Thunderful Group AB

Thank you very much. So, my name is Brian Sjögersson. I'm the CEO of Thunderful Group, and I'm here with our CFO, Anders Mikvist, to present the year-end report. Next slide, please. Go to slide two. So, first, about Thunderful Group. So, Thunderful Group is primarily a pan-Nordic gaming group of companies, and we're active in two segments. We're active in one segment called Thunderfield Games, where we do game development and game publishing, and Thunderfield Distribution. These two segments operate on different markets. The Thunderfield Games segment develops and publishes games for the global market, whereas Thunderfield Distribution operates on primarily the Nordic market. The group was recently strengthened in the fourth quarter through the acquisition of CodeSync Limited and Station Interactive AB. And today, we're also happy to announce the acquisition of HEDUP, which is a German game publisher and game developer. The largest shareholders in Thunderfield Group are Bergsala Holding. After that, it's Swedbank Robar. it's brian stegerson myself and klaus lingelid our head of games um the main office is located here in sunny beautiful gothenburg sweden and we have additional offices in the nordic countries in the uk in germany and in hong kong if we look at the on the right side of this slide here um the financial highlights between for 2020 are that we have a revenue of roughly 3 billion Swedish, with an adjusted EBIT margin of 8.8%, and an adjusted EBIT of 271 million Swedish. Operational highlights are that we are now 350 employees in Kung Fu Group. We've had 25 game releases of our own IPs. We've had a unique Nintendo partnership since 1981. And we currently have 12 games in development. Among Thunderful Games and Thunderful Distribution, we own or oversee around 100 brands or IPs. Next slide, please. One thing, let me talk briefly about the group business strategy. Our business is IP-centric. IP and brands are very central to us. And so it follows that we take good care of our existing IP portfolio, both the ones that we develop in the games segment, but also the IPs and brands that we manage for clients on the distribution side. So that means that we are very good at managing the existing contracts and partnerships that we have. When it comes to being IP-centric on the gaming side, we are in a very good position to do platform deals with platform owners such as Nintendo, Microsoft, Sony, Google, et cetera. Since we can... always talk about the ips directly and and and and that we own the ips that means that our games are optimally suited for subscription and streaming based gaming also because that because the way the games are set up so the games are do not contain any in-app purchases you pay up front and and then you're not disturbed anymore during your gaming experience And also on the IP centric side, we are expanding the number of private labels for the distribution segment, meaning that we have a growing part of our portfolio there is our IPs or brands that we own ourselves. That means better margins for us. Finally, the core of the group business strategy is that we can take the great cash flows from the distribution side and invest heavily in in the in the games segment that means that we can make bigger and more profitable investments in games and we can also focus on making acquisitions in in the gaming space um next slide please i'm going to hand it over to our cfo to talk about the group financial development

Yes, so we're moving into slide four, the Group Financial Development in terms of revenues. For the fourth quarter, we're up 28% in the Q4 2020 compared to Q4 2019. We're reaching 1,288 million SEK in revenues in the fourth quarter. And for the full year 2020, compared to the full year 2019 we're up 46 percent and reaching more than 3 billion sec in in in group revenue the adjusted ebit for q4 is decreasing with 21 percent now 97 million compared to 122 in q419 and for the full year we're up 30 percent reaching an adjusted ebit of 271 The adjustments in EBIT for Q4 2020 and full year 2020, they are excluding depreciations from the non-cash issue and also from intangible assets from the acquisitions that we made during the year. And they're also excluding acquisition transaction costs of the 14.7 million SEK in the fourth quarter. So even though the revenue development has been good for both the fourth quarter and the full year, we see a hit in EBIT in the fourth quarter. And it's basically coming from Santa Fe distribution, where we see two different reasons. The first one is the mixed effects, where we've sold... game consoles and game accessories has been generating a large portion of the of the the increase in in revenues while toys has been decreasing and we do have mixed effects where toys have a higher cost margin than than than game consoles and also higher than than gaming accessories And also, it's a fact that for the Nintendo distribution in Dark Solar, most of the revenue increase has been in hardware, which is typically lower margins than the games. There hasn't been so many AAA games released in the fourth quarter. In addition to that, we see the COVID-19 effect. We had the second wave of the pandemic in the fourth quarter, meaning that physical stores in the Nordics, especially in the neighboring countries to Sweden, closed and we've seen a different order structure in the toy distribution company. We are selling more smaller orders and that's generating higher logistics costs and also decreasing revenues overall in the toy distribution segment. But on the other hand, for the gaming segment, we've tripled the number of game developers during the year. We started the year with less than 70 game developers, and at the end of the year, we have more than 220 game developers in the company group. So we are scaling up our game development, and we are growing both organically but also through add-on acquisitions and complementary acquisitions. So if we switch over to the next slide, slide number five,

Yeah, excellent. Thank you. So in the fourth quarter, we did two acquisitions. One is called CodeSync Software Limited. It's a company that operates out of Sunderland in the northeast of England, close to Newcastle. They are both a game developer, a co-developer, where they co-develop with other developers on games, and they're also a third-party publisher. They publish both their own games and other developers' games. They are around 100 full-time employees, and we acquired them at the beginning of October 2020. So with that acquisition of 100 full-time employees, that was fantastic. uh certainly a transformative um acquisition in the sense that we uh we were suddenly twice as many developers as we were before it's been it's been really interesting to follow then in november we we did an asset acquisition of station interactive which is a studio in in karlshamn in sweden they work on work primarily on other people's ips for example they've been working perennially on the little big planet franchise and they're fantastic fantastically talented 35 full-time employees in khartan were then incorporated into thunderful development and then today we're very happy to announce our new colleagues at head up a which is a game publisher and developer and distributor that is operating out of Duren which is next to Cologne in Germany there 15 full-time employees they've been been going about their business since 2009 and we believe that together we are going to achieve great things not the least when it comes to M&A because I think we can as we are expanding our into uh into other countries we will be in touch with a lot of developers that we weren't in touch with before so i think you could sum it up by saying that add-on acquisitions are and will remain an important enabler of fundable strategy and future growth this is something that we are going to continue to do vigorously next slide please let's go to slide six and anders do you want to do this

Yes, slide six is a short case in point for one of the acquisitions that we did in the fourth quarter, the acquisition of CodeSync Software Limited in the UK. We did the acquisition on the 2nd of October. We paid an upfront consideration of 23 million pounds. 50% of that was in newly issued fundable shares and 50% was in cash. We also have an earn up consideration of up to 42.5 million pounds. There's some different splits on this. The first one, the first earn up payment in schedule for August 2021 is 100% in cash and the two remaining ones for the full year 2021 or the second half of 2021 and the full year of 2022 is up to 50% in shares at our discretion, that is the buyer's discretion. The key financials for CodeSync when we did the acquisition that is until the third quarter 2020 indicated that that will double up the Thunderfall Games segment in terms of revenues and in terms of EBITs. We will look at that in the next slide to analyze the fourth quarter. And just what Brian said is that we're doubling up also in the number of employees, we're doubling up in the number of games in development, and the pipeline for both publishing projects and development projects are nearly doubling up from the situation before the acquisitions. So if we're switching to slide seven, we have a snapshot of Thunderful Games in the fourth quarter and the full year numbers. You see net sales in the fourth quarter of almost 65 million SEK, up from 32 million SEK in the same quarter last year, so that's doubling up more than 100%. For the full year 2020, that's 156 million SEK in revenue, which is up 55% compared to the full year 2019. On an EBIT and EBITDA measurement, we're reaching 19.2 million in the fourth quarter of 2020, up from 2.2 in the same quarter of 2019. And for the full year 2020, we're reaching 53.1 million second EBITDA. I should also mention that since we did the acquisition of CodeSync in the fourth quarter of 2020, we're now moving to the measurements EBITDA, where we are adjusting for for acquisition-related depreciations in the games segment. So then we can move over to the next slide, number eight. Great.

Here are a couple of examples of games that we have in development right now. Those two games that you see on this slide are both developed in Gothenburg. The one on the left is Lost in Random, where we are the developer and EA, Electronic Arts, is the publisher. It's coming out on all platforms and it's coming out now in 2021. On the right side, you see something that is similar. It's a game called The Gunk, where we are the developer We're also the publisher, and this is an exclusive partnership with Microsoft for the game to be exclusive on the Xbox Series X, the Xbox One, and Windows PC. That is also coming out in 2021. Can we go to the next slide, slide nine, please? Here on the left side, these are examples of what our colleagues at CodeSync are doing. So CodeSync in the fourth quarter released a game called Jurassic World Aftermath Part 1. It's a VR game where they are teaming up with Universal to bring the fabulous Jurassic IP to the Oculus platforms. Now they are hard at work on the sequel to that, the Part 2 that is coming out during 2021 as well. On the right side is something that is codenamed Project Ambition. It's an internal title that is developed and will be published by CodeSync. And it's coming out on all platforms, and that is coming out in 2022. I think one good thing to take away from these slides is that we... have for the last for the last year or so moved from the indie space into a distinct double a space where production values are higher game budgets are bigger and play times are longer and so on meaning that we are moving sort of up the chain when it comes to game development we are we are making bigger games where we can expect better profits from the games overall If we go on to the next slide, slide 10, I'm just going to show one example of a game that we are publishing. This game is called Onward and it's developed by Downpour Interactive and published by CodeSync. This game is also a VR game and it was initially released in July 2020 and it has until year end, it has grossed around 10 million US dollars in six months on Oculus. It means that not only can we work with good games, but it also means that I think we are where we need to be in terms of interesting platforms when it happens. Let's go to the next slide, slide 11, please. This is just a short summary of the number of titles that we have in development and lined up for publishing. So the first-party development releases are 12 in total as of now for 2021, 2022 and 2023. and when it comes to the publishing and publishing of third-party titles we have 12 titles lined up for 2021 seven titles lined up for 2022 and four titles for 2023 so far and like i just said it's it's a great expansion going on in in thunderful games we are as of december 2020 there were 225 developers in in the Thunderfall group. And that is tripling up from around 70 people in December 2019. So we are definitely expanding rapidly and forward leaning there. There, can we move on to slide 12, please?

Yes, we're now moving over to fundable distribution, a snapshot of net sales and EBITDA numbers. Fundable distribution is the majority part of the net sales in the company group. So the development you see in the fourth quarter and in the full year is up 25% for the fourth quarter in net sales and up 46% for the full year 2020. But again, we're seeing a hit in margins in EBITDA in the fourth quarter. So for the full year, we're up 27%, reaching 230 million SEK in EBITDA in fundable distribution. But in the fourth quarter, we're decreasing with 36% compared to the same quarter last year, reaching 77 million SEK in EBITDA in Q4 2020. And this is based on two reasons. Let me first try to explain the three different distribution companies that we have. We have mixed effects among those three distribution companies where Alma Toys, the toy distribution company, has the highest EBITDA margins. Bergsona, the Nintendo distribution company, is in the middle of those three. And Nordic Game Supply has the lowest EBITDA margins. And what we've seen in the fourth quarter is basically that a large portion of the the net sales growth is coming from nordic game supply with the toy with the game accessories product portfolio and also from the hardware sales in in bergsala and within bergsala hardware sales has a lower gross margin than for example games so one of the key reasons is that we see a lower gross uh margin for in the fourth quarter based on the mixed effects among those three distribution companies but again we're also hit by by the fact that the toy distribution company is is decreasing its revenues and it's largely based on the second wave of the pandemic hitting the nordic countries now in the fourth quarter where we've seen um lower revenue but also a different order structure meaning that our logistics cost has increased quite much while we are at the same time decreasing the revenue within within the toy distribution business if we move over to the next slide slide number 13 This is a little snapshot of Bergsala's revenue over time, over the recent 20 years. So Bergsala has been a Nordic Nintendo distribution company for a very long time, since 1981. And what we see now in the recent slides here is that we are reaching a yearly revenue, which is higher than what we've seen for many, many years. It's similar to the period with Nintendo Wii. But even if we are on a nearly all-time high basis, we are still quite confident that Nintendo Switch has a strong market position. We've seen that in the fourth quarter, and there's also very positive signals from Nintendo with a recent Nintendo Direct show. um just a couple of weeks ago where they are indicating that they will continue to to provide new triple a titles also for 2021. so moving over to the next slide 14. thank you so the outlook for 2021 sort of on a high level is that we uh

We know that Thunderful Games is releasing four AA games in 2021. And there is a continued strong demand for Thunderful Distribution's products within consoles, games and games accessories. That the high margin segments within Thunderful Distribution have been most affected by COVID-19. But we also think that this should improve with vaccination and as restrictions ease. And finally, about M&A, we have a strong pipeline. We are working on multiple tracks and we have an active agenda to further strengthen Thunderful Games through add-on acquisitions via the cash flows from Thunderful distribution, as mentioned. If we go to the next slide, slide 15, then I'm going to just run through the key investment highlights. uh son of a games is operating on a huge and growing gaming market our gaming studios are focused on high quality we have we're able to do accelerated investments which support larger publishing deals both for first party and third party titles we're in the segments where we're active we are leading in the nordic distribution market we have a diversified business with unified purpose as the key strategy and that is to reiterate to use the strong cash flows from thunderful distribution and invest heavily in thunderful games both in game development and game publishing as mentioned we have a strong cash flow generation and finally The management team is us. It's the entrepreneurs that lead this company forward. We sit tight with significant skin in the game also in the future. Thank you.

Thank you. To answer a question, if you wish to answer it. please do so by pressing 01 on your telephone keypad. If you wish to withdraw from your question, please do so by pressing 02 to cancel. Once again, please press 01 on your telephone keypad if you wish to ask or do a question. There will be a brief pause whilst we wait for questions to be raised. Our first question comes from Oscar Erickson from Carnegie. Please go ahead.

Thank you. Good morning. So, quite a lot of questions for me, actually, after this report. First of all, in quite a week, or a very week report in both segments, really, starting with distribution and BySala, which is clearly selling quite well in Q4. But how did the hardware and software sales mix change in BySala from Q3 to Q4? And did this come as a surprise to you? And is that the main explanation for the very low margin in distribution?

Thank you, Oskar. This is Anders. Yes, you can say that within Bergsala, the share of revenue coming from hardware has increased quite much in the fourth quarter compared to the previous quarters. I wouldn't say that this was coming as a surprise for us since we have sold more games per sold console in the second quarter and third quarter, quite much based on the fact that Nintendo has released really good titles in the previous quarters. But in the fourth quarter, there were no real AAA releases, no major releases from Nintendo, which is quite unusual to be honest uh it's quite frequent that they or the the normal situation is that they they release uh triple a titles in in november or december um but that wasn't we didn't see the the number of the triple a releases as we as we used to do but on the other hand we sold quite much hardware Partly because of the effect that it was very difficult in the Nordic countries to get a hold of the PlayStation 5 or Xbox, the new Xbox. So the Switch console has had a really good market position also in the fourth quarter.

Okay, great. And Ommo Trois, you write a little bit about that in the report as well. Is this a major driver of the weakness in Q4? I mean, sales were weak year on year already in Q3, but margins held up quite well. And Q4 seems to be strong for all segments. Is there any special effect in Q4? Is it anything that can sort of reverse in the coming quarters?

uh and you can explain for the main uh element of the week report here in distribution yes fourth quarter 2019 for almost always was really really good um a high avatar percentage and very good sales numbers in the fourth quarter in 2020 for almost always in the sales numbers wasn't as good as expected um We saw a major lockdown, especially in our neighboring countries, and that was decreasing sales. Amatois is also the distribution company with the highest overhead cost, sort of the highest fixed overhead cost within the three distribution companies. So when we see an unexpected hit in terms of revenues, that is affecting EBITDA quite fast, and it's more difficult to to do anything about it compared to Berg Sala and Nordic Game Supply. But then there's also the fact that the logistics costs has been affected quite much based on the fact that we've sold, we've had more order lines in the fourth quarter 2020 than what we had in the fourth quarter 2019, even though the revenue has been decreasing. And that's, I'd say that one of the key drivers is that the customers, the small toy stores in the Nordics They are a little bit reluctant to place big orders when they are not sure whether there's a new lockdown next week or next month. So we need to deliver more frequently and that's really increasing our logistics costs within Amatois.

Okay, understood. And is this something that you can fix, so demand larger orders, given that it impacts profitability this much?

Yes, I'd say that in the long run, this will be fixed by the fact that we will have... Vaccination has started in the Nordics, and people are... hopefully is starting to visit stores in another manner than what they have done in the in the fourth quarter Bergsell and Nintendo and Nordic Games of High has not been affected by this because we have a large portion of the distribution to e-commerce but in the toy segments most of the distribution is still going to traditional physical stores and this is something that we see in other industries as well but if it will be affected directly in the first quarter It's difficult to say, but based on the situation with the vaccination right now, I'd say that we will probably not see a fix, as you call it, until the second quarter.

Understood. And these two things are the main explanation to the weak distribution margin. Is that correct, or is it anything else?

Yes. Yeah, those are the two reasons. So we see mixed effects affecting gross margin based on the fact that Nordic Games Supply and hardware sales within Bergsala is generating most of the growth in net sales. And then on EBITDA level, it's really all motorists contributing to the lower EBITDA margin compared to previous periods.

Understood. And just finally on distribution before heading over to games, what do you think, given this hardware sales mix now in Q4, what do you see ahead for Barsala primarily, starting with Barsala? Regarding the pipeline of AAA games, obviously there's been some quite major titles now. In Q1, those announced for later quarters. So talk us through how you see the mix and the margin throughout the year.

Yes. You can say that historically, the fourth quarter has always been the quarter where we are selling new consoles to new Nintendo Switch owners, meaning that that is sort of generating what we call the installation base of Nintendo consoles, so that we get new customers who can buy new games throughout the year. And typically what we see is that when Nintendo is releasing AAA titles in the first quarter, which they typically tend to do in March every year, but this year we've had a Super Mario release already in February. And what we typically see is the first few AAA titles being sold after a fourth quarter when we have sold quite many new hardware consoles. Then we have a very high attachment rate on the new AAA titles coming in the first half of the year following a good hardware sales fourth quarter. So that could be something that you can sort of estimate that if and when Nintendo is releasing AAA titles and one of them was released now in February. Then we have a much bigger installation base now in the first half of 2021 than what we had in the first half of 2020, since we've had great console sales in the fourth quarter of 2020.

I can also comment on that. I mean, has it performed well? It seems to have been well received. Are you seeing the high-install base delivering now in Q1?

For the AAA title that was released in February, the Mario title, the reception of that game has been very positive all over the world, especially in Europe, but also in the Nordics.

Great. Turning over to games. Then I will give you four other questions. But James, what is the main explanation here? Because also here, you should have a relatively predictable business given large milestone payments. What explains the relatively weak sales, in my view, and also the relatively weak margin? Is it a milestone that hasn't come in? Is it increased cost? Is it driven by acquisitions? Take us through the deeper piece.

Yeah, I will. So for the net sales to start with, yes, there is some predictability in terms of net sales when it comes to the contracts that we are doing for other publishers and platform holders. But it's also so that these milestones payments, they are not exactly scheduled to a specific date. Even though we work on them on a day-to-day basis, there's milestones that have to be approved and we get payments when there is a milestone achievement from us to the publisher. And that means that... I would say that in comparison to our budget, we are seeing a decrease in net sales out of these contracts of about 7.5 million SEK. So that's revenues that will be generated in the future, but we haven't been able to book them in the fourth quarter of 2020. So that's in terms of the predictability. And for the other portion, now we've included code sync into the numbers. So that's something that we haven't really predicted before. But that's also a fact that we... And the game, the Jurassic Park game, that was Jurassic World game that was released in December. That was one of the installments. And then we're launching the second part of that game later on. So we will continue to get milestones for that program. But then again, the revenue hit in the fourth quarter isn't really something that we can that we can base on the forecast that we had because we believe that the code sync has more or less performed according to our budget.

All right, so it's mainly explained by Thunderfall Games and Thunderfall Publishing, the weakness here.

Yeah, the 7.5 in net sales that was not accounted for in the fourth quarter, that is directly driven by Thunderbolt development in Sweden, yes.

Understood. I will leave over if there are any other questions, I might come back with more. Thank you, Anders.

Thank you very much. Our next question comes from Jesper Berts Jensen from ABG. Please go ahead.

Good morning, Bjorn and Anders. Thank you for taking my questions. I've gotten some of the answers already from Oscars. Good questions. But I have a couple for me and also on the distribution business. Can you help to understand what types of, you know, how has the revenue shifted within the segment? I mean, I've heard what you've said so far, but historically we've seen that Lysol is about 50% and other two segments are about 25% each. What types of changes have we been seeing here in Q4? Any indication of that?

Yeah, I think if you compare our Q4 compared to previous periods that you have been analyzing, The really big effect here that you haven't been able to sort of forecast or see any trends on previously in terms of net sales is that Nordic Games Supply has been generating a much larger portion of the revenue in the fourth quarter compared to any previous quarter, I would say. The fourth quarter for Nordic Games Supply has been really, really good. And then Nordic Games Supply has a lower gross margin and also lower EBITDA margin than the other two companies.

Yes, thank you. But I'm just looking at the margins at the NGS here over time. I mean, we've seen them creep up to, I mean, almost 6% EBITDA. And I mean, if you're saying that they've shown very strong growth, I mean, I'd imagine they'd pick up even more. whereas they almost reach the levels which you reported for the whole segment in Q4. And I guess I'm asking about the scalability from the business model and the long-term growth potential here. Thank you.

Understood. It's not really so that from an EBITDA perspective, it's not really so that Berg Salah or Nordic Games Supply is hit severely in terms of the normal operations, meaning that if you If you look at the EBITDA percentages historically in Berkshire and Nordic Game Supply and compare them to the fourth quarter for Nordic Game Supply, that isn't the reason. It's rather the reason that Nordic Game Supply is then contributing to a larger portion of the net sales, which is sort of generating a mixed effect. For Berg-Sola, we are seeing a slight decrease in EBITDA percentage margin based on the fact that we are selling more consoles in relation to games than what we did in the previous quarters in 2020. But once again, the big hit on EBITDA is generated by Amatois in the fourth quarter.

Thank you. And on Berg-Sola, I mean, have you ever... Has the shift towards hardware sales ever been this strong in the past? I mean, I'm just looking at the historicals we have access to. Or is this the first time?

You can say that we've reached an all-time high now in 2020 full year. We've never had this high revenue in the Nintendo, the Bergseller business ever in the Nordics. And then, of course, hardware is always generating the larger portion, the larger share of the total revenues. So the console sales in the fourth quarter has been tremendously good from an historical Bergseller perspective. And then in addition to that, there hasn't been so many AAA title releases in the fourth quarter, but there were releases in the previous quarters, so to speak. That is sort of generating a bit of an unfair comparison if you're comparing the fourth quarter to the previous quarters. But once again, looking forward, the fourth quarter installation base increase is getting us so many new customers and that is really building up a phenomenal situation for the 2021 potential to sell new additional games. It's rather a fact that we will need to just to sit and wait if nintendo's game development is is is treating or it is as good as it used to be now during the the pandemic so that we don't see any any sort of um yet delays in the in the game pipeline thank you um

also on the toys i mean you mentioned that this or we know that's a relatively low low share of e-commerce sales on all the toys and i mean perhaps if the covet 19 situation stabilizes this will stabilize as well but is there any i mean are you working to try and transform the sales through to more of an e-commerce tilt or is that not you know not a priority

uh as a distribution company that is that is a little bit as a b2b distribution company that is a little bit difficult to to to to do but we are we are trying to sell all of our products in all distribution companies to as many customers as possible we are spot on on a on a on the digital side of things we have we have connected to to the new marketplaces and the new customers coming to sweden that is the amazon's new platform and amazon's marketplaces and the the new marketplaces from cp on and elk and bilka and the other customers so we are we do have our products available where they could be available in in terms of digital sales but but it's still a fact that in in general customers in the nordics they they tend to buy their their toys in physical stores and not online in the same share as they do with Nintendo consoles or game accessories. But we are, our products are available at the big e-commerce sites. So we are, you know, if the market trends in another direction, we are there and we are ready to sell our products where the customers wants to buy them.

Gotcha, thank you. Last question on the game segment. We've seen a lot of delays from other publishers and developers here recently and in the last few months. I'm just wondering about the progression of your development. Are you worried about delays or the development progressing as planned for now?

Very good. Game development is... I think you see it all over the world during these times. Everybody's talking about delaying their game projects. We've worked really hard not to delay our games. And I would say that we are more or less on target with the publishing plans that we have. There are... I mean, when... Yeah, just to reiterate that, I mean, delays in game development, you can see it everywhere, but we are trying really hard to stay on track. You can see one effect there is that we are, rather than delaying game projects, because we don't think that's a good thing to do, either to ourselves or to our business partners, we are sort of stretching ourselves, meaning that we are working harder, we are putting more people on the projects. That means that our margins for the game development projects take a little bit of a hit, but that is something that we would rather sort of stay on course than having to talk about delaying our games.

Thank you. That was all the questions for me for now. I'll leave the line for other questions. Thank you.

Thank you. Thank you. If you wish to ask an audio question, please press 01 on your telephone keypad. Once again, please press 01 on your telephone keypad if you wish to ask an audio question. Our next question comes from John from Interfonder. Please go ahead with your question.

Hi, first to just clarify that I got the numbers right here. Your gross income, both for Q4 2019 and Q3 2020, which leaves the gross margin of around 22%, is that without any adjustment? Or do I need to adjust that, or is that a clear figure?

The gross revenue is that on the group financial development?

No, the gross result, the gross income. Are there any one-offs in that result?

For the fourth quarter, in the presentation that I presented, there was an adjusted EBIT of 97. And then there are two different adjustments based on that one. The first one is affecting also EBITDA. That's 14.7 million SEK in acquisition transaction costs. And the second one is only affecting depreciation. That's 41.4 million SEK in depreciation of the non-cash issue when we restructured the group in late December 2019. but also from the acquisitions, meaning depreciation of intangible assets that we have been doing for the fourth quarter.

Okay, so the gross result at 283 million is not affected by any extra costs, that's a clean result?

I'd say that if it's 283, you should probably adjust that with the external cost from acquisitions, the 14.7. Because that is from other external costs. i have the swedish support okay you have you have the number hundreds water and i guess you know your boss sorry sorry yeah it's a gross profit you're talking about that that shouldn't be adjusted the gross profit is correct yeah sorry

So your gross margin has been more or less flat at 22% Q4 2019, Q3 2020, and Q4 2020. And your gross results increased by 28% in the quarter, year over year, and 69% versus Q3. And all those figures are without any adjustments, just to be clear on that part. Yes, you're correct. And then your EBIT was 97 million. It went down then 21 million. So your OPEX increased year over year 90 million and almost 100 million versus Q3 2020. Could you explain how OPEX can increase that much? Because a mix mainly affects the gross result, I guess.

Yes, two answers on that one. The first one, when you're talking about the gross profit, we do see a decrease in gross profit in the main segment in terms of revenue, that is fundable distribution. So when you look at the consolidated group gross profit, then you have a very big mix between fundable gains and fundable distribution with the gross margin. in Thunderfall games is very much higher than what it is in Thunderfall distribution. So Thunderfall games has been growing quite much in terms of EBIT during 2020 compared to 2019. So the gross profit, just looking at the gross profit on a group level, if you do that, then you really have to adjust for the mixed effect between the two segments, games and distribution. But then on the other hand, it's really affected that OPEX is increasing, and that is something that we are aiming to do on a group basis. We were less than 70 game developers in the company group in December 2019, and we are more than 220 game developers in the company group as of December 2020. So the fact that we are employing more and more and more game developers, meaning that uh the overhead costs the fixed cost within especially within some of the games it should be increasing on a year-by-year basis going forward okay but how much did the gross margin decrease in distribution then um we we haven't we haven't presented that that number but in The gross profit do have an effect in 2020 compared to the gross profit in 2019. I can see if I can run a quick calculation for you. If we compare the full year 2020 with the full year 2019, we see a hit from approximately 21% down to 19% in gross profit.

And is that mainly coming from Q4?

That's mainly coming from the fourth quarter, yes, correct. And the drop in the fourth quarter, how much was that?

I was under the impression that the distribution business was a fairly stable business, except for seasonality. But it appears not to be that way.

Yes, I'd still say that it is. But the effect you see on EBITDA level is generated by OMOTOYS, which is affected by a new sort of order structure from the customers based on the second pandemic. But looking just at the fourth quarter,

uh the difference is is 18 versus 21 percent in the fourth quarter of 19 in gross profit in distribution okay and and on the cost side i mean you you increase your revenues year over year and distribution by 240 million or 241 million i don't have the gross result here in front of me but your opex if i just take away a bit The difference between EBIT and your sales increases by 294 million. How on earth is that possible to increase your costs more than your revenues? It can't be explained by mix or logistics or something must have happened in the quarter. In distribution, this is not where you invest in growth really. I assume that in the games part, it's much easier to understand that for games. But for distribution, I don't get it.

Yeah, understood. Yeah, well, it's still... In general, in distribution, If you look at it from a historical perspective, there's one company having much higher EBITDA margins than the other two companies. And there's one company having much lower EBITDA margins than the other companies. And first of all, the company that is taking the big portion of the growth in the fourth quarter, is the company that's having the historically lowest EBITDA percentage. And the company is really decreasing in the fourth quarter. It's a company with a high EBITDA margin from a historical perspective. And that's also, the toy distribution company is also the company with the highest fixed costs, meaning that they are not, in the same way as Berg Solar or Nordic Game Supply, they are not... as flexible as they are in those two companies because they in in bergsland or the game supply a large portion of the companies are other of the cost of the opix is related to the marketing which is basically a percentage of the revenue and but in normal toys it's it's it's more fixed cost with personnel and logistics as a warehousing cost

okay so if if the drop then in in ebit for for q4 due to that lol toys that probably then sold very good before didn't sell at all and at the quarter i i'd say that that's a very good question i'd say that we do not see a specific brand structure it's not that the the

the the share of the different brands being sold in the fourth quarter you know almost has not seen a big change compared to the previous quarters it's more so that the the overall revenue is has been decreasing and then quite a bit in the fourth quarter so how much did the revenues decrease in the high margin business roughly um in distribution The numbers we are reporting is only the Berg-Sola numbers. I'm not really sure I can go into those details. Maybe I can. But it is a big hit. If you compare it with the fourth quarter of 2019, um it it's a it's a really big decrease in in uh in armatois net sales uh in in the fourth quarter of 2020 compared to the fourth quarter of 2019 um in revenues and in all the all the measurements below that that's okay so that if you look at the

12% margin that you had Q419 that was then mainly driven by the super good development in toys. And if I understand this correctly, perhaps you have 20 plus margins in toys and 3-4% margins on EBIT level in the other segments. Is it that type of difference in margin between the segments?

There is a clear EBITDA percentage difference between the three segments, but it's not as much as you were estimating there.

So then something must have happened on the cost as well. Did the logistics hurt you very much due to lower shipments? Or have you hired more people or taken on other types of costs?

Yeah, well, as I said, within Amatois, there is a huge portion of fixed costs. And when we see a big hit in net sales, That will follow through the gross profit, but also it's a large portion of the OPEX is fixed and the ones that are not fixed, meaning, for example, logistics, which is typically the freight cost is a percentage of net sales. But the key problem, as I said before, is that we've actually shipped even more order lines in the fourth quarter of 2020 compared to the fourth quarter of 2019, even though we've seen a big hit in net sales. So that means that the average value of an individual order is much, much lower in 2020 fourth quarter than what it was in the fourth quarter of 2019.

It seems I'm not going to understand it on this call. It's just something must – it's very hard to see growing 25% and growing to $241 million and then the costs grow even more and your results go down on that good top-line development. But perhaps you could clarify at another event than this call. Yes, yeah.

All right. Thank you. Thank you. Our next question comes from Oscar Erickson from Carnegie. Please go ahead.

Thank you. It's actually for me. No more questions. Thank you.

Thank you. There appears to be no further questions registered, so I'll hand back to the speakers for any other remarks.

Well, we'd just like to thank everyone who's listened in today and also for your questions. And hope to speak to you all soon.