Financial · January 1, 2024

Nintendo Q1 FY2024 Financial Results (English)

Published by Nintendo

Summary

Thunderful Group’s interim report for the first quarter of 2024 details a period of significant financial decline and aggressive corporate restructuring. Net revenue fell 27.7 percent to 391.7 MSEK, while the group recorded an operating loss (EBIT) of 184.4 MSEK, a sharp reversal from the 19.2 MSEK profit reported in the same period the previous year. This downturn was driven by a 35.5 percent revenue drop in the Games segment and a 25.7 percent decrease in Distribution, largely due to weaker market demand for Nintendo Switch products and the underperformance of the internal title SteamWorld Build. To address these challenges, the group initiated a restructuring program aimed at annual cost savings of 90–110 MSEK. This process involved a 72.4 MSEK write-down of capitalized development costs following the cancellation or divestment of twelve game projects. Strategic shifts include the divestment of the German publishing subsidiary Headup GmbH and the sale of Nordic Game Supply’s assets to reduce net debt. Despite these pressures, the group successfully extended its Nintendo distribution agreement for the Nordics and Baltics through March 2026 and reported 13.9 percent growth in its Amo Toys division. The report covers the group’s global operations with a focus on European and Nordic markets for the period of January to March 2024. Financial data indicates a strained liquidity position, with cash and credit facilities dropping to 130.9 MSEK from 329.3 MSEK year-over-year. Management secured a bank waiver conditional on asset divestments and maintains that current funds are sufficient for continued operations. The overarching strategy moving forward emphasizes a simplified games portfolio, more rigorous project validation, and a balanced risk profile across internal and external development.

From the report

# A quarter marked by restructuring and strategic overview First quarter January–March 2024 - Net revenue decreased 149.9 MSEK to 391.7 MSEK (541.61)). - Operating profit (EBIT) decreased 203.6 MSEK to –184.4 MSEK (19.2), corresponding to an operating margin of –47.1 percent (3.5). Write-down of capitalised development cost amounted to 72.4 MSEK. - Adjusted EBITDA decreased 101.5 MSEK to –28.9 MSEK (72.6), corresponding to an adjusted EBITDA margin of –7.4 percent (13.4). - Adjusted EBITA decreased 193.6 MSEK to –141.1 MSEK (52.5), corresponding to an adjusted EBITA margin of –36.0 percent (9.7). - Profit & loss for the quarter amounted to –236.2 MSEK (13.5). - Earnings per share after dilution amounted to $^ { - 3 . 3 6 }$ SEK (0.19). - Cash flow from operating activities amounted to –155.6 MSEK (64.4). - Consolidated cash and cash equivalents together with unutilised credit facilities amounted to 130.9 MSEK (329.3) as of 31 March 2024. - Thunderful Group announced that the company will be implementing a restructuring programme to boost its longterm competitiveness. The programme aims to reduce costs and increase the focus on areas with the best potential for future growth and profitability, and is expected to save SEK 90–110 million per year. - Thunderful Group entered into an agreement regarding the transfer of all shares in its German publishing subsidiary, Headup GmbH. - The distribution agreement regarding Nintendo products in the Nordics and The Baltics were extended by another two years, until March 2026.

–110 million per year. - Thunderful Group entered into an agreement regarding the transfer of all shares in its German publishing subsidiary, Headup GmbH. - The distribution agreement regarding Nintendo products in the Nordics and The Baltics were extended by another two years, until March 2026. # Events after the end of the quarter - Per Alnefelt assumed his role as interim CFO for Thunderful Group effective 8 April 2024, succeeded Henrik Lundkvist. - Thunderful Group entered into an agreement to divest the operations and assets of Nordic Game Supply for a puchase price corresponding to the book value of the inventory with an agreed discount. The buyer is a company owned by Henrik Mathiasen, CEO of Bergsala AB and acting CEO of Nordic Game Supply. Table: Key performance indicators | GROUP | 2024 Q1 | 2023 Q1 | Δ% | | --- | --- | --- | --- | | Net revenue, MSEK | 391.7 | 541.6 | -27.7% | | Gross profit, MSEK | 146.8 | 206.0 | -28.7% | | Gross margin, % | 37.5% | 38.0% | | | EBITDA, MSEK | -46.7 | 67.1 | -169.6% | | Adjusted EBITDA, MSEK | -28.9 | 72.6 | -139.8% | | Adjusted EBITDA margin, % | -7.4% | 13.4% | | | EBITA, MSEK | -158.9 | 47.0 | -438.4% | | Adjusted EBITA, MSEK | -141.1 | 52.5 | -368.9% | | Adjusted EBITA margin, % | -36.0% | 9.7% | | | Operating result (EBIT), MSEK | -184.4 | 19.2 | -1061.4% | | Operating margin (EBIT margin), % | -47.1% | 3.5% | | | Profit & loss for the period, MSEK | -236.2 | 13.5 | -1854.2% | | Net core working capital, MSEK | 655.7 | 643.5 | 1.9% | | Cash flow from operating activities, MSEK | -155.6 | 64.4 | -341.6% | | Interest-bearing net debt, MSEK | 647.1 | 430.8 | 50.2% | | Interest-bearing net debt/adjusted EBITDA, R12M | 4.6 | 1.1 | 318.2% | | Earnings per share before dilution, SEK | -3.36 | 0.19 | -1868.4% | | Earnings per share after dilution, SEK | -3.36 | 0.19 | -1868.4% |

# CEO Comments Net revenue for the Group decreased by 28 percent to 392 MSEK (542) in the first quarter of 2024. In the Distribution segment we noted a decline in sales, with Nordic Game Supply continuing to struggle, while Bergsala’s sales fell by 33 percent. Amo Toys, with a stable sales increase of 14 percent, partly offset the overall decrease. In the Games segment, we noted a decrease in net revenue due to lower revenue in Partners and Co-Development, although transactional sales of games directly to end consumers have increased. Implementation of our restructuring program is progressing according to plan which, combined with a clearer strategy within the Games segment, will strengthen our position to reach growth and profitability going forward. # DISTRIBUTION: Weak sales development, but Amo Toys continues to grow In the first quarter of 2024, net revenue in the Distribution segment decreased by 26 percent to 323 MSEK (435). Adjusted EBITDA for the Distribution segment amounted to –2 MSEK (19). Bergsala’s net revenue decreased by 33 percent to 129 MSEK (191). This was mainly due to weaker console market demand (where Nintendo’s Switch still retains its market share) and fewer major game releases during the quarter. It is, however, impressive how well the Switch keeps selling despite being in its eighth year on the market, and we look forward to the successor to the Switch which Nintendo will announce in their current fiscal year. Amo Toys net revenue increased by 14 percent to 129 MSEK (114), attributed to continued strong demand in the soft toys category, although growth in other categories has also contributed to increase Amo Toys’ market share. Nordic Game Supply’s net revenue decreased 50 percent to 64 MSEK (130). This decline was mainly due to continued discounting to reduce inventory levels and generate cash flow. After the end of the first quarter, Thunderful signed an agreement to divest the business and assets of Nordic Game Supply for a purchase price equating to the book value of its inventory, less an agreed discount. The transaction proceeds will reduce the Group’s net debt and have a positive impact on the company’s operating cash flows immediately after the transaction has concluded. The transaction is subject to shareholders’ approval at the extraordinary general meeting on May 22.

less an agreed discount. The transaction proceeds will reduce the Group’s net debt and have a positive impact on the company’s operating cash flows immediately after the transaction has concluded. The transaction is subject to shareholders’ approval at the extraordinary general meeting on May 22. # GAMES: Transaction sales increase, and restructuring program proceeding to plan In the Games segment, net revenue decreased by 36 percent to 69 MSEK (107) during the period. This was mainly due to a decline attributable to Co-development where one-off revenues from several projects in Coatsink combined to deliver an unusually strong Q1 2023, and a larger one-off income in the comparison quarter attributable to a project in Partners (Robot Teddy). Our transactional sales, where we sell our games directly to consumers via online stores, continue to show promising growth year on year. Adjusted EBITDA amounted to –20 MSEK (58) for the first quarter. With the ongoing restructuring program, our capitalised development expenditure decreased in Q1, while the reduction in staff costs has not yet taken effect. The quarter has been charged with one-off costs linked to the restructuring program of 15 MSEK for the segment. In connection with the restructure, we have also decided to discontinue certain game projects, which has led to write-downs of capitalized development costs of 72 MSEK. The majority of the previously communicated restructuring costs have been incurred during the quarter, but minor additional costs may also affect next quarter. An important event during the quarter was the decision to divest indie publisher Headup. Thunderful does not need two dedicated publishing businesses, so we can now focus on publishing fewer and more impactful games within Thunderful Publishing. The transaction is subject to shareholders’ approval at the extraordinary general meeting on May 22.

# 66 # A clearer strategy within Games will strengthen our position to achieve increased growth and profitability going forward. SteamWorld Build, released in December, did not meet our sales expectations at launch and has unfortunately not recovered in the first quarter. It was a venture into a new genre in the franchise, and while we are not seeing the results we had hoped for, it’s important in the games industry to, within a balanced scope, dare to invest in innovative ideas. On that note, I would like to mention some exciting game releases in 2024. We are thrilled about the launch of SteamWorld Heist II on PC and console on August 8. It is the long-awaited sequel to the proven and very popular SteamWorld Heist from 2015. And on June 20, a new Viking-themed survival game, Aska, will be launched as Early Access on the Steam gaming platform. # Comments on our future Games strategy As previously announced, we are working on developing a welldefined strategy for the Games segment. Historically, Thunderful has had a very diverse product portfolio with a variety of games on all platforms with many different business models. We’re working to simplify the strategy and set a clearer direction. We are also underway to create a more efficient organisation through improved processes and management structures. This will be achieved, among other things, by more clearly establishing and supporting core teams of experienced game developers through publishing and studio frameworks that provide clarity and team ownership within a commercially accountable structure. Continuous player testing methods will also be established to obtain early and ongoing validation from our target audiences. We aim to establish an organisation with the right mix of creative and commercial mindset. This means that we need to have a balanced risk profile between internal, external and co-development projects, and ensure that all investment decisions are in line with our strategy. We are also introducing clearer processes for decisions on new project investments as well as continuously evaluating ongoing projects and ensure that they are developing in the right direction. The Group’s cash and cash equivalents totalled SEK 71 million at the end of the quarter. Measures to limit cash outflows have been implemented, including the deferral of some additional earnout considerations due in Q1 to later in 2024. Our restructuring program aims to strengthen our long-term competitive position, but also to improve our cash flow going forward. The divestments of Headup and Nordic Game Supply will improve cash flow for the group, and we evaluate our capital requirements on an ongoing basis. In conjunction with the quarterly report, the company has received a waiver from the bank, which is conditional upon divestment of certain assets and providing required collaterals. Considering this, we deem that current and available funds will be sufficient for our continued operations. To conclude, in 2024, we’re setting a stable foundation for Thunderful to be able to return to growth and profitability for the benefit of our shareholders, employees and other stakeholders.

onsidering this, we deem that current and available funds will be sufficient for our continued operations. To conclude, in 2024, we’re setting a stable foundation for Thunderful to be able to return to growth and profitability for the benefit of our shareholders, employees and other stakeholders. Gothenburg, May 2024 Martin Walfisz, CEO of Thunderful Group

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Type: Financial

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