Annual Reportand Accounts
2019

Building ourplatform for growthKeywords Studios plc

Annual Report and Accounts 2019

Overview

Strategic report

Pages 1–6
Highlights
At a glance
Investment summary
Chairman’s statement

Pages 8–44
1
2
4
6

Q&A with Andrew Day		
Chief Executive’s review 		
Market outlook 		Business model 		Our strategy 		Service line review 		Our people, our culture 		
KPIs 		Financial and operating review
Responsible Business report
Board engagement with 		
our stakeholders		
Principal risks and uncertainties

2019
Highlights
Our vision is to be
the world’s leading
technical and creative
services platform
for the video games
industry and beyond.
At Keywords Studios(Keywords), we areusing our passion forgames, technology andmedia to create a global
services platform.
In 2019, we delivered
strong growth as we
invested in a strengthened
and more diversified
services platform.

Alternative performance measures*
The Group reports certain Alternative performance measures (APMs) to present the financial performance of thebusiness which are not GAAP measures as defined by International Financial Reporting Standards (IFRS). Management
believes these measures provide valuable additional information for the users of the financial information tounderstand the underlying trading performance of the business. In particular, adjusted profit measures are used
to provide the users of the accounts a clear understanding of the underlying profitability of the business over time.
For full definitions and explanations of these measures and a reconciliation to the most directly referenceable IFRS line
item, please see pages 135 to 143. Please note, to aid comparability, these explanations also present the current year
APMs excluding the impact of IFRS 16, and also highlight where a number of APMs have been restated to reflect thecurrent year presentation.

8
10
16
18
22
24
28
34
36
40
43
45

Governance

Financial statements

Pages 48–73

Supplementary information

Pages 74–134

Board of Directors 			
Chairman’s introduction 			Corporate governance 			Audit Committee report 			Directors’ remuneration report 		
Report of the Nomination Committee 		Directors’ report 			Statement of Directors’ responsibilities		

48
50
51
54
57
70
71
73

Pages 135–144

Independent Auditor’s 		
report to the membersof Keywords Studios plc 		Consolidated statement 		
of comprehensive income 		Consolidated statement 		
of financial position		
Consolidated statement		
of changes in equity		Consolidated statement		
of cash flows		

74
79
80
81

Company statement		
of financial position		
Company statement		
of changes in equity		
Company statement 		
of cash flows 		
Notes forming part of the		consolidated and company
financial statements		

83

Alternative performance measures
Company information 		

84
85

86

82

Revenue

EBITDA*

Profit before tax

(€m)

(€m)

(€m)

326.5

2019
2018

2018

250.8

2017 151.4

2017€326.5m

43.4

2019

30.2%

34.3

17.4

2019
2018

21.9

22.1
12.0

2017

€43.4m26.4%€17.4m

21.4%

Margin 13.3% (2018: 13.7%)

Margin 5.3% (2018: 8.8%)

Organic Revenue growth*

Adjusted EBITDA (pre IFRS 16)*

Adjusted profit before tax*

(€m)

(€m)

(€m)

314.7

2019
2018

272.5m

2018
2017

15.5%
(2018: 10.1%)

49.5

2019

40.9

2019

37.9

2018

43.7
26.3

23.0

2017

€49.5m13.2%€40.9m

7.9%

Margin 15.2% (2018: 17.4%)

Margin 12.5% (2018: 15.1%)

Basic earnings per share

Adjusted earnings per share*

(c)

(c)
15.23

2019
2018
2017

23.16
12.37

15.23c

48.78

2019
2018

45.50
31.18

2017

34.2%

48.78c

7.2%

Total dividend per share
(p)
2019

0.58

2018
2017

0.58p

1.61
1.46

64%

135
144

1

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Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 201923

At a glanceout of the top 25 games
companies are serviced
by Keywords

Continuing
to build our
global services
platform

Keywords Studios now has 59
studios, in over 40 cities, across
21 different countries worldwide.
We provide a full set of integrated
services, combining a presence thatis local to our clients in key gaming
clusters with good access to skilled
talent pools across four continents.
Throughout 2019, we have continued to invest behind
growing demand. We have expanded our existing
facilities and created new operating bases, while also
adding capabilities and capacity through acquisitions.
We added over 1,400 workstations in the period
and welcomed 8 new businesses to the Group. Allof this targeted investment has increased our scale,extended our global footprint, brought us closer toour clients and prospective talent, while adding to thevision of becoming the ‘go to’ external development
partner to the video games industry.

A full set of integrated services
Keywords Studios is building world-leading capabilities in services that video game and similar interactive content creators
need. We stand shoulder-to-shoulder with our customers working as their external development partner to provide dedicatedoutsourced or embedded services, providing access to our teams of experts where and when needed. Today we have breadthand depth in seven service lines.

Revenue breakdown by service:

2019

Art CreationGame Development

Audio

Functional Testing

Localization

The creation of video gamegraphical art, including
concept art, 2D and 3D
art asset production andanimation. Marketing
services include game
trailers, marketing art andmaterials, and full brandcampaign strategies.

Game development
services including fullgame development,
co-development, portingof games from one
platform to anotherincluding remastering, tool
development and consulting
services on a work-for-hirebasis. This also includes
our proprietary software
solutions for analytics,
social media integration,
procedural generation of art
assets and player behaviour
research consulting services.

Multi-language voiceoverrecording, original language
voice production, music
management, sound effects
and related services.

Quality assurance,
including discovery anddocumentation of gamedefects and testingto verify the game’scompliance with hardware
manufacturers’ anddistribution platforms’
specifications, as well as
crowd based and focus
group testing solutions.

Translation of in-game
text, audio scripts, culturaland local adaptation,accreditation, packaging
and marketing materials
in over 50 languages.
Includes our proprietary
technologies for content
management, machinetranslation, and workflow
management.

Revenue

Revenue

Revenue

Revenue

Revenue€43.6m€66.3m€40.5m€68.9m

€48.5m

+28%

+88%

+18%

+44%

+10%

Year on year growthYear on year growthYear on year growthYear on year growthYear on year growth

Governance

Financial statements

3

Supplementary information

50+

59

languages acrossour services

7,424

studios in
21 countries

average number of
employees in 2019

Brighton
Leamington Spa

Liverpool

St. Petersburg
LondonBeijing

BerlinVancouverDublin (HQ)

Montreal

DalianParis

Katowice

Raleigh

PortlandZhengzhou

Krakow

OttawaSeattleVolgograd

The Hague
Quebec CityNew Delhi

Milan
OrlandoMexico City

MadridBarcelona

AustinPune

Hamburg

Singapore

Yogyakarta

São Paulo

Better balanced
business higher
up the value chain
Player Support

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.

365/24/7, multilingual
support for gamers whengames are in live operation,
forum monitoring andmoderation services andsocial media engagement onbehalf of the game brand.

Business representationby each service:

11.1%

2019

Revenue€22.6m€36.1m+15%+1%

Year on year growthYear on year growth

13.3%

6.9%
20.3%

14.9%

Revenue

21.1%

Revenue (2019)

Taipei

ManilaRome

Rio de Janeiro

Localization Testing

ShanghaiChengduSaint Jerome

Los AngelesTokyo€326.5m

12.4%+30.2%
Year on year growth

4

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Investment summary
Strengthened platform in a growth market

Access to a dynamic
growth market
Keywords operates in a dynamic
growth market but has minimal direct
exposure to the successes or failuresof individual game titles. Our focus
on content means we are platform
agnostic and well positioned to takeadvantage of the opportunities
presented by mobile gaming,
cloud streaming, next generation
consoles and AR / VR. The increasing
sophistication of games, and thedevelopment of new platforms all
add to the complexity of the video
games market which is driving
demand for larger, professional,
outsourced specialists, such as
Keywords, in a highly fragmented
supplier market. Outsourcing suchwork is attractive to developers andpublishers because it converts their
fixed costs into variable costs, helps
remove bottle-necks in capacity byproviding access to talent as requiredand enables them to focus on theircore competencies.

Market leading position

Strong growth record

Keywords has a market leading
position as the only global providerof fully integrated outsourced
creative and technical services to theglobal video games industry. Withan industry reputation for quality,
reliability and flexibility, our scaleand reputation mean we are wellplaced to take advantage of thetrend for customers to move tomore collaborative partnerships withfewer, larger suppliers. Our market
leading position creates substantial
barriers to entry which we havedescribed in more detail on page 20.

We continue to deliver strongorganic revenue growth as we
benefit from both the growth in
the video games industry and thetrend towards greater outsourcingof our services. In addition, we
have successfully acquired andintegrated 44 acquisitions since IPO.
The 8 acquisitions we completed
in 2019 bolstered our capabilities,
particularly in Game Development
and Marketing services. In addition
to extending our existing service
lines to bring us even closer to ourcustomers, we have continued to
expand our geographical reach,with new facilities in Mexico City
and Leamington Spa and expandedfacilities in Katowice.

Keywords is better placed than ever to continue
to capture an increasing share of our robustly
growing market, by deepening our relationships
with customers who already trust us with theirhigh value IP, having significantly extended ourservices and geographical reach during the year.
We are a trusted partner to leading companies
around the world, with a leading market position,
providing services to 23 of the top 25 games
companies and all 10 of the top 10 mobile games
publishers by revenue, including:Governance

Financial statements

Supplementary information

978

customers, up
from 846 in 2018

Opportunity togrow further
Having made strong progress inextending the Group’s client base,market penetration, geographic
footprint and service lines, weare now beginning to realise thesignificant potential for increased
cross-pollination of our service linesand geographic locations, including
taking advantage of our dual-shore
capabilities which enable us to beclose to our customers and provide
services from lower cost studios, as
we increasingly become a strategic
partner to our customers.

A strong business model
Keywords’ flexible resourcing andcharging model, with charges levied
for time or output, combined withrelatively low working capital andcapital expenditure requirements,
support our ability to grow thebusiness whilst also achieving
strong underlying cash conversion.
Our business model also provides anopportunity to invest in the exciting
video games market, without therisk of exposure to the successes
or failures of individual game titles.

Adjacent market
potential
Our expertise in providing
outsourced solutions to the video
games industry is already beingsought after in adjacent markets suchas film and television, and Keywords
is well placed to deliver this.
Video games represent the pinnacle
of interactive content. Our masteryof this highly interactive content
positions us well as other forms ofcontent continually seek ways tobe more interactive and therefore
more engaging.

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Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Chairman’s statement

A year of strong
delivery with a
few growth pains
Keywords has delivered another year ofstrong growth in 2019, at the temporary
expense of lower margins, as it continued
to deliver against the ambitious plan it set
out at the time of its IPO in July 2013.
Since that time, the video games market
has grown significantly, with more users,
games, platforms and expanded content,
revealing further opportunities forour services which are agnostic to thesuccess of a specific platform or game.
As outsourcing has accelerated tosupport this expansion of content, so
too has the breadth of services requiredby our customers, most recently taking
us into co-development and marketing
services. Indeed, looking back over theyears, there has been an impressive
track record of consistency of message
and over-achievement assisted in nosmall measure by the extent to which we
continually find opportunities to integrate
ourselves into the multifarious facets ofthe video games industry.
Our CEO, Andrew Day’s report shows
how relentlessly the Group has been
growing whilst also building the support
infrastructure necessary to manage
what is now becoming a very substantial
business.
2019's accelerated growth brought with ita higher level of operational expenditure
and, having identified a number ofopportunities to improve the way wemanage such rapid growth, we have put
measures in place to deliver both revenue
growth and improving margins following
the near-term disruption from COVID-19.

PeopleKeywords has become a significant force
in the industry, having grown from justover 200 people at IPO to over 7,400 fulltime equivalent employees (FTEs) at theyear end. Managing, training, recruiting
and motivating such a large group which
is diverse in every dimension is a major
undertaking and whilst our regular staff
surveys highlight ways in which we needto improve, we are also getting a great
deal right - our aspiration is to make all
employees proud to be part of Keywords,
embrace our culture and to be highly
motivated to help continue the Group's
success. Those people who have joined
the Group through acquisition notice andappreciate the additional opportunities
that Keywords offers.
I would like to commend all Keywordians
for their tireless contributions as they
"go the extra mile" every day for ourcustomers and help us to continue todeliver Keywords’ remarkable successstory, particularly as many have rapidlychanged their ways of working to support
the global efforts to control the spread of
COVID-19.

Board
As previously announced, David
Broderick stood down from his role as
Chief Financial Officer in October 2019 forpersonal reasons and, on behalf of theBoard, I would like to reiterate our thanks
for his contribution to Keywords over thelast three years.

Jon Hauck was appointed Chief Financial
Officer in October 2019, having previously
been Group Financial Controller andTreasurer at FTSE 100 business services
group, Rentokil Initial Plc, where hegained highly relevant experiencegiven Rentokil’s operations across 73
countries world-wide and its active M&A
programme. Jon has already made a very
positive impact.

Responsible business
The Board is very mindful of the recent
focus on Environmental, Social andGovernance (ESG) and we are committed
to building a sustainable business for thelong term that positively contributes tosociety and the environment; our focus
on this will be backed up by incentives
and financial assistance to ensure suchsocial initiatives flourish. To fulfil thisaim and as part of our commitment tobeing a responsible business, the Board
has appointed Jon Hauck, Chief Financial
Officer, to oversee this area.
The Board was particularly proud tosee, on visits to several of the Group’s
studios in 2019, the number of social andenvironmental initiatives in place locallywhich benefit the local communities andwider charitable causes.

COVID-19 overview, current
trading and outlook
The impact on the business fromCOVID-19 was limited to our Chinese
operations in the first two months ofthe year but we have since experienced
further disruption across the business.

Governance

Financial statements

Supplementary information"We remain absolutely committed to the strategy
embarked upon at the time of the IPO."
Ross K Graham
Chairman

Our first priority during this period is thehealth and wellbeing of our people and,drawing on our experiences of territories
that are further progressed in dealing
with the crisis, in many cases we wereable to implement safeguarding measuresahead of local authorities’ health andsafety recommendations across the 21
countries in which we are located.
This has enabled us to both keep
our people safe and deliver business
continuity across our service lines, andas part of this we have so far converted
over 5,500 people to work from homearrangements.
Operating within the global video
games market and with seven service
lines delivered from 59 studios across
21 countries, coupled with our ability
to deliver the majority of our services
through work from home arrangements,
means we are able to offer clients a highdegree of resilience to the varying cyclesof the spread of the virus in different
locations. However, the situation ischanging rapidly, and it is difficult toforesee the impact on our clients and thefurther threats and opportunities that
may await us. As such, the Board does notbelieve it is prudent to provide guidanceon the potential full year outcome for
FY20 at this time.
The Group has a strong balance sheetwith net debt (excluding IFRS 16 leases)
as at 31 December 2019 of €17.9m,
representing a net debt to Adjusted
EBITD ratio of 0.4x. The business has
good liquidity with cash and undrawn
committed facilities under the €100m
revolving credit facility (RCF) of €82m as
at the end of December. In addition, as aprecautionary measure we are in the final
stages of exercising the accordion feature
under the RCF which would provide afurther €30m of committed facilities.

Resilience testing has demonstrated thebusiness is capable of operating in a workfrom home model for a prolonged period
and remain comfortably compliant withbank covenant thresholds.
Given the current environment, the Group
has taken steps to preserve cash bya close focus on costs and eliminating
discretionary expenditure, reducing
working capital and delaying certain
capital projects.
Overall, the resilience of the video games
industry to economic downturns and thecontinued strong demand for the Group’s
services from its clients, combinedwith the Group’s flexible cost base,geographical diversification, broad rangeof services, financial strength and repeat
revenues, which have consistently been
at approximately 80% year on year, fromlong standing client relationships, provide
the Group with the resilience to tradethrough this uncertain period and emerge
in a strong position.
A more detailed assessment of thepotential impacts and opportunities
resulting from COVID-19, and themitigating actions we are taking, areprovided in the CEO’s Review, with anassessment by service line provided
in the Service Line Review, and in the
Principal Risks and Uncertainties section.

Dividend
Despite the Group’s resilient financial
position and the modest size of thedividend, the Board believes it would
be inappropriate to recommend a final
dividend in the current circumstances.

led growth and strong cash flows ahead
as we continue to pursue that strategy
successfully.
We are confident that we will continue
to deliver excellent results to create
further shareholder value over time, as
we leverage our expanded platform in a
growing, global video games market withan accelerating trend towards outsourcing(and few competitors of scale).
We continue to keep our focus firmly on
the video games industry, where we see
substantial scope in the medium term tocontinue to grow even faster than thegrowing industry itself as we become the‘go to’ global services platform for video
games and beyond. In addition, otherindustries such as film and television (andon-line entertainment generally) and otheradjacent markets are increasingly adoptinginteractive content and video games
practices, such as simultaneous releaseof content, and we are uniquely placed totake advantage of these developments asthey present themselves.
We will continue to monitor the COVID-19
situation closely and do all we can toprotect our people and support ourcustomers, who are increasingly looking
to us as part of the solution for their own
contingency planning.
We are well financed, with a global
footprint, a unique position in a resilient
market and a strong team to manage thebusiness through this uncertain period
and we expect to emerge in a robust
position to continue to grow once wereturn to a more normalised environment.

Summary
We remain absolutely committed to thestrategy embarked upon at the timeof the IPO and, beyond the near-term
disruption from COVID-19, can see many
years of good organic and acquisition

Ross K Graham
Chairman
16 April 2020

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8

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Q&A with Andrew Day

We are building aplatform of scaleQ	2019 looks to have been abusy year – what are you
most proud of?

A

We’ve made some excellent
progress through 2019 and thereis plenty for us to be proud of. I’ve
been particularly pleased with theacceleration in organic growth
despite the slowdown effects ofthe end of the current generationof consoles. This was driven by thegood progress in Functional Testing
and continued strong growth inGame Development which led to
us exceeding the market’s revenue
expectations. We’ve continued to
expand, growing a global platformof scale to service the ever growing
video game industry and its trend
towards increased outsourcing.
I remain confident that Keywords isthe best placed provider to capitaliseon this trend.
I have also been pleased withthe performance of our mostimportant asset – our people. As
an organisation, we are particularly
proud and protective of our culture,
where Keywordians are empowered,relaxed, professional and humble,

Governance

Financial statements

Supplementary information

44

acquisitions since IPO

8acquisitions
completed in 2019“	As an organisation, we areparticularly proud and protective of
our culture, where Keywordians are
empowered, relaxed, professionaland humble with a focus on doing thevery best we can for our customers.”
Andrew Day
Group Chief Executive Officer

with a focus on doing the very best
we can for our customers and eachproject they entrust us with. By
investing in the development of ourpeople, we are ensuring we deliver
the highest standard of work for ourcustomers, furthering our strategy
to be the ‘go to’ technical andcreative services platform for the
global video games industry.

Q

M&A activity appeared toslow down this year compared
to previous years – are you at
all concerned?

A

I am not concerned. We had a slower
start to the year, but we completed
8 high quality acquisitions for a total
potential consideration of €20m,
further strengthening the breadthof value-added services we’re able
to offer our customers. I’m happy
with the progress we made in 2019,as we remain very disciplined in our
approach to acquisitions, targeting
specific areas to grow the platform
and only acquiring businesses that
we know will fit the Keywords model.
Looking forward, we have a great
pipeline of opportunities and I’m
excited about what 2020 could holdfor the Group.

Q

Should the TV+SYNCHRON
acquisition be seen as a signpostthat you will be doing more in the
TV and film spaces?

A

Although we see some clear
synergies in the TV and film market
where demand for our expertise
already exists, TV+SYNCHRON was
an opportunistic acquisition whichallows us to take advantage of somehighly complementary opportunities
in the European dubbing market.
Whilst we will continue to consider
opportunities in adjacent markets,
the global video games market
remains our core focus and there
is still a lot to do in this area.

Q

Was there anything in theyear you were particularly
disappointed with?

A

Overall I am very happy with theway the business is continuing
to come together. I think it’s easy
to forget how early we are in ourjourney of building our businessin an addressable market of wellover $6bn. Our margin in 2019 was
lower than many were expecting
but much of that can be explainedby the investment we are making inthe strong organic growth we aredelivering to ensure it is sustainable,
controlled and the backbone is built
to support the ongoing organic andacquisitive growth. In addition, we
did have an issue with a fixed pricecontract, which is not something
we would typically enter into. I am
pleased to say that this contract isnow concluded, and we have still
maintained a strong relationshipwith the customer.

Q
A

What can we expect
to see in 2020?
More of the same! We are building
a platform of scale which gives
us excellent opportunities for
growth, and the investment in
our infrastructure, systems andmanagement will bring further
benefits in 2020 and beyond as
we leverage these costs over a
growing revenue base. With thelaunch of a new generation of games
consoles and further developmentof new streaming platforms, weare expecting 2020 to be an exciting
one for the video games industry
and for Keywords!

9

10

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Chief Executive’s review

A strong
performance2019 was a year of strong growth, withrevenues up 30.2% to €326.5m, as we
continued to build our platform as the‘go to’ service provider to the video
games industry which, in turn, enabled
us to take advantage of the accelerating
trend towards external development andoutsourcing in the industry.

"	Strong growth as we
invested in building
a more diversified
services platformof scale."
Andrew Day
Group Chief Executive Officer

2019 was a relatively light year for video
game releases as the industry reached
the tail end of the existing console cycle,
but we saw demand for our services
continue to grow, with some service lines
experiencing very strong growth as they
benefitted from a marked shift towards
outsourcing.
The Group delivered 15.5% year-on-year
Organic Revenue growth, which excludes
the impact of currency movements andacquisitions (as defined on page 137 of
the Alternative performance measuressection), driven in particular by verystrong organic performances in bothGame Development and Functional
Testing which grew by 36.4% and 37.0%
respectively. These are now our twolargest service lines, and their strong

Governance

Financial statements

Supplementary information

30.2%

Reported revenue growth

15.5%

Organic Revenue growth

Platform
We have used our passion for games, technology
and media to build a services platform for the global
games industry.
Responding to client needs
The games industry is continuously changing, and our customers rely increasingly
on external development services to create new and engaging content. We need tomatch their global footprint with a depth and breadth of services and consistently
high standards of service delivery, to ensure customers know what they are getting
when they buy our services, regardless of location, timescale or service type.

Maintaining high standards
We ensure Keywords’ reputation for quality is upheld across the platform bygathering the know-how and tools before spreading them geographically, achieved
through both acquisitive and organic growth. An example of this could be acquiring
a new service before seeding it in an established existing location, using our
team’s expert knowledge of the regional customer base. Another key aspect ofthe platform's success is Keywords’ ability to gather and retain the industry’s top
talent. As Keywords increasingly becomes the place to work, renowned for its
great culture, working on the best video games, with good facilities and benefits,
so we attract the best talent and expertise.

achievements are, in part, testament to
the effective integration of prior year
acquisitions to build strong, international
service platforms of scale that areexperiencing the increase in demand fortheir services that comes from becomingthe ‘go to’ provider.
Having first entered Game Development
through the acquisition of GameSimin May 2017, we have now grown it
to become a €66m revenue businessemploying an average of 792 production
focused people across 10 studios. Thisadditional scale enables us to takeadvantage of the accelerating demandfor external development, including thegrowing demand for co-development andfull game development services.
The very strong organic growth achieved
by Functional Testing in 2019 also
demonstrated the acceleration of demandfor our testing services, having reached
the critical mass point of becoming
the provider of choice, particularly inNorth America following the successful
integration of VMC.

To support the Group’s high level ofgrowth, we have continued to invest in theGroup’s operational capacity, supporting
infrastructure and management, which we
believe is important to enable the Groupto capitalise on the clear opportunities it
is seeing to capture share of the growing
video games services market. These
investments held margins back fromtheir medium to longer term norm but willbring further benefits in future years as
we leverage these costs over a growing
revenue base.
Complementing the Group’s strongorganic growth, we continued to develop
the Group through acquisitions, with 8
made during the year. These added scale
to and diversified Keywords’ marketing
services, Audio, and Game Development
service lines and brought cutting edgemachine translation and crowd sourcing
technology to the Group’s Localization
service offering.
In October 2019, we agreed a new
revolving credit facility for up to €140m
which provides the Group with further
flexibility and headroom to manage theshort-term disruption of COVID-19 andinvest in our business both organicallyand through acquisition.

Delivering on our strategy
Our strategy to build our platform as
the ‘go to’ service provider to the video
games industry is positioning the Groupas the leader in a market characterised byhighly fragmented, local, single-service
providers, despite the growing needsof the major video games publishers
and developers who act globally. These
customers are increasingly turning
to external development and support
services as a way to manage the demandsof generating more sophisticated content
whilst limiting their fixed costs, and sothey require the quality, flexibility, andsecurity of a full service provider of scale.
We made considerable progress inbuilding our platform during the year, byinvesting in capacity expansion, making
acquisitions that enhanced our service
offering and generating synergies
through collaboration across our
expanding multi-service global platform,
positioning us as an increasingly relevant
and integral partner to our customers.

11

12

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Chief Executive’s review
continued

Organic investment
During the year, we invested in expanding
our operational capacity and enhancing
the Group’s infrastructure to scale up
our business to support the Group’s
ongoing growth. In addition to the over
1,400 work stations created during theyear, we have invested in people, systems
and marketing as we develop our IT, HR
and finance functions and enhance our
global branding.
This investment included substantial
expansion of the Group's facilities inMontreal, Katowice, Manila, Brighton,
Mexico City, Tokyo, São Paulo and New
Delhi. These expansions incurred start-up
costs, where we were paying for spaceand staff as we fitted out the facilities
and built and trained the production
and support teams, before becoming
operational.
We have also continued to support thecosts of the investment phase in our earlystage technology businesses, Yokozuna
Data, AppSecTest and GetSocial, as
well as our fledgling services in music
management, sound design, subtitlingand dubbing for film and TV.
We have continued to invest in the
backbone of the business with increased
capabilities in our support functions,
including finance, HR, IT, facilities,
administration, and general management(average number of people employedincreasing to 646 from 505 in 2018) and
we are increasingly developing ‘hubs of
excellence’ in these support functions
which support a number of studios or key
regions, such as our Montreal hub which
supports studios across North America.
Around the Group, we continue to develop
our own tools to enable and deliver ourservices and to enhance productivity, in
addition to adopting and operating third
party best of breed solutions.
Once the environment has normalised
following disruptions related to COVID-19,
we expect to reap the benefits of manyof these investments as work stations
are efficiently utilised and our support
functions yield improved recruitment,
training, and retention of staff, enhanced
management information, and more
efficient workflow management.

Acquisitions and integration
We were pleased to have made 8 highquality acquisitions during the year, whichfurther strengthened the breadth ofvalue-added services we are able tooffer our global video games customers.
In January, we expanded our range ofmarketing services with the acquisition ofSunny Side Up, which brought productionof high-quality marketing assets andprovided access to the talent pool inQuebec City, to complement our similar
operations in Brighton and London. Alsoin London, Ichi Worldwide joined the Groupin December, adding strength and depth
to our marketing services in campaign
management, branding strategy andsocial media management, which are key
to determining the success of a game.
We diversified our Audio Services offeringwith the acquisitions of Vancouver based
Descriptive Video Works, which brought
accessibility services in North America;
TV+SYNCHRON, which added a Berlin
based dubbing and voice over studio in
German language; and Syllabes, a games
and film/TV audio recording studio,
completing the full suite of services
provided out of Keywords’ Montreal
services hub.
We also further strengthened our Game
Development service line through theacquisition of GetSocial, based in The
Hague, which provides an integrated
platform for the management of all social
media interactions within mobile games.
In Japan, we added the gamedevelopment team, Wizcorp, to ourexisting 270-person team in Tokyo.
In our Localization service line, wewelcomed Kantan to the business,
which brought proprietary, cutting edgemachine translation and crowd sourcing
technology to the Group that will enable
Keywords to work with its video gamecustomers in marrying our unrivalled
video games expertise with highly
customisable machine translationengines and downstream workflow tools.

Governance

Financial statements

Supplementary information• Ichi Worldwide• GetSocial

LOCALIZATION• Sunny Side Up• Descriptive
Video Works• Wizcorp
AUDIO

GAME
DEVELOPMENTART CREATION

2019 Acquisitions• TV+SYNCHRON• Syllabes• Kantan

Integration
Even from the preliminary stages of due diligence weare constantly focused on integration.
When looking to make acquisitions, integration is always front of mind. We have atried and tested integration process which we implement for each new acquisition,
starting with a detailed integration plan tailored to the company in question, which
is designed by the people who will ultimately lead the integration process after theacquisition has completed.
When we make an acquisition, we retain the brands for as long as it makes sense,
adding "A Keywords Studio" to its logo to ensure it is seen as part of the Group.
Acquired businesses immediately benefit from shared services through IT, security,
HR, and finance – all of which have received significant investment this year, and ashared sales and marketing team allows businesses to focus on cross selling theirservices as part of a wider group, with local studios supported by regional hubs for
key functions. In turn, the acquired studios quickly become ambassadors for the fullrange of services across Keywords.

Following the acquisitions made during
the year, we exited the year with pro
forma revenue (as defined on page 136of the Alternative performance measuressection) of €333.6m.
During the year, we have also made good
progress with integrating prior periodacquisitions, which are making good
contributions to the Group. The Group's
largest acquisition in 2018 (completedin August), Studio Gobo and Electric
Square, has outperformed expectations
while our largest acquisition in 2017able to focus on delivering high quality
work for their customers whilst we
provide the functional support that would
otherwise be a constraint on their time as
they grow their businesses. The benefit
for these businesses of being part of the
Keywords family is further evidenced
by the reduction in ‘downtime’ and staff
churn that many experience due to theopportunities to work on a broader baseof interesting projects that the wider
Group is able to offer.

(completed in October of that year), VMC,
was fully integrated in 2018, with thesubsequent benefits of our additional
scale demonstrated by the particularly
strong growth in our Functional Testing
service line during 2019.
We were able to set out in more detail,in our Capital Markets Day in Montreal
in November, how acquired businesses
can thrive within the Keywords family,as they are able to leverage our scale,
reputation, international reach, andbroader expertise. In addition, they are

Our market opportunity
Market size and proportion of outsourcing*

Suppliers
50+ specialist

20%

10+

40%

Non specialist callcentre operators

50%

100+

50%

$3.0bn+$800m$1.2bn$1.0bn+Game Development

10+

70%

50+ including large
Multiple Language
Vendors (MLVs)

85%

Functional Testing$150m

Player Support
Art Creation**

Percentage
outsourced$200m

Localization Testing
Localization

In-house
50+

90%
0

*

Audio***$150m$0.5bnBased on management’s estimates$1.0bn$1.5bn$2.0bn** Art Services only, does not include Marketing Services$2.5bn$3.0bn*** Audio localization only

13

14

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Chief Executive’s review
continued

People
The average number of FTE employees
across the Group in the period grew to7,424 (2018: 5,238) with around 900 jobs
being created organically and driven
primarily by the very robust growthin our Functional Testing and Game
Development businesses.
We constantly strive to provide great
working environments for all Keywordiansaround the world. One example of thiscan be seen in the central locations of ourstudios. Rather than over emphasise low
cost locations and low cost facilities wefeel the benefits of being able to attract
the best talent in the most scalable
manner outweigh any savings frompotentially lower occupancy costs.
Whilst there is always more to do ininvesting in our people, we continue
to make improvements with training,
benefit schemes, career progression
and we monitor ourselves in line with
our diversity and non-discrimination
policies, to ensure we are providing
equal opportunities in all of our locations.
We are proud of our culture which brings
common purpose to our colleagues
around the world. Our empowered,relaxed, professional and humble teamconsistently does the very best we
can for each project entrusted to us,
working as an extension of our clients’organisations.
Our broad pool of highly experienced
and games-passionate talent provides atremendous resource that our customers
can access in a flexible and cost-efficientmanner across the globe and inconvenient time zones.

In turn, we offer colleagues theopportunity to work on an unrivalled
range of the world’s leading games aheadof their release. We are typically working
on over 250 titles at any one time, andwe provide good career advancement
and opportunities to move between our
various studios and the countries in which
we operate. This can be seen in our seniorleadership team which comprises somehome-grown talent and people who joined
us with acquired entities, in addition toexternally-hired employees.
Our continued growth and reputation
for consistently delivering good quality
service on highly agile engagements todemanding deadlines is testament to
the Keywords culture and the skills andthe commitment of Keywords’ talented
and games-passionate employees andcollaborators. We are proud of our global
talent pool, which means there is acontribution from Keywords in most of
the world’s leading games, and we would
like to thank everyone involved for theirvaluable contribution to the continued
success of the Group.
We are particularly proud of how
Keywordians around the world have
responded to the short-term challenges
and the changes to ways of working tokeep everybody safe in the context of
COVID-19. We have though unfortunately
had to make use of the various furlough
arrangements provided by various
governments during March and April 2020
while continuing our efforts to secureclients consents to move project teams
to work from home arrangements. We
have established a $500,000 hardshipfund to support those on furlough who areexperiencing particular financial constraints.

COVID-19
Trading in 2020 started in line with
our expectations, with only minimal
impact from COVID-19 due principallyto the short-term disruption in Chinathat affected our five studios there.
These operations have now returned
to near full production, following thereturn to work after the government
mandated shutdowns and our subsequent
implementation of social distancing andrigorous hygiene regimes in the studios, aswell as some work from home measures.
However, since then, severe restrictions
have been put in place elsewhererequiring most of our studios to be
temporarily closed. Our first priority
during this period has been the wellbeingof our people and we are following thehealth and safety recommendations of
the local and national authorities in the 21
countries in which we have operations.
As a business with robust operations andan inbuilt culture of flexibility and a “cando” attitude, all 59 studios have reacted
extremely quickly supported by our global
and regional HR and IT teams to moveover 5,500 of our people to work fromhome arrangements. Whilst this resulted
in some short-term disruption, we arepleased with how quickly our teams aresettling into these new patterns of work.
In consultation with our clients, we arecontinuing to make preparations tomove more of our production staff tothis model, particularly in testing where
we are working closely with our clientswith the aim of increasing the numbers oftesters we can deploy in work from homearrangements.

Governance

Financial statements

We are seeing an increase in the demandfor certain services, as existing and newclients look to us for support during thischallenging time and as they look toenhance the resilience of their production
arrangements. We are making efforts tosatisfy their requests subject to our own
near-term resource constraints, as weprioritise the wellbeing of our people, albeit
it does look likely that demand will outstrip
our ability to fulfill it in the near-term.
It is very difficult to predict how longthe studio closures will be in place andwhilst we do expect some disruption
to the provision of our services due tothe COVID-19 pandemic, we are doing allthat we can to mitigate the short-term
disruptions to production. We anticipate
the underlying drivers of growth acrossthe video games market to remain
intact, and we hope to benefit from pent
up demand from our clients once ouroperating environment normalizes.

Medium term outlook
Beyond the immediate disruption caused
by COVID-19, we expect strong demandfor our services to result from thelaunch of a new generation of games
consoles, the further development of
new streaming platforms, and content
demands for virtual and augmented
reality, in addition to the underlying
drivers of growth across the video
games market.
Our investment in expanding anddiversifying the business, improving
our technology, strengthening ourmanagement team, and extending ourfunctional support, has positioned us
as the provider of choice.
This investment will enable us to continue
to deliver high levels of growth in themedium term, in a market that was
already seeing an accelerating trend

Supplementary information

Scale
We are developing a platform of scale, enabling us
to become the ‘go to’ provider of services to thevideo games market.
Our aim is to become the ‘go to’ provider
This means being the first company our customers think of when they
think about their external outsourced game development needs. For thisto happen, we need both size and scale and to be known as the industry
experts. Scale brings not only efficiencies but also creates significant barriers
to entry for would-be competitors, all of which contributes to becoming theprovider of choice which in turn accelerates growth.
Another key element is the reputation we have earned across many partsof the industry for reliability, flexibility and trust. This is what will keep
customers coming back and remove risk for others who are considering
working with us.

towards outsourcing and could see aneven greater shift to outsourcing in
response to the COVID-19 outbreak,as clients seek to enhance the resilienceof their production arrangements for thelong term.
Whilst that investment held back margins
in 2019 and the COVID-19 disruption willplace further pressure on margins in
2020, we expect to see margins increase
incrementally towards our historic norms
as we leverage the investments over a
growing revenue base in 2021.
Our recently enlarged banking facility
provides the Group with the balance
sheet strength to meet its short-term
liquidity needs and over medium term
capitalise on our clear opportunity totake a leading share of the increasingly
outsourced video games services market
both organically and via acquisitions, as
we further enhance shareholder value.

We continue to maintain and build upon
our strong pipeline of acquisitions with
the intent of executing on selected
opportunities as the market normalises
again post COVID-19. We anticipate
that the current crisis may give rise tofurther acquisition opportunities which,as the market leader, we will be wellplaced to execute.
Thanks to the robustness of the Group’smodel, the growth characteristics of ourend markets and the strength of ourmarket position, the Board is confidentof being well positioned for growth andthe long-term success of the business.

Andrew Day
Group Chief Executive Officer
16 April 2020"	2019 was a year of strong growth as we continued tobuild our platform to become the ‘go to’ service provider
to the video games industry which, in turn, enabled us
to take advantage of the accelerating trend towards
external development in the industry."

15

16

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019Market outlook

Video games
market showsno signsof slowing

A large and growing industry

An appealing market opportunity

Momentum in the video games market shows no signs ofslowing, remaining a core element of the entertainment industry.
Content revenues in the global games market grew by 7.2% toreach $148.8bn in 2019 and are forecast to increase to $189.6bn
in 2022, a CAGR of 8.1%. (Source: NewZoo Global Games Market,
for the period 2018-22).

Much of the video games industry still remains verticallyintegrated. But as the market continues to grow and becomes
ever more complex, games publishers and developers are
increasingly seeking to avoid expanding their own teams for
relatively short term projects. The video games publishingcycles are inherently lumpy, requiring significant resources todeliver complex projects on a tight timeline. This is resulting in atrend towards increasing outsourcing at a more strategic level
which benefits Keywords as the market’s only major provider ofscale. This includes a growing demand for co-development andfull game development services, and we are investing to matchthat demand and continue to increase our market share.

All indications are that game publishers will continue to makemore games in the future, with ever more sophisticated content,
published across more platforms and with an increasing needto continuously add content to the games post launch.

Segment breakdown of global game revenues toward 2022
2018

23%

2019

24%

2022

20%

46%

30%

$138.7bn
46%

30%
31%

$148.8bn

PC
49%$189.6bn

ConsoleMobileGovernance

Financial statements

Supplementary information$6bn+

addressable market forvideo games services

Key trends in 2020
Next generation consoles
2020 is set to be a landmark year for console gaming with both
PlayStation (PS5) and Xbox (Series X) having announced theirnext generation consoles, scheduled for launch in Q4 2020. With
backward compatibility a feature of both systems, this console
transition is expected to be the smoothest yet. Unlike in the lasttransition seven years ago, in which the market was surprised
at how quickly platform holders and publishers shifted fromcontent for the previous platforms to new content for thecurrent generation, this time, a lot of games are running as aservice and are expected to continue to be supported on theexisting consoles.

Games as a service
Part of the smoothness of the generation transition will bethanks to the trend to the ‘games as a service’ model. We
anticipate game publishers will want to continue to support
existing content that is commercially successful while
simultaneously producing new content that takes advantageof the power and features of the new consoles. Outsourcing thelive operations for both platforms, including the introduction of
new features, new characters, producing marketing materials,
plus further localization and testing will bring opportunities for
Keywords, and we anticipate this doubling up will create added
demand for our services.

Wider adoption of streaming
and subscription platforms
The video games service provider market remains
highly fragmented, yet it is only when a service
provider has sufficient scale that it is able to more
efficiently utilise its resources, without significant
downtime between projects and have the resourcing
flexibility to meet the customers' needs on a timely
basis. As the only service provider of scale, in this $6bn
plus addressable market (see page 13), Keywords is
uniquely placed to support our customers' needs. Thisis part of the attraction for acquisition targets, whowant to be part of a larger group with access to a wider
customer base and service offering. It also means weare increasingly benefitting from our scale relative tocompetitors, as we further consolidate our market, andcan respond flexibly to increasingly large scale projects
from our customers.

“Keywords is uniquely placed tosupport our customers' needs.”

In addition to traditional consoles due for release in late 2020, thelaunch of Google Stadia and Apple Arcade in late 2019 and theanticipated launch of Microsoft’s xCloud in 2020 represent exciting
steps to make gaming more readily available and accessible to awide spectrum of gamers. Presently, gaming can be costly for theuser, with the requirement for high end gaming PCs, expensive
consoles and high end smartphones limiting the access to anduptake of some games. Streaming and subscription services
have the potential to provide highly cost-effective distributionof content, making it available to more players, on more devices,in more countries, and in more languages.
More than ever, video game technologies are also being used inother markets including e-learning, film and TV, simulation ande-retail, as content providers continue to seek ways to maketheir content more interactive and thereby more impactful andengaging. Interactive content of whatever type requires thesorts of skills and knowhow that Keywords has mastered in
the most interactive of all content markets – video games.

17

18

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Business model

Creating value and growththrough operational efficiency
The video games industry represents the pinnacle of interactive digital content.
At Keywords, we are using our passion for games, technology and media tocreate a global, integrated services platform of scale for video games and beyond.

Key strengths

What we do

Global presence

Keywords’ presence in each stage of the games development
cycle creates multiple opportunities for cross delivery andrevenue growth.

Provides access to the best talent and enables us
to deliver projects across studios in multiple timezones, allowing seamless 24-hour turnarounds
whilst remaining close to our customers.

Flexible resource model
Particularly true of our testing business, this allows
us to scale up or down to meet demand, mirroring
the seasonality of games production.

1

Knowledge and expertise
Our talented people have deep games-specificknowledge and experience, enabling them to add
value to our customers’ games at all stages in thedevelopment lifecycle.

Reputation for quality

Pre-production

2

Concept art

Early stage gamedevelopment

Level design

Co-development

Game design

Programming

At the heart of our culture is our commitment
to quality, reliability and integrating with ourcustomers’ processes, promoting long-term
customer relationships.

Art production

Financial strength

Engineering

Our strong financial performance and position
gives our customers reassurance of resilience intheir supply chain, and is part of our attraction tobusinesses we acquire.

Development quality
assurance

Cinematics/visual effects
Audio production
Original language
voice production

Game demo trailers
Music scoring
Sound design

Acquisition track record

Story writing

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

Motion capture

Governance

Financial statements

Supplementary information

Our business model is supported by our strategic pillars:
Building ourplatform

Selective acquisitions
and integration

Organic growthand cross selling Services offered by Keywords Services added by Keywords in 2018-2019 Services not currently offered by Keywords

3

4

Later stage gamedevelopment

LaunchFunctional testing
Text localization

5

6

Certification testing

Ongoing live
operations support

New content
for games

Official game trailers

Customer support

Game extensions

Soundtrack publishing

Community management

Level expansions

Audio localization

Marketing services

Data analytics

Art

Localization testing

Customer acquisition

Payments processing

Audio

Player research

MerchandisingGame analytics

Testing

Game porting

Social integration

Localization

Music branding
and strategy

Customer retention

Marketing

Promotions management

Issue patches

19

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Business model
continued

How we are different

Acquisition
track record
Strong and disciplined trackrecord in identifying acquisitions
with a good cultural fit

Scale

Technology

Large customers need large
reliable suppliers

Necessity of regular investment
in technology and security makes
it difficult for smaller suppliers tocompeteEstablished and effective
integration processes

Importance of resilience andsecurity through robust IT
infrastructure

Organic growthdemonstrates success

Reputation for delivery
evidenced by long-term
customer relationships

Access to the besttalent worldwide

Knowledgelabd e leltpu
Re r qufo

Commitment to quality
embedded in our culture

Global presence

Barriers
to entryata l io n
it yReputation
for qualityhn

G l ob alp r e s enc eAcqut ra irecoAttractive stability forbusinesses we acquirerdyStrong performancereassures customers

Te
c

og

Financial strength

S c ale

ol

n
tio
si k
c

F inancia l
st r engt h

20

Sc

a

Ability to deliver
projects across studios
in multiple time zones
Close proximity to
our customers

o
m

and
expertise

Knowledge
and expertise
Talented and passionate people
Deep games-specific knowledge
and experience
Value-adding expertise

Scalable model
Capable of scaling up or down
to meet demands
Mirror seasonality of games
production
Flexible resourcing
to match client needs

Governance

Financial statements

Supplementary information

Creating value for our stakeholders
By working as their external development partner, we enableleading content creators and publishers to leverage ourexpertise and capacity across the lifecycle of interactive content.
In so doing we enable our customers who are operating incomplex and fast-moving environments to remain lean andagile, and to focus on creating and monetising the mostengaging experiences.
We are trusted and relied upon by most 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.
Keywords’ presence in each stage of the games development
cycle creates multiple opportunities for cross selling andrevenue growth.

Investors
Consistent track record of delivering earnings and dividend
growth.
Opportunity to invest in the exciting video games market,
without the risk of exposure to the successes or failures ofindividual game titles.
Proven disciplined M&A track record to consolidate a fragmented
global supplier base.
Access to a structural revenue growth opportunity driven byindustry growth and a trend towards outsourcing.

Customers
Our involvement across the video games cycle means that wecan be a “one-stop-shop” for our global customers, meeting
their requirements with a combination of on-demand anddedicated services facilitated through a wide geographic
reach to talent and a flexible resource model. This allows ourcustomers to outsource most aspects of game development,
enabling our customers to reduce the number of permanent
staff that would otherwise be required to cater for peak activity,
thereby converting fixed to variable costs and minimising theiroverall operating costs.

Employees
Keywords provides employees with an excellent and sustainablevariety of work, good career advancement opportunities and,increasingly, opportunities to work in many different locations.
Our customers can access a world class talent base without
incurring any of the usual fixed costs.

*	Before acquisition and integration expenses, share option charges,
amortisation of intangibles, and foreign currency effects.

470%

Increase in Adjusted
EPS since 2014*108

Customers using
3 or more services(up from 30 in 2014)

7,424
Average numberof employees(up from 978 in 2014)

21

22

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Our strategy

To become the ‘go to’ technical andcreative services provider for thevideo games industry and beyond
The key pillars of our strategy are to groworganically and by acquisition to extend
the Group's service capacity, capabilities
and geographical reach in order to better
serve our client base across all platforms,
key geographies and languages, witha full range of services and solutions.
Positioning the Group as the provider ofscale in an otherwise highly fragmented
service provision market, despite theglobal scale and nature of the major video
games publishers and developers, will
enable us to continue to take advantageof the trend towards greater externalisingof development and support services ascustomers seek to manage the demands
for increasingly frequent andsophisticated content in a cost effective
manner. By investing in expanding
capacity and across our multi-service

global platform, we are increasingly
becoming a strategically importantpartner to our customers who requirea service provider of our scale andflexibility.
As we develop positions of scale within
our chosen markets, our focus moves to
new areas where we see opportunities
to expand through a mixture of organic
and acquisitive growth.

Strategic pillars

Progress in 2019

Building our platform• Continued to enhance our marketing services capabilities (first entered in 2018) with 2
acquisitions during the year; building on the first two we acquired in this space in 2018.
• Extended our geographical footprint by acquiring our first studio in Berlin, another key hubthat further builds out our global platform.
• Added 1,400+ work stations to support the strong levels of organic growth and become the‘go to’ service provider in each service line.
• Enhanced and grew our capabilities in new and existing regions with facilities opened inMontreal, Mexico City, Katowice, Manila, Tokyo and Leamington Spa.
• Renamed our Game Development service line (previously Engineering) to more accuratelyreflect the range of services from full game development to software engineering consultancy.

Selective acquisitions
and integration• Completed 8 acquisitions during the year which added to our existing scale and capabilities inaudio, game development, marketing and localization services.
• Kantan – acquired a leading machine translation business adding to our range of technology
used across the Group.
• Increased our presence in North America with selective acquisitions in Montreal and Vancouver.
• These acquisitions are being integrated within the service lines as well as within the country
and regional management structures and our global finance, accounting, HR and IT functions.
• Made good progress with integrating prior period acquisitions, which are making good
contributions to the Group.

Organic growth and cross selling• Organic Revenue grew by 15.5% in 2019.
• Organic growth in 2019 was a defining feature as we grew in all of our key regions and isreflective of our success in executing and integrating acquisitions.
• Continued to expand our client relationships by making good progress with cross selling
our services reflecting an increase in customers buying 3 or more services from 99 to 108.

Governance

Financial statements

Supplementary information

Some of the Sperasoft team taking
part in their annual art day event.

Priorities in 2020

Measures of our success• In 2020, we will continue to build our platform so we are increasingly astrategically important partner to our customers.

7• Marketing services was first launched in 2018. There are further acquisition
opportunities to widen the range of services we can offer and expand thegeographies we can cover.
• Our fast growing Game Development business has benefitted frominvestments in acquisitions and organic openings of new studios, and wehope to be able to make further acquisitions in the space as we build ourGame Development business into the provider of choice.

service lines, up
from two in 2009,four in 2013 andsix in 2016.

• As we extend our capacity, our investment in new workstations enables us
to take advantage of higher levels of activity in a more cost-efficient manner.
2020 will also see continued investment as we develop our platform to service
our clients' projects across our expanding multi-service global platform.
• The Group’s acquisition programme continues to be an important strategicpillar and we anticipate that 2020 will again contain a number of acquisitions.
• Our service lines are ever developing, and there are gaps in most of them.
We will continue to make selective acquisitions that further enhance andextend each service's capabilities in 2020, particularly in Marketing services
and Game Development.

4–10

acquisitions per
year. Between€30m to €80m
invested.

• Keywords will continue to develop and invest in technologies that support
the services we provide to game developers and game publishers.

4

continents inwhich we haveoperations. We
now have 45%
of our people inNorth America andSouth America,
23% in Europe
and 32% in Asia.

8acquisitionsin 2019. All are
successfully being
integrated into ourplatform.

1of our service
lines, Functional
Testing, has become
the supplier of choicein North America.

44

acquisitions
since IPO.

• Following considerable success expanding in to the key global video games
markets, geographical expansion remains a lower priority driver in 2020 as we
continue our focus on enhancing our capabilities in regions where we alreadyhave a presence.
• Organic growth remains our priority in 2020. Following the growth we saw
in 2019 and our work on building out our platform, we will invest in this asa key priority.
• Cross-selling within our services is vital and we have continued to see
noticeable growth in the number of customers that are benefiting fromthe use of three or more of our services, a key reflection of our “relevance”
to customers.

16%

increase in overallcustomer numbers
in 2019 to 978, up
from 846 in 2018.

108

customers using
three or more
service lines. Up
9% from 2018.

1,400+

work stations
added in 2019 tosupport our growthand growing needfor scale.

23

24

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Service line review

All our service lines continued to grow in 2019, whilst we also continued tomake good progress with cross-selling our services, with a 9.1% increase in
the number of customers buying three or more services to 108 (2018: 99).
The following table provides a summary of our revenues by service line, their growth rates on a reported basis and Organic
Revenue** growth. We have also presented pro forma revenues by service line, which includes the annualised revenue of all
acquisitions made in the year, to provide a better overview of the size and balance of the business at the end of the year, together
with the average number of operational staff in each service line, excluding managerial and support staff. The service line
commentary which follows reports on the statutory reported revenues unless otherwise stated.

% of 2019
Group revenue

2019
Revenue€m

2018*
Revenue€mChange from
2018
%

2019
Organic Revenue**
growth%2019
Pro forma
Revenue**€m

2019 Average
number ofoperational staff
by service line

Art CreationGame Development
Audio
Functional Testing
Localization

13.3%
20.3%
12.4%
21.1%
14.9%

43.6
66.3
40.5
68.9
48.5

34.0
35.2
34.2
47.8
44.0

28.2%
88.4%
18.4%
44.1%
10.2%

6.7%
36.4%
2.3%
37.0%
7.5%

46.1
67.0
43.7
68.9
49.2

1,194
792
220
2,316
381

Localization Testing
Player Support

6.9%
11.1%

22.6
36.1

19.7
35.9

14.7%
0.6%

11.2%
(4.7%)

22.6
36.1

532
1,343

100.0%

326.5

250.8

30.2%

15.5%

333.6

Revenue

Total*	The prior year comparatives for Art Creation, Game Development and Functional Testing have been restated, primarily to reflect the reclassification ofcertain Sperasoft services, in order to provide a more meaningful comparison with the 2019 presentation.
**	The Group reports certain Alternative performance measures (APMs) which management believes provide valuable additional information for the users of
the financial information to understand the underlying trading performance of the business. For full definitions and explanations of these measures and areconciliation to the most directly referenceable IFRS line item, please see pages 135 to 143.

Art Creation (13.3% of Group revenues for the year)
Our Art Creation service line creates graphical art assets forvideo games including concept art creation, 2D and 3D art asset
production and animation. Also included under Art Creation is themarketing services business we are building through acquisitions,and the subsequent organic growth of Fire Without Smoke, The
TrailerFarm, Sunny Side Up and most recently, Ichi Worldwide.

2019 performance
Art Creation revenues grew by 28.2% to €43.6m in the year
ended 31 December 2019 (2018: €34.0m) with the benefit of fullyear contributions from 2018 acquisitions Fire Without Smoke
and The TrailerFarm, and contributions from 2019 acquisitions,
Sunny Side Up, whilst Ichi was acquired at the very end of
2019. Organic Revenue, which excludes the impact of currency
movements and acquisitions, grew by 6.7% for Art Creation.
During the year, we employed an average of 1,194 production
based people in Art Creation (2018: 1,038) whose services
are primarily delivered by full-time permanent employees,
particularly in our bigger operations in China and India,
complemented by a small number of freelancers, particularly in
our North American operations, which provides some additional
flexibility in matching resources with demand. These freelance
resources are not included in our employment numbers.

COVID-19 update and mitigation measures
In the current year, our five Chinese art studios were the first to
be impacted by COVID-19 as government-mandated shutdowns

were imposed following the Lunar New Year holiday. During that
period, our businesses implemented work from home measures
wherever that was possible. Since re-opening the studios, wehave implemented social distancing measures, increasing thespace available per person through shift working and rigorous
hygiene regimes combined. Our China businesses have beenback to close to near full production since the end of February
and employees previously working from home have beenreturning to in-studio work.
More recently, our art and marketing studios in North
America, Europe and India have all implemented work fromhome operations.

The market opportunity and medium term outlook
Art Creation operates in a market we estimate to be valued at wellover $1bn, with just c.50% of these services currently outsourced
to a highly fragmented base of over 100 service providers.
We have yet to quantify the opportunity for the Marketing
services business but it is clearly very large and highly
fragmented given the range of services provided both internallyand externally which includes key art, trailer creation, advertising,PR, branding, campaign management, influencer marketing andmanagement, marketing analytics, and community management.
We expect to continue to add to our Marketing services activities
with further acquisitions with the intention of reporting thisbusiness separately when it achieves scale through continued
organic growth and acquisition.

Governance

Financial statements

Supplementary informationGame Development(20.3% of Group revenue for the year)

Audio(12.4% of Group revenue for the year)

Formerly called Engineering, our Game Development service line
provides external development services to game developers andpublishers including full game development, co-development,
porting and general software engineering consultancy.

Our Audio service line provides multi language voice-over,original language voice recording, music, sound design,accessibility and related services.

2019 performance

Audio revenues rose by 18.4% in the period to €40.5m (2018:€34.2m), with the benefit of full year contributions from the2018 acquisitions of Cord, Laced, Blindlight and Maximal andcontributions from Descriptive Video Works and TV+SYNCHRON
in 2019, whilst Syllabes was acquired at the very end of 2019.
Organic Revenue, which excludes the impact of currency
movements and acquisitions, increased by 2.3% compared
to 2018.

Now our second largest service line, Game Development
increased revenues by 88.4% to €66.3m (2018: €35.2m).
This increase reflected full year contributions from our 2018acquisitions, Snowed In, Studio Gobo and Electric Square, andthe benefit of the acquisition of Wizcorp in April 2019. Organic
Revenue, which excludes the impact of currency movements andacquisitions, increased very strongly for Game Development, up
36.4% compared to 2018.
During the year we grew the number of people in our Game
Development service line by over 80% to c. 900 at the end of
the year, employing an average of 792 production focused
people in 2019 (2018: 494).

COVID-19 update and mitigation measures
All of our Game Development studios are working from homein response to the pandemic. This is allowing us to continue toservice our customer needs through the COVID-19 disruption
and while demand remains high, we are likely to be constrainedby a reduced ability to recruit.

The market opportunity and medium term outlook
Game Development is our largest addressable market, which weestimate to be valued at well in excess of $3bn, with just c.20%
of game development services across the industry currently
outsourced, meaning it has the lowest proportion of services
outsourced of all of the Group’s service market segments.
Service provision is also highly fragmented, with well over 50
service providers addressing this segment.
We made our final delivery under an underperforming fixed pricecontract in December 2019. Without this drag factor, and with thebenefit of the new studios in Leamington Spa, UK, in Singapore
and in Austin, Texas (all of which we have opened in the last 4months), we are well placed to meet the continued demand forour services, subject to any further COVID-19 related impacts.

2019 performance

Our audio services businesses are primarily aligned with therelease of AAA video games. 2019 was a relatively light year forthese games and this, coupled with the effect of the transition
to new Xbox and PlayStation consoles in 2020, meant somedevelopers and publishers reconsidered their release plans
which held back our growth.
During the year we grew the average number of service delivery
staff in our Audio Services business by 18.9% to 220 (2018: 185).
We were delighted that our relatively new audio production
facility in London’s Covent Garden, Liquid Violet, and our
Burbank, Los Angeles voice production facility were granted
Netflix preferred vendor status in 2019 alongside that of
Vancouver based Descriptive Video Works.

COVID-19 update and mitigation measures
We are experiencing some short-term disruption as a result of
the temporary closure of most of our recording studio facilities
in response to local government isolation measures. We are in
the process of implementing remote recording capabilities toallow some limited voice-over recording from actors’ homes.
Our current expectation is that this will reduce our recording
capability in the short-term, but we would hope that higher
levels of utilisation within those studios as we catch up withdelayed productions, will enable us to offset some of the impactof the delays.

The market opportunity and medium term outlook
We estimate the market for video games’ audio localization
services alone to be valued at c. $150m and to be approximately
90% outsourced. However, service provision in this segment
remains highly fragmented, with over 50 service providers, so
we expect to be able to continue to grow our market share aswell as make acquisitions over time. We have not yet sized themarket for the original language recording, music and soundeffects/design segments.
Assuming the environment becomes more normalised following
near-term COVID-19 disruption, our Audio service line should
benefit from a better second half of 2020 for AAA gamereleases, to coincide with the anticipated new console launchesfrom Microsoft and Sony.

25

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Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Service line review
continued

Functional Testing(21.1% of Group revenue for the year)

Localization(14.9% of Group revenue for the year)

In 2019, Functional Testing grew to become our largest service
line and provides quality assurance including the discovery
and documentation of game defects; testing to ensure
games are compatible with the various hardware devices andconfigurations they are played on; and testing to verify thatgames comply with console manufacturers’ specifications.

Our Localization service line provides translation of in-game
text, audio scripts, cultural and local adaptation, packaging
and marketing materials. We have also recently added neuralmachine translation technology and a global crowd sourcing
translation platform, through the acquisition of Kantan.

2019 performance

Despite making up for the annualised effect of certain former
customers entering insolvency processes in 2018, primarily due
to the ‘Fortnite effect’, Localization revenues grew by 10.2% to€48.5m (2018: €44.0m). Organic Revenue, which excludes theimpact of currency movements and acquisitions, has grownby 7.5% as this service line continues to benefit from the trend
towards continuous content generation for games in live
operation, albeit it was held back in 2019 in the lead up to thetransition to new consoles, as in the case of Audio Services.

Functional Testing revenues increased by 44.1% to €68.9m(2018: €47.8m). Organic Revenue, which excludes the impactof currency movements and acquisitions, increased by 37.0%.
This growth followed the consolidation we effected with theacquisition of VMC in late 2017, and the subsequent integration
efforts and investments made in 2018 through to 2019, as ourFunctional Testing operations reached the scale necessary to
become the 'go to' provider in North America.
During the year, the average number of production staff inFunctional Testing was 2,316 (2018: 1,170), many of which are
flexibly resourced positions to enable us to scale up and downwith the demands of the projects.

COVID-19 update and mitigation measures
Functional Testing has largely depended on being able toconduct its work from secure facilities, and as such, our testing
operations are most at risk from the shutdowns imposed by
local authorities. We have so far moved over 1,500 people towork from home arrangements and are continuing to consult
on a client by client basis to move to a working from homemodel allowing us to maintain testing for these remaining clients
through the crisis. This is resulting in some delays to certain
projects and, where appropriate, staff have been moved on to
government supported furlough arrangements until agreements
can be reached with our clients.

The market opportunity and medium term outlook
The addressable market for Functional Testing is estimatedby us to be valued at over $800m, with just c.40% of services
currently outsourced. Whilst this is a less fragmented market,
with approximately 10 or more service providers, we are aleading player in this segment for which the scale and flexibilityof a larger player is important to customers. The market
continues to grow as games companies become ever more
focussed on the quality of the increasing volumes of content
in their games.
Beyond the potential near-term disruption described above,
we expect Functional Testing to continue to grow strongly as
it benefits from the trend to outsourcing in the industry and tosee some operational leverage from the investments in growth
made in 2019.

2019 performance

Our Localization business makes effective use of a largepool of freelance translators built up and nurtured overmany years while maintaining a permanent production base,with an average of 381 operational staff during the year(2018: 334) which includes new and expanded teams dedicatedto certain customers.

COVID-19 update and mitigation measures
All project management and support staff are now working
from home as are our in-house language leads, localisationengineers and client dedicated teams. With the majority of our
Localization service already managed through a global networkof freelancers working from home this service line was quick tomigrate to a full work from home model and no material impact
on delivery capabilities is currently expected.

The market opportunity and medium term outlook
We estimate that the market for localization for video games isvalued at c.$200m, of which c.85% is currently outsourced butthat service provision remains highly fragmented, with over
50 providers most of which are single language providers anddon’t have the scale to deliver simultaneous multi-jurisdictional
localization projects for our global video games customer base.
We expect Localization to continue to build on its leading
market position as it increasingly differentiates itself by
combining proprietary software tools like XLoc, and recently
acquired AI and Machine Learning technology from Kantan, withits market leading expertise in games localization built up overthe past 20 years.

Governance

Financial statements

Supplementary information

Localization Testing(6.9% of Group revenue for the year)

Player Support(11.1% of Group revenue for the year)

Our Localization Testing service line identifies out of context
translations, truncations, overlaps, spelling, grammar, agerating and cultural issues and tests for console manufacturer
compliance requirements in over 30 languages using
native speakers.

Our Player Support service line provides multi-lingual, costeffective and flexible customer care services including managing
communities of gamers across all forms of social media, within
the games themselves and on the official game forums.

2019 performance

As previously stated, Player Support has been consolidating
the extremely strong growth of 2018 when it grew more than
threefold, by investing in management talent and expandedfacilities as its revenue increased marginally to €36.1m (2018:€35.9m). Organic revenues, which are on a constant currency
basis, were down by 4.7% on the very strong comparative.

Although held back by the transition to the new generation of
consoles due out in late 2020 and evidenced by the light releaseof AAA games in 2019, Localization Testing revenue increasedby 14.7% to €22.6m (2018: €19.7m). On an organic basis, which
also excludes the impact of currency movements, Localization
Testing was 11.2% higher compared to 2018.
During the year in which we opened new Localization Testing
operations in Katowice, the average number of production
focused staff in Localization Testing was 532 (2018: 446), of
which many are flexibly resourced positions to enable us toscale up and down with the demands of the projects.

COVID-19 update and mitigation measures
As in the case of Functional Testing, Localization Testing largely
depends on staff being able to conduct their work from secure
facilities, so is more exposed to shutdowns imposed by local
authorities. We are consulting on a client by client basis to moveto a working from home model allowing us to maintain testing
through the crisis. This is resulting in some delays to certain
projects and, where supported by government initiatives, somestaff have been moved on to furlough arrangements until
agreement can be reached with our clients.

The market opportunity and medium term outlook
We estimate the video games market for localization testing to
be valued at c.$150m, which is approximately 70% outsourced.
Whilst this is a less fragmented market, with roughly 10 service
providers, we are the leading player in this segment for whichscale, breadth of languages, and the agility of a larger player iscritical to customers.
Beyond the potential near-term disruption described above, wewould expect Localization Testing to benefit from a stronger
second half for AAA game releases as a result of the anticipatednew console launches from Microsoft and Sony, and also from our
expanded operations in Katowice, Poland and Ottawa, Canada.

2019 performance

During the year, the average number of service delivery peoplein Player Support was 1,343 (2018: 1,113). Manila has grown tobe our single largest location for Player Support with our newer
locations of Katowice and Mexico City showing promise.

COVID-19 update and mitigation measures
All of our Player Support teams around the world are now
working from home as we have been able to agree to do sowith our clients over the past few weeks. This service line isbenefitting from increased video game playing since isolation
measures have been in place, with a resulting increase indemand for its support.

The market opportunity and medium term outlook
Player Support operates in a large market, of which we estimate
the value of video game support at c$1.2bn. Around 50% of thisis currently outsourced and the market has been dominated bylarge, generalist customer support providers.
We continue to aim to differentiate ourselves from these large
customer support providers through our specialist video games
expertise, extending our services to cover more ‘touch points’ ofgamer engagement, and developing our technological tools, inorder to make further progress in this market.

27

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Keywords Studios plc

Overview

Annual Report and Accounts 2019

Our people, our culture

Our people –at the core ofwhat we do
Our culture acts as the glue that binds all
Keywordians around the world together – relaxed,
professional and humble with a focus on doing
the very best we can for our clients through eachand every project they entrust us with.
At Keywords, we encourage our people to engage with each other not only
across our studios but across our regions and global network. Throughknowledge sharing and open plan offices, we encourage our colleagues
to be the very best at what they do. At the heart of our culture are ouroperating principles, the “Keywords Rule of 9”.

Keywords Rule of 9
1.	Communication – We communicate openly and in a timely fashion.
We do not hide things from colleagues or clients and we avoid
office politics.
2.	Project Focus – We focus on projects, delivering the best we can forthe benefit of each and every product we touch.
3.	Client Centricity – We act as an extension of the client’s organisation,
moulding our processes and procedures to fit their requirements
whilst sharing our knowledge of best practices.
4.	Empowerment – We empower our people to perform to the best of
their ability by providing them with the resources and environment
to do their jobs and the tools to track and measure their performance.
5.	Passion for Games – We are passionate about games and are proudof our role in helping to deploy them and we play an active role in thewider industry.
6.	Client Intimacy – We love our clients (all of them) and want the bestfor them at all times.
7.	Positivity – We have a “can do” attitude and rise to the challenge ofsolving our clients’ problems.
8.	Flexibility – We recognise the importance of flexibility and actively
embrace it despite the obvious challenges. Flexibility is why we exist
at all. Without it, clients would perform the tasks we do, themselves.
9.	Learning & Growing – We learn at every opportunity and growourselves through experience, training and tackling new challenges.

Strategic reportGovernance

Financial statements

Supplementary information

29

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Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Our people, our culture
continued

Our people
At Keywords, an average of 7,424 fulltime equivalent employees make up
our international, highly diverse andmulticultural team and we are wellbalanced across our three regions; 3,322
in North and South America, 1,733 in
Europe and 2,369 in Asia. The number
and diversity of people and skills in our
workforce allows us to be well placed to
deploy these skills across the industry
to meet all of our customers’ needs.
We are constantly striving to provide
great working environments for all ourcolleagues around the world. This can beseen in the central locations of our studios.
Rather than seek out low cost locations
and facilities, we feel the benefits of being
able to attract the best talent in the mostscalable manner outweigh any savings
from lower costs of occupation.
Our continued growth and reputation
for consistently delivering good quality
service, on highly agile engagements, todemanding deadlines, is testament to
the Keywords culture, and the skills andcommitment of our talented and gamespassionate employees and collaborators.

We are proud of the passion, commitment
and professionalism of this invaluable
resource of over 7,400 Keywordians
which means there is a contribution from
Keywords to most of the world's leadinggames – we would like to thank everyone
involved for their valuable contribution
to the continued success of the Group.

Our people, with their drive and talent,
make Keywords the global service
provider that it is today, and it is essential
for us that we continue to support ourunique and diverse culture, which includes
welcoming new faces and ensuring they
feel just as supported and welcomed as
their more established colleagues.

Joining the Keywords family

Supporting our communities

We are a highly acquisitive businessand have some very strict criteria forour acquisition targets, by far the mostimportant being cultural fit. Typically, if wethink that there is a cultural misalignment
then we won’t even open the dialogue
with the company. Once we set our sights
on an acquisition there is a processthat we follow during the due diligencephase and after closing the acquisition
to ensure the seamless integration of
the new studio and most importantly
the new colleagues to ensure that,from day one, they feel like part of the
Keywords family, while, at the same time,
appreciating the history and richness thatthe new company brings. A mark of ourintegration success is that over half oursenior executive team joined us throughacquired companies.

Together with our studios across 21
countries, we place the support ofour local communities, including our
employees, at the heart of what we
do. Throughout 2019, Keywordians
have raised funds of over €29,000 andsupported various community andemployee needs:•

Studios took part in the Extra
Life Gaming Marathon – raisingawareness and funds for Children’s
Miracle Network Hospitals in Canada.

•

In support of Montreal Children’s
Hospital, we sponsored a booth at
the Montreal 2019 Comic Con,featuring a gaming competition in
exchange for a small donation to
the hospital.

up to€100,000
per year to match funds raisedfor community outreach andcharitable initiatives so that we
can continue to support our
local communities.

Electric Square raised money fora local charity (Pedal People) bytaking part in the ‘Mud Monster’cross-country race.

Keywords
employees in
Manila organise a‘blood drive’ as partof World Blood DonorDay 2019.

Governance

Financial statements

100,000€

per year pledged to match
funds raised

Supplementary information

29,000€raised forcharity in 201959

studios in 21
countries

Keywords Studios staff take part in theMontreal Pride Festival celebrations.

•

•

•

•

Throughout the year, employees
in Montreal donated games andbooks to the Welcome Hall Mission,
allowing those less fortunate to enjoy
these items.
Our Montreal studio purchased 1,000
poppies from the Royal Canadian
Legion so that employees could
proudly wear these poppies andshow their support for veteranson Remembrance Day.
In India, we partnered with Feeding
India, a non-profit organisationthat works to eradicate hunger,
malnutrition and food wastage inthe country. Together, we organiseda memorable day for 250 children
from the Eklavya Trust, an NGO thatprovides education and welfare forthe under-privileged in Gurgaon,
New Delhi. The children were served
lunch and enjoyed gifts and goodie
bags throughout.
Also in India, Keywordians took partin the Be a Super Hero – Save a Life!
campaign with Datri, a non-profit
organisation working towards saving
lives by encouraging people tobecome stem cell donors. More than
250 employees attended the session
and 50 enrolled for stem cell donation,
becoming active partners of this lifesaving initiative.

••

Studios in Japan supported Second
Harvest, an organisation dedicated tohelping welfare agencies. We placed
non-perishable food collection boxes
across the studios to help support
this cause through donations.
In the UK, studios recently organiseda Wellbeing Week for their teams.
During the week, awareness aroundvarious aspects of health and welfare,including activities related to social,physical, emotional, financial, healthand nutrition were promoted andconversations on these topics wereencouraged. As part of this, external
speakers delivered presentations,educational workshops were madeavailable, and there were motivationaltalks too.

In 2020, we want to do more to support
good causes across the communities
that we are a part of. With this in mind,
Keywords has pledged up to €100,000 per
year to match funds raised for community
outreach and charitable initiatives sothat we can continue to support our local
communities.

Sustainable studios
Sustainability is a core focus for
Keywords; as it is for all of our studios
across in all our territories. In 2019, we
piloted a programme for one of ourstudios to become Carbon Balanced, withgreat success. Electric Square, a studio
based in Brighton in the UK , achieved an
official Carbon Balanced certification for2019 after it offset its footprint througha local, Brighton based organisation,
C-Level. Working with C-Level and its
holistic approach, the studio supported
projects that aim to bring businesses andforest people together on climate change.
In working together with C-Level, Electric
Square supported two projects to balanceits carbon footprint:•

Plan Vivo’s Communitree project inNicaragua – one of the world’s leading
community reforestation projects and;•The Hadza hunter gatherers in
Tanzania – a project that won the UN’s
Equator Award in 2019.

Following this successful pilot,
Keywordians at Electric Square now plan
to work towards becoming ‘Certified B’, acertificate that celebrates a company forleading the way in building a sustainable
and inclusive economy that works foreveryone. B Corporations are classified
as innovative, inspiring and changing
the world.

31

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Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Our people, our culture
continued

In parallel with Electric Square’s work, weare delighted to announce that Keywords
Studios Spain completed its first year as agreen energy only organisation last year;
a huge milestone for our team in Europe.
In Montreal, we formed a Green Committee
for Keywordians to research the bestpractices for energy usage, cutlery
options, and training and policy additions
to make our studios more sustainable.
As part of this, the Committee is looking
at how best to recycle our surplus andredundant IT equipment in Canada andthe United States.
In India, Lakshya celebrated its 15th
anniversary by holding a tree planting
drive. Employees chose and paid for morethan 500 plants, with a focus on saplings,
which were in turn planted in the local
area. All the proceeds from this “Go Green
Initiative” were donated to a charity that
feeds the disadvantaged in the region.
Our studio in Florida, GameSim, is also
focused on being more environmentallyconscious. The studio provides its people
with compostable and eco-friendly plates
and utensils, as well as glass coffee mugs
for easy re-use. They keep the lights
turned off on one side of the office as away to conserve energy as well as to offer
varied lighting options for employees
who prefer the dim light. When hardware
becomes non-operational, they ensure it
is recycled and when furniture is no longer
needed, it is donated to Goodwill or
The Salvation Army.

In Japan, employees across several
studios placed a strong emphasis on
recycling and the environment. To
encourage this, descriptive posters
were hung on the walls and containers
were provided throughout the studio tomake it easier to separate garbage frombiodegradable material. On top of this, airconditioning has not been used wastefully
and the lights have been turned off
at night. To save on paper waste, thestudios reuse the backs of un-needed
printed paper. Studios have also teamed
up to launch an environmental quiz for
all Keywordians, testing their knowledge
and offering insights on how to improvepractices. The first 100 employees toscore well in the quiz earned a reusable
shopping bag.
Following these successful pilots
and initiatives, we will look for otheropportunities to help balance ouremissions in 2020 and make Keywords
a sustainable business.

Encouraging excellence
At Keywords, we encourage excellence inevery aspect of what our Keywordians do.
Every year, Lakshya Studios organises
the Lakshya Art Challenge, a competition
that encourages and develops game art
talent within our business through 3D
digital game and art and thus competition.
For the first time, the entire Keywords
Art service line was invited to take part,making the 2019 challenge bigger thanCelebrating cultures70+

international holidays observed, including
National Day, Diwali, International
Women's Day, Chinese New Year,
Revolution Day, Independence Day,Day of National Unity and many more

Honouring thebackgroundsof our teams
located across
21 countries and
4 continents

ever before. Other studios that took
part included Mindwalk and Red Hot CG.
Congratulations must go to everyone
that took part but especially to Wei Sheng,
winner of the Character prize and Li Daiwei,
this year’s winner of the Props Award.

Working with our customers
We are fortunate to be able to count 23 of
the top 25 global games developers andall of the top 10 mobile games publishers
by revenue as our customers. These
companies expect the highest level ofservice and our diverse capabilities allow
us to satisfy our customers’ needs every
time. Increasingly, these customers prefer
to outsource multiple services to one
service provider, and this is where we are
uniquely positioned to meet expectations.
We offer our clients flexible, scalable
solutions that match their overallrequirements. Through our Embedded
Services team, we partner with our clientsto provide in-house solutions managed by
Keywords.
With content being produced across the
21 countries we operate in, Keywords
is often tasked with the role of content
moderation. Not all our regions want thesame content and, as such, it is our people
who tailor these different requirements
across regions so that content is culturally
appropriate for the end customer.

50+

studios
supporting
diversity andinclusion

Supporting worthy causes
Ten studios
supporting social
welfare programmes,
assisting withhomelessness,poverty, hunger
and other difficult
circumstances9studios supporting
local schools andeducation needs

8studios helping
sick and injuredkids

Governance

Financial statements

Supplementary information

Supporting communities
Keywordiansvolunteeredcountless hours
in an effort
to help ourneighbours

Uniting andinspiring,makingcommunities
stronger

Ensuring player
safety and wellbeing,
our Player Support
Agents andCommunity
Managers havereported hundredsof online threats

Raised funds
for various
communityneeds

Some of the team at
Electric Square in Brighton
pictured playing retro
Nintendo 64 games.

33

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Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

KPIs

Financial KPIs
We monitor our financial performance against a number of different
benchmarks and these are set in agreement with the Board.
Revenue growth

Organic Revenue growth

30.2%

15.5%

30.2%

36.8%

15.5%

2019

2019
65.6%

2018

Adjusted operating costs(pre IFRS 16) as a % of revenue

Gross margin

21.7%
36.8%

2019
10.1%

21.7%
2019

38.2%

20.7%

2018

2018

2018

Due to the number ofacquisitions the Group makes
and because it integrates
them quickly, this provides themost meaningful measure ofunderlying revenue growth.

The Board believes this tobe a consistent measure of
trading performance.

The Board monitors
overheads to ensure theoperating costs of the Groupare in line with the level ofbusiness being generated.

Calculated by adjusting
the prior year revenues
comparison, by adding
pre-acquisition revenues forthe corresponding period ofownership, as presented in
the current year results, andapplying consistent foreignexchange rates in both years.

Revenues from services
supplied to customers lesscost of sales, as a percentageof revenue.

Administration expenses,
before non-operating costs
including share option costs,
costs of acquisitions andintegration, amortisation,
depreciation, and includingbank charges, as a percentageof revenues.

The Group aims to achieve
like for like growth materiallyahead of market growth.

The Group aims forgross margins in linewith historic norms.

The Group will continue toseek to control these costs
closely and in line with the levelof business being generated.

Reasons for choice
Quantifies the growth inrevenue from our operations
on a reported basis.

How we calculate
Increase year on year inreported revenue.

Objectives
The Group aims for continued
revenue growth anddevelopment.

Governance

Financial statements

Adjusted EBITDA margin(pre IFRS 16)

15.2%

Adjusted operating
profit margin

Adjusted cash
conversion rate

13.2%

15.2%
2019

Supplementary information

79.0%

13.2%
2019

17.4%

Growth in adjusted EPS

7.2%
79.0%

2019
15.5%

7.2%
2019

81.9%

45.9%

2018

2018

2018

2018

Provides an indication of
how we are performing
both internally and relative
to our peers.

The Board believes this to be aconsistent measure of trading
performance, aligned with theinterests of our shareholders.

Measures operating cash
generation and our capacity
to pay dividends, service
debt and fund acquisitions.

Reports the underlying profit
growth generated on a pershare basis, demonstrating
the value being created forshareholders. Also links to
the Group’s dividend policy
and gives an indication of ourability to pay dividends fromunderlying profit.

Comprises of EBITDA(Operating profit, adjusted
for amortisation of intangible
assets, depreciation, while
deducting the share of profit
from associates and bankcharges) adjusted for shareoption expense, costs ofacquisition and integrationand non-controlling interest,
as a percentage of revenues.

Comprises Operating profit
adjusted for amortisationof intangible assets, shareoption expense and costs ofacquisition and integration,
as a percentage of revenues.

Adjusted free cash flow before
tax as a percentage of theadjusted profit before tax.
The calculation is describedin more detail on pages 139,
142 and 143.

The Adjusted profit after
tax comprises the Adjusted
profit before tax, less the Tax
expense as reported on theConsolidated statement ofcomprehensive income, further
adjusted for the tax arising on
the bridging items to Adjusted
profit before tax.

The Group aims to increase
margins through operational
efficiencies.

The Group aims for margins
in line with historic norms.

The Adjusted earnings per
share comprises the Adjusted
profit after tax over the nondiluted weighted average
number of shares as reported
in note 8.

Cash generation andworking capital management
will remain a key focus.

The Group aims for continued
growth in Adjusted earnings
per share.

35

36

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Financial and operating review

Strong organic
growth andinvestment in
the platform

Group performance2019 has seen the Group deliver another yearof significant increases in revenue driven bystrong organic growth supplemented by targeted
acquisitions which have further extended theGroup’s service offering, market penetration andgeographic reach.

Revenue
Revenue for 2019 increased by 30.2% to €326.5m(2018: €250.8m). This was driven by strong Organic
Revenue growth of 15.5% with particularly good
performances in Game Development and Functional
Testing which delivered organic growth of 36.4% and37.0% respectively and represented an accelerationof the strong growth experienced in the first half ofthe year. The organic growth was supplemented by
the full year impact of the acquisitions made in 2018
and 8 targeted acquisitions in 2019 to further build
our platform as the ‘go to’ service provider to thevideo games industry.

Gross margin
Gross profit for the year was €120.2m (2018: €95.8m)
representing an increase of 25.5%. The gross profit
margin declined by 1.4 percentage points to 36.8%(2018: 38.2%) reflecting the investments made tosupport the growth in the business, including thecosts associated with the rapid recruitment andincrease in staff training in the Functional Testing
service line. This combined with the dilutive impactof an underperforming fixed price contract which
was completed at the end of 2019 and is therefore
not expected to impact as we move into 2020. We
have also continued to invest in a number of earlystage technology businesses which are not yet
generating revenue and have therefore negatively
impacted on margins in the year.

Operating costs
Adjusted operating costs exclude depreciation,amortisation, share option expenses and one-timecosts related to acquisitions. For 2019, adjusted
operating costs increased by 20.4% to €62.6m
compared with €52.0m for 2018. On a pre IFRS
16 basis, adjusted operating costs were €70.7m,
representing 21.7% of revenue, an increaseof 1.0%pts compared to 2018 and above ourGovernance

Financial statements

medium-term target of ~20%. This was driven by investments
during the year to expand our facilities to accommodate
the strong growth as well as in our operational capability
with strengthened management, support functions andinfrastructure to support the Group’s ongoing growth.

EBITDA
Adjusted EBITDA, which adjusts for the items noted above,
increased 31.7% to €57.6m compared with €43.7m for 2018. Of
the increase, €8.1m relates to the adoption of IFRS 16. Excluding
the impact of IFRS 16, adjusted EBITDA increased 13.2% to€49.5m compared with €43.7m for 2018 resulting in a decline
in Adjusted EBITDA margin (pre IFRS 16) of 2.2%pts to 15.2%(2018: 17.4%) reflecting the reduction in gross margin and theinvestments noted above.

Net finance costs
Net finance costs increased to €4.2m compared to €0.5m in2018. €1.7m relates to net foreign exchange loss recorded within
financing cost which is described in more detail below (2018:€0.8m gain) and €0.7m of the increase represents the additional
interest recognised as a result of the adoption of IFRS 16.
Underlying interest costs (excluding IFRS 16 interest, deferredconsideration discount unwind and foreign exchange) increasedby €0.4m to €0.9m (2018: €0.5m) reflecting an increase in net
debt of €17.5m to €17.9m at the end of 2019 (2018: €0.4m).

Alternative performance measures
The group reports certain Alternative performance measures(APMs) to present the financial performance of the business
which are not GAAP measures as defined by IFRS. Management
believes these measures provide valuable additional information
for the users of the financial information to understand theunderlying trading performance of the business. In particular,
adjusted profit measures are used to provide the users of theaccounts a clear understanding of the underlying profitability ofthe business over time. A breakdown of the adjusting factors isprovided in the table below:
Years ended 31 December
2019
€m

2018
€m

Share option expense

9.8

4.1

Costs of acquisition and integration

4.3

5.3

Amortisation of intangible assets

7.3

6.9

Foreign exchange and other items

2.1

(0.5)

23.5

15.8

Supplementary information

2m options were granted under the Share Option scheme andLong Term Incentive Plan in 2019. This, together with grants
from previous years, has resulted in a non-cash share option
expense of €9.8m in 2019 (2018: €4.1m). The increase is largely
due to an increase in the fair value charge (see note 17 on pages
108 to 110) for the shares granted in May and September 2019
compared to previous years. The increase is largely due toan increase in the fair value charge (see note 17 on pages 108
to 110) for the shares granted in May and September 2019
compared to previous years.
One-off costs associated with the acquisition and integration ofbusinesses of €4.3m were incurred in the period (2018: €5.3m).
This relates to both the integration costs of acquisitions madein the prior year and the acquisition and integration costs of the
8 acquisitions made in 2019.
Amortisation of intangible assets amounting to €7.3m wasbroadly in line with 2018 (2018: €6.9m). Foreign exchange andother items amounted to a net charge of €2.1m (2018: net gainof €0.5m).
Keywords does not hedge foreign currency profit and losstranslation exposures. The effect on the Group’s results ofmovements in exchange rates and the foreign exchange gains
and losses incurred during the year mainly relate to the effectof translating net current assets held in foreign currencies.
This resulted in a net foreign exchange loss of €1.7m in 2019,
recorded within financing cost (2018: €0.8m gain).
A more detailed explanation of the measures used together
with a reconciliation to the corresponding GAAP measures isprovided in the APMs on pages 135 to 143.

Profit before taxation
Profit before tax for the year was €17.4m (2018: €22.1m).
Adjusted Profit Before Tax, which adds back acquisition andintegration expenses, share option charges, foreign currency
exchange movements and amortisation of intangibles (as noted
above) increased by 7.9% to €40.9m compared with €37.9m in2018 representing a reduction in net margin of 2.6%pts to 12.5%(2018 15.1%).

Taxation
The tax charge in the period was €7.5m including a one off €0.5m
tax charge relating to a legacy pre acquisition tax issue (2018:€7.2m). This represents a reduction in the Adjusted Effective
Tax Rate to 22.4% of Adjusted Profit Before Tax (2018: 22.8%,
as re-stated to reflect the tax impact of the bridging items to
Adjusted profit before tax).

37

38

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Financial and operating review
continued

Tax governance

IFRS 16 - Leases

The Group takes a balanced approach to the management of its
tax affairs and has a tax policy which is approved by the Board.
Our overall strategy is to meet our tax obligations and ensurethat long term shareholder returns are responsibly optimisedby structuring our business and transactions in a tax efficientmanner, taking into account reputational factors. Tax risks are
regularly reviewed by the Board and the Audit Committee. The
Group’s approach in relation to the management of tax issues is
to ensure that:

The new leasing standard, IFRS 16, has been effective from
1 January 2019 and has been adopted from that date with norestatement of prior year comparatives required. This has
resulted in a number of leases (largely property leases) thatwere previously accounted for as operating leases (expensed
as incurred) now being capitalised as Right of Use (ROU) Assets
within fixed assets and depreciated over the lease term witha corresponding lease liability and interest charge. The newstandard has not had a material impact on either Adjusted profit
before tax or the underlying net cash flows of the business, but
it has changed the presentation of the profit and loss account,the cash flow statement and the balance sheet as follows:•

We comply with all applicable laws, disclosure requirements
and regulations in the territories in which we do business;•

All tax positions adopted are adequately and fairly disclosed
in tax filings;•

We have an open and transparent working relationship with
relevant tax authorities around the world;•

Where disputes arise with tax authorities, we seek to reacha resolution as soon as possible in an open and constructive
manner;•

Where considered appropriate, the Group takes advice fromprofessional firms;•

Tax risks are appropriately managed in accordance with thetax policy; and•Our tax planning is aligned with the Group’s commercial
and business activities and the tax treatment of business
transactions is optimised.

Basic earnings per share
Basic earnings per share were down 34.2% to 15.23c (2018:23.16c) reflecting the reduction in the statutory profit after tax
and a 1.2% increase in the weighted number of shares in issue.
The denominator used for these calculations includes the shares
which will be issued for the outstanding deferred consideration
for acquisitions (see note 16 on pages 106 to 108).
Adjusted earnings per share which adjusts for certain
items, including acquisition and integration expenses, shareoption charges, foreign currency exchange gains/losses andamortisation of intangibles was 48.78c an increase of 7.2% overthe prior year (2018: 45.50c). Adjusted for the impact of IFRS
16, adjusted earnings per share was 49.44c representing an
increase of 8.7%.

Acquisitions
During the year the Group acquired 8 businesses generating
annualised revenues in the year of acquisition of €13.2m. Total
potential consideration amounted to €19.6m of which €4.0m will
be satisfied through the issue of shares. Cash spend on theseacquisitions amounted to €13.1m (net of cash acquired). As
at the end of 2019 there was €6m of deferred and contingent
consideration payable in 2020 in respect of completed
acquisitions.
Going forward we will continue to execute our targeted anddisciplined approach to M&A to build out our global services
platform to enhance further our position as the ‘go to’ provider
for development services to the video games industry.

•On transition, fixed assets increased by €23.1m;•

The operating lease charge of €8.1m has been replaced withdepreciation on the ROU assets of €7.8m and an interest
charge on the corresponding lease liability of €0.7m;•

In 2019 this has increased EBITDA by €8.1m and resulted
in a reduction in Adjusted profit before tax of €0.4m.

Cash flow and net debt
The Group generated Adjusted EBITDA of €49.5m in 2019, an
increase of €5.8m from €43.7m in 2018. This was offset by anincrease of €5.5m in the amounts due in respect of multi-media
tax credits (MMTC) and Video Games Tax Relief (VGTR). MMTC’s
that are earned in the year of production, and are collected ayear in arrears. The increase is therefore a timing difference
driven primarily by the growth in revenue in the Functional
Testing business in Canada and the Game Development
business in the UK, where the credits are earned. This waspartially offset by an improvement in Working capital and otheritems of €3.2m.
Investment in PPE amounted to €13.1m (2018: €9.4m) reflecting
the growth in the business, the expansion of facilities inMontreal, Katowice, Manila, Brighton, Tokyo, São Paulo andNew Delhi and continued investment in the IT systems andinfrastructure to support the Group platform.
Interest payments were €1.4m in the year (2018: €0.5m), whichreflected the increase in net debt and the fees associated withthe refinancing of the Group’s Revolving Credit Facility. Tax
payments amounted to €13.3m and included €2.5m in respect of
the settlement of a prior tax balance of which €2m was accruedat the end of 2018.
This resulted in Free Cash Flow of €13.7m, a reduction of €6.9m
on the prior year. Adjusted Cash conversion rate (which adjustsfor capital expenditure that is supporting growth in future
periods) was 79% (2018: 82%).
Cash spent on acquisitions totalled €27.8m including €14.7m ofdeferred consideration in respect of prior year acquisitions. In
addition, acquisition and integration costs amounted to €3.8m
and dividend payments amounted to €1.2m resulting in anunderlying increase in net debt of €18.3m (2018: €11.5m). This,
together with foreign exchange and other items, resulted in aclosing net debt of €17.9m (2018: €0.4m).

Governance

Financial statements

Supplementary information

Cashflow statement

2019
€m

2018
€m

Adjusted EBITDA pre IFRS 16*

49.5

43.7

5.8

MMTC and VGTR

(5.9)

(0.4)

(5.5)

Working capital and other items

(1.7)

(4.9)

3.2

Change€mCapex – property, plant and equipment (PPE)(13.1)

(9.4)

(3.7)

Capex – intangible assets

(0.4)

(1.6)

1.2

Operating cash flows

28.4

27.4

1.0

Interest paid

(1.4)

(0.5)

(0.9)

Free cash flow before tax

27.0

26.9

0.1

Tax

(13.3)

(6.3)

(7.0)

Free cash flow

13.7

20.6

(6.9)

M&A – acquisition spend(27.8)(26.7)(1.1)

M&A – acquisition and integration costs

(3.8)

(4.5)

0.7

Dividends paid

(1.2)

(1.1)

(0.1)

Shares issue for cash

0.8

0.2

0.6

(18.3)(11.5)(6.8)

FX and other items

Underlying increase in net debt

0.8

–

0.8

Increase in net debt

(17.5)(11.5)(6.0)

Opening net cash / (debt)

(0.4)

11.1

Closing net cash / (debt)(17.9)(0.4)*

Alternative performance measures (for full definitions and explanations, please see pages 135 to 143).

Balance sheet and liquidity
The Group funds itself primarily through cash generation and a
syndicated revolving credit facility (RCF). In October 2019, theGroup successfully agreed a new RCF provided by Barclays Bankplc, Citibank N.A., HSBC and Silicon Valley Bank, for an initial€100m, with an Accordion option to increase this up to €140m.
The RCF matures in October 2022 with an option to extend it for
up to a further 2 years.
The Keywords Group had €59.5m drawn under the RCF at yearend 2019. The majority of Group borrowings are subject to two
financial covenants that are calculated in accordance with thefacility agreement:•

Leverage: Maximum Total Net Borrowings to Adjusted
EBITDA ratio of 3 times; and•Interest cover: Minimum Adjusted Operating Profit to Net
Finance Costs ratio of 4 times.

The Group exited 2019 with a strong balance sheet, with net
debt (excluding IFRS 16 leases) of €17.9m as at 31 December
2019 representing a net debt to Adjusted EBITDA ratio of 0.4x.
The Group has good liquidity with cash and undrawn committed
facilities of around €82m at the end of December 2019. In addition,
as a precautionary measure we are in the final stages of agreeing
the exercise of the accordion feature under the RCF which would
provide a further €30m of committed facilities.

The Group has a resilient operating model and the ability toflex the cost base to meet the potential disruption introduced
as a result COVID-19 pandemic, particularly in the Localization,
Testing and Audio service lines which have a higher proportionof variable costs to the other service lines. Given the current
environment, the Group has taken steps to preserve cashby increasing the focus on costs, eliminating discretionary
expenditure and delaying certain capital projects.

Dividend
Despite the Group’s resilient financial position and the modest
size of the dividend, the Board believes it would be inappropriate
to recommend a final dividend in the current circumstances.

Jon Hauck
Chief Financial Officer
16 April 2020

39

40

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Responsible Business report

Dear shareholders
Keywords is committed to conducting our business responsibly,
operating to the highest standards of honesty, integrity andethical conduct. Driven by this, we take seriously our wider
corporate responsibility, the role the business plays in society
and our impact on the environment.
In 2019, we made a concerted effort to deliver on these
responsibilities. As a first step, we have worked with anindependent third party to carry out a materiality assessment
on a range of ESG areas with our senior team. The processincluded a materiality workshop, as part of our strategy week,
providing the Board and senior executives with the opportunity
to identify and debate matters of material importance to thembased on business impact. Some of the issues commonly
identified included customer retention, successful integration,
cyber security and data, culture, service delivery, employee
engagement and employee retention. Other issues weredebated such as health and safety, bribery and corruption
and climate change, recognising their importance to ourstakeholders. This approach has resulted in a first stage internalmateriality matrix for Keywords to build on in 2020, as part ofour plan to engage with our key stakeholders – shareholders,
employees, customers, suppliers and community participants –gaining their views and learning what they expect from us.
To fulfil this aim and as part of our commitment to being a
responsible business, the Board has appointed Jon Hauck,
Chief Financial Officer, to oversee this area. This will ensurethat our business strategy, set out by our Board and senior
management, will become aligned with the Responsible
Business goals and expectations of our key stakeholders.

Our Remuneration Committee is also considering the best
ways to incorporate our Responsible Business approach into
its remuneration structure as we develop these measurable
commitments. We plan to set actions against thesecommitments, develop additional KPIs and set short/medium
term targets.
I would like to thank all of our 7,400+ Keywordians, across all
21 countries for upholding the highest standards through the“Keywords Rule of 9” as we engage and grow with our workcolleagues, our customers and our communities. I am delighted
to see so many Keywordians giving of their time and energies
in support of the numerous initiatives so many of us feelstrongly about, be they focused on our work environments,
our wellbeing, gaming industry, not for profit programmes,
educational initiatives or community outreach. We recognise that
we can always do more and thus will continually seek to improveon our commitments to our environmental and social agenda.
Continuing to create the right culture is core to Keywords' futuresustainability. At the heart of our culture are our operating
principles, the “Keywords Rule of 9”. I encourage all Keywordians
to embrace these principles as we do the very best we can forour customers and those with whom we interact.

Andrew Day
Group Chief Executive Officer
16 April 2020

Governance

Financial statements

Supplementary information

Keywords’ approach to responsible business is framed by a continuous
drive to conduct our business with the highest standards of honesty,
integrity and ethical conduct.
In 2020, we started the process todevelop a materiality matrix and build
on our plan to engage with our key
stakeholders; the results of which
will form the basis of our responsible
business goals to be reported next year.
By embedding these goals in our businessstrategy, we believe Keywords can build
a more robust and sustainable model
for all our stakeholders (shareholders,
employees, customers, suppliers andcommunity participants).

People and development
We value our people; we trust themand work to support their passion toprovide the best service for each projectand each customer. However, there isalways more that can be done to invest
in our people and we continue to focus
on making improvements with training,
benefit schemes and career planning.
Across Keywords, we provide training anddevelopment programmes appropriate
to the service line. Examples of this in
the Art Creation service line include our
Lakshya Academy in India that teaches
classically trained artists to work on
video games, while in Localization weare developing a Master’s programmein partnership with a university in Milan.
Our Localization and Localization Testing
service lines continue to spearhead the‘level up’ development programme thatprovides a path from tester to project
manager and above.

Customers
We are fortunate to be able to countmost of the top global games developers
as our clients. These companies expect
the highest levels of service andconfidentiality. At the heart of our culture
is our commitment to quality, reliability
and integrating with our customers'
processes that combined promotes
long-term relationships.

Health, safety and wellbeing

EthicsKeywords is committed to providing asafe and healthy workplace for all of
our employees. We fully comply withnational legislation on Health and Safety
requirements and provide information,
education and training. For wellness, we
provide access to Employee Assistance
Programmes in our larger locations andother locations arrange programmes
locally, ranging from yoga classes tohealthy eating to stress management.
We welcome employee input into
programmes and share initiatives
across the organisation as we seek tomeet the changing needs of our people.

The Group is committed to the highest
levels of integrity and accountability andthe prevention of bribery and corruption.
We have also engaged with an external
compliance software vendor to help
with the rollout, training and awarenessof our anti-bribery and corruption
policy, in addition to other policies andeLearning activities. In 2018, we adopted
a whistleblowing policy that has beenrolled out globally. This policy allows
employees wherever they are to raise
any concerns about possible financial orother irregularities confidentially. During
2019, 3 whistleblowing disclosures werereported, with all of these investigatedand satisfactorily resolved.

Diversity and inclusion
Human talent is our most valuable
resource and as a business we thrive
on diversity, celebrate uniqueness andwork as teams whether we are physically
together in one of our 50+ studios aroundthe world or working together virtually.
We continually monitor ourselves in linewith our policies to ensure we provide
a working environment that treatspeople with dignity and respect, isfree from discrimination and promotes
fairness and equal opportunities. We
recognise that the video games industry
traditionally attracts more male thanfemale employees, and at the end of
December 2019, the Group was composedof approximately 25% women and 75%
men. This distribution is mainly due to thehigher proportion of males in many partsof game development. Keywords’ Boardof Directors includes one woman out ofseven Directors, i.e. 14%.

Human rights
The Board has adopted a Modern
Slavery Policy since 2017 and our annual
Modern Slavery statement is publishedon the Company website. We operate tointernational standards and principles
including the International Bill of Human
Rights, the UN’s Guiding Principles
on Business and Human Rights, theInternational Labour Organization’s
Declaration on Fundamental Principles
and Rights at Work and the Children’s
Rights and Business Principles. The
Group continues to make reasonableendeavours to ensure all employees
and agents within our supply chainsare not subject to any form of forced,
compulsory/bonded labour or humantrafficking through our Modern Slavery
Policy and the accompanying Supplier
Code of Conduct.

41

42

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Responsible Business reportcontinued

Employee engagement
Our annual engagement survey took
place in November with around 4,200
of our employees responding, a 54%
response rate. In addition to theinsights into how our people feel about
working at Keywords, we sought input
on improvements and feedback oncommunity matters that are important toemployees. The survey highlighted threeareas of strength (Keywords provide
the tools and resources needed for
employees to be productive, high senseof teamwork and pride within the teams,
and Line Managers are engaged with
their team and give regular feedback)and three areas for improvement in 2020
(more opportunities to give back to thecommunity, career development andgrowth within Keywords, and increased
recognition for performance). Aschanges are implemented and progress

Environment

demonstrated, we would expect toimprove our response rates. We have
set up focus groups for 2020 which will
look at both messages and next steps
from the survey, as well as initiatives toincrease engagement.

Communities
In 2020, we want to do more to support
good causes across the communities
that we are a part of. With this in mind,
Keywords has set aside a central fund of€100,000. This can be applied to match
funds raised for community outreach andcharitable initiatives by our local teams
around the world. In this one way, we
hope to encourage even more support for
our local communities. Some of the many
proud examples of our community efforts
in 2019 include activities in Canada, India,
UK and Japan, with more detail set out on
pages 30 and 31.

Keywords is committed to minimising its
impact on the environment. As a business,
we are responding to the demands ofour people to build a sustainable model
which today impacts the environment
mainly through our studio configuration
and business travel. We accept that in a
global organisation our people need totravel but we will try to limit this throughthe use of collaborative tools such asvideo conferencing wherever possible andwhen we do fly our policy is for everybody
to travel in economy/coach class. Mostof our studios have local initiatives torecycle and limit the use of plastics. In
2019, we supported two programmes that
focused on carbon balance and green
energy (more detail set out on pages 31
and 32. In 2020, Keywords is committed
to reviewing its global operations, witha focus on identifying, assessing andmeasuring our energy and greenhousegas emissions. We are also committed toa group-wide wide environmental policythat will align our business strategy tomeasurable environmental goals.

Non-financial information statement
Reporting requirement
Environmental matters

Policies and standards
which govern our approach• Environmental statement• Business travel policy

Page reference
Page 40 Responsible Business• Recruitment policy• Employee handbook• Diversity and equal opportunity
Social and employee matters• Grievance policy• Employee assistanceprogramme

Page 22 Our strategy
Page 28 Our people, our culture
Page 40 Responsible Business• Health and safety policy• Data protection
Respect for human rights

Anti-bribery and corruption• Supplier Code of Conduct• Modern Slavery Policy• Anti-bribery andcorruption policy• Whistleblowing

Page 40 Responsible Business
Page 40 Responsible Business
Page 54 Audit Committee

Business model

Page 18 Business model

Description of principal risks
and impact of business activity

Page 40 Responsible Business
Page 45 Principal risks and uncertainties

Non-financial key performanceindicators

Page 22 Our strategy
Page 40 Responsible BusinessGovernance

Financial statements

Supplementary information

Board engagement with our stakeholders

We believe that proactively engaging with and acting on the needs of our
key stakeholders is critical to a culture and strategy that achieves long-termsustainable success.
Section 172(1) statement
The Directors have acted in a way that they consider, in goodfaith, would be most likely to promote the success of thecompany for the benefit of its members as a whole, in line with
Section 172 of the Companies Act 2006.
This section of the Strategic Report describes how the Directors
continue to have regard for:Throughout the year the CEO and CFO meet with shareholders,with the Board receiving regular updates from both the CEO
and CFO on these engagements. Additionally, both the Senior
Independent Director and the Chairman have met and willcontinue to meet, with institutional shareholders to discuss
updates on the Group including strategy, remuneration andother key issues that are vital to these stakeholders in the
future. An example would be the emerging importance to somestakeholders of ESG.

•the likely consequences of any decision in the long term;•

the interests of the company’s employees;

Employees•

the need to foster the company’s business relationships
with suppliers, customers and others;•

the impact of the company’s operations on the community
and the environment;•

the desirability of the company maintaining a reputation forhigh standards of business conduct; and•the need to act fairly as between members of the company.

The Board receives regular updates in relation to employees,
in addition to the results from the Group’s global employee
survey (further details on page 42). During 2019, the Board
engaged with the Group’s employees through a number ofBoard visits to key locations. The Group holds a series ofannual strategy days and, as the Board is in attendance, it isable to get both formal and informal instant feedback fromthe Senior Management team.

The Directors are fully aware of these duties andresponsibilities, and have set out below how they are fulfillingthose duties in respect of each of their key stakeholders. In linewith our Responsible Business report (more detail on pages
40 to 42), the Board identifies the Group’s key stakeholders as
shareholders, employees, customers, suppliers and community
participants, and it is committed to effective engagement withthese stakeholders.

Shareholders
Our Annual General Meeting (AGM) is an important part ofeffective shareholder communication, with all shareholders
having the opportunity to hear from the Company and ask
questions. The Board welcomes the opportunity to engage with
our shareholders, typically providing a brief update presentation
at each AGM and with all Directors available to answer
questions. It would, however, welcome greater participationfrom shareholders and, as some are unable to physically attend
the AGM, the Company is looking at other ways to broaden
the participation of all shareholders. The Company also
intends to increase the audience of the Capital Markets Day bybroadcasting these events to selected stakeholders in order toencourage greater engagement.

Customers
During the year, the Board receives updates from senior
management on key customer issues via the business reviews.
The CEO and selected members of the Board also meet existingand potential clients at the key video games events (e.g. E3, GDC,Gamescom, Tokyo Games Show) to seek their input and gauge
their current and future requirements. The CEO independently
also regularly meets with the top echelon of key customers tostrengthen relationships.

Suppliers
The Board recognises the important role that our suppliers
play in helping us deliver our services, as this group comprises
individual contractors in addition to a range of support service
suppliers. In respect of our broader base of suppliers, the Board
has developed a Supplier Code of Conduct, complemented by the
adoption of a Modern Slavery Policy since 2017.

Community participants
The Board recognises the need to increase our community
engagement and to support the good causes that we are partof. With this in mind, Keywords has pledged up to €100,000
per year to match funds raised for community outreach andcharitable initiatives so that we can continue to support our
local communities (further details on pages 30 and 31).

43

44

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Board engagement with our stakeholders
continued

Decision making
We set out below the Group’s remuneration policy and two
examples, CEO pay ratio and Executive Director shareholding
guidelines, of how the Directors have had regard to the mattersset out in section 172(1)(a)-(f) when discharging their duties
under section 172 and the effect of that on certain decisions
taken by them.

Remuneration policy
The Group’s Remuneration Committee, on behalf of the Board,is responsible for the determination and implementation of
the Directors’ remuneration policy, applicable to Executive
and Non-Executive Directors.
The Remuneration Committee Chair and other members of theRemuneration Committee engaged with a number of our large
shareholders and institutional shareholder bodies during 2018and 2019 in relation to the review of the Directors’ remuneration
policy. Engagement with shareholders directly or throughselective ‘Remuneration Policy Issues’ seminars plus regulardialogue and input from our advisers, Mercer Kepler, continued
during 2019 in respect of the implementation and operation of
the policy.
The Board believes regular dialogue with our shareholders
is critical to ensure our remuneration policy aligns with their
expectations wherever possible, and we found this engagement
meaningful and useful in achieving that aim. It was clear from thedialogue with shareholders that there was a considerable desire
for companies to simplify remuneration structures and for the
total remuneration outcome to be transparent and aligned toshareholder experience.

The Chair also regularly meets with our primary regulators tounderstand their expectations, and to discuss our remuneration
framework and practices and demonstrate how they promotesound and effective risk management.

CEO pay ratio
Whilst not required under AIM disclosure regulations, bothshareholder and other advisory bodies recommended thatcompanies do disclose on an annual basis the CEO pay ratio in aform that is both transparent and understandable. In addition,
it was considered important to ensure that the CEO pay ratio
was in fact well within Keywords Studios accepted guidelines
compared to all employees of the Group. A decision was takenby the Remuneration Committee and ratified by Keywords’
Board to include such disclosure in the 2019 Annual Report. Moredetail on the Keywords’ CEO pay ratio can be found on page 67.

Executive Director shareholding guidelines
Also not required under AIM disclosure regulations is a guideline
for shareholdings by the Keywords’ Executive Directors. Afterconsultation with shareholders and advisers, it was decided by
the Remuneration Committee to introduce such a policy in 2020
and this was ratified by Keywords’ Board. This is detailed in the
Remuneration Section of this report on page 60.

Governance

Financial statements

Supplementary information

Principal risks and uncertainties

The principal risks to which the Group is exposed are set out below, together withdetails of their potential impact; the likelihood of occurrence (on a scale of 1 to 3, with
1 being the most likely); an indication of whether the trend in the risk exposure isincreasing, decreasing or broadly unchanged; and the actions taken to mitigate the risk.
The principal risks associated with the Group's strategy are divided into:• Those specific to the Keywords Group and its strategy;• Industry-related risks; and• General business risks for any international company.
Group and strategy risks
Likelihood

3
Acquisitions andIntegration risks

3
Failure todeliver services

2
Crosscontaminationrisk

3
Clientconcentration
risk

Actions

Trend

Keywords has an active acquisition agenda to support its strategy of becoming the ‘go to’ global
provider of services to the video games industry. Managing such acquisitions successfully andembedding the Keywords culture is a crucial ingredient of success. Failure to do so could result inthe business not achieving the expected financial and operational benefits and adversely impact
growth, profitability and cash flow. Since IPO, the Company has involved a broader numberof senior managers in the acquisition and integration process, building on the considerable
experience that exists at Board and senior management level, thus providing further bandwidth
to identify, execute and integrate acquisitions effectively.
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 theresourcing flexibility to enable delivery to tight deadlines has been an integral part of theCompany’s modus operandi, and Keywords’ approach to project management is applied acrossthe Group.
As the Group succeeds in delivering multiple services to the same customers, so the risk offailure in one service line contaminating the relationship with the customer across the otherservice lines increases. Whilst the introduction of co-development adds to this risk in somerespects, it also helps to mitigate it. Adhering to Keywords’ strong standards of delivery andefficient communication across service lines is key to managing this risk.
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 customers account for 28.1% (2018:
25.6%) of the Company’s revenues. These companies have exacting standards and demanda high quality of 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 partiallymitigated through the Company’s highly flexible resource base and its expansion continues toreduce its exposure to any single large client, with no single customer accounting for more than
6.2% of revenues.

Links to Strategic Pillars:
Building ourplatform

Trend:
Selective
acquisitions

Organic growthand cross selling

No change

Increase

Decrease45

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Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Principal risks and uncertainties
continued

Group and strategy risks continued
Likelihood

2
Financialperformance– failure to meet
expectations

3
Inadequate
financial andoperational
controls

2
Failure to
manage humanresources /talenteffectively

Actions

Trend

Keywords floated on AIM in July 2013 with an expressed set of objectives of growing thebusiness organically and by acquisition. Should the Company lose the confidence of investors,
this will affect its ability to raise money for or place shares to pay for acquisitions. The Company
makes every effort to communicate regularly with investors via announcements and face-toface contact. This effective communication of the continued opportunities for growth in the
sector, how the Group continues to execute on its stated strategy and successfully integrate thebusinesses it acquires, should continue to maintain the confidence of its investors. In addition,
having extended the size and term of our revolving credit facility, the Group has a good mix ofequity and debt funding which gives it the flexibility and headroom to invest in the business.
Keywords has grown rapidly and it is important that global financial controls are in place
to ensure smooth, timely and accurate reporting of financial results to satisfy our externalreporting obligations 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 function to facilitate strong reportingand management control as it grows. In 2019, the Group appointed
a new Head of Internal Audit to further drive improvements.
Keywords' management structure has been fundamental to the Group’s success, enabled
by embedding a Group culture that binds the teams together, with a common purpose andset of standards. We constantly work to develop and incentivise our people and to support
their passion to perform the best service for each project and client, with regular staff
surveys undertaken too. In addition, special emphasis is placed on workplace harmony andthe prevention of any forms of 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 attainment of 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. But with an ever increasing workforce this becomes more demanding.

2
Non-compliancewith legal andethicalstandards

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 are inplace and are supported by more detailed policies and procedures where needed.

Links to Strategic Pillars:
Building ourplatform

Trend:
Selective
acquisitions

Organic growthand cross selling

No change

Increase

DecreaseGovernance

Financial statements

Supplementary information

Industry-related risks
Likelihood2
Breaches toTechnology andinformation
security

2
Regulation onvideo games

3
Tax credits risk

Actions

Trend

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 theGroup’s effectiveness. New technologies for automated testing, machine translation and crowd
sourcing could pose a threat to the Group in the long-term. The Company participates directly withcustomers in various pilot programmes for new technologies to keep abreast of the state of theart. This is further underpinned through the formation of Keywords Ventures which is focusedon new, emerging technologies that may impact the Group in the future. The industry requires
the highest standards of security within a company offering services such as Keywords. Cyber
security breaches may lead to piracy, disruption of customers’ marketing plans, loss of competitiveedge and could result in compensation claims. Keywords maintains physical and data security
policies and procedures which are regularly audited by its larger customers.
Changes in regulation on video games, such as those seen in the Chinese market which imposed
curfews on minors, could result in the delay or cancellation of video games by our customers.
In relation to the Chinese market, Keywords has limited revenue exposure to games destinedsolely for the Chinese market. In addition, any potential impact is partially mitigated through theCompany’s diverse revenue base (no single client larger than 6.2% (2018: 5.7%)).
The Company receives multimedia tax credits (MMTC) in Canada and video games tax relief (VGTR)
in the UK relating to qualifying costs in those markets. These tax credit regimes are designed topromote growth and investment in the relevant regions. Any reduction or cancellation of thesetax credits would increase the cost base of the business and make the business less competitive.
The Group works closely with regulators and governments in relation to these tax credits and has
been given no indication that these tax credits will be removed in the medium term. The Group also
retains the ability to move to other operating centres if material changes were made.

General business risks
Likelihood

1
Suddenbusinessinterruption

Actions
Keywords is a global business and needs to minimise business interruptions and be able tocontinue 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
and tsunami or currently with COVID-19 (see below). The Group’s multiple, full-service, delivery
hubs provide for a good level of contingency and, supported by business continuity plans, theeffects of such disasters can be managed.
Since the year end the Group’s operations have been significantly impacted by the COVID-19
pandemic. This has resulted in restrictions being put in place requiring most of the Group’s studios
to be temporarily closed. The Group has been able to move over 5,500 employees to work fromhome arrangements and whilst this has resulted in some short term disruption it has allowed
production to continue across most of the Group’s operations. In consultation with clients, the Group
continues to make preparations to move more of the production staff to this model, particularlyin the Testing business (Functional and Localization Testing) with the aim of establishing a newmodel of testing from home, where testing had previously been conducted from secure facilities.
It is very difficult to predict how long the studio closures will be in place for, but demand for theGroup’s services remain robust, the broader video games industry has historically shown resiliencein times of economic downturn and the Group has the ability to flex its cost base in response toa reduction in trading activity. Further details on how the Group is responding to the challenge
faced by COVID-19 is provided in the Chief Executive’s review section on pages 14 and 15 and in theService line review of pages 24 to 27.

3
Global politicalrisk 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. However the diversification andspread of activities geographically mitigates the risk of disruption in any one location.
BrexitThe UK accounts for 15.9% of Group revenue, with 380 employees of the Group's 7,424 based in the
UK. The Board has assessed the risk of Brexit on Keywords and concluded that for now, this does
not constitute a significant risk.

2
Currency risk

The Group transacts in multiple currencies, given our customers are located globally. Keywords istherefore exposed to short-term currency risks, in addition to longer-term risk that could develop
between our functional currency (Euro) and our multiple billing currencies. The Group’s largest
exposure is to the US Dollar followed by the Canadian Dollar and Sterling. The Group does nothedge its currency risk because Keyword’s main movements in exchange related gains or losses
relate to the effect of translating net current assets held in foreign currencies.

Trend

47

48

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Board of Directors

Ross Graham (72)Andrew Day (56)

Jon Hauck (47)David Reeves (73)

Independent Non-Executive
Director and Chairman

Group Chief Executive Officer

Chief Financial Officer

Senior Independent
Non-Executive Director

A N R DN D

D

A N R D

Length of service with theGroup (as at 16 April 2020):

Length of service with theGroup (as at 16 April 2020):

Length of service with theGroup (as at 16 April 2020):

Length of service with theGroup (as at 16 April 2020):

7 years

11 years

6 months

7 years

Relevant skills and experience:

Relevant skills and experience:

Relevant skills and experience:

Relevant skills and experience:

Ross has extensive Executive
and Non-Executive experiencein the technology sector. From
being a partner in Arthur Youngfrom 1981 to 1987, he joined Misys
plc, a global software businessas Finance Director upon its
flotation, latterly becoming
Corporate Development Director;
throughout he played a key role indeveloping and implementing thevery successful Misys acquisition
strategy. Since retiring from Misys,
Ross has held a number of NonExecutive directorships including
those at Psion PLC from 2005 until
2012 (when it was successfully
sold to Motorola Solutions Inc.),
at Wolfson Microelectronics PLC
from 2004 to 2013 (prior to its saleto Cirrus Logic Inc.), and several
others. His experience in thesecompanies has included being
Senior Independent Director,
Chairman of the Audit Committee
and Chairman of the Remuneration
Committee. Ross was appointed
Director and Chairman of
Keywords shortly prior to its
flotation in July 2013. With his
wealth of experience and chairing
skills, Ross creates the necessary
environment for dynamic Board
discussion. He has helped elevatethe governance processes without
destroying the entrepreneurial
essence of Keywords.

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 softwaredeveloper, Unipower Solutions andHead of Retail and CPG for EMEA,
a NYSE-listed advanced analytics
business, FICO, before joining
Keywords as its Chief Executive
Officer in April 2009.

Jon has a wealth of finance,change management and M&Aexperience, having held the roleof Group Financial Controller andTreasurer at Rentokil Initial plc
since 2015. He joined Rentokil
Initial in 2008 and prior to taking
up his current position, held
several roles including Programme
Director in North America
where he was responsible forleading a substantial integration
programme. He subsequently
became Chief Financial Officerof the North America operations.
Prior to Rentokil Initial, he worked
in PriceWaterhouseCoopers’
Assurance practice. Jon is a Fellowof the Institute of Chartered
Accountants of England and Wales.

David has over 30 years' global
experience in management roles
within multinational companies. He
began his career with ICI in the UK
and then moved to RJ Reynolds
Nabisco where he worked from1979 to 1991, becoming theworldwide Marketing Director in
the USA in 1989. In 1991, David
served as the General Manager
and Vice President of Marketingin Tokyo for Mitsubishi Shoji JVTechnology Company before
moving into the computer gameindustry, opening and setting
up the PlayStation Company
in Germany, Switzerland andAustria. He was appointed
Executive Vice President in 1999
and President and CEO of Sony
Computer Entertainment (Europe)in 2003 where he remained
until 2009. David now runs his
own Management Consultancy
practice as well as being on the
Board of three major Charities in
the UK. He brings to Keywords
a global knowledge of growing
multinational companies,
experience of the video gameindustry, Corporate Governanceand an understanding of working
with companies to develop
global strategies in Europe, Asia,
North America and LATAM. He
was appointed to the Board of
Keywords Studios on 29 May 2013.

Governance

Financial statements

Supplementary information

Giorgio Guastalla (51)Georges Fornay (63)Charlotta Ginman (54)Non-Executive Director

Independent Non-Executive
Director

Independent Non-Executive
Director and Chairman of the
Audit CommitteeA

A N R D

Length of service with theGroup (as at 16 April 2020):

Length of service with theGroup (as at 16 April 2020):

Length of service with theGroup (as at 16 April 2020):

21 years

3 years

3 years

Relevant skills and experience:

Relevant skills and experience:

Relevant skills and experience:

Giorgio Guastalla is co-founder of
Keywords. Prior to establishing
Keywords in Ireland in 1998, Giorgio
held various positions in marketingand IT at Brent International PLC
based in the US, Spain, the UK andFrance. In 2002 Giorgio founded
Italicatessen Limited, 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. With over twenty years’
experience in the industry, Giorgio
brings a wealth of understanding
and knowledge to Keywords.

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 Home Interactive,
which is listed on the Alternext.
Georges worked in senior
management at Sony ComputerEntertainment from 1995 to 2011,
including as CEO of the French andSwiss divisions and culminating
as the Senior Vice President
from 2004 to 2011. During thistime he oversaw the launch of
the PlayStation Portable and
PlayStation 3. Prior to this, Georges
spent nine years at Commodore,
the last five years of which wereas 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 andits 31 members’ interests to the
French Government. Georges wasappointed a Director of Keywords
in September 2017.

A Fellow of the Institute ofChartered Accountants in Englandand Wales, Charlotta is Chair of
the Audit Committee. She is a
Non-Executive Director and Chairof the Audit Committee of Polar
Capital Technology Trust PLC andPacific Asset Trust PLC. She isalso a Non-Executive Director ofUnicorn AIM VCT PLC. Charlotta
has held senior positions in
the investment banking andtechnology / telecom sectors.
She was appointed a Directorof Keywords in September 2017.

Committee Membership
A

Audit Committee

N

Nomination CommitteeR

Remuneration Committee

D

Disclosure Committee
None

49

50

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Chairman's introduction

The Board is committed to the highest standards of corporate governance
Dear shareholders
As Chairman of the Board of Directors of Keywords Group plc(Keywords, or the Company/Group as the context requires), I am
pleased to introduce the Group’s corporate governance report.
The corporate governance statement provides an insight into
how the Board operated during the year and the key issues
considered. The Board is committed to the highest standards ofcorporate governance. Our approach to governance is set by the
Board and our Executive Directors ensure that the approach iseffectively implemented across the business. Effective and robust
governance remains central to the ongoing success of the Group.
It is my responsibility to ensure that the Group has both soundcorporate governance and an effective Board. As Chairman of
the Company, my responsibilities include leading the Board
effectively, overseeing the Group’s corporate governancemodel, communicating with shareholders and ensuring that
good information flows freely between the Executive and
Non-Executive Directors in a timely manner.
The Directors of the Company recognise the value of good
corporate governance in every part of its business. The Company
has adopted the Quoted Companies Alliance Corporate Governance
Code (QCA Code), which we believe is the most appropriate for acompany with the size and stage of development as Keywords.
The Board provides annual updates on our compliance with the
QCA Code. During the year, the following changes were made to
the Group’s key corporate governance arrangements:•

Appointment of Jon Hauck as CFO in October 2019; and•Appointment of Aisling Hanley as Head of Internal Audit
in August 2019.

The Board considers that the Group complies with the QCA
Code in all applicable respects. An explanatory statement of
how we have applied the QCA Code guidance, and disclosuresof any areas of non-compliance, can be found on our website
at: www.keywordsstudios.com. The Board understands thatthe application of the QCA Code supports the Group’s medium
to long-term success whilst simultaneously managing risks
and provides an underlying framework of commitment andtransparent communications with stakeholders.

The main Group-wide governance documents are our Core
Values and the Code of Conduct, which set out the values andstandards that we expect of our employees. These documents,
together with our policies, govern how we conduct our businessand set the standards that drive performance. Compliancetraining helps to enforce this. Board oversight, reviews andaudits form part of the monitoring and supervision process.
Risk processes are embedded and reviewed on an ongoing basis
across the business. The important governance developments
at Keywords over the last year are outlined below.
My ambitions for the composition of the Board are to maintain,
and where applicable, broaden the range of expertise,
experience and diversity. The Board continues to ensure that
effective succession plans are in place.
Given the COVID-19 restrictions, it is no longer possible to holdthe AGM in the way that the Board had planned and therefore
regrettably we cannot allow shareholders to attend in person
and the Company’s Articles of Association do not currently
permit hybrid or virtual meetings. The meeting will instead beconvened at the offices of Keywords Studios, 39 Earlham Street,
London, WC2H 9LT, United Kingdom on 27 May 2020, with theminimum necessary quorum of two shareholders (Chairman andCEO) present in order to conduct the business of the meeting.
The Board of Directors strongly encourages shareholders tovote by proxy in lieu of attending in person. A video link of apresentation by the CEO of the Company will be made available
for shareholders to view on the day of the Annual General
Meeting on the Company’s website at: www.keywordsstudios.
com and the Board will look at opportunities to meet withshareholders later in the year where possible and only if andwhen it is deemed safe to do so.

Ross K Graham
Chairman
16 April 2020

Governance

Financial statements

Supplementary information

Corporate governance

Strategy
A description of the Company’s strategy, business model andsupporting strategic pillars, along with key strengths can befound in the strategic report on pages 18 to 23.

Internal controls and risk management
The Board recognises the need for an effective and well-definedrisk management process and it oversees and regularly reviews
the current risk management and internal control mechanisms.
The Company’s principal risks, along with key challenges
in the execution of the Company’s strategy and controls
implemented to mitigate them, can be found in the strategic
report on pages 45 to 47.
The Audit Committee has been delegated responsibility forthe oversight of the Company’s risk management and internal
controls and procedures, as well as determining the adequacyand efficiency of internal control and risk management
systems. The Board continuously monitors and upgrades its
internal control procedures and risk management mechanisms
and conducts regular reviews, when it assesses both foreffectiveness. This process enables the Board to determine
whether the risk exposure has changed during the year andthese disclosures are included in the Annual Report. In setting
and implementing the Company’s strategies, the Board, having
identified the risks, seeks to limit the extent of the Company’s
exposure to them having regard to both its risk tolerance andrisk appetite.
The Directors believe that the Group has internal control
systems in place appropriate to the size and nature of thebusiness. 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 and key risk areas in the business;•

Monthly financial reporting, for the Group and for eachservice line, of actual performance compared to budget
and the prior year;•

Visits to key locations;•

Annual budget setting;•

Annual strategy conference with top management team; and•A defined organisational structure with appropriatedelegation of authority.

The Board is now further supported with the oversight of its
internal control systems and risk management through theappointment of a Head of Internal Audit in August 2019.
Further information on the Company’s approach to risk
management and internal controls can be also found in the
Audit Committee report on page 54.

The Board
The Board, as a whole, is responsible for the overallmanagement of the Group and for its strategic direction,
including approval of the Group’s strategy, its annual businessplans and budgets, the interim and full year financial statements
and reports, any dividend proposals, the accounting policies,
major capital projects, any investments or disposals, its
succession plans and the monitoring of financial performanceagainst budget and the formulation of the Group’s risk appetite
including the identification, assessment and monitoring of
Keywords’ principal risks.
Director biographies and committee memberships are set out on
pages 48 and 49.
The Board comprises Andrew Day CEO, Jon Hauck CFO, one
non-independent Non-Executive Director, Giorgio Guastalla, andfour independent Non-Executive Directors, Georges Fornay,Charlotta Ginman, Ross Graham and David Reeves. David Reeves
is the Company’s Senior Independent Director (SID), and Ross
Graham is the Company’s Chairman. Letters of appointmentof all Directors are available for inspection at the Company’s
registered office during normal business hours. The Executive
Directors work full time for the Company. All the Non-Executive
Directors are expected to dedicate at least 30 days per annum
to the Company, rising to 40 days if they also chair a Committee,
and the Chair is expected to dedicate 60 days per annum. The
Company has adopted a policy whereby all members of theBoard are subject to re-election at each AGM.
The Board is satisfied that it has a suitable balance between
independence, on the one hand, and knowledge of the Company,on the other, and that no individual or group may dominate theBoard’s decisions. The Non-Executive Directors have both abreadth and depth of skills and experience to fulfil their roles.
The Company believes that the current balance of skills in the
Board as a whole reflects a very broad range of personal,
commercial and professional experience, and notes the rangeof financial and managerial skills. All Directors are encouraged
to use their independent judgement and to challenge all matters,
whether strategic or operational, enabling the Board to discharge
its duties and responsibilities effectively.

51

52

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Corporate governancecontinued

The Board continued

Remuneration Committee

The Board meets a minimum of eight times a year and a calendarof meetings and principal matters to be discussed are agreed at
the beginning of each year. In order to be efficient, the Directors
meet formally and informally both in person and by telephone.
Board and Committee document authors are made aware of
proposed monthly deadlines through the calendar of meetings
assembled at the beginning of the year. Board papers arecollated by the relevant personnel (Chair, Company Secretary,
CFO, Committee Chair), compiled into a Board/Committee Pack,and circulated at least three working days before meetings,
allowing time for full consideration and necessary clarifications
before the meetings. The Board also utilises a fully-functioning
Board Portal, which ensures the provision of timely and efficient
distribution of Board and Committee papers as well as aneffective means of communication for the Board.

The Remuneration Committee is chaired by David Reeves,and its other members are Charlotta Ginman and Ross
Graham. The Remuneration Committee is responsible fordetermining the remuneration of the Chairman, Executive
Directors, the Company Secretary and senior Executives of
Keywords. The Remuneration Committee is responsible formaking recommendations to the Board of Directors’ andsenior Executives’ remuneration. Non-Executive Directors’
remuneration and conditions are considered and agreed by
the Board. Financial packages for Executive Directors are
established by reference to those prevailing in the employment
market for Executives of equivalent status both in terms oflevel of responsibility of the position and their achievementof recognised job qualifications and skills. The Committee will
also have regard to the terms, which may be required to attract
an equivalent experienced Executive to join the Board fromanother company. Further information on the Remuneration
Committee can be found in the Remuneration Committee reporton page 57 to 69.

Management supply the Board with appropriate and timely
information and the Directors are free to seek any further
information they consider necessary.

Senior Independent Director
David Reeves acts as the Senior Independent Director (SID)of the Company, serving as a sounding board for the Chairman
and acting as an intermediary for the other Directors. The
SID is also available to shareholders and other Non-Executive
Directors to address any concerns or issues they feel havenot been adequately dealt with through the usual channelsof communication.

Audit Committee
The Audit Committee is chaired by Charlotta Ginman, and its
other members are Ross Graham, David Reeves and Georges
Fornay. The Audit Committee is responsible for assisting theBoard in fulfilling its financial and risk responsibilities. The Audit
Committee oversees the financial reporting, risk management
and internal control procedures of the Company. The Audit
Committee also advises the Board on the appointment andremoval 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 andobjectivity. Further information on the Audit Committee can befound in the Audit Committee report on page 54.

Nomination Committee
The Nomination Committee is chaired by Ross Graham. Charlotta
Ginman, David Reeves and Andrew Day are the other members.
Further information on the Nomination Committee, including
its role and responsibilities, can be found in the Report of theNomination Committee on page 70.

Disclosure Committee
The Disclosure Committee is responsible for assisting in thedesign, implementation and evaluation of the Company’s
disclosure controls and procedures. The Disclosure Committee
is chaired by Andrew Day and its other members are Charlotta
Ginman, David Reeves, Ross Graham and Jon Hauck.
Terms of reference of all Keywords’ Committees are available toview on the Company’s website at: www.keywordsstudios.com
The table below sets out attendance statistics for each Director
at scheduled Board, and where relevant, Committee meetings
held during the financial year.

Board
11 meetings held

Audit Committe
5 meetings held

Remuneration
Committee
8 meetings held

Nomination
Committee
2 meetings held

Disclosure
Committee
2 meetings held

Ross Graham

11

5

8

2

2

Andrew Day

11

–

–

2

2

David Broderick*

8

–

–

–

1

Jon Hauck**

3

–

–

–

1

David Reeves

11

5

8

2

2

Giorgio Guastalla

11

–

–

–

–

Georges Fornay

11

5

–

–

–

Charlotta Ginman

11

5

8

2

2

Director*

Resigned 14 October 2019.

** Appointed 14 October 2019.

Governance

Financial statements

Supplementary information

The Non-Executive Directors meet without the presence of the
Executive Directors during the year, and also maintain ongoing
communications with Executives between formal
Board meetings.

Board and Committees performance evaluations

Meetings are open and constructive, with every Director
participating fully. Senior management can also be invited tomeetings, providing the Board with a thorough overview of
the Company.

CultureIn addition to their general Board responsibilities, Non-Executive
Directors are encouraged to be involved in specific workshops
or meetings, in line with their individual areas of expertise. The
Board is kept abreast of developments on governance andAIM regulations. ONE Advisory Limited, Keywords’ Company
Secretary, provides updates on governance issues, and theCompany’s Nominated Adviser (Nomad) provides annual Board
AIM Rules refresher training as well as the initial training as partof a new Director’s on-boarding.
The Board shall review annually the appropriateness andopportunity for continuing professional development, whether
formal or informal.

Advisors
The Board has regular contact with its advisors to ensure that
it is aware of changes in corporate governance procedures andrequirements and that the Group is, at all times, compliant withapplicable rules and regulations. The Company has Director andOfficers’ liability insurance cover in place throughout the year
and it is intended for the policy to continue for the year ending
31 December 2020 and subsequent years. Additionally, theCompany provides an indemnity in respect of all the Company’s
Directors or other officers of the Company against all costs,
charges, losses, expenses and liabilities incurred by them inthe execution and discharge of their duties. The Company’s
Nomad supports the Board’s development, specifically providing
guidance on corporate governance and other regulatory
matters, as required.
Liam O’Donoghue of ONE Advisory Limited is Keywords’
Company Secretary. ONE Advisory Limited is responsible
for ensuring that Board procedures are followed and that
the Company complies with all applicable rules, regulations
and obligations governing its operation, as well as helping
the Chairman to maintain excellent standards of corporate
governance. ONE Advisory Limited also provides Board support
through assistance with shareholder meetings and Market
Abuse Regulation (MAR) compliance.
The Company has also enlisted the support of Mercer Kepler,
who provides advice in relation to remuneration. Additional
information can be found in the Remuneration report on
pages 57 to 69.
All Directors may receive independent professional advice
at Keywords’ expense, if necessary, for the performance of
their duties.

Details of the Company’s Performance Evaluations for the year
can be found in the Report of the Nomination Committee on
page 70.

The Board recognises that its decisions regarding strategy
and risk may impact the corporate culture of the Company
as a whole and that this will impact the performance of theCompany. The Board is also aware that the tone and culture
set by the Board can have an impact on the Company as awhole and on the way that employees behave. The corporate
governance arrangements that the Board has adopted aredesigned to ensure that the Company delivers long term value
to its shareholders and that shareholders are able to express
their views and expectations for the Company in a manner thatencourages open dialogue with the Board.
A large part of the Company’s activities are centred upon an
open and respectful dialogue with employees, customers andother stakeholders. Therefore, the importance of sound ethicalvalues and behaviours is crucial to the ability of the Company tosuccessfully achieve its corporate objectives. The Board places
great importance on this aspect of corporate life and seeks
to ensure that this flows through all that the Company does.
The Directors consider that the Company has an open culture
facilitating comprehensive dialogue and feedback, which enables
positive and constructive challenge.
Further information on the Company’s culture can be found in
the strategic report pages 28 to 33.

53

54

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Audit Committee report

Introduction from the Chair

Terms of reference

As Chair, I am pleased to present the Audit Committee reportfor the year ended 31 December 2019. This report details
the work of the Committee over the past year, fulfilling our
responsibilities to provide effective governance over theGroup’s financial activities.

The Committee has written Terms of Reference which clearly
define the Committee’s responsibilities and duties. The Termsof Reference were reviewed by the Board during 2019 andare available to view on the website, www.keywordsstudios.
com. In addition to the Terms of Reference, the Committee
has developed an annual agenda which corresponds withthe meeting schedule, to ensure all key responsibilities arecompleted and managed.

Last year I outlined our intention to introduce an Internal
Audit function to the business and I am pleased to report thata Head of Internal Audit was recruited during the year and an
Internal Audit Charter has been approved by the Committee
together with the Internal Audit plan for 2020. As part of theestablishment of the Internal Audit function, management
has conducted an exercise to confirm the key financial controlsthat are expected to be in place across the business which
will form the core basis of the Internal Audit testing process
going forward.

Audit Committee
Composition and attendance in 2019
The Committee members, apart from myself, continue to
be Ross Graham, David Reeves and Georges Fornay. The
Audit Committee, as a whole, has competence relevant to thevideo games industry, both Ross Graham and I are Chartered
Accountants and I also chair the Audit Committee for otherpublic companies. More information about the Committee
members can be found on pages 48 and 49. The Committee met
five times during the financial year with all members
in attendance.

Committee role and responsibilities
The role of the Audit Committee is to assist the Board in its
oversight and monitoring of the internal control environmentand risk management of the Group and the Group’s financial
reporting. The Audit Committee’s focus is to review andchallenge these areas with both management and theexternal auditor, in particular the Audit Committee:•

Monitors the integrity of the Group’s financial reporting
including key accounting policies and judgement areas(eg revenue recognition, goodwill impairment reviews andacquisition accounting), the use of Alternative performancemeasures and the going concern review;•

Reviews the internal control and risk management
framework including key operating risks, financial systems
roll out, treasury, taxation and cyber risk, data protection
and disaster recovery plans;•

Monitors the Internal Audit function including theapproval of the Internal Audit Charter and the annual
Internal Audit plan;•

Establishes and oversees the engagement and review of
performance of the external Auditor including monitoring
its independence and reviewing audit and non-audit
services; and•Reviews key policies such as whistleblowing, anti-tax evasion,
anti-bribery / corruption and Modern Slavery Policies.

Activities of the Audit Committee during the year
Internal Audit
The Committee has worked closely with management toestablish an Internal Audit function with the recruitment of a
Head of Internal Audit in the second half of 2019. The Head ofInternal Audit reports into the Audit Committee Chair with adotted reporting line into the Group CFO. The activities of theInternal Audit function are governed by an Internal Audit Charter
that was signed off by the Audit Committee during the year.
In December 2019, the Audit Committee approved the Internal
Audit plan for 2020 which will focus on:•

Roll-out of and adherence to Group policies;•

Review of key processes in financial reporting and sales;•

Review of the integration of a selection of acquisitions; and,•

Review of key finance controls at significant studios.

This plan aims to address some of the internal and financial risks
and uncertainties identified on pages 45 to 47 such as:•

Acquisition risk – how new entities are integrated into the
Keywords business;•

Adequacy of and compliance with financial and operating
controls to ensure smooth timely and accurate reporting; and•Compliance with legal and ethical standards to promote theculture of “Doing the right thing”.

Internal control and risk assurance framework
As part of the establishment of the Internal Audit function,
management has conducted an exercise to confirm the set of
key financial controls expected to be in place and operational in
all of the businesses across the Group. This will be used as theframework for the Internal Audit testing in the future. As part ofthis exercise, each Regional Finance Director conducted a selfassessment of the adherence to the key financial controls within
their region. It was pleasing to see that this did not reveal any
major control weaknesses but it did identify a number of areas
where controls can be improved as well as opportunities tostandardise and automate some of the finance processes acrossthe business.

Governance

Financial statements

Supplementary information

The Audit Committee has continued to review and challenge
the upgrades that have taken place during the year to theCompany’s internal control and risk assurance framework toensure that following its rapid expansion, the Company operates
within a fit for purpose framework. The Committee is pleased
to see continued progress made in the global automatedfinancial systems roll-out, eventually allowing a fully integrated
automated reporting system to operate seamlessly across theGroup, replacing the current manual consolidation processes
that are both labour intensive and potentially prone to humanerror. During 2019 the focus has been on North America, which
is now all migrated to the new system, and recent acquisitions.
The work on our cash pooling platform continues, providing
us with better control of Group cash and the optimisation of
cash management.

Annual Report and financial statements
The Board has asked the Committee to confirm that in its
opinion the Annual Report as a whole can be taken as fair,balanced and understandable and provides the informationnecessary for shareholders to assess the Group’s financial
position, performance, business model and strategy. In doing
so the Committee has given consideration to:•

The way the strategic reports (including the Chairman’sstatement and reports of the CEO and CFO) present theGroup – its business, financial and business model and themetrics management uses to measure performance;•

Whether suitable accounting policies have been adopted andhave challenged the robustness of significant management
judgements and estimates reflected in the financial results;

The industry requires the highest standards of security within
a company offering services such as Keywords. During 2019 theCommittee received regular cyber security updates from the IT
function to review both the physical and data security policies
and procedures.

•

The comprehensive control framework around the
production of the Annual Report, including the verification
processes in place to deal with the factual content;•

The extensive levels of review that are undertaken in the
production process, by both management and advisers; andDuring the year the Audit Committee has continued its regularreview of the Company’s main risks on behalf of the Board,
ensuring key risks are top of mind and relevant, and mitigationplans are in place where possible. For 2019 the risk assessment
framework was cascaded to the senior leadership team.

•

The Group’s internal control environment.

Going concern
The Audit Committee reviewed the Going Concern assessment
including the downside sensitivities to the Group’s cash flow
projections to evaluate the Group’s ability to withstand aprolonged period of studio closures as a result of the COVID-19
pandemic, leading to a reduction in production capability.

Key accounting issues
During the year and as part of the year end procedures, theCommittee considered the following key financial and internal
control matters in relation to the Group’s financial statements
and disclosures with input from both management and theexternal Auditor:

The Group has adopted IFRS 16 Leases from 1 January 2019.
Throughout the year the Committee received updates fromboth management and the external Auditor on the planning andprocesses being put in place and the subsequent impact of the
new reporting standard. More detail regarding this standard
can be found in notes 2, 3 and 24 of the financial statements.
The Group uses certain APMs to present its results. These are
non-GAAP measures but are designed to provide the usersof the financial statements with a better understanding of theunderlying trading performance of the business. An explanationof the APMs and a reconciliation to the nearest statutory
equivalent measure is provided on pages 135 to 143. During theyear management has reviewed the disclosure of APMs and has
made a number of changes to make the reconciliations to thenearest GAAP measures more meaningful.
As a result of the work performed, the Committee has concluded
that the Annual Report for the year ended 31 December 2019,taken as a whole, is fair, balanced and understandable andprovides the information necessary for shareholders to assess
the Group’s performance, business model and strategy, and it
has reported on these findings to the Board.

•

Revenue recognition•

Functional reference currency•

Business combinations•

The valuation of Goodwill and Intangible Assets•

Financial instruments

Whistleblowing•

Alternative performance measures and KPIs•

Segmental reporting•

Application and impact of new standard IFRS 16 (Leases)•

Taxation•

Going concern

During the year, the Audit Committee reviewed and re-approved
the whistleblowing policy and accompanying process theCompany has rolled out globally. The policy allows employees
wherever they are to raise any concerns they may have about
possible financial or other irregularities confidentially. During
2019, 3 whistleblowing disclosures were reported, none of which
related to financial matters, with all of these investigated andsatisfactorily resolved.

For further detail on these, see notes 2 and 3 of the financial
statements.

The Group is committed to the highest levels of integrity andaccountability and the prevention of bribery and corruption.

55

56

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Audit Committee reportcontinued

External audit

Independence and non-audit fees

Audit services

A non-audit services policy was established in 2018, in line with
the FRC ethical standards. Any non-audit services are required
to be pre-approved by the Audit Committee. During the year
BDO provided non-audit services to the Company of €12,000(2018: €23,000).

The Auditor is appointed by the shareholders to provide an
opinion on financial statements prepared by the Directors.
BDO, the Company’s current Auditor, was first appointed on
29 May 2013.
The scope of the current annual audit was agreed in advancewith the Committee with a focus on areas of audit risk andthe appropriate level of audit materiality. The Committee also
had discussions with the auditor on fees, internal controls,
accounting policies and areas of critical accounting estimatesand judgements. The auditor attends all meetings of the Audit
Committee and reported to the Audit Committee on the resultsof the audit work and highlighted any issue which the audit work
had discovered, or the Committee had previously identified as
significant or material in the context of the financial statements.
There were no adverse matters brought to the Audit
Committee’s attention in respect of the 2019 audit, whichwere material or significant or which should be brought toshareholders’ attention.

Effectiveness
The Audit Committee monitored and evaluated the effectivenessof the Auditor under the current terms of appointment
based on an assessment of the Auditor’s performance,
qualification, knowledge, expertise and resources. The Auditor’s
effectiveness was also considered along with other factors suchas audit planning and interpretations of accounting standards
and separate discussions with Management (without the Auditor
present) and with the Auditor (without Management present).
The Chair of the Audit Committee also had discussions with the
Audit partner outside the formal meetings throughout the year.
The Committee was satisfied that the audit was effective andthat BDO continues to demonstrate the skills and experienceneeded to fulfil its duties effectively.

During 2019, the policy regarding the recruitment of former
external audit staff was reviewed and approved. In order tofulfil the Committee’s responsibility regarding independence of
the Auditor, the Committee reviewed the senior staffing of theaudit, the Auditor’s arrangements concerning any conflicts ofinterest, the extent of any non-audit services and the Auditor’s
independence statement. The Committee was satisfied that
the Auditor remains independent.

Charlotta Ginman, FCA
Chair of the Audit Committee
16 April 2020

Governance

Financial statements

Supplementary information

Directors’ remuneration report

Dear Fellow shareholders
As Chairman of the Remuneration Committee, it is my pleasure
to present the Directors’ remuneration report for the period
ended 31 December 2019.
Keywords Studios plc has chosen to apply the Corporate
Governance Code for Small and Mid-size Quoted Companies
published by the Quoted Companies Alliance. The Company iscurrently AIM quoted and the Board recognises the importanceof shareholder transparency and standards of governance.
Therefore, this report contains all the information required
to be disclosed as an AIM quoted Company and also contains
some additional information that would be applicable were theCompany listed on the London Stock Exchange main market,
and includes:•

The Directors’ Remuneration Policy; and•Our Annual Report on remuneration, detailing Director
remuneration in 2019 and that set for 2020.

We operate a simple Executive Director remuneration structure
made up of base salary and pension, a bonus plan and a Long
Term Incentive Plan (“LTIP”) which provides a clear link between
pay and our key strategic priorities. We recognise that there
is currently a general focus on companies where Executive
pensions are not aligned with the rest of their workforce;
the Committee would like to highlight that Keywords does
not provide a significant pension above that of local legal
requirements as detailed in our remuneration policy, and thepensions offered to Executive Directors is the same as thatoffered to the local workforce.

In October 2019, Jon Hauck joined the Board as Group Chief
Financial Officer. His remuneration structure is consistent with
our Remuneration Policy whereby his salary has been set below
market median, and his bonus potential is in line with that of
the CEO, Andrew Day. Jon was also granted a one-off award ofLTIP shares to compensate for those awards he forfeited on his
departure from his prior employment.
The Remuneration Committee intends to keep its approachto remuneration under regular review for continued
appropriateness taking account of regulatory requirements
and corporate governance best practices as applicable to
the Company over time. To this end, it is relevant to note ourdecision to introduce a shareholding guideline from 2020 and
to adopt the CEO pay ratio disclosure in this report. No otherchanges are intended in relation to the implementation of ourRemuneration Policy in 2020.
It is my hope that you find this a clear and comprehensive reportand I look forward to hearing the views of our investors on
the information presented here over the coming months. We
will carefully monitor emerging practice in this area as well as
guidance from investor representative groups.

Dr David Reeves
Chair of the Remuneration Committee
16 April 2020

57

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Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Directors’ remuneration reportcontinued

Executive Directors’ remuneration at a glance
The following is a summary of the key components of Keywords’ Executive Director remuneration, including changes andimplementation in the financial year.
Element

Implementation in 2019

Implementation in 2020

SalaryWith effect from 1 March 2019:

With effect from 1 March 2020:• Andrew Day, CEO: £240,000• Andrew Day, CEO: £244,800 (2% increase)• David Broderick, Former CFO: €168,695(until 14 October 2019)• Jon Hauck, CFO: £204,000 (2% increase)• Jon Hauck, CFO: £200,000
PensionExecutive Directors have access to pension schemes basedon local legal requirements or where expected by local
labour markets. Contributions (up to the salary cap of£50,000) meet the minimum requirements and amount to:

Andrew Day’s pension to align with the
majority of UK staff with a contribution
of 3% of salary with no salary cap• Andrew Day, CEO: 3% of salary (capped at £50K salary)

No change for Jon Hauck• David Broderick, Former CFO: 5% of salary• Jon Hauck, CFO: 5% of salary
Annual bonus

Maximum opportunity of 30% of salary based on:

No change to opportunity or measures• Financial targets including turnover and profitability(weighted 80%)
• Discretionary individual performance (weighted 20%)
Payouts for 2019 were £nil for Andrew Day (as bonus waswaived) and £5,631 for Jon Hauck. As a leaver during 2019,
David Broderick was not eligible to earn a bonus for 2019
LTIP

50,000 and 25,000 LTIPs granted to Andrew Day and David
Broderick respectively. Jon Hauck was granted a regular2019 award of 25,000 LTIPs on his appointment, and an
additional 43,936 LTIPs in compensation for awards heforfeited on his departure from his previous employment

The Remuneration Committee intends to makeLTIP awards in line with previous years to the
CEO and CFO respectively

3-year performance period
Vesting based on Total Shareholder Return performanceagainst FTSE Small Cap Index
Upon his departure, the 2019 LTIPs granted to David
Broderick were forfeited
Other

Introduced shareholding guidelines for
Executive Directors at 100% of salary

Section 1: Directors’ remuneration policy
Policy and principles
The Remuneration Committee determines the Company’s policy on the structure of the remuneration for Executive Directors and the
Senior Management Team (“SMT”) and is responsible for governing the remuneration policy for the broader employee population.
The objectives of this policy are to:•

Reward Executive Directors and the SMT in a manner that ensures 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 SMT members.

•

Encourage value creation through consistent and transparent alignment of incentive arrangements with the agreed Company
strategy over the long term.

•

Ensure the total remuneration packages awarded to Executive Directors and SMT members, comprising both performancerelated and non-performance-related remuneration, are designed to motivate the individual, align interests with shareholders
and comply with corporate governance best practices.

Governance

Financial statements

Supplementary information

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 salary on the premise that an annual bonus does not
influence the behaviour or commitment of a senior Executive (this does not apply to sales Executives); and•Long-term incentives are the means by which Executives can earn significant rewards if, but only if, shareholders likewise haveobtained a good return.

Remuneration components for Executive Directors and SMT (the ‘Executives’)
Various remuneration components are combined to ensure an appropriate and balanced remuneration package which reflects
the size and complexity of the Group, the Executive’s experience, responsibility and position, as well as market practice. For this,the Remuneration Committee takes into account the performance of the individual, comparisons with peer companies and, whereconsidered appropriate, reports from external independent consultants.
The remuneration package comprises the following elements:•

Fixed remuneration (basic salary and, for some Executives, pension);•

Performance-based remuneration (annual bonus and LTIP):

Purpose and link to Strategy

Operation

Opportunity

Performance measures

Base salaries are reviewed by
the Committee annually, andbenchmarked periodicallyagainst comparable roles atcomparable companies ofsimilar size and complexity.

Salaries are set on a case-bycase basis to reflect therole, the experience andqualifications of theindividual, and are targeted
at below market median.

n/aBase salary
To attract and retain
talented Executives
to deliver the Group’s
strategy, by ensuringbase salaries and theimplied total package
are competitive in
relevant talent markets,
while not overpaying.

Base salary increases for the
Executives take into accountpersonal performance, Group
performance, significant
changes in responsibilities,
the average increase awarded
to the wider workforce, andcompetitive market practice.

Pension and benefits
To provide an appropriate
structure and level ofpost-retirement benefit
for Executives in a
cost-efficient mannerthat reflects local market
norms in the relevant
jurisdiction.

At the discretion of theRemuneration Committee, theExecutives may participate ina pension scheme facilitatedby the Company.
The Company also provides
access to Group Benefit
schemes where appropriate
by Region which may include
moderate contribution
towards private healthinsurance, death in service
cover and other Group based
benefits.

The Company provides
access to pension schemes
based on local legal
requirements or whereexpected by local labour
markets. Contributions meetthe minimum requirements
or are of a modest level.
Basic additional benefits
may also be provided
where available and whereconsidered the norm for
managerial positions insimilar businesses.

n/a

59

60

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Directors’ remuneration reportcontinued

Remuneration components for Executive Directors and SMT (the ‘Executives’) continued
Purpose and link to Strategy

Operation

Opportunity

Performance measures

Executives are eligible toparticipate in an annual
bonus scheme.

Up to a maximum of 30% ofsalary (excluding sales plans
where the maxima may vary).

The portion of bonus earned inany one year depends on the
Remuneration Committee’s
assessment of each individual’s
performance and the overall
performance of the Company
against predetermined turnoverand profitability targets forthe year.

Annual bonus
To provide a modest
award where individual
and Company performance
have been at or above
expected levels.

The Remuneration Committee
reviews targets and theweighting of performancemeasures each year. The
Company also offers
commission arrangements
for Executives in sales roles.

Performance targets are typicallyweighted 80% on the Company’s
financial performance and 20%
on personal performance(however, if the Company’s
financial performance isconsidered to be unsatisfactory,
the element based on personal
performance is likely to beforegone or reduced).

LTIP
To incentivise delivery
against total shareholder
return targets and alignthe interests of Executives
and shareholders ingrowing the value of theGroup over the long-term.

LTIP grants are madeannually in the form ofconditional awards of sharesor nil-cost share options
which vest subject toperformance conditions
measured over three years.
Once vested, awards may
be exercised for a periodof up to 7 years from grant.
Malus provisions apply
in certain circumstances.

LTIP awards are granted
as a number of shares.

Vesting of the LTIP is subject tocontinued employment during
the performance period and theachievement of performance
conditions based on Total
Shareholder Return (“TSR”).
The Committee has the powerof discretion to adjust theoutcome in exceptional
circumstances so that it is afair reflection of the underlying
performance of the Group.
Further details, including theperformance targets attachedto the LTIP in respect of eachyear will be disclosed in therelevant implementation report
on Remuneration (subject tothese being considered not
to be commercially sensitive).

Executive Director shareholding guidelines
With effect from February 2020, a new guideline was introduced which encourages Executive Directors to build and maintain overtime a shareholding in the Company with a value equivalent to at least 100% of their base salary to be met through the retentionof vested LTIP shares. Andrew Day has a significant shareholding and therefore has already met the guideline. Jon Hauck will be
expected to build his shareholding in line with the guideline. Details of the Executive Directors’ current shareholdings are provided
on page 68.

Governance

Financial statements

Supplementary information

Malus policy
For any awards granted since 2016, malus may be applied to LTIP awards in cases of fraud, dishonesty or deceit, gross misconduct
or material financial misstatement in the audited financial results of the Group. The Remuneration Committee may determine that anaward is cancelled in its entirety or be reduced to the extent they see fit.

Use of discretion
The Remuneration Committee may apply its discretion when agreeing remuneration outcomes, to help ensure that theimplementation of our remuneration policy is consistent with underlying Company performance and is equitable to all parties.

Executive Director service contracts
In accordance with general market practice, each of the Executive Directors has a rolling service contract. The following table shows
the date of the service contract for each Executive Director in post at the end of the year:
Executive Director

Position

Date of appointment

Date of service agreement

Notice period

Andrew Day

CEO

1 Apr 200921 Jun 2013

6 months

Jon Hauck

CFO

14 Oct 201930 Sep 2019

6 months

Remuneration for the wider workforce
The remuneration policy for other employees is based on principles consistent with those that are applied to Executive
remuneration, with the common objective of driving financial performance and the achievement of strategic objectives andcontributing to the long-term success of the Group. Remuneration supports our ability to attract, motivate and retain skilled anddedicated individuals whose contribution continues to be a key factor in the Group’s success.
Annual salary reviews take into account Company performance, local pay and market conditions plus salary levels for similar roles
in comparable companies. Some employees below Executive level are eligible to participate in annual bonus schemes; opportunities
and performance measures may vary by organisational level, geographical region and an individual’s role. An annual survey isconducted to ensure gender equality as it relates to employee compensation.
The Company performs equal pay and gender pay gap analyses across all its locations. In particular, the Board of Directors
discussed the results of the latest analyses in December 2019 and are satisfied that there is equal pay, given location and role.
ESOP (LTIPs and Stock Options) programmes are used for senior permanent members of staff, in which approximately 10% of theworkforce (3.3% in the LTIP and 6.7% in Stock Options) participate. The focus of the LTIPs is to retain talent and create long-term
shareholder value consistent with fulfilment of the Company’s long-term strategic goals.

External appointments held by Executives
Executives may not accept any external appointment without the consent of the Board.

Consideration of shareholder views
The Remuneration Committee will take into consideration all shareholder views during the year and at the AGM each year as wellas guidance from shareholder representative bodies more broadly, in shaping the Company’s implementation of its Remuneration
Policy as well as future changes to the Policy.

Leaver treatment
Fair treatment will be extended to departing Executives. The Group’s policy on termination payments is to consider thecircumstances on a case-by-case basis, taking into account the relevant contractual terms in the Executive’s service contract andthe circumstances of termination.
Executives who resign or are dismissed for cause are, by default, not eligible for an annual bonus if they have left or are undernotice at date of payment and forfeit all unvested LTIP shares.
At the Remuneration Committee’s discretion good leavers (normally including such circumstances as retirement, death, disability
and redundancy) may be allowed to exercise a proportion of unvested LTIPs post-termination when, or to the extent that, theunderlying LTIPs meet the performance criteria for vesting.
On a change of control, unvested LTIP awards may be exercised at the time of the event subject to achievement of any performance
conditions.

61

62

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Directors’ remuneration reportcontinued

Pay for performance scenario analysis
The charts that follow provide an estimate of the potential future reward opportunities for the Executive Directors, and thepotential split between the different elements of remuneration under three different performance scenarios: ‘Maximum’, ‘On target’and ‘Minimum’. These charts illustrate how performance-orientated and long-term the Company’s remuneration arrangements are,with the majority of the remuneration opportunity being delivered only under a ‘Maximum’ scenario. We have also included a bar
showing the value of the actual package in 2019.
Potential reward opportunities are based on the Remuneration Policy, applied to 2020 base salaries and incentive opportunities.
Note that the LTIP awards granted in a year will not normally vest until the third anniversary of the date of grant, and the projectedvalue excludes the impact of share price movement.

Potential future reward opportunities for CEO and CFO
CEO

CFO

Minimum

Minimum

On-Target
2020
Scenarios

On-Target
2020
Scenarios

Maximum
Max. +50%
Share PriceAppreciation

–

500

1,000

1,500

Maximum
Max. +50%
Share PriceAppreciation(£000)
Salary

Bonus

–

500

1,000

1,500

(£000)

LTIP

Assumptions:‘Actual 2019’: Fixed remuneration (2019 base salary, pension), bonus granted in 2019 and LTIP vesting in 2019.
‘Minimum’: Fixed remuneration only (2020 base salary, pension), being the only element of Executive Directors' remuneration not linked to performance.
‘On Target’: Fixed remuneration as above, plus target bonus (18% of base salary) and threshold LTIP vesting (10% of maximum) at the 3-month average share.
price to 31 December 2019.
‘Maximum’: Fixed remuneration, plus maximum bonus (30% of salary) and full vesting of proposed 2020 LTIP awards at 3-month average share price to
31 December 2019.
‘Maximum+50%’: As per Maximum scenario but with an assumption of share price growth of 50% over the 3-year performance period for LTIP awards.

Non-Executive Director fee policy
Non-Executive Directors receive fees for attendance at board meetings and its sub-committees. The Company does not operate
any pension scheme for Non-Executive Directors nor do they participate in any variable pay plan. Any reasonable business
expenses (including tax thereon) may be reimbursed.

Section 2: Implementation of the remuneration policy in 2019
The Remuneration Committee
The members of the Remuneration Committee in 2019 were David Reeves (Committee Chairman), Charlotta Ginman and Ross
Graham. The members are all Independent Non-Executive Directors. In the year ended 31 December 2019, the Remuneration
Committee met on eight occasions. All three members of the Committee attended the committee meetings throughout the year
together with, on occasion, the CEO, the CFO, the COO and the Global HR Director, all at the request of the Committee Chairman.
The Company Chairman and the Chairman of the Remuneration Committee also met with key investors on several occasions in2019 to obtain input and feedback on Executive and Company-wide remuneration.

Governance

Financial statements

Supplementary information

The remit of the Committee is to determine and agree with the Board the framework for the remuneration of the Company
Chairman (Ross Graham is not involved in related discussions), Executive Directors, Company Secretary and other members of the
Senior Management of the Group, and also oversee the remuneration policy for the wider workforce. No Director is involved in any
discussion or decision about his or her own remuneration.
Mercer Kepler supports the Remuneration Committee on remuneration related matters and is a member of the Remuneration
Consultants’ Group and, as such, voluntarily operates under the Code of Conduct in relation to Executive remuneration consulting
in the UK. Mercer Kepler does not have any other association with the Company and is considered independent by the Committee.

Directors’ emoluments
The remuneration for the Directors of the Company for the period year ended 31 December 2019 is detailed in the table below:
2019

2018

Salaryor fees
£000

Bonus
£000

Pension
£000

LTIP
£000

Total
£000

Salaryor fees
£000

Bonus
£000

Pension
£000

LTIP
£000

Total 7
£000

234

–

2

9621

1,198

204

19

1

5963

820

Jon Hauck

50

6

3

-

59

–

–

–

–

–

David Broderick 5

201

–

7

3472

555

135

12

7

–

154

Ross Graham

92

–

–

–

92

70

–

–

–

70

David Reeves

68

–

–

–

68

58

–

–

–

58

Giorgio Guastalla

48

–

–

–

48

45

–

–

–

45

Georges Fornay

51

–

–

–

51

49

–

–

–

49

Andrew Day
4Charlotta Ginman

63

–

–

–

63

58

–

–

–

58

Total (£000)

807

6

12

1,309

2,134

619

31

8

596

1,254

Total (€000)6

949

7

14

1,539

2,508

728

36

9

701

1,474

1. Based on share price at vesting date of 10th May 2019 @£16.04.
2. Based on share price at vesting date of 3rd Oct 2019 @£11.57.
3

Based on share price at vesting date of 1st Jun 2018 @£17.04.

4. Jon Hauck’s salary and pension are calculated from his start date of 30th September 2019.
5. David Broderick’s salary and pension are calculated to his departure date of 30th November 2019.
6. FX Eur/Stg = 0.8508.
7.

Individual remuneration has been rounded to the nearest £000 and the rounding differences have not been reflected in the total.

Annual bonus outcome for 2019
During 2019, the Executive Directors participated in the annual bonus scheme, and were eligible to earn awards of up to 30% ofsalary, subject to the attainment of specific targets set for each individual. The portion of bonus earned in the year was dependent
on Company performance (weighted 80%) against turnover and profitability targets for the year in line with our financial KPIs (seepages 34 and 35) and on the Remuneration Committee’s discretionary assessment of each individual’s performance (weighted20%). The discretionary element takes into account the Director’s performance for the year against non-financial targets, suchas mergers and acquisitions, key employee retention and delivery of major projects. The Remuneration Committee also retains
a discretionary override to adjust the final bonus up or down to take into account all aspects of the Company’s performance.
As a result, the CEO would have achieved an annual bonus of 11.3% of salary (but, with agreement of the Remuneration Committee
this was subsequently waived by Andrew Day) and the CFO a bonus of 11.3% of salary, pro-rated for Jon Hauck to reflect his
employment not covering the full financial year. As a leaver during 2019, David Broderick was not eligible to earn a bonus for 2019.
The table below summarises the bonus earned by the Executive Directors for the year:
Director

Outcome

Bonus for 2019

Andrew Day

0% of salary£nil (waived)

Jon Hauck

11.3% of salary£5,631 (pro rata with length of tenure)

63

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Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Directors’ remuneration reportcontinued

Long-term incentives vesting in 2019
In May 2016, Andrew Day was granted an award of 60,000 LTIPs and in October 2016 (his starting date) David Broderick was granted
30,000 LTIPs, the vesting of which was based on the Company’s TSR performance versus the Numis Smaller Companies (excluding
Investment Trusts) Index over the 3-year period ending on 10 May 2019 and 3 October 2019 respectively. One-third of the award vests forachieving Index TSR+10%, two-thirds vests at Index TSR+20%, with full vesting for Index TSR+30% over three years. The Company’s
TSR performance over this period significantly outperformed that of the Index (by c. 205-512%) resulting in full vesting of theseawards in 2019.

TSR over the 3-year performance period

NSCI ex. Inv Trusts: 27%

2016–2019LTIP(£)

NSCI ex. Inv Trusts: 15%

2016–2019
LTIP(£)

Keywords: 512%

Keywords: 205%

Full vesting (Index +30%)
0%

100%

200%

300%

Full vesting (Index +30%)
400%

500%

600%

TSR over the 3-year performance period(May 2016–2019)

0%

50%

100%

150%

200%

250%

TSR over the 3-year performance period(Oct 2016–2019)

Other long-term incentives outstanding during 2019
LTIP awards granted to the Executive Directors in May 2017 and May 2018 remained outstanding during 2019. The full vesting of
the 2017 awards requires Keywords TSR to outperform the Numis Smaller Companies (excluding Investment Trusts) Index over the
3-year period by 45%. Based on performance up to 31 December 2019 when the share price was £14.98, these awards would fully
vest. For the 2018 awards threshold vesting (10% of the award) will vest for TSR in line with the Index and full vesting will be earned
for exceeding the Index TSR by 20% over the performance period. Based on performance up to 31 December 2019 when the shareprice was £14.98, these awards would not vest (see TSR Performance chart below).

Long-term incentives granted during 2019
In 2019, the Executive Directors were awared LTIPs, the vesting of which is based on the Company’s TSR performance versus the
FTSE Small Cap Index over a 3-year performance period. Threshold vesting (10% of the award) will vest
for TSR in line with the Index and full vesting will be earned for exceeding the Index TSR by 20% over the performance period.
The number of shares granted to the Executive Directors is summarised in the table below.
Director

Number of shares

Value as % of salary

Performance period

Vest dateAndrew Day

50,000331%

3 May 2019 – 2 May 2022

3 May 2022

David Broderick

25,000274%

3 May 2019 – 2 May 2022

3 May 20221

Jon Hauck (regular award)

25,000142%30 Sept 2019 – 29 Sept 2022

30 Sept 2022

Jon Hauck (buy-out award)

43,936250%

30 Sept 2019 – 29 Sept 2022

30 Sept 2022

1

On his departure in October 2019, David Broderick forfeited the LTIP granted in 2019.

Jon Hauck was granted a second tranche of 43,936 shares to compensate for those awards he forfeited on his departure from his
prior employment.

Governance

Financial statements

Supplementary information

65

Based on performance up to 31 December 2019 when the share price was £14.98, these awards would not vest (see chart below).

TSR performance up to 31 December 2019NSCI ex. Inv Trusts: 8.7%

2017–2020 LTIP(£)

Keywords: 85.7%
NSCI ex. Inv Trusts: 1.3%

2018–2021 LTIP(£)

Keywords: (22.5%)

2019–2022 LTIP (May)(£)

FTSE Small Cap ex. Inv Trusts: 2.3%

2019–2022 LTIP (Sept)(£)

FTSE Small Cap ex. Inv Trusts: 3.9%

-40%

Keywords: 5.4%

Keywords: -15.6%

-20%

0%

20%

40%

60%

80%

100%

TSR performance
The charts below show (i) the Company’s TSR since listing versus the FTSE Small Cap and Numis Smaller Companies indices, and(ii) the shareholder value created each financial year based on share price growth and dividends paid.

Value of £100 invested in July 2013
1200
1000

Keywords
FTSE Small Cap

800

Numis Small Cap
600
400
200
0
11 Jul
2013

31 Dec2013

31 Dec2014

31 Dec2015

31 Dec2016

31 Dec2017

31 Dec2018

31 Dec2019

66

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Directors’ remuneration reportcontinued

TSR performance continued
Shareholder value created each year £m
£600

£400

£200

£0

-£200

-£400

2014

2015

2016

2017

2018

2019

Shareholder value created each year is based on the change in share price plus dividends paid over each financial year multiplied by the shares outstanding at
the start of each year.

The table below illustrates the CEO’s single figure of total remuneration over the same period as the charts above.
FY13

FY14

FY15

FY16

FY17

FY18

FY19

Single figure (£000)

52

146

213

449

397

820

1,198

Annual bonus outcome (% of max)

N/A

100%

100%

100%

100%

30%

0%

LTIP vesting (% of max)

N/A

N/A

N/A

100%

N/A*

100%

100%

SOP vesting (% of max)

N/A

N/A

100%

100%

100%

N/A

N/A

*

No LTIPs were issued in 2014 and therefore no vesting occurred in 2017.

Change of Chief Financial Officer
David Broderick resigned from the Company and ceased to be an Executive Director effective 14 October 2019. He was entitled toreceive salary, pension and benefits for the period up to the termination date. He has forfeited all outstanding incentive awards,
except the 2017 LTIP award (x2) due to vest May 2020, subject to performance measures being met, as the Committee approved thecontinued vesting of this LTIP award.
Jon Hauck was appointed as Chief Financial Officer effective 14 October 2019. Jon’s salary (£200,000) has been set below the market
median in line with the remuneration policy. He is entitled to a maximum bonus of 30% of salary and an uncapped pension contribution
of 5% of salary. Upon hiring, he was granted an LTIP award of 68,936 shares (25,000 as part of the regular 2019 cycle and 43,936
shares as compensation for forfeited awards) vesting over 3 years based on TSR performance against the FTSE Small Cap Index.

Governance

Financial statements

Supplementary information

Chief Executive Officer pay ratio
Although the new amendments to the Companies (Miscellaneous Reporting) Regulations 2018 do not apply to Keywords as an
AIM-quoted company, we have chosen to adopt the disclosure on CEO pay ratio to align with best practice. The table below provides
disclosure of the ratio between the CEO’s salary and total remuneration and that of the lower quartile, median and upper quartile ofour 380 UK-based employees.
Financial
year

Calculation
methodology

2019Companies (Miscellaneous
Reporting) Regulations
2018 (Option A)

P25(lower quartile)

P50(median)P75(upper quartile)

Salary ratio

9:1

7:1

5:1

Salary (£000)

26.4

35

50

Total remuneration ratio

38:1

30:1

21:1

Total remuneration (£000)

31.6

40.6

56.8

CEO

240
1,198

The lower, median and upper quartile employees were determined using calculation methodology A which involved calculating
the actual full-time equivalent remuneration for all UK employees for the year ended 31 December 2019. From this analysis, three
employees were then identified as representing the 25th, 50th and 75th percentile of the UK employee population. Keywords chose
this method as it is the preferred approach of the Government and that of shareholders, and the Company had the systems in place
to undertake this method. As the drafting of this report was earlier than the final determination of bonuses for the wider population,
the bonus outcomes have been based on the financial forecasts in December 2019.
As this is the first year of reporting the CEO pay ratio using the above methodology, there is no comparative data against whichto compare the pay ratios above. The Committee will consider the median pay ratio of 30:1 in the context of the ratio reported infuture years.
The CEO pay ratio is based on comparing the CEO’s pay to that of Keywords’ UK-based workforce, a large proportion of whomare engineers, artists, and support staff. The Committee expects that the ratios will be largely driven by the CEO’s incentive pay
outcomes, which will likely lead to greater variability in his pay than that observed at lower levels who, consistent with market
practices, have a greater proportion of their pay linked to fixed components. The Committee takes into account these ratios when
making decisions around the Executive Director pay packages, and Keywords takes seriously the need to ensure competitive pay
packages across the organisation.

Implementation of the remuneration policy in 2020
SalaryWith effect from 1 March 2020, salary increases of 2% have been awarded to the CEO and CFO, such that their 2020 salaries will be£244,800 and £204,000 respectively.

Pension
The Committee agreed that Andrew Day’s pension would be enhanced to be consistent with that of the majority of the UK
workforce by removal of the salary cap (£50,000 at 3%). Jon Hauck’s pension remains unchanged from 2019 at 5% of salary.

Annual bonus
The Executive Directors will be eligible to earn an annual bonus of up to 30% of salary in line with previous years. The outcome will
be determined with reference to targets set at the start of 2020 around financial performance (revenue and profit, weighted 80%)and personal performance (weighted 20%).

LTIP
The Remuneration Committee intends to make awards under the LTIP to the Executive Directors in line with previous years, withvesting based on the Company’s TSR performance versus the FTSE Small Cap Index over a 3-year period, consistent with theperformance condition for awards granted in 2019.

67

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Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Directors’ remuneration reportcontinued

Non-Executive Directors’ remuneration
Non-Executive Director fees are based on the roles and responsibilities of the Directors (see table below). There are no fee
increases for Non-Executive Directors in 2020.
Role

Board Chairman

Ross Graham*David Reeves

Giorgio Guastalla

Charlotta Ginman

Georges Fornay£48,000£48,000£48,000£90,000

Senior Independent Director fee£5,000Non-Executive Director basic fee£48,000

Additional fees:
Chairman of the Audit Committee£12,000

Chairman of the Remuneration Committee£12,000

Member of:
Audit Committee£3,000£3,000

Remuneration Committee
Total*£3,000£90,000£68,000£48,000£63,000£51,000

Ross Graham receives no additional fees on top of his Board Chairman fee for his membership of the sub-committees.

Directors’ interest in shares
The interests of each person who was a Director of the Company (together with interests held by his or her connected persons) were:
At 31 Dec 19

At 31 Dec 18

Andrew Day

3,296,573

3,296,573

Giorgio Guastalla 1

3,150,662

3,600,662

Ross Graham

58,44058,440David Reeves

32,40032,400Georges Fornay

5,142

5,142

Charlotta Ginman

1,733

1,733

Jon Hauck

1

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

––

6,544,950

6,994,950

Governance

Financial statements

Supplementary information

The outstanding LTIP and Option awards held by each Executive Director of the Company are as follows.

LTIP
Number at
31 Dec 18

Numbergranted during
the year

Numbervesting during
the year

Numberlapsed / forfeitedduring the year

Andrew Day

Vesting dateCurrent vesting
expectation**

86,593–––86,59312 Jul 2016*

35,000–––35,00001 Jun 2018*

60,000–60,000–60,00010 May 2019*52,000–––52,00015 May 2020

100%

50,000–––50,00018 May 2021

0%–50,000––50,000

3 May 2022

25%–

25,000––25,00030 Sept 2022

0%–43,936––43,93630 Sept 2022

0%

30,000–30,000––3 Oct 2019*30,000–––30,00015 May 2020

25,000––25,000–18 May 2021–

25,000–25,000–

3 May 2022

368,593

143,936

90,00050,000432,529

Jon Hauck
David Broderick(former CFO)*

Number at
31 Dec 19

100%

Awards have vested.

** Vesting expectation (% of award) is based on the achievement of the TSR performance condition up to 31 December 2019.
	The awards in the table above vesting in 2020 were granted subject to the Company’s TSR performance versus the Numis Smaller Companies (excluding
Investment Trusts) Index over a 3-year period with a 4-year exercise window and continuous employment; threshold vesting (10% of the award) will vest
for TSR in line with the Index and full vesting will be earned for exceeding the Index TSR by 45% over the performance period. The awards in the table
above vesting in 2021 and 2022 were granted subject to the TSR condition as described in the Section above “Long-term incentives outstanding during
2019” and “Long-term incentives granted during 2019” respectively, having the same criteria save that full vesting applies for exceeding the Numis Smaller
Companies (excluding Investment Trusts) Index by 20% (previously 45%) in 2021 and the FTSE Small Cap Index in 2022.

Share Option Scheme

Andrew Day

Number at
31 Dec 18

Number granted
during the year

Number exercised
during the year

Numberlapsed / forfeitedduring the year

Number at
31 Dec 19

Vesting date

21,167–––

21,16712 Jul 2015

21,167–––

21,16712 Jul 2016

21,168–––21,16812 Jul 2017

63,502–––63,502

Executive Directors no longer receive awards under the Share Option Scheme. Awards of options in the table above have all vested
and shall lapse the day before the seventh anniversary of the Date of Grant (12 July 2013), assuming it is not exercised before thenand no event occurs to cause it to lapse earlier under the Rules.

Dr David Reeves
Chair of the Remuneration Committee
16 April 2020

69

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Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Report of the Nomination Committee

Roles and responsibilities

Governance processes

The role of the Committee is to develop
and maintain a formal, rigorous andtransparent procedure for making
recommendations on appointments
and re-appointments to the Board. In
addition, it is responsible for reviewing
the succession plans for the Executive
Directors and the Non-Executive
Directors. This involves:

The Committee meets at least twicea year and at such other times as theCommittee Chair or any member of theCommittee may request. In 2019, theCommittee met twice. The Committee
has formal terms of reference which canbe viewed on the Company’s website,www.keywordsstudios.com.

•

Succession

Reviewing the structure, size andcomposition of the Board and making
recommendations to the Board withregard to any changes.

•

Assessing the effectiveness andperformance of the Board andeach of its Committees including
consideration of the balance ofskills, experience, independence andknowledge of the Company on the
Board, its diversity, including gender,
how the Board works together as aunit, and other factors relevant to
its effectiveness.

•

Considering succession planningfor Directors and members of the
Executive Management Team.

•

Identifying and nominating newmembers to the Board.

•

Reviewing the results of the Board
performance evaluation processthat relate to the composition of theBoard and the performanceof individual Directors.

•

Reviewing annually the time input
required from Non-Executive Directors.

Diversity
The Committee reviews the Board
Diversity Policy regularly, with thelast review in March 2020. The policy
acknowledges that an effective Board will
include and make good use of differencesin the skills, regional and industry
experience, background, race, gender andother distinctions between Directors andemphasises that in identifying suitable
candidates for appointment to the Board,
the Committee will consider candidates
on merit against objective criteria, with
due regard for the benefits of diversity
on the Board.

Main activities
The Board is committed to effectively
managing leadership succession andproactively engages with the Senior
Management Team to assess the
Executive talent pool. The Committee andthe Board receive regular contributions
from individuals in the wider Executive
Group at meetings of the Board andCommittees throughout the year.
These contributions are valuable for ourdecision making and have helped theNon-Executive Directors to develop a
clear understanding of the strengthof the management team.
Succession planning is designed toconsider the planned process of transition
to new leadership over time and also thepotential for unforeseen change over ashorter timeframe. The Board and theCommittee keep in touch with the talentdevelopment process throughout theorganisation, conscious of the strategic
importance of promoting from within as
far as possible to support the Company’s
growth plans as set out in the strategic
report.
Senior management succession planningwill continue to be a focus for 2020.

Annual evaluation of the Board
and Committees’ performanceThis year’s annual internal Board andCommittee evaluation exercise wasdesigned and led by the Company
Secretary, working closely with the
Chairman of the Board in order toprovide objectivity. The areas covered
were: structure and skills, operating
effectiveness, operating efficiency, qualityof information and ongoing development.
The findings from this evaluation, basedon an in-depth questionnaire issued toeach Director, identified a number of
positive areas including site visits to
the Company’s studio locations and theappointment of an Internal Audit Manager,
signalling progress from the previous
evaluation exercise. Although the Boardand sub-committees are working well,areas highlighted for improvement include
the need to spend more time discussing
the quality and effectiveness of the senior
management structure below the CEO, theeffectiveness of the Company’s strategy
from a day-to-day standpoint, and tocontinue to undertake more site visits to
the Company’s studio locations. These
matters will be addressed during the2020 financial year. In addition, individual
reviews of Non-Executive Director’s
performances were carried out by the
Chairman, and the performance of the
Chairman was reviewed by the rest of the
Directors. This concluded that overall the
Chairman devotes adequate time of theCompany’s business, stays abreast ofdevelopments affecting the Company,
and shows a strong understanding of
the business.

Board and Committee Composition
The Committee also reviewed the size,
composition and skill set of the Board
during the year and concluded that there
was an appropriate mix of experience,skills and knowledge to provide strong
and effective leadership.

Role of the Company Secretary
The Directors have access to the servicesof a Company Secretary through Liam
O’Donoghue of ONE Advisory Limited, whoprovides advice on company secretarial
and corporate governance matters.

Ross K Graham
Chairman of the Nomination Committee
16 April 2020

Governance

Financial statements

Supplementary information

Directors’ 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 2019.
Disclaimer
The purpose of this Annual Report and financial statements are
to provide information to the members of the Company. The
Annual Report and financial statements have been prepared
for, and only for, the members of the Company, as a body, andno 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 or into
whose hands it may come and any such responsibility or
liability is expressly disclaimed.
The Annual Report and financial statements contain certain
forward-looking statements with respect to the operations,performance and financial condition of the Group. By theirnature, 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 atthe date of preparation of this Annual Report and financial
statements and the Company undertakes no obligation to updatethese forward-looking statements. Nothing in this Annual Reportand financial statements should be construed as a profit forecast.

Dividends
The results for the year are set out on page 79. Dividends paid
are set out on page 101. The Board is not proposing a final
dividend following the payment of an interim dividend of 0.58p
per share in October 2019.

The Directors have also considered the Group’s strong
liquidity position, with access to cash and committed undrawn
facilities under the Revolving Credit Facility (RCF) of €82m at 31
December 2019 and the uncommitted accordion feature under
the RCF agreement providing access to up to €40m of additional
funds subject to lender agreement.
The Directors have applied downside sensitivities to the Group’s
cash flow projections to evaluate the Group’s ability to withstanda prolonged period of studio closures as a result of the COVID-19
pandemic, leading to a reduction in production capability. Under
this severe case the Group would have sufficient liquidity andremain within its banking covenants. The Directors are satisfied
that the Company and the Group have adequate resources tocontinue to operate and meet its liabilities as they fall due forthe foreseeable future, a period considered to be at least 12
months from the date of signing these financial statements. For
this reason they continue to adopt the going concern basis for
preparing the financial statements.

Financial risk management
The Group’s approach to capital management is shown innote 25 of the financial statements. The Group’s exposure andapproach to liquidity, credit, interest rate and foreign currency
risk is shown in note 23 of the financial statements. Our
approach to risk management generally and our principal risks
can be found in the strategic report on pages 22 and 23.

Political donations

Directors and changes to the Board

No political donations were made in the year.

The Directors of the Company during the year were Ross Graham,
Andrew Day, David Reeves, Giorgio Guastalla, Georges Fornay,Charlotta Ginman, Jon Hauck (appointed 14 October 2019), andDavid Broderick (resigned 14 October 2019). Details of membersof the Board at 31 December 2019 are set out on pages 48 and 49.

Directors and their interests

Going concern
The Directors have performed an assessment, including areview of the Group's budget for the 2020 financial year and its
longer term plans. In doing so the Directors have considered theuncertain nature of the current COVID-19 pandemic but havenoted the strong continued demand for the Group’s services,
the ability to operate most of its services in a work from homemodel whilst studios are temporarily closed, the historicalresilience of the broader video games industry in times of
economic downturn and the ability of the Group to flex its costbase in response to a reduction in trading activity.

A list of Directors, their interests in the ordinary share capital of
the Company, their interests in its long-term performance shareplan and details of their options over the ordinary share capitalof the Company are given in the Directors’ Remuneration reporton pages 57 to 69. No Director had a material interest in any
significant contract, other than a service contract or contract forservices, with the Company or any of its operating companies at
any time during the year.

71

72

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Directors’ report continued

Significant shareholdings
At 31 December 2019, the Company had been notified, in accordance with the Disclosure Guidance and Transparency Rules, of thefollowing interests in its ordinary share capital*:
Name

Shares%Franklin Templeton

6,020,414

9.2

Octopus Investments

4,030,666

6.2

P.E.Q Holdings*

3,500,736

5.4

Andrew Day

3,296,573

5.1

Liontrust Asset Management

3,255,696

5.0

T Rowe Price Global Investments

3,220,657

4.9

TimesSquare Capital Management

2,283,856

3.5*

As recorded on the Company’s share register.

Future developments

Corporate responsibility

Important events since the financial year end related to the
COVID-19 pandemic are described in note 30 of the financial
statements, the Chief Executive's review section on pages 14
and 15 and in the Service line review on pages 24 to 27. Future
developments are described in the strategy section of thestrategic report on pages 22 and 23.

Keywords seeks to be a socially responsible Group which has
a positive impact on the communities in which it operates. By
the nature of the business, we employ a diverse workforce,with many nationalities. No discrimination is tolerated and we
endeavour to give all employees the opportunity to develop
their capabilities. We provide an excellent working environment,
the latest technology and appropriate training.

People and organisation
Keywords is, and always has been, dependent on the quality andcommitment of its entire staff to provide and maintain the highlevels of services expected by the Groups’ customers.
Keywords average number of employees was 7,424 during 2019.
This permanent headcount is supplemented with employees on
short-term contracts as activity changes throughout the year.

Employment policy
Keywords has a range of employment policies covering such
issues as diversity, employee wellbeing and equal opportunities.
The Group continues to give full and fair consideration toapplications for employment made by disabled persons, having
regard to their particular skills and experience. Appropriatearrangements are made for the continued employment andtraining, career development and promotion of disabled
persons employed by the Group including making reasonableadjustments where required. In the event of any colleague
becoming disabled during their career at Keywords, every effort
is made by the Group to ensure their continued employment andengagement with the business.

Employee involvement
The Group provides employees with information on mattersof concern to them so that their views can be taken into accountwhen making decisions that are likely to affect their interests.
A summary of the methods we use to engage with our
employees are provided in Our People, our culture section of theAnnual Report on pages 28 to 33, Responsible Business reporton pages 40 to 42 and Section 172(1) statement on page 43.
Approximately 10% of the workforce participate in the Employee
Share Option Plan (see page 61). We continue to review options
to expand participation in employee share schemes.

Website publication
The Directors are responsible for ensuring the Annual Reportand financial statements are made available on a website.
Financial statements are published on the Group’s website inaccordance with legislation in the United Kingdom governing the
preparation and dissemination of financial statements, which
may vary from legislation in other jurisdictions. The maintenanceand integrity of the Group’s website is the responsibility of
the Directors. The Directors’ responsibility also extends to theongoing integrity of the financial statements contained therein.
By order of the Board

Jon Hauck
Chief Financial Officer
16 April 2020

Governance

Financial statements

Supplementary information

Statement of Directors’ responsibilities

The Directors are responsible for preparing the Annual Report andfinancial statements.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group and Company financial statements inaccordance with International Financial Reporting Standards(IFRS) as adopted by the European Union (EU).

The Directors as at the date of this report, whose names andfunctions are listed in the Board of Directors on pages 48 and 49,
confirm that:•

So far as the Director is aware, there is no relevant audit
information of which the Company’s auditors are unaware; andUnder company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fairview of the state of affairs of the Company and the Group and of
the profit or loss of the Group for that period. The Directors arealso required to prepare financial statements in accordance withthe rules of the London Stock Exchange for companies trading
securities on the Alternative Investment Market.

•

The Director has taken all the steps that he or she ought tohave taken as a Director in order to make himself / herself
aware of any relevant audit information and to establishthat the Company’s auditors are aware of that information.

In preparing these financial statements the Directors are
required to:•

Select suitable accounting policies and then apply themconsistently;•

Make judgements and estimates that are reasonable andprudent;•

State whether IFRS as adopted by the EU have been
followed, subject to any material departures disclosed andexplained in the Group and Company financial statements
respectively; and•Prepare the financial statements on a going concern basis,
unless it is inappropriate to presume that the Company willcontinue in business.

The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’stransactions and disclose with reasonable accuracy at any
time the financial position of the Company and the Group andto enable them to ensure that the financial statements andthe Directors’ remuneration report comply with the Companies
Act 2006. They are also responsible for safeguarding theassets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.

This confirmation is given and should be interpreted inaccordance with the provisions of section 418 of the Companies
Act 2006.

Website publication
The Directors are responsible for ensuring the Annual Report andfinancial statements are made available on a website. Financial
statements are published on the Group’s website in accordancewith legislation in the United Kingdom governing the preparationand dissemination of financial statements, which may vary fromlegislation in other jurisdictions. The maintenance and integrityof the Group’s website 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

Liam O’Donoghue
Company Secretary
16 April 2020

73

74

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

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 2019 which comprise the Group and Parent Company Statements of Financial Position, the GroupStatement of Comprehensive Income, the Group and Parent Company Statements of Cash Flows, the Group and Parent Company
Statements of Changes in Equity, and the notes 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 andInternational Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company
financial statements, as applied in 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 2019 and of 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; and•the 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 under those 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 toour audit of the financial statements in the UK, including the FRCs Ethical Standard as applied to listed entities, and we have fulfilled
our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained issufficient 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; or•the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt
about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of atleast 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
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due tofraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in theaudit; and directing the efforts of 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 non complex in nature, there is a material accrued revenue balance as
at 31 December 2019 of €7.0m (2018: €6.3m). We focused on this area due to the risk of management manipulation of the timing ofrevenue recognition and the cut off relating to accrued revenue at the year end.

Related Disclosures
Refer to note 2 of the accompanying consolidated financial statements for the accounting policies of the Group in relation to
Revenue Recognition.

Governance

Financial statements

Supplementary information

Audit Response
We have performed audit procedures to understand the application of the revenue recognition accounting policies and to assess
whether for each material revenue stream, that revenue 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 specificaudit procedures on a sample basis on less significant components of the group.
Our audit work included, but was not restricted to, reviewing a sample of transactions both throughout the year and around theyear end, to assess that the stage of completion and therefore accrued revenue is reflective of the underlying project status. We
have tested these transactions to supporting documentation such as sales orders and contracts from customers, project statusevidence, and subsequent billing. When examining samples of transactions around the year end we have assessed whether therevenue has been recognised in the correct period.

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 amaterial and extensive impact on the group’s financial performance and position.
Following the purchase price allocations (in which identifiable assets and liabilities assumed were recognised at fair value), €176m(2018: €154m) of goodwill has been recognised cumulatively to date. The fair value of certain identifiable assets acquired andliabilities assumed in a business combination is different from their carrying amounts in the acquired statements of financial
position which can give rise to fair value adjustments as part of the purchase price allocations of these business combinations.
Accordingly, the cumulative acquisitions are material and significant judgement is required in relation to the purchase priceallocations including the resulting goodwill.
Management determined the fair value of the identifiable assets and liabilities and notably the value of the customer relationships.
The valuation of these assets was 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 cash payments at future dates,
which add further complexity with regard to the acquisition-date fair value of such consideration as part of the considerationtransferred in exchange for the acquisitions and business combinations.

Related Disclosures
Refer to note 2 of the accompanying consolidated 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 relating to each acquisition to assess whether thebasis for treatment of the acquisitions 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 management’s
assessments of the fair value of the assets and liabilities acquired, and in particular, the methodology applied in the valuation of
intangible assets and goodwill.
Our procedures included;•

We reviewed the methodology applied to identify the categories of intangible assets,•

We evaluated whether the cash flow forecasts used in the valuation are consistent with information approved by the Boardand 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 and historic acquisitions to evaluate whether management had been consistent in its approach to valuations, and•We assessed the adequacy of the acquisition disclosures in the Group’s financial statements.

75

76

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Independent Auditor’s reportto the members of Keywords Studios plc continued

2 Business Combinations continued
In addition, we have examined the terms of all business combinations to assess whether the fair value of any deferred / contingent
consideration is treated 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 of the transactions and considered whether they have been appropriately accounted for in line with the groupaccounting policy and the requirements of IFRS 3.

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 €176m (2018: €154m), andintangibles carrying value of €21.1m (2018: €25.9).
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 and perpetual growth rate.
The Directors have concluded that there is one cash generating unit (“CGU”) in the group, for the purposes of impairment assessment.

Related Disclosures
Refer to note 2 of the accompanying consolidated financial statements for the accounting policy in relation to businesscombinations, intangible assets and goodwill. In addition, detailed disclosures have been made in relation to each businesscombination in note 28 to the financial statements. Detailed disclosures are made in note 11 relating to goodwill, and note 12 inrelation to intangible assets.

Audit Response
We have reviewed the Directors 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 evaluated that the CGU identified is the lowest level at which management monitors goodwill and intangible assets,•

We have reviewed 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,•

We have assessed the key estimates and inputs into the discounted cash flow models, including the growth rates assumed,
and tested these where possible to supporting evidence such as post year end activities,•

We have completed sensitivity analyses in relation to the cash flow models and have stress tested all key assumptions used, and•We have considered the appropriateness of the disclosures relating to the valuation of goodwill and intangible assets in thefinancial statements.

Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We
consider materiality to be the magnitude by which misstatements, including omissions in the financial statements, could influence
the economic decisions of reasonable users that are 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 thenature of identified misstatements, and in particular the circumstances of their occurrence, when evaluating their effect on thefinancial statements as a whole.
We determined materiality for the financial statements as a whole to be €1.75m, which represents 10% of profit before taxation
and represents less than 2% of equity. We consider profit before income tax to be the most significant determinant of the group’s
financial performance used by shareholders and other users and therefore consider this as an appropriate basis for materiality. Our
materiality is lower than the level we set for the year ended 31 December 2018 (€2.2m), due to the decreased profits of the group.

Governance

Financial statements

Supplementary information

Our application of materiality continued
We agreed with the Audit Committee that we would report to the Committee all individual differences identified during the courseof our audit in excess of €87,500, (2018: €110,000). We also agreed to report differences below this threshold that, in our view,
warranted reporting on qualitative grounds.
Materiality for the parent company financial statements as a whole was also considered. As the parent company's primary functionis that of a holding company, a benchmark based on 5% of total assets was deemed appropriate. The resulting materiality figure forthe parent company financial statements was €8.9m. As this amount was greater than the materiality applied to the group financial
statements, the lower group financial statement materiality figure of €1.75m was applied in relation to the parent company financial
statements also.

An overview of the scope of our audit
Our 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 countries, and 77 wholly
owned subsidiary entities.
Based on our assessment, we have completed full scope audit procedures in relation to the following entities; Keywords Studios
plc, Keywords International Limited, Sperasoft Studios LLC, Cord Worldwide Limited, Studio Gobo Limited, Electric Square Limited,
Keywords Studios QC-Games Inc (formerly Babel Games Services Inc), Keywords France, Keywords China and Keywords Studios
Italia S.R.L (formerly Binari Sonori S.R.L & Sillabit S.R.L).
In addition, specific audit procedures have been completed in relation to certain material balances and transaction streams in VMC
Embedded Services, Keywords Canada Holdings Inc (formerly Volt Canada Inc), Keywords Studios QC-Tech Inc (formerly Alchemic
Dream Inc), and Keywords Studios Japan.
The above entities represent 74% of Group revenues. Analytical review procedures have been performed on the remaining nonsignificant components in the group.
Whilst materiality for the financial statements as a whole was €1.75m, each component of the group was audited to a lower levelof materiality. Audits of these components were performed at a materiality level calculated by reference to a proportion of groupmateriality appropriate to the relative scale of the business concerned.
The Group auditor, BDO Dublin, has audited Keywords Studios plc, Keywords International Limited, Cord Worldwide Limited, Studio
Gobo Limited, Electric Square Limited. Their involvement in the work performed by other component auditors varies by locationand involves, at a minimum, direction of the audit procedures to be completed, and review of the reports received in relation to theresults 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 on planned visits: Brighton, UK (Electric Square) and Canada to meet with local auditors and local Keywords Management.
At the parent company level we have also tested the consolidation process and carried out additional procedures to confirm ourconclusion that 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, other than 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 orotherwise 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 otherinformation, we are required to report that fact. We have nothing to report in this regard.

77

78

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Independent Auditor’s reportto the members of Keywords Studios plc continued

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 prepared is consistent with the financial statements; and•the 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 courseof 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 toyou if, in our opinion:•adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or•the parent company financial statements are not in agreement with the accounting records and returns; or•certain 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.

Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 73 the directors are responsible for the
preparation of the financial 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 a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis ofaccounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have norealistic 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 tostate to them in an auditor’s report 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 forthe 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 ahigh 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 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.

John O’Callaghan (Senior Statutory Auditor)
For and on behalf of BDO, Statutory Auditor
Dublin 2, Ireland
16 April 2020

Governance

Financial statements

Supplementary information

Consolidated statement of comprehensive income

Years ended 31 December
Note

2019
€’000

2018
€’000

Revenue from contracts with customers

4

326,463

250,805

Cost of sales

5(206,234)(154,997)

120,22995,808Gross profit
Share option expense

17(9,775)(4,129)Costs of acquisition and integration

5(4,348)(5,296)

Amortisation of intangible assets

12(7,318)(6,872)

Total of items excluded from adjusted profit measures(21,441)(16,297)

Other administration expenses(77,246)(56,826)

Administrative expenses(98,687)(73,123)

Operating profit

21,542

22,685

6

74

791

Financing cost

6

(4,245)(1,316)

Share of post-tax profit / (loss) of equity accounted associate

27

–

(66)

17,37122,094

Financing income

Profit before taxation(7,462)(7,191)

9,909

14,903(167)

27

Exchange gain / (loss) in net investment in foreign operations

1,267

1,270

Exchange gain / (loss) on translation of foreign operations

5,960

771

16,96916,971

10,022

14,903

(113)

–

9,909

14,90317,082

16,971

Taxation

7

ProfitOther comprehensive income:Items that will not be reclassified subsequently to profit or loss
Actuarial gain / (loss) on defined benefit plans

19

Items that may be reclassified subsequently to profit or loss

Total comprehensive income
Profit / (loss) for the period attributable to:
Owners of the parent
Non-controlling interest
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interest

Earnings per share

(113)

–

16,96916,971€ cent€ centBasic earnings per ordinary share

8

15.23

23.16

Diluted earnings per ordinary share

8

14.73

22.24

The notes from page 86 onwards form an integral part of these consolidated financial statements.
On behalf of the Board					
Andrew Day			
Director				
16 April 2020

Jon Hauck
Director

79

80

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Consolidated statement of financial position

At 31 December
2019
€’000

2018
€’000

13
24
11
12
27
26

22,163
21,469175,639
21,130–5,060
245,461

15,002–
154,20225,884160
2,967
198,21514
1543,24335,413
41,827
120,483
365,944

37,01923,45939,871
100,349
298,564

16
16
16
16

780
5,310
102,979
50,451
5,764(1,997)
16,44943,187
222,92335
222,958763
15,648102,225
35,996(1,463)(1,997)
6,674
34,529192,375–
192,375

8,027
38,712
80
2,732
7,741
57,292

7,142
41,15340,071
6,665–
95,031285
2,049
59,671
9,523
14,166
85,694
365,944

1,062
1,378
230
8,488
–
11,158298,564Note

Non-current assets
Property, plant and equipment
Right of use assets
Goodwill
Intangible assets
Investment in associate
Deferred tax assets
Current assets
Trade receivables
Other receivables
Cash and cash equivalents
Total assets
EquityShare capital
Share capital – to be issued
Share premium
Merger reserve
Foreign exchange reserve
Shares held in Employee Benefit Trust (“EBT”)
Share option reserve
Retained earnings
Non-controlling interest
Total equity
Current liabilities
Trade payables
Other payables
Loans and borrowings
Corporation tax liabilities
Lease liabilities

16

18
20
24

Non-current liabilities
Other payables
Employee defined benefit plans
Loans and borrowings
Deferred tax liabilities
Lease liabilities

18
19
20
26
24

Total equity and liabilities

The notes from page 86 onwards form an integral part of these consolidated financial statements. The financial statements wereapproved and authorised for issue by the Board on 16 April 2020.
On behalf of the Board					
Andrew Day			
Director				
16 April 2020

Jon Hauck
DirectorGovernance

Financial statements

Supplementary information

Consolidated statement of changes in equity

Share
capital
€’000

Share
capital– to beissued€’000

Sharepremium€’000

Mergerreserve€’000

Foreignexchangereserve€’000

Sharesheld in
EBT
€’000

Share
optionreserve€’000

Retainedearnings
€’000

Total
attributableto owners ofparent€’000

Noncontrollinginterest
€’000

Total
equity€’000

At 1 January 2018

737

11,620102,054

28,878(3,504)(1,997)

2,545

20,679161,012–161,012

Profit for the period

–

–

–

–

–

–

–

14,903

14,903–

14,903

Other comprehensive
income

–

–

–

–

2,041

–

–

27

2,068

–

2,068

Total comprehensive
income for the period

–

–

–

–

2,041

–

–

14,93016,971–

16,971

Share option expense

–

–

–

–

–

–

4,129

–

4,129

–

4,129

Share options
exercised

3

–

171

–

–

–

–

–

174

–

174

Dividends (note 9)

–

–

–

–

–

–

–

(1,080)(1,080)–(1,080)Acquisition related
issuance of shares(note 16)

23

4,028

–

7,118

–

–

–

–

11,169–

11,169Contributions by andcontributions to theowners

26

4,028

171

7,118

–

–

4,129

(1,080)14,392–

14,392Contributions by andcontributions to theowners:At 31 December 2018

763

15,648102,225

35,996(1,463)(1,997)

6,674

34,529192,375–

192,375

Profit for the period

–

–

–

–

–

–

–

10,022

10,022

(113)

9,909

Other comprehensive
income

–

–

–

–

7,227

–

–

(167)

7,060

–

7,060

Total comprehensive
income for the period

–

–

–

–

7,227

–

–

9,855

17,082(113)

16,969

Share option expense

–

–

–

–

–

–

9,775

–

9,775

–

9,775

Share options
exercised

7

–

754

–

–

–

–

–

761

–

761

Dividends (note 9)

–

–

–

–

–

–

–

(1,197)(1,197)–(1,197)

Acquisition related
issuance of shares(note 16)

10

(10,338)–

14,455

–

–

–

–

4,127

–

4,127

Net assets on
acquisition of
AppSecTest

–

–

–

–

–

–

–

–

–

148

148

Contributions by andcontributions to theowners17(10,338)754

14,455

–

–

9,775

(1,197)

13,466

148

13,614

At 31 December 2019

780

5,310

102,979

50,451

5,764(1,997)

16,44943,187

222,92335

222,958

Contributions by andcontributions to theowners:81

82

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Consolidated statement of cash flows

Years ended 31 December
2019
Note

Cash flows from operating activities
Profit after tax
Income and expenses not affecting operating cash flows
Depreciation – property, plant and equipment
Depreciation – right of use assets
Amortisation of intangible assets
Taxation
Share option expense
Fair value adjustments to contingent consideration
Disposal of property, plant and equipment
Unwinding of discounted liabilities – deferred consideration
Unwinding of discounted liabilities – lease liabilities
Share of post-tax (profit) / loss of equity accounted associateInterest receivable
Fair value adjustments to employee defined benefit plans
Interest expense
Unrealised foreign exchange (gain) / loss

13
24
12
7
17
5
13
6
6
27
6
19
6

Changes in operating assets and liabilities
Decrease / (increase) in trade receivables
Decrease / (increase) in MMTC and VGTR receivable
Decrease / (increase) in other receivables(Decrease) / increase in accruals, trade and other payables
Taxation paid
Net cash generated by / (used in) operating activities
Cash flows from investing activities
Current year acquisition of subsidiaries net of cash acquired
Prior year acquisition of subsidiaries net of cash acquired
Settlement of deferred liabilities on acquisitions
Investment in associate
Acquisition of property, plant and equipment
Investment in intangible assets
Interest received
Net cash generated by / (used in) investing activities
Cash flows from financing activities
Repayment of loans
Payments of principal on lease liabilities
Interest paid on principal of lease liabilities
Loan to finance acquisitions
Dividends paid
Share options exercisedInterest paid
Net cash generated by / (used in) financing activities
Increase / (decrease) in cash and cash equivalents
Exchange gain / (loss) on cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of period

28
18
27
13
12

29
6
29
9
16

€’000

2018*
Restated
€’000

9,909

14,903

7,295
7,849
7,318
7,462
9,775
493
200
330
694
–
(74)
504
934
(577)
42,203

5,316
–
6,872
7,191
4,129
766
63
311
–
66
–
279
502
(992)
24,503(4,370)(5,913)(2,162)
6,402(6,043)(13,288)
32,781(7,680)
(370)
2,850
(252)
(5,452)(6,304)27,650(13,051)–(14,711)–(13,145)(391)
74(41,224)(24,163)(726)(1,603)(226)(9,440)(1,599)–(37,757)(7,973)(7,355)(694)
27,000(1,197)761(1,436)
9,106
663
1,293
39,871
41,827(10,835)––
31,850(1,080)174(502)
19,6079,500(3)30,37439,871*	The prior year has been restated to re-classify the Acquisition and integration cash outlay to Net cash generated by / (used in) operating activities, as the
Directors consider this to be more appropriate.

Governance

Financial statements

Supplementary information

Company statement of financial position

At 31 December
Note

2019
€’000

2018
€’000

Non-current assets
Property, plant and equipment

13

357

389

Investment in subsidiaries

21

30,67030,670

Other receivables

15

208,352

175,509

Right of use assets

24

619

–

239,998

206,568

16,096

1,737

Current assets
Other receivables

15

Cash and cash equivalents
Total assets

599

438

16,695

2,175

256,693

208,743

EquityShare capital

16

780

763

Share capital – to be issued

16

5,310

15,648

Share premium

16

102,979

102,225

56,132

41,677(1,997)(1,997)Merger reserve
Shares held in EBT

16

Share option reserve
Retained earnings
Total equity

16,449

6,674

(84)

(2,538)

179,569

162,452

Current liabilities
Trade payables
Other payables

18

Loans and borrowings

20

Corporation tax liabilities
Lease liability

24

139

285

11,2985,435–

40,000

–

3

204

–

11,64145,723

Non-current liabilities
Other payables

18

5,561

568

Loans and borrowings

20

59,500–

Lease liability

24

422

–

Total equity and liabilities

65,483568

256,693

208,743

In accordance with Companies Act 2006, the Company is availing of the exemption from presenting its individual Statement ofComprehensive Income to the Annual General Meeting and from filing it with Companies House. The amount of profit after tax dealt
with in the parent undertaking is €3,651k (2018: loss of €1,147k).
The notes on pages 86 onwards form an integral part of these financial statements. The financial statements were approved andauthorised for issue by the Board on 16 April 2020.
On behalf of the Board					
Andrew Day			
Director				
16 April 2020

Jon Hauck
Director83

84

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Company statement of changes in equity

Share
capital€’000

At 1 January 2018

737

Share
capital– to beissued€’000

Sharepremium€’000

Mergerreserve –restructuring€’000

Mergerreserve –acquisitions€’000

Sharesheld in
EBT
€’000

Share
optionreserve€’000

11,739 102,054

Retainedearnings
€’000

Total
equity
€’000

5,313

29,248(1,997)

2,545

Profit / (loss) for the period

–

–

–

–

–

–

–

(1,147)(311) 149,328(1,147)

Total comprehensive income
for the period

–

–

–

–

–

–

–

(1,147)(1,147)

Share option expense

–

–

–

–

–

–

4,129

–

4,129

Share options exercised

3

–

171

–

–

–

–

–

174

Dividends (note 9)

–

–

–

–

–

–

–

(1,080)(1,080)Acquisition related issuanceof shares (note 16)

23

3,909

–

–

7,116

–

–

–

11,048Contributions by andcontributions to the owners

26

3,909

171

–

7,116

–

4,129

(1,080)14,271

At 31 December 2018

763

15,648 102,225(2,538) 162,452

Contributions by andcontributions to the owners:

5,313

36,364(1,997)

6,674

Profit / (loss) for the period

–

–

–

–

–

–

–

3,651

3,651

Total comprehensive income
for the period

–

–

–

–

–

–

–

3,651

3,651

Share option expense

–

–

–

–

–

–

9,775

–

9,775

Share options exercised

7

–

754

–

–

–

–

–

761

Dividends (note 9)

–

–

–

–

–

–

–

(1,197)(1,197)

Acquisition related issuanceof shares (note 16)

10 (10,338)––

14,455

–

–

–

4,127

Contributions by andcontributions to the owners

17 (10,338)

754–

14,455–

9,775(1,197)

13,466

5,310 102,979

5,313

50,819(1,997)

16,449(84)

179,569

Contributions by andcontributions to the owners:

At 31 December 2019780

Governance

Financial statements

Supplementary information

Company statement of cash flows

Years ended 31 December
Note

2019
€’000

2018
€’000

3,651

(1,147)693

255

Cash flows from operating activities
Profit / (loss) after tax
Income and expenses not affecting operating cash flows
Share option expense
Interest receivable

(1)

(12)

Interest expense

984

669

Depreciation – property, plant and equipment

13

45

27

Depreciation – right of use assets

24

200

–

Amounts written off financial assets

92

127

2,013

1,066

Changes in operating assets and liabilities(Increase) / decrease in other receivables(17,200)

2,393

Increase / (decrease) in trade and other payables

10,641

4,505(6,559)

6,898

–

–

(895)

6,817

(13)

(415)

1

12

(12)

(403)

(7,500)(10,100)(16,368)(32,401)

27,00031,850

Payments of principal on lease liability

(192)

–

Interest paid on principal of lease liability

(16)

–

Taxation paid
Net cash generated by / (used in) operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment

13

Interest received
Net cash generated by / (used in) investing activities
Cash flows from financing activities
Repayment of loans

29

Financing Group acquisitions
Loan to finance acquisitions

29

Dividends paid

9

(1,197)(1,080)Shares options exercised

16

761

174

Interest paid

(1,420)(680)

Net cash generated by / (used in) financing activities

1,068(12,237)

Increase / (decrease) in cash and cash equivalents

161(5,823)

Cash and cash equivalents at beginning of the period

438

6,261

Cash and cash equivalents at end of period

599

438

85

86

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

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 thefinancial statements of the Company and its subsidiaries (the “Group”) made up to 31 December 2019. The Group was formedon 8 July 2013 when Keywords Studios PLC (formerly Keywords Studios Limited) acquired the entire share capital of Keywords
International Limited through the issue of 31,901,332 ordinary shares.
The parent company financial statements present information about the Company as a separate entity and not the Group.
The consolidated and Company financial statements have been prepared in accordance with International Financial ReportingStandards, International Accounting Standards and interpretations (collectively IFRS) issued by the International AccountingStandards 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 isthe functional currency of the Group.

New Standards, Interpretations and Amendments effective 1 January 2019
The Group has adopted new accounting standards which have become effective 1 January 2019, as follows:

Impact of IFRS 16 Leases
IFRS 16 ‘Leases’ replaces IAS 17 ‘Leases’ along with three Interpretations (IFRIC 4 ‘Determining whether an Arrangement contains
a Lease’, SIC 15 ‘Operating Leases-Incentives’ and SIC 27 ‘Evaluating the Substance of Transactions Involving the Legal Form of a
Lease’). The new Standard has been applied using the modified retrospective approach. Prior periods have not been restated.
From 1 January 2019, the Group now recognises a liability to make lease payments (i.e. the lease liability) and an asset representing
the right to use the underlying asset during the lease term (i.e. the right of use asset), for all material lease arrangements over
12 months in duration. On transition, for leases previously accounted for as operating leases with a remaining lease term of lessthan 12 months and for leases of low value assets, the Group has applied the optional exemptions to not recognise right of use
assets but to account for the lease expense on a straight-line basis over the remaining lease term. For those leases previouslyclassified as finance leases, the right of use asset and lease liability are measured at the date of initial application at the sameamounts as under IAS 17 immediately before the date of initial application. Instead of performing an impairment review on the rightof use assets at the date of initial application, the Group has relied on its historic assessment as to whether leases were onerous
immediately before the date of initial application of IFRS 16. The impact of the application of IFRS 16 is outlined in note 24.
The following is a reconciliation of operating lease commitments at 31 December 2018 to the lease liabilities recognised at
1 January 2019:€m

Total operating lease commitments disclosed at 31 December 201817

Recognition exemptions:Leases of low value assets–

Leases with remaining lease term of less than 12 months(1)

Lease payments for expected lease renewals extending payments beyond the minimum lease payment period

87Operating lease liabilities before discounting

24

Discounted using incremental borrowing rate*(1)

Operating lease liabilities

23

Finance lease obligations–

Total lease liabilities recognised under IFRS 16 at 1 January 2019 (note 24)

23* Weighted average incremental borrowing rate applied to lease liabilities on transition

3.1%

Impact of IFRIC 23
IFRIC 23 Uncertainty over Income Tax Positions, which was issued in June 2017, clarifies how to recognise and measure current anddeferred income tax assets and liabilities when there is uncertainty over income tax treatments.

Other New Standards, Interpretations and Amendments effective 1 January 2019
Other accounting pronouncements which have become effective from 1 January 2019 have not had a material impact on the Group.

Governance

Financial statements

Supplementary information

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 ofthe following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of theinvestor 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 these elements 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 relevantfacts and circumstances, 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; and•Historic patterns in voting attendance.

The consolidated financial statements present the results of the Company and its subsidiaries (“the Group”) as if they formed asingle entity. Intercompany transactions and balances between Group companies are eliminated in full.

Business Combinations
The consolidated financial statements incorporate the results of business combinations using the purchase method. In theConsolidated Statement of Financial Position, the acquired identifiable assets, liabilities and contingent liabilities are initiallyrecognised 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 consolidated 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 andlong-term liabilities depending on when it is due. The fair value of contingent consideration at acquisition date is arrived at throughdiscounting the expected payment (based on scenario modelling) to present value. In general, in order for contingent consideration
to become payable, pre-defined profit and / or revenue targets must be exceeded. At each balance sheet date, the fair value of thecontingent consideration is revalued, with the expected pay-out determined separately in respect of each individual acquisition andany change 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 classified as an equity arrangement
and the value of the shares is fixed at the date of the acquisition.

Equity accounted investments
The Group’s investments in its associates are accounted for using the equity method from the date significant influence is deemed
to arise until the date on which significant influence / joint control ceases to exist or when the interest becomes classified as an
asset held for sale.

Goodwill
Goodwill represents the excess of the cost of a business combination over the total acquisition date fair value of the identifiable
assets, liabilities and contingent liabilities acquired.
The 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, the fair value of the existing
equity interest in the acquiree. Contingent consideration is included in acquisition date fair value and, in the case of contingent
consideration classified as a financial liability, re-measured subsequently through profit or loss. The direct costs of acquisition arerecognised 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
The Group’s Intangible Assets comprise Customer Relationships and Other Intangible Assets.

87

88

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

2 Significant Accounting Policies continued
Customer Relationships
Intangible assets, separately identified from goodwill acquired as part of a business combination (mainly Customer Relationships),
are initially stated at fair value. The fair value attributed is determined by discounting the expected future cash flows generated
from the net margin of the business from the main customers taken on at acquisition. The assets are amortised on a straight-line
basis (to administration expenses) over their useful economic lives (typically five years is deemed appropriate, however, this is
re-examined for each acquisition).

Other Intangible Assets
Other intangible assets include Intellectual Property and Music Licences, both acquired and internally developed. Other intangible
assets are recognised as assets where it is probable that the use of the asset will generate future economic benefits and where
the costs of the asset can be determined reliably. Other intangible assets that are acquired by the Group are stated at cost lessaccumulated amortization (see below) and impairment losses, if any. Subsequent expenditures on capitalised intangible assets
are capitalised only when they increase the future economic benefits embodied in the specific assets to which they relate. Allother expenditure is expensed as incurred. Other intangible assets with definite useful lives are amortised from the date they areavailable for use on a straight-line basis over their useful lives, being the estimated period over which the Group will use the assets.
Residual amounts, useful lives and the amortization methods are reviewed at the end of every accounting period.
Development costs are capitalised as an intangible asset if all of the following criteria are met:•

the technical feasibility of completing the intangible asset so that it will be available for use or sale;•the intention to complete the intangible asset and use or sell it;•

the ability to use or sell the intangible asset;•

the asset will generate probable future economic benefits and demonstrate the existence of a market or the usefulness of theintangible asset if it is to be used internally;•

the availability of adequate technical, financial and other resources to complete the development and to use or sell it;•

the ability to measure reliably the expenditure attributable to the intangible asset during its development.

Following initial recognition of the development expenditure as an intangible asset, the cost model is applied requiring theintangible asset to be carried at cost, less any accumulated amortization and accumulated impairment losses. The intangible asset
is amortised on a straight-line basis over the period of its expected benefit, starting from the date of full commercial use of the
product. During the period of development, the asset is tested for impairment annually. If specific events indicate that impairmentof an item of intangible asset may have taken place, the item’s recoverability is assessed by comparing its carrying amount with its
recoverable amount. The recoverable amount is the higher of the fair value net of disposal costs and the value in use.

Impairment
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at thefinancial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicatethat their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. thehigher of value in use and fair value 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
group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units (“CGUs”).
Goodwill is allocated on initial recognition to each of the Group’s CGUs that are expected to benefit from a business combination thatgives 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 levelat which management captures information for internal management reporting purposes about the benefits of the goodwill.
Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in othercomprehensive income. An impairment loss recognised for goodwill is not reversed.

Cash and Cash Equivalents
For the purpose of presentation in the Statements of financial position and on the Statements of cash flows, cash and cash
equivalents include cash on hand and on call deposits with financial institutions.

Governance

Financial statements

Supplementary information

2 Significant Accounting Policies continued
Foreign Currency
The Consolidated Financial Statements are presented in Euro, which is the presentation currency of the Group and the functional
currency of the Parent Company.
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. Foreign currency monetary
assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation 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 thetransactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those
operations, are translated at the rate 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 andaccumulated 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 the foreign exchange reserve on consolidation. 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 theconsolidated statement of comprehensive income as part of the profit or loss on disposal.

Revenue from Contracts with Customers
Contracts are typically for services, performing agreed-upon tasks for a customer and can be time-and-materials or milestone
based. Most contracts are short term in duration (generally less than one month), however milestone based contracts can be longer
term and extend to several months (or in some cases over a year). Where there are multiple performance obligations outlined ina contract, each performance obligation is separately assessed, the transaction price is allocated to each obligation, and related
revenues are recognised as services or assets are transferred to the customer. Performance obligations are typically satisfied overtime, as the majority of contracts meet the criteria outlined in IFRS 15 paragraph 35 (a) and (c).
Revenue is derived from seven main service groupings:•

Art Creation Services – Art creation services relate to the production of graphical art assets for inclusion in the video gameincluding concept art creation along with 2D and 3D art asset production and animation. Contracts can be either time-andmaterials based or milestone based, with performance obligations satisfied over time. Contracts are generally short term induration, however for longer term contracts the input method is used to measure progress. Time and materials based contract
revenue is recognised as the related services are rendered. For milestone based contracts where progress can be measured
reliably towards complete satisfaction of the performance obligation, revenue is recognised using the input method to measureprogress. Where progress cannot be measured reliably, revenue is recognised on milestone acceptance.

•

Game Development – Game Development relates to software engineering services which are integrated with client processes
to develop video games. Contracts can be either time-and-materials based or milestone based, with performance obligations
satisfied over time. Contracts are generally longer term in duration. Time and materials based contract revenue is recognised as
the related services are rendered. For milestone based contracts where progress can be measured reliably towards complete
satisfaction of the performance obligation, revenue is recognised using the input method to measure progress. Where progresscannot be measured reliably, revenue is recognised on milestone acceptance.

•

Audio / Voice-over Services – Audio Services relate to the audio production process for computer games and includes scripttranslation, actor selection and talent management through pre-production, audio direction, recording, and post-production,
including native language quality assurance of the recordings. Audio contracts may also involve music licencing or selling music
soundtracks. Audio service contracts are typically milestone based, with performance obligations satisfied over time. Audio
services contracts are generally short term in duration, however for longer term contracts where progress towards complete
satisfaction of the performance obligation can be measured reliably, revenue is recognised using the input method to measureprogress. Where progress cannot be measured reliably, audio services revenue is recognised on milestone acceptance. Music
licencing and music soundtracks performance obligations are assessed separately, and related revenue is recognised on licence
inception and on delivery of the soundtracks, respectively.

•

Functional Testing – Functional Testing relates to quality assurance services provided to game producers to ensure games
function as required. Contracts are typically time-and-materials based and performance obligations are satisfied over time.
Contracts are generally short term in duration, however for longer term contracts the input method is used to measureprogress. Revenue is recognised as the related services are rendered.

89

90

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

2 Significant Accounting Policies continued
Revenue from Contracts with Customers continued•

Localisation Services – Localisation services relate to translation and cultural adaptation of in-game text and audio scripts
across multiple game platforms and genres. Contracts are typically time-and-materials based and performance obligations are
satisfied over time. Contracts are generally short term in duration, however for longer contracts the input method is used tomeasure progress. Localisation contracts may also involve licencing translation software as a service. Such revenue is assessed
separately. Revenue is recognised as the related services are rendered.

•

Localisation Testing – Localisation Testing involves testing the linguistic correctness and cultural acceptability of computer
games. Contracts are typically time-and-materials based and performance obligations are satisfied over time. Contracts are
generally short term in duration, however for longer term contracts the input method is used to measure progress. Revenue isrecognised as the related services are rendered.

•

Player Support – Player support relates to the live operations support services such as community management, player support
and associated services provided to producers of games to ensure that consumers have a positive user experience. Contracts
are typically time-and-materials based and performance obligations are satisfied over time. Contracts are generally long termwith the input method used to measure progress. Revenue is recognised as the related services are rendered.

Due to the nature of the services provided and the competitive nature of the market, contracts generally allocate specifictransaction prices to separate performance obligations. Individual services or individual milestones generally involve extensive
commercial negotiation to arrive at the specific agreed-upon tasks, and the related pricing outlined in the contract. Suchnegotiations extend further for milestone based contracts to also include the criteria involved in the periodic and regular process of
milestone acceptance by the customer. Such criteria may involve qualitative, as well as quantitative measures and judgements.
In measuring progress towards complete satisfaction of performance obligations, the input method is considered to be the mostappropriate method to depict the underlying nature of the contracts with customers, the interactive way the service is delivered
and projects are managed with the customer. For time-and-materials contracts, other than tracking and valuing time expended,significant judgement is not normally involved. For milestone based contracts, progress is generally measured based on the
proportion of contract costs incurred at the balance sheet date, (e.g. worked days) relative to the total estimated costs of thecontract, involving estimates of the cost to completion etc. Added to this significant judgement can be involved in measuring
progress towards customer acceptance of the milestone. Significant judgement may also be involved where circumstances arisethat may change the original estimates of revenues, costs or extent of progress towards complete satisfaction of the performanceobligations. In such circumstances estimates are revised. These revisions may result in increases or decreases in revenue or costs
and are reflected in income in the period in which the circumstances that give rise to the revision became known. When the outcomeof a contract cannot be measured reliably, contract revenue is recognised only to the extent that milestone have been acceptedby the customer. Contract costs are recognised as incurred. When it is probable that total contract costs will exceed total contract
revenue, the expected loss is recognised immediately.
Revenue recognised represents the consideration received or receivable, net of sales taxes, rebates discounts and after eliminatingintercompany sales. Revenue is recognised only where it is probable that consideration will be received. Where consideration isreceived and the related revenue has not been recognised, the consideration received is recognised as a contract liability (Deferred
Revenue), until either revenue is recognised or the consideration is refunded.

Multimedia Tax Credits / Video Game Tax Relief
The multimedia tax credits (“MMTC”) received in Canada and video games tax relief (“VGTR”) in the UK, are a credit related to staff
costs. Tax credits are recognised in the year they are earned as a deduction against direct costs but typically paid in the following
financial year once the claims have been submitted and agreed. The nature of the grants is such that they are not dependent on
taxable profits. Tax credits have only been recognised where management believes that a tax credit will be recoverable based on
their experience and the success of similar historical claims.

Share-based Payments
The Company issues equity settled share-based payments to certain employees and Directors under a share options plan and aLong Term Incentive Plan (“LTIP”).

Governance

Financial statements

Supplementary information

2 Significant Accounting Policies continued
Share-based Payments continued
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 of shares that will eventually vest. Grants do not have non-market-based vesting conditions. At each reporting date, theCompany revises its estimate of the number of equity instruments expected to vest and the impact of 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 theholding company and recharged to the subsidiary company through an inter-company charge.

Share Option Plan
These are measured at fair value on the grant date using a Black-Scholes option pricing model which calculates the fair value of an
option by using the vesting period, the expected volatility of the share price, the current share price, the exercise price and the riskfree interest rate. The fair value of the option is amortised over the vesting 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.

LTIP
The exercise of LTIP awards are subject to the Company's share price (stock symbol: KWS) performance versus the designatedShare Index in terms of shareholder return, over a three-year period. For the awards granted up to 2015, one-third of the shareoptions vested if the Company exceeded the Total Shareholder Returns (TSR) of the Numis Small Cap Index (excluding Investment
Trusts) by 10%, two-thirds if the TSR exceeded the Index by 20% and full vesting if the TSR exceeded the Index by 30%. This wasamended for the 2016 and 2017 awards to 100% vesting if the shareholder return exceeds the Index by 45%, and a pro-rated return
between 10% if the TSR matches the Index, to 100% if the TSR exceeds the Index by 45%. The scheme was further amended in2018 to 100% vesting if the TSR exceeds the Index by 20%, and a pro-rated return between 10% and 100% if the TSR exceeds by
between 0% and 20%. In 2019, the benchmark Index was amended for future grants to be the FTSE Small Cap Index, with the same
performance conditions as 2018.
These are measured at fair value, taking into account market vesting conditions but not non-market vesting conditions, at the dateof grant, measured by using the Monte Carlo binomial model.

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 datein the countries in which the Group companies have been incorporated.
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement offinancial 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 thetransaction affects neither accounting or taxable profit; and•Investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of thedifference and it 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 and are 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 andliabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:•

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

91

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Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

2 Significant Accounting Policies continued
Property, Plant and Equipment
Property, plant and equipment comprise computers, leasehold improvements, and office furniture and equipment, and are stated atcost less accumulated depreciation. Carrying amounts are reviewed for impairment whenever events or changes in circumstancesindicate that their carrying amount may not be recoverable. Where the carrying amount of an asset is greater than its estimatedrecoverable 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
Leasehold improvements

3 years
10 years
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
statement of comprehensive income.

Financial Assets
The Group’s most significant financial assets comprise trade and other receivables and cash and cash equivalents in the Consolidated
statement of financial position, whereas the Company’s most significant financial assets comprise inter-group receivables.

Trade Receivables
Trade receivables, which principally represent amounts due from customers, are recognised at amortised cost as they meet
the IFRS 9 classification test of being held to collect, and the cash flow characteristics represent solely payments of principal
and interest.
The Group’s impairment methodology is in line with the requirements of IFRS 9. The simplified approach to providing for expectedcredit losses has been applied to trade receivables, which requires the use of a lifetime expected loss provision.

Intercompany Receivables
Intercompany receivables are recognised at amortised cost as they meet the IFRS 9 classification test of being held to collect, andthe cash flow characteristics represent solely payments of principal and interest.
The Group applies the general approach to applying the expected credit losses to its related party loans. Under the General
Approach, at each reporting date, the Group determines whether there has been a Significant Increase in Credit Risk (SICR) sinceinitial recognition and whether any balances are credit impaired. This determines the amount, if any, of expected credit losses tobe recognised.

Cash and Cash Equivalents
Cash and cash equivalents are held to meet the working capital requirements of the Group. They include cash in hand, deposits heldat call with banks and other short-term highly liquid investments. Where cash is on deposit with maturity dates greater than threemonths, it is disclosed as short-term investments.

Contract Assets
Contract assets arising from Revenue from Contracts with Customers are recognised in accordance with our Revenue Recognition
policy, as discussed separately in this note. The Group applies the simplified approach to assessing expected credit losses inrelation to contract assets, as the maturities of such assets are less than 12 months. Based upon the recoverability of contract
assets at year end, no significant expected credit loss provision has been applied.

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.

Governance

Financial statements

Supplementary information

2 Significant Accounting Policies continued
Financial Liabilities
Contingent consideration is initially recognised at fair value and subsequently re-measured through the profit and loss. Trade
payables, bank borrowings and other monetary liabilities are initially recognised at fair value and subsequently carried at amortised
cost using the effective interest rate method.

Leased Assets
As described in note 1, the Group has applied IFRS 16 using the modified retrospective approach and therefore comparative
information has not been restated. This means comparative information is still reported under IAS 17 and IFRIC 4. The Company has
applied the Group policies as set out below.

Accounting policy applicable from 1 January 2019For any new contracts entered into on or after 1 January 2019, the Group considers whether a contract is, or contains a lease. A
lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of timein exchange for consideration’.
At lease commencement date, the Group recognises a right of use asset and a lease liability on the balance sheet. The right ofuse asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by
the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made inadvance of the lease commencement date (net of any incentives received).
The Group depreciates the right of use assets on a straight-line basis from the lease commencement date to the earlier of theend of the useful life of the right of use asset or the end of the lease term. The Group also assesses the right of use asset for
impairment when such indicators exist. At the commencement date, the Group measures the lease liability at the present valueof the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or
the Group’s incremental borrowing rate. Lease payments included in the measurement of the lease liability are made up of fixed
payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under aresidual value guarantee, and payments arising from purchase and extension options reasonably certain to be exercised.
Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured
to reflect any reassessment or modification, or if there are changes to in substance fixed payments. When the lease liability isremeasured, the corresponding adjustment is reflected in the right of use asset, or profit and loss if the right of use asset is already
reduced to zero.
The Group has elected to account for short-term leases and leases of low value assets using the practical expedients. Instead ofrecognising a right of use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss
on a straight-line basis over the lease term.
The Group has applied judgement to determine the lease term for contracts in which it is a lessee that include renewal options. The
assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects
the lease liabilities and right of use assets recognised.

Accounting policy applicable before 1 January 2019
Where substantially all of the risks and rewards of ownership are not transferred to the Group (“operating lease”), the total rental
payables are charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the term of the lease.
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 ofthe 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 is shown as a liability. Lease payments are analysed between capital and interest. The interest
element is charged to the Consolidated Statement of Comprehensive Income over the period of the lease and is calculated so thatit 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 Position. No gain or loss is recognised inrelation to the purchase, sale, issue or cancellation of the parent company’s ordinary shares.

93

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Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

3 Critical Accounting Estimates and Judgements
The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluatedbased on historical experience and other factors, including expectations of future events that are believed to be reasonable under
the circumstances. In the future, actual experience may differ from these estimates and assumptions.

Judgements
The judgements, apart from those involving estimations, that management have made in the process of applying the entity’s
accounting policies and that have the most significant effect on the amounts recognised in the financial statement, areoutlined below.
•

Functional Currency: The Directors have considered the requirements of IAS 21 in determining the currency that most faithfully
represents the economic effects of the underlying transactions, events and conditions to determine the Group’s functional
currency. Detailed consideration has been given to both the Primary and Secondary Indicators in forming this conclusion. The
Primary Indicators relate to revenues, regulation, competitive forces and costs, while the Secondary Indicators are primarily
concerned with financing the business and the currency in which receipts from operating activities are usually retained. Witha mix of currencies dominating the indicators, there is no clear single currency that influences the Group, however the EUR
remains marginally the most dominant when all factors are considered. Therefore the Directors consider the EUR as thecurrency that most faithfully represents the economic effects of the underlying transactions, events and conditions.

•

Business Combinations: When acquiring a business, the Group is required to identify and recognise intangible assets, thedetermination of which requires a significant degree of judgement. Acquisitions may also result in intangible benefits beingbrought into the Group, some of which qualify for recognition as intangible assets while other such benefits do not meet therecognition requirements of IFRS and therefore form part of goodwill. Customer relationships are recognised as separate
assets where revenues are recurring in nature and material revenues have been generated with the customer for a continuous
period of 3 years. For the Game Development service line, the key asset acquired is typically “know-how”, an asset that is notreadily measurable and thus intrinsically linked to goodwill. Relationships are typically short term contract based rather thanrelationship based. Therefore neither customer contracts or customer relationships are typically recognised on the acquisitionof an Game Development business.

•

Expected Credit Loss Provision on Company Receivables From Subsidiaries: As outlined in note 22, the Company has
significant receivables from subsidiaries primarily related to investments in acquisitions. The Directors have assessed thatthey view a significant increase in credit risk to exist if there is evidence that a loan is 30 days past due its recoverable date,or if there is external or internal indicators that the subsidiary will not be in a position to repay its loan balances as it falls due.
Similarly, the Group will conclude that a loan is in default if the scheduled repayments of either principal or interest are notbeing met. The Directors have assessed that loans due from subsidiaries of €205.1m (2018: €175.5m) (within Stage 1 of the
IFRS 9 impairment assessment model), are within their repayment terms, and no significant increase in credit risk is noted.
Furthermore having assessed the ongoing expected recovery strategy of these loans, the Directors have concluded that nomaterial provision for expected credit losses is required. Separately the Company has balances of €15.2m (2018: €1.6m) which
are technically repayable upon demand. These loans are within Stage 3 of the IFRS 9 impairment assessment model. The
Directors have reviewed in detail the recovery strategy in relation to these loans and have concluded that the majority of theseloans will be recoverable and therefore there is no material expected credit loss provision required. A small number of suchloans are technically in a credit-impaired status. An expected credit loss of €212k (2018: €183k) has been recognised in relation
to these balances. Following on the rapid expansion of the Group, the Directors have commenced a re-structuring program witha view to optimising the Group structure, facilitate tax efficient repatriation of cash and re-payment of loans throughout theGroup. The Directors have taken into account both the re-structuring program and the cash generating capacity of the Group, in
concluding that all such loans are recoverable and the expected credit loss provisions are adequate.

•

IFRS 16 Leases: The Group has determined that the Group’s incremental borrowing rate is the appropriate rate to use to
discount lease liabilities. The Group has applied judgement to determine the lease term for contracts in which it is a lessee that
include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the leaseterm, which significantly affects the lease liabilities and right of use assets recognised.

Governance

Financial statements

Supplementary information

3 Critical Accounting Estimates and Judgements continued
Estimates and assumptions
The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluatedbased on historical experience and other factors, including expectations of future events that are believed to be reasonable under
the circumstances. In the future, actual experience may differ from these estimates and assumptions.
A number of areas requiring the use of estimates and critical judgements impact the Group’s earnings and financial position. These
include revenue recognition, the computation of income taxes, the value of goodwill and intangible assets arising on acquisitions,the valuation of multimedia tax credits / video game tax relief, leasing and the valuation of defined retirement benefits. The
Directors consider that no reasonably possible changes to any of the assumptions used in the estimates would in the view of the
Directors give rise to significant risk of a material adjustment to the carrying value of the associated balances in the subsequent
financial year

4 Revenue from Contracts with Customers and Segmental Analysis
Revenue from Contracts with Customers
Revenue recognised in the reporting period arises from contracts with customers, and is predominantly recognised over time.
There were no significant amounts of revenue recognised in the reporting period that were included in a contract liability balance atthe beginning of the reporting period, or from performance obligations satisfied in the previous reporting period.
2019
€’000

2018
€’000

Art creation*

43,601

33,952

Game Development (previously Engineering)*

66,29035,163

Audio

40,41934,190Functional testing*

68,93047,862

Revenue by line of business

Localisation

48,49743,983

Localisation testing

22,63819,751

Player support

36,08835,904*The prior year comparative has been re-classified to reflect the current year presentation as the Directors consider this to be more meaningful.

Analysis by geographical regions is made according to the Group’s operational jurisdictions. For many contracts, operations arecompleted in multiple sites. Revenue is associated with the jurisdiction from which the final invoice to the client is raised. This does
not reflect the region of the Group’s customers; whose locations are worldwide.

95

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Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

4 Revenue From Contracts With Customers and Segmental Analysis continued
Revenue From Contracts with Customers continued
2019
€’000

2018
€’000

Ireland

118,095

47,203

United States

52,26552,321

Canada48,112

69,536

United Kingdom

41,76821,205

Geographical analysis of revenues

Switzerland

19,04520,067

Japan

15,501

7,724

Italy

9,395

8,673

France

7,606

8,489

India

6,355

6,323

Germany

1,920

741

Singapore

1,637

1,130

Spain

1,588

1,968

Poland1,285

347

Brazil

802

1,016

China

691

3,126

Mexico398

936

326,463

250,805

No single customer accounted for more than 10% (2018: None) of the Group’s revenue during the year.

Revenue Expected to be Recognised
For Game Development, games are developed to an agreed specification and time schedule, and often have delivery schedules
and / or milestones that extend well into the future. The following are Game Development revenues expected to be recognisedfor contracts with a schedule of work that extends beyond one year, representing the aggregate amount of the transaction priceallocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period:

Totalundelivered€’000

Scheduledcompletion
within 1 year€’000

Scheduledcompletion
1-2 years€’000

At 31 December 2019

24,64523,593

1,052

At 31 December 2018

10,417

9,112

1,305

For all service lines excluding Game Development, contracts do not extend to more than one year, therefore we do not disclose
information concerning unsatisfied performance obligations, as allowed under the practical expedient exemption under IFRS 15.
This practical expedient is also availed of for Game Development contracts of less than one year in duration.

Governance

Financial statements

Supplementary information

4 Revenue From Contracts With Customers and Segmental Analysis continued
Segmental Analysis
Management considers that the Group’s activity as a single source supplier of Services to the gaming industry constitutes one
operating and reporting segment, as defined under IFRS 8.
Management review the performance of the Group by reference to Group-wide profit measures and the revenues derived fromseven main service groupings.
There is no allocation of operating expenses, profit measures, assets and liabilities to individual product groupings. Accordingly, thedisclosures above 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 theChief Financial Officer.
2019
€’000

2018
€’000

United States

84,13984,685

United Kingdom

52,23348,929Canada29,772

11,760Italy

12,222

11,650

Switzerland

10,644

11,117

Ireland

9,296

3,542

China

8,776

7,850

France

6,725

6,318

Geographical analysis of non-current assets from continuing businesses

Spain

5,924

1,535

Germany

5,250

1,097

Japan

3,905

796

Philippines

2,798

595

India

2,526

2,321

Mexico2,164885

Poland1,563

267

Brazil

1,247

888

Russia925

797

Singapore

225

52

Netherlands

64–

TaiwanGeographical analysis of non-current assets from continuing businesses
Investment in associate34240,401

195,088

240,401

195,088–

160

Deferred tax assets

5,060

2,967

Non-current assets

245,461

198,21597

98

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

5 Cost of Sales and Operating Profit
2019
€’000

2018
€’000

Operating expenses

213,011

163,112Multimedia tax credits / video game tax relief(16,063)(12,220)

9,286

4,105

206,234

154,997

2019
€’000

2018
€’000

Depreciation – property, plant and equipment

7,295

5,316

Depreciation – right of use assets

7,849

–

Amortisation of intangible assets

7,318

6,872

Costs of acquisition and integration

4,348

5,296

Short term leases (2018: total lease expense)

1,616

8,708

Costs of acquisition and integration

2019
€’000

2018
€’000

Cost of sales

Other direct costs

Operating profit is stated after charging:

Post-acquisition integrations costs re: 2019 acquisitions (note 28)

535–

Post-acquisition integrations costs re: 2018 acquisitions

406

758

Fair value adjustments to contingent consideration (note 18)

493

766

Deferred consideration related to continuing employment

567

590

Acquisition related and other borrowing costs

262

693

Acquisition team and related costs

550

614

1,535

1,875

4,348

5,296

2019
€’000

2018
€’000

Parent company and Group audit

285

329

Subsidiary companies audit

202

137

Audit related assurance services

12

16

Taxation compliance

–

7

499

489

Other re-organisation and restructuring costs

Auditor's remuneration

Audit services:

Non-audit services:Governance

Financial statements

Supplementary information

6 Financing Income and Cost
2019
€’000

2018
€’000

Financing income
Interest receivable

74–

Foreign exchange gain

–

791

74

791

Financing cost
Bank charges

(629)

(503)

Interest expense

(934)

(502)

Unwinding of discounted liabilities – lease liabilities

(694)

–

(330)

(311)

(1,658)–(4,245)(1,316)(4,171)

(525)

2019
€’000

2018
€’000

(3)

–

Income tax on profits of subsidiaries

8,523

9,592

Deferred tax (note 26)(1,058)(2,401)

7,462

7,191

2019
€’000

2018
€’000

Profit before tax

17,37122,094

Tax charge based on the Effective Tax Rate*

4,519

5,345

Unwinding of discounted liabilities – deferred consideration
Foreign exchange loss
Net financing income / (cost)

7 Taxation
Current income tax
Income tax on profits of parent company

The tax charge for the year can be reconciled to accounting profit as follows:

Tax settlement regarding a pre-acquisition issue491–

Corporate tax prior year (over) / under provision

(929)

(352)

Deferred tax prior year (over) / under provision and impact of change in tax rates

(369)

(368)

Items disallowed for tax purposes

4,354

2,205

(133)

(588)

Tax incentives(1,524)(1,035)Current year tax losses utilised(1,176)(131)

Current year tax losses where deferred tax has not been provided

1,064

730

State and other direct taxes

1,473

1,529

Exempt and non taxable income

Other differences – net

(308)

(144)

Total tax charge

7,462

7,191

*E
 ffective tax rate – being the statutory tax rate relative to the profit before tax
in each jurisdiction

26.0%

24.2%

99

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Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

7 Taxation continued
The Group’s subsidiaries are located in different jurisdictions and are taxed on their residual profit in those jurisdictions. The
effective tax rate will vary year on year due to the effect of changes in tax rates and changes in the proportion of profits ineach jurisdiction.
Tax effects relating to each component of other comprehensive income

2019
€’000

2018
€’000

Exchange gain / (loss) in net investments foreign operations

1,267

1,270

–

–

Net of tax amount

1,267

1,270

Actuarial gain / (loss) on defined benefit plans

(167)

27

Tax (expense) / benefit

5

6

Net of tax amount

(162)

33

Exchange gain / (loss) on translation of foreign operations

5,960

771

Tax (expense) / benefit

Tax (expense) / benefit
Net of tax amount

–

–

5,960

771

2019
€ cent2018€ cent8 Earnings per Share
Basic

15.23

23.16

Diluted

14.73

22.24

€’000

€’000

9,909

14,903

NumberNumberProfit for the period from continuing operations

Denominator (weighted average number of equity shares)
65,081,403

64,335,162

Diluting impact of Share Options

2,187,083

2,679,932

Diluted*67,268,486

67,015,094

510,350

1,321,707

Basic** Includes (weighted average) shares to be issued

Contingently issuable Ordinary Shares are excluded from the computation of diluted earnings per Ordinary Share where theconditions governing exercisability have not been satisfied:
2019
Number2018
Number

LTIPs

2,067,536

951,800

Share options

1,128,000

544,900

3,195,536

1,496,700

Details of the number of share options outstanding at the year-end are set out in note 17.

Governance

Financial statements

Supplementary information

9 Dividends
In respectofApprovaldate€ cent per
share

Pence STG
per share

Total
dividend€’000

Payment
date

Final

2017

Apr-18

1.11

0.98

696

Jun-18Interim2018

Sep-18

0.60

0.53

384

Oct-18

1.71

1.51

1,080

Dividends paid

Dividends paid to shareholders 2018
Final

2018

Apr-19

1.21

1.08

773

Jun-19Interim2019

Sep-19

0.65

0.58

424

Oct-19

1.86

1.66

1,197

Dividends paid to shareholders 2019

The Group does not recognise deferred tax on unremitted retained earnings, as in general, retained earnings are continually
re- invested by the Group and dividends are only remitted where there are minimal tax consequences.
At 31 December 2019, Retained earnings available for distribution (being retained earnings plus share option reserve) in the
Company were €16.4m (2018: €4.1m). The Directors do not foresee any impediment in continuing to implement the dividend policyof the Group.
Following on distributions made in 2016 and 2017 that were not fully in compliance with the Companies Act 2006, the Directors have
implemented legal advice to ensure ongoing compliance and rectify the oversights in earlier periods, which was envisaged in the
Annual Report and Accounts 2018. Following the approval by shareholders of a specific resolution at the 2019 AGM, the Company
entered into deeds of release, to put all relevant parties in the position where they were always intended to be, had the relevant
dividends been made in accordance with the Act. Interim accounts for the Company have also been filed at Companies House tosupport the payment of an interim dividend in 2019.

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

Salaries and related costs

2019
€’000

2018
€’000

201,158

146,785

9,775

4,129

210,933

150,914Company

2019
€’000

2018
€’000

Salaries and related costs

1,916

1,525

Share option expense

Share option expense

9,775

4,011

11,691

5,536

101

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Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

10 Staff Costs continued
The average number of employees comprises the following:
Group

2019

2018

6,778

4,733

646

505

7,424

5,238

2019

2018

–

–

Average number of employees
Operations
General and administration

Company

Average number of employees
Operations

26

13

26

13

2019
€’000

2018
€’000

1,384

907

Social welfare costs

140

99

Pension costs

35

27

General and administration

Key management compensation is as follows:

Salaries and related costs

Share option expense

943

501

2,502

1,534

The key management compensation includes compensation to eight Directors of Keywords Studios PLC during the year(2018: seven).
The key management compensation presented for 2019 also includes additional executives of the Group, of which only one wasincluded in 2018.

11 Goodwill
2019
€’000

At 1 January 2018

108,062

Recognition on acquisition of subsidiaries (note 28)

43,144

Exchange rate movement

2,996

At 31 December 2018

154,202

Recognition on acquisition of subsidiaries (note 28)

16,950Exchange rate movement
At 31 December 2019

4,487
175,639

The Group assesses the carrying value of goodwill each year on the basis of budget projections for the coming year extrapolatedusing a one to five year growth rate and a terminal value calculated using a long term growth rate projection. The discount rateused of 12.5% (2018: 12.5%) is based on the Board’s assessment of the WACC of the Group. The WACC assessment is supported byan annual independently calculated report, using the Capital Asset Pricing Model. However, the Board have excluded the impact ofshort term market volatility on these calculations in determining the Group WACC.

Governance

Financial statements

Supplementary information

11 Goodwill continued
Key Assumptions
ActualSensitivity analysis

2019

2018

2019

2018

2019

2018

1 to 5 year growth rate assumption

10%

10%

15%

15%

5%

5%

Long term growth rate assumption

2%

2%

2%

2%

2%

2%

Value in use (€m)

469

445

560

532

398

378

Carrying value – goodwill (€m)

176

154

The value in use calculations were consistently calculated year over year, with no significant changes in the assumptions made.
The result of the value in use calculations was that no impairment is required in this period.

12 Intangible Assets
Customer
relationships€’000Intellectual
property /Development
costs
€’000

Music
licences
€’000

Total
€’000

At 1 January 201829,282––

29,282

Recognition on acquisition of subsidiaries

6,564

–

362

6,926

–

1,521

78

1,599

867

–

(4)

863

36,713

1,521

436

38,670

–

1,615

–

1,615

Cost

AdditionsExchange rate movement
At 31 December 2018
Recognition on acquisition of subsidiaries
AdditionsExchange rate movement
At 31 December 2019

–

391

–

391

907

–

18

925

37,6203,527

454

41,601

Amortisation
At 1 January 2018

5,734

–

–

5,734

Amortisation charge

6,758

–

114

6,872

Exchange rate movement

179

–

1

180

At 31 December 201812,671–

115

12,786

Amortisation charge

7,001

–

317

7,318

346

–

21

367

20,018–453

20,471

At 31 December 2018

24,042

1,521

321

25,884

At 31 December 2019

17,6023,527

121,130Exchange rate movement
At 31 December 2019
Net book value

Customer relationships, intellectual property / development costs and music licences are amortised on a straight-line basis over
five years. Customer relationships and music licence amortisation commences on acquisition, whereas intellectual property /development costs amortisation commences when the product is launched.

103

104

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

13 Property, Plant and Equipment
Group
Computers andsoftware€’000

Office furnitureand equipment€’000

Leaseholdimprovements
€’000

Total
€’000

12,474

4,316

3,424

20,214Cost
At 1 January 2018
Currency revaluation

(114)

(15)

27

(102)

Additions

6,248

1,082

2,110

9,440

Acquisitions through business combinations at fair value

362

272

332

966

Disposals

(645)

(248)

(89)

(982)

At 31 December 2018

18,325

5,407

5,804

29,536

Currency revaluation

1,042

275

497

1,814

Additions

6,815

1,657

4,673

13,145Acquisitions through business combinations at fair value

300

232

231

763

Disposals(1,639)

(824)

(44)

(2,507)

At 31 December 201924,843

6,747

11,16142,751

Accumulated depreciation
7,252

2,222

629

10,103Currency revaluation

At 1 January 2018

(51)

11

74

34

Depreciation charge

3,805

643

868

5,316

Disposals

(645)

(185)

(89)

(919)

At 31 December 2018

10,361

2,691

1,482

14,534Currency revaluation

639

160

267

1,066

Depreciation charge

5,226

703

1,366

7,295

Disposals(1,501)

(803)

(3)

(2,307)

At 31 December 2019

14,725

2,751

3,112

20,588At 31 December 2018

7,964

2,716

4,322

15,002

At 31 December 201910,118

3,996

8,049

22,163

Net book value

Governance

Financial statements

Supplementary information

13 Property, Plant and Equipment continued
Company
Computers andsoftware€’000

Office furnitureand equipment€’000

Leaseholdimprovements
€’000

Total
€’000

2

–

–

2

Cost
At 1 January 2018
Additions

2

145

268

415

At 31 December 2018

4

145

268

417

Additions

1

–

12

13

At 31 December 2019

5

145

280

430

1

–

–

1

Accumulated depreciation
At 1 January 2018
Depreciation charge

1

8

18

27

At 31 December 2018

2

8

18

28

Depreciation charge

1

15

29

45

At 31 December 2019

3

23

47

73

At 31 December 2018

2

137

250

389

At 31 December 2019

2

122

233

357

2019
€’000

2018
€’000

Trade receivables

44,526

38,736

Provision for bad debts (note 23)(1,283)(1,717)

Financial asset held at amortised cost

43,24337,019

2019
€’000

2018
€’000

Accrued income from contracts with customers

7,010

6,317

Prepayments and rent deposits

4,089

2,490

Other receivables

3,151

2,459

Multimedia tax credits / video games tax relief

17,626

10,820Tax and social security

3,537

1,373

35,41323,459Net book value

14 Trade ReceivablesGroup

Trade receivables arise from revenues derived from contracts with customers.

15 Other Receivables
Group – Short Term

105

106

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

15 Other Receivables continued
Company – Short Term

Intercompany receivables (financial assets held at amortised cost)
Prepayments
Other receivables

2019
€’000

2018
€’000

15,220

1,600

702

109

174

28

16,096

1,737

2019
€’000

2018
€’000

208,352

175,509208,352

175,509

Company – Long Term

Intercompany receivables (financial assets held at amortised cost)Accrued income from contracts with customers, represent mainly contract assets in process and related items. The movementin the year is comprised of transfers in and out as items are accrued and subsequently invoiced to customers, with no significant
amounts written off or impaired in the period.

16 Shareholders’ Equity
Share Capital

Issue date

Per share €At 1 January 2018

Number ofordinary£0.01
sharesNumber ofordinary£0.01
shares – tobe issued

Sharecapital
€’000

Share
premium€’000

Mergerreserve
€’000

Share
capital – tobe issued€’000

61,708,205

2,172,000

737

102,054

28,878

11,620–73,744

–

–

–

1,289

1,188,263 (1,188,263)

15

–

3,440

(3,455)

1

–

999

–

Acquisition related
issuance of shares:
Cord and Laced

09–Apr

17.48

Synthesis

24–Apr

2.91

Synthesis in lieu
of deferred cash

24–Apr

19.39

Fire Without Smoke

30–May20.12–

77,006

–

–

–

1,550

Mindwalk

14–Jun3.67

513,189(513,189)

6

–

1,880

(1,886)

51,562–Blindlight

11–Jun20.57–

64,521

–

–

–

1,327

Snowed In

20–Jul19.55–

37,983

–

–

–

743

Studio Gobo andElectric Square

20–Aug19.74–

254,529

–

–

–

5,024

The Trailerfarm

18–Sep21.33–

11,070

–

–

–

236

Around the Word

01–Oct12.07

66,262(66,262)

1

–

799

(800)

1,819,276 (1,248,861)

23

–

7,118

4,028

Acquisition related
issuance of shares
Issue of shares on
exercise of share options
At 31 December 2018

0.67

260,805

–

3

171

–

–

63,788,286

923,139763

102,225

35,996

15,648Governance

Financial statements

Supplementary information

16 Shareholders’ Equity continued
Share Capital continued
Number ofordinary£0.01
shares – tobe issued

Sharecapital
€’000

Share
premium€’000

Mergerreserve
€’000

Share
capital – tobe issued€’000

Issue date

Per share €Number ofordinary£0.01
sharesSunny Side Up

04–Jan12.46–

60,179

–

–

–

750

Sperasoft

16–Jan16.48

243,442(243,442)

3

–

4,010

(4,013)Acquisition related
issuance of shares:

Sperasoft re: bonus toemployees

16–Jan

14.13

7,801

–

–

–

110

–

Fire Without Smoke

04–Jun20.12

77,006(77,006)

1

–

1,548

(1,549)Red Hot

06–Jun9.12

160,297(160,842)

2

–

1,461

(1,468)Descriptive Video Works

11–Jun17.93–

35,560

–

–

–

638

Blindlight

26–Jun20.57

64,521(64,521)

1

–

1,326

(1,327)19.55

37,983(37,983)

–

–

743

(743)

Snowed in

12–AugStudio Gobo and Electric
Square20–Aug19.74

254,949(254,529)

3

–

5,021

(5,024)The Trailerfarm

24–Sep21.31

11,070(11,070)

–

–

236

(236)

TV+SYNCHRON

01–Oct13.12–

68,608

–

–

–

900

Ichi

26–Nov

15.94–

70,246

–

–

–

1,120

Kantan12–Dec15.86–

41,382

–

–

–

614

857,069(573,418)

10–

14,455(10,338)

567,160

–

7

754

–

–

65,212,515

349,721780

102,979

50,451

5,310

Acquisition related
issuance of shares
Issue of shares on exerciseof share options
At 31 December 2019

1.34

There is no limit to the number of shares which the Company can issue, nor are there are any restrictions on dividends or
distributions on such shares.
Shares to be issued are valued at the share price at the date of acquisition, and are recorded as shares to be issued, in accordancewith IAS 32.16.

Shares held in the Employee Benefit Trust (“EBT”)
2019

Ordinary shares held in the EBT

2018

Number€’000

Number€’000

335,425

1,997

335,425

1,997

107

108

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

16 Shareholders’ Equity continued
Reserves
The following describes the nature and purpose of each reserve within owners’ 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, net of share issuance costs.

Share option reserve

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

Share capital –to be issued

For deferred consideration which is to be provided for by the issue of a fixed number of shares at afuture defined date, where there is no obligation on Keywords to offer a variable number of shares,
the deferred consideration is classified as an Equity Arrangement and the value of the shares isfixed at the date of 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 consideration for the acquisition of an entity,
the value of the shares in excess of the nominal value (net of share issuance costs) is also recorded
within this reserve, in line with S612 of the Companies Act 2006.

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 as follows:
2019
€’000

2018
€’000

Share option scheme expense

1,520

646

LTIP option expense

8,255

3,483

9,775

4,129

Of the total share option expense, €754k relates to Directors of the Company (2018: €501k).

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:
2019

Outstanding at the beginning of the period

Average
exercise price in£ per share

7.11

2018
Number ofoptions

Average
exercise price in£ per share

Number ofoptions

1,832,701

2.79

1,375,201

Granted15.88

729,000

17.10

591,000

Lapsed14.74(175,807)

13.24(65,246)

Exercised

2.66(237,792)

1.93(68,254)

Outstanding at the end of the period

9.96

2,148,102

7.11

1,832,701

Exercisable at the end of the period

1.89

809,440

1.47

706,524

Weighted average share price at date of exercise

15.98

17.68

Governance

Financial statements

Supplementary information

17 Share Options continued
Share Option Scheme continued
Summary by year
Year of Option

2013

2015

2016

2017

2018

2019

Exercise price

£1.20

£1.58

£2.54

£7.76

£17.10£15.88275,484

605,033

139,184

268,500

544,500–

Outstanding at the beginningof the period

Total

1,832,701

Granted

–

–

–

–

–

729,000

729,000

Lapsed–(1,422)(7,005)(21,880)(75,000)(70,500)(175,807)

Exercised(96,925)(59,130)(40,950)(40,787)––(237,792)

Outstanding at the end of the period

178,559

544,481

91,229205,833

469,500

658,500

2,148,102

Exercisable at 31 December 2019

178,559

544,481

41,567

44,833––

809,440

Exercisable 2020––

49,66280,500156,500–

286,662

Exercisable 2021

–

–

–

80,500156,500

219,500

456,500

Exercisable 2022

–

–

–

–

156,500

219,500

376,000

Exercisable 2023

–

–

–

–

–

219,500

219,500

2017

2018

2019

Total

The inputs into the Black-Scholes model, used to value the options are as follows:Year of Option

2013

2015

Weighted average share price (£)

£1.23

£1.64

£2.54

£7.74

£17.21£16.09Weighted average exercise price (£)

£1.20

£1.58

£2.54

£7.76

£17.10£15.88Fair value at measurement date (€)

2016

€0.81

€0.56

€0.40

€1.13

€3.79

€4.96

Average expected life

4 Years

4 Years

4 Years

4 Years

4 Years

4 Years

Expected volatility

36.12%

28.03%

27.17%

24.79%

35.87%

45.43%

Risk free rates

0.50%

0.90%

0.58%

0.16%

0.89%

0.81%

Average expected dividend yield

1.00%

0.75%

0.55%

0.21%

0.10%

0.10%

–

–

5

17

29

41

Weighted average remaining life of
options in months

26

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
LTIP share awards are subject to KWS performance verses the designated share index over a three-year period.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
2019
Average
exercise price in£ per share

2018
Number ofoptions

Average
exercise price in£ per share

Number ofoptions

Outstanding at the beginning of the period

0.01

2,677,467

0.01

1,976,416

Granted0.01

1,298,136

0.01

996,000

Lapsed0.01(200,367)

0.01(102,398)

Exercised

0.01(329,368)

0.01(192,551)

Outstanding at the end of the period

0.01

3,445,868

0.01

2,677,467

Exercisable at the end of the period

0.01

732,299

0.01

436,667

Weighted average share price at date of exercise

16.17

17.50

109

110

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

17 Share Options continued
Long Term Incentive Plan continued
Summary by year
Year of option

2013

2015

2016

2017

2018

2019

Total

Exercise price

£0.01

£0.01

£0.01

£0.01

£0.01

£0.01

£0.01

Outstanding at the beginningof the period

222,238

214,429

625,000

664,000

951,800–

2,677,467

Granted

–

–

–

–

–

1,298,136

1,298,136

Lapsed–––(20,000)(94,800)(85,567)(200,367)

Exercised(17,965)(13,470)(297,933)–––(329,368)

Outstanding at the end of the period

204,273

200,959

327,067

644,000

857,000

1,212,569

3,445,868

Exercisable at 31 December 2019

204,273

200,959

327,067–––

732,299

Exercisable 2020

–

–

–

644,000––

644,000

Exercisable 2021

–

–

–

–

857,000–

857,000

Exercisable 2022

–

–

–

–

–

1,212,569

1,212,569

2013

2015

2016

2017

2018

2019

Total

Year of option

Weighted average share price (£)

£1.60

£1.63

£2.56

£7.75

£17.24£16.05Weighted average exercise price (£)

£0.01

£0.01

£0.01

£0.01

£0.01

£0.01

Fair value at measurement date (€)

€0.62

€1.38

€1.74

€4.96

€11.83€13.98Average expected life

3 Years

3 Years

3 Years

3 Years

3 Years

3 Years

Expected volatility

36.12%

28.21%

27.11%

24.79%

35.87%

45.26%

Risk free rates

0.50%

0.88%

0.54%

0.16%

0.89%

0.79%

–

–

–

5

17

29

Weighted average remaining life of
options in months

17

LTIP’s vest on the third anniversary of the grant, if the market performance criteria are met. LTIPs must be exercised before theseventh anniversary of the grant.
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 basedon 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 share option charge.

Governance

Financial statements

Supplementary information

18 Other Payables
Group
2019
€’000

2018
€’000

22,80916,671

Current liabilities
Accrued expenses
Payroll taxes

3,833

2,338

Other payables (ii)

6,104

3,890

Deferred and contingent consideration (i)5,966

18,249–5

38,712

41,153216

5Related party payableNon-current liabilities
Other payables

69

1,057

285

1,062

2019
€’000

2018
€’000

10,091

4,572

Accrued expenses

818

784

Payroll taxes

118

66

Other payables

271

13

Deferred and contingent consideration (i)Company

Current liabilities
Intercompany payables––

11,298

5,435

5,561

568

Other payables––

Deferred and contingent consideration (i)

–

–

5,561

568

Deferred and contingent consideration (i)Non-current liabilities
Intercompany payables

111

112

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

18 Other Payables continued
Group(i) The movement in deferred and contingent consideration during the financial year was as follows:
2019
€’000

2018
€’000

Opening balance

19,306

3,642

Consideration settled by cash

(14,711)(1,603)(1,000)Consideration settled by shares–

Unwinding of discount (note 6)

330

311

Additional liabilities from current year acquisitions (note 28)237

17,068Fair value adjustments (note 5)

493

766

Translation adjustment

380

122

6,035

19,306

2019
€’000

2018
€’000

Company

Opening balance–

971

Consideration settled by shares–(1,000)

Unwinding of discount

–

29

–

–

In general, in order for contingent consideration to become payable, pre-defined profit and / or revenue targets must be exceeded.
The valuation of contingent consideration is derived using data from sources that are not widely available to the public and involvesa degree of judgement (Level 3 input in the fair value hierarchy). On an undiscounted basis, the Group may be liable for deferred andcontingent consideration ranging from €nil to a maximum of €6.163m. A 10% movement in expected performance results, has no
impact on the fair value of the contingent consideration, and hence there are no reasonably probable changes to the assumptions
and inputs (including the discount rate), that would lead to a material change to the fair value of the total amount payable.
(ii) 	Other payables includes deferred income from contracts with customers of €2,609k (2018: €312k), which mainly comprise items
invoiced prior to services being delivered. The movement in the year is comprised of transfers in and out as items are deferredand subsequently recognised as revenue.

19 Employee Defined Benefit Plans
In line with statutory requirements in France, Italy and India, we are required to maintain employee defined benefit termination
payment schemes.
In France, employees are entitled to a lump-sum on retirement or early termination, based on salary and length of service(‘Indemnité de Fin de Carrière’ or IFC), entitling the Group’s French employees to benefits of up to 2 month’s salary per yearof service.
In Italy, on leaving employment, each employee is entitled to 1/13.5 of their final salary for each year of service (‘Trattamento di Fine
Rapporto’ or TFR).
In India, in compliance with statutory requirements, employees with over 5 years service are entitled a termination benefit of 15/26
of monthly salary for each year of service (‘Gratuity’ benefits).
The Group commissions an actuarial valuation of the related liabilities in each jurisdiction annually.

Governance

Financial statements

Supplementary information

19 Employee Defined Benefit Plans continued
The liabilities at year end are recorded as long term. The actuarial gain or loss is recorded separately within Other comprehensive
income. The movements through the year are as follows:

Group

Opening liabilities at 1 January

2019
€’000

2018
€’000

1,378

1,055

Liabilities in India recognised at 1 January 2018–188

Liabilities in France recognised at 1 January 2019

210–

Service cost

307

247

Interest cost35

32

Benefits paid

(48)

(117)

Actuarial (gain) / loss recorded

167

(27)

Closing liabilities at 31 December

2,049

1,378

The Directors have considered the key specific risk factors which the Group faces due to the employee defined benefit plans
which are 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 a 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 expectedthat there will be no sudden financial impact on the Group’s results caused by any of these factors. A maturity profile of theobligation is not presented as the liability is not significant in the context of the Group, and due to the age profile of employees asignificant outlay is not anticipated for the foreseeable future.
In 2020, the Group expects the costs of the employee benefit plan to be in line with current year levels, as staff levels are anticipated
to not change significantly in the period.
The actuarial valuation is based on the Projected Unit Credit Method, in line with IAS 19.
Cost for year

2019
€’000

2018
€’000

Service cost

307

247

Interest cost

35

32

Liabilities in France recognised at 1 January 2019

210–

Actuarial (gain) / loss

167

(27)

719

252

2019
€’000

2018
€’000

Actuarial (gain) / loss

Change due to experience28

2Change due to demographical assumptions

(24)

(38)

Change due to financial assumptions

163

9

167

(27)

113

114

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

19 Employee Defined Benefit Plans continued
Assumptions Underlying the Actuarial Valuations and Sensitivities of the Assumptions
For the actuarial valuations the following demographic and economic and financial assumptions were applied:•

Mortality probabilities were derived from the population demographics, as recorded by the Government Statistics Offices ineach jurisdiction.

•

Disability, retirement age and other relevant demographic assumptions were taken from relevant life assurance statistics.

•

Certain inputs were estimated by management including––

Employee attrition rates, estimated based on company experience in each jurisdiction.

––

In Italy, TFR rules allow for early drawdown of benefits in certain circumstances. Such advances were estimated on the basisof company experience.
2019

2018

Salary increase

3.38%

3.08%

Inflation

2.06%

2.18%

Discount rate

1.64%

2.43%

Economic and Financial Assumptions

Key Statistics
Staff (number)

749

558

Average age (years)

31

32

Average service (years)

4

3

2019
€’000

2018
€’000

(0.25%)

2,179

1,456

0.25%

1,964

1,308

Interest Rate Sensitivities

Mortality Rate Sensitivities(0.025%)

2,056

1,379

0.025%

2,054

1,378

(0.50%)

2,090

1,389

0.50%

2,046

1,369

Staff Turn Over Rate Sensitivities

Staff Salary Increases Rate Sensitivities(0.50%)

2,033

1,370

0.50%

2,103

1,390

Governance

Financial statements

Supplementary information

20 Loans and Borrowings
Group
2019
€’000

2018
€’000

80

40,071

Expiry within 1 year––

59,671

230

59,75140,301

Expiry between 1 and 2 years
Expiry over 2 years

In 2019 the Company amended and extended it’s existing Syndicated Bank revolving credit facility (‘RCF’).
The RCF allows financing of up to €100 million, with an option to increase this by up to €40m to a total of €140 million. The RCF
extends to October 2022, with an option to extend this maturity date by up to a further 2 years.
In connection with the RCF, security has been granted over the major subsidiaries of the Group and the lenders also require
the Group to comply with and report interest cover and leverage ratios in connection with its financial covenants. There were
no changes to these covenant requirements in the amended RCF. The Group was in full compliance with its financial covenants
throughout each of the periods presented. Non-compliance with terms of the RCF could result in lenders refusing to advance more
funds, or in the worst case, calling in outstanding loans.
While technically the borrowings are repaid and re-borrowed multiple times during the term of the RCF, so long as the Groupremains compliant with the financial covenants and certain other terms of the RCF, the debt is rolled from one period to another,with the legal and commercial substance of a multi-year committed facility. Hence the Group has presented the RCF as a
non-current liability, while in the prior period, the original RCF arrangement was presented as a current liability, because thearrangements were in the process of being re-negotiated.
There were a number of drawdowns during the financial year to fund new acquisitions. During 2019, excess funds of €7.5m wereused to make a partial repayment of outstanding loans. As at 31 December 2019 the Group had €59.5 million outstanding under the
RCF, at a rate based on a margin over EURIBOR, plus a separate margin charged for the unutilised facility.
Loans owed by Keywords Studios QC-Interactive Inc at the end of 2018 of €0.3m reduced to €0.25m during 2019.
Loans and borrowings (classified as financial liabilities under IFRS 9), are held at amortised cost. Interest expenses which arecalculated using the effective interest method, are disclosed in note 6.
The currencies of these loans are as follows:

Group

Euro
Canadian Dollars

2019
€’000

2018
€’000

59,50040,000251

301

59,75140,301

2019
€’000

2018
€’000

59,50040,00059,50040,000Company

Euro

115

116

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

21 Investment in Subsidiaries
Company
2019
€’000

2018
€’000

30,67030,670

The results and financial position of all the subsidiaries are included in the consolidated financial statements.
Details of the Company’s direct and indirect subsidiaries as at 31 December 2019 are set out below:
Proportion of
voting rights andordinary sharecapital held

Name

Country ofincorporation

Date ofincorporation /acquisition

Keywords International Ltd

Ireland13-May-98

100%

Whelan House, South County Business
Park, Dublin 18, Ireland.

Keywords International Co Ltd

Japan

30-Nov-10

100%

5F, Aoba No.1 Bldg. 2-3-1 Kudanminami,
Chiyoda, Tokyo, 102-0074 Japan.

Keywords International Inc.

USA

26-Sep-12

100%18300 Redmond Way, Suite 120,
Redmond, WA 98052

KW Studios Limited*UK

29-May-13

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Liquid Violet Ltd*UK

15-Jan-14

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Keywords Studios QC-Games Inc.

Canada(Quebec)

17-Feb-14

100%

1751 Richardson, suite 8400, Montréal,
Québec, Canada H3K1G6

Babel Media USA Inc.

USA

17-Feb-14

100%

251 Little Falls Drive, Wilmington,
DE 19808, USA

Babel Media India Private Limited

India

17-Feb-14

100%

3rd floor, Vardhman Orchard Plaza,
Plot No 4, LSC, West Enclave,
Pitampura, New Delhi, 110034, India

Babel Media Ltd*UK

17-Feb-14

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Keywords International Pte. Limited

Singapore

24-Apr-14

100%

20 Kallang Avenue, #06-6A, Lobby B,
Pico Creative Centre, Singapore 339411

Keywords Studios Italy S.R.L.

Italy

08-May-14

100%

Via Egadi 2, Milano, MI, 20144, Italy

Keywords Studios Los Angeles Inc.
(Formerly Binari Sonori America Inc.)

USA

08-May-14

100%

350 N. Glenoaks Blvd., Suite 305,
Burbank, CA 91502, USA

Binari Sonori Audio Productions LLC

USA

08-May-14

100%

350 N. Glenoaks Blvd., Suite 305,
Burbank, CA 91502, USA

Lakshya Digital Private Limited*India

09-Oct-14

100%

3rd floor, Vardhman Orchard Plaza,
Plot No 4, LSC, West Enclave,
Pitampura, New Delhi, 110034, India

Edugames Solutions Private LimitedIndia

09-Oct-14

100%

D – 3/C, Munirka Flats, New Delhi – 110067

Lakshya Digital Singapore Pte. Ltd

Singapore

09-Oct-14

100%

20 Kallang Avenue, #06-6A, Lobby B,
Pico Creative Centre, Singapore 339411

Keywords Studios QC-Tech Inc.

Canada(Quebec)

06-Jan-15

100%

1751 Richardson Street Suite 8400
Montreal QC H3K 1G6 Canada

Keywords International
Barcelona SL

Spain

09-Jan-15

100%

Passeig de Gràcia 49, 1er2a, 08007
Barcelona, Catalonia, Spain

Registered officeGovernance

Financial statements

Supplementary information

21 Investment in Subsidiaries continued
Company continued
Proportion of
voting rights andordinary sharecapital held

Country ofincorporation

Date ofincorporation /acquisition

Keywords do Brasil Localizacao eTraducao Ltda

Brazil

18-Jan-15

100%

Av. Churchill, 109 – Sala 204 – Centro,
Rio de Janeiro-RJ, Brazil CEP: 20020-050

Keywords (Shanghai) Information
Technology Ltd

China

02-Apr-15

100%

142 Room, Building 7, No.311 Jin Gao
Road, Pudong New District, Shanghai

Keywords Studios Spain SLU

Spain

16-Jul-15

100%

Julián Camarillo 6A, 3B, 28037 Madrid,
Spain

Kite Team Mex S.de R.L. de. CV(Currently in process of changing
name to Keywords Studios Mexico,
S. de R.L. de C.V.)

Mexico16-Jul-15

100%

Av. Insurgentes Sur 1853, Guadalupe Inn,
01020 Ciudad de México, CDMX Mexico

Liquid Development LLC

USA

19-Aug-15

100%

411 SW 2nd Ave #300, Portland,
OR 97204, USA

Keywords Asia Private Ltd

Singapore

15-Mar-16

100%

20 Kallang Avenue #06-6A, Lobby B
Pico Creative Centre Singapore 339411

Synthesis Deutschland GmbH*Germany

12-Apr-16

100%

Holstenkamp 46 A, Bahrenfeld, 22525
Hamburg, Germany

Synthesis Global Solutions SAS*

Switzerland 12-Apr-16

100%

Corso Elvezia 16, 6900 Lugano, Ticino,
Switzerland

Keywords Studios France SAS

France08-Jun-16

100%

11 rue Torricelli, 75017 Paris, France

Player Research Ltd

UK

26-Oct-16

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Keywords Studios
QC-Interactive Inc.

Canada(Quebec)

16-Nov-16

100%

1751 Richardson Street Suite 8400
Montreal QC H3K 1G6 Canada

SPOV LtdUK

16-Feb-17

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Xloc Inc.

USA

08-May-17

100%

712 Presnell Court, Raleigh,NC 27615-1240, USA

GameSim Inc.

USA

16-May-17

100%

12000 Research Parkway, Suite 436,
Orlando, FL 32826, USA

Strongbox Ltd

Seychelles

19-May-17

100%

Suites 103, 106 and 107 Premier
Building, Victoria, Mahe, Seychelles

Red Hot Software (Shanghai) Ltd

China

19-May-17

100%

Dong Ti Yu Hui Road #860, Building 5,
4th Floor, Shanghai, China

Red Hot Software (Zhengzhou) Ltd

China

19-May-17

100%

Room 207, 11th Floor, Building No. 3,
No. 57 Ke Xue Da Dao, Zheng Zhou,
He Nan, China

Eastern New Media Limited

Hong Kong

19-May-17

100%

Flat/Rm 4304, 43F, China Resources
Building, 26 Harbour Road, Wanchai,Hong Kong

PT Limitless Indonesia

Indonesia

19-May-17

100%

JI. Timoho II, No. 32, Yogyakarta,

Around the Word GmbHGermany

03-Aug-17

100%

Rosenstrasse 2, D-10178 Berlin

D3T LtdUK

19-Oct-17

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

NameRegistered office

117

118

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

21 Investment in Subsidiaries continued
Company continued
Proportion of
voting rights andordinary sharecapital held

Name

Country ofincorporation

Date ofincorporation /acquisition

Keywords US Holdings Inc.

USA

23-Oct-17100%1209 Orange Street, Wilmington,
New Castle County, Delaware 19801, USA.

Keywords Canada Holdings Inc.

Canada(Quebec)

27-Oct-17

100%

1751 Richardson Street Suite 8400
Montreal QC H3K 1G6 Canada

Keywords Studios BC Inc.

Canada(BC)

27-Oct-17100%

400-725 Granville Street, Vancouver,BC V7G 1G5, Canada

VMC Consulting CorporationUSA

24-Oct-17

100%

11611 Willows Road NE, Redmond,
WA 98052, United States of America

Sperasoft Poland Spólka z.o.o.

Poland13-Dec-17100%

Ul. Na Kozłówce 27, 30-664 Kraków,
PolandSperasoft Studios LLC

Russia13-Dec-17

100%196084, Russia, Saint-Petersburg,
Kievskaya street, 5 – building

Sperasoft Inc.

USA

13-Dec-17

100%1013 Centre Road, Suite 403-B,
Wilmington, DE 19805, USA

Keywords Studios Ltd*

Ireland27-Mar-18

100%

Whelan House, South County Business
Park, Dublin 18, Ireland.

Keywords UK Holdings Limited

UK

28-Mar-18

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Keywords Ventures Limited

UK

06-Apr-18

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Laced Music Ltd

UK

07-Apr-18

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Cord Worldwide Ltd

UK

07-Apr-18

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Cord Artists Management Limited

UK

07-Apr-18

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Paleblue Limited

UK

07-Apr-18

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Fire Without Smoke Ltd

UK

29-May-18

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Fire Without Smoke Inc.

USA

29-May-18

100%12701 Marblestone Drive, Suite 330,
Woodbridge, Virginia, 22192 USA

Blindlight LLC

USA

08-Jun-18

100%8335 Sunset Blvd. West Hollywood,
CA 90069 USA

Snowed In Studios, Inc.

Canada(Ontario)

19-Jul-18

100%

400 – 981 Wellington Street
West Ottawa, Ontario K1Y 2Y1 Canada

Studio Gobo Limited

UK

17-Aug-18

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Bitsy SG Limited

UK

17-Aug-18

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Registered officeGovernance

Financial statements

Supplementary information

21 Investment in Subsidiaries continued
Company continued
Proportion of
voting rights andordinary sharecapital held

Name

Country ofincorporation

Date ofincorporation /acquisition

Electric Square Limited

UK

17-Aug-18

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Alset LtdUK

17-Aug-18

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Itsy SGD Limited

UK

17-Aug-18

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

d3t Development Ltd

UK

30-Aug-18

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

The Trailerfarm Limited

UK

13-Sep-18

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Sunny Side Up Inc.

Canada03-Jan-19

100%

355 De La Silice Street, Boischatel,
Quebec City, G0A 1H0, Canada

AppSecTest Limited

UK

22-Jan-19

48%

Unit 13 Orton Enterprise Centre,
Bakewell Road, Peterborough,Cambridgeshire, United Kingdom,PE2 6XU

Keywords Studios Netherlands B.V.

Netherlands 05-Feb-19

100%

Juliana van Stolberglaan 4-10, 2595CL
The Hague, the Netherlands

Wizcorp Inc.

Japan

18-Apr-19

100%

3-10-14, Higashi-Nihonbashi 3-chome,
Sunrise Tachibana 6F, Chuo-ku, Tokyo,
Japan

Descriptive Video Works Inc.

Canada11-Jun-19

100%

400-725 Granville Street, Vancouver,BC V7G 1G5, Canada

Descriptive Video Works USA Inc

USA

11-Jun-19

100%

300 Deschutes Way SW 304, Tumwater,WA, 98501, United States

Keywords Germany Holdings GmbHGermany

06-Sep-19

100%

Moriz Seeler Straße 5-7, Franz Ehrlich
Haus, 12489 Berlin, Germany

TV+SYNCHRON Berlin GmbHGermany

01-Oct-19

100%

Moriz Seeler Straße 5-7, Franz Ehrlich
Haus, 12489 Berlin, Germany

Ichi Holdings Limited

UK

26-Nov-19

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Ichi Limited

UK

26-Nov-19

100%

201 Temple Chambers, 3-7 Temple
Avenue, London, England, EC4Y 0DT

Ichi Creative Ltd Inc.

USA

26-Nov-19

100%1679 South DuPont Highway, Suite 100,
City of Dover, Kent, 19901, USA

9145 – 9115 Inc.

Canada04-Dec-19

100%

1751 Richardson Office 8400, Montreal,
Canada, H3K 1G6

Xcelerator MachineTranslations Limited

Ireland12-Dec-19

100%

Invent, Dublin City University, Glasnevin,Dublin 9, Ireland*

Registered officeindicates a direct subsidiary (all other holdings are indirect, being subsidiaries of various intermediate group holding companies).

Post acquisition, the Group reviews entities to streamline activities and close any dormant entities acquired or restructured entities.

119

120

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

21 Investment in Subsidiaries continued
Company continued
Re-structuring details are set out below:
Proportionof votingrights andordinary
share
capital held

Country ofincorporation

Date ofincorporation /acquisition

Keywords International
Corporation Inc.

Canada22-Dec-10100%Merged into Keywords Canada
Holdings Inc.

01-Jan-19

Volta Creation Inc.

Canada28-Jul-16

100%

Merged into Keywords Canada
Holdings Inc.

01-Jan-19

Global Video Games
Services Inc.

Canada16-Nov-16

100%

Merged into Keywords Canada
Holdings Inc.

01-Jan-19

Sillabit S.R.L

Italy

12-Apr-16

100%

Merged into Keywords Studios
Italy S.R.L.

01-Jan-19

Cord World Wide Spain, SL

Spain

07-Apr-18

100%

Dissolved

23-Dec-19

Name

Date ofre-structuring

Re-structuring details

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 2019, P.E.Q. Holdings Limited owned 5.37% (2018: 6.3%) of theCompany. 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, on
an arms length basis:
2019
€’000

2018
€’000

73

44

73

44

2019
€’000

2018
€’000

13

5

13

5

Operating expenses
Canteen charges

The following are year-end balances owing by the Group:

Italicatessen Limited

The Group paid the following amounts, on an arms length basis, to Mr. Giorgio Guastalla, Director of the Company, and shareholderof P.E.Q. Holdings Limited, in respect of rent on premises occupied by employees of the Group in Dublin.
2019
€’000

2018
€’000

25

22

25

22

Operating expenses
Rental payment

The details of key management compensation (being the remuneration of the Directors) are set out in note 10.

Governance

Financial statements

Supplementary information

22 Related Parties and Shareholders continued
As at 31 December 2019 and 2018, the Company had amounts receivable from its subsidiaries as follows:
2019
€’000

2018
€’000

Receivables from subsidiaries related to investment in acquisitions

208,352

175,509

Receivables from subsidiaries relating to trading activities

15,2201,600

223,572

177,109

2019
€’000

2018
€’000

Company – Short Term (note 15)

15,2201,600

Company – Long Term (note 15)

208,352

175,509

223,572

177,109

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 and operating cash flows are substantially independent of changes in market interest rates. The management monitors
interest rate fluctuations on a continuous basis and acts accordingly.
Where the Group has a significant amount of surplus cash, it invests 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 effect of a strengthening or a weakening of 1% in interest rates charged during the reporting period on the interest expense
would have resulted in the following pre-tax profit / (loss) impact for the year:

Interest expense

2019
€’000

2019
€’000

2018
€’000

2018
€’000

1%
Strengthening

1%
Weakening

1%
Strengthening

1%
Weakening

(503)

503

(352)

352

Credit Risk
The Group’s main financial assets are cash and cash equivalents, as well as trade and other receivables which represent the Group’s
maximum exposure to credit risk in connection with its financial assets.
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. Credit risk arising in the context of the Group’s operations is not significant withthe total bad debt provision at the balance sheet date amounting to 3.0% of net trade receivables (2018: 4.6%). Customer credit risk
is managed at appropriate Group locations according to established policies, procedures and controls. Customer credit quality isassessed and credit limits are established where appropriate. Outstanding customer balances are regularly monitored and a review
for indicators of impairment (evidence of financial difficulty of the customer, payment default, breach of contract etc.) is carried out
at each reporting date. Significant balances are reviewed individually while smaller balances are grouped and assessed collectively.
Receivables balances are unsecured and non-interest-bearing. The trade receivables balances disclosed comprise a large number ofcustomers spread across the Group’s activities and geographies with balances classified as “Not past due” representing 84% of thetotal trade receivables balance at the balance sheet date (2018: 74%). Trade and other receivables are carried on the consolidated
statement of financial position net of bad debt provisions.
Group Treasury manage bank balances centrally, and monitors the credit rating and stability of the institutions the Group banks with.

121

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Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

23 Financial Instruments and Risk Management continued
The ageing of trade receivables can be analysed as follows:

Group
Total
€’000

Not
past due€’000

1-2 months
past due€’000

More than
2 months
past due€’000

At 31 December 201943,24336,2086,136899

At 31 December 2018

37,01927,504

7,996

1,519

2019
€’000

2018
€’000

Provision at the beginning of the year

1,717

418

Impairment of financial assets (trade receivables) charged to administration expenses

500

2,055

Foreign exchange movement in the year

54

(30)

A provision for doubtful debtors is included within trade receivables and can be reconciled as follows:

Utilised

(988)

(726)

Provision at end of the year

1,283

1,717

Trade receivables loss allowance is estimated using a practical expedient to arrive at lifetime expected credit losses. Overdue
receivables are evaluated to calculate an expected credit loss using a historical credit loss experience of 0.5% (2018: 0.5%). Taking
into account internal and external information, the historical credit loss experience may be adjusted where it is determined that
there has been a significant increase in credit risk. Where a receivable is credit impaired, the impairment is recognised immediately,
and impaired balances are removed from the expected credit loss calculation.
Total
€’000

Not
past due€’000

1-2 months
past due€’000

More than
2 months
past due€’000

Trade receivables gross

44,52636,386

6,166

1,974

Credit impaired(1,071)––(1,071)

(212)

(178)

(30)

(4)

43,24336,208

6,136

899

Total
€’000

Not
past due€’000

1-2 months
past due€’000

More than
2 months
past due€’000

Trade receivables gross

39,07427,874

8,586

2,614

Credit impaired(1,872)

(234)

(551)

(1,087)

Expected credit losses
At 31 December 2019

Expected credit losses

(183)

(136)

(39)

(8)

At 31 December 2018

37,01927,504

7,996

1,519

Related party receivables of €nil were past due at 31 December 2019 (2018: €nil).

Governance

Financial statements

Supplementary information

23 Financial Instruments and Risk Management continued
Company
As presented in note 22, receivables from subsidiaries relating to investments in acquisitions, comprise term loans extended tosubsidiaries, while receivables from subsidiaries relating to trading activities, comprise trading balances repayable on demand.
Balances are analysed in terms of the risk profile of the subsidiary. A small number of balances were deemed to be technicallycredit impaired under IFRS 9, and an expected credit loss of €212k (2018: €183k), was recognised in the period relating to thesereceivables. Taking into account internal and external information, it was determined that a significant increase in credit risk had notoccurred in the reporting period for the remaining receivables from subsidiaries. A 12 month expected credit loss of €nil (2018: €nil)
was recognised in the period relating to these receivables.

Currency Risk
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. The foreignexchange risk arises for the Group where assets and liabilities arise in a currency other than the functional currency of the entity.
The Group’s policy, where possible, is for Group entities to manage foreign exchange risk at a local level by matching the currency inwhich revenue is generated with the expenses incurred and by settling liabilities denominated in their functional currency with cash
generated from their own operations in that currency. Where Group entities have liabilities denominated in a currency other thantheir functional currency (and have insufficient reserves of that currency to settle them), cash already denominated in that currency
will, where possible, be transferred from elsewhere within the Group.
The Group is predominantly exposed to currency risk on the balances held within working capital across the Group and theexposure is concentrated in the movement of the Canadian Dollar, US Dollar and Sterling against the Euro. The effect of astrengthening or weakening of 10% in those currencies against the Euro at the reporting date on the working capital balances
would, all other variables held constant, have resulted in the following pre-tax profit / (loss) impact for the year:
2019
€’000

2019
€’000

2018
€’000

2018
€’000

10%
Strengthening

10%
Weakening

10%
Strengthening

10%
Weakening

US Dollar to Euro

3,052

(2,497)2,140(1,946)

Canadian Dollar to Euro

1,779

(1,455)2,026(1,842)

Sterling to Euro

1,535

(1,256)

884

(803)

Total Financial Assets and Liabilities
The carrying amount of the financial assets and liabilities shown in the Consolidated and Company Statements of financial position
are stated at amortised costs, with the exception of contingent consideration held at fair 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 Directors
consider liquidity risk is mitigated by the strong working capital position, with €120m of current assets, including cash of €42m
available to settle liabilities as they fall due.

123

124

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

23 Financial Instruments and Risk Management continued
Liquidity Risk continued
The following are the contractual maturities (representing undiscounted contractual cash flows) of the Group’s and Company’s
financial liabilities:

Group
At 31 December 2019

Total
€’000

Within 1 year€’000

1-2 years€’000

2-5 years€’000

Over 5 years€’000

Trade payables

8,027

8,027

–

–

–

Deferred and contingent consideration (i)

6,035

5,966

69

–

–

Other payables

32,962

32,746216––

Loans and borrowings

59,75180–

59,671

–

102

102

–

–

–

Lease liabilities

21,907

7,741

4,770

7,382

2,014

Total

128,784

54,662

5,055

67,053

2,014

Total
€’000

Within 1 year€’000

1-2 years€’000

2-5 years€’000

Over 5 years€’000

Loan interest

At 31 December 2018

Trade payables

7,142

7,142

–

–

–

Deferred and contingent consideration (i)19,306

18,249

1,057

–

–

Other payables

22,90922,904

5––

Loans and borrowings

40,301

40,071

–

230

–

55

55

–

–

–

Loan interest
Lease liabilities

n/a

n/a

n/a

n/a

n/a

89,71388,421

1,062

230

–

At 31 December 2019

Total
€’000

Within 1 year€’000

1-2 years€’000

2-5 years€’000

Over 5 years€’000

Trade payables

139

139

–

–

–

–

–

–

–

–

Other payables

16,85911,298

–

5,561

–

Loans and borrowings

59,500––59,500

–

102

102

–

–

–

Total

Company

Deferred and contingent consideration (i)Loan interest

626

203

209

214

–

77,226

11,742

209

65,275–

At 31 December 2018

Total
€’000

Within 1 year€’000

1-2 years€’000

2-5 years€’000

Over 5 years€’000

Trade payables

285

285

–

–

–

–

–

–

–

–

6,003

5,435

–

568

–

40,00040,000

–

–

–

55

55

–

–

–

n/a

n/a

n/a

n/a

n/a

46,34345,775–568–

Lease liability
Total

Deferred and contingent consideration (i)Other payables
Loans and borrowings
Loan interest
Lease liability
Total(i)	Deferred and contingent consideration at 31 December 2019 has arisen on business combinations, and is based on set amounts
to be paid in the future to sellers under share purchase agreements.

Governance

Financial statements

Supplementary information

24 Leasing
The Group has entered into leases, across the business, principally relating to property. These property leases have varying terms
and renewal rights.

Group
Right of use assets
2019
€’000

Cost
At 1 January 2019–

Adjustments from adoption of IFRS 16

23,138Additions

4,315

Acquisitions through business combinations at fair value

990

Currency revaluation

941

At 31 December 2019

29,384

Accumulated depreciation
At 1 January 2019
Depreciation charge

–
7,849

Currency revaluation

66

At 31 December 2019

7,915

Net book value
At 1 January 2019
At 31 December 2019–21,469Lease payments not recognised as a liability
The Group has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) orfor leases of low value assets. Payments made under such leases are expensed on a straight-line basis. The expenses in the period
relating to payments not included in the measurement of the lease liability were as follows:
2019
€’000

Short-term leases
Leases of low value assets

1,616
–
1,616

The future minimum lease payments related to these leases were as follows:
2019
€’000

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

651
–
–
651

125

126

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

24 Leasing continued
Group continued
Lease liabilities
The maturity analysis of the lease liabilities are as follows:
2019
€’000

2019
€’000

2019
€’000

Lease
payments

FinancechargesLiabilities

Not later than one year

8,281

582

7,741

Later than one year and not later than five years

12,321

216

12,152Later than five years

2,718

703

2,014

23,3201,501

21,907The value of leases not yet commenced to which the lessee is committed, which are not included in lease liabilities at 31 December
2019, were €nil.
The interest expense on the unwinding of the lease liabilities is presented in note 6, while the total cash outflow in relation to leases
is presented in the Consolidated statement of cash flows.

Impact analysis
The impact of IFRS 16 on certain key metrics is as follows:

IFRS performance measure

Calculated with reference to reported performance
Unwinding of liabilities (note 6)

2019
€’000

2019
€’000

2019
€ centOperatingprofitProfitafter tax

Basic earnings
per share

21,542

9,909

15.23

–

694

1.07

Depreciation (note 24)

7,849

7,849

12.06

Leases expenses now reported under IFRS 16(8,114)(8,114)(12.47)

Calculated excluding the impact of IFRS 16

21,277

10,33815.89

Governance

Financial statements

Supplementary information

24 Leasing continued
Company
Right of use assets
2019
€’000

Cost
At 1 January 2019
Adjustments from adoption of IFRS 16–
785

Additions–

Acquisitions through business combinations at fair value–

Currency revaluation40

At 31 December 2019825

Accumulated depreciation
At 1 January 2019–

Depreciation charge

200

Currency revaluation

6

At 31 December 2019206

Net book value
At 1 January 2019
At 31 December 2019–
619

Lease payments not recognised as a liability
The Company has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less)or for leases of low value assets. Payments made under such leases are expensed on a straight-line basis. The expenses in the
period relating to payments not included in the measurement of the lease liability were as follows:
2019
€’000

Short-term leases–

Leases of low value assets––

The future minimum lease payments related to these leases were as follows:
2019
€’000

Not later than one year–

Later than one year and not later than five years–

Later than five years

–
–

127

128

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

24 Leasing continued
Company continued
Lease liability
The maturity analysis of the lease liability is as follows:
2019
€’000

2019
€’000

2019
€’000

Lease payments

Finance charges

Liability

Not later than one year

216

12

204

Later than one year and not later than five years

431

9

422

–

–

–

647

21

626

2019
€’000

2018
€’000

Later than five years

25 Capital Management
Group

Loans and borrowings (note 20)

59,75140,301

Less: cash and cash equivalents(41,827)(39,871)

Net debt / (net cash) position

17,924430

222,958

192,375

8.0%

0.2%

Total equity
Net debt / (net cash) to capital ratio (%)

The Group manages capital by monitoring debt to capital and net debt ratios. This debt to capital ratio is calculated as net debt tototal equity. Net debt is calculated as loans and borrowings (as shown in the Consolidated statement of financial position) less cash
and cash equivalents. The liquidity risk and cash management for the Group is managed centrally by the Group Treasury function.
The Board receives projections on a monthly basis as well as information regarding cash balances. The Group’s strategy is topreserve a strong cash base and secure access to finance at reasonable cost by maintaining a good credit rating.

26 Deferred Tax
Details of the deferred tax assets and liabilities, and amounts recognised in the Income statement are as follows:
2019
€’000

2019
€’000

2019
€’000

2019
€’000

AssetsLiabilities

Net(Credited) / charged
to income statement

Accelerated capital allowances

–

–

–

(1)

Defined benefit termination payments

50

–

50

16

1,450

–

1,450

(575)

11

–

11

19

578

575

3

484

Available losses
Rent free period provisions
Fixed asset tax base versus accounting book value

474

3,637

(3,163)

695

2,497

1,507

990

469

–

3,803

(3,803)(1,990)

Net tax assets / (liabilities)

5,060

9,522

(4,462)(883)

Impact of change in tax rates

–

–

–

(80)

Prior year (over) / under provision

–

–

–

(95)

Total (credited) / charged to income statement

–

–

–

(1,058)Deferred tax related to tax credits
Deferred tax arising on items deductible on a paid basis
Deferred tax arising on intangibles

Governance

Financial statements

Supplementary information

26 Deferred Tax continued

Accelerated capital allowances

2018
€’000

2018
€’000

2018
€’000

2018
€’000

AssetsLiabilities

Net(Credited) / charged
to income statement

–

1

(1)

1

Defined benefit termination payments

66

–

66

(3)

Available losses

875

–

875

40

Rent free period provisions

30

–

30

4

Fixed asset tax base versus accounting book value

558

71

487

(100)

–

2,468

(2,468)(112)

Deferred tax related to tax credits
Deferred tax arising on items deductible on a paid basis
Deferred tax arising on intangibles
Net tax assets / (liabilities)
Impact of change in tax rates

1,438

155

1,283

(415)

–

5,793

(5,793)(1,448)

2,967

8,488

(5,521)(2,033)

–

–

–

(4)

Prior year (over) / under provision

–

–

–

(364)

Total (credited) / charged to income statement

–

–

–

(2,401)

2019
€’000

2018
€’000

The deferred tax asset not recognised on available losses at the period end is €3.1m (2018: €3.9m).

27 Investment in Associate
Opening balance
Investment in AppSecTest Limited
Additional investment in AppSecTest Limited
Share of post-tax profit / (loss) of equity accounted associate
Recognised as a business combination (note 28)

160

–

–

226

114

–

–

(66)

(274)

–

–

160

In May 2018, the Group, through the newly established Keywords Ventures Limited, invested £100k (€114k) for 15% of the sharecapital of AppSecTest Limited. Incorporated in the UK, AppSecTest is creating a cloud based automatic testing solution for mobile
apps, including games (principally for GDPR compliance). A further investment of £100K (€112K) was made in September 2018bringing the total investment to 30% of the share capital of the company. Following an additional investment on 20 January 2019,
the Group considers this to be a business combination, having acquired effective control over the entity.

129

130

Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

28 Business Combinations / Acquisitions Completed in the Current Year
Wizcorp€’000

Descriptive
Video
Works
€’000

TV+SYNCHRON
€’000

Ichi
€’000

Syllabes€’000

Kantan€’000

21-Feb-19

18-Apr-19

11-Jun-19

01-Oct-19

26-Nov-19

04-Dec-19

12-Dec-19

UK

Netherlands

Japan

CanadaGermany

UK / USA

CanadaIrelandSunnySide Up€’000

AppSecTest€’000

GetSocial€’000

Date of acquisition

04-Jan-19

22-Jan-19

Acquisition company
jurisdiction

Canada

Total
€’000

Book value ofidentifiable assets
and liabilities
Property, plantand equipment

44

219

10

37

86

193

18

107

8

722

Right of use assets

–

–

–

178

84

394

–

76

–

732

Intangible assets

–

–

125

–

–

–

–

–

–

125

Trade and otherreceivables – gross

84

2

–

377

165

161

205

81

484

1,559

Bad debt provision

–

–

–

–

–

–

–

–

–

–

Cash and cash
equivalents

338

67

–

297

93

424

512

–

381

2,112

Trade andother payables

(218)

(18)

(19)

(847)

(83)

(530)

(347)

(105)

Lease liabilities

–

–

–

(178)

(84)

(394)

–

(76)

–

(732)

Loan

–

–

–

–

–

(402)

–

–

–

(402)

248

270

116

(136)

261

(154)

388

83

(255)

821

Identifiableintangible assets– development costs

–

–

–

–

–

–

–

–

1,490

1,490

Identifiabletangible assets

–

–

–

–

–

–

–

41

–

41

Pension liability –adjustment

–

–

–

–

–

–

–

–

432

432

Deferred tax
liabilities

–

–

–

–

–

–

–

–

–

–

Total fair value
adjustments

–

–

–

–

–

–

–

41

1,922

1,963

Total identifiable
assets

248

270

116

(136)

261

(154)

388

124

1,667

2,784

Non-controllinginterest

–

(148)

–

–

–

–

–

–

–

(148)
2,636

Net book value(1,128) (3,295)

Fair value
adjustments

Attributableto Keywords

248

122

116

(136)

261

(154)

388

124

1,667

Goodwill

3,845

152

54

1,088

1,864

3,660

3,598

199

2,490 16,950

Total consideration

4,093

274

170

952

2,125

3,506

3,986

323

4,157 19,586

Governance

Financial statements

Supplementary information

28 Business Combinations / Acquisitions Completed in the Current Year continued% Share capitalacquired

Wizcorp€’000

Descriptive
Video
Works
€’000

TV+SYNCHRON
€’000

Asset
purchase

100%

100%

Sunny
Side Up€’000

AppSecTest€’000

GetSocial
€’000

100%

48%

Ichi
€’000

Syllabes€’000

Kantan
€’000

100%

Asset
100% purchase

100%

Total
€’000

Satisfied by:

3,342

274

170

952

1,373

2,606

2,866

197

3,543

15,323

Deferred cash

–

–

–

–

112

–

–

126

–

238

Deferred cash contingent
on performance

–

–

–

–

–

–

–

–

–

–

Shares to be issued

751

–

–

–

640

900

1,120

–

614

4,025

Total considerationtransferred

4,093

274

170

952

2,125

3,506

3,986

323

4,157

19,586

–

–

–

–

–

–

–

–

–

–

60,179–––35,56068,608 70,246–

41,382275,975

Cash paid in 2019

3,342

114

170

952

1,373

2,606

2,866

197

3,543

15,163

Less: cash and cash
equivalent balancestransferred

(338)

(67)

–

(297)

(93)

(424)

(512)

–

(381)

(2,112)

Net cash outflow –acquisitions

3,004

47

170

655

1,280

2,182

2,354

197

3,162

13,051

Related acquisition costs
charged through to theConsolidated Statementof Comprehensive Income

101

–

7

36

69

151

35

1

135

535

Pre-acquisition revenue
in H1

–

–

25

656

558

1,285

1,859

217

309

4,909

Pre-acquisition revenue
in H2

–

–

–

–

–

1,006

700

199

353

2,258

Cash

Number of shares
Issued at the dateof acquisition
Fixed amountagreed to be issued
Net cash outflow
arising on acquisition

Pre-acquisition revenue
with Keywords Group

–

–

–

–

–

(68)

–

–

–

(68)

Post-acquisition revenue

2,378

–

142

1,202

852

1,245

175

50

22

6,066

Pro forma revenue

2,378

–

167

1,858

1,410

3,468

2,734

466

684

13,165Pre-acquisition profit /(loss) before tax

–

–

(23)

1

7

(146)

480

28

(196)

151

Post-acquisition profit /(loss) before tax

701

(202)

(755)

(563)

273

413

(28)

3

(12)

(170)

Pro forma profit / (loss)
before tax

701

(202)

(778)

(562)

280

267

452

31

(208)

(19)

131

132

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

28 Business Combinations / Acquisitions Completed in the Current Year continued
The acquisitions made in the year are in line with the Group’s strategy to grow organically and by acquisition, as it selectively
consolidates the highly fragmented market for video game services. The companies will bring additional talent, expertise andindustry experience to Keywords’ client base. Being able to offer the additional services to our clients will further enhance our
reputation as the leading provider of services to the global video games industry.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed of acquisitions in the year are set out
in the table above.
The main factors leading to the recognition of goodwill on the acquisitions are the presence of certain intangible assets in theacquired entities, which are not valued for separate recognition, such as the experience and expertise in:•producing trailers for the marketing and support of video games in Sunny Side Up.

•social media technology for the games industry in GetSocial.

•engineering services in Wizcorp, in particular for the mobile development market in Japan.

•

audio description services for broadcast and over the top streamed programming in Descriptive Video Works.

•

dubbing and localising into German across a range of entertainment formats in TV+SYNCHRON.

•

creative and marketing services to the video games, sports and entertainment sectors globally in Ichi.

•

audio recording and casting services in French and English for the video games industry and media and entertainment
customers in Syllabes.

•

automated translation technology in Kantan.

The total amount of goodwill arising on business combinations completed in 2019, that is expected to be deductible for tax
purposes was €nil.

Governance

Financial statements

Supplementary information

29 Supplementary Information to the Consolidated Statement of Cash Flows
Group movement on Loans
Current€’000

Non-current
€’000

Total
€’000

18,943337

19,280Cash received via additional loans in the year

31,850–31,850

Repayment of loans(10,835)–(10,835)

6–

6

At 1 January 2018
Cash flows:

Non-cash flows:
Amounts recognised on business combinations

107

(107)

–

At 31 December 2018

Non-current transferred to current

40,071

230

40,301

Re-designated from current to non-current(40,000)

40,000––27,00027,000Cash flows:
Cash received via additional loans in the year
Loans acquired on acquisition (note 28)
Repayment of loans

–

402

402

(71)

(7,902)(7,973)–21

21

Non-cash flows:
Foreign exchange difference on Canadian loans

80

(80)

–

80

59,67159,751

Current€’000

Non-current
€’000

Total
€’000

18,250–18,250Cash received via additional loans in the year

31,850–31,850

Repayment of loans(10,100)–(10,100)

At 31 December 2018

40,000–40,000Re-designated from current to non-current(40,000)

40,000–Cash received via additional loans in the year–

27,00027,000

Repayment of loans–(7,500)(7,500)At 31 December 2019–59,50059,500Non-current transferred to current
At 31 December 2019

Company movement on Loans

At 1 January 2018
Cash flows:

Cash flows:

As explained in note 20, following the renegotiation of the RCF, the Group has re-designated these borrowings as non-current.

133

134

Keywords Studios plc

Overview

Strategic report

Annual Report and Accounts 2019

Notes forming part of the consolidated
and company financial statements continued

30 Events after the Reporting Date
Since the year end the Group’s operations have been significantly impacted by the COVID-19 pandemic. This has resulted in
restrictions being put in place requiring most of the Group’s studios to be temporarily closed. The Group has been able to moveover 5,500 employees to work from home arrangements and whilst this has resulted in some short term disruption it has allowed
production to continue across most of the Group’s operations.
In consultation with clients, the Group continues to make preparations to move more of the production staff to this model,
particularly in the Testing business (Functional and Localisation Testing) with the aim of establishing a new model of testing from
home, where testing had previously been conducted from secure facilities.
It is very difficult to predict how long the studio closures will be in place for, but demand for the Group’s services remain robust, thebroader video games industry has historically shown resilience in times of economic downturn and the Group has the ability to flex
its cost base in response to a reduction in trading activity.

Governance

Financial statements

Supplementary information

Alternative performance measures

The Group reports a number of alternative performance measures (APMs) to present the financial performance of the business,that are not GAAP measures as defined under IFRS. The Directors believe that these measures, in conjunction with the IFRS
financial information, provide the users of the financial statements with additional information to provide a more meaningfulunderstanding of the underlying financial and operating performance of the Group. The measures are also used in the Group’s
internal strategic planning and budgeting processes and for setting internal management targets. These measures can have
limitations as analytical tools and therefore should not be considered in isolation, or as a substitute for IFRS measures.
The principal measures used by the Group are set out below:
Organic revenue growth – Acquisitions are a core part of the Group’s growth strategy. Organic revenue growth measures are used
to help understand the underlying trading performance of the Group excluding the impact of acquisitions. Organic revenue growthis calculated by adjusting the prior year revenues, adding pre-acquisition revenues for the corresponding period of ownership toprovide a like for like comparison with the current year, and applying the prior year’s (2018) foreign exchange rates to both years.
Constant exchange rates (CER) – Given the international nature of the Group’s operations, foreign exchange movements can havean impact on the reported results of the Group when they are translated into the Group’s reporting currency of Euros. In order tounderstand the underlying trading performance of the business, revenue is also presented using rates consistent with the prioryear in order to provide year over year comparability.
Adjusted profit and earnings per share measures – Adjusted profit and earnings per share measures are used to provide
management and other users of the accounts with a clear understanding of the underlying profitability of the business over time.
Adjusted profit measures are calculated by adding the following items back to the equivalent GAAP profit measures:•

Amortisation of intangible assets – Customer relationships and music licence amortisation commences on acquisition, whereas
intellectual property / development costs amortisation commences when the product is launched. These costs, by their nature,
can vary by size and amount each year. As a result, amortisation of intangibles is added back to assist with the understandingof the underlying trading performance of the business and to allow comparability across regions and categories.

•

Costs of acquisition and integration – The level of acquisition activity can vary each year and therefore the costs associatedwith acquiring and integrating businesses are added back to assist with the understanding of the underlying trading
performance of the Group.

•

Share-based payments – The Group uses share-based payments as part of remuneration to align the interests of senior
management and employees with shareholders. These are non-cash charges and the charge is based on the Group’s
share price which can change. The costs are therefore added back to assist with the understanding of underlying trading
performance.

•

Foreign exchange gains and losses – The Group does not hedge foreign currency translation exposures. The effect on theGroup’s results of movements in exchange rates can vary each year and are therefore added back to assist with understanding
the underlying trading performance of the business.

Free cash flow measure – The Group aims to generate sustainable cash flow (Free cash flow) in order to support its acquisition
program and to fund dividend payments to shareholders. Free cash flow is measured as net cash provided by operating activities
after deducting aquisition and integration cash outlay, capital expenditure, tax and interest payments.
IFRS 16 Leasing – The new leasing standard, IFRS 16 is effective from 1 January 2019 and has been adopted from that date withno restatement of prior year comparatives required. The new standard has not had a material impact on either adjusted profit
before tax or the underlying net cash flows of the business but it has changed the presentation of the Consolidated statement ofcomprehensive income, the Consolidated statement of cash flows and the Consolidated statement of financial position. In order to
aid the users of the accounts we have presented the current year APMs excluding the impact of IFRS 16 to aid comparability withthe prior year comparatives.
The remainder of this section provides a reconciliation of the APMs with the relevant IFRS GAAP equivalent.

135

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Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Alternative performance measures continued

Service line analysis
The following table presents revenue growth by service line at both actual exchange rates (AER) and constant exchange rates(CER). Constant exchange rates are calculated by retranslating current year reported numbers at the full year average exchange
rates for the prior year, in order to give management and other users of the accounts better visibility of underlying trading
performance against the prior period.
2019
Revenue
AER
€m

2019
Revenue
CER
€m

2018*
Revenue
AER€mChange from2018 FY, AER%

Change from2018 FY, CER%

Art creation*

43.6

41.5

34.0

28.2%

22.1%

Game development (previously Engineering)*

66.3

64.4

35.2

88.4%

83.0%

Audio

40.5

39.8

34.2

18.4%

16.4%

Functional testing*

68.9

65.6

47.8

44.1%

37.2%

Localisation

48.5

47.3

44.0

10.2%

7.5%

Localisation testing

22.6

21.9

19.7

14.7%

11.2%

Player support

36.1

34.2

35.9

0.6%

(4.7%)

326.5

314.7

250.8

30.2%

25.5%

*

The prior year comparative has been re-classified to reflect the current year presentation as the Directors consider this to be more meaningful.

Pro forma revenue
Pro forma revenue is calculated by adding pre-acquisition revenues of current year acquisitions, excluding any pre-acquisition
revenues with the Keywords Group, to the current year revenue numbers.
2019
Revenueat AER€m

2019
Pre-acquisition
revenue
AER
€m

2019
Pro forma
Revenue
AER€m

Art creation

43.6

2.5

46.1

Game development (previously Engineering)

66.3

0.7

67.0

Audio

40.5

3.2

43.7

Functional testing

68.9

–

68.9

Localisation

48.5

0.7

49.2

Localisation testing

22.6

–

22.6

Player support

36.1

–

36.1

326.5

7.1

333.6

Governance

Financial statements

Supplementary information

Organic revenue at constant exchange rates
Organic revenue at constant exchange rates is calculated by adjusting the prior year revenues, adding pre-acquisition revenues forthe corresponding period of ownership, and applying the 2018 foreign exchange rates in both years.

Revenue
growth€m

2019
Revenueat CER€m

2019
Organic
revenue
growth
%

38.9

2.6

41.5

6.7%

12.0

47.2

17.2

64.4

36.4%

34.2

4.7

38.9

0.9

39.8

2.3%

Functional testing*

47.8

0.1

47.9

17.7

65.6

37.0%

Localisation

44.0

–

44.0

3.3

47.3

7.5%

Localisation testing

19.7

–

19.7

2.2

21.9

11.2%

Player support

35.9

–

35.9

(1.7)

34.2

(4.7%)

250.8

21.7

272.5

42.2

314.7

15.5%

2018*
Revenueat AER€m

2018
Pre-acquisition
revenue€m

2018
Like for likerevenue€m

Art creation*

34.0

4.9

Game development(previously Engineering)*

35.2

Audio

*

The prior year comparative has been re-classified to reflect the current year presentation as the Directors consider this to be more meaningful.

Adjusted operating costs
This comprises Administrative expenses as reported on the Consolidated statement of comprehensive income adding backamortisation of intangible assets, share option expense, costs of acquisitions and integration, depreciation, non-controlling interestand deducting bank charges.
2019
Reported
€’000

2019
IFRS 16 Adj
€’000

2019
Pre IFRS 16
€’000

2018
€’000

Calculation

Reference in Financial Statements

Administrative expenses

Consolidated statement ofcomprehensive income(98,687)(265)(98,952)(73,123)

Share option expense

Consolidated statement ofcomprehensive income

9,775

–

9,775

4,129

Costs of acquisition andintegration

Consolidated statement ofcomprehensive income

4,348

–

4,348

5,296

Amortisation of intangible assets

Consolidated statement ofcomprehensive income

7,318

–

7,318

6,872

Depreciation – property plantand equipment

Note 13

7,295

–

7,295

5,316

Depreciation – right of use assets

Note 24

7,849(7,849)––Non-controlling interest

Consolidated statement ofcomprehensive income

113

–

113

–

Bank charges

Note 6

(629)

–

(629)

(503)

(62,618)(8,114)

Adjusted operating costs
Revenue from contracts withcustomers
Adjusted operating costs as a %of revenue

Consolidated statement ofcomprehensive income(70,732)(52,013)

326,463

326,463

250,805

19.2%

21.7%

20.7%

137

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Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Alternative performance measures continued

Adjusted operating profit
The adjusted operating profit consists of the Operating profit adjusted for amortisation of intangible assets, share option expenseand costs of acquisition and integration.
2019
Reported
€’000

2019
IFRS 16 Adj
€’000

2019
Pre IFRS 16
€’000

2018
€’000

Consolidated statement ofcomprehensive income

21,542(265)

21,277

22,685

Share option expense

Consolidated statement ofcomprehensive income

9,775

–

9,775

4,129

Costs of acquisition andintegration

Consolidated statement ofcomprehensive income

4,348

–

4,348

5,296

Amortisation of intangible assets

Consolidated statement ofcomprehensive income

7,318

–

7,318

6,872

42,983(265)

42,71838,982

326,463

326,463

250,805

13.2%

13.1%

15.5%

Calculation

Reference in Financial Statements

Operating profit

Adjusted operating profit
Revenue from contracts withcustomers

Consolidated statement ofcomprehensive income

Adjusted operating profit as a %of revenue

EBITDAEBITDA comprises Operating profit, adjusted for amortisation of intangible assets, depreciation, while deducting the share of profit
from associates and bank charges.
2019
Reported
€’000

2019
IFRS 16 Adj
€’000

2019
Pre IFRS 16
€’000

2018*
€’000

Calculation

Reference in Financial Statements

Operating profit

Consolidated statement ofcomprehensive income

21,542(265)

21,277

22,685

Amortisation of intangible assets

Consolidated statement ofcomprehensive income

7,318

–

7,318

6,872

Depreciation on property plantand equipment

Note 13

7,295

–

7,295

5,316

Depreciation on right of use
assets

Note 24

7,849(7,849)––

Share of profit from associates

Consolidated statement ofcomprehensive income

–

–

–

(66)

Bank charges

Note 6

EBITDA
*

(629)

–

(629)

(503)

43,375(8,114)35,26134,304The prior year comparative has been re-classified to reflect the current year presentation as the Directors consider this to be more meaningful.

Governance

Financial statements

Supplementary information

Adjusted EBITDA
Adjusted EBITDA comprises EBITDA, adjusted for share option expense, costs of acquisition and integration and non-controllinginterest.
2019
Reported
€’000

2019
IFRS 16 Adj
€’000

2019
Pre IFRS 16
€’000

2018*
€’000

As above

43,375(8,114)35,26134,304

Share option expense

Consolidated statementof comprehensive income

9,775

–

9,775

4,129

Costs of acquisition
and integration

Consolidated statementof comprehensive income

4,348

–

4,348

5,296

Non-controlling interest

Consolidated statementof comprehensive income

113

–

113

–

57,611(8,114)49,49743,729Consolidated statementof comprehensive income

326,463

326,463

250,805

17.6%

15.2%

17.4%

Calculation

Reference in Financial Statements

EBITDA

Adjusted EBITDA
Revenue from contracts
with customers
Adjusted EBITDA
as a % of revenue*

The prior year comparative has been re-classified to reflect the current year presentation as the Directors consider this to be more meaningful.

Adjusted profit before tax
Adjusted profit before tax comprises Profit before taxation as reported on the Consolidated Statement of Comprehensive Income,adjusted for costs including amortisation of intangible assets, share option expense, costs of acquisitions and integration, foreignexchange gains and losses, non-controlling interest and unwinding of discounted liabilities.
2019
Reported
€’000

2019
IFRS 16 Adj
€’000

2019
Pre IFRS 16
€’000

2018*
€’000

Consolidated statementof comprehensive income

17,371437

17,80822,094

Amortisation of intangible assets

Consolidated statementof comprehensive income

7,318

–

7,318

6,872

Share option expense

Consolidated statementof comprehensive income

9,775

–

9,775

4,129

Costs of acquisition andintegration

Consolidated statementof comprehensive income

4,348

–

4,348

5,296

Foreign exchange (gain) / loss

Note 6

1,658

(7)

1,651

(791)

Non-controlling Interest

Consolidated statementof comprehensive income

113

–

113

–

Unwinding of discounted liabilities– deferred consideration

Note 6

330

–

330

311

40,913430

Calculation

Reference in Financial Statements

Profit before tax

Adjusted profit before tax
Revenue from contracts withcustomers
Adjusted profit before tax
as a % of revenue*

Consolidated statementof comprehensive income

41,34337,911

326,463

326,463

250,805

12.5%

12.7%

15.1%

The prior year comparative has been re-classified to reflect the current year presentation as the Directors consider this to be more meaningful.

139

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Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Alternative performance measures continued

Adjusted effective tax rate
The adjusted effective tax rate is the tax expense as reported on the Consolidated Statement of Comprehensive Income, adjusted
for the tax impact of the adjusting items in arriving at adjusted profit before tax, as a percentage of the adjusted profit before tax.
2019
Reported
€’000

2019
IFRS 16 Adj
€’000

2019
Pre IFRS 16
€’000

2018*
Restated€’000

Calculation

Reference in Financial Statements

Adjusted profit before tax

As above

40,913430

41,34337,911

Tax expense

Consolidated statementof comprehensive income

7,462

–

7,462

7,191

Effective tax rate before
tax on adjusting items

Calculation; Tax expense /Adjusted profit before tax

18.2%

18.0%

19.0%

1,703

1,448

Tax arising on bridging items
to adjusted profit before tax **Adjusted tax expense
Adjusted effective tax rate

Calculation; Adjusted tax expense /Adjusted profit before Tax

1,703

–

9,165

–

22.4%

9,165

8,639

22.2%

22.8%

*	The prior year comparative has been restated to reflect the tax impact of the bridging items to adjusted profit before tax as the Directors consider this tobe more meaningful.
** Being mainly amortisation of intangible assets €1,605k (2018: €1,448k).

Adjusted earnings per share
The adjusted profit after tax comprises the adjusted profit before tax, less the tax expense as reported on the Consolidated
Statement of Comprehensive Income, adjusted for the tax impact of the adjusting items in arriving at adjusted profit before tax.
The adjusted earnings per share comprises the adjusted profit after tax divided by the non-diluted weighted average number ofshares as reported in note 8.
Calculation

Reference in Financial Statements

2019
Reported
€’000

2019
IFRS 16 Adj
€’000

2019
Pre IFRS 16
€’000

2018*
Restated€’000

Adjusted profit before tax

As above

40,913430

41,34337,911

Tax expense

Consolidated statementof comprehensive income(7,462)–(7,462)(7,191)

Tax arising on bridging items
to adjusted profit before tax **(1,703)–(1,703)(1,448)Adjusted profit after tax

31,748430

32,17829,27265,081,403 65,081,403 65,081,403

64,335,162

2019
Reported€ c per share

2019
IFRS 16 Adj€ c per share

2019
Pre IFRS 16€ c per share2018*€ c per share

48.78

0.66

49.44

45.50

8.7%

45.9%

Denominator (weighted average
number of equity shares)

Adjusted earnings per share

Note 8Calculation; Adjusted profit after tax /weighted average number of shares

Adjusted earnings per share %growth7.2%* 	The prior year comparative has been restated to reflect the tax impact of the bridging items to adjusted profit before tax as the Directors consider this tobe more meaningful.
** Being mainly amortisation of intangible assets €1,605k (2018: €1,448k).

Governance

Financial statements

Supplementary information

Return on capital employed (ROCE)ROCE represents the adjusted profit before tax expressed as a percentage of the average total capital employed. As the Group
continues to make multiple acquisitions each year, the calculation adjusts the profit before tax and the capital employed as if all
the acquisitions made during each year were made at the start of that year.
Total adjusted Profit before tax comprises adjusted Profit before tax, plus net interest costs, unwinding of discounted liabilities,bank charges, and pre-acquisition profits of current year acquisitions.
Capital employed represents equity as reported on the statement of financial position adding back retirement benefits, cumulative
amortisation of intangible assets, acquisition related liabilities and net borrowings.

Calculation

Reference in Financial Statements

2019
Reported
€’000

2019
IFRS 16 Adj
€’000

2019
Pre IFRS 16
€’000

2018
€’000

40,913430

41,34337,911

(74)

–

(74)

–

Adjusted profit before tax

As above

Interest received

Note 6

Interest expense

Note 6

934

–

934

502

Unwinding of discounted
liabilities – lease liabilities

Note 6

694

(694)

–

–

Bank charges

Note 6

629

–

629

503

Pre-acquisition profits ofcurrent year acquisitions

Note 28

151

–

151

4,896

43,247(264)

42,98343,812

222,958

2,435

225,393

192,375

Adjusted profit before tax
including pre acquisition profit
excluding interest
Total equity

Consolidated statementof financial position

Retirement benefits

Note 19

2,049

–

2,049

1,378

Cumulative amortisationof intangibles assets

Note 12

20,017–20,017

12,786

Acquisition related liabilities

Note 18

6,035

–

6,035

19,306Loans and borrowings

Note 20

59,751

1

59,75240,301

Cash and cash equivalents

Consolidated statementof financial position(41,827)–(41,827)(39,871)

268,9832,436

271,419

226,275

16.1%(0.3%)

15.8%

19.4%

Capital employed
Return on capital employed

Adjusted profit before tax including
pre acquisition profit excludinginterest expense / average capital
employed

141

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Overview

Keywords Studios plc

Strategic report

Annual Report and Accounts 2019

Alternative performance measures continued

Free cash flow
Free cash flow represents net cash flow provided by operating activities adjusted for capital expenditure, acquisition andintegration cash outlay and interest payments, and is presented both before and after tax.
2019
Reported
€’000

2019
IFRS 16 Adj
€’000

2019
Pre IFRS 16
€’000

2018*
Restated€’000

Calculation

Reference in Financial Statements

Net cash provided by operating
activities

Consolidated statement of cash flows

32,781(8,049)24,732

27,650Costs of acquisition andintegration

Consolidated statement ofcomprehensive income

4,348

–

4,348

5,296

Fair value adjustments tocontingent consideration

Consolidated statement of cash flows

(493)

–

(493)

(766)

Acquisition of property, plant andequipment

Consolidated statement of cash flows(13,145)–(13,145)(9,440)Investment in intangible assets

Consolidated statement of cash flows

(391)

–

(391)

(1,599)Interest received

Consolidated statement of cash flows

74

–

74

–

Interest paid

Consolidated statement of cash flows(2,130)694(1,436)(502)

21,044(7,355)

13,68920,63913,288–13,2886,304

34,332(7,355)26,977

26,943Acquisition and integration
cash outlay:

Free cash flow after tax
Income taxes paid

Consolidated statement of cash flows

Free cash flow before tax*

The prior year comparative has been restated to reflect the current year presentation as the Directors consider this to be more meaningful.

Adjusted free cash flow
Adjusted free cash flow is a measure of cash flow adjusting for capital expenditure that is supporting growth in future periods(as measured by capital expenditure in excess of maintenance capital expenditure). This is represented by free cash flow before
tax, plus capital expenditure in excess of depreciation.

Calculation

Reference in Financial Statements

2019
Reported
€’000

2019
IFRS 16 Adj
€’000

2019
Pre IFRS 16
€’000

2018*
Restated€’000

Free cash flow before tax

As above

34,332(7,355)26,977

26,943Acquisition of property, plant andequipment

Consolidated statement of cash flows

13,145–

13,145

9,440

Depreciation

Consolidated statement of cash flows

Capital expenditure in excess
of depreciation:(15,144)7,849(7,295)(5,316)

Capital expenditure in excess ofdepreciation(1,999)

7,849

5,850

4,124

Adjusted free cash flow

32,333494

32,82731,067*

The prior year comparative has been restated to reflect the current year presentation as the Directors consider this to be more meaningful.

Governance

Financial statements

Supplementary information

Adjusted cash conversion rate
Adjusted cash conversion rate is the adjusted free cash flow as a percentage of the adjusted profit before tax:
2019
Reported
€’000

2019
IFRS 16 Adj
€’000

2019
Pre IFRS 16
€’000

2018*
Restated€’000

Calculation

Reference in Financial Statements

Adjusted free cash flow

As above

32,333494

32,82731,067

Adjusted profit before tax

As above

40,913430

41,34337,911

Adjusted cash conversion ratio

Free cash flow before tax and capital
expenditure adjusted as a % ofadjusted profit before tax

79.0%

79.4%

81.9%

*

The prior year comparative has been restated to reflect the current year presentation as the Directors consider this to be more meaningful.

143

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Overview

Keywords Studios plc

Annual Report and Accounts 2019

Company information

Directors

Andrew Day
Georges Fornay
Charlotta Ginman
Ross Graham
Giorgio Guastalla
Jon Hauck
David Reeves

Secretary

Liam O’Donoghue

Registered Number

8548351

Registered Office

201 Temple Chambers
3-7 Temple Avenue
LondonEC4Y 0DT

Auditors

BDO
Registered Auditors
Beaux Lane House
Mercer Street Lower
Dublin 2

Remuneration Consultants

Mercer Kepler
Tower Place West
LondonEC3R 5BU

Principal Bankers

Barclays Bank
27 Soho Square
LondonW1D 3QRHSBC Bank plc
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Silicon Valley Bank
14-18 Finsbury Square
LondonEC2A 1BR
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

Strategic reportGovernance

Financial statements

Supplementary information

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

www.keywordsstudios.com