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Keywords Studios confirms continuing revenue growth, unveils latest acquisition

Chief executive Andrew Day said the resilience of the Keywords business "continues to shine through", delivering strong revenue growth despite coronavirus (COVID-19) related challenges

Keywords Studios PLC - Keywords Studios confirms continuing revenue growth, unveils latest acquisition

Keywords Studios PLC (LON:KWS), the ever acquisitive video games services firm, has confirmed a 13% increase in first-half revenue at €173.5mln, with organic revenues marking an 8% rise, as it also inked a new deal.

The group's underlying earnings (adjusted EBITDA) jumped 19% to €30.8mln for the six months ended June 30, 2020, versus €25.8mln in the same period of 2019.

Keywords highlighted strong demand for its services and a robust trading performance with its largest service line, game development, showing particularly strong growth.

READ: Keywords Studios gets big upgrade from Berenberg

Certain service areas (namely testing and audio) were constrained because of coronavirus (COVID-19) restrictions, as well as some postponements by games publishers.

Margins were “held back” due to lower volumes compared to the original planning at the start of 2020, though it expects an improvement to normal levels in due course.

It also expects to resume a progressive dividend policy in 2021.

The pandemic couldn’t hold back Keywords typical deal appetite, indeed the group raised a US$100mln war-chest via the equity market in May and subsequent deals were struck in June adding Coconut Lizard, an Unreal Engine development specialist, and August with the acquisition of marketing services group Maverick Media.

Today’s new acquisition: Heavy Iron Studios

Today, Keywords announced its latest bolt-on through the US$13.3mln acquisition of LA-based Heavy Iron Studios Inc, a technical specialist that mainly works on top-tier game titles – most recently, for example, it has been contracted to Crystal Dynamics for its new Marvel Avengers title and has worked on Activision’s Call of Duty franchise.

A structured deal sees the company pay US$4mln of cash upfront, US$500,000 on the first anniversary of the deal, and up to US$8.8mln of contingent payments tied to performance targets across the first two years under the Keywords’ banner.

“The addition of Heavy Iron to the Group further strengthens and scales our game development service line,” said Andrew Day, Keywords chief executive in a separate statement to the group's results announcement.

“By bringing a new base on the West Coast, it will provide access to many of the world's leading game companies and the local talent pool from where we can expand our activities in the region and build upon our existing presence in audio and localisation."

“This marks our third acquisition since our recent placing, and we have a healthy pipeline of acquisition opportunities which we are actively reviewing and advancing," he added.

New Playstation and Xbox launches to boost demand

Keywords also told investors that trading has started well in the second half, despite ongoing headwinds from COVID-19 disruption.

New console launches, Sony’s Playstation 5 and Microsoft’s Xbox Series X, due in the fourth quarter, are expected to drive strong demand for the company’s services.

The group noted that it is faced with some COVID-19-related hiring constraints, for testers in certain geographies.

Nonetheless, it anticipates “good” revenue growth in the second half, and margin growth is expected to continue in increments, towards ‘historic norms’ by the end of 2021.

Keywords added that it expects to maintain its effective remote working model in the majority of its locations.

"The resilience of our business continues to shine through as we delivered growth despite the restricted use of our 60+ studios around the world, recruiting and training challenges, and some short term disruption to content flowing into the business,” Day said.

“The growth drivers across our underlying video games market remain intact and we anticipate continued strong demand across all our service lines, including some pent-up demand from our clients as our operating environment continues to normalise,” he added.

Quick facts: Keywords Studios PLC

Price: 2206 GBX

Market: AIM
Market Cap: £1.63 billion

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