Keywords Studios plc (KWS) Earnings Call Transcript & Summary

[Audio Gap] Annual General Meeting of Keywords Studios plc. [Operator Instructions] There's a PDF of the slides relating to this AGM on the right-hand side of your screen, and this webinar is being recorded. I now hand over to Ross Graham, Chairman of the Keywords Board, who will act as the Chairman of this AGM.

Right. Thank you, [ Campton ]. As everyone is now joined the platform, I'm pleased to be able to open the 2021 AGM of Keyword Studios plc. Obviously, the format of the meeting is a little different to our usual AGMs, and we're glad you've been able to join us. This is as open as we can get in these COVID days. For this morning's AGM, I have David Reeves, Chair of the Remuneration Committee in room with me. Also joining me remotely are Jon Hauck, CFO; and joined Sonia Sedler, COO. Both Jon and Sonia have, of course, been acting as joint interim CEO, since Andrew Day became ill. The second will begin with the presentation by Jon and Sonia, providing an update on the company's performance and activities. A copy of the presentation will be available to download from the company's website shortly after this AGM. We'll then move directly on to conducting the formal business of the AGM. And following that, the directors will be available for a Q&A session, taking questions from the audience as they may be put. Shareholders working the opportunity of submitting questions in advance of the AGM by e-mail, but no questions actually have come through by that route. But questions can be submitted to our team at any time during the meeting, using the Q&A function of the video conference facility. So without more ado, I'll hand it over to Jon and Sonia to explain where we are and how we got there?

Thanks, Ross, and good morning, everyone. Turning to today's presentation. I will start by providing a summary of the highlights of our performance in 2020 and an update on our responsible business agenda, and then going to hand over to Sonia, who will provide an overview of our strategic progress and the outlook for this year. So turning to the executive summary. We're really pleased to have delivered a strong set of results in 2020 that saw robust revenue growth despite the clear constraints of the global pandemic. This has been driven by continued strong demand for our services and the resilience of our business model, which enabled us to act with agility to respond to pretty dramatic changes to the way that we work. We still have over 7,000 of our people working from home, and we've continued to deliver excellent service that our clients have come to expect. And Sonia and I would like to thank everyone at Keywords for their continued hard work throughout 2020 and into this year. The group's strong response to the challenges created by the pandemic enabled us to continue to increase our profitability and cash generation during the year, further strengthening our strong balance sheet and liquidity. In May 2020, we successfully completed a EUR 110 million placing that was well supported by shareholders, and we're pleased to been able to continue the highly successful M&A program that has always been an integral part of our strategy having breadth and depth to the group services, particularly in game developments and marketing. We've made 9 acquisitions since the placing, including acquisition of Tantalus in March, which marks our first entrance into the Australia market and the more recent acquisition of Climax in the U.K. We started this year strongly, and it's clear to us that the demand outlook remains strong for 2021 and beyond. As video game developers and publishers are putting more focus on content creation this year, aided by the next-generation of consoles that came to the market towards the end of last year. I'll comment on this in a bit more detail in a minute, but we've recognized the increased importance of ESG, and I'm really pleased with the progress that we've made on our responsible business agenda and the role that our business plays in our communities and the environment. So looking ahead, we're in really good shape to continue to cement our position as a go-to provider of technical and creative services through both organic and acquisitive growth. So if you can turn to the next chart, please. So coming on to the financial highlights for 2020, we're really pleased to have delivered a strong performance despite the COVID-19 constraints in the year, we saw a 14.4% increase in revenues to EUR 373.5 million. On an organic basis, revenues increased by 11.7%, which reflected a much stronger second half following the particular disruption seen in the early onset of the pandemic in the first half 2020. Pleasingly, full year adjusted EBITDA was up 28.8% to EUR 74.2 million, reflecting a 2.3 percentage points increase in our EBITDA margin. Next slide, please. So finally, before I hand over to Sonia, a few comments on our responsible business agenda. We've always taken conducting our business responsibly, very seriously, but we have recognized the increased focus on the ESG agenda more broadly. We aim to operate our business with the highest levels of honesty, integrity and ethical conduct throughout all that we do, including the role that our business plays in many communities, it's involved in around the world and the impact it has on the environment. Over the last year, I think we've made some really good progress on our 6 priority areas with people, diversity, customer centricity and innovation, communities and the environment, of course, all underpinned by good strong governance. During the year, we established a global diversity and inclusion council as well as introducing unconscious bias training for individuals in hiring roles across the group. We also enhanced and relaunched our code of conduct, which is now available in 12 languages and is published on our website. We've also introduced the Keywords Cares scheme, which aims to encourage local community outreach efforts by matching the funds raised by our teams around the globe. And closer to home, we set up a $500,000 hardship fund that's available to any of our people who have been particularly affected by the pandemic. And for the first time as a business, we've quantified our global greenhouse gas emissions, focusing on scope 1 and scope 2 emissions, which gives us a starting point from which we can start to set targets and measure our success going forward. There's still lots and lots to be done. But as I said, we're committed to continuing to drive improvement across all of our priority areas and to help drive our performance, we've established a responsible business committee on the Board to monitor and report on our progress going forward. And with that, I'll hand over to Sonia.

Thank you, Jon. Good morning, everyone. Good to meet you virtually. I'm delighted to be giving you an update on the strategic progress and our business outlook. Just a reminder of the vision that the business rotates to. Our vision is to become a go-to provider for technical and creative services to the global video games industry. We now have about 9,000 -- or over 9,000, actually, now talented people supporting our clients in over 50 languages, networked across more than 65 studios in 22 countries over 5 different continents. I think that's a testament to our clear vision, our powerful growth strategy and our talent as well as our ability to execute effectively. Our global platform is networked across 7 service lines. So that's marketing services, game development, art services, localization in audio, FQA, LQA, player support and media and entertainment. What we do is we provide the unique customer experience to over 950 clients across the globe. And that's including 23 of the top 25 games companies by revenue and 10 of the top 10 mobile games publishers from our global footprint. And it's from our global footprint that we're able to leverage our scale and seamlessly move between global and local, embedding responsible business by design in everything that we do. Next slide, please. We're really proud that fiscal 2020, our people continue to deliver on our commitments to our shareholders. Our track record of outperforming the market is borne by a combination of our powerful organic growth strategy and our aggressive acquisitive strategy. In 2020, 120 customers bought 3 or more services, and that's an increase from 108 to -- sorry, from 108 to 120. We're continuing to execute on our targeted acquisition strategy. It's led us to increased scale in a fragmented market across multiple geographies. This year, we're really proud to announce the acquisition of Tantalus Media, establishing our presence in Australia. Since IPO in 2013, we've made 53 successful acquisitions to further enhance our differentiation and competitiveness. Our acquisitions are enabled by our global integration team and the access to cross-sell opportunities that are presented by the global Keywords Studios brand. Moving forward, we'll be adding to our increasing digital capability through the acquisition strategy. Slide 8, please. So I'm just going to talk a little bit about the market and the market growth drivers. It's been a period of jackpot growth for gaming. With an expected compound annual growth rate of over 9% by 2023, demand for video games accelerated during the pandemic, as we all know. And you can see from the slide, International Data Corporation, IDC, estimated that global revenues increased by as much as 20% in 2020. That's nearly EUR 180 billion. This growth was attributed to a number of factors, including an influx of new gamers entering the market as well as increased play from existing gamers. Pandemic-related constraints did cause a reduction in content and supply for our next-generation consoles and I can tell you, I was really disappointed by that supply, my children were affected immediately. However, what we're now starting to see is that our clients are rebounding, by creating new content and searching for new ways to engage in their expanded player base. And we're starting to see that the industry is becoming far more active. It's boosted by further shifts towards an always-on service, essentially extending the lifespan of the game to create a wellspring of new opportunities and demand. As the industry emerges to the new normal, we're seeing the requirement of objective-based engagements that align with client agendas. That's also increased. Our clients are engaging in an increasingly accountable way to meet their increased demands. Slide 9, please, the Keywords growth drivers. Our growth strategy begins with a focus on what our clients need, and our ability to service the new always-on model, substantial opportunities for cross-selling through our service lines and our ability to understand and adapt to the shifting market constitutes a significant part of our organic growth sales strategy. Our focusing on our client needs will continue to deepen our trusted relationships, what we could create and provide solutions and services with which to help our customers achieve meaningful experience for the gaming and the media and entertainment community. While we serve our clients locally within our service lines, it's our global sales team that execute on our organic growth strategy. By collaborating across our service lines, orchestrating cross-sell opportunities and leveraging our service innovations and delivery capabilities, we gain our competitive advantage. We help our clients deliver on their business objectives. And where possible, we have established offices to -- really close to our clients' base. Because proximity to our clients remains important even in this virtual world. As well as consistent growth, the business has successfully maintained diversification of revenues and clients with no individual customer representing more than 10% of our revenue. Consciously balancing the business across clients, service lines and territories, we've established an increasingly predictable and recurring revenue base as well as consistently strong EBITDA performance. And finally, a critical factor in our ambitious growth strategy is our ability to deploy our significant service expertise and infrastructure to help unlock the potential for revenue growth with the businesses that we acquire. The Keywords Studios provides a people-focused globally integrated ecosystem that enables these new acquisitions to thrive. Slide 10, please. Looking ahead. We're entering 2021 with an even more durable foundation for our exciting future. It's an exciting time to be part of the gaming and media entertainment industry, and we believe that an evolutionary technology demands a revolutionary approach, holistic, innovative and global in range. It's our reputation for quality and expertise, our scale, our global footprint, and together with our comprehensive range of services that presents potential competition with substantial barriers to entry and helps us protect our unrivaled position. Our strong performance reflects continued growth ahead of the market, and we plan to maintain our focus on our growth initiatives to deliver shareholder value. Our strategic priority areas that Jon mentioned, includes an unwavering commitment to our responsible business agenda. Our people are the most important source of our competitive strength, and we will continue to invest in their skills through training and fulfilling their career aspirations. As we look forward, we expect to capitalize on our strong positioning and achieved double-digit growth in revenue and maintain the strength of our EBITDA position to allow continued investment in our people, our business and drive shareholder value. Keywords Studios will take full advantage of the clear market opportunities presented. We plan to continue developing and disseminating creative business solutions to help our customers address the new realities of the market growth drivers that I mentioned earlier. And we expect to face the future with confidence. And that's it from me. Over to the Chairman. Thank you so much.

All right. Thank you, Jon and Sonia. Ladies and gentlemen, good morning, and thank you for joining us again today. As you know, today's meeting was called by notice of AGM dated the 14th of April 2021. That notice explains the various resolutions, which are proposed. Today's meeting has been called to consider and if supported pass those resolutions. For this meeting, in line with good governance practice, all resolutions have come through by proxy. And I'll explain having how knowing the results -- those results as I go through the resolutions. As the terms of the resolutions are set out in full in the notice, I will take those as read. I will now propose the resolutions of the meeting. And then we'll open -- well, hopefully, we'll go back to questions. We received a large number of proxy votes from shareholders as you'll hear. And as I said, the results will be made clear as we go through each of the resolutions. So I now propose for 13 resolutions, which were sent out. And I as said, I will read out the results of the proxies that I have already and the percentage in favor but the -- of doubt, everything that received a resounding vote in favor. So the 13 resolutions -- I'm sorry, 13 ordinary resolutions, and there's 1 special resolution. So we'll go through the ordinary resolutions first. The first 2 resolutions are to receive the audited financial statements and the reports of the directors and auditors for the year ended the 31st of December 2020. And to receive the remuneration report from the company for the year ended 31st of December 2020. Resolution 1 had over 56 million in favor, and that was just under 100%. Resolution 2 had 55 million in favor and 98% in favor. The next Resolution 3 to 9, are for reelecting the directors, basically to see who's the most popular. Number 3 is Andrew Day, who received 54 million in favor, which is about 94%. The Resolution 4 was to Reelect Georges Fornay, as a Director. He received 55 million votes in favor, which is 97%. Resolution 5 was to reelect Charlotta Ginman as a Director. And that -- she received 51 million in favor, was around 89%. The sixth resolution was for me to being reelected as a director. And I received only second say to Charlotta in favor 50 million, which actually worked out to 96%. Number 7 was Giorgio Guastalla, the founder. He received 54 million in favor, which was 95%. Number 8 was David Reeves, who received 54 million in favor, which is 95%. And lastly, Jon Hauck, number 9, who received 54 million in favor, which is 95%. Number 10 is Sonia Sedler. Sonia, who has joined after the last AGM, so she has to be elected rather than reelected. So on Resolution 10, Sonia received 54 million votes in favor, which is 95%. While Resolution 11 seeks to reapplying BDO as the company's auditor, while Resolution 12 seeks to authorize directors to -- it says here fix the directors remuneration. I prefer the word is remuneration for the following year. Resolution 11 received 57 million in favor, which is just under 100%. And likewise, Resolution 12 was 57 million in favor, again, just under 100%. Resolution 13 is the final ordinary resolution, which seeks to authorize the directors to allot shares up to the limit set out on the notice of the meeting. This received 53 million in favor, which is 94%. Finally, Resolution 14, which is a second resolution. This seeks authority to disapply preemption rights up to the specific limits as set out in the notice. So Resolution 14, received 49 million in favor, which is 87%. Now all those results will actually be put up on the screen so that any shareholder wants to see them, make sure I read the math correctly. You will now see them where they are on your screen. So with that, I'll hand back to Campton to assist us with the Q&A session. This is the -- one of the few times that the Board is available for questioning by shareholders. And we're very happy to take any questions you may ask us. So Campton, over to you.

[Operator Instructions] And we have a verbal question from Mark Bentley.

I have 4 questions, if I may. First and most importantly, I do hope that Andrew is recovering, and please pass my best wishes on to him. Is there any indication of when he may be able to return?

Thank you, Mark. Nice to hear and see you again, like I'll see you, actually, it's nice to hear you again. No, Andrew, he is making good progress. He was -- without being too much a spin on it. He was worn out. He was suffering from exhaustion. He's now making good progress. We are respecting his privacy at the moment. But as and when there is more news, I'll let you know. Certainly, I will let the market know.

Then the other questions are more business oriented. Concerning the acquisition strategy, are there any particular service lines or geographies that you're particularly looking to boost?

Well, I'll answer it in part, but I'll then pass -- cross to Jon and Sonia if she wants to add any flavor. The answer is in terms of geography, I think we are underrepresented in the Far East. So it'd be quite nice to have better representation particularly in-game development, but also in marketing services and other areas in the Far East, particularly Korea and Japan. As regards service lines, we've made very good progress in the marketing service line. And I think we'll be expanding that. We see that being quite an important area to provide a sort of holistic offering to our clients. And we are speaking with our clients quite regularly now to find out what it is that they would like us to be concentrating on. So game development is quite clearly. Not only is it a reasonably good margin business. It's where the resources are scarcest and where we believe that we can add quite a lot of value to what we're currently doing. So Jon, do you want to add anything to do what I just said.