Irish video games company Keywords Studios has bought a German audio dubbing company for €3.7m and reported strong growth in its first-half revenue and profits – but its shares sank yesterday on poorer than expected margins.

Keywords’ acquisition of Berlin-based TV+Synchron (TVS) – which has been dubbing films, TV shows and video games for 25 years and includes HBO, Amazon, Cartoon Network and Warner Bros among its clients – will more than double Keywords’ existing ability to localise games and other content for the German gaming market.

The deal, which is expected to close by October 1, involves €2.8m in cash on completion and €0.9m through the issue of new ordinary shares in Keywords to existing TVS shareholders 12 months later.

“This acquisition is an important milestone in the development of our audio services in Europe,” said Keywords chief operating officer Giacomo Duranti.

“Germany is one of the two largest markets for voiceover and dubbing in Europe, together with France, where Keywords already has an unparalleled offering.

“The integration of TVS into the group will create a market-leading provider of services for German localised video games.”

Keywords said revenue rose by 39.3pc to €153.2m in the first six months of 2019, while adjusted profit before tax rose by 14.3pc to €18.4m.

Like-for-like revenue, which factors out the impact of four acquisitions over the past year, rose by 17.3pc to €146.4m.

But Keywords’ shares, which are listed on the AIM index in London, sank by 13pc to £12.32 as analysts said one or more large holders dumped the stock on scepticism that Keywords’ profit margins would sufficiently recover in the second half of 2019. The company said its gross profit margin declined to 36.1pc in the first half of this year from 37.4pc in the first half of 2018 chiefly because of increased spending on staff and facilities on studios worldwide.

“The profit before tax margin came in below market expectations, but it was broadly flagged. So I am surprised,” said Goodbody equity research analyst Patrick O’Donnell. “In a nutshell, the fall possibly reflects bears taking a view on where Keywords is currently valued, but the company is strategically well positioned at the centre of the gaming industry on virtually every platform. I do think today’s trading is somewhat of an irrational overreaction and it will recover.”

Keywords said it already was investing in 1,400 new work stations in its existing global studio network, with plans to expand staff at studios in Montreal, Manila, Mexico City, Tokyo, New Delhi, Brighton in England, Katowice in Poland, and Brazil’s largest city, Sao Paolo.

“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,” said chief executive Andrew Day. “Overall, this leaves us well placed to deliver revenues for the full year at the upper end of current market expectations, with our profit expectations broadly unchanged.”

Mr Day said Keywords would “grow our relationships with the major games companies through increased capacity, new services and dedicated outsourced services and 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,” he said.

Among the recent video game releases supported by Keywords are ‘Fortnite’, ‘Uncharted 4: A Thief’s End’, ‘Call of Duty: WWII’, ‘Mortal Combat X’, ‘Assassin’s Creed Origins’, ‘Battlefield 1’, ‘League of Legends’, ‘Clash Royale’ and ‘Rainbow Six Siege’.

The company said many of its clients – which include 23 of the world’s top 25 video game makers – are increasingly reliant on outsourced talent.

Keywords, founded in 1998 and based in Sandyford, has more than 50 facilities in 21 countries. It provides art creation, software engineering, testing, localisation, audio and customer care services in more than 50 languages for 950 clients using 16 games platforms.

It employs 6,500 worldwide, an increase of approximately 1,000 over the past 12 months. Its biggest single hub is in Montreal with a 1,600-strong workforce, reflecting the Quebec provincial government’s strong programme of tax incentives for innovators in the video game industry. About 350 work at Keywords’ Leopardstown facility.

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