shares in Kite Team. The settlement value was €1,370,000;
comprising the settlement of the put and call option of €1,150,000 through €1,000,000 in cash and €150,000 in KWS shares, plus €220,000
transfer of losses from Minority Interest.

78

KEYWORDS STUDIOS PLC

28		 Acquisitions Completed in the Current YearAcquisition of Spov Ltd
On 17 February 2017 the Group acquired the entire issued share capital of Spov Ltd (“Spov”) a company registered in the UK, which specialises inproviding creative development, cinematics, UI, visual effects and motion graphics services to the video game and film markets. The acquisition
will further complement Keywords range of customer service offerings to customers with online and mobile games.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out below:
Spov Ltd
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Property, plant and equipment
Trade and other receivable
Trade and other payables

30
16
(139)

–
–
–

30
16
(139)

Total identifiable assets

(93)

–

(93)

Goodwill

491

Total consideration

398

Satisfied by:
Cash
Deferred consideration

351
47
398

Net cash outflow arising on acquisition
Cash

351

The main factors leading to recognition of goodwill on the acquisition of Spov are the presence of intangible assets in the acquired entity which
do not value for separate recognition such as the expertise in Art Services and reputation within the industry, and an unidentified proportion
representing the balance contributing to profit generation.
The deferred considerations is a guaranteed amount.
In the opening set up period, Spov contributed €207,920 revenue and €203,313 loss before tax to the Group between the date of acquisition
and the balance sheet date.
If the acquisition had been completed on the first day of the financial year, total revenue for the six months of €212,258 would have been
contributed to the Group, and a corresponding loss before tax of €213,419.
Acquisition costs of €9k have been charged through the Statement of Comprehensive Income.

ANNUAL REPORT AND ACCOUNTS 201779

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

28		 Acquisitions Completed in the Current Year continued
Acquisition of XLOC
On 10 May 2017 the Group acquired the entire issued share capital of XLOC Inc (“XLOC”), a company registered in Raleigh, North Carolina, USA. XLOC
has developed the leading web-based integrated globalisation content management system for videogames (XLOC), supported by consulting andcustomisation services. The acquisition of XLOC is in line with Keywords Studios’ strategy to extend its services, with the objective of providing end
to end services to its global client base covering all aspects of game production and live operations support.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
XLOC
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Property, plant and equipment
Identifiable intangible assets – IP
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities

7
–
33
120
(73)
–

–
147
–
–
–
(59)

7
147
33
120
(73)
(59)

Total identifiable assets

87

88

175

Goodwill

652

Total consideration

827

Satisfied by:Cash
Equity Instruments (19,134 shares of the parent company)

643
184

Total consideration

827

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

643
(120)
523

The main factors leading to the recognition of goodwill on the acquisition of XLOC are the presence of certain intangible assets in the acquired
entity, which are not valued for separate recognition, such as the expertise in localisation processes and reputation within the industry.
XLOC contributed €236,376 revenue and €114,475 loss before tax to the Group between the date of acquisition and the balance sheet date.
If the acquisition had been completed on the first day of the financial year, revenue for the year to 31 December 2017 of €479,446 would havebeen contributed to the Group and €32,312 loss before tax.
Acquisition costs of €9k have been charged through to the Statement of Comprehensive Income.
Acquisition of GameSim
On 17 May 2017 the Group acquired the entire issued share capital of GameSim Inc (“GameSim”) a company registered in Orlando, Florida,
USA. GameSim specialise in outsourced engineering services and technology platforms for the video games industry and other virtual
simulation applications. The acquisition is in line with its strategy of growing, both organically and by acquisition, to extend the Group’s client
base, market penetration or service lines, where the Group can leverage its existing expertise, multi-service platform, scale and global reachto generate synergies.

80

KEYWORDS STUDIOS PLC

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
GameSim
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Property, plant and equipment
Identifiable intangible assets – customer relationships
Trade and other receivables
Cash and cash equivalents
Trade and other payables

13
–
768
26
(353)

–
–
–
–
–

13
–
768
26
(353)

Total identifiable assets

454

–

454

Goodwill

3,828

Total consideration

4,282

Satisfied by:Cash
Equity Instruments (151,725 shares of the parent company)

2,888
1,394

Total consideration transferred

4,282

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

2,888
(26)
2,862

The main factors leading to recognition of goodwill on the acquisition of GameSim are the presence of certain intangible assets in the acquired
entity, which are not valued for separate recognition, such as the expertise in simulation technology for the Games Industry and reputation.
GameSim contributed €2,266,180 revenue and €397,213 profit before tax to the Group between the date of acquisition and the balance sheet
date. If the acquisition had been completed on the first day of the financial year, revenue for the year to 31 December 2017 of €3,798,549 would
have been contributed to the Group and €461,541 profit before tax.
Acquisition costs of €3k have been charged through to the Comprehensive Income Statement.
Acquisition of Red Hot
On 22 May 2017 the Group acquired the entire issued share capital of Strongbox Ltd, a holding company with subsidiaries in China andIndonesia trading under the Red Hot CG (“Red Hot”). Red Hot are specialists in the production of graphical art assets for video games.
The acquisition of Red Hot is in line with Keywords’ strategy of growing both organically and by acquisition. It will increase the capacityof Keywords’ fast-growing and higher margin Art Service Line, as well as bringing a number of attractive new clients to the art businessat Keywords.

ANNUAL REPORT AND ACCOUNTS 201781

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

28		 Acquisitions Completed in the Current Year continued
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
Red Hot
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Property, plant and equipment
Identifiable intangible assets – customer relationships
Trade and other receivable
Cash and cash equivalents
Trade and other payables
Corporation tax
Deferred tax liabilities

230
–
975
584
(356)
(64)
–

–
1,465
–
–
–
–
(366)

230
1,465
975
584
(356)
(64)
(366)

Total identifiable assets

1,369

1,099

2,468

Goodwill

2,513

Total consideration

4,981

Satisfied by:
Cash
Shares to be issued

3,514
1,468
4,981

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

3,514
(584)
2,930

The main factors leading to recognition of goodwill on the acquisition of Red Hot are the presence of certain intangible assets in the acquired
entity, broader access to the Chinese pool of video game art talent, which is the largest in the world, and expertise in Art service for the Games
Industry and reputation.
A fixed amount of 160,842 shares in Keywords Studio PLC will be issued as part of the deferred consideration. The shares have been valued
at the share price at the date of acquisition, €9.12, and €1,467,580 has been recorded as shares to be Issued within equity, in accordance with
IAS 32.16.
Red Hot contributed €3,979,753 revenue and €848,152 profit before tax to the Group between the date of acquisition and the balance sheet
date. If the acquisition had been completed on the first day of the financial year, revenue for the year to 31 December 2017 of €6,245,933 would
have been contributed to the Group and €1,152,760 profit before tax.
Acquisition costs of €70k have been charged through to the Comprehensive Income Statement.

82

KEYWORDS STUDIOS PLC

Acquisitions of asrec, Le Marque Rose and Around the Word
Between 28 July and on 4 August, the Company acquired the entire issued share capital of La Marque Rose SARL, asrec SAS and the subsidiarycompanies of holding company, Dune Media SAS, trading as Dune Sound and Around the Word, which are all based in Paris and provide audio
recording and localisation services to the video games industry internationally.
The acquisitions are in line with the Keywords’ strategy of consolidating our leading position in the highly fragmented video games services
industry and generating synergies through scale in certain services and geographies.
The amounts recognised in respect of the identifiable assets acquired and liabilities, for each of the acquisitions, are set out in the table below:
asrec
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Property, plant and equipment
Identifiable intangible assets – customer relationships
Trade and other receivable
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities

123
–
49
76
(115)
–

–
–
–
–
–
–

123
–
49
76
(115)
–

Total identifiable assets

133

–

133

Goodwill

577

Total consideration

710

Satisfied by:Cash
Equity Instruments (9,534 shares of the parent company)

610
100
710

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

610
(76)
534

Le Marque Rose
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Property, plant and equipment
Identifiable intangible assets – customer relationships
Trade and other receivable
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities

148
–
598
494
(504)
–

–
–
–
–
–
–

148
–
598
494
(504)
–

Total identifiable assets

736

–

736

Goodwill

1,293

Total consideration

2,029

Satisfied by:
Cash

2,029

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

2,029
(494)
1,535

ANNUAL REPORT AND ACCOUNTS 201783

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

28		 Acquisitions Completed in the Current Year continued
Around the Word

Financial assets
Property, plant and equipment
Identifiable intangible assets – customer relationships
Trade and other receivable
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities
Total identifiable assets

Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

342
–
2,142
497
(2,067)
–

–
651
–
–
–
(217)

342
651
2,142
497
(2,067)
(217)

914

434

1,348

Goodwill

3,495

Total consideration

4,843

Satisfied by:
Cash
Deferred cash
Shares to be issued (66,262 shares of the parent company)

2,500
1,543
800
4,843

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

2,500
(497)
2,003

The main factors leading to recognition of goodwill on the acquisition of the French entities are the presence of certain intangible assets inthe acquired entity, including an expertise in Audio service for the Games Industry and reputation. These acquisitions will allow Keywords
to consolidate the leading providers of audio and localisation services in French which, together with German, remain the most important
localised languages for games.
The deferred cash consideration elements of the Around The Word consideration are payable over three tranches. The first tranche is a payable onsatisfaction of a working capital requirement at 31 December 2017, which has been met. The second and third tranches are payable on set EBITDA
percentage requirements on set revenue targets. Based on trading to date, and on current projections, it is expected that this consideration will be
paid in full.
A fixed amount of 66,262 shares in Keywords Studio PLC will be issued as part of the deferred consideration. The shares have been valued
at the share price at the date of acquisition, €12.07, and €800,000 has been recorded as shares to be issued within equity, in accordancewith IAS 32.16.
These French acquisitions contributed €3,773,273 revenue and €644,655 profit before tax to the Group between the dates of acquisition andthe balance sheet date. If the acquisitions had been completed on the first day of the financial year, revenue for the year to 31 December 2017of €9,532,853 would have been contributed to the Group and €148,936 profit before tax.
Acquisition costs of €435k have been charged through to the Comprehensive Income Statement.

84

KEYWORDS STUDIOS PLC

Acquisition of d3t
On 19 October 2017 the Group acquired the entire issued share capital of d3t, a UK company. d3t delivers premium quality outsourced
software development services for video game developers and publishers internationally.
The acquisition of d3t is in line with Keywords Studios’ strategy to grow organically and by acquisition as it selectively consolidates the highly
fragmented market for video game services. d3t brings additional skills, client relationships and geographic reach to Keywords, extending thestrength and scale of its recently established Engineering service line.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
d3t
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Property, plant and equipment
Identifiable intangible assets – customer relationships
Trade and other receivable
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities

188
–
602
802
(678)
–

–
–
–
–
–
–

188
–
602
802
(678)
–

Total identifiable assets

914

–

914

Goodwill

2,886

Total consideration

3,800

Satisfied by:Cash
Equity Instruments (42,368 shares of the parent company)

3,127
673
3,800

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

3,127
(802)
2,325

The main factors leading to recognition of goodwill on the acquisition of d3t are the presence of certain intangible assets in the acquired entity,
including a software development team with capabilities including HD re-mastering, porting, optimisation, rendering and game systems andreputation within the industry.
d3t contributed €560,231 revenue and €6,938 loss before tax to the Group between the date of acquisition and the balance sheet date. If theacquisition had been completed on the first day of the financial year, revenue for the year to 31 December 2017 of €3,010,726 would have been
contributed to the Group and €113,541 profit before tax.
Acquisition costs of €36k have been charged through to the Comprehensive Income Statement.

ANNUAL REPORT AND ACCOUNTS 201785

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

28		 Acquisitions Completed in the Current Year continued
Acquisition of VMC
On 27 October 2017 the Group acquired the entire issued share capital of VMC Consulting Corporation, a leading provider of Functional Testing
and Customer Support in North America, and its affiliates VMC Volt Information Sciences BC and Volt Canada Inc.
The acquisition of VMC is in line with Keywords Studios’ strategy to grow organically and by acquisition as it selectively consolidates the highly
fragmented market for video game services.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
VMC
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Property, plant and equipment
Identifiable intangible assets – customer relationships
Trade and other receivable
Cash and cash equivalents
Trade and other payables
Corporation tax
Deferred tax liabilities

1,834–
18,255–(3,192)(150)(1,408)–13,245––––(2,781)

1,834
13,245
18,255–(3,192)(150)(4,189)Total identifiable assets

15,33910,46425,803

Goodwill

32,128

Total consideration

57,931

Satisfied by:
Cash

57,931

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

57,931–
57,931

VMC contributed €7,768,858 revenue and €824,189 profit before tax to the Group between the date of acquisition and the balance sheet date.
If the acquisition had been completed on the first day of the financial year, revenue for the year to 31 December 2017 of €50,345,062 would
have been contributed to the Group. The acquisition was a carve-out from a group of existing companies, so the comparable pre-acquisition
profit is not easily measurable. It is expected that the comparable profit before tax would have been in the order of 10% of revenues.
Acquisition costs of €1,690k have been charged through to the Comprehensive Income Statement.
Acquisition of Sperasoft
On 13 December 2017 the Group acquired the entire issued share capital of Sperasoft Inc. and Sperasoft LLC. Headquartered in Santa Clara,
California, Sperasoft provides game development, art creation and software engineering services to video game developers and publishers
around the world from its production studios in St. Petersburg and Volgograd, Russia and Krakow, Poland.
The acquisition of Sperasoft is in line with Keywords Studios’ strategy to grow organically and by acquisition as it selectively consolidates thehighly-fragmented market for video game services. Sperasoft adds considerable expertise and scale to Keywords new and growing Engineering
Services business and adds additional scale to the Art creation business.

86

KEYWORDS STUDIOS PLC

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
Sperasoft

Financial assets
Property, plant and equipment
Identifiable intangible assets – customer relationships
Trade and other receivable
Cash and cash equivalents
Trade and other payables
Corporation tax
Loan
Deferred tax liabilities
Total identifiable assets

Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

1,053
–
2,946
587
(2,710)(86)(1,022)
(46)

–
3,454
–
–
–
–
–
(691)

1,053
3,454
2,946
587
(2,710)(86)(1,022)
(737)

722

2,763

3,485

Goodwill

18,206

Total consideration

21,691

Satisfied by:
Cash
Deferred cash
Shares to be issued (252,248 shares of the parent company)

16,733826
4,132
21,691

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

16,733(587)
16,146The main factors leading to recognition of goodwill on the acquisition of Sperasoft are the presence of certain intangible assets in the acquired
entity, including an expertise in Art and Engineering services for the Games industry and reputation.
The deferred consideration is payable on the first anniversary of completion. This is not contingent on performance of the Company.
A fixed amount of 252,248 shares in Keywords Studio PLC will be issued as part of the deferred consideration. The shares have been valued
at the share price at the date of acquisition, €14.26, and €4,132,584 has been recorded as shares to be issued within equity, in accordancewith IAS 32.16.
Sperasoft contributed €797,608 revenue and €34,180 loss before tax to the Group between the dates of acquisition and the balance sheet
date. If the acquisitions had been completed on the first day of the financial year, revenue for the year to 31 December 2017 of €18,077,846
would have been contributed to the Group and €1,040,698 loss before tax.
Acquisition costs of €82k have been charged through to the Comprehensive Income Statement.

ANNUAL REPORT AND ACCOUNTS 201787

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

28		 Acquisitions Completed in the Current Year continued
Acquisition of LOLAOn 15 December 2017 the Group acquired the assets and business of Localizadora Latam SC (“LOLA”) , a Mexican company and a leading
provider of Latin American Spanish dubbing, localisation and sound design services for the video game, film and television markets.
The acquisition of LOLA is in line with Keywords Studios’ strategy to grow organically and by acquisition as it selectively consolidates the highly
fragmented market for video game services.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
LOLA
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Property, plant and equipment
Identifiable intangible assets – customer relationships
Trade and other receivable
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities

13
–
147
43
(118)
–

–
–
–
–
–
–

13
–
147
43
(118)
–

Total identifiable assets

85

–

85

Goodwill

784

Total consideration

869

Satisfied by:
Cash
Deferred cash
Shares to be issued (10,106 shares of the parent company)

405
295
169
869

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

405
(43)
362

The main factors leading to recognition of goodwill on the acquisition of LOLA are the presence of certain intangible assets in the acquired
entity, including expertise in Latin American Spanish dubbing and sound expertise.
The deferred consideration on LOLA is payable based on sales targets. At the reporting date, there is no reason to believe that these targets
will not be met.
As the acquisition happened so close to year end, LOLA contributed minimal revenue and profit before tax to the Group between the dateof acquisition and the balance sheet date. If the acquisition had been completed on the first day of the financial year, revenue for the year to
31 December 2017 of €997,366 would have been contributed to the Group, and €68,136 profit before tax.
Acquisition costs of €2k have been charged through to the Comprehensive Income Statement.

88

KEYWORDS STUDIOS PLC

29		 Business Combinations Completed in 2016
Acquisition of Ankama Asia Pte Ltd.
On 22 March 2016 the Group acquired the entire issued share capital of Ankama Asia Pte Ltd (“Ankama”), a company registered in Singapore,
which specialises in providing services to support the live operations of the games of Ankama France. The Company has a four-year agreement
for the continued provision to service to Ankama and also plans to significantly increase the scale of the Studio, which is based in Manila, toservice new and existing clients of Keywords. The acquisition will strengthen Keywords range of customer service offerings to customers with
online and mobile games.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out below:
Ankama
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Identifiable intangible assets – customer relationships
Trade and other receivable
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities

–
6
120
(81)
–

44
–
–
–
(7)

44
6
120
(81)
(7)

Total identifiable assets

45

37

82

Goodwill

214

Total consideration

296

Satisfied by:
Cash
Less: cash and cash equivalent balances transferred

296
(120)
176

The intangible assets are to be amortised over their estimated useful lives of five years.
The main factors leading to recognition of goodwill on the acquisition of Ankama Asia Pte Ltd are the presence of intangible assets in the acquired
entity which do not value for separate recognition such as the expertise in customer service and an unidentified proportion representing thebalance contributing to profit generation.
Ankama Asia Pte Ltd contributed €527,856 revenue and €17,288 loss before tax to the Group between the date of acquisition and the balance
sheet date. If the acquisition had been completed on the first day of the financial year, revenue for 2016 of €540,693 would have been contributed
to the Group and loss before tax of €18,022.
Acquisition costs of €39,140 have been charged through the Statement of Comprehensive Income.
Acquisition of Synthesis GroupThe Group acquired the business of the Synthesis Group of Companies on 12 April 2016, including:•••

100% of the share capital of Sillabit SRL, a company registered in Italy;
100% of the share capital of Synthesis Deutschland GmBH, a company registered in Germany; and100% of the share capital of Synthesis Global Solutions SA (SGSS) a company registered in Switzerland.

The Synthesis Group provide localisation and audio services to some of the leading games publishers and was acquired to extend the Group’s
client base and global reach.

ANNUAL REPORT AND ACCOUNTS 201789

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

29		 Business Combinations Completed in 2016 continued
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
Synthesis Group
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Property, plant and equipment
Identifiable intangible assets – customer relationships
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax asset
Deferred tax liabilities

236
–
1,716
992
(1,856)
–
–

–
2,774
(92)
–
–
–
(538)

236
2,774
1,624
992
(1,856)–(538)

Total identifiable assets

1,088

2,144

3,232

Goodwill

14,664

Total consideration

17,896

Satisfied by:
Cash
Shares to be Issued
Deferred consideration

10,2006,906
790

Total consideration transferred

17,896

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

10,200(992)
9,208

Deferred cash consideration of €1,000,000 is due for payment on 12 April 2018 in accordance with the share purchase agreement. The deferredconsideration recorded within as contingent consideration within non-current other payables on the 2016 balance sheet represented the fairvalue amount at the balance due.
The main factors leading to the recognition of goodwill on the acquisition of the Synthesis Group are the presence of certain intangible assets
in the acquired entity, which are not valued for separate recognition, such as the expertise in sound recording and localisation and reputationof the staff within the industry.
A fixed amount of 2,376,518 Keywords Studios PLC shares will be issued as part of the deferred consideration. The shares have been valued
at the share price at the date of acquisition, £2.32 (€2.91). €6,906,000 has been recorded as shares to be issued within equity.
The Synthesis Group of companies contributed €18,012,547 revenue and €3,494,458 profit before tax to the Group between the dateof acquisition and the balance sheet date.
If the acquisition had been completed on the first day of the financial year, total revenue for 2016 of €20,662,464 would have been contributed
to the Group, and a corresponding profit before tax of €3,887,462.
Acquisition costs of €254,698 have been charged through the Statement of Comprehensive Income.

90

KEYWORDS STUDIOS PLC

Acquisition of Mindwalk Studios Inc. and Mindwalk Studios Ltd.
On 31 May 2016 the Group acquired 100% of the assets, the business and the customer contracts of Mindwalk Studios Inc., a company
registered in China, and Mindwalk Studios Ltd, a company registered in the British Virgin Islands. The companies trade as one business entity
and specialise in the provision of art creation services for the video games industry. The acquisition is in line with the Group’s strategy tofurther strengthen art services and to extend the Group’s client base in this service.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
Mindwalk

Financial assets
Property, plant and equipment
Identifiable intangible assets – customer relationships
Trade and other receivables
Cash and cash equivalents
Deferred tax asset
Deferred tax liabilities
Total identifiable assets

Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

465
–
581
442
–
–

(333)
1,100
(39)
(30)
83
(137)

132
1,100
542
412
83
(137)

1,488

644

2,132

Goodwill

3,117

Total consideration

5,249

Satisfied by:
Cash
Deferred cash consideration
Shares to be Issued

3,048
315
1,886

Total consideration transferred

5,249

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

3,048
(412)
2,636

The main factors leading to recognition of goodwill on the acquisition of Mindwalk are the presence of certain intangible assets in theacquired entity, which are not valued for separate recognition, such as the expertise in art creation service and reputation of the staff within
the industry. The fair value of the shares to be issued as part of the acquisition has been determined as being the share price on the date of
the transaction.
A fixed amount of 513,189 shares will be issued as part of the deferred consideration. The shares have been valued at the share price at thedate of acquisition, £2.80 (€3.67) and €1,886,000 has been recorded as shares to be issued in reserves.
Deferred cash consideration of USD$500,000 is due for payment on 5 April 2019 in accordance with the purchase agreement. The deferredconsideration recorded within as contingent consideration within non-current other payables on the 2016 balance sheet represented the fairvalue amount at the balance due.
Mindwalk contributed €3,166,196 revenue and €227,528 profit before tax to the Group between the date of acquisition and the balance sheet
date. If the acquisition had been completed on the first day of the financial year, revenue for 2016 of €4,825,497 would have been contributed
to the Group and €301,165 profit before tax.
Acquisition costs of €199,312 have been charged through to the Comprehensive Income Statement.

ANNUAL REPORT AND ACCOUNTS 201791

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

29		 Business Combinations Completed in 2016 continued
Acquisition of Volta Création Inc.
On 28 July 2016, the Group acquired 100% of the issued share capital of Volta Création Inc., a company registered in Canada, which specialises
in Art Creation for the Games industry. Volta was acquired to increase the capabilities and capacity of the art creation service and in particular
to strength to the Groups offering in concept art.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
Volta
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Fixtures, fittings and equipment
Identifiable intangible assets – customer relationships
Trade and other receivable
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities

74
–
513
(31)
(322)
–

–
761
–
–
–
(202)

74
761
513
(31)
(322)
(202)

Total identifiable assets

234

559

793

Goodwill

2,701

Total consideration

3,494

Satisfied by:Cash
Equity instruments (45,192 shares of the parent company)

3,324
170
3,494

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

3,324
31
3,355

The main factors leading to the recognition of goodwill on the acquisition of Volta Création Inc. are the presence of certain intangible assets
in the acquired entity, which are not valued for separate recognition, such as the expertise in Art and Art Services and reputation of the staff
within the industry.
Volta Création Inc. contributed €1,181,050 revenue and €209,305 profit before tax to the Group between the date of acquisition and thebalance sheet date. If the acquisition had been completed on the first day of the financial year, revenue for 2016 of €2,406,878 would havebeen contributed to the Group and profit before tax of €277,687.
Acquisition costs of €19,298 have been charged through the Statement of Comprehensive Income.
Acquisition of Player Research Ltd
On 26 October 2016, the Group acquired 100% of the issued share capital of Player Research Ltd., a company registered in the United Kingdom,which is an industry-leading user research and playtesting specialist. The acquisition is in line with the Group’s strategy to extend its services,with the objective of providing end to end services to its global client base covering all aspects of game production and live operations support.

92

KEYWORDS STUDIOS PLC

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
Player Research
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Fixtures, fittings and equipment
Identifiable intangible assets – customer relationships
Trade and other receivable
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities

45
–
169
489
(133)
–

–
158
–
–
–
(32)

45
158
169
489
(133)
(32)

Total identifiable assets

570

126

696

Goodwill

1,014

Total consideration

1,710

Satisfied by:
Cash
Deferred cash
Equity instruments (65,280 shares of the parent company)

1,128
265
317
1,710

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

1,128
(489)
639

Deferred cash consideration of £300,000 is due for payment on 26 October 2018 in accordance with the share purchase agreement. The deferredconsideration recorded within as contingent consideration within non-current other payables on the 2016 balance sheet represented the fairvalue amount at the balance due.
The main factors leading to the recognition of goodwill on the acquisition of Player Research Ltd. are the presence of certain intangible assets inthe acquired entity, which are not valued for separate recognition, such as the expertise in user research and playtesting and reputation within
the industry.
Player Research contributed €182,820 revenue and €64,525 profit before tax to the Group between the date of acquisition and the balance sheet
date. If the acquisition had been completed on the first day of the financial year, revenue for 2016 of €921,339 would have been contributed to
the Group and profit before tax of €307,592.
Acquisition costs of €40,785 have been charged through the Statement of Comprehensive Income.
Acquisition of Global Video-Games Services Inc., trading as Enzyme Testing Labs
On 16 November 2016, the Group acquired 100% of the issued share capital of Global Video-Games Services Inc., trading as Enzyme TestingLabs, a company incorporated under the laws of Quebec. Enzyme’s strengths are in functional QA and localisation testing of video games forleading game publishers and developers. In addition, it provides localisation services and focus group testing, all of which will significantly
strengthen Keywords’ service offerings to the global video games market.

ANNUAL REPORT AND ACCOUNTS 201793

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

29		 Business Combinations Completed in 2016 continued
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
Enzyme
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Fixtures, fittings and equipment
Identifiable intangible assets – customer relationships
Trade and other receivable
Cash and cash equivalents
Trade and other payables
Deferred tax assets
Deferred tax liabilities

929
–
2,546
695
(2,334)
–
–

(13)
1,669
–
–
–
3
(761)

916
1,669
2,546
695
(2,334)3(761)

Total identifiable assets

1,837

899

2,735

Goodwill

731

Total consideration

3,466

Satisfied by:
Cash

3,466

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

3,466
(695)
2,771

The main factors leading to the recognition of goodwill on the acquisition of Enzyme are the presence of certain intangible assets in the acquired
entity, which are not valued for separate recognition, such as the expertise in functional QA and localisation testing.
Enzyme contributed €1,094,913 revenue and €59,820 profit before tax to the Group between the date of acquisition and the balance sheet
date. If the acquisition had been completed on the first day of the financial year, revenue for 2016 of €8,632,254 would have been contributed
to the Group and profit before tax of €954,332.
Acquisition costs of €243,774 have been charged through the Statement of Comprehensive Income.
Acquisition of Sonox Audio Solutions S.L.U.
On 22 December 2016, the Group acquired 100% of the issued share capital of Sonox Audio Solutions S.L.U. (“Sonox”), a company incorporated
under the laws of Spain. Sonox provides Audio and Localisation for Spain and Mexico. Sonox already provides certain services to the Group andits acquisition will enable the Group to capture the margins on those services.

94

KEYWORDS STUDIOS PLC

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
Sonox
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Fixtures, fittings and equipment
Identifiable intangible assets – customer relationships
Trade and other receivable
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities

2
–
268
177
(411)
–

–
–
–
–
–
–

2
–
268
177
(411)
–

Total identifiable assets

36

–

36

Goodwill

614

Total consideration

650

Satisfied by:Cash
Equity Instruments (24,881 shares of the parent company)

500
150
650

Net cash outflow arising on acquisitionCash
Less: cash and cash equivalent balances transferred

500
(177)
323

The main factors leading to the recognition of goodwill on the acquisition of Sonox are the presence of certain intangible assets in the acquired
entity, which are not valued for separate recognition, such as the expertise in audio and localisation.
Sonox contributed €52,032 revenue and €87,969 additional profit before tax to the Group between the date of acquisition and the balance sheet
date. If the acquisition had been completed on the first day of the financial year, revenue for 2016 of €1,308,004 would have been contributed to
the Group and profit before tax of €454,827.
Acquisition costs of €21,687 have been charged through the Statement of Comprehensive Income.
30		 Supplementary Information to the Statement of Cash Flows
Group Movement on Loans

Opening loans and borrowings 1.1.2017
Cash flows
Cash received via additional loans taken in the current year
Repayment of loans
Non-cash flows
Amounts recognised on business combinations
Non-current at 1.1.2017 transferred to current 31.12.2017
Closing Loans and borrowings 31.12.2017

Current€’000

Non-current
€’000

Total
€’000

8,025

345

8,370

10,250(23)––

10,250
(23)

632
59

51
(59)

683
–

18,943337

19,28031		 Events After the Reporting Date
Acquisition of Maximal
On 22 March 2018 the Group completed the acquisition of Maximal, an audio business based in Sao Paulo. Maximal does voice-over recording
for the video games and learning industries. Maximal will add to our audio capabilities in the South American market, providing Keywords its
first recording studio in Brazil, which will complement our localisation operation in Rio. Under the terms of the acquisition Keywords will pay
cash consideration of up to €500k; €300k initially plus up to €200k over two years, contingent on results.
At the date of authorisation of these financial statements, no further validated information was available.

ANNUAL REPORT AND ACCOUNTS 201795

Financial
Statements

Notes Forming Part of the Consolidated and Company Financial Statements continued

31		 Events After the Reporting Date continued
Acquisitions of Cord Worldwide Limited and Laced Music Limited
On 6 April 2018 the Group announced that it had acquired Cord Worldwide Limited (“Cord”) and Laced Music Limited (“Laced”) for a total
consideration of £4.5m/€5.2m from the Cutting Edge Group (“Cutting Edge”). Based in London, Cord provides a range of music-focused branding
and strategic consulting services to large businesses including Shell, Lego and BT. Laced is a music services company and record label specialising
within the video games industry. The companies will bring additional talent, expertise and music industry experience to Keywords’ client base. Being
able to offer music services to our clients will further enhance our reputation as the leading provider of services to the global video games industry.
Under the terms of the acquisition, which is anticipated to be earnings enhancing, the total consideration will be £4.5m/€5.2m. This will besatisfied by cash of £3.4m/€3.9m, and the remainder will be issued in shares to the sellers two years after the acquisition. At the date of
authorisation of these financial statements, no further validated information was available.

96

KEYWORDS STUDIOS PLC

Company Information
Directors

David Broderick
Andrew Day
Georges Fornay
Charlotta Ginman
Ross King Graham
Giorgio Guastalla
David Reeves

Secretary

David Broderick

Registered Number

8548351

Registered Office

8 Clifford Street
LondonW1S 2LQ

Auditors

BDO
Registered Auditors
Beaux Lane House
Mercer Street Lower
Dublin 2

Principal Bankers

Barclays Bank
27 Soho Square
LondonW1D 3QR
Citibank Europe Plc
1 North Wall Quay
Dublin 1

Nominated Adviser and Broker

Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
LondonEC4M 7LT

Financial PR Adviser

MHP Communications
6 Agar Street
LondonWC2N 4HN

Solicitors

DWF LLP
20 Fenchurch Street
LondonEC3M 3AG
Squire Patton Boggs (UK) LLP
7 Devonshire Square
LondonEC2M 4YH

Keywords Studios PLC
Whelan HouseSouth Country Business Park
Dublin 18
Ireland
T: +353 190 22 730

www.keywordsstudios.com