Embracer Group AB

2024-2025 presentation. My name is Martin Arnell and I'm an equity analyst with D&B Markets in Stockholm. I'm here to moderate the Q&A presentation and introduce management today. If you are in the room, please, if you want to ask a question during the Q&A, raise your hand. And those of you in the stream, you can ask questions there as well in the web formula. And you can also ask questions at the conference call, of course. And with that, I want to hand over to CEO and President Lars Wingefors.

Thank you, Martin, and welcome everyone to this morning in Stockholm. I will take you through our performance in the second quarter, followed by a deeper information about the EasyBrain transaction announced this morning. So in the quarter, we achieved 8.5 billion of net sales, which is a decline year over year, and an adjusted EBIT of 1.2 billion. The difference between this year and last year is all made up of the two significant releases of Remnant and Payday we had in the previous year. The free cash flow came in a bit negative at minus 500 million due to increased working capital because of inventory buildup. On a trailing 12-month basis, our free cash flow amounts to 1.2 billion. So looking at the highlights, I'm happy to report that Asmodee had a real solid earnings growth year-over-year. They go from strength to strength, which I'm very glad for ahead of their listing and their capital market day next week. We will soon meet Thomas here, the CEO, on stage. The profitability within Asmodee were 700 million in the quarter. Moving to PC console, we had a softer performance. However, we do expect an improved performance in the second half of the year over the first half. The softer performance is due to some weaker ROI on release products connected especially with delays of game releases in the second half of the year. And there's still expectation of some release delays, but it's not yet decided because we're trying to optimize release windows in what looks to be a very busy industry quarter in the first calendar quarter next year, ending March. We are, however, looking through, as an ongoing basis, as always, our efficiency and our costs. But because of the weaker ROI and delays of releases, we need to increase our look-through of our fixed cost base ahead of the spin-offs next year. However, talking about delays, I would like to be clear that there is no delays expected on our most important release, Kingdom Come 2 deliverance, that are expected in February next year. And obviously this morning's transaction of the divestment of EasyBrain is transformative for us. And I will come back to that in the end of the presentation. So looking at the segments, now looking at PC Console, the organic growth was significant. minus 43 percent we expected negative organic growth because again of the lack of any notable releases the profitability came in at eight percent or 175 million and partly the adjusted ebit margin is impacted by low roi of a number of releases in the past two years. The most notable release in the quarter, Disney, Epic Mickey, did okay, but didn't live up fully to the expectations of the management. However, we do believe that that title, and we could see that already, has a good performance in this current quarter. ending December. We also finally had the final release of Satisfactory that exceeded our expectations and we had more than 200,000 concurrent players on PC during the full game launch on PC. We're now looking forward to the release on consoles ahead of us. Other releases were Monster Jam Showdown and a smaller title that has performed a bit better than expected, Nobody Wants to Die. Look on the catalog sales. You could recognize many IPs that always are on the top chart. Remnant, Dead Island, Star Trek, Kingdom Come Deliverance, Deep Rock Galactic, Bloxburg, Goat Simulator, Neverwinter Nights. I have to point out, I'm glad to see Payday coming back on the top list. And I'm even more glad to see MX versus ATV actually coming back on the top performing catalog titles. Well done. Looking on the return of investment slide. It used to be a favorite slide a few years ago. It looks a bit more depressing this morning. However, I'm confident about the future. But again, we had a number of small and mid-sized releases that are underperforming and that are under one in return of investment. That is not acceptable. The average still stands on 2.1. And... Epic Mickey and Monster Jam are still below one in the first quarter, but we expect them to get back above one soon. Or get above one soon. Looking on investments and completed games development, in the quarter, we completed games of the book value of 455 million in the quarter. Epic Mickey, for example, was a sizable investment. However, we still invested a lot more into the future pipeline, 817 million in the quarter. The balance between these two would be more equal in the future. And I think we will see a different, or I know we will see a different ratio in the second half of the year. Driven, for example, of the release of Kingdom Come Deliverance 2. I'm excited about the pipeline and on this slide you can see a number or a few of some notable titles upcoming. All in all we have more than 120 games projects in the pipeline and obviously the most of them is not announced yet. And many of them will drive profitability and cash flows going forward and are based on many of our most iconic IPs. But we can't talk about them today. I can't wait to talk about them in the future. But what we can talk about is obviously the announced titles and the confirmed release dates for titles on this slide is... for the Lettuce of Cane Soul Reaver 1 and 2 remastered coming already in December. That is performing on pre-ordering basis much stronger than expectations so far. Again, we have Kingdom Come Deliverance 2 coming in February. The studio just announced that the first game has sold more than eight million copies since the release and actually it was a great contributor in the catalog in the second quarter. I'm confident about the quality and the release date of that product. And Tom Brader 4-6 remastered coming in February. We had a great success with the first remastered last financial year. And fans seem to be as excited about this one. On the other titles you see on this slide, there is not defined release dates. So the publishers will come back to fans and the market when they are ready. Moving to mobile games. Again, a strong quarter from a profit perspective. 1.3 billion revenues, but a good 28% adjusted EBIT margin. And even though we have seen a decline in daily active users over time. That decline is mainly driven by the change of business model, again, within Crazy Labs. I think I'm trying to get some more time for Q&A because I've been hearing a lot of questions. So without further ado, I would welcome Thomas on stage to tell you more about Tabletop. Welcome.

Thank you, Rams. Good morning, everybody. In parallel of the spin-off process that we obviously are working on very actively with Embracer, with our advisors, Asmodee's management team obviously remains heavily focused on delivering the business. In Q2, I'm very happy to report that we deliver net sales of 3.8 billion SECs. in line with our expectations. From a year-on-year perspective, reported net sales were slightly down by 6%, also impacted by the divestment of miniature markets. On an organic and pro forma basis, at constant currency, net sales were down 4% year-on-year. It's in line with management expectations. and in line with the previous quarter. With growth in games published by Asmodee Studios offset by a higher decrease in games published by our partners. I would like to highlight that we compare to a very strong quarter last year that at the same time saw a 15% organic growth on games published by our partners. On a profit level, the adjusted EBIT margin continued to improve by two percentage points versus the same quarter last year, pursuing the trend initiated in Q1. The improvement was driven by a more favorable product mix, as I did say, supported by an increased contribution from games published by our studios and the continued benefit of run rate savings of the group restructuring program. On the commercial side, key releases of the quarter included Altered, the innovative trading card game published by our partners at Equinox, but also Survive the Island, Fairy Ring, The Mandalorian Adventures, and Arkham Horror, the role-playing game, combined with the continued success of Star Wars Unlimited, who released its set two, Shadows of Galaxy, all of those published by Asmodee Studios. Early sell-in of two very exciting titles, LEGO Monkey Palace and the Lord of the Rings Duel for Middle-Earth. Both games were officially hitting the stores in the first days of Q3, but we did have early sell-in to resellers towards the end of September. Very, very strong traction on the quarter. Both titles did create a significant enthusiasm at Spiel in Essen, that's our biggest consumer show, early October in Germany. It's one of the most prominent events in our industry, and during which we had 65,000 demos engaging 200,000 tabletop fans over the four days of the show. In Q3, alongside Monkey Palace and Lord of the Rings Duel for Middle-Earth, most notable release is the highly expected Star Wars Unlimited, which will release its set three, Twilight of the First Republic. We continue, as we say quarter after quarter, to deploy our multi-year strategy. with product development that I did announce was finalized for the upcoming years already. And the names of set four, five, and six were released at Gen Con early August. We also look forward for the release of our second Lord of the Rings game, The Fellowship of the Ring, a trick-taking game that is expected to hit the shelves in Q4. On the media development side, we have some very exciting news. During the quarter, Netflix released Exploding Kittens TV show, the first Asmodee IP brought to the screen. And after the quarter, Netflix also released on October 23rd its Well Rolls of Miller's Hollow. adaptation movie adaptation in a family comedy called family pack or lugaro in french available in 190 countries subtitles in subtitled in 35 languages and the movie totaled over 30 million views to date and ranked number one non-english movie in over 25 countries in its first week In October, also, Canal+, the leading French pay TV station, aired its long-awaited comeback to TV game shows. Also, we were with Werewolves of Minas Hollow. And backed by an extensive marketing campaign, the show, only available in French, generated to date over 10 million views for its first eight episodes. And Canal Plus CEO has already announced that they validated season two and three. We can't wait for those. Overall, as management team, we're satisfied with the business performance in fiscal Q2. We're ramping up our operations towards the upcoming holiday season. In Q2, we also implemented our new governance. Our new board is in place. Our new executive management team is in place since the end of August. And I have the chance since the end of August, the great privilege of leading Asmodee as the new CEO. I'm also pleased to announce two new joiners to the team, to the extended leadership team that both will be based out of Stockholm. On December 2nd, we will be welcoming Emma Ehre, head of ESG and Nordics Public Affairs for Asmodee. Emma will bring a wealth of experience and strategic insights from her recent position as head of sustainability at the Embracer Group and from her previous positions at Meinheimer Swartling and the Swedish Ministry of Finance. Emma will be reporting to me. And on January 6th, we will be welcoming Nathalie Redmo, head of investor relations, also based out of Stockholm. She has a decade of experience in investor relations and finance, amongst which eight years with the Nasdaq Stockholm, including at Cloetta and Oriflame. Nathalie will be established here, as I did say. She will lead our investor relations and will be reporting to Andrea Gasparini, our CFO. Finally, I'm very excited and looking forward to share more about Asmodee together with my management team on our upcoming Capital Markets Day that will be held next Tuesday, November 19th, here in Stockholm. That's it for a great quarter and a very exciting perspective for our tabletop segment. Back to you, Lars.