Embracer Group AB

Muge and I welcome you today from our Stockholm office and as usual we'll run through the main updates for our operating segments and the financial performance and then open it up for Q&A. One important reminder From this quarter, we report in our new operating segments, and we've introduced cash EBIT as our key earnings measure. Together, these changes sharpen our focus on operating performance, capital discipline, and stronger conversion of earnings into cash flow. This is the operating model we are building the future on, and it sets us up for the spinoff of Fellowship Entertainment in calendar 2027. So let's get going. Overall, our quarterly results reflect another delivery above plan on both the revenue and cash EBIT side. Net sales were 3.9 billion sec, a 33% organic growth year over year, driven by the Embracer segment, with broad growth across its business areas, PC console, mobile, and not least entertainment and services, which had a standout quarter. Following a strong Q4, we delivered positive cash EBIT and positive free cash flow on a group level in a quiet quarter from a major game release perspective. Now that's the power of the catalogue we are building, that our core franchises keep delivering quarter after quarter. For the full year, we confidently reiterate our cash EBIT forecast of at least 1 billion SEC. The year is anchored by Metro 2039, expected to be released in February next year. And the momentum is building fast. After its reveal, Metro 2039 raced to one million wishlists, reaching this milestone faster than any title in our history. And wishlists continue to grow ahead of expectation. Our team is lining up a major marketing beat for Metro at this year's Gamescom, just in a couple of weeks now. with new content at the opening night live show on Tuesday, the 25th of August. There's also a huge show floor presence where players can get hands-on with the game for the first time. During the quarter, we made further progress in building the future fellowship entertainment organisation toward the planned spin-off in 2027 with IP increasingly at the centre of our operating model, investment decisions and long-term value creation. Rather than simply replicating existing structures, we're creating a leaner model where experienced people take broader responsibility across clearly defined areas. This includes ongoing strengthening of green light and portfolio decisions, while bringing community insight closer to game development and live operations. The organisation continues to evolve, but the direction is clear. IP is at the centre of our operating model, investment decisions and long-term value creation. And starting this quarter, we've made several changes to our reporting to improve the relevance and clarity of the information presented for the group ahead of the fellowship spin-off. From my side, the message is clear. The groundwork is done, the progress is visible, and we're moving into the next phase from a position of strength. Now, let's just step back and look at the longer-term picture because it tells a powerful story. The trough is behind us. After FY25-26, the trajectory has turned. On a trailing 12-month basis, as of Q1, organic growth is running at 5% versus fiscal 25-26 and our cash EBIT margin is climbing. Two things I think make this genuinely impressive. First, we've achieved this improvement with no major game releases for fellowship in the period and limited sizeable revenue drivers for licensing. and that's while being measured after the February 2025 launch of Kingdom Come Deliverance 2 and the momentum that followed through FY25-26. This is what a diversified business looks like when it's working with multiple segments and business areas all pulling their weight. Second, please note that our historic numbers in FY23-24 and FY24-25 include a significant positive contribution from EasyBrain. So the absolute numbers are not fully like for like. The underlying momentum is stronger. So here's the key point. Today's trailing 12 month levels are the floor, not the ceiling. The hard work is behind us, the release engine is ramping up, and there is substantial growth ahead across both operating segments, and we intend to capture it. As a quick recap from May, from this quarter we report our business across two segments, Fellowship Entertainment and Embracer. Fellowship Entertainment is built around one strategic focus, IP or worlds that fans return to again and again. In Q1, Fellowship delivered net sales of 810 million sec, a headline 22% organic decline. Now, let me put that in context. We had limited new content across both publishing and development and our licensing businesses. And we were up against tough comps with Kingdom Come Deliverance 2 releasing in February 2025. From a cash EBIT perspective, the margin was minus 4% in the quarter. I'll be straight with you, not a strong quarter on the headline. But here's what it proves. We came in above our internal expectations, powered by solid catalogue performance, especially Kingdom Come Deliverance, Metro, Remnant and Dead Island. The worlds we steward keep earning. And that's really the foundation this business is built on. And it's exactly why the release slate ahead matters so much. On the next slide, let's look at some earnings dynamic that drive fellowship. This chart shows the engine of the publishing and development business. New releases drive the revenue peaks, feed the catalog, and ultimately power cash EBIT margins and cash EBIT. You can see it clearly, the release of Kingdom Come Deliverance 2 in February 2025 drove a significant revenue peak, followed by solid catalogue performance in FY26, boosted by three DLC releases. Over the past five quarters, new releases have been limited, so the model has been running on catalogue alone. That's about to change. First up, we have two titles lined up for Q3. both Dawn of War 4 and Stage Tour, and both are showing promising early traction. From a publishing perspective, the big one this year, Metro 2039, is scheduled for February, and it's expected to be a key driver, bolstered by Amazon's publishing of Tomb Raider, Legacy of Atlantis. Our collaboration with Amazon continues strongly on all things Tomb Raider. GAMESCOM GAMESCOM GAMESCOM That's the rhythm this business was designed for. We spent the past two years putting the studios, the pipeline, the discipline and the empowerment in place to sustain it. And it will power the growth and profitability of Fellowship Entertainment.

Thanks, Phil. And good morning, everyone. Looking in a bit more detail at Fellowship's financial performance, Well, Phil has just spoken about the top-line performance, where Fellowship delivered net sales of 810 million SEC, down 22% on an organic basis. The gross margin percentage for the quarter remained stable year-on-year at 85%. The impact of the top-line evolution was partly offset by lower operating expenses, which came in at 373 million SEC before marketing costs, reflecting the realization of prior year savings initiatives. CAPEX remained relatively stable at 288 million SEC for the quarter. Adjusted EBIT margins were relatively stable due to lower DNA as a result of no new releases in the quarter. Cash EBIT amounted to minus 32 million SEC with the year-on-year evolution, mainly due to the strong top-line comparator mentioned earlier and limited NIEV content in both publishing and development and licensing during the quarter. We'd like to emphasize that cash EBIT margins will be impacted by the level of capital we decide to deploy in growth capex relative to the revenue generated in a particular year. In the short term, These margins may be lower as we build the revenue engine field referred to earlier. But as that ramps up and release cadence has increased, we can expect a steady improvement in the cash EBIT margins over time.

Now to the pipeline. And there's a lot to be excited about. The current financial year is anchored by Metro 2039 and Tomb Raider, Legacy of Atlantis, both expected to be released in February. To touch on Warhammer 40,000 Dawn of War 4, this is now expected in Q3, December, rather than Q2, and fan excitement is building strongly. The game looks really promising, and early indicators show the excitement amongst fans is building, with over 1 million wishlists on Steam already. The fan engagement for Stage Tour from Red Octane Games is also very real. This game is being built with community at the heart and it was great to see their reaction at the recent San Diego Comic Con. And as mentioned, in the year after, a further strengthening pipeline with Darksiders, Kingdom Come and Tomb Raider Catalyst, the next chapter in our Tomb Raider series, published again by our friends at Amazon. In May, we talked about our new licensing business area, and our conviction has only grown since. This is a durable, high-margin revenue stream that sits alongside development and publishing, and the foundations are already producing. There is a lot of exciting stuff going on, some near-term and some further out, starting tomorrow with the launch of Magic the Gathering, The Hobbit, the trading card game from our great partners at Wizards of the Coast. So far, it's tracking very well as a fan favourite and follow-up to the 2023 successful release of The Lord of the Rings Tales of Middle-Earth. In Q2, we expect our licensing business to compensate for the lighter new content quarter in publishing and development. Further out, the slate is genuinely exciting. Multiple feature films with our partners at Warner Brothers, a strong collaboration with Asmodee across tabletop games, plus merchandise, location-based experiences, and of course, video games. In closing, The Lord of the Rings is one of our core IPs, but as we highlighted in our May update, we've got a great roster of other amazing IPs to fuel our licensing business. Now let's turn to the Embracer operating segment which delivered a strong earnings improvement. The PC console business area led the way with a successful launch of Gothic 1 Remake and continued momentum for Re-Animal. Gothic saw a strong reception from players, reaching 500,000 copies sold within the first week. The game is, as of today, already close to recouping its full development and marketing spend. And the strength ran right across the segment. Mobile grew net sales and profitability year over year, driven by sled surfers. Entertainment and services delivered very strong top line growth with high profits, driven by distributed titles and play on partners, including Crimson Desert. Embracer is much more than a games business, and that's a strength. With the diversity of activities and stable revenue generating businesses in the E&S and mobile business areas in particular, we expect Embracer to deliver a steadier, more predictable revenue profile on a like-for-like basis going forwards. These businesses share a lot of DNA, but they are different in terms of revenue and profit dynamics. In Q1, each business area grew. Every one. ENS grew the strongest driven by PlayOnPartners' physical business spanning software, hardware and retro. True specialists. Cash EBIT showed a strong improvement, though the gross margin was notably lower year-on-year due to the sales mix. Going forward, sales or revenue mix between the business areas will be the primary variable driving gross margin and cash EBIT margin year-over-year. That's a mix effect, not a health question. The underlying businesses are performing.