Digitalist Group Plc Stock Exchange Release 24 October 2018 at 09:00
DIGITALIST 2018 – UPDATED STRATEGY AND INTERNATIONAL GROWTH
SUMMARY
July – September 2018 (figures for 2017 in brackets):
- Turnover EUR 5.8 million (EUR 4.5 million), growth of 28.7%.
- Earnings before interest, taxes, depreciation, and amortisation (EBITDA) EUR -0.8 million
(EUR -1.1 million), -13.6% of turnover (-23.9%). - Operating result EUR -1.2 million (EUR -1.4 million), -20.9% of turnover (-30.2%).
- Net result EUR -1.3 million (EUR -2.0 million), -23.3% of turnover (-44.4 %).
- Earnings per share (diluted and undiluted) EUR -0.00 (EUR -0.01).
- Cash flow from operating activities EUR -2.5 million (EUR -2.0 million).
Review period January - September 2018 (figures for 2017 in brackets):
- Turnover EUR 17.3 million (EUR 13.4 million), growth of 28.8 %.
- Earnings before interest, taxes, depreciation, and amortisation (EBITDA) EUR -4.0 million (EUR -2.8 million), -23.1% of turnover, (-21.1%).
- Operating result EUR -5.2 million (EUR -3.4 million), -29.8% of turnover (-25.3%).
- Net result EUR -5.3 million (EUR -5.1 million), -30.7% of turnover (-37.7%).
- Earnings per share (diluted and undiluted) EUR -0.01 (EUR -0.01).
- Cash flow from operating activities EUR -5.9 million (EUR -6.2 million).
- Number of employees at the end of the review period 266 (232), growth of 14.6%.
Future prospects
The growth of turnover is expected to be roughly 30% and and business result is expected to improve in 2018 compared to the previous year. In 2019, turnover and business result are expected to develop positively compared to 2018.
CEO’s Review
Updated Strategy and international growth
During the third quarter, the international growth of the company continued. Digitalist Group reviewed its strategy to accelerate growth and to better meet the needs of clients by positioning the company as a customer experience developer even more strongly. The company believes its global growth will continue through the strategy.
Digitalist Group seeks to benefit from the expanding markets by positioning itself as a developer of better customer experience (The Customer Experience (CX) Innovation Company) and to grow to a desired provider of total solutions, in accordance with its vision From Ideas to Life. Digitalist Group wishes to simultaneously create efficiency and durable solutions and provide value by combining the solutions of the digital and physical world as a single customer experience.
During the third quarter, Digitalist Group established a new consulting unit to support the use of CRM systems and, in cooperation with the London-based City Cruises, launched cloud-based Ticknovate to support the thinking models of the platform economy.
International Growth
Growth has been particularly strong in the past year in the Northern American activities. It is the aim of the Digitalist Group to combine research, design and technology knowhow to build new experiences and to help clients use the CRM systems even better than before.
During the third quarter, the company continued the integration of the previously bought Grow Group as part of its business operations and became more international. During the third quarter, the company turnover grew by 29% compared to the reference period and the share of turnover from outside of Finland grew to 71% of total turnover. During the past year, the company has made major changes to clarify their business operations in Finland. In the first quarter, the company closed its offices in Kemi and Jyväskylä.
Growth Continues
The company expects to grow on all markets by focusing on the combination of design, marketing and technology knowhow. The company is particularly strong in developing solutions for the technology industry and transport and tourism. Digitalist Group serves the best companies in the field and seeks to further develop its role as a provider of solutions.
/CEO Ville Tolvanen
SEGMENT REPORTING
Digitalist Group reports its operations as a single segment.
TURNOVER
In the third quarter, the Group turnover was EUR 5.8 million (EUR 4.5 million), which is 28.7% more than in the previous year.
The Group’s turnover in the review period was EUR 17.3 million (EUR 13.4 million), which is 28.8% more than in the previous year. The growth in turnover was due to the expansion of international business activities. The share of turnover from outside of Finland already formed more than half of turnover in the review period and is now 59% (18%).
RESULT
In the third quarter, the earnings before interest, taxes, depreciation and amortisation (EBITDA) was EUR -0.8 million (EUR -1.1 million), operating result was EUR -1.2 million (EUR -1.4 million) and result before taxes was EUR -1.4 million (EUR -2.0 million). The net result in the third quarter was EUR -1.3 million (EUR -2.0 million), earnings per share was EUR -0.00 (EUR -0.01) and the cash flow from the operating activities per share was EUR -0.00 (EUR -0.01).
In the review period, the earnings before interest, taxes, depreciation and amortisation (EBITDA) was EUR -4.0 million (EUR -2.8 million), operating result EUR -5.2 million (EUR -3.4 million) and result before taxes EUR -5.5 million (EUR -5.3 million). The earnings before interest, taxes, depreciation and amortisation (EBITDA) was effected by the delayed major client projects, costs resulting from rationalisation, and costs related to the growth strategy of the company in the first quarter. The net result of the review period was EUR -5.3 million (EUR -5.1 million), earnings per share was EUR -0.01 (EUR -0.01) and cash flow from business operations/share was EUR -0.01 (EUR -0.02). The result of the review period contains a total of EUR 0.5 million (EUR 0.4 million) of costs relating to acquisitions.
RETURN ON CAPITAL
The Group’s equity was EUR 8.5 (EUR -0.8) million. Return on equity (ROE) was negative. Return on investment (ROI) was EUR -28.8 (-27.7) per cent.
INVESTMENTS
Investments for the review period were EUR 7.3 million (EUR 6.8 million). Investments are mainly related to acquisitions. The R&D costs capitalised in the balance sheet in the review period amounted to EUR 0.3 million (EUR 0.0).
BALANCE SHEET AND FINANCING
The balance sheet total grew due to acquisitions made in 2017 and 2018 and was EUR 31.6 million (EUR 24.4 million). Equity was EUR 8.5 million (EUR -0.8 million). The equity ratio for the entire shareholder’s equity was 27.0% (-3.1%). The liquid assets of the Group at the end of the review period amounted to EUR 0.7 million (EUR 0.9 million).
The positive change in the company’s equity in the review period was affected by the share issues related to the acquisitions made and the financial arrangements conducted with the principal owner amounting to a total of EUR 4.3 million.
At the end of the review period, the Group’s balance sheet included EUR 6.7 million (EUR 2.8 million) in loans from financial institutions, including the credit limits in use. Some of the loan agreements with financial institutions have covenants concerning the company’s equity ratio, which have been reviewed on 30 September 2018. The company also has loans from its principal owner. Interest-bearing debt as of 30 September 2018 was EUR 15.5 million (EUR 17.1 million), of which loans from related party companies constitute EUR 8.6 million (EUR 14.2 million). Loan agreements signed with related party companies during the review period are listed under the section “Related party transactions”.
As a result of the financial arrangements made during the review period, the company’s financial position has been strengthened.
CASH FLOW
The consolidated cash flow from operating activities during the review period was EUR -5.9 million (EUR -6.2 million), a change of 4.3%. The negative cash flow from operating activities was due to the negative result of business operations.
To shorten the rotation of sales receivables, the Group is selling some of its sales receivables from Finland. Sold sales receivables in the second review period amounted to EUR 5.2 million (EUR 4.1 million).
GOODWILL
The Group’s balance sheet included EUR 18.0 million (EUR 12.6 million) in goodwill as of 30 September 2018.
The following parameters have been used in goodwill testing:
- Length of review period: four years
- WACC discount rate: nine per cent
- One per cent growth estimate used for terminal value calculation.
No need for goodwill impairment was discovered during the goodwill impairment testing on 30 September 2018. The present value of future cash flows exceeded the carrying value of assets by EUR 29.6 million.
The present value of the cash flow calculation, EUR 52.9 million, is lower than the sum of the financial liabilities of the company (EUR 15.5 million) and market price of the shares (EUR 40.4 million) as of 30 September 2018.
PERSONNEL
The average number of personnel in the second quarter was 253 (191) and at the end of the period, there were 266 (232) employees. At the end of the review period, 121 (151) persons were employed by the Finnish companies and 145 (81) persons by the foreign companies of the Group. During the review period, the number of personnel increased by 26 people.
SHARE AND SHARE CAPITAL
Share Turnover and Price
During the review period, the highest price for the company share was EUR 0.10 (2017: EUR 0.16), the lowest price was EUR 0.06 (2017: EUR 0.10) and the closing price on 28 September 2018 was EUR 0.06 (2017: EUR 0.11). The average price for the review period was EUR 0.07 (2017: EUR 0.12). A total of 11,771,460 shares were traded during the review period (2017: 32,258,559 shares), which corresponds to 1.81% (2017: 7.91%) of the number of the shares listed at the end of the review period. The market value for shares using the closing price on 28 September 2018 was EUR 40,363,410 (2017: EUR 42,845,208).
Share Capital
The registered share capital of the company at the beginning of the review period was EUR 585,394.16 and the number of shares was 553, 824,346 pieces. At the end of the review period, the share capital was EUR 585,394.16 and the number of shares was 651,022,746.
Option Plans 2011, 2014 and 2016
Digitalist Group Plc has three option plans: 2011, 2014 and 2016, which in total give the right to subscribe to 42,018,526 new company shares. Descriptions of the option plans are available at the company website at https://digitalist.global.
Shareholders
The number of shareholders on 28 September 2018 was 3,970 (2017: 3,943). Private persons owned 8.53 % (2017: 12.62 %), institutions 91.46% (2017: 86.91%) and foreigners 0.01% (2017: 0.47%). Nominee registered ownership was 4.74% (7.64%) of all shares.
The ownership of Tremoko Oy Ab, a related party company, was 72.13%. Options allow an increase in ownership up to 72.2 %.
Related-party Transactions
On 30 January 2018, Digitalist Group Plc has agreed with Nordea Bank AB (publ), Finnish Branch, on the increase of the current credit limit from EU 0.2 million to EUR 1 million. 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, as collateral for the liabilities of Digitalist Group and its subsidiaries (published 22 December 2017). Turret Oy Ab and Holdix Oy Ab are the owners of Tremoko Oy Ab, the principal owner of the Digitalist Group.
On 21 February 2018, Digitalist Group Plc has agreed with its principal owner Tremoko Oy Ab on the increase of the current credit limit published on 18 August 2016 from EUR 2.5 million to EUR 3.0 million. This additional financing will be due no later than 31 December 2019.
On 25 April 2018, Digitalist Group Plc has accepted a binding offer from its principal owner Tremoko Oy Ab for a maximum of EUR 1.0 million debt financing arrangement. This arrangement enables further funding of EUR 1.0 million if necessary for the Digitalist Group. The additional financing complying with the financing arrangement will be due no later than 31 December 2019.
As part of the financing arrangement, Digitalist Group has also agreed with its principal owner Tremoko Oy Ab on the postponement of the due date 31 January 2019 for the previously provided EUR 4.6 million credit line facility. The new due date will be no later than 31 December 2019.
In conjunction with the financial arrangement, Digitalist Group Plc has agreed on a drawdown of debt securities for an amount of EUR 2.0 million from Nordea Bank AB (publ), Finnish Branch, converting the previous revolving credit facility of the same amount. These will be due in equal instalments every three months starting on 30 April 2020, the last payment date being on 30 April 2023.
On 25 May 2018, Digitalist Group Plc has agreed with Nordea Bank AB (publ), Finnish Branch, on the increase of the current credit limit by EUR 2.0 million to a total of EUR 3.0 million.
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, as collateral for the liabilities of Digitalist Group and its subsidiaries. Turret Oy Ab and Holdix Oy Ab are the owners of Tremoko Oy Ab, the principal owner of the Digitalist Group.
On 31 May 2018, the company launched a directed share issue to Tremoko Oy Ab as part of the acquisition of the Grow Group.
To fulfil the implementation criteria of the arrangement, the Board of Directors of the Digitalist Group decided, on the authorisation of the Extraordinary General Meeting on 17 April 2018, to issue a total amount of 22,222,222 new shares of the Group to be subscribed for by Tremoko Oy Ab in a directed share issue (“Rights Issue”) by way of derogation from the shareholders subscription privilege. The subscription price per offer share in the Rights Issue was EUR 0.09.
In the directed share issue, the shares were issued to develop the business of the Group and to carry out the acquisition, so there is a weighty financial reason for the directed share issue and the derogation from the shareholders’ subscription privilege as required under the Limited Liability Companies Act.
Tremoko Oy Ab has paid for the shares subscribed for by setting off receivables it has from the company, amounting to EUR 1.6 million, and pays the rest of the subscription price EUR 399,999.98 by cash.
Convertible bond to Tremoko Oy Ab
On the authorisation of the Extraordinary General Meeting on 17 April 2018, the Board of Directors of the Digitalist Group decided, by way of derogation from the shareholders subscription privilege to direct the convertible bond and associated special rights referred to in Chapter 10 Section 1(2) of the Limited Liability Companies Act to be subscribed for by Tremoko Oy Ab in accordance with the terms of the Loan agreement. The principal of the loan is EUR 8,671,932.36. Tremoko Oy Ab or the current holder of the Special Rights is entitled to subscribe for a maximum of 150,000,000 new Company shares under the terms set out in more detail in Terms. Tremoko Oy Ab has subscribed for the Loan and the associated Special Rights in full in accordance with the Terms, and the Company’s Board of Directors has approved the subscription of Tremoko Oy Ab.
The number of shares issued on the basis of the right of conversion is determined by dividing the amount of principal of the Bond by the rate of conversion. The Rate of Conversion of the share (which means the subscription price per share as referred to in the Limited Liability Companies Act) corresponds to the trade volume weighted average price of the Company’s share in the Nasdaq Helsinki Stock Exchange during the period of six (6) months preceding the making of the Request to Convert as defined in section 13 of the Terms of the Loan minus 10 per cent, yet so that each Bond can be converted into a maximum of ten million (10,000,000) new company shares. The Rate of Conversion of a Share will be revised in accordance with the Terms of the Loan.
The other main terms of the Loan and Special Rights are the following:
- interest 6.0% p.a.
- interest starts to accrue as of 1 January 2019
- Interest paid biannually on 30 June and 31 December
- the maturity date (if conversion right has not been exercised) 31 December 2021. In addition to this, the debtor has the right to once repay the Loand and its interests to the creditor at any time between 1 July 2018 and 30 June 2021
- the conversion period is any time between 1 July 2019 and 31 December 2021 (unless otherwise agreed between the creditor and the debtor for a pressing financial or other weighty reason), yet so that the debtor has the right to notify that it intends to repay the loan, in which case no conversion right exists for 3 months starting from such a notification, regardless of whether or not the creditor has submitted a notice of the conversion. The debtor may submit the request to convert referred to herein only once.
Tremoko Oy Ab has paid the subscribed Loan and the attached Special Rights by setting off its receivables from the Company in the total amount of EUR 8,671,932.36.
On 26 September 2018, Digitalist Group Plc has agreed with Nordea Bank AB (publ), Finnish Branch, on the increase of the current credit limit by EU 1.0 million to a total of EUR 4.0 million. 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, as collateral for the liabilities of Digitalist Group and its subsidiaries. Digitalist Group together with Digitalist Finland Oy have provided a collateralised counter-indemnity to Turret Oy Ab and Holdix Oy Ab, in which the company has, among other things, committed to paying market-priced guarantee provision. Turret Oy Ab and Holdix Oy Ab are the owners of Tremoko Oy Ab, the principal owner of Digitalist Group.
OTHER EVENTS DURING THE THIRD QUARTER
On 5 July 2018, the Financial Supervisory Authority has approved the registration document of Digitalist Group Plc and the securities note related to the company’s directed share issues of 31 May 2018 and 20 June 2018, in accordance with the Securities Market Act. The registration document contains information on the Company and its financial position and is valid for 12 months after its approval.
The composition of the Leadership team from 1 September 2018 is as follows:
Ville Tolvanen, Managing Partner / Chief Executive Officer
Magnus Leijonborg, Managing Partner / Chief Technology Officer
Mikko Mattinen, Managing Partner / Chief Client Officer (starts on 1 October 2018)
Esa Nettamo, Managing Partner / Chief Experience Officer
Hans Parvikoski, Managing Partner / Chief Financial Officer
Johan Almqvist, Managing Partner
Tony Grubb, Managing Partner
Pertti Hannelin, Managing Partner
Teppo Kuisma, Managing Partner
Mikko Sjöblom, Managing Partner
Ville Österlund, Managing Partner
Hanna Korhonen, Group Director, People and Competences
Mikko Mattinen has been elected Chief Client Officer of Digitalist Group from 1 October 2018.
On 28 September 2018, the Board of Directors approved a new strategy to accelerate growth.
Digitalist Group launched a new technology solution and established a new unit focusing on CRM consulting.
Digitalist Group Plc altered its previous forecast on future prospects:
The growth of turnover is expected to be roughly 30% and and business result is expected to improve in 2018 compared to the previous year. In 2019, turnover and business result are expected to develop positively compared to 2018.
The company’s previous forecast was:
The growth of turnover is expected to continue and the business result is expected to improve in 2018 compared to the previous year.
The company’s new forecast is based on opportunities for growth brought about by the revised strategy and new products and skill sets. The company is launching a new ticketing system within the travel industry with the London-based City Cruises and developing a new competence to better use the CRM products together with Salesforce.
The stock exchange releases for the review period are available on the Company’s at www.digitalist.global/investors/releases.
EVENTS FOLLOWING THE REVIEW PERIOD
No significant events.
RISK MANAGEMENT AND NEAR FUTURE UNCERTAINTY FACTORS
The goal of risk management of Digitalist Group Plc is to ensure the undisturbed continuation and development of the company’s operations, and to support the achievement of the business goals set by the company and the increase of the company’s value. More detailed information on the organisation and processes of risk management and the identified risks is available on the company’s website at www.digitalist.global.
The company’s result has recently been negative, despite the measures implemented in order to improve efficiency. Losses have an immediate effect on the sufficiency of the company’s working capital. Risks are thus managed by maintaining readiness for different financing solutions.
Changes in key accounts may have a negative effect on the operations, profitability and financial position of Digitalist Group. If one of the main clients should move their purchases from Digitalist Group to its competitors or dramatically change their business model, the opportunities for finding new client volume in the short term would be limited.
The business of the Group mainly consists of individual client contracts that are often fairly short in duration. Forecasting the starting times and scope of new projects is sometimes challenging, while the cost structure is largely fixed by nature. The above factors may cause unexpected variation in turnover and, thereby, profitability.
Fixed-price project deliveries form part of the business of the Group. Fixed-price project deliveries involve risks related to time and content. Contract and project leadership tools are used in order to mitigate this risk.
A proportion of the Group’s turnover is invoiced in currencies other than euros. The risks related to currency exchange rates are managed by different means, including net positions and hedging agreements. The review periods in 2018 and 2017 do not include hedging agreements.
The Group has a subsidiary in England. The effects of Brexit on the subsidiary’s business have been assessed and the impact has been estimated to be minor.
The Group has a substantial amount of goodwill in its balance sheet, which is subject to an impairment risk in case the future cashflow earnings outlook of the Group declines due to internal or external factors. Goodwill is tested each quarter and also at other times if need arises.
Some of the Group loans from financial institutions (EUR 0.1 million) involve covenants. A covenant breach may cause either an increase of the company’s financing costs or a demand for the accelerated repayment of debts either in part or entirely. The major risks related to covenant breaches are associated with EBITDA fluctuations due to the market situation or a possible need to increase the company’s working capital through debt financing. Risks are managed by means of negotiations and by maintaining readiness for different financing solutions.
ON LONG-TERM GOALS AND STRATEGY
In the long term, Digitalist Group seeks a minimum of 10 per cent profit level. In order to achieve its long-term goals, Digitalist Group aims to grow globally and profitably by shaping new thinking, services and technology solutions for the digitalising sectors. These include the technology and energy industries, transport and logistics and consumer services in the private and public sector. In its strategy, Digitalist Group focuses on deepening its service and solutions business and the seamless combination of user and usage research, branding, design and technology.
NEXT REPORT
The Financial Statements Release for 2018 will be pubslihed on Thursday 28 February 2019.
DIGITALIST GROUP PLC
Board of Directors
Further information:
Digitalist Group Plc
- CEO Ville Tolvanen, tel. +358 50 3100642, ville.tolvanen@digitalistgroup.com
- Chief Financial Officer Hans Parvikoski, tel. +358 40 5866154, hans.parvikoski@digitalistgroup.com
Distribution:
NASDAQ OMX Helsinki
Major media
DIGITALIST GROUP
SUMMARY OF INTERIM REPORT AND NOTES 1 January - 30 September 2018
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME, TEUR
| 1 July - 30 September 18 | 1 July -30 September 17 | Change % | 1 January -30 September 18 | 1 January -30 September 17 | Change % | 1 January-31 December 17 | |
| Turnover | 5,803 | 4,510 | 28.7 | 17,276 | 13,412 | 28.8 | 20,000 |
| Operating expenses | -7,014 | -5,872 | -19.4 | -22,428 | -16,801 | -33.5 | -24,899 |
| OPERATING RESULT | -1,211 | -1,362 | 11.1 | -5,152 | -3,389 | -52.0 | -4,899 |
| Financial income and expenses | -203 | -623 | 67.5 | -318 | -1,889 | 83.2 | -2,274 |
| Result before taxes | -1,414 | -1,986 | 28.8 | -5,470 | -5,278 | -3.6 | -7,173 |
| Income tax | 64 | -18 | 460.1 | 174 | 219 | -20.7 | 231 |
| RESULT FOR THE PERIOD | -1,350 | -2,004 | 32.6 | -5,296 | -5,059 | -4.7 | -6,942 |
| Attributable to: | |||||||
| Equity holders of the parent company | -1,350 | -2,004 | 32.6 | -5,296 | -5,059 | -4.7 | -6,942 |
| Non-controlling interests | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Earnings per share: | |||||||
| Undiluted, EUR | -0.00 | -0.01 | -0.01 | -0.01 | -0.02 | ||
| Diluted, EUR | -0.00 | -0.01 | -0.01 | -0.01 | -0.02 |
STATEMENT OF COMPREHENSIVE INCOME, TEUR
| 1 July - 30 September 18 | 1 July -30 September 17 | Change % | 1 January -30 September 18 | 1 January -30 September 17 | Change % | 1 January-31 December 17 | |
| Result for the period | -1,350 | -2,004 | 32.6 | -5,296 | -5,059 | -4.7 | -6,942 |
| Other comprehensive income | |||||||
| Change in translation difference | 107 | 59 | 82.3 | -401 | 462 | -186.8 | 477 |
| TOTAL COMPREHENSIVE INCOME FOR THE PERIOD | -1,242 | -1,945 | 36.1 | -5,697 | -4,596 | -23.9 | -6,465 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION, TEUR
| ASSETS | 30 September 2018 | 30 September 2017 | 31 December 2017 |
| NON-CURRENT ASSETS | |||
| Goodwill | 18,027 | 12,625 | 12,755 |
| Other intangible assets | 4,956 | 5,409 | 5,024 |
| Property, plant and equipment | 585 | 370 | 401 |
| Available-for-sale investments | 9 | 21 | 7 |
| Accounts receivables | 0 | 42 | 41 |
| NON-CURRENT ASSETS TOTAL | 23,576 | 18,467 | 18,227 |
| CURRENTS ASSETS | |||
| Trade and other receivables | 7,271 | 4,996 | 5,434 |
| Cash and cash equivalents | 706 | 924 | 1,365 |
| CURRENT ASSETS TOTAL | 7,977 | 5,919 | 6,800 |
| TOTAL ASSETS | 31,553 | 24,386 | 25,027 |
| EQUITY AND LIABILITIES | 30 September 2018 | 30 September 2017 | 31 December 2017 |
| SHAREHOLDERS’ EQUITY | |||
| Share capital | 585 | 585 | 585 |
| Share premium account | 219 | 219 | 219 |
| Invested unrestricted equity fund | 73,205 | 53,550 | 64,457 |
| Retained earnings | -60,188 | -50,056 | -52,846 |
| Result for the financial period | -5,296 | -5,059 | -6,942 |
| Total equity attributable to equity holders of the parent company | 8,525 | -760 | 5,473 |
| TOTAL EQUITY | 8,525 | -760 | 5,473 |
| LIABILITIES | |||
| Non-current liabilities | 12,760 | 12,712 | 7,474 |
| Current liabilities | 10,268 | 12,435 | 12,080 |
| LIABILITIES TOTAL | 23,028 | 25,147 | 19,554 |
| TOTAL EQUITY AND LIABILITIES | 31,553 | 24,386 | 25,027 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY, TEUR
A: Share capital
B: Share premium account
C: Share issue
D: Invested unrestricted equity fund
E: Translation difference
F: Retained earnings
G: Total equity attributable to equity holders of the parent company
H: Equity total
| A | B | C | D | E | F | G | H | |
| Shareholders’ equity on 1 January 2017 | 585 | 219 | 0 | 47,191 | 280 | -52,475 | -4,199 | -4,199 |
| Other changes | ||||||||
| Result for the financial period | -5,059 | -5,059 | -5,059 | |||||
| Other comprehensive income items | ||||||||
| Translation difference | 462 | 462 | 462 | |||||
| Transactions with shareholders: Rights Issue | 1,500 | 6,403 | 7,903 | 7,903 | ||||
| Expenses for equity procurement | -44 | -44 | -44 | |||||
| Share-based remuneration | 176 | 176 | 176 | |||||
| Shareholders’ equity 30 September 2017 | 585 | 219 | 1,500 | 53,549 | 742 | -57,710 | -760 | -760 |
| Shareholders’ equity 1 January 2018 | 585 | 219 | 0 | 64,457 | 757 | -60,545 | 5,473 | 5,473 |
| Other changes | ||||||||
| Result for the financial period | -5,296 | -5,296 | -5,296 | |||||
| Other comprehensive income items | ||||||||
| Translation difference | -400 | -400 | -400 | |||||
| Transactions with shareholders: Conversion of convertible bond | 2,000 | 2,000 | 2,000 | |||||
| Rights Issue | 6,748 | 6,748 | 6,748 | |||||
| Shareholders’ equity on 30 September 2018 | 585 | 219 | 0 | 73,205 | 357 | -65,841 | 8 ,525 | 8,525 |
CONSOLIDATED STATEMENT OF CASH FLOWS, TEUR
| 1 January - 30 September 2018 | 1 January - 30 September 2017 | 1 January - 31 December 2017 | |
| Cash flows from operating activities | |||
| Result for the period | -5,296 | -5,059 | -6,942 |
| Adjustments to cash flow from operating activities | |||
| Income taxes | -174 | -219 | -231 |
| Other income and expenses with no payment relation | 0 | 0 | |
| Depreciations, amortisations and impairment | 1,158 | 557 | 914 |
| Financial income and expenses | 318 | 1,889 | 2,274 |
| Other adjustments | 1,107 | -587 | 2,100 |
| Cash flow from operating activities before change in working capital | -2,888 | -3,420 | -1,884 |
| Change in working capital | -2,785 | -2,059 | -2,936 |
| Interest received | 8 | 4 | 5 |
| Interest paid | -228 | -707 | -748 |
| Taxes paid | -30 | -6 | -69 |
| Net cash flow from operating activities | -5,923 | -6,188 | -5,632 |
| Acquisition of subsidiaries, net of cash acquired | 198 | 673 | 673 |
| Investments in tangible and intangible assets | -217 | -154 | -224 |
| Sales of property, plant and equipment | 8 | 0 | 0 |
| Net cash flow from investment activities | -11 | 518 | 449 |
| Net cash flow before financing | -5,934 | -5,670 | -5,184 |
| Cash flow from financing activities | |||
| Increase in long-term borrowings | 3,827 | 4,680 | 6,265 |
| Increase in short-term borrowings | 3,594 | 2,002 | 2,001 |
| Prepayment of short-term borrowings | -2,487 | -2,190 | -2,300 |
| Payments received from share subscriptions | 400 | 1,800 | 300 |
| Equity acquisition cost | 0 | -44 | -44 |
| Financial lease payments | -61 | -76 | -94 |
| Net cash flow from financing activities | 5,274 | 6,172 | 6,128 |
| Change in cash and cash equivalents | -660 | 502 | 944 |
| Cash and cash equivalents at the beginning of the period | 1,366 | 422 | 422 |
| Cash and cash equivalents at the end of the period | 706 | 924 | 1,366 |
Accounting principles
This interim report has been prepared in accordance with IAS 34 (Interim Financial Reporting standard). The interim report follows the same accounting principles and methods as the annual financial statements except for the changes in the accounting principles mentioned below.
Preparing the interim report in accordance with the IFRS standards requires the use of such assessments and presumptions from the management that affect the amounts of assets and liabilities at the time of preparation as well as the earnings and expenses during the review period. Consideration is also required in the application of the accounting principles for financial statements. Since the assessments and presumptions are based on the outlook at the time of the interim report is concluded, they contain risks and uncertainty factors. Actual results may differ from the assessments and presumptions made.
The figures in the income statement and balance sheet are consolidated. The consolidated balance sheet combines all the companies of the Group. 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 the accounting principles
The International Accounting Standards Board has published three new standards concerning the Digitalist Group Plc, which are the IFRS 15, Revenue from Contracts with Customers; IFRS 9, Financial Instruments and IFRS 16, Leases. The IFRS 15 and IFRS 9 standards shall be applied from 1 January 2018 and the IFRS 16 standard from 1 January 2019.
Furthermore, annual improvements to the IFRS standards became effective on 1January 2018 as well as an amendment of the IFRS 2 Share-based payments standard.
The IFRS 15 standard is not estimated to alter the principles for recording profits, the amount of profits or the timing thereof, or operating profit in reporting year 2018 either, and hence no changes have been made in the revenue recognition of client contracts
The IFRS 9 standard is not estimated to have a considerable impact on the financial statement transactions, values or notes during financial period 2018 or during the reference period 2017.
Application of new and revised IFRS standards
IFRS 16 Leases
Digitalist Group Plc has started an assessment of the impacts of the IFRS 16 standard on the financial statements. The most notable observed effect is that Digitalist records new assets and debts in the balance sheet that are mainly premises contained in existing other lease agreements. In addition, the nature of the costs associated with the lease 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 lease agreement debt, reported as part of financial costs. Digitalist Group Plc will conduct a more accurate analysis of the impacts of the standard and transition method during the next three months, the change will have an effect on group’s financial statements and key figures.
Acquired business operations
On 21 May 2018, Digitalist Group concluded an agreement, whereby all shares in the Swedish Grow Holding AB and 51.9% of the Swedish Grow Nine AB transferred by exchange of shares to the ownership of Digitalist Group. Grow Holding AB owns 48.1% of Grow Nine AB’s shares. As compensation in the transaction, Digitalist Group provided a total of 74,976,178 new shares in Digitalist Group in a special issue to be subscribed to by the owners of Grow Holding AB and the minority owners of Grow Nine AB. The subscription price for the shares in the shares issue was EUR 0.09 apiece. Thus, the total price of the acquisition was MEUR 6,747,856.02. The transaction was carried out on 31 May 2018.
The Compensation Shares represent roughly 11.52% of the shares and votes in Digitalist Group following the Share Issue. The Compensation Shares entitle their owners to any full dividends possibly distributed by Digitalist Group, to other distribution of assets, and provide full shareholder rights in the Company from the point the Compensation Shares are recorded in the trade register and in the company’s list of shareholders. According to a separate agreement, the Compensation Shares are subject to a lock-up period between twelve (12) months and three (3) years from their issue.
Through the arrangement, Digitalist Group expands its Swedish operations and strengthens its ability to shape and deliver comprehensive innovation, design and technology solutions. Grow is a Swedish company, which has, from 2004, supported the growth of its client companies by offering strategic, design and communications services both in Sweden and globally. Through the acquisition, Digitalist Group obtained approximately 50 experts. Together Digitalist Group and Grow form a creative international design and technology company.
PRELIMINARY PURCHASE PRICE ALLOCATION
Fair value of total consideration 6,748
Current values of acquired assets and debts taken on
at the acquisition date
Intangible assets 6,424
Tangible assets 136
Backlog 272
Receivables 1,505
Cash and bank deposits 198
Total assets 8,535
Accounts payable and other debts 1,547
Calculated tax debt 240
Total debt 1,787
Total acquired net assets 6,749
Impact of acquisition on cash flow
Total consideration paid 6,748
Share of consideration consisting on cash assets 0.00
Acquired cash assets 198
Impact of acquisition on cash flow 198
The turnover arising from the acquisition, roughly EUR 5.3 million, reflects the synergy benefits expected to be achieved in producing comprehensive innovation, design and technology solutions to the global clients. The turnover resulting from the acquisition is not deductible in taxation.
If the acquisition had been carried out in 2017, the impact of the Grow companies on turnover would have been roughly EUR 5.3 million and the impact on the result for the period EUR 0.1 million.
Going concern
This interim report has been prepared in line with the principle of going concern, considering the financing arrangements executed by the company in 2018 and the business forecast for 2018. The forecasts take into consideration the probable or foreseeable changes in future expectations, both in revenue and costs.
At the time of 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, which were reviewed for the last time on 30 September 2018.
Goodwill impairment testing
Digitalist Group performed goodwill impairment testing on 30 September 2018. Goodwill is attributed to one cash-generating unit.
Based on the goodwill impairment testing conducted, the value in use of the assets tested exceeded the tested amount by EUR 29.6 million, and hence, there was no need for impairment. The balance sheet at the end of the review period included EUR 18.0 million in goodwill. The present value of the cash flow calculation, EUR 52.9 million, is lower than the sum of financial liabilities of the company (EUR 15.5 million) and the market price of the shares (EUR 40.4 million) as of 30 September 2018.
The company tests its goodwill based on the value of assets in use. In the testing performed on 30 September 2018, the cash flow forecast period consisted of the forecast between Q4 2018 and Q3 2022.
In the forecast period of Q4 2018 – Q3 2022, the company is expected to achieve an average growth of 20 per cent as digitalisation affects an increasing amount of business. The operating profit percentage is expected to rise to an average of 8 per cent.
The assets tested in the method are compared to the cash flow that they generate in the chosen period, considering the discount rate and the growth factor of cash flows subsequent to the forecast period. A rate per annum of 9 per cent has been used as the discount rate, and 1 per cent per annum as the growth factor when calculating cash flows subsequent to the forecast period. In calculating the terminal value, the weighted average operating result percentage level for the period was used.
In goodwill testing, the most important sensitivity factors are the cash flow forecasts themselves and the assumptions that they contain and the growth rate in the terminal value and the discount rate used. If -23.4 per cent instead of 1 per cent had been used as the growth rate of the terminal value, the value in use had equalled the tested amount. If 20.0 per cent had been used instead of 9 per cent as the discount rate, the value in use had equalled the tested amount. If the operating profit percentage were an average of 1.4 per cent instead of 8 per cent, the value in use would equal the tested amount.
Loan covenants
On 30 September 2018, the company has EUR 6.7 million in loans from financial institutions. The amount of loans including covenants was EUR 0.1 (0.3) million as of 30 September 2018.
One of the loan agreements contains covenant limits concerning the equity ratio of the company, which is considered to include loans and credit limits in use from the principal owner. Covenants were reviewed for the last time on 30 September 2018. If the company fails to meet the covenant limit determined in the covenant agreement, the financier is entitled to terminate the loans that the covenant agreement applies to. The equity ratio calculated according to the covenant definition in the loan agreements shall be no less than 30 per cent.
On 30 September 2018, the equity ratio of the company under the covenant definition was 54.2 per cent.
The due dates for loans subject to covenants:
| Period | Instalment TEUR 1000 |
| 1 October – 31 December 2018 | 63 |
CONSOLIDATED INCOME STATEMENT BY QUARTER, TEUR
| Q3/2018 | Q2/2018 | Q1/2018 | Q4/2017 | Q3/2017 | Q2/2017 | |
| 1 July-30 September 18 | 1 April -30 June 18 | 1 January -31 March 18 | 1 October -31 December 17 | 1 July -30 September 17 | 1 April -30 June 17 | |
| Turnover | 5,803 | 6,188 | 5,285 | 6,588 | 4,510 | 4,667 |
| Operating expenses | -7,014 | -7,708 | -7,706 | -8,098 | -5,872 | -5,896 |
| OPERATING RESULT | -1,211 | -1,520 | -2,422 | -1,510 | -1,362 | -1,229 |
| Financing income and expenses | -203 | 249 | -364 | -385 | -623 | -826 |
| Result before tax | -1,414 | -1,270 | -2,786 | -1,895 | -1,986 | -2,055 |
| Income tax | 64 | 55 | 55 | 12 | -18 | 237 |
| RESULT FOR REFERENCE PERIOD | -1,350 | -1,215 | -2,731 | -1,883 | -2,004 | -1,818 |
CHANGES IN INTANGIBLE AND TANGIBLE ASSETS TEUR 1000
| | Turnover | Intangible assets | Tangible fixed assets | Available-for-sale investment | Total | |
| Carrying amount 1 January 2017 | 11,543 | 323 | 340 | 8 | 12,214 | |
| Additions | 1,091 | 5,602 | 123 | 14 | 6,830 | |
| Changes in exchange rates | -9 | -46 | -5 | 0 | -60 | |
| Depreciations and amortisations for the review period | 0 | -470 | -87 | 0 | -557 | |
| Carrying amount 30 September 2017 | 12,625 | 5,409 | 370 | 21 | 18,426 | |
| Carrying amount 1 January 2018 | 12,755 | 5,024 | 401 | 7 | 18,186 | |
| Additions | 5,295 | 1,091 | 333 | 6 | 6,724 | |
| Deductions | 0 | 0 | -1 | -4 | -5 | |
| Changes in exchange rates | -23 | -152 | 3 | 0 | -171 | |
| Depreciations and amortisations for the review period | 0 | -1,006 | -151 | 0 | -1,158 | |
| Carrying amount 30 September 2018 | 18,027 | 4,956 | 585 | 9 | 23,576 |
KEY FIGURES
| ASSETS | 1 January -30 September 2018 | 1 January -30 September 2017 | 1 January -31 December 2018 |
| Earnings per share, EUR diluted | -0.01 | -0.01 | -0.02 |
| Earnings per share, EUR | -0.01 | -0.01 | -0.02 |
| Equity per share, EUR | 0.01 | 0.00 | 0.01 |
| Cash flow from operations per share, EUR, diluted | -0.01 | -0.02 | -0.01 |
| Cash flow from operations per share, EUR | -0.01 | -0.02 | -0.01 |
| Return on investment, % | -28.8 | -27.7 | -36.5 |
| Return on equity, % | neg | neg | neg |
| Operating result/turnover, % | -29.8 | -25.3 | -24.5 |
| Net gearing from total equity, % | 173.5 | -2122.7 | 184.8 |
| Equity ratio, % | 27.0 | -3.1 | 21.9 |
| EBITDA, TEUR | -3,995 | -2,832 | -3,985 |
OTHER INFORMATION
| 1 January -30 September 2018 | 1 January -30 September 2017 | 1 January -31 December 2017 | |
| EMPLOYEES, average | 253 | 191 | 203 |
| Employees at the end of the period | 266 | 232 | 240 |
| COMMITMENTS, TEUR | |||
| Guarantees given for own commitments | |||
| Corporate mortgages | 23,500 | 23,500 | 23,500 |
| Leasing and other rental commitments | |||
| Due within 1 year | 1,492 | 1,029 | 1,290 |
| Due within 1-5 years | 2,151 | 1,347 | 1,129 |
| Due after 5 years | 0 | 0 | 0 |
| Total | 3,642 | 2,376 | 2,419 |
| Nominal value of interest rate swap agreement | |||
| Due within 1 year | 63 | 253 | 253 |
| Due within 1-5 years | 2,000 | 63 | 0 |
| Due after 5 years | 0 | 0 | 0 |
| Total | 2,063 | 316 | 253 |
| Fair value | -15 | -3 | -2 |
| Total of interest-bearing liabilities | |||
| Long-term loans from financial institutions | 3,057 | 255 | 730 |
| Other long-term liabilities | 8,650 | 11,425 | 5,693 |
| Short-term interest-bearing liabilities | 3,793 | 5,386 | 5,060 |
| Total | 15,500 | 17,067 | 11,483 |
CALCULATION PRINCIPLES FOR KEY FIGURES
EBITDA = Earnings before interest, taxes, depreciation and amortisation
Diluted earnings per share = Profit for the period, attributable to equity holders of the parent/ Number of shares, adjusted for issues and for option dilution, average
Earnings per share = Earnings for financial period / Average share issue-adjusted number of shares outstanding during the period
Equity per share = Equity attributable to equity holders of the parent/ Number of shares on the closing date
Cash flow from operations per share, EUR, diluted = Net cash flow from operations / Average share issue-adjusted number of shares outstanding during the period, adjusted for dilution
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
Gearing = interest-bearing debt - liquid assets / total equity x 100
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