Embracer Group AB publ) (LON: 0GFE reported fourth-quarter results above management’s plan and outlined a proposed separation that would create two listed companies, with a spin-off of its IP-focused Fellowship Entertainment business targeted for 2027.
Chief Executive Officer Phil Rogers said quarterly net sales totaled SEK 3.9 billion, representing a 10% organic decline year over year, largely because the PC/console segment faced a difficult comparison with the prior-year launch of Kingdom Come: Deliverance II. Mobile and Entertainment & Services delivered growth in the quarter, while full-year net sales were SEK 15.9 billion and adjusted EBIT was SEK 905 million, above the company’s forecast.
Rogers said the results showed “business delivery coming through” during what he described as a transformative period for the group. The company also highlighted strong free cash flow in the quarter and positive momentum around the mid-April reveal of METRO 2039.
Quarterly Results Reflect Segment Mix Shift
Chief Financial Officer Müge Bouillon said fourth-quarter net sales were affected by divestments, currency translation and a strong comparator. Divestments, primarily Easybrain and Arc Games, reduced net sales by about SEK 400 million, while foreign exchange had a similar negative impact. Excluding those effects, organic and pro forma net sales were down 10%.
PC/console net sales were SEK 1.6 billion, down 37% organically. Rogers attributed the decline to prior-year new release comparisons, though he said Re:Animal was well received and performed well as a new intellectual property. He also cited positive reception for Screamer and RIDE 6.
Mobile delivered 2% organic growth, supported by continued scaling of Subway Surfers. Entertainment & Services revenue totaled SEK 1.7 billion, up 36% organically, aided by two strong physical releases through PLAION Partners. The company also cited ongoing licensing activity for Middle-earth, including the next Magic: The Gathering set tied to The Hobbit, arriving in August.
Gross margin for the quarter was 61%, down 14 percentage points from a year earlier, primarily because of lower PC/console weighting versus the prior-year Kingdom Come comparator. Marketing spend fell to SEK 476 million, or 12% of net sales, while operating expenses excluding marketing declined by SEK 363 million year over year to SEK 876 million.
Adjusted EBIT for the quarter was SEK 360 million, with a 9% adjusted EBIT margin. Bouillon said the quarter included more than SEK 200 million of negative non-cash adjustments in active co-publishing and work-for-hire projects, as well as SEK 40 million of impairments on non-core IP affecting adjusted EBIT.
Cash Flow Improves, But Reported EBIT Hit by Impairments
Embracer generated fourth-quarter free cash flow after working capital of SEK 883 million, up SEK 65 million from the prior-year period. Bouillon said the result was driven by operating performance and positive net working capital movements of SEK 730 million, mainly from collections of receivables after an increase in the third quarter.
For the full year, free cash flow was positive at SEK 50 million. At March 31, the company reported a net cash position of SEK 3.8 billion and available funds of SEK 6.8 billion. Bouillon said the year included SEK 500 million returned to shareholders through buybacks, a SEK 495 million net cash impact from the Coffee Stain spin-off, SEK 105 million in net proceeds from divestments of non-core assets and SEK 729 million of earnout payments.
Reported EBIT for the full year was a loss of SEK 7 billion, compared with adjusted EBIT of SEK 905 million. The difference was primarily due to non-cash impairment charges, including approximately SEK 5.8 billion of goodwill impairments and SEK 1.6 billion of intangible asset writedowns, mainly IP rights. Most of the SEK 7.2 billion total arose in the fourth quarter.
Company Plans Separation Into Fellowship and Embracer
The central announcement on the call was the proposed separation into two businesses. Chairman Lars Wingefors said the board believes creating Fellowship Entertainment as a company focused on AAA IP development and licensing will enable “more and faster shareholder value creation” than keeping the assets in the current structure.
Fellowship will include commercial rights to The Lord of the Rings and The Hobbit, commercial rights to Metro, and ownership of franchises including Tomb Raider, Kingdom Come: Deliverance, Dead Island, Darksiders and Remnant. Rogers said the unit will have more than 1,600 internal developers and a new dedicated IP management and licensing division.
The remaining Embracer Group business will include assets such as THQ Nordic, DECA Games, Milestone, Tripwire Interactive, PLAION Partners, PLAION PICTURES, Aspyr Games, Limited Run Games and Vertigo Games. Rogers described the future Embracer as a leaner, more focused group of durable businesses, including games, physical distribution, film distribution, retro gaming and remasters.
Beginning with the next quarterly report, Embracer will shift its segment reporting from PC/console, mobile and Entertainment & Services to two segments: Fellowship Entertainment and Embracer Group. The company expects the Fellowship spin-off to be completed during calendar 2027.
Pipeline Includes Metro, Tomb Raider and Middle-earth Projects
Rogers said Embracer has 30 announced titles. Near-term releases include Gothic 1 Remake, scheduled for June 5, while METRO 2039 and Tomb Raider: Legacy of Atlantis are expected to drive activity heading into the summer. He said the current fiscal year is anchored by those two titles.
Looking further ahead, Rogers said the company expects Darksiders 4 in fiscal 2027-2028 and disclosed that Warhorse Studios is working on a new release in the Kingdom Come franchise. He also announced that Warhorse is developing a new game set in Middle-earth, describing it as an “expansive, deep, open-world experience.”
In the Q&A session, Rogers said METRO 2039 had become the company’s fastest self-published title to surpass 1 million wishlists and said management sees potential for the game to scale toward its return-on-investment aspirations.
Guidance and Capital Returns
For fiscal 2026-2027, Embracer guided for Cash EBIT of at least SEK 1 billion, compared with Cash EBIT of SEK 511 million in fiscal 2025-2026. Bouillon said the company expects positive free cash flow for the year, weighted toward the second half, and will begin using Cash EBIT as a core performance measure because it better reflects the cash economics of game development.
The company also announced a new SEK 750 million share buyback program to be executed through the end of fiscal 2026-2027. Bouillon said that after accounting for remaining cash-settled earnout obligations and the buyback, Embracer would have net cash of SEK 2.6 billion.
Leadership changes were also outlined. Bouillon will become deputy CEO while remaining CFO, with responsibility for setting up governance for the Embracer business segment. Rogers and COO Lee Guinchard will focus on preparing Fellowship Entertainment for the spin-off and are expected to transition to lead Fellowship at the time of separation. A search has begun for a CEO and CFO for the future Embracer Group.
About Embracer Group AB publ) (LON: 0GFE
Embracer Group AB (publ), together with its subsidiaries, develops and publishes PC, console, mobile, VR, and board games for the games market worldwide. The company also publishes films and comic books, as well as engages in the trading of card games. It distributes games through retailers, physical stores, and digital distributors. The company was formerly known as THQ Nordic AB (publ) and changed its name to Embracer Group AB (publ) in October 2019. Embracer Group AB (publ) was founded in 1990 and is headquartered in Karlstad, Sweden.
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