Earnings Transcript for THQQF - Q2 Fiscal Year 2025

Martin Arnell: 2024-2025 presentation. My name is Martin Arnell, and I'm an equity analyst with DNB Markets in Stockholm. I'm here to moderate the Q&A presentation and introduce management today. [Operator Instructions] And with that, I want to hand over to CEO and President, Lars Wingefors.

Lars Wingefors: Thank you, Martin, and welcome, everyone, to this morning in Stockholm. I will take you through our performance in the second quarter, followed by deeper information about the Easybrain transaction announced this morning. So in the quarter, we achieved SEK 8.5 billion of net sales, which is a decline year-over-year and an adjusted EBIT of SEK 1.2 billion. The difference between this year and last year is all made up of the 2 significant releases of Remnant and Payday we had in the previous year. The free cash flow came in a bit negative at minus SEK 500 million due to increased working capital because of inventory buildup. On a trailing 12-month basis, our free cash flow amounts to SEK 1.2 billion. So looking at the highlights, I'm happy to report that as Asmodee had a real solid earnings growth year-over-year. They go from strength to strength, which I'm very glad for ahead of their listing and their Capital Market Day next week. We will soon meet Thomas here, the CEO on stage. The profitability within Asmodee were SEK 700 million in the quarter. Moving to PC/Console. We had a softer performance; however, we do expect an improved performance in the second half of the year over the first half. The softer performance is due to some weaker ROI on release products connected especially with delays of game releases in the second half of the year. And there is still expectation of some release delays, but it's not yet decided because we're trying to optimize release windows in what looks to be a very busy industry quarter in the first calendar quarter next year ending March. We are, however, looking through as an ongoing basis, as always, our efficiency and our costs. But because of the weaker ROI and delays of releases, we need to increase our look-through of our fixed cost base ahead of the spin-offs next year. However, talking about delays, I would like to be clear that there is no delays expected on our most important release, Kingdom Come

Thomas Koegler: Thank you, Lars. Good morning, everybody. In parallel of the spin-off process that we obviously are working on very actively with Embracer, with our advisers. Asmodee's management team obviously remains heavily focused on delivering the business. In Q2, I'm very happy to report that we delivered net sales of SEK 3.8 billion, in line with our expectations. From a year-on-year perspective, reported net sales were slightly down by 6%, also impacted by the divestment of Miniature Market. On an organic and pro forma basis, at constant currency, net sales were down 12% year-on-year. It's in line with management expectations and in line with the previous quarter. With growth in games published by Asmodee studios, offset by a higher decrease in games published by our partners. I would like to highlight that we compare to a very strong quarter last year that at the same time, saw a 15% organic growth on games published by our partners. On a profit level, the adjusted EBIT margin continued to improve by 2 percentage points versus the same quarter last year, pursuing the trend initiated in Q1. The improvement was driven by a more favorable product mix, as I did say, supported by an increased contribution from games published by our studios and the continued benefit of run rate savings of the group restructuring program. On the commercial side, key releases of the quarter included Altered, the innovative trading card game published by our partners at Equinox. But also Survive the Island, Ferry Ring, The Mandalorian Adventures and Arkham Horror, the role playing game, combined with the continued success of Star Wars Unlimited, who released its Set 2 Shadows of Galaxy, all of those published by Asmodee Studios. Early sell-in of 2 very exciting titles, LEGO Monkey Palace and The Lord of the Rings

Lars Wingefors: Thank you, Thomas. Fantastic performance. Well done. So looking at our last segment, Entertainment & Services, largely as expected, the segment had a slower quarter with a few new releases. Organic growth was negative 9% year-over-year with a 2% adjusted EBIT margin or SEK 29 million. We are looking forward, as always, within this segment to the holiday quarter, which will be much more busy. And one key driver would be the cinematic release of the new the Lord of the Rings movie. And that would drive a lot of engagement and potentially some good royalties coming in the quarter. Beside the Middle-earth enterprises and the physical distribution business of video games, we have Limited Run Games going from strength to strength in terms of quality content being released direct to consumers. And here on screen, you can see 2 recent releases of Tomba! Special Edition, one of my favorite games from the '90s, launched August 1. Core physical business to a lot of fans, but also it will generate digital business. And in collaboration with our dear business partner of SEGA, they released Sonic Generations Collector’s Edition during the quarter to a lot of excited fans. And here, you can see the absolute amazing Dreamcast thing in the middle. So with that bit of retro lines, I would like to welcome our CFO, Muge on stage to tell you more about the financial performance.

Müge Bouillon: Thank you, Lars. Good morning, everyone. It's always a pleasure to be here. Let's look at an overview of our financial development. Net sales are SEK 2.3 billion lower than last year, mainly driven by, as Lars mentioned, lower contribution from the new releases and the tough yet expected comparator in PC console and entertainment and services. We also had the impact of our divestments of Saber and Gearbox. The lower top line was partially mitigated by lower marketing expenses and operating expenses, and that reduced adjusted EBIT to SEK 1.2 billion. It is worth noting that the new releases last year, Remnant II and Payday 3 contributed SEK 1.4 billion of net sales last year. This compares to SEK 0.3 billion of the new releases this year, including Epic Mickey, Monster Jam, and Satisfactory. The divestment of Saber and Gearbox as well impacted the net sales by SEK 0.7 billion last year, although with a very limited impact on the adjusted EBIT. These top line impact in PC console and entertainment services led to a margin impact as well, where the gross margin percentage has deteriorated compared to last year. We do note that the overall marketing as a percentage of net sales remained stable at 10%. Marketing expenses outside the mobile segment are clearly lower compared to last year with fewer larger releases. In mobile, we do continue to see less user acquisition costs compared to last year, but you'll see that it's higher than last quarter. Operating expenses decreased to -- SEK 0.6 billion of decrease to SEK 2.1 billion. representing 24% of net sales, which is 1 point less than last year. Adjusted EBIT of SEK 1.2 billion represents 14% of net sales, which is a decrease of 3 points compared to last year. The reduction is primarily due to, as I said, the margin impact of our PC/Console and primarily driven by the very big releases, Payday 3 and Remnant II, which themselves contributed around SEK 0.7 billion last year and, hence, it gets translated into the adjusted level, all in all, with 3% less. Moving on to cash flow for the quarter. Free cash flow amounted to minus SEK 473 million in the quarter, which is a reduction of SEK 860 million compared to last year. On a 12-month trailing basis, the free cash flow amounts to SEK 1.2 billion. Lower EBITDA and higher cash tax payments in the quarter, which were also partly due to phasing, were almost completely offset by lower CapEx, which decreased by SEK 1 billion year-on-year, driven by both restructuring program as well as the divestments. Working capital movements were negative in the quarter compared to a slight positive balance that we had last year, which is primarily due to, as Lars said, to a return to an expected normal seasonal buildup in Asmodee. The cash flow from financing activities includes an outflow in current year from net reimbursements of loans with the inflow in the prior year relating to the share issue that you might recall. The cash flow from divested companies was SEK 1.6 billion in the quarter, and it's mainly related to the divestment of Saber Interactive. The last line, the cash flow effect from items affecting comparability, primarily relates to the ongoing cost of the listing process of Asmodee, where things are on track. Looking at the net debt. At the end of September, our net debt amounted to SEK 13.2 billion. During the quarter, you will recall, we announced the refinancing of our revolving credit facility of EUR 600 million with a 2-year maturity and with a possibility of 1-year extension. We had also announced that we've entered into a SEK 500 million loan agreement with the Swedish Export Corporation with also similar terms and maturity. Embracer Group has a leverage covenant in its credit agreements, as you know, but it has a substantial headroom to it. And at the end of September, the available funds amounted to SEK 8.2 billion. With that said, over to you, Lars.

Lars Wingefors: Thank you, Muge. So let's jump into this morning's big news and exciting news about the Easybrain divestment. And to start, I would like to say that Easybrain were a fantastic acquisition that we made 2021. It's been an honor to work with the team and the founders. They've been contributing a lot to the success of Embracer, both financially, but also as a model of supporting entrepreneurs. The founders, Peter and Matvey have been very loyal, and they remain a very large shareholder of Embracer. Together with the CEO, Oleg, they've done a fantastic job to create value together with all his team of more than 300 people. Now when the ads-driven mobile market is changing and becoming more difficult, we thought that Easybrain needed a bit different ownership that have the ability to make the appropriate investments into the future. And the absolute perfect home for that is Miniclip that are in the same industry that is also led by a great entrepreneur and CEO, Saad. So I think the merge between the companies from an operational perspective or the acquisition is really strong. So it makes a lot of sense for them and it makes a lot of sense for us. I'm also pleased to see that the quite notable purchase price would have a significant impact on the rest of the companies and the group of Embracer. The purchase price on a cash and debt-free basis is USD 1.2 billion or SEK 12.9 billion, all to be paid in cash at closing. And we are expecting closing early 2025. Expected net proceeds after transaction costs and other costs amounts to SEK 12.7 billion. Again, Easybrain has been delivering a lot of value. And I have to reiterate that it's been a tremendous value creation within that company, including substantial dividends from them that we have been able to reinvest into other businesses the past 3 years. But the strategic rationale for us is it transforms our financial position. As you know, I've been -- or we have been not fighting, in good collaboration with lenders, but it's been some rough 2 years. And now I'm really pleased as a shareholder and a CEO to stand here without basically having any net debt remains. So the transaction will strengthen the rest of the group. It's not only the transaction itself is positive, it also strengthened the rest. And it enables the new spin-offs to be separated with much stronger balance sheets and positions to do more business. Looking at the financial impact. As Muge reported, we had SEK 13.2 billion net debt end of September. But if you add this as pro forma, we have SEK 500 million on pro forma net debt by end of September. And then you should take the expected cash flow that are already coming in this quarter, so we should be positive. If you look on the pro forma net cash, excluding the ring-fenced Asmodee debt, we actually have close to SEK 9 billion net cash position on a pro forma basis in the remaining businesses. And that, again, would enable us to do many things. And as stated in the quarterly this morning, it would enable us to contribute capital back into Asmodee. So their leverage are in line where they could be strong and a great public company at listing. Easybrain had a fantastic last year, '23, '24, and contributed with SEK 3.4 billion in net sales and adjusted EBIT of close to SEK 1.4 billion. Most of it turned into cash flow with a fairly low CapEx. The performance this year, the first half, I wouldn't call it weaker, but it's a bit declining, SEK 1.6 billion sales and SEK 628 million in adjusted EBIT. And considering they had a fantastic Q3 last financial year, so year-over-year, that number would likely be a bit lower this year without disclosing any forward-looking multiple. So with that said, I would like to again thank the team in Cyprus and all advisers and team members who've been working very hard. We worked all night to have this signed ahead of the report, so well done. Okay. So with that said, it's time for some Q&A. Martin might have some questions.

Q - Martin Arnell: Welcome to the Q&A session. And I will start off with a couple of questions to you guys, and then I will let in the floor in. And then I hope we have some people that wants to ask questions on the conference call, and we also have a web formula, which you can use. I see, Lars, that we have 22 minutes left. Do you think that will be enough?

Lars Wingefors: I'm ready for any questions, Martin. Shoot.

Martin Arnell : There's a lot to digest today, to be fair, right? And I think let's just start a little bit on the quarter, and then we go into the rest later. Could you go through a little bit on the PC/Console sales performance, which was a little bit weak. I know you mentioned some performance of small mid games. Or is there anything else that stands out here that you want to mention?

Lars Wingefors: No, we did expect a weak performance, to be honest. We know we didn't have the big releases of last year, so it didn't came as a big surprise. But we could still see some minor titles underperforming a bit. And the problem in the industry, and for us as well, obviously, is that when titles is underperforming and release get things delayed and you have this fixed cost base, the margins is just becoming very difficult. So we are addressing this. And so it's a combination of delays and also delays are making the games more expensive to make. On the EBIT level, there is -- as a shareholder, you obviously care most about the cash generation. So we have titles that we are working through the pipeline that generates cash and it's still -- even though it's painful to report, if you are a long-term shareholder, it's a sensible decision to keep many of those things in the pipeline because if you're canceling them, the investments are worthless.

Martin Arnell: Would you say that the effect from delays is the main thing?

Lars Wingefors: I think, in this quarter, to our expectations, well, the big impact is obviously the lack of new releases. But I would say a bit of the underperformance, perhaps more than delays in this quarter. But now looking into the second half of the year, it's more about delays, I would say.

Martin Arnell : And how do you feel about near-term guidance? It's where...

Lars Wingefors: We don't give guidance.

Martin Arnell : But you do really on the segments and...

Lars Wingefors: Coloring.

Martin Arnell: Coloring, okay. But you have -- we're 1.5 months into the quarter, and you have near-term guidance for Q3 on PC/Console, mobile, tabletop. How challenging is that with the visibility that you have? Can you have -- can you improve the visibility or...

Lars Wingefors: Ultimately, the way to communicate is to deliver. So whatever I say is, I don't know how much -- the trust in our ability because of the track record, I understand it could be difficult. But obviously, we are improving our processes. We are improving our forecasting and also the bottom-up model, the companies are learning. So now they are very much sandbagging in some instances. So I wouldn't sound -- obviously, we are not guiding. We're coloring for little or no EBIT contribution in the third quarter in PC/Console. Fairly conservative.

Martin Arnell : We appreciate that communication. And can we also talk a little bit about cash generation in the quarter? Or you were at a negative SEK 500 million free cash flow. And I noticed it's -- a lot of it is due to the working capital buildup. Can we expect any reversal now in the next quarter? Hence, you have a positive free cash flow outlook in the near term? Or how should we view that?

Müge Bouillon: Q2, as part of our quarterly split, is a quarter already that particularly Asmodee always generates negative working capital. So actually, that predictability is something we have been announcing. Last year, you would recall that Asmodee had the unwinding of its inventory, which actually resulted in a favorable flow. It hence creates a bit of pollution in the way we read things. But this was the level we kind of expected. Having said that, we always iterate that the second part of the year is where we generate higher cash, and this is what we still project for.

Martin Arnell : And can you remind us on the seasonality of Asmodee, percent of earnings in Q3 in the past or if you would say like first half compared to second half. Is that possible to comment on?

Lars Wingefors: I think what we could remind everyone is September, October, November are very important periods in terms of sales for Asmodee. So that is also why the months that precede are the months that we build up inventory. And then as we go into the peak season period, that's where we generate the sales and, therefore, latter part of Q3 and Q4 is the period where we start converting that cash. And no surprises expected this year.

Thomas Kœgler: I think you'll have more information during the CMD next week.

Martin Arnell: Yes. I was just about to ask you, could you give us any sort of preview on the CMD? What are you looking forward to?

Thomas Kœgler: Well, it's an exciting moment for the entire management team. We have been very often in the back. And now it's the time to really get out in the open, in the sunlight and show what we do. And we have an industry that's amazing with very dedicated people, a lot of experts. I have the chance of leading a 2,200 strong team across all continents. And we can't wait to share more about what we do and get some of you in -- behind the stage, in the backstage and understand what makes this unique business model so strong and so strong for the future.

Martin Arnell : What is your view on the feedback so far internally? It's interesting for us to know what -- on the spin-off process and any external communication or feedback that you could share?

Thomas Kœgler: Well, there is a lot of excitement because through the spin-off, what we expect is to be able to focus even more on our core strategy. It's obviously a very intense period leading up to the listing, but we are fairly ready. We had been -- having joined Embracer 3 years ago, we were actually without even knowing it, ramping up slowly but surely our capabilities to operate on a listed market. So I would say there is a lot of excitement. And people, I mean, in the end, the most important part is the business, and we are excited about the future lineup and what comes the next in the coming years.

Martin Arnell : How important would you say the news today about Easybrain divestment, how important is that news for you really? Because your leverage is coming down a little bit. I think Lars touched upon that. How important is that for you to -- in order to sort of -- you're going to be able to resume the M&A agenda a little bit more? And could you elaborate a little bit?

Thomas Kœgler: It's mainly a question for Lars on what he intends to do on the proceeds.

Lars Wingefors: Well, I did say, though, that my intention is to contribute capital back into the Asmodee to strengthen you and the team to do more business.

Thomas Kœgler: I mean, lower leverage is better for us in all senses. That's, of course, less debt repayment or interest payments, less -- more capability to do M&A to resume our second engine of growth. We've been -- we're always strong on organic, but we like to accelerate it through M&A, which we haven't been able to do for the last 1.5 years. So the perspective is quite exciting.

Martin Arnell : But organic is the main sort of core of your growth.

Thomas Kœgler: They go together. It's a dance between organic and M&A. If you look back over the last, what, 10 years, most of the growth was organic. But again, from time to time, we balance between organic and inorganic growth.

Martin Arnell : Okay. Before we let the floor and conference in, Lars, could we just talk a little bit about your comments for the full year also? I mean, it's 6 months to go, and you mentioned year-on-year lower earnings. I think you mentioned mainly due to delays, right? Anything else you want to add on that?

Lars Wingefors: No, because of delays and a bit softer performance, but mainly due to delays, we are expecting lower earnings year-over-year, end of story. Obviously, a good chunk of that is moving into next year. So as a long-term shareholder, you would grab that cash regardless, but it's painful to stand here every quarter and then you have another delay. So ultimately, if you're long term, you need just to make sure the products are to the quality, the team gets the time, investments and the right release window. That's the best for shareholders.

Martin Arnell : And how do you feel about the new financial position that you are in? I guess you're...

Lars Wingefors: I feel really good.

Martin Arnell : It was a little sooner than we expected to see you at almost net cash now. How do you view the outlook and potential going forward to the financial position and capitalizing? How should we look at Embracer's balance sheet potential?

Lars Wingefors: Obviously, the balance sheet holds a lot of potential. Now this is not 2021 again, so I will not go on a Viking crusade on acquisitions, so don't worry too much. But obviously, there could be value-accretive investments potentially. But we could also decide to return capital to shareholders in terms of dividends or share buybacks. I think this is something we will evaluate now over the coming months with the Board ahead of the closing and -- or just the cash on the balance sheet. I think that's good in our industry to be strong as a supporter and a business partner, and we are now in that position. So it doesn't hurt to have a bit of reserves.

Martin Arnell : Did you explore other potential alternatives for Easybrain divestment?

Lars Wingefors: How would you mean?

Martin Arnell : I mean in order to strengthen...

Thomas Kœgler: I always have alternatives, but...

Martin Arnell : Strengthen the balance sheet, which you obviously did now.

Lars Wingefors: Yes, yes. It's -- we have a base plan, and that's what we are communicating and sometimes we have alternative ideas that if the moment are right and it's accretive, we execute on them. This process with Easybrain, we didn't put them on the block for sale with bankers traveling the world. This was a mutual interest from the parties and I have to say that the buyer has been really professional, sticking to their word. We have a really good SPA in the back of that with -- so we feel really good about the legal terms in the transaction as well as to the degree you could. So that kind of deal I prefer to do. They are a good buyer. We get a good price, strengthen the rest. So...

Martin Arnell: And have you experienced more interest in terms of deal flow coming in since you announced the spin-off processes?

Lars Wingefors: We have a lot of interest for many things, but I'm not a seller. I'm -- we are building something for the future. So this is not about buying and selling companies. This is about building value for the future and organically grow the businesses.

Martin Arnell : All right. Thank you, Lars. I think it's time to see if we have any questions in the room. Please raise your hand. Maybe we can go to the telco. The first question comes from the line of Erik Larsson from SEB.

Erik Larsson: Okay. Perfect. I have 2 questions. I'll take them one at a time. So first off, profitability and not maybe your guidance in PC/Console, but your color. We're now heading into Q3. It is a seasonally strong quarter. And obviously, a few releases are not helping. But on a high level, you should ideally be able to generate healthy margins on the catalog. So do you think that the cost base remains too high? Should we think that it's mainly amortizations remaining higher from previous releases or anything else really that's burdening the margins?

Lars Wingefors: Yes. So obviously, the margins are also burdened by amortizations of many releases during the past 2 years, so we need to remember that. So we have that bit of a rucksack to carry in the third quarter. But to your point, because of the sometimes low performance and delays and cost overruns, I think, the margins within a number of the businesses are too low. I think we should always make a cash flow in all our significant groups every quarter. That's my base thinking. And as you say, the catalog should carry a profitability. So some groups are more into the growth investment phase, buildups. Some has a more mature catalog and pipeline. So it's obviously a mix. But I would like us to make more money, goes without saying, within PC/Console, obviously.

Erik Larsson: Okay. And then last question on Easybrain, which looks like a very good deal. And you did give some color just now. But if we go back 1 year, you were looked upon as more of a distressed seller and much less so yesterday. So I'm just curious on the process of this divestment. How was the interest? How long did you have these discussions and ultimately release -- reach this value? Just interesting to hear.

Lars Wingefors: Again, it was a mutual conversation that started late summer and then we were able to reach the terms fairly recently, actually. And then that's why I put the deadline on the quarterly because, for many reasons, I don't want to be an insider post. Preferably, you don't never want to do to be an insider for too long and you need to put deadline. So hence, this morning's announcement. So it helps that the buyer is -- the parent company buyer is obviously a big industry player and very professional. And also the actual buyer operationally are part of that group, and they know this industry inside out and know the company and the people quite well. So that helped a lot in this process. So it has been -- it's been a great process.

Martin Arnell: The next question is from Simon Jönsson from ABG Sundal Collier.

Simon Jönsson: So I also think it's a quite interesting divestment here. And I understand that you will keep CrazyLabs and DECA, if that is correct. So what is the vision for those remaining mobile assets?

Lars Wingefors: Well, the vision is the same as with all entrepreneurial companies within Embracer that they focus and grow their businesses over time. They have obviously different business plans, but there is no change to that plan. They are very successful. CrazyLabs has just recently transitioned from hyper-casual to a hybrid casual successfully. Alien Invasion was #4 title in our mobile segment in the second quarter. DECA goes from strength to strength. We just added Star Trek and then with [indiscernible] business. And I think I see many opportunities actually within DECA to potentially do even more titles and business in the future. So they are strong companies, and there is no plans to divest them.

Simon Jönsson : Excellent. And with the divestment you make today, I mean, do you still expect -- or is it still the base case that you will still spin off Coffee Stain & Friends?

Lars Wingefors: Yes. As communicated this morning, there is no change to our base plan. Obviously, the transaction this morning led the management and the Board to put even more deep thinking into the structure and the asset allocation between the planned spin-offs. So -- but there is no other news other than the previously stated that we are still expecting to spin off one of the entities in the calendar year 2025.

Simon Jönsson : Got it. And lastly, on the Q3 color you gave and a follow-up on Erik's question. Do you think that there are any specific game releases in Q3 that will sort of add to the negative burden from the amortizations? Or is it more a general theme that you are burdened by amortization from previous releases?

Lars Wingefors: No. Again, we don't have any notable releases in the third quarter, but we have a big pile of amortizations in the balance sheet of titles that has been underperforming. Looking into Q3, obviously, we just recently released Metro on VR very good receptions in general from fans and it's, I think, a great VR product to the quality standard we should deliver; however, it's a fairly expensive game to make. And such a game is not delivering a fantastic EBIT, especially not on the short term. Then it's easier to deliver EBIT on a title like Legacy of Kain

Martin Arnell: The next from Thomas Singlehurst from Citi.

Thomas Singlehurst: It's Tom here from Citi. I had -- I just have 3 questions. I think maybe 3 groups of questions, so I apologize in advance. The first one is on sort of congestion in the launch pipeline, which you flagged as a sort of market characteristic. Obviously, totally makes sense. Just wondering whether you could help us sort of quantify just how much more congested the sort of broader market is in terms of launch activity and then critically, when you anticipate it to ease off? That's the first cluster of questions. The second cluster was specifically on your launch activity. You've been very clear with the SEK 3.1 billion of sort of game development sort of book value -- to release book value. Should we assume that all comes in the fourth quarter based on your commentary? And then the final one is really about the spin-off of Coffee Stain, and it's sort of linking back to the previous 2, which is, I mean, as you've pointed out, the market doesn't massively like delays, but sometimes they're just the right thing to do. And it raises a question about whether a PC/Console game really belongs in the public market as opposed to the private market. So I'd be interested in your thoughts on whether a spin-off of Coffee Stain could include a take-private option.

Lars Wingefors: Well, on the first question regarding the -- if I understand it correctly, that there is a busy release window in the fourth quarter and when that easing off, the industry is typically very busy in the fourth quarter ending March. Many of the colleagues in the industry have their year-end. And for some reason, many titles is being shipped before the year-end historically. And I see no difference this year. It's also a good season, obviously, for the gamers in West to engage PC/Console games. So -- and I think then the first quarter next year is typically much less busy. Now we have seen, I think, this year, less releases and I think comparing to previous year or years, there is a bit less releases coming through. And I think that's an overall trend in the industry, I think, that will continue. I think the fight we have to make a good business, I think, everyone have within the industry. So it's nothing specific for Embracer. Regarding book values, I think you're absolutely right, the absolute chunk of the book value being completed in the fourth quarter, obviously driven by the finalization of Kingdom Come

Thomas Singlehurst : That's very clear. And I'm glad to hear we haven't worn you down.

Martin Arnell: The next question is from Rasmus Engberg from Kepler Cheuvreux.

Rasmus Engberg: I actually just have one question left, and I'm sorry if it's a bit boring and detailed. But when I look at PC/Console, the other revenues, which I think is mostly work for hire is down by something like SEK 300 million. It's always been around SEK 800 million. Now it's below SEK 600 million. Is that a new level? Or what's causing this? Is it part of the disposals or is it -- what is it?

Lars Wingefors: I would say it's more or less all relating to this disposal of Saber Interactive.

Rasmus Engberg: Okay. So this is kind of the new level...

Lars Wingefors: And Gearbox for that matter. Gearbox, Saber disposal.

Rasmus Engberg : So we can take this as a kind of a new level going forward?

Lars Wingefors: I don't want to give too much guidance on that. But yes, we don't have Saber, Gearbox anymore. So...

Rasmus Engberg : Very good. Can I just -- while I have you on, how does the disposal of the mobile business impact Coffee Stain's growth characteristics? Is this business -- the rest of the business that growing faster or how does it look?

Lars Wingefors : Positively.

Rasmus Engberg : Yes. Yes, I thought so, but lower margins then, obviously. Or maybe.

Lars Wingefors: Coffee Stain has fantastic margins.

Martin Arnell: Next question is from Nick Dempsey from Barclays.

Nick Dempsey: I've got 2 left, please. So just the first one is a follow-up on an earlier question about adjusted EBIT kind of progress at PC/Console. So if we're looking into next year, FY '26, when we're balancing out amortization versus the revenue from the back catalog, could we assume that you get a decent positive adjusted EBIT in a quarter, which doesn't have notable new releases? Or for another whole year, should we be assuming very limited adjusted EBIT in a quarter that doesn't have interesting new releases? Second question, Pokémon TCG Pocket, that's been building up a good number of users online. Is that a structural factor that could drive a decline over the next couple of years in the physical Pokémon card sales, which would obviously have an implication for Asmodee's distribution business?

Lars Wingefors: Why don't we let Thomas answer the last question to start with.

Thomas Kœgler: Right. Pokémon is an ecosystem. It's an amazing ecosystem where all the experiences combine each other and grow the franchise. So no, it's absolutely not a bad news. It's an excellent news that the game is performing so well even for the TCG. If you look back when Pokémon Go was released, the impact on the sales of the physical products were extremely positive. So in our point of view, anything that's good for the license is good for the TCG and for us.

Lars Wingefors: Regarding next year, I look optimistic to the future in terms of -- in general, in terms of profitability and growth driven by the pipeline. But we are not able to provide today a color on the amortizations and for each of the quarters next year. It's a great question, Nick. And I think we need to also wait for many of the planned releases in the second half of this year. When are they shipping, what's the performance? Obviously, that is also a key driver for your question.

Martin Arnell: There are no more questions at this time from the teleconference. Okay. Thank you for that. I see we're running out of time, but I want to ask just 1 or 2 questions from the web as well here. We have a question from [indiscernible]. He's asking, are game release delays mostly due to optimizing the release window or mostly due to longer and, hence, more expensive game development, which would reduce the ROI potential of the delayed games?

Lars Wingefors: I think it's more down to actual delays, which is causing cost overruns to be fair. It's a little bit perhaps less to release windows, but we are trying to optimize release windows that could cause some movements that has impact. You can debate. In general, he's correct. In general, delays is causing more expensive games that ultimately, if they don't perform better for that cost investment, everything else equal, the return on investment becomes lower. However, there is obviously exceptions to that, that for example, when we released Dead Island like a year ago, we decided to postpone it 2 months, costing some millions, but I think that paid off very well. So I think it's not equaling always that the performance is just weaker. I think that actually strengthened the return of investment on Dead Island.

Martin Arnell: And when it comes to pipeline and releases, Kingdom Come

Lars Wingefors: I am very confident about that. And I've been checking in and I'm very into -- fairly into that process.

Martin Arnell: What do you think about the game if you compare it to the previous?

Lars Wingefors: No, I think, it's absolutely amazing. I think we are delivering so many hours of amazing gameplay and experience to consumers. It's crazy for that amount of money. So it's a bargain in relation to the amount of hours and investments going into that price we are charging.

Martin Arnell: Okay. One final question here from the web. It's Alex. He's asking, is a share buyback and dividend programs, as seen in successful examples in the tech industry, something that we could soon be expected from Embracer?

Lars Wingefors: As a shareholder, I'm always open to returning capital to shareholders. I think, again, we need to look -- we need to do the homework at the Board level first. But I don't have any issues us paying dividends. So...

Martin Arnell: Okay. I think it's time to round it up. But what do you look forward to in -- at the Asmodee CMD next week?

Lars Wingefors: Well, obviously, there is more details and granularity coming. And I've seen part of it, but I haven't seen the full presentation. So I'm actually looking forward to see it. I've been busy doing other things.

Martin Arnell: Okay. Looking forward to see you all next week, and thanks for today. Thank you in the audience.