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Embracer restructuring nears "final stretch" but unlikely to reach net debt target by March

Embracer Group has released its latest financial results and offered an updated on its ongoing restructuring program, which the company claims is “approaching the final stretch.”

The results for the three months ending December 31, 2023 showed decent sales across the company, despite declines in its PC/console games segment, but the group still ended the year with a net debt of SEK 16.1 billion ($1.5 billion).

The restructuring program aimed to bring this down to SEK 8 billion ($762.1 million) by the end of the fiscal year on March 31, 2024, but CEO Lars Wingefors said the company is “unlikely” to reach this target.

Here’s what you need to know:

The numbers

Q3 (Oct-Dec 2023)

Sales: SEK 12.1 billion ($1.2 billion, up 3.7% year-on-year)

Nine-month results (Apr-Dec 2023)

Sales: SEK 33.3 billion ($3.2 billion, up 18%)
Net debt: SEK 16.1 billion ($1.5 billion, compared to SEK 14.3 billion / $1.4 billion at the end of 2022)

The highlights

In the company’s report, Wingefors said Embracer is “tracking well” towards its restructuring targets as it “approaches the final stretch of the program,” which is focused on possible divestments – i.e. selling off parts of the company – or consolidation – merging teams and studios together.

While the original net debt target is unlikely to be met, Wingefors said “certain divestments” could significantly reduce Embracer’s debt in the next financial year, although he gave no detail as to which parts of the business may be sold off.

“Embracer still has a few larger structured divestment processes ongoing that could strengthen our balance sheet and further reduce capex,” he added. “Processes are in mature stages. Certain companies might initiate restructuring before any divestment is announced. Our overruling principle is to always maximize shareholder value in any given situation.”

In December, Embracer extended credit and loan agreements, stretching its payments into 2025.

Looking at the company’s headcount, Embracer’s report showed that 1,387 people have been laid off since restructuring began in June, representing 8% of the group’s global workforce.

This does not include the workers affected by job cuts that have been implemented since the start of the year, which have impacted Eidos Montreal, Black Forest Games, Lost Boys Interactive, and Nimble Giant Entertainment.

483 jobs were cut during Q3, a step down from the 900-plus between June and September.

At the end of Embracer’s previous financial year, the group employed 16,243 people, of which 11,152 were game developers. By the end of 2023, this had lowered to 15,218 people, of which 10,221 were game developers.

Embracer also showed how many game development projects have been scrapped, bringing the number of titles in the pipeline down from 224 at the end of 2022 to 179.

Looking forward, Wingefors said that while Embracer will continue third-party publishing in addition to its internally developed titles, it will be more selective.

“Our future games portfolio will be more focused around established, owned IPs and studios which we are confident will generate better predictability as well as increased ROI and profitability going forward.”

As for the Q3 results specifically, Wingefors wrote that Embracer saw a “stable quarter just above management expectations”, with all-time high Q3 sales of SEK 12.1 billion ($1.2 billion).

While tabletop games fared well and mobile games grew, PC and console sales were down 9% year-on-year – largely due to fewer notable releases, resulting in a reliance on back catalogue sales.

Embracer is more optimistic for this segment in Q4, with a line-up that includes Tomb Raider 1-3 Remastered, Homeworld 3, Alone In The Dark, South Park: Snow Day and more.

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