Full Year
Results 2016
Andrew Day, CEODavid Broderick, CFO

Overview

Overview

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A global service delivery platform for the video games industry
Audio Production
Art Creation
Creation of video game graphicalart assets, including concept art
creation, 2D and 3D art asset
production and animation

Multilanguage voiceoverrecording, original language voice
production and related services

Localisation
Translation in over 50
languages of in-game text,
audio scripts, marketing
materials, cultural and local
adaptation and accreditation

Customer Experience

Functional Testing

24/7, multilingual customer
support for games in live
operation, forum monitoringand moderation services,and social media
engagement on behalf ofthe game brand

Quality assurance including
discovery and documentationof game bugs and testing toverify the game’s compliancewith console manufacturers
specifications© 2017 Keywords Studios PLC - CONFIDENTIAL

Localisation Testing
Testing for out of context translations,
truncations, overlaps, spelling, grammar,
age rating issues and console
manufacturer compliance requirements inover 30 languages using native speakers

3Overview

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Supporting leading games including:
Art Creation Services

Functional Testing

Localisation Services

Customer Support Services

Localisation Testing

Audio Services© 2017 Keywords Studios PLC - CONFIDENTIAL

4

Overview

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Flexibility and scale across key international markets…

•
•
•
•
•

Largely charge on a time basis - per hour, man month, word or asset
Flexible resourcing model with contractors supplementing permanent staff
Combining the Group’s services, resources and dual shore delivery effectively to meet clients’ needs
Repeat business of same services to existing clients typically accounts for 80% of revenues
Low capex requirements, good cash generation© 2017 Keywords Studios PLC - CONFIDENTIAL

5Overview

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Delivering on our strategy▪ To make Keywords the “go to” global service delivery platform for the video games industry▪ To selectively consolidate a highly fragmented games services industry to provide scale and choice to global client base
▪ 67% revenue growth and 86% increase in PBT in FY 2016▪ €21.1m net cash invested in acquisitions; cash of €17m and €7m still available under €15m credit facility

Grown organically…

and by acquisition…

24% revenue growth on a like for like* basis:

Throughout 2016, successfully acquired:▪ 25% increase in number of clients using three or more services▪ Continued new client wins
▪ Secured new larger premises for Manila based live operations
business acquired from Ankama▪ Expanded premises in Montreal and New Delhi▪ Ankama - live operations services in Manila, Philippines▪ Mindwalk - outsourced art creation services, based in Beijing▪ Synthesis - localisation and voice-over recording in several locations* Like for like revenues calculated on the basis of revenues being included for 2016acquisitions from the date of acquisition and for the equivalent period in the prior year

© 2017 Keywords Studios PLC - CONFIDENTIAL▪ Volta – Concept art creation based in Quebec City
▪ Player Research – player experience analysis and design (Brighton
based)▪ Enzyme – Functional and Localisation testing in Montreal▪ Sonox – Audio recording and localisation services in Madrid▪ Kite Team – remaining 50% of localisation and audio services firm

6Overview

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Financial track record
Strong financial performance

+86%

+67%
+57%

+55%
+104%

+130%

+10%

+10%

+10%

+61%
+48%

+49%

© 2017 Keywords Studios PLC - CONFIDENTIAL

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Overview

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Creating value since IPO

27 studios

6 service lines 4 continents

Up from 5 studios

Up from 4 at time of IPO

Up from 3 continents

£24m

290%

62%

Raised during and since IPO in
July 2013

Increase in adjusted earnings
per share from 5.28c in 2013

CAGR in revenue since FY 2012

© 2017 Keywords Studios PLC - CONFIDENTIAL

8

Financial Review

I

Income Statement

Financial Review

Y/E 31 December, €k

III

IV

V

2016

2015

▪ Revenue up 67% on 2015 to €96.6m

Revenue

96,58557,951▪ Gross margins up to 38.0%; a 40 bps increase

Direct costs(59,907)(36,173)▪ Overheads of €21.6m; 22.4% of revenue (2015: 23.5%)

Gross Profit

36,67821,778▪ Adjusted profit before tax increased 86% to €14.9m
excluding the following costs:% margin

38.0%

37.6%

Other administrative expenses(21,588)(13,616)

Operating profit

15,0908,162

Net finance cost

(287)

(264)

61

109

€k

2016

2015

Statutory PBT

9,496

5,195

Non-controlling interest (50% Kite Team)

Costs of acquisitions andintegration
Share option expense
Amortisation of intangibles

1,316
686
1629

1,089
392
857

Profit before Tax – Group basis

14,8648,007

Items excluded from Group measurement of PBT(5,368)(2,812)

Profit before Tax – Statutory basis

9,496

5,195

Foreign exchange loss/(gain)
Total excluded items
KWS defined PBT

1,737
5,368
14,864

474
2,812
8,007

Tax expense(3,223)(1,832)

Net income

6,273

3,363

Basic EPS – Group measurement basis(c)

20.59

12.81

Basic EPS – Statutory basis(c)

11.22

6.98

Diluted EPS (c)

10.87

6.87

▪ Effective tax rate 21.7% (2015: 22.9%)▪ Adjusted EPS up 61% to 20.59c© 2017 Keywords Studios PLC - CONFIDENTIAL

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I

Balance sheet
Net cash of €8.7m (2015: €17.3m) after:▪ €21.1m net cash consideration for acquisitions▪ €1.3m costs of acquisitions and integration expenses▪ Loans and borrowings of €8.4m▪

€8m of Barclays RCF drawn down – total RCF €15m▪

€0.3m loan in Enzyme following acquisition

Improved MMTC* grant claims collections▪ €2.9m accrued in 2016 including €100k in respect of 2015
▪ 2015 accrual of €3.9m included €1.6m from prior periods€2.3m capital expenditure (2015: €1.6m) included:▪ Continued investment in testing and computer equipment(€1.4m)▪ Significant investment and expansion of facilities inMontreal, Dublin and Manila in particular (€1.2m)▪ Further development of Art with Lakysha and Mindwalk
expansion investment (€0.5m)

Y/E 31 December, €k
Non-current assets
Property, plant & equipment
Goodwill
Intangible assets
Deferred tax assets
Current Assets
Trade receivables
Other receivables
Cash & cash equivalents
Short term investments
Current Liabilities
Trade payables
Other payables
Loans and borrowings
Corporation Tax Liability
Non-Current Liabilities
Other payables
Employee Defined Benefit
Loans and borrowings
Deferred tax liabilities
Net Assets

Financial Review

III

IV

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2016

2015

5,498
46,7998,696
880
61,873

3,486
23,893
3,782
971
32,132

13,8797,778
17,02038,677

7,519
8,320
19,01827
34,884

4,822
12,431
8,025
2,552
27,830

2,761
7,862
1,163
752
12,538

1,592
826
345
3,253
6,016
66,704

300
590
571
2,423
3,884
50,594*MMTC – ‘Multimedia tax credits’ are employment grants provided in Quebec© 2017 Keywords Studios PLC - CONFIDENTIAL

11

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III

Financial Review

IVV

Y/E 31 December, €k

2016

2015

Profit after tax

6,212

3,254

Net income/expenses not affecting operating cash flows
Net changes in operating assets / liabilities
Income taxes paid
Net cash inflow from operating activities

7,781
3,175
(2,129)15,0394,664(3,150)(1,362)
3,406▪ Continuing low capex requirement anticipated (<5% ofrevenue). Depreciation was €1.8m (2015: €1.3m)

Acquisition of subsidiaries
Acquisition of fixed assets
Acquisition of short term investments
Interest Received
EBT Share Purchase
Net cash used in investing activities(21,104)(2,306)27
94
2(23,287)(7,409)(1,635)
232
70
(804)
(9,546)▪ 2016 dividend of 1.33p (2015: 1.21p) in line with
progressive dividend policy

Repayment of borrowings in acquired companies

(625)

-

Loan to finance acquisitions
Repayment of loan to sellers of acquired company
Loan to fund 2013 MMTC
Dividends paid
Share options exercisedInterest paid
Issue of share capital
Share issuance expenses

8,000(1,157)
(825)
(632)
(152)
643
-

(300)
1,110
(737)
(128)
14,213(14)

Net cash provided by (used in) financing activities

5,252

14,144

Increase /(decrease) in cash
Exchange gain/loss on cash and cash equivalents
Opening cash
Closing cash

(2,996)998
19,01817,0208,004
11,01419,018

Cashflow▪ Cash inflow from operations of €15m (€3.4m)▪

Includes €1.6m MMTCs collected from pre FY’15
periods▪ Increase in working capital as Group grows rapidly▪ Cash cost of dividends in the year of €0.83m© 2017 Keywords Studios PLC - CONFIDENTIAL

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Financial Review

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FY17 Guidance▪ Strong growth expected both organically and through continued acquisition▪ Established infrastructure to drive operating costs towards 20% target as we grow
▪ Slight reduction in effective tax rate expected again▪ Positive cash conversion expected to continue (albeit without the MMTC catch up
benefit)▪ Deferred consideration of up to €0.25m due in 2017
▪ Interest expense to rise as we utilise our new increased bank facility for acquisition
growth© 2017 Keywords Studios PLC - CONFIDENTIAL

13

Review of the
year

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Operational Review

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A strong performance complemented by acquisitions
Art Creation

Audio Services

Localisation▪ Revenues grown 34% on a like for like basis▪ Continued strong underlying growth at Laksyha Digital▪ Contributions from acquisitions of Mindwalk and Volta acquired in June and October▪ With a talent pool of 850 artists, Keywords is now one of the largest art services
businesses in the highly fragmented video games art services market▪ Revenues grown 20% on a like for like basis▪ Synthesis and Sonox acquired in April and December; strong contribution from Synthesis▪ Strengthened management of Mexican audio studio▪ Consolidated Synthesis Iberia, Kite Team and Sonox under Kite Team in Madrid▪ Opened audio recording studio in Tokyo▪ Revenues grown 33% on a like for like basis▪ Contributions from Synthesis and Sonox▪ Managed 1000 translators and translated c.210m words in the year
▪ Beneficiary of ‘games as a service’ trend; frequent content additions require continuous
localisation▪ The leading localisation provider to AAA console games, with a strong position in
fast-growing mobile games© 2017 Keywords Studios PLC - CONFIDENTIAL

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Operational Review

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A strong performance complemented by acquisitions
Functional Testing

Localisation
Testing▪ Revenues grown 23% on a like for like basis▪ Contribution from Enzyme, acquired in November 2016
▪ High utilisation achieved through flexible staffing model and enhanced by increased scale▪ Recently acquired Player Research added user testing and consultancy services▪ Revenues grown 8% on a like for like basis▪ Synthesis and Enzyme added acquired revenues for first time since Babel Media (Feb 2014)▪ Largest provider in the market but Group’s historic reliance on Localisation Testing has
continued to reduce as planned▪ Revenues grown 17% on a like for like basis▪ Seeded into Tokyo, Montreal, Singapore, Dublin and New Delhi;▪ Since acquisition in March, Manila has won new clients and grown from 23 to c.120 people

Customer Support▪ Using teams with deep knowledge of the games offers an attractive alternative to large callcentres© 2017 Keywords Studios PLC - CONFIDENTIAL

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Operational Review

Clear progress in executing and integrating
acquisitions…
Description
Services
Location
Consideration
User experience
testing andconsulting

Brighton

Total considerationof up to £1.3m (up to£1.0m in cash plus
65,280 new ordinary
shares)Acquired Oct 2016

Functional andLocalisation
testing

V

VI▪ Provides consulting and user testing services for mobile, PC,console and VR game developers, helping them to attract,
retain and monetise players▪ State-of-the-art playtesting laboratory▪ Employs several PHDs and MScs

St-Jerome,nearMontreal

Total considerationof CAD$5.4m(CAD$4.9m cash and
CAD$0.5m inrepayment of loans)▪ Strengthens the Group’s testing capabilities, reinforcing its
position as the market leader▪ Market leading compatibility testing laboratory▪ Expertise in focus group testing fits closely with recently
acquired Player Research

MadridTotal considerationof €650,000 (€500k
cash and 24,881 new
ordinary shares)▪ Audio recording and localisation services to video gamecompanies targeting Spanish and Latin American markets▪ Merged with Synthesis Iberia and Kite Team in Madrid tocreate leadership in the region

Total considerationof up to £1.2m cash

▪ Provides creative development, cinematics, UI, visual effects
and motion graphics services for video game and film markets▪ Has a small team of creatives in London and manages a
network of highly experienced designers, animators, filmmakers and artists

Acquired Nov 2016

Audio and
Localisation
servicesIV

Acquired Dec 2016

Art Creation
Acquired Feb 2017
© 2017 Keywords Studios PLC - CONFIDENTIAL

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Operational Review

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Clear progress in executing and integrating acquisitions…
Services

Location

Consideration

Description

ManilaOutsourcing
arrangement –€0.25m cash
consideration; four
year contract▪ Adds live operations, promotions management, fraud
management, quality assurance and bot hunting▪ Platform from which to grow in Asia with the benefit of thecertainty of a four year contract▪ Ideal territory - competitively priced service culture with strong
standard of English

France,Germany
andSwitzerland

Maximum
consideration of€18m. €11.2m cash,
plus 2,376,518 KWS
shares to be issued▪ Positions Keywords as the global leader in localisation andvoice-over recording for video games world-wide▪ Highly complementary client base, with a strong track record ofworking with major game franchises▪ Adds new studios in Germany, France and Taiwan and provides
further penetration for existing studios

Beijing

Total considerationc.$5.5m; $3.9m incash and 513,189
KWS shares to beissuedAnkamaCustomer Support
Acquired Mar 2016

Localisation, Audioand Localisation
Testing
Acquired Apr 2016

Art Creation
Acquired May 2016

Art Creation
services, withemphasis onconcept art
Acquired Jul 2016
© 2017 Keywords Studios PLC - CONFIDENTIAL

Quebec City

Consideration of
CAD$5.25m cash

▪ Increases capacity in the higher margin art creation market by
about 30%; adding 150 artists▪ Platform to grow a full suite of video game services for both
Chinese and international game developers and publishers▪ Cost effective location to support international customer base

▪ Adds additional capabilities and capacity▪ Concept art specialist providing artwork at the very early stageof development, thus bringing Keywords further upstream in
the game development cycle▪ Already realising synergies with later stage art services

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Operational Review

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Driving cross selling opportunitiesA
multi-platformgamedeveloper

2009

2013

2014

Localisation
testing originallyprovided forEurope

Added
Localisation in
new languages

Added Americas
Localisation and Art
through Lakshya

Started work withthem on their firstgame - launched in
11 languages

Game grows to 28
languages

Increasedsales by 600%
over theperiodA leading mobile gamedeveloper

2015

2016

2017

Established as
Asian suppliers

Synthesis acquisition
adds Audio &Localisation

In discussions overFunctional Testing &Customer Support

Worked on second
game, localised in
30 languages

Added Art
services for third
game

Adding Customer
Support andLocalisation Testing

Localisation andAudio support,
growing thenumber of
languages overtime

Established secure
facility providing
Localisation andLocalisation Testing,working together in ahighly iterative fashion

Further growth inexisting services
expected to lead to afurther 30% increase involumeAnnualised revenues
increased four-fold over 3
years

Market leading online
game developer
Revenues trebled over
2 years© 2017 Keywords Studios PLC - CONFIDENTIAL

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Operational Review

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Driving operational efficiency and synergies
Shared management systems

Talent sharing• Same operating platform used across each global service
line• Customer Support introduced in Montreal, Dublin,
Singapore and Tokyo testing facilities• Common project management, workforce management
and operational reporting capabilities• Customer support provided by high quality and specialist
teams with the detailed game knowledge acquired during
testing• Newly acquired entities migrated onto the system, withthe exception of art which is assessing options• Provides point of differentiation and helps smooth normal
peaks and troughs in testing staffing requirements

Consolidation of studios

Utilising new geographies• Consolidating three studios into two around Montreal
following the acquisition of Enzyme• Captive, live operations services entity in Manila acquired
from one of our clients and converted into a sharedservice benefitting multiple clients• Bringing together Kite Team, Synthesis Iberia and Sonox
into the Kite Team premises in Madrid• Plans for similar consolidation in London© 2017 Keywords Studios PLC - CONFIDENTIAL• Five-fold increase in staff supported by the lease and fit
out of larger premises

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Operational Review

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Managing growthCEO
Andrew Day

Sales Director
Mike Wallen

CCO
Jaime Gine

CFO
David
Broderick

COO
GiacomoDurantiEurope MD
Fulvio Sioli

Asia MD
Chris Kennedy

Americas MD
Nicolas Liorzou

Art
Fred Stockton

Functional QA
Matthieu
Lachance

Localisation
Fabio Minazzi

Audio
Andrea Ballista

Localisation QA
Thomas Barth

Customer
SupportFred Arens

IT Director
Gary Merrigan▪ Service lines run on a global basis▪ Supported by regional management teams▪ Unified global sales team facilitates cross selling▪ Investment in the team and key functions supports further growth▪ CCO, Art and IT Directors added and new CFO appointed© 2017 Keywords Studios PLC - CONFIDENTIAL

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Strategy &opportunities

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Strategy

V

VI

Near term organic growth opportunities
Developing customer relationships and outsourcing▪
▪

Leveraging relationships and master services agreements to grow the number of services to existing clients
Increased opportunities for managed services and single sourced arrangements

Extending our services▪

Expand user testing activities following acquisitions of Enzyme and Player Research▪

Extend services into new areas, such as visual special effects and game trailers▪

Provide single language audio options for Italian, Spanish, Brazilian Portuguese and Arabic languages

Expanding our geographical reach▪

Opening an audio recording studio in Tokyo▪

Introduced art management into Singapore studio© 2017 Keywords Studios PLC - CONFIDENTIAL

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Strategy

V

VI

Acquisition strategy
Selective consolidation▪

Localisation – key single language providers and major multi lingual providers▪

Functional Testing – expansion outside of Canada (India, Eastern Europe)▪

Art Production – China, South East Asia, Latin America▪

Audio – key single language studios – Europe, Asia

New services▪
▪

Engineering
Analytics

Geographic expansion▪
▪

South East Asia – art
Eastern Europe – art, functional testing, engineering© 2017 Keywords Studios PLC - CONFIDENTIAL

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Summary &Outlook

I

II

III

IV

Outlook

VI

Market outlook▪ Virtual Reality has now entered the mainstream
market with Facebook (Oculus), Valve/HTC, Sonyand Samsung all launching first generation
products in 2016 – expect VR to be just one
factor in the continued growth of content

CAGR▪ Launch of PS4 Pro and Xbox One S in 2016 were
the first of a number of anticipated console
refreshes▪ Nintendo’s Switch launched in January 2017,
which we hope will establish itself as a major
platform▪ Rise of the ‘mid-core’ gamer fuelling growth inmobile gaming content▪ Speculation around the possible launch of AR
from Magic Leap and Microsoft (HoloLens).
Facebook also working on AR and Apple
rumoured to be as well.
Source: Newzoo Global Games Market Report, June 2016
© 2017 Keywords Studios PLC - CONFIDENTIAL

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OutlookVI

Current Trading & Outlook▪ Trading for the first two months of the year in linewith management’s expectations▪ Expect to make good progress in 2017
▪ Continued organic growth▪ Capitalising on the synergies from previous
acquisitions and driving operational efficiencies▪ Leveraging client relationships▪ Integrated sales and marketing▪ Sharing talent and production facilities▪ Continued progress with cross selling▪ Recently agreed terms for a three year revolving
credit facility of up to €35m
▪ Healthy pipeline of earnings enhancing
acquisition opportunities© 2017 Keywords Studios PLC - CONFIDENTIAL

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III

IV

Outlook

VI

Investment summary
Access to a large, high growth market
Key drivers:
Industry growth; trend towards continuous content; move towards outsourcing; everhigher definition content; introduction of new platforms (VR/AR, Nintendo Switch, Xbox Scorpio)

Strong track record of growth, both organically and through acquisition
Significant opportunity to grow our geographicalpenetration, service capabilities and client relationships
Business model and management structure that supports growth© 2017 Keywords Studios PLC - CONFIDENTIAL

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Appendix

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Appendix

Leading market position
Keywords Services 21 of the Top 25 Games Companies by Revenue* …

… and 7 of the Top 10 Mobile Games Developers by Revenue***Source: Newzoo, Top 25 Games Companies by Revenues, December 2016**Source: PocketGamer.Biz, Top 50 Developers of 2016, May 2016

© 2017 Keywords Studios PLC - CONFIDENTIAL

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AppendixCreating value along the lifecycle of games development© 2017 Keywords Studios PLC - CONFIDENTIAL

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VI

Appendix

Clear progress in executing and integrating acquisitions…
Services
Art creation
services for leading
developers

Consideration

PortlandConsideration of
US$6.3m cash and
US$2.7m of KWS
sharesMadridandMexicoCity▪ Enhanced Keywords’ provision of Spanish, Latin American€0.5m cash
Spanish and Brazilian Portuguese localisation and audio
consideration forservices
50% controllingstake; remaining
50% purchased April
2016

Acquired Aug 2015

Audio and
localisation
services
Acquired July 2015

Acquired Jan 2015

Customer support
and community
management for
online and mobile
games

Localisation andaudio services

UpdateLocationMontreal

Rio DeJaneiroCAD 1.25m€0.3m▪ Enhanced Keywords art creation offering▪ Brings flexible resourcing model to art creation▪ Working in partnership with Lakshya on some projects▪ Office facilities, IT, HR and Finance provided by existing
Keywords operations in Montreal▪ Customer services teams built in other KWS studios under theguidance of Alchemic Dream• Localisation into Brazilian Portuguese and audio recording in
Rio De Janeiro• Integrated into multilingual production• Leveraging group business development capability

Acquired Jan 2015
© 2017 Keywords Studios PLC - CONFIDENTIAL

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Appendix

Clear progress in executing and integrating Update
acquisitions…
Services

Art creation services
for leading
developers

Location
New
Delhi &
Pune

Consideration$4.0m (including$1m deferred to
October 2015)

Acquired Oct 2014

Acquired May 2014

Audio and localisation- recording
production, facial
capture, texttranslation andadaptation

Localisation, audio,
functional testing,
localisation testing

Milan &
Los
Angeles

Consideration of€6.0m cash /€3.3m new shares

Montreal
& New
Delhi

£2.2m in shares ona debt free basis

London£0.3m initial, withan additional£1.3m earn out
paid 31.03.16

Acquired Feb 2014
Audio; pre and postproduction stages of
localised voice-overassets▪ Expanded Keywords’ reach into earlier stage of gameproduction cycle▪ New Seattle studio established to share with Keywords
Localisation QA operations in Seattle▪ Finished the year with 650 artists on our payroll of which 600
are in India and China▪ Enhanced Keywords offering in top quality end of the market
and extended reach up the production chain▪ Integrated sales & marketing and finance▪ Full management integration complete▪ Brought the other full service provider in the industry into theGroup; transformed Keywords’ functional testing capability▪ Integration of tools, processes, management completed▪ Keywords Montreal operationally merged with Babel Montreal
and Keywords facility vacated and sub let▪ Babel India studio moved to Lakshya facility in New Delhi▪ Leveraging Group HR, back office, sales & marketing▪ Encouraged by cross selling opportunities

Acquired Jan 2014
© 2017 Keywords Studios PLC - CONFIDENTIAL

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Appendix

Major Shareholders*Shareholder
P.E.Q Holdings Limited
Andrew Day
Hargreave Hale
Invesco Perpetual
Kabouter Management
Blackrock
Schroder Investment Management
Liontrust Asset Management

Amount% Holding

7,978,736

14.7

3,796,573

7.0

3,720,076

6.8

3,514,896

6.5

3,296,126

6.1

3,173,999

5.8

2,218,897

4.1

2,079,381

3.8* as at 31st December 2016

© 2017 Keywords Studios PLC - CONFIDENTIAL

34