Good morning everyone, to the presentation on Stillfront's full year report and Q4 report. It will be myself and Andreas Uddman, CFO presenting today. We will have open up for questions at the end. If we go to this next slide, we can see an overview is that we have been outperforming a weak market in the quarter and also for the full year. We have in Q4 24% total growth. We will look a bit further into how that is divided between organic growth and FX and acquired growth later. What is important now, we can see that many of our key franchises has been very strongly performing, which is one of the explanations why we can outperform a weak market to such an extent.
Also where we have deployed most of our LiveOps efforts is into our key franchises. We also have been enjoying continuous efficient user acquisition, not compromising with our 180 days ROAS levels. That we are happy with. We have further also strong cash flow generation and a good balance sheet. You can see on the right side how our revenues were distributed in Q4: 45% to North America, 26 Europe, and 23 Asia as being our largest markets. Again, looking to our key franchises. The three that I would like to highlight here is BitLife that continues with a very good organic growth, with major content updates that has been driving revenues and engagement from our players in the fourth quarter, and also continue its significant organic growth.
Further, also Albion Online have had a strong second half of the year, also gearing up for its Asian expansion in late Q1 this year. Further, we also have Jawaker, which is now part of our organic, a so-called organic studio, which continued to grow in the fourth quarter despite they had a very clear negative impact from the FIFA World Cup, which were, as we probably know, in the region as well, the MENA region. That was very clear impact. We are expanding our active portfolio. However, we felt in the quarter that it was weaker than expected performance from several of the soft launches.
We have increased our ROI requirements, which has led to a one-off amortization of SEK 176 million related to part of our businesses where we don't see that they meet our requirements. We have also, as I said, increased our ROI requirements. We have in the quarter added one game to our active portfolio. We now have seven to eight different games, which is important from a diversification perspective, and that is to a large extent driving and explaining why we can continue with high return on ad spend despite the tough market. Going into some of the numbers, I will not read all of them. We had for the full year SEK 7.1 billion in revenues with an EBIT of close to SEK 1.8 billion.
What is important here is that, as I said, we have a total growth of 24% year-over-year in Q4. You can see on the upper right corner how this are composed. Organic growth is slightly down 0.7%, which we think, we're never happy when we're not growing organically. Considering that the market in Q4 were down with some 11%, we think in relation to that, and without increasing our UA, that was 25% only in Q4, and the last twelve months, we are incredibly stable. As you can see, 26% last twelve months for five quarters now. Without increasing UA to try to compensate, we are still significantly better organically than the weak market. We had acquired growth of 11%, which is Six Waves
We have an FX effect of 14%, and we have other effects, which is mainly then the effect from Ulka, our post business in Bangladesh of 1.1%. We can also see that we have lower margins, looking at EBIT margin year-over-year, due to higher amortizations, which in turn is a consequence of that we increased our product investments 18 months ago. It's also important to mention that our EBITDA margins are very stable for quite some time at 38%. We have been between 37% and 39% for quite some time on EBITDA. Also looking at the full year, we were 1.4% negative organic growth, whereas the market were approximately minus 8% organically.
Next slide, please. A lot of numbers here, but, as said, we are now up to seven-eight games in our active portfolio. Again, this is a very important metric from the diversification perspective because the number of games combined with the number of territories that we are actively market these games in and the number of channels that we use is and how we can optimize our marketing over number of games, number of markets, number of channels is the explanation why we can continuously be spending high and very profitable on marketing. We had 76% in mobile bookings during the quarter. We increased our ad bookings in the quarter sequentially compared to Q3 from 14%-16%.
We think we can do better than 16%, but it's also to a large extent driven from the fact that we have a different product mix compared to one year ago, looking at Q4. I think that we can improve that number going forward. We communicated back in 2019 that our ambition is that we should be at high teens, so we should be a couple of percentage points higher than that. Also you can see that our average revenue per daily active user is significantly up year-over-year. It's of course driven by positive effects, but also that we have had very strong traction with our franchises within the strategy games area, and hence with a larger weight and a higher average revenue per DAU that comes into play.
Our largest area as you can see, is still casual and Mash -up 43% of the total revenues, then strategy is up to 35%, and the rest 23% is simulation RPG. Looking into the total portfolio, you can see that we have a strong growth in bookings for strategy 77%, which is both acquired, but also that we have had a very strong organic development. That is of course something that we are pleased with and one of the explanations why we have been so resilient when the market has been slower, whereas strategy is very stable compared to especially Mash -up and casual games. We need both of them in the portfolio in order to optimize the performance totally. Simulation RPG slightly down 3%, but we also lowered the UA significantly.
I think we are quite pleased with the stability there. We improved the monetization year-over-year across the portfolio driven by positive effects and also the product mix, but we're also on a more fine granular level. We have optimized and worked with the optimizing the hybrid model where we have, in especially in casual, where we can work both with ad monetization as well as in-app purchases. We can see that we can optimize on product levels for product area levels which we have done in the fourth quarter and will continue to do during next year. Finally, you can see a drop in both MAU, DAU, and MPU.
We're in casual, that is driven by almost entirely by the post operations in Bangladesh, which had a large audience. Otherwise, it is quite stable. Next slide, please. That is over to Andreas.
Thank you, Jörgen. Looking at, we have in the quarter a continuous strong cash flow generation. This is something that we have seen grown during the year. We generated SEK 474 million as a 17% increase from cash flow from operations prior to net working capital. In that as well, we have higher tax payments in the fourth quarter of SEK 113 million. Strong cash flow generation which grows 17% with a negative, a positive net working capital effect of SEK 10 million, and the underlying cash flow from operations was SEK 484 million for the quarter. We continue to spend, invest in our portfolio, we spent in total SEK 480 million in terms of investments. Out of that, SEK 235 million is related to product investments.
That's a 13.2% of net revenues for the quarter. It's a bit of a decline versus the full year where we spend just above 14%. We're seeing a bit of a lower investment level, even if we continues to deploy quite a significant amount of our cash flow into new products. We also settled with held upfront consideration for Jawaker of SEK 206 million, which also is in the decline for the quarter.
In terms of financing, activities, we had a negative of SEK 301, mainly driven by that we repaid some of our debt, so we optimized how much cash we actually hold and reduced our debt position in the quarter and including as well there some IFRS 16 and leases, in that of SEK 50 million. The cash flow from the period was negative, but majority of that is of course driven by the fact that they amortize on our debt. Looking at the 12 months, it's always more in the last 12 months periods, comparing those. We have cash flow from operations almost at 2.1 billion SEK before net working capital, so it's 29% increase.
In terms of the cash flow from operations, deducting the IFRS 16 and net working capital. That grew 26% to just below SEK 2 billion in terms of free cash flow. We have, as we talked about previously, spent a larger portion of our net revenues in the last 12 months in our product development. We spent almost SEK 1 billion in new products, which is 14.1% of the net revenues in total. We saw a bit of a cooling off in the fourth quarter. We're generating almost SEK 1 billion of free cash flow in for 2022 after increasing our investment pace. Our cash conversion ratio was 0.38 in Q4 LTM. Next slide, please.
We continue to have a conservative leverage came down slightly versus the last quarter due to our cash flow generation of 1.46. We still have SEK 3.8 billion of gross debt, but we also have some cash of SEK 1 billion on our balance sheet. I think the main things that actually happened in Q4 is that we significantly doubled our time to maturity in our debt portfolio. You can see on the right-hand side. Even if we announced the loan to the Swedish Export Credit Corporation in Q3, that was used to repay the loan, the bond loan that we have outstanding. We moved that with a four-year maturity.
As well, we increased the length or extended the revolving credit facility with another two years, so that now has a maturity of three years. We more than doubled our time to maturity, which give us a good balance on our maturity profile. We still have about SEK 2.2 billion of undrawn credit facilities from our credit, from our balance sheet banks. We end the year with a good balance sheet structure, and that's served us well, even if it's been a more difficult year also on the debt market. We have performed well and have been able to tactically work with our financing during 2022. Next slide, please.
We also announced today that we are launching a repurchase of shares. This is driven by partially that we have a strong balance sheet position. We have a cash generative business. The board has announced that they would use the mandate on the AGM and purchase up to 270 million SEK of shares. The majority of this would go to cover the majority of the equity component for the earn-outs that we are due to pay in Q2 this year. This would happen from the 16th of February, so from tomorrow, up until the AGM on the 11th of May. With that said, I'm handing back to you, Jörgen.
Thank you, Andreas. We are entering a new phase with building Stillfront. We call it the PIV where we more focus on leveraging the size that we have built so far, and to be the most efficiently operated games company that exists. Hence, there are a number of other priorities. We refine our strategies, and we should continue to outgrow our market with high profitability and strong cash flow. That's the financial outcome from our new phase that we will hopefully show you for many years to come. Our financial targets, they also, we think, better reflect both our priorities, but also the value generation potential in the business going forward. We have the first growth target is that we should grow consistently organically better than our addressed market.
We define our addressed market as being the global mobile games business excluding China. When we measure this yearly, annually, we will look at the three main institutes that communicate how they view the market, so we can compare with something neutral, so to speak. We will not I think this year, but over time, we think M&A is absolutely something that is important to us. For obvious reasons, when the market is as it is now, we being, we think fairly low valued, and the market, the private market is higher or on par, and the financing is more expensive, it is not very likely that we do conduct some M&A this year.
I think that it's important to mention that we see still some interesting targets that could fit and will fit if we come to a transaction into our structure, so that we can get even more leverage out of our capabilities. The second target is that we change our profitability target to cash EBITDA. EBITDA reduced by with our CapEx. The reason why we do that, again, is that we think it's reflecting the value generation in a better way, and also what we prioritize in the fourth phase of building this company. We will elaborate more on this in our Capital Markets Day later on. Finally, we change slightly the leverage ratio target from now also including the short-term earn-out cash payments that we see.
The next 12 months cash is included, and then we should be below 2.0. Basically it's unchanged if you take away the earn-outs, but now we include the earn-outs in the definition, and then we should be below two . Again, this will be followed up on annually, and they are valid until further notice. That was basically our last slide, and we open up for questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Simon Jönsson from ABG Sundal Collier. Please go ahead.
Hi, Jörgen and Andreas, congrats on a solid report. A couple of questions from me. First, on the new profitability target, you gave a range of 26%-29%. Is it fair to assume that the most important factor in the range is CapEx? How fast can you get it down to 10%, which is stated as your target? Yeah, that's my first question.
When we went public already in 2015, we said that we think that our business and the way that we conduct our business at around 10% is what you could expect in CapEx product investments in relation to net revenues. We took... We have been there. We took a deliberate decision 1.5 - 2 years ago that we would like to increase our investment because we saw interesting opportunities. That has served us well, I should say. That is one of the reasons why we can outgrow the market this year. We will, again, according to our plan that we've had, stepwise go back to at around 10%. It will not change in a week or a month or even a quarter.
It's hard to say precisely since it obviously we will take tactical decisions into consideration. If we have good traction and good ROI, we will not be too fast on lowering it. I think it's a fair assumption to say that we, during the year, we'll be close at the end of the year, we'll be closer to 10% than the approximately 14% that we had 2022.
Maybe to add to that as well, it's not just CapEx, to go back to the question. There are other positions as well. We will deep dive a bit more in that in the capital markets. One thing that Jörgen was talking about in the presentation today is that we want our ad revenues to be, you know, high teens in terms of our revenues. That, of course, would drive down our direct costs. There is not just CapEx. That is a part of it, but there is so much else we can do. If you join us for the Capital Markets Day, you will get much more insights into that.
All right. I guess you also will mention which areas you may be cutting down on. Can you tell us anything about that right now, about what kind of areas are you cutting down on investments, and how could that affect growth, you think?
We are not necessarily in absolute numbers cutting down on investment, but we are taking it in relative terms to stepwise lowering it. I think that how that plays out exactly is hard to say. Important is that we will focus to a larger extent our investments to our key franchises. We have 12 franchises, whereof five had revenues over SEK 500 million last year, and the others had over SEK 200 million. We have seen clearly when we measure, which we do diligently, how our return on product investments are, that they are returning better when we invest in our key franchises. That is the main thing that you will see change rather than a brute force cut on the investments.
Also to add, even if you would say that we will go down to 10%, which will not happen overnight, if we would have done that in 2022, we would still have invested more in terms of absolute cash than in 2021. It's not the absolute deployment wouldn't have gone down.
All right. Is it also fair to assume then that the acceleration you did in 2021 and 2022 in terms of CapEx was more broader? Now when you say now that you want to focus more on the key franchises, is it fair to assume that the investments in the last few years were broader?
That is correct. And that is, I think that is one of the things that we can do better. Ad revenues is another. We have clearly, as Andreas alluded to, we will in the Capital Markets Day go through things that we actually are doing, not only think about or plan to do. One of them is this movement to not invest as broad as we have done, but more focused, but continue to invest at decent levels indeed. That is, has returned and yield better. If we can improve the capital allocation and the ROI of a capital allocation for product investment, just as we have, for quite some time and several years have been very good at capital allocation for UA.
If we can improve the other axis of that, so to speak, I think we are operational-wise improving our performance even more. That's why this is important to get that context.
Got it. Also, could you share any details on what franchises you have seen higher returns on recent years that you want to focus more on now?
I mentioned some of them here. We have seen investments in the Supremacy, which I didn't mention now, but we have mentioned the last couple of quarters. Our Grand Strategy fee franchise, which has been tremendously successful for us. Also when we look at the BitLife franchise, Albion is growing nicely, and Jawaker as well. We have several of them that has a growth potential further, and hence we think it's a good decision. We will again describe that our CPO on the presentation on the Capital Markets Day will go further to that topic.
All right. It's basically kind of a double down on what has been working. last one for me here is about the growth target, your target above market organic growth. The question is, what kind of market growth do you expect in coming years?
The tricky thing is, the beginning of this year, just as we underestimated how negative growth it were, the second half of last year and the full year as well. That is the visibility is lower in the beginning of this year, but we and I think most of our peers and analysts in general in the market expect that we will be back on organic growth. The growth trajectory expected, we think it's 3% to 5%, some are even higher. It was 9% actually CAGR, including 2022, if you compare to 2018. I don't think it will be on that level, but we will be 3% to 5% organic growth, the market. Exactly when it's up on that number is incredibly hard to say, to be honest.
That visibility is lower, but the structural growth in this market is underpinned by several factors that are very convincing, such as new demographics starting to consume game. Younger consumers have since years seen mobile gaming as their main entertainment area, and they will of course not stop playing games just because they become 20, 30, and 40, and so on. Also there are game subgenres that are poorly developed. There are many things that supports this structural growth for many years to come. Exactly when we're up there is a bit harder to say.
All right. Thank you. I'll get back into the queue.
The next question comes from Nick Dempsey from Barclays. Please go ahead.
Yes. Good morning, guys. I've got three questions. Digging down a bit more into organic growth for 2023, I've got a few questions. Firstly, you know that you expect the market and Stillfront to return to organic growth during second half 2023. You're not specifically saying that you expect growth for all of second half 2023. Could you hit a return to positive growth in December, and that would still be consistent with what you're saying? Are you really hoping for positive organic revenue growth for all of second half 2023? You're saying that you expect to outperform the market over time, and you did throughout 2022. You haven't exactly said that you expect that in 2023, or is that implied?
The last thing on organic is data.AI's expectation of -3% for the mobile market in 23 is the only one you actually mention in the release. Is that something that we should use as a benchmark, or is that just the only number that's available, we shouldn't take it too seriously? That's just on organic growth. The other question was specifically on Jawaker. You know the engagement dip during the World Cup. Can you give us a bit more color on why? Did it disrupt people coming together? Were they watching the games instead? What exactly caused that disruption? Can you give us a bit of a sense of that rate of growth that Jawaker achieved in the last couple of weeks of December? Thank you.
Yeah. Thank you. First organic growth, the minus 3% is the only data point that is available at this point in time. I think many are struggling with the visibility that is a bit low as we have alluded to. That is the reason why that is the only one mentioned. I think that again, the visibility is low, it's hard to say. Of course, we are aiming for not reaching that on the New Year's Eve only positive organic growth. Obviously we are not immune towards how the market develops. I think that we will sorry, reach that during the second half, but it's very, very hard to say to be honest.
Yes, we are expecting that we should be able to outgrow the market for 2023 regardless if it's -3% or some other has said that it will be +1 to 2 percentage points, regardless where that is. We will work very hard to outperform it, but it's hard to say when it's up on the positive territory again. On Jawaker, it was ridiculously, the correlation was ridiculously clear. The very day when Saudi Arabia did beat Argentina, from that first game and onwards since also Morocco in the region were extremely successful, which was fantastic to see in many aspects.
It was exactly what you said, people that play Jawaker's game, they are casual games, they are socialising when they're playing, and instead they're socialising looking at the World Cup which was held in the region. Since that was in the peak season when for the first time, I hope, only time going forward, it's better when it's in the summer period for us. It was extremely clear the day that the World Cup after the final, it picked up again. Then to pick an exact number, but it's, I can say that, it's not far from that is the only difference from being positive in organic growth, just to give you some flavor on it. That close it was.
Okay, thank you.
The next question comes from Rasmus Engberg from SHB. Please go ahead.
Hi. Good morning. Thank you for answering my questions. I had basically two questions. Firstly, with regards to your, for targets, is it like a medium-term target or is it something that you hope to reach, already in 2023 or 2024? How should we think about when we evaluate the target?
Since we are at for the full year, our cash EBITDA for 2022, it was 22.7, so we have some mileage to do until we are in the interval. In Q4 already it was over 24%. I think that it will not be obvious that we will reach it for the full year 2023. It will be tough for us, I think that we have a good chance to be in that range at the latter part of this year. It's definitely valid from now and onwards, it will be a bit more challenging to reach that one during this year. For 2024, definitely so.
All right. Thank you so much. Then just on this very low visibility of the market, can you say if you are tracking roughly as you did in the fourth quarter in the beginning of this year, or is it in any way significantly worse or so?
We don't comment the actual quarter that we're in, as I think you know. What is I've been in this industry for quite some time. What was an interesting. Again we will discuss it also a bit more in depth during our Capital Markets Day. One thing that was unique in Q4 and or in the, in the fall, was that it was very uneven, the performance, especially when you were scaling up new products, because then you have to have traction for a certain time in soft launch, running a product with a deficit until you get a certain level of existing users which you can have more or less the current revenues from. That has been very uneven.
You can have two weeks of momentum, and then you all of a sudden you lose that momentum despite the fact that you're using similar or the same channel in the same territory for the same product. It has been very up and down, and that's why we are happy that we have developed our capability of rapidly reallocate UA, otherwise it wouldn't have been possible to outperform the market as we did. The visibility is low, it's many factors coming in. It requires an half an hour to explain what we, what we think we see. We will do that in the Capital Markets Day. It's hard to say. I don't give any forecasts or guidance for Q1.
All right. Thank you so much.
Please state your name and company. Please go ahead.
Good morning. Marlon Värnik here. Can you hear me well?
Yes.
Yes.
Perfect. Thank you. Firstly, a question on expected earnouts. You make negative adjustments here, almost 20% for this year and almost 30% for next year. Can you give some more comments here on 2023 and 2024 on those revisions and what acquisitions it is related to, and also, what has triggered this? Thank you.
Yeah, I mean, you are correct. I mean, the balance sheet position is almost SEK 600 million. Some of that is driven by FX as well, so approximately SEK 180 million as we write in the report. Some of them are driven by the revaluations and of some of our earnouts. We do the revaluations twice a year, usually Q2 and Q4. We don't go into specifics of which studios it's related to in the report, but there are ups and downs, but that's sort of where we stand, so, at the moment.
Maybe we can add that this shows clearly that our acquisition model and the earnout model works the way it should be. When the performance hasn't been what we hope for in each and every of the acquired studio under earnout, the earnout will go down. That is how the model is supposed to work. It's good to see. We have many questions after Q3, but we don't do, as Andreas said, revaluations each quarter. It's two times per year. That is basically what you see. It reflects the performance to a large extent.
Okay. Thank you. Another question here, just to clarify. When you're referring to above-market growth, is it solely the mobile gaming market you're referring to, or do you also include a component of the browser market there?
We take the global mobile market excluding China, and we take the average of data.ai, Sensor Tower, and.
[uncertain]
[uncertain], sorry .
We take the average and compare to that. Now as commented from a previous question, in a previous question, looking forward it's only data.ai that has come up with a number because the visibility is low, but that is what we should beat. We are not considering the fact that we have between 21%-25% browser business, which is a declining business. We should beat that number anyway, we hope and think.
Okay. Thank you. Over to you. Thank you.
The next question comes from Edward James from Berenberg Bank. Please go ahead.
All right. Thank you for taking my question. I just have one quick question on the user acquisition environment. Excluding the impacts that you saw around the World Cup, could you just comment on whether the user acquisition environment is improving, stable, or becoming more difficult over the last three months, and how you expect that to change in the year to come? I'm mainly asking the question because I've seen a couple of other mobile gaming companies mention that the user acquisition environment is getting slightly better with Apple, making some substantial improvements to its ad network, and they are hopeful that this aids the user acquisition environment going forward. I'd just like to get your opinion on that. Thank you.
Yeah. That's a very relevant question. Again, looking at our numbers, we have been able to deploy more in UA this year than previously, and we have been in relative terms, very stable at 26% in relation to net revenues without compromising on the very strict ROAS target of 180 days net that we have. We have seen the differences, and again, this will be discussed in the Capital Markets Roadshow what these differences are, but it's several factors playing in. It's actually quite complex to analyze the pattern for user acquisition and how IDFA plays in on iOS. Then volumes are moved to Android, and the prices goes up there, and you have to balance there and different for different channels, how well their algorithms are working.
We come from a position where we have been coping well with all the changes, and the reason is that we have developed this dynamic capital allocation capability over five, seven years or so. We are really benefiting from that. I think that we will continue to benefit from that, and we keep our strict target of 180 days, and I have no reason to believe that it will be harder to reach that. I don't... There are definitely things that could suggest that it will be easier on iOS with SKAD and so on, but our going in position is that we'll be unchanged and hence we will be able to deploy UA without compromising, which we will not do on our ROAS.
Our going in position is that there is no change, and we don't see that in being worse at least.
Thank you. Just one quick follow-up. The European regulators released a EU Digital Markets Act, or I think it came into effect in November, and I think it's by early 2024, Apple and Google will essentially have to allow third-party payment mechanisms within the App Store. Can you just remind us how, you know, Stillfront is set up to possibly take advantage of that, what that could mean for how you monetize games and how you try and retain players? You know, is that actually a meaningful opportunity, or do you believe that the sort of conversion of players to actually purchase, to make in-app purchases outside on sort of web stores, et cetera, is gonna be difficult or not?
I just, you know, just like to get your thoughts on that. Thank you.
Yeah. That's a very interesting topic. We've learned through the last couple of years when this has been a topic for quite some time, that it's very hard to really see that the change will happen early 2024 in the way that you described from the EU Act. Of course, the pressure is increasing on App Stores to allow for other payment methods. We have already, since we have cross-platform products, we have products that are using our payment solutions instead of the ones in App Store. We are already improving our gross margin and work systematically, but of course, under certain limitations obviously.
To some extent, we do that today, and I think that there is a very high likeness that that will open up even more. I'm not sure that will be early 2024, but over time it will be more an open environment, which obviously, since we have all the payment solution. We have a quite advanced payment solution actually since we come from browser games. We have our sophisticated payment engine fully fledged in place already. It will be good for us when it happens, but it's hard to say exactly when.
Great. Thank you. Appreciate your time.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you all for dialing in this morning and for good questions. We hope that you will tune in to the Capital Markets Day that starts at 3:00 P.M. Central European Time today. I think and hope that that will be an opportunity for you to understand more about where we are heading with Stillfront, but also not only looking forward, but going more in depth of what had happened last year and how our financial model looks like, how we work with our product portfolio and ESG and a lot of other interesting areas. Tune in and enjoy the Capital Markets Day. Thank you.