Keywords Studios Plc Regulatory News (KWS)

14 April 2015

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

Full year results for the year to 31 December 2014

Transformational 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 2014.

Financial highlights:

A strong financial performance driven by organic and acquisitive growth

· Group revenue increased by 130% to €37.3m (2013: €16.2m)

· Adjusted profit before tax* increased by 104% to €5.1m (2013: €2.5m)

· Adjusted basic earnings per share* up by 48% to 8.54c (2013: 5.76c)

· Net cash of €11.0m (2013: €15.3m), after €8.9m net cash consideration for acquisitions, €3.0m repayment in Babel Media borrowings upon acquisition, €1.5m costs of acquisitions and integration expenses, and €7.3m (net of expenses) raised in a Placing

· 10% increase in total dividend to 1.10p per share (2013: 1.00p)

*before acquisition and integration expenses of €1.5m (2013: nil), IPO expenses of nil (2013: €1.12m), share option charges of €0.2m (2013: €0.1m), amortisation of intangibles of €0.5m (2013: nil) and foreign currency gains of €0.5m (2013: losses of €0.1m).

Operational overview:

The only international provider of the full range of outsourced services

· Strong organic growth; revenues up 23% excluding all acquisitions:

· Continued to gain market share adding clients like Ankama, Bioware, Carbine, Frontier Developments, Nexon and Tencent

· Invested in new Singapore operation to support Electronic Arts' move to outsourced services in South East Asia

· Significantly extended service capabilities and geographical reach through four acquisitions:

· Liquid Violet, acquired in January 2014, extended our audio services offering

· Babel Media, the only other full service provider in the industry, was acquired in February 2014, giving Keywords good exposure to Functional Testing and a presence in India

· Binari Sonori, acquired in May 2014, further strengthened our audio and localisation services, giving the Group a presence in Milan and Los Angeles

· Lakshya Digital, acquired in October 2014, provided an entry into art outsourcing and giving Keywords visibility further up the game development supply chain

· Delivered operational synergies in Montreal and in New Delhi through co-locating production facilities with those acquired

Post period end / current trading:

· Acquired Alchemic Dream and Reverb in January 2015, providing an entry into customer care services and a presence in Rio de Janeiro, respectively

· Opened an office in Barcelona in January 2015

· Trading in the first 3 months in line with our expectations

Andrew Day, Chief Executive of Keywords Studios, commented:

"2014 was a significant year in the development of Keywords: in addition to delivering organic growth of over 20%, the effect of the six acquisitions made during 2014 and early 2015 has been to strengthen our leading market position in localisation and testing, to provide scale to our audio services offering and to extend our range of services upstream to art creation and downstream to customer support.

"Those acquisitions are integrating well and we feel confident that the synergies already experienced between the business units will continue to build through 2015 and beyond, as we continue to identify and convert cross selling opportunities and leverage the expanded pool of talent across the Group.

"The games market has gone through a transitional period over the past two years, but with the installed base for the new generation of consoles having reached what many believe to be the tipping point following the 2014 holiday season, 2015 is expected to be the first solid, post transition year in the console game sector and we are looking forward to a return to more normal trading patterns in this segment as a result. Moreover, our business in the high growth mobile games market segment is going from strength to strength having built up strong relationships with many publishers including Supercell, King, Electronic Arts, glu, Machine Zone, Zynga and Kabam all of whom are listed in the top 10 mobile games developers by Pocket Gamer.biz (March 2014)

"As a market leader with a strong financial position we are well placed to deliver on the potential for high margin growth we see in our growing markets, both traditional and emerging. We expect to benefit in 2015 from a more settled console games market, the full year effects of acquisitions made during 2014 and in early 2015 and continued growth both organically and through additional selective acquisitions particularly in newer services lines such as art outsourcing, as we further consolidate our market leadership. We, therefore, look forward with confidence to making further progress as we move through the current year and beyond."

For further information, please contact:

Notes to Editors

Keywords Studios is an international technical services provider to the global video games industry. Established in 1998, and now with facilities in Dublin, Montreal, Rio de Janeiro, Los Angeles, Seattle, Tokyo, Singapore, New Delhi, Pune, Rome, Milan, Barcelona and London, it provides integrated art creation, localisation, testing, audio and customer care services across 50 languages and 12 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, Namco Bandai, Sony, Konami, Electronic Arts, 2K, and Square Enix. Keywords Studios is listed on AIM, the London Stock Exchange regulated market (KWS.L). For further information please visit: www.keywordsstudios.com

Chairman's Statement

The Business in 2014

In last year's statement, my first for Keywords as a listed company, I set the scene describing my initial view of the Company, its business ethos and culture and the opportunities for organic and acquisitive growth in a fragmented market. I am pleased to be able to report that, in its first full year as a listed company, Keywords has clearly delivered its strategy with a strong financial performance during the year and four well-conceived and executed acquisitions.

During 2014 the business has more than met the Board's ambitious expectations. Organic revenue growth of 23% has been augmented by four acquisitions (with two further small purchases after the financial year end) such that annualised revenues have grown three-fold since our IPO in 2013. These new businesses are integrating well within Keywords - maintaining their own brands while absorbing the Keywords' culture, its efficient way of working and its strong financial controls. The acquisitions have resulted in a change in the business mix, making the Group much broader and better balanced and they have opened up opportunities that it simply could not have delivered without all of its current constituents.

An important criteria for an acquisitive company is to improve continuously its quality of earnings - sheer growth on its own can prove an illusory achievement. Here, I believe, we have measured up well. In particular, we are very encouraged by the fact that customers, old and new, are increasingly using Keywords, and the Board believes that the introduction of Keyword's approach to operational efficiency in the new companies will continue to drive margin improvement over time.

People & Culture

Last year I commented on the Keywords' culture engendering a "can do" attitude founded on the value placed in our people - this attribute is well reflected in how much they actually "have done". The Group is ahead of plan in terms of both acquiring new service lines (such as the acquisition of Lakshya Digital in October 2014 which took Keywords into the large Art Outsourcing market for the first time) and the establishment of offices in locations closer to key clients (such as the recent acquisition of an office in Brazil and the establishment of the studio in Singapore).

Recently the leadership team from round the world came together for two days of strategy and operational exchanges. At this event, it was clear that Keywords now benefits from even greater strength in the depth of its leadership team and that this team is excited to work together with collective ambition, boding well for the future.

However, the Group is not just reliant on its leaders and I would like to thank each and every person within the organisation for their individual contributions (going the extra mile) to Keywords' achievements and transformation during the year.

Shareholders & Dividend

During the year, the Group raised a further £6.0m through a well-supported institutional placing and we would like to thank shareholders for their ongoing support as we continue to focus on delivering shareholder value through our organic and acquisitive growth strategy. However, we are looking at augmenting our investor relations efforts to ensure the Group's strong overall performance and enhanced positioning is better reflected in the share price.

The Board is proposing a final dividend of 0.74p, which gives a total dividend for the year of 1.10p and represents an increase of 10% compared to the total dividend of 1.00p in 2013. This increase is consistent with our progressive dividend policy which takes into account the financial performance of the Group and the alternative uses of funds that will deliver shareholder value.

Current Trading and Prospects

The Group has made a good start to the year. Having already delivered strong organic and acquisitive growth, in line with our strategy, and taken the business into complementary services such as art outsourcing and customer support, we are now well positioned as the "go to" organisation for outsourcing and integrated services in the video games market. As importantly, Keywords is now known as the leading consolidator in the market and attracts automatic interest from vendors and management teams wishing to join a larger, more diverse group.

As a market leader with a strong financial position we are well placed to deliver on the potential for high margin growth we see in our growing markets, both traditional and emerging. We expect to benefit in 2015 from a more settled console games market, the full year effects of acquisitions made during 2014 and continued growth both organically and through additional selective acquisitions, as we further consolidate our market leadership. We, therefore, look forward with confidence to making further progress as we move through the current year and beyond.

Ross K Graham, Chairman

Strategic Report

Keywords is an international technical services provider to the global games industry. Established in 1998, and now with operations in Dublin, Montreal, Rio de Janeiro, Los Angeles, Seattle, Tokyo, Singapore, New Delhi, Pune, Rome, Milan, Barcelona and London, it provides art creation, audio recording, localisation, testing, and customer support services across 50 languages and 12 games platforms to a blue chip client base in more than 15 countries. Its customers comprise many well-known multinational games publishers and developers including 20 out of the 25 largest games companies by revenue (as listed by Newzoo, July 2014). 

The Market

The global video games market is predicted to grow significantly; New Zoo predict that the market will grow at a CAGR of 8.1% to $102.9bn in 2017 from $70.4bn in 2012 (New Zoo Global Games Market Report - May 2014), while PwC are forecasting a CAGR of 6.2% from $65.7billion in 2013 to $89 billion in 2018 (PwC Global Entertainment and Media Outlook 2014 - 2018).

The following trends in the games industry are taking video gaming into new markets both geographically and demographically; they are making content more dynamic and continuous, as games developers seek to keep users engaged for longer; they are enabling increases in the size and definition of the graphical and audio content for which our services are used; and as a result of the increased complexity they are underpinning a trend towards outsourcing of art, audio, localisation, testing and customer care services:

As a result of the increasing complexity of the creation of content, global marketing and ongoing support requirements for games due to this proliferation of devices, audiences, distribution channels, and monetisation models and the enhanced capabilities of new platforms, it has become less cost effective for publishers to have sufficient resources for in-house art, localisation and testing services. They are, therefore, increasingly outsourcing these services to focus their resources on devising successful new business models whilst optimising their return on investment by ensuring content is delivered efficiently and successfully across the growing number of platforms and markets.

Many game development studios now have art outsourcing managers in recognition of the fact that such suppliers of art services are now planned for and managed as an essential part of the game production process rather than being a last minute addition when other options failed, as was the case as recently as 2 to 3 years ago.

Despite an international and blue chip client base, technical services for the games industry remains a highly fragmented market. The Directors believe the Group is now one of very few international providers of the full range of integrated outsourced services to the video games market with a global reach.

Business model

Video games are increasingly challenging to develop and support due to ever more sophisticated content and software and increased complexity derived not only from the multi-layered scale of the games but also due to the multiple platforms and monetisation models via which they are delivered. The combination of the graphical, audio and text based content together with the flexibility required to deliver a positive user experience means that video games are at the most advanced end of entertainment media.

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

The Company focuses on delivering a competitive service differentiated by high quality and flexibility across the breadth of the life cycle of games from concept to live operations support:

· Art creation services: the creation of graphical art assets for inclusion in the video game including concept art creation, 2D and 3D art asset production and animation

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

· Localisation services: translation of in-game text, audio scripts, cultural, and local adaptation, accreditation, packaging and marketing materials

· Functional testing: quality assurance including discovery and documentation of game defects and testing to verify the game's compliance with console manufacturers specifications

· Localisation testing: testing for out of context translations, truncations, overlaps, spelling, grammar, age rating issues, and console manufacturer compliance requirements in over 30 languages using native speakers

· Customer support services: multi-lingual, cost effective and flexible customer care services including managing communities of gamers across all forms of social media, within the games themselves and on the official game forums

Services provided by the various Keywords studios are typically differentiated by language mix, scalability, flexibility, price and proximity to clients. Localisation is not limited to translation into multiple languages; developers and publishers need to take into account the varied cultural, technical and legal differences of their global consumers and the quality of localisation is viewed as a critical factor in the success of a new launch and in the returns made on the initial production investment. The geographical differences require localisation service providers to diligently consider the target gamers' age range, gender and linguistic variables as well as the cultural, religious and political context of the game. As such, Keywords employs games-specialised translators and native speaking testers who perform in-game quality assurance on the content in more than 50 languages. This talent base provides the Group with market leading scale, which its clients would require substantial investment to replicate in-house.

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

Keywords provides its essential professional services on a variable cost, time and materials basis to its largely blue chip customer base typically charging per art asset, per hour or per word, invoicing for work done on a monthly basis. As such, work in progress is typically limited to the preceding month's activity and underlying cash generation should be expected to largely mirror profitability. The Group's productivity is facilitated by the scale of its operations and its ability to resource projects in important geographies in Europe, Asia and the Americas. Demand in some areas of the business is seasonal and as such permanent staffing levels are maintained at conservative levels with highly flexible staffing arrangements in place, drawing staff from a bank of regular contractors in most locations to match the peaks of the activity cycles. The Directors believe that one of the strengths of the Group is that it is not directly exposed to the successes and failures of individual game titles. The quantity and quality of game content is the key driver of demand for the Company's services and, thanks to the loyalty of its clients, who have typically increased the percentage of work awarded to Keywords year on year, the Company has grown rapidly over the past five years with minimal investment in business development.

The annual business cycle in the industry varies depending on the market sector and on the game production cycle. Console and PC games largely follow a seasonal pattern with titles typically being published for the holiday period including Thanksgiving and Christmas. Mobile, social and online games do not follow this pattern and are not driven by particular release schedules. As Keywords strengthens its original language game production activities including art creation, functional testing and original voice recording (which take place earlier in the game production cycle than localisation services), its penetration of customer care services with their continuous activity profiles and as the Group continues to drive its exposure to the mobile and social games market, the marked seasonal revenue curve previously experienced will continue to be offset by greater activity around the year.

Time and materials billing arrangements and delivering client requirements through flexible resource bases will remain a feature of Keywords business. As the Company undertakes acquisitions, it is likely that some of these businesses will operate less flexibly than Keywords or will have greater exposure to fixed price contracting, in which case the Directors will explore opportunities to move their operating models closer to those of Keywords over time, where appropriate.

Keywords is not a capital intensive business. While willingly investing in tools, game testing consoles, PCs and mobile devices to support its testing activities, the Company invested a total of €1.25m in 2014 (3% of revenue) which included fit out costs in some locations as businesses were co-located with each other or, in the case of Singapore, a new studio was commissioned. Good cash flow is an important feature of the business, generally matching net income when the accumulation of production related, multimedia tax credits in Quebec are taken into account. In 2014, operating profit amounted to €3.1m which generated operational cash flow of €1.9m and the Group also accumulated multi-media tax credits in Quebec of €1.4m which will be claimed during 2015.

Strategy

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

· Cross Selling: Extending the relationship the Group has with game publishers and developers to provide additional services from within the Group's portfolio of services.

· Geographical Growth: Expanding its global presence and client base, including both through acquisition and organic investment, where we see large or high growth addressable markets. For instance, Asia Pacific accounts for three out of the top four video games markets in the world and is projected to grow from $30bn in 2014 to $40bn in 2018 and Latin America, whilst a smaller market, is forecast to grow at the fastest rate of all regions - at a CAGR of over 10% between 2013-2018 (PWC Global media and entertainment outlook 2014 - 2018).

· Acquisitions: Selective acquisitions which generate synergies, extend its client base or geographical penetration or add complementary services or critical mass to existing service lines.

· Outsourcing:Capturing new blue chip customers who are looking to outsource their art, localisation, testing and customer care requirements, because of the increasing complexity and costs for publishers and developers to deliver tailored games content all around the world, on multiple platforms using internal resources.

· Adjacent activities and markets:Expanding its portfolio of services provided to the video games industry across the life cycle of games from conception to live operations support; as well as into related interactive entertainment markets.

Since its IPO, the Group has made considerable progress in executing its growth strategy by significantly extending its range of services, adding new geographies both organically and through acquisitions, and consolidating the market through selective acquisitions as outlined in the Chief Executive's review.

Chief Executive's review

2014 was a significant year in the development of Keywords: a year in which we became a group of companies with a number of well-known brands providing integrated services to the video game development and publishing markets around the world.

During the year, in addition to delivering organic growth of 23% and investing organically in new studios in Singapore and Barcelona (which opened in January 2015) we undertook four acquisitions and made a further two acquisitions in January 2015. The effect of these acquisitions has been to strengthen our market position in our core activities of localisation and testing services as well as extending our range of services upstream to art creation and downstream to customer support.

While executing and integrating acquisitions, we continued our focus on timely, secure delivery, quality and flexibility and we achieved revenues and profits in line with market expectations.

Service Line Extensions

In addition to bringing further scale to all of our existing service lines during the year, we have extended the business into two new areas of business.

Through the acquisition in October 2014 of Lakshya Digital, a well-established supplier of outsourced video game art creation services, Keywords has extended its reach into the earlier stage video game production process. Servicing some leading Japanese video game development studios as well as those in the US and Europe, Lakshya creates characters, environments, and in game items for AAA console titles as well as for social, mobile and massively multiplayer online ("MMO") games.

We estimate the market for outsourced art creation and production for video games to be in the order of twice the size of that for localisation and testing services at around $1.2bn. We are already gaining visibility of production pipelines earlier in the development cycle than we do through our other service lines and we are already identifying opportunities to cross sell services at this earlier stage. The objective for our art creation services line of business is to grow capacity to fulfil demand in a manner that maintains quality, reliability of deliveries and extends our capabilities to areas such as special effects.

Shortly after the end of the year we acquired a customer care services business, Alchemic Dream. In addition to continuing to grow is core activities which benefit from a network of multi lingual agents working remotely but connected through technology platforms, we intend to accelerate the development of an alternative customer care service delivery model that leverages our more than 1000 games and language specialised staff who work in our secure facilities in strategically important locations in Asia, Europe and the Americas. By doing this, Keywords teams of native language employees can follow the game into the market as the games transition through the production and launch phases to ongoing live operational support, thereby exploiting their deep knowledge of all aspects of the game to support players as they engage with the content.

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

Geographic Expansion

The Group has expanded geographically and now has 14 (2013: 9) studios in 3 continents providing full, integrated video games services to both local and global clients. This broad reach has enabled Keywords to extend its localisation services into more than 50 languages across 12 platforms to clients in over 15 countries.

Keywords' 14 studios are strategically located to provide services to key gaming clusters in locations such as Tokyo, Singapore, Montreal, Seattle, Los Angeles and London. We have expanded into new locations including Singapore and Rio de Janeiro during the year and in January 2015, we opened a localisation and project management office in Barcelona in order to access local talent pools. We have also consolidated office locations where acquisitions have brought studios in the same location, combining two studios in Montreal into one unit and doing the same in New Delhi, providing both cost synergies and the opportunity to foster greater cross-selling opportunities.

China presents an opportunity for the Group as the second largest market for games outside of the US and one that is slowly liberalising. Changes in government policy in China now means that it is possible to sell games consoles there. Microsoft launched the Xbox One in China in November 2014 and Sony is expected to follow suite. We, therefore, continue to review opportunities to invest organically or by acquisition in the region. The Group has invested in two business development resources in China in 2014 and is in the process of establishing a wholly foreign owned enterprise ("WFOE") in Shanghai in anticipation of investing further in the country.

Acquisitions

In line with the Group's strategy, Keywords has taken advantage of the fragmented markets in which it operates to grow through a combination of acquisitions and continued organic growth.

Liquid Violet (audio services), Babel Media (localisation, localisation testing and functional testing), Binari Sonori (localisation and audio) and Lakshya Digital (art creation services) were all acquired during 2014 - in January, February, May, and October respectively. In January 2015, Alchemic Dream (customer support and community management) and Reverb (localisation and audio for Brazilian Portuguese) were added to the stable.

We have been pleased with the progress we have made with integrating the businesses acquired. 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.

In January 2015, we amended the terms of our acquisition of Binari Sonori to conclude the earn out arrangements earlier than originally planned with a view to integrating the business more closely with that of the core Keywords operations. More detail is provided in the Financial and Operating Review below.

We have been delighted with the integration of Babel Media in particular which, as the most directly competitive business to that of Keywords, presented the greatest risk and greatest potential return. In the 10 months under our ownership, we have been able to make annualised cost savings of over CAD1.0m from introducing a flatter, leaner structure and combining our two Montreal locations, back office and sales and marketing functions. This, combined with a strong trading performance from Babel, has resulted in the business of Babel moving from a 2% return on sales in 2013 to a healthy 14% return on sales in 2014.

We expect acquisition activity to be a feature of the business for the foreseeable future as the company takes advantage of its leadership position in the market and continues to consolidate carefully selected, earnings accretive businesses. As such, we continue to review a number of acquisition opportunities which will provide the Group with complementary services, increased scale in its existing activities or further geographic expansion.

Results overview

The Group's revenues increased by 130% to €37.29m (2013: €16.18m) during the period. This increase was spread across all lines of business: Localisation activities grew by 125%; Audio grew by 311%; and Functional Testing, expanded many fold, as outlined in more detail in the operational review.

Gross profit marginsreduced modestly to 34.1% (2013: 34.7%) as a result of the change in the mix of business of the Group in 2014 compared to 2013, particularly the higher percentage of lower margin functional testing revenue following the acquisition of Babel Media in February.

Underlying operating expenses excluding one-time costs increased by a total of €4.37m for the period to €7.56m (2013: €3.19m) reflecting our investment in expansion but were maintained at approximately 20% of revenues. The one-time costs included IPO costs of nil (2013: €1.12m), non-cash costs related to share option expenses of €0.16m (2013: €0.07m), amortisation of intangible assets of €0.47m (2013: nil) and costs of acquisition and integration of €1.46m (2013: €0.07m).

The Group reported adjusted profit before tax (before IPO expenses, share option charges, amortisation of intangible assets, costs of acquisition and integration and foreign currency movements) for 2014 of €5.054m (2013: €2.45m). Statutory profit before tax for the period was €3.44m (2013: €1.16m).

The Group's effective tax rate has increased in line with the increased proportion of profits earned in higher tax rate jurisdictions including Canada, US, Japan and Italy. The Group's effective tax rate based on the KWS measured profit before taxation in the period was 24.0% (2013: 16.0%).

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 8.54c compared with 5.76c for 2013. After these items, the basic earnings per share from continuing operations was 4.94c (2013: 2.14c).

Operational review

2013 and 2014 have been years in which the transition to the latest generation of games consoles have led to some unusual trading patterns. In 2014, as expected, activity in the final quarter of the year was atypically busy following a less active summer period as publishers of console games for the PS4 and Xbox One chose not to release a number of titles in the traditional Thanksgiving and Christmas holiday gifting period in favour of releasing in Q1 2015 to take advantage of the increased installed base of those consoles given the strong sale of those devices in the holiday period.

Overall, the Company continued its strong performance achieving organic growth of 23% while more than doubling total revenues to €37.29m (2013: €16.18m) including the effect of acquisitions. The six acquisitions made to date have also broadened our range of services and further extended our geographical reach.

Localisation testing operations, which accounted for 39% of Group revenue, grew by 58% to €14.66m (2013: €9.28m). This includes contribution from the acquisition of Babel Media in February 2014. Despite having experienced a significant reduction in volume from a major client which was not as active during this period, this service line continued its strong growth thanks to its market leading reputation and overall healthy demand from console and mobile games sectors.

Our Functional testing service, which accounted for 13% of Group revenue in 2014 (2013: 2%), was transformed into a service line with critical mass through the acquisition of Babel Media where functional testing was a larger share of its overall activity. We achieved revenues of €4.99m (2013: €0.35m) undertaking significant projects for clients including Warner Bros., Carbine and Bioware.

Localisation (translation)activities, including contributions from Binari Sonori which was acquired in May 2014, increased revenues by 125%, to €11.97m (2013: €5.32m) and accounted for 32% of Group revenue. Binari Sonori's translation and audio business is focussed on the console game market particularly for large, high production value, AAA game titles. In contrast the core translation business at Keywords and at Babel derives the majority of its revenue from mobile, social and online games. The combination of these three businesses has resulted in the creation of the market leading video games localisation services supplier, well represented in all types of games.

Growth in our Audio activities of 311% to €5.08m (2013: €1.23m) was driven both by organic growth and the acquisitions of Liquid Violet and Binari Sinori in January and May 2014 respectively, which both performed well following their acquisition. Voice recordings in video games add considerable depth to a game and are expected to continue to grow as the new generation of consoles provide more powerful processors and larger storage capabilities to enable richer gaming content than ever before. Similarly, smartphones are becoming increasing capable gaming platforms and the addition of voice content to games is a trend we also expect to see accelerate in mobile games.

Art Creation Services was added to our range of services through the acquisition of Lakshya Digital in October 2014 adding revenues of €0.61m in the last quarter. In the face of strong market demand for art creation services, we intend to invest in organic expansion and further acquisitions to build this service line to match those of our translation and testing businesses in the coming years.

As we grow, we have continued to invest in the infrastructure to support the larger Group. We have benefitted from some strong additions to our senior leadership team following the acquisitions made during the year. We expanded our sales support, growing from one dedicated business development executive in 2013 to eight in 2014. Investment in project management, workflow management and financial reporting continues as these tools are rolled out to support all operations in a centralised and consistent manner, facilitating strong management reporting and control. We also continue to invest in talent and our growth helps us to attract and retain talent, as candidates can see exciting opportunities for career progression throughout the Group. The Group employed an average of 978 people in 2014 (2013: 371).

Outlook

With the installed base for the new generation of consoles having reached what many believe to be the tipping point following the 2014 holiday season, 2015 is expected to be the first solid, post transition year in the console game sector and we are looking forward to returning to more normal trading patterns as a result.

Strong demand at our recently acquired Lakshya Digital art outsourcing business will be met by investment in expanding its resource base in India as well as a small studio in Seattle to help manage and scale the business, while maintaining quality.

In January 2015, to better serve the multiplayer games segments, we opened a localisation and project management office in Barcelona in order to access local talent pools. This modest investment is already bearing fruit with some new client wins.

Entering 2015 with six lines of business, we feel confident that the synergies already experienced between the business units will continue to build through 2015 and beyond, as we continue to identify and convert cross selling opportunities. We expect to focus on opportunities to grow our newer service lines to achieve a good balance with our other business lines. In particular, the art outsourcing market is expected to yield some interesting acquisition candidates as we seek opportunities to extend our services in that area as well as broaden our geographic spread to better enable us to leverage the synergies with our other services.

We will continue to manage our businesses in a lean and agile manner to optimise resourcing levels across the business and to leverage the benefits of centralised functions across a larger group while operating locally to our clients, enabling us to best interpret their needs. 2015 will be another busy year for the Group as we make further progress with integrating acquisitions and realise the full year benefits of acquisitions made through 2014, whilst also driving growth both organically and through further selective acquisitions.

Principal risks and uncertainties

Keywords is a fast growing but relatively small Group operating in a wide spread geography. The markets we operate in are fragmented in terms of the suppliers of services but our client base is relatively concentrated with a number of very large, global suppliers at the head and a large tail of small, independent developers. The market is highly dynamic, with technology, business models and consumer tastes evolving constantly. In this environment Keywords has the objective of becoming the leading global supplier of localisation, testing, audio and other related services to the industry and sees the following risks as it pursues this objective.

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

1. General business risks for any international company

2. Industry related risks

3. Those specific to the Keywords Group and its strategy

Beyond the general business risks associated with any international company, the principal risks related to the industry or more specifically to Keywords and its strategy, as identified by the management and the Board, are set out below:

A) External Risks

. Exposure to large customers:

The Company's client base principally comprises global game companies whose revenues are in the billions and hundreds of millions of dollars. Our top five clients account for 49% (2013: 61%) of the company's revenues. These companies have exacting standards and demand a high quality of service. Any failure in this regard or breakdown in the relationships at the top level could cause considerable damage to the business. The potential impact is partially mitigated through the company's highly flexible resource base and its expansion continues to reduce its exposure to any single large client.

. Confidence of the City and investors:

Keywords floated on AIM in July 2013 with an expressed set of objectives of growing the business organically and by acquisition. Should the Company lose the confidence of investors, the Company's rating will suffer and this in turn will affect its ability to raise money for or place shares to pay for acquisitions. However, the Company makes every effort to communicate regularly with investors via announcements and face to face contact and this effective communication of how it continues to execute on its stated growth strategy and successfully integrate the businesses it acquires should continue to maintain the confidence of its investors.

. Sudden Business Interruption:

Keywords is a global business and needs to minimise business interruptions and be able to continue servicing customers. This threat could be internal such as a major failure in its IT systems but also external such as the Group experienced and managed during the 2011 Tokyo earthquake and tsunami. The Group's multiple, full service, delivery hubs provide for a good level of contingency and, supported by a solid business continuity plan and comprehensive insurance, the effects of such disasters can be managed.

B) Internal Risks

. Security:

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

. Success of acquisitions:

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

C) Financial Risks

. Adequate Overseas Financial controls:

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

Andrew Day, Chief Executive

Financial and operating review

Group Performance

2014 was a year of profitable growth and expansion for the Group. This has been achieved against the backdrop of a games market which was unexpectedly quiet in the first half of the year due to a lull following the intense activity that accompanied the launch of the Xbox One and PlayStation 4 consoles in November 2013, and the consequent launches of a significant number of larger console titles being moved from the pre-Christmas trading period to the first quarter of 2015. This created a busier fourth quarter of the year, as foreseen at the time of the Company's interim results.

The original core service lines continued to grow strongly and were strengthened significantly by the acquisition of Babel Media Group, Binari Sonori and Liquid Violet. In addition the Group began its diversification in to the video game art outsourcing market, in line with its stated strategy, with the acquisition of Lakshya Digital in October 2014.

Keywords geographic reach continued to grow through the opening of the Keywords' Singapore studio, and through acquisitions in New Delhi, Pune, Los Angeles, London and Milan.

Revenue

Revenue for 2014 was up 130% at €37.3m (2013: €16.2m) due to both organic growth and acquisitions. The organic growth rate, excluding all acquisitions, was up 23% which was very encouraging considering the market conditions encountered in the first half of 2014.

Gross Margin

Gross profit for the year was €12.7m (2013 of €5.6m). The gross margin percentage reduced very slightly to 34.1% (2013: 34.7%). The most significant impact on the gross margin in 2014 was as a result of the increase in functional testing as a proportion of Group sales, as it commands a lower gross margin than the Group's other services. This was partially offset by a small positive effect from the larger weighting of Audio services following the acquisitions of Binari Sonori and Liquid Violet.

Revenue Mix

Revenues increased across all lines of business in 2014, both organically and through acquisitions, compared with 2013.

The new acquisitions have improved the balance of the sales mix considerably. The Group's dependence on localisation testing has been reduced to 39.3% of sales in 2014 from 57.4% in 2013. Localisation testing services grew strongly by 58% with sales of €14.7m in 2014 (2013: €9.3m), in part due to additional services from Babel Media and the increased number of console titles launched in 2014 and early 2015 compared to 2013.

The acquisition of Babel Media has markedly strengthened functional testing with sales of €5.0m (2013: €0.3m) which represented 13.4% of Group sales (2013: 2.2%). Audio services revenue quadrupled to €5.1m in 2014 (2013: €1.2m), reflecting the acquisitions of Binari Sonori and Liquid Violet. As a result audio services have grown to represent 13.6% of Group sales, up from 7.7% in 2013. Lakshya, which was acquired in October 2014, delivered €0.6m in sales for our new Art Creation services line, which accounted for 1.6% of Group sales but will become a larger part of the sales mix next year.

Localisation services revenue grew by 125% to €12.0m (2013: €5.3m), and continued to make up a stable proportion of Group revenues at 32% (2013: 32.8%).This was due to the 40% organic growth delivered by the existing Keywords business, in addition to the contributions from Binari Sonori, and to a lesser extent, Babel Media.

The acquisitions and the opening of the Singapore studio during the period have greatly increased the Group's presence in North America and in Asia. The sales mix by region based on the Group's operational jurisdictions are as follows:-

Operating Profit ("EBITDA")

EBITDA is a measure of operating profit used by the Board, which excludes depreciation, amortisation, share option expenses and one-time costs related to merger and acquisitions and to the IPO. For 2014, EBITDA increased 123% to €6.02m, compared with €2.69m for 2013.

During the year there was some restructuring of some of the newly acquired entities in order to cut costs and to realise synergies over time. Operating expenses excluding depreciation, increased by €3.78m to €6.70m (2013: €2.92m) mainly due to the new acquisitions and the opening of the Singapore studio but these costs decreased slightly as a percentage of sales from 18.1% to 18.0% of sales.

Net Finance Costs

During 2014 there was net finance income of €0.36m compared to an expense of €0.07m in 2013 primarily due to the impact of foreign exchange gains. Foreign exchange gains of €0.5m (2013: loss of €0.1m) on translation were created mainly due to the weakening of the Euro against Sterling, Canadian Dollar and US Dollar. The interest expense of €0.06m (2013: nil) is largely due to the interest on certain finance leases which exist within Babel Media.

Adjusted Profit before Tax

Adjusted Profit before Tax is a measure of profitability of the business used by the Board to measure the more meaningful underlying profit generation of the Group. This measure excludes one-time expenses, such as the expenses of the IPO, and also share option expenses and foreign currency gains or losses. Adjusted profit before tax for 2014 was €5.054m compared with €2.45m in 2013.

Taxation

The Group's effective tax rate has increased in line with the increased proportion of profits earned in higher tax rate jurisdictions including Canada, US, Japan and Italy. The Group's effective tax rate based on the KWS measured profit before taxation in the period was 24.0% (2013: 16.0%).

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, was 8.54c compared with 5.76c for 2013 which excluded the one time IPO costs as well. Basic earnings per share based on the statutory profit after tax was 4.94c (2013: 2.14c).

Cash flow and debt

The Group continues to operate without any financing debt. The Group generated operating cash of €1.90m for the year, compared with €2.29m for 2013. However, during the year, the Group also accumulated multimedia tax credits in Quebec of €1.4m (2013: €0.15m) which will be claimed during 2015. The total multimedia tax credit accrual amounted to €3.0m as at December 31, 2014.

The Group made four acquisitions to strengthen the business during the year with a net cash outflow on consideration payments of €8.9m, €3.0m repayments of borrowings in Babel and an additional €1.5m in acquisition expenses and integration expenses. Investment in fixed assets amounted to €1.3m (2013: €0.39m) reflecting the cost of bringing the Babel Media and KWS Montreal operations together into one facility, relocating Babel Media India to the Lakshya studio in Gurgaon and fitting out the Singapore office. Additionally, there was ongoing purchases of games testing equipment.

The issue of new shares via a Placing in May generated net proceeds of €7.3m. In 2013 the issue of new shares in the IPO generated gross proceeds of €11.6m. Expenses related to the IPO in 2013 amounted to €1.40m, of which €0.3 was capitalised against share premium.

Cash and cash equivalents decreased from €15.3m to €11.01m excluding accrued multimedia tax credits of €3.0m (2013: €0.2m).

Foreign Exchange

Keywords does not hedge foreign currency profit and loss translation exposures. The Group's results are, therefore, effected by 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 0.36p per share on October 22, 2014, the Board recommends a final dividend of 0.74p per share, which will make the total dividend for the year ending December 31, 2014 1.10p per share, a 10% increase over 2013. Subject to shareholder approval at the Annual General meeting, the final dividend will be paid on June 26, 2015 to all shareholders on the register at June 5, 2015. The final proposed dividend will cost an estimated €443,200.

Events after the reporting period

On March 26, 2015 the government of Quebec announced in their budget the reversal of the earlier reduction of their multimedia tax credits from 37.5% of the cost of qualifying labour to 30%, with immediate effect.

On January 20, 2015 the Company agreed with the selling shareholders of Binari Sonori S.R.L to vary the terms of the acquisition agreement bringing to a close the earn out conditions 12 months earlier than originally agreed and thereby integrate the businesses more closely with the rest of the Group. Under the terms of the acquisition, deferred consideration of no more than €4.0m could have been payable calculated by reference to the profit before interest and tax of Binari Sonori in the years to December 31, 2014 and December 31, 2015. Under the terms of the agreement, the Company agreed to pay to the selling shareholders total deferred consideration of €300,000 which has been satisfied by the issue of 158,250 new ordinary shares of Keywords at a price of 145.47 pence per share.

On January 18, 2015 the Company acquired the entire 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. Under the terms of the agreement, a total consideration of up to €300,000 is to be paid in cash to the sellers.

On January 9, 2015, the Directors incorporated Keywords International Barcelona SL, a company registered in Spain, as part of the Group's continuing geographic expansion.

On January 6, 2015 the Company acquired the entire issued share capital of Alchemic Dream Inc., a company registered in Canada. Alchemic Dream specialises in providing cost effective and flexible customer care services to the video game publishers.Under the terms of the agreement, which is expected to be earnings enhancing, a maximum total consideration of CAD$1.25m in cash will be paid to the sellers dependent on certain closing balance sheet related adjustments which are still to be calculated.

On December 17, 2014 an employee benefit trust ("EBT") was set up, in which to "warehouse" Keywords Studios shares in preparation for the exercise of options and the vesting of awards in the future. The EBT was created to allow the flexibility to issue grants of options and awards which exceed the 5% issued share capital of the Company. In the current year to date 200,000 ordinary shares of Keywords at a price of 145.00 pence have been bought by the EBT at a gross cost of €372,320.

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 of the Groups' 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 deploying its staff resources to ensure optimum staffing strategies and utilisation rates are being deployed

- 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.

Andrew Lawton, Chief Financial Officer

Financial Statements

Consolidated Statement of comprehensive income

Consolidated Statement of financial position

Consolidated Statement of changes in equity

Consolidated statement of cash flows

Adjustments to reconcile net income to net cash provided by operating activities

Notes forming part of the Consolidated financial statements

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, 2014. 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 consolidated 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").

The financial information shown in this announcement for the year ended December 31, 2014 and the year ended December 31, 2013, as set out above, do not constitute statutory accounts, within the meaning of Section 435 of the Companies Act 2006, but are derived from those accounts. The results have been prepared using accounting policies consistent with those used in the preparation of the statutory accounts. Statutory accounts for the year ended December 31, 2013 have been delivered to the Registrar of Companies and those for the year ended December 31, 2014 will be delivered shortly. The auditors have reported on the accounts for the years ended December 31, 2013 and December 31, 2014; their reports were unqualified, did not contain statements under Section 498 (2) or (3) of the Companies Act 2006 and did not contain any matters to which the auditors drew attention without qualifying their report.

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

New standards, interpretations and amendments not yet effective

None of the new standards, interpretations and amendments, which are effective for periods beginning after January 1, 2014, have been adopted. No detailed review of the impact of IFRS 15 has taken place and therefore we are unable to conclude what impact it may have on the Group's future financial statements at this point.

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.

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

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.

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 from the date of 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.

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

The multimedia tax credits received in Montreal on testing services are treated as a deduction against direct costs. The tax credits of €1,413,038 (2013 €152,260) were treated as revenue in the previous accounting periods. The comparatives have been restated.

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.

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.

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.

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.

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 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:

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the consolidated statement of comprehensive income.

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

Impairment tests on goodwill and other tangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to annual impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. - the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Where it is not possible to establish the recoverable amount of an individual asset, the impairment test is carried out on the asset's cash generating unit (i.e. - the lowest Group of assets in which the asset belongs for which there are separately identifiable cash flows).

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

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 estimated over their useful life which presently is 5 years starting from date the asset was capitalised.

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.

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.

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.

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.

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.

Management considers that the Group's activity as a single source supplier of Localisation and Localisation Testing Services constitutes one operating and reporting segment, as defined under IFRS 8.

Management review the performance of the Group by reference to Group-wide profit measures and the revenues derived from four main service groupings:

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

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

· Audio - Audio Services relate to the audio production process for computer games and includes script translation, actor selection and talent management through pre-production, audio direction, recording, and post-production, including native language Quality Assurance of the recordings.

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

· Art Creation - 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.

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.

The 2013 revenue has been restated to exclude the multi-media tax credits which were previously included in Localisation Testing of €152,260 and also a financing discount received from a customer of €50,121.

Two (2013: Two) customers accounted for more than 10% of the Group's revenue during the year. Revenues generated from those customers were €7.1m and €3.9m (2013: €3.4m and €2.9m).

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.

Geographical Analysis of Non-current assets from Continuing Businesses

One-time costs of €482,858 and €978,196 respectively were incurred in acquiring and integrating the new entities into the group. Last year costs of €1,404,618 were incurred in the Company's IPO. €281,052 of these costs were capitalised against the share premium account.

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

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.

The dilutive impact of share options has been considered in calculating diluted earnings per share.

In May 2013, Keywords International Limited distributed €8.42 per share, based on the shares in issue at that time, or €124,518 in total, as a special dividend for 2011.

In June 2013, Keywords International Limited distributed €33.79 per share, based on the shares in issue at that time, or €500,000 in total, as a final dividend for 2012.

In October 2013 Keywords Studios plc distributed its maiden dividend of Stg0.33 / €0.39 per share, based on the shares in issue at that time, or €156,609, as an interim dividend for 2013.

In June 2014, Keywords International Limited 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 International Limited 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.

The Directors' recommend a final dividend in respect of the financial year ended December 31, 2014 of Stg0.74p per Ordinary share, to be paid on June 26, 2015 to shareholders who are on the register at June 5, 2015. This dividend is not reflected in these financial statements as it does not represent a liability at December 31, 2014. The final proposed dividend will reduce shareholders' funds by an estimated €443,200.

During the period goodwill arose on the acquisition of Liquid Violet Limited, Babel Media Group Limited, Binari Sonori S.R.L and Lakshya Digital Private Limited.

The goodwill has been tested for impairment in this period. The recoverable amount for each cash-generating unit ("CGU") has been determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates, terminal value growth rates and expected changes to selling prices and costs during the period. All of the assumptions have been reviewed by management. Management estimates a discount rate using pre tax rates that reflect current market assessments of the time value of money and the risk of the CGUs. The rate used within the calculations was 12.5% for each CGU. The growth rates are based on a review of recently achieved growth rates and a prudent estimate of likely growth rates for each CGU.

Key assumptions for the value in use calculations are as follows:

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 10.6%

Babel Media Limited 17.6%

Binari Sonori S.R.L 9.1%

Lakshya Digital Private Limited 12.6%

The result of the value in use calculations was that no impairment is required in this period.

Net book value

Customer relationships are amortised over 5 years from the point of acquisition on a straight line basis.