Scout Gaming has secured a bridging loan to keep the business afloat and announced plans to cut half its workforce – including employees in Ukraine – and dilute its shares by 90% after identifying a SEK17m black hole in its finances.
In a statement released to Nasdaq Stockholm, the fantasy gaming provider said it had identified previously unknown financial commitments which relates to the financial year 2021. The SEK17m ($1.7m/£1.4m/€1.6m) commitment will impact cash flow for the current quarter and have a negative effect on profit and loss in the quarter of around SEK5.5m.
To secure the company’s working capital, Scout said it has received guarantees from three of the business’ major shareholders and Niklas Braathen, the newly appointed chairman, for bridge financing worth SEK20m. It is the second such bridging loan taken in a month, with cash also sought in late May, and comes just weeks after the departure of chief executive and president, Andreas Ternström.
Scout also plans to carry out a fully secured rights issue of SEK100m during the summer and has published restructuring plans in which it will slash headcount in order to achieve costs-savings of around SEK32m per year.
Scout said the guaranteed bridge financing means that the company has the cash to run the company at least until the rights issue has been completed.
Niklas Jönsson, Scout’s acting chief executive, said: “It has been very strenuous to find another historical deficiency in the company’s accounting and internal control, which is totally unacceptable. We have taken decisive actions during the last months to ensure the quality within the company’s administration. We feel confident that the identified deficiencies are the last in the internal due diligence process which have been conducted.”
Scout said headcount will be reduced from 131 full-time employees to just 63 – with 68 people to lose their jobs. The reductions will be made within all departments and in both operational offices located in Bergen and the Ukrainian city of Lviv, as well as within the employees who are remote employees.
It said a new management group will be formed which besides the chief executive will contain management positions for finance, sales and product. The changes are being made to create a more streamlined and executive organisation, which is adapted to the group’s operational levels during the coming year.
Niklas Braathen, Scout’s chairman, said: “It is a particularly difficult decision, especially with regard to our employees in Lviv related to the situation prevailing in Ukraine. It is with great sadness that this happens but is unfortunately necessary to ensure the company’s continued existence. The company’s staff group has been allowed to grow, seemingly uncontrollably, for several years.”
Scout’s board will use an extra general meeting to make a proposal for a SEK100m rights issue guaranteed by commitments from the shareholders Knutsson Holdings AB, Novobis AB, Scobie Ward and TopLine Capital LLC.
The funds from the share issue will in part be used to repay the bridge financing amounting to SEK40m and in part concerning the restructuring measures. The proposal of the share issue is that it will be performed at the level of 0.50 SEK per share and will include about 200,000,000 new shares, therefore diluting the value of current shares by 90%.
Scout’s share price was down almost 40% this morning at just SEK1.15.
Last month, Scout reported a 10.4% year-on-year drop in revenue for the first quarter of its 2022 financial year, a period in which the fantasy gaming provider began a restructure of its business.
Total revenue for the three months through to 31 March 2022 amounted to SEK12.0m (£975,986/€1.1m/$1.2m), down from SEK13.4m in the corresponding period last year.
Scout initiated a cost review in March 2022 after former CEO Ternström said he was “not at all satisfied” with the supplier’s slow growth and rising expenses in Q4. Expenses more than doubled to SEK51.0m compared to the prior period.
Ternström then left the business last month.