Q3 20/21

Feb 18, 2021

Hello and very welcome to Carlsbad and Embraerse Group's fiscal Q3 presentation. We have a lot to talk about today, including strong back catalog sales in Q3, a packed game pipeline for the next fiscal year and also I have a special interest in About the incredible indie success title, Valheim. I will come back for a Q and A presentation later. We will also talk to some Austrian and Italian guests, I believe. But first off, I will leave over to Embracer Group CEO and Founder, Lars Vingerfoers and CFO, Johan Ekstrom. Please go ahead, guys. Thank you, Oscar, and hello, everyone, and very welcome to Varmland and this 3rd quarter report. And I'm really glad to report another stable quarter. If you just help me to turn the Slide once again here. Thank you, Johan. We were glad to report on sales that increased 44% year over year, close to SEK 2,200,000,000. We had a performance in the Games business segment of net sales of over SEK 1,300,000,000, which is a 62% year over year increase and a 21% organic growth in constant currency and a 43% growth in on pro form a basis. The Partner Publishers segment had a 21% year over year increase in sales to 813,000,000 And the profitability came in at just above EUR 600,000,000, which is 100% increase year over year. The free cash flow continues to improve. And in the quarter, it was NOK 309,000,000, which is more than SEK 500,000,000 better cash flow than the previous the same quarter last year, despite we had record investments into new games to be released in the future as well in the quarter. The drivers in the quarter was our extensive wide catalog of products, the back catalog sales, including titles such as Satisfactory, the SpongeBob, Wreckfest, Snowrunner, World War The Saints Row series, the Deep Rock Galactic and the Metro series. The new release segment had lower activity in the 3rd quarter. However, I would like to point out 2 titles from our friends, family members at Milestone, a ride for MXGP. Looking at the KPIs, we had a record of products in pipeline as end of the quarter. We had 150 games under games development projects in the balance sheet. We engaged 113 Studios, including 57 internal studios and 4,300 games developers. And again, we invested a record EUR 523,000,000 into the games portfolio that will generate organic growth in the future. Worth pointing out is that's 3 times the amount we completed games for or released games for in the quarter. Looking into the quarter ending now in March, we're expecting Also a lower commercial activity in new releases in value. And we're giving a range this morning of Completing games of EUR 120,000,000 to EUR 140,000,000 and meaning the full year will be completed games for EUR €840,000,000 to €860,000,000 But looking into the next financial year, we are expecting a record year driven by many factors, but one factor being the amount of new releases. We're expecting More than 70 Premium Games development projects to be completed, and the value of those are expected to be between SEK 2,500,000,000 to SEK 3,000,000,000. And this is not including The acquisitions we announced on February 3rd February with Gearbox, Easter, Brain and Aspire. In the quarter and just 2 weeks ago, we released in the hit called Valheim. I will come back to that under the coffee stain slide. Also in the quarter, We completed the transactions with CN Studios, and we are expecting to complete the transactions and acquisitions of Thinking Ape and Ayugo for Vancouver. That was part of the 13 acquisitions we announced in the Q3. In the current quarter ending March, we Just recently announced the 3 acquisitions of Gearbox, ECB and Spire. Looking at the M and A outlook, It's a very vivid market, and we are very active. And We are I will come back to that on a separate slide. We also announced this morning, and it's worth pointing out the details later, but we the Board have decided that we are to make an IFRS conversion and that we will start the process of becoming listed on a regulated market within 18 to 36 months. And with that said, I will hand over to you, Johan. Thank you very much, Lars. So let's start by looking at our P and L for the Q3. As said, Net sales in the period reached almost SEK 2,200,000,000, which is up 44% over The corresponding period last year, we have a healthy improvement or growth in our EBITDA, growing with 70% to 879 in the quarter. Also operational EBIT doubled compared to last year, reaching CHF 603,000,000 in the quarter, yielding an operational EBIT margin of 28% in the quarter compared to 20% in the same period last year. And the improvement in profitability is driven by the Healthy growth in our top line and also by the favorable product mix shift since we see a higher growth rate in Business Area Games with 62% compared to Partner Publishing Film. The adjusted EPS for the quarter is SEK 1.06, up 56% compared to last year. And if we look at our trailing 12 month Financial data. We are close to €8,000,000,000 in net sales And operational EBIT at €2,254,000,000 which is a operational EBIT margin of 28%. If you look at our amortizations in the quarter, we split them into operational amortizations and acquisition related amortizations. The operational amortizations amounted to NOK 276,000,000 in the quarter, And the majority of these are related to amortizations of released games, also €65,000,000 related to amortizations of Film within our Film segment. The acquisition related amortization amounted to SEK 664,000,000 in the quarter, and the majority of these are related to amortizations of goodwill, which was EUR 5.36 and 18. All in all, operational EBIT, NOK 603,000,000 and reported EBIT, minus €61,000,000 in the quarter. If you look at our cash flow statement, As Lars mentioned in the beginning, we continue to have a healthy cash flow. Free cash flow was €309,000,000 in the quarter. It's the 4th consecutive quarter with positive free cash flow. On a trailing 12 month basis, our free cash flow amounted to SEK 1,100,000,000. In the quarter, the cash flow was driven by improved profitability, increased EBITDA, coupled with very limited investments or change in working capital. We have a EUR 2,300,000,000 net outflow of cash, which is related to the acquisitions or the acquisitive side of the business. Cash flow from financing, SEK 5,400,000,000 in the quarter, mainly related to the share issue that was concluded in the beginning of October. We continue to invest into intangible assets, mainly our games portfolio, And it's also worth noting that the free cash flow has increased well, while we also invest more than ever into our intangible assets and mainly our games portfolio. If we look more into the investments in intangible assets during the quarter, Out of the EUR558 1,000,000 that we invested, EUR523 1,000,000,000 is related to investments into our games portfolio. And SEK 35,000,000 is related to investments into the Film segment. Out of the CHF 523, euros 370,000,000 is investments made with internal studios and 153 with external studios. Looking at the development of investments into our games portfolio, We see that we continue to increase, reaching a new all time high at 523, which is up 40% over the same period last year. And during the quarter, we completed Games Development Projects to a value of SEK 156,000,000. This can also be seen when we look at the Continued growth of our pipeline and development capacity. Development Studios, 113 at the end of the quarter, of which 56 is internal. And the number of developers engaged in game development is a bit higher than 4,300 people at the end of the quarter. Also a record high number of pipeline projects, 150 at the end of the quarter, of which SEK61 is announced. If we look at the upcoming releases and expectations, We can conclude that we have a release date for Biomutant communicated to 25th of May. The expectations on completed games in this Q4 or the last quarter of the fiscal year It's between SEK 120,000,000 and SEK 140,000,000 Looking at it from a yearly basis, that would mean that for the fiscal year 2021, we would reach €840,000,000 to €860,000,000 Our quality comes first approach is fundamental. We believe that this is the way to create great games that perform well and over a longer time period. And it's also the way where we add to our strong back catalog of games. During this fiscal year, We have postponed about or over time games due to applying this quality comes first approach. For next year, next fiscal year, we expect to have The strongest release activity ever, with more than 70 premium games being released. And total expected value of Releases from a development cost perspective is between SEK 2,500,000,000 and SEK 3,000,000,000. And looking over the course of next year, it will be skewed towards The end of the fiscal year. Worth pointing out, it's 70 Premium Games Development Projects, meaning could be porting and other projects. And the 10 released Delayed games that was during the whole financial year, and I would say the quality comes first approach was the most common reason for the delay. Looking at the balance sheet at the end of December, total assets amounts to SEK 24,000,000,000 which is 20% more than what it was in the end of September. A large part of our assets in the balance sheet are intangible assets. And these If we look at the breakdown of these, it can be split between operational and tangible assets and acquisition related intangible assets. The operational and intangible assets is about 24% of the total internal assets, where the Largest single item is the investments that has been made into our ongoing games development portfolio. And the 2nd largest is the book value of completed games, released games. The acquisition related intangibles assets amounts to SEK 11,000,000,000 and Goodwill is the largest component of this, which is about SEK 9,600,000,000. We have a healthy financial position at the end of December, where the available funds was SEK 12,500,000,000, where available funds is defined as cash and bank balance and unutilized available credit facilities. If we look ahead and include the cash consideration part of Acquisitions announced post or expected to be closed after 31st December, Available funds were equal SEK 10,000,000,000. And the net cash position at the end of The calendar year was SEK 4,900,000,000. Moving on to the Games business area. Thank you, Johan. Thank you. And Starting with the net sales breakdown of the games business area and looking at the trailing 12 months number, we are at close to SEK 5,400,000,000, which is at all time high and compared to the same number last year of SEK 3,300,000,000. Looking at the new releases and the share of new releases in back catalog. As mentioned, we had lower activity of new releases in this quarter ending December and the share of new release was only 20%. The rest was back catalog sales. Looking at the digital versus physical, it's we have a stable, very high number of 79% of the revenues coming in from digital channels in the quarter. And looking at the owned titles based on owned IPs and long term licenses, the share was 69% for the quarter. And the release activity and organic growth, looking at the trailing 12 months basis of value of completed games was we are at €885,000,000 And as mentioned, the value of completed games in the quarter was 6,000,000. And looking at the organic growth here, looking at this slide, we can see the year to date organic growth on a constant basis being 54%, and in that quarter, it was 22%. And again, on a pro form a Growth organic growth number was 33% in the quarter. That's the estimated number. And obviously, because of all the acquisition, it's the estimated number on accounting and books. And that's why we're not providing this as an ongoing KPI and using the organic growth only on a constant currency basis. So the business segments and the business groups, looking at TSK Nordic, They had a quarter with a lower release activity. They had a quite wide range, a number of releases, but none of the releases had a notable commercial impact in the quarter. Total revenues was SEK 380,000,000. Key drivers in the quarter was continued performance on Destroy All Humans, Spongebob and Breakfast, amongst many other titles. In the quarter, they acquired the Purple Lamp Studios, The developers behind SpongeBob SquarePants Battle for Bikini Bottom Rehydrated. And during the quarter, they have signed several significant commercial deals. And on the back of the success of previous license releases, new licensing deals will be pursued. And looking at the selected pipeline, obviously, again, this is a topic coming back every quarter. Biomutant will be released on May 25 or 25th May next Q1. And in the current quarter, we are expecting to have a lower release activity, and The releases that are lined up are Kingdom of Ameluz: Re Reckoning on Switch and Monster Jam Steel Titans 2 on PC and console. Looking at Business Area. Deep Silver, They had quarterly revenue of SEK497,000,000, which is 6% growth year over year. And on trading 12 months basis, they're just about SEK 2,100,000,000, which is an all time high. Key releases, But in general, they didn't really have any significant commercial impact in releases in the quarter. But As usual, they had a number of good releases anyhow that contributed well. And as mentioned, they had MXGP 2020 from from Milestone and Maneater from Tripfire, our friends at Tripfire on the next gen consoles. And again, The back catalogs drivers once again in the quarter was Metro Exodus, the Saints Row series, amongst many others. In the quarter, they completed the acquisition of Flying WildHogs, 1 of the leading Polish developers and our first establishment of a developer in Poland. They are the makers behind many games, and the one mentioned here is Shadow Warrior series, published by Devolver. They are 2 60 people across 3 studios in Poland. Looking at the acquisitions they made in the previous quarter in September, they acquired Vertigo Games, the leading VR developer in Holland. And the gross revenues of that business was up 40% year over year without any new release. And obviously, driven by a successful release of the Facebook Oculus Quest 2, the VR headset, according to SuperData, selling more than 1,000,000 units. And the milestones performance was, as usual, in line with the management expectations. Looking ahead, they're having a very wide pipeline of products. And on this slide, you can see a few of these products that are pointed out here, and I'm sure Aske will come back to that in the Q and A session. Now looking at the business segment, Coffee Stain in Schwabde. In the quarter, they had SEK 99,000,000 of revenues, which is a year over year growth of 175%, driven by a continued good performance of both satisfactory and Deep Rock Galactic, but they did not have any new release in the Q3, neither do they have any major content updates. On a trailing 12 months basis, they are having revenues of SEK 484,000,000, which is an all time high level. In the quarter, they acquired the remaining 40% of the shares in Coffee Stain North. And that studio have been working on unannounced titles since 2017. 16 days ago or a bit over 2 weeks ago, they released a publishing Title, Valheim, that I'm sure I will have a lot of questions on during the Q and A session, But I'm super glad and excited to see that the Iron Gate team in Shovde Being just a handful of people are able to achieve such a success. And I personally have been enjoying watching this on Twitch For a number of hours, and it's just amazing how we can create such a game. The commercial performance has been has been communicated by Coffee Stain. And this morning, we are communicating it has sold, as of this morning, close to 3 1,000,000 copies. The commercial relationship with Iron Gate are in line with what Kofenstein normally has with external development teams. Having a publishing agreement where The developer gets a healthy Majority of the revenues and having a minority Ownership in the studio, creating over long time over time a potential net contribution that will contribute to the operational EBIT as well. But that is over potentially over a longer time and that's net from taxes obviously. Kofistein have many other titles than Valheim, even though that's I'm sure it's a lot of focus right now for them. They're having an amazing pipeline for the coming year years that I'm truly excited about. Here pointing out 2 titles Midnight Ghost Hunt and Songs of Conquest, but they have many others. But I will let them communicate when they are ready. Moving over to Sabre Interactive. They had a continued stable performance in line with our expectations of SEK 307,000,000 in the quarter. They didn't really have any new releases, but so the revenues was driven by a number of factors. One factor is obviously continued performance of SnowRunner and the World War Z games as well as a continued business with external business partner under the work for hire. During the quarter, they acquired 6 companies. CN Studios, the leading pinball games developer in Hungary, that deal closed just a few days ago. Snapshot Games, the developer behind Phoenix Point, also titled worth pointing out, contributed a bit in the end of the quarter with 65 employees both in U. S. A. And Bulgaria Nimble Giant, the leading LatAm PC console games developer in Argentina with 75 employees MadHead Studios In Serbia with 130 employees, 34 big things in Italy with 28 employees, 1 of the leading in the developers in Italy and Sandbox, the PR and influencer Relationships Agency based in New York with 13 employees. And on February further February, they announced the acquisition of Aspire that we're expecting to close in the coming months, which is one of the leading indie games or indie developers and publishers with a 24 years track record of profitable business with 140 people in Texas. Sabre are building an amazing pipeline of products and driven by obviously the organic teams at Sabre, but as well as with all the acquisitions they are doing and all the organic hiring and doing with people. Worth pointing out here they announced the title Evil Dead that has been well received. Moving to Tekka Games, The mobile games business, they had the 1st full quarter, generating revenues of SEK 73,000,000 in the quarter. And the driving titles was Dragon Whale, Almost a hero, gods and glory and a continued performance of especially of Reals of the Mad God. In the quarter, they announced 2 acquisitions that we are expecting to close in this quarter. It's not closed yet. We're expecting to close this quarter ending March of 2 leading companies in Vancouver in mobile games, 1, Qualit Thinking Ape Next one being AYOGO. Those companies will form the Deca Games Group. Moving to Amplifier Game Invest. I'm Super Trill, and I Talked to the CEO of Taresir the other day here and congratulated him to the success The critical success of Little Nightmares 2. It's an IP they created, but owned by Bandai Namco and published by Bandai Namco. So it doesn't really have any significant commercial impact for us. Even though if it does really well, it could have some royalty revenues over time. But I'm super excited about them achieving such a game again because the first game was very well received and this game looks as well received. Now being having that game completed, they will move over to create new IPs, And I'm super excited, and that was the main reason we made this acquisition a bit over a year ago. Also in the quarter, we released self published the game Fishing North Atlantic That had a bit of issues in the start, but I know the team are working on it, and we're looking forward to what that IP and other IPs could bring for that studio. We are still committed to the team, and we really believe in that business. Also, we acquired We're welcomed, the Silent Games Studio in Newcastle that has very high ambitions to become 30 people over time. And finally, We welcome the Plucky Bites actually here in Karlstad with run by 3 industry veterans. Moving to the Partner Publishing and Film Business Area. We've had a stable performance, a bit over management expectations of SEK 813,000,000 in the quarter. That is a 21% year over year increase. And on a trailing 12 months basis, They are just about SEK 2,500,000,000 of revenues. Drivers Verge.5, YUKUSA 7, the Mortal Kombat 11 Ultimate and the general of COVID-nineteen recovery effect at retail. The Films business segment in that area business area had a really good quarter, exceeding the management expectations. They had a successful Theoretical release of Patini. And they also signed exclusive distribution contracts with Paramount for Italy territory. The digital sales are within films booming for them, and they are really having much more difficulties with the physical film distribution. Worth pointing out is the video subscription channel's anniversary for the Animia segment on Amazon Prime has continued to perform well for them. Also in the Partner Publishing Business Area It's 2 businesses that is not under Koch Media but reported in this business area, and that is Game Outlets, The original business I was part of founding here in Carlstadt that had another stable quarter with a strong back catalog sales, with a very deep catalog of physical games mainly distributed to e tailers and Amazon and many others. As well as the acquisition and then inclusion of the QA business of Quontic Labs in Romania of 300 more than 350 people. And they will have the 1st full quarter in the current quarter ending March. Looking ahead, we see this quarter ending March that there is no notable release with a significant commercial impact for the Partner Publishing Business Area expected. So this will be a quarter with a lower commercial activity in that business area. However, they as usually have hundreds of different games and SKUs they are selling. And pointed out in this presentation here, They have a few games in and the distribution varies in various countries. But for example, they have Hitman, They have Persona 5 Strikers and a few others. Okay. So Talking a bit of M and A. I would like to recap A bit of the KPIs on the mergers and acquisitions. And going back to where we started, Our journey with acquisitions 2017. In that year, we acquired companies of SEK 492 million, SEK 2018 for SEK 2,000,000,000 roughly, 2019 for SEK 2,000,000,000 roughly. Now talking total maximum consideration. Last calendar year, we acquired companies for a bit over SEK 13,000,000,000. And this year, we have started announcing acquisitions or mergers of close to SEK 22,000,000,000. And looking at the number of transactions, that has obviously also increased over time. And just looking of adding new, here as mentioned, verticals, we call it operating groups. We started 2018 adding 2 groups, the Koch Media, Kofistein. One more group 2018. Last year, we added 2 groups, Sabre and DKKA. And this year, we started off adding or plan to add when the deals are closing of Gearbox and Easy Brain. The rest of the acquisitions are Acquisitions or mergers driven by the operating models. And it's worth pointing out the strength of One of the strengths of embracer is our very decentralized operating model that is also driving a lot of M and A. Again, we announced the 2 landmark acquisition mergers forming 2 new verticals after quarter end of Gearbox Software and Easy Brain. And looking at outlook. So again, starting with the capabilities. Our M and A capabilities are stronger than ever We've now sown 8 operating units across the globe, Globe scouting and researching for suitable entrepreneurs and creators and companies to join the family. Consequently, we are in more dialogues than ever, And our ambition is to continue to grow our M and A activity going forward. And that is driven by that we are increasing the number of operating groups. The mindset and philosophy Of embracer, I'm a firm believer of obviously, and I when we are out and speaking to the entrepreneurs and companies and creators. It's very attractive. And I'm super humbled by hearing the stories and why People would like to become part of embracer. Obviously, we are not alone in the market. We define it here as a vivid M and A market. You can say a very active market. There is the SPACs, there is the IPOs, there the private equity, venture capitalists. There is other companies on the public markets trying or doing similar. I wouldn't say or doing acquisitions. However, I still believe we are able to continue our strategy being disciplined under the same principles going forward. And I would like to point out that we are a truly independent company and platform with only approximately 1% of the global gaming market. And The main competitors we are phasing out there in the dialogues on a daily basis are companies that are significantly larger than us, Sometimes up to 100x or more larger than Emberese Group's in terms of market cap. And I'm humbled to hear that many of the entrepreneurs and creators would like to join embracer rather than those companies. Johan? Yes. Thank you. Okay. So super excited to Informed that the Board of Directors decided yesterday to convert to IFRS and also start the process to become listed on a regulated market. When we look at this, the work will be done or executed through a project. We will have 3 work streams in this project. 1 is for financial reporting and principles. The second one is for internal control processes, and the third one relates to corporate governance structure. It's we have the clear ambition to achieve industry leading efficiency and transparency for each of these work streams. If you look at the overall time line for this whole process, it's estimated, I said in the beginning, to be between 18 and 36 months. When you look at it, it's the timing is, of course, dependent on The pace of training, recruiting, onboarding key employees and also the need for business support and financial integration of future mergers and acquisitions. Also, the Corporate Governance Workstream delivered its first Milestone already today with the implementation of And audit committee and the remuneration committee that become effective immediately. Johan, sorry for stepping in here, but this has been a discussion we had for a number of years. And obviously, I've been hearing the demands from especially institutional shareholders, why this is important, why are we doing this main listing. And from the beginning, it was many reasons. But now there is a bit less reasons, but still very important that the capital markets are changing and the inclusion in indexes are very important for the capital resources to the group. And there is also other reasons for the institutional shareholders why we should do the main listing. Obviously, there is many positive things here in terms of transparency, the quality in processes, the control links. The good thing of the governance and corporate control. But for me, it's important also that the corporate that we're not becoming this corporate, you know, machine without the soul destroying our businesses. So I will keep a strict eye on that we are finding this balance Doing this process, becoming mainly the company and can keep our Business and strategy. And also worth pointing out is we will continue our strategy doing M and A, meanwhile, we're doing this process, which will put further pressure obviously on the teams doing this. And Not saying that alone, it's also worth pointing out that this is, I think over time important and when doing this, I think we have very high ambitious ambitions. And we've been talking about a lot about how to become a benchmark in terms of reporting within this our segment. So we have a very interesting 18 to 36 months ahead of us. So please continue, Johan. Yes. And also as we all know, we have a very efficient M and A process Within the embracer group, we also saw that the M and A activity is extensive and continues to be that. Looking at or that puts requirements on our ability to Integrate or onboard new companies into the embrasure group. So we just wanted to share some of Or share with you the onboarding process. If you look at it, we have a 1 year onboarding process within embracer. We split it into 4 phases where there are different priorities in each of the phases. So we're not trying to do everything at once. We prioritize Phase 1, prioritization on finance Phase 2, compliance 3, introduction of the smarter business framework. And then last but not least, reconciliation of the previous phases to make sure that we have done what we set out to do in the beginning. We will not go through this In detail, but if you look at high level onboarding time line and the key actions that is being performed in each of the phases, We see or we can show that we have 4 work streams that we are doing the onboarding process through. And the work streams are centered around the themes where we do the onboarding, which is mainly finance and regulatory and compliance. On top of that, it's important to have Robust supporting activities throughout the onboarding process and also to handle communication throughout the process. Between each phase, we have review meetings to make sure that we are on track before moving on to the next phase. And In this onboarding process, we try to front load as much as possible to be prepared and do as much of The work possible pre closing when it comes to preparing ourselves and understanding the capabilities of the companies to be part of this onboarding process. I think also examples of the key activities in Phase 1. Of course, it's about aligning accounting principles to K3, conducting the Preliminary purchase price analysis, while also following up on any Due diligence findings, making sure that they are closed throughout the process. The second phase It's much more centered around compliance, where we implement the global policies open embracer. And then the 3rd phase, there we have the introduction of the smarter business and our sustainability framework. And this is super important for us. We need to do this while Maintaining the decentralization and that the stand alone entities maintain responsibility, authority and remaining independent. That's a critical part of our business strategy, And we need to be aware of that throughout the onboarding process. Of course, also it's critical that this is being paired with what it means to be part of a listed company. Yes. Moving on to a favorite slide you want, isn't it? Yes, it's a favorite. It was first shown at the AGM in September. And there We looked at releases until 30th June 2020. We have rolled it forward to 31st December 2020 in this slide. And what we see are A scatter chart of project ROI. The sample includes projects where which has sales above SEK 40,000,000 or investments above SEK 40,000,000. In the sample, it's 30 projects. ROI is calculated as contribution in relation to the investment Where the contribution is to gross profit, less marketing expenses from release date up until 31st December 2020. So basically cash contribution is nothing to do with amortization. No. We also refer to this as cash project ROI. So it's on an accumulated basis from the release date. The investment is to capitalize development expenses for completing the project and also any follow on investment that might be. Looking at the outcome, of course, if you're at 1.0, the low line here, That's when we break even. If you look at the average of these 30 projects, we are at 2.9x the invested amount, which is slightly above what we had in the same picture when we looked at the data until the 30th June, 2020. So it's very interesting. Yes. Then we have A forecast relating to non operational amortizations or acquisition related amortizations. This forecast includes all signed deals as per today. The forecast is based on the purchase price allocations as per today, And these contain both preliminary and finalized purchase price allocations. Acquisition values are converted to ZIK Using the exchange rates per end of December 2020 And the consideration shares are valued at the VWAP asset forth in each SBA. Looking at the forecast. The Q4 forecast is based on the average exchange rate during the quarter, Q3. Looking ahead, we are using the exchange rate as per end of December 2020. And also this forecast assumes closing dates of transactions that are still to be closed, where Gearbox, Easy Brain and Aspire is assumed to be closed on 1st April. Ayugo ATA and SEN assumed to be closed mid Q4. Looking at this non operational amortization is estimated to SEK 750 €1,000,000 in Q4 this fiscal year and then €6,400,000,000 in the next fiscal year. Worth pointing out here is that assume closing dates of Gearbox, Yuseabir and Aspire is not any confirmed expected closing dates. It could be much later in that quarter. So this is just for the technical purposes of this forecast. Then we look at our initiatives Within ESG, we are super excited about the sustainability report that will be included in the annual report for this fiscal year. We are putting a lot of attention and resources into the work of completing this. And also, we during the Q3 quarter, we rolled out and implemented a trade compliance policy throughout the group. I think that went very well, that rollout process. Training is, of course, Very important for the development of all the people within embracer. And during the fall, we have had global trainings centered around our compliance code. And by the end of the year, we had a about 50% had completed the training, and we will continue to We will continue to push for this as it's a very important matter, and we really would like all the employees of the embracer to understand and take part of our compliance code. We continue to develop and work relentlessly with our ambassador program. And as new companies join embracer, also the participation And the numbers of the ambassador group is extended. And Last quarter, focus has been on initiatives through the 4 pillars of our smarter business framework and such things as target or such things as recruitment, data protection and inclusion, important areas that was discussed. Thank you, Johan. And I have final two slides here that for me are very important, and it's a bit of culture. So being in the games industry I was 16 and growing up with the NES and the SNES and all other formats going way back, Game collecting and retro gaming and the heritage and history of our industry, I think it's very important for me, but I know it's very important for many of our my colleagues, For the businesses and for the industry, and I've been Game collecting a bit myself the past years as well as collecting many other things, but game collecting has been Very interesting, but then I decided why do I collect this myself and why don't I give this rather to the company. So I decided to give my base collection to the company of quite a lot of Nintendo games. But then we have, At the embracer level, we decided to put this as a project at the embracer group level to create the archive of all video games. So we have acquired a few significant collections across Europe the past month or year. And we approximately have about 50,000 pieces Of games and consoles and free fills and arcades, quite a lot that are extremely rare and almost unique. However, this collection or archive is By no means complete, and this will take decades, if ever, to get complete. But it will be a true joy for myself and many of my colleagues. And the ambition is perhaps to have part of this present at the headquarter here in Vemland or at some other location here. But of course, to use it with our subsidiaries to have perhaps specific exhibitions about their creative history or certain type piece or to have exhibitions that could potentially Travel the world or to do something online. This is obviously a black hole of time. So I tend To even though I love it, I tend to not spend too much time on this, but we have a few people working on this. And Thomas Sohn here, you can He mentioned here are heading up the project. So if you have any amazing collections or are interested to know more, Please feel free to reach out to Thomas. And I promise to give you updates over the coming decades how this proceeds. So with that said, thank you, Johan. We are moving to the next part here. So thank you. I'm we are to I'm to share you a slide here where you can see a bit of the overall embracer, and we will end this session that I will welcome 1 of our So before doing that, I would like to point out the Embraes Group, What we are and how we operate, starting by saying, founded by entrepreneurs, run by entrepreneurs. And here on this slide, you can see the Embracer Group in the middle where we are creating this inorganic growth and then having our operating groups with these fantastic entrepreneurs and creators that are creating all the organic growth as well as further acquisitions. And I'm a true believer of letting great people making their own decisions. The decentralized philosophy, empowering individuals, Creativity and speed is critical to our success. We are offering the benefits of a large structure, foremost access to Capital, the knowledge sharing and all our Soft synergies across the Group, but quite strict synergies on a daily basis more within the Group. And we believe this is the most attractive model For long term creatives and entrepreneurs, will help bring more publishers and studios on board this group. And this ecosystem we are creating, I think, becomes stronger the more people we bring on board. And investors often ask, what's the strategy? And often they mean what strategy of what games do you do or what business model you do within the games. But then you need to realize that there is each operating group has their own DNA, their own culture and strategy, how they operate their business, you know, whether it's free to play, premium, what kind of games, how they do the publishing, how they do the games development. And now it's most quite exactly 3 years ago, we added our first, 2nd or the 2nd operating groups to the company, Koch Media, in a transformative acquisition. And I would like to celebrate that 3 years of Koch Media within the group by welcoming Clemens Kundertits, online here. Welcome, Clemens. Hello, Lars. Hello, everybody. Hello. Welcome on stage. I can see Luisa as well. Welcome, Luisa. Hi, Lars. Hi, everybody. So, Clemens, I introduced you and I will leave over for you to tell you to tell the audience here about Koch Media and how it has been Over the past 3 years to be part of embracer. A lot of things have happened. We have evolved from a mostly European sales organization and with 3 studios To a truly global games developer and with 10 internal studios now and growing our network of publishing companies to reach the globe. On top of that, we are we have developed our film company and created a game merchandising company. So it's been a very Interesting journey for the 1st 3 years. But we I would first like to Spend a minute or 2 about how we arrived at the decision to join you, Lars, to join your machine, as you call it. It's not really a machine. I can tell you that, but it is certainly a member of a group of entrepreneurs that steer this When we joined the group, we were at a junction of our group development. We saw that For 24 years, we have built this company forward, but there was a next level that we wanted to achieve. And by joining the Embracer Group, we thought this would be the right solution for us to unlock our potential and to grow further. We really Like the principle of entrepreneurship, the global vision that Embracer brought along and the very unique Structure, corporate structure. Also the fact that, you know, you work very much on trust And on a for the family feel rather than a corporate structure, it appeals to us a lot. And then again, you came at the right time. It was the right decision for us at the time. And I can tell you, I have not nobody here at Koch has regretted it. So how did the M and A phase work? It was very it was marked by a very personal approach. It was Lars, yourself and Erik Sternberg, your second in command. And You came along and we got to know each other. And I think you always said, I really want you to continue work running your company. I want to help you run the company, but not interfere. And That promise, I must say, you is 100% capped here. You what you promised Before the transaction happened, after the transaction. And so that long term attitudes that you have And the Embracer Group has, you know, not 1 year, not 5 years, it's 20 years, yeah, is something that takes us forward. The M and A project was swift. It was, we didn't spend Months months, we were accompanied by very professional advisers, which is very important On both sides to keep this on track, but it was not disruptive to our organization, which was really important for us as well. And then the journey began. And it was a, as I said, a journey marked by a lot of Growth organic growth as well as acquisitions. You can see here on this chart The kind of milestones in our development and how we evolved from a European company headquartered in Munich to a truly global company. We can also see that growth when we look at Our talents in the company, when we joined the group, we were 770 people in total and had 10 publishing units, a film company and 3 studios. And then when we see our development or our organic development in the 3 years, Organically, we grew by 39% in those 3 years. And when we look at our and organic, our acquisition based growth, then you can see that we grew up to 1900 employees. And as you also see, by far the majority of our talents are in game creation, in development. But also the other units increased. We are now 14 territorial publishing offices And we have 4 film and game merchandise companies in the group. This is our global setup, and it is fair to say we are Founded in Europe and this is where our core markets are, but we are Now very much present also in the Asian markets and in Australia we have Our 2 American companies from in publishing and in development and our Talents are, in terms of nationality, are very well distributed around the globe. Looking at our company, What is Koch? We appreciate that Koch is, for some people, hard to understand because we are a quite a diversified company. And therefore, let me explain to you the 3 main business areas here: Development and Publishing Partner Business and Film Business, all three of them and Game Merchandise, all three of them are very strategic for us. When we look at the Global Development And publisher business, it's 1st and foremost the IPs that we are proud about and the long term licenses that our catalog is built upon. What started historically as a single label company with teams in various locations has become a solid group tree with multiple branches of publishing units and own products. Creating games and nurturing and monetizing IPs is of central importance for us. And we will certainly continue our journey and build that catalog forward. Our internal studios, as I mentioned, we have 10 studios. Flying Wild Parks is The latest entry in our studio portfolio with 3 studios in Poland We are very proud of their expert knowledge and each studio has their own special sauce. They have their own Expertise and Volition is obviously our studio of open world games. DanBuster is stands for 1st person shooters. Warhorse Studios is our action RPG studio and so on. So we are we have studios in many genres and disciplines and We are very proud about what they are achieving. 1 of the studios that Already mentioned in this presentation is Milestone. Milestone is in Milano. He's our racing expert. And I brought to you the CEO of Milestone, Luisa Bixio, to talk to about her journey into Koch Media and the Embracer Group. Luisa? Thank you very much, Clemens, and Hello, everybody. And I'm very glad to share my experience in embracer. Milestone Milestone is a developer and publishing company. We are based in the very center of Milan and we are close to 250 people and we do racing since 90s, so 25, 27 years. In August 2019, we entered in BRACER Group under Coach. Clemens, if you want to go on the other chart. My If you look at this more or less 18 months, I would like to say that I'm really very glad To be in Bracer. And I'm very glad of how we work in this period And the result we reach in this period. About how we worked as milestone In Coach and in Embracer, I think I would like to point out some pillars or Some summaries. At the beginning, we defined with Lars, with Clements, The strategy and the goal at medium long term for milestone. After this, I started again to manage a company as I used to do before joined the group with a complete relation of trust and autonomy. On the same time, We have been able to implement a very good visibility relation at all the level, IT level and even a good communication flow. So, Coach And in Brazil, I completely update on what's happening in milestone. We have very frequent calls with claimants, sometimes with Lars, But I manage the company, you know, again, with the possibility to do very fast decision reaction and what is needed. The other point that I think is very important, we've been able in this 18 months To implement many strategies, mainly with culture, We implemented synergies at distribution level. All our titles are in all the world through coach distributors So, at many different levels, including the development and I think that has been very important for MISO. The last point on how we are working, I would like to emphasize the concept of Family that was touching Larsa and perhaps even Clemens being in embrace There is a very informal relation. All the doors are always open. There is independence, respect And on the same time it's very simple to implement synergies or to have communication And that's very, very motivating. What we did in this, you know, in this period, In this 18 months milestone continued the growth at many levels. As a first, we grow up in terms of revenue and even more profitability. We grow in terms of numbers of people because we are doing more projects and bigger projects and talent. Very important for us, even for the strength of Embrace Group, We have been able to sign or renew very important license fee deals that are Basic for the future of milestone, just 2 days ago we announced the renewal agreement with Dorna For MotoGP till 2026 and then we renewed for 5 years the licensing of Supercross with Feld For 3 years with 4 MXGP, the motocross title with Ustream. And then we signed another very, very important deal some month ago that will be announced at the end of this month. As last point that I think is very important, we've been able to increase a lot in terms of high level technology. The technology that is so important for us because it's the technology that allows grow our title in terms of quality, innovation. We've been between the first to arrive to the new console and we developed a lot for the future. So to close, I think that my experience is very, very positive. I'm very glad to be Thank you. Thank you, Louisa. That's great. We normally just use Deep Silver as the sort of name for all of our labels within the Koch Group and Milestone and is part of that group. So I Talked about the multi label strategy and it encompasses on the one hand side Deep Silver, which is obviously our label for Saints Row, Dead Island, TimeSplitters and many others, but it is also the vertical games, Our VR publishing group from Holland. Ravenscourt, our German based Label most notable release is the Let's Sing series and Milestone. With a focus on specific areas of expertise within each label, their own dedicated team of specialists across all disciplines, The labels work semi autonomously, while sharing best practices and learning across, the group as a whole. And It is my pleasure to tell you today that we have plans to even further increase this number of publishing teams and labels to realign both our existing and future portfolios of products that we are invested in. So stay tuned on that. Going to our second strategic pillar, our partner business. Partner Business is built on long term partnerships since decades that We are very glad to have and our company's DNA is very much built on partnerships as well. Global publishing partners include Square Enix So Sega, Warner Games, Capcom, Bethesda, Paradox and many, many more. I can't Name them all, but these are our publishing partners. On the other hand side, we have very important Partnerships also with leading developer publishers like Techland or Blobber Team or Tailworlds or Pearl Abyss and many more as well. So Publishing, helping other people, bringing their products to the global market is a key area of our business and we will continue to Nurture these relationships and also add new partners in the future. So People talk to me about the publishing business and then our commitment. Well, I can tell you, we are In the physical space, we are very well established and we are long term committed to the physical space and we We'll act as a consolidator going forward in that physical space. And we are there for our partners to help them sell their products in all channels. Going to the 3rd Strategic pillar, the European Films business. Over the last 18 years, we have steadily developed A European independent film publisher and acquired literally thousands of films. This part of the business represents roundabout 10% of the overall revenue of the business, very profitable as well and is currently well established in the German speaking Europe and in Italy. We have recently acquired Solar Media that you may have seen in the chart before. A world sales agent, which co produces and distributes selected family and animation movies. Here is a small selection of the films that we have engaged have been engaged with. And obviously, we are extremely proud that last year we had the South Korean film Parasite In our portfolio, which among its numerous accolades won 4 Oscars at The Academy Awards, Best Picture, Best Director, Best Original Screenplay and Best International Feature Film, Becoming the 1st non English language film to win the Academy Award for Best Picture. We publish and distribute this film in German speaking Europe across all channels and had incredible success with it. So this is the short introduction to the Koch Media Group as it stands today and being part of the embracer group. I would now like to just shed some light on the question of synergies, which is which many people talk about, what relevance has synergies in our group? And It is interesting to see that what you hear about the embracer group as a whole In a smaller scale applies to the Koch Media Group inside embracer. And then below Koch Media, for example, Our subgroups like Vertigo or Milestone or Flying WildHawks, we have this principle of subsidiarity and entrepreneurship all the way through the entire group. And synergies are Not at the heart of our strategic considerations, I must say, yes, we are one of those companies where Acquisitions are not made in order to create synergies. They are not the key driver. Most much more important is to enable great entrepreneurs to develop and run their businesses with the support of a bigger operational group and financial backing of a public company. But yes, synergies do work and are beneficial in certain areas. Certainly, within the Koch Media Group, we have a very strong Central finance department, legal team, IT and also M and A is done centrally. We have established knowledge sharing, data sharing, asset databases, market intelligence. You know, it's a long list of things where we can help each other. And then obviously having a Global physical distribution network benefits everybody in the Koch Media Group. But that is also, as you can Appreciate similar synergies are within the Embracer Group. Physical distribution I just mentioned, but Important is that we have equity for acquisitions from our parent company. We can work with our sister companies on Common development projects. We have already announced last year that we are Swapping IPs so that game IPs are being better exploited, intelligence and so on. So There's certainly a lot to do, but we are not forcing synergies in the group. So what is what does the future hold for us? Looking ahead, we see Some very good potential for further organic growth as well as M and A opportunities. Notable organic growth In the game segment, we have some significant products ahead of us and which will release this year and beyond. But also our partner business will continue to grow and We will be we are adding partners to our base. And Those two parts of the business work very well hand in to give everybody a full global reach physically and digitally for all content. And then there is M and A opportunities. Lars, You know Lars, yeah? He we are all very clearly able to grow and scale our organizations. And it is not all hinging on 1 person or 2, it is very much a group effort to grow also through acquisitions. So in summary, I can only say it's been an amazing 3 years. And we are glad that We joined the Embracer Group, and we can continue following our entrepreneurial instincts and think of us Think of the group more of a global village than a skyscraper. Umbracer is a global village of great companies. And I think that concept is unique and very scalable. Our philosophy is about enabling, connecting, empowering this industry where we know that we don't know what's going to happen Yeah. It's I think very well suited for our company philosophy. And it inspires creators and And entrepreneurs alike and captures our imagination. So thanks very much for The time and your attention and Lars said to me a few days ago, Never underestimate the power of dreams, and I could not agree more. Thank you. Lars? Thank you. Thank you, Clemens. I'm as glad as I were 3 years ago to have you on board And still on board and I just love seeing your and your team's Very hard effort to continue operating and growing the Koch Media business. Thank you, Luisa, very much for Joining this session and joining the group. I just love having you on board. We're a bit over time here, so I would we will cut the line to Austria and Milano, and we would move over to the Q and A session. So stay with us. Great. So back for a Q and A with both Lars and Johan. We have a lot of questions from myself today, but also from the message board. So remember that You can ask questions directly in the webcast, but not on YouTube. You can ask the questions via the message board, already getting a lot of questions in. I'll start with a few questions from myself, starting with you Lars and discussing the Q3 results. I mean what drove the results in Q3? My instinct is that digital sales and the back catalog, obviously, the key driver behind on gross margins and growth this quarter? Yes, I think it was a general performance. Obviously, we had a market with the pandemic that I would imagine help the demand for our products across the line and also on digital channels with a higher profitability margin. But comparing to last year, obviously, the addition of especially Sabre Interactive definitely helped the profitability in the quarter. But we didn't really have any new release sticking Worth mentioning specifically that we're driving the revenues. I think it was a very strong performance across the board. Great. And I mean, this the second half of the fiscal year, obviously, a bit slower in terms of new releases. But what can we say about Q4? Are there any titles that you would point out? There are quite a lot of titles at least, The smaller ones. Norel, I see in this quarter ending March a much or a very low activity From the new releases, let alone the Valheim topic alone, but in general, across the board, I think The big things are coming in the next financial year. So obviously, we have very nice titles coming out, and It's great products, but I'm not really expecting any major commercial impact from those New releases during this quarter. Yes. And I mean, turning to Volheim quite early here in the Q and A session, but I think, I mean, fascinating to follow it, the concurrent players, the activity on Twitch, starting with the team that has developed this. I'm hearing 3 people in Hoeve. Can you tell me more about the fantastic team behind this game? Yes. Well, in the respect of them, to start with, Iron Gate and Richard and the team, they are external company, even though we have a minority interest. So I think it's That gives this Q and A session a bit delicate because I have so much respect for what they have been building, and I would like them really to talk about The success and how they did it and so on. I'm just truly impressed what they have been able to achieve. And that's why I love the games industry, that You actually are able, if you're just a handful of people, to create such a game that amaze so many millions of players spending hundreds of hours and creating, obviously, this business as well, but Just engaging so many people. And I think this is, you know, I've never seen it, you know, and we've been working Well, I've never seen such thing like Valheim, at least within the embrasure group. I think it's something that I'm truly happy about And also the quality of the product stands out. And it's just Viking, being Swede. I just love the theme of it. Yeah. And I mean, I note in your sort of ROI plot chart here that you're going to have to have a bigger plot for the next presentation perhaps. But looking at also coffee stain, I think it's worth highlighting here. 1 of the early 8 operating units. I mean, they seem to have, don't have the English word for it, but finger top feeling when it comes both development when it comes to publishing and in general, I mean, a fantastic company. Yes. And with all the respect, I have to say, they are able to really find these amazing talents and games. And that's the thing, to be able in your daily work to pick these things and do the right decisions. And Obviously, I always had a full trust for them. And obviously, this Ferdinand puts Nelstad, They are game makers. They know how to make games and make community driven games. And they are different as we all are. Indeed. And I mean, you mentioned the rigor before. I guess they're very busy now with updates and patches. But what's the plan over the next sort of 1, 2, 3 years for the game in terms of console, in terms of other platforms and Development. Yes. I'm sure they are bombarded with requests and questions about what happens next. But I'm As we all could see, they have shared the plan for the game, I noticed, on Steam. And I think they're very just very focused on executing their daily. Again, they're a very small team, so I think we should leave them alone, make their magic, and I'm sure they will communicate when they're ready about what else could happen in the future. Yes. And I mean this is Embraced Group. This is not Iron Gate. So I mean we have to ask a little bit about the details that you mentioned, you touched upon it in the presentation earlier. But I mean, you mentioned a typical deal with an external developer And you have a minority interest. So I mean my take is that a normal deal could perhaps be That you have 30% to 50% share of the revenues, you pay out the rest in royalties. Is that sort of a fair assumption? I can't go into details. Again, What I mentioned, the developer in the publishing agreement has a healthy Majority, a good majority. So I think that is much more in the first number rather than the second number. I think looking in what could this what without specifically Talk about IronGate. What could a typical external publishing relationship potentially bring to Coffee Stain and the Embraes Group, both from the Publishing side and from the minority interest side to the operational EBIT level. Well, it depends on obviously the Publishing margin along with the potential contribution for the minority interest and the profitability in that company over time, net on the tax side and that we are able to do the pro form a accounting in time for reporting as well. So it could be delays in this as well. But over a longer time, I would say, Perhaps not €50,000,000 but it's definitely something like closer to that, at least, In combination. In combination. Great. And I'll try to intervene some questions here from the audience as we have a question on this topic from Tom Singlehurst at Citi. Does the strength of Olheim mean that it doesn't matter that you're sort of reducing the release the launch cadence in the Q4? Well, now he's talking about his forecast and consensus, I would imagine. I don't know. I don't know. I think it's hard to comment on that. Obviously, looking on your expectations and others' expectations on the business, I realizing we had Biomutant that many people expected in the quarter moving into next quarter. We might have a bit lower commercial activity than expectations, I would say, especially perhaps at THQ level and partly also at Deep Seaver level. And then we have a bit of