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Embracer Group AB
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Hello, and a very warm welcome to the presentation of Embracer Group's fiscal Q3 results. Very happy to be here today with the Group CEO and Founder, Lars Wingefors; and the Group CFO, Johan Ekstrom. I also believe we have a distinguished guests from Milano. We have a new Head of Sustainability. And I also believe we will talk to Denmark and Copenhagen. So we have a busy agenda today and a very interesting Q3 report to discuss as well. So we'll start with the presentation of the Q3 results, then I will come back for a Q&A. So without further ado, I will leave it over to you, Lars and Johan. Please go ahead.
Thank you, Oscar, and hello, everyone, and very welcome to Varmland. I'm pleased to report another stable quarter. Our net sales grew in the quarter to an all-time high of more than SEK 5 billion driven by increase in the Games business area, reaching more than SEK 3.7 billion. That was a great performance of the mobile games business growing on a pro forma basis, 34% and a solid performance from all our premium games businesses. Worth noting where the great performance of Koch Media Publishing, driven by the continued success of Hot Wheels from Milestone, and a solid continued performance from Coffee Stain with their titles, Deep Rock Galactic, Satisfactory and Valheim. We also had a stable year-over-year growth on the Partner Publishing and Film business segment, reaching growth of 67%, more -- reaching more than SEK 1.3 billion sales in the quarter. The profitability came in nicely at SEK 1.1 billion, which is 86% growth year-over-year. And looking at the organic growth on a constant currency basis, the business air games grew 16%. We're also reporting this morning that of the 5 -- of the revenues within Games business area, 70% are classified as recurring revenues. Looking at the pipeline, we confirmed this morning that we have more than 25 AAA games in the pipeline scheduled for release latest March 2026. Overall, we are investing into end of December, 216 games development project. We had a record all-time high investment into the Games portfolio of SEK 925 million in the quarter. And if you compare that to the released games in the quarter, that is 2.5x more. That will drive the organic growth in the future. Again, the mobile businesses had a really strong performance. Daily active users across the businesses were at average 34 million, and the average monthly active users number is close to 300 million users. The key premium games drivers are titles you recognize from previous reports. Standing out are Borderlands 3 from Gearbox, Hot Wheels Unleashed from Milestone, Let's Sing 2022 from Voxler and Koch Media Publishing, the Deep Rock Galactic, Insurgency, sandstorm and once again, Metro Exodus, now reaching more than 6 million copies sold. We continue to grow the number of people within the group. Organically, we increased our headcount 16% year-over-year, reaching more than 9,500 people at end of the quarter engaged through our 88 internal studios and 18 internal publishers. In the quarter, we had a busy schedule. And I would like to highlight the acquisitions -- or announced acquisitions of Asmodee and Dark Horse that are important strategic evolution of our group. Upon closing of this transaction, we will have one of the most diverse portfolio of IPs across the games industry. The transactions has been well received by our employees, business partners and across the industries. And we feel really confident about the potential synergies in the future of those businesses into the group. Also announcing this morning, and Johan will talk a lot more about this later is that the process of the main listing on Nasdaq Stockholm main markets are ahead of schedule by -- with the ambition to be complete by end of 2022. We reiterate the operational EBIT forecast for the financial year now ending March. So the forecast is reiterated to between SEK 4.3 billion and SEK 4.7 billion. Then we also reiterate the previous forecast. And with the addition of the announced acquisitions, we now see that the profitability for the next financial year will be between SEK 9.2 billion and SEK 11.3 billion, and the year ending March 2024 will be between SEK 10.3 billion and SEK 13.6 billion in profitability during that year. We have a solid outlook to continue our journey on M&A, and post closing of pending transactions, we estimate to have roughly 6 -- or SEK 8 billion available in the liquid funds. So before jumping into the operational overview, I would like to recap a little bit about the journey in the past 5 years and some key learnings about building this group. The critical -- one of the critical successes has been to have a long-term mindset and that really matters. We are in a long journey to build something substantial and sustainable. Out of the 108 entrepreneurs that joined -- that has joined the group since 2016, 106 remains within the group. Scale matters. I talked a lot about this with the acquisitions of Asmodee and Dark Horse. The larger and more diverse our ecosystem has become, the more it makes sense to join. The synergies, collaborations and opportunities we offer are unique. The ecosystem has grown from 370 people to more than 12,000 great people since the IPO. I firmly believe that freedom rocks. Letting leading entrepreneurs, creators and other management make their own decisions is critical for our success. Diversity to accept and endorse the fact that people are different, and there are many ways to succeed. We are all different, and that is the strength. Culture is important. Endorse and support local company cultures, show respect for others, think inclusion rather than exclusion. To create friends and partnerships across the industry is a key element of most of our businesses. Our strategy is to be a business partner to the industries and work together with leading other companies, brands and platforms. Manager risks. Diversification is important. We have grown from 1 to 10 operating groups since 2016. No single IP is estimated to generate more than 5% of group revenues. But we should be brave and take more risk in product development. This will pay off over time. And growth to have fun and enjoy your work. It's fun to grow, and it's more -- and to make more and greater things. Reinvesting the cash flows into the business will enable us to have superior growth. And I would like to end this -- saying that we just got started. I have another 2 decades ago, myself, building this at least and our ambition is to continue the same strategy over the coming years at the same pace as before, both organically and by adding more great entrepreneurs. So looking at the businesses in the quarter. Our friends in Vienna at THQ Nordic had a stable quarter. It was a quarter without any notable new releases. They did release an expansion of Kingdom Come Amalur, Re-Reckoning. But the bulk of the revenues was driven of a strong performance of their back-catalog titles such as SpongeBob, Biomutant, Wreckfest. The quarterly sales was SEK 352 million. And on a trailing 12 months basis, they are stable at just above SEK 1.7 billion. Post quarter, they had a solid release of a title developed in Denmark, Expeditions Rome. And I've been pleased to see it's been well received by the communities, 80% metascore and an 88% user positive user reviews on Steam. THQ Nordic has an enormous pipeline for the future. Looking ahead, our friends in Essen will release ELEX II. And ELEX actually was our first big title after the IPO, releasing end of 2017. And I'm super excited to see what ELEX II will bring us. Then further on, we have a new sponsor game, a new MX versus ATV, we have the iconic IP of Outcast with the Sequel. We have another remake of Destroy All Humans, the iconic IP we acquired from THQ. And finally, we are aiming to have a keg gas release sequel to Jack Alliance made in Bulgaria. Moving to our friends across the world within Koch Media Publishing. So Koch Media Publishing makes up of Deep Silver. The publishing -- publishers of Deep Silver, Prime Matters, Ravens Court, Milestone and Vertigo Games. They had a strong performance in the quarter reaching SEK 728 million of sales. And on a trailing 12-month basis, they are about SEK 2.4 billion. New releases in the quarter were solid performance of Let's Sing 2022 from Voxler, their studio in France. Vertigo Games released their own developed product after the fall. That has been in line with our expectations so far, and we are expecting that title to continue to perform well over the coming years. Chorus, the title developed at Deep Silver Fishlabs in Hamburg has been well received by the communities and on Steam with players. However, commercially, that title has not reached the expectations from the management. Catalog drivers were super strong performance of Hot Wheels Unleashed, a continued great performance of Metro Exodus and Saints Row with the third remastered. The publishers of Koch Media have a huge pipeline for the future. And you can see a few of their titles that they are expecting to release over the coming years here -- over the coming year. And we have talked a lot about Saints Row before, and I think we're all very excited about that release that are scheduled for August this year. Moving over to Coffee Stain. And we actually have a friend from Denmark online here. So
Yes. Hi, Lars. Can you hear me?
Yes, I hear you very well. Welcome to Sweden and this call.
Thank you, Lars.
So why don't you give us a little bit of update what's happening at Ghost Ship? And how does it feel to be part of the group now after half year of being at Coffee Stain and Embracer?
It's been great. We know you very well beforehand, and our collaboration with Coffee Stain has just been even better now with the close relationship. And then we've been hard at work at our big release in November for Deep Rock Galactic, our season 1 rival incursion. So we -- throughout the years of Deep Rock Galactic, it's been out like 4 years now., We've been doing updates after update, and we were coming to update 35, and we're thinking that's a little bit boring, just call it that. So we decided to rephrase everything and frame it as a season, build our biggest update since we launched, add a lot of really media content that we knew the core players wanted. And then we added a free battle pass for both the new players and existing players. Did everything we could to promote it, and it was a success. We had our best quarter since we started with Ghost Ship with a rival in Kushan release.
Fantastic. And I think old PlayStation players has noticed the -- what happened now in January. Can you tell us a little bit about that?
Yes. So it was actually the idea with introducing the season and the Battle Pass. Was also because we knew we were going out on PlayStation Plus in January. And that turned out great. We had an enormous amount of attention in general from the PlayStation Plus crowd, millions of players plugging in to claim the game and try it out. And we now have a very stable and active player base on PlayStation. And in general, now we -- counting the -- with the Season 1 on Steam, we doubled our active player base. And with the PlayStation launch, that basically doubled it again. So we have an extremely strong position with Deep Rock Galactic moving forward. And then we just actually released a boardgame on Kickstarter, which is...
I love boardgames. No, that's fantastic to see that, that boardgame looked amazing.
Yes. It's -- I can't wait to see the finished version, but the prototypes have turned out really, really great. Lots of excitement from the fans and that one as well.
Nice. I'm super excited about the future with you in the group. And even though we can't disclose it in this call, I know you have some very ambitious plans for the future. So I'm...
Yes. We don't want Deep Rock to be our only thing about -- but right now the success of Deep Rock is kind of overwhelming. So -- and we are a small team still, right? So we'll take our time. We'll do more, for sure.
I love your ambition, and please send my best regards to the team.
Thank you, Lars.
Thank you so much. Okay. So now I've been hearing Deep Rock Galactic team talking about the performance. Coffee Stain also had a strong solid performance of Valheim continued and Satisfactory, that also had a major update during the quarter. The sales in the quarter was SEK 175 million. And on a trailing 12-month basis, there are about SEK 1.2 billion in sales. We're also excited about that they announced and setting up a new mobile-first game studio, Coffee Stain that we're focusing purely on mobile to bring iterations of existing key IPs. They're having a very excited pipeline. However, it's not a lot of things that there's just 2 titles announced, Songs of Conquest from our friends in Gothenburg at Lava Potion and Midnight Goes Hunt from Sky, but Coffee Stain do have some really interesting stuff that will be hopefully released as soon as it's ready. So moving over to our friends in Stockholm at Amplifier Game Invest. They continue to work on their building their organization. And I'm super excited I've been adding some really key talents to their team in Stockholm and also they have a new headquarter that could function as a hub for all their studios. During the quarter, they added a great team founded recently in Shuda, Green Tile Digital. So we increase further our presence in. Commercially, Amplifier is really, I wouldn't say a start-up, but basically the setting up new studios and investing or acquiring new teams and support them to build for the future. So most of Amplifier's revenues will come in the future. However, they do have royalties coming in from the success of one of their studios, Tarsier and the success of Little Nightmares. That had a continued solid performance in the quarter. Moving to our friends across the world at Saber Interactive. They had an all-time high of revenues, SEK 476 million in the quarter. A quarter without any significant releases, but the strong performance of the catalog and the work for hire business. On a trailing 12-month basis, they are about SEK 1.5 billion in revenues. Saber has a huge pipeline for the future. And I think the business will look very differently also financially looking ahead. For example, they have 7 -- currently, they have 7 AAA projects in pipeline scheduled for release the latest March 2026. If we look at the selected pipeline of announced titles, they had a very well-received announcement of Warhammer 40,000 Space Marines 2, one of the iconic IPs or titles that previously was made of THQ back in the day. And the communities of that title and that IP is super excited about that announcement. That was announced at the Game Awards in December in L.A. Also worth pointing out here, they continue to wrap up the development of Evil Dead, the game that will be released during -- in May this year. During the quarter, they added 2 new companies, Shiver Entertainment based out of Florida and DIGI Pictures based out of Hungary. Both studios are adding a lot of key talents and resources into the Saber universe. Key titles, back catalog drivers in the quarter was World War Z: Aftermath, Insurgency Sandstorm on console and the continued performance of SnowRunner. On the new releases, we saw releases of Star Wars Knights Old Republic on Nintendo Switch and World War Z on Nintendo Switch. So heading over to Tel Aviv, Israel. And online, we should have Sagi with us.
Hi, I'm here.
Hello, and welcome to Sweden.
How are you, Lars?
Yes, I'm great. How are you?
Good. It's sunny here in Tel Aviv.
Nice, it's [indiscernible]
Yes.
Fantastic. So I thought it was a great idea just to bring you here and to hear you out. We've been part of the group for a few months at least and also to introduce you to our stakeholders, what's CrazyLabs a little bit. And then obviously, what's happening and how does the future look?
Yes. It's been great first few months. I can say that for us, it wasn't a surprise, but everything you said when we met is happening. So we both keep our independence while getting this really strong support for anything we want to initiate and do more things. So it's -- we feel it's going to be a significant multiplier for our existing force as we move forward. So the company has been around. We founded it in 2010. It's being led today by Guy, my partner, who runs the hyper-casual business and is our COO and myself. And we are focusing mainly on great hyper-casual business and growing casual business. We reached -- we are one of the biggest publishers on mobile, and we're reaching every month almost 100 million people, which is an amazing number to us to have that breadth and over 200 million people play with our games every month. And so our focus has been on having the best people and processes and technology in order to be able to do repetitive success, which I think it's the hardest thing to have one great game, it's hard enough to have a few great games and repetitively is a process which takes a lot of things. So this is one focus and we are developing technologies and the processes and bringing great people for that. And the other thing is around building our casual business. So we have Super Stylist, which is one of the most downloaded fashion games. But we are now in soft launch with 2 big titles on the Puzzle RPG, Once Upon A Match and the Ladybug Bubble Shooter together with a great partner, Sagen. So these are things that we greatly expect to see how they evolve. So another great program that we have are the Hubs. So we work with a game developer that don't even -- are recognized as game developers. We help them make a life-changing event by teaching them how to create games in different geographies like in Turkey and South Africa, in India, in Israel as well. So we have this program now running in 6 countries. We help people become game developer, published games with us. And then hopefully, go into the game industry while also making their life better. So for us, it's something that we are very proud of. And so -- and we have significant milestones we reached and together with Embracer itself, it also ranked on the NASDAQ wall in New York City, we reached 5 billion downloads cumulative.
That's a fantastic KPI, Sagi. 5 billion downloads. That's quite a few games.
Yes, very, very proud of that billion is -- 5 billion is great.
So looking at the quarter actually ending in December, did you really -- what kind of new product did you release? And how was the performance during the quarter? I know you invested heavily into user acquisition.
Yes. We invested heavily into user acquisition. December was -- well, every December so far has been our best. December was an amazing month, but the whole quarter was really great. We saw growth. We released new games on all of the levels for scale test for full release. We had Once Upon A Match finishing its soft launch and getting all the right KPIs to go into monetization launch and also finishing the development of The MVP and being able to soft launch Ladybug. These are game-changer titles for us. And also releasing in Super Stylists, the PVP features and other features together with Google -- that Google and Apple were asking us and seeing that it has a good uptake. So all in all, Q4 has been great and also started very strong Q3 and also started very strong in January this quarter.
That sounds encouraging for the future. So thank you so much, Sagi. I can't wait to see you soon again and send my best regards to the team.
Thank you, Lars. Thank you.
So looking at the business unit, DECA, that makes up of the DECA Games business, the CrazyLabs, Thinking Ape, Fire Score in India and IUGO. The overall performance in the quarter was an all-time high of SEK 661 million in revenues. And on a trailing 12-month basis, they are close to SEK 1.2 billion. Across that group, the daily active user were averaging 20 million, monthly active usage of 219 million and total installs in the quarter was close to 300 million. Moving to our friends in Cyprus at Easybrain. That also had an all-time high quarter with a rock solid performance of SEK 878 million in the quarter. They had more than 14 million daily active users. And I know that, that number has increased end of the quarter and averaging 73 million users on a monthly basis. Accumulative, they reached 1 billion downloads of all their products. And looking at our -- the group-wide top 25 chart of titles and performance, they have 8 of the 25 titles. Moving to Frisco and Texas and our friends at Gearbox. They had another stable quarter with revenues of SEK 455 million in the quarter. They did release the God Fall Challenger Edition and a free BLC they brought out for current formats on the Tiny Tina that was previously a DC for Borderlands 2. Back catalog drivers in the quarter. Borderlands 3 had a rock solid performance in the quarter. God Fall continued to perform as did Risk of Rain 2. Gearbox has very ambitious plans for the future. Looking into their pipeline, they're having a slate of 10 AAA titles in the pipeline currently planned for release until March 2026. Also, they started the journey as part of the Embracer Group to use the platform for expanding through M&A. So during the quarter, they announced the acquisitions of the Western operations of Perfect World Entertainment, the publisher of highly successful MMO game, Star Trek Online and then Winter Nights Online as well as Remnant that are developed by Gunfire, one of the studios within THQ Nordic and Torch Lights. Also within Perfect World, they have one studio called Cryptic. That is one of the rare handful of Western studios that has experience and launching new MMOs. Looking into the future, again, they have a very busy schedule for the future. And now within a shorter time period, they will release a Tiny Tina Wonderlands in cooperation with Take Two. And I think we're all very excited about the early reception from the communities about the title. A little bit later, they will have Home World 3, a sequel to the iconic game and that is one of their own titles and online piece, but developed with an external team as well as the having Home World Mobile under soft launch. And finally, looking at the Partner Publishing and Film business segment, that had an all-time record quarter of having revenues of more than SEK 1.3 billion in the quarter, driven by a few or 2 notable releases. On a trailing 12-month basis, they are now at SEK 2.7 billion in revenues. Also, the Koch Media Film business had a solid quarter, and they also acquired Spot Film Networks during the quarter based in Berlin. Within the Business segment, there is also the -- my original business here in Karlstad, Game Outlet, or GOE Distribution, that had a really strong performance driven by a great back catalog business and a number of retro hardware launches across Europe. Also, the team and our friends in Romania with -- at Quantic Labs, one of the leading QA providers in Europe, had a record quarter. And finally, our friends here in Costa at Green Frost also had a solid performance of the Viking Merchandise business. So finally, from my side here, just a little bit on the market. So we are in a growing market. I'm happy to see that the 2021 numbers actually had growth, which was a little bit more than we expected early in the year, the growth according to news was 1.4%. are expecting the market to grow year-over-year with 9% until 2024. And the growth expected from Nezu, the calendar 2022 is 7.4%. So with that said, I would like to hand over to Johan.
Thank you, Lars. So we take a look at the financial performance, and we start with our P&L. So this quarter, net sales surpassed SEK 5 billion, which is up 135% over last year. It's driven by strong performance within business area Games, growing with 175%. We're also happy to see that we had an all-time high quarter in Partner Publishing/Film, yielding a growth of 67% in the quarter. Gross profit in the third quarter amounted to approximately SEK 3.4 billion, resulting in gross margin of 67%, up 7% versus last year, mainly due to the favorable product mix shift with increased sales in business area Games. Operational EBIT arrived at SEK 1.1 billion, yielding an operational EBIT margin of 22%. Compared to last year, the margin is 6% lower in the quarter. This is mainly explained by the all-time high investments into user acquisitions, where the user acquisition costs in the quarter amounted to SEK 881 million which is 57% of net sales within the Mobile segment. We also saw an increase in headcount in the period. So we are strengthening our company scaling up to support our growing games portfolio and also to increase our capabilities in general. Looking at the cost per FTE in Q3 versus Q2 on a like-for-like basis, there is no notable difference. So it's at the same level. Adjusted EPS for the quarter was SEK 0.76, up 43% versus last year. If you adjust for FX gains, losses on financial assets and liabilities, and also factor in the discount interest effect on provisions for conditional purchase prices, the growth is 58%. On a full year basis, net sales amount to SEK 14.2 billion, generating an operational EBIT of SEK 4.3 billion, with an margin of 30%. And an adjusted EPS on a full year basis of SEK 3.56 per share. If we take a closer look at the net sales within business area Games, we can conclude that the performance of back catalog titles continue to be very strong, reaching 93% in the quarter. We also see that we are maintaining a high share of digital sales in the segment at roughly 90%, more specifically, 88% in the quarter. We have a diversified revenue base. If we look at our net sales from April to December, the largest title does not represent more than 5% of sales in business area Games. Approximately 70% of our net sales in business area Games are recurring. If we compare that with the same period last year, it's a double, it was 35% last year. And this is mainly driven by the solid performance of our mobile games businesses as well as a continued strong performance within premium live ops and ongoing games. Cash flow, we generate SEK 370 million in free cash flow before changes in working capital in the quarter. This is driven by our EBITDA reaching close to SEK 1.5 billion in the quarter. We have an increase in working capital in the quarter, SEK 390 million. This is related to our Partner Publishing/Film business area due to increased trade receivables as a result of the higher sales. Looking ahead, in this current quarter, we expect to see a positive contribution from changes in working capital. We also had a positive inflow of approximately SEK 6.1 billion from financing activities. This is driven by the share issue that was conducted in December. And also to a smaller extent, increased utilization of credit facilities in Koch Media. After closing the acquisitions that we have announced, but are still to close, we estimate that our available funds will be approximately SEK 8 billion. The total capital expenditures in the quarter was more than SEK 1 billion. The vast majority of this is investments into our Games portfolio, SEK 925 million. This is an increase of 77% versus last year. The majority, approximately SEK 600 million of this is invested through our internal studios and the remaining SEK 329 million is invested with external studios that we are working with. During the quarter, we completed games and released games that had investment of SEK 377 million, maintaining a high CapEx to completion ratio of 2.5x, driving or building the foundation for future organic growth. Looking at the business-related KPIs. We see the effects of the investments. In terms of number of studios that we are working with, at the end of the December, we are working with 154 studios, up 36% versus last year. If we are looking at the number of developers that are engaged in our project development, it's more than 7,800 at the end of December, growing close to 70% compared to the same period last year. It also shows in the number of projects that we have in our pipeline, so at the end of the year, we had 216 projects under development, a growth of 44% versus the year before. Looking at the historical performance of released games. We are -- we have a very solid return on investment. So on average, they have yielded 3.3x the invested amount. Currently, we have 45 projects in this short that we are looking at. The combined sales contribution from these 45 projects is SEK 11.3 billion. The contribution of the same 45 projects, it's SEK 7.8 billion. And the total investment for these projects is SEK 2.4 billion. Here, contribution is defined as the gross profit generated from the project, less also marketing expenses. Then if you look at the average title performance based on the project data that we have, we note that the average title has contributed SEK 251 million in sales, having a contribution of SEK 172 million and an average cost of production or investment of SEK 53 million. We have, during the quarter, looked into our financial leverage policy, and the Board of Directors maintains a prudent financial leverage policy where we are reiterating the existing financial leverage target. And that is that leverage should -- can temporarily be allowed to exceed 1x our net debt to operational EBIT. And operational EBIT in this sense is defined as management's pro forma expectations for the coming 12 months. If we exceed 1x net debt to operational EBIT, we should return to below 1x over the medium term. If we look at -- so here we have a slide where we look more closely into organic growth and pro forma growth. So on the left-hand side, we have a bridge explaining how we calculate the organic growth. In the quarter, it was 16%. When you look at organic growth, we are excluding this year's sales for companies that was not part of the Embracer Group last year. In this case, we are starting with the SEK 3.7 billion in net sales for the period. And then we are excluding SEK 2.1 billion from that to reach the organic reference net sales number, which is compared down to what we did last year. We also adjust for changes in currencies, so that you are able to compare apples and apples. In this case, adjusting for currency, last year's sales in the quarter for business area Game was SEK 1.375 billion. And now we are -- have increased that with SEK 290 million, growing with 16%. Looking at -- what we are excluding, we are excluding sales in Gearbox and Easybrain as they joined us 1st of April this fiscal year. We are also excluding the majority of the sales within DECA, except for the DECA legacy business. We are also excluding a net sales coming from acquired IPs within DECA. Lastly, there are bolt-on acquisitions in Saber and Koch that are excluded. All of these adjustments summing up to the SEK 2.1 billion that we are excluding in the graph there. On the right-hand side, we instead have the pro forma growth. There, we add last year's net sales of acquisitions made. So we start with the reported financial -- reported net sales of last year, which was SEK 1.355 billion. And then we add the historical performance for acquisitions made during the year, which is 1.7. We also adjust here for changes in currencies. So the base amount that we are comparing with the actual net sales in this year is SEK 3.1 billion. We generated SEK 3.7 billion in the quarter. We are growing SEK 600 million, which is 19%.
Thank you, Johan.
Thank you, Lars.
Should we welcome up our new colleague on stage?
Yes. Please, Emma, our new Head of Sustainability.
Thank you.
Welcome.
Okay. 3 on stage, that's good. Thank you very much, Lars, and Johan.
Glad we're having you at the team.
Yes. Thank you. So my name is Emma Ihre, and I'm since a couple of weeks back, I'm Head of Sustainability at Embracer. And I'm working closely together with Karin Edner and the rest of the great team. So in a way, sustainability is very simple. It is actually about doing what we've always had done, but to think and to act a bit broader, a bit more long term. It is about creating value to stakeholders like our customers, investors, employees and local community. And values, it's -- when I say value, I think about diversity, inclusion, mental health, paying tax. So it's a broad perspective and it's also financial return to give back to society. And I think these points seems very obvious. It's hard to not stand behind them. It's really easy to stand behind them. But they are also very difficult, very complex for us, for the whole industry and for companies in other sectors as well. And sustainability is about living our values. No matter if it benefits us financially or not. So our values will always be the base for our sustainability work today and in the future. It's very much about risk management as well, to be aware of different risks and to manage these risks. And it can be legal risks, financial risks and other risks linked to or in the area of sustainability. And it's also about developing our business to do good for people and the planet, to earn money and to do good at the same time. So it's about values, it's about risks, and it's about business development. And I think you already know that our sustainability strategy is called a Smarter Business Framework. And as I said earlier, it's all about creating value for our stakeholders and acting in line with our values. And the framework is based on 3 pillars: great people, solid work, our products and greener planet. And we have done lots of great things this quarter, and I will just mention a few. We are having an ongoing dialogue with management in all companies to get a common understanding of what sustainability is for Embracer, for the group, and how we can support each other in these efforts. We have organized a couple of webinars for all employees, a warm welcome and that's a way to raise awareness within the group and to learn from each other. And there have been different topics like well-being, accessibility, women in the gaming industry. And as well, we have become a member of Global Compact, the world's largest initiative for sustainability in the business sector. So that's just a few things, what we have done this quarter. And I think that was my time in the limelight for...
Thank you so much, Emma, and I can't wait to hear more what will happen in the future within the sustainability segment.
Thank you.
And you're welcome on stage again.
Thank you.
Thank you.
Yes. On to some deep dives. We start with the change of listing venue that Lars mentioned in the beginning. So the project for changing listing venue is progressing ahead of -- our original time plan. We now have the ambition to be ready for listing at the regulated NASDAQ Stockholm main market by the end of this year, provided that certain milestones are reached according to plan. We think it's also worth noting that this is a large project. It is involving 10 operative groups, pending the closing of Asmodee and Dark Horse. 300 legal entities in 50 jurisdictions. Currently, the project team involves 22 people at the parent company, including internal resources and external advisers, mainly within finance and the legal area. At peak, we estimate that the project will involve more than 100 people, including internal resources as well as external resources. We are doing this in a very structured way. We have 7 different work streams where we are moving ahead. The different work streams are highlighted below in the chart. There is action plan that we are following, it includes 140 activities. There are 53 milestones planned and the majority of these milestones are scheduled for completion this year from the current quarter we are in and up until the calendar Q4. To mention a few key milestones that we have in the project, of course, as you all know, the transition to IFRS reporting is a key milestone. There are also pro forma preparations needed for the finalization of the prospectus. So if we look currently, there are 28 entities or acquisitions that currently needs to be taken into account when making the pro forma calculations. And to that, we will add any acquisitions being made from now on until the prospectus is finished.
That could be a few, Johan.
Yes. We also -- there will be a stock exchange audit. We need to formalize the documentation and monitoring of internal control activities, including IT. We need to make the prospectus itself, and we will also need to issue more steering documents in terms of policies, instructions and guidelines.
I'm so glad to have you, Johan, managing this.
You are welcome to take work stream #5. Okay. If you look at -- so this quarter, we have also added M&A data into the quarterly report at the KPIs, where we look at accumulated -- the accumulated development within M&A. We can here see that at the end of this fiscal year, we have done, in total, 71 transactions, 7 operative groups and 64 nonoperative groups. Looking at this, we can clearly see that we are delivering on the M&A part as part of our growth strategy. It's also interesting to see that we see increased M&A activity as there are new operating groups joining. And I think also important to highlight is that when you have part of considerations in shares, it's a way of creating common interests. Looking at the maximum considerations and the split between cash and shares at year-end, it's approximately at 50. We have -- out of the 71 deals that we have made since the IPO, 40 has been part of Embracer for more than 1 year. So we think it's then worthwhile to do an evaluation, much like we did in mid-September last year. We have 2 different categories. So the first one is operative units or stand-alone companies. That's 14. And then we have development studios, that's 26. If we start to look at operative units and the stand-alone companies, the aggregated day 1 enterprise value was SEK 4.5 billion, and the likely earnout related to this is SEK 6 billion. If we look at operational EBIT that these companies had together at the time of acquisition, it amounts to SEK 1.4 billion. If we then look today at the same companies, excluding any bolt-on acquisitions made, the same company has an operational EBIT of SEK 2.1 billion, which is SEK 700 million more or 52%. It's also worth noting when doing this comparison that we have no AAA releases released in the calendar year 2020.
New releases, yes.
Yes. Another interesting data point is the amount of capabilities that these companies add to the whole ecosystem. At the time of acquisition, there were 2,360 people engaged in these companies. Today, the same companies are engaging 3,310 people, which is 40% more. If we look to the studios, the Day 1 enterprise value for the 26 deals was SEK 3.2 billion, the likely earnout, SEK 1.2 billion. For studios, there are different studios in terms of maturity. So you need to look at it on an individual basis to be able to evaluate the performance from a financial perspective. .And -- but what can be said is that there are financial benefits from adding a studio as well, of course. But this will be seen in CapEx savings, if there is an ongoing games development project or royalty savings, and they will be built up over time. Of course, very interesting also here to see what kind of development capabilities they are adding. So at the time of acquisition, there were 1,350 people engaged in these 26 studios. We are very happy to see that they are able to scale their business, adding talent. So at the end of December, the same companies at 1,750 people engaged, which is 30% more. And also, it's interesting to see that -- or worth highlighting a couple of examples where studios have exceeded our financial expectations. We have Experiment 101, mutant, 4 Horse, Kingdom Come Deliverance. Wreckfest, Gunfire with Remnant and WI with Insurgency Sandstorm, Foray with METRO. The overall conclusion for this is that they have either met or exceeded management's expectations. And there is one exception that we mentioned in September.
Thank you, Johan. I would like to highlight our publishers across the world. We are talking a lot about all our games development projects and sometimes I'm getting asked the questions, how do you manage, how do you produce? How do you do the marketing and so on? And we have fantastic talented colleagues, more than 700 of them that works with all these projects and games, both the upcoming games as well as the current games across the world. And across the group, we have 18 publishers that are having their different niches and platforms, everything from PC console to Wii to movies, to different style of live ops and mobile, and now recently, MMO. And the team sizes of those teams ranging from roughly 10 up to more than 100. And on this slide, you could see an example of titles that this publishing team are bringing out. So this is hopefully answering because sometimes people are asking how could you manage 216 games from Karlstad and that is not how this is operated. So this is the answer to that question. And obviously, now having more than 25 AAA games in the pipeline on top of all other games and all the live operate games I think this is an absolute key for our success to have these teams a year ago, I had the honor to welcome a fantastic company in Italy called Milestone. And I would like to follow up on that acquisition. And today, we have the entrepreneur, Luisa. Welcome on stage, Luisa.
Thank you, Lars.
I would like to hand over this box here for you. If you put the green bottle, you could change the slides. .
Thank you very much for inviting me and to share a little bit of milestone and our experience in Embracer family in these 3 years. I think we can start with a couple -- just a couple of words of milestone. Milestone, I think is a beautiful company. We are based in the very center of Milan. We are around 260 people. working both on the Gilman and publishing inside the company. Milestone has a history this year in October, we celebrated our 25th anniversary bird. We had a very big party and has been fantastic after the fund me. And in our history, we always worked in raising area, both simulation or Arcata, but that's what we normally do. Milestone is a multiproduct title. We normally work on 4, 5 titles at the same time. And to do this, we have a lot of focus on process in our company on planning and control or what we plan and what we realized. And I think thanks to this organization, this year during the pandemic, starting from MotoGP '19, we have been able to release titles with no one day of delay. And that's something we are proud and we really work a lot for this. going on about a couple of words about our structures. Majority of the company is dedicated to development and R&D. For us, R&D department is the area where we have the most senior developers, and they work on the technology on the future technology, technology that will be in our games in 1, 2, 3 years from now, about 85 of the companies there and technology then we have around 10% is publishing and 5% is IT, administration, finance and general service. That's our numbers. I even would like to take the privilege to be here to tell that I think milestone has beautiful teams. We -- I think we have very talented people. Our style in the company is very open we share strategy. We share goal, we share results. And I think I'm very lucky because I have the first line and the second line that are really able to manage the structure. So we really work together with a lot of respect for everybody in the company, and we like a lot what we do. HotWheels, one of the reason to be here. HotWheels has been a success us consider that the very first day of the launch, the 30th of September, with our revenue, we covered the development marketing and production costs. So in the very second day, we were in a profit -- but HotWheels is not just financials. HotWheels is has been a beautiful adventure for milestone in terms of EUR 50 million more views so that means visibility, partnership relation with first parties great relation with Mattel. And it has been -- we learn a lot inside the company producing hot is because it was something different from our core title than normally simulation. About HotWheels, I think, HotWheels even an important story of synergy inside Embrace inside Coach. HotWheels was something different from what we normally do. And we worked very close with all Coach center and territory. That means that we decided to work together since the beginning since the project, the pitch, the design we speak a lot to have advice and to share experience. We work a lot with Coach where we feel weaker. For example, they work a lot with us in the art direction, in different areas of the development, and then we work very close in distribution, in marketing, in the local marketing in partnership. So I think that the success of HotWheels is nicestone, but it Coach-Embrace as well.
Really happy to hear that, Luisa.
No. Yes, we are I think it's absolutely true as important and important Okay, some results. As you can see, milestone started to grow year after year. several years ago even before the acquisition. But I can say that after the acquisition, we started to grow more. If we look at the number, our net sales were EUR 299 million in July '19 to EUR 380 million and EUR 586 million this year. If we look at EBIT, operational EBIT from EUR 98 million to EUR 270 million this year. And the cash flow improved as well from EUR 75 million to EUR 244 million.
So some impressive numbers.Well done. .
Thank you very much. And even with my management, we were asking and in these 3 years that so much for sure, some good lack of staff and embrace a milestone, but for sure, that's not enough. I think that on one side, a milestone, we -- probably we took the correct strategic decision. We work very, very hard. But I think that being the group has been very important, very important. At many level, I make you a couple of examples. When in '19 arrived the pandemic from one day to another, from a company of close to 300 people. We always work inside milestone. And one day after, we were always at home. It was a shock for me for many of my team. But was not panic because we were not alone. We were in a family. We spoke with the other studios. We spoke with Clemes. We spoke with Lars. And so we were we could manage, okay? But it's not just this. I think being in the group, even with the autonomy that we have but it's very important with our licensor, Mattel is more happy to sign with milestone in brazeatalone, it's important at level of platform other we receive more attention, more contact. And what I saw during these 3 years is that there are even mainly not formal synergies, for example, my Head of Technique team very often when I'm asking about real future technology and so on, tell me, yes, I spoke with [indiscernible] about this. I spoke with Gear about this I spoke. So there are even some channel or communication of communication that are not formal that are growing the experience of all the studios. So to close .
How is the future looking, Luisa? Now you had the hot fields will you bring out more content and without disclosing any new things that you can't .
I think a very positive for our future. I'm very positive because on one side, with Hotw we did a step for. We are looking in the future from a higher perspective, so what I see for milestone for our future in a concrete way, for sure, we will proceed with our annualizes with our simulation that's where we think we are very good, and it's our experience, very important. But beside this, we want to grow up in the other side, more mass market side. So Hot Wilson is not finished. We have a lot of DLC that we'll keep, we stay with us, and we will release for all the '22 but we are already working on the future the future and a more than one opportunity. So I think there is absolutely the place to go up more. And I think milestone is solid, much more solid than 3 years ago. And we look at ...
I'm amazed by this development and thank you so much for coming here. So I think with that said, you are welcome on stage here and also EMA. And I think Oscar will have a few questions. .
Thank you very much.
Okay. So welcome back for the Q&A. A lot of company today for people to ask questions to. But I'm going to start with you, Lars, on the Q3 results. And I think the theme here, obviously, very, very strong top line development, continued investments into the business, both on the mobile gaming side and on the PC console side. And I guess the lead times are a little bit shorter on the mobile side. So what's -- what were your first impressions sort of on mobile for 2021 year? .
No. I've -- they have over -- they have delivered over my expectations at time of acquisitions. Easybrain is just killing it and they really are an amazing group of very talented people, data-driven and they built a factory of creating repetitive successes in their owners and being the leading category leader in the world. It's a very strong concept. And they are also delivering the financials and as a company, I know they are well respected with Johan's team and so on, very structured. So CrazyLabs,its -- now we had the first quarter, and I'm super pleased to see the numbers. at the time of acquisitions, we made a business plan with them that had a lot of ambition and growth. Happy to see that they are delivering on that. They're having a lot of ambitions for the future. Coming to the point, is shorter lead times. Yes, on hypercasual, there is. And perhaps you can argue also for easy brain than the normal premium games. But on the cash and mobile side to develop new titles takes a long time. It could take many years. Then you have a long period of time in soft launch. So that is quite similar to premium games in terms of investment and development time.
And I saw actually I think it was from any or sensor tower that Embracer was actually the third or fourth highest ranked company on downloads and on I'm not going to ask you about that. But I am going to ask you about, I mean, the dynamics in mobile gaming in Q3, there's a lot of discussions about IDFA. You obviously have an ad-based revenue model. What do you say about the sort of returns on marketing and sort of ROI in Q3 and what that means for the coming quarters?
No. Obviously, the teams, they saw ROI, and that's why they have invested so aggressively into user acquisitions that will continue to drive the performance going forward. I think 57% investments of net sales is a sizable number. I think both us brain and CrazyLabs Lab has been able to manage the -- not IFRS, but IDFA situation well. They work very closely with their data teams and external companies that are providing services for this. So I feel confident about continued success. I think we have been I wouldn't use the word lucky, but we've been in a position in the mobile games market with the ads driven business, primarily that has been potentially less affected by the IDFA changes than the normal in that purchase well-driven businesses.Yes.
And then on the organic side, because obviously, the mobile gaming growth is mainly nonorganic should be clear about that. But so the organic growth, 16% in the games business in the quarter. And it seems from Johan's nice slides there, around SEK 200 million higher organically year-on-year. So I guess, I mean, Cosmed and Publishing is the main driver of that very strong performance. What would you mention, especially on Cosmed side? Is it Metro and St. Row and of course, the fantastic Hot wheels reason.
I think Hotels explains a sizable portion of that growth, to be honest. Luis and the team made fantastic success with Hot fills in the quarter. It was a solid performance of the back catalog, including the titles you mentioned, Metro and Santo and many, many others. But I think without the success of Hot Wheels that organic growth would not be the same.So I think that explains that -- our performance.
Great. And then Luisa actually jump in with a few questions for you. I mean we heard your presentation. I watched the hot winds release during the past few months here. Over 1 million units since the 30th of September. I think you were nominated as one of the top 5 racing games at the game awards. I mean congratulations and what has been the reaction from your team?
From our team we're all very happy for sure. I think that Hotsville has been relying in September after a difficult period. So for us, has been incredibly important. But even more than this the team understood that we can do something different because it's very to stay in the comfort zone. We produced MotoGP for many years. I think every year is a little bit better. But Hotsville a big challenge, something different, we succeed, and that make the company grow up. That's so we're all very happy
Yes. And I mean, as you mentioned, I mean Hotsville is a bit different to the rest of your portfolio. So what do you see ahead for milestone, I mean, in the coming years? Will you try to do more sort of new things and without revealing anything sequent here? .
For sure. Yes, I think the milestone can go up in both the area because for us, the simulation is important. And I see very good pace of growth in simulation. We work on MotoGP. We worked on SMBK that is a license we just signed last year in the first title will be this year in July. We will concuss where we are we will announce new project increasing that side of the market that is very popular both in Europe and U.S. So the market is big. So I see a very good space of growth in this area and a very good pace of growth in the ARC area. That's the area that we touch with Hotsville, but there are many other possible licensing that can be interpreted with racing or something similar to raising title with bigger license or more mass market license.
That's really exciting. And then just a final question for you for now. You mentioned synergies and Cosmed and so on. And I just want to ask, I mean, there are other sort of racing studios in the group. You have Bugbear with breakfast Sabre with the Car, for example, and rainbow with MX. Are you working anything with them at all? Or is it sort of separate business .
Yes, we have several contracts. And if you an example with rainbow. We worked together on some technology related to the online. We work together on some assets because bike are very similar. So we are sharing both assets or again, tools or whatever. We had some good contract with Sabre to understand even for the future, what will be in our title, how we move on the future just with should we think to virtual currency in raising what are you doing? So we have several charts to understand together. So the answer is yes. And we can I think we can do even more. But in the past 2 years without traveling and so it was a little bit more difficult than I think that's a big value of being in the group.
I look forward to following the progress. So me -- back a bit to Q3 for the group. And I mean, sales through, obviously, doing well, big year for the Sanso franchise. What is your feeling around the interest for the franchise and the upcoming launch here of the Centro reboot later this year and the progress of the development team.
No. I'm even more excited or as excited as I did before. I think -- it's been -- you can follow the progress with the communities and they're putting out new trailers. They had a strong trailer the game awards and I think we all feel confident about the release for August. So it will be a big title.
Understood. And then, I mean, deprocelectic, we heard from Soren, seems like a very successful launch on PlayStation plato. What can you say about the sort of business model on PlayStation -- how does it work?
I think it's a long-term investment to get engaged players and they got to kick start now on PlayStation. And you could hear him he's saying he's doubling the community of Deep rock. I think it's just a fantastic base for the future of that IP to bring out more things. Commercially, you make deal without specifically talking about this deal, you're getting normally some kind of upfront fee from the platform which is not in the overall greater scheme of things, it's not really notable as such, it helps. But I think the more -- the value is more in the long term. And then you get a little bit of sales, obviously, on top of that now on DCs and so on. So I think they're off to another solid quarter, but I'm more excited about the long-term prospects of the procylactic and team.
Understood. Then jumping into some questions from the audience from the web as well. I'll start with a question from Jesper Berensen from asking about the mobile gaming segments, noting a strong performance. Should we consider the UA spending levels at 57% of mobile gaming sales as sustainable? Or was this a case of exceptional marketing conditions in the quarter?
Well, it's a hard. They are tracking this on a daily and weekly basis, how they invest. My message to them is to invest as much as they can into the future as they see profitable return of investment not to maximize the short-term profits. Where that takes us every quarter, well, it's hard to predict that number. I hope that number will be still at a very high level. perhaps then we're making a bit less in absolute numbers in EBIT, but that will generate more profits on the long term. But for sure, I think 57%, I hope we'll see perhaps even this quarter, a similar number. So.
And I guess, I mean, between I mean, CrazyLabs, logic and Easybrain. What are the dynamics between these 2? I guess, CrazyLabs has higher spending relative to sales and Easybrain in Q3, specifically?
CrazLabs has a higher -- let's put it this way, CrazyLabs as a hyper-casual publisher, they have a lower EBIT margin over time. If then Easybrain a category leader, and their games are played for a much longer time. They have consumers of Sudoku and other titles that being played for many, many years. So their EBIT margins over time are higher. But with that said, CrazyLabs are profitable, they are in line with expectations and expect them to grow. But CrazyLabs have a higher percentage of sales in user acquisitions than Easybrain.
Yes.
And I mean, any indications for Q4? Should we expect a similar level here in Q4 momentum?
I expect them to continue to invest. So I don't expect too much in terms of profit on the short term, expect more on the long-term .
Understood. And then a follow-up question from Jesper here. Any comments on play you churn within mobile would also be appreciated.What can you there?
I think it's hard. Again, I would like to say hypercasual,ave consumers downloading plan game for a short period of time. Sometimes it could be months. But sometimes it could be minutes. So again, different profile from the category of easy brain. So you need high volume to be successful.
And staying on a similar note here, a question from Rasmus at SHB. How do you structure your UA spend? And what kind of sort of payback breakeven or other metric do you use or rather the company's news .
How should we, Johan?
I think, first, I think it's also important to note that there are separate operative groups, and there will be no sort of embracer model for it. It's their models. I think that's a color to give on it. .
When I'm asking that question, I'm getting a huge spreadsheet with thousands of lines looks amazing. But I'm fully trusting enters to make those decisions. And how many days the return on investments and so on. I think it really varies, but there are so many different factors in this. So it's hard to answer that.
It's a good deep dive topic in the future. Yes. Then 2 questions from Matti Littunen at Bernstein. First one is, should we expect any short-term impact on the partner publishing contract with Activision blistered from a potential acquisition by Microsoft or are there contractual protection regarding these types of change in control?
No, I think it's too early to say. In general, Microsoft is a great business partner, and so our activation nowadays. So I'm not overly concerned on that front. In the end, they need to be the leading provider of that service in Europe. And if they are, I'm confident that Coach Media in general, could continue to consolidate that not meaning now M&A, meaning adding more business partners or increase the business part business within each partner. So it's -- in general, I'm confident that, again, Partner Publishing without being bullish saying they will have a stable performance .
Understood. And then the second question, I think we've asked already on retention and so on. Then the question or 2 questions rather from -- Yes, 2 questions, but I think one that we'll ask, and this is for John. A question from Jakob Eder from [indiscernible], asking about cash flows. It's affected by a buildup of working capital of some SEK 390 million. I know you talked about it shortly in the presentation. But could you provide some more comments and flavor on that buildup? And perhaps also how we should think about it in Q4 now, the final quarter of year?
Yes. I think it is related to the Portal Publishing business, which had a fantastic sales quarter. So in terms of as a percentage of sales, it's not unusual. And we expect to have the trade receivables, of course, being paid in this quarter. So we also then expect to have a positive cash flow from change in working capital at a total level for this quarter ending end of March.
Understood. Very good. Then a question here on from Nicolas Langlet BNP Papa can. The pipeline that you reiterate today, 25 AAA games by full year implies sort of 6 new AAA games per year. Is that the number we should have in mind for the full year 2023? Or can you do better given recent game delays.
I think overall, there is more titles in the end of that 4-year period, even though we -- there is -- looking at the 2 years period, there is a good number of things coming out. in the financial forecasted period. But there is even more things coming out in the 2 years that we have not financially forecasted, and that gives me confidence that we will have a continued nice growth in profitability in the business in the years thereafter, the forecasted period. .We haven't disclosed color on specifically on this year or next year, how many titles there is. Overall, we reiterated the financial forecast, and that's the key KPI for us and to do the business in that range. So.
Yes. and jumping into a few questions from myself on the guidance and the pipeline, starting with this year. Actually, you reiterated the guidance still, I wouldn't call it a wide range, but it's not a more narrow range than last time, at least, despite time having passed. So I mean, solid Q3, I think, was slightly above consensus expectations. You've moved evident. I think smaller type SpellForce has been moved as well. You've also seen some positive FX changes, perhaps. Could you talk a little bit about the dynamics this year? What has changed?
Well, in this current quarter, we are in the games industry. So there is many factors on the mobile side, the profitability and the operation iris fully depends on the amount of user acquisitions they are investing. If they don't see a return on investment and invest less, we make more money on the short term, but less on the long term. .On the premium games, business, if you have big titles that are coming out that will be successful, you will be -- that could be a nice windfall of profit coming through the P&L. And it's really hard to estimate this before the release. Just look at Hotels that performance heavily exceeded our expectations. And it makes a huge difference if you sell another 1 million units of copies. It's just coming through the P&L immediately. So with that said -- and to add further complexity to this, we now have more titles with partners such as gearbox with the Titan lands with take 2. So obviously, that potential royalty windfall will depend on the performance of that titan. And they have like a week in the quarter. And there is other factors. So that's why we're having still, you call it, a wide range, but a range because there is many factors which we don't know today. But we feel confident to deliver in that range.
Great. And I have to ask, I mean, this is a small question, but even that was that in the previous guidance or not for this year.
I can't disclose what's in the previous guidance or not. And sometimes, titles could be in very end of quarter, sometimes there is a little bit of windfalls, but the bulk of it could be in coming quarters like Hotwheels.I'm not saying that it's the case with -- even dead, but it could be.
Understood. And then for the coming years here, you upgraded your guidance mainly as a result of the acquisitions done in December. Is there anything else? Any other changes versus solely sort of the guidance that you gave for the acquisitions? . Great. And I mean looking into your presentation and some further details, I think, on the pipeline, you mentioned that Gearbox has 10 AAA titles in the pipeline. Sabre, I think, 7 and I would guess then Cosmed also 7.
Well, we said this morning, at least 25, didn't we?
Interesting. Did miss that actually, very interesting. But starting with Gearbox, 10 triple titles in the next 4 years. Could you shed some details on sort of what how many are internally developed and how many are internally published, respectively, I think it's an important question.
I know it's important, and I love to have Randy here one day with his team to give a deep dive into the gearbox business. I hope the dynamic allows that to happen in the future. But I think it's a bit premature by me to give color on that specifically. Gearbox are heavily recruiting across their studios. They're setting up new studios, Montreal and they are growing. So -- but there is also titles that are externally developed. They also have -- of that 10 titles, there is a few that are more in the concept phase or in the preproduction phase. So they need to deliver on the business plan to add more resources to deliver all those games. And that's -- they seem to be on track on that, but they're having a very ambitious business plan.
Understood. So we can expect rapid scaling up of investments there over a sort of 3-, 4-year period?
Yes.
Understood. And then Sabre also set on at least 7 AAA titles of which I think 2 are -- well, 2, 1 Tripla title and one other title is announced. What can you say about the hype, the reception, the interest for Evelded and SwissMarine II.
I think it's super strong. Even that is not defined as a AAA because it's not 100 developers. But it looks solid according to math. They added a little bit of development time, as you noticed, to the projects. So I think they feel confident about the release. And they brought out preordering programs, for example, and sold out immediately on collected traditions and so on. So there's a nice request demand of that product. Space Marines, I think we all saw that trailer was the most viewed trailer on the game awards, amazing excitement around that title. That will be a huge game, and they're putting some heavy extra resource into that. So I'm not normally using that word, but it looks amazing .
That will be exciting. And what can you say about the Sabre further out in the future, I guess, I think there's been an announcement of the Nitol Republic remake Seith with Sony. What can you say about the interest for that game? It seems quite high. are talking a lot about it. Trailer was well received.
I could argue it's the most iconic star bars games ever made. And there is a lot of tower schemes made. And I feel super confident. Obviously, this is not news to us because it was part of the business plan and acquisition of Aspire. But they're putting a lot of resources into development, and I think there is a lot of excitement around it. I can't wait to see what they are to announce next on this.
Yes. And we've seen some less favorably received sort of remastered versions of iconic games from other companies in the past couple of months. would you say for the quarter remake, is -- does the ambition sort of match the interest for fans?
Well, they certainly have a lot of development resources into that remake. And it's a remake. So it's not a remaster, it's a huge difference. So they're building the game up from scratch again. So I would preferably having them talking about the specifics of that, but we feel confident that they are able to deliver.
Yes. And Cosmed, they are publishing finally. I mean, to the third sort of big AAA entity, I would say, in the group, probably 7 or so play titles in development. Obviously, no Cosmed very well or none for a longer time. So perhaps you can talk more about that. What can you say about the own licensed IP sort of mix there and publishing what was the mix in that pipeline?
It's just very sensible to give a lot of color more than I already given Oscar on that. I need to have the publishers talking about and developers about the future products that is not announced I'm excited to look at the progress that the development teams are making of these titles they have in the pipeline. So we talked about San row. There is more things. That looks good. And perhaps being more from an underdog position is sometimes also nice on titles.
I mean, we've seen a lot of buzz or at least some of us recently for Del Island too. People have sort of written off the project not knowing if it's still alive, but it's clearly. And I at least expect to release this financial year -- or sorry, next financial year, I should say, -- so I mean, is that reasonable? What can we expect from the title has been in development for probably 10 years or so?
Yes. Again, I can't talk about Dead Island 2 because it's not announced as such from the publisher. So -- but we have just talked about, we have one unannounced AAA title that you think is tailing to. So it's hard for me to comment further on that. But I'm excited about unannounced titles.
Great. I'm excited you are excited. So going back to some questions from the web here. Question here regarding comments from EA. And this is, I would say, related to your sort of transmedia entertainment pivot with the SMD and Dark [indiscernible] acquisitions year said that traditionally, the scripted entertainment elements in our industry have not been big revenue drivers in and of themselves, but where they had been of high quality, they've lifted the overall engagement of those franchises more deeply. What's your viewpoint on this? And what do you expect transmedia to embrace through in the longer term?
Well, you can look at things a bit differently or similar, I could say that gaming in general are the most profitable way the profitable area of entertainment, that's true. So if you do gaming well, you have the highest margins. But at the same time, to monetize things through gaming, you need to have strong IPs and build communities. And doing transmedia project, meaning potentially a Netflix show or really drives could drive a lot of interest into a gaming product. So it's a fantastic tool of monetization. So it goes hand in hand. I won't define it as marketing, but because our philosophy is to add leading teams, creators and great entrepreneurs in agent areas around gaming. And those businesses are profitable on its own. Look at dark core, for example, they're having a very nice profitable business on Comic Publishing. And that's how I look at things. Okay. Dark ours will perhaps not have the same profit margins as coffee staying but still a nice cash flow generative growing business with an amazing library of IP that has huge potential across the group. And just talking about the excitement, for example, around dark horse, it's amazing how people are excited across the group, and I can't wait to have this transaction going Again, SMD, as we talk 2.5 hours around it time of acquisitions. So hopefully, most stakeholders understand that business, but Again, that is on a stand-alone basis, a very profitable, growing, nice business with a leading market position. And actually, the margins in board games they own board games, they have theiese very similar to videso games. So yes -- so that kind of summarizes the thinking. I think how we think of this transmedia.
Yes. And on that topic, I have a few questions here from -- regarding Asmodee. First one from me. What's the latest on the acquisition and the sort of consolidation approvals needed in France or so on? Should we expect sort of first of April as a base case?
Well, that's the assumption in the operational EBIT. I think it sensible to comment on regulatory filings because it's not really in our hands, but I have no other news on that topic and the assumption is that it will be first of April inclusion into the numbers.
Yes. Understood. Then we had a question on -- as on the fiscal Q4, what the momentum is like in AMD, if you can say something about that. I might be sensitive, but what can you say about the progress in fiscal Q3 and at the start of Q4?
I think we share details how a typical SMD year looks like, how the revenues are splitted between the quarters in the communication of SMD. There is a little bit of holiday season effect. But to be fair, there is a stable performance every quarter, driven by a number of factors, including the trading card business. how their business right now looks, I think it's premature by me to comment. I think we need to wait until they are included into the group.
Yes. Then a few questions from Chirag Padia at Bank of America. For the acquisition of SMD, could you comment on the percent of revenue generated from the trading cards business? And if you believe this revenue is cyclical?
I think we gave a little bit of color on the profitability on the different business segments. Johan, I...
In conjunction with the presentation of this transaction. .
I think there was a pie chart with the split there Yes. So I think I need to refer back on that. I think the trading card business is it's solid. And obviously, there are 2 key brands on that. It's a little bit lower profitability but a very stable business. But the absolute majority of their business are their board games business and their own IPs.
And then a question on coffeestain again from Mark America. For Coffeestain, could you comment on the focus on mobile publishing and developing development now that you're for the new studio in Malmo, Sweden.
No, I think previously, obviously, they had code simulator or mobile, which had a fairly I think most players actually have played that game on mobile rather than on console or PC historically. So there is a huge community or demand of -- on mobile, proven on that IP. I think there's tons of potential on the other IPs on mobile. But it's early days. But I think I'm certain about -- I've seen a little bit of their ambitions for the future and mobile is definitely part of it.
Understood. Understood. And then before going to some questions on M&A, we have a question from Martin Anel at DNB Markets. Why is the project of this change, the Socomainlist happening sooner than you previously expected? What's changed?
I think we the time frame that we had communicated earlier was June 23 at the latest. So obviously, we are now further into the project, and we are progressing ahead of schedule that we set out in the beginning. So we think that it's the right move to increase the ambition in the project and aim for being ready in -- at the end of this year.
Yes. And another question for you, Johan, for me. IFRS expected now from the first of April. I've asked you before, but I mean could you sort of reiterate the largest changes in your sort of P&L, anything that has sort of changed anything that you've discovered?
No. So we are continuing with the project. It's moving along well. There are no sort of news that we have encountered that we didn't knew about earlier in the project. The main differences will, of course, then be related to amortization of goodwill you will have the IAS 16, our IFRS 16 with the leasing accounting. But looking at our operational EBIT, we still have the expectation that, that will be on the same levels that we have currently. So no material changes.
Segment reporting
Segment, yes. So.
That's the excite you are.
Yes. I guess so more segments Great. Thanks, Johan. And then actually on this topic, turning over to Emma for some questions. Segments.
Okay. Segments -- look forward.
Yes. Thank -- so I mean you just started as the Embracer Group Head of Sustainability. I think you've been at the job for 3 or 4 weeks. So I mean, first of all, why did you decide to leave quite attractive job as well as respect to law firm for the gaming industry? Could you talk a little bit about your inspiration and sort of drivers span that decision?
Yes. I think that's a very good question. I ended up in the studio. And I don't have a background in from the sector, and I'm not a well-known gamer. But I met with the share women,[indiscernible] and with Jhoan and Lars and talked about embracer, about the sector. And I realize that -- at once, I realize they have really strong and good values, and that's really important for me. And -- but as well, they brought up that this is difficult and there are huge risks in the industry, of course, for Embracer, but for the whole sector and that they wanted to be part of the solution, but it's really complex. It's really difficult. And that's to be part of a team that want to manage this kind of risks and do something about it together with the rest of the industry, I think that's an opportunity you can't miss. So that's why I left the law firm.
Great. And 3 weeks at the job, what are your sort of main impressions so far?
That I was right. They wouldn't -- just good marketing people. It's really great people working for Embracer Group, the people I've met so far. And as well, I really like the decentralized business model because we are at the parent company, we focus on policies, compliance, risk coordinating everything. We do the boring stuff and then the actual work happen in the companies. They have the great initiative in the area of sustainability, diversity, mental health, content gains, accessibility to games. So our role is more to facilitate this cooperation within the group. And I think that's really a good way of working.
Perfect. Thank you very much, Emma, and I'm sure we'll come back to some more in-depth questions when you've been at your job for a few weeks now or ...
At least when I get into my fourth week. -- exactly.
Exactly. I have quite a few more questions. So I think we have just a few more minutes perhaps. And some questions from Benin May at Bernberg. Question number one is to clarify, does the uplift in operational EBIT achieved in this in the 14 stand-alone acquired companies include the benefits gained from the 26 studios acquired and resulting royalty and other cost savings. I guess that's a question for you, Johan, with Lars, perhaps supporting. Again, I think to paraphrase, the question and you showed in the presentation the operational EBIT for the 14 stand-alone companies Yes. And in that number, is it also benefits or royalty savings and so on from the studio acquisitions that you didn't disclose numbers for?
So no. So it's -- we have looked at -- we know that some of the stand-alone companies, operative units have made bolt-on acquisitions on their own, and that has been excluded in the calculation .
There is no additions from the studios into -- from the 26 companies into the 14 companies in that calculation.
Okay. Great. And then a question on user acquisition cost, which I think we've discussed great. then I think we have a question on Numen as well, if I can find it, yes. So a question from Neil Campling at Mirabo Securities. Is it more difficult to find valuable IP and acquisition targets because of the wave of M&A in the industry? Does this make prices more unattractive and how critical is further M&A to achieve long-term plans.
No, we are focusing on adding great entrepreneurs and finding companies we could scale and then organically build. That's the key focus. So we don't see any change in that. We have more ongoing dialogues processes, ongoing diligent process ongoing then we have available resources in terms of manpower, I would say. In terms of transformative, meaning financially $1 billion or big transactions. Well, there is not as many transactions, but there is still a few out there that are run by great entrepreneurs, whether any of them will be part of Embracer remains to be seen. Our principle is always to be fair and to pay a fair price, it's not only about the day 1, it's about the mixture of how much equity, meaning how much stake do they take in embracer and being aligned with everyone else and especially how long term are they in terms of the earn-out structure. I want especially such entrepreneurs to be aligned with everyone. So I think for those discussions, unless they have financial owners, they're just carrying about cash and day 1, if they own by the operators and founders, that is the question. And most of those companies have made more money than they possibly could consume privately anyhow. So it's more about the future ambitions and where they would like to end up here.
Yes. Understood. And then a follow-up question there is M&A likely to be in adjacent markets, distribution, board games, et cetera. building out mobile gaming or buying in back catalog for the core gaming business?
I think you will see transactions all across the place. The most you will see in games development in premium games. The core is gaming and they're focusing on bringing more premium games companies into the group. And on top of that, we are excited about mobile, but it sometimes more difficult to find the right entrepreneurs. But there is plenty of opportunities in all areas as well as, I'm sure, SMD as well as DarkHorse to a certain degree, will continue doing bolt-on adding more great IPs and companies in their groups. Historically, I think less than 1% of our capital allocation has been to distribution companies. and such. And well, if the right opportunity, we are open-minded. I'm always open-minded for the right teams and transactions but ...
Understood -- and then, I mean, we've seen a flurry of acquisitions and M&A in the sector at the start of 2022, which you touched upon in the report, I believe. I think you previously said that you wouldn't do public market M&A. I mean given valuations having come down quite a bit, seeing other companies do it now. Has your view changed on that? Or does it remain the same?
I think the core is to private transactions. But again, I'm always open-minded. Like we are always in dialogue with most public companies across the world. we do business. We know them and so let's see.
Let's see. Okay. So I think we've touched upon most of the questions from the web. I think we touched on most of my questions. So thank you very much. Thank you all so good answers, everyone.
Thank you,Oscar.
Thank you. Bye-bye.