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Embracer Group AB
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Good morning, and welcome to Embracer's fiscal Q4 Presentation. My name is Martin Arnell, and I'm an equity analyst with DNB Markets in Stockholm, and I will be hosting the presentation and a Q&A session after the presentation. Today, this presentation will be divided in 2 formats. First, management will take us through a brief overview of the quarter, and we'll follow up with a Q&A. And then there will be a deep dive with Q4 performance indicators. And if you are online and on the telephone conference, you will be able to ask questions from -- both from the telco and if you're sending questions online as well. And if you're here in the room, you can also ask questions.And with that, I want to hand over to Lars Wingefors, CEO and President.
Thank you, Martin. And good morning, everyone, and welcome to today's presentation. Today's a humbling morning. Starting today's presentation, we would like to describe some background and rationale for the aforementioned strategic partnership deal. Even if it serves a little financial value going forward, it hopefully answers some questions about our communications and our decisions. In second quarter '22, '23, we outlined our ambition to close a number of partnership and licensing deals that will be jointly transformative for Embracer. We have already entered into multiple partnerships and licensing agreements with industry partners on both AAA games and movies based on some of our iconic IPs.Except for the already announced deals that have more limited short-term financial value, we have been working on one groundbreaking strategic partnership agreement that would have set a new benchmark for the industry. And trust me, I've been spending a lot of time on this. Negotiations have been taking far longer than originally anticipated, considering we had a verbal commitment already in October '22. The specific deal included more than $2 billion in contracted development revenues over a period of 6 years. The deal would have enabled a catch-up payment at closing for already capitalized cost for a range of large budget games, but also notably improved medium- to long-term profits and cash flow predictability for the duration of the game development projects.The transaction had many of the highest-rated global advisories across various segments on board with several hundred people engaged on both sides. All documentation was finalized and ready to go as of yesterday. We asked for the execution of the agreement before our Q4 announcement. However, late last night, we received a negative outcome from the counterparty. This decision was unexpected to the management and the Board of Directors of Embracer. Capitalizing on our collective value through our partnership approach remains a key priority for the group. We will continue to seek partnerships and collaborations with third parties across all our segments, including opportunities within transmedia.The demand for content has never been greater, and Embracer is well positioned to meet that demand. We still have ongoing discussions about additional partnership and licensing deals, but the impact of potential deals is not included in the management forecast for the current financial year. That said, our ambition is still to increase the share of externally funded game development. The long-term ambition for Embracer is to build something significant and long-lasting and to do together with successful entrepreneurs and creators. Today, we have one of the industry's largest portfolios of games and IPs with more than 850 owned and controlled IPs, over 130 internal development studios and over 200 games in pipeline, and with transmedia expertise within tabletop games, comics and movies.With that said, I would like to hand over to Johan for our forecast.
Thank you, Lars. So we have updated and lowered our adjusted EBIT forecast for financial year '23, '24 to SEK7.7 billion to SEK9 billion versus previously SEK10.3 billion to SEK13.6 billion in adjusted EBIT. There have been several changes in expected release dates moving forward for unannounced titles in '23-'24. Consequently, several games with the potential to generate more than SEK1 billion in net sales are now slated for fiscal '24-'25. Due to these delays and without the significant transformative partnership deal, we expect to generate between SEK7 billion to SEK9 billion in adjusted EBIT with improved cash conversion and setting a healthy growth outlook for the years after '23-'24.To give some background to the financial guidance for fiscal '23-'24. If you compare that with the original forecast that was presented in the Q2 report of '21-'22, it is notable that at least 6 notable releases net have moved out from fiscal '23-'24 to later years. Looking at the segment. In PC console, we expect underlying earnings growth driven by more owned and self-published large budget game releases during the financial year. The forecast includes more cautious assumptions for certain releases and certain categories of games.Several additional large budget games are expected in fiscal '23, '24, including the already released Dead Island 2 and additionally already announced titles such as Space Marine 2, Remnant 2 and Payday 3. There are still a number of unannounced notable titles waiting to be announced for fiscal '23, '24. For the mobile game segment, we expect a low single-digit organic growth with gradually stronger growth during the financial year. We assume a stable soft underlying market trends with some gradual improvements for ad monetizations throughout the year. The adjusted EBIT margin is expected to be largely in line or slightly above what we saw in fiscal '22, '23. For the tabletop game segment, we expect high single-digit organic growth, driven by trading card products with an adjusted EBIT margin slightly below fiscal '22-'23.
Thank you, Johan. I would like to add a little bit to that. So we are working actively now on efficiency improvements initiatives. Worth noting is that -- worth noting that they will be announced in due course. These efforts are likely to benefit profit margins and cash conversion for fiscal '23, '24 and reached full run rate during fiscal year '24, '25. We expect to reduce capitalized development projects while continuing to invest to grow our established profitable and beloved franchises and IPs. We will deemphasize third-party publishing and externally developed games based on external IPs. We will increase focus on net cash flow. And with further initiatives, we expect to reach a financial debt below SEK10 billion by the end of this financial year.Now I would like to hand over to Martin for Q&A.
Thank you, Lars and Johan, for that initial presentation. How do you feel on a day like this?
It's been a rough night getting that decision when you have everything prepared presentation, communication and obviously, you have been working day and night, almost sometimes for half a year to achieve something. But hey, this is business, and I know shareholders and other stakeholders expect me to win every battle. This was a big one. And we didn't win this one, but I'm sure we will win many of the future battles. And we had numbers of management dialogues over the night and last night. And I could feel there is a lot of energy to do alternative things. The issue with this large transaction that is kind of combining the group in one big agreement that we became in a holding pattern, but then making a decision, do we believe it's happening? When is it happening? And it's happening very soon. Okay, then it's better to wait.And obviously, I've been trying to include key stakeholders in this. So they all see -- but then we ended up in a situation where, okay, we need to have a decision for all stakeholders, the companies, the shareholders can't wait forever. And so then you can debate going to give that a few hours before coming here.
I have to ask you, I mean just double checking is the negative outcome, is that the final outcome?
I think it was nothing against the transaction itself. I think there is -- was a strong message that it made perfectly sense. So it was other decisions impacting them than the agreement itself and our work in this. And obviously, it was some kind words that when things changes in the world or for them, but I don't think it's right this morning to send that kind of positive things now. I think now we just need to deal where the ball is, and let's see if that could be.
And now you don't have potential effects from partnerships in your future guidance, but you had that before. And could you just...
We don't have -- we don't expect, obviously, financial forecast is financial forecast and you have a budget for game releases. Some game releases have different terms of monetizations, you could have deals with platforms that -- those assumptions you have, and that could change over time. But what is not included is a deal like this or similar kind of construction of deal.
But you had potential effects from partnerships included in the previous guidance. And you had this verbal commitment. Was that the reason why you had it included from the start. Could you just...
We didn't have it included from the start.
Okay. But you had a...
So when we were in the middle of last year in October, okay, we had a verbal commitment. It was very strong signals. Perhaps [ both what ] was a bit naive, how complex this was to set up. But hey, when you really have commitments for someone you trust. We had a lot of discussions, should we have that included into our guidance? Is that how guidance works, that you should have the most likely outcome, what you believe. And that was our conclusions. I'm sure that could be debated whether you have only legal agreements signed included or not. But obviously, you don't have all your revenues signed because there is a forecast.So that -- and it was also the liability of announcing then the guidance and then you know that you have a deal, but then you range -- you then announce the change in that and then you have the deal later. What impact legal -- liability you have for shareholders than have been trading the shares in that period. Okay. I'm not expert in this field, but obviously, we're taking a lot of guidance on this.
But it's fair to summarize that. You had a verbal commitment. You expected it to come through, so it was included.
We have no reason to question that verbal commitment.
Okay. And the revision now in the new guidance, it also includes a move of releases into the future. And if you would share some light on how big part is that and how big part is the strategic partnership that had a negative outcome. I guess the majority of the shift of the revision is the partnership or...
Well, the partnership had a notable contribution from development during the development period and a catch-up effect. It also had other contributions. I think if you compare it with the original forecast we made second quarter '21, '22 because we're now trying to retrospective to look at this. There is a net effect of a lot of titles moving out and then title is moving in, including Dead Island. But the net effect is 6 large titles. And if you just take the EBIT impact of those, that makes up the majority of that difference.
The total guidance difference. Okay. So it's a bigger effect from organic.
And it's not lost revenues, but obviously, it's delayed revenues. And in the world of cost of capital, it's more expensive. But hopefully, the games are worthwhile waiting for, as we have seen with Dead Island pushing for quality sometimes makes a lot of sense.
And also just to clarify, you mentioned for AAA for this year. We've seen Dead Island 2, and we have 3 others. One is not announced yet. But you still move big releases right, with potential to generate more than SEK1 billion sales from this year to next year, that's correct. Okay. And any light on the potential timing for them to actually appear in '24, '25.
Timing?
Yes.
Well, I'm thinking of particular one very big title that I know is would be -- well, I have a very strong believing that it's very early into next year, the '24, '25 year. There is other things that has moved as well. So if you look at the net effect, there is many things, but particular is one significant title that now recently moved out from '23-'24.
And what about your conviction in those 3 AAA -- sorry, 4 AAA that you have announced and that you still have in this fiscal year and included in the [ game ].
Obviously, again, there's guidance, guidance includes delays and outcomes of the titles. I don't think I'm the right person this morning to be bullish on everything will come in time to the highest quality. I think we just need to be humble that we are in games development and the volatility of big titles when they come, how they perform, it's still significant. But just talking of Remnant 2, I know it looks fantastic. I will share some bright news. I'm really confident it will come.
And is the year going to be back-end loaded, the SEK7 billion to SEK9 billion adjusted EBIT. Is that fair to say?
Well, there's the usual patterns of seasonality, but I think we are out to a solid start with Dead Island 2 obviously.
Do you think that you will continue to give guidance looking beyond this year?
Well, we communicated that we will have -- our ambition is that Capital Market Day when we have been sorting through this current situations and come back to that. I think the guidance has not only given us positive things, especially considering last night and the communication. So you can question whether you have a guidance or you have quarterly or yearly guidance. At the same time, you are an analyst and there is many of them. So that is obviously something we consider. So I think there is many interesting things we will come back to in the Capital Markets Day.
And the reasons why you moved so many games from this year to next year. Could you elaborate a little bit on what has happened? It seems to be quite big titles. And is there any key thing that has happened for...
I think, development in general taking longer than our local management teams were expecting from the beginning. Obviously, it's something we do bottom-up. So that information and then we put the guidance and make assumptions. I think many studios had -- now going back to '21, there is still effects from the COVID situation, work on distance, technology shift. So I think issues that other industry peers have seen, we have seen as well.
So it's not the market that has sort of made you postpone it or it's more internal.
But I think it's clear, especially now post COVID that you need to bring out really great games. You need to put the highest efforts in to put out great games that find its audience that are polished and well received, preferably big titles. Again, Dead Island. I think the market for not doing that is less than it used to be. So I think that is also included in -- you can't push things out too early. It's just if you're a long-term shareholder, at least I am, you need to think long term, and you need to put that extra effort. It was painful to move Dead Island from -- well, last release February to April, but it was well worth doing it even though we could have shipped it in February with some bugs.
And I remember in the last report, you actually announced the AAA pipeline schedule for the coming 4 years. Is that still the same? Or is there any big moves in that.
Well, this morning, we don't put a lot of effort into that pipeline. We had a situation occurring last night. We had titles early in that pipeline in concept phase. So I think we put focus again where the ball is and the information we've given this morning, whether it's any changes into that pipeline remains to be seen.
And I heard your -- I mean, the brief presentation here, you will go through a little bit more on the quarter later, but I heard you're talking several times about improvements in cash flow and that you expect the net debt to move from negative SEK15.5 billion this year -- or right now, sorry, to less than SEK10 billion at the end of this fiscal. And can you just elaborate a little bit on why cash conversion should improve? It would be interesting to...
Well, first of all, we have -- we expect to have underlying operational cash flow from the forecast we've given, the business performance we have been expecting. Our mobile businesses generate strong cash flows, tabletop generates strong cash flow. And there is an increased cash flow coming from entertainment and services, including Lord of the Rings and other things. But then the big thing is PC console. Now we made significant big investments in the past years that we are completing. We expect to grow the revenues. That will generate cash flows. Okay. So that is better -- more cash flow than last year, which we all could see was quite weak because of all the investments we've been making.So that is a significant improvement. On top of that, we talked about this morning about initiatives, which is not defined yet and it's not communicated yet, but we're mentioning them. Obviously, there is a wide pallet of things, things that we could control now ourself. CapEx, OpEx, partnerships with one title or several titles with other partners that were supposed to be in a deal that got canceled last night, now have other opportunities. When we have not been able -- we have not been able to do that kind of dialogues until this morning. On top of that, the pallet is, there is other things you can do, which we have not given further color on.
Do you feel confident in that initiatives, although you don't...
Again, I think this morning, you need to humble. But obviously, we had a lot of dialogues around this. So I feel confident in that ambition.
Maybe a tough question, but did you move a similar percent if you look at the revision on your guidance? Is it a similar magnitude on your cash flow versus your expectations, if you understand my question.
Well, it depends on what forecast we're looking at. Up until late last night, we had an amazing cash flow, well above the -- or because of that transaction. So if you compare it to that number, I think that's history now. So it's not that relevant. But also the dynamic of that deal changes also because now we have more things coming through fully in our own books, unless we do other things.
Do you still expect over 100% cash conversion in Asmodee?
Yes.
All right. Thanks for the start of that Q&A. I think it's time to see if we have any questions in the room. So please raise your hand if you would like to ask a question.
Rasmus with Handelsbanken. I wanted to ask you on the structure of Payday 3. Is that going to be your project where you pay out the part to your partner, so it's going to be fully in your numbers on a top line perspective? Or is it any other way where you sort of share take on your part of it?
Payday 3 is our publishing title. So I'm expecting that to be a full revenue into our books, and then we pay out the royalty. Now I'm looking at [ Jenna ] so please correct me if I'm wrong here. That's a normal way how to...
Yes. And the -- you have done one AAA title, which is not your published titles that should come with higher margin. I'm just trying to understand the margin in that.
Yes. Space Marine is not our publishing title. It's by Focus, our friends at Focus Entertainment.
So that will be a higher margin since -- less revenue. Yes, just trying to understand that.
We capture a lot of that economics of that title. But obviously, we don't capture the full revenue on top line.
And then asking you about the 4 undisclosed title, I guess.
Sorry?
The 4 undisclosed title, it's pretty pointless whether it's your own or what type of...
We -- I don't want to provide more color today on that.
Okay. Any other questions in the room? No, I don't think so. So I guess we will see if we have any questions on the telephone conference.
[Operator Instructions] Our first question we have is from the line of [Technical Difficulty].
So just 2 questions from my [Technical Difficulty] reported net debt of SEK16 billion end of Q4, you expect it to come down to SEK10 billion. Can you give some more color here on the bridge, how to reduce net debt to SEK10 billion? And how should we also view the CapEx levels year-over-year for '23-'24?
Marlon, we already provided some color on how we see that cash flow coming through. One is the operational cash flow from the current business. On top of that, in initiatives, OpEx, CapEx, other partners. And then there is other initiatives that are in the toolbox that we have not given color on today that we are able to execute on. I don't know, Johan.
Can you give some color on the CapEx levels for this year?
So the CapEx levels, I mean, obviously, they are dependent on operational investments that are scheduled for the year. And as Lars mentioned earlier, there are always opportunities to look into how much is being spent and when. And further to that, given that now the transformative partnership deal is out, there are always -- there are also opportunities for reducing CapEx by other types of partnerships.
But we are not guiding for the CapEx, but it's a good thing to come back to the market, at least at the Capital Market Day to look at our CapEx. I think we need to do some more specific homework on this.
And also on the major platform, you mentioned a few comments here, but can you give some more color here, what's the reason it did not get signed? Was it related to cost sharing, will you miss something? Or if you can just give some more color here would be great.
Well, it was nothing to the commercial terms. They were already agreed and everything was done, ready to go. And the feedback, there is a strong belief in the deal on both sides. So the decision is external factors from this transaction.
The next question comes from the line of Nick Dempsey from Barclays.
Yes, I've got 3 questions. So first of all, in terms of the midpoint of your guidance range, are you assuming the 4 announced AAA games all land in FY '24? Obviously, across the whole industry, we've seen delays. Or could you have room to achieve that with one of them slipping? Second question, can you talk about issues you might have with retention of talent across the group given where the share price has come down to some of the challenges you've been experiencing. So could some of your video game projects face challenges and delays from losing good people as a result of those things? And the third question, how should we think about your level of debt and your comfort with it? I mean you've talked about wanting to be 1x net debt over adjusted EBIT. Clearly, we're not going to be there for a little while based on your guidance. Should we have concerns about liquidity? Or can you talk us through how comfortable you are with liquidity and also the debt situation that you're in.
Well, that was many questions at one point -- one time, Nick. I can take the mid one and then about retention of key employees. I feel there is a strong commitment from my management teams and the people I talk to, they are committed to the philosophy of Embracer and they believe in our vision. And so I'm not overly concerned that there is impact from the share price in the retention of employees. And obviously the share price pros and cons has also been one consideration why we don't have a share option program across the group that as nice it is to have it when everything goes well and people are in the money because here in Europe and Sweden, people are investing into that program.It's turning the other way around if the share price goes the other way. But we don't have that issue across the group. Obviously, we have a lot of entrepreneurs that sold their amazing companies. They've taken a lot of shares, but now talking about all our employees. Obviously, including myself, I'm not happy about having a low share price. I think it's important for us to use that as one currency to execute your strategy. But on the long term, I think there is a strong confidence that there is a lot of value within Embracer and we are able to deliver cash flow on those values going forward.Now you had questions on the debt. I don't know, Johan, if you have more color than we already shared.
I think we have shared the color on the net debt. And obviously, there is an ambition to -- as pointed out, to reduce it over the year, and there is a finance leverage target already communicated by the Board, where the net debt should equal forward-looking adjusted EBIT. And we are currently above that. And looking ahead, reaching the targets and ambitions for this year will bring us a lot closer to it in terms of liquidity, and there is no bank loans that are due, I think, in June '24, '26. So with improved cash flow from operations, we don't see that there is a liquidity at all.
And the debt to the covenant is not -- obviously, we are well within the covenants. But personally, if you ask me, as a shareholder, I don't like that. I've been very clear on that. Now we've made a decision a while ago with the big acquisitions to put that on the balance sheet. Obviously, it's easy today to retrospective to look at that with the cost of capital and performance. But I think gaming companies, in general, should be cautious with debt, and I think that creates less flexibility. So I think that is a good reason not to have too much debt. And that's why I want to be aggressive to lower the debt. The first question, Nick. Sorry for being a bit tired here this morning. What was that?
My first question was at the midpoint of your adjusted EBIT guidance for FY '24, are you assuming that the 4 AAA games to be released in the year that we know about will all land inside the year?
Well, we've taken the luxury to have a guidance for a reason having a guidance. So if we're just talking midpoint, it's the same. We have been having endless discussions about this. If we're just having a midpoint, then you don't have a guidance, then you should just have one number. So there is a guidance for the reason, and there could be delays and performance and cost inflation. There is the year of outcome. So I don't want to give further color on that. I think it would be speculative. The guidance includes assumptions on delays and performance.
The next question comes from the line of Erik Larsson from SEB.
Two questions on my side. First, just a follow-up on the net debt question. It seems like other initiatives in the toolbox besides CapEx, OpEx and so forth, could be potential divestments. Is that a fair assumption?
For a reason, we didn't provide color on that this morning. I think focusing is right now on things we control ourselves that we can do right now. As you say here, there is many other things in the toolbox. We have a lot of assets, obviously, but it's my clear ambition to keep Embracer as one group with all the synergies. So it will be speculative to start giving color on other initiatives this morning.
Okay. Fair enough. The second and last question. In terms of focusing on efficiency, there was news the other week that PLAION will undergo some restructuring and merge publishing labels and so forth. And you also mentioned PLAION in the report this morning. Could you just elaborate on the size of the external publishing business? And just to get a sense of how much headroom there could be for restructuring, for instance.
I think regarding PLAION, Klemens, will come back to that. That was more an operational restructuring and strategy. It was a very limited number of people affected. But obviously, there is a -- I think it's way too early to give any more color on that. But it's our duty to run an efficient cash flow-generative company. So obviously -- and that needs to be adapted to the strategy and business plans you're having. That was a very diplomatic [Technical Difficulty].
There are no more questions at this time. So I hand the word back to you, Martin, or Lars.
Thank you, operator. I see we have some questions coming in from the web. And I think you're going to start with a question from Tom Singlehurst at Citi. And he's asking, you're reducing the estimated value of your earnout liabilities. Presumably, this a function of the reduced growth outlook? Why are you not impairing goodwill, intangible assets at the same time?
Can give color on that. So fair valuation of earnouts is not the same thing as the impairment of goodwill. So when we test our goodwill, it's conducted for the each cash generative unit, which is equal to 12 operative groups and their performance from here and as a going concern. Obviously, if you compare that with an earnout, an earnout is tested and assessed by agreement acquisition, which is not the same thing as operative groups. Even if you would have a perfect match, there still will be a difference in the testing because when you look at the earn-out agreement, you have other things to consider, such as the underlying measure for the earn-out, the timing involved, if it's limited in time, normally, it is. So when you test the goodwill, you're discounting cash flows from now on forever. So it's 2 different things.
And another question here from Tom was, can you talk about the phasing of returns, cash flow through the course of the 2024 financial year? Presumably, Q1 will see better trends. Or is that not the case?
Free cash flow generation over the year?
Yes.
I think, obviously, we will still have the seasonality that we normally have, which is strong Q3 for tabletop and mobile. Also within tabletop, we know that we are -- we have an excess inventory from September last year that we are winding down. So we expect the first half of this year to be better than normally. And I think that's the seasonality effects and the unwinding of the excess working capital in Asmodee to consider in terms of phasing. And then obviously, timing of releases and when the funds from the releases are collected, which depends on when it's released in the quarter. And if there are any minimum guarantee agreements related to those releases.
Okay. And we have a question from [ Luke ]. He's asking, could you please clarify the current status of the Star Wars: Knights of the Old Republic Remake in regards to its development status and what shape is it in?
Favorite question. I have no further comments.
Okay. So there's no news to share at all in that. Okay. I'll move on to a question from [ Bart ]. Lars, you have several times mentioned other initiatives to reduce that. I think you were touching a little bit upon this at the telco questions, but does that potentially include to sell IP and reduce the portfolio?
Sorry, I didn't follow the question here. On the initiatives, mean...
You mentioned initiatives that you have a big toolbox.
Yes. We have a big toolbox and I will let what could that toolbox be. We've provided, I think, the most important color, which is the things we control ourselves, our own investments, our own operations and our ability to partner up with the industry. I think that is the core focus. Then there is a wide toolbox outside that, that perhaps is not the priority this morning. So I think that is really the answer given that is the absolute key priority. Our IPs are, I think, critical for our success. We are investing into them. They are a long-term investment and they worth a lot of money.
And I noticed that you also mentioned in the report that the Board has proceeded with special review. Can you share any color on the process so far? And...
I think it's been a very interesting and a rigorous process that is still ongoing. That has been a deeper dive in a learning exercise, which we think is valuable. I understand it could be valuable to conclude it one day, but this morning was not that I think the Board concluded.
Okay. We have another question coming from Nick Dempsey. He's asking, do any of your divisional management have loans linked to their holdings in the shares, which could lead them to sell some shares due to the fall in the share price?
I'm not aware myself, but I don't think it's something that -- honestly, I don't have that transparency. I don't think we have that. What I know is personally, I've been under insider for 7 months and so have many others. So...
Okay. I think it's fair to let you talk a little bit about the partnership that you announced a few weeks ago or 2 weeks ago, I think it was with Amazon and Lord of the Rings. What is it? And can you share any color on it?
No, I think Amazon has -- I appreciate that relationship more and more, and we're taking it step by step. And obviously, Lord of the Rings is one of the most, if not the most iconic fantasy IP, there is, and I think there is an amazing potential to create something really, really, really interesting in the future. And I think Amazon has that willingness and capacity to make that huge investment.
Do you have anything to say on the time line or how long it's going to take? Or when does it start or anything?
I think Amazon is one of the few companies that, again, have that knowledge already in capacity doing it. So...
And how did you...
Obviously, in this case, we are a licensor, all communication about that game will be made by them.
Fair. And how did you come to the conclusion to license it out and have the development on their side and instead of any of your portfolio companies?
I think in terms of Lord of the Rings, obviously now, including this, there are 6 announced external partnerships with companies, many of them that we had already when we brought that IP into the group last year. There is also a tremendous opportunity to create a lot of value on the Lord of the Rings IPs across Embracer Group. We have not announced anything in regards to that yet. But obviously, that is something that could be in the pipeline for the future. So -- but it takes time to make the concept and it takes time to -- and again, I will let the publishers, the people, the creators speak about whatever games they're making when they are ready to do that.
We have roughly 5 minutes left of this session. And I want to take the opportunity also to ask you on the guidance on the segments a little bit here. For example, you expect improvements in PC console based on a couple of new games partly. And then you also mentioned low single-digit organic growth in mobile. Can you share some light on why you expect mobile to grow? I think it's a challenging market out there. I know that your company have a little special niche, but it would be interesting to hear your thoughts.
Well, I think we have seen positive signals post quarter end from particular, the ad monetized business and the Easybrain. Obviously, they are, in many ways, an amazing company that are leading the way in that category in the world. And I'm just very confident in their own forecasting. It's proven to be historically very accurate. So I think that is the core of our assumptions here.
And the high single-digit growth in tabletop, that sounds like a good number given the market environment or how should we view that?
I think we will hear more from Stephane and Muge here in a while and I will let them comment on that one when it's time for that.
Okay. Do we have any more questions, any final questions from the telephone conference?
There are no more questions at this time from the telco.
It's time to leave this session and then start with the next session with deep dives and Q4 performance measures. Thank you. Thank you.
Thank you.
Thank you.
So welcome back to the second part of today's presentation. Starting with Q4 highlights. In Q4, net sales grew by 79% to SEK9.4 billion. The organic growth in Q4 amounted to minus 4%, with solid organic growth within PC console, tabletop and entertainment and services, negated by tough comparison and soft market conditions in mobile games segment. A seasonally quiet quarter across all segments and with limited new game releases in the PC console games segment, we generated adjusted EBIT of SEK915 million and free cash flow of minus SEK32 million.The adjusted EBIT was also impacted by a few impairments related to ongoing console game development projects within Amplifier Game Invest and DECA Games amounting to approximately SEK100 million. A revaluation of earn-out commitments resulted in a reduction of SEK2.1 billion in cash earn-outs and SEK14 million in number of shares expected to be issued. For fiscal '22, '23, net sales grew by 121% year-over-year to SEK37.7 billion with organic growth of 2%. We reached an adjusted EBIT of SEK6.4 billion. Compared to our guidance a year ago for fiscal year '22, '23, we estimate approximately 40% of the shortfall in adjusted EBIT is due to pipeline shifts, meaning delays of releases. And 30% is due to weaker ROI in the PC console games segment. And the balance is due to softer gaming market and cost inflation factors.Dambuster and PLAION released Dead Island 2 on April 21, and it's encouraging to see the positive reception from both critics and players. Dead Island 2 sold 1 million units in its first weekend, exceeding management expectations, and I'm happy to state that the game has now reached a sellout of well over 2 million units. It's rewarding to see that the decision to give the studio time to polish the game has paid off. Klemens, CEO of the operating group PLAION, along with a few representatives from Dambuster Studios will join us later in today's presentation. Several additional large body games are expected in fiscal '23, '24, including already announced titles such as Space Marine 2, Remnant 2 and Payday 3.There are still a number of unannounced notable titles awaiting to be announced for fiscal '23, '24. In Q2 '22, '23, we outlined our ambition to close a number of partnership and licensing deals that will be jointly transformative for Embracer. We have already entered into multiple partnership licensing agreements with industry partners on both AAA games and movies based on some of our iconic IPs. Due to delays and without significant transformative partnership deal, we expect to generate SEK7 billion to SEK9 billion in adjusted EBIT with improving cash conversion for fiscal year '23, '24 and a healthy growth outlook in the following years.Now looking at the segments. Embracer operates through 12 operating groups across 4 segments. In Q4, adjusted EBIT was relatively evenly split between PC console, mobile, tabletop with a smaller contribution from entertainment and services. PC and console segment. In the PC console games segment, sales grew 17% organically with an adjusted EBIT margin of 10% in Q4. It was driven by several publishing deals accounted for as the work for higher agreements as well as continued strong back-catalog performance for Coffee Stain's titles, Valheim and Deep Rock Galactic and a number of other strong franchises.The back catalog generated sales of around SEK1.7 billion and was the main driver of sales. The main revenue driver among new releases in the quarter was SpongeBob SquarePants: The Cosmic Shake, developed by internal studio Purple Lamp Studios and published by THQ Nordic. The game received solid review scores from critics and strong customer review scores across all platforms. The game has, however, initially performed below management expectations but is expected to have a long tail of revenue. And if you remember, well during pandemic, we released the previous SpongeBob that has done phenomenally well for the group and continue to do so.Other notable releases in the quarter was Scars Above, developed by internal studio Mad Head Games and published by PLAION. The reception for plays and critics was mixed and the performance in Q was below management expectations. Delays have led to a limited number of large budget games releases and a temporary underabsorption of fixed cost in fiscal '22, '23 impacting margins. The profitability in Q4 is also impacted by amortization of games development, costs for titles released with lower-than-expected ROI earlier in the financial year, including the Saints Row reboot. Further, the adjusted EBIT margin is also affected by impairment of ongoing game development projects in Amplifier Games Invest amounting to SEK34 million.Several additional large budget games are expected in fiscal '23, '24. We have already talked a lot about that, so I'm skipping that information further. Investments in pipeline, the PC console games segment continues to make considerable investments in game development. In total, about SEK1.6 billion were invested in game development during the quarter. The finalized value of completed and released games during the quarter was SEK501 million, driven by Scars Above SpongeBob as well as a number of smaller and midsized title. In total, we had 221 ongoing game development projects as of Q4, of which 56 were announced.Looking at the ROI chart. As of Q4, we had an average ROI on our game releases of around 2.5x, a slight increase from the third quarter despite 2 new releases that have performed below management expectations. The average remains weighted down by the notable release of Saints Row in August '22, which had a development budget [ alone ] above $100 million. Other notable title Dead Island 2 developed by internal studio Deep Silver Dambuster was released after the quarter on April 21 by PLAION and Deep Silver.Johan, did I miss anything on the ROI chart because you are normally doing that one.
I think you handled it very well.
Okay. But then I'm leaving that chart. And moving over to mobile games. So looking at the mobile games segment. Net sales in the quarter for mobile games amounted to about SEK1.3 billion, a decrease by 25% compared to the same period last year or by 36% organically and 36% by pro forma. The mobile games segment saw seasonally lower activity in ad prices in Q4 as well as more contained growth investments in recent periods. In the comparable period in Q4 '21, '22, Easybrain received a notable income from an ad mediation platform deal. Excluding that effect, the organic growth of minus 24%, adjusted EBIT amounted to SEK324 million, yielding a 25% adjusted EBIT margin.User acquisition costs amounted to SEK555 million or 42% of net sales compared to 51% last year. Easybrain and DECA, including CrazyLabs, have optimized user acquisition investments due to low visibility with regards to returns, leading to solid profit margin in the quarter despite negative organic growth. The adjusted EBIT margin is impacted by the impairment of an ongoing game project in DECA Games amounting to SEK57 million. Excluding the effect of last year's notable income from an ad mediation platform deal of SEK282 million, adjusted EBIT grew with 53% in the quarter from SEK212 million to SEK324 million. The strongest back catalog titles in the quarter were BlockuDoku, Sudoku.com, Jigsaw, Puzzles, Art Puzzles and Nonogram.com.Underlying market trends remained soft, but largely stable compared to the previous quarter. Some positive signals with regards to ad monetization have started to appear with revenue behavior and advertising prices exceeding expectations late in the quarter. In the end of Q4, Easybrain crossed the threshold of 1.5 billion downloads. The volume of accumulated downloads comes from a diverse range of Easybrain titles. And CrazyLabs recently passed 6 billion downloads with a running rate of 1 billion to 1.2 billion downloads per year. We have some of the leading mobile games companies in the world and expect them to show continued profitable growth in the years ahead.Right. So for Tabletop games, I'm very happy to introduce Asmodee's CEO, Stephane; and CFO, Muge.
Thank you, Lars. Good morning, everyone. I'll start today with an overview of some of the main business highlights for Asmodee before handing over to Muge to cover the financials in more detail.In a seasonally quiet quarter, our segment, Tabletop segment delivered SEK3.1 billion in net sales at an 8% EBIT margin. This was in the context of a tabletop market which showed moderate full year growth after good Q4 market sellout, mainly driven by strategic TCGs. On work cap and cash, I'm happy to report that we've delivered on our inventory projections, and we have generated significant free cash flow in the second half of the fiscal year.Now then moving to business side. We continued this quarter with a steady flow of new releases, and we have a very strong pipeline for the coming 12 months. In particular, we were delighted to announce in collaboration with Lucasfilm, the upcoming release of Star Wars: Unlimited, an all new trading card game that will be launched globally in 2024. Also, in transmedia developments, Netflix France recently announced their upcoming movie release of The Werewolves of Millers Hollow, which is a film based on Asmodee's pop culture board game phenomenon. This announcement is one of numerous active project we have in development around Asmodee IP towards movie, script and also unscripted shows.We also continue to make good progress on synergies, and I'm very happy about that with the other embracing operating units. We currently have 25 projects underway, and this includes board games, video games, comics and other consumer products. We are always proud to receive recognition from the industry and 3 of our recent releases, Challengers, [indiscernible] have received highly regarded industry awards over the past 3 months. Also, the creativity and quality of our games and studio has been further recognized this week through a never seen before slate of [indiscernible] nomination with Asmodee games being nominated in all 3 categories and our unlocked range being awarded a special prize from the jury in recognition for innovation and quality.Before I'm handing over to Muge, I just want to say that after a productive first year for Asmodee within the Embracer Group and family, I'm very much looking forward to a promising '23, '24.Muge, over to you now.
Thank you, Stephane. Hi, everyone. You might recall the seasonality of Asmodee. In this seasonally quiet quarter, Q4 net sales of SEK3.1 billion were up 6% versus last year pro forma with growth largely driven by PCGs. Gross margin was stable for the quarter year-on-year as impacts from a negative product mix were offset by higher volume. Operating costs for the quarter increased year-on-year, mainly driven by inflation and rollover impacts of equipment. This resulted in Q4 adjusted EBIT of SEK250 million, 18% below the same quarter last year. It's, however, worth noting here that the impact of inflation driven by fixed cost increases on year-on-year percentage comparisons is magnified by the proportionally lower adjusted EBIT contribution of Q4.For the full year, net sales of SEK13.1 billion were up 2% versus pro forma last year. The trend in full year reflects the pattern just described for Q4, with growth driven by TCGs. This offset performance on games, which were down in a softer market. And after, if you recall, 2 consecutive record years, nevertheless, remaining above pre-COVID levels. The positive volume effect on -- of top line growth is offset by the product mix impact from the increased contribution of TCGs negatively impacting our gross margin percentage. Once again, we saw significant inflationary pressures on our cost base for the full year, with inflation running at an average of 8% in markets where we operate. We have put in place actions to mitigate these impacts, limiting the increase in operating costs to 5% year-on-year. This resulted in full year adjusted EBIT of SEK2 billion, just within the guidance provided at the time of our acquisition, but obviously in a very different context to what was considered at that time.Moving on to the next slide now on inventory and cash. First, a very brief reminder once again, what we said in Q2 before we look at how we closed the year. If you recall, in Q2, we emphasized the seasonality of our working capital cycle and explained that our inventory was impacted by numerous temporary effects amounting to around SEK760 million. Finally, we showed the historic seasonality in free cash flow generation with most cash generation occurring in H2. Our expectation at the end of Q2 was that we would see the unwinding of seasonal and temporary effects over the next 12 months. We also mentioned our expectation of strong H2 cash generation despite a partial phasing to next year linked to the unwinding of the temporary effect in inventory.Now that we are at the end of the financial year, we are happy to say that we have delivered on our projections. Inventory continued to decrease in Q4 and closed in line with our internal forecast prepared at Q2. The decrease from September amounted to over SEK600 million with coverage reducing by around 21 days. The inventory reduction, combined with a focus on working capital management, resulted in very strong free cash flow generation of SEK1.6 billion over H2. This compares to around SEK550 million of free cash consumption in H1. The H2 free cash flow represents around 140% conversion of adjusted EBIT for the same period.To finish off, looking ahead to the coming financial year, we expect a continued strong focus on working capital management and the unwinding of remaining temporary effects in inventory to deliver a cash conversion in 23', '24 of over 100% of adjusted EBIT.Well, I guess, that's all from Asmodee, handing back now to Lars.
Thank you so much, Muge and Stephane. Let's move over to entertainment and services.So net sales in the quarter for entertainment and services amounted to close to SEK1.5 billion, an increase by 83% compared to the same period last year or 20% organically and 8% pro forma in constant currency. The increase in net sales was primarily driven by the acquisitions of Limited Run Games and Dark Horse Media. The organic and pro forma growth was primarily driven by PLAION Publishing division with a back catalog contribution from 2 notable releases from partners in previous quarter as well as notable new releases in Q4.The future is perhaps even more exciting than present and the past with the additions of companies such as Dark Horse, Limited Run Games and Middle Earth Enterprises and our transmedia strategy.A quick update on the Lord of the Rings. There are currently 5 titles in production with third-party licensed partners that will be released during the next 24 months. In the quarter, Middle Earth Enterprises and New Line Cinema and Warner Bros. Pictures concluded a multiyear agreement to collaborate on feature films based on The Lord of the Rings and The Hobbit. Additionally, Middle Earth Enterprises and Amazon Games announced a new open world MMO adventure based on The Lord of the Rings and The Hobbit.Change in slide, now, last slide before I'm handing over to you, Johan. Just looking at the market. So the market last year became weaker than we were expecting early in the year with estimated 5% decrease to $183 billion in 2022. The market research institutes expects the market to grow by 3% looking into this year to reach $189 billion, driven not least by the console games market. The longer-term growth prospects remains strong with Newzoo expecting a 6% CAGR between 2019 and 2025. The tabletop games market has proven resilient and has seen solid growth in January to March 2023 with 10% year-over-year growth and positive growth every month. Johan?
Thank you, Lars. Yes. So if we zoom out for a bit and look at the full year development over time, we note that net sales for this year reached SEK38 billion, and we continue to grow our business also from a profitability perspective, where adjusted EBIT has increased to SEK6.4 billion. And if you look at our adjusted EPS, we see an increase during the year from SEK3.5 per share to SEK4.06.The investments that we make into the business, obviously, also shows in the more operational-oriented KPIs. So at the end of this year, we have more than 16,500 people engaged. They are working in 138 internal studios. And in terms of ongoing game development, we have 221 projects ongoing within the PC/Console segment.If you look at our P&L, sales amounted to SEK9.3 billion in the quarter, up 79% over last year, mainly driven by acquisitions, especially Asmodee, Dark Horse, also Crystal Dynamics, Eidos. And there is a positive effect from a weaker Swedish krona versus dollar and euro. The organic growth and pro forma growth for the quarter was minus 4% and minus 5%, respectively. Looking at the full year, the organic growth is plus 2%.On a segment level, we can say that generally, all segments were impacted by a softer market environment in the quarter. Looking at PC/Console, it includes the successful release of Valheim on console and also work for higher or co-publishing agreements signed during the period. Fewer releases and mixed reception on released titles impacted sales in the segment negatively.Looking at the Mobile Games segment, we have tough comparisons in last year, where we had the ad mediation platform deal. And if that is excluded, it reduces the gap, but still organic growth is negative 24%.As Muge and Stephane just commented on, Asmodee delivered well during the quarter with 6% pro forma growth over last year.Looking at our adjusted EBIT, it's a seasonally quieter quarter without any larger releases. So EBIT amounted to SEK915 million with a 10% EBIT margin. As we have also alluded to earlier, within PC/Console, the lower margin that we see in the period of 10% is explained by under-absorption of fixed costs. Also there, including amortizations in relation to sales for less successful titles, SEK40 million in -- approximately SEK40 million in write-offs for canceled projects is also included.Within the Mobile segment, we reached an EBIT margin of 25%. We continue to see high margins in the segment as we adapt the user acquisition spending to the new ROI environment. And if we exclude the ad mediation platform from last year, EBIT in Mobile Games grew with approximately 50%.Looking at adjusted earnings per share. It was SEK0.35 after full dilution in the quarter compared to SEK0.76, same period last year. It's a reduction of 54%. And if we adjust for exchange gains and losses in both periods, the reduction is 26%, and it's mainly due to the lower adjusted EBIT, higher share count, but also increased interest expenses.Gross volumes increased slightly in the quarter due to segment mix shift, but also mitigated by a higher degree of publishing titles in PC/Console. Total marketing spend in relation to sales remained at 10% in the quarter. User acquisition costs are lower in relative terms and absolute terms. If you look at marketing spend within or outside the Mobile segment, it is still on a relatively high level, contains support for titles released in the quarter and also for upcoming releases.Operating expenses increased, driven by increased headcount, inflationary pressure and an increased share of co-publishing co-development contracts recognized as present or completion.We also provide some additional information here on EBITDA and CapEx per segment. And it's interesting to note the differences between the -- between our different segments. We can see that, for example, within PC/Console, the share of investments on CapEx is relatively high compared to the other segments. And obviously, that is due to the investments that we make into our ongoing games portfolio. Looking at Mobile Games, it's basically nothing in relation to -- or in an absolute number or in relation to EBITDA generated. It's also a lot lower for Tabletop, but we should, then from a cash flow perspective, bear in mind that working capital is of greater importance relatively than for cash flow generation in Tabletop and Mobile Games.Looking at the cash flow. We generated a free cash flow after working capital of minus SEK32 million in the quarter. This is weaker than expected. And it's mainly due to the postponement of the transformative partnership deal. Even if we exclude the deal, cash flow is a bit lower than what we expected. And the reason for that is less positive effect from changes in working capital, although working capital contributed with SEK360 million in the quarter. And the reason for changes in working capital coming in lower than what we expected is that we have a higher degree of supplier payments later in the year and also that there was a co-publishing and co-development agreement signed late in the quarter. And we are happy to see the continued unwinding and cash flow generation from Asmodee. The M&A outflow in the period mainly relates to legacy Asmodee bolt-on payments.For this fiscal year, we will focus on cash flow generation as we talked about earlier. And if we look ahead, we expect to be at SEK10 billion net debt at the end of the fiscal year. We measure covenants at the end of this year by 31st of March, we have significant headroom to the covenants in our loan agreements. Available funds in -- at the time of this report or today is approximately SEK5.2 billion.
Thank you, Johan. I would like to have the pleasure to welcome Linda from Eidos-Montreal; and Emma Ihre, Head of Sustainability up on stage. So please feel welcome. Nice meeting you.
Thank you very much, Lars. My name is Emma Ihre, and I'm Head of Sustainability at Embracer Group, working together with Karin Edner Karlsson and the rest of the great team at Embracer. The goal of our sustainability work is to take our responsibility in the gaming and entertainment industry and in society to be part of the solution instead of the problem and by thinking and acting broader, more long term, we find business opportunities and manage our risks even better. And we use different tools to make sure we act in accordance with our values and to create the most value to our stakeholders. Our employee survey help our leaders to support employees in their professional development and to ensure good working conditions. And I will not go into details about our employee survey or the results, but we have a high response rate. And our overall scores are on a stable high level and we have room for improvement like most companies in the world.So today, the focus is great people, the first pillar in our sustainability framework, which is part of our business strategy. And I would like to hand over to Linda, Communication Director at Eidos-Montreal. I won't pronounce your family name because my French isn't good enough. And I noticed that Lars didn't do it either, so we leave that to you. Linda has 20 years of experience in video game industry and has been with Eidos-Montreal for 8 years. And she will walk us through a few activities Eidos has implemented to make the studio even more sustainable workplace. Please, Linda.
Thank you, Emma. So starting with a quick note on our studio. We are known for working on the Deus Ex and Thief series. Our latest release was Marvel's Guardians of the Galaxy in partnership with Marvel games. We are part of the Crystal Dynamics Eros Operating Group and have joined Embracer Group a year ago. Eidos-Montreal was created in 2007. And today, we have approximately 500 talents working on several unannounced project.We're based in Montreal, it is an attractive place for video game development with more than 19,000 talents and famous IPs being created in town for more than 20 years now. A few years ago, the numbers of studio grew fast, but the number of talents in town wasn't increasing at the same pace. Recruitment teams were putting a lot of effort on hiring just to maintain the number of employees we needed to deliver our games. We started seeing a trend of people coming in and staying only a few months or year then leave. We realized we needed to adapt to this new reality and make sure to put some strategies and efforts to change this trajectory.We first started to revamp our office and creating a space that fosters creativity, collaboration and performance. It worked for 6 months before the pandemic hit. We then decided to establish a plan that focuses on 3 fundamental pillars: work-life balance, employee well-being, and career development. We firmly believe and still believe that these key areas are essential in creating a healthy, fulfilling and sustainable work environment.In the first part of our plan, we placed significant importance on work-life balance, first, by letting talents choose where they believe is the best place to work in order to better perform. Will it be at home for focused time or in the office for more socialization and collaboration? In addition to the hybrid model, we have our time management policy that goes from flexible hours to the 4-day work week to generous vacation. Last, we provide talents with resources to a holistic approach to well-being. With these 3 points, we are providing tools for our team to tailor their approach to their needs and better perform. We trust them in making the right choices to optimize their potential.Our second pillar is well-being: health care assistance, access to a doctor through an online platform, but also support for mental health. Physical health are offering options to relax or be active. We also believe that well-being is contributing to our community by either volunteering or participating in fundraising activities.The last part here is the career development. We established 2 senior path: people or technical. Not every senior staff is interested in being a manager and their technical skills should be recognized. So we introduced a principal level, which is a leading expert in its field. We also carefully assess skills development needs and identify rare competencies and are able to create tailored programs for entire teams and provide training through an online platform, but also support financially talents going back to school or partner with a school to create a certified program for video game [indiscernible], for instance. We introduced recently communities of practices at Eidos, which is a community of employees in your field who share knowledge and more. So by investing in continuous learning and development, we aim to enhance employees' capabilities, promote careers and growth and align individual and organizational goals.So a recent survey gave Eidos-Montreal a net promoter score of 32, which is great, to the question, how likely is it that you would recommend your company to a friend? So these 3 pillars of sustainable development have a positive impact on employee satisfaction and engagement and contribute to organizational components such as improved employee well-being, reduced turnover and absenteeism, increased talent acquisition and a high level of [indiscernible].This is it for me. Thank you for your time and your attention.
Okay. Thank you very much, Linda, for great presentation and even more for the great work you are doing. And I know you had got a couple of awards for your work. So you're really a role model, not just within the group but also for other companies. Thank you very much.
Thank you very much, Emma, and Linda. Okay. So if you look at the fair valuation of earn-outs at the year-end, we already received a question on this earlier in the Q&A. So I will keep this short. But I think interesting to notice the differences that we can see how this revaluation is treated in IFRS versus our adjusted metrics, adjusted EBIT. And in IFRS, there is a positive P&L impact of SEK2.4 billion. From this revaluation in our adjusted EBIT and adjusted EPS calculations, there is no P&L impact.Interesting to see also that the cash consideration part of the earnout is reduced with SEK2.1 billion due to the revaluation and that we expect that the number of shares that's needed to be issued in order to settle future earnout obligations has been reduced with 14 million shares.Continuing into the APMs that we provide, we believe that in order to measure the underlying performance of Embracer, it's fruitful for us to provide the APMs of adjusted EBIT, adjusted EBITDA and adjusted EPS. And here, you can see the bridge, which is also available in the quarterly report of the differences. And to keep it short, for the full year, the main differences and the larger differences is the add-back of earnout costs that are recorded under IFRS. Due to that, there are conditions of employment in the share purchase agreement. We believe that this should be considered as part of the purchase price and not expense over the P&L. Further, the other large part of the adjustment is the add-back of acquisition-related amortizations.I think this slide, also keeping it short here, is important. If you look at the adjustments being made to our P&L on the left-hand side, it's also important to note that when you look at Embracer, you need to consider these adjustments on the right-hand side or on the liability side in terms of measuring the amount of earnouts to be settled in cash that we estimate, which is SEK8.6 billion in total as per the end of March. It's also prudent to calculate with full dilution when you calculate the adjusted EPS, taking into account that there is either shares that has already been issued under clawback or shares to be issued in the future depending on the reaching of operational and financial targets.
Thank you, Johan. I would like to have the pleasure to welcome another dear colleague of us, Klemens Kundratitz, CEO of PLAION Group.
Thank you, Lars, for the invitation. I gladly stand here again. PLAION Group was the first major acquisition of Embracer more than 5 years ago, we were Koch Media back then. And I must say it's been an amazing time, and it still is. It has been a time of major growth. And the promise that was given, we will unlock potential for the business, was fully kept. We were -- at PLAION, we were a big benefiter of the ecosystem of the Embracer Group, and we have delivered consistently, growth and profitability.When you just look at the time line and a few milestones within those 5 years, there have been major AAA launches, there has been major success with, for example, Kingdom Come: Deliverance with Metro Exodus. And obviously, now with a little bit later to speak about Dead Island, but there has also been a lot of really groundbreaking acquisitions, and we have added very accomplished entrepreneurs and their businesses to the group. And again, we're able to leverage the power of Embracer and build the business. So it's been a phase of 5 years of building and building the business and unleashing our real potential. When I talk about our business, we are engaged, as most of you will know, in PC console games, in VR games, in film business and in also game merchandise. And when we just look at game -- PC console games, we benefit from a diverse range of functions. We are not only developing with our own studios or also with partner studios, we are also co-publishing, we are partner-publishing, we are obviously publishing all our own content ourselves and use our global publishing infrastructure also for films, for game merchandise. So it is very much an ecosystem of digital entertainment. And it's -- I must say that collaboration with large publishing partners like Activision or Sega or Square Enix, on the partner publishing side, Bethesda, Capcom, GIANTS Software. We have a lot of very long-term relationships. That also helps us in keeping very close our ears to the ground, to the market, seeing market developments and seizing opportunities as we see them.Another great addition and example of unleashing potential is Milestone, it has been a company which has gone from strength to strength, especially since the last 2 years when Hot Wheels Unleashed was added to the portfolio, and it has propelled the company to new heights. It's been -- it's an example of how you make -- create value by being specialized, being focused on one thing, being racing games, developing, having one tech which services a number of games, having -- developing strong brands and leveraging the global publishing infrastructure of the parent company PLAION.Another example of an expert within the PLAION Group is Vertigo Games, where we also see a lot of growth potential. I mean, they have proven in the past to be able to establish their own IPs successfully. After The Fall and the Arizona Sunshine are one of the top regarded games in the VR space. But then the space has a lot of growth potential because of the commitment of first parties, especially Meta and Playstation, but also there are Chinese players coming along and offering us opportunities as one of the leading software developers in the world.Another area which we are developing within the PLAION Group is, again, merchandise. We talk about transmedia all the time and one of the sort of very practical parts of that is adding another segment, which is close to players' hearts. When players enjoy their games, they also want to wear the apparel. They want to have the statuettes. They have -- buy collectors' editions. And this is what this company is great about. And what we unleash there as potential is scaling from a purely U.S.-based company to a global business. So there is lot of opportunities going forward with our partners.On the film side, the film business is with us since over 20 years now, and it has gone from strength to strength. They are a European-based business. They are very strong as a digital consolidator and also dealing with a lot of digital content for other film companies, but they're also strong in the physical space of launching physical business for Sony and Paramount and Canal+ in various territories in Europe. And we are also very proud that we, again, have an Oscar-winning game in our portfolio. The Whale has won 2 Oscars in February, starring Brendan Fraser being the -- receiving the Best Actor award. And it just shows that we have a very quality-driven, very good eye for the market, and we will continue to build that film business alongside the games.When we just look at the -- and I'm not going to go into much financial data, but I think it's just worth having a look at this. Being in the entertainment business, growing is one observation here, but we have been consistently growing over the last 5 years, and we have grown in all of these sectors. We have -- it is the -- the lower part PLAION Publishing is the -- our own publishing activities, but then there is also the partner business is very solid and it's actually growing over the last 3 years, every single year. And then there is a great opportunity in VR and merchandising going forward.But another occasion that brings us -- brings me here is the launch of Dead Island 2. And I must say, personally speaking, it's a great victory, I should say, because I came along with Dead Island when we joined Embracer 5.5 years ago. And it was not always clear what it means. And what we did, though, is we stuck to a very important principle, don't compromise just -- and don't worry about people talking about how dead something is, just do the right things for the game and deliver a great game at the end. And that's what we did. And I'm super proud about Dambuster and our publishing teams, global brand and marketing team, publishing around the world, what we delivered. So I brought 2 of my colleagues here on screen, and this is David Stenton, Game Director from the game studio, and it is Nicolo Testi, Global Brand Manager from -- for Dead Island. And I'll let you talk about the Dead Island experience.
Thank you, Klemens. Good morning, everyone, and welcome to the sneak peek into the Dead Island 2 recent history. My name is Nicola Testi. I'm the Senior Global Brand Manager for the Dead Island series, and I'm here with David Stenton, Game Director for Dead Island 2, at Embracer Studios.We'll briefly take you through the challenging and rewarding journey that we embarked in bringing back from slumber, Dead Island 2. So starting with this slide, as you can see, it's been a great success Dead Island from its debut, starting with this groundbreaking trailer, still between the most appreciated of all time and resulting in up to 18 million copies sold to date with a massive fan base, eager to jump in a potential sequel, a sequel that we wanted to bring home at any cost. We are wakening this sleeping giant that was dormant since 10 years.To accomplish that, we had to face different challenges, both from a brand and studio perspective. On the brand side, the first challenge was related to the existence of Dead Island 2 before the Dambusters one. It was announced in [ 2014 ] with a clear identity and a content promise, we went on preorders, had a trailer and gameplay shared across platforms. That game existed in [ players lines ].As a second one, Dead Island, as a zombie IP, was facing an incredible competition across the market. Zombie titles of high pedigree we're popping everywhere from Last of US to Dying Light. After all these years, Dead Island 2 had also the [indiscernible], a dormant project without a safe net.Now next slide to David.
Thank you. So yes, within the studio at Dambuster, we also encountered several challenges. First of all, just the weight of expectation after so many years was immense where we, as a studio, taking on a poisoned chalice, could players ever be satisfied after all this time. Secondly, if you cast your minds back to Dead Island 1, it was really lightning in a bottle back in 2011 that offered a player fantasy in a form that few other games had attempted at that time. And all these years later, many of the games have built out on these foundations quite considerably. So we really had to think ourselves, what would be our entry point. And lastly, action RPGs can be hugely complex and the game was already well overdue for fans. So where would we choose to put our focus? And would it be what players expected after all this time?
So after you know now what were the challenges, those were the responses. On the branded marketing side, we pushed for a brand neutrality compared to our competitors. We went for modern pulp, a fresh take, mixing action with humor and style, but also put on the spotlight our slayers, so in being the hero as a player and not a scared survivor and [ drive ] into the madness. We decided to market the game without veil, we pushed gameplay as announced and kept it consistent across the campaign. We established the premise and our identity immediately because we wanted to be different from others on the IPs.We also focused on promoting our key selling points, the fantastic location [indiscernible] the incredible [indiscernible] for campaigns. Last but not least, we stepped up our game on assets. We involved the best creative studios in the market to assist us in elevating the series to a top AAA campaign in a very cinematic fashion.
So some of the solutions on the Dambuster side. First of all, we took a long hard look at the key pillars that have made Dead Island so unique. And we really pledged to put these at the heart of Dead Island 2 and enhance them. So those pillars are Dead Island being known for its [ powered ice gone to hell ] setting, and LA provided a really excellent location for us there. Secondly, virtual combat, our main gameplay pillar, keeping zombies at the core of Dead island. And finally, we wanted to evolve Dead Island to demonstrate really brash and confident [ port ] tone. So those were establishing our key pillars.Second, we really wanted to laser focus on our passion, and that was to be the best-in-class of virtual up close and personal combat and develop the bleeding edge tech to deliver on that promise. And our flesh system really forms the beating bloody hearts of that ambition. Thirdly, issuing the trends of sometimes favoring quantity and breadth over quality, we were super disciplined to focus our feature sets on the feel of the kill, an incredible journey through L.A. and our survivor to zombie slayer [ player mark ].And finally, we really pledged to deliver a game that was technically robust. It looks incredibly lush and it runs super smooth. Our players aren't left hanging around for future patches to get the game into a shippable state.
So after this premise and the overview of our strategic approach, this is the outcome of our efforts. So a great press response with tons of positive quotes and quite a lot of blood-related fans apparently. The game clicked on many levels with press and helped us reassure players of the quality of the journey ahead.On a player's perspective, we received thousands and thousands of overwhelmingly positive comments, a quite rare wave of love that started since day 1 and helped us steal the final rush. Press promoted the solidity of the offer, praising the revolution and gruesome gore system, the addictive gameplay and technical [indiscernible] quite a challenging feat to pull off in these days. Players also gathered around Dambuster and supported the work done in being through to the original and so fun, despite all the odds.So then the tangible results, as you -- as we previously discovered, Dead Island 2 sold 1 million units in its first 3 days and now we're sitting at 2 million units sold after the first month on the market. It's Deep Silver's biggest launch ever, both in terms of revenue and units, ahead even of the first Dead Island. Opening weekend sales nearly doubled the ones of Metro Exodus, a fantastic game and an IP that has recently seen its player count pass 10 million.Now on the next slide, some stats to give you a little bit more of our commitment on our players on L.A. So it's definitely not very crucial stats, but very fun to read. We had 5 billion zombies killed, clearly close to the world population. For the gore fans up there, slayers shot 10 billion bodies, Dambuster stack at its finest. And surprisingly, we got 170 million players dead. So a bit more than the Black Plague confirming that Los Angeles is still a quite challenging place to survive.Then on to our final slide. This is not the end of the journey for Dead Island 2. We have currently planned a year of content support and 2 exciting store expansions on the horizon. With this renewed trust and enthusiasm that Dead Island IP is fully back in shape, players are excited for adventures and we are getting ready to build the future of the Dead Island series.That's all for us. Thanks, everyone. And spotlight back to you, Klemens.
Thanks very much, guys. I am -- certainly, that game was a great way to kick off our fiscal year, and we will continue to develop it over the next year. So this is going to be like Metro Exodus and like also other big games, this is a long success story.But I would also like to just finish with a couple of slides about the business. And because we spoke about the -- our challenges that we have with -- in the marketplace and some games are not performing to their expectation. I can only say at this point, we are -- in order to run a profitable, sustainable business every single year like you have seen there in the chart, constant changes are on the agenda. We are constantly recalibrating our strategies. And we just recently announced also to our internal teams that we are simplifying our organization. We streamlined our portfolio of products. And so this is not like, my god, a restructuring, but it is just something that happens in healthy organizations all the time that you constantly adapt and change. And that's what we are doing by just being fit for the future.We basically adopted 3 principles. Focused is the first principle, streamlined portfolio, more focus on bigger AAA games and big projects and films and merchandising. Secondly, better execution is part of the new mantra for PLAION Group and where we are all -- we all know what to do in that regard. Executional excellence is what is required from our markets and investors and stakeholders. And thirdly, together, we are here to embrace opportunities to work together. And that accounts to not only our group, inside PLAION, but also to the -- to Embracer's in general. And when I look at our current year and the years ahead, I can only say I'm very confident. I'm very confident about our ability to deliver continued growth, continued profitability. And we are in a robust health, and we have great studios that all operate on own IPs or Embracer IPs, some licensed products as well. We have a great publishing organization, which we can utilize for our games, for partner games for Embracer. So we are there for anybody that can join.And we are also -- have always seen the opportunity to not only be a good player within the orchestra of Embracer, but to be a player that can integrate and find synergies within the Embracer Group. So just an example, we are in a relationship with many of our -- more than half of the peer -- operating groups, we have ongoing projects. We have -- we are porting games. We are sharing tech. We are licensing game IPs. We are publishing other people's products, distributing physical. So we can do a lot more, and we will do a lot more. And I think that is also part of, I think, the task that we have ahead of us to add value, to create value that is still untapped within the Embracer Group.So in closing, I can say the future will be marked not only by further growth, it will be -- but also increased and smart collaboration within PLAION, but also within the Embracer Group and our partners -- business partners and a more successful leverage of our IPs, global publishing power and transmedia capabilities. So we are ready to take the next step here. Thanks very much.
Thank you, Klemens. And I think that concludes today's presentation. So thank you so much for listening in.Martin, I imagine you have a few question remaining, and we can take a few of them.
Okay. Thank you, and welcome back to the final Q&A session. I think we'll keep this brief. We're running a little bit over time. But I think we should start off where Klemens ended with Dead Island 2, the release. What were you most satisfied with?
Well, I was very satisfied to see, first of all, the players receptions, the critics receptions and then the performance, the commercial performance of the title. And I feel very confident of that franchise going forward and what that game alone and the future content will bring. So that's a really good start of this financial year and shows promise for the future. And it's a great relief that I know this has been questioned by the financial market and by everyone when Koch Media joined 5 years ago with Klemens. Now we have seen a fantastic return of investment, and this is just the beginning.
And how early do you go in with expansions -- content expansion?
Well, I will let the studio talk when they're ready to talk about that.
What's the average in a certain game like this?
Obviously, you normally, in big titles, have a content plan for the upcoming year, half year depending on title, but that could be ongoing for many years. In this case, I will let the studio talk when they are ready.
And there were a lot of presentations here, and I think I had a question also on the presentation about sustainability with Emma. And she mentioned that you're doing this overall employee score surveys. What can you say about -- she didn't tell the result, but what can you say about...
I think we saw a bit of that result. It's one of the most important KPIs and valuation and controlling functions we have that is nonfinancial. All employees are able to take part of it. They could leave their own comments. So we could really see each and every workplace. How many workplaces was it this year, you want?
Well, I don't dare to say but I know that the input material gathered is massive and, of course, a very interesting -- an important tool for to get the temperature of what is good and what can be improved. And it's a direct feedback up to Embracer Group.
But it's important to us to follow up on each workplace with the operating units, with the studios, if there is issues because as all groups, there is some issues could be relating to a specific topic. And then we have a plan to deal with that. And so I think from that perspective, it's -- but in general, what I'm hearing, and I'm not an expert, our scores in average are very well. But again, there is always room for improvement.
And on your quarterly deep dive here in Q4, maybe we shouldn't go through it all here, but I noticed, Johan, that you mentioned that the working capital swing, the positive swing was lower than you expected, partly on degree of supply payments. Is that something that could unwind in the near term going forward? Or how should we view that?
It's -- I mean we are -- working capital management has been a high focus for everyone, and it's only going to increase. Obviously, it also depends on the underlying activity in terms of the amount of purchases that you have and -- but -- so I wouldn't say that it's something that will unwind, but I think it is further -- it adds further to the target we have for this year to improve our free cash flow for the year. I'm glad to see that it was a positive effect on working capital in the quarter, but expect next year to continue that trend for the full year.
Is it fair to assume that the improvement in cash flow is also -- part of that is also with a positive working capital swing?
Yes. I mean, for Asmodee, we know and expect that there will be a positive working capital contribution in '23, '24 as they unwind their current excess inventory levels. But just payables and receivables measured at one point in time, it's volatile, and can change.
Okay. Thank you. Before we close this, I have to check the telephone conference if we have any more questions on the telephone.
[Operator Instructions] Our first question comes from the line of Nick Dempsey from Barclays.
I just had a question on the net debt guidance. I just -- I'm not sure I'm clear based on your answer to a couple of other questions, whether we can only get down to the less than SEK10 billion net debt, if there are some disposals or whether, on the same basis as all of our models, i.e., with no disposals, it is possible to get there.
Well, again, there is a number of things in the toolbox and disposals, as I say, is obviously one of those things in the toolbox. Now the priority is to work on the operational cash flow and to work on the CapEx and OpEx. And on top of that, we will work with industry partners for many of our very big titles that potentially will have a significant impact on the cash flows.
But if we're trying to model a number that doesn't include any change to the portfolio as it currently is, should we be aiming above SEK10 billion?
Well, Nick, I don't know, you obviously being an analyst here, and it's your due to the models. We have been discussing this in deep and depth and we feel confident to hit this ambition. So -- but in the respect of all stakeholders involved in the actions of achieving this, we'd rather talk when those actions are made to provide more color.
There are no more questions at this time from the telco. So I hand the word back to you.
Okay. Thank you, operator. I think it's time to wrap it up here. Any final word that you want to say to investors, owners and analysts out there?
Well, again, I think today has been a humbling morning and it's been a rough night. And I would thank everyone for being a long-term supporter of Embracer. I know a lot of people put a lot of trust in myself. I fail of winning the battle of last night, but I'm confident to win the battles of tomorrow. So with that said, we will hopefully get back to work here soon after this investor session.
Okay. Thank you. That's all.