Embracer Group AB

the presentation of Embrace Group's Q3 report. My name is Simon Jönsson and I will be the moderator today. On today's agenda, we have two sessions. In the first part, Lars and Johan will have a presentation of the Q3 report. We'll also have a presentation from Asmodee. Following that, we will have a Q&A session where you as an audience can send in questions via the web. or verbally via a teleconference. In the second part, we will have two deep dives. First, we will hear from Karin, the new head of strategic partnerships, and then also from Sören, who is the founder of Go With Ships Games. With that said, Lars, I'll leave the floor to you.

Thank you, Simon, and Hello everyone and welcome to Stockholm and Embracer Group's interim report for Q3 2022-2023. First of all, I just wanted to take a moment to reflect on what we have built at Embracer. We today consist of 12 operating groups, over 16,000 employees and over 130 studios and 800 IPs. with a business that is well diversified between four operating segments. We firmly believe that our decentralized model that empowering entrepreneurs, creators and our great people is the best model to drive long term profitable growth in a highly creative industry. I would like to send my thanks to all our shareholders, employees, customers and business partners for contributing to the prosperity and success of the group. Now on to the highlights of the quarter. We are pleased to announce another stable quarter delivering largely in line with management expectations. Our diversified business across segments drove solid net sales of 11.6 billion, adjusted EBIT of 2 billion and 1.7 billion of free cash flow in third quarter. Free cash flow exceeded management expectation driven by great cash flow generation within operating groups of Asmodee, Coffee Stain, Easy Brain and Crystal Dynamics. The organic growth in the third quarter of minus 3% reflects tough year-on-year comparisons and limited new PC console game releases. Delays announced in previous quarters have led to a limited number of large-budget game releases for the PC console game segment and a lower gross profit contribution in 2022-2023, impacting operating margins. For the overall group, we iterate our adjusted EBIT forecast of 8 to 10 billion in this fiscal year and 10.3 to 13.6 billion in the next fiscal year. As previously communicated in second quarter, The forecast includes a notable range of outcomes from partnership and licensing deals with several industry partners expected to be completed during this quarter ending March. Coffee Stain continues their success this quarter, driven by Gold Simulator 3 that had a strong acclaim from fans providing a platform to further grow the player base over time. Together with our Danish colleagues at Ghost Ship Games, who continue their impressive work with Deep Rock Galactic, there is a lot to look forward to from Coffee Stain in the quarters and years ahead. Søren, the founder of Ghost Ship Games, will join us in the second part of today's presentation. Within the tabletop segment, Asmodee delivered a solid performance, driving strong signal revenue and earnings growth, as well as strong free cash flow. despite a challenging macro environment in seasonality's strongest quarter of the year. I'm happy to see, moving to PC console, I'm happy to see that Dead Island 2 went gold this week and is ready for release. Finally. The game coming out a week earlier than previously expected on April 21st this year. The response from Dead Island community and media has been exciting and we are looking forward to April. The key driver for our future organic growth will be the execution of our game development pipeline. In total, we had 8.2 billion invested by the end of the quarter. Looking ahead, we got 94 projects expected by local management to be released next fiscal year. Looking further out, we got in total 31 AAA games to be released up until fiscal year 27-28. 26 of these AAA games are still unannounced. However, we need to be humble and acknowledge that our overall Return of investment performance on PC console games release this financial year has underperformed management expectations. Rather than a structural shift, we believe it's mainly an effect of mixed reception for several releases combined with a more normalized market and softer consumer purchasing power this year. Our core business is making a healthy risk adjusted profit on games. We have therefore increased management focus and efforts to optimize investments and efficiency across the group even further. To simplify, each project has to earn its right to exist, which means we will increase our efforts to put quality first even further. and make sure we are creating engaging, unique, positive player experiences. We are confident in clearly improved return of investment on new products compared to the last quarters. In late December, we successfully changed the listing venue to Nasdaq Stockholm main market, further strengthening transparency, governance, and liquidity in our shares. The uplisting is a testament to the strong foundation we have built over the years. As stated, we expect partnership and licensing deals with several industry partners expected to be completed during this quarter ending March. The demand for content has never been greater. And Embracer is well positioned to leverage that demand with the largest portfolio of games and IPs in the industry. We have set the goal to increase the mix of PC console games development that is wholly or partly funded by third parties from today's level. This mainly relates to a number of sizeable game development projects over the coming six years with high development budgets. While a majority of the overall pipeline will still be wholly funded with the group, Expanding the third party funding is expected to significantly improve cash flow and profit predictability. The Tom Raider publishing agreement with Amazon announced in December that we entered into the third quarter is one example of this kind of partnership. Finally, a key part of our ongoing development and progress is an increased focus on sustainability. A priority area for me, our business and our people. It's encouraging to see that those efforts and the strengthening of our corporate capabilities at the parent company are paying off through improved ESG ratings. In the past few months, MSCI upgraded our ESG rating from BBB to A. And we are now also part of Sustainalytics 2023 top rated ESG companies list. Moving a bit to the numbers and Johan will enter the stage soon here. But I would like to highlight a few things that we continue to grow both in financial and operational terms. On a trailing 12 months basis, our adjusted EBIT has grown by a four years compounded annual growth rate of around 90%. More importantly, the way we look at it, the adjusted earnings per share has grown by CAGR of over 50%. Operationally, the total number of projects stood at 224 at the end of third quarter, driven by previous year's organic and inorganic investments in our studios and personnel. We would like to talk more about the pipeline in the second part of this presentation, so stay tuned. Embracer operates through 12 operating groups across four segments. In third quarter, the tabletop games and mobile games segment stood for a majority of adjusted EBIT in the slower quarter for PC console. It is a notable difference compared to second quarter when PC console drove sales and earnings and shows our increased diversification. PC console games. Net sales in the quarter for PC console games amounted to about three and a half billion. and increased by 64% compared to the same period last year, or minus 6% organically and minus 5% pro forma in constant currency. Adjusted EBIT amounted to 579 million and adjusted EBIT margin of 16%. The muted organic growth development is mainly explained by less new significant game releases. We see a continued stable performance for live game services and for our strongest PC console game franchises. But also note a more normalized market for certain categories, partly due to softer consumer purchasing power after a strong market both in 2020 and 2021. The clear positive in the quarter was Coffee Stain, which had both The largest new game releases through Goat Simulator 3, as well as one of the best performing back catalog titles with Deep Rock Galactic, developed and published by Ghost Ship Games. Coffee Stain also added Welcome to Bloxburg, one of the most popular games on the Roblox platform in the past years. I'm happy to see the game is performing in line with or slightly above management expectations so far. That said, the delays announced in previous quarter have led to a limited number of larger PC console games releases and lower gross profit contribution in fiscal year 2022-2023 impacting our adjusted EBIT margin. The profitability in third quarter is also impacted by amortization of game development costs for titles released with low return of investment in Q1 and Q2, including the Saints Row reboot. In our fourth quarter, we have several mid-sized titles that have been released or will be released, including SpongeBob SquarePants, The Cosmic Shake, Warlander, Pinball FX, one of the most ambitious pinball games ever, Decisive Ink from Tripwire and Valheim finally on Xbox One Game Pass. Moving to mobile games. Net sales in the quarter for mobile games amounted to about one and a half billion. an increase by 2% compared to the same period last year, or minus 14% organically and 15% pro forma. Adjusted EBIT amounted to 464 million, with 29% adjusted EBIT margin, a notable improvement compared to last year. EasyBrain and DECA have successfully optimized user acquisition investments, which has provided strong profitability and cash flow in the quarter. The quarter saw solid sequential growth, reflecting positive seasonality effects. However, the segment also saw some headwinds from tough comparisons and lower ad prices compared to last year, impacted by Apple's change relating to IDFA, lower player engagement and post-COVID and macroeconomic factors. Easy Brain released its new backgammon game Global in the quarter and has five titles in Soft Launch. Looking at the catalog, the strongest titles was Blockadookoo, Sudoku.com, Jigsaw Puzzles, Art Puzzle and Nanogram.com. I would like to highlight that our mobile games business companies are expected to show continued profitable growth in the years ahead. Soon moving over to Paris, I would like to highlight the tabletop segment. Asmodee delivered a solid performance, driving strong secret revenue and earnings growth, as well as stronger free cash flow, which I'm happy to see. Performa growth year on year was slightly negative at minus 5% in the quarter, with very tough comparisons. Asmodee reached 21% adjusted EBIT margin and stood for 40% of the group EBIT in its seasonally strongest quarter of the year. Asmodee is expected to deliver full year earnings largely in line with expectation last year with significantly improved free cash flow in the second half of the year. With that, I would like to hand over to Asmodee's CEO Stefan and CFO Mygge. Welcome to Stockholm.

Thank you Lars. Can you hear us well? I hear you very well. So thanks Lars. It's a pleasure to be joining you once again. This is a hello from sunshiny Paris today. Good morning everybody. Before we get into the detail of the presentation, I just wanted to take one minute to cover some of our key messages. In a challenging macroeconomic context, we are happy, as you said Lars, to present a solid Q3 performance for Asmodee. Q3 year to date, the tabletop market of board games plus strategic TCGs. has remained stable year on year, with growth in strategic TCGs offsetting, I will say, a moderate decrease in the board game segment. The tabletop market still remains well above the pre-COVID levels of 2019 and then shows its strong resilience. Tabletop games also remain a favorite with consumers over the holiday season, and mass market sell-out reached a record level in December. From a financial standpoint, as we exit our seasonally stronger squatter, we delivered a solid top line performance with Q3 net sales up 28% above versus Q2 and only slightly below Q3 last year against a very strong comparator. And Muguet will go into more detail in a couple of minutes. On the EBIT, despite the inflationary environment, our adjusted EBIT performance remains resilient, with Q3 up 91% versus Q2 in our seasonally strongest quarter. Finally, on working capital and cash, I'm happy to report to you that we've delivered on our projections, as you will see in detail in the coming slide presented by Mugabe. Looking now in a bit more detail at the market and sell-out data, again, as for the selling performance, we see that the tabletop market is resilient in a challenging context. The tabletop market was slightly down in Q3, again, in an all-time record comparator, which was 25% higher than pre-COVID levels. And on a year-to-date basis, this results in a stable tabletop market. Looking now at the two main categories, we see strong growth in the STG segment, which is up 18% in the EU, for example, while the board game segment was softer with a moderate decrease of approximately 6%. This being said, the market remains significantly above pre-COVID levels with 2019-2022 CAGR of plus 11%. I'm handing over to you now, Miguel.