Q2 19/20

Nov 14, 2019

Thank you, Oscar, and good morning, everyone. I'm really happy to have another stable quarter. Sales was in total down 1% due to the performance in the Partner Publishing. What I'm really excited about is the performance of the games business segment that grew 117 percent to €816,000,000 in revenues. Furthermore, we increased our profits, operational EBIT as defined to with 143 percent to €241,000,000 in the quarter. Actually, I realized that we actually made over SEK1 1,000,000,000 in profit the past 12 months when doing the reporting last night. So that's an achievement for us. Cash flow was also stable with EUR 285,000,000 from the operating activities. Commenting on the quarter, the quarter was driven by strong release of Wreckfest on console that has been performing and continue to perform well. Along with that, we had a number of other key revenue drivers. Overall, the back catalog, led by the Metro franchise performance in the quarter. And the back catalog was almost entirely driven by the digital performance. So the increased share of digital sales drove the profitability in the quarter. We also had a high share of sales from our own IPs that are supporting the margins, for example, breakfast, the exclusive license of Metro and many others. Commenting on the investments, the quarter had SEK 343,000,000 in games investments into games development. That is 47% higher than the same period last year. In total, we're ending the quarter with 86 projects in the pipeline, whereof 49 of them are not announced. I'm restating that we have at least 2 AAA projects coming out the next financial year. I'm also commenting that we have not only AAA, but we have a strong portfolio of other titles for the next financial years next financial year. Also restating that quality is number 1. So we are taking the time to make the best games possible and continue polish the games. In the quarter, as announced in the last quarterly result, we had a number of acquisitions, including the leading 2 wheel racing developer milestone that released MXGP a few weeks after acquisition And the Workflows II, the Gunfire Games, the makers of Darksiders, that released Remnant just a week after the acquisition that also performed well and brought in royalty into the quarter. So I will leave next slide over to Johan. Thank you. Okay. If we take a look at some key P and L metrics, we can conclude that the net sales were a bit down in the quarter, 1%, mainly due to the decrease that we had in our Partner Publishing business area. This has further increased the share of games revenue in our P and L, which has a positive margin effect on our profitability. So you can see that our EBITDA and operational EBIT are growing significantly in the period, reaching a 19% operational EBIT margin for the quarter. Adjusted earnings per share amounts to SEK0.65. This has been adjusted for the 3:one split that was decided on the AGM in September. As said, here we can see that we are beating the SEK 1,000,000,000 barrier in terms of operational EBIT on the trailing 12 months basis, showing 12 months growth or 12 months net sales of SEK 5,400,000,000 and an operational EBIT margin of 19%. Here we have a bridge over our profitability. So we go from EBITDA to our operational EBIT and arriving at the reported EBIT. We have operational amortizations and depreciations. And the key part of that one is, of course, the depreciations that we do on our released and completed gains, SEK 144,000,000. The acquisition related DNA is driven by acquisitions made, and it's foremost related to IP rights and goodwill depreciations. So having a look at our cash flow. For the quarter, we can see that we are generating DKK364 1,000,000 in operative cash flow before changes in working capital. Compared to last year, it's a 60% increase. We should also note that we, during the quarter, has had cash tax cost of about SEK 53,000,000. The year to date amount for taxes paid is SEK 125 1,000,000. Change in working capital amounts to about SEK 80,000,000. It's mainly related to increased trade receivables due to strong sales performance in the last month of the quarter. Looking at investing activities, it totals SEK 1,200,000,000 in the quarter, SEK 800,000,000 approximately of those is related to acquisitions made. So it's the net cash effect of acquisitions completed in the period. Another SEK392,000,000 is related to investments into intangible assets. And we will show at a later slide how that's divided. We had a positive cash flow from financing activities in the period, approximately SEK 600,000,000, which is explained by a higher utilization of available credit facilities in Koch Media. There was no effect from fore fighting in the quarter. So it was 0 in the beginning of the quarter and also 0 at the end of the quarter. Last year, we had a significant change in working capital in the same time period, but that also included a SEK189,000,000 payback of fore fighting. You can also mention that the fore fighting as a means of financing and the cost for that is about 0.4%. And of course, it's an attractive level of interest from a cost perspective. And it's also related to the low credit risk that we have in our trade receivables portfolio, thanks to the insurance that we have on trade receivables. 0.4% in interest. Yes. On yield interest. Investments. We had SEK392 1,000,000 in intangible asset investments in the quarter. The majority of this is related to investments into our ongoing game development. It's SEK 343 1,000,000. And the other large part is other intangibles, which is SEK 43,000,000 and that's mainly related to our film business. Also during the quarter, we finalized and completed game developments with an acquisition value of about SEK 100,000,000. Main drivers to these completed games are, of course, the released breakfast that we mentioned in the beginning and also the release of MXGP. Looking at our investments over a time period, we can see that we are growing it year over year. It's 47% up against the same period last year. It's a bit down compared to last quarter, but that's mainly related to holiday seasonal variances. Our balance sheet, total assets, around SEK10.7 billion, more than half, a bit more than half is intangible assets. So as we normally do, we take a closer look at what sums up to the intangible assets. Finnish completed games is SEK393,000,000 at the end of the quarter. Ongoing game development projects is close to SEK1.6 billion. So that's a large amount, of course, investments that we make in order to be able to generate future cash flows. Other intangible assets, euros 283,000,000 mainly related to our film business or our Partner Publishing business area. IP rights, euros 2,000,000,000 and then surplus value, Film Partner Publishing, euros 208,000,000 goodwill, euros 983,000,000. Comparing this to the beginning of the quarter, we see an increase in intangible assets. The large explanation for the increase is related to the acquisitions that we completed. So bringing these acquisitions into our balance sheet increases IP rights and goodwill, which is growing in the quarter. Also, you can see that we have a growth in okay. Thank you. Looking at provisions, they increased with roughly SEK 600,000,000 in the quarter. This is also related to the acquisitions made in the period. It's mainly this is where you will find provision for earnouts, for example, and also deferred tax liabilities on IP rights recognized. Strong net cash position at the end of the quarter. Net cash of SEK 1,100,000,000 available liquidity, including credit facilities of 3,600,000,000 Thank you, Johan. So looking at the performance within the games business area, First, looking at the net sales. On a trailing 12 month basis, we are above SEK3 1,000,000,000 and in the quarter, SEK816 1,000,000. Looking at the digital share, it continues to perform well. On a trailing 12 month basis, the digital shares of the sales is 63%, and in the quarter, it's 74%. Owned titles, owned IPs is, on a trailing 12 month basis, 79%. And looking at the share of sales of new releases in the quarter, meaning Breakfast, MXGP90 and others, are 32%. The rest is product not released in the quarter. So going into each business area. Deep Silver had notably strong year over year growth in the quarter, 75%, again driven by the strong back catalog where Metro franchise contributed the most, but also the performance of Kingdom Come, Deliverance, Outwatch and others, including the series of Dead Island and Saints Row, contributed well into the catalog sales. Milestone acquired August 14 contributed with €42,000,000 in the quarter, mainly relating to the release of MSG P 2019. Looking ahead, we have a strong pipeline within deep silver. Notable upcoming projects or releases are Dead Island 2, CNMU 3 that is due very, very soon, iron harvest for next financial year, And then we have the top secret next projects from our friends at and colleagues at Warhorse in Prague and for A Games. And as mentioned last quarterly report, we have a new Saints Row game in development at our own studio Volition. Milestone were acquired, as stated in the quarter, and they have a sizable lineup of upcoming projects. Next to do is Monster Energy Supercross 3 coming in February 2020. Our colleagues and friends at Tissue Nordic also had a stable performance with a growth of 100 and 65% year over year to €330,000,000 in the quarter. Key releases were breakfast, obviously, from our colleagues and friends at Bugbear in Helsinki, the studio that we acquired in November. Also in the quarter, we had a number of releases, small releases, including Red Faction and Guerrilla and Darksiders 2 Definitive Edition on Switch. In total, we have 12 releases. Tissue Nordic are very busy. They have a very full pipeline of products, mainly unannounced. But announced projects include Biomutant that I'm stating in my wording in the report that they are polishing and finalizing and are having very high ambitions about what they should achieve. So that release date will be communicated when they are ready. I really state to everyone, please make your games really good and polish them, and then we could communicate to the financial markets at last, first to the gamers. We have pillars of Eternity 2 that they are working on. It's in the final stage coming soon on console. We have Desperados 3 that there is a lot of excitements for next financial year. We have Desperados of All Germans, the remake for next financial year. And here in the quarter currently quarter ending in December, we have Darksiders Genesis. So early December, that is coming on the new platform Stadia, Google Stadia and on PC. And in the 4th quarter, is expected to do on consoles such as PS4 and Xbox 1 and Switch. And in the next financial year, we have Spongebob coming for most formats. During the quarter, as stated, we acquired Gangfire Games, And they had a tighter releasing a week after the acquisition that exceeded our expectations at the date of acquisition. That title is published by another publisher. However, we did get some royalties in the quarter. And finally, in the games business area, our friends and colleagues at Koffistein, they had a quarter without any releases. However, they still had €45,000,000 in revenues, driven by continued performance of Satisfactory, Goat Simulator and Deep Rock Galactic. We had no or they had no major promotions on Epic Game Store. But going forward, we are expect to get promotions. But most importantly, they are working to bring more content to the game. So they're working very hard in Svyde. So please stay tuned. The guys are working very hard at Coffee Stain with, I would say, sizable amount of products comparing to the size of the publishing and the teams. So during the next financial years, we are expecting a number of projects. At after quarter end, Coffee Stain are continuing doing their business model of taking minority stakes in interesting new development studios, most recent now one in U. K. Looking ahead, they have the team here in Stockholm, CoffeeStay North, working on top secret projects. And then we have from our colleagues and friends in Gothenburg at Davaporschia working on one title and then one title from Walter's Sky that were announced at E3 Midnight Coast Hunt. Also, we last quarterly, we acquired Goodbye Kansas GameInvest, and they are also working very a lot, very active. And I'm happy to announce we have our first investments made in Norway, in Savangir. They are a great small team doing fishing simulator products. Here, you can see fishing at Barents Sea. And we are interested, obviously, in finding new great teams that are engaged in the simulation markets. That is a very strong market for on PC. Furthermore, Gudbank Halsas GameInvest enabled us to set up a new studio around a senior development team that are departing from a larger AAA developer. More details will be announced in the future. Finally, the 4th business segment, Partner Publishing Film, did a great job in the quarter, but it's hard to beat last year's revenues if not having any significant AAA releases in the quarter. As all of you long term shareholders remember, last quarterly last quarter, we had 2 very big releases due out. So the decrease of 51% year over year are fully explained by the lack of these two titles. However, we had a number of titles performing in the quarter, such as F1 2019 from our friends at Codemasters. We had Ghostbusters, the video game from our friends at Solutions To Go and Sabre Interactive. We had Grateful, fantastic products from our friends at FUKUSOMMER Interactive. We had Catherine Full Body from Atlas. And in some territories in Europe, we distributed Monster Hunter World Iceborne from CAPCOM. Looking into the current quarter ending in December, we have a number of releases. However, we do not have any notable AAA releases in December quarter. Worth mentioning in the quarter is, for example, the Sager Mega Drive Mini from Sager, Grid from Codemasters, Terminator from our friends at Reef Creative. We have Football Manager 2020, Fiziklou still performing well in territories in Europe from SEGA, Life is Strange 2 from Square Enix, Sniper, Ghost Warriors Contracts from Sega Games in Poland, Super Monkey, Bald Banner Blitz from Atlastiga and finally from our friends here in Stockholm, the Paradox Cities: Skylands Parklife Edition. Looking a bit further ahead, we expect a few significant AAA releases in the calendar H1 2020. There is a lot of questions from everyone and shareholders about the physical market. And it's part of our DNA and background, and we are well into this market and understand it fairly well. However, we are digging deeper into it, how the future will look. And we see the market in market share are decreasing because the rest of the markets are increasing. However, the actual dollar amounts we see over the 3 to 4 years period are fairly stable globally on the physical market, driven by continued performance of the current generation, but obviously also the next generation of consoles. Embracer strategy. So I would like to restate a bit our growth strategy for all shareholders to understand. So looking at the financial model, we are continuing to having a very diverse portfolio to reduce our operational risk. That is one key. We are running on a strong balance sheet, not using too debt for acquisitions that reduces the financial risk. And we should continue having a strong cash conversion from our EBITDA. And as much projects as we could find, we are reinvesting the cash flow from our operations into further development in order to generate future organic growth. Looking at the M and A and how we are structured as a group, I would like to restate that we empower people, and we are putting the decisions out into the divisions and to the subsidiaries. So centrally, in Karlstad or here in Stockholm in the future, we are not deciding about how a game will look or what how to make their daily life. We are empowering people and we are trusting people. So it's a very decentralized organization, which I really firmly believe in that structure. We will not create a huge headquarter somewhere in Sweden to decide everything. And looking at M and A, we are acquiring great companies mainly or only from directly from entrepreneurs running their businesses. And this is not a roll up. We are acquiring businesses and investing into them. For example, as you can see within Deep Silver and Media, we are investing into the businesses. And this is very important to understand. And under each operating division, we are further doing M and A. For example, what we've done with Warhorse, with Deep Silver relations, what we have done with Bagwehr from THQ Nordic. And overall in the group, we are do find synergies, but we are not acquiring companies to do the synergies. But there is cooperation across the group within marketing and distribution and sharing of intelligence and so on. And again, we are investing for long term organic growth. We are expanding our IP portfolio, including projects on dormant IPs. We are developing and expanding our internal studios. And as you now was hearing from what we did with the Gugbuoy councils, we are establishing new studios with top talent. And we are allocating capital to development projects with great external studios. We got 49 external studios working currently along the 18 we have in house. And we are not investing any CapEx into the Partner Publishing business, but we do have the ambition to be the leading part in consolidating that market, mainly by adding new contracts and content. We are sharing a bit of deeper financial information for you today to understand the business. So we are here looking at the slide. You can see that we are investing for growth. Most of our operational cash flow has been invested into games development, of which significant part has been growth investments. So looking at the EBITDA since the IPO, where it's close to SEK2.7 billion, and we invested close to SEK2.2 billion in games development. Looking at the trailing 12 months the amortization level. I'm not defining that exactly as growth CapEx, but I'm indicating that there's a potential growth CapEx. And these are to continue building our pipeline. So looking at 3 most recent quarters of the capitalized game development and ongoing released games versus the ongoing games development are increasing. So we have 4x the amount of ongoing games development in the balance sheet as we have on completed games. So again, SEK 400,000,000 completed, SEK 1,600,000,000 in ongoing games development that will generate cash flow in the future. And only the release games, the SEK400 1,000,000 are generating cash flow. The rest is noncash flow until they are released, obviously. Looking at the development projects. I know this is not a perfect KPI because this includes small projects, midsized and AAA projects. But overall, you can see the number of projects has been increasing, looking from Q4 2017 with 36 projects increasing up until 86 projects as of end of September. And we have a sizable pipeline of projects. I've been talking a bit of them today, and for sure, I will talk a lot about the pipeline in the coming quarters. However, the communications about new titles and release dates will always be done through the publishers. That's for me. M and A. As you noticed, this morning, we did not have any M and A. And we don't have to have M and A to grow the business. M and A is part, however, part of the strategy in our DNA. We are working a lot on M and A. I'm spending a lot of my time unless something else shows up on the daily. But I really like to spend a lot of time meeting new companies, and I have a long list of companies we are talking to. I think we over the last quarter, we have been engaging and talking to over 50 companies, just to give you a sense of confidence we're talking to. And it's not only me. We have a great team both at the parent company and a lot of engaged people around the world in the games industry supporting us in this. And it's supported by the management of the operating groups and the business developers. But don't expect us to rush into any M and A. It's all about finding the right companies with the right culture, with the right products and the right ambition to within Embracing Group to build something together. We have a lot of not a lot, I would say. We have a handful of sizable companies we are discussing to discussing with that potentially could form a 4th division or a 5th division. But for most discussions are for smaller and midsized companies, developers and publishers, Not only the culture and the company, we also need to find what I call a reasonable price for something, which is always sometimes a discussion. So a bit further deep dive. Johan. Thank you. Yes, we had a look at our gross profits over the last or basically since mid 20 eighteen-twenty 19 for the games business area. And what we did is we calculated a gross profit to amortization ratio for that time period. That's the yellow line we can see here. So it ranges during the time period between 3.5 to 3.8 times the trailing 12 months amortization of release gains. Of course, if you would compare it to the net sales in business area games, the ratio will be higher. There we are between €4,900,000,000 €5,600,000,000 during that time period. We see it as a rough indication of gross profit return in relation to investments in the games business area. You should also remember that we have a quite aggressive amortization policy for games. So over 2 years, it will be fully depreciated. And of course, there are games that generate cash flows and earnings for a longer time period than 2 years, which will be a part, of course, of the gross profit in here, so in terms of backlog, profit contribution. I think it's important to state here that don't expect this to be for everything going forward. We are stating the historical numbers. There is a difference of doing, for example, AAA games in terms of investments and the return of that, comparing if our fantastic friends in Schrodder, for example, doing a goat simulator that is a bit smaller investment but could have a fantastic, especially in percentage, return of investment. This is the average. And of course, this is gross profit, so you don't have marketing expenses in there that will be in the operating expenses. Yes. And here, we're showing the net sales per business unit, the trailing 12 months net sales. So I'm getting asked from investors what's our organic growth, and I'm not saying this is the organic growth. I'm just saying this is the net sales performance trailing 12 months. But just to give you some understanding of this, the annual the growth rates from Q4, for example, at the Tissue Nordic until this quarter is 48% within Tissue Nordic. This includes the acquisitions we made within THQ Nordic. There is a bit of smaller acquisitions if you acquire an IP like Alone in the Dark, there is a small contribution obviously. But for example, when we acquire a company like Bugbear, there is no contribution to the top line because it's already a product we are publishing. So on a top line level, it's not contributing. So the acquisitions we're making of developers are really contributing to the gross margin if they are successful. It's important to understand this for some shareholders. And looking at Deep Silver, they had an annualized growth rate of 63% in the same period. Obviously, we acquired Dipsilver February 14, 2018. What would contribute to that number and little bit in this quarter here is obviously milestone that we did not publish before. However, we had a bit of partner publishing revenues from them before. You can also see here that Koch Media Partner Publishing Business has been fairly stable over the past 2 years with the 1% growth. However, this quarter, again, has been a bit down. Purchase price allocation. When an acquisition is made and it's completed, there is a preliminary purchase price analysis being made. This considers the total estimated consideration for the purchased shares. So it will be the value of cash at closing, shares at closing as well as any other conditional purchase price, if it's in cash or in shares. This total consideration for the shares purchased is compared with the fair value of the net assets in the acquired company. And if the total consideration is higher than the fair value of the net assets acquired, there will be a surplus value, which will be recognized. This surplus value will then be allocated between goodwill, IP rights and possibly also business area surplus values. And under our Swedish GAAP, this is amortized over a 5 year period. The book value of ongoing game development is taken over from the target company, and when the games are released, amortizations start. Also, when Embracer Group acquire a company, we need to implement the same accounting principles that we have in our global accounts. And of course, that means that we develop and that we capitalize investments into our Games portfolio during the project phase. And once the game is completed and released, amortization starts and the asset is depreciated over 2 years aggressively with the 3rd during the Q1, the second, third during the 3 following quarters and the last third during the 2nd year. I think it's important to understand this because there is as many amortizations, principles that there is almost game companies in the world. And we I'm seeing a lot of models, everything from running service businesses that there is straight cost or like in mobile games industry to most companies are capitalizing in the premium games market, all development costs until release. And after release, there is everything from a straight 5 years period to a 3 years period to more a black box IFRS model according to budgets to our model that we are having to what we had, for example, at Milestone, where they at release were Yes. They were expensing. They also they recorded their intangible assets or the investments into game development as work in progress recorded it within inventory. And obviously, when we acquire Milestone, we will have it where it should be according to our principles, which is within the intangible assets. And we need to apply our amortization policy on that acquisition for the Torrance. For example, Warhorse, they had a 3 years period. So whatever company we are acquiring, we need to implement our accounting principles. Speaking about accounting principles, And the Board has decided to conduct a pre study for an IFRS conversion. And the project to do that will start as of today. I think it will take time. You need to do such a conversion in a good way. You need to allocate the necessary resources to do a good project basically. I think also you need to realize that requirements. The main differences or big differences is related to disclosures and both in interim reports and for annual reports. Our big difference is that goodwill is not amortized within IFRS. We also need to as we said, there are different models for amortizing game development. And of course, during this project, it will need to be revisited. Not saying that it has to change, but needs to be revisited. Okay. We also have a slide looking at our working capital. We showed a similar slide at the AGM. This is just rolling another quarter ahead. At the end of September, our net working capital was SEK369 million, which is about 6% in relation to our trailing 12 months sales, if you also adjust for the acquired entities. And the increase versus the last quarter is from 141 to 369. Here, we should take into account that the majority of the increase is related to working capital already in the acquired companies, right? So the actual increase in working capital is the SEK 80,000,000 that we saw in the cash flow analysis earlier during the period. As mentioned earlier, credit risks in trade receivables are kept low through insurances with insurance companies like Koface. And we insure the vast majority of the nominal value of trade receivables. Here, we also have cash flow look at cash flow on a quarterly basis. The show are the columns for the dark staples, that's our EBITDA. And then we look at what kind of operative cash flow we get before changes in working capital, that's the red line and also after changes in working capital, that's the gray line. In here, we have removed effects of any forefighting historically. As you can see, for example, you noticed earlier when we looked at the cash flow, we had quite large increase in net working capital this period a year ago. It's not you can also see that by the cash conversion. Since then, net working capital has been reduced on a quarterly basis. However, in this quarter, we have an increase. It's SEK 80,000,000 mainly related to trade receivables and that the timing of revenue was especially in the publishing area was more in the last month of the second quarter. Yes. Sustainability update. We are moving on with sustainability. We first presented our sustainability framework and the initial work we did in our annual report, and then we had a more thorough presentation at our Annual General Meeting in September. This is an ongoing process, so we are continuing to work with sustainability and think critical or important things or actions that we have done during or since the Q1 is that we have added Karin Edner, coordinating sustainability initiatives globally to the group. Also, sustainability framework within embracer is labeled Starter Business. So we are rolling that out to the global organization. One way or our take of doing that is to create a team of local ambassadors globally and that will be crucial to get this message out to everyone in our organization. Yes, we have adapted a compliance code during this time period. The things also important is that there is a lot of great initiatives already being made in the group in this area. I think it's one important thing is to gather these initiatives and be proud of them and communicate them. Some of these initiatives, just mentioning a couple, is collaboration with universities. We are having initiatives enhancing work life balance, also support start ups, sponsor initiatives focusing on gender equality. Arthur mentioned some. Of course, also, we're in the business where emissions at such is not at the same level if you're a Purdue industrial company, but it's still important. So we look at the way we are traveling and we look at ways to be more efficient. Thank you, Johan. I would like to finally just send a very big thanks to all colleagues and business partners across the globe. Thank you for your hard work and for your business. Here you can see an example of 1 group small group of people in Karlstad Verblad actually doing their first game from Rembrandt, Little Big Workshop that we're releasing on Steam a few weeks ago. That's taking a few by surprise. It's a fantastic simulation game. So over to Q and A. Yes. Let's do a Q and A and I'll start with some questions from myself, then we'll go to the floor for questions and also to the telephone conference. So let's start with some operational questions. Very strong sales growth for several segments this quarter. Let's start with THQ Nordic, which performed very, very strong, I would say, with 165% year on year sales growth. Obviously, Wreckfest being a strong driver. What can you say about Wreckfest? Where What platforms has it sold best? And what do you expect for the future? I think breakfast did perform on both PS4 and Xbox very well. We had a great support, especially from Microsoft in the beginning with visibility on the platforms, but we now have great visibility on both platforms. And we can see gamers logging in for quite a few hours playing a game and they're coming back to the game every day or every week. They the team are working with a lot of content updates. We're bringing out new tracks in cars and private lobbies to play with friends and so on. So they are really working on the game, and we can see the engagement numbers are still very strong. Obviously, the sales are dropping from the 1st days or weeks of release, but still performing well. So it will be a nice contributor for many years to come, I'm sure. And you mentioned in the report, I think, that you will start releasing DLCs with extra equipment and so on. How well suited you think it is for DLC strategy? Well, we sold both standard edition and deluxe edition that included all the planned upcoming content and a separate season pass if you decided to buy the standard edition. I think it's quite well suited, but we are not in the games of free to play. We are not monetizing the gamers. That's hard. However, over time, we need to get paid for somehow the content we are creating. So the bulk of the business are still the sales of the full game. That's the main business. But I think this business is a game that you can spend a lot of hours in, like the same with the MX and you're coming back to. So there is a need, demand for new content. So we will continue with that. And also a quick word on Remnant from the ashes, which I think is important. It's over performed your expectations this quarter. And despite being from an external publisher, Perfect World, it contributed this quarter. Obviously, then it will continue to contribute in the coming quarters? And what is the gross margin on this kind of revenue? Well, now again, it's external publishers, so I'm a bit in the back seat of the publishing and the commercial business of it. So I don't I can't disclose too much details. But obviously, the game performed very well, as most could notice the 1st weeks months on especially on Steam, but also partly on console. I'm sure they will continue working on it. But as I stated last quarterly result, don't expect too much too soon, yeah. Okay. And since we're a little bit short on time, let's move on to Deep Silver quickly. Metro continues to perform. Is this driven by continued strong sales? Or is the effect from Epic kicking in where you have made a deal with them? There is a mixture of revenue streams on the metric IP, I would say. So there is a new the new DLC and but there is a mixture. It's a strong performer on equally on PC and the console formats. So I'm just very happy to have the Metro franchise on board. Yes. And Biomutant, my very positive interpretation is that a release announcement is close. Is that correct? That's your understanding. I've stated they're working they will communicate when they're done. I to every all games, please make the games with top quality and polish it. Whether that is being very soon or very or just soon or a bit later, I don't know actually. I know the expectations, would that be in Q4? I don't know. Okay. Fair enough. And can you talk a little bit more about coffee stains upcoming pipeline? I know we have Anton in the house here as well. Is it a mix of internal and publishing titles? Yes, that's a nice mix. Okay, great. Yes, I guess we'll have to stay tuned for that one. And a short word on Shenemue III because that is the upcoming title now in during next week. So what are the expectations for that? I mean, what have you invested? What do you expect from that? No, we have we have midsized investments into that project that's been going on for Torke with ISNET for a number of years. There is a lot of external business partners into that, the developer, Sony, Sega. We are the global publisher on PlayStation and PC. So well, I will let the market to evaluate the product when it's released. Obviously, we have some expectations. It's midsized investments for us. And I hope the real hardcore gamers of Shenmue will enjoy the product. I think that is the number one to start with. Chermoo, as you know, is a really niche, hardcore kind of game from the past. But now coming up with a new game is but there is a lot of love for it. I remember selling the exclusive Vishnu in the Nordics 20 years ago. So Ish. All right. And let's head over to some questions on cash flow, which is a very relevant topic these days. I mean, the company is investing a lot in new game projects that have not been released yet. When is it reasonable to expect that free cash flow will start approaching operating profits? We are still in the growth phase. We are a small player in a very big industry, 0.5% of the global market. I think there's a space for us to continue to grow. And there is a need for our services across our publishing divisions and the industry. We will continue investing as much as we can find great teams to handle them and great development teams to make the gains. So it's a very hard question to answer. The bottleneck is obviously finding great enough people to manage everything. That's more the bottleneck of this. And I don't know if we're able to have a runaway great success. One day, perhaps we'll have more cash flow than we actually could invest, and then we will have a dividend paid. But this is not the we are in a growth phase, and I want to build continue building this company in the future. So we are continuing to reinvest in the cash flow. If the situation changes on the market and demands, we will change. We could adjust the business. But we are not adjusting the business currently. We'll continue performing our strategy. And looking at the relation between amortization and development costs development investments, it's still below 50%, the finalized part of development costs. Can we expect that to increase next year and the D and A to be closer to the development costs as you have 2 AAA titles releasing, for example? Yes. I think it's hard to give guidance on that. Obviously, when releasing big products, you will have a lot of completed games. So I'm sure that KPI will change, but it's hard to give any forecast on it. All right. And speaking of these 2 AAA releases, obviously being very important for cash flow, can you talk a little bit about what steps you and Clemens at Kosch has taken to ensure that quality is high for these titles and of course comparing to the releases before the acquisition? We are working very hard with all our development teams, including the teams KOSMIDIA had at the time of acquisitions. As you know, one of the team had a major title releasing half year before the acquisition that did not commercially perform. But so we have been working a lot to bring the teams together to and to add, if needed, any outside resources to it. So I feel more confident today than ever at the time of acquisitions about the future of the products and the teams. Yes. And on the same topic there, given the new platforms and possible deals that are you were able to make, how much is possible to financially secure in advance with Epic, Google Stadia and so on? As stated in the report, we signed further new contracts with platforms during the quarter. And it's hard to give a specific number, but it makes me feel sleep more well at nights in Karlstad, knowing that you actually have a a notable revenue when the games are coming out. Okay. I think I'll leave over to questions for now. Questions in the room? Yes, Roger van. Yes, I can continue where Oscar left off. About the deals, signed deals, can you say which game it concerns, the deals you have signed during this quarter? There's a yes, well, we have no, there is across quite a few titles, I would say, that is not announced and a few that are announced but not announced for various things. So We're used to that answer. We're running a bit over time here, so Yes. Final one on Deep Silver, it was super strong. I guess it's not just Metro Exodus, but also very strong back catalog. Have you seen similar effect to the Saint St. Trove franchise as you announced the new project in connection to the last report that it was really strong back catalog sales for the franchise? Fairly, we just announced that we're making a new Saints Row game. We didn't announce the actual game. So I think there is a lot to be done with the franchise and the games whenever they're deciding to announce something. So I'm sure we'll see a pickup in sales as we do with other franchises. So there is a plan for all major franchises, I would say. I need to watch my mouth here. All right. Do we have time for one question from the telephone conference as well? There are currently no questions from the phones. Okay. Since I'm trying to be on time almost today, I think I'll leave it at that and let you finish off, Lars. Okay. So thank you very much for coming here and see you next quarter.