Keywords Studios reports healthy revenue growth

(Sharecast News) - Video games technical and creative services provider Keywords Studios updated the market on its first half of trading on Wednesday, saying it expected to report revenues of €238m (£202.58m), representing a 37% increase year-on-year.
The AIM-traded firm said that on an organic basis, excluding the impact of currency movements and acquisitions, group revenues were expected to increase by around 23% for the six months ended 30 June, with all service lines performing well against the comparative, Covid-19-affected period.

It said that strong first-half performance was driven by "robust demand" for its services, continuing the momentum seen in the second half of 2020, with the buoyant video games market focussed on developing new content to keep gamers engaged following increases in both numbers of gamers and gameplay during the pandemic.

Adjusted profit before tax was expected to be approximately €40m, representing an increase of more than 80% from €21.7m in the prior year, which was "particularly disrupted" in the earlier stages of the pandemic.

Keywords said that, while certain parts of the business were still experiencing some Covid-19-related operational constraints, it still delivered a strong underlying margin, driven by operational leverage and good cost control, in addition to the continued short-term benefit of a reduction in certain costs due to the pandemic, primarily resulting from a higher proportion of remote working and lower costs relating to travel, business development and marketing.

The company said it was delivering on its acquisition strategy with the purchase of Tantalus and Climax Studios extending the reach and scale of its game development service line, with those businesses performing in line with expectations.

It said it was continuing to "actively review" a pipeline of acquisition opportunities.

As at 30 June, the group had net cash of €84m, down from €102.9m at the end of December, after cash spent on acquisitions in the first half of the year totalling €45m, including €5m of deferred consideration for prior-year acquisitions.

The group's cash balance, cash generation and the €100m available under its undrawn committed revolving credit facility left it "well-placed" to pursue its organic and acquisition growth strategy, the board said, while also returning to a progressive dividend policy in 2021.

"Keywords has made a strong start to the year, continuing the momentum seen in the second half of 2020, with demand for our services being driven by a buoyant video games market, structural trends towards outsourcing, and a renewed focus on content creation," said interim chief executive officer Jon Hauck.

"Whilst parts of our business remain constrained by Covid-19-related measures, we would like to thank all our colleagues for their resourcefulness and dedication as they have continued to serve our clients with passion and commitment.

"Looking forward, we expect strong demand to continue across most service lines underpinning our confidence of delivering a performance that is at least in line with market expectations for the year, albeit with growth rates and margins expected to moderate against stronger 2020 second half comparatives, and as some costs return with the easing of restrictions."

Hauck said the company was "delighted" to have welcomed Tantalus Media and Climax Studios to the group earlier in the year, as it continued to review a "healthy pipeline" of acquisitions that would "extend the breadth and depth" of services Keywords offered.

"Our unrivalled breadth of services and sought after 9,000 people-strong specialised resource base positions Keywords well to increase our share of our buoyant market, whilst our financial strength supports further acquisitions to enhance the scale and reach of our services as we cement our position as the 'go-to' services platform for the global video games industry."

Keywords said it would announce its half-year results for the six months ended 30 June on 15 September.

At 1035 BST, shares in Keywords Studios were down 3.75% at 2,820p.