Annual Report and Accounts 2014 Accounts and Report Annual Transformational growthTransformational KEYWORDS STUDIOS PLC ANNUAL REPORT AND ACCOUNTS 2014 Strategic Report Keywords is the leading international technical 1-19 services provider to the global games industry. At a Glance IFC Established in Dublin in 1998, it now has operations Highlights 2014-2015 1 Chairman’s Statement 2 in Montreal, Rio de Janeiro, Los Angeles, Seattle, Market Outlook 4 Tokyo, Singapore, New Delhi, Pune, Rome, Milan, Our Strategy 6 Barcelona and London. Business Model 8 Chief Executive’s Review 10 It provides art creation, audio recording, localisation, Financial and Operating Review 17 testing, and customer support services across 50 languages and 12 games platforms to a blue Governance Report chip client base in more than 15 countries. 20-30 Board of Directors 20 Its customers comprise many well-known multinational Directors’ Report 22 games publishers and developers including 20 out of Directors’ Remuneration Report 25 the 25 largest games companies by revenue*. Directors’ Remuneration Policy Report 27 Independent Auditor’s Report 29 Financial Statements 31-62 Consolidated Statement of Comprehensive Income 31 Consolidated Statement of Financial Position 32 Consolidated Statement of Changes in Equity 33 “Following a successful year in which we delivered Consolidated Statement of Cash Flows 34 strong organic and acquisitive growth, taking the Company Statement of Financial Position 35 business into complementary services and new Company Statement of Changes in Equity 36 geographies, we are now the only international Company Statement of Cash Flows 37 provider of the full range of integrated services in Notes Forming Part of the Consolidated a highly fragmented video games services market. Financial Statements 38 Company Information 62 As a result, we look forward with confidence to Contacts IBC making further progress as we move through the current year and beyond.” Ross Graham Chairman Visit the website for further information www.keywordsintl.com * Source: Newzoo, July 2014. At a Glance Transformational growth through international 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. Montreal ART CREATION SERVICES AUDIO/VOICEOVER Seattle The creation of graphical art assets for SERVICES inclusion in the video game including Multi-language voiceover, original concept art creation, 2D and 3D art language voice recording and asset production and animation related services Los Angeles LOCALISATION SERVICES FUNCTIONAL TESTING Translation of in game text, audio Quality assurance including discovery scripts, cultural and local adaptation, and documentation of game defects accreditation, packaging and and testing to verify the game’s Rio de Janeiro marketing materials compliance with console manufacturers specifications LOCALISATION TESTING CUSTOMER SUPPORT Testing for out of context translations, 24/7, multilingual customer support truncations, overlaps, spelling, for games in live operation, forum grammar, age rating issues and monitoring and moderation services, console manufacturer compliance and social media engagement on requirements in over 30 languages behalf of the game brand using native speakers SELECTED CLIENTS London Tokyo Milan Barcelona New Delhi Rome Singapore Pune Dublin (HQ) 50 12 20 14 Providing integrated services and 12 games platforms serving 20 of the top from 14 studios worldwide across 50 languages to a blue chip client base 25 games companies in over 15 countries by revenue Strategic Report II III Highlights 2014 – 2015 OPERATIONAL HIGHLIGHTS Strong organic growth; revenues up 23% excluding • Binari Sonori, acquired in May 2014, further all acquisitions: strengthened our audio and localisation • Continued to gain market share adding clients services, giving the Group a presence in like Ankama, Bioware, Carbine, Frontier Milan and Los Angeles; and Developments, Nexon and Tencent; and • Lakshya Digital, acquired in October 2014, • Invested in new Singapore operation to support provided an entry into art outsourcing and Electronic Arts’ move to outsourced services in giving Keywords visibility further up the South East Asia. game development supply chain. Significantly extended service capabilities and Delivered operational synergies in Montreal and in geographical reach through four acquisitions: New Delhi through rationalising top management and • Liquid Violet, acquired in January 2014, co-locating production facilities with those acquired. 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; FINANCIAL HIGHLIGHTS Group revenue (m) Adjusted profit before tax (m)1 Adjusted basic earnings per share (c)1 €37.3m €5.1m 8.54c h130% h104% h48% 40 €37.3 6 8 €5.1 8.54 30 6 4 5.76 20 4 €16.2 €2.5 2 10 2 0 2013 2014 0 2013 2014 0 2013 2014 Total dividend (p) Total Group revenue 2014(13)(m) 1.10p €37.3m (€ 16. 2m) h10% h130% Outer circle: 2014 1.2 2% 1.10 Inner circle: 2013 1.00 13% 8% 2% 0.8 Localisation Services 33% Localisation Testing 14% 32% Audio/Voiceover Services 0.4 Functional Testing Art Creation Services 0 2013 2014 57% 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 and delivery on strategy The business in 2014 approach to operational efficiency in the Shareholders & dividend In last year’s statement, my first for Keywords new companies will continue to drive margin During the year, the Group raised a further £6.0m as a listed company, I set the scene describing my improvement over time. through a well-supported institutional placing initial view of the Company, its business ethos and we would like to thank shareholders for their and culture and the opportunities for organic and People & culture ongoing support as we continue to focus on acquisitive growth in a fragmented market. I am Last year I commented on the Keywords’ culture delivering shareholder value through our organic pleased to be able to report that, in its first full engendering a “can do” attitude founded on the and acquisitive growth strategy. However, we year as a listed company, Keywords has clearly value placed in our people – this attribute is well are looking at augmenting our investor relations delivered its strategy with a strong financial reflected in how much they actually “have done”. efforts to ensure the Group’s strong overall performance during the year and four well- The Group is ahead of plan in terms of both performance and enhanced positioning is conceived and executed acquisitions. acquiring new service lines (such as the acquisition better reflected in the share price. of Lakshya Digital in October 2014 which took During 2014 the business has more than met the Keywords into the large Art Outsourcing market The Board is proposing a final dividend of 0.74p, Board’s ambitious expectations. Organic revenue for the first time) and the establishment of offices which gives a total dividend for the year of 1.10p growth of 23% has been augmented by four in locations closer to key clients (such as the and represents an increase of 10% compared to acquisitions (with two further small purchases recent acquisition of an office in Brazil and the the total dividend of 1.00p in 2013. This increase after the financial year end) such that annualised establishment of the studio in Singapore). is consistent with our progressive dividend policy revenues have grown three-fold since our IPO in which takes into account the financial performance 2013. These new businesses are integrating well Recently the leadership team from round the of the Group and the alternative uses of funds that within Keywords – maintaining their own brands world came together for two days of strategy will deliver shareholder value. while absorbing the Keywords’ culture, its efficient and operational exchanges. At this event, it was way of working and its strong financial controls. clear that Keywords now benefits from even Current trading and prospects The acquisitions have resulted in a change in greater strength in the depth of its leadership The Group has made a good start to the year. the business mix, making the Group much broader team and that this team is excited to work Having already delivered strong organic and and better balanced and they have opened up together with collective ambition, boding acquisitive growth, in line with our strategy, and opportunities that it simply could not have well for the future. taken the business into complementary services delivered without all of its current constituents. such as art outsourcing and customer support, we However, the Group is not just reliant on its are now well positioned as the “go to” organisation An important criteria for an acquisitive company leaders and I would like to thank each and every for outsourcing and integrated services in the is to improve continuously its quality of earnings person within the organisation for their individual video games market. As importantly, Keywords – sheer growth on its own can prove an illusory contributions (going the extra mile) to Keywords’ is now known as the leading consolidator in the achievement. Here, I believe, we have measured achievements and transformation during the year. market and attracts automatic interest from up well. In particular, we are very encouraged vendors and management teams wishing to join by the fact that customers, old and new, are a larger, more diverse group.