FIRST QUARTER, APRIL-JUNE 2025 (COMPARED TO APRIL-JUNE 2024)

• Net sales decreased by -31% (-2% organic growth) to SEK 3,355 million (4,893). The sales split per operating segment:
  • PC/Console Games: decreased by -38% (-22% organic growth) to SEK 1,641 million (2,656).
  • Mobile Games: decreased by -63% (-5% organic growth) to SEK 520 million (1,389).
  • Entertainment & Services: increased by 41% (52% organic growth) to SEK 1,193 million (848).
• EBIT¹⁾ amounted to SEK -257 million (-1,453), an EBIT margin of -8% (-30%). Adjusted EBIT decreased by -87% to SEK 75 million (579), corresponding to an Adjusted EBIT margin of 2% (12%).
• Cash flow from operating activities amounted to SEK 457 million (-362). Net investments in intangible assets amounted to SEK -750 million (-999). Free cash flow after changes in working capital amounted to SEK -223 million (-120).
• Basic earnings per share was SEK -2.01 (-9.23) and diluted earnings per share SEK -2.01 (-9.23). Adjusted earnings per share was SEK -0.69 (0.42). Adjusted earnings per share after full dilution was SEK -0.69 (0.41).
• An adjusted EBIT of at least SEK 1,000 million is forecasted for the financial year 2025/26.

¹⁾ EBIT equals Operating profit in the Consolidated statement of profit or loss.
In this report, all figures in brackets refer to the corresponding period of the previous year, unless otherwise stated.

CEO COMMENTS:
FOCUSED ON OUR STRENGTHS, UNITED IN OUR PURPOSE – BUILDING FOR THE FUTURE
Our overall group Q1 results reflect a quiet quarter for PC/Console releases. This year will be a transition year in terms of own major releases, and we will be highly focused on operational and strategic execution. Coinciding with the expected listing of Coffee Stain Group towards the end of 2025, Embracer will evolve into Fellowship Entertainment, an IP-first company powered by great creators and strong franchises in a structure enabling focus and operational discipline. Through initiatives to improve and simplify our business, combined with a stronger release slate, we have the foundation for great long-term value creation.

STRONG FOUNDATIONS IN OUR CREATIVE TALENT AND IP PORTFOLIO
Over the last year we have made significant progress in transforming the group. Asmodee was successfully listed in February and we significantly strengthened our balance sheet. Coffee Stain Group is on track for its separate listing later this calendar year. With a powerful combination of strong IPs, engaged communities, and innovative talent, we are confident in its future as a standalone company.

As Embracer evolves from a collective to a cohesive business in Fellowship Entertainment it will hold one of the most exciting IP portfolios in the industry with globally recognized franchises including The Lord of the Rings, Tomb Raider, Kingdom Come Deliverance, Metro, Dead Island, Darksiders and Remnant. We are laying the groundwork for a more agile and more empowered organization centered around such IPs.

In our first quarter, organic growth amounted to -2% with net sales of SEK 3.4 billion and an adjusted EBIT of SEK 75 million, down from SEK 579 million in Q1 last year, or around SEK 250 million excluding the divested assets Easybrain and Gearbox. At the same time, our capex is down to SEK 784 million in Q1 from SEK 967 million a year prior excluding divested assets. On a trailing 12-month basis, free cash flow improved to SEK 1.2 billion, compared to SEK -0.2 billion in the preceding period. These are important steps with regards to underlying cash flow generation.

The quarter saw a contribution in line with our expectations from our Mobile and Entertainment & Services businesses, but the quarter was slower than expected for PC/Console due to softness in our catalog. We continue to be excited that Kingdom Come Deliverance II is widely regarded as a Game of the Year contender. In Q1 several competitor games launched, taking player time and attention with the result that we saw a slowing in our gamer acquisition for Kingdom Come Deliverance II. We responded by doubling down on all efforts for Q2 and beyond; our teams are focused on expanding the game’s reach with major new content drops. We have seen an impact from these efforts already in early Q2. Legacy of the Forge, the second expansion, to be released this fall, will add real gameplay depth to increase engagement, with a third expansion scheduled for the holiday season.

Touching on Q2, Killing Floor 3, released in July, has seen a mixed reception and has performed slightly below our initial expectations. With upcoming updates and open communication with players, we believe the game has made a solid enough start and can deliver long-term value. On August 1, Titan Quest II started in early access with encouraging engagement and player feedback after an extended period of time in development. We now look forward to expanded content and a full release, including on console, for this action RPG game that stands out in the marketplace.

NEAR-TERM FOCUS, LONG-TERM VALUE
As we move forward, we are taking a conservative approach for this current year, reflecting a measured view on the timing and performance of our PC/Console release schedule in addition to potential continued softness in our catalog following Q1.

This year is a transition period as we lay the foundations of Fellowship Entertainment and focus on building a business led by key IP and empowered teams, in a structure enabling focus and operational discipline. It is paramount that we concentrate on the quality and long-term value of our releases rather than chasing short-term gains.

We now expect our current financial year to deliver at least SEK 1.0 billion in Adjusted EBIT. On the whole, versus last year, we have incorporated further release shifts of one or several of the more important releases currently scheduled for Q4, as well as a slower growth trajectory for Mobile, negative FX effects and lower catalog sales. This conservative view provides upside potential, which we will work tirelessly to realize. For Q2, we expect to be roughly in line with Q1 on Adjusted EBIT, driven by the performance of already-released titles in July and August.

We see no material changes to the management expectations for FY 2026/27 and FY 2027/28. We have one of the most exciting pipelines in the industry and we still have 9 AAA games currently slated, excluding any AAA games financed by partners. As previously noted, one or a couple of these games will most likely slip into FY 2028/29, but we do see a clear increase in release cadence as compared to our average of just over 1 AAA game per year in the past five years. We expect the increased released pipeline in combination with lower fixed costs will notably improve free cashflow FY 2026/27 onwards.

Coffee Stain Group is performing in line with expectations, with an intact outlook. We see that there are challenges related to Fellowship Entertainment and we fully recognize these. Nevertheless, we also see potential for great long-term value creation. In recent months, I’ve spent significant time listening to our teams and companies. As we move into this next phase of our transformation, I want to share three immediate priorities for myself and the management team to improve profitability and free cash flow:

1. IP-led focus – We are doubling down on our greatest strength: empowering talented teams to deliver unforgettable experiences based on globally loved IPs. We accomplish this by an increased capital allocation to our core IPs. Over many years and across hundreds of game releases, our core IP had 3.1x ROI vs non-core at 1.6x. Core IP stood for 20% of capex a year ago, is expected to reach 40% this year, and it could reach 80% longer term, as we continue to reduce investments into non-core IP. Game development cycles are 3-5 years, and we are almost 2 years into this transition.
2. Operational discipline – We are not just renaming our group, but significantly rewiring the business to create one powerhouse unit within PC/Console. This comes through smarter collaboration, increased streamlining, shared services and with AI as an increasingly supportive force. These factors will be key to unlocking value and expanding margins.
3. Targeted cost initiatives – We focus on continuous improvement as well as targeted cost initiatives relating to underperforming businesses, to free up capital to deploy with better returns. These initiatives could potentially include divestments. Assets that we so far have categorized as non-strategic had a negative Adjusted EBIT contribution of SEK 250 million and margin impact of 2% percentage points on a pro forma basis over the past twelve months.

Our intention is to return excess cash to shareholders – either through dividend or share buybacks. Before this will be communicated and executed, we need to decide and communicate the intended balance sheet for Coffee Stain Group at listing, as well as adjust some banking agreements that we deem are more technical adjustments due to our solid net cash position.

ACKNOWLEDGING CHALLENGES, BUT STAYING THE COURSE
This is a pivotal moment. It’s time to channel our energy and sharpen our focus. Our ambition is simple and focused: lead with distinctive IP; deliver with clarity and discipline; and realize our full potential. The choices we make now will determine not just what we achieve, but who we become.

It is both an honor and a deep responsibility to lead Embracer, soon to be Fellowship Entertainment into the next chapter. I am grateful to the Board, and to Lars in particular, for the trust and belief placed in me. Lars’ entrepreneurial legacy has built the foundations on which we now stand.

We’re ready to shape what’s next.

Phil Rogers
Group CEO