Keywords Studios plc / Annual Report and Accounts 2020
Passion
is the key
Keywords Studios plc / Annual Report and Accounts 2020
Our purpose
> We bring to life digital content
that entertains, connects, challenges,
and educates people worldwide
At Keywords Studios, we bring passion to every pixel, every project, every aspect of technology
and media. Working hand-in-hand with our clients, our diverse group of digitally-native Keywordians
provide technology-enabled services that turn extraordinary ideas into great interactive content.
We’re on a mission to be the world’s leading technical and creative services platform for the video
games industry and beyond, and a sustainable business that positively contributes to the environment
and our communities across the globe.
Welcome to our open and evolving world!
On a
quest
Andrew Day
Group Chief Executive Officer
00/01
2020 highlights
Revenue (€m)
Organic Revenue growth* (€m)
€373.5m
2020
2019
2018
+14.4%
€373.5m
€326.5m
+11.7%
2020
2019
€250.8m 2018
EBITDA* (€m)
€66.8m
2020
2019
Adjusted EBITDA* (€m)
+53.9%
€74.2m
€66.8m
€43.4m
2020
2019
Margin: 17.9% (2019: 13.3%)
Margin: 19.9% (2019: 17.6%)
+11.7%
+15.5%
+10.1%
+28.8%
€74.2m
€57.6m
Profit before tax* (€m)
Adjusted profit before tax* (€m)
€32.5m
2020
2019
2018
+87.1%
€32.5m
€17.4m
€22.1m
€55.0m
2020
2019
2018
Margin 14.7% (2019: 12.5%)
+34.3%
€55.0m
€40.9m
€37.9m
Basic earnings per share (c)
Adjusted earnings per share* (c)
30.32c
+99.1%
60.93c
2020
2019
2018
30.32c
2020
15.23c
23.16c
2019
2018
+24.9%
60.93c
48.78c
45.50c
Total dividend per share (p)
0.0p
2020
2019
2018
*Alternative performance measures
The Group reports certain alternative performance
measures (APMs) to present the financial performance
of the business which are not GAAP measures as
defined by International Financial Reporting Standards
(IFRS). The Directors believe these measures provide
valuable additional information for the users of the
financial information to understand the underlying
trading performance of the business. In particular,
adjusted profit measures are used to provide the users
of the financial statements with a clear understanding
of the underlying profitability of the business over time.
For full definitions and explanations of these measures
and a reconciliation to the most directly referenceable
IFRS line item, please see pages 136 to 143.
0.0p
0.58p
1.61p
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Overview
01 2020 highlights
02 Meet the Keywordians
08 Company overview
10 Chairman’s statement
Investment case
12
Strategic report
14 Chief Executive Officer’s review
18 Market outlook
20 Business model
22 Our strategy
24 Key performance indicators
26 Service line review
32 Our people, our culture
36 Responsible business report
People
38
39 Diversity & inclusion
40
41
42
43
Client centricity & innovation
Environment
Community
Corporate governance
and business ethics
44 Non-financial information statement
44
Section 172(1) statement
46 Financial and operating review
50 Principal risks and uncertainties
Governance
54 Board of Directors
56 Chairman’s introduction
57 Corporate governance
60 Audit Committee report
63 Director’s remuneration report
78 Report of the Nomination Committee
79 Director’s report
81 Statement of Directors' responsibilities
Financial statements
82
Independent Auditor’s report to the
members of Keywords Studios plc
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
Consolidated statement of
changes in equity
87
88
89
90 Consolidated statement of cash flows
91 Company statement of financial position
92 Company statement of changes in equity
93 Company statement of cash flows
94
Notes forming part of the consolidated
and company financial statements
Supplementary
information
136 Alternative performance measures
144 Company information
Overview
Meet the Keywordians
> At Keywords Studios, we bring passion
to every pixel, every project, every aspect
of technology and media
A sandbox of
creativity
Art Creation & Marketing
Game Development
Audio
The creation of video game
graphical art, including concept
art, 2D and 3D art asset
production and animation.
Marketing services include
game trailers, marketing art
and materials, PR and full
brand campaign strategies.
Multi-language voiceover
recording, original language
voice production, music
management, sound effects
and related services for the
video games industry, film
and TV.
Game development services
including full game development,
co-development, porting of games
from one platform to another and
remastering, tool development
and consulting services on a
work-for-hire basis. This includes
additional services such as
proprietary software solutions for
analytics, social media integration,
procedural generation of art
assets and player behaviour
research consulting services.
Revenue in 2020
€57.3m
15.3%
of total revenue
Revenue in 2020
€80.0m
21.4%
of total revenue
Revenue in 2020
€47.2m
12.6%
of total revenue
Keywords Studios plc / Annual Report and Accounts 2020 02/03
A sandbox of
creativity
Francis-Xavier Martin
Lead Artist at Electric Square
Brighton, UK
“ I’ve been passionate about
drawing and creating since
I was very young, so I love
when I see something we
create as a team come to life
and the public enjoys it.”
On a daily basis, between meeting with
producers and the team, my job focuses
on reviewing artwork and making sure
it is at the highest quality for our clients.
After work, I like to keep fit and work
on my special power, magic, a hobby
of mine for a number of years.
Overview Meet the Keywordians continued
> Our diverse group of digitally-native
Keywordians provide technology-enabled
services that turn extraordinary ideas
into great interactive content
Mechanics of
the game
Functional Testing
Localization
Localization Testing
Quality assurance, including
discovery and documentation
of game defects and testing to
verify the game’s compliance
with hardware manufacturers’
and distribution platforms’
specifications, as well as test
automation tools and services,
crowd based and focus group
testing solutions.
Translation of in-game text,
audio scripts, cultural and
local adaptation, accreditation,
packaging and marketing
materials in over 50 languages.
Includes our proprietary
technologies for content
management, machine
translation, crowd sourcing
and workflow management.
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.
Revenue in 2020
€78.5m
21.0%
of total revenue
Revenue in 2020
€45.4m
12.2%
of total revenue
Revenue in 2020
€23.3m
6.3%
of total revenue
Keywords Studios plc / Annual Report and Accounts 2020 04/05
Mechanics of
the game
Roxana Moore
Director of Embedded Services
Redmond, WA, United States
“ We are a unique team that are
more like family than co-workers,
working mostly on evergreen
projects that are always
challenging and ever changing.”
I oversee Keywords' Embedded Services
Team, supporting a variety of insourced
managed services that span a number
of our service line activities, at our
clients' sites.
Between sports, cooking, family and
friends, my spare time is also spent on
moving my languages skills from being
bilingual to trilingual.
Overview Keywords Studios plc / Annual Report and Accounts 2020
Meet the Keywordians continued
> We are committed to building a sustainable
business that positively contributes to the
environment and our communities across
the globe
Community
driven
Player Support
Omnichannel and multilingual customer
support delivered 365/24/7 in-game and
on-digital community and social platforms,
where we engage, moderate, analyse, report,
prevent fraud and cheating. Utilising AI,
bots, automated support tools, and self-
help portals to ensure we can deliver the
best customer experience and support for
gamers, when games are in live operation,
ensuring our customers have a safe player
environment and making their games loved
by their players.
Revenue in 2020
€41.8m
11.2%
of total revenue
Community
Overview
06/07
Eric Aguilar
Player Support Manager
for North America
Montreal, Canada
“ It is always fulfilling to see the
team grow, helping them deliver
for our clients while becoming
a better version of themselves
professionally.”
I now oversee Player Support in
North America but started my career
in Keywords Manila, where we grew the
team from 50 employees in 2016 to over
850 in 2020.
Once, I experienced the electrification
of a lightning strike when hiking in
the Philippines, but today I keep my
adventures closer to home with my
wife and son.
Company overview
> Welcome to our open and evolving world!
It’s our mission to be the world’s leading technical
and creative services platform for the video games
industry and beyond. Welcome to our open and
evolving world.
Keywords Studios now has 69 studios, in over 40 cities,
across 22 different countries worldwide. We provide a full
set of integrated services, combining a presence that is local
to our clients in key gaming clusters with good access to
skilled talent pools across five continents.
Seattle
Chicago
Vancouver
Mexico City
Austin
Orlando
New Orleans
Ottawa
Montreal
Quebec City
A solid
Saint Jerome
Raleigh
platform
Los Angeles
Portland
São Paulo
Rio de Janeiro
69
studios in 22 countries
8,353
average number of employees in 2020
Keywords Studios plc / Annual Report and Accounts 2020 08/09
Service lines
Art Creation & Marketing
Functional Testing
Localization Testing
Game Development
Localization
Player Support
Dublin (HQ)
Liverpool
Audio
Leamington Spa
Newcastle
Brighton
Berlin
London
Katowice
Beijing
Dalian
A solid
platform
Madrid
Barcelona
Paris
The Hague
Volgograd
Saint Petersburg
Hamburg
Krakow
Milan
Rome
Melbourne
New Delhi
Pune
Chengdu
Zhengzhou
Tokyo
Singapore
Yogyakarta
Manila
Taipei
Shanghai
Overview Chairman’s statement
Many of the strengths of
Keywords' business model
have shone through
Ross K Graham
Chairman
This time last year no
one predicted the difficult
conditions brought about
by the pandemic.
Yet, many of the strengths of Keywords'
business model have shone through, as it
moved quickly to remote working, putting
the wellbeing of our people first, and
delivering the projects entrusted to us.
The flexibility shown by management and
staff alike in adapting to new business
practices, the continued strong demand for
our services and the discipline shown over
managing our cost base, enabled underlying
revenues, margin and profit growth. This
was despite organic growth having been
held back by the COVID-19 production
constraints that faced the Group.
Early in the crisis, the Board recognised
the potential that this crisis gave us for
enhanced expansion. Accordingly, €110m
was raised in an equity placing, well
supported by shareholders, to provide
the Company with flexibility to capitalise
on the strong pipeline and a unique
opportunity in the market.
Keywords Studios plc / Annual Report and Accounts 2020 10/11
This support was vindicated both by the
Group’s performance in the year and by
the eight acquisitions since the placing,
which further strengthen our Game
Development, Marketing and Audio
services in line with our strategy. In other
ways, the teams in Keywords very much
"stood up to the plate", as shown in the
annual employee survey. The results
showed a welcome appreciation of the
efforts made to improve communication,
staff recognition and engagement. This
remains a focus, as does our Responsible
Business agenda more broadly.
We were fortunate to have held our annual
Strategy Conference in London in February
2020 before the pandemic really took hold.
Thereafter the Board has not been able
to make its customary visits to overseas
locations and so much reliance has been
placed on technologies such as Zoom
and Teams to facilitate virtual face-to-face
contact. It is our fervent hope that we
shall be allowed to meet our colleagues
in person before long and we look forward
to the enhanced camaraderie and informal
intellectual stimulation that this brings.
The video games industry has benefitted
from an expanded gaming population
as more people have spent more of their
leisure time on gaming. For our part, we
continue to build scale in our existing
activities and to identify new facets of
video games service infrastructure that
we can assist our clients with, supporting
our continued expansion within video
games. In addition, we continue to examine
opportunities in adjacent sectors and
our work in the broader media and
entertainment sector with Netflix, Amazon,
Apple TV+ and others has increased
accordingly. We will continue to review
opportunities that supplement our
growth in video games to ensure we take
advantage of the increasing convergence
of content and leverage our mastery
of the most interactive of all mediums,
video games.
Every year I look back and think "we
have done pretty well, but it could have
been better". It is this determination
for continuous improvement that helps
underpin the Keywords' culture which
views each year as a stepping stone to
the next.
The appointment, in January 2021, of
a top class Chief Operating Officer, Sonia
Sedler, with relevant experience in global
outsourced professional services, is another
important step in the quest to continually
improve the Group’s operational excellence.
With around 9,000 employees in 22 different
countries Keywords is becoming a sizeable
enterprise and the internal operational
infrastructure needs to be fit for purpose.
I am delighted to welcome Sonia who in the
short period since her appointment in mid-
January has already started to make an
appreciable difference.
On 15 March 2021, we announced that
we have agreed for Andrew Day, CEO,
to take a temporary leave of absence
from the business for health reasons,
with immediate effect. During the interim
period, Jon Hauck, who has become a key
member of the senior team driving the
Group’s strategic development since he
joined in 2019 as CFO, and Sonia Sedler
have been appointed as joint interim
CEOs by the Board, ably supported by the
Group’s strong service line and regional
management teams. Whilst Andrew
has been a driving force in building
Keywords, a key part of his role has
been the development of an exceptional
leadership team who we are confident
are well equipped to continue to both
drive the Company's strategy forward
and manage the Group’s operational
performance. Andrew is expected to
return to his position following a period
of recovery and he will remain a member
of the Board of Directors.
As mentioned earlier, our management
and staff have both performed admirably
during an unprecedented year and the
financial results are a testimony to the
commitment of everyone involved, all
of whom deserve a round of applause.
Interestingly, some of the new ways of
working have also identified opportunities
to improve the way we do things for the
benefit of both ourselves and our clients.
Having previously suspended our dividend
programme, we continue to expect to
resume our progressive dividend policy
in the 2021 financial year.
On behalf of the Board, we are extremely
appreciative of the efforts across the
business in the past year. This dedication,
combined with our strong market position
and scale, leaves Keywords well placed in a
buoyant video games market which is driving
increased demand for content creation
and a structural trend towards outsourcing.
With a strong balance sheet and an excellent
leadership team in place, we look forward
to the coming year with confidence as we
continue to actively review a healthy pipeline
of acquisition opportunities and cement
our status as the "go to" global video games
services platform.
Ross K Graham
Chairman
Overview Keywords Studios plc / Annual Report and Accounts 2020
Investment case
Spoiler alert
> Strengthened platform in a growth market
Keywords is better placed than ever to continue to capture an increasing
share of our robustly growing market, by deepening our relationships with
customers who already trust us with their high value IP, having significantly
extended our services and geographical reach during the year.
1
2
3
Access to
a dynamic
growth market
Keywords has minimal direct exposure
to the successes or failures of individual
game titles. Our focus on content
means we are platform agnostic and
well positioned to take advantage
of the opportunities presented by
mobile gaming, cloud streaming, next
generation consoles and AR/VR. The
increasing sophistication of games and
the development of new platforms
all add to the complexity of the video
games market which is driving demand
for larger, professional, outsourced
specialists, such as Keywords, in a highly
fragmented supplier market.
Market leading
position
Strong growth
record
As a digitally native company, providing
technology-enabled services, Keywords
has a market leading position as the
only global provider of fully integrated
outsourced creative and technical
services to the global video games
industry. With an industry reputation
for quality, reliability and flexibility,
our scale and reputation mean we are
well placed to take advantage of the
trend for customers to move to more
collaborative partnerships with fewer,
larger suppliers.
We continue to deliver strong organic
revenue growth as we benefit from
both the growth in the video games
industry and the trend towards greater
outsourcing of our services. In addition,
we have successfully completed 52
acquisitions since IPO. The eight
acquisitions announced since 2020
bolstered our capabilities, particularly
in Game Development and Marketing
services, while bringing us even closer
to our customers around the world.
4
5
6
Opportunity
to grow further
A strong
business model
Adjacent market
potential
Having made strong progress in
extending the Group’s client base,
market penetration, geographic
footprint and service lines, we are now
beginning to realise the significant
potential for increased cross-pollination
of our service lines and geographic
locations, including taking advantage
of our dual-shore capabilities which
enable us to be close to our customers
and provide services from lower cost
studios, as we increasingly become
a strategic partner to our customers.
Keywords’ flexible resourcing and
charging model, with charges levied
for time or output, combined with
relatively low working capital and
capital expenditure requirements,
support our ability to grow the business
whilst also achieving strong underlying
cash conversion.
Our business model also provides an
opportunity to invest in the exciting
video games market, without the risk
of exposure to the successes or failures
of individual game titles.
Our expertise in providing outsourced
solutions to the video games industry
is already being sought after in adjacent
markets such as film and television, and
Keywords is well placed to deliver this.
Video games represent the pinnacle
of interactive content. Our mastery of
this most interactive of content forms
positions us well as other forms of
content continually seek ways to be
more interactive and engaging.
Overview
12/13
7
Trusted partner
We are a trusted partner to leading companies around the world, with a leading market position,
providing services to 23 of the top 25 games companies and all 10 of the top 10 mobile games
publishers by revenue, including:
Sources: Newzoo, Top 25 public companies by game revenues in Q3 2020; and App Annie, Top publishers of 2020/21.
Chief Executive Officer’s review
Strong performance,
despite COVID-19
constraints
Keywords delivered a strong
performance in 2020, with
revenues up by 14.4%
to €373.5m, or by 11.7%
on an organic constant
currency basis.
This performance reflected our team’s hard
work to deliver on the continued robust
demand for our services, despite significant
COVID-19 related production constraints
which delayed the flow of some content in
certain service lines. We are prouder than
ever of the dedication of all our talented
Keywordians through this challenging year,
as we reacted with agility to fundamental
changes to our ways of working, whilst
continuing to deliver the excellent service
which our clients have come to expect.
The Group‘s global footprint meant that
we first experienced disruption from the
COVID-19 pandemic in China from January,
before experiencing a broader shutdown
of the majority of its studios across the
Group from March. Having learnt from
our experience early on in China, we were
able to quickly move the vast majority of
our business to a remote working model.
However, this was more of a challenge
in our Testing and Audio businesses
which had previously required work to be
performed in secure or physical studios.
During this period, the Group received
€9.2m of COVID-19 related subsidies,
largely in the Americas, which supported
the continued employment of staff despite
the interruption to the flow of work. The
Group has since been able to facilitate and
agree alternative solutions with our clients,
allowing us to provide remote testing
services in a work from home model and
undertake some audio recordings virtually.
This enabled us to stabilise trading at the
end of the first half of the year and deliver
15.0% Organic Revenue growth in the
second half of the year (H1: 8.0%), despite
some ongoing operational constraints.
Jon Hauck
Joint Interim
Chief Executive Officer
Keywords Studios plc / Annual Report and Accounts 2020 14/15
Reported revenue growth
14.4%
11.7%
Organic Revenue growth
Having exited 2020 with the majority of
our business still working remotely, these
workarounds are proving highly effective
and will enable us to support customers
for as long as remote working is needed.
Demand remained robust throughout
the year and the video games industry
has enjoyed significant increases in both
player acquisition and gameplay during
lockdowns. However, our business relies
on the production of content and both we,
and publishers, have been held back by
operational constraints which have limited
the flow of new content, as set out in more
detail in our service line reviews. We do
expect that, with the benefit of increased
players and funds following recent demand,
the current year will see publishers focus
more on developing new content to keep
gamers engaged.
Game Development continued its strong
performance with Organic Revenues
growing by 17.1% which, combined with
recent acquisitions, positions it as a
market leader of some scale with Pro
Forma Revenues of €98m at the end of
2020 (before the inclusion of Heavy Iron
and Tantalus Media that completed in
January and March 2021, respectively).
This excellent performance was delivered
despite strong comparatives as we moved
into the second half and the obvious
challenges of recruiting and managing
complex projects in a work from home
model. Game Development received
significant further investment during the
year as we continue to build this business
to scale across the major geographic
territories. We were pleased, therefore, to
be able to welcome to the Group through
acquisition, Coconut Lizard (Newcastle,
UK), High Voltage (Chicago and New
Orleans, USA), Heavy Iron (Los Angeles,
USA) and our recent acquisition Tantalus
that gives us our first market entry into
the Australian game development market.
We enter 2021 with Game Development
being our largest service line and, with a
healthy acquisitions pipeline, we hope to
see further development of this service line
through the year.
Our Art Creation & Marketing service line
also performed well in the period, despite
some significant early COVID-19 impact,
particularly affecting our businesses in
China and India. Our Marketing Services
businesses have continued to benefit from
ongoing investment in acquisitions and we
were delighted to welcome Maverick Media
(London, UK), g-Net (Los Angeles, USA) and
Indigo Pearl (London, UK) into this group
during the year. As a result, Marketing
Services has now achieved sufficient scale,
with Pro Forma Revenues of c. €35m and
over 190 people employed globally across
eight studios, and we intend to report on it
as a separate service line from the first half
of 2021.
As expected, our Player Support business
returned to growth during the year
benefitting from new business wins and
some increase in demand from certain of
its existing contracts as they benefitted
from increased game playing activity since
lockdown commenced.
Whilst demand was strong for most of our
services, COVID-19 related operational
and market disruption was particularly
apparent in our Localization service line,
where the flow of content into the business
was affected, and in our Testing and Audio
service lines, where the use of facilities was
significantly curtailed. However, the strong
operational response to these challenges
led to significantly higher Organic Revenue
growth in Functional Testing and Audio
in H2, of 20.6% (H1: 10.7%) and 8.7% (H1:
0.5%) respectively, while our Localization
Testing business delivered growth of 5.9%
and Localization returned to growth in H2.
As a result, we enter 2021 in a much better
position and do not expect to be impacted
in the same way, despite the continued
COVID-19 related challenges ahead.
The Group’s Adjusted EBITDA increased
by 28.8% to €74.2m, representing a
2.3% pts improvement in margin to 19.9%.
This was driven by some operational
leverage despite the recruitment constraints
experienced in the year and continued good
cost control, together with a reduction in
certain costs due to COVID-19, such as travel
and marketing costs.
We are pleased that this profit performance
has also resulted in strong cash generation,
with €53.4m of Adjusted Free Cash Flow
representing a 97.2% Adjusted Cash
Conversion rate in the period (2019: 80.2%),
albeit 2020 included some phasing benefits
as a result of COVID-19. This demonstrates
the strong cash generating characteristics
of the business in a challenging period
which provides the Group with further
resources to fund its acquisition strategy.
We enter 2021 very confident in the
Group’s opportunity for growth through
a continued trend towards outsourcing,
an increased focus on content creation in
a growing video games market, and in our
ability to increase our market share.
Delivering on our strategy
Structural trends to outsourcing
driving organic growth
Keywords strategy is to become the “go to”
provider of technical and creative services
to the video games industry in a market
where increased outsourcing has become
a structural trend.
Through successful development both
organically and through acquisitions,
the Group increasingly stands out as the
leader in a market characterised by highly
fragmented, local, single-service providers,
despite the growing needs of the major
video games publishers and developers
who act globally.
These customers are increasingly turning
to external development and support
services as a way of managing the demands
of generating more sophisticated content
whilst limiting their fixed costs, and so they
require the quality, flexibility, and security
of a full service provider of scale.
Strategic report Chief Executive Officer’s review continued
“We see the future
as a hybrid of creating
vibrant, engaging and
safe studio space,
and enabling people
to work securely
and constructively
from home”
Our strategic pillars
The key pillars of our strategy are to
grow organically and by acquisition to
extend the Group’s service capacity,
capabilities and geographical reach.
Building our platform
Selective acquisitions
and integration
Organic growth
and cross selling
For more information on
our strategy see pages 22 and 23.
New consoles spearheading increased
demands for content and support
Demand for video games has accelerated
during the pandemic, with International
Data Corporation (IDC) estimating that
global revenues grew by 20% in 2020. For
2021, this is being driven forward by the
launch of next generation games consoles,
which is expected to refresh the entire
console based gaming sector after a seven
year run of the PS4 and Xbox One console
generation. This is likely to result in an
enlarged market for video games content
over the coming years and an associated
demand for new content creation, which
in turn drives demand for Keywords
services. Further development of new and
existing video games streaming platforms
will also increase demand for content and
its ongoing support in live operation.
Keywords provides services to the leading
game developers and publishers across all
platforms including mobile, console, PC,
streaming, and VR. The Group, therefore,
benefits from the secular trends in gaming,
with exposure to all the major gaming
companies and all the leading platforms
without the “hit or miss” risk often
associated with an individual platform
or franchise.
Highly successful M&A
programme continuing
We remain determined not to allow
COVID-19 to halt our highly successful
M&A programme that has always been
an integral part of our strategy. Since
our strongly supported €110m placing
in May, we are pleased to have been
able to welcome eight high quality new
companies to the Keywords family, further
strengthening the breadth and depth
of the Group’s value-added services.
These brought three high quality studios
into Game Development (High Voltage,
Heavy Iron, Coconut Lizard), added
significant scale to Marketing Services
(g-Net, Maverick Media, Indigo Pearl) and
enhanced our offering in Audio ( Jinglebell).
This has been supplemented by the recent
acquisition of Tantalus which gives us our
first entry point into the Australian Game
Development market and provides us with
a further platform for both organic and
acquisition led growth in the region.
These acquisitions have been in line with
our stated strategy to focus on building
out our Game Development and Marketing
service lines, as we seek to grow these
services to become the suppliers of choice
for our global client base, whilst selectively
acquiring in other service lines.
The total consideration for these
acquisitions including performance
related contingent deferred consideration
elements (including the acquisition of
Heavy Iron that completed in January 2021
and more recently Tantalus in March 2021)
is up to a maximum of c. €137m. This is
comprised of €66m in cash, €23m through
the issue of shares and €48m payable in a
mixture of cash and shares subject to the
businesses meeting certain performance
targets or other conditions over the first
24 months post completion. We continue
to actively review a healthy pipeline of
further acquisition opportunities.
Embracing new ways of working
The senior management team at Keywords
has long been used to working distanced
from one another but, like many other
businesses, COVID-19 has forced the
same ways of working on the majority of
Keywordians around the globe. In fact, by
the end of the year, out of approximately
9,000 Keywordians, c.6,900 were working
from home, representing a dramatic
change in the working environment.
We continue to review how we can best
utilise our physical studio footprint once
we are through COVID-19 restrictions, and
we are constantly consulting those who
really matter: our Keywordians. In our
recent annual employee survey, 43% of
people expressed a preference to continue
to work from home, 10% would rather
return to office based working, with 47%
preferring a combination of working from
the office and from home.
We see the future as a hybrid of creating
vibrant, engaging and safe studio space,
and enabling people to work securely and
constructively from home. There is clearly
a role for physical studios for the Group,
particularly to allow for the exchange of
creative ideas, for training, and in our
Testing and Audio service lines. We have,
therefore, continued to invest in new
studios in Mexico City, New Delhi, Katowice
and Singapore as well as opening a sixth
studio in China in order to support our
growth today and into the future.
We also continue to work hard to
engage with and recognise the efforts
of our Keywordians and to support their
wellbeing, including communication
to increase the awareness of Employee
Assistance Programmes, with a number
of new initiatives having been introduced
during the year including guest speakers
on mental health, virtual yoga and dance
lessons, Friday evening online events,
and team quiz nights to name but a few.
Keywords Studios plc / Annual Report and Accounts 2020 16/17
opportunities. We have a dedicated
acquisition team who work with the Service
Line Directors and the Regional Managing
Directors to identify high quality targets to
help build out our global service platform.
We will continue to invest in scaling our
Marketing Services and Game Development
businesses to the point where they are
seen as the “go to” providers. We will also
seek to acquire businesses in our service
lines to add specific expertise, access to
new talent pools or where doing so leads
to meaningful operational synergies.
We maintain an active interest in
neighbouring markets such as film and
television services where we are seeing
an increased convergence towards game
technology and where our mastery of AI
game engines, localization, audio, visual
effects and art creation for the most
complex and interactive form of content
can be readily deployed. Throughout
2020, we have made steady progress in
developing our subtitling, dubbing, audio
description and sound design services
primarily for over the top (OTT) providers
such as Netflix and Amazon, and we are
pleased to see the increasing adoption of
video game based production techniques
as these industries look for faster and more
cost effective ways of generating content.
The Group’s strong position in the buoyant
video games market, our increasingly
sought after 9,000-people strong resource
base, a robust business model that has
proven to be not just resilient in the face
of the pandemic but capable of continued
rapid growth, together with our financial
strength, place us well for further growth
and long-term success.
Jon Hauck
Joint Interim Chief Executive Officer
Cash conversion
97.2%
2020 Pro Forma Revenue
€409.2m
Responsible Business
At Keywords we have always been
committed to conducting our business
responsibly and operating to the highest
standards of honesty, integrity and ethical
conduct. We take our wider corporate
responsibility seriously and are conscious
of the role that our business plays in our
communities and the impact it has on the
environment. During 2020 we made good
progress on our six priority areas of People,
Diversity, Customer Centricity & Innovation,
Communities and the Environment,
underlined by Corporate Governance
and Business Ethics:
– Our Code of Conduct was refreshed and
relaunched and is now available on our
website in 12 languages
– We have established a Global Diversity
& Inclusivity Council and introduced
unconscious bias training for individuals
in hiring roles
– The Keywords Cares matching
programme was launched in which
Keywords will match funds raised for
good causes by our teams around
the world
– We put in place a US$500,000 hardship
fund to support colleagues experiencing
financial hardship as a result of COVID-19
– For the first time we have quantified our
greenhouse gas emissions focusing on
scope 1 and 2 emissions
We have established a Responsible
Business Board Committee and we look
forward to reporting on the progress in
each of our priority areas going forward.
Outlook
Trading in 2021 has started well despite
the ongoing COVID-19 related constraints.
The vast majority of our business continues
to operate a remote working model
that we have supported efficiently and
robustly and, having put in place effective
alternative remote solutions for our Audio
and Testing service lines, the Group is
well placed to support its clients through
further restrictions.
On an ongoing basis, we are adopting
an approach tailored to a studio’s needs
in each of the 65+ locations in which we
have our production operations. Each
studio continually assesses the needs
and desires of its staff, local guidelines,
and the requirements of our customers
in determining how much, if any, of its
operations move back into studios. As
such, we are retaining a very flexible
approach to where and how we work in
order to adapt to the evolving COVID-19
related challenges and keep Keywordians
safe over the months ahead.
The underlying drivers of growth across
the video games market have been
accentuated during the pandemic.
Publishers have experienced strong growth
in both the number of players and the
amount of game play, yet they have faced
content production constraints through the
pandemic. As such, we expect them to turn
their focus in the near to medium term to
increased development of new content to
keep their expanded player base engaged.
We are already experiencing strong
demand across all our service lines, as
we are starting to see the benefit of the
newly launched PlayStation 5 and Xbox
Series X|S consoles, alongside the ongoing
development of new subscription and
streaming platforms.
We also continue to see strong evidence of
the trend to outsourcing, in which context
we are delighted to have been joined on
the Board by Sonia Sedler as Group COO,
and subsequently as Joint Interim CEO.
Sonia brings significant operational and
business development experience for
large, global professional services and BPO
companies such as Accenture, Sutherland
and Diebold Nixdorf to the Group. Her
appointment provides further breadth
to the management team, as we drive the
Group’s continued organic and acquisition
led growth in the years ahead.
Having acquired eight high quality
businesses since our successful placing
in May, deploying total capital of up to c.
€137m, the cash generative nature of the
business means we remain well placed to
continue to execute on selective acquisition
Strategic report Market outlook
> Keywords provides essential
technology and creative
services to the high growth,
dynamic video games market.
We work with the world’s
leading games publishers and
developers helping them create,
adapt and support their content
in live operation.
Forecasted industry CAGR
9.4%
A large and growing industry
The COVID-19 pandemic accelerated both
revenue and player engagement trends
across the video games industry in 2020,
with revenue growth of 19.6% to $175bn.
Games industry analysts, New Zoo have
recently increased their overall industry
growth forecasts to a CAGR of 9.4%
(previously 8.1%) with revenue forecast
to increase to $217.9bn in 2023 (Source:
NewZoo Global Games Market, for the
period 2018-23).
Whilst Keywords has experienced strong
demand during this period, the exceptional
impact of the global pandemic has not
directly translated into more content
being created, which is what drives our
growth. In fact, well-publicised delays in the
production schedules of some games and
more general disturbances to the flow of
content caused by the pandemic probably
held back the growth of our addressable
market in 2020. This is potentially creating
a “deficit” between the expansion in game
playing and associated high monetisation
and the rate of content development. This
could point to pent up demand for new
content and is likely to lead to a shifted
pattern of demand for our services in 2021
and 2022 as publishers and developers
accelerate content production rates to
capture the increased player engagement.
Increasing trend to outsource
Keywords is benefitting from both
structural trends to outsourcing from
video games publishers and developers
to service providers, and the ongoing
consolidation of the services industry,
which it continues to lead.
The video games industry has traditionally
been highly vertically integrated with most
production activity still conducted in-house
by major publishers and developers.
As the market continues to grow and
becomes ever more complex, games
publishers and developers are increasingly
seeking to avoid expanding their own
teams and a higher proportion of work
is being entrusted to third party service
companies like Keywords. The video games
publishing cycles are inherently lumpy,
requiring significant resources to deliver
complex projects on a tight timeline. This
is resulting in a trend towards increasing
outsourcing at a more strategic level which
benefits Keywords as the market’s leading
provider of scale. This includes a growing
demand for co-development and full game
development services, and we are investing
to match that demand and continue to
increase our market share.
So far, much of the outsourcing in the
industry has been undertaken on a
tactical basis, meaning the video games
service provider market remains highly
fragmented. This in turn provides an
opportunity for the selective consolidation
of this part of the industry, which Keywords
continues to lead. This consolidation in
turn brings benefits of scale enabling us
to achieve operational synergies through
more efficient use of resources, leveraging
tools and technologies and leading
innovation in the industry.
As the only service provider of scale with
depth and breadth in all areas, Keywords is
uniquely placed to support our customers’
needs with a balanced business across
multiple different technology-enabled
services and geographies. This is proving
a virtuous circle, as a key part of the
attraction for acquisition targets is the
desire to be part of a larger group with
access to a wider customer base and
service offering. It also means we are
increasingly benefitting from our scale
relative to competitors, as we further
consolidate our market, and can respond
flexibly to increasingly large scale projects
from our customers.
Keywords Studios plc / Annual Report and Accounts 2020 18/19
$217.9bn
$174.9bn
$146.2bn
$138.8bn
Key trends in 2021 and beyond
“ Keywords is uniquely
placed to support our
customers’ needs.”
Global games revenues forecasted
to reach $218bn by 2023
2023
2020
2019
2018
Source: Newzoo 2020 Global Games Market Report, November 2020
1
2
3
Next generation consoles
Games as a service
The recent launches of the PlayStation
5 and Xbox Series X|S represent a
structural growth opportunity for
Keywords. New console cycles typically
provide a catalyst for increased content
creation as newer games require
ever more complex visual and audio
support due to the increasing level of
sophistication in graphics and gameplay.
There is also likely to be a longer
overlap with the previous generation of
consoles, as publishers look to maintain
engagement on existing games through
continued content production as well
as producing new content for the new
consoles, further increasing the demand
for our support services.
Games are increasingly being operated
as live services – Games as a Service.
The outsourcing of parts of these
operationally intensive live operations
services, including the introduction
of new features, new characters,
producing marketing materials, plus
further localization and testing and
of course player support has resulted
in this becoming an important, stable
revenue source for Keywords. Today an
estimated 30-40% of our revenues are
currently generated from “evergreen”
services, titles operated on a “games
as a service” basis.
The transition to next generation
consoles will this time be smoothed
by the trend to the “games as a
service” and free to play models. We
anticipate game publishers will want to
continue to support existing content
that is commercially successful while
simultaneously producing new content
that takes advantage of the power and
features of the new consoles.
Wider adoption of
subscription and cloud
gaming platforms
In addition to next generation consoles
and PCs, publishers are also looking to
expand beyond these traditional market
endpoints given the wider market
opportunity in subscription and cloud
gaming platforms including Microsoft,
Apple, Google and Amazon.
Presently, gaming can be costly for the
user, with the requirement for high
end gaming PCs, expensive consoles
and high end smartphones limiting the
access to and uptake of some games.
Subscription and cloud services have
the potential to provide highly cost-
effective distribution of content, making
it available to more players, on more
devices, in more countries, and in
more languages.
Now more than ever, video game
technologies are also being used in
other markets including e-learning, film
and TV, and architectural visualisation
as content providers continue to seek
ways to make their content more
interactive and thereby more impactful
and engaging. Keywords is uniquely
positioned to support interactive
content of any type through the skills
and experience it has accrued in the
most interactive of all content markets –
video games.
Strategic report Keywords Studios plc / Annual Report and Accounts 2020
Business model
> Creating value
and growth through
operational efficiency
The video games industry represents the pinnacle of interactive
digital content. At Keywords, we are using our passion for games,
technology and media to create a global, integrated services
platform of scale for video games and beyond.
By working as their external development partner, we enable
leading content creators and publishers to leverage our expertise
and capacity across the lifecycle of interactive content.
Barriers to entry
What we do
In so doing we enable our customers who are operating in complex
and fast-moving environments to remain lean and agile, and to
focus on creating and monetising the most engaging experiences.
Outsourcing such work is attractive to developers and publishers
because it converts their fixed costs into variable costs, helps
remove bottlenecks in capacity by providing access to talent as
required and enables them to focus on their core competencies.
We are trusted and relied upon by most of the world’s leading
video game companies to work alongside them during concept,
development and live operations by leveraging the breadth and
depth of our industry leading service lines every step of the way.
Scale and flexibility
Large customers need large
reliable suppliers with flexible
resourcing to match their needs.
Particularly true in testing, allowing
us to scale up or down to meet
demand, mirroring the seasonality
of games production.
Reputation for quality
At the heart of our culture is our
commitment to quality, reliability
and integrating with our customers’
processes, promoting long-term
customer relationships.
Knowledge and expertise
Our talented people have deep
games-specific knowledge and
experience, enabling them to add
value to our customers’ games
at all stages in the development
lifecycle.
Global presence
Provides access to the best talent
and enables us to deliver projects
across studios in multiple time
zones, allowing seamless 24-hour
turnarounds whilst remaining close
to our customers.
Technology
Necessity of regular investment
in technology and security makes
it difficult for smaller suppliers
to compete. The importance
of resilience and security is
shown through in our robust IT
infrastructure.
Financial strength
Our strong financial performance
and position gives our customers
reassurance of resilience in their
supply chain, and is part of our
attraction to businesses we
acquire.
Keywords’ presence in each stage of the games development cycle creates
multiple opportunities for cross delivery and revenue growth, with the
services offered by Keywords outlined below:
1 Pre-production
4 Launch
Concept art, level design and game design.
2 Early stage game
development
Full game development, co-development,
art production, cinematics/visual effects,
audio production, original language voice
production, engineering, development
quality assurance, game demo trailers,
music scoring, sound design, story writing.
3 Later stage game
development
Functional testing, text localization, audio
localization, localization testing, player
research, game porting and remastering,
music branding and strategy.
Certification testing, official game trailers,
soundtrack publishing, marketing services
and customer acquisition.
5 Ongoing live
operations support
Player support, community management,
data analytics, payments processing, game
analytics, social integration and customer
retention.
6 New content for games
Game extensions, level expansions, art,
audio, testing, localization and marketing.
Supported by our
Strategic
pillars
Building
our platform
Selective acquisitions
and integration
Organic growth
and cross selling
Responsible
& sustainable
operations
Keywords conducts its
business to the highest
standards of honesty,
integrity and ethics while
taking its wider corporate
responsibility, role in
society and environmental
impact seriously.
Culture
Our culture acts as
the glue that binds all
Keywordians around the
world together. At the
heart of our culture are
our operating principles,
the “Keywords Rule of 9”.
Read more on
p.22–23
Read more on
p.36–45
Read more on
p.32–35
20/21
Supporting the full Game Development Life Cycle
Creating value for stakeholders
1
Pre-production
Service lines
Art Creation & Marketing
Localization
Game Development
Localization Testing
Audio
Player Support
Functional Testing
2
Early stage game
development
6
New content
for games
5
Ongoing live
operations
support
3
Later
stage game
development
4
Launch
Shareholders
– Consistent track record of delivering
revenue and profit growth.
– Access to a structural revenue growth
opportunity driven by industry growth
and a trend towards outsourcing.
– Proven disciplined M&A track record
to consolidate a fragmented global
supplier base.
– Opportunity to invest in the exciting
video games market, without the risk
of exposure to the successes or failures
of individual game titles.
39%
CAGR in Adjusted EPS
since 2014*
Customers
– Keywords’ involvement across the video
games cycle means that we can be a “one-
stop-shop” for our global customers.
– Match customer requirements with
a combination of on-demand and
dedicated services facilitated.
– Wide geographic reach provides access
to the best pools of talent and enables
a flexible resource model.
– Multiple opportunities for cross selling
and revenue growth.
120
customers using
3 or more services
(up from 30 in 2014)
Employees
– Keywords provides employees with an
excellent and sustainable variety of work.
– Good career advancement
opportunities both within and across
our seven service lines.
– Opportunities to work on the leading
global game titles.
– Diverse, passionate games colleagues
8,353
Average number
of employees
(up from 978 in 2014)
*
Adjusted earnings per share comprises the
adjusted profit after tax divided by the non-
diluted weighted average number of shares
as reported in the APMs.
Strategic report Our strategy
On a quest
To become the “go to” technical and creative services
provider for the video games industry and beyond.
The key pillars of our strategy
are to grow organically and by
acquisition to extend the Group’s
service capacity, capabilities and
geographical reach in order to
better serve our client base across
all platforms, key geographies
and languages, with a full range
of services and solutions.
Positioning the Group as the
provider of scale in an otherwise
highly fragmented service provision
market, despite the global scale
and nature of the major video
games publishers and developers,
will enable us to continue to
take advantage of the trend
towards greater externalising of
development and support services
as customers seek to manage the
demands for increasingly frequent
and sophisticated content in a cost
effective manner. By investing in
expanding capacity and across
our multi-service global platform,
we are increasingly becoming a
strategically important partner
to our customers who require
a service provider of our scale
and flexibility.
As we develop positions of scale
within our chosen markets, our
focus moves to new areas where
we see opportunities to expand
through a mixture of organic
and acquisitive growth.
Strategic pillars
Progress in 2020
Building
our platform
– We continued to grow our service lines, aiming to make them
the “go to” providers for their respective sets of services.
– Our largest service line, Game Development, has benefitted
from three further investments in acquisitions and organic
openings of new studios.
– Continued to enhance our marketing services capabilities
(first entered in 2018) with three acquisitions during the
year, bringing the number of Keywords specialist marketing
studios to eight.
– Expanded and grew our global testing capabilities in new
and existing regions with facilities opened in Katowice,
Mexico City, and New Delhi, improving further our access to
important talent pools.
– COVID-19 also highlighted the resilience of our platform, with
currently c. 6,900 Keywordians (approximately 80%) working
from home.
Selective acquisitions
and integration
– Announced seven acquisitions during the year which added
to our existing scale and capabilities in Game Development,
Marketing and Audio services.
– These acquisitions are being integrated within the service
lines as well as within the country and regional management
structures into our global finance, accounting, HR and
IT functions.
– Increased our presence in North America with selective
acquisitions bringing operations in Chicago and New Orleans
that provide access to important talent pools in those locations.
– Made good progress with integrating prior period
acquisitions, which are making good contributions to
the Group.
Organic growth
and cross selling
– Despite the challenges of COVID-19, Organic Revenue
grew by 11.7% in 2020 (2019: 15.5%).
– Resilient growth performance given the significant
disruption from COVID-19 and the resulting disruption
to content production in the industry.
– Continued to expand our client relationships by making good
progress with cross selling our services. In 2020, the number
of clients buying three or more services from us increased
once again, to 120 from 108 in 2019.
Keywords Studios plc / Annual Report and Accounts 2020 22/23
Priorities in 2021
Measures of our success
– In 2021, we will continue to build our platform so we are increasingly
a strategically important partner to our customers.
– We plan to make further acquisitions in the game development space,
as we build this business into the provider of choice.
– Marketing services should see further acquisition opportunities, as we
continue to widen the range of services we can offer and expand the
geographies we can cover.
– Additionally, given the scale of our marketing services, we plan to break
out Marketing Services into a separate service line from the first half
of 2021.
– We anticipate a gradual return to the office in 2021, while engaging
with customers and employees on retaining a mix to these new ways
of working where security and productivity considerations allow.
– 2021 will also see prudent investment as we develop our platform
to service our clients’ projects across our expanding multi-service
global platform.
7
service lines, up
from two in 2009,
four in 2013 and
six in 2016.
8,353
average number
of employees
in 2020.
5
continents in
which we have
operations. We
now have 43%
of our people in
North America and
South America,
26% in Europe and
31% in Asia and
Australia.
– The Group’s acquisition programme continues to be an important
strategic pillar and we anticipate that 2021 will again contain a number
of acquisitions.
€137m
8
maximum
consideration
for acquisitions
since placing in
May 2020.
acquisitions since
placing in May
2020.
– Aim to continue the pace of acquisitions, investing between €40m to
€80m per year.
– Our service lines are ever developing, and there are gaps in most of them.
We will continue to make selective acquisitions that further enhance
and extend each service’s capabilities in 2021, particularly in Marketing
services and Game Development.
– We are mindful of the integration challenges and therefore acquisitions
will likely be spread across geographies and across services lines to avoid
management overstretch.
– Keywords will continue to develop and invest in technologies that support
the services we provide to game developers and game publishers.
– Following considerable success expanding into the key global video games
markets, geographical expansion remains a lower priority driver in 2021
as we continue our focus on enhancing our capabilities in regions where
we already have a presence.
52
acquisitions
since IPO.
– Organic growth remains our priority focus and we expect to grow faster
than the market for our services as we benefit from the trend towards
outsourcing and capture market share.
– Looking to benefit from an increasing demand for new content following
COVID-19 disruption in 2020 and the new console cycle.
11.7%
Organic
Revenue growth.
968
customers in 2020,
versus 978 in 2019.
– Cross-selling within our services is vital and we have continued to see
noticeable growth in the number of customers that are benefitting
from the use of three or more of our services, a key reflection of our
“relevance” to customers.
120
customers using
three or more
service lines. Up
11% from 2019.
Strategic report Key performance indicators
Hitting the target
We monitor our financial performance against a number of different
benchmarks and these are set in agreement with the Board.
Revenue
growth
14.4%
2020
2019
Organic
Revenue growth
11.7%
Gross
margin
38.0%
Adjusted operating
costs as a % of revenue
18.1%
14.4%
30.2%
2020
2019
11.7%
15.5%
2020
2019
38.0%
36.8%
2020
2019
18.1%
19.2%
Reasons for choice
Quantifies the growth in
revenue from our operations
on a reported basis.
How we calculate
Increase year on year in
reported revenue.
Due to the number of
acquisitions the Group makes
and because it integrates
them quickly, this provides the
most meaningful measure of
underlying revenue growth
without the distortion of
foreign currency movements.
Calculated by adjusting the
prior year revenues, adding
pre-acquisition revenues for
the corresponding period of
ownership to provide a like
for like comparison with the
current year, and applying the
prior year’s foreign exchange
rates to both years.
The Board believes this
to be a consistent measure
of trading performance.
The Board monitors overheads
to ensure the operating costs
of the Group are in line with
the level of business being
generated.
Provides an indication of
The Board believes this to be a
Measures operating cash
Reports the underlying profit
how we are performing both
consistent measure of trading
generation and our capacity to
growth generated on a per
internally and relative to our
performance, aligned with the
pay dividends, service debt and
share basis, demonstrating
peers.
interests of our shareholders.
fund acquisitions.
the value being created for
shareholders.
Revenues from services
supplied to customers less cost
of sales, as a percentage of
revenue.
Administration expenses,
before non-operating costs
including share option
expense, costs of acquisition
and integration, amortisation
and impairment of intangible
assets, depreciation, non-
controlling interest and bank
charges, expressed as a
percentage of revenue.*
Comprises EBITDA (operating
Comprises profit before
Adjusted free cash flow before
The Adjusted profit after
profit, adjusted for amortisation
taxation adjusted for share
tax as a percentage of the
tax comprises the Adjusted
and impairment of intangible
option expense, costs of
adjusted profit before tax. The
profit before tax, less the tax
acquisition and integration,
calculation is described in more
expense as reported on the
assets, depreciation, while
deducting bank charges)
adjusted for share option
amortisation and impairment
detail on page 143.
of intangible assets, non-
expense, costs of acquisition
controlling interest, foreign
and integration and non-
controlling interest, as a
percentage of revenues.*
exchange gains and losses,
and unwinding of discounted
liabilities.*
Consolidated statement of
comprehensive income, further
adjusted for the tax arising on
the bridging items to Adjusted
profit before tax.
The Adjusted earnings per
share comprises the Adjusted
profit after tax over the non-
diluted weighted average
number of shares as reported
in note 8.
Objectives
The Group aims for continued
revenue growth and
development.
The Group aims to achieve
Organic Revenue growth
ahead of market growth.
The Group aims for gross
margins in line with historic
norms.
The Group will continue to seek
to control these costs closely
and in line with the level of
business being generated.
The Group aims to increase
The Group aims for margins in
Cash generation and working
The Group aims for continued
margins through operational
line with historic norms.
capital management will
growth in Adjusted earnings
efficiencies.
remain a key focus.
per share.
*
In order to present the measure consistently year-on-year, the impact of COVID-19 government subsidies claimed and where relevant, investment income is also excluded.
Keywords Studios plc / Annual Report and Accounts 2020 24/25
Adjusted
EBITDA margin
19.9%
2020
2019
Adjusted profit before
tax margin
Adjusted cash
conversion rate
14.7%
97.2%
Growth in
adjusted EPS
24.9%
19.9% 2020
17.6%
2019
14.7%
12.5%
2020
2019
97.2%
80.2%
2020
2019
24.9%
7.2%
them quickly, this provides the
most meaningful measure of
underlying revenue growth
without the distortion of
foreign currency movements.
ownership to provide a like
for like comparison with the
current year, and applying the
prior year’s foreign exchange
rates to both years.
Reasons for choice
Quantifies the growth in
Due to the number of
The Board believes this
The Board monitors overheads
revenue from our operations
acquisitions the Group makes
to be a consistent measure
to ensure the operating costs
on a reported basis.
and because it integrates
of trading performance.
of the Group are in line with
the level of business being
generated.
Provides an indication of
how we are performing both
internally and relative to our
peers.
The Board believes this to be a
consistent measure of trading
performance, aligned with the
interests of our shareholders.
Measures operating cash
generation and our capacity to
pay dividends, service debt and
fund acquisitions.
Reports the underlying profit
growth generated on a per
share basis, demonstrating
the value being created for
shareholders.
How we calculate
Increase year on year in
reported revenue.
Calculated by adjusting the
prior year revenues, adding
Revenues from services
Administration expenses,
supplied to customers less cost
before non-operating costs
pre-acquisition revenues for
of sales, as a percentage of
including share option
the corresponding period of
revenue.
expense, costs of acquisition
and integration, amortisation
and impairment of intangible
assets, depreciation, non-
controlling interest and bank
charges, expressed as a
percentage of revenue.*
Comprises EBITDA (operating
profit, adjusted for amortisation
and impairment of intangible
assets, depreciation, while
deducting bank charges)
adjusted for share option
expense, costs of acquisition
and integration and non-
controlling interest, as a
percentage of revenues.*
Comprises profit before
taxation adjusted for share
option expense, costs of
acquisition and integration,
amortisation and impairment
of intangible assets, non-
controlling interest, foreign
exchange gains and losses,
and unwinding of discounted
liabilities.*
Adjusted free cash flow before
tax as a percentage of the
adjusted profit before tax. The
calculation is described in more
detail on page 143.
The Adjusted profit after
tax comprises the Adjusted
profit before tax, less the tax
expense as reported on the
Consolidated statement of
comprehensive income, further
adjusted for the tax arising on
the bridging items to Adjusted
profit before tax.
The Adjusted earnings per
share comprises the Adjusted
profit after tax over the non-
diluted weighted average
number of shares as reported
in note 8.
Objectives
The Group aims for continued
The Group aims to achieve
The Group aims for gross
The Group will continue to seek
revenue growth and
development.
Organic Revenue growth
ahead of market growth.
norms.
margins in line with historic
to control these costs closely
The Group aims to increase
margins through operational
efficiencies.
The Group aims for margins in
line with historic norms.
Cash generation and working
capital management will
remain a key focus.
The Group aims for continued
growth in Adjusted earnings
per share.
and in line with the level of
business being generated.
*
In order to present the measure consistently year-on-year, the impact of COVID-19 government subsidies claimed and where relevant, investment income is also excluded.
Strategic report Service line review
A gateway
to growth
With the exception of our Localization
business, which was held back by
scheduling delays further upstream,
all our service lines grew during
2020, despite the pandemic and the
operational challenges it continues
to present.
The following table provides a summary of
our revenues by service line, their growth
rates on a reported basis and Organic
Revenue growth. We have also presented
Pro Forma Revenue by service line, which
includes the annualised revenue of all
acquisitions made in the year, to provide
a better overview of the size and balance
of the business at the end of the year.
The service line commentary which follows
reports on the statutory reported revenues
unless otherwise stated.
Revenue
Art Creation & Marketing
Game Development
Audio*
Functional Testing
Localization*
Localization Testing
Player Support
Total
2019
Revenue
€m
2020
Revenue
€m
Change
from 2019
%
2020
Organic
Revenue growth
%
2020
Pro Forma
Revenue
€m
43.6
66.3
41.9
68.9
47.1
22.6
36.1
57.3
80.0
47.2
78.5
45.4
23.3
41.8
326.5
373.5
31.4%
20.7%
12.6%
13.9%
(3.6)%
3.1%
15.8%
14.4%
17.9%
17.1%
5.8%
16.1%
(4.0)%
4.4%
17.5%
11.7%
73.2
98.0
48.6
78.5
45.8
23.3
41.8
409.2
*
The prior year comparative has been re-classified to reflect the current year presentation as the Directors consider this to be more meaningful.
Keywords Studios plc / Annual Report and Accounts 2020 Art Creation & Marketing
Percentage of 2020
Group revenue
15.3%
2020: €57.3m
2019: €43.6m
+ 31.4%
2020 Organic Revenue
growth (%)
17.9%
Pro Forma Revenue (€m)
€73.2m
Average operational staff
1,294
26/27
Our Art Creation service line creates graphical art assets for video
games including concept art creation, 2D and 3D art asset production
and animation. Also included under Art Creation is Marketing services
including game trailers, marketing art and materials, PR and full brand
campaign strategies which we are building through acquisitions, and
subsequent organic growth.
2020 performance
Following some initial operational and commercial disruption from the
very early stages of the COVID-19 pandemic, which forced the closure
of studios in China and India particularly and some delays to early stage
marketing planning, Art Creation has seen strong demand across all of its
businesses and has settled firmly into new ways of working.
Art Creation & Marketing revenues grew by 31.4% to €57.3m (2019:
€43.6m) with the benefit of full year contributions from 2019 acquisitions,
Sunny Side Up and Ichi, and from the acquisitions of Maverick Media,
g-Net and Indigo Pearl, made in August, November and December 2020
respectively. Organic Revenue, which excludes the impact of currency
movements and acquisitions, grew by 17.9% for Art Creation & Marketing
with a marked acceleration in H2, where revenues grew by 28.3%
organically, reflecting more settled operations, some catch up demand
from H1 and strong underlying client demand.
During the year we added significant scale to our Marketing services line
with the acquisition of three high quality businesses:
– Maverick Media – one of the longest established video game creative
agencies in Europe, based in London. It has an impressive 25-year track
record in TV commercials, live action projects, video game trailers,
key art and social media work for some of the world’s leading games
publishers, developers and brands.
– g-Net – a Los Angeles based, multi-award-winning studio providing
creative and strategic marketing services for leading games publishers
and media and entertainment companies. The 85-strong talented team
brings significant scale and experience of working with some of the
most iconic games franchises to the Group’s Marketing Services line.
– Indigo Pearl – a full service PR agency specialising in the video game
sector, based in London. It supports its clients across traditional PR,
social media and influencer driven campaigns, and technology-enabled
PR and marketing asset management solutions.
The market opportunity and outlook
Art Creation & Marketing services operate in large addressable markets
which remain highly fragmented. This is particularly true of Marketing,
given the range of services provided both internally and externally which
range from key art, trailer creation, advertising, PR, branding, campaign
management, influencer marketing and management through to
marketing analytics and community management. Our broad geographical
spread enables us to transfer work between locations as needed, thereby
offering greater business continuity than many of our competitors and
positioning us well with our customers.
Through our ongoing organic efforts and further acquisitions, our aim is to
establish our highly specialised video games Marketing Services business
as the partner of choice for games publishers and developers when
looking for global reach and deep expertise in a sector, which itself stands
out due to the interactive nature of the product and the strength of the
gaming communities that form around the games.
For both Art and Marketing we are starting 2021 with better than normal
revenue visibility partly due to some carry forward from 2020 but perhaps
also signalling a year of even stronger demand ahead.
As previously stated, we will be reporting separately on our Marketing
service line at our first half 2021 results.
Strategic report Service line review continued
Game Development
Percentage of 2020
Group revenue
21.4%
2020: €80.0m
2019: €66.3m
+ 20.7%
2020 Organic Revenue
growth (%)
17.1%
Pro Forma Revenue (€m)
€98.0m
Average operational staff
1,036
Our Game Development service line provides external development services to
game developers and publishers including full game development, co-development,
porting and general software engineering consultancy.
2020 performance
Now our largest service line, Game Development increased revenues by 20.7% to
€80.0m (2019: €66.3m). This increase reflected a full contribution from Wizcorp,
which was acquired in April 2019 and contributions from Coconut Lizard and High
Voltage acquired in June and December 2020 respectively. Game Development
transitioned smoothly to a work from home model from March onwards in response
to COVID-19 related lockdowns in the various cities in which we operate. Whilst we
continue to work under restrictions in most of the countries in which we operate,
Game Development achieved a 17.1% increase in Organic Revenue (which excludes
the impact of currency movements and acquisitions), compared to 2019, despite
strong comparatives as we moved into the second half of the year. As with other
parts of our Group, Game Development was held back in 2020 due to the challenges
of COVID-19, which affected our recruitment, training and on-boarding activities
as well as curtailing our usual trade show-centric, business development activities.
Nonetheless, we have started to benefit from our expansion in the latter part of
2019 and early in 2020 into Leamington Spa in the UK, Singapore and Austin, Texas.
Despite the challenges of the global pandemic, demand for these services remains
very strong and we are continuing to build our Game Development service line
through organic expansion as well as through acquisitions, where we maintain a
focus on accessing pools of talent from which we can expand organically, as the
industry continues to make greater use of external development services.
During the year we have announced three high quality businesses to grow and
diversify our Game Development offering:
– Coconut Lizard – a well-regarded provider with particularly deep expertise in
the video game development environment, Unreal Engine. Based in Gateshead
near Newcastle, UK, Coconut Lizard draws from a regional talent pool that is well
served by the local universities in the area.
– Heavy Iron – a specialised game development business primarily focused on high
end console and PC games, based in Los Angeles. The acquisition was announced
in September 2020 and closed in January 2021.
– High Voltage – an end to end full service AAA game developer with a 27 year
track record of game development across all platform types and genres of
games, based in Chicago, Illinois and New Orleans, Louisiana. High Voltage fits
well geographically with our other North American studios, which are based in
Orlando, Austin, Los Angeles and Ottawa, enabling us to draw on a broader spread
of local talent.
In addition, we recently announced the acquisition of an 85% stake in Tantalus.
Tantalus is a leading and prolific developer of high quality, multi-platform titles based
in Melbourne, Australia and provides us with access to a new talent pool and offers
an excellent entry point into the Australian market for further expansion in the
region, both organically and through a healthy pipeline of acquisition opportunities.
The market opportunity and outlook
Game Development is our largest addressable market. The market is growing strongly
and has the lowest proportion of services outsourced of all of the Group’s service
lines. Characterised by “per project” engagements, rather than the ongoing service
provision for many of our other service lines, Game Development revenues can be
impacted by the transitions from one project to another. As a result of COVID-19, we
have witnessed some delays in new projects flowing to our Game Development team,
which may hold this service line back from maintaining the previously very strong
growth rates, particularly against strong comparatives, albeit the underlying trend
in this area of our business remains extremely positive with demand for its services
very strong.
As previously communicated, Game Development remains an area of particular focus
in our M&A programme, where we continue to assess companies that provide access
to strong pools of talent to help support the fast pace of organic growth.
Keywords Studios plc / Annual Report and Accounts 2020 28/29
Audio
Functional Testing
Percentage of 2020
Group revenue
2020 Organic Revenue
growth (%)
Percentage of 2020
Group revenue
2020 Organic Revenue
growth (%)
12.6%
2020: €47.2m
2019: €41.9m
+ 12.6%
5.8%
Pro Forma Revenue (€m)
€48.6m
Average operational staff
230
21.0%
2020: €78.5m
2019: €68.9m
+ 13.9%
16.1%
Pro Forma Revenue (€m)
€78.5m
Average operational staff
2,703
Our Audio service line provides multi language voice-over,
original language voice recording, music, sound design,
accessibility and related services to the video games, film
and TV industries.
2020 performance
Audio revenues rose by 12.6% in the period to €47.2m (2019:
€41.9m), with the benefit of full contributions from the 2019
acquisitions of Descriptive Video Works, TV+SYNCHRON,
and Syllabes and just a few days of contribution from the
December 2020 acquisition of Jinglebell in Milan, Italy.
Jinglebell added a boutique recording studio that provides
audio recording, music production and sound design for video
games and advertisements to a strong client base. Organic
Revenue, which excludes the impact of currency movements
and acquisitions, increased by 5.8% compared to 2019.
Our Audio services business was held back throughout the
year but particularly in the first half by the closure of their
recording studios during the lockdowns in their respective
cities. We were able to partially mitigate the effects of these
closures by introducing a remote recording solution. Whilst
this is not our preferred method, it has proved a very reliable
alternative. H2 Organic Revenue growth improved to 8.7%,
following the 0.5% growth achieved in H1.
The market opportunity and outlook
Whilst COVID-19 restrictions continue during 2021, our
adoption of a reliable remote recording solution will enable
us to continue to deliver on our clients’ needs.
Beyond the near term, the audio services market remains
highly fragmented in terms of service provision, with clients
and voice actors favouring professional, high quality sound
studios for optimal voice recording. This represents an
opportunity for us to grow our market share organically,
as well as make acquisitions over time as we did with the
acquisition of Jinglebell at the end of the year.
Our music management services, sound design and sound
effects businesses have continued to grow as did our work in
subtitling and dubbing of film and TV content where we serve
clients such as Netflix, Amazon and other streaming providers.
Functional Testing is our second largest service line and
provides quality assurance including the discovery and
documentation of game defects; testing to ensure games
are compatible with the various hardware devices and
configurations they are played on; and testing to verify that
games comply with console manufacturers’ specifications.
2020 performance
Functional Testing revenues increased by 13.9% to €78.5m
(2019: €68.9m). Organic Revenue, which excludes the impact
of currency movements and acquisitions, increased by 16.1%.
This represented a strong performance, given that this service
line was considerably constrained at the beginning of the
lockdowns in H1, as we worked through our agreements with
our clients to reflect the new security protocols required
in a remote working environment, rather than our norm
of conducting these services in our secure testing studios.
During H2 and into 2021, we are continuing to operate this
business with a remote working structure, focusing our limited
use of our secure facilities for recruitment, training and a
limited amount of testing, where it is safe to do so.
The market opportunity and outlook
Despite the limited use of our facilities and some constraints
on our ability to recruit and train staff, Functional Testing
scaled well into the seasonal peak months of September and
October, delivering a strong 20.6% Organic Revenue growth
rate in H2, despite the strong comparatives of H2 2019.
We remain a leading player in this large and growing area
of the market that is seeing an accelerating trend towards
outsourcing. Our scale, flexibility, geographical spread
and proven robustness, even in the most challenging of
circumstances, positions us well as games companies continue
to increase the proportion of functional testing that they
outsource.
Strategic report Service line review continued
Localization
Percentage of 2020
Group revenue
2020 Organic Revenue
growth (%)
12.2%
2020: €45.4m
2019: €47.1m
(3.6)%
(4.0)%
Pro Forma Revenue (€m)
€45.8m
Average operational staff
375
Our Localization service line provides translation of in-game
text, audio scripts, cultural and local adaptation, packaging
and marketing materials. We have also recently added neural
machine translation technology and a global crowd-sourcing
translation platform, through the acquisition of Kantan in
December 2019.
2020 performance
Localization revenues were down by 3.6% to €45.4m (2019:
€47.1m). Organic Revenue, which excludes the impact of
currency movements and acquisitions, was down by 4.0%.
This reflected some delays in the receipt of content in H1, as
production schedules further upstream were disrupted at
some of our clients. However, Localization returned to Organic
Revenue growth in H2, which was up 0.3% on the comparative
period in 2019.
The market opportunity and outlook
Having strengthened our sales efforts, we expect to build on
the improvement seen in H2 2020 as we move into 2021.
The Localization market remains highly fragmented and
characterized by most competitors being single language
providers without the scale to deliver simultaneous multi-
jurisdictional localization projects for our global video games
customer base. In this context, we plan to build on our team’s
leading market position through an increasingly differentiated
offering. This combines the market leading expertise we have
built up in localization over the past 20 years, with proprietary
software tools, like XLoc, and the recently acquired Artificial
Intelligence (AI) and Machine Learning (ML) technology from
Kantan, which enables us to manage a greater volume of
content for our clients.
Keywords Studios plc / Annual Report and Accounts 2020 30/31
Localization Testing
Player Support
Percentage of 2020
Group revenue
2020 Organic Revenue
growth (%)
Percentage of 2020
Group revenue
2020 Organic Revenue
growth (%)
6.3%
2020: €23.3m
2019: €22.6m
+ 3.1%
4.4%
Pro Forma Revenue (€m)
€23.3m
Average operational staff
591
11.2%
2020: €41.8m
2019: €36.1m
+ 15.8%
17.5%
Pro Forma Revenue (€m)
€41.8m
Average operational staff
1,539
Our Localization Testing service line identifies out of context
translations, truncations, overlaps, spelling, grammar,
age-rating and cultural issues and tests for console
manufacturer compliance requirements in over 30
languages using native speakers.
Our Player Support service line provides multi-lingual, cost
effective and flexible customer care services including
managing communities of gamers across all forms of social
media, within the games themselves and on the official
game forums.
2020 performance
Localization Testing revenue increased by 3.1% to €23.3m
(2019: €22.6m). On an Organic basis, which excludes the
impact of currency movements, Localization Testing was
4.4% higher compared to 2019.
Localization Testing experienced the same operational
disruption and constraints seen in our Functional Testing
division during H1, compounded by some lack of availability
of native language resources due to people returning to be
with their families in their home countries and the subsequent
travel restrictions. However, as in the case of Functional
Testing, we have successfully transitioned the majority of
people to remote working and are also now using our studios
for priority activities, where it is safe to do so.
Localization Testing experienced good demand in the second
half in relation to a number of AAA game releases, including
some for the new Microsoft and Sony console releases.
Whilst the pandemic continues to present challenges for the
recruitment and training of native language testers, our efforts
to mitigate these enabled higher Organic Revenue growth
in H2 2020 of 5.9% compared to H2 2019.
The market opportunity and outlook
Having worked to mitigate the operational constraints
experienced in 2020, we expect Localization Testing to build
on the momentum seen in H2 during 2021.
In this service line, the Group’s scale, breadth of languages,
multi-location operations and resourcing agility enable it to
offer a cost effective, flexible and high quality service which
is difficult for smaller competitors to replicate. Our market
leadership positions us well for further growth as we continue
to develop our operations in Montreal, Dublin, Katowice, Milan,
Singapore and Tokyo.
2020 performance
Player Support increased revenue by 15.8% to €41.8m (2019:
€36.1m) and Organic Revenue, which is on a constant currency
basis, by 17.5%.
Player Support returned to growth in H1, and successfully
transitioned its teams around the world to remote working
arrangements enabling it to provide continuous support to
its clients. Good demand throughout H2, with this service
line being a more direct beneficiary of increased game
play, combined with well-focused business development
campaigns, helped Organic Revenues grow 29.7% in H2
compared to H2 2019.
The market opportunity and outlook
Player Support’s progress in the year demonstrates the benefits
of our strategy to differentiate it from the large generalist call
centre operators and immerse ourselves even further into
gaming communities. This has been achieved by extending our
services to cover more “touch points” of gamer engagement,
and by developing our systems and tools to enable us to
manage increased volumes of transactions efficiently.
Our specialist video games “DNA”, extensive range of
capabilities and fundamental understanding of what is
important to players, continues to position us well in terms of
the quality of our service delivery compared to more generalist
providers, and we expect to make further progress in 2021
albeit at a more moderate growth rate.
Strategic report Our people, our culture
Our people – at the
core of what we do
Our culture acts as the glue that
binds all Keywordians around
the world together – relaxed,
professional and humble
with a focus on doing the very
best we can for our clients
through each and every
project they entrust to us.
Our people
At Keywords, an average of 8,353 full
time equivalent employees make up our
international, digital-first, highly diverse
and multicultural team and we are well
balanced across our three regions; 43% in
North and South America, 26% in Europe
and 31% in Asia. The number and diversity
of people and skills in our workforce allows
us to be well placed to deploy these skills
across the industry to meet all of our
customers’ needs.
Our continued growth and reputation for
consistently delivering good quality service,
on highly agile engagements, to demanding
deadlines, is testament to the Keywords
culture, and the skills and commitment
of our talented and games-passionate
employees and collaborators.
We are proud of the passion, commitment
and professionalism of this valuable
resource of ~9,000 Keywordians which
means there is a contribution from
Keywords to most of the world’s leading
games. COVID-19 demonstrated the
resilience of all Keywordians and we would
like to thank everyone involved for their
incredible contribution to the continued
success of the Group.
Keywords Rule of 9
At Keywords, we encourage our people to engage with each other not
only across our studios but across our regions and global network.
Through knowledge sharing and open plan offices, we encourage our
colleagues to be the very best at what they do. At the heart of our
culture are our operating principles, the “Keywords Rule of 9”.
1
2
3
4
5
6
7
8
9
Communication
We communicate openly and in a timely fashion. We do not hide
things from colleagues or clients and we avoid office politics.
Project Focus
We focus on projects, delivering the best we can for
the benefit of each and every product we touch.
Client Centricity
We act as an extension of the client’s organisation, moulding
our processes and procedures to fit their requirements whilst
sharing our knowledge of best practices.
Empowerment
We empower our people to perform to the best of their ability
by providing them with the resources and environment to do
their jobs and the tools to track and measure their performance.
Passion for Games
We are passionate about games and are proud of our role in
helping to deploy them and we play an active role in the wider
industry.
Client Intimacy
We love our clients (all of them) and want the best
for them at all times.
Positivity
We have a “can do” attitude and rise to the challenge
of solving our clients’ problems.
Flexibility
We recognise the importance of flexibility and actively embrace
it despite the obvious challenges. Flexibility is why we exist at all.
Without it, clients would perform the tasks we do, themselves.
Learning & Growing
We learn at every opportunity and grow ourselves through
experience, training and tackling new challenges.
Keywords Studios plc / Annual Report and Accounts 2020 32/33
Case study
4
Empowerment
During the Chinese New Year holidays in
2020, Keywords’ studios in China faced
a challenging situation with COVID-19
concerns and employees about to resume
work. To allow for their safe return,
management immediately created an
emergency response team and began
the extremely difficult task of sourcing
face masks, hand sanitiser, disinfectant
and other personal protective equipment
(PPE) items over the holidays. Fortunately
they found a local supplier who provided
over 10,000 masks, enough to ensure that
more than 50% of Keywordians in China
could return to studios on 10 February,
as planned.
Painting by Jon Youseman – Lead Engineer
By early March, as China was making
significant progress in the battle against
COVID-19, other countries were starting
to experience outbreaks. With this, the
thoughts and focus of our Chinese studios
soon turned towards our colleagues in
sister studios and how to share their
experiences. A purchasing team for
overseas studios was set up to help ship
PPE to Keywords locations around the
world and despite the many unknown
challenges, our studios in Ireland, Canada,
UK, Japan, Philippines, Poland, US and Italy
received successful deliveries.
Diversity and Inclusion
Members of our Localization service line
come to us from literally around the world,
representing their respective regions and
languages. This year, the Montreal based
Localization team delivered pro bono
translation services to the Black Academic
Scholarship Fund, in its mission to enhance
the economic status of Black students
to pursue post-secondary education.
In the UK, Studio Gobo and Electric
Square launched a new BAME in Games
Mentorship programme designed to help
minority ethnicities in the video games
industry, as part of their Developing
Minds initiative. The programme currently
consists of 30 mentors and over 40
mentees. The Developing Minds initiative
will also develop video and articles from
experts, with volunteers going out to
schools, events and universities to speak
about the industry.
In Los Angeles, Keywords matched
employee donations to combat racism,
through the work of the National
Association for the Advancement of
Colored People (NAACP) and the Equal
Justice Initiative. Keywords Montreal
donated to the DESTA Black Youth
Network, which provides employment
and educational support for Black youth.
Celebrating Pride is an annual summer
tradition at Keywords. While parades
were cancelled around the world due
to COVID-19 restrictions, the festivities
would not be forgotten. At Keywords we
celebrated LGBTQIA+ employees and
community by creating our own Pride
around the World: online edition. 92
employees from studios around the world
submitted photos and messages, shared
colourful images, and messages of how
Pride is meaningful to them.
Studio Gobo and Electric Square joined
forces organising and participating in a
Pride quiz. The studio made a donation
to Mind Out in support of LGBTQIA+
mental health resources, while
Interligne, a similar organisation
received a donation from the
Montreal studio.
Working with our customers
We are fortunate to be able to count 23
of the top 25 global games developers and
all of the top 10 mobile games publishers
by revenue as our customers. These
companies expect the highest level of
service and our diverse capabilities allow
us to satisfy our customers’ needs every
time. Increasingly, these customers prefer
to outsource multiple services to one
provider, and this is where we are uniquely
positioned to meet expectations.
We offer our clients flexible, scalable
solutions that match their overall
requirements.
Year on year, we find ourselves more
embedded with these clients, having access
to their development environments and
integrated further into their workflows.
Joining the Keywords family
We are a highly acquisitive business and
have strict criteria for our acquisition
targets, by far the most important of these
being cultural fit. Before acquiring an
acquisition target we complete detailed
due diligence that ensures the seamless
integration of the new studio and most
importantly the new colleagues. From day
one, we want them to feel like part of the
Keywords family, while, at the same time,
appreciating the history and richness that
the new studio brings to Keywords. One
mark of our integration success is that over
half our senior executive team joined us
through acquired companies.
Our people, with their drive and talent,
make Keywords the global service provider
that it is today, and it is essential for us that
we continue to support our unique and
diverse culture, which includes welcoming
new faces and ensuring they feel just as
supported and welcomed as their more
established colleagues.
Supporting our communities
Through our studios across 22 countries,
we place the support of our local
communities, including our employees,
at the heart of what we do. In order to
do more to support good causes across
the communities that we are a part of,
we have set aside an annual central fund
of €100,000 under the Keywords Cares
initiative. Throughout 2020, Keywordians
with the support of Keywords Cares,
raised funds of over €46,000 and
supported various community and
employee-led events.
Strategic report Our people, our culture continued
Natural disaster relief
When our teams in Manila learned of the
homes destroyed by the eruption of the Taal
volcano in February 2020, they knew they
needed to lend a hand. Employees donated
face masks, blankets, food, toiletries, bottled
water, medication and more. They rallied
together again following Typhoon Ulysses,
later in the year. Employees travelled from
Manila to deliver the much needed items,
where evacuees welcomed them with
gratitude and open arms.
Staying connected
Keywords introduced a series of gratitude
e-cards allowing Keywordians to send
personalised thank you e-cards to other
Keywordians for their help and continued
support. Since launch, over 2,500 e-cards
have been sent globally, with kind thoughts
keeping our people connected while apart.
As a social group, with the migration to
working from home, team outings and
seasonal events have unfortunately been
put on hold in most locations. To keep
connected, a number of our studios began
hosting employee-exclusive webinars
every week.
In Montreal, these webinars ranged from
Monster Sounds and Prop Art in video
games, to a Haitian cooking class and
“Happiness in the time of COVID-19”.
Community
and charitable activities
Game professionals of the future can come
from anywhere. In keeping with our annual
tradition in Dublin, we welcomed the annual
group of postgraduate students to attend
a workshop on careers in Localization.
In Madrid, we proudly volunteered at
Prodis, and donated to Fundacion ALAPAR,
promoting career training for Spanish
youth, while our UK studio d3t participated
in the Get in the Game university tour,
offering students insight into Keywords
and the games industry.
Descriptive Video Works donated their
studio with staff also volunteering to
support the Blind Beginnings Harvesting
Hope Online Gala which included a song
from some of the kids at Blind Beginnings
that they wrote the lyrics and music for
“I see differently”.
Case study
8
Flexibility
When India announced its COVID-19
lockdown in March 2020, our IT teams
were faced with the overnight challenge
of moving 700+ Keywordians into a work
from home setup. Initially this challenge
came with shipping our secure desktops to
each employee safely while adhering to the
highest data security and VPN standards.
But once at home, our IT teams were faced
with bandwidth and VPN issues that often
required us to upgrade our employees’
internet connection.
At the start of April, due to the increasing
level of queries arising from remote
working (IT, HR, finance, food and
logistics), a helpline was set up. This
helpline team ensured that employees
need not worry with all requests,
including food delivery, fulfilled with
utmost priority.
All through COVID-19, our IT and helpdesk
teams across the Group have delivered
day in, day out, allowing Keywordians to
perform to the best of their abilities while
providing world class IT infrastructure
despite a challenging environment.
Examples of the Keywords
e-cards below
COVID-19
Keywordians in China created an
emergency response team to source face
masks, hand sanitiser, disinfectant and
other PPE items. When the local demand
was met, in learning that PPE became
increasingly difficult to obtain worldwide,
the team helped to ship PPE to sister
studios as far as Europe and the Americas,
to keep our employees safe (more detail
in our case study on page 33).
A favourite perk often cited by Keywordians
in Montreal is the daily delivery of fresh
fruit. In the quick shift to working from
home, many corporations began cancelling
orders, putting these businesses at risk.
Instead of adding to food waste and the
vendors’ predicament, our Montreal team
re-routed CAD$4,000 of fresh fruit to
essential workers at a nearby hospital.
With an increased demand on resources
of non-profits and charities, there has been
more emphasis on sanitary measures than
ever. To help stop the spread of COVID-19
in Montreal, our studio partnered with
two local manufacturers; one to create
sanitiser dispensers, and another to
supply the sanitiser. We proudly donated
two industrial dispensers and a total
of 30 gallons of hand sanitiser to local
chapters of non-profits L’Itinéraire and
Doctors of the World, to help them support
community members in need.
Keywords Studios plc / Annual Report and Accounts 2020 34/35
Case study
9
Learning
& Growing
Leaving the comfort of their desks for work
in a warehouse, 13 Keywords employees
from our Montreal studio spent a day
volunteering at Moisson Montreal, an
organisation which supplies food to low-
income individuals around the city. The day
brought the team closer, helped reduce
food waste, and fed community members
who may have otherwise gone hungry.
Pictionary, quizzes, bingo, auctions and
more, our Electric Square studio is a
close-knit and generous group. Through
a dozen fundraising initiatives in 2020,
this studio raised and donated £6,000
in support of frontline workers, hospital
staff and patients, youth experiencing
homelessness, and food banks.
In Tokyo, Keywordians held fundraisers and
sponsored a team in the Virtual Run for
the Cure/Walk for Life marathon for breast
cancer research, while in Italy we donated
to scientific research for paediatric cancers.
In Mexico, in addition to cash donations,
employees wrote holiday greetings to
children in the Salvation Army orphanage.
Gaming for good
Following the Australian wildfires, animal
lovers in our player support teams in
Seattle hosted a fundraising activity.
They spent 16 hours streaming games,
and taking on hot-sauce related challenges,
proudly raising US$2,500 for the Koala
Hospital.
In Singapore, we sponsored employee
participation in a gaming tournament with
proceeds going to the Singapore Children’s
Society.
Surpassing their goal of sponsoring one
gaming console, through a series of events
including a pool tournament, bake sale and
raffle, Electric Square raised enough for a
gaming console for a hospital in Brighton
as well as Worthing.
The team at d3t raised funds for the Sports
Relief initiative, with a series of apt and
engaging activities including table tennis.
Our studio in Manila hosted a League
of Legends tournament. The winning team
got a cash prize plus a donation to their
nominated hospital, the San Juan hospital,
along with supplies for their front line
workers.
The biggest gaming tournament of the year,
Extra Life featured 80 Keywords gamers
from around the world, who streamed over
250 hours of gameplay, raising a whopping
US$7,000 for the Children’s Miracle
Network of hospitals.
Although we work with the biggest names
in video games, we support independent
US developers in offering their games to
staff in monthly staff giveaways. Proceeds
from these titles support a new charity
every month, including World Reader, Girls
INC, Gamehead, World Wildlife and more.
Providing growth opportunities for
Keywordians is always important but due to
COVID-19, traditional in-person approaches
became more challenging. In Canada, our
Learning and Development team rose to
this challenge, pivoting towards offering
virtual training and adapting existing
content for eLearning. They truly embraced
one of Keywords Rule of 9 principles,
Learning & Growing, by subsequently
launching a learning platform where
employees all over Canada can access
various learning opportunities:
– Interactive eLessons developed by our
talented contributors.
– Live training workshops with our
experienced facilitators.
– Various resources for professional and
personal growth.
– Personal eLearning content.
Building on this learning platform, our
team is now collaborating with studios
across Canada to provide relevant growth
opportunities for all employees in the
region.
Strategic report Responsible Business report
> Keywords conducts its
business to the highest
standards of honesty,
integrity and ethical conduct.
Top five UN Sustainable
Development Goals (SDGs)
thought most relevant to
Keywords by employees
Goal 5:
Gender
Equality
67%
Goal 3:
Good Health
& Well-being
Goal 8:
Decent Work
& Economic Growth
61%
Goal 9:
Industry, Innovation
& Infrastructure
59%
Goal 10:
Reduced
Inequalities
45%
45%
Progress in 2020
We at Keywords have always been
committed to conducting our business
responsibly, operating to the highest
standards of honesty, integrity and
ethical conduct. We take our wider
corporate responsibility seriously,
and are conscious of the role our
business plays in our communities and
in the impact our business has on the
environment. We are very proud of the
thousands of Keywordians, across 22
countries of operations, for upholding
the highest standards and behaving in
accordance with our “Keywords Rule
of 9” as we engage and grow with our
work colleagues, our customers and
our communities.
As more investor attention falls on this
critical aspect of business, so we at
Keywords are working to bring to the fore
the existing behaviours and characteristics
of our business that already make us
a great place to work, a business that
cares for its people, its communities and
the environment and a business that
recognises there is much more we could
and should be doing.
At the start of the year, as a first step, we
worked with an independent third party
to carry out a materiality assessment
with our senior team and the Board.
The process included a materiality
workshop, as part of our strategy week,
providing the Board and senior executives
with the opportunity to identify and
debate matters of material importance
to them based on potential impacts
to the business and its stakeholders.
Some of the issues commonly identified
included customer centricity, successful
integration of acquisitions, cyber security
and data, culture, service delivery,
diversity, employee engagement and the
environment, given its importance to our
people and other stakeholders. This was
supplemented by a responsible business
employee survey, where we sampled
a representative group of Keywordians
to get their views and understand what
is important to them. We also asked
our employees to rank what top five
UN Sustainable Development Goals
(SDGs) they thought are most relevant
to Keywords, with the results highlighted
on the left.
Keywords Studios plc / Annual Report and Accounts 2020 Our six responsible business priorities
36/37
Keywords
Cares
Community
People
Keywords’
Priorities
Diversity & inclusion
Environment
Client centricity
& innovation
Governance
This process identified our six responsible
business priorities of People, Diversity
& Inclusion, Customer Centricity &
Innovation, Communities and the
Environment underpinned by Corporate
Governance and Business Ethics. We also
mapped our priority areas to the UN SDGs
as set out in each of the priority areas.
We have identified a number of performance
metrics in each of our priority areas to
measure our progress and we believe by
fully embedding these into our business
strategy we can build a more robust and
sustainable business for all our stakeholders
(shareholders, employees, customers,
suppliers and community participants).
During 2020 we made good progress
on our priority areas:
– Our Code of Conduct was refreshed and
relaunched and is now available on our
website in 12 languages.
– We have established a Global Diversity
& Inclusivity Council and introduced
unconscious bias training for individuals
in hiring roles and we are taking steps to
automatically redact job applications to
further ensure unbiased assessment
of these.
– The Keywords Cares matching programme
was launched in which Keywords will
match funds raised for good causes by
our teams around the world.
– We put in place a US$500,000 hardship
fund to support colleagues experiencing
financial hardship issues as a result of
the COVID-19 pandemic.
– For the first time we have quantified our
greenhouse gas emissions focusing on
scope 1 and 2 emissions.
To monitor our progress going forward we
have established a Responsible Business
Board Committee, comprising of Georges
Fornay (NED and Chair), Giorgio Guastalla
(NED), Jon Hauck (Chief Financial Officer)
and Sonia Sedler (Chief Operating Officer).
The committee will meet quarterly and
provide regular updates to the Board on
progress. We are also in the process of
establishing regional committees to ensure
that initiatives are rolled out and fully
embedded throughout our local studios.
The committee recognises there is more
work to be done, but we have established
a solid base and look forward to reporting
on the progress in each of our priority areas.
Strategic report Responsible Business report continued
People
People are our largest and most
valuable asset. We value them; we
trust them and we work with them
to support their passion to provide
the best service for each project
and customer. The key areas of
focus are: health & safety, employee
engagement, and training and
development.
Health & Safety
Since the start of the COVID-19 outbreak,
our priority has been the health, safety
and wellbeing of all Keywordians and
their families, reinforcing our ongoing
commitment to providing a safe and
healthy workplace for all of our employees.
In addition to our China based studios
sourcing and shipping personal protective
equipment and sanitiser to their sister
studios and their employees throughout
the Group, we have worked hard and
have fully complied with all enhanced
national legislation on Health & Safety
requirements, while providing information,
education and training to those returning
to an office environment. In our annual
employee engagement survey, we took
the opportunity to seek feedback on the
business’s response to COVID-19. We are
pleased that 96% confirmed that their
studios responded appropriately to the
COVID-19 pandemic.
COVID-19 has also brought new pressures
around working from home, resulting in
the potential for an increase in mental
health issues. In response to mental
health and overall wellness, we increased
the awareness of Employee Assistance
Programmes at our larger locations and
other locations have arranged programmes
UN SDGs
Ensure healthy lives
and promote well-being
for all at all ages
Ensure inclusive and
equitable quality
education and promote
lifelong learning
opportunities for all
Promote sustained,
inclusive and sustainable
economic growth, full and
productive employment
and decent work for all
locally. Examples of some of these included
guest speakers on mental health, virtual
yoga and dance lessons, Friday evening
online events, and team quiz nights. We
are particularly proud of how Keywordians
around the world have responded to these
short-term challenges to keep everybody
safe while making extra efforts to staying
connected with each other (more detail
set out on pages 32 to 35).
We welcome employee input into all
programmes and openly share initiatives
across the organisation as we seek to
meet the changing needs of our people.
As an example, to provide some additional
support in instances where some of our
colleagues were particularly financially
impacted as a result of COVID-19, we
established our own US$500,000 hardship
fund in the earlier months of the pandemic
to support those experiencing more acute
financial issues. This fund remains active
and accessible by all.
Employee engagement
Our annual employee engagement survey
took place in October 2020 with 5,941 of
our colleagues responding, representing a
68% response rate (2019: 54%). In response
to the survey feedback in 2019, some of
the actions we took included introducing
our Keywords Cares programme to
support staff in helping their communities,
continued with programmes of training
and mobility to support development
and growth, and updated our employee
recognition programmes.
The 2020 survey continued with strong
themes of teamwork and accomplishment
with 94% responding that they were proud
to be a member of their team, 91% feeling
personally motivated to contribute to the
success of their project/team, and 90%
having clearly defined goals and objectives
in their role. Areas for improvement
for 2021 relate to communications and
better feedback from managers to their
teams; more opportunities for career
development and growth (similar to 2019);
and easier access to information and
policies. We have set up focus groups
for 2021 to examine the results of the
survey and to propose initiatives to further
improve overall employee engagement.
We also sought feedback on working from
home arrangements with 43% of people
expressing a preference for continuing to
work from home, 10% preferring to return
to office based working and 47% preferring
a combination of working from the office
and working from home.
Employee
feedback
Continue to work from home
Return to office based working
43%
10%
Combination of home and office working
47%
There is clearly a role for physical studios
for the Group, particularly to allow for the
exchange of creative ideas, for training, and
where the added security environment and
highly specialised set-ups of our testing
and audio studios are so important. Post
COVID-19, we see the future as a hybrid of
creating vibrant, engaging and safe studio
space whilst also enabling people to work
securely and productively from home
where this can be facilitated.
Training and development
We value our people; we trust them and
work to support their passion to provide
the best service for each project and
each customer. However, there is always
more that can be done to invest in our
people and we continue to focus on
making improvements with training and
development, benefit schemes and career
planning. Across Keywords, we provide
training and development programmes,
appropriate to the service line and the
professional disciplines involved therein. As
examples of this, in 2020, with so many staff
working from home due to the COVID-19
pandemic, our Montreal team developed
an online learning hub, Keywords Academy
Canada, to provide access to learning
material, book courses and view monthly
topics of interest. We also increased our
licences with LinkedIn Learning to provide
employees around the world with access to
hundreds of courses online.
68%
Employee engagement survey
response rate
(2019: 54%)
Keywords Studios plc / Annual Report and Accounts 2020 38/39
Diversity & Inclusion
Human talent is our most valuable
asset and as a multicultural business,
we thrive on diversity, celebrate
uniqueness and collaborate as a team
whether we are physically together
in one of our 65+ studios around the
world or working together virtually.
We continually challenge ourselves
to ensure that we provide a working
environment that treats people with
dignity and respect, is free from
discrimination and promotes fairness
and equal opportunities.
UN SDGs
Achieve gender equality
and empower all women
and girls
Reduce inequality within
and among countries
We recognise that we can do more to drive
the Diversity & Inclusion agenda, and to that
end, in 2020 we created a Global Diversity &
Inclusivity Council. We have also introduced
unconscious bias training for individuals in
hiring roles and are taking steps to redact
job applications to further ensure unbiased
assessment of potential candidates at
the start of the recruitment process. This
technology is not currently available and so
the HR team is working with their colleagues
in the test automation team to develop a
tool to support this process.
In 2020 the Group was composed of 26%
women and 74% men (2019: 25%/75%).
We recognise that the video games industry
traditionally attracts more male than female
employees and this demographic is mainly
due to the higher proportion of males in
some parts of our business. Our support
functions have a more equal split of women
and men (45% and 55%, respectively). A key
continued focus going forward will be to
look at opportunities to highlight Keywords
as an attractive career choice for women.
With the recent appointment of Sonia
Sedler to the Board as Chief Operating
Officer, 33% of Board executives are now
female, while the Keywords’ overall Board
of Directors includes eight Directors, two
being women (25%).
Board Diversity
Female
Male
25% (2 Board members)
75% (6 Board members)
Group Diversity
Female
Male
26%
74%
Global Diversity & Inclusivity Council
Mission: The Global Diversity & Inclusivity Council’s mission is to evolve Keywords’ approach to diversity and inclusion on a global,
regional, and local level in order to have a measurable positive impact on people’s everyday lives. We recognise there is no one-size-
fits-all solution but by actively listening to our people and having open, frank conversations we can learn from one another and build
actionable objectives for our various Keywordian teams to implement. We aim to show our progress as we continue to foster an
inclusive culture where all of our employees have the sense of belonging and the opportunity to realise their full potential.
4 – Monica Dalla Valle
Team Manager
Dublin, Ireland
8 – Fumiko Okura
General Manager
Tokyo, Japan
9 – Xandra Bautista
HR Business Partner
Philippines
7 – Kah Hui Teo
Global Localization Manager
Singapore
5 – Natania Boyce
Operation Manager
London, UK
6 – Chiara Stracchi
Audio Service line manager – Global
Milan, Italy
1
2
3
4
5
6
7
8
9
1 – Frankie Knowles
Account Handler &
Campaign Manager
Vancouver, Canada
2 – Detroit Burns
FQA Manager
Montreal, Canada
3 – Amanda Rodrigues
FQA Manager
Montreal, Canada
Strategic report Responsible Business report continued
Client centricity & innovation
Our clients and their projects are
at the heart of everything we do at
Keywords and we are focused on
continually improving the engagement
and experience of our clients when
interacting with Keywords. We always
seek to better understand our clients’
needs so that we can fully meet their
expectations for each and every project.
We are fortunate to be able to include
the majority of the top global games
publishers and developers as our clients.
These companies expect the highest
levels of service and confidentiality. At the
heart of our culture is our commitment
to quality, reliability and integrating
with our customers’ processes which
when combined, promotes long-term,
sustainable relationships. Continuing to
create and maintain the right culture is
core to Keywords’ future sustainability and
is embedded in our operating principles,
the “Keywords Rule of 9”. We encourage all
Keywordians to embrace these principles,
as we will always do the very best we can
for our customers and those with whom
we interact.
Our top five customers account for 29.1%
(2019: 28.1%) of the Company’s revenues
with 120 customers using three or more
service lines, up 11% from 2019. From
the start of 2019, we have started to seek
feedback from our customers through a
customer net promoter score (NPS) survey
with an overall customer net promoter score
(NPS) of 48 in H1 2020 (a score of between
30-70 is considered “great” by Retently).
Each service line is constantly developing and
using technology to improve client service
and drive internal productivity. An example
of this is in Localization, where we plan to
build an increasingly differentiated offering.
This combines the market leading expertise
we have built up in localization over the past
20 years, with proprietary software tools,
such as XLoc, and recently acquired Artificial
Intelligence (AI) and Machine Learning (ML)
technology from Kantan, which enables us
to manage a greater volume of digital content
for our clients. We are also developing the
Kantan technology to provide more efficient
multi-language capabilities in our Player
Support business.
29.1%
2019: 28.1%
Our top five customers
account for 29.1% (2019:
28.1%) of the Group’s
revenues with 120 customers
using three or more service
lines, up 11% from 2019.
Information technology
As a global business providing services
for the video gaming and media industries,
Keywords relies heavily on technology. It is
critical that this technology environment
can continue to operate effectively,
efficiently and securely. To ensure this
is the case, Keywords has a dedicated
Information Security & Privacy team and
follows a comprehensive global Information
Security & Privacy framework with policies,
guidelines and procedures, covering
industry best practices that all systems
and colleagues must adhere to.
This framework incorporates compliance
checks to ensure that our studios meet the
Keywords standard security requirements.
Supplementary penetration tests are also
executed as required, in addition to external
compliance assessments and audits
performed by our third party customers
on an ongoing basis. The activities include:
– Managing the Security & Privacy
framework
– Monitoring of Keywords Studios’
information systems and infrastructure
– Security & Privacy incident management
– Raising employee awareness
– Client Security & Privacy assessments
– Testing of internal privacy and security
controls
Several studios hold and maintain, or are
in the process of acquiring, information
security and privacy related certifications,
including, but not limited to: Trusted
Partner Network (TPN), Supplier Security
and Privacy Assurance (SSPA), Payment
Card Industry Data Security Standard
(PCI-DSS), International Organization for
Standardization standard number 27001
on Information Security (ISO 27001),
System and Organization Controls 2 (SOC 2),
Netflix Post Partner Program (NP3).
UN SDGs
Promote sustained,
inclusive and sustainable
economic growth, full and
productive employment
and decent work for all
Build resilient
infrastructure, promote
inclusive and sustainable
industrialization and foster
innovation
Keywords Studios plc / Annual Report and Accounts 2020 40/41
Environment
Energy and carbon reporting
To develop this area further, in 2020 Keywords commenced its first formal review of the
Group’s global energy usage, resulting in the identification, assessment and measurement
of our energy and greenhouse gas emissions.
We have used the GHG Protocol Corporate Accounting and Reporting standard (revised
edition) and emission factors from the UK Government’s GHG Conversion Factors for
Company Reporting 2020 and International Energy Agency (IEA) conversion factors for
non-UK electricity to calculate the below disclosures. The standard requires a statement of
relevant intensity ratios, which are an expression of the quantity of emissions in relation to
a quantifiable factor of the business activity. Keywords has identified its intensity ratio, as set
out below. These figures were calculated from data available to the Group and extrapolated
to take account of smaller or mixed tenant locations.
GHG emissions data for the period 1 October 2019 to 30 September 2020
Tonnes of CO2e
Combustion of fuels and operation of facility
(Scope 1)
Emissions from purchase of electricity, heat, steam,
and cooling purchased for own use (Scope 2)*
Total emissions under Scope 1 and 2
Energy consumption used to calculate emissions –
kWh (million)
*
Includes emissions only from the use of electricity.
UK
0.4
175
175
692
Global
271
4,015
4,286
11,527
In 2020, UK emissions accounted for 175 tonnes of CO2e, representing 4% of global emissions
and the UK energy represented 6% of our global energy consumption.
Intensity ratio (tonnes of CO2e per unit)
Ratio of carbon emissions to employees
Ratio of carbon emissions to revenue (€m)
0.52
11.8
Many of our studios were less occupied during 2020 and therefore this may not be
an accurate baseline to measure our carbon emissions. Nonetheless, in 2021, we are
establishing work streams focused on driving our environmental commitment forwards, by
identifying practical changes that we can implement and set measurable business targets
against. This will start with a Group-wide environmental policy, covering both our energy
and recycling practices. This policy will support our studios in their efforts to minimise
energy and natural resource usage, to reduce, reuse and recycle, and to ensure the legal
disposal of waste – helping us deliver our long-term ambition to reach net zero carbon
emissions ahead of the UK Government’s target of 2050.
We are also monitoring the development of the Task Force on Climate-related Disclosures
(TFCD) framework, with a view to incorporating this into our reporting framework over time.
We are committed to minimising
our impact on the environment
and recognise the importance
of meeting globally recognised
corporate responsibility standards.
As a responsible employer, we are
responding to the demands of our
people to build a sustainable business
model, mainly through the impacts of
our studio configurations and business
travel activities.
We accept that in a global organisation
our people will need to travel. However, in
2020, as a result of the COVID-19 pandemic
our business travel was greatly reduced.
We increased our usage of collaborative
tools such as video conferencing and will
endeavour to retain these practices to a
greater degree post the pandemic. When we
do return to travelling, we will continue our
existing policy for everybody to fly economy
and encourage the use of public transport
where practical.
Sustainable studios
Sustainability is a core focus for Keywords,
as it is for all of our studios across all our
territories. Local studios are encouraged
to minimise their energy usage, and
reduce and recycle waste. Local initiatives
in 2020 included:
– Following on from Electric Square’s
Carbon Balance certification, the studio
has now ventured into their local
community, cleaning up the nearby
public beach in Brighton.
– Meanwhile, Studio Gobo swapped
disposable soap dispensers for the
five litre reusable kind.
– Keywords Seattle had construction
material to dispose of, and rather than
sending it to a landfill, they managed to
have it all recycled.
– Montreal will no longer use disposable
utensils in the cafeteria. Instead, their
Green Committee implemented a change
where everyone in the studio received
reusable Keywords travel mugs, and
a set of reusable cutlery, complete
with chopsticks.
UN SDG
Take urgent action to
combat climate change
and its impacts
Strategic report Responsible Business report continued
Community
€46,000
Raised by employees for charity
(2019: €29,000)
Here at Keywords, we encourage
community involvement and
supporting good causes throughout
our local studios. In order to do more
to support good causes across the
communities that we are a part of,
under the Keywords Cares initiative
we have set aside an annual central
fund of €100,000. This can be applied
to match funds raised for community
outreach and charitable initiatives by
our local teams around the world. In this
way, we hope to encourage even more
support for our local communities.
UN SDGs
Ensure healthy lives and
promote well-being for all
at all ages
Achieve gender equality
and empower all women
and girls
Reduce inequality within
and among countries
Take urgent action to
combat climate change
and its impacts
In 2020, we were delighted again to see
so many Keywordians giving their time
and energy in support of the numerous
initiatives that so many of us feel strongly
about, whether it’s local charities,
not-for-profit programmes, educational
initiatives or community outreach
programmes. Some of the many proud
examples of our community efforts
in 2020 are set out in more detail
on pages 33 to 35.
6studios supported diversity
and inclusion programmes,
to improve the quality of life
for marginalised communities
Supporting communities
– Keywordians volunteered significant
hours in an effort to help our neighbours
– Uniting and inspiring, making
communities stronger
– Ensuring player safety and wellbeing, our
Player Support Agents and Community
Managers have reported hundreds of
online threats
– Raised funds for various community
needs
Celebrating cultures
– 70+ international holidays observed,
including National Day, Diwali,
International Women’s Day, Chinese New
Year, Revolution Day, Independence Day,
Day of National Unity and many more
– Honouring the backgrounds of our
teams located across 22 countries
and four continents
– 65+ studios supporting diversity
and inclusion
8studios supported local
schools and education needs
6studios supported green
initiatives in their studios
and communities
7studios supported emergency
relief measures, related to
natural disasters and COVID-19
Keywords Studios plc / Annual Report and Accounts 2020 42/43
Corporate governance and business ethics
Tax governance: The Group takes a
balanced approach to the management
of its tax affairs and has a tax policy which
is approved by the Board. Our overall
strategy is to meet our tax obligations
and ensure that long term shareholder
returns are responsibly optimised by
structuring our business and transactions
in a tax efficient manner, whilst taking into
account reputational factors. Tax risks are
regularly reviewed by the Board and the
Audit Committee. The Group’s approach
in relation to the management of tax issues
is to ensure that:
– we comply with all applicable laws,
disclosure requirements and regulations
in the territories in which we do
business;
– all tax positions adopted are adequately
and fairly disclosed in tax filings;
– we have an open and transparent
working relationship with the relevant tax
authorities around the world;
– where disputes arise with tax authorities,
we seek to reach a resolution as soon
as possible in an open and constructive
manner;
– where considered appropriate, the
Group takes advice from professional
firms;
– tax risks are appropriately managed
in accordance with the tax policy; and
– our tax planning is aligned with the
Group’s commercial and business
activities and the tax treatment of
business transactions is optimised.
Our business strategy is aligned to our
Responsible Business priorities and the
expectations of our key stakeholders,
as outlined in our Code of Business
Conduct (the “Code”).
This Code provides the basic foundations
which guide our ethical conduct at
Keywords setting the highest standards
of behaviour and respecting the dignity
of others. We are committed to conducting
our business responsibly and operating
to the highest standards of honesty,
integrity and ethical conduct. We recognise
the value of good corporate governance
in every part of the business and have
adopted the Quoted Companies Alliance
(QCA) Corporate Governance Code, which
is appropriate for the size and maturity
of our business.
Ethics: The Group is committed to the
highest levels of integrity, accountability and
the prevention of bribery and corruption.
In 2020, we refreshed our Code of Business
Conduct, and published it on the Company
website in 12 languages. We also engage
with an external compliance software
vendor to help with the ongoing training
and awareness of our anti-bribery and
corruption policy, in addition to other
policies and eLearning activities. In 2018,
we adopted a whistleblowing policy that has
been rolled out globally. This policy allows all
colleagues, wherever they are, to raise any
concerns about possible financial or other
irregularities confidentially. During 2020, no
whistleblowing disclosures were reported,
following three in 2019 which were all
investigated and satisfactorily resolved.
UN SDGs
Promote sustained,
inclusive and sustainable
economic growth, full and
productive employment
and decent work for all
Build resilient
infrastructure, promote
inclusive and sustainable
industrialization and
foster innovation
Human rights: At Keywords, we do
not tolerate any form of modern slavery
or human trafficking in any part of our
business. In 2017, the Board adopted
a Modern Slavery Policy and our annual
Modern Slavery Statement is published
on the Company website. We operate
to international standards and principles
including the International Bill of Human
Rights, the UN’s Guiding Principles
on Business and Human Rights, the
International Labour Organization’s
Declaration on Fundamental Principles
and Rights at Work and the Children’s
Rights and Business Principles. The
Group continues to make all reasonable
endeavours to ensure all employees and
agents within our supply chains are not
subject to any form of forced, compulsory/
bonded labour or human trafficking
through our Modern Slavery Policy and the
accompanying Supplier Code of Conduct.
Data privacy: Keywords is committed
to processing data in accordance with
its responsibilities under applicable data
protection legislation, and has created the
Keywords Privacy Framework, based on the
General Data Protection Regulation (GDPR).
This framework is constantly updated to
take into account other applicable privacy
regulations, and it applies to all of its
subsidiaries regardless of geographical
location or service line. We regard the
lawful and correct processing of personal
information by the company as very
important to our successful operations
and for maintaining confidence between
our clients and ourselves.
M&A: We are a highly acquisitive business
and have strict criteria for our acquisition
targets, by far the most important being
cultural fit. Before acquiring an acquisition
target we complete detailed due diligence
and all acquisitions are approved by the
Board prior to completion. We have a
tried-and-tested integration process and
detailed integration plans tailored to each
company, with the involvement of those
who will implement it. This is designed
to ensure a seamless integration of the
new studio and most importantly, our new
colleagues, so that from day one, they feel
like part of the Keywords family and adopt
our Group policies.
Strategic report Responsible Business report continued
Non-financial information statement
Our non-financial information statement is set out below on environmental matters, social and
employee matters, respect for human rights, and anti-corruption and anti-bribery. Details of our
business model can be found on pages 20 and 21, and our principal risks are on pages 50 to 53.
Our Modern Slavery Policy and Code of Business Conduct can be found on our website.
Reporting requirement
Policies and standards
which govern our approach
Page reference
Environmental matters
Environmental statement
Page 41 Responsible Business
Social and employee matters
Code of Business Conduct
Pages 22 and 23 Our strategy
Recruitment policy
Pages 32 to 35 Our people, our culture
Employee handbook
Pages 36 to 45 Responsible Business
Diversity and equal opportunity
Grievance policy
Employee assistance programme
Health & safety policy
Data protection
Respect for human rights
Supplier Code of Conduct
Page 43 Responsible Business
Modern Slavery Policy
Anti-bribery and corruption
Anti-bribery and corruption policy
Page 43 Responsible Business
Whistleblowing
Page 60 Audit Committee
Business model
Description of principal risks
and impact of business activity
Pages 20 and 21 Business model
Page 36 Responsible Business
Pages 50 to 53 Principal risks and uncertainties
Non-financial key performance indicators
Pages 22 and 23 Our strategy
Pages 36 to 45 Responsible Business
Section 172(1) statement
The Directors have acted in a way that they consider, in good faith, would be most likely to promote
the success of the Company for the benefit of its members as a whole, in line with Section 172 of the
Companies Act 2006.
This section of the Strategic Report describes how the Directors continue to have regard for:
– the likely consequences of any decision in the long term;
– the interests of the Company’s employees;
– the need to foster the Company’s business relationships with suppliers, customers and others;
– the impact of the Company’s operations on the community and the environment;
– the desirability of the Company maintaining a reputation for high standards of business conduct; and
– the need to act fairly as between members of the Company.
Keywords Studios plc / Annual Report and Accounts 2020 44/45
scale and complexity to Keywords. Further
details can be found in the Directors’
remuneration report, pages 63 to 77.
The Remuneration Committee Chair
and other members of the Remuneration
Committee engaged with a number of our
largest shareholders and relevant proxy
agencies regarding these revisions, and
took into account the feedback from these
meetings in finalising the details of the
changes. The Board believes this regular
dialogue with our shareholders is critical to
ensure our remuneration policy aligns with
their expectations wherever possible, and
we found this engagement meaningful and
useful in achieving that aim.
Responsible Business:
Over the course of 2020, the Board
recognised and discussed the increasing
importance of ESG matters for a number
of our stakeholders. As a first step, we
worked with an independent third party
to carry out a materiality assessment
with our senior team and the Board.
This assessment was supplemented by
a Responsible Business employee survey
to understand their views and what is
important to them. Once complete, this
process identified our six Responsible
Business priorities of People, Diversity
& Inclusion, Customer Centricity &
Innovation, Communities and the
Environment underpinned by Corporate
Governance and Business Ethics. Further
details on this process and priorities can
be found in the Responsible Business
report, pages 36 and 37.
In addition, in order for the Board to
monitor progress in this important area,
the Board has established a Responsible
Business Committee comprising of
Georges Fornay (NED and Chair), Giorgio
Guastalla (NED), Jon Hauck (Chief Financial
Officer) and Sonia Sedler (Chief Operating
Officer). The Group is also in the process of
establishing regional committees to ensure
that initiatives are rolled out and fully
embedded throughout our local studios.
The Directors are fully aware of these
duties and responsibilities, and have set out
below how they are fulfilling those duties in
respect of each of their key stakeholders. In
line with our Responsible Business report
(more detail on pages 36 to 45), the Board
identifies the Group’s key stakeholders
as shareholders, employees, customers,
suppliers and community participants, and
it is committed to effective engagement
with these stakeholders.
Shareholders
Our Annual General Meeting (AGM) is an
important part of effective shareholder
communication, with all shareholders
having the opportunity to hear from the
Company and ask questions. The Board
welcomes the opportunity to engage with
our shareholders, typically providing a brief
update presentation at each AGM and with
all Directors available to answer questions.
In 2020, the Board was unfortunately
unable to permit its shareholders to
physically attend the AGM due to COVID-19
restrictions. As the Company’s articles of
association were amended at the 2020
AGM to enable “hybrid meetings” (with
some attendees in a physical location
and others attending by electronic means),
at the 2021 AGM the Board intends to
facilitate shareholder attendance via
videoconference for as long as COVID-19
restrictions remain in place. The Company
also intends to increase the audience of the
Capital Markets Day by broadcasting these
events to selected stakeholders in order
to encourage greater engagement.
Throughout the year the CEO and CFO
meet with shareholders, with the Board
receiving regular updates from both the
CEO and CFO on these engagements.
Additionally, both the Senior Independent
Director and the Chairman have met, and
will continue to meet, with institutional
shareholders to discuss updates on the
Group including strategy, remuneration
and other key issues that are vital to these
stakeholders in the future. An example
would be the emerging importance to
some stakeholders of environmental,
social, and governance (ESG) factors.
Employees
The Board receives regular updates in
relation to employees, in addition to the
results from the Group’s global employee
survey (further details on page 38).
Additionally, the Group holds a series
of annual strategy days and, as the Board
is in attendance, it is able to get both
formal and informal instant feedback
from the Senior Management team. Due to
COVID-19, the Board was unable to engage
with the Group’s employees in its normal
manner but it hopes to resume these visits
to key locations in the near future.
Customers
During the year, the Board receives updates
from senior management on key customers
via the business reviews. Prior to COVID-19,
the CEO and selected members of the
Board normally meet existing and potential
clients at the key video games events (e.g.
E3, GDC, XDS, Gamescom, Tokyo Games
Show) to seek their input and gauge their
current and future requirements. The
CEO independently also regularly meets
with the top echelon of key customers
to strengthen relationships.
Suppliers
The Board recognises the important role
that our suppliers play in helping us deliver
our services, as this group comprises
individual contractors in addition to a range
of support service suppliers. In respect of
our broader base of suppliers, the Board
has developed a Supplier Code of Conduct,
complemented by the adoption of a
Modern Slavery Policy since 2017.
Community participants
The Board recognises the need to
increase our community engagement and
to support the communities that we are
part of. With this in mind, Keywords has
pledged up to €100,000 per year to match
funds raised for community outreach
and charitable initiatives so that we can
continue to support our local communities
(further details on pages 33 to 35).
Decision making
We set out below the Group’s remuneration
policy and Responsible Business interactions
as examples of how the Directors have had
regard to the matters set out in section
172(1)(a)-(f) when discharging their duties
under section 172 and the effect of that
on certain decisions taken by them.
Remuneration policy:
The Group’s Remuneration Committee, on
behalf of the Board, is responsible for the
determination and implementation of the
Directors’ remuneration policy, applicable
to Executive and Non-Executive Directors.
During 2020, the Remuneration Committee
reviewed the pay structure for the Executive
Directors, with a particular focus on how the
package compares with companies of similar
Strategic report Financial and operating review
Resilient performance
in a period of significant
disruption
Revenue
Revenue for 2020 increased by 14.4% to
€373.5m (2019: €326.5m). This growth was
supplemented by the full year impact of
acquisitions in 2019 and the acquisitions
made in 2020, but offset by the impact
of currency movements, particularly the
weakening of the US dollar in the second
half of the year, and certain service lines
having been held back by COVID-19
disruptions during the year.
Organic Revenue growth (which adjusts
for the impact of currency movements
and acquisitions) was up 11.7%. This was
driven by a robust performance in most
service lines, despite being held back in
the first half of the year due to the studio
closures, particularly in our Testing and
Audio businesses, and short term client
side disruption to content flowing into
Localization. The business delivered a
stronger performance in the second half
of the year with Organic Revenue growth
of 15.0% (H1: 8.0%) driven by continued
strong demand for most of our services
and with all businesses settling down into
the new ways of working.
Gross margin
Gross margin in 2020 was €141.8m
(2019: €120.2m) representing an increase
of 17.9%. The gross profit margin improved
by 1.2% pts to 38.0% (2019: 36.8%) despite
the margin improvement having been
held back by the revenue shortfalls from
March onwards compared to pre-COVID-19
expectations, particularly in our Testing,
Audio and Localization service lines.
Operating costs
Adjusted operating costs increased by
7.9% to €67.6m (2019: €62.6m), reflecting
a larger Group, but reduced to 18.1% of
revenue versus 19.2% in 2019. This was
driven by operational leverage and good
cost control, together with a reduction
in certain costs due to COVID-19, such
as travel and marketing costs.
Jon Hauck
Chief Financial Officer
Keywords Studios plc / Annual Report and Accounts 2020 Organic Revenue growth
+11.7%
Revenue (€m)
€373.5m
2020
2019
2018
46/47
+14.4%
€373.5m
€326.5m
€250.8m
EBITDA
Adjusted EBITDA increased 28.8% to €74.2m compared with
€57.6m for 2019 resulting in an improvement in Adjusted EBITDA
margin of 2.3% pts to 19.9% (2019: 17.6%). As noted above, the
margin partly benefitted from a reduction in certain costs during
COVID-19, albeit it was held back by the revenue shortfalls from
March onwards versus previously anticipated levels.
2.3m of options were granted under the Share Option Scheme
and Long Term Incentive Plan in H1 2020. This, together with
grants from previous years, has resulted in a non-cash share
option expense of €15.4m in 2020 (2019: €9.8m). The increase
is largely due to an increase in the fair value charge for the more
recent grants compared to previous years reflecting the increase
in the share price.
Net finance costs
Net finance costs increased by €4.4m to €8.6m (2019: €4.2m)
largely driven by a €4.4m increase in the net foreign exchange loss
which is described in more detail below. Underlying interest costs
on bank debt (excluding IFRS 16 interest, deferred consideration
discount unwind, bank charges and foreign exchange) increased
by €0.1m to €1.0m (2019 €0.9m). This reflected the repayment of
drawings on the RCF following the successful €110m placing in May,
since when we have maintained a strong net cash position despite
the Group’s acquisition spend.
Alternative performance measures (APMs)
The Group reports a number of APMs to present the financial
performance of the business which are not GAAP measures as
defined by IFRS. The Directors believe these measures provide
valuable additional information for the users of the financial
information to understand the underlying trading performance
of the business. In particular, adjusted profit measures are used
to provide the users of the accounts a clear understanding of the
underlying profitability of the business over time. A breakdown
of the adjusting factors is provided in the table below:
Share option expense
Acquisition and integration costs
Amortisation and impairment
of intangible assets
COVID-19 government
subsidies claimed
Investment income
Foreign exchange and other items
2020
€m
15.4
2.6
8.8
(9.2)
(1.4)
6.3
22.5
2019
€m
9.8
4.3
7.3
–
–
2.1
23.5
One-off costs associated with the acquisition and integration
of businesses amounted to €2.6m (2019: €4.3m).
The amortisation and impairment charge of €8.8m (2019: €7.3m)
includes a €2.1m non-cash charge relating to an impairment
of intangible assets in certain pre-revenue businesses. These
businesses have potentially exciting prospects but their speed
to market has been hampered by COVID-19.
During the year the Group benefitted from €9.2m of COVID-19
related government subsidies, largely in the Americas aimed at
supporting employment during the COVID-19 crisis. In addition,
the Group made a €1.4m gain on the disposal of an investment
in Hutch Games that was acquired with the acquisition of Liquid
Development in 2015. Due to the one off nature of both items
the income was excluded in arriving at the adjusted profit
measures in order to assist with the understanding of the
underlying trading performance.
Foreign exchange and other items amounted to a net charge of
€6.3m (2019: €2.1m). Keywords does not hedge foreign currency
exposures. The effect on the Group’s results of movements in
exchange rates and the foreign exchange gains and losses incurred
during the year mainly relate to the effect of translating net current
assets held in foreign currencies. This resulted in a net foreign
exchange loss of €6.1m, recorded within financing cost
(2019: €1.7m loss).
A more detailed explanation of the measures used together with
a reconciliation to the corresponding GAAP measures is provided
in the APMs section at the end of the statement.
Profit before taxation
Profit before tax increased by €15.1m (+87.1% year on year) to
€32.5m (2019: €17.4m). Adjusted Profit Before Tax, which adjusts
for the items described in the APMs section above increased by
€14.1m (+34.5% year on year) to €55.0m compared with €40.9m
in 2019. This represents an improvement in Adjusted Profit Before
Tax margin of 2.2% pts to 14.7% (2019: 12.5%) and is in line with our
historical margin delivery of between 14–15%.
Strategic report
Financial and operating review continued
Taxation
The tax charge increased by €3.5m to €11.0m (2019: €7.5m) largely
reflecting the increase in the profit before tax of the business. After
adjusting for the items noted in the APMs section above and the
tax impact arising on the bridging items, the Adjusted Effective Tax
Rate for 2020 was 21.5% (H1 2020: 21.5%) compared with the rate
of 22.4% in 2019. This improvement was partly driven by the non-
repeat of a legacy pre-acquisition tax charge of €0.5m incurred in
the prior year.
Earnings per share
Basic earnings per share increased by 99.1% to 30.32c (2019: 15.23c)
reflecting the increase in the statutory profit after tax of 116.6%,
partially offset by an 8.8% increase in the weighted average number
of shares following the 10.5% equity placing in May of 2020. Fully
diluted earnings per share, reflecting the impact of unvested share
options, increased by 94.9% to 28.71c (2019: 14.73c).
Adjusted earnings per share, which adjusts for the items noted in the
APMs section and the tax impact arising on the bridging items above,
was 60.93c representing an increase of 24.9% (2019: 48.78c).
Cash flow and net debt
Cash flow statement
Adjusted EBITDA
MMTC and VGTR
Working capital and other items
Capex – property, plant and equipment (PPE)
Capex – intangible assets
Payments of principal on lease liabilities
COVID-19 employment support subsidies
Operating cash flows
Net interest paid
Free cash flow before tax
Tax
Free cash flow
M&A – acquisition spend
M&A – acquisition and integration costs
Investment income
Dividends paid
Shares issued for cash
Underlying increase/(decrease) in net cash/(debt)
FX and other items
Increase in net cash/(debt)
Opening net cash/(debt)
Closing net cash/(debt)
2020
€m
74.2
0.6
(2.2)
(13.9)
(0.3)
(8.2)
9.2
59.4
(1.6)
57.8
(4.5)
53.3
(39.9)
(2.3)
1.4
–
111.7
124.2
(3.4)
120.8
(17.9)
102.9
Change
€m
16.6
6.5
(0.5)
(0.8)
0.1
(0.8)
9.2
30.3
0.5
30.8
8.8
39.6
(12.1)
1.5
1.4
1.2
110.9
142.5
(4.2)
138.3
2019
€m
57.6
(5.9)
(1.7)
(13.1)
(0.4)
(7.4)
–
29.1
(2.1)
27.0
(13.3)
13.7
(27.8)
(3.8)
–
(1.2)
0.8
(18.3)
0.8
(17.5)
(0.4)
(17.9)
The Group generated Adjusted EBITDA of €74.2m in 2020, an increase of €16.6m from €57.6m in 2019. There was a €0.6m inflow in respect
of the amounts due for Multi-Media Tax Credits (MMTC) that are earned in the year of production, and are collected a year in arrears,
and Video Games Tax Relief (VGTR). This includes ~€2.5m of accelerated receipts as a result of COVID-19 that would otherwise have been
received in 2021. Other working capital outflows of €2.2m were broadly in line with the prior year with trade receivable days improving
by 2 days to 42 days (2019: 44 days).
Keywords Studios plc / Annual Report and Accounts 2020
Investment in property, plant and equipment amounted to
€13.9m (2019: €13.1m) reflecting a 22.3% increase in the level
of equipment expenditure driven by the increased revenues
of the business and the working from home arrangements that
required some additional investment in equipment, partially
offset by a reduction in the level of expansionary capex relative
to the prior year. Property lease payments of principal of €8.2m
were 10.8% higher than the prior year (2019: €7.4m) reflecting
the increased size of the business.
COVID-19 government employment retention subsidies amounted
to €9.2m, resulting in operating cash flows of €59.4m
(2019: €29.1m), an increase of €30.3m on 2019.
Interest payments were €1.6m, a decrease of €0.5m on 2019
as a result of the repayment of drawings on the RCF following the
placing in May. Tax payments amounted to €4.5m (2019: €13.3m),
a reduction of €8.8m on 2019. 2019 included tax payments of
approximately €5m relating to previous years and the Group
has benefitted from other timing differences resulting in less
payments in the year in respect of the 2020 tax payable.
This resulted in Free Cash Flow of €53.3m (2019: €13.7m), an
increase of €39.6m on 2019. Adjusted Free Cash Flow, which
adjusts for capital expenditure that is supporting growth in future
periods and the COVID-19 government employment retention
subsidies, was €53.4m in 2020, an increase of €20.6m (+62.8%)
on the levels delivered in 2019. This resulted in an Adjusted Cash
Conversion rate of 97.2% (2019: 80.2%) albeit as noted above, 2020
benefitted from some timing differences as a result of COVID-19.
Cash spent on acquisitions totalled €42.2m of which €39.9m
was in respect of the cash component of both current and prior
year acquisitions and €2.3m was in relation to acquisition and
integration costs. In addition the Group received €1.4m from
the disposal of an investment in Hutch Games that was brought
into the Group via an acquisition in 2015, as noted earlier. These
items, together with the strong Free Cash Flow generation and
the €110m received from the successful equity placing in May and
foreign exchange movements of €3.4m, resulted in an increase in
cash of €120.8m in 2020 (2019: increase in net debt: €17.5m) and
resulted in closing net cash of €102.9m (2019: net debt €17.9m).
Balance sheet and liquidity
The Group funds itself primarily through cash generation and
a syndicated revolving credit facility (RCF) of €100m, with an
accordion option to increase this up to €140m. The RCF matures
in October 2022 with an option to extend it for up to a further
two years.
The majority of Group borrowings are subject to two financial
covenants that are calculated in accordance with the facility
agreement:
– Leverage: Maximum Total Net Borrowings to Adjusted EBITDA
ratio of 3 times; and
– Interest cover: Minimum Adjusted Operating Profit to Net
Finance Costs ratio of 4 times.
48/49
The Group entered the year with a strong balance sheet, with net
debt (excluding IFRS 16 leases) of €17.9m as at 31 December 2019
representing a net debt to Adjusted EBITDA ratio of 0.3x. In May,
the Group placed 6,900,000 new ordinary shares representing
c.10.5% of the Group’s issued share capital, generating net
proceeds of approximately €110m. The placing has allowed
the Group to continue to pursue its value accretive acquisition
strategy whilst maintaining a strong balance sheet.
The funds were used to repay drawings under the RCF and to
support the value accretive M&A programme, with €40m of cash
deployed in the year. At the end of 2020, the Group had net cash
of €102.9m and undrawn committed facilities of €100m.
Dividend
The Group has delivered a robust performance in the year
and has demonstrated the resilience of the Group’s business
model, the benefit of its diversified services platform, and the
continued strong demand for its services. Our service lines have
performed well given the operational and market disruption
caused by COVID-19, delivering revenue and profit growth along
with continued cash generation. The Board intends to resume
its progressive dividend policy in 2021.
Guidance for 2021
We have made a good start to the year with the Organic Revenue
growth momentum in the second half of 2020 flowing into 2021,
offset by the full year impact of the weakening of the US dollar
in the second half of 2020 assuming rates remain at their current
levels. In addition, 2021 revenue will benefit from the additional
contribution from the Tantalus acquisition announced in March.
Adjusted Profit Before Tax margins are expected to be maintained
following the improvements in 2020 and within the 14–15%
historical range and the Adjusted Effective Tax rate is expected
to be in line with the 2020 rate of ~21%.
We are anticipating capex at a higher level to 2020 relative to
revenue reflecting some expansionary capex and investment
in equipment to support the new console cycle, and an overall
Adjusted Cash Conversion rate of ~80% representing a slight
reduction on 2020 and reflecting the unwinding of some of the
phasing benefits in 2020 as a result of COVID-19.
With the exception of the incremental impact of the Tantalus
acquisition announced recently, all of the above items are reflected
in the current revenue and profit market consensus for 2021.
Jon Hauck
Chief Financial Officer
Strategic report Principal risks and uncertainties
Getting with the program
The principal risks to which the Group is exposed are set out below, together with details of their
potential impact; the likelihood of occurrence (on a scale of 1 to 4, with 4 being the most likely); an
indication of whether the trend in the risk exposure is increasing, decreasing or broadly unchanged
since last year; and the actions taken to mitigate the risk.
We operate a top-down and bottom-up approach to
risk management, where current and emerging risks
are identified and assessed as part of our Strategy and
Budget process, and the results are reviewed in detail
at Board and Audit Committee on an ongoing basis
throughout the year.
Group and strategy risks
The principal risks associated with the Group’s strategy are divided into:
– Those specific to the Keywords Group and its strategy;
– Industry-related risks; and
– General business risks for any international company.
Risk
Description and Impact
Mitigation
Trend
Unsuitable acquisition
and/or failure of
integration process
Link to Strategy
Likelihood
Failure to
deliver services
Link to Strategy
Likelihood
Keywords has an active acquisition agenda
to support its strategy of becoming the
“go to” global provider of services to the
video games industry. Selecting the right
acquisitions, managing them successfully
and embedding the Keywords culture
is a crucial ingredient of success. Failure
to do so could result in the business
not achieving the expected financial
and operational benefits and adversely
impact growth, profitability and cash flow.
Since IPO, the Company has involved a
broader number of senior managers in the
acquisition and integration process, building
on the considerable experience that exists
at Board and senior management level, thus
providing further bandwidth to identify,
execute and integrate acquisitions effectively.
Our dedicated M&A team conduct due
diligence and we use earn-out clauses
where appropriate. Acquisition reports
are approved at Board level, and post-
acquisition performance is monitored.
Most of Keywords’ services are of a
time-critical nature with delays or service
delivery failures potentially impacting the
development or launch plans for games
or lost contracts and idle capacity.
Timely delivery and the resourcing flexibility
to enable delivery to tight deadlines has been
an integral part of the Company’s modus
operandi, and Keywords’ approach to project
management is applied across the Group.
During 2020, client contracts were updated
to enable work from home where previously
services needed to be made in secure
locations.
Adhering to Keywords’ strong standards of
delivery and efficient communication across
service lines is key to managing this risk.
The potential impact is partially mitigated
through the Company’s highly flexible
resource base and its expansion continues
to reduce its exposure to any single large
client, with no single customer accounting
for more than 7.5% (2019: 6.2%) of revenues.
Cross contamination risk
Link to Strategy
Likelihood
As the Group succeeds in delivering
multiple services to the same customers,
so the risk of failure in one service line
contaminating the relationship with the
customer across the other service lines
increases.
Client concentration risk
Link to Strategy
Likelihood
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 customers
account for 29.1% (2019: 28.1%) of the
Company’s revenues. These companies
have exacting standards and demand a
high quality of service. Any failure in this
regard or breakdown in the relationships
at the top level could cause considerable
damage to the business.
Keywords Studios plc / Annual Report and Accounts 2020
50/51
Links to Strategic Pillars:
Trend since last year:
Building
our platform
Selective acquisitions
and integration
Organic growth
and cross selling
No change
Increase
Decrease
Group and strategy risks continued
Risk
Description and Impact
Mitigation
Trend
Failure to meet
market expectations
Link to Strategy
Likelihood
Keywords floated on AIM in July
2013 with an expressed set of
objectives of growing the business
organically and by acquisition.
Should the Company lose the
confidence of investors, this will
affect its ability to raise money
for or place shares to pay for
acquisitions.
The Company makes every effort to communicate
regularly with investors via announcements and
face-to-face contact. This effective communication
of the continued opportunities for growth in the
sector, how the Group continues to execute on
its stated strategy and successfully integrate the
businesses it acquires, should continue to maintain
the confidence of its investors.
The Group maintains a good mix of equity and
debt funding which gives it the flexibility and
headroom to invest in the business. During 2020
we successfully raised new capital with the share
placing, proving that, even during a global crisis,
Keywords is a high quality investment proposal.
Inadequate financial
and operational controls
Link to Strategy
Likelihood
Failure to manage
human resources/
talent effectively
Link to Strategy
Likelihood
Non-compliance with
legal and ethical
standards
Link to Strategy
Likelihood
Keywords has grown rapidly and
it is important that global financial
controls are in place to ensure
smooth, timely and accurate
reporting of financial results to satisfy
our external reporting obligations
as well as the Board. Failure to
accurately report or forecast financial
results through error or fraud would
damage the Group’s reputation.
The Group has invested and continues to invest
in its financial reporting function and systems
to facilitate strong reporting and management
control as it grows.
The Group introduced an Internal Audit function
in 2019 and the recent new Board appointment
of a Chief Operating Officer will drive further
improvements.
Keywords employs an average
of 8,353 in 69 studios across the
Group, and people management
is key to our performance and
service delivery.
Keywords’ management structure has been
fundamental to the Group’s success, enabled by
embedding a Group culture that binds the teams
together, with a common purpose and set of
standards.
Failure to attract, retain or develop
high quality entrepreneurial
management across the business
could impact on the attainment
of strategic objectives. The
Group is focused on these areas
with the implementation of
globally managed service lines,
management development and
remuneration programmes,
incorporating long and short-
term incentives. But with an ever
increasing workforce this becomes
more demanding.
A material failure to comply
with applicable legal and ethical
standards could result in
penalties, costs, reputational
harm and damage to relationships
with suppliers and customers.
New standards and disclosure
requirements are evolving such
as in environmental and climate
change reporting.
We constantly work to develop and incentivise our
people and to support their passion to perform
the best service for each project and client, with
regular staff surveys undertaken too. In addition,
special emphasis is placed on workplace harmony
and the prevention of any forms of discrimination,
harassment, or malpractice in the workplace,
recognising that any sense of dissatisfaction
can be very disruptive.
This year we have established a Global Diversity
& Inclusivity Council, comprised of employees who
work closely with senior leaders, to connect D&I
activities to the broader business strategy. More
details can be found on page 39.
The Group promotes a culture of “Doing the right
thing” in all activities. Code of Business Conduct
guidelines were refreshed during 2020 and
published on our website, and are supported
by more detailed policies and procedures where
needed. More details are contained in the
Responsible Business section on page 37.
Strategic report
Principal risks and uncertainties continued
Industry-related risks
Risk
Description and Impact
Mitigation
Trend
Breaches to information
and cybersecurity
Link to Strategy
Likelihood
The industry requires the highest standards of
security and privacy within a company offering
services such as Keywords. Cyber attacks
and security breaches, which are happening
with increased frequency globally, may lead
to piracy, disruption of customers’ marketing
plans, loss of competitive edge and could result
in compensation claims.
Technology innovation
and industry disruption
Link to Strategy
Innovations in the gaming industry continue
to evolve, together with new technologies for
automated testing, machine translation and
crowdsourcing could pose a threat to the
Group in the long term.
Changes in regulation on video games, such
as those seen in the Chinese market which
imposed curfews on minors, could result in
the delay or cancellation of video games by
our customers. Requirements to address
responsible gaming in the industry introduces
complexity for our clients.
The Company uses various third party
and proprietary tools and technologies
for process control and productivity
purposes. Continued investment in
these tools is important to ensure the
Group’s effectiveness.
Keywords maintains physical and
data security and privacy policies and
procedures which are regularly audited
by its larger customers.
A dedicated Information Security
team set policies, conduct regular
penetration testing, monitor activity
and rapidly respond to any incidents
that arise. More details are contained
in the Strategic report on page 40.
The Company is constantly developing
technology tools to deliver its services
more effectively and participates
directly with customers in various pilot
programmes for new technologies
to keep abreast of the technology
developments. We are investing in
advances such as machine translation
in Localization described in the Service
line review on page 30.
In relation to the Chinese market,
Keywords has limited revenue
exposure to games destined solely for
the Chinese market. In addition, any
potential impact is partially mitigated
through the Company’s diverse revenue
base (no single client larger than 7.5%
(2019: 6.2%)). Responsible gaming
issues arising during game play can be
identified by our Player Support teams,
trained to handle and report safety
incidents, see page 31.
The Company receives multimedia tax credits
(MMTC) in Canada and video games tax relief
(VGTR) in the UK relating to qualifying costs in
those markets. These tax credit regimes are
designed to promote growth and investment
in the relevant regions. Any reduction or
cancellation of these tax credits would increase
the cost base of the business and make the
business less competitive.
The Group works closely with regulators
and governments in relation to relevant
country tax credits and has been given
no indication that these tax credits will
be removed in the medium term. The
Group has a geographically diversified
operating platform and retains the
ability to move to other operating
centres if material changes were made.
Likelihood
Negative impact
of regulation on
video games
Link to Strategy
Likelihood
Tax credits
withdrawal risk
Link to Strategy
Likelihood
Keywords Studios plc / Annual Report and Accounts 2020
52/53
Links to Strategic Pillars:
Trend since last year:
Building
our platform
Selective acquisitions
and integration
Organic growth
and cross selling
No change
Increase
Decrease
General business risks
Risk
Description and Impact
Mitigation
Trend
The Group’s multiple, full-service
delivery hubs provide for a good level of
contingency and, supported by business
continuity plans, the effects of such
disasters can be managed.
COVID-19: The Group has been able to
move c. 6,900 employees to work from
home arrangements which allowed
production to continue across most
of the Group’s operations throughout
the pandemic. In certain Service lines,
alternative ways of working have been
introduced to allow continued service
whilst physical studios are closed (e.g.
remote Audio recording).
As studios have reopened, increased
health & safety protocols and changes
to studio layouts have been introduced
to allow for safe working whilst social
distancing measures are in place.
Further details on how the Group is
responding to the challenge faced
by COVID-19 is provided in the Chief
Executive’s review section on pages
14 to 17 and in the Service line review
on pages 26 to 31.
The diversification and spread of
activities geographically mitigates the
risk of disruption in any one location.
Sudden business
interruption
Link to Strategy
Likelihood
Keywords is a global business and needs to
minimise business interruptions and be able
to continue 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
Tokyo earthquake and tsunami or currently
with COVID-19 (see below).
COVID-19: During 2020 and into 2021 the
Group’s production studios have been
impacted by the COVID-19 pandemic resulting
in most of the Group’s studios either being
temporarily closed and/or operating at
reduced capacity. Demand for the Group’s
services has remained robust throughout
the pandemic. The Group has demonstrated
strong resilience and the ability to quickly
move to working from home arrangements
in order to continue servicing our customers.
Global political risk
and uncertainty
Link to Strategy
Likelihood
We operate and own assets in a large number
of geographic regions and countries, and, as
a result, we are exposed to a wide range of
political, economic, regulatory, social and tax
environments. Policies or laws in the countries
in which we do business may change in a
manner that may be adverse for us, even
those with stable political environments.
Brexit
The UK accounts for 15.6% of Group revenue,
with 458 employees of the Group’s 8,353 based
in the UK. The Board has assessed the risk of
Brexit on Keywords and concluded that for
now, this does not constitute a significant risk.
Negative impact
of currency risk
Link to Strategy
Likelihood
The Group transacts in multiple currencies,
given our customers are located globally.
Keywords is therefore exposed to short-term
currency risks, in addition to longer-term risk
that could develop between our functional
currency (Euro) and our multiple billing
currencies. The Group’s largest exposure is
to the US Dollar followed by the Canadian
Dollar and Sterling.
The Group does not hedge its
currency risk because Keywords’
main movements in exchange related
gains or losses relate to the effect of
translating net current assets held
in foreign currencies. We also have
the ability to offset adverse foreign
exchange currency movements through
increasing prices.
The Strategic Report was approved by the Board and signed on its behalf by:
Jon Hauck
Joint Interim Chief Executive Officer
24 March 2021
Strategic report
Board of Directors
Selecting the right team
Ross Graham FCA (73)
Andrew Day (57)
Independent Non-Executive Director and Chairman
Group Chief Executive Officer
Skills and Experience
Ross has extensive Executive and Non-Executive
experience in the technology sector. Since retiring
from Misys plc, he has held a number of Non-
Executive directorships including Psion plc and
Wolfson Microelectronics plc. Ross was appointed
Director and Chairman of Keywords shortly prior
to its IPO in July 2013. Ross creates the necessary
environment for dynamic Board discussion and has
helped elevate the governance processes without
destroying the entrepreneurial essence of Keywords.
Skills and Experience
Andrew has a background in technology, manufacturing
and business services through corporate development
and general management roles within both publicly
quoted and private companies. Andrew was Chief
Executive Officer of interactive 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.
Committee
Tenure (years)
8
Attendance
13/13
Committee
Tenure (years)
12
Attendance
13/13
Jon Hauck (47)
Sonia Sedler (52)
Joint Interim CEO and Chief Financial Officer
Joint Interim CEO and Chief Operating Officer
Skills and Experience
Jon has a wealth of finance, change management
and M&A experience, having held a variety of roles
at Rentokil Initial plc since 2008. Over that time he
was responsible for leading a substantial integration
programme and CFO in North America and from 2015
he held the role of Group Financial Controller and
Treasurer. Prior to Rentokil Initial, he worked in PwC’s
Assurance practice. Jon is a Fellow of the ICAEW.
Skills and Experience
Sonia has 20 years of experience in scaling up
businesses internationally, most recently as Global
Head of Managed Services and Banking Strategy at
Diebold Nixdorf. She joined Diebold Nixdorf from
Sutherland Global Services, where she acted as
Managing Director for the EMEA region and led the
transformation of customer journeys for a number
of blue chip businesses. Her previous leadership
roles with digital transformation organisations
also include HCL and Accenture.
Committee
Tenure (years)
1.5
Attendance
13/13
Committee
Tenure (years)
0.25
Attendance
-/-
Please reference our website, www.keywordsstudios.com, for a full biography on each Director.
Keywords Studios plc / Annual Report and Accounts 2020 54/55
Committee Membership
Audit Committee
Disclosure Committee
Nomination Committee
Responsible Business Committee
Remuneration Committee
Chairman of Committee
David Reeves (74)
Charlotta Ginman FCA (55)
Senior Independent Non-Executive Director
Independent Non-Executive Director
Skills and Experience
David has over 30 years’ global experience in
management roles within multinational companies.
In 1999, he was appointed Executive Vice President of
Sony Computer Entertainment (Europe) and President
and CEO in 2003. He brings to Keywords a global
knowledge of growing multinational companies,
experience of the video game industry, Corporate
Governance and an understanding of working with
companies to develop global strategies.
Skills and Experience
Charlotta is Chair of the Audit Committee and has
held senior positions in the investment banking and
technology/telecom sectors. She is a Non-Executive
Director and Chair of the Audit Committee of two
Investment Trusts: Polar Capital Technology Trust PLC
and Pacific Asset Trust PLC. She is also a Non-Executive
Director of Unicorn AIM VCT PLC, a Venture Capital Trust,
and two AIM listed companies: Boku Inc and Gamma
Communications plc. As three of Charlotta’s roles are
with investment companies that have only 4-5 meetings
a year and the other companies are all AIM listed, with
less regulatory burden than a premium listing, Charlotta
has sufficient time to devote to each of her roles.
Committee
Tenure (years)
8
Attendance
13/13
Committee
Tenure (years)
4
Attendance
13/13
Georges Fornay (64)
Giorgio Guastalla (52)
Independent Non-Executive Director
Non-Executive Director
Skills and Experience
Georges has over 30 years’ experience in the
technology and video games sectors and is currently
Deputy CEO of Qobuz, the French high quality
music streaming service. Georges worked in senior
management at Sony Computer Entertainment
(Europe), culminating as the Senior Vice President
from 2004 to 2011. Georges has also held significant
industry-wide roles including President of SELL,
France’s Union of Entertainment Software Publishers.
Skills and Experience
Giorgio is co-founder of Keywords. Prior to establishing
Keywords in Ireland in 1998, Giorgio held various
positions in marketing and IT at Brent International
PLC. In 2002 Giorgio founded Italicatessen Limited,
a company operating in the food sector. Giorgio
was CEO of Keywords until 2009 before moving to
a Non-Executive Director role. With over 20 years’
experience in the industry, Giorgio brings a wealth
of understanding and knowledge to Keywords.
Committee
Tenure (years)
4
Attendance
13/13
Committee
Tenure (years)
22
Attendance
11/13
Governance Chairman’s introduction
Ross Graham
Chairman
The Board is committed
to the highest standards
of corporate governance
Dear shareholders
As Chairman of the Board of Directors of Keywords Group plc
(“Keywords”, or the “Company/Group” as the context requires),
I am pleased to introduce the Group’s corporate governance
report. The corporate governance statement provides an insight
into how the Board operated during the year and the key issues
considered. The Board is committed to the highest standards of
corporate governance. Our approach to governance is set by the
Board and our Executive Directors ensure that the approach is
effectively implemented across the business. Effective and robust
governance remains central to the ongoing success of the Group.
It is my responsibility to ensure that the Group has both sound
corporate governance and a Board which operates mindful of its
responsibility to all stakeholders but particularly the creation of
shareholder value. As Chairman of the Company, my responsibilities
include leading the Board effectively, overseeing the Group’s
corporate governance model, communicating with shareholders
and ensuring that good information flows freely between the
Executive and Non-Executive Directors in a timely manner.
Needless to say, 2020 has been a difficult year and the normal
interactions in physical locations have, for the most part, had to
be suspended with virtual meetings becoming the norm – these
are no substitute for the real thing albeit they enable a sense
of business as usual. References are made in the relevant places
where we have had to make do in 2020 and we are looking
forward to restoration of face-to-face interactions as soon
as vaccination-enabled normality is resumed.
The Directors of the Company recognise the value of good corporate
governance in every part of its business. The Company has
adopted the Quoted Companies Alliance Corporate Governance
Code (QCA Code), which we believe is the most appropriate for
a company with the size and stage of development of Keywords.
The Board provides annual updates on our compliance with the
QCA Code.
The Board considers that the Group complies with the QCA Code
in all applicable respects. Our QCA Code disclosures within this
Annual Report are summarised in the table to the right. In addition,
an explanatory statement of how we have applied the QCA Code
guidance, and disclosures of any areas of non-compliance, can be
found on our website at: www.keywordsstudios.com.
Principle
1
2
3
4
5
6
7
8
9
Establish a strategy and business model which promote
long-term value for shareholders.
Seek to understand and meet shareholder needs and
expectations.
Take into account wider stakeholder and social responsibilities
and their implications for long-term success.
Embed effective risk management, considering both
opportunities and threats, throughout the organisation.
Maintain the board as a well-functioning, balanced team led
by the chair.
Ensure that between them the directors have the necessary
up-to-date experience, skills and capabilities.
Evaluate board performance based on clear and relevant
objectives, seeking continuous improvement.
Promote a corporate culture that is based on ethical values
and behaviours.
Maintain governance structures and processes that are fit
for purpose and support good decision-making by the board.
10
Communicate how the company is governed and is performing
by maintaining a dialogue with shareholders and other relevant
stakeholders.
Disclosure
within this
report
Page 20
Page 45
Page 36
Page 50
Page 57
Page 54
Page 78
Page 32
Page 57
Page 45
The Board understands that the application of the QCA Code
supports the Group’s medium to long-term success whilst
simultaneously managing risks and provides an underlying framework
of commitment and transparent communications with stakeholders.
The main Group-wide governance documents are our Core Values
and the Code of Business Conduct, which set out the values and
standards that we expect of our employees. These documents,
together with our policies, govern how we conduct our business
and set the standards that drive performance. Compliance training
helps to enforce this. Board oversight, reviews and audits form
part of the monitoring and supervision process.
Risk processes are embedded and reviewed on an ongoing basis
across the business. The important governance developments
at Keywords over the last year are outlined below.
My ambitions for the composition of the Board are to maintain,
and where applicable, broaden the range of expertise, experience
and diversity. The Board continues to ensure that effective succession
plans are in place at both executive and non-executive level
through effective evaluations of the Board and its Committees
and one-on-one reviews.
Given current government instructions regarding COVID-19 and the
restrictions on social contact, public gatherings and non-essential
travel, this year’s Annual General Meeting (AGM) will be held via
videoconference on 26 May 2021. Shareholders will be able to
attend the meeting virtually using the details provided below; as in
person attendance is not expected. We recommend shareholders
attend the meeting by registering for the videoconference
using this URL: www.keywordsstudios.com/agm2021/. Should a
shareholder have a question that they would like to raise at the
AGM, the Board would ask that they either ask the question in
advance of the AGM by sending an email to agm@keywordsstudios.
com by the 24 of May 2021 or by attending the AGM virtually and
asking the question at the meeting using the ‘Q&A’ function. The
Board of Directors strongly encourages shareholders to vote by
proxy in lieu of attending in person. Additionally, the Board will look
at opportunities to meet with shareholders later in the year where
possible and only if and when it is deemed safe to do so.
Ross K Graham
Chairman
24 March 2021
Keywords Studios plc / Annual Report and Accounts 2020 Corporate governance
Governance
56/57
56/57
Strategy
A description of the Company’s strategy, business model and
supporting strategic pillars, along with key attributes of our
positioning and growing maturity, can be found in the Strategic
report on pages 20 to 23.
The Board is supported with the oversight of its internal control
systems and risk management through the appointment of a Head
of Internal Audit in August 2019. The recent limitations over travel
have hampered a more extensive roll-out of the Internal Audit
programme – progress has nonetheless been made.
Internal controls and risk management
The Board recognises the need for an effective and well-defined
risk management process and it oversees and regularly reviews
the current risk management and internal control mechanisms.
The Company’s principal risks, along with key challenges in the
execution of the Company’s strategy and controls implemented
to mitigate them, can be found in the Strategic report on
pages 50 to 53.
The Audit Committee has been delegated responsibility for the
oversight of the Company’s risk management and internal controls
and procedures, as well as determining the adequacy and efficiency
of internal control and risk management systems. Continuous
improvement is the aim and although 2020 has evidenced
improved practices we know there are still areas where we can
do better. The Board continuously monitors and upgrades its
internal control procedures and risk management mechanisms and
conducts regular reviews, when it assesses both for effectiveness.
This process enables the Board to determine whether the risk
exposure has changed during the year and these disclosures are
included in the Annual Report. In setting and implementing the
Company’s strategies, the Board, having identified the risks, seeks
to limit the extent of the Company’s exposure to them having
regard to both its risk tolerance and risk appetite.
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 service line,
of actual performance compared to budget and the prior year;
– Visits to key locations (not practical in 2020);
– Annual budget setting;
– Tight cash management;
– Annual strategy conference with top management team; and
– A defined organisational structure with appropriate delegation
of authority.
Further information on the Company’s approach to risk management
and internal controls can be also found in the Audit Committee
report on pages 60 to 62.
The Board
The Board, as a whole, is responsible for the overall management of
the Group and for its strategic direction, including approval of the
Group’s strategy (including corporate and business development),
its annual business plans and budgets, the interim and full year
financial statements and reports, any dividend proposals, the
accounting policies, major capital projects, any investments or
disposals, its succession plans and the monitoring of financial
performance against budget and the formulation of the Group’s
risk appetite including the identification, assessment and
monitoring of Keywords’ principal risks.
Director biographies and committee memberships are set out
on pages 54 and 55. Charlotta Ginman currently has six NED roles.
Of those, three are investment companies that generally only have
four to five meetings a year, therefore Charlotta has sufficient time
to devote to her Keywords role.
The Board comprises Andrew Day CEO, Jon Hauck CFO, one non-
independent Non-Executive Director, Giorgio Guastalla, and four
independent Non-Executive Directors, Georges Fornay, Charlotta
Ginman, Ross Graham and David Reeves. David Reeves is the
Company’s Senior Independent Director (SID), and Ross Graham
is the Company’s Chairman. Since the year end we have recruited
Sonia Sedler as COO and a member of the Board. This is a crucial
appointment reflecting the growing maturity of the business.
Letters of appointment of all Directors are available for inspection
at the Company’s registered office during normal business hours.
The Executive Directors work full time for the Company. All the
Non-Executive Directors are expected to dedicate at least 30 days
per annum to the Company, rising to 40 days if they also chair
a Committee, and the Chair is expected to dedicate 60 days per
annum. The Company has adopted a policy whereby all members
of the Board are subject to re-election at each AGM.
Keywords Studios Board of Directors
Audit
Committee
Nomination
Committee
Remuneration
Committee
Disclosure
Committee
Responsible
Business Committee
Chief Executive
Officer
Internal
Audit
Executive
Directors
Governance Corporate governance continued
The Board is satisfied that it has a suitable balance between
independence, on the one hand, and knowledge of the Company,
on the other, and that no individual or group may dominate the
Board’s decisions. The Non-Executive Directors have both a
breadth and depth of skills and experience to fulfil their roles.
The Company believes that the current balance of skills in
the Board as a whole reflects a very broad range of personal,
commercial and professional experience, and notes the range
of financial and managerial skills. All Directors are encouraged
to use their independent judgement and to challenge all matters,
whether strategic or operational, enabling the Board to discharge
its duties and responsibilities effectively.
By June/July 2022 Ross Graham and David Reeves will each have
served nine years on the Company’s Board and the successors
will need to be appointed to maintain the balance between the
independent and non-independent Directors. A process has
already been initiated to identify suitable successors.
The Board meets a minimum of eight times a year and a calendar
of meetings and principal matters to be discussed are agreed at
the beginning of each year. In order to be efficient, the Directors
meet formally and informally both in person (limited in 2020) and
by telephone. Board and Committee document authors are made
aware of proposed monthly deadlines through the calendar of
meetings assembled at the beginning of the year. Board papers are
collated by the relevant personnel (Chair, Company Secretary, CFO,
Committee Chair), compiled into a Board/Committee Pack, and
circulated at least three working days before meetings, allowing
time for full consideration and necessary clarifications before the
meetings. The Board also utilises a fully-functioning Board Portal,
which ensures the provision of timely and efficient distribution
of Board and Committee papers as well as an effective means of
communication for the Board.
Management supply the Board with appropriate and timely
information and the Directors are free to seek any further
information they consider necessary.
David Reeves acts as the Senior Independent Director (SID) of the
Company, serving as a sounding board for the Chairman and acting
as an intermediary for the other Directors. The SID is also available
to shareholders and other Non-Executive Directors to address any
concerns or issues they feel have not been adequately dealt with
through the usual channels of communication.
Audit Committee
The Audit Committee is chaired by Charlotta Ginman, and its other
members are Ross Graham, David Reeves and Georges Fornay.
The Audit Committee is responsible for assisting the Board in
fulfilling its financial and risk responsibilities. The Audit Committee
oversees the financial reporting, risk management and internal
control procedures of the Company. The Audit Committee also
advises the Board on the appointment and removal of the external
auditor and discusses the nature, scope and results of the audit
with the auditors. The Audit Committee reviews the extent of
non-audit services provided by the auditors and reviews with
them their independence and objectivity. Further information
on the Audit Committee can be found in the Audit Committee
report on pages 60 to 62.
Remuneration Committee
The Remuneration Committee is chaired by David Reeves, and
its other members are Charlotta Ginman and Ross Graham.
The Remuneration Committee is responsible for determining
the remuneration of the Chairman (who does not participate
in such discussions), Executive Directors and senior Executives
of Keywords. The Remuneration Committee is responsible for
making recommendations to the Board of Directors’ and senior
Executives’ remuneration. Non-Executive Directors’ remuneration
and conditions are considered and agreed by the Board. Financial
packages for Executive Directors are established by reference
to those prevailing in the employment market for Executives of
equivalent status both in terms of level of responsibility of the
position and their achievement of recognised job qualifications
and skills. The Committee will also have regard to the terms, which
may be required to attract an equivalent experienced Executive
to join the Board from another company. Further information on
the Remuneration Committee can be found in the Remuneration
Committee report on pages 63 to 77.
Nomination Committee
The Nomination Committee is chaired by Ross Graham. Charlotta
Ginman, David Reeves and Andrew Day are the other members.
Further information on the Nomination Committee, including
its role and responsibilities, can be found in the Report of the
Nomination Committee on page 78.
Disclosure Committee
The Disclosure Committee is responsible for assisting in the
design, implementation and evaluation of the Company’s disclosure
controls and procedures. The Disclosure Committee is chaired
by Andrew Day and its other members are Charlotta Ginman,
David Reeves, Ross Graham, Jon Hauck and Sonia Sedler.
Responsible Business Committee
In 2021, we have established the Responsible Business Committee
chaired by Georges Fornay. Giorgio Guastalla, Jon Hauck and
Sonia Sedler are the other members. Further information on
the Responsible Business Committee, including its role and
responsibilities, can be found in the Responsible Business
report on page 36.
Terms of reference of all Keywords’ Committees are available to
view on the Company’s website at: www.keywordsstudios.com.
The table overleaf sets out attendance statistics for each Director
at scheduled Board, and where relevant, Committee meetings
held during the financial year.
The Non-Executive Directors meet without the presence of the
Executive Directors during the year, and also maintain ongoing
communications with Executives between formal Board meetings.
Meetings are open and constructive, with every Director participating
fully. Senior management can also be invited to meetings, providing
the Board with a thorough overview of the Company.
In addition to their general Board responsibilities, Non-Executive
Directors are encouraged to be involved in specific workshops
or meetings, in line with their individual areas of expertise.
The Board is kept abreast of developments on governance and AIM
regulations. ONE Advisory Limited, Keywords’ Company Secretary,
provide updates on governance issues, and the Company’s
Nominated Adviser (Nomad), Numis Securities, provides annual
Board AIM Rules refresher training as well as the initial training
as part of a new Director’s on-boarding.
Keywords Studios plc / Annual Report and Accounts 2020 Governance
58/59
Director
Ross Graham
Andrew Day
Jon Hauck
David Reeves
Charlotta Ginman
Georges Fornay
Giorgio Guastalla
Meetings and attendance
Board
(13)
Audit
Committee
(5)
Remuneration
Committee
(7)
Nomination
Committee
(2)
Disclosure
Committee
(4)
13
13
13
13
13
13
11
5
–
–
5
5
5
–
7
–
–
7
7
–
–
2
2
–
2
2
–
–
4
4
4
2
2
–
–
Figures in brackets represent the scheduled meetings held in the year.
The Board reviews annually the appropriateness and opportunity
for continuing professional development, whether formal or
informal.
Advisors
The Board has regular contact with its advisors to ensure that
it is aware of changes in corporate governance procedures and
requirements and that the Group is, at all times, compliant with
applicable rules and regulations. The Company has Director and
Officers’ liability insurance cover in place throughout the year and
it is intended for the policy to continue for the year ending 31
December 2021 and subsequent years. Additionally, the Company
provides an indemnity in respect of all the Company’s Directors
or other officers of the Company against all costs, charges, losses,
expenses and liabilities incurred by them in the execution and
discharge of their duties. The Company’s Nomad supports the
Board’s development, specifically providing guidance on corporate
governance and other regulatory matters, as required.
ONE Advisory Limited is Keywords’ Corporate Company Secretary.
ONE Advisory Limited is responsible for ensuring that Board
procedures are followed and that the Company complies with
all applicable rules, regulations and obligations governing its
operation, as well as helping the Chairman to maintain excellent
standards of corporate governance. ONE Advisory Limited also
provides Board support through assistance with shareholder
meetings and Market Abuse Regulation (MAR) compliance.
The Company has also enlisted the support of Ellason LLP, who
provides advice in relation to remuneration. Additional information
can be found in the Remuneration report on pages 63 to 77.
All Directors may receive independent professional advice at
Keywords’ expense, if necessary, for the performance of their duties.
Board and Committees performance evaluations
Details of the Company’s Performance Evaluations for the year can
be found in the Report of the Nomination Committee on page 78.
Culture
The Board recognises that its decisions regarding strategy and
risk may impact the corporate culture of the Company as a whole.
The Board is also aware that the tone and culture set by the Board
can have an important influence on the Company as a whole and
in the way that employees behave. The corporate governance
arrangements that the Board has adopted are designed to ensure
that the Company delivers long term value to its shareholders
while being cognisant of the interests of other stakeholders.
Shareholders are encouraged to express their views and
expectations for the Company in open dialogue with the Board.
A large part of the Company’s activities are centred upon an
open and respectful dialogue with employees, customers and
other stakeholders. Therefore, the importance of sound ethical
values and behaviours is crucial to the ability of the Company to
successfully achieve its corporate objectives. The Board places
great importance on this aspect of corporate life and seeks
to ensure that this flows through all that the Company does.
The Directors consider that the Company has an open culture
facilitating comprehensive dialogue and feedback, which enables
positive and constructive challenge. The Board recognises that
sustaining this culture will be a crucial element of the long-term
success of the business.
Further details can be found in the Our people, our culture
(pages 32 to 35) and the Responsible Business report (pages 36
to 45) sections of the Strategic report.
Governance Audit Committee report
Charlotta Ginman
Chair of the Audit Committee
Introduction from the Chair
I am pleased to present, as Chair of the Audit Committee,
the report for the year ended 31 December 2020. This report
details the work of the Committee over the past year, fulfilling
our responsibilities to provide effective governance over the
Group’s financial activities.
Composition and attendance in 2020
The Committee members, apart from myself, continue to be Ross
Graham, David Reeves and Georges Fornay. The Audit Committee,
as a whole, has competence relevant to the video games industry,
both Ross Graham and I are Chartered Accountants and I also
chair the Audit Committee for other public companies. More
information about the Committee members can be found on pages
54 and 55. The Committee met five times during the financial year
with all members in attendance. The majority of the meetings
have been completed remotely by the use of technology, such
as videoconferencing and board portal software. I am pleased
to confirm that this has worked well, with Committee members
able to operate as effectively as before.
Committee role and responsibilities
The Committee has written terms of reference, which are available
to view on the Company’s website www.keywordsstudios.com. The
terms of reference clearly define the Committee’s responsibilities
and duties and were reviewed by the Board during 2020 and
updated accordingly. In addition to the Terms of Reference, the
Committee has developed an annual agenda which corresponds
with the meeting schedule, to ensure all key responsibilities are
completed and managed.
Significant issues considered by the
Audit Committee during the year
Audit Regulation
In the year since my last report to you, the UK audit sector has
been subject to a number of reviews, such as those conducted
by the Competition and Markets Authority into the Statutory Audit
Market and the Kingman Review of the FRC which have resulted
in a number of recommendations for the Department of Business,
Enterprise, Industry and Skills to consider. The Audit Committee
has considered the recommendations and how they may affect
the Company should they be implemented. These reviews
have also coincided with the FRC’s own consultation proposing
important changes to the UK’s Ethical and Auditing Standards
which led to the publication of revised Standards effective from
15 March 2020. In addition to this, the Committee also reviews
the outcomes of the FRC’s annual Audit Quality Reviews and
discusses the findings with our Auditor.
The Committee updated the non-audit services policy in line with
the revised Ethical Standards and does not at this time recommend
any change to the current practices employed in the external audit
process in response to these reviews, but will continue to monitor
developments as they unfold.
COVID-19 and Going Concern
As a result of the COVID-19 pandemic and the associated
economic uncertainty, the Financial Reporting Panel (FRC) has
asked companies and boards to pay particularly attention to
the potential impact of the pandemic on a business’s financial
reporting. In particular, on any areas of judgement that are
impacted by the potential uncertainly from the COVID-19 pandemic
and specifically in the context of going concern disclosures.
The Audit Committee reviewed the Going Concern assessment
including management prepared stress testing to the Group’s
cash flow projections to evaluate the Group’s ability to withstand
a prolonged period of studio closures as a result of the COVID-19
pandemic, and the economic impact on the industry as a whole.
Whilst the Group has performed very resiliently through the
COVID-19 crisis we have assessed the main potential risks as
bad debt risk, recognition of COVID-19 subsidies claimed and
goodwill impairment which were discussed and monitored by
the Audit Committee during the year. Further details are provided
in note 1 of the financial statements.
Internal Audit
The Head of Internal Audit reports into the Audit Committee Chair
with a dotted reporting line into the Group CFO. The activities
of the Internal Audit function are governed by an Internal Audit
Charter. During 2020 the Internal Audit plan was revised to
take into account the impact of COVID-19. The Audit Committee
received updates on the results of Internal Audit work including:
– post acquisition reviews and completion of integration plans;
– implementation and communication of Group policies including
the relaunch of the Code of Business Conduct;
– sales process mapping to identify key controls within selected
Service lines; and
– improvements in the risk management framework.
In December 2020, the Audit Committee approved the Internal
Audit plan for 2021, which will focus on:
– review of key processes in financial reporting and talent
management;
– review of financial reporting systems;
– review of the integration of a selection of acquisitions; and
– review of key finance controls at significant studios.
This plan aims to address some of the internal and financial risks
and uncertainties identified on pages 50 to 53 such as:
– acquisition and integration risk – how new entities are integrated
into the Keywords business;
– adequacy of and compliance with financial and operating
controls to ensure smooth, timely and accurate reporting; and
– failure to manage human resources/talent effectively.
Keywords Studios plc / Annual Report and Accounts 2020 Governance
60/61
Internal control and risk assurance framework
The Audit Committee has continued to review and challenge the
upgrades that have taken place during the year to the Company’s
internal control and risk assurance framework to ensure that
following its rapid expansion, the Company operates within
a fit for purpose framework.
Last year’s exercise of management confirmation by both the
heads of operations and finance per region to the CFO of key
policies implemented and financial controls expected to be in
place and operational in all of the businesses across the Group
has become an annual exercise and going forward will be adapted
to the audit themes each year.
The Committee is pleased to see continued progress made in the
global financial systems roll-out which will eventually allow a fully
integrated reporting system to operate seamlessly across the
Group. During 2020 the focus has been on key locations in Europe
and Asia, and the majority of studios (representing 87% revenue
as at December 2020 from 72% as at December 2019) are now
migrated to the new system. To complement the system roll out,
a project has been initiated to implement a consolidation, reporting
and planning tool to replace the current manual consolidation
process. This is expected to be in place by H1 2021.
The work on our Group cash pooling platform continues,
providing us with better control and visibility of Group cash and
the optimisation of cash management. During 2020 the focus has
been on Europe and acquisitions are on-boarded when internal
prerequisites are met.
The industry requires the highest standards of security within
a company offering services such as Keywords. During 2020 the
Committee received regular cybersecurity updates from the IT
function to review both the physical and data security policies
and procedures.
During the year the Audit Committee has continued its regular
review of the Company’s principal risks on behalf of the Board,
ensuring these are top of mind and relevant, and mitigation
plans are in place where possible. For 2020 the risk assessment
framework was further improved both by deepening the analysis
and the individual risk scoring of each risk as well as ensuring the
top down Board risk overview is complemented by a bottom up
senior leadership team review. Further details of the principal
risks and uncertainties faced by Keywords are identified on
pages 50 to 53.
Key accounting issues
During the year and as part of the year end procedures, the
Committee considered the following key financial and internal
control matters in relation to the Group’s financial statements
and disclosures with input from both management and the
external Auditor:
– Revenue recognition
– Functional reference currency
– Business combinations
– The valuation of goodwill and intangible assets
– Financial instruments
– Alternative performance measures and KPIs
– Segmental reporting
– Taxation
– Going concern
For further detail on these, see notes 2 and 3 of the financial
statements.
Annual Report and financial statements
The Board has asked the Committee to confirm that in its opinion
the Annual Report as a whole can be taken as fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group’s financial position, performance,
business model and strategy. In doing so the Committee has given
consideration to:
– The way the Strategic report (including the Chairman’s statement
and reports of the CEO and CFO) presents the Group and
its business, financial and business model and the metrics
management uses to measure performance;
– Whether suitable accounting policies have been adopted and
have challenged the robustness of significant management
judgements and estimates reflected in the financial results;
– The comprehensive control framework around the production
of the Annual Report, including the verification processes in
place to deal with the factual content;
– The extensive levels of review that are undertaken in the
production process, by both management and advisors; and
– The Group’s internal control environment.
The Group uses certain APMs to present its results. These are
non-GAAP measures but are designed to provide the users of the
financial statements with a better understanding of the underlying
trading performance of the business. An explanation of the APMs
and a reconciliation to the nearest statutory equivalent measure
is provided on pages 136 to 143.
As a result of the work performed, the Committee has concluded
that the Annual Report for the year ended 31 December 2020,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess
the Group’s performance, business model and strategy, and it
has reported on these findings to the Board.
Group policies
The individual Group policies are reviewed and monitored
regularly by the Audit Committee, and during 2020 Keywords
relaunched the Code of Business Conduct. The Code documents
the responsibilities to staff, business partners, shareholders and
the wider community and the standards expected in return. It is
translated into 12 languages and published on the Group website
(www.keywordsstudios.com), more details of which are provided in
the Responsible Business section on page 37. The following Group
policies are reviewed each year:
– Protected disclosures (whistleblowing) policy
– Grievance policy
– Business travel policy
– Anti-Bribery and Corruption
– Non-audit services policy
– Employment of former auditors policy
– Anti-tax evasion policy
– Delegation of Authority
Whistleblowing
During the year, the Audit Committee reviewed and reapproved
the whistleblowing policy and accompanying process the Group
has rolled out globally. The policy allows employees wherever
they are, to raise any concerns they may have about possible
financial or other irregularities confidentially. During 2020, no
whistleblowing disclosures were reported (2019: three, which
were fully investigated and satisfactorily resolved).
Governance Independence and non-audit fees
A non-audit services policy was established in 2018, and updated
during 2020, in line with the FRC ethical standards. Any non-audit
services are required to be pre-approved by the Audit Committee.
During the year BDO provided non-audit services to the Company
of €13,000 (2019: €12,000).
In order to fulfil the Committee’s responsibility regarding
independence of the Auditor, the Committee reviewed the senior
staffing of the audit, the Auditor’s arrangements concerning any
conflicts of interest, the extent of any non-audit services, the
fact that no per assurance letters former external auditors have
been employed in the business, and the Auditor’s independence
statement. The Committee was satisfied that the Auditor remains
independent.
Charlotta Ginman, FCA
Chair of the Audit Committee
24 March 2021
Audit Committee report continued
External Audit
Audit services
The Auditor is appointed by the shareholders to provide an opinion
on financial statements prepared by the Directors. BDO, the
Company’s current Auditor, was first appointed on 29 May 2013.
The BDO lead partner will rotate in 2021, and it is intended that the
audit will go to tender in 2022, in advance of the 10 year guideline,
to comply with best practice corporate governance and auditor
independence.
The scope of the current annual audit was agreed in advance
with the Committee with a focus on areas of audit risk and the
appropriate level of audit materiality. The Committee also had
discussions with the auditor on fees, internal controls, accounting
policies and areas of critical accounting estimates and judgements.
The auditor attends all meetings of the Audit Committee and
reported to the Audit Committee on the results of the audit work
and highlighted any issue which the audit work had discovered,
or the Committee had previously identified as significant or
material in the context of the financial statements.
There were no adverse matters brought to the Audit Committee’s
attention in respect of the 2020 audit, which were material or
significant or which should be brought to shareholders’ attention.
Effectiveness
The Audit Committee monitored and evaluated the effectiveness
of the Auditor under the current terms of appointment based
on an assessment of the Auditor’s performance, qualification,
knowledge, expertise and resources and in light of current
COVID-19 restrictions. The Auditor’s effectiveness was also
considered along with other factors such as audit planning and
interpretations of accounting standards and separate discussions
with Management (without the Auditor present) and with the
Auditor (without Management present). The Chair of the Audit
Committee also had discussions with the Audit partner outside
the formal meetings throughout the year.
The Committee was satisfied that the audit was effective and that
BDO continues to demonstrate the skills and experience needed
to fulfil its duties effectively.
Keywords Studios plc / Annual Report and Accounts 2020 62/63
Dear fellow shareholders
As Chairman of the Remuneration Committee, it is my pleasure
to present the Directors’ remuneration report for the period
ended 31 December 2020. Keywords Studios plc has chosen to
apply the Corporate Governance Code for Small and Mid-size
Quoted Companies published by the Quoted Companies Alliance.
The Company is currently AIM quoted and the Board recognises
the importance of shareholder transparency and standards of
governance. Therefore, this report contains all the information
required to be disclosed as an AIM quoted Company and also
contains some additional information that would be applicable
were the Company listed on the London Stock Exchange
main market.
We have operated a simple Executive Director remuneration
structure made up of base salary and pension, a bonus plan and
a Long Term Incentive Plan (“LTIP”) which provides a clear link
between pay and our key strategic priorities. Keywords offers a
pension consistent with that required by local legal requirements,
and the pensions offered to Executive Directors is the same as that
offered to the local workforce.
During 2020, the Remuneration Committee reviewed the pay
structure for the Executive Directors, with a particular focus
on how the package compares with companies of similar scale
and complexity to Keywords, taking into account Keywords’
very significant growth in recent years, particularly with regard
to the Company valuation which has increased from c.£150m
to c.£2bn over the last five years. Notwithstanding the fact
that the Committee fundamentally avoids using regular pay
benchmarking to adjust pay levels, we concluded that some
changes are required to help ensure fixed pay is consistent with
our philosophy of targeting salaries at the lower quartile of relevant
comparator groups, as it was evident from our benchmarking
(against three broad groups relevant to our talent market and
investor base, including the FTSE 250, UK Tech Companies and
Global Gaming Companies) that the Keywords CEO and CFO
salaries were materially (35% on average) lower than this target
position. Having considered the alternative approaches, the
Committee approved a one-off increase to Executive Directors’
cash salaries above the level which would normally be applied,
and the introduction of “salary shares”, an annual award of shares
vesting in one-third annual tranches over three years subject to
continued employment.
Our philosophy is based around using pay to reinforce long-term
decision making and alignment with shareholders, so we prefer to
reset the fixed pay through this combination of cash increases and
salary shares which inherently support our philosophy. Together,
these changes bring our current Executive Directors’ salaries in line
with our target position (market lower quartile). The Committee
recognises that shareholders generally prefer to avoid significant
fixed pay increases, and hence we have adopted this new structure
to be more aligned with shareholders in that half of the current gap
to market is closed with shares, rather than cash (also consistent
with the powerful alignment of pay with performance). The number
of salary shares granted annually going forward will vary based on
the share price at grant, and the assessed gap to market, but it is
the current intention that the value of these shares in future years
will be broadly the same as it is in 2021. The starting point will be to
deliver overall salaries (cash plus salary shares) at up to the market
lower quartile level for the CEO and CFO.
Directors’ remuneration report
David Reeves
Chair of the
Remuneration Committee
In order to improve the clarity of our policies and outcomes,
I have included a summary of Keywords’ main action points
in 2020 and 2021:
– No change to the strategic positioning of Executive Director
remuneration: salary (targeted at market lower quartile) plus
pension (where appropriate) plus modest bonus (capped at
maximum 30% of salary), with emphasis on LTIP awards (vesting
on Keywords’ relative TSR performance).
– CEO, CFO, and all NEDs took 20% salary/fee cuts April to July
2020 due to COVID-19.
– Executive Director salaries were assessed to have fallen
materially below 25th percentile versus peers; addressed in
2021 by a cash salary increase and the introduction of salary
shares vesting in 1/3 annual tranches. Salary shares do not
qualify for bonus, pension, or other basic salary-related rights.
– Major shareholders and proxy agencies briefed on salary
structure changes.
– New COO joined 18 January 2021 on cash salary of £295k
plus £10k salary shares; also awarded 25,000 LTIP shares
as compensation for incentives lapsing from previous
employment.
– The Remuneration Committee has recommended, in agreement
with the CEO and CFO, that bonuses earned for CEO and CFO
will not be paid.
– Bonuses for 2021 for CEO and CFO to be based on clear
Financial targets and Non-Financial objectives.
– LTIP awards granted in 2020 at £16.00, with vesting based on
TSR vs FTSE Small Cap index.
– LTIP grant value not affected by the 2021 salary increases or
salary shares, and windfall gains avoided, as based on a fixed
number of shares. Remuneration Committee to take into
account the share price at grant when determining the number
of shares to be granted.
– LTIPs in 2021 to vest on three-year relative TSR performance
vs the FTSE 250 (excl. investment trusts) with vesting of 25%
at median TSR and full vesting at 20% outperformance.
– New global employee share-save scheme starts 2021.
– NED fees subject to 3% increase in 2021 following freeze in 2020
plus introduction of fees for membership of new Responsible
Business Committee.
– CEO’s single figure of total remuneration disclosed 2013–2020.
– CEO pay ratio disclosed. Reduction in ratio 2019 to 2020. CEO
took 20% reduction in salary April to July during COVID-19.
– NED base fees and Committee membership fees disclosed.
– Directors’ interest in shares disclosed.
– LTIPs exercised by Executive Directors disclosed.
– US$500,000 hardship fund set up to support any COVID-19
affected employees.
Governance Directors’ remuneration report continued
The Committee will use its discretion to determine whether this
default is appropriate, taking into account the circumstances of
the individual executive and how the market data has moved. For
example, if there is a material increase in the market data then the
Committee will consider the appropriate timing for any increases
to the salary share component, based on the circumstances at
that time. The Committee recognises the general market backdrop
around the impact of COVID-19 on companies’ share prices and the
need to avoid windfall gains if prices have declined significantly, and
will take necessary action as required, including a reduction in the
number of salary shares at grant if deemed appropriate. The salary
share component will not impact the value of cash bonuses or LTIP
award levels as LTIP awards are based broadly on fixed number of
shares, and are therefore not affected by salary increases.
On behalf of the Committee, I discussed these revisions with
several of Keywords’ largest shareholders and relevant proxy
agencies, and took into account the feedback from these
meetings in finalising the details of the changes. We thank those
shareholders who contributed to this exercise for their time and
feedback which was useful in shaping the design. No other changes
are intended in relation to the implementation of our Executive
Director remuneration policy in 2021.
The Group delivered a very strong performance in 2020 with
good growth in revenue and profit and strong cash generation
despite the disruption caused by the COVID-19 pandemic. The
performance reflects both the resilience of the Group and the
team’s hard work and agility to continue to deliver to our customers
whilst dealing with the unprecedented COVID-19 production
constraints with the majority of our ~9,000 people transitioning
to remote working at some time during the year. Following the
well-supported €110m placing in May the Group also delivered
eight high quality acquisitions in Australia, the US, the UK and Italy,
further strengthening the breadth and depth of the Group’s value-
added services offered to our global video games clients.
Where we were not able to provide work for all our colleagues,
particularly in the earlier months of the pandemic, we were
fortunate in being able to help them access enhanced
unemployment benefits in various territories in which we operate
while they were temporarily laid off, and we are pleased to have
been able to bring the vast majority of our people back to work.
In addition, we established our own US$500,000 hardship fund
to support those experiencing more acute financial issues as a
result of COVID-19. During 2020, our studios implemented various
local initiatives to help colleagues feel connected, engaged and
appreciated while working from home. Gift packs, online social
events, access to wellbeing counselling and the provision of
helplines are just some of these many initiatives.
Bonuses for the 2020 financial year were based on a scorecard
of financial (70% weighting) and non-financial measures (30%).
The outcome as determined by the Committee would have
generated bonuses of c.26% of salary for the CEO and CFO.
However, given the general backdrop of the global pandemic, the
Committee, in agreement with the CEO and CFO, considered it
appropriate that no bonuses be paid to the Executive Directors.
We are delighted Sonia Sedler has joined Keywords as Chief
Operating Officer in January 2021. Sonia’s pay is consistent with
the remuneration policy for Executive Directors, with a cash
salary of £295,000, salary shares of £10k, pension of 5% of salary,
a maximum bonus of 30% of salary, and an annual LTIP award
of 35,000 shares. Sonia was also granted a one-off LTIP award
of 25,000 shares in compensation for the incentive awards she
has forfeited on joining Keywords, the value of which is based
on the expected outcomes of the awards forfeited.
The Committee reviewed the LTIP TSR comparison approach in
early 2021 and approved a change to the TSR benchmark for future
cycles to take into account the current size of Keywords (which
at the start of 2021 is equivalent to FTSE 180) to be the FTSE 250
(excluding investment trusts).
Equity ownership across all organisational levels is important to
the philosophy of pay at Keywords, and during 2021, Keywords will
be introducing a new all-employee share-save scheme which will
enable staff at all levels to purchase Keywords shares, in common
with the arrangements used at many of our peers. The Committee
will continue in 2021 to keep the remuneration policy and its
execution under review to ensure it delivers pay which is consistent
with the shareholder experience and our strategic objectives,
particularly in light of the continuing COVID-19 pandemic.
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.
Dr David Reeves
Chair of the Remuneration Committee
24 March 2021
Keywords Studios plc / Annual Report and Accounts 2020
64/65
Executive Directors’ remuneration at a glance
The following is a summary of the key components of Keywords’ Executive Director remuneration, including changes and implementation
in the financial year.
Element
Salary
Remuneration in 2020
Remuneration in 2021
With effect from 1 March 2020:
CEO: £244,800 (2% increase)
CFO: £204,000 (2% increase)
With effect from 1 March 2021:
CEO: £325,000 (33% increase)
CFO: £245,000 (20% increase)
COO: £295,000
Salary shares
n/a
Shares will be granted with the following values:
CEO: £75,000
CFO: £40,000
COO: £10,000
Pension
CEO: 3% of salary
CFO: 5% of salary
No change for the CEO and CFO
COO: 5% of salary
Annual bonus
Maximum opportunity of 30% of salary based on:
No change to opportunity or measures
Financial targets including turnover and profitability
(weighted 70%)
Discretionary individual performance (weighted 30%)
The Committee determined 2020 performance
warranted bonuses of c.26% of salary, but discretion
was applied to reduce the bonuses to zero after
taking into account the general backdrop of the
pandemic
50,000 and 25,000 LTIPs granted to the CEO
and CFO respectively.
Three-year performance period
Vesting based on Total Shareholder Return
performance against FTSE Small Cap Index
LTIP
The Remuneration Committee intends to make
LTIP awards in line with previous years to the CEO
and CFO respectively, with an award of 35,000
shares intended also for the COO who will also be
granted a one-off LTIP award over 25,000 shares
in compensation for the incentive awards she has
forfeited on joining Keywords
Governance Directors’ remuneration report continued
Section 1: Directors’ remuneration policy
Policy and principles
The Remuneration Committee determines the Company’s policy on
the structure of the remuneration for Executive Directors and the
Senior Management Team (“SMT”) and is responsible for governing
the remuneration policy for the broader employee population.
The objectives of this policy are to:
– Reward Executive Directors and the SMT in a manner that
ensures they are properly incentivised and motivated to perform
in the best interests of shareholders.
– Provide a level of remuneration required to attract and motivate
high-calibre Executive Directors and SMT members.
– Encourage value creation through consistent and transparent
alignment of incentive arrangements with the agreed Company
strategy over the long term.
– Ensure the total remuneration packages awarded to Executive
Directors and SMT members, comprising both performance-
related and non-performance-related remuneration, are
designed to motivate the individual, align interests with
shareholders and comply with corporate governance best
practices.
The Board and the Remuneration Committee believe the foregoing
objectives are best achieved by a remuneration structure whereby:
– Basic pay is targeted at the lower quartile of relevant comparator
groups albeit sufficient for the challenges and pressures of
the role; from 2021, awards of Salary Shares used to ensure
target position is achieved in a structure which is aligned with
shareholders;
– Annual bonuses are set at modest levels with a maximum of 30%
of salary on the premise that an annual bonus should not unduly
encourage short-term behaviour or commitment of a senior
Executive (this does not apply to sales executives); and
– Long-term incentives are the means by which executives can
earn significant rewards if, but only if, shareholders likewise have
obtained a good return.
Remuneration components for Executive Directors
and SMT (the “Executives”)
Various remuneration components are combined to ensure an
appropriate and balanced remuneration package which reflects
the size and complexity of the Group, the Executive’s experience,
responsibility and position, as well as market practice. For this,
the Remuneration Committee takes into account the performance
of the individual, comparisons with peer companies and, where
considered appropriate, reports from external independent
consultants.
The remuneration package comprises the following elements:
– Fixed remuneration (basic salary and, from 2021, salary shares,
and for some Executives, pension)
– Performance-based remuneration (annual bonus capped at 30%
of salary and LTIP)
During 2020, the Remuneration Committee reviewed the pay
structure for the Executive Directors, with a particular focus
on how the package compares with companies of similar scale
and complexity to Keywords, taking into account Keywords’ very
significant growth in recent years. The Committee concluded
that some changes were required to help ensure fixed pay is
consistent with our philosophy of targeting salaries at the lower
quartile of relevant comparator groups, as it was evident from
our benchmarking that the Keywords CEO and CFO salaries were
significantly lower than this target position. Having considered the
alternative approaches, the Committee approved a change to the
previous policy, to include the introduction of ‘salary shares’, an
annual award of shares vesting in one-third annual tranches over
three years subject to continued employment. No other changes
have been made to the Policy.
Purpose and link to Strategy
Operation
Opportunity
Performance measures
Base salary
To attract and retain talented
Executives to deliver the
Group’s strategy, by ensuring
base salaries and the implied
total package are competitive
in relevant talent markets,
while not overpaying.
Base salaries are reviewed by
the Committee annually, and
benchmarked periodically against
comparable roles at comparable
companies of similar size and
complexity.
Paid in cash.
Salaries are set on a case-by-
case basis to reflect the role, the
experience and qualifications of the
individual, and are targeted at below
market median.
n/a
Base salary increases for the
Executives take into account personal
performance, Group performance,
significant changes in responsibilities,
the average increase awarded to the
wider workforce, and competitive
market practice.
Keywords Studios plc / Annual Report and Accounts 2020 66/67
Purpose and link to Strategy
Operation
Opportunity
Performance measures
Salary shares
To supplement the base
salary to ensure fixed pay is
competitive in relevant talent
markets, and is structured to
align with shareholders.
Annual awards of shares, the
vesting of which is subject to
continued employment over
three years, with annual one-third
vesting.
Set at a level which helps ensure
an Executive’s fixed pay is around
the lower quartile of relevant
benchmarks.
n/a
Salary shares are not bonusable
nor pensionable (both of which are
based only on base salary).
Malus provisions apply in certain
circumstances.
It is anticipated the value in any
one financial year will not exceed
£120,000 on an individual basis,
but this level may be exceeded
based on the Committee’s regular
review of market pay levels.
Pension and benefits
To provide an appropriate
structure and level of
post-retirement benefit for
Executives in a cost-efficient
manner that reflects local
market norms in the relevant
jurisdiction.
Annual bonus
To provide a modest award
where individual and Company
performance have been at or
above expected levels.
At the discretion of the
Remuneration Committee, the
Executives may participate in
a pension scheme facilitated
by the Company.
The Company also provides access
to Group benefit schemes where
appropriate by region which may
include moderate contribution
towards private health insurance,
death in service cover and other
Group based benefits.
n/a
The Company provides access to
pension schemes based on local legal
requirements or where expected by
local labour markets. Contributions
meet the minimum requirements
or are of a modest level.
Basic additional benefits may also be
provided where available and where
considered the norm for managerial
positions in similar businesses.
Up to a maximum of 30% of salary.
Executives are eligible to
participate in an annual bonus
scheme.
The Remuneration Committee
reviews targets and the weighting
of performance measures each
year. The Company also offers
commission arrangements for
Executives in sales roles.
LTIP
To incentivise delivery against
total shareholder return
targets and align the interests
of Executives and shareholders
in growing the value of the
Group over the long term.
LTIP grants are made annually
in the form of conditional awards
of shares or nil-cost share options
which vest subject to performance
conditions measured over three
years. Once vested, awards may
be exercised for a period of up
to seven years from grant.
Malus provisions apply in certain
circumstances.
LTIP awards are granted as a number
of shares, which is subject to periodic
review by the Committee to ensure
the level is appropriate (as evidenced
through the reduction in the LTIP
shares granted to the CEO over
the last several cycles).
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 typically
weighted 70% on the Company’s financial
performance and 30% on personal
performance (however, if the Company’s
financial performance is considered to
be unsatisfactory, the element based
on personal performance is likely to be
foregone or reduced).
Vesting of the LTIP is subject to
continued employment during the
performance period and the achievement
of performance conditions based on
Total Shareholder Return (“TSR”).
The Committee has the power of
discretion to adjust the outcome in
exceptional circumstances so that it
is a fair reflection of the underlying
performance of the Group. Further
details, including the performance targets
attached to the LTIP in respect of each
year will be disclosed in the relevant
implementation report on remuneration
(subject to these being considered not
to be commercially sensitive).
Governance Directors’ remuneration report continued
Section 1: Directors’ remuneration policy continued
Executive Director shareholding guidelines
Executive Directors are encouraged to build and maintain over time a shareholding in the Company with a value equivalent to at least
100% of their base salary to be met through the retention of vested LTIP shares. Details of the Executive Directors’ current shareholdings
are provided on page 75.
Malus policy
Malus may be applied to LTIP awards in cases of fraud, dishonesty or deceit, gross misconduct or material financial misstatement
in the audited financial results of the Group. The Remuneration Committee may determine that an award is cancelled in its entirety
or be reduced to the extent they see fit.
Use of discretion
The Remuneration Committee may apply its discretion when agreeing remuneration outcomes, to help ensure that the implementation
of our remuneration policy is consistent with underlying Company performance and is equitable to all parties.
Process for determining the remuneration policy
The Remuneration Committee periodically, typically annually, reviews the remuneration policy to ensure it reflects, if appropriate, trends
in remuneration design and governance developments, taking into account market practices, best practices, and revisions to the pay
guidelines published by major investors and their representative bodies. In approving any changes to the policy, the Committee considers
the impact on individual Executive Directors and as well as the consistency of pay structures and levels throughout the organisation.
The Committee uses specific pay benchmarking studies, when relevant, to ensure Keywords’ remuneration levels are positioned at the
appropriate level. If major changes are considered for Executive Director remuneration, the Committee will undertake a consultation
of major shareholders and relevant proxy agencies to ensure their feedback is taken into account before implementation.
Executive Director service contracts
In accordance with general market practice, each of the Executive Directors has a rolling service contract. The following table shows the
date of the service contract for each Executive Director in post for 2021:
Executive Director
Position
Date of appointment
Date of service agreement
Notice period
Andrew Day
Jon Hauck
Sonia Sedler
CEO
CFO
COO
1 Apr 2009
14 Oct 2019
18 Jan 2021
21 Jun 2013
30 Sep 2019
7 Dec 2020
6 months
6 months
6 months
Remuneration for the wider workforce
The remuneration policy for other employees is based on principles consistent with those that are applied to Executive remuneration,
with the common objective of driving financial performance and the achievement of strategic objectives and contributing to the long-
term success of the Group. Remuneration supports our ability to attract, motivate and retain skilled and dedicated individuals whose
contribution continues to be a key factor in the Group’s success.
Annual salary reviews take into account Company performance, local pay and market conditions plus salary levels for similar roles in
comparable companies. Some employees below Executive level are eligible to participate in annual bonus schemes; opportunities and
performance measures may vary by organisational level, geographical region and an individual’s role. An annual survey is conducted to
ensure gender equality as it relates to employee compensation.
The Group complies with equal pay directives across all its locations, conducting periodic assessments and analysis. The Board is satisfied
that there is equal pay given location and roles. In particular, the Board of Directors discussed the results of the latest UK Gender Pay Gap
analysis in December 2020 and noted the reduction in gaps from 2019 for mean and median hourly pay.
Employee Stock Option Plans (LTIPs and Stock Options) are used for senior permanent members of staff, in which approximately 10%
of the workforce participate (3.3% in the LTIP and 6.7% in Stock Options). The focus of the ESOPs is to retain talent and create long-term
shareholder value consistent with fulfilment of the Company’s long-term strategic goals.
During 2020, the Committee reviewed how share ownership could be further enhanced throughout the organisation. In 2021, Keywords
will be introducing a new all-employee share-save plan which will enable staff at all levels to purchase Keywords shares, in common with
the arrangements used at many of our peers.
External appointments held by Executives
Executives may not accept any external appointment without the consent of the Board.
Consideration of shareholder views
The Remuneration Committee took into consideration major shareholder views, and those of their representative agencies, during the year
and will further do so at the AGM, in shaping the Company’s implementation of its Remuneration Policy as well as the changes to the Policy.
Keywords Studios plc / Annual Report and Accounts 2020 68/69
Leaver treatment
Fair treatment will be extended to departing Executives. The Group’s policy on termination payments is to consider the circumstances
on a case-by-case basis, taking into account the relevant contractual terms in the Executive’s service contract and the circumstances
of termination.
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 unvested LTIP shares including Salary shares.
At the Remuneration Committee’s discretion good leavers (normally including such circumstances as retirement, death, disability and
redundancy) may be allowed to exercise a proportion of unvested LTIPs and Salary shares in the 12 months post-termination when,
or to the extent that, the performance criteria for vesting, are met.
On a change of control, unvested LTIP awards and Salary shares may be exercised at the time of the event subject to the rules of Keywords
Studios plc Long Term Incentive Plan.
Pay for performance scenario analysis
The charts below provide an estimate of the potential future reward opportunities for the Executive Directors, and the potential split
between the different elements of remuneration under four different performance scenarios: “Minimum”, “On-target”, “Maximum”
and “Maximum +50% (share price appreciation)”. These charts illustrate how performance-orientated and long-term the Company’s
remuneration arrangements are, with the majority of the remuneration opportunity being delivered only under the “Maximum” scenarios.
We have also included a bar showing the value of the actual package paid for 2020, the fixed pay of which is below the “Minimum” scenario
due to the four-month salary reduction during 2020.
Potential reward opportunities are based on the Remuneration Policy, applied to 2021 base salaries and incentive opportunities. Note that
the LTIP awards granted in a year will not normally vest until the third anniversary of the date of grant, and the projected value excludes
the impact of share price movement except in the “Maximum +50%” scenario.
CEO
Actual 2020
Minimum
On-target
Maximum
CFO
Actual 2020
Minimum
On-target
Maximum
2021
scenarios
2021
scenarios
Maximum + 50%
Maximum + 50%
0
500
1,000
1,500
2,000
(£’000)
0
250
500
750
1,000
1,250
(£’000)
COO
Actual 2020
Minimum
On-target
Maximum
Maximum + 50%
Assumptions:
2021
scenarios
Fixed pay
Bonus
LTIP
0
500
1,000
1,500
(£’000)
“Actual 2020”: Fixed remuneration (2020 base salary, pension), bonus paid for 2020 and LTIP vesting in 2020.
“Minimum”: Fixed remuneration only (2021 base salary, salary shares, pension).
“On-target”: Fixed remuneration as above, plus target bonus (18% of base salary) and threshold LTIP vesting (10% of maximum) at the three-month average share price
to 31 December 2020 (of £23.05).
“Maximum”: Fixed remuneration, plus maximum bonus (30% of salary) and full vesting of proposed 2021 LTIP awards at three-month average share price to 31 December 2020.
“Maximum+50%”: As per Maximum scenario but with an assumption of share price growth of 50% over the three-year performance period for LTIP awards.
Non-Executive Director fee policy
Non-Executive Directors receive fees for attendance at Board meetings and its sub-committees. The Company does not operate
any pension scheme for Non-Executive Directors nor do they participate in any variable pay plan. Any reasonable business expenses
(including tax thereon) may be reimbursed.
Governance Directors’ remuneration report continued
Section 2: Implementation of the remuneration policy in 2020
The Remuneration Committee
The members of the Remuneration Committee in 2020 were David Reeves (Committee Chairman), Charlotta Ginman and Ross Graham.
The members are all Independent Non-Executive Directors. In the year ended 31 December 2020, the Remuneration Committee met on
eight occasions. All three members of the Committee attended the Committee meetings throughout the year together with, on occasion,
the CEO, the CFO, the COO and the Global HR Director, all at the request of the Committee Chairman.
The Company Chairman and the Chairman of the Remuneration Committee also met with key investors and relevant proxy agencies in
2020 to obtain input and feedback on Executive and Company-wide remuneration.
The remit of the Committee is to determine and agree with the Board the framework for the remuneration of the Company Chairman (Ross
Graham is not involved in related discussions), Executive Directors, Company Secretary and other members of the Senior Management of
the Group, and also oversee the remuneration policy for the wider workforce. No Director is involved in any discussion or decision about
his or her own remuneration.
Mercer Kepler supported the Remuneration Committee on remuneration related matters in 2020. Following the lead advisor leaving to join
Ellason LLP, the Committee appointed Ellason LLP to provide independent advice to the Committee from 1 January 2021. Mercer Kepler
and Ellason are members of the Remuneration Consultants’ Group and, as such, voluntarily operate under the Code of Conduct in relation
to Executive remuneration consulting in the UK. Mercer Kepler and Ellason LLP do not have any other association with the Company and
are considered independent by the Committee.
Directors’ emoluments
The remuneration for the Directors of the Company for the period year ended 31 December 2020 is detailed in the table below:
2020 Fixed pay £’000
2020 Variable pay £’000
2020 Total remuneration
Salary/fee1
Benefits
Pension
Total
Bonus
7
10
235
200
84
63
45
48
59
LTIP2
777
Total
777
£’000
1,012
200
84
63
45
48
59
17
734
777
777
1,511
1.
2.
The Directors took a 20% reduction in salary for April to July related to the COVID-19 crisis.
Based on share price vesting date of 15 May 2020 @£14.95 for 52,000 LTIPs.
The remuneration for the Directors of the Company for the period year ended 31 December 2019 is detailed in the table below:
2019 Fixed pay £’000
2019 Variable pay £’000
2019 Total remuneration
Salary/fee
Benefits
Pension
Director
Andrew Day
Jon Hauck
Ross Graham
David Reeves
Giorgio Guastalla
Georges Fornay
Charlotta Ginman
TOTAL
Director
Andrew Day
Jon Hauck
Ross Graham
David Reeves
Giorgio Guastalla
Georges Fornay
Charlotta Ginman
TOTAL
228
190
84
63
45
48
59
717
234
50
92
68
48
51
63
606
2
3
Bonus
6
LTIP
962
Total
962
6
Total
236
53
92
68
48
51
63
£’000
1,198
59
92
68
48
51
63
5
611
6
962
968
1,579
Keywords Studios plc / Annual Report and Accounts 2020 70/71
Annual bonus outcome for 2020
During 2020, the Executive Directors participated in the annual bonus scheme, and were eligible to earn awards of up to 30% of salary,
subject to the attainment of specific targets set for each individual. The portion of bonus earned in the year was dependent on Company
performance (weighted 70%) against financial targets for the year in line with our financial KPIs (see pages 24 and 25) and on the
Remuneration Committee’s discretionary assessment of each individual’s performance (weighted 30%).
The financial targets were based on Revenue (weighted 25% of total bonus), PBT (25%), Gross Contribution (15%), and Adjusted Cash
Conversion (5%). Performance against the targets set for the year was assessed by the Committee, and the Committee determined that
full-vesting of the financial component was warranted. The targets are not disclosed due to commercial sensitivities.
The discretionary element takes into account the Director’s performance for the year against non-financial targets, under various
categories.
– The CEO’s 2020 non-financial objectives included four categories, each weighted 7.5% of the overall bonus opportunity, including
Organisational Development, Global Operating Systems, Client & Investor Relations, and M&A. The Committee assessed the CEO’s
achievement at 18% out of 30%.
– The CFO’s 2020 non-financial objectives included five categories, each weighted 6% of the overall bonus opportunity, including
Management Accounts, ESG (Environment, Society, Governance), Internal Control Framework, Treasury Management Function, and
Financial Systems. The Committee assessed the CFO’s achievement at 15% out of 30%.
The outcome against the targets set for the year would have generated bonuses of 26.4% and 25.5% of salary for the CEO and CFO
respectively. However, given the general backdrop of the global pandemic, the Committee, in agreement with the CEO and CFO, considered
it appropriate that no bonuses be paid to the Executive Directors.
Director
Andrew Day
Jon Hauck
Bonus 2020 formulaic outcome
Outcome after application of discretion
Bonus for 2020
26.4% of salary
25.5% of salary
0% of salary
0% of salary
£nil
£nil
Long-term incentives vesting in 2020
In May 2017, Andrew Day was granted an LTIP award over 52,000 shares, the vesting of which was based on the Company’s TSR
performance versus the Numis Smaller Companies (excluding Investment Trusts) Index over the three-year period ending on 15 May 2020.
The full vesting of the awards required Keywords TSR to outperform the Numis Smaller Companies (excluding Investment Trusts) Index
over the performance period by 45%. The Company’s TSR performance over this period significantly outperformed that of the Index (by
105.2%) resulting in full vesting of these awards in 2020.
Other long-term incentives outstanding during 2020
LTIP awards granted to the Executive Directors in May 2018, May 2019 and September 2019 remained outstanding during 2020.
The full vesting of the 2018 awards requires Keywords TSR to outperform the Numis Smaller Companies (excluding Investment Trusts)
Index over the three-year period by 20%. Based on performance up to 31 December 2020, these awards would fully vest.
Vesting of the 2019 awards requires Keywords TSR to outperform the FTSE Small Cap Index over a three-year period. Threshold vesting
(10% of the award) will be earned for TSR in line with the Index and full vesting will be earned for exceeding the Index TSR by 20% over the
performance period. Based on performance up to 31 December 2020, these awards would fully vest (see TSR performance chart next
page).
Long-term incentives granted during 2020
In 2020, the Executive Directors were awarded LTIPs, the vesting of which is based on the Company’s TSR performance versus the FTSE
Small Cap Index over a three-year performance period. Threshold vesting (10% of the award) will be earned for TSR in line with the Index
and full vesting will be earned for exceeding the Index TSR by 20% over the performance period.
The number of shares granted to the Executive Directors is summarised in the table below.
Director
Andrew Day
Jon Hauck
Number of shares
Value as % of salary
Performance period
50,000
25,000
325%
195%
1 May 2020 – 30 April 2023
1 May 2020 – 30 April 2023
Vest date
1 May 2023
1 May 2023
Governance Directors’ remuneration report continued
Section 2: Implementation of the remuneration policy in 2020 continued
The 2020 awards were granted at a share price of £16.00 (note 17). Based on performance up to 31 December 2020, these awards would
fully vest (see chart below).
TSR performance up to 31 December 2020, in-flight LTIP awards
2018 – 2021 LTIP
2019 – 2022 LTIP
(May grant)
2019 – 2022 LTIP
(Sept grant)
2020 – 2023 LTIP
NSCI ex. Inv Trusts: -3.4%
Keywords: 38.5%
FTSE Small Cap: 8%
Keywords: 91.5%
FTSE Small Cap: 6.6%
Keywords: 52.5%
FTSE Small Cap: 15.9%
Keywords: 57.9%
-20%
0%
20%
40%
60%
80%
100%
TSR performance
The charts below show (i) the Company’s TSR since listing versus the FTSE Small Cap and Numis Smaller Companies indices, and (ii) the
shareholder value created each financial year based on share price growth and dividends paid.
Value of £100 invested in July 2013
£2,500
£2,000
£1,500
£1,000
£500
£0
July
2013
December
2013
December
2014
December
2015
December
2016
December
2017
December
2018
December
2019
December
2020
Keywords Studios PLC
FTSE Small Capitalisation Index
NSCX Including Investment Trusts Capital Gains
Keywords Studios plc / Annual Report and Accounts 2020 Shareholder value created each year, £m
72/73
1,200
1,000
800
600
400
200
–
-200
-400
-600
2014
2015
2016
2017
2019
2020
2018
Note: Shareholder value created each year is based on the change in share price plus dividends paid over each financial year multiplied by the number
of shares outstanding at the start of each year.
The table below illustrates the CEO’s single figure of total remuneration over the same period as the charts above.
Single figure (£’000)
Annual bonus outcome (% of max)
LTIP vesting (% of max)
SOP vesting (% of max)
FY13
52
N/A
N/A
N/A
FY14
146
100%
N/A
N/A
FY15
213
100%
N/A
100%
FY16
449
100%
100%
100%
FY17
397
100%
N/A
100%
FY18
820
30%
100%
N/A
FY19
1,198
0%
100%
N/A
FY20
1,012
0%
100%
N/A
Chief Executive Officer pay ratio
The table below provides disclosure of the ratio between the CEO’s total remuneration and that of the lower quartile, median and upper
quartile of our 458 (2019: 380) UK-based employees.
Methodology used
P25 (lower quartile)
P50 (median)
P75 (upper quartile)
Option A
Option A
33:1
38:1
25:1
30:1
Salary (£’000)
Total remuneration (£’000)
2019
Salary (£’000)
Total remuneration (£’000)
P25 (lower quartile)
P50 (median)
P75 (upper quartile)
27
31
26
32
35
40
35
41
50
57
50
57
18:1
21:1
CEO
228
1012
240
1198
Year
2020
2019
Year
2020
Governance Directors’ remuneration report continued
Section 2: Implementation of the remuneration policy in 2020 continued
The lower, median and upper quartile employees were determined using calculation methodology A which involved calculating the actual
full-time equivalent remuneration for all UK employees for the year ended 31 December 2020. From this analysis, three employees were
then identified as representing the 25th, 50th and 75th percentile of the UK employee population. Keywords chose this method as it is the
preferred approach of the Government and that of shareholders, and the Company had the systems in place to undertake this method.
As the drafting of this report was earlier than the final determination of bonuses for the wider population, the bonus outcomes have been
based on the financial forecasts in December 2020.
The reduction in the ratio between 2019 and 2020 is a result of Andrew Day taking a reduction in salary during April to July related to the
COVID-19 crisis, and an increasing proportion of higher paid engineering and marketing service staff among our UK employees.
The CEO pay ratio is based on comparing the CEO’s pay to that of Keywords’ UK-based workforce, a large proportion of whom are
engineers, artists, and support staff. The Committee expects that the ratios will be largely driven by the CEO’s incentive pay outcomes,
which will likely lead to greater variability in his pay than that observed at lower levels who, consistent with market practices, have a greater
proportion of their pay linked to fixed components. The Committee takes into account these ratios when making decisions around the
Executive Director pay packages, and Keywords takes seriously the need to ensure competitive pay packages across the organisation.
Annual percentage change in remuneration of Directors compared to employees
The table below shows the percentage change in salary, taxable benefits and annual bonus set out in the single figure of remuneration
tables paid to each Director in respect of the 2019 and 2020 financial years compared to that of the average pay of all employees
of the Group.
Director
Andrew Day
Jon Hauck*
Ross Graham
David Reeves
Giorgio Guastalla
Georges Fornay
Charlotta Ginman
Average all employees
Salary/fees
% change
Benefits
% change
Annual bonus
% change
-2.6%
-5.0%
-6.7%
-6.7%
-6.7%
-6.7%
-6.7%
3.0%
0%
0%
N/A
N/A
N/A
N/A
N/A
0%
N/A**
-100%
N/A
N/A
N/A
N/A
N/A
3.0%
The reduction reflects the Directors taking a reduction of 20% during the first four months of the COVID-19 crisis.
*
Jon Hauck’s 2019 salary was only from his joining date and is prorated for 2019 comparison. He also took a 20% reduction from April to July 2020.
** Andrew Day, in addition to taking the four-month salary reduction, waived his bonus for 2019.
Implementation of the remuneration policy in 2021
Salary
With effect from 1 March 2021, base salary increases of 33% and 20% have been awarded to the CEO and CFO respectively, such that their
2021 base salaries will be £325,000 and £245,000 respectively. On her appointment to the Board in January, the COO’s base salary will be
£295,000.
Salary shares
In line with the changes implemented to the Remuneration Policy in 2021, the Executive Directors will be granted awards of Salary shares
at the same time as LTIP awards are granted. The number of Salary shares will be based on the share price at the time of grant, and will
be based on grant values intended to ensure total salaries (base salary plus salary shares) are consistent with our targeted remuneration
position, which will mean Salary share awards over the following amounts in 2021: CEO £75,000, CFO £40,000, COO £10,000. Awards will
vest in one-third annual tranches over three years and be subject to continued employment over this period.
Pension
The Executive Directors’ pensions remain unchanged at 3% and 5% of salary for the CEO and CFO respectively. On her appointment to the
Board, the COO will receive a pension of 5% of salary.
Annual bonus
The Executive Directors will be eligible to earn an annual bonus of up to 30% of salary in line with previous years. The outcome will be
determined with reference to targets set at the start of 2021 around financial performance (revenue and profit, weighted 70%) and
personal performance (weighted 30%).
Keywords Studios plc / Annual Report and Accounts 2020 74/75
LTIP
The Remuneration Committee intends to make awards under the LTIP to the Executive Directors in line with previous years, with vesting
based on the Company’s three-year TSR performance versus the FTSE 250 (excluding investment trusts) index, with threshold vesting
(25% of the award) for TSR in line with the Index and full vesting for exceeding the Index TSR by 20% over the performance period. The
Committee reviewed the TSR comparison approach in early 2021 and approved a change to the TSR benchmark to take into account the
current size of Keywords (which at the start of 2021 is equivalent to FTSE 180). The COO will receive an LTIP award of 35,000 shares.
Appointment of Chief Operating Officer
Sonia Sedler joined the Board on 18 January 2021. The remuneration package for the COO is as described above. She will also be granted
a one-off LTIP award of 25,000 shares in compensation for the incentive awards she is forfeiting on joining Keywords, the value of which
is based on the expected outcomes of the awards forfeited. This one-off award will vest according to Keywords relative TSR performance,
in line with other LTIP awards granted in 2021.
Non-Executive Directors’ remuneration
Non-Executive Director fees are based on the roles and responsibilities of the Directors (see table below). The base fees have been
increased by c.3% for the Non-Executive Directors in 2021 to reflect the increased scale of the business and the consequent increased
time requirement of the Directors.
Role
Board Chairman
Senior Independent Director fee
Non-Executive Director basic fee
Additional fees:
Chairman of the Audit Committee
Chairman of the Remuneration Committee
Chairman of the Responsible Business Committee
Member of:
Audit Committee
Remuneration Committee
Responsible Business Committee
Total
Ross
Graham*
£93,000
David
Reeves
Giorgio
Guastalla
Charlotta
Ginman
Georges
Fornay
£5,000
£49,500
£49,500
£49,500
£49,500
£12,000
£3,000
£12,000
£12,000
£3,000
£3,000
£3,000
£93,000
£69,500
£52,500
£64,500
£64,500
*
Ross Graham receives no additional fees on top of his Board Chairman fee for his membership of the sub-committees.
Directors’ interest in shares
The interests of each person who was a Director of the Company (together with interests held by his or her connected persons) were:
Andrew Day
Giorgio Guastalla1
Ross Graham
David Reeves
Georges Fornay
Charlotta Ginman
1
Giorgio Guastalla’s indirect shareholding arises out of his 90% holding in P.E.Q. Holdings Limited.
At 31 Dec 20
At 31 Dec 19
3,296,573
3,150,662
59,819
33,089
6,521
1,733
3,296,573
3,150,662
58,440
32,400
5,142
1,733
6,548,397
6,544,950
Governance Directors’ remuneration report continued
Section 2: Implementation of the remuneration policy in 2020 continued
The outstanding LTIP and Option awards held by each Executive Director of the Company are as follows.
LTIP
During the year, Andrew Day exercised the LTIP awards granted to him in 2013 as they had reached the end of their exercise period (seven
years from grant).
Number at
31 December
2019
Number
granted
during
the year
Number
vesting
during
the year
Number
lapsed/
forfeited
during the
year
Andrew Day
86,593
35,000
60,000
52,000
50,000
50,000
–
–
–
–
–
–
–
50,000
25,000
43,936
–
402,529
–
–
25,000
75,000
Jon Hauck
Total
*
Awards have vested.
–
–
–
52,000
–
–
–
–
–
–
52,000
–
–
–
–
–
–
–
–
–
–
–
Number
exercised
during the
year
86,593
Number at
31 December
2020
–
Vesting
date
Current
vesting
expectation**
–
–
–
–
–
–
–
–
–
35,000
1 Jun 2018*
60,000 10 May 2019*
52,000 15 May 2020*
50,000
18 May 2021
50,000
3 May 2022
50,000
1 May 2023
25,000 30 Sept 2022
43,936 30 Sept 2022
25,000
1 May 2023
86,593
390,936
100%
100%
100%
100%
100%
100%
** Vesting expectation (% of award) is based on the achievement of the TSR performance condition up to 31 December 2020.
On 3 June 2020 Andrew Day exercised 86,593 options dating from the time of the Company’s IPO in 2013, at a price of £17.70. The exercise
price of these options, granted under the LTIP, was 1p each.
Keywords Studios plc / Annual Report and Accounts 2020 76/77
The unvested LTIP awards in the table above vest according to Keywords TSR performance vs the Numis Smaller Companies (excluding
Investment Trusts) Index (for awards vesting in 2021) and vs the FTSE Small Cap Index (for awards vesting in 2022 and 2023).
Share Option Scheme
Andrew Day
Total
Number at
31 December
2019
Number
granted
during the
year
Number
lapsed/
forfeited
during the
year
Number
exercised
during the
year
Number at
31 December
2020
21,167
21,167
21,168
63,502
–
–
–
–
–
–
–
–
21,167
21,167
21,168
63,502
–
–
–
–
Vesting dates
12 Jul 2015
12 Jul 2016
12 Jul 2017
On 3 June 2020 Andrew Day exercised 63,502 options dating from the time of the Company’s IPO in 2013, at a price of £17.70. The exercise
price of these options was £1.23 each.
Executive Directors no longer receive awards under the Share Option Scheme. During the year, Andrew Day exercised all the option awards
above granted to him in 2013 as they had reached the end of their exercise period (seven years from grant).
Governance Report of the Nomination Committee
Roles and responsibilities
The role of the Committee is to develop and maintain a formal,
rigorous and transparent procedure for making recommendations
on appointments and reappointments to the Board. In addition, it
is responsible for reviewing the succession plans for the Executive
Directors and the Non-Executive Directors. This involves:
– Reviewing the structure, size and composition of the Board
and making recommendations to the Board with regard to any
changes.
– Assessing the effectiveness and performance of the Board and
each of its Committees including consideration of the balance of
skills, experience, independence and knowledge of the Company
on the Board, its diversity, including gender, how the Board
works together as a unit, and other factors relevant to its
effectiveness.
– Considering succession planning for Directors and members
of the Executive Management Team.
– Identifying and nominating new members to the Board.
– Reviewing the results of the Board performance evaluation
process that relate to the composition of the Board and the
performance of individual Directors.
– Reviewing annually the time input required from Non-Executive
Directors.
Diversity
The Committee reviews the Board diversity policy regularly, with
the last review in March 2020. The policy acknowledges that an
effective Board will include and make good use of differences in the
skills, regional and industry experience, background, race, gender
and other distinctions between Directors and emphasises that in
identifying suitable candidates for appointment to the Board, the
Committee will consider candidates on merit against objective
criteria, with due regard for the benefits of diversity on the Board.
Governance processes
The Committee meets at least twice a year and at such other times
as the Committee Chair or any member of the Committee may
request. In 2020, the Committee met twice. The Committee has
formal terms of reference which can be viewed on the Company’s
website, www.keywordsstudios.com.
Main activities
Succession
The Board is committed to effectively managing leadership
succession and proactively engages with the Senior Management
Team to assess the Executive talent pool. The Committee and
the Board receive regular contributions from individuals in the
wider Executive Group at meetings of the Board and Committees
throughout the year. These contributions are valuable for our
decision making and have helped the Non-Executive Directors to
develop a clear understanding of the strength of the management
team.
Succession planning is designed to consider the planned process
of transition to new leadership over time and also the potential
for unforeseen change over a shorter time frame. The Board
and the Committee keep in touch with the talent development
process throughout the organisation, conscious of the strategic
importance of promoting from within as far as possible to support
the Company’s growth plans as set out in the Strategic report.
Senior management succession planning will continue to be a focus
for 2021.
Board and Committee composition
The Committee reviewed the size, composition and skill set
of the Board during the year and concluded that there was an
appropriate mix of experience, skills and knowledge to provide
strong and effective leadership.
The Committee also recognises that by June/July 2022, Ross
Graham and David Reeves will have completed nine years.
An active process is in hand to find successors.
Role of the Company Secretary
The Directors have access to Company Secretarial support through
ONE Advisory Limited, the appointed Company Secretary, whose
experienced qualified Company Secretaries also provide advice
on corporate governance matters.
Annual evaluation of the Board and
Committees’ performance
This year’s annual Board and Committee evaluation exercise was
conducted on an independent basis by ONE Advisory Limited
(ONE Advisory).
The areas covered included structure and skills, operating
effectiveness, operating efficiency, quality of information and
ongoing development. The evaluation process involved detailed
questionnaires for the Board (including feedback on the overall
contribution of each Director), review of the Chairman and a survey
regarding each of the Board’s main Committees. An independent
report upon the findings of the Board and Committee surveys was
prepared by ONE Advisory.
The evaluation process confirmed that the Board and its
Committees are working well and identified a number of
areas which had improved during the prior year including the
appointment of Sonia Sedler as COO.
The Board will review the findings of the survey in the first half
of 2021 and will develop an action plan to address the areas
highlighted for attention in the coming year. These areas included:
– greater engagement with members of the Senior Management
Team (recognising that a number of intended visits to company
locations had to be cancelled in 2020 due to COVID-19);
– as the Group has expanded so the strategic options for
Keywords have become more complex; these will require greater
analysis in 2021 than heretofore; and
– succession planning in light of the expected retirements of the
Chairman and Senior Independent Director during 2022.
The Chairman will incorporate feedback on the overall contribution
of each Director into individual reviews of the performance of the
Non-Executive Directors. The contribution of the Chairman will be
reviewed by the rest of the Directors in the first half of 2021.
Ross K Graham
Chair of the Nomination Committee
24 March 2021
Keywords Studios plc / Annual Report and Accounts 2020 Directors’ report
78/79
The Directors present the Annual Report together with
both the audited consolidated financial statements and
the parent Company (Keywords Studios plc) financial
statements for the year ended 31 December 2020.
The Directors have also considered the Group’s strong liquidity
position, with net cash of €103m and committed undrawn facilities
under the RCF of €100m as at 31 December 2020. The Directors
have applied downside sensitivities to the Group’s cash flow
projections to evaluate the Group’s ability to withstand a further
prolonged period of studio closures as a result of the COVID-19
pandemic, leading to a reduction in production capability.
Under this severe case the Group would have sufficient liquidity
and remain within its banking covenants. The Directors have a
reasonable expectation that the Company and the Group have
adequate resources to continue to operate and meet their liabilities
as they fall due for the foreseeable future, a period considered
to be at least 12 months from the date of these interim financial
statements and therefore the going concern basis of preparation
continues to be appropriate.
Financial risk management
The Group’s approach to capital management is shown in note 24
of the financial statements. The Group’s exposure and approach
to liquidity, credit, interest rate and foreign currency risk is
shown in note 23 of the financial statements. Our approach to
risk management generally and our principal risks can be found
in the Strategic report on pages 50 to 53.
Political donations
No political donations were made in the year, in line with our
corporate policy.
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 their options over the ordinary share capital of
the Company are given in the Directors’ remuneration report on
pages 63 to 77. 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.
Disclaimer
The purpose of this Annual Report and financial statements are 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, its Directors and employees, agents or advisors 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 this Annual 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.
Dividends
The results for the year are set out on page 87. As described in the
CFO’s report, the Board is not proposing a final dividend for 2020
but intends to resume dividend payments in 2021.
Directors and changes to the Board
The Direc-tors of the Company during the year were Ross Graham,
Andrew Day, David Reeves, Giorgio Guastalla, Georges Fornay,
Charlotta Ginman, and Jon Hauck. Sonia Sedler was appointed as
Chief Operating Officer and member of the Board from 18 January
2021. Details of members of the Board are set out on pages 54
and 55.
Going concern
The Directors have performed an assessment, including a review of
the Group’s budget for the 2021 financial year and its longer term
plans. After making enquiries, the Directors consider it appropriate
to continue to adopt the going concern basis in preparing the
consolidated and Company financial statements. In doing so, the
Directors have considered the uncertain nature of the current
COVID-19 pandemic, but have noted:
– the strong cash flow performance of the Group through the year;
– the continued demand for the Group’s services;
– the ability to operate most of its services in a work from home
model where studios are temporarily closed;
– the historical resilience of the broader video games industry
in times of economic downturn; and,
– the ability of the Group to flex its cost base in response
to a reduction in trading activity.
Governance Directors’ report continued
Significant shareholdings
At 31 December 2020, the Company had been notified, in
accordance with the Disclosure Guidance and Transparency Rules,
of the following interests in its ordinary share capital*:
Name
Franklin Templeton
Liontrust Asset Management
Octopus Investments
P.E.Q. Holdings Limited**
Andrew Day
T Rowe Price Global Investments
Capital Group
Shares
5,829,171
4,440,282
3,654,566
3,500,736
3,296,573
3,083,453
2,910,794
Aberdeen Standard Investments
2,464,855
TimesSquare Capital Management
2,290,636
*
As recorded on the Company’s share register.
** Giorgio Guastalla has a 90% holding in P.E.Q. Holdings Limited.
%
7.87
6.00
4.93
4.73
4.45
4.16
3.93
3.33
3.09
Future developments
Important events since the financial year end are described in note
29 of the financial statements, the Chief Executive Officer’s review
on page 17, the service line review on pages 27 to 31 and the
Financial and operating overview on page 49. Future developments
are described in the Strategy section of the Strategic report on
pages 22 and 23.
Disclosures concerning emissions
The disclosures relating to emissions are set out in the Responsible
Business report on page 41.
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 customers.
Keywords’ average number of employees was 8,353 during 2020.
This permanent headcount is supplemented with staff on
short-term contracts as activity changes throughout the year.
Employment policy
Keywords has a range of employment policies covering such issues
as diversity, employee wellbeing and equal opportunities. The
Group continues to give full and fair consideration to applications
for employment made by disabled persons, having regard to
their particular skills and experience. Appropriate arrangements
are made for the continued employment and training, career
development and promotion of disabled persons employed by the
Group including making reasonable adjustments where required.
In the event of any colleague becoming disabled during their career
at Keywords, every effort is made by the Group to ensure their
continued employment and engagement with the business.
Employee involvement
The Group provides employees with information on matters of
concern to them so that their views can be taken into account
when making decisions that are likely to affect their interests.
A summary of the methods we use to engage with our employees
are provided in the Our people, our culture section of the Annual
Report on pages 32 to 35, the Responsible Business report on
pages 36 to 44 and the Section 172(1) statement on pages 44
and 45. Approximately 10% of the workforce participate in the
Employee Share Option Plan (see page 68). We continue to review
options to expand participation in employee share schemes.
Corporate responsibility
Keywords seeks to be a socially responsible Group which has
a positive impact on the communities in which it operates.
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 their
capabilities. We provide an excellent working environment, the
latest technology and appropriate training. Further details are
provided in the Responsible Business report on pages 36 to 45.
Website publication
The Directors are responsible for ensuring the Annual Report
and financial statements are made available on a website. Financial
statements are published on the Group’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 Group’s website 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
Jon Hauck
Chief Financial Officer
24 March 2021
Keywords Studios plc / Annual Report and Accounts 2020 Statement of Directors’ responsibilities
The Directors are responsible for preparing the
Annual Report and financial statements.
80/81
Website publication
The Directors are responsible for ensuring the Annual Report and
financial statements are made available on a website. Financial
statements are published on the Group’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 Group’s website 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
Jon Hauck
Chief Financial Officer
24 March 2021
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group and Company financial statements in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006.
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 Company and the Group and of
the profit or loss of the Group for that period. The Directors are
also required to prepare financial statements in accordance with
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 estimates that are reasonable and
prudent;
– state whether international accounting standards in conformity
with the requirements of the Companies Act 2006 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 disclose with reasonable accuracy at any time
the financial position of the Company and the Group and to enable
them to ensure that the financial statements and the Directors’
remuneration report comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company
and the Group 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 section on pages 54
and 55, confirm that:
– so 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.
Governance Independent auditor’s report to the members of Keywords Studios plc
Opinion
We have audited the financial statements of Keywords Studios plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year
ended 31 December 2020 which comprise the Group and Parent Company Statements of Financial Position, the Group Statement of
Comprehensive Income, the Group and Parent Company Statements of Cash Flows, the Group and Parent Company Statements of
Changes in Equity, and the notes to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International
Accounting Standards in conformity with the requirements of the Companies Act 2006 and, as regards the parent company financial
statements, as applied in accordance with the provisions of the Companies Act 2006.
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 31 December 2020
and of the group’s profit for the year then ended;
– the group financial statements have been properly prepared in accordance with International Accounting Standards in conformity with
the requirements of the Companies Act 2006;
– the parent company financial statements have been properly prepared in accordance with International Accounting Standards in
conformity with the requirements of the Companies Act 2006 and as applied in 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, including the FRCs Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate.
Our evaluation of the Directors assessment of the Company’s ability to continue to adopt the going concern basis of accounting in the
preparation of the financial statements included:
– We considered as part of our risk assessment the nature of the company, its business model and related risks including, where relevant,
the impact of the Covid-19 pandemic, the requirements of the applicable financial reporting framework and the system of internal
control.
– We have reviewed the Directors’ assessment of the Group and Company’s ability to continue as a going concern, challenging the
underlying data and key assumptions used to make the assessment, and stress tested the directors’ plans for future actions in relation
to their going concern assessment.
– We have reviewed the historical accuracy of budgeting and forecasts made by the Group and Company as an indicator as to their
reliability,
– We have reviewed the performance of the business in the year, including its cash flow performance, liquidity position, and financing
facilities, up to and including the date of signing the audit opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified,
including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the
efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
1 Revenue Recognition – cut off
Key Audit Matter
Although the majority of the Groups revenue contracts are non complex in nature, there is a material accrued revenue balance as at
31 December 2020 of €9.2m (2019: €7.0m). We focused on this area due to the risk of management manipulation of the timing of revenue
recognition and the cut off relating to accrued revenue at the year end.
Related Disclosures
Refer to note 2 of the accompanying consolidated financial statements for the accounting policies of the Group in relation to Revenue
Recognition.
Keywords Studios plc / Annual Report and Accounts 2020 82/83
Audit Response
We have performed audit procedures to understand the application of the revenue recognition accounting policies and to assess whether
for each material revenue stream, that revenue has been recognised correctly in accordance with the Group Revenue Recognition policy.
We have completed a substantive based audit approach across all full scope locations and completed specific audit procedures on a
sample basis on less significant components of the group.
Our audit work included, but was not restricted to, reviewing a sample of transactions both throughout the year and around the year end,
to assess that the stage of completion and therefore accrued revenue is reflective of the underlying project status. We have tested these
transactions to supporting documentation such as sales orders and contracts from customers, project status evidence, and subsequent
billing. When examining samples of transactions around the year end we have assessed whether the revenue has been recognised in the
correct period.
2 Business Combinations
Key Audit Matter
The Group has entered into a significant number of acquisitions and business combinations throughout the year, which have had
a material and extensive impact on the group’s financial performance and position.
Following the purchase price allocations (in which identifiable assets and liabilities assumed were recognised at fair value), €212m (2019:
€176m) of goodwill has been recognised cumulatively to date. The fair value of certain identifiable assets acquired and liabilities assumed
in a business combination is different from their carrying amounts in the acquired statements of financial position which can give rise to
fair value adjustments as part of the purchase price allocations of these business combinations. Accordingly, the cumulative acquisitions
are material and significant judgement is required in relation to the purchase price allocations including the resulting goodwill.
Management determined the fair value of the identifiable assets and liabilities and notably the value of the customer relationships.
The valuation of these assets was primarily based upon the expected future cash flows related to these acquisitions.
A number of these acquisitions have also included deferred consideration in the form of shares and cash payments at future dates, which
add further complexity with regard to the acquisition-date fair value of such consideration as part of the consideration transferred in
exchange for the acquisitions and business combinations.
Related Disclosures
Refer to note 2 of the accompanying consolidated financial statements for the accounting policy in relation to business combinations. In
addition, detailed disclosures have been made in relation to the current year business combinations in note 27 to the financial statements.
Audit Response
We have reviewed the underlying contracts and share purchase agreements relating to each acquisition to assess whether the basis for
treatment of the acquisitions is in accordance with the accounting policy and International Financial Reporting Standard 3 – Business
Combinations.
We have assessed the carrying value of each material balance at the date of acquisition, and have reviewed management’s assessments
of the fair value of the assets and liabilities acquired, and in particular, the methodology applied in the valuation of intangible assets and
goodwill.
Our procedures included;
– We reviewed the methodology applied to identify the categories of intangible assets,
– We evaluated whether the cash flow forecasts used in the valuation are consistent with information approved by the Board and have
reviewed the historical accuracy of management’s forecasts in order to assess the reliance which can be placed upon managements
forecasting,
– We have challenged the key assumptions such as the growth factors and discount rates by comparing them to relevant market rates
and historic acquisitions to evaluate whether management had been consistent in its approach to valuations, and
– We assessed the adequacy of the acquisition disclosures in the Group’s financial statements.
In addition, we have examined the terms of all business combinations to assess whether the fair value of any deferred/contingent
consideration is treated appropriately in accordance with the group accounting policy and IFRS 3.
We also examined the key post combination employment contracts of former shareholders of the acquired entities, reviewing the
substance of the transactions and considered whether they have been appropriately accounted for in line with the group accounting
policy and the requirements of IFRS 3.
Financial Statements Independent auditor’s report to the members of Keywords Studios plc continued
3 Valuation of goodwill and intangible assets
Key Audit Matter
As a result of both the current year and prior year acquisitions, the group has amassed significant intangible assets and goodwill balances.
These balances are material to the financial statements, with goodwill carrying value of €212m (2019: €176m), and intangibles carrying
value of €28.8m (2019: €21.1m).
The valuation of goodwill and other intangible assets is significant to our audit due to the fact that the impairment test calculations are
based on several key assumptions which are estimated by management, and are by nature judgemental. Key assumptions include the
expected future cash flows for the forecasting period, the discount rates and perpetual growth rate.
The Directors have concluded that there is one cash generating unit (“CGU”) in the group, for the purposes of impairment assessment.
Related Disclosures
Refer to note 2 of the accompanying consolidated financial statements for the accounting policy in relation to business combinations,
intangible assets and goodwill. In addition, detailed disclosures have been made in relation to the current year business combinations
in note 27 to the financial statements. Detailed disclosures are made in note 11 relating to goodwill and intangible assets.
Audit Response
We have reviewed the Directors assessment of the carrying value of goodwill and intangible assets. We have challenged the Directors
assumptions in relation to CGU identification, cash flow forecasting, discount rates applied, and future growth rates.
Our procedures included;
– We have evaluated that the CGU identified is the lowest level at which management monitors goodwill and intangible assets,
– We have reviewed the accuracy of the cash flow forecasts used, and ensured that these represent those which are reviewed by
the Board,
– We have reviewed and assessed the accuracy of the historical forecasts prepared by the Group,
– We have assessed the key estimates and inputs into the discounted cash flow models, including the growth rates assumed, and tested
these where possible to supporting evidence such as post year end activities,
– We have completed sensitivity analyses in relation to the cash flow models and have stress tested all key assumptions used, and
– We have considered the appropriateness of the disclosures relating to the valuation of goodwill and intangible assets in the
financial statements.
4 Functional currency
Key Audit Matter
The functional currency of the group is considered a key audit matter due to the fact that there is significant judgment in this area.
There are multiple currencies influencing the group, which have been assessed in detail by the Directors. The Directors have concluded
that the functional currency remains Euro. This is deemed to be a key judgement area.
Related Disclosures
Please refer to the accounting policy in note 2, and discussion in relation to judgements in note 3.
Audit Response
We have reviewed the Directors assessment of the currencies which are influencing the group, in accordance with the requirements
of IAS 21. We have agreed the underlying data used in this analysis to the source information, to ensure that the assessment is being
completed on an accurate basis. We have assessed the key indicators and the currencies influencing each. In addition, we have reviewed
the disclosures in relation to the judgements applied in this area, as set out in note 3.
We have concluded that while there are mixed indicators in relation to the functional currency of the group, the conclusion reached by
the Directors that Euro remains the functional currency, and the disclosures in this area, are reasonable.
Keywords Studios plc / Annual Report and Accounts 2020 84/85
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider
materiality to be the magnitude by which misstatements, including omissions in the financial statements, could influence the economic
decisions of reasonable users that are taken on the basis of the financial statements.
Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take into account the nature of
identified misstatements, and in particular the circumstances of their occurrence, when evaluating their effect on the financial statements
as a whole.
We determined materiality for the financial statements as a whole to be €3m, which represents 9% of profit before taxation and represents
less than 2% of equity. We consider profit before income tax to be the most significant determinant of the group’s financial performance
used by shareholders and other users and therefore consider this as an appropriate basis for materiality. Our materiality is higher than the
level we set for the year ended 31 December 2019 (€1.75m), due to the increased profits of the group.
We assessed the parent company’s materiality using a % of net assets as the most appropriate benchmark as the parent company does
not trade. However we capped this at the equivalent of group materiality being the lower of the thresholds in both the current and prior
year.
Whilst materiality for the financial statements as a whole was €3m, each component of the group was audited to a lower level of materiality
within a range from €2.1m to €1.8m. Audits of these components were performed at a materiality level calculated by reference to a
proportion of group materiality appropriate to the relative scale of the business concerned.
We agreed with the Audit Committee that we would report to the Committee all individual differences identified during the course of
our audit in excess of €150,000 (2019: €87,500). We also agreed to report differences below this threshold that, in our view, warranted
reporting on qualitative grounds.
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the Group and its environment, including the group wide controls, and assessing
the risks of material misstatement identified at group level. The Group has operations in 21 countries, and 84 wholly owned subsidiary
entities.
Based on our assessment, we have completed full scope audit procedures in relation to the following entities; Keywords Studios plc,
Keywords International Limited, Sperasoft Studios LLC, Cord Worldwide Limited, Studio Gobo Limited, Electric Square Limited, Keywords
Studios QC-Games Inc (formerly Babel Games Services Inc), Keywords France, Keywords China, Sperasoft Inc, D3T and Keywords Studios
Italia S.R.L (formerly Binari Sonori S.R.L & Sillabit S.R.L).
In addition, specific audit procedures have been completed in relation to certain material balances and transaction streams in VMC
Embedded Services, Keywords Canada Holdings Inc (formerly Volt Canada Inc), Keywords Studios QC-Tech Inc (formerly Alchemic Dream
Inc), and Keywords Studios Japan.
The above entities represent 73% of group revenues. Analytical review procedures have been performed on the remaining non-significant
components in the group.
The Group auditor, BDO Dublin, has audited Keywords Studios plc, Keywords International Limited, Cord Worldwide Limited, Studio Gobo
Limited, Electric Square Limited and D3T. Their involvement in the work performed by other component auditors varies by location and
involves, at a minimum, direction of the audit procedures to be completed, and review of the reports received in relation to the results
of the audit work undertaken by component audit teams.
In the current year, as a result of current travel restrictions, the Senior Statutory auditor or senior members of the Group audit team have
completed their oversight and review work of other locations remotely.
At the parent company level we have also tested the consolidation process and carried out additional procedures to confirm our
conclusion that there were no significant risks of material misstatement of the aggregated financial information of the remaining
components not subject to full scope or specific procedures.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report,
other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material misstatement of the other information.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact. We have nothing to report in this regard.
Financial Statements Independent auditor’s report to the members of Keywords Studios plc continued
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
– the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which 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.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 81 the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of
not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit
procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected
in the financial statements, the less likely we are to become aware of it.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website
at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of 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 no other 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 our audit work, for this report, or for the opinions we have formed.
John O’Callaghan (Senior Statutory Auditor)
For and on behalf of BDO, Statutory Auditor
Dublin 2, Ireland
24 March 2021
Keywords Studios plc / Annual Report and Accounts 2020 Consolidated statement of comprehensive income
Revenue from contracts with customers
Cost of sales
Gross profit
Investment income
Share option expense
Costs of acquisition and integration
Amortisation and impairment of intangible assets
COVID-19 government subsidies claimed
Total of items excluded from adjusted profit measures
Other administration expenses
Administrative expenses
Operating profit
Financing income
Financing cost
Profit before taxation
Taxation
Profit
86/87
Years ended 31 December
Note
2020
€’000
2019
€’000
4
5
5
17
5
11
28
6
6
7
373,538
326,463
(231,766)
(206,234)
141,772
120,229
1,437
(15,350)
(2,650)
(8,808)
9,231
-
(9,775)
(4,348)
(7,318)
-
(17,577)
(21,441)
(84,513)
(77,246)
(102,090)
(98,687)
41,119
21,542
76
(8,701)
32,494
(11,027)
21,467
74
(4,245)
17,371
(7,462)
9,909
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss
Actuarial gain/(loss) on defined benefit plans
19
(421)
(167)
Items that may be reclassified subsequently to profit or loss
Exchange gain/(loss) in net investment in foreign operations
Exchange gain/(loss) on translation of foreign operations
Total comprehensive income/(expense)
Profit/(loss) for the period attributable to:
Owners of the parent
Non-controlling interest
Total comprehensive income/(expense) attributable to:
Owners of the parent
Non-controlling interest
Earnings per share
Basic earnings per ordinary share
Diluted earnings per ordinary share
The notes from page 94 onwards form an integral part of these consolidated financial statements.
On behalf of the Board
Jon Hauck
Director
Sonia Sedler
Director
24 March 2021
(4,909)
(10,843)
1,267
5,960
5,294
16,969
21,552
10,022
(85)
21,467
(113)
9,909
5,379
17,082
(85)
(113)
5,294
16,969
€ cent
30.32
28.71
€ cent
15.23
14.73
8
8
Financial Statements
Consolidated statement of financial position
Non-current assets
Property, plant and equipment
Right of use assets
Intangible assets
Deferred tax assets
Current assets
Trade receivables
Other receivables
Cash and cash equivalents
Current liabilities
Trade payables
Other payables
Loans and borrowings
Corporation tax liabilities
Lease liabilities
Net current assets/(liabilities)
Non-current liabilities
Other payables
Employee defined benefit plans
Loans and borrowings
Deferred tax liabilities
Lease liabilities
Net assets
Equity
Share capital
Share capital – to be issued
Share premium
Merger reserve
Foreign exchange reserve
Shares held in Employee Benefit Trust ("EBT")
Share option reserve
Retained earnings
Non-controlling interest
Total equity
Note
13
12
11
22
14
15
18
20
21
18
19
20
22
21
16
16
16
16
At 31 December
2019
Restated
(note 16)
€’000
22,163
21,469
2020
€’000
26,419
27,807
240,810
196,769
14,649
5,060
309,685
245,461
47,832
38,665
103,070
189,567
43,243
35,413
41,827
120,483
8,170
62,958
73
12,568
7,361
91,130
98,437
1,994
2,693
122
10,575
21,503
36,887
8,027
38,712
80
2,732
7,741
57,292
63,191
285
2,049
59,671
9,523
14,166
85,694
371,235
222,958
879
13,047
22,951
250,276
(9,988)
(1,997)
31,799
64,318
780
5,310
20,718
132,712
5,764
(1,997)
16,449
43,187
371,285
222,923
(50)
35
371,235
222,958
The notes from page 94 onwards form an integral part of these consolidated financial statements. The financial statements were approved
and authorised for issue by the Board on 24 March 2021.
On behalf of the Board
Jon Hauck
Director
Sonia Sedler
Director
24 March 2021
Keywords Studios plc / Annual Report and Accounts 2020
Consolidated statement of changes in equity
88/89
Share
capital
– to be
issued
€’000
Share
capital
€’000
Share
premium
€’000
Merger
reserve
€’000
Foreign
exchange
reserve
€’000
Shares
held in
EBT
€’000
Share
option
reserve
€’000
Retained
earnings
€’000
Total
attributable
to owners of
parent
€’000
Non-
controlling
interest
€’000
Total
equity
€’000
At 01 January 2019
763 15,648
102,225
35,996
(1,463)
(1,997)
6,674
34,529
192,375
–
192,375
Acquisition related
issuance of shares
10 (10,338)
Reclassification of
Share premium within
Reserves (note 16)
At 01 January 2019
(restated)
Profit/(loss) for the
period
Other comprehensive
income
Total comprehensive
income for the
period
Contributions by
and contributions to
the owners:
Share option expense
Share options
exercised
Dividends
Net assets on
acquisition of
Appsectest
Contributions by
and contributions to
the owners
At 31 December
2019 (restated)
Profit/(loss) for the
period
Other comprehensive
income
Total comprehensive
income for the
period
Contributions by
and contributions to
the owners:
Shares issued for
cash
Share option expense
Share options
exercised
Acquisition related
issuance of shares
Contributions by
and contributions to
the owners
At 31 December
2020
–
–
(82,261)
82,261
–
–
–
–
–
763 15,648
19,964 118,257
(1,463)
(1,997)
6,674
34,529
192,375
–
–
–
192,375
–
–
–
–
7
–
–
–
–
–
–
–
–
–
–
–
–
77
–
16
–
–
–
–
–
–
–
–
–
–
754
–
–
–
–
–
–
–
–
–
14,455
–
–
–
–
9,775
–
–
–
–
–
7,227
7,227
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10,022
10,022
(113)
9,909
(167)
7,060
–
7,060
9,855
17,082
(113)
16,969
–
–
9,775
761
(1,197)
(1,197)
4,127
–
–
–
–
–
–
9,775
761
(1,197)
4,127
–
148
148
17 (10,338)
754
14,455
9,775
(1,197)
13,466
148
13,614
780
5,310
20,718 132,712
5,764
(1,997) 16,449
43,187
222,923
35
222,958
–
–
–
–
–
–
–
(15,752)
(15,752)
– 109,372
–
2,233
–
–
6
7,737
–
8,192
99
7,737
2,233 117,564
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15,350
–
–
–
15,350
21,552
21,552
(85)
21,467
(421)
(16,173)
–
(16,173)
21,131
5,379
(85)
5,294
–
–
–
–
–
109,449
15,350
2,249
15,935
–
–
–
–
109,449
15,350
2,249
15,935
142,983
–
142,983
879
13,047
22,951 250,276
(9,988)
(1,997) 31,799
64,318
371,285
(50) 371,235
Financial Statements
Consolidated statement of cash flows
Cash flows from operating activities
Profit after tax
Income and expenses not affecting operating cash flows
Depreciation – property, plant and equipment
Depreciation – right of use assets
Amortisation and impairment of intangible assets
Taxation
Share option expense
Fair value adjustments to contingent consideration
Fair value adjustments to right of use assets
Disposal of property, plant and equipment
Unwinding of discounted liabilities – deferred consideration
Unwinding of discounted liabilities – lease liabilities
Interest receivable
Fair value adjustments to employee defined benefit plans
Interest expense
Unrealised foreign exchange (gain)/loss
Changes in operating assets and liabilities
Decrease/(increase) in trade receivables
Decrease/(increase) in MMTC and VGTR receivable
Decrease/(increase) in other receivables
(Decrease)/increase in accruals, trade and other payables
Taxation paid
Net cash generated by/(used in) operating activities
Cash flows from investing activities
Current year acquisition of subsidiaries net of cash acquired
Settlement of deferred liabilities on acquisitions
Acquisition of property, plant and equipment
Investment in intangible assets
Interest received
Net cash generated by/(used in) investing activities
Cash flows from financing activities
Repayment of loans
Drawdown of loans
Payments of principal on lease liabilities
Interest paid on principal of lease liabilities
Dividends paid
Shares issued for cash*
Interest paid
Net cash generated by/(used in) financing activities
Increase/(decrease) in cash and cash equivalents
Exchange gain/(loss) on cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
Years ended 31 December
Note
2020
€’000
2019
€’000
21,467
9,909
13
12
11
7
17
5
12
13
6
6
6
19
6
27
18
13
11
20
20
6
8,983
8,402
8,808
11,027
15,350
(66)
434
–
132
843
(76)
354
1,071
1,874
7,295
7,849
7,318
7,462
9,775
493
–
200
330
694
(74)
504
934
(577)
57,136
42,203
(4,255)
555
(3,902)
9,878
2,276
(4,370)
(5,913)
(2,162)
6,402
(6,043)
(4,459)
(13,288)
76,420
32,781
(37,447)
(2,489)
(13,908)
(259)
76
(13,051)
(14,711)
(13,145)
(391)
74
(54,027)
(41,224)
(64,030)
4,500
(8,170)
(843)
–
(7,973)
27,000
(7,355)
(694)
(1,197)
761
(879)
(1,436)
42,276
64,669
(3,426)
41,827
103,070
9,106
663
1,293
39,871
41,827
16
111,698
*
Please note Shares issued for cash includes net proceeds of €109.5m related to the share placing in May 2020 (see note 16), being gross proceeds of €111.7m (£100m )
less transaction costs of €2.2m (£2m).
Keywords Studios plc / Annual Report and Accounts 2020
Company statement of financial position
Non-current assets
Property, plant and equipment
Investment in subsidiaries
Other receivables
Right of use assets
Deferred tax assets
Current assets
Other receivables
Cash and cash equivalents
Current liabilities
Trade payables
Other payables
Lease liabilities
Net current assets/(liabilities)
Non-current liabilities
Other payables
Loans and borrowings
Lease liabilities
Net Assets
Equity
Share capital
Share capital – to be issued
Share premium
Merger reserve
Shares held in Employee Benefit Trust (“EBT”)
Share option reserve
Retained earnings
Total equity
90/91
At 31 December
Note
2020
€’000
2019
Restated
(note 16)
€’000
13
25
15
12
15
18
21
18
20
21
16
16
16
16
317
357
30,670
30,670
258,536
208,352
389
379
619
–
290,291
239,998
5,821
30,696
36,517
61
9,979
197
10,237
26,280
–
–
202
202
16,096
599
16,695
139
11,298
204
11,641
5,054
5,561
59,500
422
65,483
316,369
179,569
879
13,047
22,951
780
5,310
20,718
255,957
138,393
(1,997)
31,799
(6,267)
(1,997)
16,449
(84)
316,369
179,569
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 loss after tax dealt with
in the parent undertaking is €6,183k (2019: profit of €3,651k).
The notes from page 94 onwards form an integral part of these consolidated financial statements. The financial statements were approved
and authorised for issue by the Board on 24 March 2021.
On behalf of the Board
Jon Hauck
Director
Sonia Sedler
Director
24 March 2021
Financial Statements
Company statement of changes in equity
Share
capital
– to be
issued
€’000
Share
capital
€’000
Share
premium
€’000
Merger
reserve
€’000
Shares
held in
EBT
€’000
Share
option
reserve
€’000
Retained
earnings
€’000
Total
equity
€’000
At 01 January 2019
763
15,648
102,225
41,677
(1,997)
6,674
(2,538)
162,452
Reclassification of Share premium within
Reserves (note 16)
–
–
(82,261)
82,261
–
–
–
–
At 01 January 2019 (restated)
763
15,648
19,964
123,938
(1,997)
6,674
(2,538)
162,452
Profit for the period
Total comprehensive income for the
period
Contributions by and contributions to
the owners:
Share option expense
Share options exercised
Dividends
–
–
–
7
–
–
–
–
–
–
Acquisition related issuance of shares
10
(10,338)
–
–
–
754
–
–
–
–
–
–
–
14,455
Contributions by and contributions to
the owners
17
(10,338)
754
14,455
–
–
–
–
–
–
–
–
–
3,651
3,651
3,651
3,651
9,775
–
–
–
–
–
9,775
761
(1,197)
(1,197)
–
4,127
9,775
(1,197)
13,466
At 31 December 2019 (restated)
780
5,310
20,718
138,393
(1,997)
16,449
(84)
179,569
Profit for the period
Total comprehensive income for the
period
Contributions by and contributions to
the owners:
Shares issued for cash
Share option expense
Share options exercised
Acquisition related issuance of shares
Contributions by and contributions to
the owners
At 31 December 2020
–
–
77
–
16
6
99
879
–
–
–
–
–
–
–
–
–
2,233
–
–
109,372
–
–
7,737
–
8,192
–
–
–
–
–
–
–
–
–
15,350
–
–
(6,183)
(6,183)
(6,183)
(6,183)
–
–
–
–
109,449
15,350
2,249
15,935
7,737
2,233
117,564
–
15,350
–
142,983
13,047
22,951
255,957
(1,997)
31,799
(6,267)
316,369
Keywords Studios plc / Annual Report and Accounts 2020
Company statement of cash flows
Cash flows from operating activities
Profit/(loss) after tax
Income and expenses not affecting operating cash flows
Share option expense
Interest receivable
Interest expense
Depreciation – property, plant and equipment
Depreciation – right of use assets
Amounts written off financial assets
Changes in operating assets and liabilities
(Increase)/decrease in other receivables
Increase/(decrease) in trade and other payables
Taxation paid
Net cash generated by/(used in) operating activities
Cash flows from investing activities
Funding advanced to subsidiaries^
Acquisition of property, plant and equipment
Interest received
Net cash generated by/(used in) investing activities
Cash flows from financing activities
Repayment of loans
Loan to finance acquisitions
Payments of principal on lease liability
Interest paid on principal of lease liability
Dividends paid
Shares issued for cash*
Interest paid
Net cash generated by/(used in) financing activities
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
92/93
Years ended 31 December
Note
2020
€’000
2019
€’000
(6,183)
3,651
13
12
13
20
20
9
16
621
(6)
946
47
200
–
693
(1)
984
45
200
92
1,808
2,013
29,329
(6,944)
22,385
–
18,010
(17,200)
10,641
(6,559)
–
(895)
(39,142)
(16,368)
(7)
6
(13)
1
(39,143)
(16,380)
(64,000)
4,500
(194)
(12)
–
111,698
(762)
51,230
30,097
599
30,696
(7,500)
27,000
(192)
(16)
(1,197)
761
(1,420)
17,436
161
438
599
^
*
Please note Funding advanced to subsidiaries has been re-designated to Cash flows from investing activities, as the Directors consider this to be more appropriate.
Please also note Shares issued for cash includes net proceeds of €109.5m related to the share placing in May 2020 (see note 16), being gross proceeds of
€111.7m (£100m ) less transaction costs of €2.2m (£2m).
Financial Statements
Notes forming part of the consolidated and company financial statements
1 Basis of Preparation
Keywords Studios PLC (the “Company”) is a company incorporated in the UK. The consolidated financial statements include the financial
statements of the Company and its subsidiaries (the “Group”) made up to 31 December 2020. The Group was formed on 8 July 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 the Group.
The consolidated and Company financial statements have been prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006.
The financial statements have been prepared in thousands (’000) and the financial statements are presented in Euro (€) which is the
functional currency of the Group.
Please note there has been an amendment to the previous year reserves to reclassify certain reserves within Share premium to Merger
reserve, as outlined in note 16.
Going Concern Basis of Accounting
After making enquiries, the Directors consider it appropriate to continue to adopt the going concern basis in preparing the consolidated
and company financial statements. In doing so, the Directors have considered the uncertain nature of the current COVID-19 pandemic,
but have noted:
– the strong cash flow performance of the Group through the year;
– the continued demand for the Group’s services;
– the ability to operate most of its services in a work from home model where studios are temporarily closed;
– the historical resilience of the broader video games industry in times of economic downturn; and,
– the ability of the Group to flex its cost base in response to a reduction in trading activity.
The Directors have also considered the Group’s strong liquidity position with net cash of €102.9m as at 31 December 2020, and committed
undrawn facilities of €100m under the Revolving Credit Facility (“RCF”).
The Directors have applied downside sensitivities to the Group’s cash flow projections to evaluate the Group’s ability to withstand
a further prolonged period of studio closures as a result of the COVID-19 pandemic, leading to a reduction in production capability.
Under this severe case the Group would have sufficient liquidity and remain within its banking covenants. The Directors have a reasonable
expectation that the Company and the Group have adequate resources to continue to operate and meet liabilities as they fall due for
the foreseeable future, a period considered to be at least 12 months from the date of these financial statements and therefore the going
concern basis of preparation continues to be appropriate.
New Standards, Interpretations and Amendments effective 1 January 2020
A number of new amendments and interpretations to accounting standards are effective from 1 January 2020 including:
– Definition of Material – amendments to IAS 1 and IAS 8
– Definition of a Business – amendments to IFRS 3
– Revised Conceptual Framework for Financial Reporting
– Interest Rate Benchmark Reform – amendments to IFRS 9, IAS 39 and IFRS 7
These amendments and interpretations would not have resulted in the accounting applied by the Group changing and would not have had
a material effect on the Group’s financial statements.
On 28 May 2020, the IASB issued amendments to IFRS 16: COVID-19 Related Rent Concessions. These amendments introduce a practical
expedient available to lessees in accounting for rent concessions (e.g. rent holidays and deferrals of lease payments) that are a direct
consequence of the COVID-19 pandemic and that satisfy certain other criteria. As the relevant topics have not had a material impact
on the Group’s financial statements, the Group has not availed of these practical expedients.
Other accounting pronouncements which have become effective from 1 January 2020 have not had a material impact on the Group.
New Standards, Interpretations and Amendments not yet effective
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective
in future accounting periods that the Group has decided not to adopt early.
The following amendments are effective for the period beginning 1 January 2022:
– Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37);
– Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);
– Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and
– References to Conceptual Framework (Amendments to IFRS 3).
The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the Group.
Keywords Studios plc / Annual Report and Accounts 2020 94/95
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 are present: 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.
Business Combinations
The consolidated financial statements incorporate the results of business combinations using the purchase method. In the Consolidated
Statement of Financial Position, the acquired 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 consolidated until the date on 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. The fair value of contingent consideration at acquisition date is arrived at through discounting the
expected payment (based on scenario modelling) to present value. In general, in order for contingent consideration to become payable,
pre-defined profit and/or revenue targets must be exceeded. At each balance sheet date, the fair value of the contingent consideration
is revalued, with the expected pay-out determined separately in respect of each individual acquisition and any change recognised in the
Statements of Comprehensive Income.
For deferred consideration which is to be provided for by the issue of a fixed number of shares at a future defined date, where there is
no obligation on Keywords to offer a variable number of shares, the deferred consideration is classified as an equity arrangement and the
value of the shares is fixed at the date of the acquisition. Deferred consideration may also be in the form of cash consideration payable at
a future defined date. Such consideration is recognised at fair value at the acquisition date and is split between current liabilities and non-
current liabilities depending on when it is due.
Intangible Assets
The Group’s Intangible Assets comprise Goodwill, Customer Relationships and Other Intangible Assets.
Goodwill
Goodwill represents the excess of the cost of a business combination over the total acquisition date fair value of the identifiable assets,
liabilities and contingent liabilities acquired. The cost comprises the fair value of assets given, liabilities assumed and equity instruments
issued, plus the amount of any non-controlling interests in the acquiree plus, if the business combination is achieved in stages, the fair
value of the existing equity interest in the acquiree. Contingent consideration is included at fair value on the acquisition date and, in the
case of contingent consideration classified as a financial liability, re-measured subsequently through the profit and loss. Acquisition-
related costs are recognised immediately as an expense in the periods in which the costs are incurred and the services are received.
Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of
comprehensive income.
Customer Relationships
Intangible assets, separately identified from goodwill acquired as part of a business combination (mainly Customer Relationships),
are initially stated at fair value. The fair value attributed is determined by discounting the expected future cash flows generated from
the net margin of the business from the main customers taken on at acquisition. The assets are amortised on a straight-line basis (to
administration expenses) over their useful economic lives (typically five years is deemed appropriate, however, this is re-examined for
each acquisition).
Financial Statements Notes forming part of the consolidated and company financial statements continued
2 Significant Accounting Policies continued
Other Intangible Assets
Other intangible assets include Intellectual Property and Music Licences, both acquired and internally developed. Other intangible assets
are recognised as assets where it is probable that the use of the asset will generate future economic benefits and where the costs of the
asset can be determined reliably. Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation
(see below) and impairment losses, if any. Subsequent expenditures on capitalised intangible assets are capitalised only when they
increase the future economic benefits embodied in the specific assets to which they relate. All other expenditure is expensed as incurred.
Other intangible assets with definite useful lives are amortised from the date they are available for use on a straight-line basis over their
useful lives, being the estimated period over which the Group will use the assets. Residual amounts, useful lives and the amortisation
methods are reviewed at the end of every accounting period.
Development costs are capitalised as an intangible asset if all of the following criteria are met:
– The technical feasibility of completing the intangible asset so that it will be available for use or sale;
– The intention to complete the intangible asset and use or sell it;
– The ability to use or sell the intangible asset;
– The asset will generate probable future economic benefits and demonstrate the existence of a market or the usefulness of the
intangible asset if it is to be used internally;
– The availability of adequate technical, financial and other resources to complete the development and to use or sell it;
– The ability to measure reliably the expenditure attributable to the intangible asset during its development.
Following initial recognition of the development expenditure as an intangible asset, the cost model is applied requiring the intangible
asset to be carried at cost, less any accumulated amortisation and accumulated impairment losses. The intangible asset is amortised on
a straight-line basis over the period of its expected benefit, starting from the date of full commercial use of the product. During the period
of development, the asset is tested for impairment annually. If specific events indicate that impairment of an item of intangible asset may
have taken place, the item’s recoverability is assessed by comparing its carrying amount with its recoverable amount. The recoverable
amount is the higher of the fair value net of disposal costs and the value in use.
Impairment
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year
end. Other non-financial assets are subject to 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 estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group
of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units (“CGUs”). Goodwill is allocated
on initial recognition to each of the Group’s CGUs that are expected to benefit from a business combination that gives rise to the goodwill.
The Group has one CGU. This CGU represents the lowest level at which goodwill is monitored by the Group and the lowest level at which
management captures information for internal management reporting purposes about the benefits of the goodwill. Impairment charges
are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment
loss recognised for goodwill is not reversed.
Cash and Cash Equivalents
For the purpose of presentation in the Statements of financial position and on the Statements of cash flows, cash and cash equivalents
include cash on hand and on call deposits with financial institutions.
Foreign Currency
The Consolidated Financial Statements are presented in Euro, which is the presentation currency of the Group and the functional currency
of the Parent Company.
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. 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.
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 the reporting 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 the date of disposal are transferred to the consolidated
statement of comprehensive income as part of the profit or loss on disposal.
Keywords Studios plc / Annual Report and Accounts 2020 96/97
Revenue from Contracts with Customers
Contracts are typically for services, performing agreed-upon tasks for a customer and can be time-and-materials or milestone based.
Most contracts are short term in duration (generally less than one month), however milestone based contracts can be longer term and
extend to several months (or in some cases over a year). Where there are multiple performance obligations outlined in a contract, each
performance obligation is separately assessed, the transaction price is allocated to each obligation, and related revenues are recognised
as services or assets are transferred to the customer. Performance obligations are typically satisfied over time, as the majority of contracts
meet the criteria outlined in IFRS 15 paragraph 35 (a) and (c).
Due to the nature of the services provided and the competitive nature of the market, contracts generally allocate specific transaction
prices to separate performance obligations. Individual services or individual milestones generally involve extensive commercial negotiation
to arrive at the specific agreed-upon tasks, and the related pricing outlined in the contract. Such negotiations extend further for milestone
based contracts to also include the criteria involved in the periodic and regular process of milestone acceptance by the customer. Such
criteria may involve qualitative, as well as quantitative measures and judgements.
In measuring progress towards complete satisfaction of performance obligations, the input method is considered to be the most
appropriate method to depict the underlying nature of the contracts with customers, the interactive way the service is delivered and
projects are managed with the customer. For time-and-materials contracts, other than tracking and valuing time expended, significant
judgement is not normally involved. For milestone based contracts, progress is generally measured based on the proportion of contract
costs incurred at the balance sheet date, (e.g. worked days) relative to the total estimated costs of the contract, involving estimates of
the cost to completion etc. Added to this significant judgement can be involved in measuring progress towards customer acceptance
of the milestone. Significant judgement may also be involved where circumstances arise that may change the original estimates of
revenues, costs or extent of progress towards complete satisfaction of the performance obligations. In such circumstances estimates
are revised. These revisions may result in increases or decreases in revenue or costs and are reflected in income in the period in which
the circumstances that give rise to the revision became known. When the outcome of a contract cannot be measured reliably, contract
revenue is recognised only to the extent that milestones have been accepted by the customer. Contract costs are recognised as incurred.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised immediately.
Revenue recognised represents the consideration received or receivable, net of sales taxes, rebates discounts and after eliminating
intercompany sales. Revenue is recognised only where it is probable that consideration will be received. Where consideration is received
and the related revenue has not been recognised, the consideration received is recognised as a contract liability (Deferred Revenue), until
either revenue is recognised or the consideration is refunded.
Revenue is derived from seven main service groupings:
– Art Creation & Marketing – Art Creation & Marketing 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. Contracts can be either time-and-
materials based or milestone based, with performance obligations satisfied over time. Contracts are generally short term in duration,
however for longer term contracts the input method is used to measure progress (e.g. worked days relative to the total expected inputs).
Time and materials based contract revenue is recognised as the related services are rendered. For milestone based contracts where
progress can be measured reliably towards complete satisfaction of the performance obligation, revenue is recognised using the input
method to measure progress. Where progress cannot be measured reliably, revenue is recognised on milestone acceptance.
– Game Development – Game Development relates to software engineering services which are integrated with client processes to develop
video games. Contracts can be either time-and-materials based or milestone based, with performance obligations satisfied over time.
Contracts are generally longer term in duration. Time and materials based contract revenue is recognised as the related services are
rendered. For milestone based contracts where progress can be measured reliably towards complete satisfaction of the performance
obligation, revenue is recognised using the input method to measure progress. Where progress cannot be measured reliably, revenue
is recognised on milestone acceptance.
– Audio – 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 of the recordings. Audio contracts may also involve music licensing or selling music soundtracks. Audio service contracts
are typically milestone based, with performance obligations satisfied over time. Audio services contracts are generally short term
in duration, however for longer term contracts where progress towards complete satisfaction of the performance obligation can be
measured reliably, revenue is recognised using the input method to measure progress. Where progress cannot be measured reliably,
audio services revenue is recognised on milestone acceptance. Music licensing and music soundtracks performance obligations are
assessed separately, and related revenue is recognised on licence inception and on delivery of the soundtracks, respectively.
– Functional Testing – Functional Testing relates to quality assurance services provided to game producers to ensure games function as
required. Contracts are typically time-and-materials based and performance obligations are satisfied over time. Contracts are generally
short term in duration, however for longer term contracts the input method is used to measure progress. Revenue is recognised as the
related services are rendered.
– Localization – Localization services relate to translation and cultural adaptation of in-game text and audio scripts across multiple game
platforms and genres. Contracts are typically time-and-materials based and performance obligations are satisfied over time. Contracts
are generally short term in duration, however for longer contracts the input method is used to measure progress. Localization contracts
may also involve licensing translation software as a service. Such revenue is assessed separately. Revenue is recognised as the related
services are rendered.
Financial Statements Notes forming part of the consolidated and company financial statements continued
2 Significant Accounting Policies continued
Revenue from Contracts with Customers continued
– Localization Testing – Localization Testing involves testing the linguistic correctness and cultural acceptability of computer games.
Contracts are typically time-and-materials based and performance obligations are satisfied over time. Contracts are generally short
term in duration, however for longer term contracts the input method is used to measure progress. Revenue is recognised as the related
services are rendered.
– Player Support – Player Support relates to the live operations support services such as community management, player support and
associated services provided to producers of games to ensure that consumers have a positive user experience. Contracts are typically
time-and-materials based and performance obligations are satisfied over time. Contracts are generally long term with the input method
used to measure progress. Revenue is recognised as the related services are rendered.
Multimedia Tax Credits/Video Game Tax Relief
The multimedia tax credits (“MMTC”) received in Canada and video games tax relief (“VGTR”) in the UK, are a tax credit related to staff
costs. Tax credits are recognised as income over the periods necessary to match the credit on a systematic basis with the costs that it is
intended to compensate. Thus credits are taken as a deduction against direct costs each period, but typically paid in the following financial
year once the claims have been submitted and agreed. The nature of the grants is such that they are not dependent on taxable profits,
and are recognised (under IAS 20), at their fair value when there is a reasonable assurance that the grant will be received and all attaching
conditions have been complied with.
Government Subsidies
Government subsidies are recognised at their fair value when there is a reasonable assurance that the subsidy will be received and all
attaching conditions have been complied with. Subsidies are recognised in the period the subsidy is designated to compensate.
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. Other than continuous service,
grants do not have non-market-based vesting conditions. At each reporting date the Company adjusts for unvested forfeitures and the
impact is recognised in profit or loss, 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 options are recharged to the
subsidiary company through an inter-company re-charge.
Share Option Plan
These are measured at fair value on the grant date using a Black-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-third of the options vesting after two years, one-third after
three years, and the balance vesting after four years. The only vesting condition is continuous service. There is no requirement to revalue
the option at any subsequent date.
LTIP
The exercise of LTIP awards are subject to the Company’s share price (stock symbol: KWS) performance versus the designated Share Index
in terms of shareholder return over a three-year period. For the awards granted up to 2015, one-third of the share options vested if the
Company exceeded the Total Shareholder Returns (“TSR”) of the Numis Small Cap Index (excluding Investment Trusts) by 10%, two-thirds
if the TSR exceeded the Index by 20% and full vesting if the TSR exceeded the Index by 30%. This was amended for the 2016 and 2017
awards to 100% vesting if the shareholder return exceeds the Index by 45%, and a pro-rated return between 10% if the TSR matches the
Index, to 100% if the TSR exceeds the Index by 45%. The scheme was further amended in 2018 to 100% vesting if the TSR exceeds the
Index by 20%, and a pro-rated return between 10% and 100% if the TSR exceeds by between 0% and 20%. In 2019 the benchmark Index
was amended for future grants to be the FTSE Small Cap Index, with the same performance conditions as 2018.
These are measured at fair value, taking into account market vesting conditions but not non-market vesting conditions, at the date of grant,
measured by using the Monte Carlo binomial model.
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 are recognised 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 in which 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 position differs from its tax base, except for differences arising on:
– 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 is probable 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).
Keywords Studios plc / Annual Report and Accounts 2020 98/99
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.
Property, plant and equipment acquired through business combinations are valued at fair value on the date of acquisition.
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
Leasehold improvements
3 – 5 years
10 years
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 of comprehensive income.
Financial Assets
The Group’s most significant financial assets comprise trade and other receivables and cash and cash equivalents in the Consolidated
statement of financial position, whereas the Company’s most significant financial assets comprise inter-group receivables.
Trade Receivables
Trade receivables, which principally represent amounts due from customers, are recognised at amortised cost as they meet the IFRS 9
classification test of being held to collect, and the cash flow characteristics represent solely payments of principal and interest.
The Group’s impairment methodology is in line with the requirements of IFRS 9. The simplified approach to providing for expected credit
losses has been applied to trade receivables, which requires the use of a lifetime expected loss provision.
Intercompany Receivables
Intercompany receivables are recognised at amortised cost as they meet the IFRS 9 classification test of being held to collect, and the cash
flow characteristics represent solely payments of principal and interest.
The Group applies the general approach to applying the expected credit losses to its related party loans. Under the General Approach,
at each reporting date, the Group determines whether there has been a Significant Increase in Credit Risk (SICR) since initial recognition
and whether any balances are credit impaired. This determines the amount, if any, of expected credit losses to be recognised.
Cash and Cash Equivalents
Cash and cash equivalents are held to meet the working capital requirements of the Group. They include cash in hand, deposits held at
call with banks and other short-term highly liquid investments. Where cash is on deposit with maturity dates greater than three months,
it is disclosed as short-term investments.
Accrued Income from Contracts with Customers
Accrued income from contracts with customers, arising from Revenue from Contracts with Customers, is recognised in accordance with
our Revenue Recognition policy, as discussed separately in this note. The Group applies the simplified approach to assessing expected
credit losses in relation to such assets, as their maturities are less than 12 months. Based upon the recoverability of contract assets at
year end, no significant expected credit loss provision has been applied.
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
Contingent consideration is initially recognised at fair value and subsequently re-measured through the profit and loss. Trade payables,
bank borrowings and other monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the
effective interest rate method.
Financial Statements Notes forming part of the consolidated and company financial statements continued
2 Significant Accounting Policies continued
Leased Assets
A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time
in exchange for consideration’.
At lease commencement date, the Group recognises a right of use asset and a lease liability on the balance sheet. The right of use asset
is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an
estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease
commencement date (net of any incentives received).
The Group depreciates the right of use assets on a straight-line basis from the lease commencement date to the earlier of the end of the
useful life of the right of use asset or the end of the lease term. The Group also assesses the right of use asset for impairment when such
indicators exist. At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at
that date, discounted using the interest rate implicit in the lease if that rate is readily available or at the Group’s incremental borrowing
rate. Lease payments included in the measurement of the lease liability are made up of fixed payments (including in-substance fixed),
variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee, and payments arising
from purchase and extension options reasonably certain to be exercised.
Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect
any reassessment or modification, or if there are changes to in-substance fixed payments. When the lease liability is remeasured, the
corresponding adjustment is reflected in the right of use asset, or profit and loss if the right of use asset is already reduced to zero.
The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of
recognising a right of use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on
a straight-line basis over the lease term.
The Group has applied judgement to determine the lease term for contracts in which it is a lessee that include renewal options. The
assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the
lease liabilities and right of use assets recognised.
Employee Benefit Trust
Ordinary shares purchased by the Employee Benefit Trust on behalf of the parent company under the Terms of the Share Option Plan
are deducted from equity on the face of the Consolidated Statement of Financial Position. No gain or loss is recognised in relation to
the purchase, sale, issue or cancellation of the parent company’s ordinary shares.
The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based
on historical experience and other factors, including expectations of future events that are believed to be reasonable under the
circumstances. In the future, actual experience may differ from these estimates and assumptions.
3 Critical Accounting Estimates and Judgements
Judgements
The judgements, apart from those involving estimations, that management have made in the process of applying the Group’s accounting
policies and that have the most significant effect on the amounts recognised in the financial statements, are outlined below.
– Group
– Functional Currency: The Directors have considered the requirements of IAS 21 in determining the currency that most faithfully
represents the economic effects of the underlying transactions, events and conditions to determine the Group’s functional currency.
Detailed consideration has been given to both the Primary and Secondary Indicators in forming this conclusion. The Primary
Indicators relate to revenues, regulation, competitive forces and costs, while the Secondary Indicators are primarily concerned with
financing the business and the currency in which receipts from operating activities are usually retained. With a mix of currencies
dominating the indicators, there is no clear single currency that influences the Group, however the EUR remains marginally the most
dominant when all factors are considered. Therefore the Directors consider the EUR as the currency that most faithfully represents
the economic effects of the underlying transactions, events and conditions.
– Business Combinations: When acquiring a business, the Group is required to identify and recognise intangible assets, the
determination of which requires a significant degree of judgement. Acquisitions may also result in intangible benefits being brought
into the Group, some of which qualify for recognition as intangible assets while other such benefits do not meet the recognition
requirements of IFRS and therefore form part of goodwill. Customer relationships are recognised as separate assets where revenues
are recurring in nature and material revenues have been generated with the customer for a continuous period of 3 years. For the
Game Development service line, the key asset acquired is typically “know-how”, an asset that is not readily measurable and thus
intrinsically linked to goodwill. Relationships are typically short term contract based rather than relationship based. Therefore neither
customer contracts nor customer relationships are typically recognised on the acquisition of a Game Development business.
– IFRS 16 Leases: The Group has determined that the Group’s incremental borrowing rate is the appropriate rate to use to discount
lease liabilities. The Group has applied judgement to determine the lease term for contracts in which it is a lessee that include
renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term,
which significantly affects the lease liabilities and right of use assets recognised.
– Significant Events and Transactions: The effects of COVID-19 have required significant judgements and estimates to be made.
These issues are considered in note 28 in the context of the impact the pandemic has had on the Group.
Keywords Studios plc / Annual Report and Accounts 2020 100/101
– Company
– Expected Credit Loss Provision on Company Receivables from Subsidiaries: As outlined in note 26, the Company has significant
receivables from subsidiaries primarily related to investments in acquisitions. The Directors have taken into account both the ongoing
acquisition integration program and the cash generating capacity of the Group, in concluding (in note 23) that all such loans are
recoverable and the expected credit loss provisions are adequate.
Estimates and Assumptions
The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based
on historical experience and other factors, including expectations of future events that are believed to be reasonable under the
circumstances. In the future, actual experience may differ from these estimates and assumptions.
A number of areas requiring the use of estimates and critical judgements impact the Group’s earnings and financial position. These include
revenue recognition, the computation of income taxes, the value of goodwill and intangible assets arising on acquisitions, the valuation
of multimedia tax credits/video game tax relief, leasing and the valuation of defined retirement benefits. The Directors consider that no
reasonably possible changes to any of the assumptions used in the estimates would in the view of the Directors give rise to significant risk
of a material adjustment to the carrying value of the associated balances in the subsequent financial year.
4 Revenue from Contracts with Customers and Segmental Analysis
Revenue from Contracts with Customers
Revenue recognised in the reporting period arises from contracts with customers, and is predominantly recognised over time. There were
no significant amounts of revenue recognised in the reporting period that were included in a contract liability balance at the beginning of
the reporting period, or from performance obligations satisfied in the previous reporting period.
Revenue by line of business
Art Creation & Marketing
Game Development
Audio*
Functional Testing
Localization*
Localization Testing
Player Support
2020
€’000
57,324
80,017
47,232
78,479
45,357
23,323
41,806
2019
€’000
43,601
66,290
41,856
68,930
47,060
22,638
36,088
373,538
326,463
*
The prior year comparative has been re-classified to reflect the current year presentation as the Directors consider this to be more meaningful.
Financial Statements
Notes forming part of the consolidated and company financial statements continued
4 Revenue from Contracts with Customers and Segmental Analysis continued
Analysis by geographical regions is made according to the Group’s operational jurisdictions. For many contracts, operations are completed
in multiple sites. Revenue is associated with the jurisdiction from which the final invoice to the client is raised. This does not reflect the
region of the Group’s customers; whose locations are worldwide.
Geographical analysis of revenues
Ireland
United States
United Kingdom
Canada
Switzerland
Japan
Italy
France
India
Germany
Singapore
Spain
Mexico
Poland
China
Brazil
2020
€’000
2019
€’000
149,185
118,095
62,890
56,932
37,564
17,823
17,518
7,960
6,341
5,171
4,973
2,159
1,293
1,158
943
857
771
52,265
41,768
48,112
19,045
15,501
9,395
7,606
6,355
1,920
1,637
1,588
398
1,285
691
802
373,538
326,463
No single customer accounted for more than 10% of the Group’s revenue during the year in either year presented.
Revenue Expected to be Recognised
For Game Development, games are developed to an agreed specification and time schedule, and often have delivery schedules and/or
milestones that extend well into the future. The following are Game Development revenues expected to be recognised for contracts with a
schedule of work that extends beyond one year, representing the aggregate amount of the transaction price allocated to the performance
obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period:
Revenue expected to be recognised
At 31 December 2020
At 31 December 2019
Total undelivered
€’000
13,538
24,645
Scheduled
completion
within 1 year
€’000
12,991
23,593
Scheduled
completion
1-2 years
€’000
547
1,052
For all service lines excluding Game Development, contracts do not extend to more than one year, therefore information concerning
unsatisfied performance obligations are not disclosed, as allowed under the practical expedient exemption under IFRS 15. This practical
expedient is also availed of for Game Development contracts of less than one year in duration.
Segmental Analysis
Management considers that the Group’s activity as a single source supplier of services to the gaming industry 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 seven
main service groupings.
There is no allocation of operating expenses, profit measures, assets and liabilities to individual product groupings. Accordingly, the
disclosures above are provided on a Group-wide basis.
Keywords Studios plc / Annual Report and Accounts 2020
102/103
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 Chief
Financial Officer.
Geographical analysis of non-current assets from continuing businesses
United States
United Kingdom
Canada
Italy
Switzerland
Ireland
China
France
Spain
Germany
Japan
Philippines
India
Mexico
Poland
Brazil
Russia
Singapore
Netherlands
Taiwan
Geographical analysis of non-current assets from continuing businesses
Deferred tax assets
Non-current assets
5 Cost of Sales and Operating Profit
Cost of sales
Operating expenses
Multimedia tax credits/video game tax relief
Other direct costs
Operating profit is stated after charging/(crediting):
Depreciation – property, plant and equipment
Depreciation – right of use assets
Amortisation of intangible assets
Costs of acquisition and integration
Auditor’s remuneration
Short term leases
Investment income
2020
€’000
131,405
57,611
27,094
13,480
10,116
13,514
7,491
7,302
5,101
5,291
5,551
2,110
2,182
1,901
1,777
835
681
1,532
59
3
2019
€’000
84,139
52,233
29,772
12,222
10,644
9,296
8,776
6,725
5,924
5,250
3,905
2,798
2,526
2,164
1,563
1,247
925
225
64
3
295,036
240,401
295,036
14,649
309,685
2020
€’000
238,664
(15,593)
8,695
231,766
2020
€’000
8,983
8,402
8,808
2,650
553
1,747
(1,437)
240,401
5,060
245,461
2019
€’000
213,011
(16,063)
9,286
206,234
2019
€’000
7,295
7,849
7,318
4,348
499
1,616
–
Financial Statements
Notes forming part of the consolidated and company financial statements continued
5 Cost of Sales and Operating Profit continued
Costs of acquisition and integration
Acquisition and integrations costs re: current year acquisitions (note 27)
Acquisition and integrations costs re: prior acquisitions
Fair value adjustments to contingent consideration (note 18)
Deferred consideration related to continuing employment
Acquisition related and other borrowing costs
Acquisition team and related costs
Fair value adjustments to right of use assets (note 12)
Other re-organisation and restructuring costs
Auditor’s remuneration
Audit services:
Parent company and Group audit
Subsidiary companies audit
Non-audit services:
Audit related assurance services
Investment income
Gain on disposal of investment
2020
€’000
307
743
(66)
649
–
247
434
336
2,650
2020
€’000
290
250
13
553
2020
€’000
(1,437)
(1,437)
2019
€’000
535
406
493
567
262
550
–
1,535
4,348
2019
€’000
285
202
12
499
2019
€’000
–
–
The Group acquired a minor holding in Hutch Games Limited, when Keywords purchased Liquid Development studio in 2015. During
2020, Hutch Games was acquired and the Group received proceeds of USD$1.7m (€1.4m) in December, and will become entitled to receive
further consideration of up to USD$450K over the period 2022 through 2025, subject to earn out targets being met.
6 Financing Income and Cost
Financing income
Interest received
Financing cost
Bank charges
Interest expense
Unwinding of discounted liabilities – lease liabilities
Unwinding of discounted liabilities – deferred consideration
Foreign exchange loss
Net financing income/(cost)
2020
€’000
76
76
(552)
(1,071)
(843)
(132)
(6,103)
(8,701)
(8,625)
2019
€’000
74
74
(629)
(934)
(694)
(330)
(1,658)
(4,245)
(4,171)
Keywords Studios plc / Annual Report and Accounts 2020
7 Taxation
Current income tax
Income tax on profits of parent company
Income tax on profits of subsidiaries
Deferred tax (note 22)
The tax charge for the year can be reconciled to accounting profit as follows:
Profit before tax
Tax charge based on the Effective tax rate*
Tax settlement regarding a pre-acquisition issue
Income tax prior year (over)/under provision
Deferred tax prior year (over)/under provision and impact of change in tax rates
Items disallowed for tax purposes
Exempt and non-taxable income
Tax incentives
Current year tax losses utilised
Current year tax losses where deferred tax has not been provided
State and other direct taxes
Other differences – net
Total tax charge
* Effective tax rate – being the statutory tax rate relative to the profit before tax in each jurisdiction
104/105
2019
€’000
(3)
8,523
(1,058)
7,462
2019
€’000
17,371
4,519
491
(929)
(369)
4,354
(133)
(1,524)
(1,176)
1,064
1,473
(308)
7,462
26.0%
2020
€’000
–
13,899
(2,872)
11,027
2020
€’000
32,494
8,071
–
(1,302)
402
3,846
258
(892)
(3)
477
548
(378)
11,027
24.8%
The Group’s subsidiaries are located in different jurisdictions and are taxed on their residual profit in those jurisdictions. The effective tax
rate will vary year on year due to the effect of changes in tax rates and changes in the proportion of profits in each jurisdiction.
Tax effects relating to each component of other comprehensive income
Exchange gain/(loss) in net investments foreign operations
Tax (expense)/benefit
Net of tax amount
Actuarial gain/(loss) on defined benefit plans
Tax (expense)/benefit
Net of tax amount
Exchange gain/(loss) on translation of foreign operations
Tax (expense)/benefit
Net of tax amount
2020
€’000
(4,909)
614
(4,295)
(421)
–
(421)
(10,843)
–
(10,843)
2019
€’000
1,267
–
1,267
(167)
5
(162)
5,960
–
5,960
Financial Statements
Notes forming part of the consolidated and company financial statements continued
8 Earnings per Share
Basic
Diluted
Earnings
Profit for the period from continuing operations
Weighted average number of equity shares
Basic (i)
Diluting impact of Share options (ii)
Diluted (i)
(i) Includes (weighted average) shares to be issued:
2020
€ cent
30.32
28.71
€’000
21,467
2019
€ cent
15.23
14.73
€’000
9,909
Number
Number
70,800,455
65,081,403
3,959,878
2,187,083
74,760,333
67,268,486
Number
242,077
Number
510,350
(ii) Contingently issuable Ordinary Shares have been excluded where the conditions governing exercisability have not been satisfied:
LTIPs
Share options
Number
Number
–
–
–
2,067,536
1,128,000
3,195,536
Details of the number of share options outstanding at the year-end are set out in note 17.
9 Dividends
Dividends paid
Final
Interim
Dividends paid to shareholders 2019
In respect of
Approval
date
€ cent per
share
Pence STG
per share
2018
2019
Apr-19
Sep-19
1.21
0.65
1.86
1.08
0.58
1.66
Total
dividend
€’000
773
424
1,197
Payment
date
Jun-19
Oct-19
At 31 December 2020, Retained earnings available for distribution (being retained earnings plus share option reserve) in the Company
were €25.5m (2019: €16.4m). In addition, certain amounts within Merger reserve are considered distributable (see note 16).
In light of COVID-19 the Directors have not recommended any dividend payments for 2020, however the Directors do not foresee any
impediment in continuing to implement the dividend policy of the Group moving forward.
The Group does not recognise deferred tax on unremitted retained earnings, as in general, retained earnings (as dividends) are only
remitted where there are minimal or no tax consequences.
Keywords Studios plc / Annual Report and Accounts 2020
10 Staff Costs
Total staff costs (including Directors)
Salaries and related costs
Social welfare costs
Pension costs
Share option expense
Average number of employees
Operations
General and administration*
106/107
Group
Company
2020
€’000
198,064
21,623
5,212
15,350
2019
€’000
177,156
19,340
4,662
9,775
240,249
210,933
2020
€’000
2,626
312
96
15,350
18,384
2019
€’000
1,658
197
61
9,775
11,691
Group
Company
2020
7,768
585
8,353
2019
6,778
646
7,424
2020
2019
4
22
26
2020
€’000
1,188
366
45
1,604
3,203
–
26
26
2019
€’000
1,384
140
35
943
2,502
*
In 2020 certain support functions (approximately 80 staff) that are managed by Operations were re-designated to Operations.
Key management compensation
Salaries and related costs
Social welfare costs
Pension costs
Share option expense
The key management compensation includes compensation to seven Directors of Keywords Studios PLC during the year (2019: eight), and
also includes additional executives of the Group.
Financial Statements
Notes forming part of the consolidated and company financial statements continued
11 Intangible Assets
Cost
At 1 January 2019
Recognition on acquisition of subsidiaries
Additions
Exchange rate movement
At 31 December 2019
Recognition on acquisition of subsidiaries
Additions
Exchange rate movement
At 31 December 2020
Accumulated amortisation
At 1 January 2019
Amortisation charge
Exchange rate movement
At 31 December 2019
Amortisation charge
Impairment charge
Exchange rate movement
At 31 December 2020
Net book value
At 1 January 2020
At 31 December 2020
Goodwill
€’000
Customer
relationships
€’000
Intellectual
property/
Development
costs
€’000
Music licences
€’000
Total
€’000
154,202
16,950
–
4,487
175,639
47,112
–
(10,587)
212,164
–
–
–
–
–
147
–
147
175,639
212,017
36,713
–
–
907
37,620
17,673
–
(2,870)
52,423
12,671
7,001
346
20,018
6,421
–
(1,261)
25,178
17,602
27,245
1,521
1,615
391
–
3,527
–
259
13
3,799
–
–
–
–
327
1,913
11
2,251
3,527
1,548
436
–
–
18
454
–
–
–
454
115
317
21
453
–
–
1
454
1
–
192,872
18,565
391
5,412
217,240
64,785
259
(13,444)
268,840
12,786
7,318
367
20,471
6,748
2,060
(1,249)
28,030
196,769
240,810
Customer relationships, intellectual property/development costs and music licences are amortised on a straight-line basis over five years.
Customer relationships and music licence amortisation commences on acquisition, whereas intellectual property/development costs
amortisation commences when the product is launched.
Impairment tests for goodwill
The Group assesses the carrying value of goodwill each year on the basis of budget projections for the coming year extrapolated using
a one to five year growth rate and a terminal value calculated using a long term growth rate projection. The discount rate used of 12.5%
(2019: 12.5%) is based on the Board’s assessment of the weighted average cost of capital (“WACC”) of the Group. The WACC assessment
is supported by an annual independently calculated report, using the Capital Asset Pricing Model. However, the Board have excluded the
impact of short term market volatility on these calculations in determining the Group WACC.
Key assumptions
1 to 5 year growth rate assumption
Long term growth rate assumption
Value in use (€m)
Carrying value – goodwill (€m)
Actual
Sensitivity analysis
2020
10%
2%
532
212
2019
10%
2%
469
176
2020
15%
2%
636
2019
15%
2%
560
2020
5%
2%
452
2019
5%
2%
398
The value in use calculations were consistently calculated year over year, with no significant changes in the assumptions made. The result
of the value in use calculations was that no impairment is required in this period. The Directors consider that no reasonably probable
change in the assumptions would result in an impairment.
Specific impairment reviews
Specific impairment reviews were performed for other intangible asset classes where it was considered COVID-19 had the potential to
trigger an impairment. Due to the uncertainty caused by COVID-19 an impairment charge of €2,060k (2019: €nil) was recognised in the
period, related to intangible assets in certain early technology pre-revenue businesses, fully impairing their carrying value.
Keywords Studios plc / Annual Report and Accounts 2020
108/109
12 Right of Use Assets
The Group has entered into leases, across the business, principally relating to property. These property leases have varying terms and
renewal rights.
Group
Company
2020
€’000
2019
€’000
2020
€’000
2019
€’000
Cost
At 1 January
Adjustments from adoption of IFRS 16
Additions
Recognition on acquisition of subsidiaries
Exchange rate movement
At 31 December
Accumulated depreciation
At 1 January
Depreciation charge
Impairment charge
Exchange rate movement
At 31 December
Net book value
At 1 January
At 31 December
–
825
29,384
–
15,035
2,376
(2,703)
23,138
4,315
990
941
44,092
29,384
7,915
8,402
434
(466)
–
7,849
–
66
16,285
7,915
21,469
27,807
–
21,469
–
–
–
(44)
781
206
200
–
(14)
392
619
389
–
785
–
–
40
825
–
200
–
6
206
–
619
Financial Statements
Notes forming part of the consolidated and company financial statements continued
13 Property, Plant and Equipment
Group
Cost
At 1 January 2019
Exchange rate movement
Additions
Acquisitions through business combinations at fair value
Disposals
At 31 December 2019
Exchange rate movement
Additions
Acquisitions through business combinations at fair value
Disposals
At 31 December 2020
Accumulated depreciation
At 1 January 2019
Exchange rate movement
Depreciation charge
Disposals
At 31 December 2019
Exchange rate movement
Depreciation charge
Disposals
At 31 December 2020
Net book value
At 1 January 2020
At 31 December 2020
Computers and
software
€’000
Office furniture
and equipment
€’000
Leasehold
improvements
€’000
18,325
1,042
6,815
300
(1,639)
24,843
(2,058)
8,338
523
(2,440)
29,206
10,361
639
5,226
(1,501)
14,725
(1,378)
5,979
(2,440)
16,886
10,118
12,320
5,407
275
1,657
232
(824)
6,747
(155)
541
125
(352)
6,906
2,691
160
703
(803)
2,751
35
868
(352)
3,302
3,996
3,604
5,804
497
4,673
231
(44)
11,161
(1,339)
5,029
197
(136)
14,912
1,482
267
1,366
(3)
3,112
(695)
2,136
(136)
4,417
8,049
10,495
Total
€’000
29,536
1,814
13,145
763
(2,507)
42,751
(3,552)
13,908
845
(2,928)
51,024
14,534
1,066
7,295
(2,307)
20,588
(2,038)
8,983
(2,928)
24,605
22,163
26,419
Keywords Studios plc / Annual Report and Accounts 2020
Company
Cost
At 1 January 2019
Additions
At 31 December 2019
Additions
At 31 December 2020
Accumulated depreciation
At 1 January 2019
Depreciation charge
At 31 December 2019
Depreciation charge
At 31 December 2020
Net book value
At 1 January 2020
At 31 December 2020
14 Trade Receivables
Group
Trade receivables
Provision for bad debts (note 23)
Financial asset held at amortised cost
110/111
Total
€’000
417
13
430
7
437
28
45
73
47
120
357
317
Computers and
software
€’000
Office furniture
and equipment
€’000
Leasehold
improvements
€’000
4
1
5
7
12
2
1
3
2
5
2
7
145
–
145
–
145
8
15
23
15
38
122
107
268
12
280
–
280
18
29
47
30
77
233
203
2020
€’000
49,814
(1,982)
47,832
2019
€’000
44,526
(1,283)
43,243
Trade receivables arise from revenues derived from contracts with customers.
Financial Statements
Notes forming part of the consolidated and company financial statements continued
15 Other Receivables
Group – Short term
Accrued income from contracts with customers
Prepayments
Rent deposits and other receivables
Multimedia tax credits/video games tax relief
Tax and social security
Company – Short term
Intercompany receivables (financial assets held at amortised cost, see note 23)
Prepayments
Other receivables
Company – Long term
Intercompany receivables (financial assets held at amortised cost, see note 23)
2020
€’000
9,202
4,608
4,816
16,668
3,371
38,665
2020
€’000
5,126
556
139
5,821
2020
€’000
258,536
258,536
2019
€’000
7,010
4,089
3,151
17,626
3,537
35,413
2019
€’000
15,220
702
174
16,096
2019
€’000
208,352
208,352
Accrued income from contracts with customers, represent mainly contract assets in process and related items. The movement in the year
is comprised of transfers in and out as items are accrued and subsequently invoiced to customers, with no significant amounts written off
or impaired in the period, or no significant amounts recognised on the acquisition of subsidiaries.
Keywords Studios plc / Annual Report and Accounts 2020
112/113
16 Shareholders’ Equity and Prior Year Restatement of Share Premium to Merger Reserve
Share Capital
Per
share €
Number of
ordinary
£0.01 shares
Issue date
Number of
ordinary
£0.01 shares
– to be
issued
Share
capital
€’000
Share capital
– to be
issued
€’000
Share
premium
€’000
Merger
reserve
€’000
63,788,286
923,139
763
15,648
19,964
118,257
At 01 January 2019 (restated)
Acquisition related issuance of
shares:
Sunny Side Up
Sperasoft
04–Jan–19
12.46
–
60,179
16–Jan–19
16.48
243,442
(243,442)
Sperasoft re: bonus to employees
16–Jan–19
Fire Without Smoke
Red Hot
04–Jun–19
06–Jun–19
14.13
20.12
9.12
7,801
–
77,006
(77,006)
160,297
(160,842)
Descriptive Video Works
11–Jun–19
17.93
–
35,560
Blindlight
Snowed In
26–Jun–19
20.57
12–Aug–19
19.55
64,521
37,983
(64,521)
(37,983)
Studio Gobo and Electric Square
20–Aug–19
24–Sep–19
01–Oct–19
19.74
21.31
13.12
26–Nov–19
15.94
12–Dec–19
15.86
254,949
(254,529)
11,070
(11,070)
–
–
–
68,608
70,246
41,382
–
3
–
1
2
–
1
–
3
–
–
–
–
750
(4,013)
–
(1,549)
(1,468)
638
(1,327)
(743)
(5,024)
(236)
900
1,120
614
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,010
110
1,548
1,461
–
1,326
743
5,021
236
–
–
–
14,455
857,069
(573,418)
10
(10,338)
1.34
567,160
–
65,212,515
349,721
7
780
–
754
–
5,310
20,718
132,712
The Trailerfarm
TV+SYNCHRON
Ichi
Kantan
Acquisition related issuance of
shares
Issue of shares on exercise of share
options
At 31 December 2019 (restated)
Acquisition related issuance of
shares:
Sunny Side Up
Laced
Cord Worldwide
Descriptive Video Works
06–Jan–20
12.46
14–Apr–20
14–Apr–20
12–Jun–20
17.48
17.48
17.93
60,179
8,194
65,550
35,560
(60,179)
(8,194)
(65,550)
(35,560)
Coconut Lizard
25–Jun–20
20.23
–
19,739
Studio Gobo and Electric Square
19–Aug–20
16.72
198,576
–
Maverick Media
TV+SYNCHRON
Ichi
G-Net Media
Jinglebell
High Voltage Software
Indigo Pearl
Kantan
26–Aug–20
24.63
–
13,579
05–Oct–20
13.12
02–Dec–20
15.95
24–Nov–20
23.26
10–Dec–20
25.94
14–Dec–20
26.06
15–Dec–20
26.27
68,608
55,612
–
–
–
–
(68,608)
(55,612)
130,448
11,564
307,597
20,125
22–Dec–20
15.86
26,085
(26,085)
Acquisition related issuance of
shares
518,364
183,264
Share placing
20–May–20
16.23
6,900,000
Issue of shares on exercise of share
options
0.96
1,448,364
–
–
At 31 December 2020
74,079,243
532,985
1
–
1
–
–
2
–
1
1
–
–
–
–
–
6
77
16
879
(750)
(143)
(1,145)
(638)
399
–
334
(900)
(886)
3,034
300
8,017
529
(414)
7,737
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
749
143
1,145
637
–
3,319
–
899
886
–
–
–
–
414
8,192
109,372
2,233
–
13,047
22,951
250,276
Financial Statements
Notes forming part of the consolidated and company financial statements continued
16 Shareholders’ Equity and Prior Year Restatement of Share Premium to Merger Reserve continued
Subject to applicable law, the Company’s articles of association and any relevant authority of the Company passed by the shareholders in
general meeting, there is no limit to the number of shares which the Company can issue, nor are there are any restrictions on dividends or
distributions on such shares. In the context of the Company’s general meeting authorities, at the AGM of 27 May 2020, shareholders gave
the Directors the authority to allot shares (or grant rights to subscribe for, or convert any security into, shares) in the Company up to:
a) 3,283,791 shares in respect of the Company’s Long Term Incentive Plan and Share Option Plan (5% of the Company’s issued share
capital as at 20 April 2020); and
b) otherwise, up to 21,870,054 shares (33.3% of the Company’s issued share capital as at 20 April 2020).
This authority is considered prudent as it gives the Company flexibility to take advantage of possible opportunities which may arise from
time to time. The authority granted at the 2020 AGM will expire on the earlier of (i) 15 months after 27 May 2020; and (ii) the conclusion
of the 2021 AGM.
Shares to be issued are valued at the share price at the date of acquisition, and are recorded in accordance with IAS 32.16.
Shares held in the Employee Benefit Trust (“EBT”)
Ordinary shares held in the EBT
2020
Shares
335,425
€’000
1,997
2019
Shares
335,425
€’000
1,997
Reserves
The following describes the nature and purpose of each reserve within owners’ equity:
Reserve
Description and purpose
Retained earnings
Cumulative net gains and losses recognised in the Consolidated Statement of Comprehensive Income.
Foreign exchange reserve
Gains or losses arising on retranslation of the net assets of the overseas operations into Euro.
Share premium
Share option reserve
Shares to be issued
The share premium account is the amount received for shares issued in excess of their nominal value,
net of share issuance costs.
The share option reserve is the credit arising on share-based payment charges in relation to the
Company’s share option schemes.
For deferred consideration which is to be provided for by the issue of a fixed number of shares at a
future defined date, where there is no obligation on Keywords to offer a variable number of shares, the
deferred consideration is classified as an Equity Arrangement and the value of the shares is fixed at the
date of the acquisition.
Merger reserve
The merger reserve was initially created following the Group reconstruction, when Keywords Studios
PLC acquired the Keywords International Limited group of companies.
When the Group uses Keywords Studios PLC shares as consideration for the acquisition of an entity,
the value of the shares in excess of the nominal value (net of share issuance costs) is also recorded
within this reserve, in line with S612 of the Companies Act 2006.
Keywords Studios plc / Annual Report and Accounts 2020
114/115
Prior Year Restatement of Share Premium to Merger Reserve
In May 2020, the Company completed a placing of 6,900,000 new ordinary shares issued at a price of €16.23 (£14.50) per share,
representing approximately 10.5% of the issued share capital prior to the placing. Net of transaction costs, the placing raised proceeds of
approximately €110m (£98m). The placing was made via a cash box structure, resulting in the Company acquiring the proceeds via a share
for share exchange and hence the premium on the issuance of new shares of €109.5m has been credited to Merger reserve (in accordance
with S610 of the Companies Act 2006). At the time of the placement, the proceeds were not allocated to a specific acquisition or specific
purpose, and thus this reserve is considered distributable. The new shares rank pari passu in all respects with the existing ordinary shares
of the Company, including the right to receive all future dividends and other distributions declared or paid after the date of placing.
Following completion of the share placement via the cash box structure in May 2020, a review of the Company’s merger reserves was
performed. It was identified that the premium on shares issued as part of the share placement in 2017 of €82.3m, was incorrectly recorded
in non-distributable share premium. As the placing was also made via a cash box structure, resulting in the Company acquiring the
proceeds via a share for share exchange, the premium on the issuance of new shares of €82.3m should have been credited to Merger
reserve (in accordance with S610 of the Companies Act 2006). At the time of the placing the proceeds were identified as allocated to
specific acquisitions. Hence the reserve is not considered distributable, but may become distributable in the future. The premium has
been re-designated to Merger reserve and the prior period balances have been restated accordingly.
Prior period restatement
At 1 January 2019 – as reported
Reclassification of Share premium within Reserves
At 1 January 2019 – as restated
Share premium
€’000
Merger reserve
€’000
102,225
(82,261)
19,964
35,996
82,261
118,257
It was further identified that the share premium of €14.4m on the share placement in 2015, again via a cash box structure, that was posted
to Merger reserve in 2015, is in fact distributable (as at the time of the placement the proceeds were not allocated to a specific purpose).
For clarity, this transaction for €14.4m, together with the €109.5m from the share placement in 2020 (totalling €123.9m) that are included
in the Merger reserve, are considered distributable.
17 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 to these arrangements is as follows:
Share option scheme expense
LTIP option expense
Of the total share option expense, €1,007k relates to Directors of the Company (2019: €754k).
2020
€’000
2,576
12,774
15,350
2019
€’000
1,520
8,255
9,775
Financial Statements
Notes forming part of the consolidated and company financial statements continued
17 Share Options continued
Share Option Scheme
Share options are granted to Executive Directors and to permanent employees. The exercise price of the granted options is equal to the
market price of 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.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
Outstanding at the beginning of the period
Granted
Lapsed
Exercised
Outstanding at the end of the period
Exercisable at the end of the period
Weighted average share price at date of exercise
Summary by year
Year of Option
Exercise price
2020
2019
Average
exercise price in
£ per share
9.97
15.93
15.64
4.55
12.66
4.39
17.91
Number of
options
2,148,102
822,000
(179,151)
(445,713)
2,345,238
638,238
Average
exercise price in
£ per share
7.11
15.88
14.74
2.66
9.96
1.89
15.98
Number of
options
1,832,701
729,000
(175,807)
(237,792)
2,148,102
809,440
2013
£1.23
2015
£1.58
2016
£2.54
2017
£7.76
2018
2019
2020
Total
£17.10
£15.88
£15.93
Outstanding at the beginning of the period
178,559
544,481
91,229
205,833
469,500
658,500
– 2,148,102
Granted
Lapsed
Exercised
Outstanding at the end of the period
Exercisable at 31 December 2020
Exercisable 2021
Exercisable 2022
Exercisable 2023
Exercisable 2024
–
–
–
–
–
–
–
822,000
822,000
(1,420)
(1,601)
(10,139)
(36,839)
(69,713)
(59,439)
(179,151)
(178,559)
(84,448)
(55,332)
(68,660)
(57,679)
(787)
(248)
(445,713)
–
–
–
–
–
–
458,613
34,296
127,034
374,982
588,000
762,313 2,345,238
458,613
34,296
53,034
91,982
–
313
638,238
–
–
–
–
–
–
–
–
74,000
141,500
196,000
–
411,500
–
–
–
141,500
196,000
254,000
591,500
–
–
196,000
254,000
450,000
–
254,000
254,000
The inputs into the Black-Scholes model, used to value the options are as follows:
Year of Option
Weighted average share price (£)
Weighted average exercise price (£)
Fair value at measurement date (€)
2013
£1.23
£1.23
€0.81
2015
£1.64
£1.58
€0.56
2016
£2.54
£2.54
€0.40
2017
£7.75
£7.76
€1.13
2018
2019
2020
Total
£17.22
£16.09
£16.00
£17.10
£15.88
£15.93
€3.79
€5.72
€6.06
Average expected life
Expected volatility
Risk free rates
Average expected dividend yield
Weighted average remaining life of options
in months
4 Years
4 Years
4 Years
4 Years
4 Years
4 Years
4 Years
36.12%
28.03%
27.17%
24.79%
35.87%
45.23%
50.15%
0.50%
1.00%
0.90%
0.75%
0.58%
0.55%
0.16%
0.21%
0.89%
0.10%
0.81%
0.10%
0.07%
0.10%
–
–
–
5
17
29
41
24
Expected volatility was determined by reference to KWS volatility. The expected life used in the model has been adjusted based on
management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
Keywords Studios plc / Annual Report and Accounts 2020
116/117
Long Term Incentive Plan Scheme
LTIP share awards are subject to KWS performance versus the designated share index over a three-year period.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
Outstanding at the beginning of the period
Granted
Lapsed
Exercised
Outstanding at the end of the period
Exercisable at the end of the period
Weighted average share price at date of exercise
2020
2019
Average
exercise price in
£ per share
0.01
0.01
0.01
0.01
0.01
0.01
17.34
Number of
options
3,445,868
1,428,000
(178,400)
(1,002,651)
3,692,817
373,648
Average
exercise price in
£ per share
0.01
0.01
0.01
0.01
0.01
0.01
16.17
Number of
options
2,677,467
1,298,136
(200,367)
(329,368)
3,445,868
732,299
Summary by year
Year of Option
Exercise price
2013
£0.01
2015
£0.01
2016
£0.01
2017
£0.01
2018
£0.01
2019
£0.01
2020
£0.01
Total
Outstanding at the beginning of the period 204,273
200,959
327,067
644,000
857,000 1,212,569
–
3,445,868
Granted
Lapsed
Exercised
–
–
–
–
–
–
–
–
–
– 1,428,000
1,428,000
(58,000)
(76,600)
(43,800)
(178,400)
(204,273)
(153,601)
(196,807)
(447,970)
–
–
–
(1,002,651)
Outstanding at the end of the period
Exercisable at 31 December 2020
Exercisable 2021
Exercisable 2022
Exercisable 2023
–
–
–
–
–
47,358
130,260
196,030
799,000 1,135,969 1,384,200
3,692,817
47,358
130,260
196,030
–
–
–
–
–
–
–
–
–
–
–
–
799,000
– 1,135,969
–
–
–
373,648
799,000
1,135,969
–
– 1,384,200
1,384,200
The inputs into the Monte Carlo binomial model, used to value the options are as follows:
Year of Option
Weighted average share price (£)
Weighted average exercise price (£)
Fair value at measurement date (€)
Average expected life
Expected volatility
Risk free rates
2013
£1.23
£0.01
€0.62
2015
£1.60
£0.01
€1.38
2016
£2.56
£0.01
€1.74
2017
£7.75
£0.01
€4.96
2018
2019
2020
Total
£17.24
£16.05
£16.00
£0.01
£0.01
£0.01
€11.83
€13.98
€13.28
3 Years
3 Years
3 Years
3 Years
3 Years
3 Years
3 Years
36.12%
28.21%
27.11%
24.79%
35.87%
45.26%
50.15%
0.50%
0.88%
0.54%
0.16%
0.89%
0.81%
0.07%
Weighted average remaining life of options
in months
–
–
–
–
5
17
29
17
Expected volatility was determined by reference to KWS volatility. The expected life used in the model 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.
LTIP’s vest on the third anniversary of the grant, if the market performance criteria are met. LTIPs must be exercised before the seventh
anniversary of the grant.
Financial Statements
Notes forming part of the consolidated and company financial statements continued
18 Other Payables
Current liabilities
Accrued expenses
Payroll taxes
Other payables (ii)
Deferred and contingent consideration (i)
Intercompany payables
Non-current liabilities
Other payables (ii)
Deferred and contingent consideration (i)
Intercompany payables
Group
2020
€’000
31,086
2,563
10,501
18,808
–
62,958
–
1,994
–
1,994
2019
€’000
22,809
3,833
6,104
5,966
–
38,712
216
69
–
285
(i) The movement in deferred and contingent consideration during the financial year was as follows:
Carrying amount at the beginning of the year
Consideration settled by cash
Consideration settled by shares
Unwinding of discount (note 6)
Additional liabilities from current year acquisitions (note 27)
Fair value adjustments
Exchange rate movement
Group
2020
€’000
6,035
(2,489)
(3,321)
132
21,131
(66)
(620)
2019
€’000
19,306
(14,711)
–
330
238
493
379
Carrying amount at the end of the year
20,802
6,035
Company
2020
€’000
1,053
412
33
–
8,481
9,979
–
–
–
–
2019
€’000
818
118
271
–
10,091
11,298
–
–
5,561
5,561
Company
2020
€’000
2019
€’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
In general, in order for contingent consideration to become payable, pre-defined profit and/or revenue targets must be exceeded. The
valuation of contingent consideration is derived using data from sources that are not widely available to the public and involves a degree
of judgement (Level 3 input in the fair value hierarchy). On an undiscounted basis, the Group may be liable for deferred and contingent
consideration ranging from €0.2m to a maximum of €26.4m. A 10% movement in expected performance results, has no impact on the fair
value of the contingent consideration, and hence there are no reasonably probable changes to the assumptions and inputs (including the
discount rate), that would lead to a material change to the fair value of the total amount payable.
(ii) Other payables includes deferred income from contracts with customers of €2,967k (2019: €2,609k), which mainly comprise items
invoiced prior to services being delivered. The movement in the year is comprised of transfers in and out as items are deferred and
subsequently recognised as revenue.
19 Employee Defined Benefit Plans
In line with statutory requirements in France, Italy and India, we are required to maintain employee defined benefit termination
payment schemes.
In France, employees are entitled to a lump-sum on retirement or early termination, based on salary and length of service (‘Indemnité de
Fin de Carrière’ or IFC), entitling the Group’s French employees to benefits of up to 2 month’s salary per year of service.
In Italy, on leaving employment, each employee is entitled to 1/13.5 of their final salary for each year of service (‘Trattamento di Fine
Rapporto’ or TFR).
Keywords Studios plc / Annual Report and Accounts 2020
118/119
In India, in compliance with statutory requirements, employees with over 5 years service are entitled a termination benefit of 15/26
of monthly salary for each year of service (‘Gratuity’ benefits).
The Group commissions an actuarial valuation of the related liabilities in each jurisdiction annually.
The liabilities at year end are recorded as long term. The actuarial gain or loss is recorded separately within Other comprehensive income.
The movements through the year are as follows:
Opening liabilities at 1 January
Liabilities in France recognised at 1 January 2019
Service cost
Interest cost
Benefits paid
Actuarial (gain)/loss recorded
Exchange rate movement
Closing liabilities at 31 December
2020
€’000
2,049
–
354
30
(110)
421
(51)
2019
€’000
1,378
210
307
35
(48)
167
–
2,693
2,049
The Directors have considered the key specific risk factors which the Group faces due to the employee defined benefit plans which
are in place. Having fully considered all specific elements of these plans the Directors believe that the key issues faced are as follows:
– The plan is currently 100% unfunded, there are no specific assets to meet the future liabilities as they fall due, as such there will be
a cash flow impact as the liabilities must be met with current working capital as they fall due.
The Group has taken no specific actions to mitigate against these factors as due to the long-term nature of the plans it is expected that
there will be no sudden financial impact on the Group’s results caused by any of these factors. A maturity profile of the obligation is not
presented as the liability is not significant in the context of the Group, and due to the age profile of employees a significant outlay is not
anticipated for the foreseeable future.
In 2021, the Group expects the costs of the employee benefit plan to be in line with current year levels, as staff levels are anticipated
to not change significantly in the period.
The actuarial valuation is based on the Projected Unit Credit Method, in line with IAS 19.
Cost for year
Service cost
Interest cost
Liabilities in France recognised at 1 January 2019
Actuarial (gain)/loss
Actuarial (gain)/loss
Change due to experience
Change due to demographical assumptions
Change due to financial assumptions
2020
€’000
354
30
–
421
805
2020
€’000
98
(93)
416
421
2019
€’000
307
35
210
167
719
2019
€’000
28
(24)
163
167
Financial Statements
Notes forming part of the consolidated and company financial statements continued
19 Employee Defined Benefit Plans continued
Assumptions Underlying the Actuarial Valuations and Sensitivities of the Assumptions
For the actuarial valuations the following demographic and economic and financial assumptions were applied:
– Mortality probabilities were derived from the population demographics, as recorded by the Government Statistics Offices in
each jurisdiction.
– Disability, retirement age and other relevant demographic assumptions were taken from relevant life assurance statistics.
– Certain inputs were estimated by management including:
– Employee attrition rates, estimated based on company experience in each jurisdiction.
– In Italy, TFR rules allow for early drawdown of benefits in certain circumstances. Such advances were estimated on the basis
of company experience.
Economic and Financial Assumptions
Staff salary increase rate
Inflation rate
Discount rate
Key Statistics
Staff (number)
Average age (years)
Average service (years)
Interest Rate Sensitivities
(0.25)%
0.25%
Mortality Rate Sensitivities
(0.025)%
0.025%
Staff Turn Over Rate Sensitivities
(0.50)%
0.50%
Staff Salary Increase Rate Sensitivities
(0.50)%
0.50%
2020
3.63%
2.93%
1.23%
2020
782
31
4
2020
€’000
2,842
2,568
2020
€’000
2,696
2,693
2020
€’000
2,726
2,664
2020
€’000
2,703
2,745
2019
3.38%
2.06%
1.64%
2019
749
31
4
2019
€’000
2,179
1,964
2019
€’000
2,056
2,054
2019
€’000
2,090
2,046
2019
€’000
2,033
2,103
Keywords Studios plc / Annual Report and Accounts 2020 20 Loans and Borrowings
Maturity analysis of Loans and borrowings
Current
Expiry within 1 year
Non-current
Expiry between 1 and 2 years
Expiry over 2 years
Currency denomination
Euro
Canadian Dollars
120/121
Company
2020
€’000
–
–
–
–
–
–
–
–
2019
€’000
–
–
59,500
59,500
59,500
59,500
–
59,500
Group
2020
€’000
–
–
195
195
195
–
195
195
2019
€’000
80
–
59,671
59,671
59,751
59,500
251
59,751
In 2019 the Company amended and extended it’s existing Syndicated Bank revolving credit facility (‘RCF’). The RCF allows financing of up
to €100m, with an option to increase this by up to €40m to a total of €140m, at a rate based on a margin over EURIBOR, plus a separate
margin charged for the unutilised facility. The RCF extends to October 2022, with an option to extend this maturity date by up to a further
2 years. While technically any borrowings are repaid and re-borrowed multiple times during the term of the RCF, so long as the Group
remains compliant with the financial covenants and certain other terms of the RCF, the debt is rolled from one period to another, with
the legal and commercial substance of a multi-year committed facility. Hence the Group presents liabilities under the RCF as non-current.
In the prior period, the original RCF arrangement which was presented as a current liability during the process of being re-negotiated,
was re-designated to non-current following re-negotiation.
In connection with the RCF, security has been granted over the major subsidiaries of the Group and the lenders also require the Group
to comply with and report interest cover and leverage ratios in connection with its financial covenants. Non-compliance with terms of the
RCF could result in lenders refusing to advance more funds, or in the worst case, calling in outstanding loans. Throughout the period, the
Group operated well within the interest cover and leverage ratio terms of the RCF agreement.
The movements in loans and borrowings is as follows:
At 1 January 2019
Cash flows:
Drawdowns
Repayments
Non-cash flows:
Group
Company
Current
€’000
Non-current
€’000
Total
€’000
Current
€’000
Non-current
€’000
Total
€’000
40,071
230
40,301
40,000
–
40,000
–
(71)
27,000
27,000
(7,902)
(7,973)
27,000
27,000
(7,500)
(7,500)
Recognition on acquisition of subsidiaries
–
402
Current re-designated to non-current
(39,920)
39,920
(40,000)
40,000
Exchange rate movement
At 31 December 2019
Cash flows:
Drawdowns
Repayments
Non-cash flows:
Exchange rate movement
At 31 December 2020
–
80
–
–
(7)
73
402
–
21
21
59,671
59,751
4,500
4,500
(64,030)
(64,030)
(19)
122
(26)
195
–
–
–
–
–
–
–
–
–
–
–
–
–
–
59,500
59,500
4,500
4,500
(64,000)
(64,000)
–
–
–
–
Following the share placing in May 2020, the balance of the RCF was repaid in June 2020, with the residual balance being loans owed
by Keywords Studios QC-Interactive Inc.
Loans and borrowings (classified as financial liabilities under IFRS 9), are held at amortised cost. Interest expenses which are calculated
using the effective interest method, are disclosed in note 6.
Financial Statements
Notes forming part of the consolidated and company financial statements continued
21 Lease Liabilities
The Group has entered into leases, across the business, principally relating to property. These property leases have varying terms and
renewal rights. Management applies judgement in determining whether it is reasonably certain that a renewal or termination option will
be exercised.
The movement in lease liabilities during the financial year was as follows:
Carrying amount at the beginning of the year
Recognition on acquisition of subsidiaries (note 27)
Adjustments from adoption of IFRS 16
Liabilities recognised on new leases in the period
Unwinding of discounted liabilities – lease liabilities
Payment of principal and interest on lease liabilities
Exchange rate movement
Carrying amount at the end of the year
Group
Company
2020
€’000
21,907
2,376
–
15,035
843
(9,013)
(2,284)
28,864
2019
€’000
–
990
23,138
4,315
694
(8,049)
819
21,907
2020
€’000
626
–
–
–
12
(206)
(33)
399
2019
€’000
–
–
785
–
16
(208)
33
626
The value of leases not yet commenced to which the lessee is committed, which are not included in lease liabilities at 31 December 2020,
were €10.3m (2019: €nil).
Group
Maturity analysis of lease liabilities
Current
Not later than one year
Non-current
Later than one year and not later than five years
Later than five years
At 31 December
Company
Maturity analysis of lease liabilities
Current
Not later than one year
Non-current
Later than one year and not later than five years
Later than five years
At 31 December
2020
€’000
2020
€’000
2020
€’000
2019
€’000
Lease
payments
Finance
charges
Lease
liabilities
Lease
payments
2019
€’000
Finance
charges
2019
€’000
Lease
liabilities
8,291
930
7,361
8,281
582
7,741
18,715
5,307
24,022
32,313
1,013
1,506
2,519
3,449
17,702
3,801
21,503
28,864
12,321
2,718
15,039
23,320
216
703
919
1,501
12,152
2,014
14,166
21,907
2020
€’000
2020
€’000
2020
€’000
2019
€’000
Lease
payments
Finance
charges
Lease
liabilities
Lease
payments
2019
€’000
Finance
charges
2019
€’000
Lease
liabilities
204
204
–
204
408
7
2
–
2
9
197
216
202
–
202
399
431
–
431
647
12
9
–
9
21
204
422
–
422
626
The Group has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) or for
leases of low-value assets. Payments made under such leases are expensed on a straight-line basis. The expenses in the period relating
to payments not included in the measurement of the lease liability were as follows:
Keywords Studios plc / Annual Report and Accounts 2020 Lease payments not recognised as a liability
Short-term leases
Leases of low-value assets
The future minimum lease payments related to
these leases
Not later than one year
Later than one year and not later than five years
Later than five years
122/123
Company
2020
€’000
2019
€’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Group
2020
€’000
1,747
–
1,747
991
–
–
991
2019
€’000
1,616
–
1,616
651
–
–
651
The effect of variable lease payments and re-instatement costs on future cash outflows arising from leases, is not material for the Group.
22 Deferred Tax
Details of the deferred tax assets and liabilities, and amounts recognised in the Income statement are as follows:
Defined benefit termination payments
Available losses
Rent free period provisions
Fixed asset tax base versus accounting book value
Deferred tax related to tax credits
Deferred tax arising on items deductible on a paid basis
Recognition on acquisition of subsidiaries
Deferred tax arising on intangibles
Net tax assets/liabilities
Impact of change in tax rates
Prior year (over)/under provision
Total (credited)/charged to income statement
2020
€’000
2020
€’000
2020
€’000
Assets
Liabilities
69
1,157
75
603
38
3,344
9,363
–
–
–
–
704
2,144
1,405
3,970
2,352
14,649
10,575
Net
69
1,157
75
(101)
(2,106)
1,939
5,393
(2,352)
4,074
2020
€’000
(Credited)/
charged
to income
statement
(19)
293
(64)
104
(1,057)
(949)
–
(1,451)
(3,143)
289
(18)
(2,872)
Financial Statements
Notes forming part of the consolidated and company financial statements continued
22 Deferred Tax continued
Accelerated capital allowances
Defined benefit termination payments
Available losses
Rent free period provisions
Fixed asset tax base versus accounting book value
Deferred tax related to tax credits
Deferred tax arising on items deductible on a paid basis
Deferred tax arising on intangibles
Net tax assets/(liabilities)
Impact of change in tax rates
Prior year (over)/under provision
Total (credited)/charged to income statement
2019
€’000
2019
€’000
2019
€’000
Assets
Liabilities
–
50
1,450
11
578
474
2,497
–
5,060
–
–
–
–
575
3,637
1,507
3,803
9,522
Net
–
50
1,450
11
3
(3,163)
990
(3,803)
(4,462)
2019
€’000
(Credited)/
charged
to income
statement
(1)
16
(575)
19
484
695
469
(1,990)
(883)
(80)
(95)
(1,058)
The deferred tax asset not recognised on available losses at the period end is €3.2m (2019: €3.1m).
Keywords Studios plc / Annual Report and Accounts 2020
124/125
23 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 rates. The management monitors interest
rate fluctuations on a continuous basis and acts accordingly.
Where the Group has a significant amount of surplus cash, it invests 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 effect of a strengthening or a weakening of 1% in interest rates charged during the reporting period on the interest expense would
have resulted in the following pre-tax profit/(loss) impact for the year:
1%
Strengthening
2020
€’000
1%
Weakening
2020
€’000
1%
Strengthening
2019
€’000
1%
Weakening
2019
€’000
Interest expense
(290)
257
(503)
503
Credit Risk
The Group’s main financial assets are cash and cash equivalents, as well as trade and other receivables which represent the Group’s
maximum exposure to credit risk in connection with its financial assets.
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. Credit risk arising in the context of the Group’s operations is not significant with the total
bad debt provision at the balance sheet date amounting to 4% of net trade receivables (2019: 3.0%). Customer credit risk is managed
at appropriate Group locations according to established policies, procedures and controls. Customer credit quality is assessed and
credit limits are established where appropriate. Outstanding customer balances are regularly monitored and a review for indicators
of impairment (evidence of financial difficulty of the customer, payment default, breach of contract etc.) is carried out at each reporting
date. Significant balances are reviewed individually while smaller balances are grouped and assessed collectively. Receivables balances
are unsecured and non-interest-bearing. The trade receivables balances disclosed comprise a large number of customers spread across
the Group’s activities and geographies with balances classified as “Not past due” representing 79% of the total trade receivables balance
at the balance sheet date (2019: 84%). Trade and other receivables are carried on the Consolidated statement of financial position net
of bad debt provisions.
The ageing of trade receivables can be analysed as follows:
Group
At 31 December 2020
At 31 December 2019
Total
€’000
47,832
43,243
Not past due
€’000
1-2 months past
due
€’000
More than 2
months past due
€’000
37,936
36,208
A provision for doubtful debtors is included within trade receivables and can be reconciled as follows:
Provision at the beginning of the year
Impairment of financial assets (trade receivables) charged to administration expenses
Foreign exchange movement in the year
Utilised
Provision at the end of the year
7,678
6,136
2020
€’000
1,283
1,293
(284)
(310)
1,982
2,218
899
2019
€’000
1,717
500
54
(988)
1,283
Financial Statements
Notes forming part of the consolidated and company financial statements continued
23 Financial Instruments and Risk Management continued
Trade receivables loss allowance is estimated using a practical expedient to arrive at lifetime expected credit losses. Overdue receivables
are evaluated to calculate an expected credit loss using a historical credit loss experience of 0.5% (2019: 0.5%). Taking into account internal
and external information, the historical credit loss experience may be adjusted where it is determined that there has been a significant
increase in credit risk. Where a receivable is credit impaired, the impairment is recognised immediately, and impaired balances are
removed from the expected credit loss calculation. Due to the pandemic, Credit impaired receivables provisions were increased to €1.7m
at 31 December 2020.
Trade receivables gross
Credit impaired
Expected credit losses
At 31 December 2020
Trade receivables gross
Credit impaired
Expected credit losses
At 31 December 2019
Total
€’000
49,814
(1,733)
(249)
47,832
Total
€’000
44,526
(1,071)
(212)
43,243
Not past due
€’000
1-2 months past
due
€’000
More than 2
months past due
€’000
38,150
(23)
(191)
37,936
7,887
(170)
(39)
7,678
3,777
(1,540)
(19)
2,218
Not past due
€’000
1-2 months past
due
€’000
More than 2
months past due
€’000
36,386
–
(178)
36,208
6,166
–
(30)
6,136
1,974
(1,071)
(4)
899
Related party receivables of €nil were past due at 31 December 2020 (2019: €nil).
Company
As presented in note 26, receivables from subsidiaries relating to investments in acquisitions, comprise term loans extended to
subsidiaries, while receivables from subsidiaries relating to trading activities, comprise trading balances repayable on demand. Balances
are analysed in terms of the risk profile of the subsidiary.
The Directors have assessed the ongoing expected recovery strategy of loans due from subsidiaries of €258.5m (2019: €208.4m), within
Stage 1 of the IFRS 9 impairment assessment model. Having noted that such loans are within their repayment terms, the Directors have
concluded that no provision for expected credit losses is required (2019: €nil).
Separately the Company has balances of €5.1m (2019: €15.2m), which are technically repayable upon demand. These loans are within Stage
3 of the IFRS 9 impairment assessment model. The Directors have reviewed in detail the recovery strategy in relation to these loans and
concluded that a small number of such loans are technically in a credit-impaired status. An expected credit loss of €218k (2019: €218k)
has been recognised in relation to these balances.
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 in a currency other than the functional currency of the entity.
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 with 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 settle them), cash already denominated in that currency will, where possible,
be transferred from elsewhere within the Group.
The Group is predominantly exposed to currency risk on the balances held within working capital across the Group and the exposure is
concentrated in the movement of the Canadian Dollar, US Dollar and Sterling against the Euro. The effect of a strengthening or weakening
of 10% in those currencies against the Euro at the reporting date on the working capital balances would, all other variables held constant,
have resulted in the following pre-tax profit/(loss) impact for the year:
US Dollar to Euro
Canadian Dollar to Euro
Sterling to Euro
2020
€’000
2020
€’000
2019
€’000
10%
Strengthening
10%
Weakening
10%
Strengthening
4,712
594
835
(3,855)
(486)
(683)
3,052
1,779
1,535
2019
€’000
10%
Weakening
(2,497)
(1,455)
(1,256)
Keywords Studios plc / Annual Report and Accounts 2020
126/127
Total Financial Assets and Liabilities
The carrying amount of the financial assets and liabilities shown in the Consolidated and Company Statements of financial position are
stated at amortised costs, with the exception of contingent consideration held 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 Directors consider liquidity risk is
mitigated by the strong working capital position, with €190m of current assets, including cash of €103m available to settle liabilities as they
fall due.
The following are the contractual maturities (representing undiscounted contractual cash flows) of the Group’s and Company’s
financial liabilities:
Group
Carrying value
Contractual cash flows
At 31 December 2020
Trade payables
Deferred and contingent consideration (i)
Other payables
Loans and borrowings
Loan interest
Lease liabilities
Total
Total
€’000
8,170
20,802
44,150
195
10
Total
€’000
8,170
26,442
44,150
195
10
Within 1 year
€’000
1-2 years
€’000
2-5 years
€’000
Over 5 years
€’000
8,170
20,699
44,150
73
5
–
5,743
–
122
5
–
–
–
–
–
–
–
–
–
–
28,864
32,313
8,291
7,153
102,191
111,280
81,388
13,023
11,562
11,562
5,307
5,307
At 31 December 2019
Trade payables
Deferred and contingent consideration (i)
Other payables
Loans and borrowings
Loan interest
Lease liabilities
Total
Carrying value
Contractual cash flows*
Total
€’000
8,027
6,035
32,962
59,751
102
Total
€’000
8,027
6,035
32,962
59,751
102
21,907
23,320
128,784
130,197
Within 1 year
€’000
1-2 years
€’000
2-5 years
€’000
Over 5 years
€’000
8,027
5,966
32,746
80
102
8,240
55,161
–
69
216
–
–
5,078
5,363
–
–
–
59,671
–
7,858
67,529
–
–
–
–
–
2,144
2,144
*
Please note the prior year comparative has been re-designated to reflect the current year presentation as the Directors consider this to be more appropriate.
Financial Statements Notes forming part of the consolidated and company financial statements continued
23 Financial Instruments and Risk Management continued
Company
At 31 December 2020
Trade payables
Other payables
Lease liability
Total
At 31 December 2019
Trade payables
Other payables
Loans and borrowings
Loan interest
Lease liability
Total
Carrying value
Contractual cash flows
Total
€’000
Within 1 year
€’000
1-2 years
€’000
2-5 years
€’000
Over 5 years
€’000
Total
€’000
61
9,979
399
61
9,979
408
61
9,979
204
10,439
10,448
10,244
–
–
204
204
–
–
–
–
–
–
–
–
Carrying value
Contractual cash flows*
Total
€’000
139
16,859
59,500
102
626
Total
€’000
139
16,859
59,500
102
647
Within 1 year
€’000
1-2 years
€’000
2-5 years
€’000
Over 5 years
€’000
139
11,298
–
102
216
–
–
–
–
216
216
–
5,561
59,500
–
215
65,276
–
–
–
–
–
–
77,226
77,247
11,755
*
Please note the prior year comparative has been re-designated to reflect the current year presentation as the Directors consider this to be more appropriate.
(i) Deferred and contingent consideration at 31 December 2020 has arisen on business combinations, and is based on set amounts to be
paid in the future to sellers under share purchase agreements. In general, in order for contingent consideration to become payable,
pre-defined profit and/or revenue targets must be exceeded. On an undiscounted basis, the Group may be liable for deferred and
contingent consideration up to a maximum of €26.4m.
24 Capital Management
Group
Loans and borrowings (note 20)
Less: cash and cash equivalents
Net debt/(net cash) position
Total equity
Net debt/(net cash) to capital ratio (%)
2020
€’000
195
(103,070)
(102,875)
371,235
(27.7)%
2019
€’000
59,751
(41,827)
17,924
222,958
8.0%
The Group manages capital by monitoring debt to capital and net debt ratios. This debt to capital ratio is calculated as net debt to total
equity. Net debt is calculated as loans and borrowings (as shown in the Consolidated statement of financial position) less cash and cash
equivalents. The liquidity risk and cash management for the Group is managed centrally by the Group Treasury function. Group Treasury
manage bank balances centrally, and monitors the credit rating and stability of the institutions the Group banks with. The Board receives
projections on a monthly basis as well as information regarding cash balances. The Group’s strategy is to preserve a strong cash base and
secure access to finance at reasonable cost by maintaining a good credit rating.
Keywords Studios plc / Annual Report and Accounts 2020 128/129
2020
€’000
30,670
2019
€’000
30,670
25 Investment in Subsidiaries
Company
The results and financial position of all the subsidiaries are included in the consolidated financial statements.
Details of the Company’s direct and indirect subsidiaries as at 31 December 2020 are set out below:
Name
Country of
incorporation
Date of
incorporation/
acquisition
Ownership^
Registered office
Keywords International Ltd
Ireland
13-May-98
Keywords International Co., Ltd.
Keywords International, Inc.
Liquid Violet Ltd*
Keywords Studios QC-Games Inc.
Babel Media USA, Inc.
Babel Media India Private Limited
Babel Media Ltd*
Japan
USA
UK
Canada
(Quebec)
USA
India
UK
30-Nov-10
26-Sep-12
15-Jan-14
17-Feb-14
17-Feb-14
17-Feb-14
17-Feb-14
Keywords International Pte. Limited
Singapore
24-Apr-14
Keywords Studios Italy S.R.L.
Keywords Studios Los Angeles, Inc.
Lakshya Digital Private Limited*
Edugame Solutions Private Limited
Italy
USA
India
India
08-May-14
08-May-14
09-Oct-14
09-Oct-14
Lakshya Digital Singapore Pte. Ltd
Singapore
09-Oct-14
Keywords Studios QC-Tech Inc.
Canada
(Quebec)
06-Jan-15
Keywords International Barcelona SL
Spain
09-Jan-15
Keywords do Brasil Localizacao e Traducao Ltda Brazil
18-Jan-15
Keywords (Shanghai) Information Technology
Ltd
China
02-Apr-15
Keywords Studios Spain SLU
Keywords Studios México,
S. de R.L. de C.V.
Spain
Mexico
16-Jul-15
16-Jul-15
Liquid Development, LLC
USA
19-Aug-15
Keywords Asia Private Ltd
Singapore
15-Mar-16
Synthesis Deutschland GmbH*
Germany
12-Apr-16
Synthesis Global Solutions SA*
Switzerland
12-Apr-16
Keywords Studios France SAS
Player Research Ltd
Keywords Studios QC-Interactive Inc.
SPOV Ltd
Xloc, Inc.
France
UK
Canada
(Quebec)
UK
USA
08-Jun-16
26-Oct-16
16-Nov-16
16-Feb-17
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Whelan House, South County Business Park, Dublin 18,
Ireland.
2-3-1 Kudanminami, Chiyoda-ku, Tokyo 102-0074, Japan
251 Little Falls Drive, Wilmington, New Castle, DE 19808,
USA
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
1751 Richardson, suite 8400, Montréal, Québec, Canada
H3K1G6
251 Little Falls Drive, Wilmington, New Castle, DE 19808,
USA
3rd floor, Vardhman Orchard Plaza, Plot No 4, LSC, West
Enclave, Pitampura, New Delhi, 110034, India
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
20 Kallang Avenue, #06-6A, Lobby B, Pico Creative
Centre, Singapore 339411
Via Egadi 2, Milano, MI, 20144, Italy
350 N. Glenoaks Blvd., Suite 305, Burbank, CA 91502,
USA
3rd floor, Vardhman Orchard Plaza, Plot No 4, LSC, West
Enclave, Pitampura, New Delhi, 110034, India
D – 3/C, Munirka Flats, New Delhi – 110067
20 Kallang Avenue, #06-6A, Lobby B, Pico Creative
Centre, Singapore 339411
1751 Richardson, suite 8400, Montréal, Québec, Canada
H3K1G6
Passeig de Gràcia 49, 1er2a, 08007 Barcelona, Catalonia,
Spain
Av. Churchill, 109 – Sala 204 – Centro, Rio de Janeiro-RJ,
Brazil CEP: 20020-050
7TH Floor, Building A, Dong Ti YuHui Road, Hongkou
District, Shanghai, China
Julián Camarillo 6A, 3B, 28037 Madrid, Spain
Torrente #75, Colonia Ampliación Alpes, Del. Álvaro
Obregón, CP. 01710, Ciudad de México, México
411 SW 2nd Ave Ste 300, Portland, OR 97204, USA.
20 Kallang Avenue, #06-6A, Lobby B, Pico Creative
Centre, Singapore 339411
Holstenkamp 46 A, Bahrenfeld, 22525 Hamburg,
Germany
Corso Elvezia 16, 6900 Lugano, Ticino, Switzerland
59 Boulevard Exelmans, 75016 Paris, France
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
2031 boul. du Curé-Labelle, Saint-Jérôme (Québec)
J7Y1S5, Canada
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
08-May-17
100%
8801 Fast Park Drive, Suite 301, Raleigh, NC 27617, USA
Financial Statements
Notes forming part of the consolidated and company financial statements continued
25 Investment in Subsidiaries continued
Name
GameSim Inc.
Strongbox Ltd
Red Hot Software (Shanghai) Ltd
Red Hot Software (Zhengzhou) Ltd
Country of
incorporation
Date of
incorporation/
acquisition
USA
16-May-17
Seychelles
19-May-17
China
China
19-May-17
19-May-17
Eastern New Media Limited
Hong Kong
19-May-17
PT Limitless Indonesia
Indonesia
19-May-17
Around the Word GmbH
Germany
d3t Ltd
Keywords US Holdings Inc.
VMC Consulting Corporation
Keywords Canada Holdings Inc.
Keywords Studios B.C., Inc.
Sperasoft Poland Spólka z.o.o.
Sperasoft Studios LLC
Sperasoft, Inc.
SperaSystems LLC
Keywords Studios Ltd*
Keywords UK Holdings Limited
Keywords Ventures Limited
Laced Music Ltd
Cord Worldwide Ltd
Paleblue Limited
Fire Without Smoke Ltd
Fire Without Smoke Inc
Blindlight, LLC
Snowed In Studios, Inc
Studio Gobo Limited
Bitsy SG Limited
Electric Square Limited
Alset Ltd
Itsy SGD Limited
d3t Development Ltd
UK
USA
USA
Canada
(Quebec)
Canada
(BC)
Poland
Russia
USA
USA
Ireland
UK
UK
UK
UK
UK
UK
USA
USA
Canada
UK
UK
UK
UK
UK
UK
03-Aug-17
19-Oct-17
23-Oct-17
24-Oct-17
27-Oct-17
27-Oct-17
13-Dec-17
13-Dec-17
13-Dec-17
13-Dec-17
27-Mar-18
28-Mar-18
06-Apr-18
07-Apr-18
07-Apr-18
07-Apr-18
29-May-18
29-May-18
08-Jun-18
19-Jul-18
17-Aug-18
17-Aug-18
17-Aug-18
17-Aug-18
17-Aug-18
30-Aug-18
Ownership^
Registered office
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
13501 Ingenuity Drive, Suite 310, Orlando, FL 32826,
USA.
Suites 103, 106 and 107 Premier Building, Victoria,
Mahe, Seychelles
7TH Floor, Building A, Dong Ti YuHui Road, Hongkou
District, Shanghai, China
Room 207, 11th Floor, Building No. 3, No. 57 Ke Xue Da
Dao, Zheng Zhou, He Nan, China
Flat/Rm 4304, 43F, China Resources Building, 26
Harbour Road, Wanchai, Hong Kong
JI. Timoho II, No. 32, Yogyakarta, Indonesia
Rosenstrasse 2, D-10178 Berlin
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
251 Little Falls Drive, Wilmington, New Castle, DE 19808,
USA
251 Little Falls Drive, Wilmington, New Castle, DE 19808,
USA
1751 Richardson Street Suite 8400 Montreal QC H3K
1G6 Canada
1700-1075 West Georgia Street, Vancouver, BC, Canada
V6E 3C9
Ul. Na Kozłówce 27, 30-664 Kraków, Poland
196084, Russia, Saint-Petersburg, Kievskaya street,
5 – building
251 Little Falls Drive, Wilmington, New Castle, DE 19808,
USA
100%
2033 Gateway Pl Ste 500 San Jose, CA 95110-3712, USA
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Whelan House, South County Business Park, Dublin 18,
Ireland.
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
251 Little Falls Drive, Wilmington, New Castle, DE 19808,
USA
8335 Sunset Blvd, West Hollywood, CA 90069, USA.
400-981 Wellington Street West, Ottawa, Ontario, K1Y
2Y1
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
Keywords Studios plc / Annual Report and Accounts 2020 130/131
Name
Country of
incorporation
Date of
incorporation/
acquisition
Ownership^
Registered office
The Trailerfarm Limited
UK
13-Sep-18
Sunny Side Up Creative Inc.
Canada
03-Jan-19
Appsectest Ltd
UK
22-Jan-19
Keywords Studios Netherlands B.V.
Netherlands
05-Feb-19
Wizcorp Inc.
Japan
18-Apr-19
Descriptive Video Works Inc.
Canada
11-Jun-19
Keywords Germany Holdings GmbH
Germany
06-Sep-19
TV+SYNCHRON Berlin GmbH
Germany
01-Oct-19
Ichi Holdings Limited (in liquidation)
Ichi Limited
Ichi Creative Ltd
UK
UK
USA
26-Nov-19
26-Nov-19
26-Nov-19
9409-2954 Québec Inc.
Canada
04-Dec-19
Xcelerator Machine Translations
Limited
Ireland
12-Dec-19
Marching Cube, LLC
Coconut Lizard Limited
Maverick Media Limited
g-Net Media, Inc.
3455 Productions, LLC
Jinglebell S.r.l.
High Voltage Software, Inc.
HVS Nola LLC
Indigo Pearl Limited
Lonsdale Miller Limited
USA
UK
UK
USA
USA
Italy
USA
USA
UK
UK
22-Jan-20
25-Jun-20
27-Aug-20
24-Nov-20
24-Nov-20
10-Dec-20
14-Dec-20
14-Dec-20
15-Dec-20
15-Dec-20
100%
100%
48%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
410 Boulevard Charest Est, Suite 410, Québec, Québec,
Canada, G1K 8G3.
Unit 13 Orton Enterprise Centre, Bakewell Road,
Peterborough, Cambridgeshire, United Kingdom, PE2
6XU
Wilhelmina van Pruisenweg 35, 2595AN The Hague, the
Netherlands
3-10-14, Higashi-Nihonbashi 3-chome, Sunrise
Tachibana 6F, Chuo-ku, Tokyo ZIP 103-0004
400-725 Granville Street, PO Box 10325, Vancouver BC
V7Y 1G5, Canada
Moriz-Seeler-Strasse 5-7, Franz Ehrlich Haus,12489
Berlin, Germany
Moriz-Seeler-Strasse 5-7, Franz Ehrlich Haus,12489
Berlin, Germany
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
251 Little Falls Drive, Wilmington, New Castle, DE 19808,
USA
1751 Richardson Street, Suite 8400, Montreal, Quebec,
H3K 1G6, Canada
Invent, Dublin City University, Glasnevin, Dublin 9,
Ireland
815A Brazos #334 Austin, TX 78701-2502, USA
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
251 Little Falls Drive, Wilmington, New Castle, DE 19808,
USA
251 Little Falls Drive, Wilmington, New Castle, DE 19808,
USA
Via Marco d’Oggiono 12, Milan, Italy
2345 Pembroke Ave., Hoffman Estates, IL 60169, USA
201 St. Charles Ave., Suite 2220, New Orleans, LA 70170,
USA
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
201 Temple Chambers, 3-7 Temple Avenue, London,
England, EC4Y 0DT
*
^
indicates a direct subsidiary (all other holdings are indirect, being subsidiaries of various intermediate group holding companies).
Proportion of voting rights and ordinary share capital held
Post-acquisition, the Group reviews entities to streamline activities and close any dormant entities acquired or restructured entities.
Re-structuring details are set out below:
Name
Project Titanium Funding Limited
Binari Sonori Audio Productions LLC
Descriptive Video Works USA Inc.
KW Studios Limited*
Cord Artists Management Limited
Country of
incorporation
Date of
incorporation/
acquisition
Ownership^
Date of
re-structuring
Re-structuring
details
Jersey
USA
USA
UK
UK
06-May-20
08-May-14
11-Jun-19
29-May-13
07-Apr-18
100%
100%
100%
100%
100%
22-May-20
Liquidated
06-Sep-20
07-Oct-20
24-Nov-20
24-Nov-20
Dissolved
Dissolved
Struck off
Struck off
Financial Statements Notes forming part of the consolidated and company financial statements continued
26 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% owner of Italicatessen Limited. At 31 December 2020, P.E.Q. Holdings Limited owned 4.73% (2019: 5.37%) of the Company.
In addition, Mr. Giorgio Guastalla is a Director of 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, on an
arm’s length basis:
Operating expenses
Canteen charges
The following are year-end balances owing by the Group:
Italicatessen Limited
2020
€’000
13
13
2020
€’000
–
–
2019
€’000
73
73
2019
€’000
13
13
The Group paid the following amounts, on an arm’s length basis, to Mr. Giorgio Guastalla, Director of the Company, and shareholder of
P.E.Q. Holdings Limited, in respect of rent on premises occupied by employees of the Group in Dublin.
Operating expenses
Rental payments
The details of key management compensation (being the remuneration of the Directors) are set out in note 10.
As at 31 December 2020 and 2019, the Company had amounts receivable from its subsidiaries as follows:
Receivables from subsidiaries related to investment in acquisitions
Receivables from subsidiaries relating to trading activities
Company – Short term (note 15)
Company – Long term (note 15)
2020
€’000
22
22
2020
€’000
258,536
5,126
263,662
2020
€’000
5,126
258,536
263,662
2019
€’000
25
25
2019
€’000
208,352
15,220
223,572
2019
€’000
15,220
208,352
223,572
Keywords Studios plc / Annual Report and Accounts 2020
27 Business Combinations
Details of goodwill and the fair value of net assets acquired
Book value:
Property, plant and equipment
Right of use assets
Intangible assets
Trade and other receivables – gross
Bad debt provision
Cash and cash equivalents
Trade and other payables
Lease liabilities
Loan
Book value of identifiable assets and liabilities acquired
Fair value adjustments:
Identifiable intangible assets
Identifiable tangible assets
Deferred tax assets
Trade and other payables
Deferred tax liabilities
Total fair value adjustments
Net assets acquired
Non-controlling interest
Goodwill from current year acquisitions
Total purchase consideration
Details of purchase consideration and cash outflows from current acquisitions
Cash
Deferred cash
Deferred consideration contingent on performance
Shares to be issued
Total purchase consideration
Fixed number of shares to be issued
Cash paid in the period
Less: cash and cash equivalent balances transferred
Net cash outflow arising on acquisition
132/133
2020
€’000
2019
€’000
872
2,376
–
4,069
–
9,477
(4,904)
(2,376)
–
9,514
17,673
(27)
9,363
1,003
(3,970)
24,042
33,556
–
47,112
80,668
46,924
41
21,090
12,613
80,668
503,052
46,924
(9,477)
37,447
722
990
125
1,559
–
2,112
(3,295)
(990)
(402)
821
1,490
41
–
432
–
1,963
2,784
(148)
16,950
19,586
15,323
238
–
4,025
19,586
275,975
15,163
(2,112)
13,051
Related acquisition costs charged through to the Consolidated statement of
comprehensive income
Details of pro forma revenues and profitability of current acquisitions
Pre-acquisition revenue
Pre-acquisition revenue with Keywords Group
Post-acquisition revenue
Pro forma revenue
Pre-acquisition profit before tax
Post-acquisition profit before tax
Pro forma profit before tax
307
535
35,729
–
7,208
42,937
9,399
2,561
11,960
7,167
(68)
6,066
13,165
151
(170)
(19)
Financial Statements
Notes forming part of the consolidated and company financial statements continued
27 Business Combinations continued
The acquisitions made in the year are in line with the Group’s strategy to grow organically and by acquisition, as it selectively consolidates
the highly fragmented market for video game services. The companies will bring additional talent, expertise and industry experience to
Keywords’ client base. Being able to offer the additional services to our clients will further enhance our reputation as the leading provider
of services to the global video games industry.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed of acquisitions in the year are set out in the
table [see previous page].
The main factors leading to the recognition of goodwill on the acquisitions are the presence of certain intangible assets in the acquired
entities, which are not valued for separate recognition. These include expertise in the acquired entities, enhancing and growing our
services capabilities, broadening our service offering, and extending our geographical footprint, further building out our global platform.
The total amount of goodwill arising on business combinations completed in 2020, that is expected to be deductible for tax purposes
was €21.6m.
28 Significant Events and Transactions
The COVID-19 pandemic resulted in restrictions being put in place requiring most of the Group’s studios to be temporarily closed from
March onwards. The Group has been able to move most employees to work from home arrangements and whilst this has resulted in some
short term disruption, particularly in the Audio and Testing service lines, it has allowed production to continue across most of the Group’s
operations. Since June, most of the Group’s Audio studios have reopened and from July some activities started to operate from Testing
studios, however at the year end the majority of employees were still working from home.
The Group has demonstrated a strong financial resilience during the period, with continued demand for most of the Group’s services albeit
certain service lines have been held back by COVID-19 operational and market disruption particularly in Testing, Audio and Localization.
The significant events and transactions (together with relevant judgements, estimates and assumptions) that have occurred in the period
relating to the effects of the COVID-19 pandemic are summarised below:
Impairment review:
As presented in note 11, the Group performs a full assessment of the carrying value of goodwill on an annual basis. Through the year
interim assessments were made using updated forecasts and projections taking into account the impact of COVID-19. The result of these
assessments was that no impairment was required.
In addition specific impairment reviews were performed for other intangible asset classes where it was considered COVID-19 had the
potential to trigger an impairment. As outlined in note 11, due to the uncertainty caused by COVID-19 an impairment charge of €2,060k
was recognised in the period, related to intangible assets in certain early technology pre-revenue businesses.
Credit risk:
The Group’s exposure to credit risk is limited to the carrying amount of financial assets (Trade receivables) recognised at the balance sheet
date. The Group has not seen a significant increase in credit risk during the pandemic, largely due to the resilience of the broader video
games industry. However as outlined in note 23, due to the uncertainty caused by the pandemic, the Group has taken a conservative view
on the recoverability of overdue receivables, when calculating Credit impaired receivables, and thus impaired receivables have increased
to €1.7m at 31 December 2020. Credit risk continues to be monitored and managed closely by the Group, with a heightened awareness
due to the pandemic.
Government subsidies claimed:
The Group applied for COVID-19 government subsidies in various jurisdictions, introduced in response to the global pandemic. Judgement
has been applied in determining both the eligibility for these programs, and the presentation of the subsidies in the financial statements.
In certain jurisdictions COVID-19 supports displaced ongoing government incentives and reliefs, principally MMTC. In these instances,
the Group has elected to present the ongoing incentives as if they have been received, reducing the amounts recognised as COVID-19
government subsidies accordingly. Included in the Consolidated statement of comprehensive income are government subsidies recognised
of €9.2m (net of amounts recognised as other government incentives). The supports relate to wage subsidies designed to help prevent job
losses and better position companies to resume normal operations following the crisis.
29 Events after the Reporting Date
Acquisition of Heavy Iron
On 17 September 2020, the Group announced that it had entered into a conditional agreement to acquire the entire issued share capital
of Heavy Iron Studios, Inc. (“Heavy Iron”), a provider of specialised game development services, for total consideration of up to US$13.3m.
Under the terms of the acquisition, subject to certain closing conditions, Keywords agreed to pay initial consideration of US$4m in cash
and the equivalent of US$0.5m in new ordinary shares to the seller on the first anniversary of the acquisition. In addition, deferred
consideration of up to US$8.8m is payable to the seller, in a mix of cash and shares, based on performance targets being met by the first
and second year anniversaries of the acquisition. Following on the resolution of the closing conditions, on 13 January 2021 Keywords
announced that it completed the acquisition of Heavy Iron for the terms envisaged under the conditional agreement.
Keywords Studios plc / Annual Report and Accounts 2020 134/135
Acquisition of Tantalus
On 18 March 2021, the Group announced the acquisition of Tantalus Media Pty Ltd (“Tantalus”), for a total consideration of up to
US$46.8m. Tantalus is a leading and prolific developer of high quality, multi-platform titles. The acquisition marks Keywords’ entry into the
Australian video games market. Under the terms of the 85% investment, Keywords will pay a maximum amount of US$46.8m, comprising
initial consideration of US$30.6m (US$18.4m in cash from existing resources and the equivalent of US$12.2m in new ordinary shares) and
deferred consideration of up to US$16.2m, in a mix of cash and new ordinary shares, based on performance targets for Tantalus over two
years. The new ordinary shares to be issued as part of the initial consideration and the deferred consideration will be subject to a one-
year lock-in period and orderly market provisions for a further one year period. Keywords has acquired 85% of the issued share capital
of Tantalus’ parent company, Keywords Australia Pty Ltd (“Keywords Australia”), a new company set up for this transaction. Put and call
options are in place that would allow the Group to buy the 15% shareholding in Keywords Australia in 3 years from the vendor’s wholly
owned investment company.
Financial Statements Alternative performance measures
The Group reports a number of alternative performance measures (“APMs”) to present the financial performance of the business, that are
not GAAP measures as defined under IFRS. The Directors believe that these measures, in conjunction with the IFRS financial information,
provide the users of the financial statements with additional information to provide a more meaningful understanding of the underlying
financial and operating performance of the Group. The measures are also used in the Group’s internal strategic planning and budgeting
processes and for setting internal management targets. These measures can have limitations as analytical tools and therefore should not
be considered in isolation, or as a substitute for IFRS measures.
The principal measures used by the Group are set out below:
Organic revenue growth – Acquisitions are a core part of the Group’s growth strategy. Organic revenue growth measures are used
to help understand the underlying trading performance of the Group excluding the impact of acquisitions. Organic revenue growth is
calculated by adjusting the prior year revenues, adding pre-acquisition revenues for the corresponding period of ownership to provide
a like for like comparison with the current year, and applying the prior year’s foreign exchange rates to both years.
Constant exchange rates (“CER”) – Given the international nature of the Group’s operations, foreign exchange movements can have an
impact on the reported results of the Group when they are translated into the Group’s reporting currency of Euros. In order to understand
the underlying trading performance of the business, revenue is also presented using rates consistent with the prior year in order to
provide year over year comparability.
Adjusted profit and earnings per share measures – Adjusted profit and earnings per share measures are used to provide
management and other users of the financial statements with a clear understanding of the underlying profitability of the business over
time. Adjusted profit measures are calculated by adding the following items back to the equivalent GAAP profit measures:
– Amortisation of intangible assets – Customer relationships and music licence amortisation commences on acquisition, whereas
intellectual property/development costs amortisation commences when the product is launched. These costs, by their nature, can vary
by size and amount each year. As a result, amortisation of intangibles is added back to assist with the understanding of the underlying
trading performance of the business and to allow comparability across regions and categories.
– Costs of acquisition and integration – The level of acquisition activity can vary each year and therefore the costs associated with
acquiring and integrating businesses are added back to assist with the understanding of the underlying trading performance of
the Group.
– Share-based payments – The Group uses share-based payments as part of remuneration to align the interests of senior management
and employees with shareholders. These are non-cash charges and the charge is based on the Group’s share price which can change.
The costs are therefore added back to assist with the understanding of underlying trading performance.
– Foreign exchange gains and losses – The Group does not hedge foreign currency translation exposures. The effect on the Group’s
results of movements in exchange rates can vary each year and are therefore added back to assist with understanding the underlying
trading performance of the business.
– COVID-19 government subsidies claimed – The Group applied for COVID-19 government subsidies in various jurisdictions,
introduced in response to the global pandemic. These subsidies have been added back in order to present adjusted profit and cash flow
measures consistently year-on-year.
– Investment income – The Group acquired a minor holding in Hutch Games Limited, when Keywords purchased Liquid Development
studio in 2015. In 2020 Hutch Games Limited was acquired and the Group received €1.4m proceeds in December. As the gain has arisen
outside the normal trading activities of the Group, the income has been added back to assist with the understanding of the underlying
trading performance.
Free cash flow measures – The Group aims to generate sustainable cash flow (Free cash flow) in order to support its acquisition program
and to fund dividend payments to shareholders. Free cash flow is measured as Net cash generated by/(used in) operating activities after
capital expenditure, payments of principal on lease liabilities, interest and tax payments, but before acquisition and integration cash
outlay, investment income and dividend payments. Adjusted free cash flow is a measure of cash flow adjusting for capital expenditure that
is supporting growth in future periods (represented by capital expenditure in excess of depreciation). In the current year the measure has
also been adjusted for COVID-19 subsidies claimed given the one-time nature of the income.
The remainder of this section provides a reconciliation of the APMs with the relevant IFRS GAAP equivalent.
Keywords Studios plc / Annual Report and Accounts 2020 136/137
Service line analysis
The following table presents revenue growth by service line at both actual exchange rates (“AER”) and constant exchange rates (“CER”).
Constant exchange rates are calculated by retranslating current year reported numbers at the corresponding 2019 foreign exchange rates,
in order to give management and other users of the financial statements better visibility of underlying trading performance against the
prior year.
Art Creation & Marketing
Game Development
Audio*
Functional Testing
Localization*
Localization Testing
Player Support
2020
Revenue
AER
€m
2020
Revenue
CER
€m
2019
Revenue
AER
€m
57.3
80.0
47.2
78.5
45.4
23.3
41.8
58.5
81.0
47.8
80.0
45.9
23.6
42.4
43.6
66.3
41.9
68.9
47.1
22.6
36.1
373.5
379.2
326.5
2020
Growth
AER
%
31.4%
20.7%
12.6%
13.9%
(3.6)%
3.1%
15.8%
14.4%
2020
Growth
CER
%
34.2%
22.2%
14.1%
16.1%
(2.5)%
4.4%
17.5%
16.1%
*
The prior year comparative has been re-classified to reflect the current year presentation as the Directors consider this to be more meaningful.
Pro forma revenue
Pro forma revenue is calculated by adding pre-acquisition revenues of current year acquisitions to the current year revenue numbers,
to illustrate the size of the Group had the acquisitions been included for a full financial year.
Art Creation & Marketing
Game Development
Audio
Functional Testing
Localization
Localization Testing
Player Support
2020
Revenue
AER
€m
2020
Pre-acquisition
revenue
AER
€m
2020
Pro forma
revenue
AER
€m
57.3
80.0
47.2
78.5
45.4
23.3
41.8
15.9
18.0
1.4
–
0.4
–
–
73.2
98.0
48.6
78.5
45.8
23.3
41.8
373.5
35.7
409.2
Supplementary information
Alternative performance measures continued
Organic revenue at constant exchange rates
Organic revenue at constant exchange rates is calculated by adjusting the prior year revenues, adding pre-acquisition revenues for the
corresponding period of ownership, and applying the 2019 foreign exchange rates to both years.
2019
Revenue
AER
€m
2019
Pre-acquisition
revenue
AER
€m
2019
Like for like
revenue
AER
€m
2020
Revenue
growth
CER
€m
2020
Revenue
CER
€m
2020
Organic
revenue growth
CER
%
Art Creation & Marketing
Game Development
Audio*
Functional Testing
Localization*
Localization Testing
Player Support
43.6
66.3
41.9
68.9
47.1
22.6
36.1
6.0
2.9
3.3
–
0.7
–
–
49.6
69.2
45.2
68.9
47.8
22.6
36.1
326.5
12.9
339.4
8.9
11.8
2.6
11.1
(1.9)
1.0
6.3
39.8
58.5
81.0
47.8
80.0
45.9
23.6
42.4
379.2
17.9%
17.1%
5.8%
16.1%
(4.0)%
4.4%
17.5%
11.7%
*
The prior year comparative has been re-classified to reflect the current year presentation as the Directors consider this to be more meaningful.
Adjusted operating costs
This comprises Administrative expenses as reported in the Consolidated statement of comprehensive income, adding back share option
expense, costs of acquisition and integration, amortisation and impairment of intangible assets, depreciation, non-controlling interest and
deducting bank charges. In order to present the measure consistently year-on-year, the impact of COVID-19 government subsidies claimed
is also excluded.
Calculation
Administrative expenses
Share option expense
Reference in Financial Statements
2020
€’000
2019
€’000
Consolidated statement of comprehensive income
(102,090)
(98,687)
Consolidated statement of comprehensive income
15,350
Costs of acquisition and integration
Consolidated statement of comprehensive income
Amortisation and impairment of intangible assets
Consolidated statement of comprehensive income
Depreciation – property, plant and equipment
Depreciation – right of use assets
Note 13
Note 12
Non-controlling interest
Bank charges
Consolidated statement of comprehensive income
Note 6
COVID-19 government subsidies claimed
Consolidated statement of comprehensive income
2,650
8,808
8,983
8,402
85
(552)
(9,231)
9,775
4,348
7,318
7,295
7,849
113
(629)
–
Adjusted operating costs
(67,595)
(62,618)
Revenue from contracts with customers
Consolidated statement of comprehensive income
373,538
326,463
Adjusted operating costs as a % of revenue
18.1%
19.2%
Keywords Studios plc / Annual Report and Accounts 2020
138/139
Adjusted operating profit
The Adjusted operating profit consists of the Operating profit as reported in the Consolidated statement of comprehensive income,
adjusted for share option expense, costs of acquisition and integration and amortisation and impairment of intangible assets. In order
to present the measure consistently year-on-year, the impact of investment income and COVID-19 government subsidies claimed are
also excluded.
Calculation
Operating profit
Reference in Financial Statements
Consolidated statement of comprehensive income
Share option expense
Consolidated statement of comprehensive income
Costs of acquisition and integration
Consolidated statement of comprehensive income
Amortisation and impairment of intangible assets
Consolidated statement of comprehensive income
Investment income
Consolidated statement of comprehensive income
COVID-19 government subsidies claimed
Consolidated statement of comprehensive income
Adjusted operating profit
2020
€’000
41,119
15,350
2,650
8,808
(1,437)
(9,231)
2019
€’000
21,542
9,775
4,348
7,318
–
–
57,259
42,983
Revenue from contracts with customers
Consolidated statement of comprehensive income
373,538
326,463
Adjusted operating profit as a % of revenue
15.3%
13.2%
EBITDA
EBITDA comprises Operating profit as reported in the Consolidated statement of comprehensive income, adjusted for amortisation and
impairment of intangible assets, depreciation, and deducting bank charges.
Calculation
Operating profit
Reference in Financial Statements
Consolidated statement of comprehensive income
Amortisation and impairment of intangible assets
Consolidated statement of comprehensive income
Depreciation – property plant and equipment
Depreciation – right of use assets
Bank charges
EBITDA
Note 13
Note 12
Note 6
2020
€’000
41,119
8,808
8,983
8,402
(552)
2019
€’000
21,542
7,318
7,295
7,849
(629)
66,760
43,375
Supplementary information
Alternative performance measures continued
Adjusted EBITDA
Adjusted EBITDA comprises EBITDA, adjusted for share option expense, costs of acquisition and integration and non-controlling interest.
In order to present the measure consistently year-on-year, the impact of investment income and COVID-19 government subsidies claimed
are also excluded.
Calculation
EBITDA
Reference in Financial Statements
As above
Share option expense
Consolidated statement of comprehensive income
Costs of acquisition and integration
Consolidated statement of comprehensive income
Non-controlling interest
Investment income
Consolidated statement of comprehensive income
Consolidated statement of comprehensive income
COVID-19 government subsidies claimed
Consolidated statement of comprehensive income
Adjusted EBITDA
2020
€’000
66,760
15,350
2,650
85
(1,437)
(9,231)
74,177
2019
€’000
43,375
9,775
4,348
113
–
–
57,611
Revenue from contracts with customers
Consolidated statement of comprehensive income
373,538
326,463
Adjusted EBITDA as a % of revenue
19.9%
17.6%
Adjusted profit before tax
Adjusted profit before tax comprises Profit before taxation as reported in the Consolidated statement of comprehensive income, adjusted
for share option expense, costs of acquisition and integration, amortisation and impairment of intangible assets, non-controlling interest,
foreign exchange gains and losses, and unwinding of discounted liabilities. In order to present the measure consistently year-on-year, the
impact of investment income and COVID-19 government subsidies claimed are also excluded.
Calculation
Profit before tax
Reference in Financial Statements
Consolidated statement of comprehensive income
Share option expense
Consolidated statement of comprehensive income
Costs of acquisition and integration
Consolidated statement of comprehensive income
Amortisation and impairment of intangible assets
Consolidated statement of comprehensive income
Non-controlling interest
Foreign exchange (gain)/loss
Unwinding of discounted liabilities – deferred
consideration
Consolidated statement of comprehensive income
Note 6
Note 6
Investment income
Consolidated statement of comprehensive income
COVID-19 government subsidies claimed
Consolidated statement of comprehensive income
2020
€’000
32,494
15,350
2,650
8,808
85
6,103
132
(1,437)
(9,231)
2019
€’000
17,371
9,775
4,348
7,318
113
1,658
330
–
–
Adjusted profit before tax
54,954
40,913
Revenue from contracts with customers
Consolidated statement of comprehensive income
373,538
326,463
Adjusted profit before tax as a % of revenue
14.7%
12.5%
Keywords Studios plc / Annual Report and Accounts 2020
140/141
Adjusted effective tax rate
The Adjusted effective tax rate is the Taxation expense as reported in the Consolidated statement of comprehensive income, adjusted for
the tax impact of the adjusting items in arriving at Adjusted profit before tax, as a percentage of the Adjusted profit before tax.
Calculation
Reference in Financial Statements
Adjusted profit before tax
As above
Taxation
Consolidated statement of comprehensive income
Effective tax rate before tax on adjusting items
Taxation/Adjusted profit before tax
Tax arising on bridging items to Adjusted profit
before tax^
Adjusted taxation
Adjusted effective tax rate
Adjusted taxation/Adjusted profit before tax
2020
€’000
54,954
11,027
20.1%
785
11,812
21.5%
2019
€’000
40,913
7,462
18.2%
1,703
9,165
22.4%
^
Being mainly the tax impact of amortisation of intangible assets €1.8m, foreign exchange €1.2m, share option expense €0.7m, less COVID-19 government subsidies claimed
€2.6m and investment income €0.3m, while in the prior year the tax impact was mainly due to amortisation of intangible assets €1.7m.
Adjusted earnings per share
The Adjusted profit after tax comprises the Adjusted profit before tax, less the Taxation expense as reported in the Consolidated
statement of comprehensive income, adjusted for the tax impact of the adjusting items in arriving at Adjusted profit before tax.
The Adjusted earnings per share comprises the Adjusted profit after tax divided by the non-diluted weighted average number of shares
as reported in note 8.
Calculation
Reference in Financial Statements
Adjusted profit before tax
As above
Taxation
Consolidated statement of comprehensive income
Tax arising on bridging items to Adjusted profit
before tax^
Adjusted profit after tax
Denominator (weighted average number of
equity shares)
Note 8
Adjusted earnings per share
Adjusted earnings per share % growth
2020
€’000
54,954
(11,027)
(785)
2019
€’000
40,913
(7,462)
(1,703)
43,142
31,748
70,800,455
65,081,403
€ c
60.93
24.9%
€ c
48.78
7.2%
^
Being mainly the tax impact of amortisation of intangible assets €1.8m, foreign exchange €1.2m, share option expense €0.7m, less COVID-19 government subsidies claimed
€2.6m and investment income €0.3m, while in the prior year the tax impact was mainly due to amortisation of intangible assets €1.7m.
Supplementary information
Alternative performance measures continued
Return on capital employed (“ROCE”)
ROCE represents the Adjusted profit before tax (excluding net interest costs, unwinding of discounted lease liabilities and bank charges,
and also adjusted to include pre-acquisition profits of current year acquisitions), expressed as a percentage of the capital employed. As the
Group continues to make multiple acquisitions each year, the calculation further adjusts the Adjusted profit before tax and the capital
employed as if all the acquisitions made during each year were made at the start of that year.
Capital employed represents Total equity as reported on the Consolidated statement of financial position adding back employee defined
benefit plan liabilities, cumulative amortisation of intangible assets (customer relationships), acquisition related liabilities (deferred and
contingent consideration), together with loans and borrowings, while deducting cash and cash equivalents.
Calculation
Adjusted profit before tax
Interest received
Bank charges
Interest expense
Reference in Financial Statements
As above
Note 6
Note 6
Note 6
Unwinding of discounted liabilities – lease liabilities
Note 6
Pre-acquisition profits of current year acquisitions
Note 27
Adjusted profit before tax including
pre-acquisition profit and excluding net interest
2020
€’000
2019
€’000
54,954
40,913
(76)
552
1,071
843
9,399
(74)
629
934
694
151
66,743
43,247
Total equity
Consolidated statement of financial position
371,235
222,958
Employee defined benefit plans
Consolidated statement of financial position
Cumulative amortisation of intangibles assets
(customer relationships)
Deferred and contingent consideration
Loans and borrowings
Cash and cash equivalents
Capital employed
Return on capital employed
Note 11
Note 18
Note 20
2,693
25,178
20,802
195
2,049
20,017
6,035
59,751
Consolidated statement of financial position
(103,070)
(41,827)
Adjusted profit before tax including pre acquisition
profit and excluding net interest expense/capital
employed
317,033
268,983
21.1%
16.1%
Keywords Studios plc / Annual Report and Accounts 2020
142/143
Free cash flow^
Free cash flow represents Net cash generated by/(used in) operating activities as reported in the Consolidated statement of cash flows,
adjusted for acquisition and integration cash outlay, capital expenditure, net interest paid, payments of principal on lease liabilities and
is presented both before and after taxation paid. In order to present the measure consistently year-on-year, the impact of investment
income is also excluded.
Calculation
Reference in Financial Statements
Net cash generated by/(used in) operating activities
Consolidated statement of cash flows
Acquisition and integration cash outlay:
Costs of acquisition and integration
Consolidated statement of comprehensive income
Fair value adjustments to contingent consideration
Consolidated statement of cash flows
Fair value adjustments to right of use assets
Consolidated statement of cash flows
2020
€’000
2019
€’000
76,420
32,781
2,650
66
(434)
4,348
(493)
–
Acquisition of property, plant and equipment
Consolidated statement of cash flows
(13,908)
(13,145)
Investment in intangible assets
Consolidated statement of cash flows
Investment income
Interest received
Interest paid
Consolidated statement of comprehensive income
Consolidated statement of cash flows
Consolidated statement of cash flows
Payments of principal on lease liabilities
Consolidated statement of cash flows
Free cash flow after tax
Taxation paid
Free cash flow before tax
Consolidated statement of cash flows
(259)
(1,437)
76
(1,722)
(8,170)
53,282
4,459
57,741
(391)
–
74
(2,130)
(7,355)
13,689
13,288
26,977
^
Please note Free cash flow is presented on a pre IFRS 16 basis as the Directors consider this to be more meaningful.
Adjusted free cash flow^
Adjusted free cash flow is a measure of cash flow adjusting for capital expenditure that is supporting growth in future periods (as
measured by capital expenditure in excess of maintenance capital expenditure). In order to present the measure consistently year-on-year,
the impact of COVID-19 government subsidies claimed is also excluded.
Calculation
Reference in Financial Statements
Free cash flow before tax
As above
Capital expenditure in excess of depreciation:
Acquisition of property, plant and equipment
Consolidated statement of cash flows
Depreciation – property, plant and equipment
Consolidated statement of cash flows
Capital expenditure in excess of depreciation
COVID-19 government subsidies claimed
Consolidated statement of comprehensive income
Adjusted free cash flow
^
Please note Adjusted free cash flow is presented on a pre IFRS 16 basis as the Directors consider this to be more meaningful.
Adjusted cash conversion rate^
The Adjusted cash conversion rate is the Adjusted free cash flow as a percentage of the Adjusted profit before tax:
Calculation
Adjusted free cash flow
Adjusted profit before tax
Adjusted cash conversion ratio
Reference in Financial Statements
As above
As above
Free cash flow before tax and capital expenditure
in excess of depreciation, as a % of Adjusted profit
before tax
^
Please note the prior year has been adjusted to the current year presentation as the Directors consider this to be more meaningful.
2020
€’000
2019
€’000
57,741
26,977
13,908
(8,983)
4,925
(9,231)
13,145
(7,295)
5,850
–
53,435
32,827
2020
€’000
53,435
54,954
97.2%
2019
€’000
32,827
40,913
80.2%
Supplementary information
Company information
Directors
Secretary
Registered Number
Registered Office
Auditors
Remuneration Consultants
Principal Bankers
Andrew Day
Georges Fornay
Charlotta Ginman
Ross Graham
Giorgio Guastalla
Jon Hauck
David Reeves
Sonia Sedler
One Advisory Limited
201 Temple Chambers
3-7 Temple Avenue
London
EC4Y 0DT
8548351
201 Temple Chambers
3-7 Temple Avenue
London
EC4Y 0DT
BDO
Registered Auditors
Beaux Lane House
Mercer Street Lower
Dublin 2
Ellason LLP
1 Park Road
Hampton Wick
Kingston upon Thames
Surrey
KT1 4AS
Barclays Bank
27 Soho Square
London
W1D 3QR
Citibank Europe plc
1 North Wall Quay
Dublin 1
HSBC Bank plc
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Silicon Valley Bank
14-18 Finsbury Square
London
EC2A 1BR
Nominated Adviser and Broker
Financial PR Adviser
Solicitors
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
MHP Communications
60 Great Portland Street
London
W1W 7RT
DWF LLP
20 Fenchurch Street
London
EC3M 3AG
Keywords Studios plc / Annual Report and Accounts 2020
Printed on Evolution Indigo,
a 100% recycled paper stock.
Keywords Studios plc
Whelan House
South County Business Park
Dublin 18
Ireland
T: +353 190 22 730
www.keywordsstudios.com