Release Date: November 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Embracer Group AB (THQQF, Financial) reported SEK8.5 billion in net sales for the quarter, with Asmodee showing solid earnings growth year-over-year.
- The divestment of Easybrain is expected to significantly strengthen Embracer's financial position, reducing net debt to a pro forma SEK500 million.
- The company has a robust pipeline with over 120 game projects, including notable upcoming releases like Kingdom Come: Deliverance II and Tomb Raider IV-VI Remastered.
- Mobile Games segment showed strong profitability with SEK1.3 billion in revenues and a 28% adjusted EBIT margin.
- The Easybrain divestment is expected to provide SEK12.7 billion in net proceeds, enhancing the company's ability to invest in future growth opportunities.
Negative Points
- Net sales declined year-over-year, primarily due to the absence of major releases like Remnant and Payday from the previous year.
- The PC/Console segment experienced a 33% decline in organic growth, impacted by delays and underperformance of several game releases.
- Free cash flow was negative at minus SEK500 million, attributed to increased working capital and inventory buildup.
- The Entertainment & Services segment saw a negative 9% organic growth year-over-year, with a low adjusted EBIT margin of 2%.
- The company faces challenges with game release delays, which are increasing development costs and impacting return on investment.
Q & A Highlights
Q: Could you elaborate on the weak performance in PC/Console sales this quarter?
A: Lars Wingefors, CEO, explained that the weak performance was expected due to the lack of big releases compared to last year. Minor titles underperformed, and delays increased costs, impacting margins. Despite this, maintaining titles in the pipeline is crucial for long-term cash generation.
Q: How do you feel about the near-term guidance for Q3 across segments like PC/Console and mobile?
A: Lars Wingefors stated that while they don't provide formal guidance, they are conservative in their outlook, expecting little or no EBIT contribution from PC/Console in Q3. They are improving forecasting processes and learning from past experiences.
Q: Can you discuss the cash generation in the quarter, given the negative SEK500 million free cash flow?
A: Muge Bouillon, CFO, noted that Q2 typically sees negative working capital, especially from Asmodee. The second half of the year is expected to generate higher cash flows, aligning with historical patterns.
Q: How important is the Easybrain divestment for Embracer's financial strategy?
A: Lars Wingefors emphasized that the divestment significantly strengthens Embracer's financial position, reducing net debt and enabling potential capital returns to shareholders or further investments. It also supports Asmodee's growth strategy.
Q: What are your thoughts on the spin-off of Coffee Stain and its potential impact?
A: Lars Wingefors confirmed that the spin-off is still planned for 2025, with no changes to the base plan. The transaction will allow for deeper strategic thinking regarding asset allocation and structure.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
