Keywords Studios : Full Year Trading Results 2023

13 March 2024

Keywords Studios plc ("Keywords Studios", "Keywords", the "Group")

Full Year Results for the period to 31 December 2023

Resilient performance, extending our market leadership position

Keywords Studios, the global provider of creative and technology-enabled solutions to the video games and entertainment industries, is pleased to announce its results for the twelve months to 31 December 2023.

Financial Overview:

Results for the twelve-months ended 31 Dec	2023	2022	Change
Group revenue		€ 780.4m	€ 690.7m	+ 13.0%
Organic revenue growth	1			+ 5.6%
Adjusted EBITDA	2	€ 158.3m	€ 146.9m	+ 7.8%
Adjusted EBITDA margin		20.3%	21.3%
EBITDA	2	€ 109.2m	€ 120.9m	(9.7)%
Adjusted operating profit	3	€ 122.0m	€ 114.6m	+ 6.5%
Adjusted operating profit margin		15.6%	16.6%
Operating profit		€ 46.8m	€ 71.8m	(34.8)%
Adjusted earnings per share	4	112.9c	113.5c	(0.5)%
Earnings per share		25.3c	61.5c	(58.9)%
Final dividend per share		1.76p	1.60p	+ 10.0%
Adjusted cash conversion rate	5	82.3%	100.1%
Net cash / (net debt)		€ (67.5)m	€ 81.8m

Finance and Operating Highlights:

• Full year revenue growth of 13% to €780m (2022: €691m), 17% on a constant currency basis, driven by robust organic growth and acquisitions.
• Organic revenue growth1, excluding impact of US strikes and FX, of ~9% (6% on a reported basis).
• Adjusted operating profit rose 6% to €122m (2022: €115m), with margin of 15.6%, ahead of guidance (2022: 16.6%), reflecting good cost control.
• Good Adjusted free cash flow6 of €94m (2022: €112m) was driven by strong H2 cash generation, with Adjusted cash conversion of 82%, in line with guidance.
• Net debt of €68m (2022: net cash of €82m) primarily reflecting another year of strong acquisition activity.
• Recommended Final dividend of 1.76p per share (2022: 1.60p), giving a total 2023 dividend of 2.61p (2022: 2.37p), an increase of 10%.

Strategic Highlights:

• Continue to outperform the market due to our diversified, global platform, and strong strategic execution.
• Strategic partnerships bearing fruit, with revenues from Top 25 clients increasing comfortably ahead of the Group.
• Good traction with clients as we further develop and scale our AI post-production technology platform across Globalize and Engage.
• Record year for M&A, with five high-quality acquisitions for maximum consideration of €225m, extending high-value offerings in Create and Engage and adding €90m of pro-forma revenues.

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• RCF increased to $400m, with maturity extended to 2027, cementing our long-term liquidity and flexibility to pursue our strong M&A pipeline.
• Positive recognition of ESG practices, with rating increased to AA at MSCI.

Current trading and outlook

• We expect to deliver strong revenue and profit growth and further extend our market leadership position in 2024.
• Driven by improving organic growth, recent M&A, and the maintenance of adjusted operating profit margins above 15% as we continue to manage our cost base and drive efficiencies across the Group.
• Our organic growth expectations are unchanged, progressively improving from H2 23 levels as we move through the year and as the industry's appetite for new content returns, as well as allowing time for the output from Hollywood to increase post the 2023 strikes.
• Extensive M&A pipeline of opportunities in 2024 and confident of continuing our long track record of adding significant value to our business and our clients through our highly value accretive acquisition strategy.

Bertrand Bodson, Chief Executive Officer of Keywords Studios, commented:

"In what was a difficult year for the industry, we delivered resilient performance in 2023 and continued to extend our market leadership position, reflecting our role as a diversified enabler of the industry. Whilst the industry backdrop remains tough in the near term, our diversified technology-enabled offering and strong client relationships means that we are incredibly well-positioned to continue to grow our market share as we support clients in the creation of ever more exciting and immersive experiences.

We made considerable progress against our strategic objectives and delivered a record year of M&A, bringing greater exposure to higher growth and margin Create services, and have an extensive pipeline of acquisitions in 2024. We will continue to successfully navigate the current market conditions and are excited by the opportunities that lie ahead as we deliver against our plans and become a +€1bn revenue business in the coming years."

Presentation and Webcast

A presentation of the full results will be made to analysts and investors at 9.00am this morning and the live webcast can be accessed via this link: https://brrmedia.news/KWS_FYR23

To register for dial in access, or for any enquiries, please contact MHP Group on [e-mail].

For further information, please contact:
Keywords Studios	Deutsche Numis
Giles Blackham	Nomad & Joint Corporate Broker
Director of Investor Relations	Stuart Skinner / Will Baunton
[phone]	[phone]
[e-mail]

MHP Group	Barclays
Financial Communications	Joint Corporate Broker
Katie Hunt / Eleni Menikou / Charles Hirst	Tom Macdonald / Stuart Jempson
[phone] / [phone]	[phone]
[e-mail]

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About Keywords Studios (www.keywordsstudios.com)

Keywords Studios is a global provider of creative and technology-enabled solutions to the video games and entertainment industries. Established in 1998, and now with over 70 facilities in 26 countries strategically located in Asia, Australia, the Americas, and Europe, it provides services across the entire content development life cycle through its Create, Globalize and Engage Divisions to a large blue-chip client base across the globe.

Keywords Studios has a strong market position, providing services to 24 of the top 25 most prominent games companies and contributing to over 70% of the 2023 Game Awards winners. Across the games and entertainment industry, clients include Activision Blizzard, Bandai Namco, Bethesda, Electronic Arts, Epic Games, Konami, Microsoft, Netflix, Riot Games, Square Enix, Supercell, TakeTwo, Tencent and Ubisoft. Recent titles worked on include Starfield, Baldur's Gate 3, Diablo IV, Hogwarts Legacy, Elden Ring, Fortnite, Valorant, League of Legends and Clash Royale. Keywords Studios is listed on AIM, the London Stock Exchange regulated market (KWS.L).

The Group reports a number of alternative performance measures (APMs) to present the financial performance of the business which are not GAAP measures as defined by International Financial Reporting Standards (IFRS). The Directors believe these measures provide valuable additional information for the users of the financial information to understand the underlying trading performance of the business. In particular, adjusted profit measures are used to provide the users of the financial statements a clear understanding of the underlying profitability of the business over time. For full definitions and explanations of these measures and a reconciliation to the most directly referenceable IFRS line item, please refer to the APMs section at end of the statement.

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Organic revenue at constant exchange rates is calculated by adjusting the prior year revenues, adding pre-acquisition revenues for the corresponding period of ownership, and applying the 2022 foreign exchange rates to both years, when translating studio results into the euro reporting currency.

EBITDA comprises Operating profit as reported in the Consolidated statement of comprehensive income, adjusted for amortisation of intangible assets, depreciation and impairment, and deducting bank charges. Adjusted EBITDA comprises EBITDA, adjusted for share-based payments expense, costs of acquisition and integration and non-controlling interest. In order to present the measure consistently year-on-year, the impact of other income is also excluded.

Adjusted operating profit consists of the Operating profit as reported in the Consolidated statement of comprehensive income, adjusted for share-based payments expense, costs of acquisition and integration, and amortisation of intangible assets. In order to present the measure consistently year-on- year, the impact of other income is also excluded.

The Adjusted earnings per share comprises the Adjusted profit after tax divided by the non-diluted weighted average number of shares as reported. The Adjusted profit after tax comprises the Adjusted profit before tax, less the Taxation expense as reported in the Consolidated statement of comprehensive income, adjusted for the tax impact of the adjusting items in arriving at Adjusted profit before tax.

The Adjusted cash conversion rate is the Adjusted free cash flow as a percentage of the Adjusted profit before tax.

Adjusted free cash flow is a measure of cash flow adjusting for capital expenditure that is supporting growth in future periods (as measured by capital expenditure in excess of maintenance capital expenditure).

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CEO Statement

Performance

The Group delivered resilient performance in 2023, with revenues growing 13% to €780m, despite a 4% headwind from foreign exchange, further extending our market leadership position.

Reported organic revenue growth of 6% included a 3% combined impact from the US entertainment strikes on our media and entertainment businesses, and foreign exchange movements. Excluding these factors, organic growth would have been around 9%, slightly behind our medium-term guidance, reflecting the current market and macro dynamics, which have led to pressures on certain parts of the business.

Operating margins were ahead of expectations at 15.6%, due to good cost control, which delivered adjusted operating profit of €122m (reported operating profit was €47m). This was 6% higher than 2022, despite the higher margin experienced in the comparative period.

The performance of each of the Group's three Divisions reflected the varied conditions in the market. We continued to see strong demand in Create, which now accounts for over 50% of Group profitability, offset by a temporary moderation of demand in our Globalize and, to a lesser extent, Engage Divisions, due to the current market conditions.

Cash generation remained strong, and as normal, was H2 weighted, primarily due to the timing of working capital, and we delivered adjusted free cash flow of €94m, giving an adjusted cash conversion rate of 82%.

We had another successful year of M&A, supported by our strong balance sheet, cash generation and expanded revolving credit facility, adding three high-quality game development studios to Create, and broadening Engage's digital and PR offerings, with two new US studios. As a result of this activity, we moved from a net cash position of €82m at December 2022 to a year-end net debt position of €68m, with significant headroom remaining in our facilities for further selective acquisitions.

Market opportunity

After a number of extremely strong years of growth, in 2023, the video gaming industry saw a mixed performance. Major titles that had been in production for a number of years were released to commercial success, such as Hogwarts Legacy, Starfield, Diablo IV and Baldur's Gate 3, but the broader industry saw publishers focus more on profitability than on taking risks around new content. This meant that we saw a focus on core IPs and smaller scopes for the launch of some titles, with an increase in the number of games being delayed or cancelled.

As we move into 2024, we expect a gradual improvement to market conditions and we remain confident in the medium-term market backdrop. Player numbers continue to rise, with another record year of average in-game players on Steam, and games such as Fortnite have attracted their highest ever monthly average users during Q4, demonstrating the popularity and longevity of high-quality games. The mobile market, which has been through a difficult period, also appears to be returning to growth after six consecutive quarters of declines. Hardware challenges have eased, with the PS5 now readily available and there is a market expectation that when Nintendo launches new hardware this will also drive further growth in content.

Industry forecasts point to continuing long term growth in the vast video-gaming market, with growth in the content creation segment expected to be above the overall market, with a five-year CAGR of 8%. External service provision is still expected to be the fastest growing segment, with a five-year CAGR of over 9% (Source: IDG) and this underpins our medium-term organic growth expectations.

Delivering against strategy

As the key player in this market, at more than 3x the size of the next largest competitor, yet with market share of 6%, we believe we remain incredibly well placed to grow our market share in a highly fragmented market. To do so, we are making good progress against the five pillars of our strategy, including utilising the power of our platform to drive strategic partnerships with the key market players, and investing in leading technology solutions to better serve our clients and enhance our economic and technology moat against competitors.

We have continued to work more closely with our largest clients as we seek to evolve our relationships to more strategic partnerships. This has seen increased access to CXO suites, more in-depth strategic partner reviews, and sessions with key partners on developments around AI, strengthening our position as thought-leaders in this field. These enhanced relationships are giving us the opportunity to partner with our clients on more projects, as well as taking on larger, longer-term projects. During the year, we were pleased to see revenues from our Top 25 clients

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grow meaningfully faster than the Group, demonstrating the power of the relationships and helping us to outperform the market.

Technology, the second major pillar of our strategy, goes hand-in-hand with our strategic partnership initiatives, as an important differentiator in the market, providing real benefits to clients, whether large or small. Our 4,500 dedicated engineers and technical experts in Create have a long track record of unlocking the benefits of multiple generations of new technologies to support the industry's "race to the top" to create the most immersive experience for players and we continue to build on our focus on responsibly harnessing AI and other technologies in recent years.

Through a combination of M&A and internal development, the business has also been building a post-production platform of AI-enabled products to meet client needs, supported by over 250 product engineers, enhancing our existing Globalize and Engage services, and enabling us to do more, faster, and more efficiently whilst enhancing quality for clients.

We saw good traction with Mighty Games' innovative AI-based testing solution, Mighty Build & Test, who have scaled their footprint and product offering, so that they are now able to test on any game engine. Mighty is increasingly becoming our internal testing solution, increasing automation across our game development studios globally and has an exciting client pipeline and product development roadmap ahead.

Helpshift, our digital first customer support solution saw good growth, powered by its ability to swiftly scale support for certain high performing mobile games in H2. The business has continued to broaden its offering whilst delivering an average of over 60% AI automation to clients. It is integrating Gen AI to aid the customer support journey, providing enhanced first contact resolution, delivering insights and providing sentiment analysis for clients. We were also excited to launch LanguageAI during the year, which is powered by KantanAI's machine translation technology to enable more languages to be supported within the Helpshift solution, and in early 2024, a VIP Services offering, utilising Helpshift's data insights to better support high-spending players.

KantanAI has continued to grow its partnership with Microsoft, and due to the benefits of its unique AI-assisted workflow with improved turn-around times and quality of service, has become increasingly embedded in service delivery for other clients. We have also broadened the Kantan suite of products, with Kantan Audiomate, which manages and stores audio digital assets, whilst automating and enhancing audio workflows, now in production with clients.

During the year, we recruited the former Head of Gaming AI from AWS Games to spearhead our AI Centre of Excellence ("CoE"), as part of our Innovation at Keywords team, led by Jamie Campbell. The CoE is continually mapping the landscape for AI tools that can be deployed in the game development cycle, knowledge sharing and coordinating the many initiatives across our studios and building partnerships, so that we can help clients navigate the fast-moving landscape and shape their AI strategies.

An example R&D initiative, sponsored by the Innovation team was Project Ava, where a team, initially from Electric Square Malta, attempted to create a 2D game solely using Gen AI. Over the six-month process, the team shared their findings across the Group, highlighting where Gen AI has the potential to augment the game development process, and where it lags behind. Whilst the project team started small, it identified over 400 tools, evaluating and utilising those with the best potential. Despite this, we ultimately utilised bench resource from seven different game development studios as part of the project, as the tooling was unable to replace talent.

One of the key learnings was that whilst Gen AI may simplify or accelerate certain processes, the best results and quality needed can only be achieved by experts in their field utilising Gen AI as a new, powerful tool in their creative process. As a research project, the game will not be released to the public, but has been an excellent initiative to rapidly spread tangible learnings across the Group, provide insights to clients and it demonstrates the power and level of cross-studio collaboration that currently exists. Alongside Project Ava, the team is undertaking a range of Gen AI R&D projects, including around 3D assets, to ensure that we are able to provide current insights in an ever- evolving part of the market.

An important element of our technology journey has been to ensure we have a strong technology spine within the Group. During the year, we have reshaped our internal teams to ensure we can support the different needs of each Division better and have made targeted investments to consolidate systems and begin to create a global platform that will, over time, enable enhanced customer experiences, data insights and increasingly frictionless customer collaboration.

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Whilst the initiatives I have picked out are not exhaustive, this gives a good flavour of the success of the One Keywords pillar in driving collaboration and advantage across the Group. The consolidation of our service lines into Divisions has been a foundational step, for example in the Create Division alone, over 30% of projects had multiple studios working on them. With the support of operational excellence initiatives such as HR and IT business partnering and cross-studio initiatives like Project Ava, increased collaboration across our global platform is set to continue and with it the unique advantages it brings. We have also continued to embed our new Leadership Principles across the organisation, with a broad-ranging communications programme, and were very pleased with the seamless transition of Sperasoft into four new operating hubs in Eastern Europe, with production in

Russia ceasing.

Even in a year of wide-spread job losses, it remains difficult to find high quality engineering talent and capabilities across the industry. Despite this, Keywords continued to grow, with our talent acquisition programmes, supporting good growth in this part of our business, with targeted efforts to identify and attract talent on a global basis. The recruitment of Rob Kingston as CFO in July meant that Jon Hauck was able to move across to the COO role to support the long-term growth of the business and complete the evolution of the leadership team. I believe we are building a leadership team and structure, with good strength in depth, to drive the future success of the business.

Our progress in adjacent markets has also been very encouraging with Lively, our dedicated LiveOps studio, experiencing strong growth and demand from a wide variety of clients. We also believe there is a significant opportunity within virtual production, both for turn-key services, and as a virtual art department within the broader production process and have launched services to address this opportunity. Towards the end of the year, we won virtual production and animation client mandates through both our Engage and Create Divisions.

We extended our media and entertainment offering in the US, through the acquisition of Digital Media Management, which works with some of the world's biggest franchises, including the recent Barbie movie, to enhance their reach online and in social media. With the convergence of gaming and film and television, as underscored by Disney's recent $1.5bn investment in Epic Games, we see meaningful opportunities ahead for us here.

M&A

A key and long-standing element of our strategy is to add significant value by reinvesting our free cash flow into consolidating a fragmented market in four M&A focus areas: game development, marketing, technology and adjacent markets. We were pleased to deliver a record year of M&A, acquiring five studios for total maximum consideration, including performance related contingent deferred consideration, of €225m. In 2023, the cash component of both the current and previous years' transactions amounted to €195m.

In line with our focus areas, three of the acquisitions broadened our game development capabilities, with The Multiplayer Group bringing extensive multiplayer game expertise, Hardsuit Labs bringing a deep understanding of Unreal Engine and Playboss Interactive providing one of our leading UK studios, Climax, a second location to grow from. We also broadened our Engage offering in the US, the largest global market for gaming, with the acquisitions of 47 Communications and Digital Media Management (DMM), with both enhancing our media and entertainment offering, and DMM bringing market-leading social media capabilities and an innovative Creator-focused technology platform.

The five acquisitions delivered pro forma revenues of €90m in 2023 (including pre-acquisition revenues), at margins above the current Group, and are expected to grow strongly in the coming years as we continue to evolve the Group towards higher-value services. We have a strong balance sheet and an extensive pipeline of opportunities that will lead to further attractive acquisitions during 2024. We expect to continue our long track record of adding significant value to our business and our clients through our highly value accretive acquisition strategy for many years.

Responsible business

Our responsible business agenda is centred around five key areas; our people, planet, community and our clients, underpinned by our commitment to good governance and ethics. We have made solid progress against our main priorities across the year, with a range of initiatives designed to enhance culture, employee engagement and diversity and inclusion. These included the expansion of our employee engagement initiatives, together with the continuing roll-out of our Leadership Principles across the Group. We continued to make progress with our diversity, equity, inclusion and belonging agenda, increasing the proportion of women in the Group once again, supporting the growth of the Women in Games Ambassador programme to more than 1,700 people, and hosting a very successful Women's Summit in Asia. We also began to increase efforts around broader diversity, especially

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given the prevalence of neurodiversity within the video gaming sector, and undertook training, and launched a thriving affinity group - Brain Space - which is providing the opportunity for connections and support.

In May, we celebrated 25 years of Keywords by planting 25,000 trees across the world and have continued to win a range of Best Company to Work For awards in a number of locations. We have continued our climate journey, expanding our emissions reporting, and enhancing our climate-related risk reporting, within our annual report. Our progress against our priorities has been increasingly recognised by third party ESG rating agencies, with MSCI now rating the business AA, the joint highest rating in our category.

US entertainment strikes

Whilst Keywords' primary market is video gaming, it has an increasing exposure to the broader media and entertainment industry, with the crossover between the two industries growing. Both our Globalize and Engage Divisions generate revenues from the media and entertainment industry, with a large proportion of this in post- production audio services and marketing in the US. In May, the Writers Guild of America (WGA) union commenced strike action following the failure of union negotiations around working conditions, residuals and AI usage. The WGA was followed on strike by the SAG-AFTRA union in mid-July, which meant a near complete stoppage of content generation in Hollywood.

These strikes continued for a number of months, with the WGA returning to work in September and SAG-AFTRA in November. As a result, our US businesses saw substantially reduced work volume, leading to around €20 million in lost second-half 2023 revenue. Whilst the strikes are now over, there remains considerable uncertainty around the pace of ramp-up in 2024, as the industry returns to normal, given the logistics involved in each project. However, the Group believes it is very well placed to benefit from the surge in demand, as the industry looks to increase its content output to meet viewer needs.

Driving efficiencies

2023 was a difficult year for our Globalize Division, and specifically for our Localization and Localization Testing businesses, as clients were particularly cost conscious, and looked to manage budgets carefully by focusing solely on those languages with the highest return on investment. During 2023, we carefully managed our cost base, more deeply integrating technology and enhancing collaboration across our locations. This process is continuing in 2024 and regrettably, we have rightsized headcount in Globalize by around 5% as we look to balance our costs and locations with meeting client requirements. It is expected that this programme, together with other changes, will lead to a one-time exceptional charge of €5m during 2024. Against this backdrop, and changes in post-Covid working patterns, we have also taken a non-cash impairment charge of €10m relating to onerous right-of-use leases, associated office improvements and historic IT investments. We have also launched a multi-year efficiency programme to enhance our operating model as we continue to look to provide best-in-class delivery for our clients and expect these actions to deliver meaningful annual savings, with the majority of the benefits being reinvested into growth.

Outlook

In a challenging year for the industry, we delivered resilient performance in 2023, continuing to grow our leadership position, reflecting our role as a diversified enabler of the industry. Whilst the industry back-drop remains tough in the near term, our leading technology-enabled global platform and strong client relationships means that we are incredibly well-positioned to continue to grow our market share as we support clients in the creation of ever more exciting and immersive experiences.

We had a record year of M&A in 2023, which has brought greater exposure to higher value Create services, and have an extensive pipeline of acquisitions for 2024, with our expanded RCF providing enhanced flexibility to invest. Having made significant strategic progress, we are better positioned than ever to benefit as content production in the video games and entertainment industries re-accelerates. We remain confident in our medium-term targets, expect to deliver strong revenue and profit growth in 2024 and are firmly on track to become a +€1bn revenue business.

I am, therefore, convinced that our unique position at the heart of the largest entertainment industries in the world, combined with our ongoing investments to augment our human creativity with leading technology, will create significant value for clients and shareholders.

Bertrand Bodson

Chief Executive Officer

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Divisional Review

Create

Create combines Game Development and Art Services to deliver a range of content production services to clients and partners globally. It represents around 4,500 people across 4 continents.

	2023	2022	Change
Revenue €m	3 3 6 .1	275.5	22.0%
Organic Revenue growth %	17.3 %	25.9%
Adjusted EBITDA €m	9 4 .1	69.7	35.0%
Adjusted EBITDA margin %	28 .0 %	25.3%	2.7%

2023 Performance

Create performed strongly during the year, with total revenues up by 22% to €336m (2022: €276m) and Organic Revenue, which excludes the impact of acquisitions, growing by 17%, as we continued to see strong demand for our high-end services. H1 performance was exceptionally strong, with H2 normalising, as expected, given current industry dynamics.

This growth was primarily driven by our Australian and UK game development hubs, as we continued to expand our footprint in each region through a combination of new satellite studios and headcount additions.

We also won a number of larger engagements with key clients, both single studio and wider collaborative efforts, as we continue to demonstrate the benefits of working with a multi-studio or geographic set up to clients. Our art studios also performed strongly across the period, with enhanced collaboration between our game development and art studios supported our overall growth.

Aside from good execution at the studio level, which contributed to this success, we increased collaborations within the Division as we reacted to the changes in the market dynamics, keeping our utilisation high by using bench resources and managing recruitment cadence.

During the first half, Sperasoft completed its transition out of Russia into four new operating hubs in Eastern Europe. This was a major undertaking, and we are delighted that we were able to complete this with limited disruption to existing projects for our clients. Once the transition was complete, we were able to take on new work and were pleased with the growth during the second half of the year as the team won a number of new projects.

Adjusted EBITDA in Create grew 35% to €94m in 2023 (2022: €70m), with the Adjusted EBITDA margin of 28.0% in

2023 higher than the previous period (2022: 25.3%). This was primarily due to the increased weighting of game development in the Division, good central cost control and strong revenue growth.

We welcomed three new game development studios this year, The Multiplayer Group ("MPG") in Nottingham, Hardsuit Labs in Seattle, and Playboss Interactive in Liverpool. Together, these acquisitions broadened our service offering, footprint and added nearly 450 high-quality game engineers and artists to the Division. MPG is a market leader in providing multiplayer services, Hardsuit has deep expertise in Unreal Engine, and Playboss provides Climax, one of our largest UK studios, with a second location from which to continue its growth trajectory.

Outlook

Our expanded Create Division remains well positioned to capitalise on the continuing demand for its high-end services. We have good pipeline visibility into 2024 across both game development and art, with growth weighted towards the second half of the year. The increasing scale and depth of our expertise in Create means we believe we are uniquely placed to harness the benefits of Generative AI as a tool to support our clients if they wish to utilise it. We are seeing limited utilisation to date, with copyright and quality concerns currently a barrier to adoption for

1. publishers. Over time, we believe these technology advancements will be able to augment the creativity of our clients and teams and enable the delivery of ever more content for our clients.

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Globalize

Globalize brings together our Audio, Testing and Localization businesses to create a global provider, with around 5,000 people across 5 continents.

	2023	2022	Change
Revenue €m	279 .5	300.9	(7.1)%
Organic Revenue growth %	(4 .3 )%	23.4%
Adjusted EBITDA €m	4 8 .5	61.6	(21.3%)
Adjusted EBITDA margin %	17.4 %	20.5%	(3.1%)

2023 Performance

Globalize experienced more difficult trading conditions in 2023 and was impacted by the US entertainment strikes and foreign exchange movements, with total revenues falling by 7% to €280m (2022: €301m). Organic Revenue declined by 4% and excluding the impact of the strikes, organic growth would have declined slightly, significantly outperforming the core gaming post-production market, which was estimated to have declined by 5% in 2023 (Source: IDG).

Whilst performance was below expectations at the start of the year, it was a resilient result given market conditions, as there has been an elevated level of project cancellations, delays and reduced scopes which has impacted the Division given its broad reach across the industry. In addition to this, the US entertainment strikes, had a significant impact on our audio businesses during the second half of the year.

We were, however, pleased that Functional testing continued to deliver robust results, with the addition of some larger scale contracts in lower cost locations such as Poland and with our operations in Mexico beginning to scale up. This was offset by our embedded services testing business and our localization businesses which experienced a tougher period. Localization clients were particularly cost conscious and looked to manage their budgets carefully, by only focusing on key languages where the best returns could be generated. Audio faced tough comparators in H1 and then was heavily impacted by the US entertainment strikes, which are now resolved.

We have continued to make good progress in developing and integrating our post-production technology platform. As part of this we developed our Mighty Build and Test solution and significantly scaled the team and the product offering during 2023. Mighty is now able to operate on Unreal, Unity and custom/proprietary game engines and has expanded its external client base as well as operating as the QA tool at a number of our large internal studios. We have an exciting pipeline of client opportunities as we move into 2024 and are continuing to deliver against our product development roadmap to broaden its functionality.

Adjusted EBITDA of €49m was 21% lower than 2022 (€62m), with Adjusted EBITDA margins of 17.4% moderately lower than 2022 (20.5%). Margins were expected to normalise following exceptional demand in 2022 and were impacted by the lower utilisation of resources compared to the 2022, with pricing more of a focus for clients.

During 2023, we carefully managed our cost base, whilst integrating technology more deeply and enhancing collaboration across studios. This process is continuing in 2024, and, regrettably, we have rightsized the headcount in Globalize by around 5% as we look to balance our costs and locations with client demands. We continuously look to enhance our operating model to generate efficiencies and provide best-in-class delivery for our clients, reinvesting savings into growth.

Outlook

Globalize has a leading position with major publishers within the industry and is well placed to benefit when the content cycle turns and as Hollywood rebounds to previous output levels through the year. We also believe that there is a significant opportunity over time to support clients moving from fixed to variable costs as they look to manage their budgets and cost base. We will continue to carefully manage our cost base, enhancing our delivery model and efficiencies across our global footprint, and will further integrate technology into our workflows to differentiate our offering in the market.

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Engage

Our Engage Division brings together our Marketing Services and Player Engagement businesses to create a holistic offering focused on attracting, retaining, and supporting fans across the video games and entertainment industries, encompassing around 2,500 people across 3 continents.

	2023	2022	Change
Revenue €m	16 4 .8	114.3	44.2%
Organic Revenue growth %	2.3 %	9.7%
Adjusted EBITDA €m	15 .7	15.6	0.6%
Adjusted EBITDA margin %	9 .5 %	13.6%

2023 Performance

Engage saw a resilient performance during the year, with the higher revenue growth of 44% to €165m (2022: €114m) driven by a number of acquisitions as we built out the capabilities of the Division. Organic Revenue, which excludes the impact of acquisitions, grew by 2% despite the backdrop and the significant impact from the US entertainment strike. Excluding the impact of the strikes, organic growth would have been around 9%.

Marketing delivered a robust performance, despite the macroeconomic environment leading to publishers reducing their marketing activity, with lower budgets and delays to projects. The US entertainment strikes had a major impact on organic revenue growth in H2, and despite the continued subdued level of activity, we still delivered strong underlying organic growth, with large projects being delivered for clients during the period.

We continue to enhance collaboration across our studios, both in the UK and in the US, in order to provide a more solution-based model for our clients' needs and enhance the cross-selling of multiple services. We were delighted to bring two high quality US studios into the service line during the period, with Digital Media Management (DMM) and 47 Communications greatly enhancing our social media, influencer and PR offerings respectively. We believe that DMM in particular is exceptionally well placed to benefit from the increasing share of social media in overall marketing budgets.

Player Engagement is primarily focused on the mobile market and was impacted by reduced player numbers and spend across the broader mobile market, although this stabilised during the second half. This meant that certain clients reduced the scale of the teams working on their games to reflect the reduced activity, although new business wins mitigated the reduced demand. We saw very good traction, despite the market, for our Helpshift AI solution, which we acquired in late 2022, and fully integrated into our existing offering to create a unique end-to-end technology enabled solution for clients. During the year we launched Language AI, to enhance our multi-lingual support offering, made good progress with our trust and safety offering in tandem with a number of technology partners and launched our VIP concierge service.

Adjusted EBITDA of €16m was slightly higher than 2022 (€16m), with the Adjusted EBITDA margin of 9.5% behind the prior year period (2022: 13.6%). Margins were impacted as the business has relatively fixed costs and was scaled for growth, but experienced lower utilisation rates as projects were delayed and lower revenues due to the US strikes. We have implemented cost control measures in certain studios and have reduced marketing headcount by approximately 8%, whilst retaining our capacity to support growth in future periods, as well as rationalising our footprint into larger hubs in London and Los Angeles.

Outlook

We continue to scale the Engage Division, by building out the full-service capabilities of our marketing offering and by creating a holistic technology-enabled player engagement offering through the addition of Helpshift's automated solutions. Whilst the current market backdrop remains tougher, and it will take time for Hollywood to return to normal output, our Marketing studios are increasingly well placed with clients, our collaborative solutions are gaining traction, and we are exploring the use of AI and technology to support our client offerings. The technology first approach to Player Engagement, powered by Helpshift and a range of partnerships supporting offerings such as Trust & Safety and VIP services, is expected to enable continuing growth.

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