Keywords Studios posts decrease income forward of acquisition by EQT

Keywords Studios revealed lower first-half profits on Monday ahead of its takeover by Swedish private equity giant EQT.

The video games services business reported its adjusted operating profits declined by 9.6 per cent to $57.4million in the six months ending June.

It blamed the drop on moderating growth levels and the expectation that most of the savings from its cost-cutting programme would occur during the second half of 2024. 

Result: Video games services business Keywords Studios reported its adjusted operating profits declined by 9.6 per cent to $57.4million in the six months ending June

Revenue increased by 6.6 per cent to $440.4million, but organic turnover dipped by 1.9 per cent as the delay or cancellation of multiple major projects hurt its game development business.

Sales were additionally affected by subdued demand for localisation services, which includes translation work, voice casting, and quality assurance testing.

However, Keywords noted that spending by its largest clients continued to grow during the period, while acquisitions helped drive total revenues higher.

The company is also ‘confident in delivering good overall’ turnover growth this year, supported by trade recovering from the strikes that rocked the US entertainment industry last year.

Bertrand Bodson, chief executive of Keywords Studios, said: ‘Keywords delivered solid growth in the first half despite the current mixed market backdrop.’

He added: ‘We continued to make good progress against our strategy, enhancing our leading position in the market whilst expanding the use of technology within our business and on behalf of clients.’

Keywords’ trading update comes about a month before the AIM-listed group expects to complete its £2.1billion sale to EQT.

The Stockholm-based investment firm, which owns Dechra Pharmaceuticals, agreed to buy Keywords for £24.50 per share in early July.

When announcing the deal, it said the takeover would help accelerate Keywords’ growth and broaden its reach into ‘adjacent media and entertainment end-markets and fast-growing technologies.’

Keywords provides technical and creative services to many of the biggest video game developers, such as Microsoft, Ubisoft, Electronic Arts, Tencent, and Activision Blizzard.

These include producing trailers, voiceovers, sound mixing, visual effects work, and translating in-game text into dozens of languages.

It enjoyed a significant uplift from the pandemic as strict lockdown curbs led to people spending more time indoors.

However, the firm’s share price began slumping in 2023 amid concerns that artificial intelligence threatened the video game industry’s future.

Keywords Studios shares were 0.2 per cent up at £24.30 on Monday morning.

Bodson said EQT’s acquisition of Keywords ‘represents an exciting new chapter for the business as we continue our journey.

‘There is no question that the long-standing support we received as a public company provided the fuel for our growth over the last ten years, and we wanted to take this opportunity to thank all of the shareholders who have supported us.’

The takeover is set to become effective on 23 October, with Keywords’ shares being delisted the next day.