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Modern Times Group MTG AB
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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the MTG Q1 Results 2019 Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, on Thursday, the 9th of May 2019.I would now like to hand the conference over to MTG President and CEO, Jørgen Lindemann, who is joined by MTG's CFO, Maria Redin. Please begin. The floor is yours.
Thank you, operator, and good morning, everyone. This is MTG's first-ever results since the split from NENT, which was completed successfully in late March. A lot of work went into making the split, then the NENT listing happened. We're really pleased that both companies are now well positioned to take advantage of the great opportunities they face in their own markets, and we believe that both offer a clear and compelling equity story for investors. Now before moving on MTG, we have now also completed the sale of Nova, the last of our [ EGOP ] broadcasting businesses, with the deal closing finally in early April. The sale of Nova allows us to go forward, focusing purely on our 2 vertical business segments, esports and gaming. It also provides us with around SEK 1.8 billion of cash to pursue acquisitions, implementing the strategy we set out at our Capital Market Day in March.For the first quarter, our results are in line with what we communicated at the Capital Market Day. Reported net sales were up 3.9% to SEK 967 million. Adjusted EBITDA was SEK 25 million, and the adjusted EBITDA margin was 2.5%. Sales on an organic basis were down 1.7% year-on-year and up from Q4 2018. I will go into more detail about each vertical shortly. But in summary, in Q1, we saw esports return to growth, following our strategic refocus in the middle of last year, with net sales up 9.6% on an organic basis. And we also saw the revenue and margin trends in gaming going up from the end of last year.Overall, we believe that we are off to an encouraging start as a standalone company focused solely on esports and gaming. The split and the sale of Nova are behind us. We have a clear growth strategy in place, including through acquisitions. And we see the performance improvement starting to come through in both esports and gaming. So our focus is now all about execution. At Capital Market Day, we talked about what we were doing to address the different issues that our operating business were facing, and we currently feel in good shape to deliver our ambitions for the full year.We then turn to Slide #3 and looking at our esports. Reported net sales is -- in Q1, increased by 15.7% to SEK 336 million. On an organic basis, growth was 9.6%. The growth in the first quarter was driven by 17% increase in the revenue generated by our owned and operated properties to SEK 244 million. This was despite there have been 2 fewer market properties this year than there were in Q1 2018. This is only partly countered by our having 8 Challenger events in the quarter, 4 more than last year.Our 2-year sales market of IEM Katowice this time around were our biggest and best yet. Over 10 days, ESL welcomed 175,000 visitors and more than 500 hours of live content was streamed in 21 languages. The peak online audience was 1.2 million concurrent viewers. And over the whole 10 days, there were accumulated 230 million unique daily viewers. The main tournament featured Counter-Strike, but we also put on 4 more games, including Fortnite for the first time, which by itself attracted a peak online audience of 300,000 concurrent viewers. So we're getting the eyeballs. We are starting to see the first signs of some remonetization of those eyeballs.The highlight in the quarter for DreamHack was the e-FIFA league. We had launched the eSuperliga in Denmark in Q4. And early this year, we added eAllsvenskan in Sweden, both in partnership with Discovery Networks. These e-leagues run in parallel to the local football leagues, and of course this means they will be seasonal. They attracted great viewership, in some cases, higher than the actual football broadcast. These leagues demonstrate that esports can be delivered successfully as a mainstream media cover. Last year, we refocused our esports business towards the owned and operated properties, and this was the main growth driver in the first quarter. And we also saw growth in esports services year-on-year with sales up SEK 10 million to SEK 91 million. We're updating our ESL, while we are focusing on the quality business where we had good, long-term relationship with major publishers. So ESL should continue to provide some profitable growth.esports adjusted EBITDA loss of SEK 50 million was broadly flat year-on-year, but the revenue growth meant that our margin improved from minus 16.2% to minus 14.8%. Top line growth remains our priority in esports, and owned and operated is a scalable business so that this revenue stream grows, we expect margins to improve.If I can ask you to turn to Slide #4 and we look at the gaming, reported net sales in Q1 increased by 4.6% to SEK 604 million. On an organic basis, this was a decline of 1.2% but up on Q4 last year. This positive trend was mainly due to better Kongregate sales towards the end of the quarter or by after restarts. Mobile sales grew 15% to SEK 312 million, which was 52% of the total net sales of the gaming vertical. More than 90% of Kongregate's revenue is from mobile.InnoGames had a solid quarter with good mobile growth offsetting lower browsing revenue, although the catch browser games all performed well. Our biggest game, Forge of Empires, generated more than half its revenue from mobile for the first time, and Elvenar mobile revenues were also strong. Warlords' performance remained somewhat weak. However, new features are being developed to address this. And as these gain traction with players in the second half, we can ramp up marketing and grow player numbers and monetization. InnoGames successfully soft-launched a new mobile MMO game, God Kings, in the first quarter, and we have seen good initial KPIs. InnoGames is now building on this very encouraging start. They have a good pipeline of content in place and plan to scale up marketing over the coming months. We talked in Q4 and the Capital Market Day about Kongregate refocusing marketing and development resources on a smaller number of existing games with high-growth potential. The effect of this started to come through towards the end of the first quarter with most of Kongregate's top games exiting the quarter with faster growth rates.The Kongregate turnaround is the main reason for the quarter-on-quarter improvement on our active user numbers. After 3 quarters of sequential decline, both daily and monthly active users were higher than in Q4 last year. For the gaming vertical as a whole, we reported 2.9 million DAU and 12.7 million MAU. Average revenue per daily active users in the quarter of SEK 2.6 was up versus post the same quarter in 2018 as well as Q4. Organic growth of 5% was due to a higher proportion of paying customers within Kongregate user base and higher advertising revenue as well as our DAU growth in InnoGames. There were no significant change in either the geographical splits of the net sales or in the proportion of our revenue generated by our 3 titles, which is around 75%. Adjusted EBITDA in the gaming vertical was SEK 127 million, and the margin was 21%. The shift of revenue towards mobile reduces gross margin, as you know, because we have to pay 30% to the app stores. But so far, the implemented growth and lower mobile install cost mitigate the impact on the gross margin of these payments. Well, as I said at the start, we are seeing improving sales growth and margin trends in the gaming vertical, and we exited the first quarter with some good momentum. That concludes my comments. So I'll now hand the call over to Maria to take you through the numbers in more detail.
Thank you, Jørgen, and good morning, everyone. If you then turn to Slide 6. Let's start with the revenues and the adjusted EBITDA. Net sales in the first quarter of SEK 967 million were SEK 36 million higher than last year with the 5.6% positive FX impact more than offsetting the negative 1.7% organic decline. As Jørgen mentioned, esports and gaming both reported higher revenues in Q1. Together, the 2 verticals achieved sales of SEK 73 million, higher than in Q1 last year. This was, however, partially offset by an adverse movement of SEK 37 million in our other operations, principally Zoomin, which reported sales down 52% to SEK 27 million. A major revenue recovery and cost reduction initiative is underway in Zoomin, and we are also exploring other strategic options. So you should not expect this level of losses to continue for the rest of the year.Adjusted EBITDA in the quarter was SEK 25 million, which was SEK 17 million higher than Q1 last year. However, SEK 14 million of this was attributable to the adoption of IFRS 16. Excluding that change, adjusted EBITDA in Q1 was flat versus last year, as we indicated in the Capital Markets Day, with a margin of 1.1% versus 0.9% in Q1 last year.If you then turn to Slide 7 where we look at the rest of the income statement in a bit more detail. Within adjusted EBITDA, our central operation costs in the quarter were SEK 39 million, in line with the post-split run rate we implied at the Capital Markets Day.There were 2 adjustments to the EBITDA in the quarter. The first of these was the one-off cost of the split, SEK 54 million. We've got [indiscernible] previously and has been reported as an item affecting comparability. The second was a charge for the cost of the long-term incentive program, which was SEK 25 million in the quarter. There were no M&A costs in Q1 and no impairments of previously capitalized games development cost. So the [indiscernible] adjustment was SEK 79 million with EBITDA before adjustment of minus SEK 54 million. Depreciation and amortization was SEK 72 million and included purchase price amortizations of SEK 31 million. D&A, excluding PPA, was SEK 80 million higher than Q1 last year with almost all of this accounted for by the change in hybrid that I already mentioned.Group EBIT of minus SEK 126 million was SEK 47 million lower than Q1 last year. But if we exclude the SEK 64 million one-off cost of the split, EBIT was broadly flat compared to Q1 2018. Financial items were minus SEK 12 million in the quarter, and there was a tax charge of SEK 11 million. The net loss from continuing operation was SEK 150 million or SEK 2.71 per share. In the quarter, both NENT and Nova were treated as discontinued operations. Net income from discontinued operation accounted to SEK 13.6 billion and is mainly due to the accounting treatment of the split. We had to book a capital gain for the difference between NENT's market value and its book value when the split took effect for the corresponding reduction in our balance sheet. So it is a mere technicality. Turning to Slide 8 and the cash flow and the balance sheet. CapEx in the quarter was SEK 37 million, considerably lower than in Q1 last year and closer to the sort of quarterly run rate we should expect for the rest of the year. Most of our CapEx in the gaming vertical where we capitalize game development cost until the game goes live. Thereafter, all the costs are expensed and the pre-loss CapEx starts to get depreciated. Last year, in Q1, we were still capitalizing the development cost of Warlords where own development now is OpEx. We invested SEK 52 million in our VC fund, comprising of 4 new investments and 1 follow-on investment. And we have now in total invested over USD 20 million into the VC Fund out of the USD 30 million target that we have indicated. All of the fund's investments carry costs on the balance sheet.Capital from continuing operations was an outflow of SEK 103 million, which includes SEK 87 million of working capital outflows. Almost half of this outflow was a one-off tax prepayment associated with NENT and part of this will reverse later on in the year. Working capital in the quarter also increased the frozen sales in mobile games especially in the end of the quarter. We ended the quarter with a net cash of SEK 349 million. At the end of the quarter, we have now received the Nova proceeds of approximately SEK 1.8 billion and a SEK 1 billion credit facility that was previously in place have left. That concludes my comments. So thank you, and I will now hand back to Jørgen.
Thank you, Maria. So as I said at the start, I think we have made an encouraging start to the year in both our core verticals. Esports growing, the drivers are owned and operated properties, and these getting bigger and better and drawing in the eyeballs. And most important of all, these viewers are attracting sponsors and media as well as new publishers. Still a lot of work to be done in shaping the different revenue streams. And I would just repeat what we said at the Capital Market Day that the esports sales growth in 2019 will be second half loaded.Gaming, we are happy with the development in Kongregate, with player numbers and sales going the right direction again. InnoGames remains really a solid performer. Sports is going well in mobile, and the classic browser games are still delivering sales. Warlords is fundamentally a strong game, and we are working hard to see it get back on track, and the first indication are that God Kings could be another winner. But the gaming numbers are getting back on track. So in all, we are therefore confident in restating our full year ambition of mid-teens organic growth and an adjusted EBITDA margin in the mid-single digit before the impact of IFRS 16. As we said before, we will make some further progress in Q2, but our performance improvement this year is going to be substantially weighted to the second half.That concludes our commentary on the results. So over to you now then, operator, to start the Q&A session please.
[Operator Instructions] Your first question now comes from the line of Predrag Savinovic.
This is Predrag from Nordea here. So with the 15% organic growth target and along with the Q1 performance today, I guess you should be -- we should expect considerable growth now in Q2 and especially within owned and operated. How confident are you with these numbers and this guidance?
Yes. I think as we have said, well, when it comes to particularly esports, it is weighted towards the second half. That is where we will see higher growth. We would expect -- I think the owned and operated, we would like to see improve, of course, all the quarters. That is just a focus area that we're having. So what you should expect is to see a good growth, of course, in esports in the second half.
All right. And we saw Activision Blizzard reporting last week, stating that the -- they're starting a new league for the Call of Duty franchise. How do you think this could affect you guys in terms of competition? And also a follow-up there on probably within ESS. Which publishers, big ones, do you -- would you argue are up for grabs for you to sort of do white labeling work for?
Yes. But I think what we have said on the ESS services that we are selecting and working with publishers on long-term partnerships instead of these ad hoc jobs that we had historically. That is what we have turned to. So more long term and more long-term revenue as well with these publishers when it comes to the ESS product.And there will be a lot of competition out there. There is a lot of competition. I think obviously what we are having, as we have said all along is that we have very strong products. We have very strong events, as I said earlier as well, look at the Katowice event which was massive. So that is our focus, of course, but it is a super-exciting business and super-exciting market, of course. So you will see a lot of people trying their luck in esports as well. We have been there for many years now, and you have seen growth. I think we have top of the revenue in the esports business since we teamed up with the ESL guys and [ Liga ] guys in 2015. So we have a strong presence already today. But competition, you will always face. So it's about being relevant.
All right. And looking into statistics from news and SuperData, which a lot of people refer to, and the income split between sponsorship, ticket sales, media rights, et cetera, can you give us some flavor here on your split, what you have?
Yes. I think that the publishers, particularly also when it comes to sponsorship, is the main driver. As we have said earlier, well, the media rights obviously will come. I have referred as well to our e-leagues, which actually in many areas have higher ratings. They have higher viewing than the actual football leagues, which is quite interesting, of course. So there, we have a job when it comes to the media rights to gather data and to make sure that we can create a currency there. So it is easier to sell because over the old media partners that they would like to buy esports if they can deliver and they can document the eyeballs.That is the journey we're on right now. That is something we have done with sponsorship where we are much better in articulating the value of the sponsorship. That's also why you see a lot of money gaming sponsors being on-boarded. And that is, of course, because they see the value of the eyeballs. And that is the journey now we have towards 2020 as well when it comes to the media rights where we are getting much better in articulating actually the outcome and the ratings and the shares and so forth of the different events. And it is very encouraging obviously what we are seeing. And also, as I mentioned around Katowice, to have 1.3 million concurrent viewers is quite cool actually, I must say.
And a follow-up on that one. On the media rights, how are discussions progressing? What kind of obstacles are there? I mean, surely, you must get more propositions now that we see, call it, traditional sports declining, even Super Bowl declining, which is not really the case usually. Is it a fair assumption that you get more propositions? And then where is -- what are the obstacles really for you to really get descent deals out of this?
The obstacle is, of course, that we need to be much better in gathering data around the different events that we're having. We need to be more sophisticated. And also, the measurement system around esports, as such, might not be as sophisticated. As you know, the measurement systems are today around, as we stand, the TV and so forth when you have the TV medial panels. But this is an ongoing process which we have worked on for quite some time. We see Nielsen as well is inclined to make sure to get the currency established. But it is a lot of work that we have to do to make sure that we can demonstrate that there's good value in investing into esports and then, at the same time, make sure that we get the price for the eyeballs as well.So that is -- again, that is the long-term journey here. It is not done in Q2 or Q3. It is a longer thing where we need obviously to replace other sports. You might have conflicting schedules when you have the sports on your sports channels, on your free TV channels, whatever. So therefore, you need to say goodbye to something as the media partner eventually to take our products on board. What we have seen around Katowice is you have Wiley broadcasting live, you have TV 2 Denmark broadcasting, you have Denmark's radio public service broadcast taking the Fortnite feed and so forth, just to mention the Nordic ones and, of course, you have all the global ones. So it becomes more mainstream. But there is definitely some way to go, and we have said that all along. The sponsorship is much more sophisticated there than the media rights we are working on.
Super. Just one final one. On Zoomin, what is your plan here going forward? Is there any rationale to keep this? Or could you potentially find a buyer for this asset?
Yes. I think the plan is, of course, to change strategy. I saw this morning as well that Disney has had the same issues, of course, with Maker that we have faced with Zoomin as well, that this multi-platform networks are not that strong and not that relevant when you look at it right now. So we have made a transformation in Zoomin, and we have directed Zoomin towards the millennial, Gen Zs production business. We have a range of media journalists around the globe actually producing a lot of stories every day, which we think can sell to a range of media partners. But that is not our focus area. So it is wrong of us to deploy capital in that area. And therefore, yes, we could definitely -- we would like to find a new home for the company, it goes without saying, and to make sure that somebody else can make a journey. We are truly focused on the esports journey and the mobile gaming journey.
Your next question comes from the line of Mathias Lundberg from SEB.
I have just a couple of short questions. First off, numbers, as you reported, was fairly in line with the guidance. But looking at organic performance, it was slightly behind expectation. Does this deviation stem from that you expected higher growth in the esports vertical or that you expected a faster recovery in gaming?
It was the gaming. That's the base that we saw the recovery towards the end of the quarter and, of course, we would have liked to see that turn around earlier in the quarter.
Okay. And looking at the owned and operated properties, I read in the report that it is expected to have the same amount in Q2 and Q3 as in last year, 4 properties. But when I look in the graph, it says 5. Should I interpret that as 4? Or that is actually 1 property from DreamHack also in Q2 2018?
Yes, that's correct. There's 1 also for DreamHack, so it's 5 in total.
Okay. And do you have any recommendations on how we should think about modeling restructuring going forward this year?
Do you mean restructuring as for a different reorganization in the business?
Yes, that's correct, or for long-term incentive programs. Should we keep that in mind in our modeling that we should expect the restructuring charges?
Yes. I think the way to look at it, if you see the LTI cost that we had in Q1, it's a good indicator for the run rate for the quarters to come. We launched a new program in ESL, which we also flagged at the Capital Markets Day, which is only 4 segments. And then for restructuring, we will have, as I stated in my comments as well, a smaller one in Zoomin because we need to reset the cost base there. So there would be a smaller charge in Q2, but there's no other restructuring currently in the planning.
Okay. Great. I should have rephrased it as a nonrecurring item perhaps.
Your next question comes from the line of Rasmus Engberg from SHB.
I just wanted to build on some earlier questions. Do you know -- you anticipate that there will be some organic growth in the second quarter, I assume? Or is that correct?
Yes, of course.
Yes. So would you care to give any sort of indication? Are we getting towards double digits? Or are we saving a lot of the growth for the second half of the year?
No. I think you should expect that mass of the growth will come second half of the year, which we've said all along.
Yes. And in terms of adjusted EBITDA, you gave an outlook for this quarter saying it would be roughly flattish. Now you don't say anything. How should we sort of interpret that?
I think that I mean you should look at the full year outlook, which we raised the rate. I mean we don't want to go into isolated quarter-by-quarter outlook. But in order to deliver then the full year outlook, I mean we should, of course, improve every quarter going forward.
And then on the -- on potentially exiting Zoomin, would that cost you money net-net from here? You need to do some restructuring. I don't -- I can't really see how you would get any payment for it. Is that sort of incorrect? Or how should we think about that? Is it a liability or an asset here?
Well, I think we are having -- it depends on how we want to reset the revenue stream. We're working on it. And until we decide the cost base, right, we will take the cost in Q2. But then there is a business plan that we believe we're building on and it's just to Jørgen's point of what is baked into the new entity, which is both in esports and gaming. So we would like to find now the home for it and see it as an asset for that company to buy it.
But I seem to recall you already wrote down the balance sheet values. Is that correct?
Yes. I mean all the good ones has been written down. There are some intangible assets still related, I'm assuming, on the balance sheet.
And on the management incentives, did I understand it correctly that the new program you're launching, if it gets voted through, I guess, we should say at the AGM, that, that doesn't have materially different costs than the current program? Is that correct?
No. Exactly, that's correct.
Your next question comes from the line of Tom Singlehurst from Citi.
It's Tom here from Citigroup. Three sort of a bit all over the place, so I apologize. Firstly, Masters and sort of Challenger events. I mean obviously, Masters down -- last year down due to timing, so I understand that. But just a brief comment, if you can, on whether there is an emphasis on sort of growing the Challenger base faster than the Masters base just because that -- the reason I ask is that, that makes sort of the growth less driven by sort of the big tentpole events involved by what's happening sort of perhaps under the radar.Secondly, in the release, you talked about some, I think, early interest in Fortnite events. I was wondering whether you could give some more color on this. And then finally, obviously Emily stepped back at Kongregate. I was wondering whether you could give a bit more detail on sort of what happened there and the sort of transition of management and whether that disrupted the turnaround that's ongoing at Kongregate.
Yes. The last point on -- I'd just begin with that on Emily. Emily, she seem to want to pursue building games again and wanted to have quit and use the hub, which she discussed with us. And as we also wrote, we would be happy to invest together with her. We find her extremely talented. And therefore, we have made a search for a successor. We have very strong internal people as well, and they are running the company right now until that we have found the permanent solution as a new CEO for Kongregate. As we also mentioned, we're very happy with the change in performance of Kongregate. And also, that is something of course that Emily has been driving as well.Then when it comes to the Master and the Challenger event, I think, if I understood you right, the line was not so good, but it is the Masters, of course, driving the large amount of revenue. That goes without saying that it is those big events which are the ones generating most public, most sponsors and so forth. So they are important. At the same time, of course, the Challenger event, as we have said, and the open tournaments as well, are very important for us, and we are going to have quite a lot also here in Q2. But the Masters are the ones which are driving -- which are the big drivers of operating revenue. And then the second question, I simply couldn't hear. Did you get it?
I do apologize. Yes. So you answered the first one perfectly. The second one was on Fortnite events. You said those would be sort of early interest events. I was just wondering whether you can give more -- some more color on this because there is a degree of sort of skepticism about whether those sort of Battle Royale games can work in an equal setting.
Yes. I think what we have shown as well also with some of the other games in the genre is that the deck can easily work, and that has very strong traction. So Fortnite was a fantastic success for Fortnite and for us. In Katowice, as I said as well, there was a lot of interest. We had the best players in the world attending. It was very interesting. And we had a lot of takers as well on the product, amongst other publishers, TV and so forth, which were broadcasting live in the studios and everything. So I think that was a very good start. And of course, the discussions are now how to enhance that, how to do even more. So we are very happy, and it was a very good showcase also for the audience at the Katowice event. Of course, they're also very interested in Fortnite [ Master ]. All the other games we had there with, of course, with Counter-Strike and StarCraft and so forth. So that was a good start.
Your next question comes from the line of Oscar Erixon from Carnegie.
I have a few questions on the gaming segment. First of all, the active user figures improved sequentially. Would you say that it is primarily related to a better performance for browser game and Kongregate towards the end of the quarter?
I mean the active users in the quarter is primarily due to Com Hem. That's the improvement we saw at the end of the quarter, which is of course then gave a promising start on Q2. And it's mobile on Com.
Great. And can you talk a little bit about the launch of God Kings as well. What metrics are promising and how do these compare to the launch of, for example, Warlords?
Yes. I mean if you look at God Kings, then it's just up on this year. So we have not put very much marketing behind it, but we are then monitoring the KPIs. And I mean it's a huge -- we will sort of use the metric when you look at the sort of first 30 days, 60 days metrics when it comes to both activation and monetization. And it looks very promising, which means that we will gradually but very slowly ramp up marketing and see then how it responds when you ramp up marketing. So the first start is very promising.
Great. And regarding Warlords, which has, yes, I guess performed a little bit worse than you expected, are you doing something to improve the performance? Or are you focusing more on other titles?
No. I think that we still believe long term in Warlords, which means that we have a road map on the development side which we are working on. That means that we have certain milestones. And as we then see the KPIs on those milestones improve, we will ramp up marketing again. The way we look at it right now, you should not expect any significant marketing ramp-up, which means also any significant player ramp-up until the second half of the year.
Perfect. And the final question from me on Forge of Empires. Compared to Q1, how does the pipeline for content updates look for Forge of Empires now looking into between the quarters Q2 and second half of the year?
What happened in 2019 is actually -- it's a quite equal phasing between each quarter on both content updates and events, which is a little bit different to last year when it was very much skewed towards Q1 and Q3. And that's also why you see top counts -- or top accounts, put it that way, in Q1 and Q3 versus Q2 and Q4. So even though that the sort of events and the content launches are equally phased, I mean, here, your comps will look a little bit different in Q2 and Q4 versus Q1, Q3. But it's equally phased in 2019.
Your next question comes from the line of Mikael Laséen from Carnegie.
I have a couple of questions. The first one is regarding your strategy, the Build-and-Buy strategy, as a separate company now without NENT. Can you say something about the acquisitions that you have in the pipeline? And your financial resources for acquisitions, what is the plan? What's the ambition here?
Yes. Yes, we have a very interesting pipeline always we build up over some time now. So those are the companies that we are speaking to right now, and we track the performance of the company. We discuss with the management team. We understand that we can add value to the companies. So that is, of course, the discussions we are having. After the sale of Bulgaria, obviously we have SEK 1.8 billion in proceeds now as well, which is firepower for acquisitions.So we are actually very well set up to execute on some of the ideas that we're having. Important to understand, as we have said earlier as well, is that we have set out a range of criteria for those acquisitions. And that is, of course, what we're monitoring, that those companies can deliver those. Take the example of InnoGames, which has a very strong performance, have multiple games launches and so it's not just dependent on one game as such. So a criteria like that is something that we are looking at and, of course, strong management teams. And last but not least, as I said, that we can contribute as well to the success of the company. So we are well set to execute on the buy strategy.
Okay. Great. And what type of, I mean, size are we looking at in terms of revenues or if you can say something about the targets?
Yes. I think what we have set out as well is always the company needs to be somewhat meaningful, otherwise we have the VC investments to take care of those if it is smaller ones. But it is the size, we're looking at $30 million, $40 million valuation or 2, whatever. I think InnoGames was EUR 260 million. And I think important as well for us is that we would like the founders to participate going forward, just like InnoGames, where we have a very strong partner; just like ESL, where we have the founders participating as well. So the check size, you will see us execute on this in the range of, whatever, USD 30 million, USD 40 million, USD 50 million up to, whatever, USD 200 million and USD 250 million, something like that.
Okay. Good. And the final one regarding central costs and the CapEx, if you can say something about the coming quarters.
The cost in the quarter, the EBITDA impact was sort of SEK 9 million negative from central costs, and I mean that is a little bit lower than of course the run rate. It will ramp up a little bit, but it is in line with the run rate we will have going forward. I mean we said SEK 180 million at the CMD. And if you look at CapEx, I mean it was higher last year because we had a one-off payment to Warlords, a fine investment. So the run rate we're having now, SEK 37 million is about the same run rate you should expect, plus/minus going forward.
Your next question comes from the line of Martin Arnell from DNB Markets.
So my question is, firstly, I have a question on esports and these number of events. Could you just remind us how many events Master and Challenger there are in Q2 versus Q2 last year?
Yes. Yes, it's the same actually. So you will have around 5 of the Masters and around, I think, it's 29 or 30 of the Challengers. And you will have around 5 of open events. So I think that is how it looks like.
Okay. So it's similar to last year. And when we look at this, I understand your guidance of earnings being a bit tilted to the second half. But is it fair to assume that you will improve EBITDA in esports Q2 versus Q1?
We usually expect that the biggest impact or improvement will be in the second half of the year. I mean that's the way to look at it.
Okay. So we shouldn't expect any material improvement into any tournament?
No, that's correct. It will be probably small, but nothing material.
Okay. And in the game business, you mentioned this timing of upgrades, and seems to be a lot of focus on new games. But is it still fair to assume stable EBITDA margin for InnoGames this year despite this focus on driving new game volume?
Yes. I would say -- so remember what I said with God Kings, there's not much marketing really right now back with that new game. It's about rather making sure that we gradually ramp up it. So the focus is, of course, monetizing our live games, which we do very nicely. And Forge of Empires had a very nice growth still, and mobile is now the biggest growth driver in Forge. And so you should not expect the margin declining there.
Okay, perfect. And then final questions. Just on the working capital buildup, do you think that Q1 is a fair run rate for the remaining quarters? Or...
I mean if you take off the one-off item that we had, which basically resided with the old legacy structure, then you'd see -- you can argue that it's a pretty fair run rate because half of the SEK 87 million was a one-off sort of tax prepayment that we did.
Okay, great. And just finally, on impairments in gaming, how should we look at that? Is it even possible for us to have an assumption on those?
Our assumption is that we'll build games that we put live and monetize very nicely. So we would not like to see impairments either, but it is a part of the nature of the business. At some point in time, you will do an impairment, that goes without saying. But I mean we have 3 games in the pipeline of InnoGames. We would love to see them go live, all of them. So it's very difficult to give any guidance there, to be honest.
Your next question comes from the line of Predrag Savinovic from Nordea.
Just a couple of follow-ups from my end. It's Predrag of Nordea again. Could you say something on the split between Kongregate and InnoGames in percentage terms and revenues?
We have not given out the exact data. I mean the bigger part is by far InnoGames. So that is the bigger animal. And then Kongregate accounts for a smaller part of the sale. And I mean when we bought them, they had roughly $50 million turnover.
All right. And with Forge predominantly growing faster on mobile, I think you said earlier, than on browser, what is the margin differential for you guys here considering you have a bit higher fees on mobile transactions? Could that imply a bit lesser margins ahead? Or how should we think about that one?
No. As you can see, I mean also compared to Q4, we're growing margins even though that we have mobile accounting for the vast majority of the group. So I think that you see different scaling of the mobile revenue. But you're right that you're going to have a 30% sort of after fee, but you get that back on a scaling effect on your cost of install and support. So right now we are actually successfully transitioning into mobile. And we -- the way we look at it going forward, we'll continue to do that. And also if you go back, as we also said at the Capital Markets Day, I mean, year-over-year, I mean even since acquiring InnoGames, we've actually been able to grow the EBITDA margin, which is quite nice. And even though it has been transitioning every year, an increase in the parts of mobile revenue and the parts of those sales.
All right. And one follow-up again on media rights. I mean considering viewers are used to consume esports for free, what kind of equation can you do here to -- I mean maybe you have to put some content by the paywall to get rid of the media rights fees kicking in? I mean how should we think of this? What is the strategy here?
Think of it as distributed on, let's just take the companies we know, on Wiley or TV 2 or whatever, then it is a record for free to the viewers, meaning that is part of TV 2 or whatever, it's part of the TV packages or whatever. The same goes for the e-league, it's part of Discovery Networks. So if you have whatever Com Hem package, then buy up that package for sure, then you will be able to watch that.We do have subscription esports products as well where we have ESEA, where you are subscribing to play, but that is a different animal than just watching because there, you are engaged yourself. So that is, of course, something we're looking at how to make sure that we can create interesting products so you can make a subscription model as well. But right now, most of the content which we are distributing goes on Facebook, goes on the big OTT platforms around the world, goes on telco platforms as well and then, of course, goes on the energy we broadcast as well, which you see. So that is, to a large extent, free for consumers.
Speakers, there are currently no further questions in the queue. Please continue.
Yes. So thank you all for your time today and for your continued interest in MTG. Hope to see you all at our AGM the 21st of May. Thank you very much. Have a good day.
Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for participating. You may all now disconnect. Speakers, please stand by.