Transformational growth
Annual Report and Accounts 2014

Strategic Report
1-19
At a Glance

Keywords is the leading international technicalservices provider to the global games industry.
IFC

Highlights 2014-2015

1

Chairman’s Statement

2

Market Outlook

4

Our Strategy

6

Business Model

8

Chief Executive’s Review

10

Financial and Operating Review

17

Governance Report
20-30
Board of Directors

20

Directors’ Report

22

Directors’ Remuneration Report25

Directors’ Remuneration Policy Report

27

Independent Auditor’s Report

29

Established in Dublin in 1998, it now has operations
in Montreal, Rio de Janeiro, Los Angeles, Seattle,
Tokyo, Singapore, New Delhi, Pune, Rome, Milan,
Barcelona and London.
It provides art creation, audio recording, localisation,
testing, and customer support services across
50 languages and 12 games platforms to a blue
chip client base in more than 15 countries.
Its customers comprise many well-known multinational
games publishers and developers including 20 out of
the 25 largest games companies by revenue*.

Financial Statements
31-62
Consolidated Statementof Comprehensive Income

31

Consolidated Statementof Financial Position

32

Consolidated Statementof Changes in Equity

33

Consolidated Statement of Cash Flows34

Company Statement of Financial Position 35
Company Statement of Changes in Equity 36
Company Statement of Cash Flows37

Notes Forming Part of the Consolidated
Financial Statements

38

Company Information

62

Contacts

IBC“Following a successful year in which we delivered
strong organic and acquisitive growth, taking thebusiness into complementary services and newgeographies, we are now the only international
provider of the full range of integrated services ina highly fragmented video games services market.
As a result, we look forward with confidence tomaking further progress as we move through thecurrent year and beyond.”
Ross Graham
Chairman

Visit the website for further informationwww.keywordsintl.com* Source: Newzoo, July 2014.

At a Glance

Transformational growth throughinternational expansion

The Group now has 14 studios strategically located to provide full, integrated services to local
and global clients in key gaming clusters across three continents. Since early 2014, we have
expanded organically and by acquisition into new locations including Barcelona, London,
Los Angeles, Milan, New Delhi, Pune, Rio de Janeiro and Singapore.

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

AUDIO/VOICEOVERSERVICES

Montreal
SeattleMulti-language voiceover, original
language voice recording andrelated services

Los Angeles

LOCALISATION SERVICESFUNCTIONAL TESTING

Translation of in game text, audio
scripts, cultural and local adaptation,accreditation, packaging andmarketing materials

Quality assurance including discovery
and documentation of game defects
and testing to verify the game’scompliance with console
manufacturers specifications

LOCALISATION TESTINGCUSTOMER SUPPORT

Testing for out of context translations,
truncations, overlaps, spelling,grammar, age rating issues andconsole manufacturer compliancerequirements in over 30 languages
using native speakers

24/7, multilingual customer support
for games in live operation, forum
monitoring and moderation services,and social media engagement onbehalf of the game brandRio de Janeiro

SELECTED CLIENTS

London

Tokyo

Milan

Barcelona

New Delhi
RomeSingapore

Pune
Dublin (HQ)

50

12

20

14

Providing integrated services
across 50 languages

and 12 games platforms
to a blue chip client basein over 15 countries

serving 20 of the top
25 games companies
by revenue

from 14 studios worldwide

Strategic Report

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III

Highlights
2014 – 2015
OPERATIONAL HIGHLIGHTS
Strong organic growth; revenues up 23% excluding
all acquisitions:• Continued to gain market share adding clientslike Ankama, Bioware, Carbine, Frontier
Developments, Nexon and Tencent; and• Invested in new Singapore operation to support
Electronic Arts’ move to outsourced services inSouth East Asia.

• Binari Sonori, acquired in May 2014, further
strengthened our audio and localisation
services, giving the Group a presence in
Milan and Los Angeles; and• Lakshya Digital, acquired in October 2014,provided an entry into art outsourcing andgiving Keywords visibility further up thegame development supply chain.

Significantly extended service capabilities andgeographical reach through four acquisitions:• Liquid Violet, acquired in January 2014,
extended our audio services offering;• Babel Media, the only other full service provider
in the industry, was acquired in February 2014,giving Keywords good exposure to Functional
Testing and a presence in India;

Delivered operational synergies in Montreal and in
New Delhi through rationalising top management andco-locating production facilities with those acquired.

FINANCIAL HIGHLIGHTSGroup revenue (m)Adjusted profit before tax (m)1

Adjusted basic earnings per share (c)1€37.3m

€5.1m

8.54c

40

6

8

h130%

€37.3

30

h48%

8.54

€5.1
6

4

20

5.76
4

€2.5

€16.2
2

10
0

h104%

2013

2014

0

2
2013

2014

0

Total dividend (p)Total Group revenue 2014(13)(m)1.10p€37.3m(€16.2m)

1.00

Outer circle: 2014
Inner circle: 2013

2%

1.10

13%
8% 2%

0.8

33%

14%
0.4

0

2013

2014

h130%

h10%
1.2

2013

2014

57%

32%

 Localisation Services
 Localisation Testing Audio/Voiceover Services
 Functional Testing Art Creation Services

39%

1	Before acquisition and integration expenses of €1.5m (2013: nil), IPO expenses of nil (2013: €1.12m), share option
charges of €0.2m (2013: €0.1m), amortisation of intangibles of €0.5m (2013: nil) and foreign currency gains of €0.5m(2013: losses of €0.1m).
ANNUAL REPORT AND ACCOUNTS 2014

1

Chairman’s Statement

Strong financial
performance anddelivery on strategy

The business in 2014
In last year’s statement, my first for Keywords
as a listed company, I set the scene describing myinitial view of the Company, its business ethos
and culture and the opportunities for organic andacquisitive growth in a fragmented market. I am
pleased to be able to report that, in its first fullyear as a listed company, Keywords has clearlydelivered its strategy with a strong financial
performance during the year and four wellconceived and executed acquisitions.
During 2014 the business has more than met theBoard’s ambitious expectations. Organic revenue
growth of 23% has been augmented by four
acquisitions (with two further small purchases
after the financial year end) such that annualised
revenues have grown three-fold since our IPO in
2013. These new businesses are integrating wellwithin Keywords – maintaining their own brands
while absorbing the Keywords’ culture, its efficient
way of working and its strong financial controls.
The acquisitions have resulted in a change inthe business mix, making the Group much broader
and better balanced and they have opened up
opportunities that it simply could not havedelivered without all of its current constituents.
An important criteria for an acquisitive company
is to improve continuously its quality of earnings– sheer growth on its own can prove an illusory
achievement. Here, I believe, we have measured
up well. In particular, we are very encouragedby the fact that customers, old and new, areincreasingly using Keywords, and the Board
believes that the introduction of Keyword’s

2

KEYWORDS STUDIOS PLC

approach to operational efficiency in the
new companies will continue to drive margin
improvement over time.
People & culture
Last year I commented on the Keywords’ cultureengendering a “can do” attitude founded on thevalue placed in our people – this attribute is wellreflected in how much they actually “have done”.
The Group is ahead of plan in terms of bothacquiring new service lines (such as the acquisitionof Lakshya Digital in October 2014 which took
Keywords into the large Art Outsourcing market
for the first time) and the establishment of offices
in locations closer to key clients (such as therecent acquisition of an office in Brazil and theestablishment of the studio in Singapore).
Recently the leadership team from round theworld came together for two days of strategy
and operational exchanges. At this event, it was
clear that Keywords now benefits from evengreater strength in the depth of its leadershipteam and that this team is excited to work
together with collective ambition, boding
well for the future.
However, the Group is not just reliant on its
leaders and I would like to thank each and every
person within the organisation for their individual
contributions (going the extra mile) to Keywords’
achievements and transformation during the year.

Shareholders & dividend
During the year, the Group raised a further £6.0m
through a well-supported institutional placing
and we would like to thank shareholders for their
ongoing support as we continue to focus ondelivering shareholder value through our organic
and acquisitive growth strategy. However, weare looking at augmenting our investor relations
efforts to ensure the Group’s strong overall
performance and enhanced positioning isbetter reflected in the share price.
The Board is proposing a final dividend of 0.74p,
which gives a total dividend for the year of 1.10p
and represents an increase of 10% compared tothe total dividend of 1.00p in 2013. This increaseis consistent with our progressive dividend policy
which takes into account the financial performanceof the Group and the alternative uses of funds thatwill deliver shareholder value.
Current trading and prospects
The Group has made a good start to the year.
Having already delivered strong organic andacquisitive growth, in line with our strategy, andtaken the business into complementary services
such as art outsourcing and customer support, weare now well positioned as the “go to” organisationfor outsourcing and integrated services in thevideo games market. As importantly, Keywords
is now known as the leading consolidator in themarket and attracts automatic interest fromvendors and management teams wishing to joina larger, more diverse group.

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“Having delivered strong organic and acquisitive
growth and taken the business into complementary
services such as art outsourcing and customer
support, we are now well positioned as the “go to”
organisation for outsourced and integrated
services in the video games market.”As a market leader with a strong financial
position we are well placed to deliver on thepotential for high margin growth we see in our
growing markets, both traditional and emerging.
We expect to benefit in 2015 from a more
settled console games market, the full year
effects of acquisitions made during 2014 andcontinued growth both organically and throughadditional selective acquisitions, as we further
consolidate our market leadership. We, therefore,
look forward with confidence to making further
progress as we move through the current year
and beyond.

Keywords Services 20 of the Top 25 Games Companies by Revenue*...

Ross K Graham
Chairman
April 14, 2015

Download 200,000+ brand logos in vector format for free
http://www.logoeps.com/… and 7 of the Top 10 Mobile Games Developers by Revenue*** Source: Newzoo, Top 25 Games Companies by Revenues, July 2014.
** Source: PocketGamer.Biz, Top 50 Developers of 2015, March 2015.

ANNUAL REPORT AND ACCOUNTS 20143

Market Outlook

The leading provider
in a fast growing market
The global video games market is predicted to growsignificantly, with Newzoo forecasting a CAGR of 8.1%
from $70.4bn in 2012 to $102.9bn in 2017.*

Key market drivers
The following trends in the games industry
are taking video gaming into new markets both
geographically and demographically; they aremaking content more dynamic and continuous,
as games developers seek to keep users engaged
for longer; they are enabling increases in the sizeand definition of the graphical and audio content
for which our services are used; and as a result of
the increased complexity they are underpinninga trend towards outsourcing of art, audio,
localisation, testing and customer care services:#3:
The increased performance ofgames platforms:#1:
The proliferation of games platforms:

new generation consoles from Sony andMicrosoft and the introduction of virtual
reality hardware including by Facebook
and Sony.

beyond retail packaged console and PC
games, to online, social, mobile andcloud-based gaming.
Console and PC packaged games currently
represent almost half of all games software
revenues, but mobile, social and online
gaming are growing at a faster rate (Newzoo
predicts that the mobile games market
will double in size from $17.6bn in 2012
to $35.4bn in 2017). This proliferation of
gaming platforms is increasing accessibility
to gamers, opening up new:• geographical markets, given theabsence of the requirement for
relatively expensive console systems
or landline based internet connectivity,
development of mobile gamingin particular has opened up newgeographical markets. Whilst the U.S.A.
historically represented the largest video
games market in the world, high rates ofgrowth are now being seen in Asia andSouth America and many other emerging
gaming markets which have little historyof console or PC gaming.
• demographic markets, a recent surveyof the US entertainment software
market by the Entertainment Software
Association reveals that of 48% of
all game players are women and thatthe average age of a gamer is 312
demonstrating that the market has
moved well beyond the averagegamer being a young male.
2
4#2:
The introduction of newmonetisation models:
beyond traditional retail sales to free
to play with in-game purchases andadvertising and bolt-on content models.
The industry is shifting away fromtraditional retail sales of static boxed
games towards a model in which games
are provided as a service with newmonetisation models which include
generating revenues from subscriptions,in-game purchases of digitally distributed
dynamic content, advertising and ongoing
upgrades which are downloadable andextend the lifetime value of the game.
With new content continually produced bydevelopers to support these models, games
content now evolves considerably after its
initial launch and has become richer andmore complex overall. Games content is,therefore, predicted to grow at a faster rate
than the overall market, whilst the needfor art, localisation and testing support has
extended well beyond the games’ initial saletowards a continual requirement which isalso driving an increased need for player
support services as the game evolves.

2014 Essential Facts About the Computer and Video Game Industry.
KEYWORDS STUDIOS PLC

The evolution in games platforms, whichhave become ever more sophisticated,with more powerful processors andlarger storage capabilities, is supporting
significantly more complex, rich andinteractive content. As this illustrationof lead character, Lara Croft, from Tomb
Raider shows, the definition of video games
graphics has dramatically improved overtime and with this the size of data and theeffort to create such detailed art work has
risen exponentially. The image on the left
is from the 1996 release of the gamewhile that on the right is from 2014’s
Tomb Raider, The Definitive Edition.

The PlayStation 4 and Xbox One consoles
were launched in November 2013 and,given the step change in their capabilities,
are selling at a faster rate than the previous
generations, creating a quicker transitionin the industry from developing content
for old consoles to focusing to a greater
extent on new, more complex content for
new consoles than in previous cycles.

Strategic Report

As a result of the increasing complexity of
the creation of content, global marketingand ongoing support requirements for games
due to this proliferation of devices, audiences,distribution channels, and monetisation models
and the enhanced capabilities of new platforms,
it has become less cost effective for publishers
to have sufficient resources for in-house art,
localisation and testing services. They are,therefore, increasingly outsourcing these
services to focus their resources on devising

successful new business models whilst
optimising their return on investment by
ensuring content is delivered efficiently
and successfully across the growing numberof platforms and markets.
Many game development studios now haveart outsourcing managers in recognition of thefact that such suppliers of art services are now
planned for and managed as an essential part of
the game production process rather than being

Global games market 2013 per market segment3

31%
20%

Total: $75.5bn
1.6bn gamers
6%

10%
6%
17%

*
3

III

a last minute addition when other options failed,as was the case as recently as 2 to 3 years ago.
Despite an international and blue chip client
base, technical services for the games industry
remains a highly fragmented market. The
Directors believe the Group is now one of very
few international providers of the full range
of integrated outsourced services to the video
games market with a global reach.

Global games market 2013 per region3	Casual Webgames,$7.4bn, 1,200m gamers	MMO, $15.4bn,
800m gamers	(Mid)-Core PC, $7.2bn,
960m gamers	Mobile Phone, $12.8bn,
1,110m gamers	Tablet, $4.8bn,
450m gamers	Handheld Console,$4.4bn, 300m gamers	TV Console, $23.6bn,
690m gamers

10%

II

4%

29%

Total: $75.5bn
1.6bn gamers42%	Latin America, $2.9bn,
170m gamers	Asia – Pacific, $31.9bn,
740m gamers	Europe – Middle East
– Africa, $18.7bn,
520m gamers	North America, $21.9bn,
190m gamers

25%

Source: Newzoo Global Games Market Report, May 2014.
Excluding tax, hardware, consumer-to-consumer trade but including retail margin.

Global games market total and mobile game revenues, 2012 – 2017 ($bn)*
 Total  Mobile

2017$102.9$102.9
8.1%

CAGR

$75.5

$81.4

60

$70.4

70

$75.5

80

$88.4

90

$95.2

100

50

2015

19.1%

$17.6

2014

$35.4

2013

$30.7

*

2012

$21.8

10
0

$17.6

$12.7

20

27%

23%

18%

$26.3

30

2017

34%

32%
30%

$35.4

40

2016

2017

2013

2013

Source: Newzoo Global Games Market Report, May 2014.
ANNUAL REPORT AND ACCOUNTS 2014

5

Our Strategy

Growing both organicallyand by acquisition
Keywords Studios’ strategy is to grow both organically and byacquisition to extend the Group’s client base, market penetrationand service lines, where the Group can use its existing expertise,multi-service platform, scale and global reach to generatesynergies in a highly fragmented games services industry.
The Board believes that there is a clear opportunity for
Keywords to extend its existing relationships with manyof the major games companies through:

CROSS SELLING
Extending the relationship the Group has withgame publishers and developers to provide
additional services from within the Group’s
portfolio of services.

OUTSOURCING
Capturing new blue chip customers who arelooking to outsource all their art, localisation,
testing and customer care requirements,
because of the increasing complexity andcosts for publishers and developers to deliver
tailored games content around the world,on multiple platforms using internal resources.

4
6

PWC Global media and entertainment outlook 2014 – 2018.
KEYWORDS STUDIOS PLCGEOGRAPHICALGROWTH
Expanding its global presence and client base,including both through acquisition and organic
investment, where we see large or high growth
addressable markets. For instance, Asia Pacificaccounts for three out of the top four video
games markets in the world and is projected to
grow from $30bn in 2014 to $40bn in 2018 andLatin America, whilst a smaller market, is forecast
to grow at the fastest rate of all regions – at a
CAGR of over 10% between 2013-2018 4.

ADJACENT ACTIVITIESAND MARKETSExpanding its portfolio of services provided to
the video games industry across the life cycle ofgames from conception to live operations as wellas into related interactive entertainment markets.

ACQUISITIONS
Selective acquisitions which generate synergies,
extend its client base or geographical penetration
or add complementary services or critical mass toexisting service lines.

Strategic Report

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July 2013
Listed on AIM£10m£10m raised to enable the group to extend its
service offering and geographical footprint,organically and by acquisition.

January 2014
Liquid Violet acquisition
Added scale and blue chip clients to the Group’s
audio service offering.

February 2014
Babel Media acquisition

KEY EVENTS SINCE IPO
Since its IPO, the Group has madeconsiderable progress in executing
its growth strategy by significantly
extending its range of services,adding new geographies bothorganically and through acquisitions,and consolidating the market throughselective acquisitions.

Brought together two of the leading full service
providers, giving Keywords critical mass infunctional testing.

April 2014
Established operation in Singapore
Established a full service centre for South East
Asian languages with EA outsourcing its services
to the new centre.

£6m
May 2014
Binari Sonori acquisition
Added a presence in Milan and Los Angeles
and considerably enhanced our position inaudio services and text localisation.

Keywords established as
the “go to” provider for
leading publishers ofinteractive entertainment.

October 2014
Lakshya acquisition
Added one of the most recognised brands
in the large art services market, providing
earlier involvement in the games
development cycle.

January 2015
Alchemic Dream acquisition
Added a well known multilingual customer
support services firm, providing entry into
this fast growing market.

January 2015
Reverb acquisition
Bringing Keywords its first presence inthe fast growing Latin America market,
in Rio de Janeiro.

January 2015
Established operationin Barcelona
Opened a localisation and project
management office in Barcelona
to access talent there.

ANNUAL REPORT AND ACCOUNTS 20147

Business Model

Ongoing content creation
to extend the life of games

OUR
BUSINESS
MODEL

1
1. PRE-PRODUCTION–– Concept art–– Level design

Services Keywords Studios currently provide.
Services Keywords Studios do not currently provide.

Video games are increasingly challenging
to develop and support due to ever moresophisticated content and software and increased
complexity derived not only from the multi-layered
scale of the games but also due to the multiple
platforms and monetisation models via which they
are delivered. The combination of the graphical,
audio and text based content together with theflexibility required to deliver a positive user
experience means that video games are at themost advanced end of entertainment media.
Keywords is an outsourced services company
providing technical services to this industry
globally, assisting developers and publishers
to develop, sell and operationally support theirgames regardless of the deployment platform or
the genre of the game. Currently, the businessprovides art creation, audio recording, localisation,
linguistic and functional testing and customer
support services to the video games market
across all games platforms including consoles,
PCs, the internet, mobile phones and tablets.
These services are delivered through a numberof strategically located production facilities
8

KEYWORDS STUDIOS PLC(“studios”) and through the provision of managed
services on clients’ premises.
The Company focuses on delivering a competitive
service differentiated by high quality and flexibility
across the breadth of the life cycle of games fromconcept to live operations support.
Services provided by the various Keywords
studios are typically differentiated by language
mix, scalability, flexibility, price and proximity toclients. Localisation is not limited to translation
into multiple languages; developers andpublishers need to take into account the varied
cultural, technical and legal differences of theirglobal consumers and the quality of localisation
is viewed as a critical factor in the success ofa new launch and in the returns made on theinitial production investment. The geographicaldifferences require localisation service providers
to diligently consider the target gamers’ age
range, gender and linguistic variables as wellas the cultural, religious and political context ofthe game. As such, Keywords employs gamesspecialised translators and native speaking

2
2. E ARLY STAGE GAMEDEVELOPMENT–– Programming –– Art production–– Story writing–– Audioproduction–– Motion capture• Original–– Development
languagequalityvoice production
assurance• Music scoring–– Game trailers• Sound design

testers who perform in-game quality assurance
on the content in more than 50 languages.
This talent base provides the Group with market
leading scale, which its clients would require
substantial investment to replicate in-house.
The Directors believe that, through thiscapability, Keywords has established an industry
reputation for quality, reliability and flexibility
The Company’s unique selling points, including
the use of games-specialised native staff for
all languages, the ability to offer their services
flexibly on-site at clients’ premises or in its
specialised and secure global studios, its
track record of delivery for many of the mostprominent games companies, together with
its integrated art creation, audio, localisation,
testing and customer service capabilities,
differentiates Keywords from its competitors.
Keywords provides its essential professional
services on a variable cost, time and materials
basis to its largely blue chip customer basetypically charging per art asset, per hour or per
word, invoicing for work done on a monthly basis.

Strategic Report

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6
6. NEW CONTENT FOR GAMES
including game extensions, level expansions and issue patches

3
3. LATER STAGE GAMEDEVELOPMENT–– Functional testing–– Text localisation–– Audio localisation–– Localisation testing–– Cinematics/visual effects–– Player research

As such, work in progress is typically limited tothe preceding month’s activity and underlying
cash generation should be expected to largely
mirror profitability. The Group’s productivity
is facilitated by the scale of its operations
and its ability to resource projects in important
geographies in Europe, Asia and the Americas.
Demand in some areas of the business isseasonal and as such permanent staffing levels
are maintained at conservative levels with highly
flexible staffing arrangements in place, drawing
staff from a bank of regular contractors in most
locations to match the peaks of the activity
cycles. The Directors believe that one of thestrengths of the Group is that it is not directly
exposed to the successes and failures ofindividual game titles. The quantity and qualityof game content is the key driver of demand
for the Company’s services and, thanks to theloyalty of its clients, who have typically increased
the percentage of work awarded to Keywords
year on year, the Company has grown rapidly
over the past five years with minimal investment
in business development.

4
4. LAUNCH–– Certification
testing–– Marketing

The annual business cycle in the industry varies
depending on the market sector and on the gameproduction cycle. Console and PC games largely
follow a seasonal pattern with titles typically
being published for the holiday period including
Thanksgiving and Christmas. Mobile, social andonline games do not follow this pattern andare not driven by particular release schedules.
As Keywords strengthens its original language
game production activities including art creation,functional testing and original voice recording(which take place earlier in the game production
cycle than localisation services), its penetrationof customer care services with their continuous
activity profiles and as the Group continues todrive its exposure to the mobile and social games
market, the marked seasonal revenue curve
previously experienced will continue to beoffset by greater activity around the year.
Time and materials billing arrangements
and delivering client requirements throughflexible resource bases will remain a feature of
Keywords business. As the Company undertakes
acquisitions, it is likely that some of these5
5. ONGOING LIVEOPERATIONSSUPPORT–– Customer support–– Community management–– Data analytics–– Payments processing

businesses will operate less flexibly than
Keywords or will have greater exposure to fixedprice contracting, in which case the Directors will
explore opportunities to move their operating
models closer to those of Keywords over time,
where appropriate.
Keywords is not a capital intensive business.
While willingly investing in tools, game testing
consoles, PCs and mobile devices to support
its testing activities, the Company invested
a total of €1.25m in 2014 (3% of revenue)
which included fit out costs in some locations
as businesses were co-located with each otheror, in the case of Singapore, a new studio wascommissioned. Good cash flow is an importantfeature of the business, generally matching net
income when the accumulation of production
related, multimedia tax credits in Quebec aretaken into account. In 2014, operating profit
amounted to €3.1m which generated operational
cash flow of €1.9m and the Group also
accumulated multimedia tax credits in Quebecof €1.4m which will be claimed during 2015.

ANNUAL REPORT AND ACCOUNTS 2014

9

Chief Executive’s Review

Considerable progress inexecuting our growth strategy

2014 was a significant year in the developmentof Keywords: a year in which we became a groupof companies with a number of well-known
brands providing integrated services to thevideo game development and publishingmarkets around the world.
During the year, in addition to delivering organic
growth of 23% and investing organically in
new studios in Singapore and Barcelona (which
opened in January 2015) we undertook four
acquisitions and made a further two acquisitionsin January 2015. The effect of these acquisitions
has been to strengthen our market position in
our core activities of localisation and testing
services as well as extending our range ofservices upstream to art creation anddownstream to customer support.
While executing and integrating acquisitions, we
continued our focus on timely, secure delivery,
quality and flexibility and we achieved revenues
and profits in line with market expectations.
Service line extensions
In addition to bringing further scale to all of
our existing service lines during the year, wehave extended the business into two newareas of business.
Through the acquisition in October 2014 ofLakshya Digital, a well-established supplier ofoutsourced video game art creation services,
Keywords has extended its reach into the earlier
stage video game production process. Servicing
some leading Japanese video game development
studios as well as those in the US and Europe,
Lakshya creates characters, environments, and ingame items for AAA console titles as well as forsocial, mobile and massively multiplayer online(“MMO”) games.

10

KEYWORDS STUDIOS PLC

We estimate the market for outsourced art
creation and production for video games tobe in the order of twice the size of that for
localisation and testing services at around$1.2bn. We are already gaining visibility of
production pipelines earlier in the development
cycle than we do through our other service lines
and we are already identifying opportunities
to cross sell services at this earlier stage. The
objective for our art creation services line ofbusiness is to grow capacity to fulfil demandin a manner that maintains quality, reliabilityof deliveries and extends our capabilities toareas such as special effects.
Shortly after the end of the year we acquireda customer care services business, Alchemic
Dream. In addition to continuing to grow iscore activities which benefit from a networkof multilingual agents working remotely but
connected through technology platforms,
we intend to accelerate the development ofan alternative customer care service delivery
model that leverages our more than 1,000
games and language specialised staff who
work in our secure facilities in strategicallyimportant locations in Asia, Europe and theAmericas. By doing this, Keywords teams ofnative language employees can follow the gameinto the market as the games transition throughthe production and launch phases to ongoing live
operational support, thereby exploiting their
deep knowledge of all aspects of the game tosupport players as they engage with the content.
We intend to continue to extend our service
lines in line with client and market demandboth through acquisitions and by leveraging
the Group’s existing internal skill sets todevelop additional services to take to market.

h130%
Increase in Group revenues.

h104%
Increase in adjusted profit before tax.

Strategic Report

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14%
Babel increased profitability
from 2% return on sales
to a healthy 14% return.

CASE STUDY: BABELACQUISITION
The acquisition of Babel Media represented one of thefirst in a number of successful buyouts for the Group
following Keyword’s debut on AIM in the summer of2013. The driving force for Keywords going public wasits strategy to consolidate a fragmented services market,
despite the clients being global organisations, and to
become the leading outsourced multilingual services
provider to the video games industry.
Founded in 1999, Babel had become one of the mostrecognised technical services brands in the video games
industry with particular strengths in functional testing,
localisation and localisation testing.
By acquiring Babel, for £5.4m, Keywords significantly
enhanced its functional testing capability, whilst providing
substantial operational synergies with Keywords’ existing
localisation and localisation testing activities as well
as extending its client base and geographical reach
including its first presence to India.
By bringing to Babel the benefits of Keywords’ flatter,leaner structure, its strong focus on project management,
and sharing back office and marketing functions wehave been able to deliver significant cost savings,
with annualised savings in excess of CAD$1.0m, whilst
preserving the enlarged group’s ability to deliver best inclass service across the combined operations. As a result,during the first 10 months under Keywords ownership,
Babel increased profitability from 2% return on sales
to a healthy 14% return.

ANNUAL REPORT AND ACCOUNTS 201411

Chief Executive’s Review(continued)

MAJOR CLIENT CASE STUDY:
A TRACK RECORD IN EXPANDINGOUR RELATIONSHIPS WITH
MAJOR CLIENTS
Keywords has a strong track record of taking advantage of thetrend towards the provision of multiple services to clients andtowards clients’ rationalisation of service suppliers, as game
publishers and developers seek to simplify an otherwise complex
production supply chain.
In the case of one of Keywords’ major clients, Keywords began
supplying a service to control the quality of translations being
supplied by other vendors in 2000.
Four years later, in partnership with the client, Keywords developed
a new, more effective way of testing localised games using native
speaking games testers rather than games testers supported
by linguists.
These two services continued to be delivered from Dublin for six years
while more European languages were added to support the wider
distribution of the games. In 2010, as the client started to rationalise
the supplier base, Keywords started to translate games for the client.
In 2011, Keywords expanded the relationship by starting to provide
translations of game related marketing content and, encouraged by theclient, Keywords established a facility in Tokyo as the client moved froman insourced model of localisation and testing of East Asian languages
to outsourcing with Keywords, to the benefit of its Tokyo studio.
Further supplier rationalisation and internal cost savings led the client
to restructure its operations, moving all its management to the US.
Keywords supported the client in this shift of activities and worked
with the client to design and supply a managed services operationfrom the client’s own facility on the West Coast.
In 2014, with the acquisitions of Binari Sonori and Lakshya, therange of services being supplied has been further strengthened
and extended with art production being added to localisation,
audio, and localisation testing.

12

KEYWORDS STUDIOS PLC

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“Keywords is clearly differentiated from its
competitors by its use of games-specialised
native staff for all languages, its ability to offer
services flexibly on-site at clients’ premises orin its specialised, secure global studios, its track
Keywords’ 14 studios are strategically located toprovide services to key gaming clusters in locations record of delivery for many of the most prominent
such as Tokyo, Singapore, Montreal, Seattle, Los
games companies and by the breadth of its
Angeles and London. We have expanded into new
locations including Singapore and Rio de Janeiro
service capabilities.”
during the year and, in January 2015, we opened
Geographic expansion
The Group has expanded geographically and now
has 14 (2013: 9) studios in 3 continents providing
full, integrated video games services to both local
and global clients. This broad reach has enabled
Keywords to extend its localisation services into
more than 50 languages across 12 platforms toclients in over 15 countries.

a localisation and project management officein Barcelona in order to access local talent pools.
We have also consolidated office locations whereacquisitions have brought studios in the same
location, combining two studios in Montreal
into one unit and doing the same in New Delhi,
providing both cost synergies and the opportunity
to foster greater cross-selling opportunities.
China presents an opportunity for the Groupas the second largest market for games outsideof the US and one that is slowly liberalising.
Changes in government policy in China now
means that it is possible to sell games consoles
there. Microsoft launched the Xbox One inChina in November 2014 and Sony is expected
to follow suite. We therefore continue toreview opportunities to invest organicallyor by acquisition in the region. The Grouphas invested in two business development
resources in China in 2014 and is in theprocess of establishing a wholly foreign
owned enterprise (“WFOE”) in Shanghai inanticipation of investing further in the country.
Acquisitions
In line with the Group’s strategy, Keywords hastaken advantage of the fragmented markets inwhich it operates to grow through a combinationof acquisitions and continued organic growth.
Liquid Violet (audio services), Babel Media(localisation, localisation testing and functional
testing), Binari Sonori (localisation and audio)
and Lakshya Digital (art creation services) were
all acquired during 2014 – in January, February,
May, and October respectively. In January
2015, Alchemic Dream (customer support
and community management) and Reverb(localisation and audio for Brazilian
Portuguese) were added to the stable.

We have been pleased with the progress wehave made with integrating the businesses
acquired. The businesses have performed
well as part of the Group and we have beenvery encouraged by the positive responses
from customers to the acquisitions.
In January 2015, we amended the terms of
our acquisition of Binari Sonori to conclude
the earn out arrangements earlier thanoriginally planned with a view to integrating
the business more closely with that of thecore Keywords operations. More detail isprovided in the Financial and Operating
Review on pages 17 to 19.
We have been delighted with the integrationof Babel Media in particular which, as the mostdirectly competitive business to that of Keywords,
presented the greatest risk and greatest potential
return. In the 10 months under our ownership, we
have been able to make annualised cost savingsof over CAD$1.0m from introducing a flatter,leaner structure and combining our two Montreal
locations, back office and sales and marketing
functions. This, combined with a strong trading
performance from Babel, has resulted in thebusiness of Babel moving from a 2% returnon sales in 2013 to a healthy 14% return onsales in 2014.
We expect acquisition activity to be a featureof the business for the foreseeable future as
the company takes advantage of its leadership
position in the market and continues toconsolidate carefully selected, earnings accretive
businesses. As such, we continue to review anumber of acquisition opportunities which will
provide the Group with complementary services,increased scale in its existing activities or further
geographic expansion.

Results overview
The Group’s revenues increased by 130% to€37.29m (2013: €16.18m) during the period.
This increase was spread across all lines ofbusiness: Localisation activities grew by 125%;
Audio grew by 311%; and Functional Testing,expanded many fold, as outlined in more detailin the operational review.
Gross profit margins reduced modestly to 34.1%(2013: 34.7%) as a result of the change in the mixof business of the Group in 2014 compared to2013, particularly the higher percentage of lower
margin functional testing revenue following theacquisition of Babel Media in February.
Underlying operating expenses excluding
one-time costs increased by a total of €4.37m
for the period to €7.56m (2013: €3.19m)
reflecting our investment in expansion but weremaintained at approximately 20% of revenues.
The one-time costs included IPO costs of nil(2013: €1.12m), non-cash costs related to shareoption expenses of €0.16m (2013: €0.07m),
amortisation of intangible assets of €0.47m(2013: nil) and costs of acquisition andintegration of €1.46m (2013: €0.07m).
The Group reported adjusted profit before tax(before IPO expenses, share option charges,
amortisation of intangible assets, costs ofacquisition and integration and foreign currency
movements) for 2014 of €5.05m (2013: €2.45m).
Statutory profit before tax for the period was€3.44m (2013: €1.16m).

ANNUAL REPORT AND ACCOUNTS 201413

Chief Executive’s Review(continued)

Results overview continued
The Group’s effective tax rate has increased
in line with the increased proportion of profits
earned in higher tax rate jurisdictions including
Canada, US, Japan and Italy. The Group’s effective
tax rate based on the KWS measured profit
before taxation in the period (as set out on
page 18) was 24.0% (2013: 16.0%).
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 8.54c
compared with 5.76c for 2013. After these items,
the basic earnings per share from continuing
operations was 4.94c (2013: 2.14c).
Operational review
2013 and 2014 have been years in which thetransition to the latest generation of games
consoles have led to some unusual trading
patterns. In 2014, as expected, activity in the
final quarter of the year was atypically busy
following a less active summer period as
publishers of console games for the PS4 andXbox One chose not to release a number of titlesin the traditional Thanksgiving and Christmas
holiday gifting period in favour of releasing in
Q1 2015 to take advantage of the increased
installed base of those consoles given the strong
sale of those devices in the holiday period.
Overall, the Company continued its strong
performance achieving organic growth of 23%
while more than doubling total revenues to€37.29m (2013: €16.18m) including the effectof acquisitions. The six acquisitions made todate have also broadened our range of services
and further extended our geographical reach.
Localisation testing operations, which
accounted for 39% of Group revenue, grew by
58% to €14.66m (2013: €9.28m). This includes
contribution from the acquisition of Babel Mediain February 2014. Despite having experienced
a significant reduction in volume from a majorclient which was not as active during this period,
this service line continued its strong growththanks to its market leading reputation andoverall healthy demand from console andmobile games sectors.
Our Functional testing service, which accounted
for 13% of Group revenue in 2014 (2013: 2%),
was transformed into a service line with criticalmass through the acquisition of Babel Media
where functional testing was a larger share of its
overall activity. We achieved revenues of €4.99m
14

KEYWORDS STUDIOS PLC(2013: €0.35m) undertaking significant projects
for clients including Warner Bros., Carbine
and Bioware.
Localisation (translation) activities, including
contributions from Binari Sonori which was
acquired in May 2014, increased revenues by 125%,
to €11.97m (2013: €5.32m) and accounted for 32%
of Group revenue. Binari Sonori’s translation andaudio business is focussed on the console gamemarket particularly for large, high production value,
AAA game titles. In contrast the core translation
business at Keywords and at Babel derives the
majority of its revenue from mobile, social andonline games. The combination of these threebusinesses has resulted in the creation of themarket leading video games localisation services
supplier, well represented in all types of games.
Growth in our Audio activities of 311% to€5.08m (2013: €1.23m) was driven both byorganic growth and the acquisitions of Liquid
Violet and Binari Sonori in January and May
2014 respectively, which both performed wellfollowing their acquisition. Voice recordings invideo games add considerable depth to a gameand are expected to continue to grow as the newgeneration of consoles provide more powerfulprocessors and larger storage capabilities toenable richer gaming content than ever before.
Similarly, smartphones are becoming increasing
capable gaming platforms and the additionof voice content to games is a trend we also
expect to see accelerate in mobile games.
Art creation services was added to our rangeof services through the acquisition of Lakshya
Digital in October 2014 adding revenues of€0.61m in the last quarter. In the face of strong
market demand for art creation services, we
intend to invest in organic expansion and further
acquisitions to build this service line to match
those of our translation and testing businesses
in the coming years.
As we grow, we have continued to invest in
the infrastructure to support the larger Group.
We have benefitted from some strong additions
to our senior leadership team following theacquisitions made during the year. We expanded
our sales support, growing from one dedicatedbusiness development executive in 2013 toeight in 2014. Investment in project management,
workflow management and financial reporting
continues as these tools are rolled out to support
all operations in a centralised and consistentmanner, facilitating strong management
reporting and control.

6
Acquisitions across the global market
since early 2014.

978Average number of people on the
payroll in 2014.

Strategic Report

GROWTH IN SERVICE LINE REVENUES
Localisation testing (m)Functional testing (m)€14.8m

€5.0m

h58%

€14.8

15
12
9

h€4.7m

4
€9.3

3

6

2

3

1

0

€5.0

5

2013

2014

0

€0.3
2013

2014

Audio/Voiceover services (m)Art creation services (m)

€5.1m

€0.6m

6

0.8

h311%

€5.1

5

3

0.4

2
1
0

0.2

€1.2
2013

2014

Localisation services (m)

€12m
h125%

€12.0

12
10
8
6

€5.3

4
2
0

2013

2014

0

III

We also continue to invest in talent and our
growth helps us to attract and retain talent,
as candidates can see exciting opportunities
for career progression throughout the Group.
The Group employed an average of 978 people
in 2014 (2013: 371).
OutlookWith the installed base for the new generationof consoles having reached what many believe tobe the tipping point following the 2014 holiday
season, 2015 is expected to be the first solid,
post transition year in the console game sector
and we are looking forward to returning to morenormal trading patterns as a result.
Strong demand at our recently acquired Lakshya
Digital art outsourcing business will be met byinvestment in expanding its resource base in
India as well as a small studio in Seattle tohelp manage and scale the business, while
maintaining quality.
In January 2015, to better serve the multiplayer
games segments, we opened a localisationand project management office in Barcelona inorder to access local talent pools. This modest
investment is already bearing fruit with somenew client wins.

€0.6

0.6

4

II

€Nil
2013

2014

Entering 2015 with six lines of business, we feel
confident that the synergies already experienced
between the business units will continue to build
through 2015 and beyond, as we continue toidentify and convert cross selling opportunities.
We expect to focus on opportunities to grow our
newer service lines to achieve a good balancewith our other business lines. In particular, theart outsourcing market is expected to yield someinteresting acquisition candidates as we seek
opportunities to extend our services in thatarea as well as broaden our geographic spreadto better enable us to leverage the synergies
with our other services.
We will continue to manage our businesses ina lean and agile manner to optimise resourcing
levels across the business and to leverage thebenefits of centralised functions across a larger
group while operating locally to our clients,
enabling us to best interpret their needs. 2015
will be another busy year for the Group as
we make further progress with integrating
acquisitions and realise the full year benefitsof acquisitions made through 2014, whilst also
driving growth both organically and throughfurther selective acquisitions.

ANNUAL REPORT AND ACCOUNTS 201415

Chief Executive’s Review(continued)

Principal risks and uncertainties
Keywords is a fast growing but relatively smallGroup operating in a wide spread geography. The
markets we operate in are fragmented in termsof the suppliers of services but our client baseis relatively concentrated with a number of verylarge, global suppliers at the head and a large
tail of small, independent developers. The market
is highly dynamic, with technology, businessmodels and consumer tastes evolving constantly.
In this environment Keywords has the objectiveof becoming the leading global supplier of
localisation, testing, audio 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 andits 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:A) 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 five clients account for 49% (2013: 61%)of the company’s revenues. These companies
have exacting standards and demand a highquality of service. Any failure in this regardor breakdown in the relationships at the top
level could cause considerable damage tothe business. The potential impact is partiallymitigated through the company’s highly flexible
resource base and its expansion continues toreduce its exposure to any single large client.

16

KEYWORDS STUDIOS PLC

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

Success of acquisitions:
Keywords has embarked on an acquisition
strategy to reinforce its global growth.
Managing such acquisitions successfullyand embedding the Keywords culture will bea crucial ingredient of success. Failure to do
so will have adverse consequences such as
management distraction, disposal and reduced
profit. Whilst middle management is relatively
inexperienced in this regard, this is mitigated by
the considerable experience within the senior
management team and across the Board. The
group is actively involving middle managementin the acquisition process to broaden theexperience and our capabilities in executing
and integrating acquisitions.

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

C) Financial risks
Adequate overseas financial controls:
As a business like Keywords grows rapidly, global
financial controls, and regular audits need to bein place to ensure smooth, timely and accurate
reporting to 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.

B) Internal risks
Security:
The industry requires the highest standardsof security within a company offering services
such as Keywords. Security breaches may leadto piracy, disruption of clients’ marketing plans,
loss of competitive edge and could result incompensation claims. Keywords maintains
physical and data security policies andprocedures which are regularly audited
by its larger clients.

Andrew Day 		
Chief Executive		April 14, 2015

Strategic Report

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Financial and Operating Review

Strong balance sheet
for further growthGroup performance2014 was a year of profitable growth andexpansion for the Group. This has been achieved
against the backdrop of a games market which
was unexpectedly quiet in the first half of theyear due to a lull following the intense activity
that accompanied the launch of the Xbox One
and PlayStation 4 consoles in November 2013,
and the consequent launches of a significant
number of larger console titles being moved
from the pre-Christmas trading period to thefirst quarter of 2015. This created a busier
fourth quarter of the year, as foreseen at
the time of the Company’s interim results.
The original core service lines continued to growstrongly and were strengthened significantly
by the acquisition of Babel Media Group, Binari
Sonori and Liquid Violet. In addition the Groupbegan its diversification in to the video gameart outsourcing market, in line with its statedstrategy, with the acquisition of Lakshya Digitalin October 2014.
Keywords geographic reach continued to growthrough the opening of the Keywords’ Singapore
studio, and through acquisitions in New Delhi,
Pune, Los Angeles, London and Milan.
Revenue
Revenue for 2014 was up 130% at €37.3m(2013: €16.2m) due to both organic growth andacquisitions. The organic growth rate, excluding
all acquisitions, was up 23% which was very
encouraging considering the market conditions
encountered in the first half of 2014.

Revenue mix
Revenues increased across all lines of business in
2014, both organically and through acquisitions,compared with 2013.
The new acquisitions have improved the balanceof the sales mix considerably. The Group’s
dependence on localisation testing has been
reduced to 39.3% of sales in 2014 from 57.4%
in 2013. Localisation testing services grewstrongly by 58% with sales of €14.7m in 2014(2013: €9.3m), in part due to additional services
from Babel Media and the increased number ofconsole titles launched in 2014 and early 2015
compared to 2013.
The acquisition of Babel Media has markedly
strengthened functional testing with sales of€5.0m (2013: €0.3m) which represented 13.4%
of Group sales (2013: 2.2%). Audio services
revenue quadrupled to €5.1m in 2014 (2013:€1.2m), reflecting the acquisitions of Binari
Sonori and Liquid Violet. As a result audio
services have grown to represent 13.6% ofGroup sales, up from 7.7% in 2013. Lakshya,which was acquired in October 2014, delivered€0.6m in sales for our new Art Creation services
line, which accounted for 1.6% of Group sales
but will become a larger part of the sales mix
next year.
Localisation services revenue grew by 125% to€12.0m (2013: €5.3m), and continued to makeup a stable proportion of Group revenues at 32%(2013: 32.8%). This was due to the 40% organic
growth delivered by the existing Keywords
business, in addition to the contributions from
Binari Sonori, and to a lesser extent, Babel Media.

The acquisitions and the opening of theSingapore studio during the period have greatly
increased the Group’s presence in North America
and in Asia. The sales mix by region based on theGroup’s operational jurisdictions are as follows:

EuropeAsia
North America

Year ended
31 December
2014%Year ended
31 December
2013
%

46
9
45

69
7
24

100

100

Gross margin
Gross profit for the year was €12.7m (2013 of€5.6m). The gross margin percentage reduced
very slightly to 34.1% (2013: 34.7%). The mostsignificant impact on the gross margin in 2014
was as a result of the increase in functional
testing as a proportion of Group sales, as it
commands a lower gross margin than theGroup’s other services. This was partially
offset by a small positive effect from the larger
weighting of Audio services following theacquisitions of Binari Sonori and Liquid Violet.
Operating profit (“EBITDA”)
EBITDA is a measure of operating profit usedby the Board, which excludes depreciation,amortisation, share option expenses andone-time costs related to merger and acquisitions
and to the IPO. For 2014, EBITDA increased 123%
to €6.02m, compared with €2.69m for 2013.

ANNUAL REPORT AND ACCOUNTS 201417

Financial and Operating Review(continued)

Operating profit (“EBITDA”) continued
Operating Profit and Adjusted Profit Before
Tax for Year Ended 31 December 2014

Statutory profit before tax
Add back costs excluded
from Group’s measure of PBTKWS measured profit
before tax
Add back depreciationand interest
Earnings before interest,
tax, depreciation andamortisation
Details of costs excluded
from Group’s measureof PBT
Costs of acquisition
and integration
Costs of Initial
Public Offering
Share option expense
Foreign exchange loss/(gain)
Amortisation of intangibles

Year ended
2014€’000sYear ended
2013€’000s

3,436

1,158

1,618

1,296

5,054

2,454

964

238

6,018

2,692

1,461

–

–
156
(467)
468

1,124
71
101
–

1,618

1,296

During the year there was some restructuringof some of the newly acquired entities in order
to cut costs and to realise synergies over time.
Operating expenses excluding depreciation,
increased by €3.78m to €6.70m (2013: €2.92m)
mainly due to the new acquisitions and theopening of the Singapore studio but thesecosts decreased slightly as a percentage ofsales from 18.1% to 18.0% of sales.
Net finance costs
During 2014 there was net finance income of€0.36m compared to an expense of €0.07m
in 2013 primarily due to the impact of foreignexchange gains. Foreign exchange gains of€0.5m (2013: loss of €0.1m) on translation werecreated mainly due to the weakening of the Euroagainst Sterling, Canadian Dollar and US Dollar.
The interest expense of €0.06m (2013: nil) islargely due to the interest on certain financeleases which exist within Babel Media.
Adjusted Profit before Tax
Adjusted Profit before Tax is a measure of
profitability of the business used by the Board tomeasure the more meaningful underlying profit
generation of the Group. This measure excludes
one-time expenses, such as the expenses of the18

KEYWORDS STUDIOS PLC

IPO, and also share option expenses and foreign
currency gains or losses. Adjusted profit before
tax for 2014 was €5.05m compared with €2.45m
in 2013.
Taxation
The Group’s effective tax rate has increased
in line with the increased proportion of profits
earned in higher tax rate jurisdictions including
Canada, US, Japan and Italy. The Group’s effective
tax rate based on the KWS measured profit
before taxation in the period (as set out inthe previous table) was 24.0% (2013: 16.0%).
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, was 8.54c
compared with 5.76c for 2013 which excluded
the one time IPO costs as well. Basic earnings
per share based on the statutory profit after
tax was 4.94c (2013: 2.14c).
Cash flow and debt
The Group continues to operate without any
financing debt. The Group generated operating
cash of €1.90m for the year, compared with
€2.29m for 2013. However, during the year, theGroup also accumulated multimedia tax credits
in Quebec of €1.4m (2013: €0.15m) which will
be claimed during 2015. The total multimedia
tax credit accrual amounted to €3.0m as at
December 31, 2014.
The Group made four acquisitions to strengthen
the business during the year with a net cash
outflow on consideration payments of €8.9m,€3.0m repayments of borrowings in Babel andan additional €1.5m in acquisition expenses andintegration expenses. Investment in fixed assets
amounted to €1.3m (2013: €0.39m) reflecting
the cost of bringing the Babel Media and KWS
Montreal operations together into one facility,
relocating Babel Media India to the Lakshya
studio in Gurgaon and fitting out the Singapore
office. Additionally, there was ongoing purchasesof games testing equipment.
The issue of new shares via a Placing in May
generated net proceeds of €7.3m. In 2013 theissue of new shares in the IPO generated grossproceeds of €11.6m. Expenses related to the
IPO in 2013 amounted to €1.40m, of which€0.3m was capitalised against share premium.
Cash and cash equivalents decreased from
€15.3m to €11.01m excluding accrued
multimedia tax credits of €3.0m (2013: €0.2m).

Foreign exchange
Keywords does not hedge foreign currency profit
and loss translation exposures. The Group’s
results are, therefore, effected by movements in
exchange rates and the 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
0.36p per share on October 22, 2014, the Board
recommends a final dividend of 0.74p per share,
which will make the total dividend for the year
ending December 31, 2014 1.10p per share, a
10% increase over 2013. Subject to shareholder
approval at the Annual General meeting, thefinal dividend will be paid on June 26, 2015 toall shareholders on the register at June 5, 2015.
The final proposed dividend will cost an
estimated €443,200.
Events after the reporting period
On March 26, 2015 the government of Quebec
announced in their budget the reversal of theearlier reduction of their multimedia tax credits
from 37.5% of the cost of qualifying labour to30%, with immediate effect.
On January 20, 2015 the Company agreed withthe selling shareholders of Binari Sonori S.R.L.
to vary the terms of the acquisition agreement
bringing to a close the earn out conditions 12
months earlier than originally agreed and thereby
integrate the businesses more closely withthe rest of the Group. Under the terms of theacquisition, deferred consideration of no morethan €4.0m could have been payable calculated
by reference to the profit before interest andtax of Binari Sonori in the years to December 31,
2014 and December 31, 2015. Under the termsof the agreement, the Company agreed to
pay to the selling shareholders total deferredconsideration of €300,000 which has beensatisfied by the issue of 158,250 new ordinary
shares of Keywords at a price of 145.47 pence
per share.
On January 18, 2015 the Company acquired theentire 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 leadinggames publishers.

Strategic Report

Under the terms of the agreement, a total
consideration of up to €300,000 is to be paidin cash to the sellers.
On January 9, 2015, the Directors incorporated
Keywords International Barcelona SL, a company
registered in Spain, as part of the Group’s
continuing geographic expansion.
On January 6, 2015 the Company acquired theentire issued share capital of Alchemic Dream Inc.,a company registered in Canada. Alchemic Dream
specialises in providing cost effective and flexible
customer care services to the video game
publishers. Under the terms of the agreement,
which is expected to be earnings enhancing,a maximum total consideration of CAD$1.25m
in cash will be paid to the sellers dependent on
certain closing balance sheet related adjustments
which are still to be calculated.
On December 17, 2014 an employee benefit
trust (“EBT”) was set up, in which to “warehouse”
Keywords Studios shares in preparation for the
exercise of options and the vesting of awards
in the future. The EBT was created to allow theflexibility to issue grants of options and awards
which exceed the 5% issued share capital of theCompany. In the current year to date 200,000
ordinary shares of Keywords at a price of 145.00
pence have been bought by the EBT at a grosscost of €372,320.
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.

II

III

Adjusted EBITDA Margin
The Board uses an adjusted measure of EBITDA
to monitor the performance of the Group. Thismeasure excludes foreign exchange gains orlosses, any one-time expenses and the costof employee share option awards.
Adjusted Operating Profit Margin
The Board also uses an adjusted measure ofoperating profit to monitor the performance of
the Group. This measure similarly excludes foreignexchange gains or losses, any one time expenses,
and the cost of employee share option awards.
Non-financial performance is measured by:
Resource deployment
The Board reviews the efficiency at which theGroup is deploying its staff resources to ensure
optimum staffing strategies and utilisation rates
are being deployed.
Business won/lost
The Board reviews the levels of new businesswon and lost, and monitors the reasons for both,to ensure that the services being offered to themarket are appropriately priced and relevant.

Andrew Lawton
Chief Financial Officer
April 14, 2015

Financial performance is measured by:
Revenue Growth
Revenue Growth is measured by line of businessand overall against the Board’s strategic goal togrow organically and by acquisition.
Gross Profit
Gross Profit is a key measure of the Group’s
pricing strategies, use of resources and its
ability to optimise resource utilisation.
Overhead costs by location
The Board monitors the overheads to ensure thecosts in each location are in line with the level ofbusiness being generated.

ANNUAL REPORT AND ACCOUNTS 201419

Board of Directors

Ross Graham (67)
Independent Non-Executive Director
and Chairman

Andrew Day (51)Group Chief Executive Officer

Andrew Lawton (52)Group Finance Director

Ross Graham has extensive executive andnon-executive experience in the technology
sector. He worked from 1987 to 2003 at
Misys plc, a global financial software productand solutions provider. He joined Misys as
Finance Director upon its flotation, latterly
becoming corporate development director,
where he played a key role in developing andimplementing 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 senior independent directorshipand chairman of the audit and remunerationcommittees. He was also a non-executive
director at Wolfson Microelectronics Plc andwas previously senior independent director andthe audit committee chairman prior to its saleto Cirrus Logic Inc. last year. 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 of England & Wales. Ross wasappointed Director and Chairman of Keywords
prior to the flotation in July 2013.

Andrew has a background in technology,
manufacturing and business services
through corporate development and generalmanagement 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 ofinteractive retail software developer, 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 has extensive experience
within the video games industry, FMCG andmulti-site retail. He was previously CFO of
the fast growing international business, Sony
Computer Entertainment Europe where hejoined 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 broadranging, including Finance, IT, Digital Operations
and Business Transformation. Andrew wasappointed to the role of Group Finance Director
in July 2014. He is a Member of the Instituteof Chartered Accountants.

20

KEYWORDS STUDIOS PLC

IDavid Reeves (67)
Independent Non-Executive Director

Giorgio Guastalla (45)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 andWorldwide Marketing Director in 1989. In 1991,
David served as the General Manager and Vice
President of Marketing in Tokyo 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 andPresident in 2003. Throughout his career,David has developed knowledge of the various
working styles of European, American and Asian
corporations. He was appointed to the Boardof Keywords Studios Limited on May 29, 2013.

Giorgio Guastalla is co-founder of Keywords.
Prior to establishing Keywords in Ireland in
1998, Giorgio held various positions in marketingand IT at Brent International PLC based in the US,
Spain, UK and France. In 2002 Giorgio founded
Italicatessen Ltd., a company operating in thefood sector. Giorgio was CEO of Keywords until
2009 before concentrating on his other businessinterests and moving to a non-executive Directorrole at Keywords Studios.

Governance Report

III

ANNUAL REPORT AND ACCOUNTS 201421

Directors’ Report
The Directors present the annual report together with the audited consolidated financial statements for the year ended December 31, 2014.
Disclaimer
The purpose of this Annual Report and Financial Statements is to provide information to the members of the Company. The Annual Report and Financial
Statements have been prepared for, and only for, the members of the Company, as a body, and no other persons. The Company, it’s Directors andemployees, agents or advisers do not accept or assume responsibility to any other person to whom this document is shown or into whose hands
it may come and any such responsibility or liability is expressly disclaimed.
The Annual Report and Financial Statements contain certain forward-looking statements with respect to the operations, performance and financial
condition of the Group. By 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 thisAnnual Report and Financial Statements and the Company undertakes no obligation to update these forward-looking statements. Nothing in this Annual
Report and Financial Statements should be construed as a profit forecast.
Results and dividends
The results for the year are set out on page 13. Dividends paid and proposed are set out on page 44. The Board is proposing a final dividend of 0.74p per sharefollowing the payment of an interim dividend of 0.36p per share on October 21, 2014. The proposed total dividend for the year is therefore 1.1p per share.
Directors and changes to the Board
The Company was formed on May 29, 2013, when Andrew Day, David O’Connor, David Reeves and Giorgio Guastalla were appointed to the Board.
Ross Graham was appointed to the Board on July 8, 2013.
During the year David O’Connor resigned from the Board on July 31, 2014 and Andrew Lawton was appointed as Group Finance Director after joining theBoard on July 1, 2014. Details of members of the Board at December 31, 2014 are set out on page 21.
Going concern
In view of the Group’s resources, cash at December 31, 2014 of €11.01m, free cash flow in 2014 of €1.90m, 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 25. No director had a material interest in any
significant contract, other than a service contract or contract for services, with the Company or any of its operating companies at any time during the year.
The names of all persons who, at the year end, were Directors of the Company can be found on page 21 under The Board of Directors.
Corporate GovernanceCompliance with UK Corporate Governance Code
Keywords is committed to high standards of corporate governance throughout the Group. As a company whose shares are traded on AIM, it is not required
to comply with all the requirements of the UK Corporate Governance Code 2012 (“the Code”). However, the Board recognises the importance of, and iscommitted to, ensuring that effective corporate governance procedures are in place as appropriate for a public company of its size and complexity andin the light of the risks and challenges it faces.
The Group’s corporate governance arrangements are set out below:
The Board
The Board is comprised of two Executive and three Non-Executive Directors. The Board considers that Ross Graham and David Reeves are independentin character and judgement and that there are no relationships or circumstances which are likely to affect their independent judgement.
The Board is responsible for the overall management of Keywords, our strategy and long-term objectives. It provides leadership to Keywords having
regard to the interests of shareholders and other stakeholders.
Audit Committee
The Audit Committee is chaired by 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,and reviews the work of external auditors.

22

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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 25 and 26.
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
to achieve business objectives, and can only provide reasonable assurance against material misstatement or loss.
The Directors believe that the Group has internal control systems in place appropriate to the size and nature of the business. The key elements are:• Group Board meetings, at a minimum of eight times per year, with reports from and discussions with senior executives on performance and key risk
areas in the business;• monthly financial reporting, for the Group and for each subsidiary, of actual performance compared to budget and the prior year;• annual budget setting; 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 December 31, 2014, 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
Schroders Investment Management
Liontrust Asset Management
Artemis Investment Management
Legal & General Investment Management
Invesco Perpetual
Hargreave Hale
Kabouter Management

Shares%11,978,736
5,296,573
3,874,843
3,805,839
3,250,000
2,830,000
2,621,035
2,200,000
1,900,000

25.4
11.2
8.2
8.1
6.9
6.0
5.6
4.7
4.0

Future developments
Important events since the financial year end are described on page 15 of the Chief Executive’s Review and future developments are described in thestrategy section of the Strategic Report on page 6.
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
expected by the Group’s clients.
The average headcount reached 978 for 2014 with peak employment of 1,245 in November 2014. Keywords permanent staff complement averaged
345 during 2014. 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 provision of training and career development and promotion, where appropriate. The Group has continued its policy of employee involvementby making information available to employees on matters of concern to them. Many employees are stakeholders in the Company through participationin share option schemes and a long-term performance share plan.
The Group has not disclosed further details on employment of disabled persons or employee involvement as it has less 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 and 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.

ANNUAL REPORT AND ACCOUNTS 201423

Directors’ Report(continued)
Statement of Directors’ responsibilities continued
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.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclosewith reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements andthe Directors’ remuneration report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and theGroup and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors as at the date of this report, whose names and functions are listed in the Board of Directors on page 21, confirm that:
do 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
published on the Group’s websites 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 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
April 14, 201524

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Directors’ Remuneration Report
Dear fellow shareholder,
It is my pleasure to present the Directors’ remuneration report for the period ended December 31, 2014.
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
the long-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
for constructively 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
Chairman of the Board is determined by the Remuneration Committee. The remuneration of the Non-Executives is a matter for the Executive memberof 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, other members of theBoard may attend the Committee’s meetings.
Meetings
The Remuneration Committee is planned to meet at least three times a year. In the year ended December 31, 2014, the remuneration committee met
on four 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 December 31, 2014 was €510,128(2013: €197,965). The period was from incorporation in July, 2013 to the end of the year. The remunerations of individual Directors were as follows.
2014

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

2013

Salaryor fees€

Bonus€

Pension€Share
options€

Total€

Salaryor fees€

Bonus€

Pension€Share
options€

Total€

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

–
–
–
–
–
–

28,043
–
–
–
–
8,969

215,599
56,81755,96543,38357,94880,41662,50047,50026,407
24,07023,223
–

–
–
–
–
–
–

–
–
–
–
–
–

9,005
5,260
–
–
–
–

71,50552,76026,407
24,07023,223–394,079

79,037–37,012

510,128

183,700––

14,265

197,965

ANNUAL REPORT AND ACCOUNTS 201425

Directors’ Remuneration Report(continued)
Directors’ interest in shares
The interests of each person who was a director of the Company as at December 31, 2014 (together with interests held by his or her connected persons) were:

Giorgio Guastalla5
Andrew Day
David Reeves
David O’Connor6
Ross Graham

5
6

2014
Number

2013
Number

10,780,862
5,296,573
16,260–30,49010,780,862
5,296,573
16,26012,195–

16,124,185

16,105,890

Giorgio Guastalla’s indirect shareholding arises out of his 90% holding in P.E.Q. Holdings Limited.
David O’Connor resigned as a director on July 31, 2014.

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

Andrew Day
David O’Connor
Andrew Lawton

Start of year
NumberAwardedNumber

VestedNumberLapsedNumberEnd of year
NumberVesting
date

86,59365,811–––50,000––––65,811–

86,593–50,000July 12, 2016–
July 3, 2017

152,404

50,000–65,811

136,593–

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

Share Option Plan

Andrew Day

David O’Connor

63,502–––63,502

–

4,490
4,490
4,490

–
–
–

–
–
–

4,490
4,490
4,490

–
–
–

–
–
–

13,470––13,470––76,972––

13,47063,502–

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 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 24 on related party transactions.

Giorgio Guastalla
Chairman of the Remuneration Committee

26

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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
not a director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a director of theCompany. For these purposes “payments” includes the Committee satisfying awards of variable remuneration and, in relation to an award over shares,
the terms of the payment 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 thebest interests 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 fromexternal 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; and• 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 theprinciple of 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
to participate in a bonus scheme. The bonus amount is a percentage of salary ranging from 20% to 50%, which is subject to the attainment of specifictargets set for each individual. The portion of bonus earned in any one year depends on the Remuneration Committee’s assessment of each individual’s
performance and 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 remunerationcommittee 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 is toretain 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.

ANNUAL REPORT AND ACCOUNTS 201427

Directors’ Remuneration Policy Report(continued)
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’ and shareholders’ 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 toperformance conditions. Performance conditions are measured over three financial years and are not retested. Conditions are reviewed annually.
Leaver treatment
Fair treatment will be extended to departing executives. Executives who resign or are dismissed for cause are, by default, not eligible for 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 foran annual bonus for the proportion of the bonus year served. However performance will be tested in line with the normal performance schedule.

28

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Independent Auditor’s Reportto the Members of Keywords Studios plc
We have audited the financial statements of Keywords Studios plc for the year ended December 31, 2014 which comprise the Group and Parent Company
Statements of Financial Position, the Group and Parent Company Statements of Comprehensive Income, the Group and Parent Company Statements ofCash Flow, the Group and Parent Company Statements of Changes in Equity, the related notes and the Directors Remuneration Report. The financial
reporting framework that has been applied in their preparation is applicable 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, 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 noother 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 audit work, for this report or for opinions we have formed.
Respective responsibilities of Directors and Auditor
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Groupand company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. 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 of affairs of the Groupand company and of the profit or loss of the Group and company for that period. The Directors are also required to prepare financial statements in accordancewith 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 accounting estimates that are reasonable and prudent;• state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed
and explained in the financial statements; and• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclosewith reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with therequirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are
published on 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 of the parent company’s affairs as at December 31, 2014 and of
the Group’s and the parent company’s profit for the period 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 appliedin accordance with the provisions of the Companies Act 2006; and• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are preparedis consistent with the financial statements.

ANNUAL REPORT AND ACCOUNTS 201429

Independent Auditor’s Report (continued)
to the Members of Keywords Studios plc
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
Mercer Street Lower
Dublin 2
IrelandApril 14, 201530

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

Consolidated Statement of Comprehensive Income

Years ended 31 December
Note

Revenues
Other operating costs
Multimedia tax credits

4Gross Profit

2014€

2013 Restated€37,293,179(25,980,943)
1,413,038

16,184,611(10,721,956)
152,260

12,725,274

5,614,915(7,566,240)–(156,000)(1,461,054)(467,786)(3,196,156)(1,123,566)(70,755)––(9,651,080)(4,390,477)

6

3,074,194
516,028(154,662)

1,224,438
59,335(125,710)

73,435,560(1,215,373)

1,158,063(393,720)

Profit for the year
Other comprehensive income:Exchange (losses)/gains on translation of foreign operations

2,220,187

764,343(287,970)

84,591

Total comprehensive income for the year attributable to the owners of the parent

1,932,217

848,934

Note

Euro centEuro cent

9

4.94
4.93

2.14
2.12

Other administration expenses
Costs of Initial Public Offering
Share option expense
Costs of acquisitions and integration
Amortisation of intangible assets
Administrative expenses
Operating profit
Financing income
Financing cost

5
6

Profit before taxation
Tax expense

Earnings per share
Basic earnings per ordinary share (Euro cent)Diluted earnings per ordinary share (Euro cent)9

The notes on pages 38 to 62 form an integral part of these consolidated financial statements.
On behalf of the Board

Andrew Day
Director

Andrew Lawton
Director

April 14, 2015

ANNUAL REPORT AND ACCOUNTS 201431

Consolidated Statement of Financial Position

As of 31 December
Restated

Note

Non-current assets
Property, plant and equipment
Goodwill
Intangible assets
Deferred tax assets

14
12
13
28

Current assets
Trade receivables
Other receivables
Cash and cash equivalents
Short-term investments
Deferred tax assets

15
16
17
18
28

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

19

20

Total equity
Current liabilities
Trade payables
Other payables
Corporation tax liabilities

21
22

Non-current liabilities
Other payables
Deferred tax liabilities

22
28

Total equity and liabilities

2014
€

2013
€

2,760,906
14,710,709
2,966,537
435,652

600,415–––

20,873,804

600,415

6,203,352
5,644,086
11,013,977
258,866
377,237

1,303,462
1,125,451
15,270,569
518,506–

23,497,518

18,217,988

44,371,322

18,818,403

551,146
18,542,387(370,069)
5,667,168(265,116)
226,755
7,666,617

464,782
11,249,637(370,069)–
22,85470,755
6,055,588

32,018,888

17,493,547

2,322,061
6,880,839
542,983

503,634
516,399
4,627

9,745,883

1,024,660

1,218,550
1,388,001

300,196–2,606,551

300,196

44,371,322

18,818,403

The notes on pages 38 to 62 form an integral part of these consolidated financial statements. The financial statements were approved and authorisedfor issue by the Board on April 14, 2015.
On behalf of the Board

Andrew Day
Director
April 14, 2015

32

KEYWORDS STUDIOS PLC

Andrew Lawton
Director

I

II

Financial Statements

Consolidated Statement of Changes in Equity

Share
capital€Sharepremium€

Mergerreserve
restructuring€

Mergerreserveacquisitions€

Foreignexchangereserve€

Shareoptionreserve€

Retainedearnings€

Total
equity
€

188

–

–

–

(61,737)–

6,072,372

6,010,823

–
–
–
–
–
–
464,594 11,530,689–(281,052)

–
–
–
–
–

–
–
–
–
–

84,591–––––70,755––––(370,069)–––

Balance at 31 December 2013
Profit for the year
Other comprehensive income
Share option expense (Note 20)
Dividends paid (Note 10)
Shares issued for cash (Note 19)
Shares issued upon acquisitions(Note 19)
Merger reserve arising on Groupacquisitions (Note 19)464,782 11,249,637
–
–
–
–
–
–
–
–
48,944
7,292,750(370,069)
–
–
–
–
–

–
–
–
–
–
–

22,854–(287,970)–––

70,755––
156,000
–
–

–

–

–

–

Balance at 31 December 2014

Balance at 1 January 2013
Total comprehensive income forthe year
Share option expense (Note 20)
Dividends paid (Note 10)
Shares issued (Note 19)
Share issuance cost capitalised
Merger reserve arising on Group
reconstruction (Note 19)–

37,420––––5,667,168––

551,146 18,542,387(370,069)

5,667,168(265,116)

226,755764,343848,934–
70,755(781,127)(781,127)– 11,995,283–(281,052)–(370,069)

6,055,588 17,493,547
2,220,187
2,220,187–(287,970)–
156,000(609,158)(609,158)–
7,341,694–

37,420–5,667,168

7,666,617 32,018,888

ANNUAL REPORT AND ACCOUNTS 201433

Consolidated Statement of Cash Flows

Years ended 31 December
2014€

2013 Restated€Cash flows from operating activities
Profit after tax

2,220,187

764,343

Adjustments to reconcile net income to net cash provided by operating activities (see below)
Income taxes (paid)

202,302(522,295)

1,881,048(359,104)

1,900,194

2,286,287(8,889,170)(1,252,412)
259,640
49,405–(393,690)(12,921)59,335(9,832,537)(347,276)(2,996,110)(609,158)
7,341,700–(60,681)–(781,127)
11,625,214(1,404,618)–

Note

Net cash provided by operating activities
Cash flows from investing activities
Acquisition of subsidiaries net of cash acquired
Acquisition of property, plant and equipment
Disposal/(acquisition) of short-term investments
Interest received

30
14
18
6

Net cash used in investing activities
Cash flows from financing activities
Repayment of borrowings in acquired company
Dividends paid
Shares issued
Share issuance expenses
Interest paid

10
19
6

Net cash used in financing activities

3,675,751

9,439,469(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of the period(4,256,592)
15,270,569

11,378,480
3,892,089

11,013,977

15,270,569

Cash and cash equivalents at end of period

17

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

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

34

KEYWORDS STUDIOS PLC

5
5
7
20
14
14
6
6

2014
€

2013
€

868,308
467,786
1,215,373
156,000(161,001)
65,965(49,405)–
60,681

272,470–
393,72070,755
11,209–(59,335)
1,123,566–(2,929,983)(2,089,814)
2,598,392–

93,786(248,138)
138,424
84,591

202,302

1,881,048

I

II

Financial Statements

Company Statement of Financial Position

As of 31 December
Note

Non-current assets:
Investment in subsidiaries
Other receivables

23
16

Current assets:
Other receivables
Cash and cash equivalents

16
17

Total assets
Equity:Share capital
Share premium
Merger reserve – restructuring
Merger reserve – acquisitions
Share option reserve
Retained earnings

19

20

Total equity
Current liabilities
Corporation tax liabilities
Trade payables
Other payables

21
22

Non-current liabilities
Other payables

22

Total equity and liabilities

2014€

2013 Restated€

12,765,330
3,000,000

5,735,481–

15,765,330

5,735,481

15,798,350
701,146

1,898,008
10,722,542

16,499,496

12,620,550

32,264,826

18,356,031

551,146
18,542,387
5,312,892
5,667,168
226,755(317,467)

464,782
11,249,637
5,312,892–
70,755
897,418

29,982,881

17,995,484

4,226
73,883
1,132,388

22,650–37,701

1,210,497

60,351

1,071,448

300,196

32,264,826

18,356,031

The notes on pages 38 to 62 form an integral part of these financial statements. The financial statements were approved and authorised for issue by the
Board on April 14, 2015.
On behalf of the Board

Andrew Day
Director

Andrew Lawton
Director

April 14, 2015

ANNUAL REPORT AND ACCOUNTS 201435

Company Statement of Changes in Equity

Share
capital€Sharepremium€

Merger reserve
restructuring€

Merger reserveacquisitions€

Share option
reserve€

Retainedearnings€

Total
equity
€

–

–

–

–

–

–

–

–
–
–
464,782––––
11,530,689(281,052)

–
–
–
–
–

–
–
–
–
–

–
70,755–––

1,054,027–(156,609)––

1,054,027
70,755(156,609)
11,995,471(281,052)––

5,312,892–––

5,312,892

Balance at 31 December 2013
Total comprehensive income forthe year
Share option expense (Note 20)
Dividends paid (Note 10)
Shares issued for cash (Note 19)
Shares issued upon acquisitions(Note 19)
Merger reserve arising on Group
reconstruction (Note 19)464,782

11,249,637

5,312,892–

70,755

897,418

17,995,484–––
48,944–––
7,292,750

–
–
–
–

–
–
–
–

–
156,000––(605,727)–(609,158)–(605,727)
156,000(609,158)
7,341,694

37,420

–

–

–

–

–

37,420–––5,667,168––

5,667,168

Balance at 31 December 2014

551,146

18,542,387

5,312,892

5,667,168

226,755(317,467)

29,982,881

Balance at 1 January 2013
Total comprehensive income forthe year
Share option expense (Note 20)
Dividends paid (Note 10)
Shares issued (Note 19)
Share issue costs capitalised
Merger reserve arising on Group
reconstruction (Note 19)

36

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

Company Statement of Cash Flows

Years ended 31 December
2014€

2013 Restated€Cash flows from operating activities(Loss)/profit after tax
Adjustments to reconcile net income to net cash provided by operating activities (see below)
Income taxes (paid)(605,727)(16,405,082)(27,902)

1,054,027(409,647)–

Net cash provided by operating activities(17,038,711)

644,380

Cash flows from investing activities
Acquisition of subsidiaries
Acquisition of property, plant and equipment
Acquisition of short-term investments
Interest received(2,735,139)––
20,392–––
14,175

Net cash used in investing activities(2,714,747)

14,175–(609,158)
10,341,700
–
(480)

–
(156,609)
11,625,214(1,404,618)–

Net cash used in financing activities

9,732,062

10,063,987(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of the period(10,021,396)
10,722,542

10,722,542–

701,146

10,722,542

Note

Cash flows from financing activities
Repayment of borrowings in acquired company
Dividends paid
Shares issued
Share issuance expenses
Interest paid

Cash and cash equivalents at end of period

1017

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
Interest received
Share issuance costs
Interest paid
Changes in operating assets and liabilities(Increase) in other receivables
Increase in trade and other payables

2014
€

2013
€

9,478
156,000(20,392)–480

22,65018,423(14,175)
1,123,566–(16,900,342)
349,694(1,898,008)
337,897(16,405,082)(409,647)

ANNUAL REPORT AND ACCOUNTS 201437

Notes Forming Part of the Consolidated 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 statementsof the Company and its subsidiaries (the “Group”) made up to December 31, 2014. The Group was formed on July 8, 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”).
In the current year the Group has adopted all of the new and revised standards and interpretations issued by the IASB and the International Financial
Reporting Interpretations Committee (IFRIC) of the IASB, as they have been adopted by the European Union, that are relevant to its operations andeffective for accounting periods beginning on January 1, 2013. The adoption of these standards has had no material impact on the financial statements.
New standards, interpretations and amendments not yet effective
None of the new standards, interpretations and amendments, which are effective for periods beginning after January 1, 2014, have been adopted.
No detailed review of the impact of IFRS 15 has taken place and therefore we are unable to conclude what impact it may have on the Group’s futurefinancial statements at this point.

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
majority of 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.
Keywords Studios Limited was incorporated on May 29, 2013. Accordingly, although the units which comprise the Group did not form a legal group forthe entire year, the prior year comprises the results and balances of the subsidiary companies and the Company as if the Group had been in existence
throughout the entire period.
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 forthe shares in Keywords International Limited, and the nominal value of the shares in Keywords International Limited was treated as a merger reserve
arising on group reconstruction. On the Company balance sheet, the excess of net book value of the assets held by Keywords International Limited,at the date of the share for 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
from the date of 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.
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.

38

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

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 thereporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate
are recognised in other comprehensive income and accumulated in the foreign exchange reserve.
Exchange differences recognised in profit or loss in Group entities’ separate financial statements on the translation of long-term items forming part of
the Group’s net investment in the overseas operation concerned are classified to other comprehensive income and accumulated in the foreign exchange
reserve on consolidation.
On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to thedate of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal.
Revenue recognition
Revenue is recognised, net of sales taxes, when the service is rendered. When projects are in progress at the period end, revenue is recognised to theextent that services have been provided.
The multimedia tax credits received in Montreal on testing services are treated as a deduction against direct costs. The tax credits of €1,413,038(2013 €152,260) were treated as revenue in the previous accounting periods. The comparatives have been restated.
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 thatwill eventually vest and adjusted for the effect of non-market-based vesting conditions. At each reporting date, the Company revises its estimate of thenumber of 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,
with a corresponding increase in capital contribution from the Company. This annual cost is recorded as an increase in the Company’s cost of investmentin that 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,
the current 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 thirdof the options vesting after two years, one third after three years, and the balance vest after four years. The only vesting condition is continuous service.
There is no requirement to revalue the option at any subsequent date. The charge that is recognised is adjusted to reflect failure to vest due to nonachievement of a non-market vesting condition but not failure to vest due to the non-achievement of a market vesting condition.
LTIP
An alternative share plan was introduced to give awards to Directors and staff, subject to outperforming the Numis Small Cap (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 thecompany shall exceed 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 inwhich 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 positiondiffers from its tax base, except for differences arising on:• the initial recognition of goodwill;• the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither
accounting or taxable profit; 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 isprobable that the difference will not reverse in the foreseeable future.
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected
to apply when the deferred tax liabilities/(assets) are settled/(recovered).
ANNUAL REPORT AND ACCOUNTS 201439

Notes Forming Part of the Consolidated Financial Statements(continued)
2 Significant accounting policies continued
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 be recoverable. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its
recoverable amount.
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.
Goodwill
Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income.
Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full tothe consolidated statement of comprehensive income on the acquisition date.
Impairment
Impairment tests on goodwill and other tangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other
non-financial assets are subject to annual impairment tests whenever events or changes in circumstances indicate that their carrying amount may not
be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. – the higher of value in use and fair value less costs to sell),the asset is written down accordingly.
Where it is not possible to establish the recoverable amount of an individual asset, the impairment test is carried out on the asset’s cash generating unit
(i.e. – the lowest Group of assets in which the asset belongs for which there are separately identifiable cash flows).
Impairment charges are included in the administrative expenses line item in the consolidated statement of comprehensive 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 estimated over their useful life which presently is 5 years starting from date the asset was capitalised.
Financial assets
Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally
through the provision of services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initiallyrecognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised costusing the effective interest rate method, less provision for impairment.
The Group’s receivables comprise trade and other receivables and cash and cash equivalents in the statement of financial position.
Trade receivables, which principally represent amounts due from customers, are initially recognised, thereafter, are recognised at amortised cost. An estimate
for doubtful debts is made when there is objective evidence that the Group will not be able to collect amounts due according to the original terms of receivables.
Bad debts are written off when identified.
Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturitiesof three 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 theeffective interest method.

40

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

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 the consolidated statement of comprehensive income on a straight-line basis over the term of the lease.
Finance leases
Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a “finance lease”), the asset
is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased property and thepresent value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease
payments are analysed between capital and interest. The interest element is charged to the consolidated statement of comprehensive income over theperiod of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to
the lessor.

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 applicationof policies and reported amounts.
The areas requiring the use of estimates and critical judgements that may significantly impact the Group’s earnings and financial position 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.
Accrued income
Judgement is required in respect of the amount of accrued income recognised at the reporting date. The amount of accrued income is determined basedon an assessment of the expected amount of unbilled time costs in respect of work commenced prior to the close of a particular year end that will be
invoiced to customers after that year end date.
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 theordinary 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/orinterest will be due. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To theextent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact income tax expense in the
period in which such determination is made.
Goodwill and intangible assets arising on acquisition
The value of goodwill and intangible assets recognised on the Group’s acquisitions during 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.

4 Segmental analysis
Management considers that the Group’s activity as a single source supplier of Localisation and Localisation Testing Services constitutes one operating
and reporting segment, as defined under IFRS 8.
Management review the performance of the Group by reference to Group-wide profit measures and the revenues derived 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; and• 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.
There is no allocation of operating expenses, profit measures, assets and liabilities to individual product groupings. Accordingly the disclosures below
are provided 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
maker has been identified as the executive management team made up of the Chief Executive Officer and the Finance Director.

ANNUAL REPORT AND ACCOUNTS 201441

Notes Forming Part of the Consolidated Financial Statements(continued)
4

Segmental analysis continued
Years ended 31 December

Revenue by line of business

Localisation
Localisation testing
Audio
Functional testing
Art creation

2014
€

2013
€

11,956,656
14,657,743
5,080,460
4,985,834
612,486

5,320,891
9,279,536
1,234,846
349,338–

37,293,179

16,184,611

The 2013 revenue has been restated to exclude the multimedia tax credits which were previously included in Localisation Testing of €152,260 and alsoa financing discount received from a customer of €50,121.
Two (2013: Two) customers accounted for more than 10% of the Group’s revenue during the year. Revenues generated from those customers were €7.1m
and €3.9m (2013: €3.4m and €2.9m).
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
2014
€

2013
€

IrelandJapan
Italy
CanadaUnited States
India
Singapore
United Kingdom

9,939,377
2,643,895
6,754,245
11,066,703
5,838,019
612,485
64,939373,516

10,904,474
1,208,392
345,884926,340
2,799,521–––

Total revenues

37,293,179

16,184,611

Geographical analysis of non-current assets from continuing businesses
As of 31 December

Ireland
CanadaJapan
Italy
United States
India
Singapore
UK

5

2014
€

2013
€

391,166
1,056,685
26,138316,312249,190
602,975
97,28821,152452,958
106,360
11,60228,939556–––

2,760,906

600,415

Operating profit
Years ended 31 December
2014
€

2013
€

Depreciation
Amortisation of intangible assets
Costs of Initial Public Offering
Costs of acquisitions
Costs of integration

868,308
467,786–
482,858
978,196

272,470–
1,123,566––

Operating lease repayments

1,017,810

587,085

Operating profit is stated after charging:

42

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

One-time costs of €482,858 and €978,196 respectively were incurred in acquiring and integrating the new entities into the group. Last year costs of€1,404,618 were incurred in the Company’s IPO. €281,052 of these costs were capitalised against the share premium account.
Years ended 31 December

Auditors’ remuneration
Audit services
Parent company and Group audit
Subsidiary companies audit
Non-audit services
Accounting services
Taxation complianceCorporate finance fees related to IPO
Due diligence services

6

2014
€

2013
€

33,241
66,75938,00020,0003,419
18,142–25,060–14,962
205,101–

146,621278,063

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 income/(expense)

7

2014
€

2013
€

49,405
466,623

59,335–516,028

59,335(93,981)(60,681)–(24,703)–(101,007)(154,662)(125,710)

361,366(66,375)

Taxation
Years ended 31 December

Current income tax
Income tax on profits
Income tax on profits of subsidiary operations
Deferred tax (Note 28)

2014
€

2013
€

9,478
954,973
250,922

22,650371,070–

1,215,373

393,720

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

Profit before tax
Expected tax charge based on the standard rate of taxation in the UK at 23% (2013: 23%)
Higher rates of current income tax in overseas jurisdictions
Lower rates of current income tax in overseas jurisdictions
Losses incurred in overseas jurisdictions
Permanent differences on non-deductible IPO expenses
Effects of other timing differences
Total tax charge

2014
€

2013
€

3,435,560

1,158,063

790,179
236,328(160,919)
31,905–
317,880

266,354
20,702(234,220)148,755
258,420(66,291)

1,215,373

393,720

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.

ANNUAL REPORT AND ACCOUNTS 201443

Notes Forming Part of the Consolidated Financial Statements(continued)
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
to the annual general meeting and from filing it with Companies House. The amount of profit/(loss) after tax dealt with in the parent undertaking is(€605,727) (2013: profit €1,054,027).

9

Earnings per share
Years ended 31 December

Basic
DilutedProfit for the period from continuing operations

Denominator (weighted average number of equity shares)
Basic
Diluted2014
Euro cent2013
Euro cent

4.94
4.93

2.14
2.12

2014
€

2013
€

2,220,187

764,343

NumberNumber

44,955,503
45,064,294

35,778,042
36,062,393

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.

10 Dividends
2014

2013

Per share
Euro centTotal€

Per share
Euro cent

Total€

Interim
Final
Interim

–
0.84
0.46

–
393,767
215,391842.003,379.00
0.39

124,518
500,000
156,609

Dividends paid to shareholders

1.30

609,158

4,221.39

781,127

In May 2013, Keywords International Limited distributed €8.42 per share, based on the shares in issue at that time, or €124,518 in total, as a special
dividend for 2011.
In June 2013, Keywords International Limited distributed €33.79 per share, based on the shares in issue at that time, or €500,000 in total, as a final
dividend for 2012.
In October 2013 Keywords Studios plc distributed its maiden dividend of Stg 0.33/€0.39 per share, based on the shares in issue at that time, or €156,609,
as an interim dividend for 2013.
In June 2014, Keywords International Limited 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 International Limited 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.
The Directors’ recommend a final dividend in respect of the financial year ended December 31, 2014 of Stg 0.74p per Ordinary share, to be paid on June 26,2015 to shareholders who are on the register at June 5, 2015. This dividend is not reflected in these financial statements as it does not represent a liability
at December 31, 2014. The final proposed dividend will reduce shareholders’ funds by an estimated €443,200.

11 Staff costs
Total staff costs (including Directors) comprise the following:
Years ended 31 December

Salaries and related costs
Share-based payment costs

44

KEYWORDS STUDIOS PLC

2014
€

2013
€

19,906,840
156,000

8,704,709
70,77520,062,840

8,775,464

I

II

Financial Statements

Key management compensation:
Years ended 31 December

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

2014
€

2013
€

594,616
59,6454,800
66,073394,800
17,72454,80024,582

725,134

491,906

The key management compensation includes the five Directors of Keywords Studios plc (2013: five Directors of Keywords International Limited/
Keywords Studios).
The breakdown of Directors’ remuneration for the Company is included in the Directors’ Remuneration Report on page 25.
Years ended 31 December

Average number of employees
Operations
General and administration

2014

2013

918
60

350
21

978

371

12 Goodwill
Group
LiquidVioletLimited
€

Babel
Media
Limited€

BinariSonori
S.R.L.
€

Lakshya
DigitalPrivateLimited€

Total€

Cost and net book value
At 31 December 2013
Recognised on acquisition of a subsidiary–
1,042,854–
4,374,676–
7,630,429–
1,662,750–
14,710,709

As at 31 December 2014

1,042,854

4,374,676

7,630,429

1,662,750

14,710,709

During the period goodwill arose on the acquisition of Liquid Violet Limited, Babel Media Group Limited, Binari Sonori S.R.L. and Lakshya Digital Private Limited.
The goodwill has been tested for impairment in this period. The recoverable amount for each cash-generating unit (“CGU”) has been determined from value
in use calculations. The key assumptions for the value in use calculations are those regarding discount rates, terminal value growth rates and expectedchanges to selling prices and costs during the period. All of the assumptions have been reviewed by management. Management estimates a discount rateusing pre-tax rates that reflect current market assessments of the time value of money and the risk of the CGUs. The rate used within the calculations was
12.5% for each CGU. The growth rates are based on a review of recently achieved growth rates and a prudent estimate of likely growth rates for each CGU.
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

Long-term
growthrate

Discount
rate

10%
10%
10%
10%

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
December 31, 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		

10.6%
17.6%
9.1%
12.6%

The result of the value in use calculations was that no impairment is required in this period.
ANNUAL REPORT AND ACCOUNTS 201445

Notes Forming Part of the Consolidated Financial Statements(continued)
13 Intangible assets – customer relationships
Group
LiquidVioletLimited
€

Babel
Media
Limited€

BinariSonori
S.R.L.
€

Lakshya
DigitalPrivateLimited
€

Total
€

Cost
At 31 December 2013
Additions–203,770–
964,287–
1,791,281–
474,985–
3,434,323

As at 31 December 2014

203,770

964,287

1,791,281

474,985

3,434,323

LiquidVioletLimited
€

Babel
Media
Limited€

BinariSonori
S.R.L.
€

Lakshya
DigitalPrivateLimited€

Total€

Amortisation and impairment
At 31 December 2013
Amortisation charge–
39,056–
168,756–
238,837–
21,137–467,786

As at 31 December 2014

39,056

168,756

238,837

21,137467,786

Net book value
As at 31 December 2013

–

–

–

–

–

As at 31 December 2014

164,714795,531

1,552,444

453,848

2,966,537

Computers
and software€

Office,furniture andequipment€

Leaseholdimprovements
€

Total
€

927,547(10,523)
314,481(39,455)

109,865(5,196)69,49539,45527,378(4,760)9,714–

1,064,790(20,479)
393,690–

At 31 December 2013
Currency revaluation
Additions
Acquisitions through business combinations
Disposals

1,192,050
178,962
410,632
3,508,114(342,374)

213,619
92,700456,279
1,964,189(999,384)

32,33236,257385,501
380,510(47,539)

1,438,001
307,919
1,252,412
5,852,813(1,389,297)

At 31 December 2014

4,947,384

1,727,403

787,061

7,461,848

Accumulated depreciation

Computers
and software€

Office,furniture andequipment€

Leaseholdimprovements
€

Total
€

510,873(4,988)245,522(11,738)

56,516(2,470)21,605
11,7386,997(1,812)
5,343–

574,386(9,270)272,470–

At 31 December 2013
Currency revaluation
Acquisitions through business combinations
Depreciation charge
Disposals

739,669
82,9582,686,133
545,668(289,442)

87,38960,186
1,411,066
296,093(986,352)

10,5283,774
74,262
26,547(47,537)

837,586
146,918
4,171,461
868,308(1,323,331)

At 31 December 2014

3,764,986

868,382

67,5744,700,942

Net book value
As at 31 December 2013

452,381

126,230

21,804600,415

As at 31 December 2014

1,182,398

859,021719,4872,760,906

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

14 Property, plant and equipment
Group

Cost
At 1 January 2013
Currency revaluation
Additions
Transfer

Cost
At 1 January 2013
Currency revaluation
ChargeTransfer

46

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

15 Trade receivables
Group
As of 31 December

Customers
Provision for bad debts (Note 25)

2014
€

2013
€

6,463,891(260,539)

1,384,750(81,288)

6,203,352

1,303,462

16 Other receivables
Group
As of 31 December

Accrued income
Prepayments
Other receivables
Other tax and social security
Restricted cash (Note 24)

2014
€

2013
€

954,329483,920
3,650,336
234,536
320,965

209,743
215,364
295,427
104,721300,196

5,644,086

1,125,451

Company
As of 31 December

Intercompany receivables (Note 24)
Restricted cash (Note 24)
Prepayments
Other receivables
Other tax and social security
Non-current
Intercompany receivables (Note 24)

2014
€

2013
€

15,389,791
320,965
71,279–16,315

1,483,464
300,196
31,1398,340
74,86915,798,350

1,898,008

3,000,000–

3,000,000–

17 Cash and cash equivalents
Group
As of 31 December

Cash at bank
Short-term bank deposits

2014
€

2013
€

9,634,925
1,379,052

2,121,135
13,149,434

11,013,977

15,270,569

378,084
323,062

522,760
10,199,782

701,146

10,722,542

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.

ANNUAL REPORT AND ACCOUNTS 201447

Notes Forming Part of the Consolidated Financial Statements(continued)
18 Short-term investments
Group
As of 31 December
2014€

Medium-term bank deposits

2013€

258,866

518,506

258,866

518,506

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

19 Shareholder’s equity
Share capital
Shares€At 1 January 2013
Ordinary shares of £0.01 each issued on incorporation
Ordinary shares of £0.01 each issued on reconstruction
Ordinary shares of €0.012697 each eliminated on reconstruction

14,7971,000
31,901,332(14,797)188
12370,257(188)

As at 8 July 2013
Ordinary shares of £ £0.01 each issued on flotation

31,902,332
8,130,081

370,269
94,513As at 31 December 2013
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

464,782
18,52518,89548,944As at 31 December 2014

47,105,007

551,146

On February 17, 2014 the Group issued 1,516,944 of 1p shares which formed part of the consideration for the acquisition of Babel Media Limited.
On May 9, 2014 the Group issued 1,555,650 of 1p shares which formed part of the consideration for the acquisition of Binari Sonori S.R.L.
On May 9, 2014 the Group placed 4,000,000 of 1p shares into the market at a value of £1.50 (€1.83) per share.
Reserves
The following describes the nature and purpose of each reserve within owner’s equity:
Reserve
Retained earnings
Foreign exchange reserve
Share premium
Share option reserve
Merger reserve – restructuring
Merger reserve – acquisitions

Description and purpose.
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.
In 2014 the shares in Keywords Studios plc have been issues for the acquisition of Babel Media Limited and Binari
Sonori S.R.L. The value in excess of the nominal value, net of share issuance costs are within this reserve.

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 tothese arrangements is shown below, with further details of the schemes following:

Share Option Scheme Expense
Share Option Scheme – LTIP Expense

2014
€

2013
€

65,94590,05543,07927,676

156,000

70,755Of the total share option charge, €66,078 relates to Directors of the Company as at December 31, 2014. (2013: €24,582).
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.
48

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
2014
Average
exercise
price in £per share

Outstanding at the beginning of the year
Granted
LapsedExercised

2013

Numberof options

Average
exercise
price in £per share

Numberof options

1.20
–
1.20
–

762,775–(120,489)
–

–
1.20
–
–

–
762,775––

Outstanding at the end of the year

1.20

642,286

1.20

762,775

Exercisable at the end of the year

–

–

–

–

There were no options granted during the year and 120,489 lapsed due to staff leaving.
All 642,286 options were granted on July 12, 2013 at an average exercise price of £1.20. All options were granted to either employees or Directors of theGroup. Of the total options granted, 214,162 are exercisable from July 12, 2015 to July 11, 2020, 214,162 are exercisable from July 12, 2016 to July 11,2020 and 214,162 are exercisable from July 12, 2017 to July 11, 2020.
The inputs into the Black-Scholes model, used to value the options are as follows:

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

2014

2013

1.23
1.20
3 years
36.12%
0.5%
1.00%

1.23
1.20
3 years
36.12%
0.5%
1.00%

Expected volatility was determined by calculating the historical volatility of two similar listed companies over the previous 3 years. The expected life usedin the model has been adjusted based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behaviouralconsiderations.
The weighted average remaining contractual life of the options outstanding at December 31, 2014 was 1 year 6 months (2013: 2 years 6 months).
All of the outstanding options can be exercised at an average of £1.20 over a 2 to 4 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 376,226 (2013: 392,037) nil price (1p) options are available to vest to
Directors and to 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:
2014
Average
exercise
price in £per share

Outstanding at the beginning of the year
Granted
LapsedExercised

2013

Numberof options

Average
exercise
price in £per share

Numberof options

0.01
0.01
0.01
–

392,037
50,000(65,811)
–

–
0.01
–
–

–
392,037––

Outstanding at the end of the year

0.01

376,2260.01

392,037

Exercisable at the end of the year

–

–

–

–

On July 3, 50,000 options were granted at an exercise price of £0.01 to a director of the Group. The options are exercisable from July 3, 2017 to July 3,2021 if the market performance conditions are met as at July 3, 2017. Additionally 65,811 options lapsed due to a director leaving the Group.
Also 326,226 options were granted previously on July 12, 2013 at an exercise price of £0.01. All options were granted to either employees or Directors of theGroup. The 326,226 options granted are exercisable from July 12, 2016 to July 11, 2020 if the market performance conditions are met as at July 12, 2016.

ANNUAL REPORT AND ACCOUNTS 201449

Notes Forming Part of the Consolidated 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

2014

2013

1.60
0.01
3 years
35.52%
0.5%

1.23
0.01
3 years
36.12%
0.5%

2014

2013

1.60
1.20
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

Expected volatility was determined by calculating the historical volatility of two similar listed companies over the previous 3 years. The expected life used in themodel has been adjusted based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
As any dividends earned are to be re-invested into the business the impact of dividends has been ignored in the calculation of the LTIP share option charge.
The weighted average remaining contractual life of the options outstanding at December 31, 2014 was 1 years 8 months (2013: 2 years 6 months). All of
the outstanding options can be exercised at £0.01 over a 4 year period.

21 Trade payables
Group
As of 31 December
2014€

Suppliers

2013€

2,322,061

503,634

2,322,061

503,634

73,883–73,883–Company
Suppliers

50

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 24)
Non-current
Other payables
Contingent consideration

2014
€

2013
€

3,014,482
874,780
1,898,230
1,087,867
5,480

277,179
137,461
92,517–9,242

6,880,839

516,399

468,068
750,482

300,196–

1,218,550

300,196

255,915
40,53948,067
787,867

21,503
16,13365–

1,132,388

37,701

320,966
750,482

300,196–

1,071,448

300,196

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

23 Investments in subsidiaries
Company
As of 31 December

Investment in subsidiaries
Share option expense related to subsidiary companies

2014
€

2013
€

12,765,330–

5,683,149
52,332

12,765,330

5,735,481

The 2013 investment in subsidiaries reflected the net book value of the assets held by Keywords International Limited at the date of the share for shareexchange. In 2014, the company invested in four new subsidiaries as detailed in Note 30.
In 2014, the Company recorded the share option expense through the financial statements of the subsidiary companies, whereas in the comparative thiswas recorded through the Company investment account.

ANNUAL REPORT AND ACCOUNTS 201451

Notes Forming Part of the Consolidated Financial Statements(continued)
23 Investments in subsidiaries continued
Details of the Company and Group’s subsidiaries as at December 31, 2014 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

IrelandJapan
Canada
Italy
United States
United Kingdom
Singapore
Italy
United States
United Kingdom
United Kingdom
CanadaIndia
United States
India
SingaporeIndia

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

100%
99%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
91%
91%
91%

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

24 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% ownerof Italicatessen Limited. At December 31, 2014, P.E.Q. Holdings Limited owned 25.4% of the Company. In addition, Mr. Giorgio Guastalla is a Directorof 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
2014
€

2013
€

41,811

67,028Operating expenses
Canteen charges
The following are year-end balances:
As of 31 December
2014

2013

Italicatessen Limited

5,480

9,242

Total related party creditors

5,480

9,242

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.
2014
€

2013
€

21,60018,000Operating expenses
Rental payment

The Company entered into a deed of undertaking and indemnity on July 8, 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 July 12, 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 is repayable to Mr. Day
on January 8, 2016 if no liability arises in that period. 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 31.
As at December 31, 2014 and 2013, the Company had amounts receivable from its subsidiaries, amounting to €18,389,791 (2013: €1,483,464) relating
to intergroup trading activities.

52

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

25 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
hand at the reporting date.
The Group closely monitors the activities of its counterparties and maintains regular contact which enables it to ensure the prompt 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 tocredit risk in connection with its financial assets. Trade and other receivables are carried on the statement of financial position net of bad debt provisions
estimated by the Directors based on prior year experience and an evaluation of prevailing economic circumstances.
Whenever possible and commercially practical the Group invests cash with major financial institutions in each jurisdiction where it operates. The Group
periodically monitors the credit rating and stability of these institutions.
The ageing of trade and receivables that are past due but not impaired can be analysed as follows:Group
More than
2 months
past due
€

Total
€

Not past due€

1-2 months
overdue€

As at 31 December 2013

1,303,462

923,224

295,408

84,830As at 31 December 2014

6,203,352

3,790,380

1,310,559

1,102,413

2014
€

2013
€

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

81,288
198,803(19,552)

65,80815,480–

Provision at end of the year

260,539

81,288The 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 December 31, 2014 (2013: nil).
Company
Intercompany receivables of €18,389,791 were not past due at December 31, 2014 (2013: €1,483,464).
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 andto a 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 is generated
and the expenses incurred and by settling liabilities denominated in their functional currency with cash generated from their own operations in that currency.
Where Group entities have liabilities denominated in a currency other than their functional currency (and have insufficient reserves of that currency to settlethem), cash already denominated in that currency will, where possible, be transferred from elsewhere within the Group.

ANNUAL REPORT AND ACCOUNTS 201453

Notes Forming Part of the Consolidated Financial Statements(continued)
25 Financial instruments and risk management continued
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 movementof the Canadian Dollar, US Dollar and Sterling against the Euro. The effect of a strengthening and weakening of 10% of these currencies against the Euroat the reporting date on 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€

10% weakening€

596,127
236,958(89,727)(487,741)(193,875)
144,216

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.
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
Total
€

Within 1 year€

1-2 years€

2-5 years€

Trade payables
Other accounts payable

2,322,061
8,099,389

2,322,061
6,880,839–
1,218,550––

Year ended 31 December 2013

Total
€

Within 1 year€

1-2 years€

2-5 years€

Trade payables
Other accounts payable

503,634
816,595

503,634
516,399–
300,196

–
–

Total
€

Within 1 year€

1-2 years€

2-5 years€

Trade payables
Other accounts payable

73,8832,203,836

73,883
1,132,388–
1,071,448––

Year ended 31 December 2013

Total
€

Within 1 year€

1-2 years€

2-5 years€

Trade payables
Other accounts payable–
337,897–
37,701–300,196––

Year ended 31 December 2014

Company
Year ended 31 December 2014

26 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
repairing with 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

54

KEYWORDS STUDIOS PLC

2014
€

2013
€

1,230,504
4,120,883
1,878,757

553,465
1,629,476
498,477

7,230,144

2,681,418

I

II

Financial Statements

27 Finance lease commitments
The Group has leased computer equipment (net carrying value €379,222) and office telephone systems (net carrying value €21,333). Such assets are
generally classified as finance leases as the rental period amounts to the estimated useful economic life of the assets concerned and often the Group
has the right to purchase the assets outright at the end of the minimum lease term by paying a nominal amount.
The total future value of the minimum lease payments is due as follows:Group
Minimum
lease
payments€

Interest€

Present
value€

127,681
153,000
–

9,455
9,386
–

118,226
143,614–

280,681

18,841

261,840

Asset
2014
€

Liability
2014
€

Net
2014
€

(Charged)/credited
to profit or loss
2014€

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

16,43017,786309,675
29,28165,097–
74,184300,436–––––(719,397)(6,009)(662,595)

16,43017,786309,675
29,28165,097(719,397)
68,175(362,159)(1,624)(17,786)(17,862)(5,831)(58,831)420,418(67,562)–

Net tax assets/(liabilities)

812,889(1,388,001)(575,112)

250,9222014

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

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

The unused tax losses of €309,675 are anticipated to be utilised by 31 December 2015 and are accounted for under current assets.
No deferred tax asset has been provided for on the losses attributable to Keywords Montreal, Keywords Rome, Lakshya Digital Private Limited andKeywords Studios plc in the financial statements.

29 Prior year restatements
The comparative figures have been regrouped, where necessary, on a basis consistent with the current year.

ANNUAL REPORT AND ACCOUNTS 201455

Notes Forming Part of the Consolidated Financial Statements(continued)
30 Acquisitions
Acquisition of Liquid Violet Limited
On January 15, 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€

Fair value
adjustment€

Fair value€

14,797–65,215
95,154(132,891)––
203,770–––(40,754)

14,797
203,770
65,215
95,154(132,891)(40,754)

42,275

163,016

205,291

Goodwill

1,042,854

Total consideration

1,248,145

Satisfied by:
Cash
Deferred consideration

361,359
886,786

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

1,248,145

361,359(95,154)266,205

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 is shownas deferred consideration and is calculated from management’s best estimates based on the available information. The maximum value of the deferredconsideration is €1,565,890.
Liquid Violet contributed €376,343 revenue (including €2,827 of intercompany sales subsequently billed onwards) and €15,021 loss before tax to theGroup between the date of acquisition and the reporting date. If the acquisition had been completed on the first day of the financial year, revenue of€385,590 would have been contributed to the Group (including intercompany sales) and € 50,687 loss before tax.
Acquisition costs of €39,324 have been charged through the Comprehensive Income statement.

56

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IIFinancial Statements

Acquisition of Babel Media GroupOn February 17, 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€

Fair value
adjustment€

Fair value€

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 loan
Long-term loan
Deferred tax liabilities

666,369–
2,721,336(857,804)(1,506,388)(291,527)(2,704,583)–(225,507)
964,287(65,064)–(259,895)––(111,318)

440,862
964,287
2,656,272(857,804)(1,766,283)(291,527)(2,704,583)(111,318)

Total identifiable assets(1,972,597)

302,503(1,670,094)

Goodwill

4,374,676

Total consideration

2,704,582

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

2,704,582

Total consideration transferred

2,704,582

Net cash outflow arising on acquisition
Cash consideration
Less: cash and cash equivalent balances transferred–
857,804
857,804

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.
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. If the acquisition had been completed on thefirst day of the financial year, revenue of €10,882,199 (including intercompany sales) and €1,389,857 profit before tax 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 Comprehensive Income Statement.

ANNUAL REPORT AND ACCOUNTS 201457

Notes Forming Part of the Consolidated Financial Statements(continued)
30 Acquisitions continued
Acquisition of Binari Sonori S. R. L.
On May 8, 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 thetable below.
Book value€

Fair value
adjustment€

Fair value€

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

658,498–
1,086,441
3,143,350(1,711,657)––
1,791,281––(165,410)(510,523)

658,498
1,791,281
1,086,441
3,143,350(1,877,067)(510,523)

Total identifiable assets

3,176,632

1,115,348

4,291,980

Goodwill

7,630,429

Total consideration

11,922,409

Satisfied by:Cash
Equity instruments (1,555,650 shares of parent company)
Deferred consideration (Settled post year end – Note 31)

8,622,409
3,000,000
300,000

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

11,922,409

8,622,409(3,143,350)
5,479,059

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 January 19 by consideration of €300,000 provided
in the form of 158,250 shares in KWS Group Plc (Note 31).
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. If the acquisition had been completed on the first day of the financial
year, revenue of €9,049,493 (including intercompany sales) and €684,438 profit before tax 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 Comprehensive Income Statement.

58

KEYWORDS STUDIOS PLC

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IIFinancial Statements

Acquisition of Lakshya Digital Private Limited
On October 10, 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 October 10, 2015 has been signed for a consideration of €703,342 and the Groupis committed to go through with this purchase, hence the company has been 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 thetable below.
Book value€

Fair value
adjustment€

Fair value€

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

567,194–
1,914,777
87,672(587,347)––
474,985(1,275,814)–(59,531)
292,436

567,194474,985
638,963
87,672(646,878)
292,436

Total identifiable assets

1,982,296(567,924)

1,414,372

Goodwill

1,662,750

Total consideration

3,077,122

Satisfied by:
Cash
Deferred consideration

2,373,780
703,342

Total consideration transferred

3,077,122

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

2,373,780(87,672)
2,286,108

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.
Lakshya Digital Private Limited contributed €612,485 revenue and €209,839 loss before tax to the Group between the date of acquisition and thereporting date. 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 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 Comprehensive Income Statement.

ANNUAL REPORT AND ACCOUNTS 201459

Notes Forming Part of the Consolidated Financial Statements(continued)
31 Events after the reporting date
Acquisition of Alchemic Dream Inc.
On January 6, 2015 the Group acquired the entire issued share capital of Alchemic Dream Inc., a company registered in Canada, which specialises inproviding cost effective and flexible customer care services to video game publishers. 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. Additionallythe 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.
Under the terms of the acquisition, which will be immediately earnings enhancing, a maximum total consideration of CAD$1.25m in cash will be paid tothe sellers.
The sale purchase agreement includes a provision for an adjustment to the sales price based on working capital at the acquisition date. Management does
not believe any further adjustments to the acquisition price are necessary.
The book value acquired of net assets is as follows:Book value€

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

37,828801,988
37,708(469,754)(9,593)(17,715)

Total identifiable assets

380,462

Goodwill

514,607

Total consideration

895,069

Satisfied by:Cash895,069

Total consideration transferred

895,069

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

895,069(37,708)857,361

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.

60

KEYWORDS STUDIOS PLC

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IIFinancial Statements

Acquisition of Reverb Localização – Preparação de Documentos Ltda
On January 18, 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.
Reverb Studios was acquired to widen the scope of the Group’s services business and to extend the Group’s client base.
Under the terms of the agreement, which will be earnings enhancing, total consideration of €200,000 was paid in cash with further consideration of€100,000 being payable out of profits generated and in any event by December 31, 2016.
The book value acquired of net assets is as follows:Book value€

Financial assets
Cash and cash equivalents

12,312

Total identifiable assets

12,312

Goodwill

287,688

Total consideration

300,000

Satisfied by:
Cash
Deferred consideration

200,000
100,000

Total consideration transferred

300,000

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

200,000(12,312)
187,688

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.
Buyout of Binari Sonori Earn-out
On January 20, 2015 the Group agreed with the selling shareholders of Binari Sonori S.R.L. to vary the terms of the acquisition agreement bringing to aclose the earn out conditions 12 months earlier than originally agreed. Under the terms of the acquisition, deferred consideration of no more than €4.0m
could have been payable calculated by reference to the profit before interest and tax of Binari Sonori in the years to December 31, 2014 and December 31,
2015. Under the terms of the agreement, the Group agreed to pay to the Selling Shareholders total deferred consideration of €300,000 which has beensatisfied by the issue of 158,250 new ordinary shares of Keywords at a price of 145.47 pence per share.
Incorporation of Keywords International Barcelona SL
On January 9, 2015, the Directors incorporated Keywords International Barcelona SL, a company registered in Spain, as part of the Group’s continuing
geographic expansion.
Creation of Employee Benefit Trust (EBT)On December 17, 2014 an employee benefit trust (“EBT”) was set up, in which to “warehouse” Keywords Studios shares in preparation for the exercise of
options and the vesting of awards in the future. The EBT was created to allow the flexibility to issue grants of options and awards which exceed the 5%
issued share capital of the Company. To date 200,000 ordinary shares of Keywords at a price of 145.00 pence have been bought by the EBT at a grosscost of €372,320.

ANNUAL REPORT AND ACCOUNTS 2014

61

Company Information

Directors

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

Secretary

David O’Connor
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
60 Great Portland Street
LondonW1W 7RT

Solicitors

Squire Sanders (UK) LLP
7 Devonshire Square
LondonEC2M 4YH
Brown Rudnick LLP
8 Clifford Street
LondonW1S 2LQ

62

KEYWORDS STUDIOS PLC

I

IIFinancial Statements

Notes

ANNUAL REPORT AND ACCOUNTS 201463

Notes64

KEYWORDS STUDIOS PLC

Contacts
DUBLINLONDONBARCELONA

Keywords International Ltd.
Whelan HouseSouth Country Business Park
Dublin 18

Liquid Violet
75 Dean Street
LondonW1D 3PU

Keywords International
Passeig de Gràcia 12, 1er pis
08007 Barcelona

T: +353 190 22 730

T: +44 02 7432 3981

T: +34 93 492 03 98

MILAN

ROME

PUNE

Binari Sonori Europe
Viale Fulvio Testi, 11
Cinisello Balsamo (MI)20092

Keywords Italia S.R.L.
Via Tiberio Imperatore, 1500145 Rome

Lakshya Digital
Kapil Upavan Business Center
Lake Town Society Road
Bibvewadi, Pune – 411037

T: +39 02 61866310

T: +39 06 44202521

T: +91 20 3939 5200

NEW DELHISINGAPORETOKYO

Lakshya Digital/Babel Media
D-32, Infocity 2
Sector – 33
Gurgaon122001

Keywords International
1557 Keppel Road #03-28
Singapore
089066

Keywords International Co., Ltd.
2F Toshin Building
4-33-10 Yoyogi,
Shibuya-ku,
Tokyo 151-0053

T: +91 12 4410 2086

T: +65 6709 8680

T: +81 3 4588 6760

LOS ANGELESSEATTLEMONTREAL

Binari Sonori America
350 North Glenoaks Boulevard,
Burbank, California
91502

Keywords International Inc.
Plaza Center
10900 NE 8th Street,
Suite 1000
Bellevue, Seattle, WA 98004

Babel Media Inc.
410 St-Nicolas, Suite 600
Montréal, Québec, Canada
H2Y 2P5

T: +1 818 729 8508

T: +1 425 633 3226

T: +1 514 789 0404

MONTREALRIO DE JANEIRO

Alchemic Dream
442, Avenue Willow
Shawinigan
Québec,G9N 1X2

Keywords do Brasil
Av. Churchill, 109/GR 204 – Centro
Rio de Janeiro/R
20020-050

T: +1 819 840 9607

T: +55 (21) 2524 79 18

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

www.keywordsintl.com