Embracer Group AB

Thank you. And good morning, everyone. And thank you for joining our webcast today. And let's just take a moment to set the scene on the performance today, but really the performance of Kingdom Come Deliverance 2, which 5 million copies sold. That was announced today, but actually achieved within the first year from launch. Now, we've talked a lot about Core IP at our recent conferences, and I think this is a great example of a Core IP, an owned IP created by our studio, Warhorse, based in Prague, and a studio sitting at the center of our future strategy as we build out games delighting millions of players around the world. Keeping on the game theme, last night, European time, the press embargo lifted for Re-Animal, We're now one day from launch. We have a strong set of reviews from critics. The most important steps of course are ahead and this is getting the game into the hands of gamers. It really does bode well for horror adventure fans for Friday the 13th. But now we'll come to look at our highlights for Q3. Overall, our group three results reflect delivery above plan on both revenue and adjusted EBIT. Total net sales were 5.2 billion sec, an 8% organic drop year over year, which we'll see today comes across from all of our segments, but mainly in entertainment and services, which had some tough comps against Q3 fiscal 24, 25. Important to note that all the numbers shown here are now fully excluding CoffeeStain, which, as a spin-out, is treated as a discontinued operation. From a business perspective, our Q3 results were driven by our core IPs within PC Console and seasonal strength within entertainment and services and mobile. Kingdom Come Deliverance was the main driver, and it's great to see again the team's strong execution, aligning marketing and seasonal promotions, delivering another solid quarter of gamer engagement. Our adjusted EBIT was 528 million SEC. Now, this is down from 696 million SEC, excluding divested investment assets, primarily EasyBrain in Q3 last year. At 528 million SEC, our adjusted EBIT was ahead of our plans and shows clear improvement compared to Q1 and Q2. Our free cash flow generation over the trailing 12 months or TTM was slightly negative. Again, this is now shown without coffee stain and is an improvement against the negative 399 million SEC one year ago. Excluding divested assets, the free cash flow improvement is even greater and Muge will talk more on this shortly. We're taking positivity into Q4, and this allows us today to increase our underlying FY25-26 adjusted EBIT forecast. It's important to note we continue to see and work hard to achieve potential upside. I said this before, but this is a transformative time for our group. Coffee Stain successfully completed its separate listing in December, and this allows us to now concentrate on our core strategies and growth opportunities. In a nutshell, we hold one of the most exciting IP portfolios in the industry, with globally recognized franchises, including Lord of the Rings, Tomb Raider, Kingdom Come Deliverance, Metro, Darksiders, Remnant, Dead Island. We're building an IP-first organization, one where we will operate with greater sharing and alignment. And to me, this quarter shows progress. Of course, it shows also where focus is needed. And we're committed to strengthening profitability and unlocking long-term value. Now we'll dive into the operating segments and first take a look at PC console. So our Q3 net sales for PC console were just about 2 billion sec, a 3% organic decline. And we covered already that our core IPs and catalog really delivered strongly in our third quarter, ahead of expectations. New releases were somewhat soft. SpongeBob SquarePants Titans of the Tide was our biggest new release with solid reviews from critics and gamers alike, but it did come up short in digital sales against our plan. Our team at THQ is working hard on this. They have a plan to deliver through our fourth quarter. With news of 5 million copies sold, King & Cum Deliverance 2, of course, gets a mention. The third DLC, Mysterio Ecclesia, was released in Q3, and this helped drive the game to ever greater heights. Dead Island and Tomb Raider also had a strong quarter and contributed to catalog performance. Now our adjusted EBIT margin trend shows the challenges we face and the opportunities we have. Again, important to note, all this data is now completely without copystain. We have a strong catalogue and with a more focused pipeline and a more focused organisation, we will drive better margins. 13% shows clear improvement over Q1 and Q2. 13% isn't our ambition. Now let's have a look at ROI and we share this slide again for consistency and we share this data. Important to note now, this is also without coffee stain and of course other divested assets from the past. As ever, this quarters releases are shown on the far left of this graph at zero quarters since release. Now, without CoffeeStain, the weighted average ROI for all titles has decreased from 1.9 to 1.8 across all titles. And you see that there in the top right-hand box. Now, bear with me a little bit on this, but I want to find a way to explain what we feel our potential can be. So for this, let's think back to Kingdom Come Deliverance 2, which, as I said earlier, launched one year ago, which on this chart would be three quarters since release. It's been a successful game launch. You've seen that. And you can see the game at around the 3x level. This is what we believe is more indicative as an ROI for our core IP after the first year. And this again shows the importance of our three key priorities, investing in our core IP, operational discipline, and targeted cost initiatives. Onto Pipeline. As of today, we've got 30 announced titles. Re-Animal is out tomorrow, and it's fantastic that it's Friday the 13th. Milestone's high-speed arcade racing game, Screamer, is also now slated for March 26th. A call out that Tomb Raider fans were excited on news of the two-game reveal, together with our partners, Amazon, at December's Game Awards show. It was great to see that Crystal Dynamics and Flying Wild Hog Studio collaboration announced too. Legacy Atlantis shown here is the first up, followed by Tomb Raider Catalyst, the next major chapter in the series. Now we're excited by our near term and our longer term pipeline with a range of major projects based on our core IPs launching over the coming three years. For our next fiscal year, we look forward to one long-awaited, currently unannounced, major, in-house developed and in-house published title, together with a range of important mid-size titles. Execution discipline will be critical to converting this pipeline into significantly higher profitability and cash generation. And now we'll look at mobile. In mobile, we delivered 566 million sec in net sales, a 15% organic drop year over year, impacted by lower UAC, so user acquisition cost, growth investments. Overall growth numbers include foreign exchange and the divestment of EasyBrain. When we look sequentially, it's another positive revenue and margin growth Q2 to Q3. The team has balanced UAC well, and we're seeing GLOW begin to scale. SledSurf has launched in the quarter two and has scaled well so far, delivering revenues ahead of plan. Overall, we're confident on the development ahead. Let's take a look at entertainment and services now. Well, revenue in our entertainment and services segment achieved 2.6 billion sec, a 10% organic decline year over year. And again, as I said earlier, this is really due to the high comps in Q3 last year to play on partners. What's clear to see is that the seasonal revenue and margin uptick for the segment was delivered to plan. When we look at the mix in the segment, Middle Earth's strategic partnership with Asmodee helped drive margin improvement. Our team is excited about the potential for this category partnership. As we look forward, we're also excited about Magic the Gathering's introduction of the Hobbit into its trading card roster. As a follow-up to the highly successful Tales of Middle Earth, the Hobbit launch is set for August. And with that, I'll hand over to Muge.

Thanks, Phil. Good morning, everyone. Before I start, as we go through the following slides, please keep in mind that following their spinoff, Kapha Stain Group has been reclassified to discontinued operations. So all figures presented exclude Kapha Stain. The year-on-year comparisons also continue to be impacted by divestments. As I take you through the results, I'll also provide some clarity on the underlying trends and performance on a like-for-like basis. Looking at net sales, net sales for the quarter of 5.2 billion SEC were above management expectations and compared to prior year were impacted by both divestments and FX translation effects. The negative year-on-year divestment impact primarily from EasyBrain was approximately 900 million SEC while the FX impact was just over 400 million SEC. If we exclude these impacts, our organic and pro forma growth stands at minus 8%. Now, if we break this down on a segment basis, entertainment services was down 10%, primarily due to a strong comparator with several strong releases from PlayOn partners in Q3 last year. For mobile, organic and performer growth amounted to minus 15%, resulting from lower user acquisition costs in the current and recent quarters. PC console games was down 3% in the quarter, mainly due to decreased work for hire revenue. New releases had higher contribution compared to last year, while on catalog, as Phil also mentioned, Kingdom Come Deliverance 2 performed well ahead of our expectations. Gross profit percentage for the quarter was 55%, down 3 points year on year. The impact of divestments was the primary driver, accounting for reduction of 6 points. Excluding the impact of divestments, the gross profit percentage improved by three points year on year. This was the result of an improved margin in PC console, as well as a slightly favorable segment mix with a lower contribution from entertainment and services in total net sales. And looking at marketing, total marketing spent was 419 million SEC or 8% of net sales down seven points year on year, largely driven by the impact of divestments which accounted for a five point reduction. The non-user acquisition cost marketing of 165 million SEC decreased slightly by 42 million SEC year on year, while user acquisition cost investments dropped by 586 million SEC to 254 million SEC, driven by the easy brain divestment. The user acquisition costs in the prior year included 471 million SEC related to EasyBrain. Excluding EasyBrain, user acquisition costs decreased year-on-year by 115 million SEC and represented 45% of mobile net sales, down five points year-on-year, but largely stable sequentially compared to Q2. Operating expenses excluding marketing were 1.2 billion SEC down 65 million SEC year on year and representing 24% of net sales. Divesmus impacts the year-on-year OpEx evolution by 168 million sec, and on a like-for-like basis, OpEx increased by around 100 million sec compared to last year. While this was largely related to timing effects, and we expect a sequential decrease in Q4. Overall, timing impacts aside, the cost base remains relatively stable and continues to be a key focus area for tight control. This all delivers an adjusted EBIT for the quarter of 528 million SEC, a clear improvement over Q1 and Q2 and ahead of management expectations. Last year's Q3 included around 300 million SEC from divested entities. Aside from the divestments effect, adjusted EBIT was impacted by the lower net sales across the segments. FX also had a negative effect of around 60 million SEC in the quarter. Combined with the timing effect I mentioned previously in OPEX, this led to a minus four point impact in adjusted EBIT margin or minus two points when we exclude the impact of divestments. Turning now to cash. Free cash flow after working capital amounted to minus 75 million SEC for the quarter. This compares to 719 million SEC in Q3 last year. The year-on-year evolution is driven primarily by changes in working capital. The working capital of minus 437 for the quarter is mainly driven by increased receivables arising from seasonal sales close to the calendar year end. Compared to the prior year, the difference in trend is mainly timing related, and we expect this to unwind in Q4. As you can see in the TTM, which eliminates the timing impacts, the working capital movements on a 12-month basis are largely comparable. If you look at the TTM free cash flow after working capital, we see a significant improvement. This improvement is even greater when we take into account that the comparator included around 700 million SEC net positive contribution from divested entities. In the TTM, we can see the benefit of our efforts to reduce and refocus our investments with a significant reduction in capex spent year on year. It's also worth noting that the current year TTN was negatively impacted by around 270 million SEC of FX differences. Looking below free cash flow, the cash outflow from financing activities of minus 766 million SEC includes minus 428 million SEC in Q3 related to the repurchase of own shares under the 500 million SEC share buyback program. The net cash flow from acquired or divested companies of 297 million SEC relates to the payment of earners from past acquisitions, partly offset by the net proceeds of divestments of non-core assets. In TTM, the significant inflow of 12 billion SEC relates to the net proceeds from the divestments with EasyBrain representing the largest portion. At the end of December, this results in a net cash position of 2.9 billion SEC and available funds of 5.8 billion SEC. I want to take a few minutes to look in a bit more detail at the evolution of our net cash position over the quarter. Net cash at the beginning of the quarter of 4.2 billion SEC comprise 6.1 billion SEC of cash, and 1.9 billion SEC of liabilities to credit institutions. As I covered on the previous slide, we had the limited outflow in free cash flow after working capital of 75 million SEC. The largest part of the net cash evolution was driven by a number of key strategic and corporate actions. These include the cash returned to shareholders via our share buyback program amounting to 428 million SEC in the quarter, the net cash impact of the coffee stain, spin-off of minus 495 million SEC, The net cash proceeds of 219 million SEK from divestments of non-core assets and the payment of earnouts in the period amounting to 516 million SEK. It is worth noting that we have now relatively limited or not obligations of 730 million SEK spread over the coming of six financial years, just under half of which are due in fiscal year 26, 27. Net cash at the end of the quarter of 2.9 billion SEK comprised 4.9 billion SEK of cash and 2 billion SEK of liabilities to credit institutions. After the completion of the key strategic and corporate actions I've just mentioned, we thus maintain a strong financial position. Looking ahead. We expect to deliver at least 750 million second adjusted debit for the full financial year. I want to reiterate once again that this fully excludes Kaffeestein Group following their spinoff and reconciliation to discontinued operations in our results. As a reminder, our previous expectation of at least 1 billion SEC announced in Q2 included a full year's contribution from Cafestain Group. As we have stated here, we do see some upside potential from underlying business performance. I will hand back now to Phil for some closing remarks.

Thanks, Müge. So again, a great screenshot here from Tomb Raider. And this really brings us on to our last slide today for some closing remarks. Now, as we talked about, Core IPs continue to outperform this past quarter. This goes for both games based on Core IPs released one year ago, but also three and eight years ago. And this is an important signal for our future direction. That said, we're not satisfied or happy with the profitability within PC Console. And there are a few important levers that we expect to have an impact on, partly different timeframes. First, as mentioned, how we execute with discipline on our pipeline will be key to drive higher profitability and cash generation. Second, we're committed to strengthening profitability and unlocking long-term value. And how we do that is captured in our three key priorities, which we've talked about since August. IP first, IP led. We are rapidly shifting our investments towards higher return core IP. This group of IPs have had an ROI of 3X historically versus 1.8 across all titles. In this past year, the share of CapEx allocated to core IP has increased from 20% to 40%. Longer term, we see it moving towards 80%. This will not drive profitability in the next quarter, but it will drive lower capex, and we're confident that it will drive stronger profitability in the coming years. Additionally, we are continuously targeting a reduction, not just CapEx, but also OpEx as we complete consolidation initiatives and as we continue simplifying and adapting our organization's size and shape around a more focused portfolio. This will be key to making better decisions quicker and to improving profitability. We have more work to do here, but we see it as a strong profitability driver. During the quarter, we divested several non-strategic and unprofitable businesses in third party publishing and work for hire. This improves our focus and it improves our capital efficiency. These assets jointly had a negative adjusted EBIT of around negative 180 million SEC on a TTM basis. The impact of this is quite immediate. And so these achievements in Q3 are important. As part of this closing, of course, we touch on AI. AI, well, it's certainly accelerating both its technological advancement, but also as a topic of conversations in our sector. As discussed at our AGM in September, we see significant potential in AI driven tools. It can meaningfully enhance development, production and operations for us. And as an industry that has always embraced innovation, we actively explore and adopt AI where it strengthens our products and improves efficiency. Now, we view AI as a tool to support and empower our teams. Worldbuilding, storytelling, and creative direction will remain firmly human-led, ensuring that creativity and originality continue to define our experiences. I feel our long-term direction is now taking shape and we're building towards a disciplined IP-first group. We remain committed to continuing the distribution of any excess cash to our shareholders and we will provide further updates on our strategy and structure as we make progress and as soon as we have more news to share. And that really brings us to the end of our slides and notes this morning. Before we hand over to Q&A, I'd just like to express my thanks to all our teams across the group, their hard work, dedication, and passion. And with that, I'll leave it to the moderator and the Q&A session.