BOARD OF DIRECTORS REPORT

The Board of directors and the CEO of MAG Interactive AB (publ), 556804-3524, hereby present the annual report for the financial year 2018/19 (ending 31 August 2018).

operations

Founded in 2010, MAG Interactive is a global developer of casual social games for smart mobile phones. The portfolio consists of games that have been collectively downloaded over 250 million times. From MAG’s diverse catalogue of games, the most well known titles are Ruzzle, Word Domination, WordBrain and QuizDuel. Revenue is mainly derived from in-app purchases and advertisements.

the group

The MAG Interactive AB (publ) group consists of, in addition to the parent company, FEO Media AB (incorporated in Sweden with registration number 556888-6211 and with its site in Stockholm), MAG Games Ltd (incorporated in United Kingdom and with its site in Brighton) and MAG United AB (incorporated in Sweden with registration number 559182-8230 and with its site in Stockholm). The group has 77 employees as of the end of the financial year, of which FEO Media has seven (7) and MAG Games Ltd has 15. All games in the portfolio except QuizDuel are published by MAG Interactive AB. QuizDuel is published by FEO Media AB.

GROUP performance 2018/19

Operating income

The Group's operating income for the period was 198,670 KSEK (240,213 KSEK), a decrease of 17% compared to the previous year. The Group's Net sales for the period totalled 172,953 KSEK (216,870 KSEK), a decrease of 20%. Own work capitalised totalled 23,667 KSEK (19,954 KSEK). See below for further details of capitalised expenses as well as impairments and depreciation of the same. The group’s Net sales was primarily attributable to the games QuizDuel, Word Domination, WordBrain, Ruzzle, Wordalot, WordBrain2 and Paint Hit.

Operating expenses, EBITDA and operating profit/loss

Operating expenses totalled 193,721 KSEK (280,556 KSEK). Of these 41,854 KSEK (61,744 KSEK) were Sales-related costs, primarily originating from fees to Apple App Store and Google Play, as well as server costs. In addition to this 48,673 KSEK (72,930 KSEK) were costs of Direct marketing and 37,992 KSEK (77,046 KSEK) were Other external operating expenses. Costs for Direct marketing are significantly lower than last year, mainly based on lower volumes for the games Wordbrain, Wordbrain2 and Wordalot. During the year, marketing costs are mainly attributable to the game Word Domination. The year 2017/2018 extra ordinary costs of 49,026 KSEK where included in Other external operating expenses. Specifically 31,405 KSEK relating to final settlement of the acquisition of MAG Games Ltd and that has no effect och cashflows, see Note 32 for the Group.

Personnel expenses totalled 65,203 KSEK (69,377 KSEK) a decrease of 6%. The average number of employees during the financial year was 73 (84) a decrease of 13%. The personnel costs in the comparative year includes a restructuring cost of 3.7 MSEK. EBITDA for the financial year was 4,949 KSEK (-40,343 KSEK). Adjusted EBITDA was 4,949 KSEK (8,683 KSEK), see Note 34 for the Group. Depreciation and impairments of tangible and intangible assets totalled 24,345 KSEK (26,539 KSEK), of which 18,950 KSEK (18,342 KSEK) was depreciation of capitalised development expenses and 0 KSEK (4,496 KSEK) was depreciation of intangible assets.

The Group's operating profit was -19,398 KSEK (-66,883 KSEK) and profit before tax -17,216 KSEK (-65,231 KSEK). Adjusted profit before tax was -17,216 KSEK (-16,205 TSEK), see Note 34 for the Group. Profit after tax totalled -13,750 KSEK (-59,797 KSEK). The profit after tax per share was -0.52 SEK/share (-2.43 SEK/share) and the profit after tax per share fully diluted was -0.51 SEK/share (-2.39 SEK/share). The average number of shares during the financial year was 26,321,393 (24,598,653) and the average number of shares fully diluted was 27,094,958 (25,038,233).

The group’s financial position at the end of the year

Total intangible non-current assets at the end of the financial year totalled 141,309 KSEK (140,287 KSEK), of which 77,482 KSEK (77,415 KSEK) relates to intellectual property and 62,872 KSEK (62,872 KSEK) to other intangible assets. The latter consists primarily of capitalised development expenses on own account and acquired IP. Cash and cash equivalents at the end of the financial year totalled 185,071 KSEK (228,083 KSEK). Equity totalled 330,908 KSEK (344,179 KSEK), corresponding to 12.6 SEK/share (13.1 SEK/ share). The equity/assets ratio at the same time was 90.4% (82.4%). The group has interest bearing debt of 15,556 KSEK (31,112 KSEK).

PARENT COMPANY performance 2018/19

Operating income

The parent company's Net sales for the financial year were 116,547 KSEK (166,666 KSEK), a decrease of 30% compared to the previous year.

Operating expenses and operating profit/loss

Operating expenses totalled 184,850 KSEK (213,181 KSEK). Of these 38,682 KSEK (51,863 KSEK) were Sales-related costs originating primarily from fees to Apple App Store and Google Play, costs of Performance based marketing were 48,393 KSEK (71,617 KSEK) and 36,848 KSEK (35,832 KSEK) was other external operating expenses. Depreciation and impairments of tangible and intangible assets totalled 709 KSEK (5,309 KSEK), of which 0 KSEK (4,496 KSEK) was depreciation of intangible assets. The parent company's operating profit for the financial year was -54,028 KSEK (-45,038 KSEK). Profit after tax totalled to -633 KSEK (-3,186 KSEK).

Financial position at the end of the year

The parent company's intangible non-current assets at the end of the financial year totalled 0 KSEK (0 KSEK). Cash and cash equivalents at the end of the financial year totalled 179,465 KSEK (181,305 KSEK). Equity at the end of the financial year totalled 350,637 KSEK (349,826 KSEK).

Key indicators

Distribution of revenues by business model

The Group’s Net sales are distributed primarily between in app purchases (purchases made inside games via the Apple App Store or Google Play) and in app advertising. The Group's Net sales from In app purchases for the financial year were 63,432 KSEK (129,434 KSEK), a decrease of 51% compared to the same period the previous year. The Group's Net sales from In app advertising were 108,659 KSEK (86,824 KSEK), an increase of 25% compared to the previous year. Revenues from in app purchases decreasing as a result of those games who has a higher proportion of this type of revenue have reduced their share of the portfolio compared to the comparison period.

Contribution from sales activities

Games that are marketed by MAG Interactive have different cost levels in their distribution cost (Sales-related costs) and marketing cost (Performance-based marketing), not least relating to which phase the games are in. The Group therefore reports the total contribution from games activities according to the following model: Net income minus platform-fees (primarily originating from fees to Apple App Store and Google Play) and performance-based marketing. Performance-based marketing includes digital advertising and other advertising associated directly with the company’s products, as well as services and charges directly attributable to performance-based marketing. General marketing of the company and brand is not included in the cost of direct marketing.

The Group's contribution from sales activities for the financial year was 105,260 MSEK (105,648 MSEK), a decrease of 0,4% compared to the previous year. Net Sales are lower compared to the previous year, while marketing costs are also lower. Together these aspects make the contribution from sales activities unchanged.  

Other key indicators

The company monitors its operations according to a number of key performance indicators that reflect how the games industry in general measures its business activities. These indicators are defined as; DAU and MAU are defined as the number of unique daily and monthly users respectively that use one of the company’s products, presented as an average over the period, adjusted for the number of days in the months in the period. Each individual game’s unique users are summed up to present the company’s total unique users. MUP is the number of unique users who made a purchase in one of the company’s products. A purchase is defined as a purchase in accordance with the above definition of In app purchases and to a value greater than zero. The value is reported as an average value over the three months in the period. ARPDAU is calculated as the company’s daily average of Net sales during the period divided by DAU. Riksbanken’s average exchange rate per month is used for translation into USD.

DAU for the financial year was 2.1 million (2.7 million), a decrease of 20% compared with the previous year. MAU for the financial year was 7.8 million (10.9 million), a decrease of 29% compared to the previous year. MUP for the period was 52 thousand (130 thousand), a decrease of 60% compared with the previous year. ARPDAU for the financial year was 2.42 cent (2.7 cent), a decrease of 10%. All older games can be expected to decrease their player base in cases thay are not supported by marketing, it is mainly Word Domination that grew their base during the year. In the comparison year, PaintHit is also included, which affects DAU and especially MAU up, and ARPDAU down.

Corporate governance

For details about MAG Interactive AB (publ) corporate governance please refer to the section Corporate governance in this report.

Notable events during the year 

• On 18 December 2018 the AGM decided to adopt a long-term incentive program in form of a employee stock option program, issue of warrants and transfer of shares and/or warrants to MAG United AB.
  

Notable events after the end of the year 

• On 30 October 2019 the word game Wordzee soft launched in Sweden.
• On 22 November 2019 New Quizduel soft launched in Sweden.
• On 28 November 2019 Wordzee launched globally.

Proposed distribution of earnings

(SEK)

The Board of Directors and the Chief Executive Officer propose that the profits be appropriated as follows:

Dividend

The board of directors propose to the annual general meeting on 14 January 2020 that no dividend will be paid out for the financial year 2018/19.

The groups multi-year review

(KSEK)

Annual general meeting

The annual general meeting for MAG Interactive AB (publ) is planned to be at 7A Odenplan, Norrtullsgatan 6, at 10am on the 14th of January 2020. For more details see the section Annual general meeting in Corporate governance.