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

Good morning and very welcome to our press conference here this morning. Last night, quite late, I had a phone call from one of our board members, and this person said, Kicki just so that you know, the most important thing for the announcement tomorrow is for you and Lars to excite the audience. That's easier said than done, but I'm very excited. Are you excited?

I'm very excited.

So that's a good start at least, because today is an extraordinary day, of course, for Embracer. And today is the start of a new chapter. On behalf of the Board of Directors of Embracer Group, I'm here today to present what we call a transformative step for value creation. And together with executive management of Embracer, we are announcing today our intention to separating the group into 3 market-leading games and entertainment companies. Now I would like to start just to briefly describe the value that it will create. Firstly, well, I should have said, of course, that with the 3 entities that we referred to is, as you already have seen, probably, Asmodee Group, Coffee Stain & Friends, and Middle-earth Enterprises & Friends. Now first, the new structure will unlock the value of all the fantastic quality assets that we have in Embracer. And this will, of course, benefit all stakeholders, employers, employees, gamers and shareholders. Secondly, we will create value by bringing more differentiated and distinct equity stories to the market, and this will be beneficial to both existing and also potential new shareholders and also it will allow investors to allocate capital between these 3 entities. And thirdly, this change will enable each entity to better focus on their core strategies. Now we do this for one single reason. We strongly believe that this will create value for all shareholders and all stakeholders. Now before we go into the details how we have arrived to this decision, let's take a step back and look at this amazing journey that has taken us to where we are today. Now I have been with Embracer since 2 November 2016 that when we listed the company at NASDAQ First North Stockholm, that is almost 7 years ago now. And at that time, we were about 100 employees. In Karlstad, the head office, it was 3 people. It was the CEO, the CFO and the Secretary. That was it. If someone would have told me at that time that a few years later or maybe 5, 6, 7 years later, we would have -- would be about 16,000 people or employees in the company. I wouldn't have believed that. Even though that Lars did say to me, the very first time I met with him, he said, Kicki, we are going to build something significant over time. And long term, over time. That's what you said. Now we have -- some of you -- I know that many of you here today and also that are listening in, have been with us since 2016. And some of you may remember in the prospectus that we gave out. It was a statement there that did say that we are going to establish a platform for future strong growth. That was 2016. Some of you may also remember if you read the small notes in there that it also said, in addition -- do you see this? In addition to this, THQ Nordic, as was the name at that time, may in the future, make other types of investments and acquisitions because we were just talking about PC and console, as you know, within the games industry where company management believes that the company can add value. Now if we look at where we are today, very intentionally, we have since then broadened the strategic scope and continue to build this solid foundation for the future. We have been adding businesses and studios across PC console, but also Mobile Games, Tabletop games and Entertainment and Services. And today, when we have sold parts of Saber, Gearbox is not closed yet. We have more than 100 studios and about 12,000 employees in more than 40 countries all over the world. We own iconic brands and IPs like Lords of the Ring (sic) [ Lord of the Rings ] and Tomb Raider. We have, during this period of time, acquired about 100 companies. And today, we are a global leader in gaming and entertainment. And just imagine the work to onboard 100 companies into the company. And not to forget just a little bit more than a year ago, we also listed the company on the regulated market. And at the same time, we did the biggest IFRS conversion ever in Sweden or maybe even in Nordics. So -- and also, of course, during this period of time, here we have refined and developed the governance model. We have improved the internal controls, risk management and so on and so on. And also, we have put in a lot of efforts into the sustainability framework we have. But most of all, the most important thing, at the same time, we have created fantastic games because that's what we're here for. So we have said what we said in 2016 that we would do, we have built a strong platform, a solid foundation that will create even more value as we now take the next transformative step. And of course, we haven't -- we have come a long way, but none of this would have happened or been possible even without people -- the great people we have in this company that create fantastic games and entertainment for games and fans across the world. Now I have had the privilege to over the years to travel a lot and meet with many, many of the people in the company. I know many of them very, very well and have learned a lot from them. but I have been most amazed by the culture in the company and the passion that all these people have. I just want to tell you a story, a small story, something that I experienced a couple of years ago, but it tells a lot about the people we have in the company. I was invited to a small event in the U.S. where we have invited studio heads or founders from the different studios that we have acquired in the U.S. And one of them came to me and we talked and he was -- we had just newly [ acquired ] his company. He was quite representing quite a big studio. And he said to me, "Kicki, I'm so excited of being a part of Embracer." He said, "I will do my best, I will work day and nights if that is what it takes to prove that we will actually deliver what you expect from us and what we have promised. And I would do anything I can not to let Lars down" he said. And I said, "do you know Lars that well?" and I was a bit curious and then he said, "No, I never met with Lars. I just have heard about him and about the culture in the company." And I think that says a lot about how our people feel about Lars -- but not just Lars, all the management and the old entrepreneurs in company. So if I would say to summarize that together with all these amazing people, we have built something very, very special that we should be very, very proud of. If we go back and look at the process that we have been through now with the Board. So some of you may remember that already in November 2022, we actually started to talk about the special review. And we had a discussion what will the optimal structure for Embracer be for the future. And we said already at that time, that the outcome of the special review might lead to recommendations in the future that make spin-offs into separate listed companies, if that would create high shareholder value and that is 18 months ago when we started this process. But the time was not right as we all know and 2023 became a very challenging year for the company and also with a more difficult market environment. So we had to step back and focus on strengthening the company through the now successfully completed restructuring program. And it has been a huge project. Many things took longer time than we thought, and it was more complex than we planned for. But as we all know, turbulent time can also create new opportunities. But this process that we have been through for 18 months has all been about exploring options how can we make sure that we can create maximum value and how to create the optimal structure to unlock the value that in the fantastic assets that we have within Embracer. And the assessment of the Board is -- but the current group structure does not create optimal conditions for future value creation, both for Embracer's shareholders and stakeholders. And to arrive to today's announcement, we have been supported by two global leading advisers, combined with the Boards and the Executive Management assessment. And we have also received very positive feedback from many of our largest shareholders. So all in all, this has been a very rigorous process that has taken us to today's announcement and the next chapter in our journey. You may have seen -- of course, it's been very positive to -- I think I hear -- you may have seen this morning because we have received very positive feedback from many of our largest shareholders. This is one example. This is quote from our second largest shareholder, Savvy Gaming Group as you may have seen already this morning. But we have today a good majority of the capital, and we have a significant majority of the votes in support of today's proposal. To end. Embracer was founded on the values of trust, long-term mindset and the desire to embrace different perspectives. And together, we have built something very special and very valuable. And today, we start a new chapter, leveraging the fantastic platform that we have built in Embracer since 2016. And we have all amazing games, IPs and other assets that we have and all the great people, of course. And we do this because we strongly believe it will create value for shareholders but also for employees and gamers. And on that note, Lars, you will take us through more details, but I have a question first that I got from someone here today, actually. Someone with good memories that said that 2021 at the Annual General Meeting, you did say to the audience at that time that I remember the times when I could have lunch with friends. And this person asked me, is that still the case?

I really enjoy having launch with friends. And by that, using the name and friends are looking forward to have more launches and meetings with my fantastic teams around the world. And I think this transformative step might enable that. So thank you, Kicki.

Thank you.

I will try to keep this fairly short and I'm looking forward to a deep Q&A session. But to start, this morning, obviously, you get a number of questions when doing something like it. And I think it's important to clearly understand why we are doing this. In the end of the day, it's all about creating the optimal conditions to create absolute -- most amazing products and businesses around the world and you need to be able to have that environment for people and the companies to deliver on that. And the more successful we are as a business, financially and also as a public company, the more and better products we can deliver to the consumers. If we struggle as a business and with the financing and ultimately with our share price over time, our products and businesses will not deliver the best results. So these things are tied together. And I think this move or I firmly believe this move this morning creates the absolute most optimal conditions for success in the future. So this morning, we announced the separation of Embracer Group into 3 public entities. And the first entity that will be spun off is Asmodee Group that will be spun off within 12 months on the main market in Stockholm. Asmodee is a global leading in Tabletop gaming and has an amazing catalog of IPs. We got this into the family now more than 2 years ago. I've been spending so much time with them before acquiring them, but also, obviously, the past 2 years. And the more I got to know the team and the company, the more I believe they have really created a unique platform that I would like to have within the family and remain a long-term shareholder in. And I think the spin-off creates the optimal condition for them to create the best success, focus on the core strategy and to more quickly resume their value-accretive M&A capital allocation. Technically, the separation would be a Lex ASEA, as we say in Sweden. And it's obviously subject to a general meeting at Embracer Group. We are replicating the current dual share class, A & B shares into the new entities. The intention is to be able to keep the parent companies in Sweden and in Karlstad, if we can find enough talents. And obviously, the operational headquarter of Asmodee is in Paris. But Asmodee is truly a global business. Tabletop gaming is a worldwide growing market. As strong as it is in Sweden as strong as it is in France and in America and most other countries around the world. To create the most optimal incentives and engagement for the management, which is quite wide when we acquired them. We agreed back then when we acquired them to have an incentive program, which were based on Embracer -- their own delivery and Embracer Group stock share. Now we agreed a new arrangement that basically to simplify it would cancel 41 million Embracer shares and replace it with the direct ownership of that management group of 4.72%. So we are in the same boat as all shareholders with the management. This morning, we also announced financing arrangement with a number of banks, both new banks, we were welcoming JP Morgan, Société Générale, BNP Paribas as well as our existing Nordic banks of SEB and Swedbank that we have taken a EUR 900 million or approximately SEK 10.5 billion in a ring-fenced debt within Asmodee that are paying down the majority of the debt in the remaining Embracer. So on pro forma basis, Embracer Group, excluding Asmodee, we'll have a net debt to adjusted EBIT of [ SEK 0.6 billion ] by end of December. If you include the considerations from the recently announced divestments of Gearbox and Saber. And Asmodee would have a net debt to adjusted EBITDA of approximately 3.9x. We will continue to delever Embracer Group in the course of the year, primarily through the improved free cash flow from operations throughout our gaming business. Moving to Coffee Stain & Friends. We are creating a diverse gaming entity with a focus on -- in the A, AA premium and free-to-play games for PC, console and mobile with a high degree of recurring revenues with high margins. It would have a very distinct financial profile that differs from the third group of Middle-earth & Friends Within this group, we have leading companies, obviously, as Coffee Stain, we have Ghost Ship in Denmark. We have THQ Nordic, Amplifier Game Invest and many, many other companies. And if you look at the IP list, you can see many of the most well-known successes created by independent game creators in the past years, such as Deep Rock Galactic, Valheim, Satisfactory, Goat Simulator, Teardown and Wreckfest. All 6 of them happened actually to be Nordic IPs. And within free-to-play on mobile, we have hundreds of millions of players, unique players every month, enjoying the games from Easybrain, DECA, CrazyLabs. And now also, we have free-to-play games on PC console such as Star Trek Online and Neverwinter Nights. And finally, the last step that the remaining or the current existing public company, Embracer Group AB will be renamed into something else at the same time as we spin off Coffee Stain & Friends. And we today uses the working name of Middle-earth & Friends. This would be a creative powerhouse within AAA game development and publishing for PC console, focusing on a few of the most iconic IPs there is in the world, such as The Lord of the Rings and Tomb Raider, amongst many others. This would be a more volatile business if you compare it to Asmodee and Coffee Stain, they would create amazing successes. But there will also be quarters they don't have releases. And there is a beauty of that to really go all in to be able to create the most amazing games. And I've been waiting -- I remember last Thursday, I've been waiting 6 years since the acquisition of Warhorse for them to deliver Kingdom Come: Deliverance II, which would be a great example of an amazing AAA game that would be within Middle-earth & Friends. And that, by the way, will be one of our, if not our most important title for this financial year for the group. This group will have many iconic game development studios such as Crystal Dynamics, Eidos-Montréal, Dambuster, the makers behind Dead Island. Tripwire, the makers behind Killing Floor, Flying Wild Hog, that works on a few very interesting new projects on owned IPs, where they're one of the leading VR games companies in the world, vertical games, as mentioned, Warhorse, and the whole business, including publishing and distribution of PLAION, the operating group of Freemode. They're one of the leading comic-book publishers in America Dark Horse and obviously Middle-earth Enterprises. Looking at the financials. We have done a pro forma financials, last 12 months as end of December. Also in the press release this morning, you had comparable numbers for the financial year '22, '23 disclosed. But within Asmodee, the pro forma numbers is close to SEK 15 billion in net sales with adjusted EBIT of SEK 1.9 billion and EBITDAC of around SEK 2 billion. Within Coffee Stain & Friends, we see sales of about SEK 11 billion with an adjusted EBIT of SEK 2.8 billion and EBITDAC of also approximately SEK 2 billion. And finally, within Middle-earth & Friends, we see sales of about SEK 14 billion. Adjusted EBIT of about SEK 2 billion, but with EBIT or not as strong EBITDAC of approximately SEK 1.2 billion. And that is because they still invest a lot into the future. So the great cash flow out of Middle-earth would still be a few years out when they are delivering on the synergies, the consolidation and obviously shipping some amazing products over the coming decade. Worth noting is the past year we have been through the restructuring program. So the run rate CapEx is lower than these levels. Within Coffee Stain & Friends, we see about SEK 1.5 billion run rate CapEx. And within Middle-earth, you see about SEK 2.3 billion CapEx compared to SEK 2.2 billion and SEK 2.9 billion, you see on this slide which means that EBITDAC on a pro forma basis has a 25% margin or SEK 2.7 billion and within Middle-earth, it's 13% margin or SEK 1.8 billion. Very important to understand is that the communication this morning is an intention to do this. This is a journey on its own to create these public companies over the coming 12 months or 18 months or next year for Coffee Stain & Friends. All the details will be communicated along this journey. For example, at our quarterly report, you might have more updates or when we find it relevant to communicate back to the market. And now the most important thing in the business is its people. And the people I'm working directly with is my closest management. And on this slide, you see 3 of my most important allies. I have many within the group. But it's Phil Rogers that entered into the group with many different perspectives and experience from, I believe, 25 years within the industry, heading up Crystal Dynamics and Eidos at a time, been very supportive in the transformation of all the restructuring process the past year and now taking the challenge to really bring Middle-earth together alongside all the other CEOs, creators and entrepreneurs within that area. And I firmly believe Phil is the absolute right person to lead that. Then we have Anton Westbergh. I remember visiting Skövde 2018, bringing Coffee Stain on board, and they really joined Embracer, picking different alternatives within the industry because they really believed in the family of Embracer, but to be able to grow their business their own way and Anton has always questioned things, and he continues to do up until today. Why do you make that game? It's a really good question. Why do you make that game? Why should you play that game? And how could we make money out of that game. But ultimately, you need to create a game people will be willing to spend their time on. And that's a really good starting point to lead a group of game creators. So on that basis, questioning. I believe Anton is a great leader to make up the Coffee Stain & Friends group. He's obviously supported with fantastic, very successful people like Søren at Ghost Ship in Denmark, one of the most amazing game companies in Europe and a leading game company in Denmark. All Leggett, Easybrain, for example. I can't mention all of them but they are very successful on its own, and obviously, Coffee Stain. And finally, this picture, you see Thomas. Thomas has been with Asmodee for I believe, a decade, really knowing the board gaming and tabletop business inside out in that company. And he's now ready to take on the duty to become the CEO of Asmodee Group in the course of coming months. Stéphane and the founder, Marc will still be around. They are significant shareholders. They are very important to the culture. But Thomas will lead the daily operations. To conclude, it's a transformative step. And we have not taken this decision lightly. And I've been thinking, should we do this step by step. But I think it's being dishonest to do it step by step. If you have the intention to do something, I'd rather speak out that intention together with the Board, which we do today. And I firmly believe this creates optimal conditions for all stakeholders, not only shareholders, but also the employees, the industry and the gamers enjoying our products. We are creating 3 new market-leading games and entertainment companies. One of the things I've been facing as a public company's CEO, and we have as Embracer Group is that it's been bit easier if you are Swedish and be a part of, many investors has been with us since the journey. They spent a lot of time. But when we go outside Sweden, investors have a lot of companies to dig into and opportunities. And we have been able to get many or a few of the leading investors of the world into Embracer. But some of them have spent 2 years full time digging into Embracer before investing. And that's a bit long investment pitch to bring onboard investors. I think these 3 entities will have a very distinct investment proposal. You will clearly understand what's the business of Asmodee, what's the business of Middle-earth and what's the business of Coffee Stain. And how is the capital allocation, how is the balance sheet, what's the financial profile. Many investors like to do their own Embracer-like portfolios of companies they believe in. I like to be long term. I would like to allocate as a shareholder capital, perhaps between them over time. And now all shareholders would be able to do that. So this is the start of a new chapter. So with that said, I hope there's a few questions in the room to start with. And if not, I hope there is someone online.

Right. I'm ready.

Sounds good. [Foreign Language] You said something along the lines that if we're struggling with our finances and our share price over time, we will not create the best products. Would you say that's what's been happening in Embracer?

I think we had a risk that our inability to finance ourselves the most efficient way and to over time, create an equity story that actually created shareholder value and the share price, put limits on our ability to finance the optimal structure to have -- to make the best games. So from that perspective, you are right.

All right. And then other question about why you are doing this? How much is it about convincing the stock market? And how much is that about improving operations? Like has there been a trade-off between those 2 values?

No, I think they all tie together. In the end of the day, we are a business, and we're all about to make great games. If we don't make great games, there will be no shareholder value. So we start with the people making the amazing games and we need to have the optimal conditions for that. If we do that, that becomes a business, but also the business and the financing needs is tied together.

Erik Larsson from SEB. So first off, on the Middle-earth business and placing that with the AAA part of the development. So would you say that, that business is more about leveraging Middle-earth in the AAA gaming space? Or would you say that there's an element of using the IP and the other AAA -- among the other AAA games to sort of have an asset like -- or asset management like structure in Middle-earth?

No. We use the word Middle-earth & Friends for you to understand what is one reason, the most valuable asset within that, I believe, is Middle-earth. And some of the capital allocation and the growth capital allocation that we would have on our own balance sheet would be against Middle-earth. Not obviously, we will create amazing products based on Middle-earth with partners as well, both on gaming but also on other medias. So I think that -- from that reason, it represents a good working name in this. Now there is so many other amazing IPs like Tomb Raider, for example, that obviously is also very important to our future. So no, it's not only about Middle-earth. But we will -- we need to be more selective, how we allocate capital and what IPs we put focus on.

And then second question, I noticed you didn't mention one of your recent successes, Remnant. So I'm just curious.

Remnant is very important to our future.

And which part...

Sorry, Sorry. The creators of Remnant that you didn't have it on this slide. There will be a lot of details shared in the process up until the spin-offs, not all details are shared this morning.

We have some questions from the telco. [Operator Instructions] The first question is from Nick Dempsey from Barclays.

I've got 2 questions, please. So the first one, Asmodee's cash flow delivery has been pretty volatile over the last 2 years, for a business that is now going to bear roughly 4x leverage. Can you maybe run through again why that kind of volatility won't recur and why this model can happily bear 4x of net debt to EBITDA? And a second question, I just wanted to ask whether as part of the new plan that [ you guys ] plans to have an operational role in any of those 3 separate entities.

Nick, well, you're right that the cash flow has been very volatile the year post the acquisition of Asmodee and that was primarily driven by a working capital buildup of inventory. But I think it's important to take a step back looking at Asmodee. Asmodee is a very established business with a very long track record. They have carried up to or even more than 5x leverage under the private ownership from private equity under many years. It's a well-known asset by many leading banks -- well, leading European banks. And obviously, they have done their homework on this. So I think I feel as they do confident in Asmodee's ability to deliver stable cash flows going forward. If we look at the cash flows from Asmodee over more years than the 2 years we have been owning them, it has been very stable. So I think we saw post COVID and all the logistics issues we had in the world. It was a almost like a one-off buildup of inventory that we saw that across the industry and many other industries for that matter, including comics for example. But now we are past that, and we see a stable cash flow delivery from Asmodee going forward, obviously, with seasonal swings within the year. Regarding my role, I -- my intention is to be long term. I still have, I believe, 17 years left on my promise to be engaged in the companies. So I will be in the room. I will be here. I will be -- I have no intention to change my ownership in the businesses. And I feel this is the family and we will work together also on arm's length on market conditions between companies. I will remain as the CEO of Embracer Group AB. Again, there is a lot of more details regarding future management structures within each group and who's taking what role. But I will be in the room, Nick.

And it will be a lot of hard work before this is done. So there is a certain period of time now going ahead before it's -- we are there.

Tom Singlehurst from Citi.

It's Tom here from Citi. Three questions. The first one, I think you just alluded to it, but I just wanted to be clear. I mean coming back to the original vision for the Embracer Group, a lot of that was about exploiting IP across different platforms and different formats. I just wanted -- I suppose a reassurance that some of that optionality is still there under the new structure and whether you can just talk about how that happens with 3 entities rather than 1. That was the first question. The second question was on -- and I appreciate this might be something that we get in due course in such case, fine. But if we look at those 3 different entities, Middle-earth Enterprises & Friends is the one with the lower margin profile, obviously. I'm just wondering whether that's going to be the big vision for Middle-earth & Friends. Is that -- is it going to be margin improvement and improvement in cash flow? Or is it going to be a focus on growth? And then finally, can you just -- with respect to the refinancing at the Asmodee level, I think you've indicated that it will be used to pay back debt. Just wondering what the plan is for the rest of the sort of outstanding term loans and how that will be resolved. Thank you very much.

Okay. Starting from the back, regarding the debt. We are obviously announcing the repayment of what we have as a facility A that we took in connection with the acquisition of Asmodee, SEK 8 billion this morning. We're also lowering our RCF with SEK 1 billion. And our intention is to continue to delever the remaining Embracer primarily, obviously, by the considerations coming from Gearbox and Saber, but also from the operational cash flows from the businesses. Ultimately, I don't believe a AAA business that are very volatile to carry a lot of debt, if any. Coffee Stain in [indiscernible] carried that is stable cash flows, even though banks, to be honest, are more familiar with physical businesses like Asmodee than are with mobile businesses. So it's a bit of culture in that. And that also comes with the price of the debt. We also announced this morning that we will look to create the optimal capital structure, both debt and equity for Asmodee and Coffee Stain ahead of the spinoffs. You can read into that, Tom, the debt could also play into refinancing and debt maturity. So this is a step-by-step process and to have very long depth could be very expensive. So it's obviously a step-by-step process to get where we want it. We are firmly confident in our ability to delever where we want to be. And this announcement this morning, including the debt refinancing is part of that journey. Middle -- comment to your first question about Middle-earth and margins and cash flows. Middle-earth & Friends are a very diverse business. It holds obviously, the AAA game development, the licensing business with very high margins from Middle-earth. It holds currently partner development companies, works for high companies. And it holds retro games businesses, comic book businesses with a different margin profile and it holds a significant one, I would believe, the largest distributor of physical video games in Europe, which is a very stable cash flow generative business, and it's an important service as part of our heritage. And I think if you do that kind of products, you should have that ability. But to be honest, it's a low-margin business. It doesn't require investment CapEx but if you look at the overall group, it lowers the overall margin of Middle-earth. We will allocate capital to the IPs and developers we believe the most in, and I'm confident in their ability to create success over the coming decade. And when they do, there is also great margins within AAA games development. I'm sure we will have plenty of time to come back to these questions ahead of the IPO and post that. Your second question, which is the last one I remember was about the Embracer journey and the philosophy of Embracer. And I clearly stated this morning that I will remain a significant shareholder with the same -- many of the same ideas behind that, that I founded Embracer on or created Embracer on, supporting entrepreneurs, supporting creators, being long term, creating an ecosystem. But also, we need to take learnings from this journey. This was not a perfect to build a company or never perfect from the beginning. I'm absolutely not saying we are perfect today, but we will use the learnings to go into the future. And I believe the Embracer philosophy might be more -- better suited as an ownership model than a consolidated operational model in this environment where capital is limited to create the best success for the companies. Embracer or 3 companies would still be a lot of companies with great entrepreneurs focusing on their daily execution of their businesses. That will not change. And I would support that. But some parts of the businesses need to work closer together, and we need to optimize that focus. We will have one clear management team, one clear Board, one clear capital allocation balance sheet for -- to optimize that. And I think that is the environment the whole world are in today. We lived during boom years of 2019, 2020, 2021. It was a different world. And that world is over. We need to adapt to the current environment. That's my duty as a leader.

If I can add something, Lars, I think for many people, this will be more of an emotional thing because Embracer is sort of a big part of our hearts. And I think that will be the biggest challenge. But of course, I think we all felt that when we started to think about all this. But the more we have discussed and the more we have learned, it's a natural step it feels like to take the steps that where we are today. But I think the emotional thing about the Embracer, that is something that many people, I believe, will have a little bit of maybe internally more than externally.

Yes. But again, also internally, we are creating the conditions, the best conditions...

Absolutely.

To grow the businesses, we need to add more headcounts and people to do this. And ultimately, if we're successful, we will grow the businesses.

We have also learned that over time now when we talk to people, once they sort of see all the positive things and the benefits, they also feel it's a natural step to do this.

Sure. But with all humbleness and respect, there is a lot of information to read on this morning. And obviously, the Board has been on this journey for 2 years, management teams for a longer period of time, we are all excited. But I need to be respectful for our 125,000 retail investors and 300-plus institutions that this is a lot of information. That's why we will spend a lot of time. Again, this is intention. There is more information to come. Tom, I missed your first question, but I hope I answered the other 3.

So the next question is from Simon Jönsson from ABG Sundal Collier.

I have a follow-up on Asmodee first. So I guess I agree that it should be able to carry that kind of debt. But as you know, as a listed company, what do you think is the optimal leverage ratio for that business? And do you think it has to delever a bit before assuming a meaningful M&A? Or how should we view that?

Yes. I think it's too early to say. I think Asmodee clearly could carry the current debt levels, and they will delever by the cash flow over time. So that is not from an ongoing operational perspective, not a problem. Now the question, what's optimal lever on the business as a public company, I refer back to the market to answer that question. And we will take that feedback into accounts.

All right. And one more from me. Do you think we'll have to wait for the spinoff to take place before we get like new separate strategic updates from the management teams? Or is there still a plan to come back with a strategic update on a group level here with more information about near-term pipelines, et cetera.

Obviously, we have our quarterly report coming up May 23, and we are very much looking forward to that to tell you about recent trading or current trading and how we look forward to the year and give some color on that. So there will definitely be an information package on that date, obviously, focusing on this financial year ending March '25. The 3 companies will come back well ahead of the IPOs -- or the spin-off, sorry, with their own capital market days, that's the ambition. So yes, you will have more color. But today, we are focusing on this information package opposed to the current trading and the specifics of this financial year.

Next question is from Martin Arnell from DNB Markets.

I have a couple of questions. My first question is on just the split there. You talked a lot about synergies, right, in the last years, transmedia, et cetera. And now you're separating into 3, but could you exemplify sort of where you struggle the most when it comes to realizing synergies from the big group?

I think it's twofold. I think the most clear example is that the plan during the boom years was to allocate as much capital organically as possible. And the plan was to allocate capital against games based on many different IPs, including IPs we have acquired from, for example, Asmodee. Now when the world has changed and the capital is becoming more expensive, and we need to be very selective. Also, the markets have changed for many of these kind of products but we are lowering our CapEx, as you know, from SEK 8 billion to SEK 5 billion announced during the restructuring program, and that limits that ability to create the synergies on a broader scale in this current environment. So what we find is that we need to allocate capital to the -- obviously, the opportunities we believe the most in to create amazing things, for example, within Middle-earth, both ways, Asmodee could utilize Middle-earth, we can do games, digital games on Middle-earth, for example. But that is a big change. Also the tighter capital market. There is even stronger focus and need to focus on utilizing the assets and synergies in mature structures. So sometimes you need to merge some businesses or having them to utilize their own structure is the best way within the group. And I think within Middle-earth, for example, there is a lot of need to put a lot of focus on this. And that requires different kind of consolidated management that we will see within Middle-earth. I would say less need in different companies and Coffee Stain & Friends, for example, I don't see a great need to do a lot of synergies with Easybrain that are fantastic on their own. So it really differs within the group. But the new environment and the new world we're living in requires us to adapt to it.

Okay, thanks for clarifying that. And your role in the future here. Will that mainly be about sort of linking these companies and having collaborations between them? Or how do you look at that?

Obviously, I will come back and we will come back to how -- right now, there is no change in my role. I again, have the intention to form a new holding structure with my -- our ownership, which is not only myself, but a number of other entrepreneurs to be long-term shareholder of the 3 entities. That would be a good platform or basis to form a more soft ecosystem between the groups. But right now, it's not the focus, but the focus is to execute on this morning's information.

Do you have the ambition to be the CEO of the company that is left after the spinoff of Coffee Stain and Asmodee?

Now it's not only me deciding on who is the CEO, it's also the Board. So right now, there is no communication regarding change of my role.

And it will take some time. I mean before we have the remaining part and both other spinoff has been done, it will probably take 1 year or more 1.5 years maybe. So we have some time to discuss also in the Board and with Lars. Plenty of time, I would say.

Thanks a lot. I just had a final question on the financing, the EUR 900 million, it was only 18 months to maturity. Did you indicate that this was due to prior [ tie-ups ] with the banks? Or what was it on the 18 months?

To create optimal capital structures, you always try to structure the best possible terms. Now we decided to have this arrangement. So this is a step-by-step process. I'm fully confident that we are able with the toolbox we have to create optimal capital structure, including debt for our entities. So -- but partly to answer your question, it's obviously also coming down to the specific price of debt and the terms of it.

The next question is from the line of Rasmus Engberg, Handelsbanken.

I have only actually one question left. With regards to Asmodee and the ownership in the Swedish holding company, you say that is in the current quarter, do you then mean Q1 or is it the quarter that we haven't yet seen the report of?

The change in ownership is done this -- in April.

Okay. So in the existing. And how did you get to that value for 4.7% of the company for 41 million shares? Is there a calculation in that we can use?

No. Obviously, there's many different factors in this. I went down with key stakeholders of Paris and spent 2 days there, finding a solution with them. To do this sort of arrangements is very complex because there is many negotiation points and details in this. But if you look at the value of 41 million Embracer shares and the value of 4.72%, I think it's a win-win. I like this one as win-win.

And the next question is from Ali Naqvi from HSBC.

Maybe a bit early in the stage, but is there anything you can tell us about one-offs or exceptionals as part of this process? And then just in terms of the wider strategy for these individual divisions for example, Middle-earth & Friends. Is the focus for some of these organizations to be acquisitive? Or how do you expect that sort of strategy or capital allocation strategy to be going forward?

Well, regarding the process and cost of it, I think in the greater scheme of cost, I see a marginal cost increase if you divide the overall overhead cost to operate the 3 public entities. Today, we have roughly SEK 250 million to operate Embracer. If you look at the cost for all 3, we haven't disclosed any details and we will come back to the market on this, but there is a marginal improvement over time, obviously adding a few more positions. On the actual cost for doing the public listing, there is a bit of advisory cost that will be disclosed going forward. I imagine such as we have been using one of the leading financial advisories to do a pre-IPO readiness report for Asmodee that caused a little bit of money. But in the greater scheme of things is not a significant cost relating to this. But we will come back to the market on this. Within operational, within the group, I would say, more or less all agreements already are at arm's length or market terms. So there is no changes within the group on profits because of you need to do that for tax reasons to start with, you need to have arm's length. Yes. The last question was focus -- Sorry, you had one-offs. Did you have one more?

Yes, sorry. The second question was just on whether you had a sort of formal strategy for the individual businesses as to how acquisitive post...

Right now, we are doing this. We are focusing on this, focusing on creating value, cash flows, pulling together the management teams. I think it's far too early to start talking about forward-leaning capital allocation again. But what we mentioned this morning is I would like to start allocating capital within Asmodee to M&A as soon as possible but we need to come back when that is possible. But I think that's where we would see that capital allocation to start. And then we will see that later discussion at the Board, but that is absolutely not the focus today.

Understood. And sorry, do you have any sort of rough timing or expectations of the timing for when we'll expect -- was it individual CMDs for these divisions?

No, I think it's a market practice to have them well ahead of the spin-offs. I don't want to define that timing. So you hold me to it later.

The last question from the telco is from Nicolas Langlet from BNP Paribas.

So one question left for me. Would you consider disposing 1 of the 3 business units ahead of the spin-off? And did you already have some discussion in that regard?

Sorry, if I -- if we considered what?

Disposing, selling 1 of the 3 businesses ahead of a spinoff.

No. Well, we haven't been running a formal process. I had a lot of inbound interest in especially 1 of the 3 groups, but I would say all 3 of them in a way. But those quite soft conversation got the Board and myself to realize that, that did not bring value to the shareholders. It was a lot of bargain hunting in a challenging environment for us. And I think this way would create both optimal conditions for companies to create success but also to create shareholder value. So -- but to be fair, Nicolas, I'm always open to structured transactions and to find interesting partnerships with larger companies sometimes if that creates value. But to sell off fantastic assets cheap, it's not a value-accretive exercise.

Okay. Okay. Perfect. And if I can add one on the earnout. So you restructured of the earnout with Asmodee management. Do you see a potential for other restructurings in what's left in your earnout? Have you had any discussion on that figure as well?

Obviously, that's a delicate question, Nicolas. But to start with, my basis is always to hold firm to agreements you entered into with people. But if there is a win-win situation for both parties, especially shareholders, and it's something that the Board believe in, there could be situations where we find and that would obviously be disclosed to the market when that happens. It's important to have aligned interests of key entrepreneurs and people which is obviously something we consider during this separation. And the value of each and every Embracer share to me, it's high. So having 41 million in Embracer shares back, I think, is over time value accretive to Embracer shareholders.

No questions at this time. So I hand the word back to you.

Thank you, everyone, and thank you, [ Anton ] and thank you for coming into this room this morning and looking forward to meet all of you again on May 23.