The directors present the strategic report together with the audited financial statements for the year ended 31 December 2024.
In 2024 the Butterfly Group, consisting of this Company and all subsidiaries detailed in note 15, 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 Group recorded statutory revenue of £67.2m (2023 - £67.2m), an increase of 0.1%.
Geographically our largest market remained strong in North American growing 11.6% to £42.8m (2023 - £38.4m) of revenue and 63.6% (2023: 57%) of the overall mix, with large wins in the existing business and combination sales of hardware, software and services opening up incremental opportunities.
The Asia region grew 2.9% delivering £10.7m (2023 - £10.4m) of revenue accounting for 15.8% of the mix. The growth came from project expansions in China and Hong Kong growing 58% versus 2023 offset by sluggish performance in our Japan market down 57% and Korea down 43% with geo-political factors impacting customer purchasing power.
The UK market achieved revenues of £5.0m (2023 - £3.3m). A growth of 51.9% with investment in the sales team and onboarding of new clients driving upside. This was offset by poor performance in the Rest of Europe £7.1m (2023 - £8.4m) of revenue and Rest of World £1.6m (2023 - £6.7m) revenue declining 15.5% and 75.4% respectively year on year with Middle East driving the Rest of the World shortfall as some team reorganisation and project delays impacted results.
The Group finished the financial year with a statutory loss after tax of £38.6m (2023 - loss after tax £35.5m). The
loss is primarily driven by depreciation and amortisation charges through the Group at £26.5m (2023 - £26.2m) and
interest charges of £17.9m (2023 - £16.2m) all relating to the capital structure and ownership from the original
Butterfly transaction in March 2021.
EBITDA defined as Operating Profit/(Loss) adding back Depreciation and Amortisation is £5.2m (2023 - £7.6m). The Group's preferred measures are Cash EBITDA and Adjusted EBITDA. Cash EBITDA is calculated as the operating profit/(loss) adding back depreciation and amortisation, share-based payments, and unrealised foreign exchange/translation impact and contingent consideration on acquisitions, and deducting research and development costs resulted in £5.7m of Cash EBITDA (2023 - £7.5m).
Adjusted EBITDA, is calculated as EBITDA (as defined) with one off expenses, investor costs, derivative fair value
movement, intercompany impairments and capitalised R&D expenditure (if applicable) added back. Adjusted EBITDA in the period decreased slightly to £9.3m (2023 - £11.1m). The reduction of 16.2% was driven predominantly by gross profit mix with a larger portion of revenue in 2024 coming from lower contribution margin streams such as third-party hardware (reported in Note 3 within Hardware) and services. This was offset in savings in administrative expenses of £0.7m taking total spend to £33.2m (2023 - £33.9m).
The Company itself has no revenue of its own by virtue of it being a holding Company of a larger Group. The
Company reports a loss of £2.0m (2023 - loss of £1.6m) for the period due to operational costs of servicing the
wider Group, and net assets of £0.3m (2023 - £2.0m).
The principal risks and uncertainties of the Group relate to its ongoing activities as a leading global provider of hardware, software, and services that facilitates live event visualisations, allowing creative production teams to previsualise, simulate and deliver their 3D shows in real-time both on premises and remotely.
The Group undertakes regular risk reviews to identify the significant risks across the Group and ensure that they are visible to senior management, as well as to the Board. Key risks that the Group has identified, monitors and has mitigating action plans include the following:
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).
Servicing debt and meeting banking covenants
On 31 December 2024 the Group had shareholder loan notes to the value of £166.4m (2023 - £146.6m) and banking facilities of £20m of which £12.8m (2023 - £12.6m) was drawn (excluding arrangement fee amortisation) and £3m RCF undrawn.
Failure to meet interest payments on the banking facility as they fall due or breach of covenants with the failure to generate 1.75x interest costs in operating cashflow would result in additional costs on the Group if facilities are renegotiated or could result in the removal of the facilities. Additionally, any significant interest rate increases may impact on group cashflow generation and covenant compliance.
The shareholder loan notes are rolled up until the earlier of a future transaction or until March 2031.
The Group monitors and reviews its cashflow position, budgets and forecast on a regular basis adjusting and refining as necessary to ensure that the business allocated its resources effectively to meet its debt commitments. The Directors have assessed the impact of interest rate increases and at this time have decided not to hedge interest rate increases, but will revisit in line with wider geo-political impact reviews.
Currency Risk
The Group's exposure to the US dollar movements as its primary trading currency for sales. A significant weakening of the US dollar could adversely impact profit, with less profit to cover GBP administrative expenses.
The Group's policies are to match where possible receipts and purchases in foreign currency to limit any residual exposure and, as the hedging policy tracked over a number of years has not proved effective and the company will rely on natural hedges only.
Liquidity Risk
Liquidity risk arises from timing differences between cash inflows and outflows, which may result in the inability of the Group to meet its short term funding requirements.
The Directors of the Group regularly review and monitor the trading performance covering the future periods, ensuring the short-term liquidity needs can be fulfilled with appropriate stress testing and scenario analysis.
The banking facilities in the Group are deemed adequate, and contingency plans are in place to ensure that if a significant geo-political event were to occur the Group can adjust accordingly.
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.
Butterfly Group manages its KPls 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 both its main investor, bank/senior debt provider. The definitions below are in line with the relevant facility agreements in place.
The Group uses EBITDA, Cash EBITDA, and Adjusted EBITDA as key performance indicators, as these approximate to the cash generation of the Group as determined for different management purposes. These are highlighted in note 4. The definitions of these are provided on the next page, which reconciles between the different types of EBITDA.
During the period the Group recorded revenues of £67.2m (2023: £67.2m), which was 0.1% higher than 2023 on a like for like basis.
The operating loss £20.4m (2023 - £18.5m) is predominantly due to the amortisation charge, which is mainly related to goodwill. The cost base reflects continued efforts by the Group's management to ensure the business is rightsized to take advantage of its market position and maximise sustainable returns for all shareholders.
In the year the Group also incurred £1.6m (2023 - £1.6m) of one-off fees for management reporting purposes relating to £0.9m professional fees and market study papers. £0.2m of exceptional legal fees, £0.2m of costs related to board monitoring and chairman costs, £0.1m of severance, that have been added back when calculating the Adjusted EBITDA.
The business generated £5.2m in EBITDA (2023 - £7.6m) which converted well to operational cash with £4.3m generated from operating activities (2023 - £9.8m). There was a £1m decrease (2023 - Increase £1.8m) in cash from changes in working capital with an outflow of debtors of £3.7m and increase in stock of £1.7m offset by an increase in creditors an outflow of £3.3m and decrease of finance lease receivable £1.3m.
The Group also reviews a number of other non-financial KPIs:
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 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 regard to 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 on our financial position, our ability to compete 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 and 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 committed to promoting their interests. We provide a wider range of benefits, as well as opportunities for training and development and remote working. We also have policies in place to promote diversity and inclusion, and 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 and 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 and 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, Modem 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 to protect our people and prevent such abuse through our supply chain. Our Supplier Code of Conduct expressly prohibit the use of forced, imprisoned, bonded, indentured or involuntary labour including child labour. Other requirements include 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 place to ensure that fair representation is maintained robust policies in both at board level and within the 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 result for the year is a loss after taxation of £38,595,000 (2023: loss of £35,456,000).
No ordinary dividends were paid. The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
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.
There is no employee share scheme at present, but the directors are considering the introduction of such a scheme as a means of further encouraging the involvement of employees in the company's performance.
On the 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 1.4).
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.
This report outlines the Company's Greenhouse Gas (GHG) emissions and energy usage for the year ended 31 December 2024. The scope of the Company's reporting encompasses electricity, heating and gas associated with office properties from which it operates in the UK, as well as transport usage.
The following methodology has been applied to calculate the required energy and carbon data for this report.
Electricity and heating energy data has been gathered in the form of supplier invoices, meter readings and usage provided by the landlord at office locations.
For certain months where meter reading data was unavailable, energy usage was calculated using a pro rata approach.
Electricity and heating have been converted to GHG emissions by applying the appropriate 2024 UK Government GHG Conversion Factors for Company Reporting, in line with the GHG Protocol Corporate Standard methodology.
The selected metric for the emissions intensity ratio is total floor area of our office spaces.
The Company's total emissions for the reporting period were 83.1 tCO2, with an intensity ratio of 0.01 tCO2e/sq ft. The total proportion of the Company's GHG emissions is accounted for by office electricity usage which represents all of the emissions.
During 2024 we continue to monitor, improve energy efficiency and reduce our carbon footprint initiatives. These include:
The Group has implemented remote/hybrid working where possible and emissions associated with employees travelling to work have reduced significantly when compared to pre-pandemic levels.
Updated company policies to incorporate our Environmental Social Governance (ESG) goals.
Engaged with third party services to reuse old laptops and recycle waste from electronic equipment.
Ran awareness campaigns which suggest actions employees can implement to reduce their carbon footprint.
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.
Disclosures required under s416(4) of the Companies Act 2006 are commented upon in the strategic report as the directors consider them to be of strategic importance to the group,
In our opinion:
the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2024 and of the Group’s loss for the year then ended;
the financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
Material uncertainty related to going concern
We draw attention to note 1.4 to the financial statements, which indicates that the Group has breached financial covenants on banking facilities after the reporting date, and is expected to continue breaching those covenants beyond the date these financial statements are signed. 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. As stated in note 1.4, these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern. The financial statements do not include any adjustments that would result if the Group were unable to continue as a going concern. Our opinion is not modified in respect of this matter.
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.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
Other information
Other Companies Act 2006 reporting
In our opinion, based on the work undertaken in the course of the audit:
the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the Strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.
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 Group and the industry in which it operates;
Discussion with management, legal counsel and those charged with governance; and
Obtaining and understanding of the Group’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 Group 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 Group’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 capitalisation of payroll and other costs as development expenditure;
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;
Testing of journal entries posted to revenue throughout the year which are outside of expectations to supporting documentation;
Testing of significant estimates and evaluating whether there was evidence of bias in the financial statements by management that represented a risk of material misstatement due to fraud. In particular, we identified the valuation of convertible loan notes and equity-settled and cash-settled share-based payment charges, the revenue recognition for multi-stage contracts, the recoverability of intercompany balances and the impairment of stock, goodwill, intangibles and investment balances as being the principal estimates and judgements;
Testing a sample of capitalised development costs in the year to supporting documentation, confirming that those development costs meet the recognition criteria for development intangibles under FRS 102; 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 Group 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 notes on pages 23 to 55 form part of these financial statements.
The notes on pages 23 to 55 form part of these financial statements.
The notes on pages 23 to 55 form part of these financial statements.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s loss for the year was £2,029k (2023 - £1,636k loss).
The notes on pages 23 to 55 form part of these financial statements.
The notes on pages 23 to 55 form part of these financial statements.
The notes on pages 23 to 55 form part of these financial statements.
Butterfly Topco Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Hermes House, 88-89 Blackfriars Road, South Bank, London, SE1 8HA
The group consists of Butterfly Topco Limited and all of its subsidiaries.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £'000.
The financial statements have been prepared under the historical cost convention, modified to include certain financial instruments at fair value. The principal accounting policies adopted are set out below.
The 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 for parent company information presented within the consolidated financial statements:
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 consolidated group financial statements consist of the financial statements of the parent company Butterfly Topco Limited together with all entities controlled by the parent company (its subsidiaries).
All financial statements are made up to 31 December 2024. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.
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 statements 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 Group and 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 Group and Company were unable to continue as a going concern.
Revenue relates to the sale of hardware and associated software and/or licence keys embedded into the tangible products sold, as well as other services which cover training, support, extended warranties, and creative production within the software.
Revenue for each income stream is recognised based on when the primary risks and rewards transfer to the customer.
Hardware
Revenue for hardware and (where applicable) embedded software is recognised at the point of dispatch as it is considered to be the point at which the risk and rewards of ownership transfer, based on the contractual terms to which the customers agree. For such sales, the transaction price is analysed and separated to set aside an amount for the provision of after-sales support in relation to use of the software, which is accounted for separately based on the Group's prior experience of fulfilling such levels of support. The point of dispatch is usually when products leave the Group's premises (be it third party logistics or own offices), being the point at which carrier liability is taken on by the customer.
Software licence keys
These annual unlock keys are recognised on the same basis as Hardware at the point of dispatch of the hardware (which is when the software key is activated), or on contractual renewal date (when the key is renewed). Such unlock keys represent a right to use the Company's intellectual property and has the functionality for the software unlock. The Company is not required nor expected to provide any updates during the unlock period, and is not required to provide maintenance or support over and above that which would already be separated as part of the hardware sale. As such, the risks and rewards transfer at the point at which the customer is provided with the unlock key.
Software as a Service
Software sales typically relate to a licence to use for a period of time, be that a monthly or annual subscription. This includes ongoing access and/or after-sales support period for the software. As the customer benefits from this support for the entirety of that period, the associated revenues are recognised on a straight-line basis for the support and/or ongoing access period.
Multi-stage contracts
Where a contract with a customer represents a construction contract as defined in FRS 102, typically as a result of significant integration services being performed on a number of own and third party hardware products, the Group accounts for the revenues as a long-term contract. This means a value is assigned to each key component or project deliverable, and revenue is recognised based on either a cost plus margin basis, or (if more appropriate) based on the value transferred to the customer. A debtor is recognised for amounts recoverable on long-term contracts for the revenue recognised to date less instalment payments. Multi-stage contracts are disclosed within relevant subcategories in note 3, where underlying hardware is included within Hardware and the remainder typically relates to integration services.
Services
Revenue related to other services are recognised once the performance obligation has been completed, which is typically on delivery of the training or support. Such delivery is often at a point in time, however where such projects span an extended period revenue is recognised proportionally on a basis of completion.
Warranty income
Revenue relating to extended warranty contract sales, taken out at the time of purchase of the hardware but commence after the initial manufacturer warranty has expired, is accounted for on a deferred basis with revenue being recognised on a straight-line basis over the cover period of the warranty contract once the initial standard warranty period has expired.
Enhanced warranty sales which is over and above the initial manufacturer warranty is recognised on a straight-line basis following dispatch of the hardware or on point of sale if purchased after dispatch.
Warranty income is disclosed within Hardware in note 3.
Other key revenue terms
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and revenue can be measured reliably.
Revenue is measured at the fair value of consideration receivable, after discounts and excluding VAT.
Key revenue judgements applicable to the current and prior year are detailed in note 2.
In the research phase of an internal project it is not possible to demonstrate that the project will generate future economic benefits and hence all expenditure on research is written off against profits in the year in which it is incurred. Identifiable development expenditure is capitalised as an intangible asset if and only if certain specific criteria are met in order to demonstrate the asset will generate probable future economic benefits and that its cost can be reliably measured. The capitalised development costs are subsequently amortised on a straight line basis over their useful economic lives of 3 years.
If it is not possible to distinguish between the research phase and the development phase of an internal project, the expenditure is treated as if it were all incurred in the research phase only.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the profit and loss account.
In the parent company financial statements, investments in subsidiaries 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.
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.
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. No reversals are recognised to goodwill.
The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's balance sheet when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, and loans from fellow group companies, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives are not basic financial instruments and 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, which includes the convertible loan notes described in note 22, are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The 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 calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset 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 costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.
The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.
Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
For cash-settled share-based payments, a liability is recognised for the goods and services acquired, measured initially at the fair value of the liability. At the balance sheet date the fair value of the liability is remeasured, with any changes in fair value recognised in profit or loss for the year.
Equity-settled share-based payments are measured at fair value at the date of grant by reference to the fair value of the equity instruments granted using the most relevant 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 the fair value given via 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.
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets at the lower of the assets fair value at the date of inception and the present value of the minimum lease payments. The related liability is included in the balance sheet as a finance lease obligation. Lease payments are treated as consisting of capital and interest elements. The interest is charged to profit or loss so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Amounts due from lessees under finance leases are recognised as receivables at the amount of the group's net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the group’s net investment outstanding in respect of leases.
Government grants are recognised at the fair value of the asset received or receivable when there is reasonable assurance that the grant conditions will be met and the grants will be received.
A grant that specifies performance conditions is recognised in income when the performance conditions are met. Where a grant does not specify performance conditions it is recognised in income when the proceeds are received or receivable. A grant received before the recognition criteria are satisfied is recognised as a liability.
Research and development expenditure credits
Where the Group receives research and development expenditure credits ("RDEC") it accounts for these as government grant income within other operating income, as the nature of the income more closely aligns with grant income as opposed to a taxation credit. The income is recognised on the performance model in the P&L as the Group establishes its right to receive the credit as a deduction from its tax liability (or cash refund).
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 judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
An assessment is made of the recoverable value of investments in subsidiaries (company), and of the non-monetary assets, inclusive of goodwill, of cash-generating units (group and company) (together termed "assets" below).
The directors have considered whether there are any indicators of impairment of the company's assets. Factors taken into consideration include the past and expected future financial performance of subsidiaries/CGU's, development costs and customer relationships. The directors are satisfied that there are no such indicators of impairment at the reporting date as development costs remain current as well as the underlying customer base.
Revenue is generated through the sale of products, which includes preinstalled software and the provision of after sales support on an adhoc 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.
During the current year the Group has entered into multi-stage contracts which include complex deliverable and payment arrangements. This has required an assessment of the Group's obligations under the contract and an analysis of the fair value of each component of the project.
As part of this the Group has recognised amounts at the year end in respect of design consultancy on the contract, the Group's own products delivered to the customer where the risks and rewards have substantially been transferred to the end customer, plus a proportion of products manufactured by a third party and available for delivery at the year end. Following subsequent delivery, the Group will perform significant integration services on all of these products to the design specifications already completed. This treatment, and the proportion of completion, is a key judgement and reflects that the Group has fulfilled some of the obligations associated with the contract.
The Directors have applied a percentage of completion basis to the revenue recognition, taking into consideration the fair value of each performance obligation and the proportion of completion of the manufacturing/consultancy at each stage. The fair value was determined by reference to the stage of manufacturing completion from the underlying manufacturer, and certain other inspections of completion status of the various deliverables in the contract. Had alternative methods to determine percentage of completion been utilised, either in by FRS 102.23.22 or IFRS 15, this would have resulted in either no or additional revenue being recognised in the current year, which the Directors do not believe gives a true and fair view of the work put into the contract.
A further key judgement is to use the guidance from IFRS 15 that all items in a construction contract, where significant integration services are performed, should be recognised on a principal basis as opposed to as an agent. FRS 102 offers no such guidance in this respect. The existence of the significant integration of products from third parties post-delivery implies that such integration services are being performed.
Determine the point from which it is appropriate to recognise an intangible asset for development costs incurred in respect of new products. In doing so the directors have considered whether the various recognition criteria required by FRS102 have been met, in particular the reliable measurement of costs directly attributable to the development, the technical feasibility of the project, the availability of the necessary resources to complete the product development, and the existence of a suitable market to buy the finished project.
The directors have considered the relevant factors and requirements in determining the amount of deferred purchase consideration due to sellers of Polygon LLC.
The directors have concluded in line with the relevant standards that these payments are linked to continued employment and as such have been treated as post-combination remuneration expense. Factors taken into account were the linkage between continued employment of the vendors and future consideration, the duration of continued employment and the level of remuneration paid to vendors post-acquisition.
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.
Intangible assets are amortised over their useful economic lives. Useful lives are based on the management's estimates of the period that the assets will generate revenue. These estimates are reviewed at least annually and changes to these estimates can result in significant variations in the carrying value and amounts charges to profit or loss. The carrying amount of intangible assets by class is shown in the intangible asset note and the useful lives are stated in the accounting policy.
At each reporting date, stock is assessed for impairment. 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.
The Group has issued shares and share-matching arrangements as part of its long-term incentive plan for employees. For shares, these are classified as equity-settled share-based payments and are therefore fair valued at the grant date, and the resultant share-based payment charge spread over the expected vesting period of the instruments.
There are a number of existing schemes from prior years. For the shares issued in May 2024, these were valued using a Monte-Carlo simulation option pricing model based on the Black-Scholes model. This requires a number of assumptions to be made including the share price at the grant date, the volatility of the share price, expected dividend yield and expected period to exercise.
The shares were issued with an average exercise price of £1 per share for E shares and £0.50 per share for F shares. The weighted average fair value net of exercise price is £39.18 for E shares and £1.56 for F shares, which was determined with input from an expert.
The directors are satisfied that the share price is reasonable taking into consideration the EBITDA performance and the resultant expected enterprise value of the company, based on benchmarking of the earnings ratio to comparable companies in the sector.
The total anticipated share-based payment charge is spread over the vesting period of the instruments. For those instruments that do not vest before the year-end, management make an assessment of the the expected timing of the vesting date.
Cash-settled share-based payments
The Group has granted cash-settled share-based payments in the year. These are fair-valued at each period end, and the resultant expected share based payment charge spread over the expected vesting period of the instruments. The expected remaining life is 1.5 years, which aligns with inputs used to value both the equity-settled share-based payments (at grant date) and the convertible loan notes.
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 20.
Recoverability of intercompany loans (Company only)
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.
During the prior year the Group and Company issued a convertible loan note which does not qualify as a compound financial instrument as it converts for a variable number of shares. This means that the loan is carried at fair value. Details of the loan are given in note 21.
The loan is valued using an option pricing model, where the whole value of the loan is compared dependent on the outcome of the conversion rights on an exit or, if no exit is made, in redemption of the principal value. The key inputs to the model are the starting value of the company (which is not disclosed for commercial purposes), expected volatility of 47.08%, and a credit risk adjustment of 1.79%. These inputs determine the fair value of the conversion option, which in turn drives the carrying value of the convertible loan note.
The Directors have used an Alternative Performance Measures ("APM") in the preparation of these financial statements. These are as follows:
EBITDA, which is Earnings before Interest, Tax, Depreciation and Amortisation, which is calculated as the operating profit of the Group with depreciation, amortisation,
Cash EBITDA is calculated as the operating profit/(loss) adding back depreciation and amortisation, share-based payments, and unrealised foreign exchange/translation impact and contingent consideration on acquisitions, and deducting research and development costs.
Adjusted EBITDA, is calculated as EBITDA (as defined) with one off expenses, investor costs, derivative fair value movement, intercompany impairments and capitalised R&D expenditure (if applicable) added back.
Details of the calculation of the above are provided in the Strategic Report.
The Directors have presented these APM's because they feel it most suitably represents and explains the underlying performance of the business, allows comparability between the current and comparative period in light of the rapid changes in the business, and aligns with definitions used by key stakeholders. The Directors also believe that this will allow an ongoing trend analysis of this performance based on current plans for the business.
An analysis of this performance and a reconciliation of statutory metrics to EBITDA and Adjusted EBITDA is provided in the Strategic Report.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
Included within employment costs is an expense of £2,394,445 (2023 - £1,176,750) related to deferred consideration in respect of acquisitions completed in 2022, where entitlement relies on ongoing employment. As a result of the requirements of FRS 102 these costs are expensed as employment costs, as opposed to being included within goodwill.
Details of the calculation of the deferred consideration is provided in note 20 which explains the likelihood and potential value of future remuneration charges.
The above costs include £1,752,838 (2023 - £1,777,150) which has been capitalised as development costs in the year, which forms part of the capitalised total in note 12.
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 1 (2023 - 1).
Details of the finance costs on financial instruments measured at fair value through profit or loss are provided in note 21, and relate to convertible loan notes.
The actual charge for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
Factors that may affect future tax charges
The main corporation tax rate increased from 19% to 25% on 1 April 2023. The deferred tax balances at 31 December 2024 have been measured using the rates expected to apply in the reporting periods when the timing differences reverse, being 25% (2023 - 25%).
Other changes within goodwill relates to the reassessment of contingent consideration associated with the two acquisitions made in 2022. Details of the contingent consideration is provided in note 20.
Impairment testing
The Group considers annually whether there are any indicators of impairment of its intangible assets and other non-monetary assets in the cash-generating unit ("CGU").
In 2024, consideration has been made by reference to fair value less costs to sell, using a value determined as part of the Group's determination of the fair value of its convertible loan notes and its cash-settled share-based payments. This fair value is split by CGU based on the pro-rated recent profits, and forecast profits, of each CGU.
In 2023, consideration was made by reference to a value-in-use calculation, which covers a 5 year detailed cashflow followed by terminal values. The present value of the expected cash flows is determined by applying a suitable discount rate reflecting the current market assessments of the time value of money and risks specific to the CGU. The pre-tax discount rate applied to the group's cashflows was 20.00%), except for Broadcast (24.10%) and Meptik (28.19%).
Details of the company's subsidiaries at 31 December 2024 are as follows:
During the year Disguise New Zealand Limited was placed into liquidation. No income or expenditure is expected in the company as a result of this
In December 2024, a liquidator was appointed to commence the process of removing New Leaf Topco Limited and New Leaf Bidco Limited from the registrar of companies.
After the reporting date, as per note 30, a liquidator was appointed to commence the process of removing DIsguise EMEA Limited from the registrar of companies.
As a result of the above steps, the Company does not expect to receive any additional further value, nor is is exposed to any credit risk from the liquidations.
Other financial liabilities represent the convertible loan note detailed in note 22.
Non-derivatives are contingent consideration arrangements, which are explained further in note 20.
An impairment loss of £220,000 (2022 - £239,000) was recognised in cost of sales in the year in relation to slow moving stock and stock write offs anticipated. The total provision against recoverability recognised in the above is £570,000 (2023 - £629,000)
There is no material difference between the replacement cost of stocks and the amounts stated above.
Amounts owed by group undertakings and owed in more than one year represent intercompany loan notes which are repayable in March 2031. Interest is charged at 10% per annum. The loan is repayable on the earlier of a sale of the majority of the share capital in Butterfly Topco Limited or on maturity of the term loan. Amounts due in less than one year are interest free and repayable on demand.
Within the period the Group recognised £1,132,000 (2023 - £577,000) in its profit and loss account in respect of a bad debt provision. The total provision at the year end, offset against trade debtors, is £1,585,000 (2023 - £753,000).
Amounts owed by group undertakings are interest free and repayable on demand.
Other creditors includes £3,532,000 (2023 - £nil) of deferred bonus payments due to the sellers of Polygon Labs LLC, of which £1,073,000 is being treated as a post-acquisition remuneration rather than as a cost of the acquisition included within the business combination.
The carrying value of the loan notes are reduced by loan arrangement fees. The amount expensed in respect of this in the year is shown in note 10.
Amounts owed to shareholders are explained in note 31.
Other creditors includes £318,000 (2023 - £136,000 included within creditors due within one year) representing the cash-settled share-based payment detailed in 26.
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.
Included within accruals and deferred income is £12,460,000 (2023 - £7,502,000) representing interest on the loan notes which is carried separately from the loan notes.
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 £3,532,000 (2023 - £nil) and due after more than one year is £nil (2023 - £1,194,000). Both contingent considerations are liabilities at fair value through profit and loss, and represent the company's weighted average expectations for final outcomes on these liabilities, discounted to present value, with the liability for Meptik LLC being fully settled in the year and Polygon Labs LLC being payable in June 2025. The Directors view the certainty of payment targets being met, and the expected level, has substantially crystallised at the year end. The change in carrying value arising from the change in estimate in the year is adjusted through the cost of goodwill, as shown in note 12.
Loan notes are repayable in March 2031. Interest is charged at 10% per annum. The interest is payable on the earlier of a sale of the majority of the share capital in Butterfly Topco Limited or on maturity of the term loan. Included within the loan notes carrying value at 31 December 2024 are £1.0m of issue costs, which are being amortised as part of the finance costs. At the year end, the remaining offset is £591,000 (2023 - £686,000).
The bank loans consist of a £10m term loan that is fully drawn and £2.8m of an additional term loan with a total of £7m funding available. The bank loans are offset with an amortised arrangement fee of £0.3m (2023 - £0.3m).
It is secured by a fixed and floating charge over the assets of the group and bears interest at 4.25% on top of the prevailing SONIA rate. The facility matures in December 2027.
Other loans are related to the Meptik LLC promissory notes. Interest is payable on these loan notes at 2.37% per annum, with the full value being repaid in July 2024.
The convertible loan note is carried at fair value through profit and loss. Interest is charged at a fixed 10%, payable at a date decided by the company. The lead investor can require conversion at any time, with any accrued but unpaid interest also being subject to the conversion terms which are to exchange the entire convertible loan note for a number of shares at a fixed price per share. Conversion also occurs on an exit. The loan matures on 31 March 2031.
The convertible loan note is carried at fair value through profit and loss. Interest is charged at a fixed 10%, payable at a date decided by the company. The lead investor can require conversion at any time, with any accrued but unpaid interest also being subject to the conversion terms which are to exchange the entire convertible loan note for a number of shares at a fixed price per share. Conversion also occurs on an exit. The loan matures on 31 March 2031.
Dilapidation provisions are expected to be utilised on expiry of operating leases in June 2030. The discount is being unwound at the estimated rate of 3.4%.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
The Group has estimated tax losses of £27,136,000 (2023 - £22,860,000) available for use in the UK subsidiaries, of which £12,448,000 (2023 - £6,155,000) has not been recognised as a deferred tax asset on the basis that the timing and extent of use of these losses is uncertain. Had a deferred tax asset been recognised in full, it would increase the Group's net assets by £3,112,000 (2023 - £1,539,000).
The Group has a number of tax losses in overseas jurisdictions which are of low value to the Group, except for a short term timing difference of £168,000 (2023 - £nil) as calculated at the local tax rate which is included within the assets recognised. All other deferred tax balances arise in the UK.
A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund. Contributions of £108,000 (2023: £122,000) were due to the fund and are included in other creditors.
All equity-settled share-based payment expenses relate to growth shares (for E and F shares) which have been issued as at the year end date. The only condition required to maintain ownership of these shares is ongoing employment by the Group. No options are outstanding and accordingly no table of options is presented.
A further tranche of 2,702 E shares were issued to employees during the year ended 31 December 2024. The fair value of these shares for financial reporting purposes was determined using a Monte-Carlo simulation using the Black-Scholes model, with inputs based on conditions precedent at the grant date of 25 June 2024. These key inputs are (with comparatives for similar E and F shares issued in 2023):
Expected volatility - 47.1% (2023: 44.5%)
Risk-free rate - 4.5% (2023: 4.5%)
Expected life - 2.5 years (2023: 2.1 years)
The weighted average share price for cash-settled liabilities is £39.18 (2023 - £30.84) for E shares and £1.56 (2023 - £0.31) for F shares; after deduction for exercise price this falls to £39.18 (2023 - £30.46) and £1.56 (2023 - £0.31) respectively. The expected volatility is 47.1% (2023 - 42.1%), risk free rate 4.5% (2023 - 4.4%) and time to vesting 2.0 years (2023 - 1.5 years), based on year end market conditions.
All A, B, C and D shares confer voting rights and enable the holder to participate pari-passu in any distribution and dividend payments. E and F shares do not carry voting rights; E shares carry preferential rights at certain value thresholds whilst F shares are ratchet shares where distribution is on an achieved enterprise value. All shares are non-redeemable.
The profit and loss account represents retained profits or losses after dividends paid and other adjustments.
Share capital
Called up share capital represents the nominal value of the shares issued.
Share premium
The share premium represents the excess of share issue proceeds over the nominal value less any issue costs.
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:
Subsidiary liquidation
On 14th May 2025, a liquidator was appointed to commence the process of removing of Disguise EMEA Limited, a subsidiary of the group as per note 15, from the registrar of companies. As a result of the above steps, the Company does not expect to receive any additional further value, nor is is exposed to any credit risk from the liquidation.
Covenant breach
On the 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 1.4).
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 key management personnel of the group are considered to be the same as the directors, for whom details of remuneration are provided in note 8.
The company has taken advantage of the exemption available in section 33.1A of FRS 102 whereby it has not disclosed transactions with its wholly-owned subsidiaries. Details of amounts outstanding at the year end are provided in notes 18 and 19.
The Group received funding from certain shareholders of the Group via the convertible loan note during the prior year, which conveys additional value rights to those shareholders. Details are provided in note 21. This note also details loans from shareholders and the interest payable on these.
Amounts owed to shareholders, shown in note 20, represents amounts owed in respect of transactions associated with leavers and joiners from the equity-settled share-based payment scheme.
(1) Relates to changes in the fair value of the convertible loan note. See note 22 for details.
(2) Revaluation of balances denominated in currencies other than Sterling.