2019
ANNUAL
REPORT
FISCAL 2019
Year Ended March 31, 2019 | Stingray Group Inc.
2
Annual Report 2019 | Stingray Group Inc. TABLE OF
CONTENT
04 Word from the CEO
06 Word from the Chairman
09 Management’s Discussion and Analysis
10 Company Profile
12 SVOD Success
14 B2C Mobile Apps
16 Numeris Radio
17 Numeris Pay Audio
19 Current Company Goals
20 Proven Acquisition Strategy
23 Competitive Strengths
24 Key Business Risks
26 Executive Officers
27 Non-Executive Directors
51 Consolidated Financial Statements
Glossary of Terms
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Annual Report 2019 | Stingray Group Inc.
WORD FROM
THE CEO
Dear investors, partners, clients, and colleagues,
If there’s one word that I would use to describe the past year, it’s “transformative.”
Transformation has always dictated our business strategy, approach to client service,
and vision for our present and future, but never more so than in 2018.
We achieved more in the past 12 months than the most optimistic stakeholder would
have ever thought possible. And for that I thank you. I thank each and every one of
you for your commitment, support, and unwavering belief in the Stingray story. Every
milestone we reach reflects the trust you have in us. This year, your trust led to record
numbers in virtually every sector.
Without you we would not have grown our workforce by 800, would not have
successfully launched a broadcast radio division, and would not have added direct-
to-consumer services to our proven B2B business model.
We are committed to building an agile company that adapts to market demand while
staying true to its core purpose: providing lean-back curated music services for every
moment and on every platform. As audiences and technology evolve, so do we.
Revenues have continued to show strong growth. Revenues increased by 63.3%,
reaching $212.7 million (compared to $130.2 million in Fiscal 2018). Of the total growth
in revenues, 4.4% was organic growth. At the same time, Adjusted EBITDA(1) increased
by 74.0% to $72.2 million and net loss was $10.9 million ($0.17 per share). Cash flow
from operating activities increased 77.1% to $34.3 million and adjusted free cash
flow(1) increased 15.0% to $38.2 million. We continued to raise our dividends and
returned over $16.0 million to you, our shareholders.
Eric Boyko
President, Co-founder and CEO
(1) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33
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Annual Report 2019 | Stingray Group Inc. BUILDING A CONSUMER BRAND
The process of change is never easy, but it is essential to reap
the biggest rewards.
Music is one of the most exciting and changeable industries.
With streaming confirmed as the largest contributor to the
global recorded-music business, in 2018 we focused on
breaking through the direct-to-consumer market as another
area of income. These investments are energizing our product
portfolio and reshaping how we evaluate our success,
profitability, and key measurements.
This year, we launched Stingray Classica and Stingray Music
as direct-to-consumer mobile apps. In only a few months,
both apps reached a 5-star rating in the Apple App Store,
proof that our wager is already paying off. Stingray Qello,
the concert streaming service described by Forbes as the
“Netflix of concert films and documentaries,” continues to
gain subscribers and has entered into exclusive content
partnerships with major artists and festivals such as Joe
Satriani and KABOO Del Mar. Our team also launched The
Voice karaoke app and Piano Academy, a new app to learn
the piano. In total, Stingray apps have reached 140 million
downloads.
We are confident that we are well on our way to creating
a consumer brand on a par with the industry’s most
recognizable players.
PRODUCT PORTFOLIO GROWTH
Not a year goes by when we do not bring new services to
market in record time.
It should be common knowledge by now that Stingray’s
curation team is amongst the best in the business. With
their help, we constantly surpass client expectations, and
develop niche and mainstream services that engage with
all demographics. In addition to new mobile apps, this
year we introduced three additional music video channels
for entertainment content providers: PalmarèsADISQ par
Stingray, Stingray Country, and Stingray Latin Hits.
SOLID PARTNERSHIPS
As we develop our direct-to-consumer offering, we are
not leaving our operator clients behind, far from it. Our
competitive advantage lies in the diversity and flexibility of our
business model. We continue to build on solid partnerships
with the world’s most important operators who count on our
competitively priced services to institute engaging music
strategies and retain subscribers.
This year alone we signed new distribution agreements with
Telekom Srbija and Thailand’s True Visions, and renewed and
expanded our partnerships with TELUS and Bell (the first
Canadian operator to offer its subscribers every Stingray
music and video service).
The numbers don’t lie, the Holiday 2018 Numeris survey
confirmed the relevance of our services to pay-TV subscribers:
41.4% of Canadians and 41.6% of Canadians ages 25-54
listened to Stingray Music on TV between December 17 and
December 30, 2018.
CONTINUED ON-DEMAND EXPANSION
Stingray operates in a competitive environment, and yet we
continue to flourish and improve profitability where other
flounder. How? By continually diversifying our offering and
aggressively, yet thoughtfully, seizing opportunities.
Being at the forefront of the On-Demand economy is crucial
to distinguishing ourselves and competing at the national
and international level. This year, we added On-Demand
music services, including Stingray Qello, Stingray DJAZZ,
and Stingray Karaoke, to the catalogs to major American and
European entertainment content providers Comcast, Altice,
Magenta TV, Sling TV, and Roku.
We now exceed 364,000 subscribers worldwide, a (4.6%)
increase over last year’s number.
MAKING (AIR)WAVES FROM
COAST TO COAST
By far the most significant and talked-about announcement
of 2018 was our acquisition of Newfoundland Capital
Corporation, one of Canada’s leading radio broadcasters
with 101 licenses (82 FM and 19 AM) across the country.
The transaction significantly strengthened our position as
Canada’s leading independent music company while we
continue to build our global reach. We are already reaping
the benefits of this complementary vertical and new revenue
sources.
Only six months after this acquisition, we were presented
with two prestigious awards at the World Radio Summit,
the annual industry convention that attracts broadcast
professionals from around the world: International Broadcast
Group of the Year and International Radio Programmer of
the Year. We received these honors despite stiff competition
from leading radio broadcast groups and professionals from
around the world.
THE FUTURE OF STINGRAY
Today, we are better positioned than ever to capture a
growing share of the market by continuing to deliver quality
service and leveraging our scale and expertise to expand into
new sectors of the music industry.
Our success is not the result of luck or coincidence. It is the
product of the innovative thinking, relentless efforts, and
profound commitment of 1,200 employees whose dedication
never fails to amaze me. Without them and their belief in
Stingray’s vision, we could not continually surpass our goals.
Thank you! I also want to thank my management team and
board for helping me build this extraordinary company. I
look forward to writing the next pages of the Stingray story
together.
We will never rest on our laurels, but we have reached a point
where we can confidently envision the next decades and
beyond. Stingray’s future has never been brighter!
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Annual Report 2019 | Stingray Group Inc. WORD FROM
THE CHAIRMAN
Few things are as motivating as helping an organization reach new heights.
It is my distinct honor to chair Stingray’s board for the second year and help the
management team reinvent its business model while increasing profitability for
investors. Although the challenges faced by the music industry are significant,
Stingray’s leadership has the proven ability to adapt its business strategy rapidly in
response to market demands and new technologies.
Great companies pursue a bold vision for the future without ever risking their
present. I am very pleased to see Stingray’s management continuously evaluating
new opportunities with vigor while still maintaining an acute awareness of their
responsibility to stakeholders.
This year, Stingray’s notable entry into the direct-to-consumer market has proved
highly rewarding, and the positive reception from consumers confirms the merit of
this strategy. I am confident that we will see Stingray make even greater strides in this
space in the coming years.
The growth of the company’s On-Demand subscriber base - through agreements with
key partners such as Comcast - provides even more assurance of future success. I
would be remiss if I did not also highlight the expansion of the distribution agreements
with Bell and TELUS, which solidified Stingray’s position as the number one Canadian
provider of music service for cable and satellite operators.
It is with pride and confidence that I plan to guide Stingray through the next steps in
becoming a dominant force in the global music industry.
On behalf of the board and the management team, I would like to thank our
shareholders for their continued trust and support.
Mark Pathy
Chairman of the Board
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Annual Report 2019 | Stingray Group Inc. 7
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Annual Report 2019 | Stingray Group Inc. MANAGEMENT’S
DISCUSSION AND
ANALYSIS
The following is the annual report and Management’s
Discussion and Analysis (“MD&A”) of the results of operations
and financial position of Stingray Group Inc. (“Stingray” or
“the Corporation”), and should be read in conjunction with
the Corporation’s consolidated audited financial statements
and accompanying notes for the years ended March 31,
2019 and 2018. This MD&A reflects information available to
the Corporation as at June 5, 2019. Additional information
relating to the Corporation is also available on SEDAR at
www.sedar.com
9
COMPANY
PROFILE
Stingray is a leading music, media, and technology company
with over 1,200 employees worldwide. Stingray is a premium
provider of curated direct-to-consumer and B2B services,
including audio television channels, more than 100 radio
stations, SVOD content, 4K UHD television channels, karaoke
products, digital signage, in-store music, and music apps,
which have been downloaded over 140 million times.
Stingray reaches 400 million subscribers (or users) in 156 countries.
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Annual Report 2019 | Stingray Group Inc. 11
Annual Report 2019 | Stingray Group Inc. SVOD
SUCCESS
12
Annual Report 2019 | Stingray Group Inc. THE RISE OF SVOD:
STINGRAY’S YEAR IN NUMBERS
After over a decade, Stingray remains unique in its capacity
to expand its global reach within the digital music industry.
Where others struggle, we continually reach new milestones
while improving profitability.
Subscription video-on-demand (SVOD) services have become
the preferred destination for consumers to access video
content - including motion pictures and made-for-television
content - over a range of Internet-capable devices including
smart TVs, smartphones, tablets, video game consoles, and
multimedia devices such as Apple TV, Google Chromecast,
and Roku. Stingray’s growing SVOD offering is now available
through major entertainment services providers such as
Amazon, Comcast, and Telefonica.
SVOD AND THE CONSUMER
EXPERIENCE
The following Stingray services are available as SVOD:
• Stingray Karaoke: songs in all the most popular genres
including pop, rock, country, R&B/hip-hop, Disney, and
much more.
• Stingray Classica: a catalog of classical music, opera,
in the world’s most
and ballet performances filmed
renowned venues.
• Stingray DJAZZ: live performances by the jazz icons of
yesterday and today.
• Stingray Qello: the world’s leading streaming service for
full-length concerts and music documentaries.
364,000
SUBSCRIBERS AS
AT MARCH 31, 2019
+4.6%
SINCE APRIL 2018
MONTHLY RMR*
+23.0%
$2.8M TO $3.4M
SINCE MARCH 2018
*RMR= recurring monthly revenue
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Annual Report 2019 | Stingray Group Inc. B2C MOBILE APPS
Expertly-curated music channels, in all
genres, for all of life’s moments.
Featured in the “Apps for Carplay”
section
The premium destination for breathtaking
classical music concerts, opera, ballet, and
music documentaries.
The world’s leading streaming service
for full-length concert films and music
documentaries.
Classica was featured in:
• New Apps we Love (US and UK)
• This week’s favourites (Canada)
• Top banner in the music section
(Canada)
• For Classical Enthusiasts” section
(Canada)
• Classica was featured in Ireland,
Turkey and Thailand
Over 14,000 karaoke songs with on-
the-go convenience and easy set-up.
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Annual Report 2019 | Stingray Group Inc. Over 14,000 karaoke songs with
optional special effects, mics, and
high-quality karaoke videos.
Kid-tested and parent-approved
karaoke songs for little ones.
Fans of the television show The Voice
come together to like, favorite, follow,
and share each other’s singing via
social media.
YOKEE MUSIC
The ultimate karaoke destination to
perform and record songs, add voice
effects and share with a network of
dedicated singers
YOKEE PIANO
Fun, professionally-designed piano
lessons, for all levels, that entertain as
well as teach.
YOKEE GUITAR
Easy-to-follow guitar tutorials to learn
and play.
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Annual Report 2019 | Stingray Group Inc. NUMERIS RESULTS
ARE IN:
CANADIANS ARE TUNING IN
TO STINGRAY RADIO
With the acquisition of Newfoundland Capital Corporation
Limited in 2018, Stingray became Canada’s largest public
independent media company and a contender for Numeris
broadcast measurement. The first Numeris numbers showed
impressive listenership results in both the PPM Markets
(Toronto, Vancouver, Montreal, Calgary, and Edmonton) and
Diary Markets (St. John’s, Charlottetown, Halifax, Sydney,
Fredericton, Moncton, Saint John, Ottawa-Gatineau,
Sudbury, Red Deer, Camrose, Kamloops, Kelowna, Penticton).
These numbers underline radio’s lasting relevance in the lives
of Canadians and the strength of the medium as it continues
to adapt and evolve in the digital landscape. Stingray’s reach
is as strong as ever, and the company is leading the industry
in radio programming, sales, networking, and advertising
opportunities.
STANDOUT STATS
PPM MARKETS
16
MILLION
CANADIANS
BOOM 97.3
RANKED
#1
TOP 3
2018
16 million Canadians
aged 12+ tuned into a
Stingray radio station
in 2018
Boom 97.3 (Toronto)
ranked #1 for adults
25-54 in spring of 2018
XL 103 (Calgary) ranked
top 3 for the calendar
year and is the gold
music format leader
in the market
90.3 AMP (Calgary)
beat out its competitor
Virgin Radio in both
spring 2018 and fall 2018
[Source: Numeris PPM, A2554 & A12+, AW (All Week, Mo-Su 2a-2a), Share and Cume, Non-C Total Canada & Ctrl Markets]
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Annual Report 2019 | Stingray Group Inc. DIARY MARKETS
#1 RANKING STATIONS
A
D
C
B
E
F
A VOCMFM (St. John’s)
B Q104 (Halifax)
C Ocean 100 (Charlottetown)
D C103 (Moncton)
E Rewind 103.9 (Sudbury)
F Hot 89-9 (Ottawa)
NUMERIS PAY AUDIO
As of December 2018, Numeris has been measuring listenership rankings for Stingray Music’s pay audio TV channels. The results
demonstrate the popularity of the service across the nation and are a testament to Canadian audiences’ strong demand for
expertly curated music channels.
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MILLION
CANADIANS
9
MILLION
LISTENERS
41.6%
From Dec 17, 2018, to
March 31, 2019, Stingray’s pay audio
channels reached over 15 million
Canadians A2+ with a peak average
minute audience of 182,000
During this period, Stingray’s
English and French Holiday
channel reached 9.1 million
listeners A2+ alone
Overall, Stingray’s pay audio
service reached 41.6% of all
Canadian adults age 25-54
during the same period
These outstanding numbers demonstrate Stingray’s solid foothold in the market and the ability to reach audiences of all ages,
from coast to coast.
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Annual Report 2019 | Stingray Group Inc. 18
Annual Report 2019 | Stingray Group Inc. CURRENT
COMPANY
GOALS
Pursue a strategic and disciplined approach to our
M&A strategy by focusing on four (4) vectors:
• SVOD / B2C,
• TV channels,
• Commercial music, and
• Radio consolidation.
Continue to grow in the SVOD space (B2B2C) by buying or
licensing content; increasing our reach across platforms and
markets; exploring new verticals (e.g. country music, hip-hop,
faith-based video); and investing in marketing and discovery.
Develop our B2C market share by investing in digital
marketing platforms and continuing to develop best in
class video apps, web-based solutions, and mobile
app such as the recently announced The Voice singing app
for which Stingray has signed a 5-year deal. Grow Stingray
Music’s reach and maintain its top-rated position. Relaunch
the Stingray Karaoke apps and online services all the while
pursuing the expansion of the Yokee family of apps.
Expand the reach of our commercial music and digital
signage services through an international expansion
strategy that includes acquisitions and the growth of our
affiliate network.
Continue to foster a winning company culture through
accountability, responsiveness, training, empowerment, and
growth opportunities.
1
2
3
4
5
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Annual Report 2019 | Stingray Group Inc. PROVEN
ACQUISITION
STRATEGY
$760 M
SPENT ON ACQUISITIONS
SINCE INCEPTION
Stingray became the undisputed world-leading provider of classical music
programming, demonstrating our ability to act as an industry consolidator.
2007
2009
2010
• Slep-Tone Entert. Corp/
• Canadian Broadcast Corp.
• Marketing Senscity Inc.
SoundChoice (Karaoke Channel)
(Galaxie)
• Concert TV Inc.
• MaxTrax Music Ltd.
• Chum Satellites Services (CTV)
2011
2012
2013
• Music Choice International Ltd.
• Musicoola Ltd. Zoe
• Executive Communication
• Interactive Ltd.
• Emedia Networks Inc.
• Stage One Innovations Ltd.
• Intertain Media Inc
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Annual Report 2019 | Stingray Group Inc. 2014
2015
2016
• DMX LATAM (Mood Media)
• Les réseaux Urbains Viva Inc.
• Nümedia
• Archibald Media Group
• Brava Group (HDTV, NL
• Festival 4K B.V.
and Djazz TV)
• DMX Canada (Mood Media)
• Digital Music Distribution
• Bell Media’s specialty
music video channels
• Telefonica – On the Spot
• iConcerts Group
• EuroArts Classical catalogue
2017
• Classica
• Nature Vision TV
• Yokee Music Ltd.
• C Music Entertainment Ltd.
• SBA Music PTY Ltd.
• Satellite Music Australia PTY Ltd.
2018
• Qello Concerts LLC
• Newfoundland Capital Corporation
• Novramedia
• DJ Matic
• New Glasgow
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Annual Report 2019 | Stingray Group Inc. 22
Annual Report 2019 | Stingray Group Inc. COMPETITIVE
STRENGTHS
We believe that the following competitive strengths will
contribute to our ongoing commercial success and future
performance:
UNIQUE AND DIVERSIFIED WORLD
LEADING MUSIC AND VIDEO SERVICE
PROVIDER
With 400 million subscribers in 156 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, game consoles, and connected cars. With 101 radio
licenses and more than 140 million app downloads, Stingray
reaches millions of radio listeners and app users every month.
STRONG AND PREDICTABLE CASH
FLOW 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 flow, 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 $129.3 million at the end of Fiscal 2019 (60.8% of
our total revenue).
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. For instance, we
introduced a second generation of UBIQUICAST allowing
multiproduct distribution and a third generation of our
Commercial platform – the SB3 allowing simultaneous
distribution of digital display and HD music.
TRACK RECORD OF SUCCESSFUL
ACQUISITIONS AND INTEGRATIONS
Since Stingray’s inception in 2007, we have completed
38 acquisitions representing outlays of approximately
$760 million, which brought new clients, new products and
new geographical markets to our business. Fiscal 2019,
we have completed four (4) acquisitions for an aggregate
purchase value of $510,0 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 integrate 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 more than 200 expert
programmers around the world. Our music products and
services are adapted to local tastes and trends to create the
ultimate user experience.
HIGH EMPLOYEE RETENTION RATE
AND LOW TURN-OVER
As an entrepreneurial and growing Canadian company, we
attract and retain talented professionals. Our team of almost
1 200 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 2019 | Stingray Group Inc. KEY BUSINESS
RISKS
The key risks and uncertainties of our business drive our
operating strategies. Additional risks and uncertainties
not presently known to us, or that we currently consider
immaterial, may also affect us. If any of the events identified
in these risks and uncertainties were to occur, Stingray’s
business, financial condition and results of operations could
be materially harmed.
For further discussion of the significant risks we face,
refer to the Annual Information Form for the year ended
March 31, 2019 available on SEDAR at sedar.com.
Our key risks, in terms of severity of consequence and
likelihood, are displayed as follows:
PUBLIC PERFORMANCE AND
MECHANICAL RIGHTS AND ROYALTIES
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 performance or mechanical
royalty rates for digital music are increased, our results of
operations and financial performance and condition may
be adversely affected. We mitigate this risk by operating,
whenever possible, under statutory licensing regimes and
structures applicable to a non-interactive music services.
The royalty rates to be paid pursuant to statutory licenses
can be established by either negotiation or through a rate
proceeding conducted by the Copyright Board; such royalty
rates are generally stable and are not likely to fluctuate from
year to year.
INTEGRATING BUSINESS
ACQUISITIONS
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 encounter difficulties in
integrating acquired assets with our operations. Furthermore,
the Corporation may not realize the benefits, economies of
scale and synergies we anticipated when we entered into
these transactions. To mitigate this risk, the Corporation
has committed to develop and improve our operational,
financial and management controls, 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.
LONG-TERM PLAN TO EXPAND INTO
INTERNATIONAL MARKETS
A key element of our growth strategy is to continue to expand
our operations into international markets. For Fiscal 2019,
approximately 42% of our revenue is derived from customers
outside of Canada. Operating in international markets
requires significant resources and 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 our
operational, financial and 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.
DEPENDENCE ON PAY-TV PROVIDERS
The majority of the Stingray Music pay-TV subscriber base
is reached through a small number of significant pay-TV
providers who are all under long-term contracts. Packaging
decisions made by pay-TV providers in respect of service
offerings can impact the subscriber base. Moreover, the
contractual obligations of pay-TV providers 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 CRTC 2015- 96. See
“Recent Developments” in the 2019 AIF. We mitigate this risk
by understanding the business needs of pay-TV providers
and offering compelling services, distributed across multiple
platforms and proprietary technologies, with a demonstrable
value proposition. Based on our strong relationships and
our interpretation of the long-term contracts with pay-
TV providers, Stingray expects that all Canadian pay-TV
providers will continue to carry Stingray’s pay-audio service
on the most widely distributed unregulated first-tier package
(where available).
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Annual Report 2019 | Stingray Group Inc. RAPID GROWTH IN AN EVOLVING
MARKET
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 significant challenges. In addition,
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 greater
emphasis on cross-selling 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 our operational, financial
and 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 by award-winning music experts 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 original long-form content in order to grow its
proprietary catalogue.
25
EXECUTIVE
OFFICERS
ERIC BOYKO
President,
CEO, Co-founder and Director
JEAN-PIERRE TRAHAN
Chief Financial Officer
LLOYD FELDMAN
Senior Vice-President,
Corporate Secretary and
General Counsel
MARIO DUBOIS
Senior Vice-President and
Chief Technology Officer
MATHIEU PÉLOQUIN
Senior Vice-President,
Marketing and communications
DAVID PURDY
Chief Revenue Officer
IAN LURIE
President, Radio
SÉBASTIEN CÔTÉ
Vice-President,
Human Resources
RATHA KHUONG
General Manager,
Stingray Business
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Annual Report 2019 | Stingray Group Inc. NON-EXECUTIVE
DIRECTORS
CLAUDINE BLONDIN
Director and Member of the
Corporate Governance,
Human Resources and
Compensation Committees
FRANÇOIS-CHARLES SIROIS
Director and Member
of the Human Resources and
Compensation Committee
GARY S. RICH
Director and Chairman of
the Human Resources and
Compensation Committee
JACQUES PARISIEN
Director and Chairman
of the Corporate Governance
Committee
MARK PATHY
Chairman of the Board of
Directors and Member of
the Audit Committee and
the Human Resources and
Compensation Committee
PASCAL TREMBLAY
Director and Member of
the Corporate Governance
Committee and Chairman of the
Audit Committee
ROBERT G. STEELE
Director
JOHN STEELE
Director and Member of the
Audit Committee
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Annual Report 2019 | Stingray Group Inc. BASIS OF PREPARATION AND FORWARD-LOOKING STATEMENTS
The following is the annual financial report and Management’s Discussion and Analysis (“MD&A”) of the results of operations and financial position of
Stingray Group Inc., (“Stingray” or “the Corporation”), and should be read in conjunction with the Corporation’s audited consolidated financial
statements and accompanying notes for the years ended March 31, 2019 and 2018. This MD&A reflects information available to the Corporation as at
June 5, 2019. Additional information relating to the Corporation is also available on SEDAR at www.sedar.com.
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 include 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 and tariffs 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 and other media companies; the
expansion of our operations into international markets; our rapid growth and our growth strategy; our acquisitions, business combinations and joint
ventures; our reliance on third party hardware, software and related services; our dependence on key personnel; exchange rate fluctuations; economic
and political instability in emerging countries; royalty calculation methods; rapid technological and industry changes; development of new or alternative
media technologies ; 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 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 the Canadian Radio-television and Telecommunications Commission (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 and Adjusted EBITDA margin are important measures when analyzing its operating profitability without
being influenced by financing decisions, non-cash items and income taxes strategies. Comparison with peers is also easier as companies rarely have
the same capital and financing structure. The Corporation believes that Adjusted Net income and Adjusted Net income per share are important measures
as it demonstrates its core bottom-line profitability. The Corporation believes that Adjusted Free cash flow is an important measure when assessing the
amount of cash generated after accounting for capital expenditures and non-core charges. It demonstrates cash available to make business acquisitions,
pay dividend and reduce debt. The Corporation believes that Net debt, Net debt to Adjusted EBITDA and Pro Forma Adjusted EBITDA are important
measures when analyzing the significance of debt on the Corporation’s statement of financial position. Each of these non-IFRS financial measures is
not an earnings or cash flow measure recognized by International Financial Reporting Standards (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 2019 | Stingray Group Inc. | 28
KEY PERFORMANCE INDICATORS(1)
For the three-month period ended March 31, 2019 (“Q4 2019”):
$72.7 M
$34.5 M
$22.4 M
$10.5 M
▲ 112.5% from Q4 2018
Revenues
▲ 12.4% from Q4 2018
Recurring Broadcasting and
Commercial Music
revenues(2)
▲ 90.7% from Q4 2018
Adjusted EBITDA
▼ 4.9% from Q4 2018
Adjusted Free cash flow
$0.065
▲ 18.2% from Q4 2018
Quarterly dividend per
share
65.6%
% of international(3)
Broadcasting and
Commercial Music
revenues
$3.9 M
Or $0.06 per share
Net income
$13.6 M
▲ 27.7% from Q4 2018
Cash flow from
operating activities
For the year ended March 31, 2019 (“Fiscal 2019”):
$212.7 M
$129.3 M
$72.2 M
$38.2 M
▲ 63.3% from Fiscal 2018
Revenues
▲ 15.7% from Fiscal 2018
Recurring Broadcasting and
Commercial Music
revenues(2)
▲ 74.0% from Fiscal 2018
Adjusted EBITDA
▲ 15.0% from Fiscal 2018
Adjusted Free cash flow
$0.25
▲ 19.0% from Fiscal 2018
Year dividend per
share
61.8%
% of international(3)
Broadcasting and
Commercial Music
revenues
$(12.0) M
$34.8 M
Or $(0.19) per share
Net loss
▲ 79.3% from Fiscal 2018
Cash flow from
operating activities
Notes:
(1) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33.
(2) Recurring Broadcasting and Commercial Music 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 advertising, support, installation,
equipment and one-time fees.
International means all jurisdictions except Canada.
(3)
Annual Report 2019 | Stingray Group Inc. | 29
FINANCIAL AND BUSINESS HIGHLIGHTS
Highlights of the fourth quarter ended March 31, 2019
Compared to the quarter ended March 31, 2018 (“Q4 2018”):
Revenues increased 112.5% to $72.7 million from $34.2 million;
Recurring Broadcasting and Commercial Music revenues(1) increased 12.4% to $34.5 million from $30.7 million;
Adjusted EBITDA(2) increased 90.7% to $22.4 million from $11.8 million;
Adjusted EBITDA(2) margin was 30.8% compared with 34.3%;
Net income was $3.9 million ($0.06 per share) compared with a net income of $4.7 million ($0.08 per share);
Adjusted Net income(2) of $12.5 million ($0.18 per share) compared with $9.7 million ($0.17 per share);
Cash flow from operating activities increased 27.7% to $13.6 million compared to $10.7 million; and
Adjusted Free cash flow(2) decreased 4.9% to $10.5 million compared to $11.1 million, due in large part, to income taxes
payable included in the opening balance sheet of Newfoundland Capital Corporation Inc. (“NCC”) paid after the
acquisition date. Excluding this item, Adjusted Free cash flow(2) would have reached $14.1 million.
Highlights of the year ended March 31, 2019
Compared to the year ended March 31, 2018 (“Fiscal 2018”):
Revenues increased 63.3% to $212.7 million from $130.2 million;
Recurring Broadcasting and Commercial Music revenues(1) increased 15.7% to $129.3 million from $111.8 million;
Adjusted EBITDA(2) increased 74.0% to $72.2 million from $41.5 million;
Adjusted EBITDA(2) margin was 34.0% compared with 31.9%;
Net loss was $12.0 million ($(0.19) per share) compared with a net income of $2.3 million ($0.04 per share) mainly
attributable to the CRTC Tangible benefits expense and acquisition costs related to the NCC transaction totaling
$37.7 million;
Adjusted Net income(2) of $37.5 million ($0.57 per share) compared with $26.9 million ($0.50 per share);
Cash flow from operating activities increased 79.3% to $34.8 million compared to $19.4 million; and
Adjusted Free cash flow(2) increased 15.0% to $38.2 million compared to $33.2 million. Excluding the income taxes paid
related to the NCC acquisition described above, Adjusted Free cash flow(2) would have reached $41.8 million.
Notes:
(1) Recurring Broadcasting and Commercial Music 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 advertising, support, installation,
equipment and one-time fees.
(2) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33.
Annual Report 2019 | Stingray Group Inc. | 30
Additional business highlights for the fourth quarter and subsequent events:
On May 9, 2019, the Corporation announced that its wholly-owned subsidiary, Stingray Radio Inc., had entered into an
agreement to acquire the assets of CIXL-FM and CKYY-FM in Welland, Ontario, from Wellport Broadcasting Limited/RB
Communications Ltd, subject to approval from the Canadian Radio-television and Telecommunications Commission (the
“CRTC”).
On March 29, 2019, the Corporation was presented with two prestigious awards at the World Radio Summit, the annual
industry convention that attracts broadcast professionals from around the world: International Broadcast Group of the
Year and International Radio Programmer of the Year.
On March 28, 2019, the Corporation declared a quarterly dividend of $0.065 per subordinate voting share, variable
subordinate voting share and multiple voting share. The dividend will be payable on or around June 14, 2019 to
shareholders on record as of May 31, 2019.
On February 18, 2019, the Corporation announced the expansion of its distribution deal with TELUS. The agreement
brings five new music television channels, Stingray Festival 4K, Stingray Now 4K, Stingray Hits!, PalmarèsADISQ par
Stingray, and Stingray Classica to Optik TV subscribers in Alberta, British Columbia, and Quebec.
On February 6, 2019, the Corporation declared a quarterly dividend of $0.065, representing an increase of 8.3% per
subordinate voting share, variable subordinate voting share and multiple voting share. The dividend has been paid on
March 15, 2019 to shareholders on record as of February 28, 2019.
On January 8, 2019, the Corporation announced that the first two weeks (December 17 – 30, 2018) of Numeris
measurement for the Stingray Music audio channels on television revealed impressive listenership results; Stingray Music
reached over 15 million Canadians aged 2+ (41.4% of Canadians) and 41.6% of aged 25-54 (6.3 million); Stingray Music’s
English-language holiday programming channel alone reached over 7.2 million Canadians aged 2+; Stingray Music’s
French-language holiday programming channel alone reached over 1.9 million Canadians aged 2+ and Stingray Music
represented 14.2% of audio market shares with the aged 2+ demographic and 12.8% of the audio market shares for the
aged 25-54 demographic as measured by Numeris.
On January 7, 2019, the Corporation announced that its wholly-owned subsidiary, Stingray Radio Inc., had entered into
an agreement to acquire the assets of CHOO-FM in Drumheller, Alberta, from Golden West Broadcasting Ltd. subject to
approval from the CRTC. If approved, the closing is expected to take place mid-2019.
On January 2, 2019, the Corporation announced that its previously-announced endeavors to acquire Music Choice have
been terminated.
Annual Report 2019 | Stingray Group Inc. | 31
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands of Canadian dollars, except
per share amounts)
Revenues
Recurring Revenues(1)
Revenues
Operating expenses
CRTC Tangible benefits
Depreciation, amortization and
write-off
Net finance expense (income)(2)
Change in fair value of investments
Acquisition, legal, restructuring and
other expenses
Income (loss) before income taxes
Income taxes
Net income (loss)
Adjusted EBITDA(3)
Adjusted Net income(3)
Adjusted Free cash flow(3)
Cash flow from operating activities
Net debt(3)
Net debt to Adjusted EBITDA(3)(4)(5)
22,407
12,534
10,527
13,613
357,821
3.13x
Net income (loss) per share basic
Net income (loss) per share diluted
Adjusted Net income per share basic(3)
Adjusted Net income per share diluted(3)
0.06
0.06
0.18
0.18
3 months
March 31, 2019
Q4 2019
% of
revenues
$
March 31, 2018
Q4 2018
% of
revenues
$
March 31, 2019
Fiscal 2019
$
% of
revenues
12 months
March 31, 2018
Fiscal 2018
$
% of
revenues
March 31, 2017
Fiscal 2017
$
% of
revenues
72,730
34,534
100.0 %
47.5 %
34,223
30,734
100.0 %
89.8 %
212,650 100.0 % 130,214 100.0 % 101,501 100.0 %
129,345 60.8 % 111,790 85.9 % 87,612 86.3 %
72,730
51,250
–
100.0 %
70.5 %
0.0 %
34,223
23,724
–
100.0 %
69.2 %
0.0 %
212,650 100.0 % 130,214 100.0 % 101,501 100.0 %
92,239 70.8 % 70,977 70.0 %
142,877 67.3 %
25,306 11.9 %
0.0 %
0.0 %
–
–
9,978
2,259
336
3,132
5,775
1,833
3,942
13.7 %
3.1 %
0.5 %
5,613
(378)
(421)
16.4 %
(1.1) %
(1.2) %
31,133 14.6 %
12,298
5.8 %
(565)
(0.3) %
4.3 %
7.9 %
2.5 %
5.4 %
30.8 %
17.2 %
14.5 %
18.7 %
–
–
–
–
–
–
1,396
4,289
(385)
4,674
11,752
9,732
11,066
10,675
35,265
0.85x
0.08
0.08
0.17
0.17
4.1 %
12.6 %
(1.1) %
13.7 %
34.3 %
28.4 %
32.3 %
31.2 %
16,817
(15,216)
(3,228)
(11,988)
7.9 %
(7.2) %
(1.5) %
(5.7) %
72,234 34.0 %
37,536 17.7 %
38,171 18.0 %
34,753 16.3 %
–
–
–
–
–
–
357,821
3.13x
(0.19)
(0.19)
0.58
0.57
–
–
–
–
–
–
21,287 16.3 % 17,168 16.9 %
2,036
2.0 %
(408) (0.4) %
3,174
600
2.4 %
0.5 %
10,631
2,283
1.8 %
(13) 0.0 %
4.5 %
8.2 %
4,607
7,121
(3,596)
(3.6) %
1.8 % 10,717 10.6 %
7.0 %
2,296
41,524 31.9 % 33,864 33.4 %
26,858 20.6 % 27,310 26.9 %
33,181 25.5 % 26,511 26.1 %
19,385 14.9 % 22,766 22.4 %
35,265
0.85x
35,178
1.04x
–
–
–
–
0.04
0.04
0.50
0.50
–
–
–
–
0.21
0.21
0.53
0.53
–
–
–
–
Revenues by segment
Broadcasting and Commercial Music
Radio
Corporate
Revenues
38,718
34,012
–
72,730
53.2 %
46.8 %
0.0 %
100.0 %
34,223
–
–
34,223
100.0 %
0.0 %
0.0 %
100.0 %
146,741 69.0 % 130,214 100.0 % 101,501 100.0 %
0.0 %
0.0 %
65,227 30.7 %
0.3 %
682
–
–
0.0 %
212,650 100.0 % 130,214 100.0 % 101,501 100.0 %
0.0 %
–
–
Revenues by geography
Canada
United States
Other Countries
Revenues
Notes:
47,318
9,351
16,061
72,730
65.0 %
12.9 %
22.1 %
100.0 %
13,658
8,331
12,234
34,223
39.9 %
24.3 %
35.8 %
100.0 %
121,919 57.3 %
34,439 16.2 %
56,292 26.5 %
59,248 45.5 % 56,129 55.3 %
25,294 19.4 % 13,609 13.4 %
45,672 35.1 % 31,763 31.3 %
212,650 100.0 % 130,214 100.0 % 101,501 100.0 %
(1) Recurring Broadcasting and Commercial Music 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 advertising, support, installation, equipment
and one-time fees.
Interest paid during the Q4 2019 was $4.4 million (Q4 2018; $0.4 million) and $10.0 million Fiscal 2019 (Fiscal 2018; $1.4 million and Fiscal 2017; $1.1
million)
(2)
(3) Refer to “Forward-looking statements” and “Supplemental information on Non-IFRS measures” on page 28 and for reconciliations to the most directly
comparable IFRS financial measure, refer to “Supplemental information on Non-IFRS measures” on page 33.
(4) As at Marc 31, 2018 and 2017, net debt to Adjusted EBITDA consists of Net debt divided by Adjusted EBITDA trailing twelve months (TTM).
(5) As at March 31, 2019, Pro Forma Adjusted EBITDA is calculated as the Corporation’s Fiscal 2019 Adjusted EBITDA ($72.2 million) and last twelve
months pro rated Adjusted EBITDA for the acquisitions made in Fiscal 2019 for the months prior to the acquisitions which are not already reflected in
the results ($42.0 million including synergies of $5.8 million). Refer to “Forward-looking statements” and “Supplemental information on Non-IFRS
measures” on page 28 and for reconciliations of Adjusted EBITDA to the most directly comparable IFRS financial measure, refer to “Supplemental
information on Non-IFRS measures” on page 33.
Annual Report 2019 | Stingray Group Inc. | 32
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 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 28.
The following tables show the reconciliation of Net income to Adjusted EBITDA:
(in thousands of Canadian dollars)
Net income (loss)
Net finance expense (income)
Change in fair value of investments
Income taxes
Depreciation and write-off of property and equipment
Amortization of intangible assets
Share-based compensation
Restricted, performance and deferred share unit expense
CRTC Tangible benefits
Acquisition, legal, restructuring and other expenses
Adjusted EBITDA
Net finance expense (income)
Income taxes
Depreciation of property and equipment and write-off
Income taxes related to change in fair value of investments,
share-based compensation, restricted, performance and
deferred share unit expense, amortization of intangible
assets, CRTC Tangible benefits and acquisition, legal,
restructuring and other expenses
Adjusted Net income
3 months
12 months
March 31,
2019
Q4 2019
3,942
2,259
336
1,833
2,791
7,187
297
630
-
3,132
22,407
(2,259)
(1,833)
(2,791)
March 31,
2018
Q4 2018
4,674
(378)
(421)
(385)
1,019
4,594
473
780
-
1,396
11,752
378
385
(1,019)
March 31,
2019
Fiscal 2019
(11,988)
12,298
(565)
(3,228)
7,703
23,430
1,093
1,368
25,306
16,817
72,234
(12,298)
3,228
(7,703)
March 31,
2018
Fiscal 2018
2,296
3,174
600
(13)
3,062
18,225
1,325
2,224
-
10,631
41,524
(3,174)
13
(3,062)
(2,990)
12,534
(1,764)
9,732
(17,925)
37,536
(8,443)
26,858
The following table shows the reconciliation of Cash flow from operating activities to Adjusted Free cash flow:
(in thousands of Canadian dollars)
Cash flow from operating activities
Add / Less :
Acquisition of property and equipment
Acquisition of intangible assets other than internally
developed intangible assets
Addition to internally developed intangible assets
Net change in non-cash operating working capital items
Acquisition, legal, restructuring and other expenses
Adjusted Free cash flow
The following table shows the calculation of Net debt:
(in thousands of Canadian dollars)
Credit facilities
Subordinated debt
Cash and cash equivalents
Net debt
3 months
12 months
March 31,
2019
Q4 2019
13,631
March 31,
2018
Q4 2018
10,675
March 31,
2019
Fiscal 2019
34,753
March 31,
2018
Fiscal 2018
19,385
(1,935)
(846)
(7,623)
(4,546)
(669)
(1,742)
(1,890)
3,132
10,527
(406)
(1,166)
1,413
1,396
11,066
(3,671)
(6,164)
4,059
16,817
38,171
(2,403)
(2,013)
12,127
10,631
33,181
March 31,
2019
312,955
49,539
(4,673)
357,821
March 31,
2018
38,627
-
(3,362)
35,265
Annual Report 2019 | Stingray Group Inc. | 33
FINANCIAL RESULTS FOR THE QUARTERS AND YEARS ENDED
MARCH 31, 2019 AND 2018
CONSOLIDATED PERFORMANCE
Revenues
Revenues are detailed as follows:
(in thousands of Canadian dollars)
2019
2018 % Change
2019
2018 % Change
3 months
12 months
Revenues by geography
Canada
United States
Other Countries
Revenues
Global
47,318
9,351
16,061
72,730
13,658
8,331
12,234
34,223
246.4
12.2
31.3
112.5
121,919
34,439
56,292
212,650
59,248
25,294
45,672
130,214
105.8
36.2
23.3
63.3
Revenues in Q4 2019 increased $38.5 million or 112.5% to $72.7 million, from $34.2 million for Q4 2018. The increase was
primarily due the acquisition of NCC, combined with the acquisition of DJ Matic and organic growth in Business to Consumer
(“B2C”) apps and subscription video-on-demand services (“SVOD”).
Revenues for Fiscal 2019 increased $82.5 million or 63.3% to $212.7 million, from $130.2 million for Fiscal 2018. The increase
was primarily due the acquisition of NCC, combined with the acquisition of DJ Matic, Qello Concerts and Novramedia, as well
as organic growth in B2C apps and SVOD, partially offset by a decrease in equipment and installation sales related to digital
signage.
Since the acquisition of NCC during Q3 2019, the Corporation reorganized its financial reporting process such that the chief
operating decision maker is now assessing the financial performance of the Corporation in two separate segments:
Broadcasting & Commercial Music and Radio. The operating segments reflect how the Corporation manages its operations,
resources and assets and how it measures its performance.
Canada
Revenues in Canada in Q4 2019 increased $33.6 million or 246.4% to $47.3 million, from $13.7 million for Q4 2018. The
increase in was primarily due the acquisition of NCC and Novramedia.
Revenues in Canada for Fiscal 2019 increased $62.8 million or 105.8% to $122.0 million, from $59.2 million for Fiscal 2018.
The increase was primarily due the acquisition of NCC and Novramedia, partially offset by a decrease in equipment and
installation sales related to digital signage.
United States
Revenues in United States in Q4 2019 increased $1.1 million or 12.2% to $9.4 million, from $8.3 million for Q4 2018. The
increase was primarily due to organic growth in SVOD.
Revenues in United States for Fiscal 2019 increased $9.1 million or 36.2% to $34.4 million, from $25.3 million for Fiscal 2018.
The increase was primarily due to the acquisition of Qello Concerts and organic growth in SVOD.
Other Countries
Revenues in Other countries in Q4 2019 increased $3.9 million or 31.3% to $16.1 million, from $12.2 million for Q4 2018.
Revenues in Other countries for Fiscal 2019 increased $10.6 million or 23.3% to $56.3 million, from $45.7 million for
Fiscal 2018. For both periods, the increase was primarily due to the acquisition of DJ Matic and to organic growth in B2C apps
and SVOD.
Annual Report 2019 | Stingray Group Inc. | 34
Operating Expenses
Operating expenses in Q4 2019 increased $27.6 million or 116.0% to $51.3 million, from $23.7 million for Q4 2018. Operating
expenses for Fiscal 2019 increased $50.7 million or 54.9% to $142.9 million, from $92.2 million for Fiscal 2018. For both
periods, the increase was primarily due to the acquisitions of NCC and DJ Matic and organic growth in B2C apps and SVOD.
Adjusted EBITDA(1)
Adjusted EBITDA in Q4 2019 increased $10.6 million or 90.7% to $22.4 million from $11.8 million for Q4 2018.
Adjusted EBITDA margin was 30.8% compared to 34.3% for Q4 2018. The increase in Adjusted EBITDA was primarily due to
the acquisition of NCC and other acquisitions realized in Fiscal 2019 and 2018. The decrease in Adjusted EBITDA margin was
mainly related to the new Radio segment, which has a lower Adjusted EBITDA margin, particularly in the fourth quarter due to
normal business seasonality.
Adjusted EBITDA for Fiscal 2019 increased $30.7 million or 74.0% to $72.2 million from $41.5 million for Fiscal 2018.
Adjusted EBITDA margin was 34.0% compared to 31.9% for Fiscal 2018. The increase in Adjusted EBITDA was primarily due
to the acquisition of NCC and other acquisitions realized in Fiscal 2019 and 2018. The increase in Adjusted EBITDA margin
was mainly related to the reversal of certain accrued liabilities, which positively contributed to the Adjusted EBITDA of the
Radio segment in Q3 2019.
CTRC Tangible benefits
The CRTC approved the change in ownership and effective control of NCC on October 23, 2018. Pursuant to the decision, the
CRTC required the Corporation to pay tangible benefits corresponding to an amount of $31.0 million over a seven-year period
in equal annual payments. In Q3 2019, the Corporation recognized an expense of $25.3 million, which reflects the fair value of
the payment stream using a discount rate of 5.70%, which is the Corporation effective interest rate plus a risk premium. There
was no CRTC Tangible benefits expense for Q4 2019 and Fiscal 2018.
Net Finance Expense (Income)
In Q4 2019, net finance expense increased to $2.3 million from a net finance income of $0.4 million for Q4 2018. The increase
was mainly related to higher interest expense due to the additional debt related to the funding of the acquisition of NCC, to the
mark-to-market losses on derivative instruments and to the negative foreign exchange impact, partially offset by the write-off
of balance payable on acquisition and the positive change in fair value of contingent considerations.
Net finance expense for Fiscal 2019 increased to $12.3 million from $3.2 million for Fiscal 2018. The increase was mainly
related to higher interest expense due to the additional debt related to the funding of the acquisition of NCC, to the mark-to-
market losses on derivative financial instruments and to negative foreign exchange impact, partially offset by the write-off of
balance payable on acquisition and the positive change in fair value of contingent considerations.
Change in fair value of investments
In Q4 2019, a loss on fair value of $0.3 million was recorded compared to a gain of $0.4 million for Q4 2018. In Fiscal 2019, a
gain on fair value of $0.6 million was recorded compared to a loss on fair value of $0.6 million for Fiscal 2018. The variances
are related to the translation of an investment denominated in U.S. dollars to Canadian dollars.
Note:
(1) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33.
Annual Report 2019 | Stingray Group Inc. | 35
Acquisition, legal, restructuring and other expenses
(in thousands of Canadian dollars)
Acquisition
Legal
Restructuring and other
Acquisition, legal, restructuring
and other expenses
2019
2,564
453
115
3 months
2018
Change $
2019
12 months
2018
Change $
648
631
117
1,916
(178)
(2)
13,738
2,099
980
1,963
8,373
295
11,775
(6,274)
685
3,132
1,396
1,736
16,817
10,631
6,186
In Q4 2019, acquisition, legal, restructuring and other expenses increased to $3.1 million from $1.4 million for Q4 2018.
Acquisition, legal, restructuring and other expenses for Fiscal 2019 increased to $16.8 million from $10.6 million for Fiscal 2018.
For both periods, the increase was mainly related to the acquisition of NCC, partially offset by lower legal expenses related to
the Music Choice litigation.
Income Taxes
The income taxes expense recognized in the comprehensive income was $1.8 million for Q4 2019 compared to income taxes
recovery of $0.4 million for Q4 2018. The effective tax rate for Q4 2019 was 31.7% compared to (9.0)% for Q4 2018. The
increase in the effective tax rate is mainly due to the relative importance of permanent difference compared to net income
(loss) before income taxes.
The income taxes recovery recognized in the comprehensive income was $3.2 million for Fiscal 2019 compared to nil for
Fiscal 2018. The effective tax rate for Fiscal 2019 was 21.2% compared to (0.6%) for Fiscal 2018. The increase in the effective
tax rate is mainly due to the relative importance of permanent difference compared to net income (loss) before income taxes.
For Fiscal 2019, share issuance costs of $6.7 million ($2.3 million for Fiscal 2018) have been recognized as a reduction of
share capital net of income taxes of $1.8 million ($0.6 million for Fiscal 2018).
Net income (loss) and net income (loss) per share
Net income in Q4 2019 was $3.9 million ($0.06 per share) compared to $4.7 million ($0.08 per share) for Q4 2018. The
decrease was mainly attributable to higher interest, mark-to-market losses on derivative financial instruments, amortization,
income taxes, depreciation and acquisition expenses, partially offset by higher operating results and write-off of balance
payable on acquisition.
Net loss for Fiscal 2019 was $12.0 million ($(0.19) per share) compared to a net income of $2.3 million ($0.04 per share) for
Fiscal 2018. The decrease was mainly attributable to the CRTC Tangible benefits expense of $25.3 million related to the NCC
acquisition, higher acquisition, interest, amortization and depreciation expenses, partially offset by higher operating results,
lower legal expenses related to the Music Choice litigation and write-off of balance payable on acquisition.
Adjusted Net income(1) and Adjusted Net income per share(1)
Adjusted Net income in Q4 2019 was $12.5 million ($0.18 per share), compared to $9.7 million ($0.17 per share) for Q4 2018.
The increase is related to higher operating results and write-off of balance payable on acquisition, partially offset by higher
interest expense, higher income taxes expense, mark-to-market losses on derivative financial instruments, and higher
depreciation expense.
Adjusted Net income for Fiscal 2019 was $37.5 million ($0.57 per share), compared to $26.9 million ($0.50 per share) for
Fiscal 2018. The increase is related to higher operating results, partially offset by higher interest, income taxes and
depreciation expenses.
Note:
(1) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33.
Annual Report 2019 | Stingray Group Inc. | 36
BUSINESS SEGMENT PERFORMANCE
BROADCASTING AND COMMERCIAL MUSIC
(in thousands of Canadian dollars)
Revenues
Operating expenses
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Revenues
3 months
12 months
2019
38,718
24,069
14,649
37.8%
2018 % Change
13.1
12.8
13.6
0.4
34,223
21,330
12,893
37.7%
2019
146,741
93,913
52,828
36.0%
2018 % Change
12.7
11.4
15.1
2.1
130,214
84,301
45,913
35.3%
In Q4 2019, Broadcasting and Commercial Music revenues increased $4.5 million or 13.1% to $38.7 million from $34.2 million
for Q4 2018. This increase is mostly attributable to the acquisition of DJ Matic and Novramedia and to revenues from B2C
apps and SVOD. During the quarter, existing operations excluding non-recurring equipment and installation sales related to
digital signage experienced organic growth of 4.6%.
Broadcasting and Commercial Music revenues for Fiscal 2019 increased $16.5 million or 12.7% to $146.7 million from
$130.2 million for Fiscal 2018. The increase was primarily due the acquisition of DJ Matic, Qello Concerts and Novramedia, as
well as organic growth in B2C apps and SVOD, partially offset by a decrease in equipment and installation sales related to
digital signage. Existing operations excluding non-recurring equipment and installation sales related to digital signage
experienced organic growth of 4.4%.
Adjusted EBITDA(1)
In Q4 2019, Broadcasting and Commercial Music Adjusted EBITDA increased by $1.7 million or 13.6% to $14.6 million from
$12.9 million for Q4 2018. This increase is mostly related to subscriber revenues from B2C apps and SVOD and to the
acquisition of DJ Matic.
Broadcasting and Commercial Music Adjusted EBITDA for Fiscal 2019 increased $6.9 million or 15.1% to $52.8 million from
$45.9 million for Fiscal 2018. This increase is mostly related to the acquisition of Qello Concerts, DJ Matic and Novramedia
and, to a lesser extent, to subscriber revenues from B2C apps and SVOD. The increase in Adjusted EBITDA margin was mainly
related to the decrease in non-recurring equipment and installation sales related to digital signage in Fiscal 2019, which tend
to have lower margin.
Note:
(1) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33.
Annual Report 2019 | Stingray Group Inc. | 37
RADIO
(in thousands of Canadian dollars)
Revenues
Operating expenses
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Revenues
3 months
12 months
2019
34,012
25,094
8,918
26.2%
2018 % Change
-
-
-
-
-
-
-
-
2019
65,227
41,209
24,018
36.8%
2018 % Change
-
-
-
-
-
-
-
-
Radio revenues represented $34.0 million for Q4 2019 and $65.2 million for Fiscal 2019 reflecting the contribution from the
acquisition of NCC since the October 26, 2018 closing date.
Adjusted EBITDA(1)
Radio Adjusted EBITDA represented $8.9 million for Q4 2019 and $24.0 million for Fiscal 2019 reflecting the contribution
from the acquisition of NCC since the October 26, 2018 closing date.
CORPORATE
(in thousands of Canadian dollars)
Revenues
Operating expenses
Adjust:
Share-based compensation
Restricted, performance and
deferred share unit expense
Adjusted EBITDA(1)
3 months
12 months
2019
-
2,087
2018 % Change
-
(12.8)
-
2,394
2019
682
7,755
2018 % Change
-
(2.3)
-
7,938
(297)
(473)
(37.2)
(1.093)
(1,325)
(17.5)
(630)
(1,160)
(780)
(1,141)
(19.2)
1.7
(1,368)
(4,612)
(2,224)
(4,389)
(38.5)
5.1
The Corporate segment derives its revenue from hotel operations, which was acquired through the NCC acquisition. Corporate
expenses are related to head office functions and hotel operations. The hotel was disposed of on December 28, 2018. No gain
or loss on disposal were recorded in the results as the assets and liabilities were recognized at fair value through the purchase
price allocation of NCC.
Revenues
Corporate revenues represented $0.7 million for Fiscal 2019 attributable to the hotel’s operations. Corporate revenues were
nil in Q4 2019 due to the disposal of the hotel on December 28, 2018.
Adjusted EBITDA(1)
Corporate Adjusted EBITDA represented the net revenues of the hotel’s operations and the head office operating expenses
less the share-based compensation and restricted, performance and deferred share unit expense. In Q4 2018 and Fiscal
2018, share-based compensation and restricted, performance and deferred share unit expense was higher due to the higher
value of the Corporation’s stock price.
Note:
(1) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33.
Annual Report 2019 | Stingray Group Inc. | 38
Quarterly results
Revenues increased over the last eight quarters from $29.7 million in the first quarter of Fiscal 2018 to $72.7 million in the
fourth quarter of Fiscal 2019. The increase was mainly attributable to the successful integration of acquisitions and organic
growth including new contracts in all geographic locations. The decrease in Q4 2018 revenues compared to Q3 2018 was
mainly explained by lower non-recurring revenues related to digital signage. The increases in Q3 2019 and Q4 2019 were
mainly explained by the acquisition of NCC on October 26, 2018.
Adjusted EBITDA(1) increased over the last eight quarters from $9.2 million in the first quarter of Fiscal 2018 to $22.4 million in
the fourth quarter of Fiscal 2019. The increase was mainly attributable to the successful integration of acquisitions and organic
growth including new contracts. The increase in Q3 2019 was primarily due to the acquisition of NCC and other acquisitions
realized in Fiscal 2019 and 2018, and to the organic growth of B2C apps and SVOD. The decrease in Q4 2019 was mainly due
to normal business seasonality in the Radio segment and to the reversal of certain accrued liabilities, which positively
contributed to the Adjusted EBITDA(1) of the Radio segment in Q3 2019.
Net income (loss) fluctuated over the last eight quarters from a net income of $0.3 million in the first quarter of Fiscal 2018 to
a net income of $3.9 million in the fourth quarter of Fiscal 2019. In Q2 2018, the net loss was mainly related to higher legal fees
and finance expenses, offset partially by an income tax recovery. In Q3 2018, the net income was mainly attributable to higher
operating results and lower legal fees, partially offset by the negative change in fair value of contingent consideration and
higher amortization expense of intangible assets compared to Q2 2018. In Q4 2018, the increase in net income was mainly
attributable to higher net finance income and income tax recovery. In Q3 2019, the decrease was mainly attributable to the
CRTC Tangible benefits expense related to the NCC acquisition, higher interest and acquisition expenses, partially offset by
higher operating results. The increase in Q4 2019 was mainly explained by the absence of CRTC Tangible benefits expense,
lower acquisition expenses and write-off of balance payable on acquisition, partially offset by higher income taxes and lower
operating results.
Summary of Consolidated Quarterly Results
(in thousands of Canadian dollars,
except per share amounts)
Revenues by segment
Broadcasting and Commercial
Music
Radio
Corporate
Total revenues
Revenues by geography
Canada
United States
Other countries
Total revenues
Adjusted EBITDA(1)
Net income (loss)
Net income (loss) per share
basic
Net income (loss) per share
diluted
Adjusted Net income(1)
Adjusted Net income per share
basic(1)
Adjusted Net income per share
diluted(1)
3 months
March 31,
2019
Fiscal
2019
Dec. 31,
2018
Fiscal
2019
Sept. 30,
2018
Fiscal
2019
June 30,
2018
Fiscal
2019
March 31,
2018
Fiscal
2018
Dec. 31,
2017
Fiscal
2018
Sept. 30,
2017
Fiscal
2018
June 30,
2017
Fiscal
2018
38,718
34,012
-
72,730
38,875
31,215
682
70,772
34,692
-
-
34,692
34,456
-
-
34,456
34,223
-
-
34,223
35,099
-
-
35,099
31,222
-
-
31,222
29,670
-
-
29,670
47,318
9,351
16,061
72,730
46,738
8,834
15,200
70,772
14,222
8,069
12,401
34,692
13,641
8,185
12,630
34,456
13,658
8,331
12,234
34,223
16,219
7,037
11,843
35,099
14,833
5,222
11,167
31,222
14,538
4,704
10,428
29,670
22,407
3,942
27,219
(18,053)
11,429
777
11,179
1,346
11,752
4,674
11,151
737
9,452
(3,395)
9,169
280
0.06
(0.26)
0.01
0.02
0.08
0.01
(0.07)
0.01
0.06
12,534
(0.26)
12,396
0.01
6,708
0.02
5,898
0.08
9,732
0.01
6,016
(0.07)
5,407
0.01
5,703
0.18
0.18
0.12
0.10
0.17
0.11
0.10
0.11
0.18
0.18
0.12
0.10
0.17
0.11
0.10
0.11
Cash flow from operations
Adjusted Free Cash Flow(1)
13,631
10,527
9,160
15,998
5,186
5,448
6,776
6,198
10,675
11,066
6,589
8,022
2,710
6,853
(589)
7,240
Quarterly dividend
0.05
0.06
(1) Refer to “Forward-looking statements” and “Supplemental information on Non-IFRS measures” on page 28 and for reconciliations to the most directly
0.055
0.055
0.065
0.065
0.06
0.05
comparable IFRS financial measure, refer to “Reconciliation of Quarterly Non-IFRS Measures” on page 33.
Annual Report 2019 | Stingray Group Inc. | 39
Reconciliation of Quarterly Non-IFRS Measures
(in thousands of Canadian dollars)
Net income (loss)
Net finance expense (income)
Change in fair value of
investments
Income taxes
Depreciation and write-off of
property and equipment
Amortization of intangible
assets
Share-based compensation
Restricted, performance and
deferred share unit expense
CRTC Tangible benefits
Acquisition, legal, restructuring
and other expenses
Adjusted EBITDA
Net finance expense (income)
Income taxes
Depreciation and write-off of
property and equipment
Income taxes related to change
in fair value of investments,
share-based compensation,
restricted, performance and
deferred share unit expense,
amortization of intangible
assets, CRTC Tangible
benefits and acquisition,
legal, restructuring and other
expenses
Adjusted Net income
(in thousands of Canadian dollars)
Cash flow from operating
activities
Acquisition of property and
equipment
Acquisition of intangible assets
other than internally
developed intangible assets
Addition to internally developed
intangible assets
Net change in non-cash
operating working capital
items
Acquisition, legal, restructuring
and other expenses
Adjusted Free cash flow
3 months
March 31,
2019
Fiscal
2019
3,942
2,259
Dec. 31,
2018
Fiscal
2019
(18,053)
7,208
Sept. 30,
2018
Fiscal
2019
777
910
June 30,
2018
Fiscal
2019
1,346
1,921
March 31,
2018
Fiscal
2018
4,674
(378)
Dec. 31,
2017
Fiscal
2018
737
1,746
Sept. 30,
2017
Fiscal
2018
(3,395)
1,269
June 30,
2017
Fiscal
2018
280
537
336
1,833
(840)
(6,117)
436
567
(497)
489
(421)
(385)
(110)
849
697
(941)
434
464
2,791
2,469
1,274
1,169
1,019
704
718
621
7,187
297
6,401
263
5,255
358
4,587
175
4,594
473
4,582
346
4,508
312
4,541
194
630
-
(147)
25,306
518
-
367
-
780
-
422
-
709
-
313
-
3,132
22,407
(2,259)
(1,833)
10,729
27,219
(7,208)
6,117
1,334
11,429
(910)
(567)
1,622
11,179
(1,921)
(489)
1,396
1,875
11,752 11,151
(1,746)
(849)
378
385
5,575
9,452
(1,269)
941
1,785
9,169
(537)
(464)
(2,791)
(2,469)
(1,274)
(1,169)
(1,019)
(704)
(718)
(621)
(2,990)
12,534
(11,263)
12,396
(1,970)
6,708
(1,702)
5,898
(1,764)
9,732
(1,836)
6,016
(2,999)
5,407
(1,844)
5,703
3 months
March 31,
2019
Fiscal
2019
Dec. 31,
2018
Fiscal
2019
Sept. 30,
2018
Fiscal
2019
June 30,
2018
Fiscal
2019
March 31,
2018
Fiscal
2018
Dec. 31,
2017
Fiscal
2018
Sept. 30,
2017
Fiscal
2018
June 30,
2017
Fiscal
2018
13,631
9,160
5,186
6,776
10,675
6,589
2,710
(589)
(1,935)
(1,972)
(1,488)
(2,228)
(846)
(2,188)
(705)
(807)
(669)
(1,272)
(1,383)
(347)
(406)
(593)
(1,000)
(404)
(1,742)
(1,827)
(1,390)
(1,205)
(1,166)
(847)
-
-
(1,890)
1,180
3,189
1,580
1,413
3,186
273
7,255
3,132
10,527
10,729
15,998
1,334
5,448
1,622
6,198
1,396
11,066
1,875
8,022
5,575
6,853
1,785
7,240
Annual Report 2019 | Stingray Group Inc. | 40
LIQUIDITY AND CAPITAL RESOURCES FOR THE QUARTERS AND YEARS ENDED
MARCH 31, 2019 AND 2018
(in thousands of Canadian dollars)
Operating activities
Financing activities
Investing activities
Net change in cash
Cash – beginning of period
Cash – end of period
Adjusted Free cash flow(1)
Operating activities
3 months
12 months
2019
13,631
(9,717)
(4,346)
(432)
5,105
4,673
10,527
2018
10,675
3,599
(15,429)
(1,155)
4,517
3,362
11,066
2019
34,753
450,140
(483,582)
1,311
3,362
4,673
38,171
2018
19,385
19,698
(41,583)
(2,500)
5,862
3,362
33,181
Cash flow generated from operating activities amounted to $13.6 million for Q4 2019 compared to $10.7 million for Q4 2018.
The increase was mainly due to higher operating results, partially offset by higher interest paid and income taxes paid due to
income taxes payable included in the opening balance sheet of NCC at the acquisition date.
Cash flow generated from operating activities amounted to $34.8 million for Fiscal 2019 compared to $19.4 million for
Fiscal 2018. The increase was mainly due to higher operating results and lower legal fees, partially offset by higher acquisition
expenses, interest paid and income taxes paid.
Financing Activities
Net cash flow used in financing activities amounted to $9.7 million for Q4 2019 compared to net cash flow generated by
financing activities of $3.6 million for Q4 2018. The net change was mainly attributable to repayments of the revolving credit
facility and higher dividend payment, partially offset by lower repayments of other payable.
Net cash flow generated by financing activities amounted to $450.1 million for Fiscal 2019 compared to $19.7 million for
Fiscal 2018. The net change was mainly attributable to the funding of the NCC acquisition, which was financed through credit
facilities, a subordinated debt and share issuances. The Corporation also paid other payables related to prior acquisitions and
a higher dividend.
Investing Activities
Net cash flow used in investing activities amounted to $4.3 million for Q4 2019 compared to $15.4 million for Q4 2018. The net
change was primarily due to lower business and asset acquisitions compared to Q4 2018.
Net cash flow used in investing activities amounted to $483.6 million for Fiscal 2019 compared to $41.6 million for Fiscal 2018.
The net change was primarily due to the acquisition of NCC and DJ Matic, partially offset by the proceeds from the disposal of
some non-core assets previously held by NCC.
Adjusted Free cash flow(1)
Adjusted Free cash flow generated in Q4 2019 amounted to $10.5 million compared to $11.1 million for Q4 2018. The decrease
was mainly related to higher interest paid, income taxes paid due to income taxes payable included in the opening balance
sheet of NCC at the acquisition date and higher capital expenditures, partially offset by higher operating results. Excluding the
income taxes paid related to the NCC acquisition, Adjusted Free cash flow would have reached $14.1 million.
Adjusted Free cash flow generated in Fiscal 2019 amounted to $38.2 million compared to $33.2 million for Fiscal 2018. The
increase was mainly related to higher operating results, partially offset by higher interest paid, higher capital expenditures and
income taxes paid in part related to the NCC acquisition described above. Excluding the income taxes paid related to the NCC
acquisition, Adjusted Free cash flow would have reached $41.8 million.
Note:
(1) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33.
Annual Report 2019 | Stingray Group Inc. | 41
Contractual Obligations
The Corporation is committed under the terms of contractual obligations with various expiration dates, primarily the rental
properties and equipment, broadcast licences commitments and financial obligations under our credit agreement and
subordinated debt. The following table summarizes the Corporation’s undiscounted significant contractual obligations as at
March 31, 2019, including its estimated payments and commitments related to leasing contracts:
(in thousands of Canadian dollars)
Operating lease agreements
Broadcast licences commitments
Credit facility
Subordinated debt
Accounts payables and accrued liabilities
Other liabilities
Total obligations
Broadcast licences and royalties
Less than
1 year
14,216
6,347
14,086
-
62,364
16,186
113,199
1 to 5
years
22,850
23,327
301,128
50,000
-
35,035
432,340
More than
5 years
2,096
7,681
-
-
-
12,808
22,585
Total
39,162
37,355
315,214
50,000
62,364
64,029
568,124
A condition of the broadcast licences owned by the Corporation is to commit to fund Canadian Content Development (“CCD”)
over the initial term of the licences, which is usually 7 years. The Corporation must also 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.
Annual Report 2019 | Stingray Group Inc. | 42
Capital resources
The Corporation has a credit facility for an authorized amount up to $450.0 million maturing in October 2021. The credit facility
consists of a revolving credit facility for an authorized amount up to $300.0 million and a non-revolving term facility in the
amount of $150.0 million.
The credit facility may be drawn in Canadian dollars in the form of prime rate loan or banker’s acceptances, in US dollars in
the form of US base rate loans or LIBOR loans, or in Euro and British Pound in the form of LIBOR loans and in Australian dollars
in the form of BBSY loans.
The credit facility bears interest at (a) the bank’s prime rate plus an applicable margin based on a financial covenant or (b) the
banker’s acceptance rate plus an applicable margin based on a financial covenant (5.325% as at March 31, 2019). In addition,
the Corporation incurs standby fees, varying between 0.28% and 0.60% (0.48% as at March 31, 2019), based on a financial
covenant, on the unused portion of the Credit facility. The Credit facility is secured by guarantees from subsidiaries and first
ranking lien on universality of all assets, tangible and intangibles, present and future.
The following table summarizes the net change in Net debt that occurred in the year ended March 31, 2019 including related
ratios:
Movement in Net debt(1)(2)
$483.2
$10.0
$16.0
$165.1
$19.2
$357.8
$35.3
As at March 31,
2018
Business
acquisitions
outlays and
holdbacks
payments
Investment and
intangible asset
acquired
through asset
acquisition
Dividend
payment
Issuance of
shares
Remaining net
change of
revolving facility
and cash
As at March 31,
2019
$41.5
0.85
As at March 31, 2018: 12-Month Trailing Adjusted EBITDA(1)(2)(3)
As at March 31, 2019: Pro Forma Adjusted EBITDA(1)(2)(4)
Net debt to Adjusted EBITDA(1)(2)(3)
$114.2
3.13
In millions of Canadian dollars.
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33.
(3) Adjusted EBITDA is calculated on the last twelve months in regards to the Net debt to Adjusted EBITDA ratio.
(4) As at March 31, 2019, Pro Forma Adjusted EBITDA is calculated as the Corporation’s Fiscal 2019 Adjusted EBITDA ($72.2 million) and last twelve
months pro rated Adjusted EBITDA for the acquisitions made in Fiscal 2019 for the months prior to the acquisitions which are not already reflected in
the results ($42.0 million including synergies of $5.8 million). Refer to “Forward-looking statements” and “Supplemental information on Non-IFRS
measures” on page 28 and for reconciliations of Adjusted EBITDA to the most directly comparable IFRS financial measure, refer to “Supplemental
information on Non-IFRS measures” on page 33.
Annual Report 2019 | Stingray Group Inc. | 43
CONSOLIDATED FINANCIAL POSITION
The following table shows the main variances that have occurred in the consolidated financial position of the Corporation for
the year ended March 31, 2019:
(in thousands of Canadian dollars)
March 31,
2019
March 31,
2018
Variance
Trade and other receivables
68,861
35,444
33,417 ▲
Intangible assets, excluding broadcast
licences
65,111
54,355
10,756 ▲
Broadcast licences
270,555
-
270,555 ▲
Goodwill
332,132
98,467
233,665 ▲
Accounts payables and accrued liabilities
62,364
35,199
27,165 ▲
Other liabilities
Credit facility
Subordinated debt
Music Choice Litigation
Music Choice v. Stingray
59,769
28,087
31,682 ▲
312,955
49,539
38,627
-
274,328 ▲
49,539 ▲
Significant contributions
Accounts receivables related to the
acquisition of NCC
Recognition of intangibles following
business and asset acquisitions,
partially offset by disposals and
write-off
Recognition of broadcast licences
following the acquisition of NCC
Recognition of goodwill following the
acquisitions of NCC, DJ Matic and
Novramedia
Accounts payables related to the
acquisitions of NCC and DJ Matic
Recognition of the CTRC tangible
benefits and pension liability related
to the NCC acquisition and
contingent considerations assumed
following the acquisitions of
DJ Matic and Novramedia, partially
offset by revaluations and payments
made on contingent consideration
and balances payable on past
acquisitions
Funding of the acquisitions of NCC,
DJ Matic and Novramedia
Funding of the acquisition of NCC
Music Choice filed its original Complaint against the Corporation on June 6, 2016, asserting infringement of four U.S. patents,
namely, U.S. Patent Nos. 8,769,602 (the ’602 Patent), 9,357,245 (the ’245 Patent), 7,320,025 (the ’025 Patent) and
9,351,045 (the ’045 Patent). On August 12, 2016, Music Choice filed its First Amended Complaint, which added a fifth U.S.
patent, namely, U.S. Patent No. 9,414,121 (the ’121 Patent). The Corporation filed its Answer to the Original Complaint
(including counterclaims) on August 30, 2016, asserting, among other things, defenses and counterclaims of non-infringement
and invalidity. On September 2, 2016, Music Choice filed its Second Amended complaint, adding Stingray Music USA, Inc.
(SMU) as a defendant, and the Corporation and SMU filed their answers and counterclaims on September 23 and
October 4, 2016, respectively. Since the commencement of the case, the parties have jointly prepared and filed with the Court
a docket control order, a protective order and an ESI order. Music Choice also served its infringement contentions on
September 12, 2016, the parties exchanged Initial Disclosures, and the Corporation served its invalidity contentions on
November 28, 2016. On March 27, 2017, the Corporation filed a motion for judgment on the pleadings on the basis that the
Asserted Patents are invalid under 35 U.S.C. 101 for claiming unpatentable subject matter. The parties exchanged amended
infringement and invalidity contentions on April 28, 2017. In addition, on November 14, 2016, the Corporation filed an amended
answer and counterclaims which included inequitable conduct counterclaims based on David Del Beccaro’s (and the other
inventors’) failure to disclose a product offered by Music Choice Europe in or about 2001 to the patent office and their
misrepresentations to the patent office that they are the true inventors of the patents-in-suit. Music Choice moved to dismiss
and strike the Corporation’s inequitable conduct counterclaims, which the Corporation opposed on January 4, 2017. On May
3, 2017, the magistrate judge handling the case issued a Report and Recommendation that the motion be dismissed, and on
September 6, 2017, the Court adopted the report and denied Music Choice’s motion. On July 6, 2017, the Court issued a
Markman Order construing certain claim terms of the Asserted Patents. On September 14, 2017, Music Choice dropped one
of the five patents-in-suit (the ‘602 Patent). On October 17, 2017, the Corporation filed a motion to adjourn the trial date and
remaining case deadlines, in part because the Patent Trial and Appeal Board (PTAB) instituted inter partes review for three of
the four patents-in-suit (i.e., the ’025, ’045 and ’245 Patents). On October 23, 2017, the Corporation filed a petition for
Annual Report 2019 | Stingray Group Inc. | 44
inter partes review for claims 10 and 15 of the ’245 Patent. On October 24, 2017, Music Choice requested adverse judgment
against itself from the PTAB with respect to 1-9, 12-14, and 16-17 of the ’245 Patent. On October 27, 2017, the PTAB instituted
inter partes review on the fourth patent-in-suit (i.e., the ’121 Patent), and on October 30, 2017, the Corporation filed a motion
to stay the litigation pending the inter partes reviews. On December 12, 2017, the Court granted the Corporation’s motion to
stay, staying the litigation pending resolution of the inter partes reviews, and dismissed without prejudice Stingray’s motion for
judgment on the pleadings. On March 26, 2018, the PTAB declined to institute an inter partes review for claims 10 and 15 of
the ’245 Patent. On April 26, 2018, the PTAB entered adverse judgment against Music Choice as to claims 1-9, 12-14, and
16-17 of the ’245 Patent and terminated the proceeding. On June 19, 2018 and July 16, 2018, the PTAB held hearings for the
instituted inter partes reviews. On September 20, 2018, the PTAB invalidated claims 1, 3 and 4 of the ’025 Patent and stated
that claim 8 was not shown to be unpatentable as anticipated by U.S. Patent Application Publication No. 2002/0078456 A1
(Hudson). On October 11, 2018, the PTAB invalidated claims 1-4 and 6-9 of the ’045 Patent and stated that claims 5 and 10-
20 were not shown to be unpatentable as obvious in view of Hudson and U.S. Patent No. 6,248,946 (Dwek). On October 17,
2018, the PTAB invalidated all of the claims of the ’602 Patent. On October 24, 2018, the PTAB invalidated claims 1, 6, and 10-
12 of the ’121 Patent and stated the claim 14 was not shown to be unpatentable as anticipated by U.S. Patent No. 5,752,160.
Since claim 14 of the ’121 Patent is not asserted in the litigation, the ’121 Patent is no longer at issue in the district court
litigation. On November 21, 2018, Stingray filed a Notice of Appeal regarding the PTAB’s decision that claim 8 of the ’025
Patent was not shown to be unpatentable as anticipated by Hudson. On November 23, 2018, the parties filed a joint status
report advising the district court as to the outcome of the proceedings and a joint motion proposing a docket control order. On
November 26, 2018, the Court lifted the stay and entered an Amended Docket Control Order. On December 12, 2018, Stingray
filed a Notice of Appeal regarding the PTAB’s decision that claims 5 and 10-20 of the ’045 Patent were not shown to be
unpatentable as obvious in view of Hudson and Dwek. Supplemental fact discovery has closed, and expert discovery has
commenced. Trial is scheduled for August 19, 2019.
Stingray v. Music Choice
SMU filed its Complaint on August 30, 2016, asserting claims of unfair competition under the Federal Lanham Act, defamation,
trade libel, tortious interference, and common law unfair competition, stemming from false misrepresentations of fact made by
Music Choice regarding the nature, characteristics and qualities of Stingray Music and its products and services, to SMU’s
existing and potential customers, with the goal of damaging SMU’s relationships with those customers and its business
generally. On October 17, 2016, Music Choice filed a Motion to Dismiss on the grounds that all of SMU’s claims are time-barred.
In response, on November 3, 2016, SMU filed an Amended Complaint, after which (on December 7, 2016), Music Choice
moved to dismiss only the state law claims. Music Choice also filed a motion to transfer the case to the Eastern District of
Pennsylvania. On January 4, 2017, SMU opposed both motions. In addition, SMU filed a motion to consolidate the action with
the Music Choice patent infringement action.
On March 16, 2017, the Court denied Music Choice’s motion to change venue, and granted SMU’s motion to consolidate,
ordering that this action be consolidated for all pretrial issues with the Music Choice v. Stingray action. Music Choice’s motion
to dismiss the state law claims remains pending. On March 30, 2017, Music Choice answered SMU’s complaint (except for the
state law claims that remain subject to its pending motion to dismiss) and asserted a counterclaim against SMU and the
Corporation. Music Choice’s counterclaim alleges that the Stingray entities misused Music Choice confidential data in violation
of various non-disclosure agreements (the “NDAs”). These non-disclosure agreements arose from discussions between the
parties concerning a possible acquisition of Music Choice by the Corporation. The Corporation’s entities answered the
counterclaim on April 28, 2017, denying the allegations and asserting various affirmative defenses, including that Music Choice
acted fraudulently and in bad faith with regard to the NDAs. Supplemental fact discovery has closed, and expert discovery has
commenced. Trial is scheduled for August 19, 2019.
SOCAN and Re:Sound legal proceedings
From May 2, 2017 until May 10, 2017, the Corporation, together with its Canadian Broadcast Distribution Undertaking
customers (together, the “Objectors”), presented an affirmative case before the Copyright Board of Canada to seek a reduction
in the prescribed rates and terms for the Pay Audio Services Tariff for the 2007-2016 period. SOCAN and Re:Sound (together,
the “Collectives”) opposed that case, but in the opinion of the Objectors failed to offer compelling alternatives other than a
request to maintain the status quo. While the Objectors and the Collectives await the final determination of the Board on the
proper quantum of the Tariff, in early 2018 the Board released a tentative ruling proposing that allocation of affiliation payments
across the suite of Stingray services is reasonable and appropriate and asking the parties to propose favoured approaches to
allocation. The parties have responded to the Board’s request, with the Objectors proposing an allocation based on a “cost
approach”, as supported by independent, expert advice. The Copyright Board of Canada continues its consideration of the
matter, and the Corporation anticipates a decision in about 6 to 15 months, based on past experience and the complexity of
this proceeding.
Annual Report 2019 | Stingray Group Inc. | 45
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 director’s fees include the following:
(in thousands of Canadian dollars)
Short-term employee benefits
Share-based compensation
Restricted and performance share units
Deferred share units
Off-Balance Sheet Arrangements
3 months
12 months
2019
2018
2019
2018
1,246
124
234
193
1,797
1,188
271
195
263
1,917
4,497
630
811
-
5,938
4,350
921
557
911
6,739
The Corporation had no off-balance sheet arrangements, other than operating leases (which have been discussed 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.
Disclosure of Outstanding Share Data
Issued and outstanding shares and outstanding stock options consisted of:
Issued and outstanding shares:
Subordinate voting shares
Subordinate voting shares held in trust through employee share
purchase plan
Variable subordinate voting shares
Multiple voting shares
Outstanding stock options:
Stock options
June 4, 2019
March 31, 2019
57,685,820
57,671,720
(21,850)
623,629
17,941,498
76,229,097
(13,044)
637,729
17,941,498
76,237,903
2,104,100
2,104,100
The Corporation has a 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,10% of all multiple voting shares, subordinate
voting shares and variable subordinate voting shares issued and outstanding on a non-diluted basis is reserve for issuance. In
Fiscal 2019, 147,500 options were exercised, 280,773 options were forfeited, and 567,146 options were granted to eligible
employees, subject to service vesting periods of 4 years.
Financial Risk Factors
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’s subsidiaries, primarily the US 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’s 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
Annual Report 2019 | Stingray Group Inc. | 46
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.
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 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.
The credit 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. To manage its interest rate risk, the Corporation entered
into an interest rate swaps agreement. To manage its interest rate risk, the Corporation entered into the following interest rate
swap agreements during the year ended March 31, 2019:
(in thousands of Canadian dollars)
Maturity
Currency
Fixed interest rate
Initial nominal value
Mark-to-market liabilities as
at March 31, 2019
October 25, 2021
October 25, 2024
CAD
CAD
2.19%
2.29%
100,000
100,000
841
2,157
2,998
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 receivables; 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 receivables is limited.
Critical Accounting Estimates
The preparation of the Corporation’s 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.
Below an overview of the areas that involved more 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 Corporation 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.
Annual Report 2019 | Stingray Group Inc. | 47
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 that 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.
Estimation of cost of defined benefit pension plans and present value of the net pension obligation
The cost of defined benefit pension plans and the present value of the net pension obligation are determined using actuarial
valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future.
These include the determination of the discount rate, mortality rates and future pension increases. Due to the complexity of
the valuation, the underlying assumptions and its long-term nature, the net pension obligation is highly sensitive to changes in
these assumptions.
Management engages the services of external actuaries to assist in the determination of the appropriate discount rate.
Management, with the assistance of actuaries, considers the interest rates of high quality corporate bonds that have terms to
maturity approximating the terms related to the defined benefit obligation. The mortality rate is based on publicly available
mortality tables. Future pension increases are based on expected future inflation rates.
Estimated fair value of certain 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.
Estimated goodwill and broadcasting licences impairments
Broadcast licences and goodwill are not amortized but are tested annually for impairment, or more frequently if events or
circumstances indicate that it is more likely than not that the value of broadcast licences and/or goodwill may be impaired.
Impairment exists when the carrying value of an asset or CGU exceeds its recoverable amount, which is the higher of its fair
value less costs to sell and its value-in-use. The fair value less costs to sell calculation is based on available data from binding
sales transactions in an arm’s-length transaction of similar assets, observable market prices, or discounted cash flow
projections less incremental costs for disposing of the asset. The value-in-use calculation is based on a discounted cash flow
model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the
Corporation is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU
being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well
as the expected future cash inflows and the growth rate used for extrapolation purposes.
Estimation of fair values of contingent consideration and balance payable on business acquisitions in business combinations
The contingent consideration and balance payable on business acquisitions related to business combinations is 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
contracts. The fair value of the contingent consideration and balance payable on business acquisitions were estimated by
calculating the present value of the future expected cash flows.
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 Corporate 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.
Annual Report 2019 | Stingray Group Inc. | 48
Future Accounting Changes
IFRS 16 – Leases
Effective April 1, 2019, the Corporation will adopt IFRS 16 using the modified retrospective approach. IFRS 16 set out new
principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The standard
provides lessees with a single accounting model for all leases and requires a lessee to recognize assets and liabilities for all
leases with a term of more than 12 months, unless the underlying assets is of low value. In particular, lessees will be 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. Assets and liabilities arising from a lease will be initially measured on a present value basis.
As a result of adopting IFRS 16, the Corporation will recognize a significant increase to both assets and liabilities of the
consolidated statements of financial position as well as a decrease to operating expenses (for the removal of rent expense for
leases), an increase to depreciation, amortization and write-off (due to depreciation of the right-of-use asset) and an increase
to net finance expense (income) (due to accretion of the lease liability).
The Corporation is still assessing the impact of the new leasing standard on its consolidated financial statements.
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”).
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, 2019, an evaluation was carried out, under the supervision of the CEO and the CFO, of the design and
operating effectiveness of the Corporation’s DC&P. Based on this evaluation, the CEO and the CFO concluded that the
Corporation’s DC&P were appropriately designed and were operating effectively as at March 31, 2019.
As at March 31, 2019, 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, 2019.
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 5, 2019,
did not include the controls or procedures of the operations of Novramedia, DJ Matic and NCC which were acquired in Fiscal
2019. 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 Fiscal 2019 for these entities:
(in thousands of Canadian dollars)
Results of operations
Revenues
Net income (loss)
Financial Position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Novramedia
DJ Matic
NCC
3,456
813
768
43
506
-
5,525
(132)
65,909
(10,234)
3,577
6,037
4,111
1,471
13,176
314,321
25,200
75,563
Annual Report 2019 | Stingray Group Inc. | 49
Subsequent Events
Agreement for a business acquisition
On May 9, 2019, the Corporation announced it has entered into an agreement to acquire the assets of two radio stations
located in Welland, Ontario. The completion of the assets acquisition is subject to the CRTC approval.
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 2019 | Stingray Group Inc. | 50
KPMG LLP
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 Group Inc.
Opinion
We have audited the accompanying consolidated financial statements of Stingray Group Inc. (the "Corporation",
formerly Stingray Digital Group Inc.), which comprise the consolidated statements of financial position as at
March 31, 2019 and March 31, 2018, the consolidated statements of comprehensive income (loss) for the years
then ended, the consolidated statements of changes in equity for the years then ended, the consolidated
statements of cash flows for the years then ended, and notes to the consolidated financial statements including a
summary of significant accounting policies (hereinafter, referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated
financial position of the Corporation as at March 31, 2019 and March 31, 2018, and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with International Financial
Reporting Standards ("IFRS").
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the "Auditors’ Responsibilities for the Audit of the Financial
Statements" section of our auditors’ report.
We are independent of the Corporation in accordance with the ethical requirements that are relevant to our audit
of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with
these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Other Information
Management is responsible for the other information. Other information comprises:
the information included in Management’s Discussion and Analysis filed with the relevant Canadian
Securities Commissions;
the information, other than the financial statements and the auditors’ report thereon, included in a document
likely to be entitled "Annual Report 2019".
Our opinion on the financial statements does not cover the other information and we do not and will not express
any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained in the audit and remain alert for indications that the other
information appears to be materially misstated.
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.
Annual Report 2019 | Stingray Group Inc. | 51
Page 2
We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian
Securities Commissions as at the date of this auditors’ report. If, based on the work we have performed on this
other information, we conclude that there is a material misstatement of this other information, we are required to
report that fact in the auditors’ report. We have nothing to report in this regard.
The information, other than the financial statements and the auditors’ report thereon, included in a document
likely to be entitled "Annual Report 2019" is expected to be made available to us after the date of this auditors’
report. If, based on the work we will perform on this other information, we conclude that there is a material
misstatement of this other information, we are required to report that fact to those charged with governance.
Responsibility of Management and Those Charged with Governance for the Financial
Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance
with International Financial Reporting Standards ("IFRS"), and for such internal control as management
determines is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Corporation's ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Corporation or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Corporation's financial reporting process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our
opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of the financial
statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit.
We also:
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Annual Report 2019 | Stingray Group Inc. | 52
Page 3
Obtain an understanding of internal control relevant to the audit 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 Corporation's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Corporation's ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures
in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditors’ report. However, future events or
conditions may cause the Corporation to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
Communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that
we identify during our audit.
Provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group Entity to express an opinion on the financial statements. We are responsible for
the direction, supervision and performance of the group audit. We remain solely responsible for our audit
opinion.
The engagement partner on the audit resulting in this auditors’ report is Alain Bessette.
Montréal, Canada
June 5, 2019
*CPA auditor, CA, public accountancy permit No. A115894
Annual Report 2019 | Stingray Group Inc. | 53
Consolidated Statements of Comprehensive Income (Loss)
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars,
except per share amounts)
Note
2019
2018
Revenues
6
$
212,650
$
130,214
Operating expenses
CRTC tangible benefits
Depreciation, amortization and write-off
Net finance expense (income)
Change in fair value of investments
Acquisition, legal, restructuring and other expenses
Income (loss) before income taxes
Income tax recovery
Net income (loss)
Net income (loss) per share – Basic
Net income (loss) per share – Diluted
Weighted average number of shares – Basic
Weighted average number of shares – Diluted
Comprehensive income (loss)
Net income (loss)
Other comprehensive income (loss), 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
Remeasurement loss on pension benefit obligations,
net of income tax recovery of $62
Total other comprehensive income (loss)
20
8
16, 27
9
142,877
25,306
31,133
12,298
(565)
16,817
(15,216)
92,239
–
21,287
3,174
600
10,631
2,283
10
(3,228)
(13)
$
(11,988)
$
2,296
11
11
11
11
(0.19)
(0.19)
0.04
0.04
64,709,965
64,709,965
53,455,073
54,080,184
$
(11,988)
$
2,296
(2,450)
1,640
(120)
–
(2,570)
1,640
Total comprehensive income (loss)
$
(14,558)
$
3,936
Net income (loss) is entirely attributable to Shareholders.
The accompanying notes are an integral part of these consolidated financial statements.
Annual Report 2019 | Stingray Group Inc. | 54
Consolidated Statements of Financial Position
March 31, 2019 and 2018
(In thousands of Canadian dollars)
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Income taxes receivable
Inventories
Other current assets
Non-current assets
Property and equipment
Intangible assets, excluding broadcast licences
Broadcast licences
Goodwill
Investments
Other non-current assets
Deferred tax assets
Total assets
Liabilities and Equity
Current liabilities
Credit facility
Accounts payable and accrued liabilities
Dividend payable
Deferred revenues
Current portion of other liabilities
Income taxes payable
Non-current liabilities
Credit facility
Subordinated debt
Other liabilities
Deferred tax liabilities
Total liabilities
Shareholders’ equity
Share capital
Contributed surplus
Deficit
Accumulated other comprehensive income (loss)
Total equity
Commitments (note 25)
Subsequent events (note 3)
Total liabilities and equity
Note
March 31,
2019
March 31,
2018
$
12
$
$
13
14
15
15
16
10
18
17
22
20
18
19
20
10
22
$
4,673
68,861
972
2,624
9,033
86,163
50,326
65,111
270,555
332,132
18,738
1,367
10,672
3,362
35,444
989
1,784
6,793
48,372
11,135
54,355
–
98,467
17,473
954
12,950
835,064
$
243,706
$
14,086
62,364
4,956
1,634
16,186
3,889
103,115
298,869
49,539
43,583
52,423
547,529
337,714
4,344
(53,317)
(1,206)
287,535
–
35,199
3,097
1,530
13,212
2,403
55,441
38,627
–
14,875
5,156
114,099
146,354
3,825
(21,936)
1,364
129,607
$
835,064
$
243,706
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors,
(Signed) Eric Boyko, Director
(Signed) Pascal Tremblay, Director .
Annual Report 2019 | Stingray Group Inc. | 55
Consolidated Statements of Changes in Equity
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars,
except number of share capital)
Share Capital
Number
Amount
Contributed
surplus
Accumulated
other
comprehensive
income (loss)
Total
shareholders’
equity
Deficit
Balance at March 31, 2017
51,326,366 $ 102,700
$ 2,872
$
(10,299)
$
(325)
$ 94,948
Issuance of shares upon
exercise of options (note 22)
Dividends
Issuance of subordinate voting shares
and variable subordinate voting
shares (note 22)
Share issuance costs, net of income
taxes of $604 (note 22)
Share-based compensation
Employee share purchase plan
(notes 22 and 24)
Net income
Other comprehensive income (loss)
(133)
–
85,198
–
301
–
4,900,200
45,082
(1,669)
–
–
–
1,039
(6,011)
(60)
–
–
–
–
47
–
–
Balance at March 31, 2018
56,305,753 $ 146,354
$ 3,825
$
(21,936)
$ 1,364
$ 129,607
(49)
1,689
(279)
–
(13,884)
–
–
–
–
2,296
(19,393)
–
–
–
–
–
(11,988)
–
–
–
–
–
–
941
5
(148)
–
–
–
–
–
–
–
–
–
168
(13,884)
45,082
(1,669)
1,039
(13)
2,296
1,640
–
–
–
–
–
–
–
–
339
(19,393)
178,559
17,110
(4,899)
941
(23)
(148)
(11,988)
Issuance of shares upon
exercise of options (note 22)
147,500
Dividends
–
618
–
Issuance of subordinate voting shares
and variable subordinate voting
shares (note 22)
Issuance of multiple voting shares
18,144,470
178,559
(note 22)
1,647,213
17,110
Share issuance costs, net of income
taxes of $1,780 (note 22)
Share-based compensation
Employee share purchase plan
(notes 22 and 24)
Realized loss on sales of treasury
shares held by the Corporation
Net loss
Other comprehensive income (loss)
–
–
(4,899)
–
(7,033)
(28)
–
–
–
–
–
–
–
(2,570)
(2,570)
Balance at March 31, 2019
76,237,903 $ 337,714
$
4,344
$(53,317)
$(1,206) $ 287,535
The accompanying notes are an integral part of these consolidated financial statements.
Annual Report 2019 | Stingray Group Inc. | 56
Consolidated Statements of Cash Flows
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars)
Note
2019
20
13
14
8
8
16
16
8
8
8
23
19
22
22
22
24
4
13
16
Operating activities:
Net income (loss)
Adjustments for:
CRTC tangible benefits
Depreciation, disposal and write-off of property and
equipment
Amortization of intangible assets
Share-based compensation, PSU and DSU expenses
Interest expense and standby fees
Mark-to-market losses on derivative financial instruments
Change in fair value of investments
Share of results of joint venture
Change in fair value of contingent consideration
Write-off of balance payable on business acquisition
Depreciation, amortization and accretion of other
liabilities
Income tax recovery
Interest paid
Income taxes paid
Net change in non-cash operating items
Financing activities:
Increase (decrease) of credit facility
Increase of subordinated debt
Issuance of shares
Share issuance costs
Deferred financing fees
Payment of dividend
Proceeds from the exercise of stock options
Proceeds from disposal of treasury shares held by a
subsidiary
Shares purchased under the employee share purchase plan
Repayment of other payables
Investing activities:
Business acquisitions, net of cash acquired
Disposal of non-core assets
Investment in an associate
Proceeds from disposal of an investment
Acquisition of an investment
Acquisition of property and equipment
Acquisition of equipment for leasing purpose
Intangible assets acquired through asset acquisitions
Acquisition of intangible assets other than internally
developed intangible assets
Addition to internally developed intangible assets
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
$
(11,988)
$
25,306
7,703
23,430
2,461
10,295
2,998
(565)
200
534
(4,264)
1,886
(3,228)
(9,950)
(6,006)
38,812
(4,059)
34,753
276,540
50,000
165,111
(6,679)
(3,089)
(16,007)
339
565
(199)
(16,441)
450,140
(473,624)
11,500
–
–
(900)
(7,623)
–
(3,100)
(3,671)
(6,164)
(483,582)
1,311
3,362
Cash and cash equivalents, end of year
$
4,673
$
The accompanying notes are an integral part of these consolidated financial statements.
Annual Report 2019 | Stingray Group Inc. | 57
2018
2,296
–
3,062
18,225
3,549
1,445
–
600
(96)
3,196
–
713
(13)
(1,374)
(91)
31,512
(12,127)
19,385
(2,413)
–
45,082
(2,253)
–
(10,787)
168
–
(77)
(10,022)
19,698
(29,417)
–
(1,106)
1,218
–
(4,546)
(3,316)
–
(2,403)
(2,013)
(41,583)
(2,500)
5,862
3,362
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
1. BUSINESS DESCRIPTION
Stingray Group Inc. (formerly Stingray Digital Group Inc.) (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 radio stations, premium television channels, digital TV, satellite TV, IPTV,
the Internet, mobile devices and game consoles.
Effective December 1, 2018, the Corporation changed its name to Stingray Group Inc.
2. SIGNIFICANT CHANGES AND HIGHLIGHTS
The consolidated financial position and performance of the Corporation was particularly affected by the following events
and transactions during the year ended March 31, 2019:
On November 26, 2018, the Corporation signed an agreement with Hector Broadcasting Company Limited to acquire
the assets of two radio stations located in New Glasgow, Nova Scotia, for total consideration of $2,846. It resulted in
the recognition of broadcast licences (notes 4 and 15) and balance payable on business acquisitions (note 4).
On November 13, 2018, the Corporation completed a subscription agreement with Irving West, Limited (the “investor”)
pursuant to which the investor purchased an aggregate of 2,429,544 subordinate voting shares at a price of $10.29
per subordinate voting shares for total gross proceeds of $25,000. It resulted in a decrease of the credit facility
(note 18) and increase of share capital (note 22).
On October 26, 2018, the Corporation completed the acquisition of all the outstanding Class A Subordinate Voting
shares and Class B Common shares (together the “NCC shares”) of Newfoundland Capital Corporation Limited
(“NCC”) for $14.75 per NCC share (the “Purchase Price”), representing a total consideration of $484,252. The
acquisition was authorized on October 23, 2018 by the Canadian Radio-television and Telecommunications
Commission (CRTC). It resulted in the recognition of goodwill (notes 4 and 15) and broadcast licences
(notes 4 and 15).
On August 21, 2018, effective October 26, 2018, the Corporation amended its existing $100,000 credit facility
(the “Credit facility”) by increasing the authorized amount up to $450,000 and extending the maturity to
October 26, 2021 to finance the acquisition of NCC. The Credit facility consists of a revolving credit facility for an
authorized amount up to $300,000 and a non-revolving term facility in the amount of $150,000. Refer to note 18 for
more detail on the credit facility.
On July 11, 2018, effective October 26, 2018, the Corporation entered into a loan agreement in the amount of $50,000.
The loan matures on October 26, 2023. Refer to note 19 for more detail on the transaction.
On October 12, 2018, the Corporation signed an agreement to acquire all of the outstanding shares of DJ-Matic, a
provider of in-store media solutions for businesses with clients in Belgium, the Netherlands, Germany, and Denmark
for total consideration of EUR$10,603 ($15,775). It resulted in the recognition of goodwill (notes 4 and 15), intangible
assets (notes 4 and 14) and contingent consideration (notes 4 and 20).
On August 1, 2018, the Corporation signed an agreement to acquire all of the outstanding shares of Novramedia Inc.,
a Toronto-based leader in the design, development, and implementation of digital media solutions for total
consideration of $7,737. It resulted in the recognition of goodwill (notes 4 and 15), intangible assets (notes 4 and 14)
and contingent consideration (note 4).
Annual Report 2019 | Stingray Group Inc. | 58
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
3. SUBSEQUENT EVENTS
On May 9, 2019, the Corporation announced it had entered into an agreement to acquire the assets of two radio stations
located in Welland, Ontario. The completion of the assets acquisition is subject to the CRTC approval.
4. BUSINESS ACQUISITIONS
NEW GLASGOW
On November 26, 2018, the Corporation purchased the assets of two radio stations, CKEC-FM and CKEZ-FM, located in
New Glasgow, Nova Scotia (referred as “New Glasgow” acquisition) from Hector Broadcasting Company Limited for total
consideration of $2,846.
Assets acquired:
Trade and other receivables
Property and equipment
Broadcasting licences
Deferred tax assets
Goodwill
Liabilities assumed:
Accounts payable and accrued liabilities
Net assets acquired at fair value
Consideration given:
Cash
Balance payable on business acquisitions
Preliminary
237
676
1,885
52
100
2,950
104
104
$
2,846
2,194
652
$
2,846
As of the reporting date, the Corporation has not completed the purchase price allocation over the identifiable net assets
and goodwill as information to confirm the fair value of certain assets and liabilities remains to be obtained.
Annual Report 2019 | Stingray Group Inc. | 59
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
NEWFOUNDLAND CAPITAL CORPORATION
On October 26, 2018, the Corporation acquired all of the issued and outstanding shares for total consideration of $484,252,
of which $453,694 was paid in cash and the remaining $30,558 through the issuance of 3,887,826 subordinate voting
shares of the Corporation. NCC is a radio broadcaster who operates radio stations across Canada. As a result of the
acquisition, goodwill of $219,138 was recognized related to the operating synergies expected to be achieved from
integrating the acquired business into the Corporation’s existing business. The goodwill will not be deductible for tax
purposes.
The fair value of acquired trade receivables was $33,224. The gross contractual amount of trade receivables was $34,184,
of which $960 is expected to be uncollectible.
The results of the business acquisition of NCC for the period ended March 31, 2019 are included in results since the date
of the acquisition. Revenues recorded from the acquisition date to March 31, 2019 were $65,227 and net loss was $10,234.
Had the acquisition occurred at the beginning of the fiscal year, revenues related to this acquired business would have
been approximately $162,701 and net income would have been $35,624.
Assets acquired:
Cash and cash equivalents
Trade and other receivables
Other current assets
Property and equipment
Broadcast licences
Goodwill
Other non-current assets
Deferred tax assets
Liabilities assumed:
Accounts payable and accrued liabilities
Income taxes payable
Other liabilities
Deferred tax liabilities
Net assets acquired at fair value
Consideration given:
Cash
Share capital
Preliminary
909
33,224
1,768
48,432
268,670
219,138
1,325
2,045
575,511
20,328
3,264
10,712
56,955
91,259
$
484,252
453,694
30,558
$
484,252
As of the reporting date, the Corporation has not completed the purchase price allocation over the identifiable net assets
and goodwill as information to confirm the fair value of certain assets and liabilities remains to be obtained.
Annual Report 2019 | Stingray Group Inc. | 60
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
DJ-MATIC
On October 12, 2018, the Corporation purchased all of the outstanding shares of DJ-Matic, a European provider of in-store
media solutions for businesses for total consideration of EUR10,603 ($15,775). As a result of the acquisition, goodwill of
$12,339 was recognized related to the operating synergies expected to be achieved from integrating the acquired business
into the Corporation’s existing business. The goodwill will not be deductible for tax purposes.
The fair value of acquired trade receivables was $1,088 which represented the gross contractual amount. The contingent
consideration arrangement requires the Corporation to pay, in cash, to the former owners, an amount not exceeding
EUR7,473 ($11,118) over the next three years ending in October 2021, based on an adjusted EBITDA ratio. The fair value
of the contingent consideration was determined using an income approach based on the estimated amount and timing of
projected cash flows.
The results of the business acquisition of DJ-Matic for the period ended March 31, 2019 are included in results since the
date of the acquisition. Revenues recorded from the acquisition date to March 31, 2019 were $5,526 and net loss was $351.
Had the acquisition occurred at the beginning of the fiscal year, revenues related to this acquired business would have
been approximately $11,050 and net loss would have been $753.
Assets acquired:
Cash and cash equivalents
Trade and other receivables
Inventories
Property and equipment
Intangible assets
Other non-current assets
Goodwill
Liabilities assumed:
Accounts payable and accrued liabilities
Deferred revenues
Income taxes payable
Deferred tax liabilities
Net assets acquired at fair value
Consideration given:
Cash
Contingent consideration
$
Preliminary
543
1,088
312
489
9,951
100
12,339
24,822
5,821
652
30
2,544
9,047
$
15,775
13,692
2,083
$
15,775
As of the reporting date, the Corporation has not completed the purchase price allocation over the identifiable net assets
and goodwill as information to confirm the fair value of certain assets and liabilities remains to be obtained.
Annual Report 2019 | Stingray Group Inc. | 61
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
NOVRAMEDIA
On August 1, 2018, the Corporation purchased all of the outstanding shares of Novramedia Inc. (“Novramedia”) for total
consideration of $7,737. Novramedia is a Canadian provider of digital media solution. As a result of the acquisition, goodwill
of $3,431 was recognized related to the operating synergies expected to be achieved from integrating the acquired
business into the Corporation’s existing business. The goodwill will not be deductible for tax purposes.
The fair value of acquired trade receivables was $754 which represented the gross contractual amount. The contingent
consideration arrangement requires the Corporation to pay, in cash, to the former owners, an amount not exceeding $2,500
over the next 12 months if certain revenues-based targets are met. The fair value of the contingent consideration was
determined using an income approach based on the estimated amount and timing of projected cash flows.
The results of the business acquisition of Novramedia for the period ended March 31, 2019 are included in results since
the date of the acquisition. Revenues recorded from the acquisition date to March 31, 2019 were $2,628 and net loss was
$643. Had the acquisition occurred at the beginning of the fiscal year, revenues related to this acquired business would
have been approximately $3,942 and net loss would have been $1,543.
Assets acquired:
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Property and equipment
Intangible assets
Goodwill
Liabilities assumed:
Accounts payable and accrued liabilities
Deferred revenues
Deferred tax liabilities
Net assets acquired at fair value
Consideration given:
Cash
Working capital receivable
Contingent consideration
$
Preliminary
4
754
863
142
50
5,827
3,431
11,071
942
842
1,550
3,334
$
7,737
5,500
(171)
2,408
$
7,737
As of the reporting date, the Corporation has not completed the purchase price allocation over the identifiable net assets
and goodwill as information to confirm the fair value of certain assets and liabilities remains to be obtained.
Annual Report 2019 | Stingray Group Inc. | 62
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
5. SEGMENT INFORMATION
OPERATING SEGMENTS
In connection with the acquisition of NCC on October 26, 2018 (note 4), the Corporation’s operating segments have been
modified and are now aggregated in two segments: Broadcasting and commercial music and Radio. The operating
segments reflect how the Corporation manages its operations, resources and assets and how it measures its performance.
Both operating segment’s financial results are reviewed by the Chief operating decision maker (“CDOM”) to make
decisions about resources to be allocated to the segment and asses its performance based on adjusted EBITDA, and for
which distinct financial information is available.
Adjusted EBITDA excludes from income (loss) before income taxes the following expenses: share-based compensation,
PSU and DSU expenses, CRTC tangible benefits, depreciation, amortization and write-off, net finance expense (income),
change in fair value of investments and acquisition, legal, restructuring and other expenses. There are no inter-segment
revenues for the periods.
The Broadcasting and commercial music segment specializes in the broadcast of music and videos on multiple platforms
and digital signage experiences and generates revenues from subscriptions or contracts.
The Radio segment operates several radio stations across Canada and generates revenues from advertising.
Corporate and eliminations is a non-operating segment comprising corporate and administrative functions that provide
support and governance to the Corporation’s operating business units.
Annual Report 2019 | Stingray Group Inc. | 63
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
The following tables present financial information by segment for years ended March 31, 2019 and 2018.
Year ended
Revenues
Operating expenses
(excluding Share-based
compensation, PSU and
DSU expenses)
Adjusted EBITDA
Share-based
PSU and DSU expenses
CRTC tangible benefits
Depreciation, amortization
compensation
and write-off
Net finance expense
(income)
Change in fair value of
investments
Acquisition, legal,
restructuring and other
expenses
Income (loss) before
income taxes
Income taxes
Net income (loss)
Total assets
Total liabilities(1)
Acquisition of property
Broadcasting and
commercial music
2019
2018
Radio
2019 2018
Corporate and
eliminations
2019
2018
Consolidated
2019
2018
$ 146,741 $ 130,214 $ 65,227 $
– $
682 $
– $ 212,650 $ 130,214
93,913
52,828
84,301
45,913
41,209
24,018
–
–
5,294
(4,612)
1,093
1,368
25,306
4,389
140,416
(4,389) 72,234
1,093
1,325
1,368
2,224
25,306
–
88,690
41,524
1,325
2,224
–
31,133
21,287
31,133
21,287
12,298
3,174
12,298
3,174
(565)
600
(565)
600
16,817
10,631
16,817
10,631
$
(15,216)
2,283
(3,228)
$ (11,988) $
(13)
2,296
$ 262,713 $ 243,706 $ 572,351 $
– $
– $
– $ 835,064 $ 243,706
$ 72,958 $ 72,375 $ 104,123 $
– $ 370,448 $ 41,724 $ 547,529 $ 114,099
and equipment
$
8,280 $
8,838 $ 50,684 $
– $
– $
– $ 58,964 $
8,838
Acquisition of
intangible assets
$ 35,094 $ 21,941 $
– $
– $
– $
– $ 35,094 $ 21,941
Acquisition of
broadcast licences
Goodwill recorded on
$
– $
– $ 270,555 $
– $
– $
– $ 270,555 $
–
business acquisitions
$ 15,770 $ 27,577 $ 219,238 $
– $
– $
– $ 235,008 $ 27,577
(1) Total liabilities include operating liabilities, the Credit facility and the Subordinated debt
Acquisition of property and equipment, intangible assets, broadcast licences and goodwill, includes those acquired through
business acquisitions, whether they were paid or not.
Approximately 78% of the Corporation’s non-current assets are located in Canada.
Annual Report 2019 | Stingray Group Inc. | 64
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
6. REVENUES
On April 1, 2018, the Corporation adopted IFRS 15 using the modified retrospective approach. Upon adoption of this
standard, the Corporation did not have a cumulative adjustment, with the previous revenue recognition policy being applied
consistently under the new standard. However, the standard has an impact on the gross or net presentation of certain
Business to customers application revenue stream, such as mobile applications. Under IAS 18 – Revenue, the Corporation
presented its applications revenues on a net basis. Under IFRS 15, revenue recognition is based on the core “transfer of
control” principle that is used to determine the primary obligator of the service rendered. In this context, the Corporation
is considered as the principal and therefore presents these revenues on a gross basis.
The impact on revenues and operating expenses is as follows:
(in thousands of Canadian dollars)
Revenues
Operating expenses
ACCOUNTING POLICY
Contracts with customers
Reported figures
126,953
88,978
$
$
$
$
Adjustments
3,261
3,261
Year ended March 31, 2018
Restated figures
130,214
92,239
$
$
The Corporation records revenues from contracts with customers in accordance with the five steps in IFRS 15 Contracts
with customers as follows:
1)
2)
Identify the contract with a customer;
Identify the performance obligations in the contract;
3) Determine the transaction price, which is the total consideration provided by the customer;
4) Allocate the transaction price among the performance obligations in the contract based on their relative fair
values; and
5) Recognize revenues when the relevant criteria are met for each performance obligation.
Revenues are measured based on the value of the expected consideration in a contract with a customer and are recognized
when control of a product or service is transferred to a customer.
A contract asset is recognized in the consolidated statement of financial position when revenues are earned without having
been invoiced. Contract assets are presented in “Other current assets”. A contract liability is recognized when the
Corporation has received consideration in advance of the transfer of products or services to a customer.
BROADCASTING AND COMMERCIAL MUSIC SEGMENT
The Broadcasting and commercial music segment specializes in the broadcast of music and videos on multiple platforms
and digital signage experiences and generates revenues from subscriptions or contracts.
Subscriptions
The Corporation recognize revenues related to continuous music and video distribution over time, as the customer receives
and consumes the benefits of the music supply at the same time it is broadcasted. On-demand products, primally music
and concerts services, are also recognized over time as the customer receives and consumes the benefits of the on-
demand product at the same time it is broadcasted. The Corporation records contract liabilities when customers pay their
subscription fees in advance.
Annual Report 2019 | Stingray Group Inc. | 65
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
Media solutions
For media solutions projects, mainly bundled arrangements, the Corporation accounts for individual products and services
when they are separately identifiable, and the customer can benefit from the product or service on its own or with other
readily available resources. The total arrangement consideration is allocated to each product or service on its own or with
other readily available resources based on its stand-alone selling price.
The Corporation generally determines stand-alone selling prices based on the observable prices for products sold
separately without a service contract, adjusted for market conditions and other factors, as appropriate. When similar
products and services are not sold separately, the Corporation uses the expected cost plus margin approach to determine
stand-alone selling prices. The Corporation recognizes revenues for each individual product or service, when the related
performance obligations are satisfied, which is usually at a point in time for sale of equipment and over time for music
related services.
RADIO SEGMENT
The radio segment operates radio stations across Canada and generates revenues from advertising. Advertising revenues
are recognized at a point in time when the advertising airs on the Corporation’s radio stations. Revenues are recorded net
of any agency commissions as these charges are paid directly to the agency by the advertiser.
DISAGGREGATION OF REVENUES
The following table presents the Corporation’s revenues disaggregated by reportable segment, primary geographical
market and product.
Reportable segments
Broadcasting
and commercial
music
Radio
Corporate
$
Total
revenues
121,919
34,439
56,292
212,650
127,991
18,194
65,783
682
$
212,650
682
–
–
682
–
–
–
682
682
For the year ended March 31, 2019
Geography
Canada
United states
Other countries
$
Products
Subscriptions (1)
Media solutions (2)
Advertising (3)
Other
$
56,010
34,439
56,292
146,741
127,991
18,194
556
–
$
65,227
–
–
65,227
–
–
65,227
–
(1) Generally recognized over time
(2) Approximately 50% of revenues are recognized overtime and 50% at a point in time
(3) Generally recognized at a point in time
$
146,741
$
65,227
$
Annual Report 2019 | Stingray Group Inc. | 66
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
Reportable segments
Broadcasting
and commercial
music
Radio
Corporate
For the year ended March 31, 2018
Geography
Canada
United states
Other countries
$
Products
Subscriptions (1)
Media solutions (2)
$
59,248
25,294
45,672
130,214
113,024
17,190
(1) Generally recognized over time
(2) Approximately 50% of revenues are recognized overtime and 50% at a point in time
$
130,214
$
UNSATISFIED PORTION OF PERFORMANCE OBLIGATIONS
$
Total
revenues
59,248
25,294
45,672
130,214
113,024
17,190
$
130,214
–
–
–
–
–
–
–
$
$
–
–
–
–
–
–
–
The following table presents the revenues expected to be recognized in the future related to unsatisfied or partially satisfied
performance obligations as at March 31, 2019. The table below excludes i) contracts with a duration of one year or less
and ii) variable considerations, such as revenues based on a number of subscribers or location as they will likely vary
throughout the term of the contracts.
The unsatisfied portion of the transaction price of the performance obligations relates to monthly services expected to be
recognize over the next 3 years and thereafter.
Subscriptions
Media solutions
2020
2021
2022 Thereafter
Total
$
$
380
11,471
11,851
–
6,689
6,689
–
2,449
2,449
–
876
876
$
$
380
21,485
21,865
Unpon adoption of, and transition to, IFRS 15, the Corporation elected to utilize the following practical expedients and not
disclose:
The unsatisfied portions of performance obligations related to contracts with a duration of one year or less;
The unsatisfied portions of performance obligations where the revenue recognized corresponds to the amount
invoiced to customers.
7. OTHER INFORMATION
Expenses by nature are as follows:
Salaries and other short-term employee benefits
Research and development
Equipment costs
Share-based compensation
PSU and DSU expenses
$
2019
55,949
7,244
5,849
1,093
1,368
$
2018
34,688
6,589
6,618
1,325
2,224
Annual Report 2019 | Stingray Group Inc. | 67
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
8. NET FINANCE EXPENSE (INCOME)
Interest expense and standby fees
Mark-to-market losses on derivative financial instruments
Change in fair value of contingent consideration
Write-off of balance payable on business acquisition
Depreciation, amortization and accretion of other liabilities
Foreign exchange loss (gain)
$
$
9. ACQUISITION, LEGAL, RESTRUCTURING AND OTHER EXPENSES
Acquisition
Legal
Restructuring and other
10. INCOME TAXES
The income tax recovery 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
Total income tax recovery
$
$
$
$
2019
10,295
2,998
534
(4,264)
1,886
849
12,298
2019
13,738
2,099
980
16,817
2019
4,956
(331)
4,625
(8,635)
(242)
1,024
(7,853)
(3,228)
2018
1,445
–
2,480
–
713
(1,464)
3,174
2018
1,963
8,373
295
10,631
2018
1,905
(284)
1,621
(254)
334
(1,714)
(1,634)
(13)
$
$
$
$
$
$
The following table reconciles income tax computed at the Canadian statutory rate of 26.7% (2018 – 26.8%) and the total
income tax expense for the years ended March 31:
2019
2018
Income before income taxes
$
(15,216)
$
2,283
Income tax at the combined Canadian statutory rate
(Decrease) increase resulting from:
Impact of foreign tax rate differences
Income taxes on non-deductible expenses and
non-taxable revenues
Change in recognized tax losses and deductible
temporary differences
Other
Total income tax recovery
(4,063)
(1,798)
1,722
1,024
(113)
(3,228)
$
612
(873)
1,689
(1,714)
273
(13)
$
Annual Report 2019 | Stingray Group Inc. | 68
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
SIGNIFICANT ESTIMATE
Recorded income taxes and tax credits are subject to review and approval by tax authorities and therefore, final amounts
could be different from the amounts recorded.
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:
2019
2018
Assets
Liabilities
Assets
Liabilities
$
Property and equipment
Intangible assets and goodwill
Financing fees
Tax losses carried forward
Investments
CRTC tangible benefits
Restricted and performance share unit
Balance payable on business
acquisitions
Accrued pension benefit liability
Others
Tax assets and liabilities
Offsetting of assets and liabilities
1,117 $
302
2,708
11,424
–
9,490
1,308
–
1,776
1,233
29,358
(18,686)
$
3,372
65,684
–
–
1,973
–
–
–
–
80
71,109
(18,686)
1,184 $
716
1,523
11,416
–
845
1,127
729
–
256
17,796
(4,846)
Net deferred tax assets and liabilities
$
10,672 $
52,423
$
12,950 $
–
8,017
–
–
1,897
–
–
–
–
88
10,002
(4,846)
5,156
Changes in deferred tax assets and liabilities for the year ended March 31, 2019 are as follow:
Property and equipment
Intangible assets and goodwill
Financing fees
Tax losses carried forward
Investments
CRTC tangible benefits
Restricted and performance share unit
Balance payable on business
acquisitions
Accrued pension benefit liability
Others
$
Balance
as at
March 31,
2018
1,184
(7,301)
1,523
11,416
(1,897)
845
1,127
Recognized
in net loss
445
(6)
(595)
(672)
(76)
8,645
181
Recognized
in equity
–
–
1,780
–
–
–
–
Exchange
rate change
–
291
–
(534)
–
–
–
Business
acquisitions
(3,884)
(58,366)
–
1,214
–
–
–
Balance
as at
March 31,
2019
(2,255)
(65,382)
2,708
11,424
(1,973)
9,490
1,308
729
–
168
(695)
(110)
736
–
62
–
(34)
–
(11)
–
1,824
260
–
1,776
1,153
$
7,794
7,853
1,842
(288)
(58,952)
(41,751)
Annual Report 2019 | Stingray Group Inc. | 69
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
Changes in deferred tax assets and liabilities for the year ended March 31, 2018 are as follow:
$
Property and equipment
Intangible assets and goodwill
Financing fees
Tax losses carried forward
Investments
CRTC tangible benefits
Restricted and performance share unit
Balance payable on business
Balance
as at
March 31,
2017
392
(5,832)
1,554
10,644
(1,981)
1,002
835
Recognized
in net
income
792
1,362
(635)
23
84
(157)
292
Recognized
in equity
–
–
604
–
–
–
–
Exchange
rate change
–
(319)
–
749
–
–
–
Business
acquisitions
–
(2,512)
–
–
–
–
–
Balance
as at
March 31,
2018
1,184
(7,301)
1,523
11,416
(1,897)
845
1,127
acquisitions
Others
924
(18)
(268)
141
$
7,520
1,634
–
–
604
73
45
548
–
–
729
168
(2,512)
7,794
UNRECOGNIZED DEFERRED TAX ASSETS
The Corporation has operating tax losses carried forward of $92,964 that are available to reduce future taxable income. A
tax benefit was not recognized for $32,637 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, 2019 and 2018, the amounts and expiry dates of the tax losses carried forward were as follows:
2019
2018
Canada (1)
Singapore
Switzerland
United
Kingdom
Singapore
Switzerland
United
Kingdom
$
2019 (2)
2020
2021
2022
2023
2027
2032
2034
2036
2037
2038
2039
Indefinite
– $
–
–
–
–
25
355
589
51
432
3,416
8,703
–
$
13,571 $
– $
–
–
–
–
–
–
–
–
–
–
–
484
484 $
$
– $
4,984
4,804
3,445
2,045
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
63,631
15,278 $
63,631
$
– $
–
–
–
–
–
–
–
–
–
–
–
383
383 $
4,221 $
5,096
4,826
3,461
2,055
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
76,003
19,659 $
76,003
(1) Represents tax losses carried forward as per federal jurisdiction and tax losses available as per provincial jurisdictions may differ.
(2) These losses expired during the year ended March 31, 2019.
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.
Annual Report 2019 | Stingray Group Inc. | 70
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
11. EARNINGS PER SHARE
2019
2018
Net income (loss)
$
(11,988)
$
2,296
Basic weighted average number of subordinate voting shares,
variable subordinate voting shares and multiple voting shares
Dilutive effect of stock options
Diluted weighted average number of subordinated voting shares,
variable subordinated voting shares and multiple voting shares
Earnings per share – Basic
Earnings per share – Diluted
64,709,965
–
53,455,073
625,111
64,709,965
54,080,184
$
$
(0.19)
(0.19)
$
$
0.04
0.04
As at March 31, 2019, 801,855 stock options were excluded from the diluted weighted average number of subordinated
voting shares, variable subordinated voting shares and multiple voting shares as their effect would have been anti-dilutive.
12. TRADE AND OTHER RECEIVABLES
Trade
Other receivables
Sales taxes receivable
Research and development tax credits
2019
62,833
3,858
863
1,307
68,861
$
$
2018
31,335
1,929
1,570
610
35,444
$
$
Tax credits receivable of $1,307 (2018 - $610) comprise research and development tax credits receivable from the
provincial and federal governments which relate to qualified 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.
Annual Report 2019 | Stingray Group Inc. | 71
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
13. PROPERTY AND EQUIPMENT
Land,
buildings and
leasehold
improvements
Broadcasting
infrastructure
Furniture,
fixtures and
equipment
Computer
hardware
Other
Total
$
1,382 $
562
– $
–
8,090 $
5,879
5,990 $
2,213
Cost:
Balance at March 31, 2017
Additions
Additions through business
acquisitions
Disposals and write-off
Foreign exchange
differences
Balance at March 31, 2018
Additions
Additions through business
acquisitions
Disposals and write-off
Foreign exchange
differences
18
–
1
1,963
1,330
–
–
–
–
466
23,286
(11,177)
15,504
–
–
–
Balance at March 31, 2019
15,402
15,970
Accumulated depreciation:
Balance at March 31, 2017
Depreciation for the year
Disposals and write-off
Foreign exchange
differences
Balance at March 31, 2018
Depreciation for the year
Disposals and write-off
Foreign exchange
differences
1,060
273
–
1
1,334
1,050
–
3
–
–
–
–
–
715
–
–
Balance at March 31, 2019
$
2,387 $
715 $
–
–
–
–
–
–
–
1,801
–
–
1,801
–
–
–
–
–
188
–
$
15,462
8,654
184
(187)
124
24,237
9,217
49,747
(12,349)
(249)
70,603
10,126
2,965
(90)
101
13,102
7,455
(252)
133
(3)
109
8,442
2,516
2,890
(6)
(114)
13,728
4,436
1,370
(4)
75
5,877
2,051
–
(83)
–
(28)
7,845 $
188
$
20,277
33
(184)
14
13,832
4,905
6,266
(1,166)
(135)
23,702
4,630
1,322
(86)
25
5,891
3,451
(252)
52
9,142
Net carrying amounts:
March 31, 2018
March 31, 2019
$
$
629 $
13,015 $
– $
15,255 $
7,941
14,560
2,565 $
5,883 $
–
1,613
$
$
11,135
50,326
On December 28, 2018, the Corporation disposed of non-core assets, acquired as part of the NCC acquisition (note 4), for
total proceeds of $11,500. No gain or loss was recorded in the consolidated statement of comprehensive income.
Annual Report 2019 | Stingray Group Inc. | 72
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
14. INTANGIBLE ASSETS, EXCLUDING BROADCAST LICENCES
Internally
developed
intangible
assets
Music
catalog
Client list
and
relationships Trademark
Licences,
website
application
and
computer
software
Cost:
Balance at March 31, 2017
Additions
Additions through
business acquisitions
Foreign exchange
differences
Balance at March 31, 2018
Additions
Additions through
business acquisitions
Additions through
asset acquisition
Disposals and write-off
Foreign exchange
differences
Balance at March 31, 2019
Accumulated depreciation:
Balance at March 31, 2017
Amortization for the year
Foreign exchange
differences
Balance at March 31, 2018
Amortization for the year
Disposals and write-off
Foreign exchange
differences
$
– $
1,975
10,393 $
625
92,780 $
–
7,228 $
17
–
205
5,416
2,913
–
1,975
6,223
555
–
–
6
20
11,243
469
–
–
–
1,089
99,285
–
13,140
–
–
360
10,518
2
–
–
–
(10)
(789)
(256)
8,759
11,702
111,636
10,264
–
–
–
–
1,286
–
4,150
869
9
5,028
891
–
61,117
12,070
518
73,705
11,021
–
1,529
1,102
82
2,713
1,050
–
Non-
compete
agreement
Total
$
5,221 $
–
125,141
4,038
1,088
17,903
179
6,488
–
1,862
148,944
10,216
9,519
1,421
8,281
214
19,435
3,522
63
2,020
15,778
–
(2,538)
(266)
20,216
5,880
3,048
83
9,011
5,809
(2,538)
9,100
–
9,100
(2,538)
(103)
(1,418)
17,505
180,082
2,946
1,136
50
4,132
3,373
–
75,622
18,225
742
94,589
23,430
(2,538)
14
2
(450)
(57)
(2)
(17)
(510)
Balance at March 31, 2019
$
1,300 $
5,921 $
84,276 $
3,706 $
12,280
$
7,488 $
114,971
Net carrying amounts:
March 31, 2018
March 31, 2019
$
$
1,975 $
7,459 $
6,215 $
5,781 $
25,580 $
27,360 $
7,805 $
6,558 $
10,424
7,936
$
$
2,356 $
10,017 $
54,355
65,111
15. GOODWILL AND BROADCAST LICENCES
Balance at March 31, 2017
Additions through business acquisitions
Foreign exchange differences
Balance at March 31, 2018
Additions through business acquisitions (note 4)
Foreign exchange differences
Balance at March 31, 2019
Goodwill
Broadcast licences
$
$
68,725
27,577
2,165
98,467
235,008
(1,343)
332,132
$
$
–
–
–
–
270,555
–
270,555
Annual Report 2019 | Stingray Group Inc. | 73
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
ANNUAL IMPAIRMENT ASSESSMENTS
Goodwill and broadcast licences are tested for impairment annually and when circumstances indicate the carrying value
may be impaired. The Corporation’s impairment test for goodwill and broadcast licences having indefinite useful lives was
based on value-in-use (“VIU”) and fair value less cost to sell (“FVLCS”) calculations determined by using a discounted
cash flow model. As VIU and FVLCS of cash generating units (“CGUs”) is determined with significant unobservable inputs,
it is considered level 3 within the fair value hierarchy.
CASH-GENERATING UNITS
For the purposes of assessing impairment, goodwill is allocated to those CGUs that are expected to benefit from synergies
of the related business combination and represent the lowest level within the Company at which management monitors
goodwill.
Broadcast licences are grouped at the CGU level, which is the lowest level for which there are largely independent cash
inflows. For broadcast licence impairment testing purposes, the Company has identified 14 CGUs, based on geographical
areas where interdependent cash inflows exist. Impairment charges and reversals, if any, are included as a separate line
on the consolidated statements of income.
The carrying amounts of goodwill and broadcast licences allocated to each CGU and/or group of CGUs are set out in the
following tables:
Goodwill
Radio
Broadcast and commercial music
Broadcast licences
Toronto
Ottawa
Other(1)
2019
219,238
112,894
332,132
90,040
48,420
132,095
270,555
$
$
$
$
2018
–
98,467
98,467
–
–
–
–
$
$
$
$
(1) The carrying value of broadcast licences in each of the other CGUs is less than 10% of the total carrying value of broadcast licences.
Consequently, these other CGUs are grouped together for the purpose of note disclosure.
RADIO GOODWILL AND BROADCAST LICENCES IMPAIRMENT ASSESSMENTS
The recoverable amounts of the CGUs have been determined based on their VIU. The recoverable values have been
determined to be higher than the carrying amounts. As a result, no impairment was recorded.
The VIUs were calculated using unobservable (Level 3) inputs such as cash flow projections from financial budgets
approved by the Board of Directors covering a five-year period. Growth rates used over the five-year budget period are
based on management’s estimates of performance, which is established by considering historical growth rates achieved
as well as anticipated improvements. The growth rates depend also on whether the CGU includes mature market stations
versus start-up or evolving stations. Management assesses how the CGU’s market position, relative to its competitors,
might change over the budget period. For most CGUs, the average growth rates used in the five-year budget period ranged
between (1.4)% and 2.1%.
Cash flows beyond the five-year period were extrapolated using a 0% growth rate, which is based on the Corporation’s
estimate of future performance for this mature industry. Management expects the Corporation’s share of the market to be
Annual Report 2019 | Stingray Group Inc. | 74
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
stable over the long-term budget period, despite that changes in rating results could affect local market shares and relating
growth rates.
The pre-tax discount rates applied to cash flow projections, which were derived from the Corporation’s weighted average
cost of capital (“WACC”), ranged from 8.5% to 9.7% as at the date of the assessment. The discount rate calculation is
based on the specific circumstances of the Corporation and its CGUs and is derived from its WACC. The WACC takes into
account both debt and equity. The cost of equity is derived from the expected return on investment by the Corporation’s
investors. The cost of debt is based on the interest-bearing borrowings the Corporation is obliged to service. CGU-specific
risk is incorporated by applying individual beta factors. The beta factors are evaluated annually based on publicly available
market data.
The possibility of new market entrants can have an impact on growth rate assumptions, as can adverse ratings results,
which would impact market share. However, management does not believe these would have a significant adverse effect
on the forecasts included in the budget and management’s conclusions on impairment would not be materially different as
a result. The determination of VIU is sensitive to the discount rates used and therefore management’s conclusions on
impairment could be materially different if the assumptions used to determine the discount rates changed.
A quantitative sensitivity analysis of the significant assumptions for the impairment test is presented below, showing the
impact of a 50 basis point change in each of the assumptions listed:
Assumption change
Increase in pre-tax discount rate
Decrease in growth rate during five-year budget period
Decrease in terminal growth rate
Goodwill impairment
charge - Radio
Broadcast licences
impairment charge
$
11,000
–
4,000
$
–
–
–
BROADCAST AND COMMERCIAL MUSIC GOODWILL IMPAIRMENT ASSESSMENT
The recoverable amount of the CGU has been determined based on its FVLCS. The recoverable value has been
determined to be higher than the carrying amount. As a result, no impairment was recorded.
The FVLCS was calculated using unobservable (Level 3) inputs such as revenues and EBITDA margins from financial
budgets approved by the Board of Directors covering a five-year period. The EBITDA is defined as net income before net
finance costs, change in fair value of investments, income taxes, depreciation and amortization. The Corporation
considered past experience, economic trends as well as industry and market trends in assessing the level of revenues and
EBITDA that can be maintained in the future and derived cash flow projections from these assumptions.
A growth rate of 2% per year was used to estimate revenues in the five-year period and cash flows beyond the five-year
period were extrapolated using a 2% growth rate, which is based on the Corporation’s estimate of future performance for
this industry.
The Corporation also applied a pre-tax discount rate of 9.0% to cash flow projections, which represents WACC as at the
date of the assessment. Refer to the section above for more information on discount rates calculation.
By their nature, these estimates and assumptions are subject to measurement uncertainty, and consequently, actual results
could differ from estimates used. However, it has been determined that there is no reasonable change in assumptions that
would cause the carrying amount to exceed the estimated recoverable amount.
Annual Report 2019 | Stingray Group Inc. | 75
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
16. INVESTMENTS
The table below provides a continuity of investments, investment in a joint venture and investment in an associate:
Balance at March 31, 2017
Addition
Proceeds from disposal of an investment
Share of results of joint venture
Foreign exchange differences
Balance at March 31, 2018
Additions
Share of results of joint venture
Foreign exchange differences
Balance at March 31, 2019
INVESTMENTS
Investments
Investment in a
joint venture
Investment in
an associate
$
$
17,351 $
–
(1,218)
–
(600)
15,533
900
–
565
16,998 $
738 $
–
96
–
834
–
(200)
–
634 $
– $
1,106
–
–
–
1,106
–
–
–
1,106 $
Total
18,089
1,106
(1,218)
96
(600)
17,473
900
(200)
565
18,738
As at March 31, 2019, the Corporation has two equity instruments in private entities: AppDirect and Nextologies. Fair value
as at March 31, 2019 were $16,098 (2018 – $15,033) and $900 (2018 – nil), respectively. Both equity instruments are
classified as financial asset at fair value through profit and loss.
There was no change in the fair value of investment in AppDirect as there was no external equity financing transactions or
no other indicators of significant changes that could affect the fair value of the investment.
As at March 31, 2017, the Corporation had an investment in a convertible note of a private entity amounted to US$1,000
($1,330 as at March 31, 2017), which was entirely settled during the year ended March 31, 2018. A foreign exchange loss
of $112 was recognized in net finance expense (income).
SIGNIFICANT ESTIMATE
The fair value of investments that are not traded in an active market is determined using valuation techniques. The
Corporation uses judgment 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 on the key assumptions used and the impact of changes
to these assumptions see note 27.
INVESTMENT IN AN ASSOCIATE
The investment in an associate consist of a 40% interest in Business Transportation Services Limited Partnership, a
partnership formed to own and operate one or more airplanes for the benefit of the limited partners and third parties. The
associate had no capital commitments as at March 31, 2019 and 2018.
Annual Report 2019 | Stingray Group Inc. | 76
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
17. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade
Accrued liabilities
Sales taxes payable
18. CREDIT FACILITY
2019
13,334
46,748
2,282
62,364
$
$
2018
7,908
26,297
994
35,199
$
$
On August 21, 2018, effective October 26, 2018, the Corporation amended its existing $100,000 credit facility
(the “Credit facility”) by increasing the authorized amount up to $450,000 and extending the maturity to October 26, 2021
to finance the acquisition of NCC. The Credit facility consists of a revolving credit facility (the “revolving facility”) for an
authorized amount up to $300,000 and a non-revolving term facility (the “term facility”) in the amount of $150,000.
The Credit facility may be drawn in Canadian dollars in the form of prime rate loan or banker’s acceptances, in US dollars
in the form of US base rate loans or LIBOR loans, or in Euro and British Pound in the form of LIBOR loans and in Australian
dollars in the form of BBSY loans.
The Credit facility bears interest at (a) the bank’s prime rate plus an applicable margin based on a financial covenant or (b)
the banker’s acceptance rate plus an applicable margin based on a financial covenant (5.325% as at March 31, 2019).
In addition, the Corporation incurs standby fees, varying between 0.28% and 0.60% (0.48% as at March 31, 2019), based
on a financial covenant, on the unused portion of the Credit facility. The Credit facility is secured by guarantees from
subsidiaries and first ranking lien on universality of all assets, tangible and intangibles, present and future.
The table below is a summary of the Credit facility at March 31, 2019:
Total available
Drawn Letters of credit
Net available
Committed credit facilities
Revolving facility
Term facility
Total committed credit facilities
Less: unamortized deferred financing fees
Balance, end of year
$
$
300,000
150,000
450,000
Current portion
Non-current portion
$
$
$
$
$
$
168,964
146,250
315,214
(2,259)
312,955
14,086
298,869
1,050
–
1,050
$
$
129,986
–
129,986
As a result of the of the amendment, financing fees of $2,633 were incurred and recorded against Credit facility and are
amortized over its duration of 3 years. The unamortized deferred financing fees amounted to $2,259 as at March 31, 2019.
As at March 31, 2019, letters of credit amounting to $1,050 reduced the availability on the revolving facility.
As at March 31, 2018, credit facility amounted to $38,627 and was entirely presented in non-current liabilities.
Annual Report 2019 | Stingray Group Inc. | 77
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
Starting March 31, 2019, the Corporation is required to make consecutive quarterly capital repayments of 2.50% of the
drawdown amount of its term facility. Additionally, the Corporation must make an annual capital repayment, equivalent to
50% of the excess cash flow, defined in the credit facility agreement, if a certain financial covenant target is not met. The
remaining capital balance will be payable on maturity date. Minimum capital repayments to be made by the Corporation
on the term facility in the forthcoming years are as follows:
2020
2021
2022
Capital repayments
14,086
12,729
119,435
146,250
As at March 31, 2019, the Corporation was in compliance with all the requirements of its credit agreement.
19. SUBORDINATED DEBT
On July 11, 2018, effective October 26, 2018, the Corporation entered into a loan agreement in the amount of $50,000.
The loan is unsecured and bears interest at an annual rate varying between 6.35% and 6.95% based on a financial covenant
(6.95% as at March 31, 2019). The loan matures on October 26, 2023 and is entirely payable on maturity date.
Financing fees of $505 were incurred and recorded against subordinated debt and are amortized over its duration of
5 years. Unamortized deferred financing fees amounted to $461 as at March 31, 2019.
20. OTHER LIABILITIES
CRTC tangible benefits
Contingent consideration
Balance payable on business acquisitions
Accrued pension benefit liability (note 21)
Derivative financial instruments (note 27)
Other
Current portion
2019
2018
$
31,797
12,430
3,359
6,673
2,998
2,512
59,769
(16,186)
$
3,170
15,596
9,321
–
–
–
28,087
(13,212)
$
43,583
$
14,875
CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION (CRTC) TANGIBLE BENEFITS
On October 23, 2018, the CRTC approved the change in ownership and effective control of NCC, a subsidiary of the
Corporation since October 26, 2018. Pursuant to the decision, the CRTC requires the Corporation to pay tangible benefits
corresponding to an amount of $30,963 over a seven-year period in equal annual payments. The Corporation recognized
an expense of $25,306, which reflects the fair value of the payment stream using a discount rate of 5.70%, which is the
Corporation’s effective interest rate plus a risk premium for a similar financial instrument.
SIGNIFICANT ESTIMATE – CONTINGENT CONSIDERATION
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.
Annual Report 2019 | Stingray Group Inc. | 78
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
The fair value of the contingent consideration of $12,430 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 27.
The estimates are based on discounts rates ranging from 11% to 26%. During the year ended March 31, 2019, the
Corporation reassessed certain contingent consideration, as the actual sales revenues expected to be achieved by the
acquired companies were either above or below the maximum threshold, contingent services to be received are not
expected to be received in the future for one acquired company, and because of contractual rights to offset an amount
against a claim made by the Corporation to sellers of an acquired company.
21. EMPLOYEE BENEFIT PLANS
The Corporation maintains a defined contribution pension plan and defined benefit pension plans.
DEFINED CONTRIBUTION PENSION PLAN
The defined contribution pension plan covers the majority of the Corporation’s employees. The Corporation’s
contributions to the defined contribution pension plan are based on percentages of gross salaries and totalled $711.
DEFINED BENEFIT PENSION PLANS
The Corporation maintains a defined benefit pension plan (the “Basic Plan”) for a small group of the Corporation’s former
employees, which is not accepting new entrants at this time. The Basic Plan provides pension benefits based on the length
of service and the last five years of average earnings of each member.
The Basic Plan meets the definition of a designated plan under the Income Tax Act (Canada). The most recent funding
actuarial valuation for the Basic Plan was as of March 31, 2019.
In addition, the Corporation has two individual Supplementary Retirement Pension Arrangements (“SRPAs”), which each
provide pension benefits to a retired executive. These SRPAs provide benefits above the Income Tax Act (Canada) limit.
These plans are not funded and are paid from the Corporation’s operations.
The Corporation measures its accrued benefit obligations and fair value of plan assets for accounting purposes as of
March 31 of each year. The obligation as at March 31, 2019 and the 2020 current service cost of the Plans are determined
based on membership data as at March 31, 2019.
Items related to the Corporation’s defined benefit pension plans are presented as follows in the consolidated financial
statements:
2019
2018
Consolidated statements of financial position
Accrued pension benefit liability, included in other liabilities (note 20)
Accrued pension benefit asset, included in other non-current assets
Net accrued pension liability
Consolidated statements of comprehensive income
Pension benefit expense, included in net finance expense (income)
Other comprehensive gains and accumulated other comprehensive losses
Actuarial losses recognized in other comprehensive income
Cumulative actuarial losses recognized in other comprehensive income
$
$
$
$
$
(6,673)
370
(6,303)
116
182
182
$
$
$
$
$
–
–
–
–
–
–
Annual Report 2019 | Stingray Group Inc. | 79
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
The following summarizes the movements in the defined benefit pension plan balances:
Accrued benefit obligations
Balance, beginning of year
Assumed through business acquisition
Current service cost
Interest cost
Benefits paid
Actuarial losses (gains):
Impact of changes in financial assumptions
Impact of changes in experience adjustments
Balance, end of year
Plan assets
Fair value, beginning of year
Acquired through business acquisition
Interest income
Actuarial gains:
Return on plan assets, excluding interest income
Administrative expenses
Employee contributions
Benefits paid
Fair value, end of year
Net accrued pension asset (liability)
2019
Basic Plan
2018
SRPAs
Basic Plan
SRPAs
$
$
$
$
$
–
6,576
12
88
(2,040)
242
(6)
4,872
–
6,993
94
209
(14)
–
(2,040)
5,242
–
6,744
–
96
(322)
155
–
6,673
–
–
–
–
–
–
–
–
$
$
$
$
370
(6,673) $
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The Corporation determined that there was no limit on the defined benefit asset (asset ceiling) because the Corporation
has unimpaired rights to the surplus in the Basic Plan and it has the right to take contribution holidays when available.
Employer contributions to the SRPAs are estimated to be $786 in 2020.
Pension benefit expense recognized in the consolidated statements of comprehensive income (loss) as net finance
expenses (income) is as follows:
Current service costs, net of employee contributions
Interest cost
Interest income on plan assets
Administrative expenses
Defined benefit plan expense
2019
Basic Plan
12
88
(94)
14
20
SRPAs
–
96
–
–
96
2018
Basic Plan
–
–
–
–
–
SRPAs
–
–
–
–
–
Actuarial gains and losses recognized in other comprehensive income are as follows:
Cumulative actuarial losses,
beginning of year
Recognized actuarial losses
during the year
Cumulative actuarial losses,
end of year
2019
2018
Basic Plan
SRPAs
Total
Basic Plan
SRPAs
Total
$
$
–
27
27
–
155
155
– $
182
182 $
–
–
–
–
–
–
–
–
–
Annual Report 2019 | Stingray Group Inc. | 80
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
The principal actuarial assumptions were as follows:
Discount rate for the accrued net benefit obligation
Future pension increases
2019
Basic Plan
3.1%
1.4%
SRPAs
3.1%
0.1%
2018
Basic Plan
–
–
SRPAs
–
–
As at March 31, 2019 and based on an actuarial review, the net remeasurement loss recorded in other comprehensive
income of $182 was primarily reflective of a decrease in the estimated discount rate for both plans, partially offset by an
actuarial gain on plan assets.
Plan assets for the Basic Plan consist of:
Equity funds
Fixed income funds
2019
65%
35%
100%
2018
–
–
–
The pension plan has no direct investments in the Corporation nor any of its affiliates. Investments are diversified such that
the failure of any single investment would not have a material impact on the overall level of assets. The largest proportion
of assets is invested in equities, although there is a good portion also invested in bonds and other highly liquid assets. All
assets are invested in funds where the underlying securities have quoted market prices in an active market. The
Corporation believes that equities offer the best returns over the long-term with an acceptable level of risk.
Since the benefit payments are adjusted to the Consumer Price Index, the pension plan is exposed to inflation. It is also
exposed to interest rate risks and changes in life expectancy of pensioners. A large portion of the plan assets consist of
equity securities, which are exposed to equity market risk.
SIGNIFICANT ESTIMATE
The cost of defined benefit pension plans and the present value of the net pension obligation are determined using actuarial
valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the
future. These include the determination of the discount rate, mortality rates and future salary and pension increases. Due
to the complexity of the valuation, the underlying assumptions and its long-term nature, the net pension obligation is highly
sensitive to changes in these assumptions. Management engages the services of external actuaries to assist in the
determination of the appropriate discount rate. Management, with the assistance of actuaries, determines the applicable
discount rates using the interest rates on high quality corporate bonds that have terms to maturity approximating the terms
related to the defined benefit obligation. The mortality rate is based on publicly available mortality tables. Future salary
increases and pension increases are based on expected future inflation rates.
Changes in assumptions of all plans would have resulted in an increase (decrease) in the net defined benefit obligation as
presented below:
Discount rate – change of 0.5%
Future pension costs – change of 1.0%
Life expectancy – change by 1 year
Change in assumption
Decrease
Increase
495
(457)
697
798
(194)
(800)
The sensitivity analysis above has been determined based on a method that extrapolates the impact on the net defined
benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period.
The average duration of the defined benefit plan obligation at the end of the reporting period is 8.4 years.
Annual Report 2019 | Stingray Group Inc. | 81
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
22. SHARE CAPITAL
Authorized:
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, 2018
Subordinate voting shares and variable subordinate voting shares
As at March 31, 2017
Bought deal and exercise of over-allotment option
Exercise of stock options
Purchased and held in trust through employee share purchase plan
Share issuance costs, net of income taxes of $604
As at March 31, 2018
Multiple voting shares
As at March 31, 2018 and 2017
Year ended March 31, 2019
Subordinate voting shares and variable subordinate voting shares
As at March 31, 2018
Conversion of subscription receipts issued through a bought deal offering
Conversion of subscription receipts issued through a private placement
Equity element of NCC purchase price
Private placement
Exercise of stock options
Purchased and held in trust through employee share purchase plan
Share issuance costs, net of income taxes of $1,780
As at March 31, 2019
Multiple voting shares
As at March 31, 2018
Conversion of subscription receipts issued upon exercise of subscription rights
Issuance
As at March 31, 2019
Number of
shares
Carrying
amount
35,032,081
4,900,200
85,198
(6,011)
–
40,011,468
16,294,285
56,305,753
40,011,468
7,981,000
3,846,100
3,887,826
2,429,544
147,500
(7,033)
–
58,296,405
16,294,285
1,452,850
194,363
17,941,498
76,237,903
$
$
$
$
$
$
$
101,584
45,082
301
(60)
(1,669)
145,238
1,116
146,354
145,238
83,002
39,999
30,558
25,000
618
(28)
(4,899)
319,488
1,116
15,110
2,000
18,226
337,714
Annual Report 2019 | Stingray Group Inc. | 82
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
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, 2019
During the year, 147,500 stock options were exercised and consequently, the Corporation issued 147,500 subordinate
voting shares. The proceeds amounted to $339. An amount of $279 of contributed surplus related to those stock options
was transferred to the subordinate voting shares’ account balance.
On March 27, 2019, the Corporation declared a dividend of $0.065 per subordinate voting share, variable subordinate
voting share and multiple voting share, totalling $4,956 that will be payable on or around June 15, 2019. The dividend
payable is accrued in the consolidated statement of financial position as at March 31, 2019.
On February 6, 2019, the Corporation declared a dividend of $0.065 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $4,956 was paid on March 15, 2019.
On November 13, 2018, the Corporation completed a private placement with Irving West and issued from treasury
2,429,544 subordinate voting shares at a price of $10.29 per subordinate voting shares for total gross proceeds of $25,000.
On November 7, 2018, the Corporation declared a dividend of $0.06 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $4,571 was paid on December 14, 2018.
On October 26, 2018, concurrently with the closing of the acquisition of NCC (note 4), the holders of the outstanding
subscription receipts exercised their conversion rights and consequently the Corporation issued 11,827,100 subordinate
voting shares and 1,452,850 multiple voting shares for total gross proceeds of $138,111 and net proceeds of $133,191.
Additionally, the Corporation issued from treasury 3,887,826 subordinate voting shares at a price of $7.86 per subordinate
voting shares to finance the equity portion of the purchase price, equivalent to $30,558. On the same day, the Corporation
also issued 194,363 multiple voting shares at a price of $10.29 per multiple voting shares for gross proceeds of $2,000.
On August 7, 2018, the Corporation declared a dividend of $0.06 per subordinate voting share, variable subordinate voting
share, multiple voting share and subscription receipts. The dividend of $4,179 was paid on September 14, 2018, of which
an amount of $797 was paid with restricted cash.
On June 15, 2018, the Corporation paid a dividend of $3,097. The dividend was declared on March 29, 2018 and therefore
accrued in the consolidated statement of financial position as at March 31, 2018.
TRANSACTIONS FOR THE YEAR ENDED MARCH 31, 2018
During the year, 85,198 stock options were exercised and consequently, the Corporation issued 85,198 subordinate voting
shares. The proceeds amounted to $168. An amount of $133 of contributed surplus related to those stock options was
transferred to the subordinate voting shares’ account balance.
On March 29, 2018, the Corporation declared a dividend of $0.055 per subordinate voting share, variable subordinate
voting share and multiple voting share, totaling $3,097 that will be payable on or around June 15, 2018 to holders of
subordinate voting share, variable subordinate voting share and multiple voting share on record as of May 31, 2018.
On October 24, 2017, the Corporation completed a bought deal offering of an aggregate 4,348,000 subordinate voting
shares and variable subordinate voting shares of the Corporation at a price of $9.20 per share for gross proceeds of
Annual Report 2019 | Stingray Group Inc. | 83
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
$40,002 and net proceeds of $38,402. On November 7, 2017 the underwriters exercised part of their over-allotment option
and bought an additional 552,200 subordinate voting shares at a price of $9.20 for gross proceeds of $5,080 and net
proceeds of $4,877.
Share issuance costs for both issuances amounted to $2,273 which have been recognized as a reduction of share capital
net of income taxes of $604.
On February 7, 2018, the Corporation declared a dividend of $0.055 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $3,096 was paid on March 15, 2018.
On November 8, 2017, the Corporation declared a dividend of $0.05 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $2,814 was paid on December 15, 2017.
On August 1, 2017, the Corporation declared a dividend of $0.05 per subordinate voting share, variable subordinate voting
share and multiple voting share. The dividend of $2,567 was paid on September 15, 2017.
On April 28, 2017, the Corporation declared a dividend of $0.045 per subordinate voting share, variable subordinate voting
share and multiple voting share. The dividend of $2,310 was paid on June 15, 2017.
23. SUPPLEMENTAL CASH FLOW INFORMATION
Trade and other receivables
Inventories
Other current assets
Other non-current assets
Accounts payable and accrued liabilities
Deferred revenues
Income taxes payable
Other payables
2019
1,319
304
(2,166)
300
(10,779)
(1,401)
(612)
8,976
(4,059)
$
$
2018
(6,289)
(551)
(1,928)
–
(861)
413
(1,187)
(1,724)
(12,127)
$
$
Additions to property and equipment and intangible assets, excluding broadcast licences not affecting cash and cash
equivalents amounted to $1,594 (2018 – $899) and $381 (2018 – $159), respectively, during the year ended
March 31, 2019.
24. SHARE-BASED COMPENSATION:
STOCK OPTIONS PLAN
The Corporation has a 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,10% of all multiple voting
shares, subordinate voting shares and variable subordinate voting shares issued and outstanding on a non-diluted basis is
reserved for issuance. The terms and conditions for acquiring and exercising options are set by the Board of Directors.
Unless otherwise determined by the Board of Directors, each option shall expire at the latest on the tenth anniversary of
the grant date. The total number of shares issued to a single person cannot exceed 10% of the Corporation’s total issued
and outstanding common shares on a fully diluted basis.
Under the stock option plan, 2,104,100 stock options were outstanding as at March 31, 2019. Outstanding options are
subject to employee service vesting criteria which range from nil to four years of service.
Annual Report 2019 | Stingray Group Inc. | 84
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
The following summarizes the changes in the plan’s position for the years ended March 31, 2019 and 2018:
2019
2018
Number of
options
Weighted
average
exercise price
Number of
options
Weighted
average
exercise price
Options outstanding, beginning of year
Granted
Exercised (note 22)
Forfeited
Options outstanding, end of year
1,965,227 $
567,146
(147,500)
(280,773)
2,104,100
5.99
8.56
2.30
7.91
6.52
1,397,185 $
682,429
(85,198)
(29,189)
1,965,227
Exercisable options, end of year
985,950 $
5.30
789,051 $
4.93
7.66
1.98
6.11
5.99
3.95
The following is a summary of the information on the outstanding stock options as at March 31, 2019 and 2018:
Exercise price
March 31, 2019
$ 0.46
1.46
2.26
6.25
7.00
7.27
7.62
7.92
8.61
8.89
9.00
$ 6.52
March 31, 2018
$ 0.46
1.46
2.26
6.25
7.00
7.27
7.62
8.89
9.00
$ 5.99
Outstanding
options
Weighted average
outstanding
contractual life
outstanding (years)
Number of options
outstanding
45,000
25,000
245,731
362,880
100,000
327,631
482,850
43,698
433,746
21,008
16,556
2,104,100
130,000
25,000
270,731
387,880
125,000
327,631
661,421
21,008
16,556
1,965,227
3.18
4.63
5.69
6.12
6.36
8.21
8.23
9.61
9.20
8.42
7.90
7.40
4.18
5.63
6.69
7.12
7.36
8.21
9.23
9.42
8.90
7.69
Exercisable
options
Number
45,000
25,000
245,731
297,160
75,000
163,816
120,713
–
–
5,252
8,278
985,950
130,000
25,000
270,731
214,773
62,500
81,908
–
–
4,139
789,051
Annual Report 2019 | Stingray Group Inc. | 85
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
The weighted average fair value of the stock options granted during the year ended March 31, 2019 was $1.91 per stock
option (2018 – $1.64). 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:
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
2019
2018
30%
2.14% – 2.46%
5 years
$7.92 – $8.61
2.56% – 2.78%
30%
1.12% – 1.51%
5 years
$7.62 – $8.89
2.25% – 2.37%
The weighted average volatility used is calculated based on a combination of comparable publicly-traded companies and
the Corporation’s historical volatility.
Total share-based compensation costs recognized under this stock option plan amount to $1,072 for the year ended
March 31, 2019 (2018 – $1,126).
The weighted average share price at the date of exercise for share options exercised during the year ended March 31, 2019
was $7.64 (2018 – $8.75).
EMPLOYEE SHARE PURCHASE PLAN
The Corporation has an employee share purchase plan (“ESPP”) to attract and retain employees. Under this plan, eligible
employees, including certain key management personnel, are permitted to contribute up to a maximum of 6% of their
eligible earnings to purchase the Corporation’s subordinate voting shares and variable subordinate voting shares. Subject
to certain conditions, the Corporation will match a percentage of the employee’s contributions up to a maximum of 2% of
the employee’s eligible earnings and the shares purchased with the Corporation’s contributions become vested on
January 31st of the following year. All contributions are used by the plan’s trustee to purchase subordinate voting shares
and variable subordinate voting shares in the open market, on behalf of employees.
The following summarizes the changes in the plan’s position for the year ended March 31, 2019 and 2018:
2019
Number of
units
Amount
2018
Number of
units
Unvested contributions, beginning of year
Contributions
Dividend credited
Vested
Unvested contributions, end of year
6,011 $
25,890
534
(19,391)
13,044 $
60
199
7
(178)
88
– $
7,816
34
(1,839)
6,011 $
Amount
–
77
–
(17)
60
The weighted average fair value of the shares contributed during the year ended March 31, 2019 was $7.80 (2018 – $9.87).
Total share-based compensation costs recognized under the ESPP amount to $140 for the year ended March 31, 2019
(2018 – $80).
Annual Report 2019 | Stingray Group Inc. | 86
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
RESTRICTED SHARE UNIT PLAN
The following summarizes the changes in the plan’s position for the years ended March 31, 2019 and 2018:
Balance, beginning of year
Granted
Revision of estimates
Liabilities settled
Forfeited
Balance, end of year
Balance, vested
2019
Number of
units
Amount
2018
Number of
units
Amount
59,712 $
–
–
(59,712)
–
– $
–
680
–
–
(680)
–
–
–
197,448 $
1,319
–
(136,581)
(2,474)
59,712 $
–
1,468
–
444
(1,218)
(14)
680
–
Liabilities related to the restricted share unit plan were fully settled during the year ended March 31, 2019. This plan is no
longer active and was replaced with the performance share unit plan.
PERFORMANCE SHARE UNIT PLAN
The Corporation has a performance unit plan (PSU) 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 PSU vested at the payout date by the volume weighted average price of the
Corporation’s shares on the last five trading days immediately preceding the vesting 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, 2019, 528,440 PSU (2018 – 166,287) were granted at a range of $6.35 to $9.20
(2018 – $7.57 to $10.04) per unit to executives and employees and no outstanding PSU were vested. As at March 31, 2019,
the fair value per unit was $7.31 (2018 – $10.36) for a total amount of $2,612 (2018 – $1,244) and was presented in accrued
liabilities on the consolidated statements of financial position.
The following summarizes the changes in the plan’s position for the years ended March 31, 2019 and 2018:
Balance, beginning of year
Granted
Expense and revision of estimates
Forfeited
Balance, end of year
Balance, vested
2019
Number of
units
Amount
2018
Number of
units
Amount
284,480 $
528,440
–
(38,066)
774,854 $
–
1,244
–
1,421
(53)
2,612
–
131,781 $
166,287
–
(13,588)
284,480 $
–
361
–
926
(43)
1,244
–
Annual Report 2019 | Stingray Group Inc. | 87
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
DEFERRED SHARE UNIT PLAN
The Corporation has 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, 2019, 88,487 DSU (2018 – 62,740) were granted at a range of $6.29 to $9.19 per unit to
directors (2018 – $7.55 to $10.10) and no outstanding DSU were vested. The total expense related to DSU plans amounted
to nil in 2019 (2018 – $911). As at March 31, 2019, the fair value per unit ranged from $6.98 to $7.01
(2018 – $10.22 to $10.36) for a total amount, including fringes, of $2,004 (2018 – 2,004) presented in accrued liabilities on
the statements of financial position.
The following summarizes the changes in the plan’s position for the years ended March 31, 2019 and 2018:
Balance, beginning of year
Granted and vested
Liabilities settled
Revision of estimates
Balance, end of year
Balance, vested
25. COMMITMENTS
2019
Number of
units
Amount
2018
Number of
units
Amount
182,369 $
88,487
–
–
270,856 $
270,856 $
2,004
718
–
(718)
2,004
2,004
138,072 $
62,740
(18,443)
–
182,369 $
182,369 $
1,267
536
(174)
375
2,004
2,004
The following table is a summary of the Corporation’s operating obligations as at March 31, 2019 that are due in each of
the next five years and thereafter.
2020
2021
2022
2023
2024
2025 and thereafter
OPERATING OBLIGATIONS
Operating
obligations
$
$
14,216
10,543
6,816
2,962
1,482
3,143
39,162
The Corporation’s significant operating leases are for office premises and property and equipment. The Corporation must
also 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.
Annual Report 2019 | Stingray Group Inc. | 88
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
BROADCAST LICENCES
A condition of the broadcast licences owned by the Corporation is to commit to fund Canadian Content Development
(“CCD”) over the initial term of the licences, which is usually 7 years.
26. 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 differing from actual outcomes. Detailed
information about each of these estimates and judgments is included in notes 4 to 25 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 income tax payable and current income tax expense – note 10
Recognition of deferred tax assets for tax losses available for carry-forward – note 10
Estimation of cost of defined benefit pension plans and present value of the net pension obligation – note 21
Estimated fair value of certain investments – note 16
Estimated value in use and/or fair value less costs to sell of CGUs used in goodwill and broadcasting licences
impairment testing – note 15
Estimation of fair value of identified assets, liabilities and contingent consideration recorded in business
acquisitions – notes 4 and 20
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 property and equipment, intangible assets, broadcast licences 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 2019 | Stingray Group Inc. | 89
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
Useful lives of broadcast licences
The Corporation has concluded that broadcast licences are indefinite life intangible assets because they are
renewed every seven years without significant cost and there is a low likelihood of the renewal being denied.
Identifying a business acquisition
Management must use its judgment in determining whether a transaction is a business combination or a purchase
of assets in accordance with the criteria established in IFRS 3 Business combinations. The acquisition of an asset
or a group of assets that constitute a business is accounted for as a business combination and may give rise to
goodwill, whereas an asset purchase does not, thereby impacting subsequent amortization expense and/or
impairment testing results.
Recognition of internally developed intangible assets
Management must use its judgment in determining whether an internally developed intangible asset qualifies for
recognition, such as, but not limited to, assessing the technological feasibility of a project and determining the
appropriate internal costs to be capitalized. This exercise requires management to distinguish between the costs
necessary to generate an intangible asset from the costs necessary to maintain it. Recognition of an internally
developed intangible asset would lead to an increase of amortization expense as the opposite would lead to an
increase in research and development costs.
Judgment is also involved in determining the estimated useful life of an internally developed intangible asset.
Increasing an asset’s estimated useful life would result in a decrease of the annual amortization expense.
27. 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 liabilities excluding the contingent consideration 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 credit facility bearing interest at variable rates approximates its carrying value,
as it bears interest at prime or banker’s acceptance rates plus a credit spread which approximate current rates that could
be obtained for debts with similar terms and credit risk. The fair value of the subordinated debt approximates its carrying
value as its interest rate approximates current rates that could be obtained for debts with similar terms and credit risk. The
carrying amount of CRTC tangible benefits and balance payable on business acquisitions is a reasonable approximation
of their fair value as they are discounted using the effective interest rate, which approximate current rates that could be
obtained with similar terms and credit risk. The tables below summarize the carrying and fair value of financial assets and
liabilities, including their level in the fair value hierarchy, as at March 31, 2019 and 2018. The Corporation uses the following
hierarchy for determining and disclosing the fair value of financial instruments by valuation techniques:
Level 1:
quoted price (unadjusted) in active markets for identical assets or liabilities;
Level 2 :
other techniques for which all inputs that have a significant effect in the
recorded value are observable, either directly or indirectly; and
Level 3 :
Techniques which uses inputs that have a significant effect on the recorded
fair value that are not based on observable market data.
Annual Report 2019 | Stingray Group Inc. | 90
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
As at March 31, 2019
Carrying value
Fair value
Level 1
Level 2
Level 3
Financial assets measured at amortized cost
Cash and cash equivalents
Trade and other receivables
$
4,673
66,691
Financial assets measured at fair value
Investments
Financial liabilities measured at
amortized cost
Credit facility
Subordinated debt
Accounts payable and accrued liabilities
CRTC tangible benefits
Balance payable on business acquisitions
Financial liabilities measured at fair value
Contingent consideration
Derivative financial instruments
$
16,998
$
16,998 $
– $
– $ 16,998
$
$
312,955
49,539
60,082
38,470
3,359
12,430
2,998
$
12,430 $
2,998
– $
–
– $ 12,430
–
2,998
As at March 31, 2018
Carrying value
Fair value
Level 1
Level 2
Level 3
Financial assets measured at amortized cost
Cash and cash equivalents
Trade and other receivables
Financial assets measured at fair value
Investment
Financial liabilities measured at
amortized cost
Revolving facility
Accounts payable and accrued liabilities
CRTC tangible benefits
Balance payable on business acquisitions
Financial liabilities measured at fair value
Contingent consideration
Fair value measurement (Level 3):
Balance as at March 31, 2017
Additions through business acquisitions
Change in fair value
Settlements
Balance as at March 31, 2018
Additions through business acquisitions
Addition through asset acquisition
Change in fair value
Settlements
Balance as at March 31, 2019
$
3,362
33,264
$
15,533
$
15,533 $
– $
– $ 15,533
$
38,627
34,205
3,170
9,321
$
15,596
$
15,596 $
– $
– $ 15,596
Investments
Contingent
consideration
$
$
$
17,351 $
–
(600)
(1,218)
15,533 $
–
900
565
–
16,998 $
12,956
9,040
2,480
(8,880)
15,596
4,491
–
534
(8,191)
12,430
Annual Report 2019 | Stingray Group Inc. | 91
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
INVESTMENTS
The fair value of the equity instrument in a private entity, AppDirect, was estimated using the market approach.
For the years ended March 31, 2019 and 2018, the fair value has been measured by using the valuation from the most
recent financing round, 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.
For the years ended March 31, 2019 and 2018, the equity instrument in a private entity is classified as a financial asset at
fair value through profit and loss. A change of 5% in the liquidity discount would have increased / decreased the fair value
of the investment by approximately $1,073 and $1,035 during the years ended March 31, 2019 and 2018, respectively.
CONTINGENT CONSIDERATION
The contingent consideration related to business combinations is 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 contracts. 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 value the cash flows
which is based on the risk associated with the revenue targets being met. If projected cash flows were 10% higher, the fair
value would have increase by $1,868 and if projected cash flows were 10% lower, the fair value would have decrease by
$1,827. Discount rates ranging from 11% to 26% have been applied and consider the time value of money. A change in
the discount rate by 100 basis points would have increased / decreased the fair value by $79.
The contingent consideration is classified as a financial liability and is included in other payables (note 20). The change in
fair value is recognized in net finance expense (income) (note 8).
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 receivables; 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
receivables is limited.
Annual Report 2019 | Stingray Group Inc. | 92
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
The aging of trade receivable balances and the allowance for doubtful accounts as at March 31, 2019 and March 31, 2018
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 accounts
2019
30,687
12,006
6,008
4,418
11,694
64,813
1,980
62,833
$
$
The movement in allowance for doubtful accounts in respect of trade receivables was as follows:
Balance, beginning of year
Addition through business acquisitions
Bad debt expense
Write-off against reserve
Balance, end of year
2019
566
960
794
(340)
1,980
$
$
2018
12,409
6,484
3,522
1,737
7,749
31,901
566
31,335
2018
474
–
741
(649)
566
$
$
$
$
The Corporation also has credit risk relating to cash and cash equivalents and other receivables. The Corporation manages
its risk by transacting only with sound financial institutions.
The carrying amounts of financial assets in the consolidated statements of financial position represent the Corporation's
maximum credit exposure.
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, 2019:
Credit facility
Subordinated debt
Accounts payables and
accrued liabilities
Other liabilities
Total carrying
amount
Contractual
cash flows
Less than 1
year
1 to 5 years
More than 5
years
$
312,955
49,539
$ 315,214
50,000
$
14,086
–
$ 301,128
50,000
$
–
–
62,364
59,769
62,364
58,735
62,364
16,855
–
30,257
–
11,624
Annual Report 2019 | Stingray Group Inc. | 93
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
MARKET RISK
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’s subsidiaries, primarily the US dollar (“USD”) 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’s 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
(loss).
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:
Cash and cash equivalents
Trade receivables
Investments
Credit facility
Accounts payable and accrued liabilities
Contingent consideration and
balance payable on business acquisitions
Net balance exposure
Equivalent in Canadian dollars
March 31, 2019
USD
EURO
March 31, 2018
USD
EURO
794
11,562
12,046
(4,500)
(1,347)
(5,089)
13,466
17,995
1,238
7,116
–
(7,200)
(2,524)
(3,356)
(4,726)
(7,090)
938
10,542
12,046
(14,150)
(2,250)
(10,365)
(3,239)
(4,176)
949
3,989
–
–
(1,061)
(6,419)
(2,542)
(4,033)
The following exchange rates are those applicable to the following periods and dates:
2019
2018
Average
Reporting
Average
Reporting
USD per CAD
EURO per CAD
1.3343
1.5090
1.3363
1.5002
1.2926
1.5936
1.2894
1.5867
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 and EURO would have the following impacts on net income (loss), assuming that all
other variables remained constant:
Decrease (increase) in net loss
Increase (decrease) in net income
919
–
(334)
–
–
(223)
–
(160)
March 31, 2019
USD
EURO
March 31, 2018
USD
EURO
Annual Report 2019 | Stingray Group Inc. | 94
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
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 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 original maturities 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 term to maturity of these instruments.
The credit 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. To manage its interest rate risk, the
Corporation entered into the following interest rate swap agreements during the year ended March 31, 2019:
Maturity
Currency
Fixed interest rate
Initial nominal value
Mark-to-market liabilities as
at March 31, 2019
October 25, 2021
October 25, 2024
CAD
CAD
2.19%
2.29%
$
$
$
100,000
100,000
200,000
$
$
$
841
2,157
2,998
Given the Corporation did not elect to apply hedge accounting, the mark-to market losses related to these interest rate
swap agreements amounted to $2,998 was booked in net finance expense (income).
28. 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:
Contingent consideration, including current portion
Balance payable on business acquisitions, including current portion
Credit facility
Cash and cash equivalents
Net debt, including contingent consideration and
balance payable on business acquisition
Total equity
2019
12,430
3,359
312,955
(4,673)
324,071
287,535
611,606
$
$
2018
15,596
9,321
38,627
(3,362)
60,182
129,607
189,789
$
$
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.
Annual Report 2019 | Stingray Group Inc. | 95
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
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.
29. TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL AND RELATED PARTIES
KEY MANAGEMENT PERSONNEL
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 and director’s fees are as follows:
Short-term employee benefits
Share-based compensation
Restricted and performance share units
Deferred share units
RELATED PARTIES
2019
4,497
630
811
–
5,938
$
$
2018
4,350
921
557
911
6,739
$
$
Related parties of the Corporation include Directors and key management personnel, their family members and companies
over which they have significant influence or control. The Corporation has transacted with related parties during the
reporting period. These transactions are measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties having normal trade terms.
During the year ended March 31, 2019, the Corporation recognized revenues amounted to $610 (2018 – nil) for advertising
sold to companies controlled by directors of the Corporation.
In addition, the Corporation sold a building and vacant lands to a company owned by a director of the Corporation for total
consideration of $7,000. No gain or loss was recorded in the consolidated statement of comprehensive income as the
assets were recognized at fair value through the purchase price allocation of NCC.
Annual Report 2019 | Stingray Group Inc. | 96
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
30. 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 5, 2019.
B) BASIS OF MEASUREMENT
The consolidated financial statements have been prepared on the historical cost basis, except for the following:
Contingent consideration payable which is 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;
Cost of defined benefit pension plans and present value of the net pension obligation measured at fair value in
accordance with IAS 19;
Liabilities related to deferred share unit plan, restricted share unit and performance share unit plan measured at
fair value at year-end in accordance with IFRS 2;
Equity stock options which are measured at fair value at date of grant pursuant to IFRS 2; and
Assets and liabilities acquired in business combinations are measured at fair value at acquisition date.
C) FOREIGN CURRENCY TRANSLATION
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.
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.
Annual Report 2019 | Stingray Group Inc. | 97
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
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
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 are translated at the closing rate.
31. 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 excess of the fair value of the consideration transferred which includes the
fair value of contingent consideration, over 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, Stingray Music USA Inc., Stingray
Music Rights Management LLC, 2144286 Ontario Inc., 4445694 Canada Inc., Pay Audio Services Limited Partnership,
Music Choice Europe Limited, Stingray Digital International Ltd., Stingray Europe B.V., Transmedia Communications
SA, Think inside the box LLC (Nature Vision TV), SBA Music PTY Ltd., Stingray Music, S.A. de C.V., Novramedia Inc.,
DJ Matic NV and Stingray Radio Inc. (Newfoundland Capital Corporation Limited) and all these entities’ wholly-owned
subsidiaries.
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Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
INVESTMENT IN AN ASSOCIATE
An associate is an entity over which the Corporation has significant influence. The Corporation has significant influence
when it has the power to participate in the financial and operating policy decisions of the investee but does not have
control or joint control. The Corporation accounts for its investment in an associate using the equity method. Under
the equity method, the investment is initially recognized at cost. Subsequent to initial recognition, the consolidated
financial statements include the Corporation’s share of the earnings and losses of the associate until the date
significant influence ceases. Distributions received from an associate reduce the carrying amount of the investment.
The consolidated statements of comprehensive income (loss) include the Corporations’ share of any amounts
recognized by its associate in other comprehensive income, if any. Intercompany balances between the Corporation
and its associate are not eliminated.
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.
(B) FINANCIAL INSTRUMENTS
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.
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Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
The Corporation’s investments are classified as financial assets 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 are 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 consideration recorded at fair value through profit and loss and financial liabilities designated at fair value
through profit or loss when doing so results in more relevant information. Such 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.
Derivative financial instruments
The Corporation use derivative financial instruments to manage its interest rate risk on its credit facility and does not
use these instruments for speculative or trading purposes. The Corporation does not apply hedge accounting and
therefore mark-to-market gains or losses are recognized in net finance expense (income).
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.
Annual Report 2019 | Stingray Group Inc. | 100
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
If there is objective evidence that an impairment loss on financial assets measured at amortized cost 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.
(C) REVENUE RECOGNITION
Refer to Note 6.
(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, net of tax credits, are recognized in profit or loss as incurred, unless the costs can be measured
reliably, the product or process is technically feasible, future economic benefits are probable and the Corporation
intends to and has sufficient resources to complete the development and to use or sell the asset. In such a case, costs
are recognized as internally developed intangible assets (see (m) intangible assets).
(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.
(F) LEASES 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 contingent consideration. Interest
income is recognized as it accrues in profit or loss, using the effective interest method.
Finance costs comprise interest expense on revolving facility, unwinding of the discount on provisions, change in fair
value of derivatives and contingent consideration, 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.
Annual Report 2019 | Stingray Group Inc. | 101
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
(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 differences 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.
(I) EARNINGS PER SHARE
Basic earnings per share are computed by dividing net earnings by the weighted average number of subordinate
voting shares, variable subordinated voting shares and multiple voting 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.
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Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
(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 profit or 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 or 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.
The estimated useful lives for the current and comparative years are as follows:
Property and equipment
Building
Broadcasting infrastructure
Furniture, fixtures and equipment
Computer hardware
Leasehold improvements
Period
20-60 years
8 to 25 years
3 to 10 years
4 to 6 years
Lease term
Estimates for depreciation methods, useful lives and residual values are reviewed at each reporting year-end and
adjusted if appropriate prospectively.
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Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
(M) INTANGIBLE ASSETS, EXCLUDING BROADCAST LICENCES
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 clients 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 catalogs acquired in a business combination is determined using the estimated
costs for creating such music catalogs. The fair value of trademarks acquired in a business combination is based on
the discounted estimated future royalty payments that have been avoided.
Amounts capitalized as internally developed intangible assets include the total cost of any external products or services
and labour costs directly attributable to development.
AMORTIZATION
Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of the definite life
intangible assets.
Internally developed intangible assets, net of related tax credits, are amortized starting from the date the products and
services are commercialized.
The estimated useful lives for the current and comparative years are as follows:
Intangible assets
Internally developed intangible assets
Music catalog
Client list and relationships
Trademarks
Licences, website applications and computer software
Non-compete agreements
Period
2 to 5 years
5 to15 years
3 to 15 years
2 to 20 years
1 to 11 years
2 to 11 years
Estimates for depreciation methods, useful lives and residual values are reviewed at each reporting year-end and
adjusted if appropriate prospectively.
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Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
(N)
BUSINESS COMBINATION, GOODWILL AND BROADCAST LICENCES
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the
aggregate of the consideration transferred, measured at the acquisition date fair value. Acquisition costs incurred are
expensed and included in acquisition, legal, restructuring and other expenses. The cost of a business combination is
allocated to the fair value of the related net identifiable tangible and intangible assets. The excess of the cost of the
acquired businesses over the fair value of the related net identifiable tangible and intangible assets acquired is
allocated to goodwill. If the consideration is lower than the fair value of the net assets acquired, the difference is
recognized in the consolidated statements of comprehensive income (loss).
To receive approval to launch a new broadcast licence pursuant to applications made by the Corporation to the CRTC,
the CRTC may require the Corporation to commit to fund Canadian Content Development (“CCD”) during the initial
term of the licence over and above the prescribed annual requirements. These obligations are considered to be part
of the costs related to the award of new broadcast licences and are recognized as a liability upon the launch of the
new broadcast licence. Any other direct costs related to the award and launch of new broadcast licences are also
capitalized as broadcast licences. CCD that arises from a business acquisition is considered a transaction cost and is
expensed in the consolidated statements of comprehensive income (loss).
After initial recognition, goodwill and broadcast licences are recorded at cost less any accumulated impairment losses.
Both goodwill and broadcast licences have indefinite useful lives and are not amortized, but they are subject to an
impairment evaluation. Broadcast licences are deemed indefinite life assets since they are renewed every seven years
without significant cost, with the unlikely chance that the renewal will be denied; therefore, there is no foreseeable
limit to the period over which broadcast licences are expected to generate net cash flows for the Corporation.
(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 and
broadcast licences are tested for impairment each year at the same date, or more frequently if indications of
impairment exist.
For impairment testing purposes, assets that cannot be tested individually are grouped in CGUs. 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.
Annual Report 2019 | Stingray Group Inc. | 105
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
(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
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.
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.
Restricted and performance share units and deferred share units plans
Restricted share units, performance unit plan and deferred share units 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 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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Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
Employee share purchase plan
The Corporation’s contributions, used to purchase shares on the open market on behalf of employees, are recognized
when incurred as an employee benefit expense, with a corresponding increase in contributed surplus. The amount
expensed is adjusted to reflect the number of awards for which it is expected that the vesting conditions will be met,
so that the amount ultimately expensed will depend on the number of awards that meet the vesting conditions at the
vesting date.
Unvested shares held in trust on behalf of employees are treasury shares and therefore deducted from equity until
they become vested.
PENSION BENEFITS
The Corporation maintains a defined contribution pension plan and defined benefit pension plans. The Corporation
does not provide any non-pension post-retirement benefits to employees.
Defined contribution pension plan
The Corporation matches employee contributions under the defined contribution pension plan. Under this plan,
contributions are funded to a separate entity and the Corporation has no legal or constructive obligation to pay further
amounts. The Corporation’s portion is recorded as compensation expense as contributions are made, which coincides
with the periods during which services are rendered by employees.
Defined benefit pension plans
The cost of providing benefits under the defined benefit pension plans is determined on an annual basis by
independent actuaries separately for each plan using the projected unit credit costing method. Actuarial gains and
losses for both defined benefit plans are recognized immediately in full in the period in which they occur in OCI.
Actuarial gains and losses are not reclassified to the consolidated statements of income in subsequent periods.
Past service costs are recognized in profit or loss on the earlier of: (i) the date of the plan amendment or curtailment,
and (ii) the date that the Corporation recognizes restructuring-related costs.
The discount rate is applied to the net defined benefit asset or liability to determine net interest expense or income.
The Corporation recognizes the following changes in the net defined benefit obligation under operating expenses in
the consolidated statements of income: (i) service costs comprising current service costs, past service costs, gains
and losses on curtailments and settlements, and (ii) net interest expense or income.
The value of any defined benefit asset recognized is restricted to the present value of any economic benefits available
in the form of refunds from the plan or reductions in the future contributions to the plan.
(R) SHARE CAPITAL
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.
Annual Report 2019 | Stingray Group Inc. | 107
Notes to Consolidated Financial Statements
Years ended March 31, 2019 and 2018
(In thousands of Canadian dollars, unless otherwise stated)
32. NEW AND AMENDED STANDARDS NOT YET ADOPTED BY THE CORPORATION:
IFRS 16 – Leases is required to be applied retrospectively for annual periods beginning on or after January 1, 2019
Effective April 1, 2019, the Corporation will adopt IFRS 16 using the modified retrospective approach. IFRS 16 set out new
principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The
standard provides lessees with a single accounting model for all leases and requires a lessee to recognize assets and
liabilities for all leases with a term of more than 12 months, unless the underlying assets is of low value. In particular, lessees
will be 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. Assets and liabilities arising from a lease will be initially measured on
a present value basis.
As a result of adopting IFRS 16, the Corporation will recognize an increase to both assets and liabilities of the consolidated
statements of financial position as well as a decrease to operating expenses (for the removal of rent expense for leases),
an increase to depreciation, amortization and write-off (due to depreciation of the right-of-use asset) and an increase to
net finance expense (income) (due to accretion of the lease liability).
The Corporation is still assessing the impact of the new leasing standard on its consolidated financial statements.
Annual Report 2019 | Stingray Group Inc. | 108
GLOSSARY
OF TERMS
TVideo On Demand (VOD): A system in which
viewers choose their own filmed entertainment, by
means of a PC or interactive TV system, from a wide
selection.
Subscription Video On Demand (SVOD): Refers to
a service that gives users unlimited access to a wide
range of programs for a monthly flat rate. The users
have full control over the subscription, and can
decide when to start the program.
Over the top (OTT): Refers to film and television
content provided via a high-speed Internet
connection rather than a cable or satellite provider.
4K UHD: Ultra-high-definition (UHD) television, also
abbreviated UHDTV, is a digital television display
format in which the horizontal screen resolution is on
the order of 4000 pixels (4K UHD).
Pay TV: Television broadcasting in which viewers
pay by subscription to watch a particular channel.
IPTV: Internet Protocol television (IPTV) is the
process of transmitting and broadcasting television
programs through the Internet using Internet
Protocol (IP).
Satellite TV: Television broadcasting using a
satellite to relay signals to appropriately equipped
customers in a particular area.
ANNUAL GENERAL MEETING OF
SHAREHOLDERS
The Annual General Meeting will be held on August 7, 2019 at:
Stingray Headquarters
730 Wellington Street
8th Floor
Montreal, Quebec
H3C 1T4
PROVISIONAL CALENDAR OF RESULTS
First quarter of 2020
August 7, 2019
Second quarter of 2020
November 7, 2019
Third quarter of 2020
February 6, 2019
Fourth quarter of 2020
June 4, 2020
STOCK EXCHANGE
TSX: RAY.A and RAY.B
TRANSFER AGENT
AST Trust Company
2001 Boulevard Robert-Bourassa
Suite 1600
Montreal, Quebec
H3A 2A6
Canada
1-514-285-8300 or 1-800-387-0825
help@astfinancial.com
www.astfinancial.com
Annual Report 2019 | Stingray Group Inc.