Another day of bad news, Embracer released its Q1 (April-June) results. Even though they had some successful releases like Kingdom Come Deliverance 2, their earning, revenue and margins dropped. (Partly organically due to the spin off of Asmodee, but it dropped even further)
most importantly:
earnings of 75million SEK, even though 141 were expected.
They are still in a change process, due to the split into 3 separate entities. As I am optimistic about the coming years, I got some more shares. Might rebalance once the remaining two are split up.
Part of the CEO statement:
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:
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.
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.
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.
