Good morning, everyone, thank you for joining our webcast today covering our Q4 and full- year results. Müge and I welcome you today from Stockholm on voice and also on camera. As usual, we have a short presentation to cover the main updates for our operating segments, a look at the financial performance, with our news this morning, we will then spend most of our time looking ahead to cover the next step for Embracer Group before turning over to the Q&A. With that, let's get going. Overall, our quarterly results reflect another delivery above plan on both the revenue and Adjusted EBIT side. Total net sales were SEK 3.9 billion, a 10% organic drop year-over-year. Which we'll see comes from PC console, which has some tough comps to Q4 last year with the launch of Kingdom Come: Deliverance II.
Mobile and Entertainment Services both delivered growth in Q4. As we said in February, we took positivity into Q4, and it shows here. On a core IP theme, Kingdom Come continued to deliver. Overall Q4 free cash flow was also strong. For the full- year, sales totaled SEK 15.9 billion, and Adjusted EBIT came in at SEK 0.9 billion, above our guidance. We talked in February how this was clearly a transformative time for our group, Coffee Stain successfully completing its separate listing in December 2025, and the group working hard to deliver its plan to the full potential. Müge will go deeper on the financials shortly, but from my side, I just emphasize it's good to see the business delivery coming through in these results. It's also good to report here the positivity to the Metro 2039 reveal. That was mid-April, and momentum is strong.
That takes us to today, with the news of a proposed separation into two groups. The separation will be during 2027, so important to convey the focus in the business today. We know the importance of delivering results in parallel with these transformative plans to unlock long-term value. With that, let's look at the operating segments. First, PC Console. Our Q4 net sales were SEK 1.6 billion for PC Console, a headline 37% organic decline, again coming off new release comps. REANIMAL released to strong reception from fans and critics and performed well as a new IP. Tarsier is a talented team, and working with the publishing skills at THQ, well, they really have captured the hearts and minds of players. We have something to build for the long term here.
New releases in Screamer and RIDE 6 were positively received by critics and players, and the talented team at Milestone is working hard on these games, getting them into the hands of more players. Our Adjusted EBIT margin trend was stable quarter- on- quarter, and I'll keep it simple here and say something similar to how we said in February that 13% is clearly an improvement over Q1 and Q2, but it is not our ambition. We move to ROI. Now, again, for consistency, we share this data, but as we move this group forward over this new fiscal year, we're likely to have a different format for sharing ROI information in the future.
You'll see this quarter's releases on the far left at zero quarters, all three new releases on their respective paths to break even and then to push on above, with REANIMAL the best performing new title in Q4. It's not a surprise today that few games, ours or others, get to break even in the Q1 of release. All games need commercial, brand, and studio brains to combine to achieve discoverability, drive gamer engagement, fan service, and sales. The PC console segment is more competitive than ever, but it's rewarding too when we do things right. This ROI chart again shows the importance of our three key priorities: investing in our core IP, operational discipline, and targeted cost initiatives.
To that, also the importance of our announcement today to sharpen our focus further and report as two new business segments, and ultimately the proposal to create two clearly defined listed companies. Let's look at pipeline. As of today, we've got 30 announced titles. Gothic dominates our listing here of dated upcoming releases. Gothic 1 Remake is out within a few weeks now. Based on recent previews, it's fair to say that critics really feel what was intended. This is Gothic. The soul of the original game is truly preserved. We're now in that final polish ahead of release on June 5th. Our list of to-be-dated games is longer. Heading into the summer, both Metro 2039 and Tomb Raider: Legacy of Atlantis have great activity to share with fans. We know that execution discipline will be critical to converting this pipeline into significantly higher profitability and cash generation.
Let's move to mobile. For mobile, we delivered EUR 681.6 million in net sales, 2% organic growth year-over-year, driven by successful and continued scaling of Subway Surfers. When we look sequentially, we see the continuation of the positive revenue growth with intact margins, even compared to the seasonally strong Q3 . The teams are focused on user acquisition and LiveOps. Overall, we're confident in the development ahead. We switch to Entertainment and Services. Revenue in this segment totaled SEK 1.7 billion. That's a 36% organic growth year-over-year.
This came from two strong new releases, physical releases that PLAION Partners, and this also led to the positive bump in Adjusted EBIT Q4 to Q4. For Middle-earth, we continue to find meaningful licensing partnerships. The next installment of Magic: The Gathering set, The Hobbit, arrives this August. Expanded creative discussions with internal studios and select external partners continue to build a robust long-term plan for games. Our teams in this segment finished the year with great momentum. With that, I'll hand over to Müge.
Thanks, Phil, and good morning, everyone. Once again, a reminder before I start that all comparative figures exclude Coffee Stain, which is treated as discontinued operations since their spin-off back in December. Net sales for the quarter of SEK 3.9 billion were above management expectations and compared to prior year were impacted by divestments, FX translation effects, and a very strong comparator. The negative year-on-year divestment impact, primarily from Easybrain and Arc Games, was approximately SEK 400 million, while the FX impact, was also approximately SEK 400 million. Now, if we exclude these impacts, our organic and pro forma net sales growth stands at -10%. Now, breaking this down on a segment basis, PC console was down 37% due to the very strong comparator we mentioned earlier. This was offset by entertainment services, which delivered an organic and pro forma growth of 36%, and mobile, which was up 2% year-on-year.
For the full- year, net sales of SEK 15.9 billion were down 25% on a reported basis due to the impact of divestments and FX. Excluding these effects, net sales were only slightly below last year at -3% on an organic and pro forma basis. Gross profit percentage for the quarter was 61%, down 14 points year-on-year. Well, the primary driver is segment mix, with a lower proportion of PC console in Q4 compared to last year as a result of the KCD 2 release in the comparator. Now, looking at marketing, total marketing spend was SEK 476 million, or 12% of net sales, down four points year-on-year. Half of this reduction can be attributed to the impact of divestments, while the remainder relates to stronger revenue in mobile relative to UAC spend.
Excluding the Easybrain impact, User Acquisition Costs as a percentage of mobile net sales decreased by around nine points year-on-year to 52%. Operating expenses excluding marketing were SEK 876 million, down SEK 363 million year-on-year. This represents 22% of net sales, a reduction of two points year-on-year. Divestments impact the OpEx evolution by SEK 204 million. On a like-for-like basis, OpEx decreased by around SEK 160 million compared to last year, reflecting our focus on tight cost controls. While this all delivers an Adjusted EBIT for the quarter of SEK 360 million, compared to last year, Adjusted EBIT is impacted by the strong KCD 2 comparator I mentioned earlier.
The underlying performance was more positive than what we see here, as we also had negative impacts during the quarter of over SEK 200 million from non-cash adjustments in active co-publishing and work-for-hire projects, as well as impairments of SEK 40 million on non-core IP hitting Adjusted EBIT. Divestments had minimal contribution in Q4 last year, but Adjusted EBIT was impacted by around EUR 81 million of negative FX effects in the quarter. The mixed impact on the gross margin level I mentioned previously led to a -10 point impact in Adjusted EBIT margin, which was 9% for the quarter. On a full-year basis, Adjusted EBIT was SEK 905 million, which is ahead of our full-year forecast. Now, turning now to cash. As you can see, we delivered very strong free cash flow after working capital for the quarter of SEK 883 million.
This is an increase of SEK 65 million over the same quarter last year, or SEK 155 million when we exclude the contribution from Easybrain in the prior period. The strong Q4 free cash flow generation was driven by both the P&L performance we discussed earlier and by positive net working capital movements of SEK 730 million. This was mainly related to collections of trade and other receivables during the quarter and reflects the unwinding of the receivables increase we saw in Q3. We also benefited from some timing effects towards the end of the quarter, partly due to increased royalty payables from partner-published products, which are expected to unwind in Q1. On a full-year basis, we delivered a positive free cash flow of SEK 50 million . The full-year comparator of SEK 745 million includes a free cash flow contribution of SEK 251 million from divested entities.
The rest of the year-over-year evolution is primarily driven by the lower full-year P&L contribution, partly offset by reductions in CapEx and improved net working capital movements. Looking below free cash flow, the cash outflow from financing activities of SEK 930 million for the quarter relates primarily to net repayments of external bank loans. Cash outflow from acquired or divested companies of SEK 209 million for the quarter relates to the net proceeds from divestments of non-core assets. At 31st of March, this results in a net cash position of SEK 3.8 billion and available funds of SEK 6.8 billion. As we close out the full- year, let's take a few minutes to look in a bit more detail at the evolution of our net cash position over the 12-month period. Net cash at the beginning of the year amounted to SEK 5.4 billion.
As I mentioned on the previous slide, we generated a full-year free cash flow after net working capital of SEK 50 million. The largest part of the net cash evolution during the year was thus driven by a number of key strategic and corporate actions. All these include cash returned to shareholders via our share buyback program amounting to SEK 500 million, the net cash impact of the Coffee Stain spin-off of SEK 495 million, net cash proceeds of SEK 105 million from divested of non-core assets and the payment of earnouts in the year amounting to SEK 729 million. It's also worth noting that we now have relatively limited cash-settled earnout obligations of SEK 464 million spread over the coming five financial years, of which almost 2/3 are due in FY 2026-2027. Net cash at the end of the year thus amounted to SEK 3.8 billion.
After the completion of the key strategic and corporate actions I've just mentioned, we thus maintain a strong financial position. Well, I'll talk more later this morning about our plans for capital allocation and capital distribution going forward. Moving on to the Adjusted EBIT bridge. So far this morning, we've discussed the Adjusted EBIT, and I want to walk you through here the difference compared to the reported EBIT that we have disclosed in our report today. As you can see, compared to Adjusted EBIT of SEK 905 million for the full- year, we have a reported EBIT of minus SEK 7 billion. The difference is primarily related to non-cash impairment changes which have arisen in Q4. Goodwill has been impaired by approximately SEK 5.8 billion at year-end, while intangible assets, primarily IP rights, have been written down by SEK 1.6 billion.
The majority of this total, SEK 7.2 billion, arose in Q4. The assessment of goodwill takes into account prudent future assumptions on market dynamics as well as structural changes in the Group. In terms of segments, SEK 3.8 billion is allocated to PC/Console, SEK 1.8 billion to mobile, and around SEK 250 million to entertainment services. We also exclude net gains from divestments of SEK 303 million. The vast majority of these items affecting comparability are non-cash. In addition to the IACs, net cost of SEK 523 million related to specific items arising from historical acquisitions. We are also highlighting today a change to our reporting that we will implement from FY 2026-2027. As of the next quarterly report, we will add cash EBIT as a key performance metric.
We believe this provides a better view of the cash economics of game development and avoids the time distortion associated with cost capitalization and subsequent amortization in future periods. From a management perspective, it also better supports our internal capital allocation process by ensuring that investments in game development are balanced with ongoing revenue generation. Cash EBIT, which for FY 2025-2026 amounted to SEK 511 million, is very similar to EBITDA, which we already disclosed. The only difference is that Cash EBIT also takes into account lease payments, which are considered to be normal operating items. Cash EBIT will replace EBITDA as an alternative performance measure in our reporting from Q1. Compared to Adjusted EBIT, Cash EBIT replaces depreciation and amortization costs with the gross capital expenditure for the relevant period.
Whereas depreciation and amortization relates to the cost of past investments, gross CapEx relates to the actual game development spend in current period. While we'll continue to disclose Adjusted EBIT, Cash EBIT will be a core indicator in measuring our performance going forward. Moving on to forecast. Finally, looking ahead to the 2026/2027 financial year. At this stage, we're providing guidance at a total group level only and will start from now to guide on Cash EBIT rather than Adjusted EBIT. We expect to generate Cash EBIT of at least SEK 1 billion. This compares to a Cash EBIT of SEK 511 million in FY 2025/2026, or Adjusted EBIT of SEK 905 million. We expect a similar difference in absolute terms between Adjusted EBIT and Cash EBIT in FY 2026/2027.
In Q1, we expect a negative Cash EBIT, similar to Q1 last year, with the potential that the catalogue, which is delivering strongly, can offset this. We have provided a quarterly breakdown for FY 2025-2026 fiscal year in the appendix to this presentation. We expect full-year free cash flow to be positive, with a heavier weighting towards H2, following a similar trend to what we have seen in FY 2025-2026. We will strive throughout the year to deliver upside potential to the forecast. Our ambition is to deliver consistent year-over-year earnings growth going forward. I'll now hand back to Phil.
Thanks, Müge. That's the full-year picture. What we've covered today and in the past few quarters illustrate the progress made over the past year, a year of real change. What that process of transformation made increasingly clear to us as we work through it was how the next path needs to look. That's what we want to spend time on now, because that's what today is really about, the future. With that, I would like to warmly welcome Lars to today's presentation. Welcome, Lars.
Thank you, Phil. Good morning, everyone. Thank you for joining us today. Over the past decade, Embracer Group has been built through entrepreneurship, ambition, and growth. That's been a long journey, and especially for those who have been with us since the IPO 2016. It has also been a journey with both ups and downs. Not every chapter has been easy, and I'm very aware of that. It's also important to remember that over time, significant value has in fact been created. As you could read in my Chairman letter published this morning, we have learned a great deal along the way. We have learned from periods of strong expansion, from a more difficult market environment, and from the changes we have to make within the Group. We have also learned from the successful spin-offs of Asmodee and Coffee Stain, both operationally and strategically. Those lessons matter.
They shape the decisions we are making today. From the board perspective, this is not about reacting to the short term. It's about taking a thoughtful next step that reflects what we believe will create the best long-term conditions for success. We believe we are now ready to move into the next chapter from a stronger and clearer foundation. That is what today is about. We do not take this step lightly. This decision is the result of a great deal of reflection, discussion, and learning over time. From the board perspective, we are convinced it's the right one. We believe creating Fellowship Entertainment as a company focused solely on AAA IP development and licensing will enable more and faster shareholder value creation than keeping it in the current structure. The core reason is focus.
Greater focus creates better conditions for execution, clearer strategic direction, and stronger long-term value creation. That applies to both businesses. Let me start with Fellowship Entertainment. I strongly believe that the assets held by Fellowship are among the most undervalued in the industry. That the time has come to advance efforts to realize their full potential. I'm convinced that Fellowship has the potential to reach industry-leading profitability and to deliver healthy long-term organic growth above industry average. That profitable growth will come from several sources: a greater cadence of outstanding AAA products, at least two per year starting next year, an increased focus on external licensing revenues through a dedicated business unit, continued adaptation of new technologies and AI, and above all, more concentrated management attention on this specific opportunity. The good news is that we already have the assets needed to succeed.
What is required now is patience, discipline, and a great execution. At the same time, this separation also an opportunity to create a better and stronger future Embracer Group. This is a unique chance to shape the next Embracer Group using all the learnings from the past decade. The future Embracer Group will be different from the one many have known historically. It will move further away from the identity of a growth serial acquirer and develop into more of a compounder. Focused on cash EBIT and profitable growth. When I look at Embracer assets within the Group in the coming years, I still see solid growth in cash flows. The target is clear. All directly reporting groups and companies within Embracer are to deliver positive cash EBIT on a recurring basis.
That is an important cultural and financial shift, and one we believe will improve both discipline and transparency across the Group. Alongside these structural changes, capital allocation remains important. This morning, we also announced another share buyback programme. Once the separation has been completed, my clear desire as a large shareholder is that both companies should return capital to shareholders on a regular basis. To summarize, this is not a step taken lightly, but it is a step we believe is right. It is built on experience, on hard lessons, and on conviction about what greater focus can achieve.
We believe it gives Fellowship Entertainment the best possible conditions to unlock the value of its extraordinary asset base and gives Embracer Group the opportunity to move forward as a more focused, disciplined, cash-generative company. With that, we believe we are opening a new chapter for both companies. Let me now hand over to Phil and Müge again, who will take you through the rationale and the details. Thank you.
Thanks, Lars. We talked throughout this year about building towards a disciplined IP-first group. What we're going to walk you through now is exactly what that looks like in practice. Two businesses, their identities, their strategies, and why both of them are built for the long term. Starting this fiscal year, we'll report these as two segments with the right level of details to show progress and key performance. We've strengthened our management team to ensure execution of our business plan and our goal to spin out Fellowship Entertainment on the NASDAQ main market in Stockholm during 2027.
Two segments today, two stories built from the same foundation, the same Embracer DNA, but serving gamers and the entertainment industry in different ways. Fellowship Entertainment, an IP-led company built for growth, built for enduring momentum with some of the world's most beloved franchises at its center. Embracer, strong market positions, specialist expertise, and resilient long-term business models, focused, decentralized, and built for sustainable growth. Two listed companies, two compelling investment cases. Let's go through both. Fellowship Entertainment is built around one strategic focus: IP or worlds that fans return to again and again. Here's what that means.
Game worlds that generate fans, not just customers. Worlds that compound in value over time through games, film, television, print, merchandise, and experiences that extend far beyond any single release. As we develop, as we shape renowned IP, well, Fellowship Entertainment holds commercial rights to The Lord of the Rings and The Hobbit. We hold commercial rights to Metro. We own Tomb Raider, Kingdom Come: Deliverance, Dead Island, Darksiders, Remnant, and a deep catalog of additional owned and controlled IPs. We have a tight group of world-class game studios, more than 1,600 developers internally, large enough to deliver at scale, located internationally to take advantage of global economics and talent, agile enough to coordinate, enhance, and share capabilities and technologies. We work as one group. Today we're announcing the formation of a dedicated IP management and licensing division.
A division to sit at the heart of Fellowship, a division that turns franchise ownership into recurring revenue across games, film, consumer products, and beyond. This is not a portfolio of assets. It is a platform on which we are going to build one of the great entertainment companies of the next decade and beyond. Fellowship's IP is owned or controlled. We set the creative direction, we set the release cadence, we determine the long-term strategy for every franchise in this portfolio. The Lord of the Rings alone represents one of the most valuable entertainment intellectual properties on earth. Multigenerational, global, every great game we ship, every licensing deal we close, every adaptation we bring to the screen grows the underlying value. This is a compounding business.
Let's highlight Metro. We hold the commercial rights to one of the world's most famous post-apocalyptic franchises with recently announced Metro 2039, showing how 4A Games continues to push and imagine what this franchise can be. Tomb Raider, having Crystal Dynamics leading co-development with Flying Wild Hog and Eidos-Montréal, continues to develop one of gaming's most iconic protagonists. Tomb Raider: Legacy of Atlantis is the first major game in eight years and will release with the power of Amazon Games, and Tomb Raider: Catalyst coming soon after that. Fan anticipation and wishlists are at the height of excitement. Kingdom Come: Deliverance, one of the most celebrated open-world RPGs of this generation. Warhorse Studios at peak creative form. Dead Island: The Next Chapter already in active development at Dambuster Studios. We teased Darksiders 4 from Gunfire Games last year. This is a series best.
It's a massive action RPG experience with four-player co-op and sprawling dungeons, and fans of Gunfire Games' 2023 hit Remnant, well, fans will love it. When looking through a Fellowship lens, our last fiscal year showed the approach and the potential. A year without any major releases, and yet the continued fan engagement and lifecycle marketing brought more and more gamers into the world Kingdom Come, giving us confidence on the approach for our IP focus, rewarding our confidence in the business as we maintained our margins. With that, Müge will now talk to how we're seeing Fellowship's business performance on a pro forma basis.
Thanks, Phil. We are providing an overview today of the key pro forma financials for the last two financial years for both Fellowship and Embracer Group, which I'll come back to later in the presentation. Before diving into the numbers, I wanted to mention that as of fiscal Q1, we will be changing the segmental view in our quarterly reporting to align to this new business structure. We will thus move from the current three business segments PC console, mobile, and entertainment services to two business segments: Fellowship Entertainment and Embracer Group. This move will provide early visibility of the performance of the two groups ahead of the spin-off. The figures that we are presenting today will be subject to audit and potential refinements and changes as we move through the carve-out and spin-off process. With that said, we can now turn to Fellowship's pro forma financials.
Fellowship delivered net sales of SEK 4.4 billion in FY 2025/2026. This was a year with no material new release activity, and the net sales primarily reflect catalog sales. After its release in FY 2024/2025, KCD 2 continued with a strong performance again in 2025-2026. Revenue from the development of the two upcoming games in Tomb Raider series to be published by Amazon, alongside catalog sales of Dead Island 2 and KCD 1, also contributed. When comparing the two years, the evolution is impacted by negative FX effects and the impact of lapping the release of KCD 2 in the comparator. The strong catalog contribution is an illustration of the benefits of Fellowship's IP-centered model operating durable, profitable franchise revenues.
As we develop a higher release cadence in the future, we anticipate continuing to build this revenue engine, generating recurring high-margin sales and licensing revenues that underpin the expected revenue peaks that we typically see from new game releases. As you would expect from a PC-console-driven business, profitability at a gross margin level is very healthy at over 80%, with a gross profit of SEK 3.6 billion in 2025/2026. Year-over-year, gross profit has evolved in line with net sales, showing a stable gross margin profitability. Looking forward, variables that may impact gross margins include sales mix between physical and digital sales, as well as the proportion of revenue contribution from IPs that may attract royalty and license fees. On the cost base, we've continued to optimize the business with year-over-year OpEx reductions of SEK 100 million .
Our objective for Fellowship going forward is to operate as a global, Embracer Group, and operations will be set lean in terms of publishing and corporate to ensure margins are returned to the business. The top line and margin evolution gives rise to lower Adjusted and Cash EBITDA of SEK 1.2 billion and SEK 464 million respectively in FY 2025/2026. The level of CapEx relative to depreciation amortization costs is the driver of the difference in absolute terms between Adjusted and Cash EBIT. CapEx for 2025/2026 amounted to SEK 1.2 billion, down from SEK 1.3 billion in the prior year. While we invest in the future, we continue to ensure that those investments are as productive as possible, and we aren't afraid to make the tough calls to pause or stop projects when they do not meet our expectations.
We see the benefit here of Cash EBIT as a metric, as it indicates that even as we invest in our future, we're doing it in a responsible and sustainable manner that continues to generate positive Cash EBIT margins in the present, around 11% that you see here for 2025/2026. Going forward, Cash EBIT margins may be impacted by the level of capital we decide to deploy in growth CapEx, relative to the revenue generated in a particular year. In the short term, these margins may be lower as we build the revenue engine I referred to earlier, but as that ramps up and release cadence increases, we can expect a steady improvement in the Cash EBIT margins over time. Phil, back to you.
Thanks, Müge. Since I took on my position in August, we've talked about rewiring and refocusing Fellowship Entertainment. We're confident that this will deliver an inflection point in our earnings and cash flow. In today's market, we must strive to do more with less. I'm not saying that as some sort of challenge. It's actually our opportunity. We've talked about some of our key tenets in development, or philosophies in development, during the past nine months. Smarter, deeper collaboration, increased streamlining, setting up shared services, sharing tech code, and using AI on that. AI is the latest tool in our developers' arsenal, and as we talked in our last AGM, a power multiplier when wielded by our experts. To be clear, Fellowship develops in-house where our studios are generally the best in the world for that genre.
Where external talent brings a stronger fit, we will partner, publish, or license. It's about reaching the widest possible audience with the very best experiences. Let's look at studio pipeline. Now, capital efficiency, creative focus, better games, those three things are connected. Today, Fellowship Entertainment house more than 1,600 developer talents. Each studio has specialisms in terms of genre and IP experience. We've talked earlier about some of the games being built right now. Here we also show the studio size and capabilities, their size and shape. In most cases, our teams are managing multiple projects varying from ideation and concepting to full productions. You can see that from the icons. Concepting and pre-production work is crucial for our pipeline and future. Finding the fun fast.
It represents spend and investment today. Again, it's one of the reasons why Cash EBIT becomes our key performance indicator, so that we allocate the spend properly in balance with the business. Our current fiscal year is anchored by Metro 2039 and Tomb Raider: Legacy of Atlantis. We're heading into summer with great activity around both of these games. Fellowship Entertainment really are in the spotlight. Standing here today, looking into fiscal 2027/2028, we expect to have Darksiders 4 in gamers' hands and have announced Tomb Raider: Catalyst in partnership with Amazon and more. Looking forward further, we have the next mainline Dead Island game. From Dead Island 2, we have strong lifetime player engagement, 20 million slayers as we like to call them.
There's something special I'd like to share here and to bring some color to help you read this graphic is what the amazing team at Warhorse is working on, the unannounced production. I'm excited to say it's a new release in the Kingdom Come franchise. This isn't the time to say more than that. That will be a later date and by different people. I think it's something the fans will love, and it's a game we hope to get into their hands next fiscal year. There's something else I want to share too, something that illustrates better than anything else we could say what Fellowship Entertainment is for. Again, it's about Warhorse, the team behind Kingdom Come. Warhorse is making a new game set in Middle-earth.
The studio celebrated for its extraordinary depth, historical authenticity, and storytelling is bringing that craft to the greatest fantasy world ever created, an expansive, deep, open-world experience. Warhorse Studios demonstrated with Kingdom Come: Deliverance that they are one of the premier open-world RPG studios on the planet. As we know, Kingdom Come: Deliverance earned PC Gamer's Game of the Year and just recently a highly coveted BAFTA Games Award for Best Narrative. It surpassed 5 million sold copies within its first year. Middle-earth deserves a game of that ambition and that craft. This is what Fellowship Entertainment is. Not just a holder of valuable IP, an active steward of it. Putting the right creators in the right worlds and building experiences that can define a generation of players. More details to come. I'll quickly return to the pipeline.
Without squinting too hard, we can see this is an internal pipeline that extends years into the future. It is a pipeline to deliver growth with our release cadence increasing, many games already deep in active development at studios that have shipped great games before. An often overlooked aspect of IP companies is the value of the licensing business itself. At Fellowship, licensing will not be a side business. Once established, it will be a dedicated division, sitting alongside development and publishing, structured as a revenue-generating unit with clear accountability for growth, and we approach it with discipline and a keen eye on what fans actually want. We manage the portfolio across three tiers, and it matters how we've structured it. Firstly, Middle-earth and Tomb Raider are our core tier, full franchise orchestration, film, TV, consumer products, live events. These are global franchises, businesses in their own right.
We, of course, own and operate Middle-earth Enterprises, an IP management and licensing company that this year celebrates 50 years of stewarding The Lord of the Rings and The Hobbit, 50 years of considered Guardianship. Historically, we have seen extraordinary adaptations of this work on film. As you all know, two further films are planned with our partners at Warner Bros. in the coming years. We continue to find meaningful licensing partnerships, as we did with the hugely successful Magic: The Gathering set The Lord of the Rings: Tales of Middle-earth, with the next installment, The Lord of the Rings: Gollum arriving this August. I mean, I believe there are great opportunities for meaningful expansion ahead in terms of tabletop games, location-based experiences, and of course, in video games.
Middle-earth Enterprises is the foundation. It is the platform from which we build out our full IP management and licensing strategy. It shows better than anything what stewardship of a world-class franchise looks like. Our specialist tier covers Metro, Kingdom Come, Dead Island, Darksiders, Remnant, and IPs with our Dark Horse business. Game first rhythm, selective category extensions. The vault. Imagine a strong room of IPs including Deus Ex, Legacy of Kain, Saints Row, TimeSplitters, Red Faction. Underleveraged brand equity today that we intend to activate through remasters, new game treatments, reimagining, and adaptation licensing. I'll just say this on the vault. The fans waiting for those franchises are real. They've been patient. We hear that activating even a handful of these properties creates meaningful incremental value. It's something we are actively working on.
Our new license division has the potential to build durable, high-margin revenue stream alongside games development and publishing. We're searching for leadership to join and build this with us. It is capital light, supercharges value from our franchises, and unlocks value from IP currently underleveraged. For investors, Fellowship Entertainment is the strategy we've been building toward, now operational, now reportable. Premium IP, The Lord of the Rings, Metro commercial rights, Tomb Raider: Kingdom Come, a world-class portfolio, a tight integrated group of creative studios, a new dedicated licensing division with a clear mandate to grow revenues across games, film, television, consumer products, a development model and organization with capital efficiency built in, sharing, reusing, Smart development. A near-term pipeline anchored by Metro 2039, Tomb Raider: Legacy of Atlantis. A pipeline that extends into the future with announced and unannounced games to delight and build fans. Now Warhorse in Middle-earth.
An organization we're surfacing today, an organization ready to get into its operating stride, segments in place, leadership in place. Clean structure, a clear path for growth. It's our intention to host a Capital Markets Day closer to the spin-off date, where we'll spend more time with you on Fellowship's long-term strategy. By focusing on our core IPs, we can both strengthen fan engagement and drive improved financial performance. That is what Fellowship is built to do. Now let me turn to our second business segment, Embracer Group. As we have evolved the Group, what remains is a leaner, more focused group of durable businesses, tighter, more predictable, and more disciplined than at any point in recent history. Lars' letter this morning talked in great depth about the journey we've been on as a group.
What I read in the letter is that Embracer is a collection or an ecosystem, and within it sit some of the most respected and resilient businesses in the games and entertainment industries, each with their own identity, their own audience, and their own craft. These are not subsidiaries managed from the center. They are independent entrepreneurial businesses that happen to share an ownership structure. The ecosystem provides structured support and the benefit of belonging to something bigger without ever getting in the way of what makes each of them special. Some of the companies within the Embracer Group business segment have been making games or working with games for 30 years. That is not luck. It's culture, craft, and community built over decades. We're saying it today so people are quoting it tomorrow.
THQ Nordic and its studios has an extraordinary heritage of building and rebuilding beloved games. Gothic, SpongeBob, Wreckfest, MX vs ATV. They know how to make games that endure. DECA Games specializes in mobile titles with long-tail engagement and strong community retention. Milestone is one of the world's leading motorsport video game companies, shaping the history of racing for the past 30 years. Tripwire Interactive, creators of Killing Floor, bring a dedicated community of co-op action fans. These are not one-hit wonders. These are businesses that have navigated platform transitions, technology shifts, and changing player tastes. They will navigate and prosper through the next ones too. Embracer Group is, of course, more than a games business segment. Entertainment and services is a significant revenue contributor in its own right too.
Over the past couple of years, PLAION Partners has deepened its specialism in physical distribution, working alongside console manufacturers and video game companies alike. It generates revenue regardless of our own release slate. That provides the kind of recurring, non-cyclical revenue that makes Embracer more predictable. The same is all true for PLAION PICTURES, where a specialist team has built one of Europe's leading film distribution businesses. Today, PLAION PICTURES manages partnerships with Hollywood majors across multiple European markets. Alongside this is a deep and profitable catalog of award-winning movies and a highly efficient digital distribution operation. For those of you who know Embracer Group, well, you'll know the passion for retro and that it runs deep in the veins. Limited Run, Game Outlet, Clear River, Tatsujin. Retro passion also in PLAION Partners and our specialist team Replay.
Just last month, SNK and Replay announced they've teamed up to bring the Neo Geo home arcade gaming system back for its 35th year anniversary. Fan reaction was sensational. True specialists. Embracer Group comprises several other niche leaders. To mention a few: Aspyr Games, the developer and publisher specializing in porting, remastering, and publishing classic AAA games for modern platforms. Limited Run Games, I've just mentioned, but the industry-leading publisher and distributor of award-winning collector's editions, rare video games, and merchandise. Vertigo Games, a leading VR developer and publisher. Standing back, strong IP. Including long-running franchises such as Gothic, Titan Quest, and Killing Floor, along with newer groundbreaking IP such as REANIMAL and Wreckfest. Müge will now take a look at the size and shape of Embracer on a pro forma basis. Müge.
Thanks, Phil. As we look here at the Embracer Business Segment financials, we should note that these figures include the historic results of divested and closed businesses, mainly Easybrain, primarily impacting FY 2024/2025. When we look at the evolution year-on-year, we can thus see a snapshot of the transformation journey Embracer has lived over the last years. As we've just seen, Embracer Group is a collection of many long-standing businesses with a strong heritage and diverse activities. In 2025-2026, net sales of SEK 11.6 billion were driven by PLAION Partners and PLAION PICTURES in the E&S business area, Embracer Group's CrazyLabs, which saw success with Subway Surfers in the mobile business area, and THQ Nordic in PC/console with the successful release of REANIMAL and catalog sales. Year-on-year, net sales was impacted by around SEK 3.7 billion as a result of divestments and closures.
As well as the negative FX effects that I mentioned during our Q4 presentation, where we saw a roughly 6% impact at Group level. With the diversity of activities and stable revenue-generating businesses in DNS and mobile business areas in particular, we anticipate Embracer Group to provide a more steady, predictable revenue profile on a like-for-like basis in the future. Gross profit of SEK 6.2 billion represents a healthy margin percentage, but as you might expect, at lower levels compared to Fellowship. This is primarily due to the mix of activities, which include not only high-margin businesses in PC, console, and mobile, but also inherently lower-margin businesses in physical goods and distribution in the entertainment services business area. The year-on-year evolution in gross profit can be attributed in particular to the divestment impact of Easybrain, which contributed around SEK 2.7 billion in 2024/2025 at a gross margin just under 100%.
Going forward, we can expect the revenue mix between business areas to be the primary variable impacting gross margin percentages year-on-year. On an OpEx level, we see once again the extent of transformation with a year-on-year decrease of around SEK 2.7 billion, driven by the divestments, closures, and restructuring actions. This provides a strong foundation for improved financial performance in the future, and we'll continue to optimize our cost base as part of our vision of a leaner, more focused business. This results in Adjusted EBIT at just below zero and Cash EBIT of SEK 269 million for FY 2025/2026. The difference between these metrics results from a higher level of D&A costs, partly driven by new releases such as Killing Floor 3 and REANIMAL, compared to CapEx for the period.
Again, this is one of the reasons for our implementation of Cash EBIT, as it better represents the underlying economic performance of the business in a given year. It also allows us to better drive our resource allocation internally, ensuring that CapEx levels continue to be optimized in line with current business performance. The lower Cash EBIT margin compared to Fellowship is to be expected given the different activity mix. However, looking ahead, we believe that there is still scope for improvement through further efficiency actions and disciplined cost control and capital allocation. Back to you, Phil.
Thanks, Müge. As we look ahead, and as Lars mentioned earlier this morning, we can once again see the potential in accretive but opportunistic M&A for Embracer Group, especially to strengthen our already successful and sizable niches in mobile, distribution, retro, films, or remakes and remasters. Over the past year, we've also done a range of smaller divestments to different types of buyers. There could be further divestments if it can increase our focus and unlock capital to better deploy at better returns elsewhere. We've taken learnings of the past few years. M&A will be here. If it comes, it will be selective and primarily funded from our cash flow, from operations and from divestments. For investors, Embracer Group is a compelling story. Durable businesses with 30+ years of history, proven through multiple cycles in the industry.
Decentralized and disciplined, Entrepreneurial autonomy at the studio level, group-level accountability at the top. Broader than just games, with service revenues that reduce dependence on the release cycle. Predictable growth, a leaner cost structure than we've had in years. Operators with track records running businesses they've built, back catalog depth that continues to generate returns, years after release. Listed on Nasdaq Stockholm, clear governance, public accountability, shareholder alignment. The original thesis adjusted for 2026 and beyond. Müge.
Yeah, we've shown today that we maintain a strong balance sheet position. With net cash at year-end of SEK 3.8 billion. We've also announced a new share buyback program of SEK 750 million. This program will be executed over the remaining period between now and the end of 2026/2027 financial year. We anticipate that the buyback will be spread evenly over this period. Now, after taking into account the balance of the remaining cash-settled earn-out obligations, and the total value of the announced share buyback program, we would have net cash of SEK 2.6 billion, and we thus remain in a strong position to continue returning capital to shareholders on a regular basis. Going forward, with the intended separation, we'll analyze the capital needs of each group in advance of the spin-off.
It will be up to the boards of the two groups to resolve on their respective capital allocation and distribution policies. We nevertheless maintain the flexibility for potential further capital distributions ahead of the spin-off date. After the successful spin-offs of Asmodee and Coffee Stain, we are well aware of the process that lies ahead of us. There are a number of interim steps to execute ahead of the finalization of separation, including the operational, legal, financial carve-out of Fellowship, the preparation and publishing of an information brochure and prospectus, and investor engagement and capital markets events for both companies. Well, more than just executing on a spin-off, we're focused on ensuring that at the end of this process we have two strong standalone groups, each with a solid foundation for future success. With regards to the spin-off itself, we anticipate this to be completed during calendar 2027.
As we have done with previous processes, we will update you on a regular basis on progress at important milestones and during our quarterly announcements. The future leadership teams of the two groups will play a pivotal role in our success. Alongside my current duties as Group CFO, I will be taking on an expanded role as Deputy CEO, with the key responsibility to set up an enhanced governance structure for the Embracer business segment. Phil and Lee, our current CEO and COO, will remain in their respective roles at Embracer Group, with the key responsibility from today to prepare Fellowship Entertainment for its spin-off.
At the time of the spin-off, Phil Lee and I will then transition to lead Fellowship Entertainment. A recruitment process for a CEO and CFO for Embracer Group has been initiated with a plan to have appointments in place well ahead of the spin-off of Fellowship Entertainment. Well, although there is a lot of hard work ahead of us, we have proven in the last two years that we have the right people and processes internally, with the support of trusted external advisors to ensure that we successfully execute upon our plans. I'll hand back now to Phil for some closing remarks.
Thanks, Müge. The games industry is more competitive than it has ever been, but it is also more rewarding when we do things right. Fellowship Entertainment and Embracer Group represent two very different answers to the same question: How do you build a durable, valuable business in this industry? Fellowship's answer: own the greatest IP in the world, create the greatest games, and build a licensing business as an engine to turn franchise ownership into recurring, high-margin revenue across every imaginable category. Embracer's answer: back entrepreneurs, give them the freedom to run their businesses with cost control, and trust the great operators in a small, more focused structure will keep building businesses that last. For investors seeking exposure to premium IP and interactive entertainment, Fellowship is a new equity story with a world-class asset base, an exceptional creative pipeline, and a licensing business to build up.
For investors seeking a durable, entrepreneurially managed group with a deep heritage and disciplined economics, Embracer Group has done the hard work of restructuring and is now running lean and focused and with purpose. To conclude, this is the direction we've been building towards, an approach that we believe is right for our fans, our businesses, our people, and for our shareholders. Two companies, two strategies, one conviction: that durable value in this industry is built on focus, discipline and consistent quality delivery. With that, we bring this part of our conference today to a close.
We want to thank our fans, our employees, thanks to our partners, and of course, a special thanks to our shareholders for your continued belief. The best is yet to come. Welcome back to our Q&A session. At this time, we'd like to open the lines, and there's a moderator to field questions to us. Over to you, the moderator.
We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you're entering the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioner on the phone, I request to disable their speaker mode while asking a question. Anyone with a question may press star and one at this time. The first question comes from the line of Nicolas Langlet f rom BNP Paribas. Please go ahead.
Yes, good morning, Phil, Müge, Lars. There are three topics I would like to discuss, please, and maybe I will go one by one if that's okay. The first one is on the full- year 2027 guidance. Can you help us understand the key building blocks between the different divisions? You mentioned some upside potential. What could be the main sources of that upside potential? Is it better performance of expected gains, or there are some unannounced content that might drop in 2027?
Should we take the questions one by one?
Definitely.
The first question was to give some color really on the guidance and the company upside potential. I think, you know, I talked to the upside potential maybe first. Perhaps I'll frame that in a slightly different way and just talk to sort of business momentum. You know, business doesn't stop on fiscal year ends or month ends. You know, it's continuous. I think we talked in February about the momentum we had. I think we've got positive momentum coming through. You know, we've seen in April and we feel that in the business now. You know, there's definitely, you know, a sense we have there as we flip from sort of budgeting and planning to really what is going on and what we're seeing. Definitely we see sort of continued engagement with catalog. I'd say also the key releases.
We know that Metro and Tomb Raider are coming out towards the H2 of the year. We've got some, you know, we've got releases starting in a few weeks with Gothic and then, of course, Dawn of War. There's some good beats here that we really feel confident about and we're interested in. They're resonating well. We're also continuously looking at savings, efficiencies. These are all things that perhaps aren't planned, but we have some optionality on. Perhaps this is how I would provide some initial color for how we might see the upside. It's all down to hard work, and that's what we talked also previously in our guidance. You know, that work is hard, and that's the commitment that we bring.
Don't forget the beauty of the Neo Geo console coming in November.
That's a great example. I mean, that, as I said, has really delighted fans. The reaction has been, you know, off our scale of excitement and estimations, and it just shows you know, how that retro blood and passion really runs deep. Yeah, that's a momentum we're seeing today in April, and that's well ahead of the launch later this calendar year.
Okay, okay, perfect. Second topic on the Metro 2039. How the fan reception compared with your initial expectations? How should we think about the post-launch content for that game compared to Metro Exodus? Do you think that's a game which has the potential to generate a return on investment close to the midterm aspiration, which I think is around 3x?
We do. We're very happy with, I mean, the team at 4A, first let's talk to them. They were really excited to see the reveal and get the fan reaction. We've done a big showcase with partners at Xbox. That was a great platform to really deliver that beat. We reference, you know, the wishlists have been on a self-published game, one of our games we published, probably the fastest wishlist to get to, you know, over 1 million now. We're taking a lot of good measures and good sort of confidence from that, you know, without, of course, resting on any laurels. It's great to get that reveal.
I think we see it as a game of size and shape that definitely scales into that ROI multiple. It has that potential. We're built from the team that have delivered games at that scale and depth, including DLC. We see a lot of great comparators there for us to have a lot of confidence with, including confidence with, you know, with 4A themselves. Yeah, all feels good on that.
Okay, superb. Maybe last question. What's the Fellowship cash EBIT contribution you expect within the EUR 1 billion cash EBIT guidance for full- year 2027? Last, you said ambitions to reach industry best-in-class level for Fellowship. How long it will take to reach that level? Would you say 30% is like the right objective in terms of cash margin? Thank you.
Great questions, isn't it? Questions we can't really give too much color on. I don't know, Phil, if you want to.
Well, we're not going to split our guidance between the business segments. We said that we're going to guide on this Cash EBIT measure. I think as we report and we get into the next quarter, next quarter, etc., we'll see the trends. They're appearing, but we're not guiding specifically on this year.
We do see a solid contribution for both segments within the year. You know, I love the fact that Embracer Group is a bit of an underdog here in terms of profitability, coming out from a quite weak performance for several reasons. I think we have taken a lot of actions and we continue to do that. I think we will have impact within that business segment. When I look from a board perspective, I'm quite excited.
All right. Perfect. Thanks, Lars. Thank you.
Thanks .
The next question comes from the line of Rasmus Engberg f rom Kepler Cheuvreux. Please go ahead.
Yes, hi, good morning. Thanks for taking my question and thanks for the detailed run-through of the pipeline. Did you say that there is a third Kingdom Come in development at the same time as a Lord of the Rings RPG at Warhorse?
Well, we reveal today that as a next installment in Kingdom Come that we showed today. That would be the third. We're not dating it, not providing any color beyond that. That's the reveal today, yes.
Those two games, do they come one at a time, you know, as you reallocate those resources between them, or are they developed simultaneously by different teams?
I think game development is increasingly a parallelized process. We've talked about smart development in the past, how, you know, teams reuse code systems. You know, in some ways, you know, think of it, Rasmus, you know, DLC is a great example of that, right? We can see very different treatments in DLC. That's really when we stand back now, look at studios broadly, that idea, how do we reuse, is part of, you know, studio worlds today. There's nothing unique about that approach. We think it's smart, and it's really led by the team at Warhorse Studios for this next chapter.
Kingdom Come comes before-
For sure. I mean, Kingdom Come, the game again, it's never a great place to sort of reveal games. We wanted to mention it because we wanted to give that color on the pipeline. We wanted to show we've got concepts and work that's unannounced that really has meaningful potential. That would be a fiscal 2028 release. This is our plan. This is the rhythm we talk about getting the pipeline to deliver. You know, how do we get to two? How do we get to three, you know, major games per annum? That was a very important data set to share today that, you know, how close we are now with really excited by what this next installment could be. I think fans of Kingdom Come will love it.
Yes. I had two financial questions for Müge. When you say a cash EBIT of at least SEK 1 billion, is there anything else in the cash flow that sort of will make it different to standard cash flow? The second question is, you wrote down a pretty big project. Is that likely to imply closures or significant one-off costs beyond the writing down of the development?
Well, as we have disclosed today between the Adjusted and Cash EBIT, you know, and the difference being really around depreciation, amortization and the lease payments, we do expect a strong cash flow during the year. We do not foresee any big swings, unexpected swings. As we've already announced, it's at least SEK 1 billion of Cash EBIT. We expect, therefore, the equivalent translation in terms of cash flow, where we expect a real improvement. I did mention in the outlook that it is expected to weigh towards the second part of the year, though.
It could be working capital.
The second question, then, this canceled project, does it have further nonrecurring costs coming, or is it?
Yeah. I mean, we have taken the decision it's a noncash item. For our reporting purposes, when a project or studio is closed, comes to an end and discontinued, that's how we track it, but we don't comment specifically on what project it is. It's an unannounced project.
But this is all of it, so to say.
Yeah, yeah, it's all of it. Yeah.
Okay, thanks.
Next question comes from the line of Erik Larsson from SEB. Please go ahead.
Hi, good morning. Can you hear me?
Yep.
Okay, great. Thanks for the presentation. A lot of information to digest here this morning. I wanted to start on RemainCo. You shared some financials there, and, you know, I wanted to hear what's the headroom in terms of more cost optimization? You know, what type of margin does this type of business do in the medium term, if that's possible to just give some thoughts, maybe?
Yes, for sure. As I mentioned, indeed, when you look at the financials, they're impacted by divestments and disclosures as well. You see that already second part of last year was stronger. The divestments closure, some decisions that we have taken, we will be benefiting from the full-year effects for already next year, which shall contribute to better margins and better profits already. A lot of work has been done from a cost perspective as well. In terms of releases, it's not expected to be a big change. In terms of underlying business and from an optimized structure, I shall say the work is done and we shall already capture what we have put in place in the second part of 2025/2026.
Okay, thank you. Second question is, generally, when you are making these two entities, just my impression from the outside is that it could be, I guess, some collaboration between the two units. I guess one studio makes a game, the other one is publishing or licensing an IP or what have you. What do you think about potential conflicts of interest when sort of forming these two companies, if you could just reason around that?
I mean, maybe, Lars, you'll come to that. I guess, the first part, I mean, of course, where there is danger of conflicts of interest, then you have processes and governance that, you know, you can avoid it and you can manage it. To the first point about synergies at an operating level, I absolutely do. I mean, a classic example will be with PLAION Partners. They work with some of the biggest video game companies in the world. Fellowship, as we go down that road, will hopefully be one of them. The products that it gets to work with this quarter, you know, Crimson was a big driver for Q4. Resident Evil in certain territories was a big driver for Q4.
You know, Middle-earth games will be big drivers of that business because, you know, these are real specialist skills. You know, 20 years ago, everyone used to do distribution, but now it's a really specialist skill, but still very, very important in today's industry to get that right. That's a great example of how, you know, I think that will really strengthen as we get these businesses really set up with clarity as independent companies. You know, there are other examples, of course, but that's the easiest one. I think it's a great question, and I would confirm that possibility. Anything more on conflict, Lars?
No, I think we need to go back to the Asmodee and Coffee Stain separation, and those, you know, collaborations have worked very well at arm's length. You know, we are dealing mainly historically within the group at arm's length between operating groups historically, partly because of tax reason, partly because of external parties such as Middle-earth, for example. We just recently did something with the Asmodee. I understand this could be a question, but I don't feel this, you know, this is a topic that we are aware of, and there is a governance in place and principles. I'm not expecting this to become messy as such. There is a bit of corporate work to be done to separate this, but the team have done this twice before, so.
Alright, thank you for that answer. Yeah, those were my questions.
Thank you, Erik.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Phil Rogers for any closing remarks.
Thank you for the questions. Thank you for joining us today. It's been a lot of news to share. We really appreciate your time with us this morning. With that, we'll wish you well and goodbye. Thank you.