Since I became CEO at the end of September, we have intensified initiatives to address the group’s challenges with weak profitability, too high costs, weak financial structure and negative cash flows. In addition to a continued focus on sales growth in the Studio business and its strategic shift towards larger projects, we are taking actions in order to reduce our operative costs. We are also planning to strengthen our balance sheet through a combined preferential rights issue and directed issue by way of offset of debt. At the same time we continue to look at divestments of a number of businesses in line with previous communication. In connection to the changes we have set new financial targets: 20% sales growth and over 10% EBITDA-margin by 2023. I am convinced that these actions combined allow us to create a robust financial structure and the right conditions for a positive sustainable development of the business.

CEO Stefan Danieli comments:
In order to secure sustainable long-term financing of the business we are planning for a rights issue of approximately SEK 66.5 million and a directed issue through offset of debts of approximately SEK 50.2 million, and an additional offset issue of approximately SEK 4.7 million. Our intention is that 80% of the rights issue should be secured through subscription commitments and external guarantee commitments.

Proceeds from the preferential rights issue will partly be used for expansion of the Studio business and partly for repayment of existing loans, primarily related to Covid-19. We need to strengthen our capital structure and there are a number of circumstances leading up to this decision: postponed project starts in Studios, postponed launch of mobile game Hello Kitty (where this year’s completion of development has negatively impacted our cash flows) and delays of divestments of non-core businesses due to the current market climate. In addition to these initiatives we have successfully renegotiated terms for a number of loans, partly related to our offices, which supports our liquidity in the short term. All in all, these solutions contribute to a sustainable financial situation in the company.

In connection to decisions on rights issues and other restructuring measures, we have decided to revise our financial goals. Based on the conditions we foresee, in which we focus on the Studio business, our conclusion is that the target for the EBITDA-marginal needs to be set at 10 percent. The growth target remains unchanged so the financial goals are average annual sales growth of 20 percent and an EBITDA margin over 10 percent by 2024.

The third quarter is impacted by postponed project starts
Goodbye Kansas Group had a weak quarter with lower sales and a worsening result, despite a strong order book in business area Visual Content & Brand. In addition to the third quarter being a seasonally weaker period, as previously communicated, sales were negatively affected by customers’ decisions to postpone starts for large VFX-projects in the Studio business. The group’s net sales decreased by 31 percent during the quarter compared to the corresponding period last year and amounted to SEK 44.0 million (63.7). Adjusted EBITDA decreased to SEK –25.9 million (–7.5).

Demand for services related to production of VFX and game trailers from Goodbye Kansas Studios remains high and there is a strong orderbook in business area Visual Content & Brand. The postponed project starts do not imply that we have lost business, but the projects have been postponed to the current quarter.

Long-term potential in Studio business despite postponed projects
The studio business in Visual Content & Brand has the strongest orderbook since before the pandemic, better than ever. The business has a strong market position, world-leading technology and proven creative capabilities. This has given us long-term relations with customers such as Netflix, Amazon, Apple+, Warner and Sony Entertainment.

Our strategic priority is to transition to fewer and larger projects in VFX and game trailers, as well as strengthen and expand our service offering to the segments in-game and animation , which are characterized by high growth. Projects that have previously been postponed are now on-going and we will show significant growth during the fourth quarter. Our prognosis for the fourth quarter shows sales growth in line with our financial target and improved result compared to the corresponding period previous year. In addition we have a strong order book which stretches into the first half-year 2023 and a sales pipeline considerably longer than that. This is a vast improvement compared to the same time last year.

Restructuring of business
In order to support a sound and sustainable development going forward we have decided on a number of structural measures as we previously communicated. We have decided to narrow the focus of the business to the Studio business where we, through our strong customer position, skilled employees and strong technical platform, see the best opportunities to create long-term profitable growth. Remaining businesses in business areas IP & Products and Games & Apps are being strategically reviewed. We have recently communicated that we’ve signed an LOI regarding the divestment of Plotagon Production and more divestments could materialize going forward.

As we’ve previously communicated we’ve decided to divest Sayduck and strategically review Vobling. The divestment process for Sayduck has been prolonged due to global developments during the spring and summer. Our efforts to find an attractive solution and the right long-term owner for the company continues, and we are in concrete discussions with potential buyers.

The Board sees limited synergies between Vobling and other parts of the Group and the Board is reviewing strategic options for the company.

Also the third company in the business area IP & Products - Infinite Entertainment – is undergoing a strategic review and may be divested.

Funds from divestments will be reinvested in the Studio business.

Increasing efficiency in the business
In parallel to larger restructuring measures, we’ve initiated a new cost optimization program that has potential to lower annual costs by SEK 15-20 million. Focus for the cost optimization program is increased use of capacity, optimization of office space, reduced use of consultants and general cost savings. We must implement more rigorous cost discipline going forward, we have simply failed to take sufficent action previously. In addition to announced cost savings, we will focus on implementing better tools to secure more efficient use of resources and make it easier to lead, administrate and follow up on projects.

Stabile capital structure supports growth ambitions
A divestment of non-core businesses combined with a preferential rights issues and offset issue gives us the means to reach our financial goals of an average growth of 20 percent and an EBITDA-margin exceeding 10 percent by 2024.
We will keep the market informed about the announced rights issues while we maintain full focus on delivering high-quality services to our customers. Following implementation of decided measures I am convinced that Goodbye Kansas Group has a strong position on a growing and very exciting market, and we have the prerequisites to become a profitable growth company.

Stefan Danieli
CEO
Goodbye Kansas Group
 
Third quarter, July 1 – September 30, 2022

  • Net sales decreased by 31 percent to SEK 44.0 million (63.7) primarily due to delayed project starts for the studio business in Visual Content & Brand.
  • Adjusted operating profit before depreciation (adjusted EBITDA) amounted to SEK –25.9 million (–7.5). The increased loss is primarily due to reduced sales and an active decision to maintain personnel resources despite lower occupancy rates in order to ensure access to these resources for projects in coming quarters. to secure sufficient resources for projects in coming quarters. Adjusted EBITDA excludes non-recurring expenses of SEK 1.2 million.
  • Operating profit before depreciation (EBITDA) amounted to SEK –27.1 million (–22.5).
  • Operating profit (EBIT) amounted to SEK –46.6 million (–43.8) of which amortization of goodwill amounted to SEK –7.3 million (–9.0).
  • Profit before tax amounted to SEK –49.9 million (–52.7).
  • Earning per share before dilution amounted to SEK –0.13 (–0.49) and after dilution amounted to SEK –0.12 (–0.45).
  • Cash and cash equivalents amounted to SEK 8.5 million (44.9) on 30 September 2022.

First nine months 1 January – 30 September 2022

  • Net sales increased by 9 percent to SEK 203.0 million (186.2) primarily due to a higher demand on services from Visual Content & Brand.
  • Adjusted operating profit before depreciation (adjusted EBITDA) amounted to SEK –27.9 million (–28.9). The result is relatively unchanged compared to the corresponding period last year primarily due to lower sales in the third quarter. Adjusted EBITDA excludes non-recurring expenses amounting to SEK –7.1 million (–18.0) relating to restructuring measures.
  • Operating profit before depreciation (EBITDA) amounted to SEK –35.0 million (–46.9).
  • Operating profit (EBIT) amounted to SEK –87.4 million (–94.2) of which amortization of goodwill amounted to SEK –21.7 million (–22.1).
  • Profit before tax amounted to SEK –92.3 million (–104.2).
  • Earning per share before dilution amounted to SEK –0.23 (–0.96) and after dilution amounted to SEK –0.22 (–0.89).
  • Cash at hand amounted to SEK 8.5 million (44.9) on 30 September 2022.


Significant events during the third quarter

  • In order to increase the pace of transition and drive the company’s continued strategic development, the Board of Goodbye Kansas Group appointed the company’s then CFO Stefan Danieli to new CEO. Markus Manninen who is Managing Director of Goodbye Kansas Studios was appointed Deputy CEO of the group.
  • Goodbye Kansas Studios received two orders for production of cinematic game trailers for new global customers. The value of the orders amounts to SEK 20 million and SEK 12 million respectively, and the productions were initiated during Q3 and will be completed during Q4 2022 and Q1 2023 respectively.
  • Goodbye Kansas Group’s subsidiary Plotagon in the business area Games & Apps has now included an export/import tool in their newly launched app Z-Cut (a collaboration with South-Korean Naver Z Corporation which have developed the avatar platform ZEPETO). The tool makes it possible for users to import their ZEPETO avatars into Z-Cut. The app has now been globally launched, and ZEPETO will initiate marketing activities of Z-Cut.
  • The Group’s subsidiaries Infinite Entertainment and Goodbye Kansas Studios ventured into a collaboration with actor Bill Skarsgård’s company Longships Entertainment, to develop not only a new IP but also a whole new way of producing high-end, full CG entertainment content. Bill will both star and co-produce the project.
  • Goodbye Kansas Studios produced a trailer for Funcom’s game Dune Awakening. The game is inspired by the Legendary Pictures’ movie adaptation of Frank Herbert’s classical sci-fi books. The game trailer was directed by the visionary artist and author Simon Stålenhag and he has thereby directed his first game trailer.

 
Significant events after the period

  • The Board has resolved on a number of structural measures in the business in order to create conditions for a healthy and resilient long-term development. The intention is to streamline the business and focus on the studio business, which is assessed to be in the best position to deliver long-term profitable growth.
  • In connection with the streamlining, new financial targets have been set: An average annual sales growth of 20% and an EBITDA margin exceeding 10% by 2024 at the latest.
  • The company has entered into an LOI regarding the divestment of subsidiary Plotagon Production AB, part of business area Games & Apps.
  • The Board has resolved on a preferential rights issue of approximately SEK 66.5 million before transaction costs, as well as a directed issue by offsetting debts of approximately SEK 50.2 million, as well as an additional offset issue of approximately SEK 4.7 million to the sellers of minority shares in two of the company’s wholly owned subsidiaries. The Board has therefore resolved to summon an extraordinary general meeting on 21 December 2022 and proposes that the general meeting decide on the issues. The rights issue is intended to be secured to approximately 80% through subscription obligations and external guarantees commitments.
  • Goodbye Kansas Studios received an order to produce content for a computer game. The order comes from a recurring customer and the value of the order amounts to 10 MSEK. Production commenced in Q3 2022 and will be completed in Q3 2023.

 
For more information, please contact:
Stefan Danieli, CEO, Goodbye Kansas Group
E-mail: stefan.danieli@goodbyekansas.com
Tel: +46 701 981049
 
Goodbye Kansas Group
Goodbye Kansas Group AB (publ) is a leading supplier of technology driven visual content. The company creates award-winning visual experiences for all media and offers products that combine cutting-edge technology with world-class artistry. In order to realize growth opportunities the Group has created three business areas: Visual Content & Brand, IP & Products and Games & Apps. Visual Content & Brand offers visual content for film, TV and games. IP & Products develops IP for film and TV, offers VR-training solutions and a SaaS platform that visualizes e-retailers’ products through AR. Games & Apps develops location based mobile games and offers an app for 3D animation. Goodbye Kansas Group is listed on the Nasdaq First North Growth Market and has studios and offices in Stockholm (HQ), London, Helsinki, Vilnius, Belgrade, Los Angeles, Vancouver and Beijing.
The company has Wildeco Ekonomisk Information AB as Certified Adviser, Kungsgatan 6, 103 87, Stockholm, email: info@wildeco.se, phone: +46 8 545 271 00.

This information is inside information that Goodbye Kansas Group AB (publ) is obliged to make public under the EU Market Abuse Regulation 596/2014. The information was provided by the contact person set out above for publication at 2022-11-18 08:00 CET.

Attachments

Goodbye Kansas Q3 2022

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