Embracer Group AB (publ)

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.

Thank you, Thomas. Fantastic performance. Well done. So looking at our last segment, entertainment and services, largely as expected, the segment had a slower quarter with a few new releases. Organic growth was negative 9% year over year, with a 2% adjusted EBIT margin, or 29 million. We are looking forward, as always, within this segment to the holiday quarter. which will be much more busy. And one key driver would be the cinematic release of the new The Lord of the Rings movie. And that would drive a lot of engagement and potentially some good royalties coming in the quarter. Aside the Middle Earth enterprises and the physical distribution business of video games, we have limited run games going from strength to strength in terms of quality content being released direct to consumers. And here on screen you can see two recent releases of Tomba Special Edition, one of my favorite games from the 90s. launched August 1st. core physical business to a lot of fans, but also it will generate digital business. And in collaboration with our dear business partner of Sega, they released Sonic Generations Collector's Edition during the quarter to a lot of excited fans. And here you can see the absolute amazing Dreamcast thing in the middle. So with that bit of retro lines, I would like to welcome our CFO Mygge on stage to tell you more about the financial performance.

Thank you, Lars. Good morning, everyone. It's always a pleasure to be here. Let's look at an overview of our financial development. Net sales are 2.3 billion lower than last year, mainly driven by, as Lars mentioned, lower contribution from the new releases and the tough yet expected comparator in PC console and entertainment and services. We also had the impact of our divestments of Sabre and Gearbox. The lower top line was partially mitigated by lower marketing expenses and operating expenses, and that reduced adjusted EBIT to 1.2 billion SEK. It is worth noting that the new releases last year, Remnant 2 and Payday 3, contributed 1.4 billion of net sales last year. This compares to 0.3 billion of the new releases this year, including Epic Mickey, Monster Jam, and Satisfactory. The divestment of Sabre and Gearbox as well impacted the net sales by 0.7 billion last year, although with a very limited impact on the adjusted EBIT. The stop-line impact in PC console and entertainment services led to a margin impact as well, where the gross margin percentage has deteriorated compared to last year. We do note that the overall marketing as a percentage of net sales remained stable at 10%. Marketing expenses outside the mobile segment are clearly lower compared to last year with fewer larger releases. In mobile, we do continue to see less user acquisition costs compared to last year, but you'll see that it's higher than last quarter. Operating expenses decreased to $0.6 billion, of decrease to $2.1 billion, representing 24% of net sales, which is one point less than last year. Adjusted EBIT of 1.2 billion represents 14% of net sales, which is a decrease of three points compared to last year. The reduction is primarily due to, as I said, the margin impact of our PC console and primarily driven by the very big releases, Payday 3 and Remnant 2, which themselves contributed around 0.7 billion last year. And hence, it gets translated into the adjusted level, all in all, with 3% less. Moving on to cash flow for the quarter. Free cash flow amounted to minus 473 million in the quarter, which is a reduction of 860 million compared to last year. On a 12-month trailing basis, the free cash flow amounts to 1.2 billion SEK. Lower EBITDA and higher cash tax payments in the quarter, which were also partly due to phasing, were almost completely offset by lower capex, which decreased by one billion sec year on year, driven by both restructuring program as well as the divestments. Working capital movements were negative in the quarter compared to a slight positive balance that we had last year, which is primarily due to, as Laura said, to a return to an expected normal seasonal build-up in Asmodee. The cash flow from financing activities includes an outflow in current year from net reimbursements of loans, with the inflow in the prior year relating to the share issue that you might recall. The cash flow from divested companies was 1.6 billion in the quarter, and it's mainly related to the divestment of Sabre Interactive. The last line, the cash flow effect from items affecting comparability, primarily relates to the ongoing cost of the listing process of Asmodee, where things are on track. Looking at the net debt, at the end of September, our net debt amounted to $13.2 billion. During the quarter, you will recall, we announced the refinancing of our revolving credit facility of 600 million euro with a two-year maturity and with a possibility of one-year extension. We had also announced that we've entered into a 500 million SEK loan agreement with the Swedish Export Corporation with also similar terms and maturity. Embracer Group has a leverage covenant in its credit agreements, as you know, but it has a substantial headroom to it. And at the end of September, the available funds amounted to 8.2 billion SEK. With that said, over to you, Lars.

Thank you, Mygge. So let's jump into this morning's big news and exciting news about... Easy Brain divestment. And to start, I'd like to say that Easy Brain were a fantastic acquisition that we made in 2021. It's been an honor to work with the team and the founders. They've been contributing a lot to the success of Embracer, both financially, but also as a model of supporting entrepreneurs. The founders, Peter and Mattvej, has been very loyal and they remain a very large shareholder of Embracer. Together with the CEO, Oleg, they've done a fantastic job to create value together with all his team of more than 300 people. Now, when the ads-driven mobile market is changing, and becoming more difficult, we thought that EasyBrain needed a bit different ownership that have the ability to make the appropriate investments into the future. And the absolute perfect home for that is Miniclip. that are in the same industry, that is also led by a great entrepreneur and CEO of Saad. So I think the merge between the companies from an operational perspective or acquisition is really strong. So it makes a lot of sense for them, and it makes a lot of sense for us. I'm also... pleased to see that the quite notable purchase price would have a significant impact on the rest of the companies and the group of Embracer. The purchase price on a cash and debt-free basis is 1.2 billion or 12.9 billion SEK, all to be paid in cash at closing. And we are expecting closing early 2025. Expected net proceeds after transaction costs and other costs amounts to 12.7 billion. Again, EasyBrain has been delivering a lot of value. And I have to reiterate that it's been a tremendous value creation within that company. including substantial dividends from them that we have been able to reinvest into other businesses the past three years. But the strategic rationale for us is it transforms our financial position. As you know, we have been not fighting. in good collaboration with lenders, but it's been some rough two years. And now I'm really pleased as a shareholder and a CEO to stand here without basically having any NetDebt remains. So the transaction will strengthen the rest of the group. So not only the transaction itself is positive, it's also strengthened the rest. And it enables the new spin-offs to be separated with much stronger balance sheets and positions to do more business. Looking at the financial impact, As MIGI reported, we had 13.2 billion net debt end of September. But if you add this as pro forma, we have 500 million on pro forma net debt by end of September. And then you should take the expected cash flow that are already coming in this quarter. So we should be positive. If you look on the performer net cash, excluding the ring-fenced Asmodee debts, we actually have close to 9 billion net cash position on performer basis in the remaining businesses. And that, again, would enable us to do many things. As stated in the quarterly this morning, it would enable us to contribute capital back into Asmodee. So their leverage are in line where they could be strong and a great public company at listing. EasyBrain had a fantastic last year, 23-24. and contributed with 3.4 billion in net sales and adjusted EBIT of close to 1.4 billion. Most of it turned into cash flow with a fairly low capex. The performance this year, the first half, I wouldn't call it weaker, but it's a bit declining. 1.6 billion sales and 628 million in adjusted EBIT. And considering they had a fantastic Q3 last financial year, so year over year, that number would likely be a bit lower this year. without disclosing any forward-looking multiple. So with that said, I would like to again thank the team in Cyprus and all advisors and team members. We've been working very hard. We worked all night to have this signed ahead of the report. So well done. Okay, so with that said, it's time for some Q&A. Martin might have some questions.

Okay. Welcome to the Q&A session. And I will start off with a couple of questions to you guys. And then I will let in the floor in. And then I hope we have some people that wants to ask questions on the conference call. And we also have a web formula, which you can use. I see, Lars, that we have 22 minutes left. Do you think that will be enough?

I'm ready for any questions, Martin.

Shoot. There's a lot to digest today, to be fair, right? And I think let's just start a little bit on the quarter, and then we'll go into the rest later. Could you go through a little bit on the PC console sales performance, which was... I know you mentioned some performance of small mid-games. Is there anything else that stands out here that you want to mention?

No, we did expect a weak performance, to be honest. We know we didn't have the big releases of last year, so it didn't come to a big surprise. But we can still see some minor titles underperforming a bit. And the problem in the industry, for us as well, obviously, is that when Titus is underperforming and release getting delayed and you have this fixed cost base, the margins is just becoming very difficult. So we are addressing this. So it's a combination of delays and also delays are making the games more expensive to make. On the EBIT level, as a shareholder, you obviously care most about the cash generation. So we have titles that we are working through the pipeline that generates cash. And even though it's painful to report, if you're a long-term shareholder, it's a sensible decision to keep many of those things in the pipeline. Because if you're canceling them, the investments are worthless.

Would you say that the effect from delays is the main thing?

I think in this quarter, to our expectations, the big impact is obviously the lack of new releases. But I would say a bit of underperformance, perhaps more than delays in this quarter. But now looking into the second half of the year, it's more about delays, I would say.

And how do you feel about near-term guidance? We don't do guidance. But you do, really, on the segments? Coloring. Coloring, okay. But we're one and a half months into the quarter, and you have near-term guidance for Q3 on PC console, mobile, tabletop. How challenging is that with the visibility that you have? Can you improve the visibility?

Ultimately, the way to communicate is to deliver. So whatever I say, I don't know how much the trust in... In our ability, because of the track record, I understand it could be difficult. But obviously, we are improving our processes. We are improving our forecasting. Also, the bottom-up model, the companies are learning. So now they are very much sandbagging in some instances. I wouldn't sound, obviously, we are not guiding. We're coloring for little or no EBIT contribution in the third quarter and piece of console. Fairly conservative.

We appreciate that. And can we also talk a little bit about cash generation in the quarter or you were at the negative 500 million free cash flow? And I noticed it's a lot or a lot of it is due to the working capital buildup. Can we expect any reversal now in the next quarter? Hence you have a positive free cash flow outlook in the near term or how should we view that?

Q2, as part of our quarterly split, is a quarter already that particularly Asmodee always generates negative working capital. So actually that predictability is something we have been announcing. Last year, you would recall that Asmodee had the unwinding of its inventory, which actually resulted in a favorable flow. It hence creates a bit of pollution in the way we read things. But this was the level we kind of expected. Having said that, we always iterate that the second part of the year is where we generate higher cash, and this is what we still project for.

And can you remind us on the seasonality of Asmodee, percent of earnings in Q3 in the past, or if you would say like first half compared to second half, is that possible to comment on?

I think what we could remind everyone is September, October, November are very important periods in terms of sales for Asmodee. So that is also why the months that precede are the months that we build up inventory. And then as we go into the peak season period, that's where we generate the sales. And therefore, the latter part of Q3 and Q4 is the period where we start converting that cash. And no surprises expected this year.

I think you'll have more information during the CMD next week.

I was just about to ask you, could you give us any sort of preview on the CMD? What are you looking forward to?

Well, it's an exciting moment for the entire management team. We have been very often in the back. And now it's the time to really get out in the open, in the sunlight. and show what we do. And we have an industry that's amazing with very dedicated people, a lot of experts. I have the chance of leading 2,200 strong team across all continents. We can't wait to share more about what we do and get some of you behind the stage, in the backstage, and understand what makes this unique business model so strong and so strong for the future.

What is your view on the feedback so far internally? It's interesting for us to know, you know, on the spin-off process and, you know, any external communication or feedback that you could share?

Well, there is a lot of excitement because through the spin-off, what we expect is to be able to focus even more on our core strategy. It's obviously a very intense period leading up to the listing, but we are fairly ready. Having joined Embracer three years ago, we were actually, without even knowing it, ramping up slowly but surely, our capabilities to operate on a listed market. So I would say there is a lot of excitement. And people, I mean, in the end, the most important part is the business. And we are excited about the future lineup and what comes next in the coming years.

Thank you. How important would you say the news today about easy brain divestment, how important is that news for you really? Because your leverage is coming down a little bit. I think Lars touched upon that. How important is that for you in order to sort of you're going to be able to resume the M&A agenda a little bit more? And could you elaborate a little bit?

It's mainly a question for Lars on what he intends to do on the proceeds.

Well, I did say, though, that my intention is to contribute capital back into Lars Modé to strengthen you and the team to do more business.

I mean, lower leverage is better for us in all senses. That's, of course, less debt repayment or interest payments, more capability to do M&A, to resume our second engine of growth. We're always strong on organic, but we like to accelerate it through M&A, which we haven't been able to do for the last year and a half. So the perspective is quite exciting.

But organic is the main sort of core of your growth.

They go together. It's a dance between organic and M&A. If you look back over the last, what, 10 years, most of the growth was organic. But again, from time to time, we... balance between organic and inorganic growth.

Okay. Before we let the floor and conference in, Lars, could we just talk a little bit about your comments for the full year also? I mean, it's six months to go, and you mentioned year-on-year lower earnings. I think you mentioned mainly due to delays, right? Yeah. Anything else you want to add on?

No. Because of delays, and a bit softer performance, but mainly due to delays, we are expecting a lower earnings year over year, you know, end of story, you know, obviously. A good chunk of that is moving into next year. So as a long-term shareholder, you know, you would grab that cash regardless. But it's painful to stand here every quarter and then, you know, have another delay. So ultimately, if you're long-term, you need just to make sure the products are to the quality, the team gets the time, investments, and the right release window. That's the best for shareholders.

And how do you feel about the new financial position that you are in? I guess you're... I feel really good. It was a little sooner than we expected to see you at almost net cash now. How do you view the outlook and potential going forward to the financial position and capitalizing? How should we look at Embracer's balance sheet potential?

Obviously, the balance sheet holds a lot of potential. Now, you know, this is not 2021 again, so I will not go on a walking crusade on acquisitions. So don't worry too much. But obviously, there could be value creative investments potentially. But we could also decide to return capital to shareholders in terms of dividends or share buybacks. I think this is something we will evaluate now over the coming months with the board ahead of the closing. or just to cash on the balance sheet. I think that's good for in our industry to be, you know, strong as a supporter and a business partner. And we are now in that position. So it doesn't hurt to have a bit of reserves.

Did you explore other potential alternatives for easy brain divestment?

How do you mean?

I mean, in order to always have alternatives, but strengthen the balance sheet, which you obviously did now.

Yeah. Yeah. It's you know, we have a base plan and that's what we are communicating. And sometimes we have alternative ideas that, you know, if the moment are right and is secretive, we execute on them. you know, this process with Easy Brain, we didn't put them on the block for sale with bankers traveling the world. This was a mutual interest from, you know, the parties and And I have to say that the buyer has been really professional, sticking to their word. We have a really good SBA in the back of that. So we feel really good about the legal terms in the transaction as well, to the degree you could. So that kind of deal I prefer to do. They're a good buyer. We get a good price. Strengthen the rest. So.

And have you experienced more interest in terms of the flow coming in since you announced the spin off processes?

We have a lot of interest for many things, but I'm not a seller. I'm more we are, you know, building something for the future. So this is not about buying and selling companies. This is about building value for the future and organically grow the businesses.

All right. Thank you, Lars. I think it's time to see if we have any questions in the room. Please raise your hand.

Maybe we can go to the telco. The first question comes from the line of Erik Larsson from SCB.

Good morning. Can you hear me?

Yes.

Okay, perfect. I have two questions. I'll take them one at a time. So first off, profitability and not maybe your guidance in PC Console, but your color. We're now heading into Q3. It is a seasonally strong quarter, and obviously a few releases are not helping. But on a high level, you should ideally be able to generate healthy margins on the catalog. Yeah. Do you think that the cost base remains too high? Should we think that it's mainly amortizations remaining high from previous releases or anything else really that's burdening the margins?

Yes, so obviously the margins are also burdened by amortizations of many releases during the past two years. We need to remember that. So we have that bit of a rucksack to carry in the third quarter. But to your point, because of the... sometimes low performance and delays and cost overruns. I think the margins within a number of the businesses are too low. I think we should always make a cash flow in all our significant groups every quarter. That's my base thinking. And as you say, the catalog should carry a profitability. So some groups are more into the growth investments phase, buildups. Some has a more mature catalog and pipeline. So it's obviously a mix. But I would like us to make more money, goes without saying, within PC console, obviously.

Okay, thank you. And then last question on EasyBrain, which looks like a very good deal. You did give some color just now, but if you go back one year, you were looked upon as more of a distressed seller and much less so yesterday. So I'm just curious on the process of this divestment. How was the interest? How long did you have these discussions and ultimately reach this value? Just interesting to hear.

Again, it was a mutual conversation that started late summer and then we were able to reach the terms fairly recently actually and then That's why I put the deadline on the quarterly because for many reasons I don't want to be an insider post. Preferably, you don't never want to do to be an insider for too long and you need to put deadlines. So hence this morning's announcement. So it helps that the buyer is, you know, the parent company buyer is obviously a big industry player and very professional. And also the actual buyer operationally are part of that group and they know this industry inside out and they know the company and the people quite well. So that helps a lot in this process. So it has been, it's been a great process.

All right. That's all for me. Thank you.

The next question is from Simon Jonsson from ABG Sandal Collier. Please go ahead.

Thank you and good morning all. So I also think it's quite interesting divestment here and I understand that you will keep Crazy Labs and Deca if that is correct. So what is the vision for those remaining mobile assets?

Well, the vision is the same as with all entrepreneurial companies within Embracer, that they focus and grow their businesses over time. They have obviously different business plans, but There is no change to that plan. They are very successful. Crazy Labs has just recently transitioned from hyper-casual to hybrid-casual successfully. Alien Innovation was number four title, number mobile segment in the second quarter. DECA goes from strength to strength. We just add Star Trek and then Winter Nights to their business. And I think I see many opportunities actually within DECA to potentially do even more titles and business in the future.

so they are strong companies and there is no plans to divest them excellent thank you and um with the divestment you you make today i mean do you still expect or is it still the base case that you will still spin off coffee stain and friends

Yes, as communicated this morning, there is no change to our base plan. Obviously, the transaction this morning left the management and the board to put even more deep thinking into the structure and the asset allocation between the planned spinoffs. But there is no other news other than the previous stated that we are still expecting to spin off one of the entities in the calendar year 2025. Got it.

Thank you. And lastly on the Q3 caller you gave and a follow-up on Eric's question. Do you think that there are any specific game releases in Q3 that will sort of add to the negative burden from the amortizations, or is it more a general theme that you are burdened by, you know, amortization from previous releases?

No, again, we don't have any notable releases in the third quarter, but we have a big pile of amortizations in the balance sheet of titles that has been underperforming. Looking into Q3, obviously, we just recently released Metro on VR. Very good receptions in general from fans, and it's, I think, a great VR product to the quality standards. We should deliver. However, it's a fairly expensive game to make, and such a game is not delivering... A fantastic EBIT, especially not on the short term. Then it's easier to deliver EBIT on a title like Legacy of Cain, a 1 and 2 remaster that looks fairly strong, actually. It's a very small investment, but an iconic IP with a lot of raving fans waiting for that. So I think that, if anything, would contribute to the EBIT in the quarter.

Okay. Thank you, Lars. That's all from me. Thank you, Simon. The next question is from Thomas Singelers from Citi. Please go ahead. Your line is open.

Good morning. It's Tom here from Citi. I had, I was going to say three questions. I think maybe three groups of questions, so I apologize in advance. The first one is on sort of congestion in the launch pipeline that you flagged as a sort of market characteristic. Obviously, it totally makes sense. I was just wondering whether you could help us sort of quantify just how much more congested the sort of broader market is in terms of launch activity and then critically when you anticipate it to ease off. That's the first cluster of questions. The second cluster was specifically on your launch activity. You've been very clear with the 3.1 billion sec of game development to release book value. Should we assume that all comes in the fourth quarter, based on your commentary? And then the final one is really about the spin-off of Coffee Stain. And it's sort of linking back to the previous two, which is... I mean, as you pointed out, the market doesn't massively like delays, but sometimes they're just the right thing to do. And it raises a question about whether a PC console game really belongs in the public market as opposed to the private market. So I'd be interested in your thoughts on whether a spin-off of Coffee Stain could include a take-private option. Thank you.

Well, on the first question regarding the, if I understand it correctly, that there is a busy release window in the fourth quarter and when that easing of You know, the industry is typically very busy in the fourth quarter, ending March. You know, many of the colleagues in the industry have their year-ends, and for some reason, many titles is being shipped before the year-end, historically. And I see no difference this year. It's also a good season, obviously, for the gamers in the West to engage PC console games. So, and I think then the first quarter next year is typically much less busy. Now, we have seen, I think, this year less releases, and I think comparing to previous year or years, there is a bit less releases coming through, and I think that's a overall trend in the industry, I think that will continue. I think the, you know, the fight we have to make a good business, I think everyone have within the industry. So it's nothing specific for Embracer. Regarding book values, I think you're absolutely right. The absolute chunk of the book value being completed is in the fourth quarter, obviously driven by the finalization of Kingdom Come Deliverance 2, but also a number of other titles. However, there is still a book value coming through in the third quarter. Don't take me wrong. But perhaps more in line with the first and second quarter of this year. Regarding take private, obviously, it's an impossible question for me to answer on. I personally, I wouldn't say enjoy, but I think there is... I think there is a place for us in the public markets. I think it's sometimes a brutal place, but also sometimes a fantastic place to tap into, to build growth businesses, to communicate, to engage people. And, you know, to every quarter has, you know, someone asking questions rather than perhaps becoming a bit more lazy, not having that questions every quarter. I'm in general positive to the public markets, especially here in Stockholm. So that's my base answering that question. So, no, I have no plans to take the business as private.

That's very clear, and I'm glad to hear we haven't worn you down.

Close. The next question is from Rasmus Engberg from Kepler Chevrolet. Please go ahead.

Yes, hi, good morning. I actually just have one question left, and I'm sorry if it's a bit boring and detailed, but when I look at PC console, the other revenues, which I think is mostly work for hire, is down by something like 300 million. It's always been around 800 million. Now it's below 600. Is that a new level, or what's causing this? Is it part of the disposals, or what is it?

I would say it's more or less all relating to this disposal of Saber Interactive.

Okay, so this is kind of the new level. Gearbox for that matter. Gearbox Saber Disposal. So we can take this as a kind of a new level going forward.

I don't want to give too much guidance on that, but yes, we don't have Saber Gearbox anymore, so... All right, cool.

Very good. Can I just, while I have the owner, how does the disposal of the mobile business impact CoffeeStain's growth characteristics? Is this business, the rest of the business, going faster?

Positively.

Yes, that's awesome. But lower margins then, obviously.

CoffeeStain has fantastic margins.

Okay. All right. That's all for me. Thanks.

Thank you. Next question is from Nick Dempsey from Barclays. Please go ahead.

Yeah. Good morning. I've got two left, please. So just the first one is a follow-up on an earlier question about adjusted EBIT kind of progress at PC console. So if we're looking into next year, FY26, when we're balancing out amortization versus the revenue from the back catalog, Should we assume that you get a decent positive adjusted EBIT in a quarter which doesn't have notable new releases? Or for another whole year, should we be assuming very limited adjusted EBIT in a quarter that doesn't have interesting new releases? Second question. Pokemon TCG Pocket, that's been building up a good number of users online. Is that a structural factor that could drive a decline over the next couple of years in the physical Pokemon card sales, which would obviously have an implication for Asmodee's distribution business?

Why don't we let Thomas answer the last question to start with?

Right. Pokemon is an ecosystem. It's an amazing ecosystem where all the experiences combine each other and grow the franchise. So, no, it's absolutely not a bad news. It's an excellent news that the game is performing so well, even for the TCG. If you look back when Pokemon Go was released, the impact on the sales of the physical products were extremely positive. So... in our point of view, anything that's good for the license is good for the TCG and for us.

Regarding next year, you know, I look optimistic to the future in terms of, you know, in general, in terms of profitability and growth driven by the pipeline. But, you know, we are not able to provide today a collar on, you know, the amortizations and And for, you know, each of the quarters next year. It's a great question, Nick. And I think we need to also wait for many of the planned releases in the second half of this year. You know, when are they shipping? What's the performance? Obviously, that is also a key driver for your question. Thank you.

Okay. Thanks.

Questions at this time from the teleconference.

Okay.

Thank you for that. I see we're running out of time, but I want to ask just one or two questions from the web as well here. We have a question from Karek Mamre Johansen. He's asking, are game release delays mostly due to optimizing the release window or mostly due to longer and hence more expensive game development, which would reduce the ROI potential of the delayed games?

I think it's more down to actual delays, which is causing cost overruns, to be fair. It's a little bit perhaps less to release windows, but we are trying to optimize release windows. That could cause some movements that have impact. You can debate. In general, he's correct. In general, delays is causing more expensive games that ultimately, if they don't perform better for that cost investment, everything else equal, the return of investment becomes lower. However, there is obviously exceptions to that. For example, when we released Dead Island a year ago, we decided to postpone it two months, costing some millions. I think that paid off very well. So I think it's not equaling always that the performance is just weaker. You know, I think that actually strengthened the return of investment on that island.

And when it comes to pipeline and releases, Kingdom Come Deliverance 2, you're still expecting 11 February. You're confident, obviously?

I'm very confident about that. I've been checking in and I'm fairly into that process.

What do you think about the game if you compare it to the previous season?

No, I think it's absolutely amazing. I think we are delivering so many hours of amazing gameplay and experience to consumers. It's crazy for that amount of money. So it's a bargain in relation to the amount of hours and investments going into that price we are charging.

One final question from the web. It's Alex. He's asking, is share buyback and dividend programs as seen in successful examples in the tech industry something that we could soon be expected from a bracer?

As a shareholder, I'm always open to returning capital to shareholders. I think, again, we need to do the homework at the board level first. But, you know, I don't have any issues, you know, us paying dividends.

Okay. I think it's time to round it up. But what do you look forward to at the Asmodee CMD next week?

Wow. You know, obviously there is more details and granularity coming. And I've seen part of it, but I haven't seen the full presentation. So I'm actually looking forward to see it. I've been busy doing other things.

Okay. Looking forward to see you all next week. And thanks for today. Thank you in the audience and on the stream and for the questions at the web as well. Thank you.

Thank you very much.

Thank you very much.