half year results 2018 - keywords studios · 2018. 9. 1. · yokozuna data –brings industry...
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Full Year Results 2017Andrew Day, CEO
David Broderick, CFO
9 April 2018
Half Year Results 2018
Andrew Day, CEO
David Broderick, CFO
18 September 2018
Half Year Results 2018
Andrew Day, CEO
David Broderick, CFO
18 September 2018
2
Achievements in 2018 so far – strong progress
I
Overview II III IV V VI
© 2018 Keywords Studios PLC - CONFIDENTIAL
Acquisitions and investment
• 8 acquisitions to date to expand service line scale and capabilities and extend our geographical reach
• €3.8m capital investment to develop facilities and add 660 seats across all 7 service lines
• Launch of Keywords Ventures to invest in innovative technology and services
Expanded service offering to clients
• Increased offering includes:
• Music composition and licencing
• Marketing services
• Hollywood production talent and services
• Advanced machine learning and predictive analytics for video games
• Automated testing for GDPR compliance of mobile apps
Progress with integration and infrastructure
• Good progress with integration of VMC and Sperasoft
• Successfully progressed amalgamation of operations in Madrid, Seattle, Mexico City and Paris
• Further strengthened the senior management team with newly created positions
Strong growth
• The Group grew revenue (up 72% to €110m ) and profit before tax (up 67% to €16m)
• 19% growth in clients using three or more
services, now at 100
• Expanded 10 of the 50 studios in the Group
• Coped well with the ‘Fortnite effect’
Clear opportunity in the growing video games market
3
I
Overview II III IV V VI
Source: NewZoo Global Games Market Report, June 2018
© 2018 Keywords Studios PLC - CONFIDENTIAL
Video games are a rapidly growing almost $140bn
p.a. niche global market – Growing +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 what
makes their IP unique - vertically integrated
models can be a distraction
• We estimate the services market to be worth $6bn
in total with 50% of that outsourced today. In film
and TV, 90%+ of production is outsourced.
Keywords - Creating Value along the Video Games Lifecycle
4
1. Pre-production- Concept art
- Level design
2. Early stage game
development - Programming/co-development
- Full game 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
3. Later stage game
development - Functional testing
- Text localisation
- Audio localisation
- Localisation testing
- Player research
- Game porting
4. Launch- Certification testing
- Beta testing
- Official game trailers
- Marketing art
5. Ongoing live
operations support- Customer support
- Community management
- Data analytics
- Payments processing
- Promotions management
6. New content for games- Game extensions
- Level expansions
- Issue patches
- Live operations support
© 2018 Keywords Studios PLC - CONFIDENTIAL
Services currently offered by Keywords Services added by Keywords in 2018 Services not currently offered by Keywords
I
Overview II III IV V VI
12.0%
21.0%
20.0%9.0%
14.0%
16.0%
8.0%
Keywords Global Service Delivery Platform
Engineering
Development, porting of games from one platform to
another, software consulting, data analytics
Audio Services Multilanguage voiceover
recording, original language
voice production, Hollywood
production, music & related
services
Functional TestingQuality assurance including
discovery and documentation of
game bugs & testing to verify the
game’s compliance with console
manufacturers specifications
Player Support 24/7, In-live operation multilingual customer
support, forum moderation services, & social
media engagement on behalf of the game
brand.
Art Creation
Creation of video game graphical
art, including concept art, 2D/3D
art asset production & animation.
Marketing services including
game trailers, marketing art and
materials
Localisation
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 in
over 30 languages using native speakers
5
I
Overview II III IV V VI
© 2018 Keywords Studios PLC - CONFIDENTIAL
% H1 2018 revenue
International scale & flexibility across markets is key
6 © 2018 Keywords Studios PLC – CONFIDENTIAL
I
Overview II III IV V VI
Over 5,000 people on the payroll at peak times working in over 50 languages
50 studios, 20 countries, 4 continents
Market Leading Position
7 © 2018 Keywords Studios PLC – CONFIDENTIAL
We work with 23 of the top 25 games companies by revenue and 9 of the top 10 mobile games publishers by revenue.*
* Newzoo, Top 25 Games Companies by Revenue, Dec 2017 and App
Annie, Top 52 Publishers of 2017, February 2018
I
Overview II III IV V VI
Delivering consistent and diversified growth
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I
Overview II III IV V VI
30
5164
93100
0
50
100
150
FY 14 FY 15 FY 16 FY 17 H1 18
No of clients using 3 or more services
0
5
10
15
20
2014A 2015A 2016A 2017A H1 20180
50
100
150
200
Revenue (€m) Adj. EBIT Margin (%)
0
1
2
3
2014A 2015A 2016A 2017A H1 20180%
20%
40%
60%
80%
% Revenue top 5 customers No of customers over 10% of revenue
0
10
20
30
40
50
Art Creation AudioProduction
Localisation FunctionalTesting
LocalisationTesting
CustomerSupport
Engineering
Revenue by service line (€m)
2014A 2015A 2016A 2017A H1 2018
Limited customer concentration
Revenue and margin growth
© 2018 Keywords Studios PLC - CONFIDENTIAL
€m % €m
Financial overview – David Broderick
9 © 2018 Keywords Studios PLC - CONFIDENTIAL
Revenue up 72%€110.0m or
€117.5m (constant FX)
(H1 2017: €63.8m)
10
First half financial highlights
Adj. PBT up 67%
€16.0m
(H1 2017: €9.6m)
Adj. EPS up 53%
20.1c
(H1 2017: 13.2c)
DPS up 10%
0.53p
(H1 2017: 0.48p)
Net cash of €0.1m
After €10.6m
acquisition spend
(H1 2017: €1.1m,
FY 2017 €11.1m)
New credit facility
RCF up to 5 years and €105m
Financial ReviewI III IV V VI
© 2018 Keywords Studios PLC - CONFIDENTIAL
▪ Revenue up 72% to €110.0m
▪ Gross margins up to 37.4% (H1 2017: 35.6%)
▪ Overheads increased to 22.5% of revenue (H1 2017: 20.1%) in line with investments in facilities and management
▪ Adjusted profit before tax increased 67% to €16.0m excluding the following costs:
▪ Effective tax rate reduced to 19.3% (FY 2017: 20.5%)
▪ Adjusted EPS up 53% to 20.1c
Income statement
Financial ReviewI III IV V VI
€k H1 2018 H1 2017 FY 2017
Revenue 109,951 63,760 151,430
Direct costs (68,791) (41,062) (96,345)
Gross Profit 41,160 22,698 55,085
% margin 37.4% 35.6% 36.4%
Other administrative expenses (24,742) (12,782) (31,170)
Operating profit 16,418 9,916 23,915
Net finance cost (438) (336) (872)
Profit before Tax – Group basis 15,980 9,580 23,043
Items excluded from Group measurement of PBT (5,142) (4,065) (11,049)
Profit before Tax – Statutory basis 10,838 5,515 11,944
Tax expense (3,088) (2,025) (4,731)
Net income 7,750 3,490 (7,263)
Basic EPS – Group measurement basis (c) 20.13 13.16 31.18
Basic EPS – Statutory basis (c) 12.10 6.08 12.37
Diluted EPS (c) 11.62 5.83 11.87
€k H1 2018 H1 2017 FY 2017
Cost of Acquisition & Integration 2,006 461 3,016
Share option expense 835 416 1,426
Amortisation of intangible assets 3,095 1,223 3,038
Foreign exchange (gain)/losses (794) 1,965 3,569
5,142 4,065 11,049
11 © 2018 Keywords Studios PLC - CONFIDENTIAL
Balance sheet
• Net cash of €0.1m (2017 H1: €1.1m, FY 2017: €11.1m) after:
▪ €10.6m cash consideration for acquisitions
▪ Costs of acquisition and integration €2m
• Accrued MMTC* grant claims of €14.4m
▪ No MMTC payments received in the period
• €3.8m capital expenditure (2017 H1: €1.8m) included:
▪ Continued investment in software and computer equipment primarily for Testing, Art and Engineering (€1.7m)
▪ Investment in new and expanded facilities particularly in Montreal, Tokyo, London and Dublin (€2.1m)
*MMTC – ‘Multimedia tax credits’ are employment grants provided in Quebec Province
Financial ReviewI III IV V VI
€k H1 2018 H1 2017 FY 2017
Non-current assets
Property, plant & equipment 11,422 5,951 10,111
Goodwill 124,416 52,748 109,007
Intangible assets 27,201 8,805 23,548Investment in Associate 114 - -
Deferred tax assets 1,265 1,329 1,206
164,418 68,833 143,872
Current Assets
Trade receivables 36,226 18,766 27,743
Other receivables 30,118 10,505 22,335
Cash & cash equivalents 32,184 14,482 30,374
98,528 43,753 80,182
Current Liabilities
Trade payables 7,268 5,408 7,310
Other payables 33,676 14,193 23,005
Loans and borrowings 32,084 13,043 18,943
Corporation Tax Liability 2,877 3,058 3,245
75,905 35,702 52,503
Non-Current Liabilities
Other payables 1,035 930 1,233
Employee Defined Benefit 1,233 1,025 1,055
Loans and borrowings 45 311 337
Deferred tax liabilities 9,560 3,439 7,795
11,873 5,705 10,420
Net Assets 175,168 71,179 161,131
12 © 2018 Keywords Studios PLC - CONFIDENTIAL
Cashflow
• Adjusted cash inflow from operations of €6.1m (H1 2017: €2.8m)
• Adds back:
• Acquisition related expenses of €2m (H1 2017: €0.5m)
• MMTCs of €3.7m accrued in the period
• Maximum working capital typically at H1
• H1 2018 dividend of 0.53p (H1 2017: 0.48p) in line with progressive dividend policy, with a cash cost of €0.4m in H2 2018
Financial ReviewI III IV V VI
€k H1 2018 H1 2017 FY 2017
Profit after tax 7,570 3,490 7,263
Net Income/expenses not affecting operating cash flows 8,679 5,653 14,822Net changes in operating assets / liabilities (9,447) (4,645) (2,989)Income taxes paid (2,891) (2,204) (5,454)Net cash inflow from operating activities 4,091 2,294 13,642
Acquisition of subsidiaries (10,625) (6,666) (86,776)Settlement of deferred liabilities on acquisitions (1,011) (283) (298)Acquisition of fixed assets (3,791) (1,824) (3,803)Acquisition of Associate (114) - -Interest Received - - 26Net cash used in investing activities (15,541) (8,773) (90,851)
Loan to finance acquisitions 13,755 5,000 10,250Repayment of loans (853) - (23)Shares Issued 1,203 - 82,936Dividends paid (696) (563) (867)EBT Share Purchase - (613) (563)Interest paid (144) (79) (279)
Net cash provided by (used in) financing activities 13,265 3,745 91,454
Increase /(Decrease) in cash 1,815 (2,734) 14,245
Exchange gain/(loss) on cash and cash equivalents (5) 196 (891)Opening cash 30,374 17,020 17,020Closing cash 32,184 14,482 30,374
H1 2018 H1 2017 FY 2017
Debtor Days 49 45 40
Work completion to cash collection days 60 53 48
14 © 2018 Keywords Studios PLC - CONFIDENTIAL
© 2018 Keywords Studios PLC - CONFIDENTIAL
H2 guidance
14
▪ Strong organic and acquisitive growth expected
▪ Benefit more from late 2017 and H1 2018 capacity and infrastructure investments
▪ Full six month contribution from first half acquisitions
▪ Strengthening dollar
▪ Interest expense to rise as we utilise our new increased bank facility for acquisition growth
▪ Slight reduction in effective tax rate expected again
▪ Traditional H2 positive cash conversion expected to continue
Financial ReviewI III IV V VI
Operational review – Andrew Day
15 © 2018 Keywords Studios PLC - CONFIDENTIAL
Our strategy is to be the “go to” global service delivery platform for the video games industry
Since Jan 2018 successfully acquired eight businesses:
▪ Maximal – adds scale to our Audio capabilities in South America
▪ Cord & Laced – extends our audio offering in to the provision of composed or licensed music
▪ Fire Without Smoke – provides a full suite of creative and marketing services
▪ Blindlight – gives us Hollywood production and services
▪ Snowed In – adds strength and scale to Engineering Service Line
▪ Yokozuna Data – brings industry leading technology and expertise in video game analytics
▪ Studio Gobo & Electric Square – enhances our game development services with scale and expertise
▪ TrailerFarm – adds to our creative and marketing offering
Grown organically… and by acquisition…
Delivering on our strategy
8.6% exchange adjusted like for like* revenue growth in H1
▪ Increase in number of clients using three or more services to 100
▪ Expanded 10 facilities adding 660 seats across all Service Lines
16
* Calculated on the basis that the H1 2017 comparative includes all other of the 2017 and 2018 acquisitions as if they had been owned for the same period in 2017 as they have been in 2018.
Operational ReviewI II IV V VI
© 2018 Keywords Studios PLC - CONFIDENTIAL
A strong performance complemented by acquisitions
Audio Services
Art Creation
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Operational ReviewI II IV V VI
Localisation
16% of revenue
12% of revenue 20% of revenue
€ 12.4m€ 18.1m
H1 2017 H1 2018
Revenue
€ 8.4m€ 13.6m
H1 2017 H1 2018
Revenue
€ 19.0m€ 21.4m
H1 2017 H1 2018
Revenue
© 2018 Keywords Studios PLC - CONFIDENTIAL
Localisation Testing
€ 8.7m€ 9.6m
H1 2017 H1 2018
Revenue
9% of revenue
▪ Revenues increased by 61% including contributions from Cord, Laced and Blindlight
▪ Added music services with Cord & Laced
▪ New London recording studios built and operational
▪ Acquired recording studio in Sao Paulo increasing capabilities in South American market and capturing margin
▪ Blindlight provides expertise in Hollywood based production
▪ Revenues grown 47%.
▪ Entered marketing services with Fire Without
Smoke acquisition in 2018
▪ Keywords one of the largest providers to the
outsourced market in terms of capacity with
1,200 artists plus further freelance
collaborators
▪ Revenues up 13% including contributions from
French acquisitions, VMC and XLOC
▪ As the leading games localisation provider
benefiting from trend towards continuous content
▪ Launched XLOC 6.0 with new features
▪ Focused on consolidating and streamlining internal
production systems
▪ Revenues increased 10%
▪ Largest provider in the market
▪ Integration of VMC completed
▪ Continued development of our talent pool of games passionate professionals of over 30 different nationalities
A strong performance complemented by acquisitions
Functional Testing
€ 11.0m€ 23.0m
H1 2017 H1 2018
Revenue
Player Support
€ 3.8m
€ 15.3m
H1 2017 H1 2018
Revenue
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Operational ReviewI II IV V VI
Engineering
€ 8.8m
H1 2017 H1 2018
Revenue
21% of revenue 14% of revenue
8% of revenue
© 2018 Keywords Studios PLC - CONFIDENTIAL
€ 0.5m
▪ Revenues increased 110%
▪ Integration of VMC completed
▪ With VMC significant increase in volumes from
managed services arrangements with clients
▪ Expanded service offering with GBTN
▪ Expanding capacity in Montreal
▪ Exploring Volgograd studio for functional
testing
▪ Revenues grown 302%
▪ Acquisition of VMC big driver in growth of service
line, integration completed
▪ Continued expansion in Katowice and Manila
▪ Teams with a deep knowledge of games offer an
attractive alternative to traditional call centres
▪ New service line has expanded rapidly since it
started in May 17
▪ Revenues increased versus H1 last year
through the acquisition of d3t and Sperasoft
▪ Growth continued since the H1 2018 period
end with the Snowed In, Studio Gobo and
Electric Square acquisitions
▪ Data analytics ability with Yokozuna Data
Strategy – Andrew Day
19 © 2018 Keywords Studios PLC - CONFIDENTIAL
Mid term organic growth opportunities
Benefitting from upcoming developments in the games industry▪ Streaming of games appears to be becoming a real prospect. Expected competition for content for competing
platforms should benefit Keywords
▪ Rumours of new console releases over the next 2 years should be good for Keywords as publishers rely on support for games on existing platforms and make content for the new devices
Extending our services▪ Build on game development services – engineering support, co-development and full game development
▪ Further extend services into new areas such as AI,
▪ Provide single language audio options for French, Italian, Spanish, Latin American Spanish, Brazilian Portuguese and Japanese languages
▪ Launched Keywords Ventures to invest in innovative technologies and services
Increasing market share▪ Continue to extend the number of cross selling opportunities
▪ Possible spin outs from clients
▪ Live operations opportunity to manage games on behalf of clients
▪ Acquihire possibilities such as Sound Lab
▪ Talent acquisition and facility expansion
20
StrategyI II III V VI
© 2018 Keywords Studios PLC - CONFIDENTIAL
Selective consolidation
▪ Continue investing in Engineering – engineering support, porting, co-development and full game development
▪ Art production – South East Asia, Latin America
▪ Audio – key single language studios – Europe, Asia
New services
▪ Analytics and AI
▪ Expand initial entry in marketing services
Geographic expansion
▪ Eastern Europe and Asia – engineering
▪ Eastern Europe game testing
Acquisition strategy
StrategyI II III V VI
21 © 2018 Keywords Studios PLC - CONFIDENTIAL
Managing growth
© 2018 Keywords Studios PLC – CONFIDENTIAL 22
Group
Region
Service
Line
Andrew DayCEO
Jaime GineChief Customer
Officer
David BroderickChief Financial
Officer
Mike WallenSales Director
Giacomo DurantiChief Operating
Officer
Chris KennedyRMD Asia
Gerry ClearyGlobal HR Director
Nicolas LiorzouRMD Americas
Fulvio SioliRMD Europe
Fabio MinazziLocalization
Mathieu LachanceFQA
Gary MerriganGroup IT Director
Ashley LiuArt
Fred ArensPlayer Support
Andrea BallistaAudio
Thommy BarthLOC QA
Jamie CampbellEngineering
Andrew BrownChief Marketing
Officer
Igor EfremovChief Commercial
Officer
Global PMO
Mark RizzoGlobal Operations
Director
▪ New management structure and appointments to strengthen business and support growth
▪ Investment in newly created positions ▪ Chief Commercial Officer
▪ Chief Marketing Officer
▪ Global Operations Director
▪ Engineering Service Line Director
StrategyI II III V VI
23 © 2018 Keywords Studios PLC - CONFIDENTIAL
Outlook – Andrew Day
Outlook
OutlookI II III IV VI
24 © 2018 Keywords Studios PLC - CONFIDENTIAL
A strengthened services platform from which to grow
▪ Trading in first three months of the second half has been in line with the Board’s expectations as volumes increase
▪ Previous investment in people and facilities now in place to capitalise on growth opportunities ahead
▪ Expect to make good progress in the remainder of 2018 and into next year
▪ Continued organic growth
▪ Capitalising on the synergies from previous acquisitions and driving operational efficiencies
▪ Leveraging client relationships
▪ Integrated sales and marketing
▪ Sharing talent and production facilities
▪ Continued progress with cross selling
▪ Healthy pipeline of acquisition opportunities
Access to a large, high growth market
© 2018 Keywords Studios PLC - CONFIDENTIAL
Investment summary
Business model and management structure that supports growth
Significant opportunity to continue grow our geographical penetration, service capabilities and client relationships
Strong track record of growth, both organically and through acquisition
Key drivers: Market growth; continuous & higher definition content; outsourcing trend; streaming of games
25
OutlookI II III IV VI
Appendix
26 © 2018 Keywords Studios PLC - CONFIDENTIAL
27
AppendixI II III IV VI
Acquisition History
* Includes all cash, deferred and equity portions of consideration © 2018 Keywords Studios PLC - CONFIDENTIAL
Year Art Creation Software
Engineering
Audio Functional
Testing
Localisation Localisation
Testing
Customer
Support
Total Cost*
2014 Lakshya Digital Liquid Violet
Binari Sonori
Babel Media Babel Media
Binari Sonori
Babel Media €19.0m
2015 Liquid Development Reverb
Kite Team
Reverb
Kite Team
Alchemic Dream €10.9m
2016 Mindwalk
Volta
Synthesis
Sonox
Enzyme
Player Research
Synthesis
Sonox
Synthesis
Enzyme
Ankama €32.6m
2017 SPOV
RedHot
GameSim
d3t
Sperasoft
La Marque
Rose
Dune Sound
AsRec
VMC VMC
XLOC
Around the Word
La Marque Rose
Dune Sound
AsRec
LOLA
VMC VMC €102.4m
2018 Fire Without Smoke
Trailer Farm
Snowed In
Studio Gobo
Electric Square
Yokozuna Data
Maximal
Cord
Laced
Blindlight
€59.5m
Keywords Studios
28 © 2018 Keywords Studios PLC – CONFIDENTIAL
AppendixI II III IV VI
© 2018 Keywords Studios PLC - CONFIDENTIAL
Major Shareholders*
AppendixI II III IV VI
Shareholder Shares % Holding
P.E.Q Holdings Limited4,000,736 6.31
Octopus Investment Partners3,508,558 5.53
Andrew Day 3,296,573 5.20
Canaccord Genuity Wealth3,178,403 5.01
JPMorgan Asset Management2,596,527 4.09
Oberweiss Asset Management2,458,200 3.87
T Rowe Price Global Investments2,438,885 3.84
Blackrock1,877,763 2.94
Kames1,867,530 2.94
* Based on latest available disclosures to company as at the 31st July 2018
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