Embracer Group publishes Interim Report Q3, October-December 2019: OPERATIONAL EBIT INCREASED 54% TO SEK 302 MILLION

THIRD QUARTER, OCTOBER–DECEMBER 2019

(COMPARED TO OCTOBER–DECEMBER 2018)

> Net sales were SEK 1,508.5 million (1,380.6). Net sales of the Games business area increased 51% to SEK 835.7 million (552.5), whereas the Partner Publishing/Film business area decreased 19% to SEK 672.9 million (828.1) due to the absence of larger releases in the quarter compared to the same period last year. Last year’s Partner Publishing revenues included two titles that account for more than the difference to this year’s revenue.

> EBITDA increased 59% to SEK 518.4 million (326.4), corresponding to an EBITDA margin of 34%.

> Operational EBIT rose 54% to SEK 302.1 million (196.8) corresponding to an Operational EBIT margin of 20%.

> The increase in EBITDA and Operational EBIT is mainly attributed to the sales growth in the Games business area and an improved gross margin within Games due to an increased share of revenue from digital sales and owned titles.

> Cash flow from operating activities before changes in working capital amounted to SEK 552.0 million (360.1).

> Cash flow from operating activities amounted to SEK 239.5 million (455.0).

> Earnings per share was SEK 0.11 (0.44).

> Adjusted earnings per share was SEK 0.68 (0.55).

CEO Comments

OPERATIONAL EBIT INCREASED 54%TO SEK 302 Million

The Group had another stable quarter with growing profitability. Consolidated net sales were SEK 1,509 million (1,381). Our Games business area with Deep Silver, THQ Nordic and Coffee Stain grew revenue by 51%, generating net sales of 836 million (552) in the quarter. Key drivers behind this top line performance was the stable backcatalog sales from titles such as Metro Exodus, Wreckfest and Satisfactory, as well as a the new releases Darksiders Genesis and Shenmue III. Sales in the Partner Publishing/Film business area decreased 19% to SEK 673 million (828) due to the absence of larger releases to match last year. The business still performed better than management expectations due to notable performance of the Film segment.

EBITDA grew 59% to SEK 518 million (326), corresponding to an EBITDA margin of 34% (24). Operational EBIT grew 54% to SEK 302 million, raising the Operational EBIT margin to 20% (14). The improved profitability was explained by strong Gross Margins following a favorable sales mix shift towards the Games business area, as well as a larger share of digital sales and revenue from owned titles. All three operating groups contributed to the Group’s Operational EBIT in the quarter.

ACQUISITIONS AND NEW STUDIOS

In December, I was excited to welcome Tarsier Studios to the Group. I have a firm confidence in the competence and knowledge of this Malmö, Sweden-based studio with its 15 years in the games business. We are looking forward to supporting them with long-term investments into new IP-development. The acquisition was made by our wholly owned subsidiary Goodbye Kansas Game Invest, which was rebranded Amplifier Game Invest after the quarter.

Amplifier Game Invest, which we acquired in August, 2019, is becoming an increasingly important vehicle for our investments into new IP-development. Starting today, they will officially become our fourth operative group. During and after the quarter, they founded two new studios together with senior game developers. These ventures are based on a new partnership model designed to attract top talents with incentives and commercial support from the Group, while leaving them full creative integrity. The new studios are River End Games in Gothenburg, Sweden and C77 Entertainment in Seattle, USA. Based on the same blueprint, THQ Nordic established Nine Rocks Games in Bratislava, Slovakia. In addition, two more studios have been established within the Group since January 1, to be publicly announced in due course. Going forward, new studios will be communicated through our operating groups.

Amplifier Game Invest made a follow-on investment into the Stavanger, Norway-based fishing simulator developer Misc Games, bringing ownership to 55% of the studio.

Finally, this morning, Koch Media entered into an agreement to acquire Voxler, the French development studio behind the “Let’s Sing” series and other titles in the music games genre. Voxler has collaborated with Koch Media as an external development studio over the last 10 years. The purchase price for 100% of the shares was approximately EUR 1.9 million.

This brings the total number of wholly or majority owned development studios in the Group to 26 at the time of writing, compared to 10 one year ago and 20 at the end of the reporting period. At the end of 2019, the Group employed 2,258 internal and external game developers, which is a 52% increase compared to the corresponding quarter a year ago.

GAME DEVELOPMENT PIPELINE KEEPS GROWING

The new studio initiatives are long term investments in building new content and IP’s that may become notable drivers of our organic growth in the future. Bear in mind that the development cycle for new games runs over several years and thus the contribution from these investments lies a few years down the road.

Currently, we have a strongest pipeline ever of 96 titles in development across the Group, of which 52 are yet to be announced.

I would like once again to emphasize that our priority is to put quality first across all our development projects. For the sake of all stakeholders, we should always take the time to build the best possible games. Looking ahead in the quarter ending March, the highlights will be release of Darksiders Genesis on consoles, Satisfactory update #3 and the release of Metro Exodus on Steam and the final DLC Sam’s Story across all platforms. We are also happy to see that the movie Parasite, by Korean director Boon Joon-Ho, which is exclusively marketed and distributed by Koch Film in Germany, Switzerland and Austria, received four Oscars for Best Picture, as well as best director, best original screenplay and best international film, giving further traction to that business after the acquisition of KSM Films last year. Koch Film will partly make up for another quarter without any major new releases in Partner Publishing.

The ambition is still to have at least two AAA games ready for release in the next financial year. This is our plan, but it would be prudent to reiterate the message that we can never be completely sure of development schedules and deadlines. The never ending question when Biomutant will be released is still owed to all fans out there. The reality is that the team is small, around 20 people, so the finalization takes longer than with a larger team. THQ Nordic will announce the release date when they are certain they will be able to release a product that can live up to expectations.

MAJOR POTENTIAL IN THE GROUP

The Group kept growing in terms of owned IP:s, development studios and employees.
We are now over 3,000 employees with 26 owned studios. There are strong dynamic forces in a Group where so much talent comes together. We have a great potential in developing collaborations within the Group, pooling ideas and solutions to recurring problems and sharing professional practices. We have still only just tapped on the potential to leverage the true potential of such collaboration. We have made good progress in building the parent company and improving our capabilities and are now better equipped than ever to harness the energy and creativity that is found across the Group. As we keep growing, we will be opening new career paths, providing best practice benchmarks as well as strengthening our sustainability framework – “Smarter business”.

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

All the best from Värmland.

February 19, 2020, Karlstad, Sweden

Lars Wingefors,
Founder & CEO

For additional information, please contact:

Lars Wingefors, Co-Founder and Group-CEO
Tel: +46 708 471 978
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 catalog of over 150 owned franchises, such as Saints Row, Goat Simulator, Dead Island, Darksiders, Metro, MX vs ATV, Kingdoms of Amalur, TimeSplitters, Satisfactory and Wreckfest amongst many others.

With its head office in Karlstad, Sweden, Embracer Group has a global presence through its four operative groups: Koch Media GmbH/Deep Silver, THQ Nordic GmbH, Coffee Stain AB and Amplifier Game Invest AB. The group has 26 internal game development studios engaging more than 3,000 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