Keyword Studios tumbles as revenues don’t boost profit

AIM-listed software development services firm Keyword Studios (LON:KWS) has reported a 38% drop in pre-tax profits for the six months to 30th June. This was despite a 39.3% improvement in revenues that was fuelled by organic growth as well as the company’s recent acquisitions. The company also announced the purchase of a German dubbing specialist this morning.

CEO Andrew Day said: “The Group grew very strongly in the first half with increased demand across all of our service lines, and particularly strong performances from Functional Testing and Game Development, as the market accelerates its use of external development and service partners.

“We invested in capacity to match this accelerating trend, with significant investments in new and enlarged and improved facilities which will come on stream incrementally during the second half and into 2020. This investment, combined with a ramp up in staffing to meet faster and earlier growth than previously expected in our Functional Testing service line, meant we carried additional direct and indirect operational costs in the first half. However, underlying margins remain in line with historic norms and we,therefore, expect margins to progress in the second half and through 2020 as we benefit from our first half and ongoing investments.

“Trading in the second half has started well, with continued strong performances from our Game Development, Functional Testing and Art Creation service lines in particular. Overall, this leaves us well placed to deliver revenues for the full year at the upper end of current market expectatons with our profit expectations broadly unchanged.

“Our organic investments leave us well positioned to capture the clear opportunity for Keywords to grow our relationships with the major games companies through increased capacity, new services and dedicated outsourced services and to increase margins to normal Group levels as we benefit from these investments during 2020.

“Our acquisition pipeline is very healthy and we are actively reviewing a number of attractive acquisition opportunities that would add critical mass, capacity, and extend our service offering or geographical penetration”.

Shares in Keyword Studios dropped by 13.06% to 1,231p (as of 14:50 BST).