Focus on margins has an effect but recession has an impact*

Second quarter April 1 – June 30, 2023, Group

• Net sales for the period amounted to SEK 64,545 thousand (SEK 91,428 thousand), which corresponds to a decrease of 29%.

• Gross profit (Agency income) decreased by 5% to 19,497 (20,536 thousand SEK)

• Gross profit margin amounted to 30,2% (22,4%)

• Operating profit before depreciation EBITDA decreased to SEK 1,112 thousand (SEK 3,179 thousand)

• EBITDA margin for the period decreased to 1,7% (3,3%)

• Profit after net financial items for the period amounted to SEK -1,169 thousand (SEK 1,252 thousand)

• Net earnings per share after tax amounted to SEK -0,07 (SEK 0,09)

• Cash flow from operating activities amounted to SEK 8,957 thousand.

• Equity as of June 30, 2023 amounted to SEK 49,358 thousand (SEK 58,341 thousand)

• Cash and cash equivalents as of June 30, 2023 amounted to SEK 17,286 thousand (SEK 17,558 thousand)

The period January 1 – June 30, 2023, the Group

• Net sales for the period amounted to SEK 138,363 thousand (SEK 163,683 thousand), which corresponds to a decrease of 15%.

• Gross profit (Agency income) increased by 11% to SEK 39,246 thousand (SEK 35,286 thousand).

• Gross profit margin increased to 28,3% (21,5%)

• Operating profit before depreciation EBITDA increased to SEK 5,316 thousand (SEK 3,999 thousand)

• EBITDA margin for the period increased to 3,8% (2,4%)

• Profit after net financial items for the period amounted to SEK 907 thousand (SEK 550 thousand)

• Net earnings per share after tax amounted to SEK 0,06 (SEK 0,04)

• Cash flow from operating activities amounted to SEK 5,448 thousand (9,620 thousand)

Important events April 1 – June 30, 2023

Lena F Stenberg is proposed as a new member of the board of directors after Rune Nordström, who declined re-election.

Nowa Kommunikation wins new procurement for Luleå University of Technology. The assignment is valued at SEK 40 million over four years

Gothenburg City Procurement chooses to sign a framework agreement with Thincbolaget Nowa Kommunikation regarding strategic communication and editorial communication services. Nowa Kommunikation, as one of several suppliers, estimates the value of the agreement for its part at SEK 20 million over the agreement period.

At the annual general meeting of Thinc Collective AB (publ) (“Thinc Collective” or the “Company”) on May 26, 2023, it was decided to merge shares, whereby ten existing shares will be merged into one share (merge 1:10).

The Annual General Meeting resolved to pay a dividend to shareholders of 20 öre per share (after a share split)

Important events after the end of the period

Thinc Collective launches new full-service digital agency; Tundran Digital Explorers AB

CEO has the floor

Focus on margins has an effect, but recession has an impact

After a very strong first quarter, we have seen some weakening in the second quarter. Despite a 30% decline in revenue during the quarter, our agency income (gross profit) is relatively stable, which is fundamentally the most important thing for an agency business. In addition, our gross margins continue to increase significantly. This reflects that we are making the right decisions in pricing to customers and that we are doing the right thing in our procurement work. The fact that EBITDA is lower during the quarter compared to the previous year is due to the fact that we have made a number of key investments in long-term growth and competence building that have temporarily increased our overhead.

Developments in the various operations

It is pleasing that most operations still delivered good profitability during the quarter. These include Nowa Kommunikation (EBITDA +2,380 kSEK), Context Media (+1,283), Safirab (+ 1,693) Nowa Empower (+ 725), Prodekor (+443) and Websearch (+574) all of which have good earnings and profitability. We continue to work on the few loss-making operations that exist. In Jetty, cost savings have reduced the loss on an annual basis by approximately SEK 1 million. DNA Agency, Tigerton and Thinc Digital Labs will gather our digital strengths in one company; Tundran Digital Explorers, which will significantly increase the overall profitability of digital work and strengthen the offering to the market. Finally, work is underway to create profitability in Habermax and Fabuleux.

Overall, I am very pleased with the mix of companies and the development in our group. We have several different service orientations and customer groups that protect us in an economic downturn. When some businesses decline, others actually have the ability to grow.

Why are central costs increasing during the quarter?

Paradoxically, the decline in results is mainly due to Thinc growing. We have coordinated in Gothenburg and created synergies and cost advantages there. With new acquisitions in Stockholm and Kathmandu, the work to create collaboration and work across borders has cost more than previous onboarding processes. We are preparing for a new office in Stockholm where we can gather the companies in the group and thereby create economies of scale while reviewing our overhead costs in the various companies. Tearing down the drainpipes, i.e. creating a growing group that collaborates across borders, costs a lot initially. However, the larger we become, the lower these costs will be in relation to turnover and gross income. Ongoing investments in business area managers, forums for meetings between the companies and a clearer profiling of Thinc as a brand and group are the basis we need to be able to grow further. The close collaboration and investment have already resulted in many new customers and we expect a return on the work in the coming years.

Procurement team

The positive effects we see from joint initiatives give us confidence to implement the next offensive investment for the group, namely to create a group-wide procurement team of four people. The dedication and focus will yield results, not least for those of our operations that are not as offensive in public procurement as other companies.

Focus areas

As you know, we focus on three things as a common thread in our acquisition work and not least in all our development work. As we said earlier, the three perspectives permeate our strategy and all our decisions.

1) Our model that involves connecting entrepreneurs to us Our work to connect entrepreneurs to us has resulted in investments in the spring Safir Communication and FAB Agency. We are in dialogue with several different actors, mainly focusing on Stockholm and hope to return with more news soon.

2) To digitize our work and that of our customers in order to also be able to demonstrate better benefits. Under the leadership of business area advisor Fredrik Strauss, we are increasingly looking at our digital work and the Digital Solutions business area is creating new revenue streams, new products and new teams across our borders - something that will be noticeable especially in the fall of 2023 and 2024.

3) To create a financially sound group and an interesting future for customers, shareholders and employees. The work with the margin is the most visible of the effects, but we are also working to support those agencies that are doing slightly worse in the recession and it is clearly noticeable what an impact it is to be in a group. Everything we do is fundamentally about creating a cash flow that secures our business in the long term and can provide good returns to our shareholders.

Our immediate future

Our vision; to lead communications in the Nordics, drives us forward. Sometimes things go fast and sometimes most of it happens behind the scenes. That we succeed as well as we do in a recession is something we are pleased with. It is actually a very good first half of the year that we have had! In addition to becoming “best in class” in the Nordics in the long term, we are also of course working on the “small”. This includes everything from sharpening our work in acquiring new customers to managing our costs. During the spring, the weakening of the economy has become increasingly clear, which has prompted a number of measures on our part. This includes everything from reviewing staffing to synergies in economies of scale and continued intensified new customer work. We hope that the work will have an effect already this autumn, but Q3 is always a modest period in our industry. So even though we believe in further sharpened profitability, it is Q4 that will determine the autumn in terms of total kronor. Overall, however, we can say that we are well in line with our long-term development plans.

Anders Wallqvist, CEO

Gothenburg in August 2023