Q1 FY20/21 Interim Report August 13, 2020 1
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Q1 FY20/21 Interim Report August 13, 2020 1. Operational and financial performance OPERATIONAL AND FINANCIAL HIGHLIGHTS Financial and operational metrics Strongest pipeline to date Q1 FY20/21: 125 ~3,200 SEK 457m Pipeline Game developers Invested in game Net sales YoY growth projects (internal + external) dev Q1 FY20/21 SEK 2,069m +81% SEK 1.2–1.4b of released games in FY20/21 Net sales – Games YoY growth Management estimates total development cost of released games to more than double in FY20/21 to SEK 1.2–1.4b, SEK 1,622m +153% compared to FY19/20. Operational EBIT YoY growth SEK 712m +249% Multiple successful releases – Quality first strategy is paying off Best quarter ever in terms of group net sales, group operating EBIT and net sales in the Games business Full game version 1m+ copies sold area. Record numbers mainly driven by: • Saber acquisition • Multiple successful releases 84 8.0 96% 86 7.7 81 7.0 82 7.0 90% • Strong back catalog • “Lockdown gaming” during Covid-19 pandemic Steam release Favourable M&A prospects 74 6.7 85 7.7 96% 96% 69 8.9 95% SEK 1.6bn SEK 5.1bn More discussions After the quarter equity capital in cash and than ever with Median across all these games raised in unutilized credit companies suitable % positive April 2020 facilities at 30 for joining the on Steam 70 8.5 95% June 2020 Embracer family 82 7.7 95% Ratings = median across PC, PS4, XB1 and Switch KEY P&L METRICS SEK million Quarter Trailing twelve months Apr–Jun Apr–Jun YoY Jul 2019– Jul 2018– YoY 2020 2019 Change Jun 2020 Jun 2019 Change Net sales 2,069 1,142 81% 6,176 5,426 14% EBITDA 965 390 148% 2,397 1,549 55% Operational EBIT 712 204 249% 1,541 900 71% Operational EBIT 34% 18% 25% 17% margin Adj. EPS (SEK) 1.51 0.51 196% 4 DEPRECIATION AND AMORTIZATION Q1 FY20/21 SEK million Operational D&A (-253) Acquisition-related D&A (-492) 5 KEY CASH FLOW METRICS 184% YoY growth in the quarter mainly due to the increase in earnings Working capital increased in the quarter Apr-Jun Apr-Jun SEK million mainly due to strong digital sales and the 2020 2019 timing difference between when products are sold by digital distributors and cash is Cash flow from operating activities before 870 306 collected changes in working capital No forfaiting in Q1 FY20/21, SEK 51m Change in working capital -138 135 decrease in forfaiting in the same quarter last year Cash flow from operating activities 732 441 Inorganic growth investments (M&A), mainly relating to the Saber acquisition Net investment in acquired companies -1,104 -0.2 Net investment in intangible assets -495 -381 Investment in game development with Net investment in tangible assets -16 -11 significant portion being organic growth investments Net investment in financial assets -18 -2 Cash flow from investing activities -1,632 -394 Cash flow from financing activities 1,940 183 Mainly relating to the equity issue of SEK 1.6bn in April 2020 CASH FLOW FOR THE PERIOD 1,041 230 Translation difference in cash and cash equivalents -26 -0.4 6 INVESTMENTS Investments in intangible assets the quarter Investments in game development by quarter Internal capitalized development Q1 FY20/21 SEKm External game development and advances +28% SEKm 457 500 417 450 356 400 350 248 300 250 Total rights - 200 IP advances 150 100 209 development External game game External 50 Other intangible intangible Other assets (Film etc.) (Film assets development and development Internal capitalized capitalized Internal 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Completed games: SEK 253m (Total development cost of all games released in the quarter) 2017 2018 2019 2020 7 BALANCE SHEET 30 Jun 31 Dec SEK million 2020 2019 Intangible assets 10,971 5,633 Breakdown of intangible assets 30 June 2020 Property, plant and equipment 185 169 Finished completed games 512 5% Financial assets 229 201 Ongoing game development projects 2,274 21% Other intangible assets (film etc.) 193 2% Inventories 429 387 Operational intangible assets 2,979 27% Current receivables 1,885 1,570 IP-rights 1,338 12% Cash and bank balance 3,525 2,785 Surplus value Partner Publishing/Film 152 1% Goodwill 6,503 59% Total assets 17,224 10,745 Acquisition related intangible assets 7,993 73% Share capital 1 1 TOTAL 10,971 100% Other capital reserves 10,842 5,300 Recognized profit incl. the period 680 876 Provisions 1,176 1,306 Non-current liabilities 1,180 209 Current liabilities 3,345 3,053 Total equity and liabilities 17,224 10,745 Interest-bearing receivables 3,525 2,785 Interest-bearing liabilities 2,711 1,947 . SEK 5.1bn in cash and unutilized credit facilities at Net cash 814 838 30 June 2020 8 2. Business areas Games business area GAMES – NET SALES BREAKDOWNS = Quarterly = Trailing twelve months Net sales Owned titles (rest is publishing titles) SEKm 100% 4,177 80% 78% 79% 70% 74% 3,045 3,328 3,197 2,605 75% 79% 80% 76% 75% 1,622 641 816 836 904 0% Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun 2019 2019 2019 2020 2020 2019 2019 2019 2020 2020 . 153% quarterly growth in the quarter YoY . 60% TTM growth in the quarter YoY Digital (rest is physical) New releases (rest is back catalog) 100% 78% 100% 71% 74% 69% 74% 73% 74% 45% 68% 35% 38% 58% 63% 32% 18% 0% 0% Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun 2019 2019 2019 2020 2020 2019 2019 2019 2020 2020 . Digital share of sales is increasing, yet physical experienced all time high sales in the quarter 10 Games business area SABER FY20 SEK million FY19/20 Upcoming releases /21 15 games currently under development including simulation, Q1 Q2 Q3 Q4 Q1 shooter and sports games Net sales – Quarterly 349 Net sales – TTM n/a Madrid S:t Petersburg Releases in the quarter . Net sales of SEK 349m in a solid quarter with net sales in line 1m+ with management expectations. SEK 100m relates to work- copies for-hire projects and SEK 249m to royalties received for released products. SnowRunner was a notable release in the quarter and the PC PS4 XB1 Switch | IP: Licensed major revenue driver, selling over 1 million copies. Great continued performance of World War Z and stable revenues from external business partners. WWE 2K Battlegrounds (published by 2K) will be a notable release next quarter (FQ2) – solid previews so far. Saber integration has run smoothly despite Covid-19 challenges. Saber’s entry into the family has exceeded our expectations with a number of synergetic cooperation opportunities within the Group already identified. 11 Games business area DEEP SILVER FY20 SEK million FY19/20 Selected upcoming releases /21 Q1 Q2 Q3 Q4 Q1 Net sales – Quarterly 373 442 467 515 613 Net sales – TTM 1,606 1,796 2,076 1,796 2,036 PS4 XB1 NS PC PS4 XB1 PC PS4 XB1 IP: 3rd party IP: 3rd party IP: 3rd party . 64% quarterly YoY growth in the quarter. Covid-19 pandemic boosted digital sales. Notable releases in the quarter were Saints Row the Third Remastered which performed in line with mgmt expectations and MotoGP 20 which exceeded management expectations. Back catalog performance exceeded management PC PS4 XB1 PC PS4 XB1 PC PS4 XB1 NS expectations mainly driven by digital, led by the Metro I P. IP: Own IP: Own IP: Own Notable releases in the quarter IP: Own IP: License IP: External . Notable releases in FQ2 will be Wasteland 3, Windbound, 3 releases in total Iron Harvest, and Pathfinder: Kingmaker for console 12 Games business area THQ NORDIC FY20 SEK million FY19/20 Key release in the quarter /21 Q1 Q2 Q3 Q4 Q1 Net sales – Quarterly 185 330 333 307 488 PC PS4 XB1 Switch PC PS4 XB1 Net sales – TTM 804 1,009 991 1,154 1,457 IP: Licensed IP: Own . 164% quarterly YoY growth in the quarter. 69 8.9 95% positive on Steam 85 7.7 96% . THQ Nordic had its best quarter to date, mainly driven by release of Spongebob: Battle for Bikini Bottom Rehydrated 7 releases in total exceeding management expectations. Release of Desperados 3 received exciting reviews but commercial performance is expected to be more long-term Selected upcoming releases rather than short term due to the game’s more narrow genre. Back catalog had a great performance driven by Wreckfest, Darksiders Genesis, Monster Jam and MX vs ATV. PC PS4 XB1 PC PS4 XB1 . Destroy All Humans! was released after the quarter and has IP: Own IP: Own exceeded management expectations – both in terms of sell through and community feedback. Released after the quarter PC PS4 XB1 Switch IP: Own IP: Own 70 8.5 95% Note: Ratings = median across PC, PS4, XB1 and Switch 13 Games business area COFFEE STAIN FY20 SEK million FY19/20 Three releases in the quarter /21 Q1 Q2 Q3 Q4 Q1 Full game release Net sales – Quarterly 83 45 36 82 172 Net sales – TTM 239 261 246 335 84 8.0 96% 86 7.7 Selected upcoming releases Steam release – Among tops sellers on Steam since launch in June 2020 PC PC 96% positive on Steam IP: Own IP: 3rd party Note: Ratings = median across PC, PS4, XB1 and Switch .