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In the quarter, Embracer’s net sales decreased by -24% YoY to SEK 7.9 billion (organic growth of -23%), in line with management expectations. The YoY decline is primarily due to tough comparisons and few new product releases within PC/Console Games and Entertainment & Services. Adjusted EBIT amounted to around SEK 0.8 billion. Free cash flow was positive despite fewer new releases and was supported by lower capex.
We are confident in our pipeline for the financial year, and still expect the value of completed game development for the year to be around SEK 3.9 billion. Our teams are committed to making and delivering better games. Our highly anticipated game Kingdom Come: Deliverance II, is now confirmed for global release on February 11, 2025, which we believe enables some final polish and a better release window. We look very much forward to Gamescom next week to share more details about this game and other titles.
In Q2, we expect a solid Adjusted EBIT growth YoY for Tabletop Games and broadly stable development for Mobile Games. The Adjusted EBIT contribution from PC/Console Games and Entertainment & Services is expected to be fairly limited albeit an improvement compared to Q1. In Q2, new releases with confirmed release dates within PC/Console Games include Disney Epic Mickey: Rebrushed, Monster Jam Showdown, the full release of Satisfactory (currently in Early Access), as well as additional content for Remnant II.
Solid foundation for better strategic execution
It is already evident that we are on a path towards significant net debt reduction, driven by improved free cash flow and divestments. On a trailing 12-month basis, free cash flow amounted to over SEK 2 billion for the first time. Capex is now materially lower YoY, with a reduction from around SEK 2.0 billion a year ago to SEK 1.1 billion in this quarter. Our trailing 12-month basis EBITDAC improved from around SEK 3.0 billion to around SEK 4.1 billion YoY. Excluding the divested assets from Saber Interactive and Gearbox Entertainment, the EBITDAC improved from SEK 4.1 billion to SEK 5.9 billion. In addition, we have significantly lowered our net debt. In Q1, we utilized the proceeds from the divestment of Gearbox to reduce debt.
In July 2024, we further strengthened our financial position by securing a new EUR 600 million revolving credit facility with improved terms, which replaced Embracer’s remaining revolving credit facility. We also entered into an agreement with the Swedish Export Credit Corporation for a SEK 500 million bilateral loan. We expect inflow from the divestment of assets from Saber in September 2024 and before December 31, 2024, respectively. As of Q1, our pro forma net debt, excluding the debt ring-fenced to Asmodee, amounted to below SEK 3 billion, and we expect a solid free cash flow in the coming 12 months.
Mobile and tabletop the profit leaders in Q1
Due to a lack of notable new releases and a tough comparison from the successful release of Dead Island 2 in the corresponding quarter last year, the organic growth in the PC/Console Games segment was -30% in the quarter. Excluding the release of Dead Island 2 in the comparison quarter, the organic growth was 15% in Q1. The 5% Adjusted EBIT margin is impacted by amortization of releases with low ROI from the past 24 months. The new content that came out for Deep Rock Galactic, Remnant II and Dead Island 2 performed well in line with management expectations.
We have a clear plan to improve profitability within PC/ Console Games. Firstly, our resources are increasingly focused on our own and controlled key IPs, which typically have better unit economics. Secondly, through this year and next, we expect our updated capital allocation process, with improved standards for new and continued investment to improve ROI from new game releases as our pipeline increasingly consists of higher quality games. Lower and more focused capex investments will positively impact our EBITDAC and free cash flow generation and gradually also our profit margins. Thirdly, we will continue to make improvements as part of our ordinary business to further improve profitability, operational efficiency and capital allocation. We remain excited about our PC/ Console pipeline, and strong execution on our game releases is key to driving stronger margins. Our studios and creative talents are best-in-class and we believe our outlook for the long-term is bright.
The Mobile Games operating segment had another strong quarter, with over 20% Adjusted EBIT growth YoY to SEK 518 million. The Adjusted EBIT margin came in at 37%, again with stronger-than-expected profitability, driven by a product mix shift, lower user acquisition costs and optimization of the balance between current and future potential profits. The organic growth amounted to -12% in the quarter with pro forma growth of -8%.
Easybrain had a largely stable top line development while DECA Games saw, as management expected, negative organic growth due to its transition to lower sales but higher margin product strategy. Conditions to scale user acquisition costs and top line growth improved somewhat towards the end of the quarter.
In the Tabletop Games segment, Adjusted EBIT grew by 20% YoY to around SEK 250 million in Q1, with a notably improved margin YoY supported by a better product mix and with an improved free cash flow. The organic growth amounted to -3% in the quarter, supported by the successful launch of Star Wars™: Unlimited, offset by a slower performance for distributed games in parts of Europe. Star Wars: Unlimited Set 3, Twilight of the Republic, will be released in the third quarter of the financial year.
The Entertainment & Services segment had a soft quarter with organic growth amounting to around -50% YoY as a result of fewer new releases and products, for both PLAION Partner Publishing & Film and Freemode. Adjusted EBIT contribution was slightly negative in the quarter. The lower adjusted EBIT YoY is mainly explained by stronger licensing revenue in the comparison period.
Looking forward, this holiday season will see the release of The Lord of the Rings: The War of the Rohirrim, the first anime feature film, set more than 150 years before the original The Lord of the Rings trilogy.
World class intellectual property
Through the strength of our deep library of intellectual property, we have unique opportunities to further engage and expand reach into our player communities. This is particularly evident with our The Lord of the Rings and The Hobbit franchises. Nearly two years have passed since Middle Earth Enterprises joined the group, and we have embarked on this journey as stewards of these iconic, evergreen properties.
We have been diligently working with our own creative teams, other world-class creators, and our passionate fanbase in laying the foundation and strategic long-term planning for these franchises. As previously announced, we have entered a new collaborative long-term partnership with Warner Bros. Pictures and New Line Cinema for upcoming film projects, as well as with Amazon Games to create an expansive MMO set in the Middle-earth universe.
In addition to these major partnerships, with our new greenlight process we are actively testing and prototyping multiple new game concepts, exploring a wide range of immersive and authentic gameplay within the Middle-earth world. An honest and tactical approach to world-building and authentic storytelling is at the core of these efforts, as we believe that engaging deeply and early with the community is essential to creating experiences that truly resonate.
Spin-off processes on track, with Asmodee first up
The process to transform into three standalone publicly listed entities is progressing according to plan. It will enable each entity to better focus on their respective core strategies and offer more differentiated and distinct equity stories for existing and new shareholders.
The planned listing and distribution of shares in Asmodee remains on track to take place this financial year. The listing and distribution of shares in “Coffee Stain & Friends” is planned for calendar year 2025.
With several key milestones reached recently, the spin- off of Asmodee will be first up. To improve awareness, Asmodee will host a capital markets day during the third quarter of the current financial year. The full capital structure, including both equity and debt, is being reviewed.
Asmodee is well-positioned to build on its strategy and continue to prosper as a standalone entity. As per LTM June 2024, Asmodee generated net sales of SEK 14.7 billion, with Adjusted EBIT of SEK 2.1 billion and EBITDAC of SEK 2.2 billion. The company has a solid earnings growth outlook, with its strong game portfolio and sales channel presence bolstered by the successful release of in-house developed trading card game Star Wars: Unlimited, which remains in high demand.
On a separate note, we would like to reaffirm that we have fully exited all our operations in Russia. The only remaining entities are dormant legal structures with no employees, operations, or assets. The closure of these legal entities is a technical process that may take some time, as it is dependent on approval from Swedish and local authorities.
We are now nearing a new and exciting chapter for the businesses and people that make up the Embracer Group. The fundamentals of the games market remain solid and continue to show resilience. As we continue to support our organizations in their transformation into three standalone publicly listed entities on Nasdaq Stockholm, we remain focused on unlocking the significant untapped potential within Embracer.
To conclude, I would like to extend my sincere thanks to all our team members, shareholders, customers, gamers, and business partners for their ongoing contributions. Together, we are well positioned to achieve our strategic objectives and drive long-term growth. We are living in challenging and difficult times in many places across the world. That makes it even more important and encouraging to see our teams and gamers from near and far coming together to create experiences together, irrespective of distances and boundaries.
August 15, 2024, Karlstad, Värmland, Sweden
Lars Wingefors
Co-founder & Group CEO
Significantly improved cash flow and lowered net debt
We started FY 2024/25 in line with management expectations, growing profitability YoY in both the Mobile and Tabletop segments. As expected, the performance in PC/Console and Entertainment & Services was softer YoY due to a lower release activity.
Q1 total net sales were SEK 7.9 billion, with Adjusted EBIT of SEK 0.8 billion and a SEK 0.7 billion free cash flow improvement YoY. For the first time ever, on a trailing 12-month basis, free cash flow exceeded SEK 2 billion. Excluding the divested assets from Saber Interactive and Gearbox Entertainment, the pro forma EBITDAC was above SEK 5.9 billion.
The transformation of our PC/Console business continues, and the pipeline of games looks solid. We still expect to release completed games with a value of SEK 3.9 billion for the financial year. Our highly anticipated game Kingdom Come: Deliverance II, is now confirmed for global release on February 11, 2025.
The process to separate into three standalone publicly listed entities is progressing according to plan. Asmodee will host a capital markets day during the third quarter of the current financial year ahead of its spin-off.