Welcome to Embracer Press Conference on occasion of this morning's press release. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now we'll hand the conference over to CEO Lars Wingefors. Please go ahead.
Thank you, Einar, and welcome everyone to this morning's press conference or conference. I'm very pleased today to announce the divestments of certain assets within Saber Interactive, which makes us to cease all operations in Russia. The divestments of selected assets are done with a purchase price of SEK 247 ,000,000, which includes an assumed earnout liability of SEK 44 ,000,000. The buyer is a company controlled by Matthew Karch, which is the co-CEO founder of Saber Interactive and a major shareholder of Embracer through his entity Beacon Interactive. Looking at why we are making this transaction and the strategic rationale for it, it reduces our geopolitical risk that has been a major issue for us the past years. We increase our focus around the retained key projects, development projects, key IPs, and key studios that will remain within Embracer.
The transaction reduces our CapEx, OpEx, and the business risk relating to the overall PC console games pipeline. I have to say it's a win-win solution for both parties, safeguarding many, many developer jobs. Because the cash flow is immediately improved, it yields additional headroom to amortize debts, which improves financial flexibility. This is an important step in our journey to transform Embracer into the future. Looking at the key components of the transaction. Again, the purchase price of SEK 247 ,000,000, which is made up of a promissory note of SEK 203 ,000,000, whereof $65 ,000,000 will be paid up until September and the balance latest end of December 2024. The purchase price also consists of the absorb earnout debt obligations of $44 ,000,000. Then we have agreed additional consideration of up to $94 ,000,000 if Matt would resell the business to certain conditions, and certain time period.
We have also given Matt the option right to acquire 4A Games and Zen Studios within a limited time period. Worth highlighting that the booked value is including the earnout liabilities $112 ,000,000, and the option price is significantly higher than that. Also important to highlight that the license of Metro game series, the back catalog, any current games, and all the royalties, are within PLAION, or some of the royalties go to 4A, but the absolute majority of the economic upside of Metro remains within Embracer regardless of this option is exercised or not. Looking at the financials. The net sales representing of the divested assets represents 4% of the overall net sales of the group, and it represents 1% of the adjusted EBIT last year, or SEK 47 ,000,000.
The EBITDA minus Capex is over the last 12 months, SEK 1,156,000,000 in the divested assets compared to SEK 200 ,000,000, a positive SEK 204 ,000,000 in the retained assets. Looking at the Capex number, it was over SEK 1,400,000,000 in the divested assets and about SEK 400 ,000,000 in the retained assets. All in all, there is about 3,000 people leaving Embracer in the divested assets, and 800 people remains. The financial impact of the transaction. So net debt is reduced by around SEK 2,100,000,000 upon full payment of the promissory note, and cash earnout obligations will be reduced by SEK 500 ,000,000. Most importantly, or very importantly, Capex will be reduced by around SEK 1,200,000,000 at the annualized run rates. This includes the current, or the agreed ongoing projects that we would have with the buyer.
This means that we will be reaching the target of SEK 5 ,000,000,000 in annualized CapEx next financial year, starting April. But very important, even with these divestments, we are expecting a growth CapEx compared to the completion value of the releases we had the last 12 months. That's over SEK 3,200,000,000 of the released games, including the divested games coming from the divested assets. And now we are looking at the forecast to complete the completed games in next financial year. We see a significant growth post-transaction. At closing, the transaction is expected to create a non-cash net expense of approximately SEK 6 ,000,000,000, or representing approximately 9% of our equity on the pro forma adjusted basis end of December. The absolute chunk of that non-cash net expense is driven out of the goodwill that were generated by the acquisitions of Saber Interactive 2020.
That is the absolute majority of it. We are mentioning this in the press release today that we believe that the connection the geopolitical issues relating to Saber Interactive have significantly affected the realized value of that goodwill in this transaction. Also worth highlighting or mentioning that remaining goodwill of the retained companies is SEK 6,190,000,000 , which I, I feel very strongly about, which is Tripwire, Aspyr, 4A Games, Tuxedo Labs, and Demiurge. So looking at the, the studios. We are retaining many very important companies. 34BigThings in Italy. Aspyr in Texas. Beamdog in Canada. Demiurge in the USA. Shiver in the US. Snapshot in Bulgaria. Tripwire in the US. Tuxedo Labs in Malmö, Sweden. And 4A Games and Zen Studio s, however, they being under the option with the buyer. And looking at the retained projects. It's including two notable joint projects with the buyer.
If you look at the full list of the retained projects, we see the next AAA games from 4A Games. We see also an unannounced AAA games that are early in concept phase and not being yet in full development. We see a previously announced AAA game based on a very major license. We see a new AAA multiplayer shooter based on a controlled IP that is in full development since some time. We see a new AAA game based on an Asmodee IP. We see a new AAA game from 34BigThings based on a bit controversial and iconic IP that we own. We see Killing Floor 3 from Tripwire. We see continued development of the very successful Teardown game made in Malmö Tuxedo Labs.
On top of that, we see the full upcoming pipeline and back catalog from Zen Studios , Aspyr and Tripwire. Worth highlighting, for example, from Aspyr, I was very pleased last night to see that the new Star Wars Battlefront Classic they are releasing today seemed to be well received by critics and on Steam. So with that said, I would like to hand back to Einar for Q&A questions.
Thank you, Lars. The first question comes from the line of Erik Larsson. Please go ahead. Your line is open.
Thank you, and good morning. So my first question is on these Saber assets that are remaining part of Embracer. We know some of these upcoming releases and franchises that you just mentioned, but how would you describe them in general?
Are the earnings we saw in 2023 driven by catalog? What are the growth prospects going forward and so on? It would be helpful to get some color there.
Well, obviously, we are retaining a good pipeline of games that I highly believe will continue to perform. For example, looking at Aspyr, I think they just recently had a successful release of Tomb Raider, the Tomb Raider first games. Today, they have Star Wars. They have a very interesting pipeline for the future that plays to their own strength. Looking at Tripwire, they are in the end of their development on Killing Floor 3, a very competent, sizable development team alongside with a very strong publishing team.
Tuxedo Labs obviously also had a good success bringing Teardown, sorry, to consoles, end of last year. Zen Studios, I think, one of the leading companies in the field of pinball games in the world. They have also a very interesting strategy for the future that they will continue capturing that market. So, you know, in general, I feel very confident about the assets we are keeping. Okay. And then my second and final question is just, yeah, wondering if you, I guess, keep your ambition of getting down the net debt to SEK 8 ,000,000,000.
Well, I think we talked about enough about that, Erik, on the last quarterly call, but my ambition is to reduce the net debt and I think this transaction would obviously, in the course of next year, reduce the debt, the net debt a bit. But I think most importantly, it would immediately improve the cash flow of the operations that would give more headroom in our amortizations and more improve our financial flexibility. So I think that's very positive. As mentioned, in the last quarterly call, we had a number of ongoing structured processes. This is the first transaction that is announced, and different processes might solve different things. But I think this morning's transaction is the first very important step into the journey into the future. Okay.
That's all from me. Thank you.
Thank you, Erik.
The next question's from Simon Jönsson. Please go ahead. Your line is open.
Lars, you said that you expect to reach the cap, the target CapEx, with this transaction. Do you think you can be on that run rate, meaning around SEK 1,200,000,000 - SEK 1,300,000,000 as soon as the transaction closes, or will it take some time before you eventually get there, or how should we view that?
No, I think we would be there quite immediately at closing. I see. Obviously, the SEK 1,200,000,000 is an annualized number, but at closing, we would immediately reduce our CapEx, and then we have a number of joint projects with them. But I see that balance coming in balance quite straight away, I would say, in this instance.
All right. Thank you. That's all from me.
Thanks. The next question's from Ali Naqvi from HSBC. Please go ahead. Your line is open.
Hi. Good morning, Lars. Thank you for sending the question. Could you just understand the rationale in not selling the remaining parts of Saber Interactive, or why are Beacon not buying it, putting it another way? And then in terms of the timing of the deal, why is the cash phased so far out? Is there a specific reason for that? And then finally, first of all, when is closing expected, and will Mr. Karch still be involved in the wider Embracer restructuring process? So why aren't we selling the rest of Saber?
Well, why would we? You know, my ambition is to continue operating Embracer and our companies very successfully, and the companies we are retaining are cash flow positive, very successful.
So as I've been talking about, in the course of the last 12 months, it is important for us to focus on making divestment that both solves our need to reduce Capex and partially net debt in combination. We could have been solving our net debt situation way before this by selling our most cash flow generative assets, but that is not what we have done. We have been working very hard to get certain transactions through, and I'm very pleased to have this first announcement today. That's why we're not selling all the assets. Now, the cash payment, obviously, Matt is a very skilled negotiator, so it's been a commercial negotiation between, you know, many parties, including me. I think the solution with the promissory note is acceptable to us.
It would, in the course of next nine months, generate $203 ,000,000, whereof $65 ,000,000 will come in installments up until September. So everything in this morning's transactions has been negotiated on and off, and I think it's well balanced, and I'm very pleased with that transaction. Now, Matt would obviously run this business that he's now buying. He would remain a significant shareholder of Embracer, and we have a few joint projects between us. Now, those projects are managed with other people between our groups, but Matt would obviously not have any management positions at Embracer. Neither does he have any board position at Embracer.
And so thank you. And sorry, when did you say closing was gonna be expected?
Oh, sorry. Well, we didn't say.
There are a few closing conditions, but I expect closing to be fairly soon, but I don't wanna give full, I can't give full color on that.
Understood. Thanks.
The next question's from Rasmus Engberg, Handelsbanken. Please go ahead.
Yes. Hi. Good morning. Thanks for taking the question. I heard briefly in a Swedish interview where you talked about how you have secured the promissory notes exposure. Can you repeat that? Then pick all of that up.
Yeah. I feel very confident about the security we have on the promissory notes. Obviously, we have 43 ,000,000 Embracer B-shares to start with. But then we also have a very good negotiated full security package over all the assets that the buyer is buying. So I feel good about the security for the promissory note.
And you said that Matt was expected to remain a long-term shareholder. He's not selling all his shares to fund this deal, or. Yeah. Well, that's his own words, and that's what he's been telling me. Okay. Fair enough. The other question, just a detailed question, a previously announced AAA game based on a major license. Is that something that is quite far into the future, or is it something that is for the coming 12 months that you have sec retained? No, I think that kind of game needs some deep love and respect. So, without giving full color, I think it's some time left until that is released.
Yes. Okay. Thanks.
The next question's from Nicolas Langlet from BNP Paribas. Please go ahead.
Yes. Hello. Good morning, everyone. Maybe first question on the Beacon funding. Do you know if it's secured or not? You said you feel very good about it, but is it secured already or not? Second question, to come back on this comment on the AAA game based on major franchise, I think it's fair to say it's the KOTOR remake. Is that right? And if that's the case, who will be in charge of the project now? Because I think it was transferred to Saber. And finally, I'm quite surprised to see that the book value of the 14 games you retained is only SEK 500 ,000,000, while it includes some major games. Any comment on that? Thank you.
So on the security note, I don't know if I fully understood your question, but again, we have full, you know, full security over the assets that he's acquiring. And on top of that, we have 43 ,000,000 shares as security. And so I, you know, in general, I feel confident about, you know, the security over the promissory note. But also, Matt, I think most importantly, I feel good about Matt's ability to manage these assets. You know, he's been a good entrepreneur for well over 20 years and well knows these assets very well. So I hope and I'm sure he will be successful operating them.
Now, on your second question, you mentioned a license name there, and I'm sorry, but I have no further comments to that. On the first, the value of the games, well, the buyer has been acquiring the rights to a number of games. We could still remain, in a few instances, publisher and continue invest slightly into those projects, but the actual rights will be with the buyer of the games, and that's what hence we are moving a lot of capitalized game development to the buyer.
Okay. Okay. Thank you, Lars.
The next question's from Nick Dempsey from Barclays. Please go ahead.
Yeah. Good morning. So for those combined assets, or the combined projects, but between the divested assets and the retained assets, is there a risk that you could need to pay away a material amount to the divested business in relation to those two projects, something that would be material in the context of this deal? Second question, are there any one-off cash charges related to separating off this business that Embracer will have to bear that we haven't mentioned here? And third question, you talked about other interest in acquiring these assets. Can you give us any indication of the types of potential buyer that showed interest in Saber before you went for this deal?
So, on your first question, I think we have two projects, joint projects, post closing. The investment into those projects are, I would not say, significant, and they lie within the annualized SEK 1,200,000,000 CapEx. Remember, we had SEK 1,443,000 CapEx in the divested assets. On the one-off, sorry, and then we are now saying that we are saving or we're reducing CapEx with SEK 1,200,000,000 . So I think a bit of your answer could lie in between. On the third question, on one-offs, well, obviously, we are disclosing the non-cash expense, SEK 6 ,000,000,000 in the press release. And, according to my understanding, that will be the expense to this transaction.
And just on other interest in the assets? That was the third question.
Sorry. Other interests in sorry. Could you repeat that question?
You mentioned, I think, that there were some other potential buyers, but this was the one that.
Oh, sorry. Sorry. Yeah, yeah, yeah, yeah.
Can you give us some color on the time?
We initiated this process last summer and been running with, you know, one of the global leading advisors, Aream & Co. in London. Been talking to the industry. Been talking to a lot of private equity. It's been a lot of interest, especially from on the private equity side. At the same time, it's a very complex business, especially the geopolitical issues related, you know, that were connected to the business, I think, limited the valuation of it.
And in the end of the day, when Matt put forward a proposal to us, that was actually, you know, I think, the proposal that created the most shareholder value. So from that perspective, I'm pleased with this.
Okay. Just going back to my first question. Sorry. I was interested in when the two combined projects between the divested and retained assets come to market, come to fruition, will you have to pay away a significant amount of the economics of those to the divested assets? So do we need to consider that when we're thinking about this project?
Oh. Well, I think on project number one, I'm thinking about we would have the most of the economic upside.
On the project number two, I'm thinking about the—I think—the buyer would have most of the economic upside—or not most, but more—the majority of the economic upside, even though we might recoup our investment earlier. It's also about managing the business risks. So this transaction has been negotiated between my senior management and the buyer at arm's length. So I would say they are to industry standard. But obviously, these kind of negotiations are—it's a lot of details, and it's a very extensive contract and processes and milestones to have these kind of agreements between parties.
Understood. Thank you, Lars.
There are no more questions at this time, so I hand the word back to you, Lars. Thank you, Einar.
I've learned to thank everyone for tuning in this morning, and thank you for the support from all the shareholders in a very difficult past 12 months. But now, I'm really pleased to look forward into the future, and this morning's transaction is a very important first step into that. Thank you, Einar. Thanks a lot. This concludes today's call. You may disconnect your lines.