Digitalist Group Plc Stock Exchange Release 26 April 2018 at 9:00 a.m.
DIGITALIST 2018 – INTERNATIONAL GROWTH AND CHANGE MANAGEMENT
SUMMARY
January - March 2018 (corresponding figures for 2017 in brackets):
- Turnover MEUR 5.3 (MEUR 4.2), growth of 24.8%.
- EBITDA MEUR -2.1 (MEUR -0.7), -39.0% of turnover (-16.5%).
- Operating result MEUR -2.4 (MEUR -0.8), -45.8% of turnover (-18.8%).
- Net result MEUR -2.7 (MEUR -1.2), -51.7% of turnover (-29.2 %).
- Earnings per share (undiluted and diluted) EUR -0.00 (EUR -0.00).
- Net cash flow from operating activities MEUR -1.7 (MEUR -1.9).
- Number of employees at the end of the review period 238 (166), growth of 43.4%
Future prospects
Turnover is expected to grow further and the operating profit is expected to improve in 2018 compared to the previous year.
CEO’s Review
Digitalist Group’s result for the first quarter suffered from postponements in starting major customer projects, costs from undertaking efficiency measures in the organization and from the costs relating to the company’s growth strategy. During the period, there was however an increase in orders and in turnover. Furthermore the company won several major projects, launched new studios in North America and streamlined its organization. The efforts to improve the operational efficiency during Q1 combined with the increase in turnover and the positive improvements in the order backlog provides better conditions for improved results for the rest of the year. The company is concentrating on focusing its operations, growing and improving the profitability of the business.
In early 2018, the company commenced austerity measures in the Group and employee co-operation negotiations with the Finnish staff, with the aim of achieving cost savings, while streamlining the organisation and directing resources to the strategically most important parts of the business. As a result of these co-operation negotiations, the activities in Jyväskylä will be closed and the remaining operations be transferred as part of the operations in Tampere. In addition the company’s operations in Kemi will be discontinued and will be transferred as part of the operations in Oulu. The employee co-operation negotiations resulted in 21 people being laid off. The estimated annual cost savings from the efficiency measures is MEUR 2.6 on a Group level.
The company turnover increased by 25% during the first quarter. Focusing on the combination of research, design and technology, Digitalist won the tender organised by the Helsinki Region Transport (HSL) and participates in major framework agreements in the field of service design. In addition, during the first quarter, the company concluded an important customer contract with the English tour boat operator City Cruises and with Honda. The company does well in customer tenders and is an inspiring digitalisation partner for several leading companies and in the public sector.
As part of its growth and international expansion, the company opened new studios in San Francisco and Vancouver during the first quarter. The company delivers know-how and demanding solutions internationally through the studios in the different countries. In its chosen fields, Digitalist seeks to combine experience, customer references and know-how in ways which sets it off from the competitors. The company is particularly strong in design and in building embedded systems.
The objective of Digitalist during 2018 is to unite the company’s culture, offering, processes and business focus, with the aim to grow the business internationally and to improve the profitability. Following the acquisitions of the previous year, the company focuses on creating one unified and international business that aims to deliver tomorrow’s solutions today, using research, design and technology competences.
/CEO Ville Tolvanen
SEGMENT REPORTING
The Digitalist Group reports its business operations as a single segment.
TURNOVER
The turnover of the Group during the first quarter was MEUR 5.3 (MEUR 4.2), which is 24.8% more than in the previous year. The increase in turnover was mainly due to acquisitions made in 2017.
RESULT
The operating result (EBIT) in the first quarter was MEUR -2.4 (MEUR -0.8) and the result before taxes was MEUR -2.8 (MEUR -1.2). The net result in the first quarter was MEUR -2.7 (MEUR -1.2), earnings per share was EUR -0.00 (EUR -0.00) and cash flow from operating activities per share was EUR -0.00 (EUR -0.00). The net result was affected by the review period’s net financial expenses amounting to EUR -0.3 million (EUR -0.3 million).
The result of the review period was affected by the unrealized turnover caused by the postponement of some project deliveries, cost related to undertaken efficiency measures, cost related to the company’s international growth strategy and growth in the number of personnel. In addition, depreciation increased due acquisitions carried out in 2017.
In early 2018, the company commenced austerity measures in the Group and employee co-operation negotiations with its Finnish staff, with the aim of achieving cost savings, while streamlining the organisation and directing resources to the strategically most important parts of the business. The result of the first quarter includes provisions for MEUR 0.2 intended for the termination of employment contracts.
RETURN ON CAPITAL
The equity of the Group was MEUR 2.6 (MEUR -5.4). The return on equity (ROE) was 605.7% (309.6%) Return on investment (ROI) was -50.5% (-54.2)%.
INVESTMENTS
Investments in the first quarter amounted to MEUR 0.1 (MEUR 0.0). All research and development expenditure is included in the Group’s result, and no research and development expenditure has been activated in the balance sheet during the review period.
BALANCE SHEET AND FINANCING
The balance sheet grew due to acquisitions made in 2017 and was totalled MEUR 23.5 (MEUR 16.1). Shareholders’ equity was MEUR 2.6 (MEUR -5.4). The equity ratio was 11.1% (-33.5%). The liquid assets of the Group at the end of the review period amounted to MEUR 0.6 (MEUR 0.4).
The change in shareholders’ equity during the review period was mainly due to a negative result, in total of MEUR -2.7.
At the end of the review period, the Group’s balance sheet included loans from financial institutions to the amount of EUR 3.8 million (EUR 2.8 million), including the available bank account limits. Some of the financial loan agreements contain covenant conditions concerning the Company’s self-sufficiency, and they were analysed on 31 March 2018.
In addition to this, the Company has received loans from its main owner. On 31.03.2018, the interest-bearing debts amounted to EUR 12.6 million (EUR 14.4 million), of which loans from related companies accounted for EUR 8.6 million (EUR 11.6 million). Loan agreements concluded with related companies during the review period are presented in the report section: Related party transactions.
CASH FLOW
Consolidated cash flow from operating activities during the first quarter was MEUR -1.7 (MEUR
-1.9), showing a change of 6.4%. The change of the cash flow from operating activities was mainly affected by the weakening of the result and 0.5 MEUR positive change in the working capital.
To decrease the days sales outstanding, the Group sells part of its Finnish sales receivables. During the first quarter, sales receivables were sold for MEUR 1.8 (MEUR 1.7).
GOODWILL
On 31 March 2018, the Group’s balance sheet included goodwill amounting to MEUR 12.7 (MEUR 11.5).
The following parameters were used in the goodwill impairment testing:
- Review period of four years
- WACC discount rate of 9 per cent.
- Growth assumption (”terminal value”) of 1 per cent.
The impairment testing on 31 March 2018, no need for write-down was established. The use value of the tested assets exceeded the amount by MEUR 20.2 million.
The calculated current value of cash flows, EUR 35.7 million, falls below the sum of the Company’s financial liabilities amounting to EUR 12.6 million and the shares’ market price amounting to EUR 39.9 million on 31 March 2018.
STAFF
The average number of employees during the first quarter was 243 (168) and at the end of the period, there were 238 (166) employees. At the end of the review period, the Group had 152 (133) employees stationed in Finnish companies and 86 (33) employees in the foreign companies of the Group. During the first quarter, the number of staff decreased by two.
SHARES AND SHARE CAPITAL
Share turnover and price
During the first quarter, the highest price of the company share was EUR 0.10 (EUR 0.16), and the lowest price was EUR 0.07 (0.10). The closing price on 31 March 2018 was EUR 0.07 (EUR 0.13). The weighted average price was EUR 0.08 (EUR 0.14). The number of shares traded during the review period was 4,754,256 (17,664,167), which corresponds to 0.86% (4.99%) of the total number of shares at the end of the review period. The market value of the share capital was MEUR 39,875,353 (MEUR 45,963,437) at the closing of the first quarter on 31 March 2018.
Share capital
In the beginning of the review period, the company’s registered share capital was EUR 585,394.16 and the number of shares was 553,824,346. At the end of the review period, the registered share capital was EUR 585,394.16 and the number of shares was 553,824,346. The Company has one share class, and at the end of the accounting period the Company does not have own shares in its possession.
Option schemes 2011, 2014 and 2016
Digitalist Group Plc has three option schemes: the 2011, 2014 and 2016 schemes, according to which new shares of the Company can be subscribed for to the total maximum amount of 42,018,526 shares. Descriptions of the option schemes are on view on the Company’s website https://digitalist.global.
Shareholders
On 31 March 2018, the number of shareholders was 3,954 (3,706). Private individuals owned 10.00 (12.72) per cent, corporations 89.66 (86.74) per cent and foreigners 0.35 (0.54) per cent, of which nominee registered were 5.60 (1.41) per cent of the shares
The ownership share of Tremoko Oy Ab, which is a party related to the Company, is 80.48 per cent. Through options, the ownership share can be increased to 80.53 per cent.
Related party transactions
On 30 January 2018, the Digitalist Group Plc has agreed on an increase of a credit limit from 0.2 MEUR to 1 MEUR with Nordea Bank AB (publ), Finnish Branch. The credit limit is secured by a directly enforceable guarantee granted by Turret Oy Ab and Holdix Oy Ab to Nordea Bank AB (publ), Finnish Branch, amongst other things, as collateral for the liabilities of Digitalist Group and its subsidiaries (announced on 22 December, 2017). Turret Oy Ab and Holdix Oy Ab are the owners of Tremoko Oy Ab, which is the main owner of Digitalist Group.
On 21 February 2018, the Digitalist Group Plc has agreed with its principal owner Tremoko Oy Ab on a financial arrangement based on borrowed capital publicised on 18 August 2016 from MEUR 2.5 to MEUR 3.0. This additional funding is due for payment no later than 31 December 2019.
OTHER EVENTS DURING THE FIRST QUARTER
7.2.2018 Digitalist Group commenced austerity measures in the group and employee co-operation negotiations with its staff in Finland. The negotiations began on 7 February 2018 and did not involve the programming employees at the Digitalist Finland Oy Helsinki office or the employees at the Tampere and Oulu branch offices. As a result of the employee co-operation negotiations, 21 people were laid off; the Jyväskylä office will close down and the remaining operations will be transferred to Tampere. In addition, the business in Kemi will be dissolved and transferred to Oulu. Due to the reorganisation and streamlining measures, the company estimates that it will achieve total annual savings of MEUR 2.6 on a Group level.
Stock Exchange releases during the period are available on the company website at https://digitalist.global/investors/releases.
EVENTS AFTER THE REPORTING PERIOD
The company held its Annual General Meeting on 17 April 2018. The minutes of the Annual General Meeting and the decisions made are available on the Company website at www.digitalist.global/investors/releases.
The Annual General Meeting chose Paul Ehrnrooth, Bo-Erik Ekström, Pekka Pylkäs, Peter Eriksson, Jaana Rosendahl, Esa Matikainen and Ville Tolvanen as full members of the Board of Directors. At the constitutive meeting following the Annual General Meeting, the Board of Directors elected Paul Ehrnrooth as Chairman of the Board and Esa Matikainen as Deputy Chairman.
In addition, the members of the audit committee and remuneration committee were selected in the meeting. Pekka Pylkäs was elected Chairman of the audit committee and Bo-Erik Ekström, Esa Matikainen ja Peter Eriksson were elected as members. Bo-Erik Ekström and Esa Matikainen are independent of the company and its major shareholders. Bo-Erik Ekström was elected Chairman of the remuneration committee and Jaana Rosendahl and Peter Eriksson were elected as members. Bo-Erik Ekström and Jaana Rosendahl are independent of the company and its major shareholders.
On 25 of April 2018 Digitalist Group Plc has accepted the binding offer from its main owner Tremoko Oy Ab of a financial arrangement based on borrowed capital of at most EUR 1.0 million. Thus the Financial Arrangement executed now enables, if necessary, Digitalist Group to obtain EUR 1.0 million more than earlier in additional financing. The additional financing under the Financial Arrangement falls due on 31 December 2019 at the latest.
As part of the Financial Arrangement Digitalist Group has additionally agreed with its main owner Tremoko Oy Ab on changing the current due date, being 31 January 2019, for the previously provided EUR 4.6 million credit line facility. The new due date will be on 31 December 2019 at the latest.
At the same time with the Financial Arrangement Digitalist Group Plc has agreed to drawdown a loan of 2.0 million euros (“Loan”) from Nordea Bank AB (publ), Finnish Branch, converting the previous revolving credit facility of the same amount. The repayment of the Loan will be paid in equal instalments every three months starting on 30 April 2020, the last payment date being on 30 April 2023.
RISK MANAGEMENT AND UNCERTAINTIES IN THE NEAR FUTURE
The risk management of the Digitalist Group Plc aims to ensure the undisturbed continuity and development of the company operations and to support the attainment of the commercial targets set by the company as well as increase the company value. Details on the organisation of risk management, the risk management process and recognised risks are available on the Company’s website at https://digitalist.global.
Despite the efficiency measures taken, the results of the company have been negative in recent years, which has a direct impact on the sufficiency of the working capital. This risk is managed by maintaining readiness for various financing methods.
Changes in key customer accounts may have adverse effects on the operations, earning power and financial position of the Digitalist Group. Should major customers switch their purchases from the Digitalist Group to its competitors or make major adjustments in their own operating model, the possibilities to replace this
The turnover of the Group consists primarily of individual, relatively short-term customer contracts. Forecasting the starting dates and scope of new projects is challenging from time to time, while at the same time, the cost structure is fairly rigid. This may result in unexpected fluctuations in turnover and profitability.
Some of the business operations of the Group are based on fixed-price project deliveries, which contain a temporal and substantive risk. These risks are sought to be managed by means of contract and project management.
Part of the turnover of the Group is invoiced in foreign currency. Risks related to currency fluctuation are managed through different means, for example net positioning and currency hedge transactions. The reporting periods of 2018 and 2017 did not contain currency hedge transactions.
The Group has a subsidiary in Great Britain. The influence of Brexit on the operations of the subsidiary was evaluated and it was estimated to be insignificant.
The balance sheet of the company includes a significant amount of goodwill, which may still be impaired should internal or external factors reduce the profit expectations of the cash flow of the company. Goodwill is tested each quarter and, when necessary, at other times.
Some of the company’s financial agreements (MEUR 0.2) have covenants attached to them, and the breach thereof may increase the financial expenses of the company or lead to a call for swift partial or full repayment of non-equity loans. The main risks related to covenant breaches are associated with EBITDA fluctuation due to the market situation and with a potential need to increase the working capital of the company through non-equity funding. The company manages these risks by negotiating with financiers and by maintaining readiness for various financing methods.
LONG-TERM GOALS AND STRATEGY
In the long term, the Digitalist Group aims to achieve an operating profit of at least 10%. To achieve these long-term goals, the Digitalist Group seeks to grow internationally and profitably by designing new thinking, services and technology solutions for the digitising industries. These include the technology industry, energy industry, transport and logistics and the consumer services in the private and public sector. In its strategy, the Digitalist Group focuses on a deeper integration of its service and solution business, and a seamless combination of user and user experience research, design and technology.
NEXT REPORTS
The half-yearly report 1-6/2018 will be published on Wednesday 29 August 2018.
DIGITALIST GROUP PLC
Board of Directors
Digitalist Group Plc
- CEO Ville Tolvanen, tel. 050 3100642, ville.tolvanen@digitalistgroup.com
- CFO Hans Parvikoski, tel. 040 5866154, hans.parvikoski@digitalistgroup.com
Distribution:
NASDAQ OMX Helsinki
Major media
DIGITALIST GROUP
ABSTRACT OF FINANCIAL STATEMENTS AND NOTES TO THE ACCOUNTS
01.01-31.03.2018
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME, TEUR
| 1.1.-31.3.18 | 1.1.-31.3.17 | Change % | 1.1.-31.12.17 | |
| Turnover | 5,285 | 4,236 | 24.8 | 20,000 |
| Operating expenses | -7,706 | -5,034 | -53.1 | -24,899 |
| OPERATING RESULT | -2,422 | -798 | -203.6 | -4,899 |
| Financial income and expenses | -364 | -440 | 17.2 | -2,274 |
| Result before tax | -2,786 | -1,237 | -125.2 | -7,173 |
| Income tax | 55 | 0 | 231 | |
| RESULT FOR THE PERIOD | -2,731 | -1,237 | -120.7 | -6,942 |
| Attributable to: | ||||
| Equity holders of the parent | -2,731 | -1,237 | -120.7 | -6,942 |
| Earnings per share: | ||||
| Undiluted, EUR | -0.00 | -0.00 | -0.02 | |
| Diluted, EUR | -0.00 | -0.00 | -0.02 |
STATEMENT OF COMPREHENSIVE INCOME, EUR 1000
| 1.1.-31.3.18 | 1.1.-31.3.17 | Change % | 1.1.-31.12.17 | |
| Result for the period | -2,731 | -1,237 | -120.7 | -6,942 |
| Other comprehensive income | ||||
| Change in translation difference | -138 | 34 | -510.3 | 477 |
| COMPREHENSIVE RESULT FOR THE PERIOD | -2,869 | -1,204 | -138.4 | -6,465 |
STATEMENT OF FINANCIAL POSITION, EUR 1000
| ASSETS | 31.3.2018 | 31.3.2017 | 31.12.2017 |
| NON-CURRENT ASSETS | |||
| Goodwill | 12,717 | 11,543 | 12,755 |
| Other intangible assets | 4,561 | 249 | 5,024 |
| Property, plant and equipment | 430 | 324 | 401 |
| Available-for-sale investments | 3 | 8 | 7 |
| Trade and other receivables | 0 | 78 | 41 |
| TOTAL NON-CURRENT ASSETS | 17,711 | 12,201 | 18,227 |
| CURRENT ASSETS | |||
| Trade and other receivables | 5,203 | 3,519 | 5,434 |
| Cash and cash equivalents | 607 | 448 | 1,365 |
| TOTAL CURRENT ASSETS | 5,810 | 3,968 | 6,800 |
| TOTAL ASSETS | 23,521 | 16,091 | 25,027 |
| EQUITY AND LIABILITIES | 31.3.2018 | 31.3.2017 | 31.12.2017 |
| SHAREHOLDERS’ EQUITY | |||
| Share capital | 585 | 585 | 585 |
| Share premium reserve | 219 | 219 | 219 |
| Invested non-restricted equity fund | 64,457 | 47,191 | 64,457 |
| Retained earnings | -59,925 | -52,149 | -52,846 |
| Result for the period | -2,731 | -1,237 | -6,942 |
| Equity attributable to equity holders of the parent | 2,605 | -5,390 | 5,473 |
| TOTAL SHAREHOLDERS’ EQUITY | 2,605 | -5,390 | 5,473 |
| LIABILITIES | |||
| Non-current liabilities | 5,819 | 12,153 | 7,474 |
| Current liabilities | 15,098 | 9,238 | 12,080 |
| TOTAL LIABILITIES | 20,916 | 21,481 | 19,554 |
| TOTAL EQUITY AND LIABILITIES | 23,521 | 16,091 | 25,027 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY, EUR 1,000
A: Share capital
B: Share premium reserve
C: Share issue
D: Invested non-restricted equity fund
E: Translation difference
F: Retained earnings
G: Total equity attributable to equity holders of the parent
H: Total equity
| A | B | C | D | E | F | G | H | |
| Shareholders’ equity at 1 January.2017 | 585 | 219 | 0 | 47,191 | 280 | -52,475 | -4,199 | -4,199 |
| Result for the period | -1,237 | -1,237 | -1,237 | |||||
| Change in translation difference | 34 | 34 | 34 | |||||
| Share-based remuneration | 12 | 12 | 12 | |||||
| Shareholders’ equity at 31 March 2017 | 585 | 219 | 0 | 47,191 | 314 | -53,700 | -5,613 | -5,390 |
| Shareholders’ equity at 1 January 2018 | 585 | 219 | 0 | 64,457 | 757 | -60,545 | 5,473 | 5,473 |
| Other changes | ||||||||
| Result for the period | -2,731 | -2,731 | -2,731 | |||||
| Change in translation difference | -138 | -138 | -138 | |||||
| Shareholders’ equity at 31 March 2018 | 585 | 219 | 0 | 64,457 | 619 | -63,276 | 2,605 | 2,605 |
CONSOLIDATED STATEMENT OF CASH FLOWS, EUR 1,000
| 1.1.-31.3.2018 | 1.1.-31.3.2017 | 1.1.-31.12.2017 | |
| Cash flow from operating activities | |||
| Result for the period | -2,731 | -1,237 | -6,942 |
| Adjustments to cash flow from operating activities | |||
| Income tax | -55 | 0 | -231 |
| Depreciation and impairment | 359 | 101 | 914 |
| Financial income and expenses | 364 | 222 | 2,274 |
| Other adjustments | -97 | 46 | 2,100 |
| Cash flow from operating activities before change in working capital | -2,161 | -868 | -1,884 |
| Change in working capital | 523 | -977 | -2,936 |
| Interest received | 2 | 0 | 5 |
| Interest paid | -101 | -20 | -748 |
| Taxes paid | 9 | 0 | -69 |
| Net cash flow from operating activities | -1,745 | -1,864 | -5,632 |
| Acquisition of subsidiaries, net of cash acquired | 0 | 0 | 673 |
| Investments in tangible and intangible assets | -59 | -11 | -224 |
| Net cash flow from investing activities | -59 | -11 | 449 |
| Net cash flow before financing | -1,804 | -1,876 | -5,184 |
| Cash flow from financing activities | |||
| Increase in long-term borrowings | 500 | 2,000 | 6,265 |
| Increase in short-term borrowings | 829 | 1 | 2,001 |
| Repayment of short-term borrowings | -263 | -63 | -2,300 |
| Payments received from share subscriptions | 0 | 0 | 300 |
| Expenses for equity procurement | 0 | 0 | -44 |
| Financial leasing payments | -20 | -35 | -94 |
| Net cash flow from financing activities | 1,046 | 1,902 | 6,128 |
| Change in cash and cash equivalents | -759 | 26 | 944 |
| Liquid assets at the beginning of the period | 1,366 | 422 | 422 |
| Liquid assets at the end of the period | 607 | 448 | 1,366 |
Accounting principles
The Interim Report has been prepared in accordance with IAS 34, Interim Financial Reporting. The same accounting principles have been followed as in the annual financial statements.
Preparation of financial statements in accordance with the IFRS standards requires the company's management to make estimates and assumptions that have an effect on the amount of assets and liabilities on the balance sheet at the closing date as well as the amounts of income and expenses for the accounting period. In addition, the management must exercise its judgment regarding the application of accounting policies. Since the estimates and assumptions are based on the views on the date of the financial statements, they include risks and uncertainties. The actual results may differ from the estimates and assumptions.
The figures in the income statement and balance sheet are consolidated. The consolidated balance sheet combines all the Group’s companies. The original release is in Finnish. The English release is a translation of the original.
The figures in the release are rounded, which is why the sum of individual figures may deviate from the total sum presented. The interim report is unaudited.
Changes in accounting principles
The International Accounting Standards Board has released three new standards relating to Digitalist Group Plc, IFRS 15, Revenues from Contracts with Customers, and IFRS 9, Financial Instruments, and IFRS 16, Leases. The IFRS 15 and IFRS 9 standards are to be applied from 1 January 2018 and the IFRS 16 standard from 1 January 2019.
In addition, the yearly changes in the IFRS standards and the change in IFRS 2, Share-based Payments standard have come into force on 1 January 2018.
The Digitalist Group Plc has conducted an analysis on the impacts of the IFRS 15 standard. The impacts of IFRS 15 were assessed by reviewing customer contracts of all revenue streams in relation to the IFRS 15 revenue recognition model. The transition method of IFRS 15 is option IFRS 15 C3 (b), applied retrospectively, so that the cumulative effect of initially applying the standard shall be recognised as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application, i.e. 1 January 2018. The Group does not expect the changes to have a material impact on the principles for recognising revenue, the amount or timing of revenue or operating income during reference period 2017, so retained earnings on 1 January 2018 do not contain an adjustment to the opening balance. Moreover, the IFRS 15 is not considered to have impact on the principles for recognising revenue, the amount or timing of revenue or operating income during financial period 2018 either, so the recognition of revenue from contracts with customers has not been amended.
IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. Additionally, IFRS 9 introduces expanded disclosure requirements and changes in presentation. According to Digitalist Group Plc’s estimation, the introduction of IFRS 9 is not estimated to have a considerable impact on financial statement transactions, values or notes in Digitalist Group Plc’s financial statements.
Application of new and renewed IFRS standards
IFRS 16 Leases
Digitalist Group Plc has commenced with a preliminary assessment of the effects of the IFRS 16 standard on the financial statements. The most notable observed impact is that Digitalist records new assets and debts in the balance sheet that are mainly premises contained in other existing rental agreements. In addition, the nature of the costs associated with the rental agreements in question is changing as IFRS 16 replaces rental cost with depreciation of the access right asset and with the interest expense arising from the rental agreement debt, which is reported as part of financial costs. Digitalist Group Plc will perform a more precise assessment of the impacts of the standard and transition method during the next twelve months.
Going concern
This quaterly report has been prepared according to the going concern principle, considering the financial arrangements realized at the beginning of 2018 and the business scenarios for 2018.
The scenarios take into consideration probable or foreseeable changes in future expectations, both in revenues as well as costs.
At the time of the publication of the interim report, the company estimates that its net working capital will be sufficient for the needs of the following 12 months.
Some of the company’s bank loans include covenants that are reviewed for the next time on 31 March 2018.
Goodwill impairment
The Digitalist Group performed an impairment test for the goodwill value on the balance sheet on 31 March 2018. The goodwill is attributed to one cash generating unit.
No need for goodwill impairment was discovered during the goodwill impairment testing; the present value of future cash flows exceeded the carrying value of assets by MEUR 20.2. The carrying amount of goodwill on the balance sheet at the end of the review period is MEUR 12.7. The present value of the cash flows calculated, MEUR 35.7, is lower than the sum of the liabilities of the company, MEUR 12.6, and the market price of the shares, MEUR 39.9, on 31 March 2018.
The impairment test of the company is based on operative company value. The forecasting period used in impairment testing at 31 March 2018 was Q2 2018 to Q1 2022.
In the forecasting period Q2 2018- Q1 2022, the company expects an average growth of 18%, with digitalisation impacting a growing number of business. The forecasted EBIT level is assumed to increase to an average of 6%.
In the method, the carrying value of assets is compared to the cash flow generated in a chosen period, taking into consideration the discount rate and growth rate factor. The discount rate used is 9% p.a. and growth rate factor used in calculating terminal value is 1% p.a. In calculating the terminal value, the weighted average EBIT % for the period was used.
In impairment testing, the major sensitivity factors include, in addition to the cash flow forecast itself and the assumptions behind it, the growth rate of the terminal value and the discount factor. If the growth rate of -21.8% had been used instead of 1%, the tested value would have been equal to the discounted cash flow. If the discount factor had been 19.8% instead of 9%, the tested value would have been equal to the discounted cash flow. If the EBIT % used had been -0.5% instead of 6%, the tested value would have been equal to the discounted cash flow.
Loan covenants
The company has a total amount of bank loans on 31 March 2018 of MEUR 3.8. The amount of loans that include covenants are MEUR 0.2 (MEUR 0.4) on 31 March 2018.
The loan agreements include covenants regarding the equity ratio of the company, which are seen to include loans from the principal owner and the credit limits in use. The covenants will be reviewed for the next time on 30 June 2018. Should the company not be within the limits of a covenant, the creditor is entitled to call in the loans to which the covenant applies. According to the covenant definition of the loan agreements, the equity ratio must be a minimum of 30%.
On 30 March 2018, the equity ratio of the company according to the covenant definition was 47.6%.
Due dates for loans subject to covenants:
| Period | Instalment EUR 1,000 |
| 01.04. – 31.12.2018 | 190 |
CONSOLIDATED INCOME STATEMENT BY QUARTER, EUR 1,000
| Q1/2018 | Q4/2017 | Q3/2017 | Q2/2017 | Q1/2017 | Q4/2016 | |
| 1.1.-31.3.18 | 1.10.-31.12.17 | 1.7.-30.9.17 | 1.4.-30.6.17 | 1.1.-31.3.17 | 1.10-31.12.16 | |
| Turnover | 5,285 | 6,588 | 4,510 | 4,667 | 4 ,236 | 4,489 |
| Operating expenses | -7,706 | -8,098 | -5,872 | -5,896 | -5,034 | -5,572 |
| OPERATING PROFIT | -2,422 | -1,510 | -1,362 | -1,229 | -798 | -1,083 |
| Financial income and expenses | -364 | -385 | -623 | -826 | -440 | -231 |
| Result before tax | -2,786 | -1,895 | -1,986 | -2,055 | -1,237 | -1,341 |
| Income tax | 55 | 12 | -18 | 237 | 0 | - 1 |
| RESULT FOR THE PERIOD | -2,731 | -1,883 | -2,004 | -1,818 | -1,237 | -1,315 |
CHANGES IN FIXED ASSETS, EUR 1,000
| Goodwill | Intangible assets | Property, plant and equipment | Available-for-sale investments | Total | |
| Carrying amount at 1 January 2017 | 11,543 | 323 | 340 | 8 | 12,214 |
| Additions | 0 | 0 | 11 | 0 | 11 |
| Depreciation for the period | 0 | -74 | -27 | 0 | -101 |
| Carrying amount at 31 March 2017 | 11,543 | 249 | 324 | 8 | 12,124 |
| Carrying amount at 1 January 2018 | 12,755 | 5,024 | 401 | 7 | 18,186 |
| Additions | 0 | 1 | 73 | 0 | 74 |
| Disposals | 0 | 0 | 0 | -4 | -4 |
| Changes in exchange rates | -38 | -145 | -3 | 0 | -186 |
| Depreciation for the period | 0 | -318 | -41 | 0 | -359 |
| Carrying amount at 31 March 2018 | 12,717 | 4,561 | 430 | 3 | 17,711 |
KEY FIGURES
| ASSETS | 1.1.-31.3.2018 | 1.1.-31.3.2017 | 1.1.-31.12.2017 |
| Earnings per share, EUR, diluted | -0.00 | -0.00 | -0.02 |
| Earnings per share, EUR | -0.00 | -0.00 | -0.02 |
| Equity per share, EUR | -0.00 | -0.02 | 0.01 |
| Cash flow from business operations per share, EUR, diluted | -0.00 | -0.00 | -0.00 |
| Cash flow from business operations per share, EUR | -0.00 | -0.01 | -0.00 |
| Return on investment, % | -50.5 | -54.2 | -36.5 |
| Return on equity, % | 605.7 | 309.6 | neg |
| Operating result/turnover, % | -45.8 | -18.8 | -24.5 |
| Net gearing from total equity, % | 460.6 | -259.7 | 184.8 |
| Equity ratio, % | 11.1 | -33.5 | 21.9 |
| EBITDA, EUR 1,000 | -2,063 | -697 | -3,985 |
OTHER INFORMATION
| 1.1.-31.3.2018 | 1.1.-31.3.2017 | 1.1.-31.12.2017 | |
| EMPLOYEES, on average | 243 | 168 | 203 |
| Employees at the end of the period | 238 | 166 | 240 |
| COMMITMENTS, EUR 1,000 | |||
| Collateral for own commitments | |||
| Corporate mortgages | 23,500 | 23,500 | 23,500 |
| Leasing and other rental commitments | |||
| Due within 1 year | 1,074 | 959 | 1,290 |
| Due within 1-5 years | 980 | 1,443 | 1,129 |
| Due within 5 years | 0 | 0 | 0 |
| Total | 2,054 | 2,402 | 2,419 |
| Nominal value of interest rate swap agreement | |||
| Due within 1 year | 190 | 253 | 253 |
| Due within 1-5 years | 0 | 190 | 0 |
| Due within 5 years | 0 | 0 | 0 |
| Total | 190 | 443 | 253 |
| Fair value | -1 | -5 | -2 |
| Interest-bearing debt in total | |||
| Loans from financial institutions, long-term | 730 | 302 | 730 |
| Other long-term liabilities | 4 133 | 4 538 | 5 693 |
| Short-term interest-bearing liabilities, total | 7 742 | 2 520 | 5 060 |
| Total | 12 605 | 7 360 | 11 483 |
CALCULATION OF KEY FIGURES
EBITDA = Earnings before interest, taxes, depreciation and amortization
Diluted earnings per share = Result for the period ∕ Number of shares, adjusted for issues and dilution, average
Earnings per share = Result for the period ∕ Number of shares, adjusted for issues, average
Shareholders’ equity per share = Shareholders’ equity ∕ Number of shares, undiluted, on the closing date
Cash flow from operations, per share, EUR, diluted = Net cash flow from operations ∕ Number of shares, adjusted for issues and dilution, average
Return on investment (ROI) =
(earnings before tax + interest expenses + other financing expenses) /
(Total assets - interest-free debt (average)) x 100
Return on equity (ROE) = Net earnings / Total equity (average) x 100
Gearing = interest-bearing debt - liquid assets / total equity x 100
Attachment
