The directors present the strategic report for the year ended 31 March 2023.
Previously the company has reported its results as two product divisions of Film and Broadcast. We no longer consider that this divisional split is informative or meaningful. The company is providing services to support the production of large scale Episodic and Film productions. Content is typically commissioned for use across both platforms and customers are serving both markets simultaneously.
Market
Following the significant restrictions placed on content production as a result of the covid pandemic, demand recovered significantly during the year to March 2022 and this trend persisted into the year to March 2023. A shortage of available talent globally to meet demand had a major impact on the Visual effects (VFX) industry.
Given recent investments in flexible technology platforms the company has been able to expand capacity and capture increased market share. Content demand was particularly strong in TV Episodic as competition amongst streaming companies intensified.
Volumes of film production intended for theatrical release have increased in the year to March 2023 but still remain globally at a level below that pre covid epidemic.
Developments in VFX technology, capability and comparative economics continue to drive increased use of VFX in many productions as a percentage of footage and budget.
As noted and described elsewhere in these accounts, subsequent to the year end the global TV and Film production market has been impacted by industrial action leading to a period of reduced demand. The company is adapting to these changed circumstances with the benefit of additional support from its shareholders.(see notes 1.4 and 32).
Company development
The company has continued its strong growth path:
· Revenue grew over 100% in the year to March 2023
· Further funding was raised during the year to support expansion
· Studio capacity was expanded globally in all studios during the course of the year, though at the end of the year following a strategic review we made a decision to close our Outpost studio in the US and our Frontier studio in Canada. This was based on our decision to concentrate production capacity on our growing Outpost facilities in India, Canada and the UK.
· Significant ongoing investments continue in technology, production expertise and executive management.
The business generated an operating loss of £4,151k (2022: £270k) after exceptional items of £3,583k. The operating loss before exceptional items was £567k.
Debt and operating leases
The company met all debt liabilities through the covid pandemic and has continued to comply with all debt obligations in FY23.
The company looks to use operating leases to manage the cash flow on production software licences. The payments are spread over the term of the licence.
Principal risks and uncertainties
The company faces business risks and uncertainties based on economic and market conditions.
In view of this, the directors are constantly reviewing strategy and plans for existing and potential new markets.
This table sets out the key risks that have been identified, with the company’s approach to mitigating those risks.
Risk | Impact on company | Mitigation |
Global economic risk | Global downturn because of pandemic or political, economic or industrial unrest in the TV and Film industry. | The company has worked to develop flexible and responsive operational technology and appropriate employment practices to enable it to respond in a timely manner to any such significant changes. |
Exposure to local economic factors | The company is in four countries currently. These are currently stable and economically stable democratic countries. Local actions such as removal of industry tax credits, restrictive employment practices and political instability may affect our clients decision to trade locally. | The company is constantly tracking key areas of risk in each location. The company has no property leases of 10 years or over and has early break clauses as part of the leases. |
Risk | Impact on company | Mitigation |
Market pricing | The market is established and clients have a strong understanding of expected pricing. | The company regularly reviews pricing to ensure that it maintains competitive while maintaining prices and margins. During the year to March 2023 demand for VFX services is currently outstripping the growth in VFX skilled staff. The company is continuously building on its global delivery platform combining technology, culture, and skills development to enable it to maintain highly competitive performance levels. |
Market competitors | The market is competitive and there are major competitors with substantial share of market. There are also growing smaller companies competing on bids. | Barriers to entry to the market are significant. New entrants require network of relationships and to deploy significant technology to win and deliver sizable projects. The company is continuously reviewing the market and adapting its business strategy to ensure that it is growing its market share. The company continues to build on these key strategic areas to grow its competitive position. |
Resourcing and recruitment | The VFX industry had a shortage of talent before covid. The growth in demand since covid has increased competition in the market. | The company has recruitment processes that focus on attracting experienced talent plus finding new talent to develop and grow. The company has a unique culture that prioritises the working environment for artists and staff. This is an increasingly important factor in attracting staff in all markets. India has a larger talent pool than other locations and is important to the company’s recruitment strategy. Attracting industry leadership is also a fundamental element in the resourcing strategy. The company has also formed a network of relationships with partners to help manage demand for resources. |
Risk | Impact on company | Mitigation |
Global inflation | The global economy is experiencing inflation levels not seen since the 1970’s. This impacts all business costs. | The company is constantly monitoring price changes and working with key suppliers. These are marginal opportunities to minimise the impact. The key work will be to make our global platform as efficient as possible and maximise output while minimising costs. The company is building plans that will mitigate these effects. |
Operations management | There are few opportunities for developing new products or market advantages; pricing is competitive and limited opportunities for advantage on price; and there is skills shortage in the market. The success of the company is based on its ability to manage operations as effectively and efficiently as possible. | The Directors are focused on providing the best tools to run the company as efficiently as possible. The company has moved to a fully cloud based platform which brings operational and financial flexibility. The company is also investing in operational systems and processes to give good information for decision making. The executive and senior management teams globally and in all locations have been strengthened. |
Foreign exchange risk | The system of tax credits is a key driver in the VFX industry. Tax credits are given by governments based on staff being located in state or country. It also requires the client and vendor to be located locally and billed locally. OVFX operates a global platform so staff from any location can work on a project. There is a limited transaction risk. The translation risk is more material because of the use of resources globally and because of the comparative size of the overseas operations compared to the parent company. The economic risk is in respect of the ability to move funds freely around the Group. Some government foreign exchange controls limit the ability to relocate balances.
| The transaction risk with client invoicing or supplier payments is minimised because of the need to be local. Receipts and payments are made in local currency. The translation risk is particularly relevant for the new Indian entity because it operates as a service company to all group studios. The company has forex facilities in place for transactional risk management. Foreign exchange controls are in place in India. The company will comply with these requirements while managing cash flows efficiently.
|
The business entered the FY24 trading year with continued strong growth and increasing levels of operating margin.
In May 2023 the Writers’ Guild of America announced strike action in which they were subsequently joined by the Screen Actors Guild. These disputes were not fully resolved until November 2023 and the volume of new content commissioned and therefore the demand for VFX services has and is expected to fall significantly over the second half of FY24.
Overall the business therefore expects revenue and profitability levels in FY24 to be comparable to those of FY23.
In response to falling demand the company has significantly reduced its employment levels over the course of FY24 to the date of these accounts and as outlined more fully in Note 32 has raised additional funding in February 2024 to support its future growth.
Financial instruments
The company has a normal level of exposure to price, credit, liquidity and cash flow risks arising from trading activities. While it had facilities in place in FY23 it did not execute any instruments.
Forex instruments may be used on specific project risks or in respect of India to minimise exposure to exchange rate volatility.
The company does not enter into any formally designated hedging arrangements.
Research and development
The company is currently undertaking research and development to improve its technical delivery capabilities and its operational platforms.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 March 2023.
The results for the year are set out on page 12.
No ordinary dividends were paid. The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The group's policy is to consult and discuss with employees, through unions, staff councils and at meetings, matters likely to affect employees' interests.
Information about matters of concern to employees is given through information bulletins and reports which seek to achieve a common awareness on the part of all employees of the financial and economic factors affecting the group's performance.
There is no employee share scheme at present, but the directors are considering the introduction of such a scheme as a means of further encouraging the involvement of employees in the company's performance.
Qualified opinion
We have audited the financial statements of Outpost VFX Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 March 2023 which comprise the group income statement, the group statement of comprehensive income, the group statement of financial position, the company statement of financial position, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
Basis for qualified opinion
The financial statements include an amount of £1,796,406 within exceptional costs and accruals relating to restructuring costs, which at the reporting date had not been communicated to the parties involved. At 31 March 2023 there was no legal or constructive obligation to carry out the restructuring, and therefore does not meet the recognition criteria under Financial Reporting Standard 102. In addition, information on financial performance included in the strategic report includes the effect of the restructuring costs.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, 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 qualified opinion.
Material uncertainty related to going concern
We draw attention to Note 1.4 in the financial statements, which indicates that the Group incurred a total comprehensive loss of £4,931,885 during the year ended 31 March 2023 and, as of that date, the group’s liabilities exceeded its total assets by £686,490. As stated in Note 1.4, these events or conditions, along with other matters as set forth in Note 1.4, indicate that a material uncertainty exists that may cast significant doubt on the group’s or the parent company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
As described in the Basis for qualified opinion section of our report, our audit opinion is qualified for incorrect recognition of an accrual for a restructuring provision costs, which there was no legal or constructive obligation for at the reporting date. Information on the income statement included in the strategic report also includes the provision these costs and accordingly we have concluded that the other information is materially misstated for the same reason.
Opinions on other matters prescribed by the Companies Act 2006
Except for the matter described in the Basis for qualified opinion section of our report, in our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
Except for the matter described in the Basis for qualified opinion section of our report, in the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group and the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the group and parent company financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The specific procedures for this engagement and the extent to which these are capable of detecting irregularities, including fraud are detailed below.
Identifying and assessing risks related to irregularities:
We assessed the susceptibility of the group and parent company’s financial statements to material misstatement and how fraud might occur, including through discussions with the directors, discussions within our audit team planning meeting, updating our record of internal controls and ensuring these controls operated as intended. We evaluated possible incentives and opportunities for fraudulent manipulation of the financial statements. We identified laws and regulations that are of significance in the context of the group and parent company by discussions with directors and by updating our understanding of the sector in which the group and parent company operates.
Laws and regulations of direct significance in the context of the group and parent company include The Companies Act 2006 and UK Tax legislation.
Audit response to risks identified
We considered the extent of compliance with these laws and regulations as part of our audit procedures on the related financial statement items including a review of group and parent company financial statement disclosures. We reviewed the parent company's records of breaches of laws and regulations, minutes of meetings and correspondence with relevant authorities to identify potential material misstatements arising. We discussed the parent company's policies and procedures for compliance with laws and regulations with members of management responsible for compliance.
During the planning meeting with the audit team, the engagement partner drew attention to the key areas which might involve non-compliance with laws and regulations or fraud. We enquired of management whether they were aware of any instances of non-compliance with laws and regulations or knowledge of any actual, suspected or alleged fraud. We addressed the risk of fraud through management override of controls by testing the appropriateness of journal entries and identifying any significant transactions that were unusual or outside the normal course of business. We assessed whether judgements made in making accounting estimates gave rise to a possible indication of management bias. At the completion stage of the audit, the engagement partner’s review included ensuring that the team had approached their work with appropriate professional scepticism and thus the capacity to identify non-compliance with laws and regulations and fraud.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the parent company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the parent company's members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the parent company and the parent company's members as a body, for our audit work, for this report, or for the opinions we have formed.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s loss for the year was £3,489,502 (2022 - £1,907,634 loss).
Outpost VFX Limited (“the company”) is a private company limited by shares incorporated in England and Wales. The registered office is 6th Floor Ocean 80, 80 Holdenhurst Road, Bournemouth, Dorset, England, BH8 8AQ.
The group consists of Outpost VFX Limited and all of its subsidiaries.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.
The consolidated group financial statements consist of the financial statements of the parent company Outpost VFX Limited together with all entities controlled by the parent company (its subsidiaries) and the group’s share of its interests in joint ventures and associates.
All financial statements are made up to 31 March 2023. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.
At the approval date of the financial statements, it is the directors expectation that they have sufficient access to funds to continue trading for the foreseeable future. Post year-end the business has been significantly impacted by the Writers Guild of America’s strike which has impacted the revenue pipeline of the whole sector and respective trade, resulting in losses in the 2024 year to date. The group implemented cost saving initiatives immediately to limit any loss and restructure the business along with additional funding having been secured, as disclosed in note 31, which is expected to support the business whilst the industry recovers. There remains however some uncertainty as to how quickly revenue will start to flow back to pre-strike levels and how quickly the business can recoup the losses incurred.
Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.
Revenue from contracts for the provision of visual effects services is recognised by reference to the stage of completion when the stage of completion, costs incurred and costs to complete can be estimated reliably. The stage of completion is calculated by comparing costs incurred, mainly in relation to contractual hourly staff rates and materials, as a proportion of total costs. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that it is probable will be recovered.
Research expenditure is written off against profits in the year in which it is incurred. Identifiable development expenditure is capitalised to the extent that the technical, commercial and financial feasibility can be demonstrated.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the income statement.
Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.
In the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.
A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
An associate is an entity, being neither a subsidiary nor a joint venture, in which the company holds a long-term interest and where the company has significant influence. The group considers that it has significant influence where it has the power to participate in the financial and operating decisions of the associate.
Investments in associates are initially recognised at the transaction price (including transaction costs) and are subsequently adjusted to reflect the group’s share of the profit or loss, other comprehensive income and equity of the associate using the equity method. Any difference between the cost of acquisition and the share of the fair value of the net identifiable assets of the associate on acquisition is recognised as goodwill. Any unamortised balance of goodwill is included in the carrying value of the investment in associates.
Losses in excess of the carrying amount of an investment in an associate are recorded as a provision only when the company has incurred legal or constructive obligations or has made payments on behalf of the associate.
In the parent company financial statements, investments in associates are accounted for at cost less impairment.
Entities in which the group has a long term interest and shares control under a contractual arrangement are classified as jointly controlled entities.
At each reporting period end date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's statement of financial position when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Basic financial assets, which include debtors, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Where items recognised in other comprehensive income or equity are chargeable to or deductible for tax purposes, the resulting current or deferred tax expense or income is presented in the same component of comprehensive income or equity as the transaction or other event that resulted in the tax expense or income. Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.
The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.
Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets at the lower of the assets fair value at the date of inception and the present value of the minimum lease payments. The related liability is included in the statement of financial position as a finance lease obligation. Lease payments are treated as consisting of capital and interest elements. The interest is charged to profit or loss so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Government grants are recognised at the fair value of the asset received or receivable when there is reasonable assurance that the grant conditions will be met and the grants will be received.
A grant that specifies performance conditions is recognised in income when the performance conditions are met. Where a grant does not specify performance conditions it is recognised in income when the proceeds are received or receivable. A grant received before the recognition criteria are satisfied is recognised as a liability.
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation in the period are included in profit or loss.
In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
Determining when to recognise revenues under the percentage of completion method requires significant judgement in determining estimated costs to complete the work.
Intangible assets are being amortised over their deemed useful life. This period has been determined via a review of the assets considering both historic and future factors. The directors believe the amortisation period applied appropriately reflects the estimated useful life of the asset.
In March 2023, the group announced its intention to streamline operations in the LA and Frontier Montreal. Whilst all sites remain operational, the group announced its intention to significantly restructure the respective business models including making some employee redundancies.
Where leasehold property contracts became onerous as a result of the restructuring, the group has provided for all costs, net of any anticipated income, to the end of the lease or the anticipated date of the disposal or sublease. This provision relates to office properties in LA and Montreal which were vacated in 2023 and are surplus to the group’s requirements. The provision is expected to be utilised over the life of the related leases to 2026 and 2024 respectively.
Impairment costs are detailed in note 12 and 15.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
Included within other interest are dividends for 7.5% preference share totalling £64,048 (2022: £64,048).
The actual charge/(credit) for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
Impairment tests have been carried out where appropriate and the following impairment losses have been recognised in profit or loss:
An impairment of £1,035,798 has been recorded for development costs relating to internal systems and software due to the projects no longer being part of the group’s strategy moving forward.
An impairment of £90,553 has been recorded for property plant and equipment. The assets have been written down to their estimated value-in-use.
More information on impairment movements in the year is given in note 12.
More information on impairment movements in the year is given in note 12.
The group’s subsidiaries, Outpost VFX (Montreal) Limited and Outpost VFX (LA) Limited, have suffered adverse results as a result of changes in their underlying business models and the associated production platforms being serviced. As a result there has been a decline in the recoverable amount of the cash-generating unit. The recoverable amount was determined using the current net asset position and future cash flow projections.
Details of the company's subsidiaries at 31 March 2023 are as follows:
Included in accruals were amounts of £1,914,916 relating to onerous leases, where leasehold properties become vacant, the group provides for all costs, net of anticipated income, to the end of the lease or the anticipated date of the disposal or sublease. This provision relates to office properties in LA and Montreal which were vacated in 2023 and are surplus to the group’s requirements. The provision is expected to be utilised over the life of the related leases to 2026 and 2024 respectively.
In March 2023, the group announced its intention to streamline operations in the LA and Frontier Montreal and to make employees redundant. An accrual has been recognised for redundancies communicated and implemented following the year end as part of the above restructure amounting to £542,540.
In August 2022 the company raised additional equity funding from its existing investors as described in Note 31. As part of this funding the investors made an additional £2Million available through Convertible Loan Notes. These loan notes are fully drawn down and the funds are held on an imprest deposit by the company. The loan notes initially and from draw down to 31 March 2023 bore interest at 3% per annum. There is no fixed repayment date, but the loans and accumulated interest will become repayable on any of the following: a listing or admission to trading of the Company's shares on an investment, change of control of Company's share capital, meaning the transfer of at least 51% of the Company's voting shares; a sale of substantially all of the Company's business.
If the loan note funds are utilised, then any amount by which the imprest deposit falls below £2M for a period of 90 days or more becomes convertible at the request of the Loan Note holders into ordinary shares in the company.
As of February 2024 no draw down from the imprest account had taken place and the company continues to manage its cash balances to preclude this. Pursuant to a further fundraising in February 2024 the interest rate on these loan notes was adjusted to 9% and the conversion triggers were suspended until February 2025.
The company has therefore determined that these items should be presented entirely as debt, with no equity component.
Finance lease payments represent rentals payable by the company or group for certain items of plant and machinery. Leases include purchase options at the end of the lease period, and no restrictions are placed on the use of the assets.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
The deferred tax asset set out above is expected relates to the utilization of tax losses against future expected profits of the future periods. The total value of losses carried forward was £5,464,719 (2022: £2,256,498).
A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.
The company operates an Enterprise Management Incentive share option plan. Ordinary share options can be exercised when exercise conditions are met, which is the vesting date. The share options would not ordinarily be exercisable earlier than the occurrence of any of the following: a listing or admission to trading of the Company's shares on an investment, change of control of Company's share capital, meaning the transfer of at least 51% of the Company's voting shares; a sale of substantially all of the Company's business.
The Ordinary shares carry rights to vote, they can be considered for dividends, and have the right to a share in capital on the sale of the business/shares.
The options outstanding at 31 March 2023 had an exercise price of £0.061 and a remaining contractual life of 8 years.
The fair value of the options was calculated using an estimated market value of the group.
Ordinary shares carry voting rights and rights to dividends.
Preference shares do not carry voting rights and has rights to dividends.
D Ordinary shares carry voting rights and rights to dividends.
Preferred A Ordinary shares carry voting rights and rights to dividends.
Preferred B Ordinary shares carry voting rights and rights to dividends.
Preferred C Ordinary shares carry voting rights and rights to dividends.
E Ordinary shares do not carry voting rights and have no rights to dividends.
The Preference shares carry a 7.5% fixed cumulative preferential dividend at the rate of 7.5% per annum, payable upon a share sale or listing. The shares are redeemable at issuer’s discretion. On a winding-up, the holders will receive repayment of capital plus any arrears of dividend ranking after Preferred A Ordinary, Preferred B Ordinary and Preferred C Ordinary shares and return. The holders have no voting rights.
The preference shares were deemed to contain both an equity and liability element with a value of £426,990 held in other borrowings (Note 18 and 20).The company believes that despite being redeemable at the issuer’s discretion, redemption is unlikely to occur until any of the following: a listing or admission to trading of the Company's shares on an investment, change of control of Company's share capital, meaning the transfer of at least 51% of the Company's voting shares; a sale of substantially all of the Company's business. Any such redemption would be subjugated to available funds being applied first to the Preferred A, B and C Ordinary shares.
At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
The remuneration of key management personnel is as follows.
The company has taken advantage of the exemption available in section 1AC.35 of FRS102 from the requirement to disclose transactions with group companies on the grounds that the company is the parent of a wholly owned subsidiary within the group.
Loans have been granted by the group to its directors as follows:
Share capital as described in note 25 increased during the year as a result of a transaction with investors in August 2022 which resulted with a cash injection in the form of both Equity and Convertible Loan Notes (see note 20) after fees of £5,355,005.
Following a period of constrained trading during the October 2023 to January 2024 as demand reduced as a result of industrial action in the US TV and Film Production industry the company’s investors have made further funding available to provide additional working capital reserves during a period of recovery.
In February 2024 a new class of Preferred A1 shares was issued, with 100,000 shares at a nominal value of £1 and a Share Premium after estimated fees of £2,410,000. The paid up value is £2,500,000.
The New Preferred A1 Shares do not carry voting rights and have no rights to dividends. They are redeemable at a premium of 100% of paid up value on the occurrence of any of the following: a listing or admission to trading of the Company's shares on an investment, change of control of Company's share capital, meaning the transfer of at least 51% of the Company's voting shares; a sale of substantially all of the Company's business. Distributions to all other classes of share capital would be subjugated to available funds being applied first to the Preferred A1 shares.