Company registration number 09908649 (England and Wales)
DISGUISE SYSTEMS LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
DISGUISE SYSTEMS LIMITED
COMPANY INFORMATION
Directors
F M Kufer
R Sklar
Company number
09908649
Registered office
Hermes House
88-89 Blackfriars Rd
South Bank
London
United Kingdom
SE1 8HA
Auditor
BDO LLP
Central Square
29 Wellington Street
Leeds
LS1 4DL
DISGUISE SYSTEMS LIMITED
CONTENTS
Page
Strategic report
1 - 6
Directors' report
7 - 9
Directors' responsibilities statement
10
Independent auditor's report
11 - 14
Statement of comprehensive income
15
Balance sheet
16
Statement of changes in equity
17
Notes to the financial statements
18 - 35
DISGUISE SYSTEMS LIMITED
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2023
- 1 -

The directors present the strategic report for the year ended 31 December 2023.

Principal activities

The Company is part of the Butterfly Topco Limited group of companies (Butterfly Group) whose principal activity is as a leading global provider of on premises or virtual event visualisation solutions, specialising in the provision of the software, hardware and support services that allow creative production teams to pre-visualise, simulate and deliver their 3D shows in real-time. The Company’s immediate parent undertaking is Disguise Technologies Limited. The Company's principal activities are the distribution of hardware and associated software and management of supply chain on behalf of the wider group.

Review of the business

In 2023, the Butterfly Group saw strong revenue growth through continued vertical, geographic and product expansion alongside building out of the Meptik LLC and Polygon Labs LLC revenue streams. The Group also underwent an extensive cost rationalisation exercise across our staff and administrative expenses, and finalised the project to onshore the supply chain which will deliver future gross margin improvements.

 

The above cost saving measures were taken to ensure the business is rightsized and in a good position to maximise profit and cash generation in future periods. The Company has already seen a strong improvement year-on-year in profitability.

 

The Group also had an injection of £4m from Shareholders in the form of a Convertible Loan Note to ensure the Group's balance sheet is strengthened and can meet future obligations under appropriate stress testing.

 

Finally, the Company played a key role in expansion of Group revenues by supporting overseas subsidiary sales through supply chain optimisation and direct sales, ultimately delivering profit and cash for the wider Butterfly Group.

DISGUISE SYSTEMS LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 2 -
Principal risks and uncertainties

The principal risks and uncertainties of the Company relate to end customer sales in the UK and European markets as well as managing inventories and supply chain activities on behalf of the Butterfly Group of companies. While the Company generates its own trading profit it is still mainly reliant on the sales subsidiaries of the Group for its revenues. The risks that the Company are exposed to are managed at Group level. The nature of the risk and the risk management principles including strategies to mitigate these risks are disclosed in the consolidated financial statements of Butterfly Topco Limited. These are summarised below with relevant mitigation

 

DISGUISE SYSTEMS LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 3 -
Key performance indicators

Butterfly Group manages its KPIs at a segment level and geographic level. The primary key performance indicators used by the Group to assess performance are turnover growth, EBITDA and adjusted EBITDA. Turnover growth is calculated as the percentage increase on turnover year-on-year.

 

The measures below are reportable to the key stakeholders in The Group both it's main investor, bank/senior debt provider. The definitions below are in line with the relevant facility agreements in place.

 

EBITDA (earnings before interest, tax, depreciation and amortisation) is calculated as the operating profit of the Company with depreciation, amortisation, share-based payments, and unrealised foreign exchange/translation impact all added back.

 

Adjusted EBITDA, is calculated as EBITDA (as defined) with one off expenses, investor costs, and capitalised R&D expenditure (if applicable) added back.

2023
2022
£
£
Turnover
49,094,613
45,625,184
Turnover growth %
7.60%
25.40%
2023
2022
£
£
Operating profit/(loss)
3,394,370
(838,713)
Depreciation and amortisation
1,739,031
1,380,129
Unrealised FX movement
(178,221)
1,588,671
EBITDA
4,955,180
2,130,087
Derivative fair value movement
(370,420)
136,580
One off expense
417,758
1,486,444
Intercompany debtor impairment expense
1,296,584
-
Adjusted EBITDA
6,299,102
3,753,111

Turnover increased by 7.6% (2022 - 25.4%) to £49.1m (2022 - £45.6m) due to an increase in activity levels through the Butterfly Group of companies with £1.5m increased revenue company from inter group sales and £2.1m coming from direct sales activity.

 

EBITDA increased to £5.0m (2022 EBITDA profit of £2.1m) of which £2m related to the profit element on increased turnover (after allowing for relevant direct costs at margins in the contract), and the remaining portion was due to more favourable exchange rate movements and management charges from the immediate parent remaining flat year-on-year despite overall Group revenue increasing. Adjusted EBITDA increased to a profit of £5.0m (2022 £3.8m) due to the EBITDA upside alongside reduced one off expenses.

 

In the year the company also incurred £0.4m (2022 - £1.5m) of one-off website costs (which will not recur as the company does not rebuild the website each year), and provided against £1.3m (2022 - £nil) of intercompany debtors, which are viewed as adjustments that have been added back when calculating the adjusted EBITDA for reporting purposes to key stakeholders.

DISGUISE SYSTEMS LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 4 -
Analysis based on Non-Financial Key Performance Indicators

The Group also reviews a number of other non-financial KPIs which apply to the Company, its parent (Disguise Technologies Limited), and its trading subsidiaries:

 

Other information and explanations

The Company's activities expose it to a variety of financial risks. These risks are managed at a Group level. The nature of risk and risk management principles applied are disclosed in the consolidated financial statements of the ultimate parent undertaking Butterfly Topco Limited. The principal financial risks are summarised below:

Credit Risk:
The Company's main financial assets are its cash balances, trade receivables, and intercompany receivables. For banks and financial institutions, only independent rated parties with strong credit rating are accepted.

 

Intercompany debtors are regularly reviewed for recoverability and settled for trading positions; this is inclusive of any impairment where the Company feels any amounts are not recoverable, of which £1.3m (2022 - £nil) has been provided for in the year.

 

Liquidity Risk:
Liquidity risk arises from timing differences between cash inflows and outflows. At the reporting date, the Company had net cash balances but was in a net current liabilities position.

 

The funding that has been placed on the Company through inter-group loans is for the sole purpose of funding acquisitions of Polygon Labs LLC and Meptik LLC. As such, the Company is reliant on the immediate parent company, Disguise Technologies Limited, not calling in the intercompany debt. The ultimate parent company, Butterfly Topco Limited, has confirmed in a letter to the company that it will continue to provide financial support for the foreseeable future and ensure the Group operates in a responsible manner in managing the intercompany credit risk between the Group entities.

 

Currency Risk:
The Company has trade debtors, bank balances, and creditors in foreign currencies with a significant overhead base in sterling. Gains and losses on the foreign currency balances are reported in the Statement of Comprehensive Income. The Company's policies are to match where possible receipts and purchases in foreign currency to limit any residual exposure. In July 2023 the Company stopped partially hedging the residual exposure, as the hedging policy tracked over a number of years has not proved effective. The company will rely on natural hedges only.

 

Future developments
It is the intention of the directors that the Company will continue for the foreseeable future, oversee and managing the operational aspects of the Group. The Group plans to expand its product portfolio and further expand into new territories. The Group plans to do this alongside building out capabilities in our existing markets and verticals saved.

DISGUISE SYSTEMS LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 5 -

 

Directors' statement of compliance with duty to promote the success of the Company

The Directors of the Group acknowledge that they must act in a way which is considered in good faith and would be most likely to promote the success of the company and its wider Group for the benefit of all interested parties as defined in Section 172 (1) of the Companies Act 2006. In doing so, the Directors of the Group have considered the following aspects and how they have regarded each of the matters set out below.

 

Have regarded the likely consequence of any decision in the long-term:
Our mission is to build leading edge technology solutions for creatives around the world to deliver unparalleled performances for audiences in person and in the cloud. We recognise that our decisions must take into account the long-term consequences for our company and its stakeholders. For example, when considering investment in new products or services, we take into account the potential impact of our financial position, our ability to complete in the market, and the interests of our shareholders.

The interests of the Group's employees:
We monitor the development, performance and impacts of our activity on social plus employee matters. We are committed to providing a positive working environment that is free from all forms of illegal and improper discrimination and harassment. Our employees are key to the success of our company, and we are key to the success of our company. We are committed to promoting our employees interests. We provide a wider range of benefits as well as opportunities for training and development including remote working. We also have policies in place to promote diversity and inclusion. We seek to foster a positive working environment that promotes innovation and collaboration.

 

The need to foster the Group's business relationships with suppliers, customers and others:
We recognise that our success is closely tied to our relationships with our customers and suppliers. We aim to provide high-quality products and services that meet the needs of our customers. We work closely with our suppliers to ensure that we have reliable and cost-effective supply chains. In 2023, several new products were in development providing new advances in power and output to match our customers creative needs. We continue to work with all our supply chain to ensure compliance with all relevant legislation and minimising impact on our business operations.

 

The impact of the Group's operations on the community and environment:
We understand that our operations have an impact on the wider community and the environment. We are committed to minimising our environmental footprint through the use of renewable energy sources and the reduction of waste and emissions. We also support industry initiatives working with charities through donations and volunteer work within the Group.

 

The desirability of the Group maintaining a reputation for high standards of business conduct:
Respecting human rights is a core value and one that we expect our business partners to share. We have documented policies and procedures internally as well as robust supplier T&C's which reference what we expect from our suppliers. This will ensure we limit the risk to the business and uphold our core values. Employees have access to all Group policies and procedures, with training provided as part of the employee onboarding process with regards to the Corporate Criminal Offences Act, Modern Slavery Act, Anti-Bribery and Corruption.

We have a zero-tolerance stance for all human rights abuse. We are committed to ensuring we maintain robust programs and procedures. This is to protect our people and prevent such abuse through our supply chain. Our supplier code of conduct expressly prohibits the use of forced, imprisoned, bonded, indentured or involuntary labour including child labour. Other requirements including safe and clean working conditions, fair wages and no discrimination,

 

The need to act fairly between all interested parties within the Group
The Board considers all interested parties when making business decisions to ensure fair representation irrespective of their interest holding within the Group. The Group has robust policies in place to ensure that fair representation is maintained both at board level and within wider business through, management meetings and Non-Executive representation at the Board.

DISGUISE SYSTEMS LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 6 -

On behalf of the board

R Sklar
Director
9 September 2024
DISGUISE SYSTEMS LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2023
- 7 -

The directors present their annual report and financial statements for the year ended 31 December 2023.

Results and dividends

The profit for the year, after taxation, amounted to £1,928,285 (2022 - loss of £527,545).

 

There were no dividends paid during the year (2022 - £Nil). The directors do not recommend the payment of a final dividend.

No ordinary dividends were paid. The directors do not recommend payment of a final dividend.

Directors

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

F M Kufer
R Sklar
Energy and carbon report

The Company has taken the exemption available to subsidiary companies to not disclose information in respect of greenhouse gas emissions, energy consumption, and energy efficiency action given that this is disclosed in the consolidated financial statements of the ultimate parent company, Butterfly Topco Limited.

Matters covered in the Strategic Report

The company has chosen in accordance with Companies Act 2006, s. 414C(11) to set out in the company's strategic report information required by Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, Sch. 7 to be contained in the directors' report. It has done so in respect of a review of the business, future developments, and an indication of exposure to financial risks, as the Directors consider them to be of strategic importance to the Company.

DISGUISE SYSTEMS LIMITED
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 8 -
Going Concern

As at 31 December 2023, the Company had net assets of £2.9m (2022 - net assets of £1.0m) and net current liabilities of £13.8m (2022: £15.5m).

 

The directors have received confirmation from the Group that it will provide ongoing financial support for a period of not less than 12 months in order of the Company to meet its liabilities as they fall due. As a result, the below disclosures which are in respect of the wider Butterfly Topco Limited group, are considered relevant to the Company.

 

As at the year-end date the Group had generated EBITDA of £7.6m (2022 - £0.8m) and generated cash flows from operating activities of £9.8m (2022 - £1.3m). Closing cash balances were £10.7m (2022 - £2.5m), taking into account the injection from its shareholders of £4.0m by way of convertible shareholder loan notes issued on 10 July 2023 after discussion with its Senior Lender.

 

The Group had £12.8m of term loans drawn from its facilities agreement with its Senior Lender to finance the acquisitions of Polygon Labs LLC and Meptik LLC both acquired in 2022. £10m is drawn from one term loan and £2.8m from an additional term loan facility of £7.0m, both of which are not due for repayment until December 2027. At the year-end date the net debt position of the Group excluding shareholder loans was £2.1m (2022 - £9.3m). The Group has access to additional facilities via a £3.0m revolving credit facility which is undrawn and £4.2m of the additional term loan facility which is undrawn to finance further commitments under the acquisitions.

 

The Group’s term loan arrangements with its Senior Lender are based on two covenants. The first is Adjusted Leverage (the ratio of an Adjusted EBITDA-based metric to Total Net Debt) measured on a quarterly basis on a rolling 12-month period with the target ratio reducing over time. The second covenant is an Interest Cover (the ratio of Cashflow to Net Finance Charges) again measured on a quarterly basis on a rolling 12-month period. The Senior Facilities are provided by Santander UK PLC and details can be found in Note 20 to the financial statements.

 

The Group has net current assets of £14.7m (2022 - £10.5m) at 31 December 2023 and has remained stable through 2024 to the date of signing of the financial statements. The directors are satisfied with the cash, additional facilities line and current balance of term loans within the business such that it can meet any future ongoing obligations.

 

The long term debt of the Group is made up of shareholder loan notes of £151.2m (2022 – £132.9m) which mature on the earlier of the Group entering into an agreement with a new acquirer or the maturity of those loan notes in March 2031. The shareholders have not requested any interest repayments until that point.

 

The directors monitor cashflow through short and long term forecasting and its going concern assessment is on a future looking period of a minimum of twelve months from the date of signing the audited financial statements. These forecasts are stress tested on revenue following a deep review of pipeline known projects and historical seasonality, alongside modelling of debtor days lengthening.

 

Our margin forecasts are based on our new supply chain product pricing and working capital is driven predominantly by our sales demand and appropriately run through our financial model taken into account any historical trends. The forecasts have also been heavily sensitised in producing a financing case to ensure that with minimal revenue growth and cost efficiencies actioned we are still able to maintain cash liquidity and meet our covenant requirements.

 

The directors have considered the financial forecasts of the overall Group inclusive of this entity, taking into consideration the current macroeconomic climate, the projections are for the Group to remain profitable and generate positive cashflows in both a short term and long term assessment giving the Group the ability to continue to operate into the future and meet the respective financial covenants.

 

The directors conclude that there are no material uncertainties that may cast significant doubt on the Company’s ability to continue as a going concern and have therefore adopted the going concern basis in preparing the financial statements.

DISGUISE SYSTEMS LIMITED
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 9 -

Qualifying third party indemnity provisions
The Company has taken out qualifying third party indemnity insurance for the benefit of one or more of the directors of the Company. Such third-party indemnity provisions were in place at the date of the signing of the Directors' Report.

Auditor
The auditor, BDO LLP, will be proposed for reappointment in accordance with section 485 of the Companies Act 2006.
Statement of disclosure to auditor
So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the company's auditor is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the company's auditor is aware of that information.
On behalf of the board
R Sklar
Director
9 September 2024
DISGUISE SYSTEMS LIMITED
DIRECTORS' RESPONSIBILITIES STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2023
- 10 -

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

 

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

 

 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

DISGUISE SYSTEMS LIMITED
INDEPENDENT AUDITOR'S REPORT
TO THE MEMBERS OF DISGUISE SYSTEMS LIMITED
- 11 -
Opinion

In our opinion the financial statements:

 

We have audited the financial statements of Disguise Systems Limited (“the Company”) for the year ended 31 December 2023 which comprise the statement of comprehensive income, the balance sheet, the statement of changes in equity and notes to the financial statements, including a summary of 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 opinion

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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the 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.

Conclusions relating to going concern

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.

 

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

 

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.

 

We have nothing to report in this regard.

DISGUISE SYSTEMS LIMITED
INDEPENDENT AUDITOR'S REPORT (CONTINUED)
TO THE MEMBERS OF DISGUISE SYSTEMS LIMITED
- 12 -

Other Companies Act 2006 reporting

In our opinion, based on the work undertaken in the course of the audit:

In the light of the knowledge and understanding of the company and its 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:

Responsibilities of directors

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 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 company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an 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.

Extent to which the audit was capable of detecting irregularities, including fraud

 

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 extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

Non-compliance with laws and regulations

 

Based on:

 

We considered the significant laws and regulations to be the applicable accounting framework, the Companies Act 2006, UK Corporation tax legislation and UK VAT registration.

 

The Company is also subject to laws and regulations where the consequence of non-compliance could have a material effect on the amount or disclosures in the financial statements, for example through the imposition of fines or litigations. We identified such laws and regulations to be the health and safety legislation, UK employment law and the Data Protection Act.

DISGUISE SYSTEMS LIMITED
INDEPENDENT AUDITOR'S REPORT (CONTINUED)
TO THE MEMBERS OF DISGUISE SYSTEMS LIMITED
- 13 -

Our procedures in respect of the above included:

Fraud

 

We assessed the susceptibility of the financial statements to material misstatement, including fraud. Our risk assessment procedures included:

Based on our risk assessment, we considered the areas most susceptible to fraud to be:

 

Our procedures in respect of the above included:

 

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members who were all deemed to have appropriate competence and capabilities and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

 

Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that 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, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed 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 are to become aware of it.

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.

DISGUISE SYSTEMS LIMITED
INDEPENDENT AUDITOR'S REPORT (CONTINUED)
TO THE MEMBERS OF DISGUISE SYSTEMS LIMITED
- 14 -

Use of our report

This report is made solely to the 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 company's members those matters we are required to state to them in an auditor's 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 company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Neil Ebdon (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Leeds, UK
9 September 2024
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
DISGUISE SYSTEMS LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2023
- 15 -
2023
2022
Notes
£
£
Turnover
3
49,094,613
45,625,184
Cost of sales
(20,365,616)
(19,322,962)
Gross profit
28,728,997
26,302,222
Administrative expenses
(25,711,229)
(27,004,355)
Other operating income
6,182
-
0
Changes in fair value of derivatives
370,420
(136,580)
Operating profit/(loss)
4
3,394,370
(838,713)
Interest payable and similar expenses
6
(287,966)
(396,434)
Amounts written off investments
7
(20,925)
-
Profit/(loss) before taxation
3,085,479
(1,235,147)
Tax on profit/(loss)
8
(1,157,194)
707,602
Profit/(loss) for the financial year
1,928,285
(527,545)

The profit and loss account has been prepared on the basis that all operations are continuing operations.

DISGUISE SYSTEMS LIMITED
BALANCE SHEET
AS AT
31 DECEMBER 2023
31 December 2023
- 16 -
2023
2022
Notes
£
£
£
£
Fixed assets
Tangible assets
10
2,906,483
3,821,851
Investments
11
17,810,613
18,010,206
20,717,096
21,832,057
Current assets
Stocks
14
7,555,157
10,233,390
Debtors
15
16,763,328
16,709,123
Cash at bank and in hand
3,657,369
1,928,737
27,975,854
28,871,250
Creditors: amounts falling due within one year
16
(41,753,574)
(44,376,466)
Net current liabilities
(13,777,720)
(15,505,216)
Total assets less current liabilities
6,939,376
6,326,841
Creditors: amounts falling due after more than one year
17
(3,657,756)
(4,986,992)
Provisions for liabilities
Provisions
19
(398,810)
(385,324)
(398,810)
(385,324)
Net assets
2,882,810
954,525
Capital and reserves
Called up share capital
21
1,650
1,650
Capital contribution reserve
2,011,145
2,011,145
Profit and loss reserves
870,015
(1,058,270)
Total equity
2,882,810
954,525
The financial statements were approved by the board of directors and authorised for issue on 9 September 2024 and are signed on its behalf by:
R Sklar
Director
Company registration number 09908649 (England and Wales)
DISGUISE SYSTEMS LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2023
- 17 -
Share capital
Capital contribution reserve
Profit and loss reserves
Total
£
£
£
£
Balance at 1 January 2022
1,650
257,249
(530,725)
(271,826)
Year ended 31 December 2022:
Loss and total comprehensive loss
-
-
(527,545)
(527,545)
Capital contribution in the year
-
1,753,896
-
0
1,753,896
Balance at 31 December 2022
1,650
2,011,145
(1,058,270)
954,525
Year ended 31 December 2023:
Profit and total comprehensive loss
-
-
1,928,285
1,928,285
Balance at 31 December 2023
1,650
2,011,145
870,015
2,882,810
DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
- 18 -
1
Accounting policies
Company information

Disguise Systems Limited is a private company limited by shares incorporated in England and Wales. The registered office is Hermes House, 88-89 Blackfriars Rd, South Bank, London, United Kingdom, SE1 8HA.

1.1
Accounting convention

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, modified to include the revaluation of freehold properties and to include investment properties and certain financial instruments at fair value. The principal accounting policies adopted are set out below.

This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements:

 

 

The financial statements of the company are consolidated in the financial statements of Butterfly Topco Limited. These consolidated financial statements are available from its registered office, Hermes House, 88-89 Blackfriars Road, South Bank, London, SE1 8HA.

The company has taken advantage of the exemption under section 400 of the Companies Act 2006 not to prepare consolidated accounts. The financial statements present information about the company as an individual entity and not about its group.

 

Disguise Systems Limited is a wholly owned subsidiary of Butterfly Topco Limited and the results of Disguise Systems Limited are included in the consolidated financial statements of the parent.

DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 19 -
1.2
Going concern

As at 31 December 2023, the Company had net assets of £2.9m (2022 - net assets of £1.0m) and net current liabilities of £13.8m (2022: £15.5m).true

 

The directors have received confirmation from the Group that it will provide ongoing financial support for a period of not less than 12 months in order of the Company to meet its liabilities as they fall due. As a result, the below disclosures which are in respect of the wider Butterfly Topco Limited group, are considered relevant to the Company.

 

As at the year-end date the Group had generated EBITDA of £7.6m (2022 - £0.8m) and generated cash flows from operating activities of £9.8m (2022 - £1.3m). Closing cash balances were £10.7m (2022 - £2.5m), taking into account the injection from its shareholders of £4.0m by way of convertible shareholder loan notes issued on 10 July 2023 after discussion with its Senior Lender.

 

The Group had £12.8m of term loans drawn from its facilities agreement with its Senior Lender to finance the acquisitions of Polygon Labs LLC and Meptik LLC both acquired in 2022. £10m is drawn from one term loan and £2.8m from an additional term loan facility of £7.0m, both of which are not due for repayment until December 2027. At the year-end date the net debt position of the Group excluding shareholder loans was £2.1m (2022 - £9.3m). The Group has access to additional facilities via a £3.0m revolving credit facility which is undrawn and £4.2m of the additional term loan facility which is undrawn to finance further commitments under the acquisitions.

 

The Group’s term loan arrangements with its Senior Lender are based on two covenants. The first is Adjusted Leverage (the ratio of an Adjusted EBITDA-based metric to Total Net Debt) measured on a quarterly basis on a rolling 12-month period with the target ratio reducing over time. The second covenant is an Interest Cover (the ratio of Cashflow to Net Finance Charges) again measured on a quarterly basis on a rolling 12-month period. The Senior Facilities are provided by Santander UK PLC and details can be found in Note 20 to the financial statements.

 

The Group has net current assets of £14.7m (2022 - £10.5m) at 31 December 2023 and has remained stable through 2024 to the date of signing of the financial statements. The directors are satisfied with the cash, additional facilities line and current balance of term loans within the business such that it can meet any future ongoing obligations.

 

The long term debt of the Group is made up of shareholder loan notes of £151.2m (2022 – £132.9m) which mature on the earlier of the Group entering into an agreement with a new acquirer or the maturity of those loan notes in March 2031. The shareholders have not requested any interest repayments until that point.

 

The directors monitor cashflow through short and long term forecasting and its going concern assessment is on a future looking period of a minimum of twelve months from the date of signing the audited financial statements. These forecasts are stress tested on revenue following a deep review of pipeline known projects and historical seasonality, alongside modelling of debtor days lengthening.

 

Our margin forecasts are based on our new supply chain product pricing and working capital is driven predominantly by our sales demand and appropriately run through our financial model taken into account any historical trends. The forecasts have also been heavily sensitised in producing a financing case to ensure that with minimal revenue growth and cost efficiencies actioned we are still able to maintain cash liquidity and meet our covenant requirements.

 

The directors have considered the financial forecasts of the overall Group inclusive of this entity, taking into consideration the current macroeconomic climate, the projections are for the Group to remain profitable and generate positive cashflows in both a short term and long term assessment giving the Group the ability to continue to operate into the future and meet the respective financial covenants.

 

The directors conclude that there are no material uncertainties that may cast significant doubt on the Company’s ability to continue as a going concern and have therefore adopted the going concern basis in preparing the financial statements.

DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 20 -
1.3
Turnover

Revenue relates to the sale of hardware and associated software and/or licence keys embedded into the tangible products sold, as well as other services which cover training, support, extended warranties, and creative production within the software.

 

Revenue for each income stream is recognised based on when the primary risks and rewards transfer to the customer.

 

Hardware

Revenue for hardware and (where applicable) embedded software is recognised at the point of dispatch as it is considered to be the point at which the risk and rewards of ownership transfer, based on the contractual terms to which the customers agree. For such sales, the transaction price is analysed and separated to set aside an amount for the provision of after-sales support in relation to use of the software, which is accounted for separately based on the Company's prior experience of fulfilling such levels of support. The point of dispatch is usually when products leave the Group's premises (be it third party logistics or own offices), being the point at which carrier liability is taken on by the customer.

 

Software licence keys

These annual unlock keys are recognised on the same basis as Hardware at the point of dispatch of the hardware. Such unlock keys represent a right to use the Company's intellectual property and has the functionality for the software unlock. The Company is not required nor expected to provide any updates during the unlock period, and is not required to provide maintenance or support over and above that which would already be separated as part of the hardware sale. As such, the risks and rewards transfer at the point at which the customer is provided with the unlock key.

 

Software as a Service

Software sales typically relate to a licence to use for a period of time, be that a monthly or annual subscription. This includes ongoing access and/or after-sales support period for the software. As the customer benefits from this support for the entirety of that period, the associated revenues are recognised on a straight-line basis for the support and/or ongoing access period.

 

Services

Revenue related to other services are recognised once the performance obligation has been completed, which is typically on delivery of the training or support. Such delivery is often at a point in time, however where such projects span an extended period revenue is recognised proportionally on a basis of completion.

 

Warranty income

Revenue relating to extended warranty contract sales, taken out at the time of purchase of the hardware but commence after the initial manufacturer warranty has expired, is accounted for on a deferred basis with revenue being recognised on a straight line basis over the cover period of the warranty contract once the initial standard warranty period has expired. Warranty income is disclosed within Services in note 3.

 

Other key revenue terms

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and revenue can be measured reliably.

 

Revenue is measured at the fair value of consideration receivable, after discounts and excluding VAT.

 

Key revenue judgements applicable to the current and prior year are detailed in note 2.

1.4
Tangible fixed assets

Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.

DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 21 -

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

Leasehold improvements
20% straight line
Fixtures and fittings
20% straight line
Computer equipment
33% straight line

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 credited or charged to profit or loss.

1.5
Fixed asset investments

Interests in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in profit or loss.

A subsidiary is an entity controlled by the company. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.

1.6
Impairment of fixed assets

At each reporting period end date, the company reviews the carrying amounts of its tangible 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.

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.

1.7
Stocks

Stocks are stated at the lower of cost and estimated selling price less costs to complete and sell. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the stocks to their present location and condition.

 

Stocks held for distribution at no or nominal consideration are measured at the lower of cost and replacement cost, adjusted where applicable for any loss of service potential.

DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 22 -

At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of stocks over its estimated selling price less costs to complete and sell is recognised as an impairment loss in profit or loss. Reversals of impairment losses are also recognised in profit or loss.

1.8
Cash and cash equivalents

Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

1.9
Financial instruments

The company 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 company's balance sheet when the company becomes party to the contractual provisions of the instrument.

 

Financial assets and liabilities are offset, with 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

Basic financial assets, which include debtors and cash and bank balances, 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

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.

Impairment of financial assets

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.

Derecognition of financial assets

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company 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.

DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 23 -
Classification of financial liabilities

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 company after deducting all of its liabilities.

Basic financial 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.

Other financial liabilities

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 that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. 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.

Derecognition of financial liabilities

Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.

1.10
Equity instruments

Equity instruments issued by the company 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 company.

1.11
Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account 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 company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 24 -
Deferred tax

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. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. 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.

1.12
Provisions

Provisions are recognised when the company has a legal or constructive present obligation as a result of a past event, it is probable that the company will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

 

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting end date, taking into account the risks and uncertainties surrounding the obligation. Where the effect of the time value of money is material, the amount expected to be required to settle the obligation is recognised at present value. When a provision is measured at present value, the unwinding of the discount is recognised as a finance cost in profit or loss in the period in which it arises.

1.13
Employee benefits

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.

1.14
Leases

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 leases asset are consumed. Benefits received or receivable as an incentive to sign an operating lease are recognised on a straight line basis over the lease term.

1.15
Foreign exchange

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.

 

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the Statement of Comprehensive Income within "finance income or costs". All other foreign exchange gains and losses are presented in profit or loss within "administrative expenses".

DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 25 -
1.16

Finance costs

Finance costs are charged to the Statement of Comprehensive Income over the term of the debt using the effective interest method, so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.

2
Judgements and key sources of estimation uncertainty

In the application of the company’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.

Critical judgements

The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.

Revenue recognition

Revenue is generated through the sale of products to customers, which includes pre-installed software, and the provision of after-sales support on an ad-hoc basis.

 

A key judgement is the point at which revenue is recognised in relation to the pre-installed software included within the hardware. The directors are satisfied that it is appropriate to recognise revenue in relation to the pre-installed software in full once control of the goods transfers to the customer. This is on the basis that the customer has the right to use the software immediately, there are no restrictions on the use of the software, and there are no further obligations such as the requirements for customers to upgrade the software.

DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
2
Judgements and key sources of estimation uncertainty
(Continued)
- 26 -
Key sources of estimation uncertainty

The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.

Revenue recognition

In addition, the directors make an estimate of revenue that relates to the provision of after-sales support provided to customers. At the year end, the directors have considered the cost that is involved in the provision of these services and used this to make an estimate of the amount of revenue that should be deferred. At 31 December 2023 the amount of deferral included within accruals and deferred income was £126,194 (2022 - £95,563).

Stock

At each reporting date, stock is assessed for impairment by comparing its expected selling price, net of estimated costs to sell, to the carrying value which is typically cost. This includes an assessment of slow moving stock by comparison to expected utilisation throughout the product's lifecycle. If stock is impaired, the carrying amount is reduced to its selling price less costs to complete and sell. The impairment loss is recognised immediately in the Statement of Comprehensive Income.

Trade debtors

There is estimation uncertainty in calculating bad debt provisions. A full line by line review of trade debtors is carried out at the end of each month. Whilst every attempt is made to ensure that the bad debt provisions are as accurate as possible, there remains a risk that the provisions do not match the level of debts which ultimately prove to be uncollectable.

Recoverability of intercompany loans

Management judgement is required in determining the recoverability of intercompany loans in order to appropriately recognise the recoverability across the group. This includes an estimate of cashflows resulting from trading in various group companies, which may differ to actual outcomes.

Contingent consideration

In the prior year the Company acquired investments which included an element of contingent consideration. The Directors have made their best estimate of amounts expected to be payable as at the year end and adjusted the carrying value; such estimates are based on the anticipated performance of the investments in accordance with the terms of the purchase contracts. Details of the key inputs and accounting are provided in note 16.

3
Turnover
2023
2022
£
£
Turnover analysed by class of business
Hardware
47,436,144
43,684,859
Services
774,139
1,060,267
Software
884,330
880,058
49,094,613
45,625,184
DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
3
Turnover
(Continued)
- 27 -
2023
2022
£
£
Turnover analysed by geographical market
United Kingdom
2,774,635
6,730,653
Rest of Europe
8,425,515
6,179,688
North America
23,995,712
16,031,239
Asia
7,961,751
12,335,763
Rest of the World
5,937,000
4,347,841
49,094,613
45,625,184
4
Operating profit/(loss)
2023
2022
Operating profit/(loss) for the year is stated after charging:
£
£
Exchange losses
400,588
1,041,116
Fees payable to the company's auditor for the audit of the company's financial statements
59,231
55,000
Depreciation of owned tangible fixed assets
1,739,031
1,380,129
Loss on disposal of tangible fixed assets
37,181
-
Operating lease charges
651,097
672,991
5
Employees

The company did not have any employees during the current or prior year.

2023
2022
Number
Number
Total
-
0
-
0
6
Interest payable and similar expenses
2023
2022
£
£
Interest on bank overdrafts and loans
703
-
Unwinding of discount on provisions
13,486
-
Unwinding of discount on deferred consideration
273,777
396,434
287,966
396,434
DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 28 -
7
Amounts written off investments
2023
2022
£
£
Change in the fair value of contingent consideration
20,925
-
8
Taxation
2023
2022
£
£
Current tax
UK corporation tax on profits for the current period
-
0
(34,096)
Deferred tax
Origination and reversal of timing differences
1,138,606
(315,589)
Adjustment in respect of prior periods
18,588
(357,917)
Total deferred tax
1,157,194
(673,506)
Total tax charge/(credit)
1,157,194
(707,602)

The actual charge/(credit) for the year can be reconciled to the expected charge/(credit) for the year based on the profit or loss and the standard rate of tax as follows:

2023
2022
£
£
Profit/(loss) before taxation
3,085,479
(1,235,147)
Expected tax charge/(credit) based on the standard rate of corporation tax in the UK of 23.52% (2022: 19.00%)
725,705
(234,678)
Tax effect of expenses that are not deductible in determining taxable profit
387,171
110,735
Adjustments in respect of prior years
-
0
(392,013)
Effect of change in corporation tax rate
67,381
(75,741)
Group relief
(80,767)
399
Permanent capital allowances in excess of depreciation
39,092
36,711
Other permanent differences
24
-
0
Deferred tax adjustments in respect of prior years
18,588
-
0
Super-deduction
-
0
(153,015)
Taxation charge/(credit) for the year
1,157,194
(707,602)

The main corporation tax rate increased from 19% to 25% on 1 April 2023. The deferred tax balances at 31 December 2023 have been measured using the rates expected to apply in the reporting periods when the timing differences reverse, being 25% (2022 - 25%).

DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 29 -
9
Impairments

Impairment tests have been carried out where appropriate and the following impairment losses have been recognised in profit or loss:

2023
2022
Notes
£
£
In respect of:
Intercompany debtors
11
1,296,584
-
Stocks
14
320,064
239,000
Recognised in:
Cost of sales
320,064
239,000
Administrative expenses
1,296,584
-
10
Tangible fixed assets
Leasehold improvements
Fixtures and fittings
Computer equipment
Total
£
£
£
£
Cost
At 1 January 2023
1,370,738
278,881
5,958,937
7,608,556
Additions
-
0
1,970
1,083,043
1,085,013
Disposals
-
0
-
0
(356,899)
(356,899)
At 31 December 2023
1,370,738
280,851
6,685,081
8,336,670
Depreciation and impairment
At 1 January 2023
710,552
170,217
2,905,936
3,786,705
Depreciation charged in the year
238,328
54,569
1,446,134
1,739,031
Eliminated in respect of disposals
-
0
-
0
(95,549)
(95,549)
At 31 December 2023
948,880
224,786
4,256,521
5,430,187
Carrying amount
At 31 December 2023
421,858
56,065
2,428,560
2,906,483
At 31 December 2022
660,186
108,664
3,053,001
3,821,851
11
Fixed asset investments
2023
2022
Notes
£
£
Investments in subsidiaries
12
17,810,613
18,010,206
DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
11
Fixed asset investments
(Continued)
- 30 -
Movements in fixed asset investments
Shares in subsidiaries
£
Cost or valuation
At 1 January 2023
18,010,206
Additions
1,176,749
Reduction in contingent consideration expectation
(1,376,342)
At 31 December 2023
17,810,613
Carrying amount
At 31 December 2023
17,810,613
At 31 December 2022
18,010,206

The additions in the year have arisen from a contribution made to a US subsidiary to settle employment-related expenses. The changes in contingent consideration payments are detailed in note 16.

12
Subsidiaries

Details of the company's subsidiaries at 31 December 2023 are as follows:

Name of undertaking
Registered office
Class of
% Held
shares held
Direct
Disguise Systems (APAC) Limited
16/F Wing On Ctr, 111 Connaught Rd C, Sheung Wan HK, Hong Kong
Ordinary
100.00
Disguise Systems Inc.
421 Colyton Street, #1R, Los Angeles, CA90013, United States of America
Ordinary
100.00
Disguise Systems (China) Limited
Room 103, 6/F WeWork, The Konnect, 118 South Yunnan Road, Huangpu District, Shanghai, China
Ordinary
100.00
Disguise EMEA Limited
Hermes House, 88-89 Blackfriars Road, South Bank, London, SE1 8HA
Ordinary
100.00
Disguise Spain, Sociedad Limitada
Calle Tanger (Glories) 86, Barcelona, 08018, Spain
Ordinary
100.00
Disguise Systems Canada Inc
630, boul, Rene-Levesque Ouest, Bureau 2780, Montreal, Quebec H3B 1S6, Canada
Ordinary
100.00
Disguise New Zealand Limited
Level 4 BDO Centre, 4 Graham Street, Auckland 1010, New Zealand
Ordinary
100.00
Disguise Korea Limited
127 Beobwon-ro, Songpa-gu Seoul, 05836 KR, Korea
Ordinary
100.00
Disguise Japan GK
71 We Work Ocean Gate, Minato Mirai, Japan
Ordinary
100.00
Previz LLC
1115 W Sunset Blvd, Suite 608, Los Angeles, CA 90012, United States of America
Ordinary
100.00
Disguise Systems Singapore Pte. Limited
600 North Bridge Road, #23-01, Parkview Square, Singapore (188778)
Ordinary
100.00
Polygon Labs LLC
228 Bushwick Ave 3G, Brooklyn, NY 11206, New York, United States of America
Ordinary
100.00
Meptik LLC
215 Chester Ave SE Suite A-111, Atlanta, GA 30316, United States of America
Ordinary
100.00

All subsidiaries are held directly.

DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 31 -
13
Financial instruments
2023
2022
£
£
Carrying amount of financial liabilities
Measured at fair value through profit or loss
- Non-derivatives that are not part of a trading portfolio
1,194,042
2,196,945
- Other financial liabilities
-
370,420

Financial liabilities measured at fair value through profit or loss comprises of currency forward contracts, and contingent consideration payable which is detailed further in note 16.

14
Stocks
2023
2022
£
£
Finished goods and goods for resale
7,555,157
10,233,390

An impairment loss of £349,756 (2022 - £239,000) was recognised in cost of sales in the year in relation to slow moving stock and stock write offs anticipated.

 

There is no material difference between the replacement cost of stocks and the amounts stated above.

15
Debtors
2023
2022
Amounts falling due within one year:
£
£
Trade debtors
2,938,836
3,517,271
Amounts owed by group undertakings
9,627,113
7,548,393
VAT recoverable
961,550
1,149,892
Other debtors
161,571
895,516
Prepayments and accrued income
1,081,512
514,652
14,770,582
13,625,724
Deferred tax asset (note 20)
1,601,205
2,758,399
16,371,787
16,384,123
2023
2022
Amounts falling due after more than one year:
£
£
Trade debtors
66,541
-
0
Other debtors
325,000
325,000
391,541
325,000
Total debtors
16,763,328
16,709,123
DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
15
Debtors
(Continued)
- 32 -

The amounts owed by group undertakings are interest-free and repayable on demand.

 

Within the period the company provided for £39,957 (2022 - £811,053) in bad debt.

16
Creditors: amounts falling due within one year
2023
2022
Notes
£
£
Meptik LLC promissory note
18
1,594,947
1,710,757
Trade creditors
3,581,825
7,440,998
Amounts owed to group undertakings
34,830,245
31,516,664
Corporation tax
886
-
0
Derivative financial instruments
-
0
370,420
Other creditors
1,244,358
1,793,225
Deferred consideration
104,975
912,176
Accruals and deferred income
396,338
632,226
41,753,574
44,376,466

The amounts owed to group undertakings are interest-free and repayable on demand.

 

Contingent consideration resulted from the acquisition of Polygon Labs LLC and Meptik LLC, which is due for repayment over several years and will ultimately be settled in July 2025.

 

The discount rate applied to future payments for Polygon Labs LLC is 12.5%, and for Meptik LLC is 16.5%. The amount due within one year is £104,975 (2022 - £912,176) and due after more than one year is £1,194,042 (2022 - £2,196,945). Both contingent considerations are liabilities at fair value through profit and loss, and represent the company's weighted average expectations for final outcomes on these liabilities, discounted to present value. The Directors view the probability of payment targets being met has materially reduced in the year. The maximum amount which could be ultimately payable under both agreements is £4,314,750.

17
Creditors: amounts falling due after more than one year
2023
2022
Notes
£
£
Meptik LLC promissory note
18
-
0
1,641,842
Deferred consideration
1,194,042
2,196,945
Accruals and deferred income
2,131,092
1,148,205
Other creditors
332,622
-
3,657,756
4,986,992
DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
17
Creditors: amounts falling due after more than one year
(Continued)
- 33 -

Accruals and deferred income due after more than one year includes deferred income in respect of extended warranty packages purchased in advance.

 

Contingent consideration due after more than one year in relation to the Meptik LLC promissory note is explained in note 16.

 

Deferred consideration due after more than one year in relation to the Meptik LLC and Polygon Labs LLC is explained in note 16.

 

18
Loans
2023
2022
£
£
Amounts falling due within one year
Meptik LLC Promissory Note
1,594,947
1,710,757
Amounts falling due 2-5 years
Meptik LLC Promissory Note
-
1,641,842
1,594,947
3,352,599

The Meptik LLC promissory note is payable in July 2024 and carries an interest rate of 2.37%. £1,710,757 was repaid in July 2023.

 

The promissory note is denoted in USD and revalued at the year end date to GBP. The currency variation is reflected in the difference between the closing balance as at 31 December 2022, and the closing balance in the current year as at 31 December 2023 is £1,594,947.

19
Provisions for liabilities
2023
2022
£
£
Dilapidations provision
398,810
385,324
Movements on provisions:
Dilapidations provision
£
At 1 January 2023
385,324
Unwinding of discount
13,486
At 31 December 2023
398,810
DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 34 -
20
Deferred taxation

The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:

Assets
Assets
2023
2022
Balances:
£
£
Accelerated capital allowances
(438,084)
(588,619)
Tax losses
2,039,289
3,347,018
1,601,205
2,758,399
2023
Movements in the year:
£
Asset at 1 January 2023
(2,758,399)
Charge to profit or loss
1,157,194
Asset at 31 December 2023
(1,601,205)

The deferred tax asset set out above is expected to reverse within 12 months and relates to the utilisation of tax losses against future expected profits of the same period.

21
Share capital
2023
2022
2023
2022
Ordinary share capital
Number
Number
£
£
Issued and fully paid
Ordinary shares of £1 each
1,650
1,650
1,650
1,650
22
Operating lease commitments
Lessee

At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

2023
2022
£
£
Within one year
650,000
672,991
Between two and five years
2,600,000
2,600,000
In over five years
975,000
1,600,000
4,225,000
4,872,991
DISGUISE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 35 -
23
Related party transactions

The company has taken the disclosure exemptions of section 33.1A of FRS 102 to not disclose transactions with wholly owned group members of Butterfly Topco Limited. Details of balances outstanding at the year end are given in notes 15 and 16.

24
Ultimate controlling party

The immediate parent undertaking at the reporting date was Disguise Technologies Limited, incorporated in England & Wales, whose registered office is Hermes House, 88-89 Blackfriars Road, South Bank, London, SE1 8HA.

 

The smallest and largest group into which the results of the company are consolidated was Butterfly Topco Limited. The consolidated statements of Butterfly Topco Limited are available to the public and may be obtained from its registered office at Hermes House, 88-89 Blackfriars Road, South Bank, London, SE1 8HA.

 

CETP IV Investments S.a.r.l. is the ultimate controlling party at the reporting date.

2023-12-312023-01-01falseCCH SoftwareCCH Accounts Production 2024.200F M KuferR Sklarfalsefalse099086492023-01-012023-12-3109908649bus:Director12023-01-012023-12-3109908649bus:Director22023-01-012023-12-3109908649bus:RegisteredOffice2023-01-012023-12-31099086492022-01-012022-12-31099086492023-12-3109908649core:Exceptional12023-01-012023-12-3109908649core:Exceptional12022-01-012022-12-3109908649core:RetainedEarningsAccumulatedLosses2022-01-012022-12-3109908649core:RetainedEarningsAccumulatedLosses2023-01-012023-12-31099086492022-12-3109908649core:LandBuildingscore:LeasedAssetsHeldAsLessee2023-12-3109908649core:FurnitureFittings2023-12-3109908649core:ComputerEquipment2023-12-3109908649core:LandBuildingscore:LeasedAssetsHeldAsLessee2022-12-3109908649core:FurnitureFittings2022-12-3109908649core:ComputerEquipment2022-12-3109908649core:Non-currentFinancialInstruments2023-12-3109908649core:Non-currentFinancialInstruments2022-12-3109908649core:CurrentFinancialInstrumentscore:WithinOneYear2023-12-3109908649core:CurrentFinancialInstrumentscore:WithinOneYear2022-12-3109908649core:Non-currentFinancialInstrumentscore:AfterOneYear2023-12-3109908649core:Non-currentFinancialInstrumentscore:AfterOneYear2022-12-3109908649core:ShareCapital2023-12-3109908649core:ShareCapital2022-12-3109908649core:OtherMiscellaneousReserve2023-12-3109908649core:OtherMiscellaneousReserve2022-12-3109908649core:RetainedEarningsAccumulatedLosses2023-12-3109908649core:RetainedEarningsAccumulatedLosses2022-12-3109908649core:ShareCapital2021-12-3109908649core:RetainedEarningsAccumulatedLosses2021-12-3109908649core:LandBuildingscore:LongLeaseholdAssets2023-01-012023-12-3109908649core:FurnitureFittings2023-01-012023-12-3109908649core:ComputerEquipment2023-01-012023-12-3109908649core:UKTax2023-01-012023-12-3109908649core:UKTax2022-01-012022-12-310990864912023-01-012023-12-310990864912022-01-012022-12-310990864922023-01-012023-12-310990864922022-01-012022-12-3109908649core:LandBuildingscore:LeasedAssetsHeldAsLessee2022-12-3109908649core:FurnitureFittings2022-12-3109908649core:ComputerEquipment2022-12-31099086492022-12-3109908649core:LandBuildingscore:LeasedAssetsHeldAsLessee2023-01-012023-12-3109908649core:Subsidiary12023-01-012023-12-3109908649core:Subsidiary22023-01-012023-12-3109908649core:Subsidiary32023-01-012023-12-3109908649core:Subsidiary42023-01-012023-12-3109908649core:Subsidiary52023-01-012023-12-3109908649core:Subsidiary62023-01-012023-12-3109908649core:Subsidiary72023-01-012023-12-3109908649core:Subsidiary82023-01-012023-12-3109908649core:Subsidiary92023-01-012023-12-3109908649core:Subsidiary102023-01-012023-12-3109908649core:Subsidiary112023-01-012023-12-3109908649core:Subsidiary122023-01-012023-12-3109908649core:Subsidiary132023-01-012023-12-3109908649core:Subsidiary112023-01-012023-12-3109908649core:Subsidiary212023-01-012023-12-3109908649core:Subsidiary312023-01-012023-12-3109908649core:Subsidiary412023-01-012023-12-3109908649core:Subsidiary512023-01-012023-12-3109908649core:Subsidiary612023-01-012023-12-3109908649core:Subsidiary712023-01-012023-12-3109908649core:Subsidiary812023-01-012023-12-3109908649core:Subsidiary912023-01-012023-12-3109908649core:Subsidiary1012023-01-012023-12-3109908649core:Subsidiary1112023-01-012023-12-3109908649core:Subsidiary1212023-01-012023-12-3109908649core:Subsidiary1312023-01-012023-12-3109908649core:CurrentFinancialInstruments2023-12-3109908649core:CurrentFinancialInstruments2022-12-3109908649core:WithinOneYear2023-12-3109908649core:WithinOneYear2022-12-3109908649core:BetweenTwoFiveYears2023-12-3109908649core:BetweenTwoFiveYears2022-12-3109908649core:MoreThanFiveYears2023-12-3109908649core:MoreThanFiveYears2022-12-3109908649bus:PrivateLimitedCompanyLtd2023-01-012023-12-3109908649bus:FRS1022023-01-012023-12-3109908649bus:Audited2023-01-012023-12-3109908649bus:FullAccounts2023-01-012023-12-31xbrli:purexbrli:sharesiso4217:GBP