Embracer Group publishes Interim Report Q1, April-June 2026: Cash EBIT amounted to SEK 47 million

FIRST QUARTER, APRIL-JUNE 2026 (COMPARED TO APRIL-JUNE 2025)
This quarter is Embracer Group’s first time reporting through the two separate operating segments Fellowship Entertainment and Embracer. This new structure is designed to enhance transparency in advance of the spin-off of Fellowship Entertainment planned for calender year 2027.

• Net sales increased by 24% (33% organic growth) to SEK 3,943 million (3,171). The net sales split per operating segment:
  • Fellowship Entertainment: decreased by -23% (-22% organic growth) to SEK 810 million (1,058).
  • Embracer: increased by 48% (63% organic growth) to SEK 3,134 million (2,113).
• EBIT²⁾ amounted to SEK -79 million (-272), an EBIT margin of -2% (-9%). Cash EBIT increased by 147% to SEK 47 million (-99) with a Cash EBIT¹⁾ margin of 1% (-3%). Adjusted EBIT increased by 739% to SEK 151 million (18), corresponding to an Adjusted EBIT margin of 4% (1%).
• Cash flow from operating activities amounted to SEK 390 million (318). Net investments in intangible assets amounted to SEK -658 million (-707). Free cash flow³⁾ after changes in working capital amounted to SEK 3 million (-383).
• Basic earnings per share was SEK 0.18 (-2.01) and diluted earnings per share SEK 0.18 (-2.01). Adjusted earnings per share was SEK 1.04 (-0.84). Adjusted earnings per share after full dilution was SEK 1.03 (-0.84).

• For the current financial year 2026/27, the Cash EBIT forecast of at least SEK 1.0 billion is reiterated.

1) Cash EBIT is defined as Adjusted EBIT, excluding depreciation and amortization expenses and instead deducting cash investments in intangible and tangible assets and cash payments for lease liabilities. See further details in the section "Definitions of alternative performance measures" (APMs) on page 36.

2) 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

3) Free Cash flow definition has changed to include lease payments.

CEO COMMENTS:
CLEAR PROGRESS AND CONTINUED IMPROVEMENT
In the first quarter, we delivered organic growth of 33% year-over-year, with positive Cash EBIT and free cash flow ahead of our expectations. The performance was supported by solid momentum across our core IPs within both our new operating segments, Fellowship Entertainment and Embracer. We remain on track to double Cash EBIT this financial year as we continue to unleash the potential that we see in the years ahead.

Q1 GROWTH AND EARNINGS ABOVE PLAN
From this quarter, we report in our new operating segments, and have introduced Cash EBIT as our key earnings measure. Together, these changes sharpen our focus on operating performance, capital discipline and stronger conversion of earnings into cash flow as we prepare to spin off Fellowship Entertainment in calendar year 2027.

Compared to our internal expectations, Q1 was a strong start to the financial year. Net sales amounted to SEK 3.9 billion, up by 33% organically, and Cash EBIT improved to SEK 47 million from SEK -99 million last year. Free cash flow was also slightly positive despite a quieter seasonal and release period.

The Embracer operating segment delivered strong earnings improvement, led by the PC/Console business area, which saw a successful release of Gothic 1 Remake and continued momentum for REANIMAL. The first quarter was also supported by continued solid momentum across the Mobile and Entertainment & Services business areas. Mobile saw continued growth in net sales and profitability year-over-year, driven by the ongoing success of CrazyLabs' game Sled Surfers.

The operating segment Fellowship Entertainment delivered a resilient result, above internal expectations in a quiet quarter, demonstrating the strength of our catalog across franchises including Kingdom Come: Deliverance, Metro, Tomb Raider and Dead Island, and supported by disciplined execution. In Q1 last year, Kingdom Come: Deliverance II drove a significant catalog net sales contribution, providing a tough year-over-year comparison. Cash EBIT for Fellowship Entertainment was slightly negative in the quarter due to limited recent releases and upfront capex investments related to upcoming key game projects. These investments put us in a strong position for future Cash EBIT growth.

INTACT FY 2026/27 OUTLOOK, WITH METRO 2039 COMING TO GAMESCOM IN AUGUST
Our FY 2026/27 outlook remains intact. We continue to expect Cash EBIT of at least SEK 1.0 billion, with improving confidence following the first quarter. For Q2, we expect year-on-year Cash EBIT improvement in a similar pattern to Q1. We expect this to be driven by the Embracer operating segment. Within Fellowship, Licensing is expected to compensate for a slower quarter of new content for Publishing & Development. The trading card game from our fantastic partners at Wizards of the Coast, Magic the Gathering: The Hobbit, is tracking well on pre-orders, ahead of its release tomorrow. Fellowship Entertainment’s release of Warhammer 40,000: Dawn of War 4 is now expected, in Q3 (3rd December) rather than in Q2. The game looks great and early indicators show that the excitement among fans is building. As is the fan engagement for Stage Tour from RedOctane Games. This game is being built with community at the heart, and it was great to see their reaction at San Diego Comic Con. We continue to expect earnings to be weighted to Q3 and especially Q4 due to the timing of key game releases within Fellowship Entertainment. From a free cash flow perspective, we expect some working capital build-up in Q2 ahead of the holiday season.

Our pipeline is strengthening while capex and opex continue to trend downwards. The current financial year is anchored by Metro 2039 and Tomb Raider: Legacy of Atlantis, both expected to be released in February, 2027. Momentum for Metro 2039, developed by our studio 4A Games, is strong. After its reveal, the game raced to 1 million wishlists in record-breaking time, reaching this milestone faster than any title in our history. Wishlists continue to grow ahead of expectation. We are excited to let players experience the game at Gamescom in Cologne in a few weeks. In FY 2027/28, we expect the release of the next game in the Kingdom Come franchise from Warhorse Studios, Darksiders 4 from Gunfire Games, as well as the externally published Tomb Raider: Catalyst from Crystal Dynamics along with Flying Wild Hog and Eidos Montréal.

SPIN-OFF PROCESS PROGRESSING WELL
The planned spin-off of Fellowship Entertainment is progressing well toward calendar year 2027. We expect to host a Capital Markets Event, which will be an important step in setting out our equity stories, strategic priorities and financial frameworks.

Starting in this quarter, we have made several changes to improve the relevance and clarity of the information presented for the Group, including our catalog definition, revenue splits and other KPIs⁴⁾. Some of these changes are driven by the new segment structure while some are intended to enhance the overall understanding of the Group and simplify reporting ahead of the Fellowship Entertainment spin-off.

During the quarter, we made progress in building the future Fellowship Entertainment organization around the needs of an IP-led entertainment company. Rather than replicating existing structures, we are creating a lean model where experienced people take broader responsibility across defined areas. This includes ongoing strengthening greenlight and portfolio decisions while bringing community insight closer to game development and live operations. The organization continues to evolve, but the direction is clear: IP is at the center of our operating model, investment decisions and long-term value creation.

UNLOCKING VALUE ACROSS BOTH OPERATING SEGMENTS
Fellowship Entertainment is being built as a focused, IP-led entertainment company. We are confident that the spin-off will enable us to accelerate the formation of a group of world-class studios with leading publishing and licensing capabilities. From FY 2027/28, Fellowship Entertainment is expected to get into the rhythm of releasing at least two major games with full economics per year, supporting both growth and profitability. In May, we revealed that Warhorse Studios, the team behind Kingdom Come, is making a new game, set in Middle-earth. It was a truly exciting moment for our teams to see how the news resonated with fans across the globe. It offered a glimpse into the potential for our IPs and our studios if we do things right.

The first quarter showed clear signs of the value creation potential ahead for Embracer, with the successful release of Gothic 1 Remake and lower overall costs following divestments and efficiency measures. Embracer now has a stronger and more focused PC/Console project pipeline, with an improved ROI and profitability outlook. Importantly, Embracer also has a diversified revenue base, also including mobile games, distribution, retro and film. Following strong progress in the past 12 months, there is clear potential to further improve profitability through disciplined capital allocation, a more efficient structure and tighter cost control. The spin-off of Fellowship Entertainment will also allow Embracer more flexibility to pursue accretive but opportunistic bolt-on M&A, especially to strengthen its already successful and sizable niches in for example, mobile, distribution, retro, films, remakes and remasters.

At the end of the first quarter, we had a net cash position of SEK 3.5 billion. This financial strength gives us flexibility as we prepare both companies for their next chapter. In Q1, we paid more than half of our remaining cash earnouts, meaning we now have only SEK 0.2 billion left, spread out over the next five years. As of 30 June, we had repurchased outstanding shares for approximately SEK 100 million, as part of our current SEK 750 million share buyback program. We remain committed to distributing excess cash to shareholders also beyond this current program.

NEXT PHASE DEFINED BY EXECUTION
While the spin-off process is an important step in shaping the future of both companies, our day-to-day focus remains firmly on execution. Kaizen, the philosophy of continuous improvement, is central to how I think about the next phase of our journey. We will consistently seek ways to refine our execution and value creation, ensuring that every step forward enhances our processes and our performance. Over time, this generates powerful results.

Thank you for your continued support.

Phil Rogers
Group CEO

4) For more details on these changes, take a look at the section Definitions, quarterly information on page 40 in the interim report.