Thunderful Group AB

Well, good morning. We'd like to welcome our existing shareholders, potential new shareholders, and the general public to sunny, beautiful Stockholm and this presentation of Thunderful Group's fourth quarter 2021. Go to slide two, please. Here are the guys presenting to you today. I'm Brian Sigurdsson, the CEO of Thunderful Group. And also with me is Anders Mikvist, the CFO of Thunderful Group. Go to slide three, please. And let's start by looking at the key highlights for the quarter. Go to slide four, please. The fourth quarter of 2021 is Thunderful Group's strongest consolidated quarters so far, both in terms of net sales and EBITDA. We'll go into the financials shortly. In this quarter, Thunderfall acquired two exciting gaming companies, Robot Teddy, which is a business development and strategy partner to very successful game developers. They're going to drive a lot of business and investments for us going forward. and Early Morning Studio, who are our first acquisition in the mobile space and games as a service. Their next title, Vendir, is due out this spring. The unit sales of our Q4 game releases came in under expectations. Now, in a year, our distribution segments typically have the best quarter in the fourth quarter. At the same time, our games releases face the stiffest competition from AAA releases in Q4. I believe that future gaming revenues for developers and publishers like ourselves will be less dependent on transactions and unit sales and will revolve around deals with platforms and subscription services like we see for movies, TV series, and music. And I think we're well positioned for that shift. Also in the quarter, we started a new gaming division, Thunderful Investments, that will be headed by the Robot Teddy team. There is a lot of good business to be had from investing in game projects in addition to our internal development and publishing business. And speaking of publishing, we announced several new games in November via Thunderful World, a global and very successful digital broadcast. What we highlight is our lineup. Among the games we showed are SteamWorld Headhunter and Planet of Lana, games that the world is excited about. Finally, we have strengthened the leadership within the game segment, which means that our relations to platforms and subscription services are much stronger than before. Going forward, I believe those kinds of relations will be more important than ever. Go to slide five, please. Looking at high level numbers, our distribution segment has had a good fourth quarter, showing both growth and increased profitability. Now, as you remember, 2021 has been a difficult year, both in terms of global logistics and semiconductor shortages. So a lot of hard work has gone into the positive results. And as mentioned, due to quiet game releases, the game segment showed lower profitability than we saw in the third quarter. And yet, our game segment has grown organically by 13% in the fourth quarter, and we see very healthy year-on-year growth in adjusted EBITDA. Overall, the operating income for the group grew about 8%. Gains grew by 74% and distribution by 3.5%. Adjusted EBITDA is up by 38%. Adjusted EBITDA is up 22%. And our margins have improved. Anders will go through the figures in more detail in the financial portion of this presentation. But in short, it's been a solid quarter for our distribution segment despite tough conditions. Our gains business also performs despite soft unit sales, and we've strengthened the gains segment for the future. That's where we invest, and that's where we intend to grow. Let's go to slide six, please. Yeah, let's have a quick look at Thunderful Group and our strategies. So let's go to slide seven, please. We operate in two segments that we call games and distribution. While the distribution business covers the Nordic and to some extent the Baltic states, the games business is global. That means that we sell our games all over the world. We're now more than 400 coworkers across Europe. We have 17 internal games in development at this moment, and we've got over 30 games from external developers in our pipeline. These numbers keep growing. Across the segments, we manage a portfolio of around 100 brands, and we've kept our famous Nintendo partnership for 40 unbroken years. Yesterday, we announced that we've extended our partnership with Nintendo for another two years. which is business as usual for this agreement let's go to slide eight please and let's talk about business strategy so our business rests on three main strategies for starters we accelerate investments we want to increase our investments in game development publishing both internal game projects and external We want to acquire complimentary businesses and IPs. We also want to acquire gaming companies that continue to operate with a great deal of independence. Second, we make sure to keep our IP rights. There's so much you can do when you own your own content. We also want to use our IPs and brands to reach outside gaming into new mediums, and we're working on that. We make sure our games are available on relevant platforms and that the products that we distribute appear in the right channels. In gaming, we maintain our own IPs. In distribution, we work to increase our share of own brands. And finally, quality is at the core, not only in our products, but also in how we do things. We maintain a can-do culture. We make sure to keep and develop our staff. And we make sure to keep and develop our collaboration and partnerships. Let's go to slide 9, please. Let's have a look at our two segments, games and distribution. So let's go to slide 10, please. Now, our two business segments, they complement each other. We have a games segment that is growing, both in terms of financial results and share of the total. but also in terms of organization. And all earnings from both distribution and games are reinvested in the games segment. In terms of net sales and adjusted EBITDA, the distribution segment is having its best quarter to date. And net sales of the games segment keeps growing, and the EBITDA of the fourth quarter is the second highest ever. For the whole year, games now accounts for almost half of the profits. Let's go to slide 11, please. To touch on distribution, our distribution segment consists of three companies. First, there's Bergsala that held the license to sell all Nintendo products in the Nordic and Baltic for 40 years. It evolved from having been an agreement for Sweden, then for the Nordics, and now the Nordics and the Baltic states. Then there's AmoToys, our toy distributor that holds the MGA license with products such as LOL Surprise, which is one of the most popular toys in the world. And finally, there's Nordic Game Supply that distributes consoles, games, and gaming accessories, where we hold the licenses for brands like Razer, HyperX, SteelSeries, and others. Let's go to slide 12, please. And here, let's have a look, an overview of the game segment. Within games, we do a few things. We develop games mainly based on our own IPs. As mentioned, we're convinced that quality is vital to earning success. And our recent Metacritic scores are best in class among our peers. And we are now around 270 game developers across Europe. But we can only work on so many games at any given time in development. That's why we publish our internally developed games, but we also publish games developed by others. Publishing is more hands-off than development. That means that we can publish more games that we can develop. As part of the publishing process, we often invest in the externally developed games that we publish. And at the end of the quarter, we have committed 155 million SEC in our pipeline of externally developed games. But we want to be involved in even more games. Investing in games is even more hands-off than publishing. And that's why we started the Fundiful Investment Division that I mentioned earlier. Fundiful investment can vastly increase the number of tickets we hold. and we believe there can be strong synergies with development and publishing. That ticks an important box for the games segment, and we're now a 360-degree games company that offers development, publishing, investments, and M&A. Let's go to slide 13, please. We released eight titles in the fourth quarter. The fourth quarter is typically crowded with big releases, and none of the titles had a standout performance at launch. But there are also positives. A game like The Gunk engaged hundreds of thousands of players on Xbox, and we're now releasing the game to Steam and other PC platforms. Wavetail, which we developed in-house as a Stadia exclusive, is coming to additional platforms later this year. Let's go to slide 14, please. And here are the 17 titles that we have in internal development, and we are starting to get a good spread. Early Morning Studio are releasing Vendir this spring, and the internal dev team at HeadUp are wrapping up Tinkertown. Let's go to slide 15, please. And at the event, Thunderful Worlds, we also showcased some of the 30-ish external games in our release pipeline for the next two years. Now these titles are in addition to the 17 games we are developing internally. We couldn't fit all of the coming titles on one slide, so here's the first half. And let's go to slide 16, please. And here's the other half. Among the already announced ones, in 2022 and 2023, we have such anticipated releases like Replaced, Charges, and Planet of Lana. And that's it for the business segment. Let's go to slide 17, please, where CFO Anders will go through the financial section.

Thank you, Brian, and good morning, everyone. Move on to slide 18, please. In the last quarter of 2021, we've seen a growth in net sales with 4% year-over-year, reaching 1,323,000,000 SEK. The game segment has a growth of 57% and the distribution segment has a growth of 1%. For adjusted EBITDA, the growth is 21 million SEK, reaching 118 million SEK this quarter. The game segment contributes with a growth of 13 million SEK and distribution with a growth of 16 million SEK. The cash flow from operating activities has a growth of 184 million SEK, reaching 19 million SEK in Q4 2021. And for the full year 2021, the cash flow from operating activities is minus 65 million SEK, which is better than full year 2020 at minus 89 million SEK. But still, it has been negatively affected by inventory buildup in distribution over the year. Move to slide 19, please. For Thunderbolt Games, we've seen a growth in net sales year-over-year of 57%, reaching 102 million SEC in this quarter. Organic growth in games is 13%, and growth from the companies acquired in the last 12 months is 44%. Breaking down the organic growth, CodeSync is contributing with around 50% of the total organic growth in this quarter of the game segment. For profitability within games, adjusted EBITDA is up 64% year-over-year, reaching 33 million SEK in the fourth quarter, and with an adjusted EBITDA margin at 25%. This EBITDA margin is lower than in previous quarters, and the main driver behind this is the quiet reception for both internal and external game releases in the fourth quarter. So for several game releases within Thunderbolt Publishing, we've seen negative EBITDA contribution from the releases due to the depreciation of one third of the total investment in the first quarter of the release and pretty low sales numbers for some of these releases from Thunderbolt Publishing. Move to slide 20, please. Looking at investments in Thunderbolt Games, we continue to deliver on our long-term business plan, which is to accelerate investments in the game segment. In 2021, we've invested 295 million SEX, of which 190 million SEX was invested in the fourth quarter. And we see an acceleration not only in acquisitions, but also in publishing licenses and development topics. For acquisitions, we closed two larger acquisitions in the fourth quarter, Robot SETI and Early Morning Studio. And to continue the acceleration in 2022, we have today announced that we have signed a new secured revolving credit facility with Danske Bank of 55 million euros. Move to slide 21, please. For the segment distribution, we see an overall growth year-over-year of 1%, breaking it down among the subsidiaries. We can see that Bergsal is decreasing with minus 14%. This is driven by lower availability of hardware versus the comparison quarter. In Nordic Game Supply, the growth this quarter is 20%. This is driven by the newest distribution contract raiser, but it's also driven by higher sales from private labels. Allmotor is at the growth of 37%. And as you might remember from the last conference call, we had many delayed inbound shipments in Q3, meaning that we have received more products in Q4, which basically moved net sales from Q3 to Q4. And for profitability, measured in EBITDA in distribution, the segment has an overall growth of 25%. Bergsola had a good sell-through of Nintendo games, even though the limited availability of hardware was limiting the net sales growth, and we couldn't fulfill all customers' demand for Nintendo Switch consoles. In Nordic Games Supply, the higher sales of private labels and cost deficiencies in the new Thunderbolt Distribution Central raised the EBITDA margin. For all motorists, EBITDA was negatively affected by increased logistics costs, both to the 3PL warehouse for working overtime, since many containers scheduled for Q3 arrived in Q4, but also for higher express distribution freight costs to meet customers' slot times and campaigns when inbound goods were delayed to our warehouse. Move to slide 22, please. Wonderful group saw 43% organic growth in the fourth quarter of 2021. Out of the total organic growth of 21.2 million seconds, 8.6 million seconds from games and 12.6 12.6 million SEK is from distribution. In addition to this, we had 28.4 million SEK growth from the companies acquired in the last 12 months. Move to slide 23, and we can see the development of adjusted EBITDA. Where Thunderfall Group has 65.1% organic growth in Q4 2021, organic games companies contribute with 5.3 million SEK, organic distribution companies with 15.6 million SEK, and companies acquired within the last 12 months with 7.4 million SEK. So the three most recent acquisitions, that was StageCare back in Q3 and Robot City and Early Morning Studio, now in the fourth quarter, all together contributed with 10 million SEK in EBITDA. So some of the other acquisitions in 2021 had negative EBITDA contribution in this fourth quarter. Slide 24, please. so for the operating cash flow there are two bigger acquisitions made in the fourth quarter and the difference between the two graphs to the left is 132 million sec in cash for acquisitions the operating cash flow in the fourth quarter adjusted for acquisitions is minus 263 million sec apart from topics for acquisitions we've also invested another 62 million sec as presented earlier And the remaining part stems from the development of networking capital, which is around 340 million SEK higher by the end of 2021 compared to the end of 2020. As we mentioned in previous quarters in 2021, there has been a significant inventory build-up in 2021, primarily related to all these supply chain challenges. But in this quarter specifically, we also had higher than usual sales around Black Week and throughout December, which has basically resulted in a record high amount of accounts receivables by the end of this year. So net theft by the end of this quarter is 210 million SEK, resulting in a net theft over LTM ABCA ratio of 0.6. And that was the last slide of the financial section. Move to slide 25, please.

Thank you, Anders. And so let's just have a look at events after the end of the quarter. So let's go to slide 26, please. So after the quarter, we have done a number of things. For one, as I mentioned, we have extended the distribution agreement with Nintendo. And just as always, it's Berg Sala that extends with Move End of Europe. The new contract will run from April this year until the end of March 2024. And it's basically the same as the contract that runs it out next month. So it's, you could just call it a regular extension. Let's go to slide 27, please.