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Edited Transcript of MTG B.ST earnings conference call or presentation 29-Oct-19 9:30am GMT

Q3 2019 Modern Times Group MTG AB Earnings Call

Stockholm Oct 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Modern Times Group MTG AB earnings conference call or presentation Tuesday, October 29, 2019 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jørgen Madsen Lindemann

Modern Times Group Mtg AB - President & CEO

* Lars Torstensson

Modern Times Group Mtg AB - EVP, Head of Communications & IR

* Maria Redin

Modern Times Group Mtg AB - CFO

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Conference Call Participants

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* Erik Lindholm-Rojestal

Nordea Markets, Research Division - Analyst

* Oscar Erixon

Carnegie Investment Bank AB, Research Division - Financial Analyst

* Rasmus Engberg

Handelsbanken Capital Markets AB, Research Division - Head of Research

* Thomas A Singlehurst

Citigroup Inc, Research Division - Director and Head of European Media Research

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to Modern Times Group Q3 2019 Results Conference Call. I would now like to hand the conference over to Mr. Lars Torstensson. Thank you. Please go ahead, sir.

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Lars Torstensson, Modern Times Group Mtg AB - EVP, Head of Communications & IR [2]

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Thank you, operator, and good morning, everyone, and welcome to MTG's Q3 2019 Interim Report Presentation. As said, my name is Lars Torstensson. I'm responsible for communication at MTG AB. With me today, we have Jørgen Madsen Lindemann, our Group President and CEO; and Maria Redin, CFO of MTG AB.

Today, we will start with a formal presentation followed by a Q&A. Please keep in mind, questions are only enabled for those participating through dialing. Our webcast is listening only. So without any further delay, please, Jørgen, can you take us through the formal presentation of our quarter?

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [3]

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Yes. Thank you, Lars, and good morning, everyone, and welcome to our third quarter report. High activity has characterized this quarter at MTG, and I think it's resulting in a solid operational performance and delivering on the strategy for MTG.

We are from 7 months in operation since the completed (inaudible). And the first 2 quarters have been a lot of focus on implementing and executing on the build and buy strategy, and we are seeing concrete output as a result of the work put in with important agreements of partnerships formed and announced.

So let's dive into MPG's third quarter of 2019. So if I can ask you to move to Slide #2. Operationally, our 2 business verticals, esport and gaming, have shown good progress and delivered 6% growth in the quarter, impacted by a sequential seasonality and marketing investment.

In esports, sales grew by 12%, despite the vertical having 1 less market property in the quarter. We still had a strong quarter with this operation growing revenue by 17% year-on-year, fueled by an impressive 42% growth in sponsorship sale. We have continued to develop collaboration between ESL and DreamHack in the quarter, with the ambition to build the leading global esport ecosystem, and we have demonstrated what they can achieve working together at scale beyond anything presented by their competitors.

For the gaming vertical in Q3 2019, we invested in future growth on the back of improved lifetime value of InnoGames customer base allowing for increased marketing spend. We believe that spending additional resources on those acquisition today will yield better revenue growth for the games going forward.

Our VC fund continues to operate with high activity, and we announced 3 investments in the quarter. Overall, we believe that the third quarter was solid, impacted by sequential seasonality and showing that our sole focus on esport gaming is yielding results.

With that said, let's move on to what we are doing more specifically in the verticals, and let's begin with the gaming. So if I can ask you to turn to Slide #3. The gaming vertical was impacted by sequential seasonality in Q3 2019, timing of bigger in-game events and investments into marketing.

Reported net sales in the second quarter increased by 2% to SEK 629 million. Mobile sales grew stronger by 14% to SEK 347 million, which was 55% of the total net sales of the gaming vertical. The new strategic arrangement implemented in 2019 for Kongregate intended to devote greater development resources to a smaller number of existing games with the potential to deliver stronger sales growth continued to yield positive results and Kongregate posted good double-digit improvements in net sales and adjusted EBITDA compared with last year.

During the quarter, Kongregate released a new title Idle Frontier, which demonstrated positive early results and Bit Heroes IP, acquired in Q2, continued to report good development and sequentially growing net sales.

With improved assumption on customer lifetime value at InnoGames, we have seen our opportunity to increase marketing spend to create a foundation for future growth. That resulted in a slightly muted margin development in the quarter. On the back of higher marketing, we saw early and positive results in the form of improving MAU for InnoGames' biggest title, Forge of Empires and Elvenar, with a 6% growth in Q3 versus Q2 2019.

Work is still ongoing with the newer mobile games, Warlords, and its road map to improve operational metrics in order for us to scale marketing. The most recent release from InnoGames, God Kings, have not yet seen the expected return from the road map launches. Hence, we are currently evaluating the best way forward for the game.

If we then move on to look at the gaming vertical KPIs, Slide #4, you can see that daily active users decreased by 5% to 2.7 million compared with the previous quarter. The quarter-on-quarter decrease in monthly active users, MAU, was 4%, mainly due to Kongregate that had more games featured in app store and traffic generated from platforms it no longer uses.

The average revenue per daily active user increased to SEK 2.9, plus 7% year-on-year, mainly driven by better in-game monetization, lower DAU in Kongregate as positive impact from currency movement.

The top 3 titles have remained unchanged throughout the year. Forge of Empires and Elvenar and Animation Throwdown. And the net sales generated by these titles were slightly lower in the quarter at 68% compared with the both preceding quarters and preceding year.

Adjusted EBITDA in the gaming vertical was SEK 118 million, and the margin was 19%.

Looking forward into fourth quarter, we're anticipating a stronger performance in terms of both revenue and EBITDA in our gaming vertical, following the margin push in the third quarter and improved in-game events with InnoGames October revenue so far paying off 8% in euros compared to the same period last year.

If we then move on to Slide #5. Our esport service products continue to yield positive results and the business vertical grew by 12%. ESL did particularly well, driven by the owned and operated growing by 17%. As a result of the growing fan base and increasing viewership, more sponsors got involved in both our Master and Challenger properties. In the quarter, sponsorship revenue grew strongly by 42% compared to the same period last year.

We continue seeing sponsors align, increasing their commitments to our properties. Adjusted EBITDA loss of SEK 54 million was broadly flat year-on-year. The revenue growth meant that our margin improved somewhat in the quarter. Underlying ESL had lower losses in the quarter. However, 1 less property in DreamHack had an adverse effect on the margin development in the quarter.

We continue to invest in future properties, and we had our first all-female DreamHack Counter-Strike tournament in Valencia that was very well received.

Top line growth remains our priority in esport and both owned and operated and esports services are scalable businesses. So as this revenue stream growth, we expect margins to steadily improve over the coming years.

With that said, as you can see, we will continue to expand and invest in our esport vertical, both in the amount of properties and also the geographical reach.

If we move on to Slide #6. With our owned and operated, we focus to professionalize the revenue streams around the strong and relevant orders in esport, and we have in the third quarter showed a high level of activity with important pieces put in place to achieve just that.

In September, ahead of the ESL One New York, even ESL and DreamHack announced a new ESL Pro Tour, the world's largest Counter-Strike circuit, a unique global product combining DreamHack and ESL Circuit received very well by the teams and fans and important for the long-term commercial focus.

As we have stated before, increased access to quantitative data and the production of relevant esport commercial product is the focus to improve monetization of the sport. That's also why we have announced a comprehensive and strategic agreement with Nielsen, the global measurement and data analytic company. Together, we will deliver relevant and industry standard activity to our partners, validating the attractive commercial ROI that esports can deliver.

Putting a closer look at this particular relationship and some early data points around the esports as a media sponsorship product. If you move to Slide #7, you can see that the Nielsen partnership will help the esport industry in general and MTG in particular, to validate and therefore, accelerate monetization of this young and attractive esport fan bases.

Compared to any other sport, this suggest that esport is by far the channel, the best channel, if you as a media channel or a brand would like to reach the next generation of consumers out there.

Together with Nielsen, we will help our partners to validate the return on investment to measure media value, to standardize the industry metrics and generate fan insight -- impact that will support to better monetize ESL and Dreamhack audiences.

So going forward, all ESL and DreamHack competitions in the ESL Pro Tour and beyond will be professionally measured by Nielsen. This is a milestone for the esport vertical and a solid example of how we raised the bar in the esport industry.

If we move on to Slide #8, you can see that DreamHack and ESL have established several additional publishers partnership in Q3. New agreements with UEFA and Konami; TakeTwo and their triple A title NBA 2K, the Dutch football league Eredivise; and the opportunity to arrange 2 large Fortnite tournaments with a combined prize pool of USD 500,000 are just some of the notable achievements from our esport portfolio companies in the third quarter.

It also shows how the 2 companies are broadening and deepening the publisher relationship across the vertical.

If I can ask you to turn to #9, Slide #9, you can see that just 2 years ago, it hardly existed. But mobile esport has experienced rapid development and attract many fans. In the quarter, we continue to develop our ESL Mobile Open franchise, together with our partners, Vodafone and AT&T, holding competition within titles such as PUBG, Asphalt 9 and Clash of Clans. Mobile esport is now developing to be a meaningful contributor, and it now makes up to about 10% of the total revenue in ESL.

To move to Slide #10, you see all in all, that esport comes down to what resonates with the fans and the teams and judging from their performance in our 2 market properties in the quarter, we are doing really well compared to competing tournaments.

Here, too, relevant examples for the quarter, take the ESL One in New York that we had in September and compared to the Overwatch League final taking place the same weekend, with our content, we are showing impressive user stats. And it is -- it has superior performance and relevance even in fierce competition. This is proof that the fans are enjoying our events, both in real life and also in digital channels.

If you also look at the DreamHack markets and measure it compared into a popular franchise, such as League of Legends, once again, the same trend showing that ESL and DreamHack are doing this real well together in attracting large audiences, which makes our commercial products very competitive, not only in the world of esport, but also into benchmark with other sports, where they also will find the commercial dollar.

That concludes my comments. So I will now hand the call over to Maria to take you through the numbers in more details.

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Maria Redin, Modern Times Group Mtg AB - CFO [4]

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Thank you, Jørgen, and good morning, everyone. If you then turn to Slide 11, let me start with the revenue and adjusted EBITDA. Net sales in the first quarter of SEK 1,066 million or SEK 39 million higher than last year, with a 4% positive FX impact and flat organic growth.

As Jørgen mentioned, esports had a strong quarter, while gaming was more stable, affected by the timing of in-game events and marketing investments.

Together, the 2 verticals achieved sales [SEK 56 million] higher than in the third quarter. Growth in esport and gaming was, however, partially offset by the adverse movement of SEK 70 million in our other operations, principally Zoomin, which reported sales down 42% to SEK 22 million.

As announced yesterday, we have now divested Zoomin and it will report as discontinue operation from Q4 2019. Please remember also that as a result of the sale, we will book a net loss of approximately SEK 80 million, also in the fourth quarter. Adjusted EBITDA in the quarter was SEK 19 million.

So we then move on to Slide #12, and we will look at the rest of the income statement in a bit more detail. The group adjusted EBITDA included SEK 14 million, due to the application of IFRS 16 compared to the corresponding period last year. Excluding the impact of IFRS 16, adjusted EBITDA was SEK 5 million. The adjusted EBITDA margin in the quarter was 2% and 0.5%, excluding the impact of IFRS 16.

The margin development in the quarter was mainly driven by the gaming vertical, which reported higher marketing investments and flat sales development following the year-over-year movement of in-game events at InnoGames.

This was partially offset by significantly better margins in Kongregate as a result of its operational turnaround.

Furthermore, the shift of 1 Masters property from Q3 2019 to Q4 2019 in DreamHack had an adverse margin impact in the esports vertical.

Within adjusted EBITDA, our central operations cost in the quarter were SEK 33 million, slightly lower positive run rate than we said at the Capital Markets Day and versus last year was affected positively by the lower cost following the split of NENT and MTG.

With the announced restructuring program, today, we will see this cost come down even further, and we will have a run rate of approximately SEK 100 million by 2021.

Adjusted EBITDA reflects the underlying performance of the business, and we had SEK 70 million in cost related to the LTI program as well as SEK 90 million in M&A transaction costs that were both excluded. There were no impairments of previously capitalized costs in the quarter, which in that case also would have been excluded from the adjusted EBITDA.

Group EBIT in the quarter was SEK negative 98 million, with an EBIT margin of minus 9%. Net financial items amounted to SEK 8 million, predominantly driven by exchange rate differences and the group tax cost was SEK 8 million. The net loss compared from continuing operations thus amounted to negative SEK 98 million.

So if I can then ask you to turn to Slide 13, and we look at the cash flow and the balance sheet. CapEx in the quarter was SEK 69 million, which was predominantly driven by the second down payment for Bit Heroes IP at Kongregate. Above and beyond acquisitions, most of our CapEx is still within the gaming vertical, where we capitalized games development costs up until the game goes live, after which all the corporate expense and (inaudible) prelaunch CapEx starts to get depreciated.

We invested around SEK 10 million in our in VC funds in 3 companies, 2 new portfolio companies and 1 follow-up investments. In total, MTG invested and committed approximately SEK 211 million in 18 companies thus so far in its VC fund to complement its majority stake investments in ESL, DreamHack, Kongregate and InnoGames.

Cash flow from continuing operations was an outflow of SEK 33 million, of which SEK 5 million working capital outlook. We ended the quarter with a net cash of SEK 2 billion. That concludes my comments. So thank you, and I will hand back to you, Jørgen.

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [5]

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Thank you, Maria. Sorry, if I could ask you to turn to Slide 14 and our announcement on a strategic review of our gaming vertical. Historically, our gaming vertical has had a very strong performance, of course, most notably since the acquisition of the 51% stake in Innogames. During 2019 and since the split, we have been approached with a broad range of alternatives for us to become even more competitive.

The strategic review we announced today is to evaluate the best route to create and crystallize value for shareholders. The review could result in a joint venture partnership for the gaming vertical to enhance its competitive position and to get access to capital and new geographies, or that MTG fully transition to become a global pure-play esport company, dedicated more resources to capitalize on the global rise of esport from already leading market position through our ownership in ESL and DreamHack.

We have the opportunity to establish MTG as a global leader in esport industry, and we will accelerate value creation by further combining and extracting synergies in our ownership of the 2 strongest esports brand globally, aided by our solid financial position and commercial operational expertise.

Within the context of the strategic review, we will also explore an additional listing in U.S., one of the biggest and most important esports markets in the world.

After the completion of our strategic review, we intend to assess our financial principles and cash requirements going forward in accordance with the company's strategy of growing organically and through acquisitions. The outcome of the review could lead to potential redistribution of any excess cash to our shareholders.

Independent and in parallel to this process, MTG intends to implement an operational efficiency program to ensure a right sized and more efficient organization. The program is a result of a comprehensive internal analysis of the operations since MTG launch in 2019 and includes a downsizing of MTG's headquarter that will include personnel and facility costs.

If we turn to Slide #15. As I said at the start, we have delivered on the strategy with a solid Q3 2019 performance in both our core verticals. Esport is growing, both owned and operated properties and esport services are contributing, and these are getting bigger and better and growing in the eyeballs and most important of all these viewers are attracting sponsors and media as well as new publishers. There's, of course, still a lot of work to be done, but the third quarter showed a lot of progress when it comes to commercially professionalize the esport vertical.

Gaming. We are happy with the development in Kongregate with sales and EBITDA going in the right direction again. InnoGames remained a solid performer, and therefore, we're happy to invest more into marketing, which we did in the quarter. And we saw positive results from this investment already in September, with both Forge and Elvenar growing its monthly active users with more than 6% compared to Q2 2019

In the quarter MTG (inaudible) has completed 3 exciting (inaudible) investments into gaming start-ups. And lastly, the strategic review we announced today is to evaluate the best route to create and crystallize value for shareholders. We will keep you updated on -- progress on a regular basis through our coming quarterly report.

That's it from our side. So back to you, Lars.

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Lars Torstensson, Modern Times Group Mtg AB - EVP, Head of Communications & IR [6]

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Thank you, Jørgen, and that ends our formal presentation for the third quarter 2019, and we are now ready to take any questions that you might have. So operator, could we have the first question, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Oscar Erixon.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [2]

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First, a few questions on the operational performance in Q3. First off, a question on God Kings. After Q2, you suggested higher marketing for God Kings, but now you mentioned that you're reviewing its progress. What has happened there?

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Lars Torstensson, Modern Times Group Mtg AB - EVP, Head of Communications & IR [3]

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Thank you, Oscar, for that question. The question is around one of our newer games, God Kings, and our comments around the performance of God Kings. So Jørgen, would you like to start with that one?

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [4]

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Yes. I think the discipline that we're having, which is a good discipline is, of course, that we have a range of metrics using KPIs, which needs to be fulfilled in order for us to invest heavily into marketing of the game, and that is not the case with God Kings. So that is why the size of it -- the studio is taking the game back and understanding what to do in order to make sure that, that better traction on the key KPIs. So that is also why we did not put a lot of marketing behind it because we saw that infinitive into the KPIs that we expected. But that is, of course, what you need to do in order to understand if it gets live and (inaudible) need to start marketing in.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [5]

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Got it. And heading over to the strategic review, I mean, in terms of the gaming review, what considerations would you make regarding whether to choose JV or an outright sale? Is it purely a price questions? Or are there any other considerations that you will make?

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [6]

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No. That would be a purely value decision to say what will bring the most shareholder value, what construct would we be most comfortable with. So that is a process that we are initiating. And as I said as well in the call, that is on back of a range of inbound calls and discussions with different parties. We see new entry into the space, we see (inaudible) coming in. We see consolidation in the space as well. We see strategic partnership. That is also what we obviously have active several discussions with several parties. And that is what I want to make sure that we explore it now and see what they can lead to.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [7]

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All right. And what would the advantages be going for a JV rather than an outright sale, given that you, so far, have quite limited gaming operation in terms of just InnoGames and Kongregate?

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [8]

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Again, it is something that we would evaluate what the biggest and the best outcome would be in terms of value creation. But obviously, a JV, as I'm also saying, would give us eventually access to capital. It could give us access to a North American market, a more detailed Southeast Asia market or whatever. So that could be something which could be meaningful for us all. As you say, it could also be a right out sale if that -- if we found that to be the most value-creating path.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [9]

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Great. And obviously, if it came to an outright sale, you would naturally have quite a large cash position over SEK 5 billion to SEK 6 billion to SEK 7 billion, depending on the value of gaming. How much cash do you need for esports in terms of organic cash flow needs but also M&A?

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [10]

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That is premature to discuss. And I think what we are saying is that we will revisit our cash position based on the outcome of the strategic review. And also as we said, we will update you on a regular basis of the journey in terms of the strategic review and the outcome.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [11]

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Great. And a final question for me, if I may. In esports, is there anything that you would like to invest further in that you have not been able to? I mean, will this strategic review, depending on the outcome, change anything in that regard?

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [12]

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No. We had -- we have a list of interest opportunities, of course, which we are exploring, and that is something we will continue to look for things which can help us accelerate the esport path. That could be capabilities, that could be geographies and so forth. So there is a range of opportunities that we're having, which we will explore and continue to explore.

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Lars Torstensson, Modern Times Group Mtg AB - EVP, Head of Communications & IR [13]

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So Oscar, we've been quite generous, so do you have any follow-up questions there?

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [14]

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No, thank you. That's it for me for now. Thank you.

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Lars Torstensson, Modern Times Group Mtg AB - EVP, Head of Communications & IR [15]

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Yes. Thank you, Oscar. Very good. Operator, we could have the next question, please.

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Operator [16]

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Our next question comes from the line of Rasmus Engberg.

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Rasmus Engberg, Handelsbanken Capital Markets AB, Research Division - Head of Research [17]

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Let's see what we have. Yes. If we talk about the savings program, what functions are you scaling down in this program? And secondly, as I understand it, as you say, this is independent of whatever you decide to do strategically with new businesses. So there might be (inaudible)

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [18]

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Sorry, Rasmus, you're breaking up there. If you could repeat your second question, please?

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Rasmus Engberg, Handelsbanken Capital Markets AB, Research Division - Head of Research [19]

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Sorry, do you hear me better now? I'm sorry.

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [20]

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Yes, we do. We hear you better now.

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Rasmus Engberg, Handelsbanken Capital Markets AB, Research Division - Head of Research [21]

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So what functions are you targeting in the savings of, I guess, SEK 80 million or so? And secondly, is it correct that if something happens strategically with the gaming, there will be further changes to the group composition?

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Lars Torstensson, Modern Times Group Mtg AB - EVP, Head of Communications & IR [22]

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I'm just going to repeat it. So savings program, if we're targeting any specific parts of the organization, and as we mentioned in our release, this is independent of the strategic review, would there be additional efficiency programs if the review would come through? I will hand that over to Maria.

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Maria Redin, Modern Times Group Mtg AB - CFO [23]

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Thank you. On the saving front, first of all, I think that we said the ambition is at a run rate savings of SEK 50 million starting that in 2020 and followed by June 2021. And what we're looking at is across the full organization. So it is not a specific department but it's across the whole organization. And I don't want to go into further details because that is some internal discussion that we will have now.

If you then look at the second phase following the gaming review, I think this is a little bit premature to think that's going to give additional savings. And also what we're doing right now is to make sure that based on where we are right now, how do we ensure that we get the right-sized organization in place and that we are doing it? So we do it properly and we do it well, ideally.

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Rasmus Engberg, Handelsbanken Capital Markets AB, Research Division - Head of Research [24]

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Okay. And the second question. Where do you see the VC fund in the future of MTG?

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [25]

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That is also a little bit premature. That depends again on the outcome as such. I think we have made VC fund investments into esport, also through (inaudible) and we had made a range of VC investments into games. So clearly depending on the outcome, of course, you could argue that the game VC fund would fit well into a strategic partnership eventually. But again, it's premature us to say something that we need to understand how this should run.

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Rasmus Engberg, Handelsbanken Capital Markets AB, Research Division - Head of Research [26]

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And then a final question. When do you anticipate that this review will be finished?

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Lars Torstensson, Modern Times Group Mtg AB - EVP, Head of Communications & IR [27]

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This is a review which will take as long time as we wanted to take, meaning we want to make sure that we have analyzed the different opportunities. And as we also said, we will come back on a regular basis to follow, to inform you on the progress of the strategic review and potential outcome.

Thank you very much, Rasmus. Operator, we could have the next question, please?

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Operator [28]

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Our next question comes from the line of Tom Singlehurst.

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Thomas A Singlehurst, Citigroup Inc, Research Division - Director and Head of European Media Research [29]

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Tom here from Citi in London. A few different questions if it's okay. Firstly, on the strategic review, I just wanted to just double check that of all the different options, sort of committing more capital is off the table, so this is definitely going to be a sort of either you injecting the assets into a sort of third-party JV or partially monetizing the asset. That's the first question.

Second question, I suppose, sort of linked in a funny way, is any update on progress on the sort of due diligence process with this sort of Huya ESL transaction? And then 1 operational question to finish up on, which is ESS or esports services. Very obviously an area that, I suppose thematically, you sort of want to deemphasize in favor of the owned and operated shows, but both in the quarter and in terms of outlook, it looks like an area that's doing really well. I suppose the question is, can you give us an update on the sort of profitability profile of ESS? We've moved into a phase now where that will be consistently profitable revenue growth.

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Lars Torstensson, Modern Times Group Mtg AB - EVP, Head of Communications & IR [30]

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Yes. Thanks, Tom. Just repeating them. On the strategic review then, so if we would commit additional capital, if that's off the table or still on the table when it comes to MTG investing more into gaming, if I get you right, Thomas. Update on the due diligence process in Huya, if there's anything we can share there. And the last one is on ESS and how that specific part of the esport gaming vertical is looking like. I guess the first 2 questions is for you, Jørgen and the last one for you, Maria.

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [31]

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Yes. So the strategic review is exactly as it is. It's a review, meaning we want to understand what opportunities we have out there and be open to the solutions out there. So we would not put ourselves in a specific solution mode right now. We want to explore the different opportunities we will be having in the region. So that is what, and again as I said, we'll come back on a regular basis. Due diligence on Huya, yes, we have the due diligence process ongoing. And I think what we have communicated that we expect like Q4, late Q4 where we expect the transaction to materialize. So that was the 2 questions for me. Maria, on the ESS part.

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Maria Redin, Modern Times Group Mtg AB - CFO [32]

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So on the ESS, you're absolutely right. We saw very nice growth in our esports business on back on the ESS as well in the quarter, which we're very happy about. And I think what we always said is a strategic publishing partnership that we have within ESS. We want to continue to drive and nourish and develop, and that's what we see in the results of in Q3. We have moved away from noncore services within the ESS bucket, but that is not to be defined as a publishing partnership that we're having. So we're happy about the development and also, of course, that is a fixed margin business that also nicely contributes to the bottom line.

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [33]

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And it should be said, I mean -- yes, sorry, to -- you go, you go.

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Thomas A Singlehurst, Citigroup Inc, Research Division - Director and Head of European Media Research [34]

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Well, listen, I'd like to hit the extra because I was going to have one final question in a slightly different area. So if you...

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [35]

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Yes. Just a clarification on ESS. I mean, as you know, we have, in our strategy, focused more on strategic partnership within ESS, which has been helpful when it comes to the profitability profile of that part of the esport vertical.

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Thomas A Singlehurst, Citigroup Inc, Research Division - Director and Head of European Media Research [36]

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Very clear. And the final follow-up. You've sort of given a rough indication of cost savings, and I know there's still consultations and things to happen, which is obviously very important. Just a rough cost of achieving savings. Should we just think about it being a 1:1 cost to saving ratio?

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Maria Redin, Modern Times Group Mtg AB - CFO [37]

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Yes. I think it's a little bit premature to give you an exact number, but you should expect payback within a year-ish on the cost program.

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Lars Torstensson, Modern Times Group Mtg AB - EVP, Head of Communications & IR [38]

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Thanks, Tom. Operator, could we have next question, please?

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Operator [39]

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Our next question comes from the line of Erik Lindholm.

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Erik Lindholm-Rojestal, Nordea Markets, Research Division - Analyst [40]

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So a couple of questions from me. First off, you mentioned that most KPIs for esports are up double or triple versus last year. Could you give a few examples of these KPIs?

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [41]

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Yes. When it comes to the esport part, as we said as well, we have seen 17% growth in the owned and operated part. We have seen 42% growth in -- when it comes to this partnership. If you look at the figures as well, which we showed on the slide when it comes to the viewing as well of the event, it's very strong viewing and can also see that our U.S. event is 3x bigger than the watch final, and that is, of course, an important comparison for us that not only we are strong in the -- in this universe of esports, but also obviously, we are going outside esports universe to connect a commercial partnership. So that is all, of course, very important as well.

You see the young audiences, if you see in the slide that we can deliver in the target groups of 16 to 44. We have 88% of that audience is that age group, of course, is extremely attractive commercial age group. So there's a range of interesting KPIs for us, which we are happy about, of course, but the industry is growing faster and so is our ambition in esports one.

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Erik Lindholm-Rojestal, Nordea Markets, Research Division - Analyst [42]

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Okay. And on the ESL Pro Tour, you signed a deal in Denmark with TV 2. Have you received any other feedback from media buyers on the ESL Pro Tour so far?

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [43]

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Yes, we have actually and we are in negotiations. So if I can answer your question in 2 ways. So first of all, TV 2 Denmark was a fairly easy sell in that respect that here, we have the TV media panel, like in normal media which have stipulated the quality of the audience that TV 2 had on the events that they have with us. So there, you get the rating figures, you get the [rule]. So obviously, when they benchmark with other sports that they're having and what they deliver and what they pay for that, then we came out very strong. So there, of course, we are blessed with the measurement system, which is the TV media panel, so it's very easy to assess the valuation or the value of property.

Then we just attended Sported, which is a big sport fair with all kind of global media companies participating. And we have also been on a tour now presenting the central tour to a range of media partners as well globally. So there's a lot of sales going on right now in order to introduce this new ESL Pro Tour. It's a different animal for the media partners now because obviously, they have a set schedule now. That also means that it is easier for them to onboard it and also to begin to work with the product and such and also to start market the product and so forth. It's a commercial stronger product. So that is the feedback we are getting from the media partners, but negotiations are still ongoing with a range of hedge funds.

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Erik Lindholm-Rojestal, Nordea Markets, Research Division - Analyst [44]

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Okay, okay. Very helpful. And do you expect to sign a deal of -- together with broadcasting companies such as Twitch or Mixer as well or are you primarily focusing on traditional TV sorts?

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [45]

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No. We have a partnership already, as you know, with Twitch, and we have also partnerships with other OTT platforms around the world. So what we are looking at is, of course, how we can put together the best and most attractive media packages globally. And that is what we are assessing based on the conversation that we're having with media partners right now.

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Lars Torstensson, Modern Times Group Mtg AB - EVP, Head of Communications & IR [46]

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Thank you, Erik. And operator, could we have the next question, please?

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Operator [47]

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Our next question comes from the line of Rasmus Engberg.

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Rasmus Engberg, Handelsbanken Capital Markets AB, Research Division - Head of Research [48]

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Just coming back to the central costs. Is the run rate of central costs SEK 150 million? I thought it was SEK 170 million to SEK 180 million. Can you clarify that?

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Maria Redin, Modern Times Group Mtg AB - CFO [49]

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Yes. I think that you're right that we said at the Capital Markets Day a run rate of around SEK 180 million. And I think that based what we've seen, it comes down to around SEK 160 million. And what we're saying with this new savings program going forward in 2021 when we see the full impact of it, we should expect a run rate of approximately SEK 100 million.

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Rasmus Engberg, Handelsbanken Capital Markets AB, Research Division - Head of Research [50]

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Okay. And then on the deal you announced yesterday, this disposal of Zoomin, did you get all get paid for that? And secondly, this accounting loss, is that also going to be reported in discontinued, I guess?

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Maria Redin, Modern Times Group Mtg AB - CFO [51]

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Yes. So on the deal we announced yesterday, I mean, we -- that's the final one, of course, we took SEK 80 million, and we did get paid for divesting the assets but it was a small amount.

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Rasmus Engberg, Handelsbanken Capital Markets AB, Research Division - Head of Research [52]

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And it will be reported in...

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Maria Redin, Modern Times Group Mtg AB - CFO [53]

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It would be -- the full segment, other business will be reported discontinued operations starting Q4.

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Lars Torstensson, Modern Times Group Mtg AB - EVP, Head of Communications & IR [54]

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So operator, do we have any more questions?

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Operator [55]

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Yes. We have another question, our last question actually, from the line of Mr. Oscar Erixon again.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [56]

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I was going to ask about central cost clarification as well, but I have one more question on the gaming segment actually. We've seen a few mobile gaming peers reporting higher use acquisition costs and thus lower marketing efficiency. Are you worried about the lower organic growth for InnoGames this year, even if including a strong Q4, which you are guiding for?

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Maria Redin, Modern Times Group Mtg AB - CFO [57]

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You are right. Of course, on the marketing side, it's very competitive, but I think what we are seeing in our 2 companies, as we have an extremely strong user acquisition team and marketing team. So we're quite happy with the results we're seeing there. And I think where we have ramped up marketing, we're seeing the positive investments in the quarter and also where we see that games are not performing the way we want to in their underlying metrics, we're then scaling back marketing. So I mean, we have a very sort of well-developed KPIs team and intelligence system that makes sure that we are very reactive fast when we see the performance of our marketing campaign. So that is something that the teams are working very strongly on.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [58]

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Great. And a follow-up. You have previously spoken about a potential new game release for InnoGames at the end of this year or possibly early next year. Is this something that still might happen?

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Maria Redin, Modern Times Group Mtg AB - CFO [59]

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Yes. I mean, we have 3 games currently in development and we expect that, that will -- 1 or 2 of those will gradually come out in a soft launch and then full marketing launch during 2020.

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Lars Torstensson, Modern Times Group Mtg AB - EVP, Head of Communications & IR [60]

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Thanks, Oscar. Operator, do we have any more questions?

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Operator [61]

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Yes, sir, we have one more from [Paul Schempp]

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Unidentified Analyst, [62]

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This is Paul from IOC. May I just ask 1 question regarding the overall direction of the strategic review? Will you consider selling parts of gaming and focusing on the esports? And why are you not considering a transformation the other way around disposing esports and focusing on gaming? And the reason why I'm asking is while gaming is obviously tremendously interesting, it will be loss making for a few years. And while gaming, on the other hand, is a more mature market, has maybe a more financial profile so might be more suited for listed companies. Have you thought about it the other way around?

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [63]

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Yes. I think what we have announced now is the strategic review on the gaming part. As I also said earlier, that is based on the incoming calls that we have had and the discussions that we have had with different parties. We are constantly evaluating how to make our verticals more competitive, how to drive more value. I think that the partnership that we are expecting to close with Huya is one way of creating a new way of partnership. So we will continue to examine and to evaluate what is the best way -- best path forward for value creation for our 2 gaming verticals, but that can also be a partnership in esport. So -- but right now, it is a strategic review of the gaming vertical, which we have announced and which we are on.

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Lars Torstensson, Modern Times Group Mtg AB - EVP, Head of Communications & IR [64]

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Thank you. Operator, we have any more questions?

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Operator [65]

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We don't have any further questions at this time, sir. You can proceed.

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Lars Torstensson, Modern Times Group Mtg AB - EVP, Head of Communications & IR [66]

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Okay. Thank you. That concludes the question-and-answer session. I will now hand the call back to Jørgen for his concluding remarks.

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Jørgen Madsen Lindemann, Modern Times Group Mtg AB - President & CEO [67]

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Yes. I would also like to thank you for calling in today. We look forward to stay in touch until we release the next quarter report. With that said, Q4 2019 will be presented the 6th of February. So have a great day and see you soon.

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Operator [68]

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Thank you. That concludes our conference for today. Thank you all for participating. You may all disconnect.