LONDON (ShareCast) - (Sharecast News) - Keywords Studios announced two fresh additions to the group alongside a strong set of first-half results, boosted by five first half acquisitions and greater cross-selling between divisions.
The video game industry technical services provider lifted revenues, including contributions from acquisitions, 72% to €110.0m in the six months ended 30 June - including a 2% increase in like-for-like revenues. The five acquisitions included last October's purchase of video game functional testing provider VMC for around $66.4m cash.

Adjusted pre-tax profits were up 67% to €16.0m, thanks, in part, to an increase in Keyword's gross profit margin to 37.4%.

Earnings per share grew 53% to 20.1 euro cents and Keywords announced a 10% increase in its interim dividend to 0.53p per share.

A net cash inflow of €4.0m was generated from operations but net cash tumbled from the €11.1m Keywords had on hand at the end of its last trading year to just €100,000 after €10.6m of net cash outlay on acquisitions throughout the half. Management obtained a three-bank credit facility for up to €105m to enable the funding of acquisitions and general working capital requirements.

Chief executive Andrew Day, who has a strengthened senior management team around him with the appointment during the period of a chief commercial officer, chief marketing officer, global operations director and engineering service line director, said VMC has been successfully integrated, with cost synergies leading to a faster-than-expected improvement to margins.

With the benefits of a full six months contribution from first half acquisitions, a "healthy" pipeline of activity that required around a 20% increase in workstations in the first half, and a strengthening US dollar, he anticipated a strong second half performance in line with current market expectations for the full year.

"Overall, we believe that there is a clear opportunity for Keywords to continue to extend its existing relationships with many of the major games companies both through providing additional services to existing customers and through providing dedicated outsourced services. We maintain a strong acquisition pipeline and we continue to review selective acquisitions opportunities that could add capacity and further extend our service offering or geographical penetration," he said.

Elsewhere, Keywords revealed that it had acquired Brighton-based business The TrailerFarm for a total consideration of £2m. The AIM-listed firm said the acquisition will complement its recent acquisition of Fire Without Smoke marketing services.

The firm also noted that Hollywood sound designer, Scott Gershin and his Sound Lab team in Burbank, California, had joined. Investment will be made in a new Sound Lab studio, which will be integrated within the Keywords Audio Services line.

As of 0940 BST, Keywords shares had dipped 2.33% to 1,859.70p.

Analysts at Berenberg noted that the constant currency LFL growth of 8.6% is lower than the run-rate of previous years, estimating the contribution of VMC will have dampened it by 3-4ppt, "indicating that the remainder of the business continues to grow strongly".

With 660 new workstations added in the half, Bernberg said: "This demand induced increase in capacity going into one of the most congested game release schedules in recent years, coupled with six months' contribution from H1 acquisitions and a strengthening US dollar, gives us confidence that Keywords will at least meet our full-year forecasts. In addition, management's comments on its M&A pipeline suggest further accretive M&A is almost inevitable before year-end."

Broker Peel Hunt said the results were in line with expectations, with adjusted profit "importantly" up 67% "despite the historical acquisition of the lower-growth and -margin VMC business, as well as substantial investment to manage its expanding operations, and a weakening dollar".



"With Keywords' expanding operations, we are encouraged to see the strengthening of its management team with the hiring of a CMO, a global operations director and a COO."

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