Embracer Group AB

Good morning everyone and welcome to Embracer's Q4 2025 report. My name is Victor Lindström, being an equity analyst at Nordia Markets and will be today's moderator. As usual, we'll start off with the presentation by CEO Lars Vingefors and CFO Myge and following the presentation, There will be a Q&A session where you will have the possibility to ask questions fiscally here in the stands, online, or through the telephone conference. With that said, I leave the floor to you, Lars.

Thank you, Victor. Hello, everyone, and welcome to this conference call in Stockholm. Let's look at the highlights for the quarter. Our financials came in a bit stronger than expected. Net sales grow on performer basis 19% to 5.4 billion. Our profitability, driven by the solid performance of Kingdom Come Deliverance 2, came in at 1.1 billion, which is a 44% performer growth. And free cash flow came in close to one billion in the quarter. And the performance were very much driven by the solid performance of Kingdom Come Deliverance 2 that now is confirmed to have sold more than three million copies. a bit into this quarter. And we are now looking to launch additional content, DLC content, in the course of this financial year. We also had a positive organic growth of 30% within mobile, but also a significant increase of user acquisition spent. Ultimately, this will drive increased free cash flow generation within the mobile business on the long term. We have a solid slate of new game releases and I will come back to that later in the presentation. This year, we're looking forward to two defined AAA releases, but we do have a very broad portfolio within the group. We expect to release 76 games, new IPs, sequels, remasters. In total, we're expecting 3.8 billion in completion value, meaning invested amount into those games being released in this financial year. With the strong free cash flow and previous transactions earlier last year, we do have a very strong net cash position. Happy to see that we have 5.4 billion net cash and 13 billion in total available funds by end of the quarter. We have continued to adjust the size and structure in the course of last year. And in the fourth quarter, we did some adjustments within games publishing and distribution. Also really glad to confirm our spin-off of Coffee Stain Group this morning. Kofferstein Group will be spun off to all shareholders by end of the year. And at the same time, we will also rename Embracer Group to Fellowship Entertainment. I will come back to that later. We are working very actively on M&A, both looking at potential acquisitions, for example, within the upcoming spin-off, as well as looking into opportunities within mobile. We also look at potential divestments of assets and companies that potentially could fit within better or other structures within the industry. I do believe that, for example, the EasyBrain transaction was good for all stakeholders and they also came to an industry home that will be good for that company. As well as we will look into potential further spin-offs, niche spin-offs of assets that could be stronger utilizing their own balance sheet and having their own equity. So let's dive into the operating segments. So PC Console had a really strong performance in the quarter. Net sales came in at just about 3 billion with profitability of 34% or just about 1 billion in the quarter. The absolute bulk of that was driven of Kingdom Come deliverance too. So looking at the new releases in the quarter, Obviously Kingdom Come Deliverance 2 did very well. But we did have some minor other releases. Tomb Raider Remastered. This one did not perform as well as last year's similar release of the first remastered. However, we are confident that this game would over time generating substantial catalog revenues. We also brought two new Early Access games to the market. The long-awaited Wreckfest 2, developed by our friends at Bugbear in Finland. They released a very early Early Access with not so much content, and I think players now in the course of this year on PC would tune into the game the more content we bring to the players. And ultimately, this game would, in the future, not in this financial year, but in the coming financial year, be released in the full version and also on consoles. And we did release Hyper Light Breaker also on Early Access. So far, it has not performed according to our expectations. However, we continue to develop up until to be able to bring a full version to gamers in the course of the year. Looking at the catalog titles. Happy to see that Kingdom Come Deliverance 1 actually was top performer now seven years after the release. That's amazing. We also had Payday 3 and Alone in the Dark in the Quarter driven by some subscription or services that those two titles was added to. Otherwise, I'm glad to see some favorites on this list. MX, for example, MX versus ATV Legends continues to grow quarter over quarter. Looking at our ROI chart, the average total In our combined history, it's somewhat a bit depressing, I have to say. Two times in average is not good enough over time. It's not where it should be at three or more. It used to be three and a half at peak. However, we are confident that this will grow over time, where we will obviously complete some game investments and release a more focused portfolio of new game releases. This ROI will improve. In the quarter, glad to see that we had recouped and made a good profit on cash basis. on one very significant release. And then we had some other releases as you saw on the previous slide on early access where there is a huge investment and those games are obviously very early. So I don't think this graph on the ROI side gives full justification to those KPIs here, because I think in a way you should measure it when the games are having a full game launch. So. Looking at the investments and completed games development, it's the first quarter for quite some time where we actually complete more games in value, close to a billion, compared to the invested amount. So we completed games, obviously driven by Kingdom Come Deliverance 2, of close to one billion, and we invested into our pipeline 700 million in a quarter. Looking into this financial year, 25-26, ending March 26, we are looking to have in the current release late with the 76 games, 3.8 billion of completed games, where of about 10% of that would fall in the first financial quarter now ending in June. Looking at the pipeline for the year, we obviously have the two AAA titles. Defined AAA titles. The definition is it should have at least 100 game developers at peak in development. That's our definition. Nothing else. And the first one out is Killing Floor 3, now confirmed for July release. That was delayed from the first calendar quarter this year. We are having increased growing expectations that this actually could turn out very well. We have made some improvements from the early build that was shown to players earlier this year. And then by end of the year, we will ship as a publisher Marvel 1943 Rise of Hydra. Personally, I believe this is a fantastic product. The financials are somewhat more limited because we have shared economics with more other stakeholders, but also more limited capex. But outside those two titles, we have a range of mid-sized game releases. For example, from our friends in Skövde, we're expecting to ship the console version of Satisfactory. From our friends at Tarsier in Malmö, the makers behind Little Nightmares, Tarsier, Re-Animal. I have really good hopes for, could be fantastic. We will ship early access version of Titan Quest in this year to PC gamers. We had one title by Raycon Games in Poland, a publishing title that we fully financed, Metal Eden, that we now delayed a bit to give extra polish. That now will ship in the second quarter of the year, opposed to this quarter. Followed by our own IP and our own development, Gothic 1 Remake, If you haven't played Gothic, it might not be a thing, but if you have played Gothic, you are probably a fan of Gothic, and there's a lot of fans of Gothic, especially here in Europe. And yesterday I noticed that they had more than one million wish lists actually on Steam for this game. So could be an underdog for the year. Followed by Wreck Creation, made in the UK by an external team. Deep Rock Galactic Rock Core, made in Denmark, by Gossip Games, followed by a publishing title, Norse, developed here in the Nordics by an external team, published by Tripwire, followed by Fellowship, Developed here in Stockholm by Chief Rebel, but published by Ark Games, our internal publisher. And finally, the full version of Deep Rock Galactic Survivor. alongside many, many other game releases in the year. So it's not only about AAA releases, even though AAA releases, they are important if you look at the year. And if you look at this financial year, we did expect one significant AAA release to be shipped by end of the year. that has similar economics to Kingdom Come Deliverance 2. I believe it's an amazing, will be a fantastic game. However, now we are announcing, even though the title is not officially announced, and we are still working on the title, to be prudent and with some cautiousness and not having a delay later in the year. We're saying it's likely shipping in the next financial year. It's not easy to be a game publisher communicating as a public company telling you. The game is done when it's done. Yeah, so looking at mobile. Again. In the quarter, we had revenues of 900 million with the adjusted of 91 million. Of that numbers, 200 million came from the Easy Brain contribution in January, with 200 million on sales and about 40 million on EBIT. So Crazy Labs and DECA, but particularly Crazy Labs, which is part of the DECA group, are scaling up a number of titles. BuzzFrenzy, Glow, Fashion Idol, Coffee Mania in particular, investing more into marketing that would generate more cash flow later. And we see that this will continue this scale up in the course of the year. But mobile market is very dynamic and it's very competitive. And you need to make new decisions every minute, every day. Scaling or not scaling. I'm just glad to have really strong management teams in my mobile business that could make these decisions because this is not something you do from Custod. Going to entertainment and services. They had a fairly stable quarter with revenues close to 1.4 billion, with only 2% margin, 42 million. The margin was muted by I wouldn't call it extraordinary inventory write-offs, but I look at that as extraordinary, even though accounting is hitting the adjusted EBIT within the Fremod operating group. And we are now looking ahead of the year. The distribution business are going from strength to strength. They recently have signed a number of extension of partnerships with in the recent actually week with Ubisoft, Warner Games and also PlayStation distribution. That would. That would, you know, keeping their business stable or potentially growing. Within other parts of this business segment, we have Middle Earth enterprises, and I would say they have a more active business development pipeline than ever, covering many different areas. But it takes a very long time to make business development in licensing. So the fruits of this we will see in the coming years and decade, I have to say. um within dark horse they have been hit by a number of different things everything from tariffs to a bit of turbulence in the comic book market in north america but they have a very strong core of the business they have a fantastic team at dark horse and they have a leading position so i'm confident that they would be on track to be a winner in that market continuing creating new successful IPs and bring comic books to TV and film. Moving to some comments from my side. On the financial performance. So looking at the first quarter in this financial year now ending in June, again, the first half year would be fairly slow in terms of PC console. In the first quarter, we expect to have 300 to 400 million in completed new game releases as a range of smaller PC console titles releasing. On the mobile side, we see limited top line growth year over year on a performer basis. With the somewhat higher performer, currently somewhat higher performer adjusted EBIT contribution compared to fourth quarter or the last quarter. And on entertainment and services, we basically see very limited or no profitability in this quarter due to very limited product releases. In the overall year, on a performer basis, we expect net sales to grow slightly above last financial year. and with both EBITDAQ and adjusted EBIT broadly in line with the last year numbers and again the title that we now likely believe likely will ship in in the following financial year 26-27 again had a similar financial dynamics as Kingdom Come Deliverance 2, which obviously, delaying it with one or a few quarters has technically in this financial year an impact. I believe for long-term shareholders to polish and optimize release window of titles is always a better better way to do business rather than stressing out titles. Looking in the two following financial years, 26, 27 and 27, 28. We currently have nine additional AAA games currently slated. Many of them based on owned IPs or licenses that we control. made by our most recognized game developers within the group. In addition to this, we potentially have a few AAA titles financed by partners that also could have a contribution to profitability. To give some color on this, if you look at the past five years, we in average have released, if you include Remnant 2 as a AAA, that technically was not a AAA to our definitions, but had a notable contribution. Just about one title per year. I will come back to that a bit later, but the year we had It was one year, 23, 24, we actually had three titles. And that year on a performance basis had a notably higher EBIT contribution. So with that said, I would like to hand over to our C4 Mygge. Thank you Lars.

Good morning, everyone. I'm very happy to be here today and present our Financials. Overall, I'm also very happy to report a solid financial performance for the quarter. So without further ado, maybe we can go into the details. This is another quarter where the parameter changes, primarily easy brain, does result in a significant difference depending on the table between reported and pro forma numbers. So I will not hesitate precising the weight. If we were to look at the net sales of 5.4 billion, in Q4 this year it includes 200 million sec of EasyBrain, whereas looking at the same period last year, the weight of divested parameters represented 1.4 billion. half of which itself is EasyBrain, which explains the reported growth of minus 6%, but delivering an organic growth of 19% for the quarter that we are very happy with. As Lars described, the main driver of the Organic growth is a successful performance of Kingdom Come Delivering still. Our PC performance, PC console business. And mobile, excluding EasyBrain, also saw a solid growth of 30%. Of course, the satisfactory performance of PC console gets captured also on the gross margin, so we do also benefit margin improvements coming primarily from PC console. The margin improvement is one point, but looking at pro forma, actually, it grew by eight points. Just PC console business itself is ten points to the overall contribution. That we are very happy. As far as the marketing expenses are concerned, as a percentage of net sales, you'll see compared to the same period last year, it increased by five points. The non-user acquisition cost marketing expenditures are primarily related to the investments on Kingdom Come Deliverance Tools release. going from 90 million the same period last year to 243 million. As far as the user acquisition costs are concerned, as Lars mentioned, it is still consistent with the investment in our mobile business that is expected to start paying in the first half and the upcoming quarters of the year. Our operating expenses decreased significantly by more than 400 million this quarter compared to the same quarter going from 1.7 billion to 1.3 billion. Again, the impact of divestments do play. If we were to look at Q4 this year, EasyBrain represents 30 million SEC. However, the same period compared to last year included more than 600 million SEC. If we were to restate, however, Q4 this year would still be close to 24% of net sales, and last year's same period would be 25%. So on a pro forma basis also, we do see an improvement in our operating expenses, and it is thanks to... the effects of restructuring program we had done, but also it's a good testament to see that cost control and in line with expectations, the cost structure continues to be delivered. So we're happy to see the like for like perimeter also our OPEC spend improving. Looking at the adjusted EBIT, we enjoy seeing 1 billion for the quarter, which represents 3% growth reported and 44% on a pro forma basis once we take out again the impacts of easy brain and overall divestment parameters. IT IS PRIMARILY DRIVEN BY THE PC CONSOLE PERFORMANCE, AS WE SAID, KINGDOM COME DELIVERANCE, SO THE SUCCESSFUL RELEASE AND TOP LINE GETS CAPTURED NOT ONLY IN GROSS MARGIN, BUT OBVIOUSLY WE DO ENJOY SEEING THE ADJUSTED EBIT AS WELL, SO THE ADJUSTED EBIT MARGIN YOU WILL SEE HERE ALSO IMPROVES TWO POINTS ON REPORTED AND THREE POINTS ACTUALLY ON PERFORMER BASIS. SO LET'S NOW MOVE ON TO CASH where we can share some happy numbers as well. It's really a pleasure to see our free cash flow and overall numbers resulting in expected favorable positive numbers. Free cash flow after net working capital was close to a billion. Looking at the same period last year, you would see that the free cash flow was negative, close to 0.3 billion. we are happy to see a big improvement compared to the same period. I would say there are two main drivers contributing to this improvement. The Q4 investment in intangible assets of 830 million is more than 600 million lower than prior year, benefiting from the effects of our restructuring program. that we had carried out. Out of that difference, 500 million is actually Sabre and Gearbox driven. The second part of the improvement relates to working capital improvements, where we enjoyed more than 200 million this year. Same period last year was the working capital consumption of minus 269. And this improvement comes from across a variety of operator groups. So actually, we're happy to see that multiple operator groups are contributing to the improvement of working capital, which as a result, also looking at full year, delivers a free cash flow of 1.4 billion. Again, representing a major improvement over 2.2 billion, looking at the same period, full year last year, where we had minus 819 million. So very happy. The cash flow from financing activities relate to, you might recall, the repayment of external debt of about $5 billion, as well as the equity contribution to Asmodee, around $4.7 billion. As far as the net cash flow from acquired divestment companies, it is primarily the net proceeds of EasyBrain divestment. And looking at the right side of the table, very happy to see that we are reporting a net cash. As Lars also mentioned, at the end of March 25, we were in a net cash position of 5.4 billion. As Lars also mentioned, it's worth highlighting that at the end of the period, the amount of available funds we had exceeded 13 billion. Well, up to now, we have primarily spoken about our adjusted EBIT. We have also announced today a reported EBIT of 4.3 billion. So it's worth going through those details together. The difference of adjusted EBIT and EBIT amounts to 3.2 billion. If we were to look at the main drivers, it's composed of two items. One is the items affecting comparability. That's all go in details. And the second one is the specific items related to historical acquisitions. So as you can see in this table, as far as items affecting comparability is concerned, it's composed of different items. I'll begin with the first one, the biggest one, the net gains from divestment. So it's primarily the net gains related to EasyBrain, as we have covered throughout other slides. And of which 12.6 was net cash proceeds. And then if we were to look at the non-cash impairments, it's a total of 4.1 billion, of which 3.7 relates to the impairment of goodwill. The main ones, I would say, coming from PC console, just Saber Gearworks represents more than $2 billion, just to give you a sense. But there are also some others within mobile, around $400 million, as well as Dark Horse and Free Mode. As far as the impairment of... acquired IP rights. It is primarily related to also Sabre Gearbox, and we've got also a bit of a few other within the operative groups. The write-down of intangible assets, 404. So these write-downs are related to, I would say, a range of development projects across amplifier and THQ businesses. And last but not least, 371 million mainly related to the actions dedicated to improve profitability or cost efficiencies resulting in either the discontinuation of studios or teams. The second item, as I said, refers to the specific items related to historical acquisitions. And I would say they are related to primarily the non-cash on the planned IP amortizations and adjusted earn-out calculations. So, with that said, I would like to hand over back to you, Lars.