Final Results

RNS Number : 2733E

Keywords Studios PLC

08 April 2014

 



April 8, 2014

Keywords Studios plc ("Keywords Studios", "the Group")

Maiden final results for the year to December 31, 2013

Strong revenue growth and significant expansion both organically and by acquisition

Keywords Studios, the international technical services provider to the global video games industry, today provides its audited full year results for the year to December 31, 2013 ¹.

Operational overview:

·     Won Blizzard Entertainment, Disney, Kixeye, King, Pretty Simple Games, and Supercell as new clients and maintained excellent client retention, underpinning market share gains

·     Invested in increased Localisation and Testing capacity in Dublin, Seattle, Montreal and Tokyo

·     Created Managed Services operation for major client in Seattle

Financial overview:

·     Group revenue increased by 14% to €16.4m (2012: €14.3m)

·     Adjusted profit before tax²of €2.5m (2012: €2.9m)

·     Statutory profit before tax of €1.2m (2012: €2.7m)

·     Adjusted basic earnings per share³of 5.28c (2012: 7.30c); basic earnings per share of 2.14c

·     Net cash of €15.3mincluding net IPO proceeds of €10.2m (2012: €3.9m)

·     Operating cash flow up to €2.3m (2012: €1.9m)

·     Maiden final dividend of 0.67p, giving a total dividend for the year of 1.00p per share

Post Period End

Acquired Liquid Violet and Babel Media in early 2014; integration and performance in line with expectations

·     Established a new subsidiary in Singapore, from which Keywords is providing localisation, testing and audio services for South East Asian languages to Electronic Arts and other clients

·     Made a solid start to the year, in line with management's expectations

¹On July 8, 2013, prior to Keywords Studios plc's Admission to AIM on July 12, 2013, it acquired 100% of the Keywords group of companies, through a share for share exchange with the shareholders of Keywords International Limited. As a result, results for Keywords Studio plc would not provide a meaningful picture of the performance of the consolidated Group for the year to December 31, 2013.  We have, therefore, prepared the consolidated results for the year to December 31, 2013, as if the Group had been in existence throughout the entire period, whilst the comparative results and balances comprise the consolidated results and balances of Keywords International Limited

²Profit before tax before IPO expenses, share option charges and foreign currency movements

³ Basic earnings per share before IPO expenses. Calculated using weighted average number of shares for the year of 35.8m shares

Andrew Day, Chief Executive of Keywords Studios, commented:

"Despite the uncertainty in the industry as it transitions to the new generation of consoles, we delivered strong revenue growth and we have considerably strengthened our market position, geographical spread and service offering through a combination of market share gains, organic investment and recent acquisitions. This leaves us well placed to take advantage of industry growth and structural change, which we expect to lead to an increased use of outsourced services, in the current year.

"2014 is expected to be a year of healthy activity for the games industry as it supports the fast growing new generation hardware and the existing 250m installed console base, as well as the significant growth being seen in smartphone gaming. 

"We, therefore, look forward to making good progress as we realise the benefits of increased scale, of improving utilisation across our business, of the acquisitions made following the year end and of our 2013 client wins."

For further information, please contact:

Keywords Studios(www.keywordsstudios.com) Andrew Day, Chief Executive Officer David O'Connor, Chief Financial Officer	[phone]
Numis (Financial Adviser) Stuart Skinner / Kevin Cruickshank  (Nominated Adviser) James Serjeant (Corporate Broker)	020 7260 1000
MHP Communications (Financial PR) Katie Hunt / Vicky Watkins	020 3128 8100

About Keywords Studios

Keywords Studios is an international technical services provider to the global video games industry.  Established in 1998, and now with facilities in Dublin, Tokyo, Rome, Montreal, Seattle, London, New Delhi and Singapore, it provides integrated localisation, testing and audio services across 40 languages and 12 games platforms to a blue chip client base in more than 15 countries.

It enjoys a leading market position, providing services to most of the top 20 games companies, including Microsoft, Namco Bandai, Konami, Sony, Electronic Arts, Take 2 Interactive, King, Zynga, Supercell, Disney and Square Enix. Key recent titles it has worked on include: Dead Rising 3, Pro Evolution Soccer 2014, Assassin's Creed IV: Black Flag, Forza Motorsport 5, Candy Crush Saga, Clash of Clans, South Park: The Stick of Truth, Demon Souls 2 and Farmville 2. 

Keywords is listed on AIM, the London Stock Exchange regulated market (KWS.L). For further information, please visit: www.keywordsstudios.com.

 

Chairman's Statement

Overview

In this, my first, statement as Chairman in the Company's maiden full year results as a public company following its admission to AIM in July 2013, I would like to set the scene for investors' own review of these results by outlining my initial view of the Company.

Keywords has a highly motivated and skilled team of executives delivering a high calibre service to its international client base within a fragmented service provider market that is ripe for consolidation.  The trend for games producers/developers to outsource localisation activities (translation, localisation testing and functional testing) and related functions (such as audio services) continues to gather pace, offering good opportunities for organic growth.  We, therefore, believe that our strategy of harnessing this organic growth opportunity, complemented by acquisitions to extend the Group's client base, geographical presence and service lines, will underpin the Group's significant growth in the medium to long term at stable margins.

We have made considerable progress in line with that strategy, both organically and through acquisition. In the year ended December 31, 2013, we grew revenue by 14.3% to €16.4m despite a turbulent period in the games industry which was characterised by an unexpected scaling back in the number of next generation launch territories and delays to some earlier generation games releases due to the industry's focus on two major console releases at the very end of the year. 

Following the year end, Keywords acquired in January 2014 Liquid Violet Ltd, a London-based video games voice production services company and in February 2014 Babel Media Ltd, a leading provider of outsourced video games services with operations in Canada and India.  In March 2014 we started operations in Singapore underpinned by demand from Electronic Arts as they chose to outsource translation, audio and testing services for South East Asian languages to Keywords and we continue to review a number of acquisition opportunities. Adding these businesses to the Group substantially extends its capabilities, customer relationships and geographic reach and we look forward to taking advantage of the synergies that they bring to Keywords.

People & Culture

Keywords has a distinct and strong culture which engenders a 'can do' attitude and is founded on the value placed on our people; we trust them and work hard to empower them to perform the best service for each project and each client; we have an inclusive style of management, with a flat structure and transparent project management and performance measures; we measure ourselves and our colleagues on the value they contribute to the organisation.  This culture underpins Keywords' success by providing the flexibility to respond quickly and effectively to client requirements.  So I would like to pay tribute to all of our team - for their support, hard work and commitment.

Shareholders & Dividend

I would also like to thank shareholders for their continued support as we pursue a strategy which we believe will continue to enhance shareholder value and we look forward to sharing an open and prosperous partnership with our new investors following our IPO.

In line with its progressive dividend policy, subject to the retention of funds needed to fund future growth of the Group's business and its strategic aims, the Board is pleased to recommend a final dividend of 0.67p per share which, following the maiden interim dividend payment of 0.33p per share on October 28, 2013, will make the total dividend for the year ending December 31, 2013 1.00p per share.  Subject to shareholder approval at the Annual General meeting, the final dividend will be paid on July 25, 2014 to all shareholders on the register at July 4, 2014.

In future years, the Board expects that the interim dividend will be around one third of the total dividend for the year.

Looking Ahead

2014 is expected to be a year of healthyactivity for the games industry driven by games launches to support both the fast growing new generation consoles and the existing 250m previous generation console base, in addition to substantial growth in smartphone gaming.

With a leading market and financial position, Keywords is well placed to take advantage of this industry growth and we expect it to make strong progress, both organically and through acquisition, in our first full financial year as a listed company.

Ross K Graham

Chairman

April 8, 2014

Strategic Report

Keywords is an international technical services provider to the global games industry.  Established in 1998, and now with operations in Dublin, Tokyo, Rome, Montreal, Seattle, London, New Delhi and Singapore, it provides integrated localisation, testing and audio services across 40 languages and 12 games platforms to a blue chip client base in more than 15 countries.  Its customers comprise many well-known blue chip multinational games publishers and developers, including 15 out of the 25 most prominent games companies listed by Gartner².

Strategy

Keywords Studios' strategy is to grow both organically and by acquisition to extend the Group's client base, market penetration and service lines, where the Group can use its existing expertise, multi-service platform, scale and global reach to generate synergies in a highly fragmented games services industry.  The Board believes that there is a clear opportunity for Keywords to extend its existing relationships with many of the major games companies through:

·     Geographical Growth: Expanding its global presence, primarily through office expansion thereby increasing headcount and expanding its global client base. In particular, Asia Pacific accounts for three out of the top four video games markets in the world, is projected to be the fastest growing region during the next five years, increasing to $40 billion in 2016 (2011: $24 billion)¹ and Spanish speaking South America is a large growth market for video games.

·     Outsourcing: Capturing new blue chip customers who are looking to outsource all their localisation requirements as it has become costly for publishers and developers to deliver games localisation all around the world, on multiple platforms in-house.

·     Acquisitions: Selective acquisitions which generate synergies or extend its client base, geographical penetration or service lines.

·     Adjacent activities: Expanding both downstream, into operational support services such as customer services and payment services andupstream, into original games content development, original language audio and motion capture.

Business model

Keywords is an outsourced services company providing technical services to the video games industry globally to assist developers and publishers to develop, sell and operationally support their games regardless of the deployment platform or the genre of the game.  Currently, the business provides translation, audio, localisation testing and functional testing services to the video games market across all games platforms including consoles, PCs, the internet, mobile phones and tablets. These services are delivered through a number of strategically located facilities ("studios") or through the provision of managed services on client's premises.

The Company focuses on quality and delivering a premium service at a competitive price across the following range of services:

·     Localisation services: translation of in game text, audio scripts, language quality control services and packaging and marketing materials

·     Testing services: non language based functional (core) quality assurance, and localisation testing in over 40 languages using native speaking testers

·     Audio services: multi language voice over, original language voice recording and related services

Services provided by the various Keywords studios are typically differentiated by language mix, scalability, flexibility, price and proximity to clients.  Localisation is not limited to translation into multiple languages; developers and publishers need to take into account the varied cultural, technical and legal differences of their global consumers and the quality of localisation is now viewed as a critical factor in the success of a new launch.  The geographical differences require localisation service providers to diligently consider the target gamers' age range, gender and linguistic variables as well as the cultural and political context of the game.  As such, Keywords employs games-specialised translators and native speakers who test in-game content in more than 40 languages, giving it a resource base of market leading scale and which its clients would require substantial investment to replicate in-house.

The Directors believe that, through this capability, Keywords has established an industry reputation for quality. The Company's unique selling points, including the use of games-specialised native staff for all languages, the ability to offer their services flexibly on-site at clients' premises or in its specialised and secure global studios, its track record of delivery of many of the most prominent games companies, together with its integrated localisation, audio and testing capabilities, differentiates Keywords from its competitors.

The Market

The global video games market is predicted to grow significantly, with PwC forecasting a CAGR of 6.5 per cent. from $63.4 billion in 2012 to $86.9 billion in 2017.  The global video games market is predicted to grow significantly and spending on games software is predicted to grow by solid double-digit percentages during the next five years. 

The proliferation of games platforms (beyond console and PCs to online, social, mobile and cloud-based gaming), and monetisation models (beyond traditional retail sales to in-game purchases and advertising and bolt-on content models) which has been seen in the industry has resulted in a number of key market growth drivers for Keywords; it is taking video gaming into new markets both geographically and demographically; it is making content more dynamic and continuous, as games developers seek to keep users engaged for longer; and it is underpinning a trend towards outsourcing localisation and testing services, as set out below.

The key drivers of this growth are:-

·     A proliferation of games platforms: although console and PC packaged games currently represent the majority of revenues in the video games market, they are fast being overtaken by mobile social and online gaming.  This proliferation of gaming platforms has increased accessibility and opened up new:

o  geographical markets, given the absence of the requirement for relatively expensive console systems or landline based internet connectivity.  The development of mobile gaming in particular has opened up new geographical markets.  While the U.S.A. remains the largest video games market in the world, high rates of growth are being seen in developing countries, such as Nigeria, Kenya, India and Vietnam, which have little history of console or PC gaming.

o  demographic markets, a recent survey of the US entertainment software market by the Entertainment Software Association reveals that of 47% of all game players (video and computer games) are women and that 68% of games players are 18 years of age or older, demonstrating that the market has moved well beyond the average gamer being a young male.  

Emerging monetisation models: the industry is shifting from the traditional retail sales of static boxed games, to new monetisation models which include generating revenues from in-game purchases of and digitally distributed dynamic content, advertising and ongoing upgrades which are downloadable and extend the lifetime value of the game. With new content continually produced by developers to support these models, games content now evolves considerably after its initial launch and has become richer / more complex overall.  Games content is, therefore, predicted to grow at a faster rate than the overall market, whilst the need for localization and testing support has extended well beyond the games' initial sale and towards a requirement for continuing operational support.

·     Trend towards outsourcing: As localisation and testing has become more complex and resource-intensive, due to the proliferation of devices, audiences, distribution channels, monetisation models and the increased complexity of content, it has become less cost effective for publishers to have sufficient resources for in-house localisation and testing and they are turning to trusted external providers.  Outsourcing to a flexible services supplier such as Keywords enables publishers and developers to convert fixed costs to variable costs paying by hour. Given the increased complexity of getting their products to market, publishers are focusing their resources on devising successful new business models whilst aiming to optimise their return on investment by ensuring content is delivered efficiently and successfully across a growing number of games platforms and geographical markets, underpinning a continued trend towards outsourcing technical services such as localisation and testing.

In addition to the long term market drivers outlined above, the console launch cycle is an important factor in the growth rate of software sales into the console based gaming market.  Mainstream console releases generally come in generations, and the Nintendo Wii U was the first release of what the industry terms the eighth generation of home consoles. This was followed in November 2013 with the launch of the Microsoft Xbox One and the Sony PlayStation 4. Both consoles are selling well but are held back by lack of availability in certain territories.  On March 18, 2014, Microsoft announced that Xbox One would be launched in a further 26 countries in September 2014.

Chief Executive's review

2013 was a year in which we invested in the business in the expectation that the next generation console launches, in combination with games development for the installed console base as well as social and mobile platforms would underpin a substantial increase in activity levels during the financial year.  The unexpected scale back in the number of next generation launch territories, combined with delays to some earlier generation games releases due to the industry's focus on the two major console releases at the very end of the year, held margins back in 2013. However, we are now well positioned to take advantage of this investment; 2014 and 2015 are expected to be periods of significant activity for the games industry as it benefits more fully from the new generation of consoles in line with the growth in the installed base for these devices.

Overall, despite the uncertainty in the industry, we delivered strong revenue growth and have made considerable progress in line with our strategy to expand the Group's offering both organically and by acquisition.

2013 Financial Performance Highlights

The Group's Revenues increased by 14% to €16.39m (2012: €14.34m) during the period.  This increase was primarily driven by our largest service line, Localisation Testing, which grew by 21% whilst Localisation activities, grew marginally, by 2%, and Audio and Functional Testing, grew by 23.3% as outlined in more detail in the operational review.

Operating Expenses includes one-time costs relating to the IPO of €1.12m (2012: €nil) and non-cash costs related to share option expenses of €0.07m (2012: €nil).  Operating expenses excluding these two items increased by a total of €0.54m for the period to €3.25m (2012: €2.71m) arising from our investment in expansion and increased capacity.  In particular, this reflected a €0.19m increase in operating costs in Montreal and Seattle as we expanded our Localisation and Testing capacity, and €0.28m incremental costs in the Company related to the new Board and the compliance costs of being a public company.  The depreciation expense increased by €0.07m arising from the Group's continued modest investment in testing equipment.

Whilst prices for the Company's services have mostly remained unchanged during 2013, our investment in additional capacity ahead of anticipated higher levels of activity in the second half of 2013 as well as in start up costs in our managed services operation in Seattle led to Gross Profit Margins for the continuing businesses being held back to 34.6% (2012: 38.5%).

One-time costs of €1.40m (2012: nil) were incurred in the year, relating to expenses associated with the Group's IPO on July 12, 2013.  €0.28m of this was capitalised against the share premium account, with the balance of €1.12m included in operating expenses. 

The Group reported adjusted profit before tax (before IPO expenses, share option charges and foreign currency movements) for 2013 of €2.45m (2012: €2.85m).  Statutory profit before tax for the period was €1.16m (2012: €2.74m). 

The average tax rate on the profit before taxation (excluding losses before tax) in the period was 14.8% (2012: 13.1%).  The increase is due to higher tax rates in the USA on the Group's Seattle operations. 

The basic earnings per share, excluding the one-time costs of the IPO, were 5.28c (2012: 7.30c).  Basic earnings per share from continuing operations were 2.14c. 

Operational review

During the year, the Group continued to grow its market share and build on its strong reputation for quality of service and delivery, from secure facilities, as evidenced by an excellent client retention record and client wins, which include Blizzard Entertainment, Disney, King and Supercell.

Despite a more turbulent than expected year for the reasons described above, the company performed well in 2013, growing organically and delivering a 14% increase in revenues. 

Localisation testing operations, which accounted for 58% of Group revenue, grew by 21% to €9.47m (2012: €7.82m) primarily driven by the launch of the new generation of consoles from Sony and Microsoft as well as our newly created operation in Seattle.  Important new client contributors to the division included Disney Interactive, Blizzard Entertainment and Pretty Simple Games. During the year, the Company also established a managed services operation for a major client in Seattle with the Company managing localisation testing operations on site.

During the year we tested the majority of Sony published launch titles for PS4 and all Microsoft published launch titles for Xbox One.  Localisation (translation) activities, which accounted for 32.5% of Group revenue, increased revenues marginally, by 2%, to €5.32m (2012: €5.23m).  Being less exposed to the console games market than our testing operations, the translation business derives the majority of its revenues from mobile, social and online games.  It saw an increased volume in mobile games, which continues to grow strongly, offset by some softening in demand from certain clients in online and social games.  King.com (Candy Crush Saga and other titles), Kixeye (Vega Conflict, Backyard Monsters and others), Supercell (Clash of Clans, Hay Day and other titles) all joined our stable of clients during the year.

Our Audio activities, which account for 8% of Group revenues, grew by 25% to €1.25m (2012: €0.99m). This had been a fledgling operation for Keywords and the acquisition of Liquid Violet, in January 2014, was a significant step in extending the scale and capability of this important activity.  Voice recordings in video games lie at the richer end of the content spectrum and are anticipated to be a strong growth activity, given the capability of the new generation of consoles to handle larger content loads, combined with  the expansion of broadband capacity and the that smartphone devices and networks are becoming more capable of managing richer content.

Functional Testing remained a small contributor to Group revenue, accounting for 2% in 2013 but grew by 17% to €0.35m from €0.30m on the back of new client wins particularly for higher value platform compliance testing.  The acquisition of Babel Media in February 2014, will significantly extend Keywords' functional testing capability, in which the Group was formerly underrepresented, thus improving the balance of the Group's portfolio of services in 2014.

Overall, the Group has significantly extended its range of services, depth of capability and market penetration whilst adding new geographies organically and through acquisitions, as outlined below.

Service Line Extensions

Keywords has extended its range of services to include offering multilingual customer support, meaning that Keywords is the first line of customer support to its clients' communities of gamers.  This service leverages our 700 games and language specialised staff and our recruitment pipelines for similarly profiled individuals.  As games transition through the production and launch phases to ongoing live operational support, Keywords teams of native language testers can follow the game into the market, thereby exploiting their deep knowledge of all aspects of the game to support players as they engage with the content.

We have also trialled, in 2013, and are actively promoting in 2014, a service to objectively advise clients on the adaptation of user interface and user experience (UI/UX) design when globalising their games; a new service created through the collaboration of our Tokyo and Montreal studios.

We intend to continue to extend our service lines in accordance with client and market demand both through acquisitions and by leveraging the Group's existing internal skill sets to develop additional services to take to market.

Geographic Expansion

The Group has expanded geographically and now has nine studios in three continents providing full localisation services to local and global clients.  This broad reach has enabled Keywords to extend its localisation services into more than 40 languages across 12 platforms to clients in over 15 countries. 

Keywords' 9 studios are strategically located to provide services to key gaming clusters in locations such as Tokyo, Montreal, Seattle and London.  In addition, our newly acquired studio in New Delhi, India (a subsidiary of Babel Media) represents an interesting opportunity for our Group to explore and further develop this location for the provision of low cost offshore outsourced activities including functional testing services as well as a base for central services to be provided to the Group such as accounting and payroll processing services. South America and China are growing markets for games and, as such, also represent attractive markets for the Group to grow into in time.  We are, therefore, exploring options to establish in these territories in a prudent manner.

Acquisitions

Keywords acquired Liquid Violet and Babel Media in January and February 2014 respectively, as previously announced.  Both acquisitions have performed in line with our expectations.

Our focus with Liquid Violet, which is subject to an earn out arrangement, is on integrating some back office functions whilst enabling the business to benefit from broader business development opportunities as part of Keywords, given its larger client base. Early signs of the ability of Keywords to cross sell Liquid Violet services to its existing client base are very encouraging.

We have already made good progress with the integration of Babel Media's operations into Keywords. In the early weeks since acquisition, initial restructuring has targeted indirect costs and we, have already achieved annualised savings of $0.8m.

We expect acquisition activity to be a feature of the business for the foreseeable future as the company takes advantage of its leadership position in the market and continues to consolidate carefully selected, earnings accretive businesses.  As such, Keywords continues to review a number of acquisition opportunities which, in line with the Group's strategy would bring something new to the Group - geographic reach, new complementary services, deeper market penetration in particular market sectors and new technologies.

As we grow, we have continued to invest in the infrastructure to support the larger Group.  We expanded our sales support, growing from one dedicated business development executive in 2013 to five individuals in the sales team today, two of which joined through the acquisition of Babel Media in February 2014.  Investment in project management, workflow management and financial reporting continues as these tools are rolled out to support all operations in a centralised and consistent manner, facilitating strong management reporting and control.  We also continue to invest in talent and our growth helps us to retain and attract talent, as candidates can see attractive opportunities for career progression throughout the Group.

Principal risks and uncertainties

Keywords is a relatively small Group, operating in a fragmented, evolving industry populated by a number of very large global game publishers as well as many quite small developers.  Keywords has the objective of becoming the leading global supplier of localisation, testing, audio and other related services to the Industry.  This background sets the scene on the type and number of risks which the company faces in pursuing this objective. 

The Principal risks associated with the Group's strategy can be divided into

1.    General business risks for any international company

2.    Industry related risks

3.    Those specific to the Keywords Group and its strategy

The principal risks facing the Company at the present time, as identified by the management and the Board, refer exclusively to categories 2 and 3; they are set out below:

A)   External Risks

.     Exposure to large customers:

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 clients account for 61% 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. The potential impact is partially mitigated through the low operational gearing of the Company.

.     Confidence of the City and investors:

Keywords floated on AIM in July 2013 with an expressed set of objectives of growing the business organically and by acquisition.  As a new company to the world of public markets, maintaining the confidence of investors in what the company is doing is crucial as is performing in accordance with expectations.  Should the company lose the confidence of investors, the company's rating will suffer and this in turn will affect its ability to raise money for or place shares to pay for acquisitions.

.     Sudden Business Interruption:

Keywords is a global business and needs to minimise business interruptions and be able to continue servicing customers.  This threat is largely external, for instance caused by an IT failure or a natural disaster in a key location, as the Group experienced and managed during the 2011 Tokyo earthquake and tsunami.  The Group's multiple, full service, delivery hubs provide for a good level of redundancy and supported by a solid business continuity plan and comprehensive insurance, the effects of such disasters can be managed.

B)   Internal Risks

.     Security:

The Industry requires the highest standards of security within a Company offering services such as Keywords.  Security breaches may lead to piracy, disruption of clients' marketing plans, loss of competitive edge and could result in compensation claims.  Keywords maintains physical and data security policies and procedures which are regularly audited by its larger clients.

.     Success of acquisitions:

Keywords has embarked on an acquisition strategy to reinforce its global growth.  Managing such acquisitions successfully and embedding the Keywords culture will be a crucial ingredient of success.  Failure to do so will have adverse consequences such as management distraction, disposal and reduced profit.  Whilst middle management is relatively inexperienced in this regard, this is mitigated by the considerable experience within the top management and across the Board. .

C)   Financial Risks

.     Adequate Overseas Financial controls:

As a business like Keywords grows rapidly, global financial controls, and regular audits need to be in place to ensure smooth, timely and accurate reporting to satisfy the relevant accounting bodies to local branches as well as the Board.  The Group is investing in its financial reporting functions to facilitate strong reporting and management control.

Current Trading & Outlook

2014 is expected to be a year of healthy activity for the games industry as it supports the fast growing new generation hardware and the existing 250m installed console base, as well as the significant growth being seen in smartphone gaming.  We have made a solid start to the year, in line with management's expectations and our recently acquired businesses, Liquid Violet and Babel Media, are trading well with the change of ownership having been received well by clients of all of the businesses.

We have considerably strengthened our market position, geographical spread and service offering through a combination of market share gains, organic investment and recent acquisitions, leaving us well placed to take advantage of industry growth and structural change which we expect to lead to an increased use of outsourced services. 

We, therefore, look forward to making good progress as we realise the benefits of increased scale, of improving utilisation across our business, of the acquisitions made following the year end and of our 2013 client wins.

Andrew Day

Chief Executive

April 8, 2014

Financial and operating review

Group Performance

2013 was a year for transformation for the Group, where it listed on the AIM market and when the latest generation of games console were released by Sony (PS4) and Microsoft (Xbox One).  It was unprecedented in the games industry for two major console releases to occur within weeks of each other.  This resulted in significant turbulence in the games industry. 

It is against this industry background that the Group continued to expand its geographic spread, with the opening of a new operation in Seattle, USA, and continued its growth.

Revenue

Revenue for 2013 at €16.4m was 14.3% higher than for 2012 (€14.34m).  This was an encouraging growth rate, given the market conditions which prevailed in 2013.

Revenue Mix

All lines of business increased in 2013, compared with 2012.  Localisation Testing grew by 21% from €7.82m to €9.47m and contributed 58% of Group revenue (2012: 55%).  This growth was driven by the next generation Console releases in 2013.

The Console releases had less of an impact on the Translation line of business, as a significant portion of this business is from social and mobile games.  Translation revenue grew by 2% to €5.33m (2012:€5.23m).  The Translation line of business contributed 33% of Group revenue (2012: 36%).

Audio grew by 25% to €1.25m (2012: €0.99m) and Functional Testing grew by 16% from €0.30m to €0.35m.  Together these lines of business contributed 10% of Group revenue (2012: 9%).

Gross Margin

Gross profit for the year was €5.66m (a 34.6% margin), against a gross profit for 2012 of €5.53m (a 38.5% margin).

Gross margins are subject to significant variation based on resource utilisation; effectively a measure of productive versus idle time.  At the peak times of the year, during the summer, when there is little down time the levels of gross margins are significantly higher compared with the quieter months from December to March.  This is particularly noticed in the Testing part of the business.

In 2012, the Group achieved higher than normal gross margins compared with previous years.  In particular the Group undertook some large testing projects in the first quarter, outside the normal production release cycle for the games industry. 

In 2013 the average utilisation rates across the Group were lower than 2012, resulting in the lower gross margin achieved.  Some of this was due to the significant first quarter margins achieved in 2012, and was anticipated, but as mentioned above the industry and the Group anticipated increased levels of activity and brought on additional testing capacity ahead of the anticipated launch of next generation games consoles in November 2013.  The actual increased activity took place later in the year than anticipated and at lower than anticipated levels due to fewer launch territories, which resulted in the Group generating lower gross margins.

A further impact on gross margins came from the opening of the new operation in Seattle.  In the early months of the year, operation testing resources were taken on and training and familiarisation resulted in idle time, estimated at €0.10m, which reduced the Group's gross margin by 0.6%.

Operating Profit ("EBITDA")

EBITDA is a measure of operating profit used by the Board, which excludes depreciation, share option expenses and one-time costs related to the IPO.  For 2013 EBITDA was €2.70m or 16.5% of revenue compared with €3.01m for 2012 (21% of revenue). 

Operating expenses, excluding depreciation, increased by €0.45m from €2.51m to €2.97m following our investment in expansion and increased capacity.  In particular, this reflected a €0.19m increase in operating costs in Montreal and Seattle as we expanded our Localisation and Testing capacity, and €0.28m incremental costs in the Company related to the new Board and the compliance costs of being a public company. 

Net Finance Costs

During 2013 there was slight decrease in net finance expenses to €0.07m (2012: €0.08m).  Foreign exchange losses on translation were improved slightly to €0.10m (2012: €0.11m) due to the weakening of the Canadian Dollar and the Japanese Yen against the Euro, offset by gains in Sterling against the Euro.

Adjusted Profit before Tax

Adjusted Profit before Tax is a measure of profitability of the business used by the Board to measure the more meaningful recurring profit generation of the Group.  This measure excludes one-time expenses, such as the expenses of the IPO, and also share option expenses and foreign currency gains or losses.  Adjusted profit before tax for 2013 is €2.45m or 15.0% of revenue compared with €2.85m for 2012, or 19.9% of revenue.

Taxation

The average tax rate on the profit before taxation (excluding losses before tax) in the period was 14.8% (2012: 13.1%).  The increase in the average tax rate reflects profits being earned in higher taxed jurisdictions, including in the Group's new operations in Seattle where Washington State and US Federal Tax rates amount to 42% of profit earned.

Basic Earnings per share

Basic earnings per share for the year, excluding the IPO expenses, is 5.28c compared with 7.30c for 2012.  Basic earnings per share after significant one-time expenses arising from the IPO was 2.14c.

Cash flow and debt

The Group continues to operate without any financing debt.  The Group generated operating cash of €2.28m for the year, compared with €1.85m for 2012.  Investment in fixed assets amounted to €0.39m (2012: €0.39m) reflecting ongoing purchases of games testing equipment.

The issue of new shares in the IPO generated gross proceeds of €11.63m.  Expenses related to the IPO amounted to €1.40m, of which €0.28 was capitalised against Share Premium.

Cash and cash equivalents increased from €3.89m to €15.27m, inclusive of €10.2m net proceeds from the IPO.  Underlying cash and cash equivalents increased by 30% to €5.06m.

Foreign Exchange

Keywords does not hedge foreign currency profit and loss translation exposures and the Group's results therefore have been impacted by movements in exchange rates. 

Dividend

The Company has a progressive dividend policy, subject to the retention of funds needed to fund future growth of the Group's business and its strategic aims.

Following its maiden interim dividend payment of 0.33p per share on October 28, 2013, the Board recommends a final dividend of 0.67p per share, which will make the total dividend for the year ending December 31, 2013 1.00p per share.  Subject to shareholder approval at the Annual General meeting, the final dividend will be paid on July 25, 2014 to all shareholders on the register at July 4, 2014.  The final proposed dividend will cost an estimated €0.34m.

In future years, the Board expects that the interim dividend will be around one third of the total dividend for the year.

Events after the reporting period

On January 15, 2014 the Company acquired the entire issued share capital of Liquid Violet Limited, a video games voice production services company, registered in the UK.  Liquid Violet specialises in the management, on behalf of major video game publishers, of the pre-production and post-production stages of localised voice-over assets for incorporation in the finished games.  Under the terms of the acquisition, which is immediately earnings enhancing, Keywords Studios has paid an initial cash consideration of £0.30m with a further £1.3m payable in cash contingent upon Liquid Violet achieving certain financial targets in the three years to March 31, 2016.

On February 17, 2014 the Company acquired the entire issued share capital of Babel Media Limited, a company registered in the UK, together with its subsidiary companies.  Babel Media is a leading provider of outsourced video games services with operations in the UK, Canada and India.  Under the terms of the acquisition, which is expected to be materially earnings enhancing in the first year, the Company has paid the sellers and settled the financing obligations of Babel to a total of £5.37m.  This has been satisfied as to £2.22m by the issue of 1,516,944 new shares in Keywords Studios at a price of 145.994 pence per share (being the volume weighted average price over the preceding 5 trading days) and cash amounts to settle indebtedness to a total of £3.15m.

On March 24, 2014, the Directors incorporated Keywords International PTE. Limited, a company registered in Singapore, as part of the Group's continuing geographic expansion, and to allow it to service the games industry in South East Asia. 

David O'Connor

Chief Financial Officer

April 8, 2014

Consolidated Statement of comprehensive income

		Years ended 31 December
		2013	2012
	Note	€	€
Revenues	3	16,386,991	14,342,949
Operating costs		(10,721,956)	(8,817,284)
		_______	_______
Gross Profit		5,665,035	5,525,665
Costs of Initial Public Offering		(1,123,566)	-
Share option expense		(70,755)	-
Other administration expenses		(3,246,276)	(2,710,903)
Administrative expenses		(4,440,597)	(2,710,903)
		_______	_______
Operating profit		1,224,438	2,814,762
Financing income		59,335	50,470
Financing cost		(125,710)	(126,542)
		_______	_______
Profit before taxation		1,158,063	2,738,690
Tax expense	4	(393,720)	(410,597)
		_______	_______
Profit for the year		764,343	2,328,093
Other comprehensive income:
Exchange gains / (losses) on translation of foreign operations		84,591	(86,726)
		_______	_______
Total comprehensive income for the year attributable to the owners of the parent		848,934	2,241,367
		_______	_______

Earnings per share	5	Euro cent	Euro cent
Basic earnings per Ordinary share (Euro cent)		2.14	7.30
Diluted earnings per Ordinary share (Euro cent)		2.12	7.30

Consolidated Statement of financial position

		As of 31 December
		2013	2012
		€	€
Non-current assets
Property, plant and equipment		600,415	490,404
		_______	_______
		600,415	490,404
Current assets
Trade receivables		1,303,462	1,397,248
Other receivables		1,125,451	907,302
Cash and cash equivalents		15,270,569	3,892,089
Short term investments		518,506	505,585
		_______	_______
		18,217,988	6,702,224
		_______	_______
Total assets		18,818,403	7,192,628
		_______	_______
Equity
Share capital		464,782	188
Share premium		11,249,637	-
Merger Reserve		(370,069)	-
Foreign Exchange Reserve		22,854	(61,737)
Share Option Reserve		70,755	-
Retained earnings		6,055,588	6,072,372
		_______	_______
Total equity		17,493,547	6,010,823
		_______	_______
Current liabilities
Trade payables		503,634	701,197
Other payables		816,595	480,608
Corporation Tax liabilities		4,627	-
		_______	_______
		1,324,856	1,181,805
		_______	_______
Total equity and liabilities		18,818,403	7,192,628
		_______	_______

The financial statements were approved and authorised for issue by the Board on April 7, 2014.

Consolidated Statement of changes in equity

	Share capital	Share premium	Merger reserve	Foreign Exchange reserve	Share option reserve	Retained earnings	Total equity
	€	€	€	€	€	€	€
Balance at 1 January 2012	188	-	-	24,989	-	4,119,761	4,144,938
Total comprehensive income for the year	-	-	-	(86,726)	-	2,328,093	2,241,367
Dividends paid	-	-	-	-	-	(375,482)	(375,482)
	_______	_______	_______	_______	_______	_______	_______
Balance at 31 December 2012	188	-	-	(61,737)	-	6,072,372	6,010,823
Total comprehensive income for the year	-	-	-	84,591	-	764,343	848,934
Share option expense	-	-	-	-	70,755	-	70,755
Dividends paid	-	-	-	-	-	(781,127)	(781,127)
Shares Issued	464,594	11,530,689	-	-	-	-	11,995,283
Share issuance cost capitalised	-	(281,052)	-	-	-	-	(281,052)
Merger Reserve arising on Group reconstruction	-	-	(370,069)	-	-	-	(370,069)
	_______	_______	_______	_______	_______	_______	_______
Balance at 31 December 2013	464,782	11,249,637	(370,069)	22,854	70,755	6,055,588	17,493,547
	_______	_______	_______	_______	_______	_______	_______

Consolidated Statement of cash flows

		Years ended 31 December
		2013	2012
	Note	€	€
Cash flows from operating activities
Profit after tax		764,343	2,328,093
Income and expenses not affecting operating cash flows
Depreciation		272,470	198,267
Foreign Currency Revaluation of Fixed Assets		11,209	-
Share option expense		70,755	-
Interest received		(59,335)	(50,470)
Share Issuance Cost		1,123,566	-
Income tax expense	4	393,720	410,597
Income taxes paid		(359,104)	(748,546)
Changes in operating assets and liabilities
Decrease/(increase) in trade receivables		93,786	(155,810)
Increase in other receivables		(248,138)	(172,307)
Increase in trade and other payables		138,424	127,811
Increase / (Decrease) in foreign exchange reserve		84,591	(86,726)
		_______	_______
Net cash provided by operating activities		2,286,287	1,850,909
		_______	_______
Cash flows from investing activities
Acquisition of property, plant and equipment		(393,690)	(390,855)
Acquisition of short term investments		(12,921)	(505,585)
Interest received		59,335	50,470
		_______	_______
Net cash used in investing activities		(347,326)	(845,970)
		_______	_______
Cash flows from financing activities
Dividends paid		(781,127)	(375,482)
Issue of share capital		11,625,214	-
Share Issuance expenses		(1,404,618)	-
		_______	_______
Net cash provided by / (used in) financing activities		9,439,469	(375,482)
		_______	_______
Increase in cash and cash equivalents		11,378,480	629,457
Cash and cash equivalents at beginning of year		3,892,089	3,262,632
		_______	_______
Cash and cash equivalents at end of year		15,270,569	3,892,089
		_______	_______

 

Notes forming part of the Consolidated financial statements

1	Basis of preparation

Keywords Studios plc (the "Company" is a company incorporated in the UK.  These consolidated financial statements include the financial statements of the Company and its subsidiaries (the "Group") made up to December 31, 2013.  The Group was formed on July 8, 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 about its group.

The consolidated and Company financial statements has been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union ("adopted IFRSs").

In the current year the Group has adopted all of the new and revised standards and interpretations issued by the IASB and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB, as they have been adopted by the European Union, that are relevant to its operations and effective for accounting periods beginning on January 1, 2013.  The adoption of these standards has had no material impact on the financial statements.

New standards, interpretations and amendments not yet effective

None of the new standards, interpretations and amendments, which are effective for periods beginning after January 1, 2014 and which have not been adopted early, are expected to have a material effect on the Group's future financial statements.

2	Significant accounting policies

Basis of Consolidation

Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary.  Intercompany transactions and balances between Group companies are therefore eliminated in full.

The acquisition of Keywords International Limited is deemed to be a 'combination under common control' as ultimate control before and after the acquisition was the same.  As a result, these transactions are outside the scope of IFRS 3 "Business combinations" and have been accounted for under the principles of merger accounting as set out under UK GAAP. 

Keywords Studios Limited was incorporated on May 29, 2013.  Accordingly, although the units which comprise the Group did not form a legal group for the entire year, the current year comprises the results and balances of the subsidiary companies and the Company as if the Group had been in existence throughout the entire period and comparative results and balances comprise the consolidated results and balances of Keywords International Limited.

As part of the Group reconstruction, the Company issued 31,901,332 shares at a value of £1.23 each, being the flotation price, as part of a share for share exchange with the shareholders of Keywords International Limited.  The £0.01 nominal value of the shares issues is accounted for in Issued Share Capital.  On the consolidated balance sheet, the difference between the nominal value of shares issued by the company as consideration for the shares in Keywords International Limited, and the nominal value of the shares in Keywords International Limited has been treated as a merger reserve arising on group reconstruction.  On the Company balance sheet, the excess of the net book value of the assets held by Keywords International Limited, at the date of the share for share exchange, over the nominal value of the shares issued has been treated as a merger reserve.

Business Combinations

The consolidated financial statements incorporate the results of business combinations using the purchase method.  In the Consolidated Statement of Financial Position, the acquiree's 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.

Foreign Currency

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.  The Functional currency for the Company is euro.  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 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.

Revenue Recognition

Revenue is recognised, net of sales taxes, when the service is rendered.  When projects are in progress at the period end, revenue is recognised to the extent that services have been provided.

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, based on the Company's estimate of shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions.  At each reporting date, the Company revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market based vesting conditions.  The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, 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 option is expensed in the subsidiary company, with a corresponding increase in capital contribution from the Company.  This annual cost is recorded as an increase in the Company's cost of investment in that subsidiary.

Share Option Plan

These are measured at fair value, taking into account market vesting conditions but not non-market vesting conditions 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 vest after four years.  The only vesting condition is continuous service.  There is no requirement to revalue the option at any subsequent date.  The charge that is recognised is adjusted to reflect failure to vest due to non-achievement of a non-market vesting condition but not failure to vest due to the non-achievement of a market vesting condition.

LTIP

An alternative share plan was introduced to give awards to Directors and staff, subject to outperforming the Numis Small Cap (excluding Investment Trusts) index in terms of shareholder return over a three year period.  There are three different award levels; one third of the share options vest if the company shall exceed the Total Shareholder Return of the Numis Small Cap Index by not less than 10%, two thirds if the shareholder return exceeds by over 20% and 100% of the share options if the shareholder return exceeds by over 30%. 

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.  The charge that is recognised is adjusted to reflect failure to vest due to non-achievement of a non-market vesting condition but not failure to vest due to the non-achievement of a market vesting condition. 

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 goodwill;

·     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).

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.

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	33.33
Office furniture and equipment	10.00
Building and leasehold improvements	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.

Goodwill

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income.  Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date.

Impairment

Non-financial assets are subject to annual 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 establish the recoverable amount of an individual asset, the impairment test is carried out on the asset's cash generating unit (i.e. - the lowest group of assets in which the asset belongs for which there are separately identifiable cash flows). 

Impairment charges are included in the administrative expenses line item in the consolidated statement of comprehensive income.

Financial Assets

Loans and Receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.  They arise principally through the provision of services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset.  They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

The Group's receivables comprise trade and other receivables and cash and cash equivalents in the statement of financial position.

Trade receivables, which principally represent amounts due from customers, are initially recognised, thereafter, are recognised at amortised cost.  An estimate for doubtful debts is made when there is objective evidence that the Group will not be able to collect amounts due according to the original terms of receivables.  Bad debts are written off when identified.

Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short term highly liquid investments with original maturities of three months.  Where cash is on deposit with maturity dates greater than three months, it is disclosed as short-term bank deposits.

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

Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

Leased Assets

Where substantially all of the risks and rewards of ownership are not transferred to the Group ("operating lease"), the total rental payables are charged to the consolidated statement of comprehensive income on a straight-line basis over the term of the lease.

3	Segmental analysis

Management considers that the Group's activity as a single source supplier of Localisation and Localisation Testing Services 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 four main service groupings:

·     Localisation - Localisation services relate to translation and cultural adaptation of in-game text and audio scripts across multiple game platforms and genres.

·     Localisation Testing - Localisation Testing involves testing the linguistic correctness and cultural acceptability of computer games.

·     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.

·     Functional Testing - Functional Testing relates to quality assurance services provided to game producers to ensure games function as required.

There is no allocation of operating expenses, profit measures, assets and liabilities to individual product groupings.  Accordingly the disclosures below are provided on an entity-wide basis.

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 Finance Director.

Revenue by line of business	Years ended 31 December
	2013	2012
	€	€
Localisation Testing	9,465,989	7,820,445
Localisation	5,324,995	5,229,733
Audio	1,246,669	993,581
Functional Testing	349,338	299,190
	_______	_______
	16,386,991	14,342,949
	_______	_______

Included in Localisation Testing is €152,260 (2012: €nil) of revenue related to multimedia tax credits.

Two (2012:  Three) customers accounted for more than 10% of the group's revenue during the year.  Revenues generated from those customers were €3.4m and €2.9m (2012:  €3.3m, €2.4m and €1.9m).

Geographical Analysis of Revenues by Jurisdiction

Analysis by geographical regions is made according to the Group's operational jurisdictions.  This does not reflect the region of the Group's customers, whose locations are worldwide.

	Years ended 31 December
	2013	2012
	€	€
Ireland	10,904,474	10,882,112
Japan	1,208,392	2,412,747
Italy	345,884	662,764
Canada	1,128,720	385,326
United States	2,799,521	-
	_______	_______
Total Revenues	16,386,991	14,342,949
	_______	_______

Geographical Analysis of Non-current assets from Continuing Businesses

	As of 31 December
	2013	2012
	€	€
Ireland	452,958	357,277
Canada	106,360	84,101
Japan	11,602	23,575
Italy	28,939	24,837
United States	556	614
	_______	_______
	600,415	490,404
	_______	_______

4

Taxation

	Years ended 31 December
	2013	2012
	€	€
Current income tax
Income tax on profits	22,650	-
Income tax on profits of subsidiary operations	371,070	383,796
Previous year taxes	-	26,801
	_______	_______
	393,720	410,597
	_______	_______

The tax charge for the year can be reconciled to accounting profit as follows:

	Years ended 31 December
	2013	2012
	€	€
Profit before tax	1,158,063	2,738,690
	_______	_______
Expected tax charge based on the standard rate of taxation in the UK at 23% (2012: 23%)	266,354	629,899
Higher rates of current income tax in overseas jurisdictions	20,702	18,403
Lower rates of current income tax in overseas jurisdictions	(234,220)	(308,288)
Losses incurred in overseas jurisdictions	148,755	90,183
Used of tax losses carried forward	-	(19,600)
Permanent differences on non-deductible IPO expenses	258,420	-
Effects of other timing differences	(66,291)	-
	_______	_______
Total tax charge	393,720	410,597
	_______	_______

The Group's subsidiaries are located in different jurisdictions and are taxed on their residual profit in those jurisdictions.  The majority of profits arise in Ireland.

Deferred tax is not material to the group, and no deferred tax asset or liability is recorded.

5	Earnings per share

	Years ended 31 December
	2013	2012
	Euro cent	Euro cent
Basic	2.14	7.30
Diluted	2.12	7.30

	2013	2012
	€	€
Profit for the period from continuing operations	764,343	2,328,093
	_______	_______

	Number	Number
Denominator (Weighted average number of equity shares)
Basic	35,778,042	31,902,332
Diluted	36,062,393	31,902,332
	_______	_______

6	Events after the reporting date

Acquisition of Liquid Violet Limited

On January 15, 2014 the Company acquired the entire issued share capital of Liquid Violet Limited, a video games voice production services company, registered in the UK.  Liquid Violet specialises in the management, on behalf of major video game publishers and the acquisition is in line with the Group's strategy of growing both organically and by acquisition to extend the Group's client base, market penetration or service lines, where the Group can use its existing expertise, multi-service platform, scale and global reach to generate synergies.

Under the terms of the acquisition, which will be immediately earnings enhancing, Keywords Studios has paid an initial cash consideration of £300,000 with a further £1.3 million payable in cash contingent upon Liquid Violet achieving certain financial targets in the three years to March 31, 2016.

The book value of the net assets acquired is as follows:

	€
Property Plant & Equipment	17,428
Trade Receivables	13,017
Other Receivables	12,995
Payables	(69,297)
Cash	95,153
	_______
Total	69,296
	_______
Fair value of Consideration paid	1,298,814
Goodwill	1,229,518

At the date of authorisation of these financial statements a detailed assessment of the fair value of the identifiable net assets has not been completed.  Information on the revenue and impact on profit due to this acquisition has not been disclosed as it is impracticable to do so at this point in time.

Fair Value of Consideration Payable

	€
Cash	361,337
Deferred Consideration	937,477
	_______
	1,298,814
	_______

 

Acquisition of Babel Media Group

On February 17, 2014, the company acquired the entire issued share capital of Babel Media Limited, a company registered in the UK, together with its subsidiary companies.  Babel Media is a leading provider of outsourced video games services with operations in the UK, Canada and India. 

The acquisition will extend the Group's client base, market penetration or service lines, where the Group can use its existing expertise, multi-service platform, scale and global reach to generate synergies.

The book value of the net assets acquired is as follows:

	€
Property Plant & Equipment	678,076
Trade Receivables	499,512
Other Receivables	714,516
Multimedia Tax Credit Receivable	1,200,172
Bank Overdraft	(677,785)
Trade and Other Payables	(4,377,693)
Finance Leases	(76,628)
	_______
Total	(2,039,830)
	_______
Fair value of Consideration paid	2,686,057
Goodwill	(4,725,887)
	_______

At the date of authorisation of these financial statements a detailed assessment of the fair value of the identifiable net assets has not been completed.  Information on the revenue and impact on profit due to this acquisition has not been disclosed as it is impracticable to do so at this point in time.

Fair Value of Consideration Payable

	€
Shares issued	2,686,057
	_______
	2,686,057
	_______

Incorporation of Keywords International Pte. Limited

On March 24, 2014, the Directors incorporated Keywords International Pte. Limited, a company registered in Singapore, as part of the Group's continuing geographic expansion, and to allow it to service business recently won from Electronic Arts in South East Asia.

 

END

 

 

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