Embracer Group publishes Interim Report Q3, October-December 2020: OPERATIONAL EBIT INCREASED 100% TO SEK 603 MILLION

THIRD QUARTER, OCTOBER–DECEMBER 2020 (COMPARED TO OCTOBER–DECEMBER 2019)

> Net sales increased by 44% to SEK 2,168.1 million (1,508.5). Net sales of the Games business area increased by 62% to SEK 1,355.6 million (835.7). THQ Nordic SEK 379.8 million (333.0), Deep Silver SEK 496.9 million (466.6), Coffee Stain SEK 99.2 million (36.1), Saber Interactive SEK 307.0 million (-) and DECA Games SEK 72.7 million (-).

> Net sales of Partner Publishing/Film business area increased by 21% to SEK 812.5 million (672.9).

> EBITDA increased by 70% to SEK 878.7 million (518.4), corresponding to an EBITDA margin of 41%.

> Operational EBIT increased by 100% to SEK 603.1 million (302.1) corresponding to an Operational EBIT margin of 28% (20%).

> Cash flow from operating activities amounted to SEK 840.4 million (239.5). Investments in intangible assets amounted to SEK –557.7 million (–419.0). Free Cash Flow amounted to SEK 309.1 million (–207.3).

> Adjusted earnings per share was SEK 1.06 (0.68).

> Organic growth in constant currency for the Games Business Area amounted to 21% in the quarter.

> Total game development projects increased 56% to 150 (96). Total headcount increased 93% to 5,730 (2,970) where total game developers increased 92% to 4,325 (2,258).

CEO COMMENTS

STRONG ORGANIC GROWTH EXPECTED COMING YEARS

– The Company prepares for the next decades as public company by deciding on IFRS conversion and process to list on regulated market

We are pleased to announce another stable quarter driven particularly by our back catalogue’s strong performance. Net sales increased by 44% to SEK 2,168.1 million (1,508.5) whereof the Games business area contributed SEK 1,355.6 million (835.7) driven by 21% organic CCY growth (YTD CCY 54%). The proforma CCY growth in the quarter is estimated to 33%.  Operational EBIT grew by 100% to SEK 603.1 million (302.1).

As our operative groups are growing, we have continued to strengthen the parent company and implemented structured processes and management in order to ambitiously build Embracer Group for the next decades.

I am glad to announce that the Board of Directors has decided to convert to the reporting standard IFRS and thereby start the process towards being listed on a regulated market. The Board of Directors has already decided to establish an Audit Committee and a Remuneration Committee to be effective immediately. We estimate the process to become listed on a regulated market will take 18-36 months.

To constantly invest for long-term organic growth is a key strategic pillar across our operative groups. Reinvesting our underlying cashflow into scaling up existing studios, setting up new studios and making more great games. In the past quarter, investments in ongoing game development were a record SEK 523 million corresponding to more than three times the value of completed (released) games. Despite these growth investments, our free cash flow reached SEK 309 million (–207) during the quarter and on a trailing 12 month-period it is exceeding SEK 1 billion.

Our quality first approach means that we give the developers the required time or resources to release a quality product. Over time, we believe this approach in general makes the most sense for all stakeholders – the fans and gamers, developers and employees, our business partners and the shareholders. On May 25, long-awaited Biomutant from our internal studio Experiment 101 will be released by THQ Nordic on multiple platforms. We are well aware that it has been quite a delay, but we are confident that it has been delayed for the right reasons. To give some idea of our processes, during the current year we have decided to move more than ten releases into the next financial year, mainly due to our quality first approach.

Looking ahead, we now expect the next financial year ending March 2022 to become the strongest in our history driven by numerous significant releases towards the second half of the year. In total, we expect to complete more than 70 premium game development projects with a total completion value in the range SEK 2,500-3,000 million, according to management estimates at the time of this report. This excludes any additions from the announced transactions on February 3 with Gearbox, Aspyr and EasyBrain. Consequently, we now expect Q4, the current quarter ending March, to have lower activity in terms of new releases. The value of completed (released) games in Q4 is estimated to be in the range of SEK 120 - 140 million and between SEK 840 - 860 million for the fiscal year.

During the current quarter, I am humbled to see the gamers’ reception of the Early Access release on Steam of Valheim. The game is inspired by Viking culture, developed by our external partner Iron Gate and published by Coffee Stain. At the publication of this report, the game has already sold close to 3 million copies. The commercial impact follows Coffee Stain’s typical partnership with external developers, including a minority ownership in the studio.

The M&A market is more vivid than ever and the number of entrepreneurs and creators wanting to join our group keeps growing. Across the group, we are having more dialogues than ever. Our ambition is to continue growing the number of mergers and acquisitions, as our ecosystem expands with additional operative groups where transactions are initiated and made. In my belief, a key factor to our success is that entrepreneurs who become part of Embracer maintain their creative and operative freedom while they can go faster and boost their growth by being docked into our growing eco-system and available resources.

Embracer just got started, and will over the coming decades continue the same strategy we started years ago. We are a truly independent platform for entrepreneurs and currently only represent around 1 percent of the global video games industry. Our competitors and industry peers are generally significantly larger companies.

Retaining and attracting the best talents are our most important mission to grow our group in the future. We are actively recruiting across most of our studios and grew headcount organically by 20% in 2020. A couple of weeks ago, we announced three transformative transactions when welcoming The Gearbox Entertainment Company, Easybrain and Aspyr Media to the Embracer family. After the closing of the announced deals, Embracer Group will maintain a strong balance sheet with a financial net cash position and approximately SEK 10 billion in cash and available funds to support further M&A.

I am grateful to see the willingness and engagement in maintaining our global group’s business, despite the still on-going covid-19 pandemic. The working from home situation is challenging in many ways. It’s a new challenge for our management to address and to find new creative solutions to handle the very best way possible to keep a work-life balance and prevent ambient stress. I want to sincerely thank each and every one for all the efforts that keep our business going, during the seemingly never-ending-pandemic. I am looking forward to when this is over, and we all can see each other again.

To conclude, I would like to send my thanks to all our colleagues, customers, business partners, and shareholders for contributing to our growing family’s prosperity and success.

February 18, 2021, Karlstad, Värmland, 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, console and mobile games for the global games market. Embracer Group has an extensive catalogue of over 200 owned franchises, such as Saints Row, Goat Simulator, Dead Island, Darksiders, Metro, MX vs ATV, Kingdoms of Amalur, TimeSplitters, Satisfactory, Wreckfest, Insurgency and World War Z, amongst many others.

With its head office based in Karlstad, Sweden, Embracer Group has a global presence through its six operative groups: THQ Nordic GmbH, Koch Media GmbH/Deep Silver, Coffee Stain AB, Amplifier Game Invest, Saber Interactive and DECA Games. Embracer Group has 57 internal game development studios and is engaging more than 5,500 employees and contracted employees in more than 40 countries.

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

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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 February 18, 2021