Embracer Group publishes Interim Report Q1, April-June 2020: OPERATIONAL EBIT INCREASED 249% TO SEK 712 MILLION

FIRST QUARTER, APRIL–JUNE 2020 (COMPARED TO APRIL–JUNE 2019)

• Net sales increased by 81% to SEK 2,068.7 million (1,142.0). Net sales of the Games business area increased by 153% to SEK 1,622.1 million (641.3). Net sales of Partner Publishing/ Film business area decreased to SEK 446.5 million (500.7).
• EBITDA increased by 148% to SEK 965.2 million (389.5), corresponding to an EBITDA margin of 47%.
• Operational EBIT increased by 249% to SEK 711.8 million (204.0) corresponding to an Operational EBIT margin of 34% (18%).
• Cash flow from operating activities before changes in working capital amounted to SEK 869.8 million (306.0).
• Cash flow from operating activities amounted to SEK 732.3 million (441.3).
• Earnings per share was SEK 0.26 (0.17).
• Adjusted earnings per share was SEK 1.51 (0.51).

CEO Comments

OPERATIONAL EBIT INCREASED 249%
TO SEK 712 MILLION – 125 GAMES UNDER DEVELOPMENT 

The Group had another stable quarter with growing sales and profitability exceeding management expectations. The growth has been driven by strong demand during the global covid-19 pandemic and well received releases.

Consolidated net sales increased 81% to SEK 2,069 million (1,142). The Games business area had its best quarter ever generating SEK 1,622 million (641) in net sales, driven by organic growth as well as acquisitions. Sales in the Partner Publishing/Film business area decreased to SEK 446 million (501), due to absence of larger releases. EBITDA increased to SEK 965 million (389), corresponding to an EBITDA margin of 47% (34). Operational EBIT was SEK 712 million (204) with an Operational EBIT margin of 34% (18). Cashflow from operating activities amounted to SEK 732 million (441), mainly driven by operating profit. All reporting business segments contributed to the Group’s Operational EBIT in the quarter. 

QUALITY FIRST PAYS OFF – gross profit INCREASED TO 4.6x amortization

The Group has continuously increased investments in new game development over the past years with the ambition to drive long term organic growth. I am happy to see that this growth strategy bears fruit, with multiple successful launches in the quarter. During the period, Deep Silver released Saints Row: The Third – Remastered. Milestone released MotoGP 20. THQ Nordic released Spongebob The Battle for Bikini Bottom Re-hydrated and Desperados 3. Coffee Stain released the full version of Deep Rock Galactic, Huntdown, and extended early access availability of Satisfactory to Steam. Saber Interactive released SnowRunner and World War Z Game of the Year Edition. It is encouraging to see that our effort in putting quality first seems to pay off, as our recent releases have been received well. The strategy is also supported financially by the increase in our “gross profit”-to-amortization ratio to 4.6 (3.5), indicating improved profitability within the Games business area. Looking ahead it is worth noting that we fully amortize games over two years, hence a higher degree of back catalog sales older than two years will have a positive effect on the ratio. Further, larger projects generally have a lower relative profitability than smaller projects, hence we expect a downwards pressure on the ratio as larger projects are released.

Overall, the commercial performance of these releases exceeded management expectations in the quarter. This, together with a solid performance of our back catalog, drove an organic year-over-year growth across our Games business area of 71% in the quarter (9% in FY19/20 and 23% in FY18/19). The Games business area had a strong performance in the quarter, mainly driven by digital sales. However, physical games still reached all-time high sales of SEK 419 million.

Starting in this quarter we introduce organic growth as a KPI, which excludes businesses that have been acquired in the past year and is adjusted for differences in currency exchange rate.

I am happy to see that our Games business area has continued to perform well after the quarter end, supported by the release of Destroy All Humans! where initial sales exceeded management expectations, as well as a sustained interest driven by our recent releases.

The performance in the first quarter has laid a solid foundation to make the fiscal year 2020/21 another stable growth year for Embracer Group, although the growth rate in the coming quarters will depend on the reception of upcoming releases. In the second quarter, we are besides Destroy All Humans! looking forward to the releases of Wasteland 3, Iron Harvest, Windbound, Kingdoms of Amalur: Re-Reckoning and WWE 2K Battlegrounds, the latter in cooperation with 2K Games. 

SOLID INITIAL PERIOD WITH SABER INTERACTIVE

The initial period with Saber Interactive within the Group has exceeded my expectations. The number of touchpoints and cooperations between Saber and the other operative groups are numerous, a perfect example of the win-win synergies we are targeting as Embracer Group welcomes new gaming entrepreneurs to our growing family. We see Saber as an important platform for both organic an in-organic growth and reiterate the target to grow Saber’s internal developer count to 1,500 from just over 600 at the beginning of this year. 

Looking ahead

We continue to invest for long-term organic growth. Investments into new game development was SEK 457 million in the quarter and the number of ongoing development projects was 125, both all time high figures, 73 of these projects are yet to be announced. We expect to benefit from these growing investments in the years to come and we re-iterate the expected value of completed games in fiscal year 2020/21 to SEK 1,200-1,400 million. 

We continue to patiently execute on our M&A strategy, with the ambition of welcoming more entrepreneurs to the Group. Currently we have more discussions than ever with potential joiners, including a handful of sizable companies that could form new operative groups. Our decentralized strategy, where founders and creators keep their own identity whilst getting access to our growing eco-system, has proven to be increasingly successful. I am a firm believer in empowering great people to make their own decisions. 

Covid-19 is still a challenge to all of us. The Group’s priority is to maintain the safety and wellbeing of all employees and coworkers. As recent events have shown, covid-19 is one of many challenges we must fight. 

To conclude, I would like to send my thanks to all of our colleagues, customers, business partners and shareholders for contributing to the prosperity and success of our growing family. Our most exciting years are still ahead of us. 

All the best from Värmland. 

August 13, 2020, Karlstad, Sweden

Lars Wingefors,
Co-founder & CEO

For more information, please contact:

Lars Wingefors, Co-founder and Group CEO, Embracer Group

Tel: +46 708 47 19 78

E-mail: lars.wingefors@embracer.com

About Embracer Group

Embracer Group is the parent company of businesses developing and publishing PC and console games for the global games market.

The Group has an extensive catalogue of over 170 owned franchises, such as Saints Row, Goat Simulator, Dead Island, Darksiders, Metro, MX vs ATV, Kingdom Come: Deliverance, TimeSplitters, Satisfactory, Wreckfest, Destroy All Humans!, World War Z and SnowRunner, amongst many others. With its head office based in Karlstad, Sweden, Embracer Group has a global presence through its five operative groups: THQ Nordic, Koch Media/Deep Silver, Coffee Stain, Amplifier Game Invest and Saber Interactive. The Group has 33 internal game development studios and is engaging more than 4,000 employees and contracted employers in more than 40 countries.

Embracer Group’s shares are publicly listed on Nasdaq First North Stockholm under the ticker EMBRAC B with FNCA Sweden AB as its Certified Adviser; info@fnca.se +46-8-528 00 399.

For more information, please visit: http://www.embracer.com

This Interim Report is information that is mandatory for Embracer Group to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 06:00 CET on August 13, 2020