Company Presentation Carnegie, September 3, 2019 CEO & Co-Founder Lars Wingefors
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Company Presentation
Carnegie, September 3, 2019
CEO & Co-Founder
Lars Wingefors
1
1. Introduction
STORY OF THQ NORDIC
SEKm 2019 H1:
2018 Q1:
Koch Media and
Deep Silver acquired
2013–2016: 2018 Q4:
Scaling up Coffee Stain
2016 Nov:
organization: Asset acquired
IPO on
Care, launching
Nasdaq
major development 5 426
First North
projects
Stockholm
2013 Q2: Rebranding from
Strong IPs acquired Nordic Games to 4 124
2011 Q2: from THQ incl.
All assets incl. THQ Nordic
Darksiders, MX vs.
IPs in JoWooD ATV, Red Faction
acquired and and Titan Quest
key people
recruited
508
178 213 302
8 12 102
2011 2012 2013 2014 2015 2016 2017 2018 TTM Jun 2019
Raised equity capital before transaction costs: 240 598 1,448 2,090
Track record of strong growth and value creation through major acquisitions, well-positioned for further growth
3
Operational and financial highlights
Financial performance driven by strong
Selected pipeline updates
digital back catalog of owned games
Q1 FY19/20
Record investments in game
Net sales YoY growth development in the quarter:
SEK 1,142m 36% SEK 356m
(SEK 208m same quarter last year)
Operational EBIT YoY growth
SEK 204m 193%
81 pipeline projects
(of which 34 have been announced)
Cash flow from operating activities
(after change in working capital)
SEK 441m At least
two AAA projects
Increased profitability driven by: expected to be released in FY20/21
• Strong back catalog
• Owned titles
• Digital sales
Further strengthening of the Executive
Management Team:
• New Group CFO: Johan Ekström
• Prior CFO and Co-Founder Erik Stenberg
promoted to deputy Group CEO
THQ Nordic acquires experienced studio Gunfire Games
THE THE THE
STUDIO DEAL FUTURE
TEAM BEHIND THE UNDISCLOSED PURCHASE
DARKSIDERS SERIES PRICE REMAIN INDEPENDENT
Core team has worked together THQ Nordic expects to recoup Maintain creative freedom
for over a decade its investment over the with focus on developing
course of 3-4 years successful games
FINANCIAL CONTRIBUTION EXPANDING FOOTPRINT
TOP TIER DEVELOPMENT TO THQ NORDIC IN THE US
STUDIO
New IP generating cash flow from THQ Nordic’s first owned studio in
Creates first-class games day one and savings on royalty Austin, Texas, the third largest
and development cost game industry hub in the US
FOUNDERS AND PIPELINE
LEADING VR DEVELOPER MANAGEMENT
Owned IP “Remnant - From the
Successful collaborations Strongly incentivized to ashes” releasing 20th Aug 2019
with Oculus execute on plan
Note: *Net revenue equals revenue after returns and price protections
5
THE THE THE
BUSINESS DEAL FUTURE
GLOBALLY LEADING UPFRONT PURCHASE PRICE EUR 55.8M CONTINUED DEVELOPMENT OF
RACING GAMES COMPANY EQUIVALENT TO AN EV OF EUR 44.9M THE BEST RACING EXPERIENCES
IMPRESSIVE PORTFOLIO PURCHASE PRICE STRUCTURE STRONG PIPELINE
50 games developed and • Whereof cash: EUR 44.3m Ten games planned (FY20-22),
8 million games sold since 2013 including five currently in development
• Whereof THQ Nordic B-shares: EUR 11.5m
• Net cash: EUR 10.9m (per closing)
Plus potential earn-out (FY20-22)1 REALIZING POTENTIAL SYNERGIES
A LEADING RACING DEVELOPER based on achieved accumulated Adj. EBIT2 levels
within distribution, marketing, know-how
creating epoch-defining two wheel racing titles and IP development
using state-of-the-art AI technology below 70% of target Adj. EBIT = No earn-out
100% of target Adj. EBIT = EUR 28.9m
above 130% = Earn-out capped at EUR 37.6
ATTRACTIVE BUSINESS MODEL STRONG FINANCIAL CONTRIBUTION
INCREASING ITALIAN PRESENCE
recurring cash flows Net revenues EBITDA Oper. EBIT with established developer and publisher
from yearly/bi-yearly releases 27.5-32.25 MEUR 15.5-18.0 MEUR 10.75-12.5 MEUR
Target financials FY201
1. Refers to Milestone’s financial year July-June
2. Based on agreed adjustments and according to Italian GAAP 6
2. Business
GROUP OVERVIEW
Group HQ SEK 5.4bn net sales (LTM June 2019)
Group strategy and M&A SEK 900m operational EBIT (LTM)
Karlstad 2,418 headcount
Two complementary business areas
Games Partner Publishing
Development, publishing and marketing of games Publishing and distribution of (mainly)
games and film
Three autonomous sub-groups:
Munich
13 offices across the world:
Selected partners:
Vienna Munich Skövde
Details on next slides
8
GAMES – OVERVIEW
Three autonomous
sub-groups:
9%
31%
% of net sales
(Trailing 9 Months Jun-19)
61%
Own IPs within AAA development.
Creative, very focused on gaming
Core strategy to acquire and build Publishing on external products
Focus making and development, new
based on established IPs. that needs powerful marketing and
IPs, teams up to ~20 people.
physical distribution power.
22 41 52
141 24 15
134 STUDIOS NORTH
Skövde Stockholm
64 21
17 internal studios
## = Approx. headcount
31 173 70 5
22 29
Lavapotion
7
58% digital 75% owned IP 51% new releases 130+ owned IPs
See next slide
per quarter
of LTM net
sales
of LTM net sales 1,800+ Game developers
average last four (internal + external) 81 projects in pipeline
quarters See pipeline slide
Note: All studios are 100% owned except Coffee Stain North (60%), Lavapotion (60%) and Bugbear (90% but with an option for the remaining 10%)
Note: LTM = Last Twelve Months ending 30 June 2019. Other figures refer to as per 30 June 2019. Number of game developers refer to both internal and external. 9
GAMES – KEY IP:S
100+ IPs 15+ IPs 9 IPs
Exclusive license
130+ IPs SEK 10BN+ 100M+ COPIES
in total lifetime sales by 10 key IPs lifetime sales by 10 key IPs
10SELECTED UPCOMING RELEASES
Games business area Partner publishing
Q2 FY19/20:
Dragon Quest Builders
PC PS4 XB1 PC PS4 XB1 PC PS4 XB1 Switch PS4 XB1 PC PS4 2
IP: Own IP: Own IP: 3rd party IP: Own IP: 3rd party by Square Enix
THQ Nordic THQ Nordic THQ Nordic THQ Nordic Deep Silver
Final Fantasy XIV
Shadowbringers
by Square Enix
PC PS4 XB1 PC PS4 XB1 PC PC PS4 XB1 PC PS4 XB1
IP: Own IP: Own IP: Own IP: Own IP: 3rd party Wolfenstein
THQ Nordic Deep Silver Coffee Stain THQ Nordic Deep Silver Cyberpilot
by Bethesda
In total
81 projects Wolfenstein
(34 announced Youngblood Deluxe
Edition
and 47
by Bethesda
Deep Silver Deep Silver Coffee Stain Deep Silver unannounced)
11GROWTH TRACK RECORD SINCE IPO
Organic and acquisitive (30% dilution*) growth since IPO until 30 Jun 2019 has yielded:
# of game developers # of internal development studios Key IPs acquired since IPO
+5x +4x
Long-term exclusive license
1 828 17
STU DI OS
339 4 Lavapotion
Sep 2016 Jun 2019 Sep 2016 Jun 2019
(IPO) (IPO)
Net sales, SEKm Operational EBIT, SEKm Cash, SEKm Top talent
+20x +10x +19x
Highly talented
5 462
900 3 159 key people
with complementary
skillsets
272 90 167
TTM Sep TTM Jun joined THQ Nordic
TTM Sep TTM Jun Dec 2016 Jun 2019
2016 (IPO) 2019 2016 (IPO) 2019 (IPO)
* Based on 72m shares immediately post IPO and 103m shares as of 30 Jun 2019
12GROWTH STRATEGY
Continue established and proven growth strategy – now leveraging across larger group
Group
level
ORGANIC GROWTH:
1 Releasing of current development pipeline (currently 81 releases) ü ü ü
2 Continued investments into new content/games (on existing and new IPs) ü ü ü
3 Further organic consolidation of Partner Publishing market ü
ACQUISITIVE GROWTH: ü
4 Acquire IPs or established catalogues of assets ü ü
5 Acquire development studios ü ü ü
6 Acquire publishers, adding niches, markets or consolidation ü ü ü
We will continuously seek to allocate capital towards our highest risk-adjusted ROI opportunities,
benchmarking both organic and M&A
13M&A PROCESS
Typical M&A process Success factors
1. Scouting – Ongoing, patient scouting and ü Professional but
research activity at HQ in Sweden, THQ Nordic fast and lean
Vienna, Koch Media Deep Silver and Coffee process – focus on
Stain key issues
Typically
performed
2. Proceeding with specific lead ü Giving autonomy
“entrepreneur to to creative, driven
3. In-house DD – Commercial and financial due entrepreneur” with entrepreneurs
diligence on key games, people and business in-house capacity
plan and light on third- ü Accessing a
party advisors on
plethora of
4. Handshake on Heads of Terms – Negotiating either side knowledge and
heads of terms, business plan and post- experience within
acquisition structure (subject to legal, financial, the THQ Nordic
tax and further commercial due diligence) family
5. Execution: Due diligences, finalizing terms, legal Engaging leading ü Cash on balance
docs, etc. legal (Baker
McKenzie), corp,
6. Signing and closing – Normally same day finance, financial
and tax advisors
(EY)
143. Gamescom
ASSORTED GAMESCOM ANNOUNCEMENTS
Metro Exodus New trailer for
DLC release Shenmue 3
IP: own IP: 3rd party Tuesday 5 PM Wednesday 9 AM
Early access in early Publishing deal
2020 Release Oct 17, 2019
IP: 3rd party IP: Own IP: 3rd party IP: 3rd party
Release winter New trailer and New trailer released
2019/2020 release date by Microsoft
164. Financials
FINANCIAL OVERVIEW
Net sales EBITDA Operational EBIT
CAGR: 218% CAGR: 167% CAGR: 134%
5 426 1 549 900
4 124 974 484
273 202
133 108
302 508
2016 2017 2018 LTM 2016 2017 2018 LTM
2016 2017 2018 LTM Jun-19
LTM Margin: 44% 54% 24% 29% Margin: 36% 40% 12% 17%
Intangible assets at 30 Jun 2019 Net sales in “Games” business area Liquidity position (30 Jun 2019)
(Last 9 Months ending Jun 2019)
Item SEKm Share • SEK 3.2bn cash
IP-rights 1,000 26% 9% Coffee Stain
Yet-to-be released games 1,280 34% • SEK 4.7bn cash and available
Goodwill 787 21% 31% THQ Nordic credit facilities
Released games 427 11%
Surplus value Partner
Publishing/Film 161 4%
Other int. assets (film etc.) 163 4%
61% Deep Silver
Total 3,819 100%
18INVESTMENTS
Investments in intangible assets the quarter Investments in game development by quarter
Q1 FY19/20 Internal capitalized development
SEKm
225 378 External game development and advances
SEKm
400 356
131 350 305
300 131
22 250 208
0
Other External 200
Other intangible
IP-rights
External game
Internal capitalized
development and
advances
assets (Film etc.)
development
Total
intangible… game…
150
IP-rights Internal Total
capitalized… 100 225
50
0
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Finalized and completed game development: SEK154m 2016 2017 2018 2019
Note: Not including investments in property, plant and equipment which was SEK 11m in the quarter
19Reported Balance Sheet
Balance Sheet - Reported Specification - Net Operational Assets
MSEK 2019-03-31 MSEK 2019-03-31
Cash and cash equivalents 2 929 Inventory 323
Ongoing Game Development 1 115 Current receivables (excl taxes) 1 247
Completed Game Development & Other Intangibles 545 Current liabilities (excl taxes) -1 159
Tangible Assets (Real Estate) 170 Working capital 410
Acquisition related Intangible Assets 2 047 Taxes (Net current and deferred) -156
Other Operational Assets 1 802 Provisions (excl deferred taxes) -429
8 608 -175
Equity 5 713 Net operational
Interest-bearing Debt 918 assets (SEK-175m)
Other Operational Liabilities 1 977
8 608
§ Acquisition related intangible assets consists of surplus values from PPA relating to IP-rights (1,056m), Goodwill
(830m) and Partner Publishing Relationships (161m).
§ Completed Games Development & Other Intangibles (SEK 545m) consists of Completed games (395m), Film
(139m) and Other intangible assets (11m).
§ Net operational assets amount to (SEK -175m) and is specified in table above.
20Operational- and Non-operational Balance Sheet
Balance Sheet - Opertional Items Balance Sheet - Non Opertional Items
MSEK 2019-03-31 MSEK 2019-03-31
Ongoing Game Development 1 115 Net Cash 2 011
Completed Game Development & Other Intangibles 545 Acquisition related Intangible Assets 2 047
Tangible Assets (Real Estate) 170 4 058
1 830
Equity 4 058
Net Operational liabilities 175 4 058
Equity 1 655
1 830
§ From an operational perspective we have invested most of our funds into our gaming portfolio, where on-going
projects amount to SEK 1,115m. SEK 545m is invested in Completed games (395m), Film (139m) and Other
intangible assets (11m). Further we have another SEK 170m invested into PPE (156m) and participations in
associated companies (14m). The sources of funds stem from Equity and Net operating liabilities.
§ From a non-operational perspective we have SEK 2,011m invested in net cash and equivalents and SEK
2,047m invested into surplus values from acquisitions, all funded with Equity.
215. Appendix
RENAMING PARENT COMPANY TO “EMBRACER GROUP”
• Before parent company
shared name with THQ
Nordic Vienna – Embracer Group AB
confusing to the industry Group strategy and M&A ß 17 Sep 2019
• Renaming to clarify group Karlstad
structure and strategy
with parent company as a
holding company
Games Partner Publishing
Vienna Munich Skövde Munich
23MARKET TRENDS
Market trends favorable for publishers and owners/creators of quality content
Robust market growth Competition to Steam Cloud Gaming: Subscription based services:
for PC and console continues boosts publisher margins Billions of dollars up for grabs “Netflix for games”
Current services already generates
Market Growth notable revenues: Msoft GamePass,
size 18e–21e Publisher/developer share: +26% Sony PSNow, EA Origin
2021e (CAGR)
70% Established and upcoming services
PC $32bn 4% 88% needs our content
excl. browser
Console $39bn 4% Monetizing catalogue, increase
revenues on DLCs
30%
Mobile $88bn 16% 12% Brings new players to sequels for
established IPs
Total $180bn 9%
Even stronger with cloud gaming
Shift to digital distribution Games as a Service (GaaS)
boosts publisher margins Console or gaming PC not needed the new normal
Steam (Valve) dominates digital if games are stored, computed and
distribution to PC – but its 30% rendered in the cloud Games as a Service (GaaS)
Digital (vs. physical): revenue take is at risk if new strong continues to grow in importance
competitors enter Billions of dollars up for grabs:
+ Interact with community and
Epic Games Store will take 12%, 1. Console hardware spend headed analyse their gaming behaviour to
Digital gross margin: ~95% leaving 88% to publisher/developer toward content/subscriptions
Physical gross margin: ~70% when it launches in 2019 drive community engagement and
2. Market expansion (more gamers) post-launch monetization through
= Steam lowered its take Oct 2018: as no console required to play: DLC and other in-game purchases,
25% on sales beyond $10m, and lapsed gamers, mobile gamers,
Publisher gross margin: 20% on sales beyond $50m females, families Gives games longer life and
engagement
Source: Newzoo, steamcommunity.com, unrealengine.com, THQ Nordic
24Name Capital % Votes % Founder management Renouned institutions
OWNERSHIP
30 June 2019
Lars Wingefors through companies 35.1 51.5 Co-Founder, Group CEO
Swedbank Robur Funds 9.1 5.1
Erik Stenberg through company 7.6 11.2 Co-Founder, Deputy Group CEO
Handelsbanken Funds 6.0 3.3
Mikael Brodén through company 2.6 3.8
AP1 Första AP-fonden 2.3 1.3
Didner & Gerge Funds 2.2 1.2
Olsson Family and Foundation 2.2 1.2
SEB Funds 2.0 1.1
Life Insurance Skandia 1.9 1.0
Avanza Pension 1.2 0.7
Klemens Kreuzer through company 1.1 1.6 Co-Founder, CEO THQ Nordic
ODIN Fonder 1.0 0.5
AP2 Andra AP-fonden 0.9 0.5
Martin Larsson 0.9 0.5
Capital Group 0.9 0.5
Pelle Lundborg with family through company 0.8 1.9
Reinhard Pollice through company 0.8 1.0 Co-Founder, Director THQ Nordic
Skandia Funds 0.7 0.4
Rolf Lundström 0.6 0.4
BlackRock 0.6 0.3
RAM Rational Asset Management 0.5 0.3
Inwestbergh AB 0.5 0.3
Chahine Capital 0.4 0.2
Koch Media Holding GmbH 0.4 0.2 - Partly owned by Founder and
Sensor Funds 0.4 0.2 CEO of Koch Media/Deep Silver
TIN Funds 0.4 0.2
Länsförsäkringar Funds 0.3 0.2
Knutsson Holdings AB 0.3 0.2
Michael Knutsson 0.3 0.2
Aktia Asset Management 0.3 0.2 Founder-managers jointly own:
Svenska Handelsbanken AB for PB 0.3 0.2 45% of capital, and
Meme Addict AB 0.3 0.2 65% of votes
Spelfisken AB 0.3 0.2
Amyril AB 0.3 0.2
Grillus Janus Invest AB 0.3 0.2
Vedtraven Finans AB 0.3 0.2
Hippies With Attitude AB 0.3 0.2
Long Name Holding AB 0.3 0.2
Stefan Spel & Bry AB 0.3 0.2 Equity research coverage:
TOTAL TOP 40 86.1 92.2 Berenberg, Carnegie, Handelsbanken, Nordea, Pareto
Securities, ABG Sundal Collier (paid), Redeye (paid)
OTHER 13.9 7.8
TOTAL 100.0 100.0Q&A
You can also read
