Embracer Group AB (publ)

Q2. My name is Martin Arnell and I'm an analyst with D&B Markets in Stockholm. Welcome to all of you online and welcome to everyone in the room here in Stockholm. Today we will have first presentation of the quarter followed by a Q&A. And then there will be a deep dive. We will have sustainability, gearbox, and crystal dynamics, ADOS, and also Asmodee. And we will take questions from you online, so please register your questions online, and we will also take questions in the room, and I will also ask a lot of questions. And with that, I want to hand over to Embracer Group Management, CEO and founder Lars Vingerfors, and CFO Johan Ekström is here today as well. Thank you.

Thank you, Martin. Good morning and welcome everyone to Stockholm. We are pleased to announce another stable quarter. The second quarter is the strongest quarter so far in terms of net sales of over 9.5 billion SEK, supported by a solid organic growth of 35% and a performer growth of 18%. Adjusted EBIT came in at 2.1 billion, implying 115% growth year-over-year and a margin of 22%. Adjusted earnings per share after full dilution more than doubled to 1,95 krona in the quarter. More than doubling year over year. To put that into perspective, it represents close to 40% growth compared to the full year of 2019. For the overall group, we now expect adjusted EBIT of 8 to 10 billion SEK in the financial year 2022-2023, ending March. This is a slight reduction compared to 9.2 to 11.3 previously. For fiscal year 2023-2024, we are pleased to reiterate the forecast of 10.3 to 13.6 billion. Looking at operations, the reboot of Saints Row, which was released on August 23rd, was as expected a key revenue driver in the quarter. Financially, Saints Row has performed in line with management expectations in the quarter. However, the reception of Saints Row did not meet the full expectations and left the fanbase partially polarized. The game development studio Volition has been working hard to improve the player experience. And today we are announcing that Volition will transition to become part of Gearbox, which has all the tools including an experience management team in the US to create future success at Volition. This is the first internal group transfer where we transfer a major studio between operating groups, but it's not necessarily the last. Today, we and PlayOn Deep Silver also announced that the release date for Dead Island 2, the long-awaited action horror game developed by internal studio Deep Silver Dam Buster, has seen a slight delay. The release, originally planned for February, has been moved to April 28 by internal publisher Deep Silver. Another highly anticipated game, Goat Simulator 3, developed by CoffeeStain North here in Stockholm and published by CoffeeStain will be released later today. Our ongoing project to change the listing venue to Nasdaq Stockholm main market is on track to be concluded before the year end. further strengthening transparency, governance and liquidity in our shares. The increasingly challenging market environment has proven to be a factor year to date. In early November, Newso cut its forecast for the video games market again, from 2% growth to a 4% decline in 2022. As we are gearing up to meet an increasingly challenging market environment, we have today stated that we are working on a transformative content and partnership deal, expected to be closed this financial year. Separately, we have also launched a special review of our business to further optimize our decentralized model, capture new opportunities, and add strategic flexibility. We will talk more about this further on in this presentation, and I'm sure Martin and others will have some questions about this. Looking at some KPIs, we see continued growth. Looking into perspective, we have grown our business from 3 billion sales to 27 billion sales on a trailing 12-month basis the past five years. Growing earnings per share nine times on a trailing 12-month basis. Looking at the total headcounts, we are now close to 16,000 people across the group. We do have 132 internal game studios and 237 ongoing game development projects. Now looking a bit deeper into the segments, As you remember, we started the segment reporting last quarterly report. So we now report under four segments, PC console, which is our main segment, mobile games, entertainment and services, and tabletop games. Looking at the PC console segment, We reported this morning a record quarter with 57% organic growth, reaching above 4 billion in net sales, generating a 34% margin in adjusted EBIT or close to 1.4 billion. Looking into the pipeline of the 237 games we have, 234 is actually PC console. And in the pipeline we have 25 AAA projects planned for release up until March 2026. The performance in the quarter was not only driven by the release of Saints Row. We also had a record quarter of back catalog sales reaching close to 1.9 billion in the quarter. The top 10 back catalog titles were Valheim driven by the addition of Valheim into PC Game Pass in the quarter. We also had the first royalties coming into the group of Tiny Tina Wonderlands. And if you look at this slide, you see some well-recognized IPs that continues to perform. Borderlands 3, Star Trek Online, Neverwinter Nights Online, Deep Rock Galactic, Hot Wheels Unleashed, Breakfast, happy to see Mythforce for the first time. And finally, Risk of Rain 2. which we also confirmed this morning that we have acquired the rights to both the game and IP post the quarter end. Looking into the mobile games segments, we had a stable quarter. Even though we have seen a decline in the advertisement market and an impact of lower ad prices, we saw a solid 8% organic growth in the quarter of reaching sales of 1.4 billion with a 22% margin. We had a slight decline in use acquisition cost reaching 52% or 755 million in the quarter. happy to see that our players continues to engage with our products and we have a solid 300 million active users on a monthly basis or 36 million daily active users on our across our mobile portfolio and actually we were the most downloaded company in games during the first half in the world reaching 600 million downloads. We are expecting our mobile business to perform above the market growth going forward. Looking at the tabletop gains segment, Asmodee had a solid performance in Q2. Net sales grew by 9% year-over-year, performed at over 3.2 billion SEC. Adjusted EBIT came in at around 450 million SEC, with a margin of around 14%. Asmodee continued to gain market share in its two main product categories, although in somewhat more hesitant market environment for board games. The growth was driven by an especially strong performance of trading cards, games and related accessories, impacting the product mix and the gross margin in the quarter. In part two of this presentation, Asmodee's CFO Mygge will join us virtually to give us some additional color on tabletop markets, inventory, cash flow, phasing and product pipeline. So stay tuned. Finally, looking at the entertainment and services segment. We had a growth in revenues. However, we had a decline in adjusted EBIT margin, driven by weaker performance in the distribution of video games, driven by less releases. Happy to see that we finally closed the transaction of Middle Earth Enterprises and looking into the future, we now have four announced licensed Lord of the Rings games in production with external game developers. There is many things happening within this segment, and one of those things announced post the quarter end was the acquisition of Anime Limited, Europe's premier distributor for Japanese animation. And with the acquisition of Anime Limited, it gives us full European coverage for that business segment. Looking to the market, as stated, we now knew so, are now expecting a decline in the overall gaming market to generate $184 billion. in this calendar year. That's a decrease of 4% year-over-year. Looking at the segments, they're expecting the PC market to grow 0.5%, the console market to decline 4%, the mobile market to decline 6%, which is the most significant change from the previous forecast. Looking at tabletop markets, including the trading card games, we are expecting, or research analysts are expecting, a 7% year-over-year growth. Johan, finally.

Thank you, Lars. Thank you. So let's have a look at the financial performance and we start by looking at the P&L. So sales grew 190% over the last year, reaching 9.6 billion, driven by a strong organic growth of 35% and also acquired growth, especially related to the addition of Asmodee and Crazy Labs. The growth in PC console is driven by the release of Saints Row and also strong back catalog performance, especially from Valheim. Despite the softer market, we see organic growth in our mobile segment amounting to 8% in the quarter. We also note a solid performance in tabletop, growing on the pro forma basis with 9% over last year, reaching 3.2 billion SEK. As said, our adjusted EBIT reached a new all-time high, 2.1 billion for the quarter. Up 115% over last year, yielding an EBIT margin of 22%. The main driver of the growth in adjusted EBIT is the performance within the PC console segment. Adjusted earnings per share after full dilution. Reached 1.95 SEC per share in the quarter, which is 114% up compared to the same period last year. Driven by the growth in adjusted EBIT, as well as some favorable exchange rate gains on financial items. If you look at the financial development, we can note that we have a stable, slightly positive gross margin development in the quarter, reaching 66%, despite the slight negative product mix shift effect within PC console and tabletop. Turning to the marketing costs, the user acquisition costs are lower in the quarter in absolute numbers, as well as relative numbers comparing it to the sales in the mobile segment. 755 million, 52% in relation to sales. The marketing spend outside of mobile segment was high, reaching 523 million in order to support new releases in the quarter. Operating expenses increased in the quarter to close to 2.1 billion in the quarter. In relation to sales, a slight decline over previous quarter, 22%. The growth in operating expenses is mainly driven by the addition of new companies joining the group, as well as increased headcount. We are impacted by inflation, like everyone else. Predominantly, we see this in the physical side of our business. I'll just be a bit reached 2.1 billion in the quarter, yielding 22% EBIT margin. Free cash flow before changes in working capital was 1 billion in the quarter. We had an increase in working capital during the quarter of 1.9 billion. So the free cash flow after changes in working capital is minus 0.9 billion. The main reason for this is that we see increased receivables in the tabletop segment driven by increased sales in the quarter skewed towards the later part of the quarter being end of August and September. Also, we see cash inflow from releases, new releases, as well as notable customer contracts coming in after quarter end in October and November. We have an increased inventory, mainly related to inventory build-up in the tabletop segment. Myge from Asmodee will comment on this later on. But There is a seasonality within tabletop, so in terms of peak levels for inventory, it is normally in the end of September. This is also impacted by decisions to increase safety stock levels due to increased lead times, as well as the product mix shift towards trading cards within the tabletop segment. It's important for us to reduce the working capital, so actions have been initiated to focus on working capital reduction, and management expects to see tangible results during this financial year, with emphasis on the fourth quarter. At the end of September, our net debt amounted to 11 billion and available funds, 10 billion. We made a voluntary debt repayment of 6.2 billion in the quarter. We expect to reach our financial leverage target of 1x by the end of this financial year. And we have substantial headroom on our cabinets. Looking ahead, we note, as Lars described earlier, that the market has changed. The market expectations for growth has changed from plus two to minus four. A clear downward revision compared to the previous forecast for this year. We now expect a reduced forecast for this fiscal year, and we reiterate the forecast for the next fiscal year. So for this year, our current forecast is between 8 and 10 billion SEK. Previously, it was between 9.2, 11.3. And for next fiscal year, it is reiterated between 10.3 and 13.6. And the main reasons for the reduction in the forecast is to reflect mixed reception of our key Q2 PC console releases that will have an impact on catalog sales in the coming quarters. It also takes into account shifts in the release rate within PC console, including the shift regarding Dead Island 2 from February to April. We also have a more cautious view on the current macroeconomic situation, particularly related to the mobile segment and the tabletop segment. The forecast includes a range of outcomes from partnership and licensing deals with several industry partners. expected to be completed during the financial year of 2022-23.

Thank you, Johan. When talking about partnership deals, I would like to give some more color. So, over the past several years, we have invested significantly in creating one of the largest providers of PC console content in the industry. We have close to 10,000 PC console games developers creating games, many based on Embracer's deep and growing catalog of IPs. Our efforts in this regard have created significant collective value, which we are now starting to realize. One result of such efforts to capitalize on the value we have created is a transformative partnership and licensing deal that we have worked on with several industry partners. This deal covers a range of large budget upcoming gains over the coming six years. We expect the whole or part of this deal will close during this financial year. Thereby, it would improve predictability, lower business risk and provide a positive impact on our cash flow and profits. It would also enable further investments into making even greater gains based on both established and new IPs. The impact of the above-mentioned deal will be a factor in our forecasted adjusted EBIT range for this and next financial year. Yesterday, we also decided at the Board to make a special review. I would like to highlight we continue our long-term mindset in building enduring, innovative and profitable businesses in the creative industry. I have a firm belief in our decentralized operating model, which is built around experienced and successful creators and entrepreneurs. That said, the world has changed for the worse in many areas, becoming darker in recent months. we need to adapt to the challenges of geopolitical and social issues around the world and the new macroeconomic reality. The increased cost of capital will impact our business going forward. The adjustments in the cost of capital will, compared to before, require current and future investments, both organic and inorganic, to have a higher minimum hurdle with a safety margin to justify the capital allocation. We need to continue our sharp focus on the execution of our ongoing businesses around the world. Therefore, the Board of Directors decided on November 16th to launch a special review of our business to navigate the new market conditions and how we both make sure all businesses have all the tools to succeed and maximize long-term shareholder value creation. The outcome of this review may, for example, lead to board recommendations to make spin-offs under Lex Acia tax laws into separate publicly listed companies in the future. If that is deemed to be best for its employees, create higher shareholder value and improve our strategic flexibility. Thank you. Let's move to Martin for a Q&A.

Okay, thank you. Welcome to the Q&A session of this presentation. I'll start with a few questions from my end and then let the floor in here in Stockholm and also we have a lot of questions coming in from the web. But firstly, how do you feel about this quarter? What would you highlight as the sort of main event and anything you would like to share that you're satisfied with and what do you see as the main challenge?

I don't know if the word satisfied is a word I enjoy but I think we actually had a stable quarter in a quite difficult environment with the mixed reception of our releases, we still make a decent amount of money, 2.1 billion. It's not a bad number, even though I would like to see a stronger cash flow coming through, but I think I'm confident that working capital will be improved going forward. Overall, when I'm meeting my colleagues and Talking to the industry, there is optimism for the future, despite the macroeconomic environment. And many of our companies are growing fast. And people are really excited about the upcoming years and the pipeline we have coming.

Are you surprised to see how it's impacting the market? Revisions are... turning more negative when it comes to the market in early November, as you mentioned?

No, I'm not really surprised. I think, obviously, we have seen a weaker ads market, for example, already. We've seen the buyers with different behaviors on the tabletop business segment. The PC console market is a bit different because it's really driven by the hardware shipments, the quality of the overall industry pipeline. Happy to see great performance now with a number of key titles coming out, Call of Duty, Gods of War and others. So it's a really solid PC console games business out there that we are in.

And you have a lot of games coming out. So I guess you're not fully dependent on how the market is trending. But what would you say in the quarter? With Saints Row, for example, how much of that was, you know, how big percent was the platform deal?

Yeah, we haven't disclosed the full number, Martin, as you know, but it was a notable portion of the revenues. And I think, obviously, it's helped that business case to recoup faster. But overall, we had great pre-orders. And now we're working to improve the game. So the game will have a long tail, bringing out more content, doing the bug fixing. So I think over time it will be okay. But we did have higher expectations.

Mm-hmm. Okay, and I think PC Console was a bit above at least my forecast on the sales number, earnings fairly in line, but on Tabletop it came in a bit below the expectations out there when it comes to EBIT. Why was that, do you think, and what do you expect in terms of near-term outlook for Tabletop?

Well, we saw a mixed in... in the gross margins in the tabletop segments more trading card games less board games and that is affecting our gross margin basically you know on the board game segment we have much higher margins because we own the ips and so but overall i think they had a stable business i don't think we should over uh look too much into to you know that specific quarter it's i think it's uh i'm happy

And I guess we can ask Asmodee later in the detail as well. But do you still expect cash flow facing as in a normal year for them?

Yeah, I think so. I mean, looking at the tabletop in general, the cash flow is very skewed towards the later part of the financial year. So we expect to see that increasing. predominantly in Q4 this year and we expect to see a reduction than of this a strong reduction of inventory up until the end of this year they are they have excess inventory so to fully turn that around they will need more than to the end of March but We expect a solid cash flow contribution from Asmodee for the remainder part of this year, especially in Q4.

And before we go into your worst guidance for the full year, do you still expect the same facing as you commented on in the previous quarter when it comes to the quarters? If you understand my question.

For, you know, operation or adjusted EBIT in the quarters? Yes. I think that it's we focused firstly and foremostly on the performance of the fiscal year and we also highlighted specific platform deal licensing deal partnership which can have a a big impact or a notable impact on the phasing.

Okay. And Johan, if you could just comment also on the difference between the reported EBIT and the adjusted EBIT, since it's quite a magnitude of difference. If you could just share some color on that, please.

Yeah. So adjusted EBIT, there we exclude specific items related to historical acquisitions. And those items are mainly amortizations related to surplus values identified in the PPA work. It's also transaction costs and as explained or as we talked about in Q1 when converting or transitioning to IFRS there are in the case where you have earn out obligations that is not considered to be part of the purchase price according to IFRS that will be expensed as a personal cost as it is being earned that is also excluded

from adjusted EBIT as we view it to be a part of the consideration for the company I think to give a few words now you know I think there is in general a common sense that many of the earnouts which is quite significant that we require the management team to stay on board for some time and those conditions when we require that then it turns out as a personal cost in the P&L. But it's a relevant question.

And then you revised the guidance for this year with two quarters to go, and then you kept it intact for the next year. And just to clarify, this new guidance, it includes the contribution from the recent acquisitions that you announced in Q1, yes? Yeah. Okay, and if we go through just on the change, you mentioned a couple of things up there, like moving the release date of Dead Island 2, for example. Which one of these would you say is the most important for the revision? Is it the back catalogue or is it the new game?

I think it's hard to point out one thing. It's a mix of things, Martin. But Dead Island, you know, we expect some performance of Dead Island, but it was just a few weeks of performance within the quarter. But obviously that is one reason. So I think there are several reasons and the combined impact of those made us to revise the forecast. Considering everything, I think 8 to 10 billion is... It's still a lot more than last year.

And on this change of postponed release date for the dial-in, is it internal factors or external factors that make you move it?

Considering fans have been waiting 10 years or 4 years, depending how you see things, delaying the game another 12 weeks in order to make sure the consumer and fans get a bug-free, polished game in their hands. For me, it was an easy decision that quality comes first.

all by being a bit painful from the financial year i promised myself not to drive this business because of the financial year so i need to stick to that but the goat simulator is out today what expectations do you have on that game how big do you think it can be and what's what's the reception so far and feedback

It's a crazy game. I don't know what to expect. I've really been enjoying working with the team and watching the game. It's like no other game. So I think... I do believe it's a game that could be enjoyed by millions and millions of people out there. And it gives you a very... crazy, wacky kind of experience now in the multiplayer mode as well.

And I also, I must ask you about Tiny Tina, royalties from there, was that included in this quarter now?

First time.

Yeah? And any comment on the magnitude or versus your expectations, maybe you could share?

I would say about in line. But we expect that to now come true every quarter. So the gearbox royalties work that way that when they finally reach the hurdle, there is a quite nice flow of royalties coming. So I'm really pleased to see that. And they've been building the game over the past since the release. And I think it's a very solid... product out there now that will enjoy many more millions of players in the coming year and years to come.

And what other key releases would you want to highlight for the winter here in the coming two quarters?

Well, you have many babies, don't you? So we almost have releases every week. So I think it's hard for me to say that one specific game is more important than the other. It's easier then to look at the financial and from that perspective obviously GOAT 3 coming today and The delayed Dead Island 2 had a notable financial impact. Also the inclusion of Valheim that are scheduled in the fourth quarter would have a notable contribution as well. But there is so many great games being released and planned to be released both on PC console and mobile.

And finally, before I let the others in here, the potential partnership that you are talking about today, I mean, how should we view it? I mean, how big a percent of your capex could you be willing to give away here?

It's something I've been talking about for the past few years. I think this could be transformative for us. I know it's not very much details in this, and it's hard to give that, obviously, because there is commercial negotiations and so on. But now, because of the main listing, we needed to provide... the color on this in order to provide the guidance to the market. But I feel very, very, I don't like the word very perhaps, but I'm excited about the potential of that, how that could be transformative for us. And we have actually built the largest pipeline of games across the industry. that because we don't have our own platform as many others do we like to capitalize on that and this is a way for us to do that but without overselling it uh stay tuned is it uh if you have to choose is it risk minimizing or is it uh receiving a bigger bigger upside I think it's a combination of many factors. But business risk is obviously one factor, especially when doing a lot of AAA, big budget games. AAA is a business risk. And this would offload a bit of that business risk. It would also secure cash flows and profits. So we are excited.

Okay, thanks. I think it's time to open up the floor if we have any questions in the room to start with. I think there's a microphone out there and please raise your hand and state your name and company.

Hi, can you hear me? It's Rasmus with Handelsbanken. I had a question for Johan. You talk about the cash flow and the financial leverage at the end of the year being within your targets and ambitions. Can you explain that again? It looks as though we're already – if you're talking about forward EBIT, I guess we're already there. How should I read that comment?

Yeah, so if you're looking at – The way the financial average is measured, as you're saying, with the current net debt level compared to forward-looking adjusted EBIT. When you look at our net debt at the end of September, it is 11 billion. And then you need to factor in that We closed announced transactions in October or after quarter end, which impacts a net debt, increases it, and it should be viewed in relation to that. That answers the question.

Yeah. Could you be a bit more specific on roughly how much of acquisitions impact this figure then?

So... I think that the upfront cash component of transactions closed after quarter end is approximately 4 billion SEK. Okay, thanks.

Yeah, Jacob Edler from Danske Bank here. Just one question on tabletop games. Given the product mix that we saw in this quarter with trading card games as opposed to board games, how should we reason about that heading into the next couple of quarters here? Would you say trading card games are still in kind of favor ahead here?

Well, trading card games doesn't have the same seasonality as board games. So board games definitely has its best quarter in the third quarter holiday season. So I would expect the product mix in the third quarter to be more in the favor of the board games.

Okay, that's clear. And also now that UAC in relation to mobile sales came down to 52% of sales compared to a bit of a higher level in the recent quarters, given the revised downward outlook in the mobile market, can we expect UAC to remain at a bit lower levels here ahead in the coming quarters?

In general, it's hard to give a firm forecast on the user acquisition spend. The way I'm looking at the business is obviously the EBIT and the projections the management do. When I look at the management projections on our mobile businesses, they look very solid. surprisingly solid for the coming year, driven by excellent execution, I would say, in a difficult market by Easy Brain and Crazy Labs. I can't really forecast the user acquisition spent, but we have, I would say we are market leader or one of the market leaders to navigate in this business. So I'm confident in my management team will maximize the potential. Thanks so much.

Okay. Any more questions in the room? Good morning and thank you for the presentations. I wonder if there are any news or additional information that you can give us regarding the Tolkien IP?

Wow, it's a very interesting question. Tolkien, we could spend an hour on that. Well, obviously we just closed the transaction after quarter end early October. And we are now talking to all stakeholders, the state, the film companies, the business partners, the game companies. And we are taking the perspective to a very long-term view. How should we, together with the other stakeholders, develop the world-leading fantasy IP into the future? Gaming being one part of it. But it's too early to give color on our specific plans. I think we are still open-minded for, obviously, as always, input into that. I think it's also very interesting conversations around other medias than gaming relating to that IP. But unfortunately, I have to tell you, stay tuned for the future.

Okay, I think I will continue with a couple of questions from the web. I have a lot of incoming here, and it's really hard to choose from everything. But the first one, it's a question from Marlon. He's asking, what have you included in the 23-24 guidance in adjusted EBIT from the partnerships and licensing deal?

No, we haven't specifically disclosed how much of that is included into that forecast. Obviously, it's a range and we try to be cautious on all our forecasting. However, I think it's time to be humble today that we have been wrong. Even though we have been cautious on forecasting, We had to revise it today on this financial year, driven now by the delay, partly the delay of Dead Island 2. So PC console is, you know, that's the beauty, it's a volatile, difficult market to forecast. But I can't give full or color really how much of it's included into that forecast but it's a quite nice contribution and looking back you know we have done a number of historic deals with platforms that has been contributing into our business up until today but I think this would increase that level.

And second one here from Ireland. You mentioned in the last report that you expect organic growth of 20 to 35% for this year. Any comments about that for the moment?

Yeah, so Johan, I don't know what we should share here. First of all, we'd like to say that we are going to the main market and we need to have one forecast. And our forecast and guidance is the adjusted EBITs. It's a bit technical in this regards, not commenting on that. But because you asked me, Martin, I can still confirm that we should be within that guidance as it looks. Most likely in the lower end of it, but within that guidance.

Then I'll go to a question from Nick Dempsey. He's asking, with the share price at this level, the change in interest rates and the special review ongoing, can we assume that you will not make sizable acquisitions in the foreseeable future?

I don't think you should rule out transactions. In general, I would like to be active in the marketplace, but it's difficult to do very large sizable acquisitions if your currency are valued as it is currently. It could be destructive to shareholder value. But obviously, if there is a fantastic, very successful company willing to sell at significantly lower valuations, I'm here to talk.

Do you feel that sellers' expectations are coming down now?

Yeah, a little bit. Mobile, it looks like a lot of things are for sale. But on PC console, business is still, I would say, a solid market for companies out there, both private and private markets. So expectations are more reasonable. And I think many people appreciate the ecosystem and platform we built for the Embracer. But To be fair, we have the pieces we need. In general, we have the pieces we need to be successful as a group. So we don't need to acquire lots of companies to grow.

Hmm. Okay, thanks. I have a question here from Adrian. He's asking, considering you didn't share the ROI chart that you have been showing every presentation over the past few years, what can you tell us about the ROI of the latest releases?

Coming up in a few minutes. Okay. That's a deep dive slide. Okay.

Thanks. And Tom Singlehurst from Citi, he's asking, Can you talk about the transformative licensing partnership, given it's yet to be concluded? How do you know what its contribution will be?

Well, obviously, I know enough to be confident enough to include it into the guidance within different outcomes. So I know quite a lot of what games we're talking about and what's the economics around the deal and transactions relating to this. So, obviously I know a lot.

He's actually also asking what elements of this licensing partnership are we missing? Does it also come with a stake sale and therefore dilution for existing equity shareholders?

I don't think we should expect that.

i'm not i'm not i'm not linking that transaction to a stake sale okay thanks and maybe i think we have three minutes left of the q a maybe you want to share some more light on the strategic review and potential for spin-ups spin-offs going forward etc there's a lot of questions coming in yeah obviously we have another q a session with you in a while so but no but

There is a new market environment. I think we need to be realistic. And we built a fantastic group of companies together. But one of the strategies we have is obviously to continue to grow by, for example, acquisitions. But it's difficult when the valuations are what they are today. we have amazing businesses generating substantial cash flows today, market leaders. And then we have amazing businesses that we decided to invest into the future of, that the cash flows will be in the future. The mix of those together is not optimal in the current market environment, potentially. So one of the potential outcomes could be to take some one or some amazing companies and make them into separate public companies but obviously we need to have this special review team do their work I have obviously as a major shareholder myself hopefully some input into that discussion

Okay. Yeah. Thank you so much for that. And I see we are finishing off this Q&A on time. So I think it's time for the deep dive.

Thank you, Martin. I know we will be back here after this session. So let's go back on stage, at least myself here. Hello everyone and welcome back on stage here. I'm honored to welcome Emma Yre and Sebastian from Gearbox on stage and they will give you a deep dive into many very interesting topics. So welcome on stage.

Thank you. Thank you very much. So, my name is Emma Ira. I'm head of sustainability at Embracer. So, okay. There is my slide. Okay, so first of all, what's the reason why Embracer exists? It is to provide the world with great games and great entertainment. but also create value for our shareholders and other stakeholders and give back to society. So we're already doing that today, and we will do that even more in the future. We walk our talk everywhere in the world where we run our business. We map and manage our risks in all countries, in all regions where we run our operation. And as well, we try to do our best to develop our business, to also do good for people, for our beautiful planet, and to be successful in the long run. Although we really love our head office in Karlstad, in Värmland, we are confident that it's not 50 people in Sweden that will make the difference. It's the studios, the companies, the 15,000 employees, family members, that actually will do the job, will make the difference. And last time we invited Asmodee to present Access+. It's an initiative for equal and inclusive games. And this time we have the honor to present Sebastian and Gearbox. And to talk about borderland science. And I just realized I didn't pronounce your, I just used your first name. And that might be because I won't get the Nobel Prize in French. And I noticed that Lars did the same. He just called you Sebastian. So I think we just set a standard that within the family, even though we are on stage, we just present the first name. So you're so welcome, Sébastien.

Merci beaucoup, Emma. Thank you so very much.

Okay. Hold that up.

Thank you. So I'm Sébastien Acaïs from Gearbox Studio Quebec. I'm co-studio head there. That studio is a team of more than 300 people, one integrated team over two locations, two floors, one in Quebec City, one in Montreal. And may I borrow this? Sorry. Thank you. No problem. So... Let me talk to you today about what we do. The mission of Gearbox, of which we're a part, is to entertain the world. And I'm going to present to you today Borderlands Science, which is a minigame within Borderlands Science 3, where we push to entertain the world sustainably. Now, this game is about gene sequencing, so essentially we're leveraging the puzzle solving capabilities of our players to do genetic sequencing. Why do this? The algorithms that the scientists currently have to parse through genetic sequence are not perfect, and they can get stumped by the noise in the data. And it turns out that humans are very good at pattern recognition. So how do we bring such a type of citizen science endeavor into a AAA game? So Borderlands 3 is a first-person shooter game. And so you see your hands, you have a gun, you're shooting at bad guys, and you loot. And so there's a place within the game where you can pull up to a virtual arcade booth. That's the visual metaphor that we use to present this minigame. Now, the minigame takes its inspiration from a web browser game developed at McGill University, which is essentially a tile-matching game, but using the four nucleotides that make up the genetic sequence. And so what we did was to, with the McGill team, reinvent essentially the gameplay and the aesthetics to bring in within the fiction of Borderlands. so that players still feel engaged with the game and have fun doing it. So this is what the game looks like. And what you're looking at, you've got the four different types of tiles that are the nucleotides, but you also have what the player does. And this is what you see in terms of these yellow boxes there. That's player movement correcting the sequence. Now, all of that is essentially gut bacteria DNA. Why do we care about this? Well, it turns out that our gut microbiomes, each of you can think of yourselves as distinct ecosystems. And the gut bacteria that we have is different from people to people. And it has an influence on our health. These are beneficial for, or not beneficial, it depends, you know, and they influence things like obesity, neurological diseases, and multiple other conditions. And they also have an impact on the type of medication or care we can provide for these conditions. So trying to understand them better is really key. Now, for the players, there's another way that can be more immediate, and we also provide them with essentially boosters that they can purchase through an in-game currency that is within the minigame. So, I was talking earlier about guns and shooting your enemies. Well, maybe the gun shoots farther, or there's more damage, or the loot gets better. So, this, again, engages player, and we're leveraging here their skills, not only to get at a better sequence, we're also tracking what the players do to enhance what the algorithms can currently do, because the objective is to get at better algorithms that are going to be able to do this automatically. So in terms of how we actually do this, I'm going to carry you through the partnerships that are there. American Gut, which is part of the MicroSETA initiative, is sending filtered sequencing data to McGill. McGill University provides us with the alignment puzzles that show up in the game. MMOS, which is Massively Multiplayer Online Science based in Switzerland, sends us ranked puzzles that the players solve. Those solutions are sent back to MMOS, which go back as packaged solutions to McGill, where they can tweak and improve the algorithm. And step six, the improved alignments are sent to American Guts. We launched this on April 7, 2020. This was after the release of Borderlands 3, and it was a free update to anybody who already owned Borderlands 3. So this was done on World Health Day. Now, in the first 24 hours, we had more than 6 million puzzles completed. More than 150,000 active players. Each player completed on average roughly 40 puzzles. Our top player completed more than 500. Now, our optimistic forecast was to reach about a million puzzles completed by the end of the first week. So we completely blew the roof off of this objective. And as of today, we have reached more than 3.5 million active players with over 122 puzzles completed. We've received worldwide coverage and specialized and mass media as well as an editorial in Nature Biotech. in-depth documentaries such as Of the Cup, Red Bull TV, Savoir-Maisie, and we won the 2021 Corporate Innovations Award of Tech Titans for this. So citizen science work in games works, and one of the key things is to understand that the data that we have in borderland science is very versatile. It's all about DNA. That data is easily interchangeable, and what that means is that Microbiome analysis, which is what we do here, is relevant to many fields of scientific inquiry. And understanding the microbiome of human gut bacteria is just one of them. So this is really a first step. in an ongoing journey for Gearbox as well as Embracer. And I want to thank Emma for giving me the chance to talk to you about this today. So thank you very much.

Thank you very much, Sebastian. And like Lars said, the world is dark right now. It gets a little bit less dark listening to you and a little bit more beautiful. And this is one of many examples how we as entrepreneurs can contribute in the right direction. Thank you very much.

So let's move over to London and Phil Rogers, are you online? I can't hear you Phil, but I can see you.

You can hear me now?

I hear you perfectly now. So welcome online.

Thanks very much, Lars. Thanks for having me today. So, hello, everyone. My name is Phil Rogers, and I'm the CEO of the 12th Operative Group here at Embracer. That unit is Crystal Dynamics and Eidos. We're both globally recognized brands in the games industry. These brands engage with gamers. They have a history of making strong, narratively driven, action-adventure role-playing games. Now, of course, within Embracer, we're new. Today, we're not in a hurry to rebrand ourselves into a single new name, but at times we may just refer to ourselves by our initials, CDE. Now, thinking back, we completed the acquisition at the end of August. It makes today actually the 82nd day post-acquisition. We just wanted to use this first sort of 90-day lens to update you briefly. Now, our first impression is that we sit amongst some other amazing operative groups, business-wise and creative-wise. All distinctive, but what we found over these first 90 days is a lot of shared ideas and values and lots of potential for synergies. One thing that's unique about our operating unit – just go back one slide, sorry. Unique about our unit is that we're a spin-out or a carve-out from a previous business, Square Enix. And we've kept this ourselves deliberately lean in places that we can operate efficiently. But it also means now that we can push in these other units to leverage their expertise and resources too. A very practical example is the Playons customer service team is already up and running, supporting our gamers at the front line. On the creative side, we're also exploring a number of opportunities from remasters of some of our classic games, to exploring new opportunities and new experiences on platforms such as VR. Now, we believe in partnerships. We're 90 days in, and this feeling, you know, we're really encouraged about the potential for deep and great partnerships within the Embracer group. To the next slide. Yeah, our focus, as I said, has had a very classic first 90-day orientation. We put our people first. Our goal has been to get stability and visibility on our projects and our business, making sure that our direction of travel is clear and then set on where we see the best opportunities for growth and success. And then, of course, aligning our resources against that. Now, sadly, that did result in the decision, which we announced on November 1st, to close our mobile studio, Onamar, formerly known as Square Enix Montreal, and also to close our publishing QA department, too. With that decision, we want to redeploy the people to the maximum extent to support our PC and console gaming franchise plans across Crystal Dynamics and Eidos, where we are hiring to fulfill our current slate. I won't lie, it's been a tricky time, a tough time for people of these past few weeks working through these closing steps, but I firmly believe it's the right thing for us to do. Strategically, we want to diversify our revenue sources. One thing we push very hard over these 90 days is progress on our co-development plans. We really believe that co-dev is a way to not only add new revenue sources to our business and streams, but also to work in partnerships that can add and deliver long-term value. So this has very much been our focus for the first 90 days. We've got lots to do. We want to continue to push hard with these, and we've got a great team effort going in. We just moved to the next slide. So to continue with the people theme, really, we really take care about inclusivity. Both Crystal and Eidos, we take pride in serving our communities, both locally and wider too. Now Crystal, we were recently honored to make or host the Girls Make Games for part of their 2022 GMG camp, hosting, as you can see here in this image, some junior devs at our studios in San Mateo, California, and also Belleville, Washington locations. Now we have many crystal presenters talk through how we make games and cover many aspects of the industry, but It was actually we who found ourselves inspired by the feedback we got by these kids, these younger developers, to push ourselves and challenge ourselves on new and better games and game making. Overall, the GMG series of camps resulted in the creation of over 42 game demos by young talent, talent we fully expect will challenge and change the future of the video games industry. So the next slide. One partnership we announced earlier this year is our co-development work with Microsoft's Initiative Studio. We're working on the iconic Perfect Dark Game, and the project is going extremely well. What's been so promising internally is seeing how our team took on this opportunity, a new way of working. As we think about the future of how we work, collaboration across studios, across time zones, across geographies, across different companies will all become more common. So it's great to see the team at the initiative and our team across Crystal Studios working so well together. So the next slide. So more about partnerships. And just a few weeks ago, our teams attended Epic's Unreal Fest in New Orleans. Now, Eidos, shown here, has always had a very big focus on continuous improvement and sharing knowledge. And two of our machine learning experts gave a talk on modulating or controlling, if you like, game difficulty with machine learning, showcasing just how we believe new technologies can apply to the game development process. Now, it's all up on stream, and it's well worth to watch if you're curious. To the next slide. Yeah, just continuing with Unreal Fest, but looking at Tomb Raider for a minute. So in April, we announced that the future of Tomb Raider is on Unreal 5. And at the Unreal Fest, the executive producer and a few of our Tomb Raider directors took to the stage to share what it's been like switching from our proprietary tech to Unreal 5. And if you like, it's the good, the bad, and the ugly of that switch. Again, it's up on a stream, and it's also well worth a watch. Now, standing back to us fundamentally, Sorry, just go back one slide. Just standing back to us fundamentally, this is about the deep-rooted partnerships that we're creating for the future of Tomb Raider as a beloved franchise across games and or media. Our partnership with Epic Games and the integration of UE5 into our development toolchain really lets us push storytelling to new levels. I would not release any details yet of our franchise plans, but the team is excited to show where we're headed as soon as we can next year. To the next slide. And here, just cover a couple of active projects. Our award-winning Guardians of the Galaxy game just celebrated its first anniversary. And with that, we passed the 8 million player count. Now, we've seen great engagement from gamers with this title entering into Game Pass and PlayStation Plus quite recently. It actually just landed back from a few days in Montreal. I can tell you there's great pride in the team about the game they've made, and there's also a great excitement now about how we can drive it commercially within our own business unit. There's also excitement about Eidos' future projects. We're not sharing really anything here, but stay tuned for next year where we hope to come back and tell you more about the games that we're working on at Eidos. To the next slide. Yeah, so we just announced two days ago, actually, that the highly anticipated new hero release of Winter Soldier is coming to Marvel's Avengers on November 29th. Now, with Winter Soldier, we now offer 11 playable heroes from Marvel's universe, 12 including Spider-Man, if you're playing on PlayStation platforms. Now, all great heroes need great villains to battle, so MODOK, The original villain from the main story is back in the long-awaited cloning lab and the new end game, Omega Level Threat. Now, gamers can team up with Winter Soldier and experience this amazing boss battle together this holiday, as we say, launching on November 29th. To the next slide. So my final topic I just want to touch on is on a survey that we recently took. We wanted to gain a community perspective on what players are looking for should we revisit the land of Nosgoth and, of course, our iconic IP here, Legacy of Kain. Like I said earlier, we have brands which resonate with gamers, and we hope to use these brands to drive ever more meaningful relationships with our customers. Now, in the past, we found that surveys typically get between 1,000 and 3,000 responses. But when we asked folk about Legacy of Kain, we received over 100,000 responses, and 73,000 gamers completed it entirely. And if you're one of them, then we thank you very much, and we appreciate it was quite an effort, given, you know, the survey was pretty extensive. We saw the news of our survey shared across social and press platforms everywhere. and we really felt this was a great way to reignite this passionate fan community with this legendary PC console game series. Now, rest assured, we hear you loudly and clearly, and we'll continue to update you on the what-if possibilities ahead for Legacy of Kain in the future. So, to the closing slide, thanks very much for this opportunity just to share this brief update on what's happening across Crystal Dynamics and Eidos. It's just a glimpse, really, of what's happening, and there's obviously lots more we'd love to show and share, and we'll come back to do so, we hope. Now, at the time of the acquisition, just 82 days ago, we announced the Embracer. It feels like a perfect fit for our ambitions to make great games with great people sustainably and to grow our existing franchises to their best versions ever. We're approaching 90 days in. We believe in this, and we're really happy to be here and confident on that goal. Thank you very much. Thanks, Lars.

Thank you so much, Phil. I'm super excited about the future from you guys. So let's say goodbye to London and welcome Paris and Mygge on stage. Hello, Mygge. How are you?

Hello. Thank you very much, Lars. I'm doing great. Hello, everyone. It's a pleasure to participate today in Embrace 32 presentation. Let me start this morning by taking you through the market dynamics we've seen over the first half of the financial year. The global tabletop market grew 7% in the year to date compared to a record period last year. The market performance was specifically carried by the dynamics of the strategic trading card game segment, which grieved 25% year-to-date versus last year. The board game segment was slightly down at 6% versus a high comparable last year, but remained significantly above pre-pandemic levels at 16% in the EU and 34% in the U.S. compared to 2019. In this context, Asmodee delivered a solid H1 performance, growing net sales, so Asmodee is still in 10% versus ProForma last year. As Lars mentioned, discrete Q2 net sales growth was 9% year-on-year. The year-to-date growth was driven by trading card games while we gained share in the software board game market. Growth was seen across geographies with Europe growing 10%, driven by France, plus 18%, the UK, plus 8%, and Benelux, plus 13%, while North America was also up 11% versus last year. With higher growth in trading card games compared to board game, we see a temporary product mix impact at the margin level. As with all companies, we were also experiencing the pressures of the high inflationary environment on shipping and other operating costs. Despite these pressures, we delivered NH1 adjusted a bit in line with pro forma last year. With regards to the full year outlook, should the trading levels be similar to the previous record year, it would put the yearly market growth at plus 4%. While it's early to tell in a highly volatile economy, consumer purchase intentions and thus consumer goods purchases for the holiday seasons could be impacted by the economic context with an impact on sellout in Q3, Q4, and Asmodus performance in that market. Moving on to the next slide. Before I spend a few minutes on the balance sheet and particularly on our inventory position, I wanted to remind you the seasonality of our business. As you would expect, our working capital cycle, and more specifically, our board game inventory, is driven by the seasonality of demand for our board game products. As you see in the historic sell-out trend for board games, so excluding trading card games, there is a very strong seasonal pattern with peaks of demand around the end of year holiday season in December. This naturally drives seasonality in the selling of our board games with a peak between September and November. By consequence, we have a natural build-up of inventory to around September of each year in anticipation of our peak season with a seasonal unwinding between September and March as product is sold through. This seasonal effect can also be seen in the H1-H2 split of free cash flow generation, where we historically consume cash in H1 before generating strongly in H2. Next slide, please. At this year's peak of the working capital cycle, Inventory at the end of September has a net value of 4.2 billion SEC or around 380 million euros. This is 65% above the same point last year. We can break this increase down into three main factors. First, 34% or more than half of the increase is attributed to top-line growth and underlying business activity. This represents plus three days of LTM sales and comes primarily from the strong demand for trading card games products, as well as the impact of take-home balances from companies acquired in the last 12 months. Miniature markets are a need to see business in the U.S. and exploding cadence. Secondly, 26% or a bit over a third of the increase can be attributed to temporary and market factors. These factors are associated with management's conscious decision a year ago to secure availability of evergreen bestseller titles such as Catan, Ticket to Ride, Spotted, Swarp, best known long-lasting evergreen titles. Before I deepen this 26% a bit, I'd like to also mention the second factor that we see, which is the impact of USD strength, which mechanically increases the translated value of our U.S. inventory holdings, accounting for an increase of circa 5%. Faced with significant COVID-related supply disruptions and frequent stock shortages on our, again, most in-demand games, we took the decision in 2021 to increase stock coverage on the key inventory lines of our bestseller evergreen titles, the Ticket to Ride, Catan, and so on. This served as an important growth enabler as it ensured that we maintained a healthy stock position in our best-selling titles, allowing us to avoid lost sales and to continue boosting consumer awareness of our most popular games. In light of the recent change in the board game market dynamic I described earlier, the business decision we took last year to invest in additional bestseller stock coverage gives rise at the end of this quarter to a temporary cash investment in inventory of around 760 million SEC. We anticipate to unwind this impact over the coming 12 months as we normalize our stock coverage of our evergreen bestseller titles. Given the quality of stock and based on our current forecast assumptions, We do not anticipate that the temporary increase in coverage will have a material impact on inventory valuation or the need for additional depreciation outside of normal operating levels. As I mentioned, September is the peak in terms of inventory seasonality. And between now and year end, we project a seasonal unwinding of the stock position supported by peak season sales and significant end-of-year marketing campaigns. We've already seen the beginning of this unwinding in our October balance sheet. This is expected to deliver strong cash generation in H2, consistent with historic seasonal pattern, even after taking into account an expected partial phasing of cash generation to H1 next year due to the aforementioned temporary factors in inventory. And finally, we can turn to my last slide for today. Moving on to some other key highlights. In addition to the enduring strength of our existing portfolio, one of the supporting factors in our share growth in a challenging board game segment is our ability to maintain a strong pipeline of new releases and novelties. H1SO has released a number of exciting new titles, including the Netflix licensed games such as Squid Game, Ozark, and Stranger Things. extensions to our best-selling franchises, such as Ticket to Ride San Francisco, as well as novelties in our Marvel and Star Wars licensed games. We were also proud to release three new games under our Access Plus umbrella, which was described earlier also, an initiative we introduced during the recent Embracer Annual General Meeting, with accessible versions of Double, Timeline and Cortex. We also released one of our most iconic titles, Catan, on our digital board game platform, Board Game Arena. In the upcoming quarters, we have a strong pipeline of new games coming out. On top of new iterations in major franchises, such as a new Star Wars Clone Wars game, based on the best-selling Pandemic Mechanic, Asmodee will also release a slate of original and own IP board games that already received strong critical acclaim. The two-player version of Splendor, Challengers from Zimam, Twilight Inscription from Fantasy Fight Games, 3000 Squirrels from our Unexpected Game Studio, as well as Heat, Pedal to the Metal, a racing game from Days of Wonder. We continue to work closely with other Embracer operating units, and we are very excited by the range of possibilities for cooperation and synergy. We currently have 25 projects in discussion. Amongst others, this includes the use of Asmodee IPs by Embracer's game studios, while we've had productive discussions with Dark Horse regarding collaborations on novels, comics, merchandising, and media development. As with the rest of the Embracer family, we were very pleased with the announcement that Middle-Earth Enterprises will be joining the group and we look forward to further development of our long-lasting relationship with them. Finally, we were pleased to announce the recent acquisition of VR Distribution, a historic partner for Asmodee. This acquisition further strengthens our geographic footprint and expands our mass market distribution capabilities in Australia, New Zealand, and the UK. Well, thank you very much. Back to you, Lars.

Thank you, Myge. Thank you so much. So let's jump into the next deep dive and welcome Johan back on stage. Thank you, Lars.

Yes, so let's have a look at our project ROI short for the PC console segment. So currently we have 58 projects in total that matches the criteria for becoming part of this short. And as you can see, the average ROI generated for... The games in the chart is approximately 2.4x, where we measure contribution from the game generated from release, and we relate that to the investment costs for making the game. It's below what we had last quarter, where we were at 3.1x. One, of course, important factor in this is the inclusion of new titles, and then especially Saints Row. Looking at Saints Row specifically, it generated an ROI of 0.9, or it had generated that as per the end of September. If you would exclude Saints Row from... The sample, we would have a weighted average ratio of 2.9x times the invested amount. All in all, the companies here or the projects in the slide has generated approximately 15.8 billion in net sales and 11 billion in contribution with 4.6% in total investment. We have also looked at, we have done an M&A follow-up as per the end of September. We have included the companies that have been part of Embracer for more than a year as per the end of September. If we first take a look at the operative units or standalone companies, it's in total 19 deals and four of the companies acquired has been fully integrated into other legal entities. So it's 15 remaining legal entities to evaluate. And if you look at the training 12-month basis, there just to be a bit for these 15 has grown by over 50% since deal announcement. And the weighted upfront adjusted EV EBIT multiple for these acquisitions has been reduced from 5.2 in average to 3.4 as per the end of September. Looking a bit more into the details, we have the comparison in the shorts below. On the left-hand side, it's measured versus the upfront multiples. And on the right-hand side, you see the same comparison, but including likely earnouts. The total purchase price for the deals is 26.5 billion, 13 in upfront consideration and 13.5 in likely earn out. And at the time of closing, they generated on a 12-month basis 2.5 billion in adjusted EBITs. And they have increased that with 53. So as we said, more than 50, 53% up until the end of September. If you include the likely earn out into the evaluation, you see the same relationships, but the gap between multiple at time of acquisition and multiple today is increased. Besides adding to our financial performance, we also, through this acquisition, have added capabilities within developing, publishing, and the number of people employed in these companies at time of acquisition was 6,000. We continue to invest into the companies that become part of the embrace group. We have grown that with more than 2,400 people up until the end of this quarter. Obviously, other important benefits are IPs being added as well as studio networks and publisher networks.

And worth pointing out, Johan, this includes many or most of the sizable companies like PlayOn, Gearbox, EasyBrain, Sabre.

Yes, so it's all standalone companies that has been part of Embracer for more than a year.

And you will come back in a minute to two examples of studios, which is a bit more difficult to measure. But I will dig deep, dig into two operating units to follow up. So Amplifier, it's an operating group based here in Stockholm, perhaps by many seen as the smallest group and But they actually have been growing a lot and they've been investing a lot into the future. And I would like to highlight them a little bit here today. So they built a very attractive and unique business model that has become increasingly successful. I was really pleased to read a CEO report from Per Arne today. noting that last quarter alone, the amplifier team had 195 incoming opportunities of people that would like to set up studios. That is a number doubling year over year. And in last quarter, they set up one studio. And I would define this as a successful acquisition. that we made 2019 in total of 42 million SEC. And that investment came with a minority portfolio that we kept alone, saying, okay, on this portfolio, we are financial investors, but the strategy of an amplifier will change. That minority portfolio alone has generated more than 110 million SEC in net profits in exits alone. One very successful acquisition we made within Amplifier is that Tarsier in Malmö, 2019. And their game they brought out later, Little Nightmares, has been generating notable royalties, a lot more than we were expecting. And we are highly confident about their future pipeline. Total net investments into Amplifier are 550 million, where all 315 are in CapEx. And we are confident in Amplifier's future pipeline with 15 projects across close to 300 developers. And without taking further deals into account, we believe the current pipeline could generate between half a billion to a billion in net sales in the financial year 24-25 alone and become a notable contributor to the organic growth in the group. Looking into another very successful Swedish and Danish operation is Koffestain and Ghost Ship Games. So in total, we have invested close to 2.7 billion to build this group together since 2018. This includes the likely earnouts up until 2029. And looking at the financial on a trailing 12-month basis, end of September, the group generated 1.3 billion SEK in Performa net sales. And the Performa adjusted EBIT for the same period were 835 million, or 64.2 in adjusted EBIT margin. We do expect the Gold Simulator 3 release in this quarter. and the Valheim Xbox release in Q4 to grow the business further. Looking into the businesses, they have a notable unannounced pipeline 2023 and onwards. And finally, I would like to remark that they are generating a significant free cash flow since 2018 due to low capex within their businesses. So continue with the M&A deep dive, Johan.

Yes. So as Lars said, when you look at development studios, it's a bit different depending on where the studios are in relation to the development projects they have. So in this case, we have studio case number one. And here we have a new and the only game released by this studio was four years after the acquisition. And during the development of the game, we see negative cash flows for three years. And then at release we see how earnings and cash flow starts to build up. Where you have a convergence of adjusted EBIT and operating cash flow one year post release. And currently they are working on a new game that's in development. But we think it's very interesting to show the dynamics in this case. Studio case number two. Here it's a new and only one game released, but it was released one year prior to becoming part of the Embracer group. So the earnings and cash flow patterns are different. You have strong earnings and cash flow contribution for the first two years of post-acquisition. And in the recent quarters, we see negative cash flows one year ahead of a promising sequel that you're investing in. And we expect EBIT and cash flow to converge post-release of this sequel. Obviously, depending on how successful this release is. But two interesting examples of the complexity and differences that needs to be considered when looking into M&A follow-up on studios. Last but not least, an update on this large project of changing list in venue to regulated market. We are on track of changing list according to plan. The ambition is to be ready for the Stockholm main market by the end of 2022. And it's close and we are on track. It's a large project. It's been a strong contribution from people and employees all over the organization. And it's something that we are very proud of that we have come so far. And we just need to bring it over the finish line, according to plan. And we see, of course, benefits of doing this. So rational is to increase the liquidity for our stock. It will make us a better known company worldwide. It will allow us to have share buyback programs. And it also gives us valuable governance and internal control structures that will make us a better group of companies.

Amazing. Amazing job, Johan, by your team. It's a hell of a process and very expensive. I hope I don't do that every quarter. So without further ado, let's jump into the last Q&A session.

Okay, thank you. Nice time for the second Q&A part. There was a lot of interesting presentations here and I think we should start with the sustainability part of it where Emma touched upon it briefly in the start. What do you feel as the main area of improvement and where the focus should be when it comes to sustainability?

I think it's such a broad scope, so it's hard to point out one area. I think it's important to implement it into the daily work in order to improve on many areas, to be supportive to our people, to our business, to the environment, to the society. basically to make money so we can pay taxes that helps society. So it's not really rocket science, even though this was science today here.

But is there any area where you feel that you have taken big steps in the last year or so, or any area that you would like to see more focus in?

I think we have done a lot of obviously what you could expect from us in terms of governance and implementations of various control systems and policies. Personally, I enjoy reading the employee survey that we do all across the group, where you can track how people feel. how they think about their local management, how they feel in their own situation or they're happy in the daily work and so on. It's a very important non-financial tool in order to understand how your businesses actually are doing because we are not better than our people. So if our people are unhappy, we need to take action. and improve. So personally I think that's for me the most important tool.

I would agree and I think what we have done is also to realize or to make it clear that sustainability or ESG should be a part of the daily business and support the business, not a separate silo. in the organization. So I think that's good. And looking at ESG, a lot has been done in governance as part of a project of changing this thing. And I think also today's example from Gearbox is a very good example of what we do within the S part of ESG, together also with the presentation of Asmodee Plus that was held at the AGM. So I think that's really nice.

Just a final question on this area. Do you feel that there is sometimes a challenge to at the same time meet the consumers demands in the games and at the same time uphold this high standard in ESG, if you understand my question.

Yeah, I think you are closing into a sensible topic in a way. You know, the world has become increasingly online and it's a very polarized world if you compare it to when I grew up. That is obviously dividing people and also creates polarization within games on a fan basis. You need to be thoughtful and mindful about how you go about. In the end of the day, if you use a lot of common sense and respect people, I think you are taking a few good steps to be successful.

Okay, thanks. Just moving on to Crystal Dynamics and ADOS and that presentation by Phil Rogers. What would you say if you would just describe them a little bit more, sort of the main projects? We receive a lot of questions coming in from fans here on the tablet. It's hard for me to choose anyone, but everyone is asking about the Marvel plans, if this is the final update that we see now in this winter, or can you share anything more?

No, I'm sorry for those fans. Our policy is that our publishers and developers are communicating around their projects and brands.

And if we go into the specifics in this company, then they had, he talked about the mobile restructuring that they have been through. Was that a surprise to you? And final or second question would be, what's your view on their cash burn and what do you expect going forward?

I think on your first question, obviously, overall, I'm very pleased to have them on board. I think they are an amazing group of people and an amazing opportunity for us. We made a deal with Square Enix on a quite tight timeline. It was a package of things. One thing we identified was this mobile asset in Montreal and the QA team. We have been working to... to find new homes for those businesses. And now, very unfortunate that they had to do this for the people, but hopefully we could have a number of them joining other companies within that group or other groups. At the same time, we need to take responsibility for our business. It's the profits generated that pay our salaries. So we are long term, but we need to see that it fits into our strategic roadmap as well.

And Johan, could you share any thoughts on the cash situation for them, what the burning rate is?

No, I think talking about the burn rate, it will be highly dependent on strategic decisions on how you structure or what deals are made for the business.

Could potentially partly relate to this partnership and licensing deal?

Okay, thanks for clarifying that. Okay, so I guess we'll see. There's potential for partnerships for them. And if we move on to Asmodee and Myrgy's presentation here, I'm just thinking how resilient... Should we think that this business is in a potential recession scenario in the coming year? Do you have any data that you can go back and look and see what happened before? I mean, this is a market that has been wild for quite some time if you compare it to digital PC console gaming, for example.

I believe and we believe there is a long-term trend that will continue with the increased use of board games and trading card games in the world. If you look a decade ago, it has been a growing market by younger people, younger adults meeting, socializing, playing games, having fun together. It's a social happening. that trend will continue, especially in this increased digital world. There's a need to actually meet some time as well. So I firmly believe in the business and I think it's a relatively cheap form of entertainment. Still, if you compare it to travel, you know, dining and so on so in general I'm confident about the business obviously now it's highly physical so they are a bit more into this turbulent world but I think the trend is positive I'm not overly excited about a lot of inventory and perhaps talked a lot about that today but I'm now confident that they will they will lower that inventory so

Did I read Mugia's presentation correctly to assume that they expect normal seasonality and a big pickup of sales as usual in the holiday season?

Yes, and we're already seeing that in the numbers coming through from Paris that the business are performing, inventory levels are going down, and they seem to, what I'm hearing, having a good start on the holiday season. Selling. and the initiatives in transmedia what do you think about those so far i think it's still early days there is a you know now looking on the film and tv side there is a substantial interest around the number of our key ips for the future um But we haven't executed, assigned things yet. We are still early days. We are long term. Potentially, we need to collect our forces even more to increase our leverage on that front. But I'm being very pleased to speak with the number of top players in the industry and the excitement I have around our IPs.

And how long time do you think it will be until we see Midgård in this context?

Yeah, it's very hard for me to comment anything on that front. But if you're long term, I'm confident you will be pleased one day.

Have you played the Squid Game board game?

Not yet, but perhaps that is something for the holidays. I've been doing something else meanwhile.

Fair enough, thank you. I see we are a bit short of time, so I'll just finish off with two questions here. I have to ask you about write-downs. It's a big part of this industry. You try a lot of things and then you have to adjust it. Given that you had a little bit of progress below your expectations in the last game releases, how should we think about write-downs?

We do impairments regularly, we have our model and we have our auditors.

Yeah, so we have the model for amortization of released gains and that's coupled of course also with impairment tests which is done on a quarterly basis but fully on a yearly basis.

in general we have a fairly aggressive amortization with two-thirds of the investment being amortized the first year and one for the second year and if you look at our overall portfolio I'm super confident in our balance sheet on that one.

Okay, and my final question is on the chart that you showed in the ROI chart. You received the question why I didn't show it, but you had it planned. But when we meet here in one year from now, do you think that it will be above 2.9 excluding change flow or below?

I think it will be higher personally, but it's not a forecast because I can't give forecasts.

And what about you, Johan? I also think so. Okay. Good answer there. Okay. I think it's time to round up here and finish off. And thank you. And thanks, everyone, for listening in. And thanks to everyone in the room for being here.