Asetek A/S (A31.F) Earnings Call Transcript & Summary

Hello, and welcome to the Asetek A/S Q4 2021 and Annual 2021 Financial Report and Earnings Call. [Operator Instructions] Today, I'm pleased to present Andre Eriksen, CEO; and Peter D. Madsen, CFO. Please begin your meeting.

Thank you, operator, and good morning, everybody. Yes, it's March 4, 2021, and we welcome you to this Q4 '21 earnings call and the -- of course, the annual earnings call also. I'm Peter Madsen, I'm the CFO, and I have with me here in the room Andre Eriksen, the CEO. Good morning.

Good morning.

The way this is going to work is that we will go through the presentation as usual. And then as the operator said, there would be a verbal and oral round of questions if you desire to do so. Otherwise, on the website in front of you, you should have access to the questions and answers. [Operator Instructions] We will see those and we will address those at the end of the call. The Board met yesterday -- last night and they processed the annual report and the quarterly report and the presentation that we're going to give you now. They are all available on the website of Asetek and have been sent out to Oslo Stock Exchange at this point. With that, Andre, we shall start with you with the highlights. So operator, please shift forward to Slide #1, please. One more. Thank you.

Yes. So where the dust settled was '21 revenue of just shy of $80 million, so 10% growth, and an EBITDA of an adjusted $7.2 million. Worth noting though is that our core business actually had a revenue growth of 13% and close to $73 million. Q4 revenues of $18 million compared to the record quarter last year -- or the year before, sorry, of $28 million. Our gross margins for Q4 were 42% compared to 44% the year before. And EBITDA adjusted of $0.7 million compared to $7 million in Q4 2020. And of course, the operating expenses reflect our investment in SimSports, which we did not have the year before. We've had encouraging market reviews for the SimSports. Especially the reviews have been, yes, very positive and that has been encouraging to experience, of course, because we went to market with a very unique value proposition and that has definitely paid off. For '22, yes, I think everybody can understand it's very different times out there right now, certainly not become easier over the last couple of weeks. So where we have it guesstimated is minus 5% to plus 15% and on the bottom line between minus $1 million and $5million. And of course, this is reflecting the global situation as it is right now, and I'll get back to that later.

Change the slide please.

So if we look on the Gaming and Enthusiast market specifically for '21, we had a few bumps up and down. We settled within our later guidance. And if you look at our core business, again, we are, in fact -- or we were, in fact, very close to our long-term goal of 15% as we settled at 13%. So even in a very, very difficult year that -- what turned out to be a very difficult year, our core business was more or less in line with our long-term ambition. And I would say we are still hit a lot daily of various supply chain challenges: shipping challenges, logistic challenges, U.S. tariffs, shortage of GPUs curbing our demand in the sense that if our OEM customers cannot get the components to build their PCs, they are not going to, simple as that. So we are juggling these and nothing has -- I would say, nothing has really changed over the last year. And -- but that also means that things are not falling apart because it is more or less the same. And it's difficult for me to sit here and say when will we see any light ahead of the tunnel. But this is the situation we tried to build in to our, let's say, '22 guidance that this situation will continue for some time. And then we hope that, let's say, by mid -- end of the year it will start to clear up. If it happens sooner, the results will develop; if happened later, the result may be what we predicted or worse. We simply don't know at this point in time. But our outlook is what we communicated earlier: a long-term goal of an average 15% growth per year. And what we do in our end and what we have done and I think I've been clear about during the last year, to us, it has not been an option not to ship to our customers. So we have prioritized getting components and inventory, getting products and inventory. And I think that has paid off because when we have seen spikes in demand and when we will see that in the future, we are ready for. Whereas if we did not have components, then no matter what happens on the demand side, we would not be able to move it. And just a note on the tariff, we are actually working on, we can take more in the Q&A if you so desire, but we are actually working on getting products manufactured outside of China, Malaysia to be more specific. That's progressing. And at least for now, the SimSports activity are not, let's say, doomed by U.S. tariffs simply due to the fact that we do the final assembly, and let's say, not value-add in Denmark that we can claim the products are built in Denmark, and as such, we get rid of the tariff. If some of you should be smart enough to think why don't we do that with liquid cooling, the short answer is perhaps we are shipping millions and millions of these and bringing these to Denmark would never be a good area. So therefore, the SimSports and the liquid cooling is not really the same anymore in this sense. Next slide, please. Just a brief look at the EBITDA margin and it's -- as we have said before, it's obvious that when revenue goes down, it looks worse; and when revenue goes up, it looks better. And I think it's also clear that if we take out HPC, the world also looks better. And for sure, the SimSports investment obviously comes with a cost. Next slide, please. So despite the situation we faced last year, it is actually -- and I think that's more important to remind ourselves that it was record revenue. It's our biggest revenue ever. And as you remember, we had a very strong start to the year actually and the demand was crazy. At some point, we actually saw a growth -- 3-digit growth rate for the year and still we kept our guidance, from my perspective at least, fairly conservative. But then, of course, we were hit by something completely outside of our control. And I believe from my seat, it was impossible to predict. And what we had hoped was some sort of a recovery and stabilization in Q4, and I think that's also what we saw. And that's really, let's say, paving the way for how we look at '22. It's, of course, a broad range from minus 5% to plus 15%. But what it really comes down to is whether, let's say, the situation around us will yield to some extent because, just to give you a very real life example, we have a very large OEM customer. And for those of you who are intimate with our business, an OEM business to us or a partner to us is somebody who's building in our products into their product. And we have a very big one who is giving us very large forecast and have been for a long time now, and they have the demand. They have the end-user demand. But what happens often is that before they actually get to pull our product in their warehouse, they actually see component shortage of some sort from somebody else in the supply chain and then they don't pull our product. So even though there is demand, even though there's inventory, we cannot get rid of our product. So that's why this is so difficult to predict at this point in time. And we have to come out with some assumptions. And as I said earlier, what we have assumed is that we do believe that -- for example, the COVID shutdowns, I believe, the Winter Olympic shutdowns, that's what I prefer to call them, will be over relatively soon. I expect that the component situation will improve somehow. I don't personally believe the shipping situation will clear out anytime soon, especially because the big shipping companies, including the Danish ones, don't necessarily have an interest for that to happen. So that's not baked into our assumption here. And then, of course, the Ukraine and Russian war right now it does not affect us. But what we will see a few weeks, a few months from now, of course, is impossible to speculate. And of course, the income is obviously following the top line. So therefore, we have a big range there as well.

Next, please. Thank you.

So if you look at this slide that I will not go through in detail because I've done it so many times, but it's more or less how we are organized. But one thing I would like to highlight is that if you go to the right side of the slide, we can see in Xiamen where we have our current manufacturing and that -- and you can see our office in Taipei a little further south -- a little further southwest, we actually have the Malaysia operation. And our ambition is Q2, Q3 this year we will be able to ship products from there and thereby avoid the U.S. tariff completely on these products. It has been on underway and it has been because it's not a trivial decision to make because moving things there do come with a penalty, both in terms of shipping times, lead times and costs. And like everyone else, we have, of course, hoped that the U.S. tariffs would disappear, but we have realized that, that's probably not going to happen. So now we have made the firm decision and we are working on it actually. Next slide, please. So just a very brief highlight of how our business is construed. On the left side, you can see an open PC. That's why we're selling into the do-it-yourself market enthusiasts who are building their own PCs. The way we do that is through a number of partners who are selling it under their own brand and most of the times in a co-branded situation. Then we have gaming and performance PCs, which is the example I mentioned before. You have PC builders who are building in our product and then they sell it under their own brand. Let me just rule out a huge misunderstanding that I keep getting again and again and again. I think I have been very clear, but apparently is not clear enough. No, we are not exiting the high-performance PC business. That's what pays the bills, keeps the light on and there are a lot of investors asking questions still why we are leaving the HPC business, which they think is the high-performance PC business. It is not. They are not related. They are not even remotely related. So let's just once and for all make it very clear that we are keeping our core business and we keep selling high-performance PCs. Then we have the SimSports business, which is also under, let's say, the more -- the larger Gaming and Enthusiasts umbrella. And then on the right side, we have the Data center business where, as stated before, we did exit the HPC part of that business, but we are still focusing on the data centers as such. Please move 2 slides forward. So it's very difficult to draw any big conclusions from the number of launches we are doing with customers. And normally, it's a good key indicator, but in these times where the only thing that's secure is change, then it's difficult. But what we're trying to show with this slide is that, as you can see, we are still launching a high number of new products, which, of course, is showing confidence both from our customers and from us that there will be future demand also and we keep investing in product development and the same for our customers. Next slide, please. Just some key statistics here. We are currently shipping to more than 20 customers, and the top 5 represented 83% in '21 versus 81% in 2020. And I think that is also very clear that when we have top 5 running our business, so to speak, of course, it's material if one of them or more of them are not pulling. But on the other side, again, the pattern we see right now is across the board. There's not one customer standing out and saying, hallelujah, this is just the running rate and then everybody else is suffering. It's the same across the board. And of course, the largest OEMs or the largest PC manufacturers, they do have an advantage in that sense, but they do have better access to some of the critical components. But still, they cannot ship what they have the demand for. Our ambition, of course, is to increase, let's say, customer concentration over time. And I think Razer and SAPPHIRE are both good examples of that we launched in Q4. Next slide, please. Just 2 examples of new customers. On the left side, we have Razer with the Hanbo series, which has been off to a good start that much. And same with SAPPHIRE on the right side of the picture where we ship both with the AMD TOXIC graphic card as well as they have launched in December a stand-alone CPU cooler. Next slide. So looking a little bit more strategic on the D&E business. The goal, as always, is to further develop our leadership and thereby grow and the way we're going to do that is, of course, continue to invest in R&D, product development, getting more customers and widening the customer base within the OEMs and PC space. Of course, old-school branding and marketing also to build up demand. And if you look at how we're doing so far and how will things look here -- or how are things looking into the future, I think we focus on what we are best at in that space and that's liquid cooling and that's what we keep doing. But we also focus a lot on keep doing innovations. So it's not just always the liquid cooler, but it's all sorts of innovation around the product to help the customer differentiate, et cetera. And then, of course, our key mantra is the performance, quality and reliability of our products. That's what I personally believe is really setting us at highest from the rest. Yes. Let's take next slide and the next slide. So our new business area that has, of course, also been a different climate to roll out a new strategy and roll out a new business, but it has been good. The team -- I would say, most importantly, the team has really performed. It has been difficult. And when I say this because it's, of course, always difficult to penetrate a new market. It's always difficult to specify new products coming in as a newcomer and actually make a difference. And then there are, let's say, big technical challenges also. As an example, on one of our products that we have not launched yet, we have now a read on the PCB layout 3 times because every time we believe we have a CPU or a chip, we can use them for whatever reason. We run into shortage problems, although we did secure in advance that we would not. So there's a lot of back and forth and back and forth. But if we focus on our pedals, we are rolling out as we had planned and hoped for, and we actually started shipping the other day. So we are shipping now. And Invicta pedals, the high-end Invicta pedals we are shipping, we are already and have been for quite a while developing steering wheels and wheelbases. We entered an exclusive agreement with, I would say, perhaps the most well-known motor supplier within SimSports in China. And they then will manufacture to our specs. We have done the design of -- industrial design. We have done all the electronics, all the software, all the firmware. Then they're doing the internal, let's say, mechanical layout. So that's a very nice deal. And we have plans to launch later this year, and I think I can say from our perspective, we will meet those deadlines. The question is will we run into some, let's say, unseen or unknown component shortages, that we don't know but it's progressing to plan. We are also progressing on the Pagani-licensed products that we also expect to release later this year. And I would say both for me personally and also for Asetek, it has been a big gamble to go into this market. I have the belief, I still do. Now it's no longer a belief, now it's proof that my team has the fundamental skills to pull this off this within mechatronics. So mechanical design software and hardware, I had an idea that we could and now we are doing it. So that's actually nice to see. For those of you -- please change the slide. For those of you who may not have seen the reviews we have gotten of these first products, I would encourage you to go to our website and find the renewed section on the SimSports and then see these reviews. Let's put it like this. If the sales will follow the reviews, this is already a good position. The reviews have been outstanding. That's the shortest and most precise way I can see it. Pretty much every review, I think, has been 10. So far pretty much all of them said these are the best pedals that they have ever tried. They have recognized there's a lot of innovation, that we are doing things differently. We are not just a ripoff or knockoff of the others. So that's something that we're really happy about. In terms of -- please change the slide. In terms of the volume and revenue, I understand you are all very interested in that. Please respect that this is a highly competitive market right now. And for competitive reasons, I don't really have a big desire to talk a lot about it. But what I can say and what I want to say about the revenue and the pipeline is that it's at least meeting our own expectations. And I think that's the most important. If we look at the strategic development for this business, that's, of course, different from the liquid cooling business because on the liquid cooling business, it's about maintaining our leadership. So that's more, let's say, farming; where on the SimSports, it's more hunting. The whole idea here is that we want to come in and want to get a big piece of the pie. That's the ambition. And the way we're going to do that is that we are riding on our expertise on the liquid cooling side of the business. And we are going to develop products that are different to the rest. We're going to innovate. We're going to protect these innovations. And there are -- while we have launched into this market, I would say at least 2 other competitors have come in. But it's also very obvious that what they do is they copy the others and see if they can beat them on price. That's not what we want to do. That's not what we are doing. What we want to do is we want to innovate. We want to come out with new features, new products with our own design and still beat them on price. That's the ambition we have. And I think it's fair to say that it is, even in these circumstances, this is a growing market. We can look at our biggest competitor that's also a listed company, and of course, we can see they are, what you would call, they are struggling as well with the same issue that every business is struggling with right now. But fundamentally, it's a growing business. And yes, on the development and outlook, I pretty much just said our strategy and that is what we are going to stick to. And of course, the plan from our side is to launch as many new products as we can and that will be the plan for the next 2, 3 years, at least. Next slide, please, yes, one more. So as I already talked about on the first slide, the growth on the G&E products was actually 13%. So that obviously means that something else has not grown as expected. And that's, of course, the HPC part of the Data center business. And we are looking at a $5 million loss from that business. And of course, we would rather spend those money on something else, and that is what we are doing. So this is pretty much water under the bridge, I just wanted to show you the ramp. Next slide. So to recap on the data center business, we pulled out of HPC and that's another big misunderstanding. I think that's out there still that, that means that we have given up on the data center space. That's actually not true at all, and we are working on it every day. We have employees working on it every day, both on the technical side to keep improving our technologies and keep what you would call preparing for when it will happen. And it's difficult to report this on a quarterly space because you cannot measure it in an Excel spreadsheet. But we are in dialogue with EU constantly and we do see progress still. If we don't, you will be the first to know. I promise you that. But we still have reason to believe that this is going to happen. And I don't want to speculate in other people's misery, but I think it's fair to say that at least in Denmark, and we all know that it's not a Danish thing, but at least in Denmark, if Russia shuts down the gas supply, we are in big, big trouble. And I think it's worth reminding ourselves that just with the data center, we could have heated the 3 or 4 largest cities in Denmark by free and green power, not being dependent on anyone else. So I hope -- unfortunately it's a sad situation, but I hope that situation will actually make the politicians wake up even more and say, okay, perhaps it's not the best idea to be depending on Russia for the next 2 decades of heat. So there is progress on the data center side, not something I can put in a spreadsheet, but enough that we keep spending time on it. And yes, I think there's no reason to repeat what I just said. So let's skip this slide and then move into the financials.

Perfect. Thank you, and one more slide, please. There you go. I don't have a lot of comments this time. Q4 was a rather usual uneventful quarter, especially comparing to the Q3, which left us all a little bit frustrated, I believe. $18 million of revenue, leading us to $80 million on the top line for the year. As such, that's a 10% increase year-over-year and a record year as Andre also stated out, and it's within guidance. If we compare quarters to quarters, it's a little bit difficult, I would argue, compared Q4 '21 with Q4 '20 because Q4 '20 or a year ago was an extraordinarily good quarter both on the top line but also further down. You can see that the total operating expenses in '20 and Q4 '20 have not started being impacted by our investment in SimSports. So they will, if you compare quarter-over-quarter, it's almost unfair because the earlier quarter in '20 is not impacted by this investment in SimSports. So again, revenue is $80 million. Gross profit in -- for the full year '21 of $33 million versus $34 million a year before, and I'm coming back to gross margins later. Total operating expenses pretty much on par, I would say, for the quarter at $8.1 million and $32.5 million for the full year '21. If we pull out -- and I know I'm at liberty to do this right now, but otherwise I cannot do this in the real world. If I pull out the investment in SimSports and I pull out the one-off costs we had associated to withdrawing from the HPC data center niche, then our overhead expenses increased by 9% in full year '21 over 2020. And out of those 9%, I believe 2% or 3% came from the ForEx, the increase of the price of Danish currency year-over-year. So not a big increase in the total operating expenses, I would argue, year-over-year. Operating income for the year is $779,000, which is within our guidance from October, which was between 0 and $2 million. I believe it was, of course, a much lower number compared to the year before. But again, in guidance, so that's where we are there. Income before tax for the year, $1.4 million, which is also as expected, I would believe. Total comprehensive income for the year, minus $400,000 and income per share of $0.05 for the year as such. Before I leave this slide here, I'd just point to the ASP, the average sales price. That has actually gone up a little bit in Q4, mostly because of product mix changes. We are not really in charge, you could say, of -- which products we are selling specifically in this quarter. And in this quarter, the mix came out in such a way that the ASP sales price is relatively high. Next slide, please, where we focus on the gross margin. Good news here is that the gross margin in Q4 is higher than the sub 40% gross margin that we saw in Q3. You will recall a quarter back and we spoke about frustratingly high shipping expenses specifically due to this quarter. We have worked around that issue actually a little bit better than I had dared hope, which is driving of our gross margins for this quarter had to do with growth the way we are shipping. We were able to do some tricks -- changes, I should say, in the way we are shipping to our customers. And we then actually had did already from late Q3, we've seen that more in Q4. But first and foremost, as we also indicated in -- after Q3, we've been able to pass on a good chunk of the higher shipping costs over to our customers and that drives up our gross margins. The overall picture, if you look from left to right on that bit of graph there is still that the gross margin in '20 were extremely high, and that was driven primarily by ForEx -- foreign exchange rates, which have been unfavorable to us all through '21 and that is what has been driving down the overall gross margin levels to near the 40-point mark than it had just been before. Going forward, we expect the plus 40% mark to be kept. Next slide, please. Quick glance at the growth. The balance sheet remained strong. We had $23 million in the bank at the end of the year. And on the right-hand side, equity of $48 million meaning 64% of the total balance sheet. Strong balance sheet as always, flexibility increased, and yes, it looks as it usually does. One more slide, please. Just a very quick look at the strategies. We continued to build our strategy on the financial side on our 3 business lanes, the Gaming and Enthusiasts, Data Center albeit in a lower position for now and then the newly established SimSports. Strategy looks like this. Hand it over to you on this final slide, change the slide please, and the summary.

Yes. So just to reiterate on what we're calling it. Going forward, we expect and hope there is still to see a 15% of the growth. That was our 5-year plan from that year. I would argue that when the world hopefully recovers, then we can start to look into this in, let's say, more detail and more granularity and see what can we actually pull off with hopefully a very successful SimSports business and hopefully very successful Gaming and Enthusiast business and then further out also a successful Data center business. But for now, we stick to our guns of what we have communicated previously. And our growth expectation is trying to take into account what we see around us. We have seen an encouraging, let's say, start for our SimSports business. We have started shipping and we will, going forward, of course. And then the development of new products is also heavily underway, and we will hopefully see a big rollout of new products already this year.

Perfect. Then 1 more slide, please, and then we will hand over the microphone to the operator who will start out the Q&A session, please.

[Operator Instructions] Our first question comes from the line of Yiwei Zhou from SEB.

I have a couple of questions here. I'll do one at a time. Firstly, looking at the growth guidance, for you to deliver 15% at the high end, could you maybe comment on how much would this be driven by the SimSports? I mean any comment would be appreciated.

No.

That was your answer. Is it fair to assume this is still sort of your expectation that SimSports will make a meaningful contribution in later part of 2022? We have seen you have -- I mean, the launch has been quite well on track. I mean you now have started the shipment of the pedal already. Is it fair to assume this will already start to make some sales contribution from Q2 this year?

Yes. Of course. And I'm not trying to play games here, but I really don't want to tell the competition what we're doing and how we are doing. It would be counterproductive to everybody on this call, trust me. And what I can say is that we have now been taking preorders since November, as you know. And that's not really a completely true statement because the -- yes, theoretically, it was open for preorders, but it was obvious when we launched the reviews that the preorders really started to take speed. And we have a good pipeline of preorders that we are now going to fulfill. We are, by Danish law, not allowed to charge people's credit cards until we actually ship. That also means that none of the orders that we have gotten are actually legally binding until we have actually shipped and charged people's credit cards. On top of end users, we have -- I have not checked today, but my guess is we have already established 10 resellers. And what I can say is that to become a reseller, you cannot just list our products on your website and say now I'm a reseller. You actually have to buy a physical pallet full of products. I think there's 40 or 50 pedal sets on 1 pallet. And what I can also say is that we are measuring the pipeline in thousands already in terms of volume, not in terms of products. And that's what I'm going to say about that. One thing to keep in mind and that we have not understood the full picture of yet is that we did have a special preorder pricing. So we have increased prices that quite substantially and how and if that would reflect in the sales, it's simply too early to tell.

Okay. Great. Very helpful. And then in terms of reporting structure, will you separate SimSports from the G&E business? Or you will put them together in terms of the revenue?

Yes. I think it would make sense for everyone that we separate them because just to say that it is -- it has not been a successful investment if we see a huge decline on the liquid cooling side and then we try to repair that with SimSports. So we obviously believe in transparency. But I also believe that we have to hit a significant revenue, and I think when we hit $10 million in revenue.

I'd say 10% for the...

Yes, yes. That's more or less the same. So I would say that with our growth ambition for this year, we are very close on. So if you say 10% of that, that's close to $10 million in revenue and hopefully that will happen soon.

Great. And here my last question is on the gross margin. The -- you have mentioned you're expecting the gross margin continue to be stay above 40%. Could you maybe elaborate a bit on the gross margin level for 2022? Are we expecting a sort of lower gross margin than 2021? And maybe the drivers here and how much impact would you expect from the FX movements and maybe your expectations?

I think I've actually done a very decent attempt on explaining what challenges we are seeing, and I think that's where I'm going to leave it.

Okay. Fair enough.

There are so many components at play anyway. So it would be...

Yes. But from our perspective, we would appreciate if you can provide a little bit more of granularity and quantify maybe a little bit more. But fair enough.

I understand and appreciate that, and that's a pure Excel exercise. I am not going there. Please respect we are living in a very insecure world where we are now talking a span of 20%. And what you are trying to figure out here is whether the margin is going up 0.2% or 0.3%. I'm not going there, sorry.

And the next question comes from the line of Johannes Ries from Apus Capital.

Also a couple of questions from me, if I may. First, on the losses of the HPC business. How much this losses will come down this year because you reduced costs? You had some extra costs for the adjustments. Therefore, how much on the maybe still depressed sales level you can reduce the losses from this side this year?

Net loss should pretty much be 0 because we have cut down the organization. Yes, we still maintain a handful of employees, but that is in the detailed [ department ] of the numbers.

Okay. Only the question was because there was still a high loss in Q4 and the chart therefore...

Yes. But keep in mind that's where we executed it. We executed, as far as I remember, by the end of Q3 or in Q3 and then with people having severance is where we can just [ the teams go ] from 1 day to the other. So that's also what we communicated back then going into '22, we should pretty much be over that.

And on the sim race business, will you increase R&D? And maybe the efforts to bring up the business and sales and marketing this year, therefore more investments compared to last year?

It's very tempting, I would say. But we actually try to keep it flat. And the way it works is we are still a fairly small company, as you know. And I would say we are right now swinging between 20 and 30 employees, and that depends on almost the daily load we see between, for example, the Data center business. We have some projects going on there and if people cannot utilize their time full time, then they help in the sim department and vice versa. So it's fluctuating a little bit up and down. But for now, we are trying to keep it flat because I would -- it would be insane if I said that we could make a profitable business from the first year because we cannot. But what I would like to do is to build a profitable business and short term also. And I don't believe we are missing out on anything. As I explained earlier, we are, of course, depending on component situations, et cetera. But I do believe that this year we would be able to come out with between 2 and 4 steering wheels or 5 steering wheels. I do believe we can come out between 1 and 3 wheelbases, et cetera. That's a pretty good pace actually. So I think, right now, we stick to what we're doing. I think we have been very successful on the marketing side also. We have, of course, invested in it, but I also think we have got a lot of bang for the buck on the marketing side.

That leads to the follow-on question. I realize that even the stronger absolute and even relative increase was not in R&D., it was in SG&A. Is it also there's a strong increase in marketing cost for the sim race business?

Yes. There was a significant increase in both R&D and marketing. And marketing is a significant of our -- I'm sorry.

Oh, sorry. The sales and marketing that was even absolutely strong increase, 40 percentage-wise. That's driven primarily by the sim race business, yes?

Yes. It's driven by the race business, yes.

Okay. Super. Maybe on the sim race business also, you mentioned about the 10 resellers. What's your target for this year? How will you build further the channels? How important is these direct and these indirect sales going forward?

That's, of course, something that we are learning as we go because I don't think there is any precise formula. And as you may remember that our largest competitor, they don't really have a channel. And then all our minor competitors, as I call them, although they are big on revenue than we are right now, but I take the courtesy of believing that we will outgrow them by the -- they only have a channel almost. So I think that we are trying to take an intelligent approach in the sense that we will not be flooding the market with resellers because we also want our resellers to be successful. And we want our resellers to co-invest in this. And if we just take Germany as an example, if we got 20 resellers there, nobody would care. So on the other side, we don't give exclusivity, but we try to stick to, let's say, a few and large local resellers. And then on top, if people want to, they can always go through our website and buy directly. That's the way we see it right now. So our very small sales team, I would say, on the SimSports business, they are trying to focus on identifying these resellers, what would be great for us, what would be good going forward and in the longer term and trying to build relationships with them. So that's the strategy we are currently pursuing.

And on the pricing, you mentioned you have increased the prices after the, I guess, prelaunch maybe prices you had. Are you still in the ranges you discussed or mentioned the 3 areas of maybe a starting product midsized and high-end product? Is it still around these figures you mentioned? I think since the high end was close to $2,000 or so, the low end for some $100. Is that still the case or have you increased the prices above these levels?

I would say on the pedals -- on the high-end pedals that we have just launched, we are, I would say -- compared to the direct competition, I would say, we are still lower priced. We have increased prices because we believe we can, but also reflecting the world situation right now. Or put in another way, if the component situation and the shipping situation recovers then for sure we will be able to lower prices on the high end from where we are right now. Just as an example, a lot of these components are, of course, built in China and we are flying them home because if we had to wait for ship, we would not be able to sell. Any time soon, there will be Q2 or Q3. So there, we are taking some export costs, as I said, very early, both on the liquid cooling side. And here, we prioritized to be able to ship. And then on follow-on products, so let's say, this is the super high end, then we are coming with a more mid-end set of pedals later this year, that's already communicated. And we are actually, by the way, going to make a prelaunch of those as well. So people will be able to place preorders, I would say, relatively soon, within weeks. And in terms of cost projections, we are spot on where we should be both in terms of cost and sales price.

And to your bread-and-butter business, G&E, despite all those, let's say, headwinds you have faced, you have quite hold up your margin without maybe Q3, quite nicely. Is it -- how much you assume to hold the margin in this year? Or have you given all these uncertainties and risks, made some -- how should I, some cuts in the expected margins compared to the history because of all these uncertainties on the cost side?

What I can say is that what we communicated for many, many years as long as we are above 40%, we are happy. And of course, in good times, we are not happy with the 40%. And in bad times, we are happy with 40%. So that's how we look at it. And I can say that there is huge focus on gross margins, both in the management and in the sales team.

Okay. And EBITDA margin follows clearly the gross margin. So if you hold up the gross margins in the Gaming and Enthusiasts businesses, you'd stay also clearly above 20% in your bread-and-butter business G&E.

Yes.

As there are no further audio questions, I will hand it back to the speakers.

Perfect. Thank you. Then we will direct our attention to the questions that we have arrived via the website. There's one that pertains to our guidance here. Is it fair to assume that you have 0 Data center revenue in your guidance, i.e., that your underlying guidance is this and that. No, it's actually not fair to assume that we have 0 Data center revenue in our guidance.

Yes. I can elaborate a little bit. As I said, when we announced our retirement from the HPC business, we are, of course, not leaving our customers out to dry because then it will be the last time we see them. So there is, in fact, an amount of Data center revenue that we are going to see this year. It's not big enough that we believe it's worth talking about, but it's not 0. And I don't know what it is at this point in time. But we asked, especially with 2 larger customers trying to, let's say, settle on what they need for the rest of -- I would say, for the rest of their program. And then we have promised them that we will ship and build.

Yes. Then there's a question related to energy prices. You're seeing higher energy prices. Have you -- has that increase the interest in the general data center market. It comes back to your own comment earlier today on the...

No. It has not. I think it's worth reminding ourselves that the reason why we are not -- the reason why no one is successful in the general data center market is because that the data center operators, they care more about standardization than they care about energy prices. And therefore, that's the very reason we need the political, let's say, help. We need legislation. And I think the politics -- the political interest is big because of the energy prices and the energy situation. But for data centers, no. Good. And then as a final question here, perhaps you should rephrase this one. You said you're making progress on shipping parts on the manufacturing outside of China. Could you please give a bit more color on the time line when we could expect an impact on the margin? This is pure guesswork what I'm saying now -- well, it's an educated guess. If we are successful in getting it -- remember, during Q2, I think we will be able to see something in Q4. And I think if we are successful only in Q3, then I think we will be able to see the benefit in Q1. And the reason is there's, of course, a delay because there's a thing called inventory and lead times on the sea. But the plan is Q2, Q3. And then you could say, we, as a company, should see the effect immediately, but of course, not until we can book it as revenue.

And the last question, just briefly. To what extent are sales from SimSports included in the guidance? Of course, the SimSports is included in our thinking about the guidance. But at least I believe it's too early and there are too many uncertainties to start talking about how much and the extent and all that.

Yes. The way I read the question goes back to when we actually did our 5-year guidance where we had a business called Data center also, but there was no business called SimSports. So of course, seen in that light, the SimSports should be on top. But what I tried to say is for now we stick to one guidance that says 15% on average. And then as soon as the world normalizes a little bit then I think we have the data points and the intelligence to actually talk more intelligently about what do we expect from the different businesses. Yes. I think what we see right now or what we communicate right now, you should really pay attention to my wording that we are trying to take into account how the world is right now. Yes.

Perfect. And I've been refreshing the screen here for a number of times and no further questions have come up. And so with that, I'm just reminding you that the reports are available online and that actually also includes our sustainability report that we've been working quite diligently with subject throughout the year, and there's a report of for you to read. And with that, we conclude the webcast here and say thank you for your interest in Asetek.

Thank you.

This concludes the conference call. Thank you all for attending. You may now disconnect your lines.