ANNUAL REPORT
2016
Year ended March 31, 2016
Stingray Digital Group Inc.
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TABLE OF CONTENT
01 Word from the CEO
05
06
08
14
18
44
Management Discussion
and Analysis
Company Profile
Business Strategy
Competitive Strength
Key Business Risks
Consolidated Financial
Statements
Eric Boyko, President,
Co-founder and Chief Executive Officer
WORD FROM THE CEO
Dear shareholders, customers, partners, and colleagues,
What a year it’s been for Stingray since our initial public offering in June 2015; a year when we succeeded in
meeting the key objectives laid out in our prospectus, executed four (4) complex acquisitions – delivering on our
ambitious business plan – focused on growth, seized strategic opportunities, and expanded our product offering
to meet the needs of an evolving marketplace. Stingray’s executive team, board of directors, and employees are
dedicated to delivering shareholders with value through thoughtful and sustained growth strategies. As always,
this year we executed all operations with strict financial discipline. We increased our revenue by 26.7% to $89.9
million leading to a 22.1% increase of our recurring revenue. A predictable and sustained long-term growth of
recurring revenues is one of Stingray’s key success indicators.
With the benefit of international expansions via
recent acquisitions such as the Brava Group in
Netherlands, iConcerts in Europe and Asia, and
Digital Music Distribution PTY (DMD) in Australia
and organic growth, we continue to deliver strong
results. We show growth in our operating results
with an Adjusted EBITDA of $31.0 million, 13.7%
above last year. Net income reached $13.9 million
($0.29 per share), an increase of 110.1% over last year.
Our ability to generate cash flow remained an area of
strength. Adjusted free cash flow reached $24.0 million
representing an increase of 40.8% over last year. Cash
flow from operating activities generated $19.0 million
this year, an increase of 91.4% over last year. We are
well positioned to capture growth opportunities and
continue to generate strong value to shareholders.
Over the past twelve months, our global subscriber
reach across all products and services jumped from
110 million in 111 countries to 400 million in 152
countries. Our most impressive strides occurred in
the Asia-Pacific region where, thanks to strategic
acquisitions (iConcerts, DMD) and partnerships
(Multichannels Asia), we gained important footholds
in Singapore, South Korea, China, and Australia.
High-quality, curated content continues to propel
us to industry-leading positions. This year alone, we
introduced Stingray Ambiance 4K, the first 4K UHD
television channel in North America, and launched
Vibes channels, a new and exciting feature of our
Stingray Music mobile app. The 2,000 Vibes channels
– currently available in Canada, Latin American,
and the Netherlands – have been crucial in driving
Stingray’s popularity with younger consumers. The
proportion of Stingray Music listeners aged 18-34
reached a record 36% in 2015.
Additionally, our product portfolio also experienced
exceptional growth. In recent months we added two
long-form television channels, Stingray Brava (classical
music, opera, and ballet) and Stingray DJazz (jazz and
jazz related genres) to our already diverse offering.
The renewal and expansion of distribution agreements
with some of the industry’s most important Pay-TV
providers, amongst them Comcast and AT&T (United
States), Telus (Canada), duTV (United Arab Emirates),
and Telefonica (Latin America), underscore the trust
clients have in Stingray’s offering and its capacity to
engage subscribers with the highest quality music
products and services. We’ve also inked agreements
with Vidéotron Mobile, Sonos and Sonify, thus diversi-
fying our distribution platforms.
Revenues & Recurring Revenues
$89.9
$71.0
$77.6
$63.5
$60.0
$51.8
2014
2015
2016
Non-recurring revenues
Recurring revenues
1
Annual Report 2016 | Stingray Digital Group Inc. With the acquisition of Nümedia and the integration of
Groupe Viva, we continue to ensure the development
of Stingray Business, our commercial services division.
Stingray Business had a banner year, completing pio-
neering digital experience projects for Sports Experts,
signing in-store music deals with the Liquor Control
Board of Ontario and The Second Cup, and winning
numerous awards.
We are also incredibly proud to have been awarded
“Best IR for an IPO” at the 2016 IR Magazine Awards
– Canada and to have obtained a five-year renewal of
our broadcasting license by the Canadian Radio-tele-
vision and Telecommunications Commission (CRTC),
enabling us to build our future on solid foundations.
Looking to the future, I am confident Stingray will con-
solidate its gains and pursue its global expansion. By
2020, we expect that international revenue will make
up 70% of total revenue.
I wish to take this opportunity to thank our clients
and investors for their indefectible confidence, and
every member of the Stingray team for their enthusi-
asm, loyalty and vision. Together we can rise to any
challenge and will reach Stingray’s goal of becoming
the world-leading provider of curated music content,
products, and services.
Net Income & Adjusted EBITDA
$13.9
$8.7
$6.6
Net income(1)
$31.0
$27.3
$24.4
Adjusted EBITDA(1)(2)
2014
2015
2016
Eric Boyko
2
Cash Flow
$9.9
$24.0
$19.0
$17.0
CF from operating activities
Adjusted free cash flow(1)(2)
2015
2016
Notes:
(1)In millions of Canadian dollars.
(2) Refer to “Supplemental information on Non-IFRS measures” on page 21 and 25.
Annual Report 2016 | Stingray Digital Group Inc. Stephanie Johnston | Marketing Manager
Sasha Omer | Content Coordinator
‘‘Over the past twelve
months, our global
subscribers reach across
all products and services
jumped from 110 million in
111 countries to 400 million
in 152 countries.’’
MANAGEMENT’S DISCUSSION AND ANALYSIS
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(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:180)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:87)(cid:76)(cid:81)(cid:74)(cid:85)(cid:68)(cid:92)(cid:3)(cid:39)(cid:76)(cid:74)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:15)(cid:3)(cid:11)(cid:170)(cid:54)(cid:87)(cid:76)(cid:81)(cid:74)(cid:85)(cid:68)(cid:92)(cid:171)(cid:3)(cid:82)(cid:85)(cid:3)(cid:170)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:171)(cid:12)(cid:15)(cid:3)
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(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:81)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:48)(cid:39)(cid:9)(cid:36)(cid:3)(cid:85)(cid:72)(cid:181)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)
(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:45)(cid:88)(cid:81)(cid:72)(cid:3)(cid:20)(cid:24)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:17)(cid:3)(cid:36)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)
on SEDAR at www.sedar.com.
Rowan Bovaird | Administrative Assistant R&D and Marketing
Laurent Charlot |(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:87)
Kris Garcia | IT Administrator
Geneviève Bélanger | Content Coordinator & Music Programmer
COMPANY PROFILE
Stingray is the leading B2B music products, services, and content provider operating on a
global scale, reaching an estimated 400 million Pay-TV subscribers (or households) in 152
countries. Stingray is headquartered in Montreal and currently has close to 300 employees
worldwide, including a team of expert music programmers.
With its extensive product portfolio, Stingray is the one-stop-shop for Pay-TV providers looking for a diverse,
high-quality, and expertly curated music offering; on TV, mobile and the web. Stingray offers its client a selection
of multiplatform products (Stingray Music and Stingray Karaoke), long-form television channels (iConcerts,
Stingray Brava, Stingray Djazz, and Stingray Ambiance), and music video television channels (Stingray LiteTV).
Company Highlights
HEADQUARTERS
Montreal, Canada
OFFICES
United States, United Kingdom, Netherlands, Switzerland,
France, Israel, Australia and South Korea
6
Zac Monson | Music Programmer & Host of PausePlay
Phil Séguin | Programming Assistant
Simon Tremblay | IT Technician
Valérie Lamarche | Human Resources Advisor
Rowan Bovaird | Administrative Assistant R&D and Marketing
Sarah Després-Kaba | Associate, Sales and Affiliate Relations
Annual Report 2016 | Stingray Digital Group Inc. COMPANY HIGHLIGHTS
$180
million raised
from June 3, 2015, IPO
Over 1/3 of our listeners are between
18 34
subscribers reach of
More than
10
million
Canadians
listen to Stingray
every day
300
400
152
millions
across all services in
countries
employees
worldwide
7
Annual Report 2016 | Stingray Digital Group Inc. BUSINESS STRATEGY
(cid:50)(cid:88)(cid:85)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:82)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:74)(cid:74)(cid:85)(cid:72)(cid:86)(cid:86)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:54)(cid:87)(cid:76)(cid:81)(cid:74)(cid:85)(cid:68)(cid:92)(cid:173)(cid:86)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:3)
value to investors. We believe that we can achieve our goal by expanding and diversifying
our client base, by developing new products, technologies, and digital platforms, and by
continuing to pursue strategic acquisitions.
Expand and diversify our client and partner base
Stingray’s continued global success is due in great part to leveraging our clients’
trust and providing them with the highest level of service. This year, we continued
to grow and strengthen our customer base and the distribution of our services.
New Clients
Renewed and Expanded Contracts Agreements
SKY LATIN AMERICA
TELEFONICA LATIN AMERICA
DU TV (UAE)
LCBO
SPORTS EXPERTS
VIDEOTRON MOBILE
TELUS
COGECO
AT&T
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Annual Report 2016 | Stingray Digital Group Inc.
Develop new products, technologies and
digital platforms
Stingray has invested over $40 M in research and development. To maintain our
position as world-leading multiplatform music products and services provider,
we strive to constantly be at the cutting-edge of technology.
2
Highlights
Launch of
Stingray Ambiance,
the first 100%
4K Ultra High
Definition channel
in North America
Launch of
Stingray Music
on Sonos
Launch of
Stingray Music
mobile app on
tablet
In Canada,
the Stingray
Music mobile app
reaches an 8%
penetration rate
Release of 2,000
Vibes channels in
the Stingray Music
mobile app
Introduction of
Stingray Pass,
a proprietary
audio-watermarking
technology
9
Annual Report 2016 | Stingray Digital Group Inc. Steven Chan | Software Developer
Stéphanie Ip | IT Project Manager
Sébastien Dion | Software Developer
Daniel Lajoie | QA Manager
Stingray has a track record of acquiring established, dynamic, and creative
companies and partnering with industry leaders to achieve its aggressive global
expansion plan.
3 Continue to pursue strategic acquisitions
Highlights
Expanded foothold
in Asia-Pacific
Subscribers
reach jumps from
110 million to
400 million
households
Stingray now
distributed in
152 countries
Acquisitions
Stingray Now the World’s Largest Digital Live Music Concerts TV Broadcaster
Acquisition of iConcerts, a TV channel dedicated solely to live music (distribution in 85 countries
to an estimated 250 M households)
Stingray Enters the Australian Market
Acquisition of Digital Music Distribution Pty Ltd., Australia’s most important digital music services provider.
Stingray Diversifies its Product Offering and Expands its European Distribution
Acquisition of Brava NL, Brava HD and Djazz, distributors of three successful thematic channels
dedicated to high-end music and cultural content (distribution in 50 countries to an estimated
35 M households)
New Partnership
Stingray Enters into Strategic Partnership in Asia
Strategic relationship with Multi Channels Asia (MCA), a Singapore-based media company, which owns, repre-
sents and distributes a number of thematic Pay-TV networks serving Asia and the Pacific.
11
Annual Report 2016 | Stingray Digital Group Inc. New Markets since July 2015
2015
2016
12
(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:95)(cid:3)(cid:54)(cid:87)(cid:76)(cid:81)(cid:74)(cid:85)(cid:68)(cid:92)(cid:3)(cid:39)(cid:76)(cid:74)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)
(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:95)(cid:3)(cid:54)(cid:87)(cid:76)(cid:81)(cid:74)(cid:85)(cid:68)(cid:92)(cid:3)(cid:39)(cid:76)(cid:74)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)
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COMPETITIVE STRENGTHS
We believe that the following competitive strengths will contribute to our ongoing
commercial success and future performance:
solutions provider
1 Leading B2B multi-platform music and in-store media
With 400 million subscribers in 152 countries, our total reach is one of the largest relative to our
peers. Our products and services are distributed through numerous platforms including digital
TV, satellite TV, IPTV, the Internet, mobile devices, Wi-Fi systems, and game consoles.
Total Reach (millions1)
2016
2015
2014
2013
110
95
63
400
We count Bell, AT&T, Rogers, Shaw, Vidéotron, Comcast, Cogeco, ALDO, and Sobeys amongst our blue-
chip clients.
We continue to build brand awareness through digital marketing, social media, television/media advertising,
and trade marketing across Canada, the United States, Latin America, Europe and the rest of the world.
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Annual Report 2016 | Stingray Digital Group Inc.
Annual Report 2016 | Stingray Digital Group Inc. 2
3
Strong and predictable cash flows from long-term contracts
and client relationships
Our business model is based on subscription revenues and long-term agreements with Pay-TV
providers, which gives us significant predictability of future cash flows, reduces cyclicality of
earnings, and increases customer retention. As a result, we have established deeply integrated
relationships with many of our customers, providing recurring annual revenues of
$86 million at the end of Fiscal 2016 (89% of our total revenue).
We have implemented a non-interactive, linear business model that results in an advantageous
rights structure (compared to service providers operating on an interactive and B2C business
model). The lower cost of rights, our operational leverage and our value proposition help con-
tribute to and support our margins.
As a result, our revenue and cash flows are strong, predictable and growing, permitting us to
pursue our proven track record of successful acquisitions and invest in product development.
Proprietary innovative technologies
We are a leader and innovator in the digital music space, and as such have developed a unique
set of proprietary technologies that provide us with an important competitive advantage.
We have extensive experience in developing technologies to distribute digital music on multiple
platforms such as TV, mobile devices and the web. This expertise enables us to continuously
build our customer base and expand our service offering to new customers. For instance, the
Stingray Music mobile app is an innovative product that uses audio watermarking technology
(Stingray Pass) to instantly authenticate Pay-TV subscribers who have access to Stingray Music
audio channels on TV.
Annual Report 2016 | Stingray Digital Group Inc.
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Annual Report 2016 | Stingray Digital Group Inc. 4
5
6
Track record of successful acquisitions and integrations
Since Stingray’s inception in 2007, we have completed 24 acquisitions representing outlays
of approximately $181 million, which brought new clients, new products and new geographical
markets to our business. In Fiscal 2016, we have completed four acquisitions on four continents
for an aggregate purchase value of $33.1 million.
Stingray’s proven track record of successfully integrating these acquisitions is a result of our
experienced management team’s rigorous and disciplined acquisition strategy. The versatility,
portability and flexibility of Stingray’s products and technologies permit us to efficiently inte-
grate and support the complementary products and technologies of the businesses we acquire.
Leading content curation expertise
Our business strategy is based on a lean-back, rather than lean-forward, music consumption
model. Stingray provides some of the world’s most comprehensive music libraries and channels,
all programmed by 100 expert programmers around the world. Our music products and services
are adapted to local tastes and trends to create the ultimate user experience, all without adver-
tisements or interruptions.
Music that has been curated by humans provides a true, emotional connection. Stingray there-
fore offers a more enjoyable and tailored listening experience. As a result, our content curation
expertise leads to stronger relationships with listeners who become increasingly engaged with
our product offering.
High employee retention rate and low turnover
As an entrepreneurial and growing Canadian company, we attract and retain talented
professionals. Our team of 300 dedicated individuals is comprised of experienced and
knowledgeable operations, financial, technology, marketing and communications, sales, and
legal and regulatory experts who, prior to joining Stingray, garnered extensive experience with
other industry leaders.
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Annual Report 2016 | Stingray Digital Group Inc.
Annual Report 2016 | Stingray Digital Group Inc. PROVEN ACQUISITION STRATEGY
$181
million spent
on acquisitions
since inception
Became a leading player in Mexico and Latin
America through 2 acquisitions in less than
12 months in 2014
Successfully delivered acquisition plan
for Fiscal 2016 with entry in AsiaPacific
2007
2009
Slep-Tone Entert. Corp/SoundChoice
(Karaoke Channel)
Canadian Broadcast Corp. (Galaxie)
MaxTrax Music Ltd.
Chum Satellites Services (CTV)
2010
Marketing Senscity Inc.
Concert TV Inc.
2011
Music Choice Int’l
2012
Musicoola Ltd.
Zoe Interactive Ltd.
2014
2015
DMX LATAM (Mood Media)
Les Réseaux Urbains Viva Inc.
Archibald Media Group
Brava Group
DMX Canada (Mood Media)
Digital Music Distribution
Telefonica – On the Spot
iConcerts
2013
Executive Communication
Emedia Networks Inc.
Stage One Innovations Ltd.
Intertain Media Inc
2016
Nümedia
(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:95)(cid:3)(cid:54)(cid:87)(cid:76)(cid:81)(cid:74)(cid:85)(cid:68)(cid:92)(cid:3)(cid:39)(cid:76)(cid:74)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)
Annual Report 2016 | Stingray Digital Group Inc.
17
17
KEY BUSINESS RISKS
The key risks and uncertainties of our business drive our operating strategies. Additional risks and uncertain(cid:16)
ties not presently known to us, or that we currently consider immaterial, may also affect us. If any of the events
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(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:69)(cid:72)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:75)(cid:68)(cid:85)(cid:80)(cid:72)(cid:71)(cid:17)(cid:3)(cid:41)(cid:82)(cid:85)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:180)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:73)(cid:68)(cid:70)(cid:72)(cid:15)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)
(cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:11)(cid:36)(cid:44)(cid:41)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:68)(cid:74)(cid:72)(cid:3)(cid:20)(cid:27)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:54)(cid:40)(cid:39)(cid:36)(cid:53)(cid:3)(cid:68)(cid:87)(cid:3)(cid:86)(cid:72)(cid:71)(cid:68)(cid:85)(cid:17)(cid:70)(cid:82)(cid:80)(cid:17)
Our key risks are displayed as follows:
Public performance and
mechanical rights and royalties
Integrating business
acquisitions
Long-term plan to expand into
international markets
We pay public performance and
mechanical royalties to songwriters
and publishers through contracts
negotiated with labels and music
rights collection societies in various
parts of the world. If public perfor(cid:16)
mance or mechanical royalty rates
for digital music are increased, our
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performance and condition may
be adversely affected. We mitigate
this risk by operating, whenever
possible, under statutory licensing
regimes and structures applicable
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The royalty rates to be paid
pursuant to statutory licenses can
be established by either negotia(cid:16)
tion or through a rate proceeding
conducted by the Copyright Board;
such royalty rates are generally
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from year to year.
The Corporation has made or
entered into, and will continue to
pursue, various acquisitions, business
combinations and joint ventures
intended to complement or expand
our business. The Corporation may
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acquired assets with our operations.
(cid:41)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:80)(cid:82)(cid:85)(cid:72)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)
(cid:81)(cid:82)(cid:87)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:180)(cid:87)(cid:86)(cid:15)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:72)(cid:86)(cid:3)
of scale and synergies we antici(cid:16)
pated when we entered into these
transactions.To mitigate this risk,
the Corporation has committed to
develop and improve our operational,
(cid:180)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:15)(cid:3)
enhance our reporting systems and
procedures and recruit, train and retain
highly skilled personnel, all of which
will enable the Corporation to properly
leverage our services into new markets,
platforms and technologies.
A key element of our growth
strategy is to continue to expand our
operations into international markets.
(cid:41)(cid:82)(cid:85)(cid:3)(cid:41)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:15)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)
(cid:23)(cid:20)(cid:8)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:72)(cid:71)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)
customers outside of Canada.
Operating in international markets
(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:86)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:180)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
management attention and will
subject us to regulatory, economic
and political risks that are different
from those in Canada. To mitigate
this risk, the Corporation has
committed to develop and improve
(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:15)(cid:3)(cid:180)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
management controls, enhance our
reporting systems and procedures
and recruit, train and retain highly
skilled personnel, all of which will
enable the Corporation to continue
to expand into international markets.
18
Annual Report 2016 | Stingray Digital Group Inc.
Pay-TV providers dependence
Rapid growth in evolving market
The majority of the Stingray
(cid:48)(cid:88)(cid:86)(cid:76)(cid:70)(cid:3)(cid:51)(cid:68)(cid:92)(cid:16)(cid:55)(cid:57)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:70)(cid:85)(cid:76)(cid:69)(cid:72)(cid:85)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)
reached through a small number of
(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:180)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:51)(cid:68)(cid:92)(cid:16)(cid:55)(cid:57)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:90)(cid:75)(cid:82)(cid:3)
(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:17)(cid:3)
(cid:51)(cid:68)(cid:70)(cid:78)(cid:68)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:72)(cid:70)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:69)(cid:92)(cid:3)(cid:51)(cid:68)(cid:92)(cid:16)
TV providers in respect of service
offerings can impact the subscriber
base. Moreover, the contractual
(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:51)(cid:68)(cid:92)(cid:16)(cid:55)(cid:57)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)
in Canada to distribute Stingray
Music are subject to changes in
CRTC rules, including the CRTC’s
new policy framework set forth in
Broadcasting Regulatory Policy
(cid:38)(cid:53)(cid:55)(cid:38)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:16)(cid:28)(cid:25)(cid:17)(cid:3)(cid:54)(cid:72)(cid:72)(cid:3)(cid:170)(cid:53)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)
(cid:39)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:36)(cid:44)(cid:41)(cid:171)(cid:17)(cid:3)(cid:3)(cid:58)(cid:72)(cid:3)
mitigate this risk by understanding
(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:81)(cid:72)(cid:72)(cid:71)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:51)(cid:68)(cid:92)(cid:16)(cid:55)(cid:57)(cid:3)
providers and offering compelling
services, distributed across
multiple platforms and proprietary
technologies, with a demonstrable
value proposition. Based on our
strong relationships and our
(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:72)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)
(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:51)(cid:68)(cid:92)(cid:16)(cid:55)(cid:57)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:3)
Stingray expects that all Canadian
(cid:51)(cid:68)(cid:92)(cid:16)(cid:55)(cid:57)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)
(cid:70)(cid:68)(cid:85)(cid:85)(cid:92)(cid:3)(cid:54)(cid:87)(cid:76)(cid:81)(cid:74)(cid:85)(cid:68)(cid:92)(cid:173)(cid:86)(cid:3)(cid:83)(cid:68)(cid:92)(cid:16)(cid:68)(cid:88)(cid:71)(cid:76)(cid:82)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)
on the most widely distributed
(cid:88)(cid:81)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:180)(cid:85)(cid:86)(cid:87)(cid:16)(cid:87)(cid:76)(cid:72)(cid:85)(cid:3)(cid:83)(cid:68)(cid:70)(cid:78)(cid:68)(cid:74)(cid:72)(cid:3)
(where available).
The audio and video entertainment
industry is rapidly evolving. The
market for online digital music and
videos has undergone rapid and
dramatic changes in our relatively
short history and is subject to
(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:180)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:70)(cid:75)(cid:68)(cid:79)(cid:79)(cid:72)(cid:81)(cid:74)(cid:72)(cid:86)(cid:17)(cid:3)(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)
our growth in certain markets could
be impeded by existing contractual
undertakings with competitors
which forbid us to solicit customers
in such markets. To mitigate this
risk, our skilled and experienced
sales personnel have placed a
(cid:74)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:72)(cid:80)(cid:83)(cid:75)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:70)(cid:85)(cid:82)(cid:86)(cid:86)(cid:16)(cid:86)(cid:72)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)
our growing suite of products
and our capable engineers
continue to innovate and develop
new products and proprietary
technologies to distribute digital
music, which in turn allows us
to attract and retain customers
and expand our service offering
on multiple digital platforms
beyond the TV. To manage the
growth of our operations and
personnel, we continue to improve
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management controls and our
reporting systems and procedures.
Competition from other content
providers
The market for acquiring exclusive
digital rights from content owners
is competitive. Many of the more
desirable music recordings
are already subject to digital
distribution agreements or have
been directly placed with digital
entertainment services. We face
increasing competition for listeners
and/or viewers from a growing
variety of businesses that deliver
audio and/or video media content
through mobile phones and other
wireless devices. The growth
of social media could facilitate
other forms of new entry that will
compete with the Corporation. To
mitigate this risk, the Corporation
continues to rely upon human
programming and content curation
(cid:69)(cid:92)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:16)(cid:90)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:80)(cid:88)(cid:86)(cid:76)(cid:70)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:87)(cid:86)(cid:3)
from around the world, each of
whom adapt to the tastes and
trends of listeners in order to create
the ultimate user experience. In
addition, the Corporation remains
determined to create and acquire
(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:79)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:85)(cid:71)(cid:72)(cid:85)(cid:3)
to grow its proprietary catalogue.
Annual Report 2016 | Stingray Digital Group Inc.
19
EXECUTIVE OFFICERS
Eric Boyko
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:38)(cid:40)(cid:50)(cid:15)(cid:3)(cid:38)(cid:82)(cid:16)(cid:73)(cid:82)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)
and Director
Mario Dubois
(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:16)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:55)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3)(cid:50)(cid:73)(cid:180)(cid:70)(cid:72)(cid:85)
(cid:47)(cid:79)(cid:82)(cid:92)(cid:71)(cid:3)(cid:41)(cid:72)(cid:79)(cid:71)(cid:80)(cid:68)(cid:81)
(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:16)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
General Counsel
Ratha Khuong
General Manager,
Stingray Business Inc.
Mathieu Péloquin
(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:16)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)
Marketing and
Communications
Stephen Tapp
Senior Vice President,
Business Development
(cid:45)(cid:72)(cid:68)(cid:81)(cid:16)(cid:51)(cid:76)(cid:72)(cid:85)(cid:85)(cid:72)(cid:3)(cid:55)(cid:85)(cid:68)(cid:75)(cid:68)(cid:81)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:180)(cid:70)(cid:72)(cid:85)
Tom Pentefountas
(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:16)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)
International Sales, EMEA
and Asia
20
Annual Report 2016 | Stingray Digital Group Inc.
BASIS OF PREPARATION AND FORWARD LOOKING STATEMENTS
This MD&A contains forward-looking information within the meaning of applicable Canadian securities laws. This forward-looking information includes,
but is not limited to, statements with respect to management’s expectations regarding the future growth, results of operations, performance and
business prospects of the Corporation. This forward-looking information relates to, among other things, our objectives and the strategies to
achieve these objectives, as well as information with respect to our beliefs, plans, expectations, anticipations, estimations and intentions, and may
also include other statements that are predictive in nature, or that depend upon or refer to future events or conditions. Statements with the words
“could”, “expect”, “may”, “will”, “anticipate”, “assume”, “intend”, “plan”, “believes”, “estimates”, “guidance”, “foresee”, “continue” and similar
expressions are intended to identify statements containing forward looking information, although not all forward-looking statements included such
words. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances contain
forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management’s
expectations, estimates and projections regarding future events.
Although management believes the expectations reflected in such forward-looking statements are reasonable, forward-looking statements are
based on the opinions, assumptions and estimates of management at the date the statements are made, and are subject to a variety of risks and
uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements.
These factors include, but are not limited to the following risk factors : increases in royalties or restricted access to music rights; our dependence on
Pay-TV providers; the rapidly evolving audio and video entertainment industry; competition from other content providers; the expansion of our
operations into international markets; our rapid growth and our growth strategy; our acquisitions, business combinations and joint ventures; our
dependence on key personnel; exchange rate fluctuations; economic and political instability in emerging countries; royalty calculation methods;
rapid technological and industry changes; unavailability of additional funding; failure to generate cash revenues; reliance on our credit facilities;
costly and protracted litigation in defence of copyrighted content; our inability to protect our proprietary technology; our reliance on third party hardware,
software and related services; our inability to maintain our corporate culture; unfavourable economic conditions; our exposure to foreign privacy and
data security laws; unauthorized and pirated music and video content; natural catastrophic events and interruption by man-made problems;
additional income tax liabilities; maintaining our reputation; litigation and other claims; credit risk; liquidity risk; failure to comply with CRTC
requirements; failure to maintain or renew our CRTC licences; the increase in broadcasting licence fees payable by us; unfavourable changes in
government regulation affecting our industry.
In addition, if any of the assumptions or estimates made by management prove to be incorrect, actual results and developments are likely to differ,
and may differ materially, from those expressed or implied by the forward-looking statements contained in this MD&A. Such assumptions include,
but are not limited to, the following: our ability to generate sufficient revenue while controlling our costs and expenses; our ability to manage
our growth effectively; the absence of material adverse changes in our industry or the global economy; trends in our industry and markets; the
absence of any changes in law, administrative policy or regulatory requirements applicable to our business, including any change to our
licences with the CRTC; minimal changes to the distribution of the pay audio services by Pay-TV providers in light of recent CRTC policy decisions;
our ability to manage risks related to international expansion; our ability to maintain good business relationships with our clients, agents and
partners; our ability to expand our sales and distribution infrastructure and our marketing; our ability to develop products and technologies that keep
pace with the continuing changes in technology, evolving industry standards, new product introductions by competitors and changing client
preferences and requirements; our ability to protect our technology and intellectual property rights; our ability to manage and integrate acquisitions;
our ability to retain key personnel; and our ability to raise sufficient debt or equity financing to support our business growth. Accordingly, prospective
purchasers are cautioned not to place undue reliance on such statements. All of the forward-looking information in this MD&A is qualified by these
cautionary statements. Statements containing forward-looking information contained herein are made only as of the date of this MD&A. The
Corporation expressly disclaims any obligation to update or alter statements containing any forward-looking information, or the factors or
assumption underlying them, whether as a result of new information, future events or otherwise, except as required by law.
SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES
The Corporation believes that Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net income, Adjusted Net income per share, Adjusted free
cash flow, Net debt including and excluding contingent considerations and Net debt to Adjusted EBITDA are important measures in
evaluating our performance. Each of these non-IFRS financial measures is not an earnings or cash flow measure recognized by IFRS and
does not have a standardized meaning prescribed by IFRS. Our method of calculating such financial measures may differ from the methods used
by other issuers and, accordingly, our definition of these non-IFRS financial measures may not be comparable to similar measures presented by
other issuers. Investors are cautioned that non-IFRS financial measures should not be construed as an alternative to net income determined in
accordance with IFRS as indicators of our performance or to cash flows from operating activities as measures of liquidity and cash flows.
Annual Report 2016 | Stingray Digital Group Inc.
21
KEY PERFORMANCE INDICATORS(1)
For the year ended March 31, 2016:
$89.9 M
(cid:376) 26.7% from 2015
$77.6 M
(cid:376) 22.1% from 2015
Revenues
Recurring revenue
$31.0 M
34.5% margin
Adjusted
EBITDA
$24.0 M
(cid:376) 36.3% from 2015
Adjusted
free cash flow
41%
$0.14
$13.9 M
Of international
revenues
Annual dividend per
share
Or $0.29 per share
Net income
$19.0 M
(cid:376) 91.4% from 2015
Cash flow from
operating activities
Note:
(1) Refer to “Supplemental information on Non-IFRS measures” on page 21 and 25.
For the years ended March 31, 2016 and 2015:
Recurring Revenues (1)(2)(3)
$89.9
$77.6
$71.0
$63.5
Net Income and
Adjusted EBITDA(1)(2)
$31.0
$27.1
$13.9
$6.6
CF from operating activities
and
Adjusted free cash flow(1)(2)
$24.0
$19.0
$17.0
$9.9
2015
2016
Net income
Adjusted
EBITDA
CF from operating
activities
Adjusted free
cash flow
Non-recurring revenues
Recurring revenues
2015
2016
2015
2016
In millions of Canadian dollars.
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS measures” on page 21 and 25.
(3) Recurring revenues include subscriptions and usage in addition to fixed fees charged to our customers on a monthly, quarterly and annual basis
for continuous music services. Non-recurring revenues mainly include support, installation, equipment and one-time fees.
22
Annual Report 2016 | Stingray Digital Group Inc.
FINANCIAL AND BUSINESS HIGHLIGHTS
Highlights of the year ended March 31, 2016
Compared to the year ended March 31, 2015 (“Fiscal 2015”):
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Revenues increased 26.7% to $89.9 million from $71.0 million for Fiscal 2015;
Recurring revenues of $77.6 million (86% of total revenues), an increase of 22.1%;
The contribution of International revenues increased to 40.5% from 32.8%;
Adjusted EBITDA increased 13.7% to $31.0 million from $27.3 million for Fiscal 2015;
Adjusted EBITDA margin was 34.5% compared with 38.4% for Fiscal 2015;
Net income increased 110.1% to $13.9 million ($0.29 per share diluted) compared to $6.6 million ($0.19 per share diluted)
for Fiscal 2015;
Adjusted Net income increased 36.3% to $24.3 million ($0.50 per share diluted) compared to $17.8 million ($0.52 per
share diluted) for Fiscal 2015;
Cash flow from operating activities increased 91.4% to $19.0 million compared to $9.9 million for Fiscal 2015; and
Adjusted free cash flow increased 40.8% to $24.0 million compared to $17.0 million for Fiscal 2015.
Highlights of the fourth quarter ended March 31, 2016
Compared to the fourth quarter ended March 31, 2015 (“Q4 2015”):
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Revenues increased 30.6% to $25.7 million from $19.6 million for Q4 2015;
Recurring revenues of $21.9 million (85% of total revenues), an increase of 27.6%;
The contribution of International revenues increased to 47.4% from 32.9%;
Adjusted EBITDA increased 6.3% to $8.2 million from $7.7 million for Q4 2015;
Adjusted EBITDA margin was 32.0% compared with 39.3% for Q4 2015;
Net income increased 68.9% to $3.2 million ($0.06 per share diluted) compared to $1.9 million ($0.06 per share diluted)
for Q4 2015;
Adjusted Net income increased 35.6% to $7.1 million ($0.14 per share diluted) compared to $5.3 million ($0.15 per share
diluted) for Q4 2015;
Cash flow from operating activities increased 476.6% to $7.7 million compared to $1.3 million for Q4 2015; and
Adjusted free cash flow increased 17.4% to $6.3 million compared to $5.4 million for Q4 2015.
Additional business highlights for the fourth quarter and subsequent events:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
On May 2, 2016, the Corporation, announced the expansion of its distribution deal with Comcast to bring thousands of
new music selections to Xfinity On Demand platforms.
On April 18, 2016, the Corporation announced that it has signed a contract to provide custom in-store music to more
than 650 LCBO locations.
On March 15, 2016, the Corporation announced that its DJAZZ.tv television channel is now available as part of the
“Grand Angle” package of French Pay-TV provider Bouygues Telecom.
On February 29, 2016, the Corporation announced a strategic agreement with du. As a result of the agreement, Stingray
Music and Stingray Concerts will now be available to du home customers across the UAE.
On February 24, 2016 the Corporation announced that it has acquired Nümedia, which provides intelligent media
solutions to its client by enabling in-venue music, experiences, communication, engagement, and activation. The
transaction is valued at $1.9 million.
On January 15, 2016, the Corporation introduced in the Latin American and Caribbean markets the new feature of the
Stingray Music mobile app; the Vibes Channels.
Annual Report 2016 | Stingray Digital Group Inc.
23
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands of Canadian dollars)
Revenues
Recurring Revenues
Revenues
Music programming, cost of services
and content
Selling and marketing
Research and development, support
and information technology
General and administrative
IPO expenses and CRTC tangible
benefits
Depreciation and amortization and
write-off
Net finance expenses(cid:3)(cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:12) (3)
Change on fair value of investments
Income before income taxes
Income taxes
Net income
Adjusted EBITDA (1)
Adjusted Net income (1)
Adjusted free cash flow (1)
Cash flow from operating activities
8,219 32.0 %
7,135 27.8 %
6,280 24.5 %
7,709 30.0 %
Net income per share basic
Net income per share diluted
Adjusted Net income per share basic(1)
Adjusted Net income per share diluted(1)
0.06
0.06
0.14
0.14
Quarters ended March 31
2015
2016
Q4 2015
Q4 2016
2016
Fiscal 2016
25,658 100.0 % 19,648 100.0 % 89,944 100.0 % 70,989 100.0 % 60,022 100.0 %
21,860
86 %
2014
Fiscal 2014
89 % 51,778
87 % 77,587
86 % 63,535
85 % 17,127
Years ended March 31
2015
Fiscal 2015
25,658 100.0 % 19,648 100.0 % 89,944 100.0 % 70,989 100.0 % 60,022 100.0 %
8,973 35.0 %
3,467 13.5 %
7,101
2,251
36.1 % 31,162 34.6 % 23,283
8,010
11.5 % 10,680 11.9 %
32.8 % 19,168 31.9 %
6,126 10.2 %
11.3 %
2,254
8.8 %
3,957 15.4 %
1,592
2,281
5,973
8.1 %
11.6 % 13,247 14.7 % 10,089
7,613
8.5 %
8.4 %
14.2 %
4,908 8.2 %
7,893 13.2 %
21
0.1 %
–
– %
5,821
6.5 %
–
– %
–
– %
3,218 12.5 %
836
3.3 %
1,113
4.3 %
1,819
7.1 %
(1,428) (5.6) %
3,247 14.1 %
4,250
942
(451)
1,682
(241)
1,923
7,731
5,260
5,351
1,337
0.06
0.06
0.15
0.15
(418)
21.6 % 15,028 16.7 % 14,979
4,686
(0.5) %
4.8 %
(1,801)
(7,345) (8.2) %
(2.3) %
5,770
8.6 % 14,156 15.7 %
(837)
(1.2) %
0.3 %
6,607
9.8 % 13,881 15.4 %
275
9,733 16.2 %
21.1 %
3,481 5.8 %
6.6 %
(3,937) (6.6) %
(2.5) %
8.1 % 12,650 21.1 %
3,959 6.6 %
(1.2) %
8,691 14.5 %
9.3 %
39.3 % 31,004 34.5 % 27,275
26.8 % 24,309 27.0 % 17,834
27.2 % 23,994 26.7 % 17,037
9,908
6.8 % 18,968 21.1 %
38.4 % 24,151 40.2 %
25.1 % 14,389 24.0 %
24.0 % 13,853 23.1 %
14.0 % 12,853 21.4 %
0.29
0.29
0.51
0.50
0.20
0.19
0.54
0.53
0.27
0.25
0.44
0.42
Revenue by category
Music Broadcasting
Commercial Music
Revenues
Revenues by geography
Canada
International (4)
Revenues
Financial position
Total assets
Total non-current financial liabilities
Net debt excluding contingent
considerations(1)
Net debt including contingent
considerations(1)
Net debt to Adjusted EBITDA(1)(2)
Cash dividends and distributions
declared per share
19,425 75.7 % 14,075
5,573
75.4 % 46,598 77.6 %
71.6 % 66,172 73.6 % 53,499
24.6 % 13,424 22.4 %
28.4 % 23,772 26.4 % 17,490
25,658 100.0 % 19,648 100.0 % 89,944 100.0 % 70,989 100.0 % 60,022 100.0 %
6,233 24.3 %
67.2 % 44,166 73.6 %
67.1 % 53,536 59.5 % 47,738
13,500 52.6 % 13,192
12,158 47.4 %
32.8 % 15,856 26.4 %
32.9 % 36,408 40.5 % 23,251
6,456
25,658 100.0 % 19,648 100.0 % 89,944 100.0 % 70,989 100.0 % 60,022 100.0 %
176,109
43,730
31,834
44,181
1.43x
0.13
125,170
75,549
107,423
119,832
4.39x
0.59
98,085
60,259
72,584
78,818
3.26x
0.45
Notes:
(1) Refer to “Forward looking statements” and “Supplemental information on Non-IFRS measures” on page 21 and for reconciliations to the most directly
comparable IFRS financial measure, refer to “Supplemental information on Non-IFRS measures” on page 25.
(2) Net debt to Adjusted EBITDA consists of Net debt including contingent considerations divided by Adjusted EBITDA.
(3)
(4)
Interest paid during the Q4 2016 was $244 (Q4 2015; $993) and $1,426 for the year ended March 31, 2016 (2015 - $3,845)
International means all jurisdictions except Canada.
24
Annual Report 2016 | Stingray Digital Group Inc.
SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net income, Adjusted Net income per share, Adjusted free cash flow,
Net debt including contingent considerations, Net debt excluding contingent considerations and Net debt to Adjusted EBITDA
are non-IFRS measures that the Corporation uses to assess its operating performance. See “Supplemental information on
Non-IFRS Measures” on page 21.
The following tables show the reconciliation of Net income to Adjusted EBITDA:
(in thousands of Canadian dollars)
Net income
Net finance expenses ((cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72))
Change in fair value of investments
Income taxes
Depreciation of property and equipment and write-off
Amortization of intangibles
Stock-based compensation
Restricted and deferred share unit expenses
IPO expenses and CRTC tangible benefits
Acquisition, restructuring and other various costs
Adjusted EBITDA
Net finance expenses (cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:12)
Income taxes
Depreciation of property and equipment and write-off
Income taxes related to change in fair value of
investment, share-based compensation, restricted
and deferred share unit expenses, amortization of
intangible assets, IPO expenses and CRTC tangible
benefits and acquisition, restructuring and other
various costs
Adjusted Net income
Quarters ended March 31
2016
Q4 2016
2015
Q4 2015
3,247
836
1,113
(1,428)
594
2,624
390
319
21
503
8,219
(836)
1,428
(594)
1,923
942
(451)
(241)
597
3,653
376
221
(cid:884)
711
7,731
(942)
241
(597)
Years ended March 31
2015
2016
Fiscal 2015
Fiscal 2016
6,607
13,881
4,686
(418)
(1,801)
(7,345)
(837)
275
2,125
2,146
12,854
12,882
800
1,351
221
963
(cid:884)
5,821
2,620
1,448
27,275
31,004
(4,686)
418
837
(275)
(2,125)
(2,146)
(1,082)
7,135
(1,173)
5,260
(4,692)
24,309
(3,467)
17,834
The following table shows the reconciliation of Cash flow from operating activities to Adjusted free cash flow:
(in thousands of Canadian dollars)
Quarters ended March 31
2016
Q4 2016
2015
Q4 2015
Years ended March 31
2015
2016
Q4 2015
Q4 2016
7,709
1,337
18,968
9,908
Cash flow from operating activities
Add / Less :
Capital expenditures
Net change in non-cash operating working capital items
Acquisition, restructuring and other various costs(1)
IPO expenses and CRTC tangible benefits(1)
Adjusted free cash flow
(2,439)
8,018
1,550
(cid:884)
17,037
(1) Net of income taxes, except for IPO expenses and CRTC tangible benefits as only deferred income tax has been recognized on those items, thus
(1,100)
(718)
368
21
6,280
(3,429)
1,576
1,058
5,821
23,994
(528)
4,164
378
(cid:884)
5,351
having a non-cash impact.
The following table shows the calculation of Net debt including and excluding contingent considerations:
(in thousands of Canadian dollars)
Term loan, including current portion
Contingent considerations, including current portion
Bridge loan
Revolving facility
(Cash and cash equivalents) bank overdraft
Net debt including contingent considerations
(“Net Debt”)
Contingent considerations, including current portion
Net debt excluding contingent considerations
March 31,
2016
March 31,
2015
(cid:884)
12,347
(cid:884)
35,035
(3,201)
44,181
(12,347)
31,834
80,835
12,409
20,000
7,902
(1,314)
119,832
(12,409)
107,423
Annual Report 2016 | Stingray Digital Group Inc.
25
RESULTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2016 AND 2015
Revenues
Revenues in Fiscal 2016 increased 26.7% to $89.9 million, from $71.0 million for Fiscal 2015. The increase in revenues was
primarily due to the acquisitions combined with growth in international markets and non-recurring revenues related to
installation and equipment sales. In addition, revenues were favourably impacted by the exchange rate between the Canadian
dollar and the U.S. dollar.
Trends by Revenue Categories were as follow:
Revenues by category(1)
$66.2
$53.5
Music Broadcasting
The most significant contributors to the increase of 23.7% or
$12.7 million from Fiscal 2015 in Music Broadcasting
revenues were as follows (arrows reflect the impact):
(cid:376) Acquisition of Brava Group, Digital Media Distribution Pty Ltd.
(“DMD”), Transmedia Communications SA (“iConcert”) and
Telefonica – On The Spot.
(cid:376) Organic growth in international markets (i.e. United States,
$23.8
Europe and Latin America).
$17.5
Commercial Music
Music Broadcasting Commercial Music
2015
2016
Note:
(1)
In millions of Canadian dollars.
The most significant contributors to the increase of 35.9% or
$6.3 million from Fiscal 2015 in Commercial Music revenues
were as follows (arrows reflect the impact):
(cid:376) Acquisition of Les réseaux Urbains Viva Inc. was included in
full in Fiscal 2016
(cid:376) Non-recurring revenues from installations and equipment
sales related to new and existing customers.
Trends by Revenues by Geographic Region:
Revenues by geography(1)
$53.5
$47.7
$36.4
$23.3
Canada
International
2015
2016
Note:
(1)
In millions of Canadian dollars.
Canada
The most significant contributors to the increase of 12.1%
or $5.8 million from Fiscal 2015 in revenues for Canada
were as follows (arrows reflect the impact):
(cid:376) As described above in Commercial Music, acquisition of Les
Réseaux Urbains Viva is include in full in Fiscal 2016 and
non-recurring revenues related to installation and equipment
sales.
International
The most significant contributors to the increase of 56.6% or
$13.1 million from Fiscal 2015 in International revenues were
as follows (arrows reflect the impact):
(cid:376) The contribution of acquisitions as mentioned above and
organic growth related to music services and additional
music products such as music videos and karaoke.
(cid:376) Revenues were favourably impacted by the exchange rate
between the Canadian dollar and the U.S. dollar.
26
Annual Report 2016 | Stingray Digital Group Inc.
Operating Expenses
(in thousands of Canadian
dollars)
Fiscal
2016
% of
revenues
Fiscal
2015
% of
revenues
Variance
Significant contributions to
variance :
Music programming, cost
of services and content
$31,162
34.6%
$23,283
32.8%
$7,879
33.8%
(cid:376)
Primarily due to recent acquisitions,
to the hiring of additional staff and
to support our
content costs
international growth.
In addition,
increase in costs related to additional
installation and equipment sales.
These increases were partially offset
by
the
calculation of rights on revenues and
royalties.
impact on
favorable
the
Selling and marketing
$10,680
11.9%
$8,010
11.3%
$2,670
33.3% (cid:376)
Primarily due to costs to support
revenue growth
international
markets.
in
Information Technology
and Research and
development
$7,613
8.5%
$5,973
8.4%
$1,640
27.5% (cid:376)
Increase related to additional hiring
due to the international expansion
developed
internally
and
products.
new
General and
administrative
$13,247
14.7%
$10,089
14.2%
$3,158
31.3%
(cid:376)
increase
Primarily due
in
to
acquisition costs, public company
obligations related costs, additional
employees
support growth,
restricted share unit and deferred
share unit plan for employees and
directors.
to
Depreciation,
amortization and write-off
$15,028
16.7%
$14,979
21.1%
$49
0.3% (cid:376) Remained relatively stable.
Adjusted EBITDA(1)(2)
$27.3
$31.0
2015
2016
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS measures”
In millions of Canadian dollars.
on page 21 and 25
Adjusted EBITDA in Fiscal 2016 increased 13.7% to
$31.0 million, from $27.3 million in Fiscal 2015. Adjusted
EBITDA margin was 34.5% in Fiscal 2016 compared to 38.4%
in Fiscal 2015. The increase in Adjusted EBITDA was primarily
due to the recent acquisitions of Brava, DMD and iConcert,
from which future synergies are expected and to organic
growth
international market (cid:55)(cid:75)(cid:72)(cid:3) (cid:71)(cid:72)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36)(cid:3)
(cid:80)(cid:68)(cid:85)(cid:74)(cid:76)(cid:81)(cid:3) (cid:90)(cid:68)(cid:86)(cid:3) (cid:80)(cid:68)(cid:76)(cid:81)(cid:79)(cid:92)(cid:3) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3) (cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)
(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3) (cid:76)(cid:81)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:15)(cid:3) (cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:81)(cid:82)(cid:81)(cid:16)
(cid:85)(cid:72)(cid:70)(cid:88)(cid:85)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:76)(cid:81)(cid:86)(cid:87)(cid:68)(cid:79)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:72)(cid:84)(cid:88)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)
(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:87)(cid:72)(cid:81)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) (cid:79)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3) (cid:80)(cid:68)(cid:85)(cid:74)(cid:76)(cid:81)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)
in
Acquisition, restructuring and other various costs
mainly included costs related to consultants for acquisitions
and costs to support our acquisition pipeline.
Annual Report 2016 | Stingray Digital Group Inc.
27
(cid:3)
Initial public offering expenses and CRTC tangible benefits
Initial public offering (“IPO”) expenses for Fiscal 2016 amounted to $1.6 million and were related to the secondary offering
costs. The secondary offering consisted of the sale by Novacap and Télésystem of the aggregate of 9,112,900 shares to the
public. IPO expenses for the treasury offering by the Corporation were recognized in the statement of financial position under
share capital.
The CRTC approved the change in ownership and effective control of the Corporation on April 22, 2015. Pursuant to the
decision, the CRTC requires the Corporation to pay tangible benefits corresponding to an amount of $5.5 million over a seven-
year period in equal annual payments. Since this expense does not meet capitalization criteria under IFRS, the Corporation
recognized an expense of $4.2 million in Q1 2016, which reflects the fair value of the payment stream using a discount rate of
7.0%, which is the Corporation estimated effective interest rate plus a risk premium.
Net Finance Expenses
Finance expenses represented a net finance income of $0.4 million compared to a net finance expense of $4.7 million in Fiscal
2015. The decrease was related to fair value revaluations of contingent considerations and a lower interest expense. The
Corporation repaid approximately $101 million of debt in June 2015 with the proceeds of the IPO and has increased its credit
facility by $19.2 million, for a net decrease in debt excluding contingent considerations of $81.8 million.
Change in fair value of investments
In Fiscal 2016, a gain of $7.3 million was recorded on the investment’s fair value compared to a gain of $1.8 million in Fiscal
2015. On September 21, 2015, the Corporation invested an additional $0.3 million (US$ 0.3 million) in AppDirect, a company
that offers a cloud services marketplace and management platform that enables companies to distribute web-based services.
As at March 31, 2016, the Corporation held a 1.76% interest in AppDirect and the fair value was estimated at $15.6 million.
Income Taxes
I(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3) (cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:3) (cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3) (cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3) (cid:68)(cid:81)(cid:3) (cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:7)(cid:19)(cid:17)(cid:22)(cid:3) (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3) (cid:76)(cid:81)(cid:3) (cid:41)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3) (cid:21)(cid:19)(cid:20)(cid:25)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:68)(cid:3) (cid:85)(cid:72)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:7)(cid:19)(cid:17)(cid:27)(cid:3) (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3)
(cid:41)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:15)(cid:3)(cid:82)(cid:73)(cid:73)(cid:86)(cid:72)(cid:87)(cid:3)(cid:69)(cid:92)(cid:3)(cid:79)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:79)(cid:92)(cid:3)(cid:82)(cid:73)(cid:73)(cid:86)(cid:72)(cid:87)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)
(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:22)(cid:17)(cid:23)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:41)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:7)(cid:21)(cid:17)(cid:26)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:41)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:17)
Net income and net income per share
Net income increased to $13.9 million ($0.29 per share diluted)
in Fiscal 2016 from $6.6 million ($0.19 per share diluted) in
Fiscal 2015. The increase was mainly attributable to higher
operating results, change in fair value of investments, lower net
finance expenses and, offset by IPO expenses and CRTC
tangible benefits expenses and higher income taxes.
Adjusted Net income and Adjusted Net income per share
Adjusted Net Income in Fiscal 2016 increased to $24.3 million
($0.50 per share diluted) from $17.8 million ($0.52 per share
diluted) in Fiscal 2015. The increase was primarily due to higher
Adjusted EBITDA resulting from recent acquisitions combined
with international growth, additional sales for installation and
equipment and lower net finance expenses, offset by higher
income tax expenses.
Net Income and
Adjusted Net Income(1)(2)
$24.3
$17.8
$13.9
$6.6
Net income
Adjusted Net
income
2015
2016
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS
In millions of Canadian dollars.
measures” on page 21 and 25.
28
Annual Report 2016 | Stingray Digital Group Inc.
Quarterly results
Our revenues increased steadily over the last eight quarters from $15.6 million in the first quarter of Fiscal 2015 to $25.7 million
in the fourth quarter of Fiscal 2016. The increase was mainly attributable to the successful integration of acquisitions and new
contracts in Canada and in international markets. Over the past eight quarters, recurring revenues represented approximately
88% of total revenues.
Adjusted EBITDA increased from $5.8 million in the first quarter of Fiscal 2015 to $8.2 million in the fourth quarter of
Fiscal 2016. The increase was mainly attributable to the successful integration of acquisitions and organic growth in Canada
and in international markets.
Summary of Consolidated Quarterly Results
(in thousands of Canadian dollars,
except per share amounts)
Revenue by category
Music Broadcasting
Commercial Music
Total revenues
Revenues by geography
Canada
International
Total revenues
Recurring revenues
Recurring revenues as a
March 31,
2016
Fiscal
2016
Dec. 31,
2015
Fiscal
2016
Sept. 30,
2015
Fiscal
2016
Quarters ended
June 30,
2015
Fiscal
2016
March 31,
2015
Fiscal
2015
Dec. 31,
2014
Fiscal
2015
Sept. 30,
2014
Fiscal
2015
June 30,
2014
Fiscal
2015
19,425
6,233
25,658
17,013
6,076
23,089
15,614
5,688
21,302
14,120
5,775
19,895
14,075
5,573
19,648
13,896
4,633
18,529
13,064
4,115
17,179
12,464
3,169
15,633
13,500
12,158
25,658
13,759
9,330
23,089
13,094
8,208
21,302
13,183
6,712
19,895
13,192
6,456
19,648
12,144
6,385
18,529
11,714
5,465
17,179
10,688
4,945
15,633
21,860
19,699
18,785
17,243
17,127
16,416
15,618
14,374
percentage of total revenues
85%
85%
88%
87%
87%
89%
91%
92%
Adjusted EBITDA
8,219
8,009
7,625
7,151
7,731
6,986
6,734
5,824
Net income (loss)
3,247
3,169
9,242
(1,777)
1,923
1,499
2,167
1,018
Net income (loss) per share
basic
Net income (loss) per share
diluted
0.06
0.06
0.18
(0.05)
0.06
0.04
0.06
0.04
0.06
0.06
0.18
(0.05)
0.06
0.04
0.06
0.03
Adjusted Net income
7,135
6,194
6,198
4,783
5,260
4,376
4,607
3,591
Adjusted Net income per share
basic
Adjusted Net income per share
0.14
0.12
0.12
0.12
0.15
0.13
0.14
0.11
diluted
0.14
0.12
0.12
0.12
0.15
0.13
0.13
0.10
Annual Report 2016 | Stingray Digital Group Inc.
29
Reconciliation of Quarterly Non-IFRS Measures
(in thousands of Canadian dollars)
Net income (loss)
Net finance expenses ((cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72))
Change in fair value of investment
Income taxes
Depreciation of property and
equipment and write-off
Amortization of intangibles(cid:3)
Stock-based compensation
Restricted and deferred share unit
expenses
IPO expenses and CRTC tangible
benefits
Acquisition, restructuring and other
various costs
Adjusted EBITDA
Net finance expenses (cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:12)
Income taxes
Depreciation of property and
equipment and write-off(cid:3)
Income taxes related to change in
fair value of investment, share-
based compensation, restricted
and deferred share unit
expenses, amortization of
intangible assets, IPO expenses
and CRTC tangible benefits and
acquisition, restructuring and
other various costs
Adjusted Net income
March 31,
2016
Fiscal
2016
3,247
836
1,113
(1,428)
Dec. 31,
2015
Fiscal
2016
3,169
(810)
(646)
920
Sept. 30,
2015
Fiscal
2016
9,242
(1,310)
(7,549)
2,117
Quarters ended
March 31,
June 30,
2015
2015
Fiscal
2015
1,923
942
(451)
(241)
Fiscal
2016
(1,777)
866
(263)
(1,334)
Dec. 31,
2014
Fiscal
2015
1,499
1,310
(450)
(114)
Sept. 30,
2014
Fiscal
2015
2,167
1,202
(450)
(348)
594
2,624
390
319
609
3,443
369
227
488
3,592
371
455
3,223
221
597
3,653
376
586
3,583
112
541
3,288
80
June 30,
2014
Fiscal
2015
1,018
1,232
(450)
(134)
401
2,330
232
242
175
221
21
-
305
5,495
-
-
-
-
-
-
-
503
8,219
(836)
1,428
728
8,009
810
(920)
127
7,625
1,310
(2,117)
90
7,151
(866)
1,334
711
7,731
(942)
241
460
6,986
(1,310)
114
254
6,734
(1,202)
348
1,195
5,824
(1,232)
134
(594)
(609)
(488)
(455)
(597)
(586)
(541)
(401)
(1,082)
7,135
(1,096)
6,194
(132)
6,198
(2,381)
4,783
(1,173)
5,260
(828)
4,376
(732)
4,607
(734)
3,591
30
Annual Report 2016 | Stingray Digital Group Inc.
LIQUIDITY AND CAPITAL RESOURCES
FOR THE YEAR ENDED MARCH 31, 2016
The Corporation’s primary sources of cash consist of operating activities and available borrowings under the Revolving Facility.
The Corporation’s primary uses of cash are to fund operations, working capital requirements, business acquisitions, capital
expenditures and distributions to shareholders of the Corporation. The fluctuation of working capital requirements are primarily
due to the non-recurring services and products, which revenues tend to peak in the third quarter of our financial year. Cash
flows from recurring services and products are stable and predictable over the year and are our main source of cash inflows.
The Corporation has a working capital deficiency as at March 31, 2016. The Corporation met its obligations with its strong cash
flow from operations and its ability to access financing from banks or existing shareholders. In Fiscal 2016, the Corporation
reduced significantly certain current and non-current liabilities. The Corporation expects to continue distributing dividends to the
shareholders of the Corporation, and such dividends are expected to be funded by the cash flow generated from operating
activities.
CF from operating activities and
Adjusted free cash flow(1)(2)
$24.0
$19.0
$17.0
Cash flow from operating activities
Cash flow generated from operating activities increased to
$19.0 million in Fiscal 2016 from $9.9 million in Fiscal 2015.
The increase was mainly due to acquisitions, international
growth and lower net variation in non-cash working
operating items.
$9.9
Adjusted free cash flow
CF from operating
activities
Adjusted free cash
flow
2015
2016
Adjusted free cash flow increased to $24.0 million in Fiscal
2016 from $17.0 million in Fiscal 2015. The increase was
mainly related to higher operating results, lower interest paid
and lower income tax paid partially offset by higher capital
expenditures.
(cid:3)
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS
In millions of Canadian dollars.
measures” on page 21 and 25.
Investing Activities
Net cash flow used in investing activities amounted to $29.7 million in Fiscal 2016 compared to $23.0 million in Fiscal 2015.
The increase of cash flow used of $6.7 million was primarily related to an aggregate cash disbursements related to the
acquisitions in Fiscal 2016 compared to Fiscal 2015, capital expenditures and acquisition of investments in Fiscal 2016.
Financing Activities
Net cash flow generated from financing activities amounted to $12.7 million in Fiscal 2016 compared to $14.8 million in Fiscal
2015. The decrease of $2.1 million was attributable to several elements, such as the net repayment of term loan and bridge
loan, proceeds from the issuance of share related to the IPO, higher repayment of other payables and lower payments of
dividend.
Annual Report 2016 | Stingray Digital Group Inc.
31
Contractual Obligations
The Corporation is committed under the terms of contractual obligations with various expiration dates, primarily the rental of
office space, financial obligations under our credit agreement, broadcast licence and commitments for copyright royalties. The
following table summarizes the Corporation’s significant contractual obligations as at March 31, 2016, including its estimated
payments and commitments related to leasing contracts:
(in thousands of Canadian dollars)
Commitments
Operating lease agreements
Financial obligations
Revolving facility
Accounts payables and accrued liabilities
Other payables
Total obligations
Broadcast licence
Less than
1 year
1–5 years
More than
5 years
Total
amount
2,692
3,155
(cid:884)
5,847
(cid:884)(cid:3)
25,819
8,006
36,517
35,035(cid:3)
(cid:884)
(cid:25)(cid:15)(cid:23)(cid:23)(cid:22)
44,6(cid:22)3
(cid:884)
(cid:884)
2,252
2,252
35,035
25,819
16,701
83,402
The CRTC requires Canadian pay audio services to draw certain proportions of their programming from Canadian content
and, in most cases, to spend a portion of their revenues on Canadian content development. The Corporation must ensure that
(i) a maximum of one non-Canadian pay audio channel is packaged or linked with each Canadian-produced pay audio channel
and in no case may subscribers of the pay audio service be offered a package of pay audio channels in which foreign-produced
channels dominate; (ii) 25% of all Canadian channels, other than those consisting entirely of instrumental music or of music
entirely in languages other than English or French, devote a minimum of 65% of vocal music selections in the French language
each broadcast week; and (iii) a minimum of 35% of the musical selections broadcast each broadcast week on our Canadian-
produced pay audio channels, considered together, are Canadian.
Pursuant to the conditions of our National Pay Audio Service Licence, the Corporation is required to contribute each year a
minimum of 4% of our annual Canadian regulated broadcast revenues to encourage Canadian content development in the
following manner: (i) 1% of gross revenues to be devoted to the Foundation Assisting Canadian Talent On Recordings
(FACTOR), a non-profit organization dedicated to providing assistance toward the growth and development of the Canadian
music industry; (ii) 1% of gross revenues to be devoted to Musicaction, a non-profit organization dedicated to the development
of local francophone music by offering financial support to projects by independent record labels and Canadian artists; and
(iii) 2% of gross revenues to be devoted to our Stingray Rising Star Program, a program which was created to discover,
encourage, promote and champion new Canadian artists.
The CRTC approved the change in ownership and effective control of the Corporation on April 22, 2015. Pursuant to the
decision, the CRTC requires the Corporation to pay tangible benefits corresponding to an amount of $5.5 million over a seven-
year period in equal annual payments. The Corporation recognized an expense of $4.2 million, which reflects the fair value of
the payment stream using a discount rate of 7.0%, which is the Corporation effective interest rate plus a risk premium. On
August 18, 2015, the Canadian Radio-television and Telecommunications Commission (CRTC) issued a decision renewing
until August 31, 2020 the broadcasting licence.
During Fiscal 2016, an amount of $0.4 million ($0.8 million – 2015) was recognized as an expense in the music programming,
cost of services and content.
Copyright royalties
The Corporation must pay royalties for the use of music for the majority of its music services. Through copyright collective
societies, the Corporation pays royalties to two sets of rights holders: (i) rights holders in music works, which are the music
and the lyrics, and (ii) rights holders in artists’ performances and sounds recordings, which are the actual performances and
recordings of the musical works.
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Annual Report 2016 | Stingray Digital Group Inc.
Capital resources
On June 11, 2015, the Corporation renegotiated its credit agreement in order to merge the outstanding balance of the term
loan into the amended revolving credit facility (“revolving facility”), to provide for the repayment of the bridge loan, to increase
its borrowing capacity to $100.0 million and to make modifications in relation to interest, maturity, security and covenants. The
revolving facility matures in June 2019, bears interest at an annual rate equal to the banker’s acceptance rate plus between
1.38% and 3.00% and is secured by guarantees from subsidiaries and first ranking lien on universality of all its assets, tangible
and intangible, present and future. In addition, the Corporation incurs standby fees between 0.28% and 0.60% on the unused
portion of the revolving facility. The Corporation is required to comply with financial covenants. As at March 31, 2016, the
Corporation was in compliance with all the requirements of its credit agreement.
The following table summarizes the impact on the Net debt including contingent considerations that occurred in the year ended
March 31, 2016 including related ratios:
Movement in Net debt(1)(2)
$ 119.8
$(80.8)
$ 27.1
$(20.0)
$(0.1)
$(1.9)
$44.1
As at March 31,
2015
Repayment of term
loan
Net change in
revolving facility
Repayment of
bridge loan
Net change in fair
value of contingent
considerations
Change in cash
and cash
equivalents
As at March 31,
2016
27.3
4.4
Adjusted EBITDA(1)(2)
Net debt to Adjusted EBITDA(1)(2)
31.0
1.4
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS measures” on page 21 and 25.
In millions of Canadian dollars.
Off Balance-Sheet Arrangements
The Corporation had no off-balance sheet arrangements, other than operating leases (which have been disclosed under
“Contractual Obligations”), that have, or are reasonably likely to have, a current or future material effect on its consolidated
financial position, financial performance, liquidity, capital expenditures or capital resources.
Annual Report 2016 | Stingray Digital Group Inc.
33
CONSOLIDATED FINANCIAL POSITION
AS AT MARCH 31, 2016 AND 2015
The following table shows the main variances that have occurred in the consolidated financial position of the Corporation for
the year ended March 31, 2016:
(in thousands of Canadian dollars)
March 31,
2016
March 31,
2015
Variance
Significant contributions
Trade and other receivables
$27,761
$17,370
$10,391 (cid:376)
Intangibles assets
$47,901
$45,441
$2,460 (cid:376)
Goodwill
$62,022
$39,129
$22,893 (cid:376)
Accounts payable and accrued
liabilities
$25,819
$16,923
$8,896 (cid:376)
Contingent considerations, including
current portion
$12,347
$12,409
$(62) (cid:378)
CRTC Tangible Benefits
$4,230
$340
$3,890 (cid:376)
to
related
longer payment
Attributable
international
to
cycles
revenues
including acquisitions,
longer days outstanding commercial
and broadcast
in
Canada, and favorable impact on
the
exchange
Canadian dollar and the U.S. dollar.
receivables
between
rate
intangible assets
Mainly attributable to the recognition
of
the
acquisitions that occurred in Fiscal
2016, net of amortization.
for
Mainly related to the recognition of
goodwill for the acquisitions that
occurred in Fiscal 2016.
Mainly attributable
to payables
assumed on the opening balance
sheet of
the acquisitions
that
occurred
in Fiscal 2016 and
increase in operating expenses.
Mainly related to the recognition of
contingent considerations for the
Brava and DMD acquisitions net of
payments for the DMX Canada and
DMX Latin America acquisitions and
change in the fair value of remaining
contingent considerations.
to
Attributable
in
ownership and effective control
clause following the IPO.
the change
Revolving Facility
$35,035
$7,902
$27,133 (cid:376)
the
Attributable
cash
to
consideration for acquisitions that
occurred
in Fiscal 2016 and
contingent consideration payments.
Bridge Loan
Term loan, including current portion
$(cid:884)
$(cid:884)
$20,000
$(20,000) (cid:378)
Attributable to repayment of debt
with the net proceeds from the IPO.
$80,835
$(80,835) (cid:378)
Attributable to repayment of debt
with the net proceeds from the IPO.
34
Annual Report 2016 | Stingray Digital Group Inc.
RESULTS OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 2016 AND 2015
Revenues
Revenues for the quarter ended March 31, 2016 (“Q4 2016”) increased 30.6% to $25.7 million, from $19.6 million for the
Q4 2015. The increase in revenues was primarily due to acquisitions combined with significant growth in international markets
as well as the launch of new products. In addition, revenues were favourably impacted by the exchange rate between the
Canadian dollar and the U.S. dollar.
Trends by Revenue Categories were as follow:
Revenues by category(1)
$19.4
$14.1
Music Broadcasting
The most significant contributors to the increase of 38.0% or
$5.4 million from Q4 2015 in Music Broadcasting revenues
were as follows (arrows reflect the impact):
(cid:376) Acquisitions in Fiscal 2016 of Brava, DMD and iConcert.
(cid:376) New customer contracts mainly in the United States, Europe
and Middle East.
$5.6
$6.2
Commercial Music
Music Broadcasting Commercial Music
The most significant contributors to the increase of 11.8% or
$0.7 million from Q4 2015 in Commercial Music revenues
were as follows (arrows reflect the impact):
Q4 2015
Q4 2016
(cid:376) Non-recurring revenues from installation and equipment
sales to new and existing customers.
Note:
(1)
In millions of Canadian dollars.
Trends by Revenues by Geographic Region:
Revenues by geography(1)
$13.2
$13.5
$12.2
Canada
The most significant contributors to the increase of 2.3% or
$0.3 million from Q4 2015 in revenues for Canada were as
follows (arrows reflect the impact):
(cid:376) Non-recurring revenues related to installation and equipment
sales to new and existing customers.
$6.5
International
Canada
International
(cid:376) As described above in Broadcast, acquisitions are included
The most significant contributors to the increase of 88.3% or
$5.7 million from Q4 2015 in international revenues were as
follows (arrows reflect the impact):
Q4 2015
Q4 2016
Note:
(1)
In millions of Canadian dollars.
in full for Q4 2016 and international organic growth.
(cid:376)
In addition, revenues were favourably impacted by the
exchange rate between the Canadian dollar and the U.S.
dollar.
Annual Report 2016 | Stingray Digital Group Inc.
35
Operating Expenses
(in thousands of Canadian
dollars)
Q4 2016
% of
revenues
Q4 2015
% of
revenues
Variance
Significant contributions to
variance :
Music programming, cost
of services and content
$8,973
35.0%
$7,101
36.1%
$1,872
26.4%
(cid:376)
Selling and marketing
$3,467
13.5%
$2,251
11.5%
$1,216
54.0% (cid:376)
to
costs
Primarily due to acquisitions and
to the hiring of additional staff and
content
support
international growth. In addition,
increase
to
installation and equipment sales.
These increases were partially
offset by the favorable impact on
the calculation of
rights on
revenues and royalties.
in costs
related
Primarily due to increase costs to
support
in
international markets.
revenue
growth
Information Technology
and Research and
development
$2,254
8.8%
$1,592
8.1%
$662
41.6% (cid:376)
related
Increase
to additional
hiring due to the international
expansion and new products
developed.
General and
administrative
$3,957
15.4%
$2,281
11.6%
$1,676
73.5%
(cid:376)
Primarily due to hiring of additional
to support growth,
employees
administrative expenses included
in recent acquisitions, increase in
acquisition costs, public company
obligations
costs,
restricted share unit and deferred
share unit plan for employees and
directors.
related
Depreciation,
amortization and write-off
$3,218
12.5%
$4,250
21.6%
$(1,032) (24.3)% (cid:378)
Primarily due to prior acquisitions
intangible assets being
fully
amortized.
Adjusted EBITDA(1)(2)
$7.7
$8.2
Q4 2015
Q4 2016
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS measures” on
In millions of Canadian dollars.
page 21 and 25.
increased 6.3%
Adjusted EBITDA
to
for Q4 2016
$8.2 million, from $7.7 million for Q4 2015. Adjusted EBITDA
margin was 32.0% for Q4 2016 compared to 39.3% for
Q4 2015. The increase in Adjusted EBITDA was primarily
due to recent acquisitions of Brava, DMD and iConcert, from
which future synergies are expected. The increase was also
related to organic growth in international market. The
decrease
to
administrative expenses included in recent acquisitions,
hiring of additional staff, content costs to support recent
acquisitions and additional general and administrative costs
for public company obligations.
in EBITDA margin was mainly related
Acquisition,
various
costs mainly included costs related to consultant for
acquisitions and costs to support our acquisition pipeline.
restructuring
other
and
36
Annual Report 2016 | Stingray Digital Group Inc.
(cid:3)
Net Finance Expenses
Finance expenses decreased to $0.8 million from $0.9 million for Q4 2015. The decrease was related to lower gain on fair
value revaluations of contingent considerations and lower interest expenses. The Corporation repaid approximately $101
million of debt in June 2015 with the proceeds of the IPO and has increased its credit facility by $(cid:21)(cid:26)(cid:17)(cid:20)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:17)
Change in fair value of investments
For Q4 2016, a loss of $1.1 million was recorded on AppDirect compared to a gain of $0.5 million for Q4 2015. The loss in Q4
2016 represented the translation in US$ considering a weaker exchange rate. On September 21, 2015, the Corporation
invested an additional $0.3 million (US$ 0.3 million) in AppDirect, a company that offers a cloud services marketplace and
management platform that enables companies to distribute web-based services. As at March 31, 2016, the Corporation held,
on a fully diluted basis, a 1.76% interest in AppDirect and the fair value was estimated at $15.6 million.
Income Taxes
Recovery of income taxes increased to $1.4 million for Q4 2016 from $0.2 million for Q4 2015. The increase in income taxes
was mainly related to the recognition of prior unrecognized tax losses of a foreign subsidiary.
Net income and net income per share
Net income increased to $3.2 million ($0.06 per share diluted)
for Q4 2016 compared to $1.9 million ($0.06 per share diluted)
for Q4 2015.(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:90)(cid:68)(cid:86)(cid:3) (cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3) (cid:71)(cid:88)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3)
(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:15)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3) (cid:88)(cid:81)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)
(cid:79)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)
(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:76)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:86)(cid:15)(cid:3) (cid:82)(cid:73)(cid:73)(cid:86)(cid:72)(cid:87)(cid:3) (cid:69)(cid:92)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3) (cid:73)(cid:68)(cid:76)(cid:85)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)
(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)
(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:15)(cid:3)
(cid:87)(cid:68)(cid:91)(cid:3)
Adjusted Net income and Adjusted Net income per share
Adjusted net income for Q4 2016 increased to $7.1 million
($0.14 per share diluted) from $5.3 million ($0.15 per share
diluted) for Q4 2015. (cid:55)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3)
(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36)(cid:3) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:69)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3) (cid:82)(cid:73)(cid:3) (cid:81)(cid:72)(cid:90)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3) (cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3) (cid:87)(cid:68)(cid:91)(cid:3)
(cid:85)(cid:72)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:92)(cid:17)
Net Income and
Adjusted Net Income(1)(2)
$7.1
$5.3
$3.2
$1.9
Net income
Adjusted Net
income
Q4 2015
Q4 2016
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS
In millions of Canadian dollars.
measures” on page 21 and 25.
Annual Report 2016 | Stingray Digital Group Inc.
37
LIQUIDITY
FOR THE QUARTER ENDED MARCH 31, 2016
CF from operating activities and
Adjusted free cash flow(1)(2)
$7.7
$6.2
$5.4
$1.3
Q4 2015
Q4 2016
Cash flow from operating activities
Cash flow generated from operating activities increased to
$7.7 million for Q4 2016 from $1.3 million for Q4 2015. The
increase was mainly due to higher operating results and
lower net change in non-cash operating items.
Adjusted free cash flow
Adjusted free cash flow for Q4 2016 increased to $6.2 million
from $5.4 million for Q4 2015. The increase was primarily
related to higher operating results and lower financing costs,
partially offset by higher capital expenditures.
Increase in capital expenditures of $0.6 million compared to
Q4 2015 was mainly due to the upgrade of subscriber music
boxes for commercial customers.
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS
In millions of Canadian dollars.
measures” on page 21 and 25.
Investing Activities
Net cash flow used in investing activities amounted to $2.4 million for Q4 2016 compared to $2.0 million for Q4 2015. The
increase of $0.4 million was mainly related to the increase in capital expenditures.
Financing Activities
Net cash flow used in financing activities amounted to $4.6 million for Q4 2016 compared to net cash flow generated from
financing activities amounted to $1.5 million for Q4 2015. The decrease of $6.1 million was mainly attributable to the repayment
of the credit facility, the payment of the quarterly dividend and payment of other payables.
38
Annual Report 2016 | Stingray Digital Group Inc.
Transactions Between Related Parties
The key management personnel of the Corporation are the Chief Executive Officer, Chief Financial Officer and certain other
key employees of the Corporation.
Key management personnel compensation and directors fees include the following:
(in thousands of Canadian dollars)
Short-term employee benefits
Management fees
Share-based compensation
Restricted share unit
Deferred share unit
2016
2,927
(cid:884)
976
178
371
4,452
$
$
2015
$
1,918
315
423
50
$
2,706
Disclosure of Outstanding Share Data
Issued and outstanding shares and outstanding stock options consisted of:
Issued and outstanding shares:
Subordinate voting shares
Variable Subordinate voting shares
Multiple voting shares
Outstanding stock options:
Stock options
June 15, 2016
March 31, 2016
34,340,171
498,519
16,294,285
51,132,975
34,178,371
635,319
16,294,285
51,107,975
1,229,722
1,288,757
Furthermore, as part of the Offering, the Corporation has established a new stock option plan to attract and retain employees,
directors, officers and consultants. The plan provides for the granting of options to purchase subordinate voting shares. Under
this plan, 2,500,000 subordinate voting shares have been reserved for issuance. In the year ended March 31, 2016,
479,787 options were exercised, 14,035 were forfeited and 512,880 options were granted to eligible employee, subject to
service vesting periods which range from 3 to 4 years.
Financial risks
Currency risk:
The Corporation is exposed to currency risk on sales and expenses that are denominated in currencies other than the
functional currency of the Corporation subsidiaries, primarily the US dollar, the Australian dollar and the euro. Also, additional
earnings variability arises from the translation of monetary assets and liabilities denominated in currencies other than the
functional currency of the Corporation subsidiaries at the rate of exchange at each balance sheet date, the impact of which is
reported as a foreign exchange gain or loss in the consolidated statements of comprehensive income.
The Corporation's objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash flows,
by transacting with third parties in the above currencies to the maximum extent possible and practical, given that this will act
as natural economic hedges for each of these currencies.
Liquidity risk:
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they become due. The
Corporation also manages liquidity risk by continuously monitoring actual and budgeted cash flows under both normal and
stressed conditions. Also, the Board of Directors reviews and approves the Corporation’s operating and capital budgets, as
well as any material transactions out of the ordinary course of business, including proposals on mergers, acquisitions or other
major investments or divestitures.
Annual Report 2016 | Stingray Digital Group Inc.
39
Interest rate risk:
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in
market interest rates. The Corporation's interest rate risk is primarily related to the Corporation's operating revolving facility
bearing interest at variable rate.
Credit risk:
Credit risk is the risk of an unexpected financial loss to the Corporation if a customer or counterparty to a financial instrument
fails to meet contractual obligations, and it arises primarily from the Corporation's trade and other receivables. The
Corporation’s credit risk is principally attributable to its trade receivables. The amounts presented in the consolidated
statements of financial position are net of an allowance for doubtful accounts, estimated by the Corporation’s management
and based, in part, on the age of the specific receivable balance and the current and expected collection trends. The
Corporation's exposure to credit risk is mainly influenced by the characteristics of each customer. The demographics of the
Corporation's customer base, including the default risk of the industry and country in which the customer operates, have less
of an influence on the credit risk. Generally, the Corporation does not require collateral or other security from customers for
trade account receivable; however, credit is extended following an evaluation of creditworthiness. In addition, the Corporation
performs ongoing credit reviews of its customers and establishes an allowance for doubtful accounts when the likelihood of
collecting the account has significantly diminished. The Corporation believes that the credit risk of trade accounts receivable
is limited.
Critical accounting estimates
The preparation of these consolidated financial statements in conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities,
income and expenses. Actual results may differ from these estimates.
This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are
more likely to be materially adjusted due to estimates and assumptions turning out to be wrong. Estimates are based on
management’s best knowledge of current events and actions that the Corporation may undertake in the future. Estimates and
underlying assumptions are reviewed on an ongoing basis. Any revision to accounting estimates are recognized in the period
in which the estimates are revised and in any future periods affected by these revisions.
The areas involving significant estimates or judgments are:
Estimation of current tax payable and current tax expense
In the calculation of current tax, the Company is required to make significant estimates due to the fact that it is subject to tax
laws of the many jurisdictions in which it operates. Recorded income taxes and tax credits are subject to review and approval
by tax authorities and therefore, could be different from the amounts recorded.
Recognition of deferred tax asset for carried forward tax losses
In the calculation of deferred tax, estimates must be used to determine the appropriate rates and amounts and to take into
account the probability of their occurrence. Deferred income tax assets also reflect the benefit of unutilized tax losses than
can be carried forward to reduce income taxes in future years. The deferred tax assets include an amount which relates to
carried forward tax losses of some European and Australian subsidiaries. The subsidiaries have incurred the losses over the
last financial years before the acquisition by the Corporation. The subsidiaries now generate taxable income. The Corporation
has concluded that the deferred assets will be recoverable using the estimated future taxable income based on the approved
business plans and budgets for the subsidiaries.
Estimated fair value of certain financial assets (investments)
The fair value of investments that are not traded in an active market is determined using valuation techniques. The Corporation
uses judgement to select a valuation method and make assumptions that are mainly based on market conditions existing at
the end of each reporting period.
Estimation of fair values of contingent consideration in business combinations
The contingent consideration related to business combinations are payable based on the achievement of targets for growth in
revenues for a period from the date of the acquisition and upon renewal of client contract. The fair value of the contingent
consideration of was estimated by calculating the present value of the future expected cash flows.
40
Annual Report 2016 | Stingray Digital Group Inc.
Business Combinations
Under the acquisition method, on the date that control is obtained, the identifiable assets, liabilities and contingent liabilities of
the acquired business are measured at their fair values. Depending on the complexity of determining the valuation for certain
assets, the Company uses appropriate valuation techniques in arriving at the estimated fair value at the acquisition date for
these assets. These valuations are generally based on a forecast of the total expected future net discounted cash flows and
relate closely to the assumptions made by management regarding the future performance of the related assets and the
discount rate applied as it would be assumed by a market participant.
Future Accounting Changes
IFRS 9 - Financial instruments
In July 2014, the International Accounting Standards Board (“IASB”) released the final version of IFRS 9 - Financial Instruments
(IFRS 2014). IFRS 9 (2014) presents a few differences with IFRS 9 (2009) and IFRS (2010), early adopted by the Corporation
on April 1, 2012, with respect to the classification and measurement of financial assets and accounting of financial liabilities.
IFRS 9 (2014) also includes a new expected credit loss model for calculating impairment on financial assets, and a new
general hedge accounting requirements. The standard is effective for annual periods beginning on or after January 1, 2018,
with earlier application permitted. The Corporation does not intend to early adopt IFRS 9 (2014). The Corporation is currently
evaluating the impact of the standard on its consolidated financial statements.
IFRS 15 - Revenue recognition
In May 2014, the IASB issued IFRS 15 - Revenue from Contracts with Customers. IFRS 15 replaces all previous revenue
recognition standards, including IAS 18 - Revenue, and related interpretations such as IFRIC 13 - Customer Loyalty Programs.
The standard sets out the requirements for recognizing revenue. Specifically, the new standard introduces a comprehensive
framework with the general principle being that an entity recognizes revenue to depict the transfer of promised goods and
services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. The standard introduces more prescriptive guidance than was included in previous standards and may result in
changes in classification and disclosure in addition to changes in the timing of recognition for certain types of revenues. The
new standard is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. The
Corporation is currently evaluating the impact that this standard will have on its consolidated financial statements. The
Corporation does not intend to early adopt the standard.
IAS 1 - Presentation of financial statements
On December 18, 2014, the IASB issued amendments to IAS 1 - Presentation of financial statements as part of its major
initiative to improve presentation and disclosure in financial reports. These amendments will not require any significant change
to current practice, but should facilitate improved financial statement disclosures. The Corporation intends to adopt these
amendments in its financial statements for the annual period beginning on April 1, 2016. The Corporation does not expect the
amendments to have a material impact on the financial statements.
IAS 16 – Property, Plant and Equipment
On May 12, 2014, the IASB issued amendments to IAS 16 - Property, Plant and Equipment and IAS 38 - Intangible Assets.
The amendments made to IAS 16 explicitly state that revenue-based methods of depreciation cannot be used for property,
plant and equipment. This is because such methods reflect factors other than the consumption of economic benefits embodied
in the asset. The amendments in IAS 38 introduce a rebuttable presumption that the use of revenue-based amortization
methods for intangible assets is inappropriate. This presumption could be overcome only when revenue and consumption of
the economic benefits of the intangible asset are highly correlated or when the intangible asset is expressed as a measure of
revenue. The amendments apply prospectively for annual periods beginning on or after January 1, 2016 with early adoption
permitted. The Corporation intends to adopt the amendments to IAS 16 and IAS 38 in its financial statements for the annual
period beginning on April 1, 2016. The Corporation does not expect the amendments to have a material impact on the financial
statements.
IAS 7 – Disclosure Initiative
On January 7, 2016, the IASB issued amendments to IAS 7– Disclosure Initiative. The amendments require disclosures that
enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes
arising from cash flow and non-cash changes. One way to meet this new disclosure requirement is to provide a
reconciliation between the opening and closing balances for liabilities from financing activities. The Corporation intends to
adopt the amendments to IAS 7 in its financial statements for the annual period beginning on April 1, 2017. The extent of the
impact of adoption of the amendments has not yet been determined.
Annual Report 2016 | Stingray Digital Group Inc.
41
IFRS 16 – Leases
On January 13, 2016, the IASB issued IFRS 16 Leases. This new standard is effective for annual periods beginning on or
after January 1, 2019. Earlier application is permitted for entities that apply IFRS 15 Revenue from Contracts with
Customers at or before the date of initial adoption of IFRS 16. IFRS 16 will replace IAS 17 Leases. This standard introduces
a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more
than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset
representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments.
This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced
disclosures to be provided by lessors. Other areas of the lease accounting model have been impacted, including the
definition of a lease. Transitional provisions have been provided. The Corporation intends to adopt IFRS 16 in its financial
statements for the annual period beginning on April 1, 2019. The extent of the impact of adoption of the standard has not yet
been determined.
Evaluation of disclosure controls and procedures, and internal control over financial reporting
Internal control over financial reporting ("ICFR") is a process designed to provide reasonable, but not absolute, assurance
regarding the reliability of financial reporting and of the preparation of financial statements for external purposes in accordance
with IFRS. The President and Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), together with
Management, are responsible for establishing and maintaining adequate disclosure controls and procedures ("DC&P") and
ICFR, as defined in National Instrument 52-109. The Corporation’s internal control framework is based on the criteria published
in the updated version released in May 2013 of the report Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“2013 COSO Framework”).
At March 31, 2016, it is the first reporting year ending after the completion of the IPO resulting in the Corporation’s Subordinate
Voting Shares and Variable Subordinate Voting Shares being listed on the Toronto Stock Exchange. Consequently, the
Corporation’s management, under the supervision of the CEO and CFO, designed ICFR to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with IFRS and based on 2013 COSO Framework. The DC&P have been designed to provide reasonable assurance that
material information relating to the Corporation is made known to the CEO and CFO by others, and that information required
to be disclosed by the Corporation in its annual filings, interim filings or other reports filed or submitted by the Corporation
under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities
legislation.
As at March 31, 2016, an evaluation was carried out, under the supervision of the CEO and the CFO, of the design and
operating effectiveness of the Company’s DC&P. Based on this evaluation, the CEO and the CFO concluded that the
Company’s DC&P were appropriately designed and were operating effectively as at March 31, 2016.
As at March 31, 2016, an evaluation was carried out, under the supervision of the CEO and the CFO, of the effectiveness of
the ICFR based on the 2013 COSO Framework. Based on this evaluation, they have concluded that the Corporation’s ICFR
were effective as at March 31, 2016.
There have been no changes in the Corporation’s internal control over financial reporting that occurred during the period that
have materially affected, or are likely to materially affect, the Corporation’s ICFR.
Management’s assessment of and conclusion on the design and the effectiveness of the Corporation’s ICFR as at
June 16, 2016, did not include the controls or procedures of the operations of 9076-3392 Québec Inc. (doing business as
Nümédia), Transmedia Communications SA, Digital Music Distribution Pty Ltd., Brava HDTV B.V., Brava NL B.V. and Djazz
TV B.V. and, which were acquired in Fiscal 2016. The Corporation has accordingly availed itself of provision 3.3(1)(b) of
Regulation 52-109 which permits exclusion of these acquisitions in the design and operating effectiveness assessment of its
ICFR for a maximum period of 365 days from the date of acquisition.
The following table summarizes the financial information for 9076-3392 Québec Inc. (doing business as Nümédia), Transmedia
Communications SA (iConcerts), Digital Music Distribution Pty Ltd.(DMD), Brava HDTV B.V., Brava NL B.V. and Djazz TV
B.V. (altogether, Brava Group) :
(in thousand of Canadian dollars)
Nümedia
iConcerts
DMD
Results of operations
Revenues
Net income
Financial Position
Current assets
Non-current assets
Current liabilities
Non-currents liabilities
42
$
$
233 $
14
394 $
1,776
276
306
1,794 $
101
2,093 $
9,531
3,473
462
$
$
1,364
326
728
12,987
661
1,733
Brava
group
3,555
78
2,841
12,451
1,830
1,072
Annual Report 2016 | Stingray Digital Group Inc.
Subsequent events
Acquisition
On June 15, 2016, 2Connect Media BV, a wholly-owned subsidiary of the Corporation, acquired the Festival 4k television
channel, the leading Ultra HD Channel with an international customer base, for a total consideration of $3,126 (EUR2,174)
including contingent consideration.
New lease
On May 9, 2016, the Corporation signed a letter of intent for the renewal of its lease and to add additional space in the
building under construction located at 99 Prince, Montréal, with a commencement date of July 1 2017. The renewal of the
lease is for a period of five years with an option to extend for an additional term of five years. The estimated commitment
under the terms of the operating lease for the premises amounts to $5,810.
Notice of complaint
On June 6, 2016, the Corporation received notice of a complaint for patent infringement brought by Music Choice in the
United States District Court for the Eastern District of Texas, Marshall Division, alleging infringement of certain claims under
U.S. Patent no. 8,769,602; no. 9,357,245; no. 7,320,025; and no. 9,351,045. The Corporation believes that Music Choice’s
complaint is without merit and it intends to vigorously defend itself against this action.
Additional information
Additional information about the Corporation is available on our website at www.stingray.com and on the SEDAR website at
www.sedar.com.
Annual Report 2016 | Stingray Digital Group Inc.
43
(cid:46)(cid:51)(cid:48)(cid:42)(cid:3)(cid:47)(cid:47)(cid:51)
600 de Maisonneuve Blvd. West
Suite 1500, Tour KPMG
Montréal (Québec) H3A 0A3
Canada
Telephone
Fax
Internet
(514) 840-2100
(514) 840-2187
www.kpmg.ca
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Stingray Digital Group Inc.
We have audited the accompanying consolidated financial statements of Stingray Digital Group Inc., which
comprise the consolidated statements of financial position as at March 31, 2016 and March 31, 2015, the
consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended,
and notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We
conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on our judgment, including the assessment
of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the entity’s preparation and fair
presentation of the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of Stingray Digital Group Inc. as at March 31, 2016 and March 31, 2015, and its consolidated
financial performance and its consolidated cash flows for the years then ended in accordance with International
Financial Reporting Standards.
June 15, 2016
Montréal, Canada
*CPA auditor, CA, public accountancy permit No. A115894
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
("KPMG International"), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
44
Annual Report 2016 | Stingray Digital Group Inc.
(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars)
Note
2016
2015
Revenues
$
89,944
$
70,989
Music programming, cost of services and content
Selling and marketing
Research and development, support and information technology,
net of tax credit of $850 (2015 - $518)
General and administrative
Initial public offering expenses and CRTC tangible benefits
Depreciation, amortization and write-off
Net finance (income) expense
Change in fair value of investments
Income before income taxes
Income taxes (recovery)
Net income
Net income per share – Basic
Net income per share – Diluted
Weighted average number of shares – Basic
Weighted average number of shares – Diluted
Comprehensive income
Net income
Other comprehensive income, net of tax
Items that may be reclassified to profit and loss
Exchange differences on translation of foreign operations
Items that will not be reclassified to profit and loss
Remeasurements of post-employment benefit obligations
Total other comprehensive income (loss)
5, 18, 19
5
6
15
7
8
8
8
8
31,162
10,680
7,613
13,247
5,821
15,028
(418)
(7,345)
14,156
275
23,283
8,010
5,973
10,089
–
14,979
4,686
(1,801)
5,770
(837)
$
13,881
$
6,607
0.29
0.29
0.20
0.19
47,822,515
48,380,253
33,642,546
34,393,243
$
13,881
$
6,607
804
(67)
737
–
(79)
(79)
Total comprehensive income
$
14,618
$
6,528
Net income is entirely attributable to Shareholders.
The accompanying notes are an integral part of these consolidated financial statements.
Annual Report 2016 | Stingray Digital Group Inc.
45
Consolidated Statements of Financial Position
March 31, 2016 and March 31, 2015
(In thousands of Canadian dollars)
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Research and development tax credits
Inventories
Prepaid expenses and other current assets
Non-current assets
Property and equipment
Intangible assets
Goodwill
Investments
Investment in joint venture
Other assets
Deferred tax assets
Total assets
Liabilities and Equity
Current liabilities
Revolving facility
Accounts payable and accrued liabilities
Dividends payable
Deferred revenues
Current portion of other payables
Income taxes payable
Bridge loan
Current portion of term loan
Non-current liabilities
Revolving facility
Term loan
Derivative financial instruments
Other payables
Deferred tax liabilities
Total liabilities
Shareholders’ equity
Share capital
Contributed surplus
Deficit
Accumulated other comprehensive income
Total equity
Commitments (note 22)
Subsequent events (note 2)
Total liabilities and equity
Note
March 31,
2016
March 31,
2015
(recasted, see note 3)
9
10
11
12
13
14
15
7
17
16
19
18
17
17
17
17
18
7
19
$
$
3,201
27,761
236
910
3,487
35,595
4,628
47,901
62,022
16,943
815
1,088
7,117
1,314
17,494
334
876
2,667
22,685
4,330
45,441
39,129
7,933
858
919
3,875
$
176,109
$
125,170
$
$
–
25,819
1,789
915
8,006
1,711
–
–
38,240
35,035
–
–
8,695
3,745
85,715
102,040
2,196
(14,646)
804
90,394
7,902
16,743
–
714
8,463
393
20,000
9,830
64,045
–
71,005
110
4,434
3,418
143,012
2,240
1,759
(21,841)
–
(17,842)
$
176,109
$
125,170
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors,
(Signed) Eric Boyko, Director
(Signed) L. Jacques Ménard, Director
46
Annual Report 2016 | Stingray Digital Group Inc.
(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars,
except number of share capital)
Share Capital
Number
Amount
Contributed
surplus
Deficit
Accumulated
other
comprehensive
income
Total
shareholders’
equity
Balance at March 31, 2014
32,670,254
$
1,006
$
2,500 $
(8,721)
$
Issuance of shares upon
exercise of options (note 19)
1,310,834
1,682
(1,472)
–
Dividends and reduction of stated
capital on common shares (note 19)
Share-based compensation (note 21)
Repurchase of stock options (note 19)
Net income
Other comprehensive loss
–
–
–
–
–
(448)
–
(19,601)
–
–
–
–
800
(69)
–
–
–
(47)
6,607
(79)
Balance at March 31, 2015
33,981,088
$
2,240
$
1,759 $
(21,841)
$
Issuance of shares upon
exercise of options (note 19)
479,787
1,298
(914)
–
Dividends (note 19)
–
–
Issuance of subordinate voting shares
and variable subordinate voting
shares (note 19)
Share issuance costs – net of income
taxes of $1,993 (note 19)
Share-based compensation (note 21)
Net income
Other comprehensive income
16,647,100
104,044
–
–
–
–
(5,542)
–
–
–
–
–
–
1,351
(6,619)
–
–
–
–
–
13,881
(67)
Balance at March 31, 2016
51,107,975 $ 102,040
$
2,196 $
(14,646) $
–
–
–
–
–
–
–
–
–
–
–
–
–
–
804
804
$
(5,215)
210
(20,049)
800
(116)
6,607
(79)
$ (17,842)
384
(6,619)
104,044
(5,542)
1,351
13,881
737
$ 90,394
The accompanying notes are an integral part of these consolidated financial statements.
Annual Report 2016 | Stingray Digital Group Inc.
47
(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:41)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars)
Note
2016
2015
Operating activities:
Net income
Adjustments for:
Share-based compensation
Restricted share unit expense
Deferred share unit expense
Depreciation and write-off of property and equipment
Amortization of intangible assets
Amortization and write-off of financing fees
Other interest expense
Change in fair value of derivative
Change in fair value of investments
Change in fair value of contingent considerations
Write-off of other assets
Accretion expense of CRTC tangible benefits
Share of results of joint venture
Income taxes expense
Other
Interest paid
Income taxes paid
Net change in non-cash operating items
Financing activities:
Increase in the revolving facility
Issuance of term loan
Issuance of bridge loan
Repayment of term loan and bridge loan
Payment of dividend and stated capital of common shares
Repurchase of stock options
Proceeds from the exercise of stock options
Issuance of shares
Share capital issuance costs
Deferred financing costs
Repayment of other payables
Other
Investing activities:
Business and assets acquisitions, net of cash acquired
Acquisition of investments
Acquisition of property and equipment
Acquisition of intangible assets
Increase in cash and cash equivalents
Cash and cash equivalents (bank overdraft), beginning of year
$
13,881
$
6,607
21
21
21
12
13
20
17
17
17
19
19
19
19
19
3
15
1,351
592
371
2,146
12,882
263
1,627
(110)
(7,345)
(2,064)
–
248
43
275
–
(1,426)
(2,190)
20,544
(1,576)
18,968
26,948
–
–
(100,960)
(4,830)
–
384
104,044
(7,535)
(431)
(4,851)
(91)
12,678
(24,665)
(1,665)
(2,300)
(1,129)
(29,759)
1,887
1,314
800
211
–
2,057
12,854
369
3,961
(72)
(1,801)
485
(200)
–
(128)
(837)
11
(3,845)
(2,546)
17,926
(8,018)
9,908
2,704
20,000
20,000
(6,564)
(20,049)
(116)
210
–
–
(161)
(1,154)
(108)
14,762
(20,572)
–
(1,688)
(751)
(23,011)
1,659
(345)
Cash and cash equivalents, end of year
$
3,201
$
1,314
The accompanying notes are an integral part of these consolidated financial statements.(cid:3)
(cid:3)
48
Annual Report 2016 | Stingray Digital Group Inc.
Notes to Consolidated Financial Statements
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
1. Significant changes and highlights:
The consolidated financial position and performance of the Stingray Digital Group Inc. (the "Corporation") was particularly
affected by the following events and transactions during the year ended March 31, 2016:
-
The completion of its Initial public offering (“IPO”) in June 2015, which resulted in an increase in the share capital
(note 19), recognition of IPO expenses related to the secondary offering (note 19) and in the repayment of the term
loan and bridge loan (note 17).
-
The acquisitions of the Brava Group based in Netherlands in July 2015, iConcerts based in Geneva in
December 2015, Digital Media Distribution based in Australia in December 2015 and Nümédia based in Canada in
February 2016 (note 3). It resulted in the recognition of goodwill (note 3 and 14), intangibles assets (note 3 and 13),
contingent considerations (note 3 and 18) and additional operating profit related to those acquisitions (note 3). The
Corporation financed those acquisition using its amended revolving facility.
-
The approval by the CRTC of the change in ownership and effective control of the Corporation in April 2015, which
resulted in the recognition of a tangible benefits payable (note 18) and CTRC tangible benefits expenses.
-
The additional investment in AppDirect Inc. and following fair value valuation, which resulted in an increase in
investments (note 15) and the recognition of a gain on fair value revaluation (note 24).
2. Subsequent events:
Acquisition
On June 15, 2016, 2Connect Media BV, a wholly-owned subsidiary of the Corporation, acquired the Festival 4k television
channel, the leading Ultra HD Channel with an international customer base, for a total consideration of $3,126 (EUR2,174)
including contingent consideration.
New lease
On May 9, 2016, the Corporation signed a letter of intent for the renewal of its lease and to add additional space in the
building under construction located at 99 Prince, Montréal, with a commencement date of July 1 2017. The renewal of the
lease is for a period of five years with an option to extend for an additional term of five years. The estimated commitment
under the terms of the operating lease for the premises amounts to $5,810.
Notice of complaint
On June 6, 2016, the Corporation received a notice of a complaint for patent infringement brought by Music Choice in the
United States District Court for the Eastern District of Texas, Marshall Division, alleging infringement of certain claims
under U.S. Patent no. 8,769,602; no. 9,357,245; no. 7,320,025; and no. 9,351,045. The Corporation believes that Music
Choice’s complaint is without merit and it intends to vigorously defend itself against this action.
Annual Report 2016 | Stingray Digital Group Inc.
49
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
3. Business acquisitions:
Year ended March 31, 2016
Nümédia
On February 15, 2016, the Corporation purchased all of the outstanding shares of 9076-3392 Québec Inc. (“Nümédia”) for
a total consideration of $1,851. This acquisition will enable the Corporation to strengthen its Canadian operations. As a
result of the acquisition, a goodwill of $775 has been recognized and is related to the operating synergies expected to be
achieved from integrating the acquired business into the Corporation existing assets. The goodwill will not be deductible
for tax purposes.
The fair value of acquired trade receivables was $260 which represented the gross contractual amount. The contingent
consideration arrangement requires the Corporation to pay, in cash, to the former owners, a certain multiple of the
revenues for 12 months and other conditions, of up to $300 and would be payable on February 15, 2017. The fair value of
the contingent consideration has been determined using an income approach based on the estimated amount and timing
of projected cash flows.
The results of the business acquisition of Nümédia for the year ended March 31, 2016 have been included in results since
the date of the acquisition. Revenues recorded from the acquisition date to March 31, 2016 were $233 and net income of
$14. Had the acquisition occurred at the beginning of the fiscal year, revenues related to this acquired business would
have been approximately $1,397 and net income of $83.
Assets acquired :
Cash and cash equivalents
Accounts receivable
Prepaid expense and other current assets
Property and equipment
Intangible assets
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Long-term debt
Deferred tax liabilities
Net assets acquired at fair value
Consideration given :
Cash
Contingent consideration
$
Nümédia
257
260
33
185
841
775
2,351
289
185
26
500
$
1,851
1,700
151
$
1,851
50
Annual Report 2016 | Stingray Digital Group Inc.
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
iConcerts
On December 17, 2015, the Corporation purchased all of the outstanding shares of Transmedia Communications SA
(“iConcerts”) for a total consideration of CHF5,600 (CA$7,810). This acquisition will enable the Corporation to strengthen
its international operations within Europe. As a result of the acquisition, a goodwill of $6,979 has been recognized and is
related to the operating synergies expected to be achieved from integrating the acquired business into the Corporation
existing worldwide assets. The goodwill will not be deductible for tax purposes.
The fair value of acquired trade receivables was $912. The gross contractual amount for trade receivables due is $1,587,
of which $675 is expected to be uncollectible. The contingent consideration arrangement requires the Corporation to pay,
in cash, to the former owners, a certain multiple of the revenues for 12 months and other conditions, of up to CHF2,100
(CA$2,929) and would be payable on November 30, 2016. Based on management estimates, it has been determined that
the fair value of the contingent consideration was nil.
The results of the business acquisition of iConcerts for the year ended March 31, 2016 have been included in results since
the date of the acquisition. Revenues recorded from the acquisition date to March 31, 2016 were $1,794 and net income
of $101. Had the acquisition occurred at the beginning of the fiscal year, revenues related to this acquired business would
have been approximately $5,382 and net income of $303.
Preliminary
Adjustments
Adjusted
Assets acquired :
Cash and cash equivalents
Accounts receivable
Prepaid expense and other current assets
Property and equipment
Intangible assets
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Income taxes payable
Deferred tax liabilities
$
505
1,966
997
51
2,334
6,921
12,774
4,410
209
345
4,964
$
$
(1,054)
(546)
116
58
(1,426)
(977)
(209)
(240)
(1,426)
Net assets acquired at fair value
$
7,810
$
–
$
Consideration given :
Cash
7,810
$
7,810
$
–
$
505
912
451
51
2,450
6,979
11,348
3,433
–
105
3,538
7,810
7,810
7,810
Annual Report 2016 | Stingray Digital Group Inc.
51
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
Digital Media Distribution
On December 14, 2015, the Corporation purchased all of the outstanding shares of Digital Music Distribution Pty Ltd.
(“DMD”) for a total consideration of AUD11,990 (CA$11,853). This acquisition will enable the Corporation to strengthen its
international operations within Asia-Pacific. As a result of the acquisition, a goodwill of $7,326 has been recognized and is
related to the operating synergies expected to be achieved from integrating the acquired business into the Corporation
existing worldwide assets. The goodwill will not be deductible for tax purposes.
The fair value of acquired trade receivables was $98 which represented the gross contractual amount. The contingent
consideration arrangement requires the Corporation to pay, in cash, to the former owners, AUD4,002 (CA$3,956) upon
renewal of clients’ contract before December 2017.
The results of the business acquisition of DMD for the year ended March 31, 2016 have been included in results since the
date of the acquisition. Revenues recorded from the acquisition date to March 31, 2016 were $1,364 and net income of
$326. Had the acquisitions occurred at the beginning of the fiscal year, revenues related to this acquired business would
have been approximately $4,093 and net income of $979.
Assets acquired :
Cash and cash equivalents
Accounts receivable
Prepaid expense and other current assets
Intangible assets
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Deferred tax liabilities
Preliminary
Adjustments
Adjusted
$
$
210
123
292
2,924
9,166
12,715
306
497
803
$
(5)
(25)
5
2,576
(1,840)
711
(19)
789
770
205
98
297
5,500
7,326
13,426
287
1,286
1,573
Net assets acquired at fair value
$
11,912
$
(59)
$
11,853
Consideration given :
Cash
Working capital adjustment
Contingent consideration
7,862
–
4,050
(183)
218
(94)
7,679
218
3,956
$
11,912
$
(59)
$
11,853
52
Annual Report 2016 | Stingray Digital Group Inc.
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
Brava Group
In July 2015, the Corporation purchased all of the outstanding shares of Brava HDTV B.V., Brava NL B.V. and DjazzTV
B.V. (“Brava Group”) for a total consideration of EUR8,334 (CA$11,548). This acquisition will enable the Corporation to
strengthen its international operations within Europe. As a result of the acquisition, a goodwill of $7,428 has been
recognized and is related to the operating synergies expected to be achieved from integrating the acquired business into
the Corporation existing worldwide assets. The goodwill will not be deductible for tax purposes.
The fair value of acquired trade receivables was $1,594, which represented the gross contractual amount. The contingent
consideration arrangement requires the Corporation to pay, in cash, to the former owners, a certain multiple of the
revenues for 36 months, of up to EUR2,971 (CA$4,117) and will be paid out on each anniversary date for the next three
years, ending in June 2018. The fair value of the contingent consideration has been determined using an income approach
based on the estimated amount and timing of projected cash flows and discounted for time value.
The results of the business acquisitions of Brava Group for the year ended March 31, 2016 have been included in results
since the date of the acquisition. Revenues recorded from the acquisition date to March 31, 2016 were $3,555 and net
income of $78. Had the acquisitions occurred at the beginning of the fiscal year, revenues related to these acquired
businesses would have been approximately $4,740 and net income of $104.
Assets acquired :
Cash and cash equivalents
Accounts receivable
Prepaid expense and other current assets
Property and equipment
Intangible assets
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Income taxes payable
Deferred tax liabilities
Preliminary
Adjustments
Adjusted
$
$
18
275
293
$
282
1,576
164
61
4,795
7,153
14,031
1,186
391
1,199
2,776
282
1,594
164
61
4,795
7,428
14,324
1,186
391
1,199
2,776
Net assets acquired at fair value
$
11,255
$
293
$
11,548
Consideration given :
Cash
Working capital adjustment
Contingent consideration
8,502
25
2,728
275
18
8,502
300
2,746
$
11,255
$
293
$
11,548
As of the reporting date, the Corporation has not completed all purchase price allocation of the year over the identifiable
net assets and goodwill as information to confirm working capital items is still to be obtained.
Annual Report 2016 | Stingray Digital Group Inc.
53
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
Year ended March 31, 2015
Les Réseaux Urbains Viva Inc.
On February 10, 2015, the Corporation purchased all of the outstanding shares of Les Réseaux Urbains Viva Inc. for a
total consideration of $4,420. This acquisition will enable the Corporation to strengthen its Canadian position for in-store
media solutions and digital signage solutions. As a result of the acquisition, a goodwill of $2,621 has been recognized and
is related to the strategic expertise from the former owner and employees and operating synergies expected to be achieved
from integrating the acquired business into the Corporation existing business and the leverage of the Corporation expertise
in music and digital signage. The goodwill will not be deductible for tax purposes. The contingent consideration
arrangement requires the Corporation to pay, in cash, to the former owners, a certain multiple of the annualized revenues
for 24 months, of up to $3,881 and will be paid out in March 2018. The fair value of the contingent consideration has been
determined using an income approach based on the estimated amount and timing of projected cash flows and discounted
for time value.
The Corporation finalized the assessment of the fair values of the assets acquired and liabilities assumed related to this
acquisition and adjustments to the preliminary assessment has been recorded in the statement of financial position as
show below. The comparative figures have been adjusted to reflect these changes.
Assets acquired :
Cash and cash equivalents
Accounts receivable
Inventories
Property and equipment
Intangible assets
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Deferred revenues
Long-term debt
Deferred income tax liabilities
Preliminary
Adjustments
Final
$
$
495
973
531
108
2,160
2,235
6,502
1,019
333
150
580
2,082
$
–
124
(283)
–
–
386
227
227
–
–
–
227
495
1,097
248
108
2,160
2,621
6,729
1,246
333
150
580
2,309
Net assets acquired at fair value
$
4,420
$
–
$
4,420
Consideration given :
Cash
Contingent consideration
2,000
2,420
$
4,420
$
–
–
–
2,000
2,420
$
4,420
54
Annual Report 2016 | Stingray Digital Group Inc.
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
Telefonica – On The Spot
On October 10, 2014, the Corporation purchased the music division of Telefonica On The Spot Services S.A.U. (“On The
Spot”) for a total consideration of US$3,490 (CA$3,906). This acquisition will enable the Corporation to strengthen its
international operations within Latin America. The contingent consideration arrangement requires the Corporation to pay,
in cash, to the former owners, a certain multiple of the revenues for 24 months, of up to $US887 (CA$1,110) and will be
paid out in November 2016. The fair value of the contingent consideration has been determined using an income approach
based on the estimated amount and timing of projected cash flows and discounted for time value.
DMX Canada
On June 27, 2014, the Corporation purchased the Canadian assets from the Commercial division of Mood Media
Entertainment LTD (“DMX Canada”) for a total consideration of $11,770. This acquisition will enable the Corporation to
reinforce its status of largest commercial music provider in Canada and it is expected to reduce costs through economies
of scale. As a result of the acquisition, a goodwill of $4,260 has been recognized and is related to the operating synergies
expected to be achieved from integrating the acquired business into the Corporation existing business and the leverage
of the Corporation expertise in Canada. A portion of the goodwill amounted to $2,816 is expected to be deductible for
income tax purposes. The contingent consideration arrangement requires the Corporation to pay, in cash, to the former
owners, a certain percentage of the revenues for 12 months, of up to $1,803 and has been paid out during the year ended
March 31, 2016. The fair value of the contingent consideration has been determined using an income approach based on
the estimated amount and timing of projected cash flows and discounted for time value.
The Corporation finalized the assessment of the fair values of the assets acquired and liabilities assumed related to these
acquisitions and no adjustments to the preliminary assessment were recorded in the statement of financial position.
Assets acquired :
Property and equipment
Intangible assets
Goodwill
Liabilities assumed :
Deferred income tax liabilities
Telefonica
DMX Canada
$
$
–
3,906
–
3,906
–
511
7,504
4,260
12,275
505
505
Net assets acquired at fair value
$
3,906
$
11,770
Consideration given :
Cash
Contingent consideration
2,978
928
10,217
1,553
$
3,906
$
11,770
Annual Report 2016 | Stingray Digital Group Inc.
55
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
Archibald Media Group
On June 12, 2014, the Corporation purchased all of the outstanding shares of Archibald Media Group B.V. for a total
consideration of EUR5,319 (CA$7,824). This acquisition will enable the Corporation to strengthen its international
operations within Europe. As a result of the acquisition, a goodwill of $3,918 has been recognized and is related to the
operating synergies expected to be achieved from integrating the acquired business into the Corporation existing
worldwide assets and the leverage of the Corporation expertise in Europe. The goodwill will not be deductible for tax
purposes. The contingent consideration arrangement requires the Corporation to pay, in cash, to the former owners, a
certain multiple of the revenues for 24 months, of up to EUR1,378 (CA$1,880) and will be paid out in July 2016. The fair
value of the contingent consideration has been determined using an income approach based on the estimated amount
and timing of projected cash flows and discounted for time value.
The Corporation finalized the assessment of the fair values of the assets acquired and liabilities assumed related to this
acquisition, and adjustments to the preliminary assessment has been recorded in the statement of financial position as
show below. The comparative figures have been adjusted to reflect these changes.
Assets acquired :
Cash and cash equivalents
Accounts receivable
Property and equipment
Intangible assets
Investment in joint venture
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Deferred income tax liabilities
Preliminary
Adjustments
Final
$
$
207
511
111
4,070
–
4,255
9,154
486
844
1,330
$
–
–
–
(303)
730
(337)
90
–
90
90
207
511
111
3,767
730
3,918
9,244
486
934
1,420
Net assets acquired at fair value
$
7,824
$
–
$
7,824
Consideration given :
Cash
Contingent consideration
6,079
1,745
$
7,824
$
–
–
–
6,079
1,745
$
7,824
The results of the business acquisitions of DMX Canada, On The Spot, Archibald Media Group B.V. and Les Réseaux
Urbains Viva Inc. for the year ended March 31, 2015 have been included in results since the date of the respective
acquisitions. Revenues recorded from the acquisition date to March 31, 2015 were $6,300 and net income related to these
acquired businesses is impracticable to determine. Had the acquisitions occurred at the beginning of the fiscal year,
revenues related to these acquired businesses would have been approximately $12,000 and net income is impracticable
to determine. The Corporation fully integrated those acquisitions within its operations and consequently it is impractical to
adequately separate costs.
56
Annual Report 2016 | Stingray Digital Group Inc.
Notes to Consolidated Financial Statements
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
Other
The Corporation also amended the purchase price allocation of the acquisition of Pay Audio Services Limited Partnership
by reducing goodwill and deferred tax liabilities by $3,321.
Significant estimate
Under the acquisition method, on the date that control is obtained, the identifiable assets, liabilities and contingent liabilities
of the acquired business are measured at their fair values (financial instrument level 3). Depending on the complexity of
determining the valuation for certain assets, the Corporation uses appropriate valuation techniques in arriving at the
estimated fair value at the acquisition date for these assets. These valuations are generally based on a forecast of the
total expected future net discounted cash flows and relate closely to the assumptions made by management regarding the
future performance of the related assets and the discount rate applied as it would be assumed by a market participant.
4. Segment information:
Business description
The Corporation is incorporated under the Canada Business Corporations Act. The Corporation is domiciled in Canada
and its registered office is located at 730 Wellington, Montréal, Québec, H3C 1T4. The Corporation is a provider of multi-
platform music services. It broadcasts high quality music and video content on a number of platforms including digital TV,
satellite TV, IPTV, the Internet, mobile devices and game consoles.
Operating segments
Under IFRS 8, Operating Segments, the Corporation determined that it operated in a single operating segment for the
years ended March 31, 2016 and 2015 since operations, resources and assets are mainly centralized, optimized and
managed in Canada. International operations are leveraged from Canadian expertise.
The following tables provide geographic information on Corporation’s revenues, property and equipment, intangibles
assets and goodwill.
Revenue is derived from the following geographic areas based on selling locations.
Revenues
Canada
Other countries
2016
53,535
36,409
89,944
$
$
Long-term assets are derived from the following geographic areas based on subsidiaries locations.
Property and equipment, intangible assets and goodwill
Canada
Netherlands
United Kingdom
Australia
Other countries
$
2016
53,524
18,811
16,857
12,620
12,739
$
114,551
Annual Report 2016 | Stingray Digital Group Inc.
$
$
$
$
2015
47,738
23,251
70,989
2015
56,681
7,597
20,847
–
3,775
88,900
57
Notes to Consolidated Financial Statements
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
5. Other information:
Expenses by nature are as follows:
Salaries and other short-term employee benefits
Research and development
Equipment costs
Share-based compensation
Restricted share units
Deferred share units
$
2016
19,780
5,725
4,505
1,351
592
371
$
2015
16,480
4,966
1,760
800
211
–
The following table shows the depreciation and amortization and IPO expenses and CRTC tangible benefits distributed by
function:
Depreciation, amortization and write-off :
Music programming, cost of services and content
General and administrative
IPO expenses and CRTC tangible benefits :
Music programming, cost of services and content
General and administrative
2016
13,749
1,279
15,028
4,158
1,663
5,821
$
$
$
$
2015
13,237
1,742
14,979
–
–
–
$
$
$
$
The music programming, cost of services and content and the general and administrative expense would have been
respectively $49,069 (2015 – $36,520) and $16,189 (2015 – $11,831), if the presentation by function of the depreciation,
amortization and write-off expense, IPO expenses and CRTC tangible benefits would have been adopted in the statements
of comprehensive income.
Transaction costs related to business acquisitions amounting to $691 (2015 – $233) have been recognized in general and
administrative in the statements of comprehensive income.
Share of the profit of a joint venture of $105 has been presented in general and administrative in the statements of
comprehensive income (2015 – $200). Dividend received from the joint venture amounted to $148 (2015 - $72).
6. Net finance (income) expense:
Interest expense and standby fees
Change in fair value of contingent considerations
Change in fair value of derivative
Accretion expenses of CRTC tangible benefits payable
Amortization and write-off of financing fees
Write-off of other assets
Foreign exchange gain
2016
1,627
(2,064)
(107)
248
263
–
(385)
(418)
$
$
2015
3,961
485
(72)
–
369
200
(257)
4,686
$
$
58
Annual Report 2016 | Stingray Digital Group Inc.
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
7.
Income taxes:
The income taxes expense consists of the following:
Current income tax:
Current year
Adjustment for prior years
Deferred income tax :
Origination and reversal of temporary differences
Adjustment for prior years
Change in recognized tax losses and deductible temporary
differences
$
2016
4,160
70
4,230
(447)
(67)
(3,441)
(3,955)
$
2015
2,780
111
2,891
(1,052)
30
(2,706)
(3,728)
Total income tax expense
$
275
$
(837)
The following table reconciles income taxes computed at the Canadian statutory rate of 26.9% (2015 – 26.9%) and the
total income tax expense for the years ended March 31:
2016
2015
Income before income taxes
$
14,156
$
5,770
Income tax at the combined Canadian statutory rate
(Decrease) increase resulting from:
Impact of foreign tax rate differences
Permanent differences
Non-taxable portion of capital gain
Change in recognized tax losses and deductible temporary
differences
Withholdings taxes
Change in future tax rate applicable to investments
Other
Total income tax expense
Significant estimate
3,808
(599)
1,009
(993)
(3,441)
1,170
(687)
8
275
$
1,552
(240)
404
(242)
(2,706)
543
–
(148)
(837)
$
Recorded income taxes and tax credits are subject to review and approval by tax authorities and therefore could be
different from the amounts recorded.
Annual Report 2016 | Stingray Digital Group Inc.
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(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
Recognized deferred tax assets and liabilities:
The tax effects of significant components of temporary differences that give rise to deferred tax assets and liabilities are
as follows:
$
Property and equipment
Intangible assets and goodwill
Financing fees
Tax losses carried forward
Investments
CRTC tangible benefits
Others
Tax assets and liabilities
Offsetting of assets and liabilities
Net tax assets and liabilities
$
Unrecognized deferred tax assets
2016
2015
Assets
Liabilities
Assets
Liabilities
339 $
114
2,016
6,666
–
1,138
273
10,546
(3,429)
7,117 $
$
22
5,177
–
–
1,930
–
45
7,174
(3,429)
3,745
$
266 $
121
157
4,446
–
–
385
5,375
(1,500)
3,875 $
42
6,762
–
–
1,624
–
28
8,456
(5,038)
3,418
The Corporation has operating tax losses carried forward of $115,379 and unrecognized deductible temporary differences
of $5,217 that are available to reduce future taxable income. A tax benefit was not recognized for $79,862 of these tax
losses carried forward. Deferred tax assets have not been recognized in respect of these items because it is not probable
that future taxable profit will be available against which the Corporation can utilized the benefits therefrom. As at
March 31, 2016 and 2015, the amounts and expiry dates of the tax losses carried forward and other unrecognized
deductible temporary differences without time limitation were as follows:
Tax losses carried
forward:
2017
2018
2019
2020
2021
2026
2027
2028
2029
2030
2034
Indefinite
Other deductible
temporary
difference without
time limitation
Canada
Australia
Switzerland
2016
United
Kingdom
Canada
2015
United
Kingdom
$
– $
–
–
–
–
23
373
84
49
7
–
–
– $
–
–
–
–
–
–
–
–
–
–
684
8,040 $
4,613
5,116
4,844
3,474
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
88,072
$
– $
–
–
–
–
–
262
324
28
–
175
–
–
–
–
–
–
–
–
–
–
–
–
91,481
–
$
536 $
–
684
–
5,217
–
6,258
26,087 $
93,289
$
789 $
97,739
Unrecognized deferred tax liabilities
The Corporation has not recognized a deferred tax liability for the undistributed earnings of its subsidiaries in the current
and prior years because the Corporation does not currently expect those undistributed earnings to reverse and become
taxable in the foreseeable future. A deferred income tax liability will be recognized when the Corporation expects that it
will recover those undistributed earnings in a taxable manner, such as the sale of the investment or through the receipt
of dividends.
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Annual Report 2016 | Stingray Digital Group Inc.
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
Significant estimate
The deferred tax assets include an amount of $6,666 which relates to carried forward tax losses of some Canadian,
European and Australian subsidiaries. The subsidiaries have incurred the losses over the last financial years before the
acquisition by the Corporation. The subsidiaries now generate taxable income. The Corporation has concluded that it is
probable that these deferred assets will be recoverable considering the estimated future operating results as per the
approved business plans and budgets for the subsidiaries.
8. Earnings per share:
2016
2015
Net income
$
13,881
$
6,607
Basic weighted average number of common share and subordinate
voting shares, variable subordinate voting shares and multiple
voting shares
Dilutive effect of stock options
Diluted weighted average number of common share and
subordinated voting shares, variable subordinated voting shares
and multiple voting shares
47,822,515
557,738
33,642,546
750,697
48,380,253
34,393,243
Earnings per share – Basic
Earnings per share – Diluted
9. Trade and other receivables:
Trade
Other receivables
$
$
$
$
0.29
0.29
2016
25,447
2,314
27,761
$
$
$
$
0.20
0.19
2015
16,379
1,115
17,494
10. Research and development tax credits:
As at March 31, 2016, tax credits receivable of $236 (2015 - $334) comprise research and development tax credits
receivable from the provincial government, which relate to qualifiable research and development expenditures under the
applicable tax laws. The amounts recorded as receivables are subject to a government tax audit and the final amounts
received may differ from those recorded.
11. Inventories:
Music transmission equipment hardware
Television equipment, speakers and other
2016
586
324
910
$
$
2015
451
425
876
$
$
Annual Report 2016 | Stingray Digital Group Inc.
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(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
12. Property and equipment:
Cost:
Balance at March 31, 2014
Additions
Additions through business acquisitions
Disposals and write-off
Balance at March 31, 2015
Additions
Additions through business acquisitions
Disposals and write-off
Foreign exchange differences
Balance at March 31, 2016
Accumulated depreciation:
Balance at March 31, 2014
Depreciation for the year
Disposal and write-off
Balance at March 31, 2015
Depreciation for the year
Disposals and write-off
Foreign exchange differences
Balance at March 31, 2016
Net carrying amounts:
March 31, 2015
March 31, 2016
Furniture,
fixtures and
equipment
Computer
hardware
Other
Total
$
$
$
$
3,400 $
2,063
618
(119)
5,962
2,750 $
835
112
(33)
3,664
807
44
(224)
(2)
6,587
2,040
1,123
(66)
3,097
1,019
246
(3)
6
4,932
1,843
691
(26)
2,508
869
(58)
–
3,908 $
854
(3)
4
3,363 $
821 $
125
–
(89)
857
320
7
–
1
1,185
454
169
(75)
548
257
–
–
805 $
6,971
3,023
730
(241)
10,483
2,146
297
(227)
5
12,704
4,337
1,983
(167)
6,153
1,980
(61)
4
8,076
2,865 $
2,679 $
1,156 $
1,569 $
309 $
380 $
4,330
4,628
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Annual Report 2016 | Stingray Digital Group Inc.
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
13. Intangible assets:
Music
catalog
Client list
and
relationships
Trademark
Cost:
Balance at March 31, 2014
Additions
Additions through
business acquisitions
Balance at March 31, 2015
Additions
Additions through
business acquisition
Foreign exchange differences
Balance at March 31, 2016
Accumulated depreciation:
Balance at March 31, 2014
Amortization for the year
Balance at March 31, 2015
Amortization for the year
Foreign exchange differences
Balance at March 31, 2016
Net carrying amounts:
March 31, 2015
March 31, 2016
$
$
$
$
14. Goodwill:
Balance, beginning of year
Business acquisitions (note 3)
Foreign exchange differences
Balance, end of year
$ 58,921
–
$
6,977
308
450
7,735
352
156
(1)
8,242
2,462
774
3,236
530
1
3,767
15,679
74,600
–
11,818
296
86,714
28,049
10,519
38,568
10,634
3
$ 49,205
$
$
$
4,499
4,475
$ 36,032
$ 37,509
2,147
–
735
2,882
–
1,492
3
4,377
414
175
589
336
–
925
2,293
3,452
$
$
Licenses,
website
application
and
computer
software
$
$
$
$
4,346
585
46
4,977
883
264
(1)
6,123
3,217
764
3,981
872
(1)
4,852
996
1,271
Non-
compete
agreement
Total
$
3,097 $ 75,488
893
–
427
3,524
17,337
93,718
–
1,235
79
2
3,605
13,809
299
109,061
1,281
622
1,903
35,423
12,854
48,277
510
(2)
12,882
1
2,411 $ 61,160
1,621 $ 45,441
1,194 $ 47,901
$
$
$
2016
39,129
22,508
385
62,022
2015
(recasted- see note 3)
$
$
28,330
10,799
–
39,129
For the purpose of impairment testing, goodwill of $62,022 was allocated to the single CGU representing all music services.
The Corporation performed its annual impairment test for goodwill during the last quarter of 2016. The recoverable value
of the CGU exceeded its carrying value. There is no reasonable possible change in assumptions that would cause the
carrying amount to exceed the estimated recoverable amount. As a result, no goodwill impairment was recorded.
Valuation technique and significant estimate
The recoverable value of the CGU was based on fair value less costs to sell. The following methodology and assumptions
were applied to determine the fair value less costs to sell.
Annual Report 2016 | Stingray Digital Group Inc.
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Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
The fair value less costs to sell was calculated using unobservable (Level 3) inputs such as the budgeted and projected
2017-2021 revenues and EBITDA margin. The EBITDA is defined as net income before net finance costs, change in fair
value of investment, income taxes, depreciation and amortization. The Corporation considered past experience, economic
trends as well as industry and market trends in assessing if the level of EBITDA can be maintained in the future. For the
purpose of this test, management uses a five-year period to project future cash flows. Beyond this period, the Corporation
uses a growth rate of 2% with an EBITDA margin of 35%. The Corporation also used a discount rate of 10%, which
represents the weighted average cost of capital (“WACC”). The WACC is an estimate of the overall rate of return required
by debt and equity holders on their investment. Determining the WACC requires analyzing the cost of equity and debt
separately, and takes into account a risk premium that is based on the CGU.
For the purpose of impairment testing of tangible and intangible assets and goodwill, management must use its judgment
to identify the smallest group of assets that generates cash inflows that are largely independent of those from other assets
(“cash generating unit” or ”CGU”).
The amounts used for impairment calculations are based on estimates of future cash flows of the Corporation, including
estimates of future revenues, EBITDA, discount rates (WACC) and market prices.
By their nature, these estimates and assumptions are subject to measurement uncertainty and, consequently, actual
results could differ from estimates used.
15. Investments:
Balance, beginning of year
Additions during the year
Change in fair value during the year,
including foreign exchange gain
Balance, end of year
2016
7,933
1,665
7,345
16,943
$
$
2015
6,132
–
1,801
7,933
$
$
Investments consists of an investment in convertible preferred shares of a private entity, AppDirect, and an investment in
a convertible note of a private entity, Multi-Channels Asia PTE Ltd. (“MCA”).
AppDirect
The investment made by the Corporation into convertible preferred shares of AppDirect is classified as measured at fair
value through profit and loss. On September 21, 2015, the Corporation invested US$300 (CA$330) in convertible preferred
shares.
MCA
The investment made by the Corporation into convertible note of MCA is classified as at fair value through profit and loss.
On November 11, 2015, the Corporation invested US$1,000 (CA$1,335) in convertible note. The convertible note matures
in five years, bears interest at 7% per annum and the principal amount is convertible, at the option of the Corporation, into
common shares of MCA, at any time, until maturity.
Significant estimate
The fair value of investments that are not traded in an active market is determined using valuation techniques. The
Corporation uses judgement to select a variety of methods and make assumptions that are mainly based on market
conditions existing at the end of each reporting year. For details of the key assumptions used and the impact of changes
to these assumptions, see note 24.
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Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
16. Accounts payable and accrued liabilities:
Trade
Accrued liabilities
Sales taxes payable
17. Loans and borrowings:
Movements in loans and borrowings are as follows:
Year ended March 31, 2015
Opening net book amount as at March 31, 2014
Increase of revolving facility (net)
New debt
Repayments of borrowings
New financing fees
Amortization of financing fees
Closing net book amount as at March 31, 2015
Current portion
Non-current portion
Year ended March 31, 2016
Opening net book amount as at March 31, 2015
Increase of revolving facility (net)
Repayments of borrowings
Amortization and write-off of financing fees
Closing net book amount as at March 31, 2016
Current portion
Non-current portion
Revolving credit facility
2016
8,624
16,338
857
25,819
$
$
2015
2,624
14,021
98
16,743
$
$
Revolving facility
Bridge loan
Term loan
$
$
$
5 198
2 704
–
–
–
–
7,902
7,902
–
$
$
$
–
–
20,000
–
–
–
20,000
20,000
–
$
$
$
67,041
–
20,150
(6,564)
(161)
369
80,835
9,830
71,005
Revolving facility
Bridge loan
Term loan
$
$
$
7 902
27,133
–
–
35,035
–
35,035
$
$
$
20,000
–
(20,000)
–
–
–
–
$
$
$
80,835
–
(80,960)
125
–
–
–
On June 11, 2015, the Corporation renegotiated its credit agreement in order to merge the outstanding balance of the term
loan into the amended revolving credit facility (“revolving facility”), to provide for the repayment of the bridge loan, to
increase its borrowing capacity to $100,000 and to make modifications in relation to interest, maturity, security and
covenants. The revolving facility matures in June 2019, bears interest at an annual rate equal to the banker’s acceptance
rate plus between 1.38% and 3.00% and is secured by guarantees from subsidiaries and first ranking lien on universality
of all its assets, tangible and intangible, present and future. In addition, the Corporation incurs standby fees between 0.28%
and 0.60% on the unused portion of the revolving facility. The Corporation is required to comply with financial covenants.
As at March 31, 2016, the Corporation was in compliance with all the requirements of its credit agreement.
Term loan
The term loan was repaid on June 11, 2015, was bearing interest at prime rate plus the applicable margin (between 1.00%
and 3.00%), representing an interest rate of 4.85% at March 31, 2015, and was maturing on December 18, 2016.
Annual Report 2016 | Stingray Digital Group Inc.
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(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
Bridge loan
The Corporation repaid in full the outstanding amount on June 11, 2015. The bridge loan was bearing interest at an annual
rate equal to either the prime loans or acceptances rates plus 3.00% and 4.00% up to December 13, 2015, respectively,
and 3.50% and 4.50%, respectively, thereafter, representing an interest rate of 6.85% at March 31, 2015, was maturing in
March 2016 and was secured by guarantees from subsidiaries and first ranking lien on universality of tangible and
intangible assets. Under the credit agreement, the Corporation was to comply with quarterly financial covenants.
18. Other payables:
Other payables consist of the following:
Contingent considerations
CRTC tangible benefits
Post-employment benefit obligations
Current position
CRTC tangible benefits
2016
12,347
4,230
124
16,701
(8,006)
8,695
$
$
2015
12,409
340
148
12,897
(8,463)
4,434
$
$
The CRTC approved the change in ownership and effective control of the Corporation on April 22, 2015. Pursuant to the
decision, the CRTC requires the Corporation to pay tangible benefits corresponding to an amount of $5,508 over a seven-
year period in equal annual payments. The Corporation recognized an expense of $4,382, which reflects the fair value of
the payment stream using a discount rate of 7.0%, which is the Corporation effective interest rate plus a risk premium. On
August 18, 2015, the Canadian Radio-television and Telecommunications Commission (“CRTC”) issued a decision
renewing until August 31, 2020 the Corporation’s broadcast license.
Significant estimate – contingent considerations
In the event that certain predetermined sales volumes, specific contract renewals and other conditions are achieved by
the acquired companies, additional consideration may be payable in the future.
The fair value of the contingent consideration of $12,347 was estimated by calculating the present value of the future
expected outflows. For details of the key assumptions used and the impact of changes to these assumptions, see note 24.
The estimates are based on a discount rate ranging from 5% to 15%. During the year ended March 31, 2016, the contingent
considerations of DMX Canada, DMX Latin, Brava Group and Archibald Media Group have been reviewed, as the actual
sales revenue expected to be achieved by the acquired companies are either above or below the maximum threshold. An
aggregate gain of $2,064 was included in net finance expenses. During the year ended March 31, 2016, the contingent
considerations of DMX Canada and DMX Latin have been paid.
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Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
19. Share capital:
Authorized:
Prior to the closing of the initial public offering (the “Offering”), the Corporation’s authorized share capital was comprised
of an unlimited number of Classes A, B, and C common shares, voting and participating, without par value and an unlimited
number of Classes A, B and C preferred shares, voting and non-participating, without par value.
The Corporation’s authorized share capital was amended immediately prior to the closing of the Offering and all the classes
of shares included in the authorized share capital of the Corporation prior to the amendment were repealed and replaced
by:
Unlimited number of subordinate voting shares, participating, without par value
Unlimited number of variable subordinate voting shares, participating, without par value
Unlimited number of multiple voting shares (10 votes per share), participating, without par value
Unlimited number of special shares, participating, without par value
Unlimited number of preferred shares issuable in one or more series, non-participating, without par value
Issued and outstanding:
The movements in share capital were as follows:
Year ended March 31, 2015
As at March 31, 2014
Class A common shares
Class B common shares
Class C common shares
Issued upon exercise of stock options
Class A common shares
Dividend and reduction of stated capital
Class A common shares
Class C common shares
As at March 31, 2015
Class A common shares
Class B common shares
Class C common shares
Number of shares
Carrying amount
16,440,535
6,229,719
10,000,000
32,670,254
1,310,834
–
–
–
17,751,369
6,229,719
10,000,000
33,981,088
$
$
562
12
432
1,006
1,682
(16)
(432)
(448)
2,228
12
–
2,240
Annual Report 2016 | Stingray Digital Group Inc.
67
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
Year ended March 31, 2016
As at March 31, 2015
Class A common shares
Class B common shares
Class C common shares
Issued upon exercise of stock options
Class A common shares
Converted
Class A common shares
Class B common shares
Class C common shares
Subordinate voting shares and variable subordinate voting shares
Multiple voting shares
Issued upon initial public offering and exercise of over-allotment option
Subordinate voting shares and variable subordinate voting shares
Share issuance costs, net of income taxes of $1,993
Issued upon exercise of stock options
Subordinate voting shares
As at March 31, 2016
Subordinate voting shares and variable subordinate voting shares
Multiple voting shares
Number of
shares
Carrying amount
17,751,369
6,229,719
10,000,000
33,981,088
80,000
(17,831,369)
(6,229,719)
(10,000,000)
17,766,803
16,294,285
–
16,647,100
–
$
2,228
12
–
2,240
192
(2,420)
(12)
–
1,316
1,116
–
104,044
(5,542)
399,787
1,106
34,813,690
16,294,285
51,107,975
100,924
1,116
102,040
$
To comply with the Broadcasting Act and the regulations and directions promulgated thereunder from time to time, which
permit non-Canadians (as defined in the Direction to the CRTC (Ineligibility of Non-Canadians) (SOR/97-192)) to own and
control, directly or indirectly, up to 20% of the voting shares and 20% of the votes of an operating licensee that is a
corporation, such as the Corporation, the Corporation has imposed restrictions respecting the issuance, transfer and, if
applicable, voting of the Corporation’s shares. Restrictions include limitations over foreign ownership of the issued and
outstanding voting shares.
Transactions for the year ended March 31, 2016
During the year, 479,787 stock options were exercised and, consequently, the Corporation issued 80,000 class A common
shares and 399,787 subordinate voting shares. The proceeds amounted to $384. An amount of $914 of contributed surplus
related to those stock options was transferred to the Class A common shares or subordinate voting shares’ account
balance.
On March 23, 2016, the Corporation has declared dividend of $0.035 per subordinate voting share, variable subordinate
voting share and multiple voting share that will be payable on or around June 15, 2016 to holders of subordinate voting
shares, variable subordinate voting shares and multiple voting shares on record as of May 31, 2016.
On February 3, 2016, the Corporation declared a dividend of $0.035 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $1,781 has been paid on March 15, 2016.
On November 11, 2015, the Corporation declared a dividend of $0.03 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $1,526 has been paid on December 15, 2015.
On August 11, 2015, the Corporation declared a dividend of $0.03 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $1,523 has been paid on September 15, 2015.
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Annual Report 2016 | Stingray Digital Group Inc.
Notes to Consolidated Financial Statements
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
On June 3, 2015, the Corporation completed the Offering of its subordinate voting shares and variable subordinate voting
shares with the securities regulatory authorities in each of the provinces and territories of Canada. The Corporation issued
13,287,100 subordinate voting shares and variable subordinate voting shares and received gross proceeds of $83,044
from the issuance. On June 9, 2015, the Corporation issued 3,360,000 subordinate voting shares and variable subordinate
voting shares following the exercise of the over-allotment option granted to the underwriters in connection with the Offering.
The Corporation received gross proceeds of $21,000 from the issuance.
Transaction costs for transactions above amounted to $9,198, of which $1,663 have been recognized as an expense in
the consolidated statements of comprehensive income and $7,535, net of tax benefits of $1,993, amounting to $5,542, as
a reduction of share capital.
Transactions for the year ended March 31, 2015
During the year, 1,310,834 stock options were exercised and, consequently, the Corporation issued 1,310,834 Class A
common shares. The proceeds amounted to $210. An amount of $1,472 of contributed surplus related to those stock
options was transferred to the Class A common shares’ account balance.
On March 18, 2015, the Corporation declared and paid to Class A, Class B and Class C common shareholders cash
dividends of $0.59 per share, including a reduction of the stated capital of Class A and Class C common shares by $16
and $432, respectively.
On July 29, 2014, the Corporation purchased 54,167 options held by formers employees for a purchase price equal to
$116. These options have been cancelled thereafter.
20. Supplemental cash flow information:
Trade and other receivables
Research and development tax credit
Inventories
Prepaid expenses and other current assets
Other assets
Accounts payable and accrued liabilities
Income taxes payable
Deferred revenues
Other payables (CRTC tangible benefits)
2016
(7,684)
(214)
(34)
169
124
1,493
695
203
3,672
(1,576)
$
$
2015
(2,893)
148
(238)
(990)
(519)
(487)
(2,599)
(440)
–
(8,018)
$
$
Additions to property and equipment and intangible assets and not affecting cash and cash equivalents amounted to $341
(2015 – $495) and $249 (2015 – $142), respectively, during the year ended March 31, 2016.
Annual Report 2016 | Stingray Digital Group Inc.
69
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
21. Share-based compensation:
Stock options plan
As part of the Offering, the Corporation has established a new stock option plan to attract and retain employees, directors,
officers and consultants. The plan provides for the granting of options to purchase subordinate voting shares. Under this
plan, 2,500,000 subordinate voting shares have been reserved for issuance. The terms and conditions for acquiring and
exercising options are set by the Board of Directors, as well as the term of the options; however, it cannot be more than
seven years or any other shorter period as specified by the Board of Directors, according to the regulations of the plan.
The total number of shares issued to a single person cannot exceed 5% of the Corporation’s total issued and outstanding
common shares on a fully diluted basis.
Under the former and new stock option plan, 1,288,757 stock options were outstanding as at March 31, 2016. Outstanding
options are subject to employee service vesting criteria which range from nil to four years of service.
The following summarizes the changes in the plan’s position for the years ended March 31, 2016 and 2015:
2016
Number of
options
Weighted
average
exercise price
2015
Number of
options
Weighted
average
exercise price
Options outstanding, beginning of year
Granted
Exercised (note 19)
Forfeited
Repurchased
Options outstanding, end of year
1,269,699 $
512,880
(479,787)
(14,035)
–
1,288,757
Exercisable options, end of year
482,427 $
1.29
6.43
0.80
2.26
–
3.50
1.21
2,326,734 $
504,699
(1,310,834)
(196,733)
(54,167)
1,269,699
673,333 $
0.57
2.26
0.16
1.06
0.70
1.29
0.56
The following is a summary of the information on the outstanding stock options as at March 31, 2016 and 2015:
Exercise price(i)
March 31, 2016
$ 0.46
1.46
2.26
6.25
7.00
$ 3.50
March 31, 2015
$ 0.46
1.46
2.26
$ 1.29
Outstanding
options
Weighted average
outstanding
contractual life
outstanding (years)
Number of options
outstanding
260,000
75,000
440,877
387,880
125,000
1,288,757
615,000
150,000
504,699
1,269,699
3.11
4.63
5.91
6.12
6.36
5.38
3.99
5.57
6.43
5.15
Exercisable
options
Number
260,000
50,000
172,427
–
–
482,427
615,000
50,000
8,333
673,333
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Annual Report 2016 | Stingray Digital Group Inc.
Notes to Consolidated Financial Statements
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
The weighted average fair value of the stock options granted during the year ended March 31, 2016 was $3.43
(2015 – $1.65). This fair value was estimated at the date on which the options were granted by using the Black-Scholes
option pricing model with the following assumptions:
2016
2015
Weighted average volatility
Weighted average risk-free interest rate
Weighted average expected life of options
Weighted average value of the subordinate voting share at grant date
Weighted average expected dividend rate
65.0% – 70.0%
0.73% – 1.01%
5 – 6.25 years
$6.43
nil - 2.0%
70%
0.59% - 1.72%
5 years
$2.85
nil
The weighted average volatility used is calculated based on comparable publicly-traded companies over the same period
as of the expected life.
Total share-based compensation costs recognized under this stock option plan amount to $1,351 for the year ended
March 31, 2016 (2015 – $800).
The weighted average share price at the date of exercise for share options exercised during the year ended
March 31, 2016 was $6.93 (2015 – $2.85).
(i) For the year ended March 31, 2015, the Corporation’s directors cancelled all issued and outstanding stock options and
issued new options having an exercise price that was reduced by $0.59, being the amount paid as dividend or reduction
of stated capital to the holders of Classes A, B and C common shares (note 19). This new rebate of the exercise price
of the related stock options increased the share-based compensation cost by $434 of which $278 has been recognized
for each year, respectively.
Restricted share unit plan
The Corporation established on April 1, 2014 a restricted share unit plan (“RSU”) that can be granted to directors, officers,
executives and employees as part of their long-term compensation package, which is expected to be settled in cash. The
value of the payout is determined by multiplying the number of RSU vested at the payout date by the fair value of the
Corporation’s shares on the day prior to the payout date. The fair value of the payout is determined at each reporting date
based on the fair value of the Company’s shares at the reporting date. The fair value is amortized over the vesting period,
being three years.
During the year ended March 31, 2016, 65,469 RSU (2015 – 166,349) were granted at $6.25 (2015 – $2.85) per unit to
executives and employees and no RSU was vested. The total share-based compensation expense related to RSU plans
amounted to $592 in 2016 (2015 – $211). As at March 31 2016, the fair value per unit was $7.05 (2015 – $3.52) for a total
amount of $771 (2015 – $205) and was presented in accrued liabilities on the consolidated statements of financial position.
Deferred share unit plan
The Corporation established on June 3, 2015 a deferred share unit plan (“DSU”) that can be granted to directors, officers
and employees as part of their compensation package, which is expected to be settled in cash. The value of the payout is
determined by multiplying the number of DSU vested at the payout date by the fair value of the Corporation’s shares on
the day prior to the payout date. The fair value of the payout is determined at each reporting date based on the fair value
of the Corporation’s shares at the reporting date.
During the year ended March 31, 2016, 52,722 DSU (2015 – nil) were granted at a range of $6.90 to $7.04 to directors.
The total expense related to DSU plans amounted to $371 in 2016 (2015 – nil). As at March 31 2016, the fair value per
unit was $7.05 for a total amount of $371 presented in accrued liabilities on the statements of financial position.
Annual Report 2016 | Stingray Digital Group Inc.
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(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
22. Commitments:
Operating leases
As at March 31, 2016, the balance of the commitments under the terms of the operating leases for premises amounts to
$5,847. Minimum lease payments over the next five years are as follows:
2017
2018
2019
2020
2021
$
2,692
1,801
1,093
192
69
During the year ended March 31, 2016, an amount of $1,068 (2015 – $741) was recognized as an expense in respect of
operating leases, which is included in general and administrative expenses.
Broadcast license
A condition of the broadcast license from the Canadian Radio-Television and Telecommunications Commission (“CRTC”)
requires Canadian pay audio services to draw certain proportions of their programming from Canadian content and, in
most cases, to spend a portion of their revenues on Canadian content development. The Corporation must ensure that (i)
a maximum of one non-Canadian pay audio channel is packaged or linked with each Canadian produced pay audio
channel and in no case subscribers of the pay audio service may be offered a package of pay audio channels in which
foreign-produced channels dominate; (ii) 25% of all Canadian channels, other than those consisting entirely of instrumental
music or of music entirely in languages other than English or French, devote a minimum of 65% of vocal music selections
in the French language each broadcast week; and (iii) a minimum of 35% of the musical selections broadcast, each
broadcast week, on our Canadian-produced pay audio channels, considered together, are Canadian.
Pursuant to the conditions of our National Pay Audio Service Licence, the Corporation is required to contribute each year
a minimum of 4% of our annual Canadian regulated broadcast revenues to encourage Canadian content development in
the following manner: (i) 1% of gross revenues to be devoted to the Foundation Assisting Canadian Talent On Recordings
(“FACTOR”), a non-profit organization dedicated to providing assistance toward the growth and development of the
Canadian music industry; (ii) 1% of gross revenues to be devoted to Musicaction, a non-profit organization dedicated to
the development of local francophone music by offering financial support to projects by independent record labels and
Canadian artists; and (iii) 2% of gross revenues to be devoted to our Stingray Rising Star Program, a program which was
created to discover, encourage, promote and champion new Canadian artists.
During the year ended March 31, 2016, an amount of $382 (2015 – $780) was recognized as an expense in the music
programming, cost of services and content.
Copyright royalties
The Corporation must pay royalties for the use of music for the majority of its music services. Through copyright collective
societies, the Corporation pays royalties to two sets of rights holders: rights holders in music works, which are the music
and the lyrics; and rights holders in artists’ performances and sounds recordings, which are the actual performances and
recordings of the musical works.
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Annual Report 2016 | Stingray Digital Group Inc.
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
23. Use of estimates and judgments:
The preparation of these consolidated financial statements in conformity with International Financial Reporting Standards
(“IFRS”) requires management to make judgments, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these
estimates.
This note provides an overview of the areas that involved a higher degree of judgment or complexity, and of items which
are more likely to be materially adjusted due to estimates and assumptions turning out to be wrong. Detailed information
about each of these estimates and judgments is included in notes 4 to 18 together with information about the basis of
calculation for each affected line item in the consolidated financial statements.
Significant estimates
The areas involving significant estimates are:
• Estimation of current tax payable and current tax expense – note 7
• Recognition of deferred tax asset for carried forward tax losses – note 7
• Estimated fair value of certain investments – note 15
• Estimated goodwill impairment – note 14
• Estimation of fair values of identified assets, liabilities and contingent considerations in business combinations –
note 3 and 18.
Estimates are based on management’s best knowledge of current events and actions that the Corporation may undertake
in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Any revision to accounting
estimates are recognized in the year in which the estimates are revised and in any future years affected by these revisions.
Critical judgments
Critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the
consolidated financial statements include the following:
•
Impairment of non-current assets:
For the purpose of impairment testing of tangible and intangible assets and goodwill, management must use its
judgment to identify the smallest group of assets that generates cash inflows that are largely independent of those
from other assets (“cash generating unit” or ”CGU”).
The amounts used for impairment calculations are based on estimates of future cash flows of the Corporation,
including estimates of future revenues, operating costs, discount rates and market prices. By their nature, these
estimates and assumptions are subject to measurement uncertainty and, consequently, actual results could differ
from estimates used.
Annual Report 2016 | Stingray Digital Group Inc.
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Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
24. Financial instruments:
Fair values
The Corporation has determined that the carrying amount of cash and cash equivalents, trade and other receivables,
accounts payable and accrued liabilities and current other payables excluding the contingent considerations is a
reasonable approximation of their fair value due to the short-term maturity of those instruments. As such, information on
their fair values is not presented below. The fair value of the revolving facility, bridge loan and term loan bearing interest
at variable rates approximate their carrying value as they bear interest at prime or banker’s acceptance rate plus a credit
spread, which approximate current rates that could be obtained for debts with similar terms and credit risk.
The carrying and fair value of financial assets and liabilities, including their level in the fair value hierarchy, consist of the
following:
As at March 31, 2016
Carrying value
Fair value
Level 1
Level 2
Level 3
Financial assets measured at amortized cost
Cash and cash equivalents
Trade and other receivables
$
3,201
27,456
Financial assets measured at fair value
Investments
Financial liabilities measured at amortized
cost
Revolving facility
Account payable and accrued liabilities
Other payables other than contingent
considerations
Financial liabilities measured at fair value
Contingent considerations
$
16,943
$
16,943 $
– $
– $ 16,943
$
35,035
24,963
4,354
4,354
–
–
4,354
$
12,347
$
12,347 $
– $
– $ 12,347
As at March 31, 2015
Carrying value
Fair value
Level 1
Level 2
Level 3
Financial assets measured at amortized cost
Cash and cash equivalents
Trade and other receivables
$
1,314
17,494
Financial assets measured at fair value
Investments
Financial liabilities measured at amortized
cost
Revolving facility
Accounts payable and accrued liabilities
Bridge loan
Other payables other than contingent
considerations
Term loan
Financial liabilities measured at fair value
Contingent considerations
Derivative financial instruments
$
7,933
$
7,933 $
– $
– $
7,933
$
7,902
16,645
20,000
488
80,835
488
–
–
488
$
12,409
110
$
12,409 $
110
– $
–
– $ 12,409
–
110
74
Annual Report 2016 | Stingray Digital Group Inc.
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
Fair value measurement (Level 2 and 3):
Year ended March 31, 2015
Opening amount as at March 31, 2014
Additions through business acquisitions
Change in fair value
Payments
Closing amount as at March 31, 2015
Year ended March 31, 2016
Opening amount as at March 31, 2015
Additions through business acquisitions
Additions during the year
Change in fair value
Payments
Closing amount as at March 31, 2016
Investments
Derivative
instrument
Contingent
considerations
$
$
6,132
–
1,801
–
7,933
$
$
182
–
(72)
–
110
$
$
6,234
6,644
487
(956)
12,409
Investments
Derivative
instrument
Contingent
considerations
$
$
7,933
–
1,665
7,345
–
16,943
$
$
110
–
–
(107)
(3)
–
$
$
12,409
6,852
–
(2,063)
(4,851)
12,347
There were no changes in the valuation techniques for the derivative instrument and contingent considerations during the
years ended March 31, 2016 and 2015.
Investments
Equity instrument in a private entity
The fair value of the equity instrument in a private entity, AppDirect, was estimated using the market approach.
For the year ended March 31, 2016, the fair value has been measured by using the latest market transaction stock issue
price, minus a liquidity discount of 25%. The liquidity discount was used to reflect the marketability of the asset. In
measuring fair value, management used the best information available in the circumstances and also an approach that it
believes market participants would use. There has been a change in valuation techniques used as the Corporation believes
it better reflects fair value.
For the year ended March 31, 2016, the equity instrument in a private entity is classified as a financial asset at fair value
through profit and loss. A change of 5.0% in the liquidity discount would have increased / decreased the fair value of the
investment by approximately $1,043 during the year ended March 31, 2016.
For the year ended March 31, 2015, the valuation technique included an allocation of the value of the underlying categories
of shares, which involved calibrating the Black-Scholes option pricing model to the latest market transaction stock issue
price. This fair value was estimated by using the Black-Scholes option pricing model with the following assumptions:
Volatility
Risk-free interest rate
Period
Dividend yield
2015
60.0%
0.5%
2 years
–
Annual Report 2016 | Stingray Digital Group Inc.
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Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
For the year ended March 31, 2015, the equity instrument in a private entity is classified as a financial asset at fair value
through profit and loss. A change of 5.0% in the value per common share would have increased / decreased the fair value
of the investment by approximately $317 during the year ended March 31, 2015.
Convertible note
The convertible note has two components of value – a conventional note and an option on the equity of Multi Channels
Asia PTE Ltd. (“MCA”) through conversion. Based on its terms, the conversion option and the convertible note, together
the hybrid contract, have been assessed as a whole for classification. The hybrid contract has been recognized at fair
value on initial recognition and was classified as at fair value through profit or loss. The fair value of the option component
has been measured using the Black-Scholes model with the latest market transaction stock issue price.
The fair value of the option component was estimated by using the Black-Scholes model with the following assumptions:
Volatility
Risk-free interest rate
Period
Dividend yield
2016
40.0%
1.69%
5 years
–
The fair value was calculated as the present value of the future cash flows based on risk-adjusted discount rate.
A change of 5.0% in the common share price would have increased / decreased the fair value of the investment by
approximately $10 during the year ended March 31, 2016.
Contingent considerations
The contingent considerations related to business combinations are payable based on the achievement of targets for
growth in revenues for a period from the date of the acquisition and upon renewal of client contract. The fair value
measurement of the contingent consideration is determined using unobservable (Level 3) inputs. These inputs include (i)
the estimated amount and timing of projected cash flows; and (ii) the risk-adjusted discount rate used to present the value
of the cash flows, which is based on the risk associated with the revenue targets being met. If projected cash flows were
10 % higher or lower, the fair value would have increased / decreased by $3,319. A discount rate ranging from 5% to 15%
has been applied and considers time value of money. A change in the discount rate by 100 basis points would have
increased / decreased the fair value by $111. The contingent consideration is classified as a financial liability and is
included in other payables (note 18). The change in fair value is recognized in net finance expenses (note 6).
Derivative
The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on
observable yield curves. The derivative is classified as a financial liability at fair value through profit and loss. The change
in fair value is recognized in net finance expenses (note 6).
76
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Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
Credit risk
Credit risk is the risk of an unexpected financial loss to the Corporation if a customer or counterparty to a financial
instrument fails to meet contractual obligations, and it arises primarily from the Corporation's trade and other receivables.
The Corporation’s credit risk is principally attributable to its trade receivables. The amounts presented in the consolidated
statements of financial position are net of an allowance for doubtful accounts, estimated by the Corporation’s management
and based, in part, on the age of the specific receivable balance and the current and expected collection trends. The
Corporation's exposure to credit risk is mainly influenced by the characteristics of each customer. The demographics of
the Corporation's customer base, including the default risk of the industry and country in which the customer operates,
have less of an influence on the credit risk. Generally, the Corporation does not require collateral or other security from
customers for trade account receivable; however, credit is extended following an evaluation of creditworthiness. In addition,
the Corporation performs ongoing credit reviews of its customers and establishes an allowance for doubtful accounts when
the likelihood of collecting the account has significantly diminished. The Corporation believes that the credit risk of trade
accounts receivable is limited.
The aging of trade receivable balances and the allowance for doubtful accounts as at March 31, 2016 and March 31, 2015
were as follows:
Current
Past due 0-30 days
Past due 31-60 days
Past due 61-90 days
Past due more than 90 days
Total trade receivables
Less : allowance for doubtful account
2016
11,089
5,537
1,253
1,261
6,656
25,796
349
25,447
$
$
The movement in allowance for doubtful accounts in respect to trade receivables was as follows:
Balance, beginning of year
Bad debt expenses
Write-off against reserve
Balance, end of year
2016
452
228
(331)
349
$
$
2015
2,761
5,698
3,133
1,975
3,264
16,831
452
16,379
2015
194
447
(189)
452
$
$
$
$
The Corporation also has credit risk relating to cash and cash equivalents, other receivables, investment in a convertible
note and derivatives financial instruments. The Corporation manages its risk by investing only in sound financial
institutions.
The carrying amounts of financial assets in the consolidated statements of financial position represent the Corporation's
maximum credit exposure.
Annual Report 2016 | Stingray Digital Group Inc.
77
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
Liquidity risk
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they become due. The
Corporation also manages liquidity risk by continuously monitoring actual and budgeted cash flows under both normal and
stressed conditions. Also, the Board of Directors reviews and approves the Corporation’s operating and capital budgets,
as well as any material transactions out of the ordinary course of business, including proposals on mergers, acquisitions
or other major investments or divestitures.
The following are the contractual maturities of financial liabilities including estimated interest payments as at March 31,
2015:
Revolving facility
Accounts payables and
accrued liabilities
Other payables
Market risk
Total carrying
amount
Contractual
cash flows
Less than 1
year
1 to 5 years
More than 5
years
$
35,035
$
35,035
$
–
$
30,035
$
–
$
25,819
16,701
25,819
16,701
$
25,819
8,006
$
$
–
6,443
$
–
2,252
Market risk is the risk that the changes in market prices, such as foreign exchange rates, interest rates and equity prices,
will affect the Corporation's earnings or the value of its holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposure within acceptable parameters, while optimizing the return on
risk.
Currency risk
The Corporation is exposed to currency risk on sales and expenses that are denominated in currencies other than the
functional currency of the Corporation subsidiaries, primarily the US dollar (“USD”), the Australian dollar (“AUD”) and the
euro (“EURO”). Also, additional earnings variability arises from the translation of monetary assets and liabilities
denominated in currencies other than the functional currency of the Corporation subsidiaries at the rate of exchange at
each balance sheet date, the impact of which is reported as a foreign exchange gain or loss in the consolidated statements
of comprehensive income.
The Corporation's objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash
flows, by transacting with third parties in the above currencies to the maximum extent possible and practical, given that
this will act as natural economic hedges for each of these currencies.
The Corporation's exposure to currency risk on its consolidated financial statements was as follows:
March 31, 2016
USD
AUD
EURO
March 31, 2015
USD
EURO
Cash and cash equivalents
Accounts receivable
Income tax receivable (payable)
Investments
Investments in joint venture
Credit facility
Accounts payable and accrued liabilities
Contingent considerations
Net balance exposure
Equivalent in Canadian dollars
313
8,368
201
13,046
–
(4,450)
(3,929)
(438)
13,111
17,027
–
–
–
–
–
–
(34)
(4,002)
(4,036)
(4,019)
1,006
1,960
(50)
–
85
–
(1,349)
(2,765)
(1,113)
(1,644)
206
6,043
–
6,340
–
(700)
(2,580)
(3,844)
5,465
6,922
375
1,150
–
–
94
–
(1,640)
(1,267)
(1,288)
(1,754)
78
Annual Report 2016 | Stingray Digital Group Inc.
Notes to Consolidated Financial Statements
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
The following exchange rates are those applicable to the following periods and dates:
USD per CAD
AUD per CAD
EURO per CAD
2016
2015
Average
Reporting
Average
Reporting
1.3210
0.9922
1.4721
1.2987
0.9957
1.4775
1.1362
–
1.4383
1.2666
–
1.3615
Based on the Corporation’s foreign currency exposures noted above, varying the above foreign exchange rates to reflect
a 5% strengthening of the US dollar, AUD dollar and EURO would have increased the net income and reduced the deficit
as follows, assuming that all other variables remained constant:
Increase in net income
622
(147)
(60)
253
(64)
March 31, 2016
USD
AUD
EURO
March 31, 2015
USD
EURO
An assumed 5% weakening of the foreign currency would have had an equal but opposite effect on the basis that all other
variables remained constant.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in
market interest rates. The Corporation's interest rate risk is primarily related to the Corporation's operating revolving facility
bearing interest at variable rate.
The Corporation holds the majority of its cash and cash equivalents balance in accounts bearing interest at rates less than
1.25%. The Corporation is, therefore, not materially exposed to future cash flow fluctuations coming from changes in
market interest rates for its cash and cash equivalents. Cash equivalents consist of term deposits with maturity of less
than three months and are therefore also exposed to interest rate risk on fair value. However, fair value risk is not
significant, considering the relatively short period to maturity of these instruments.
The revolving facility is a variable interest rate instrument that is due in more than one year. This instrument is exposed to
changes in future interest rates that could result in future cash flow fluctuations.
As at the reporting date, the interest rate profile of the Corporation's interest-bearing financial liabilities consists of the
revolving facility, which had a carrying amount of $35,035 and bears interest at a variable rate.
A change of 100 basis points in the interest rate on variable rate instruments would have increased / decreased the deficit
and decreased the net income by approximately $149 (2015 – $795) during the year. This analysis assumes that all other
variables, in particular foreign currency rates, remained constant.
Annual Report 2016 | Stingray Digital Group Inc.
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Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
25. Capital management:
The Corporation’s objectives when managing capital are as follows:
Pursue its growth strategy through acquisitions and organic growth by maintaining financial flexibility; and
Provide the Corporation’s shareholders with an appropriate return on their investment.
For capital management, the Corporation has defined its capital as the combination of net debt and total equity.
Total managed capital is as follows:
Term loan, including current portion
Contingent considerations, including current portion
Bridge loan
Revolving facility
Cash and cash equivalents
Net debt including contingent considerations
Total equity
$
2016
–
12,347
–
35,035
(3,201)
44,181
90,394
$
2015
80,835
12,409
20,000
7,902
(1,314)
119,832
(17,842)
$
134,575
$
101,990
The Corporation’s financing strategy is to maintain a flexible structure, to respond adequately to the changes in economic
conditions and to allow growth through business acquisitions. The Corporation monitors its capital structure using the net
debt to adjusted EBITDA ratio.
In order to maintain or adjust the capital structure, the Corporation may adjust the amount of dividends paid to shareholders
of the Corporation, issue or repay debt, issue shares or undertake any other activities as deemed appropriate under the
specific circumstances, on a quarterly basis.
26. Related parties:
The key management personnel of the Corporation are the Chief Executive Officer, Chief Financial Officer and other key
employees of the Corporation.
Key management personnel compensation, prior shareholder’s management fees and director’s fees, are as follows:
Short-term employee benefits
Management fees
Share-based compensation
Restricted share unit
Deferred share unit
2016
2,927
–
976
178
371
4,452
$
$
2015
1,918
315
423
50
–
2,706
$
$
80
Annual Report 2016 | Stingray Digital Group Inc.
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
27. Basis of preparation:
a) Statement of compliance:
The consolidated financial statements of the Corporation have been prepared in accordance with IFRS as issued by
the International Accounting Standards Board (''IASB'').
The consolidated financial statements were authorized for issue by the Board of Directors on June 15, 2016.
b) Basis of measurement:
The consolidated financial statements have been prepared on the historical cost basis, except for the following:
• Contingent considerations payable which are measured at fair value at each reporting period in accordance with
IFRS 3;
• Investments measured at fair value at year-end in accordance with IFRS 9;
• Derivatives measured at fair value at year-end end in accordance with IFRS 9;
• Liabilities related to deferred share unit plan and restricted share unit measured at fair value at year-end in
accordance with IFRS 2; and
• Equity stock options which are measured at fair value at date of grant pursuant to IFRS 2.
c) Foreign currency translation
(i) Functional and presentation currency:
Items included in the financial statements of each of the subsidiaries are measured using the currency of the
primary economic environment in which the subsidiary operates (‘the functional currency’). The consolidated
financial statements are presented in Canadian dollars, which is the Corporation’s functional and presentation
currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand.
(ii) Transactions and balances:
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of
the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from
the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates
are recognized in profit or loss. Translation differences on assets and liabilities carried at fair value are reported
as part of the fair value gain or loss. Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rate at the date of the transaction. Foreign currency gains and losses
are reported on a net basis.
(iii) Subsidiaries:
The results and financial position of foreign operations (none of which has the currency of a hyperinflationary
economy) that have a functional currency different from the presentation currency are translated into the
presentation currency as follows:
• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that
balance sheet;
• income and expenses for each statement of profit or loss and statement of comprehensive income are
translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect
of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates
of the transactions); and
Annual Report 2016 | Stingray Digital Group Inc.
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Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
• all resulting exchange differences are recognized in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and
liabilities of the foreign operation and translated at the closing rate.
28. Significant accounting policies:
The accounting policies set out below have been applied consistently to all years presented in these consolidated financial
statements and have been applied consistently by the Corporation’s subsidiaries.
(a) Basis of consolidation:
Business combinations
The Corporation measures goodwill as the fair value of the consideration transferred which includes the fair value of
contingent consideration, less the net recognized amount (generally fair value) of the identifiable assets acquired and
liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is
recognized immediately in profit or loss.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Corporation incurs
in connection with a business combination are expensed as incurred.
Subsidiaries
Subsidiaries are entities controlled by the Corporation. The Corporation controls an entity when it is exposed to, or
has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its
power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that control ceases.
These consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries,
Stingray Music USA Inc., Stingray Music Rights Management LLC, 2144286 Ontario Inc., Pay Audio Services Limited
Partnership, Stingray Business Inc., Music Choice Europe Limited, Stage One Innovations Ltd., Stingray Digital
International Ltd., Music Choice India Private Ltd., Music Choice Europe Deutschland GmbH, Xtra Music Ltd.,
2Connect Media BV, Alexander Medien Gruppe BV, Les Réseaux Urbains Viva Inc., Brava HDTV B.V., Brava NL
B.V., DJazz B.V., Transmedia Communications SA and its wholly-owned subsidiaries, Digital Music Distribution Pty
Ltd. and 9076-3392 Québec Inc. (doing business as Nümédia).
Interest in joint venture
A joint venture is an arrangement whereby the Corporation and other parties that have joint control of the arrangement
have rights to the net assets of the arrangement.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions,
are eliminated in preparing the consolidated financial statements.
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Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
(b) Financial instruments:
(i) Financial assets and financial liabilities:
The Corporation initially recognizes financial assets on the trade date at which the Corporation becomes a party
to the contractual provisions of the instrument.
On initial recognition, the Corporation classifies its financial assets as subsequently measured at either amortized
cost or fair value, depending on its business model for managing the financial assets and the contractual cash
flow characteristics of the financial assets. If the financial asset is not subsequently accounted for at fair value
through profit or loss, then the initial measurement includes transaction costs that are directly attributable to the
asset’s acquisition or origination.
Financial assets measured at amortized cost
A financial asset is measured at amortized cost if both of the following conditions are met and is not designated
as at fair value through profit and loss:
• The asset is held within a business model whose objective is to hold the asset in order to collect contractual
cash flows.
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.
The Corporation currently classifies its cash and cash equivalents and trade and other receivables as financial
assets measured at amortized cost.
Financial assets measured at fair value
All equity investments and other financial assets that do not meet the conditions to be classified as financial
assets measured at amortized cost are measured at fair value through profit and loss.
Changes therein, including any interest or dividend income, are recognized in profit or loss.
The Corporation’s investments are classified as financial asset measured at fair value through profit and loss.
The Corporation derecognizes a financial asset when the contractual rights to the cash flows from the asset
expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of
the risks and rewards of ownership of the financial asset are transferred, or it neither transfers not retains
substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any
interest in such derecognized financial assets that is created or retained by the Corporation is recognized as a
separate asset or liability.
Financial liabilities
The Corporation initially recognizes debt securities issued and subordinated liabilities on the date that they are
originated. All other financial liabilities are recognized initially on the trade date at which the Corporation becomes
a party to the contractual provisions of the instruments.
Financial liabilities are initially measured at fair value. If the financial liabilities is not subsequently accounted for
at fair value through profit or loss, then the initial measurement includes directly attributable transaction costs.
The Corporation classifies all financial liabilities at amortized cost using the effective interest method, except for
contingent considerations recorded at fair value through profit and loss and financial liabilities designated at fair
Annual Report 2016 | Stingray Digital Group Inc.
83
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Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
value through profit or loss when doing so results in more relevant information. Such liabilities, including
derivatives that are liabilities, shall be subsequently measured at fair value.
The Corporation derecognizes a financial liability when its contractual obligations are discharged or cancelled or
expire.
Financial assets and liabilities are offset and the net amount presented in the consolidated statements of financial
position when, and only when, the Corporation has a legal right to offset the amounts and intends either to settle
on a net basis or to realize the asset and settle the liability simultaneously.
(ii)
Impairment of financial assets:
At the end of each reporting year, the Corporation assesses whether there is any objective evidence that a
financial asset or group of financial assets is impaired. Objective evidence that financial assets are impaired can
include default or delinquency by a debtor, restructuring of an amount due to the Corporation on terms that the
Corporation would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, or the
disappearance of an active market for a security.
With respect to certain categories of financial assets, such as trade and other receivables, assets that are not
individually determined to be impaired are measured for impairment on an aggregate basis. Objective evidence
of impairment in the trade and other receivables portfolio may include the Corporation's past experience with debt
recovery, an increased number of days exceeding payment terms in the portfolio, as well as a change -
internationally or nationally - in economic conditions correlating with default payments in trade and other
receivables.
If there is objective evidence that an impairment loss on loans and receivables has been incurred, the amount of
the loss is measured as the difference between the asset's carrying amount and the present value of estimated
future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's
original effective interest rate (i.e. the effective interest rate computed at initial recognition). The amount of the
loss is recognized in profit or loss.
If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognized (such as an improvement in the debtor's credit rating),
the previously recognized impairment loss is reversed. The reversal is recognized to the extent of the
improvement without exceeding what the amortized cost would have been had the impairment not been
recognized at the date the impairment is reversed. The amount of the reversal is recognized in profit or loss.
(iii) Share capital:
Common shares, subordinate voting shares, variable voting shares and multiple voting shares are classified as
equity. Incremental costs that are directly attributable to their issuance are recognized in reduction of equity, net
of tax effects.
(iv) Other equity instruments:
Warrants issued outside of share-based payment transactions that do not meet the definition of a derivative
financial instrument are recognized initially at fair value in equity. Upon simultaneous issuance of multiple equity
instruments, consideration received, net of issue costs, is allocated based on their relative fair values. Equity
instruments are not subsequently remeasured.
84
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Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
(v) Derivatives and other non-trading derivatives:
From time to time, the Corporation holds derivative financial instruments to reduce its interest rate risks. The
Corporation does not hold or use derivative financial instruments for speculation purposes. Derivatives are
recognized initially at fair value and any transaction costs are recognized in profit or loss as incurred. Subsequent
to initial recognition, derivatives are measured at fair value and all changes in their fair value are recognized
immediately in profit or loss.
(c) Revenue recognition:
The Corporation derives revenue primarily from rendering of services, sales of on-demand products, media solutions
projects and other revenues. Revenue is measured at the fair value of the consideration received or receivable. The
Corporation recognizes revenues when the services are rendered and collectability is reasonably assured, persuasive
evidence of an arrangement exists and the sales price is fixed or determinable.
Rendering of services
Rendering of services primarily relates to continuous music and video distribution in a form of subscription fees on a
monthly, quarterly or annual basis. The Corporation recognizes revenues from rendering of services when the services
are rendered. The Corporation records deferred revenues when customers pay their subscription fees in advance.
On-demand products
On-demand products relate primarily to music and concert services online or through TV subscriptions. Revenues are
recognized in the year in which the services are rendered.
Media solutions projects
Revenue for media solutions projects relates to long-term media projects. Revenues are recognized using the
percentage of completion method, which is calculated on the ratio of contract costs incurred to anticipated costs. The
effect of revisions of estimated revenues and costs is recorded when the amounts are known and can be reasonably
estimated. Where contract costs exceed total contract revenues, the expected loss is recognized as an expense
immediately via a provision for losses to completion, irrespective of the stage of completion.
Other revenues
Other revenues relate primarily to sales of equipment, support and installation services. Revenues are recognized in
the period in which the sales of goods occur and services are rendered.
(d) Research and development:
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and
understanding, is recognized in profit or loss as incurred. Development costs are charged to profit or loss, unless they
meet specific criteria related to technical, market and financial feasibility in order to be capitalized. Deferred
development costs, net of government assistance, are amortized starting from the date the products and services are
commercialized.
(e) Government grants:
Investment tax credits are accounted for as a reduction of the research and development costs during the year in
which the costs are incurred, provided that there is reasonable assurance that the Corporation has met the
requirements of the approved grant program and there is reasonable assurance that the grant will be received.
The investment tax credits must be reviewed and approved by the tax authorities and it is possible that the amounts
granted will differ from the amounts recorded.
Annual Report 2016 | Stingray Digital Group Inc.
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(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
(f) Lease assets and payments:
Operating leases are not recognized in the Corporation’s consolidated statements of financial position. Payments
made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease
incentives received are recognized as an integral part of the total lease expense, over the term of the lease. Contingent
lease payments are accounted for in the year in which they are incurred.
(g) Finance income and finance costs:
Finance income comprises interest income on funds invested, change in fair value of derivatives and contingent
considerations. Interest income is recognized as it accrues in profit or loss, using the effective interest method.
Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, change in fair value
of derivatives and contingent considerations, amortization of deferred financing costs, foreign exchange (gain) loss
and impairment losses recognized on financial assets.
The Corporation recognizes finance income and finance costs as a component of operating activities in the
consolidated statements of cash flows.
(h) Income taxes:
Income tax expense comprises current and deferred taxes. Current and deferred taxes are recognized in profit or loss
except to the extent that they relate to a business combination, or items recognized directly in equity or in other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for the following temporary differences:
•
•
•
temporary difference on the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit or loss;
temporary differences relating to investments in subsidiaries, associates and joint arrangements to the extent that
the Corporation is able to control the timing of the reversal of the temporary difference and it is probable that they
will not reverse in the foreseeable future; and
taxable temporary differences arising on the initial recognition of goodwill.
A deferred tax asset is recognized for unused tax losses, unused tax credits and deductible temporary differences to
the extent that it is probable that future taxable profit will be available against which they can be used. Deferred tax
assets are measured at the end of each reporting year and their carrying amount is reduced to the extent that it is no
longer probable that a taxable profit will be realized.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse,
based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and
assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different
tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities
will be realized simultaneously.
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(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
(i) Earnings per share:
Basic earnings per share are computed by dividing net earnings by the weighted average number of common shares
outstanding during the year. Diluted earnings per share are computed using the weighted average number of common
shares, subordinate voting shares, variable subordinated voting shares and multiple voting shares outstanding during
the year adjusted to include the dilutive impact of stock options, restricted share units and deferred share units. The
number of additional shares is calculated by assuming that all instruments with a dilutive effect are exercised and that
the proceeds from such exercises, as well as the amount of unrecognized share-based compensation which is
considered to be assumed proceeds, are used to repurchase subordinate voting shares, variable subordinated voting
shares and multiple voting shares at the average share price for the year. For restricted share units, only the
unrecognized share-based compensation is considered assumed proceeds since there is no exercise price paid by
the holder.
(j) Cash and cash equivalents:
Cash and cash equivalents consist of cash on hand and balances with banks.
(k) Inventories:
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-
in, first-out cost method.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated selling
expenses.
(l) Property and equipment:
Recognition and measurement
Items of property and equipment are recognized at cost less accumulated depreciation and accumulated impairment
losses. Cost includes expenditure that is directly attributable to the acquisition of the asset and the costs of dismantling
and removing the item and restoring the site on which it is located, if any.
When parts of an item of property and equipment have different useful lives, they are accounted for as separate items
(major components).
Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from
disposal with the carrying amount and are recognized in net profit (loss).
Subsequent costs
The cost of replacing a part of an item of property and equipment is recognized in the carrying amount of the item if it
is probable that the future economic benefits embodied within the part will flow to the Corporation, and its cost can be
measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing
of property and equipment are recognized in profit (loss) as incurred.
Depreciation
Depreciation is calculated over the cost of the asset less its residual value and is recognized in profit or loss on a
straight-line basis over the estimated useful lives of each part of an item of property and equipment, since this most
closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased
assets are depreciated over the shorter of the lease term and their useful lives, unless it is reasonably certain that the
Corporation will obtain ownership by the end of the lease term.
Annual Report 2016 | Stingray Digital Group Inc.
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(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
The estimated useful lives for the current and comparative years are as follows:
Property and equipment
Furniture, fixtures and equipment
Computer hardware
Leasehold improvements
Period
3 to 5 years
3 years
Lease term or 3 years
Estimates for depreciation methods, useful lives and residual values are reviewed at each reporting year-end and
adjusted if appropriate.
(m) Intangible assets:
Intangible assets that are acquired by the Corporation and have finite useful lives are measured at cost less
accumulated amortization and any accumulated impairment losses.
The fair value of non-compete agreements acquired in a business combination are based on the discounted estimated
revenues losses that have been avoided as a result of the non-compete being signed. The fair value of client list and
relationships acquired in a business combination is determined using the multi-period excess earnings method,
whereby the subject asset is valued after deducting a fair return on all other assets that are part of creating the related
cash flows. The fair value of music catalog acquired in a business combination is determined using the estimated
costs for creating such music catalog. The fair value of trademark acquired in a business combination is based on the
discounted estimated future royalty payments that have been avoided.
Amortization
Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of the definite life
intangible assets.
The estimated useful lives for the current and comparative years are as follows:
Intangible
Music catalog
Client list and relationships
Trademarks
Licenses, website applications and computer software
Non-compete agreements
Period
5 to15 years
3 to 14 years
2 to 20 years
1 to 5 years
2 to 10 years
Estimates for depreciation methods, useful lives and residual values are reviewed at each reporting year-end and
adjusted if appropriate.
(n) Goodwill:
Goodwill arising on the acquisition of businesses is measured at cost less accumulated impairment losses.
Goodwill is not amortized but is subject to an impairment evaluation.
(o) Impairment of non-financial assets:
The Corporation reviews the carrying amount of its non-financial assets, which include intangible assets with a finite
useful life and property and equipment on each reporting date in order to determine if specific events or changes in
circumstances indicate that their carrying amounts may not be recoverable. The recoverable amount of goodwill is
tested for impairment each year at the same date, or more frequently if indications of impairment exist.
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(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
For impairment testing purposes, assets that cannot be tested individually are grouped in the CGU. Goodwill is
allocated to the CGU or CGU group that is expected to benefit from the synergies resulting from the business
combination. Each unit or group of units to which goodwill is allocated shall not be larger than an operating segment
and represents the lowest level at which goodwill is monitored for internal management purposes.
An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable amount. The
recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. Impairment losses are
recognized in profit or loss. Impairment losses are first allocated to reduce the carrying amount of goodwill allocated
to the CGU, and then to reduce the carrying amount of the other assets of the CGU on a pro rata basis.
(p) Provisions:
A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation
that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific to the liability. The unwinding of the
discount is recognized as finance cost.
Contingent liability
A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed
only by the occurrence or non-occurrence of one or more uncertain future events not within the control of the
Corporation; or a present obligation that arises from past events (and therefore exists), but is not recognized because
it is not probable that a transfer or use of assets, provision of services or any other transfer of economic benefits will
be required to settle the obligation, or the amount of the obligation cannot be estimated reliably.
(q) Employee benefits:
(i) Short-term employee benefits
Short-term employee benefits are expensed as the related service is provided.
A liability is recognized for the amount expected to be paid if the Corporation has a present legal or constructive
obligation to pay this amount as a result of past service provided by the employee, and the obligation can be
estimated reliably.
(ii) Defined contribution plan
The Corporation pays contributions under a defined contribution plan for employees of one of its subsidiaries.
Obligations for contributions to defined contribution plans are expensed as the related service is provided.
The obligation under this plan is expensed when the services are rendered by the employees.
(iii) Defined benefit plans
The Corporation’s net obligation in respect of defined benefit plan is calculated by estimating the amount of future
benefit that employees have earned in the current and prior years, discounting that amount and deducting the
fair value of any plan assets.
The calculation of defined benefit obligation is performed annually by a qualified actuary using the projected unit
credit method. When the calculation results in a potential asset for the Corporation, the recognized asset is limited
to the present value of economic benefits available in the form of any future refunds from the plan or reductions
in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to
any applicable minimum funding requirements.
Annual Report 2016 | Stingray Digital Group Inc.
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(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
Remeasurement of the net defined benefit liability, which comprises actuarial gains and losses, the return on plan
assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized
immediately in other comprehensive income. The Corporation determines the net interest expense (income) on
the net defined benefit obligation at the beginning of the year to the net defined benefit liability (asset), taking into
account any changes in the net defined benefit liability (asset) during the year as a result of contributions and
benefits payments. Net interest expense and other expenses related to defined benefit plans are recognized in
profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates
to past services or the gain or loss on curtailment is recognized immediately in profit or loss. The Corporation
recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.
(iv) Stock option plan
The fair value at the grant date of equity settled share-based payment awards granted to management and key
employees of the Corporation is recognized as an employee benefit expense, with a corresponding increase in
equity, over the vesting period of the awards. The amount expensed is adjusted to reflect the number of awards
for which it is expected that the service conditions will be met, so that the amount ultimately expensed will depend
on the number of awards that meet the service conditions at the vesting date.
(v) Restricted share units and deferred share units plans
Restricted share units (“RSU”) and deferred share units (“DSU”) expected to be settled in cash are accounted for
as cash settled awards, with the recognized compensation cost included in accounts payable and accrued
liabilities. Compensation cost is initially measured at fair value at the grant date and is recognized in net income
over the vesting year. The liability is remeasured based on the fair value price of the Corporation’s common
shares, at each reporting date. Remeasurements during the vesting year are recognized immediately to net
income to the extent that they relate to past services and amortized over the remaining vesting year to the extent
that they relate to future services. The cumulative compensation cost that will ultimately be recognized is the fair
value of the Corporation’s shares at the settlement date.
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(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
29. New and amended standards not yet adopted by the Corporation:
IFRS 9 - Financial instruments
In July 2014, the IASB released the final version of IFRS 9 - Financial Instruments (IFRS 2014). (“IFRS 9 (2014)”) presents
a few differences with IFRS 9 (2009) and IFRS 9 (2010), early adopted by the Corporation on April 1, 2012, with respect
to the classification and measurement of financial assets and accounting of financial liabilities. IFRS 9 (2014) also includes
a new expected credit loss model for calculating impairment on financial assets and a new general hedge accounting
requirements. The standard is effective for annual periods beginning on or after January 1, 2018, with earlier application
permitted. The Corporation does not intend to early adopt IFRS 9 (2014). The Corporation is currently evaluating the
impact of the standard on its consolidated financial statements.
IFRS 15 - Revenue recognition
In May 2014, the IASB issued IFRS 15 - Revenue from Contracts with Customers. IFRS 15 replaces all previous revenue
recognition standards, including IAS 18 - Revenue and related interpretations such as IFRIC 13 - Customer Loyalty
Programs. The standard sets out the requirements for recognizing revenue. Specifically, the new standard introduces a
comprehensive framework with the general principle being that an entity recognizes revenue to depict the transfer of
promised goods and services in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. The standard introduces more prescriptive guidance than was included in previous
standards and may result in changes in classification and disclosure in addition to changes in the timing of recognition for
certain types of revenues. The new standard is effective for annual periods beginning on or after January 1, 2018 with
early adoption permitted. The Corporation is currently evaluating the impact that this standard will have on its consolidated
financial statements. The Corporation does not intend to early adopt the standard.
IAS 1 - Presentation of financial statements
On December 18, 2014, the IASB issued amendments to IAS 1 - Presentation of financial statements as part of its major
initiative to improve presentation and disclosure in financial reports. These amendments will not require any significant
change to current practice, but should facilitate improved financial statement disclosures. The Corporation intends to adopt
these amendments in its consolidated financial statements for the annual period beginning on April 1, 2016. The
Corporation does not expect the amendments to have a material impact on the consolidated financial statements.
IAS 16 – Property, Plant and Equipment
On May 12, 2014, the IASB issued amendments to IAS 16 - Property, Plant and Equipment and IAS 38 - Intangible Assets.
The amendments made to IAS 16 explicitly state that revenue-based methods of depreciation cannot be used for property,
plant and equipment. This is because such methods reflect factors other than the consumption of economic benefits
embodied in the asset. The amendments in IAS 38 introduce a rebuttable presumption that the use of revenue-based
amortization methods for intangible assets is inappropriate. This presumption could be overcome only when revenue and
consumption of the economic benefits of the intangible asset are highly correlated or when the intangible asset is
expressed as a measure of revenue. The amendments apply prospectively for annual periods beginning on or after
January 1, 2016 with early adoption permitted. The Corporation intends to adopt the amendments to IAS 16 and IAS 38
in its consolidated financial statements for the annual period beginning on April 1, 2016. The Corporation does not expect
the amendments to have a material impact on the consolidated financial statements.
Annual Report 2016 | Stingray Digital Group Inc.
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(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Years ended March 31, 2016 and 2015
(In thousands of Canadian dollars, unless otherwise stated)
IAS 7 – Disclosure Initiative
On January 7, 2016, the IASB issued amendments to IAS 7– Disclosure Initiative. The amendments require disclosures
that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both
changes arising from cash flows and non-cash changes. One way to meet this new disclosure requirement is to provide a
reconciliation between the opening and closing balances for liabilities from financing activities. The Corporation intends to
adopt the amendments to IAS 7 in its consolidated financial statements for the annual period beginning on April 1, 2017.
The extent of the impact of adoption of the amendments has not yet been determined.
IFRS 16 – Leases
On January 13, 2016, the IASB issued IFRS 16 - Leases. This new standard is effective for annual periods beginning on
or after January 1, 2019. Earlier application is permitted for entities that apply IFRS 15 - Revenue from Contracts with
Customers at or before the date of initial adoption of IFRS 16. IFRS 16 will replace IAS 17 - Leases. This standard
introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a
term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use
asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease
payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring
enhanced disclosures to be provided by lessors. Other areas of the lease accounting model have been impacted, including
the definition of a lease. Transitional provisions have been provided. The Corporation intends to adopt IFRS 16 in its
consolidated financial statements for the annual period beginning on April 1, 2019. The extent of the impact of adoption of
the standard has not yet been determined.
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BOARD OF DIRECTORS
Eric Boyko
Claudine Blondin
L. Jacques Ménard
Jacques Parisien
Mark Pathy
Gary S. Rich
François-Charles Sirois
Robert G. Steele
Pascal Tremblay
SHAREHOLDER INFORMATION
Exchange Listing
Investor Relations
General Meeting
TSX: Ray.A; Ray.B
Transfer Agent
CST Trust Company
1-416-682-3860
1-800-387-0825
Inquiries@canstockta.com
canstockta.com
730, Wellington Street
Montreal, Quebec H3C 1T4
Investors@stingray.com
Wednesday, August 3, 2016
Montreal Science Centre
2 de la Commune St. West
Montreal, QC H2X 4B2
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