Full Year Results 2018
Andrew Day, CEODavid Broderick, CFO
8 April 2019 2017
Full Year Results
Andrew Day, CEODavid Broderick, CFO

9 April 2018

2018 financial highlights

2

Revenue up 66%

Gross margin

Adj. PBT up 65%€250.8m (CC: €258.6m)

38.2%€37.9m(2017: €151.4m)(2017: 36.4%)(2017: €23.0m)

Adj. EPS up 53%

DPS up 10%

ROCE up 360 bps

47.75c

1.61p

19.4%

(2017: 31.18c)(2017: 1.46p)(2017: 15.8%)© 2019 Keywords Studios PLC - CONFIDENTIAL

Key achievements in 2018
Strong underlying performance and organic investment

Expanded new and existing services••

Pro forma revenue2 of €265.4m•

Integration of VMC across four service lines and five studios
completed ahead of schedule, giving us the benefits of scale inNorth America•

8 acquisitions in 2018 completed and integrated, expanding
new and existing service lines:o Significantly expanded newer engineering service lineo Added marketing services, music management andpredictive analytics to our range of services•

Keywords Ventures launched to make modest investments ininnovations that will benefit our clients

10.1% increase in like-for-like revenue1 (or 14.9% excluding theimpact of VMC)•

Invested in capacity, adding 930 work stations across multiple
studios to support organic growth•

99 clients now using three or more services, up from 93 in 2017indicating further cross-selling success•

Further strengthened the senior management team with newly
created positions

1 Like for like revenue at constant exchange rates is calculated by adjusting the prior year revenues comparison by adding preacquisition revenues for the corresponding period of ownership in the current year results and applying consistent foreign exchange
rates in both years

3© 2019 Keywords Studios PLC - CONFIDENTIAL

2 Pro forma revenue includes the annualised sales of all acquisitions made in each year, in order toprovide a better overview of the balance of the business at the end of each year.

Growing video games market driving more strategic outsourcing
Video games are a rapidly growing, almost $135bn,
niche global market – with expected growth of 9% p.a•

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 whatmakes their IP unique - vertically integrated models
can be a distraction.

•

We estimate the services market to be worth over
$6bn, with around 40% of that outsourced today. In
film and TV, 90%+ of production is outsourced.

•

Cloud based gaming (Netflix of games) is a major
theme for 2019 and a new console generation is
expected in 2020/21.
Source: NewZoo Global Games Market Report, October 20184

© 2019 Keywords Studios PLC - CONFIDENTIAL

Expertise across the game development cycle
Art Services

Engineering

The creation of video game graphical art, including
concept art, 2D and 3D art asset production &animation. Marketing services including game
trailers, marketing art and materials.

Game development services including full game development, codevelopment, porting of games from one platform to another including
remastering, tool development and consulting services on a work for hirebasis. Also includes proprietary software solutions for analytics,
procedural generation of art assets and player behaviour research
consulting services.

Player Support

Audio Services

365/24/7, multilingual support for gamerswhen games are in live operation, forum
monitoring and moderation services & social
media engagement on behalf of the gamebrand.

Multi-language voiceover recording, original language
voice production, Hollywood production, music
management, sound effects and related services.

Game
development
cycle

Localization Testing

Functional Testing

Testing for out of context translations, truncations,overlaps, spelling, grammar, age rating issues,geopolitical and cultural sensitivities and console
manufacturer compliance requirements in over 30
languages using native speakers.

Quality assurance, including discovery and documentation ofgame defects and testing to verify the game’s compliance withhardware manufacturers’ and app stores’ specifications, as well
as focus group and user experience testing and consulting.

Localization
5© 2019 Keywords Studios PLC - CONFIDENTIAL

Translation of in-game text, audio scripts, culturaland local adaptation, accreditation packaging andmarketing materials in over 50 languages.

International scale & flexibility across markets is key
An average of 6,000+ people
on the payroll at peak times
working in over 50 languages,
more than 50 studios, in 21
countries, on 4 continents
Art Services
Engineering
Audio Services
Functionality Testing
Localization
Localization Testing
Player Support

6© 2019 Keywords Studios PLC - CONFIDENTIALMarket leading position

We work with 23 of the top 25 games companies by revenue and 9 of the top 10 mobile games publishers by revenue.*
7© 2019 Keywords Studios PLC - CONFIDENTIAL* Newzoo, Top 25 Games Companies by Revenue, June 2018
and Sensor Tower, Top Apps Games publishers, July 2018

Strong growth across key metrics
300
250
200
€m
150
100
50
0

Revenue – 61% CAGR

2014

2015

2016

2017

40
35
30
25
€m
20
15
10
5
0
2018

2014

Adjusted EPS – 54% CAGR
60
50
40
€m 30
20
10
0

%

2014

8

2015

2016

2017

2018

© 2019 Keywords Studios PLC - CONFIDENTIAL

Adjusted PBT – 65% CAGR

30
25
20
15
10
5
0

2015

2016

2017

2018

ROCE – 20.5% average

2014

2015

2016

2017

2018

Delivering consistent and diversified growth150

No of clients using 3 or more
services
99

93

100
51
50

80%

Limited customer concentration

60%

64

2

40%

30

1

20%
0%

0
2014

2015

2016

2017

2018

0
2014

2015

% Revenue top 5 customers

Revenue and margin growth
300
250
200
€m
150
100
50
0

20
15
10

0
2015

Revenue (€m)
9

%

5
2014

2016

3

2017

2018

Adj. EBIT Margin (%)© 2019 Keywords Studios PLC - CONFIDENTIAL

2016

2017

2018

No of customers over 10% of revenue

Revenue by service line (€m)

60
50
40
€m 30
20
10
0
Art Services

Audio
Production

Localization

Functional
Testing

Localization
Testing

2014

2015

2016

2017

PlayerSupport2018

EngineeringBetter balanced business; higher up the value chain
Art Services

Proforma Revenue
13.5%
13.0%

16.6%

16.4%

Engineering

7.4%
10.3%
7.7%

13.5%

FY 2018

FY 2017€220.7m

Audio Services

11.1%

16.6%

€265.4m

19.6%

Functional Testing

13.9%

Localization
21.8%

18.5%

Art Services

Functionality Testing

Engineering

Localization

Audio Services

Localization Testing

Localization Testing
Player Support

Player Support10© 2019 Keywords Studios PLC - CONFIDENTIAL

Financial overview
David Broderick11© 2018 Keywords Studios PLC - CONFIDENTIAL

Income statement€’000s

2018

2017

∆%

▪ Gross margins up to 38.2% (2017: 36.4%)

Revenue

250,805

151,430+66%▪ Adjusted operating costs at 20.7% of revenue (2017: 19.0%), as
we invested in expansion and strengthening management

Direct costs(154,997)(96,345)

Gross Profit% margin

95,80838.2%

55,085
36.4%

Other administrative expenses(56,892)(31,170)

Operating profit

38,91623,915

Net finance cost

(1,005)(872)

Adjusted Profit before Tax

37,911

23,043

Items excluded from Adjusted PBT(15,817)(11,049)

Profit before Tax

22,094

11,944

Tax expense(7,191)(4,731)

Net income

14,903

7,263

+105%

Adjusted Basic EPS (c)

47.75

31.18

+53%

Basic EPS (c)

23.16

12.37

+87%

Diluted EPS (c)

22.24

11.87

+87%

▪ Revenue up 66% to €250.8m▪ Adjusted profit before tax increased 65% to €37.9m excluding
costs – further detail on slide 30:▪ Effective tax rate reduced to 19.0% (2017: 20.5%)▪ Adjusted EPS up 53% to 47.75c

12© 2019 Keywords Studios PLC - CONFIDENTIAL

+74%

+63%
+65%
+85%

Balance sheet€’000s2018

2017
Re-stated•

Net debt of €0.4m (2017: net cash €11.1m) after:▪ €24.9m net cash consideration for acquisitions (including deferred)▪ €4.5m of acquisition costs and integration expenses (2017: €3.0m).

•

Accrued MMTC* grant & VGTR** credits claims of €10.8m▪ €11.9m MMTC payments received in the year•

€9.4m capital expenditure (2017: €3.8m) included:▪ Continued investment in software and computer equipment primarily
for Testing, Art and Engineering (€6.2m)▪ Investment in new and expanded facilities particularly in Manila,
Montreal, Tokyo, London and Dublin (€3.2m)

Non-current assets
Property, plant & equipment
Goodwill
Intangible assets
Investment in Associate
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 Province**VGTR – ‘Video Game Tax Relief’ in the UK
13© 2019 Keywords Studios PLC - CONFIDENTIAL

15,002
154,20225,884160
2,967
198,215

10,111
108,062
23,548
1,206
142,927

37,01923,45939,871
100,349

27,743
22,33530,37480,182

7,142
41,15340,071
6,665
95,031

7,310
22,17918,943
3,245
51,677

1,062
1,378
230
8,488
11,158
192,375

1,233
1,055
337
7,795
10,420161,012Cashflow€’000s•Net cash from operating activities of €32.2m (2017: €16.7m)•

MMTCs & VGTR credits of €10.8m accrued in the period•

2018 final dividend of 1.08p (2017: 0.98p) in line with progressive
dividend policy, with a cash cost of €0.8m in H1 2019

14

2018

2017

Debtor Days

47

40

Work completion to cash collection days

55

48

© 2019 Keywords Studios PLC - CONFIDENTIAL

2018

2017

Profit after tax

14,903

7,263

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

29,033(5,452)(6,304)32,18017,838(2,989)(5,454)
16,658Acquisition of subsidiaries
Settlement of deferred liabilities on acquisitions
Acquisition of fixed assets(24,889)(1,603)(9,440)(86,776)(298)(3,803)Acquisition of Associate
Investment in IP
Acquisition & Integration Cash Outlay
Interest Received
Net cash used in investing activities(226)(1,559)(4,530)(42,287)(3,016)
26(93,857)

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

31,850(10,835)174(1,080)(502)

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

Net cash provided by (used in) financing activities

19,60791,454

Increase /(Decrease) in cash

9,500

14,245

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

(3)
30,37439,871(891)
17,02030,374

Minimal impact from IFRS 16 lease accounting
Balance Sheet
Increase in Assets+€22.8m

Increase in Liabilities+€22.8m

Profit and Loss Account
Increase in Adjusted Operating Profit+€0.2mIncrease in Adjusted EBITDA+€7.1mIncrease in Net Interest Charges+€0.6mDecrease in Adjusted Profit Before Tax-€0.4m•Decrease
Adjustment
to 2019 financials with no historic restatementin Adjusted EPS• No cash impact• Applied the modified retrospective approach15© 2019 Keywords Studios PLC - CONFIDENTIAL

2019 guidance▪ Strong organic and acquisitive growth expected▪ Continued benefit from 2018 capacity investments▪ Full contribution from 2018 acquisitions▪ Increased depreciation charge▪ Robust gross and adjusted operating margin levels to be maintained▪ Interest expense to rise as we utilise our bank facility for acquisition growth▪ Slight reduction in effective tax rate expected again▪ High cash conversion rates expected to continue▪ IFRS 16 lease accounting - EBITDA increase but minor impact on PBT in the early years

16© 2019 Keywords Studios PLC - CONFIDENTIAL

Strategic Overview
Andrew Day

17© 2019 Keywords Studios PLC - CONFIDENTIAL

Continuing to deliver on our strategy
Our strategy is to build the world’s leading technical and creative platform for the video games industry

18

Organic growth andcross-selling

Growing market share

Selective acquisitions

Expanding geographic reach

Extending our rangeof services

Gradually introducing technology© 2019 Keywords Studios PLC - CONFIDENTIAL

Service line progress2018 progress

11.9% like for like growth• 59% growth to €41.7m due to effect of 2017 and2018 acquisitions• Three marketing services businesses acquired
during the year currently also reside within Art• “One China” initiative going well across 5 locations• Further organic growth complemented by one or
two acquisitions• Marketing services businesses may become aseparate service line if more are acquired• Sperasoft Art will fall under Engineering• Continued growth through acquisition• Demand for our services continues to exceeded
capacity• Invested in UK talent to service global demand• All 6 studios actively recruiting to meet demand• Another strong year of organic growth and an
active acquisition pipeline• Aim to add further critical mass and geographic
reach to our game development and broader
engineering services

23.3% like for like growth

9.8% like for like growth19

Focus in 2019

• Grew to €34.2m including the full effect ofacquisitions• Growth bolstered by addition of new disciplines music management services, sound design andvoice production services• Hollywood production services increasing value
added© 2019 Keywords Studios PLC - CONFIDENTIAL• Anticipate similar organic growth in 2019
• Complemented by acquisitions in key locations• Scope to add further capabilities

Service line progress2018 progress•••

6.4% like for like growth •••3.5% like for like growth••

10.6% like for like decline••

30.8% like for like growth20••

Focus in 2019

Very strong year despite challenges of integrating VMC
Underlying growth of 26.5% (stripping out VMC).
Functional QA now the largest service line representing
18.5% of the total on a pro forma basis
Established as the ‘go to’ in North America••

Impacted by the “Fortnite effect” more than any of ourother service lines
XLOC content management system continues to gaincustomers and is increasingly integrated withdownstream production tools••

Continue to establish machine translation
Aiming to return to double digit organic growth

Now representing only 7.4% of pro forma Grouprevenues
2018 softer than hoped for in part due to certain projects
slipping
Flat in absolute terms, declined on a like for like basis••

Started 2019 well
Changes to be made during the year to reenergise it and return it to growth
Exploring Katowice, Poland studio

Fastest growing service line in 2018 despite being heldback by attrition at VMC
94.1% like for like growth excluding VMCOpened new facility Katowice, Poland•© 2019 Keywords Studios PLC - CONFIDENTIAL

•

•

•

Expect strong continued growth in 2019
Continued consolidation of market leadership in
N. America
Organic expansion opportunities in Katowice,
Poland and Volgograd, Russia

Extraordinary 2018 growth will be consolidated
in 2019
Aim to differentiate video games specificservices from other large providers in the wider
customer support market

Acquisition opportunities in a highly fragmented market
Art$1bn –

Market Size*

50% outsourced

100+

Number of
Suppliers

21

Engineering

Audio

Functional Testing

Localization

Localization Testing$3.0bn –$150m –
90%+ of voiced
audio is outsourced$800m – 70% in
sourced in the west.
Mostly outsourcedin Japan.

$200m –

$150m –

85% outsourced

50+

10+

50+ including
large MLVs

20% outsourced

50+ specialist

c.70% outsourced

10+•

Competitors offer one or two service lines with limited geographical reach•Global clients require services differentiated by cost, flexibility, time zone, scalability and languages offered•

Focus on carefully selected, earnings accretive businesses which extend services, market penetration or client base:•Continuing to review acquisitions in our established businesses of testing and localization•

Most acquisition activity focussed on newer services like Engineering/Game Development services, Marketing
services and on building out Audio Services•

Consolidation is underway – started by Keywords but others may follow•

We have a strong pipeline of acquisition prospects across the services; mix of sizes and in various geographies© 2019 Keywords Studios PLC - CONFIDENTIAL

Customer Support$1.2bn –40% outsourced

Non specialist callcentre operators

Integration progress
1. VMC
Integration examples•

Integration completed during 2018•

Cost reductions made:•4 facilities consolidated into 1 in Seattle•

Management and sales overhead significantly reduced•

Internalised previously outsourced costs•

VMC’s Localization, Functional QA, Localization QA and Player Support activities fully integrated with Keywords deploying the same systems, organisation design and standardised pricing•

Centre for accounting and finance moved from Seattle and housed under the existing team in Montreal•

All units trading under the Keywords brand•Operating as a Keywords business with similar margins
22© 2019 Keywords Studios PLC - CONFIDENTIAL

Integration progress
2. Art Service Line
Integration examples

Integration to come• 5 Art production studios and 3 marketing services
businesses acquired between late 2014 and early 2018

• Ongoing integration activities include therollout of a single operating system• Art production studios are working well together with client
projects run from concept art through to art production• Establishment of a marketing services line
once critical mass is reached.

• Art production managed centrally by one studio in China but
production distributed across 5 studios in China – “OneChina”• Projects being led from Portland and Seattle studios withmajority of production in China or India

23© 2019 Keywords Studios PLC - CONFIDENTIAL

Integration progress
3. Audio Service Line
Integration examples

Integration to come• Most acquired audio studios have their own developed
productivity tools• Having established a small group to leadour exploratory steps into subtitling anddubbing for film and TV we are working
across our studios to prepare them forproductions of this sort.

• Best of breed tools have been selected, further
developed and are being deployed across all voicestudios to consistently manage pre-production, casting,audio mastering and audio testing tasks to best in classstandards.
• We are working on client proposals under which the Audio
Service Line takes responsibility for all audio production ona title – sound design, sound effects, music management,
and voice over24

© 2019 Keywords Studios PLC - CONFIDENTIAL

Managing growthGroup

RegionAndrew Day
CEOServiceLine

Igor Efremov
Chief Commercial
OfficerMike Wallen
Sales Director

Ashley Liu
Art

Andrea Ballista
Audio

Jamie Campbell
Engineering

Mathieu Lachance
FQA

Andrew Brown
Chief Marketing
Officer

Jaime Gine
Chief Customer
Officer

GlobalPMO

Fabio Minazzi
Localization

David Broderick
Chief Financial
Officer

Gerry Cleary
Global HR Director

Thommy Barth
LOC QAFred Arens
Player Support

Mark Rizzo
Global Operations
Director

Giacomo Duranti
Chief Operating
Officer

Nicolas Liorzou
RMD Americas

Fulvio Sioli
RMD Europe

Chris Kennedy
RMD Asia

Kevin BadeenGroup IT Director▪ New management structure and appointments to strengthen business and support growth▪ Investment in newly created positions
▪
▪
▪
▪
25

Chief Commercial Officer
Chief Marketing Officer
Global Operations Director
Engineering Service Line Director© 2019 Keywords Studios PLC - CONFIDENTIAL

Outlook – Andrew Day

26© 2019 Keywords Studios PLC - CONFIDENTIAL

Outlook▪ Encouraging start to 2019; first quarter in line with our expectation▪ Expect to make good progress in 2019 as we continue to execute on our strategy▪ Further organic growth▪ Capitalising on the synergies from previous acquisitions and driving
operational efficiencies▪ Leveraging client relationships▪ Integrated sales and marketing▪ Sharing talent and production facilities▪ Continuing progress with cross selling▪ Cloud based gaming engagements are already very encouraging▪ Healthy pipeline of acquisition opportunities

A strengthened services platform from which to grow27

© 2019 Keywords Studios PLC - CONFIDENTIAL

Investment summary
Access to a large, high growth market

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

Strong track record of growth, both organically and through acquisition

Significant opportunity to continue to grow our, service capabilities,
geographical penetration and client relationships

Culture, business model and management structure that supports growth28© 2019 Keywords Studios PLC - CONFIDENTIAL

Appendix

29© 2019 Keywords Studios PLC - CONFIDENTIAL

Income Statement –Items excluded from Adjusted PBT

€’k

2018

2017

Cost of Acquisition & Integration

5,607

3,016

Share option expense

4,129

1,426

Amortisation of intangible assets

6,872

3,038

Foreign exchange (gain)/losses

(791)

3,569

15,817 11,049

30© 2019 Keywords Studios PLC - CONFIDENTIAL

Acquisition HistoryYear

Art Services

2014

Audio

Functional
Testing

Localization

Localization
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
RedHotGameSimd3t
Sperasoft

La MarqueRose
Dune Sound
AsRec

VMC

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

2018

Fire Without Smoke
Trailer Farm

Snowed In
Studio Gobo
Electric Square
Yokozuna Data

MaximalCord
Laced
Blindlight2019

Sunny Side Up

GetSocial

31

SoftwareEngineering© 2019 Keywords Studios PLC - CONFIDENTIAL

Customer
Support

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

VMC

VMC€101.4m

ReverbKite Team€61.7m€4.0m* Includes all cash, deferred and equity portions of consideration

Keywords Studios

32© 2019 Keywords Studios PLC - CONFIDENTIAL

Major Shareholders*Shareholder
P.E.Q Holdings Limited
Octopus Investment Partners
Andrew Day
Oberweiss Asset Management
Canaccord Genuity Wealth
T Rowe Price Global Investments
Franklin Templeton
KamesShares% Holding

4,000,736

6.3

3,650,758

5.7

3,296,573

5.2

2,944,000

4.6

2,820,855

4.4

2,788,693

4.4

2,695,000

4.2

2,247,262

3.5* Based on available disclosures to company as at the 31st December 201833

© 2019 Keywords Studios PLC - CONFIDENTIAL