Keywords Studios plc (KWS) Earnings Call Transcript & Summary

Good morning, everyone. Great to see so many of you as well for our results in person. I have to say on a personal basis as well, first, for me as Keywords with the hat on. So great to see you. As some of you know, I used to work at Novartis and have been joining straight from there as Chief Digital Officer. In terms of background, I used to work at BCG where I started my career before spending a bit of time at HBS, then effectively Hybrid, effectively moved to Amazon almost 20 years ago now, which was a fascinating adventure before running a business called Argos -- called Baxter, which was a user-generated content platform, which I sold to the Guinness World of Record. Then after that, for the last 10 years of my career, I've been working across digital and technology transformation, at first at places like EMI Music, which then became Universal, then moved to a business in the U.K. called Argos, which ended up co-running before effectively working at Novartis indeed. So today, I was actually very attracted to joining Keywords for several reasons. I think first and foremost, it is a first market leader in this category, which is unique. I think it's really a hidden gem in many ways in a sector that you'll see as a great TAM, as we talked about before the break and also great potential and great growth. It is also an incredible platform, where there is a lot of end-to-end services that we have that very few in the sector have and getting a view of how much this is being appreciated by our clients. I think there's so much more, as you'll see through this presentation, to go after in terms of scope, in terms of depth, in terms of scale, what we have in our hands. It's also part of a global play. But at the same time, as you will see still highly fragmented, we're only still a small fraction of that, so I think much more to go after there. I think it's also very fortunate for me personally to get to join business that, as you will see today is performing well. You'll see the organic growth that we'll show today. Strong business across all the different service lines that we have. And at the same time, you will see how much we've been investing into the capabilities that we have behind the platform, both in terms of M&A, in terms of our own capabilities as such. Stepping back over the past 4 months since joining in December, I've had the chance to spend a lot of time with our studios, about 30, 35 of them so far among the 70 that we have really enjoying being on the ground with the teams, with the network of entrepreneurs that we have. I also got to spend time with our top customers, many of our top 25 which I think is incredibly useful to set up the strategic partnership that we want to build, but also to get their feedback. And another piece I've been spending a lot of time on is with about 60 leaders across the Keywords organizations that we've been mobilizing, mobilizing towards building the next iteration and next chapter of the strategy together. I'll share a bit more about that. A few observations of what I've seen so far. First one is I've been really impressed by the quality of the talent that we have within Keywords. A lot of entrepreneurs, a lot of passion, a lot of energy with a really strong network of great leaders across the organization. Secondly, to me has been the quality of the work that we are delivering for clients. And that's something that seems intangible, but I think I'm fortunate to get the benefit of the quality of the work that has been delivered to our clients over the past 4, 5-plus years, which, as you will see, creates a lot of repeat customers. I think that is also a strong intangible for what is to come in terms of retention and what we want to build with other clients. And finally, I think there is an amazing platform. I'm only getting to fully appreciate the stickiness of the platform and how well-positioned we are for what is about, I think, to happen as a next step into the sector itself. So a great place to be. And as you say, I'm probably even more excited than I was before joining. So in terms of agenda for today, I'll start by sharing the highlights on the results Jon will then do a deeper dive onto the financial review, going in much more details I'll come back to share a snapshot of where we are in terms of strategy and how we see it evolving and then sharing a few specific points about the outlook as we see it for 2022 and beyond. So I'm pleased to say that we've had a good 2021. It has been a strong year with very strong revenue coming across all areas of the business, across each of the service lines. As you will see, this is flowing through in terms of bottom line, in terms of profitability and also in terms of cash conversion. We're sitting on a very strong balance sheet with good shareholders' return. We have also been very active in terms of acquisition, probably one of the record years in terms of proceeds that have been invested with 6 acquisitions across game development, marketing and art. Also very proud about the progress. I'll touch on that we've made on being a true responsible business. You'll see a few examples of what we are already starting and I think much more to come in the years ahead on that. We have also been evolving our strategy. I touched on it. We have mobilized about 60 leaders across the organization to come to that. We'll mobilize as well that some of the team at the Capital Markets Day on June 8, but I'm pleased to see the team shaping the strategy effectively together. So it's not just coming from a few of us. And finally, in terms of trading, as you might have seen in the [indiscernible] this morning, we've had a very strong beginning of the quarter. A lot of demand for content across the industry so far. And notwithstanding the situation in Russia, we are confident to be on the high end on the consensus so far for the year. Maybe a quick word on Russia, and we'll touch very happily more on it into the Q&A or Jon will briefly touch on it as well. But we have one of our studios in the game development side as operation in Russia called Sperasoft. It is only a relatively small part of our business, but of course, something that is critical for us to handle very well. And I have to say, I'm very proud about how the team has stepped up to take this on, both from speed and urgency point of view, but also from a humanitarian point of view across the organization. So in terms of results, we've grown at 37.1% year-over-year in 2021. 19% of this is organic growth. You've seen 56% in terms of year-over-year adjusted PBT increase that represents a margin increase of 210 bps getting us to 16.8%. Now I have to flag that this is partly also due to COVID, where a lot of the expenses, travel and others have been reduced in that time, but well comfortably around above the 14%, 15% that we have historically had. And in terms of dividend, we have just announced a dividend of EUR 1.45 per share for the final dividend getting us to EUR 2.15 per share for the full year. So I touched on the acquisitions earlier. So we've made 6 of them over the course of the year, 4 of them that you see on the left on the game development side. So Heavy Iron in the U.S., Climax here in Portsmouth, Tantalus and Wicked Witch both in Australia, Wicked Witch coming up announced in December. We have made some moves as well on to the outside with AMC, also developing the region in Romania. And one that I'm very excited about as well is Wicked Witch in the space of marketing/community management player support, which I think you'll hear much more in its space on which I want to invest more going forward, all that for a consideration of roughly EUR 125 million, EUR 126 million. In terms of -- I'll touch on the responsible business, something really close to my heart, something on which, obviously, as a business, we want to operate with the utmost standard of integrity of ethical standards but also want to mobilize our teams. And I think we have 5 key priorities. Top of the list are people, including DNI agenda. So all 5 are equally important, but the people one is something that is probably top of the list for a reason. We have 10,000 key audience. Our assets are really are people, plus some of the technology we're investing in. And clearly, we want to promote the diversity inclusion agenda. We want to make sure that we have more people from a diverse point of view, working into the gaming industry. So taking steps along those lines. If I take very concretely 4 actions that we have taken in 2021 and starting to spend this year with even more intensity. The first one is you may have seen, but we got an A rating moving from BBB in the MSCI ESG ratings, which is good progress. Now we still have quite a bit to go, but an area of focus for us. We've also established a partnership with Women in Game, where I'm very proud of this, and I'm with the team later this week, spending a few hours with them. On there, we have also -- this is a broader partnership where there are about 500 champion in the industry that we want to leverage on much more. We've also defined our first environmental policy and energy policy for the group. We are in the process right now benchmarking each of our studios against the type of standards that we're going to have. So that's the first step to make sure that we can assess where we stand, but making progress on that. Joe and myself have been visiting a lot of our studios. We're looking at opening a new presence here in London. We are looking at Katowice, where we just signed a new lease in Poland. We're absolutely making sure that the right standard of sustainability have been set from the get go. And then probably what I'm most proud of is how much the team has stepped up in terms of how [indiscernible] when events happen. So we've seen that in the space of COVID, where the teams in India, for example, have set up different COVID clinics immediately with the absolute urgency, when the hurricane hit in New Orleans, the teams was there as well. And more recently, in Ukraine, how much the team stepped up in terms of putting the right -- all sort of initiative where we have matched within Keywords to make sure that we can develop on the efforts being done there. Beyond that, we have an ESG committee that is in place where we have led by George, Joe and myself a strong part of that. And we have 2 of our new [ Ned ] have been joining that as well, Marion Sears and Neil Thompson. So on that, I'll pass on to Jon to cover the financial review.

Great stuff. Thanks, Bertrand, and good morning, everyone. I'll now run through the financial performance of the business in 2021 in a bit more detail. As Bertrand mentioned earlier, total revenue for the group grew by 37.1% to EUR 512.2 million. Organic revenue, which excludes the impact of acquisitions and currency movements, grew by 19% in the year. And as I'm sure everyone knows, Revenue growth in the first half of 2020 was held back by the studio closures at the early stages of the pandemic, particularly in our audio and testing businesses. But nonetheless, we've seen very strong demand throughout the year, particularly in the content creation services service lines, such as game development and art as the industry focused back on content creation following some of the delays and the disruption in 2020. Adjusted EBITDA, which excludes depreciation, amortization, share option expenses and M&A costs, increased by 48.4% to EUR 110 million, reflecting operating leverage from the revenue growth, but also the short-term benefits of a reduction in certain costs such as travel, marketing and some property costs due to COVID-19. This resulted in an EBITDA margin of 21.5 percentage points, representing an increase of 1.6 percentage points on the prior year. Adjusted profit before tax increased by 56.4% to EUR 86 million, with the margin increasing by 2.1 percentage points to 16.8%, and now this is above the group's historical margin delivery of 14% to 15% and partly reflects the short-term benefits from the cost savings I mentioned earlier. But nonetheless, it's a really nice position to be in, but it's not necessarily sustainable in the long-term. Profit before tax on a statutory basis increased by 47.7%. Pleasingly, the business generated adjusted free cash flow before tax of EUR 92.3 million, marking a good improvement over last year. And I'll provide a little bit more detail on the key pieces of the cash performance in a few more slides. So we've now turned to the service line performance. The art service line grew by 24.4% organically, following a continuation of the strong underlying client demand that we saw in H1 across all of our art studios. We continue to expand this service line with the addition of new studios in China and India to help us expand to meet the demand that we're seeing. We are now reporting marketing as a stand-alone service line for the first time in these full year results and with it delivering a very impressive 37.7% organic revenue growth. This follows a disruption in the first half of last year and as clients switched their focus to online and digital marketing in the absence of physical industry events. Game Development, our largest service line, delivered a strong revenue performance with organic revenue growing by 16% with a renewed focus on content creation driving strong demand for our services despite the curtailment of our usual trade show centric business development activities. However, our ability to meet this demand is being constrained by a challenging recruitment climate where skilled resources are in high demand, and the focus is on building out our recruitment capabilities in each of our markets to help us meet the demand that we're seeing. Organic revenue in our audio service line was up 27.4%. Our Audio services business recovered strongly following the COVID-19 impacts throughout 2020, but particularly in the first half when a number of our recording studios were closed during the lockdowns and as it took time to put in place our remote recording solutions. Our music and sound businesses have continued to grow, as did our work in dubbing and subtitling of the film and TV content, where we serve clients such as Netflix. Functional Testing delivered 17.2% organic revenue growth, and this strong performance was delivered against softer comparatives, given the service line was considerably constrained at the beginning of the lockdowns in the first half of 2020, where we needed to work through agreements with our clients to reflect the new security protocols for remote working rather than our norm of conducting these services in secure testing facilities. Organic revenue growth in our localization service line recovered in 2021, up 12.2%. This improvement reflects the reflow of certain projects that were delayed in 2020 when production schedules were disrupted at some of our clients. Localization Testing delivered a better performance in 2021 with organic revenue growth of 16.7%. This service line, in addition to facing similar constraints as functional testing in H1 2020, has also been impacted by reduced native language resources due to people returning to be with their families in their home countries and the subsequent travel restrictions that we've been experiencing. And finally, Player Support continued to grow in the full year, delivering 12.7% organic revenue growth as it benefited more directly from the increase in game players that the industry has seen, while it successfully transitioned in 2020 to remote working, and that enabled us to provide continued support to our clients throughout that time. So now turning to cash flow. In overall terms, free cash flow, which includes all operating expenditure, CapEx, tax and interest payments, increased by EUR 7.3 million year-on-year. This was driven by a EUR 35.9 million increase in EBITDA and a EUR 13.5 million improvement in working capital, albeit offset an outflow of EUR 5 million on MMTC tax credits that are received a year in arrears. We did see a EUR 5.5 million increase in CapEx, reflecting the increased size of the business and a return to more normal levels of spending following the COVID-19 disruption in the prior year. In 2020, the group benefited from timing differences on tax. And as a result, carried a much larger than usual tax creditor at the end of that year. As a result, cash tax in '21 increased by EUR 19.4 million versus 2020. This all resulted in an improvement in the adjusted cash conversion rate to 107.3% from 97.2% in the prior year. Spend on acquisitions in the year amounted to EUR 63.1 million, including EUR 14.4 million of deferred consideration in respect to prior year acquisitions. This resulted in a net cash increase of EUR 2.7 million in 2021 versus a net cash increase of EUR 124 million in 2020. Now as everyone will not recall, our successful equity placing in half 1 of 2020 resulted in net proceeds of just over EUR 110 million, which was used to pay down drawings on the RCF and was a principal driver for the cash increase in the prior year. A quick -- few comments on M&A. Alongside our organic growth, growth via acquisition is at the heart of Keywords strategy. And you'll see from this slide that we have a very strong track record of delivery from the 56 businesses that we've acquired since IPO, with the graph on the left-hand side demonstrating how we brought these businesses together as a platform for significant organic growth with the businesses growing at an average of 15% per year since IPO organically. We target businesses that will add to our client offerings, whether through capability, scale, reach or access to talent, and we target businesses with the right culture that we can plug into our platform fully integrating them to release their potential. Since EUR 110 million fundraising in 2020, we've acquired 12 businesses for a total maximum consideration of over EUR 200 million. Our more recent focus has been on game development and marketing and game development, where we're not yet at scale, and marketing services, where there's an opportunity to create the first global marketing capability for the video games industry. It should therefore be of no surprise at all that 11 of the 12 acquisitions were in these service lines. Our strong cash generation and the RCF leave us with funding to support our strategy, and we have a very strong pipeline that we're actively reviewing with a particular focus still on marketing services and game development, albeit we will continue to look at the right opportunities in other service lines as well as technology that we can bring in to augment our services. And finally, a few comments on the funding position of the business and guidance. At the end of last year, we increased our revolving credit facility to EUR 150 million from the EUR 100 million available from the previous facility. There's also an accordion feature that allows us to be extended by a further EUR 15 million subject to lender consent. We exited the year with a very strong balance sheet with liquidity of over EUR 250 million through a combination of the net cash of EUR 106 million and a further EUR 150 million from the RCF, which is completely undrawn. This, together with the cash generative nature of the business puts us in a strong position to continue to invest in the business and execute our acquisition strategy. And now a few elements of guidance for the remainder of the year. We've made a very strong start to the year and expect demand to continue to be strong across all of our service lines. Total revenue is also benefiting from the recent currency movements and particularly the strength of the U.S. dollar. The adjusted margin, PBT margin, is expected to return back towards the 14% to 15% historical range in 2022, as some costs return and as we continue to invest in the growth and capabilities of the business. The adjusted effective tax rate is expected to be in line with the rate in 2021 of around 21%. We're anticipating CapEx to continue to similar level to 2021 relative to revenue, reflecting some expansionary CapEx and investment in equipment to support the growth in the business. But overall, we're expecting to maintain an overall adjusted cash conversion rate of around our 80% target. As Bertrand said earlier, we're clearly monitoring the situation in Russia, where our game development teams located there continue to work exclusively for customers outside the country. But in parallel and in close partnership with our clients, we've been actively looking at relocating some of that work to other locations across the group, where we can, which benefits from our local global footprint. Notwithstanding the uncertain situation in Russia, given the strong underlying trading across the group aided in part by favorable currency movements, we're confident of delivering performance for the full year towards the top end of the current market expectations. I think that's probably enough for me. I'll now hand back to Bertrand, who's going to spend a bit of time talking through the strategy.

Thank you, Jon. Thanks for that. So I'll cover the strategy historically of [indiscernible]. I'll quickly run through a few of the growth drivers that we're seeing in the industry and how I think we are playing to that, before sharing a little bit of a preview ahead of the Capital Markets Day about some of the 5 areas that we've been focusing on to keep evolving our strategy and then sharing a bit more about the outlook. So if I go back to strategy. I think one of the strengths of Keywords has been to position itself as the go-to provider for technical and creative solutions for the video game industry. And you have quite a few things in there. The first one, as I mentioned, I'm getting to fully appreciate is the unique end-to-end solution platform that is in there that is valued by customers. More and more are coming to us asking if they can -- at first maybe in a couple of service lines but then progressively valuing how we can accompany them across their journey. What we see as well is more and more publishers and clients are starting to get structured towards in favor of our business in terms of starting to think about how can they work with partners like us to maybe offload some of the assets that they have or the head count that they have on their team where we can take some of this on. But you can still sense more and more professionalization and organization towards that. I think we have also a very strong set of resources with the 10,000 key audience that we have with the proximity. I'll share a bit more about the firepower we have there in terms of global footprint, in terms of type of teams that we have in place. All this in its own right then attracts, I think, the right type of employees who want to work in that type of environment. But it also attracts on point number 6 the right type of targets, as Jon was alluding to. I think all this gives us a very resilient business, highly diversified, geographically, but also in terms of client base. I would like to call it the picks and shovels of the industry, which is really experiencing the gold rush right now, which I think is a very good position to be in. My own way of looking at this is starting to look at it as a flywheel or is a network effect. First of all, I think there are very strong barrier to entry in this business that I'm starting to realize. It's not like you could set up right away in this and actually create that type of platform. This has been years in the making. But if -- once you start at the top from really quality type of work, quality engagement, quality propositions that you can offer and solutions to our customers, then all of a sudden that attracts some of the best publishers to the table. You'll see 23 of the top 25 publishers that we work with, with long-term engagement as well, which then in turn attracts the right type of talent that want to work in that environment, where they know they are going to work on the best titles, they know they're going to get longevity as well into Keywords Studios. At the same time, I think it really attracts the right type of targets from an M&A point of view, which fuels then getting a better proposition in its own right. So I think there is really a virtual wheel that we are building on in here. Now bringing this to life more specifically. We have 8 service lines that we've been focusing on. We've been building that over time. First point I would make on this is, I think it's well balanced. It fits with the game life cycle and what our customers and clients are expecting from us. We've been building as well towards more and more value-added services across the value chain. You can see the investments that we have made over the last 3, 4 years in particular in terms of game development with high-margin proposition, very high demand from customers. We are starting to make investments on the marketing side where we start getting closer to scale, even with some gaps that I'm quite excited about filling in. We are more and more embedded as well into the workflows of our customers, which I think is very important if we want to have sticky propositions and really working alongside them as true partners. And you see that in many examples, we have one of our studio high-voltage software out of Chicago, about 135 developers. They are the biggest partner of Fortnite, Epic over multiple seasons now. So it's really a united team where you would be a pain almost to know who is from Keywords or from High Voltage versus was from Epic on that, which is a happy place to be as far as I'm concerned, and I want to build more towards that. You see more and more teams being embedded. You see more and more co-development starting to happen. You see us having technology capabilities where we can help clients on difficult technical problems that they have as well on their side. So I think all that is the direction of travel that we want to keep building upon. And at the same time, we're seeing new customers. I know a few of you were GDC at the Game Development conference last week, and I visited 3 customers where in the early stage, they have about 40, 50 developers so far, but they're starting to think about how can they build a team of 400, 500. They are not going to hire those teams, but they're starting to reach out and saying how can we help come to the party and build those teams effectively together. Likewise, if you take the geographic footprint, I think this is 1 of our strengths we want to build on in terms of scale, in terms of depth, in terms of reach. We have had about 9,500 key [ wordings ] on average across last year. We have now passed the mark of 10,000 key wordings, which we celebrated recently, even 10,500 now. Why does that matter? I think from -- put it from a client lens point of view, this allows us to deploy resources internationally very quickly whenever they need it. It allows us as well to have the choice between proximity for our customers, take in Montreal. Some of you have been into a facility where we have now 3,000 people, 2,000 testers, for example. Many clients value the proximity of the team. But at the same time, it allows us to offer some onshore, offshoring based on pricing, but also more importantly, for customers based on the flexibility to be able to deploy the work across the network rapidly. This also allows us to have -- to attract talent across different geographic footprint. We've seen some talent who wanted to move around, wanted to work from several geographies to move into Spain to be able to do an assignment there. We've opened up, you've seen from Jon, some of our capabilities with Tantalus and Wicked Witch in Australia, where we're building up. So you can sense more and more of this coming up. And I'll make a span point as well for our audio team, which is more and more clients are trying to reach more players, more customers at the end of the day. So having that footprint, the right language across the network allows us as well to be able to do localization in more places around the world. Now this one is probably the -- this slide that to me convinced me to effectively join back in mid last year to join Keywords. I think this is a very important one. We are serving 23 of the top 25 publishers. We're working with [indiscernible] the top 10 on the mobile side. On top of that, we also have the Epic of this world, you also have Riot. You also have Tencent of this world that we work very closely with. I think maybe a number that is not on there, but what I value a lot is the stickiness of our proposition. Roughly 80% of our business is repeat businesses that happens just because of the relationship of our studios with our clients because of the type of proposition because of more and more extended partnership being developed with them, which I think is a very important one, including in terms of quality of earnings, but also for us to be able to predict how we keep evolving our business. On the right-hand side, what you see is we keep increasing metric we've been showing for some time, the number of studios, number of clients we are using 3 or more of our services now reaching more than 130 of our clients among the 900s with a long tail as well of customers with about 950 customers in total. But that's quite interesting, I think. And beyond the numbers themselves, what you see is like how much this propagate, which I think is very interesting for me to study. We also are highly diversified. Even now in the context of Microsoft acquisition of Activision Blizzard, King, even with Take-Two and Zynga we still have hardly any customers taking more than 10% of our business with the top 5 taking hardly 30% of what we have. So a good, well-positioned, I would say, of diversification. But this allows us to build. And again, beyond all this, this allows us to attract the right type of talent and the right type of acquisitions as well. We want to work with those clients longer term, especially in the current world, where many of them have really a choice. So now touching on the market growth. There are 3 key points I wanted to deliver about this side. And I know I've had a question even before starting on does the time look like? What does the market look like? I'll try to bring a little bit of a perspective and we'll share more at Capital Markets Day on this. So firstly, what we observed is about 9% growth CAGR in the space. Right now, very strong demand that is mostly driven by a strong appetite for content that if anything is going to increase substantially. You see content coming in different ways. You see it in terms of more and more technical, complex type of content that is being required. You see as well the streaming platforms coming up quite strongly. You see, again, taking on Microsoft propositions like Game Pass, where you get more and more subscription base, where -- and Sony doing their own repays that you've seen where this movie is going into in terms of Netflix and other subscription base. It really creates a battle for content. I'm not even touching here on the metaverse. But many of those strengths are naturally creating that big drive for the space we are naturally in. In terms of TAM, you see a business that will probably be above $200 billion. But looking at that specifically, we estimate it to be around USD 35 billion, of which USD 11 billion is being outsourced right now. So while we're still -- by far, I think, the business leader, the leader into that space right now with EUR 512 million. This is only 5%, 6% really of the total market that we sit in right now. So that's why I'm excited as well about the potential that we have behind in terms of acquisition, but equally in terms of organic growth and keeping building the propositions we have. And beyond that, what is important to me in terms of trend that I'm -- the more I get to talk to customers, the more I realize that is how much they are structuring themselves, as I was alluding to earlier, for taking advantage of partners like us that can help us manage the complexity of their project as well and their own growth in the sector. To bring that to life, specifically, I was talking to a few publishers last week, some of the biggest ones, and we were going through some of the key pain points. And the thing that really stuck with me most was how many now need teams of 500 plus to get a game to market with more and more complexity where they need to get the portability done, to be cross-platform by time of launch on day 1, more and more languages to reach their players and often with delays, as you know, in the industry that can reach 1, 1.5 years, even on [indiscernible] meant to be launched on a yearly basis. So that's why many are reaching out as well, looking at how can we remove some of the pain points that they are facing from that angle, how can we step in, how can we provide some of the resources and some of the technical solution associated with that. So I expect that we'll see more and more of that coming in. I won't go too long on this. I mean this is what we covered previously. I think that's where probably the mirror of the previous slide of how much we're equipping ourselves with the capabilities to be able to take this on. And as you can see on the right-hand side, growing significantly faster than the market itself. Now I wanted to take a bit more time on this slide. It's a very high level for now, but this is what I was referring to earlier. So we've been mobilizing a team of about 50, 60 leaders across Keywords right now, across what we call Jon and I, the 5 work streams. So I think we have a business that is doing very well in its own right, as you have seen, much more to come. But there is -- there are many more opportunities to go after. And that's why we wanted to take a breadth to really explore those and to look at how do we organize ourselves, how do we put our resources, what kind of choices do we want to make to take this on. The first one is about strategic partnership. This is, as you've seen often, we do -- we have different service lines serving our customers. We often have even 5, 6, 7 studios serving the same customers as such. But I think there's so much more to go after. We can organize ourselves better. We -- I want to have much more discussion at the [ CXO ] level. I want to have much more of the QBIs. The tangible example of that is one of the leading publishers 2 weeks ago in Montreal asking us to have a session where they would showcase their pipeline up to 2027, very openly and then reversing the pitch to us instead of us coming with spot proposition or specific studio to [ say ] Keywords, what would you do based on the pipeline that we're showing to you right now? How would you assemble the right type of solution? So we're thinking internally how do we adjust some of our team, some of our skills, how do we build solution architects, solution producers to be able to take that on and harmonize that type of work. But I think there's much more value to go after, much more value to be created together based on the pain points for our clients and much more value to be captured there. The second piece that you probably won't be surprised from my background to go after is technology. And this is a topic we'll talk about more. But in short, there is some basics that need to be -- that is in place right now with Keywords, but we want to keep evolving that. We want to accelerate on that. How do we have the right workflow -- workforce management systems? How do we have the right digital asset management system into our own house? How do we think about automation at every single step of the platform that we have right now? Example of those in translation in [ TM ], for example, we do -- we have a business called KantanAI. How do we use that much more? We recently won a very big pitch with big publishers by leveraging the strengths of what we have on the technology side with our localization team. We have that across each of our service lines, but it is subscale. So -- and a lot of it has been -- we haven't put a lot behind it. We haven't necessarily put the investment behind it. So how do we step back and really look into that? And likewise, I also want to look at it from a customer lens. What are the type of technology that are popping up in the market. Where they would want us to invest in those and to be able to address their needs. All this backed by the right backbone in terms of capabilities as well. A quick word on the third one on the right, adjacent markets. So first and foremost, I should flag that the absolute focus and my absolute focus is into the gaming space. Our DNA is into gaming, will always be, it's -- you see, we've a great market ahead of us to go after on that front. So there is an opportunity cost to look outside. But there are some natural adjacency where I would -- I think it would be remiss not to at least explore. Some like movie and entertainment is a natural one, where you see those 2 worlds converging one and one. You see the Netflix of this world, the Amazon of this world getting into the gaming space and being incredible producers of content. And actually, in fairness, we already do a lot in M&E even without having ever announced it across several of our divisions, including in Audio, including in Localizations. So should we go and push the accelerator on that or not? Is that something that we're looking into. Likewise, we're looking at virtual productions. We're also looking at pieces like live ops, especially in the world where you get more and more GaaS, game as a service, production happening. Officially, we launched 1 of our new studios at GDC on Thursday last night called Lively, a spin-off of Entity at Electric Square here in Brighton exclusively focused with the team, exclusively focused on live operations associated with that. We're also looking at the metaverse. I'll be very happy to talk about it more into the Q&A. There's a lot of hype. There's a lot of noise around that, for obvious reasons. I think we're not in the space of creating the architecture behind it. But when you map it to the service lines that we have, I think we could be very well positioned almost even passively, but I want to put the right team behind that to explore how can we take that on across the different service lines that we have. So maybe more on that in Q&A., if relevant. The next one is One Keywords. So this is a big one culturally for us as a team. And maybe my absolute starting point on this is we are -- our strength and our magic sauce lies into the entrepreneurs that we have within the business. The entrepreneurs who are joining us were part of our studios. But at the same time, how do we build the right spin so that we can make them more efficient? How do we take some of the work in terms of HR, in terms of IT and funds for them when they join? Many of them haven't set up a studio to work on that. They really want to work on the creative content, on the creative process associated with that. So we're looking at how do we build at spin, how do we build the right business partnership and the right backbone to be able to do that and also to scale over the long term. And finally, talent. Talent is the name of the game. That's what we stand for. So we're looking at various areas in terms of recruiting, how do we attract, how do we set up the right academy. We already have places where we are teaching classes at university and game development from our own studios. How do we set that up in a more systematic way? How do we take a longer-term view on attracting talent and raising them all the way to seniors, which is what the market is mostly looking for? How do we retain them? So in terms of carrier development, we see a lot of very good and encouraging activities across different of our studios, but how do we set the best practices and systematize that much more. But clearly, a very important topic, including in terms of leadership development over the years ahead. So again, we'll share all this and we'll bring all this to life more at the Capital Markets Day. Maybe one last piece before moving to Q&A, I'll share a few things in terms of our outlook, looking at 2022 and beyond. Jon already covered this in terms of how we've been performing across the different service lines. I'll just add maybe a few commentary around those. The Art business, we touched on it. There is more and more need for creative content. There is more and more need for technology as well associated with the Art itself. We've had a very strong beginning of the year on that front. I think we have some phenomenal studios. Some of you were mentioning VOLTA earlier, Liquid Development in the U.S., Lakshya is a great 1for us, and we have a great operation in China as well. Marketing, I'm very excited by this because I think this is a new service line. As Jon said, we are only starting to present it as a service line for the first time now. We're starting to get to scale in this side of the business, especially on the content creation side. So we have about 5 of our studios now are getting well known in terms of capability to do trailers, life in game engine. Some of them are in London, if you ever get a chance to visit them, but it is really impressive to see. Likewise, we have a good run rate now in terms of strategy, in terms of some of our peer studios that we have. But candidly, we are still largely subscale in other areas. We're nowhere yet in terms of performance marketing. Hence, the excitement that I have on the acquisition of Waste here in Farringdon that we did in community management very recently. But there is also much more technology that we want to bring into this. So I want to build a 360 capabilities here specific to the gaming industry. With a gaming DNA, I think there is much more to go after. And maybe a note in the good beginning of the year, but at the same time, we are careful as well not to over heat that service lines because they've had a tremendous year already last year. We also want to make sure that they grow with the right management structure as well across the service line itself. Game Development is one of the most important one. It's been one of the fastest-growing one, already 27% of our business. What I would say there is like a strong -- it's probably the area where we had the strongest demand. Unfortunately, the world is short on supply of quality talent on that front. So that's where we're spending so much time on focusing on talent. That's really the name of the game. But a very strong start. And it's the first time, I think, Jon, that we are seeing such a natural book of revenue that is already locked in for quite some time in the division, which gives a good prospect for what is ahead for the rest of the year. And finally, on this slide, Audio. I touched on it. I have to say when I joined, I thought that there would be much more technology coming into the Audio piece, and we will. But also good to appreciate spending time into our audios -- studios into our booth and spending time with actors as well, which is a job in its own right, to manage a pool of thousands of actors, extremely professionally organize the payment and others. But clients really value the high-end quality audio that we are providing. And I got to appreciate how much there is a specialty here that is really needed, especially when more and more publishers are looking to extend the reach towards their players. And finally, I'll take the first 3 together in terms of functional QA, in terms of localizations and LQA. What we're seeing there is, Jon alluded to it, is we've had, especially after a break on content in the early part of 2020, we've seen a strong resurgence of more content with more players in the market. And all this is starting to come to us. And hence, we've seen in particular in FQA a very strong first couple of months, which is a result, I think, of many titles that now have to go and hit the market fairly closely. And Localization, probably the push there is driven by, again, more and more appetite to go and talk to the right -- to have more and more players on board. Finally, Player Support. One of my surprisingly favorite one, many would think about Player Support as being customer support where BPOs could step in and do that in a very traditional way. I think the gaming DNA, there is absolutely paramount on that. At the end of the day, that's where the rubber hits the road. That's where you're really talking to players, especially VIPs in free-to-play as well of how much spend is happening at that time and where you can unlock experiences and transform a bad experience into a good experience. More and more spend goes as well in terms of community management. I suspect you'll see more and more of the marketing spend finding its way on that front. And that's why, again, Waste is an interesting one because it touches on community management. It joins Marketing and Player Support, which frankly actually see as one and the same to some extent in terms of how it's going to evolve. GDC again, if it's any metric last week, was also a good indicator where I was surprised by how many meetings ahead where demand was really, really strong on the Player Support side. So this one, I'll go very quickly. But the main point of this is I think we have a strong track record over the past years in terms of delivering consistently typically between 11% and 19% in organic growth, close to 40% CAGR in terms of adjusted PBT. So we hope to be able to keep building on that record going forward. And finally, to close in summary of what we've been discussing so far. We've seen a positive start to 2022 so far. Notwithstanding Russia, we're confident about the performance being on the high end of expectations as discussed. We see strong margins moving towards the 14%, 15% area that we have. We're in good position so far. But at the same time, the world reopens up, I want to make sure that the guys go to GDC, go-to event, travel, get to see clients and also make the right investment where we need to for the long term. We are well funded in terms of acquisition. There's a healthy pipeline, a healthy hopper behind. We have a strong balance sheet to take this on. Well positioned in what you've seen is the growth market of probably EUR 35 billion, EUR 11 billion into a type of area. So how do we take that on? And I really look forward to spending more time with all of you, with some of you on the virtual screen as well at the Capital Markets Day, which we'll be hosting on June 8th here in London. So on that note, we'll move to Q&A.

Just in terms of Q&A, we'll pass through on the mic, but we've got one question online maybe we just start with. So can you comment, and this is from Patrick O'Donnell, Goodbody. Can you comment on the level of strategic outsourcing you're seeing across the business? You previously alluded to this on functional testing in North America. Are you experiencing this in other service lines such as a Game Development or Art Services?

I can start. Yes, we're seeing more and more of this. I think the discussion I was alluding to with some of the publishers last week is a reference to that. They were literally going through the pain points that they're experiencing, including in game bet in particular, where there will be a lot of spend over the next 36 months. And the pain point that they are facing, if you start from a customer lens, is needing 500 developers to get a AAA game to market, more and more delays, more and more complexity, more and more needs to land everything at the same time. And coming to the realization stuff, you cannot just do that on your own. So it doesn't scale very well as a model. So I would expect that we'll see more and more of this way beyond functional testing or testing in general in that capacity. I would also expect to see more of the marketing budget moving that's why I'm excited about Marketing Service line and Player Support moving as well to a different set than this right now. So I think it is across the board. Again, I'm coming back to the TAM, EUR 11 billion basically in our area being outsourced, and we're only really scratching the surface on this being EUR 500 million. This is, I think, what attracted me to that space in the first place.

It's Will Wallis from Numis. Two questions from me. Firstly, to talk about the TAM, you have presented -- not you personally, but Keywords presented TAM numbers before, which are considerably smaller than the numbers that you're presenting today. So I'm just keen to understand how you've come to the total that you've come to today? What have you included in that? And if you could just discuss a little bit more about why it's perhaps different from what you've previously seen. Second question is completely different. If I look at the acquisitions that you undertook in the year. You paid EUR 126 million or so for around about EUR 40 million of revenue. So you're paying about 3x revenue on average, which is some way higher than the historical levels. And you -- it sounds like you're continuing to look at the higher-margin areas like Game Developments and Marketing Services. So should we think about that as being kind of a likely sort of a multiple that you might pay in the future? Or has 2021 being unusual?

So firstly, for the TAM. Look, we stopped talking about the previous TAM because we knew that we had dramatically undersized it. We actually did 2 pieces of work. We did some our own internal research, where we started to try and look at what publishers were spending on R&D, which is typically the types of spend for Game Development, Arts, often Localization testing goes into that R&D and look to that as a percentage of revenue and try to then correlate that to size of the industry as a whole, and we came up with an internal view. We then actually commissioned some market research. I think we quoted the company in the charts that we used. And comfortably, they came back with a very similar number, but going through a much more rigorous process that was a combination of quantitative data that they had, but also interviews with clients, et cetera, to try and build it up on a more bottom-up basis. You got to treat it as directional, if it's EUR 30 billion, if it's EUR 35 billion. The point is it's a very, very large amount of spend and Keywords is very small. So we think it's quite an exciting opportunity for us both to increase our share of the current services that are being provided by external parties. But also, as we've said over the years, we are seeing this gradual trend to using more and more external provision, and therefore, there's an opportunity for that EUR 11 billion to grow into that EUR 35 billion. Coming on to M&A. I think from a valuation perspective, we look more at the EBITDA multiples, honestly, in terms of the way we benchmark the deals that we're doing. You're absolutely right, though, the focus on Game Development particularly, which tend to be higher-margin businesses, does mean that if you're paying similar multiples, the revenue multiple does increase a bit. We're not actually seeing a great deal of upward pressure on valuations at the moment, but there is clearly a lot of demand for Game Development type of businesses out there.

Sorry. So we have a question, firstly, online from Nick Dempsey, Barclays. So can you explain a bit more about the push to new content in the industry right now? Is it simply the pandemic causing some delays and we're now seeing those games? Did the pandemic drive more engagement? Or is it approach to free-to-play and live service games?

I think I'll start and maybe, Jon, if you want to complement. But I think it's a mix of things. It's more players in the market, so there's been an appetite to get more content on there to capitalize on that. I think you have newer players coming in as well, including some coming from the other industries, like Netflix, Amazon coming into the fray. I think you're right, there's been some delays as well on the back of COVID, which is we're starting to see that coming up actually right now associated to that. But I think there are more fundamental trends as well. There is also more and more move into GaaS, which we serve more and more game as a service, which is a continued stream of content. So it's not just a one-off, which actually makes it much easier for us to plan our resources to have the right communication with clients to be on-boarded to have those type of teams, as I was referring to at High Voltage, for example. So I think it's a combination of all of those, but we see it coming quite strongly. I would predict that. But we start having discussions under the radar, they haven't materialized yet, but more and more coming from outside of the industry of gaming thing, how can we tap into the gaming engine and gaming capabilities as well to create content for gamified world going forward. So this is probably looking at on the longer-term piece of that, but it has been very strong.

I'm Bridie from Stifel here. I just wanted to talk to you about wage inflation. And this is something that you started talking about last year, and obviously, we're seeing it across the entire sector at the moment. But it really didn't seem particularly evident in your gross margins last year, which increased, I believe, 1 percentage point or so. I wondered if you could just add a little bit more color. I mean you mentioned it could be an issue in Game Development, but we're hearing more widely that we're seeing the other businesses are seeing it across QA and really, really across the board. So can you maybe sort of quantify your expectations a little bit this year? And if we're talking about double-digit rates, which Team17, for instance, pointed to this morning. Realistically, is that something that you can pass on in your rate card to clients?

Would you like to do that?

Yes. I mean look, every business in the planet is dealing with wage inflation and inflationary pressures at the moment. I think it's very hard to put a number on it because we've got lots of different markets, 23 countries and different service lines that are experiencing slightly different pressures because of the type of labor that they employ. I think it's fair to say on the Game Development side, that's probably where we're seeing it mostly pronounced or more pronounced. These are resources that Bertrand saying they're in high demand. And so if you're in high demand, you're able to command higher salary points. We are fortunate, if you like, in that particular business is project-based. So we've got a natural opportunity to increase our rates if we have cost base pressures when we renew projects. We've actually been able to increase rates on some existing projects as well. So we don't always have to wait, but that's a little bit harder to do. And look, as Bertrand's been saying, I mean, the GDC, the consistent theme coming back everybody I spoke to was there is so much demand for content and scarce resources. So to a certain degree, our customers really need us. Price is not a -- this is not a service that's historically been particularly price sensitive, and all of our customers are experiencing the same thing as well. So I'm not saying it's easy. But certainly, I think we've got a good opportunity to pass those on. There's always a bit of a lag. And so I think there might be a bit of short-term margin depression because of it. But certainly, we can accommodate it comfortably within the sort of guidance ranges that we're giving.

I wonder that just maybe to add to Jon's point, it's like it's through a lot of discussions we're having at GDC with clients in general have been more about how do we build, take on those pain points that we talked about, which are different than a pricing discussion there really about how do we get more flexibility? How do we have all those delays, which are way more cost, if you take it from a client lines point of view? The reason is while I keep anchoring on the 5 work streams. And again, we'll have more at the Capital Markets Day. But it's also to take a longer-term lens on this. So that's why I want to make sure that we invest in technology so that we can also be ready for that. We are not only depending on just growing doubling the talent pool that we have for doubling the size. That's why we're investing in strategic partnerships where we can be at the table to have those discussions and to see how do we split the pie basically as those kind of events happen. And that's where also the geographic footprint that we have helps because we can also alleviate some of the concerns in probably higher inflation regions to make sure that we have the right presence locally but also onshore offshoring to take this on. So I think it reflects -- you see the work streams that we're taking on, hopefully also partly reflect to address that on a long-term view.

That actually leads quite neatly into my second question, which is just about investment in additional technology. And in terms of the approach there, are you thinking about acquisitions? Or should we be penciling in more CapEx? Or indeed, is it already wrapped up in that 14% to 15% margin target?

So that's something we'll share more at the Capital Markets Day as such. We're doing the exercise right now to look on a 3-year lens of how much headspace do we have on that. Clearly, we want to underpin anything on at least the 14%, 15% margin that we have. A bit beyond that, some acquisitions we're looking at right now, some acquisitions we have already done, but I think have been subscale in how we've been utilizing them. Some on technology will be partnerships simply. So where the partners knocking at the door in look, we have a very strong tech stack as such, how can we use it more with the type of services and solutions that we provide, which I don't think would be dilutive from that lens, but how do we find the right type of partnerships there. And some will be talent. Some will be, how do we keep investing in talent in a technology mindset across the organization. I think we have many in our engineering teams with 1,500 engineers, how do we leverage it more as part of it. So I think it will be a mix, not necessarily heavy in terms of CapEx or investment as such. We want to be thoughtful about how we do it, but we want to take a 3-year lens on that.

Just we have a question online with sort of a number of these questions, so I'll try to combine them. That's mainly from Thomas Singlehurst of Citi. So it maybe something we're going to touch on the CMD, but when we focus on M&A run Game Development and Marketing Services, why wouldn't margins mechanically move up relative to the original 14% to 15% range? Or do we see this normalizing more in 2023?