Embracer Group AB (publ) (EMBRACB) Earnings Call Transcript & Summary

Or more.

Or more, yes. And the sample constitutes of 26 different projects. Here, it's important to realize that it's cash flow projected or cash flow project ROI, which means that at a certain point in time, it's a snapshot of the ROI that, that project has generated at that -- 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 2.5x the invested amount. We can also draw the conclusion that newer releases generally have a higher ROI. And looking at the initiatives in putting quality first truly pays off in this respect as well. It's also impressive to see that you have projects well above 1x the investment already 6 months after release. And 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 of -- or any of other projects. But I think what you can see here, that we have a loan range you're fighting in the bottom here, 1 project past 2 years that are fighting to breakeven. All others are making money or will make money. I think that is kind of what you can see here. That is -- now you can see the size here because, yes -- 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, yes. Good. Okay. We need to speed up here a bit in order to soon listen to some new exciting entrepreneurs on stage. But before that, I must take you through the market we operate in. And here, you can see a slide of the value chain of our core business. In the purple here, we define us as we are the IP owner. We are developer. We are a publisher. And we also have the physical distribution. But 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. And we are not either operating in a physical retail source. I think it was interesting today to just share a bit of how the market has been during the COVID-19 and also post the COVID-19 lockdown. And here, we have collected data from various sources, including a lot of management estimates to give you a picture. And here, you can see, first of all -- well, in -- the black line here is a total market we are operating here. And here it's defined as the console software market in the western territories, Western Europe and North America. And it's not including in-game sales of DLC sales. So it include -- this is full game sales. And the first 3 months of the year were down 4% in our core market. And then we had the effects from the lockdown and the overall business increased to 56%. And then post the lockdown that peaked in April, we still see an effect from the lockdown, an increased engagement. And in the period of July and August, the 2 months, we see the overall market are -- or has increased 27% year-over-year for that 2 months combined. And for the 8-month 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 console sales. 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 box and digital in the market, it's roughly 51%, 49% to the advance of 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% to 1.4% of the market, as you remember. So I would like to welcome Pierre, the Head of Digital and many other things at Koch Media. So welcome on stage. You'll, very briefly, Pierre, because we are a bit short of time, take us through our landscape.

Yes. So very briefly landscape of digital platform. I speeded up in 4 categories, both in terms of distribution models or either download or streaming. And in terms of business model as well, which is transactional and subscription. So in the bottom right corner, you see kind of like our traditional buy and download partners, especially on PC, Steam, Epic, small 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. And 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. And those guys offers 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. So the growth opportunities we see here are delivering more and more content that is engaging the user over time and capturing post-sell monetization, leveraging the community features that are increasingly available to us, especially with the console players. On this slide, we see more and more competing services for content as well, especially on the subscription side, where players are acquiring contents to get more subscribers. So I think that's something we've seen very much in movies, and we see it as well in gaming. And 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. And just stating here, in essence, all games we're making, we are leveraging through this landscape with our partners. And this is an ever-changing landscape. So when you stand here in 10 years, Pierre, that landscape would look very differently.

Absolutely. Thank you.

Thank you. So I will just come back to our operating model, and I'm a very proud entrepreneur myself, founded the business 1993 as Nordic Games as the mail-order business. But realizing now, after 27 years, that entrepreneurship and people is really what's driving the Embracer Group. And looking at the group and the companies the group are made up of, it's all about entrepreneurship and creators that found 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, 1996. Most recently, we've come -- or the -- how many hours is it? 10 hours-ish, a new company, Vertigo Games founded 2008. So that's 12-years entrepreneurship. And many, many other examples. And you can see a few here, but that's what makes a difference between us and many of our peers. We are made up by entrepreneurs and managed by entrepreneurs. And we let people to -- keep their own unique culture, DNA and strategy how to operate their business. And this has taken us quite a bit during the past 4 years we have been public. And here's a few KPIs, what happened, running this operating model nearly 4 years. So since the IPO, we've been increasing the number of developers 9x. We've been increasing the sales 23x and the profitability is 17x, that with 42% dilution of shares. But we are just a very small player, 0.5% of the global market. So we still see opportunity to grow further. And I want to take you through a very brief M&A update and the priorities we are making when allocating the capital. The #1 priority is obviously, to invest into our businesses. We are investing into organic growth as much as we can find the talents and 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 Reinhard stated, setting up 2 new studios today or in the coming days. As well, and as 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. And overall, we create Embracer ecosystem, where we don't force any synergies, but we try to find a positive collaboration. And looking at how we are operating, we -- 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's important. And we do empower people to make their daily decisions. So my philosophy is decentralization. I promise -- sometimes I need to repromise that to not to centralize commercial decisions. And 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.

Yes. So 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 SEK 12.5 billion. And 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 where we -- 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 publishing film. Of course, having -- so in order to be able to evaluate a transaction that we could possibly evaluate based on the time it's 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 1 exception. We closed 1 mobile studio a year ago. But otherwise, it's been working out very well.

Yes. Yes.

I just want to point out that. So not everything is. Thank you, Johan. So just to give you a bit of M&A outlook. So as Johan stated, we have been allocating more capital than previous years to acquisitions and that's because we see more opportunities, but it's also because of the operating model that a lot of the acquisitions are made within the operating units with bolt-on acquisitions. So it's not really managed here from Karlstad, even though I love to engage in the gentlemen or the 2 founders here today, a lot of the M&A work is actually done. And that's why we can scale up the M&A. And a lot of the business that we are acquiring are business friends and people they know from the industry. And currently, I would roughly estimate that we at least have, over a quarter, roughly up to 100 dialogues with various companies across the group. And the M&A team, now including a bit of the CEOs and advisers, is roughly engaging 40 to 50 people on more or less a daily basis. And we have seen an increased reach-out from entrepreneurs and people that would like to join the family and believe in our operating model. And I'm really glad to see that a lot of the entrepreneurs are also accepting to become shareholders. So -- and I don't mind to be diluted as a shareholder. I'd rather own 10% of a much more fun group years ahead than I own whatever I do today, 30%-ish. I think it's not -- in the end of the day, I think it's all about creating something more and including creating obviously, a shareholder value. So with that said, I would like to welcome the 2 entrepreneurs from Vertigo Games. Richard and Kimara. We are -- just changed the slides here. And before I actually let you talk -- because he will talk a bit here. I'd like to just run through the actual transaction, so the shareholders understand what we did this morning. So we actually did negotiate until 2 minutes to 6:00 this morning. It was a bit surprising, but...

We have a picture.

Now we are friends. I have girlfriends like that as well, but it's special. But to be honest, I, Klemens and Koch reached out to me in the summer and really presented you and I, VR has been a bit odd for me. VR has been something that billions I've seen through venture capital has been invested into this market and have been lost in some, in many cases. And 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's a market taking off. So I'm really excited and you are true entrepreneurs, and you know how to operate your business very well, and you will soon present it. So looking at the actual transaction this morning. I just want to take you through this very briefly. So we acquired 100% of your group, 100% of the shares and upfront consideration paid today is now closed, is EUR 50 million, EUR 40 million in cash and EUR 10 million in shares. And then adjusting for EUR 5 million roughly acquired cash, it was enterprise value of EUR 45 million. And furthermore, we discussed a lot about the future. And obviously, the value without you and the team is not a lot. So this was important to make a long term commitment, and I'm 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. And there are several components in this. One of the components are financial or not, EUR 25 million -- 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. And looking at your business, you have very impressive profitability. So looking at the business from 1st of January calendar year or this year, until the end of the year, we are estimating you will do between EUR 10 million to EUR 12 million in revenues, with EUR 6 million to EUR 8 million in our defined operational EBIT. And looking at our next financial year, starting 1st of April and ending March 22, we are expecting the business to generate between EUR 18 million to EUR 24 million in revenues, with a healthy profit margin of between EUR 11 million and EUR 17 million. And actually, we see the years going after that, that this will be a stable growth as well. And you will tell us why you can have such healthy profit margins and tell us more about the business. So before welcoming you on stage, you will see here a very short video about a few of -- or most of your products. So please. [Presentation]

Try it out.

Yes, you should.

Over there.

Yes, off the floor. So the [indiscernible] are there. So please welcome on stage, Richard and Kimara, and I'll 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 bit about it, like how did we start, how did we get here, and what's the future. So 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 nonentertainment 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 gotten really excited about the future of VR, which you can do with virtual reality, it's certainly an extra step or an extra layer in what you can feel and sense that you can't do on a traditional screen. So 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 small, very small market. 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 for VR. And at the time, there were only a few tech demos. So 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, not really -- it doesn't really matter what day it was, but it was at least 6 months before the ACC partnership together with Valve was announced. So 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 on 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 like our structure. We have -- currently have 3 entities, Vertigo Studios, Publishing and 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 USD 1.4 million in the first month, which was the highest ranking or selling game at the time. And it's been going steady or it's increasing year on year on year, even though the game launched in 2016. For the first 1.5 years, it was a -- it was the #1 on the top seller list on Steam. If you filter on VR, it was the #1 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, it's a -- you join with 3 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, like 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 Oculus Quest. So we were 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 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're 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 doesn't work out. It needs to be from the core, a VR game. And as a studio, that's our main focus, making games that are key to VR. Do you want to talk a little bit about publishing?

Thank you, Richard. So my name is Kimara Rouwit. I'm 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 AAA releases of all the big worldwide publishers that there are. And as a fun fact, I actually spent a significant part of that time as part of the Koch Media family. So guys, I'm very happy to be back in a different capacity, but still, yes, happy to be back, and I hope you feel the same, but it then certainly feels so. And 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. So as Richard mentioned, we -- over the years, we ported the game to every VR platform, supported all peripherals, did free updates, the 3 feature updates, did paid DLC. So there was a lot of marketing to be done with this title. We basically did everything in the VR that we could with the Arizona Sunshine brand. And over time, in 2017 and '18, we started scaling up our publishing team or marketing team at the time to basically be able to handle the different parts of relevant games marketing, from PR to community management and things like online advertising, for example. And, sorry. If I seem a little bit like one of the characters from our Arizona Sunshine game, it's because I've had like 1 hour of sleep. So basically, because we were, on the one hand, supporting Arizona Sunshine all of the time and putting it in all of these places, and on the other hand, establishing more of our own IP, such as Skara, 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? And what can I do to also achieve that goal? So 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 the game, basically. So this is the official start of publishing. And basically, what we have as a vision for our Publishing division is where Vertigo Studios focuses on core games, AAA, 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 AA or offer a very unique and novel elements to what is already out there in the VR market in their own way, and we are able to support them doing that. And 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. So currently, we have sold over 1.5 million units in the VR market, in terms of game sales. And for the next 12 months, we have 6 more products in our time line -- sorry, in our pipeline. And this is a combination of in-home products and also out-of-home products. And speaking about that, Vertigo Arcade is a provider of out-of-home distribution services. So 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. So currently, we -- what we've built through the success of Arizona Sunshine, a best-in-industry distribution plot of -- sorry, footprint, covering 700-plus locations at the moment in more than 40 countries. And our combined portfolio of arcade titles, covering both internal and third-party titles, currently account for around 25% of the total play minutes in our case in the western market. And Arizona Sunshine is definitely the one -- the #1 most played game in arcades worldwide. So what we also do, besides this indirect and direct dealing with these arcades, we also provide an owned distribution platform called Haze VR. And what Haze VR does is now that the VR market is becoming more accessible, with, for example, the introduction of stand-alone 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. So what Haze VR does is basically, it's allows multiple players to play together in one large space, a space that you would not be able to set up in the home. And 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. So 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 includes, for example, things like paintball and other group outings. So with that, I would like to give the floor to Pierre.

Thank you, Kima. After, we had tons of fun playing those games with Lars and Klemens in the studio. This is -- every game we played was just a great experience, it's really refreshing. So talking about the market, yes. So what do we have? We have obviously the headsets, digital store and content, yes. So in terms of VR headsets, we have 3 categories, 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 was recently on the HTC Vibe, which has been on the market with different iteration for a while. And finally, stand-alone VR. So stand-alone VR doesn't have any cable connected calculation, the CPUs is all in the headsets, and it's more lightweight and less expensive as well. So this is, for example, the Oculus Quest. In terms of digital store, you have 3 main stores, Steam obviously, Oculus by Facebook and PlayStation VR. And typically, those platform takes 30% margin of the net sales. Let's not forget about the retail software distribution as well because the data we can see, there is decent sales being made also on PlayStation VR, for example, with stand-alone games or especially with hardware bundled together with the headsets. And the top VR games so far. I mean, there has 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 is 16 years after Half-Life 2 from Valve, so there was a lot of excitement about that. I'll touch on it a little bit later. [indiscernible] and so on. And we typically see that 50% of the top 10 games are actually shooter games, like Arizona Sunshine. But 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, and people have been craving to play more and more content in VR. We see continuous growth in 2020. So 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, PlayStation VR, announced in January in the financial statement that they shipped more than 5 million units. That was in January, so a while ago. Stand-alone VR, we know that Oculus Quest is selling very well. There was a super data report showing that they shipped 700,000 units in the first 7 months. And I expect this 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 Half-Life -- sorry, the Valve Index coming -- that doubled this number when Half-Life: Alyx came with the best experience for this game. And that shows as well that when AAA IP are entering the market, it really creates excitement and drive growth to the overall market. So we believe that stand-alone headsets will continue accelerating this growth throughout 2020 and beyond. Why is that? I like actually 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're scuba diving in the past century. Now with stand-alone headsets, it's light. There's no cables. It's very easy to pick up. If I give it to my mom, she would be able to play. It's really instant. You're in the world and you feel it and you just play for it. It's relatively cheap. Oculus Quest so far, when it's available on the store, is $399, and it was so very giftable, you just pick it up, you give it, you download the software, and that's it. You have nothing to do, you don't need a PhD in computer science, like you guys, you just need to buy it. That's it. So we see a strong demand for stand-alone headsets. I put some slide together here showing the Vertigo net sale for 2020, 62% of the revenues are driven by stand-alone headsets. And we expect that the net sale coming from stand-alone will increase in 2021 by [ 236% ]. And finally, as you probably saw in the news, there is an event today actually, conditionally, the Facebook Connect, where we think that there will be some news. And I would like to welcome Klemens.

Hello, everybody. I'm Klemens Kundratitz, CEO of Koch Media Group. I'm just taking 3 more minutes at last, to conclude this presentation. Thanks very much, Richard, and Kimara. This was -- we are now experts in VR gaming. And I just want to tell you from my very personal point of view, how we approached this transaction. We -- first, we looked at the market, and we have looked at that market for a long time. Mark Zuckerberg invested in Oculus, 6. 5 years ago. And the market has steadily growth -- grown, but it's still quite a small niche. And as Pierre just explained, there is 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, yes. You can try to build it yourself. You can try to team up with partners. We found Vertigo Games at the -- right in the right time and we really believe that this company has a very sort of special sauce to it, yes? And that is not only to be a developer, but they are also -- they have this gene of publishing. And you may sort of see similarities with Koch Media. We are also developers. We are publishers. We are distributors. And Vertigo Games is in there, VR part of the market, they are exactly that. And they do this now already for 7 years. So they are established as publishers. They are established as a AAA 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 -- a very strong management there. He's unfortunately in Los Angeles, but he's watching us, and the 3 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's my two cents. And just here for your pleasure to read, the highlights and the opportunities that we see. This is really a start, yes. This is not a just continued management of an existing IP or two, it's really a start of an ambitious plan to be a leading player in the VR field, yes.

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 Arnroth to, to tell stories, because we like to tell stories, and I think this is a way to show what Embracer is. And while [indiscernible] are flipping slides here, waiting for the 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. [Presentation]

So 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. [Foreign Language]

What? No.

So let's start with the Q&A session and start with the audience, if there are 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, 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 number of talents and studios within the group. And obviously, taking that our biggest step ever, adding Saber Interactive on board, that is now making a huge difference as well within the group. So well, many things -- lots of things have happened during this 1 year, but when I made the IPO, 2016, I made a 25 years promise. And I'm just 4 years into it, so 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 from a scale of 1 to 10?

Well, I think Matt and [ Andrei ] is very good negotiators, they got me to pay a lot of money. I'm trying to explain for them, $525 million is a lot of money. So 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 are -- have shown delivering great shareholder value by just the 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 e-mail, across the group with all other key people. And they don't have this energy of doing further M&As, just their own list of M&As is quite long.

And 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. And so I think it's not fair to say that anyone else is working harder than others, but everyone has different profiles. So I think M&A, you're talking about M&A? Or is that something more or less on a daily, a daily topic across the 6 divisions, including now, the DECA Games we just acquired in August. Ken is super active within M&A. So it's definitely a very active progress going on.

And you have had some new releases during the year that had 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 reason has been having better reception with the communities and the IP communities. And I think that has been delivering better profitability, better sell-through. And I'm really happy to see that the past quarter and the current quarter, we have,, continuing that trend. I can't promise you that all releases in the future will be the same constant level. But what I could promise is that everyone will learn.

And we got some e-mail 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. So if people together within a group, could see the potential to make a great new game or a VR game of an IP or whatever they do, it should kind of be in a good spirit. And I think that will create a good working environment, but also better business in the end of the day.

And how is the quality emphasis going? Are the development cycles getting longer, generally?

Sorry, if the quality...

The quality emphasis, how is this going? Are the development cycles getting longer?

Well, it's all -- it's a difficult question. As you know, 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. So you have an idea, you make a plan, no matter how many spreadsheets you do, things will change. So -- and I'm not stating we should make quality products. So take the time you need to make a quality product. In the end of day, I believe that will make a better return of investment. Delays are part of the daily, part of the daily...

Part of life.

Yes. So exactly. So I think it's something we, I would say, if we manage because we have many different companies, IPs and releases, so we can manage the business without pushing releases too early.

And 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 will want me to answer, I can't. Because one, I don't know, and we don't -- second, we don't do financial forecasts. I believe in people, I believe engaging in and to start somewhere. Now we started 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. Whereas a part of DECA Games as a wider group, who are becoming a new operating unit platform. I think the future will tell.

Okay. And you talked about the ESG during the presentation, since you got -- you're not listed on [indiscernible] you're listed on First North, you don't need an Audit Committee, but is that something you're considering to introducing?

Well, I think Audit Committee, first of all, our -- 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, I think, as a person, 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 would be positive having an Audit Committee in -- at Embracer.

And the last question, if we don't have any more questions from the audience, Vertigo Games, very interesting presentation. Is it -- are you brave to entering that kind of market, the VR market right now? Isn't the market still quite limited and dependent on headset marketing taking off?

Well, I think, first of all, I think Vertigo had proven everyone here today that it’s a fantastic company with good profitability. So just by that sense, obviously, fits very well into the group. I think VR is a growing market. It's a niche market, but it's 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's kind of the same platforms and universe, IPs, marketing, [indiscernible] . I think for sure, we will see that part growing.

So you have synergies between VR and your [indiscernible]

Yes, 100%. I would say much more perhaps than we would have in the mobile business.

And do you think any of your existing games would fit into VR?

Should I announce a new VR game? No, I should not. So I'm sure there is a lot of IPs, we have close to 200 IPs. So I'm sure there's opportunities for the coming years.

Thank you. I think we need to move forward, but don't forget to try the VR games and then you also had a room there where you could try some games.

Yes, that's right.

So don't forget to try the games. And thank you. Now it's time for Kicki, then.

Thank you.

Thank you Matilda. Good luck.

So this is the end of the commercial point seven. And now we saw the -- even more interesting AGM.

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. Okay. Now we actually have come to Item #8. And 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 the 26th of August, as you all have seen, and it's also have 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. So then I would like to ask our main auditor, Ulrich, to present the auditor's report. Welcome, Ulrich, to excite the audience here.

Thank you. Thank you very much, Kicki. I will try to excite them. 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 31st of March 2020. And 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, their results from their audit. And 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. And 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. And the conclusion from the audit can be seen in the full auditors report that can be found in the annual report on Pages 95 to 97. It's 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 31st of March 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 '19/'20 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 the Managing Director be discharged from liability for the financial year. That's 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 approve 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 we -- as well as the consolidated income statement and consolidated balance sheet? [Voting]

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. And the Board proposed that the funds available to the Annual General Meeting of approximately SEK 5.3 billion, shall be carried forward. Does anyone want to comment on the Board's proposal? Okay. And as we recently heard the auditor endorse that the Annual General Meeting result 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 proposal, which was also endorsed by the auditors? [Voting]

Thank you. We have also heard that the auditor endorses discharge from liability. And I would like to also to inform that 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? [Voting]

Thank you. And 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 that is the -- we 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. And the proposals have been available as well since the 17th of August and also on our website and in the notice, then also available here today. So Ian, could you please describe these items, and then we will vote each and one of them separately after your presentation.

Yes. Thank you. So for determination of number of directors and number of auditors, there is a proposal that Board shall consist of 7 directors who have deputies and that the number of auditors shall be 1 registered audit firm. When it comes to the remuneration to the directors and the auditor, the proposal is that, in total, SEK 1,550,000 shall be paid to the directors, where SEK 250,000 is paid to each director not employed by the company and SEK 800,000 is to be paid to the share of the Board. And the auditor is proposed to get remuneration in accordance with an 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? Okay. And so we have heard from item #10 of the agenda, and that was determination of the number of directors and auditors. Can the meeting resolve in accordance with the proposal? [Voting]

Thank you. Then we have also heard from Ian regarding Item #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? [Voting]

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 from -- on the Item #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 if -- is there anyone here that have any questions regarding that? I guess you all read that, those pages in the annual report. No questions? Can the meeting then resolve in accordance with the proposal? [Voting]

Thank you. This is now item #13, the Board of Directors have proposed that the Annual General Meeting shall resolve to amend Item #11 of the company's Articles of Association, regarding participation at General Meetings due to adjustments in current legislation regarding the record date. And this has also been included in the notice and on the website. So I don't have -- I'm not -- 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? [Voting]

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 variants. The proposal has also been included in the notice of the meeting and been on the website prior to the meeting, and therefore, I'm 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 of the meeting. And is this now the right number? Ian?

No, it's not. So it will be a little bit more. But yes, since we have a new share issue today.

Exactly. This is July -- will you remember the number, if I say so? 38?

You can just say that it's 10% of the shares [indiscernible].

Yes. I think that's -- it's 10% of the number of shares available today at the meeting. Are there any questions regarding that proposal? Okay. 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? [Voting]

Thank you. And if we take into account the votes provided in advance, we can note that the resolution is passed with sufficient majority of 2/3 of the votes cast and present at the meeting, this meeting. And this is now item #15, closing of the meeting, finally. And as no other questions have been reported, I hereby declare the meeting closed. And I would like to thank everyone for being here, and I'm looking forward to next year, I guess in Karlstad again, Lars?

Hopefully. I'm sure.

Yes. Thank you very much. Bye.