Embracer has announced a "comprehensive" restructuring of its business, indicating that layoffs, game cancellations, and studio closures will be happening over the next few months. The goal is to get the group's debt under SEK 10 billion (just under a billion dollars) by the end of FY 2023/24 (i.e. next March), and the most sobering part of the announcement is its intent to cut overheads by at least 10% per year. Overheads in this context mostly meaning wages.
The company's announcement says the restructuring will include "the closing of studios and termination of projects that have not yet been announced and with low projected returns". CEO Lars Wingefors published an open letter in which he addresses the layoffs without putting a specific number on them:
"Embracer currently engages close to 17,000 people and while that number will be lower by the end of the year, it is too early to give an exact forecast on this.
"It is painful to see talented team members leave. Our people are what make up the very fabric of Embracer. I understand and respect that many of you will be worried about your own position and I don’t have all the answers to all questions. I want to be clear that the decisions about this program were not taken lightly".
The key elements of the restructuring are:
- Operational and financial measures to increase cash conversion, improve efficiency and reduce capex [capital expenditure], reaching a financial net debt below SEK 10 billion by the end of FY 2023/24.
- Reducing capex by at least SEK 2.9 billion by FY 2024/25 compared to the run-rate of SEK 7.9 billion in Q4 FY 2022/23.
- Matthew Karch appointed interim Chief Operating Officer, and Phil Rogers appointed interim Chief Strategy Officer, will co-lead the program planning and implementation.
The company is reducing its investments in external development to focus "on internal development based on owned or controlled IP", while also seeking external funding for its largest internal titles.
"During the past years, Embracer invested significantly both in acquisitions and into a strategy of accelerated organic growth," said Wingefors, and he can say that again. Last year it bought Crystal Dynamics, Eidos Montreal, Square Enix Montreal, and various IPs including Tomb Raider for $300 million (it closed Square Enix Montreal shortly afterwards). Even more eyebrow raising was its acquisition of the Lord of the Rings IP for just under $600 million (the deal included other elements such as Maneater studio Tripwire).
This restructuring may have been an inevitability after such a run, but perhaps more immediately impactful was the recent announcement that a deal worth over $2 billion had collapsed in the final stages. Embracer did not detail what this involved, and Wingefors could only be described as stunned when he had to deliver the news to investors: "It's been a rough night".
I've contacted Embracer Group to ask for comment on how many studios will be closed, and will update with any response. Over the next year the games it is scheduled to launch include Remnant 2, Warhammer 40,000 Space Marine 2, Payday 3, Alone in the Dark, Homeworld 3, and others.
