Ubisoft Entertainment SA (UBI) Earnings Call Transcript & Summary

Welcome everyone and thank you for joining the call today. Before we dive into today's announcements, my first thoughts go to our more than 1,000 Ukrainian team members. I want to reiterate our unwavering solidarity and we will keep on doing everything in our power to support our colleagues as they go through those extremely difficult times. Let's now turn to today's communication. The past 2 years have been intense for Ubisoft and the industry. During those demanding times, our teams have showcased amazing resilience. As an organization, we have demonstrated that we can rely on dependable brands, prediction, and technology assets, which are stronger than ever at the time when the value of assets has never been so high. In the context of meaningful challenges, notably the adaptation to nee hybrid production models. We have delivered this year on key strategic priorities, namely, growing our major brands, building an increasingly recurring business, and implementing profit transformation to our organization. This transformation is intended to both capture the many great opportunities our first evolving industry has to offer, and build a more inclusive workplace. We have appointed new leaders across the company and evolved our capital location decision-making process. We have also expanded our executive committee and continued to build the best-in-class governance. We welcomed back last year more than 600 talents, reflecting our continued strong attraction as a great place to work. We have also made significant additions to our teams in the resent months, from industry-leading producers and creators, to highly recognized experts in artificial intelligence and programming. We have increased the woman share of total workforce and we have ambitious plans to continue growing that share. We are now entering a new multi-year phase of significant topline growth, spurred by the major progression of our investment over the past years and what is the biggest pipeline in the company's history. We have ambitious plans to grow our biggest franchises with notably 4 promising mobile games under development, and to expand our overall portfolio with new IPs and massive entertainment license parts. We are definitely trying our operations through more business model, more platforms, and we are continuing to grow our recurring product. As a consequence, we expect a significant progression of our operating income, something in fiscal year '24. The last comment, before I let Frederick detail our full year performance. There has been a lot of talks around consolidation in the industry and in Ubisoft in particular. Our overall position is scale and well known. As we said, last February, we have everything we need to remain independent. We have the talents, the industrial and the financial scale, and the large portfolio of powerful IPs to create massive value in the coming years. This has provided us with a plan to build strategic partnership with the biggest players in the entertainment and tech. The current speculation is putting in plain sight, the real appeal and value of our assets and of our value creation potential. As mentioned before, as a public listed company, it is standard and best practice for our board to review any offer in the interest of all shareholders and of our great teams. We will not make further comments on his topic, or comment remarks. I will know let Frederick detail our full-year performance. Frederick.

Thank you Yves. Hello everybody. Considering the challenging environment you've mentioned, we have been able to deliver a solid performance in fiscal '22. It has been built on our 3 biggest brands, each delivering well over EUR 300 million and our stream live services on the depths and strengths of our portfolio, as well as on our continuously increased capacity to value our brands through high-value partnerships. We've reached 132 million active unique users in the fiscal year, down 7% your year. The use stood at 37 million, down 9%, versus the record levels produced last year, which noted here, reflected an impact of lock down on total engagement as well as the user acquisition for [indiscernible], versus 2 years ago, active, unique users and average revenues were respectively 12% and 9%. In an exceptionally high competitive environments. Q4 net bookings reached EUR 664 million, very strongly up 37% year-on-year on the back of the Rainbow 6 Extraction, Assassin's Creed Dawn of Ragnarok, and [indiscernible] collection releases, some personalized content on live games as well as 2 DLCs being released on Far Cry 6. Fiscal 22 net bookings reached EUR 2.1 billion down 5% year-on-year. Back catalog was at 11% year-year and at 29% versus fiscal '20, cementing the increasing year recurring profile of our business and represented 67% of our total net bookings. This growth catalog performance reflects a significant value outlined in our deep and well diversified venture franchised. As I just said, our 3 largest brands each generated well over EUR 300 million of net booking and grew versus the respective comparable dates. Successful net bookings nearly doubled versus Fiscal '20 of prior release free year on the back of a stellar Assassin's Creed Valhalla performance fueled by a strong pursuant program which continued to see year-over-year growth in unique active players. Valhalla reinforced its position as the second-largest profit-generating game in Ubisoft history. To be noted, the remarkable performance of the other Assassin's Creed games impacted Odyssey. Far Cry had its best year ever, spurred by a very solid back envelop performance, and of course the release of Far Cry 6 which players deeply enjoyed with a strong personal brand. To be noted that Far Cry 6's first free weekend brought in a franchise record-breaking 1 million new players. Overall, the game posted very strong growth in playtime and PRI per player versus Far Cry 5. Rainbow 6 saw net bookings growth on the back of the brand expansion with the release of Rainbow 6 Extraction. Rainbow 6 Siege Year 7 Season 1 received very positive reception thanks to the introduction of significant components including a new operator, a new permanent game mode team deathmatch to ease onboarding, and a first new mapping fields. In fact, the week of the season one release was the game's fifth best week of additional content and bookings ever. Overall, the Rainbow 6 Siege acquisition of players grew nicely in Q4 versus the previous quarter. The team has a ton of exciting content plans throughout the year. Elsewhere in Ubisoft catalog of games, Brawlhalla and For Honor continued on their very strong trends and posted both unique active user and booking growth while Mario + Rabbids Kingdom Battle continue to be an ever-growing title. Total digital net bookings reached EUR 1.7 billion at 4% year-on-year and represented 78% of our total net bookings. PRI stood at EUR 813 million at 4% and represented 38% of our total net bookings, global amounted EUR 188 million. Let me now go into the details of our full-year earnings. Starting on Slide 6 in our P&L, gross margins stood at 87.3%, up nearly 2 percentage points, mostly reflecting the progression of digital bookings. SG&A were up 2% reflecting lower marketing expenses that were more than compensated by a higher investment in IT services and hosting, as we're preparing for upcoming significant topline growth notably for our direct-to-player non-CD businesses. Non-IFRS operating incomes stood EUR 408 million slightly below the low end of the target range. As we have said today, this reflects an exceptionally competitive environment during the last quarter. As usual, please refer to our press release or presentation appendix on the July 1 and non-IFRS reconciliation. Going now to slide 7, general R&D was both stable year-on-year and stood at EUR 783 million. Total cash R&D was about 8% year-on-year decelerating as expected, versus the average 17% per annum between fiscal '19 and fiscal '20. Cash R&D is now up 14.3% diverse since fiscal '19, all in line with our stated objective. This reflects our biggest pipeline of products ever to support our upcoming material significant topline cost. Looking at our cash flow statement on Slide 8. Free cash flow stood at minus EUR 282 million versus EUR 72 million EUR in fiscal '21. This mostly reflects the following impact; first and foremost, the EUR 241 million unfavorable moving changing working capital requirements. Second, the EUR 120 million decrease in cash flow from operations, driven by the decrease in net income and increased gap between cash and P&L. Of note, we bought back 3.2 million shares for a total amount of EUR 167 million in the calendar year 2021, of which around EUR 150 million were bought back in fiscal '22. Non-IFRS net debt to the EUR 283 million and available cash amounts to nearly EUR 1.5 billion. Today, we introduce our guidance for fiscal '23. We expect significant topline growth and EBITDA to approximately EUR 400 million. Fiscal '23 will be marked by a powerful lineup, with a majority of our topline growth coming from the premium side. Avatar: Frontiers of Pandora will leverage the power of our Snowdrop engine, with a beautiful rendering of the world of Pandora and will experience totally amazing universe created by James Cameron. Mario + Rabbids Sparks of Hope has been on the success of Mario + Rabbids Kingdom Battle by broadening the scope of the game and leverage the long-term partnership with Nintendo, as well as massive switches to our base, and is now one of our major games. We kicked off in March the Skull and Bones insider program and we can't wait for our lovely audience to put their hands on the game that brings a newly powered fantasy coupled with beautiful international setting and a deep social and multiplayer experience. And as we have already mentioned, there is also exciting content to come on the premium side for this fiscal year. On the free-to-play side, we continue to progress in our different testing phases. Roller Champions has gone gold and will be released this quarter. XDefiant, The Division Heartland, Rainbow 6 Mobile, and The Division Mobile are all underway. Some of these games are in their final stages of test and development and are set to be released in Fiscal '22. Regarding Ghost Recon Frontline, we have taken the play feedback during the test phase that took place earlier this year and the team is committed to take the required time to create an experience that hence the Ghost Recon franchise will love. Overall, our free-to-play line is promising. Meanwhile, we have set overall fair expectations. We expect there will be a meaningful driver of topline and PRI progression in Fiscal '23. On the cost side, this year's cost structure is notably impacted by mixed or bias towards new releases versus back catalog, including new brand launches, ramp up in the free-to-play segment, and by the fact games on mobile and Switch carry our gross margins. In terms of cash R&D as we're getting closer to the immediate care, to the [indiscernible] there's significant topline growth for the foreseeable future. And after 6 years of strong headcount growth we expect fiscal '23 to be the final of meaningful cash R&D growth, beyond that year it will continue to grow at a much smaller pace. We expect to generate a positive cash flow for operations in Fiscal '23 as the gap between P&L and cash R&D is expected to narrow. I will now mention a few Fiscal '23 housekeeping items for modelling purposes. The stock-based compensation is expected at around EUR 75 million. The non-IFRS net financial trough is expected at around EUR 18 million and non-IFRS tax rate is expected at between 30% and 35% and the number of diluted shares is expected at around 128 million shares. Looking at Q1, we expect net bookings of approximately EUR 280 million reflecting general products. As a reminder, last year Q1 saw the release of the highly successful Wrath of the Druids DLC from Assassin's Creed Valhalla, and [indiscernible] many deferred revenue of the high areas [indiscernible] Finally, as I've said, we have been building the biggest pipeline of games in Ubisoft history. Our goal is to massively grow our audience and increasing our ongoing business. We have many titles in development for all our biggest franchises, new promising brands. All these across platforms and business models like Ubisoft mobile. We are also creating games based on the biggest entertainment licensed brands. We have been investing in exciting new technologies that can deliver meaningful breakthroughs [indiscernible]. It is a promising and powerful asset that will generate significant growth for the coming years. We are now ready to take your questions.

[Operator Instructions] The first question comes from the line of Omar Sheikh from Morgan Stanley.

I've got a couple of questions. I will do them one at a time. Maybe first off, Frederick, can I just about the guidance for '23. Could you maybe first of all quantify what you mean on topline growth? Are we talking high single-digit, low double-digit? Some clarity on that would be helpful. Then how should we think about essentially the margin progression that you're guiding to in '23 verses where you think it will get to longer-term? If you could maybe discuss the margin in '23, essentially, the split between the core AAA margin, the premium game margin, and free-to-play mobile investment, and where you ultimately think EBIT margins might be able to get to in the next few years, and then I will have a follow-up. Thanks.

Yes, in terms of the guidelines for the topline, we expect a high double-digit, topline growth. In terms of the margin production in fiscal '23, yes, as we've been saying we're installing the company to go after the most working profile for the future years. And that's why in fiscal 23 we are investing into installing our free-to-play games including mobile, to get to maybe bigger audiences as non-recurring revenues. We are coming up with new IPs, and that's of course set us to go for meaningful, significant growth in terms of topline for the coming year starting in fiscal '23. And on the back of these strong and significant top angles in the coming years, we expect operating income to grow meaningfully and we should expect operating margin to grow over time.

Sorry, just to follow up on that Frederick. In the past you've said that's core I guess AAA or premium gain margin is in the region of 25% EBIT level. Is that still the case?

Yes, last year, it was indeed not 25%, we had said that we weren't coming on this metric every year, but we continue benefiting from a strong operating margin on the premium side.

Okay, great. And then just maybe a follow-up then to Yves. Yves, I wondered, you don't want to comment on consolidation in the industry or speculation, but your share price has been pretty weak over the last 2, 3 years, largely because the progression in profit, free cash flow, and margins has been, you know, fairly disappointing, certainly for 3 years in a row now. So how do you think about timing the recovery that you're now seeing in '24? If you see further investments that might pay off longer term, would you anticipate pushing a profit recovery further out? Or do you think it's now important to start delivering profit and free cash flow growth from next year?

Thank you for the question. Yes, our goal is really to come with all the effort we've made to create a large portfolio of games, starting in financial year '24, with you know good growth and good profitability. So we are doing everything to make sure all those gains plus the back catalog will generate more profit and more cash flow. And our plan is also to reduce investments starting next year.

And so would you say it's a priority for you to deliver strong growth in profit and free cash flow in '23, '24? Or do you think it's still possible that you could push it back another year?

So what we're saying is that we go for significant corporate growth in the coming years, and that we'll concentrate into significant growth in operating income in fiscal '24 and beyond. That means that the core of the operating income in the next years will come from this topline growth. But of course, we should expect profitability improvement on the basis of around 20% we've seen over the last years. And we are trying to be positive on the cash flow operations in fiscal '23, we will still see meaningful growth in R&D this year, in fiscal 23, but as we've seen, we've been decelerating R&D this year. And as he's said, fiscal '23 will be the last year of meaningful growth in R&D as we decelerate R&D growth in fiscal '24. And that of course will translate on the back of this strong topline growth in cashflow generation report.

And we plan to have also mobile run games also in '24 as well.

Next question comes from the line of Nicolas Langlet from BNP Paribas Exane.

Yes. Hello everyone. I've got 3 questions. The first one on the mobile games that you announced November 6, mobile recently. Is it the game developed in collaboration with Tencent you were referring in previous calls? Or there is another advance mobile project with Tencent that could be announced in the coming quarters? Several question on Rainbow 6 Siege. So, if we exclude R6 Extraction, was the franchise growing into the year 2022? And you mentioned in credit scores a big plan to reinvigorate the engagement on Rainbow 6 Siege. Can you update on those key initiatives and what impact you expect? So, basically to expect 6 Siege to grow into year '23. And finally on the blockchain initiatives, so you made this initiative in Ghost Recon Breakpoint at the end of last year, what are the main learning from the test? Are you confident on the blockchain gaming compared to 6 months ago? And should we expect other initiative with existing franchises this year?

Yes, you're right. We recently unveiled a Rainbow 6 mobile that will be a very high quality or technical for the game coming on the mobile platform. So, that's a very exciting product that is being developed by the Montreal studio, that is the creator of Rainbow 6 Siege. So, the experience will be very true to the Rainbow 6 Siege experience, it's a key element, including destructible environments, notably, but with specific annotation, of course, to the mobile platform. And separately, we have games being developed in partnership with Tencent. As for the question on Rainbow 6, yes, Rainbow 6, grew as a franchise in fiscal '22, and the Extraction was the key driver to get there. As we had said back in February, we're exceeding more than 5 million players on Extraction, with a significant number coming from returning players from Switch. And at the same time, in the quarter, we've seen an increase in acquisition of new players for Rainbow 6 Siege. So, the overall franchise has been growing nicely in Q4. In terms of what we have in our plans for Rainbow 6 Siege, as you know, we recently announced, year 7, that will be the biggest year of content program and featured in array since launch. We are coming back with what made the success of Rainbow 6 Siege, which is a combination of new maps for the first time in 3 years, and new operators. So, bringing even more variety and diversity to the gameplay. On top of the key focus to improve onboarding to enlist even more acquisition and addressing the toxicity topic. And we've seen that the reception from this year 7 was very strong, and we've been reaching record IP few levels in March. As for virtual naming, as we've been saying, we've been investing on a number of future technologies, including cloud computing, Voxel and Web3. And that's a part of the DNA of the company, to prepare to bring out, integrate, explore before expanding. And we believe that these different key technologies will allow us to deliver very meaningful and value proposition for players with more persistent, more spectacular, and deeper social experiences and allowing players to express themselves in different manners.

Next question comes from the line of Ken Rumph from Jefferies.

Good evening. Could I begin just with a check on your wording about the meaning of significant net booking growth? You said I think high double digits. I presume you meant double digits rather than high single digits. Is that correct?

Hello, Ken. I said high double digits.

But that means 99% in my English. You mean high teens, or something like that?

But it's clearly lower than a low double-digit number. It will be a significant growth and the magnitude of this growth will be of course a function of the mix between premium and free-to-play games.

Okay. Great. Could I then ask, could you give us any sense of scheduling either of the premium titles? And I guess we all expect Avatar to come out alongside the movie, but any sense about Mario + Rabbids and about Skull & Bones? But perhaps more easily how many of the, I guess there are now 5 known kind of high-definition free-to-play projects. You know there's Heartland, Roller Champions, XDefiant, Frontline, Project Q, or whatever it's called. Did you say Heartland was definitely coming this year? And equally on mobile, I think did you say, you know, 4 projects? Obviously Rainbow is launching. But did you mention that the division mobile game also? Just to try and get a sense of how much we should expect this year. And then my final question, if I may, was you refer to a kind of evolved structural process for capital allocation. Could you explain a little bit what you mean by that or why it needed to change? Thank you very much?

So in terms of the timing for games to be released this year. So we have Roller Champions being released this first quarter, and our games, the other games are planned to be released in the second half of the fiscal year. In terms of the free-to-play games, we didn't mention the ones that would be launched this fiscal year beyond Roller Champions. They are all progressing well and we expect that we will have several free-to-play being launched this year across all platforms. In terms of the mention we made related to capital allocation, what we are looking at and it has been a process that we've been following over the last 2 years, is of course to make sure we continue adapting ourselves to the fast evolution of the gaming market. And what we are focusing on right now, is 3 areas mainly. We invested more into our biggest IPs across all platforms. We've been very happy to see our biggest brands improving well over EUR 300 million. We will bring them to new levels in the coming years and bring other core IPs also be on these levels. The second area is really that we're going after more recurring-revenue generators, that's really concentrating to [indiscernible] full experience, going after long-term retention types of games and of course free-to-play with multiplayer is part of this focus. And the third element of this focus is to develop and further support our core [indiscernible] technologies.

Next question comes from the line of Charles-Louis Scotti from Kepler.

Yes. Good evening. I've got 3 questions, the first one on the premium games. You said that you will release exciting titles. Can you be more specific on this topic and especially whether or not it's going to be AAA games? Second question, there is no mention on any Assassin's Creed content for the fiscal year '22-'23. This will be a 2-year gap in the Assassin's Creed franchise, a first in history. Can you tell what are the reasons that could explain this gap? And my third question on free-to-play, you said that the contribution should mostly come from existing IPs whereas [indiscernible] will be released in Q1, so should we understand that you are factoring a very conservative assumption on the game and if yes, why?

Yes. We indeed said that we have other premium games to be released in the later, so there will be stronger premium games but we will come back to our fans and peers at a later stage. In terms of Assassin's Creed, what we said before is that we'll come every year with meaningful paid content of very high quality, and as we mentioned we're benefiting from the amazing performance from the overall franchise and notably Valhalla that has become a true live service type of brand with a much higher level of recurring revenue than before, but also as a [indiscernible] game that the [ BOGC ]continuously doing very well. In terms of the free-to-play, you're right. Our focus is to bring biggest IPs on free-to-play and fiscal '23 we'll see the benefit of that. Roller Champion will be a good strong game coming in Q4, but yes, it's a new IP coming with free versus free competitive multiplayer experience. That's the good illustration of a [indiscernible] move towards competitive multiplayer game.

Sorry, you said the game is due to come in Q1 or Q3?

Q1.

Q1. Okay.

Next question comes from the line from Matthew Walker from Credit Suisse.

I've just got 2 questions, please. The first one is when the board has looked at the business plans over the last few years, how much scrutiny are they putting on the plans and the achievement of guidance because of the guidance has been missed for the last few years. I'm just wondering, can you just explain the process whereby you present to the board, and what scrutiny they are putting on these plans on behalf of shareholders? The second question is on Skull & Bones and Avatar. Obviously, both of these are new titles. They don't have an existing player base, so I was just thinking what is your level of confidence in the results from Skull & Bones and Avatar? How are you going to make sure that they find an audience, and have you and your guidelines [indiscernible] anything in for a weak macroeconomic environment?

Avatar and Skull & Bones, we have 2 very interesting titles. Avatar is coming on the movie that we expect one of the biggest movie of the year or movie of the next few years. We are confident that it's going to be a big title. On [indiscernible], we have been working quite hard on that product. It [indiscernible] to really bring something fresh to the market that we expect bring lots of a recurrence in the long term so that it can generate revenue for the company all the time.

Next question...

On the Bone aspect, we've chosen our-- What we expect to do at the beginning of each year, and it is approved by the board. They check all the games and how we can achieve those numbers. What has happened in the last few years is the fact that some games, because of the pandemic and also having the work from home included. Really, it pushed some products out of the year and that was something that was difficult to anticipate.

The other key element here is that the board is constantly looking at what the assets and the asset value that the company has been trading, and the board understand that we are taking the right time to [indiscernible] the company to go for higher recurring-revenue generators. It takes time and the fact that we are bringing our biggest IPs across all platforms to make them even more accessible on mobile and to go to all geographies, is a major strategic shift that the board has supported. Just I want to come back to a comment just to clarify, get back to Ken's question. So when we're talking about significant top-line growth, to be more precise, we're talking about the top-line growth that will exceed 20% in fiscal '23.

Next question comes from the line of Tom Singlehurst from Citi.

One thing that would be really helpful, I know that you've talked around this but maybe just to give us sort of an absolute number on the scale of the investment, in particular in some of the new premium free-to-play titles. I mean this is our problem, not yours, but on the sell-side, we were looking for around EUR 480 million of operating profit, you're talking about EUR 400 million. I'm just trying to work out whether there's in your mind EUR 80-plus million of incremental investment going in, or were we just too optimistic on the margin and yet the lower guidance is a function of just more muted profitability more broadly before that pick-up in 2024? That's the first question and I've got a follow-up in a second, if that's okay.

So, in terms of -- as we said we've been spending 20% of our R&D into free-to-play titles with the majority of this investment being done on our biggest IPs across all platform, but what we're considering that, of course, fiscal '23 being the first meaningful year of launch, with the company's investment that we're selling ourselves for full profit contribution in the outer years. What is important to have in mind for fiscal '23 in terms of profit evolution, as I said earlier, it reflects the fact that we are launching new IPs as well as free-to-play. And as we are launching games, also on the mobile and endless switch, we are usually coming with lower gross margin.

Great, perfect. And the follow-up, I'm sort of conscious that you're not going to talk about any specific scenario. But I mean, as I said earlier in the call that you've done enough, was it you expect to remain sort of independent? I suppose the question is, what are the benefits in your mind of being independent as opposed to operating in private markets? Maybe you could give us some insights on that.

As we said, we won't to comment on the overall topic, but what we can say that over the last 25 years, it is certainly in a publicly-listed company, and we've been able to create massive value while maintaining a strong focus on the long-term value-creation model.

Next question comes from the line from Doug Creutz from Cowen. Please, go ahead.

Yes. You mentioned the competitive market in the March quarter, and that was sort of a historically dense with releases. Can you talk a little bit about how in your March quarter results, do you think that the competition affected your performance, versus maybe return to work, things like that? Slice apart where some of your things, you didn't meet your expectations and what the causes were?

Yes. What we've seen, indeed in this quarter is that there was intense level of competition. In this context, as you can see we've been delivering [indiscernible] growth of 77% and actually the back catalogue grew 83%. So, that shows the strength and depth of our catalogue of brands actually. Assassin's Creed Valhalla, again, a remarkable quarter. It's a [indiscernible] actually, it's positioned as the second-biggest profit in light of the company. We also were able to launch a user collection on switch to broaden the audience on a more mainstream platform. And as we said, the launch of Extraction allowed Rainbow 6 franchise to significantly grow.

Next question comes from the line of Nick Dempsey from Barclays.

Yes, I've got 3 questions, please. So, the first one, zooming in on the first quarter guidance, guiding to down 14% year-on-year in Q1 '23 versus Q1 '22. I understand that had some more benefit from Valhalla back in first quarter '22, maybe some good engagement with live services games, at the same time FX moved quite a lot in your favor in that period. But can you give us a bit more color on the differences between Q1 '22 and Q1 '23? Because I think investors will be looking at how much that implies for the rest of the year in terms of growth to do your full year guidance? Second question, we just talked about the competitive environment in the last quarter. There's a lot of content being developed across the industry currently. Do you have confidence that you won't have further quarters that are perhaps surprisingly competitive in the next few, which might dent your hopes a little bit on delivery? And last question, maybe just on cash R&D growth. "Last year of meaningful growth" was the phrase you used, another double-digit year or single-digit, or can you give us a little bit more help on that?

Thank you, Nick. So, on the first quarter last year, as I said, we had the delivery of [ DDRC ] [indiscernible] that was the first one on Valhalla, but also-- And especially that triggered the recognition in terms of networking of the part of the season pass. So, that's why the [indiscernible] basis for Q1 last year was high from that point of view. So, in terms of the competitive environment, it's actually interesting to see that paid content has done well in the industry over the last quarter. On our side, we're coming with high-quality games [indiscernible] home positioning, unique positioning in what we're bringing in fiscal '23. And also with the objective as we know to diversify our offering across all platforms, and to go after all geographies which we had not done before. So, we are diversifying the way we go to market. On the significant growth, usually expect that the growth should come from new releases. The majority of this significant growth will come from premium launches, but we should expect a meaningful contribution to that growth from our free-to-play contrast. In terms of R&D cash growth, what we're saying is that we've been decelerating this year. We will have still a meaningful growth in fiscal '23 that, that will be the last year of meaningful growth, as we will be stabilizing headcount over the fiscal '24.

And you can't help me out with what meaningful growth might be between 5% and 15%?

What we're saying is that we had a plan for medium term 15% growth in terms of R&D since fiscal '19, and since fiscal '20 and '21 we've been decelerating. We cannot say.

Next question comes from the line of Jamie Bass from Berenberg. Please, go ahead.

I've got 3 questions as well, if that's all right. I mean, quite similar to a couple of the previous ones, but on the cash R&D side, so I guess we can't have necessarily an exact idea of how much it's going to grow this year, but could you give us an idea of whether we're going to have a similar level of proportion of capitalization as we've seen in the past few years, or is there going to be a shift towards more of that R&D being in the P&L as these games start to come out? Second question, again, this is quite similar to next, but, if we look at the Q1 outlook for next year, that's below almost every quarter for the last 2 years, just on the back catalogue. So, what assumptions are you making about how aggressively the back catalogue net bookings will drop off, and does that mean you're on the conservative side to Roller Champion here as well and [indiscernible] other revenues? Finally, you've got quite a lot of content in the pipeline in terms of free-to-play in mobile, how are you thinking about the gaps that you would need between these, especially on the free-to-play launches to make sure you're not cannibalizing potential players?

Thank you. The gap in terms of cash R&D versus cash P&L is significantly narrow in fiscal '20 versus fiscal '22. In terms of the Q1, as we said, we are taking general prudence as we start the year, and yes, Roller Champion will be our first launch where we're taking a conservative stance. On the content in pipeline, what we've been working on is to make sure that our free-to-play experiences will be very well-differentiated. And what we've seen from the past of other premium brands going free-to-play next to premium, we've seen a very strong [indiscernible] growth in the emerging market. And actually, overall player-engagement growth in the major markets and that's the advantage that we are looking for, for our free-to-play and launches next to premium.

Next question comes from the line of Emmanuel Matot from ODDO.

Good afternoon. Thank you for taking my questions. First, what about your employee turnover? What is the current rate compared to the historical average? To what level do you increase wages to retain talents and attract new ones? Can you take also advantage of the mergers between some of your competitors in the sector? And second, could you update us on your partnership with Tencent? Where are you and what are the next phases? Do you want to expand your relationship with this company? And my last question, why have you just decided to broaden the executive committees? Why are you taking the decision now and maybe not earlier?

Yes. On the headcount evolution, as you know, we've been increasing headcount very meaningfully over the last 5 to 6 years. And actually, I can say that we anticipated, to some extent there will be some time shortage at some point in time. We've seen that the labor market has been more intense over the last year, but we had anticipated to decelerate the growth of our headcount. So, this year we lightly increased headcount actually, and we maintained a strong capacity to hire and recruit. We actually recruited very high-profile talent this year from the industry, and we've been able to be a higher, actually more than 600 talents. In terms of acquisition, as we said before, in the context of the home pressure in the overall markets from technology and Video Game Industry, we've seen that we've been tracking a few points ahead of our historical trends. So, we've made some interventions in October, [indiscernible] in Canada and we've seen some slight improvement over the last 3 months, so, of course it's something that we are carefully monitoring. And in terms of what we're doing to stay competitive, of course we carefully monitor key markets and need for critical skills to make sure we are absolutely competitive. On the Tencent partnership, first, I get to know that this partnership is really going well. We are developing mobile games together and those games will come on the market at a later date, but they're very [indiscernible] games. We have very good expectations and we will do more with them. Now, to answer your last questions about the expansion of our [indiscernible], first, that team has been working together already for a while. It's just we wanted to announce the new [ SBP ] studios to actually announce the group. It's a group that has been constituted to actually take advantage of all the new opportunities the market is bringing. As the business is more complex, we are more people now to tackle all those new problematics.

Thank you. That is the end of the Q&A session today. I would now like to hand the conference back over to the speakers for final remarks.

Well, thank you very much for all your questions and have a good day.