Everplay Group (LSE:EVPL) — Full Year Results

0:01 Good afternoon, and welcome to the Team seventeen Group PLC full year results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the q and a tab situated right in corner of your screen. Just simply type in your questions and press send. The company may not be in position to answer every question received during the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll.

0:27 I'd now like to hand you up to Steve Bell, CEO. Good afternoon to you, sir. Good afternoon, and thanks very much. So good afternoon, everybody, and welcome to our twenty twenty three full year results presentation. There's a number of you on the the call who I will have met over the last three or four months I've been within the business, but there's a number that I won't have met. So I just wanted to introduce myself very, very quickly. My name is Steve Bell, as I've said. I took over from Debbie Beswick, who I know a number of you will know, on the 01/01/2024. And prior to that, worked alongside Debbie for a few months in in 2023. My background is in the world of advertising, marketing, digital media.

1:14 And a number of people asked me the question when I announced that I was joining team seventeen as the group CEO as to why I decided to take the jump from the world of marketing communications and digital media into the world of of computer games. And the truthful answer is as soon as I met Debbie and as soon as I started looking into the world of team seventeen, it really, really fascinated me. It really excited me. Just the way that the the organization looks at IP and brands and the lifetime value of those brands made me think that it was something that I could add real value to in terms of my marketing communications background. It is an incredible business. And although 2023 was challenging, I feel really excited about the future within the business, and I feel as though I can add real value when it comes to the growth that the business will deliver moving forward.

2:07 But before we start getting involved in the actual performance of 2023, I thought it was worthwhile just talking a little bit about my perspective of the business having been in position for for some time now. First thing I would say is how competitive, fast paced, and dynamic the industry is. Obviously, 2023 was a really unusual year in the world of gaming just in terms of the quantity and the quality of titles that were that were launched. But the thing that I have seen and the thing that I think is very, very important is the fact that indie and indie games is a fantastic space for us to to play, and it's a place where I feel as though we really can lead the market. We've got fantastic businesses within the team seventeen group, including Astragon and StoryToys and, obviously, team seventeen games label.

2:57 I feel as though we've got underappreciated IP, and we're going to talk about that in terms of the the stature and scale of some of the IP that we actually have. And we've got exceptionally talented people throughout the business. It was one of the things that I knew as soon as I started meeting Debbie and the board and the leaders of those businesses, how experienced they are, but more importantly, how passionate they are in terms of what they do. We talk a lot about life cycle management skills. And for me, that's one of the things that impressed me the most when I joined team seventeen. It's a case of looking after a brand. It's not just a case of launching a game and then suddenly allowing that game to just peter off in terms of sales. It's looking at the sales value over a period of one, three, five, ten years.

3:43 And the way that we manage our back catalog is something that is super, super impressive. But there are obviously opportunities to improve, and I think coming in from a background where I ran 14 different businesses with a thousand people in the world of marketing, I feel as though there's a huge amount that can be done in terms of the collaboration between the teams and the divisions that we have within the team seventeen group. I think the other thing that I've noticed is that discoverability of games is one of the most important things. If you look at Steam in 2023, over 14,000 games were launched on Steam, last year. That's almost 40 titles every single day are launching on on Steam.

4:29 And discoverability and, in effect, marketing and how your title can be can be seen, can be heard, and more importantly, can be purchased is is critical. And I feel as though my experience in the world of marketing communication is really gonna help the business moving forward in terms of fighting that battle against all the other games that are launching within a short period of time. There's no two ways about it. Parts parts of our business underachieved in 2023, But we've learned from the mistakes that we've made, and I can assure you we won't be making the same mistakes again. And we're back on track in 2024 with a very clear plan for delivering growth, and we'll go into that into more detail during the presentation.

5:12 But if we look at the world of indie, and, again, we talk a lot about indie, and we can't just presume that everybody knows what in an indie game actually is. When I joined the business, it was something that I spent a lot of time talking to people within the industry, talking to Xbox and PlayStation and Steam and developers and everybody else. And, obviously, everybody's got a slightly different view as to what indie actually means. Some people are very philosophical and say, oh, it's a state of mind, and that doesn't really help in terms of what we actually mean in the definition of indie. But but probably the best way that I would explain what an indie game is all about is it's a game where the investment in that game is lower than a double a or a triple a title. But more importantly, the actual gameplay in the game itself is very innovative. It's very dynamic. It's bringing together things that have never been done before.

6:04 And suddenly, if you're coupling with a lower lower budget when it comes to development, coupled with the innovative nature of the game, that's how I would capture what what the indie market is all about. So if you look at 2023, though it's highly competitive, the the market is back in growth. The gaming market is back in growth. And the interesting thing is that sales are dominated by back catalog titles. So if you look at Steam, 90% of the games played on Steam in 2023 or what will be classified as back catalog or games that are twelve years twelve months or older. So what that does show is the importance of back catalog, and it's something that we spend a lot of time looking at within team seventeen. The indie market is huge. From our calculations, it's north of $8,000,000,000.

6:50 So you can suddenly see the scale of that market and the opportunity that we feel as though we have as team seventeen group. Innovative titles within the indie world do incredibly well. So if you look at the visual on the left hand side of this slide, there's a title called Dredge that we obviously launched in 2023, a real standout title. But the innovative nature of that game, the fact we're talking about a fishing game and a horror game and a storytelling game, all brought together suddenly create real excitement in the marketplace, and that's why that game just took off because of the innovative nature of it. Indie games are also very differentiated from double a and triple a titles. And we call indie games almost like snackable content because if you look at a triple a title, a triple a title will almost take hundreds and hundreds of hours to complete.

7:39 Most triple a titles never get completed because the player either runs out of time or energy to keep on getting stuck into to that particular game. But an indie game almost sits alongside that. So an indie game can be finished in ten, fifteen, twenty hours. And game players aren't just playing triple a's or just playing indie. They're playing both. And what we need to do is understand the relationship that we have with triple a titles and making sure that people understand the fact that you can complete our games and feel really excited about them moving forward. Indie titles are growing in terms of the number of them on on Steam. And from our perspective, if you get the model right, it's a far lower risk return on investment than double a or triple a. But why, as team seventeen group, why do we feel as though we're well positioned to become the indie powerhouse? And that sounds like quite a lofty ambition, and it is. There's no two ways about it. But it's something that we spend a lot of time talking about internally, and it's one of the internal main objectives that we have and the vision about being an indie powerhouse.

8:41 So why do we feel as though we're well placed to to deliver against that objective that we're setting? The first point is around the global nature of our business. So 90% of our sales in 2023 were outside of The UK. So, again, it shows although we may be perceived as a UK publisher, we're we're absolutely not. We've got global reach when it comes to the games that are being played. When you look at our IP, 35% of sales in 2023 were from first party IP, and we're going to talk about that in more detail as far as why that's important and the direction of travel that we're going when it comes to first party IP. We had over a 100 titles generating our sales in 2023, and 15 of our franchises generated north or have generated lifetime sales north of £10,000,000.

9:30 Four of our titles have generated sales north of 45,000,000, and one of our titles generated sales north of a 100,000,000. So that just shows the scale and the stature of the IP that we are dealing with on a day to day basis. We've got an exceptional back catalog. 71% of our sales are back catalog, and that's growing 10% on the previous year. And that back catalog is constantly being fed by new releases. Our diversified portfolio is something that I'm really, really proud of. We talk to hardcore gamers, casual gamers, enthusiasts, and we talk a lot within the business about having a lifetime of play. So we've got children at the ages of two playing the games that StoryToys and the apps that StoryToys develop from an edutainment perspective, all the way up to people in their sixties and seventies playing some of the titles from Games Label and also the simulation titles from Astragon.

10:23 And no game within our portfolio is north of 15% of our revenues. So that shows that we're not overly reliant on one particular game, which is a really important point. We've got a really compelling proposition for developers. We need to make sure that we are the top of the list when it comes to a developer wanting to publish their particular title, and that's because we've got multiplatform reach. We talk to all of the platforms on a day to day basis. We've also got access to insight and data, and that data is worth its weight in gold because we've got the experience over the last few decades when it comes to understanding the sales profile, what promotion's going to do, how marketing's going to work within that. That can't be said from any other publishers. And, we've got the financial resources to be able to invest in those titles that we feel as though we're right.

11:12 We've also got a very strong balance sheet, and that can enhance our own IP, it and can grow and scale through m and a. And, again, we'll talk about that later on. But what's the plan? That's all well and good saying India is a really interesting market. It's a big market, and we feel as though we've got the foundations to be able to deliver against our ambition about being an indie powerhouse. But the plan is based on these two areas here, so acceleration accelerating our growth. So the first point is around doubling down on our indie focus. It's making sure that we understand that we are an indie publisher. We don't want to drift into the world of double a, and in turn, we wanna make sure that we are clear in terms of the investment levels that we have around our titles. And in 2023, it was one of the mistakes within games label that we invested in titles that were taking us into an area outside of that indie focus, and we're going to talk about that in more detail.

12:07 We wanna make sure we're prioritizing our evergreen franchises, those franchises that have a huge amounts of potential value over a period of time so that EVERPREEN franchise can make sure we're delivering sales and profit three years, five years, and beyond from that. Progressive participation marketing, which is a bit of a mouthful, but what I mean by that is the way that we market our products and our IP. We've gotta really disrupt the marketplace. It's obviously my background. And one of the things that I've seen from my time within team seventeen and talking to other developers and publishers is there seems to be a bit of a playbook, bit of a cookie cutter approach when it comes to the way that mark marketing is used to launch titles. We wanna make sure we're disrupting the marketplace.

12:52 We're doing things in a different way, And you will see as we move forward and in time the new releases that we have, a lot of those will have a very different approach to marketing. So it won't just be you produce a big trailer, you spend some money on advertising, you do a bit of work in social media, and you might do some influencer. It is using a slightly different way of doing that to really disrupt and make sure we're getting greater bang for our buck when it comes to marketing spend. We've also gotta make sure that our publishing models are innovative, that we're listening to what developers want and what developers need. And we've gotta make sure that we are truly flexing the way that we're operating because we wanna be the publisher that every developer wants to work with. The way we will do that is by providing high added value strategic areas of the business that they just can't do.

13:41 Sales, life cycle management, data and analytics, marketing, studio support, all of those things are critical and things that publishers or sorry, developers cannot do themself. And m and a. M and a is something that we've invested in historically, both from an IP and from a business perspective when it comes to Astragon and StoryToys. And we wanna make sure that m and a is part of our business plan moving forward. We're not going to rush it. The focus in the business is making sure that we deliver in 2024 and deliver the results that we've said, but m and a is and should be part of our plan moving forward in the midterm. And when it comes to improving profitability and return on investment, we need to increase the sales mix of our first party IP. So if you look at the graph on the right hand side, what you can see is in 2019, 17% of our revenues came from first party titles.

14:33 In 2023, that grew to 35%, and that's a really important direction of travel. There will be some years that it's higher, some years that it's lower, but overall, we wanna make sure that we're trending in that basis because what the slide underneath or the area underneath in terms of the graph shows is that, obviously, our internal first party IP generates a higher margin for us. That's really important that we make sure that we're looking at our first party IP and that we're investing in it, and we're generating the return on that investment that is so important for the business moving forward. We also have to and we have sharpened up our green light process. And that doesn't mean that we're cutting any corners. It means that we're going through the same due diligence from a product and a commercial and a benchmarking process.

15:20 But we get the entire business and the entire key elements of the business working together to make sure that we are speeding up the process when it comes to a developer coming into us and making sure that we can sign that title with the right commercial terms for ourself in the short term.

15:36 That is really, really important. We still get thousands and thousands of titles every year that pitch to us, and we sign a very, very low percentage of those. And that's really important because that means we can sign titles like Dredge, some of the most exciting innovative titles in the world. We also have new games label investment limits. So we're not going to be doing what we did in 2022 and 2023 and go to bigger titles. We have those investment limits. We make sure we stick to them and that we make sure we work really, really hard to get the return on investment from those. And linked to that, we may need to make sure, and we have made sure over the last four or five months, that we've got far tighter cost controls within the business. So the mistakes that were made in the previous year are not made again.

16:23 So in terms of operational highlights for 2023, so although there was a disappointment within the games label, the other parts of the business have done fantastically well in terms of Astragon and StoryToys. And overall, our revenue grew at 12%, so that's all organic in a relatively flat market. Our adjusted EBITDA pre impairments was £41,000,000, and Mark will talk about impairments later on in the presentation because it's important that we do talk about what happened from an impairment perspective. 17 new games were launched, 45 DLCs, and 327 app updates. So you can see that we're constantly feeding the market with new games and updates on our existing games. We won 14 awards. Most of those awards are international awards.

17:08 And in some industries, awards are a bit of a vanity statement. But in gaming, that is not the case at all. An award will be seen by the gaming community as a fantastic badge of success, and therefore, the sales that are triggered because of that award are very, very clear to see. So winning awards has a major effect in terms of sell through. The strategic review in games label was a significant thing that we had to go through and that we went through at the back end of of last year, and we've got hugely improved operational controls. And we've also strengthened our leadership team and our board. Our board is an incredible board of business experts, but just as importantly, gaming experts in terms of Frank Sagney, who was the CEO of Codemasters, obviously sold to EA, and also Debbie Bestwick, our founder who understands the business, who sits on the board. And now we've got a board that can challenge in the right way, can add value in the right way, and I feel really, really blessed to have those individuals working on the board.

18:12 But I just wanna spend a couple of minutes now before I hand over to Mark just talking about team seventeen games label, ASTRON, and StoryToy just to give you a bit of an insight into the year of 2023 within those businesses. So games label, and I've already touched on this. The strategic realignment within that business was absolutely critical. But the business did grow from a revenue perspective at 12% and launched 11 new titles in the year of 2023. Our five best selling titles in 2023 had Steam user scores of 91%. And, again, that is absolutely critical. It shows that we're really, really good at signing great titles because if you don't get a positive user score on Steam, then your game is not gonna sell, and I can guarantee that to be the case. So the fact that we're getting scores of 91% across those titles shows that we're very, very rigorous in a green lighting process, and we sign the absolute best there is in the marketplace.

19:14 We had popular sequels to titles like Blasphemous and Moving Out in Blasphemous two and Moving Out two. And, again, that's really important to look at the life cycle value that is generated through that. I've mentioned awards already, but Dredge, Blasphemous and Moving Out did really well from a from an awards perspective. But the most important thing is the word focus and refocus on proven historical indie games investment models. So we know the scale and the size of investment that we want to make around those titles, And we need to make sure, and we have made sure that we don't go above that. A number of titles we've signed over the last four or five months have actually been below the investment model limits that we set ourselves, and that's absolutely fine. Because just because you're investing a lower amount in a game doesn't mean that game is not gonna take off and fly in the way that it needs to, and dredge is a brilliant example of that.

20:04 And we've also got normalized marketing levels now. So we've got our marketing levels to a place where I feel very comfortable that they're out, but also we're not spending in the way that double a publishers will spend. We've got the right levels of investment around marketing for what we are, which should be an indie publisher.

20:25 If you look at Astragon, a year of franchise growth, so 5% organic revenue growth. And that's against a very tough comparative in 2022 where Astragon launched four major first party IPs. So to beat the figure from 2022 where four first first party IP were released is an incredible performance. And if you to were to exclude the boxed sales or the physical sales as they're called, total digital sales grew for Astragon by 10% in a relatively flat market. They launched two new third party publishing titles, 16 paid DLCs. And the paid DLCs are so important within the world of working simulations because you play the game and you fall in love with the game, and then you want things that are updating that game on an ongoing basis.

21:11 So, again, we're invest investing the right amount of time, effort, and money in terms of DLCs against our existing IPs. Police simulator is firmly established as a key franchise for the business, and that's really, really good to see. And we did market and physically distribute 45 separate third party releases. So even though that type of business is lower margin for Astragon, it's a really, really important part, and the fact that we're distributing 45 titles shows that we are held in very high regard when it comes to our physical distribution strategies. We also completed the acquisition of Independence r soft art software in in April, excuse me, adding 45 heads to the business, and they are working on first party IP development for Astrakhan simulation titles.

21:59 And finally, StoryToys. What an incredible acquisition. Another year of significant growth, 26% organic revenue growth against a declining mobile market. And the thing that fills me with most confidence and joy about about StoryToys is the fact that they're expanding and developing even deeper relationships with those licensed partners. And, obviously, Astrogon's sorry. StoryToys apps are targeting two to six year olds. And what we do know about that target audience is parents have a huge amount of trust for the likes of Lego, Walt Disney, Marvel, Mattel, Sesame Workshop. All of the licensed partners that we work with provide that trust. So, therefore, parents are far more likely to subscribe over a period of time when it comes to our apps and the updates against our our apps. And when you look at the updates, we updated 327 app updates in 2023. So it's almost one a day. And that's really important in a subscription model. You need to be feeding those subscription or those subscribers with new areas of the apps that's actually being developed.

23:05 So a really strong business in great growth with fantastic license partners. But it's all well and good talking about that. I'm a big fan in actually showing what we do. It's good for me to talk about it, but what we've done is pulled together a very short showreel that just brings to life the games that we launched in in 2023. And, so I'm gonna play that very quickly, and then Mark is going to to present the numbers and the impairment figures and the capitalized development cost and a lot of the things that you guys will be rightly so very interested in. Thanks, Steve, and, welcome everybody, to our roadshow

25:00 presentation. Second time we've done this is a webcast, so it's important that we do get the chance to share the messages with all of you guys. And that show real, I think, does demonstrate, as Steve says, and brings to life what we do as a business, which is creating brilliant games. And some of those you'll have seen are part of the messages of of the story behind the financials for the year. So overall, look, the the group has consistently always delivered growth, and we're very proud of that record. And 2023 was no exception. Really pleased as Steve's talked about to see 12% growth overall for the group, and that's against the market a games market that had a growth rate sub 3%, according to New Zoom.

25:47 So what we are doing in in those revenues just as an aside is we're we're having to accept and acknowledge digital mobile digital sales that go through the Apple and Google platforms on a gross basis. So normally, all of our sales and in the past have all been at net, and that's net of the platform fees. But now because Apple and Google, their contracts relate to them being the agent in in the process, we're reflecting those sales, through their platform as gross. And that only really affects story toys, and we've adjusted the prior year. So there's no difference in comparing year on year in terms of growth, but it does add 6,000,000, to the revenue figure for story toys.

26:33 What you'll notice though through the p and l is because of that, it doesn't change any of the statutory numbers in terms of value, but it does have an impact on margins. But I say it's been adjusted for prior year as well. The good message from our side is that that growth picture is spread across all divisions, and I think that shows the the the breadth and the balance of our broadening portfolio and the strength of that as our business model, which is what we're all about is building out that portfolio. Story toys led the way, with a 26% growth rate. And Steve talked about how they've been broadening their license, partnerships. And in games labels, it was behind that at 12%. Ashtrigon delivered 5% growth, which actually is a very good performance against a very tough comparative year in 2022 in a year in which they launched all of their own IP simulation titles as new updates and new releases.

27:31 So just going into a little bit more detail through the through the the revenue side. Although there were no major own IP launches in 2023, the own IP has held firm. About four of the top 10 selling titles by revenue are our own IP. And they're spread evenly across, the games label and Astracon led by two titles, I guess, Hell Let Loose, which you know we acquired, from our our own third party titles to become our own IP back in 2022, and Police Sim, which is the the one of the Ashtagon's own IP simulation titles, which we launched out of full release only at the back end of twenty twenty two, and it's now their their lead selling simulation title.

28:17 I guess the the real story on GROUP is the third party, titles, and that grew at 20%. And standout performance, was Dredge, and Steve's talked about the accolades and awards that that title has received. That also helped drive new releases. But new releases benefited from, you know, strong games label growth on on new titles, not only Dredge, but also Blasphemous two as as a as a really good performer as a sequel to Blasphemous, which was launched a couple of years ago, and then also Tropang two.

28:51 Oddly called Tropang two, it's not actually a sequel, but but for some reason, they decided the developers decided to call it Tropang two. I guess, for us, underlying business on on the revenue side for titles is is the balanced portfolio that meant we delivered a 10% growth in that back catalog. And that backlog continues to grow. It's now up to 114,000,000 in revenue terms. And as Steve talked about earlier, it represents, 71% of revenues. And I think that's, an enviable part of our business that most other companies in the gaming sector would would love to be able to have as such a strong back catalog. And as I think you some of you will know, we define the back catalog as those titles we'd launched in the prior financial year or or or earlier. So we keep topping up the back catalog each year with those new releases. And then it's all about those the strength in life cycle management, across both our marketing and sales teams to extend the life cycle of of key titles in the in the back catalog.

29:57 So just going into a bit of detail on the gross margins because despite the top line growth, we saw gross profit fall, and it fell to 58,000,000 at a 36% margin. If if we pulled out the impact of those impairments on titles, then obviously, that that margin would get back up to about 41%, but still below the prior year. So the significant impact on margins came from those one off noncash impairments of titles, and we identified this and talked about this in in our update at the back end of of, last year in November. And as you expect, we've been through a very detailed review of all of our titles and not just those that are already launched, but titles that are in development for future launch.

30:44 And a number of titles were affected here. It's not just one or two. The vast majority were twenty twenty two and twenty three titles, and Steve alluded to this earlier in terms of that's where there's been a bit of drift into titles that have underperformed or or had a higher level of investment. And, you know, equally, there were a couple of titles that were for 2024. And what that's about for us is looking forward at the carry at the potential that those titles have in future in terms of cash flow and and matching that and assessing that against the carrying value. And, you know, we had to take the view of of impairing those titles to the tune of just over 11,000,000 11,100,000. And we're confident, though, that that's been a very detailed review, and it's a one off adjustment. We don't expect the surprises that we saw in 2023.

31:40 In fact, in terms of the other driver on gross margin was the mix effect, and this this will vary year on year. So the the mix effect had an impact on margins. And firstly, I've talked about already the third party titles were higher in terms of sales mix than we had anticipated and has to do with the success of some of those titles that I've already talked about. Equally, within those third parties, we have some titles with some slightly higher royalties. Look, as a business, we take several dredge titles with a slightly higher royalty payments to the development partner for the success that that title had. And then if you look at own IP, the mix of Ashtrigon's own IPs in terms of revenue was was slightly higher than it had been as compared to games labels own IP titles.

32:29 And, actually, what the difference that makes is and and Steve had the the bubble chart. That's the second second chart to the right hand side. Ashtagon have dedicated third party developers as partners, and they pay royalties to those partners. So they're they're incredibly strong titles, but they do have a a a royalty aspect to those. So overall, royalties for the year this year as a percentage of sales, '22 and three were up to 30% compared with 26% in the prior year. So that has an impact on overall profitability. In addition, expense settlement costs, and these are all of the costs within the studio that are attributed post launch and in particular for developing free DLC content.

33:17 So overall, we had a 45, DLC updates during the year, and as you heard, over 300 app updates for story toys. But in addition, we supported more live titles such as Hell Let Loose. And and that's had an impact on the the amount of costs that are expensed through the p and l. In addition, Steve talked about the restructuring that took place in, Games Label in The UK. And the majority of that impacted, the studio. And so of the 1,200,000 of restructuring costs, 1,000,000 were allocated into the studio, and they they were taken through the expense development line. So they won't be repeated going forwards. And that meant overall that expense development costs were up at 10% as a proportion of sales compared with the prior year at 7%. So you can see the the impact of those small changes.

34:12 I guess, finally, the other driver within cost of sales is capitalized development amortization costs. So this is where we're charging back all of the the costs that we've incurred in the development up to the point of launch and they charge back post launch. Just as a reminder, we're fairly prudent here. And for the games label, we amortize that back over two years with 70% in the first year. And for Ashtrigon and StoryToy, it's actually it's 50 in the first year, and then it's spread over three years. So it's 25% in each of the second and third years. So it's quite an impact in the first year of launch. And what we have seen is that's that's elevated because of the ongoing impact of some higher level of investment in titles within the games label, over the last two years. And as you heard, that's been that's been reviewed as part of that reorganizing and restructuring process so that we will start to see that fall over time as the investment and capitalized development costs reduces.

35:15 And we will we're seeing that flow through into we saw it flows into '23, and we'll see it flow through slightly into 2024. The other block, the other cost block within the cost of sales relates to physical goods, cost of goods sold. And that's predominantly within Ashtrigon. And we will see that fluctuate as they get their third party retail partners selling into retail box product and as they launch new titles and that tends to fluctuate across the years. So looking at adjusted EBITDA, So given the above, mentioned, impacts on overall performance, we've seen adjusted EBITDA fall, and it fell to a level of 30,000,000.

36:00 As Steve mentioned earlier, if you add back the title impairments, that comes back up to 41,000,000. I guess the most significant impact, or within admin costs is the impairment on the label.

36:44 I think we've momentarily lost Mark there. Ladies and gentlemen, please do bear with us. We'll just bring Mark back through. Hi, Mark. Can you hear us?

37:06 Hey, Jerome. Just bear with us while we just bring Mark back in. Thank you. Thank you, Mark. If you just click accept there, we'll disconnect your microphone and get you back involved. Thank you.

37:36 Just connect your microphone there, Mark. That would be great. Mark, can you hear us okay? Yeah. I can. Lovely. You're back in you're back in the room, sir. Apologies, everyone. That's technical challenges with connection in the Internet. So I think I was talking about the internal challenges we had with the label in terms of a strategic pace for delivery of that title post or that business post acquisition. But there are also some fairly important external factors. So the the years prior to the acquisition, mobile had been growing at double digit growth rates. We saw it as a and and still do, by the way, as an opportunity to engage in the mobile, sector through subscription business.

38:22 But, actually, in 2022, you know, with changes to advertising, and in app even though subscription isn't impacted by that, the mobile market declined 7%, and it declined again last year, by one and a half percent. That meant that there was more competition on that on the mobile platform and less funds available to support new development. So our ongoing revenue streams from performance bonus payments reduced quite markedly, and then Apple reduced their investment to bring new titles onto their platform. And that had an impact on our overall development pipeline, and that's dramatically reduced the the sort of income flows and performance of that business compared with our acquisition. We do still see it as a as a viable platform, for growth in the future.

39:12 We've, in fact, put the first of our own back catalog titles within games label into, into development with team seventeen USA. When we expect to see that, it takes around about a year to get that through development cycle. So most likely, that will start flow through into twin early chart of 2025. So there is a opportunity for us to put more of that back catalog of the games label, but there's also a much tighter strategic focus on the business to be able to drive the business development pipeline. So that that's a big factor in the admin cost. And, of course, again, as a one off impairment cost, it's not cash related, but it had an impact on all of our statutory measures. As discussed, Steve has mentioned, there were some other cost pressures.

39:58 And in marketing, we've seen over the last two years the the increase of marketing spend on on trailers and investment in marketing against some of those larger investor titles. And we've addressed this already, and we were able to reduce the overruns, if you like, on marketing spend, you know, after the first half, and we limited it to about an increase of just under £1,000,000 versus the prior year by year end. What we saw over the last two years is as a percentage of of sales, the marketing spend had almost doubled as a percent of sales. And, actually, we've reduced that back down to historic levels going forward. So we're already gonna see a reduction in that going forward into 2024. Staff costs were actually lower than the prior year, but that that doesn't reflect the reductions.

40:45 That reflects because the reorganization process took place right at the end of the year, it it reflects the performance of that business, and therefore, no bonuses were paid in in but in the games label and the group level. The the administrative costs of the reorganization with an with admin, so the nonstudio side, accounted for about £200,000 at that 1,200,000. The flow through of the of the savings from headcount reductions within the the commercial teams that impact admin costs will deliver around £700,000 of of future savings in in 2024, and that's around 10% of staff costs. So overall, there is an increase in admin cost because of the impairment charge. There's also some, just under 10,000,000, 9,200,000 of of acquisition related costs, and that's had a significant impact on all of our statutory measures.

41:40 But if you back out the the the one off noncash charge of 32,000,000, you you get back to an adjusted EPS of around 17.6 p. So down on the prior year because of the the other impacts that we've talked about, But we see the changes that we've made and the and the backing out of those one off impairments will not have the same impact as they've had in in prior years. So we've learned a lot of lessons in and tough lessons in the back end of last year around the the cost controls. We've got tighter control limits. We've got a board as as Steve mentioned that's got lots of gaming experience and more focus on holding us to account as a as an exec team and our senior team. And we've got more rigor around the sort of controls and and the review processes. I think that's put us into a stronger position going forwards than we have been in the past.

42:37 So kind of key movements on the balance sheet really are all about that goodwill and intangible that they've dropped as a result of those impairment charges. Capitalized development costs have continued to rise, and that's an effect of investments and the decisions around. So as Steve's talked about, slightly enlarged investment, decisions on larger titles, and it increased to 32,000,000 in a year, but that increase is slowing down. And actually, because of the recentering of the games level approach to, lower investment levels, it doesn't mean the smaller titles necessarily. It means we're managing that to a a tighter level at between 1 and 1,500,000. Quite a few of the recent signed titles are below £1,000,000, so it doesn't mean they'll all be in that level.

43:24 We're gonna start to see that having an impact to reduce the investment levels and capitalize on the costs within the games label. That will be offset by increases in Ashtrigon and StoryToys, in particular, Ashtrigon where we're seeing the value of their own IP simulation titles, and they're broadening that out. They've got four currently, that are out, launched on sale levels. They've got two more new own IP simulation titles in development. So we'll see it increase slightly in '24, but actually, the direction is to be reducing as a percentage of sales going forwards. So in terms of the rest of the balance sheet, look, we remain very, cash generative, highly cash generative. We're retaining our clean balance sheet and conservative approach to charging back capitalized on the cost over sort of two to three year period.

44:13 We're seeing the final of the earn outs being paid in 2024, so they go out in q two. So that that generation of cash from operations will start to increase and improve our our cash reserves towards year end subject, of course, to any further m and a activity. So I think, overall, it means we retain a very strong balance sheet, and and that gives us in a position with the improving cash reserves to support investment both in our development projects and titles as well as any future m and a. So I think I'm handing back over to Steve. Very much, Mark. Just got two more slides to present, and I'm conscious of time because I know there are some questions that have been sent through that we want to we want to to to get stuck into. So the the first thing I just wanted to touch on is the the investment case for team team seventeen group and why not surprisingly we think it's a really attractive investment case.

45:14 And the points that I want to raise here are the points that I think are absolutely fundamental to the business. And the first is around IP and talent. So so we absolutely have the IP, the first party IP that I feel is always super strong, and and we've got really exciting plans for that moving forward. And just as importantly, we've got the talent. We've got the breadth and the depth of talent within the individual parts of the business to make sure we are geared up for success and growth moving forward. The proven franchise creation and life cycle management skills. I've touched on this quite a lot during the presentation. We shouldn't underestimate the importance of it. When I talk to Xbox or PlayStation or Steam, they say we're two or three years ahead of anybody else in the market when it comes to our ability to be able to realize value in the medium to long term when when we're looking at our IP.

46:00 The importance of back catalog and how dependable and strong our back catalog actually is, and a track record for market beating growth. And, again, Mark's spoken about that in a bit of detail, and yet disappointing from an EBITDA perspective. But from a revenue perspective, 2023, even though it was a tough year, showed market beating growth. A strong balance sheet, cash generation, and m and a optionality, again, which is a really important point in a market that I think there are big opportunities moving forward when it comes to to m and a. But if we look at the outlook and if you look at 2024 as a specific, the actions are absolutely in place to accelerate revenue and profit growth. We expect to launch at least 10 games throughout the group during 2024, and the mix in 2024 is skewed to third party IP.

46:50 That will change as we move forward, but 2024 is very much about that. Continued cost discipline. Mark's focus and my focus is very much on the running of the business, making sure we learn from the mistakes that we made in 2023, don't make the mistakes again, and set foundations to make sure 2024 and beyond are really successful years for us. And we've had a good start to the year, and our underlying trading performance is in line with market expectations, which is positive for us to say. But if you look at the midterm, higher weighting of the first party IP, very clear plans against our first party IP, what we're gonna do, when we're gonna launch, and the areas around those. More flexible publishing models, making sure we're listening to what developers need and want, and that goes back to the point I raised earlier about the high added value strategic parts of our business rather than the parts of our business that are less value add.

47:46 Marketing innovation, marketing disruption, making sure our marketing is that much better than it's been and making sure that we are delivering truly disruptive experiences. Greater realization of group synergies, making sure that the group, as in the parts of our group, the whole is greater than the sum of the parts, that we're sharing skills and resources, we feel like a group rather than individual businesses. Rising cash generation and active m and a strategy. And that active m and a strategy is very much in the midterm box because 2024 has to be around focus on the business and making sure that we deliver against what we said we're gonna deliver. So the final thing is is is just one more show, really, that just shows the games that we're launching in 2024 and beyond. If any of you have eaten lunch, there's one of the titles that if you're quite squeamish, you might wanna look away. It's called autopsy sim. So the clue is in the title of the game. But but if we could play the video, and then we'll open for questions for for Mark and myself.

48:52 Peggy eighteen. Perfect. Steve, Mark, I might jump in there and thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab which sits right on the right hand corner of your screen. But just for the company to take a few moments to read the questions that have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard.

50:19 As you can see, we have received a number of questions throughout today's presentation. And James, if I could hand over to you at this point to chair the Q and A, that would be great. And then I'll pick up from you at the end. Great. Thank you very much. And thank you all for your your questions you've submitted during your presentation. I'll kick off with one for Steve. What strategies are in place to attract and retain top talent within the industry? The obviously, attracting and retaining the best possible people in the marketplace is going to be critical for us moving forward. And I think making sure that we have an opportunity for the leaders within the businesses and also the the the talent that has the potential to grow into to bigger roles. I think the fact that we're acting and thinking more like a group now than individual businesses gives the leaders of Astrogon, StoryToys, and Team seventeen Games Label an opportunity to get involved and share some of the skills they have in other parts of the of the business.

51:20 So suddenly, they're playing on a bigger playing field while still leading the charge when it comes to the areas of specialism they have within the the business. So there there's no just to be very clear on that, there's no intent on bringing all of those businesses together to create one super business. That is not the plan at all. But what we are doing is looking at the areas of specialism and the career aspirations that our leaders have to be able to allow them to influence and impact things outside of the day to day of their of their running. So I feel as though we've got a really clear plan. I've had good detailed sessions with all of the individual leaders within the business to work out what it is that they want to do, what they're excited about. And the the vision that we've spoken about and the strategy that we've spoken about within this presentation is something that we're all aligned on, and people are very, very excited about where that's gonna take their individual careers moving forward.

52:15 Thanks, Steve. One for Mark. Can you please highlight some specific actions taken to prevent the cost overruns in 2023 occurring again? Yeah. So I I think we've touched on this through the presentation in some some points. So firstly, I think it's it's about setting a clear focus on what we we see as the range of investments within levels within team seventeen games for third party, developments partners. So one to one and a half million. And that that means that that's not the complete, so we we've signed some titles that are below that level, below a million. And we may still sign some that are higher, but actually as a focal point for the the game scouting team, it's really clear. That's reducing the investment. It doesn't mean to say, as I said, that that's necessarily smaller titles in terms of their delivery. Dredge as an example delivered, yeah, became our number one selling title for 2023, and that our investment on that was less than 1,000,000. But I think what that does is that helps us manage games that are assigned and manage the investment levels going into those games. I think it derisks the chances of the higher level investment games not making the return. So it's a way for us to to manage that process.

53:29 Then we put in place, you know, more rigor around the development, the review of development costs through the development cycle. So, you know, more frequently, more visibility of them at a higher level, and also that that brings up to to both, you know, group level with Steve and myself with the with individual businesses, but also at a board level. So there's got a lot of visibility on it. We've talked about marketing costs. That was an area that overrun. And and in truth, the controls should have been tighter to to avoid, you know, the business in The UK being able to invest more money in marketing, but I think that was aligned to those larger titles. But we've actually put the limits back to to put marketing spend as a percentage of sales back to the lower levels that they were, you know, prior to the last two years. So that will have an impact on managing those costs.

54:23 But overall, it's there's been a reduction of the authority levels across the business and not just in The UK. We've spread this across the group. And we've we've got delegation levels that now mean that there's there's more, of the larger investment type decisions are going to board level as well. So there's there's a raft of those, kind of controls. And our 100% focus from Steve and I and certainly myself and the team in the finance side is on commercial discipline and rigor about that through the year. Thanks, Mark. Maybe this one for Steve. How are your m and a priorities and what sort of acquisitions might complement the existing portfolio? Yeah. The the the m and a marketplace is is pretty active at the moment, not surprisingly, because a lot of developers, a lot of studios are looking at what's next for them.

55:19 So so so we're not short of opportunities that are coming our way. I think we've proven over the years that we are very, very selective in terms of what we acquire, and that's why you can see some of the acquisitions that have been made have been super successful when it comes to to the business. As I said, with with Frank Sagney as our chairman and and Debbie Beswick on the board as well, we've got two people who are very connected within the world of gaming and also are contacted on a regular basis when it comes to the potential m and a opportunities that can be brought into the business. Obviously, when you look at m and a, you could look at a number of different areas. One area could be IP. So hell it loose is a good example of IP that we have acquired within the business that we have continued to grow to realize really positive value. The benefits of that is there's no major cultural integration because you're not actually integrating people within the team seventeen group. So you can see how there could be a benefit when it comes to first party IP.

56:20 But there are also a number of studios and publishers and developers in the marketplace who are very interesting to us as well. But as I said earlier on, our focus absolutely in terms of the executive team of Mark and myself is very much on the day to day delivery, cost discipline, making sure that the operational controls are firmly in place. And then when m and a opportunity does come through, we will look at it, but the board will have looked at it and made sure that we're developing the right amount of or the right balance around what we want to be doing moving forward. So it's not a short term priority, but it's definitely something that will happen in the midterm. Thanks, Steve. Mark, do we expect to deliver revenue growth in 2024, which the current consensus doesn't imply?

57:14 And what is the the midterm revenue growth outlook for revenue yet? Yeah. No. I I think this this is probably linked with not all of the the analysts in the marketplace have adjusted their numbers yet. So I mentioned on my piece on the revenue side that we have, this year, had, gone to the process of taking the policy of of accepting the digital mobile sales through Apple and Google at a gross level. So I think I think what the numbers in the marketplace are yet to be adjusted, so it looks like they're going backwards. So when they get adjusted, you'll see a growth. We've typically we are cautious and careful in our guidance to market. We're looking at sort of low single digit growth rates in 2024, and that's probably fairly well aligned to new zoo and games market estimates for growth picking up from the levels they were lower in the last few years to to low single digit growth in 2024.

58:14 So we're cautious. We're we're we're kind of confident that we can deliver that. And as Steve says, our focus is on getting back to the the the the sort of delivery and consistent delivery that you're seeing from team seventeen as a group, since IPO and and moving on from the challenge we had last year, but it does include some level of growth. And as we get through the year, we will, if there's anything to update on that, we will update the market. We've had a pleasing start to the year, but the year is still challenging, with competition and discounts in the first quarter. And we do still have, as we have had for the last two years, a more heavily weighted h two for new releases. But so all that taken into account, we're still we are still guiding to some growth in 2024.

59:02 And then, Mark, as we have you, just a question about why we present adjusted earnings measures as well as statutory reported earnings. Yes. I I I saw that point. And I look. We we feel that the adjusted measures are appropriate to show the underlying trading. Clearly, this year, some of the impairments are adjusted. So when we adjust out all the acquisition related, payments on adjusted EBITDA, then the the the label impairment does get taken out of there. But the title impairments don't because they are they are equivalent to effectively accelerating your amortization charge. So I think the one of the points on the note I read, the question was, you know, it it looks like you're presenting an adjusted adjusted measure, and that that would be the case.

59:49 But we are we're not hiding behind the fact that the actually adjusted measure for EBITDA is 30,000,000. We're just making the point that it's a one off non cash adjustment. But but actually, our adjusted measure is 30,000,000. The statutory measure is a loss, but they do include, you know, 1,100,000 loss. They do include 32,000,000 of noncash one off impairment charges. So you're absolutely right. The intention is not to try and create an adjusted measure of an adjusted measure and be really clear about it. We tried to not hide behind that, but he was just making the point that they do get backed out and you won't expect to see those repeated next year. Thanks, Mark. And we're almost out of time. Just maybe one final one for for Steve.

1:00:37 How is the how is the employee sentiment or engagement in in games label at the moment? And how how are you adjusting this through employee engagement this year? Yeah. It's a good question and something we spend a lot of time looking at. Obviously, when you go through any form of restructure as we've had to in q four twenty twenty three, it does send a message to the business that needs to be picked up on an ongoing basis. And and and what we need to do there and what we've done over the last four or five months is almost overcommunicate, making sure they understand absolutely what our strategy and what our vision is for the business. Because the problem we had before is because we were sort of zigzagging into bigger titles, then we go back to India, then we were going back to bigger titles.

1:01:26 There was no real clarity around the type of business that team seventeen games label actually wants to be moving forward. So we have that clarity. We've got everybody within the business together face to face, third week of January, and we're continuing to do that. We have town halls on a monthly basis. Whenever I'm in either Wakefield or Manchester, I have what I call sort of deep dive focused groups with with it with up to 10 individuals each time to get a real feeling of how people genuinely feel about the business. Obviously, there's been disappointments because friends and colleagues have unfortunately left the business because of our restructure. But I genuinely feel that q one, we're in a much better place. Our attrition rates are lower in q one than they were in q four, and the general feeling of positivity within the business is there to be seen.

1:02:16 If I'm being honest, I think it's gonna take us another six months to get to the place where I would really like it to be when it comes to the pride, trust, and camaraderie that you need within a business like team seventeen games label. But we are definitely on the right path when it comes to that. Great. Thank you. Well, that's all all the questions we have for now. Perfect. I might just jump in there. And and before redirecting investors to provide you with their feedback, which is important to you all, Steve, could I just ask you for a few closing comments? Yeah. Of course. The first thing I'd like to say is is thank you all for up your time to to listen to to Mark and myself and actually pose the questions that you that you have done. Obviously, 2023 was a challenging year, a really challenging year, and the lessons that have been learned are are there very clearly for us to share with you all today, but more importantly, for Mark and I to make sure that I'll never sort of they never happen again within the within the business.

1:03:15 So it's painful. It was a it it wasn't the year that we would have wanted in 2023. I've come into a business that I'm still very, very proud of. I think we've got some fantastic people, some great foundations, some great games, some great acquisitions have been made. And I genuinely feel very positive about 2024 and beyond. And I'm hoping that people feel that the transparency and the openness in terms of this presentation and our strategic vision that we have as a business is gonna help them understand what we want to be moving forward rather than what we are today. So so that's all I wanted to say. Just thank you very much for for your time, effort, and and believing in the business. So thanks very much. Perfect, Steve, Mark, James. Thank you once again for updating investors today. Could I please ask investors not to close this session? As you know, we automatically redirected to provide your feedback in order that the management team can better understand your views and expectations.

1:04:09 This might take a few moments to complete, but I'm sure we're greatly valued by the company. On behalf of the management team of Team seventeen Group PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.