Embracer Group AB (publ) (STO:EMBRAC.B)

AGM 2020

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Sep 16, 2020

A warm welcome to Embracer Group's annual general meeting. My name is Matilda Carlsson. I usually work with financial television at Capital Security, but tonight I will be your host and guide you through this following 2 hours. Let me start by guiding you through the agenda. We will start with Kicki Wallje-Lund from the board. This will be followed by a presentation, and I will also host a Q&A after this presentation. You can still send in questions to ir@embracer.com. This will be an interesting evening, so I hope you join us through the end. By that said, I will give over to Kicki Wallje-Lund and Ian Gulam. Thank you, Matilda. Well, good afternoon, all of you. I am, as Matilda said, Kicki Wallje-Lund. I am the Chair of the Board in the company. On behalf of the board, I would like to welcome all of you. Hereby I declare the annual general meeting of Embracer opened. This year, the arrangements around the AGM is a bit special as we have the COVID-19. We have actually encouraged many people to participate on the webcast, but we also allowed this physical meeting here. Again, for the second year in a row now, we are in Karlstad, and I hope that next year we will have everyone in Karlstad. The Board of Directors have actually proposed that this meeting is to be held in English, and that is in order for all the participants to understand what we are talking about and what we are saying here today. I wonder if we can agree to hold this meeting in English. Yes. Good. Thank you. We will start with the point who will act as the Chair at today's annual general meeting. The board have proposed that I is elected to chair the meeting, and that has also been published in the notice of the 17th of August. Are there any other proposals? Okay. Can we elect me as the Chair of today's meeting? Yes. Good. Thank you for the confidence. We have a number of unregistered shareholders and guests at the premises here today. That is mainly from the company. Also some that are participating remotely. Can we invite these people to attend the meeting? Yes. Also, I would like to point out that in addition to the company's representatives and the auditor, only shareholders who are entered in the share register as of the record date, and their representatives and assistants who have registered within the prescribed time have the right to speak, vote, or give proposals at the meeting. But when we have the Q&A session, we will allow anyone to ask questions. Can we agree? Is everyone okay with that? Yes. Of course, we also have said that we do not want anyone to have any video recording to be used during the meeting apart from, of course, what we have here in the room that the company has organized. We have asked Ian Gulam, who is a lawyer from Baker & McKenzie, to keep the minutes from the meeting today. And I also would like to inform you about the board members that are here today, and that is, apart from me, we have Jacob Jonmyren, we have, of course, Lars, and we have Erik. I do know that we have Ulf Hjalmarsson participating in the webcast today. We have the company's auditor. EY is also present at this meeting. Our main responsible auditor, Ulrich Adolfsson from EY, is also here today somewhere. There. There we have Ulrich. The item number 3 on the agenda is the presentation and approval of the voting list, and I will now hand over to you, Ian, to go through that. Thank you, Kicki. We have prepared a preliminary voting list before the meeting based on the shareholders that have notified their participation and been recorded in the share register on the record date. I will just read up a couple of names so I am sure that we have not missed them and they are here on the premises. Hans Göran Nilsson. Emma Nilsson. Lennart Nilsson. Okay. Then I will make a couple of adjustments. There we go. Today, we have a total of 30,975,374 A shares present and 197,473,400 B shares present. This amounts to a number of shares represented at the annual meeting of approximately 55.4% and approximately 49.4% of the total number of votes in the company. Okay. Thank you, Ian. Can we approve the prepared voting list? Yes. Thank you. Now we have come to that we should elect one or two persons to certify the minutes, and I wonder if we have any proposals. I suggest Jimmy Bengtsson from Skandia. Are there any more suggestions from anyone? Okay. Jimmy, are you okay to certify the minutes? Will you also be available around here after the meeting? Great. Thank you very much. Can we then resolve to appoint Jimmy Bengtsson from Skandia together with the chairman to certify today's minutes in accordance with this proposal? Yes. Good. Thank you. Next thing on the agenda is actually whether this meeting has been duly convened. Ian, if you could explain to us how it should be and how it has been convened. Sure. Absolutely. Notice to the annual general meeting of the company shall, in accordance with articles of association, be summoned no earlier than 6 weeks and no later than 4 weeks before the meeting. Notice to the annual general meeting shall be made by publication on the company's website, and at the same time, the notice shall be published in the Swedish Official Gazette. At the same time, an announcement shall be made in Svenska Dagbladet. That was how it should be done, and now how it has been done. On August 17, the notice was published on the company's website, and on August 19, the notice was published in the Swedish Official Gazette, and at the same day, an announcement was made in Svenska Dagbladet. Therefore, the notice can be considered to have taken place in accordance with legislation and the company's articles of association. Okay, thank you. Does the meeting consider then that the meeting has been correctly convened? Yes. Thank you. Next item on the agenda is approval of the same. Proposal for the agenda have been announced in the notice, and it's also been distributed to everyone here today. Can we resolve to determine the proposed agenda? Yes. I find that the agenda has been approved. Now, item number seven, and I would think that we all consider this to be the most exciting part of this meeting here today. That is namely the presentation of the business activities in the Embracer Group. It will be held by our CEO, Lars Wingefors, and our CFO, Johan Ekström. This presentation will also end with a Q&A session. We would like everyone to keep your questions and save them until the presentation is completed. Thank you. Well, that was a bit early. Welcome on stage. Thank you, Kicki. Welcome, everyone. Should we share the same table, Johan, as usual? Yeah. Yeah. I think we should. Fantastic. Yep. Really glad to be here another year, another business year. First of all, I'm glad that we, as usual, have the sun here in Karlstad. Mm-hmm. Fantastic. The sun is sitting. It has been a quite long night. I am really glad to have a company that presenting here a bit later in the presentation on stage, and we were actually signing 1 minute to 6:00 this morning after a bit of tough negotiations. Then going home and then putting the kids to kindergarten, and then have a bit of sleep, and then coming back here. It has been a very interesting 24 hours. I will start out with the overall presentation of the business activities during the financial year ending in March this year. We had a growth in the business also during the financial year. However, the growth was only 3%, up to a bit over SEK 5.2 billion in the year, due to that we did not have a triple A release during the year as we did in the previous year. However, I was glad to see that the performance in the games business segment increased 31% to SEK 3.2 billion. Furthermore, the profitability in the overall group increased just above SEK 1 billion with 45%. Also happy to see that we had a 9% organic growth in the games business area. As usual, we had a wide range of releases during the year, and I am pointing out a few here on this presentation or this slide here. For example, Darksiders Genesis, Wreckfest, Shenmue III, the Satisfactory updates under early access, Monster Jam, Monster Energy Supercross 3, and then Monster Jam Steel Titans. Looking a bit into the KPIs during the year, we increased the number of games under development. We ended the year with doing an acquisition of Saber, and including Saber, we had 118 game development projects under development. We increased the value of the ongoing developments to SEK 1.5 billion in the end of the year, comparable to SEK 1 billion in the previous year. We completed games to close to SEK 600 million, up from SEK 480 million in the previous year. For most, I was really happy to welcome a lot of new colleagues. In the end of the year, we had 3,100 colleagues, up from 2,200, and across all the offices and our 26 internal studios. Also, during the year, we published our first sustainability report, and Johan will come back to that in a minute. I would like to, during this short overview, also to give you perspective where Embracer are in the industry. We are still a small player in a huge industry. If you look at the KPIs of our games business area, that revenue are 0.5% of the overall global gaming markets. Looking at our core premium console and PC software, we are approximately, during last financial year, between 1.2% and 1.4% of the market. So there is still plenty of room to grow. We continue making acquisitions. I was really glad to welcome a number of companies during the financial year. For example, the makers of Gothic, Piranha Bytes. The makers of Darksiders and Remnant, Gunfire Games. The leading two-wheel racing publisher and studio, Milestone, from Milan. Misc Games from Stavanger in Norway, our first investment there. We acquired the overall platform of Goodbye Kansas Game Invest. Later that became Amplifier Game Invest, one of our six divisions. We acquired the leading anime film company, KSM, in Germany, the merchandise company, Gaya Entertainment, also in Germany. We acquired the roots of the overall Embracer Group, going back to 1993 when I founded the business, Game Outlet Europe Distribution here in Karlstad. We acquired Voxler, the singing studio in Paris or in France. And finally, Tarsier Studios, the highly creative studio in Malmö. And after the end of the year, we made our largest acquisition up until today, Saber Interactive, that we are consolidating from 1st of April in the current year. And finally, another Italian industry called DestinyBit. With that said, I would like to leave over to Johan. Yes. Thank you. If you start by looking at our P&L, we can It's okay, Johan. Yeah. We can conclude that we continue to grow our business, growing with 3% during the financial year. It's basically driven by business area games, and a higher share of revenue going into business area games will have a positive impact on our profitability, which we can see where it improved from 15%-20% in relation to sales. It was a slower performance in Partner Publishing during the year, maybe mainly related to that there were no larger releases within the business area. Also looking at business area games, the performance is even more impressive since we, in the corresponding period last year, had the release of Metro Exodus. We started the current year with a solid performance in the first quarter. So the trailing 12-month sales increased additionally to SEK 6.2 billion at the end of June, with an operational EBIT of close to SEK 1.5 billion at 25% margin. If you look at our balance sheet, we see on the left-hand side, the operational side of the balance sheet, and on the right-hand side, we have the financial side of the balance sheet. At the end of March, we had invested about SEK 2.6 billion into our games portfolio. SEK 2.2 billion of this was related to ongoing games, and SEK 0.4 billion was completed finalized games. As you know, it is the completed finalized games that contribute to our current profit levels and cash flow while the ongoing game development is investments for the future, where we will have a contribution once the game is finalized and released. About SEK 3 billion acquisition related intangible assets, where the majority is related to goodwill and IP rights. The vast majority of our assets are financed by equity. We have net of other assets and liabilities, SEK 0.3 billion, and then SEK 0.4 billion in provisions for conditional purchase price amounts. on this slide, we take a close look at our cash flow generation during the fiscal year ending 31st of March. During the year, we generated SEK 1.7 billion in our operations, and we invested SEK 1.5 billion into our games portfolio. We invested another SEK 0.2 billion into other intangible assets, which are mainly related to our film business area. Then finally, SEK 42 million into tangible assets. Summing these up, we have a positive free operating cash flow for the year, plus SEK 46 million. So we are financing our organic investments into the games portfolio with the operating cash flow generated. On the financial side, we have a positive contribution from financing cash flow, SEK 0.5 billion, and then we have a net effect of acquisitions during the year, minus almost SEK 1 billion, ending up with a cash balance of SEK 2.25 billion at the end of the fiscal year. As the introduction slide suggests, we are on a journey towards making even Smarter Business. We are convinced that this is how we create long-term value for all stakeholders. The work really kicked off last year when our chairman, Kicki Wallje-Lund, presented the sustainability framework for Embracer, which is called Smarter Business. We have had a lot of activities after that. As Lars said, we published a sustainability report as part of the annual report for the last fiscal year, which we are very proud of. We have also launched a popular version of our compliance code, which we think is key to facilitate the accessibility of the compliance code throughout the whole organization. That being said, there are still a lot of activities to be done. So looking forward on what we are currently working on, it is about setting clear targets for the KPIs that we have started measuring, but also integrating ESG in the yearly risk assessment process that we have. Some ESG highlights from the sustainability report. We have an ambassador group consisting of 20 representatives. These are representing all our operative groups. We think it is really important to have the ambassador groups working with the ESG topic and sharing initiatives throughout the organization. 73% of revenues in the last fiscal year was digital, which is a huge increase compared to the year prior to that, where we had 51%. We have 47 nationalities represented in our group. Looking at the employees of Embracer, 22% is women, and we are continuing to work to make sure that we become a more diverse place to work. Over to you, Lars. Thank you, Johan. I will run through a bit of more slides here around our business areas. First of all, I would like to run through the governance and the group structure for you to understand how we are structured and how we can manage this group. First of all, it's you out here managing the board, headed by Kicki. Then the board manages me and Johan. Then I'm trying to manage the divisions, and there is six divisions, or we call them operating units or platform. There is many names for this. That's how we are structured, and our ambition is to continue to grow under this model, and we believe there is still room to grow this operating model considerably in the coming years. Looking to the business areas, how we are reporting, it's similar but not exactly the same. There is the two complementary business areas, and by far the largest one on all KPIs, I would say, is the Games business area. That's our within six divisions, THQ Nordic, Deep Silver, Coffee Stain, the recently acquired Saber, the Amplifier Game Invest, and most recently our first step into mobile, DECA Games. Then the second business area are Partner Publishing, that are operating. There is three revenue stream, and the absolute majority comes from Koch Media, the number one European publishing partner for games. Then there is Koch Films in Germany and Italy. Finally, the Game Outlet Europe business here in Karlstad. That's a physical business that foremost in that business area. It's a bit digital within film, quite a lot actually within film, but Koch Media is foremost physical. Today I would like to spend a bit of more time on one business area, and one business area that started the whole journey with Embracer Group. I should have the THQ Nordic CEO, Klemens, and my co-founder, as well as Reinhard, the business developer and also co-founder. Hello, gentlemen. Hello. Nice to meet you. Hello. Hello, Lars Wingefors. Hello, Johan Ekström. Hello. Are you in Barcelona, Reinhard? Yes, I'm in Barcelona. It's also sunny here. Probably not as sunny as in Karlstad, but also nice. Nice. Nice. Before leaving over to Klemens and Reinhard to take you through how THQ Nordic is structured, I just want to go back a few years, back to where we did make contact, 2011, end of 2010. January 2011. Yeah. In Vienna. Where you worked at JoWooD, that became defunct, and a crazy Swede reached out to basically acquire the overstock, and then the whole story started. Rather than buying the physical overstock, we acquired all the assets, IPs, and together with you, we set up a new business in Vienna, back then called Nordic Games. That now became THQ Nordic, one of the six business divisions that also then became Embracer Group. We started with roughly seven people. Exactly. And, well, you will tell us soon how many you are now on a daily basis, because that is 120 increasing by the day. But I am very proud of being part of founding this business. Even though you are the entrepreneurs, I was really enjoying to understand how to build, first of all, a publisher, then an IP owner, and then a developer. To give you compliments, I think you built a very strong company culture, which is unique in many ways. The two of you are very different, which I think is complementing each other. You have a very super strong team around you, and many have been with you since 2011. Reinhard here is kind of the mother brain of, I wouldn't say everything, but everything relating to game, at least from the start. Still you are really engaging across the group, and I know you were with me visiting Vertigo Games actually, a month ago or 2 months ago-ish. Yeah. Now you've been building a significantly larger business. Starting our first year, we had roughly SEK 10 million in revenues, and for most organically being, and Johan will come back to that in a minute, growing this business of SEK 1.5 billion on the last 12 months basis is very impressive. With, I would say, a top-class profitability at the current run rate. With that said, I would like to leave over to you guys. Thank you. You could switch the slides, gentlemen. Okay, Werner, do you want to start with the selected releases? Yes, totally. I wanted to start a little bit by explaining a bit what happened in the very recent months here at THQ Nordic. We had a very successful few summer months that is relevant for the fiscal year we are in right now. We started our release marathon with Desperados III, which was an IP that we acquired in 2013 from Atari Infogrames. We started a cooperation with a Munich-based external developer called Mimimi Games. They did a very good job in the execution of the game. The game got really great reviews and fans loved the game, and we released it on PC, PS4, and Xbox One, and are now continuing with the DLC release. The first DLC shipped just two weeks ago. It continued with a third-party licensed IP, SpongeBob, where we did the remaster of a game that was released in 2003 by the original THQ, which we always kind of relate to because many of our IPs are based off what the original THQ company that went bankrupt in 2013 made. We made a full remake for SpongeBob SquarePants: Battle for Bikini Bottom – Rehydrated, which was the fan favorite. We worked with Viacom on this. It was released on four platforms: the PC, PS4, Xbox One, and Switch, which is also a core of our strategy nowadays that we release on as many platforms as possible. In end of July, our internal studio in Offenburg, Germany, Black Forest Games, they joined us in 2017, shipped their first real title that was planned and fully developed under them being part of THQ Nordic, Destroy All Humans! It was also a remake. We identified this IP, which was dormant by the old THQ company, so it was discontinued. The last installment, I think, came out in 2008. We saw it's a very unique IP, with a very relevant gameplay because it was mostly sandbox and very open world-ish, and features a lot of tongue-in-cheek humor. They did a great job of bringing that to the current generation of games, and it also was received very well. Just last week, we had another successful release of one of our own IPs that we acquired. I think it was about two years ago exactly when we acquired Kingdoms of Amalur from 38 Studios, a big development company in the U.S. that went defunct in 2012. We made a remaster, Kingdoms of Amalur: Re-Reckoning, and also have announced an upcoming add-on for this SKU that will be launched and promoted later. I think this was our key releases in the recent months. Handing over back to Klemens to talk more about our organization and studios. Yes. Thank you. Let me give you some color on our current setup as of today. In total, the THQ Nordic group is comprised by 17 entities, meanwhile. As said, we started in 2011 with THQ Nordic GmbH, back then named Nordic Games GmbH, in August 2011. In 2012, we set up our first subsidiary, and this was THQ Nordic Inc. based in the State of New York in the U.S. Then you know the story partly, year after year, we added by acquisitions or by new setups, by foundation of newcos, a few more entities to the group. At the lower right section of the slide, you can see the publishing units and the administrational units. Publishing, administration. Here we host all the sales, distribution, marketing, and PR, producing quality assurance services of the group. In the upper right corner of the slide, you see the development studios. Especially under those in these groups is HandyGames. HandyGames operates as a hybrid. Our friends and colleagues in Germany, they operate also as a publisher for small and mid-size projects, more casual style titles, more indie style titles with a price point up to $29.99. Those guys have also some really talented developers in-house. The companies, THQ Nordic Inc. and THQ Nordic Japan K.K., concentrate only on distribution. The U.S. entity, of course, of the North American physical distribution, and Japan concentrates, as of now, on the digital distribution in Japan. We started this entity in September 2019. We used the year 2020 to learn the market, to learn the procedures, the rules, the Japanese markets. We hope that in early 2021, we can start this physical distribution in Japan as well. THQ Nordic Holdings USA Inc. is just a holding company for all our North American ventures, and that is more a holding accounting purpose. Our development studios, which are 13 as of today, are allocated or spread around the world. We have four in Germany, three in Sweden, two in the U.S., and then we have each one studio in the Slovakia area, one in Spain, Barcelona, one in Finland, Helsinki, and since August, one in Vienna, maybe six subway stations away from us here from the headquarter office. Today, we are super proud to make two announcements of additions to the THQ Nordic development company family. This question I will hand over to Ernest. Yes. He will give you some ideas what is coming and what we are working on. Yeah, thank you. Today I am proud to announce that we are in the process to establish a studio in Montreal, which will be a subsidiary of Rainbow Studios. It will be called Rainbow Studios Montreal Inc. and based in Montreal, Canada, which is in the province of Quebec, which has very favorable conditions for game development and a lot of great development talent and education based in there. The focus of this entity will be co-development and asset production for selected projects within THQ Nordic and potentially the whole group. It will be led by CEO Lenore Gilbert, who is also heading the main Rainbow Studios. The second new studio that I am announcing today is actually also geographically very close to Vienna. It is in Brno, the Czech Republic. We are starting here a studio that is compromised of Unreal Engine specialists that will get a focus on strategy, simulation, and the RPG genre. We have identified great talent in this area and great passion for these genres, and these genres are a core pillar of our project strategy. Therefore, we will start soon working on the first project from that studio in Brno, Czech Republic. Very happy to have these two new studios as part of THQ Nordic. Getting back to you, Klemens. Yes, I think we can switch the slides. If somebody can push the button for us. I have a lag, that is why I am- We are looking at another KPI slide here. Okay. Let me start with the right section. So far at THQ Nordic, we did exactly 41 acquisitions, which are related to THQ Nordic. As Lars mentioned, the first one was in 2011, early May, the acquisition of selected assets from Grin Factory Interactive, a subsidiary back then from JoWooD. One week later, on May 19, 2011, we won more or less the auction to acquire all the JoWooD assets. This was the foundation and starting point of all the further development where we got the IPs, which we still service, and we work on as of today, like SpellForce and The Guild. The latest acquisition was Pow Wow Entertainment, which is number 41, on August 13. In between, there were many acquisitions, as Ernest mentioned, from Atari, Desperados, and the biggest one is, of course, THQ assets back in 2013, where we made two deals. The amount of people which are working in the THQ Nordic Group has increased from seven people in August 2011 to meanwhile 898, if you count in also the employees, colleagues, and friends from external developers. In the group itself, we host 552 people as full-time equivalents, where you can see that we are really heavily focused on development resources because only 99 is administrational and publishing-related jobs. Nevertheless, we have grown the size of the people here in Vienna impressively over the last three years. If people are interested to work for, I make some advertisement for us. Please, if you're interested to work with us, you can expect that we have something like a job initiative this autumn and this winter, where we, based on the search we had recently, have identified a lot of jobs where we now search new colleagues. Please feel free to screen our website and our LinkedIn profile. There you will get massively updates in all areas. Is it quality assurance? Is it marketing, PR? Is it sales or is it legal? Gentlemen. So- That was our plans on marketing for you. Okay, sorry. It's okay. It was too timed for me. Sorry. Okay. Regarding the IPs, we proudly count exactly 116 IPs. The best person to speak about the IPs is the head of product development and business development. So why not? I am happy to speak about our great IPs. I think we have a very focused and diverse catalog focused on core gaming IPs that we acquired over the years, and we are always screening and continuing to look out for great opportunities. Here on the slide, there are some listed core IPs that formed the foundation of our business success in the recent years, like the MX vs. ATV, which was our first THQ IP-based project that we put into development. Darksiders, a great IP where our friends at Gunfire Games delivered a sequel, and we had another installment with Darksiders Genesis coming up there. We have Elex, a new IP, that is also part of our strategy, so we are not only focused on existing IPs. Sometimes it is also new IPs like Elex. We have Remnant: From the Ashes, which joined our portfolio August last year from Gunfire Games. SpellForce," which was from the initial IP catalog from JoWooD, where we have still some ongoing development going on with the recently announced expansion tool for "SpellForce 3." We have "Gothic," a legendary RPG franchise, that is the basis of all modern RPGs, and where we announced a full-on remake in development at our studio in Barcelona. "Destroy All Humans!" I already touched on that it was a great success in this summer. We have "Wreckfest," a very unique racing game, focused on banger race, folk racing, which is not only focused on lux cars, but off-road racing and destruction-focused racing from our friends in Finland, Bugbear, doing a great job of keep updating it, and we just announced yesterday a season 2 for it. We have "Titan Quest," which is an evergreen, where Pieces Interactive made two add-ons, and then "Biomutant," one of our top-notch upcoming action RPGs, coming from Experiment 101, based in Stockholm, Sweden. Besides these, there is a lot of other great IPs that we are looking to find the right opportunities or already have something working on. As said, we are continuing to identify great opportunities for expanding our IP catalog. Yeah. Gentlemen- That was pretty much. I think you have done a very good presentation. I am sorry we need to move on here with Johan just running through a bit of your numbers as well. So Johan, could you just take us through this, how the organic growth have been looking at THQ Nordic? Yeah. I think looking at THQ Nordic, one key point is to summarize investing for long-term organic growth. Over the last four years, the business has grown from SEK 200 million in net sales to SEK 1.2 billion at the year-end, close to SEK 1.5 billion trading 12 months in June. Most of this, the vast majority of this is organic growth. We have looked at organic growth on a constant currency basis, and growth rate varies between 20% and 68% during this time period. During the period, we have invested SEK 1.5 billion into the games portfolio since November 2016. At the same time, we have finalized games of SEK 0.9 billion, which of course is the main revenue drivers of organic growth. As mentioned, we have also invested in studio acquisitions and IP acquisitions totaling EUR 0.9 billion since 2011. And of course, that creates the studio footprint and the IP catalog that we have looked at on the previous slides. Mentioning again some of the releases that we have made during this time period, which has driven the organic growth of THQ. Looking at the acquisitions, it is studio acquisitions since the IPO, and then, of course, also organically established studios during the same timeframe as well. Could today add two more here. Yes. Or within a few days. Yeah. Yeah. Sorry, Johan. Great. So finance. Thank you, gentlemen. Thank you very much, Vienna and Barcelona. Looking forward to see you soon again. Thank you for having us. Thank you. Thank you. Bye, bye. Okay. If we take a step back and look at the cash flow development of Embracer Group since the end of September 2016, we can conclude that we have, during these four years, generated a positive operating cash flow of EUR 163 million, meaning that we are financing the organic investments into our game portfolio with the operating cash flow generated. On the acquisition side, we have a positive financial cash flow of EUR 6.7 billion. If you look at the net effect that M&As or acquisition has impacted our cash flow, it's negative EUR 3.3 billion. By the end of June, this leaves us with a net cash or a cash position of EUR 3.5 billion. Still a healthy liquidity at the end of the first quarter. We have also done a deep dive into project cash flow return on investment. We have looked at reported number up until 30th of June this year. We looked at material projects, either if revenue is above 40 or if investments are above 40. Or more or more, yes. The sample constitutes of 26 different projects. Here it is important to realize that it is cash flow projected or cash flow project ROI, which means that at a certain point in time, it is a snapshot of the ROI that that project has generated up until that point in time from release. Looking at the results, we can see that we have a weighted average return of investment on these 26 projects of 2.5 times the invested amount. We can also draw the conclusion that newer releases generally have a higher ROI. Looking at the initiatives in putting quality first surely pays off in this respect as well. It is also impressive to see that you have projects well above one times the investment already six months after release. As this is a snapshot at a certain point in time, of course, when these projects or games continue to generate revenue, it will improve the cash flow project ROI. This is obviously not taking account any of our back catalog or any of our other projects. No. I think what you can see here that we have a lone ranger fighting in the bottom here, one project the past 2 years that are fighting to break even, while others are making money or will make money. I think that is what you can see here. Now you can't see the size here because I won't go into that reason why you can't see it, but that is a minor project out of this 26, I would say. Yeah. Good? We need to speed up here a bit in order to soon listen to some new exciting entrepreneurs on stage. Before that, I would like to take you through the market we operate in. Here you can see a slide of the value chain of our core business. In the purple here, we define ourselves as we are the IP owner, we are a developer, we are a publisher, and we also have the physical distribution. We are an independent player, and we don't have a strategy to run our own digital platform to the end consumer. So we rely on our partners in digital distribution at Microsoft running Xbox, Steam, Epic, PlayStation, and many other services such as Stadia from Google, for example. Pierre here will come back to that in a minute. We are not either operating in a physical retail source. I think it was interesting today to just show a bit of how the market has been during the COVID-19 and also post the COVID-19 lockdown. Here we have collected data from various sources, including a lot of management estimates, to give you a picture. Here you can see, first of all, the black line here is the total market we are operating in. Here it's defined as the console software market in the Western territories, Western Europe and North America. It's not including in-game sales or DLC sales. This is full game sales. The first 3 months of the year were down 4% in our core market. Then we had the effects from the lockdown, and the overall business increased to 56%. Then post the lockdown that peaked in April, we still see an effect from the lockdown and increased engagement. In the period of July and August, the 2 months, we see the overall market has increased 27% year-over-year for that 2 months combined. For the 8 months period of the year, the overall market is up 22%, which I would say quite notably because we have not seen the next generation, for example, of consoles yet. Obviously, looking at the red here is the physical business. That is also up, but up less than the digital. The digital was up, peaking at lockdown at 113% year-over-year, now down to 41% up. But overall, in the year, 51%. Looking at the share between boxed and digital in the market, it's roughly 51/49 to the favor of digital for the full year. Now talking full games. Please note this is not a forecast of the Embracer Group's business. This is the overall market, and we just represent 1.2%-1.4% of the market, as you remember. I would like to welcome Pierre, the Head of digital, and many other things at Koch Media. Welcome on stage. Thank you, Lars. Very briefly, Pierre, because we're a bit short of time, take us through our landscape. So very briefly, the landscape of digital platform. I split it up in four categories, both in terms of distribution models, so either download or streaming, and in terms of business model as well, which is transactional and subscription. In the bottom right corner, you see our traditional buy and download partners, especially on PC, Steam, Epic, gog.com, and Nintendo Switch. On the upper left corner, you see a number of telcos and technological companies who are doing subscription and streaming. Stadia in the middle is the only player right now that does both subscription and transaction, but purely streaming. In the very middle, you have the big guys who are established for decades with hundred millions of users online, mainly Xbox Live and PlayStation Network. Those guys offer different subscription services. So both service for the user, things like multiplayer with PS Plus or Games with Gold, and content subscription that we take part in, such as Game Pass with Xbox Live and PS Now with PlayStation Network. The growth opportunities we see here are delivering more and more content that is engaging the user over time and capturing post-sale monetization, leveraging the community features that are increasingly available to us, especially with the console players on this side. We see more and more competing services for content as well, especially on the subscription side, where players are acquiring content to get more subscribers. I think that's something we've seen very much in movies, and we see it as well in gaming. Finally, we want also to be there every time there is a relevant new platform coming in. You will see a few updates in the coming months. Thank you, Pierre. Just stating here, in essence, all games we are making, we are leveraging through this landscape with our partners. Yes. This is an ever-changing landscape, so when you stand here in 10 years, Pierre, that landscape will look very differently. Absolutely. Thank you. Thank you. I would like to just come back to our operating model, and I am a very proud entrepreneur myself. Founded the business in 1993 as Nordic Games as a mail-order business. Realizing now after 27 years that entrepreneurship and people is really what is driving the Embracer Group. Looking at the group and the companies the group are made up of, it is all about entrepreneurship and creators that founded their businesses way back, almost when I was starting the business as well. Klemens founding Koch Media in 1994. Luisa and her families founded Milestone, for example, in 1996. Most recently, how many hours is it? 10 hours-ish. New company, Vertigo Games, founded in 2008. So that is 12 years of entrepreneurship. Many others example, and you can see a few here. That is what makes a difference between us and many of our peers. We are made up by entrepreneurs and managed by entrepreneurs. We let people to keep their own unique culture, DNA, and strategy, how to operate their business. This has taken us quite a bit during the past four years we have been public. Here is a few KPIs, what happened running this operating model during the four years. Since the IPO, we have been increasing the number of developers nine times. We have been increasing the sales 23 times, and the profitability 17 times. That with 42% dilution of shares. We are just a very small player, 0.5% of the global market. We still see opportunity to grow further. I want to take you through a very brief M&A update and the priorities we are making when allocating the capital. The number one priority is obviously to invest into our businesses. We are investing into organic growth as much as we can find the talents and the IPs for. That is always the best return of investment overall. Secondly, we are adding more very talented creators and teams by further acquisitions within the divisions or platforms. Or setting up, as just Klemens and Rainer stated, setting up two new studios today or the coming days. As well, and that is a lot of my daily job, finding new potential operating units, a seventh or eighth division that could operate under the umbrella of Embracer Group. Overall, we create Embracer ecosystem, where we do not force any synergies, but we try to find a positive collaboration. Looking how we are operating, I would like just to restate this model that we are running a very diverse business, and we are running a business on a strong balance sheet. Not only because we are ready to make more acquisitions, but also we want to be a strong financial player in the industry. It is important. We do empower people to make their daily decisions. My philosophy is decentralization. I promise, sometimes I need to re-promise, not to centralize commercial decisions. We are investing, again, organic growth, but we are also investing into the businesses we are acquiring as much as possible. So Johan, you have a very quick slide here of a bit of the acquisitions. Yep. We looked at, and I think the main takeaway is that, looking at total consideration, including maximum earn-outs and also portions paid in shares or in cash, we have allocated 12.5 billion SEK. Looking at it from a timing perspective, we can clearly see that most of that has been spent during the calendar year 2020. So the intensity of the M&A strategy is increasing from this perspective. Next one, looking at what type of companies being acquired. We can see that 99% of the total consideration has gone into either publisher studios or studios, and then 1% of the total consideration has been allocated to a publishing film. Of course, in order to be able to evaluate a transaction that we could possibly evaluate based on the time it has been within Embracer and what type of company it is. The performance has either met our expectations at the time of acquisition or exceeded it. We had one exception. We closed one mobile studio a year ago. Yes. Otherwise, it has been working out very well. Yep. Yep. Just want to point out that not everything is Okay. Thank you, Johan. Just to give you a bit of M&A outlook. As Johan stated, we have been allocating more capital than previous years to acquisitions, and that is because we see more opportunities. But it is also because of the operating model that a lot of the acquisitions are made within the operating units with bolt-on acquisitions. So it is not really managed here from Karlstad, even though I love to engage in the gentlemen or the two founders here today. A lot of the M&A work is actually done, and that is why we can scale up the M&A. A lot of the business that we are acquiring are business friends and people they know from the industry. Currently, I would roughly estimate that we at least have over a quarter, roughly up to 100 dialogues with various companies across the group. The M&A team now including a bit of the COOs and the advisors, is roughly engaging 40 to 50 people on more or less a daily basis. We have seen an increased reach out from entrepreneurs and people that would like to join the family and believe in our operating model. I am really glad to see that a lot of the entrepreneurs are also accepting to become shareholders. I do not mind to be diluted as a shareholder. I would rather own 10% of a much more fun group years ahead than I own whatever I do today, 30%ish. At the end of the day I think it is all about creating something more and including creating obviously shareholder value. With that said, I would like to welcome the two entrepreneurs from Vertigo Games. Video first. Richard and Kimara. We are to just change the slides here. Before I actually let you talk, because you will talk a bit here, I would like to just run through the actual transaction so the shareholders understand what we did this morning. Sure. We actually did negotiate until 2 minutes to 6:00 this morning. It was a bit surprising. We have a picture to prove it. Now we are friends. We were friends back then as well, but it is special. To be honest, Klemens and Kot reached out to me in the summer and really presented you and VR has been a bit odd for me. VR has been something that billions I have seen through venture capital has been invested into this market and been lost in many cases. Then I realized when reading about, especially you, but also listening out to other players in the market that, wow, VR is a real opportunity and it is a market taking off. I am really excited. You are true entrepreneurs, and you know how to operate your business very well, and you will soon present it. Looking at the actual transaction this morning, I just want to take you through this very briefly. We acquire 100% of your group, 100% of the shares. Upfront consideration paid today is now closed, is EUR 50 million, EUR 40 million in cash and 10 million shares. Then adjusting for EUR 5 million roughly acquired cash, it was the enterprise value of EUR 45 million. Furthermore, we discussed a lot about the future and obviously the value without you and the team is not a lot. This was important to make a long-term commitment, and I am happy to see that we have up to 10 years deal here in place to leverage for the both of us with up to EUR 65 million. There are several components in this. One of the components are a financial earn out, up to EUR 25 million. But for you to achieve that during the period from 1st of July this year in your accounting standards until 31st of March 2026, you are to achieve EUR 100 million in EBIT. Looking at your business, you have a very impressive profitability. Looking at the business from January 1st calendar year or this year until the end of the year, we are estimating you will do between EUR 10 million-EUR 12 million in revenues with EUR 6 million-EUR 8 million in our defined operational EBIT. Looking at our next financial year, starting April 1st and ending March 2022, we are expecting the business to generate between EUR 18 million-EUR 24 million in revenues, with a healthy profit margin of between EUR 11 million and EUR 17 million. Actually, we see the years going after that this will be a stable growth as well. You will tell us why you can have such healthy profit margins and tell us more about the business. Before welcoming you on stage, you will see here a very short video about a few of or most of your products. Please. Try out. Yes, you should. Over there. After the Fall. Over there. The questions are there. Please welcome on stage Richard and Kimara, and I leave the word over to you. Thank you, Lars. This was just a glimpse of our 12 years of entrepreneurship. I would like to talk a little about it, how did we start, how did we get here, and what's the future. We started out in 2008 in Rotterdam, the Netherlands, as a small studio building, I would say traditional games, so non-VR games in a way, focused on enterprise, but over time, we pivoted into enterprise gaming, serious gaming, or applied gaming, whatever you want to call it, doing more of simulation kind of games for eye surgery hospital in the Netherlands or the Dutch police or different, more serious and non-entertainment developments. But as in 2012, the Kickstarter from Oculus came by. We got excited, one of the 10,000 Kickstarter backers pledged that amount of money, got the headset a few months later, and got really excited about the future of VR, what you can do with virtual reality. It's sort of an extra step or an extra layer in which you can feel and sense that you can't do on a traditional screen. By doing that, we started building a game called World of Diving because headsets, scuba diving glasses made a lot of sense at the time. But we had a market or addressable market of 10,000 Kickstarter backers, so it was only a very small market. So we made the game VR-enabled. Learned a lot from that, and basically what happened then is that companies like Valve, the people behind Steam, and a company like Oculus, now owned by Facebook, approached us asking like, "Hey, you guys are building a full diving game VR." At the time, there were only a few tech demos. We started conversations there, and we had opportunities to work with these companies. For example, Valve, they gave us an invitation to their offices in Seattle back in, I would say 2015. Thirteen. Not really. Doesn't really matter what date it was, but it was at least six months before the HTC partnership together with Valve was announced. It gave us the opportunity to work with technology that wasn't available to anyone. There were like 13 companies worldwide invited to this small partnership. At the time, everybody was still working with an Xbox controller and a VR headset. We had access to this motion controller system where you can pick up stuff and shoot stuff. That's where the game Arizona Sunshine started, a VR zombie shooter. Before I dive into that, I would like to talk a little bit about our structure. We currently have three entities, Vertigo Studios publishing arcades. Vertigo Studios is mainly focusing on our own internal IP as is Arizona Sunshine. Released in 2016 as a launch title for the Oculus Touch controller, another motion controller from Oculus side. The game did $1.4 million US in the first month, which was the highest ranking or selling game at the time. It's been going steady or it's increasing year on year on year, even though the game launched in 2016. For the first year and a half, it was the number one on the top seller list on Steam. If you filter on VR, it was the number one game. What we did with all the knowledge and information from the community that we got from Arizona Sunshine after launching it on the market, we took that knowledge and added that to our next title that we are currently working on, which is After the Fall. Basically, you join with three other friends in this VR zombie apocalypse. It's multiplayer, it's cross-play. It has all the most amazing and awesome features that you would expect from the next generation VR title, and this will be launching soon. Something to point out is that what we did with Arizona Sunshine, we launched in 2016 for PC. The next year, we launched it for PlayStation VR. Last year in December, we launched it for the Oculus Quest. We're constantly adding new versions of the game or porting it to new platforms as the hardware environment grows. Next to that, we've also been working on different DLCs that we launched over time. Basically, our vision for VR is that we're not putting a game out on the market and that's it. We're in it for the long run. We want to do multiple releases of multiple updates for the community to keep the game active, to keep the players engaged, and basically making a game that's in it for the long run. Also, something that we find very important is that the game needs to be built from the ground up for VR. If you are going to do a port of a traditional game or a game that runs on a traditional monitor, most of the times the idea is fine, but it just does not work out. It needs to be, from the core, a VR game, and as a studio, that is our main focus, making games that are key to VR. You want to talk a little bit about publishing? Thank you, Richard. My name is Kimara Rouwit. I am Marketing Director at Vertigo Games, and the publishing story of Vertigo starts with my entry into the company end of 2016. Before that, I had spent over a decade in games publishing, working on dozens of titles from very small indie passion projects to worldwide triple A releases of all the big worldwide publishers that there are. As a fun fact, I actually spent a significant part of that time as part of the Koch Media family, so guys, I am very happy to be back in a different capacity, but still, yeah, happy to be back, and I hope you feel the same, but it certainly feels so. Basically what happened, when I joined, we had a very successful launch of Arizona Sunshine, and that started our post-launch support for the title as well. As Richard mentioned, over the years, we ported the game to every VR platform, supported all peripherals, did free updates, did free feature updates, did paid DLC. There was a lot of marketing to be done with this title. We basically did everything in VR that we could with the Arizona Sunshine brand. Over time, in 2017 and 2018, we started scaling up our publishing team or marketing team at the time, to basically be able to handle different parts of relevant games marketing from PR to community management, and things like online advertising, for example. Sorry, if I seem a little bit like one of the characters from our Arizona Sunshine game, it is because I have had one hour of sleep. Basically, because we were on the one hand supporting Arizona Sunshine all of the time and putting it all of these places and on the other hand, establishing more of our own IP, such as Skyworld, for example, there started to be some narrative in the VR market of other developers thinking, "Why are their games shown everywhere? Why are platform partners supporting them and why are press talking about them? What can I do to also achieve that goal?" This is actually what started a conversation with those third-party developers about whether we could actually support them in that, which would let them focus their core business, as it is on the development of a game, basically. This is the official start of publishing. Basically what we have as a vision for our publishing division is where Vertigo Studios focuses on core games, triple A, cutting-edge core games that offer multiplayer and long tail development and support. These games that we do with publishing are the kind of games that are definitely double A, offer a very unique and novel element to what is already out there in the VR market in their own way, and we are able to support them doing that. With that, we are able to diversify our portfolio of products to not only address the sort of core gamer market, but the mainstream and mass market gamer as well. Think of, for example, categories like music games that are coming up in our portfolio as well. Currently we have sold over 1.5 million units in the VR market in terms of game sales. For the next 12 months, we have six more products in our pipeline. This is a combination of in-home products and also out-of-home products. Speaking about that, Vertigo Arcades is a provider of out-of-home distribution services. We do not own actual physical locations where people can go and play VR games, but we work with them to ensure that they have the latest VR content available, so that they can keep their customers happy and coming back basically. Currently, we've built through the success of Arizona Sunshine, a best-in-industry distribution footprint, covering 700 plus locations at the moment in more than 40 countries. Our combined portfolio of arcade titles covering both internal and third-party titles, currently account for around 25% of the total play minutes in arcades in the Western market. Arizona Sunshine is definitely the number one most played game in arcades worldwide. What we also do besides this indirect and direct dealing with these arcades, we also provide an owned distribution platform called Haze VR. What Haze VR does is now that the VR market is becoming more accessible, with, for example, the introduction of standalone VR becoming something that people are more easily purchasing and using because of lower prices and easier use of the hardware, arcades are seeing a need to offer something that is very unique and that cannot be played in the home. What Haze VR does is basically it allows multiple players to play together in one large space, a space that you would not be able to set up in the home. They would be able to play together within this shared space, playing either together or against each other in these unique experiences that are either based on existing VR brands or completely new brands, for example, like Ghost Patrol. Currently, Haze is operational in 30 locations across 13 countries, and this is our way of competing in the out-of-home entertainment sector that is not only limited to VR, but can also include, for example, things like paintball and other group outings. With that, I would like to give the floor to Pierre. Thank you, Kima. I have to say we had tons of fun playing those games with Lars and Klemens in the studio. Every game we played was just a great experience. It is really refreshing. Talking about the market. What do we have? We have, obviously VR headsets, digital store, and content. In terms of VR headsets, we have three main categories. There is console VR, obviously. We have PlayStation VR. We have PC VR, which is tethered, typically high-end and expensive headsets, such as the Valve Index that released recently, or the HTC VIVE, which has been on the market with different iterations for a while. Finally, standalone VR. Standalone VR doesn't have any cable connected. The calculation, the CPUs, is all in the headsets, and it is more lightweight and less expensive as well. This is, for example, the Oculus Quest. In terms of digital store, you have three main stores, Steam, obviously, Oculus by Facebook, and PlayStation VR. Typically, those platforms take a 30% margin of the net sales. Let's not forget about the retail software distribution as well, because with the data, we can see there is decent sales being made also on PlayStation VR, for example, with standalone games, or especially with hardware bundle together with the headsets. The top VR games so far, there's been a few, obviously, Arizona Sunshine, which I personally enjoyed very much for a long time, Beat Saber, which was purchased by Facebook, Half-Life: Alyx, which released 16 years after Half-Life 2 from Valve. There was a lot of excitement about that. I will touch on it a little bit later. Job Simulator and so on. We typically see that 50% of the top 10 games are actually shooter games, like Arizona Sunshine. I think in general, as a VR consumer, I can tell that there was also not so much content available to cater for the demand. People have been craving to play more and more content in VR. We see continuous growth in 2020. The management estimates, based on available market data and internal data, is that there is more than 10 million headsets on the market, from which console VR and PlayStation VR announced in January in their financial statement that they shipped more than 5 million units. That was in January, so a while ago. Standalone VR, we know that Oculus Quest is selling very well. There was a SuperData report showing that they shipped 700,000 units in the first seven months, and are expected to be the continuous top VR hardware at least until the end of 2021. PC VR, as I said, there was new hardware from HTC, and obviously the Valve Index coming, that doubled this number when Half-Life: Alyx came with the best experience for this game. That shows as well that when AAA IP are entering the market, it really creates excitement and drives growth to the overall market. We believe that standalone headsets will continue accelerating this growth throughout 2020 and beyond. Why is that? I actually like the image of scuba diving, because at the very beginning of VR, it was really tons of cables and this super heavy headset on your face, and it felt like you were scuba diving in the past century. Now with standalone headsets, it is light. There are no cables. It is very easy to pick up. I give it to my mom, she would be able to play. It is really instant. You are in the world, and you feel it, and you just play for it. It is relatively cheap. Oculus Quest so far, when it is available on the store, is $399. And it is also very giftable. You just pick it up, you give it, you download the software, and that is it. You have nothing to do. You do not need a PhD in computer science like you guys. You just need to buy it. That is it. We see a strong demand for standalone headsets. I put some slides together here showing the Vertigo net sell for 2020. 62% of the revenues are driven by standalone headsets. And we expect that the net sell coming from standalone will increase in 2021 by 236%. Finally, as you probably saw in the news, there is an event today, actually, coincidentally, the Facebook Connect, where we think that there will be some news. I would like to welcome Klemens. Hello. Hello, everybody. I am Klemens Kundratitz, CEO of Koch Media Group. I am just taking 3 more minutes, Lars, to conclude this presentation. Thanks very much, Richard and Kimara. We are now experts in VR gaming. I just want to tell you from my very personal point of view how we approached this transaction. First, we look at the market. We have looked at that market for a long time. Mark Zuckerberg invested in Oculus six and a half years ago, and the market has steadily grown, but it is still quite a small niche. As Pierre just explained, there are good reasons for us to believe that technologically, we are just about to break out. So we really think this is a pivotal moment of the VR market to get in there. The second point in our consideration was how do we get in there? You can try to build it yourself. You can try to team up with partners. We found Vertigo Games right in the right time, and we really believe that this company has a very sort of special sauce to it. That is not only to be a developer, but they have this gene of publishing. You may sort of see similarities with Koch Media. We are also developers, we are publishers, we are distributors, and Vertigo Games is in their VR part of the market, they are exactly that. They do this already for seven years, so they are established as publishers. They are established as triple A VR developers, and we believe that now joining them with Koch Media, we can really unlock potential. We can really grow that business with their strong leadership. And I should really mention John Coleman is also part of the very strong management there. He is unfortunately in Los Angeles, but he is watching us. The three of them, they really convinced us this is the right type of people we want to work with and build this business up. So, that is my two cents. And just here for your pleasure to read the highlights and the opportunities that we see. This is really a start. This is not a just continued management of an existing IP or two. It is really a start of an ambitious plan to be a leading player in the VR field, yeah. Klemens, thank you very much. And thank you, Richard and Kimara and Pierre for a fantastic presentation. We will soon have a Q&A session. There will be one more slide and a very short movie about something that we have done at Embracer. So, kind of a year ago, I engaged the award-winning journalist, Thomas, on route to tell stories because we like to tell stories, and I think this is a way to show what Embracer is. While Einar are flipping slides here, we are waiting for a film. I would like to ask you all listening here to enter embracer.com in order to find out more about these stories, because the group is made up of thousands of people. And I know there is some fantastic videos here of people telling stories, where one is about our chairman, Kicki. So, with that said, I would like to just show this. This is Arno Dorian from Assassin's Creed Unity, a very beautiful man, and I love him. I made a guillotine, a working guillotine. It was stopped, so no kids got hurt. It is fine. In fencing, when you come up against your opponent, you always salute. I always salute. When I was 15 years old, I actually escaped from home. I stopped and I turned around, and I looked her into her eyes and I said, "I will always manage without you. This is the place where I grew up. When I was 17 years old, I started to import games. In 1995, the business has grown, and I was part of the group who founded JoWooD. And became a musketeer. It's pretty great. Musketeer. Ain't no one going to take that away from me. Nope. Just for us. The games just give me this sort of warm, fuzzy feeling inside. Just make that happen again. With that said, and thank you, Thomas, for all your hard work on this, I would like to leave over to Matilda. Thank you, Lars. The deal machine. What? No. Let's start with the Q&A session and start with the audience. Is there any questions? Then I can start with my questions. Lars, busy year as always. Could you tell me the most important events that has happened this year? Well, I think that is an impossible question, really, to give a straight answer on. I think we had many highlights during the year, but I don't like to point out various things because then you kind of leave other things aside. I think we're taking notable steps in order to increase everything from the quality to a number of talents and studios within the group. And obviously, taking our biggest step ever, adding Saber Interactive on board. That is now making a huge difference as well within the group. Well, lots of things have happened during this one year, but when I made the IPO 2016, I made a 25 years promise, and I'm just four years into it. There is another 21 years that I'm sure it will happen more things during those years as well. Yes. And let's talk about Saber Interactive. It seems like it got off a flying start within the group, both financially, but also contributing to the acquisition activity. How happy are you with that deal from a scale of one to 10? Well, I think Matt and Andrey are very good negotiators. They got me to pay a lot of money. I tried to explain for him, $525 million is a lot of money. Obviously, it's a fantastic company with great profit margins, making good money. I'm really happy to have them on board. I think they have shown delivering a great shareholder value by just numbers. But for most, what surprises me, and it's kind of kicking my ass every day, they are so active. They are everywhere in my phone, in my email, across the group with all other key people, and they have this energy of doing further M&As. Just their own list of M&As is quite long. Is it something that goes through the whole organization? The M&A? To be active and energetic. Well, I think everyone is working very hard within the organization, so I think it's not fair to say that anyone else is working harder than others, but everyone has different profiles. I think M&A, just talking about M&A, always that is something more or less on a daily topic across the six divisions, including now the DECA Games we just acquired in August. Ken is super active within M&A. It's definitely a very active progress going on. You have had some new releases during the year that have been very successful. What do you think is behind this success? Have you changed something from previous releases? I think, well, I haven't done anything, but my fantastic teams have increased quality. The releases have been having better reception with the communities and the IP communities, and I think that has been delivering a better profitability, better sell-through. I am really happy to see that the past quarter and the current quarter, we have continuing that trend. I cannot promise you that all releases in the future will be at the same constant level. What I can promise is that everyone will learn. We got some email questions that I have understood that the philosophy is to never force but encourage. Could you explain what that means? No, but sometimes I'm doing mistakes of forcing synergies or thinking about it, and I don't believe in that model, really. I believe in let people manage their own business and make collaboration with people rather than someone else is telling them what to do, because that is normally not ending that well. If people together within a group could see the potential to make a great new game or a VR game or the IP or whatever they do, it should kind of be in a good spirit. I think that will create a good working environment, but also better business at the end of the day. How is the quality emphasis going? Are the development cycles getting longer generally? Sorry, if the quality? The quality emphasis, how is it going? Are the development cycles getting longer? Oh. Well, it's a difficult question. We're having 133 projects, plus the projects for the Vertigo Games from this morning in the pipeline. Making games is a complex matter. Making huge games and big games is even more complex. You have an idea, you make a plan. No matter how many spreadsheets you do, things will change. I'm just stating, we should make quality products. So take the time you need to make a quality product. In the end of the day, I believe that will make a better return of investment. Delays are part of the daily- Part of life. Yeah, exactly. I think, it's something I would say we manage because we have many different companies, IPs, and releases. So we can manage the business without pushing releases too early. Another thing that's part of your life nowadays is mobile. You entered the segment when you acquired DECA Games in August. If we fast forward a few years, what percent of the whole revenue do you think will be driven by mobile? Wow. It's a question you would love me to answer, but I can't because, one, I don't know, and secondly, we don't do financial forecasts. I believe in people, I believe engaging, and start somewhere. Now we start with DECA Games in mobile, and let's see where that takes us. I've been surprised with the number of entrepreneurs and great companies there is out there that I could see the potential of joining the group, whether that is a part of DECA Games, as a wider group or becoming a new operating unit platform. I think the future will tell. Okay. You talked about the ESG during the presentation. Since you're not listed on OMX, you're listed on the First North, you don't need an audit committee. Is that something you're considering to introducing? Well, I think audit committee, first of all, my ambition as a major shareholder and CEO is to increase and to improve our governance and transparency, preferably every quarter. For example, start reporting organic growth and many other things. I think we will take steps in governance as well. We are evaluating, for example, IFRS. But audit committee, personally as a shareholder, I think it's a natural step for us to take sooner rather than later. Well, we are not deciding that today because it's something we need to discuss and Kicki heading the board, we need to have that. But I will be positive having an audit committee at Embracer. And the last question, if you do not have any more questions from the audience. Vertigo Games, very interesting presentation. Are you brave to entering that kind of market, the VR market right now? Is not the market still quite limited and dependent on headset marketing taking off? Well, first of all, I think Vertigo has proven everyone here today that it is a fantastic company with good profitability. So just by that sense, obviously it fits very well into the group. I think VR is a growing market. It is a niche market, but it is a market there is a lot of potential. We understand that market because in the end of the day, even though VR itself is a different technology, it is kind of the same platforms and universe, IPs, marketing, partly. So I think, for sure we will see that market growing. Do you have synergy between VR and your existing business? Yeah, 100%. I would say much more perhaps than we would have in the mobile business. Do you think any of your existing games would fit into VR? Should I announce a new VR game? No, I should not. I am sure there is a lot of IPs. We have close to 200 IPs, so I am sure there is opportunities for the coming years. Thank you. I think we need to move forward, but don't forget to try the VR games. Lars, you also have a room there where you could try some games. Oh, yeah, that's right. Yeah. Don't forget to try the games, and thank you. Now it's time for Kicki again. Thank you. Thank you, Matilda Carlsson. This is the end of the commercial point 7, and now we start even more interesting AGM. Oh, yes. What a challenge to come after all this excitement, and now we're going to try to create some more excitement about this formal part of the AGM. Someone said before this that this is the boring part. I think it's the most exciting one. Now we actually have come to item number 8. That is on the agenda, the presentation of accounting documents. The annual report for the financial year 2019 and 2020 have been published on the company's website on August 26, as you all have seen. It also has been available at our office, and it's also available here today, of course. Do we have any questions from the shareholders regarding that? No. Then I would like to ask our main auditor, Ulrik Adolfsson, to present the auditor's report. Welcome, Ulrik Adolfsson, to excite the audience here. Thank you. Thank you very much, Kicki. I will try to excite them. I will make a- Push the button a little bit. Thank you. Hello. I will make a brief summary of the audit process and also touch on some of the focus areas of this year's audit, and finally go through the conclusions of the formal auditor's report. EY Sweden has had the main responsibility for the audit of Embracer Group for the financial year ending March 31, 2020. As we have heard today, and as you know, the group conducts its business in several companies, different locations, different countries. Audit team based here in Karlstad at EY office. This means that we have planned and instructed the auditors of the foreign subsidiaries who has reported to us in the central team the results from their audit. We have, during the year, had several meetings with both management and the board of directors, where we have reported the results and findings from our audit. We have performed the audit in accordance with ISA, International Standards of Auditing, and audit principles in Sweden, locally adapted. Very short about the focus areas for the audit. It's based on the principles of materiality and risk, and they are mainly for the P&L, the income, the turnover, and the principles for that, and also the depreciations of mainly intangibles. For the balance sheet, it consists, as we have seen today presented, consists to more than 50% of intangibles, which in turn consists mainly of ongoing game development and IP rights, and we cover approximately 77% of the total assets for the group. So that's where we put our main focus. Another focus area I would like to mention is the audit of acquisitions of new companies, new studios. The conclusion from the audit can be seen in the full auditor's report that can be found in the annual report on pages 95 to 97. It is however, rather long, so I will read to you the conclusions and recommendations to the annual general meeting. In our opinion, the annual accounts and consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly in all material respects the financial position of the parent company and the group as of March 31, 2020, and their financial performance and cash flow for the year then ended in accordance with the Annual Accounts Act. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts. We therefore recommend that the general meeting of shareholders adopt the income statement and balance sheet for the parent company and for the group. In addition to that, we have also audited the administration of the board of directors and the managing director for the financial year 2019-2020, and the proposed appropriations of the company's profit. We recommend to the general meeting of shareholders that the profit be appropriated in accordance with the proposal, and that the members of the board of directors and managing director be discharged from liability for the financial year. That is a very short summary. Thank you, Ulrich. Do we have anyone that have any questions regarding the audit report to Ulrich while he is on stage? No. No questions. Thank you, Ulrich. As we recently heard from Ulrich, the auditor endorsed the annual general meeting to prove the presented income statement and balance sheet, as well as the consolidated income statement and consolidated balance sheet. Can the annual general meeting then approve the presented income statement and balance sheet, as well as the consolidated income statement and consolidated balance sheet? Yes. Thank you. Good. The board of directors' proposal regarding the allocation of the company's profit is included in the annual report and has been included in the notice as well. The board proposed that no dividend shall be paid for the financial year 2019 and 2020. The board proposed that the funds available to the annual general meeting of approximately 5.3 billion SEK shall be carried forward. Does anyone want to comment on the board's proposal? Okay. As we recently heard, the auditor endorsed that the annual general meeting resolved to allocate the company's profits in accordance with the board's proposal. Can the annual general meeting resolve that the approved result is allocated in accordance with the board's proposal, which was also endorsed by the auditors? Thank you. We have also heard that the auditor endorses discharge from liability. I would like also to inform the annual general meeting that the board members and the Managing Director may not participate in the resolutions concerning themselves, of course. Can the annual general meeting approve the auditor's endorsement and approve discharge from liability to the directors of the board and the Managing Director for the past financial year? Thank you. We can note then that the directors of the board and the Managing Director didn't participate in the resolution as far as they were concerned. Then we have item 10 to 11, and we have come to the determination of the number of board of directors and auditors, fees to the board of directors and the auditors, and also the election of the board of directors and auditors. The proposals have been available as well since August 17, and also on our website and in the notice, and also available here today. Ian, could you please describe these items, and then we will vote on each one of them separately after your presentation. Yes, thank you. For determination of number of directors and number of auditors, there is a proposal that the board shall consist of seven directors without deputies, and that the number of auditors shall be one registered audit firm. When it comes to the remuneration to the directors and the auditor, the proposal is that in total, 1,550,000 SEK shall be paid to the directors, where 250,000 SEK is paid to each director not employed by the company and 800,000 SEK is to be paid to the Chair of the Board. The auditor is proposed to get remuneration in accordance with approved invoice. As for the proposal of the directors to be elected and the auditor, all current directors are proposed to be reelected, which then is David Gardner, Ulf Hjalmarsson, Jacob Jonmyren, Matthew Karch, Erik Stenberg, Kicki Wallje-Lund, and Lars Wingefors. Kicki Wallje-Lund is also proposed to be reelected as Chair of the Board. Ernst & Young is proposed to be reelected as auditor until the next annual general meeting, and Ernst & Young has also announced that Johan Eklund will be the new main responsible auditor for the next year. Okay. Thank you, Ian. Do we have any questions regarding the proposals? We have heard from item number 10 of the agenda, and that was determination of the number of directors and auditors. Can the meeting resolve in accordance with the proposal? Yes. Thank you. We have also heard from Ian regarding item number 11. That was determination of fees to the board of directors and also to the auditors. Do we have any other proposals? No. Can the meeting resolve in accordance with the proposal then? That's good. Thank you. Prior to today's general meeting, I and also the other directors of the board have announced that we are available for reelection as directors. We have now also heard on the item number 12, and I wonder if there are any other proposals regarding election of the board of directors and the auditors. No, I guess. In a public limited liability company, the chairman of the general must, before the board election is held, provide information to the general meeting about which assignments that the person to whom the election applies holds in other companies. To speed up some time and to speed up everything, I would like to refer to the information about the directors that you can find in the annual report and ask is there anyone here that have any questions regarding that? I guess you all read those pages in the annual report. No questions. Can the meeting then resolve in accordance with the proposal? Yes. Thank you. This is now item number 13. The board of directors have proposed that the annual general meeting shall resolve to amend item number 11 of the company's articles of association regarding participation at general meetings due to adjustments in current legislation regarding the record date. This has also been included in the notice and on the website. I don't intend to go through that in detail, and I wonder if there are any questions regarding that specific item. No? Can the meeting then resolve in accordance with the proposal regarding amendments of the articles of association? Thank you. Number 14. The board of directors have proposed that the annual general meeting shall resolve an authorization for the board of directors to issue shares, convertibles, and/or warrants. The proposal has also been included in the notice of the meeting and been on the website prior to the meeting. Therefore, I am not going to go through that in detail either. It can be noted, though, that the authorization may comprise a maximum of 10% of the total number of shares available per day at the meeting. Is this now the right number, Ian? No, it is not. It would be a little bit more, but since we have a new share issue today. Exactly. Will you remember the number if I say so? 38 You can just say that it is 10% of the shares. Yes, I think that is it. It is 10% of the number of shares available per day at the meeting. Are there any questions regarding that proposal? Can the annual general meeting resolve in accordance with the proposal to authorize the board of directors to resolve of issuers of shares, convertibles, and/or warrants? Yes. Thank you. If we take into account the votes provided in advance, we can note that the resolution is passed with sufficient majority of two-thirds of the votes cast and present at this meeting. This is now item number 15, closing of the meeting, finally. As no other questions have been reported, I hereby declare the meeting closed. I would like to thank everyone for being here. I am looking forward to next year, I guess, in Karlstad again, Lars Wingefors. Hopefully. Yeah. I am sure. Thank you very much. Bye.

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