The directors present the strategic report for the year ended 31 December 2023.
In 2023 the Butterfly Group saw strong revenue growth through continued vertical, geographic and product expansion alongside building out 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. This was particularly relevant for the Company as it reduced staff levels and reliance on consultants/freelancers.
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 and already the Company has 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.
The company has also invested in the development of the next generation of hardware models in both our pro range series of machines, with significant margin improvements anticipated in future periods for the Group and a wider portfolio of products to cater towards the lowered priced segments of our verticals.
The principal risks and uncertainties of the Company relate to the ongoing activities of the company in which it holds investment and its ability to bring to market innovative products. The Company’s function as undertaking research and development activities for the Butterfly Group of companies means it is dependent for its revenues upon its own performance and the performance of its affiliates in the live and virtual events visualisation services industry. The risks that the Company are exposed to are managed at a Group level and the nature of the risk and the risk management principles and strategies to mitigate these risks are disclosed in the consolidated financial statements of the Butterfly Topco Limited. These are summarised below together with the relevant mitigation:
Identified risk | Potential impact | Mitigation |
A significant change in the global economy. | The Company & Group is unable to meet its strategic growth target, which may result in financial difficulties. | The business constantly monitors the external business environment using both financial and non-financial measures to enable it to react quickly to changes to the global environment. |
Interruption to the supply of critical components. | Inability to meet customer demand, reducing revenues. | The product development and operations teams work closely with the Company and Group's suppliers to ensure contingency plans are in place to minimise business interruption and react quickly to route supply through difference geographies within our network. The Company also places orders in advance to secure supply and owns all IP and drawings to move the supply chain if required. |
Management of the Company's investment in research & development. | The Company makes significant investment in research and development to future proof its products and revenues. Failure to manage this investment may result in the failure to generate future revenues and increased costs charged through the income statement. | The business constantly reviews the costs invested in research & development, analysing the costs by project. Projects are reviewed both in terms of cost and commercial viability. Should a project be deemed unviable it is abandoned at the earliest opportunity. |
There may be increasing demand to reduce the impact of electronic materials on the environment. | The cost of production may increase as the Group tries to meet the new stringent environmental laws by having to invest in R&D to identify alternative materials or incur additional costs in reducing the impact on the environment. | The Company & Group has registered with the WEEE directive to ensure products are disposed of in a suitable manner. The directors also recognise there is further improvements to be made and are looking at schemes to offset the business activities carbon footprint and have set a three-year timeframe to embed this in our overall strategy. |
The Company’s activities expose it to a variety of financial risks. These risks are managed at a Group level and 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 and intercompany debtors. For banks and financial institutions, only independent rated parties with a strong credit rating are accepted. Intercompany debtors are regularly reviewed for recoverability and settled for trading positions.
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 Company is reliant on Butterfly Bidco Limited not calling in the intercompany debt, and as part of this 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.
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.
The Company spent £2.0m (2022 - £2.7m) on staff development expenditure which was capitalised across intangible assets. The development expenditure included a number of major release updates totalling £0.2m to its main software during the year.
It also included expenditure related to the new hardware technologies totalling £0.2m (2022 - £0.8m) capitalised in intangible assets with our next generation media servers and our patented video format conversion cards.
Turnover, relating to management services and recharges, slightly increased by 1.4% to £16.1 million (2022 - £15.9 million) as activity levels remained consistent through the Group despite reduced spend on research and development, as we embed and evolve product iterations ahead of a wider ramp up expected with the next generation of hardware. This helped increase Adjusted EBITDA by 88% to £2.3m (2022 - £1.2m).
In the year the company also incurred £0.4m (2021 - £0.1m) of one-off fees as adjustments that have been added back when calculating the Adjusted EBITDA for reporting purposes to key stakeholders. These one-off fees relate to severance costs undertaken as part of the Group overhead rationalisation.
As such, net assets were £6.1m (2022 - £6.5m) representing a 6% decrease driven by a modest reduction in other debtors in the Group. The net book value of Intangible assets decreased 8% to £5.2m (2022 - £5.6m) as products cycles hit the market and amortisation charges increase year-on year.
Analysis based on Non-Financial Key Performance Indicators
The Group also reviews a number of other non-financial KPIs which apply to the subsidiaries of the Company:
Annual employee engagement reviews and net promoter scores with all global employees. The Group uses electronic systems and perform regular employee surveys, focussing on happiness, personal motivation, company motivation, and relationships. The average at December 2023 was 4 (December 2022 - 4) (from a maximum score of 5), which the Directors are pleased with.
Collection and review of customer satisfaction surveys. Based on several metrics, the average score in 2023 was 4.53 (December 2022 - 4.51) (from a maximum score of 5). The Directors are pleased with this outcome and demonstrates a key driver behind the Group's growth.
Manufacturing quality and survey reviews including return to manufacturer authorisations ("RMA") within the first 90 days of production. Such data is tracked electronically but the Group only commenced this data collection during 2023, and as such no comparatives are presented. The average returns during 2023 were 1.1%, which demonstrates a high level of reliability of the Group's products (both hardware and software).
It is the intention of the directors that the Company will continue for the foreseeable future, oversee and managing the research and development aspects of the Group. The Group plans to expand its product portfolio and further expand into new verticals alongside building out capabilities in our existing markets and verticals served.
The Company is committed to be at the forefront of the R&D initiatives through the Group and further expand the hardware, software capabilities and investment into the Group’s intellectual property.
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.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2023.
The loss for the year, after taxation, is £1,258,277 (2022 £363,492).
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
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.
As at 31 December 2023, the Company had net assets and net current assets of £6.1m (2022 - £6.5m).
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.
Basis for opinion
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
Other Companies Act 2006 reporting
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.
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.
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:
Our understanding of the Company and the industry in which it operates;
Discussion with management, legal counsel and those charged with governance; and
Obtaining and understanding of the Company’s policies and procedures regarding compliance with laws and regulations;
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.
Our procedures in respect of the above included:
Review of minutes of meeting of those charged with governance for any instances of non-compliance with laws and regulations;
Discussions with legal counsel to identify any instances of non-compliance with laws and regulations;
Review of financial statement disclosures and agreeing to supporting documentation; and
Review of legal expenditure accounts to understand the nature of expenditure incurred.
Fraud
We assessed the susceptibility of the financial statements to material misstatement, including fraud. Our risk assessment procedures included:
Enquiry with management and those charged with governance regarding any known or suspected instances of fraud;
Obtaining an understanding of the Company’s policies and procedures relating to:
Detecting and responding to the risks of fraud; and
Internal controls established to mitigate risks related to fraud.
Review of minutes of meeting of those charged with governance for any known or suspected instances of fraud;
Discussion amongst the engagement team as to how and where fraud might occur in the financial statements;
Performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud; and
Considering remuneration incentive schemes and performance targets and the related financial statement areas impacted by these.
Based on our risk assessment, we considered the areas most susceptible to fraud to be:
Management override of controls, predominantly through the posting of inappropriate journals or manipulation of key accounting estimates; and
Capitalistion of payroll and other costs as development expenditure.
Our procedures in respect of the above included:
Testing a sample of journal entries throughout the year, which met a defined risk criteria, by agreeing to supporting documentation;
Testing of significant estimates and evaluating whether there was evidence of bias in the financial statements by management that represented a risk of material misstatement due to fraud. In particular, we identified the valuation of equity-settled and cash-settled share-based payment charges and the impairment of intangibles and investment balances as being the principal estimates and judgements; and
Testing a sample of capitalised development costs in the year to supporting documentation, confirming that those development costs meet the recognition.
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.
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.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
The notes on pages 18 to 35 form part of these financial statements.
Disguise Technologies 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.
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 £.
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:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues: Interest income/expense and net gains/losses for financial instruments not measured at fair value; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 26 ‘Share based Payment’: Share-based payment expense charged to profit or loss, reconciliation of opening and closing number and weighted average exercise price of share options, how the fair value of options granted was measured, measurement and carrying amount of liabilities for cash-settled share-based payments, explanation of modifications to arrangements;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
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 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.
The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, or if there is an indication of a significant change since the last reporting date.
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, 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 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.
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, 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 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.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
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.
Equity-settled share-based payments are measured at fair value at the date of grant by reference to the fair value of the equity instruments granted using the most appropriate model. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of shares that will eventually vest. A corresponding adjustment is made to equity.
When the terms and conditions of equity-settled share-based payments at the time they were granted are subsequently modified, the fair value of the share-based payment under the original terms and conditions and under the modified terms and conditions are both determined at the date of the modification. Any excess of the modified fair value over the original fair value is recognised over the remaining vesting period in addition to the grant date fair value of the original share-based payment. The share-based payment expense is not adjusted if the modified fair value is less than the original fair value.
Cancellations or settlements (including those resulting from employee redundancies) are treated as an acceleration of vesting and the amount that would have been recognised over the remaining vesting period is recognised immediately.
For cash-settled share-based payments, a liability is recognised for the goods and services acquired, measured initially at the fair value of the liability. At the balance sheet date until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair value recognised in profit or loss for the year.
The fair value of the award also takes into account non-vesting conditions. These are either factors beyond the control of either party (such as a target based on an index) or factors which are within the control of one or other of the parties (such as the Company keeping the scheme open or the employee maintaining contributions required by the scheme)
Equity-settled share-based payments are measured at fair value at the date of grant by reference to the fair value of the equity instruments. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of shares that will eventually vest. A corresponding adjustment is made to equity.
When the terms and conditions of equity-settled share-based payments at the time they were granted are subsequently modified, the fair value of the share-based payment under the original terms and conditions and under the modified terms and conditions are both determined at the date of the modification. Any excess of the modified fair value over the original fair value is recognised over the remaining vesting period in addition to the grant date fair value of the original share-based payment. The share-based payment expense is not adjusted if the modified fair value is less than the original fair value.
Cancellations or settlements (including those resulting from employee redundancies) are treated as an acceleration of vesting and the amount that would have been recognised over the remaining vesting period is recognised immediately.
Rentals paid under operating leases are charged to the Statement of Comprehensive Income on a straight-line basis over the lease term.
Benefits received and receivable as an incentive to sign an operating lease are recognised on a straight-line basis over the lease term, unless another systematic basis is representative of the time pattern of the lessee's benefit from the use of the leased asset.
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.
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
Determine the point from which it is appropriate to recognised an intangible asset for development costs incurred in respect of new products. In doing so, the Directors have considered whether the various recognition criteria required by FRS 102 have been met, in particular the reliable measurement of costs directly attributable to the development, the technical feasibility of the project, the availability of the necessary resources to complete the product development, and the existence of a suitable market to buy the finished product.
The company is party to an arrangement whereby the Parent has issued shares and share-matching arrangements as part of its long-term incentive plan for employees. For shares, these are classified as equity-settled share-based payments and are therefore fair valued at the grant date, and the resultant share-based payment charge spread over the expected vesting period of the instruments.
There are a number of existing schemes from prior years. For the shares issued in May 2023, these were valued using a Monte-Carlo simulation option pricing model based on the Black-Scholes model. This requires a number of assumptions to be made including the share price at the grant date, the volatility of the share price, expected dividend yield and expected period to exercise.
The shares were issued with an average exercise price of £1 per share for E shares and £0.50 per share for F shares. The weighted average fair value net of exercise price is £33.08 for E shares and £0.62 for F shares, which was determined with input from an expert.
The directors are satisfied that the share price is reasonable taking into consideration the EBITDA performance and the resultant expected enterprise value of the company, based on benchmarking of the earnings ratio to comparable companies in the sector.
The total anticipated share-based payment charge is spread over the vesting period of the instruments. For those instruments that do not vest before the year-end, management make an assessment of the the expected timing of the vesting date.
The company has granted cash-settled share-based payments in the year. These are fair-valued at each period end, and the resultant expected share based payment charge spread over the expected vesting period of the instruments.
The vesting period is the point at which there is an exit event (ie: a sale of listing of the Company). The directors have assessed the relevant vesting period, based on information available at the balance sheet date. Their assumption was that of an exit event at June 2025.
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.
Identification of staff time spent in developing and improving products requires a key estimate in order to capitalise eligible costs.
The company considers on an annual basis whether indications of impairment relating to non-monetary assets exist and if so perform an impairment test. The recoverable amount is determined based on the higher of value in use calculations or fair value less costs to sell. The use of value in use method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows, which are key estimates. Further details are provided in note 10.
Recoverability of development costs
The company determines the recoverability of development costs from future cash flows based on the development project and any changes in the potential market for the product. The capitalisation of development costs is based on discounted future cash flows based on the business forecasts of revenues generated from development of new products and are therefore inherently judgemental. Future events could cause the values of this intangible asset to be impaired.
The whole of the turnover is attributable to the principal activity of the Company. All turnover arose within the United Kingdom in the current and prior year.
All turnover arises in the United Kingdom from the one principal activity.
The Directors have used an Alternative Performance Measure ("APM") in the preparation of these financial statements. The Consolidated Income Statement has presented Adjusted EBITDA, where Adjusted EBITDA represents Earnings before Interest, Tax, Depreciation and Amortisation.
The Directors have presented this APM because they feel it most suitably represents and explains the underlying performance of the business, and allows comparability between the current and comparative period in light of the rapid changes in the business, most notably its growth to new sites and the financing costs incurred as part of this. The Directors also believe that this will allow an ongoing trend analysis of this performance based on current plans for the business.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The above costs exclude £1,777,150 (2022 - £2,680,202) which has been capitalised as development costs in the year, as shown in note 11.
The actual 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:
Factors that may affect future tax charges
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%).
Impairment tests have been carried out where appropriate and the following impairment losses have been recognised in profit or loss:
Impairment testing
The Company considers annually whether there are any indicators of impairment of its intangible assets and other non-monetary assets in the cash-generating unit ("CGU"). Consideration is made by reference to a value-in-use calculation, which covers a 5 year detailed cashflow followed by terminal values. The present value of the expected cash flows is determined by applying a suitable discount rate reflecting the current market assessments of the time value of money and risks specific to the CGU. The pre-tax discount rate applied to the group's cashflows is 20.00%.
As of the reporting date management performed impairment assessments for intangible assets and concluded that there were no indications of impairment.
Details of the company's subsidiaries at 31 December 2023 are as follows:
Amounts owed to group undertakings are interest free, unsecured and repayable on demand,
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
The deferred tax asset set out above is expected to reverse and relates to the utilisation of tax losses against future expected profits of the same period.
The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.
Contributions totalling £51,329 (2022 - £65,822) were payable to the fund at the reporting date and are included to other creditors.
All shares confer voting rights, enable the holder to participate in dividends, and enable the holder to participate in a capital distribution. All shares are non-redeemable.
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:
The company engaged Dept Design & Technology Ltd who is a sister portfolio company within the Carlyle fund on an arms length basis in relation to website design with £nil (2022: £131,763) charged through the accounts.
The Company is a wholly owned subsidiary of Butterfly Topco Limited and has taken advantage of the available exemption conferred by section 33.1A of FRS 102 not to disclose transactions with wholly owned group members. Details of balances outstanding at the year end are given in notes 15 and 16.