The directors present the strategic report for the year ended 31 December 2024.
In 2024 the Butterfly Group saw revenue stabilise and results in line with prior year. This result highlights some resilience in a challenging economic climate with cautious spending patterns from customers in the last quarter of the year and focus of those customers to other areas of spend in their projects that would have seen price increases due to potential tariffs.
We continued our review into the operational expenditure further leveraging costs to ensure we are well placed to continue our commitment to innovation and at the same time maximise profitability and cash generation.
The Company played a key role in the Group by supporting overseas subsidiary sales through supply chain optimisation and direct sales, ultimately delivering profit and cash for the wider Butterfly Group.
The principal risks and uncertainties of the Company relate to end customer sales in the UK and European markets as well as managing inventories and supply chain activities on behalf of the Butterfly Group of companies. While the Company generates its own trading profit it is still mainly reliant on the sales subsidiaries of the Group for its revenues. The risks that the Company are exposed to are managed at Group level. The nature of the risk and the risk management principles including strategies to mitigate these risks are disclosed in the consolidated financial statements of Butterfly Topco Limited. These are summarised below with relevant mitigation.
Risk 1 - Economic headwinds
Description - A significant change in the global economy may have impact on the Group's ability to generate revenues and growth.
Potential impact - The Company and Group is unable to meet its strategic growth targets, which may result in financial difficulties. The decision of the US government to impose wide-ranging tariffs during Q2 of 2025 is such an example of this risk crystallising, as this has had a direct impact on the Group's supply chain and its ability to service its core US market.
Mitigation - The business constantly monitors the external business environment using both financial and non-financial measures to enable it to react quickly to changes in the global environment.
Risk 2 - Supply chain vulnerability
Description - Interruption to the supply of critical components used in the Group's hardware sales may lead to projects being deferred or cancelled if the Group is unable to meet its contractual conditions.
Potential impact - Inability to meet customer demand, reducing revenues. The interruption of supplies from the US tariffs has caused such an issue in 2025.
Mitigation - The product development and operations teams work closely with the Company and Group's suppliers to ensure contingency plans are in place to minimise business interruption and react quickly to route supply through different geographies within our network. The Company also places orders in advance to secure supply and owns all IP and drawings to move supply chain if required. This includes where possible minimising disruption of tariffs by seeking alternative components where possible and utilising our vast global network of third party logistics and procurement to ensure impact to stakeholders is minimised.
Risk 3 - Research and Development
Description - The Group makes significant investment in research and development to future-proof its products and revenues.
Potential impact - Failure to manage this investment may result in the failure to generate future revenues and increased costs charged through the income statement.
Mitigation - The business constantly reviews the costs invested in research and development, analysing the costs by project. Projects are reviewed both in terms of cost and commercial viability. Should a project be deemed unviable it is abandoned at the earliest opportunity.
Risk 4 - Environmental factors
Description - With the Group operating in multiple jurisdictions, there is a risk that one or more places increasing obligations on the Group to reduce the impact of electronic materials on the environment.
Potential impact - The cost of production may increase as the Group tries to meet the new stringent environmental laws by having to invest in R&D to identify alternative materials, or incur additional costs in reducing the impact on the environment.
Mitigation - The Company & Group has registered with the WEEE directive to ensure products are disposed of in a suitable manner. The directors also recognise there are further improvements to be made and are looking at schemes to offset the business activities' carbon footprint and have set a three year timeframe to embed this in our overall strategy (of which one year has passed).
Butterfly Group manages its KPIs at a segment level and geographic level. The primary key performance indicators used by the Group to assess performance are turnover growth, Cash EBITDA and Adjusted EBITDA. Turnover growth is calculated as the percentage increase on turnover year-on-year.
The measures below are reportable to the key stakeholders in the Group, being its main investor, bank/senior debt provider. The definitions below are in line with the relevant facility agreements in place.
Cash EBITDA (earnings before interest, tax, depreciation and amortisation) is calculated as the operating profit of the Company with depreciation, amortisation, share-based payments, and unrealised foreign exchange/translation impact all added back. The Butterfly Group uses a further addback of capitalised development costs in this and Adjusted EBITDA, but as this value is nil in the Company the adjustments are excluded for ease of reading.
Adjusted EBITDA, is calculated as EBITDA (as defined) with one off expenses, investor costs, derivative fair value movements, intercompany impairments, and capitalised R&D expenditure (if applicable) added back.
Turnover decreased by 1.9% (2023 increased by 7.6%) to £48.1m (2023 - £49.1m). The £1.0m reduction is due to reduced End Customer activity in the Rest of World declining £4.8m mainly in the Middle East Region. There were also further reductions in the Rest of Europe £1.3m as larger projects declined in 2024, amidst the backdrop of on-going Geo-political uncertainty. This was offset with positive performance in North America by £2.2m, United Kingdom £1.8m, and Asia £1.1m.
Cash EBITDA profit increased by £1.7m to £6.7m (2023 - EBITDA profit of £5.0m); this was driven by the exclusion of the intercompany debtor impairment isolated to 2023. Adjusted EBITDA increased £0.6m to a profit £6.9m (2023 £6.3m) with savings in Administrative Expenses.
In the year the company also incurred £0.2m (2023 - £0.4m) of one-off legal costs which are viewed as adjustments that have been added back when calculating the Adjusted EBITDA for reporting purposes to key stakeholders.
In the prior year the company closed an outstanding derivative which was held at fair value through profit and loss, thus removing its exposure to fair value adjustments in its profit and loss account. It also provided against intercompany debtors from subsidiaries which ceased trading during 2023, and therefore identified these expenses as one-off and unrelated to the ongoing performance of this company.
The Group also reviews a number of other non-financial KPIs which apply to the Company, its parent (Disguise Technologies Limited), and its trading subsidiaries:
Annual employee engagement reviews and net promoter scores with all global employees. The Group uses electronic systems and perform regular employee surveys, focussing on happiness, personal motivation, company motivation, and relationships. The average at December 2024 was 4 (December 2023 - 4) (from a maximum score of 5), which the Directors are pleased with.
Collection and review of customer satisfaction surveys. Based on several metrics, the average score in 2024 was 4.57 (December 2023 - 4.53) (from a maximum score of 5). The Directors are pleased with this outcome and demonstrates a key driver behind the Group's growth.
Manufacturing quality and survey reviews including return to manufacturer authorisations ("RMA") within the first 90 days of production. Such data is tracked electronically but the Group only commenced this data collection during 2024, and as such no comparatives are presented. The average returns during 2024 were 1.0% (December 2023 – 1.1%), which demonstrates a high level of reliability of the Group's products (both hardware and software).
The Company's activities expose it to a variety of financial risks. These risks are managed at a Group level. The nature of risk and risk management principles applied are disclosed in the consolidated financial statements of the ultimate parent undertaking Butterfly Topco Limited. The principal financial risks are summarised below:
Credit Risk:
The Company's main financial assets are its cash balances, trade receivables, and intercompany receivables. For banks and financial institutions, only independent rated parties with strong credit rating are accepted.
Trade debtor recoverability is reviewed annually and any non-recoverable positions are provided for in the current fiscal year.
lntercompany debtors are regularly reviewed for recoverability and settled for trading positions; this is inclusive of any impairment where the Company feels any amounts are not recoverable, which in the year was nil (2023 - £1.3m).
Liquidity Risk:
Liquidity risk arises from timing differences between cash inflows and outflows. At the reporting date, the Company had net cash balances but was in a net current liabilities position.
The funding that has been placed on the Company through inter-group loans is for the sole purpose of funding acquisitions of Polygon Labs LLC and Meptik LLC. As such, the Company is reliant on the immediate parent company, Disguise Technologies Limited, not calling in the intercompany debt. The ultimate parent company, Butterfly Topco Limited, has confirmed in a letter to the company that it will continue to provide financial support for the foreseeable future and ensure the Group operates in a responsible manner in managing the intercompany credit risk between the Group entities.
The Group is also subject to Adjusted Leverage and Interest Cover Covenants which are tested quarterly on a rolling last twelve-month basis. If there was a potential breach, this would allow Santander as the Senior Lender discretion to recall the loan in full which if actioned could adversely impact liquidity if the Group were not able to refinance or remedy.
To mitigate this risk the Group regularly monitors and reports to the Senior Lender on the Covenant position. We also actively engage the Senior Lender in finding solutions and have had support previously from both the Senior Lender and Group’s owners.
Currency Risk:
The Company has trade debtors, bank balances, and creditors in foreign currencies with a significant overhead base in sterling. Gains and losses on the foreign currency balances are reported in the Statement of Comprehensive Income. The Company's policies are to match where possible receipts and purchases in foreign currency to limit any residual exposure. In July 2023 the Company stopped partially hedging the residual exposure, as the hedging policy tracked over a number of years has not proved effective. The company will rely on natural hedges only.
Future developments
It is the intention of the directors that the Company will continue for the foreseeable future, oversee and managing the operational aspects of the Group. The Group plans to expand its product portfolio and further expand into new territories. The Group plans to do this alongside building out capabilities in our existing markets and verticals saved.
Directors' statement of compliance with duty to promote the success of the Company
The Directors of the Group acknowledge that they must act in a way which is considered in good faith and would be most likely to promote the success of the company and its wider Group for the benefit of all interested parties as defined in Section 172 (1) of the Companies Act 2006. In doing so, the Directors of the Group have considered the following aspects and how they have regarded each of the matters set out below.
Have regarded the likely consequence of any decision in the long-term:
Our mission is to build leading edge technology solutions for creatives around the world to deliver unparalleled performances for audiences in person and in the cloud. We recognise that our decisions must take into account the long-term consequences for our company and its stakeholders. For example, when considering investment in new products or services, we take into account the potential impact of our financial position, our ability to complete in the market, and the interests of our shareholders.
The interests of the Group's employees:
We monitor the development, performance and impacts of our activity on social plus employee matters. We are committed to providing a positive working environment that is free from all forms of illegal and improper discrimination and harassment. Our employees are key to the success of our company, and we are key to the success of our company. We are committed to promoting our employees interests. We provide a wider range of benefits as well as opportunities for training and development including remote working. We also have policies in place to promote diversity and inclusion. We seek to foster a positive working environment that promotes innovation and collaboration.
The need to foster the Group's business relationships with suppliers, customers and others:
We recognise that our success is closely tied to our relationships with our customers and suppliers. We aim to provide high-quality products and services that meet the needs of our customers, and we work closely with our suppliers to ensure that we have reliable and cost-effective supply chains.
In 2024 several new products were in Development providing new advances in power and output to match our customers creative needs, while also open up market expansion with the introduction of lower price point, thus reducing barriers to entry into the product suite. We continue to work with all our supply chain to ensure compliance with all relevant legislation and minimising impact on our business operations.
The impact of the Group's operations on the community and environment:
We understand that our operations have an impact on the wider community and the environment. We are committed to minimising our environmental footprint through the use of renewable energy sources and the reduction of waste and emissions. We also support industry initiatives working with charities through donations and volunteer work within the Group.
The desirability of the Group maintaining a reputation for high standards of business conduct:
Respecting human rights is a core value and one that we expect our business partners to share. We have documented policies and procedures internally as well as robust supplier T&C's which reference what we expect from our suppliers. This will ensure we limit the risk to the business and uphold our core values. Employees have access to all Group policies and procedures, with training provided as part of the employee onboarding process with regards to the Corporate Criminal Offences Act, Modern Slavery Act, Anti-Bribery and Corruption.
We have a zero-tolerance stance for all human rights abuse. We are committed to ensuring we maintain robust programs and procedures. This is to protect our people and prevent such abuse through our supply chain. Our supplier code of conduct expressly prohibits the use of forced, imprisoned, bonded, indentured or involuntary labour including child labour. Other requirements including safe and clean working conditions, fair wages and no discrimination.
The need to act fairly between all interested parties within the Group
The Board considers all interested parties when making business decisions to ensure fair representation irrespective of their interest holding within the Group. The Group has robust policies in place to ensure that fair representation is maintained both at board level and within wider business through, management meetings and Non-Executive representation at the Board.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2024.
The profit for the year, after taxation, amounted to £4,167,786 (2023 - £1,928,285).
There were no dividends paid during the year (2023 - £Nil). The directors do not recommend the payment of a final dividend.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
On 30 September 2025, the Group breached both the Adjusted Leverage and Interest Cover Covenants. The Group entered into negotiations with Santander UK PLC (the “Senior Lender”) requesting a waiver to remedy the breaches. The definitions of both Covenants are defined in Note 1.2).
The Adjusted Leverage breach (threshold: 2.5x) was a timing delay on production which straddled a reporting period. The Interest Cover breach (threshold: 2x) is down to higher working capital costs as Debtors increased and slowed Operational Cashflow generation, against the backdrop of a challenging market environment and the Group is forecasting that will remain in breach across the 31 December 2025 reporting period.
The outstanding Senior Debt was £14.4m at the date of breach (up from £12.8m at the year-end), borrowed from the Senior Lender, who has the ability to recall the loan in full as one option to remedy the breach. Given the breach was a Post Balance Sheet Event for 31 December 2024 accounts, the Senior Lender debt is still recognised as being due after more than one year, as set out in Note 20 to the Group Financial Statements.
The negotiations to date are progressing and it is the Senior Lender's current intention to agree to a waiver for the Q3 Covenant Reporting, subject to terms. The waiver is not legally effective at the date of signing the Financial Statements. As the Financial Statements will be signed before the 31 December 2025 there will need to be further negotiations for the Q4 31 December 2025 Interest Cover breach. As the Group moves into the Financial Year end 31 December 2026 there will be a continued sensitivity until Q3 30 September 2026 and the rolling twelve month period since breach has passed.
The Group remains liquid to meet its operational obligations in the short and long term on the basis that the Senior Lender does not demand full loan repayment. If that situation were to occur the Group would seek additional refinancing by way of either debt or equity financing.
The Company has taken the exemption available to subsidiary companies to not disclose information in respect of greenhouse gas emissions, energy consumption, and energy efficiency action given that this is disclosed in the consolidated financial statements of the ultimate parent company, Butterfly Topco Limited.
The assessment of the Company’s going concern position is intrinsically linked to that of the Butterfly Topco Limited group “Group” due to the Group’s banking arrangements, the way cash flows are generated across the Group entities and the intercompany balances that exist. The below assessment is written in respect of the Group but is relevant to the assessment of the Company.
As at 31 December 2024, the Group had net liabilities of £123.9m (2023 - net assets of £86.3m) and net current assets of £13.7m (2023: £14.7m). As at the year-end date the Group had generated EBITDA (as defined in Note 7) of £5.2m (2023 - £7.6m) and generated cash flows from operating activities of £4.3m (2023 - £9.8m). Closing cash balances were £9.1m (2023 - £10.7m).
At the Balance Sheet reporting date, the Group had £12.8m of term loans drawn from its facilities agreement with its Senior Lender, Santander UK PLC, to finance the acquisitions of Polygon Labs LLC and Meptik LLC, both of which were acquired in 2023. £10m is drawn from one term loan and £2.8m from an additional term loan facility of up to £7.0m, both of which are not due for repayment until December 2027. At the year-end date the net debt position of the Group excluding shareholder loans and convertible loan notes was (£3.7m) (2023 – (£3.4m)). The Group has access to additional facilities via a £3.0m revolving credit facility which remain undrawn and £4.2m of the additional term loan facility which is undrawn to finance further commitments under the acquisitions.
The Group's term loan arrangements with its Senior Lender are based on two covenants. The first is Adjusted Leverage (the ratio of an Adjusted EBITDA-based metric to Total Net Debt) measured on a quarterly basis on a rolling 12-month period with the target ratio reducing over time. The second covenant is an Interest Cover (the ratio of Cashflow to Net Finance Charges) again measured on a quarterly basis on a rolling 12-month period. The Senior Facilities are provided by Santander UK PLC and details can be found in note 39 of the Group financial statements of Butterfly Topco Limited.
In the Financial Year 2025 at the Q3 Covenant reporting date 30 September 2025 the Group breached both the Adjusted Leverage (threshold: 2.5x) and Interest Cover Covenants (threshold: 2x). The outstanding Senior Debt had increased to £14.4m as at the date of breach, up from £12.8m at the year end, borrowed from Santander UK PLC. The Adjusted Leverage breach was a timing delay on production which straddled a reporting period and management expect this to be rectified in the Q4 31 December 2025 test. The Interest Cover breach is down to higher working capital costs as Debtors increased and slowed Operational Cashflow generation, against the backdrop of a challenging market environment.
The Group has sought to engage with Santander UK PLC for a waiver of the Q3 Covenants up to the 30 September 2025. It is the Senior Lender's current intention to agree to a waiver for the Q3 Covenant Reporting, subject to terms. The waiver is not legally effective at the date of signing the financial statements. The Group is also forecasting to breach the interest cover again at the Q4 Covenant reporting date 31 December 2025 and is in further discussions with Santander UK PLC on options to remedy. On the assumption that the Senior Lender does not demand repayment, the directors are satisfied with the overall cash liquidity in the business to meet its operating obligations but due to the timing of the Covenant Breaches there is a material uncertainty in the Group if the negotiations with the Senior Lender were to fail and a legal waiver was not able to be agreed. This would allow the Senior Lender in line with the Facilities agreement a right to call repayment of the outstanding balance in full. If this were to materialise this would cause an acute liquidity issue and the business would need to further refinance by way of debt or equity.
As the Group moves into the Financial Year end 31 December 2026 there will be a continued sensitivity until Q3 30 September 2026 and the rolling twelve month period since breach has passed.
The long term debt of the Group is made up of shareholder loan notes of £161.5m (2023 - £148.6m) which mature on the earlier of the Group entering into an agreement with a new acquirer or the maturity of those loan notes in March 2031. The shareholders have not requested any interest repayments until that point.
The directors monitor cashflow through short- and long-term forecasting and its going concern assessment is on a future looking period of a minimum of twelve months from the date of signing the audited financial statements.
These forecasts are stress tested on revenue following a deep review of pipeline known projects and historical seasonality, alongside modelling of debtor days lengthening. Our margin forecasts are based on our new supply chain product pricing and working capital is driven predominantly by our sales demand and appropriately run through our financial model taken into account any historical trends. The forecasts have also been heavily sensitised in producing a financing case to ensure that with minimal revenue growth and cost efficiencies actioned we are still able to maintain operational cash liquidity.
The directors have considered the financial forecasts of the overall Group inclusive of this entity, taking into consideration the current macroeconomic climate, the projections are for the Group to remain profitable at an EBITDA level, and generate positive operational cashflows in both a short term and long-term assessment. However, overall cashflows are predicated on the Senior Lender not demanding repayment of the debt following the covenant breaches.
On the basis the Senior Lender does not demand repayment the directors conclude that the Group remains liquid and can meet its operational obligations. However, at the date of signing of the financial statement the Group has not received a legal waiver for its existing or expected future breach of covenants. The Group is therefore dependent on those banking facilities not being called for immediate repayment, which is not guaranteed. This indicates the existence of a material uncertainty which may cast significant doubt over the Company's ability to continue as a going concern, and therefore it may not be able to realise its assets and discharge its liabilities in the ordinary course of business.
Having undertaken this going concern assessment the directors believe that the Group, and therefore Company, will have adequate resources to continue for the foreseeable future, including at least 12 months from the date of the signing of the financial statements and that waivers for covenant breaches will be obtained and/or a remedy will be put in place with support from shareholders. No adjustments have been made to the financial statements presented that would result if the Company were unable to continue as a going concern.
Qualifying third party indemnity provisions
The Company has taken out qualifying third party indemnity insurance for the benefit of one or more of the directors of the Company. Such third-party indemnity provisions were in place at the date of the signing of the Directors' Report.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period.
In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Basis for opinion
Material uncertainty related to going concern
Other information
Other Companies Act 2006 reporting
In our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
Non-compliance with laws and regulations
Based on:
Our understanding of the Company and the industry in which it operates;
Discussion with management, legal counsel and those charged with governance; and
Obtaining and understanding of the Company’s policies and procedures regarding compliance with laws and regulations;
We considered the significant laws and regulations to be the applicable accounting framework, the Companies Act 2006, UK Corporation tax legislation and UK VAT registration.
The Company is also subject to laws and regulations where the consequence of non-compliance could have a material effect on the amount or disclosures in the financial statements, for example through the imposition of fines or litigations. We identified such laws and regulations to be the health and safety legislation, UK employment law and the Data Protection Act.
Our procedures in respect of the above included:
Review of minutes of meeting of those charged with governance for any instances of non-compliance with laws and regulations;
Discussions with legal counsel to identify any instances of non-compliance with laws and regulations; and
Review of financial statement disclosures and agreeing to supporting documentation;
Fraud
We assessed the susceptibility of the financial statements to material misstatement, including fraud. Our risk assessment procedures included:
Enquiry with management and those charged with governance regarding any known or suspected instances of fraud;
Obtaining an understanding of the Company’s policies and procedures relating to:
Detecting and responding to the risks of fraud; and
Internal controls established to mitigate risks related to fraud.
Review of minutes of meeting of those charged with governance for any known or suspected instances of fraud;
Discussion amongst the engagement team as to how and where fraud might occur in the financial statements;
Performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud; and
Considering remuneration incentive schemes and performance targets and the related financial statement areas impacted by these.
Based on our risk assessment, we considered the areas most susceptible to fraud to be:
Management override of controls, predominantly through the posting of inappropriate journals or manipulation of key accounting estimates;
Inappropriate recording of revenue in the year when performance obligations have not yet been met; and
Revenue recognition through the recording of inappropriate sales journals.
Our procedures in respect of the above included:
Testing a sample of journal entries throughout the year, which met a defined risk criteria, by agreeing to supporting documentation;
Targeted testing of journal entries posted to revenue throughout the year, agreeing to supporting documentation that are outside of expectations;
Testing of significant estimates and evaluating whether there was evidence of bias in the financial statements by management that represented a risk of material misstatement due to fraud. In particular, we identified the recoverability of intercompany balances and the impairment of stock, and investment balances as being the principal estimates and judgements;
Performing data analytics to match sales orders and sales invoices by quantity and value, investigating unmatched items; and
Testing a sample of sales invoices posted before the year end, to assess whether it was appropriate to record revenue in the year, by agreeing to delivery documentation; cross referencing to both the terms within the quote and within the terms and conditions communicated to the customer to ensure that the point of recognition adopted by the company was correct.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members who were all deemed to have appropriate competence and capabilities and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
The notes on pages 18 to 37 form part of these financial statements.
The notes on pages 18 to 37 form part of these financial statements.
The notes on pages 18 to 37 form part of these financial statements.
Disguise Systems Limited is a private company limited by shares incorporated in England and Wales. The registered office is Hermes House, 88-89 Blackfriars Rd, South Bank, London, United Kingdom, SE1 8HA.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues: Interest income/expense and net gains/losses for financial instruments not measured at fair value; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 26 ‘Share based Payment’: Share-based payment expense charged to profit or loss, reconciliation of opening and closing number and weighted average exercise price of share options, how the fair value of options granted was measured, measurement and carrying amount of liabilities for cash-settled share-based payments, explanation of modifications to arrangements;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The financial statements of the company are consolidated in the financial statements of Butterfly Topco Limited. These consolidated financial statements are available from its registered office, Hermes House, 88-89 Blackfriars Road, South Bank, London, SE1 8HA.
These forecasts are stress tested on revenue following a deep review of pipeline known projects and historical seasonality, alongside modelling of debtor days lengthening. Our margin forecasts are based on our new supply chain product pricing and working capital is driven predominantly by our sales demand and appropriately run through our financial model taken into account any historical trends. The forecasts have also been heavily sensitised in producing a financing case to ensure that with minimal revenue growth and cost efficiencies actioned we are still able to maintain operational cash liquidity.
The directors have considered the financial forecasts of the overall Group inclusive of this entity, taking into consideration the current macroeconomic climate, the projections are for the Group to remain profitable at an EBITDA level, and generate positive operational cashflows in both a short term and long-term assessment. However, overall cashflows are predicated on the Senior Lender not demanding repayment of the debt following the covenant breaches.
On the basis the Senior Lender does not demand repayment the directors conclude that the Group remains liquid and can meet its operational obligations. However, at the date of signing of the financial statement the Group has not received a legal waiver for its existing or expected future breach of covenants. The Group is therefore dependent on those banking facilities not being called for immediate repayment, which is not guaranteed. This indicates the existence of a material uncertainty which may cast significant doubt over the Company's ability to continue as a going concern, and therefore it may not be able to realise its assets and discharge its liabilities in the ordinary course of business.
Having undertaken this going concern assessment the directors believe that the Group, and therefore Company, will have adequate resources to continue for the foreseeable future, including at least 12 months from the date of the signing of the financial statements and that waivers for covenant breaches will be obtained and/or a remedy will be put in place with support from shareholders. No adjustments have been made to the financial statements presented that would result if the Company were unable to continue as a going concern.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.
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.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
Finance costs
Finance costs are charged to the Statement of Comprehensive Income over the term of the debt using the effective interest method, so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
Revenue is generated through the sale of products to customers, which includes pre-installed software, and the provision of after-sales support on an ad-hoc basis.
A key judgement is the point at which revenue is recognised in relation to the pre-installed software included within the hardware. The directors are satisfied that it is appropriate to recognise revenue in relation to the pre-installed software in full once control of the goods transfers to the customer. This is on the basis that the customer has the right to use the software immediately, there are no restrictions on the use of the software, and there are no further obligations such as the requirements for customers to upgrade the software. A further key judgement is the timing of recognition of enhanced warranty sales and of standard warranty sales where the value of the warranty is included within the headline sales price.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
In addition, the directors make an estimate of revenue that relates to the provision of after-sales support provided to customers. At the year end, the directors have considered the cost that is involved in the provision of these services and used this to make an estimate of the amount of revenue that should be deferred. At 31 December 2024 the amount of deferral included within accruals and deferred income was £144,505 (2023 - £126,194).
At each reporting date, stock is assessed for impairment by comparing its expected selling price, net of estimated costs to sell, to the carrying value which is typically cost. This includes an assessment of slow moving stock by comparison to expected utilisation throughout the product's lifecycle. If stock is impaired, the carrying amount is reduced to its selling price less costs to complete and sell. The impairment loss is recognised immediately in the Statement of Comprehensive Income.
There is estimation uncertainty in calculating bad debt provisions. A full line by line review of trade debtors is carried out at the end of each month. Whilst every attempt is made to ensure that the bad debt provisions are as accurate as possible, there remains a risk that the provisions do not match the level of debts which ultimately prove to be uncollectable.
Management judgement is required in determining the recoverability of intercompany loans in order to appropriately recognise the recoverability across the group. This includes an estimate of cashflows resulting from trading in various group companies, which may differ to actual outcomes.
In 2022 the Company acquired investments which included an element of contingent consideration. The Directors have made their best estimate of amounts expected to be payable as at the year end and adjusted the carrying value; such estimates are based on the anticipated performance of the investments in accordance with the terms of the purchase contracts. Details of the key inputs and accounting are provided in note 17.
Foreign exchange represents total realised and unrealised foreign exchange gains and losses.
The company did not have any employees during the current or prior year.
Interest receivable from group companies relates to a non-trading loan to Disguise Systems Canada Inc.
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
The deferred tax balances at 31 December 2024 have been measured using the rates expected to apply in the reporting periods when the timing differences reverse, being 25% (2023 - 25%).
Impairment tests have been carried out where appropriate and the following impairment losses have been recognised in profit or loss:
The change in value in the year relates to the change in expected value of consideration owed in respect of the Polygon and Meptik acquisitions as a result of both deferred consideration and earn-out agreements, where these amounts are paid on behalf of a subsidiary company.
The investment in Disguise New Zealand Limited has also been fully impaired as the subsidiary has ceased trading operations.
Details of the company's subsidiaries at 31 December 2024 are as follows:
All subsidiaries are held directly.
(1) During the year this company was placed into liquidation. No income or expenditure is expected in the Company as a result of this.
An impairment loss of £220,244 (2023 - £349,756) was recognised in cost of sales in the year in relation to slow moving stock and stock write offs anticipated. The total value of the impairment included against the above is £570,000 (2023 - £349,756).
There is no material difference between the replacement cost of stocks and the amounts stated above.
The amounts owed to group undertakings are interest-free and repayable on demand.
Contingent consideration resulted from the acquisition of Polygon Labs LLC and Meptik LLC, which is due for repayment over several years and will ultimately be settled in July 2025.
The discount rate applied to future payments for Polygon Labs LLC is 12.5%, and for Meptik LLC is 16.5%. The amount due within one year is £3,531,881 (2023 - £104,975) and due after more than one year is £nil (2023 - £1,194,042). Both contingent considerations are liabilities held at fair value, and represent the company's weighted average expectations for final outcomes on these liabilities, discounted to present value. The Directors view the probability of payment targets being met has materially reduced in the year, with this fact considered in determining the carrying value of the liability as at the year end. The maximum amount which could be ultimately payable under both agreements is £3,192,400 (2023 - £4,314,750).
The amounts owed to group undertakings arising from trading are interest-free and repayable on demand.
Details of the deferred consideration is provided in note 17.
The Meptik LLC promissory note carried an interest rate of 2.37% and was paid in full in the year.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
The deferred tax asset set out above is expected to reverse within 12 months and relates to the utilisation of tax losses against future expected profits of the same period.
The Company has estimated tax losses carried forward of £5,285,000 (2023 - £8,437,000), of which £280,000 (2023 - £280.000) is not recognised as a deferred tax asset due to restrictions on the use of the losses.
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
On 30 September 2025, the Group breached both the Adjusted Leverage and Interest Cover Covenants. The Group entered into negotiations with Santander UK PLC (the “Senior Lender”) requesting a waiver to remedy the breaches. The definitions of both Covenants are defined in Note 1.2).
The Adjusted Leverage breach (threshold: 2.5x) was a timing delay on production which straddled a reporting period. The Interest Cover breach (threshold: 2x) is down to higher working capital costs as Debtors increased and slowed Operational Cashflow generation, against the backdrop of a challenging market environment and the Group is forecasting that will remain in breach across the 31 December 2025 reporting period.
The outstanding Senior Debt was £14.4m at the date of breach (up from £12.8m at the year-end), borrowed from the Senior Lender, who has the ability to recall the loan in full as one option to remedy the breach. Given the breach was a Post Balance Sheet Event for 31 December 2024 accounts, the Senior Lender debt is still recognised as being due after more than one year, as set out in Note 20 to the Group Financial Statements.
The negotiations to date are progressing and the Senior Lender has verbally agreed to a waiver for the Q3 Covenant Reporting. While this is not effective at the point of signing the Financial Statements paperwork is underway to formally remediate the breach. As the Financial Statements will be signed before the 31 December 2025 there will need to be further negotiations for the Q4 31 December 2025 Interest Cover breach. As the Group moves into the Financial Year end 31 December 2026 there will be a continued sensitivity until Q3 30 September 2026 and the rolling twelve month period since breach has passed.
The Group remains liquid to meet its operational obligations in the short and long term on the basis that the Senior Lender does not demand full loan repayment. If that situation were to occur the Group would seek additional refinancing by way of either debt or equity financing.
The company has taken the disclosure exemptions of section 33.1A of FRS 102 to not disclose transactions with wholly owned group members of Butterfly Topco Limited. Details of balances outstanding at the year end are given in notes 16 and 17.