Continued
growthAnnual Report andAccounts 2015

Keywords is the leadinginternational technicalservices provider
to the global video
games industry.

Highlights

Established in Dublin in 1998, it now has operationsin Rio de Janeiro, Montreal, Mexico City, Los Angeles,
Seattle, Portland (Oregon), Tokyo, Singapore, New
Delhi, Pune, Rome, Milan, Barcelona, Madrid, London,
Dublin, Shanghai, Manila and Beijing.

New client wins have included Oculus VR,
Amazon, Gearbox, Fincon, Net Marble andObsidian Entertainment

It provides art creation, audio recording, localisation,
testing, and customer support services across 50
languages and games platforms to a blue chip clientbase in more than 15 countries.

• Alchemic Dream provided entry into customer
support services

Its customers comprise many well-known multinational games publishers and developers including
20 out of the 25 largest games companies
by revenue.*• Madrid and Mexico City based audio andlocalisation firm, Kite Team, provided further
penetration of South America

Ross Graham
Chairman“2015 saw another year of good progress
for Keywords, in which the Group delivered
strong like for like growth, supplemented
by selective acquisitions which havefurther expanded our range of services
and geographical reach and reinforced ourmarket leading position. We therefore lookforward to 2016 and beyond with confidence.”* Source: NewZoo, December 2015.
** Calculated on the basis of revenues being included for 2015 acquisitions from the dateof acquisition and for the same period in the prior year.

OPERATIONAL HIGHLIGHTS
Strong like for like** growth of 20%
70% increase in number of clients using threeor more Group services

Significantly extended service capabilities andgeographical reach through four acquisitions:• Rio de Janeiro based localisation and audio firm,
Reverb, provided first office in the fast growing
South American market• Portland, Oregon based Liquid Development
increased scale in the buoyant art creation market

Sunny Yú from Evolve

Strategic Report2014 – 2015

II

III

STRATEGIC REPORT
01-25
Highlights 2014-2015

FINANCIAL HIGHLIGHTS
Split of revenue by service line
11%

14%
7%

2%
13%

14%

12%

2014
€37.3m32%

2015€58.0m

26%

39%
30%

Functional Testing
Localisation Testing
Localisation
Audio Services
Customer Support
Art Creation

Group revenue (m)Adjusted profit before tax (m)€58.0m

€8.0m

h55%

Total dividend (p)h57%

Adjusted basic earnings per
share (c)1.21p

12.71c

h10%

h49%

01

At a Glance

02

Chairman’s Statement

04

Investment Case05

Market Outlook

06

Our Strategy

08

Our Business09

Chief Executive’s Review

10

Principal Risks and Uncertainties

20

Financial and Operating Review

22

GOVERNANCE
26-34
Board of Directors

26

Directors’ Report

28

Directors’ Remuneration Report

31

Directors’ Remuneration Policy Report

33

FINANCIAL STATEMENTS
35-74
Independent Auditor’s Report

35

Consolidated Statement ofComprehensive Income

36

Consolidated Statement of Financial Position

37

Consolidated Statement of Changes in Equity

38

Consolidated Statement of Cash Flows

39

Company Statement of Financial Position

40

Company Statement of Changes in Equity

41

Company Statement of Cash Flows

42

Notes Forming Part of the Consolidated
and Company Financial Statements

43

Company Information

74

FINANCIAL TRACK RECORDGroup revenue (m)Adjusted profit before tax (m)
€8.0

€58.0

€5.1

€37.3

€2.5

€16.2

2013

2014

2015

2013

2014

2015

Visit the website for further information
Total dividend (p)

1.00

1.10

Adjusted basic earnings per
share (c)www.keywordsstudios.com

12.71

1.21
8.54
5.76

2013

2014

2015

2013

2014

2015

ANNUAL REPORT AND ACCOUNTS 201501

At a GlanceContinued
growthART CREATIONAUDIO/VOICEOVER SERVICES LOCALISATION SERVICES

The creation of graphical art assets forinclusion in the video game including concept
art creation, 2D and 3D art asset production.

Multi-language voiceover recording, original
language voice production and related services.

Translation of in-game text, audio scripts,
cultural and local adaption, accreditation,
packaging and marketing materials inover 50 languages.

FUNCTIONAL TESTINGLOCALISATION TESTINGCUSTOMER SUPPORT

Quality assurance including discovery anddocumentation of game defects and testingto verify the game’s compliance with console
manufacturers’ specifications.

Testing for out of context translations,
truncations, overlaps, spelling, grammar,
age rating issues and console manufacturer
compliance requirements in over 20 languages
using native speakers.

24/7, multi-lingual customer support forgames in live operation, forum monitoringand moderation services and social media
engagement on behalf of the game brand.

PortlandDublin (HQ)

LondonSeattleTokyo

Montreal
Beijing
New Delhi
Milan
Mexico City
Shanghai
MadridRome

Los Angeles

Pune
Barcelona

Rio de Janeiro

02

KEYWORDS STUDIOS PLC

Singapore

ManilaStrategic Report

II

III

The Group now has 19 studios strategically located to provide
full, integrated services to local and global clients in key gaming
clusters across four continents. Since the beginning of 2015,
we have expanded organically and by acquisition into new
locations including Portland (Oregon), Barcelona, Madrid, Rio,
Mexico City, Shanghai and Manila.

50+

14

20

19

Providing services across morethan 50 languages

and 14 games platforms
to a blue chip client basein over 15 countries

serving 20 of the top 25
games companies by revenue

from 19 studios worldwide

Keywords services 20 of the top 25 games companies by revenue*...

… and 7 of the top 10 mobile games developers by revenue**...

… and has won several new clients.

* Source: Newzoo, Top 25 Games Companies by Revenues, December 2015.
** Source: PocketGamer.biz, Top 50 Developers of 2015, March 2015.
ANNUAL REPORT AND ACCOUNTS 2015

03

Chairman’s Statement

Continued organic
and acquisitive growth2015 has been another year of strong progress in delivering
against the ambitious strategy we set out at the time of theGroup’s flotation in 2013, both organically and by acquisition.
As a result, the Group’s revenues have grownfrom €16.2m in 2013 to €37.3m in 2014 and€58.0m in 2015. Like for like growth has beenstrong at over 20% in each of the past two
years, with stable net adjusted operating
margins of approximately 14% in 2015.
During this two year period Keywords has firmly
established itself as the leading services provider
to the global games market, with an impressive
range of services and a reputation for high quality,
secure and timely delivery of those services. In
addition to the Group’s traditional service lines
of localisation and localisation testing, we now
hold strong positions in functional testing, art
outsourcing and audio and a growing capability
in customer support.
Managing Growth
As Keywords has continued to expand at a pace,
we are making good progress in developing our
infrastructure, including sales, marketing andmanagement processes and information, andputting in place a structure to manage thebusiness both along service lines and bygeography. A key focus for 2016 will be
IT and finance.
We continue to successfully embed the Keywords
culture across our new operations under thestrong leadership from our senior executives,
nearly half of whom joined Keywords throughthe acquisitions made in 2014 and 2015.
The Business Model
Although the core elements of the business modelare described elsewhere I believe its attributes
deserve to be recognised as an important featureof the business and its evolution. Keywords largely
charges for its services on a time basis, without
the risk associated with fixed price contracts, and
it is able to flexibly meet client demand by using
well developed pools of contractors to supplement
its permanent staff as required.

Most of its assignments are repeat in nature, withservices to existing customers typically accounting
for around 80% of revenues. Customers pay
monthly for work undertaken in the previous
month and the Group’s capital expenditure
requirements are low, leading to a strong profit
to cash conversion rate. Keywords must deliver
good quality service to a demanding set ofcustomers against set deadlines; our track record
shows a high level of customer satisfaction, whichis testimony to the skill and commitment of
Keywords’ operatives.
People and Culture
I have already touched on the qualities required,and in evidence, by the top team at Keywords, allof whom display a commitment and belief that
Keywords will succeed in its strategy to become
the clear market leader in its field. On behalf of
the Board and the shareholders, I’d like to thankeveryone who works for us for all their individual
contributions to our past and future success.
Shareholders and Dividend
In November 2015, shareholders supported us
with a successful placing in which £10.5 million
was raised to fund continued value-enhancing
acquisitions by the Company. Through the placing,
we were able to welcome several new institutional
shareholders and we would like to thank all of ourshareholders for their support. We look forward
to continuing to deliver shareholder value, buildingon the share price progression we have seen in linewith our underlying trading performance over thelast couple of years.

share, will make the total dividend for the year
ending 31 December 2015 1.21p per share, anincrease of 10% on 2014. Subject to shareholder
approval at the Annual General Meeting, the final
dividend will be paid on 23 June 2016 to allshareholders on the register at 3 June 2016.
Current Trading, Prospects and Outlook
The current year has started well with the Group
trading in line with our expectations and therecent acquisitions of Ankama and Mindwalk haveboth strengthened our customer service and art
creation services and brought a strong presencein the Philippines and China, respectively.
The video games market continues to growstrongly, at around 8%* per annum. The
complexity of taking ever more sophisticatedgames to market in multiple geographies andon multiple platforms, means developers andproducers are increasingly seeking to outsource
elements of their game production and live
operations support. Keywords is well placed
to take advantage of these trends without
dependence on any individual game.
We expect to make further progress during
2016 with continued organic momentum in thebusiness, as well as realising further synergies,
benefiting from the full year effect of our 2015
acquisitions and from the acquisitions of Ankama
and Mindwalk in 2016. We are also actively
reviewing a number of acquisitions with thepotential to further complement our continued
strong organic growth. We, therefore, look forward
to 2016 with confidence.

In line with its progressive dividend policy, andallowing for the need to retain resources to fundfuture growth of the Group’s business and its
strategic aims, the Board is pleased to recommend
a final dividend of 0.81p per share which, following
the interim dividend payment of 0.40p per
Ross Graham
Chairman* Source: NewZoo, June 2015.
04

KEYWORDS STUDIOS PLC

Strategic Report

II

III

Investment Case

Reasons to invest
in Keywords
ACCESS TO A LARGE, HIGH GROWTH MARKET
Keywords operates in an exciting high growth market which is predicted to grow at a Compound
Annual Growth Rate (CAGR) of +7.9% over the next three years, reaching $113.3 billion by 2018
(Source: NewZoo, 2015), without direct exposure to the successes or failures of individual game
titles. The increased sophistication of games and the growing complexity of their delivery to market
is driving the demand for larger scale, professionalised outsourced specialists, such as Keywords.

MARKET LEADING POSITION
Keywords’ Directors believe that the Group has achieved a market leading position as the only
provider of fully integrated outsourced technical services to the global video games industry, now
providing services across more than 50 languages and 14 games platforms to a blue chip client basein over 15 countries from 19 production studios across four continents. It has gained a reputation in
the industry for quality, reliability and flexibility, as demonstrated by its strong client relationships
which include working with 20 of the top 25 traditional games developers, and 7 of the top 10 mobile
developers. The market for services to video games companies remains highly fragmented, with few
global suppliers despite clients increasingly looking at moving to fewer, larger suppliers. In thiscontext, Keywords’ market leadership places it well to take advantage of the clear opportunities
to consolidate the market further.

STRONG TRACK RECORD OF GROWTH, BOTH ORGANICALLY AND
THROUGH ACQUISITION
Since IPO we have delivered on our strategy to make Keywords the ‘go to’ global provider foroutsourced video games technical services. We have successfully acquired and integrated ten
acquisitions since IPO adding two new services, Art Creation and Customer Support, as well as
enhancing our capabilities in existing service lines. We have also grown Keywords’ network of studios
to have a presence in 13 countries (compared to five at the time of IPO). In the year to 31 December
2015, this resulted in a 55% increase in Group revenues which includes a 20 % increase in revenue
growth on a ‘like for like’ basis (i.e. excluding the impact of acquisitions).

SIGNIFICANT OPPORTUNITY TO GROW OUR GEOGRAPHICAL REACH,SERVICE CAPABILITIES AND CLIENT RELATIONSHIPS
Having made strong progress in extending the Group’s client base, market penetration and service
lines, there remain a number of opportunities for the Group to use its existing expertise, multi-service
platform, scale and global reach to consolidate its position as the leading provider of outsourced
services to the video games industry. Our key priorities in the near to medium term are to extend ourpresence in China, which is the world’s largest gaming market; to further build upon our recently
created art services business, to extend the geographical reach and language capability of existing
services; and to broaden our relationships with existing clients, including through dedicated teams
providing managed services.

A BUSINESS MODEL THAT SUPPORTS GROWTH
Keywords’ flexible resourcing model and relatively low working capital and capital expenditure
requirements support its ability to grow the business whilst also achieving strong cash conversion.
With flexible work forces and the use of extensive in-country freelance networks we can flex up or
down to meet the highly agile requirements of projects and scale up in the peak production period.
Most of its assignments are repeat in nature, with the same services to existing customers typicallyaccounting for around 80% of revenues. Our business is not exposed to the uncertainties of fixedprice, fixed term contracts for project deliveries. Instead, we charge per hour, per man month, perword or per asset created and with low capital expenditure requirements, the business has good
profit to cash conversion.
ANNUAL REPORT AND ACCOUNTS 201505

Market Outlook

The leading provider
in a large, growing market
1
STRONG GROWTH
IN CONTENT SET
TO CONTINUE

2
INCREASED COMPLEXITY
FOR DEVELOPERS AS
PROLIFERATION OF GAMESPLATFORMS CONTINUESThe global video games market is expected tocontinue to experience healthy revenue growth,with NewZoo predicting the global market willreach $113.3 billion by 2018, representing a 2014
to 2018 Compound Annual Growth Rate (CAGR)
of almost 8% (NewZoo report, 8 June 2015).
Particularly fast growth in Latin America, whererevenues increased by 18% in 2015, and China,
where sales were up 23% year on year in 2015,
creates the need for high quality localisation andtesting of original content.

The latest generation of consoles (Xbox One and
PlayStation 4), which initially launched in late2013, have now reached combined worldwide
sales of well over 40 million units1.

With continued growth in the quantity, size
and richness of content (both graphic and audio
quality), the market for (smart) phones and tablets
is predicted to grow at an impressive 15.9% CAGR,
from over $30.0 billion in 2015 to $44.2 billion in
20183, ultimately taking 39% of the global games
market. Keywords is heavily tapped into thisgiven its exposure to 7/10 of the top mobile
games producers; working on several of 2015’s
top selling mobile games4, including Game of War,Clash of Clans and Candy Crush Saga.

with Google, Sony, Samsung and Facebook among
the many tech giants investing heavily in VR
technology. NewZoo believe that in the long term,
game interaction will no longer require a screen,
and that augmented reality will becomecommon-place in the video games market.
Eventually this will begin to take revenue sharefrom the current PC and console markets, butwith only a small core group of computer gamers
indulging in the initial technology, the tipping
point is likely to occur later in the technology’s
development phase.

Although Virtual Reality is still at the beginningof its lifecycle, and cannot yet be considered ‘theFifth Screen’, its eventual success is undeniable,

3
RICHER AND CONTINUALLYUPDATED CONTENTSUPPORTED BY HIGHERPERFORMANCE GAMESPLATFORMS

06

KEYWORDS STUDIOS PLC

Games platforms have become ever moresophisticated, with the increased connectivity,
processing power, storage and bandwidth
capabilities of both smartphones and consoles,
allowing them to support more complex, rich andinteractive content. This higher definition content,
which takes longer and costs considerably more
to create, is driving games developers towards
outsourced providers such as Keywords to supply
the specialist support they require.
This trend is evident in existing platforms suchas the Xbox One and PS4, and is likely to become
even more prevalent as Virtual Reality content
becomes more and more in demand.

With this more established installed baseencouraging more games developers to produce
new and exciting material, many will look to
outsourced solutions such as Keywords tosupport the art creation, localisation, testing
and aftercare for their games.

3
4

Global Games Market Report 2015, NewZoo.
Top Grossing iPhone mobile gaming apps in the US asof Nov 2015, Statista.

The ‘connected’ nature of the new generationof consoles, as well as mobiles and PCs, supports
an increase in content through the delivery ofcontinuous game content updates and newmodules in order to retain existing games users
in the game, whilst this continuous engagementwith players also generates a greater need forongoing customer support.

Strategic Report

II

III

The global video games market is predicted to growsignificantly, with NewZoo forecasting a CAGR of 7.9%
from $83.6bn in 2014 to $113.3bn in 2018.

Growth isn’t just limited to traditional consoles.
Mobile, social and online gaming are growing at
an even faster rate, given the wide demographicthat has access to them (a recent survey of
the US entertainment software market by theEntertainment Software Association revealed
that 48% of all game players are women, and theaverage age of a gamer is 312, dismissing theassumption that the market is mainly made upof young males).

Global games market size by 2018 ($bn)$113.3bn
h7.9% CAGR

4
01
R2
G
CA

8–
01
–2

%
7.9

113.3

70

2018

83.6
1
2

TechTimes, Nov 2015.
Essential Facts about the Computer and Video Game
Industry, 2014.

Revenues per screen (bn)

70

2014

70

Global games market 2014/15 per market segment$91.5bn

Computer screen
Personal screen
Floating screen	Entertainment screen

27%

h9% YoY29%
2014$83.6bn37%

2015$91.5bn

38%
13%

13%
23%

20%

China overtakes
USA as largest
games market byrevenue, driving
strong growth in
Asia-Pacific.

Global games market 2014/15 per region

13%
22%

26%

4%

2015
$91.5bn

24%

28%
2014
$83.6bn44%	Europe, Middle East,
AfricaAsia-Pacific
Latin America
North America

4%

47%

ANNUAL REPORT AND ACCOUNTS 201507

Our Strategy

Growing both organicallyand by acquisition
MARKET TRENDSSTRATEGIC PRIORITY•

1
STRONG GROWTH IN
CONTENT SET TOCONTINUE

2015 PROGRESS•Managed service operations set up at Keywords studios
for two clients, providing clients with dedicated teams
for pre-agreed activity levels.

DEVELOPING CUSTOMERRELATIONSHIPS ANDOUTSOURCING

See more on Page 17

•

2

•
•
•

INCREASED COMPLEXITY
FOR DEVELOPERS AS
PROLIFERATION OFGAMES PLATFORMSCONTINUESEXTENDINGOUR SERVICES•••RICHER AND
CONTINUALLYUPDATED CONTENTSUPPORTED BY HIGHERPERFORMANCE GAMESPLATFORMS

Extended our art services operation to establish
a studio in Seattle to interface closely with games
studios there while also managing much of the
production in India.
Established multi-lingual customer support operations
in Tokyo, Montreal and Dublin.
12 of our studios across America, Asia and Europe are
now able to offer multiple services.
On an annualised basis, our art creation services
accounted for 20% and customer support accounted
for 7% of 2015 Group revenues.

See more on Page 16•

3

New clients have included Oculus VR, Amazon,
NetMarble Games and Obsidian Entertainment.
Clients using three or more Group services grewby 70% to 51 clients in 2015.

Leveraged existing studio locations to establish
operations in Seattle and Barcelona organically andexpanded in Montreal.
Entered South America and expanded into Madrid
via acquisitions.
Established presence in Shanghai.
During 2015, the Group grew its global presence from
14 to 19 locations, now across four continents.

EXPANDING OURGEOGRAPHICAL REACH
See more on Page 18

•
•
•
•

Rio based localisation and audio firm, Reverb, provided
first office in the fast growing South American market.
Alchemic Dream provided entry into customer
support services.
Spanish audio and localisation firm, Kite Team,
provided further penetration of South America.
Oregon based Liquid Development increased scalein the buoyant art creation market.

SELECTIVEACQUISITIONS
See more on Page 19

08

KEYWORDS STUDIOS PLC

Strategic Report

II

III

Our Business

The Keywords Business –what we do in brief
1

6
2

5
3

4

Keywords provides outsourced technical services
to the global video game industry which assist
developers and publishers to develop, sell andoperationally support their games across all
games platforms and throughout the games cycle.

Services are delivered through 19 production
facilities (‘studios’), which are strategically locatedacross Europe, Asia and the Americas to be close
to our clients or as lower cost centres, and throughthe provision of managed services either onclients’ or our premises.

The Company’s reputation for quality andreliability combined with its scale, which provides
the flexibility to deliver client needs locally, withthe right mix of languages, services and costs,
positions Keywords as the ‘go to’ supplier forgames services.

1. PRE-PRODUCTION

3. L
 ATER STAGE GAMEDEVELOPMENT

5. O
 NGOING LIVE OPERATIONSSUPPORT

––
––
––
––
––
––

––
––
––
––

–– Concept art–– Level design

2. E
 ARLY STAGE GAMEDEVELOPMENT
––
––
––
––
––
––
––

Programming
Story writing
Motion capture
Development quality assurance
Game trailers
Art production
Audio production• Original language
voice production• Music scoring• Sound design

Functional testing
Text localisation
Audio localisation
Localisation testing
Cinematics/visual effects
Player research

4. LAUNCH–– Certification testing–– Marketing

Customer support
Community management
Data analytics
Payments processing

6. N
 EW CONTENT FOR GAMES
including game extensions, level expansions
and issue patches

Services Keywords Studios currently provide.
Services Keywords Studios do not currently provide.
ANNUAL REPORT AND ACCOUNTS 201509

Chief Executive’s Review

Another year of
good progress2015 saw another year of good progress for Keywords, in which
the Group delivered healthy like for like growth, supplemented
by selective acquisitions which have further expanded our rangeof services and extended our geographical reach.
Strong like for like growth of 20% was driven by
our art creation, localisation and audio service lines
in particular. In addition, we continued to deliver on
our industry consolidation strategy by acquiring
four companies during 2015 and a further two
since the year end. These acquisitions have
expanded our service offering into player support
and community management services to support
games in live operations and have extended ourreach geographically to Mexico and the Philippines.
Additionally, our acquisitions of Liquid Development
and Mindwalk added further scale to our activities
in the buoyant art creation market which weentered in 2014 with the acquisition of Lakshya.
We have also made good progress on the
integration of the acquisitions we made in 2014
and in 2015. We have put in place a management
structure which combines global management todrive and coordinate the six service lines that now
make up Keywords Studios with regional andcountry management to ensure the appropriate
local support is in place.
Results Overview
Including the effect of acquisitions, theGroup’s revenues increased by 55% to €58.0m(2014: €37.3m) during the period, reflecting
growth across all lines of business as outlined in
the Operational Review section from page 12.
In order to provide a better measure of organic
revenue growth in the businesses that Keywords
now owns, we are also providing like for likerevenue growth, which provides a 2014
comparative as if all of the 2015 acquisitions had
been owned for the same period in 2014 as they
have been in 2015. On this measure, organic
growth was approximately 20% in 2015.

Prototype desert creature
by Lakshya Digital

10

KEYWORDS STUDIOS PLC

Strategic Report

II

III

“The Group’s revenues increasedby 55% to €58.0m (2014: €37.3m)
during the period, reflecting growthacross all lines of business.”

37.6%

Gross profit margins increased to 37.6%(2014: 34.0%) reflecting a combination of theincrease in our higher margin art creation services
as a proportion of the revenue mix, and themaintenance or increase of our margins in theother service lines.

Gross profit margins

The Group reported adjusted profit before tax(before share option charges, amortisation of
intangible assets, costs of acquisition andintegration, and foreign currency movements)for 2015 of €8.0m (2014: €5.1m). Statutory profit
before tax for the period was €5.1m (2014: €3.4m).
The Group’s effective tax rate has decreased
as we make better use of our brands, operating
models and tools from our Dublin operational
headquarters in support of our business aroundthe world, much of which is in higher tax rate
jurisdictions including Canada, the US, Japan, India
and Italy. The Group’s effective tax rate basedon the KWS measure of profit before taxationin the period (as set out on page 23) was 22.9%(2014: 24.0%).
Basic earnings per share for the year, before
one-time costs of acquisitions and integration,
share option charges, amortisation of intangibles,and foreign exchange movements, was 12.71c
compared with 8.54c for 2014. After these items,
the basic earnings per share from continuing
operations was 6.98c (2014: 4.94c).

Batman from Batman:
Arkham Knight

ANNUAL REPORT AND ACCOUNTS 2015

11

Chief Executive’s Review continued

A Mordesh from Wildstar

Operational Review
Having acquired Alchemic Dream in January 2015
we effectively began the year with six service
lines – two more than at the start of 2014. All
six service lines grew like for like sales during
the year and four were positively impacted byacquisitions. A segmentation of the Group’s
revenues by service line is provided in the
Financial and Operating Review.

The acquisition of Liquid Development in August
2015 gave the Group further scale, bringing with it
additional capabilities in video game art production
as it works for game developers involved in
producing console, online, PC, mobile and console
games as well as interactive experiences for themeparks. Liquid Development and Lakshya are starting
to work well together and we remain encouragedby their performance and growth plans.

Art Creation
Our higher margin, art creation services revenue
grew to €8.2m (2014: €0.6m), reflecting a fullyear contribution in 2015 from Lakshya, which
had been acquired in October 2014, and Liquid
Development’s contribution following its
acquisition in August 2015. Importantly, thecombined art creation businesses have delivered
like for like growth of approximately 70% year
on year, reflecting the high market demand forart services and our investment in talent to
respond to this opportunity. This investment
helped Lakshya to almost double its revenues
year on year supported by the opening of a
production studio in Seattle in May 2015 andthe expansion of its art team in India by over
100 artists during 2015.

The objective for our art creation services line is to
grow capacity to meet demand, whilst maintaining
our reputation for quality and reliability of delivery
to our customers’ timescales. In addition, we aim toextend our capabilities to areas such as concept
art (taking us right to the very start of the gamedevelopment cycle) and visual special effects.
The acquisition of Mindwalk Studios in Beijing
which was announced after the year end and isdependent on the fulfilment of certain acquisition
related conditions, will add further capacity bothin its existing 150 artists and in its access to thewider talent pool of game artists in China.
Localisation
Localisation activities, including contributions
from Reverb, Alchemic Dream and Kite Team,
which were acquired in the year, increased
revenues by approximately 43%, to €17.1m(2014: €12.0m) and accounted for approximately
30% of Group revenue.

Art creation services

Localisation services€8.2m€17.1m€8.2m€17.1m

€12.0m

€0.6m

2014
12

KEYWORDS STUDIOS PLC

2015

2014

2015

Strategic Report€17.1mII

III“All six service lines grew like for like sales during theyear and four were positively impacted by acquisitions.”

Localisation activities
revenues

With an output of some 90 million translated words
in 2015, our games localisation business is now thelargest specialist games business in the world andwe continue to pursue growth opportunities inwhat remains a highly fragmented market. A
resolute focus on quality, on-time delivery and costeffectiveness helped see this service grow its likefor like revenues by approximately 26% aided bystrong volume growth of existing clients and newclients wins.

OUR BUSINESSES

Functional Testing
Our functional testing service, which accounted
for approximately 11% of Group revenue in 2015,
increased revenues by approximately 30% to€6.5m (2014: €5.0m). On a like for like basis,revenues grew by approximately 17%.
Gross margins also improved, a testament to
Keywords’ ability to manage large multi-month
testing projects alongside projects of only a few
days, whilst ensuring high levels of staff utilisation
through its flexible staffing model.
Localisation Testing
Our localisation testing operations, which
accounted for 26% of Group revenue in 2015,
grew by a relatively modest 2% to €15.0m(2014: €14.7m).

€8.2m
Art creation services
revenue

Functional testing

€6.5m
€6.5m

€5.0m

2014

2015
ANNUAL REPORT AND ACCOUNTS 2015

13

Chief Executive’s Review continued€15.0mLocalisation testing
operations revenues

The performance of localisation testing reflects
the phasing of activity from certain key clients
which had fewer titles in 2015 compared to 2014.
Those clients are expected to return to higher
levels of activity in 2016 as they increase theirpipeline of titles to be released this year.
Audio
Our audio business increased revenues byapproximately 41% to €7.2m (2014: €5.1m),
including contributions from Reverb and Kite
Team which were acquired in January and July
respectively. On a like for like basis, revenues in
our audio service line grew by approximately 23%.
Providing single language Brazilian Portuguese,
Latin American Spanish and Iberian Spanish audio
recording and production services, Reverb and Kite
Team have won tenders from game publishers
who source each language separately. Publishers
who adopt a multi-lingual approach use theservices of our Binari Sonori business which has
proven expertise gained over many years inmanaging simultaneous production of audio
voiceover recordings in 20 or more languages.
Customer Support
In January 2015 we acquired Alchemic Dream
which provided us with an entry point to providing
customer support services. This new customer
support business achieved revenues of €3.9m(2014: €nil), accounting for approximately 7% ofGroup revenues and a 10% increase on a like forlike basis.

Alchemic Dream uses a network of multi-lingual
agents working remotely but connected throughtechnology platforms to deliver its customer
support services. We have begun to build upon thiscapability by utilising our existing international
production facilities and talent pool of over 1,000
employees, enabling us to provide customer
support and community management teams outof our studios in Tokyo, Singapore, India, Dublin
and Montreal. We believe it will be an advantage
to both clients and users for Keywords’ teams,
who have already garnered deep knowledge of
all aspects of the game through their involvementin the production and launch phases of a game,to provide ongoing live operational support tothose games.

lines. The Board believes that there is a clear
opportunity for Keywords to extend its existing
relationships with many of the major games
companies both through providing additional
services to existing customers and throughproviding dedicated outsourced services.

We anticipate that this approach will support good,
profitable growth in this service line in future years.

PeopleIncreasingly, we see evidence of the Group
becoming a home for top talent in our industry.
Rather than chase the production of game aftergame from development studio to development
studio, talented artists, producers, project
managers and testers can work at Keywords where
the games come to them. In addition to externally
recruited management and production talent, we
continue to develop our people internally across all
our businesses and we have benefited greatly fromsome strong additions to our senior leadershipteam following the acquisitions we have made.
The Group employed an average of 1,273 people
in 2015 (2014: 978).

Delivering Our Strategy
We have made strong progress in delivering on
our strategy to grow Keywords Studios bothorganically and by acquisition to extend theGroup’s client base, service lines and geographicalpenetration, where the Group can use its existing
expertise, multi-service platform, scale and global
reach to generate synergies in a highly fragmented
games services industry. We are particularly
pleased to have both established a substantial
capability in the higher margin, art creation
services, which means that we are now working
with clients at an earlier stage in the gamedevelopment cycle, and that we now have a muchbetter balanced business across the six service

In addition, we believe that content in its many
forms is becoming more interactive and, as
highlighted at the time of the IPO, we continue tomaintain a watching brief on some closely adjacentmarkets to that of video games in the expectationthat at some point our expertise in what is themost interactive form of content, video games, will
become highly relevant to other industries such ase-learning, film and television and online gambling.

Localisation testing

Audio/voiceover services

Customer support€15.0m

€7.2m

€3.9m

€14.7m

€15.0m

€3.9m

€7.2m
€5.1m

€0.0m

2014
14

KEYWORDS STUDIOS PLC

2015

2014

2015

2014

2015

Strategic Report

II

III

€7.2m
Audio business revenues

Outlook
Trading in the first two months of the current
financial year has been in line with the Board’s
expectations. As expected, 2015 was the first,
solid, post transition year following the launchof the new Xbox and PlayStation platforms in
November 2013. With 2016 being the year inwhich Virtual Reality is launched by a numberof headset providers including Oculus, Sony andValve, we anticipate that 2016 will bring further
strength in the console sector while our mobile,social and online games content related businessshould continue to perform strongly.

STRATEGIC PRIORITIESHigh demand for our art outsourcing services at
Liquid Development, Lakshya and now Mindwalk
is expected in 2016 and, as in 2015, we anticipate
good organic growth from this service line which
we plan to build upon through further selective
acquisition opportunities. The establishment ofan art studio in Seattle in 2015 is starting to bear
fruit as we benefit from proximity to a number ofclients in the area, proving the model of having
lead artists and art managers close to the client
while undertaking the majority of the productionin our studios in India.
Our audio service line, which is currently
under-weight compared to the other services in
the Group, is targeted for expansion. In particular,
we are promoting our single language capabilities
for Italian, Spanish, Latin American Spanish andBrazilian Portuguese, where we have in territory
recording studios, and for Arabic, where we havebecome a go to provider for this complex but fast
growing language. We also have a pipeline ofpotential acquisitions in this area.
We expect to make continued good progress during
2016, as we realise the full year benefits of our2015 acquisitions and as they are integrated further.
By capitalising on the synergies across the group,from sharing access to our talented people andproduction facilities, to leveraging our establishedclient relationships, global sales force and marketing
spend across all service lines, we anticipate driving
continued strong organic growth, complemented byfurther selective acquisitions.

Andrew Day
Group Chief Executive Officer

ANNUAL REPORT AND ACCOUNTS 2015

15

Chief Executive’s Review continued

STRATEGY IN ACTION

EXTENDING OUR SERVICESART CREATION IN FOCUS
Outsourced art services to the video games industry is a key area for expansion for
Keywords as it is a buoyant, large and highly fragmented market which also provides
Keywords with earlier involvement in the development cycle of video games titles.
Art creation is the design and rendering ofall video game visuals (‘art assets’ such as
characters, clothing, vehicles, landscapes,
cityscapes). Computer graphics have developed
enormously in the past 20 years. All of the art
in a video game is hand-crafted, with thecharacters and other art assets becoming moresophisticated and detailed. The increased
capabilities of games platforms, such as thelatest generation of consoles, has materially
increased the time required to design andrender a core character. For example an art
asset that used to take approximately 20 mandays on the Xbox 360, may now take 40 days
for the Xbox One.

In October 2014, Keywords Studios acquired
Lakshya Digital, a leading provider ofoutsourced art services for the video games
industry internationally which provided thecompany with an entry point into this fast
growing market.

The acquisition in March 2016 of Mindwalk
Studios in Beijing did not only deepen our
involvement in this field, but has given us
a meaningful base in China from which tofurther expand our art creation activities aswell as our other service lines.

In August 2015, Keywords expanded its art
creation offering with the acquisition of Liquid
Development. We have also expanded our art
creation team during 2015, hiring more than
100 additional artists in India and the US tosupport strong organic growth. This together
with the acquisitions resulted in growth of 70%
in revenue.

The higher margin art creation offering
accounted for approximately 20% of Grouprevenue on an annualised basis at the endof 2015.

70%
Like for like growthyear on year

Storm Kestrel from Firefall

16

KEYWORDS STUDIOS PLC

Strategic Report

II

III

STRATEGY IN ACTIONOUTSOURCINGDEVELOPING CUSTOMER RELATIONSHIPS AND OUTSOURCING
Year on year we have expanded the number of services
we provide to each of our clients. The number of clientsnow using three or more services grew by 70% to 51
clients in 2015.
In 2015 we expanded ourrelationship with two existingclients adding dedicated, managed
services teams for localisation,
localisation testing and community
management tasks both based out
of our Dublin studio.
One of the clients is a leading
mobile games developer/publisher
and the other develops andoperates one of the world’s leading
online games. We are seeing
increased opportunities for suchmanaged services and single
sourced arrangement given our
financial solidity, our operational
robustness thanks to multi-site,
multi-country duplication ofcapabilities, and being seen as
having some of the best talent
in the industry.

In March 2016, we took overthe live operations support teamfrom French publisher, Ankama
SAS. Based in the Philippines,
this team provides a range of
support services including fraud
management, customer support,
testing, ‘bot hunting’ (seeking
out and neutralising automatedprograms that have been
introduced into the game against
the rules), and promotions
management for Ankama’s games
including Dofus, Wakfu and Tactile
Wars in English. We are investingin new, larger premises in Manila
and will be expanding this teamto provide similar services toadditional game clients.

70%
Increase in numberof clients using threeor more Keywords
services since 2014

Dropshift from Firefall

ANNUAL REPORT AND ACCOUNTS 201517

Chief Executive’s Review continued

STRATEGY IN ACTIONGEOGRAPHICAL GROWTHGEOGRAPHIC DEVELOPMENT

19
Global studios,
up from 14
in 2014

In order to best serve its video game developer andpublisher clients and to access specific talent pools, theGroup has continued to expand geographically and now
has 19 (2014: 14) studios in four continents providing
full, integrated video games services to both local andglobal clients.
Keywords’ studios are strategicallylocated to provide services to key
gaming clusters in locations suchas Tokyo, Singapore, Montreal,
Seattle, Los Angeles and London.
Since the beginning of 2015 wehave expanded into new locations
including Mexico City, Beijing,
Shanghai, Manila and Madrid.

Having added Manila to our
network of studios in March thisyear we intend to expand ouroperations in the Philippines during
2016, as it is an important, lowcost, English proficient location
ideally suited to services such as
customer support and games
operations management.

We have also leveraged our studiolocations by housing a newly
established art creation operation
for Lakshya together with ourexisting localisation testing
operations in Seattle in a new
facility. Separately we have seeded
our customer support operations
into our studios in Rio de Janeiro,
Tokyo, Montreal, Singapore, Dublin
and New Delhi.

China continues to present an
exciting opportunity for the Group.
It is thought to have surpassed the
US as the largest market for games
and is slowly liberalising. In
addition to the acquisition of
Mindwalk described on page 19,
we established a wholly owned
foreign enterprise and an initialpresence in Shanghai during theyear which, in addition toundertaking business development
and corporate development
activities for the Group, is now
starting to deliver localisation
services directly from Shanghai.

Jeep design by Liquid Development

18

KEYWORDS STUDIOS PLC

Strategic Report

II

III

STRATEGY IN ACTION

SELECTIVE ACQUISITIONSACQUISITIONS
While we are particularly pleased with our organic
growth, Keywords has continued to take advantage ofthe highly fragmented markets for video games services.
We have acquired a further six
businesses since the beginningof 2015 to take the total to ten
acquisitions since listing on AIM
in July 2013, and we areencouraged by the way in which
the acquired businesses havebeen welcomed into the Groupand integrated through the
adoption of common systems,
reporting formats, sales andmarketing. The globally managed
service line based organisation
structure implemented in 2015
further facilitates this integration
process and provides management
bandwidth for conducting andintegrating further acquisitions.
In January 2015, Alchemic Dream,
which provided us with an entry
point into customer support andcommunity management services,and Reverb, which provides
localisation and audio for Brazilian
Portuguese, were welcomed into
the Group. In July we acquired 50%
of Kite Team (localisation and audio
for Spanish, Latin American Spanish
and Brazilian Portuguese) and,in August, Portland, Oregon art
creation services business Liquid
Development joined the stable.
We have been pleased with theprogress made with integrating
the acquired businesses. The
businesses have performed wellas part of the Group and we havebeen very encouraged by the
positive responses from customers
to the acquisitions.
Since the year end we haveacquired Ankama Asia Pte Ltd ina strategic outsourcing deal which
provides the Group with a platform
in Manila from which to further
develop our customer services
business with the benefit of a four
year contract with Ankama SAS.
In addition, we have acquired
Mindwalk Studios, for a total
consideration of $5.5 million, which
provides outsourced art creation
services to the video games
industry internationally from its
base in Beijing, giving us both
additional art creation capacity
and a strong platform from whichto grow in China.

6
Businesses acquiredsince the beginningof 2015

We expect acquisition activity
to be a feature of the businessfor the foreseeable future as theCompany takes advantage of its
leadership position in the market
and continues to consolidate
carefully selected, earnings
accretive businesses. We continue
to review a healthy pipeline ofacquisition opportunities which fallwithin our stated strategic goals
and could provide the Group withcomplementary services, increased
scale in our existing activities orfurther geographic penetration.

ANNUAL REPORT AND ACCOUNTS 201519

Principal Risks and Uncertainties

Managing risks
efficiently
The market is highly dynamic, with technology,
business models and consumer tastes evolving
constantly. In this environment Keywords has theobjective of becoming the leading global supplierof localisation, testing, audio, art and other related
services to the industry and sees the following
risks as it pursues this objective.

The Principal risks associated with the Group’s
strategy can be divided into:
1. General business risks for any
international company;
2. Industry related risks; and3. Those specific to the Keywords
Group and its strategy.

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

External risks
Exposure to large customers
The Company’s client base principally comprises global game companies whose revenues are in the billions and hundreds of millions of dollars. Our top fiveclients account for 36.4% (2014: 61%) of the company’s revenues. These companies have exacting standards and demand a 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 to reduce its exposure to any single large client.

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

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

Technology
The Company uses various third party and proprietary tools and technologies for process control and productivity purposes. Continued investment inthese tools is important to ensure the Group’s effectiveness. New technologies for automated testing, machine translation, crowdsourcing etc. could posea threat to the Group in the long term. The Company participates directly and with clients in various pilot programmes for new technologies to keep
abreast of the state of the art.

20

KEYWORDS STUDIOS PLC

Strategic Report

II

III

Keywords is a fast growing but relatively small Group
operating in a wide spread geography. The markets weoperate in are fragmented in terms of the suppliers ofservices but our client base is relatively concentrated
with a number of very large, global suppliers at the head
and a large tail of small, independent developers.

Internal risks
Security
The industry requires the highest standards of security within a company offering services such as Keywords. Security breaches may lead to piracy,
disruption of clients’ marketing plans and loss of competitive edge and could result in compensation claims. Keywords maintains physical and data security
policies and procedures which are regularly audited by its larger clients.

Success of acquisitions
Keywords has an active acquisition strategy to reinforce its global growth. Managing such acquisitions successfully and embedding the Keywords culture isa crucial ingredient of success. Failure to do so will have adverse consequences such as management distraction, disposal and reduced profit. Since IPO, theCompany has involved an increasing number of senior managers in the acquisition and integration process building on the considerable experience ofacquisitions that exists at Board level. The management structure with globally managed service lines supported by regional management that was
introduced in mid-2015 has provided further bandwidth to identify, execute and integrate acquisitions.

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

Cross contamination
As the Group succeeds in delivering multiple services to the same clients, so the risk of failure in one service line contaminating the relationship with theclient across the other service lines increases. Adhering to Keywords’ strong standards of delivery and efficient communication across service lines is key
to managing this risk.

Financial risks
Adequate overseas financial controls
As a business like Keywords grows rapidly, global financial controls and regular audits need to be in place to ensure smooth, timely and accurate reportingto satisfy the relevant accounting bodies to local branches as well as the Board. The Group has invested and continues to invest in its financial reporting
functions to facilitate strong reporting and management control as it grows.

ANNUAL REPORT AND ACCOUNTS 201521

Financial and Operating Review

Strong balance sheet
for further growthGroup Performance2015 saw continued good, profitable growth andexpansion of the Group. The organic growth rateof the existing Keywords operations continued
at a similar rate to that experienced in the last
two years while the acquisitions made in both2014 and 2015 have contributed strongly
to the overall result.
The testing, localisation and audio service lines
continued to grow strongly and were further
strengthened by the acquisition of Reverb anda 50% share in Kite Team.
One notable feature of the results has been
the rapid growth of art creation within theservice line portfolio. This has been driven by thesignificant growth of Lakshya Digital which only
contributed in the last three months of the 2014
results, and the acquisition of Liquid Development
in August 2015.

Revenue Mix
Revenues increased across all lines of business in 2015 compared with 2014, resulting in our six service
lines accounting for the following proportion of Group Sales in the year:
Year ended
31 December
2015%

Year ended
31 December
2014%

Pro forma* for theyear ended
31 December
2015%

Functional Testing
Localisation Testing
Localisation
Audio
Customer Support
Art Creation

11.2
25.9
29.6
12.4
6.8
14.1

13.3
39.4
32.0
13.6
0.0
1.7

10.3
24.0
27.6
12.1
6.4
19.6

Total

100

100

100

* Pro forma includes the annualised sales of all acquisitions made in 2015 in order to give a better overview of the balanceof the business as we entered 2016.

In addition, the Group further diversified into
the customer care market with the acquisitionof Alchemic Dream in January 2015.
Keywords’ geographic reach continued throughthe opening of the Barcelona studio andacquisitions in Rio de Janeiro, Portland, Madridand Mexico City.
Revenue
Revenue for 2015 was up 55% at €58.0m(2014: €37.3m) due to both organic growth andacquisitions. The like for like revenue growth rate,
which provides a 2014 comparative as if all of the2015 acquisitions had been owned for the same
period in 2014 as they have been in 2015, was
20% for the year which was the same as the 2014
organic growth and demonstrates the strong
momentum the studios have managed tomaintain throughout the year.

€58.0mRevenue for 2015

Soldier from Batman:
Arkham Knight

22

KEYWORDS STUDIOS PLC

Strategic Report

II

III

“The Group finished the year with a strong
cash position; with net cash of €17.3m.”

The proportion of sales in Asia has significantly
increased during the year due mainly to theacquisition of Lakshya in October 2014 which has
grown rapidly. The sales mix by region based on
the Group’s operational jurisdictions is as follows:

EuropeAsia
AmericasYear ended
31 December
2015%

Year ended
31 December
2014
%

41
17
42

46
9
45

100

100

Gross Margin
Gross profit for the year was €21.8m(2014: €12.7m). The gross margin percentage
increased to 37.6% (2014: 34.1%). The mostsignificant impact on the gross margin in 2015
was the increase in the sales of art creation
services, which achieves the highest gross margin
within the Group’s service portfolio. This waspartially offset by the introduction of customer
services which commands a lower gross margin
than the Group’s other services.

Operating Profit and Adjusted Profit Before Tax for Years Ended 31 December
2015
€’000

2014
€’000

Statutory profit before tax
Add back costs excluded from Group’s measure of PBT (see below)
Add back loss attributable to non-controlling interest

5,086
2,812
109

3,436
1,618
–

KWS measured profit before tax
Add back depreciation and net Interest
Earnings before interest, tax, depreciation, amortisation, shareoption costs and one-time costs related to acquisitions

8,007
1,355

5,054
964

9,362

6,018

1,089
392
474
857

1,461
156
(467)
468

2,812

1,618

Details of costs excluded from Group’s measure of PBTCosts of acquisition and integration
Share option expense
Foreign exchange loss /(gain)
Amortisation of intangibles

Operating Profit (‘EBITDA’)
Adjusted EBITDA is a measure of operating profit
used by the Board, which excludes depreciation,amortisation, share option expenses and one-timecosts related to acquisitions. For 2015, adjusted
EBITDA increased 56% to €9.4m, compared with
€6.0m for 2014. As a percentage of revenue,
adjusted EBITDA has increased from 16.1% to16.2%, reflecting the improvement in the Group’s
gross margin partially offset by an increase inoperating expense as described below.
Operating expenses excluding depreciation,
increased by €5.6m to €12.3m (2014: €6.7m)
mainly due to the new acquisitions, the full year
impact of 2014 acquisitions and the opening of
the Barcelona studio. These costs increased from
18.0% to 21.3% of revenue mainly due to theoperating costs ratios within a number of theacquired companies which were higher than theratio for the core Keywords studios. Additional
investment was also made in strengthening
Keywords management to successfully manage
the growth of the Group. We expect the operating
costs as a percentage of revenue to trend towards
20% as we manage additional volume fromorganic and acquisition led growth within theestablished framework of the Group.

Deathstroke from Batman:
Arkham Knight

ANNUAL REPORT AND ACCOUNTS 201523

Financial and Operating Review continued

Net Finance Costs
During 2015 there was net finance cost of €0.74m
compared to a gain of €0.36m in 2014 primarily due
to the impact of foreign exchange losses. Foreignexchange losses of €0.5m (2014: gain of €0.5m)
were created mainly due to the weakening ofsterling against the euro on the cash raised in theplacing and negative impacts of movements of the
US dollar against the India rupee which was offset
by the weakening of the euro against the US dollar
and, within Babel Media, the Canadian dollar against
the US dollar. The increase in interest expense to€0.12m (2014: €0.06m) is largely due to the interest
on a €1.1m loan to fund the MMTC receivablefor 2013 in Canada and €0.6m of loans which
we acquired with the Kite Team acquisition.
Adjusted Profit Before Tax
Adjusted profit before tax is used by the Board
to measure the more meaningful underlying profit
generation of the Group. This measure excludes
one-time expenses, such as acquisition andintegration costs, share option expenses, foreign
currency gains or losses and amortisation of
intangibles. Adjusted profit before tax for 2015
increased by 59% to €8.01m compared with
€5.05m in 2014.
Taxation
The Group’s effective tax rate reduced to 22.9%(2014: 24%) as the Group looked to make betteruse of its global operating headquarters in Irelandin the year. This will continue during the next year
and we would anticipate a further reduction in theeffective tax rate.
Basic Earnings Per Share
Basic earnings per share for the year, before
one-time costs of acquisitions and integration,
share option charges, amortisation of intangibles,and foreign exchange movements, increased by
49% to 12.71c compared with 8.54c for 2014.
Basic earnings per share based on the statutory
profit after tax was 6.98c (2014: 4.94c).
Cash Flow and Debt
The Group generated operating cash of €3.4m forthe year, compared with €1.9m for 2014. However,during the year, the Group also accumulated
multimedia tax credits in Quebec of €1.3m in 2015(2014: €1.4m) which will be claimed during 2016.
Therefore, and in order to mitigate against the effectof the delay in receiving the multimedia tax credits
from the Canadian authorities, the Group took out
financing debt of €1.1m. The total multimedia tax
credit accrual as at 31 December 2015 amounted to€3.9m (2014: €3.0m).
24

KEYWORDS STUDIOS PLC

The Group anticipates that, in general, it will
convert the net profit after tax to cash less theamount which is needed to fund an increased levelof working capital required due to the continuing
rapid growth of the business. In 2015 the delay inreceiving the multimedia tax credits has reduced
the cash collection below the level which would
normally be anticipated. This will not be the casein 2016.
The Group made four acquisitions to strengthen
the business during the year with a net cash
outflow on consideration payments of €7.4m, andan additional €1.1m in acquisition expenses andintegration expenses. At the date of acquisitionof Kite Team, the company had €0.6m of loans inplace which remained in place at 31 December 2015
and formed part of the Group financial statements.
Investment in fixed assets amounted to €1.6m(2014: €1.3m) reflecting the cost of expanding
the Lakshya Digital operation in India, moving
office in Seattle to include a new art studio,
further expansion within the Montreal studioand fitting out the Barcelona office. Additionally,
there were ongoing purchases of games testing
equipment. A further €0.8m was spent onpurchasing 400,000 Keywords Studios PLC
Group PLC shares for the Group’s Employee
Benefit Trust.
In 2015, the issue of new shares at 1.90p via aplacing in November generated net proceeds of€14.2m. In 2014 the issue of new shares at 1.50p via
a placing in May generated net proceeds of €7.3m.
Cash and cash equivalents increased to €19.0m
from €11.0m excluding accrued multimedia tax
credits of €3.9m (2014: €3.0m). The loans andborrowings were €1.7m at 31 December 2015(2014: €nil).

which will make the total dividend for the year
ending 31 December 2015 1.21p per share, a
10% increase over 2014. Subject to shareholder
approval at the Annual General Meeting, the final
dividend will be paid on 23 June 2016 to allshareholders on the register at 3 June 2016.
The cash cost of the final proposed dividend
will be an estimated €0.6m.
Events After the Reporting Period
On 22 March 2016 the Group acquired the entire
share capital of Ankama Asia Pte Ltd, a company
registered in Singapore, which provides services
to support the live operations of the games ofAnkama. Under the terms of the agreement, which
will be immediately earnings enhancing, a total
consideration of €0.25m will be paid to the sellers.
On 1 April 2016, the Group announced that it hadentered into an agreement to acquire the businessand assets of Mindwalk Studios Inc, a company
registered in China, and Mindwalk Studios Ltd, acompany registered in the British Virgin Islands.
Under the terms of the agreement, which isanticipated to be immediately earnings enhancing
and is scheduled to complete before 30 June 2016
subject to certain conditions being fulfilled,
a total consideration of US$5.5m will be paid. This
will be satisfied by the payment of US$3.9m incash and the issue of US$1.6m of Keywords
Studios plc shares.
Key Performance Indicators
We monitor our financial performance against anumber of different benchmarks. These are set inagreement with the Board and used to evaluate
progress against our strategy.
Financial performance is measured by:•Foreign Exchange
Keywords does not hedge foreign currency profit
and loss translation exposures. The effect on theGroup’s results of movements in exchange rates andthe foreign gains and losses incurred during the year
are set out in the Net Finance Costs section above.
Dividend
The Company has a progressive dividend policy,
subject to the retention of funds needed to fundfuture growth of the Group’s business and its
strategic aims.
Following the interim dividend payment of 0.40p
per share on 23 October 2015, the Board has
recommended a final dividend of 0.81p per share,••

Revenue growth
Revenue growth is measured by line ofbusiness and overall against the Board’s
strategic goal to grow organically and byacquisition.
Gross profit
Gross profit is a key measure by service line of
the Group’s pricing strategies, use of resources
and ability to optimise resource utilisation.
Overhead costs by location
The Board monitors the overheads to ensure
the costs in each location are in line with thelevel of business being generated.

Strategic Report

II

III

“Keywords continues to benefit from low capitalrequirements and good profit to cash conversion.”••

Adjusted EBITDA margin
The Board uses an adjusted measureof EBITDA to monitor the performanceof the Group. This measure excludes foreignexchange gains or losses, any one-time
expenses and the cost of employee shareoption awards.
Adjusted operating profit margin
The Board also uses an adjusted measureof operating profit to monitor the performanceof the Group. This measure similarly excludes
foreign exchange gains or losses, any one time
expenses, and the cost of employee shareoption awards.

Non-financial performance is measured by:•••

Resource deployment
The Board reviews the efficiency at which theGroup is utilising its staff resources to ensure
optimum staffing strategies are deployed andto maximise utilisation rates.
Business won/lost
The Board reviews the levels of new businesswon and lost, and monitors the reasons forboth, to ensure that the services being offeredto the market are appropriately priced
and relevant.
Customer satisfaction and quality ofservice delivery
The Board monitors the quality and timelinessof service delivery on an ongoing basis andreviews the level of repeat revenue fromexisting customers, typically around 80%,
as a key measure of customer satisfaction.

Andrew Lawton
Group Finance Director
The Strategic Report on pages 01 to 25 of theAnnual Report and Accounts has been approvedby the Board of Directors, and is signed on theirbehalf by Andrew Day and Andrew Lawton.

Torvald from Evolve

Andrew Day
Group Chief Executive Officer

Andrew Lawton
Group Finance Director

ANNUAL REPORT AND ACCOUNTS 201525

Board of Directors

Ross Graham (68)
Independent Non-Executive Director and Chairman
Ross Graham has extensive executive and non-executive experience in the technology sector. He
worked from 1987 to 2003 at Misys plc, a global financial software product and solutions provider. He
joined Misys as Finance Director upon its flotation, latterly becoming Corporate Development Director;
throughout he played a key role in developing and implementing its acquisition strategy. Ross also held
a non-executive directorship at Psion plc from 2005 until 2012 when that company was successfully
sold to Motorola Solutions Inc. During his time at Psion, he held various roles including the seniorindependent directorship and chairman of the audit and remuneration committees. He was also a
non-executive director at Wolfson Microelectronics Plc and was previously senior independent director
and the audit committee chairman prior to its sale to Cirrus Logic Inc. in 2014. Ross qualified as achartered accountant with Arthur Young in 1969 and was made a partner of that firm in 1981. He is a
Fellow of the Institute of Chartered Accountants in England & Wales. Ross was appointed Director andChairman of Keywords prior to the flotation in July 2013.

Andrew Day (52)Group Chief Executive Officer
Andrew has a background in technology, manufacturing and business services through corporate
development and general management roles within both publicly quoted and private companies.
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 and Head of Retail and CPG for EMEA at NYSE listed advanced analytics
business, FICO, before joining Keywords as its Chief Executive Officer in April 2009.

Andrew Lawton (53)Group Finance Director
Andrew Lawton has extensive experience within the video games industry, FMCG and multi-site retail.
He was previously CFO of the fast growing international business Sony Computer Entertainment Europe,
which he joined as a founding member of the PlayStation business in 1994 and supported its growth
to over €3bn and 1000 employees. In addition to providing strong financial management, his previous
responsibilities have been broad-ranging, including Finance, IT, Digital Operations and BusinessTransformation. Andrew was appointed to the role of Group Finance Director in July 2014. He is a
Member of the Institute of Chartered Accountants.

26

KEYWORDS STUDIOS PLC

I

Governance

III

David Reeves (68)
Independent Non-Executive Director
David has spent over 30 years in management roles within multinational companies. He began his
career as an operational research consultant before moving overseas with RJ Reynolds Nabisco where
he worked from 1979 to 1991, becoming the Marketing Director in 1986 and Worldwide Marketing
Director in 1989. In 1991, David served as the General Manager and Vice President of Marketing inTokyo for Mitsubishi Shoji JV Technology Company. David has considerable experience in the computer
entertainment industry. David was the Managing Director for Sony Computer Entertainment(PlayStation) from 1995 until his appointment as its Executive Vice President in 1999 and President
in 2003. Throughout his career, David has developed knowledge of the various working styles ofEuropean, American and Asian corporations. He was appointed to the Board of Keywords Studios
Limited on 29 May 2013.

Giorgio Guastalla (46)Non-Executive Director
Giorgio Guastalla is co-founder of Keywords. Prior to establishing Keywords in Ireland in 1998, Giorgio
held various positions in marketing and IT at Brent International PLC based in the US, Spain, the UK andFrance. In 2002 Giorgio founded Italicatessen Ltd, a company operating in the food sector. Giorgio was
CEO of Keywords until 2009 before concentrating on his other business interests and moving to a
non-executive Director role at Keywords Studios.

ANNUAL REPORT AND ACCOUNTS 201527

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 2015.
Disclaimer
The purpose of this Annual Report & Financial Statements is to provide information to the members of the Company. The Annual Report & Financial
Statements have been prepared for, and only for, the members of the Company, as a body, and no other persons. The Company, it’s 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 & Financial Statements contain certain forward-looking statements with respect to the operations, performance and financial conditionof the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ
materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this Annual
Report & Financial Statements and the Company undertakes no obligation to update these forward-looking statements. Nothing in this Annual Report &Financial Statements should be construed as a profit forecast.
Dividends
The results for the year are set out from page 36. Dividends paid and proposed are set out on page 50. The Board is proposing a final dividend of 0.81p per sharefollowing the payment of an interim dividend of 0.40p per share on 23 October 2015. The proposed total dividend for the year is therefore 1.21p per share.
Directors and Changes to the Board
The Directors of the Company during the year were Ross Graham, Andrew Day, Andrew Lawton, David Reeves and Giorgio Guastalla. There were no changes
in the year.
Details of members of the Board at 31 December 2015 are set out on pages 26 and 27.
Going Concern
In view of the Group’s resources, cash at 31 December 2015 of €19.0m, free cash flow in 2015 of €3.1m, results of operations, excluding acquisition andintegration costs, and the overall financial condition of the Group, the Directors have reasonable expectation that the Group has adequate resources tocontinue in operation for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.
Political Donations
No political donations were made in the year.
Directors and Their Interests
A list of Directors, their interests in the ordinary share capital of the Company, their interests in its long-term performance share plan and details of theiroptions over the ordinary share capital of the Company are given in the Directors’ remuneration report on page 31. No director had a material interest in any
significant contract, other than a service contract or contract for services, with the Company or any of its operating companies at any time during the year.
The names of all persons who, at the year end, were Directors of the Company can be found on pages 26 and 27 under The Board of Directors.
Corporate GovernanceCompliance with UK Corporate Governance Code
Keywords is committed to high standards of corporate governance throughout the Group. As a company whose shares are traded on AIM, it is not required tocomply with all the requirements of the UK Corporate Governance Code 2014 (‘the Code’). However, the Board recognises the importance of, and is committed
to, ensuring that effective corporate governance procedures are in place as appropriate for a public company of its size and complexity and in the light of therisks and challenges it faces.
The Group’s corporate governance arrangements are set out below:
The Board
The Board is comprised of two Executive and three Non-Executive Directors. The Board considers that Ross Graham and David Reeves are independent incharacter and judgement and that there are no relationships or circumstances which are likely to affect their independent judgement.
The Board is responsible for the overall management of Keywords, our strategy and long-term objectives. It provides leadership to Keywords having regard
to the interests of shareholders and other stakeholders.
Audit Committee
The Audit Committee is chaired by David Reeves. Ross Graham is the other Committee member. The Audit Committee is responsible for assisting the Boardin fulfilling its financial and risk responsibilities. The Audit Committee oversees our financial reporting, risk management and internal control procedures, andreviews the work of external auditors.
Remuneration Committee
The Remuneration Committee is responsible for determining the remuneration of the Chairman, executive Directors, the Company Secretary and senior
executives of Keywords.
For further information please see pages 31 and 32.
Internal controls and risk management
The Board has overall responsibility for the Group’s system of internal controls. The system is designed to manage, rather than eliminate the risk of failure toachieve business objectives, and can only provide reasonable assurance against material misstatement or loss.
28

KEYWORDS STUDIOS PLC

I

GovernanceIII

The Directors believe that the Group has internal control systems in place appropriate to the size and nature of the business. The key elements are:• Group Board Meetings, at a minimum of eight times per year, with reports from and discussions with senior executives on performance and key risk areasin the business;• Monthly financial reporting, for the Group and for each subsidiary, of actual performance compared to budget and the prior year;• Annual budget setting; and• A defined organisational structure with appropriate delegation of authority.
The Board also receives a report from the external auditor on matters identified in the course of the statutory audit.
Substantial Shareholdings
At 31 December 2015, the Company had been notified, in accordance with the Disclosure and Transparency Rules, of the following interests in its ordinary
share capital:
Name

P.E.Q Holdings Limited
Andrew Day
Schroder Investment Management
Invesco Perpetual
Hargreave Hale
Liontrust Asset Management
Kabouter Management
Artemis Investment Management
Legal & General Investment Management

Shares%11,978,736
5,296,573
4,904,843
3,988,206
3,975,380
3,840,169
3,015,783
2,512,549
1,327,000

22.2
9.9
9.1
7.4
7.4
7.1
5.6
4.7
2.5

Future Developments
Important events since the financial year end are described on page 24 of the Chief Executives Report and future developments are described in the strategy
section of the Strategic report on page 08.
People and Organisation
Keywords is, and always has been, dependent on the quality and commitment of its entire staff to provide and maintain the high levels of services expectedby the Group’s clients.
The average headcount reached 1,273 for 2015 with peak employment of 1,410 in August 2015. Keywords permanent staff complement averaged 684
during 2015. This permanent headcount is supplemented with employees on short term contracts as activity changes throughout the year.
The Group continues to give full and fair consideration to applications for employment made by disabled persons, having regard to their respective aptitudes
and abilities. The policy includes, where practicable, the continued employment of those who may become disabled during their employment and the provisionof training and career development and promotion, where appropriate. The Group has continued its policy of employee involvement by making information
available to employees on matters of concern to them. Many employees are stakeholders in the Company through participation in share option schemes anda long-term performance share plan.
The Group has not disclosed further details on employment of disabled persons or employee involvement as it has fewer than 250 employees within the UK.
Corporate Responsibility
Keywords seeks to be a socially responsible Group which has a positive impact on the communities it operates in. 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 theircapabilities. We provide an excellent working environment, the latest technology and appropriate training.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report & Financial Statements.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group andCompany financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”).
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state ofaffairs of the Company and the Group and of the profit or loss of the Group for that period. The Directors are also required to prepare financial statementsin accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.
In preparing these financial statements the Directors are required to:
Select suitable accounting policies and then apply them consistently;• Make judgements and estimates that are reasonable and prudent;• State whether IFRS as adopted by the EU have been followed, subject to any material departures disclosed and explained in the Group and Company
financial statements respectively; and• Prepare the financial statements on a going concern basis, unless it is inappropriate to presume that the Company will continue in business.
•

ANNUAL REPORT AND ACCOUNTS 201529

Directors’ Report continued
Statement of Directors’ Responsibilities continued
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose withreasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements and the
Directors’ remuneration report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Groupand hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors as at the date of this report, whose names and functions are listed in the Board of Directors on pages 26 and 27, confirm that:• So far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and• The Director has taken all the steps that he or she ought to have taken as a Director in order to make himself/herself aware of any relevant audit
information and to establish that the Company’s auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006.
Website Publication
The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are publishedon the Group’s websites in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which mayvary from legislation in other jurisdictions. The maintenance and integrity of the Group’s websites is the responsibility of the Directors. The Directors’
responsibility also extends to the ongoing integrity of the financial statements contained therein.
By Order of the Board

Andrew Lawton,
Company Secretary
5 April 201630

KEYWORDS STUDIOS PLC

I

GovernanceIII

Directors’ Remuneration Report
Dear Fellow Shareholder,
It is my pleasure to present the Directors’ remuneration report for the period ended 31 December 2015.
It is my hope that you find this a clear and comprehensive report and I look forward to hearing the views of our investors on 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.
We operate a simple remuneration structure made up of base salary and benefits, a bonus plan and share option scheme, and a long-term incentive plan,
which provide a clear link between pay and our key strategic priorities.
The Board of Directors
The Board of Directors have a duty to act in the best interests of their shareholders when determining remuneration. It is their responsibility to promote thelong-term success of the company while also considering the employees, suppliers, customers and other external factors which may be impacted byremuneration decisions.
Executive directors will be responsible for developing and implementing remuneration strategy for the Group. Non-executive directors will be responsible forconstructively reviewing and contributing to this strategy.
The Remuneration Committee
The members of the Remuneration Committee are Giorgio Guastalla (Committee Chairman), David Reeves and Ross Graham. The members are all
Non‑Executive Directors.
The remit of the Committee is primarily to determine and agree with the Board the framework or broad policy for the remuneration of the Company’s
Executive Directors, and if required by the Board, the Senior Management of the Group.
Non-executive directors, who are the members of the remuneration committee, should oversee Executive remuneration. The remuneration of the Chairmanof the Board is determined by the Remuneration Committee. The remuneration of the Non-Executives is a matter for the Executive member of the Board in
conjunction with the committee Chairman.
No Director or Senior Manager is involved in any discussion or decision about his own remuneration.
The Remuneration Committee consists of non-executive directors all of whom are independent with no personal financial interest, other than as
shareholders, in the decisions of the Committee. The remuneration committee secretary will be the company human resource manager. By invitation, othermembers of the Board may attend the Committee’s meetings.
Meetings
The Remuneration Committee is planned to meet at least three times a year. In the year ended 31 December 2015, the remuneration committee met on
three occasions.
Directors’ Emoluments and Pension Contributions
The aggregate remuneration for the Directors of the Company, for service in all capacities for the period year ended 31 December 2015 was €645,727(2014: €510,128). The remunerations of individual directors were as follows.
2015

Andrew Day
David O’Connor
David Reeves
Giorgio Guastalla
Ross Graham
Andrew Lawton

2014

Salaryor fees€

Bonus€

Pension€Share
options€

Total€

Salaryor fees€

Bonus€

Pension€Share
options€

Total€

187,395–
66,61048,156
68,812
120,509

61,983––––37,190

–
–
–
–
–
–

38,546––––
16,526287,924–
66,61048,156
68,812
174,225

125,056
56,81755,96543,38357,94854,91062,500––––16,537

–
–
–
–
–
–

28,043
–
–
–
–
8,969

215,599
56,81755,96543,38357,94880,416

491,482

99,173–55,072645,727

394,079

79,037–37,012

510,128

Directors’ Interest in Shares
The interests of each person who was a director of the Company as at 31 December 2015 (together with interests held by his or her connected
persons) were:

Giorgio Guastalla1
Andrew Day
David Reeves
Ross Graham

1

2015
Number2014
Number

10,780,862
5,296,573
22,51058,44010,780,862
5,296,573
16,26030,49016,158,385

16,124,185

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

ANNUAL REPORT AND ACCOUNTS 201531

Directors’ Remuneration Report continued
Directors’ Interest in Shares continued
The outstanding awards granted to each director of the Company are as follows.
Long Term Investment Plan

Andrew Day
Andrew Lawton

Start of year
NumberAwardedNumber

VestedNumberLapsedNumberEnd of year
NumberVesting
date

86,593–50,000––35,000035,000

–
–
–
–

–
–
–
–

86,59335,00050,00035,00012 July 2016
1 June 2018
3 July 2017
1 June 2018

136,593

70,000––206,593–

Start of year
NumberAwardedNumber

VestedNumberLapsedNumberEnd of year
NumberVesting
date

21,167
21,167
21,168

–
–
–

–
–
–

–
–
–

21,167
21,167
21,168July 12, 2015
July 12, 2016
July 12, 2017

63,502–––63,502–

Share Option Plan

Andrew Day

Awards of shares will vest on the dates shown. In the event that a Director ceases to be an employee of the Group for reasons other than death, retirement,
redundancy, injury, ill-health or disability before the vesting date, then the rights to the award will lapse, unless the Remuneration Committee
recommend otherwise.
Awards are not subject to further performance conditions once granted.
Transactions with Directors
During the year, there were no material transactions between the Company and the Directors, other than their emoluments.
All transactions between the Group and the Directors are set out in the notes to the financial statements, including note 25 on related party transactions.

Giorgio Guastalla,
Chairman of the Remuneration Committee

32

KEYWORDS STUDIOS PLC

I

GovernanceIII

Directors’ Remuneration Policy Report
The Committee reserves the right to make any remuneration payments and payments for loss of office, notwithstanding that they are not in line with thepolicy set out below, where the terms of the payment were agreed (i) before the policy came into effect or (ii) at a time when the relevant individual was nota director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a director of the Company.
For these purposes “payments” includes the Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of thepayment are “agreed” at the time the award is granted.
The Remuneration Committee determines the Company’s policy on executive directors’ and if required, senior management remuneration. The objectivesof this policy are:
• To reward executive directors and senior management in a manner that ensures that they are properly incentivised and motivated to perform in the bestinterests of shareholders.
• To provide a level of remuneration required to attract and retain high calibre executive directors and senior management.
• To encourage value creation through consistent and transparent alignment with the agreed company strategy.
• The Remuneration Committee takes into account the performance of the individual, comparisons with peer company companies and reports from external
independent consultants. The experience of the individual and his/her level of responsibility are also taken into account.
• Ensuring the total remuneration packages awarded to executive directors comprise of both performance-related and non-performance-related
remuneration, designed to motivate the individual, align interests with shareholders and comply with corporate governance best practice.
• To ensure that any remuneration awarded is deserved and is aligned to the shareholders’ interests.
Remuneration Components
Various remuneration components are combined to ensure an appropriate and balanced remuneration package that reflects the business unit, the employee’s
position in the company and professional activity as well as market practice.
The remuneration components are comprised of the following elements:
Fixed remuneration (basic salary);• Performance-based remuneration (variable salary);• Pension schemes;• Other benefits; and• LTIP (long-term incentive plan).
•

For Non-Executive Directors there is only one component, a base fee.
Basic Salaries and Benefits
Basic salaries should initially be determined to reflect first the role and the responsibility of the individual within that role while also upholding the principleof paying no more than is necessary.
The basic salaries of executive directors and senior management are reviewed annually having regard to personal performance, company performance,
significant changes in their responsibilities and competitive market practice.
Any increases in basic salary should be disclosed and justified.
Performance Bonus
Under current arrangements, which will be reviewed annually by the Remuneration Committee, executive directors and senior management are eligible toparticipate in a bonus scheme. The bonus amount is a percentage of salary ranging from 20% to 50%, which is subject to the attainment of specific targets
set for each individual. The portion of bonus earned in any one year depends on the Remuneration Committee’s assessment of each individual’s performanceand the overall performance of the Company against predetermined turnover and profitability targets for the year.
Performance targets are weighted 80 per cent towards the Company’s financial performance and 20 per cent towards personal performance.
The Remuneration Committee will review targets and the weighting of performance measures each year.
The bonus may not exceed the agreed percentage of the fixed salary, which level can only be achieved at a weighted target achievement of 100 per cent.
Furthermore, the bonus will be cancelled at a weighted target achievement of less than 80 per cent.
Pension Entitlements
The Company does not operate any pension scheme or make pension provision for non-executive directors. At the discretion of the remuneration committee
the executive directors and senior management may participate in a pension scheme facilitated by the Company.
Benefits
During the period since incorporation, the Company did not contribute to any Employment related benefits.
Share Options
Share option programmes are in place for permanent members of staff, including the Senior Management. The focus of the share option programmes isto retain and create long-term shareholder value. The intention of such grants is to ensure value creation and fulfilment of the company’s long-term goals.
Long-Term Incentive Plan (LTIP)
The purpose of the LTIP is to incentivise delivery against total shareholder return. Share awards further the alignment of executives’ andshareholders’ interests.
LTIP grants can be made annually to a range of senior employees across the Company. Awards are made in the form of share options which vest subject
to performance conditions. Performance conditions are measured over three financial years and are not retested. Conditions are reviewed annually.
ANNUAL REPORT AND ACCOUNTS 201533

Directors’ Remuneration Policy Report continued
Leaver Treatment
Fair treatment will be extended to departing executives. Executives who resign or are dismissed for cause are, by default, not eligible for an annual bonus
if they have left or are under notice at date of payment, and forfeit all LTIP shares.
At the Committee’s discretion good leavers (normally including such circumstances as retirement, death, disability, and redundancy) may be eligible for anannual bonus for the proportion of the bonus year served. However performance will be tested in line with the normal performance schedule.

34

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

Independent Auditor’s Reportto the Members of Keywords Studios PLC

We have audited the financial statements of Keywords Studios plc for the year ended 31 December 2015 which comprise the Group and Parent Company
Statements of Financial Position, the Group Statement of Comprehensive Income, the Group and Parent Company Statements of Cash Flows, the Group andParent Company Statements of Changes in Equity, and the related notes. The financial reporting framework that has been applied in their preparation isapplicable law and International 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.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’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 for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the financial statements andfor being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance withapplicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council’s (FRC’s)
Ethical Standards for Auditors.
Website publication
The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are publishedon the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which
may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’
responsibility also extends to the ongoing integrity of the financial statements contained therein.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing(UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:• the financial statements give a true and fair view of the state of the Group’s and the parent Company’s affairs as at 31 December 2015 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 inaccordance 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.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and Directors, Report for the financial year ended 31 December 2015 for which the financial
statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you 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.

Teresa Morahan (Senior statutory auditor)
For and on behalf of BDO, statutory auditor,
Dublin 2,
Ireland.
5 April 2016

ANNUAL REPORT AND ACCOUNTS 201535

Consolidated Statement of Comprehensive Income

Years ended 31 December
2015
€’000

2014
€’000

57,951(37,460)
1,287
21,77837,293(25,981)
1,413
12,725(392)(1,089)(857)(13,616)(156)(1,461)(468)(7,566)(15,954)(9,651)

6

5,824
70
(808)

3,074
516
(155)

7

5,086
(1,832)

3,436(1,215)

Profit from operations
Other comprehensive income:Items that will or may be reclassified to profit or loss
Exchange gains/(losses) on translation of foreign operations

3,254

2,220

763

(288)

Total comprehensive income:

4,017

1,932

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

3,363
(109)

2,220
–

3,254

2,220

4,126
(109)

1,932
–

4,017

1,932

Euro centEuro cent

6.98
6.87

4.94
4.93

Note

Revenues
Operating costs
Multimedia tax credits
Gross profit

4

Share option expense
Costs of acquisition and integration
Amortisation of intangible assets
Other administration expenses
Administrative expenses
Operating profit
Financing income
Financing cost
Profit before taxation
Tax expense

5
6

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

Earnings per share

Basic earnings per ordinary share (Euro cent)Diluted earnings per ordinary share (Euro cent)
The notes on pages 43 to 73 form an integral part of these consolidated financial statements.
On Behalf of the Board		
Andrew Day						Andrew Lawton
Director 							Director
5 April 2016

36

KEYWORDS STUDIOS PLC

9
9

I

II

Financial Statements

Consolidated Statement of Financial Position

Years ended 31 December
Note

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

14
12
13
29

15
16
18
17
29

2015
€’000

2014
€’000

3,486
23,893
3,782
971

2,761
14,711
2,967
436

32,132

20,874

7,519
8,320
27
19,018
–

6,203
5,644
259
11,014377

34,88423,49867,01644,371646
18,542(370)
22,479
498
(804)
619
10,293551
18,542
(370)
5,667
(265)
–
227
7,667

Non-controlling interest

51,903(1,309)32,019–Total equity

50,59432,019

2,761
8,452
1,163
752

2,322
6,881
–
543

13,128

9,746

300
571
2,423

1,219
–
1,388

Total assets
EquityShare capital
Share premium
Merger reserve – restructuring
Merger reserve – acquisitions
Foreign exchange reserve
Shares held in EBTShare option reserve
Retained earnings

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

19

20

21
22
23

22
23
29

3,294

2,607

67,01644,371

ANNUAL REPORT AND ACCOUNTS 201537

Consolidated Statement of Changes in Equity

Share
capital
€’000

Share
premium€’000

Mergerreserve
restructuring€’000

Mergerreserveacquisitions€’000

Foreignexchangereserve€’000

Sharesheld
in EBT€’000

Share
optionreserve€’000

Retainedearnings
€’000

Total
attributable
to equity
holdersof parent
€’000

465
–
–

11,250
–
–

(370)
–
–

–
–
–

23
–
(288)

–
–
–

71
–
–

6,056
2,220
–

17,494
2,220
(288)

–
–
–

17,494
2,220
(288)

–

–

–

–

(265)

–

–

8,276

19,426–

19,426

–
–
49
37

–
–
7,293
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

156
–
–
–

–
(609)
–
–

156
(609)
7,342
37

–
–
–
–

156
(609)
7,342
37

–

–

–

5,667

–

–

–

–

5,667

–

5,667

Contributions by andcontributions to the owners

86

7,293

–

5,667

–

–

–

–

–

–

–

Balance at 31 December
2014

551

18,542

(370)

5,667

(265)

–

227

7,667

32,019–32,019

–
–

–
–

–
–

–
–

–
763

–
–

–
–

3,363
–

3,363
763

(109)
–

3,254
763

–

–

–

–

763

–

–

3,363

4,126

(109)

4,017

–
–
–
78
17

–
–
–
–
–

–
–
–
–
–

–
–
–
14,118
2,694

–
–
–
–
–

–
–
(804)
–
–

392
–
–
–
–

–
(737)
–
–
–

392
(737)
(804)
14,196
2,711

–
–
–
–
–

392
(737)
(804)
14,196
2,711

–

–

–

–

–

–

–

–

–

(50)

(50)

–

–

–

–

–

–

–

–

–

(1,150)(1,150)Contributions by andcontributions to the owners

95

–

–

16,812

–

(804)

392

(737)

15,758(1,200)14,558

Balance at 31 December
2015

646

18,542(370)

22,479

498

(804)

619

10,29351,903(1,309)50,594

Balance at 1 January 2014
Profit for the year
Other comprehensive income
Total comprehensive income
for the year
Contributions by andcontributions to the owners
Share option expense (note 20)
Dividends paid (note 10)
Shares issued for cash (note 19)
Shares issued upon acquisitions
Merger reserve arising on groupacquisitions

Profit for the year
Other comprehensive income
Total comprehensive income
for the year
Contributions by andcontributions to the owners
Share option expense (note 20)
Dividends paid (note 10)
Shares bought for EBT
Shares issued for cash (note 19)
Shares issued upon acquisitions
Liabilities on acquisition ofKite Team
Purchase of put option for
acquisition of remaining 50%
of Kite Team (note 31)

38

KEYWORDS STUDIOS PLC

Noncontrollinginterest
€’000

Total
equity
€’000

I

II

Financial Statements

Consolidated Statement of Cash Flows

Years ended 31 December
2015
€’000

2014
€’000

Cash flows from operating activities
Profit after tax

3,254

2,220

Adjustments to reconcile net income to net cash provided by operating activities
Income taxes (paid)/refunded

1,514(1,362)

202(522)

Net cash provided by operating activities

3,406

1,900

(7,409)(1,635)
232
70
(804)

(8,889)(1,252)260
49–

Net cash used in investing activities(9,546)(9,833)

Cash flows from financing activities
Repayment of borrowings in acquired company
Repayment of loans to Directors of acquired companies
Loan to finance Multi-Media Tax Credits
Dividends paid
Shares issued
Share issuance expenses
Interest paid

–
(300)
1,110
(737)
14,213(14)(128)(2,996)

Note

Cash flows from investing activities
Acquisition of subsidiaries net of cash acquired
Acquisition of property, plant and equipment(Acquisition)/disposal of short term investments
Interest received
EBT Share Purchase

31/32
14
18
6

10
19
6

–
(609)
7,342
–
(61)

Net cash used in financing activities

14,144

3,676

Increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year

8,004
11,014(4,257)
15,271

17

19,01811,014

Note

2015
€’000

2014
€’000

1,297
857
1,832
392
–
20
194
(70)
14
128

868
468
1,215
156
(161)
66
–
(49)
–
61

29
(2,533)(646)(2,930)(2,090)
2,598

1,514

202

Cash and cash equivalents at end of period

Adjustments to reconcile net income to net cash provided by operating activities
Years ended 31 December

Income and expenses not affecting operating cash flows
Depreciation
Intangibles amortisation
Income tax expense
Share option expense
Foreign currency revaluation of fixed assets
Profit/Loss on disposal of fixed assets
Loss arising on payment of deferred consideration
Interest received
Share issuance costs
Interest paid
Changes in operating assets and liabilities
Decrease/(Increase) in trade receivables(Increase)/Decrease in other receivables
Increase in trade and other payables

5
5
7
20
14
14
6
6

ANNUAL REPORT AND ACCOUNTS 201539

Company Statement of Financial Position

Years ended 31 December
Note

Non-current assets
Investment in subsidiaries
Other receivables
Current assets
Other receivables
Cash and cash equivalents

24
16

16
17

Total assets
EquityShare capital
Share premium
Merger reserve – restructuring
Merger reserve – acquisitions
Shares held in EBTShare option reserve
Retained earnings

19

20

Total equity
Current liabilities
Corporation tax liabilities
Trade payables
Other payables
Non-current liabilities
Other payables
Total equity and liabilities

21
22

22

2015
€’000

2014
€’000

12,7653,300

12,7653,000

16,065

15,76518,093
11,656

15,798701

29,74916,49945,81432,265646
18,542
5,313
22,479(804)
619(2,598)551
18,542
5,313
5,667
–
227
(317)

44,19729,983

4
132
1,481

4
74
1,132

1,617

1,210

–
–

1,071
1,071

45,81432,265The notes on pages 43 to 73 form an integral part of these financial statements. The financial statements were approved and authorised for issue by the
Board on 5 April 2016.
On Behalf of the Board		
Andrew Day						Andrew Lawton
Director 							Director
5 April 2016

40

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

Company Statement of Changes in Equity

Balance at 1 January 2014
Total comprehensive income for the year

Share capital
€’000

Share
premium€’000

Mergerreserve
restructuring€’000

Mergerreserveacquisitions€’000

Shares held in
EBT
€’000

Share option
reserve€’000

Retainedearnings
€’000

Total
equity€’000

465

11,250

5,313

–

–

71

897

17,995

–

–

–

–

–

–

(606)

(606)

(605)

(605)

Total comprehensive income for the year
Contributions by and contributions to the owners
Share option expense (note 20)
Dividends paid (note 10)
Shares issued for cash (note 19)
Shares issued upon acquisitions
Merger reserve arising on groupacquisitions

–
–
49
37

–
–
7,293
–

–
–
–
–

–
–
–
–

–
–
–
–

156
–
–
–

–
(609)
–
–

156
(609)
7,342
37

–

–

–

5,667

–

–

–

5,667

Contributions by and contributions to the owners

86

7,293

–

5,667

156

(609)

12,593

Balance at 31 December 2014

551

18,542

5,313

5,667

–

227

(317)

29,983

–

–

–

–

–

–

(1,576)(1,576)(1,576)(1,576)

Total comprehensive income for the year
Total comprehensive income for the year
Contributions by and contributions to the owners
Share option expense (note 20)
Dividends paid (note 10)
Dividend received from subsidiaries
Treasury shares ringfenced for EBT
Shares issued for cash (note 19)
Shares issued upon acquisitions

–
–
–
–
95
–

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
–
14,414
2,398

–
–
–
(804)
–
–

392
–
–
–
–
–

–
(737)
32
–
–
–

392
(737)
32
(804)
14,5092,398

Contributions by and contributions to the owners

95

–

–

16,812

(804)

392

(705)

15,790

Balance at 31 December 2015

646

18,542

5,313

22,479(804)

619(2,598)44,197

ANNUAL REPORT AND ACCOUNTS 201541

Company Statement of Cash Flows

Years ended 31 December
2015
€’000

2014
€’000

(1,575)
720
(4)

(606)
(16,405)(28)

Net cash provided by operating activities(859)(17,039)

Cash flows from investing activities
Acquisition of subsidiaries
Acquisition of property, plant and equipment(Acquisition)/disposal of short term investments
Interest received
EBT Share Purchase
Dividends Received from subsidiaries

(897)
–
–
20
(804)
33

(2,735)––20––

Net cash used in investing activities(1,648)(2,715)

Cash flows from financing activities
Repayment of borrowings in acquired company
Dividends paid
Shares issued
Share issuance expenses
Interest paid–
(737)
14,213
(14)
–

–
(609)
10,342–(0)

Net cash used in financing activities

13,462

9,732(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of the period

10,955701(10,021)
10,723

Cash and cash equivalents at end of period

11,656701

Note

Cash flows from operating activities
Profit/ (Loss) after tax
Adjustments to reconcile net income to net cash provided by operating activities
Income taxes (paid)/refunded

Adjustments to reconcile net income to net cash provided by operating activities
Years ended 31 December

Income and expenses not affecting operating cash flows
Income tax expense
Share option expense
Loss arising on payment of deferred consideration
Interest received
Share issuance costs
Interest paid
Changes in operating assets and liabilities(Increase)/Decrease in other receivables
Increase in trade and other payables

42

KEYWORDS STUDIOS PLC

2015
€’000

2014
€’000

4
392
194
(20)
14
–

9
156
(20)
(20)
–
0

98
38

(16,900)
350

720(16,405)

I

II

Financial Statements

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. These consolidated financial statements include the financial statements of theCompany and its subsidiaries (the “Group”) made up to 31 December 2015. The Group was formed on 8 July 2013 when Keywords Studios Plc (formerly
Keywords Studios Limited) acquired the entire share capital of Keywords International Limited through the issue of 31,901,332 ordinary shares.
The parent company financial statements present information about the Company as a separate entity and not about its Group.
The consolidated and Company financial statements have been prepared in accordance with International Financial Reporting Standards, International
Accounting Standards and interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union(“adopted IFRSs”).
New standards, interpretations and amendments effective from 1 January 2015
There were no new standards or interpretations implemented by the group for the first time for periods beginning on or after 1 January 2015. None of theamendments to Standards that are effective from that date had a significant effect on the Group’s financial statements.
New standards, interpretations and amendments not yet effective
There were no new standards or interpretations available for early adoption for the first time for periods beginning on or after 1 January 2015, which havebeen implemented by the Group. None of these standards are expected to have a material effect on the Group’s financial statements. A detailed review of
the impact of IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases has however not been completed at this point, and therefore the Groupis unable to conclude on what impact they may have on the Groups financial statements.
The financial statements for 2015 have been prepared in thousands (€’000) and the comparative numbers have also been revised to the same format. In
2014 the financial statements were rounded to one (€). The financial statements are presented in Euro (€) which is the functional currency of the Group.
2 Significant accounting policies
Basis of Consolidation
Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements arepresent; power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable
returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of 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 majorityof the voting rights. In determining whether de-facto control exists the company considers all relevant facts 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 a single entity. Intercompany
transactions and balances between Group companies are eliminated in full.
The acquisition of Keywords International Limited was deemed to be a ‘combination under common control’ as ultimate control before and after theacquisition was the same. As a result, these transactions were outside the scope of IFRS 3 “Business combinations” and have been accounted for under
the principles of merger accounting as set out under UK GAAP.
As part of the Group reconstruction in 2013, the Company issued 31,901,332 shares at a value of £1.23 each, being the flotation price, as part of a sharefor share exchange with the shareholders of Keywords International Limited. The £0.01 nominal value of the shares issues was accounted for in Issued Share
Capital. On the 2013 consolidated balance sheet, the difference between the nominal value of shares issued by the company as consideration for the sharesin Keywords International Limited, and the nominal value of the shares in Keywords International Limited was treated as a merger reserve arising on group
reconstruction. On the Company balance sheet, the excess of net book value of the assets held by Keywords International Limited, at the date of the sharefor share exchange, over the nominal value of the shares issued was treated as a merger reserve.
Business Combinations
The consolidated financial statements incorporate the results of business combinations using the purchase method. In the Consolidated Statement of
Financial Position, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date.
The results of acquired operations are included in the consolidated income statement from the date on which control is obtained. They are deconsolidated
until the date on which control ceases.
Any contingent consideration payable is recognised at fair value at the acquisition date and is split between current liabilities and long term liabilities
depending on when it is due. When the consideration becomes more certain the fair value of the contingent consideration will be revalued and any change
will be recognised in the statements of comprehensive income.
Goodwill
Goodwill represents the excess of the cost of a business combination over, in the case of business combinations completed prior to 1 January 2010, theGroup’s interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired and, in the case of business combinations completed on
or after 1 January 2010, the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired.
For business combinations completed prior to 1 January 2010, cost comprised the fair value of assets given, liabilities assumed and equity instruments issued,
plus any direct costs of acquisition. Changes in the estimated value of contingent consideration arising on business combinations completed by this date weretreated as an adjustment to cost and, in consequence, resulted in a change in the carrying value of goodwill.
ANNUAL REPORT AND ACCOUNTS 201543

Notes Forming Part of the Consolidated and Company Financial Statements
continued
2 Significant accounting policies continued
For business combinations completed on or after 1 January 2010, cost comprises the fair value of assets given, liabilities assumed and equity instruments
issued, plus the amount of any non-controlling interests in the acquiree plus, if the business combination is achieved in stages, the fair value of the existing
equity interest in the acquiree. Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration
classified as a financial liability, remeasured subsequently through profit or loss. For business combinations completed on or after 1 January 2010, direct
costs of acquisition are recognised immediately as an expense.
Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income.
Impairment
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other
non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not berecoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher 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 theGroup’s CGUs that are expected to benefit from a business combination that gives rise to the goodwill. The Group analyses its Cash Generating Units on an
entity by entity basis.
Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment
loss recognised for goodwill is not reversed.
Foreign Currency
Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their“functional currency”) are recorded at the rates ruling when the transactions occur. The Functional currency for the Company is euro. Foreign currency
monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on 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 the transactions 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 inother comprehensive income and accumulated in the foreign exchange reserve.
Exchange differences recognised in profit or loss in Group entities’ separate financial statements on the translation of long-term items forming part of theGroup’s net investment in the overseas operation concerned are classified to other comprehensive income and accumulated in the foreign exchange reserveon consolidation.
On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the dateof disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal.
Revenue Recognition
Revenue recognised represents the consideration received or receivable for the rendering of services, net of sales taxes, rebates discounts and after
eliminating intercompany sales. Services are provided based on agreed client instructions and when projects are in progress at the period end, revenue isrecognised to the extent that services have been provided net of any provisions. The Multimedia tax credits received in Montreal on testing services aretreated as a deduction against direct costs.
Share Based Payments
The Company issues equity settled share-based payments to certain employees and Directors under a share options plan and a long term incentive
plan (“LTIP”).
The fair value determined at the grant date is expensed on a straight line basis over the vesting period, based on the Company’s estimate of shares that will
eventually vest and adjusted for the effect of non-market-based vesting conditions. At each reporting date, the Company revises its estimate of the numberof equity instruments expected to vest as a result of the effect of non-market based vesting conditions. 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 the subsidiary company, witha corresponding increase in capital contribution from the Company. This annual cost is recorded as an increase in the Company’s cost of investment inthat subsidiary.
Share Option Plan
These are measured at fair value, taking into account market vesting conditions but not non-market vesting conditions on the grant date using aBlack‑Scholes option pricing model which calculates the fair value of an option by using the vesting period, the expected volatility of the share price, thecurrent share price, the exercise price and the risk free interest rate. The fair value of the option is amortised over the vesting period, with one third of theoptions vesting after two years, one third after three years, and the balance vest after four years. The only vesting condition is continuous service. There is
no requirement to revalue the option at any subsequent date. The charge that is recognised is adjusted to reflect failure to vest due to non-achievement of
a non-market vesting condition but not failure to vest due to the non-achievement of a market vesting condition.

44

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

LTIP
An alternative share plan was introduced to give awards to Directors and staff, subject to outperforming the Numis Small Cap (excluding Investment Trusts)
index in terms of shareholder return over a three year period. There are three different award levels; one third of the share options vest if the company shallexceed the Total Shareholder Return of the Numis Small Cap Index by not less than 10%, two thirds if the shareholder return exceeds by over 20% and 100%of the share options if the shareholder return exceeds by over 30%.
These are measured at fair value, taking into account market vesting conditions but not non-market vesting conditions, at the date of grant, measured byusing the Monte Carlo binomial model. The charge that is recognised is adjusted to reflect failure to vest due to non-achievement of a non-market vesting
condition but not failure to vest due to the non-achievement of a market vesting condition.
Dividend Distribution
Final dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders. Interim dividends arerecognised when paid.
Income Taxes and Deferred Taxation
Provision for income taxes is calculated in accordance with the tax legislations and applicable tax rates in force at the reporting date in the countries in which
the Group companies have been incorporated.
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differsfrom its tax base, except for differences arising on:• The initial recognition of goodwill;• The initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither
accounting or taxable profit; and• Investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probablethat 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 toapply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and 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 and settle the liabilities
simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.
Property, Plant and Equipment
Property, plant and equipment comprise computers, leasehold improvements, and office furniture and equipment, and are stated at cost less accumulated
depreciation. Carrying amounts are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not berecoverable. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.
Depreciation is calculated to write off the cost of fixed assets on a straight line basis over the expected useful lives of the assets concerned. The principal
annual rates used for this purpose are:%

Computers and Software
Office furniture and equipment
Building and leasehold improvements

33.33
10.00
over the length of the lease

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the consolidated statement ofcomprehensive income.
Intangible Assets
Intangible assets, separately identified from goodwill acquired as part of a business combination, are initially stated at fair value. The fair value attributed isdetermined by discounting the expected future cashflow to be generated from the asset at the risk adjusted average weighted cost of capital appropriate to
the intangible asset. The assets are amortised over their useful economic lives which is deemed to be 5 years.
Financial Assets
Loans and Receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally throughthe provision of services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised atfair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective
interest rate method, less provision for impairment.
The Group’s receivables comprise trade and other receivables and cash and cash equivalents in the statement of financial position.

ANNUAL REPORT AND ACCOUNTS 201545

Notes Forming Part of the Consolidated and Company Financial Statements
continued
2 Significant accounting policies continued
Trade receivables, which principally represent amounts due from customers, are initially recognised, thereafter, are recognised at amortised cost. An estimate
for doubtful debts is made when there is objective evidence that the Group will not be able to collect amounts due according to the original terms ofreceivables. Bad debts are written off when identified.
Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short term highly liquid investments with original maturities ofthree months. Where cash is on deposit with maturity dates greater than three months, it is disclosed as short-term investments.
Share Capital
Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Group’s
ordinary shares are classified as equity instruments.
Financial Liabilities
Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective
interest method.
Leased Assets
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 theconsolidated statement of comprehensive income on a straight-line basis over the term of the lease.
Finance Leases
Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a “finance lease”), the asset istreated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased property and the present
value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments areanalysed between capital and interest. The interest element is charged to the consolidated statement of comprehensive income over the period of the leaseand is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor.
Employee Benefit Trust
Ordinary Shares purchased by the Employee Benefit Trust on behalf of the Parent Company under the Terms of the Share Option Plan are deducted fromequity on the face of the Consolidated Statement of Financial Income. No gain or loss is recognised in relation to the purchase, sale, issue or cancellation of
the Parent Company’s Ordinary Shares.
3 Critical accounting estimates and judgements
The preparation of consolidated financial statements under IFRS requires the Directors to make estimates and judgements that effect the application ofpolicies and reported amounts.
The areas requiring the use of estimates and critical judgements that may significantly impact the Group’s earnings and financial position are revenue
recognition in respect of accrued income and computation of income taxes. Estimates and judgements are continually evaluated and are based on historicexperience and other factors including expectations of future events that are believed to be reasonable. Actual results may differ from these estimatesand assumptions.
Income Taxes
The Group is subject to income tax in several jurisdictions and judgement may be required in determining the provision for income taxes. During the ordinary
course of business, there are transactions and calculations for which the ultimate tax determination may be uncertain. As a result, the company recognises
tax liabilities based on an understanding of taxation legislation in particular jurisdictions and any related estimates of whether taxes and/or interest will bedue. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To the extent that the final
tax outcome of these matters is different than the amounts recorded, such differences will impact income tax expense in the period in which suchdetermination is made.
Goodwill and Intangible Assets Arising on Acquisition
The value of goodwill and intangible assets recognised on the Group’s acquisitions during the year, were derived from the projected cashflows for thosebusinesses at the time of acquisition, based on management forecasts. The accuracy of the valuation would therefore be compromised by any differences
between the forecasts and the levels of business activity that the entity might actually have been able to generate in the absence of acquisition. The
valuation will also be affected by the accuracy of the discount factor used.
The carrying value of goodwill and intangibles assets is dependent on the accuracy of the inputs into the impairment test detailed in note 12.
Multi Media Tax Credits
The submissions for the repayment of Multi-Media Tax Credits in Montreal are made on an annual basis to Investment Quebec and Revenue Quebec. Both thecosts and basis of the claim are subject to audit by the authorities prior to approval and payment of the claim. While the group complete a detailed exercise inrelation to the claim and to the accrual there may be occasions where the actuals amounts may be less than accrued which will lead to a change in theamounts recognised within the financial statements.

46

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

4 Segmental analysis
Management considers that the Group’s activity as a single source supplier of Localisation and Localisation Testing Services constitutes one operating andreporting segment, as defined under IFRS 8.
Management review the performance of the Group by reference to Group-wide profit measures and the revenues derived from four main service groupings:• Localisation Services – Localisation services relate to translation and cultural adaptation of in-game text and audio scripts across multiple gameplatforms and genres.
• Localisation Testing – Localisation Testing involves testing the linguistic correctness and cultural acceptability of computer games.
• Audio/Voiceover Services – Audio Services relate to the audio production process for computer games and includes script translation, actor selection
and talent management through pre-production, audio direction, recording, and post-production, including native language Quality Assurance ofthe recordings.
• Functional Testing – Functional Testing relates to quality assurance services provided to game producers to ensure games function as required.
• Art Creation Services – Art creation services relate to the production of graphical art assets for inclusion in the video game including concept art creation
along with 2D and 3D art asset production and animation.
• Customer Support – Customer support relates to the live operations support services such as community management, player support and associatedservices provided to producers of games to ensure that consumers have a positive user experience.
There is no allocation of operating expenses, profit measures, assets and liabilities to individual product groupings. Accordingly the disclosures below areprovided on an entity-wide basis.
Activities are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision makerhas been identified as the executive management team made up of the Chief Executive Officer and the Finance Director.
Years ended 31 December
Revenue by line of business

2015
€’000

2014
€’000

Localisation
Localisation Testing
Audio
Functional Testing
Art Creation
Customer Support

17,141
15,021
7,157
6,472
8,211
3,949

11,957
14,658
5,080
4,986
612
–

57,95137,293

One (2014: Two) customers accounted for more than 10% of the Group’s revenue during the year. Revenues generated from the customer were €7.2m(2014: €7.1m and €3.9m).
Geographical Analysis of Revenues by Jurisdiction
Analysis by geographical regions is made according to the Group’s operational jurisdictions. This does not reflect the region of the Group’s customers, whose
locations are worldwide.
Years ended 31 December
2015
€’000

2014
€’000

IrelandJapan
Italy
CanadaUnited States
India
Singapore
United Kingdom
BrazilSpain

14,1673,324
8,343
17,438
6,573
3,602
3,083
650
465
306

9,939
2,644
6,754
11,067
5,838
612
65
374
–
–

Total revenues

57,95137,293

ANNUAL REPORT AND ACCOUNTS 201547

Notes Forming Part of the Consolidated and Company Financial Statements
continued
4 Segmental analysis continued
Geographical Analysis of Non-current assets from Continuing Businesses
Years ended 31 December

IrelandJapan
Italy
CanadaUnited States
India
Singapore
United Kingdom
BrazilSpain
Mexico

2015
€’000

2014
€’000

284
32
8,984
1,981
8,706
3,039
83
6,885
204
868
95

391
26
9,498
1,057
249
2,720
97
6,400
–
–
–

31,161

20,4395 Operating profit
Years ended 31 December
Operating profit is stated after charging:

Depreciation
Amortisation of Intangible Assets
Costs of Acquisitions
Costs of Integration
Operating lease repayments

2015
€’000

2014
€’000

1,297
857
221
868
1,663

868
468
483
978
1,018

One-time costs of €221k and €868k respectively were incurred in acquiring and integrating the new entities into the group. The most significant costs within
the integration costs are for internal and external resource who have led the activities to integrate the new acquisitions into the Group.
Years ended 31 December

Auditors’ remuneration
Audit services
Parent company and Group audit
Subsidiary companies audit
Non-audit services
Accounting services
Taxation complianceDue diligence services

2015
€’000

2014
€’000

48
95

33
67

–
12
–

3
18
25

155

147

6 Financing income and costs
Years ended 31 December

Finance income
Interest received
Foreign Exchange Gain
Finance cost
Bank charges
Interest Expense
Foreign Exchange Losses
Net financing (expense)/income

48

KEYWORDS STUDIOS PLC

2015
€’000

2014
€’000

70
–

49
467

70

516

(206)
(128)
(474)

(94)
(61)
–

(808)

(155)

(738)

361

I

II

Financial Statements

7 Taxation
Years ended 31 December

Current income tax
Income tax on profits
Income tax on profits of subsidiary operations
Deferred tax (Note 29)

2015
€’000

2014
€’000

4
1,518
310

9
955
251

1,832

1,215

The tax charge for the year can be reconciled to accounting profit as follows:
Years ended 31 December
2015
€’000

2014
€’000

Profit before tax

5,086

3,436

Expected tax charge based on the standard rate of taxation in the UK at 23% (2014: 23%)
Higher rates of current income tax in overseas jurisdictions
Lower rates of current income tax in overseas jurisdictions
Losses incurred in overseas jurisdictions
Effects of other timing differences

1,170
286
(100)
238
238

790
236
(161)
32
318

Total tax charge

1,832

1,215

The Group’s subsidiaries are located in different jurisdictions and are taxed on their residual profit in those jurisdictions. The majority of profits arise in Ireland.
8 Profit attributable to shareholders of the parent company
In accordance with Companies Act 2006, the Company is availing of the exemption from presenting its individual Statement of Comprehensive Income tothe annual general meeting and from filing it with Companies House. The amount of profit/(loss) after tax dealt with in the parent undertaking is (€1,576k)(2014: loss (€606k)).
9 Earnings per share
Years ended 31 December

Basic
DilutedProfit for the period from continuing operations attributable to the equity holders of the company

Denominator (Weighted average number of equity shares)
Basic
Diluted2015
Euro cent2014
Euro cent

6.98
6.87

4.94
4.93

2015
€’000

2014
€’000

3,363

2,220

NumberNumber

48,192,371
48,971,278

44,955,503
45,064,294

The dilutive impact of share options has been considered in calculating diluted earnings per share. Details of the number of share options outstanding at the
year-end are set out in note 20.

ANNUAL REPORT AND ACCOUNTS 201549

Notes Forming Part of the Consolidated and Company Financial Statements
continued
10		 Dividends
2015

2014

Per share
Euro cent

Total
€’000

Per share
Euro cent

Total
€’000

Final
Interim

1.03
0.54

482
255

0.84
0.46

394
215

Dividends paid to shareholders

1.57

737

1.30

609

In June 2014, Keywords Studios plc approved a dividend of Stg 0.67/€0.84 per share, based on the shares in issue at that time, or €393,767 in total, as a final
dividend for 2013. The dividend was paid in July 2014.
In September 2014, Keywords Studios plc approved a dividend of Stg 0.36/€0.46 per share, based on the shares in issue at that time, or €215,391 in total,
as an interim dividend for 2014. The dividend was paid in October 2014.
In June 2015, Keywords Studios plc approved a dividend of Stg 0.74/€1.03 per share, based on the shares in issue at that time, or €482,333 in total, as a final
dividend for 2014. The dividend was paid in June 2015.
In September 2015, Keywords Studios plc approved a dividend of Stg 0.40/€0.54 per share, based on the shares in issue at that time, or €254,934 in total,
as an interim dividend for 2015. The dividend was paid in October 2015.
The Directors’ recommend a final dividend in respect of the financial year ended 31 December 2015 of Stg 0.81p per Ordinary share, to be paid on 23 June
2016 to shareholders who are on the register at 3 June 2016. This dividend is not reflected in these financial statements as it does not represent a liability
at 31 December 2015. The final proposed dividend will reduce shareholders’ funds by an estimated €594,122.
There are no income tax consequences for the company in respect of the dividends proposed prior to issuance of the Consolidated Financial Statements andfor which a liability has not been recognised.
11		 Staff costs
Total staff costs (including Directors) comprise the following:
Years ended 31 December

Salaries and related costs
Share based payment costs

2015
€’000

2014
€’000

29,773392

19,907
156

30,16520,063Key management compensation:
Years ended 31 December

Salaries and related costs
Social Welfare cost
Pension costs
Share based payment costs

2015
€’000

2014
€’000

719
88
5
135

595
60
5
66

947

725

The key management compensation includes the five Directors of Keywords Studios plc (2014: five).

Years ended 31 December

Average number of employees
Operations
General and administration

The breakdown of the Directors remuneration for the Company is included in the Directors’ Remuneration Report on page 31.

50

KEYWORDS STUDIOS PLC

2015

2014

1,169
104

918
60

1,273

978

I

II

Financial Statements

12		 Goodwill
Group
LiquidVioletLimited€’000

Cost and net book value
At 31 December 2013
Recognised on acquisition of
a subsidiary

Babel
Media
Limited€’000

Binari
Sonari
Srl€’000

Lakshya
DigitalPrivateLimited€’000

Alchemic
Dream
€’000

Reverb
€’000

Kite
Team
€’000

LiquidDevelopment
€’000

Total
€’000

1,043

4,375

7,630

1,663

–

–

–

–

14,711

At 31 December 2014
Recognised on acquisition of
a subsidiary
Foreign exchange adjustment

1,043

4,375

7,630

1,663

–

–

–

–

14,711

–
137

–
505

–
–

39
127

690
(55)

274
(71)

550
–

6,801
185

8,354
828

At 31 December 2015

1,180

4,880

7,630

1,829

635

203

550

6,986

23,893

During the period goodwill arose on the acquisition of Alchemic Dream, Reverb Localização – Preparação de Documentos Ltda (“Reverb”), Kite Team and Liquid
Development. Additional goodwill arose on Lakshya Digital Private Limited due to an adjustment to the valuation of fixed assets acquired (See note 32).
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other
non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not berecoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher 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 theGroup’s CGUs that are expected to benefit from a business combination that gives rise to the goodwill. The Group analyses its Cash Generating Units on an
entity by entity basis. The discount rate used within the calculations was 12.5% for each CGU. The growth rates are based on a review of recently achieved
growth and a prudent estimate for likely growth rates for each CGU.
Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment
loss recognised for goodwill is not reversed.
Key assumptions for the value in use calculations are as follows:

Liquid Violet Limited
Babel Media Limited
Binari Sonori S.R.L
Lakshya Digital Private Limited
Alchemic Dream
ReverbKite Team
Liquid Development

Long term
growth rate

Discount
rates

10%
10%
10%
10%
10%
10%
10%
10%

12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%

As part of the value in use calculation, management prepared an initial cash flow forecast, approved by the Board of Directors, covering the period to
31 December and the following five years. The long term growth rate has been used to determine a terminal value for each CGU.
The Group has conducted a sensitivity analysis on the carrying value on each of the CGUs. If the sales projections reduce by the following percentages,
the value of goodwill would be impaired.
Liquid Violet Limited
Babel Media Limited
Binari Sonori S.R.L
Lakshya Digital Private Limited
Alchemic Dream
ReverbKite Team
Liquid Development

7.4%
9.2%
4.8%
13.1%
28.8%
35.3%
13.6%
5.9%

The result of the value in use calculations was that no impairment is required in this period.

ANNUAL REPORT AND ACCOUNTS 201551

Notes Forming Part of the Consolidated and Company Financial Statements
continued
13		 Intangible assets – customer relationships
Group
LiquidVioletLimited
€’000

Babel
Media
Limited€’000

Binari
Sonari
Srl€’000

Lakshya
DigitalPrivateLimited€’000

Alchemic
Dream
€’000

LiquidDevelopment
€’000

Total
€’000

Cost
As at 31 December 2013
Additions

–
204

–
964

–
1,791

–
475

–
–

–
–

–
3,434

At 31 December 2014
Additions
Foreign Exchange Adjustment

204
–
27

964
–
111

1,791
–

475
–
36

–
286
(21)

–
1,225
34

3,434
1,511
187

As at 31 December 2015

231

1,075

1,791

511

265

1,259

5,132

Amortisation and impairment
As at 31 December 2013
Amortisation charge

–
39

–
169

–
239

–
21

–
–

–
–

–
468

As at 31 December 2014
Amortisation charge
Foreign exchange adjustment

39
46
5

169
214
20

239
358
–

21
101
3

–
54
(3)

–
84
(0)

468
857
25

As at 31 December 2015

90

403

597

125

51

84

1,350

Net book value
As at 31 December 2014

165

796

1,552

454

–

–

2,967

As at 31 December 2015

141

672

1,194

386

214

1,175

3,782

Customer relationships are amortised over 5 years from the point of acquisition on a straight line basis.

52

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

14		 Property, plant and equipment
Group
Computers
andsoftware€’000

Office,furniture andequipment€’000

Leaseholdimprovements
€’000

Total
€’000

Cost
At 1 January 2014
Currency revaluation
Additions
Acquisitions through business combinations
Disposals

1,192
179
410
3,508
(342)

214
93
456
1,964
(999)

32
36
386
381
(48)

1,438
308
1,252
5,853
(1,389)At 31 December 2014
Currency revaluation
Additions
Acquisitions through business combinations
Disposals

4,947
88
1,191
266
(59)

1,728
(15)
373
204
(14)

787
(16)
71
16
(3)

7,462
57
1,635
486
(76)

At 31 December 2015

6,433

2,276

855

9,564

Cost
At 1 January 2014
Currency revaluation
Acquisitions through business combinations
Depreciation charge
Disposals

740
83
2,686
545
(289)

87
60
1,411
296
(986)

11
4
74
27
(48)

838
147
4,171
868
(1,323)

At 31 December 2014
Currency revaluation
Acquisitions through business combinations
Depreciation charge
Disposals

3,765
102
180
857
(55)

868
(76)
(43)
344
–

68
(28)
–
96
–

4,701
(2)
137
1,297
(55)

At 31 December 2015
Net book value
As at 31 December 2014

4,849

1,093

136

6,078

1,182

860

719

2,761

As at 31 December 2015

1,584

1,183

719

3,486

Accumulated depreciation

15		 Trade receivables
Group
As of 31 December

Customers
Provision for bad debts (note 26)

2015
€’000

2014
€’000

7,825
(306)

6,464
(261)

7,519

6,203

ANNUAL REPORT AND ACCOUNTS 201553

Notes Forming Part of the Consolidated and Company Financial Statements
continued
16		 Other receivables
Group
As of 31 December

Accrued Income
Prepayments
Other receivables
Other tax and social security
Restricted cash (note 25)

2015
€’000

2014
€’000

1,661
989
4,931
394
345

954
484
3,650
235
321

8,320

5,644

Company
As of 31 December

Intercompany receivables (note 25)
Other tax and social security
Prepayments
Other receivables
Restricted cash (note 25)
Non-current
Intercompany receivables (note 25)

2015
€’000

2014
€’000

17,299
35
58
356
345

15,39016
72–
321

18,093

15,798

3,300

3,000

3,300

3,000

17		 Cash and cash equivalents
Group
As of 31 December

Cash at bank
Short term bank deposits

2015
€’000

2014
€’000

19,018
–

9,635
1,379

19,01811,014

11,656–378
323

11,656

701

Company
Cash at bank
Short term bank deposits

Short term bank deposits relate to cash on deposit with maturity dates less than three months, or which can be accessed before on demand.
18		 Short term investments
Group
As of 31 December
2015
€’000

Medium term bank deposits

27

259

27

259

Medium term bank deposits relate to cash on deposit with maturity dates greater than three months, which cannot be accessed before maturity.

54

KEYWORDS STUDIOS PLC

2014
€’000

I

II

Financial Statements

19		 Shareholder’s equity
Share Capital
Shares€’000

As at 1 January 2014
Ordinary Shares of £0.01 issued on acquisition of Babel Media Limited
Ordinary Shares of £0.01 issued on acquisition of Binari Sonori S.R.L
Placing of ordinary shares of £0.01 on the market

40,032,413
1,516,944
1,555,650
4,000,000

465
19
19
49

As at 31 December 2014
Ordinary Shares of £0.01 issued for earn out of Binari Sonori S.R.L
Ordinary Shares of £0.01 issued on acquisition of Liquid Development LLC.
Placing of ordinary Shares of £0.01 on the market

47,105,007
158,250
1,074,440
5,500,000

551
2
15
78

As at 31 December 2015

53,837,697

646

On 9 January 2015 the Group issued 158,250 of 1p shares at a value of 145.47p (€1.86) for the earn out agreement with Binari Sonori.
On 20 August 2015 the Group issued 1,074,440 of 1p shares at a value of 160.32p (€2.25) which formed the part of the consideration for the acquisitionof Liquid Development LLC.
On 26 November 2015, the group issued 5,500,000 1p shares at a value of £1.90 (€2.64) to purchase preference shares in Project Midas Limited. Thistransaction formed part of a placing of Keywords Studios shares for cash. The cash proceeds with respect to the share placement were received on theredemption of the preference shares held on 26 November 2015. The net proceeds raised were €14.2m net of costs of €656,000. No share premium isrecorded in the Group’s financial statements through the operation of the merger relief provisions of the Companies Act 1982 hence the premium is recordedin the merger reserve.
There is no limit to the number of shares which the company can issue.
Shares held by the Employee Benefit Trust (EBT)2015

Ordinary shares held by the EBT

2014

Number

Total
€’000

Number

Total
€’000

400,000

804––

In January the Group purchased 200,000 1p Ordinary Shares at a value of 145p and in April a further 200,000 1p shares at a value of 150p.
Reserves
The following describes the nature and purpose of each reserve within owner’s equity:
Reserve

Description and purpose

Retained earnings
Foreign exchange reserve
Share premium

Cumulative net gains and losses recognised in the consolidated statement of comprehensive income.
Gains or losses arising on retranslation of the net assets of the overseas operations into euro.
The Share Premium account is the amount received for shares issued in excess of their nominal value, net of shareissuance costs.
The Share option reserve is the credit arising on share based payment charges in relation to the Company’s shareoption schemes.
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 ofthe shares in excess of the nominal value, net of share issuance costs are recorded within this reserve.
The non-controlling interest reserve represents the share of net assets/(liabilities) at the reporting date which is
attributable to the holders of the non-controlling interest.

Share option reserve
Merger reserve – restructuring
Merger reserve – acquisitions
Non-controlling interest reserve

ANNUAL REPORT AND ACCOUNTS 201555

Notes Forming Part of the Consolidated and Company Financial Statements
continued
20		 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 thesearrangements is shown below, with further details of the schemes following:

Share Option Scheme Expense
Share Option Scheme – LTIP Expense

2015
€’000

2014
€’000

157
235

66
90

392

156

Of the total share option charge, €55k relates to Directors of the Company as at 31 December 2015. (2014: €66k).
Share Option Scheme
Share options are granted to Directors and to permanent employees. The exercise price of the granted options is equal to management’s the market priceof 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:
2015

2014

Average
exercise
price in£ per share

Numberof options

Average
exercise
price in£ per share

Numberof options

Outstanding at the beginning of the year
Granted
LapsedExercised

1.20
1.58
1.20
1.20

642,286
1,059,040(32,553)(26,531)

1.20
–
1.20
–

762,775–(120,489)–

Outstanding at the end of the year

1.20

1,642,242

1.20

642,286

Exercisable at the end of the year

1.20

178,133––

There were 1,059,040 options granted on 1 June 2015 at an exercise price of £1.58. All options were granted to employees of the Group of which 4,260 ofthese options lapsed due to staff leaving in the period. Of the total options of 1,054,780 remaining at 31 December 2015, 351,594 are exercisable from
1 June 2018 to 31 May 2023, 351,593 are exercisable from 1 June 2019 to 31 May 2023 and 351,593 are exercisable from 1 June 2020 to 31 May 2023.
The opening balance of 642,286 options were granted on 12 July 2013 at an average exercise price of £1.20. During the year 28,293 of the options lapsed
due to staff leaving and 26,531 options were exercised. All options were granted to either employees or Directors of the Group. Of the total options granted
remaining at 31 December 2015, 178,133 are exercisable as at 31 December 2015 to 11 July 2020, 204,664 are exercisable from 12 July 2016 to
11 July 2020 and 204,664 are exercisable from 12 July 2017 to 11 July 2020.

56

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

The inputs into the Black-Scholes model, used to value the options are as follows:
Share Options granted in 2013

Weighted average share price (£)
Weighted average exercise price (£)
Average Expected Life
Expected Volatility
Risk free rates
Average expected dividends yield

2015

2014

1.23
1.20
3 years
36.12%
0.5%
1.00%

1.23
1.20
3 years
36.12%
0.5%
1.00%

2015

2014

1.64
1.58
3 years
28.03%
0.9%
0.75%

–
–
–
–
–
–

Share Options granted in 2015

Weighted average share price (£)
Weighted average exercise price (£)
Average Expected Life
Expected Volatility
Risk free rates
Average expected dividends yield

Expected volatility was determined by calculating the historical volatility of two similar listed companies over the previous 3 years. The expected life
used in the model has been adjusted based on management’s best estimate, for the effects of non-transferability, exercise restrictions andbehavioural considerations.
The weighted average remaining contractual life of the options outstanding at 31 December 2014 granted in 2013 was 6 months (2014: 1 years 6 months)
and granted in 2015 was 2 years and 7 months. All of the outstanding options granted in 2013 can be exercised at an average of £1.20 over a 1 to 3 year
period and for those granted in 2015 can be exercised at £1.58 over a 3 to 5 year period.
Long Term Incentive Plan Scheme
An alternative share plan was introduced to give awards to Directors and staff subject to outperforming the Numis Small Cap (excluding Investment Trusts)
index in terms of shareholder return over a three year period. A total of 860,206 (2014: 376,226) nil price (1p) options are available to vest to Directors andto selected employees on the basis of the number of options they are entitled to.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
2015
Average
exercise
price in£ per share

Outstanding at the beginning of the year
Granted
LapsedExercised

2014

Numberof options

Average
exercise
price in£ per share

Numberof options

0.01
0.01
0.01
–

376,226
489,540(5,560)
–

–
0.01
–
–

392,037
50,000(65,811)–

Outstanding at the end of the year

0.01

860,206

0.01

376,226

Exercisable at the end of the year

–

–

–

–

On 6 January, 101,060 options were granted at an exercise price of £0.01 to employees of the Group. The options are exercisable from 6 January 2018 to
6 January 2022 if the market performance conditions are met as at 6 January 2018. On 1 June 2015 388,480 options were granted at an exercise price of£0.01 to Directors and employees of the Group. The options are exercisable from 1 June 2018 to 1 June 2022 if the market performance conditions are met
as at 1 June 2018. Of the options granted on 1 June, 5,560 have lapsed.
326,226 options granted previously on 12 July 2013 at an exercise price of £0.01 remain as at 31 December 2015. All options were granted to either
employees or Directors of the Group. The 326,226 options granted are exercisable from 12 July 2016 to 11 July 2020 if the market performance conditions
are met as at 12 July 2016.
Additionally 50,000 options granted at an exercise price of £0.01 to a director of the Group on 3 July 2014 remain as at 31 December 2015. The options are
exercisable from 3 July 2017 to 3 July 2021 if the market performance conditions are met as at 3 July 2017. Additionally 65,811 options lapsed due to a
director leaving the Group.

ANNUAL REPORT AND ACCOUNTS 201557

Notes Forming Part of the Consolidated and Company Financial Statements
continued
20		 Share options continued
The options were valued using a Monte Carlo binomial model using the following inputs:
LTIPS granted in 2013

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

2015

2014

1.23
0.01
3 years
36.12%
0.5%

1.23
0.01
3 years
36.12%
0.5%

2015

2014

1.60
0.01
3 years
35.52%
0.5%

1.60
0.01
3 years
35.52%
0.5%

LTIPS granted in 2014

Weighted average share price (£)
Weighted average exercise price (£)
Average expected life
Expected volatility
Risk free rates
LTIPS granted in January 2015

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

2015

2014

1.43
0.01
3 years
31.2%
0.58%

–
–
–
–
–

2015

2014

1.64
0.01
3 years
28.03%
0.9%

–
–
–
–
–

LTIPS granted in June 2015

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

Expected volatility was determined by calculating the historical volatility of two similar listed companies over the previous three years. The expected life
used in the model has been adjusted based on management’s best estimate, for the effects of non-transferability, exercise restrictions andbehavioural 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.
The weighted average remaining contractual life of the options outstanding at 31 December 2015 was 1 years 8 months (2014: 1 years 8 months). All of theoutstanding options can be exercised at £0.01 over a 4 year period.
21		 Trade payables
Group
As of 31 December
2015
€’000

Suppliers

2014
€’000

2,761

2,322

2,761

2,322

132

74

132

74

Company
Suppliers

58

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

22		 Other payables
Group
As of 31 December

Current
Accrued expenses
Payroll Taxes
Other payables
Contingent consideration
Related party payable (Note 25)
Non-current
Other payables
Contingent consideration

2015
€’000

2014
€’000

3,268
482
2,714
1,979
9

3,014
875
1,898
1,088
5

8,452

6,881

55
245

468
750

300

1,219

368
38
340
735

256
41
48
788

1,481

1,132

–
–

321
750

–

1,071

Company
Current
Accrued expenses
Payroll Taxes
Other payables
Contingent consideration
Non-current
Other payables
Contingent consideration

23		 Loans and borrowings
As of 31 December

Current instalment due on bank loans

2015
€’000

2014
€’000

1,163

–

1,163

–

In the period Babel Media Canada entered into a loan for €1.1m to finance the tax credits for 2013/2014 which remain outstanding. The loan bears interestof the base rate for Canada +1% margin and will be repaid in 2016. There is a charge over the assets of Babel Canada relating to the loan.
Additionally the group took on the following liabilities which existed when the group purchased 50% of Kite Team.
Loan for €150,000 at a fixed rate of 6.30% payable by 1 January 2021 and a loan for €200,000 at a fixed rate of 5.38% payable by 20 December 2021.
Both of these loans are guaranteed by a Director of Kite Team.
Additionally the Director of Kite Team has given the company a loan of €295,000 payable by the latest 31 March 2017.

ANNUAL REPORT AND ACCOUNTS 201559

Notes Forming Part of the Consolidated and Company Financial Statements
continued
23		 Loans and borrowings continued
The loans are repayable over the following periods.
As of 31 December

Expiry within 1 year
Expiry within 1 and 2 years
Expiry in more than 2 years

2015
€’000

2014
€’000

1,163
350
221

–
–
–

1,734

–

The currencies of the loans are as follows:
As of 31 December

Euro
Canadian Dollars

2015
€’000

2014
€’000

621
1,113

–
–

1,734

–

24		 Investments in subsidiaries
Company
As of 31 December
2015
€’000

Investment in Subsidiaries

2014
€’000

12,765

12,765

12,765

12,765

Details of the Company and Group’s subsidiaries as at 31 December 2015 are set out below:

Name

Country ofincorporation

Date ofincorporation/acquisition

Proportion of voting
rights and ordinary
share capital held

Nature of business

Keywords International Limited
Keywords International Co. Limited
Keywords International Corporation Inc.
Keywords Italia S.R.L
Keywords International Inc.
KW Studios Limited
Keywords International Pte. Limited
Binari Sonori S.R.L
Binari Sonori Inc.
Liquid Violet Limited
Babel Media Limited
Babel Games Services Inc.
Babel Media India Private Limited
Babel Media USA Inc.
Lakshya Digital Private Limited
Lakshya Digital Singapore Pte. Ltd.
Edugames Solution Private Limited
Keywords International Barcelona SL
Keywords (Shanghai) Information Technology Limited
Alchemic Dream Inc.
Reverb Localização – Preparação de Documentos Ltda
Kite Team SL
Kite Team Mex S. de R.L. de C.V
Liquid Development LLC

IrelandJapan
Canada
Italy
United States
United Kingdom
Singapore
Italy
United States
United Kingdom
United Kingdom
CanadaIndia
United States
India
Singapore
India
Spain
China
CanadaBrazilSpain
MexicoUnited States

13-05-1998
30-11-2010
22-12-2010
18-05-2011
26-09-2012
29-05-2013
24-04-2014
08-05-2014
08-05-2014
15-01-2014
17-02-2014
17-02-2014
17-02-2014
17-02-2014
10-10-2014
10-10-2014
10-10-2014
09-01-2015
02-04-2015
06-01-2015
18-01-2015
16-07-2015
16-07-2015
20-08-2015

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
50%
100%

Trading Company
Trading Company
Trading Company
Trading Company
Trading Company
Dormant Company
Trading Company
Trading Company
Trading Company
Trading Company
Trading Company
Trading Company
Trading Company
Trading Company
Trading Company
Trading Company
Trading Company
Trading Company
Trading Company
Trading Company
Trading Company
Trading Company
Trading Company
Trading Company

60

KEYWORDS STUDIOS PLC

I

IIFinancial Statements25		 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 2015, P.E.Q Holdings Limited owned 22.2% (2014: 24.5%) of the Company. In addition, Mr. Giorgio Guastalla is a
Director of Italicatessen Limited, P.E.Q. Holdings Limited and the Company, and owns, or controls, 90% of the share capital of P.E.Q Holdings Limited.
The following transactions arose with Italicatessen Limited, which provides canteen services to Keywords International Limited:
As of 31 December

Operating expenses
Canteen Charges

2015
€’000

2014
€’000

24

42

The following are year-end balances:
As of 31 December
2015
€’000

2014
€’000

Italicatessen Limited

95

Total related party creditors

95

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

Operating expenses
Rental payment

2015
€’000

2014
€’000

22

22

The Company entered into a deed of undertaking and indemnity on 8 July 2013 with Mr. Andrew Day, CEO and Director of the Company related to possible
liabilities which might arise due to the restructuring of the Group prior to its IPO on 12 July 2013. As part of this deed of undertaking and indemnity, Mr. Day
deposited £250,000 as security for the Company. This is included as Restricted Cash in Other Receivables of the Company. This amount has been repaid to
Mr. Day in 2016. There is a corresponding liability included in Other Payables.
The details of key management compensation (being the remuneration of the Directors) are set out in note 11.
As at 31 December 2015 and 2014, the Company had amounts receivable from its subsidiaries, amounting to €20,598,567 (2014: €18,389,791) relating tointergroup trading activities.
26		 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 changes. The management monitors interest rate fluctuations on a continuous basis
and acts accordingly.
Where the Group has a significant amount of surplus cash, it will invest in higher earning interest deposit accounts.
Due to interest rate conditions, the interest rates for short term deposits are at similar levels to those achieved for longer terms. The Group is not unduly
exposed to market interest rate fluctuations, and no interest rate sensitivity analysis has been presented as a result.
Credit Risk
Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on handat the reporting date.
The Group closely monitors the activities of its counterparties and maintains regular contact which enables it to ensure the prompt collection ofcustomers’ balances.
The Group’s main financial assets are cash and cash equivalents as well as trade and other receivables and represent the Group’s maximum exposure to credit
risk in connection with its financial assets. Trade and other receivables are carried on the statement of financial position net of bad debt provisions estimatedby the Directors based on prior year experience and an evaluation of prevailing economic circumstances.
Whenever possible and commercially practical the Group invests cash with major financial institutions in each jurisdiction where it operates. The Group
periodically monitors the credit rating and stability of these institutions.

ANNUAL REPORT AND ACCOUNTS 201561

Notes Forming Part of the Consolidated and Company Financial Statements
continued
26		 Financial instruments and risk management continued
The ageing of trade and receivables that are past due but not impaired can be analysed as follows:
Group

Total
€’000

Not past
due€’000

1-2 months
overdue€’000

More than
2 months
past due
€’000

7,519
6,203

5,313
3,790

2,049
1,311

157
1,102

2015
€’000

2014
€’000

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

260
46
–

81
199
(20)

Provision at end of the year

306

260

As at 31 December 2015
As at 31 December 2014
The above balances relate to customers with no default history.

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

Related party receivables of €nil were not past due at 31 December 2015 (2014: nil).
Company
Intercompany receivables of €20,598,567 were not past due at December 31, 2015 (2014: €18,389,791).
Currency Risk
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates.
The foreign exchange risk arises for the Group where assets and liabilities arise and are held in overseas subsidiaries in a currency other than the euro and toa lesser extent where individual Group entities enter into transactions denominated in currency other that their functional currency.
The Group’s policy, where possible, is for Group entities to manage foreign exchange risk at a local level by matching the currency in which revenue isgenerated and the expenses incurred and by settling liabilities denominated in their functional currency with cash generated from their own operations inthat currency. Where Group entities have liabilities denominated in a currency other than their functional currency (and have insufficient reserves of thatcurrency to settle them), cash already denominated in that currency will, where possible, be transferred from elsewhere within the Group.
Over the course of the year the Group’s currency has increased and diversified due to the addition of the newly acquired subsidiaries. The Group is predominantly
exposed to currency risk on the balances held within working capital within the Group and the exposure is concentrated in the movement of the Canadian
Dollar, US dollar and Sterling against the Euro. The effect of a strengthening and weakening of 10% of these currencies against the euro at the reporting dateon the working capital balances held at this date would, all other variable held constant, have resulted in the following pre-tax profit/(loss) impact for the year
as follows:

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

10% strengthening€’000

10% weakening
€’000

347
492
(1,139)

(315)
(445)
1,253

Total financial assets and liabilities
The carrying amount of the financial assets and liabilities shown in the Group and Company statements of financial position are stated at fair value.

62

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

Liquidity Risk
Liquidity risk arises from the Group’s management of working capital and the financial charges on its debt instruments.
The Group’s policy is to ensure that it will have sufficient cash to allow it to meet its liabilities when they become due.
The following are the contractual maturities (representing undiscounted contractual cash flows) of the Group’s and Company’s financial liabilities:
Group
Year ended 31 December 2015

Total
€’000

Within 1 year€’000

1-2 years€’000

2-5 years€’000

Trade payables
Other accounts payable

2,761
8,752

2,761
8,452

–
300

–
–

Year ended 31 December 2014

Total
€’000

Within 1 year€’000

1-2 years€’000

2-5 years€’000

Trade payables
Other accounts payable

2,322
8,099

2,322
6,881

–
1,218

–
–

Year ended 31 December 2015

Total
€’000

Within 1 year€’000

1-2 years€’000

2-5 years€’000

Trade payables
Other accounts payable

132
1,481

132
1,481

–
–

–
–

Year ended 31 December 2014

Total
€’000

Within 1 year€’000

1-2 years€’000

2-5 years€’000

Trade payables
Other accounts payable

74
2,204

74
1,133

–
1,071

–
–

Company

27		 Operating lease commitments
The Group maintains a portfolio of leased properties. The terms of property leases vary from country to country, although they all tend to be tenant repairingwith rent reviews every 2 to 5 years and some have break clauses.
The total future value of the minimum lease payments is due as follows:Group

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

2015
€’000

2014
€’000

1,563
4,224
476

1,231
4,121
1,879

6,263

7,231

ANNUAL REPORT AND ACCOUNTS 201563

Notes Forming Part of the Consolidated and Company Financial Statements
continued
28		 Finance lease commitments
The Group has leased computer equipment (net carrying value €129k) and office telephone systems (net carrying value €43k). Such assets are generallyclassified as finance leases as the rental period amounts to the estimated useful economic life of the assets concerned and often the Group has the rightto purchase the assets outright at the end of the minimum lease term by paying a nominal amount.
The total future value of the minimum lease payments is due as follows:
Group

2015

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

2014

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

Minimum
lease
payments€’000

Interest€’000

Present
value
€’000

120
61
–

8
3
–

112
58
–

181

11

170

Minimum
lease
payments€’000

Interest€’000

Present
value
€’000

128
153
–

10
9
–

118
144
–

281

19

262

29		 Deferred tax
Details of the deferred tax assets and liabilities, and amounts recognised in the profit or loss are as follows:

Asset
2015
€’000

Liability
2015
€’000

Net
2015
€’000

(Charged)/credited
to profit
or loss
2015€’000

Accelerated capital allowances
Personal severance indemnity
Available losses
Rent – free inducement
Fixed asset excess of tax over accounting
Deferred tax related to Multi Media Tax Credits
Other temporary and deductible differences
Deferred tax arising on intangibles

63
26
397
27
156
–
302
–

4
–
–
–
45
1,067
58
1,249

59
26
397
27
111
(1,067)244(1,249)

41
–
86
(2)
25
(377)
(438)
355

Net tax assets/(liabilities)

971

2,423

(1,452)(310)

All deferred tax assets have been classified in non-current assets in 2015.
30		 Non-controlling interest
Years ended 31 December
2015
€’000

2014
€’000

Opening balance
Liabilities of Kite Team attributable to shareholders at the acquisition date
Loss of Kite Team for the period attributable to the shareholders of the groupContingent consideration for the purchase of the remaining 50% if Kite Team

–
(50)
(109)
(1,150)––––

Closing balance(1,309)–Keywords International Limited has acquired 50% of the issued share capital of Kite Team, a company registered in Spain and is set out in note 31.
During the period since acquisition the group has recognised its 50% share of the loss incurred in the company.
At the time of acquisition a put and call option was put in place which obligated the Group to purchase the remaining 50% of Kite Team. The Group estimatesthat the fair value of consideration required to purchase the remaining 50% is €1,150,000. In accordance with IAS 32 the company has recognised a financial
liability as at 31 December in relation to the put and call option. The corresponding movement has been recorded in equity.

64

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

31		 Acquisitions completed in the current year
Acquisition of Alchemic Dream Inc.
On 6 January 2015 the Group acquired the entire issued share capital of Alchemic Dream Inc, a company registered in Canada, which specialises in providing
live operations support to on-line games for a number of game publishers. The acquisition is in line with the Group’s strategy to diversify into the provision ofcomplementary services to the video game market and strengthens the Group’s service of games already in production. Additionally the acquisition leverages
the Group’s existing expertise, locations, scale and global reach to extend the services provided by Alchemic Dream as well as generating synergies.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:

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

Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

38
–
802
38
(803)
–

(21)
286
(111)
–
–
(36)

17
286
691
38
(803)
(36)

75

118

193

Goodwill

690

Total consideration

883

Satisfied by:
Cash

883

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

883
(38)
845

The intangibles assets are to be amortised over their estimated useful lives of 5 years.
The main factors leading to recognition of goodwill on the acquisition of Alchemic Dream are the presence of certain intangible assets in the acquired entity
which do not value for separate recognition such as the expertise in customer service, reputation within the industry, and, an unidentified proportion
representing the balance contributing to profit generation.
Alchemic Dream contributed €4,100,036 revenue and €348,608 profit before tax to the Group between the date of acquisition and the balance sheet date.
If the acquisition had been completed on the first day of the financial year, revenue of €4,161,397 would have been contributed to the Group and €359,996
profit before tax before taking into account fair value adjustments of €154,193.
Acquisition costs of €67,146 have been charged through the Comprehensive Income Statement.

ANNUAL REPORT AND ACCOUNTS 201565

Notes Forming Part of the Consolidated and Company Financial Statements
continued
31		 Acquisitions completed in the current year continued
Acquisition of Reverb Localização – Preparação de Documentos Ltda
On 18 January 2015 the Group acquired 100% of the issued share capital of Reverb Localização – Preparação de Documentos Ltda (“Reverb”), a company
registered in Brazil. Reverb provides localisation and audio management services for Brazilian Portuguese for some of the leading games publishers. ReverbStudios was acquired to widen the scope of the Group’s services business and to extend the Group’s client base.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Trade and other receivable
Cash and cash equivalents

14
12

–
–

14
12

Total identifiable assets

26

–

26

Goodwill

274

Total consideration

300

Satisfied by:
Cash
Deferred consideration

200
100

Total consideration transferred

300

Net cash outflow arising on acquisition
Cash consideration
Less: cash and cash equivalent balances transferred

200
(12)
188

The main factors leading to recognition of goodwill on the acquisition of Reverb are the presence of certain intangible assets in the acquired entity which do
not value for separate recognition such as the expertise in sound recording and localisation, reputation within the industry, and, an unidentified proportion
representing the balance contributing to profit generation.
Reverb contributed €544,043 revenue (including €79,097 of intercompany sales subsequently billed onwards) and €238,539 profit before tax to the Groupbetween the date of acquisition and the balance sheet date. If the acquisition had been completed on the first day of the financial year, revenue of €572,234
would have been contributed to the Group and €243,770 profit before tax.
Acquisition costs of €1,224 have been charged through the Comprehensive Income Statement.

66

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

Acquisition of Kite TeamOn 16 July 2015 the Group acquired 50% of the issued share capital of Kite Team, a company registered in Spain. Kite provides localisation and audio
management services for some of the leading games publishers. The acquisition is in line with the Group’s strategy to diversify into the provision ofcomplementary services to the video game market and strengthens the Group’s service of games already in production.
The Directors of the Group have reviewed IFRS 10 (Consolidated Financial Statements) and are satisfied that the Group has effective control of Kite Teamand accordingly at the date of acquisition it is treated as a subsidiary within the consolidation.
At the date of acquisition the Group set up a put and call option to acquire the remaining 50% of the share capital of Kite Team by the end of 2017. The option
price is dependent upon a number of criteria set out in the Share Purchase Agreement. As a consequence of the put option a financial liability has beenrecognised as at 31 December 2015 which is based on the Groups estimate of the value which would be payable to acquire the remaining 50% of the sharecapital. The fair value of this financial liability is €1,150,000 which has been recorded in other payables in accordance with IAS 32.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Property, plant and equipment
Trade and other receivable
Cash and cash equivalents
Trade and other payables
Long term loan

322
377
117
(291)
(625)

–
–
–
–
–

322
377
117
(291)
(625)

Total identifiable liabilities
Less non-controlling interest

(100)
50

–
–

(100)
50

KWS share of total identifiable liabilities

(50)

–

(50)

Goodwill

550

Total consideration

500

Satisfied by:
Cash

500

Net cash outflow arising on acquisition
Cash consideration
Less: cash and cash equivalent balances transferred

500
(117)
383

The main factors leading to recognition of goodwill on the acquisition of Kite are the presence of certain intangible assets in the acquired entity which do notvalue for separate recognition such as the expertise in sound recording and localisation, reputation within the industry, and, an unidentified proportion
representing the balance contributing to profit generation.
Kite contributed €610,307 revenue (including €304,681 of intercompany sales subsequently billed onwards) and €217,721 of a loss before non – controllinginterest to the Group between the date of acquisition and the balance sheet date. If the acquisition had been completed on the first day of the financial year,
revenue of €1,149,460 would have been contributed to the Group and €301,124 of a loss before non-controlling interest.
Acquisition costs of €70,174 have been charged through the Comprehensive Income Statement.

ANNUAL REPORT AND ACCOUNTS 201567

Notes Forming Part of the Consolidated and Company Financial Statements
continued
31		 Acquisitions completed in the current year continued
Acquisition of Liquid Development LLC
On 20 August 2015 the Group acquired 100% of the assets of Liquid Development through the purchase of the membership interests. The company
registered in USA specialises in providing art creation services for the video games industry. The acquisition is in line with the Group’s strategy to diversify into
the provision of complementary services to the video game market and strengthens the Group’s service of games already in production.
The Directors of the Group have reviewed the requirements of IFRS 3 (Business Combinations) paragraph B5 – B12 and concluded that as Liquid Development
constitutes an on-going business within the Group that it should be accounted for as a business combination.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

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

–
–
340
269
(185)
–

108
1,225
–
–
–
(541)

108
1,225
340
269
(185)
(541)

Total identifiable liabilities

424

792

1,216

Goodwill

6,801

Total consideration

8,017

Satisfied by:Cash
Equity instruments (1,074,440 shares of the parent company)
Deferred consideration

5,365
2,413
239

Total consideration transferred

8,017

Net cash outflow arising on acquisition
Cash consideration
Less: cash and cash equivalent balances transferred

5,365
(269)
5,096

The deferred consideration recorded within other payables represents the fair value amount of the balance due.
The main factors leading to recognition of goodwill on the acquisition of Liquid Development are the presence of certain intangible assets in the acquired
entity which do not value for separate recognition such as the expertise in art creation services, reputation within the industry, and, an unidentified
proportion representing the balance contributing to profit generation. The fair value of the shares issued as part of the acquisition has been determined as
being the share price on the date of the transaction.
Liquid Development contributed €1,999,469 revenue and €345,591 profit before tax to the Group between the date of acquisition and the balance sheet
date. If the acquisition had been completed on the first day of the financial year, revenue of €6,068,150 would have been contributed to the Group and€1,169,440 profit before tax.
Acquisition costs of €63,145 have been charged through the Comprehensive Income Statement.

68

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

32		 Business combinations completed in prior periods
Acquisition of Liquid Violet Limited
On 15 January 2014 the Company acquired the entire issued share capital of Liquid Violet Limited, a video games voice production services company,
registered in the UK. Liquid Violet specialises in the management, on behalf of major video game publishers and the acquisition is in line with the Group’s
strategy of growing both organically and by acquisition to extend the Group’s client base, market penetration or service lines, where the Group can use its
existing expertise, multi-service platform, scale and global reach to generate synergies.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below.

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

Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

15
–
65
95
(133)
–

–
204
–
–
–
(41)

15
204
65
95
(133)
(41)

42

163

205

Goodwill

1,043

Total consideration

1,248

Satisfied by:
Cash
Deferred consideration
Total consideration transferred

361
887
1,248

Net cash outflow arising on acquisition
Cash consideration
Less: Cash and cash equivalent balances transferred

361
(95)
266

The intangibles assets are to be amortised over their estimated useful lives of 5 years.
The main factors leading to recognition of goodwill on the acquisition of Liquid Violet are the presence of certain intangible assets in the acquired entity
which do not value for separate recognition such as the expertise in sound recording, reputation within the industry, and, an unidentified proportion
representing the balance contributing to profit generation.
The sale purchase agreement includes a provision for an earn out which is based on Profit after tax over the next 2 years. The earn out amount was shownas deferred consideration and was calculated from management’s best estimates based on the available information. The maximum value of the deferredconsideration is €1,565,890.
During 2014 Liquid Violet contributed €376,343 revenue (including €2,827 of intercompany sales subsequently billed onwards) and €15,021 loss before tax
to the Group between the date of acquisition and the reporting date (31 December 2014). If the acquisition had been completed on the first day of thefinancial year, revenue of €385,590 would have been contributed to the Group (including intercompany sales) and € 50,687 loss before tax for 2014.
Acquisition costs of €39,324 have been charged through the Statement of Comprehensive Income in 2014.
The deferred consideration amount has been reviewed and updated in the 2015 financial statements. No money was paid out in 2015 and the value of thedeferred consideration which will be payable in 2016 has reduced from €887,000 estimated at 31 December 2014 to €703,000. The reduction in deferredconsideration has been charged through the income statement. The value of the consideration has been updated based on a combination of actual trading in2015 from April to the end of the year and management’s best estimate, based on available information, of the forecast trading in the first quarter of 2016.

ANNUAL REPORT AND ACCOUNTS 201569

Notes Forming Part of the Consolidated and Company Financial Statements
continued
32		 Business combinations completed in prior periods continued
Acquisition of Babel Media GroupOn 17 February 2014, the Company acquired the entire issued share capital of Babel Media Limited, a company registered in the UK, together with its
subsidiary companies. Babel Media is a leading provider of outsourced video games services with operations in the UK, Canada and India.
The acquisition will extend the Group’s client base, market penetration or service lines, where the Group can use its existing expertise, multi-service platform,
scale and global reach to generate synergies.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below.
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

Financial assets
Property, plant and equipment
Identifiable intangible assets – customer relationship
Trade and other receivable
Cash and cash equivalents
Trade and other payables
Short term loanLong term loan
Deferred tax liabilities

666
–
2,721
(858)
(1,506)(292)(2,705)
–

(225)
964
(65)
–
(260)
–
–
(111)

441
964
2,656
(858)
(1,766)(292)(2,705)(111)

Total identifiable assets(1,974)303(1,671)

Goodwill

4,375

Total consideration

2,704

Equity instruments (1,516,944 shares of parent company)

2,704

Total consideration transferred

2,704

Net cash outflow arising on acquisition
Cash consideration
Less: Cash and cash equivalent balances transferred

–
858
858

The intangibles assets are to be amortised over their estimated useful lives of 5 years.
The main factors leading to recognition of goodwill on the acquisition of Babel Media are the presence of certain intangible assets in the acquired entity
which do not value for separate recognition such as the expertise in provision of technical services, reputation within the industry, cost synergies with the
Keywords Group, and, an unidentified proportion representing the balance contributing to profit generation.
During 2014 Babel Media contributed €9,846,217 revenue (including €253,127 of intercompany sales subsequently billed onwards) and €1,439,927 profit
before tax to the Group before integration costs of €823,790, between the date of acquisition and the reporting date (31 December 2014). If the acquisition
had been completed on the first day of the financial year, revenue of €10,882,199 (including intercompany sales) and €1,389,857 profit before tax for 2014
would have been contributed to the group before fair value adjustments of €302,503.
Acquisition costs of €123,906 and integration costs of €823,790 have been charged through the Statement of Comprehensive Income in 2014.

70

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

Acquisition of Binari Sonori S. R. L.
On 8 May 2014 the Group acquired 100% of the issued share capital of Binari Sonori S. R. L. (“Binari Sonori” )for a cash consideration of €8,922,409 andconsideration of €3,000,000 in KWS Group shares, obtaining control of Binari Sonori. The principal activity of Binari Sonori is the provision of outsourced
voice-over and translation services to the international video games market. Binari Sonori was acquired to strengthen the Group’s audio services andtranslation services business and to extend the Group’s client base.
The amounts recognised in respect of the identifiable assets acquired, liabilities assumed, purchase consideration and goodwill are set out in the table below.
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

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

658
–
1,087
3,143
(1,711)
–

–
1,791
–
–
(165)
(511)

658
1,791
1,087
3,143
(1,876)(511)

Total identifiable assets

3,177

1,115

4,292

Goodwill

7,630

Total consideration

11,922

Satisfied by:Cash
Equity instruments (1,555,650 shares of parent company)
Deferred consideration settled in 2015

8,622
3,000
300

Total consideration transferred

11,922

Net cash outflow arising on acquisition
Cash consideration
Less: cash and cash equivalent balances transferred

8,622(3,143)
5,479

The intangibles assets are to be amortised over their estimated useful lives of 5 years.
The main factors leading to recognition of goodwill on the acquisition of Binari Sonori are the presence of certain intangible assets in the acquired entity
which do not value for separate recognition such as the expertise in sound recording, reputation within the industry, and, an unidentified proportion
representing the balance contributing to profit generation.
The sale purchase agreement had an earn out arrangement which has subsequently been satisfied on 19 January 2015 by consideration of €300,000
provided in the form of 158,250 shares in Keywords Studios Plc.
During 2014 Binari Sonori S.R.L contributed €7,059,626 revenue (including €187,586 of intercompany sales subsequently billed onwards) and €1,068,991
profit before tax to the Group between the date of acquisition and the reporting date (31 December 2014). If the acquisition had been completed on the firstday of the financial year, revenue of €9,049,493 (including intercompany sales) and €684,438 profit before tax for 2014 would have been added to the group
before fair value adjustments of €1,115,348.
Acquisition costs of €156,917 have been charged through the Statement of Comprehensive Income for 2014.

ANNUAL REPORT AND ACCOUNTS 201571

Notes Forming Part of the Consolidated and Company Financial Statements
continued
32		 Business combinations completed in prior periods continued
Acquisition of Lakshya Digital Private Limited
On 10 October 2014 the Group acquired 91% of the issued share capital of Lakshya Digital Private Limited for a cash consideration of €2,373,780. A further
agreement to buy the remaining 9% of the company on 10 October 2015 was signed for a consideration of €703,342 and the Group was committed to go
through with this purchase in 2014, hence the company was 100% consolidated into the Group results.
The principal activity of Lakshya Digital Private Limited is the provision of outsourced art creation services to the international video games market. Lakshya
Digital Private Limited was acquired to widen the scope of the Group’s services business and to extend the Group’s client base.
The amounts recognised in respect of the identifiable assets acquired, liabilities assumed, purchase consideration and goodwill are set out in the table below.
Book
value
€’000

Fair value
adjustment
€’000

Fair
value
€’000

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

567
–
1,915
88
(588)
–

–
475
(1,276)
–
(60)
293

567
475
639
88
(648)
293

Total identifiable assets

1,982

(568)

1,414

Goodwill

1,663

Total consideration

3,077

Satisfied by:
Cash
Deferred consideration

2,374
703

Total consideration transferred

3,077

Net cash outflow arising on acquisition
Cash consideration
Less: cash and cash equivalent balances transferred

2,374
(88)
2,286

The intangibles assets are to be amortised over their estimated useful lives of 5 years.
The main factors leading to recognition of goodwill on the acquisition of Lakshya Digital Private Limited are the presence of certain intangible assets in theacquired entity which do not value for separate recognition such as the expertise in sound recording, reputation within the industry, and, an unidentified
proportion representing the balance contributing to profit generation.
During 2014 Lakshya Digital Private Limited contributed €612,485 revenue and €209,839 loss before tax to the Group between the date of acquisition andthe reporting date (31 December 2014). If the acquisition had been completed on the first day of the financial year, revenue of €3,061,966 and €361,658
loss before tax for 2014 would have been added to the group before fair value adjustments excluding customer relationships of €567,924.
Acquisition costs of €93,022 have been charged through the Statement of Comprehensive Income for 2014.
In October 2015 the group acquired the remaining 9% stake in Laskhya Digital Private Limited for €897,000. The amount was greater than the €703,342
previously disclosed due to a combination of a discount factor included within the 2014 figure and foreign currency movements. Additionally a further review
of fixed assets acquired showed that they had been initially overstated at the time of acquisition and a further depreciation charge of €39k has been madewhich has been recorded against goodwill.

72

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

33		 Events after the reporting date
Acquisition of Ankama Asia Pte.Ltd.
On 22 March 2016 the Group acquired the entire issued share capital of Ankama Asia Pte Ltd, a company registered in Singapore, which specialises in providing
services to support the live operations of the games of Ankama. The company has a four year agreement for the continued provision of service to Ankama
and also plans to significantly increase the scale of the Studio, which is based in Manila, to service new and existing clients of Keywords. The acquisition will
strengthen Keywords range of customer service offerings to customers with online and mobile games.
Under the terms of the acquisition, which will be immediately earnings enhancing, a total consideration of €292k in cash will be paid to the sellers.
The book value acquired of net assets is as follows:
Book
value
€’000

Financial assets
Trade and other receivable
Cash and cash equivalents
Trade and other Payables

12
68
(38)

Total identifiable assets

42

Goodwill

250

Total consideration

292

Satisfied by:
Cash

292

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

292
(68)
224

At the date of authorisation of these financial statements a detailed assessment of the fair value of the identifiable net assets has not been completed.
Information on the revenue and impact on profit due to this acquisition has not been disclosed as it is impracticable to do so at this point in time.
Acquisition of Mindwalk Studios Inc and Mindwalk Studios Ltd.
On 1 April 2016 the Group announced that it has entered into an agreement to acquire the business and assets of Mindwalk Studios Inc, a company registeredin China, and Mindwalk Studios Ltd, a company registered in the British Virgin Islands, which specialise in art creation services. The acquisition is anticipated tobe completed, subject to certain conditions to be fulfilled, by no later than 30 June 2016. The acquisition will increase Keywords capacity in the fast growing
art market and will provide access to art talent in the Chinese market.
Under the terms of the acquisition, which is anticipated to be earnings enhancing, the total consideration is US$5.5m. This will be satisfied by the payment
of US$3.9m in cash to the sellers and the remaining US$1.6m in Keywords Studios plc shares to be issued to the sellers. At the date of authorisation of thesefinancial statements no further information was available.

ANNUAL REPORT AND ACCOUNTS 201573

Company Information

Directors

Andrew Day
Giorgio Guastalla
Ross King Graham
Andrew Lawton
David Reeves

Secretary

Andrew Lawton

Registered Number

8548351

Registered Office

8 Clifford Street
LondonAuditors

BDO
Registered Auditors
Beaux Lane House
Mercer Street Lower
Dublin 2

Principal Bankers

Barclays Bank
27 Soho Square
LondonW1D 3QR

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

Squire Patton Boggs (UK) LLP
7 Devonshire Square
London EC2M 4YH
United Kingdom
Brown Rudnick LLP
8 Clifford Street
London W1S 2LQ
United Kingdom

74

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

Notes

ANNUAL REPORT AND ACCOUNTS 201575

Notes76

KEYWORDS STUDIOS PLC

KEYWORDS STUDIOS PLC
WHELAN HOUSE
SOUTH COUNTY BUSINESS PARKDUBLIN 18
IRELAND
T: +353 190 22 730

www.keywordsstudios.com