The directors present the strategic report for the year ended 31 December 2023.
AVL Europe Limited is the holding company of all shares of the companies primarily comprising the FUGA Group, as well as Simbals S.A.S., CD Baby LATAM S.A.S. and Curve Royalty Systems Limited.
FUGA is the industry-leading technology and services company for international music rightsholders. Headquartered in Amsterdam, FUGA has offices in London, New York, and Milan and representations in Rome, Paris, Berlin, Stockholm, Los Angeles, Tokyo, Seoul, Sao Paolo, Manilla, and Australia.
At the company’s core is the FUGA platform, offering best-of-breed digital supply chain integration alongside dynamic promotion and marketing. The flexible platform enables FUGA’s clients to vary services across different Digital Service Providers (DSPs) so that they can develop their catalog management, distribution, marketing, licensing and royalty accounting activity as their needs evolve. Connected to over 200 DSPs worldwide, FUGA’s Platform manages more than 45 million unique tracks, generating over 16 billion streams, delivering 21 million unique tracks during 2023. At present, more than 1300 different businesses, such as labels, artist platforms, distributors and other rights holders around the world rely on FUGA’s technology and services to support their operations.
FUGA is listed on the highest distributor tier for Spotify and Apple: a Preferred Plus distributor and encoding house for Apple and preferred platinum partner and recommended delivery platform for Spotify. An active member of the DDEX consortium, FUGA also partnered with Verifi Media as part of a coalition to spearhead development of a global blockchain ecosystem.
In 2023, we have continued our track of technical development, adding new and enhanced features to the FUGA Platform. The FUGA Platform provides clients the technology to facilitate content delivery and the requisite licenses to distribute content to DSPs. The Platform is flexible and modular, not one-size-fits-all. Some of our clients may have existing, direct commercial arrangements with DSPs, and those clients can leverage “platform” and services only, or leverage both platform and aggregation services in a
combined supply chain.
FUGA’s technology platform extends across the entire value chain for music, with the opportunity to expand upstream into digital rights management.
Manage Content / Workflow: Ingesting and managing content in FUGA platform(s) drives stickiness;
Distribute Content: Distribution as a technology service creates barriers to entry; including launching comprehensive spatial audio support and automated delivery to Apple Music – the first B2B distributor to do so.
Promote Releases: Promotional services drive enhanced client monetization;
Collect Royalties: Collect all revenue streams (including Neighbouring Rights), completing the monetization picture for clients;
Sales data analysis: Offer the ability for FUGA and clients to use and query sales data to improve A&R and distribution strategies, through Trends & Analytics module;
Synchronization service: facilitates the use of copyrighted music to any other type of content and/or in other mediums (mainly visual content, for example, film, tv, games etc, although certain types of audio-usage require sync licenses as well). These ’Sync’ services are offered in cooperation with Downtown Music and are underpinned by using the Songspace platform. The business is still in the initial phase.
Physical distribution: offers distribution of music on vinyl and CD’s. This is based on numerous requests from clients looking for a one-stop shop alongside digital distribution.
The opportunities which have led us to the growth path the company has been on during the last years are continuing:
The Macro Trends in the music industry are positive: FUGA is well positioned to capitalize on macro tailwinds for independent music creation and digital distribution.
Within the Industry FUGA has developed itself as the Platform of Choice: The only truly global independent technology platform powering digital distribution for businesses across the entire value chain; where even “competitors” can be customers; and where FUGA is a preferred ‘Plus’ and ‘Platinum’ partner at Apple and Spotify respectively.
Especially during the last few years, FUGA has developed an attractive financial profile: Strong growth, recurring revenues, improving margins, an evergreen royalty base, cash generative and increasing profitability.
The growth opportunities for FUGA are identified in the following areas:
Growing existing business in current and new geographies such as the US, UK, Benelux, Asia, LatAm, Italy, Germany and France;
Investing in and developing new revenue segments such as royalty accounting and payments, API, white label, TRENDS, admin deals and artist services, Sync and Physical;
Expand into adjacent rights categories such as publishing and neighbouring rights building synergies with sister companies in the wider Downtown Group;
Catering towards upper tiers of the market, with larger and more outstanding labels and representing larger, more international and more popular catalogs of digital music;
Adding new DSPs, and more clients.
Providing Advances to existing and new clients.
AVL Europe Limited and its subsidiaries form part of the Downtown Music Holdings’ portfolio of Music Distribution, Artist & Label Service Businesses.
Downtown is a global company that owns, manages, and develops businesses with a vision for a more equitable and innovative music ecosystem. With operations across North America, Europe, Asia, Australia, and Latin America, they are the world’s leading provider of end-to-end services to artists, songwriters, labels, music publishers, and other rights holders. Through their portfolio of companies — Downtown Music Publishing, Songtrust®, AVL Digital Group, and Downtown Music Studios — it manages millions of music copyrights, with a catalog that spans nearly 100 years of popular music, including music for film and television, and the single largest independent sound recording catalog in the industry. The integrated platforms help democratize global music rights management and simplify the distribution, monetization, and promotion of creative works.
This acquisition by Downtown has provided FUGA the backing to achieve Downtown’s global ambitions in this space so it can continue serving the independent music community, developing its service offering and improving its technology. FUGA shares a common business approach and philosophy with Downtown, one rooted in providing control and flexibility for creators and rights holders.
The acquisition by Downtown has also given FUGA access to additional funding to support business growth. In recent years, client royalty advances in music creation and distribution, as well as broader shifts in how music is discovered and consumed, have proven to be an advantage for the industry, particularly independents. In 2023, the balance of outstanding advances funded by FUGA grew from €4.8m in December 2022, to €8.1m in December 2023. Downtown Music Holdings has a credit facility with Bank of America, designed to facilitate advance deployment to clients in the Downtown Music enterprise established a fund to support independent artists and entrepreneurial business owners. This financing from Bank of America enables us to expand our music services business by giving creators and business owners the ability to finance projects and grow their business.
Following the acquisition by Downtown in 2020, in the course of 2021 FUGA acquired all outstanding Neighbouring rights assets which were being held within the Downtown Group. These assets are now managed as part of the dedicated entity within the FUGA group, Ivory Plus Records BV.
Furthermore, FUGA has become the delivery pipeline of two other Downtown and AVL Group entities, for their supply of music assets towards DSPs. This step has been taken to create further economies of scale in the group and to avoid further dependency on the supply of external services by third parties.
During 2022, Downtown Music Holdings created a new business vertical to manage various B2B divisions across the business. In September 2022 it was announced that Downtown Music would be formed, combining all of Downtown's global business and professional services including distribution, label and artist services, publishing administration, video and user-generated rights monetization, neighbouring rights, royalty accounting solutions, sync licensing and creative support services. FUGA is one of the largest operating companies within the Downtown Music vertical, and former FUGA CEO Pieter van Rijn has been appointed to lead Downtown Music as President.
On 15 December 2020, Space Shower Networks Inc and FUGA announced the establishment of a joint venture company in Japan, SPACE SHOWER FUGA. The joint venture combined FUGA’s end-to-end music technology with Space Shower’s local distribution expertise to offer a full suite of B2B digital music services for the world’s second largest music market. Having launched September 2021, the joint venture sees Space Shower’s digital distribution clients benefit from FUGA’s range of technology services and provides FUGA with a platform to develop its existing business and services its large international client base in Japan. The joint venture also helps to deliver and market Space Shower’s music catalogues to a worldwide audience via FUGA’s global distribution and marketing division. FUGA holds 49% of the share capital, and Space Shower Networks owns 51%.
Review Of Business Performance
In 2023, the consolidated net loss after taxation for the period was £81K compared to £4.56 million last year. The increase in net profit was mainly due to the impact of an increase in revenue resulting in a gross profit improvement of £4.7m and increased interest received on intercompany loans.
In 2023, the Group realized total gross revenues of £167.0 million. This is an increase of £21.3m, or 14.6%, compared to the 2022 gross revenue of £145.7 million. The increase in gross revenues can mainly be attributed to the growth in distribution revenues. Gross distribution revenues in 2023 recorded a growth of 12.5%. The total gross margin increased from a level of £22.1 million in 2022 to a level of £26.8 million in 2023, an increase of 21%.
In 2023 the Group achieved an EBITDA of £8.4 million compared to £5.2 million in 2022. Our operating expenses were well controlled and stayed below the planned budgets. At the same time the volume and profitability of The Group increased, which allowed us to leverage on the optimal usage of our fixed cost base.
On our Balance Sheet, net assets are £21.6 million, compared to £21.7 million at the end of 2022.
To ensure FUGA stays closely involved with the development of Blockchain technology in the Music industry, FUGA invested in 2018 in DotBlockchain - renamed Verifi Media in 2019 - a company that develops Blockchain Technology, via a convertible loan note of $250k. A further $100k was invested in the company in 2019, together with various larger entities (i.e. Warner Chappell and Digital Daruma). A new convertible loan of $250k was entered into in Feb 2021 as part of a larger $3M funding round, further building the company. On March 15, 2022 the Convertible Promissory Note with Verifi Media Inc that was issued in 2021 was converted to shares. The Principal amount of $250,000 plus accrued interest of $13,801 converted to 94,795 shares of Common Stock of Verifi Media, Inc. in full repayment of the Note. An additional Convertible Promissory Note was also entered into in March 2022 for $100,000. In 2023, $75,000 was paid as a convertible loan, but this has not been converted into shares yet.
In 2023, the gross revenues of our top 10 customers represent 13.6% of total group gross revenues while this is 15.9% on a gross margin basis. The revenues of our top 20 customers represent 27% of total group gross revenues while this is 24% on a gross margin basis.
The expectations for 2024 continue to show further growth in Distribution and Platform. Based on the run rate of our business as per the end of 2023, and the performance in the early months of 2024, we expect to see continued growth. This growth is fuelled by the double-digit growth of the music market and consumption, further digitalization of music content, the growth of the volume of content represented by our clients as distributors and content providers and as a result of FUGA adding on a further significant number of Digital Service Providers to our network. Expanding our global presence continues to be a priority, and synergies as part of the Downtown group, and specifically within the Downtown Music division, are expected to provide further opportunities for growth.
Given the way we have expanded our group over recent years and that we have deeply invested in our Platform to guarantee efficiency and flexibility; we also forecast to be able to continue to leverage our permanent cost base to such an extent that the growth of our margins will more than cover the growth of the operating expense to run the business. Therefore, we forecast to be able to register further growth in Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA). On a net profit basis, we will continue to see increased depreciation of our intangibles, following the deep investments in our platform, and is expected to lead to another positive net result for 2024.
On this basis we expect to be able to increase the level of our planned investments both in the quality and capacity of our Platform and strategically by broadening our access to the markets in which we are active. We feel supported by the financial strength the company is showing and the backing of our shareholders, which will also lead to further access to financing, either from shareholders or external financiers.
Early in 2024 our shareholders have approved the 2024 budget. This plan reflects a steady growth path going forward, with increasing revenues, EBITDA and net results. Margin levels continue to be healthy, and we continue to see a strong focus on cost and staffing management, allowing leveraging our margin growth from a slower increasing cost base.
Personnel
In September 2023 former FUGA CEO Pieter van Rijn was appointed to lead Downtown Music as President. As his successor, Christiaan Kröner - former COO of FUGA - has been promoted to President of FUGA. Kröner joined FUGA in 2012, where he led FUGA’s Operations and Services department. In 2020, Kröner was promoted to COO and has since overseen all operational activities of FUGA, being instrumental in building and developing both its marketing services and its licensing and royalty accounting departments. Kröner also played an integral role in the setup of Japanese music and media company Space Shower Networks’ JV, Space Shower FUGA.
In January 2022 FUGA’s former CFO Jan Peter Kerstens was appointed Group CFO for the Downtown Group. Tamryn Radford, who joined the FUGA Group in 2019 as Group Controller, took over all finance responsibilities for the FUGA Group of companies during 2022. In April 2023, Radford was appointed SVP of Finance Operations at Downtown Music and was succeeded at FUGA by Anouk van der Linde who started as Executive Vice President of Finance at FUGA on 1 April 2023. The Group has grown from a headcount of 223 (employees + contractors) in 2022 to 223 in 2023. This is expected to remain stable to the end of December 2024.
Litigation And Legal Cases
One of the characterizations of the music industry is the tendency towards frequent claims of infringement of copy- and distribution rights and other intellectual property. The Group maintains strict procedures and guidelines to avoid being confronted with claims and litigation and to perform our role in the industry in a legally and operationally correct way. The Group was, during the past four years, not involved in any litigation, prosecution, arbitration, tribunal, alternative dispute resolution or governmental proceedings as plaintiff or as defendant with any significant liability or cost for The Group.
The Group is aware of the principal risks affecting the Group. These include price and market risks, credit risks, cash flow risks and liquidity risks, including those from royalty advances. Looking at the current liquidity position, cash flows, the 2024 forecast and budget and business plans for the coming years, management believes that the cash generated will be adequate to secure the continuity of the Group’s operations. The Group also has strong policies and procedures in place regarding collecting receivables from debtors. This all gives management comfort that the assessed risks are managed appropriately.
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer fails to meet its contractual obligations and arises from the Group’s receivables from customers and other parties, with the carrying amount of the financial assets representing the maximum credit exposure. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, the Group also considers the factors that may influence the credit risk of its customer base, including the default risk of the industry and the areas where the customers operate. The Group aims to trade only with recognized, financially healthy and creditworthy third parties. Receivable balances are monitored on an ongoing basis with the result that the Groups’ exposure to bad debts is not significant.
In relation to the long overdue invoices, these have been partially or completely paid within the first months of the financial year 2023 or otherwise provided against as bad debt and if not recovered, will be written off in 2024.
With respect to credit risk arising from the other financial assets of the Group, i.e. cash and cash equivalents, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.
Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial liabilities and financial assets (e.g. accounts receivables, royalty advances receivable, other financial assets) and projected cash flows from operations. This projected cash flow helps the Group manage and ensure it has sufficient liquidity to meet its liabilities when they are due under both normal and stressed conditions without incurring unacceptable losses or risking damage to the Group’s reputation.
At the AVL Group level the company has access to external funding, and the FUGA Group of companies has the ability to fund potential cash needs through intercompany funding from AVL.
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, and equity prices that will affect the Group’s income or value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
Currency Risk
The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures, primarily with respect to the USD Dollar (USD) and to a lesser extent the Euro (EUR) and Japanese Yen (JPY). Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations.
The largest foreign exchange exposures of the FUGA group are closely managed. This is a pure transactional exposure given that The Group collects a large part of its Aggregation income in USD, and to a lesser extent GBP and JPY from Merlin, Amazon and other smaller DSP’s, from which the royalty share is paid out to the content providers in Euros. This transactional exposure occurs every month and is hedged with almost 100% effectivity on a monthly basis.
In respect of the Group’s foreign operating entities, considering the local nature of our business and the fact that the Group has entities in the United States of America, the United Kingdom and in South Korea, exposures within The Group are identified to be limited, as such exposure arises from local expense and purchases by operating entities in the unit’s functional currency only. Considering the limited risk, the transactional currency exposures are not hedged, or only in those cases that the transactional exposure is material and separately identifiable.
With respect to (monetary) assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates or forward rates when necessary to address (short-term) imbalances.
The main foreign currency translation exposures are in USD. A change of 10% in the USD foreign exchange rate will impact the net result by approximately less than 1 (one)%.
Interest Rate Risk
As part of the AVL Group of companies, The Group is a Loan Party to the AVL Holdings and AVL Europe Facility Agreement in place with City National Bank. The Agreement was amended on December 6, 2022, and provides the AVL Group up to $30,000,000 in Revolving Loans, a $60,000,000 Term Loan, and access to an additional Delayed Draw Term Loan of $35m subject to certain conditions with maturity on December 6, 2027. The interest rate on the loans is Term SOFR, plus a 0.1% credit spread adjustment, plus an additional margin at rates from 2.50% to 3.00% depending on the Senior Debt to EBITDA ratio. Additionally, interest is charged on the unused portion of the revolving loans at rates from 0.25% to 0.50%.
In case of temporary cash needs within the overall AVL Group, FUGA has lent and will continue to lend excess cash to other operating companies within the AVL Group. These loans are short term in nature and are being repaid in line with agreements in place.
Technology & Data Risks
Given our place in the technology sector, on a daily basis we process very substantial amounts of data and information. This data is protected by state-of-the-art security measures and is handled with the utmost care and in accordance with applicable governmental and industry guidelines. However, in view of the global developments in respect of cyber criminality and the potential damages which may occur, The Group constantly reviews, implements and monitors strict measures to protect the valuable data and information in its possession.
Capital Management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.
Financial Instruments
The Group makes limited use of financial instruments. As part of its process to manage its foreign exchange exposure, on a monthly basis it takes out hedges to assure there is a full matching of currency values between foreign currency flows received from DSPs and the royalties subsequently being paid out to the various clients.
Law, Legislation And Regulations
Across The Group, but more especially in the EU, USA and UK, we are continuously being informed about any changes in laws, regulations and legislation which may be applicable to our organization. Whenever these are deemed to be relevant, the appropriate measures and new guidelines are taken and are expected to be complied with.
During the reporting year there have not been any material changes in the rules and regulations applicable to our organization, which may have a material impact in how we conduct our business. However, there is always the opportunity that such change may have an impact in the future. Given our long-standing experience in the business and industry we do expect to be able to find the appropriate measures in case such material change would occur.
In relation to Privacy, The Group is closely monitoring the relevant changes in data protection laws worldwide, including GDPR and CCPA. As The Group is an agile organization, it swiftly adapts and adopts new regulations and guidelines in this area.
Risk Appetite
As far as risks can be covered by improving internal processes, internal systems or effective and financially efficient instruments or tools, The Group will always consider implementing such measures. In order to be successful, The Group will need to be able to execute sound entrepreneurship and find the proper balance between taking risks to possibly be able to realize ambitions and, on the other hand, risk the costs of a potential failure. Given our experience in the industry and our proven track record, we deem ourselves well equipped to handle such balancing between risk, ambitions and rewards.
We look back at a very rewarding 2023. The Group has shown significant growth, has continued to prove its strong reputation and has further built its position as a key industry player. Our distribution platform and content services, offered in a highly modular way, are consistently proving value for a growing customer base.
We would like to thank especially our staff which have shown unlimited energy, dedication and passion, collectively as a team, to make The Group the industry-leading technology and services company for international music rightsholders.
Diversity
Within the remit of The Group of companies being part of the Downtown / AVL Group of companies, we continue with our Diversity Equity and Inclusion (DE&I) work. These include among others the following key initiatives and below reflects our collective progress.
The hiring and recruitment process and policies are continuously reviewed to ensure fair and equitable processes for all applicants. By streamlining the process, the goal is to help managers focus solely on the skills needed and interview without bias.
The Downtown Group have launched Employee Resource Groups in October 2020 with Black Power in Music (BPM), and in 2022 Womxn+, with a focus on providing support and mentorship to people socialized as, perceived as, and/or who identify as womxn as well as those with variant gender identities and in 2023 Shesaid.so, a community of women, gender nonconforming people, and allies in the music industry.
In addition, the company continuously participates in specific awareness programs like Health Awareness month, Earth Day, Volunteering, and various other initiatives.
War Between Russia And Ukraine
We have not identified any significant impact on our financial statements, or going concern, as a result of the war between Russia and Ukraine. The combined financial impact of these has not been significant to date and is not expected to have a significant impact moving forward. The main impacts on The Group are summarized as follows:
We do not have operations, offices or employed staff based locally in Russia or Ukraine.
We have a small number of Contractors (via DataArt) who are based in Ukraine in our Technology Department.
We have two Ukrainian and three Russian content providers, whose Net revenue impact is not significant.
We made the decision to suspend the feed to Russian DSPs Yandex, VKontakte (delivered via UMA), and Zvooq/Sberzvuk for our aggregation license clients. In 2023 no revenue was recorded for these DSPs.
Post-Balance Sheet Date Events
On 16 December 2024, it was announced that Virgin Music Group, the global independent music division of Universal Music Group, had entered into a definitive agreement to acquire Downtown Music Holdings LLC. The deal is subject to regulatory approvals and is expected to complete in the second half of 2025.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2023.
The results for the year are set out on page 14.
No ordinary dividends were paid. The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
We have audited the financial statements of AVL Europe, Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2023 which comprise the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
Basis for 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 are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our 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 group's and parent 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 other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. 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.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our 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.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the parent company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the 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.
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control.
We review financial statement disclosures and undertake testing to supporting documentation to assess compliance with applicable laws and regulations.
We perform audit work over the risk of management override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business.
We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
We enquire of management around actual and potential litigation and claims.
We conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the union's ability to continue as a going concern.
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.
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 notes on pages 20 to 33 form part of these financial statements.
The notes on pages 20 to 33 form part of these financial statements.
The notes on pages 20 to 33 form part of these financial statements.
AVL Europe, Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is 7 Bell Yard, London, WC2A 2JR.
The group consists of AVL Europe, Limited and all of its subsidiaries.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £'000.
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.
The consolidated group financial statements consist of the financial statements of the parent company AVL Europe, Limited together with all entities controlled by the parent company (its subsidiaries) and the group’s share of its interests in joint ventures and associates.
All financial statements are made up to 31 December 2023. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.
Entities in which the group holds an interest and which are jointly controlled by the group and one or more other venturers under a contractual arrangement are treated as joint ventures. Entities other than subsidiary undertakings or joint ventures, in which the group has a participating interest and over whose operating and financial policies the group exercises a significant influence, are treated as associates.
Investments in joint ventures and associates are carried in the group balance sheet at cost plus post-acquisition changes in the group’s share of the net assets of the entity, less any impairment in value. The carrying values of investments in joint ventures and associates include acquired goodwill.
If the group’s share of losses in a joint venture or associate equals or exceeds its investment in the joint venture or associate, the group does not recognise further losses unless it has incurred obligations to do so or has made payments on behalf of the joint venture or associate.
Unrealised gains arising from transactions with joint ventures and associates are eliminated to the extent of the group’s interest in the entity.
At the time of approving the financial statements, the directors have a reasonable expectation that the group has adequate resources, including support by its US parent company, to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.
Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.
When cash inflows are deferred and represent a financing arrangement, the fair value of the consideration is the present value of the future receipts. The difference between the fair value of the consideration and the nominal amount received is recognised as interest income.
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer (usually on dispatch of the goods), the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Revenue from contracts for the provision of professional services is recognised by reference to the stage of completion when the stage of completion, costs incurred and costs to complete can be estimated reliably. The stage of completion is calculated by comparing costs incurred, mainly in relation to contractual hourly staff rates and materials, as a proportion of total costs. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that it is probable will be recovered.
Research expenditure is written off against profits in the year in which it is incurred. Identifiable development expenditure is capitalised to the extent that the technical, commercial and financial feasibility can be demonstrated.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the profit and loss account.
Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.
In the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.
A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
An associate is an entity, being neither a subsidiary nor a joint venture, in which the company holds a long-term interest and where the company has significant influence. The group considers that it has significant influence where it has the power to participate in the financial and operating decisions of the associate.
Investments in associates are initially recognised at the transaction price (including transaction costs) and are subsequently adjusted to reflect the group’s share of the profit or loss, other comprehensive income and equity of the associate using the equity method. Any difference between the cost of acquisition and the share of the fair value of the net identifiable assets of the associate on acquisition is recognised as goodwill. Any unamortised balance of goodwill is included in the carrying value of the investment in associates.
Losses in excess of the carrying amount of an investment in an associate are recorded as a provision only when the company has incurred legal or constructive obligations or has made payments on behalf of the associate.
In the parent company financial statements, investments in associates are accounted for at cost less impairment.
Entities in which the group has a long term interest and shares control under a contractual arrangement are classified as jointly controlled entities.
At each reporting period end date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's balance sheet when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Basic financial assets, which include debtors 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, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments 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 group's contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.
The tax expense represents the sum of the tax currently payable.
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 group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.
The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.
Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
The actual charge 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:
Details of the company's subsidiaries at 31 December 2023 are as follows:
A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.
At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
For the year ended 31 December 2023, the following subsidiary undertaking of the Company was entitled to an exemption from audit under section 479A of the Companies Act 2006 relating to subsidiary companies.
In order to qualify for this exemption, AVL Europe Limited, the parent undertaking, has guaranteed all outstanding liabilities to which the subsidiary company is subject at 31 December 2023 until they are satisfied in full.
Name Company number
Curve Royalty Systems Limited 10121597
FUGA Music UK Limited 11172211