The Directors present the strategic report for Paddle.com Market Ltd ("Paddle" or "the Company") for the year ended 31 December 2023.
The Directors consider, both individually and together, that they have acted in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole (having regard to the stakeholders and matters set out in s172(1)(a-f) of the Companies Act 2006 in the decisions taken during the year ended 31 December 2023.
Section 172 requires a director to have regard, amongst other matters to the:
the likely consequences of any decisions in the long term;
the interests of the Company's employees;
the need to foster the Company's business relationships with suppliers, customers and others;
the impact of the Company's operations on the community and environment;
the desirability of the Company maintaining a reputation for high standards of business conduct; and
the need to act fairly between members of the Company.
In discharging its section 172 duties, the Directors have had regard to the factors set out above; the relative importance of each factor will vary depending on the decision being taken. In addition, the Directors recognise that certain decisions will require them to consider additional factors, as appropriate. The Company's key stakeholders are its ultimate parent undertaking, employees, suppliers, customers, regulators and community as a whole; the interests of these stakeholders are considered as part of the Directors decision making, as appropriate.
The Directors consider and discuss information from across the organisation to help it understand the impact of the Company's operations, and the interests and views of its key stakeholders. It also reviews strategy, financial and operational performance as well as information covering areas such as key risks, and legal and regulatory compliance. This information is provided to the Directors through reports sent in advance of each meeting and through in-person presentations. As a result, the Directors have an overview of engagement with stakeholders and other relevant factors, which enables the Directors to comply with their legal duty under Section 172(1).
The following items are material developments, activities or transactions for the Company during the financial year:
The Company’s mission is to become the leading platform for software businesses to run and grow their businesses.
The Company’s operating model is as a Merchant of Record’ (“MoR”) whereby the Company is an authorised reseller of its suppliers’ software and digital products. In this model, a buyer purchases the product directly from the Company or one of its subsidiaries and the supplier remains the licensor. The Company, as the legal MoR, is responsible for collecting payment, the calculation of, and remittance of any applicable sales tax. To support these endeavors, it manages an e-commerce platform that includes a user-friendly payment stack with built in logic for recurring payments and an inhouse team handling queries and concerns from buyers.
The Company also offers customers a proprietary Software-as-a-Service (“SaaS”) application, Retain, to help them retain their existing subscription customers through pre-built automated dunning workflows. Retain customers range from small independent developers to large enterprises.
Finally, the Company also provides pricing consultancy services under the brand of Price Intelligently. Price Intelligently customers range from small independent developers to large enterprises.
Paddle’s go to market strategy in 2023 was primarily driven by inbound demand generation coupled with outbound sales activities that focused on helping our target MoR suppliers, Retain customers, or Price Intelligently customers succeed in building and growing their businesses. Product development in 2023 was focused on improving the Company’s offerings for SaaS businesses while continuing to evolve its checkout and invoicing solutions. Improvements in the Company’s billing and subscription management functionality were made to align with the expectations of its target MoR suppliers. Work on the Company’s checkout functionality included adding multiple new payment currencies, localisation of payment options and increased diversification of the Company's payments stack.
The Company’s strategy continues to be focused on increasing the complexity and depth of its offering, whilst providing the security and compliance expected by its suppliers globally. Future product development will grow the Company’s invoicing capabilities and subscription management features through the integration of the Retain platform directly into the MoR e-commerce platform.
Revenue from operations increased by 17% to £57.3m in 2023 as compared to the prior year. Management also evaluates performance using an EBITDA metric, which is reconciled to Net loss below.
The directors assess the risks and uncertainties facing the business on a regular basis, with the principal risks identified as follows:
Competitive Landscape
Whilst the Company’s operating model is that of a MoR and reseller, it nonetheless operates within the same competitive space as payment processors, who offer their more limited service at a lower price. As such, the Company’s ‘all in one’ offering and platform is at odds with much of the market, which currently takes a modular approach to e-commerce. Future growth will depend on persuading more suppliers of the value and overall benefits of using a reseller in the sale of their products. During 2023, the Company narrowed our focus to suppliers that are more in line with our ideal customer profile, continued to build brand awareness, and improved our self-serve onboarding process.
Security and Privacy
The Company’s security and privacy posture is in line with its status as reseller and merchant (within the meaning of applicable payment scheme rules). The Company builds and operates an internet-facing platform hosted in the AWS cloud, making it potentially vulnerable to cyber-attacks. The Company also handles buyer data, including Personal Information (PI) and payment card data, consistent with the Company’s status as a merchant. A security or data breach has the potential to cause significant damage to Paddle’s prospects. The Company continues to mitigate the likelihood of occurrence by investing in appropriate technical and business controls, i.e. SOC 2 Type 2, PCI DSS v4.0 and GDPR compliant and has Cyber Insurance coverage.
Reliance on Third Parties
The Company relies on banks, card schemes, and multiple payment processors to execute certain components of the MoR business. To receive payments as a MoR, we pay these third parties interchange, processing, and gateway fees. As a result, if we are unable to maintain relationships with these third parties, or if they experience service disruptions or cease operations, our business could be adversely impacted.
Financial Crime and Fraud
Financial crime risk primarily manifests within the Company in two distinct ways. Firstly, there is the risk that the suppliers that use the Company operate fraudulent business models and look to use a reseller to mask their practices and escape detection. This risk is mitigated through deep technical reviews of their website/ domain and stringent supplier verification checks (KYC/KYB) to ensure that the Company only works with businesses in a manner consistent with AML and sanctions requirements. Secondly, there is a risk of payment fraud perpetrated by buyers who attempt to exploit controls to defraud the Company and commit credit card fraud. The Company acts to control this risk through real time and post-event transaction monitoring.
Supplier Risk
The Company builds relationships with suppliers, and if our suppliers act nefariously, the Company’s reputation with card schemes, payment processers, or government agencies could be damaged. Reputational damage to the Company’s brand could result in lost revenue due to supplier churn, the inability to acquire new suppliers, or fines and/or penalties assessed against the Company.
Regulatory and Tax
The global sales tax environment moves quickly, with an increasing number of jurisdictions opting to tax the sale of non-domestic digital products. The Company continues to update and remain abreast of new registrations globally and has a dedicated team who monitor new and upcoming requirements. Provision is made where the Company is exposed to sales tax liabilities. This exposes the Company to increased global sales tax compliance risk, and in the event of an audit, could result in fines and penalties being assessed against the Company or could pose reputational risk. Payments and consumer transactions continue to be a focus for regulators and whilst the MoR model does not require licence or specific regulatory oversight, developments in the space may see this change in the future.
Talent
The Company operates in a very competitive talent market, primarily in the UK, the United States, the Netherlands, and Portugal, with technology specific roles in high demand. The lifeblood of the Company is its people and significant employee attrition would be damaging to the business and its ability to innovate. The Company has sought to expand its talent pool by moving to a ‘digital-first’ working environment, whilst maintaining a head office in London and building communities of employees in designated hubs to support those that seek an in person work experience.
Cash
The Company is a high growth loss-making business and may need to raise capital periodically to fuel its continued growth until reaching cash flow breakeven. The Company closed a Series D financing round as discussed in the financial statements, which facilitated the acquisition of 200OK LLC on April 29, 2022.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2023.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
No ordinary dividends were paid for the years ended 31 December 2023 and 2022. The directors do not recommend payment of future dividends.
The group's policy is to consult and discuss with employees, through unions, staff councils and at meetings, matters likely to affect employees' interests.
Information about matters of concern to employees is given through information bulletins and reports which seek to achieve a common awareness on the part of all employees of the financial and economic factors affecting the group's performance.
Currently trade is operating as normal and no significant changes are anticipated.
The Group was loss making for the years ended 31 December 2023 and 31 December 2022 and was in a net asset position of £84.2m and £118.5m, respectively. The Directors have reviewed the Group’s forecasts for a period of at least 12 months from the date that these financial statements were approved. These forecasts, including stress tests, reflect ongoing losses and a reliance upon cash resources to fund working capital requirements. The Company has sufficient cash flow funding to continue to be able to settle its liabilities as they fall due, alongside providing support to subsidiaries as required. As such, the directors are satisfied it is appropriate to adopt the going concern basis of accounting in preparing these financial statements.
In accordance with the company's articles, a resolution proposing that Moore Kingston Smith LLP be reappointed as auditor of the group will be put at a General Meeting.
As the group has consumed more than 40,000 kWh of energy in this reporting period, it does not qualify as a low energy user under these regulations and is therefore required to report on its emissions, energy consumption or energy efficiency activities.
The group has followed the 2019 HM Government Environmental Reporting Guidelines. The group has also used the GHG Reporting Protocol – Corporate Standard and have used the 2020 UK Government’s Conversion Factors for Company Reporting
The chosen intensity measurement ratio is total gross emissions in metric tonnes CO2e per employee, the recommended ratio for the sector.
Paddle.com Market Limited and its subsidiary companies are committed to implementing environmental best practice into its day-to-day activities and have already taken the following energy efficiency actions:
(1) Water leak detections throughout the office to ensure water can be automatically stopped if leak is detected - no waste
(2) LED lights throughout the office with motion detectors to ensure the lights are turned on only when needed
(3) Equipment is set to work on Mon-Fri schedule to save on energy, with an option to manually override when needed.
(4) Adjusting BMS system on regular basis in accordance with weather conditions changes and office attendance
(5) Roof level solar panels
(6) Paddle is fully remote company with reduced domestic and international travel
(7) Through working with Verte Ltd and through implementation of an Asset Improvement Plan, we were able to achieve a 10% energy saving without capital expenditure. This resulted in a reduction in energy consumption, operational costs, and carbon emissions.
We have audited the financial statements of Paddle.com Market 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 Statement Of Financial Position, the Company Statement Of Financial Position, the Group Statement of Changes in Equity, the Company Statement of Changes in Equity, the Group Statement of Cash Flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
Basis for 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
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.
As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group's and parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or parent company or to cease operations, or have no realistic alternative but to do so.
As part of an audit in accordance with ISAs (UK) we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
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.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ 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 group's or the parent company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the group or the parent company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Explanation as to what extent the audit was considered 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.
The objectives of our audit in respect of fraud, are; to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses to those assessed risks; and to respond appropriately to instances of fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both management and those charged with governance of the company.
Other matters which we are required to address
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
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 for no purpose other than to draw to the attention of the company’s members those matters we are required to include in an auditor's report addressed to them. To the fullest extent permitted by law, we do not accept or assume responsibility to any party 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.
As permitted by s408 Companies Act 2006, the company has not presented its own income statement and related notes. The company’s loss for the year was £31,639,652 (2022 - £30,096,492 loss).
Paddle.com Market Limited (“the company”) is a private company limited by shares domiciled and incorporated in England and Wales. The registered office is Judd House, 18-29 Mora Street, London, EC1V 8BT.
The group consists of Paddle.com Market Limited and all of its subsidiaries.
The group and company financial statements of the parent company 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 group financial statements are prepared in pound sterling and rounded to the nearest pound. The company’s functional and presentation currency is the pound sterling.
The group and company financial statements are prepared on a going concern basis, under the historical cost convention, as modified by the recognition of certain financial assets and liabilities measured at fair value. The principal accounting policies applied in the preparation of these group and company financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
FRS 102 allows a qualifying entity certain disclosure exemptions, subject to conditions. The company has taken advantage of the following exemptions in its individual financial statements:
From preparing a statement of cash flows, on the basis that it is a qualifying entity and the group statement of cash flows, included in these financial statements, includes the company’s cash flows.
From the financial instrument disclosures, required under FRS 102 paragraphs, 11.42, 11.44, 11.45, 11.47, 11.48(a)(iii), 11.48(a)(iv), 11.48(b), 11.48(c), 12.26, 12.27, 12.29(a), 12.29(b) and 12.29A, as the information is provided in the consolidated financial statement disclosures.
From disclosing share-based payment arrangements, required under FRS 102 paragraphs 26.18(b), 26.19 to 26.21 and 26.23, concerning its own equity instruments, as the company financial statements are presented with the consolidated financial statements and the relevant disclosures are included therein, and.
From disclosing the company key management personnel compensation, as required by FRS 102 paragraph 33.7.
The consolidated group financial statements include the financial statements of the Parent Company, and all of its subsidiary undertakings together with the group’s share of its interests in joint ventures and associates made up to 31 December 2023.
Where a subsidiary has different accounting policies to the group, adjustments are made to those subsidiary financial statements to apply the group’s accounting policies when preparing the group financial statements.
All intra-group transactions, balances, income and expenses are eliminated on consolidation. Adjustments are made to eliminate the profit or loss arising on transactions with associates to the extent of the group’s interest in the entity.
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.
The group is growing rapidly and as forecasted revenue has continued to grow, it made a loss in the year to 31 December 2023. The group was able to maintain cash reserves of £68.8m (2022: £83.4m).
Based on the above, at the time of approving the financial statements, the directors have a reasonable expectation that the group has adequate resources 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.
Revenue is recognised to the extent that the group obtains the right to consideration in exchange for its performance. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, VAT and other sales taxes or duties.
The Company’s operating model is as a ‘Merchant of Record’ (“MoR”) whereby the Company is an authorised reseller of its suppliers’ software and digital products. In this model, a buyer purchases the product directly from the Company or one of its subsidiaries and the supplier remains the licensor. The Company, as the legal MoR, is responsible for collecting payment, the calculation and remittance of any applicable sales tax. To support these endeavours, it manages an e- commerce platform that includes a user-friendly payment stack with built-in logic for recurring payments and an inhouse team handling queries and concerns from buyers.
Although the Group operates as the MoR for the transactions described above, the Group does not participate in the significant risks and rewards associated with the provision of the products and therefore the Company is an ‘agent’ under FRS 102. As a result, the difference between the amount the software or other digital goods are purchased from suppliers and then resold to buyers is recorded as revenue.
The Group also operates a subscription retention SaaS product. Revenue from SaaS contracts are recognised in the statement of comprehensive income over the period during which the services are performed. The group recognises SaaS revenue on a per-day basis over the contract term.
Finally, the Group also operates a pricing consultancy business. Revenue from consulting services provided is recognised in the statement of comprehensive income over the period during which the services are performed. The group recognises consulting service revenue based on the stage of completion of the service contract at the end of the reporting period. The revenue is measured at the fair value of the consideration received or receivable, taking into account the agreed- upon milestones and rates as stipulated in the contract.
Revenue from Software as a Service (SaaS) contracts is recognized in the statement of comprehensive income over the period during which the services are performed. The group recognises SaaS revenue on a per-day basis over the contract term.
Provisions are made for credit notes based on the expected level of returns which is based on the historical experience of returns.
Interest earned from cash and cash equivalents is recognized using the effective interest rate method and is recorded in the ‘Interest receivable and similar income’ line of the Group Statement of Comprehensive Income.
Research expenditure is written off against profits in the year in which it is incurred.
Where factors, such as technological advancement or changes in market price, indicate that residual value or useful life have changed, the residual value, useful life or amortisation rate are amended prospectively to reflect the new circumstances. The assets are reviewed for impairment if the above factors indicate that the carrying amount may be impaired.
The assets’ residual values and useful lives are reviewed, and adjusted, if appropriate, at the end of each reporting period. The effect of any change is accounted for prospectively.
Repairs and maintenance costs are expensed as incurred.
Property, plant and equipment are derecognised on disposal or when no future economic benefits are expected. On disposal, the difference between the net disposal proceeds and the carrying amount is recognized in profit or loss and included in Administrative Expenses.
Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.
In the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.
A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
An associate is an entity, being neither a subsidiary nor a joint venture, in which the company holds a long-term interest and where the company has significant influence. The group considers that it has significant influence where it has the power to participate in the financial and operating decisions of the associate.
Investments in associates are initially recognised at the transaction price (including transaction costs) and are subsequently adjusted to reflect the group’s share of the profit or loss, other comprehensive income and equity of the associate using the equity method. Any difference between the cost of acquisition and the share of the fair value of the net identifiable assets of the associate on acquisition is recognised as goodwill. Any unamortised balance of goodwill is included in the carrying value of the investment in associates.
Losses in excess of the carrying amount of an investment in an associate are recorded as a provision only when the company has incurred legal or constructive obligations or has made payments on behalf of the associate.
In the parent company financial statements, investments in associates are accounted for at cost less impairment.
Entities in which the group has a long-term interest and shares control under a contractual arrangement are classified as jointly controlled entities.
At each reporting period end date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's statement of financial position when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Basic financial assets, which include trade and other receivables 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 trade and other payables, 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 payables 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 payables 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.
Compound financial instruments issued by the group comprise of a debt instrument with an attached warrant, which can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value. The liability component of a compound financial instrument is initially recognised at the fair value of a similar liability that does not have an equity conversion option. The equity component is initially recognised as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition except on conversion or expiry.
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.
Taxation expense for the period comprises of current and deferred tax recognized in the reporting period. Tax is recognised in the profit and loss account, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, tax is also recognized in other comprehensive income or directly in equity respectively.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is measured using tax rates and laws that have been enacted or substantively enacted by the period end and that are expected to apply to the reversal of the timing difference. Deferred tax assets and liabilities are offset if, and only if, there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
The group provides a range of benefits to employees, including performance bonus arrangements, paid holiday arrangements, private health insurance and defined contribution pension plans.
Short-term benefits, including holiday pay and other similar non-monetary benefits, are recognised as an expense in the period in which the service is 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.
The group operates a number of country-specific defined contribution plans for its employees. A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate entity. Once the contributions have been paid, the group has no further payment obligations. The contributions are recognised as an expense when they are due. Amounts not paid are shown in accruals in the balance sheet. The assets of the plan are held separately from the group in independently administered funds.
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 Black Scholes 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.
The expense in relation to options over the parent company’s shares granted to employees of a subsidiary is recognised by the company as a capital contribution and presented as an increase in the company’s investment in that subsidiary.
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.
The group has no cash-settled arrangements.
At inception the group assesses agreements that transfer the right to use assets. The assessment considers whether the arrangement is, or contains, a lease based on the substance of the arrangement.
Leases of assets that transfer substantially all the risks and rewards incidental to ownership are classified as finance leases. Finance leases are capitalised at commencement of the lease as assets at the fair value of the leased asset or, if lower, the present value of the minimum lease payments calculated using the interest rate implicit in the lease. Where the implicit rate cannot be determined, the group’s incremental borrowing rate is used. Incremental direct costs, incurred in negotiating and arranging the lease, are included in the cost of the asset. Assets are depreciated over the shorter of the lease term and the estimated useful life of the asset. Assets are assessed for impairment at each reporting date.
The capital element of lease obligations is recorded as a liability on inception of the arrangement. Lease payments are apportioned between capital repayment and finance charge, using the effective interest rate method, to produce a constant rate of charge on the balance of the capital repayments outstanding.
Leases that do not transfer all the risks and rewards of ownership are classified as operating leases. Payments under operating leases are charged to the profit and loss account on a straight-line basis over the period of the lease.
Leases that do not transfer all the risks and rewards of ownership are classified as operating leases. Payments, including any lease incentives received, under operating leases are charged to the profit and loss account on a straight-line basis over the period of the lease, except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.
Foreign currency transactions are translated into the functional currency using the spot exchange rates at the dates of the transactions.
At each period end foreign currency monetary items are translated using the closing rate. Non-monetary items measured at historical cost are translated using the exchange rate at the date of the transaction and non-monetary items measured at fair value are measured using the exchange rate when fair value was determined.
Foreign exchange gains and losses resulting from the settlement of transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account except where deferred in other comprehensive income as qualifying cash flow hedges.
Foreign exchange gains and losses are presented in the profit and loss account within ‘Administrative expenses’.
The trading results of group undertakings are translated into sterling at the average exchange rates for the year. The assets and liabilities of overseas undertaking, including goodwill and fair value adjustments arising on acquisition, are translated at the exchange rates ruling at the year-end. Exchange adjustments arising from the retranslation of opening net investments and from the translation of the losses at average rates are recognized in ‘Currency translation differences’ in the Group Statement of Comprehensive Income.
Finance costs
Finance costs are charged to the Statement of Comprehensive Income over the term of the debt using the effective interest method. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.
Provisions and contingencies
Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount of the obligation can be estimated reliably.
Contingent liabilities are not recognised, except those acquired in a business combination. Contingent liabilities arise as a result of past events when (i) it is not probable that there will be an outflow of resources or that the amount cannot be reliably measured at the reporting date or (ii) when the existence will be confirmed by the occurrence or non-occurrence of uncertain future events not wholly within the group’s control. Contingent liabilities are disclosed in the financial statements unless the probability of an outflow of resources is remote.
In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The following estimates and judgements have had the most significant effect on amounts recognised in the financial statements:
Determine whether there are indicators of impairment in the intangible assets of the Group considering future financial performance of the asset and cash flows.
Determine the fair value of the share options and warrant option compound debt instrument, taking into consideration the estimation of the value of the options in relation to the value of the company and comparable companies.
Determine whether global activities undertaken by the Group give rise to sales tax liabilities in territories. These decisions depend on an assessment of the relevant taxation legislation and where an obligation has arisen this has been recognised on the balance sheet.
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
Judgement and estimation are required in determining whether global activities undertaken by the group give rise to sales tax liabilities in territories. These decisions depend on an assessment of the relevant taxation legislation and where an obligation has arisen, this has been recognised on the balance sheet.
Judgement and estimation are required in determining the fair value of shares at the date of award. The fair value is estimated using valuation techniques which take into account the awards’ term, the risk-free interest rate and the expected volatility of the market price of the Company’s shares. Details of share-based payments and the assumptions applied are disclosed in note 20.
The revenue is derived from provision of services and reselling of the digital content to buyers on behalf of suppliers globally.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
There were no directors in the Group's defined contribution pension scheme (2022: 2). No directors exercised share options during the year (2022: 2).
The actual charge/(credit) for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
The amount of losses carried forward and not used is £90.5m (2022 - £64.4m) for Paddle.com Market Limited and losses of £3.0 (2022 - £2.7m) for Paddle Inc.
One of the group’s brands, Price Intelligently, grew materially more slowly than expected. As a result, goodwill was impaired by £3.2 million. The remaining goodwill in the Price Intelligently cash-generating unit is £5.4 million.
The prior year restatement to the carrying value of investments is an alignment to the capital contribution made to Paddle Payments in 2019. The capital contribution was made to convert the intercompany debt of EUR 342,652.97 to equity.
Details of the company's subsidiaries at 31 December 2023 are as follows:
The company operates a defined contribution scheme. The assets of the scheme are held separately from those of the company in an independently administered fund. Contributions totalling £102,181 (2022: £95,756) were payable to the fund at the reporting date and are included in creditors.
During the year 92,251 Ordinary shares were issued as a result of an exercise of share options and a share premium of £10,933 was recognised.
All share classes are entitled to one vote in any circumstances and dividend payments or any other distribution. Each share is entitled to participate in a distribution arising from winding up of the company. In any liquidation event the A5 Ordinary shares shall be paid first in any asset distribution, followed by A4 Ordinary then A3 Ordinary shares, A2 Ordinary shares and A Ordinary shares and then Ordinary shares. The shares are not to be redeemed nor are they liable to be redeemed at the option of the company or the shareholders.
The group operates an Enterprise management incentives (EMI) qualifying share option scheme and an unapproved share option scheme for its employees based in the UK and an Incentive stock options (ISOs) and a Non-qualified stock options (NSOs) scheme for its US-based employees. The options are granted with a fixed exercise price, and generally vest monthly over a four-year period, with a one-year cliff, and expire ten years after the date of grant. On exercise of the options by the employees, the company issues new shares.
Details of the number and weighted average exercise prices (WAEP) of share options during the period are as follows:
The share premium account includes the premium on issue of equity shares, net of any issue costs.
The brought forward balance in other reserves relates to the cumulative portion of currency translation differences.
The other reserve addition represents the equity component of the loan at initial issue less transfers to retained earnings in respect of this component on a straight-line basis in lieu of the effective interest method as this loan is a revolver.
On 29 April 2022 Paddle.com Inc acquired 100% of 200OK LLC
The goodwill arising on the acquisition of the business is attributable to Paddle.com Inc.
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:
On August 21, 2024, the Company received a draft civil complaint and proposed settlement offer from a government agency alleging violations of consumer protection laws in connection with the Company’s oversight of two third-party software suppliers from September 2017 to July 2023. The revenue earned from the suppliers during this period is £1.1 million, which is less than 1% of the Company’s revenue during that time period. The Company is in active discussions with the government agency in an attempt to resolve the claims and believes it has strong defences to the claims and will defend the claims if a resolution is not achieved. We do not have sufficient information to express a judgment about the likelihood of an unfavourable outcome in this matter; nor can we predict the potential amount of loss or range of loss in this matter.
The group discloses transactions with related parties which are not wholly owned within the same group. Where appropriate, transactions of a similar nature are aggregated unless, in the opinion of the directors, separate disclosure is necessary to understand the effect of the transactions on the group financial statements.
The company has taken advantage of the exemption available under paragraph 33.1A of the Financial Reporting Standard 102 not to disclose transactions with other wholly owned members of the group.
Key management personnel include all directors across the group who together have authority and responsibility for planning, directing and controlling the activities of the group. The total compensation paid to key management personnel for services provided to the group is disclosed in note 7.
On 26 March 2024, the company purchased additional shares in Paddle.com Inc. for £72.8 million. The purpose of this transaction was to settle the inter-company balances between the entities.
On 8 November 2024, the company sold all assets and liabilities related to Price Intelligently to Sales Benchmark Index LLC for a purchase price of $5.35 million USD. The carrying value of the net assets and liabilities included in the sale as of 31 December 2023 was $7.15 million USD.
The group entered into a new revolving credit facility with HSBC Innovation Bank Limited on August 9, 2023 that matures on June 30, 2026. The revolving credit facility has a commitment of up to $25,000,000 United States Dollars (USD) and can be funded in sterling or USD. Interest for sterling advances is the Bank of England’s base rate plus 3.0%, and USD advances is Prime Rate plus 0.5%. A commitment fee of 0.5% is charged on the undrawn amount.
The Company has restated the share option pool roll forward disclosure table and the prior period share based payment expenses, and the related disclosures as a result of identifying errors in the calculation of the fair value of the stock option grants, and the period over which they were previously recognised.
The impact of the identified errors on the share based payment expense charge resulted in a prior year restatement in Paddle.com Market Limited of £246,304 (2021: Credit £3,210,925).
The impact of the identified errors on the share based payment expense charge resulted in a prior year restatement in Paddle.com Inc of £2,689,998 (2021: £596,574).
The prior year restatement to the carrying value of investments is an alignment to the capital contribution made to Paddle Payments in 2019. The capital contribution was made to convert the intercompany debt of EUR 342,652.97 to equity. This resulted in a prior year adjustment in Paddle.com Market Limited of £305,880.