Welcome to Annual General Meeting FY 18/19 17 September 2019 1 - - PowerPoint PPT Presentation

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Welcome to Annual General Meeting FY 18/19 17 September 2019 1 - - PowerPoint PPT Presentation

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Welcome to Annual General Meeting FY 18/19 17 September 2019 1 Todays agenda Webcast are between 15.00- approx. 16.00 (end of Q&A) 15.00 15.01 Welcome by Oscar Erixon, analyst Carnegie 15.01 15.05 AGM agenda by Kicki

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1

Welcome to Annual General Meeting FY 18/19

17 September 2019

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2

Todays agenda

Webcast are between 15.00- approx. 16.00 (end of Q&A) 15.00 – 15.01 Welcome by Oscar Erixon, analyst Carnegie 15.01 – 15.05 AGM agenda by Kicki Wallje-Lund (in Swedish) 15.05 AGM 2019 presentation 15.30 Embracer Group presentation 15.40 Smarter Business – Embracer Group’s approach to sustainability 15.50 – 16:00 Q&A 16:00 – 16:15 Break 16:15 AGM continues 17.00 AGM ends Please note the times indicated are approximates.

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Annual General Meeting 2019

17 September 2019

Lars Wingefors Co-Founder & Group CEO

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  • 1. Operational overview FY18/19
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2018-2019: CONTINUED MOMENTUM AND GROWTH

FY17 FY18/19 Change Net sales growth 508 5754 1033% Operational EBIT 202 897 344% Reported earnings per share/SEK 1,88 4,68 149% Adjusted earnings per share/SEK 2,04 7,78 281% Depreciation of game development 62 533 760% Investment in game development 291 1192 310% Finalized & completed game development 176 605 244% Game Dev Project 36 80 122% Total employees & contractors 462 2208 378%

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SLIDE 6

KEY RELEASES FY18/19

PC PS4 XB1 | 4A Games | Deep Silver PC | Coffee Stain Studios | Coffee Stain PC PS4 XB1 | Gunfire Games | THQ Nordic PC PS4 XB1 | Warhorse Studios | Deep Silver PC | Bugbear | THQ Nordic PC PS4 XB1 | Rainbow Studios | THQ Nordic PC PS4 XB1 | Nine Dots Studios | Deep Silver

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SLIDE 7

ACQUISITIONS – DEVELOPMENT STUDIOS AND PUBLISHERS

LAVAPOTION

ACQUISITIONS AFTER YEAR-END

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SLIDE 8

* Based on SEK 72m shares immediately post IPO and SEK 103m shares as of 30 Jun 2019

272 5 462 TTM Sep 2016 (IPO) TTM Jun 2019 90 900 TTM Sep 2016 (IPO) TTM Jun 2019 167 3 159 Dec 2016 (IPO) Jun 2019 339 1 828 Sep 2016 (IPO) Jun 2019 4 17 Sep 2016 (IPO) Jun 2019

GROWTH TRACK RECORD SINCE IPO (Nov 2016).

– ORGANIC AND ACQUISITIVE (30% DILUTION*) GROWTH SINCE IPO UNTIL 30 JUN 2019 HAS YIELDED:

STUDIOS

Lavapotion

+5x

Net sales, SEKm Operational EBIT, SEKm Cash, SEKm Great people # of game developers # of internal development studios Key IPs acquired since IPO

Highly talented key people with complementary skillsets joined the Group

+4x +20x +10x +19x

Long-term exclusive license

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SLIDE 9

Business Area Partner Publishing/Film

13 offices across the world: Selected partners:

Business Area Games

Three autonomous sub-groups:

Munich Vienna Munich Skövde

TOWARDS BUILDING A DIVERSIFIED, SUBSTANTIAL AND RELEVANT PLAYER IN THE GROWING GAMES INDUSTRY

GROUP HQ

Karlstad Group strategy and M&A

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SLIDE 10

Core strategy to acquire and build based on established IPs.

31%

22 41 52 64 21 29 31 22 7

Klemens Kreuzer, CEO

BUSINESS AREA GAMES – THQ NORDIC

90+ IP’s

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SLIDE 11

15+ IP’s

134 141 173 70

Exclusive license

BUSINESS AREA GAMES – DEEP SILVER

Klemens Kundratitz, CEO

62%

Own IPs within AAA development. Publishing on external products that needs powerful marketing and physical distribution power.

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SLIDE 12

9 IP’s

Skövde

Lavapotion

24 15 STUDIOS NORTH Stockholm

BUSINESS AREA GAMES – COFFEE STAIN

Anton Westbergh, CEO Creative, focused on games-making and development, new IPs, ~20 people.

7%

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SLIDE 13

INVESTEMENTS IN PROJECT PIPELINE

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SLIDE 14

PC PS4 XB1 Switch IP: 3rd party PC PS4 XB1 IP: Own PC PS4 XB1 IP: Own PC PS4 XB1 IP: Own PC PS4 XB1 IP: Own PS4 XB1 IP: Own Strong reception – millions of trailer views

DEVELOPMENT PIPELINE – BUSINESS AREA GAMES

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  • BUSINESS MODELS ARE IN TRANSITION –

”NETFLIX” FOR GAMERS

  • GAMES AS A SERVICE (GAAS) GROWING

OPPORTUNITY

  • CLOUD GAMING IS CHALLENGING

CONSOLES – BILLIONS OF DOLLARS UP FOR GRABS CLOUD GAMING

MARKET TRENDS FAVOURABLE TO CREATORS AND OWNERS OF CONTENT

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NEW SUSTAINABILITY FRAMEWORK

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THE SHARE OWNERSHIP

30 June 2019

Name Capital % Votes % Founder management Renouned institutions Lars Wingefors through companies 35.1 51.5 Co-Founder, Group CEO Swedbank Robur Funds 9.1 5.1 Erik Stenberg through company 7.6 11.2 Co-Founder, Deputy Group CEO Handelsbanken Funds 6.0 3.3 Mikael Brodén through company 2.6 3.8 AP1 Första AP-fonden 2.3 1.3 Didner & Gerge Funds 2.2 1.2 Olsson Family and Foundation 2.2 1.2 SEB Funds 2.0 1.1 Life Insurance Skandia 1.9 1.0 Avanza Pension 1.2 0.7 Klemens Kreuzer through company 1.1 1.6 Co-Founder, CEO THQ Nordic ODIN Fonder 1.0 0.5 AP2 Andra AP-fonden 0.9 0.5 Martin Larsson 0.9 0.5 Capital Group 0.9 0.5 Pelle Lundborg with family through company 0.8 1.9 Reinhard Pollice through company 0.8 1.0 Co-Founder, Director THQ Nordic Skandia Funds 0.7 0.4 Rolf Lundström 0.6 0.4 BlackRock 0.6 0.3 RAM Rational Asset Management 0.5 0.3 Inwestbergh AB 0.5 0.3 Chahine Capital 0.4 0.2 Koch Media Holding GmbH 0.4 0.2 - Partly owned by Founder and Sensor Funds 0.4 0.2 CEO of Koch Media/Deep Silver TIN Funds 0.4 0.2 Länsförsäkringar Funds 0.3 0.2 Knutsson Holdings AB 0.3 0.2 Michael Knutsson 0.3 0.2 Aktia Asset Management 0.3 0.2 Svenska Handelsbanken AB for PB 0.3 0.2 Meme Addict AB 0.3 0.2 Spelfisken AB 0.3 0.2 Amyril AB 0.3 0.2 Grillus Janus Invest AB 0.3 0.2 Vedtraven Finans AB 0.3 0.2 Hippies With Attitude AB 0.3 0.2 Long Name Holding AB 0.3 0.2 Stefan Spel & Bry AB 0.3 0.2 TOTAL TOP 40 86.1 92.2 OTHER 13.9 7.8 TOTAL 100.0 100.0

Founder-managers jointly own: 45% of capital, and 65% of votes

Equity research coverage: Berenberg, Carnegie, Handelsbanken, Nordea, Pareto Securities, ABG Sundal Collier (paid), Redeye (paid)

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18

MAJO

  • 2. Financial overview
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2 047 2 011 4 058 4 058 4 058 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 4 500 Assets Equity

Completed games On-going games Net Cash Acquisition related intangible assets

Operational Balance Sheet Items Financial Balance Sheet Items

SEK 1,510mn invested in our game's portfolio per year-end, where SEK 395mn relates to completed games and SEK 1,115mn relates to On-going development. SEK 2,047mn of assets are related to acquisitions (IP-rights and goodwill). Net cash amounts to SEK 2,011mn. Vast majority is financed thru Equity (net of other assets and liabilities SEK -161mn).

Balance as per 31 March 2019

19

1 115 395 156 150 1 655 161 1 815 1 815 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 4 500 Assets Equity

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Working Capital – Including Forfaiting

20

  • 15
  • 11
  • 1

6 15

  • 468
  • 364

604 494 290 141

  • 5%
  • 3%

0% 2% 3%

  • 12%
  • 9%

14% 11% 6% 3%

  • 30%
  • 20%
  • 10%

0% 10% 20% 30% 40%

  • 600
  • 400
  • 200

200 400 600 800 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q5 Q1 2016 2017 2017 2017 2017 18/19 18/19 18/19 18/19 18/19 19/20 Net Working Capital Net Working Capital / T12M Sales

Net working capital defined as; Inventories plus current receivables less current liabilities. Excluding current financial- assets and liabilities.

*) Quarters refer to Financial year quarters

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Working Capital – Forfaiting

21

429 253 64 107 51 50 100 150 200 250 300 350 400 450 500 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q5 Q1 2016 2017 2017 2017 2017 18/19 18/19 18/19 18/19 18/19 19/20 Forfaiting (MSEK)

*) Quarters refer to Financial year quarters

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SLIDE 22
  • 15
  • 11
  • 1

6 15

  • 39
  • 111

668 601 342 141

  • 5%
  • 3%

0% 2% 3%

  • 1%
  • 3%

16% 13% 7% 3%

  • 10%
  • 5%

0% 5% 10% 15% 20% 25% 30% 35% 40%

  • 200
  • 100

100 200 300 400 500 600 700 800 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q5 Q1 2016 2017 2017 2017 2017 18/19 18/19 18/19 18/19 18/19 19/20 NWC exkluding Forfaiting Net Working Capital / T12M Sales

Working Capital – Excluding Forfaiting

22 Increase in Q3 and Q4 18/19 mainly driven by strong quarters for Partner Publishing (SEK 0,9bn and SEK 0,8bn).

*) Quarters refer to Financial year quarters

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Working Capital – Trade Receivables 31 March 2019

23

Q4-17 THQ Nordic; 66 Q5-18/19 THQ Nordic; 60 Q5-18/19 Koch Media & Coffee Stain; 883 100 200 300 400 500 600 700 800 900 1 000 THQ Nordic THQ Nordic Koch Media & Coffee Stain Q4-17 Q5-18/19 Trade Receivables (MSEK)

Vast majority of trade receivables are insured with COFACE and Euler Hermes.

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Cash Flow from 30 September 2016 to 30 June 2019

24 Since September 2016 we have generated SEK 2,028m in operating cash flow and invested SEK 1,886m in our games portfolio, SEK 143m in Other intangibles (mainly Film) and SEK 53m in tangible assets, resulting in a operational FCF of SEK-54m. Positive cash flow from financing activities are SEK 4,498m, net cash flow effect from acquisitions amount to SEK -1,192m with a related investment in real estate of SEK -109m.

Operating Cash Flow invested into

  • perations

Financial Cash Flow

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Games portfolio – By Quarter

25

13 1 2 40 134 123 47 50 162 220 154 47 67 59 78 87 173 208 234 273 305 356 27% 1% 3% 51% 154% 71% 23% 21% 60% 72% 43% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 50 100 150 200 250 300 350 400 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q5 Q1 2016 2017 2017 2017 2017 18/19 18/19 18/19 18/19 18/19 19/20 Finished projects Capex Finished projects as %

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Games portfolio – Ongoing Projects

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47 67 59 78 87 173 208 234 273 305 356 27 32 30 29 36 54 51 55 77 80 81 10 20 30 40 50 60 70 80 90 50 100 150 200 250 300 350 400 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q5 Q1 2016 2017 2017 2017 2017 18/19 18/19 18/19 18/19 18/19 19/20 Capex Games under development

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1 280 427 500 1 000 1 500 On-going Game Development Completed Games

Book value of investments into Game Development 30 June 2019

27 Investments made up until 30 June 2019 in on-going games development, driving future cash flow generation upon completion. Book value of completed games as per 30 June, current and future cash flow generators.

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Finalized Games Development – Depreciation Model

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11% 22% 33% 37% 41% 44% 48% 52% 56% 59% 63% 67% 69% 72% 75% 78% 81% 83% 86% 89% 92% 94% 97% 100% 89% 78% 67% 63% 59% 56% 52% 48% 44% 41% 37% 33% 31% 28% 25% 22% 19% 17% 14% 11% 8% 6% 3% 0% 0% 20% 40% 60% 80% 100% 120% 3 6 9 12 15 18 21 24

Month

Accumulated Depreciations, CB Book value, CB

Depreciation starts in the month the games is finalized (released). 33% depreciation in the first quarter following launch. 33% depreciation during the following 3 quarters. Remaining 33% depreciated over the following year. Our current policy allows for depreciations to increase as we complete development projects and it reflects finished games development projects well in our P&L.

14 15 15 55 176 299 344 354 383 480 587 24 25 25 26 62 115 217 291 341 474 528 100 200 300 400 500 600 700 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q5 Q1 2016 2017 2017 2017 2017 18/19 18/19 18/19 18/19 18/19 19/20 Finished Games Projects Depreciation - Games (ex Film)

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29

MAJO

  • 3. Growth strategy and M&A update
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GROWTH STRATEGY

Financial model

Reduce operational and financial risk, and anchor decisions in both business acumen and financial modelling § Diversified portfolio/pipeline § Strong balance sheet § ROI > cost of capital (with margin of safety) § Strong operational cash conversion on EBITDA § Willingness to issue equity to capture attractive growth opportunities

Empowering people

Philosophy of decentralization to empower

  • ur great people across the group

§ Commercial autonomy to business area CEOs, founders, and studio heads to run their operations § Fosters creativity, speed and relevance as decisions are taken closer to local markets and niche markets

ORGANIC GROWTH M&A Buy to build

Continue acquiring great companies that share our vision at fair valuations § Acquire and develop IPs, and studios and publishers § Increase investments in acquired companies to unleash unlocked potential and capacity § Synergies with distribution, marketing, knowledge-sharing, IPs, tech, development etc. § In general to complement, not compete, with business partners in the game industry.

Invest for long-term organic growth

Investments in development should outpace finalised game development § Develop and expand IP portfolio – including utilizing dormant IPs § Develop and expand internal studios § Establish new studios based on key talents § Source external development projects § Continue to consolidate partner publishing market

– Our model for sustainable and profitable growth

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31

M&A PROCESS AND CURRENT PIPELINE

  • 1. Scouting – Ongoing, patient scouting and research

activity at HQ in Sweden, THQ Nordic Vienna, Koch Media/Deep Silver and Coffee Stain

  • 2. Proceeding with specific lead
  • 3. In-house DD – Commercial and financial due diligence
  • n key games, people and business plan
  • 4. Handshake on Heads of Terms – Negotiating heads of

terms, business plan and post-acquisition structure (subject to legal, financial, tax and further commercial due diligence)

  • 5. Execution: Due diligences, finalizing terms, legal docs,

etc.

  • 6. Signing and closing – Normally same day

Typical M&A process Typically performed “entrepreneur to entrepreneur” with in-house capacity and light on third- party advisors on either side Engaging leading legal (Baker McKenzie), corp, finance, financial and tax advisors (EY) Success factors ü Professional but fast and lean process – focus on key issues ü Giving autonomy to creative, driven entrepreneurs ü Accessing a plethora of knowledge and experience within the group ü Cash on balance