Embracer : Q4, Jan-Mar 2021

20/21 FULL YEAR REPORT

APRIL 2020-MARCH 2021

EMBRACER GROUP AB (PUBL) REG NO. 556582-6558

OPERATIONAL EBIT INCREASED 216% TO SEK 903 MILLION

FOURTH QUARTER, JANUARY-MARCH 2021 (COMPARED TO JANUARY-MARCH2020)

• Net sales increased by 80% to SEK 2,404.2 million (1,339.1).
• Net sales of the Games business area increased by 119% to SEK 1,975.2 million (903.5). THQ Nordic SEK 354.6 million (306.7), Deep Silver SEK 464.9 million (514.7), Coffee Stain SEK 780.9 million (82.1), Saber Interactive SEK 270.7 million (-) and DECA Games SEK 104.2 million (-).
• Net sales of Partner Publishing/Film business area amounted to SEK 429.0 million (435.6).
• EBITDA increased by 137% to SEK 1,172.5 million (495.2), corresponding to an EBITDA margin of 49% (37%).
• Operational EBIT increased by 216% to SEK 903.2 million (286.0) corresponding to an Operational EBIT margin of 38% (21%).
• Cash flow from operating activities amounted to SEK 1,521.8 million (765.7). Investments in intangible assets amounted to SEK 598.9 million (464.4). Free Cash Flow amounted to SEK 860.5 million (275.7).
• Adjusted earnings per share was SEK 2.07 (0.97).
• Organic growth in constant currency for the Games Business Area amounted to 85% in the quarter.
• Total game development projects increased 55% to 160 (103). Total headcount increased 103% to 6,325 (3,109) where total game developers increased 116% to 5,115 (2,365).

FULL YEAR, APRIL 2020-MARCH2021 (COMPARED TO APRIL 2019-MARCH 2020)

• Net sales increased by 72% to SEK 9,024.2 million (5.249.4).
• Net sales of the Games business area increased by 102% to SEK 6,448.3 million (3,196.5). THQ Nordic SEK 1,789.1 million (1,154.4), Deep Silver SEK 2,081.2 million (1,796.3), Coffee Stain SEK 1,182.5 million (245.8), Saber Interactive SEK 1,185.9 million (-) and DECA Games SEK 209.7 million (-).
• Net sales of Partner Publishing/Film business area increased by 25% to SEK 2,575.9 million (2,052.9).
• EBITDA increased by 119% to SEK 3,985.3 million (1,821.3), corresponding to an EBITDA margin of 44% (35%).
• Operational EBIT increased by 170% to SEK 2,870.8 million (1,033.0) corresponding to an Operational EBIT margin of 32% (20%).
• Cash flow from operating activities amounted to SEK 3,899.0 million (1,728.3). Investments in intangible assets amounted to SEK 2,135.2 million (1,653.4). Free Cash Flow amounted to SEK 1,684.8 million (-0.1).
• Adjusted earnings per share was SEK 6.44 (2.81).
• Organic growth in constant currency for the Games Business Area amounted to 70%.
• Total game development projects increased 55% to 160 (103). Total headcount increased 103% to 6,325 (3,109) where total game developers increased 116% to 5,115 (2,365).

	Jan-Mar	Jan-Mar	Apr 2020-	Apr 2019-
Key performance indicators, Group	2021	2020	Mar 2021	Mar 2020
Net sales, SEK m	2,404.2	1,339.1	9,024.2	5,249.4
EBITDA, SEK m	1,172.5	495.2	3,985.3	1,821.3
Operational EBIT, SEK m	903.2	286.0	2,870.8	1,033.0
Cash flow from operating activities, SEK m	1,521.8	765.7	3,899.0	1,728.3
Free cash flow, SEK m	860.5	275.7	1,684.8	-0.1
Total investments in intangible assets, SEK m	598.9	464.4	2,135.2	1,653.4
Total game development projects	160	103	160	103
Total internal and external game developers	5,115	2,365	5,115	2,365
Total headcount	6,325	3,109	6,325	3,109
Sales growth, %	80	-18	72	3
EBITDA margin, %	49	37	44	35
Operational EBIT margin, %	38	21	32	20

In this report, all figures in brackets refer to the corresponding period of the previous year, unless otherwise stated.

EMBRACER GROUP AB (PUBL) | APRIL 2020-MARCH 2021

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CEO COMMENTS

STABLE QUARTER WITH 85%

ORGANIC GROWTH

The Group had another stable quarter. We are humbled to report record financial performance, both for the quarter and the financial year 2020/21. Our strategy to build a diverse business that stands on many revenue streams driven by a diverse portfolio of development is increasingly paying off.

The quarter was driven by the release of Valheim, selling more than 6.8 million copies during the period. This truly amazing game continues to find new players globally and we expect another 1.0-1.2 million copies to be sold before the close of the current quarter ending June. Group net sales increased by 80% to SEK 2,404 million (1,339) with the Games business area contributing SEK 1,975 million (904) driven by 85% organic constant currency (CCY) growth. The proforma CCY growth in the quarter is estimated to 61%. Operational EBIT grew by 216% to SEK 903 million. Free cash flow grew 212% to SEK 861 million. The adjusted earnings per share were up 129% to SEK 6.44 for the financial year 2020/21.

Organic growth

Since the financial year 2016, when we completed the IPO, our adjusted earnings per share have increased 14x. THQ Nordic, our first operating group, has quintupled (5x) its revenues in that time and the lion's share of the growth has been organically generated. Complementary studio acquisitions have supported the profitability by improving the gross margin. THQ Nordic is still well positioned for organic growth with a wide pipeline of new projects. In five days from now, their highly anticipated game Biomutant will be released. Preorders for Biomutant are strong and ahead of management's expectations.

Organic growth is the first priority for all operating groups. Since the IPO, the Group has reinvested most of its underlying free cash flow into organic growth. We are pleased with the 70% strong organic growth delivered in the past financial year ending in March, primarily driven by numerous successful launches of high-quality games, but also thanks to a solid back-catalog. Notable sales performances of new releases during the year, other than Valheim, include close to 2 million copies of SnowRunner, more than 2 million of Spongebob Squarepants: Battle for Bikini Bottom Re-Hydrated and more than 1 million copies of Destroy All Humans!.

We are increasingly excited about the potential for organic growth in the coming years. In 2020/21, the Group invested SEK 2 billion on game development, in comparison with the accumulated development value of games completed in the year, SEK 837 million. The number of ongoing game development projects hit a record high of 160 at the end of our financial year. More than two-thirds of these projects are new IP's or games based on on IP's we plan to revitalize.These revitalized IPs have not seen any new content created for at least the past 5 year. Bringing these highly incremental projects to market is expected to drive organic growth, while further strengthening our underlying operating free cash flow.

In the current financial year ending March 2022, we are committed to fulfilling our ambition to complete more than 90 game development projects with a total completion value in the range of SEK 2,800 to 3,300 million. This includes projects from Gearbox and Aspyr. The value of completion is expected to be significantly higher in the fourth quarter, SEK 1,650 to 2,000 million, driven by significant releases scheduled for release in the quarter ending March 2022. In the first quarter the value of completed and released games is estimated to be in the range of SEK 300 to 350 million.

During the past financial year, the actual fees paid to platform-holders (console and Steam) for digital sales alone are estimated to be a least 2x the actual costs spent on game development during the past fiscal year. We will continue to challenge these paradigms and pursue opportunities to reduce costs and increase the relative investment into content creation.

EMBRACER GROUP AB (PUBL) | APRIL 2020-MARCH 2021

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Borgvik, Värmland, Sweden

Reformation of Free Radical Design

We have more market-demand driven opportunity via innovative concepts, dormant IP's, licenses and other business opportunities than we have the development capability to execute. Thus, the ambition is to further expand our creative engine through increased headcount, both organically through scaling up existing studios and also by adding new talented studios to the Group. In this context, we are happy to announce the formation of a new studio, Free Radical Design, based in Nottingham, UK. This Deep Silver studio will bring the much-loved TimeSplitters IP back to life. Key original members include founders Steve Ellis and David Doak. This highly respected team has a 22-year heritage of making AAA-products.

We recently announced the addition of five development companies to the group; Appeal Studios, KAIKO, Massive Miniteam, FRAME BREAK and Gate21. Combined these entities are currently employing around 90 development experts, with an ambition to grow further over the coming years. Overall, the group organically grew close to 20% in headcounts over the past financial year.

We raised SEK 7.6 billion for further acquisitions

In March, we completed the Nordics' largest ever direct share issue by an accelerated book building, raising SEK 7.6 billion from institutional investors. Currently, Embracer Group has more than SEK 17 billion (USD 2 billion) in cash and available credit facilities.

Interest among gaming entrepreneurs and creators to join the Embracer family is ever-growing and we have seen the most active quarter in this respect thus far. Our strategy to empower great people to make their own operative decisions has proven very attractive. We offer them access to a growing eco-system of independent resources while supporting them with a long-term mindset. The determination not to become a "corporate machine" is as strong as ever. Our philosophy is and will continue to be one that encourages founder creativity. During the quarter, we have engaged with more than 150 companies about joining the Group, including larger companies that could form additional operating groups and have a significant impact on the Group as a whole. Cur- rently, across the Group, we are in more than 20 late-stage talks. These include several signed exclusive LOI's that would, if concluded, strengthen the operating groups and further improve the outlook of the Group. Acquisitions will be announced in due course when they occur. It is important that we stay prudent in our M&A strategy and not rush into closing a transaction before it is ready. In M&A as in game development, quality comes first.

EMBRACER GROUP AB (PUBL) | APRIL 2020-MARCH 2021

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Acquisition of Aspyr, Easybrain and Gearbox

In early April we had the pleasure to finally onboard Aspyr, Easybrain and Gearbox Entertain- ment. The integration is progressing according to plan. These transformational transactions increase the number of operating groups from 6 to 8. Easybrain's performance is exceeding management's expectations at the time of the merger, with stronger KPI's despite the fact that implementation of Apple IDFA changes had already started.

Upcoming - our first Statutory Sustainability Report

During this year, we have invested resources in gathering valid, qualitative and quantitative ESG-data from across Embracer Group. This is in many ways a challenging but necessary step in the right direction. It enables us to have better knowledge of how we are affected and affect various sustainability aspects within Embracer, in our industry and in society at large. Our group managers' involvement is essential for us to evaluate and progress our ESG agenda. Our sustainability framework is a vital group-wide initiative, embraced with great energy and commitment across the group. We are currently in the process of finalizing our first statutory Sustainability Report, to be published as part of the upcoming Annual Report.

I am impressed and proud to see the dedicated work being performed on a daily basis across our global group, despite the on-goingcovid-19 pandemic. As countries and communities are slowly starting to look ahead towards normalization, many of our co-workers continued working from home during the past quarter. I want to sincerely thank each and every one for all the efforts that keep our business going. Let's hope that we can all meet again soon. To conclude, I would like to send my thanks to all of our shareholders, custom- ers, colleagues and business partners for contributing to the prosperity and success of our growing family. We are all looking forward to our strongest and most busy year ever!

I wish you all a safe and relaxing upcoming holiday period.

May 20, 2021, Karlstad, Värmland, Sweden

Lars Wingefors

Co-founder & CEO

EMBRACER GROUP AB (PUBL) | APRIL 2020-MARCH 2021

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FINANCIAL PERFORMANCE

All comments refer to the quarter unless otherwise stated.

CONSOLIDATED NET SALES

Consolidated net sales	Jan-Mar	Jan-Mar		Apr 2020-	Apr 2019-
by business area. SEK m	2021	2020	Change	Mar 2021	Mar 2020	Change
Games - THQ Nordic	354.6	306.7	16%	1,789.1	1,154.4	55%
Games - Deep Silver	464.9	514.7	-10%	2,081.2	1,796.3	16%
Games - Coffee Stain	780.9	82.1	851%	1,182.5	245.8	381%
Games - Saber Interactive	270.7			1,185.9
Games - DECA Games	104.2			209.7
Games Subtotal	1,975.2	903.5	119%	6,448.3	3,196.5	102%
Partner Publishing/Film	429.0	435.6	-2%	2,575.9	2,052.9	25%
Consolidated Net Sales	2,404.2	1,339.1	80%	9,024.2	5,249.4	72%

Consolidated net sales in the quarter increased by 80% or SEK 1,065.1 million compared to last year. The performance was driven by new releases and a continued strong interest in titles released in previous quarters and long-lasting top sellers from previous financial years.

Business area Coffee Stain and THQ Nordic contributed to the growth together with Saber Interactive, SEK 270.7 million, and DECA Games with SEK 104.2 million. Deep Silver declined over last year in the quarter mainly due to lack of new notable releases in the quarter, which was partially mitigated by solid back-catalogue sales. Organic growth in constant currency for the Games Business Area amounted to 85% in the quarter.

GROSS MARGIN DEVELOPMENT

SEK million
2,500
2,000	63%
50%	2,069
1,500
1,339
1,000

500

0				Jan-Mar		Apr-Jun
	2020	2020
			Net sales	Gross margin

			%
			75
2,383		2,404
57%	60%	60%	60
	2,168
			45
			30
			15
Jul-Sep	Oct-Dec	Jan-Mar	0
2020	2020	2021

The improved gross margin is mainly due to a favorable product mix shift towards business area Games coupled with a higher gross margin within business area Games. Gross margin improvement in business area Games is mainly driven by the addition of Saber Interactive which has a high proportion of royalty income.

Profit from associated companies in the quarter is mainly related to the minority ownership in Iron Gate and amounts to SEK 113 million, which should be viewed together with the gross margin generated.

DEVELOPMENT OF OPERATING EXPENSES

Quarterly development of other external expenses and personnel expenses net of own

Satisfactory - Update 4

EMBRACER GROUP AB (PUBL) | APRIL 2020-MARCH 2021

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