Video games technical and creative service provider Keywords Studios reported “strong” first-half revenue growth on Wednesday, as it entered a deal to acquire Smoking Gun Interactive.
The AIM-traded firm said group revenue was up 34.5% in the six months ended 30 June, to €321.1m, driven by sustained demand for content and a continuing trend towards external service provision.
Organic revenue growth was 21.7% in the period, with the board describing “good contributions” across all service lines.
Keywords’ adjusted profit before tax rose 38% to €54.8m, with its margin expanding to 17.1% from 16.6% a year earlier.
Adjusted free cash flow totalled €31.7m, down from €37.7m, with an adjusted cash conversion rate of 57.9%, lower than the 94.9% it recorded in the first half of 2021.
The company said that reflected the return to the regular second-half collection cycle of multimedia tax credits (MMTCs) and working capital phasing, with full-year adjusted cash conversion rate expectations unchanged at around 80%.
Net cash at the end of the first half totalled €121.3m, up from €84.1m year-on-year, after €13.6m net was spent on acquisitions.
Together with its €150m undrawn revolving credit facility, Keywords said it was “well-positioned” to continue pursuing organic and acquisition growth strategies.
The board declared an interim dividend of 0.77p per share, an increase of 10% over the distribution made at the 2021 half-year.
“The group has delivered a strong performance in the first half, with a heightened focus on high-quality content and the continued trend towards external service provision in the industry, driving healthy demand across our service lines,” said chief executive officer Bertrand Bodson.
“Initial trading in the second half has been encouraging and we are confident of delivering a performance in line with the recently upgraded market expectations for the full year.”
Looking ahead, Bodson said Keywords was “increasingly well-positioned” to capture a greater share of its addressable market.
“We are the clear market leader with unrivalled global scale and a unique service platform across the entire content development life cycle and will continue to cement and build upon our position as the partner of choice for the global video games industry, and beyond.”
In a separate announcement on Wednesday, meanwhile, Keywords announced that it had entered a conditional agreement to acquire Smoking Gun Interactive.
The board said the acquisition would further its strategy to be “the partner of choice” for technical and creative services for the global video games industry.
It described Smoking Gun as a 68-person video game development studio based in Vancouver, established by “industry veterans” John Johnson, Drew Dunlop and Angie Pytlewski in 2007, with the trio set to continue to manage the studio as part of the Keywords group.
Under the terms of the acquisition, Keywords would pay up to CAD 40m (€30.22m, £26.35m), comprised of initial cash of CAD 16m, the equivalent of CAD 4m in new shares, and up to CAD 20m in a mix of cash and shares based on growth targets over the year after completion.
The new shares in Keywords would be issued with one-year lock-in periods and orderly market provisions for a further year.
Smoking Gun was expected to grow strongly over the next 12 months, and deliver EBITDA of around CAD 6m.
“Smoking Gun has a 15-year history of high quality game development and the studio’s expertise in casual and RTS development for mobile games combined with its experience in live operations games support are valuable extensions of our client offering,” Bertrand Bodson said.
“The acquisition builds on our presence in the Vancouver area, which is a rich source of talent and one of North America’s video gaming hubs.
“We are really looking forward to working with the Smoking Gun team and supporting the studio’s continuing growth as part of the group.”
At 1554 BST, shares in Keywords Studios were down 1.36% at 2,318p.
Reporting by Josh White at Sharecast.com.