everplay group plc (EVPL) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Team17 Group plc Full Year Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it received during the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you to Steve Bell, CEO. Good afternoon to you, sir.

Good afternoon, and thanks very much. So good afternoon, everybody, and welcome to our 2023 full year results presentation. There's a number of you on the call who I will have met over the last 3 or 4 months I've been within the business, but there's a number that I won't have met. So I just wanted to introduce myself very, very quickly. My name is Steve Bell, as was said. I took over from Debbie Bestwick, who I know a number of you will know on the 1st of January 2024. And prior to that, I worked alongside Debbie for a few months in 2023. My background is in the world of advertising, marketing, digital media. And a number of people asked me the question when I announced I was joining Team17 as the Group CEO as to why I decided to take the jump from the world of marketing communications and digital media into the world of computer games. And the truthful answer is, as soon as I met Debbie and as soon as I started looking into the world of Team17, it really, really fascinated me, really excited me, just the way that the organization looks at IP and brands and the lifetime value of those brands made me think that it was something that I could add real value to in terms of my marketing communications background. It is an incredible business. And although 2023 was challenging, I feel really excited about the future within the business, and I feel as though I can add real value when it comes to the growth of the business will deliver moving forward. But before we start getting involved in the actual performance of 2023, I thought it was worthwhile just talking a little bit about my perspective of the business, having been in a position for some time now. First thing I would say is how competitive, fast-paced and dynamic the industry is. Obviously, 2023 was a really unusual year in the world of gaming just in terms of the quantity and the quality of titles that were launched. But the thing that I have seen and the thing that I think is very, very important is the fact that indie and indie games is a fantastic space for us to play, and it's a place where I feel as though we really can lead the market. We've got fantastic businesses within the Team17 group, including astragon and StoryToys and obviously Team17 Games Label. I feel as though we've got underappreciated IP, and we're going to talk about that in terms of the stature and scale of some of the IP that we actually have. And we've got exceptionally talented people throughout the business. It was one of the things that I knew as soon as I started meeting Debbie and the Board and the leaders of those businesses, how experienced they are, but more importantly, how passionate they are in terms of what they do. We talk a lot about lifecycle management skills. And for me, that's one of the things that impressed me the most when I joined Team17. It's a case of looking after a brand. It's not just a case of launching a game and then suddenly allowing that game to just peter off in terms of sales. It's looking at the sales value over a period of 1, 3, 5, 10 years. And the way that we manage our back catalog is something that is super, super impressive. But there are obviously opportunities to improve. And I think coming in from a background where I ran 14 different businesses with 1,000 people in the world of marketing, I feel as though there's a huge amount that can be done in terms of the collaboration between the teams and the divisions that we have within the Team17 group. I think the other thing that I've noticed is that discoverability of games is one of the most important things. If you look at Steam in 2023, over 14,000 games were launched on Steam last year. That's almost 40 titles every single day are launching on Steam and discoverability and in effect, marketing and how your title can be seen, can be heard and more importantly, can be purchased is critical. And I feel as though my experience in the world of marketing communication is really going to help the business moving forward in terms of fighting that battle against all the other games that are launching within a short period of time. There's no 2 ways about it. Parts of our business underachieved in 2023. But we've learned from the mistakes that we've made, and I can assure you we won't be making the same mistakes again. And we're back on track in 2024 with a very clear plan for delivering growth, and we'll go into that into more detail during the presentation. But if we look at the world of indie, and again, we talk a lot about indie, and we can't presume that everybody knows what an indie game actually is. When I joined the business, it was something that I spent a lot of time talking to people within the industry, talking to Xbox and PlayStation and Steam and developers and everybody else. And obviously, everybody's got a slightly different view as to what indie actually means. Some people are very philosophical and say, oh, it's a state of mind. And that doesn't really help in terms of what we actually mean in the definition of indie. But probably the best way that I would explain what an indie game is all about is it's a game where the investment in that game is lower than a AA or a AAA title, but more importantly, the actual gameplay in the game itself is very innovative. It's very dynamic. It's bringing together things that have never been done before. And suddenly, if you're coupling with a lower budget when it comes to development, coupled with the innovative nature of the game, that's how I would capture what the indie market is all about. So if you look at 2023, though it's highly competitive, the market is back in growth. The gaming market is back in growth. And the interesting thing is that sales are dominated by back catalog titles. So if you look at Steam, 90% of the games played on Steam in 2023 or what will be classified as back catalog or games that are 12 years -- 12 months or older. So what that does show is the importance of back catalog, and it's something that we spend a lot of time looking at within Team17. The indie market is huge. From our calculations, it's north of $8 billion. So you can suddenly see the scale of that market and the opportunity that we feel as though we have as Team17 Group. Innovative titles within the indie world do incredibly well. So if you look at the visual on the left-hand side of this slide, is a title called Dredge that we obviously launched in 2023, a real standout title. But the innovative nature of that game, the fact we're talking about a fishing game and a horror game and a storytelling game, all brought together, suddenly create real excitement in the marketplace. And that's why that game just took off because of the innovative nature of it. Indie games are also very differentiated from AA and AAA titles. And we call indie games almost like snackable content because if you look at a AAA title, a AAA title will almost take hundreds and hundreds of hours to complete. Most AAA titles never get completed because the player either runs out of time or energy to keep on getting stuck into that particular game. But an indie game almost sits alongside that. So an indie game can be finished in 10, 15, 20 hours, and game players aren't just playing AAAs or just playing indie, they're playing both. And what we need to do is understand the relationship that we have with AAA titles and making sure that people understand the fact they can complete our games and feel really excited about them moving forward. Indie titles are growing in terms of the number of them on Steam. And from our perspective, if you get the model right, it's a far lower risk return on investment than AA or AAA. But why -- as Team17 Group, why do we feel as though we're well positioned to become the indie powerhouse? And that sounds like quite a lofty ambition, and it is. There's no 2 ways about it. But it's something that we spend a lot of time talking about internally, and it's one of the internal main objectives that we have and the vision about being an indie powerhouse. So why do we feel as though we're well placed to deliver against that objective that we're setting? The first point is around the global nature of our business. So 90% of our sales in 2023 were outside of the U.K. So again, it shows, although we may be perceived as a U.K. publisher, we're absolutely not. We've got global reach when it comes to the games that are being played. When you look at our IP, 35% of sales in 2023 were from first-party IP. And we'll go on to talk about that in more detail as far as why that's important and the direction of travel that we're going when it comes to first-party IP. We had over 100 titles generating our sales in 2023. And 15 of our franchises generated north or have generated lifetime sales north of GBP 10 million. Four of our titles have generated sales north of GBP 45 million, and one of our titles generated sales north of GBP 100 million. So that just shows the scale and the stature of the IP that we are dealing with on a day-to-day basis. We've got an exceptional back catalog. 71% of our sales are back catalog, and that's growing 10% on the previous year. And that back catalog is constantly being fed by new releases. Our diversified portfolio is something that I'm really, really proud of. We talk to hardcore gamers, casual gamers, enthusiasts. And we talk a lot within the business about having a lifetime of play. So we've got children at the age of 2 playing the games that StoryToys and the apps that StoryToys develop from an entertainment perspective, all the way up to people in their 60s and 70s playing some of the titles from Games Label and also simulation titles from astragon. And no game within our portfolio is north of 15% of our revenues. So that shows that we're not overly reliant on one particular game, which is a really important point. We've got a really compelling proposition for developers. We need to make sure that we are at the top of the list when it comes to a developer wanting to publish their particular title. And that's because we've got multi-platform reach. We talk to all of the platforms on a day-to-day basis. We've also got access to insight and data, and that data is worth its weight in gold because we've got the experience over the last few decades when it comes to understanding the sales profile, what promotion is going to do, how marketing is going to work within that. That can't be said from any other publishers. And also, we've got the financial resources to be able to invest in those titles that we feel is over right. We've also got a very strong balance sheet, and that can enhance our own IP, and it can grow and scale through M&A. And again, we'll talk about that later on. But what's the plan? That's all well and good saying indie is a really interesting market. It's a big market, and we feel as though we've got the foundations to be able to deliver against our ambition about being an indie powerhouse. But the plan is based on these 2 areas here. So acceleration -- accelerating our growth. So the first point is around doubling down on our indie focus. It's making sure that we understand that we are an indie publisher. We don't want to drift into the world of AA. And in turn, we want to make sure that we are clear in terms of the investment levels that we have around our titles. And in 2023, it was one of the mistakes within Games Label that we invested in titles that were taking us into an area outside of that indie focus, and we'll go on to talk about that in more detail. We want to make sure we're prioritizing our evergreen franchises, those franchises that have a huge amount of potential value over a period of time. So that evergreen franchise can make sure we're delivering sales and profit 3 years, 5 years and beyond from that. Progressive participation marketing, which is a bit of a mouthful, but what I mean by that is the way that we market our products and our IP. We've got to really disrupt the marketplace. It's obviously my background. And one of the things that I've seen from my time within Team17 and talking to other developers and publishers is there seems to be a bit of a playbook, a bit of a cookie-cutter approach when it comes to the way that marketing is used to launch titles. We want to make sure we're disrupting the marketplace. We're doing things in a different way. And you will see, as we move forward and in time, the new releases that we have, a lot of those will have a very different approach to marketing. So it won't just be you produce a big trailer, you spend some money on advertising, you do a bit of work in social media, and you might do some influencer. It is using a slightly different way of doing that to really disrupt to make sure we're getting greater bang for our buck when it comes to marketing spend. We've also got to make sure that our publishing models are innovative, that we're listening to what developers want and what developers need. And we've got to make sure that we are truly flexing the way that we're operating because we want to be the publisher that every developer wants to work with. The way we will do that is by providing high added value strategic areas of the business that they just can't do, sales, lifecycle management, data and analytics, marketing, studio support, all of those things are critical and things that publishers -- or sorry, developers cannot do themselves, and M&A. M&A is something that we've invested in historically, both from an IP and from a business perspective when it comes to astragon and StoryToys. And we want to make sure that M&A is part of our business plan moving forward. We're not going to rush it. The focus in the business is making sure that we deliver in 2024 and deliver the results that we've said. But M&A is and should be part of our plan moving forward in the midterm. And when it comes to improving profitability and return on investment, we need to increase the sales mix of our first-party IP. So if you look at the graph on the right-hand side, what you can see is in 2019, 17% of our revenues came from first-party titles. In 2023, that grew to 35%. And that's a really important direction of travel. There will be some years that it's higher, some years that it's lower, but overall, we want to make sure that we're trending in that basis because what this slide underneath or the area underneath in terms of the graph shows is that, obviously, our internal first-party IP generates a higher margin for us. That's really important that we make sure that we're looking at our first-party IP and that we're investing in it, and we're generating the return on that investment that is so important for the business moving forward. We also have to -- and we have sharpened up our greenlight process. And that doesn't mean that we're cutting any corners. It means that we're going through the same due diligence from a product and a commercial and a benchmarking process. But we get the entire business and the entire key elements of the business working together to make sure that we are speeding up the process when it comes to a developer coming into us and making sure that we can sign that title with the right commercial terms for ourselves in the short term. That is really, really important. We still get thousands and thousands of titles every year that are pitched to us, and we sign a very, very low percentage of those. And that's really important because that means we can sign titles like Dredge, some of the most exciting innovative titles in the world. We also have new Games Label investment limits. So we're not going to be doing what we did in 2022 and 2023 and go to bigger titles. We have those investment limits. We make sure we stick to them and that we make sure we work really, really hard to get the return on investment from those. And linked to that, we need to make sure and we have made sure over the last 4 or 5 months that we've got far tighter cost controls within the business so the mistakes that were made in the previous year are not made again. So in terms of operational highlights for 2023. So although there was a disappointment within the Games Label, the other parts of the business have done fantastically well in terms of astragon and StoryToys. And overall, our revenue grew at 12%. So that's all organic in a relatively flat market. Our adjusted EBITDA pre impairments was GBP 41 million, and Mark will talk about impairments later on in the presentation because it's important that we do talk about what happened from an impairment perspective. 17 new games were launched, 45 DLCs and 327 app updates. So you can see that we're constantly feeding the market with new games and updates on our existing games. We won 14 awards. Most of those awards are international awards. And in some industries, awards are a bit of a vanity statement. But in gaming, that is not the case at all. An award will be seen by the gaming community as a fantastic badge of success, and therefore, the sales that are triggered because of that award are very, very clear to see. So winning awards has a major effect in terms of sell-through. The strategic review in Games Label was the significant thing that we had to go through and that we went through at the back end of last year, and we've got hugely improved operational controls. And we've also strengthened our leadership team and our Board. Our Board is an incredible Board of business experts, but just as importantly, gaming experts in terms of Frank Sagnier, who is the CEO of Codemasters obviously sold to EA and also Debbie Bestwick, our Founder who understands the business, who sits on the Board. And now we've got a Board that can challenge in the right way, can add value in the right way. And I feel really, really blessed to have those individuals working on the Board. But I just want to spend a couple of minutes now before I hand over to Mark, just talking about Team17 Games Label, astragon and StoryToys, just to give you a bit of an insight into the year of 2023 within those businesses. So Games Label, and I've already touched on this, the strategic realignment within that business was absolutely critical. But the business did grow from a revenue perspective at 12% and launched 11 new titles in the year of 2023. Our 5 best-selling titles in 2023 had Steam user scores of 91%. And again, that is absolutely critical. It shows that we are really, really good at signing great titles because if you don't get a positive user score on Steam, then your game is not going to sell. And I can guarantee that to be the case. So the fact that we're getting scores of 91% across those titles shows that we're very, very rigorous in a greenlighting process, and we sign the absolute best there is in the marketplace. We have popular sequels to titles like Blasphemous and Moving Out, and Blasphemous 2 and Moving Out 2. And again, that's really important to look at the lifecycle value that is generated through that. I've mentioned awards already, but Dredge, Blasphemous and Moving Out did really well from an awards perspective. But the most important thing is the word focus and refocus on proven historical indie games investment models. So we know the scale and the size of investment that we want to make around those titles, and we need to make sure and we have made sure that we don't go above that. A number of titles we've signed over the last 4 or 5 months have actually been below the investment model limits that we set ourselves. And that's absolutely fine. Because just because you're investing a lower amount in a game doesn't mean that game is not going to take off and fly in the way that it needs to. And Dredge is a brilliant example of that. And we've also got normalized marketing levels now. So we've got our marketing levels to a place where I feel very comfortable that they're at, but also we're not spending in the way that AA publishers will spend. We've got the right levels of investment around marketing for what we are, which has been an indie publisher. If you look at astragon, a year of franchise growth, so 5% organic revenue growth, and that's against a very tough comparative in 2022, where astragon launched 4 major first-party IP. So to beat the figure from 2022 where 4 first-party IP were released is an incredible performance. And if you were to exclude the box sales or the physical sales as they're called, total digital sales grew for astragon by 10% in a relatively flat market. We launched 2 new third-party publishing titles, 16 paid DLCs, and the paid DLCs are so important within the world of working simulations because you play the game and you fall in love with the game and then you want things that are updating that game on an ongoing basis. So again, we're investing the right amount of time, effort and money in terms of DLCs against our existing IP. Police Simulator is firmly established as a key franchise for the business, and that's really, really good to see. And we did market and physically distribute 45 separate third-party releases. So even though that type of business is lower margin for astragon, it's a really, really important part and the fact that we're distributing 45 titles shows that we are held in very high regard when it comes to our physical distribution strategies. We also completed the acquisition of Independent Arts Software in April, adding 45 heads to the business, and they are working on first-party IP development for astragon simulation titles. And finally, StoryToys. What an incredible acquisition, another year of significant growth, 26% organic revenue growth against the declining mobile market. And the thing that fills me with most confidence and joy about StoryToys is the fact that they're expanding and developing even deeper relationships with those licensed partners. And obviously, astragon -- sorry, StoryToys apps are targeting 2 to 6-year olds. And what we do know about that target audience is parents have a huge amounts of trust for the likes of LEGO, the Walt Disney, Marvel, Mattel, Sesame Workshop, all of the license partners that we work with provide that trust. So therefore, parents are far more likely to subscribe over a period of time when it comes to our apps and the updates against our apps. And when you look at the updates, we updated 327 app updates in 2023. So it's almost 1 a day. And that's really important in a subscription model. You need to be feeding those subscriptions or those subscribers with new areas of the apps that's actually being developed. So a really strong business in great growth with fantastic license partners. But it's all well and good talking about that. I'm a big fan in actually showing what we do. It's good for me to talk about it, but what we've done is pull together a very short showreel that just brings to life the games that we launched in 2023. And so I'm going to play that very quickly, and then Mark is going to present the numbers and the impairment figures and the capitalized development cost and a lot of the things that you guys will be rightly so, very interested in. [Presentation]

Thanks, Steve, and welcome, everybody to our roadshow presentation, second time we've done this as a webcast. So it's important that we do get the chance to share the messages with all of you guys. And that showreel, I think, does demonstrate, as Steve says, and brings to life what we do as a business, which is creating brilliant games. And some of those you'll have seen a part of the messages of the story behind the financials for the year. So overall, look, the group has consistently always delivered growth, and we're very proud of that record. And 2023 was no exception. Really pleased as Steve has talked about the 12% growth overall for the group, and that's against the market -- a games market that had a growth rate up 3% according to Newzoo. So what we are doing in those revenues just as an aside is, we're having to accept and acknowledge digital -- mobile digital sales that go through the Apple and Google platforms on a gross basis. So normally, all of our sales and in the past have all been at net, and that's net of the platform fees. But now because Apple and Google, their contracts relate to them being the agent in the process, we're reflecting those sales through their platform as growth. And that only really affects StoryToys. And we've adjusted the prior year. So there's no difference in comparing year-on-year in terms of growth, but it does add $6 million to the revenue figure for StoryToys. What you'll notice, though, through the P&L is because of that, it doesn't change any of the statutory numbers in terms of value, but it does have an impact on margins, but I'd say it's been adjusted for prior year as well. The good message from our side is that, that growth picture is spread across all divisions. And I think that shows the breadth and the balance of our broadening portfolio and the strength of that is our business model, which is what we're all about is building out that portfolio. StoryToys led the way with a 26% growth rate. And Steve talked about how they've been broadening their license partnerships. And in Games Labels, it was behind that at 12%. astragon delivered 5% growth, which actually is a very good performance against a very tough comparative year in 2022, a year in which they launched all of their own IP simulation titles as new updates and new releases. So just going into a little bit more detail through the revenue side. Although there were no major own IP launches in 2023, the own IP is held firm. In fact, 4 of the top 10 selling titles by revenue are our own IP and then spread evenly across the Games Label and astragon, led by 2 titles, I guess, Hell Let Loose, which you know we acquired from our own third-party titles to become own IP back in 2022, and Police Sim, which is the one of the astragon's own IP simulation titles, which we launched out of full release only at the back end of 2022, and it's now their lead selling simulation title. I guess the real story on growth is the third-party titles and that grew at 20%. And standout performance was Dredge, and Steve's talked about the accolades and awards that that title has received. That also helped drive new releases, but new releases benefited from strong Games Label growth on new titles, not only Dredge, but also Blasphemous 2 as a really good performer as a sequel to Blasphemous, which was launched a couple of years ago, and then also Trepang 2. Oddly called Trepang 2, it's not actually a sequel, but for some reason, they decided -- the developer decided to call it Trepang 2. I guess for us, underlying business on the revenue side for titles is the balanced portfolio that meant we delivered a 10% growth in that back catalog. And that back catalog continues to grow. It's now up to GBP 114 million in revenue terms. And as Steve talked about earlier, it represents 71% of revenues. And I think that's an enviable part of our business that most other companies in the gaming sector would love to be able to have such a strong back catalog. And as I think some of you will know, we define the back catalog as those titles we launched in the prior financial year or earlier. So we keep topping up the back catalog each year with those new releases. And then it's all about those -- the strength in lifecycle management across both our marketing and sales teams to extend the lifecycle of key titles in the back catalog. So just going into a bit of detail on the gross margins, because despite the top line growth, we saw gross profit fall and it fell to GBP 58 million at a 36% margin. If we pulled out the impact of those impairments on titles, then obviously, that margin would get back up to about 41%, but still below the prior year. So the significant impact on margins came from those one-off noncash impairments of titles. And we identified this and talked about this in our update at the back end of last year in November. And as you expect, we've been through a very detailed review of all of our titles and not just those that are already launched, but titles that are in development for future launch. And a number of titles were affected here. It's not just 1 or 2. The vast majority were 2022 and '23 titles, and Steve alluded to this earlier in terms of that's where there's been a bit of drift into titles that have underperformed or had a higher level of investment. And equally, there were a couple of titles that were for 2024. And what that's about for us is looking forward at the potential that those titles have in future in terms of cash flow and matching that and assessing that against the carrying value. And we had to take the view of impairing those titles to the tune of just over GBP 11 million, GBP 11.1 million. And we're confident, though, that that's been a very detailed review, and it's a one-off adjustment. We don't expect the surprises that we saw in 2023. In terms of the other driver on gross margin was the mix effect, and this will vary year-on-year. So the mix effect had an impact on margins. And firstly, I've talked about really the third-party titles were higher in terms of sales mix than we had anticipated and has to do with the success of some of those titles that I've already talked about. Equally, within those third parties, we have some titles with some slightly higher royalties. Look, as a business, we take several Dredge titles with a slightly higher royalty payments to the development partner for the success that, that title had. And then if you look at own IP, the mix of astragon's own IP in terms of revenue was slightly higher than it had been as compared to Games Label's own IP titles. And actually, what the difference that makes is, and Steve had the bubble chart, that's the second chart to the right-hand side, astragon have dedicated third-party developers as partners, and they pay royalties to those partners. So they are incredibly strong titles, but they do have a royalty aspect to those. So overall, royalties for the year this year as a percentage of sales in 2023 were up to 30% compared with 26% in the prior year. So that has an impact on overall profitability. In addition, expensed development costs, and these are all of the costs within the studio that are attributed post-launch and in particular, for developing free DLC content. So overall, we had a 45 DLC updates during the year, and as you heard, over 300 app updates for StoryToys. But in addition, we supported more live titles such as Hell Let Loose. And that's had an impact on the amount of costs that are expensed through the P&L. In addition, Steve talked about the restructuring that took place in Games Label in the U.K. And the majority of that impacted the studio. And so of the GBP 1.2 million of restructuring costs, GBP 1 million were allocated into the studio, and they were taken through the expensed development line. So they won't be repeated going forward. And that meant overall that expensed development costs were up at 10% as a proportion of sales compared with the prior year at 7%. So you can see the impact of those small changes. I guess finally, the other driver within cost of sales is capitalized development amortization costs. So this is where we're charging back all of the costs that we've incurred in the development up to the point of launch and they charge back post launch. And just as a reminder, we're fairly prudent here. And for the Games Label, we amortized that back over 2 years with 70% in the first year. And for astragon and StoryToys actually it's 50% in the first year, and then it's spread over 3 years, so it's 25% in each of the second and third year. So it's quite an impact in the first year of launch. And what we have seen is that's elevated because of the ongoing impact of some higher level of investment in titles within the Games Label over the last 2 years. And as you heard, that's been reviewed as part of that reorganizing and restructuring process so that we will start to see that fall over time as the investment in capitalized development cost reduces. But we will -- we're seeing that flow through into -- we saw it flow through into '23, and we'll see it flow through slightly into 2024. The other block -- the other cost block within the cost of sales relates to physical goods, cost per goods sold. And that's predominantly within astragon. And we will see that fluctuate as they get their third-party retail partners selling into retail box product. And as they launch new titles, then that tends to fluctuate across the years. So looking at adjusted EBITDA. So given the abovementioned impacts on overall performance, we've seen adjusted EBITDA fall and it fell to a level of GBP 30 million. As Steve mentioned earlier, if you add back the title impairments, that comes back up to GBP 41 million. I guess the most significant impact within admin costs is the impairment on the label...

I think we've momentarily lost Mark there. Ladies and gentlemen, please do bear with us. We'll just bring Mark back through. [Technical Difficulty] Mark, can you hear us okay?

Yes, I can.

Lovely. You're back in the room, sir.

Apologies, everyone. That's technical challenges with connection in the Internet. So I think I was talking about the internal challenges we had with the label in terms of our strategic [indiscernible] for delivery of that title post -- of that business post acquisition. But there are also some fairly important external factors. So the years prior to the acquisition, mobile have been growing at double-digit growth rates, and we saw it as a -- and still do, by the way, as an opportunity to engage in the mobile sector through subscription business. But actually in 2022, with changes to advertising and in app, even though subscription isn't impacted by that, the mobile market declined 7% and it declined again last year by 1.5%. And that meant that there was more competition on that -- on the mobile platform and less funds available to support new development. So our ongoing revenue streams from performance bonus payments reduced quite markedly. And then Apple reduced their investment to bring new titles on to their platform. And that had an impact on our overall development pipeline, and that's dramatically reduced the sort of income flows and performance of that business compared with our acquisition. We do still see it as a viable platform for growth in the future. We've in fact put the first of our own back catalog titles within Games Label into development with Team17 USA when we expect to see that, it takes around about a year to get that through development cycle. So most likely, that will start flow through into early part of 2025. So there is an opportunity for us to put more of that back catalog of the Games Label, but there's also a much tighter strategic focus on the business to be able to drive the business development pipeline. So that's a big factor in the admin cost. And of course, again, that's a one-off impairment cost, it's not cash related, but it had an impact on all of our statutory measures. And as discussed, Steve has mentioned, there were some other cost pressures. And in marketing, particularly, we've seen over the last 2 years the increase of marketing spend on trailers and investment in marketing against some of those larger investor titles. And we've addressed this already, and we were able to reduce the overruns, if you like, on marketing spend after the first half, and we limited it to about an increase of just under GBP 1 million versus the prior year by year-end. What we saw over the last 2 years is as a percentage of sales, the marketing spend had almost doubled as a percent of sales. And actually, we've reduced that back down to historic levels going forward. So we're already going to see a reduction in that going forward into 2024. Staff costs were actually lower than the prior year, but that doesn't reflect the reductions. That reflects -- because the reorganization process took place right at the end of the year, it reflects the performance of that business, and therefore, no bonuses were paid in the Games Label and at group level. The administrative costs of the reorganization with admin, so the non-studio side, accounted for about GBP 200,000 out of that GBP 1.2 million. The flow-through of the savings from headcount reductions within the commercial teams that impact admin costs will deliver around GBP 700,000 of future savings in 2024, and that's around 10% of staff costs. So overall, there is an increase in admin costs because of the impairment charge. There's also some just under GBP 10 million, GBP 9.2 million of acquisition-related costs, and that's had a significant impact on all of our statutory measures. But if you back out the one-off noncash charge of GBP 32 million, you get back to an adjusted EPS of around 17.6p, so down on the prior year because of the other impacts that we've talked about. But we see the changes that we've made and the backing out of those one-off impairments will not have the same impact as they've had in prior years. So we've learned a lot of lessons in -- tough lessons in the back end of last year around the cost controls. We've got tighter control limits. We've got a Board as Steve mentioned, that's got lots of gaming experience and more focus on holding us to account as an exec team and our senior team. And we've got more rigor around the sort of controls and the review processes. I think that's put us into a stronger position going forward than we have been in the past. So, kind of key movements on the balance sheet really are all about the goodwill and intangible that they've dropped as a result of those impairment charges. Capitalized development costs have continued to rise, and that's an effect of the investments and the decisions around -- as Steve has talked about, slightly enlarged investment decisions on larger titles, and it increased to GBP 32 million in the year, but that increase is slowing down. And actually, because of the recentering of the Games Label approach to lower investment levels, it doesn't mean the smaller titles necessarily. It means we're managing that to a tighter level of between GBP 1 million and GBP 1.5 million. Quite a few of the recent signed titles are below GBP 1 million, so it doesn't mean they'll all be in that level. We're going to start to see that having an impact to reduce the investment levels and capitalize development costs within the Games Label. That will be offset by increases in astragon and StoryToys and particularly astragon where we're seeing the value of their own IP simulation titles, and they're broadening that out. They've got 4 currently that are out launched on sale level. So got 2 more new own IP simulation titles in development. So we'll see it increase slightly in '24, but actually the direction is to be reducing as a percentage of sales going forward. So in terms of the rest of the balance sheet, look, we remain very cash generative, highly cash generative. We are retaining our clean balance sheet and conservative approach to charging back capitalizing on the costs over a sort of 2- to 3-year period. We're seeing the final of the earn-outs being paid in 2024, so they go out in Q2. So that generation of cash from operations will start to increase and improve our reserve -- cash reserves towards year-end, subject, of course, to any further M&A activity. So I think overall, it means we retain a really strong balance sheet, and that gives us in a position with the improving cash reserves to support investment both in our development products and titles as well as any future M&A. So I think I'm handing back over to Steve.

Thanks very much, Mark. I just got 2 more slides to present, and I'm conscious of time because I know there are some questions that have been sent through that we want to get stuck into. So the first thing I just wanted to touch on is the investment case for Team17 Group and why not, surprisingly, we think it's a really attractive investment case. And the points that I want to raise here are the points that I think are absolutely fundamental to the business. And the first is around IP and talent. So we absolutely have the IP, the first-party IP that I feel is always super strong, and we've got really exciting plans for that moving forward. And just as importantly, we've got the talent, we've got the breadth and the depth of talent within the individual parts of the business to make sure we are geared up for success and growth moving forward. The proven franchise creation and lifecycle management skills, I've touched on this quite a lot during the presentation. We shouldn't underestimate the importance of it. When I talk to Xbox or PlayStation or Steam, they say we're 2 or 3 years ahead of anybody else in the market when it comes to our ability to be able to realize value in the medium to long term when we're looking at our IP. The importance of back catalog and how dependable and strong our back catalog actually is and a track record for market-beating growth, and again, Mark has spoken about that in a bit of detail and yet disappointing from an EBITDA perspective, but from a revenue perspective, 2023, even though it was a tough year, showed market-beating growth. A strong balance sheet, cash generation and M&A optionality, again, which is a really important point in a market that I think there are big opportunities moving forward when it comes to M&A. But if we look at the outlook and if you look at 2024 as a specific, the actions are absolutely in place to accelerate revenue and profit growth. We expect to launch at least 10 games throughout the group during 2024. And the mix in 2024 is skewed to third-party IP. That will change as we move forward. But 2024 is very much about that. Continued cost discipline. Mark's focus and my focus is very much on the running of the business, making sure we learn from the mistakes that were made in 2023, don't make the mistakes again and set the foundations to make sure 2024 and beyond are really successful years for us. And we've had a good start to the year, and our underlying trading performance is in line with market expectations, which is positive for us to say. But if you look at the midterm, higher weighting on first-party IP, very clear plans against our first-party IP, what we're going to do, when we're going to launch and the areas around those. More flexible publishing models, making sure we're listening to what developers need and want, and that goes back to the point I raised earlier about the high added value strategic parts of our business rather than the parts of our business that are less value add. Marketing innovation, marketing disruption, making sure our marketing is that much better than it's been and making sure that we are delivering truly disruptive experiences. Greater realization of group synergies, making sure that the group as in the parts of our group, the whole is greater than the sum of the parts that we're sharing skills and resources, and we feel like a group rather than individual businesses. Rising cash generation and active M&A strategy. And that active M&A strategy is very much in the midterm box because 2024 has to be around focus on the business and making sure that we deliver against what we said we're going to deliver. So the final thing is just one more showreel. It just shows the games that we're launching in 2024 and beyond. If any of you have eaten lunch, there's one of the titles that if you're quite squeamish, you might want to look away. It's called Autopsy Sim. So the clue is in the title of the game. But if we could play the video, and then we'll open for questions for Mark and myself. [Presentation]

Perfect. Steve, Mark, [ and James ] just jump in there and thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab, which is situated on the right hand corner of your screen. But just while the company takes a few moments to read the questions that have been submitted today, I'd like to remind you that recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard. As you can see, we have received a number of questions throughout today's presentation. And James, if I could hand over to you at this point to chair the Q&A, that would be great, and then I'll pick up from you at the end.

Great. Thank you very much, and thank you all for your questions you've submitted during the presentation. I'll kick off with one for Steve. What strategies are in place to attract and retain top talent within the industry?

We -- obviously, attracting and retaining the best possible people in the marketplace is going to be critical for us moving forward. And I think making sure that we have an opportunity for the leaders within the businesses and also the talent that has the potential to grow into bigger roles. I think the fact that we're acting and thinking more like a group now than individual businesses gives the leaders of astragon, StoryToys and Team17 Games Label an opportunity to get involved and share some of the skills they have in other parts of the business. Suddenly, they're playing on a bigger playing field while still leading the charge when it comes to the areas of specialism they have within the business. So there's no -- just to be very clear on that, there's no intent on bringing all of those businesses together to create one super business. That is not the plan at all. But what we are doing is looking at the areas of specialism and the career aspirations that our leaders have to be able to allow them to influence and impact things outside of the day-to-day of their running. So I feel as though we've got a really clear plan. I've had good detailed sessions with all of the individual leaders within the business to work out what it is that they want to do, what they're excited about. And the vision that we've spoken about and the strategy that we've spoken about within this presentation is something that we're all aligned on, and people are very, very excited about where that's going to take their individual careers moving forward.

Thanks, Steve. And one for Mark. Can you please highlight some specific actions taken to prevent the cost overruns in 2023 occurring again?

Yes. So I think we've touched on this through the presentation in some points. So firstly, I think it's about setting a clear focus on what we see as the range of investments within levels within Team17 Games Label for third-party development partners, so GBP 1 million to GBP 1.5 million. And that means that that's not the complete. So we've signed some titles that are below that level, below GBP 1 million. And we may still sign some that are higher, but actually as a focal point for the game scouting team, it's really clear. That's reducing the investment. It doesn't mean to say, as I said, that that's necessarily smaller titles in terms of their delivery. Dredge, as an example, delivered -- it became our #1 selling title for 2023, and our investment on that was less than GBP 1 million. But I think what that does is that helps us manage games that are signed and manage the investment levels going into those games. I think it derisks the chances of the higher level of investment games not making the returns. So it's a way for us to manage that process. Then we put in place more rigor around the development -- the review of development costs through the development cycle. So more frequently, more visibility of them at a higher level and also that brings up to both group level with Steve and myself with the individual businesses, but also at a Board level. So there's got a lot of visibility on it. We talked about marketing costs. That was an area that overran. And in truth, the controls should have been tighter to avoid the business in the U.K. being able to invest more money in marketing, but I think that was aligned to those larger titles. But we've actually put the limits back to put marketing spend as a percentage of sales back to the lower levels that they were prior to the last 2 years. So that will have an impact on managing those costs. But overall, it's -- there's been a reduction of the authority levels across the business, and not just in the U.K., we've spread this across the group. And we've got delegation levels that now mean that there's more of the larger investment type decisions are going to Board level as well. So there's a raft of those kind of controls, and our 100% focus from Steve and I, and certainly myself and the team, in the finance side is on commercial discipline and rigor about that through the year.

Thanks, Mark. Maybe this one is for Steve. [indiscernible] your M&A priorities and what sort of acquisitions might complement the existing portfolio?

Yes. The M&A marketplace is pretty active at the moment not surprisingly because a lot of developers, a lot of studios are looking at what's next for them. So we're not short of opportunities that are coming our way. I think we've proven over the years that we are very, very selective in terms of what we acquire. And that's why you can see some of the acquisitions that have been made have been super successful when it comes to the business. As I said, with Frank Sagnier as our Chairman and Debbie Bestwick on the Board as well, we've got 2 people who are very connected within the world of gaming and also are contacted on a regular basis when it comes to the potential M&A opportunities that can be brought into the business. Obviously, when you look at M&A, you could look at a number of different areas. One area could be IP. So Hell Let Loose is a good example of IP that we have acquired within the business that we have continued to grow to realize really positive value. The benefits of that is there's no major cultural integration because you're not actually integrating people within the Team17 Group. So you can see how there could be a benefit when it comes to first-party IP. But there are also a number of studios and publishers and developers in the marketplace who are very interesting to us as well. But as I said earlier on, our focus absolutely in terms of the executive team of Mark and myself is very much on the day-to-day delivery, cost discipline, making sure that the operational controls are firmly in place. And then when M&A opportunity does come through, we will look at it, but the Board will have looked at it and make sure that we're developing the right amounts of -- or the right balance around what we want to be doing moving forward. So it's not a short-term priority, but it's definitely something that will happen in the midterm.

Thanks, Steve. Mark, do we expect to deliver revenue growth in 2024, which the current consensus doesn't imply? And what is the midterm revenue growth outlook [indiscernible]?

Yes. I think this is probably linked with not all of the analysts in the marketplace have adjusted their numbers yet. So I mentioned on my piece on the revenue side that we have -- this year had gone through the process of taking the policy of accepting the digital mobile sales through Apple and Google at a gross level. So I think what the numbers in the marketplace are yet to be adjusted. So it looks like they're going backwards. So when they get adjusted, you'll see a growth. We've typically -- we are cautious and careful in our guidance to market. We're looking at sort of low-single-digit growth rates in 2024, and that's probably fairly well aligned to Newzoo and games market estimates for growth picking up from the levels they were lower in the last few years to low-single-digit growth in 2024. So we're cautious. We're kind of confident that we can deliver that. And as Steve says, our focus is on getting back to the sort of delivery and consistent delivery that you're seeing from Team17 as a group since IPO and moving on from the challenges we had last year, but it does include some level of growth. And as we get through the year, we will -- if there's anything to update on that, we will update the market. We've had a pleasing start to the year, but the year is still challenging with competition and discounts in the first quarter. And we do still have, as we have had for the last 2 years, a more heavily weighted H2 for new releases. But so all that taken into account, we are still guiding to some growth in 2024.

And then Mark, as we have you, just a question about why we present adjusted earnings measures as well as statutory reported earnings.

Yes. So I saw that point. And look, we feel that the adjusted measures are appropriate to show the underlying trading. Clearly, this year, some of the impairments are adjusted. So when we adjust out all the acquisition-related payments on adjusted EBITDA, then the label impairment does get taken out of there, but the title impairments don't because they are equivalent to effectively accelerating your amortization charge. So I think one of the points on the [indiscernible] question was, it looks like you're presenting an adjusted adjusted measure, and that would be the case. But we're not hiding behind the fact that the actually adjusted measure for EBITDA is GBP 30 million. We're just making the point that it's a one-off noncash adjustment. But actually, our adjusted measure is GBP 30 million. The statutory measure is a loss, but they do include a GBP 1.1 million loss. They do include GBP 32 million of noncash one-off impairment charges. So you're absolutely right. The intention is not to try and create an adjusted measure of an adjusted measure and be really clear about it, and we tried to not hide behind that, but it was just making the point that they do get backed out, and you won't expect to see those repeated next year.

Thanks, Mark. And we're almost out of time, just maybe one final one for Steve. How is the employee sentiment and engagement in Games Label at the moment? And how are you adjusting this through for engagement this year?

Yes, it's a good question and something we spend a lot of time looking at. Obviously, when you go through any form of restructure, as we've had to in Q4 2023, it does send a message to the business that needs to be picked up on an ongoing basis. And what we need to do there and what we've done over the last 4 or 5 months is almost overcommunicate, making sure they understand absolutely what our strategy and what our vision is for the business because the problem we had before is because we were sort of zigzagging into bigger titles, then we go back to indie and then we were going back to bigger titles. There was no real clarity around the type of business that Team17 Games Label actually wants to be moving forward. So we have that clarity. We've got everybody within the business together face-to-face, third week of January, and we're continuing to do that. We have town halls on a monthly basis. Whenever I'm in either Wakefield or Manchester, I have, what I call, sort of deep dive focused groups with up to 10 individuals each time to get a real feeling of how people genuinely feel about the business. Obviously, there's been disappointments because friends and colleagues have unfortunately left the business because of our restructure. But I genuinely feel that Q1, we're in a much better place. Our attrition rates are lower in Q1 than they were in Q4, and the general feeling of positivity within the business is there to be seen. If I'm being honest, I think it's going to take us another 6 months to get to the place where I would really like it to be when it comes to the prior trust and camaraderie that you need within a business like Team17 Games Label, but we are definitely on the right path when it comes to that.

Great. Thank you. Well, that's all the questions we have for now.

Perfect. I might jump in there. And before redirecting investors, provide you with their feedback, which is particularly important to you all. Steve, could I just ask you for a few closing comments?

Yes, of course. The first thing I'd like to say is thank you all for giving up your time to listen to Mark and myself and actually pose the questions that you have done. Obviously, 2023 was a challenging year, a really challenging year. And the lessons that have been learned are there very clearly for us to share with you all today, but more importantly, for Mark and I to make sure that I never sort of -- they never happen again within the business. So it's painful. It wasn't the year that we would have wanted in 2023. I've come into a business that I'm still very, very proud of. I think we've got some fantastic people, some great foundations, some great games, some great acquisitions have been made. And I genuinely feel very positive about 2024 and beyond. And I'm hoping that people feel that the transparency and the openness in terms of this presentation and our strategic vision that we have as a business is going to help them understand what we want to be moving forward rather than what we are today. So that's all I wanted to say, just thank you very much for your time, effort and believing in the business. So thanks very much.

Perfect, Steve. Mark, James, thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected, provide your feedback in order that management team can better understand your views and expectations. This might take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of Team17 Group plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.