Embracer Group AB

Good morning. Good morning, everyone, and welcome to Embracers Q1 2024-25 results conference. My name is Rasmus Engberg, gaming analyst with Kepler Chevreux, and I will be your host for today and lead the Q&A. Today, we have Lars, as usual, and Johan, and also a special guest from France. So I'll leave it to that, and thank you.

Thank you, Rasmus, and welcome everyone to Embracers Group's Q1 presentation from here in Stockholm. I'm pleased to share our performance of our first quarter physical 24-25 and provide an update to our strategic progress. We began this year in line with our management expectation. generating close to 8 billion in net sales, and our adjusted EBIT stood at 828 million, and our free cash flow amounted to 47 million. Our Q1 performance was driven by a strong quarter from our tabletop and mobile segments, As anticipated, our PC console and entertainment and services segments faced a softer year-over-year performance due to fewer new releases. Overall, as a group, our Q1 net sales were down 24% year-over-year. Cash flow continues to be a major focus, and we have reported a significant year-over-year improvement in free cash flow of 650 million. When we look at our trailing 12-month basis, our free cash flow exceeded 2 billion, a milestone for us. That cash flow generation, coupled with our divestment processes, enabled us to lower our debt. Our transformation of our PC console segment continues, and we are optimistic about our pipeline. I'm excited that earlier this morning, we confirmed the global release date for Kingdom Come Deliverance 2 to be released on 11th of February, 2025. And it's great to get this date confirmed for gamers and to feel the launch excitement continue to build. We are eager to share more updates around our pipeline to gamers at the biggest trade show and consumer event in the industry, Gamescom, next week. Overall, we still expect the value of completed game development for the year to be around 3.9 billion, which is a step up versus last year. We are making good progress on our plan to separate into three standalone publicly listed entities. This move will allow each entity to sharpen its strategic focus and to offer a distinct equity story to our shareholders. Asmodee, the first spin-off, will host a capital market day in our third fiscal quarter ahead of its listing. And Thomas Kögler, the Asmodee deputy CEO, is joining us today to share more about our Q1 performance. So let's jump into the segments. And just to say, the image you see here is taken from the Netflix upcoming anime series Tomb Raider, The Legend of Lara Croft, scheduled to be premiered on Netflix in October 2024. And we will start with PC Console. Here, net sales in the quarter amounted to 2.7 billion. a decrease of 34% compared to the same period last year. The decrease were anticipated due to lack of notable new releases and tough comparison given a successful release of Dead Island 2 in the corresponding quarter last year. Just to call out one of the new releases, MotoGP24, this got off to a good start with favorable reviews and already achieving its ROI targets. Looking at the adjusted EBIT margin, which you shouldn't really do in a separate quarter in our industry, but now we are in a quarter and we're looking at it, it's low and it's dragged down by lower ROI from releases in the past 24 months. This will improve in the course of the year. However, new content that came out in Q1 for Deep Rock Galactic, Remnant 2, and Dead Island 2 performed well in line with our expectations. Gamers continue to enjoy our deep, rich catalog of games, and we actually saw engagement increase year over year. If you look at the catalog titles, you will see it's topped by Remnant 2, Dead Island 2, Star Trek, Deep Rock Galactic, and Neverwinter. Games being served with fresh content to deepen player engagement. In the course of season five this quarter, we actually hit an all-time high of player activity with over 50,000 concurrent gamers. a fantastic achievement from our family friends at Ghost Ship in Denmark. Games released this past quarter are shown on the far left, and you can see it was a mixed result with two titles immediately got to break even, but one small title struggled from launch on the ROI chart here. This chart you see here is clean from divested assets. Our average ROI stands at 2.1. The challenge we have highlighted in the past remain in focus, and we have a clear plan to improve profitability within PC Console. First, our resources are increasingly focused on our owned and controlled IPs. Secondly, with improved capital allocation and process to help us achieve better quality and stronger margins. And to be clear, we are expecting our ROI to improve over the coming years as our pipeline matures post our past year restructuring progress. We believe our studios and creative talents are best in class and believe our outlook for the long term is bright. Now looking at investments and the complete game development. As you see here, release late was the smallest quarter over the past two financial years. Just 346 million in value of new games were released. looking at the investments and pipeline spend in game development tracked down to 900 million. This was expected given our past efforts to reduce and better control our capex. It's in line with the annual run rate targets we have previously communicated. We believe our portfolio We believe in our games pipeline to focus on old IPs and better development processes. We believe we are laying the foundation for strong organic growth going forward. Now, looking at some of our most important releases for the year. Here you see eight of them. Kingdom Come Deliverance 2 coming out now on February 11th in our fourth quarter. In this quarter, we will have also Epic Mickey being released from our family friends at Purple Lamp in Vienna in the end of the second quarter. We are expecting our family members at Ark Games. being shipped this year. In this quarter, we're expecting Monster Jam Showdown from our friends at Milestone, Gothic Remake, and other iconic RPG that are being remade at Alchemia in Barcelona, being published by THQ, coming out during this financial year, as well as Killing for Tree from Tripwire, a highly anticipated AAA sequel. And finally, from our friends at Coffee Stain in Skövde, we are expecting the full release of Satisfactory after many years of development. We're also expecting that game to be shipped on consoles later in the year. Also, we are expecting the first gamers to get their hands on Titan Quest 2 from our friends at Grimlord Games and THQ Nordic in the course of the year. And this is just a selection of the pipeline for this financial year. Now, let's look at mobile. As we covered right at the top, Mobile delivered another strong quarter with sales of 1.4 billion and adjusted EBIT of 500 million. The adjusted EBIT margin increased to 37% from 29% year over year. This was driven by a product mix shift and lower user acquisition costs. This is according to the management plan. If you look at the strongest performance titles, you could recognize many titles from before. Sudoku.com, Blockudoku, Alien Invasion, Art Puzzle, and Jigsaw Puzzles. Worth mentioning is the continued success from EasyBrain to in-house create new global successes that drive growth. Recently, they have released crossword masters that are showing very promising KPIs. I really admire the talents and people we have within our mobile segments and the skills they have demonstrated to navigate the complexities in the business, constantly performing and delivering strong results. We believe the market is stabilizing and saw condition to scale user acquisition and top line growth improve towards the end of the quarter. Now, let's welcome Thomas Kugler to the stage to talk about Asmodee.

Thank you, Lars. Thank you, everybody. While at Asmoday with Embracer, with advisors, the teams are fully working on the proposed spin-off, as a management, we remain focused on delivering the business. In Q1, we have delivered net sales of 3 billion SEC, in line with our expectations. Reported net sales were down minus 5% year-on-year, impacted by the divestment at the end of the last fiscal year of miniature market, our former direct-to-consumer business in the US. On an organic and pro-pharma basis, at constant currency, net sales were down 3% year-over-year. We saw growth in the US, continued strong global performance of Star Wars Unlimited, although sales were impacted by a softer performance of distributed products in Central Europe and in the UK. On a profit level, the adjusted EBIT margin improved by two percentage points versus last year, same quarter. The improvement was driven by better product mix supported by Star Wars Unlimited, lesser inventory clearances actions this quarter, and the benefit of run-rate savings from the group's restructuring program. On a commercial side, we were delighted to announce last week an exciting multi-year partnership with the LEGO Group. Monkey Palace, the first new game, will be released in fiscal Q3. We are very excited about this and will be followed next year by another new game currently in development called Brick Like This. These games join the strong existing pipeline of upcoming new releases, which also include Star Wars The Mandalorian, fan-beloved character, Lord of the Rings duels for Middle Earth, or Altered, the highly anticipated and innovative TCG. All of those games were showcased last week at Gen Con, or two weeks ago at Gen Con, the largest U.S. consumer show that, again, broke its attendance record with over 71,000 daily attendees. Talking of new releases, Star Wars Unlimited continues to show very strong performance in the quarter. It's trending above our expectations. Set 3 will be releasing in Q3 fiscal year. We at Asmodee are investing a lot on this product. We have a multi-year development program. Several sets are already finished. We have announced the names of the sets 4, 5, and 6 at GenCon at the in-flight report of our studio FFG. It's an event that was long awaited by the fans because we hadn't held it since October. five years, so it was the first time we held the in-flight report, and the event was completely sold out with a thousand attendees from the board game fans. In the digital board game space, we are extremely happy also to announce that Board Game Arena, our online board gaming platform, has breached It's a 10th million member. It's a huge success. It's 5 million hours that are played every month on the platform. Finally, during the quarter, we also saw the release of the new Netflix trailer for Werewolves of Minos Hollow, based on Asmodee IP, a movie that will be released in October 2024. Netflix also released the Exploding Kittens TV show in 90 countries and localized in 38 languages. Overall, as a management, we were satisfied with the business performance in fiscal Q1, which is generally one of our seasonally quieter quarters. Thank you very much.