Good morning. Good morning, everyone, and welcome to Embracer's Q1 2024, 2025 results conference. My name is Rasmus Engberg, gaming analyst with Kepler Cheuvreux, and I will be your host for today and lead the Q&A. Today we have Lars as usual and Johan and also a special guest from France, s o I'll leave it with that, and thank you.
Thank you, Rasmus, and welcome everyone to Embracer Group's Q1 presentation from here in Stockholm. I'm pleased to share our performance of our first quarter, fiscal 2024, 2025, and provide an update to our strategic progress. We began this year in line with our management expectation, generating close to SEK 8 billion in net sales, and our adjusted EBIT stood at SEK 828 million, and our free cash flow amounted to SEK 47 million. Our Q1 performance was driven by a strong quarter from our tabletop and mobile segments. As anticipated, our PC/C onsole and entertainment and services segments faced a softer year-over-year performance due to fewer new releases. Overall, as a group, our Q1 net sales were down 24% year-over-year.
Cash flow continues to be a major focus, and we have reported a significant year-over-year improvement in free cash flow of SEK 650 million. When we look at our trailing twelve months basis, our free cash flow exceeded SEK 2 billion, a milestone for us. That cash flow generation, coupled with our divestment processes, enabled us to lower our debt. Our transformation of our PC/C onsole segment continues, and we are optimistic about our pipeline. I'm excited that earlier this morning, we confirmed the global release date for Kingdom Come: Deliverance II to be released on 11th of February 2025. And it's great to get this date confirmed for gamers and to feel the launch excitement continue to build. We are eager to share more updates around our pipeline to gamers at the biggest trade show and consumer event in the industry, Gamescom, next week.
Overall, we still expect the value of completed game development for the year to be around SEK 3.9 billion, which is a step up versus last year. We are making good progress on our plan to separate into three standalone, publicly listed entities. This move will allow each entity to sharpen its strategic focus and to offer a distinct equity story to our shareholders. Asmodee, the first spinoff, will host a capital market day in our third fiscal quarter ahead of its listing, and Thomas Kœgler, the Asmodee Deputy CEO, is joining us today to share more about our Q1 performance. Let's jump into the segments. Just to say, the image you see here is taken from the Netflix upcoming anime series, Tomb Raider: The Legend of Lara Croft, scheduled to be premiered on Netflix in October 2024. We will start with PC/C onsole.
Here, net sales in the quarter amounted to SEK 2.7 billion, a decrease of 34% compared to the same period last year. The decrease were anticipated due to lack of notable new releases and tough comparison, given the successful release of Dead Island 2 in the corresponding quarter last year. Just to call out one of the new releases, MotoGP 24, this got off to a good start with favorable reviews and already achieving its ROI targets. Looking at the Adjusted EBIT Margin, which you shouldn't really do in a separate quarter in our industry, but now we are in a quarter, and we're looking at it, it's low, and it's dragged down by lower ROI from releases in the past 24 months. This will improve in the course of the year.
However, new content that came out in Q1 for Deep Rock Galactic, Remnant II, and Dead Island 2 performed well in line with our expectations. Gamers continue to enjoy our deep, rich catalog of games, and we actually saw engagement increase year-over-year. If you look at the catalog titles, you will see it's topped by Remnant II, Dead Island 2, Star Trek, Deep Rock Galactic, and Neverwinter. Games being served with fresh content to deepen player engagement. And for Deep Rock Galactic, with the launch of Season 5 this quarter, we actually hit an all-time high of player activity with over 50,000 concurrent gamers. A fantastic achievement from our family friends at Ghost Ship in Denmark.
Games released this past quarter are shown on the far left, and you can see it was a mixed result with two titles immediately got to break even, but one small title struggled from launch on the ROI chart here. This chart you see here is clean from divested assets. Our average ROI stands at 2.1. The challenge we have highlighted in the past remain in focus, and we have a clear plan to improve profitability within PC/C onsole. First, our resources are increasingly focused on our owned and controlled IPs. Secondly, with improved capital allocation and process to help us achieve better quality and stronger margins. And to be clear, we are expecting our ROI to improve over the coming years as our pipeline matures post our past year restructuring progress.
We believe our studios and creative talents are best in class and believe our outlook for the long term is bright. Now, looking at the investments and the complete game development. As you see here, release slate was the smallest quarter over the past two financial years. Just SEK 336 million in value of new games were released. Looking at the investments and pipeline, spend in game development tracked down to SEK 900 million. This was expected, given our past efforts to reduce and better control our CapEx. It's in line with the annual run rate targets we have previously communicated. We believe our portfolio. We believe our, in our games pipeline, through focus on owned IPs and better development processes, we believe we are laying the foundation for strong organic growth going forward.
Now, looking at some of our most important releases for the year, here you see eight of them. Kingdom Come: Deliverance II, coming out now on February eleventh in our fourth quarter. In this quarter, we will have also Epic Mickey being released from our family friends at Purple Lamp in Vienna, in the end of the second quarter. We are expecting Hyper Light Breaker, published by Arc, our family members at Arc Games, being shipped this year. In this quarter, we're expecting Monster Jam Showdown from our friends at Milestone. Gothic Remake, another iconic RPG that is being remade at Alkimia in Barcelona, being published by THQ, coming out during this financial year, as well as Killing Floor 3 from Tripwire, a highly anticipated AAA sequel.
And finally, from our friends at Coffee Stain in Skövde, we are expecting the full release of Satisfactory after many years of development. We are also expecting that game to be shipped on consoles later in the year. Also, we are expecting the first gamers to get their hands on Titan Quest II from our friends at Grimlore Games and THQ Nordic, in the course of the year. And this is just a selection of the pipeline for this financial year. Now, let's look at mobile. As we covered right at the top, mobile delivered another strong quarter with sales of SEK 1.4 billion and adjusted EBIT of SEK 500 million. Adjusted EBIT margin increased to 37% from 29% year-over-year.
This was driven by a product mix shift and lower user acquisition costs. This is according to the management plan. If you look at the strongest performing titles, you could recognize many titles from before: Sudoku.com, Blockudoku, Alien Invasion, Art Puzzle, and Jigsaw Puzzles. Worth mentioning is the continued success from Easybrain to in-house create new global successes that drive growth. Recently, they have released Crossword Masters that are showing very promising KPIs. I really admire the talents and people we have within our mobile segments and the skills they have demonstrated to navigate the complexities in the business, constantly performing and delivering strong results. We believe the market is stabilizing and saw condition to scale user acquisition and top-line growth improve towards the end of the quarter. Now, let's welcome Thomas Kœgler to the stage to talk about Asmodee.
Thank you, Lars. Thank you, everybody. While at Asmodee, with Embracer, with advisors, the teams are fully working on the proposed spin-off, as a management, we remain focused on delivering the business. In Q1, we have delivered net sales of SEK 3 billion, in line with our expectations. Reported net sales were down -5%, year-over-year, impacted by the divestment at the end of the last fiscal year of Miniature Market, from our direct-to-consumer business in the U.S. On an organic and pro forma basis, at constant currency, net sales were down 3% year-over-year. We saw growth in the U.S., a continued strong global performance of Star Wars: Unlimited, although sales were impacted by a softer performance of distributed products in Central Europe and in the U.K.
On a profit level, the adjusted EBIT margin improved by two percentage points versus last year, same quarter. The improvement was driven by better product mix, supported by Star Wars: Unlimited, lesser inventory clearance actions this quarter, and the benefit of run rate savings from the group's restructuring program. On a commercial side, we were delighted to announce last week an exciting multi-year partnership with the LEGO Group. Monkey Palace, the first new game, will be released in fiscal Q3. We are very excited about this, and will be followed next year by another new game currently in development called Brick Like This! These games join the strong existing pipeline of upcoming new releases, which also include Star Wars: The Mandalorian, a fan-beloved character, Lord of the Rings: Duel for Middle-earth, or Altered, the highly anticipated and innovative TCG.
All of those games were showcased last week at Gen Con, or two weeks ago at Gen Con, the largest U.S. consumer show that again broke its attendance record with over 71,000 daily attendees. Talking of new releases, Star Wars: Unlimited continues to show very strong performance in the quarter. It's trending above our expectations. Set 3 will be releasing in Q3 fiscal year. We at Asmodee are investing a lot on this product. We have a multi-year development program. Several sets are already finished. We have announced the names of the sets 4, 5, and 6 at Gen Con, at the In-Flight Report of our studio, FFG.
It's an event that was long awaited by the fans because we hadn't held it since five years, so it was the first time we held the In-Flight Report. The event was completely sold out with 1,000 attendees from the board game fans. In the digital board game space, we are extremely happy also to announce that Board Game Arena, our online board gaming platform, has breached its 10 million members. It's a huge success. It's 5 million hours that are played every month on the platform. Finally, during the quarter, we also saw the release of the new Netflix trailer for Werewolves of Miller's Hollow, based on Asmodee IP, a movie that will be released in October 2024.
Netflix also released, the Exploding Kittens TV show in 90 countries and localized in 38 languages. Overall, as a management, we were satisfied with the business performance in fiscal Q1, which is generally one of our seasonally quieter quarters. Thank you very much.
Thank you, Thomas. Very happy with the execution from you and the Asmodee team. So let's look at the entertainment and services business, which is a mixed business group reported under one roof here. We had the weakest quarter for quite some time, with SEK 848 million in sales. EBIT actually came in negative of SEK 29 million in the quarter. However, it's definitely worth pointing out this performance. It was really a quarter without any notable big releases in the distribution business. And if you compare it to last year, they had a few notable releases, and that gives very difficult comps. Also, on the profit side, last year, we had a significant contribution from a major deal we made with Amazon within Middle-earth Enterprises.
For accounting reasons, this quarter, we did not have any profits or royalties booked from that deal, but obviously, it's a multi-year deal, there will be more royalties coming through. We are expecting the coming quarters of the year to have more products, contracts, and things coming through entertainment and services. We are giving some further color in our reporting this morning, and I'm very pleased that to the progress that we are making on the Middle-earth Enterprises. It's now two years since we made that investment, and I think it's a fantastic asset, with so much rich content to be developed on multiple formats.
Obviously, games are close to our heart, and we are working on multiple new game concepts, some that we have been working on for quite some time, both with some of our best internal studios as well as external studios. This gives me confidence looking over the coming decade, how we could explore and deliver things to the communities of Middle-earth. Moving from Middle-earth to the other businesses, we see improvement in the Dark Horse business that had a bit of hangover from COVID. They had a great performance, a better performance this quarter, with some notable highlights. For example, now, after the quarter here, they premiered the fourth season of The Umbrella Academy. The management team of Dark Horse has a very strong business plan to improve their business and improve their profitability going forward.
Looking at the overall market, we are in a fantastic industry, and if you deliver the right content to consumers, you have a fantastic business. Looking into the segment, we see that when I look at the business, really, PC goes from strength to strength. We are expecting PC to be one of the best growth drivers in the market this year. But we also expect mobile to grow, as well as tabletop. Console will have a more muted year, but still, it's a fantastic console market if you bring out the right content to consumers. Overall, we're expecting the market to grow 2% to $188 billion this calendar year, and this is numbers by the external party, Newzoo. Johan, welcome on stage.
Thank you, Lars.
Potentially for the last time.
Yes. So thank you very much. And, let's have a look at an overview of our financial development. As expected, sales are significantly lower than last year, mainly due to that there were fewer larger releases in the quarter. The lower top line were mitigated by lower cost of goods, marketing and operating expenses, but reduced EBIT to SEK 0.8 billion. It is worth noting that last year included the successful release of Dead Island 2 and a licensing deal in Middle-earth Enterprises that jointly generated net sales of SEK 1.8 billion and adjusted EBIT of SEK 1.1 billion in the corresponding quarter last year. We note that overall marketing, as percent of net sales, amounts to 10%.
Marketing expenses outside of the mobile segment are clearly lower, compared to last year, as a result of fewer releases to support. In mobile, we note less user acquisition costs in the quarter, which is in line with the increased focus on profitability in the segment. Operating expenses remained at a lower level of SEK 2.4 billion, which is 12% below the corresponding period last year. Full-year sales reached SEK 39.7 billion, with an adjusted EBIT of SEK 6.2 billion or 16%. The divested Saber and Gearbox contributes negatively on an annual basis with SEK 0.3 billion. If we turn to the cash flow for the period-...
As said, free cash flow amounted to SEK 47 million, which is SEK 650 million better than last year. It's also worth noting that the lower EBITDA is more than compensated by reduced CapEx in the quarter. A testament to the achievements of making Embracer a more efficient and cash generative company. Cash flow from financing activities includes the refinancing of Asmodee, SEK 10.5 billion, related debt repayment at Embracer, SEK 9 billion, dividend to minority owners of Asmodee, SEK 0.5 billion, and additional debt repayment of SEK 3.2 billion following the closing of Gearbox. Net cash flow from divested companies was SEK 2.7 billion in the quarter, where SEK 3.1 billion relates to net cash inflow after payment of relevant accelerated earn-outs, and SEK 0.4 billion concerns scheduled earn-out payments.
The cash flow effect of items affecting comparability relates to payments made on the restructuring program, which ended 31st of March. Looking at the full year free cash flow generation, we see a solid growth in the period, reaching SEK 2.1 billion on an annual basis, driven by reduced CapEx and working capital. At the end of June, the net debt amounted to SEK 14.3 billion. This is not including the interest bearing receivable of SEK 2.1 billion that we have towards the buyers of Saber. In April, Embracer secured a financing agreement at Asmodee level. The financing amounted to approximately SEK 10.5 billion, with a maturity of up to 18 months. The loan is secured by Asmodee assets alone, and ring-fenced with no recourse to Embracer.
In the beginning of July, we announced that we had completed the refinancing of our revolving credit facility at EUR 600 million, with a two-year maturity, and an extension option, for one year. Later in July, we announced that we had signed a SEK 500 million loan with the Swedish Export Credit Corporation at similar terms and maturity. Embracer Group has leverage covenants in its credit agreements and has substantial headroom to it. At the end of June, available funds amounted to SEK 5.2 billion. This increased to SEK 6.8 billion at the end of July. Looking at pro forma financials, here we see Embracer's performance, excluding the divested assets related to Saber and Gearbox for the last two fiscal years, as well as the trailing 12 months per Q1 2024, 2025.
They are also split by the three new entities following the announced separation. As mentioned earlier, this shows a slight positive effect on profitability, but more importantly, a large positive effect on cash flow generation, here measured as EBITDAC. Where EBITDAC would have been SEK 1.8 billion higher for the full year if the divested companies were excluded for the period. Turning to the liability side, there are three important areas: net debt, cash earn-out obligations, and number of shares. As we saw earlier, net debt amounted to approximately SEK 14.3 billion at the end of June. If we include the SEK 2.1 billion for divested assets still to be received, net debt would amount to approximately SEK 12.2 billion, where SEK 9.4 billion is related to the ring-fenced Asmodee structure.
Earn-out obligations to be settled in cash has been reduced by SEK 1.4 billion in the quarter and amounts to SEK 4 billion at the end of June. Of the SEK 4 billion, approximately SEK 600 million is to be paid until the end of March this fiscal year, and SEK 500 million in the next fiscal year. The estimated number of shares to be issued in order to settle earn-out obligations amounted to 10 million by the end of June. If you look at quarter end, there are approximately 1,350 million shares outstanding, and adding the estimated shares to be issued, the number of shares would be 1,360 million.
... Over to you, Lars.
Thank you. Thank you, Johan.
Yep.
Just to give a bit more color on the planned spin-off processes, and I'm pleased to say it's proceeding according to plan. Just to remind everyone of the rationale, unlocking the value in the high-quality assets of Embracer Group, enabling each entity to better focus on the core strategies and to drive long-term value creation. Looking at Asmodee, the first planned spin-off, it has been a very active three months since the last quarterly report. Several things have happened, and several things are planned to happen in the short term. We have appointed a new CFO that previously were head of M&A, that really have contributed well into this process.
We had our introductory meetings with Nasdaq and the listed auditor, and we are planning the formal kickoff with Nasdaq now in September. We have a very detailed time plan, and all the advisors are appointed, and there is a large group working on this on a daily basis. Most importantly, we today are announcing that we are planning to hold a capital market day in our third quarter, in the time period October to December, and we are planning to announce that date in the not too far distant future. So you would all be very welcome to take part, to meet the management, and to hear more about the business, and it's a fantastic business to dig deeper into.
The plan of the remaining spin-offs and new entities, Coffee Stain & Friends and Middle-earth & Friends, are proceeding according to plan, but that is earlier in the process, and we are expecting to spin off Coffee Stain & Friends during the calendar 2025. So, that was it from the management, so I would like to hand over to Rasmus.
Yes, so we will host a Q&A with questions from the room, from the telephone conference, and also from the chat. So you can post your questions either way you want to. Yeah. Okay, welcome to the Q&A. And, as said, we will take questions first here in the room, and then on the telephone conference, and then on the chat after that. That said, I think I will take the opportunity I have to put the first questions out here. So I'm starting with you, Lars. Kingdom Come and Killing Floor 3, are they both now scheduled for the fourth quarter?
Well, Kingdom Come II are scheduled for the fourth quarter. Killing Floor 3 are scheduled for the second half of the year.
Okay. Okay, I read somewhere that they said early 2025, but maybe that's-
The thing is that, you know, it's difficult sometimes to be a public company and talk-
Yeah
... about products. You know, first, it's the consumers, it's the fans, it's the communities we are talking to, and we need to let our companies and publishers talk to them first. We had a bit of a difficult situation with Kingdom Come this morning, but now, you know, we are globally announcing this release date.
Mm.
In general, we're letting the publisher talk first, and then, if needed, we will talk.
Yeah. You know, I guess it's important for people to understand the scope of these products. So if we look at the predecessors, I saw that Kingdom Come has sold 6 million copies, something like that. Is there a figure for Killing Floor 2 somewhere?
... No, I don't have it off the top of my head, but it's millions, and there is a huge fan base-
Mm
... of that product. And happy to see that we had a lot of consumers engaging again now in Killing Floor 2 when it was heavily promoted and discounted during the spring. So there is so many fans for these products out there, and next week we will have a 500 sq m Bohemian 1400 exhibition stand, where fans could really explore and engage with the Kingdom Come: Deliverance II at Gamescom.
Amazing. We must take the opportunity to talk to Thomas when he's here. So, you have your first really big launch since becoming part of Embracer with Star Wars: Unlimited. And on the heels of that, almost, you're already going to launch games with Lego already in Q3, you said?
Exactly.
Yeah. Fantastic. And how, you know... But how do you think about the magnitude of these potentials, you know, without giving us any numbers, but?
It's always difficult to predict, but what we do at Asmodee is that we launch games for them to last.
Mm.
It's the most important things, and tabletop games, I mean, if you take the example of Catan or Ticket to Ride, they last for decades.
Mm.
Star Wars: Unlimited, for instance, it's something we're here for long. We have, I think, nine sets of which the development is complete, so that's three years of product releases. We know the fans will have a huge commitment, and have already started to show a very huge commitment to the game. They're investing a lot of their time, their energy, their passion.
Mm.
What we want is to give them an experience that will last for decades.
Mm.
So hard to give numbers. What we try to do is make sure that the entire ecosystem is there for this to last for, if not ever, at least as long as possible.
And the Asmodee business, it's bigger in Europe than in the U.S. It's been a couple of really difficult years for European consumers, and Asmodee has been growing. Is that a fair— Do you think about it that way, that, you know, consumers are having a hard time, it's difficult to grow?
It's true that consumers might have a hard time, but what consumers found out during the pandemic, especially-
Mm
... is that, actually, playing board games, tabletop games, card games, all of those, those games, creates the opportunity first to spend time together.
Mm.
Second, they realize that it's actually a fairly cheap leisure.
Mm.
Because if you buy a EUR 50 game, it's a big game, you can entertain three, four, five friends for hours and hours and hours.
Mm.
So actually, it's a good way of put your money and having very good time for quite some time.
And just one final question, which has been talked about quite a lot by people that think about this, and that is that the SEK 9 billion debt—is that something that sort of would restrict you to go out and buy companies in the pace that you would want to do it? Or, I know it's not finalized, that it's gonna be that level, but it seems anyway to be a fairly high debt level.
The only answer I can make is we've been operating under private equity before-
Yeah
... joining Embracer with higher leverages.
Mm-hmm.
It has never prevented us from being successful.
It's a good answer. I think we'll leave it to the telephone conference or the room first, of course. Questions in the room?
We have a few on the teleconference. Or do we have any in the room? No. So the first question from the teleconference, from Simon Jönsson, from ABG Sundal Collier, please go ahead.
Thank you, and good morning, guys. So first, I want to come back to the Kingdom Come: Deliverance II that you have shared is expected to release in February. You said before, Lars, that you expect, at least I believe you, you said that Q3 was supposed to be the biggest release quarter this year. Is that still true, or should we think that the mix has changed more towards Q4 now? Or... Yeah, can you give us some color on that?
Yeah, so it's obviously a good morning, Simon. There is some shift, obviously, by now confirming Kingdom Come: Deliverance II, shifting from third quarter to February. However, I would like to point out, it's you know, in this industry, it's hard to exactly say beforehand how much that would impact the numbers. The game would be a few months more polished and better to the fans, with potentially a more optimized time window for release. So I wouldn't necessarily say that this is financially heavily impacting the year or impacting the year at all. But yes, there is a delay and a bit of shift from the completed game's value from Q3 to Q4.
... All right, thank you. And that shift, is that especially for Kingdom Come? Is that you know what is the reason for that? You mentioned competition.
No, well-
Is that like the main reason or?
Well, I think the main reason is that we obviously look at all the data points to start with. I believe November is in general a very competitive, difficult time period. You could succeed very well in November, but it's more expensive to globally market a product. The competition from some very big game releases is always tougher in November. So you can say that February, it's a more optimal time window. It's still a fantastic period for fans to engage with games. And we had successes, great success releasing games in February before. That's on the release window.
On the quality side, Kingdom Come, the team has been working on this for many years, over five years, and it's an enormous, fantastic product, but it's very complex. Now we are in the final stages to complete the product, and we decided together with the team, and the management decided with the team that the product needs that extra time to secure the absolute best quality when hitting the market. I think the expectations of the game have increased from the initial release of the first Kingdom Come back in the day, and we just need to make sure that the game is optimized when shipping.
Got it. And, comparing Q3 and Q4 in terms of releases, is it fair to assume then that Q3 will be more sort of a quarter of many smaller releases, and Q4 more of big titles, heavy quarter?
I can say that Kingdom Come: Deliverance II would be by far our biggest release of the year. That's the color I can give you.
All right, thanks. And, one more from me on the cost base or CapEx levels here. You have continued to close down some studios during this quarter, and, you know, how should we think about the CapEx in coming quarters here? And, when do you think we could see a bottoming out and maybe potentially an increase in the underlying CapEx levels?
No, I think we provided a more firm guidance on the run rate CapEx at SEK 4.3 billion in the last quarterly. We didn't repeat this in the communication this morning. We're trying to move away from this very specific forecast every quarter and look more long term on the business. But in general, I don't see any major deviations from the previous quarter. We will have some, especially external studios, completing the games in the course of the year and next years, that would lower the CapEx levels. Potentially, not all of that will be replaced, but it's too early to start talk about growth in CapEx.
We are still in the process of optimizing the PC/C onsole business and to have a rigorous cost control and control of all our processes within that business.
All right. Let me phrase it this way: so you—I assume at least you had a CapEx impact from Gearbox as well this quarter. So, I mean, should we—what can we read into that, you think?
Not too much, Johan. Do you have any further color on the CapEx, reported CapEx level in this first quarter? How much was, Gearbox, if any?
Yeah, it was, yeah, so there was some, in the quarter, approximately SEK 80,
Mm.
Millionen SEK.
All right. Thanks, guys. I'll get back into the queue.
The next question is from Martin Arnell from DNB Markets. Please go ahead.
Hi, good morning, everyone. My first question is, Lars, can you elaborate what 14% organic growth, excluding that island, was mainly driven by in the quarter?
Well, first of all, we saw a growth in the, in the catalog, in the catalog business. The catalog business are stable, and it's been growing year-over-year. And then, obviously, we had a number of releases in the quarter. We were pointing out MotoGP, for example. We also had a quite solid quarter within other revenues, contracted revenues, development revenues with business partners of more than SEK 800 million in the quarter.
Okay, thanks. Then I have a question to Thomas, Asmodee as well. You—I think you mentioned that there's slower performance for distribution in parts of Europe. Could you elaborate on that comment, please?
Well, actually, we do not comment on specific, especially, partner IPs, so I will just keep to what has been put on the, in the report.
Okay, but there was some kind of slowdown there that offset the growth from your Star Wars game. And are you able to say anything on why the performance was slower in parts of Europe?
No, I think it's more related to the fact that we have a very deep portfolio of products, and sometimes in certain areas, you have products that go up and down. But the chance we have is that we have hundreds of products. We're present in 22 countries, so when there is a slowdown somewhere, usually it picks up somewhere else. And it's the case with Star Wars: Unlimited, that's performing great. Other very strong launches like Harmonies or others. So it's just the nature of the business and the nature of consumer consumption in various countries.
Okay, thanks. And one long-term question to you: What do you think the growth for the board games market could be in a long-term perspective, say, five years from here?
It's a very good question. And unfortunately, in our industry, we do not have the likes of Newzoo. So your job is quite difficult in trying to find relevant information on the market dynamics. What we see, and with the help of external consulting firms, is that our expectation for the long term is to have somewhere around a mid-single-digit growth of the market.
Okay, thank you. And my final question is to you, Johan. On the cash flow, free cash flow improvement, there's a quite big delta in your alternative measures, where you show the payment personnel cost related to acquisitions. It's a SEK 1 billion delta that is supporting the free cash flow after working capital, this 650 million increase year-on-year. Why is it such a big delta?
I think, when you look at, I mean, first of all, when you look at our operational P&L measures, like adjusted EBIT or EBITDA, we exclude the effects of M&A activities. And as highlighted within or related to the Gearbox transaction, there are cash— It's a net contribution after cash earn-out payments. So from an operational perspective, that is when you are seeing the funds in from the sale of Gearbox as opposed to EBITDA.
Okay, thank you. That's all from me.
Thanks. The next question from Aytaj Khalilli from Barclays. Please go ahead. Your line is open.
Hello. Hi, thanks for taking the question. So I have three. So first is, can we know what is the adjusted EBIT for PC/C onsole in Q1, assuming no contribution from the disposed businesses? And the second is can we get any update on progress on the financing for the Saber disposal? And by that I mean, for the funding for the acquirers. And finally, so for FY 2025 guidance at FY 2024, we learned like... You said that we should expect a similar performance compared to the actual adjusted EBIT in FY 2024. And by that, we think we should compare it to around SEK 6 billion-SEK 7 billion in FY 2024, including Saber and Gearbox. Are you still happy with this number or not? Thank you.
So to start with your first question, was the reported Adjusted EBIT on PC/C onsole in the first quarter, how was the specific question, impacted from the divestments?
So Adjusted EBIT, but if basically we didn't have any contribution from the Saber or Gearbox in Q1.
Okay. Yes. So, Saber, well, Saber is-
Yeah
... it's not part at all of Q1. But Gearbox contributes negatively with around SEK 30 million in the quarter.
Okay, thank you so much. Thank you.
So, on your second question, the payment for Saber from the buyers, I'm confident that the buyer will be able to pay according to plan. Obviously, we are, and I am, involved with the buyer on almost a daily basis, because we have ongoing projects together, post the divestments, a few development projects.
And I'm confident in the buyer's ability to get actually top-ranking investors into his business, if needed. So there is no change from my previous communication around this matter. This will be paid this calendar year. On your last question, I would like to come back to the fact that we are not providing guidance anymore. We previously, just going back in history, we previously had a two years guidance, and being in this industry, it was sometimes a bit painful to have that every quarter. So we decided to move out from having a hard guidance every quarter because there is a bit of lumpiness in the PC/C onsole business.
However, we decided to give some color, and not a guidance, to give some color in our first reporting, how investors should look at this year, and we said we see a similar adjusted EBIT this financial year. That was our statement in last quarterly reporting. Now, I think businesses are performing according to expectations. There might be some shift, shifts within the year. But in general, we see around the same amount of products being shipped this financial year. It's still SEK 3.9 billion of PC/C onsole games that we are expecting to release within the year, the same number we provided in last quarterly. You know, that's kind of the color I can give you.
In the end of the day, Asmodee is a fantastic business to own from the perspective, you always are very stable in your delivery of your numbers and the mobile business being the same. But the PC/C onsole guy is the bad guy because it's a bit volatile. But I'm very confident and excited about the future outlook of that business as well, especially now post the restructuring.
Thank you. Thank you so much.
No more questions from the telco.
All right.
Okay, Rasmus-
Yes.
Final.
Yeah, let's see if we have something here. Yeah, there is a question here which I found quite interesting. 4A Games is a business that the buyer of Saber has an option to buy.
Mm.
How do you manage that business now? Do you see it as a part of Embracer, or is it something that is...?
Yeah, it's a great question. You know, to start with, 4A, led by Dean, it's a fantastic company that's been around for many, many years. Very experienced developers, both based in Malta and Ukraine.
Mm.
They are working hard on their next big game to be shipped in the not-too-distant future. We are in regular contact, obviously, from Embracer side, with Dean. In general, our companies are fairly independent. You know, they are founded by entrepreneurs. They're used to run their businesses. Financially and legally, we are owning that business fully. Yes, the buyer of Saber has an option to acquire that business, but we need to wait and see in the end what the final conclusion is. I think 4A is a fantastic company.
Mm.
But regardless if it's owned by us or the buyer, Embracer holds the rights to Metro. We will be the publisher of any future game, without confirming the name of that game. So I'm confident in our ability to capture, you know, the great output, the hard work the developers are doing.
Yes, I think we have been through most of the questions here. There are, of course, many questions relating to the similar performance guidance in the previous report. I wasn't there this morning. But I think.
I understand the market love to hear hard guidance, and it makes life easier, but it makes our life sometimes more difficult.
Mm
... when there is shifts in release dates and other things.
How do you think about the non-Asmodee business? Does it... You know, it is volatile. Should it be run without debt, or, or are you going to work down the debt, or, or how do you think about that?
Yeah. So, so now looking at the pro forma debt, post-payment from the Saber buyer, you know, we have, you know, fairly little debt, relating to the overall, profitability left within the business. So let's see how much debt we actually will have, in the end of the year.
Mm.
In general, I'm, I'm not a big debt guy. However, a business like Asmodee, I think, could carry-
Mm
... some debt.
Mm.
But, in general, I don't think we should have a high leverage within the business.
And then, just one question, I guess it's more of a household thing, but we have seen cash flow improve materially now.
Mm.
Is that going to be lumpy, or should we sort of expect it to continue to improve going forward?
Generally, it would improve, but lumpy is the wrong word. There is a seasonality-
Mm
... in the industry, and there is the impact from releases and the working capital tying to that. So if you release a game in the end of the quarter-
Mm
... you actually would have that cash flow in the next quarter.
Yeah.
So yes, there is some ups and downs, but if you are a long-term investor and shareholder, as myself, that is not a problem.
No.
It's a problem for a specific quarter.
Yeah. Very good. I think we'll round off there unless we have any more questions. Thanks, everyone, for, for attending.
Thank you, Rasmus.
Thank you.
Thank you very much.
Thank you.
Thank you very much.