Keywords Studios plc (KWS) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our H1 results. It's good to see many familiar faces in there. I know that we have quite a few people on screen as well. Many of you have been with us on this journey since the very early days, so we thank you for that. It's also good to know that we have quite a few investors who have been looking into Keywords doing quite a bit of work. So we hope you'll be interested and thanks for being here with us today as well. Talking about newcomers. We also have Rob Kingston is now officially in the seat as CFO. So welcome, Rob. And Jon, who is now fully operational as COO, so giving us more muscle as a team overall. So today, we'll go through -- I'll cover the H1 summary first, then Rob will come on stage and share the financial review. I'll go a little bit longer on technology and AI. Of course, a very important topic nowadays, before closing on outlook and then the 3 of us will come for Q&A. So I think it's fair to say that we've been delivering in a challenging market. We've been gaining share while building for the future. You'll see good performance for H1. At the same time, we invested massively into M&A, into technology, into the platform while executing on the 5 key pillars of our strategy that I'll share a bit more about. In terms of numbers, how does it translate? 19.4% revenue growth for the first half on a year-over-year basis and organic growth at 10.4%, very much in line with the guidance that we gave at the beginning of the year and adjusted operating margin at 15.4%, again, very much in line with guidance. Now this comes after a couple of incredibly strong year into the industry, especially on the back of COVID, and the industry has been probably pausing for breath a little bit in 2023. So I wanted to take the time to share about how it is normalized and also a couple of trends that we have seen from our clients from our publishers in the industry. First off, publishers this year have been more cautious about their cost base and managing that wisely. At the same time, you've seen many publishers that you cover have been thoughtful as well about which IP they want -- they cover, mostly focusing on big, reliable IPs that they've had for some time, derisking some of their operations, which tends to play well to our strength. We tend to be very strong on AAA titles with publishers for a long period of time. At the same time, as we all know, we have the Microsoft/Activision [indiscernible] transactions going on that has been in the air. I don't want to pronounce myself on the outcome of it, but it has put a bit of a pause for breath in the market as well in terms of content creation. I personally would expect that irrespective of the outcome of it, once this settles down, you will see much more of a race for content on the back of it, for the game pause, for others having to retire and making sure that they have the right content for 2024 in that space. We're having some of those discussions. Mobile market has also been slow this year, probably more challenged, partly due to privacy changes imposed by -- mostly by Apple in terms of IDFA. I think, by the way, that this plays to our strength. You'll see some studios that we brought on board recently, like DMM, we're really at the core of influencer marketing, social marketing, online content which could play very well when you think about the years ahead to position ourselves in getting a lot of demand on that level. And more recently, we have had the U.S. strike on the entertainment side in particular that has had an impact almost of a standstill on some of the M&A operations overall. Clearly, this is a temporary situation, but something that impact 2023. So all in all, when you step back on this, you see the Create division has been incredibly resilient, very strong growth. Rob will share the details on that. Part of it was, if you remember last year, we were turning down a lot of demand because we simply didn't have the headcount, the engineers to be able to fulfill it. This year, still there is a shortage of supply versus demand on that trend. So we're still holding very strongly. And also, we had a strong back year as well in terms of release coming up in the second half of the year. Other areas like Globalize and Engage have been more impacted. Again, Rob will share the details. Growth has been moderate in that front, but coming on the back of very strong comparables last year, like the Globalize was growing 20% plus last year. And in each of those categories, still comfortably gaining share. So on the right-hand side, just stepping back for a second and take a 3-year horizon. What we see is that since COVID or the beginning of COVID, the gaming sector has grown by 25% that time, so which is quite an impressive number, and Keywords in that same time, has been doubling in size of our business and making sure that we have the right operational leverage as well to scale that in a proper way in terms of operations. And on average, we've seen an organic growth of 18% over that period of time. Now in the spirit of stepping back again, I think it's really important in those times as well to look back at the broader trends when you look at midterm, when you look at even from 2024, some very, very strong trends that are overwhelmingly positive for the sector in its own right, which I think tends to be forgotten a little bit. The first one is what I was just highlighting in terms of engineering capabilities. So there is a shortage of quality engineers. You'll see us keeping investing massively into that area. We are fortunate as well through the acquisitions we have done through the quality of our studio to really be on the AAA side and to have really quality people on that front. Secondly, there is -- when you see external flex happening right now, which we've seen many layoffs, whether it's in technology company, our publishers this year, many have you said as a way as well to scale their operation and to rightsize it where they need it to be. Part of it, they've been growing probably a bit too fast for their own comfort on that front. Typically, what we see in external service providers and many of you cover it in other industry, is you get to see on the back of that external service provider, the years afterwards tend to benefit very strongly. So we're getting ready as well to make sure that to take care of that and to be able to help publishers not only with the demand shorter term after that at, but also the type of flexibility they'll be needing. I have a few examples of that. The third one is on AI. I'll cover that in much more depth. But what I wanted to flag here is like we have -- there's been a lot of noise on AI, but we're collaborating very, very closely with or most of the top publishers in terms of figuring out together what does it really mean. And I think we are very much at the center of the industry to be able to help there, almost playing a board as an aggregator. LiveOps is a critical one. And you've seen that we took the turn probably ahead of the pack on that front. We have invested massively in LiveOps. We have full cycle game development as well that in play with some of the biggest players in the industry. LiveOps has a profound impact on the industry because it's going to create a huge amount of demand in terms of content, in terms of assets that need to be ready, in terms of the velocity that needs to be ready for that. Hence, you often hear me talk about the platform we are building to be ready for that type of element. And probably more importantly than anything else, the players are there. There's been less spend, especially on mobile, but we have 3.3 billion players around the world. When you look at all the Steam data, the number of concurrent players has never been as strong as nowadays. And at the same time, you have some of the constraints related to hardware that have been removed more recently on PlayStation 5. And you know some other platforms that probably will make some announcement in due time as well. So all in all, I think very strong trends coming our way. Along those lines, this is the size of our opportunity. This is really the size of the prize for us. As you know, we are the leading player into our space. We have roughly 3x to size of the next one. But the important piece to me is on the left-hand side is that there is still 90% white space up for grab into that market overall. That's why, again, we want to play the long-term game, and making sure that we build that platform properly. In terms of share, we've been gaining share in that market, a lot of data from IDG from -- digital has been coming across on that front. You are now comfortably above 6% market share. As a reminder, the total market is roughly $200 billion, of which $36 billion is the content space, the content creation that's really the space in which we operate at Keywords, of which still only $13 billion has been externalized. When we first showcased that at the CMD, it was roughly $11.5 billion, has grown now to $13-plus billion there. And as much as it has been pushing for breath a bit this year, there's roughly a 9% CAGR expected over the next 4, 5 years ahead of us in that space. And going back to the fundamentals, we serve 24 of the top 25 publishers. We serve all the mobile partners. At the same time, with a geographic footprint to be able to take on that demand and the type of flexibility that is needed to play in that in a game. I'll spend a little bit more time on this one before passing on to Rob. But this is a strategy, as many of you witnessed or were with us on the journey when we put that up at the CMD in May last year, 5 key pillars on those. I won't go in full details. But the 2 that we have really amped up over the last year certainly have been the 2 on the left: strategic partnership and technology. On strategic partnership, in particular, I'm just coming back with Jon from a couple of conferences at Gamescom. We're talking about it at the break with XDS last week in Vancouver, just coming back from it, having 30, 40 consecutive meetings with CEOs, CXOs of our companies. I think it's fair to say that we're starting to get to know each other quite well. We closed on a few important deals as well for the future. And we've been talking for some time about some lighthouse deals as well. And happy to bring a bit more color to those, but we have got a few over the line fairly recently. Those are long-standing engagements, whether it's in FQA and Globalize where we have had some of -- 1 of the top 5 publishers in the world. We've now looked at how can they move some of the fixed cost into variable cost. And where we have already nowadays more than 500 testers in the span of just the last 6 months, having moved to Keywords across our operation in Poland, in Montreal, in Mexico, but those are very important signs and gives us a template as well with many more publishers to be able to do that, again, especially on the back of some layoffs and some reshaping their own structure, which I think will play to our strength. Likewise, in Create. We have had a couple of very important ones, including 1 where we now -- for one of the big take publishers in the world, where we have more than 4 studios collaborating with [indiscernible] studio coming on top of it. And when none of our studio individually could have taken that engagement. So we couldn't do that before, now organizing ourselves to be able to do that. Likewise, in LiveOps, where we now do some full cycle game development for some of the biggest partners and publishers basically in the world. It's not just a big one. It's also small ones. I was in Europe recently where we have publishers, which is really worth a lot of attention growing now from 200 people to roughly 700 people, and their exam question to us was how do we scale to the next level now? So they're going incredibly fast. They have a publishing arm as well, looking at what is the type of tech infrastructure they need to have in place to be able to bring it to the next step of level, asking us to do an audit and advisory piece to be able to help on that, touching all of our service lines together. And of course, a lot of discussion, again, going on into AI. On technology, I'll keep it for the section that we'll have later on. All I'll say right now is that there are 3 key areas of focus essentially in terms of strategy there: the first one is internal efficiency, where you'll see a lot of investment internally in our own operations, using technology, using AI across all of our divisions. We are building a suite of products that is starting even to become a platform. They say, even with an ambition over time, could we become more of an ERP on postproduction for the industry. I'll showcase a little bit of vision we have on that. And thirdly, we are very much embedded with many of our publishers as an aggregator, as an adviser to help them navigate through that area including investing as well into a lab of which we have invested in some high-quality profiles into the lab itself. One keyword, I'll just point 1 that I'm personally very proud of. I think Jon and I spent a lot our life on it over the last year is really the story of Sperasoft. I think it's worth probably sharing more properly at another date. We call it now Sperasoft 2.0, now that we've effectively stopped our operation in Russia. We have completely been able to move across multiple locations across Europe, even across Asia. I got the chance recently to go and visit the team in Armenia, in Serbia, in Poland, where we have now, in total, 600 people, strong, incredible quality engineers, highly valued by the market. I think in a perfect sweet spot as well for LiveOps in many of what they do on there, but a remarkable story of resilience. And I would argue that this year has been all about making sure that we made the transition. I wouldn't have necessarily bet it on such a positive outcome. Next year will be all about growth from that on. They have a really good platform to build from. Talent and capabilities, again, investing massively as you would expect on game dev in particular, but across the board, I'm very proud of the push that the teams have made and frankly, the leadership we have taken in terms of Women in Games. And finally, in terms of adjacent markets, we talked a lot about it. But we've made some moves there. I flagged already LiveOps. We have studios dedicated to it that are up and running, incredibly productive at full capacity. We have LiveOps studies in there as well -- Lively that is in there. And we have looked now and made some moves, as you know, with DMM and others into media entertainment, into TV marketing, spanning the 2, including a shorter transmedia there, which is starting to become a reality and into virtual production. And I should flag as well, Big Farmer, which is a very interesting launch that we had a couple of months ago. And finally, in terms of M&A, a big part of our story, a big part of our DNA. I think Jon leading the efforts on that front. We have had 4 big studios joining the family very recently on the first half alone for a total consideration of EUR 130 million. I think really good quality assets, Hardsuit Labs, on the game dev side, very, very strong studio. Playboss, which is an interesting one because we often ask about how do we organize all of it. Playboss, while we made the acquisition just 3 months ago, is already fully integrated within the U.K. hub as part of it, working very closely with the Climax team -- Climax Studios. Strong move with digital media management, very important one. I think in the sweet spot into the wheel that we're aiming to build on marketing, as we talked about mini Keywords, social marketing, influencer marketing, a good piece of technology underlying that. And 47, which is really the premier brand in terms of PI into the gaming industry in the U.S. by far and known that way, at top of the spear that allows us to get access as well into a deeper relationship with clients on the marketing side, complementing nicely what we have in terms of geographic footprint in Europe, in particular. So -- and maybe last point I'll say on that is, of course, very diligent. And you know us for the rigor that we put into M&A, the type of principles that we have behind. But I've never seen a pipeline that is as healthy as what we have right now. And partly might be related to the point earlier about the industry pausing for breath a little bit. If you're a smaller player, you're probably a bit more vulnerable right now, if any of the big IP sneezes a little bit, that's our opportunity because we can offer those partners to effectively get access to the top 25 players and really to join the platform. We've seen quite a few of those more recently. Rob, I'll pass on to you.

Great. Thanks, Bertrand. Good morning, everybody, and it's great to be here. Obviously, I'm only 2 months in. It's been a steep and enjoyable learning curve, and I'm delighted to present the results -- my first results to you today. So if we turn to Slide 10. And this really represents my key themes from the results from my perspective. We delivered a good first half in a tougher market this year. As Bertrand laid out, the industry dynamics weren't as favorable as they were in 2022. But despite this, we've delivered strong revenue growth. At the same time, we've kept our focus on costs. but haven't taken any knee-jerk action to ensure we can survive the surge in demand when it comes. Profit margins are in line with what we said they would be. And we continue to invest in building our platform to take advantage of the opportunities that lie ahead. And finally, we extended our debt facility out to 2027, increasing the size by roughly 2.5x, and this gives us plenty of liquidity and firepower to deliver on our growth strategy. So looking at the key KPIs. I won't repeat Bertrand's commentary, but a good set of numbers with organic revenue and margins in line with guidance. Importantly, we've continued to invest in M&A. We've announced 4 high-quality deals with a maximum consideration of EUR 130 million with around 2/3 upfront and the balance only paid if growth objectives are met across the earnout period. CapEx is slightly ahead of where it's been previously. There are a couple of timing reasons for this, behind why the spend was H1 weighted and the percentage should fall in the second half. As normal cash flow is H2 weighted and with more acquisition activity in H1 than last year, we've moved into a small net debt position, where we have a new and large debt facility and future cash generation, we have plenty of flexibility to continue to drive the business forward. Moving on to the next slide. You can see that our 19% increase in revenue was slightly weighted towards organic growth. Also, unlike last year's tailwind, we've seen a small negative impact of around 2% or EUR 8 million due to foreign exchange rates. We flagged this at the beginning of the year and expect the trend to persist in the second half. Looking in more detail at revenue growth then, you can see that we've had a varied performance across 3 service lines, reflecting the trends in the market and growing our share. Create was the standout performance through a combination of M&A and very strong organic growth. The 22% was spread across Art and Game Development with both service lines remaining in strong demand. And I think this is a real demonstration of the quality of service we provide. We're a true partner to our clients on some of their biggest releases, including Starfield, Diablo IV and Hogwarts Legacy. In addition, performance reflects underlying fundamentals, where high-quality talent remains scarce in the industry and its capacity constrained at the high-end level. Globalize grew by 5% and well ahead of the market, which defined according to IDG. Within this, we saw a good performance for our functional testing business, but localization had a tougher time as clients look to manage costs. For example, some clients have only focused on core languages where large audiences guarantee returns at launch. We do not believe this is a permanent shift. But as Globalize operates at a broad cross-section of the industry, it reflects less activity in the gaming space. And finally, we saw strong overall growth in Engage due to M&A. In our Player Engagement business, we saw some contraction in the mobile market after 2 extremely strong years. We experienced clients scaling back on the number of people to support with the current trend of sort of lower customer spend and user engagement, although this improved Q2 versus Q1. On the marketing side, which is naturally more susceptible to a slow economic environment. We saw a number of late notice delays into the second half. This part of the business should bounce back fast when the environment changes, but remains exposed to further delays as work is weighted to Q4. Now as you know, there are entertainment strikes currently taking place in the U.S. They start in the latter part of the half, so had a limited impact on these numbers. However, the strikes are now beginning to impact our media and entertainment audio businesses and our U.S. marketing studios who all serve the gaming film and TV markets. We cannot predict when the strikes will end, and therefore, assume the financial impact to be around 2% to 2.5% of full year organic revenue growth should the strikes persist to the year-end. But after cost control, we expect a limited impact on adjusted operating profit. It's also worth noting that when the strikes are resolved, there may be a period of time before activity starts again. But when it does, we expect to benefit strongly from the surge in demand in this area. Turning to margins and looking at more detail. As we've already said, we've delivered a good performance in line with our expectations and guidance. Whilst below the first half of '22, it was largely in line with the second half as the business started to normalize post COVID. And looking at the slide, you can see the long-term trend is centered around the 15% level. In addition to this, we've continued to invest, adding talent as appropriate and making sure that we can run the business suitably for the long term. Moving on to the core financials. We've talked through most of these already, I think, but we delivered a 10% increase in adjusted EBITDA to just over EUR 77 million. Adjusted operating profit rose slightly lower than last year and -- sorry, slightly lower and adjusted EPS was flat period-on-period, reflecting margin normalization post COVID, increased interest costs from the timing of M&A and a higher number of shares in issue. Finally, we maintain growth in the dividend, in line with our policy. We've increased the interim payout by 10% to 0.85p. And while small, I think it's an important discipline for the business as it allocates capital. Adjusted free cash flow was EUR 13 million behind last year due to 2 working capital timing differences: first, we saw a delay in the receipt of U.K. tax credits. We've been expecting to receive these in H1, but they landed in July and August. And second, we also saw a temporary increase in our debtor days as some of our clients use Keywords to manage their working capital at the half year. But as of July, debtor days were back in line with last year. Separately, CapEx was weighted to H1 as previously flagged. It was around EUR 10 million higher than the prior year. Around half of this was linked to the purchase of long-term software licenses to lock in favorable pricing. And then we also continue to vest in supporting our operations move out of Russia. These are now fully set up and so I'd expect the second half CapEx to be back in line with normal run rates. Adjusted cash conversion is always second half weighted. For example, if you look at last year, it was 58% in H1 and 100% for the full year. And if you were to add back the tax credits that we've now received, we're at 49% underlying cash conversion for the half. So overall, we still expect to see cash conversion for the full year around the 80% mark. The business has a strong financial position, having run a net cash balance since the equity raised during COVID. At the end of the half, we moved into a small net debt position behind a very active M&A program. We invested over EUR 90 million on broadening our platform. As you can see, we still have nearly $400 million of available liquidity, and our cash flow is H2 weighted. So we'd expect this to see growth in the second half, absent further M&A. And so overall, we have flexibility to pursue our growth strategy and take advantage of weaker market conditions that some of our smaller peers are experiencing. Turning to guidance. If we exclude the impact of the U.S. entertainment strikes, we still expect to deliver full year underlying organic growth at broadly similar level to them in the first half. I'd note this is weighted to Q4 as we build in 2024. And there's always the potential for some contracts to slip into Q1 as clients are currently very budget conscious. As I I've said, the U.S. entertainment strikes are continuing. Disappointingly, we expect to see 2% to 2.5% impact to organic revenue growth for the year. Now we're doing everything we can to manage costs across the business, but also balancing that we're preparing to service the pent-up demand when it is released. Overall, we expect to largely mitigate the impact of the strikes to adjusted operating profit with margins expected to remain above 15%. The rest of our guidance metrics are in line with what we said previously, and we continue to be mindful of the FX rates where the U.S. dollar to euro rate is expected to move against us. So on my last slide before I hand back to Bertrand, I just wanted to show this one to finish. It's one of the key reasons why I wanted to join Keywords. The consistent track record is quite remarkable with top line growth matched at the operating profit level through the cycle. And importantly, as I look ahead, we have the key pillars in place to continue that growth as a leading player in a large, growing and dynamic market, and I'm delighted to be here. Back to you, Bertrand.

Thank you, Rob. Thanks for that. I think now I'm going to spend a little bit more time on technology and AI and obviously, it's a hot topic right now. So I thought it would be worth taking a little bit of a glimpse on that in terms of the progress we have made, maybe sharing a bit of vision that we have on that front. I hope you'll find it helpful to some of the discussions that we have had more recently. Before we start, I have to say I find it actually even more exciting opportunity and the upside than I even found a few months ago. And you know I'm coming from a tech background. So I think we are uniquely placed to win on AI. I think we have a great platform to take that on. I think we're definitely determined to take the lead into that space. We want to do it respectfully in the right responsible way with our clients. But earlier -- maybe on the left-hand side, you see some of the strategic pillars, the 3 key areas I was talking about earlier: the first one is, we definitely want to use it to create internal efficiency across our own operations. This is key to us. This is part of what we do continuously to make sure that we remain competitive, that we have a platform that can be at the right price level and the right flexibility for our partners. Concrete example of those, we have a big initiative going on around Globalize right now, where we're using technology to streamline a lot of our own operations to make it much easier for clients to operate with a single point of contact with us, which requires all of our processes to be more harmonize. I'll share a bit more about that, but a big, big initiative in the goal. We're also using AI tools everywhere across the business. Jon and I have been pushing that everywhere across each of the service lines, each of the divisions, each responsibility to make sure that we look at the efficiency and where AI can help with quite a few early wins in their belts on that front already. The second one is around building AI product platforms. So I'll touch much more on that in a minute, but we -- to give you a sense, we have put 200 heads behind that initiative right now. So we're pretty serious about that. Those are product guys, product teams. We have really come together across the different products and that we've acquired some, that we had some in which we have invested quite significantly. But I think that's a very, very important component of story going forward. And by the way, we didn't wait for ChatGPT to come in to effectively launch that. You know it was one of our pillars from the very early days of it. And thirdly, I touched on the Labs earlier, but we have launched -- we definitely want to be innovating for the future. There's a lot to be invented. There's a lot to be figured out. There's a lot of partners out there, how do we figure out which ones to map, which ones are the winners. And for that purpose, we have launched a lab and an AI Center of Excellence under the leadership as well as Jamie Campbell. And you might have seen that recently we brought on board Stephen Peacock. Interestingly, Stephen was the Head of AI/ML at Amazon at AWS Games. We didn't approach Stephen. He came to us asking to join the team. I think if you were to ask him, and I hope you'll get a chance, what I really attracted him to Keywords has been the ability to be really at the center of the ecosystem into the gaming space and how we could shape effectively AI with our partners in that space. Why can we win? I think there are quite a few elements that are important to flag here. The first ONE is we have a very strong client relationship. We're in the middle of it. I've been spending, Jon as well, more and more time with some of the CTOs at some of the leading publishers. And frankly, nobody has the answer, but part of it is to be at the table to be able to look at that jointly together. We have also a strong track record of 4,000 technologists in Create. So we have across our engineering team, 4,000 engineers, naturally technology is part of the DNA. It's part of the oxygen. I'll show a bit more about that. And I have to say, when I walk around our studios, I thought that I was ready for battle a few months ago to make -- to almost on a crusade to make sure that everybody was really leading the pack in terms of AI, I don't have any convincing to do. Everybody is already looking to it. What are the players? Why can it be using on production? Where can it help on some of the workflow, the processes that we have? Jon and I were part of a pitch that some of teams we're putting together. They were all around Midjourney. They were all around the different platforms that exist to be able to make their pitch at least on nonproduction in partnership with our clients better. We're also continuously mapping the environment. There will be some winners, there will be many losers in that space. We see thousands of start-ups emerging based on AI, some at [indiscernible] valuations, some actually very well grounded in that. So part of our job is to be able -- on behalf of the industry to map of who are the winners in each of the subareas. In our for example, we mapped each of the 10 subareas looking at who are the 3 that we think are most promising and how do we use that in a proper way? How do we help our partners navigate through that? How do we test? And we have the advantage of being able to use our scale as well to be able to leverage that. Scale to me is the next one. We have in that unique position where we have scaled. We have a moat in a fragmented industry. Not everybody can start that. And many would see things that big publishers will invest massively in AI themselves, but many are looking at us, saying, "Keywords, can you help us, and can you help being the platform of record for some of the needs that we have into that type of space." So all in all, you can see that this is something important to us, but we want to do it responsibly as well. So there's a lot of questions about ethics. There's a lot of questions about IP. I'm sure we'll touch on those. That's why we can only move as fast as our publishers are willing to move on those. Some have told us point blank. We don't want to have anything to do with AI until we really figure out the framework of what it is. And some others want to experiment more ahead. Now there has been also, I think, 1 thing that has been largely underestimated is what you see on the left-hand side is how much tech advances have helped create bigger, better game, better experiences for players. And what you see on the left-hand side is a graph that just [ puddled ] and I thought it was very interesting, which is how much more employment and engineers have been needing to the gaming industry with the progress of technology. So we went back in time all the way to Unity to Unreal from the early days to now Unreal 5.2. As an aside, I should flag that in Unreal, we typically get access to it 18 months before the market even gets access to it by the nature of -- of our partnership and co-development with many of the publishers themselves. But you can see the market is growing 5x over that period of time, which is something that is often, I think, forgotten. Many assume that technology means much less employment on the back of it. There is much more than the engines themselves. It's all the piece of technology. It's how do we use the workflows as well in the proper way? All those have really helped creating those better experiences. What you see on the right-hand side, it's really a race to the top. Look at the ones like God of War, like GTA, Call of Duty, look at Final Fantasy, Horizon West. And look at the budget as it has evolved over time, multiples in terms of growth on the budget associated with those. And that is not just because of the budget of explored. It's also because this is a big industry with more and more players with a bigger and bigger fan base as well that is behind that expects those type of experiences. Look back at Call of Duty, Modern Warfare as well and how much -- how fast it go to $1 billion intake after launch earlier this year, much faster, even a Top Gun: Maverick on those. So I think the world tends to forget how big of an industry this really is, and it's really a race to the top at the end of the day. I personally believe that AI will be an accelerant to this. If you could map it out to move on that graph of how much we're going to be one of the consumers of AI, hopefully shaping some of it as well, but it's going to create more work for all of us, while at the same time being grounded in reality checks. We spent a lot of time, for example, on 3D modeling. And I can assure you that area is far from being market-ready at all on that front because there's a lot of intricacy, there's a lot of rendering issue, a lot of complexity on the engineering side, but we want to be there to be able to help publishers navigate through that. Now many publishers, we also use that to be able to reinvest into the game. So hopefully, there will be savings that we can pass on together as part of it. I'll share some of that a bit later. But this is the voice of our publishers themselves. If you talk to Andrew Wilson, has been on record talking about the fact that we can do more with AI. So it's not about labeling just to do less and just to be more efficient. It's also we can create those experiences. Same goes with Activision Blizzard. I found the Microsoft one. This is from Matt Booty, who runs a studio across Microsoft, very interesting. Look, Matt is talking about in which he dreamt that you would have some AI bots to spend online testing the game. This would change the game because it means you can test much earlier. You can get the sense of the quality of your game as you are developing them themselves. That's exactly what Mighty is all about. So Mighty is one of our own proprietary piece of the eye and technology that we have in there. Ubisoft, we spent -- we had a summit with our top 50 leaders, Jon -- 3, 4 months ago, where effectively all of us, we dedicate 2.5 of the 3 days entirely to technology into AI. We had many external speakers, external partners coming over, including La Forge, which is the Center of Excellence lab at Ubisoft themselves, incredible to see how much like-minded we are in there. But the main point on that to me is that there is no intent from the publishers to do it themselves. There's really intend to collaborate and to find ways we have the scale to be able to help on that front. And I would add that complexity is good for us. Complexity is what we do. A lot of our engineering work is about complexity and handling what it takes to get a game to market and even the fact that we have a role to play as an aggregator for the industry. Now this one I find very interesting. And it's -- I often talk about Mighty, about Kantan, about Helpshift, but I wanted to bring a bit of a bigger picture of what we really do day-to-day here. Across the 3 divisions, whether it's in Create, whether it's in Globalize, whether it's in Engage, you recognize some of the logos. But there's some we never talk about, but that we use daily. MemFerret is an interesting example in terms of one of the products -- proprietary products that we had. This came from a couple of our studios. We're frustrated about some of the rendering, highly technical complex issues that we have in the industry that typically create leagues in terms of rendering capability, especially for MMOs, big player, big multiplayer games with big memory potential leagues behind. Those guys found a solution to fix that. We're now starting to look at how could we productionize that to help the industry more broadly. So we went through it with Jamie Campbell and when I was talking about the Center of Excellence in the Lab, at [indiscernible] the 38, I think we looked at projects that are ongoing to some extent, watch one out of the 3, 4 that we could effectively go and scale ourselves. Spectrum Lab is an interesting one. This one is being done in partnership with a company called Spectrum Lab. In the Engage area, it's all about community management. It's all about sentiment analysis. How can we be real-time? Thanks to technology, the sentiment into your community. When you have hundreds of millions of players into a game, how can you detect the poisonous area? Where can you detect the risk that something is going wrong into your network so that you can really have a healthy community behind? We're working with all of those with already a long-standing partnership there. PXN is an interesting one. PXN is one about distribution of assets when the game is about to be released. Think about a big production like Baldur's game like Starfield, those are massive, massive production where -- I mean, thousands of assets of different shapes of forms, video, asset, text, audio needs to be moved from one way to the other to the media, for the traders and others, you need the underlying digital asset management platform to be able to do that. We have one of those that is what we know into the space called PXN. Now it's also at the bottom line, you'll recognize a lot of the engines that we use [indiscernible]. Again, many of those will get access way before they get released on the market, which gives us a real advantage as well on those. Same goes now on Stable Diffusion, on Midjourney, we're big users across the team of each of those tools. What I'm trying to say here is like this is part of the DNA of what we do. And I would forecast that when we see it in a couple of years from now, this will be part of the oxygen of what we do naturally into many of our divisions. Now on this one, I wanted to bring a bit to life of how we are thinking about bringing all this together. Those are not just isolated products that we see as independent from each other. We are starting to really think about how could this be an integrated product platform. We have a long way to go to really make that completely happen, but you can see some progress already being made over the last year. You recognize some of the big ones, Mighty, Kantan, Helpshift. But look on the top left, for example, in terms of language AI. Now we're already getting the team that Helpshift collaborate with Kantan so that if you remember on Helpshift, which is all about helping taking some of the ticketing away and player support, one of the mutations we have is some gets past to agents, but then you need agents of multi-languages, which add exponential complexity to be able to handle the operations. Kantan helped us making sure that we can have a first translation that doesn't even go to production, but so that our agents get a first translation so that they understand what the tickets are about. It means we can focus much more on monolingual agents, can really be excellent in what they do in terms of the relationship with the players themselves, way more efficient in terms of our own operations. XLOC is another interesting one where everything that has to do now with text and audio assets is in a single place. Combined with Mighty, this we realized that just a few months ago, while experimenting with -- between the 2 teams, all of a sudden, overnight, you can run a batch over a game and see all the strings of text associated to a game itself. And you can visually see the ones that don't fit into the frame itself. That allows you to completely accelerate the way that you can do testing around those. [ KRAST ] and Kantan Audiomate, which is a new addition to the family in Kantan more recently, gives us a direct access now to the engine in a consistent way for all the audio files that we have on there. So think again about LiveOps and the necessity to be able to handle files and massive type of skills, that's what we do. So you can see we are building a wheel here that hopefully can be more and more integrated into the workflow of our clients, of our partners, joining them up. Again, we have work to do to completely build that vision, but you could see spacing up where it can be ala carte in the menu of whatever you want to take, but we also have a short-tier building what could be more [indiscernible] for postproduction for many the publishers in there as well. Now I'll go even more tangible on some of those and some specifics. Kantan, we talked about. But to give you the latest update, we now have 30 million words that have been translated across Kantan. We handle more than 3,000 projects every single week. We have -- we are live on 28 titles across Microsoft. We have an average turnaround time of 30 hours critical for LiveOps. And more importantly, since we saw each other last time, we have now expanded that to other clients, looking at the top 5 clients in which we can naturally go and grow with them, using it internally on behalf of backlines for better efficiency and some of them looking at integrating that into their workflows. Helpshift. This is probably one of the -- a snapshot of a fascinating case study. I can't name the clients, but we have a landmark clients, of which we are now at 29%, almost 30% of the tickets have been automated with 20% improvement in terms of efficiency for them. So it gives you a sense of how much we can split between the 2 of us. We have -- importantly to me also CSAT that has improved by 7 points in terms of customer satisfaction. And that's the best of technology and services coming together. Mighty is another one that you've heard about in the very early days of it. This was very embryonic when we acquired Mighty a year ago. We had 4 developers attached to it. It was only in Unity. We're less than a year later, we are now proud to say that we are live on Unreal. We are live on custom engines as well. We have the ability now to work with AAA clients on the back of it. We start having interesting case studies as well with clients. So we have the first few pilots going on in the second half of the year with including some very big names. I cannot name them right now, but making good progress on that front. To give you a sense, we were at Gamescom a couple of weeks ago, we had more than 50 demos with many of the big publishers coming on and getting a sense of what these things was all about. I think it was a really massive, massive eye-opener. And 1 advantage that we have as well is we have 24 studios on the Create side that do co-development with our partners. This is -- it requires a lot of trust to make it work because you need access to the code base, but that's what we do. That's why we are positioned. And we have now -- Jon has pushed many of us to just to make sure that we use it internally already ourselves so that we can naturally go as an extension. That's probably the best go-to-market that we have in there. So I think it's really illustrating the power of our platform. So all in all, I think I won't go into much detail, but I hope it gives you a sense of the momentum we're building on this, the traction. We're building on this, the progress we're making, that we're really serious about it. It gives you a sense, hopefully, of the platform that we intend to build with this. And at the end of the day, we view this as an incredible tool. It's an incredible tool that helps us accelerate and hence the type of operations that we have with a combination of tools and services. So I'll move on, but I hope that this gives you a bit of a glimpse. I realize there's been quite a bit of time on this sections, but it's obviously a hot topic. I hope you find it helpful. Maybe to bring us home, I'll close on the outlook itself. Rob reminded me to put this slide together. I tend to forget because I take it for granted. But it's true that it's good to go back to fundamentals of the platform that we have in our own hands. We have the chance to be a market leader in our space, again, 3x the size of next one, with a big TAM, a big addressable market in front of us. We work with most of the top publishers in the world, whether it's on AAA and on mobile as well. Now we are building a massive accelerant on technology, but combined with the talents that we have on board, and, of course, a very strong track record as well on the M&A front, as talked about earlier. There's also a very compounding growth model that we have. We talked about this at the CMD, but this is probably more relevant now than ever. We are working consistently of delivering 10% organic growth through the cycles, which is very few B2B IT services able to do consistently. At the same time, operating with an underpin of 15% adjusted operating profit as we're consistently delivering, as Rob showed earlier, with a very good cash conversion consistently as well. And while having a very strong M&A story. We've even amped it up a lot of it, EUR 200 million plus look at the last couple of years, even this year already being at EUR 130 million of consideration. So -- and firmly on track to reach EUR 1 billion revenue well inside. So I hope this gives you a sense of the compounding force that is behind Keywords. This one, I found actually very relevant as well. This gives you a sense of the agility and the entrepreneurship within Keywords. When you go back in time, just 10 years ago, it was entirely Globalize. It was entirely a localization business at that stage. Look at how much it has evolved over the course of just 10 years. Now with 42% of our business is in Create, which is a very healthy business, strong margin business, good growth. We could have more developers, we will take them on as well. We have 20% in Engage, which Jon describes as a mini Keywords that we're building, I think, quite rapidly as well and still with a very strong fundamentals on Globalize with all of it working nicely together. But it shows fast forward in the future. It shows as well our ability to be able to be agile to take on LiveOps and to be ahead of the trends where clients are really going by being -- joining the hip with them, LiveOps being a prime example, but also in virtual production, also in media and entertainment, also into areas like technologies we touched on. So all in all, I would say we've had a good H1. I think we're gaining share in a particular tough year, but it shows the resilience of our model. We have a strategy. We're executing on it on all levels. I think in particular with amping the ante in terms of strategic partnership, in terms of technology with a very strong M&A machine behind. And finally, we are very passionate about building a platform for the long term with a compounding model that hopefully is very sustainable for the long term. That's what you are buying into. And as we post to Q&A, I'll just pose on that. I think we tend to forget what we do at the end of the day, which is in those type of setup. At the end of the day, one of the highlights for me is really the type of titles that we work on. This is just a small selection that allowed us to talk about it we often to be -- happen to be the B2B hands behind the scenes on it, but think about Starfield, Diablo, Hogwarts Legacy with Warner, Baldur's Gate, one of my favorite Belgium fellows on that front. But on each of those titles, we have many, many studios working on those. Each of our service lines are engaged on those, more and more integrated in the way that they operate together. And for many of those, we have been working for 3-plus years on those and have big engagements as well that are recurrent over the years to come. So hopefully, that it's always good to remind ourselves of what we do at the very end of the day, but that's the exciting piece within the company. So on that note, I'll invite Rob and Jon to come over for Q&A.

Could I have 2 questions, please? Firstly, you flick pass the savings that Helpshift was generating in 1 particular instance and said there was mentioned the 20% cost savings. Are you seeing more instances of where you are able to cost price for value rather than price based on the amount of work done? And is that -- is more use of technology driving that? And the second question I had, I wanted to dig in a little bit on strategic partnerships. To what extent should we expect you to be making announcements of x hundred people are moving from x client over to Keywords to do this at the other sort of from a long-term type of contract, 3 years, whatever? Is that the sort of thing we should be expecting to see over the next few months?

I'll start maybe on those 2 and Jon you can help me out. I think really good questions, things that we are working on very closely. Helpshift, you are right. Maybe as a quick remainder -- well, I went a bit fast, but we see 20% saving in this case. This is 1 real case study, fairly large scale as well. CSAT that improving, but that gives us the ability to pass it on. So we are pricing accordingly so that we can effectively gets -- I mean, to some extent, you've SaaS business on 30% of it. We are roughly taking 30% of the tickets that would have been handled by agents, now being automated. But I like the nature of SaaS business, it gives you a higher margin on the back of it. But keep in mind that we also have agents behind. And actually, one allows us as well to get access to the business and to be more competitive there. So it's a bundled pricing in the way it's being organized, Helpshift partly as well on volumes of tickets that we can take over, but the pie is bigger and being divided by between the 2 of us. What I like in there is like it's not just a cost equation. It's also CSAT is improved. When you think about the fundamental of Helpshift, what it does? It says, look, in this type of ticket, complaint from a client or for player right now, we can go and intervene right there, right then, live. We don't have to wait for a day before handling the issue, which is the real timeliness, of this is really important because the players in the game wants to continue to experience. So that's why you really see the improvement in experience itself. On the contrary, the smartness and the brain behind Helpshift is you have a CRM underneath it. That says this is Will, Will is really a top 3 spender or it's a key influencer into the node go ahead and send the right agent that can go and help them on the back of that. So you can see how much it creates much more value. And so we still have to figure out exactly at massive scale what the business model would be, but you have clear upside for both of us, the partner and us. And this is, by the way, a partner that is very cost conscious and we've increased the pie actually with them. On your second question on strategic partnership, I don't know if we plan to announce -- even this is not easy because we tend to be in the shadows behind many of the publishers. Often, we don't talk about it because we want them to shine as well about the titles. But that's where -- and maybe at one point in time with a CMD or the mini event that we do, we'll talk to them about table -- client A, client B, client C with the approval or we'll try to get some of them to tell the story, which I think would be even more powerful than us. But the more fundamental point is that's why I try to bring it to life, both in Globalize and in Create where we see more of those. We've got now on building the strategic partnership. It's starting to really pay off. Those are big engagements. I think we have the muscle to be able to do those. We've built architects as well that allows us to architect those type of solutions for partners and particularly attracted by the fixed cost to variable cost. And I would personally suspect that next year, you'll see more and more of that because you have somewhat closed -- too close to the bone to some extent, you have some that on purpose, if we ship their own operations to be able to do that. And likewise, you see some newcomers, 1 purpose don't even decide to get those type of operations they come to us fairly early on saying, "Keywords, how can you help us making sure that you handle all of our postproduction from day 1?" Jon, I don't know if you want to add?

Not much to add. I think the only thing I'd add is that we've seen this sort of trend using external providers consistently over the last few years, but it tends to be quite tactical in the main. So people add us as testers and then gradually, over time, our external testing becomes a big component of the testing activity. I think when you got an economic situation like we've had for the last year, some publishers have used that to sort of look at their cost base and accelerate that sort of fixed to variable costs very often, we're able to do it more cost effectively. And obviously, they can use us to manage the lumpiness of volume because we've got the scale to do that because we're testing for lots and lots of clients.

I have 3 questions. The first is in terms of -- you mentioned the [indiscernible] multiples. How should we think about [indiscernible] multiples for the prior period acquisition given the slowdown? Are they on track? Or how should we think about modeling? Second, in terms of automation, could you give us examples of automation in your own internal utilization levels? Basically, how utilization levels have changed? And basically just some sense around that. And finally, in terms of the entertainment strikes, you mentioned that you're penciling '23, how do you think about '24 in terms of the bounce back? Or in terms of how should we expect revenues to come back in '24, if at all?

Can you just remind me the first one on multiples with...

Multiples, [indiscernible] multiples for the prior M&A, how should we think about given the slowdown?

Yes. Okay. Jon, do you want to start with the multiples and what we see?

Yes. I mean I'm not sure we're seeing a big change in valuations, honestly, but I think what we are seeing is perhaps more companies coming to us this year than we've seen previously. It was a very similar phenomenon that we saw during COVID, where when you've got an economic environment like we've had. Some of the businesses on their own are actually quite fragile. And Keywords is quite an attractive home. You've seen that within our Create service line, we've been able to keep our studios very busy even during a period where the economic backdrop is weaker. And I think that's because there's a very powerful aggregation effect that you get. We evaluate every M&A deal in its own right. We obviously look at the future cash flow generation that we expect for those businesses. So I'm not seeing valuations coming down necessarily, but I do think it's creating a good environment to attract and bring really high-quality studios into the business.

I'll probably take the 1 on -- or we can take both the one on automation as such. I could go on utilization, but maybe I'll give you a more concrete example, which is Globalize is one where we have 2 different type of businesses to some extent. We brought together FQA, so testing and different siblings of them, if I can call them that way, and then the localization business. But to some extent, what we realized, we have 2 leaders who really joined for us and as we put that in the Globalize and they looked at -- look, there's too much complexity for clients to operate with us in some instances, where we have too many points of contact, too many divisions, too many sub-service lines basically to those. So they took that on fairly early on when we put Globalize together. First, they've joined from a leadership point of view. So it's really 1 united team. We've put some single point of contact, some that we embed with clients as well to mingle much easier. We've taken a few [ ad house ] clients on which we wanted to demonstrate that. I think we were very impressed by the impact. So hence, we authorized more of those based on customer satisfaction and recurrence of revenue and more volume coming our way. But the next step was then technology. It was how do you make sure you have the by platform so that those assets in lock in QA can really be shared and having 1 single work stream. And the piece where we're even pushing with Kantan is to having 1 work stream or we can even share with clients all the way. That, to me, is a holy grail because then you get 1 single work stream where clients and us get to see what is happening. You get real timeliness. Again, very important in operation LiveOps. So you'll see more and more of that across all of our operations every way. And lastly, on the strike, actually I'll pass it to Rob, but tough for us to predict in 2023, but we gave our best estimate of what we see based on what we see basically right now. Maybe the 1 point I'll add is, I think Rob touched on it, there will be probably a bit of a period of adjustment as soon as we open up. I don't know when. I cannot predict. We made the assumption right now until the end of the year. However, I've been privy to a few discussions with some of the big studios on the M&A side. And where they all expect is they've asked us to be a really big time for tsunami of content that comes on the back of that, which is not really surprising. So we also have to gauge about how do we handle our operations to also be -- we tend to be very flexible and to address very quickly our model for us as well to be ready to have the right strength and [ men and women ] power as well and technology to be able to take the demand as soon as it comes back.

Yes. And there's much more to add. I mean, we obviously don't have a crystal ball, but we'd expect a surge in demand at some point. And obviously, there's a lot of working out for people to work out their schedules and things. So I just have to see. I mean, obviously, our guidance overall, 10% plus organic growth, 15-plus-percent margins still holds. And we're very confident of that. And so we'll just have to see.

It's Nick Dempsey from Barclays. I've got 3, please. So first of all, just on this year in terms of organic growth, are we saying that if some of those projects that you hope to come in Q4 spill into next year that we'll have to take another cut out of organic revenue growth? Or have you already captured a conservative approach to that in the way that you are guiding? Second question, I guess you've always been able to evolve your business along with your customers as they change by making acquisitions. But maybe not in this space, but outside this space, we've seen some eye-watering multiples paid for anything that's got AI in the title. So is there a risk that you won't be able to evolve yourself through acquisition without blowing through all of your financial targets for acquisitions? And then the last question, just looking at the testing area, you're obviously doing some accelerating Mighty games pretty quickly, but we're talking about 40 people working on this. It seems a bit unlikely to me, that's going to be the final word in AI testing. So could -- is there a risk that you're just 1 of 20 people who's having to go at this when previously you were able to be dominant in a people-driven world of testing?

Okay. Good questions. Maybe, Rob, do you want to take the first one?

Yes, sure. I mean I think, as always, with our business, projects move around all the time. Indeed, we've seen that this year, certainly Engage where some of the marketing projects move from the first half to the second half. But I think ultimately, we'll have to see how it goes. I mean we've given the guidance today for this 2% to 2.5% because that's what our best estimate is for what we think the overall impact is from the strikes. Importantly, we've largely mitigated that on the operating profit level by being tight on costs. So today, that's our guidance as to where we think we're going to land the year and we'll just have to see from there.

On your second question about M&A and multiple, I totally understand your question, but I think you can probably trust us over the years to be rigorous in terms of how we approach M&A, Jon give a sense as well. I mean, typically on 5 to 7x multiple, we've been fairly rigorously systematic. Even if you look at some of the tech acquisitions we made on Helpshift, on Mighty, we've been actually fairly diligent as well in the way we approach those. We didn't go for any of those big VC backed that says pitfall of money going the other way around. That's not us, we wouldn't do that. I would even argue that if you look back at the 4 quadrants, and maybe Jon can comment more about the 4-quadrant of acquisitions, game dev, marketing, M&A and tech that we have showcased before. On technology, actually, it's not necessarily about pure acquisition on that front. A lot of it will be via partnership. And I think we have a unique position there that can really be an accelerant. That's why we have mapped 200, 300 meaningful startups, big technology company, looking at what is left, what is not at risk of really making a cap, what really works. And with the advantage of having 4,000 engineers that can really go and test [indiscernible] with our partners and seeing what is real on that front. We've even mapped 3 in each taking, world building, for example, [indiscernible] taking NPC, non-playable characters, how do we map the in world of this world, the charisma we've of this world. so that we get a sense of what works, what doesn't work with our partners as well. So I think that's really one of a secret powers here, but a lot of it will be by partnership. I'm personally very interested and we're having a few discussions on go-to-market partnerships, where could we be the implementer. So the service provider as well that helps on the implementation of them. What their issues will be having access and cash to be able to do a go-to-market. We're perfectly placed for being able to do that. And in the meantime, I'll take maybe the third one, which is on Mighty 40 people. Mighty is just 1 example. And again, it was probably the newbie into the suite of products we have there. But if I just step back, even just take Helpshift, Mighty [indiscernible] 200 FTEs on that front. It starts counting to get product guys, that's quite an investment in those space. Now they are being monetized already right away as part of it. You can say I'm coming from a product background myself as well, build product team. So how do we really think about the product organization that also goes behind that. But you see, hopefully, through the vision of the wheel that we have, some of those are already new additions to the family of the front. So I definitely expect us to see more investment in that. This being said, it's not just about headcount. It's also about being -- 1 of our strengths is to be able to be in the workflows of our publishers. There are many, many testing platforms that are popping up. I've seen many, have talked with many PCs as well around those many personally -- won't even make the cut as such. There are some interesting ones. We always keep a look out on that. But the main difference that we have is that we have access to the Microsoft, to the Activision, the [ citadel ] of this world, to be able to be to in their workflows. To implement Mighty, to make it work, you need access to the source code of a game. If you're a start-up where I'm a big publisher and I don't know if you're going to be live in 2, 3 years from now, I'm never going to give you access to that. This requires a real relationship of co-development. That's why it creates and I think 24 studios gives us the total advantage on that product we -- with Jon has been really leveraging across the team.

Yes. And I think just going back to the kind of the technology side. I mean -- and the second question, I mean, clearly, we're in a kind of max hype phase, but we recognized 2 years ago, the technology was going to be increasingly important in terms of the way we deliver the services. So we made some early moves with Helpshift and Mighty games. And bear in mind, Mighty games have been developing that solution for 10 years. So these things take a long time to develop, refine. And as Bertrand says, I think the difference between us and perhaps some of the external technology companies is that we've got the service muscle to go alongside the technology and the relationships with our clients. And these are not plug-and-play solutions. These are solutions that need to be implemented well. It's -- you need the human aspect to make sure that you're maximizing the effectiveness. In terms of other technologies out there, we're monitoring the landscape very, very closely. There are hundreds of AI start-ups out there. Some of them will be successful. Others won't. I think for us, it's all about making sure that we are right at the forefront of understanding what's out there, what the capabilities are? And I think we've got a big opportunity to then help our clients navigate through that landscape as -- if you like, working in partnership with some of these technologies. And as we said earlier, we've always had new technologies [indiscernible] tools. These are just different tools that allow us to augment and be more effective in the way that we're delivering our services.

It's Tom here from Citi. Two questions, if it's okay. The first one, just a recap, if that's okay, on the sort of order of cyclicality. I just want to get your latest perspectives on whether Engage will lead create in terms of growth or the other way around in terms of phasing of cyclicality? That was the first question. And then the second question was you flagged marketing as having a concrete sort of step down in the 1H. But then I'm interested whether that's purely cyclical or whether there are some structural elements because, for example, E3 appears to have just come off the radar. Does that -- is there a one-off element to decline in marketing?

You want to start on the cyclicity?