Final Results
5 April 2016
Keywords Studios plc ("Keywords Studios", "the Group")
Full year results for the year to 31 December 2015
Continued organic and acquisitive growth
Keywords Studios, the international technical services provider to the global video games industry, today provides its full year results for the year to 31 December 2015.
Financial highlights:
A strong financial performance driven by like for like and acquisitive growth
· Group revenue (including effect of acquisitions) increased by 55% to €58.0m (2014: €37.3m)
· Gross margins increased to 37.6% (2014: 34.0%)
· Adjusted profit before tax* increased by 57% to €8.0m (2014: €5.1m)
· Adjusted basic earnings per share* up by 49% to 12.71c (2014: 8.54c)
· Net cash** of €17.3m (2014: €11.0m)
· 10% increase in total dividend to 1.21p per share (2014: 1.10p)
*before acquisition and integration expenses of €1.1m (2014: €1.5m), share option charges of €0.4m (2014: €0.2m), amortisation of intangibles of €0.9m (2014: €0.5m), and foreign currency loss of €0.5m (2014: gain of €0.5m)
**after €7.4m net cash consideration for acquisitions (2014: €8.9m and €3.0m repayment in Babel Media borrowings), €1.1m costs of acquisitions and integration expenses (2014: €1.5m), bank borrowings of €1.1m to fund 2013 MMTC claim, borrowings acquired in Kite Team of €0.6m and €14.2m (net of expenses) raised in an equity placing (2014: €7.3m)
Operational highlights:
Further reinforced our market leading position
· Strong like for like* growth of 20%
· 70% increase in number of clients using three or more Group services
· New client wins have included Oculus VR, Amazon, Gearbox, Fincon, Net Marble and Obsidian Entertainment
· Significantly extended service capabilities and geographical reach through four acquisitions:
o Alchemic Dream, provided entry into customer support services
o Rio de Janeiro based localisation and audio firm, Reverb, provided first office in the fast growing South American market
o Madrid and Mexico City audio and localisation firm, Kite Team, provided further penetration of South America
o Portland, Oregon based Liquid Development increased scale in the buoyant art creation market
* calculated on the basis of revenues being included for 2015 acquisitions from the date of acquisition and for the same period in the prior year
Post period end / current trading:
· Strategic Outsourcing deal with Ankama SAS provides a platform in Manila from which to further develop our Customer Services business with the benefit of a four year contract with Ankama.
· Acquisition of Mindwalk Studios, Beijing, increases art creation capacity by 30% and provides a platform for growth in China
· Trading in the first [two] months of the current financial year has been in line with the Board's expectations
Andrew Day, Chief Executive of Keywords Studios, commented:
"2015 has been another year of strong progress in delivering against the ambitious strategy we set out at the time of the Group's flotation in 2013, both organically and by acquisition.
"The current year has started well with the Group trading in line with the Board's expectations and the recent acquisitions of Ankama and Mindwalk have both strengthened our customer service and art creation services and brought a strong presence in the Philippines and China, respectively.
"The video games market continues to grow strongly, at around 8%* per annum. The complexity of taking ever more sophisticated games to market in multiple geographies and on multiple platforms, means developers and producers are increasingly seeking to outsource elements of their game production and live operations support. Keywords is well placed to take advantage of these trends without dependence on any individual game."
"We expect to make further progress during 2016 with continued organic momentum in the business, as well as realising further synergies, benefiting from the full year effect of our 2015 acquisitions and from the acquisitions of Ankama and Mindwalk in 2016. We are also actively reviewing a number of acquisitions with the potential to further complement our continued strong organic growth. We, therefore, look forward to 2016 with confidence."
*Source: NewZoo, June 2015
For further information, please contact:
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Keywords Studios (www.keywordsstudios.com) Andrew Day, Chief Executive Officer Andrew Lawton, Chief Financial Officer |
+353 190 22 730 |
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Numis (Financial Adviser) Stuart Skinner / Kevin Cruickshank (Nominated Adviser) James Black / Tom Ballard (Corporate Broker) |
020 7260 1000 |
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MHP Communications (Financial PR) Katie Hunt / Jade Neal / Ollie Hoare |
020 3128 8100 |
About Keywords Studios (www.keywordsstudios.com)
Keywords Studios is an international technical services provider to the global video games industry. Established in 1998, and now with facilities in Dublin, Rio de Janeiro, Montreal, Portland, Mexico City, Los Angeles, Seattle, Tokyo, Singapore, New Delhi, Pune, Rome, Milan, Barcelona, Madrid, Shanghai, Beijing, Manila and London, it provides integrated art creation, localisation, testing, audio and customer care services across 50 languages and 14 games platforms to a blue chip client base in more than 15 countries. It has a strong market position, providing services to 20 of the top 25 most prominent games companies, including Microsoft, Supercell, King, Namco Bandai, Sony, Konami, Electronic Arts, 2K, and Square Enix. Recent titles worked on include Tom Clancy's The Division, Halo 5: Guardians, Batman: Arkham Knight, Street Fighter V, Rise of the Tomb Raider, Clash Royale, Mobile Strike. Keywords is listed on AIM, the London Stock Exchange regulated market (KWS.L).
Chairman's Statement
2015 has been another year of strong progress in delivering against the ambitious strategy we set out at the time of the Group's flotation in 2013, both organically and by acquisition.
As a result, the Group's revenues have grown from €16.2m in 2013 to €37.3m in 2014 and €58.0m in 2015. Like for like growth has been strong at over 20% in each of the past two years, with stable net adjusted operating margins of approximately 14% in 2015.
During this two year period Keywords has firmly established itself as the leading services provider to the global games market, with an impressive range of services and a reputation for high quality, secure and timely delivery of those services. In addition to the Group's traditional service lines, of localisation and localisation testing, we now hold strong positions in functional testing, art outsourcing and audio and a growing capability in customer support.
Managing growth
As Keywords has continued to expand at a pace, we are making good progress in developing our infrastructure, including sales, marketing and management processes and information, including putting in place a structure to manage the business along both service lines and by geography. A key focus for 2016 will be IT and finance.
We continue to successfully embed the Keywords culture across our new operations, under the strong leadership from our senior executives nearly half of whom joined Keywords through the acquisitions made in 2014 and 2015.
The business model
Although the core elements of the business model are described elsewhere I believe its attributes deserve to be recognised as an important feature of the business and its evolution. Keywords largely charges for its services on a time basis, without the risk associated with fixed price contracts, and it is able to flexibly meet client demand by using well developed pools of contractors to supplement its permanent staff as required. Most of its assignments are repeat in nature, with services to existing customers typically accounting for around 80% of revenues. Customers pay monthly for work undertaken in the previous month and the Group's capital expenditure requirements are low, leading to a strong profit to cash conversion rate. Keywords must deliver good quality service to a demanding set of customers against set deadlines; our track record shows a high level of customer satisfaction, which is testimony to the skill and commitment of the Keywords' operatives.
People and culture
I have already touched on the qualities required, and in evidence, by the top team at Keywords all of whom display a commitment and belief that Keywords will succeed in its strategy to become the clear market leader in its field. On behalf of the Board and the shareholders, I'd like to thank everyone who works for us for all their individual contributions to our past and future success.
Shareholders and dividend
In November 2015, shareholders supported us with a successful placing in which £10.5 million was raised to fund continued value-enhancing acquisitions by the Company. Through the placing, we were able to welcome several new institutional shareholders and we would like to thank all of our shareholders for their support. We look forward to continuing to deliver shareholder value, building on the share price progression we have seen in line with our underlying trading performance over the last couple of years.
In line with its progressive dividend policy, and allowing for the need to retain resources to fund future growth of the Group's business and its strategic aims, the Board is pleased to recommend a final dividend of 0.81p per share which, following the interim dividend payment of 0.4p per share, will make the total dividend for the year ending December 31, 2015 1.21p per share, an increase of 10% on 2014. Subject to shareholder approval at the Annual General meeting, the final dividend will be paid on June 23, 2016 to all shareholders on the register at June 3, 2016.
Current trading, prospects and outlook
The current year has started well with the Group trading in line with our expectations and the recent acquisitions of Ankama and Mindwalk have both strengthened our customer service and art creation services and brought a strong presence in the Philippines and China, respectively.
The video games market continues to grow strongly, at around 8%* per annum. The complexity of taking ever more sophisticated games to market in multiple geographies and on multiple platforms, means developers and producers are increasingly seeking to outsource elements of their game production and live operations support. Keywords is well placed to take advantage of these trends without dependence on any individual game.
We expect to make further progress during 2016 with continued organic momentum in the business, as well as realising further synergies, benefiting from the full year effect of our 2015 acquisitions and from the acquisitions of Ankama and Mindwalk in 2016. We are also actively reviewing a number of acquisitions with the potential to further complement our continued strong organic growth. We, therefore, look forward to 2016 with confidence.
Ross K Graham, Chairman
*NewZoo, June 2015
Chief Executive's Review
2015 saw another year of good progress for Keywords, in which the Group delivered healthy like for like growth, supplemented by selective acquisitions which have further expanded our range of services and extended our geographical reach.
Strong like for like growth of 20% was driven by our art creation, localisation and audio service lines in particular. In addition, we continued to deliver on our industry consolidation strategy by acquiring four companies during 2015 and a further two since the year end. These acquisitions have expanded our service offering into player support and community management services to support games in live operations and have extended our reach geographically to Mexico and the Philippines. Additionally, our acquisitions of Liquid Development and Mindwalk added further scale to our activities in the buoyant art creation market which we entered in 2014 with the acquisition of Lakshya.
We have also made good progress on the integration of the acquisitions we made in 2014 and in 2015. We have put in place a management structure which combines global management to drive and coordinate the six service lines that now make up Keywords Studios with regional and country management to ensure the appropriate local support is in place.
Results overview
Including the effect of acquisitions, the Group's revenues increased by 55% to €58.0m (2014: €37.3m) during the period, reflecting growth across all lines of business as outlined in the Operational Review section, below. In order to provide a better measure of organic revenue growth in the businesses that Keywords now owns, we are also providing like for like revenue growth, which provides a 2014 comparative as if all of the 2015 acquisitions had been owned for the same period in 2014 as they have been in 2015. On this measure, organic growth was approximately 20% in 2015.
Gross profit margins increased to 37.6% (2014: 34.0%) reflecting a combination of the increase in our higher margin art creation services as a proportion of the revenue mix, and the maintenance or increase of our margins in the other service lines.
The Group reported adjusted profit before tax (before share option charges, amortisation of intangible assets, costs of acquisition and integration, and foreign currency movements) for 2015 of €8.0m (2014: €5.1m). Statutory profit before tax for the period was €5.1m (2014: €3.4m).
The Group's effective tax rate has decreased as we make better use of our brands, operating models and tools from our Dublin operational headquarters in support of our business around the world, much of which is in higher tax rate jurisdictions including Canada, US, Japan, India and Italy. The Group's effective tax rate based on the KWS measure of profit before taxation in the period (as set out on page 14) was 22.9% (2014: 24.0%)
Basic earnings per share for the year, before one-time costs of acquisitions and integration, share option charges, amortisation of intangibles, and foreign exchange movements, was 12.71c compared with 8.54c for 2014. After these items, the basic earnings per share from continuing operations was 6.98c (2014: 4.94c).
Operational review
Having acquired Alchemic Dream in January 2015 we effectively began the year with six service lines - two more than at the start of 2014. All six service lines grew like for like sales during the year and four were positively impacted by acquisitions. A segmentation of the Group's revenues by service line is provided in the Financial and Operating Review.
Art Creation
Our higher margin, art creation services revenue grew to €8.2m (2014: €0.6m), reflecting a full year contribution from Lakshya in 2015 which had been acquired in October 2014, and Liquid Development's contribution following its acquisition in August 2015. Importantly, the combined art creation businesses have delivered like for like growth of approximately 70% year on year, reflecting the high market demand for art services and our investment in talent to respond to this opportunity. This investment helped Lakshya to almost double its revenues year on year supported by the opening of a production studio in Seattle in May 2015 and the expansion of its art team in India by over 100 artists during 2015.
The acquisition of Liquid Development in August 2015 gave the Group further scale, bringing with it additional capabilities in video game art production as it works for game developers involved in producing console, online, PC, mobile and console games as well as interactive experiences for theme parks. Liquid Development and Lakshya are starting to work well together and we remain encouraged by their performance and growth plans.
The objective for our art creation services line is to grow capacity to meet demand, whilst maintaining our reputation for quality and reliability of delivery to our customers' timescales. In addition, we aim to extend our capabilities to areas such as concept art (taking us right to the very start of the game development cycle) and visual special effects.
The acquisition of Mindwalk Studios in Beijing which was announced after the year end and is dependent on the fulfilment of certain acquisition related conditions, will add further capacity both in its existing 150 artists and in its access to the wider talent pool of game artists in China.
Localisation
Localisation activities, including contributions from Reverb, Alchemic Dream and Kite Team which were acquired in the year increased revenues by approximately 43%, to €17.1m (2014: €12.0m) and accounted for approximately 30% of Group revenue.
With an output of some 90 million translated words in 2015, our games localisation business is now the largest specialist games business in the world and we continue to pursue growth opportunities in what remains a highly fragmented market. A resolute focus on quality, on-time delivery and cost effectiveness helped see this service grow its like for like revenues by approximately 26% aided by strong volume growth of existing clients and new clients wins.
Functional Testing
Our functional testing service, which accounted for approximately 11% of Group revenue in 2015, increased revenues by approximately 30% to €6.5m (2014: €5.0m). On a like for like basis, revenues grew by approximately 17%.
Gross margins also improved, a testament to Keywords' ability to manage large multi-month testing projects alongside projects of only a few days, whilst ensuring high levels of staff utilisation through its flexible staffing model.
Localisation Testing
Our localisation testing operations, which accounted for 26% of Group revenue in 2015, grew by a relatively modest 1% to €15.0m (2014: €14.7m).
The performance of localisation testing reflects the phasing of activity from certain key clients which had fewer titles in 2015 compared to 2014. Those clients are expected to return to higher levels of activity in 2016 as they increase their pipeline of titles to be released this year.
Audio
Our Audio business increased revenues by approximately 41% to €7.2m (2014: €5.1m), including contributions from Reverb and Kite Team which were acquired in January and July respectively. On a like for like basis, revenues in our Audio service line grew by approximately 23%.
Providing single language Brazilian Portuguese, Latin American Spanish and Iberian Spanish audio recording and production services, Reverb and Kite Team have won tenders from game publishers who source each language separately. Publishers who adopt a multi lingual approach use the services of our Binari Sonori business which has proven expertise gained over many years in managing simultaneous production of audio voiceover recordings in 20 or more languages.
Customer Support
In January 2015 we acquired Alchemic Dream which provided us with an entry point to providing customer support services. This new customer support business achieved revenues of €3.9m (2014: €nil), accounting for approximately 7% of Group revenues and a 10% increase on a like for like basis.
Alchemic Dream uses a network of multi lingual agents working remotely but connected through technology platforms to deliver its customer support services. We have begun to build upon this capability by utilising our existing international production facilities and talent pool of over 1,000 employees, enabling us to provide customer support and community management teams out of our studios in Tokyo, Singapore, India, Dublin and Montreal. We believe it will be an advantage to both clients and users for Keywords' teams, who have already garnered deep knowledge of all aspects of the game through their involvement in the production and launch phases of a game, to provide ongoing live operational support to those games. We anticipate that this approach will support good, profitable growth in this service line in future years.
Delivering our strategy
We have made strong progress in delivering on our strategy to grow Keywords Studios both organically and by acquisition to extend the Group's client base, service lines and geographical penetration, 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. We are particularly pleased to have both established a substantial capability in the higher margin, art creation services, which means that we are now working with clients at an earlier stage in the game development cycle, and that we now have a better balanced business across the six service lines. The Board believes that there is a clear opportunity for Keywords to extend its existing relationships with many of the major games companies both through providing additional services to existing customers and through providing dedicated outsourced services.
In addition, we believe that content in its many forms is becoming more interactive and, as highlighted at the time of the IPO, we continue to maintain a watching brief on some closely adjacent markets to that of video games in the expectation that at some point our expertise in what is the most interactive form of content, video games, will become highly relevant to other industries such as e-learning, film and television and online gambling.
Developing Customer Relationships and Outsourcing
Year on year we have expanded the number of services we provide to each of our clients. The number of clients now using three or more services grew by 70% to 51 clients in 2015.
In 2015 we expanded our relationship with two existing clients adding dedicated, managed services teams for localisation, localisation testing and community management tasks both based out of our Dublin studio. One of the clients is a leading mobile games developer/publisher and the other develops and operates one of the world's leading online games. We are seeing increased opportunities for such managed services and single sourced arrangement given our financial solidity, our operational robustness thanks to multi-site, multi-country duplication of capabilities, and being seen as a having some of the best talent in the industry.
In March 2016, we took over the live operations support team from French publisher, Ankama SAS. Based in the Philippines, this team provides a range of support services including fraud management, customer support, testing, "bot hunting" (seeking out and neutralising automated programs that have been introduced into the game against the rules), and promotions management for Ankama's games including Dofus, Wakfu and Tactile Wars in English. We are investing in new, larger premises in Manila and will be expanding this team to provide similar services to additional game clients.
Geographic Development
In order to best serve its video game developer and publisher clients and to access specific talent pools, the Group has continued to expand geographically and now has 19 (2014: 14) offices in four continents providing full, integrated video games services to both local and global clients.
Keywords' studios are strategically located to provide services to key gaming clusters in locations such as Tokyo, Singapore, Montreal, Seattle, Los Angeles and London. Since the beginning of 2015 we have expanded into new locations including Mexico City, Beijing, Shanghai, Manila and Madrid.
We have also leveraged our studio locations by housing both a newly established art creation operation for Lakshya together with our existing localisation testing operations in Seattle in a new facility. Separately we have seeded our customer support operations into our studios in Rio de Janeiro, Tokyo, Montreal, Singapore, Dublin and New Delhi.
Having added Manila to our network of studios in March this year we intend to expand our operations in the Philippines during 2016, as it is an important, low cost, English proficient, location ideally suited to services such as customer support and games operations management.
China continues to present an exciting opportunity for the Group. It is thought to have surpassed the US as the largest market for games and is slowly liberalising. In addition to the acquisition of Mindwalk described below, we established a wholly owned foreign enterprise and an initial presence in Shanghai during the year which, in addition to undertaking business development and corporate development activities for the group, is now starting to deliver localisation services directly from Shanghai.
Acquisitions
While we are particularly pleased with our organic growth, Keywords has continued to take advantage of the highly fragmented markets for video games services. We have acquired a further six businesses since the beginning of 2015 to take the total to ten acquisitions since listing on AIM in July 2013, and we are encouraged by the way in which the acquired businesses have been welcomed into the Group and integrated through the adoption of common systems, reporting formats, sales and marketing. The globally managed service line based organisation structure implemented in 2015 further facilitates this integration process and provides management bandwidth for conducting and integrating further acquisitions.
In January 2015, Alchemic Dream, which provided us with an entry point into customer support and community management services, and Reverb, which provides localisation and audio for Brazilian Portuguese, were welcomed into the Group. In July we acquired 50% of Kite Team (localisation and audio for Spanish, Latin American Spanish and Brazilian Portuguese) and, in August, Portland, Oregon art creation services business, Liquid Development joined the stable.
We have been pleased with the progress made with integrating the acquired businesses. The businesses have performed well as part of the Group and we have been very encouraged by the positive responses from customers to the acquisitions.
Since the year end we have acquired Ankama Asia Pte Ltd in a strategic outsourcing deal which provides the Group with a platform in Manila from which to further develop our customer services business with the benefit of a four year contract with Ankama SAS. In addition, we have acquired Mindwalk Studios, for a total consideration of $5.5 million, which provides outsourced art creation services to the video games industry internationally from its base in Beijing, giving us both additional art creation capacity and a strong platform from which to grow in China.
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. We continue to review a healthy pipeline of acquisition opportunities which fall within our stated strategic goals and could provide the Group with complementary services, increased scale in our existing activities or further geographic penetration.
People
Increasingly, we see evidence of the Group becoming a home for top talent in our industry. Rather than chase the production of game after game from development studio to development studio, talented artists, producers, project managers and testers can work at Keywords where the games come to them. In addition to externally recruited management and production talent, we continue to develop our people internally across all our businesses and we have benefitted greatly from some strong additions to our senior leadership team following the acquisitions we have made. The Group employed an average of 1,273 people in 2015 (2014: 978).
Outlook
Trading in the first two months of the current financial year has been in line with the Board's expectations. As expected, 2015 was the first, solid, post transition year following the launch of the new Xbox and PlayStation platforms in November 2013. With 2016 being the year in which Virtual Reality is launched by a number of headset providers including Oculus, Sony and Valve, we anticipate that 2016 will bring further strength in the console sector while our mobile, social and online games content related business should continue to perform strongly.
High demand for our art outsourcing services at Liquid Development, Lakshya and now Mindwalk is expected in 2016 and like 2015, we anticipate good organic growth from this service line which we plan to build upon through further selective acquisition opportunities. The establishment of an art studio in Seattle in 2015 is starting to bear fruit as we benefit from proximity to a number of clients in the area, proving the model of having lead artists and art managers close to the client while undertaking the majority of the production in our studios in India.
Our Audio service line, which is currently under-weight compared to the other services in the Group, is targeted for expansion. In particular, we are promoting our single language capabilities for Italian, Spanish, Latin American Spanish and Brazilian Portuguese, where we have in territory recording studios, and for Arabic, where we have become a go to provider for this complex but fast growing language. We also have a pipeline of potential acquisitions in this area.
We expect to make continued good progress during 2016, as we realise the full year benefits of our 2015 acquisitions and as they are integrated further. By capitalising on the synergies across the group, from sharing access to our talented people and production facilities, to leveraging our established client relationships, global sales force and marketing spend across all service lines, we anticipate driving continued strong organic growth, complemented by further selective acquisitions.
Andrew Day, Chief Executive
Financial and Operating Review
Group Performance
2015 saw continued good, profitable growth and expansion of the Group. The organic growth rate of the existing Keywords operations continued at a similar rate experienced in the last two years while the acquisitions made in both 2014 and 2015 have contributed strongly to the overall result.
The testing, localisation and audio service lines continued to grow strongly and were further strengthened by the acquisition of Reverb and a 50% share in Kite Team.
One notable feature of the results has been the rapid growth of Art within the service line portfolio. This has been driven by the significant growth of Laskhya Digital which only contributed in the last three months of the 2014 results, and the acquisition of Liquid Development in August 2015.
In addition, the Group further diversified into the customer care market with the acquisition of Alchemic Dream in January 2015.
Keywords' geographic reach continued through the opening of the Barcelona studio and acquisitions in Rio de Janeiro, Portland, Madrid and Mexico City.
Revenue
Revenue for 2015 was up 55% at €58.0m (2014: €37.3m) due to both organic growth and acquisitions. The like for like revenue growth rate, which provides a 2014 comparative as if all of the 2015 acquisitions had been owned for the same period in 2014 as they have been in 2015, was 20% for the year which was the same as the 2014 organic growth and demonstrates the strong momentum the studios have managed to maintain throughout the year.
Revenue Mix
Revenues increased across all lines of business in 2015 compared with 2014, resulting in our six service lines accounting for the following proportion of Group Sales in the year:
|
|
Year ended 31 December 2015 % |
Year ended 31 December 2014 % |
Pro forma* for the year ended 31 December 2015 % |
|
|
|
|
|
|
Functional Testing |
11.2 |
13.3 |
10.3 |
|
Localisation Testing |
25.9 |
39.4 |
24.0 |
|
Localisation |
29.6 |
32.0 |
27.6 |
|
Audio |
12.4 |
13.6 |
12.1 |
|
Customer Support |
6.8 |
0.0 |
6.4 |
|
Art Creation |
14.2 |
1.6 |
19.6 |
|
Total |
100 |
100 |
100 |
*Pro forma includes the annualised sales of all acquisitions made in 2015 in order to give a better overview of the balance of the business as we entered 2016.
The proportion of sales in Asia has significantly increased during the year due mainly to the acquisition of Lakshya in October 2014 which has grown rapidly. The sales mix by region based on the Group's operational jurisdictions are as follows:-
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|
Year Ended 31 December 2015 |
Year Ended 31 December 2014 |
|
|
% |
% |
|
|
|
|
|
Europe |
41 |
46 |
|
Asia |
17 |
9 |
|
Americas |
42 |
45 |
|
|
100 |
100 |
Gross Margin
Gross profit for the year was €21.8m (2014: €12.7m). The gross margin percentage increased to 37.6% (2014: 34.1%). The most significant impact on the gross margin in 2015 was the increase in the sales of Art services, which achieves the highest gross margin within the Group's service portfolio. This is partially offset by the introduction of customer services which commands a lower gross margin than the Group's other services.
Operating Profit ("EBITDA")
Adjusted EBITDA is a measure of operating profit used by the Board, which excludes depreciation, amortisation, share option expenses and one-time costs related to acquisitions. For 2015, adjusted EBITDA increased 59% to €9.6m, compared with €6.0m for 2014. As a percentage of revenue, adjusted EBITDA has increased from 16.1% to 16.2%, reflecting the improvement in the Group's gross margin partially offset by an increase in operating expense as described below.
|
Operating Profit and Adjusted Profit Before tax for Year Ended 31 December 2015 |
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|
|
|||
|
|
Year Ended |
Year Ended |
|||
|
|
2015 |
2014 |
|||
|
|
€'000s |
€'000s |
|||
|
|
|
|
|||
|
Statutory profit before tax |
5,086 |
3,436 |
|||
|
Add back costs excluded from Group's measure of PBT (see below) |
2,812 |
1,618 |
|||
|
Add back loss attributable to non-controlling interest |
109 |
- |
|||
|
KWS measured Profit before tax |
8,007 |
5,054 |
|||
|
Add back Depreciation and net interest |
1,355 |
964 |
|||
|
|
|
|
|||
|
Earnings before interest, tax, depreciation, amortisation share option costs and one-time costs related to acquisitions |
9,362 |
6,018 |
|||
|
|
|
|
|||
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Details of costs excluded from Group's measure of PBT |
|
|
|||
|
Costs of Acquisition and Integration |
1089 |
1461 |
|||
|
|
|
|
|||
|
Share option expense |
392 |
156 |
|||
|
Foreign exchange loss / (gain) |
474 |
(467) |
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Amortisation of Intangibles |
857 |
468 |
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|
|
|
|
|||
|
|
2,812 |
1,618 |
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Operating expenses excluding depreciation, increased by €5.6m to €12.3m (2014: €6.7m) mainly due to the new acquisitions, the full year impact of 2014 acquisitions and the opening of the Barcelona studio. These costs increased from 18.0% to 21.3% of revenue mainly due to the operating costs ratios within a number of the acquired companies which were higher than the ratio for the core Keywords studios. Additional investment was also made in strengthening Keywords management to successfully manage the growth of the group. We expect the operating costs as a percentage of revenue to trend towards 20% as we manage additional volume from organic and acquisition led growth within the established framework of the Group.
Net Finance Costs
During 2015 there was net finance cost of €0.74m compared to a gain of €0.36m in 2014 primarily due to the impact of foreign exchange losses. Foreign exchange losses of €0.5m (2014: gain of €0.5m) were created mainly due to the weakening of sterling against the euro on the cash raised in the placing and negative impacts of movements of the US dollar against the India Rupee which was offset by the weakening of the Euro against the US Dollar and, within Babel Media, the Canadian dollar against the US Dollar. The increase in interest expense to €0.12m (2014: €0.06m) is largely due to the interest on a €1.1m loan to fund the MMTC receivable for 2013 in Canada and €0.6m of loans which we acquired with the Kite Team acquisition.
Adjusted Profit before Tax
Adjusted Profit before Tax is used by the Board to measure the more meaningful underlying profit generation of the Group. This measure excludes one-time expenses, such as acquisition and integration costs, share option expenses, foreign currency gains or losses and amortisation of intangibles. Adjusted profit before tax for 2015 increased by 59% to €8.01m compared with €5.05m in 2014.
Taxation
The Group's effective tax rate reduced to 22.9% (2014: 24%) as the Group looked to make better use of its global operating headquarters in Ireland in the year. This will continue during the next year and we would anticipate a further reduction in the effective tax rate.
Basic Earnings per share
Basic earnings per share for the year, before one-time costs of acquisitions and integration, share option charges, amortisation of intangibles, and foreign exchange movements, increased by 49% to 12.71c compared with 8.54c for 2014. Basic earnings per share based on the statutory profit after tax was 6.98c (2014: 4.94c).
Cash flow and debt
The Group generated operating cash of €3.4m for the year, compared with €1.9m for 2014. However, during the year, the Group also accumulated multimedia tax credits in Quebec of €1.3m in 2015 (2014: €1.4m) which will be claimed during 2016. Therefore, and in order to mitigate against the effect of the delay in receiving the multimedia tax credits from the Canadian authorities, the Group took out financing debt of €1.1m. The total multimedia tax credit accrual as at December 31, 2015 amounted to €3.9m (2014: €3.0m).
The Group anticipates that, in general, it will convert the net profit after tax to cash less the amount which is needed to fund an increased level of working capital required due to the continuing rapid growth of the business. In 2015 the delay in receiving the multi-media tax credits has reduced the cash collection below the level which would normally be anticipated. This will not be the case in 2016.
The Group made four acquisitions to strengthen the business during the year with a net cash outflow on consideration payments of €7.4m, and an additional €1.1m in acquisition expenses and integration expenses. At the date of acquisition of Kite Team, the company had €0.6m of loans in place which remained in place at December 31, 2015 and formed part of the Group financial statements. Investment in fixed assets amounted to €1.6m (2014: €1.3m) reflecting the cost of expanding the Lakshya Digital operation in India, moving office in Seattle to include a new Art studio, further expansion within the Montreal studio and fitting out the Barcelona office. Additionally, there were ongoing purchases of games testing equipment. A further €0.8m was spent on purchasing 400,000 Keywords Studios PLC shares for the Group's Employee Benefit Trust.
In 2015, the issue of new shares at 190p via a Placing in November generated net proceeds of €14.2m. In 2014 the issue of new shares at 1.50p via a Placing in May generated net proceeds of €7.3m.
Cash and cash equivalents increased to €19.0m from €11.0m excluding accrued multimedia tax credits of €3.9m (2014: €3.0m). The Loans and borrowings were €1.7m at December 31, 2015 (2014: Nil).
Foreign Exchange
Keywords does not hedge foreign currency profit and loss translation exposures. The effect on the Group's results of movements in exchange rates and the foreign gains and losses incurred during the year are set out in the net finance costs section above.
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 the interim dividend payment of 0.40p per share on October 23, 2015, the Board has recommended a final dividend of 0.81p per share, which will make the total dividend for the year ending December 31, 2015 1.21p per share, a 10% increase over 2014. Subject to shareholder approval at the Annual General meeting, the final dividend will be paid on June 23, 2016 to all shareholders on the register at June 3, 2016. The cash cost of the final proposed dividend will be an estimated €0.6m.
Events after the reporting period
On March 22, 2016 the Group acquired the entire share capital of Ankama Asia Pte Ltd, a company registered in Singapore, which provides services to support the live operations of the games of Ankama. Under the terms of the agreement, which will be immediately earnings enhancing, a total consideration of €0.25m will be paid to the sellers.
On April 1, 2016, the Group announced that has entered into an agreement to acquire the business and assets of Mindwalk Studios Inc, a company registered in China, and Mindwalk Studios Ltd, a company registered in the British Virgin Islands. Under the terms of the agreement, which is anticipated to be immediately earnings enhancing and is scheduled to complete before June 30, 2016 subject to certain conditions being fulfilled, a total consideration of $5.5m will be paid. This will be satisfied by the payment of US$3.9m in cash and the issue of US$1.6m of Keywords Studios plc shares.
Key performance Indicators
We monitor our financial performance against a number of different benchmarks. These are set in agreement with the Board and used to evaluate progress against our strategy.
Financial Performance is measured by
- Revenue growth
Revenue Growth is measured by line of business and overall against the Board's strategic goal to grow organically and by acquisition.
- Gross Profit
Gross Profit is a key measure by service line of the Group's pricing strategies, use of resources and its ability to optimise resource utilisation.
- Overhead costs by location
The Board monitors the overheads to ensure the costs in each location are in line with the level of business being generated.
- Adjusted EBITDA Margin
The Board uses an adjusted measure of EBITDA to monitor the performance of the Group. This measure excludes foreign exchange gains or losses, any one-time expenses and the cost of employee share option awards.
- Adjusted Operating Profit Margin
The Board also uses an adjusted measure of operating profit to monitor the performance of the Group. This measure similarly excludes foreign exchange gains or losses, any one time expenses, and the cost of employee share option awards.
Non-Financial Performance is measured by
- Resource deployment
The Board reviews the efficiency at which the Group is utilising its staff resources to ensure optimum staffing strategies are deployed and to maximise utilisation rates.
- Business won/lost
The Board reviews the levels of new business won and lost, and monitors the reasons for both, to ensure that the services being offered to the market are appropriately priced and relevant.
- Customer satisfaction and quality of service delivery
The Board monitors the quality and timeliness of service delivery on an ongoing basis and reviews the level of repeat revenue from existing customers, typically around 80%, as a key measure of customer satisfaction.
Andrew Lawton, Group Finance Director
Financial Statements
Consolidated Statement of comprehensive income
|
|
|
Years ended 31 December |
|
|
|
|
2015 |
2014 |
|
|
Note |
€'000 |
€'000 |
|
|
|
|
|
|
Revenues |
4 |
57,951 |
37,293 |
|
|
|
|
|
|
Operating costs |
|
(37,460) |
(25,981) |
|
Multimedia tax credits |
|
1,287 |
1,413 |
|
|
|
|
|
|
Gross profit |
|
21,778 |
12,725 |
|
|
|
|
|
|
Share option expense |
|
(392) |
(156) |
|
Costs of acquisition and integration |
|
(1,089) |
(1,461) |
|
Amortisation of intangible assets |
|
(857) |
(468) |
|
Other administration expenses |
|
(13,616) |
(7,566) |
|
|
|
|
|
|
Administrative expenses |
|
(15,954) |
(9,651) |
|
|
|
|
|
|
Operating profit |
5 |
5,824 |
3,074 |
|
|
|
|
|
|
Financing income |
6 |
70 |
516 |
|
Financing cost |
6 |
(808) |
(155) |
|
|
|
|
|
|
Profit before taxation |
|
5,086 |
3,436 |
|
Tax expense |
7 |
(1,832) |
(1,215) |
|
|
|
|
|
|
Profit from operations |
|
3,254 |
2,220 |
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
Items that will or may be reclassified to profit or loss |
|
|
|
|
|
|
|
|
|
Exchange gains/(losses) on translation of foreign operations |
|
763 |
(288) |
|
|
|
|
|
|
Total comprehensive income: |
|
4,017 |
1,932 |
|
|
|
|
|
|
Profit for the year attributable to: |
|
|
|
|
Owners of the parent |
|
3,363 |
2,220 |
|
Non-controlling interest |
|
(109) |
- |
|
|
|
3,254 |
2,220 |
|
|
|
|
|
|
Total comprehensive income for the year attributable to: |
|
|
|
|
Owners of the parent |
|
4,126 |
1,932 |
|
Non-controlling interest |
|
(109) |
- |
|
|
|
4,017 |
1,932 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
Euro cent |
Euro cent |
|
Basic earnings per ordinary share (Euro cent) |
9 |
6.98 |
4.94 |
|
Diluted earnings per ordinary share (Euro cent) |
9 |
6.87 |
4.93 |
The notes on pages 23 to 71 form an integral part of these consolidated financial statements.
On Behalf of the Board
Andrew Day Andrew Lawton
Director Director
Consolidated Statement of financial position
|
|
|
Years ended 31 December |
|
|
|
|
2015 |
2014 |
|
|
Note |
€'000 |
€'000 |
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
14 |
3,486 |
2,761 |
|
Goodwill |
12 |
23,893 |
14,711 |
|
Intangible assets |
13 |
3,782 |
2,967 |
|
Deferred tax assets |
29 |
971 |
436 |
|
|
|
32,132 |
20,874 |
|
Current assets |
|
|
|
|
Trade receivables |
15 |
7,519 |
6,203 |
|
Other receivables |
16 |
8,320 |
5,644 |
|
Short-term investments |
18 |
27 |
259 |
|
Cash and cash equivalents |
17 |
19,018 |
11,014 |
|
Deferred tax assets |
29 |
- |
377 |
|
|
|
34,884 |
23,498 |
|
Total Assets |
|
67,016 |
44,371 |
|
|
|
|
|
|
Equity |
|
|
|
|
Share capital |
19 |
646 |
551 |
|
Share premium |
|
18,542 |
18,542 |
|
Merger reserve - restructuring |
|
(370) |
(370) |
|
Merger reserve - acquisitions |
|
22,479 |
5,667 |
|
Foreign exchange reserve |
|
498 |
(265) |
|
Shares held in EBT |
|
(804) |
- |
|
Share option reserve |
20 |
619 |
227 |
|
Retained earnings |
|
10,293 |
7,667 |
|
|
|
51,903 |
32,019 |
|
Non-controlling interest |
|
(1,309) |
- |
|
Total equity |
|
50,594 |
32,019 |
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
Trade payables |
21 |
2,761 |
2,322 |
|
Other payables |
22 |
8,452 |
6,881 |
|
Loans and borrowings |
23 |
1,163 |
- |
|
Corporation tax liabilities |
|
752 |
543 |
|
|
|
13,128 |
9,746 |
|
Non-current liabilities |
|
|
|
|
Other payables |
22 |
300 |
1,219 |
|
Loans and borrowings |
23 |
571 |
- |
|
Deferred tax liabilities |
29 |
2,423 |
1,388 |
|
|
|
3,294 |
2,607 |
|
Total equity and liabilities |
|
67,016 |
44,371 |
Consolidated Statement of changes in equity
|
|
|
|
Merger |
Merger |
Foreign |
|
Share |
|
Total attributable |
Non |
|
|
|
Share |
Share |
reserve |
reserve |
exchange |
Shares held |
option |
Retained |
to equity holders |
controlling |
Total |
|
|
capital |
premium |
restructuring |
acquisitions |
reserve |
in EBT |
reserve |
earnings |
of parent |
interest |
Equity |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2014 |
465 |
11,250 |
(370) |
- |
23 |
- |
71 |
6,056 |
17,494 |
- |
17,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
- |
- |
- |
- |
- |
2,220 |
2,220 |
- |
2,220 |
|
Other comprehensive income |
- |
- |
- |
- |
(288) |
- |
- |
- |
(288) |
- |
(288) |
|
Total Comprehensive income for the year |
|
|
|
|
(265) |
|
|
8,276 |
19,426 |
|
19,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions by and contributions to the owners |
|
|
|
|
|
|
|
|
|
|
|
|
Share option expense (note 20) |
- |
- |
- |
- |
- |
- |
156 |
- |
156 |
- |
156 |
|
Dividends paid (note 10) |
- |
- |
- |
- |
- |
- |
- |
(609) |
(609) |
- |
(609) |
|
Shares issued for cash (note 19) |
49 |
7,293 |
- |
- |
- |
- |
- |
- |
7,342 |
- |
7,342 |
|
Shares issued upon acquisitions |
37 |
- |
- |
- |
- |
- |
- |
- |
37 |
- |
37 |
|
Merger reserve arising on group |
|
|
|
|
|
|
|
|
|
|
|
|
acquisitions |
- |
- |
- |
5,667 |
- |
- |
- |
- |
5,667 |
- |
5,667 |
|
Contributions by and contributions to the owners |
86 |
7,293 |
- |
5,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December 2014 |
551 |
18,542 |
(370) |
5,667 |
(265) |
- |
227 |
7,667 |
32,019 |
- |
32,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
- |
- |
- |
- |
- |
3,363 |
3,363 |
(109) |
3,254 |
|
Other comprehensive income |
- |
- |
- |
- |
763 |
- |
- |
- |
763 |
- |
763 |
|
Total Comprehensive income for the year |
|
|
|
|
763 |
|
|
3,363 |
4,126 |
(109) |
4,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions by and contributions to the owners |
|
|
|
|
|
|
|
|
|
|
|
|
Share option expense (note 20) |
- |
- |
- |
- |
- |
- |
392 |
- |
392 |
- |
392 |
|
Dividends paid (note 10) |
- |
- |
- |
- |
- |
- |
- |
(737) |
(737) |
- |
(737) |
|
Shares bought for EBT |
- |
- |
- |
- |
- |
(804) |
- |
- |
(804) |
- |
(804) |
|
Shares issued for cash (note 19) |
78 |
- |
- |
14,118 |
- |
- |
- |
- |
14,196 |
- |
14,196 |
|
Shares issued upon acquisitions |
17 |
- |
- |
2,694 |
- |
- |
- |
- |
2,711 |
- |
2,711 |
|
Liabilities on acquisition of Kite Team |
|
|
|
|
|
|
|
|
|
(50) |
(50) |
|
Purchase of put option for acquisition of remaining 50% of Kite Team (note 31) |
|
|
|
|
|
|
|
|
|
(1,150) |
(1,150) |
|
Contributions by and contributions to the owners |
95 |
- |
- |
16,812 |
- |
(804) |
392 |
(737) |
15,758 |
(1,200) |
14,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December 2015 |
646 |
18,542 |
(370) |
22,479 |
498 |
(804) |
619 |
10,293 |
51,903 |
(1,309) |
50,594 |
Consolidated statement of cash flows
|
|
|
Years ended 31 December |
|
|
|
|
2015 |
2014 |
|
|
Note |
€'000 |
€'000 |
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
Profit after tax |
|
3,254 |
2,220 |
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
1,514 |
202 |
|
Income taxes (paid)/refunded |
|
(1,362) |
(522) |
|
Net cash provided by operating activities |
|
3,406 |
1,900 |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Acquisition of subsidiaries net of cash acquired |
31/32 |
(7,409) |
(8,889) |
|
Acquisition of property, plant and equipment |
14 |
(1,635) |
(1,252) |
|
(Acquisition)/disposal of short term investments |
18 |
232 |
260 |
|
Interest received |
6 |
70 |
49 |
|
EBT Share Purchase |
|
(804) |
- |
|
Net cash used in investing activities |
|
(9,546) |
(9,833) |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Repayment of borrowings in acquired company |
|
- |
(2,996) |
|
Repayment of loans to Directors of acquired companies |
|
(300) |
|
|
Loan to finance Multi-Media Tax Credits |
|
1,110 |
- |
|
Dividends paid |
10 |
(737) |
(609) |
|
Shares issued |
19 |
14,213 |
7,342 |
|
Share issuance expenses |
|
(14) |
- |
|
Interest paid |
6 |
(128) |
(61) |
|
Net cash used in financing activities |
|
14,144 |
3,676 |
|
Increase in cash and cash equivalents |
|
8,004 |
(4,257) |
|
Cash and cash equivalents at beginning of the year |
|
11,014 |
15,271 |
|
Cash and cash equivalents at end of period |
17 |
19,018 |
11,014 |
Consolidated statement of cash flows (cont)
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
Years ended 31 December |
|
|
|
|
2015 |
2014 |
|
|
Note |
€'000 |
€'000 |
|
Income and expenses not affecting operating cash flows |
|
|
|
|
Depreciation |
5 |
1,297 |
868 |
|
Intangibles amortisation |
5 |
857 |
468 |
|
Income tax expense |
7 |
1,832 |
1,215 |
|
Share option expense |
20 |
392 |
156 |
|
Foreign currency revaluation of fixed assets |
14 |
- |
(161) |
|
Profit/ Loss on disposal of fixed assets |
14 |
20 |
66 |
|
Loss arising on payment of deferred consideration |
|
194 |
- |
|
Interest received |
6 |
(70) |
(49) |
|
Share issuance costs |
|
14 |
- |
|
Interest paid |
6 |
128 |
61 |
|
|
|
|
|
|
Changes in operating assets and liabilities |
|
|
|
|
Decrease/(Increase) in trade receivables |
|
29 |
(2,930) |
|
(Increase)/Decrease in other receivables |
|
(2,533) |
(2,090) |
|
Increase in trade and other payables |
|
(646) |
2,598 |
|
|
|
1,514 |
202 |
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, 2015. 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 have 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").
New standards, interpretations and amendments effective from 1 January 2015
There were no new standards or interpretations implemented by the group for the first time for periods beginning on or after 1 January 2015. None of the amendments to Standards that are effective from that date had a significant effect on the Group's financial statements.
New standards, interpretations and amendments not yet effective
There were no new standards or interpretations available for early adoption for the first time for periods beginning on or after 1 January 2015, which have been implemented by the Group. None of these standards are expected to have a material effect on the Group's financial statements. A detailed review of the impact of IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases has however not been completed at this point, and therefore the Group is unable to conclude on what impact they may have on the Groups financial statements.
The financial statements for 2015 have been prepared in thousands (€'000) and the comparative numbers have also been revised to the same format. In 2014 the financial statements were rounded to one (€). The financial statements are presented in Euro (€) which is the functional currency of the Group.
|
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.
The acquisition of Keywords International Limited was deemed to be a 'combination under common control' as ultimate control before and after the acquisition was the same. As a result, these transactions were 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.
As part of the Group reconstruction in 2013, 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 was accounted for in Issued Share Capital. On the 2013 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 was treated as a merger reserve arising on group reconstruction. On the Company balance sheet, the excess of 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 was 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. They are deconsolidated 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. When the consideration becomes more certain the fair value of the contingent consideration will be revalued and any change will be recognised in the statements of comprehensive income.
Goodwill
Goodwill represents the excess of the cost of a business combination over, in the case of business combinations completed prior to 1 January 2010, the Group's interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired and, in the case of business combinations completed on or after 1 January 2010, the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired.
For business combinations completed prior to 1 January 2010, cost comprised the fair value of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition. Changes in the estimated value of contingent consideration arising on business combinations completed by this date were treated as an adjustment to cost and, in consequence, resulted in a change in the carrying value of goodwill.
For business combinations completed on or after 1 January 2010, 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 in cost at its acquisition date fair value and, in the case of contingent consideration classified as a financial liability, remeasured subsequently through profit or loss. For business combinations completed on or after 1 January 2010, direct costs of acquisition are recognised immediately as an expense.
Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income.
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 analyses its Cash Generating Units on an entity by entity basis.
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.
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, 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.
Revenue Recognition
Revenue recognised represents the consideration received or receivable for the rendering of services, net of sales taxes, rebates discounts and after eliminating intercompany sales. Services are provided based on agreed client instructions and when projects are in progress at the period end, revenue is recognised to the extent that services have been provided net of any provisions. The Multimedia tax credits received in Montreal on testing services are treated as a deduction against direct costs.
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.
Intangible Assets
Intangible assets, separately identified from goodwill acquired as part of a business combination, are initially stated at fair value. The fair value attributed is determined by discounting the expected future cashflow to be generated from the asset at the risk adjusted average weighted cost of capital appropriate to the intangible asset. The assets are amortised over their useful economic lives which is deemed to be 5 years.
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 investments.
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.
Finance Leases
Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a "finance lease"), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the consolidated statement of comprehensive income over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor.
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 Income. No gain or loss is recognised in relation to the purchase, sale, issue or cancellation of the Parent Company's Ordinary Shares.
|
3 |
Critical accounting estimates and judgements |
The preparation of consolidated financial statements under IFRS requires the Directors to make estimates and judgements that effect the application of policies and reported amounts.
The areas requiring the use of estimates and critical judgements that may significantly impact the Group's earnings and financial position are revenue recognition in respect of accrued income and computation of income taxes. Estimates and judgements are continually evaluated and are based on historic experience and other factors including expectations of future events that are believed to be reasonable. Actual results may differ from these estimates and assumptions.
Income Taxes
The Group is subject to income tax in several jurisdictions and judgement may be required in determining the provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination may be uncertain. As a result, the company recognises tax liabilities based on an understanding of taxation legislation in particular jurisdictions and any related estimates of whether taxes and/or interest will be due. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact income tax expense in the period in which such determination is made.
Goodwill and intangible assets arising on acquisition
The value of goodwill and intangible assets recognised on the Group's acquisitions during the year, were derived from the projected cashflows for those businesses at the time of acquisition, based on management forecasts. The accuracy of the valuation would therefore be compromised by any differences between the forecasts and the levels of business activity that the entity might actually have been able to generate in the absence of acquisition. The valuation will also be affected by the accuracy of the discount factor used.
The carrying value of goodwill and intangibles assets is dependent on the accuracy of the inputs into the impairment test detailed in note 12.
Multi Media Tax Credits
The submissions for the repayment of Multi-Media Tax Credits in Montreal are made on an annual basis to Investment Quebec and Revenue Quebec. Both the costs and basis of the claim are subject to audit by the authorities prior to approval and payment of the claim. While the group complete a detailed exercise in relation to the claim and to the accrual there may be occasions where the actuals amounts may be less than accrued which will lead to a change in the amounts recognised within the financial statements.
|
4 |
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 Services- 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 / Voiceover Services - 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.
· Art Creation Services - Art creation 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.
· Customer Support - Customer 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.
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 |
||
|
|
2015 |
2014 |
|
|
|
€'000 |
€'000 |
|
|
|
|
|
|
|
Localisation |
17,141 |
11,957 |
|
|
Localisation Testing |
15,021 |
14,658 |
|
|
Audio |
7,157 |
5,080 |
|
|
Functional Testing |
6,472 |
4,986 |
|
|
Art Creation Customer Support |
8,211 3,949 _______ |
612 - _______ |
|
|
|
57,951 |
37,293 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
One (2014: Two) customers accounted for more than 10% of the Group's revenue during the year. Revenues generated from the customer were €7.2m (2014: €7.1m and €3.9m).
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 |
|
|
|
2015 |
2014 |
|
|
€'000 |
€'000 |
|
|
|
|
|
Ireland |
14,167 |
9,939 |
|
Japan |
3,324 |
2,644 |
|
Italy |
8,343 |
6,754 |
|
Canada |
17,438 |
11,067 |
|
United States |
6,573 |
5,838 |
|
India |
3,602 |
612 |
|
Singapore |
3,083 |
65 |
|
United Kingdom |
650 |
374 |
|
Brazil Spain |
465 306 _______ |
- - _______ |
|
|
|
|
|
Total Revenues |
57,951 |
37,293 |
|
|
_______ |
_______ |
Geographical Analysis of Non-current assets from Continuing Businesses
|
|
Years ended 31 December |
|
|
|
2015 |
2014 |
|
|
€'000 |
€'000 |
|
|
|
|
|
Ireland |
284 |
391 |
|
Japan |
32 |
26 |
|
Italy |
8,984 |
9,498 |
|
Canada |
1,981 |
1,057 |
|
United States |
8,706 |
249 |
|
India |
3,039 |
2,720 |
|
Singapore |
83 |
97 |
|
United Kingdom |
6,885 |
6,400 |
|
Brazil |
204 |
- |
|
Spain |
868 |
- |
|
Mexico |
95 |
- |
|
China |
- |
- |
|
|
31,161 |
20,439 |
|
5 |
Operating profit |
|
Operating profit is stated after charging: |
Years ended 31 December |
|
|
|
2015 |
2014 |
|
|
€'000 |
€'000 |
|
|
|
|
|
Depreciation |
1,297 |
868 |
|
Amortisation of Intangible Assets |
857 |
468 |
|
Costs of Acquisitions |
221 |
483 |
|
Costs of Integration |
868 |
978 |
|
Operating lease repayments |
1,663 |
1,018 |
|
|
|
|
|
|
|
|
One-time costs of €221k and €868k respectively were incurred in acquiring and integrating the new entities into the group. The most significant costs within the integration costs are for internal and external resource who have led the activities to integrate the new acquisitions into the Group.
|
|
|
Years ended 31 December |
|
||
|
|
|
2015 |
2014 |
|
|
|
|
|
€'000 |
€'000 |
|
|
|
|
Auditors' remuneration |
|
|
|
|
|
|
Audit services |
|
|
|
|
|
|
Parent company and Group audit |
48 |
33 |
|
|
|
|
Subsidiary companies audit |
95 |
67 |
|
|
|
|
Non-audit services |
|
|
|
|
|
|
Accounting services |
- |
3 |
|
|
|
|
Taxation compliance |
12 |
18 |
|
|
|
|
Due diligence services |
- |
25 |
|
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
155 |
147 |
|
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
6 |
Financing income and costs |
||||
|
|
Years ended 31 December |
|
|
|
2015 |
2014 |
|
|
€'000 |
€'000 |
|
Finance income |
|
|
|
Interest received Foreign Exchange Gain |
70 - |
49 467 |
|
|
_______ |
_______ |
|
|
|
|
|
|
70 |
516 |
|
|
_______ |
_______ |
|
Finance cost |
|
|
|
Bank charges |
(206) |
(94) |
|
Interest Expense |
(128) |
(61) |
|
Foreign Exchange Losses |
(474) |
- |
|
|
_______ |
_______ |
|
|
|
|
|
|
(808) |
(155) |
|
|
_______ |
_______ |
|
|
|
|
|
Net financing (expense) / income |
(738) |
361 |
|
|
_______ |
_______ |
|
7 |
Taxation |
|
|
Years ended 31 December |
|
|
|
2015 |
2014 |
|
|
€'000 |
€'000 |
|
Current income tax |
|
|
|
Income tax on profits |
4 |
9 |
|
Income tax on profits of subsidiary operations |
1,518 |
955 |
|
Deferred tax (Note 29) |
310 |
251 |
|
|
_______ |
_______ |
|
|
|
|
|
|
1,832 |
1,215 |
|
|
_______ |
_______ |
The tax charge for the year can be reconciled to accounting profit as follows:
|
|
Years ended 31 December |
|
|
|
2015 |
2014 |
|
|
€'000 |
€'000 |
|
|
|
|
|
Profit before tax |
5,086 |
3,436 |
|
|
_______ |
_______ |
|
Expected tax charge based on the standard rate of taxation in the UK at 23% (2014: 23%) |
1,170 |
790 |
|
|
|
|
|
Higher rates of current income tax in overseas jurisdictions |
286 |
236 |
|
Lower rates of current income tax in overseas jurisdictions |
(100) |
(161) |
|
Losses incurred in overseas jurisdictions |
238 |
32 |
|
Effects of other timing differences |
238 |
318 |
|
|
_______ |
_______ |
|
|
|
|
|
Total tax charge |
1,832 |
1,215 |
|
|
_______ |
_______ |
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.
|
8 |
Profit attributable to shareholders of the parent company |
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 profit / (loss) after tax dealt with in the parent undertaking is (€1,576k) (2014: loss (€606k)).
|
|
Earnings per share |
|
|
|
Years ended 31 December |
|
|
|
|
2015 |
2014 |
|
|
|
Euro cent |
Euro cent |
|
|
|
|
|
|
Basic |
|
6.98 |
4.94 |
|
Diluted |
|
6.87 |
4.93 |
|
|
|
2015 |
2014 |
|
|
|
€'000 |
€'000 |
|
Profit for the period from continuing operations attributable to the equity holders of the company |
|
3,363 |
2,220 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
Number |
Number |
|
Denominator (Weighted average number of equity shares) |
|
|
|
|
Basic |
|
48,192,371 |
44,955,503 |
|
Diluted |
|
48,971,278 |
45,064,294 |
|
|
|
_______ |
_______ |
The dilutive impact of share options has been considered in calculating diluted earnings per share. Details of the number of share options outstanding at the year-end are set out in note 20.
|
10 |
Dividends |
|
|
2015 |
2014 |
||
|
|
Per share Euro cent |
Total €'000 |
Per share Euro cent |
Total €'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Final |
1.03 |
482 |
0.84 |
394 |
|
Interim |
0.54 |
255 |
0.46 |
215 |
|
|
|
|
|
|
|
Dividends paid to shareholders |
1.57 |
737 |
1.30 |
609 |
|
|
|
|
|
|
In June 2014, Keywords Studios plc approved a dividend of Stg 0.67 / €0.84 per share, based on the shares in issue at that time, or €393,767 in total, as a final dividend for 2013. The dividend was paid in July 2014.
In September 2014, Keywords Studios plc approved a dividend of Stg 0.36 /€0.46 per share, based on the shares in issue at that time, or €215,391 in total, as an interim dividend for 2014. The dividend was paid in October 2014.
In June 2015, Keywords Studios plc approved a dividend of Stg 0.74/€1.03 per share, based on the shares in issue at that time, or €482,333 in total, as a final dividend for 2014. The dividend was paid in June 2015.
In September 2015, Keywords Studios plc approved a dividend of Stg 0.40/€0.54 per share, based on the shares in issue at that time, or €254,934 in total, as an interim dividend for 2015. The dividend was paid in October 2015.
The Directors' recommend a final dividend in respect of the financial year ended December 31, 2015 of Stg 0.81p per Ordinary share, to be paid on June 23, 2016 to shareholders who are on the register at June 3, 2016. This dividend is not reflected in these financial statements as it does not represent a liability at December 31, 2015. The final proposed dividend will reduce shareholders' funds by an estimated €594,122.
There are no income tax consequences for the company in respect of the dividends proposed prior to issuance of the Consolidated Financial Statements and for which a liability has not been recognised.
|
11 |
Staff Costs |
Total staff costs (including Directors) comprise the following:
|
|
Years ended 31 December |
|
|
|
2015 |
2014 |
|
|
€'000 |
€'000 |
|
|
|
|
|
Salaries and related costs |
29,773 |
19,907 |
|
Share based payment costs |
392 |
156 |
|
|
_______ |
_______ |
|
|
|
|
|
|
30,165 |
20,063 |
|
|
_______ |
_______ |
Key management compensation:
|
|
Years ended 31 December |
|
|
|
2015 |
2014 |
|
|
€'000 |
€'000 |
|
|
|
|
|
Salaries and related costs |
719 |
595 |
|
Social Welfare cost |
88 |
60 |
|
Pension costs |
5 |
5 |
|
Share based payment costs |
135 |
66 |
|
|
_______ |
_______ |
|
|
|
|
|
|
947 |
725 |
|
|
_______ |
_______ |
The key management compensation includes the five Directors of Keywords Studios plc (2014: five).
|
|
Years ended 31 December |
|
|
|
2015 |
2014 |
|
Average number of employees |
|
|
|
Operations |
1,169 |
918 |
|
General and administration |
104 |
60 |
|
|
_______ |
_______ |
|
|
|
|
|
|
1,273 |
978 |
|
|
_______ |
_______ |
|
12 |
Goodwill
|
|
|||||||||
|
|
Liquid Violet Limited |
Babel Media Limited |
Binari Sonari Srl |
Lakshya Digital Private Limited |
Alchemic Dream |
Reverb |
Kite Team |
Liquid Development |
Total |
||
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
||
|
Cost and net book value |
|
|
|
|
|
|
|
|
|
||
|
At 31 December 2013 |
|
|
|
|
|
|
|
|
|
||
|
Recognised on acquisition of a subsidiary |
1,043 |
4,375 |
7,630 |
1,663 |
- |
- |
- |
- |
14,711 |
||
|
At 31 December 2014 |
1,043 |
4,375 |
7,630 |
1,663 |
- |
- |
- |
- |
14,711 |
||
|
Recognised on acquisition of a subsidiary |
- |
- |
- |
39 |
690 |
274 |
550 |
6,801 |
8,354 |
||
|
Foreign exchange adjustment |
137 |
505 |
- |
127 |
(55) |
(71) |
- |
185 |
828 |
||
|
At 31 December 2015 |
1,180 |
4,880 |
7,630 |
1,829 |
635 |
203 |
550 |
6,986 |
23,893 |
||
Group
During the period goodwill arose on the acquisition of Alchemic Dream, Reverb Localização - Preparação de Documentos Ltda ("Reverb"), Kite Team and Liquid Development. Additional goodwill arose on Lakshya Digital Private Limited due to an adjustment to the valuation of fixed assets acquired (See note 32).
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 analyses its Cash Generating Units on an entity by entity basis. The discount rate used within the calculations was 12.5% for each CGU. The growth rates are based on a review of recently achieved growth and a prudent estimate for likely growth rates for each CGU.
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.
Key assumptions for the value in use calculations are as follows:
|
|
Long term Growth Rate |
Discount Rates |
|
|
|
|
|
Liquid Violet Limited |
10% |
12.5% |
|
Babel Media Limited |
10% |
12.5% |
|
Binari Sonori S.R.L |
10% |
12.5% |
|
Lakshya Digital Private Limited Alchemic Dream Reverb Kite Team Liquid Development |
10% 10% 10% 10% 10% |
12.5% 12.5% 12.5% 12.5% 12.5% |
|
|
|
|
As part of the value in use calculation, management prepared an initial cash flow forecast, approved by the Board of Directors, covering the period to December 31 and the following five years. The long term growth rate has been used to determine a terminal value for each CGU.
The Group has conducted a sensitivity analysis on the carrying value on each of the CGUs. If the sales projections reduce by the following percentages, the value of goodwill would be impaired.
Liquid Violet Limited 7.4%
Babel Media Limited 9.2%
Binari Sonori S.R.L 4.8%
Lakshya Digital Private Limited 13.1%
Alchemic Dream 28.8%
Reverb 35.3%
Kite Team 13.6%
Liquid Development 5.9%
The result of the value in use calculations was that no impairment is required in this period.
|
13 |
Intangible Assets - Customer Relationships |
|
Group |
|
|
|
|
|
|
|
|
|
Liquid Violet Limited |
Babel Media Limited |
Binari Sonari Srl |
Lakshya Digital Private Limited |
Alchemic Dream |
Liquid Development |
Total |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
|
Cost |
|
|
|
|
|
|
|
|
As at 31 December 2013 |
- |
- |
- |
- |
- |
- |
- |
|
Additions |
204 |
964 |
1,791 |
475 |
- |
- |
3,434 |
|
At 31 December 2014 |
204 |
964 |
1,791 |
475 |
- |
- |
3,434 |
|
Additions |
- |
- |
- |
- |
286 |
1,225 |
1,511 |
|
Foreign Exchange Adjustment |
27 |
111 |
|
36 |
(21) |
34 |
187 |
|
As at 31 December 2015 |
231 |
1,075 |
1,791 |
511 |
265 |
1,259 |
5,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation and impairment |
|
|
|
|
|
|
|
|
As at 31 December 2013 |
- |
- |
- |
- |
- |
- |
- |
|
Amortisation charge |
39 |
169 |
239 |
21 |
- |
- |
468 |
|
As at 31 December 2014 |
39 |
169 |
239 |
21 |
- |
- |
468 |
|
Amortisation charge |
46 |
214 |
358 |
101 |
54 |
84 |
857 |
|
Foreign Exchange Adjustment |
5 |
20 |
- |
3 |
(3) |
(0) |
25 |
|
As at 31 December 2015 |
90 |
403 |
597 |
125 |
51 |
84 |
1,350 |
|
|
|
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
|
|
|
As at 31 December 2014 |
165 |
796 |
1,552 |
454 |
- |
- |
2,967 |
|
As at 31 December 2015 |
141 |
672 |
1,194 |
386 |
214 |
1,175 |
3,782 |
Customer relationships are amortised over 5 years from the point of acquisition on a straight line basis.
|
14 |
Property, plant and equipment |
|
Group |
|
|
|
|
|
|
Computers and software |
Office, furniture and equipment |
Leasehold improvements |
Total |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
|
Cost |
|
|
|
|
|
At 1 January 2014 |
1,192 |
214 |
32 |
1,438 |
|
Currency revaluation |
179 |
93 |
36 |
308 |
|
Additions |
410 |
456 |
386 |
1,252 |
|
Acquisitions through business combinations |
3,508 |
1,964 |
381 |
5,853 |
|
Disposals |
(342) |
(999) |
(48) |
(1,389) |
|
At 31 December 2014 |
4,947 |
1,728 |
787 |
7,462 |
|
Currency revaluation |
88 |
(15) |
(16) |
57 |
|
Additions |
1,191 |
373 |
71 |
1,635 |
|
Acquisitions through business combinations |
266 |
204 |
16 |
486 |
|
Disposals |
(59) |
(14) |
(3) |
(76) |
|
At 31 December 2015 |
6,433 |
2,276 |
855 |
9,564 |
|
|
Accumulated depreciation |
|
|
|
|
|
||||||
|
|
Cost |
|
|
|
|
|
||||||
|
|
At 1 January 2014 |
740 |
87 |
11 |
838 |
|
||||||
|
|
Currency revaluation |
83 |
60 |
4 |
147 |
|
||||||
|
|
Acquisitions through business combinations |
2,686 |
1,411 |
74 |
4,171 |
|
||||||
|
|
Depreciation charge |
545 |
296 |
27 |
868 |
|
||||||
|
|
Disposals |
(289) |
(986) |
(48) |
(1,323) |
|
||||||
|
|
At 31 December 2014 |
3,765 |
868 |
68 |
4,701 |
|
||||||
|
|
Currency revaluation |
102 |
(76) |
(28) |
(2) |
|
||||||
|
|
Acquisitions through business combinations |
180 |
(43) |
- |
137 |
|
||||||
|
|
Depreciation charge |
857 |
344 |
96 |
1,297 |
|
||||||
|
|
Disposals |
(55) |
- |
- |
(55) |
|
||||||
|
|
At 31 December 2015 |
4,849 |
1,093 |
136 |
6,078 |
|
||||||
|
|
Net book value |
|
|
|
|
|
||||||
|
|
As at 31 December 2014 |
1,182 |
860 |
719 |
2,761 |
|
||||||
|
|
As at 31 December 2015 |
1,584 |
1,183 |
719 |
3,486 |
|
||||||
|
15 |
Trade receivables |
|
|
|
||||||||
|
|
|
As of 31 December |
|
|||||||||
|
|
|
2015 |
2014 |
|
||||||||
|
|
Group |
€'000 |
€'000 |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
Customers |
7,825 |
6,464 |
|
||||||||
|
|
Provision for Bad Debts (note 26) |
(306) |
(261) |
|
||||||||
|
|
|
_______ |
_______ |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
|
7,519 |
6,203 |
|
||||||||
|
|
|
_______ |
_______ |
|
||||||||
|
|
|
|
|
|
||||||||
|
16 |
Other receivables |
|||||||||||
|
|
|
As of 31 December |
|
|
|
|
|
2015 |
2014 |
|
|
|
Group |
€'000 |
€'000 |
|
|
|
|
|
|
|
|
|
Accrued Income |
1,661 |
954 |
|
|
|
Prepayments |
989 |
484 |
|
|
|
Other receivables |
4,931 |
3,650 |
|
|
|
Other Tax and Social Security |
394 |
235 |
|
|
|
Restricted cash (note 25) |
345 |
321 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
8,320 |
5,644 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|||
|
17 |
Cash and cash equivalents |
|||
|
|
As of 31 December |
|
|
|
2015 |
2014 |
|
Group |
€'000 |
€'000 |
|
|
|
|
|
Cash at bank |
19,018 |
9,635 |
|
Short term bank deposits |
- |
1,379 |
|
|
_______ |
_______ |
|
|
|
|
|
|
19,018 |
11,014 |
|
|
_______ |
_______ |
Short term bank deposits relate to cash on deposit with maturity dates less than three months, or which can be accessed before on demand.
|
18 |
Short term investments |
|
|
As of 31 December |
|
|
|
2015 |
2014 |
|
Group |
€'000 |
€'000 |
|
|
|
|
|
Medium term bank deposits |
27 |
259 |
|
|
_______ |
_______ |
|
|
|
|
|
|
27 |
259 |
|
|
_______ |
_______ |
Medium term bank deposits relate to cash on deposit with maturity dates greater than three months, which cannot be accessed before maturity.
|
19 |
Shareholder's Equity |
Share Capital
|
As at 1 January 2014
Ordinary Shares of £0.01 issued on acquisition of Babel Media Limited
Ordinary Shares of £0.01 issued on acquisition of Binari Sonori S.R.L
Placing of ordinary shares of £0.01 on the market |
Shares
40,032,413
1,516,944
1,555,650
4,000,000 |
€'000
465
19
19
49 |
|
|
_______ |
_______ |
|
As at 31 December 2014 |
47,105,007 |
551 |
|
|
|
|
|
Ordinary Shares of £0.01 issued for earn out of Binari Sonori S.R.L |
158,250 |
2 |
|
|
|
|
|
Ordinary Shares of £0.01 issued on acquisition of Liquid Development LLC. |
1,074,440 |
15 |
|
|
|
|
|
Placing of ordinary Shares of £0.01 on the market |
5,500,000 |
78 |
|
|
_______ |
_______ |
|
|
|
|
|
As at 31 December 2015 |
53,837,697 |
646 |
|
|
_______ |
_______ |
On January 9, 2015 the Group issued 158,250 of 1p shares at a value of 145.47p (€1.86) for the earn out agreement with Binari Sonori.
On August 20, 2015 the Group issued 1,074,440 of 1p shares at a value of 160.32p (€2.25) which formed the part of the consideration for the acquisition of Liquid Development LLC.
On November 26, 2015, the group issued 5,500,000 1p shares at a value of £1.90 (€2.64) to purchase preference shares in Project Midas Limited. This transaction formed part of a placing of Keywords Studios shares for cash. The cash proceeds with respect to the share placement were received on the redemption of the preference shares held on November 26, 2015. The net proceeds raised were €14.2m net of costs of €656,000. No share premium is recorded in the Group's financial statements through the operation of the merger relief provisions of the Companies Act 1982 hence the premium is recorded in the merger reserve.
There is no limit to the number of shares which the company can issue.
Shares held by the Employee Benefit Trust (EBT)
|
|
2015 |
2014 |
||
|
|
Number |
Total |
Number |
Total |
|
€'000 |
€'000 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares held by the EBT |
400,000 |
804 |
- |
- |
In January the Group purchased 200,000 1p Ordinary Shares at a value of 145p and in April a further 200,000 1p shares at a value of 150p.
Reserves
The following describes the nature and purpose of each reserve within owner's 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 |
The Share Premium account is the amount received for shares issued in excess of their nominal value, net of share issuance costs.
|
|
|
|
Share option reserve |
The Share option reserve is the credit arising on share based payment charges in relation to the Company's share option schemes.
|
|
|
|
Merger reserve - Restructuring |
The merger reserve was initially created following the Group reconstruction, when Keywords Studios plc acquired the Keywords International Limited Group of companies.
|
|
|
|
Merger reserve - Acquisitions
Non-Controlling Interest Reserve |
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 are recorded within this reserve.
The non-controlling interest reserve represents the share of net assets / (liabilities) at the reporting date which is attributable to the holders of the non-controlling interest.
|
|
|
|
20 |
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 shown below, with further details of the schemes following:
|
|
2015 |
2014 |
|
|
€'000 |
€'000 |
|
|
|
|
|
Share Option Scheme Expense |
157 |
66 |
|
Share Option Scheme - LTIP Expense |
235 |
90 |
|
|
_______ |
_______ |
|
|
|
|
|
|
392 |
156 |
|
|
_______ |
_______ |
|
|
|
|
Of the total share option charge, €55k relates to Directors of the Company as at December 31, 2015. (2014: €66k).
Share Option Scheme
Share options are granted to Directors and to permanent employees. The exercise price of the granted options is equal to management's 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:
|
|
2015 |
2014 |
||
|
|
Average exercise price in £ per share |
Number of options |
Average exercise price in £ per share |
Number of options |
|
Outstanding at the beginning of the year |
1.20 |
642,286 |
1.20 |
762,775 |
|
Granted |
1.58 |
1,059,040 |
- |
- |
|
Lapsed |
1.20 |
(32,553) |
1.20 |
(120,489) |
|
Exercised |
1.20 |
(26,531) |
- |
- |
|
|
_______ |
_______ |
_______ |
_______ |
|
Outstanding at the end of the year |
1.20 |
1,642,242 |
1.20 |
642,286 |
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
Exercisable at the end of the year |
1.20 |
178,133 |
- |
- |
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
There were 1,059,040 options granted on June 1, 2015 at an exercise price of £1.58. All options were granted to employees of the Group of which 4,260 of these options lapsed due to staff leaving in the period. Of the total options of 1,054,780 remaining at 31st December, 2015, 351,594 are exercisable from June 1, 2018 to May 31, 2023, 351,593 are exercisable from June 1, 2019 to May 31, 2023 and 351,593 are exercisable from June 1, 2020 to May 31, 2023.
The opening balance of 642,286 options were granted on July 12, 2013 at an average exercise price of £1.20. During the year 28,293 of the options lapsed due to staff leaving and 26,531 options were exercised. All options were granted to either employees or Directors of the Group. Of the total options granted remaining at 31st December, 2015, 178,133 are exercisable as at 31st December 2015 to July 11, 2020, 204,664 are exercisable from July 12, 2016 to July 11, 2020 and 204,664 are exercisable from July 12, 2017 to July 11, 2020.
The inputs into the Black-Scholes model, used to value the options are as follows:
Share Options granted in 2013
|
|
2015 |
2014 |
|
|
|
|
|
Weighted average share price (£) |
1.23 |
1.23 |
|
Weighted average exercise price (£) |
1.20 |
1.20 |
|
Average Expected Life |
3 years |
3 years |
|
Expected Volatility |
36.12% |
36.12% |
|
Risk free rates |
0.5% |
0.5% |
|
Average expected dividends yield |
1.00% |
1.00% |
|
|
|
|
|
|
|
|
Share Options granted in 2015
|
|
2015 |
2014 |
|
|
|
|
|
Weighted average share price (£) |
1.64 |
- |
|
Weighted average exercise price (£) |
1.58 |
- |
|
Average Expected Life |
3 years |
- |
|
Expected Volatility |
28.03% |
- |
|
Risk free rates |
0.9% |
- |
|
Average expected dividends yield |
0.75% |
- |
|
|
|
|
Expected volatility was determined by calculating the historical volatility of two similar listed companies over the previous 3 years. 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.
The weighted average remaining contractual life of the options outstanding at December 31, 2014 granted in 2013 was 6 months (2014: 1 years 6 months) and granted in 2015 was 2 years and 7 months. All of the outstanding options granted in 2013 can be exercised at an average of £1.20 over a 1 to 3 year period and for those granted in 2015 can be exercised at £1.58 over a 3 to 5 year period.
Long term incentive plan scheme
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. A total of 860,206 (2014: 376,226) nil price (1p) options are available to vest to Directors and to selected employees on the basis of the number of options they are entitled to.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
|
|
2015 |
2014 |
||
|
|
Average exercise price in £ per share |
Number of options |
Average exercise price in £ per share |
Number of options |
|
|
|
|
|
|
|
Outstanding at the beginning of the year |
0.01 |
376,226 |
- |
392,037 |
|
Granted |
0.01 |
489,540 |
0.01 |
50,000 |
|
Lapsed |
0.01 |
(5,560) |
- |
(65,811) |
|
Exercised |
- |
- |
- |
- |
|
|
_______ |
_______ |
_______ |
_______ |
|
Outstanding at the end of the year |
0.01 |
860,206 |
0.01 |
376,226 |
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
Exercisable at the end of the year |
- |
- |
- |
- |
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
On January 6, 101,060 options were granted at an exercise price of £0.01 to employees of the Group. The options are exercisable from January 6, 2018 to January 6, 2022 if the market performance conditions are met as at January 6, 2018. On June 1, 2015 388,480 options were granted at an exercise price of £0.01 to Directors and employees of the Group. The options are exercisable from June 1, 2018 to June 1, 2022 if the market performance conditions are met as at June 1, 2018. Of the options granted on June 1, 5,560 have lapsed.
326,226 options granted previously on July 12, 2013 at an exercise price of £0.01 remain as at 31 December, 2015. All options were granted to either employees or Directors of the Group. The 326,226 options granted are exercisable from July 12, 2016 to July 11, 2020 if the market performance conditions are met as at July 12, 2016.
Additionally 50,000 options granted at an exercise price of £0.01 to a director of the Group on July 3, 2014 remain as at 31 December, 2015. The options are exercisable from July 3, 2017 to July 3, 2021 if the market performance conditions are met as at July 3, 2017. Additionally 65,811 options lapsed due to a director leaving the Group.
The options were valued using a Monte Carlo binomial model using the following inputs:
LTIPS granted in 2013
|
|
2015 |
2014 |
|
|
|
|
|
Weighted average share price (£) |
1.23 |
1.23 |
|
Weighted average exercise price (£) |
0.01 |
0.01 |
|
Average Expected Life |
3 years |
3 years |
|
Expected Volatility |
36.12% |
36.12% |
|
Risk free rates |
0.5% |
0.5% |
|
LTIPS granted in 2014
|
|
|
|
|
2015 |
2014 |
|
|
|
|
|
Weighted average share price (£) |
1.60 |
1.60 |
|
Weighted average exercise price (£) |
0.01 |
0.01 |
|
Average Expected Life |
3 years |
3 years |
|
Expected Volatility |
35.52% |
35.52% |
|
Risk free rates |
0.5% |
0.5% |
|
|
|
|
|
LTIPS granted in January, 2015
|
|
|
|
|
2015 |
2014 |
|
|
|
|
|
Weighted average share price (£) |
1.43 |
- |
|
Weighted average exercise price (£) |
0.01 |
- |
|
Average Expected Life |
3 years |
- |
|
Expected Volatility |
31.2% |
- |
|
Risk free rates |
0.58% |
- |
|
|
|
|
|
LTIPS granted in June, 2015
|
|
|
|
|
2015 |
2014 |
|
|
|
|
|
Weighted average share price (£) |
1.64 |
- |
|
Weighted average exercise price (£) |
0.01 |
- |
|
Average Expected Life |
3 years |
- |
|
Expected Volatility |
28.03% |
- |
|
Risk free rates |
0.9% |
- |
|
|
|
|
Expected volatility was determined by calculating the historical volatility of two similar listed companies over the previous 3 years. 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.
The weighted average remaining contractual life of the options outstanding at December 31, 2015 was 1 years 8 months (2014: 1 years 8 months). All of the outstanding options can be exercised at £0.01 over a 4 year period.
|
21 |
Trade payables |
|
|
As of 31 December |
|
|
|
2015 |
2014 |
|
Group |
€'000 |
€'000 |
|
|
|
|
|
Suppliers |
2,761 |
2,322 |
|
|
_______ |
_______ |
|
|
|
|
|
|
2,761 |
2,322 |
|
|
_______ |
_______ |
|
|
|
22 Other payables
|
|
As of 31 December |
|
||
|
|
2015 |
2014 |
|
|
|
Group
|
€'000 |
€'000 |
|
|
|
Current |
|
|
|
|
|
Accrued expenses |
3,268 |
3,014 |
|
|
|
Payroll Taxes |
482 |
875 |
|
|
|
Other payables |
2,714 |
1,898 |
|
|
|
Contingent Consideration |
1,979 |
1,088 |
|
|
|
Related party payable (Note 25) |
9 |
5 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
8,452 |
6,881 |
|
|
|
Non-current |
_______ |
_______ |
|
|
|
Other payables |
55 |
468 |
|
|
|
Contingent Consideration |
245 |
750 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
300 |
1,219 |
|
|
|
|
_______ |
_______ |
|
|
|
23 |
Loans and borrowings |
|||
|
As of 31 December |
|
|
2015 |
2014 |
|
€'000 |
€'000 |
|
Current instalment due on bank loans |
1,163 |
- |
|
|
_______ |
_______ |
|
|
|
|
|
|
1,163 |
- |
|
|
_______ |
_______ |
|
|
In the period Babel Media Canada entered into a loan for €1.1m to finance the tax credits for 2013/2014 which remain outstanding. The loan bears interest of the base rate for Canada +1% margin and will be repaid in 2016. There is a charge over the assets of Babel Canada relating to the loan.
Additionally the group took on the following liabilities which existed when the group purchased 50% of Kite Team;
Loan for €150,000 at a fixed rate of 6.30% payable by 1st January, 2021 and a loan for €200,000 at a fixed rate of 5.38% payable by 20th December, 2021. Both of these loans are guaranteed by a Director of Kite Team.
Additionally the Director of Kite Team has given the company a loan of €295,000 payable by the latest 31st March, 2017.
The loans are repayable over the following periods.
The currencies of the loans are as follows;
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
24 Investments in Subsidiaries
Company
|
|
As of 31 December |
|
|
|
2015 |
2014 |
|
|
€'000 |
€'000 |
|
|
|
|
|
Investment in Subsidiaries |
12,765 |
12,765 |
|
|
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
12,765 |
12,765 |
|
|
_______ |
_______ |
Details of the Company and Group's subsidiaries as at December 31, 2015 are set out below:
|
Name |
Country of incorporation |
Date of incorporation/acquisition |
Proportion of voting rights and ordinary share capital held |
Nature of business |
|
|
|
|
|
|
|
Keywords International Limited |
Ireland |
13-05-1998 |
100% |
Trading Company |
|
Keywords International Co. Limited |
Japan |
30-11-2010 |
100% |
Trading Company |
|
Keywords International Corporation Inc. |
Canada |
22-12-2010 |
100% |
Trading Company |
|
Keywords Italia S.R.L |
Italy |
18-05-2011 |
100% |
Trading Company |
|
Keywords International Inc. |
United States |
26-09-2012 |
100% |
Trading Company |
|
KW Studios Limited |
United Kingdom |
29-05-2013 |
100% |
Dormant Company |
|
Keywords International Pte. Limited |
Singapore |
24-04-2014 |
100% |
Trading Company |
|
Binari Sonori S.R.L |
Italy |
08-05-2014 |
100% |
Trading Company |
|
Binari Sonori Inc. |
United States |
08-05-2014 |
100% |
Trading Company |
|
Liquid Violet Limited |
United Kingdom |
15-01-2014 |
100% |
Trading Company |
|
Babel Media Limited |
United Kingdom |
17-02-2014 |
100% |
Trading Company |
|
Babel Games Services Inc. |
Canada |
17-02-2014 |
100% |
Trading Company |
|
Babel Media India Private Limited |
India |
17-02-2014 |
100% |
Trading Company |
|
Babel Media USA Inc. |
United States |
17-02-2014 |
100% |
Trading Company |
|
Lakshya Digital Private Limited |
India |
10-10-2014 |
100% |
Trading Company |
|
Lakshya Digital Singapore Pte. Ltd. |
Singapore |
10-10-2014 |
100% |
Trading Company |
|
Edugames Solution Private Limited |
India |
10-10-2014 |
100% |
Trading Company |
|
Keywords International Barcelona SL |
Spain |
09-01-2015 |
100% |
Trading Company |
|
Keywords (Shanghai) Information Technology Limited |
China |
02-04-2015 |
100% |
Trading Company |
|
Alchemic Dream Inc. |
Canada |
06-01-2015 |
100% |
Trading Company |
|
Reverb Localização - Preparação de Documentos Ltda |
Brazil |
18-01-2015 |
100% |
Trading Company |
|
Kite Team SL |
Spain |
16-07-2015 |
50% |
Trading Company |
|
Kite Team Mex S. de R.L. de C.V |
Mexico |
16-07-2015 |
50% |
Trading Company |
|
Liquid Development LLC |
United States |
20-08-2015 |
100% |
Trading Company |
|
25 |
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 December 31, 2015, P.E.Q Holdings Limited owned 22.2% (2014: 24.5%) 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
|
|
As of 31 December |
|
|
|
2015 |
2014 |
|
|
€'000 |
€'000 |
|
Operating expenses |
|
|
|
Canteen Charges |
24 |
42 |
|
|
_______ |
_______ |
|
|
|
|
The following are year-end balances:
|
|
As of 31 December |
|
|
|
2015 |
2014 |
|
|
€'000 |
€'000 |
|
|
|
|
|
Italicatessen Limited |
9 |
5 |
|
|
_______ |
_______ |
|
|
|
|
|
Total related party creditors |
9 |
5 |
|
|
_______ |
_______ |
|
|
|
|
The company paid the following amounts to Mr. Giorgio Guastalla, Director of the Company, and shareholder of P.E.Q Holdings Limited, in respect of rent on premises occupied by the employees of the Group in Dublin.
|
|
2015 |
2014 |
|
|
|
€'000 |
€'000 |
|
|
Operating expenses |
|
|
|
|
Rental payment |
22 |
22 |
|
|
|
_______ |
_______ |
|
The Company entered into a deed of undertaking and indemnity on July 8, 2013 with Mr. Andrew Day, CEO and Director of the Company related to possible liabilities which might arise due to the restructuring of the Group prior to its IPO on July 12, 2013. As part of this deed of undertaking and indemnity, Mr. Day deposited £250,000 as security for the Company. This is included as Restricted Cash in Other Receivables of the Company. This amount has been repaid to Mr. Day in 2016. There is a corresponding liability included in Other Payables.
The details of key management compensation (being the remuneration of the Directors) are set out in note 11.
As at December 31, 2015 and 2014, the Company had amounts receivable from its subsidiaries, amounting to €20,598,567 (2014: €18,389,791) relating to intergroup trading activities.
|
26 |
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 changes. The management monitors interest rate fluctuations on a continuous basis and acts accordingly.
Where the Group has a significant amount of surplus cash, it will invest 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 Group is not unduly exposed to market interest rate fluctuations, and no interest rate sensitivity analysis has been presented as a result.
Credit Risk
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.
The Group closely monitors the activities of its counterparties and maintains regular contact which enables it to ensure the prompt collection of customers' balances.
The Group's main financial assets are cash and cash equivalents as well as trade and other receivables and represent the Group's maximum exposure to credit risk in connection with its financial assets. Trade and other receivables are carried on the statement of financial position net of bad debt provisions estimated by the Directors based on prior year experience and an evaluation of prevailing economic circumstances.
Whenever possible and commercially practical the Group invests cash with major financial institutions in each jurisdiction where it operates. The Group periodically monitors the credit rating and stability of these institutions.
The ageing of trade and receivables that are past due but not impaired can be analysed as follows:
Group
|
|
Total |
Not past due |
1-2 months overdue |
More than 2 months past due |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
|
|
|
|
|
|
|
As at 31 December 2015 |
7,519 |
5,313 |
2,049 |
157 |
|
As at 31 December 2014 |
6,203 |
3,790 |
1,311 |
1,102 |
|
|
|
|
|
|
The above balances relate to customers with no default history.
A provision for doubtful debtors is included within trade receivables that can be reconciled as follows:
|
|
2015 |
2014 |
|
|
|
€'000 |
€'000 |
|
|
|
|
|
|
|
Provision at the beginning of the year |
260 |
81 |
|
|
Charged to income statement |
46 |
199 |
|
|
Utilised |
- |
(20) |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
Provision at end of the year |
306 |
260 |
|
|
|
_______ |
_______ |
|
Related party receivables of €nil were not past due at December 31, 2015 (2014: nil).
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 and are held in overseas subsidiaries in a currency other than the euro and to a lesser extent where individual Group entities enter into transactions denominated in currency other that their functional currency.
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 and 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.
Over the course of the year the Group's currency has increased and diversified due to the addition of the newly acquired subsidiaries. The Group is predominantly exposed to currency risk on the balances held within working capital within 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 and weakening of 10% of these currencies against the euro at the reporting date on the working capital balances held at this date would, all other variable held constant, have resulted in the following pre-tax profit /(loss) impact for the year as follows:
|
|
10% Strengthening |
10% Weakening |
|
|
€'000 |
€'000 |
|
|
|
|
|
Canadian Dollar to Euro |
347 |
(315) |
|
United States Dollar to Euro |
492 |
(445) |
|
Sterling to Euro |
(1,139) |
1,253 |
Total financial assets and liabilities
The carrying amount of the financial assets and liabilities shown in the Group and Company statements of financial position are stated 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 following are the contractual maturities (representing undiscounted contractual cash flows) of the Group's and Company's financial liabilities:
Group
Year ended 31 December 2015
|
|
Total |
Within 1 year |
1-2 years |
2-5 years |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
|
|
|
|
|
|
|
Trade payables |
2,761 |
2,761 |
- |
- |
|
Other accounts payable |
8,752 |
8,452 |
300 |
- |
Year ended 31 December 2014
|
|
Total |
Within 1 year |
1-2 years |
2-5 years |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
|
|
|
|
|
|
|
Trade payables |
2,322 |
2,322 |
- |
- |
|
Other accounts payable |
8,099 |
6,881 |
1,218 |
- |
|
27 |
Operating Lease Commitments |
The Group maintains a portfolio of leased properties. The terms of property leases vary from country to country, although they all tend to be tenant repairing with rent reviews every 2 to 5 years and some have break clauses.
The total future value of the minimum lease payments is due as follows:
Group
|
|
2015 |
2014 |
|
|
|
€'000 |
€'000 |
|
|
|
|
|
|
|
Not later than one year |
1,563 |
1,231 |
|
|
Later than one year and not later than five years |
4,224 |
4,121 |
|
|
Later than five years |
476 |
1,879 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
6,263 |
7,231 |
|
|
|
_______ |
_______ |
|
|
28 |
Finance Lease Commitments |
The Group has leased computer equipment (net carrying value €129k) and office telephone systems (net carrying value €43k). Such assets are generally classified as finance leases as the rental period amounts to the estimated useful economic life of the assets concerned and often the Group has the right to purchase the assets outright at the end of the minimum lease term by paying a nominal amount.
The total future value of the minimum lease payments is due as follows:
Group
|
|
|
|
|
|
|
|
|
|
|
2015 |
Minimum Lease Payments |
Interest |
Present Value |
|
|
€'000 |
€'000 |
€'000 |
|
|
|
|
|
|
Not later than one year |
120 |
8 |
112 |
|
Later than one year and not later than five years |
61 |
3 |
58 |
|
Later than five years |
- |
- |
- |
|
|
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
181 |
11 |
170 |
|
|
_______ |
_______ |
_______ |
|
2014 |
Minimum Lease Payments |
Interest |
Present Value |
|
|
€'000 |
€'000 |
€'000 |
|
|
|
|
|
|
Not later than one year |
128 |
10 |
118 |
|
Later than one year and not later than five years |
153 |
9 |
144 |
|
Later than five years |
- |
- |
- |
|
|
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
281 |
19 |
262 |
|
|
_______ |
_______ |
_______ |
|
29 |
Deferred Tax |
Details of the deferred tax assets and liabilities, and amounts recognised in the profit or loss are as follows:
|
|
Asset |
Liability 2015 |
Net
|
(Charged) / credited to profit or loss |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
|
|
|
|
|
|
|
Accelerated capital allowances |
63 |
4 |
59 |
41 |
|
Personal severance indemnity |
26 |
- |
26 |
- |
|
Available losses |
397 |
- |
397 |
86 |
|
Rent - free inducement |
27 |
- |
27 |
(2) |
|
Fixed asset excess of tax over accounting |
156 |
45 |
111 |
25 |
|
Deferred tax related to Multi Media Tax Credits |
- |
1,067 |
(1,067) |
(377) |
|
Other temporary and deductible differences |
302 |
58 |
244 |
(438) |
|
Deferred tax arising on intangibles |
- |
1,249 |
(1,249) |
355 |
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
Net tax assets / (liabilities) |
971 |
2,423 |
(1,452) |
(310) |
|
|
_______ |
_______ |
_______ |
_______ |
All deferred tax assets have been classified in non-current assets in 2015.
|
|
|
|
||||
|
30 |
Non-Controlling Interest |
|||||
|
|
Years ended 31 December |
|
||||
|
|
2015 |
2014 |
|
|||
|
|
€'000 |
€'000 |
|
|||
|
|
|
|
|
|||
|
Opening Balance |
- |
- |
|
|||
|
|
|
|
|
|||
|
Liabilities of Kite Team attributable to shareholders at |
(50) |
- |
|
|||
|
at the acquisition date |
|
|
|
|||
|
|
|
|
|
|||
|
Loss of Kite Team for the period attributable to |
(109) |
- |
|
|||
|
the shareholders of the group |
|
|
|
|||
|
|
|
|
|
|||
|
Contingent consideration for the purchase of the |
(1,150) |
- |
|
|||
|
remaining 50% if Kite Team |
|
|
|
|||
|
Closing Balance |
(1,309) |
- |
|
|||
Keywords International Limited has acquired 50% of the issued share capital of Kite Team, a company registered in Spain and is set out in note 31.
During the period since acquisition the group has recognised its 50% share of the loss incurred in the company.
At the time of acquisition a put and call option was put in place which obligated the Group to purchase the remaining 50% of Kite Team. The Group estimates that the fair value of consideration required to purchase the remaining 50% is €1,150,000. In accordance with IAS 32 the company has recognised a financial liability as at 31 December in relation to the put and call option. The corresponding movement has been recorded in equity.
31 Acquisitions completed in the current year.
Acquisition of Alchemic Dream Inc.
On January 6, 2015 the Group acquired the entire issued share capital of Alchemic Dream Inc, a company registered in Canada, which specialises in providing live operations support to on-line games for a number of game publishers. The acquisition is in line with the Group's strategy to diversify into the provision of complementary services to the video game market and strengthens the Group's service of games already in production. Additionally the acquisition leverages the Group's existing expertise, locations, scale and global reach to extend the services provided by Alchemic Dream as well as generating synergies.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
|
Alchemic Dream |
|
|
|
|
|
Book |
Fair Value |
Fair |
|
|
Value |
Adjustment |
Value |
|
|
€'000 |
€'000 |
€'000 |
|
|
|
|
|
|
Financial Assets |
|
|
|
|
Property, plant and equipment |
38 |
(21) |
17 |
|
Identifiable intangible assets - customer relationships |
- |
286 |
286 |
|
Trade and other receivable |
802 |
(111) |
691 |
|
Cash and cash equivalents |
38 |
- |
38 |
|
Trade and other Payables |
(803) |
- |
(803) |
|
Deferred tax liabilities |
- |
(36) |
(36) |
|
Total identifiable assets |
75 |
118 |
193 |
|
Goodwill |
|
|
690 |
|
Total consideration |
|
|
883 |
|
|
|
|
|
|
Satisfied by: |
|
|
|
|
Cash |
|
|
883 |
|
|
|
|
|
|
Net cash outflow arising on acquisition |
|
|
|
|
Cash |
|
|
883 |
|
Less: cash and cash equivalent balances transferred |
|
|
(38) |
|
|
|
|
845 |
The intangibles assets are to be amortised over their estimated useful lives of 5 years.
The main factors leading to recognition of goodwill on the acquisition of Alchemic Dream are the presence of certain intangible assets in the acquired entity which do not value for separate recognition such as the expertise in customer service, reputation within the industry, and, an unidentified proportion representing the balance contributing to profit generation
Alchemic Dream contributed €4,100,036 revenue and €348,608 profit before tax to the Group between the date of acquisition and the balance sheet date. If the acquisition had been completed on the first day of the financial year, revenue of €4,161,397 would have been contributed to the Group and €359,996 profit before tax before taking into account fair value adjustments of €154,193.
Acquisition costs of €67,146 have been charged through the Comprehensive Income Statement.
Acquisition of Reverb Localização - Preparação de Documentos Ltda
On January 18, 2015 the Group acquired 100% of the issued share capital of Reverb Localização - Preparação de Documentos Ltda ("Reverb"), a company registered in Brazil. Reverb provides localisation and audio management services for Brazilian Portuguese for some of the leading games publishers. Reverb Studios was acquired to widen the scope of the Group's services business and to extend the Group's client base.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
|
|
Book |
Fair Value |
Fair |
|
|
Value |
Adjustment |
Value |
|
|
€'000 |
€'000 |
€'000 |
|
|
|
|
|
|
Financial Assets |
|
|
|
|
Trade and other receivable |
14 |
- |
14 |
|
Cash and cash equivalents |
12 |
- |
12 |
|
Total identifiable assets |
26 |
- |
26 |
|
Goodwill |
|
|
274 |
|
Total consideration |
|
|
300 |
|
|
|
|
|
|
Satisfied by: |
|
|
|
|
Cash |
|
|
200 |
|
Deferred consideration |
|
|
100 |
|
Total consideration transferred |
|
|
300 |
|
|
|
|
|
|
Net cash outflow arising on acquisition |
|
|
|
|
Cash consideration |
|
|
200 |
|
Less: cash and cash equivalent balances transferred |
|
|
(12) |
|
|
|
|
188 |
The main factors leading to recognition of goodwill on the acquisition of Reverb are the presence of certain intangible assets in the acquired entity which do not value for separate recognition such as the expertise in sound recording and localisation, reputation within the industry, and, an unidentified proportion representing the balance contributing to profit generation.
Reverb contributed €544,043 revenue (including €79,097 of intercompany sales subsequently billed onwards) and €238,539 profit before tax to the Group between the date of acquisition and the balance sheet date. If the acquisition had been completed on the first day of the financial year, revenue of €572,234 would have been contributed to the Group and €243,770 profit before tax.
Acquisition costs of €1,224 have been charged through the Comprehensive Income Statement.
Acquisition of Kite Team
On July 16, 2015 the Group acquired 50% of the issued share capital of Kite Team, a company registered in Spain. Kite provides localisation and audio management services for some of the leading games publishers. The acquisition is in line with the Group's strategy to diversify into the provision of complementary services to the video game market and strengthens the Group's service of games already in production.
The Directors of the Group have reviewed IFRS 10 (Consolidated Financial Statements) and are satisfied that the Group has effective control of Kite Team and accordingly at the date of acquisition it is treated as a subsidiary within the consolidation.
At the date of acquisition the Group set up a put and call option to acquire the remaining 50% of the share capital of Kite Team by the end of 2017. The option price is dependent upon a number of criteria set out in the Share Purchase Agreement. As a consequence of the put option a financial liability has been recognised as at 31 December, 2015 which is based on the Groups estimate of the value which would be payable to acquire the remaining 50% of the share capital. The fair value of this financial liability is €1,150,000 which has been recorded in other payables in accordance with IAS 32.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
|
Acquisition of Kite Team |
|
|
|
|
|
Book |
Fair Value |
Fair |
|
|
Value |
Adjustment |
Value |
|
|
€'000 |
€'000 |
€'000 |
|
Financial Assets |
|
|
|
|
Property, plant and equipment |
322 |
- |
322 |
|
Trade and other receivable |
377 |
- |
377 |
|
Cash and cash equivalents |
117 |
- |
117 |
|
Trade and other payables |
(291) |
- |
(291) |
|
Long term loan |
(625) |
- |
(625) |
|
Total identifiable liabilities |
(100) |
- |
(100) |
|
Less non-controlling interest |
50 |
- |
50 |
|
KWS share of total identifiable liabilities |
(50) |
- |
(50) |
|
Goodwill |
|
|
550 |
|
Total consideration |
|
|
500 |
|
|
|
|
|
|
Satisfied by: |
|
|
|
|
Cash |
|
|
500 |
|
|
|
|
|
|
Net cash outflow arising on acquisition |
|
|
|
|
Cash consideration |
|
|
500 |
|
Less: cash and cash equivalent balances transferred |
|
|
(117) |
|
|
|
|
383 |
|
|
|
|
|
The main factors leading to recognition of goodwill on the acquisition of Kite are the presence of certain intangible assets in the acquired entity which do not value for separate recognition such as the expertise in sound recording and localisation, reputation within the industry, and, an unidentified proportion representing the balance contributing to profit generation.
Kite contributed €610,307 revenue (including €304,681 of intercompany sales subsequently billed onwards) and €217,721 of a loss before non - controlling interest to the Group between the date of acquisition and the balance sheet date. If the acquisition had been completed on the first day of the financial year, revenue of €1,149,460 would have been contributed to the Group and €301,124 of a loss before non-controlling interest.
Acquisition costs of €70,174 have been charged through the Comprehensive Income Statement.
Acquisition of Liquid Development LLC
On August 20, 2015 the Group acquired 100% of the assets of Liquid Development through the purchase of the membership interests. The company registered in USA specialises in providing art creation services for the video games industry. The acquisition is in line with the Group's strategy to diversify into the provision of complementary services to the video game market and strengthens the Group's service of games already in production.
The Directors of the Group have reviewed the requirements of IFRS 3 (Business Combinations) paragraph B5 - B12 and concluded that as Liquid Development constitutes an on-going business within the Group that it should be accounted for as a business combination.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
|
|
Book |
Fair Value |
Fair |
|
|
Value |
Adjustment |
Value |
|
|
€'000 |
€'000 |
€'000 |
|
Financial Assets |
|
|
|
|
Property, plant and equipment |
- |
108 |
108 |
|
Identifiable intangible assets - customer relationships |
- |
1,225 |
1,225 |
|
Trade and other receivable |
340 |
- |
340 |
|
Cash and cash equivalents |
269 |
- |
269 |
|
Trade and other payables |
(185) |
- |
(185) |
|
Deferred tax liabilities |
- |
(541) |
(541) |
|
Total identifiable liabilities |
424 |
792 |
1,216 |
|
Goodwill |
|
|
6,801 |
|
Total consideration |
|
|
8,017 |
|
|
|
|
|
|
Satisfied by: |
|
|
|
|
Cash |
|
|
5,365 |
|
Equity instruments (1,074,440 shares of the parent company) |
|
|
2,413 |
|
Deferred consideration |
|
|
239 |
|
Total consideration transferred |
|
|
8,017 |
|
|
|
|
|
|
Net cash outflow arising on acquisition |
|
|
|
|
Cash consideration |
|
|
5,365 |
|
Less: cash and cash equivalent balances transferred |
|
|
(269) |
|
|
|
|
5,096 |
The deferred consideration recorded within other payables represents the fair value amount of the balance due.
The main factors leading to recognition of goodwill on the acquisition of Liquid Development are the presence of certain intangible assets in the acquired entity which do not value for separate recognition such as the expertise in art creation services, reputation within the industry, and, an unidentified proportion representing the balance contributing to profit generation. The fair value of the shares issued as part of the acquisition has been determined as being the share price on the date of the transaction.
Liquid Development contributed €1,999,469 revenue and €345,591 profit before tax to the Group between the date of acquisition and the balance sheet date. If the acquisition had been completed on the first day of the financial year, revenue of €6,068,150 would have been contributed to the Group and €1,169,440 profit before tax.
Acquisition costs of €63,145 have been charged through the Comprehensive Income Statement.
32 Business Combinations completed in prior periods
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.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below.
|
|
Book Value |
Fair Value Adjustment |
Fair Value |
|
|
€'000 |
€'000 |
€'000 |
|
|
|
|
|
|
Financial assets |
|
|
|
|
Property, plant and equipment |
15 |
- |
15 |
|
Identifiable intangible assets - customer relationship |
- |
204 |
204 |
|
Trade and other receivables |
65 |
- |
65 |
|
Cash and cash equivalents |
95 |
- |
95 |
|
Trade and other payables |
(133) |
- |
(133) |
|
Deferred tax liabilities |
- |
(41) |
(41) |
|
|
_______ |
_______ |
_______ |
|
Total identifiable assets |
42 |
163 |
205 |
|
|
_______ |
_______ |
_______ |
|
|
|
|
|
|
Goodwill |
|
|
1,043 |
|
Total consideration |
|
|
_______
1,248 |
|
Satisfied by: |
|
|
|
|
Cash |
|
|
361 |
|
Deferred consideration |
|
|
887 |
|
Total consideration transferred |
|
|
_______
1,248 |
|
|
|
|
|
|
Net cash outflow arising on acquisition
|
|
|
|
|
Cash consideration |
|
|
361 |
|
Less: Cash and cash equivalent balances transferred |
|
|
(95) |
|
|
|
_______
266 |
The intangibles assets are to be amortised over their estimated useful lives of 5 years.
The main factors leading to recognition of goodwill on the acquisition of Liquid Violet are the presence of certain intangible assets in the acquired entity which do not value for separate recognition such as the expertise in sound recording, reputation within the industry, and, an unidentified proportion representing the balance contributing to profit generation.
The sale purchase agreement includes a provision for an earn out which is based on Profit after tax over the next 2 years. The earn out amount was shown as deferred consideration and was calculated from management's best estimates based on the available information. The maximum value of the deferred consideration is €1,565,890.
During 2014 Liquid Violet contributed €376,343 revenue (including €2,827 of intercompany sales subsequently billed onwards) and €15,021 loss before tax to the Group between the date of acquisition and the reporting date (31 December, 2014). If the acquisition had been completed on the first day of the financial year, revenue of €385,590 would have been contributed to the Group (including intercompany sales) and € 50,687 loss before tax for 2014.
Acquisition costs of €39,324 have been charged through the Statement of Comprehensive Income in 2014.
The deferred consideration amount has been reviewed and updated in the 2015 financial statements. No money was paid out in 2015 and the value of the deferred consideration which will be payable in 2016 has reduced from €887,000 estimated at 31 December, 2014 to €703,000. The reduction in deferred consideration has been charged through the income statement. The value of the consideration has been updated based on a combination of actual trading in 2015 from April to the end of the year and management's best estimate, based on available information, of the forecast trading in the first quarter of 2016.
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 amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below.
|
|
Book Value |
Fair Value Adjustment |
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
€'000 |
€'000 |
€'000 |
|
|
|
Financial assets |
|
|
|
|
|
|
Property, plant and equipment |
666 |
(225) |
441 |
|
|
|
Identifiable intangible assets - customer relationship |
- |
964 |
964 |
|
|
|
Trade and other receivable |
2,721 |
(65) |
2,656 |
|
|
|
Cash and cash equivalents |
(858) |
- |
(858) |
|
|
|
Trade and other payables |
(1,506) |
(260) |
(1,766) |
|
|
|
Short term loan |
(292) |
- |
(292) |
|
|
|
Long term loan |
(2,705) |
- |
(2,705) |
|
|
|
Deferred tax liabilities |
- |
(111) |
(111) |
|
|
|
|
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
Total identifiable assets |
(1,974) |
303 |
(1,671) |
|
|
|
|
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
4,375 |
|
|
|
|
|
|
_______ |
|
|
|
|
|
|
|
|
|
|
Total consideration |
|
|
2,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity instruments (1,516,944 shares of parent company) |
|
|
2,704
_______ |
|
|
|
|
|
|
|
|
|
|
Total consideration transferred |
|
|
2,704 |
|
|
|
Net cash outflow arising on acquisition |
|
|
|
|
Cash consideration |
|
|
- |
|
Less: Cash and cash equivalent balances transferred |
|
|
858 |
|
|
|
_______ |
|
|
|
|
858 |
The intangibles assets are to be amortised over their estimated useful lives of 5 years.
The main factors leading to recognition of goodwill on the acquisition of Babel Media are the presence of certain intangible assets in the acquired entity which do not value for separate recognition such as the expertise in provision of technical services, reputation within the industry, cost synergies with the Keywords Group, and, an unidentified proportion representing the balance contributing to profit generation.
During 2014 Babel Media contributed €9,846,217 revenue (including €253,127 of intercompany sales subsequently billed onwards) and €1,439,927 profit before tax to the Group before integration costs of €823,790, between the date of acquisition and the reporting date (31 December, 2014). If the acquisition had been completed on the first day of the financial year, revenue of €10,882,199 (including intercompany sales) and €1,389,857 profit before tax for 2014 would have been contributed to the group before fair value adjustments of €302,503.
Acquisition costs of €123,906 and integration costs of €823,790 have been charged through the Statement of Comprehensive Income in 2014.
Acquisition of Binari Sonori S. R. L.
On May 8, 2014 the Group acquired 100% of the issued share capital of Binari Sonori S. R. L. ("Binari Sonori" )for a cash consideration of €8,922,409 and consideration of €3,000,000 in KWS Group shares, obtaining control of Binari Sonori. The principal activity of Binari Sonori is the provision of outsourced voice-over and translation services to the international video games market. Binari Sonori was acquired to strengthen the Group's audio services and translation services business and to extend the Group's client base.
The amounts recognised in respect of the identifiable assets acquired, liabilities assumed, purchase consideration and goodwill are set out in the table below.
|
|
|
Book Value |
Fair Value Adjustment |
Fair Value |
|
|
|
|
|
|
|
|
|
€'000 |
€'000 |
€'000 |
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
Property, plant and equipment |
|
658 |
- |
658 |
|
Identifiable intangible assets - customer relationship |
|
- |
1,791 |
1,791 |
|
Trade and other receivable |
|
1,087 |
- |
1,087 |
|
Cash and cash equivalents |
|
3,143 |
- |
3,143 |
|
Trade and other payables |
|
(1,711) |
(165) |
(1,876) |
|
Deferred tax liabilities |
|
- |
(511) |
(511) |
|
|
|
|
|
|
|
Total identifiable assets |
|
3,177 |
1,115 |
4,292 |
|
|
|
|
|
|
|
Goodwill |
|
|
|
7,630 |
|
Total consideration |
|
|
|
_______ 11,922 |
|
|
|
|
|
|
|
Satisfied by: |
|
|
|
|
|
Cash |
|
|
|
8,622 |
|
Equity instruments (1,555,650 shares of parent company) |
|
|
|
3,000 |
|
Deferred consideration settled in 2015 |
|
|
|
300 |
|
|
|
|
|
|
|
Total consideration transferred |
|
|
|
11,922 |
|
|
|
|
|
|
|
Net cash outflow arising on acquisition |
|
|
|
|
|
Cash consideration |
|
|
|
8,622 |
|
Less: cash and cash equivalent balances transferred |
|
|
|
(3,143) |
|
|
|
|
|
_________
|
|
|
|
|
|
5,479 |
The intangibles assets are to be amortised over their estimated useful lives of 5 years.
The main factors leading to recognition of goodwill on the acquisition of Binari Sonori are the presence of certain intangible assets in the acquired entity which do not value for separate recognition such as the expertise in sound recording, reputation within the industry, and, an unidentified proportion representing the balance contributing to profit generation.
The sale purchase agreement had an earn out arrangement which has subsequently been satisfied on January 19, 2015 by consideration of €300,000 provided in the form of 158,250 shares in Keywords Studios Plc.
During 2014 Binari Sonori S.R.L contributed €7,059,626 revenue (including €187,586 of intercompany sales subsequently billed onwards) and €1,068,991 profit before tax to the Group between the date of acquisition and the reporting date (31 December, 2014). If the acquisition had been completed on the first day of the financial year, revenue of €9,049,493 (including intercompany sales) and €684,438 profit before tax for 2014 would have been added to the group before fair value adjustments of €1,115,348.
Acquisition costs of €156,917 have been charged through the Statement of Comprehensive Income for 2014.
Acquisition of Lakshya Digital Private Limited
|
|
|
On October 10, 2014 the Group acquired 91% of the issued share capital of Lakshya Digital Private Limited for a cash consideration of €2,373,780. A further agreement to buy the remaining 9% of the company on October 10, 2015 was signed for a consideration of €703,342 and the Group was committed to go through with this purchase in 2014, hence the company was 100% consolidated into the Group results.
The principal activity of Lakshya Digital Private Limited is the provision of outsourced art creation services to the international video games market. Lakshya Digital Private Limited was acquired to widen the scope of the Group's services business and to extend the Group's client base.
The amounts recognised in respect of the identifiable assets acquired, liabilities assumed, purchase consideration and goodwill are set out in the table below
|
|
|
Book Value |
Fair Value Adjustment |
Fair Value |
|
|
|
€'000 |
€'000 |
€'000 |
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
Property, plant and equipment |
|
567 |
- |
567 |
|
Identifiable intangible assets - customer relationship |
|
- |
475 |
475 |
|
Trade and other receivable |
|
1,915 |
(1,276) |
639 |
|
Cash and cash equivalents |
|
88 |
- |
88 |
|
Trade and other payables |
|
(588) |
(60) |
(648) |
|
Deferred tax asset |
|
- |
293 |
293 |
|
|
|
|
|
|
|
Total identifiable assets |
|
1,982 |
(568) |
1,414 |
|
|
|
|
|
|
|
Goodwill |
|
|
|
1,663 |
|
Total consideration |
|
|
|
_______ 3,077 |
|
|
|
|
|
|
|
Satisfied by: |
|
|
|
|
|
Cash |
|
|
|
2,374 |
|
Deferred consideration |
|
|
|
703 |
|
|
|
|
|
|
|
Total consideration transferred |
|
|
|
3,077 |
|
|
|
|
|
|
|
Net cash outflow arising on acquisition |
|
|
|
|
|
Cash consideration |
|
|
|
2,374 |
|
Less: cash and cash equivalent balances transferred |
|
|
|
(88) |
|
|
|
|
|
_________
|
|
|
|
|
|
2,286 |
The intangibles assets are to be amortised over their estimated useful lives of 5 years.
The main factors leading to recognition of goodwill on the acquisition of Lakshya Digital Private Limited are the presence of certain intangible assets in the acquired entity which do not value for separate recognition such as the expertise in sound recording, reputation within the industry, and, an unidentified proportion representing the balance contributing to profit generation.
During 2014 Lakshya Digital Private Limited contributed €612,485 revenue and €209,839 loss before tax to the Group between the date of acquisition and the reporting date (31 December, 2014). If the acquisition had been completed on the first day of the financial year, revenue of €3,061,966 and €361,658 loss before tax for 2014 would have been added to the group before fair value adjustments excluding customer relationships of €567,924.
Acquisition costs of €93,022 have been charged through the Statement of Comprehensive Income for 2014.
In October 2015 the group acquired the remaining 9% stake in Laskhya Digital Private Limited for €897,000. The amount was greater than the €703,342 previously disclosed due to a combination of a discount factor included within the 2014 figure and foreign currency movements. Additionally a further review of fixed assets acquired showed that they had been initially overstated at the time of acquisition and a further depreciation charge of €39k has been made which has been recorded against goodwill.
|
33 |
Events after the reporting date
Acquisition of Ankama Asia Pte.Ltd.On March 22, 2016 the Group acquired the entire issued share capital of Ankama Asia Pte Ltd, a company registered in Singapore, which specialises in providing services to support the live operations of the games of Ankama. The company has a four year agreement for the continued provision of service to Ankama and also plans to significantly increase the scale of the Studio, which is based in Manila, to service new and existing clients of Keywords. The acquisition will strengthen Keywords range of customer service offerings to customers with online and mobile games. Under the terms of the acquisition, which will be immediately earnings enhancing, a total consideration of €292k in cash will be paid to the sellers. The book value acquired of net assets is as follows:
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.
|
Acquisition of Mindwalk Studios Inc and Mindwalk Studios Ltd.
On April 1, 2016 the Group announced that it has entered into an agreement to acquire the business and assets of Mindwalk Studios Inc, a company registered in China, and Mindwalk Studios Ltd, a company registered in the British Virgin Islands, which specialise in art creation services. The acquisition is anticipated to be completed, subject to certain conditions to be fulfilled, by no later than June 30, 2016. The acquisition will increase Keywords capacity in the fast growing art market and will provide access to art talent in the Chinese market.
Under the terms of the acquisition, which is anticipated to be earnings enhancing, the total consideration is US$5.5m. This will be satisfied by the payment of US$3.9m in cash to the sellers and the remaining US$1.6m in Keywords Studios plc shares to be issued to the sellers. At the date of authorisation of these financial statements no further information was available.
This information is provided by RNS
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