Digitalbox plc
Annual Report 2019

Plain-text annual report

DIGITALBOX PLC ANNUAL REPORT AND ACCOUNTS 2019 02 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC CONTENTS 4 6 Chairman’s Statement Chief Executive’s Report 12 Strategic Report 17 Corporate and Social Responsibility Statement 18 Highlights and Timeline 20 Corporate Governance 27 Audit Committee Report 28 Remuneration Committee Report 29 Directors’ Report 31 Directors’ Responsibility Statement 32 Independent Auditor’s Report 36 Consolidated Statement of Comprehensive Income 37 Consolidated Statement of Changes in Equity 38 Consolidated Statement of Financial Position 39 Consolidated Statement of Cash Flows 41 Notes forming part of the Consolidated Financial Statements 65 Company Statement of Financial Position 66 Company Statement of Changes in Equity 67 Company Statement of Cash Flows 68 Notes forming part of Company Financial Statements 70 Corporate Information & Advisers ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 03 DIGITALBOX PLC CHAIRMAN’S STATEMENT Chairman’s Statement FOR THE YEAR ENDED 31 DECEMBER 2019 Digitalbox has had an impressive year. Focused delivery of a clear strategy has created a strong platform for future growth. It is gratifying to be able to report on Digitalbox as a pure-play digital media company which is profitable (after adjusting for one off costs of listing on AIM and transaction costs), growing, debt- free and with a clear strategy. The past year has demonstrated the ability of our management and its team to deliver what was promised in a volatile and unpredictable market.  The continued growth of Entertainment Daily and the successful bedding in of the Daily Mash demonstrates the Group’s ability to buy and build and having established a solid base we are keen to accelerate the process. Of course, the Coronavirus pandemic cannot be ignored. It is already having a marked effect on how people live their lives and on consumer spending. While we see it having minimum impact on audience numbers, indeed we may see increased traffic, advertising has experienced a downturn. Nevertheless, we are well placed to withstand any downturn with flexible staff location and a strong balance sheet. Extraordinary growth comes from preparedness meeting opportunity. There are, of course, constraints; one being the identification and execution of acquisition opportunities. Finding the right opportunity (ideally, underperforming assets where our expertise can add value) at the right price is not easy but we believe they are there. Digitalbox is a mobile-first business and it is mobile where advertising revenues continue to grow faster than on any other media. As advertisers seek to reach consumers via their device of choice, our highly engaging content created by efficient, expert teams, optimised for mobile and delivered via cutting edge technology enables us to attract valuable audiences at scale. We remain confident of performing ahead of our peers in the year ahead. Our nimbleness has served us well in markets which, although unpredictable, are growing and continue to provide opportunity. We are certainly going to continue investing in our current channels – there is more to come – and we are combing the market place for further acquisition targets. Sir Robin Miller Non Executive Chairman 1 April 2020 04 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC CORPORATE HIGHLIGHTS Corporate Highlights REVENUE ADJUSTED EBITDA £2.2m £0.5m ADJUSTED EBITDA MARGIN ADJUSTED EBITDA PER SHARE 23.4% 0.7p Notes Adjusted EBITDA is Operating Profit before the deduction of depreciation, amortisation, share based payments, acquisition and listing costs, profit on disposal of available for sale assets and impairments. Figures reflect 10 months of trading as Digitalbox plc. See ‘Financial review’ in the Chief Executive Report on p. 7 for more detail and the Financial Statements beginning on p.35 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 05 DIGITALBOX PLC CHIEF EXECUTIVE’S REPORT 06 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC CHIEF EXECUTIVE’S REPORT Chief Executive’s Report FOR THE YEAR ENDED 31 DECEMBER 2019 Our mobile-first execution positions us well to benefit from the advertising growth forecast in the coming years. The Board is pleased to report the Group’s first set of annual results following its transformation from a cash shell into a digital media group following its acquisitions of Digitalbox Publishing Holdings Limited (“DBPH”) and Mashed Productions Limited (together the “Acquisitions”). To reflect the Group’s new direction the Group’s name was changed from Polemos plc to Digitalbox plc on 27 February 2019. The Group’s two current trading brands are Entertainment Daily (acquired as part of the DBPH acquisition) and the Daily Mash (acquired as part of the Mashed Productions Limited acquisition). Entertainment Daily produces and publishes online UK entertainment news covering TV, showbiz and celebrity news. The Daily Mash produces and publishes online satirical news articles in its own distinctive style. Both brands generate revenue from the sale of advertising in and around the content they publish. and ten months of trading as Digitalbox plc. The Board is pleased to be able to report that performance of the Group, since completion of the Acquisitions, in terms of traffic, revenue generation and EBITDA have all been in line or ahead of original expectations. Financial review For the ten months since the Acquisitions reported on the year, the Group traded well. Revenue was in line and EBITDA ahead of management expectations as direct costs were lower than anticipated. All of the reported revenue and gross profit in the year was generated in the ten months since completion of the Acquisitions. Revenue for this ten month period was £2.2m. Gross profit was £1.8m. The adjusted EBITDA for the year was £525k and our adjusted EBITDA margin was 23.4%. At the end of the year the Company had £477k of cash and no debt. Adjusted EBITDA per share for the year was 0.7p. The year being reported on reflects approximately two months of trading as Polemos plc, the cash shell, Digitalbox remains a low capital intensity business with capital expenditure representing 2.5% of adjusted EBITDA. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 07 DIGITALBOX PLC CHIEF EXECUTIVE’S REPORT The two media assets of the business, Entertainment Daily and the Daily Mash, operate through a Group subsidiary, Digitalbox Publishing Limited (DPL). The performance of DPL has been encouraging; it saw strong year-on-year revenue growth with revenues of the year of £2.5m, up 19% on 2018. Profitability increased with operating profit up 96% to £0.4m, which was driven by a mixture of strong organic audience growth on Entertainment Daily and an advertising market increasingly seeking out higher quality inventory, together with the acquisition of the Daily Mash in March 2019. Operating review Content is at the core of the Digitalbox offering. Every article is crafted to maximise its impact for its specific user journey and as a mobile-first publisher we believe we are firmly ahead of our competitors in execution. Organic sessions have grown 36% year-on-year on Entertainment Daily and the number of users has increased by 10% as frequency of engagement has grown. Our organic growth reflects the fact that, unlike many media companies, we are not distracted by the need to manage declining print assets and instead are able to look forwards towards both existing and future consumer habits. We know that mobile is the device of choice and we know how to engage audiences and monetise them better than much of the market through this channel. Proprietary technology continues to evolve within Digitalbox and our super-fast Graphene front end now powers both Entertainment Daily and the Daily Mash, ensuring the fastest experience for users and advertisers alike. Our interest in making acquisitions remains strong with the Daily Mash having proved a great success. As the market continues to offer significant opportunities we will maintain our focus on seeking out businesses with the potential to flourish on mobile – we firmly believe this is where significant shareholder value can be delivered as the advertising market rebalances towards the mobile audience segment. The expansion of our team and infrastructure to deliver the reverse takeover of Polemos in February has provided us with headroom to deliver significant further growth while operational efficiencies remain strong. A mobile-first platform for media consumption at scale Our strategy to establish a mobile-first platform business with diversified brands that engage consumers at scale is reinforced by the performance 08 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com Global mobile ad spending ($bn) 217 190 163 138 DIGITALBOX PLC CHIEF EXECUTIVE’S REPORT 250 200 150 100 50 0 2021 2020 2019 2018 Source / Note: WARC Global Ad Trends Report 2019 / Dentsu Aegis Network Global Ad Spend Forecasts January 2020. 2020 & 2021 forecast figures pre-date and do not reflect Coronavirus impact. of Entertainment Daily and the Daily Mash during this financial year. We continue to strengthen our revenues with mobile ad spending worldwide growing well ahead of the wider digital market and programmatic spend also increasing. We have seen particularly strong growth in mobile video formats which are forecast to continue to out- pace the market whilst new ‘premium’ mobile formats gather pace and header bidding on mobile becomes the norm. Our ongoing focus on mobile optimisation and the continued development of our mobile-first Graphene front end gives us the ability to benefit from these market trends and grow efficiently at scale. Expanding the portfolio In March 2019, Digitalbox acquired the leading online satirical website, the Daily Mash. Following its acquisition, the intention was to integrate the Daily Mash onto the same technology platform as Entertainment Daily. This integration has gone well and shifting the brand to Digitalbox’s 100% programmatic ad stack has improved the margin on its revenue generation. As well as growing the Group’s revenues, the acquisition has enabled Digitalbox to explore other channels, in particular television. The Daily Mash’s associated show, The Mash Report, which airs on BBC2 and provides a revenue stream through royalty payments, received two BAFTA nominations and has spun off a strong archive of short form pieces of video content that is benefitting our social media presence. The TV show audience rose to 800,000 weekly viewers in 2019 and it returns for a new series in April 2020. Growth of existing assets During the period Entertainment Daily saw continued growth of its user-base, averaging 3.4m unique users per month and approximately 500k daily sessions. Pleasingly there has been an increase in the diversification of traffic to the site as a result of a 50% increase in Google-sourced traffic via the Discover feed; Google’s system that presents relevant content to users based on their behaviour prior to them performing a search on a mobile device. Our audience insights and content analysis have led to the expansion of our content offering; the introduction of a food channel on Entertainment Daily in 2019 alongside the core entertainment news content is a demonstration of how we can serve our audience in more depth. We will continue to explore new content opportunities over the next year as we look to broaden our dialogue with 25-55 year old UK women. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 09 DIGITALBOX PLC CHIEF EXECUTIVE’S REPORT Business culture and people The digital media landscape is one of constant change and opportunity which is why we encourage flexibility in our business and our people. We work in the ways that deliver the best results most efficiently. Rather than harbouring traditional views of office culture or adopting a one-size-fits-all approach, we mix office-based roles and home working arrangements, full-time and part-time positions, staff and freelance contributor agreements to marry the needs of the business with those of our people. As a result of operating a fluid culture we are able to quickly adapt our systems and processes to the challenges faced by the hour – after all, the servers, algorithms, platforms and audience are engaged around the clock. This all filters back to the technology used to make the most of our team’s impact. Our approach allows us to reach over eight million people every month with a staff of 15 and a network of freelancers. Recruiting and retaining the best people whatever the role is crucial to our success and Digitalbox focuses on ensuring our employees are rewarded fairly, have opportunities to progress and share in the success of the business, with the company operating a share option scheme for senior staff. Further, we are committed to developing young talent with a successful apprentice scheme now in its third year. I would like to thank all staff for their continued hard work during the year and their valuable contribution to these results. The Group’s strategy remains unchanged, which is to build a market-leading, mobile-first digital media business for the 21st century through a buy and build strategy. The successful integration of the Daily Mash proves the potential of our model and gives us confidence in our ability to build a portfolio of successful, profitable digital brands. We therefore remain focused on delivering our acquisition strategy and firmly believe the market is rich with opportunity as many publishers are struggling to keep pace with the shift in consumer and advertiser behaviour towards mobile. 2020 has started well with trading in line with the Board’s expectations for the first quarter. With the COVID-19 pandemic now affecting us all, it is clear we face many more challenges than we anticipated at the turn of the year. The extent to which COVID-19 will impact us is not yet clear. On the one hand the changes in peoples’ lifestyles may provide more opportunity for audience engagement, but on the other we recognise that the advertising market is going to be come much tougher. We believe Digitalbox is well positioned to navigate its COVID-19 journey and with the seismic change it brings may also come opportunity that with £1m of cash in the bank at time of reporting we may be well placed to exploit. Our business is naturally secod-half weighted and this may become more pronounced given the likely impact of COVID-19 on H1. Nevertheless we remain confident that the Group can perform well in the year ahead. Outlook Digitalbox has established a profitable UK platform business positioned directly in the mobile space. James Carter Chief Executive Officer 1 April 2020 010 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC CHIEF EXECUTIVE’S REPORT Operational KPIs ONLINE USERS ONLINE SESSIONS 38million (2018: 24.5M) 225million (2018: 158M) USERS WHO VISIT DIGITALBOX’S WEBSITES NUMBER OF VISITS TO DIGITALBOX’S WEBSITES PAGE VIEWS MOBILE USERS 326million (2018: 225M) PAGES OF WEB CONTENT CONSUMED 35million (2018: 23M) NUMBERS OF USERS VISITING SITES ON MOBILE AND TABLET DEVICES UK AUDIENCE SOCIAL FOLLOWERS 37million (2018: 20M) USERS OF DIGITALBOX’S WEBSITES BASED IN UK 3.5million (2018: 2.5M) FACEBOOK & TWITTER FOLLOWERS OF DIGITALBOX’S PROPERTIES Notes 2018 figures exclude the Daily Mash. 2019 figures include full year of both Entertainment Daily and the Daily Mash. Social Followers shows total followers as at end 2019. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 011 DIGITALBOX PLC STRATEGIC REPORT Strategic Report The Digitalbox Vision We set out to build a new kind of digital media business; one capable of profitably delivering high quality, engaging content to users at scale. Our aim is to acquire and transform digital media assets with potential through the application of the Digitalbox model. Unencumbered by legacy, we have a proven ability to grow at speed by focusing on current and future trends; rapidly adapting to the habits of our audience and the needs of our commercial partners. Push media Our approach is informed by our recognition of the growth of ‘push media’ consumption, especially on mobile – where the most highly engaging and relevant content from publishers is pushed into users’ feeds based on trending topics, article performance and their own behaviours and interests. We believe that content-surfacing algorithms will continue to be refined, delivering better user experience and higher rates of engagement and generating further growth of this type of consumption. Specifically, as Facebook and Google continually seek to command more user attention to increase time spent on their platforms, publishers of the most engaging content will benefit. In the last year Google has developed its push content activity via its Discover feed which is now making content suggestions to billions of its global mobile users. Targeting consumers via an array of distribution channels is one thing but operating effectively enough to ensure maximum engagement is where the real skillset lies. Whilst the tech duopoly continue to evolve their models, consumers continue to support other 012 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC STRATEGIC REPORT Our aim is to find digital brands with profit potential that can thrive in our lean, mobile-first model Digitalbox Acquisition Process STAGE ONE STAGE TWO STAGE THREE Acquire TARGET REVIEW DUE DILIGENCE CONTRACTING Integrate Improve OPERATIONAL REVIEW OPTIMISE FOR MOBILE IMPLEMENT AD STACK APPLY PROPRIETARY FRONT END CONTENT ANALYSIS PRODUCT DEVELOPMENT push media sources too, signing up to notifications and emails from their favourite media brands. We continue to see growth in both of these areas. Our approach We believe in order to be successful in this new media environment a business, its brands and its people must be: ENGAGING – The internet is dominated by platforms that compete for engagement and media brands that deliver the highest levels will prosper. Our teams’ passion for their subjects, understanding of their audiences and expertise in producing truly compelling content consistently deliver market- leading levels of engagement. FAST – Audiences’ expectation levels are higher than ever and their attention spans are lower. Our teams obsess about getting the best stories to their audience as quickly as possible. FLEXIBLE – Digitalbox is a mobile-first media company for the simple reason that this is where consumers have congregated. Our future strategy will be shaped by continuing to move with our audience. This will inevitably require flexibility as different platforms go in and out of favour and different devices emerge. We know tomorrow will be different. EFFICIENT – Efficiency matters because we regard profitable operation as the key to longevity. The digital market has seen many long bets against models that fail the profit test. Our teams use every tool to maximise their impact and efficiency. Local relevance Our business is currently built around a UK audience focus which brings distinct benefits across our key disciplines: Our editorial content resonates strongly with our audience, keeping our readers coming back again and again and reducing wasted output. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 013 DIGITALBOX PLC STRATEGIC REPORT Our key advertiser relationships all have a significant presence in our local market which is one of the world’s most advanced marketing economies and they place the greatest value on high-quality UK traffic. Growth through acquisition The completion of the Daily Mash acquisition in March 2019 marked the beginning of this acquisition plan and we continue to evaluate potential targets. In particular, we will identify assets that best align with our processes and enhance our existing portfolio to deliver the strategic vision. We will seek out content verticals that offer the opportunity to scale against larger media organisations who are struggling to operate profitably through the mobile channel. On our re-admission to AIM in Growing valuable audiences February 2019, Digitalbox outlined a strategy to make significant investments in acquisitions to grow the portfolio. In particular we intend to identify targets from three distinct categories; Legacy Publisher, First Wave Digital and Bedroom Start-Ups. In our view, each of these categories face particular challenges around monetisation, operating profitability, audience growth and technology performance which can be addressed through the application of the Digitalbox model. Entertainment Daily reaches a core demographic of 25-55 year old UK women; the power brokers of UK shopping. Being frequently in charge of the household budget they are passionate about the territory they control. They love brands that provide status and are always on the look-out for great deals they can share with their friends. Our share of this audience has grown over the last year from c.2m per month to now over 6m per month and the launch of 014 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC STRATEGIC REPORT The UK media market remains rich with acquisition opportunities Acquisiton Targets By Type BUSINESS TYPE TYPICAL CHALLENGES SOLUTION Legacy Publisher REVENUE DECLINE DISTRACTION COST BASE BUSINESS COMPLEXITY LOW MARGIN DIRECT SALES First-Wave Digital OVER-ESTIMATED PERFORMANCE OVERLY DIVERSIFIED LACK OF MARGIN CLARITY Bedroom Start-up SUB-SCALE PLATFORM ISSUES PRIMITIVE AD STACK a new food channel on the site has given us a new content strand to engage these new readers. The Daily Mash is consumed by savvy UK independent thinkers. These educated professionals respond to the brand’s pitch- perfect skewering of the rich and infamous and its inventive and surreal takes on the absurdity of modern life. Influential among their peers thanks to their own finely-tuned view of the world, they are seen as selective and discerning. They are power- sharers of digital media and we have seen the number of sessions grow by 12.5% over the last 12 months. touch commercial approach designed to maximise mobile profitability. Our website front-end platform Graphene is a highly scalable and dynamic platform that assists content delivery at the highest speeds. This brings huge advantages to how our sites are experienced by users and ranked by the key power brokers – especially Google and Facebook – as they evaluate the preferred destinations for users. Our tech roadmap for 2020 will deliver further site improvements. Product development Both audiences have plenty of scope for growth as they continue to demonstrate increasing levels of engagement with the respective brands. Mobile-optimised tech platform While profitability is key, we continue to invest in the existing business. 2020 will see additional investment across Entertainment Daily and the Daily Mash as we aim to deliver further meaningful growth. We are primed to rapidly on-board new brands and businesses onto our mobile-first platform. Our tech stack consists of a blend of technologies allowing our websites to flourish through an efficient, light Further detail on business performance can be found in the Financial Review and Operating Review sections of the Chief Executive’s Report beginning on page 6. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 015 DIGITALBOX PLC STRATEGIC REPORT Risks and uncertainties The Board considers risk on an ongoing basis and feels it is important to identify risks, form an objective view on the impact of these risks, consider mitigation plans to counterbalance them and to keep them under constant review. These risks are those which the Board considers, as at the date of this report, are the most critical to the continued operation of the Group. The risks described do not represent the totality of the risks facing the Group and should not be relied on as such by any person considering any investment decision in relation to the Company’s ordinary shares. Risk Potential Impact Mitigation and control Deviation from strategy Reliance on key online media platforms Competition A failure to implement the Group’s strategy is likely to lead to the business missing its trading targets which will have an adverse knock on effect on its cash flow prospects. Further, its growth prospects could be impacted with a consequent negative impact on shareholder value. The Board meets regularly to monitor the path of the business with the non-executive directors objectively challenging the executives over the performance of the business and its adherence to the agreed plan. In common with all media businesses globally, the Group uses online media platforms to market and distribute its content which, in turn, drives consumers to its sites which enables monetisation. Changes to the algorithms used by these Platforms can impact on how much of the Group’s content is seen and this will affect the eventual monetisation. The Group has transitioned from an arbitrage model to an organic model, reducing its reliance on the need to “boost” traffic. In addition, it has begun to broaden its traffic sourcing more evenly between the two largest platforms rather than being solely reliant on one. A new entrant into the Group’s market could divert our share of the time our audience has to consume its content, reducing session numbers. This would have an adverse effect on the number of adverts the business can serve, hence reducing the revenues the business would generate. There is nothing the Group can do to stop new entrants. However, it can continue to provide highly engaging content at speed encouraging its consumers to remain engaged and loyal. Cash flow A significant downturn in the trading performance of the Group would have an adverse effect on the Group’s cash reserves. The business is very profitable, has a very low capital expenditure requirement and pays close attention to its cash flow forecasts. Downturn in advertising spending A material decline in UK mobile digital advertising spend would have a significant impact on the Group’s revenues and profitability. Also, technologies which may limit the Group’s ability to effectively monetise the audience it attracts, including but not limited to brand-safety tools and ad blockers could impact revenue and profitability. The Board stays abreast of market trends and advertising forecasts and through close relationships with advertising partners is well informed through close relationships wth advertising partners is well informed about current and coming developments. It has demonstrated an ability to grow revenues during periods of significant change (including the introduction of GDPR) Coronavirus/ Covid-19 The Covid-19 pandemic is highly likely to impact consumer spending and therefore impact advertising spending. Staff may become unwell. The Board will monitor revenue impact closely. As a digital publisher, the Group’s ability to reach its audiences should not be affected and its sites may see increased traffic, offsetting a proportion of any downturn. The Group has extended its pre- existing Working from Home policies to increase social distancing. 016 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC CORPORATE AND SOCIAL RESPONSIBILITY STATEMENT Corporate and Social Responsibility Statement he Group aims to operate ethically and be socially responsible in its actions. Below are a number of the approaches through which this is achieved. Details of the Group’s performance are shared with all employees at appropriate times via face-to-face meetings, email updates and the Group’s corporate website. The Group expects a high standard from its staff and provides support to achieve this. Where possible, as new roles in the organisation arise, the Group aims to promote from within. The Group is committed to fostering new talent and runs a successful apprenticeship programme, often hiring candidates into full-time roles on completion of their apprenticeship. The Group offers flexible working arrangements for its staff including remote working and part-time contracts. Business Conduct, Ethics and Anti-Corruption The Group is committed to ensuring high standards of business conduct and has adopted policies in support of this including an Anti-Bribery & Anti-Corruption policy and an Equal Opportunities & Anti-Harassment policy. Safeguarding Consumers’ Data The Group is committed to safeguarding its consumers’ data and only use this information where express permission is granted and solely for the purpose specified. The Group holds registrations with the ICO and follows its guidelines to ensure it remains fully compliant with GDPR. Relationship with Employees The Group encourages an environment of openness and debate and welcomes all feedback from within. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 017 T DIGITALBOX PLC IN NUMBERS At a Glance DIGITALBOX IN NUMBERS Some highlights from 2019 and significant moments on our journey TIMELINE JAN 2018 ENTERTAINMENT DAILY PUBLISHING FREQUENCY PASSES 1,000 ARTICLES PER MONTH JUL 2018 ACQUISITION TARGET EVALUATION BEGINS FEB 2019 DIGITALBOX ENTERS AIM MARKET APR 2019 DAILY MASH PHASE 1 ARTICLE OPTIMISATIONS MAY 2018 DECISION TO LIST ON AIM VIA RTO TO ACCELERATE GROWTH PLAN SEP 2018 HEADS OF TERMS AGREED FOR RTO TO ENTER AIM MARKET MAR 2019 DAILY MASH ACQUISITION COMPLETES 018 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC IN NUMBERS 500k daily sessions for Entertainment Daily Users by device 90% Mobile 10% Desktoop Entertainment Daily The Daily Mash 1,100+ news stories per month 145k daily sessions Social followers 1m 2.5m 2 BAFTA nominations for The Mash Report TV Show 6.8m total monthly users 1.8m monthly users 150 MILLION total monthly ad impressions for Digitalbox 5m monthly users The Daily Mash 12.5% increase in sessions per user OCT 2019 DAILY MASH BAFTA- NOMINATED SPIN-OFF TV SHOW THE MASH REPORT RENEWED NOV 2019 GRAPHENE FRONT- END DEPLOYED ON DAILY MASH DEC 2019 ENTERTAINMENT DAILY BREAKS RECORD WITH 8 X 1M ORGANIC SESSION DAYS AUG 2019 DAILY MASH PARTNERSHIP WITH NEXTUP COMEDY OCT 2019 ENTERTAINMENT DAILY FOOD CHANNEL LAUNCHED DEC 2019 DAILY MASH PASSES 1M SOCIAL MEDIA FOLLOWERS ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 019 020 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC CORPORATE GOVERNANCE Corporate Governance ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 21 DIGITALBOX PLC CORPORATE GOVERNANCE Corporate Governance DIGITALBOX AND THE QCA CODE D igitalbox PLC is committed to good corporate governance and has adopted the corporate governance guidelines of the Quoted Companies Alliance (QCA). This section outlines the ways in which the Group applies the QCA’s ten principles of corporate governance. 1. Establish a strategy and business model which promote long-term value for shareholders Digitalbox aims to become a leading publisher of digital media. The Group intends to achieve this through a buy-and-build strategy with a focus on profitable publishing on mobile devices. This strategy is aligned with consumer behaviour and commercial trends. The Group will create and deliver compelling content for its audiences via the web properties it owns now and will own in the future. This content will engage audiences and in turn create valuable environments for advertisers to reach them. James Carter Chief Executive Officer Jim Douglas Chief Operating Officer David Joseph Chief Financial Officer & Company Secretary James joined Digitalbox in 2016 and is Jim oversees editorial operations at Digitalbox responsible for the strategy, direction and and has previously held strategic and profit David is a law graduate and Chartered day-to-day running of the business. He has responsibility for successful media brands in Accountant, starting his career and qualifying a proven track record in building value in sectors including film, music, games, sport with Price Waterhouse, moving into industry the media industry, within both public and and automotive. He has led creative teams in steel stockholding (ASD plc) then into limited companies. As part of the founding in both UK and US. He started his career at FMCG (Unilever plc) before entering the media executive team at Factory Media, he drove EMAP plc as a journalist and in the early 90s industry in 1995 when he joined Emap plc. the business to achieve a significant exit to he joined start-up business Future Publishing, Here he occupied several senior financial roles Forward Internet Group. Prior to the creation which eventually became and remains a listed within its operating companies, including of Factory Media, James was NPD Director at company. At Future, Jim held the position of Chief Financial Officer of Emap Metro, the Dennis Publishing and Publishing Director at Editorial Director for 10 years with ultimate men’s and music publications business and EMAP plc where he had responsibility for FHM. responsibility for product development. Emap Advertising, the then central cross FHM grew from a fledgling fashion focused During this time Future was named UK Digital platform advertising sale business. On leaving magazine to a global network of 32 editions Publisher of the Year five times. and a value at its peak of over £250m. Board of Directors in 2001 David has since worked exclusively within the media industry on many projects including start up, MBI, MBO, turnaround, distressed and buy and build across a wide spectrum of enterprise values (£1 million to £50 million) and funding structures, internationally, both in the Far East and in the USA. 22 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC CORPORATE GOVERNANCE The Group intends to deliver long-term value for shareholders through its understanding of consumer media consumption, the arising revenue opportunities including advertising and a continued focus on the operating profitability of its brands. For more detail, see the Strategic Report on page 12. 2. Seek to understand and meet shareholder needs and expectations The Group is committed to building and maintaining strong relationships with its shareholders and considers the understanding of shareholder’s needs fundamental to its success. The Chief Executive Officer and Chief Financial Officer/ Company Secretary are active in meeting with and preparing presentations for institutional investors and engage in regular dialogue with the Group’s brokers in order to gauge shareholder sentiment. The Group’s Annual General Meeting (AGM) is the main forum for discussing matters with shareholders, addressing shareholder queries and understanding their needs and expectations. Notice of the AGM and Sir Robin Miller Non Executive Chairman Martin Higginson Non Executive Director Nigel Burton Non Executive Director Sir Robin Miller was formerly Chief Executive Martin is recognised as a seasoned Nigel has over 25 years’ experience in (1985-98 and 2001-03) and Chairman (1998-2001) Technology, Media and Telecoms (TMT) operational and financial management, of Emap plc, one of the UK’s leading media entrepreneur. He has started, sold, and listed debt and equity financing, acquisition and groups with businesses including consumer numerous businesses. His first business was integration of businesses, disposals, IPOs and trade publishing, commercial radio and sold to IPC Magazines in 1982. Following and trade sales. Following over 14 years as an music TV channels and events. In 2003, Sir Robin three years with IPC he left to set up his investment banker at leading City institutions became senior media adviser to HgCapital, own publishing and telecoms business, this including UBS Warburg and Deutsche and was involved in the successful disposals of was subsequently sold to Scottish Power Bank, including as the managing director Boosey & Hawkes and Clarion Events Limited. plc. During his time with Scottish Power he responsible for the energy and utilities He was previously a non-executive director joined their subsidiary Scottish Telecom, industries, Nigel spent 15 years as chief of Channel 4 Television (1999-2006), and was as Managing Director of their Internet and financial officer of a number of private and Chairman of their New Business Board, was Interactive division, including Internet ISP public companies, including Navig8 Product Non-Executive Chairman of the HMV Group Demon Internet. Following the flotation of Tankers Inc, PetroSaudi Oil Services Limited, (2004-2005), Senior Non-Executive Director at Thus plc (formerly Scottish Telecom) he left Advanced Power AG, and Granby Oil and Gas Mecom Group plc (2005-2009), and Chairman to start Monstermob, a company he went on plc, followed by three years as Chief Executive of Entertainment Rights plc (2008-2009) and to list on AIM in 2003; growing it to a Top 50 Officer of Nu-Oil and Gas plc. Nigel is currently Setanta Sports Holdings Limited in 2009. AIM listed business. Monstermob Group plc Non-Executive Chairman of AIM-listed He is currently Non-Executive Chairman of was sold to Zed Worldwide in 2006. Martin has Remote Monitored Systems plc and Mobile Immotion Group plc, a director of Premier subsequently founded Cityblock plc, a luxury Streams plc. Education plc, a director of Crash Media Group student accommodation business, NetPlayTV plc, a director of Robin Miller Consultants Ltd, a plc, an interactive TV gaming business, director of Edge Performance VCT and a Trustee Digitalbox and Immotion plc. He is currently of Two Wheels for Life. CEO of Immotion Group plc. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 23 DIGITALBOX PLC CORPORATE GOVERNANCE proposed resolutions are sent to shareholders at least 21 days prior to the AGM. Shareholders and their representatives are invited to fully participate and vote in the AGM and are also given the opportunity to vote by proxy. Voting results are published after the AGM. Outside the AGM the Group will convene general meetings where shareholder approval is required or appropriate on Group matters and may seek input from major institutional investors from time to time in relation to Group policy. 3. Take into account wider stakeholder and social responsibilities and their implications for long-term success The Group seeks to engage with its wider group of stakeholders via: Face-to-face briefings for staff to update on the Group’s progress and developments Email updates for staff regarding developments Releasing public updates via the RNS service Stakeholder feedback being passed to Senior Management via the relevant team member at Digitalbox as appropriate. The Group’s Corporate and Social Responsibility statement can be found on page 17. 4. Embed effective risk management, considering both opportunities and threats, through the organisation The Board considers the risks facing the business on an ongoing basis and ensures mitigation strategies are in place wherever possible. The Executive Directors regularly keep the Board updated on current trading, wider market trends and other developments as a means of identifying existing and potential future opportunities and risks. Key risks and uncertainties facing the business are noted on page 16. 5. Maintain the Board as a well-functioning, balanced team led by the Chair The Board comprises three Executive Directors and three Non-Executive Directors. The Board considers all three Non-Executive Directors to be independent. The Board will operate in a collaborative and constructive manner with a clear focus on the delivery of the strategy and increasing shareholder value. The appointment of Directors will be in accordance with the Articles of Association. 6. Ensure that between them the Directors have necessary up-to-date experience, skills and capabilities The Group considers the skills and experience of the Board to be appropriate and this is kept under review. The Executive Directors have each worked in 24 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC CORPORATE GOVERNANCE Board Audit Remuneration Nomination Disclosure James Carter Jim Douglas David Joseph Martin Higginson Nigel Burton Robin Miller 7/7 7/7 7/7 5/7 6/7 7/7 - - - 1/1 1/1 1/1 - - - 1/1 1/1 1/1 - - - - - - - - - - - - standards and behaviour when conducting its business, with integrity, fairness and equality being high priorities. The Corporate and Social Responsibility statement is found on page 17. consumer media for more than twenty years, and as a group have experience at senior management level in respected PLC media businesses. Their specific media expertise includes editorial management, new product development, commercial management, strategic planning, international expansion, financial management, corporate restructuring, digital transition, brand development, acquisitions and disposals. The Group’s non-executive Directors have extensive successful track records in the fields of technology, telecoms, publishing, investment banking and television. 7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement The Board’s process of evaluating its own performance, that of its Committees and the individual Directors, is led by the Chairman. The process is conducted by the Remuneration Committee. The Remuneration Committee will evaluate Board performance against targets. Targets are aligned with the delivery of the Group’s strategy. The Board may utilise the results of the evaluation process when considering the adequacy of the composition of the Board and for succession planning. 8. Promote a culture that is based on ethical values and behaviours The Group aims to achieve the highest ethical ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 25 DIGITALBOX PLC CORPORATE GOVERNANCE 9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board The roles of the Chairman and the Chief Executive Officer are separated and clearly defined. The Chairman provides impartial leadership and guidance to the Board. Working with the Executive Directors, the Chairman is responsible for setting the agenda for Board meetings and ensuring Board members receive the information they need to properly participate in a timely fashion. The Chief Executive Officer is responsible for the execution of Group strategy approved by the Board, the leadership of the Group’s senior management team and its employees on a day-to-day basis. The Chief Operating Officer supports the Chief Executive in the delivery of the strategy with a specific remit over editorial matters. The Board has established four committees with clearly defined responsibilities. These are as follows: The Audit Committee’s principal functions include ensuring that the appropriate accounting systems and financial controls are in place, monitoring the integrity of the financial statements of the Group, reviewing the effectiveness of the Group’s accounting and internal control systems, reviewing reports from the Group’s auditors relating to the Group’s accounting and internal controls, and reviewing the interim and annual results and reports to Shareholders, in all cases having due regard to the interests of Shareholders. The Audit Committee will meet as necessary, informed by the reporting and audit cycle or other requirements. Nigel Burton, who has recent and relevant financial experience through his role as chief financial officer of other UK listed companies acts as chairman. Martin Higginson and Sir Robin Miller are the other members of the Audit Committee. The Audit Committee report is found on page 27. The Remuneration Committee is responsible for determining and agreeing with the Board the framework for the remuneration packages for each of the Executive Directors. The Remuneration Committee considers all aspects of the Executive Directors’ remuneration, including pensions, bonus arrangements, benefits, incentive payments and 26 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com share option awards, and the policy for, and scope of any termination payments. The remuneration of the Non-Executive Directors is a matter for the Board. The Remuneration Committee will meet when necessary and generates an annual remuneration report to be approved by the members of the Company at the annual general meeting. No Director may determine their own remuneration. Nigel Burton acts as chairman of the Remuneration Committee and Sir Robin Miller and Martin Higginson are the other members of the Remuneration Committee. The Remuneration Report is found on page 28. The Nomination Committee is responsible for reviewing the structure, size and composition of the Board based upon the skills, knowledge and experience required to ensure the Board operates effectively. The Nomination Committee meets when necessary to do so. The Nomination Committee also identifies and nominates suitable candidates to join the Board when vacancies arise and makes recommendations to the Board for the re- appointment of any Non-Executive Directors. Sir Robin Miller acts as chairman of the Nomination Committee and Nigel Burton and Martin Higginson are the other members of the Nomination Committee. The Disclosure Committee is responsible for ensuring compliance with the AIM rules and MAR concerning disclosure of inside information and works closely with the Board to ensure that the Group’s nominated adviser is provided with any information it reasonably requests or requires in order for it to carry out its responsibilities under the AIM Rules and the Aim Rules for Nominated Advisers. The Disclosure Committee approves all RNS and other significant announcements, normally via email and will meet as required. Sir Robin Miller acts as Chairman of the Disclosure Committee. Nigel Burton and Martin Higginson are the other members of the Disclosure Committee. 10. Communicate how the Group is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders. The Group communicates with shareholders and other stakeholders through its Annual and Interim Reports, regulatory and non-regulatory announcements, its investor relations website, Annual General Meetings and face-to-face meetings. DIGITALBOX PLC AUDIT COMMITTEE REPORT Audit Committee Report SIGNIFICANT ACCOUNTING ISSUES T he main accounting issues which the Audit Committee focused their attention on during the period were: 1. Revenue recognition – the Committee considered the Group’s approach to revenue recognition and its compliance with IFRS, and concluded that the very nature of programmatic advertising revenue ensured clarity on the allocation of revenue across each distinct accounting period and a clean cut off. 2. Ongoing compliance with AIM rules – the Committee considered the Group’s ability to comply with AIM rules and concluded that the Non-Executive directors’ combined skills and experience, together with the appointment of WH Ireland as NOMAD ensured for comfortable compliance by the Executive directors. 3. The carrying value of goodwill and other intangible assets – the Committee considered the Group’s approach to evaluation of the carrying value of goodwill and other intangible assets and were assured by the discounted cash flow modelling demonstrating that no impairment charge was required. 4. Whether the going concern basis of accounting was appropriate, especially in the light of COVID-19 – the Committee were assured that the business has a strong balance sheet, is trading profitably and that, whilst consumer advertising revenues are expected to be under pressure throughout the current crisis, the Group’s core business may well benefit from large volumes of people finding themselves with more time on their hands to consume the Group’s digital only content. Further, being a digital media business, operations will be largely uninterrupted and unaffected by home working. The Group’s Chief Financial Officer and the external auditors attend meetings of the Audit Committee by invitation. The Committee also holds separate meetings with the auditors as appropriate. The Audit Committee met once during the year to approve the interim financial statements. The Audit Committee has also met with the Group’s external auditors since the period end to approve the 2019 accounts. The Group does not have an internal audit function as this is not considered appropriate given the scale of the Group’s operations, however the Group operates internal peer review with the scope of evaluating and testing the Group’s internal control procedures to standardise processes around best practice. Any significant issues are reported to the Chair of the Audit Committee and shared with the external auditors as appropriate. Internal Controls The Board has overall responsibility for the Group’s system of internal financial control and for reviewing its effectiveness. The purpose of the system of control is to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable, but not absolute, assurance against misstatement or loss. The Audit Committee keeps the effectiveness of the Company’s internal controls and risk management systems under review. The Chief Financial Officer is the executive within the Group responsible for day-to-day financial management of the Group’s affairs and its internal accounting. External Auditors The Audit Committee has reviewed the independence and effectiveness of Haysmacintyre LLP, the Group’s external auditors, and are satisfied in both respects. Haysmacintyre LLP’s fees in the year in respect of audit services were £36k (2018: £14k) and in respect of non-audit services were £138k (2018: £1k) as detailed in note 8. Haysmacintyre LLP have signified their willingness to continue in office and a resolution to reappoint Haysmacintyre LLP as auditor to the Company will be proposed at the AGM. Nigel Burton Chairman of the Audit Committee 1 April 2020 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 27 DIGITALBOX PLC REMUNERATION COMMITTEE REPORT Remuneration Committee Report T he Remuneration Committee determines the remuneration packages for Executive Directors and other senior employees and keeps the Group’s policy on pay and benefits under review generally. The Remuneration Committee will keep under review the long-term incentivisation of Executive Directors and senior employees, balancing the need to control costs while ensuring that pay and benefits offered by the Group are appropriate for attracting and retaining high-calibre staff. The Committee will continue to have due regard to remuneration reports from independent sources, to the guidance of its professional advisers and to good practice generally. Directors’ remuneration for the year of 2019 are shown on page 49. Nigel Burton Chairman of the Remuneration Committee 1 April 2020 Director James Carter Jim Douglas David Joseph Robin Miller Martin Higginson (Via M Capital Ventures Ltd) Nigel Burton Number of 1p Ordinary Shares as at 31st December 2019 10,908,078 10,908,078 - 775,465 1,740,475 238,095 Number of 1p Ordinary Shares as at 31st December 2018 - - - - % - - - - - 11,830,835 - 0.2% % 12.1% 12.1% - 0.9% 1.9% 0.3% 24,570,191 27.2% 11,830,835 0.2% Total ordinary shares 90,251,726 118,079,093 Options have been granted to certain key employees under an approved EMI scheme, as below: Option holder James Carter Jim Douglas Nick Clough Karen Hyland Unallocated Number of shares 1,504,441 1,504,441 1,002,960 1,002,960 3,008,882 Vesting Period Year 1 Year 2 Year 3 501,480 501,480 - - - 501,480 501,480 - - - 501,481 501,481 1,002,960 1,002,960 - 8,023,684 1,002,960 1,002,960 3,008,882 28 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC DIRECTORS’ REPORT Directors’ Report T he Directors present their report and audited financial statements for the year ended 31 December 2019. Principal Activities The principal activities of the Group are the publication of consumer media through the digital mobile channel, with revenues derived from programmatic advertising. The principal activity of the Company is as a holding company. Board of Directors The Directors who served during the year were: (appointed 28 February 2019) James Carter (appointed 28 February 2019) Jim Douglas David Joseph (appointed 28 February 2019) Martin Higginson (appointed 28 February 2019) Sir Robin Miller (appointed 28 February 2019) Nigel Burton John Treacy (resigned 28 February 2019) Future Developments The Company has chosen in accordance with section 414C(11) of the Companies Act 2006 to include the disclosure of likely future developments in the Chief Executive’s Report beginning on page 6. Dividends future. In reaching this conclusion the Directors have considered the financial position of the Group, taking into consideration the recent placing, together with its forecasts and projections for two years from the reporting date that take into account reasonably possible changes in trading performance that the Coronavirus may cause. The going concern basis of accounting has therefore been adopted in preparing the financial statements. Treasury Operations & Financial Instruments The Group operates a centralised treasury function which is responsible for managing liquidity, interest and foreign currency risks associated with the Group’s activities. The Group’s principal financial instrument is cash, the main purpose of which is to fund the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables naturally arising through from its operations. The Group’s exposure and approach to capital and financial risk, and approach to managing these is set out in note 21 to the consolidated financial statements. Employee Engagements The Group engages with its employees regularly through face to face communication, during which details of the Group’s performance is shared. No dividends were paid during the year (2018: £Nil). The Board is not recommending the payment of a final dividend in respect of the year ended 31 December 2019. Further information regarding employee engagement can be found in the Corporate and Social Responsibility Report on page 20. Earnings per Share Employee Policies Loss per share in the period from continuing operations was 0.00571p (2018: 0.00262p) and diluted loss per share from continuing operations in the period was 0.00571p (2018: 0.00262p). The Group has established employment policies which are compliant with current legislation and codes of practice. The Group is an equal opportunities employer. Going Concern Payment of Suppliers At the time of approving the financial statements, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable The Group’s policy is to pay suppliers in accordance with the relevant contractual terms between the Group and the supplier. Where no specific terms are agreed, the Group’s standard policy is 30 days. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 29 DIGITALBOX PLC DIRECTORS’ REPORT Directors’ Indemnity Political Donations The Company’s Articles of Association provide, subject to the provisions of UK legislation, an indemnity for Directors and officers of the Company in respect of liabilities they may incur in the discharge of their duties or in the exercise of their powers, including any liabilities relating to the defence of any proceedings brought against them which relate to anything done or omitted, or alleged to have been done or omitted, by them as officers or employees of the Company. Appropriate directors’ and officers’ liability insurance cover is in place in respect of all the Directors. Directors’ Conflicts of Interest In the event that a Director becomes aware that they, or their connected parties, have an interest in an existing or proposed transaction involving the Group, they will notify the Board in writing or at the next Board meeting. Significant Shareholdings As at 31 December 2019, the following shareholders owned 3% or more of the Company: Shareholder Mr James Alexander Carter Number of shares 10,908,078 Mr James Robert Douglas 10,908,078 Mr Samuel Higginson Mrs Leonie Dobbie JIM Nominees Ltd Napier Brown Holdings Ltd Perseus International Investments Limited 9,787,549 7,583,709 4,398,123 3,342,447 % 12.1 12.1 10.8 8.4 4.9 3.7 2,978,241 3.3 As at 1 April 2020, the following shareholders owned 3% or more of the Company: Shareholder Mr James Alexander Carter Number of shares 10,908,078 Mr James Robert Douglas 10,908,078 Mr Samuel Higginson Mrs Leonie Dobbie Jim Nominees Limited Napier Brown Holdings Limited Perseus International Investments Limited 9,787,549 7,583,709 4,398,123 3,342,447 2,978,241 % 11.9 11.9 10.7 8.3 4.8 3.7 3.3 30 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com The Group did not make any political donations during 2019 (2018: £Nil). Matters Covered in the Chairman’s Statement & Financial Statements Certain matters which are required to be disclosed in the Directors’ Report (such as review of the business and future developments) have been omitted as they are included within the Chief Executive’s Statement, the Strategic Report and within the notes to the Financial Statements. Annual General Meeting The Company’s Annual General Meeting will be held later in the year. Statement as to Disclosure of Information to the Auditor As far as the Directors are aware they have each taken all necessary steps to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006. Auditors Haysmacintyre LLP have signified their willingness to continue in office and a resolution to reappoint Haysmacintyre LLP as auditor to the Company will be proposed at the AGM. Approved by the Board on 1st April 2020 and signed on its behalf. James Carter Chief Executive Officer DIGITALBOX PLC DIRECTORS' RESPONSIBILITY STATEMENT Financial statements are published on the Group’s website in accordance with the rules and legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the corporate and financial information on the Group’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. The work carried out by the auditors does not include consideration of the maintenance and the integrity of the website and accordingly the auditor accepts no responsibility for any changes that have occurred to the financial statements when they are presented on the website. Directors' Responsibility Statement T he Directors are responsible for preparing the Strategic Report, Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union and applicable law. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Company and the Group for that period. In preparing these financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgments and accounting estimates that are reasonable and prudent; state whether IFRS as adopted by the European Union have been followed subject to any material departures disclosed and explained in the financial statements; provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company’s and the Group’s financial position and financial performance; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 31 DIGITALBOX PLC INDEPENDENT AUDITORS’ REPORT Independent Auditors’ Report Opinion We have audited the financial statements of Digitalbox Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2019 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statement of Financial Position, the Consolidated and Parent Company Statement of Changes in Equity, the Consolidated and Parent Company Cash Flow Statements and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. In our opinion, the financial statements: give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2019 and of the group’s loss for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We determined the matters described below to be the key audit matters to be communicated in our report. Key audit matter: Revenue recognition Group revenue comprises the sale of digital advertising space. Revenue is recognised in line with the accounting policies in note 4. During the year, the newly acquired subsidiary, Digitalbox Publishing Limited, transitioned to IFRS and as such adopted IFRS 15 for the first time. We therefore identified a risk that revenue is not recognised in accordance with IFRS 15. How the matter was addressed in the audit Our audit work included, but was not restricted to: Conclusions relating to going concern Considering the stated accounting policies in We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: respect of revenue recognition and whether these are consistent with IFRS 15; A detailed review of how revenue is recognised; A review of the judgements made; A reconciliation from the revenue database to the financial statements; and 32 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC INDEPENDENT AUDITORS’ REPORT Testing a sample of transactions recorded either side of the balance sheet date for correct application of cut-off. £23,250, being 75% of materiality. This was considered an appropriate level of materiality given the focus on revenue generating activities. Key audit matter: Acquisition of subsidiaries and valuation of goodwill and other intangibles There is a risk that the goodwill arising on acquisitions has been incorrectly calculated and not split across the other intangible assets acquired. There is also a risk as to the valuation of goodwill at 31 December 2019 and the need for impairment. How the matter was addressed in the audit Our audit work included, but was not restricted to: Reviewing the Share Purchase Agreements for the entities acquired 28 February 2019 ascertain the consideration included in the goodwill calculation; Reviewing and assessing the goodwill calculations prepared by management including a review of the IFRS calculations apportioning the goodwill across other intangible assets acquired; Reviewing and assessing future budgets and cash flow forecasts as well as managements impairment review of goodwill; Reviewing the recognition of fundraising costs to ensure these had been correctly apportioned between administrative expenditure and share premium; and Reviewing treatment of acquisition costs to ensure that these had been expensed within the Statement of Comprehensive Income in accordance with IFRS 3. Our application of materiality The scope and focus of our audit was influenced by our risk assessment and application of materiality. We define materiality as the magnitude of misstatement that could reasonably be expected to influence the economic decisions of the users of the financial statements. We use materiality to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole. Materiality for the Financial Statements as a whole was set at £31,000, determined by reference to Group revenue. We report to the Audit Committee any corrected or uncorrected misstatements arising exceeding £1,550. Performance materiality was set at An overview of the scope of our audit Our audit scope included the statutory audit of each of the subsidiaries for the year ended 31 December 2019 except Digitalbox Publishing Inc. Our audit work for the audited subsidiaries therefore covered revenue, loss and assets and liabilities. The subsidiary audits were performed to subsidiary level materiality which was calculated for each subsidiary with reference to their respective turnover and was lower than Group materiality in each case. Digitalbox Publishing Inc was audited to Group materiality given they are not required to have a statutory audit in the US. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 33 DIGITALBOX PLC INDEPENDENT AUDITORS’ REPORT with the financial statements; and the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the directors’ responsibilities statement, set out on page XX, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org. uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an Auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Laura Mott (Senior Statutory Auditor) For and on behalf of Haysmacintyre LLP, Statutory Auditors 10 Queen Street Place London EC4R 1AG 1 April 2020 34 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC FINANCIAL STATEMENTS Financial Statements ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 35 DIGITALBOX PLC CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2019 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Revenue Cost of sales Gross profit Note 7 Administrative expenses Realised profit on available for sale assets Impairment reversal Operating loss 8 Memorandum: Adjusted EBITDA 1 Depreciation Amortisation Share based payments Acquisition & listing costs Realised profit on available for sale assets Impairment reversal Loss from Operations Finance costs Loss before taxation and attributable to equity holders of the parent Taxation Loss after tax 10 11 Year ended 31 December 2019 £’000 Year ended 31 December 2018 £’000 2,240 (394) 1,846 (2,303) - - (457) 525 (11) (133) (149) (689) - - (457) (3) (460) 23 (437) - - - (354) 65 39 (250) (354) - - - - 65 39 (250) - (250) - (250) All losses after taxation arise from continuing operations. There was no other comprehensive income for 2019 (2018: £NIL). 1Adjusted EBITDA is after deducting depreciation, amortisation, share based payments, acquisition and listing costs, profit on disposal of available for sale assets and impairments. Loss per share Basic (continuing) Earnings/(Loss) per share Diluted (continuing) 12 12 £ (0.00571) (0.00571) £ (0.00262) (0.00262) 36 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share capital £’000 Share premium £’000 Share based payment £’000 Retained (deficit)/ earnings £’000 Balance at 1 January 2018 19,823 19,181 62 (39,179) Shares issued Share issue costs Share options cancelled Loss after tax 665 - - - 25 (42) - - Balance at 31 December 2018 20,488 19,164 Shares issued Share issue costs Loss after tax Equity settled share-based payments 843 - - - 10,710 (117) - - - - (30) - 32 - - - 149 - - 30 (250) (39,399) - - (437) - Total equity £’000 (113) 690 (42) - (250) 285 11,553 (117) (437) 149 Balance at 31 December 2019 21,331 29,757 181 (39,836) 11,433 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 37 DIGITALBOX PLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS Non-current assets Property, plant and equipment Intangible fixed assets Total non-current assets Current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets LIABILITIES Current liabilities Trade and other payables Lease liabilities Corporation tax Bank overdraft and loans Total current liabilities Non-current liabilities Other payables Lease liabilities Deferred tax liability Total liabilities Total net current assets Total net assets Capital and reserves attributable to owners of the parent Share capital Share premium Share based payment reserve Retained (deficit) Total equity Note 31 December 2019 £’000 31 December 2018 £’000 14 15 16 17 18 18 18 19 18 18 20 22 22 24 24 49 10,248 10,297 1,407 477 1,884 12,181 (488) (24) (98) - (610) (8) (2) (128) (138) (748) 1,274 11,433 - - - 437 231 668 668 (163) - - (220) (383) - - - (383) 305 285 21,331 29,757 181 (39,836) ------------------ 11,433 20,488 19,164 32 (39,399) ------------------ 285 The financial statements were approved by the Board and authorised for issue on 1 April 2020 James Carter CEO David Joseph CFO 38 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com CONSOLIDATED STATEMENT OF CASHFLOWS Cash flows from operating activities Loss from ordinary activities Adjustments for: Realised profit on available for sale assets Impairment reversal Share based payments Depreciation on property plant and equipment Amortisation of intangible assets Finance costs Cash flows from operating activities before changes in working capital (Increase) in trade and other receivables (Decrease) in trade and other payables Cash (used)/generated in operations Investing activities Purchase of property, plant and equipment Disposals of available-for-sale financial assets Acquisition of subsidiary Cash on acquisition Net cash (used in)/generated from investing activities Financing activities Finance costs New loans and finance leases Loan repayments Issue of new share capital Costs on issue of shares Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period DIGITALBOX PLC CONSOLIDATED STATEMENT OF CASHFLOWS FOR THE YEAR ENDED 31 DECEMBER 2019 Year ended 31 December 2019 £’000 Year ended 31 December 2018 £’000 (437) - - 149 11 133 22 (122) (86) (100) (186) (13) - (993) 433 (573) (22) 33 (7) 1,240 (117) 1,127 246 231 477 (250) (65) (39) - - - - (354) (163) 4 (159) - 50 - 50 - - - 690 (42) 648 185 46 231 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 39 DIGITALBOX PLC CONDOLIDATED STATEMENT OF CASHFLOWS FOR THE YEAR ENDED 31 DECEMBER 2019 CONDOLIDATED STATEMENT OF CASHFLOWS (continued) Reconciliation of net cashflow to movement in net debt: Year ended 31 December 2019 £000 Year ended 31 December 2018 £000 Net (decrease)/increase in cash and cash equivalents New loans and finance leases Repayment of loans Movement in net funds in the year Net funds at 1 January Net funds at 31 December Breakdown of net funds Cash and cash equivalents Lease liabilities Net funds at 31 December 246 (33) 7 220 231 451 477 (26) 451 185 - - 185 46 231 231 - 231 40 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL INFORMATION Digitalbox Plc is a public limited company incorporated and domiciled in the United Kingdom. The address of the registered office 2-4 Henry Street, Bath, England, BA1 1JT. The Company is listed on AIM of the London Stock Exchange. The principal activity of the Group during the year was the production of publishing content and the sale of advertising space. These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the policies set out in note 4. 2. STANDARDS, AMENDMENTS AND INTERPRETATIONS ADOPTED IN THE CURRENT FINANCIAL YEAR ENDED 31 DECEMBER 2019 The accounting policies adopted are consistent with those of the previous financial year except for the following new and amended standards and interpretations during the year that are applicable to the Group. IFRS 16 is effective from 1 January 2019. The standard eliminates the classification of leases as either operating or finance leases and introduces a single accounting model. Lessees are required to recognise a right-of-use asset and related lease liability for their operating leases and show depreciation of leased assets and interest on lease liabilities separately in their income statement. IFRS 16 requires the Group to recognise substantially all of its operating leases on the balance sheet. The Group adopted IFRS 16 effective 1 January 2019 on a modified retrospective basis. Accordingly, prior year financial information has not been restated and will continue to be reported under IAS 17: Leases. The right-of-use asset and lease liability have initially been measured at the present value of remaining lease payments, with the right-of-use asset being subject to certain adjustments. When applying IFRS 16, the Group has applied the following practical expedients, on transition date: • • • Reliance on the previous identification of a lease (as provided by IAS 17) for all contracts that existed on the date of initial application; Exclusion of initial direct costs from the measurement of the right-of-use asset at the date of initial application; The accounting for operating leases with a remaining term of less than 12 months as at 1 January 2019 as short-term leases. The Group had no leases in the 2018 financial year. The impact had IFRS 16 not been adopted is shown below. Loss for period to 31 December 2019 Add back: depreciation on Right-of-Use asset Add back: notional interest charge on finance leases Less: rent which would have been charged before transition Revised loss for period to 31 December 2019 The impact had IFRS 16 not been adopted would be an increase to net assets of £1k. £’000 (386) 8 1 (8) (385) 3. NEW AND REVISED IFRS STANDARDS IN ISSUE BUT NOT YET EFFECTIVE Definition of Material – Amendments to IAS 1 and IAS 8 (effective 1 January 2020) The IASB has made amendments to IAS 1, ‘Presentation of Financial Statements’, and IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, which use a consistent definition of materiality throughout International Financial Reporting Standards and the Conceptual Framework for Financial Reporting, clarify when information is material and incorporate some of the guidance in IAS 1 about immaterial information. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 41 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 3. NEW AND REVISED IFRS STANDARDS IN ISSUE BUT NOT YET EFFECTIVE (continued) In particular, the amendments clarify: a) That the reference to obscuring information addresses situations in which the effect is similar to omitting or misstating that information, and that an entity assesses materiality in the context of the financial statements as a whole, and; b) The meaning of ‘primary users of general-purpose financial statements’ to whom those financial statements are directed, by defining them as ‘existing and potential investors, lenders and other creditors’ that must rely on general purpose financial statements for much of the financial information they need. The amendment is not expected to have a material impact on the Group. 4. ACCOUNTING POLICIES Principal accounting policies The Group is a public Group incorporated and domiciled in the United Kingdom. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union (“adopted IFRSs”) and those parts of the Companies Act 2006 which apply to companies preparing their financial statements under IFRSs. The financial statements are presented to the nearest round thousand (£’000) except where otherwise indicated. Basis of Consolidation The Group comprises a holding company, dormant subsidiaries and a trading company. All of these have been included in the consolidated financial statements in accordance with the principles of acquisition accounting as laid out by IFRS 3 Business Combinations. Going concern The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. In reaching this conclusion the directors have considered the financial position of the Group, it’s cash, liquidity position and borrowing facilities together with its forecasts and projections for 18 months from the reporting date that take into account possible changes in trading performance. The going concern basis of accounting has therefore been adopted in preparing the financial statements. Business combinations and goodwill Acquisitions of subsidiaries and business are accounted for using the acquisition method. The assets and liabilities and contingent liabilities of the subsidiaries are measured at their fair value at the date of acquisition. Any excess of acquisition over fair values of the identifiable net assets acquired is recognised as goodwill. Goodwill arising on consolidation is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss accounts and is not subsequently reversed. Acquisition related costs are recognised in the income statement as incurred. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured as the fair value of the consideration received or receivable, excluding discounts, rebates, value added tax and other sales taxes. The following criteria must also be met before revenue is recognised: The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment exceeds one year. As a consequence, the Company does not adjust any of the transaction prices for the time value of money. The Group monitors the performance obligations in accordance with IFRS 15 considering that the performance obligations are met upon the Group delivering the advertisement to the customer. A receivable is recognised when the services are delivered at this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. 42 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 Rendering of services Revenue from providing services is recognised in the accounting period in which the services are rendered. Revenue from the sale of advertising space is recognised upon the advertisement being generated and the Group delivering the advertisement to the customer. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable future economic benefits will flow to the entity and the Group has satisfied the performance obligations. Revenue is not received in advance and therefore the Group does not account for contract liabilities. Leases The Company assesses whether a contract is or contains a lease, at inception of a contract. The Company recognises a right-of- use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Company recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. The Group assesses its discount rate using its incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise: a) Fixed lease payments (including in-substance fixed payments), less any lease incentives. The lease liability is included in Payables in the Statement of Financial Position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the payments made. The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciation over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The right-of-use assets are included in the tangible fixed assets in the Statement of Financial Position. The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts any identified impairment losses. Foreign currency The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group company are expressed in pound sterling, which is the functional currency of the Group, and the presentational currency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactions in currencies other than the Group Company’s functional currency (foreign currencies) are recorded at rates of exchange prevailing on the dates of the transactions. At the reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non- monetary items, any exchange component of the gain or loss is also recognised directly in equity. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 43 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 4. ACCOUNTING POLICIES (continued) Such translation differences are recognised as income and expense in the period in which the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rates. Intangible assets Intangible assets include goodwill arising on the acquisition of subsidiaries and represents the difference between the fair value of the consideration payable and the fair value of the net assets that have been acquired. The residual element of Goodwill is not being amortised but is subject to an annual impairment review. Also included within intangible assets are various assets separately identified in business combinations (such as brand value) to which the Directors have ascribed a commercial value and a useful economic life. The ascribed value of these intangible assets is being amortised on a straight-line basis over their estimated useful economic life, which is considered to be 7 years. Other intangible assets purchased by the Group are initially recognised at cost. After recognition, under the cost model, intangible assets are measured at cost less any accumulated amortisation and any accumulated impairment losses. Amortisation is recognised so as to write off the cost less their residual values over their useful lives, which is considered to be 3 years straight line. Financial instruments The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument. Contract liabilities Contract liabilities comprise payments in advance of revenue recognition and revenue deferred due to contract performance obligation not being completed. They are classified as current liabilities if the contract performance obligations payments are due to be completed within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Contract liabilities are recognised initially at fair value and subsequently at amortised cost. Trade and other receivables Trade and other receivables are measured at initial recognition at fair value, and subsequently measured at amortised cost using the effective interest method. A provision is established when there is objective evidence that the Group will not be able to collect all amounts due. The amount of any provision is recognised in profit or loss. The Group always recognises lifetime expected credit losses (ECL) for trade receivables and amounts due on contracts with customers. The expected credit losses on these financial assets are estimated based on the Group’s historical credit loss experience, adjusted for facts that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast director of conditions at the reporting date, including time value of money where appropriate. Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. Cash and cash equivalents Cash and cash equivalents are recognised as financial assets. They comprise cash held by the Group and short-term bank deposits with an original maturity date of three months or less. Loss recognised previously in equity is included in profit or loss for the period. Trade payables Trade payables are initially recognised as financial liabilities measured at fair value, and subsequent to initial recognition measured at amortised cost. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deduction of all its liabilities. Equity instruments issued by the Group are recorded at the proceeds received net of direct issue costs. Share based payments Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the statement of comprehensive income on a straight-line basis over the vesting period. 44 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 Non-market vesting conditions are taken into account by adjusting the number of options expected to vest at each statement of financial position date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Fair value is calculated using the Black-Scholes model, details of which are given in note 23. Pensions The pension schemes operated by the Group are defined contribution schemes. The pension cost charge represents the contributions payable by the Group. Property, plant and equipment Property, plant and equipment are stated at cost net of accumulated depreciation and provision for impairment. Depreciation is provided on all property plant and equipment, at rates calculated to write off the cost less estimated residual value, of each asset on a straight-line basis over its expected useful life. The residual value is the estimated amount that would currently be obtained from disposal of the asset if the asset were already of the age and in the condition expected at the end of its useful economic life. The method of depreciation for each class of depreciable asset is: Fixtures and fittings Office equipment Right-of-Use asset - 25% straight line - 25% reducing balance - over term of lease Impairment of Assets Impairment tests on goodwill are undertaken annually at the balance sheet date. The recoverable value of goodwill is estimated on the basis of value in use, defined as the present value of the cash generating units with which the goodwill is associated. When value in use is less than the book value, an impairment is recorded and is irreversible. Other non-financial assets are subject to impairment tests whenever circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its estimated recoverable value (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Where it is not possible to estimate the recoverable value of an individual asset, the impairment test is carried out on the asset’s cash-generating unit. The carrying value of property, plant and equipment is assessed in order to determine if there is an indication of impairment. Any impairment is charged to the statement of comprehensive income. Impairment charges are included under administrative expenses within the consolidated statement of comprehensive income. Taxation and deferred taxation Corporation tax payable is provided on taxable profits at prevailing rates. Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs from its tax base, except for differences arising on: • • the initial recognition of goodwill; an the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit. Recognition of deferred tax assets is restricted to those instances where it is probable that future taxable profit will be available against which the asset can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are settled/ (recovered). Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: • • the same taxable Group company; or different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 45 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 4. ACCOUNTING POLICIES (continued) Segmental reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Executive Directors, who are responsible for allocating resources and assessing performance of the operating segments. A business segment is a group of assets and operations, engaged in providing products or services that are subject to risks and returns that are different from those of other operating segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. The Executive Directors assess the performance of the operating segments based on the measures of revenue, profit before taxation (PBT) and profit after taxation (PAT). Central overheads are not allocated to business segments. 5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS In the application of the Group’s accounting policies, which are described in note 4, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on experience and other factors considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following are the critical judgements and estimations that the Directors have made in the process of applying the Company’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements. Critical accounting judgements Impairment of goodwill Impairment of the valuation of the goodwill relating to the acquisition of subsidiaries is considered annually for indicators of impairment to ensure that the asset is not overstated within the financial statements. The annual impairment assessment in respect of goodwill requires estimates of the value in use (or fair value less costs to sell) of subsidiaries to which goodwill has been allocated. As a result, estimates of future cash flows are required, together with an appropriate discount factor for the purpose of determining the present value of those cash flows. Critical accounting Estimates Amortisation of intangible assets The periods of amortisation adopted to write down capitalised intangible assets requires judgments to be made in respect of estimating the useful lives of the intangible assets to determine an appropriate amortisation rate. Domain names and website costs are being amortised on a straight-line basis over the period during economic benefits are expected to be received, which has been estimated at 3 years. Intangible assets recognised on consolidation in relation to the brand names are being amortised straight-line over 7 years. Depreciation The useful economic lives of tangible fixed assets are based on management’s judgement and experience. When management identifies that actual useful economic lives differ materially from the estimates used to calculate depreciation, that charge is adjusted retrospectively. Share based payments expense Non-market performance and service conditions are included in the assumptions about the number of options that are expected to vest. At the end of each reporting period the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to the original estimates, if any, in the consolidated statement of comprehensive income, with a corresponding adjustment to equity. This requires a judgement as to how many options will meet the future vesting criteria as well as the judgements required in estimating the fair value of the options. IFRS 16 discount rates The Group estimates an appropriate discount rate based on an incremental rate of borrowing for the calculation of the IFRS 16 right-of-use assets. This requires judgement as to an appropriate discount rate. 46 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 6. SEGMENTAL INFORMATION A segmental analysis of revenue and expenditure for the period is: Revenue Cost of sales Administrative expenses* Operating profit/(loss) Amortisation Depreciation Acquisition and listing costs Share based payments Finance costs Tax Entertainment Daily £'000 Mashed Productions £'000 1,864 (263) (288) 1,313 - - - - - - 358 (131) (60) 167 - - - - - - Head Office £'000 18 - (973) (955) (133) (11) (689) (149) (3) 23 (Loss)/Profit for the year 1,313 167 (1,917) Total 2019 £'000 2,240 (394) (1,321) 525 (133) (11) (689) (149) (3) 23 (437) *Administrative expenses exclude depreciation, amortisation, share based payments and acquisition and listing costs. For the period to 31 December 2018, all costs were head office costs. The segmental analysis above reflects the parameters applied by the Board when considering the Group’s monthly management accounts. For the period to 31 December 2018, no revenue was generated. External revenue by location of customer Total assets by location Net tangible capital expenditure by location 31 December 31 December 2019 Continuing 2018 Continuing £'000 £'000 31 December 2019 £'000 31 December 2018 £'000 31 December 2019 £'000 31 December 2018 £'000 United Kingdom Europe Rest of World 1,434 612 194 2,240 - - - - 11,953 135 93 12,181 668 - - 668 13 - - 13 - - - - ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 47 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 7. REVENUE Revenue by stream is split: Advertising space Revenue by location is split: United Kingdom Europe Rest of world 2019 £’000 2,240 2,240 1,434 612 194 2,240 2018 £’000 - - - - - - The Group had four customers whose revenue individually represented 10% or more of the Group’s total revenue, being being 20%, 18%, 17% and 10% respectively. 8. LOSS FROM OPERATIONS This is arrived at after charging: Continuing operations Staff costs (see note 9) Acquisition and listing costs Depreciation of property, plant & equipment Amortisation of intangible fixed assets Operating lease expense – property Foreign exchange differences Auditors’ remuneration in respect of the Company Audit of the Group and subsidiary undertakings Auditors’ remuneration – non-audit services – accounting service fees Auditors’ remuneration – non-audit services –taxation fees Auditors’ remuneration – corporate finance fees 2019 £’000 2018 £’000 953 689 11 133 17 19 13 23 9 5 124 174 67 - - - - (1) 14 - - 1 - 15 48 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 9. STAFF COSTS Staff costs for all employees, including Directors consist of: Wages and salaries Social security costs Pensions Share based payment charge The average number of employees of the group during the year was as follows: Directors Management and administration Content 2019 £’000 716 79 9 804 149 953 2018 £’000 63 4 - 67 - 67 2019 Number 2018 Number 6 4 9 19 2 - - 2 Directors’ Detailed Emoluments Details of individual Directors’ emoluments for the year are as follows: Salary 2019 £’000 Consultancy 2019 £’000 Bonus 2019 £’000 Pension 2019 £’000 Total 2019 £’000 Total 2018 £’000 N Burton (appointed 15 May 2018) J Carter (appointed 28 February 2019) J Douglas (appointed 28 February 2019) M Higginson (appointed 28 February 2019) D Joseph (appointed 28 February 2019) R Miller (appointed 28 February 2019) J Treacy (resigned 28 February 2019) H Harris (resigned 15 May 2018) S Wilson (resigned 15 May 2018) D Maling (resigned 15 May 2018) N Lee (resigned 31 January 2018) Total 22 120 120 - 33 12 22 - - - - 329 - - - 12 - 15 - - - - - 27 - 54 54 - - - - - - - - 108 - 1 1 - - - - - - - - 2 22 175 175 12 33 27 22 - - - - 466 15 - - - - - 15 20 8 8 1 67 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 49 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 9. STAFF COSTS (continued) All pension contributions represent payments into defined contribution schemes. £93k of the share-based payment expense relates to the directors (2018: £NIL). The Executive Directors have service contracts with the Company which are terminable by the Company or relevant director after a fixed term of 12 months followed by 6 months’ notice. The Directors’ interest in the issued ordinary share capital of the Company on 24 March 2020 and as at 31 December 2019 were as follows: Shares of £0.01 Shares of £0.01 24/3/2020 31/12/2019 31/12/2018 James Carter James Douglas Nigel Burton Sir Robin Miller 10,908,078 10,908,078 238,100 775,500 11.88% 11.88% 0.26% 0.84% 10,908,078 10,908,078 238,100 775,500 12.09% 12.09% 0.26% 0.86% - - 11,830,835 - - - 10% - Details of the options over the Company’s shares held by the directors are as follows: Type of Option James Carter James Douglas EMI option EMI option Options held at 31 December 2019 1,504,404 1,504,404 Further information on share options is included in note 23. Exercise price £ Date of grant Exercise period 0.14 0.14 28 February 2019 28 February 2019 28 July 2022 28 July 2022 The market price of the shares at 31 December 2019 was 6.63p with a quoted range from date of admission to AIM on 28 February 2019 of 4.88p to 13.00p. The options at 2019 vest as above based on performance criteria detailed in note 23. 50 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 10. FINANCE COSTS Interest charges paid for lease liabilities Bank charges 11. TAXATION ON LOSS FROM ORDINARY ACTIVITIES Corporation tax Adjustment in respect of prior periods Deferred tax movement Tax credit for the year 2019 £’000 2018 £’000 1 2 3 - - - 2019 £’000 2018 £’000 51 (58) (16) (23) - - - - The tax assessed for the year differs from the standard rate of corporation tax in the UK applied to loss before tax. Total loss on ordinary activities before tax Loss on ordinary activities at the standard rate of corporation tax in the UK of 19% (2018: 19%) Effects of: Expenses not deductible for tax purposes Adjustments to prior periods Deferred tax not recognised Tax credit for the year 2019 £’000 (460) 2018 £’000 (250) (87) (48) 191 (58) (69) (23) 3 - 45 - Changes to the UK corporation tax rate were substantively enacted as part of the Finance Bill 2016 (on 6 September 2016). These include reductions to the main rate to reduce the rate to 17% from 1 April 2020. Deferred tax at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements. In November 2019, and the March 2020 budget, the Prime Minister announced the intention to cancel the future reduction in corporation tax rate from 19% to 17%. This announcement does not constitute substantive enactment and therefore deferred taxes at the balance sheet date continue to be measured at the enacted rate of 17%. There were unused tax losses of £4.5m at the 31 December 2019 which the majority restricted for use within Digitalbox Plc. No deferred tax asset has been recognised due to the uncertainty surrounding future profits. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 51 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 12. EARNINGS PER SHARE The earnings per share is based on the following: 2019 £’000 Continuing earnings post tax loss attributable to shareholders (437) Basic weighted average number of shares Diluted weighted average number of shares Basic earnings per share Diluted earnings per share 76,597,859 76,597,859 (0.00571) (0.00571) 2018 £’000 (250) 95,458,229 95,458,229 (0.00262) (0.00262) Earnings/(Loss) per ordinary share has been calculated using the weighted average number of shares in issue during the relevant financial periods. IAS 33 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease earnings per share or increase the loss per share. The exercise price of the outstanding share options is significantly more than the average and closing share price. Therefore, as per IAS33 the potential ordinary shares are disregarded in the calculation of diluted EPS. Underlying loss is the loss after taxation, adjusted for share based payments, acquisition and listing costs, and impairment of intangible assets relating to discontinuing operations. 52 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 13. BUSINESS COMBINATIONS On 28 February 2019 the Group acquired 100% of the ordinary shares in Digitalbox Publishing (Holdings) Ltd for a consideration of £9,999,048. This investment is included in the Parent company’s balance sheet at its fair value at the date of acquisition. The completion accounts show a breakdown of the assets and liabilities of the acquired company to be as follows: Book value £’000 Fair value adjustment £’000 Fair value to Group £’000 Intangible fixed assets Tangible fixed assets Receivables Cash and cash equivalents Payables Deferred tax Net assets on acquisition Goodwill on acquisition Total consideration Discharged by: Shares in Digitalbox plc 36 14 735 245 (285) - 745 100 - - - - (17) 83 136 14 735 245 (285) (17) 828 9,171 9,999 £’000 9,999 9,999 The revenue and loss included in the Consolidated Statement of Comprehensive Income for the 10 months to 31 December 2019 was £2,240k and £394k pre-tax respectively. The intangible fixed asset fair value adjustment is in relation to brand asset. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 53 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 13. BUSINESS COMBINATIONS (continued) On 5 March 2019, the Group acquired 100% of the ordinary shares Mashed Productions Limited for a consideration of £1,193,237. This investment is included in the Parent company’s balance sheet at its fair value at the date of acquisition. The completion accounts show a breakdown of the assets and liabilities of the acquired company to be as follows: Book value £’000 Fair value adjustment £’000 Fair value to Group £’000 - 3 149 188 (94) - 246 754 - - - - (128) 626 Intangible fixed assets Tangible fixed assets Receivables Cash and cash equivalents Payables Deferred tax Net assets on acquisition Goodwill on acquisition Total consideration Discharged by: Cash Shares in Digitalbox plc 754 3 149 188 (94) (128) 872 321 1,193 £’000 993 200 1,193 The trade and assets of Mashed Productions Limited have been hived up to Digitalbox Publishing Ltd from 5 March 2019. The intangible fixed asset fair value adjustment is in relation to brand asset. 54 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 14. TANGIBLE FIXED ASSETS Cost Balance at 1 January 2018 Balance at 1 January 2019 Impact of change in accounting policy Balance at 1 January 2019 (adjusted) Additions on acquisition of subsidiary Additions Balance at 31 December 2019 Accumulated depreciation Balance at 1 January 2018 Balance at 1 January 2019 Depreciation charge on owned assets Depreciation charge on financed assets Balance at 31 December 2019 Net Book Value At 31 December 2019 At 31 December 2018 At 31 December 2017 IFRS 16 Right-of-Use Asset £’000 Equipment £’000 Fixtures and Fittings £’000 Total £’000 - - 33 33 - - 33 - - - 8 8 25 - - - - - - 12 13 25 - - 2 - 2 23 - - - - - - 2 - 2 - - 1 - 1 1 - - - - 33 33 14 13 60 - - 3 8 11 49 - - The net book value of owned and leased assets included as “Tangible fixed assets” in the Statement of Financial Position is as follows: Tangible fixed assets owned Right-of-Use tangible fixed assets Information about the Right-of-Use assets is summarised below: Property Depreciation charge in respect of the Right-of-Use asset is as follows: Property 8 2019 £’000 24 25 49 2019 £’000 25 25 2019 £’000 8 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 55 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 15. INTANGIBLE ASSETS GROUP Cost Balance at 1 January 2018 Balance at 1 January 2019 Additions on acquisition of subsidiary Additions Balance at 31 December 2019 Accumulated amortisation Balance at 1 January 2018 Balance at 1 January 2019 Amortisation Impairment Balance at 31 December 2019 Net Book Value At 31 December 2019 At 31 December 2018 At 31 December 2017 Goodwill Arising on Consolidation £’000 Other Intangible Assets £’000 Development costs £’000 - - - 9,492 9,492 - - - - - 9,492 - - - - - 854 854 - - 102 - 102 752 - - - - 35 - 35 - - 31 - 31 4 - - Total £’000 - - 35 10,346 10,381 - - 133 - 133 10,248 - - The cost of other intangible assets comprises the net present value of £854k of brand value at the date of acquisition. The other intangible assets are being amortised over a period of 7 years. Amortisation is charged to administrative costs in the Statement of Comprehensive Income. GOODWILL AND IMPAIRMENT The carrying value of goodwill in respect of each cash generating unit is as follows: Digitalbox Publishing (Holdings) Limited Mashed Productions Limited 31 December 2019 £’000 31 December 2018 £’000 9,171 321 9,492 - - - 56 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 The Group is obliged to test goodwill annually for impairment, or more frequently if there are indications that goodwill and indefinite life intangibles might be impaired, due to the goodwill deemed to have an indefinite useful life. In order to perform this test, management is required to compare the carrying value of the relevant cash generating unit (“CGU”) including the goodwill with its recoverable amount. The recoverable amount of the CGU is determined from a value in use calculation. It is considered that any reasonably possible changes in the key assumptions would not result in an impairment of the present carrying value of the goodwill. Digitalbox Publishing (Holdings) Limited The recoverable amount of Digitalbox Publishing (Holdings) Limited has been determined from a review of the current and anticipated performance of this unit. In preparing this projection, a discount rate of 7% has been used based on the weighted average cost of capital and a future growth rate of 3% has been assumed. It has been assumed investment in capital equipment will equate to depreciation over the year. The discount rate was based on the Company’s cost of capital as estimated by management. Mashed Productions Limited The recoverable amount of Mashed Productions Limited has been determined through the trade and assets being hived up to Digitalbox Publishing Limited and will continue to benefit from cash inflows through Mashed Productions. 16. TRADE AND OTHER RECEIVABLES Due after more than one year Prepayments and accrued income Trade receivables Prepayments and accrued income Other receivables Convertible loan note 17. CASH AND CASH EQUIVALENTS Cash at bank and in hand 31 December 2019 £’000 31 December 2018 £’000 18 18 1,037 77 275 - 1,407 - - 203 14 220 437 31 December 2019 £’000 31 December 2018 £’000 477 477 231 231 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 57 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 18. LIABILITIES Current liabilities Trade payables Social security and other taxes Accruals Lease liabilities Other payables Corporation tax payable Non-current liabilities Other payables Lease liabilities 31 December 2019 £’000 31 December 2018 £’000 54 143 237 24 54 98 610 8 2 10 1 - 162 - - - 163 - - - 19. LOANS The Group had no loan arrangements in place as at 31 December 2019. The Group had the following loan arrangements in place as at 31 December 2018: Convertible loan loans On 9 November 2018, the Company issued a conditional Placing of £220,000 via Convertible Unsecured Loan Notes (“CLNs”). The CLNs had an initial term of 3 months, subsequently extended to 31 March 2019, and no coupon. The issue of the CLNs was conditional on the Company completing a Reverse Takeover and on the Admission of the enlarged ordinary share capital to trading on a Recognise Investment Exchange. When issued, the CLNs had a conversion price of 25% discount to the price on Re-admission. The Company considered the accounting treatment of the CLNs in accordance with IAS 32. Based on management’s review of the loan agreement and the applicable standard it was deemed appropriate not to split the instrument between debt and equity components but to treat the convertible loan entirely as debt. Following the Reverse Takeover on 28 February 2019, £220,000 of share capital was issued in relation to the convertible loan. Liability component at 1 January Liability component at date of issue Loan notes converted to shares (including interest) Liability component at 31 December 31 December 2019 £’000 31 December 2018 £’000 220 - (220) - - 220 - 220 58 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 20. DEFERRED TAX Balance at 1 January 2019 Deferred tax on acquisition of subsidiaries Deferred tax charge for the year Balance at 31 December 2019 The deferred tax provision comprises: Deferred tax on intangibles The expected net reversal of deferred tax in 2019 is £21k. 21. FINANCIAL RISK MANAGEMENT Total £’000 - 144 (16) 128 31 December 2019 £’000 31 December 2018 £’000 128 128 - - The Group is exposed to risks that arise from its use of financial instruments. These financial instruments are within the current assets and current liabilities shown on the face of the statement of financial position and comprise the following: Credit risk The Group is exposed to credit risk primarily on its trade receivables. The Group maintains its cash reserves at a reputable bank. It is group policy to assess the credit risk of each new customer before entering into binding contracts. The maximum exposure to credit risk is represented by the carrying value in the statement of financial position as shown in note 18. The credit risk on liquid funds is low as the funds are held at a bank with a high credit rating assigned by international credit agencies. Current financial assets Trade receivables Other receivables Cash and cash equivalents The table below illustrates the due date of trade receivables: Current 31 – 60 days 61 – 90 days 91 – 120 days 121 and over 31 December 2019 £’000 31 December 2018 £’000 1,037 275 477 1,789 - 437 231 668 31 December 2019 £’000 31 December 2018 £’000 390 327 172 65 83 1,037 - - - - - - ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 59 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 21. FINANCIAL RISK MANAGEMENT (continued) The table below illustrates the geographical location of trade receivables: United Kingdom Europe Rest of world Liquidity risk 31 December 2019 £’000 31 December 2018 £’000 809 135 93 1,037 - - - - Liquidity risk arises from the Group’s management of working capital and the finance charges and repayments of its liabilities. The Group’s policy is to ensure that it will have sufficient cash to allow it to meet its liabilities when they become due and so cash holdings may be high during certain periods throughout the period. The Group currently has no bank borrowing or overdraft facilities. The Group’s policy in respect of cash and cash equivalents is to limit its exposure by reducing cash holding in the operating units and investing amounts that are not immediately required in funds that have low risk and are placed with a reputable bank. Cash at bank and cash equivalents 31 December 2019 £’000 31 December 2018 £’000 At the year end the Group had the following cash balances: 477 231 Cash at bank comprises Sterling and US Dollar cash deposits held within National Westminster. All monetary assets and liabilities within the group are denominated in the functional currency of the operating unit in which they are held. All amounts stated at carrying value equate to fair value. Financial liabilities at amortised cost Trade payables Accruals Lease liabilities Loans Other payables 31 December 2019 £’000 31 December 2018 £’000 54 237 26 - 4 321 1 162 - 220 - 383 60 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 The table below illustrates the maturities of trade payables: Current 31 – 60 days 61 – 90 days 91 – 120 days 121 and over The table below shows the maturities of financial liabilities: Trade payables Accruals Lease liabilities Other payables 31 December 2019 £’000 31 December 2018 £’000 39 11 3 - 1 54 1 - - - - 1 Carrying amount £’000 6 months or less £’000 6-12 months £’000 1 or more year £’000 54 237 26 4 321 54 237 12 4 307 - - 12 - 12 - - 2 - 2 Capital Disclosures and Risk Management The Group’s management define capital as the Group’s equity share capital and reserves. The Group’s objective when maintaining capital is to safeguard its ability to continue as a going concern, so that in due course it can provide returns for shareholders and benefits for other stakeholders. The Group manages its capital structure and makes adjustments to it in the light of changes in the business and in economic conditions. In order to maintain or adjust the capital structure, the Group may from time to time issue new shares, based on working capital and product development requirements and current and future expectations of the Company’s share price. Share capital is used to raise cash and as direct payments to third parties for assets or services acquired. Market risk Interest rate risk Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group considers the interest rates available when deciding where to place cash balances. Foreign currency risk Foreign exchange transaction risk arises when individual Group operations enter into transactions denominated in a currency other than the functional currency. The principal risk arises from the Group’s US based subsidiary, Digitalbox Inc. The general policy for the Group is to sell to customers in the same currency that services or goods are purchased in, reducing the transactional risk. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 61 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 22. SHARE CAPITAL Called up share capital Allotted, called up and fully paid No. 31 December 2019 Value £’000 No. 31 December 2018 Value £’000 Ordinary shares of 0.01p each 90,251,726 903 118,079,093 1,181 Deferred shares of 0.0499p each 386,907,464 19,306 386,907,464 19,306 Deferred shares of 0.01p each 112,176,000 1,122 - - 589,335,190 21,331 504,986,557 20,487 Shares issued in the year to 31 December 2019: Date Description No shares Price/ share Pence Gross share value £ 28.02.19 28.02.19 28.02.19 28.02.19 28.02.19 Issue of 1p shares Issue of 1p shares Issue of 1p shares Issue of 1p shares Issue of 1p shares 907 2,095,238 72,720,346 8,103,571 1,428,571 1 1 1 1 1 9 20,952 727,203 81,036 14,286 Cash received £ 9 219,999 - 1,020,001 - Shares issued Total consideration £ - - 9,999,047 114,501 200,000 9 219,999 9,999,047 1,134,502 200,000 84,348,633 843,486 1,240,009 10,313,546 11,553,557 As at 31 December 2019 589,335,190 21,330,959 As at 31 December 2018 504,986,557 20,487,473 Cash received does not included costs relating to share issues. In the year to 31 December 2019, costs of £117k were incurred relating to share issues and these costs were charged against share premium. Share premium represents the total consideration received on each share issue less the gross share value. 23. SHARE BASED PAYMENTS During the year, the Company incurred £149k share based payment charge (2018: £nil). £99,929 options were cancelled (2018: £nil) and £nil options expired (2018: £30k), which was transferred through equity to retained earnings on the expiration of options during the year. Outstanding at beginning of year Granted during the year Cancelled during the year Expired during the year Outstanding at the end of the year Exercisable at the end of the year 2019 No. of share options Weighted average exercise price 2018 No. of share options Weighted average exercise price 160,000 6,017,526 (1,002,906) - 5,174,620 5,174,620 20p 14p 14p - 14p 14p 1,360,000 - - (1,200,000) 160,000 160,000 6.3p - - 4.5p 20p 20p 62 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 160,000 options are exercisable at 20.0p and expire on 31 December 2020. 5,014,620 options are exercisable after 3 years, or an exit event. A Black-Scholes model has been used to determine the fair value of the share options on the date of grant. The fair value is expensed to the income statement on a straight-line basis over the vesting period, which is determined annually. The model assesses a number of factors in calculating the fair value. These include the market price on the date of grant, the exercise price of the share options, the expected share price volatility of the Company’s share price, the expected life of the options, the risk-free rate of interest and the expected level of dividends in future periods. For those options granted where IFRS 2 "Share-Based Payment" is applicable, the fair values were calculated using the Black-Scholes model. The inputs into the model were as follows: 28 February 2019 Risk free rate 0.75% Share price volatility 65% Share price at date of grant £0.0004 Expected volatility was determined by calculating the historical volatility of the Company's share price for 12 months prior to the date of grant. The expected life used in the model is the term of the options. The vesting conditions in relation to the share options are 3 years, or an exit event. The vesting condition in relation to the warrants is 1 year from admission. 24. RESERVES Full details of movements in reserves are set out in the consolidated statement of changes in equity. The following describes the nature and purpose of each reserve within owners’ equity: Share premium: Amount subscribed for share capital in excess of nominal value. Retained earnings: Cumulative net gains and losses recognised in the consolidated statement of comprehensive income. Share based payment reserve: Cumulative charges recognised in the consolidated statement of comprehensive income in relation to share based payments. 25. LEASING COMMITMENTS Group as a lessee The Group leasing arrangements for their head office. Lease liabilities due 31 December 2019 £’000 Contractual undiscounted cash flow due 31 December 2019 £’000 Current Non-current 24 2 26 8 27 35 There is not considered to be any significant liquidity risk by the Group in respect of leases. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 63 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 25. LEASING COMMITMENTS (continued) The following amounts in respect of leases, where the Group is a lessee, have been recognised in the profit or loss: Interest expense on lease liabilities Expenses relating to short-term leases 26. CAPITAL COMMITMENTS At 31 December 2019 and 31 December 2018 there were no capital commitments. 31 December 2019 £’000 1 17 18 27. RELATED PARTY TRANSACTIONS During the year, Integral2 Limited billed £43k (2018: £nil) to the Group, a company related by virtue of David Joseph being a common director. As at 31 December 2019, £5k (2018: £nil) was owed to Integral2 Limited. During the year, the Group received revenue of £17k (2018: £nil) from Immotion Group plc, a company related by virtue of Martin Higginson being a common director. As at 31 December 2019, £2k (2018: £nil) was owed to the Group. During the year, M Capital Investment Partners (Holdings) Limited billed £23k (2018: £nil) to the Group, a company related by virtue of Martin Higginson being a common director. As at 31 December 2019, £nil (2018: £nil), was owed to M Capital Investment Partners (Holdings) Limited. During the year, Robin Miller Consultants Limited billed £10k (2018: £nil) to the Group, a company related by virtue of Robin Miller being a common director. As at 31 December 2019, £nil (2018: £nil), was owed to Robin Miller Consultants Limited. The key management personnel are considered to be the Board of Directors. Their remuneration is disclosed in detail in note 9. Key management were remunerated £444k (2018: £67k) in the year ended 31 December 2019. The key management were provided 3,008,808 of share options realising a charge of £93k in the year. 28. SUBSEQUENT EVENTS The worldwide outbreak of the COVID-19 virus represents a significant event since the end of the financial period. In light of the impact of the virus upon supply chain and consumer demand, the Group has reviewed its cash flow forecasts and considered the impact on going concern, concluding that the going concern basis remains an appropriate basis of preparation for these financial statements given the likely cash flow impact of operations 12 months from the date of signing this report. Please refer to note 4 for further detail on the Group’s going concern basis of preparation. COVID-19 is considered to be a non-adjusting post balance sheet event and therefore has been taken into account in preparing the statement of financial position but the Directors don’t consider there to be any impact as at 31 December 2019. Please refer to note 5 and 15 for further details on the Group’s assessment of the impact of COVID-19 on the impairment of goodwill. 64 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC COMPANY STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2019 COMPANY STATEMENT OF FINANCIAL POSITION Fixed assets Investments Current assets Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Borrowings Total current liabilities Non-current liabilities Other payables Total liabilities Net current (liabilities)/assets Total assets less total liabilities Capital and reserves Called up share capital Share premium account Share based payment reserve Retained reserves Shareholders’ funds III IV V VI VII At 31 December 2019 £’000 At 31 December 2018 £’000 11,192 11,192 155 22 177 (214) - (214) (8) (222) (37) 11,147 - - 437 231 668 (163) (220) (383) - (383) 285 285 21,331 29,757 181 (40,122) 20,488 19,164 32 (39,399) 11,147 285 The Company has taken advantage of the exemptions allowed under section 408 of the Companies Act 2006 and has not presented its income statement in these financial statements. The Group loss for the year included a loss on ordinary activities after tax of £723k (2018: £250k loss) in respect of the Company which is dealt with in the financial statements of the Parent Company. The financial statements were approved by the Board and authorised for issue on 1 April 2020. James Carter CEO David Joseph CFO The notes on pages 59 to 69 form part of the Company financial statements. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 65 DIGITALBOX PLC COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019 COMPANY STATEMENT OF CHANGES IN EQUITY Share Premium £’000 Share based payment £’000 1 January 2018 Issue of shares Share issue costs Share options cancelled Loss after tax Share Capital £’000 19,823 665 - - - 19,181 25 (42) - - 31 December 2018 20,488 19,164 Issue of shares Issue costs deducted from equity Loss after tax Equity settled share-based payments 843 - - - 10,710 (117) - - Retained reserves £’000 (39,179) - - 30 (250) (39,399) - - (723) - Retained reserves £’000 (113) 690 (42) - (250) 285 11,553 (117) (723) 149 62 - - (30) - 32 - - - 149 31 December 2019 21,331 29,757 181 (40,122) 11,147 66 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com COMPANY STATEMENT OF CASH FLOWS Cash flows from operating activities Operating loss before tax Adjustments for:Share based payments Cash flows from operating activities before changes in working capital (Increase)/Decrease in trade and other receivables Increase/(Decrease) in trade and other payables Cash generated/used in operations Investing activities Disposals of available-for-sale financial assets Acquisition of subsidiaries Cash on acquisition Net cash absorbed from investing activities Financing activities Issue of new share capital (net of costs) Costs on issue of shares Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period Reconciliation of net cashflow to movement in net debt: Net (decrease) / increase in cash and cash equivalents New loans and finance leases Repayment of loans Movement in net debt in the year Net debt at 1 January Net debt at 31 December DIGITALBOX PLC COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019 Year ended 31 December 2019 £’000 Year ended 31 December 2018 £’000 (723) 149 (574) 62 (260) (198) - (993) 433 (560) 1,240 (117) 1,123 (209) 231 22 (209) - - (209) 231 22 (354) - (354) (163) 4 (159) 50 - 50 690 (42) 648 185 46 231 185 - - 185 46 231 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 67 DIGITALBOX PLC NOTES FORMING PART OF THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTES FORMING PART OF THE COMPANY FINANCIAL STATEMENTS I. ACCOUNTING POLICIES The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by the Act the separate financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The principal accounting policies adopted are the same as those set out in note 4 to the consolidated financial statements except as noted below: Valuation of investments Investments in subsidiaries are stated at cost less any provision for impairment in value. II. OPERATING LOSS The auditor remuneration for audit and other services is disclosed in note 8 to the consolidated financial statements. The average number of employees of the company during the year was 6 (2018: 2) and total staff costs were £466k (2018: £67k). Directors remuneration is disclosed in note 9 to the consolidated financial statements. III. FIXED ASSET INVESTMENTS Subsidiary undertakings Cost Balance at 1 January 2019 Additions Disposals Balance at 31 December 2019 Provisions Balance at 1 January 2019 Balance at 31 December 2019 Carrying value of investments 31 December 2019 £’000 - 11,192 - 11,192 - - 11,192 At the year end the Company had the following subsidiaries: Subsidiary name Class of shares Proportion of ownership Registered office Digitalbox Publishing Limited Mashed Productions Limited Digitalbox Inc Digitalbox Publishing (Holdings) Limited Ordinary Ordinary Ordinary Ordinary 100% 100% 100% 100% 2-4 Henry Street, Bath, BA1 1JT No.2 Lochrin Square, 96 Fountainbridge, Scotland, EH3 9QA 19 Courtland Drive, Hudson, MA 01749 2-4 Henry Street, Bath, BA1 1JT Subsidiary name Digitalbox Publishing Limited Digitalbox Inc Digitalbox Publishing (Holdings) Limited Principal activity Sale of digital advertising space Dormant subsidiary Dormant subsidiary 68 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 IV. RECEIVABLES: due within one year Amounts owed by group undertakings Other receivables Prepayments and accrued income Convertible loan note V. CASH AND CASH EQUIVALENTS Cash at bank and in hand 31 December 2019 £’000 136 10 9 - 31 December 2018 £’000 - 14 203 220 155 437 31 December 2019 £’000 31 December 2018 £’000 22 22 231 231 VI. PAYABLES: amounts falling due within one year Trade payables Accruals Other tax and social security Other payables VII. SHARE CAPITAL 31 December 2019 £’000 31 December 2018 £’000 3 148 13 50 214 1 162 - - 163 Details of the Company’s share capital and the movements in the period can be found in Note 22 to the consolidated financial statements. VIII. SHARE OPTIONS Share Option Scheme Details of the share options outstanding at 31 December 2019 can be found in Note 23. IX.RESERVES Details of the reserves can be found in Note 24. X. RELATED PARTY TRANSACTIONS Details of the Company’s related party transactions can be found in Note 27 to the consolidated financial statements. ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com 69 DIGITALBOX PLC DIRECTORS, SECRETARY AND ADVISERS Directors, Secretary and Advisers Directors Company Secretary and Registered Office Nigel Burton James Carter (appointed 28 February 2019) James Douglas (appointed 28 February 2019) Martin Higginson (appointed 28 February 2019) David Joseph (appointed 28 February 2019) Sir Robin Miller (appointed 28 February 2019) David Joseph 2-4 Henry Street Bath England BA1 1JT Company Number 04606754 Registrars Nominated Adviser and Broker Joint Broker Independent Auditors Solicitors Country of Incorporation of Parent Company Legal Form Domicile Share Registrars Limited The Courtyard 17 West Street Farnham GU9 7DR WH Ireland Limited 24 Martin Lane London EC4R 0DR Alvarium Capital Partners 10 Old Burlington Street London W1S 3AG Haysmacintyre LLP 10 Queen Street Place London EC4R 1AG DWF LLP Central Square South Orchard Street Newcastle upon Tyne NE1 3AZ England and Wales Public Limited Company United Kingdom 70 ANNUAL REPORT & ACCOUNTS 2019 | digitalbox.com Digitalbox PLC 2-4 Henry Street Bath BA1 1JT United Kingdom Co Reg No. 04606754 +44 (0)1225 430 091 digitalbox.com © 2020 

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