Stillfront Group AB (publ)

Good morning and welcome to the Steelfront Q4 report. I am Alexis Bond, the Group President and Interim CEO of Steelfront. And I will be joined later by Andreas Hundmann, who's our Group CFO. We had strong cash flows and adjusted EBITDA in the fourth quarter. This in spite of net revenue being down by 5% year on year organically. Cash flow was up by 170% year on year, sorry, on a quarterly basis. And for the full year of 2024, it totaled 1.05 billion SEC. So very strong cash flows in the fourth quarter, in spite of the organic growth being slightly lower than we would have liked. We had overall a normal Q4 in terms of UA, but I mean really overall because it was harder to place it for certain games and we had to shift around the investments more than usual during the quarter. So lots of kind of, you know, moving UA from game to game depending on the results that we saw. So normal overall, but challenging in terms of placing it depending on the games. We improved our adjusted EBITDA quarter on quarter, but also significantly compared to Q4 of 23. This was driven mostly by lower fixed costs, lower UAC in the strategy product area, and lower capitalization as we focus our product investments on our key franchises. In the quarter, the overall decline in MAU and DAU was offset by higher HARPDAU. We also had solid growth in our direct-to-consumer year-on-year. This is something, as you know, that we've been focusing quite a lot on, and it now represents more than a third of our total bookings, and that is more than any individual app store, just to give you an idea of the size of it. And ad bookings were stable. We've been trying to kind of push ad bookings more, but it is a difficult environment at the moment to increase ad bookings, but that's something that we're looking into for the future. In our strategy product area, we had lower levels of marketing for the Supremacy franchise. This resulted in lower bookings, but stronger adjusted EBITDA in the franchise. We are also making significant product investments in this franchise, and that includes a new game that will be soft launched in the second part of 2025. And this should allow us to unlock future growth in the franchise and also in the product area. Furthermore, the higher level of USC in Q4 2023, you know, boosted the strategy bookings in that quarter, but also then in Q1 2024. As well as MAU and DAU in Q4 23, and all of that kind of explains the decline in Q4. Here in this product area as well, the IT consumer continued to grow and now represents close to half of the bookings in the product area. In the simulation, RPG in action, product area, we also had lower levels of UAC in the quarter compared to last year. But Sunshine Island was able to grow its bookings year on year, and that's despite in reduced investments in UA, as we focus on product improvements to unlock further growth into that game. And shakes and fidgets, as you remember, we had some issues with shakes and fidgets in the previous quarter in terms of some UX user experience issues. The game is now slightly recovered to compare to Q3 2024 as we've kind of been fixing those issues. In this product area as well, we have this lower level of UA year-on-year, and we are really focusing our investments in terms of where we think there will be the most difference. If we look at the casual and mash-up product area, we had continued strong growth within the Joe Walker franchise, while we continue to see product challenges with the home design makeover franchise and a high dependency also on UAC investments for that franchise, and in particular for the world franchise that we have from our studio, Superfree. The team at Storm8 is working on a large player experience improvement from Design Makeover. We have identified some clear fixes that we need to do to that user experience. So we hope that will allow us to turn around that franchise. And the team at Superfree is also looking at ways to improve the word franchise from a product point of view. And we want to see how we can kind of, you know, have that franchise be less dependent on UA and to have kind of sustainable levels of UA for the world franchise. So a bit of a mixed story here in casual mashups with, you know, obviously Joe Walker performing extremely strongly. And with that being said, I'm going to pass on the word to Andreas.

thank you alexis um good morning everyone i will uh we have a bit of an extended presentation today so i will go through the the cash flow of the quarter to start off with we had a strong uh cash flow as alexis also mentioned in the quarter and also looking in the last 12 months of of a cash flow from operations of uh before work networking capital of 374 million We had positive effects of working capital that we almost generated then 500 million. Even if we're in that, we did pay taxes of 63 million. We did pay interest of almost 90 million or 89 million. In that interest, it's obviously coming down versus with the reference rates going down and our margins that we pay to banks going down. But still, we are paying almost 90 million of interest in the quarter. So we ended up with almost 500 million, so 491 million of cash flow from operations in the quarter. We have taken down our investments, so we invested 138 million in product development or 8.3% of the net revenues in the quarter. So we have taken down our investments. We are improving our operative cash flows. And that allows us then to utilize, one, to pay off some debt in this quarter as well. So we paid off almost 230 million of debt. debt in the quarter and we did a buyback as we announced also of 40 million. Then of course looking at cash flows it's always in quarters etc. We always look at an LTM perspective and I'm very pleased to see that we have from a free cash flow i.e. our cash flow from operations minus any leasing costs for offices etc. and minus product development we are now back to above a billion in terms of our cash flow. And that is of course driven by some of the cost initiatives and optimizations we've done in the last sort of 12 months or even if longer than that that is now starting to show also in the margin where we even if we have a disappointing top line performance in the quarter we can still deliver both healthy very healthy margins and and then resulting in a very healthy cash flow We have taken down our investments, and I think it's very clear on the light blue bar here to the right on the slides. So we are just below 600 million, so 598 in the last 12 months. That has been an intentional choice, and you can say, okay, have we taken it down too much? No, we believe that... between eight and 10%, that will be a good investment pace. There was difference between quarters, it was different between years. But I think we're still investing 600 million into our portfolio. so then moving um to the next slide which is the uh our death portfolio um here we actually did a lot of activities in the quarter um first we issued a new bond and so the 850 which is now maturing in 4.75 years. That was an intentional choice to have a good distribution in our bond structure. For some of you that remember, we did reduce the outstanding bonds earlier in 2024 and now we sort of now we got a much better maturity profile on that so that's very pleased following that we also um negotiated or or we completed a a new um rcf for 2.5 years with existing banks we took down the the the amount um from 3.75 to 2.5 billion since we don't actually need that much. We still pay for an outstanding amount of debt. So a lot of things happened on that one. I think it's important to remember that Silvan has always focused on the maturity profile because that gives us the flexibility and i think now the next maturity is in june 2027 so we have a good flexibility and a solid balance sheet and solid financing structure in terms of our debt portfolio In addition to that, we had, as I mentioned on the cash flow, we did reduce some of our debt. On the reported numbers, the FX, especially the dollar debt, closes at a higher level. But we are still around our financial targets of 2.2x in terms of leverage ratio. And we have still unutilized cash position of 1.2 billion or credit facilities. And we have almost a billion of cash in our balance sheet. So rounding off the year in terms of our cash flow and our balance sheet positions, we have strength in our margins. We have strength in our cash flow from operations and reduced our investments slightly. And that is yielding strong cash flows. And we have significantly in 2024 improved our maturity profile in terms of our debt portfolio. So we enter 2025 and we will speak more about this business in a very, very short time to give you a bit more flavor in terms of the financial performance of our new business areas and how we will run the business going forward. And with that said, I would hand back to Alexis.

Thank you very much, Andreas. So we'll be taking questions at the end of this slightly extended presentation because we obviously have been doing a bigger organization of the company. And so we wanted to basically explain to you what we've been doing, what has been realized, and where we're going with this organization and why we're doing it as well. So really what we're focusing is on simplifying the organization to increase the accountability and streamline the decision-making. We're focusing on key game franchises to drive organic growth, and we'll explain how we define those key game franchises and what they are. And we want to slow the bookings decline and optimize costs within our legacy games, the games that are not part of these key game franchises, but drive a lot of cash flow to the business. So this is quite a busy slide to explain the new operating way. On the left, you have how our previous organization was working, and on the right, the new organization. But I think it's a bit busy, but it illustrates well how we operated in the past, the changes that we've made over the past few weeks, and how we will operate now in 2025. So we had, first of all, two layers of HQ management with 11 execs. That is now being reduced to just one layer with six execs. We also had before four senior vice presidents that were coordinating 20 studios and working with these studios to optimize resources across 70 games. Well, actually more than 70 games in the active portfolio. We've now reduced that to 16 studios and 10 key game franchises, and we've divided that into three business areas, each with its own executive vice president that is part of the group executive management and has P&L responsibility and authority over their business area. We then had several hubs that provided services to the studios and to the group that are now all under shared services. And we're also taking a very pragmatic approach in terms of what are the hubs that provide significant value, doing a lot of cost-benefit analysis about what makes sense. And some of the hubs clearly are providing massive value, such as the payments hub that's behind direct-to-consumer, the marketing hub, all that, but some other... you know, we think that we can improve and optimize. The previous structure was really focused on scaling quickly via M&A rather than on the integration, and it was quite complex to operate. This new structure of having three business areas focusing on few key game franchises results really in more focus, a common direction, and really more operational simplicity with less layers of management. It's just quicker, it's just more efficient. Focusing our resources will make us more efficient. It will make us more competitive. And as you can see in the new org, our 10 key franchises are divided across our business area. So each business area doesn't have that many things to focus on. We have five key game franchises in Europe. Those are Albion, BIG, Empire, Narrative, and Supremacy. We have three in North America. Those are Bitlife, Omdesign, Makeover, and Word. And we have two in MENA, APAC, which is one is Bored, and the other one is Joe Walker. And then, although we have reduced the number of studios significantly from 22 to 16, we still have more studios than key franchises in each business area. And that's because some of the studios, such as Imperia, for instance, are focusing on legacy games. And others, such as The Republic, have part of their resource that is not working on non-franchise games, live ops. And then another part of the resources that is supporting the big franchise is operated by New Moon. So that's also another important thing that we're doing here with this new organization is not only are we kind of investing our UA where it makes the most impact, where we get the most bang for our buck, but we're also making sure that our talent is working where it makes the most impact. So that's really a big fundamental shift in how we operate that creates a lot more alignment and then we think in time will pay off. So how did these key franchises work? What are the main criteria? So the main criteria that we have selected to define these key game franchises that we will focus our resources and attention on are the following. The first one that you see there is about having sufficient size and impact. We are now in a market where you need to have a certain scale to be successful long term. So a key game franchise needs to be of a certain size. So in our case, we've decided it needs to be driving at least 200 million sec per year or more. And all 10 key franchises that we've just outlined have more than 200 million SEC in bookings per year. So that's the first one, size and impact. The second one is the consistency of the core experience. Each game in the franchise should maintain a consistent core gameplay style or fit within a particular genre that aligns with the franchise's identity. And the franchise should be aimed at a clearly defined audience with consistent preferences, teams, or experiences that resonate across the game. It needs to make sense, right? A good example is our Supremacy franchise, where games such as Conflict of Nations or Supremacy 1914 have a similar core experience and appeal to the grand strategy player demographic. So that's very clearly defined there. A third one is technology and game mechanics. Games within the same franchise would have a common technological framework and game systems that can be reused and iterated on. A good example of that is our home design franchise, where many game systems and game mechanics are used across home design makeover, property brothers, and what we used to call the game engines. And then the final point is a recognizable and evolving IP. A good example of that is Jer Walker. which is one of the most recognized game IPs in the MENA region and is the umbrella brand for more than 50 games when it's really super apt for cultural and classical games. Another good example of that is Albion Online, which has a very strong IP and brand recognition. So we are starting with these franchises. This is kind of, you know, the criteria that we have for those. And we'll be happy to answer any questions you have on this. Then what about the other games? So we also have the clear definitions of what is not a key franchise, and we divide this into three areas. The first area is active live ops. And this is a non-franchise, but these are games where more than 5% of bookings are invested in UA. An example of that would be Shanks and Fidgets. that you can see there. It's one of my favorite games. It's a game that we have mentioned several times, but at this time does not meet all the criteria. Although right now it is self-launching a mobile dungeon game, a spin-off game based on the same IP, and addressing the same audience. And if that is successful, that could be a candidate one day to become a key franchise. So that kind of explains well what we have in terms of inactive live ops. LiveOps, that's defined as non-franchise games as well, but that have less than 5% of bookings invested in UA. That's really the games that are, I would say, in maintenance mode or the games where we really know that the product, there's no way to invest UA in a profitable way, but in many cases, they're very cash flow positive. An example of this would be War Commander Rogue Assault, that we recently moved from Kixai in Canada to Imperia in Bulgaria. As Imperia, we've turned that studio into a legacy LiveOps hub, and Imperia will receive more legacy games in 2025. So that should allow us to ideally not only improve the cash flows around those games, but also kind of reduce their decline. And then the last category is external partnerships. And here, these are basically games where Stillfront does not have the user data, where really Stillfront is not the publisher. And a good example of that are the games that Nanobit develops and that are published by Netflix. So that's really kind of the main ways that we define this. So what does that mean? How are things performed? So if you look at 2024, although we had negative organic growth as a group of minus 2%, actually our key game franchises who represent 72% of our bookings grew by 2%. And we believe that is in line or slightly better than our addressable market. So an increased focus on them will allow us, you know, of course, with the inevitable, you know, quarter-on-quarter variations to make sure that long-term this continues to be the case. And we believe that their proportion of our overall portfolio as we focus more of our resources and our talent on them will grow. In terms of our active LiveOps games, they had a negative organic growth of 8%, and the legacy LiveOps that represent about 90% of our bookings had 20% negative organic growth. So I hope this, you know, showing you kind of the different things allows you to better understand the dynamics that are happening, you know, within our portfolio. And with that being said, I'm going to let Andreas explain and go into each of the business areas.