Embracer Group AB (publ) (EMBRACB) Q3 FY2026 Earnings Call Transcript & Summary

Thank you. And good morning, everyone, and thank you for joining our webcast today. And let's just take a moment to set the scene on the performance today, but really the performance of Kingdom Come: Deliverance II, which 5 million copies sold that was announced today, but actually achieved within the first year from launch. And we've talked a lot about core IP at our recent conferences. And I think this is a great example of a core IP, an owned IP created by our studio, Warhorse, based in Prague, and a studio sitting at the center of our future strategy as we build out games, delighting millions of players around the world. Keeping on the game theme, last night, European time, the press embargo lifted for REANIMAL. We're now 1 day from launch. We have a strong set of reviews from critics. The most important steps, of course, are ahead, and this is getting the game into the hands of gamers. It really does bode well for horror Adventure fans for Friday the 13th. But now we'll come to look at our highlights for Q3. Overall, our Group 3 results reflect delivery above plan on both revenue and adjusted EBIT. Total net sales were SEK 5.2 billion, an 8% organic drop year-over-year, which we'll see today comes across from all of our segments, but mainly in Entertainment & Services, which had some tough comps against Q3 fiscal '24-'25. Important to note that all the numbers shown here are now fully excluding Coffee Stain, which as a spinout, is treated as a discontinued operation. From a business perspective, our Q3 results were driven by our core IPs within PC console and seasonal strength within Entertainment, services, and mobile. Kingdom Come Deliverance was the main driver, and it's great to see again the team's strong execution, aligning marketing and seasonal promotions, delivering another solid quarter of gamer engagement. Our adjusted EBIT was SEK 528 million. Now this is down from SEK 696 million, excluding divested assets, primarily Easybrain in Q3 last year. Sorry, SEK 528 million, our adjusted EBIT was ahead of our plans and shows clear improvement compared to Q1 and Q2. Our free cash flow generation over the trailing 12 months or TTM was slightly negative. Again, this is now shown without Coffey Stain and is an improvement against the negative SEK 399 million 1 year ago. Excluding divested assets, the free cash flow improvement is even greater, and Muge will talk more on this shortly. We're taking positivity into Q4, and this allows us today to increase our underlying FY '25-'26 adjusted EBIT forecast. It's important to note, we continue to see and work hard to achieve potential upside. I said this before, but this is a transformative time for our group. Coffee Stain successfully completed its separate listing in December, and this allows us to now concentrate on our core strategies and growth opportunities. In a nutshell, we hold one of the most exciting IP portfolios in the industry with globally recognized franchises, including Lord of the Rings, The Tomb Raider, Kingdom Come: Deliverance, Metro, Dark Siders, Remnant, Dead Island. We're building an IP-first organization, one where we will operate with greater sharing and alignment. And to me, this quarter shows progress. But of course, it shows also where focus is needed, and we're committed to strengthening profitability and unlocking long-term value. Now we'll dive into the operating segments and first take a look at PC console. So our Q3 net sales for PC console were just about SEK 2 billion, a 3% organic decline. And we covered already that our core IPs and catalog really delivered strongly in our third quarter, ahead of expectations. New releases were somewhat soft. SpongeBob SquarePants: Titans of the Tide was our biggest new release with solid reviews from critics and gamers alike, but it did come up short in digital sales against our plan. Our team at THQ is working hard on this. They have a plan to deliver through our fourth quarter. With news of 5 billion copies sold, Kingdom Come: Deliverance II, of course, gets a mention. The third DLC, Mysteria Ecclesiae, was released in Q3, and this helped drive the game to ever greater heights. Dead Island and Tomb Raider also had a strong quarter and contributed to catalog performance. Now our adjusted EBIT margin trend shows the challenges we face and the opportunities we have. Again, important to note, all this data is now completely without Coffey Stain. We have a strong catalog, and with a more focused pipeline and a more focused organization, we will drive better margins. 13% shows clear improvement over Q1 and Q2, 13% isn't our ambition. Now let's have a look at ROI, and we share this slide again for consistency, and we share this data. Important to note now, this is also without Coffee Stain and, of course, other divested assets in the past. As ever, this quarter's releases are shown on the far left of this graph at 0 quarters since release. Now without Coffee Stain, the weighted average ROI for all titles has decreased from 1.9 to 1.8 across all titles, and you see that there in the top right-hand box. Now, bear with me a little bit on this, but I want to find a way to explain where we feel our potential can be. So for this, let's think back to Kingdom Come: Deliverance II, which, as I said earlier, launched 1 year ago, which, on this chart, would be 3 quarters since release. It's been a successful game launch. You've seen that. And you can see the game at around the 3x level. This is what we believe is more indicative as an ROI for our core IP after the first year. And this again shows the importance of our 3 key priorities: investing in our core IP, operational discipline, and targeted cost initiatives. On to pipeline. As of today, we've got 30 announced titles. REANIMAL is out tomorrow, and it's fantastic that it's Friday the 13th. Milestone's high-speed Arcade racing game Screamer is also now slated for March '26. A call out that 2 motor fans were excited on news of the 2 game reveal together with our partners, Amazon, at December's Game Awards show. It was great to see that Crystal Dynamics and Flying Wild Hog Studio's collaboration announced too. Legacy of Atlantis, shown here, is the first up, followed by Tomb Raider: Catalyst, the next major chapter in the series. And we're excited by our near-term and our longer-term pipeline with a range of major projects based on our core IPs launching over the coming 3 years. For our next fiscal year, we look forward to one long-awaited, currently unannounced, major in-house developed and in-house published title, together with a range of important mid-sized titles. Execution discipline will be critical to converting this pipeline into significantly higher profitability and cash generation. And now we'll look at mobile. In mobile, we delivered SEK 566 million in net sales, a 15% organic drop year-over-year, impacted by lower UAC, so user acquisition cost, growth investments. Overall growth numbers include foreign exchange and the divestment of Easybrain. When we look sequentially, it's another positive revenue and margin growth Q2 to Q3. The team has balanced UAC well, and we're seeing Glow begin to scale. Sled Surfers launched in the quarter 2 and has scaled well so far, delivering revenues ahead of plan. Overall, we're confident on the development ahead. Let's take a look at Entertainment and Services now. Well, revenue in our Entertainment & Services segment achieved SEK 2.6 billion, a 10% organic decline year-over-year. And again, as I said earlier, this is really due to the high comps in Q3 last year for PLAION Partners. What's clear to see is that the seasonal revenue and margin uptick for the segment was delivered to plan. When we look at the mix in the segment, Middle-earth strategic partnership with Asmodee helped drive margin improvement. Our team is excited about the potential for this category partnership. As we look forward, we're also excited about Magic: The Gathering introduction of The Hobbit into its trading card roster. As a follow-up to the highly successful tows of Middle Earth, the Hobbit launch is set for August. And with that, I'll hand over to Muge.

Thanks, Phil. Good morning, everyone. Before I start, as we go through the following slides, please keep in mind that following their spin-off, Coffee Stain Group has been reclassified to discontinued operations. So all figures presented exclude Coffee Stain. The year-on-year comparisons also continue to be impacted by divestments. As I take you through the results, I'll also provide some clarity on the underlying trends and performance on a like-for-like basis. Looking at net sales. Net sales for the quarter of SEK 5.2 billion were above management expectations and compared to prior year were impacted by both divestments and FX translation effects. The negative year-on-year divestment impact, primarily from Easybrain, was approximately SEK 900 million, while the FX impact was just over SEK 400 million. If we exclude these impacts, our organic and pro forma growth stands at minus 8%. Now if we break this down on a segment basis, Entertainment Services was down 10%, primarily due to a strong comparator with several strong releases from PLAION Partners in Q3 last year. For mobile, organic, and pro forma growth amounted to minus 15%, resulting from lower user acquisition costs in the current and recent quarters. PC console games was down 3% in the quarter, mainly due to decreased work-for-hire revenue. New releases had a higher contribution compared to last year, while on catalog, as Phil also mentioned, Kingdom Come: Deliverance II performed well ahead of our expectations. Gross profit percentage for the quarter was 55%, down 3 points year-on-year. The impact of divestments was the primary driver, accounting for a reduction of 6 points. Excluding the impact of divestments, the gross profit percentage improved by 3 points year-on-year. This was the result of an improved margin in PC console as well as a slightly favorable segment mix with a lower contribution from entertainment and services in total net sales. Looking at marketing, total marketing spend was SEK 419 million or 8% of net sales, down 7 points year-on-year, largely driven by the impact of divestments, which accounted for a 5-point reduction. The non-user acquisition cost marketing of SEK 165 million decreased slightly by SEK 42 million year-on-year, while user acquisition cost investments dropped by SEK 586 million to SEK 254 million, driven by the Easybrain divestment. The user acquisition costs in the prior year included SEK 471 million related to Easybrain. Excluding Easybrain, user acquisition costs decreased year-on-year by SEK 115 million and represented 45% of mobile net sales, down 5 points year-on-year, but largely stable sequentially compared to Q2. Operating expenses, excluding marketing, were SEK 1.2 billion, down SEK 65 million year-on-year and representing 24% of net sales. Divestments impact the year-on-year OpEx evolution by SEK 168 million. And on a like-for-like basis, OpEx increased by around SEK 100 million compared to last year. While this was largely related to timing effects, and we expect a sequential decrease in Q4. Overall, timing impacts aside, the cost base remains relatively stable and continues to be a key focus area for tight control. This all delivers an adjusted EBIT for the quarter of SEK 528 million, a clear improvement over Q1 and Q2 and ahead of management expectations. Last year's Q3 included around SEK 300 million from divested entities. Aside from the divestments effect, adjusted EBIT was impacted by the lower net sales across the segments. FX also had a negative effect of around SEK 60 million in the quarter. Combined with the timing effect I mentioned previously in OpEx, this led to a minus 4-point impact in adjusted EBIT margin, or minus 2 points when we exclude the impact of divestments. Turning now to cash. Free cash flow after working capital amounted to minus SEK 75 million for the quarter. This compares to SEK 719 million in Q3 last year. The year-on-year evolution is driven primarily by changes in working capital. The working capital of minus SEK 437 million for the quarter is mainly driven by increased receivables arising from seasonal sales close to the calendar year-end. Compared to the prior year, the difference in trend is mainly timing-related, and we expect this to unwind in Q4. As you can see in the TTM, which eliminates the timing impact, the working capital movements on a 12-month basis are largely comparable. If we look at the TTM free cash flow after working capital, we see a significant improvement. This improvement is even greater when we take into account that the comparator included around SEK 700 million net positive contribution from divested entities. In the TTM, we can see the benefit of our efforts to reduce and refocus our investments with a significant reduction in CapEx spend year-on-year. It's also worth noting that the current year TTM was negatively impacted by around SEK 270 million of FX differences. Looking below free cash flow, the cash outflow from financing activities of minus SEK 766 million includes minus SEK 428 million in Q3 related to the repurchase of own shares under the SEK 500 million share buyback program. The net cash flow from acquired or divested companies of SEK 297 million relates to the payment of earn-outs from past acquisitions, partly offset by the net proceeds of divestments of non-core assets. In TTM, the significant inflow of SEK 12 billion relates to the net proceeds from the divestments, with Easybrain representing the largest portion. At the end of December, this results in a net cash position of SEK 2.9 billion and available funds of SEK 5.8 billion. I want to take a few minutes to look in a bit more detail at the evolution of our net cash position over the quarter. Net cash at the beginning of the quarter of SEK 4.2 billion comprised SEK 6.1 billion of cash and SEK 1.9 billion of liabilities to credit institutions. As I covered on the previous slide, we had a limited outflow in free cash flow after working capital of SEK 75 million. The largest part of the net cash evolution was driven by a number of key strategic and corporate actions. These include the cash return to shareholders via our share buyback program, amounting to SEK 428 million in the quarter, the net cash impact of the Captain spin-off of minus SEK 495 million, the net cash proceeds of SEK 219 million from divestments of non-core assets, and the payment of earn-outs in the period amounting to SEK 560 million. It is worth noting that we have now relatively limited earn-out obligations of SEK 730 million spread over the coming 6 financial years, just under half of which are due in fiscal year '26, '27. Net cash at the end of the quarter of SEK 2.9 billion comprised SEK 4.9 billion of cash and SEK 2 billion of liabilities to credit institutions. After the completion of the key strategic and corporate actions I've just mentioned, we thus maintain a strong financial position. Looking ahead, we expect to deliver at least SEK 750 million in adjusted EBIT for the full financial year. I want to reiterate once again that this fully excludes Coffee Stain Group following their spin-off and reclassification to discontinued operations in our results. As a reminder, our previous expectation of at least SEK 1 billion announced in Q2 included a full year's contribution from Coffee Stain Group. As we have stated here, we do see some upside potential from underlying business performance. I will hand back now to Phil for some closing remarks.

Thanks, Muge. So again, a great screenshot here from Tomb Raider. And this really brings us on to our last slide today for some closing remarks. Now as we talked about, core IPs continue to outperform this past quarter. This goes for both games based on core IPs released 1 year ago, but also 3 and 8 years ago. And this is an important signal for our future direction. That said, we're not satisfied or happy with the profitability within PC console, and there are a few important levers that we expect to have an impact on partly different time frames. First, as mentioned, how we execute with discipline on our pipeline will be key to drive higher profitability and cash generation. Second, we're committed to strengthening profitability and unlocking long-term value. And how we do that is captured in our 3 key priorities, which we've talked about since August. IP first, IP-led, we are rapidly shifting our investments towards higher return core IP. This group of IPs have had an ROI of 3x historically versus 1.8 across all titles. In this past year, the share of CapEx allocated to core IP has increased from 20% to 40%. Longer term, we see it moving towards 80%. This will not drive profitability in the next quarter, but it will drive lower CapEx, and we're confident that it will drive stronger profitability in the coming years. Additionally, we are continuously targeting a reduction, not just CapEx, but also OpEx, as we complete consolidation initiatives as we continue simplifying and adapting our organization's size and shape around a more focused portfolio. This will be key to making better decisions quicker and to improving profitability. We have more work to do here, but we see it as a strong profitability driver. And during the quarter, we divested several nonstrategic and unprofitable businesses in third-party publishing and work-for-hire. This improves our focus, and it improves our capital efficiency. These assets jointly had a negative adjusted EBIT of around negative SEK 180 million on a TTM basis. The impact of this is quite immediate. And so these achievements in Q3 are important. As part of this closing, of course, we touch on AI. AI, well, it's certainly accelerating both its technological advancement, but also as a topic of conversations in our sector. As discussed at our AGM in September, we see significant potential in AI-driven tools. It can meaningfully enhance development, production, and operations for us. And as an industry that has always embraced innovation, we actively explore and adopt AI where it strengthens our products and improves efficiency. Now we view AI as a tool to support and empower our teams. World-building, storytelling, and creative direction will remain firmly human-led, ensuring that creativity and originality continue to define our experiences. Our long-term direction is now taking shape, and we're building towards a disciplined IP-first group. We remain committed to continuing the distribution of any excess cash to our shareholders. And we will provide further updates on our strategy and structure as we make progress and as soon as we have more news to share. And that really brings us to the end of our slides and notes this morning. Before we hand over to Q&A, I'd just like to express my thanks to all our teams across the group for their hard work, dedication, and passion. And with that, I'll leave it to the moderator and the Q&A session.

[Operator Instructions] The first question comes from the line of Nicolas Langlet from BNP Paribas.

Two questions, please. The first one on the full year '27 pipeline. So you mentioned the long-awaited internally developed title. When do you expect to make the official reveal? And can you update as well on the Marvel game? Should we expect it for full year '27 or not? Secondly, on asset disposal. So you divested nonstrategic assets in Q3 for SEK 180 million adjusted EBIT loss. How much further scope is there for running loss-making assets? And what's the aggregate negative EBIT still embedded in the remaining portfolio that you could address in the coming quarters?

Thanks, Nicolas. Thanks for your question. I'll take the first one certainly, and then we'll see how we combine with Muge on the divestment and scope. The reveal is fast approaching. We'll blink and we practically -- we'll get there, but it's not something today on a corporate thing that we're going to date. But we're excited about it. The team is excited about it. And I promise we haven't got too long now to wait. For Marvel, we really leave that for our partners at Skydance to comment on. And I think that's the best way that we approach it right now. As for divestments, there is further scope. I don't know if we've got a range right now that we're prepared to or would be sensible actually to offer up. But I think it remains one of our core initiatives today as we really continue to sort of focus and sharpen our execution.

Maybe one thing to add to that is that, as we have mentioned that the impact of the divestment of non-core assets represent SEK 178 million on a trailing 12-month basis. So it gives you an idea of the annual impact. And as Phil mentioned, it is part of the normal course of business that we assess, depending on the criteria, which is a part of the business steering process.

The next question is from Jacob Edler from Danske Bank.

I have one follow-up on the own published AAA pipeline that we just talked about. A couple of quarters ago, you discussed 9 AAAs in the medium-term slate for '26, '27, and '27, '28. You haven't reiterated this message since, I believe, Q1. But can you add any more flavor on how we should look at the midterm slate here, given that you're talking about on published major title for '26, '27?

Yes. I mean we -- pipeline is obviously building. It's a living thing. We're very excited about it. We've got a range of major projects based on core IPs that are scheduled to launch over the next 3 years. I think there's other color. We talk about sort of release cadence historically also. And when we think about release cadence in the past versus the future, we definitely see that sort of quickening up. I think in the past 5 years, we had just over AAA game per year, and we certainly see that as we plan forward now for multiple years, we see that increasing. But I think all the games are there. Our focus now is really on fiscal '27. We're not talking yet about forecast for next year. We're still deep in planning for fiscal '27. And as I say today, we're excited to feel and know that we've got one major in-house developed in-house published today unannounced title that we're excited to get in front of the world pretty soon.

Very clear. Just a second question. I mean the catalog in this quarter was quite strong and probably a bit better, I would assume, than what you expected in Q2 when you said limited profitability within the PC/Console segment. Just a question, the main outperformer here versus your expectations, is that Kingdom Come Deliverance, would you say? And also, are you able to add any flavor on how big the eventual platform deals were here in Q3? And was Killing 3 the biggest one?

I'll certainly take the first one, and then Muge can pick up the platform deals. I mean catalog, I really see as a fantastic asset for us. We talk about back catalog, and it makes it sound old and whatnot, frontline, back line, et cetera, et cetera. But these are games that we've seen that through the DLCs that we've offered and continuous sort of community management and engagement, we see more and more players coming in. So KCD certainly was the standout. You're absolutely right. If you think about that game in Q1, we reported some softness really lower than expectations against the sales, and then we saw competitive pressures for that. We saw that coming back into Q2. And we're really pleased that it continued to drive through Q3. I think operationally, there's a much tighter group now, commercially and marketing and studio-wise that is really on that execution. And we're delighted that with a game like Kingdom Come, high scoring, the review user comments are fantastic that there's more and more players out there. And it's our role to find the players. I mean 5 million is not the bar now, right? It's how we find more players. The player base is ever-growing. So I think we're really -- I like to think we're finding a good approach now to how we work at an IP level versus thinking it's catalog and it's always going to decline. But it was definitely the biggest one, with other examples as well that just came through. We mentioned Dead Island, and Tomb Raider had an uptick with the announcement that always drives more activity into beloved games.

Right. Jacob, maybe on the platform deals. Well, we always expect something on a quarterly basis and in Q4 as well, but nothing really major is expected. And looking into Q3, the amount which has been pulled from Q4 represents a very minor portion. So the real underlying performance is really coming from the PC console part, the KCD, Dead Island, as Phil also mentioned. So this part, this platform deal, doesn't represent an important portion, I would say.

The next question is from Amar Galijasevic from DNB Carnegie.

With only 2 questions, I have to be smart about which I pick here. Starting off with one, let's say, near-term question, you guided for at least SEK 750 million of adjusted EBIT for the full year, which implies, I guess, some SEK 200 million in Q4. Can you share some more color on how we should think about that buildup? Is the majority of it related to REANIMAL? Is it related to some platform deals? Or how should we think about that?

Thanks for the question. Well, I'd like to first reiterate that we feel comfortable with our latest view, where we see some further upside, so I think we need to bear that in mind when thinking around Q4. We're, of course, very excited by REANIMAL, but as Q3 has also shown us, the underlying business, the catalog is also delivering good results. So when we work on our forecast, we do factor different ops and risks, which, as a net assessment, makes us believe that there's upside to that minimum SEK 750 million full-year outlook.

And next question on a completely different topic. You mentioned here a couple of quarters that you look to distribute excess cash, but nothing concrete. How should we think about what is a minimum liquidity buffer for you? Or how much cash do you want to hold on balance? And why no capital allocation plans announced yet?

Thanks, Amar. As previously indicated, we -- up until already January, as you know, we have been fully focused on the recently share buyback program and some other corporate and strategic initiatives, as I have also earlier presented the bridge on, including the portion of cash to Coffee Stain. We've always said that we are sequentially assessing always the balance sheet needs in the right fit of business needs. So if as a result of that, any excess cash is to be always considered to be returned to shareholders. So it is part of the thinking process. Now we got our Q4 to focus on, and we'll be working on next year in parallel, and you can take that as a general direction, I would say.

Next question is from Simon Jönsson from ABG Sundal Collier.

First of all, I have a follow-up question on Jacob's question on the backlog. You said that platform deals represented a minor part, if I understand correctly, of the back catalog. But I wonder if the contribution in total from platform deals, was it still bigger than last quarter?

Thank you for the question. In comparison to Q2, I think in absolute terms, I would expect something very similar. So we haven't been exposed to something bigger in this quarter, particularly.

Then my second question is on the CapEx, and you're saying that you're moving towards a higher allocation towards the core IPs. You talked about 80%. But if we look at what you're spending right now, what is the current split of core versus non-core, would you say?

I think we indicated it will be sort of 40% of that CapEx this year is really allocated against core IP. 80% certainly is a sort of use the word longer term, but it takes time to get production lines, production teams up and running. Obviously, you have to find the right opportunities, et cetera. So that's probably more of a longer-term thing. But 40% today is where we are allocating.

So 40% is still for the sort of upcoming year, you would say?

It's more now. I mean, I think even this quarter, we're at that level. It might have been 37%, 38% this quarter, and moves to 40% next quarter, I believe. So as we step forward, that's probably a 20% shift over the last 18 months or so. And obviously, we're quickening pace now. So we'll probably get to another 20% within the next year, I'd say, is a rough guide. But it's a very -- again, we try to talk to this point about some things take time to come through in numbers, and that's one of them, right? It's a longer-term thing. But we've taken those deliberate steps already, starting last August, we think about that allocation to which IPs and which teams. So we'll see that coming through quite strongly, I think, over that time frame.

The next question is from Erik Larsson from SEB.

I'll start with a follow-up on the back catalog. And I mean, obviously, you've been clear on your ambitions with core IP, but I've gotten the impression that you've been more sort of active and opportunistic in terms of campaigns and discounts, et cetera, on some of these titles you mentioned. So is that a fair observation? Or is it kind of too early to see it in the numbers, if you understand my question?

Yes. I mean I think we've got to recognize there's a commercial side of gaming today as well. And opportunistic is I think we've got to be smart traders with that as well. We've got ever greater number of platforms to offer. Gamers have never been more gamers coming to these platforms, they never had greater choice. So how we combine marketing, influencer cultural events, price as well. Of course, these are the levers that our commercial teams are actively looking to optimize and do well in the discovery of games today is tough. It's a real challenge. So we've got to work that in many, many ways. And I like the way that it felt last quarter. I think that we're seeing that quickening up, proactive decision-making and that comes through in the numbers. We're a trading company in that respect, and we have to work in that way.

And then second question on Middle-Earth with the deal with Asmodee. So just first, please clarify if there's any sort of one-off items affecting the numbers we should be aware of during this quarter? And then just, of course, outline how you see the -- which primary benefits on your end with this agreement?

Erik, I'll just maybe start with the technical part of it. There isn't anything weird or items affecting comparability on this regards. I'll let maybe Phil elaborate on the deal itself.

Yes. I mean it's -- so we announced it, I think, already in October 1. So it's towards the start of our quarter. Obviously, we know the team at Asmodee fantastically well, and it really falls greatly in line with our strategy around working with experts with people in the top of their game. So with an IP like Lord of the Rings to strengthen now the partnership, formalize the partnership. We talked about being -- they're going to manage the tabletop games and accessories category for us for the Lord of the Rings and the Hobbit. So it's a long-term relationship. We're really excited to push into. We really see their ability for reach and engagement, delighting fans with the very best tabletop game experiences set in the world of Middle Earth is very exciting for us as overall sort of guardians. And yes, we've got the advantage of having been part of the same group and still be feeling very closely aligned and especially strategically. So that's how we see the partnership, a lot of excitement and certainly, partnerships that we'd like to extend and replicate in other categories as well.

Next question is from Rasmus Engberg from Kepler Cheuvreux.

Super curious about that announcement you're going to make about your new big game that you flagged. Would it be possible to say that this is an existing IP, based on -- it's not a new IP, right?

I think it's fair to say that I'm happy, firstly, to get your excitement. I love it. The game we sort of play on events like this is fun. But if you just hold for a little bit longer, all will be revealed, but I think that's a fair assessment, yes.

And then on your structural deals and adjustments to the company, you have sold a couple of assets that are loss-making. I'm sure they're pretty more. But would you consider selling assets that are profitable that doesn't necessarily bring anything to the party in terms of being a PC console company?

I think Phil reiterated the 3 focus areas as we look ahead in terms of operational discipline, the core IP focus, and the strategic alignment. So these are the really key areas that we focus on. So we are very much committed and engaged to working with what works extremely well, trying to see how we can make things even better. So focus is definitely a priority for us, and that comes with the things that work already very well and how we can replicate and roll them out further.

Yes. And I think I'll just add to that. I mean we spend a lot of time on PC console because that's where the bulk of our CapEx, that's where the bulk of our operations have been. But we report widely about our segments. We're broader than that. We are -- we have a broader entertainment offering. So I know we focus a lot on PC console, and therefore, you might conclude anything outside that is non-core. But we're a broader play, but our focus on PC Console because that's where we see the best scope for margin improvement and alignment around the strategic priorities we talked about, which is really getting in line with our core IPs and find the simplicity and simplification, let's say, in our business.

And I think it's worth mentioning that -- and you have seen we are really also looking at the shareholder value. So you have seen that if it does make sense and if it is unstrategic or if it is unprofitable, it is really optimizing and maximizing shareholder value that we incorporate in the thinking process, too. So that will be the guiding principle.

The next question is from Nicolas Langlet from BNP Paribas.

I've got 2 follow-up questions, please. First of all, on the full year '27 profitability inflection you mentioned in the press release. Can you give us a directional framework regarding the kind of inflection you are expecting? Is it fair to assume a return to double-digit adjusted EBIT margin at group level? That would be the first question. And secondly, on the GenAI tool comment, how long do you think it will take for those tools to make an important contribution in your development process? And for example, do you expect any GenAI impact to be material in the AAA games you have in the pipeline?

Again, Nicolas. So I'll maybe start first, and then Phil will let you take over. As you've seen already, year-to-date Q3, we have divested unprofitable businesses that contribute to improvement of the profitability. We've already shared that we've got next year at least one major title together with a bunch of mid-sized titles planned for next year. If you were to compare that to this year, where, as you know, Killing Floor performance has been below expectations and the underlying business performance that we have in Q3 and what we foresee in Q4, I think just that comparison gives you enough room for a confident earnings inflection for next year.

And I think to the I mean GenAI, it's a really great question. I'd say right now, where we're seeing -- and it is really common. I mean I'm fortunate if I can travel around and walk around lots of studios and talk to a lot of the animators, designers, engineers, and it's fascinating to see how our -- I say brightest minds, but lots of minds in our group are really inquiring and leaning into AI. If there's a trend there, I'd say that we're seeing it in more concept work and preprototyping. I think we're generally getting ideas off paper into 3D models, as we talked about this at the AGM, way quicker than a year ago. The advancement has been that fast. And then from 3D models into game into 3D worlds, again, way faster. And this is really as a design as a concepting tool as a prototyping tool being really helpful to see what we think is going to work. And we talk about things like AI voice, how we don't see that in final games, of course, but we see it as a design tool. So with that perhaps as logic, the 9 games, they're deep into production now, and probably therefore their stages of concept in preproduction, the GenAI tools were just less pervasive and strong. So I think we'll really see it coming through sort of over the next wave. And we're excited by it.

There are no more questions from the telco at this time. So I hand the word back to you, Phil and Muge for closing comments. Thank you.

Well, thank you again, everyone, for attending our conference and for your questions as ever. That's all from us today. And with that, we will close the conference.