Hello, welcome to this Q4 presentation of Embracer Group's results from Karlstad today. I am on the link from Stockholm, given the extreme circumstances here today. Will be very interesting to hear more about the sales mix in Q4 with very strong digital game sales while physical is struggling a bit more. Also interesting, of course, to hear more about the pipeline for the current fiscal year and the potential delays here to AAA titles. Without further ado, I'll leave it over to CEO and Founder, Lars Wingefors, and also CFO Johan Ekström. Please go ahead.
Hello. Thank you, Oscar, and hello, and welcome everyone to a very sunny Karlstad. I'm happy to report another stable quarter of Embracer Group. Looking at the full year numbers that we were ending in March, we had a milestone of achieving profit or operational EBIT of about 1 billion SEK. That's a 35% growth year-on-year. Looking at the quarter, it was a tough comparable quarter due to the AAA release of *Metro Exodus* in the same quarter last year. Taking those Metro numbers away, we had a very strong performance of the overall games segment in the quarter. Digital sales were at all-time high at 78% in the quarter. We didn't have any major release in the quarter, but we had a number of key sales drivers mentioned here.
For example, the continued performance of back catalog games such as "Wreckfest," our own IP from the developers of Bugbear in Finland. We had a continued strong performance of "Kingdom Come: Deliverance" from our own studio in Prague, Warhorse. We had a new release of "Darksiders Genesis" performing according to management expectations. We had the Steam release of "Metro Exodus" and the DLC content drop of "Sam's Story" during the quarter, and "Metro Exodus" contributed very well into the quarter. Finally mentioned here, we had a content update three of "Satisfactory," and that gave a significant boost to the engagement and sales of the games on Epic Games Store. That progress are continuing up until as of this morning. We announced this morning that we have a record of 118 games under development spread across more than 3,000 engaged game developers.
As a comparable KPI, we invested last year one and a half billion SEK into the pipeline that will generate organic growth in the future. You can compare that to SEK 589 million of the games we were releasing during last year. We have a significant higher investment into the pipeline than we released last year. We disclosed this morning that we are expecting to release more than double the amount of games or double the value for the current financial year, increasing from the SEK 589 to in the range of SEK 1.2 billion-SEK 1.4 billion in the financial year ending in March. We are expecting our first AAA releases since Metro Exodus to be released in the financial year ending in March 2022. In the quarter, we had the major acquisition of Saber Interactive that were announced at February 19, that were legally closing April 1st.
I'm really happy to have them on board, and they had, I would say, a flying start of joining the Embracer Group with two releases in the current quarter. They had "SnowRunner" on PC or Epic Games Store, PlayStation 4 and Xbox One, and I'm happy to announce that that game has been selling more than the management expectations. It's a quite equal sell through in all three formats. It has very good retention and a lot of played hours from the players. There is a high % of sales of premium version and DLC content. We expect the game to sell nearly 1 million units in the first three weeks. They also had the "World War Z" Game of the Year edition released a few weeks ago, and that is also performing above the expectations we had when acquiring Saber Interactive.
A few days ago, we were at Coffee Stain, we were finally releasing Deep Rock Galactic, the full game version, and I'm happy to see that it's performing well. They also had the fantastic retro release of Huntdown that had some raving reviews from critics, and especially proud to say it's a game made very close to Värmland, actually in Trollhättan. Finally, mention here we had the release of MotoGP 20 from our own Studio Milano Milestone. That also has performed according to the management expectations. Finally, we raised earlier in April, 1.6 billion SEK for further acquisitions that still are to be allocated. We have a lot of ongoing discussions, both in early and late stages with small, mid-sized, and significant size acquisition targets. Leaving over to CFO Johan here.
Thank you, Lars. We start with looking at our P&L for the period. As said, during the quarter, net sales reached SEK 1.3 billion, which is 18% lower than the corresponding period last year. When comparing the periods, it's key that we consider that last year we had the release of Metro Exodus, our most successful release ever in that quarter. Our EBITDA came in at SEK 495 million for the quarter, which is 20% lower than the EBITDA for the same period last year, and mainly related to the lower sales amount. Operational EBIT reached SEK 286 million in the quarter, yielding an operational EBIT margin of 21%. Adjusted earnings per share for the quarter is 0.97 SEK, which is 3% below the same period last year. Looking at the full-year numbers, we see a top-line growth of 3%, growing it from SEK 5.1 billion-SEK 5.2 billion.
Growth over the year is mainly driven by business area games, which has contributed positively to the profitability, hence the higher growth in EBITDA with 33%, from SEK 1.3 billion-SEK 1.8 billion. As Lars mentioned, our operational EBIT for the fiscal year is above SEK 1 billion, which is 35% more than we had last year. Operational EBIT for the year is 20%, which is five percentage points better than the 15% we had last year. Adjusted earnings per share for the full year reached SEK 2.81, which is 33% more than what we had same period last year. Looking into our depreciations and amortizations, we divide them into operational amortizations and depreciations, which is SEK 209 million in the quarter, and acquisition-related amortizations, which is SEK 189 million in the quarter. The operational amortizations and depreciations are mainly related to our games business area, where we depreciate completed games.
Another note to make is that we depreciate other intangible assets with SEK 53 million in the quarter, which is mainly driven by our film business. On the acquisition-related side, it's IP rights and goodwill that accounts for the majority of the acquisition-related amortizations. We had a strong cash flow in the quarter, driven by our operating profit and also a significant contribution from a reduced working capital. Looking at the working capital, all three components of working capital added positively to the cash flow, where we saw a reduction in inventory, operational receivables, as well as an increase in operational liabilities. There was no forfaiting in the quarter. Last year, forfaiting was decreased with SEK 56 million in the corresponding quarter. We invest into intangible assets, SEK 464 million during the quarter. This is mainly, or a significant portion of this is into organic growth investments.
We have a negative cash flow from financing activities, which is explained by lower utilization of credit facilities in Koch Media. We have paid corporate income tax in the quarter of SEK 30 million, and for the full year it's SEK 152 million. As said, we are investing into our pipeline of games. This quarter, we invested SEK 417 million into our games portfolio. Out of this, SEK 224 million was internal investments and SEK 193 million was external investments. We also invest into other intangible assets, which is mainly our film business, another SEK 40 million in the period, adding up to a total investment into intangible assets of SEK 465 million in the quarter. During the same period, we finalized and completed games development of SEK 165 million. We continue to increase the investments we make in our pipeline.
If you compare the investments this quarter with last year, you are increasing it with 37%. From SEK 305 to SEK 470. Our balance sheet total assets amount to SEK 10.6 billion. The majority or more than 50% of the balance sheet is related to intangible assets, which is SEK 5.8 billion. 48% of the total intangible assets are related to our operations, 52% are acquisition related. The operational intangible assets mainly consists of finished games that are currently being depreciated and are generating revenues, which is SEK 439 at the end of the year. The value of our ongoing game development projects, which is SEK 2.1 billion at the end of the year. Acquisition related intangible assets mainly consists of IP rights and goodwill. As mentioned earlier, we completed the acquisition of Saber on 1st of April.
We are currently working in the integration and with the preliminary purchase price analysis or allocation that will be presented in the Q1 report. Where we are now, we see that we estimate that the surplus values from taking on Saber into Embracer is around SEK 6 billion-SEK 6.25 billion. As you know, we have a five-year straight line amortization rate on surplus value. This will add approximately SEK 300 million-SEK 313 million in acquisition related amortizations going forward starting 1st of April. The strong cash flow in the quarter can also be seen in that we are increasing our net cash position from SEK 838 million to more than SEK 1 billion at the end of March. Also, we provided an update on our liquidity situation as well as our financial strategy in the report.
After the end of the quarter, we have extended our credit facilities with another EUR 27 million. Our credit facilities are long-term mainly, and the interest rates at utilization is between 0.5% and 1%. During the last quarter, in Q4, the interest on utilized credit facilities was 0.8%. Today, our credit facilities amount to approximately SEK 3.5 billion. Also the available liquidity for the group is today approximately SEK 5 billion. Looking at our financial strategy, we have historically, prudently, and intentionally we have had a low leverage not to add financial risk. As the pipeline of games are being released going forward, we expect to have a notable improvement in free cash flow. The first priority is to use this operational cash flow to invest back into our business in generating organic growth through, of course, investing into our games portfolio.
A second priority will be here to allow for financing smaller bolt-on acquisitions in the underlying businesses with our operating cash flow. In general term, this means that looking ahead, the game development costs will be self-funded with operating cash flow, meaning that leverage capacity will mainly be allocated for larger acquisitions or big net working capital swings. The ambition is still to have a positive net cash position as it allows us to have strategic flexibility and to pursue our strategy. However, if the right inorganic growth opportunity arises, financial leverage could be temporarily up to 1x net debt to operational EBIT. In such circumstances, we should, during a medium term at least, make sure or see to it that the leverage is returned to below 1x net debt to operational EBIT, either by retaining operating cash or by raising additional equity. This is Lars.
Thank you very much, Johan. I will take you through the games or the business areas and starting at looking at a bit of the KPIs of the games business area. Looking at the trailing 12 months basis, we had a 31% growth year-on-year, achieving SEK 3.2 billion in sales. As mentioned, it was a 13% quarterly decline in the quarter due to the comparable period had Metro Exodus releasing in February 2019. Looking at the trailing for the digital share of the sales, it's at the 73% currently on a trailing 12 months basis, compared to the starting point of 53% in the beginning of the year. The share of own titles on a trailing basis are reaching 76%, compared to 67% when starting the year. The new release share are currently at 38%, the rest is back catalog.
As all shareholder has noted, the back catalog sales has driving a lot of the revenues during the last financial year, including this quarter. Going into each business area, looking at Deep Silver, they had a quarterly sales of SEK 515 million that were one of the strongest quarter ever. On a trailing 12 months basis, they are at SEK 1.8 billion. Looking at individual titles in the quarter, Metro franchise, or Metro Exodus specifically was a major key driver. During the quarter, it had sales of approximately EUR 14 million comparing to EUR 58 million in the release quarter. Also in the quarter, we had the Switch releases of Metro Redux generating some sales.
In the quarter, we had a continued performance on the Saints Row franchise, driven by the two Switch releases of Saints Row: The Third and Saints Row IV. Worth noting is that the Kingdom Come: Deliverance game, now two years after release, still are generating notable revenues. That has been a good key driver for the catalog sales all year for Deep Silver. This quarter, it was the second biggest IP in the back catalog after Metro Exodus. During the quarter, worth pointing out releases was a good release of Monster Energy Supercross 3 from our own studio and friends in Milano, Milestone, releasing in February. That did perform according to expectations, notably driven by the digital performance. The release, again with the Metro franchise, of the Sam's Story DLC in the middle of the quarter.
Looking at the upcoming releases, we're having Saints Row: The Third Remastered coming out on Friday this week on PC, Epic Games Store exclusive, and PlayStation 4 and Xbox One. That would be the most notable release during the Deep Silver current quarter. They have a, I would say, substantial pipeline of games coming out in the coming year and coming years. Pointing out here, Wasteland 3, Iron Harvest, Dead Island 2, Ride 4 from Milestone, MotoGP 20, that's just released a few weeks ago. They're having the next game from our own studio and friends at Warhorse. The next game from our own studio, Volition, in the Saints Row franchise. The final game mentioned in this presentation, something from 4A Games. Going over to THQ Nordic.
Compared to last year, they had a fairly strong quarter, increasing their sales with 115% year-over-year, reaching SEK 307 million in the quarter. On a trailing 12 months basis, they are now about SEK 1.1 billion. The key release for the quarter were Darksiders Genesis on console. That did perform according to expectations and had a good Metacritic. On the back catalog sales, they continued to have a very good performance of the Wreckfest. I'm happy to say that Wreckfest have sold way above 1 million units only on digital platforms, and it continues to perform as of today. They are bringing out more content. Gunfire, having their original IP, continued performing. They just had a new DLC package dropping a few days ago on Steam.
That game is published through Perfect World. We do have a notable share of the gross profits coming in as a royalty income in our P&L. During the quarter, they set up two studios. They set up a studio in Barcelona that are currently working on a Gothic Remake. Finally, they have set up a studio in Bratislava, Nine Rocks Games, that are currently working on unannounced new IP. Looking ahead, they have a significant pipeline of new releases. Here we are just mentioning four of them. In the current quarter, they are expected to release SpongeBob: Battle for Bikini Bottom - Rehydrated, as well as Desperados III. I'm happy to say that we see some very strong pre-orders, especially on the SpongeBob game coming out in June. In the next quarter, they announced that they will be releasing Destroy All Humans!
Later in the year, we are expecting a number of other releases, including Biomutant. Moving to Coffee Stain. They had one of the strongest quarter ever. Satisfactory and Deep Rock Galactic, as well as the original Goat Simulator, was key drivers. All three of them did exceed the management expectations during the quarter. The total revenues in the quarter were SEK 82 million. Comparing to the same quarter last year, it was SEK 98 million. However, that quarter included the full new release of the early access of Satisfactory. If you compare SEK 82 million with the last quarter, the quarter before this reporting quarter, SEK 36 million, I would like to point out a strong performance. As mentioning earlier in this presentation, they had a content drop of Satisfactory in February, and it was very well received by the audience.
The game are reaching a new level of sell-through every day. Deep Rock Galactic showed a solid performance with a combination of new content during the quarter. After the quarter end, they released the full version just a few days ago. As mentioning, it has been having some strong sales on the Steam. Also worth pointing out is, again, the Huntdown game to raving reviews from critics. Looking in the next year, I would say they have a very selected, but very interesting pipeline of new games coming up in the coming year and years. Here it's mentioned Songs of Conquest from Lavapotion in Gothenburg and Midnight Ghost Hunt to be released on PC, but they're having a number of other titles in the pipeline. The new business area, Amplifier Game Invest, were reporting this morning that they made the first investment in Italy.
They acquired 100% of a studio called DESTINYbit that has an upcoming game called Dice Legacy. I'm very happy to have that team on board, so very welcome to the group. During the quarter, they increased their stake in Misc Games in Stavanger from 45% to 55%, and they set up, as previously announced, the River End Games Studio in Gothenburg. In general, Amplifier Game Invest are having a strong inflow of potential business cases, and I'm very happy to have the whole business area within the group. Moving over to Partner Publishing and Film. They had a quarter that were significantly affected by the COVID-19 effects across Europe. Retailers were more or less closing in Europe during March, and partly a part of that revenues were moving to e-tailers such as Amazon and many others. That could not fully be replaced.
We had a 27% drop in revenues year-over-year to SEK 436 million in the quarter. On a trailing 12 months basis, they're just about SEK 2 billion in revenues. The biggest contributor in the quarter was Final Fantasy VII from Square Enix, a fantastic game that shipped partly in the quarter. I'm happy to say that all our logistics hubs across Europe remained operational during the quarter through a significant effort from all people in the warehouses, making sure we could ship the games still. The film business had another solid quarter, I would say in line with the management expectations. Worth pointing out, it had a continued performance just days or weeks before the closure of the cinemas in Germany, having the movie Parasite and the Academy Award-winning Parasite. That film also shipped through to physical retail.
Other titles worth pointing out in the quarter were "DOOM Eternal" from Bethesda that shipped within a few territories where we have the distribution. We shipped "Persona 5 Royal" from Atlus and "Yakuza Remastered Collection" from Atlus during the quarter. In the current quarter, they do have a, I would say, significant pipeline of releases. However, there is no major release during the current quarter ending in June. We can see a bit of pickup the last week and weeks when retailers are opening up across Europe. Going into M&A. As I told you in the previous reporting, don't expect too much too soon. I'm getting lots of emails. "Are you announcing acquisition this morning, Lars?" No, I didn't this morning, but we're working very hard.
We don't have to acquire companies to grow the business, and there is no stress. We need to make the right transactions. Here you're seeing a slide, obviously, of the biggest acquisitions we've done to date, and that's the acquisition of Saber Interactive that we announced on February 19 and that we closed legally on April 1st. Really happy to have the whole team on board led by the CEO and founder, Matthew Karch and Andrei leading operations. As stated earlier in the presentation, they had a flying start in the group releasing "SnowRunner" and the game of the year edition of "World War Z." Again, also stating "SnowRunner" had a very good first three weeks of sales. The game is not published by Embracer Group's publishers. It's published by another publisher that are doing a great job.
However, obviously, they are capturing, I would say, most of the business of the "SnowRunner" game is coming into our books later on. Over time, obviously, it's the strategy for Saber to capture as much value as possible. They have clearly proven that by financing and making some amazing products before joining the Embracer Group. Happy to see that they announced another title, also published by another publisher at our friends at 2K. They announced the development of "WWE 2K Battlegrounds" that are to be released later in the year. I leave that Saber slide here and then moving over to more a general slide about the group and then M&A. I think the Saber acquisition has been driven even more, I would say, contacts and entrepreneurs that are interested to join the group.
I would like to just clarify why entrepreneurs and creators are interested to join the Embracer Group. We truly have a decentralized business, and we empower the entrepreneurs to continue running their businesses. Founded by entrepreneurs, run by entrepreneurs. We are offering the benefits of larger structures, such as access to growth capital, but also a range of possible but never forced synergies. Sharing knowledge, IPs, distribution, marketing resources across the group. I truly believe this is the model for the future, and it's been working very well. I would like to welcome more fantastic entrepreneurs joining the group. We are actively looking to onboard more entrepreneurs. We have a very long list of active dialogues.
We are looking for new operating units under the parent company that has a very sizable business or a business model that are new to the group, as well as bolt-on acquisitions, mainly of fantastic development studios that are becoming part of the group, such as Saber and THQ, Koch Media, et cetera. In order to finance these acquisitions, we decided to raise more capital earlier in April. I was really happy to see that we had a strong demand from our existing long-term shareholders as well as a number of new long-term shareholders joining the list of shareholders. In total, we raised SEK 1.6 billion, and we had demand from more than 100 Swedish and international institutional investors. Leaving over to Johan for the final slide here.
Yeah. We have an update on the work we do within sustainability. We are glad to report that we are advancing in the area. Through the ambassador program that we have described earlier, we are rolling out the sustainability ideas throughout the organization and engaging and supporting all the entities in the group. During the quarter, we also launched a whistleblowing service which is in line with the compliance code that we adopted fall last year. Also a benchmark achievement in our sustainability work will be the sustainability report that will be part of this year's annual report which will be made publicly available at the latest on 26th of August. We are also a partner to the organization Safe in Our World, who provide tools for dealing with mental health issues and are working to raising awareness in the industry on these important matters.
Thank you, Johan. Finally, I would like to send my dear thank you to all employees that have, I would say, swiftly been able to move from work from office to their home across the world. It's been amazing to see how people have taken actions in order to make sure that the operation continues to operate on basically the same level. I'm truly impressed by all the efforts by all colleagues and all local managers making this happen. I know it's been very difficult times, and it still is very difficult times across the world. Thank you very much. Now leaving over to Oscar, you might have a few questions.
Yes. Thank you. I do have a few questions. I'll start with a few quick questions from myself and then also read questions from the web, and finally open up also for questions from the telephone, I believe. First of all, talking a little bit about the Q4 results. Clearly some unique circumstances at the end of the quarter, especially with digital sales performing really strongly, which we saw in the above guidance sales for the game segments, while Partner of Publishing performed below guidance. Can you talk a little bit more about the unusual circumstances and also how that has evolved now in Q1?
I think the whole industry showed or have seen a significant increase in usage of games. The play games hours has increased significantly across the world, basically. That is also true for us. However, our business are partly dependent on visibility and new releases. During the March period, we didn't really have any significant releases to kind of capture this trend. We saw an uptick on all digital areas, but from quite a low level because our back catalog requires either digital sales promotions to increase their sales significantly or new releases again. We didn't really have that during this period. However, what we've seen now in April and up until today in May, that we both had a bit of more releases performing well.
I think the game itself, no matter the COVID-19 situation, would have been performing very well, but I think we have been able to capture a bit of that increased usage of games. We also had a number of notable digital promotions of the back catalog sales, especially now in April. I hopefully answered that question, Oscar.
Absolutely. Strong start to Q1. Could you also elaborate a bit on Port of Publishing now, what to expect in Q1, given that physical retail has been closed down for large parts of the quarter, and you did ship Final Fantasy partly in Q4?
I think we need to be realistic. I think what's the most important for us is to work with our longstanding customers in order to help them to get the business up and running again. This customer base across Europe we've been working with for many years, up to 30 years. It's very important for us that we continue having this retail distribution landscaping in Europe. I think that is the most important thing for us. In the quarter, there is no significant major release. There is a range of other releases including films in the quarter. I think in terms of revenues, we wouldn't have a significant quarter. I think it would be just a quarter.
Got it. Going through the segments a bit, first of all, THQ Nordic, which I think surprised positively here for me at least in Q4. You mentioned that the Darksiders Genesis on console performed in line with management expectations. Can you also talk a bit about how the game has performed compared to its budget and also what you see for the IP going forward, given now that Gunfire Games is an in-house label for you?
Yeah. Well, Darksiders Genesis was not developed by Gunfire Games. It was developed by Airship Syndicate. That is another friend and studio in Austin, Texas. There is two Darksiders studios in Texas. Well, I think the game had a much lower budget. The value of the completed game is much less than Darksiders III. Darksiders III did cost a lot of more money to make. I think on the profitability side we are happy with Darksiders Genesis. I think it will continue to perform, especially on digital promotions. It's really found its fan base on Nintendo Switch as well. I think that is the level of details I can give you right now, Oscar, on Darksiders Genesis. I think in general, THQ Nordic, it was Darksiders Genesis. It was a strong performance, continued performance on Wreckfest.
THQ have hundreds of catalog titles always generating back catalog sales. They also had a number of smaller releases in the quarter. I didn't point out really any of them in this presentation, but obviously it's generating a revenue, those smaller releases. They also have invested amount as well. Over time, I'm confident about their return of investment of the smaller titles.
Great. Coffee Stain you also seem very content with, which is understandable. I always want a little bit more detail on the releases here after the quarter. Deep Rock Galactic now fully released on PC and on Xbox, I believe.
That's correct.
How has that performed? Some more detail there. Also when we can expect the PlayStation release to come. I know there's some sort of lockup there, exclusivity with Xbox.
Whether that game is coming to other formats, I can't confirm. That is something that the publisher will communicate to their fans. Regarding the sales numbers from the release, I can't give a disclosure on that. I can just note that the game has performed well on Steam in the past week. It has constantly been a title performing the past year for Coffee Stain, and I would expect that to continue. It's a fantastic game foremost, and a very competent studio in Copenhagen.
Great. Turning towards more questions here on 2020, 2021. Obviously, there's been some news here on the pipeline for this current fiscal year. If I interpreted the report correctly, the two AAA titles supposed to come out this year will not come out.
Well, as I wrote in the report, we confirmed the report that we will have the first AAA releases in the next financial year ending March 2022. That is the first AAA releases since "Metro Exodus".
Great. I'll come in with a question here from Benjamin May at Berenberg as well on the same topic. He thinks it's somewhat unclear on the AAA pipeline. Just to clarify, should we expect it to be multiple AAA titles in next year and no AAA title this year?
Well, if you don't have a AAA title from the release of Metro Exodus until the next financial year, I would guess that the answer is correct, or question is correct. I think AAA titles are important, but I would like to just point out that we're having an increasing number of titles, perhaps not defined as AAA, but that are performing very well, both on a recurring basis, such as Satisfactory and many others, but also notable great content as SpongeBob and Destroy All Humans! and et cetera. For us, it's more about the value. The invested capital is one important KPI for us, and that will more than double the current year from last year. From the management perspective, we're actually reaching the goal we had in the amount of content we're releasing in the current year.
I stated regarding AAA that starting from next financial year, we will have AAA releases every year. Whether that is one or two or more is not defined, and I will not confirm either of it in this Q&A. I can just confirm that we're having a number of AAA releases under development.
Great. Very clear. Follow up here. Now in 2019/20, you had a finalized development of around SEK 600 million, and you're guiding for SEK 1.2 billion to SEK 1.4 billion in this fiscal year. Looking at sales from new releases, the last year it was around SEK 1 billion. Should we expect more than double the net sales from new games in this current fiscal year?
We are not giving a financial forecast, especially not on the revenue side or operational EBIT side. The return on investment varies. If you just look at the KPI of, for example, the overall sales or gross profit in the business area relating to finalized games, it's obviously depending on how much back catalog sales would you have in the period, and how much is the value of the game you're releasing. Some games could have a very high return on investment, especially if the game over time are recurring and selling every day for many years. AAA games and large, big, more like single-player experiences in general, having a lower return on investment than small kind of indie titles. What this return on investment relating to the finalized games in the year is, that is something that I'm very glad to leave over to you, Oscar.
I don't know how much the games will sell. I'm just confident overall we will have a good profitable growing business. This is games industry. Games could sell 1 million, but it could also sell 3 million, and it makes a very big difference in the return on investment.
Very good. Interesting to hear your thoughts there. I will take a look at it myself as well, of course. I think very interesting as well here is what you call the financial strategy update, where you open up for going to above net debt to operating EBIT of above one time on forward-looking estimates. Is that correct? That is on forward-looking estimates, management estimates?
Yes. It's forward-looking. Yes.
That would be for banks' eyes only.
Got it. In that case, if that were to happen, would it make sense to perhaps guide the markets on your earnings expectations?
No.
Okay. Great. One thing that I think given the structure of the Saber Interactive deal now in last quarter where you also included quite some earn-outs, could you perhaps talk a little bit about the level of earn-out commitments following the deal, and also what the rough split between maturity years looks like following the acquisition?
I think we went through that fairly well on February 19.
But also including-
Total purchase price is $525 million. Adjusted for the share price for day of closing and currency exchanges, that is also the value we put to the company in our balance sheet. Meaning that we are kind of expecting that amount to somehow be paid out when they are reaching these earn-outs that we think they will. If not, we wouldn't put them into the balance sheet. The earn-out are a number of other factors and during a number of years, and the last earn-out are paid year six. I think you need to ask more direct questions here, Oscar, if I'm to answer them further.
Got it. I'll settle with that for now. A question here from the web on the transition from K3 accounting to IFRS, which you initiated, I think two quarters ago. How is that transition going? What implications will it have on accounting of both operational D&A, but also acquisition-related amortization?
Yeah. We are in the pre-study of the conversion project. I think we described in the last quarterly report, we kicked it off in December. Of course, also we need to balance priorities. A key initiative for us is, of course, to integrate Saber properly into our current accounting standards since we need to include them from 1st of April. That being said, there are a couple of differences mainly related to goodwill amortizations that if you look at the IFRS, those are different. It's also a difficult matter, and we would like to conclude the pre-study before going into any answers of what it might look like. It's difficult.
Understood. We have another question from the web before we wrap it up here. A few questions more. No M&A in the quarter. Does COVID-19 have an impact on the ability to travel and to close deals? Also what does the pipeline look like ahead? Which I think you touched upon.
I think the pipeline has increased since last quarter. We're having increasing number of great companies that we're talking to. As stated before, some people we're talking to over years until it actually happens. I think the pipeline is with people that we already have met and know and sometimes do business with. And I deem that we are able to make transactions with those, if needed, companies without too much of traveling, because of we having a global setup of advisors and our own offices are in more than 40 countries already. Even though I prefer to have a physical meeting with people and actually making the deal, I have to agree to some degree, do work to use the phone and Zoom or Teams and other programs.
Obviously over time, if the lockdown would globally be extended like over another year or so or perhaps half a year or a year at least, it will be harder to find new great companies, because I don't want to make any significant acquisitions without actually meeting someone eye to eye. For a moment, that is not really a issue to make transactions. I have efficient logistics ways how to operate, so I'm sure I will be able to get out to the companies across the world when the local governments are opening up.
Great. I have two more questions from the web. Let's open up for some questions from the telephone for now.
Kenshi Arasaki from Jefferies, please go ahead. Your line is now open.
Hi, Lars. Okay. I have a couple of questions if you hear me okay.
We hear you.
Firstly, regarding sales during the COVID-19 experience, could you comment on the extent to which you believe that they are kind of a one-off or that they will generate, say for instance, base game sales where there's a potential for follow-on sales from DLCs in future years? Is it a one-off effect or does it have a longer-term benefit? Secondly, again, there's a shift to digital at the moment, but how do you feel that the effect of the sort of depression of physical is going to apply when we get new game sales, particularly new console sales, which have always been quite physically oriented? How much do you feel digital has grown at the expense of physical in a longer-term way? Thank you.
I think the long-term effects are definitely there. The increased spent hours in games will benefit the usage of games going forward. How much that is? It's impossible for me to speculate in. I think in general, I'm just encouraged by seeing a lot of new players coming into our games. I'm sure they will, even though the lockdown is over, continue to play these games. On the second question, physical. I think physical is already somehow a niche market. Customers comes first and there's still a significant amount of customers willing to buy physical. They like the physical products, as I do myself, buying these collector's editions, buying these substantial big releases at release, especially when there is new potential consoles coming out.
I'm a firm believer that the physical market, even though it's a niche, will be here to stay for many, many years to come. We are staying in this market, and I see the broader opportunity to contribute to the consolidation, in order to make our operations efficient. How much this shift will be after lockdown, it's very hard to speculate on.
Okay. Thank you.
Thank you. As another reminder, to register for a question, please press zero followed by the one on your telephone keypad. The next question comes from Lars-Olof Alström from Pareto Securities. Please go ahead. Your line is open.
Hi, guys. I have a couple of questions. We can start with the M&A. Given the organization that you have built over the last year and following the acquisition of Saber Interactive, would you say that you are having discussions with a potential target that you even wouldn't have been able to imagine that you will have a discussion with just a couple of years ago at present?
Well, especially a couple of years ago, yes, definitely. I think our size in terms of obviously ability to, both from a financial perspective, but also market cap perspective, because I would like to give part of the considerations to entrepreneurs in shares so they can take part of the overall group. It definitely helps, obviously, that we're having a larger market cap today than we had a few years ago. Saber Interactive has specifically contributed to a number of new conversations that we didn't have before they entered the group. I think, over time, the more great companies you add, the more great companies could potentially join going forward. Obviously, we need to be, not careful, but I think we need to make sure that we are able to manage and integrate these companies also from a parent company perspective.
That's why we have been building more organization here in Karlstad, but also Stockholm and across the world in order to operate the whole group.
It would be fair to say that the overall quality of the M&A pipeline has increased?
I think over time, I think it has been a good strategy to onboard fantastic companies, because fantastic companies will continue to be fantastic in the future. That is a quite efficient way how to operate such a group as Embracer. My ambition is definitely to continue to add the leading or top-ranking players, whether it's in genres or geographical jurisdictions or business models over time. For me, it's important that it's someone there. There is an entrepreneur, there is a team of people that founded and still operate the business, whether they are creators or businessmen or women. That is one key factor to success, because I would like to have someone to talk to that are incentivized to continue operating their business. I think that strategy have partly changed from the time we made the IPO three years ago.
Perfect. I got it. A final question from me. On the project delays for Dead Island 2 and Saints Row project, can you explain how much is related to the current COVID-19 situation and how much is related to the new consoles versus coming off and even that it's sizable projects, that it's sizable complex projects? Can you give some more clarity there?
I haven't talked about those two titles today. As I've been stating before, I would like my fantastic developers and publishers to communicate their products. I think in general, on the question, is there delays because of the COVID-19 situation, I don't see any significant delays in our development pipeline. Obviously, that varies across all our 118 projects and 31 own studios. Some studios are actually reporting an increased efficiency in order to develop and make the games. Some other studios, especially the first week, had some challenges to switching and moving computers and structures from office to home. I think in general now, what I hear, it's working very well.
Got it. Thank you.
Thank you. There appear to be no further questions. I'll return the conference back to you.
Okay. Oscar, are you still on the line?
I'm still on the line, let's wrap it up here quickly. Two questions that I have to ask from the web as well, which I think are interesting here. First one from Mikkel Manrup. It is, "To be 100% sure, is Dead Island 2 and Saints Row 5 categorized as AAA games?
I haven't given any definition of AAA regarding our titles today except definition of Metro Exodus were a AAA.
Got it. The last question, can you say something about Biomutant? Will it be out this year? What do you think of the game quality?
I love Biomutant, the team, and what I see. For me, I wouldn't say pet project, it's like a project that I want, we want to make sure it's reaching the expectation and ambition they're having. As I stated before, it's a quite small team, it takes a bit longer for them to finalize the game. For me, that could continue until the game is what it has to be. I expect the game in the current financial year, though.
All right. Thank you very much. That was it from me. I hope to see you next time in a more regular circumstance in Stockholm, perhaps. Thank you.
Sunny Karlstad. Thank you, Oscar.