Digitalbox plc
Annual Report 2021

Plain-text annual report

DIGITALBOX PLC ANNUAL REPORT AND ACCOUNTS 2021 DIGITALBOX PLC CONTENTS DIGITALBOX PLC CHAIRMAN’S STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2021 Contents Chairman’s Statement Chief Executive’s Statement Strategic Report Corporate and Social Responsibility Report Corporate Governance Report Audit Committee Report Remuneration Committee Report Directors’ Report Directors’ Responsibilities Statement Independent Auditor’s Report Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Financial Position Page 3 4 - 9 10 - 16 17 18 - 24 25 26 27 - 28 29 30 - 33 36 37 38 Consolidated Statement of Cash Flows 39 - 40 Notes forming part of the Consolidated Financial Statements 41 - 64 Company Statement of Financial Position Company Statement of Changes in Equity 65 66 Notes forming part of Company Financial Statements 67 - 70 Directors, Secretary and Advisers 71 Chairman’s Statement FOR THE YEAR ENDED 31 DECEMBER 2021 I am delighted to report that Digitalbox plc (‘Digitalbox’) has successfully continued to deliver on its growth strategy in 2021 as it strengthened all parts of its business. When the management team set about building Digitalbox they did so by identifying consumer media trends that they were confident would play out over the medium term. These trends have generally been accelerated by the global pandemic which, whilst painful for all in 2020, have progressed the business more quickly than would have once been anticipated. As the market continued to experience uncertainty throughout the year, Digitalbox was able to quickly adapt, benefiting from the agile structures put in place during 2020. With strong editorial propositions running through the portfolio, the teams expertly navigated the market to extract great value over the year, assisted by some post-pandemic tailwinds. The delivery of the female audience at scale is continuing to build a premium price from advertisers. As the year progressed, the business has built its gross cash position from a starting point of £1.9m to £2.2m at 31 December 2021. While maintaining the CBILS loan from 2020, this increasingly puts the business in a stronger position when it comes to making investment decisions and the team have continued to review potential acquisitions and opportunities for in- house growth. The amount outstanding on the CBILS loan as at 31 December 2021 was £0.4m. The gross cash balance on hand as at 25 March 2022 was £2.7m. In terms of acquisitions, The Tab is a great example of how Digitalbox acquire and improve a business. Moving into operating profit in its first month of ownership, the asset paid back over 70% of its purchase price by the year end alongside bringing other financial benefits to the business. The team spent time further integrating the editorial operation whilst strengthening its commercial operations, which saw advertising session values more than double for the critical trading month of December. Much of Digitalbox’s success has been driven by its Graphene platform. With a technology team briefed to optimise everything they can from a mobile perspective, Graphene is constantly evolving as the market changes and is behind the company strengthening its position in all key areas, including commercial growth and audience engagement. This combination of maintaining agile structures, delivery on strategy and using skills to best adapt to positive market conditions has led to a 68% year-on- year growth in revenue and a strong £1.0m of adjusted EBITDA compared to £0.3m in 2020. Adjusted EBITDA is defined as the operating profit/ (loss) after adding back depreciation, amortisation, share based payments, acquisition and listing costs, direct costs associated with business combinations and capital restructure costs. We strengthened the Board with the appointment of Philip Machray in July 2021 as an independent non- executive director. While we all hope the chief impacts of the pandemic are largely over, this mobile-first business is in excellent shape to take advantage of the new economic landscape. As management are strengthening the operating team through new appointments, we remain highly cash generative and with healthy cash reserves in hand, we are in a great position to deliver further opportunities for growth in 2022. Marcus Rich Chairman 28 March 2022 2 3 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comDIGITALBOX PLC CHIEF EXECUTIVE’S STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC CHIEF EXECUTIVE’S STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2021 Chief Executive’s Statement FOR THE YEAR ENDED 31 DECEMBER 2021 2021 was an important year for Digitalbox, with profitable growth and further progress made in delivering our strategy of building a leading mobile- focused media business. We developed our portfolio, attracted new audiences and monetised them effectively. The successful year-end outcome has been greatly aided by our knowledge, focus and technology allowing us to drive benefit from our strategic positioning. Profitable growth and delivering our strategy Against a backdrop of economic disruption created by the pandemic, we were well served by operating in the segment of the advertising market which presents the most accountable and relevant commercial solutions. When pressure was placed on marketeers in 2020 and 2021, they chose to increasingly shift their spend to targeting highly engaged users on mobile devices – Digitalbox’s heartland. As we have continued to build our audience base to become one of the most significant publishers for women in the UK, we have benefited from the market demand for quality advertising inventory at scale for this demographic. FINANCIAL REVIEW Like the major platform businesses (Facebook/Google/ Amazon), Digitalbox has benefited from a positive shift in consumer media behaviour and the arising marketing trends. Traffic has been stimulated by the ubiquity of mobile devices that has seen usage time climb to record levels in 2021. Advertising markets also grew back strongly, and while the market returned in a less traditional shape due to some macro-economic challenges, it really surged forwards over the year. With this momentum in the market, Digitalbox again traded profitably in 2021 delivering an adjusted EBITDA of more than £1.0m while building its gross cash position to £2.2m as at 31 December 2021. The business therefore ended the year with revenues up 68% year on year to £3.7m, which the Board consider a significant achievement. Revenues include 12 months of trading on The Tab to 31 December 2021 (versus three months of trading in 2020). The outcome is a strong indicator of the Digitalbox business model. Gross profit was £3.1m (2020: £1.7m) delivering a year- on-year margin increase on the back of advertising rates recovering and delivering healthy gross margins of 86% (2020: 76%). Adjusted EBITDA for the year was £1.0m (2020: £0.3m), and our adjusted EBITDA margin doubled to 28% (2020: 14%). Digitalbox has a low capital expenditure requirement and is not working capital hungry. This, together with the successful £1.2m placing with Downing Ventures in October 2020, alongside our CBILS loan of £0.45m secured in the same month, ensured that the business continued to strengthen its balance sheet and cash reserves, ending the year with £2.2m of cash (2020: £1.9m). We retained the CBILS loan but repaid the £50k Bounce Back Loan inherited when we acquired Tab Media Limited. 4 5 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comDIGITALBOX PLC CHIEF EXECUTIVE’S STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC CHIEF EXECUTIVE’S STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2021 MARKET LANDSCAPE As the AIM market has seen new entrants from the media industry over the past year, it is good to see this increased activity draw attention to our sector. It has also been increasingly pleasing to see the market recognise the value contained within the Digitalbox business, with further headroom on valuations given those of comparable peers. There are commonalities in our operation to that of LBG Media plc and our UK female audience figures are positioned positively alongside those of Future plc. OPERATING REVIEW 2021 was a year of continued uncertainty due to the pandemic, but it further demonstrated the effectiveness of the digital advertising medium as its share grew towards 60% of global ad spend. As the pandemic disrupted movement and shopping habits, it rapidly accelerated the adoption of ecommerce via the most personal of channels, the mobile device. With Digitalbox’s mobile-first focus, we were well positioned for the market adjustments of 2021 and remain very well placed for the forecast growth over coming years. Projected Global Digital / Mobile Ad Spend 683 643 602 560 515 465 62% 64% 60% 66% 68% 70% 2021 2022 2023 2024 2025 2026 Global Digital Ad Spend $bn* Mobile % of total* *Source: Statista Worldwide Digital Advertising Report Nov 2021 6 Digitalbox currently owns and operates three trading brands – Entertainment Daily, The Daily Mash and The Tab. Entertainment Daily produces and publishes online UK entertainment news covering TV, showbiz and celebrities. The Daily Mash delivers online satirical news articles in its own distinctive style and The Tab is the UK’s largest student and youth culture site fuelled by a network of more than 30 local university sites. All three brands generate revenue from advertising in and around the content they publish. Our user base grew 82% year-on-year as we strengthened our portfolio of assets over the 12-month period. As well as building out further strands to our existing brands we invested in ensuring The Tab was as well integrated as possible to benefit from our technology and drive its commercial success. Compelling content remains at the core of the Digitalbox offering, created by talented teams with an expert understanding of their respective audiences. We couple this expertise with our proprietary mobile- first tech stack, Graphene. Named after the incredibly fast, light, super-conductive material, Graphene has been shaped to deliver the best user experience through the fastest and lightest page load speeds on mobile and highly efficient advertising auctions that drive value through competitive tension. It enables audiences to scale rapidly with the least resistance from the technology as the major platforms continue to up-rank publishers in real time as speed quickens. The Tab has proved to be a great success since its acquisition at the end of 2020. It has now paid back over 70% of its purchase price within the first 15 months of ownership. We have been considering further acquisitions and have been highly selective, rejecting some targets owing to the nature of their broken business models and some for being overpriced. We continue to scour the market and with cash in the bank will move quickly where we can realise the appropriate value. The Digitalbox team is being scaled to bring capacity for further growth on our existing brands and to ensure any acquisitions can be quickly integrated, while operational efficiencies remain strong. LEADING AS A MOBILE-FIRST BUSINESS Our strategy to create a mobile-first business has positioned us as a market leader for both audience engagement and monetisation. Push media skills remain critical and our brands continue to engage consumers at scale with over 88% of our audience on Entertainment Daily, The Daily Mash and The Tab visiting on mobile devices. With an average of over 22m monthly user visits to our sites, we provide truly significant user scale to the market. As noted earlier, mobile advertising spend was growing well ahead of the pandemic. The COVID-19 pandemic has accelerated the trend, with digital advertising now accounting for 64% of all global advertising expenditure. As part of our Graphene technology suite that supports our mobile-first strategy, we have built a new Graphene Ad Stack (G.A.S.) which enables optimisations to be rapidly applied. As previously reported, our G.A.S. video player has helped contribute to our growth with record revenues being generated in December 2021. PORTFOLIO GROWTH Entertainment Daily saw its user-base grow as the site diversified its traffic sources. The site was named by UK Press Gazette as the fastest growing news site in the UK for two months running. Google now accounts for over 40m sessions and is set for further growth as we invest more in SEO content and optimisation alongside the Discover feed. Facebook also performed well as the turbulence within its ecosystem reduced after the challenges of the US elections in 2020. The editorial team hit all the TV and showbiz stories as the news broke, maximising traffic and social engagement around moments that caught the nation’s imagination. I m a g e : S h u t t e r s t o c k 7 We acquired the UK’s most successful student and youth culture site, The Tab in late 2020. The site was founded by three students at Cambridge in 2009 as a reaction to out-of-touch student papers and since then it has exploded into one of the biggest youth media sites in Britain, speaking directly to Generation Z and engaging with more than six million users a month. Content is driven by a core team based in London who work with student journalists on more than 30 subsites across UK campuses, offering a mix of smart takes on trending youth culture and strong campaigning editorial. Not only is this an incredible opportunity to engage with this influential demographic, it also opens up a pool of smart journalist talent who may well be interested in contributing to the broader Digitalbox business. While The Tab’s founders were right about the need for a fresh, relevant platform for the student audience, we have spent time refining the commercial approach. G.A.S. has increased its impact over 2021 with the December 2021 session values being up more than 100% over the previous December. This is a great case study in how our approach can take websites forward with a much more efficient operating model. The Daily Mash had a strong year growing back from the Facebook misinformation algorithm that caused setbacks in 2020 when Facebook/Meta struggled to identify the difference between satire and fake news. With a highly loyal core audience we decided to diversify our revenue sources on the site through the test launch of an ad-free experience behind a paywall. ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC CHIEF EXECUTIVE’S STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC CHIEF EXECUTIVE’S STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2021 Corporate Highlights REVENUE ADJUSTED EBITDA £3.7m vs £2.2m in 2020 £1.0m vs £0.3m in 2020 ADJUSTED EBITDA MARGIN ADJUSTED EBITDA PER SHARE 28% vs 14% in 2020 0.9p vs 0.3p in 2020 AD EXTRA TEAM DAY SHOTS This test has proved very encouraging with over 450 subscribers and we plan to scale the project with the addition of a premium content offering for these paying visitors. We also moved our TV relationship from BBC2 to UK TV’s Dave channel where the Late Night Mash show upped its on-air time from 30 mins to 45 minutes per episode and increased the number of episodes from six to nine for the season. The show achieved fantastic BARB (Broadcasters Audience Research Board) audience figures by establishing itself as the channel’s third best performing show for the year and delivering more than double the slot average audience. CULTURE AND PEOPLE We are focused on creating a culture that enables talented people to do their best work. Even before the pandemic that meant being flexible rather than harbouring traditional views of office culture or adopting a one-size-fits-all approach. We continue to mix office-based roles and remote 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. During the year our teams rose to the challenges presented by reduced face-to-face contact while delivering great results. Good communication and a sense of inclusion are important to us, so we publish monthly all-staff updates on progress and stage weekly leadership sessions alongside daily team meetings. Building on this, in July we held our first all- staff conference which was a fantastic opportunity to bring everyone together and share ideas. Recruiting and retaining great people is crucial to our success. Our success hiring younger talent on Entertainment Daily through its apprentice programme has continued along with new development opportunities, training and development for more senior staff. The Daily Mash has strengthened its commissioning team, and we have used The Tab’s outreach network to bring new writing talent onto the site. Everyone at Digitalbox benefits from the company’s life assurance and pension schemes and we aim to ensure our staff are rewarded fairly and have opportunities to progress within the business. All team members and their immediate families have access to our free wellbeing & support programme including personalised healthy eating and exercise plans, mental health support, legal and medical advice and ways to prevent burnout. A share options scheme also exists for senior staff. I would like to take the opportunity to thank all staff across the business for their incredible hard work and commitment during the last year and their valuable contribution to these results. I would also like to thank all those student journalists who have contributed to The Tab over the year, some of whom I had the pleasure of meeting at the brand’s annual student curry night in Brick Lane. BUSINESS OUTLOOK Digitalbox has continued to develop as a profitable UK digital media business positioned squarely in the mobile space. Global digital advertising spend is forecast to grow by more than 50% in the next four years. The market reaction to the COVID-19 pandemic has accelerated the positive trends we had already identified, pushing the business to the forefront as mobile devices market share is forecast to shift from 60% of all digital ad spend in 2021 to 70% in 2026 (see table above) and our content and tech teams continue to strengthen delivery through this channel. Beyond the advertising market, the entertainment production houses that were hit hard in 2020 are also recovering well. 2022 is anticipated to see UK TV production spend rise to over £10bn, which we anticipate will benefit our audience engagement with new shows to cover and provide further opportunities for our associated TV show, Late Night Mash. confidence we can continue to create growth within the portfolio and make further acquisitions when the fit is right. Current trading remains strong and in line with market expectations. We remain alert to any market adjustments as a result of the war in the Ukraine, although Digitalbox is no more exposed than any other primarily UK-based media business. The Company has made a charitable donation to the Disasters Emergency Committee to assist those impacted by the crisis. In short, we enter 2022 with a portfolio of assets primed for future growth, a stronger investor base and a confident digital advertising sector destined to significantly increase its share of global ad spend. The two acquisitions we have completed since our admission to AIM – The Daily Mash and The Tab – have proved the potential of our model, giving us James Carter Chief Executive 28 March 2022 k c o t s r e t t u h S : e g a m I 8 9 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 Strategic Report We set out to build a new digital media The Digitalbox Vision business; one driven by profit and efficiency delivering high-quality content engaging users at speed and scale. Our aim remains to generate organic growth of our existing assets and to acquire and transform digital media properties with the potential to thrive through the application of the Digitalbox model. We have a proven ability to grow at speed by focusing on current and future trends; rapidly adapting to technical advances and the habits of our audience, free from legacy issues that frequently cause distraction in other media businesses. CONSUMER MEDIA BEHAVIOUR The Digitalbox publishing model was informed by the recognition of the growth of ‘push media’ consumption, especially on mobile – where the most highly engaging and relevant content from publishers is placed in users’ feeds based on trending topics, article performance and their own behaviours and interests. Content-surfacing algorithms continue to be refined, delivering a better user experience and higher rates of engagement resulting in more time being spent within the respective gateways to this content. Both Meta and Alphabet continue to compete for consumer attention through ‘push media’ consumption, and it is the publishers with the most engaging content that will continue to benefit from this competition. Google continues to develop its push content strategy via its Discover feed which is now making billions of content suggestions and Facebook is placing a greater focus on its content tools being more fully integrated across its platforms in a bid to better enable creators and satisfy their audiences. Targeting consumers via an array of distribution channels is one thing, but having the ability to profitably operate in those channels is where the real skillset lies. Whilst the major platforms continue to evolve their models, consumers continue to support other push media sources too, with the continued growth of TikTok amongst the younger demographic. As a result, we continue to see growth opportunities. DIGITALBOX PLC STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 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 audiences, keeping our readers coming back again and again. 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 great value on high- quality UK traffic. The addition of The Tab at the end of September 2020 with its hyper-local university sites adds even more depth to this element of our strategy. GROWTH THROUGH ‘BUY AND BUILD’ On our admission to AIM in February 2019, Digitalbox outlined a strategy to make investments in its existing portfolio and perform acquisitions to grow the business. We intended to identify targets within markets that offer natural synergies with our ongoing operations and also to expand our existing assets into areas where there is a clear appetite from our audiences. The integration of The Tab acquisition in 2020 marked our second acquisition after The Daily Mash in 2019. The results have been pleasing as we have improved the brand’s commercial performance to a point where it has repaid 70% of its acquisition cost after the first 15 months. We will continue target and screen acquisitions that best align The Tab has repaid 70% of its acquisition costs after 15 months with our processes and enhance our existing portfolio to deliver the strategic vision. We will also continue to develop new content verticals that offer the opportunity to scale our existing portfolio. The fruits of this approach included Entertainment Daily being named fastest growing news brand in the UK for both August and September by respected industry source UK Press Gazette. AUDIENCES THAT ARE IN DEMAND 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 audience has evolved to more than 4m per month and our channel diversification saw significant growth from Google- sourced users. 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 OUR APPROACH We believe in order to be successful in today’s media environment a business, its brands and its people must be: ENGAGING The internet is dominated FAST Audiences’ expectation levels FLEXIBLE Digitalbox is a mobile-first EFFICIENT Efficiency matters because we by platforms that compete are higher than ever and their media company for the simple regard profitable operation as for engagement and media attention spans are lower. reason that this is where the key to longevity. The digital brands that deliver the Our content and tech teams consumers have congregated. market has seen many long highest levels will prosper. obsess about getting the best Our future strategy will be bets against models that fail Our teams’ passion for their stories to their readers as shaped by continuing to move the profit test. Our teams use subjects, understanding of quickly as possible. with our audience. This will every tool to maximise their their audiences and expertise in producing truly compelling content, consistently deliver market-leading levels of engagement. inevitably require flexibility as impact and efficiency. different platforms go in and out of favour and different devices emerge. We know tomorrow will be different. k c o t s r e t t u h S : e g a m I 180 MILLION VISITS 10 11 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 GRAPHENE: MOBILE-OPTIMISED TECH PLATFORM Key dates in 2021 Graphene is our scalable and dynamic mobile-first tech stack; a blend of technologies allowing our websites to flourish through fast, light-touch content delivery and optimised mobile profitability. It brings significant advantages to how our sites are experienced by users and ranked by the key platforms – especially Alphabet and Meta – and also enables us to reduce tech and serving costs. Since our deployment of the Graphene Ad Stack (G.A.S.) The Tab has seen session values more than double since early 2021. Graphene will continue to evolve through investment in our tech roadmap in 2022 and we will on-board future acquisitions onto the platform. PUBLISH OPTIMISE PUSH k c o t s r e t t u h S : e g a m I ANALYSE SERVE TRANSACT Operational KPIs ONLINE USERS MOBILE USERS UK AUDIENCE SOCIAL FOLLOWERS 122 million (2020: 67m) (2019: 38m) (2018: 25m) Users who visit Digitalbox’s websites 107 million (2020: 59m) (2019: 35m) (2018: 23m) Numbers of users visiting sites on mobile and tablet devices 76 million (2020: 51m) (2019: 37m) (2018: 20m) Users of Digitalbox’s websites based in UK 7 million (2020: 6.7m) (2019: 3.5m) (2018: 2.5m) Facebook, Twitter, Instagram & Tik Tok followers of Digitalbox’s properties 2021 Figures include full year Google Analytics audience figures for Entertainment Daily, The Daily Mash and The Tab, which was acquired in October 2020. Feb 2021 Marcus Rich appointed as Chairman March 2021 Digitalbox announces positive results for the C19 year of 2020 April 2021 The Tab ‘Do Better’ campaign to stop sexual harassment and assault championed by The Times and The Guardian Sept 2021 The Late Night Mash TV show broadcasts on Dave Oct 2021 Late Night Mash triples audience slot average on Dave Jan 2021 Teams move to fully flexible / remote working Feb 2021 G.A.S video player deployed on The Tab March 2021 New wellbeing service rolled out for all staff Aug 2021 Entertainment Daily named the fastest growing news site in the UK Sept 2021 Interim Results announce revenues ahead Dec 2021 Trading update issued leading to 20% upgrade in 2021 expectations 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. These 25-44 year olds are power-sharers of digital media who even in these challenging times continue to spread a smile. The Tab was founded by three students at Cambridge in 2009 as a reaction to out-of-touch student papers. Since then it has exploded into one of the biggest youth media sites in Britain, speaking directly the UK’s 15-24 year olds. They are the generation tasked with more responsibility than any other in the last 50 years. It will be their reinvention that heals the planet, that creates new ways of working and cares for our ageing population. The leaders of tomorrow, the global citizens who need to think in a more measured and considered fashion. The three audiences have further scope for growth and cross-fertilisation as they continue to demonstrate increasing levels of engagement. It’s also worth noting that female readers are particularly in demand by advertisers and women visited Digitalbox’s websites more than 180 million times in 2021. PORTFOLIO DEVELOPMENT While profitability is key, we continue to invest in the existing business. 2022 will see additional investment across Entertainment Daily, The Tab and The Daily Mash as we aim to deliver further meaningful growth from diversification of our key routes to audiences. 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 4. Dec 2021 G.A.S. video player delivers record revenues 12 13 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 Highlights As noted, 2021 saw encouraging progress across the portfolio, including: P U O R G X O B L A T I G D I Y L I A D T N E M N A T R E T N E I H S A M Y L I A D E H T B A T E H T 28 MILLION MONTHLY SESSIONS IN DEC 2021 300M+ AD IMPRESSIONS IN DEC 2021 USERS BY DEVICE: 88% MOBILE 12% DESKTOP 81% GROWTH IN GOOGLE DIRECT TRAFFIC 1100+ STORIES 52% GROWTH IN PER MONTH SESSION VALUES 450 MONTHLY SUBSCRIBERS GENERATED FROM PAYWALL TEST 125% INCREASE IN LATE NIGHT MASH TV SHOW ON-AIR TIME 23% GROWTH IN SESSION VALUES 150,000 VALUES Q4 2021 V Q4 2020* 148%GROWTH IN FOLLOWERS FOLLOWERS ON TIK TOK 121% GROWTH IN SESSION DIGITALBOX PLC STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 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. The 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 has substantial cash reserves, 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 and 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). Cyber attack A cyber attack could result in the loss of data, loss of revenue due to service outage or loss of cash due to fraud. As the business is a digital media business, it has an enhanced understanding of the challenges posed by cyber fraudsters. The business has a robust data protection policy, robust data protection and network access controls and carries appropriate cyber crime insurance. Coronavirus/ COVID-19 Although continuing to ease, the COVID-19 pandemic is still not fully over and therefore may impact advertising spending. There is the risk of staff may become unwell and being unable to continue to work. The Board will continue to monitor any potential revenue impact. As a digital publisher, the Group’s ability to reach its audiences may not be as heavily affected as other media properties and its sites may see increased traffic, offsetting a proportion of any downturn. *Q4 2020 first quarter of ownership OF NETFLIX CHANNEL 14 15 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC CORPORATE AND SOCIAL RESPONSIBILITY REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 Section 172 of the Companies Act 2006 requires that the Directors act in a way that the consider, in good faith, would most likely promote the long term success of the business taking into consideration the interests of its shareholders and other stakeholders. The table sets out our key stakeholder groups, their interests and how the Group engages with them. STAKEHOLDER WHY WE ENGAGE HOW WE ENGAGE Our shareholders We maintain and value regular dialogue with our shareholders throughout the year and place great importance on our relationship with them. We know that our investors expect a comprehensive insight into the financial performance of the Group, and awareness of long-term strategy and direction. As such, we aim to provide high levels of transparency and clarity of our results and long-term strategy and to build trust in our future plans. Our employees Without our employees we wouldn’t have a business. Effective employee engagement leads to a happier, healthier workforce who are invested in the success of the Group. We strive to address any employee concerns regarding working conditions, health and safety, training and development, as well as workforce diversity. Engagement with our employees starts from the top and is driven effectively throughout the Group. Regulatory bodies The Group’s operations are subject to a wide range of laws, regulations, and listing requirements including data protection, tax, employment, environmental and health and safety legislation, along with contractual terms. Our customers Our relationship with our partners is collaborative and we are in constant dialogue to provide support and analytics as required. We listen to and engage with our customers on a regular basis to ensure that we understand their needs and can provide solutions that address them. We work hard to ensure that customer concerns are dealt with in a timely and professional manner.  Our suppliers We have a number of key suppliers with whom we have built strong relationships. We establish effective engagement channels to ensure our relationships remain collaborative and forward focused, and to foster relationships of mutual trust and loyalty. • Regular reports and analysis on investors and shareholders • Annual Report • Company website • Shareholder circulars • AGM • RNS announcements • Press releases • Evaluation and feedback processes for employees and management • Competitive rewards packages • Encouraging emplyee training and development • Compliance updates at Board Meetings • Consistent risk review • Company website • RNS announcements • Annual Report • Direct contact with regulators • Compliance updates at Board Meetings • Consistent risk review • Continual dialogue and review of feedback from customers to ensure satisfaction • Taking a collaborative approach to problem solving with our suppliers • Clear parameters are given, backed-up by written agreements where required, to ensure the Group and supplier’s actions are co-ordinated Corporate and Social Responsibility Report The Group aims to operate ethically and be socially- responsible in its actions. Below are a number of the approaches through which this is achieved. 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. Details of the Group’s performance are shared with all employees at appropriate times via face-to-face meetings where safe to do so, virtual 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. 16 17 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 Corporate Governance 18 19 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comDIGITALBOX PLC CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 Corporate Governance Report DIGITALBOX PLC CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX AND THE QCA CODE Digitalbox 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. 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 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. 1. Establish a strategy and business model which promote long-term value for shareholders Digitalbox aims to become a leading publisher of 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. More detail on strategy can be found in the Strategic Report starting on page 10. 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 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 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 will Group convene general meetings where shareholder approval is required or James Carter Chief Executive Officer Jim Douglas Chief Operating Officer David Joseph Chief Financial Officer Marcus Rich Non-Executive Chairman Philip Machray Non-Executive Director Martin Higginson Non-Executive Director James joined Digitalbox in 2016 and is Jim oversees editorial operations at Digitalbox David is a law graduate and Chartered Marcus joined Digitalbox as Chairman in Phil joined Digitalbox as an Independent Non- Martin is recognised as a seasoned responsible for the strategy, direction and and has previously held strategic and profit Accountant, starting his career and qualifying February 2021. Before this he was the CEO of Executive Director in July 2021 and is Technology, Media and Telecoms (TMT) day-to-day running of the business. He has responsibility for successful media brands in with Price Waterhouse, moving into industry TI Media for six years where he led the MBO Chairman of the Audit Committee.  He is Chief entrepreneur. He has started, sold, and listed a proven track record in building value in sectors including film, music, games, sport in steel stockholding (ASD plc) then into of Time Inc. UK backed by private equity firm Financial Officer of data and intelligence numerous businesses. His first business was the media industry, within both public and and automotive. He has led creative teams FMCG (Unilever plc) before entering the Epiris in March 2018, and then the subsequent business, Merit Group plc.  Phil is a Chartered sold to IPC Magazines in 1982. Following limited companies. As part of the founding in both UK and US. He started his career at media industry in 1995 when he joined successful £140m sale of the now named TI Accountant with over 25 years’ experience three years with IPC he left to set up his executive team at Factory Media, he drove Emap plc as a journalist and in the early 90s Emap plc. Here he occupied several senior Media to Future plc in April 2021. Previously in the media sector as an advisor, Board own publishing and telecoms business, this the business to achieve a significant exit to he joined start-up business Future Publishing, financial roles within its operating companies, he worked for Associated Newspapers in the member and Executive. Most recently Phil was subsequently sold to Scottish Power Forward Internet Group. Prior to the creation which eventually became and remains a listed including Chief Financial Officer of Emap roles of Commercial Director and Managing worked for 16 years at Reach plc (formerly plc. During his time with Scottish Power he of Factory Media, James was NPD Director at company. At Future, Jim held the position of Metro, the men’s and music publications Director Mail On Sunday. He has held several Trinity Mirror plc) where he held roles joined their subsidiary Scottish Telecom, Dennis Publishing and Publishing Director Editorial Director for 10 years with ultimate business and Emap Advertising, the then senior Managing Director positions for sizable including Director of Corporate Development, as Managing Director of their Internet and at Emap plc where he had responsibility for responsibility for product development. central cross platform advertising sale businesses in the 16 years he worked for Chief Operating Officer of Regionals, and Interactive division, including Internet ISP FHM. FHM grew from a fledgling fashion During this time Future was named UK Digital business. On leaving in 2001 David has since Emap plc in Publishing, TV and Advertising Managing Director of Specialist Digital. Phil Demon Internet. Following the flotation of focused magazine to a global network of 32 Publisher of the Year five times. worked exclusively within the media industry in the UK and both the USA and Australia. began his career at Deloitte LLP and was a Thus plc (formerly Scottish Telecom) he left to editions and a value at its peak of over £250m. Board of Directors 20 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. Marcus has created significant shareholder Director within Deloitte’s Technology, Media & start Monstermob, a company he went on to value in the businesses he has run across the Telecoms practice. media landscape. list on AIM in 2003; growing it to a Top 50 AIM listed business. Monstermob Group plc was sold to Zed Worldwide in 2006. Martin has subsequently founded Cityblock plc, a luxury student accommodation business, NetPlayTV plc, an interactive TV gaming business, Digitalbox and Immotion plc. He is currently CEO of Immotion Group plc. 21 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 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 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. The Group seeks to engage with its wider group of stakeholders via: Key risks and uncertainties facing the business are found on page 15. Face-to-face / virtual 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 approach to this can be found on page 16. 4. Embed effective risk management, considering both opportunities and threats, through the organisation 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. The Board met eight times in 2021. Details of the Board members, their roles and their attendance at meetings can be found on pages 20 and 21. 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 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. I m a g e s : S h u t t e r s t o c k 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. 9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board 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 standards and behaviour when conducting its business, with integrity, fairness and equality being high priorities. 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 Corporate and Social Responsibility report is found on page 17. The Chief Operating Officer supports the Chief Executive in the delivery of the strategy with a specific remit over editorial matters. Board Audit Remuneration Nomination Disclosure James Carter Jim Douglas David Joseph Martin Higginson Philip Machray (appointed 01/07/2021) Marcus Rich (appointed 17/02/2021) 8/8 8/8 8/8 8/8 5/5 8/8 2/2 2/2 2/2 2/2 1/1 2/2 - - - 1/1 n/a 1/1 - - - n/a n/a n/a - - - n/a n/a n/a 22 23 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC AUDIT COMMITTEE REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 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. Marcus Rich acts as chairman of the Remuneration Committee and Philip Machray and Martin Higginson are the other members of the Remuneration Committee. The Remuneration Committee report is found on page 26. 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. Marcus Rich acts as chairman of the Nomination Committee and Philip Machray 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. Marcus Rich acts as Chairman of the Disclosure Committee. Philip Machray 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. Further details of this can be found on page 16. 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. Philip Machray, who has recent and relevant financial experience acts as chairman. Martin Higginson and Marcus Rich are the other members of the Audit Committee. The Audit Committee report is found on page 25. 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 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 Audit Committee Report T he Audit Committee is responsible for ensuring that the financial performance of the Group is properly reported and reviewed. It’s role includes monitoring the integrity of the financial statements (including annual and interim accounts and results announcements), reviewing internal control and risk management systems, reviewing any changes to accounting policies, reviewing and monitoring the extent of the non-audit services undertaken by external auditors, and advising on the appointment of external auditors. 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 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. 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. 2021 ACTIVITIES The Audit Committee met twice during the year to consider the prior year’s Annual Report and Accounts and the current year interim financial statements. The Committee also met with the Group’s external auditors on 17 March 2022 prior to approving the 2021 accounts. The Committee undertook a review and assessment of the Annual Report in order to determine whether it could advise the Board that, taken as a whole, the Annual Report is fair, balanced and understandable, and provides shareholders with the information they need to assess the Group’s position, performance, business model and strategy. In doing this, the Committee reviewed and discussed the findings from the external auditors as part of the 2021 year-end audit and fully discussed the Annual Report at the Committee meeting in March 2022. It considered the following Significant Accounting Judgements: ensured clarity on the allocation of revenue across each distinct accounting period and a clean cut off. 2. 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 model demonstrating that no impairment charge was required. 3. Whether the going concern basis of accounting was appropriate, especially in the light of COVID-19 – the Committee was assured that the business has a strong balance sheet, is trading profitably and that, whilst consumer advertising revenues are expected to be under pressure during periods of economic uncertainty, the Group’s core business has remained resilient throughout recent difficulties. Following a robust process, the Committee recommended to the Board that the Annual Report taken as a whole, is fair, balanced and understandable. INTERNAL AUDIT The Group does not have an internal audit function as this is not considered appropriate given the scale of the Group’s operations. The Audit Committee believes that management is able to derive assurance as to the adequacy and effectiveness of internal controls and risk management procedures without one. EXTERNAL AUDITORS The Audit Committee has reviewed the independence and effectiveness of Haysmacintyre LLP, the Group’s external auditors, and is satisfied in both respects. Haysmacintyre LLP’s fees in the year in respect of audit services were £50k (2020: £51k) and in respect of non-audit services were £nil (2020: £25k) 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. 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 Philip Machray Chairman of the Audit Committee 28 March 2022 24 25 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC REMUNERATION COMMITTEE REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC DIRECTORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 Remuneration Committee Report Directors’ 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. The Committee agreed to pay the Chief Executive Officer and Chief Operating Officer bonuses for the year in line with their established agreements. The Directors chose to use these proceeds to pay off their outstanding company loans in full. Further detail is disclosed in ‘Related Party transactions’ shown on page 64. Directors’ remuneration for the year of 2021 are shown on page 51. Directors’ shareholdings are set out below: Director Number of 1p Ordinary Shares as at 31st December 2021 % Number of 1p Ordinary Shares as at 31st December 2020 James Carter Jim Douglas 10,908,078 10,908,078 9.4% 9.4% 10,908,078 10,908,078 % 9.4% 9.4% 21,816,156 18.8% 21,816,156 18.8% Total ordinary shares 116,332,457 116,332,457 Options have been granted to certain key employees under an approved EMI scheme, as below: Option Holder Number of Shares Year 1 James Carter Jim Douglas Nick Clough Karen Hyland Grace Vielma 1,504,404 1,504,404 1,002,906 1,002,906 1,002,906 501,468 501,468 - - - Vesting Period Year 2 501,468 501,468 - - - Year 3 501,468 501,468 1,002,906 1,002,906 1,002,906 6,017,526 1,002,936 1,002,936 4,011,654 Marcus Rich Chairman of the Remuneration Committee 28 March 2022 T he Directors present their report and audited financial statements for the year ended 31 December 2021. 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: James Carter Jim Douglas David Joseph Martin Higginson Marcus Rich (appointed 17 February 2021) Philip Machray (appointed 1 July 2021) Matthew Armitage (appointed 17 February 2021, resigned 1 July 2021) Sir Robin Miller (resigned 17 February 2021) Nigel Burton (resigned 17 February 2021) 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 Statement beginning on page 4. Dividends No dividends were paid during the year (2020: £Nil). The Board is not recommending the payment of a final dividend in respect of the year ended 31 December 2021. Earnings per Share Earnings per share in the period from continuing operations was 0.340p (2020: 0.198p loss) and diluted earnings per share from continuing operations in the period was 0.335p (2020: 0.198p loss). Going Concern 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 future. In reaching this conclusion the Directors have considered the financial position of the Group, together with its forecasts and projections for two years from the reporting date that reasonably take into account 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 20 to the consolidated financial statements. Employee Engagements The Group engages with its employees regularly through face-to-face communication where permitted, and virtual meeting where not during which details of the Group’s performance is shared. Further information regarding employee engagement can be found in the Corporate and Social Responsibility Report on page 17. Employee Policies The Group has established employment policies which are compliant with current legislation and codes of practice. The Group is an equal opportunities employer. 26 27 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC DIRECTORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 Directors’ Report Directors’ Indemnity 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 2021, the following shareholders owned 3% or more of the Company: Name Downing Strategic Micro-Cap Investment Trust plc Storia Credit Holdings (Europe) Mr James Alexander Carter Mr James Robert Douglas Hargreaves Lansdown Asset Mgt (Bristol) AJ Bell Securities (Tunbridge Wells) Shares 24,489,795 % 21.1 19,995,798 10,908,078 10,908,078 4,140,619 17.2 9.4 9.4 3.6 3,999,914 3.4 As at 21 March 2022, the following shareholders owned 3% or more of the Company: Name Downing Strategic Micro-Cap Investment Trust plc Storia Credit Holdings (Europe) Mr James Alexander Carter Mr James Robert Douglas Hargreaves Lansdown Asset Mgt (Bristol) AJ Bell Securities (Tunbridge Wells) Interactive Investor (Glasgow) Shares % 24,489,795 20.8 19,795,798 10,908,078 10,908,078 4,814,604 16.8 9.3 9.3 4.1 3,886,885 3,558,599 3.3 3.0 Political Donations The Group did not make any political donations during 2021 (2020: £Nil). Payment of Suppliers 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. 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 announced in due course. 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 28 MARCH 2022 AND SIGNED ON ITS BEHALF James Carter Chief Executive Officer DIGITALBOX PLC DIRECTORS’ RESPONSIBILITIES STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2021 Directors’ Responsibilities 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 United Kingdom 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: 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. select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether IFRS as adopted by the United Kingdom 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 the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business. 28 29 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF DIGITALBOX PLC FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF DIGITALBOX PLC FOR THE YEAR ENDED 31 DECEMBER 2021 Independent Auditor’s 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 2021 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statement of Changes in Equity, the Consolidated and Company Statement of Financial Position, the Consolidated Statement of Cash Flows 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 UK adopted international accounting standards. 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 2021 and of the group’s profit for the year then ended; have been properly prepared in accordance with UK adopted international accounting standards; 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. AN OVERVIEW OF THE SCOPE OF OUR AUDIT As the Group comprises a parent holding company and one trading subsidiary the scope of our work was the audit of the financial statements of the Group and its trading subsidiary. The scope of the audit and our audit strategy was developed by using our audit planning process to obtain and update our understanding of the group and its environment, including the group’s system of internal control, and assessing the risks of material misstatement at the group level. Audit work to respond to the assessed risks was performed directly by the audit engagement team who performed full scope audit procedures on the parent company and the group as a whole. 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. OUR APPLICATION OF MATERIALITY The scope and focus of our audit were 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 £56,000, determined by reference to 5% of group Adjusted EBITDA. We have reported to the audit committee any corrected or uncorrected misstatements arising exceeding £2,800. Performance materiality was set at £42,000, being 75% of materiality. Component materiality for the parent company and trading subsidiary was capped at £50,400, with reference to a benchmark of group materiality. KEY AUDIT MATTER HOW OUR SCOPE ADDRESSED THIS MATTER Revenue recognition The Group earned revenue of £3,667,000 in the year. There is a risk that revenue is recognized inappropriately and not in accordance with IFRS 15. The majority of revenue is in relation to the sale of advertising space where the risk in relation to revenue recognition is considered to be that revenue is understated, specifically around the year-end. Our audit work has focused on assessing whether the revenue recognition methods for each revenue stream utilised by management, are in line with the applicable accounting standard IFRS 15. We agreed the total advertising space revenue to third party customer dashboards for the entire year and agreed a sample of revenue recognized to cash receipts. A selection of transactions were tested around the year-end to ensure appropriate cut-off of revenue. Impairment of goodwill and other intangibles Our audit work included, but was not restricted to, the following: The group has goodwill arising on previous acquisitions of £9,610,000 in the balance sheet, as well as £1,018,000 of other intangible assets arising on acquisition and £82,000 of development costs capitalised. There is a risk that the valuation of goodwill and other separately identifiable intangibles arising during previous acquisitions and the new acquisition during the year have been impaired. Reviewing and assessing the impairment reviews prepared by management and considering, and where appropriate challenging the assumptions made; Reviewing and assessing the appropriateness of future budgets and cash flow forecasts including considering sensitivities; Making enquiries of management and assessing expected future performance and potential growth in the business. CONCLUSIONS RELATING TO GOING CONCERN In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. sensitised such forecasts against various scenarios which could come to realisation. We reviewed and assessed management’s going concern memo and discussed this with the Board. We considered post balance sheet date performance and other wider factors in concluding our assessment. In our evaluation of the directors’ conclusions, we considered the inherent risks to the group and the company’s business model and reviewed the directors’ assessment of how those risks affect the group and the company’s financial resources or ability to continue operations over the going concern period. We considered the likely cash inflows and outflows over the going concern assessment period and assessed the risk that the group and the company would be unable to meet their liabilities as they fall due. We scrutinised the reasonableness of assumptions applied to the cash flow forecasts and Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group and the company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. 30 31 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF DIGITALBOX PLC FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF DIGITALBOX PLC FOR THE YEAR ENDED 31 DECEMBER 2021 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 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 29, 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. Irregularities, including fraud, are instances of non- compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: EXPLANATION AS TO WHAT EXTENT THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUD. Based on our understanding of the company and industry, we identified that the principal risks of non-compliance with laws and regulations related to regulatory requirements for the business and trade regulations, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006, income tax, payroll tax and sales tax. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls) and determined that the principal risks were related to posting inappropriate journal entries to revenue and management bias in accounting estimates. Audit procedures performed by the engagement team included: Evaluating management’s controls designed to prevent and detect irregularities; Identifying and testing journals, in particular journal entries which shared key risk characteristics; and Challenging assumptions and judgements made by management in their critical accounting estimates 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. Jon Dawson (Senior Statutory Auditor) For and on behalf of Haysmacintyre LLP, Statutory Auditors Inspecting correspondence with regulators and tax authorities; Discussions with management including consideration of known or suspected instances of non-compliance with laws and regulation and fraud; 10 Queen Street Place London EC4R 1AG Date: 28 March 2022 32 33 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC FINANCIAL STATEMENTS DIGITALBOX PLC FINANCIAL STATEMENTS Financial Statements 34 35 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comDIGITALBOX PLC CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Revenue Cost of sales Gross profit Administrative expenses Other operating income Operating profit/(loss) Memorandum: Adjusted EBITDA1 Depreciation Amortisation Share based payments Direct costs of business combinations Capital restructure costs Operating profit/(loss) Finance costs Finance income Profit/(loss) before taxation and attributable to equity holders of the parent Taxation Profit/(loss) after tax Note 7 8 8 10 11 Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 3,667 (529) 3,138 (2,508) 10 640 1,029 (31) (215) (143) - - 640 (14) 1 627 (231) 396 2,187 (529) 1,658 (1,823) 24 (141) 305 (30) (149) (140) (98) (29) (141) (2) - (143) (48) (191) Share capital £’000 Share premium £’000 Share payment based £’000 Retained (deficit)/ earnings £’000 Balance at 1 January 2020 21,331 29,757 181 (39,836) Shares issued Share issue costs 260 - 976 (84) Capital reduction (20,428) (19,500) Equity settled share-based payments Loss after tax - - - - Balance at 31 December 2020 1,163 11,149 Equity settled share-based payments Profit after tax - - - - - - - 140 - 321 143 - - - 39,928 - (191) (99) - 396 Total equity £’000 11,433 1,236 (84) - 140 (191) 12,534 143 396 Balance at 31 December 2021 1,163 11,149 464 297 13,073 The notes on pages 41 to 64 form part of the group financial statements. All profits/(losses) after taxation arise from continuing operations. There was no other comprehensive income for 2021 (2020: £NIL). 1Adjusted EBITDA is defined as the operating profit/(loss) after adding back depreciation, amortisation, share based payments, acquisition and listing costs, direct costs associated with business combinations and capital restructure costs. Gain/(loss) per share Basic (continuing) Gain/(loss) per share Diluted (continuing) £ £ 0.00340 (0.00198) 0.00335 (0.00198) 12 12 The notes on pages 41 to 64 form part of the group financial statements. 36 36 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com 37 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2021 CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CASH FLOWS 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 Bank loans Corporation tax Total current liabilities Non-current liabilities Lease liabilities Bank loans Deferred tax liability Total liabilities Total net current assets Total net assets 31 December 2021 £’000 Note 31 December 2020 £’000 13 14 15 16 17 17 17 17 17 17 19 46 10,710 10,756 1,770 2,186 3,956 14,712 (739) (29) (112) (163) (1,043) (2) (319) (275) (596) (1,639) 2,913 13,073 1,163 11,149 464 297 13,073 19 10,839 10,858 1,047 1,853 2,900 13,758 (449) (2) (25) (51) (527) - (465) (232) (697) (1,224) 2,373 12,534 1,163 11,149 321 (99) 12,534 Capital and reserves attributable to owners of the parent Share capital Share premium Share based payment reserve Retained earnings/(deficit) 21 23 23 23 Total equity The financial statements were approved by the Board and authorised for issue on 28 March 2022 James Carter CEO David Joseph CFO The notes on pages 41 to 64 form part of the group financial statements. Cash flows from operating activities Profit/(loss) from ordinary activities after tax Adjustments for: Income tax expense Share based payments Depreciation on property plant and equipment Amortisation of intangible assets Finance costs Finance income Cash flows from operating activities before changes in working capital Decrease / (increase) in trade and other receivables Decrease in trade and other payables Cash generated by operations Income tax paid Net cash from operating activities Investing activities Purchase of property, plant and equipment Purchase of intangibles Acquisition of subsidiary Cash on acquisition Interest received Net cash used in investing activities Financing activities Finance costs New loans and finance leases Loan and finance lease repayments Issue of new share capital Costs on issue of shares Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 396 (191) 231 143 31 215 14 (1) 1,029 (723) 280 586 (76) 510 (2) (86) - - 1 (87) (4) - (86) - - (90) 333 1,853 2,186 48 140 30 149 2 - 178 518 (205) 491 (109) 382 - - (841) 269 - (572) (2) 440 (24) 1,236 (84) 1,566 1,376 477 1,853 38 39 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 CONSOLIDATED STATEMENT OF CASH FLOWS (continued) NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS Reconciliation of net cash flow to movement in net funds: 1. GENERAL INFORMATION Net increase in cash and cash equivalents Inception of finance leases New loans Loans acquired in business combinations Repayment of loans and finance leases 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 Bank loans Net funds at 31 December Year ended 31 December 2021 £000 Year ended 31 December 2020 £000 333 (56) - - 86 363 1,361 1,724 2,186 (31) (431) 1,724 1,376 - (440) (50) 24 910 451 1,361 1,853 (2) (490) 1,361 The notes on pages 41 to 64 form part of the group financial statements. 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 and of the Company are disclosed in the Directors’ Report. 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 2021 The following IFRS standards, amendments or interpretations became effective during the year ended 31 December 2021 but have not had a material effect on this Consolidated Financial Information: Standard Amendments to IFRS 16: Leases (Covid-19-Related Rent Concessions) All new standards and amendments to standards and interpretations effective for annual periods beginning on or after 1 January 2021 that are applicable to the Group have been applied in preparing these Consolidated Financial Statements. 3. NEW AND REVISED IFRS STANDARDS IN ISSUE BUT NOT YET EFFECTIVE The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Consolidated Financial Statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective. Standard Amendments to IFRS 3 Reference to the Conceptual Framework Amendments to IAS 16 Property Plant and Equipment (Proceeds before intended use) Amendments to IAS 37 Onerous Contracts (Cost of fulfilling a contract) Amendments to IFRS 1, Annual Improvements to IFRS Standards 2018 2020IFRS 9, IFRS 16 and IAS 41 Disclosure of accounting policies Amendments to IAS 1 Amendments to IAS 8 Definition of accounting estimates Amendments to IAS 12 Deferred tax related to assets and liabilities arising from a single transaction Effective date 1 January 2022 1 January 2022 1 January 2022 1 January 2022 1 January 2023 1 January 2023 1 January 2023 The Directors are continuing to assess the potential impact that the adoption of the standards listed above will have on the Consolidated Financial Statements for the year ended 31 December 2022. 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 40 41 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 4. ACCOUNTING POLICIES (continued) 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 United Kingdom (“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 the parent company and its subsidiaries, as detailed in note III to the company financial statements. 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 Considering the profit generated during the year of £396k (2020: loss of £191k), the Group had closing net assets of £13,073k (2020: £12,534k), net current assets of £2,913k (2020: £2,373k) and cash at bank and in hand of £2,186k (2020: £1,853k). The Group generated cashflows from operating activities of £510k during the year. The Group has remained cash generative during a difficult economic period which saw the profound impact of COVID-19. In considering going concern, the Directors consider the current financial position and performance of the business, as well as reviewing financial information for a period of at least 12 months from the date of approval of the financial statements. Given the financial performance of the Group, the successful acquisition and integration of Tab Media in 2020 and the expectations from forecast financial information, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Directors believe that they can continue to mitigate the impact of COVID-19 as has been demonstrably achieved in the year ended 31 December 2021, and accordingly continue to adopt the going concern basis 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. Transactions between wholly owned group members involving the hive-up or hive-across of trade and / or assets and liabilities are outside the scope of IFRS 3 on the grounds that they represent common control business combinations. The group has elected to apply IFRS 3 in accounting for all such transactions, which involves a full fair value exercise at the date of the transaction. This accounting policy has been consistently applied to all such transactions, and has been chosen on the grounds that the nature of these transactions is the amalgamation of acquired businesses into the existing trading business, which generally takes place shortly after the original acquisition. 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 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. 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 Group assesses whether a contract is or contains a lease, at inception of a contract. The Group 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 Group 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 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. 42 43 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 4. ACCOUNTING POLICIES (continued) In preparing the financial statements of the individual companies, transactions in currencies other than the individual 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. 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. 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. 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. 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 Also included within intangible assets are various assets separately identified in business combinations (such as brand value) to which the Directors have ascribed a fair 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. Share based payments (continued) 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. Intangible assets (continued) 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. Fair value is calculated using the Black-Scholes model, details of which are given in note 22. 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: Office equipment Right-of-Use asset - 25% reducing balance - over term of lease 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 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 44 45 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 4. ACCOUNTING POLICIES (continued) 5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS with which the goodwill is associated. This is computed by applying an appropriate discount rate to the estimated value of future cashflows. 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; and 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. 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 and profit after taxation. Central overheads are not allocated to business segments. Government grants Government grants are recognised when there is reasonable assurance that the grant conditions will be met and the grants will be received, and are recognised as a separate component of other operating income, rather than being offset against the costs to which they relate. 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 Group’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 cash generating units 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 cash generating units to which goodwill has been allocated. This requires the Directors to estimate the future cash flows and an appropriate discount factor, in order that the net present value of those cash flows can be determined. Discounted cash flow forecasts give due consideration to the impact of COVID-19 on the future cash flows, and are stress tested under a range of scenarios. In all instances, the headroom is sufficient to satisfy the Directors that there are no indicators of impairment based on circumstances that were present or could be reasonably foreseen at the reporting date. Critical accounting Estimates Amortisation of intangible assets The periods of amortisation adopted to write down capitalised intangible assets requires judgements to be made in respect of estimating the useful lives of the intangible assets to determine an appropriate amortisation rate. Development costs (domain names and website costs) are being amortised on a straight- line basis over the period during which the economic benefits are expected to be received, which has been estimated at 3 years. Intangible assets recognised 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 payment 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. 46 47 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued) 2020 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. Provision for bad and doubtful debts The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on similar ageing. The expected loss rates are based on the Group’s historical credit losses experience over the twelve month period prior to the period end. Forward looking issues have been considered, including in relation to the ongoing impact of the COVID-19 pandemic. This has had an immaterial effect on the expected credit loss rate. 6. SEGMENTAL INFORMATION Revenue Cost of sales Administrative expenses* Other operating income Adjusted EBITDA Amortisation Depreciation Acquisition costs Capital restructure costs Share based payments Finance costs Tax Entertainment Daily £’000 Mashed Productions £’000 1,641 (307) (447) - 887 - - - - - - - 334 (192) (40) - 102 - - - - - - - The Tab £’000 208 (30) (71) - 107 - - - - - - - Head Office £’000 4 - (819) 24 (791) (149) (30) (98) (29) (140) (2) (48) A segmental analysis of revenue and expenditure is as follows: Profit/(loss) for the year 887 102 107 (1,287) Total 2020 £’000 2,187 (529) (1,377) 24 305 (149) (30) (98) (29) (140) (2) (48) (191) 2021 Revenue Cost of sales Administrative expenses* Other operating income Adjusted EBITDA Amortisation Depreciation Share based payments Finance income Finance costs Tax Entertainment Daily £’000 Mashed Productions £’000 2,463 (205) (474) - 1,784 - - - - - - 308 (171) (86) - 51 - - - - - - 51 Profit/(loss) for the year 1,784 The Tab £’000 896 (153) (287) - 456 - - - - - - Head Office £’000 - - (1,272) 10 (1,262) (215) (31) (143) 1 (14) (231) Total 2021 £’000 3,667 (529) (2,119) 10 1,029 (215) (31) (143) 1 (14) (231) 456 (1,895) 396 *Administrative expenses exclude depreciation, amortisation, share based payments and acquisition and listing costs. The segmental analysis above reflects the parameters applied by the Board when considering the Group’s monthly management accounts. External revenue by location of customer Total assets by location Net tangible capital expenditure by location 31 December 2021 Continuing £’000 31 December 2020 Continuing £’000 1,683 665 1,319 3,667 1,024 704 459 2,187 31 December 2021 31 December 2020 31 December 2021 31 December 2020 £’000 14,205 141 366 14,712 £’000 £’000 £’000 13,475 103 180 13,758 58 - - 58 - - - - United Kingdom Europe Rest of World 48 49 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 7. REVENUE Revenue by stream is split: Advertising Revenue by location is split: United Kingdom Europe Rest of world 2021 £’000 3,667 3,667 1,683 665 1,319 3,667 2020 £’000 2,187 2,187 1,024 594 569 2,187 The Group had three customers whose revenue individually represented 10% or more of the Group’s total revenue, being 21.1%, 15.0% and 11.5% respectively. 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 2021 £’000 1,284 101 14 1,399 143 1,542 2020 £’000 838 90 10 938 140 1,078 2021 Number 2020 Number 6 3 20 29 6 3 11 20 8. PROFIT/LOSS FROM OPERATIONS Directors’ Detailed Emoluments This is arrived at after charging/(crediting): Continuing operations: Staff costs (see note 9) Direct costs of business combinations Depreciation of property, plant & equipment Amortisation of intangible fixed assets Foreign exchange differences Government grants Auditors’ remuneration in respect of the Company Audit of the Group and subsidiary undertakings Auditors’ remuneration – corporate finance fees 2021 £’000 1,584 - 31 215 17 (10) 18 34 - 52 2020 £’000 1,078 98 30 149 (27) (24) 18 33 25 76 In 2021, government grants of £10k (2020: £24k) were received as part of the Government’s initiatives to provide immediate financial support as a result of the COVID-19 pandemic. There are no future related costs associated with these grants which were received solely as compensation for costs incurred in the year. Details of individual Directors’ emoluments for the year are as follows: Salary 2021 £’000 Consultancy 2021 £’000 Bonus 2021 £’000 Pension 2021 £’000 Total 2021 £’000 Total 2020 £’000 N Burton (resigned 17 February 2021) J Carter J Douglas M Higginson D Joseph R Miller (resigned 17 February 2021) M Armitage (resigned 1 July 2021) P Machray (joined 1 July 2021) M Rich (joined 17 February 2021) Total 3 127 127 - 41 3 13 **13 ***30 357 - - - 25 - 11 - - - 36 - *160 *160 - - - - - - 320 - 1 1 - - - - - - 2 3 288 288 25 41 14 13 13 30 25 128 128 25 41 35 - - - 715 382 *100% of net proceeds from bonus payment used to repay the directors company loans. **annual salary is £25k p.a. ***annual salary is £35k p.a. 50 51 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 9. STAFF COSTS (continued) 10. FINANCE COSTS All pension contributions represent payments into defined contribution schemes. 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’ interests in the issued ordinary share capital of the Company was as follows: Interest on lease liabilities Bank charges and interest payable Interest on bank loans 2021 £’000 2 - 12 14 2020 £’000 1 1 - 2 Shares of £0.01 31/12/2021 Shares of £0.01 31/12/2020 James Carter James Douglas 10,908,078 10,908,078 9.4% 9.4% 10,908,078 10,908,078 9.4% 9.4% The share based payment charge attributable to these options during the year amounted to £100k (2020: £100k). Details of the EMI options over the Company’s shares held by the directors are as follows: 11. TAXATION ON PROFIT/LOSS FROM ORDINARY ACTIVITIES Corporation tax – current period Corporation tax – adjustment in respect of prior periods Deferred tax – current period Deferred tax – adjustments in respect of prior periods Tax credit/(charge) for the year 2021 £’000 165 24 27 15 231 2020 £’000 50 12 (14) - 48 Type of Option Options held at 31 December 2021 Exercise price £ Date of grant Exercise period The tax assessed for the year differs from the standard rate of corporation tax in the UK applied to loss before tax. James Carter James Douglas EMI option EMI option 1,504,404 1,504,404 0.14 0.14 28 February 2019 28 February 2022 28 February 2019 28 February 2022 In addition, effective options in Digitalbox plc exist due to three directors having warrants in its subsidiary company, Digitalbox Publishing (Holdings) Limited, which, when exercised, are satisfied by issuing shares in Digitalbox plc. These are set out in the table, below; ‘Effective Option’ Holder Number of Shares James Carter Jim Douglas Martin Higginson 681,958 681,958 1,590,936 2,954,852 Total profit/(loss) on ordinary activities before tax Profit/(loss) on ordinary activities at the standard rate of corporation tax in the UK of 19% (2020: 19%) Effects of: Expenses not deductible for tax purposes Income not taxable Adjustments to prior periods Deferred tax not recognised – loss relief in current period Effect of changes in tax rates on deferred tax Tax credit for the year 2021 £’000 627 119 30 - 39 (23) 66 231 2020 £’000 (143) (27) 46 (1) 15 - 15 48 The warrants had vested prior to admission onto AIM on 28 February 2019 and carry an effective exercise price of 2.28 pence per share issued in Digitalbox plc. On 16 February 2022 Martin Higginson exercised his warrants in full. This is noted as a post balance sheet event at note 27. Further information on share options is included in note 22. The market price of the shares at 31 December 2021 was 8.70p with a quoted range from throughout 2021 of 5.25p to 9.25p. The EMI options vest based on performance criteria detailed in note 22. In the Budget on 3 March 2021, the Chancellor announced the intention to increase the main rate of UK corporation tax to 25% for the financial year beginning 1 April 2023. This was substantively enacted on 24 May 2021. Deferred tax at the balance sheet date has therefore been measured using the newly enacted tax rate of 25% (2020: 19%) in these financial statements. There were unused tax losses at 31 December 2021 amounting to £3,434k. In the majority, these were restricted for use for 5 years against future taxable profits arising from the trade formerly carried on in Tab Media Limited and now carried on in Digitalbox Publishing Limited. No deferred tax asset has been recognised owing to materiality in the short term. 52 53 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 12. EARNINGS PER SHARE The earnings per share is based on the following: 2021 £’000 2020 £’000 13. TANGIBLE FIXED ASSETS (continued) Information about the Right-of-Use assets is summarised below: Continuing earnings post tax attributable to shareholders 396 (191) Basic weighted average number of shares Diluted weighted average number of shares 116,332,457 118,297,010 96,425,598 96,425,598 Net Book Value Property 2021 £’000 31 31 Depreciation charge in respect of the Right-of-Use asset is as follows: Basic earnings per share (£) Diluted earnings per share (£) 0.00340 0.00335 (0.00198) (0.00198) Property 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 has been tracked against the quoted share price of the business from time to time during the year, and taken into account in the calculation of diluted EPS. 2021 £’000 27 27 13. TANGIBLE FIXED ASSETS 14. INTANGIBLE FIXED ASSETS 2020 £’000 2 2 2020 £’000 23 23 Cost Balance at 1 January 2020 and 1 January 2021 Additions Disposals Balance at 31 December 2021 Accumulated depreciation Balance at 1 January 2020 Depreciation charge Balance at 1 January 2021 Depreciation charge Depreciation eliminated on disposal Balance at 31 December 2021 Net Book Value At 31 December 2021 At 31 December 2020 At 31 December 2019 IFRS 16 Right-of-Use Asset £’000 Office equipment Total £’000 £’000 33 56 (33) 56 8 23 31 27 (33) 25 31 2 25 27 2 - 29 3 7 10 4 - 14 15 17 24 60 58 (33) 85 11 30 41 31 (33) 39 46 19 49 The net book value of owned and leased assets included as “Property, plant and equipment” in the Statement of Financial Position is as follows: Tangible fixed assets owned Right-of-Use tangible fixed assets 2021 £’000 15 31 46 2020 £’000 17 2 19 GROUP Cost Balance at 1 January 2020 Additions Balance at 1 January 2021 Additions Balance at 31 December 2021 Accumulated amortisation Balance at 1 January 2020 Amortisation Balance at 1 January 2021 Amortisation Balance at 31 December 2021 Net Book Value At 31 December 2021 At 31 December 2020 At 31 December 2019 Goodwill Arising on Consolidation £’000 Other Intangible Assets £’000 Development costs Total £’000 £’000 9,492 118 9,610 - 9,610 - - - - - 9,610 9,610 9,492 854 622 1,476 - 1,476 102 145 247 211 458 1,018 1,229 752 35 - 35 86 121 31 4 35 4 39 82 - 4 10,381 740 11,121 86 11,207 133 149 282 215 497 10,710 10,839 10,248 Amortisation is charged to administrative expenses in the Statement of Comprehensive Income. 54 55 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 14. INTANGIBLE FIXED ASSETS (continued) 15. TRADE AND OTHER RECEIVABLES 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 Tab Media Limited 31 December 2021 £’000 31 December 2020 £’000 9,171 321 118 9,610 9,171 321 118 9,610 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 relates to the Entertainment Daily segment and 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 Group’s cost of capital as estimated by management. After applying sensitivity analysis in respect of the results and future cash flows, in particular for presumed growth rates and discount rates, management is satisfied that it is highly improbable that such a change in key assumptions would reduce the recoverable amount below book value. Mashed Productions Limited The recoverable amount of Mashed Productions Limited has been determined with reference to the trade and assets hived across to Digitalbox Publishing Limited in the prior year, which continues to benefit from cash inflows through Mashed Productions. The recoverable amount 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 Group’s cost of capital as estimated by management. After applying sensitivity analysis in respect of the results and future cash flows, in particular for presumed growth rates and discount rates, management is satisfied that it is highly improbable that such a change in key assumptions would reduce the recoverable amount below book value. Tab Media Limited The recoverable amount of the Tab Media segment, which was hived up from Tab Media Limited to Digitalbox Publishing Limited on 1 October 2020, 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 Group’s cost of capital as estimated by management. After applying sensitivity analysis in respect of the results and future cash flows, in particular for presumed growth rates and discount rates, management is satisfied that it is highly improbable that such a change in key assumptions would reduce the recoverable amount below book value. Trade receivables Prepayments and accrued income Other receivables 16. CASH AND CASH EQUIVALENTS Cash at bank and in hand 17. LIABILITIES Current liabilities Trade payables Social security and other taxes Accruals Lease liabilities Other payables Bank loans Corporation tax payable Non-current liabilities Lease liabilities Bank loans 31 December 2021 £’000 31 December 2020 £’000 1,428 104 238 1,770 758 42 247 1,047 31 December 2021 £’000 31 December 2020 £’000 2,186 2,186 1,853 1,853 31 December 2021 £’000 31 December 2020 £’000 86 144 508 29 1 112 163 1,043 2 319 321 84 209 146 2 10 25 51 527 - 465 465 56 57 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 18. LOANS 20. FINANCIAL RISK MANAGEMENT Bank loans Due in less than one year Due in between one and two years Due in between two and five years 31 December 2021 £’000 112 122 197 431 31 December 2020 £’000 25 122 343 490 On 7 October 2020, Digitalbox Publishing Limited drew down a loan facility amounting to £450k under the CBILS scheme. The present value of the loan at inception discounted at a market rate of interest was £440k. The loan is for a term of five years and is repayable in equal monthly instalments which commenced in 2021. Interest is charged at a fixed rate of 2.43% per annum, with the cost being fully subsidised by central Government for the first 12 months. The loan is secured by a debenture over the assets of the Digitalbox Publishing Limited and a £450k guarantee granted by Digitalbox plc. The outstanding balance at 31 December 2021 was £431k (2020: £440k). Tab Media Limited had an outstanding loan amounting to £50k at 31 December 2020. This loan was repaid in full during the year. 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. 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 19. DEFERRED TAX The table below illustrates the due date of trade receivables: Balance at 1 January 2021 Deferred tax charge for the year Balance at 31 December 2021 The deferred tax provision comprises: Intangible asset timing differences The expected net reversal of deferred tax in 2022 is £53k. Total £’000 232 43 275 31 December 2021 £’000 31 December 2020 £’000 275 275 232 232 Current 31 – 60 days 61 – 90 days 91 – 120 days 121 and over The table below illustrates the geographical location of trade receivables: United Kingdom Europe Rest of world 31 December 2021 £’000 31 December 2020 £’000 1,428 238 2,186 3,852 758 247 1,853 2,858 31 December 2021 £’000 31 December 2020 £’000 577 421 267 126 37 1,428 278 265 202 10 3 758 31 December 2021 £’000 31 December 2020 £’000 921 141 366 1,428 475 180 103 758 58 59 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 20. FINANCIAL RISK MANAGEMENT (continued) The directors have considered expected credit losses under IFRS9 and have adopted the simplified approach to their evaluation as the Group has limited exposure to them. The Directors have provided for expected credit losses on a specific basis and this has led to the Group carrying a provision against trade debtors of £28k (2020: £21k). Liquidity risk 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’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 2021 £’000 31 December 2020 £’000 At the year end the Group had the following cash balances: 2,186 1,853 Cash at bank comprises Sterling and US Dollar cash deposits. 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. The table below shows the maturities of financial liabilities: 2021 Trade payables Accruals Lease liabilities Loans Other payables 2020 Trade payables Accruals Lease liabilities Loans Other payables Carrying amount 6 months or less £’000 £’000 6-12 months £’000 1 or more year £’000 86 508 31 431 1 1,057 85 508 14 56 1 664 1 - 15 56 - 72 - - 2 319 - 321 Carrying amount 6 months or less £’000 £’000 6-12 months £’000 1 or more year £’000 84 147 2 490 10 733 84 142 2 - 10 238 - 5 - 25 - 30 - - - 465 - 465 31 December 2021 £’000 31 December 2020 £’000 Capital Disclosures and Risk Management The Group’s management define capital as the Group’s equity share capital and reserves. Financial liabilities at amortised cost Trade payables Accruals Lease liabilities Bank loans Other payables The table below illustrates the maturities of trade payables: Current 31 – 60 days 61 – 90 days 91 – 120 days 121 and over 86 508 31 431 1 1,057 84 147 2 490 10 733 31 December 2021 £’000 31 December 2020 £’000 45 28 12 - 1 86 69 5 - - 10 84 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, Èw 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. 60 61 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 21. SHARE CAPITAL 23. RESERVES No. 31 December 2021 Value £’000 No. 31 December 2020 Called up share capital Allotted, called up and fully paid Ordinary shares of £0.01 each 116,332,457 116,332,457 1,163 1,163 116,332,457 116,332,457 Value £’000 1,163 1,163 22. SHARE BASED PAYMENTS During the year, the Group incurred a £143k share based payment charge (2020: £140k). Of this total, £100k (2020: £101k) was recorded as an expense in Digitalbox plc and £43k (2020: £39k) was recorded as an expense in Digitalbox Publishing Limited. 2021 No. of share options 8,298,757 1,002,906 - (160,000) Weighted average exercise price 8.19p 6.00p - 20.00p 2020 No. of share options 8,298,757 2,005,812 (2,005,812) - Outstanding at beginning of year Granted during the year Cancelled during the yea Expired during the yea Outstanding at the end of the year 9,141,663 7.74p 8,298,757 Weighted average exercise price 9.94p 6.75p 14.00p - 8.19p 169,285 options relate to Warrants and are exercisable 1 year after admission. 6,017,526 options are exercisable after 3 years, or an exit event. 2,954,852 options relate to Warrants issued prior to the group’s admission by Digitalbox Publishing (Holdings) Limited, a subsidiary of the company. These are exercisable upon the exercise of those warrants in a share for share exchange arrangement, under which the company acquires all shares issued in Digitalbox Publishing (Holdings) Limited and in consideration, issues shares to the warrant holders. 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 during the year 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: 24 February 2021 0.10% Risk free rate Share price volatility 65.00% Share price at date of grant 6.00p 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. 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. 24. LEASING COMMITMENTS Group as a lessee The Group leasing arrangements for their head office. Lease liabilities are due as follows: Current Non-current Contractual undiscounted cash flows are due as follows: Current Non-current 31 December 2021 £’000 31 December 2020 £’000 29 2 31 2 - 2 31 December 2021 £’000 31 December 2020 £’000 30 3 33 2 - 2 There is not considered to be any significant liquidity risk by the Group in respect of leases. 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 31 December 2021 £’000 31 December 2020 £’000 2 29 31 1 24 25 62 63 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC COMPANY STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2021 25. CAPITAL COMMITMENTS COMPANY STATEMENT OF FINANCIAL POSITION At 31 December 2021 and 31 December 2020 there were no capital commitments. 26. RELATED PARTY TRANSACTIONS At 31 December 2021, the Group was due £171k (2020: £171k) from James Carter and Jim Douglas, two Directors of the company. Prior to the readmission of Digitalbox plc (formerly Polemos plc) onto AIM, and its subsequent acquisition of Digitalbox Publishing Holdings Ltd, James Carter and Jim Douglas each bought shares in Digitalbox Publishing Holdings Ltd using a company loan. The outstanding balance is split equally between the directors and is included within trade and other receivables. The amounts are repayable either on sale of shares by the Directors, by prior charge over the proceeds of dividends or distributions due to the directors’ net of tax or by prior charge over remuneration payments in excess of a pre-determined level. Interest is charged at 0.75% per annum. The Directors have chosen to use the entirety of their 2021 bonus payments to pay off the loans in full which results in a positive cash return to the balance sheet. During the year, Integral2 Limited billed £53k (2020: £57k) to the Group, a company related by virtue of David Joseph, a member of key management personnel, having control over the entity. As at 31 December 2021, £5k (2020: £5k) was owed to Integral2 Limited. During the year, the Group received revenue of £nil (2020: £1.5k) from Immotion Group Plc, a company related by virtue of Martin Higginson being a member of key management personnel of both entities. As at 31 December 2021, £nil (2020: £nil) was owed to the Group. During the year, M Capital Investment Partners (Holdings) Limited billed £23k (2020: £25k) to the Group, a company related by virtue of Martin Higginson, a member of key management personnel, having control over the entity. The Group accrued a further £2.0k for unbilled costs as at 31 December 2021 (2020:Nil). As at 31 December 2021, £2.5k (2020: £2.5k), was owed to M Capital Investment Partners (Holdings) Limited. During the year, Robin Miller Consultants Limited billed £11k (2020: £17k) to the Group, a company related by virtue of Robin Miller, a member of key management personnel for part of the year, having control over the entity. As at 31 December 2021, £1.7k (2020: £1.7k), was owed to Robin Miller Consultants Limited. The balances stated here were for transactions up to the point that Robin Miller resigned as a director and was therefore no longer a related party. 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 £715k in the year ended 31 December 2021 (2020: £382k). The key management personnel have been provided with a total of 5,963,660 share options resulting in a charge of £100k in the period (2020: £100k). 27. POST BALANCE SHEET EVENT On 16 February 2022, Martin Higginson exercised his warrants over 7,085 shares in Digitalbox Publishing (Holdings) Limited which were satisfied by the issuance of 1,590,936 shares in Digitalbox plc in accordance with a Warrant Acquisition Agreement dated 7 February 2019 under which Digitalbox plc acquires all such warrant shares. Accordingly, Digitalbox plc’s issued share capital increased to 117,923,393 shares. The consideration received by the company amounted to £36,275. Fixed assets Investments Current assets Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Total current liabilities Non-current liabilities Other payables Total liabilities Net current assets/(liabilities) Total assets less total liabilities Capital and reserves Called up share capital Share premium account Share-based payment reserve Retained reserves Shareholders’ funds At 31 December 2021 £’000 11,127 11,127 1,747 20 1,767 (467) (467) - (467) 1,300 12,427 1,163 11,149 464 (349) 12,427 III IV V VI VII IX IX IX At 31 December 2020 As restated £’000 11,084 11,084 1,244 99 1,343 (68) (68) - (68) 1,275 12,359 1,163 11,149 321 (274) 12,359 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 £75k (2020: £135k loss as restated) 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 28 March 2022. James Carter CEO David Joseph CEO Company registration number: 04606754 The notes on pages 67 to 70 form part of the Company financial statements. 64 65 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC NOTES FORMING PART OF THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 COMPANY STATEMENT OF CHANGES IN EQUITY NOTES FORMING PART OF THE COMPANY FINANCIAL STATEMENTS Share Capital £’000 Share Premium £’000 Share-based payment £’000 Balance at 1 January 2020 21,331 29,757 Prior year adjustment - - Balance at 1 January 2020 as restated 21,331 29,757 Issue of shares Share issue costs 260 - 976 (84) Capital reduction (20,428) (19,500) Loss after tax (restated) Share-based payments - - - - 31 December 2020 as restated 1,163 11,149 Loss after tax Share-based payments - - - - 181 - 181 - - - - 140 321 - 143 Retained reserves £’000 (40,122) 55 (40,067) - - 39,928 (135) - (274) (75) - Total £’000 11,147 55 11,202 1,236 (84) - (135) 140 12,359 (75) 143 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 Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) and in accordance with applicable accounting standards. The company has taken advantage of the following disclosure exemptions under FRS 101: the requirements of paragraphs 45(b) and 46 to 52 of IFRS 2 Share-based Payment the requirements of paragraphs 62, B64(d), B64(e), B64(g), B64(h), B64(j) to B64(m), B64(n)(ii), B64 (o)(ii), B64(p), B64(q) (ii), B66 and B67of IFRS 3 Business Combinations; the requirements of IFRS 7 Financial Instruments: Disclosures; the requirements of the second sentence of paragraph 110 and paragraphs 113(a), 114, 115, 118, 119(a) to (c), 120 to 127 and 129 of IFRS 15 Revenue from Contracts with Customers; the requirements of paragraph 58 of IFRS 16, provided that the disclosure of details of indebtedness required by paragraph 61(1) of Schedule 1 to the Regulations is presented separately for lease liabilities and other liabilities, and in total; the requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative information in respect of: (i) paragraph 79(a) (iv) of IAS 1, (ii) paragraph 73(e) of IAS 16 Property Plant and Equipment and (iii) paragraph 118 (e) of IAS 38 Intangibles Assets the requirements of paragraphs 10(d), 10(f), 16, 38A to 38D, 40A to 40D ,111 and 134-136 of IAS 1 Presentation of Financial Statements; the requirements of IAS 7 Statement of Cash Flows; the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors; the requirements of paragraph 17 and 18A of IAS 24 Related Party Disclosures; and the requirements in IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member. 31 December 2021 1,163 11,149 464 (349) 12,427 Where required, equivalent disclosures are given in the group financial statements of Digitalbox plc. 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 PROFIT 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 5 (2020: 6) and total staff costs were £815k (2020: £382k). Directors remuneration is disclosed in note 9 to the consolidated financial statements. The operating loss in the prior year is stated after charging an impairment loss on the investment in Mashed Productions Limited amounting to £238k. This impairment loss is reflective of the receipt of dividend income from this subsidiary amounting to £238k, which was subsequently dissolved on 10 March 2020 following an earlier hive across of trade to Digitalbox Publishing Limited. The impairment arose owing to the realisation of the distributable reserves, and these two transactions have had a net £nil effect on the result for the prior year. These transactions had no effect on the operating profit in the current year. 66 67 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC NOTES FORMING PART OF THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 III. FIXED ASSET INVESTMENTS V. CASH AND CASH EQUIVALENTS Subsidiary undertakings Cost Balance at 1 January 2021 Prior year adjustment Balance at 1 January 2021 as restated Additions Disposals Balance at 31 December 2021 Provisions Balance at 1 January 2021 Charge for the year Balance at 31 December 2021 Carrying value of investments 31 December 2021 £’000 11,228 94 11,322 43 - 11,365 238 - 238 11,127 Cash at bank and in hand VI. PAYABLES: amounts falling due within one year Trade payables Accruals Corporation tax payable Other tax and social security Other payables VII. SHARE CAPITAL 31 December 2021 £’000 31 December 2020 £’000 20 20 99 99 31 December 2021 £’000 31 December 2020 £’000 29 403 18 16 1 467 5 38 - 16 9 68 The investment addition relates to equity settled share based payments issued to employees of the company’s subsidiary, Digitalbox Publishing Limited, as disclosed in Note 22 to the consolidated financial statements. At the year end the Company had the following subsidiaries: VIII. SHARE OPTIONS Share Option Scheme Details of the Company’s share capital can be found in Note 21 to the consolidated financial statements. Subsidiary name Class of shares Proportion of ownership Registered office Digitalbox Publishing Limited Digitalbox Inc Digitalbox Publishing (Holdings) Limited Tab Media Limited Ordinary Ordinary Ordinary Ordinary 100% Indirect 100% Direct 100% Direct 100% Indirect 2-4 Henry Street, Bath, BA1 1JT 19 Courtland Drive, Hudson, MA 01749 2-4 Henry Street, Bath, BA1 1JT Jubilee House, 92 Lincoln Road, Peterborough, PE1 2SN Subsidiary name Digitalbox Publishing Limited Digitalbox Inc Digitalbox Publishing (Holdings) Limited Tab Media Limited Principal activity Sale of digital advertising space Sale of digital advertising space Holding company Dormant company IV. RECEIVABLES: due within one year Amounts owed by group undertakings Other receivables Prepayments and accrued income 31 December 2021 £’000 31 December 2020 £’000 1,636 - 52 1,688 1,213 10 21 1,244 Details of the share options outstanding at 31 December 2021 can be found in Note 22 to the consolidated financial statements. IX. RESERVES Details of the reserves can be found in Note 23 to the Consolidated financial statements. X. RELATED PARTY TRANSACTIONS Details of the Company’s related party transactions can be found in Note 26 to theconsolidated financial statements. XI. PRIOR PERIOD ADJUSTMENT Certain employees of the company’s subsidiary, Digitalbox Publishing Limited, have been granted rights to equity instruments in the company in consideration for services provided to its subsidiary. The associated share based payment charge has been recorded in the financial statements of the company, but instead should have been recorded as an expense in the subsidiary’s financial statements. As a result, at 1 January 2020 the investment in the subsidiary has been increased by £55k by increasing retained earnings by the same amount. The loss for the year ended 31 December 2020 has decreased by £39k, with a corresponding increase in the investment in the subsidiary. 68 69 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com DIGITALBOX PLC NOTES FORMING PART OF THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 DIGITALBOX PLC DIRECTORS, SECRETARY AND ADVISERS FOR THE YEAR ENDED 31 DECEMBER 2021 XI. PRIOR PERIOD ADJUSTMENT (CONTINUED) The consolidated financial statements and accordingly earnings per share are unaffected by this error and the associated correction. The impact on the financial statements is analysed below. At 1 January 2020 A 31 December 2020 Previously reported £’000 Prior year adjustment £’000 As restated £’000 Previously reported £’000 Prior year adjustment £’000 As restated £’000 11,192 55 11,247 10,990 94 11,084 155 22 1,343 (214) (214) (8) (222) (37) - - - - - - - - 155 22 1,244 99 1,343 1,343 (214) (214) (8) (222) (37) (68) (68) - (68) 1,275 - - - - - - - - 1,244 99 1,343 (68) (68) - (68) 1,275 11,147 55 11,202 12,265 94 12,359 Fixed assets Investments Current assets Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Total current liabilities Non-current liabilities Other payables Total liabilities Net current assets/(liabilities) Total assets less total liabilities Capital and reserves Called up share capital Share premium account Share-based payment reserve Retained reserves 21,331 29,757 181 (40,122) - - - 55 55 21,331 29,757) 181 (40,067) 1,163 11,149 321 (368) 11,202 12,265 - - - 94 94 1,163 11,149 321 (274) 12,359 Shareholders’ funds 11,147 Directors Company Secretary and Registered Office Marcus Rich James Carter James Douglas Martin Higginson David Joseph Philip Machray David Joseph 2-4 Henry Street Bath England BA1 1JT Company Number 04606754 Registrars Nominated Adviser and Broker Joint Broker Independent Auditors Solicitors Share Registrars Limited The Courtyard 17 West Street Farnham GU9 7DR Panmure Gordon One New Change London EC4M 9AF Alvarium Capital Partners 10 Old Burlington Street London W1S 3AG Haysmacintyre LLP 10 Queen Street Place London EC4R 1AG FREETHS LLP Floor 3 100 Wellington Street Leeds LS1 4LT Country of Incorporation of Parent Company England and Wales Legal Form Public Limited Company Domicile United Kingdom 70 71 ANNUAL REPORT & ACCOUNTS 2021 | digitalbox.comANNUAL REPORT & ACCOUNTS 2021 | digitalbox.com Digitalbox PLC 2-4 Henry Street Bath BA1 1JT United Kingdom Co Reg No. 04606754 +44 (0)1225 430 091 digitalbox.com © 2022 

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