20 September 2013

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

Trading Update

Keywords Studios, the international technical services provider to the global video games industry, today provides an update on trading ahead of its half year results for the 27 weeks to 8 July 2013¹ ("first half"), which will be announced on 26 September 2013.

The first half of the financial year has seen the Group deliver a performance in line with expectations at the time of the IPO.  It has increased revenues by 12% during the first half of the financial year to €7.2m against strong comparatives in the first half of 2012 (€6.4m) when the Group had a particularly strong performance in testing.  During the first half, Keywords Studios also invested significantly in expansion, with the launch of its operations in Seattle, and in additional headcount across the Group ahead of anticipated higher levels of activity in the second half of the current year due to the next generation console launches, being Xbox One and PlayStation 4.  After those additional costs, profit before tax and exceptional items for the first half of the current financial year was €0.4m (H1 2012: €1.43m).

During the first half of 2013, the games industry prepared for what was expected to be a particularly active second half of the year due to the anticipated launch of Sony's and Microsoft's next generation consoles in November, in advance of the important holiday period. We were also anticipating a material number of launch window title releases for these next generation consoles as well as ongoing levels of activity for game launches for the much larger installed base of around 250 million current generation consoles.  As such, the Board's stated expectation was for a greater second half weighting to the current financial year than in an ordinary year. However, following the publicised scaling back of launch territories for the next generation consoles, we now believe that the video games service market will be softer in the second half of the current financial year than previously expected. In what will be an unprecedented launch cycle, the Xbox One and PlayStation 4 launches are expected to be launched within a week of each other in November, in fewer initial territories (and therefore languages) than previously expected.

Given the intense industry focus on these simultaneous major new console launches, several publishers have very recently chosen to defer launches of current generation console titles in order to focus financial resources and capacity on new generation games and be able to launch at a time when marketing current generation games will achieve a better share of attention.  In addition, the late timing of the launches offers fewer opportunities for further game franchises to be launched ahead of the key Christmas sales period.

Despite the lower than previously expected levels of industry activity in the second half, Keywords continues to gain market share having maintained relationships across its existing blue-chip clients and is now working on many of the major next generation titles it had expected to support in the second half while some titles have slipped into next year.  As we move through the second half of the current financial year we have, therefore, seen marked increases in utilisation rates across localisation and localisation testing which we expect to result in significantly stronger margins in the second half than in the first half. However, given the effect on the wider market of the volatility in the console game market, a scaling back in the number of next generation launch territories and delays to some earlier generation games releases, combined with the investments the Group made in the first half, we now expect the profit outturn for the full financial year to be at a similar level to that achieved in 2012. 

Andrew Day, Chief Executive of Keywords Studios, commented:

"Notwithstanding the hiatus caused by the timing of the simultaneous launch of two new consoles in an unprecedented launch cycle, we have made considerable progress in strengthening our market share and in the development of our Seattle business from a standing start to employing 60 people. While it has proven difficult to predict the exact timetable of forthcoming launches, 2014 is expected to be a year of significant activity for the games industry leaving us well placed for substantial growth in the year ahead."

¹Upon Keywords Studios plc's Admission to AIM, it acquired 100% of the Keywords group of companies, on 8 July 2013, through a share for share exchange with the shareholders of Keywords International Limited. As a result, consolidated results for Keywords Studios plc for the six months to 30 June 2013 would not provide a meaningful picture of the performance of the Group.  The consolidated results will, therefore, be prepared for the 27 weeks to 8 July 2013 compared to the half year to 30 June 2012.

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