viewKeywords Studios PLC

Keywords sees strong growth in Functional Testing and Game Development

Particularly steep increases in demand for some of its service lines required Keywords to invest rapidly in expanding capacity. "As we move into the second half, we expect to be able to leverage that investment to the benefit of margins in the second half."

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Keywords has agreed on a new banking facility

Keywords Studios PLC (LON:KWS), the technical and creative services provider to the video games industry, has seen strong like-for-like revenue growth in 2019.

Unaudited revenues for the period are expected to be up by around 39% year-on-year to about €153.1mln from €110.0mln in the same period of last year.

On a constant currency, like-for-like (LFL) basis, group revenues were up 17.3% to €146.4mln from the previous year’s €124.8mln.

READ Keywords Studios full-year profits rise over 60% as it continues expansion

The company said the top-line increase was driven by particularly strong growth in its Functional Testing and Game Development (formerly Engineering) service lines, which are now the largest and second-largest of the group’s service lines, representing 20% and 19% of proforma revenues respectively.

All seven of Keywords’ service lines grew in the period with LFL revenue growth rates ranging from 5% to 33%.

Adjusted profit before tax for the half-year just ended is expected to increase by 15% to roughly €18.4mln from €16.0mln the year before.

Keywords said particularly strong demand for certain service lines required it to bring forward the expansion of facilities and incur extra costs in areas such as recruitment, training, information technology and personnel. Also, the group invested in establishing Functional Testing operations in Katowice, Mexico City and Tokyo, Localisation Testing in Katowice and Player Support in Mexico City. As a result, the group expects to see stronger margins in the second half than in the first half.

Net debt at 30 June 2019 was €9.0mln, compared to around €100,000 at the end of 2018.

The group has agreed on terms of a new revolving credit facility for an initial €100mln over a three-year term to replace the existing €105mln facility, which was on the same terms. An option exists to extend the new facility to €140mln and by a further two years.

"We were pleased by the strong performance of the group in the first half, incorporating as it does the anticipated lower growth VMC business acquired in October 2017,” said Andrew Day, the chief executive officer of Keywords.

"Demand from new game streaming services has continued to drive volume increases for us, and we continue to benefit from clients increasing the number of services acquired from Keywords with 113 clients now taking three or more services (99 as at 31 December 2018). I'm particularly pleased with the progress in building our Game Development services which we first entered only two years ago and, with further acquisitions still to come, is well set to become our largest service line by revenue,” he added.

"We continue to review a healthy pipeline of acquisition candidates in line with our strategy to build our business both organically and through acquisition. The new, enlarged banking facility will give us the flexibility and headroom to deliver that strategy and further enhance shareholder value," Day said.

Quick facts: Keywords Studios PLC

Price: 1758 GBX

Market: AIM
Market Cap: £1.28 billion

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