Keywords Studios plc (KWS) Earnings Call Transcript & Summary

Good morning, everyone, and thank you to all of you in the room for braving the tube strike. I heard some of you even slept over in London as well to be here. So thank you for that. And thank you to the many of you on the screen as well for joining our year-end results. So Jon and I are delighted to share this with you. It has been a very good year, and at the same time, we have had a good start of 2023. In terms of agenda, I'll start by sharing a few of the highlights. Jon will go in much more details on the financial review for each of the 3 big segments: Create, Globalize, Engage. I'll then pick it back up on giving an update on the strategy and how we execute in compared to what we shared in the CMD when we were in this location together, before sharing the outlook and then moving into Q&A. So I think it's fair to say that we have delivered an excellent performance for 2022. We've been very active on the M&A front, as you will see. We'll show the details of that, with a very healthy pipeline coming in behind that. And probably most pleasing from my side is also the fact that, as a team, we have stepped up and starting to really deliver on the strategy that we laid out in June 2022. So all this, I think, keeps positioning us as the platform of record, the partner of choice for the industry. In terms of numbers, 34.8% growth year-over-year, of which 21.8% came in organically. A little bit of benefit and tailwinds on the FX, but very, very strong underlying on all other fronts. We've done an adjusted PBT of EUR 112 million, largely in line with what we shared effectively a couple of months ago, converting into an adjusted PBT margin of 16.2%. Jon will share the details of the bridge of the ins and outs of what has come into that. You'll see partly flatted by FX, but other elements coming in. But all in all, you'll see very comfortably above the 15% adjusted PBT that we have been guiding towards, so very strong underlying. This is converted into cash now to the extent of having EUR 82 million in the bank after having spent EUR 116 million effectively in terms of M&A over the course of the year. This is a slide that you have been accustomed to see. We've been showing in the last 5 years consistently. The main message on this one is that this is not just a one-off story. This is a story of delivering consistently year-after-year whether it is on the top line in terms of CAGR, as you can see over there. I would just warn not maybe to get used to getting to 20-plus percent every single year as such. But I think the main point is like we are very comfortably above the 10% guidance that we have been typically giving. Strong adjusted EPS as well, so converting on all the metrics. But again, the consistency is the main point of this slide. I'm sure many of you have had your eyes as well on the market more broadly, so we thought we'd share that and give a bit of more colors to it. If you look at the market overall, it has partly paused for breath in the EUR 200 billion market around the video game sector but after very, very strong growth. But actually what is the most interesting to me on this slide is actually the right-hand side. I always keep my eyes on the number of concurrent players that we have on Steam. And you can see it has been kept growing well into double digits over the course of last year. The players are there, the players are active, probably more active than ever. On top of it, you have seen the announcement on PS5, probably in the future on the next generation of Switch coming up. So there is a very strong base of players that is there in the market. Now probably more relevant for us is this slide, is when you look at our market. And you may remember we shared that at the Capital Markets Day: we operate not so much into the EUR 200 billion market, but we really operate into the content creation segment, which is roughly EUR 35 billion. Of this, roughly, we estimated that EUR 11 billion has been externalized to service providers like us, of which we're leading the pack, growing this year nicely to EUR 12 billion plus. So very healthy growth into the external service provision, basically, on that front, with -- still we see it up to 2027 a strong CAGR of roughly 9%. This is per the very latest IDG data that just came out in March. In this, we've been gaining share. We are roughly at 6% market share right now. So gaining comfortable share in that front, still comfortably ahead of all the competitors into the space. But the most exciting piece to me on all of those slides is the fact that we're still only 6% of the market in which we're operating. So that gives you a sense of the opportunity that we are going after. I touched on the acquisition front. So we have done 5 acquisitions in 2022 for a total consideration of EUR 140 million. Very glad to have also welcomed 47 in January 2023. So 6 additions more recently in the PR space, the leader into the PR space into gaming into the U.S. And all in all, really great addition to the Keywords family throughout the last 12, 13 months. At the top side, Jon will share a bit more, but you have 3 very strong high-quality game dev entities that have effectively joined us from Forgotten Empire, Smoking Guns, Mighty Games, where we have added capabilities, including in live ops, which you'll see is really key to us, where we are ready to double down. Very strong client base as well from Microsoft to Netflix. And also a very strong component on tech associated to those, all the way from Vancouver to strengthening our presence as well in Australia. On the bottom row what you see is with LabCom and 47, as we have been one of the leaders in the U.K, we've added presence now in Milan with LabCom; and in the U.S., a very, very strong player, with 47 coming in as well. And I'll touch on the Helpshift more later today when doing a bit of a double down on the investment that we have been making on the technology front. So on that note, I'll pass on to Jon to share more about the results.

Thank you very much, Bertrand. It's great to be with you all today. It's also a very sad day because it's the first year that I'm going to be wearing my glasses to read my notes. So a bit depressed about that, but there you go. I'll be taking us through the strong financial performance for the year, looking at each of the service lines in a little bit more detail and spending a little bit more time on margin, because there are a few moving pieces in there that we want to highlight. And then pausing a bit to walk us through M&A and how we're prioritizing the opportunities, before handing back to Bertrand to go through our strategy. So diving straight in. Some of you will be very familiar with these numbers following the trading update. But as Bertrand said, it's been another very strong performance last year, with revenues up 34.8% to EUR 690.7 million as we saw sustained demand for high-quality content and also benefiting from some FX tailwinds through the year. Organic revenue growth, where we removed the impact of acquisitions, grew by 21.8%, well above our medium-term targets, but again, flattened by around 3 percentage points from FX movements in the year and particularly the strong dollar. This was delivered by good performances across all of our service lines, which I'll walk you through in a little more detail in a second. But you'll see that all service lines are performing very nicely. This growth provided the foundation for a 33.4% growth in adjusted EBITDA to EUR 146.9 million, with adjusted profit before tax rising by 30.2% to EUR 112 million. Margins did normalize through the year and came in at 16.2%, which, as expected, was lower than the '21 margin of 16.8%. I'll provide a bit more color in a second on that so that you can see some of the movements. It was also really pleasing to see the profit growth translate into very strong cash delivery, which, again, I'll walk you through in a second. So now turning to margins. The headlines in '22 were dominated by global events, and these have had an impact on certain parts of our business and also on our margins. So in order to help understand the underlying performance, we presented a margin bridge as there have been some offsetting impacts in the year that aren't obvious in the headline numbers. So first to FX, and we flagged through the year that FX has 2 impacts on our business. The first is a simple translation. When we consolidate our local business performance into our euro reporting currency, and as rates move year-over-year, the reporting numbers can also move. The second impact arises when our studio billings are in a different currency to its cost base. And we have several studios around the group where we bill in U.S. dollars and where the cost base is in another currency. We've seen a period where the U.S. dollar has been strengthening, which provides a P&L benefit both in terms of the top line, but also margin. And we flagged in the first half that this has contributed to around a 1 percentage point improvement to our margins. But then the dollar did continue to strengthen in the second half and resulted in a full year impact of around 2.5 percentage points. This, as you can see, was partially offset by the cost of transitioning our business out of Russia, which impact margins by around 2 percentage points during the year. As we flagged at the half year, we expected the major transitional activity to happen in the second half of the year. It's been a big exercise. It's involved moving more than 400 people and their families to 3 new locations in Serbia, Armenia and Malta, as well as our existing operation in Poland. Our focus has been on protecting the work that we do for our existing Western client base and meeting our contractual commitments. And it's been a very disruptive period from a cost base perspective. At this point, we still have about 80 roles to move, and we're targeting the middle of the year to complete the exercise. But I'm pleased to say we're now in a position to take on new work in our new locations. And whilst there's still some cost to be incurred in '23, including a modest one-off charge to close our offices in Russia, we now have a really solid platform to grow from. Finally, as we've been guiding all year, we have the impact of certain costs post-COVID that would come back into the business in 2022, particularly around travel, business development and return to office costs, as well as some provisions for vacant property that is no longer being utilized, where we've continued to operate largely a work-from-home model in certain parts of our business. This is the first full year that we've reported under our 3 new service lines, Create, Globalize and Engage, having announced the change at our CMD in June and reported in this way at the interim results. We've also added a little more disclosure in terms of profitability in each of the service lines to try and help you understand more of the drivers in the business. I'll start with Create, which combines our game development and our services businesses, which are more exposed to the earlier stages of the development cycle. This service line represents around 40% of our group revenues and 40% -- 47%, sorry, of our adjusted EBITDA. As you can see, the business performed very well with 46.4% revenue growth and 25.9% organic revenue growth. Both businesses saw very strong demand, with Art services delivering a particularly strong performance and our recruitment efforts in game development allowing us to take on more work in a capacity-constrained environment. I've already talked through the move out of Russia in our Game Development business, which has been a drag on margins for the service line, although they remained healthy at 25.3% compared to 26.4% in 2021 and with an adjusted EBITDA growing by 40.2% to 49 -- sorry, EUR 69.7 million. We continue to focus on building our game development offering, and we're really pleased to bring 3 high-quality teams into the group in the second half of the year, with Forgotten Empires bringing live ops capability -- sorry, bringing experience in real-time strategy games, and Smoking Gun bringing live ops capability as well as access to talent in Vancouver, and the Mighty Games team supporting the scaling of our business in our broader Australia business. We expect to continue to see robust demand for our Create service line. And whilst we are starting to see a more cautious approach to investment in new games at the beginning of the year, we expect Create to remain resilient due to the quality of the studios and the talent, our strong client relationships globally, and the mix of high-quality IPs that we work on. Moving on to Globalize, which is our largest service line by the number of people and is focused more on the post production side of the industry. It brings together our audio, testing and localization businesses across 27 cities around the world. Total revenues grew by 29.8% to EUR 300.9 million, representing 44% of group revenues. On an organic basis, revenues increased by 23.4%, reflective of a period where each of the lines of business within Globalize performed very well, despite it being a slower period for new launches. This revenue growth translated strongly into profits with adjusted EBITDA up 30% to EUR 61.6 million and adjusted EBITDA margins maintained at 20.5% compared to 2021. We've also introduced new technologies like KantanAI to support clients as well as bringing in Mighty Games to be able to offer automated games testing solutions to complement our existing quality assurance offering. And Bertrand is going to spend a little bit more time walking through that later in the presentation. During the year, we saw the trend towards external service provision continue across our global service line. And even in a more constrained market environment, we believe this trend will continue over the medium term as the opportunity to move from fixed to variable costs for this part of their business will continue to be very attractive for our clients. And so last but not least, our Engage service line, which is currently our smallest service line and brings together our marketing and player support businesses. Again, the service line performed very well with revenue growth of 24.1% to EUR 114 million and organic revenue growth of 9.7%. H2 really continued the trend we saw in H1 with Player Support performing very strongly, growing its client base and expanding its work for existing key clients, with Marketing delivering a more modest performance. This was partly due to a very, very strong 2021 performance, where we saw the Engage service lines for Marketing growing by over 150%, but also reflected some delays in work in certain studios, which we're now starting to see come back through in 2023. Adjusted EBITDA rose 20% to EUR 15.6 million and adjusted EBITDA margin fell a little to 13.6%. We've continued to broaden our Engage offering through acquisitions, significantly increasing our PR capabilities with acquisitions in Italy and U.S., as Bertrand noted, as well as acquiring the Helpshift technology platform to create a holistic player support offering that we believe is unique in the industry. We'll continue to broaden the offering and collaboration across the Engage service line to be able to offer a holistic solution focused on driving and maintaining player engagements with our clients' games. Now turning to some cash flow. In overall terms, free cash flow increased by EUR 25.4 million year-on-year. This was primarily driven by the EUR 36.8 million increase in adjusted EBITDA. We had a EUR 0.6 million working capital inflow, although this was EUR 10 million lower than last year, driven by an increase in WIP at the end of the year due to the very strong growth, but also offset by a reduction in debtor days from a very good cash collection performance. We also continue to invest in the business with CapEx increasing by EUR 7.6 million, which has gone into expanding our footprint in a number of regions, and continued investment in hardware to support the growth of the business. Cash tax paid was lower year-on-year mainly due to phasing of tax payments returning to a more normal cycle following the COVID period. And together this meant that our adjusted cash conversion rate was 100.1%, a significant rise from H1, as we expected, and well above our full year guidance of cash conversion rate of around 80%. And in terms of deploying that cash, as you know, M&A is a core part of our strategy, and as we noted earlier, we completed 5 acquisitions in the year, which resulted in an increase in our spend on acquisitions to EUR 116.4 million in the year. Of this, EUR 25.8 million was in respect of the cash component of prior year acquisitions and EUR 3.1 million was linked to acquisitions and integration costs. This meant that despite a very, very strong cash performance, we did see a small reduction in our net cash position to EUR 81.8 million from EUR 105.6 million at the beginning of the year. And together with our EUR 150 million RCF, this leaves us with a very strong financial position to continue our value-accretive M&A agenda. And also, just to note, we don't have any exposure to the Silicon Valley Bank, which I know has been a hot topic over the last few days. Before I hand back to Bertrand, I did want to spend a couple of minutes touching on our M&A agenda. You've seen this slide before, but I think it really highlights how our M&A program has enabled us to build out our platform systematically, moving our focus into new areas of the business in order to improve our capabilities and our scale. And looking at our focus moving forward, they really remain unchanged from what we said at the CMD in June. We've continued to -- and we've continued to execute against them. In Create, we continue to look to build our scale and capabilities as well as our geographic footprint in order to get access to new talent pools around the world. And as we've already talked about, we've completed 3 deals in 2022, and this continues to be a core area of focus for us. In marketing, our strategy has been to broaden the offering to create, if you like, mini Keywords for marketing and gain increasing access to the CMO budgets at our clients. During the year, we successfully expanded our PR capabilities with our 2 recent acquisitions in Italy and U.S., and we're looking to build out our expertise in other areas and particularly areas like social media and influencer marketing, which are both increasing areas of focus for the industry. There's also an increased convergence between gaming and M&E worlds in marketing as we see more and more crossover between IPs, and with the most recent examples of The Last of Us and Hogwarts Legacy being 2 recent examples where we've seen that between the 2 industries. Technology will continue to be a critical part of our strategy. And as Bertrand is going to spend a little bit more time later explaining how Mighty and the Helpshift acquisitions are enabling us to grow our offering as well as automate some of our processes within the business. And finally, bottom right-hand corner, the area where we continue to evaluate opportunities is in the adjacent market space, in particular media and entertainment, where we're seeing more and more convergence at a customer level, but also we're seeing the increasing use of game engine technologies to deliver the film and TV content. And finally, before I hand back to Bertrand, a few comments on the balance sheet and some comments on the guidance for the year. We continue to have a very strong balance sheet, as I mentioned earlier, with great access to capital. And with net cash of over EUR 80 million at the end of the year together with our EUR 150 million revolving credit facility, this gives us access to over EUR 230 million of liquidity that we can use to continue to invest in the business and pursue our value-accretive M&A agenda. We started the year well. And whilst we do expect organic growth to moderate from the very, very high 2022 levels, we expect to continue to remain above the medium-term guidance of 10% plus for organic growth. Adjusted PBT margin is expected to return to our 15% guidance in 2023, as previously flagged. But given the potential to draw down on the RCF and the higher interest rate environment generally, moving forward, we are going to focus our margin guidance at the operating profit level, which is pre-interest costs, which has historically been very, very similar to adjusted PBT. And again, we expect that to be at around the 15% level in 2023. Adjusted effective tax rate is expected to stay in line with '22 at a rate of 22%. We are expecting CapEx to continue at a slightly higher level to '22 relative to revenue, reflecting some expansionary CapEx and continued investment in the platform. But we still expect our overall adjusted cash conversion rate to be in line with our target of 80%. As I mentioned earlier, we did benefit from the strength of the U.S. dollar in '22, but we remain -- and we do remain mindful of potential foreign exchange movements that are outside of our control. But based on the current rates, we do expect to trade in line with current market expectations for the year. So I think that's it for me. I'm going to hand back to Bertrand to walk us through the strategy.

Thank you, Jon. As Jon was talking about his glasses, I'll take the opportunity to flag that in a couple of weeks or 3 weeks, he is going to hit a big birthday. So Jon, happy pre-birthday. It's a big number. A good number. So in terms of strategy. So I think the strategy probably on the snapshot on our slide is like, clearly, we want to keep establishing ourselves as being the partner of choice in the industry. That's what we're working towards. I think that's starting to really happen. I'll talk a little bit more about the strategic partnership we're investing in. The 3 line -- service line are really making an impact. You could sense Jon describing them. But when I started at the end of 2021, one of the observation I had was how much clients were wondering about: "What are you really about Keywords, because you've been growing very quickly, but you have those 8, 9, 10 service lines? How should we really think about this?" And I think the 3 service lines, Create, Globalize and Engage, have really helped simplify the message. And more importantly, have helped actually really get access to the right deciders in each of those big segments in its own right. It has also helped internally, in partnership. I'm enjoying myself seeing that every day. In terms of collaborations within the service lines themselves, they are much more cohesive now, and also across the service line. We have added 3 new countries since we saw each other last time, so going to 26 right now. We have 12,000 talent teams across the world speaking 50-plus languages. We have the chance to serve the who's who in the industry, now 24 of the top 25 publishers. You can sense we have made substantial investment in mobile as well, very strong -- building a strong presence, knowing that historically we've been more on AAA, PC and console, which serves us really well, but we want to make sure to really serve across the industry itself. And we touched on the market earlier today of a EUR 12 billion market, of which we are roughly 6% right now. This one is one I use systematically when seeing some of our partners and publishers, and I have to say that their eyes tend to pop when seeing that slide. And you've seen it many times, but it's one that is really important to them, because many partners want us to be on the same time zone, to have the proximity to where they are, but at the same time, to be able to serve them 24/7, to have the full day-to-night, effectively, type of setup across the globe, which this offers. But there is something more subtle about this, which has largely changed over the last year, which is we're having more and more discussions with partners about: "How do you change your business model from fixed cost to variable cost? What are the resources you really want to focus on that you should have in-house versus where we could help you as part of that?" So it changed literally into some of their business models. We're having a few of those fairly large-scale discussions. We had the table at least for those. But for that, you need to have the infrastructure around the globe to be able to serve them, to be able to move rapidly as well those types of resources and talent. And on top of this, this gives us access to talent on a more global scale, which is perfectly handy with the type of growth that we are planning for. An extra point on this slide is that if we had looked at this slide 1.5 years ago, you would have seen nothing in Australia. We had no presence there. There was clearly a glaring gap. It started with M&A of Tantalus. Then adding on the back of that Wicked Witch, added Mighty Games on the back of it as well, and organically adding Adelaide very recently. So now a total of almost 200 developers and artists into the region and serving the broader region as well with a very high bar in terms of quality. So that's another reminder of how we -- why we're doing those acquisitions and how we are growing organically across this map. Very proud to be a responsible business. That's something on which we spend a lot of focus and attention on. 5 key elements: community, people, planet, client and governance. We have behind that an ESG Committee at the Board that is very rigorous. We have started to put proper metrics behind it, where we are testing ourselves and to see what makes sense, what works, what doesn't work, really what drives the right behavior within the business. It's something across the board that our teams care passionately about. I could go on. I'm very happy to cover in Q&A as well. I'll probably double-click just on the people front, which is obviously an essential element of our business. But proud to see the progress we are making in terms of employee talent engagement across Keywords. We do a lot of town halls. We do segmented town halls, both-way discussions, learning sessions for us as well to take the pulse of the organization. We talked at the CMD as well about the type of setup and organization that we've been putting in place. We're making a lot of progress on that. Jon and myself, we were visiting various of our studios across the U.K. last week, and every single one of the studios started by showcasing the credential of how they are great places to work in terms of -- not only a few years ago, but really in 2022, what they're doing for 2023, having the [ batch ] effectively for that, which is key to our recruiting, key to our retention as well and to the type of business we want to be. We talked for the first time about Women in Games when we were in this location in June last year. We were just at the early stage of joining this. We wanted to really partner with them. I'm proud to say that now we are really leading across the organization under the leadership of Trina Marshall in our team. But now I think more and more men and women, women and men having both actually joined, participated, being part of that and really make it a key priority. And finally, a lot is going into NPS investment, a lot is going in terms of learning and development across the organization. This slide is something that we shared at the CMD, and I'll spend more time on the next one. Those are the 5 key pillars on which -- the 5 key work streams on which we decided to invest. This is what I wake up thinking about. This is what I go to bed thinking about, about: "Are we're making the right progress there? Do we have the right leaders behind each of those? Do we have the right resources, the right capital allocation behind each of those elements?" So let me go through a few of them, and I'll double-click on a couple of them right away afterwards, on Technology and on One Keywords. But just to give you -- bear with me maybe for 5 minutes. I wanted to give the practical progress that we've been making on this. And I'll try to do this consistently in the years to come. On strategic client partnerships, we are investing into what we call SPR, strategic partnership reviews, with our top 25. We have been on the road. I've been in the U.S. twice this year, across the U.S. Heading back next week, where we're literally sitting down with more and more of our top partners. Typically bringing top 10, top 15, top 20 with one of the biggest publishers recently, the top 30 coming over, dedicating a full day to this. We are matching it with our own teams. And where Jon and myself, our service line leaders would be there as well. But then the team effectively going into a dialogue, reviewing the pipeline, having forward visibility, which is critical in those type of times. Making sure that we understand their workflows, our workflows, how can we have technology discussions as well with them. But really building on that front and being a good partner where we can really help, as opposed to just selling a very specific service line as such. I think it's starting to have its impact. We are starting to measure it. But there is a lot of intangible that showcases the progress and probably reflecting some of the numbers that you have seen as well. We still have a lot of work to do. If you take on the marketing side, Jon referred to it as mini Keywords. Part of what we want to do this year is how do we effectively understand the needs of the top 25 CMOs in the industry. But you'll see much more on this. You're also going to start seeing some more complex deals that we're making, where we get the advantage of being able to do things we were never able to do before, where it takes multiple of our studios to come together to be able to serve the needs of our clients. It comes as a much bigger value when we can effectively unlock those together. But for that, you need to be at the table. On the technology front, I'll double click on the first one right away. But beyond that, we've been investing in the team. We have a strong CDIO who has joined us as well. We have Jamie Campbell investing into the labs. And just to give you a sense, we have a leadership summit with our top 50 in Montreal in May, which will be largely dedicated to innovation. And not long-term 5-years innovation, truly practical innovation in terms of our own pipeline, our own backbone, in terms of open air, of course, in terms of the movement that we have made, how do we become more of a product organization is part of that. So it will be a big part of the agenda that we want to try. One Keywords, I'll make a small note. Again, back to Montreal, we had -- I think end of January or early February, I went over there with a team led by Nicolas Liorzou, who you saw on stage last time, who has done tremendous work organizing our shared services. And maybe less sexy on paper as such, but critically important to be able for us to have the type of operational scale that we want to have, gathering all the leaders across finance, across IT, across HR, across legal. And really bringing down all of our processes, where can we automate, where can we be more systematic around the way we approach that so that we can serve our studios better and be more efficient there. So a lot of progress starting to happen, and we'll think about it at one point in time to showcase that. In terms of talent, a lot of investment there as well. So we have reshaped our talent teams to be able to go more directly where the talents really are, especially in this world where there is a lot of high-quality talent in the market. I think we're equipping ourselves to be able to win there. We have made some adjustments for a lot of our teams across the globe to make sure that we accommodate for the standard of living and making sure that our teams are well off and can operate properly. And a lot of initiatives as well on the academies. Now 3 academies around the world, in India, in Dublin and in Ottawa. But keep investing that in partnership across our little studios. And finally, on adjacent markets, a big topic for us. Jon hinted to Media and Entertainment already a couple of times. There is one where we absolutely want to win, and you can sense already the investment we are making starting to pay off. It's in LiveOps. Our clients expect us to be strong in LiveOps. Many of our clients are looking at how can they make the move in a substantial way over the next 3 years. We have, as you probably remember, one of the largest operations with Fortnite in the U.S. We've been working with them for the last 6 years, season after season owning -- in partnership with them, some piece of that experience. Clearly, we have launched a new studio as well called Lively at GDC last year, that is going from strength-to-strength. Completely dedicated to LiveOps where we have also reshaped the teams accordingly to go after that. And the acquisition of Smoking Gun is another example of going in that direction. One I'm very excited about is Virtual Production. We are at the early innings of that, very early stage. But when you think about the 3,500 talents we have in game engineering and in technical artists, mastering Unity, mastering on real 5. This could be something that is really transformation in the way that virtual production is being done in the media and entertainment sector. So we're putting a small task force behind that, but to see how we can really play our cards properly in that type of setup. So I hope this gives you a bit of an overview of the progress we are making. I'll double-click on, as I said, on 2 of those. The first one is around technology. And my general sentiment stepping back from any of this is it starts feeling like more and more like a technology company. We're all about talents, but we're starting to act like it. We are starting to think like it, we're starting to equip ourselves with the right talent, and some of the products that will be at the core of what we're building here. Kantan, if you remember, is a partnership that we have just signed with Microsoft when we saw each other in June last year. KantanAI in the localization space, where we're able in partnership with Microsoft to have one common workflow, where they can pass on the words that needs to be translated, I'm talking about millions of words. That effectively the asset they had was, how can you translate those within 48 hours. We had made the acquisition of Kantan a couple of years ago, and we really want for it to say, how do we co-invest in that platform. I'm proud to say that now, a few months later, we've been hard at work. It has been sweat and tears, but now we have a platform where we are fully embedded together as partner. We are present on 22 titles across Microsoft, in 35 languages and with an average turnaround time of 42 hours, which is unheard of in the industry. It allows us to take some volumes and some work that we would have never been able to take on before, especially in areas like LiveOps, where speeds of the essence. Mighty Game, Jon touched on it, recent acquisition last year, in Q3 last year. This is one more in the QA domain, but fascinating one. Right now, it's still early days of it. It's still an early entity, was exclusively focused too recently on mobile on Unity. Well, effectively what it does is that as you are developing, as an engineer, instead -- the traditional way of working is you dev and then actually you pass it on to the QA team, potentially even years later, with a lot of surprises potentially coming on. Here, you're able in real time to see the quality of your code, where effectively, it will autoplay itself. The game will learn. That's where AI comes in. It will learn to distinguish what is the tree, what is a dragon, what is an environment, what is the bi-button behind. But also on a multiplayer scale and being able to play a 20, 30-plus times the speed that you want to have. This is a deep implication for us because it allows us to tie it up to 23 creative studios with our partners, to see how can you attach that in dev, to have Dev QA and creating together with insights comes with it. And our create team also looking with the 5,000 operations team that we have, how can you have the best of both world of quantitative testing and qualitative testing. So early days of it, don't want to overpromise. But that's how we are starting to think about it. And maybe as a quick heads up, we'll be at GDC in the U.S. next week, where we are going to showcase the first part of how this can apply, not only to Unity, but it can also apply to some of the other engines, including for AAA. Helpshift has been a big one for us last year. In truth, it's not really new. We have been partnering with Helpshift for some time, in the domain of player support, player engagement, player experience and community. And we've been very impressed by them. And that's why we wanted to have a piece of that. We think we can build a comprehensive solution that fits with our partners' needs. And effectively, what it does is it allows to take roughly 30% of the tickets away and automate those real time. So that effectively as a player, Jon being locked in into a game, or just being through a game, how can we take that on and answer real time to unlock the player where they are on the experience, especially when it's a fairly easy query. But it's backed by a CRM where we also understand, this is player it was on an XP5 type of level, in this type of game, at this sensitive stage of monetization, how do we come in then with our agents to effectively give you the full VIP services to unlock you from that experience. So it's a combination of the 2 things that I think is quite powerful. And to tie it all together, when the teams are starting to work with the Kantan team so that the agents are able to have automatic translation into multiple languages, so that they can multiply themselves in terms of how much work they can handle in real time. So hopefully, that gives you a bit of a vintage. Those are 3 distinguished products so far. But the real holy grail, if you take a 3-year lens will be, how do we keep building that, building the organization for that, the real product DNA that we have behind so that we can really go and scale that in partnership with our clients. Another one that I was going to double click on and is in the theme of One Keywords is also we've been looking at how do we -- this feels like a good time for us to reshape and to refresh the values we have. We have historically had what we call the Rules of 9, and we felt it was actually a good time to refresh with what we -- for the next 4, 5 years where do we really belong. And the overall tagline -- our play the video right away -- but it's what we call imagine more, imagine more for your plans for your publishers, imagine more for your studios, imagine more for your career, imagine more for your investors. But that's something that I think resonates quite well with what we are aiming to do as a team. And I'm proud that we have about 75 champions who have worked on that. This is their work. And now we have released that effected in January to the overall team, working now and embedding that at every work for the organization. So I hope you heard that. So maybe to bring us home in terms of outlook. Clearly, we have a lot of work to do, a lot of work on our hands. I think that's where agility comes in. This is a challenging year in terms of macroeconomic context. But we have had a good start of 2023. There's a lot of healthy demand out there. And personally, I think I'm speaking on behalf of all of us, very excited by what's ahead of us. I think we have a strong strategy. We have -- we're executing on it. We have -- we're building that relationship with our partners at a strategic level right now. So we are at the table together, understand their needs and hopefully have an offering that really resonates with them. We have an opportunity as well in this current context in terms of M&A, that is really strong. You can see we're on fire on that lens, there is a very healthy pipeline as well behind. And I have to say for many independent studio, it's more comfortable to be well seated within a Keywords type of setup that then being independent. And on top of it, ultimately, we are building our platform, both on the technology side and on the talent side. And the thing personally, that I'm most excited about is that we have a team of 12,000 and growing talent behind us that is excited, I think, by the agenda, where we are having the communications, we're having the discussions. And that is quite excited themselves by imagining more for our clients in their own way. So on that note, probably a good time to open up for Q&A.

Katie Cousins from Shore. I've got a couple, if that's all right, thank you. First one on, how much visibility do you have over the years to come at this point? And I'm thinking about -- you talked about more complex projects potentially coming through, and including more studios, will that overall help your visibility in a couple of years? I can ask the others after that one, if you…

Yes. I'll start on. In terms of visibility, I can say a high level, of course, we look at that on a monthly business review, we have eyes very close to that. But I would say very healthy. If you take them one by one, high level, game dev in particular, is at a very similar level to what we had last year in terms of forward visibility. Part of it is because you've had supply demand mismatch and sales, strongly the case. So I think that's very strong. Art's probably a bit lower than it was last year as such, especially in some areas of the world. That's something we're looking into, but higher than what we would have actually in previous year to that. So still at a healthy place, but that's a bit the nature of Art is where you can actually shorter time cycles that you have on Game dev. On the globalized side, what we see is probably the way we look at it is, what I tried to share with the fixed cost moving to variable cost. So one, our studios are busy. But on top of it, we're gearing up as well to be able to take on some bigger deals and bring on engagements, which are not necessarily easy to do because you have to think about multi-hundreds of people that you have to effectively bring on board, learning and development, talent and all that. But I think that's where I think the agility of Keywords is really a very strong strength that it's tough to capture in those type of discussions, but that's where we're building together. And on the marketing side, there were a few delays at the end of last year as Jon pointed out, on the back of a very, very strong year the year before. But you can sense that many partners are thinking about how do I go to market with the Key IP and the Key assets that I have right now. So I would say fairly solid across the board. And that the only one we're looking a little bit more into in some region on Art, but the rest is very much at parity. In terms of the complexity of the deals, yes, that's something I'm relishing frankly. In each of the areas, especially in globalized. That's the one I was alluding to. And on the creative side, what you have is some engagements that we simply couldn't take with one single studio because we would have been -- a single independent studio would have been too small to take those on. Now, that comes with some challenges. It means that's where we need the service lines to really come to their own. That's where leadership comes in too. But what I'm seeing is more and more without having imposing into any of the studio because I'm very, very thoughtful about keeping the independence at the P&L management a lead to the studios themselves. But if you remember the hubs we talked about, the natural leaderships, on us to pick the right leaders as well for that, are really organizing themselves. They're starting to pitch it with who is the lead studio, how do you make sure who comes in, what kind of skills do I need to have. I'll give you one more little example. Here in London, we moved into a new office 2 weeks ago, where I was surprised, but 6 of our marketing studios asked to come together into one place. If you were to walk around, and maybe we should have you there, you will see 6 distinguished DNA into the business themselves. You walk across each -- you will see 5 with us, a small, of course, with Maverick, but with a common area where everybody starts their day with sharing their case studies. It's early days. But they are -- on the back of that, they are pitching together. They are sharing experiences together. That's what we're trying to promote.

And then just on the increase in CapEx. How much of an increase in, kind of, a breakdown of the moving parts in that? And then also, you talked about a one-off cost relating to the Russian Studio. Is that expected to impact H1 or H2 and estimate around about what that could be?

So the CapEx, I mean, it's been running at sort of between 3% and 4% of revenue. I'm probably expecting it to be nearer the 4% sort of end of that range in 2023. It's a combination of things. I mean in '22, we did spend a bit more on some of our property footprint. We obviously opened 3 new studios in Europe, for example, and obviously, you need to open up the offices. And we have seen some of the studios needing to take on more space because we've effectively been growing in a work-from-home environment, and we're now starting to bring people back into offices. And even with work from home, we needed to create a bit more space. And I'll see that seeing that continue. The area that we're probably seeing a bit more incremental spend around is some of our internal IT, part of the technology agenda, there are certain parts of the business where we're looking at standardizing our platforms. And so that's a bit of CapEx that perhaps we haven't had in a meaningful way in the past. But it's -- as I say, it's nudging it up, it's not a dramatic change. As far as the one-off kind of closure costs are concerned in Russia, the honest answer is we don't know the quantum because we're busy trying to move people. But at some point, we will have some redundancy costs. I think it's going to be sort of 0 to EUR 5 million type of levels and will probably fall around the half year. It might -- some of it may be first half, but I think some of it may fall into the second half. But it's around that sort of level.

Will Larwood from Liberum here. Just a couple from me. Firstly, in terms of the split and the EBITDA margins and looking particularly at the Engage division. And obviously, as that scales, where do you see EBITDA margins for that business over the sort of medium to long term?

Do you want to take that?

Yes. I mean that's a business that is sort of subscale relative to some of our other service lines, a collection of relatively smaller studios. And as we grow that business, we should expect some operational leverage to come through. I couldn't put a number on it, honestly. I think it's going to be sort of half 1 sort of 1.5 type increments over the next 2, 3, 4 years, partly will depend on M&A. And there are a couple of slightly larger opportunities out there. And if we bring those in, they've already got a bit of scale in them. But I would hope that over the next few years, we -- you can start to see that EBITDA performance nudged up. It's also got the Player Support business in it, which is a [ mature ] business. But certainly, on the marketing side, I would expect that to nudge up over time.

Okay. And then second one, on the technology acquisitions, how are you ensuring some sort of discipline in terms of the valuations that you're paying for these businesses given that they're sort of relatively early stage?

I can start. It's a good question but very strongly, it's like we want to make sure that we don't add too much that would be dilutive, of course. But if we do, we're getting towards a 15% adjusted PBT on the whole as part of that. But we also -- we wouldn't go into bank as businesses that are bleeding money at all on the country. I mean, Helpshift is profitable even when we started, to be very clear. And each of the businesses that we do should be incremental over time. When you look at Kantan, it gave us specifically, if I'm really going through this, Kantan gave us access to volumes that we couldn't get before in a very meaningful way. Now it's starting to count. You've seen the number of titles that we have as a presence with one of our largest partners in the industry and with a great partner, a very respectful partner wants to co-invest in those. If you look at Mighty, I think we still have some go-to-market to work on, on that front of how do we make it really scalable. It's all about the volume on that front. But I think it's a wonderful tool if you are a developer, if you're one of those 23 studios on the create side, led by Ashley. She is all over that right now because it gives you a true differentiator as well to be able to help. They have to really add insight to the quality of the code to get forward visibility the way we can get. By the way, it gives you access to cross-selling as well because then you can say we have a QA platform as well with 5,000 people plus technology that we have behind that. So we look at it on the whole. But clearly, I think the guidance should give you the overall view on that front. But clearly, we want to be a profitable business on the technology side as well. I would argue what I really like in those is like they're much more sticky. They are really SaaS businesses at the core of it. They are embedded to the workflow with your partners. That is a different type of relationship that you can leverage on the back of that. Do you want to add anything more, Jon?

No, I think you've covered it. I think the only thing I would say is that I think some of the recent moves on the technology sector have helped actually. I think something like a Helpshift, I'm not saying would have been unaffordable, but I think it would have been harder to do within our current construct than it was given the way that, that market moves, so.

Oliver here from Peel Hunt. I just wanted to get an understanding in the sort of medium to long term, the 3 different segments. Do you expect Engage to catch up to the other 2 and become sort of the same size of the other 2? Or will you focus more on the higher-margin areas?

I can start. It's going to be depending on some of the acquisitions we have in the pipeline, frankly, but it is definitely the potential to catch up. And it has, as I address earlier and say there's a potential to catch up as well on the margin side. So I think and certainly believe we have subscale right now, look at some comparators into the industry in marketing overall once you start being on the CMO agenda, which is we're probably 3, 4 years ahead into the other divisions. You commented a different premium, different relationship. You don't have to do RFPs at every single turn as part of it, and you can really capture much, much more of those. So I don't know if it's the honest answer, but there is enough in the pipe that it could become in par with the others. So if Tony, a leader of the segment is listening, the answer is absolutely yes.

I was going to say if you ask Tony, he's desperately keen to make sure that his business is the same size. And as Bertrand said, I think that will partly depend on the M&A side of it. We're clearly focusing more of our efforts on marketing and game dev, and therefore, by definition, you would expect those 2 to grow from an M&A perspective, perhaps a bit quicker than the Globalized service line.

And I'll add one more thing, maybe direct to your question as well on the M&A side, we are mostly looking at additions that would be accretive on to the margin story, by the way, and to engage as part of it. So I'm fairly optimistic now that we have work to do.

Thanks everyone. I think we just go to -- there's a question on the phone lines, please. Can we go to that Saskia?

[Operator Instructions]. And we have a question from Nick Dempsey of Barclays.

I've got 3 questions. The first one, you talked about a strong start of '23. You did reference some caution on new games from customers in Create. Does that caution eventually hit you a little bit with lag? So for example, might that logically impact your momentum in Create sometime during 2024, the fact that those people are more cautious on new games right now? Second question, have you noticed it becoming somewhat easier and perhaps more cost effective to hire talent, as first of all, some video games groups have started to look to flat cost. And secondly, just the large online groups have been reducing headcounts on software developers more broadly? And the third question, there was a report a few weeks ago from a university in Quebec about setting out the case at least for the Quebec government regarding how they should change tax benefits for video games groups to maybe support local companies more, give less benefit to what they regard as multinationals. Do you see any risks in the next few years to those good benefits you get from the Quebec government?

Thank you, Nick. I think we can probably do a task on those. I'll start on the first one. Jon, on the content side. We don't know, but we haven't seen any lag at least. That's all I can say at this stage. I think it's grown into really solid base because we spend a lot of time thinking about that. That's the value as well are being on the road. Again, I spent probably 30%, 40% of my time with clients at the most senior level. So at least we have forward visibility of what is coming. It comes back to your question as well in terms of forward visibility. But maybe a few -- a bit of color we can add. The first one is on the -- again, our segment, it's not the -- that's what I tried to showcase. It's not necessarily the EUR 200 billion market you see in there. It's the EUR 35 billion of concentration. And actually, this one is really going strong. When you look at even the Microsoft APK type of transactions, the Game pass all those are really a story about getting more content that are valuable for clients and for players at the end of the day. The push to LiveOps and to guest is probably more present than even what we were talking about in June, we're equipping ourselves for that. I think we're strong in this. We have a right to win on that front and we really want to push. The complexity of the titles means more and more content, even with some of the delays, it means more and more content that needs to happen beyond that. So I remain bullish on content. I remain probably even more bullish, you can sense on the externalization of that. What I was sharing in terms of some business model discussions we're having with some of our partners, is an example of that, where literally some are thinking about, do I really need to have 1,000 or 2,000 testers necessarily within the organization? Can an external partner, a partner of choice that I can trust, that has the lags, that has the network, can help me for that versus what is really core. So you can sense some of the market share that we have been or the movement in the CAGR that we anticipate and we've seen even last year, moving from EUR 11 billion to EUR 12 billion plus is probably a reflection of that. And thirdly, we are gaining share. So we're also working hard on those 5 work streams to make sure that we are the partner of choice from a reputation point of view, from an investment point of view. Having a proposition that really resonates in terms of volumes so that we can tap into volume we couldn't get before. And finally, I would say beyond that, you also have some other elements that have, not necessarily to be talked about, but take the PS5, take some of the new consoles that are coming to market. Those are going to give another lease of life effectively to the market if you take the longer-term trend on that. So that's our view. At least we haven't seen any of the impact on us so far. We're working hard as well to accommodate for our clients, but that's where we are good at to have the right agility to be able to accommodate their needs.

Yes, I think the only thing I'll add to that is we've had a couple of years where we frankly had more demand than we can actually cater for. So even with a softening that doesn't necessarily mean that we can't keep ourselves busy. And as we come out the other side of this economic cycle, I'm absolutely convinced that publishers will double down back on content creation again. And at that point, they're going to need us more than ever because they probably won't have grown their internal capacities. And we've seen that before. I haven't been through a cycle in the business, but certainly speaking to colleagues and other companies that have, you see quite a meaningful acceleration of a trend towards external provision when you come out the other side of one of these cycles, so.

And there might be more turbulence and to your point, short term on some titles. But again, I think the macro trends are really compensating for that, at least that's what we're seeing. On your question about talent, we haven't changed our approach much because we thought long and hard about that with a lot of layoffs happening in the market more on the tech companies. The way we see it is like it's not unhelpful to some extent. Because it has removed some of the pressure on where you had many ask for big, big salary increase as such, at least it has alleviated the pressure. But we have doubled down on our recruitment team to go where the key talents are, but being very, very specific about the briefs. So the type of scale set that we need, the type of seniority that we need, the ones on which we can really be what Keyword does best.

Yes. I think the senior is -- I mean, as I say, we had the opposite problem. It was a very, very hot labor market. It's still quite hard to get hold of really good senior engineers. There's still scarcity of talent for that demand. But I think the layoffs are only helping that position relative to perhaps 12 months ago. Should I pick up the last one…

Yes.