Full Year Results 2017
Andrew Day, CEODavid Broderick, CFO
9 April 2018

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Overview

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Achievements in 2017 – strong progress

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Strong organic growth

Progress with integration•

The Group increased like for like growthby 15% during 2017•

Good progress with integration of VMC
and Sperasoft•

We experienced 45% growth in clientsusing three or more services, now at 93
out of 646•

Successfully progressed amalgamationof operations in Madrid, Seattle, Mexico
City and Paris

11 Acquisitions

New service line•

Expands service lines and extends ourgeographical reach••

Included two of our largest acquisitions
to date with VMC ($66.4m) and
Sperasoft ($27m)•

Grew from 27 to 42 studios globallyduring 2017
© 2018 Keywords Studios PLC - CONFIDENTIAL

The acquisition of GameSim created thebrand-new Engineering service line,
which has since been bolstered by theacquisitions of Sperasoft and d3t

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Overview

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2017 Financial Highlights
Revenue up 57%

Adj. PBT* up 55%

Adj. EPS* up 52%€151.4m(FY 2016: €96.6m)(Pro forma: €224.5m)€23.0m31.18c(FY 2016: €14.9m)(FY 2016: 20.59c)

DPS up 10%

Net cash of €11.1m

Up to €105m credit facility

After €87.0m net acquisition
spend, €3.0m acquisition
expenses and a successful£75.0m equity placing

Agreed terms on a 5 year RCF
replacing existing €35m facility, withimproved terms

1.46p(FY 2016: 1.33p)* before acquisition and integration expenses of €3.0m (2016: €1.3m), share option charges of €1.4m (2016: €0.7m), amortisation of intangibles of €3.0m (2016: €1.6m), and foreign currency exchange loss of €3.6m (2016: loss of €1.7m)

3© 2018 Keywords Studios PLC - CONFIDENTIAL

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Overview

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Keywords Global Service Delivery Platform% Pro forma revenue
Engineering

Audio Services

9.7%

Co-development, porting of games from one
platform to another, software consulting

11.7%

Multilanguage voiceoverrecording, original language
voice production & related
services

14.1%
Art Creation
Creation of video game graphicalart, including concept art, 2D/3D
art asset production & animation

23.3%
Functional Testing
Quality assurance including
discovery and documentation ofgame bugs & testing to verify thegame’s compliance with console
manufacturers specifications

11.7%
Customer Support
24/7, In-live operation multilingual customer
support, forum moderation services, & social
media engagement on behalf of the game
brand

Localisation

10.0%
19.5%

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

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

4© 2018 Keywords Studios PLC - CONFIDENTIAL

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International Scale & Flexibility across markets is key

An average of around 3,000 people on the payroll, worked on over 500 games during the year
Over 40 studios across 20 countries and 4 continents
Over 100,000 art assets and 26 million words of audio produced in 2017 – 250 million words translated in 2017– over 3.3 million hours of testing carried out in 2017
400,000 hours of Engineering services delivered in 2017 - 16 million customer support tickets resolved each year5

© 2018 Keywords Studios PLC - CONFIDENTIAL

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Market Leading Position
Keywords Services 23 of the Top 25 Games Companies by Revenue*…

… and 9 of the Top 10 Mobile Games Developers by Revenue***Source: Newzoo, Top 25 Games Companies by
Revenues, September 2017**Source: AppAnnie, Top 52 Developers of 2017,
February 20186

© 2018 Keywords Studios PLC - CONFIDENTIAL

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Delivering consistent and diversified growth
Clients using more than 3 services
100

93

80

Limited customer concentration

51

4
3

40%

30

2

20

20%

1

0

0%

0

FY 14

FY 15

FY 16

2013A

FY 17

2014A

2015A

% Revenue of top 5

Revenue and margin growth
200

30
25
20
15
10
5
0

150
100
50
0
2013A

2014A

Revenue (€m)
7

5

60%

64

60
40

80%

2015A

2016A

2017A

Adj. EBIT Margin (%)© 2018 Keywords Studios PLC - CONFIDENTIAL

2016A

2017A

No of customers over 10% of revenue

Revenue by service line (€m)

50.0

40.0
30.0

20.0
10.0

0.0
Art Creation

Audio
Production

Localisation

2014A

Functional
Testing

2015A

Localisation
Testing

2016A

Customer
Support

2017A

Engineering

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Clear Opportunity in the Growing Video Games Market• Video games are a rapidly growing +$110bn p.a. niche
global market – Growing +8% p.a• Games increasingly more challenging and sophisticated todevelop due to
•
•
•

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More powerful games platforms supporting larger,
higher definition games
Demand for continuous new content
Number of translated languages increasing (40-50
for some mobile games)•

Increased complexity, volume and speed of content
generation has driven the trend towards outsourcing most of it on a tactical basis•

Going forward there will be more strategic outsourcing as
publishers need to focus on what makes their IP uniqueand vertically integrated models can be a distraction.

•

We estimate the services market to be worth $5bn in total
with 50% of that outsourced today. In film and TV, 90%+of production is outsourced.
© 2018 Keywords Studios PLC - CONFIDENTIAL

Source: NewZoo Global Games Market Report, November 2017

Financial Overview – David Broderick9© 2018 Keywords Studios PLC - CONFIDENTIAL

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Financial Review

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Income Statement▪ Revenue up 57% to €151.4m (2016: €96.6m)€k

FY 2017

FY 2016▪ Overheads down to 20.6% of revenue (2016: 22.4%) as we
benefit from operational gearing

Revenue

151,430

96,585

Direct costs(96,345)(59,907)▪ Adjusted EBITDA margin of 17.4% (2016: 17.3%)

Gross Profit% margin

55,08536.4%

36,67838.0%

Other administrative expenses(31,170)(21,588)

Operating profit

23,91515,090Net finance cost

(872)

(287)

-

61

Profit before Tax – Group basis

23,043

14,864

Items excluded from Group measurement of PBT(11,049)(5,368)

Profit before Tax – Statutory basis

11,944

9,496

Tax expense(4,731)(3,223)

Net income(7,263)

6,273

Basic EPS – Group measurement basis (c)

31.18

20.59

Basic EPS – Statutory basis (c)

12.37

11.22

Diluted EPS (c)

11.87

10.87

▪ Gross margins at 36.4% (2016: 38%)

▪ Increase in finance costs due to new credit facility▪ Adjusted profit before tax increased 55% to €23.0m
excluding the following costs:€k

FY 2017 FY 2016

Cost of Acquisition & Integration

3,016

1,316

Share option expense

1,426

686

Amortisation of intangible assets

3,038

1,629

Foreign exchange losses

3,569

1,737

11,0495,368▪ Effective tax rate reduced to 20.5% (FY 2016: 21.7%)▪ Adjusted EPS up 51.5% to 31.18c
10© 2018 Keywords Studios PLC - CONFIDENTIAL

Non-controlling interest

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Balance sheet•

Cash of €30.4m (2016 €17.0m) after:▪ €86.8m net cash consideration for acquisitions▪ €0.3m cash for deferred consideration▪ €3.0m costs of acquisitions and integration expenses•

Accrued MMTC* grant claims of €10.0m:▪ Including €6.3m to claim on acquisition of VMC▪ Payments of €3.4m received in period•€3.8m capital expenditure (2016 €2.3m) included:▪ Continued investment in production systems, testing & computerequipment (€2.5m)▪ Significant investment and expansion of facilities in Montreal and Tokyo(€0.9m)▪ Investment and development of operating systems across service lines(€0.4m)€k

FY 2017

FY 2016

Non-current assets
Property, plant & equipment
Goodwill
Intangible assets

10,111109,007
23,548

5,498
46,7998,696

1,206
143,872880
61,87327,473
22,33530,37480,182

13,8797,778
17,02038,677

7,310
23,005
18,943
3,245
52,503

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

1,233
1,055
337
7,795
10,420161,131

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

Deferred tax assets
Current Assets
Trade receivables
Other receivables
Cash & cash equivalents
Current Liabilities
Trade payables
Other payables
Loans and borrowings
Corporation Tax Liability
Non-Current Liabilities
Other payables
Employee Defined Benefit
Loans and borrowings
Deferred tax liabilities
Net Assets*MMTC – ‘Multimedia tax credits’ are employment grants provided in Quebec Province11© 2018 Keywords Studios PLC - CONFIDENTIAL

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Cashflow•

Cash inflow from operations of €13.6m (FY 2016: €15.0m) before
accounting for MMTCs of €10.0m accrued in the period•

Adjusted operating cashflow increased by 48% to €21.9m (2016: €14.8m):▪ Adds back:▪ Acquisition related expenses of €3.0m (2016: €1.3m)▪ Exceptional working capital costs related to the VMC acquisitionof €3.0m (2016: nil)
▪ €2.3m in VMC receipts held by Volt on behalf of the Group andpassed to the Group post year end.
▪ In the comparative year, multimedia tax credits (MMTC) of €1.6m werereceived in respect of claims prior to 2015
FY 2017•

FY 2017

FY 2016

Profit after tax

7,263

6,212

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

14,822
2,989(5,454)
13,642

7,781
3,175(2,129)15,039Acquisition of subsidiaries(86,776)(21,109)

Settlement of deferred liabilities on acquisitions
Acquisition of fixed assets
Acquisition of short term investments
Interest Received
EBT Share Purchase
Net cash used in investing activities(298)(3,803)
26(90,851)(995)(2,306)27
94
2(23,287)

Loan to finance acquisitions
Repayment of loans
Shares Issued
Dividends paid
EBT Share Purchase
Interest paid

10,250(23)
82,936
(867)
(563)
(279)

8,000
(1,782)
643
(825)
(632)
(152)

Net cash provided by (used in) financing activities

91,454

5,252

Increase /(Decrease) in cash

14,245(2,996)

Exchange loss on cash and cash equivalents
Opening cash
Closing cash

(891)
17,02030,374998
19,01817,020FY 2016

Debtor Days

40

44

Work completion to cash collection days48

50

FY 2017 dividend of 1.46p (FY 2016: 1.33p) in line with progressive
dividend policy, with a cash cost of €0.9m 201712€k

© 2018 Keywords Studios PLC - CONFIDENTIAL

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2018 Guidance▪ Strong continued organic and acquisitive growth expected▪ Continued investment in expanding facilities to meet demand▪ Interest expense to rise as we utilise our new increased credit facility for acquisition growth▪ Slight reduction in effective tax rate expected again▪ Strong underlying cash conversion expected to continue

13© 2018 Keywords Studios PLC - CONFIDENTIALOperational Review – Andrew Day

14© 2018 Keywords Studios PLC - CONFIDENTIAL

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Operational Review

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Delivering on our strategy

Our strategy is to be the “go to” global service delivery platform for the video games industry

Grown organically…

and by acquisition…

15% like for like* revenue growth in 2017:

Since Jan 2017 successfully acquired eleven businesses:▪ 45% increase in number of clients using three or more
services to 93▪ Particularly strong growth in Functional Testing,Customer Support and Localisation▪ Expanded premises in Montreal, Zhengzhou, Manila,
Dublin and Tokyo▪ Opened audio studio in Tokyo, play testing lab inMontreal and customer support office in Madrid▪ Acquisition of VMC in October for $66.4m brought the Group leadership infunctional testing and significantly increased our presence in customer support
services▪ Acquisition of Sperasoft in December for $27m brought strength in codevelopment, extended our Engineering and Art capabilities, and provided entry
into Eastern Europe* calculated on the basis of revenues being included for 2017 acquisitions from the date of acquisition and for the equivalent period in the prior year15

© 2018 Keywords Studios PLC - CONFIDENTIAL

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A strong performance complemented by acquisitions
Art Creation
Revenue€ 16.6m

FY 2016€ 26.2m

FY 2017

17% of revenue(14% pro forma)

Audio Services

Revenue€ 17.3m

16€ 20.7m▪ Revenues grown 58%. 14% on a like for likebasis
▪ Lakshya consolidated very strong growth of2015 and 2016
▪ Good progress from all studios as well as
increased capacity & clients from Spov & Red
Hot acquisitions in May 2017
▪ Concluded the year with 1,200 artists, 1,000 ofwhich are in India and China, making
Keywords one of the largest players in themarketLocalisation Testing▪ Revenues increased by 20% including
contributions from La Marque Rose, Around
the Word, Dune Sound and AsRec

Localisation▪ Down 10% on a like for like basis partly
reflecting the strong comparative for Synthesisin the prior year

Revenue€ 16.2m€19.9m▪ Grown 3% on a like for like basis▪ Largest provider in the market▪ Integration of VMC is progressing well

FY 2016

FY 2017

13% of revenue(10% pro forma)

Revenue€32.4m€ 42.0m

FY 2016 FY 2017

▪ Opened an audio studio in Tokyo, increased
capacity through acquisitions in Paris and
LOLA in Mexico CityFY 2016 FY 201714% of revenue(12% pro forma)▪ Strengthened management of combined Kite
Team, Synthesis and Sonox operations in
Madrid28% of revenue(19% pro forma)© 2018 Keywords Studios PLC - CONFIDENTIAL▪ Revenues increased 22% including fullyear contributions from Synthesis andEnzyme▪ Continued development of our talent poolof games passionate professionals ofover 30 different nationalities▪ Revenues up 30% including contributions from
XLoc, and VMC.
▪ Revenues grown 20% on a like for like basis▪ As the leading games localisation provider,benefitting from trend towards continuous content,
the business produced around 250m translated
words during the year
▪ One growth driver has been eSports, which
includes marketing content, customer and “livetranslation” of event content

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A strong performance complemented by acquisitions
Functional Testing
Revenue€ 30.0m€ 8.6m

FY 2016

FY 2017

20% of revenue(23% pro forma)

Customer Support▪ Revenues grown 248%. Increased 52% on alike for like basis▪ 50% of VMC’s revenues fall into the functional
testing service line, integration is progressingwell▪ Organic growth has been driven by increased
capacity in Montreal & India▪ Player Research expansion into Montreal

Engineering
Revenue€3.6m

FY 2016

FY 20172% of revenue(10% pro forma)
17▪ New service line with the acquisition of
GameSim in May, further strengthened byacquisitions of d3t in October and Sperasoft in
December▪ Intention is to use this as a platform from which
to build a market leading engineering capability▪ We continue to review a number of compelling
acquisition opportunities in this space© 2018 Keywords Studios PLC - CONFIDENTIAL

Revenue€ 9.2m

€ 5.6m

FY 2016▪ Revenues grown 64%. Up 16% on a like for likebasis
▪ Continued expansion in Manila and operational
expansion into Madrid

FY 20176% of revenue(12% pro forma)▪ Cross selling from other service lines has helped
the rapid growth of Customer Support▪ Teams with deep knowledge of games offers an
attractive alternative to large call centres

Strategy – Andrew Day

18© 2018 Keywords Studios PLC - CONFIDENTIAL

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Strategy

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

Increased demand for strategic partnerships; Embedded Technical Services and co-development
Leveraging relationships and master services agreements to grow the number of services toexisting clients
Continue to extend the number of cross selling opportunities

Extending our services▪
▪
▪

Build on foothold in co-development
Extend services into new areas, such as music, visual special effects and game trailers
Provide single language audio options for French, Italian, Spanish, Latin American Spanish,Brazilian Portuguese and Japanese languages

Expanding our geographical reach
▪
▪
▪

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Continue to seed additional services across our strong global footprint
Bring broader services into Eastern Europe
Invest in state of the art audio recording facilities in Paris and London© 2018 Keywords Studios PLC - CONFIDENTIAL

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Acquisition strategy
Selective consolidation▪
▪
▪

Investing in Engineering and co-development
Art production – South East Asia, Latin America
Audio – key single language studios – Europe, Asia

New services▪
▪
▪

Music services
Analytics
Game trailers

Geographic expansion
▪
▪
▪

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South East Asia – art
UK – game development
Eastern Europe© 2018 Keywords Studios PLC - CONFIDENTIAL

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Strategy

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StrategyV

Key opportunities▪ Strong growth expected to continue both organically and through further acquisitions▪ Strong cash conversion and headroom on funding supports ongoing investment▪ Anticipate smaller acquisitions (4 to 10 per year) and maybe one or two larger acquisitions:▪ Key criteria: cultural fit, strategic alignment, strong reputation▪ Drivers: Growth, scale, expertise or cost synergies▪ Client spin outs of internal services▪ Possible extension beyond games into film and TV, e-learning and general interactive content

21© 2018 Keywords Studios PLC - CONFIDENTIAL

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22© 2018 Keywords Studios PLC - CONFIDENTIAL

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Outlook▪ Positive momentum in the business gives us confidence in the outcome
for the full year
▪ Early wins for co-development services in 2018 are encouraging signs of
the demand from game developers for strategic partnerships▪ Expect to make strong progress in 2018:▪ Continued organic growth▪ Capitalising on the synergies from acquisitions and driving
operational efficiencies▪ Continued progress with cross selling▪ Exciting pipeline of acquisition opportunities with significantly increased
funding secured
Significantly enhanced platform from which to grow23

© 2018 Keywords Studios PLC - CONFIDENTIAL

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Outlook

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Outlook

Investment summary
Access to a large, high growth market

Key drivers:
Market growth; continuous & higher definition content; outsourcing trend

Strong track record of growth, both organically and through acquisition

Significant opportunity to grow our geographicalpenetration, service capabilities and client relationships

Business model and management structure that supports growth24© 2018 Keywords Studios PLC - CONFIDENTIALVIAppendix

25© 2018 Keywords Studios PLC - CONFIDENTIAL

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AppendixAcquisition HistoryYear

Art Creation

2014

Audio

Functional
Testing

Localisation

Localisation
Testing

Lakshya Digital

Liquid Violet
Binari Sonori

Babel MediaBabel Media
Binari Sonori

Babel Media

2015

Liquid Development

ReverbKite Team2016

Mindwalk
Volta

Synthesis
Sonox

EnzymePlayer Research

Synthesis
Sonox

2017

SPOV
RedHot

La Marque Rose
Dune Sound
AsRec

VMC

VMC
XLOC
Around the Word
La Marque Rose
Dune Sound
AsRec
LOLA

26

SoftwareEngineering

GameSimd3t
Sperasoft© 2018 Keywords Studios PLC - CONFIDENTIAL

Customer
Support

Total Cost*€19.0mAlchemic Dream€10.9mSynthesis
EnzymeAnkama€32.6m

VMC

VMC€102.4m

ReverbKite Team* Includes all cash, deferred and equity portions of consideration

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Appendix

Managing growthCEO
Andrew Day

Group

RegionService
Line

Sales Director
Mike Wallen

CCO
Jaime Gine

CFO
David
Broderick

COO
GiacomoDurantiEurope MD
Fulvio Sioli

Asia MD
Chris Kennedy

Americas MD
NicolasLiorzou

HR Director
Gerry Cleary

Co-Dev
Igor Efremov

Engineering
TBD

Art
Ashley Liu

Functional QA
Matthieu
Lachance

Localisation
Fabio Minazzi

Audio
AndreaBallista

Localisation
QA
Thomas Barth

Customer
SupportFred Arens▪ Service lines run on a global basis, supported by regional management teams▪ Unified global sales team facilitates cross selling▪ Investment in the team and key functions supports further growth▪ In last 18 months:▪ Extended the senior management with CCO, Art, IT & HR Directors appointments▪ Strengthened the Board with new CFO and Non-Executive appointments

27© 2018 Keywords Studios PLC - CONFIDENTIAL

IT Director
Gary Merrigan

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AppendixServicing Games Development Lifecycle - Creating Value
1. Pre-production- Concept art- Level design

2. Early stage gamedevelopment-

3. Later stage gamedevelopment

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

6. New content for games- Game extensions- Level expansions- Issue patches-

Functional testing
Text localisation
Audio localisation
Localisation testing
Player research
Game porting

5. Ongoing live
operations support-

Customer support
Community management
Data analytics
Payments processing
Promotions management

Services currently offered by Keywords

28© 2018 Keywords Studios PLC - CONFIDENTIAL

4. Launch-

Certification testing
Beta testing
Official game trailers
MarketingServices not currently offered by Keywords

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Major Shareholders*Shareholder

Shares% Holding

P.E.Q Holdings Limited

4,000,736

6.5

Octopus Investment Partners

3,417,183

5.5

Andrew Day

3,386,342

5.3

Hargreave Hale

3,379,398

5.2

Oberweiss Asset Management

2,456,091

4.0Blackrock

2,261,732

3.7

T Rowe Price Global Investments

2,135,629

3.5

JPMorgan Asset Management

2,088,897

3.4* Correct as at 31 December 201729

© 2018 Keywords Studios PLC - CONFIDENTIAL

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Appendix