FINANCIAL STATEMENTS RELEASE OF DIGITALIST GROUP 31.12.2017 DIGITALIST 2017 - NEW BEGINNING SUMMARY October - December 2017 (2016 reference figures in brackets): Turnover EUR 6.6 million (EUR 4.5 million), increase 46.8%. Earnings before interest, taxes, depreciation and amortization (EBITDA) EUR -1.2 million (EUR -0.9 million), -17.5% of turnover (-20.9%). Operating result EUR -1.5 million (EUR -1.1 million), -22.9% of turnover (-24,1%). Net result EUR -1.9 million (EUR -1.3 million), -28,6% of turnover (-29.3%). Earnings per share (diluted and undiluted) EUR -0.00 (EUR -0.00). Cash flow from operating activities EUR 0.6 million (EUR -0.3 million). Accounting period January - December 2017 (2016 reference figures in brackets): Turnover EUR 20.0 million (EUR 15.3 million), increase 31.1%. Earnings before interest, taxes, depreciation and amortization (EBITDA) EUR -4.0 million (EUR -7.2 million), -19.9% of turnover (-47,4%). Operating result EUR -4.9 million (EUR -7.7 million), -24.5% of turnover (-50.7%). Net result EUR -6.9 million (EUR -9.6 million), -34.7% of turnover (-62.6%). Earnings per share (diluted and undiluted) EUR -0.02 (EUR -0.03). Cash flow from operating activities EUR -5.6 million (EUR -5.5 million). Prospects for the future Increase in turnover is expected to continue and the operating result to improve in 2018. CEO s report The year 2017 was for Digitalist Group a year of reforming and investing in growth. The main measures were connected with continuation of reforming the Company s business operations and with corporate acquisitions. The first year of Digitalist Group, which was formed in May 2017, was a year of growth, changes, focusing, and development. Digitalist Group was formed, when Ixonos Plc s, Rome Advisors Digitalist business operations, Interquest Oy s, Wunderkraut Sweden s, and Cresense s business operations were united into Digitalist Group. The Company changed its name from Ixonos Plc to Digitalist Group Plc during the second quarter of the year. The new name and reformed Company has been well received by the Company s customers, partners and especially the staff. Digitalist Group aims at international and profitable growth by means of designing new thinking, services and technological solutions for digitalising industries. These industries include the technology industry, energy industry, transport and logistics, as well as consumer services in the private and public sector. The purpose of corporate acquisitions has been to strengthen the enterprise s position as an overall supplier of user study, service design and technology. The Company believes in considerable growth in solutions for user study, service design and intelligent technology in the next years. Factors affecting growth include new types of terminal devices, artificial intelligence, internet of things, and platform economy. Use of network services will change from traditional publication systems to an experience which is controlled by speech or a new kind of intelligent device, e.g. a watch, and increases demand for expertise in and solution of user-oriented experiences. Digitalist Group carries on significant business operations in the United States (San Francisco), Canada (Vancouver), England (London), Sweden (Stockholm), and Finland (several units). We aim 1
to serve international clientele and increase expertise and the number of experts especially in Finland and Sweden. During the operating year, Digitalist Group employed on average 203 experts. Digitalist Group s turnover grew during the year both organically and through corporate acquisitions. The increase in turnover was 31% for the accounting period and 47% for the fourth quarter. As concerns the development of the profitability, the trend remained correct, though the accounting year on the whole showed a loss. The result was weakened by investments in the Company s reform and continuing development, and by expenses caused by corporate acquisitions and the name change. Digitalist Group aims at profitable growth by concentrating on user study, design and technology consultation to clients. We believe that increase in turnover will continue and the operating result improve in 2018. Digitalist Group builds a network-based operating model with client enterprises and business partners. In addition to knowledge-based services and development services, the enterprise produces contents, events, workshops, and various encounters with top-tier professionals in different industries. The aim is to create new ways of developing new business activity and design service, and to create technology in an agile way. The Company envisages that a network-based operating model will stimulate and speed up the building of new services for customers. /CEO Ville Tolvanen SEGMENT REPORTING Digitalist Group reports its business operations in one segment. TURNOVER In the fourth quarter, the Group s turnover was EUR 6.6 million (EUR 4.5 million), which exceeded the preceding year s turnover by 46.8%. Of the turnover for the fourth quarter, the share of the businesses acquired during the accounting period was EUR 2.0 million. The Group s turnover for the accounting period was EUR 20.0 million (EUR 15.3 million), which exceeded the preceding year s turnover by 31.1%. Of the turnover for the accounting period, the share of the businesses acquired during the accounting period was EUR 3.4 million. During the accounting period, the Company expanded its operations to Sweden and considerably strengthened its supply of website design and development services through the Wunderkraut Sweden AB transaction. During the accounting period, clients belonging to related parties accounted for 12.8% of the turnover. RESULT During the fourth quarter, the operating result was EUR -1.5 million (EUR -1.1 million) and the result before taxes EUR -1.9 million (EUR -1.3 million). The operating result included EUR -0.5 million of expenses relating to corporate acquisitions, write-downs of sales receivables, and exceptional prolongation of delivery projects. Net result for the fourth quarter was EUR -1.9 million (EUR -1.3 million), earnings per share were EUR 0.00 (EUR 0.00), and cash flow per share from operating activities was EUR 0.00 (EUR 0.00). Operating result for the accounting period was EUR -4.9 million (EUR -7.7 million) and result before taxes EUR -7.2 million (EUR -9.5 million). With the growth, the operating result improved by EUR 2.8 million (+36.7%), but remained at a loss due to investments in the Company s reforms and continuing development, and to expenses caused by corporate acquisitions and the name change. Net result for the accounting period was EUR -6.9 million (EUR -9.6 million). The net result was 2
affected by the accounting period s net financial expenses amounting to EUR -2.3 million (EUR - 1.8 million) and by deferred tax entries dissolved during the fiscal year, totalling EUR 0.2 million. Further, in the result has been taken into account the computational exchange rate change totalling EUR -0.7 million (EUR -0.6 million), caused by the Company s internal receivable and debt items during the accounting period, appearing as increase in financial expenses. The result for the accounting period includes expenses relating to corporate restructuring, totalling EUR -0.6 million. Earnings per share were EUR -0.02 (EUR -0.03) and cash flow per share from operating activities EUR -0.01 (EUR -0.01). INVESTMENTS During the accounting period, investments amounted to EUR 7.0 million (EUR 0.7 million). The investments consisted mainly of corporate acquisitions and asset deals concluded during the fiscal year by means of share exchange. All research and development expenditure is included in the Group s result, and no research and development expenditure has been activated in the balance sheet during the fiscal year. BALANCE SHEET AND FINANCING The balance sheet total was EUR 25.0 million (EUR 16.1 million). The shareholders equity was EUR 5.5 million (EUR -4.2 million). The equity ratio was 21.9% (-26.1%). At the end of the fiscal year, the Group s liquid assets were EUR 1.4 million (EUR 0.4 million). The return on equity (ROE) has not been presented, as it is negative. The return on investment (ROI) was -36.5 per cent (-70.1). The main reasons affecting the change in the shareholders equity of the Company during the accounting period were the negative result, totalling approx. EUR -6.9 million, the share issues implemented in connection with the corporate restructurings, totalling approx. EUR 8.1 million, and the conversion of the convertible bond loan in December 2017 approx. EUR 7.9 million. At the end of the accounting period, the Group s balance sheet included loans from financial institutions to the amount of EUR 3.2 million (EUR 2.9 million), including the available bank account limits. Some of the financial loan agreements contain covenant conditions concerning the Company s self-sufficiency, and they were analysed for the first time on 31.12.2017. In addition to this, the Company has received loans from its main owner. On 31.12.2017, the interest-bearing debts amounted to EUR 11.5 million (EUR 12.5 million), of which loans from related companies accounted for EUR 8.1 million (EUR 9.6 million). Loan agreements concluded with related companies during the fiscal year are presented in the report section: Related party transactions. CASH FLOW During the fiscal year, the Group s cash flow from operating activities was EUR -5.6 million (EUR - 5.5 million), the change was -3.0%. The weakening of the cash flow from operating activities was mainly due to the change in the working capital. The main reasons affecting the change in the working capital were the changes in sales receivables. To decrease the day s sales outstanding, the Group sells part of its Finnish sales receivables. During the accounting period, sales receivables were sold for EUR 6.8 million (EUR 5.1 million). GOODWILL On 31.12.2017, the Group s balance sheet included goodwill amounting to EUR 12.8 million (EUR 11.5 million). For testing the goodwill, the following parameters have been used: - Length of the review period of 4 years - WACC discount rate of 10 per cent - Growth assumption ( terminal value ) of 1 per cent. 3
In goodwill testing on 31.12.2017, no need for write-down was established. The use value of the tested assets exceeded the tested amount by EUR 16.0 million. The calculated current value of cash flows, EUR 33.5 million, falls below the sum of the Company s financial liabilities amounting to EUR 11.5 million and the shares market price amounting to EUR 38.8 million on 31.12.2017. PERSONNEL In the last quarter, the average number of personnel was 239 (178). The average number of personnel during the accounting period was 203 (188) and at the end of the period 240 (174). At the end of the accounting period, of the Group s personnel, 158 persons (132) were in an employment relationship with companies in Finland and 82 persons (42) with the Group s companies abroad. During the accounting period, the number of personnel increased by 66 persons. SHARES AND SHARE CAPITAL Exchange and rate In the accounting period, the highest rate of the Company s share was EUR 0.16 (0.11), the lowest EUR 0.07 (0.06), and the closing rate on 31.12.2017 was EUR 0.07 (0.10). The average rate for the accounting period was EUR 0.11 (0.08). During the accounting period, 44,747,638 (24,568,296) shares were exchanged, which corresponds to 8.08 (6.95) per cent of the number of shares at the end of the accounting period. According to the closing rate on 30.12.2017, the market value of the share capital was EUR 38,767,704.22 (35,356,489.80). Share capital At the start of the fiscal year, the Company s registered share capital was EUR 585,394.16 and the number of shares 353,564,898. At the end of the period, the share capital was EUR 585,394.16 and the number of shares 553,824,346. During the accounting period, the number of shares increased by 200,259,448, of which 131,428,585 were due to conversion of the convertible loan into shares and 68,830,863 to share issue in connection with corporate acquisitions. The Company has one share class, and at the end of the accounting period the Company does not have own shares in its possession. Option schemes 2011, 2014 and 2016 Digitalist Group Plc has three option schemes: the 2011, 2014 and 2016 schemes, according to which new shares of the Company can be subscribed for to the total maximum amount of 42,018,526 shares. Descriptions of the option schemes are on view on the Company s website www.digitalist.global. Shareholders The number of shareholders on 31.12.2017 was 3,906 (3,262). Private individuals owned 9.75 (12.72) per cent, corporations 89.90 (86.74) per cent, and foreigners 0.35 (0.54) per cent, of which nominee registered were 5.63 (1.54) per cent of the shares. The ownership share of Tremoko Oy Ab, which is a party related to the Company, is 80.48 per cent. Through options, the ownership share can be increased to 80.53 per cent. Related party transactions On 03 February 2017, the Company agreed with Tremoko Oy Ab on additional debt financing of working capital. If necessary, the loan agreement to be concluded allows for additional financing amounting to a maximum of EUR 1.0 million. 4
On 03 March 2017, the Company accepted the binding offer of its main owner Tremoko Oy Ab for a debt financing arrangement ( Financing Arrangement ) amounting to a maximum of EUR 2.0 million. With the Financing Arrangement shall be consolidated the EUR 1.0 million additional financing arrangement which was implemented earlier between Digitalist Group Plc and Tremoko Oy and reported on 03.02.2017. Consequently, if necessary, the Financiing Arrangement which is now to be implemented allows for additional financing to Digitalist Group Plc to an amount exceeding the previous by EUR 1.0 million. Additional financing according to the Financing Arrangement becomes due and payable at the latest on 31.01.2019. On 23 May 2017, the Company agreed with its main owner Tremoko Oy Ab on raising the the current financing limit (reported on 03.03.2017) from EUR 2.0 million to EUR 4.6 million ( Financing Arrangement ). Consequently, if necessary, the Financing Arrangement which is now to be implemented allows for additional financing to Digitalist Group Plc to an amount exceeding the previous by EUR 2.6 million. Additional financing according to the Financing Arrangement become due and payable at the latest on 31.01.2019. On 27 September 2017, based on the authorisation for share issue given to the Board of Directors by the General Meeting on 29.03.2017, the Company s Board of Directors took a decision on directed rights issue, by which a maximum total amount of 12,500,000 new shares of Digitalist Group was issued to be subscribed for by Tremoko Oy Ab. The subscription price for the shares to be issued was EUR 0.12. Tremoko Oy Ab subscribed for all the new shares of Digitalist Group which were offered to it in the share issue, a total of 12,500,000 shares. The subscription price of the shares totals EUR 1,500,000, which Tremoko Oy Ab has paid in connection with the subscription. On 05 December 2017, the Company received on 05.12.2017 from Tremoko a conversion notice complying with the Conditions of Convertible Loan, in which Tremoko notifies that it uses its conversion right based on the Conditions, and notifies that it converts the Convertible Loan Bonds subscribed for by Tremoko and issued by Digitalist Group for subscription, to the total capital amount of EUR 9,200,000.95, in accordance with the Conditions to full extent into a total of 131,428,585 Shares. Tremoko has on 05.12.2017 also notified the Company that it has decided to forgive without consideration all interest receivables from Digitalist Group, which are based on the Convertible Loan and have not been paid by the Company by 05.12.2017, totalling EUR 201,643.86. The remission enters into force on 05.12.2017. On 22 December 2017, the Company has jointly with Digitalist Finland Ltd issued to Turret Oy Ab and Holdix Oy Ab a guarantee counter obligation, in which the Company has, inter alia, undertaken to pay market-based guarantee commission. Turret Oy Ab and Holdix Oy Ab have given on behalf of the liabilities of the Company and its subsidiaries to Nordea Bank Finland Plc, Finnish Branch, and to Nordea Finance Finland Ltd, suretyships totalling EUR 4.5 million for the part of the guarantees as agreed on separately. Turret Oy Ab and Holdix Oy Ab are the owners of the Digitalist Group s main owner Tremoko Oy Ab. The Company has accepted the binding offer of its main owner Tremoko Oy Ab for a debt financing arrangement ( Financing Arrangement ) amounting to a maximum of EUR 1.0 million. If necessary, the Financing Arrangement allows for additional financing to Digitalist Group to an amount exceeding the previous by EUR 1.0 million. Additional financing according to the Financing Arrangement becomes due and payable at the latest on 31.12.2019. OTHER EVENTS OF THE FOURTH QUARTER As Digitalist Group Plc s new Chief Executive Office started Ville Tolvanen as of 01.10.2017, and as the new Chief Financial Officer (CFO) Hans Parvikoski as of 11.10.2017. On 03 November 2017, the Board of Directors of Digitalist Group Plc decided to set a Compensation Committee, to which Peter Eriksson was elected the Chair and Bo-Erik Ekström and Pekka Eloholma the members. 5
On 06 November 2017, Digitalist Group Plc and the former shareholders of Cresense Oy completed the arrangement reported on 27.08.2015 and 02.09.2015, by which Cresense Oy joined the Digitalist Group through share exchange. On 14 November 2017, the innovation funding agency Tekes granted corporate research and development funding to Digitalist Group Plc s subsidiary Digitalist Finland Ltd. The Tekes funding was granted for Digitalist Finland Ltd s project Transformation, growth and internationalisation of business activity, the purpose of which is to facilitate the growth and internationalisation of the enterprise, and to improve the organisation s preparedness for internationalisation. The project s duration is 01.07.2017-30.04.2019. The funding granted by Tekes is a loan and its maximum amount is EUR 1,950,000 (50% of the project s acceptable total costs). The rate of interest on the loan falls three percentage points below the base rate, however, at least one per cent. After the bond s signing, Digitalist Finland Ltd raised in advance EUR 585,000 as the first loan tranche. Stock exchange releases for the accounting period are on view on the Company s website at the address www.digitalist.global/investors/releases. EVENTS AFTER THE REPORTING PERIOD On 30 January 2018, the Company agreed with Nordea Bank Finland Plc, Finnish Branch, on raising the financing limit to EUR 1 million. The guarantee for the financing limit is the suretyship (reported on 22.12.2017) given by Turret Oy Ab and Holdix Oy Ab on behalf of the liabilities of the Company and its subsidiaries, inter alia, to Nordea Bank Finland Plc, Finnish Branch. Turret Oy Ab and Holdix Oy Ab are the owners of Digitalist Group s main owner Tremoko Oy Ab. On 07 February 2018, Digitalist Finland Ltd, a subsidiary of Digitalist Group Plc ( Company ), started cooperation negotiations with its personnel in Finland. In two long-time customer relationships of the Company, demand is predicted to clearly decrease, and the Company considers reducing staff in the Kemi and Jyväskylä units and increasing the efficiency and centralisation of operations in other units. The negotiations do not concern the employees of the programming area of expertise in Digitalist Finland Ltd s Helsinki unit, nor the employees of the Tampere and Oulu units. In addition to cost savings, the purpose of the planned restructuring is to increase the efficiency of the organisation and to channel operations to the strategically most important sub-areas in the Company s business activity. According to preliminary estimate, the cooperation negotiations will result in changes to part-time employment, layoffs, changes in the conditions of employment relationships, and dismissals. The preliminary estimate is that the planned changes can make it necessary to reduce the staff by up to 25 persons. The cooperation negotiations and other saving measures considered by the Company are aimed at making Digitalist Group s cost structure lighter so that it corresponds to the market situation, and improving its profitability in order to create better operating preconditions. The Company aims at annual EUR 1.5 2.5 million cost savings at the Group level. On 21 February 2018, Digitalist Group Plc has agreed with its main owner Tremoko Oy Ab on raising the additional debt financing reported on 18.08.2016 from EUR 2.5 million to EUR 3.0 million. The additional financing becomes due and payable at the latest on 31.12.2019. On 27 February 2018, Digitalist Group Plc has extended its provision of services to City Cruises Public Limited Company for the supply of a booking platform and the development of digital services. Digitalist Group Plc will for the next five years be the customer experience partner of the City Cruises, providing them services within design and technology. The agreement will remain in force until year 2024. City Cruises is the largest UK provider of Sightseeing Cruises and carries four million passengers on the Thames every year, with additional locations in York and Poole. The deal is in line with Digitalist Group Plc s strategy for expanding its solution and service operations in travel and transportation. 6
RISK MANAGEMENT AND UNCERTAINTY FACTORS IN NEAR FUTURE The aim of Digitalist Group Plc s risk management is to ensure undisturbed continuity and development of the Company s operations and to support implementation of business objectives set by the Company and increasing the Company s value. More detailed information on the organisation of risk management, the process, and the recognised risks is available on the Company s website www.digitalist.global. The Company s result has lately been negative in spite of measures taken to increase efficiency. Negative result has immediate effect on the sufficiency of the Company s working capital. Risk is managed by maintaining readiness for different financing solutions. Changes in key customer relationships can have harmful effect on Digitalist Group s operation, profit-making ability and financial standing. If any one of the biggest customers would transfer its purchases from Digitalist Group to its competitors or significantly change its operating model, chances of finding replacing customer volume in a short period of time would be limited. The Group s business activity consists mainly of single customer agreements which are often concluded for a fairly short term. It is sometimes challenging to predict the starting time and extent of new projects, while the cost structure is to large extent fixed. The above circumstances can cause unpredicted fluctuation in turnover, and through that, in profitability. Part of the Group s business activity consists of fixed-price project deliveries. Fixed-price project deliveries involve a risk relating to time and content. The aim is to keep this risk under control by means of contract and project management. Part of the Group s turnover is invoiced in other currency than euros. Risk relating to changes in currency exchange rates is kept under control through various measures, e.g., by means of net positions and currency hedge agreements. In the accounting periods 2016 and 2017 there were no hedge agreements. The Group has a subsidiary in England. Brexit s effect on the subsidiary s business has been estimated, and the effect is estimated to be small. The Group has in its balance sheet a considerable amount of goodwill, which is subject to a writedown risk, if yields from the Group s cash flows are expected to diminish in the future due to internal or external factors. Goodwill is tested quarterly, and, if necessary, also at other times. For part of the Group s bank loans (EUR 0.3 million), there are covenants, the breach of which may lead either to an increase in the Company s financing expenses or to a demand that the bank debts be either partly or fully repaid in a short time. The biggest risks of breach of the covenants are associated with fluctuation of the operating margin due to market situation, or with potential need for increasing the Company s working capital by means of debt financing. The risk is managed by means of negotiations and maintaining readiness for different financing solutions. ON LONG-TERM GOALS AND STRATEGY In the long term, Digitalist Group aims at operating profit at the level of at least 10 per cent. To achieve the long-term goals, Digitalist Group aims at international and profitable growth by means of designing new thinking, services and technological solutions for digitalising industries. These industries include the technology industry, energy industry, transport and logistics, as well as consumer services in the private and public sector. Digitalist Group focuses in its strategy on deepening its service and solution business operations and on seamlessly uniting the user and usage study, design and technology. 7
PROPOSAL OF THE BOARD OF DIRECTORS TO THE GENERAL MEETING The Board of Directors of Digitalist Group Plc proposes to the General Meeting that the distributable funds be left in the shareholders equity and no dividend be distributed to the shareholders for the accounting period 2017. On 31.12.2017, the parent company s distributable funds were EUR 28,721,230. The Annual General Meeting of Digitalist Group Plc will be held in Helsinki on Tuesday 17.04.2018. NEXT REPORT The interim report 1-3/2018 will be published on Thursday 26.04.2018. DIGITALIST GROUP PLC Board of Directors Digitalist Group Plc - CEO Ville Tolvanen, tel. 050 3100642, ville.tolvanen@digitalistgroup.com - CFO Hans Parvikoski, tel. 040 5866154, hans.parvikoski@digitalistgroup.com Distribution: NASDAQ OMX Helsinki The key media 8
DIGITALIST GROUP ABSTRACT OF FINANCIAL STATEMENTS AND NOTES TO THE ACCOUNTS 31.12.2017 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME, TEUR 31.12.17 31.12.16 Change % 01.10-31.12.17 01.10-31.12.16 Change % Turnover 20,000 15,256 31.1 6,588 4,489 46.8 Operating expenses -24,899-22,993-8.3-8,098-5,572-45.3 OPERATING RESULT -4,899-7,736 36.7-1,510-1,083-39.4 Financial income and expenses -2,274-1,811-25.6-385 -231-67.0 Result before taxes -7,173-9,547 24.9-1,895-1,314-44.2 Income taxes 231-2 -10,579.7 12-1 1,308.9 RESULT FOR THE ACCOUNTING PERIOD -6,942-9,550 27.3-1,883-1,315-43.3 Distribution: To owners of Parent Company -6,942-9,550 27.3-1,883-1,312-43.5 To non-controlling interests 0 0 0-2 Earnings per share: Undiluted, EUR -0.02-0.03 0.00 0.00 Diluted, EUR -0.02-0.03 0.00 0.00 STATEMENT OF COMPREHENSIVE INCOME, EUR 1000 31.12.17 31.12.16 Change % 01.10-31.12.17 01.10-31.12.16 Change % Result for the accounting period -6,942-9,550 27.3-1,883-1,315-43.3 Other items of the statement of comprehensive income Change in translation difference 477 538-11.0 15-195 709.6 TOTAL COMPREHENSIVE INCOME FOR THE ACCOUNTING PERIOD -6,465-9,012 28.3-1,869-1,510-23.8 9
STATEMENT OF FINANCIAL POSITION, TEUR ASSETS 31.12.2017 31.12.2016 NON-CURRENT ASSETS Goodwill 12,755 11,543 Other intangible assets 5,024 323 Property, plant and equipment 401 340 Available-for-sale investments 7 8 Accounts receivable 41 156 NON-CURRENT ASSETS TOTAL 18,227 12,370 CURRENT ASSETS Trade and other receivables 5,434 3,304 Cash and cash equivalents 1,365 422 CURRENT ASSETS TOTAL 6,800 3,726 TOTAL ASSETS 25,027 16,095 EQUITY AND LIABILITIES 31.12.2017 31.12.2016 SHAREHOLDERS EQUITY Share capital 585 585 Share premium account 219 219 Invested unrestricted equity fund 64,457 47,191 Retained earnings -52,846-42,645 Result for the financial period -6,942-9,550 Total equity attributable to equity holders of the parent company 5,473-4,199 TOTAL EQUITY 5,473-4,199 LIABILITIES Non-current liabilities 7,474 10,215 Current liabilities 12,080 10,078 LIABILITIES TOTAL 19,554 20,294 TOTAL EQUITY AND LIABILITIES 25,027 16,095 10
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY, TEUR A: Share capital B: Share premium account C: Share issue D: Invested unrestricted equity fund E: Translation difference F: Retained earnings G: Total equity attributable to equity holders of the parent company H: Non-controlling interests I: Equity total A B C D E F G H I Shareholders equity on 01.01.2016 585 219 0 46,994-258 -45,054 2,487 221 2,708 Other changes 221 221-221 0 Result for the financial period -9,550-9,550 0-9,550 Other comprehensive income items Translation difference 538 538 538 Transactions with shareholders: Equity part of the convertible bond 2,115 2,115 2,115 Expenses for equity procurement -25-25 -25 Share-based remuneration 14 14 14 Shareholders Equity on 31.12.2016 585 219 0 47,191 280-52,475-4,199 0-4,199 Shareholders Equity on 01.01.2017 585 219 0 47,191 280-52,475-4,199 0-4,199 Other changes Result for the financial period -6,942-6,942-6,942 Other comprehensive income items Translation difference 477 477 477 Transactions with shareholders: Equity part of the -1,300-1,300-1,300 convertible bond Conversion of convertible bond 9,200 9,200 9,200 11
Share issue 8,110 8,110 8,110 Expenses for equity procurement -44-44 -44 Share-based remuneration 172 172 172 Shareholders Equity on 31.12.2017 585 219 0 64,457 757-60,545 5,473 0 5,473 CONSOLIDATED STATEMENT OF CASH FLOWS,TEUR Cash flows from operating activities 31.12.2017 31.12.2016 Result for the period -6,942-9,550 Adjustments to cash flow from operating activities Income taxes -231 1 Other income and expenses with no payment relation 0 500 Depreciation, amortizations and impairment 914 505 Financial income and expenses 2,274 1,511 Other adjustments 2,100-997 Cash flow from operating activities before change in working capital -1,884-8,029 Change in working capital -2,936 2,841 Interest received 5 2 Interest paid -748-280 Taxes paid -69-1 Net cash flow from operating activities -5,632-5,467 Compensation received from business transaction Acquisition of subsidiaries, net of cash required at the moment of acquisition 0 550 673 0 Investments in tangible and intangible assets -224-364 Sales of property, plant and equipment 0 47 Net cash flow from investment activities 449 233 Net cash flow before financing -5,184-5,234 Cash flow from financing activities Withdrawals of long-term loans 6,265 4,394 12
Withdrawals of short-term loans 2,001 47 Part payments of short-term loans -2,300-253 Payments received from share subscriptions 300 0 Equity acquisition cost -44 24 Financial lease payments -94-457 Net cash flow from financing activities 6,128 3,755 Change in cash and cash equivalents 944-1,479 Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period 422 1,901 1,366 422 Accounting principles This interim report has been drawn up in accordance with IAS 34 (Interim Financial Reporting standard) following the accounting principles for annual financial statements. The changes in IFRS standards and their interpretations that entered into force on 1 January 2017 have not had a substantial effect on the consolidated financial statements. The International Accounting Standards Board has released three new standards relating to Digitalist Group Plc, IFRS 15, Revenue from Contracts with Customers, IFRS 9, Financial Instruments, and IFRS 16, Leases. The IFRS 15 and IFRS 9 standards are to be applied from 1 January 2018 and the IFRS 16 standard from 1 January 2019. Digitalist Group Plc has compiled an analysis of the effects of the IFRS 15 standard. The impact of the IFRS 15 standard has been assessed by examining the customer agreements on all profit flows from the viewpoint of the standard s income entry model. The new standard is not estimated to transform the principles for recording profits, the amount of profits, timing, or on operating profit. IFRS 9 contains revised guidelines on the classification and valuation of financial assets as well as a new model based on expected credit losses for assessment of impairment of financial assets, and new requirements for general hedge accounting. In addition, IFRS 9 contains extended requirements on notes and presentation. In Digitalist Group Plc s estimation, the introduction of IFRS 9 is not estimated to have a considerable impact on financial statement transactions, values or notes in Digitalist Group Plc s financial statements. Digitalist Group Plc has started a preliminary assessment of the effects of the IFRS 16 standard on the financial statements. The most notable observed effect is that Digitalist records in the balance sheet new assets and debts that are mainly premises contained in existing other rental agreements. 13
In addition, the nature of the costs associated with the rental agreements in question is changing as IFRS 16 replaces rental cost with depreciation of the access right asset and with the interest expense arising from the rental agreement debt, reported as part of financial costs. Digitalist Group Plc will perform a more precise assessment of the effects of the standard and transition method during the next twelve months. Compiling the interim report in accordance with IFRS standards requires management to use assessments and presumptions that affect the amounts of assets and liabilities at the time of preparation as well as of earnings and expenses during the review period. Furthermore, discretion has to be exercised in the application of the accounting principles for the financial statements. Since the assessments and presumptions are based on the outlook at the time of the interim report, they contain risks and uncertainty factors. Actual results may differ from the assessments and presumptions made. The figures in the income statement and balance sheet are consolidated. The consolidated balance sheet combines all the group s companies. The original release is in Finnish. The English release is a translation of the original. The figures in the release are rounded, and so the combined amount of individual figures may deviate from the total amount presented. The data for the 2016 and 2017 financial periods in the interim report have been audited. Acquired business operations Business operations acquired during the review period. On 24 August 2017, the company acquired NodeOne Group AB, the parent company of Wunderkraut Sweden AB. In the transaction, the Swedish group became a part of Digitalist Group. As part of the arrangement, all shares in NodeOne Group AB were transferred to Digitalist Group. As compensation, Digitalist Group provided a total of 37,500,000 new shares in Digitalist Group (the Compensation Shares ) in a directed share issue (the Share issue ) to be subscribed to by the owners of NodeOne Group AB (the Sellers ). The Sellers have subscribed to the Compensation Shares offered in the Share Issue in full and Digitalist Group s Board of Directors has approved the Sellers subscriptions. The number of Compensation Shares issued was determined by dividing the amount of the purchase price (EUR 4.371.352.33) by the average price, weighted by traded amounts, of Digitalist Group s share on the Nasdaq Helsinki Oy exchange over 50 trading days before the Closing. However, the maximum total number of Shares offered in the Share Issue was 37,500,000 Compensation Shares, even though more Compensation Shares could have been issued according to the above calculation. 14
The Compensation Shares represent some 9.19 per cent of Digitalist Group s shares and votes following the Share Issue. The Compensation Shares entitle their owners to any possible full dividends distributed by Digitalist Group, to other distribution of assets, and provide other shareholder rights in the Company from the moment when the Compensation Shares are recorded in the trade register and the company s list of shareholders. According to a separate agreement, 60% of the Compensation Shares are subject to a lock-up period between twelve (12) months and three (3) years from their issue. The acquisition expands Digitalist Group s operations into Sweden and significantly strengthens its service offering in website design and development. Digitalist Group is introducing to the Swedish market its complete Discover Design Deliver offering, allowing customers to receive all the digitalisation services that they need from a single location. Wunderkraut Sweden has a solid reputation as the leading company specialising in digital development and website design in Sweden, its customer satisfaction remains at a very high level, and its world-class team has continuous assignments and projects. The goodwill generated by the acquisition, about EUR 0.9 million, reflects the synergy benefits that are expected to be achieved in producing network service solutions for Nordic customers. The goodwill generated in the acquisition is not deductible in taxation. The impact of the acquisition on 2017 turnover was EUR 2 million. The impact on the 2017 operating profit was EUR 0.4 million. If the acquisition had been implemented on 1 January 2017, in management s estimation the impact on the Group s turnover would have been about EUR 5 million and on operating profit about EUR 0.5 million. When defining turnover and operating profit, management estimates that entries of current values on the acquisition date would be the same if the acquisition had been effected on 1 January 2017. 15
Current value of whole consideration 4,371 Current values of acquired assets and debts taken on at the time of purchase Intangible assets 3,910 Receivables 544 Cash and bank deposits 368 Total assets 4,822 Accounts payable and other debts 500 Calculated tax debt 860 Total debts 1,360 Total acquired net assets 3,462 Goodwill 910 Effect of acquisition on cash flow Total consideration paid 4,371 Share of consideration consisting of cash assets 0.00 Acquired cash assets 368 Effect of acquisition on cash flow 368 Going concern This interim report has been drawn up in line with the principle of going concern, taking into account the financing arrangements executed by the company in the 2017 financial period and at the start of 2018, and the business forecast for 2018. The forecasts take into consideration probable or foreseeable changes in future expectations for revenues and costs. At the time of the publication of the interim report, the company estimates that its net working capital will be sufficient for the needs of the following 12 months. Some of the company s bank loans include covenants that are reviewed for the next time on 31 March 2018. 16
Goodwill impairment testing Digitalist Group performed goodwill impairment testing on 31.12.2017. Goodwill is attributed to the one cash-generating unit. Based on the performed goodwill impairment testing, the use value of the tested assets exceeded the tested amount by EUR 16.0 million, and there was no need for impairment. The balance sheet at the end of the review period included EUR 12.8 million in goodwill. The present value of the cash flow calculation, EUR 33.5 million, is lower than the sum of the company s financial liabilities (EUR 11.5 million) and the market price of the shares (EUR 38.8 million) as of 31.12.2017. The company tests its goodwill based on the value of assets in use. In the testing performed on 31.12.2017, the cash flow forecast period consisted of the forecast between Q1 2018 and Q4 2021. In 2018-2021, it is believed that average growth of 12 per cent will be reached as digitalisation affects an ever greater part of business life. The operating profit percentage is forecast to rise to an average of 5 per cent. The assets tested in the method are compared to the cash flow that they generate in the chosen period, taking into account the discount rate and the growth factor of cash flows subsequent to the forecast period. A rate per annum of 10 per cent has been used as the discount rate, and 1 per cent per annum as the growth factor when calculating cash flows subsequent to the forecast period. When calculating the terminal value, the weighted average operating result percentage level for the period was used. The impairment test is most sensitive to these factors: not only the cash flow forecasts themselves and the assumptions that they contain but also the growth rate in the terminal value and the discount rate used. If -15.0 per cent instead of one per cent had been used as the growth rate of the terminal value, the use value would have been equal to the tested amount. If 18.3 per cent instead of 10 per cent had been used as the discount rate, the use value would have been equal to the tested amount. If the operating profit percentage were on average 0.1 per cent instead of 5 per cent, the use value would be equal to the tested amount. Loan covenants As of 31.12.2017, the company has EUR 3.2 million in loans from financial institutions. The amount of the loans including covenants was EUR 0.3 (0.6) million as of 31.12.2017. The loan agreements include covenants regarding the equity ratio, which is considered to include loans from the principal owner as well as the credit limits in use. The covenants will be reviewed 17
next on 31 March 2018. If the company fails to meet the limit set in the covenant agreement, the financier is entitled to terminate the loans that the covenant agreement applies to and demand their immediate repayment. The equity ratio calculated according to the covenant definition in the loan agreements shall be at least 30 per cent. On 31.12.2017, the company s equity ratio pursuant to the covenant definition was 54.2 per cent. The due dates for loans subject to covenants: Period Instalment TEUR 01.01 31.12.2018 253 CONSOLIDATED INCOME STATEMENT BY QUARTER, TEUR Q4/2017 Q3/2017 Q2/2017 Q1/2017 Q4/2016 Q3/2016 01.10-31.12. 17 01.07-30.09.17 01.04-30.06.17 31.03.17 01.10-31.12.16 01.07-30.09.16 Turnover 6,588 4,510 4,667 4,236 4,489 3,037 Operating expenses -8,098-5,872-5,896-5,034-5,572-5,050 OPERATING RESULT -1,510-1,362-1,229-798 -1,083-2,014 Financing income and expenses -385-623 -826-440 -231-495 Result before tax -1,895-1,986-2,055-1,237-1,341-2,510 Income taxes 12-18 237 0-1 0 RESULT FOR REFERENCE PERIOD -1,883-2,004-1,818-1,237-1,315-2,510 CHANGES IN FIXED ASSETS, TEUR Goodwill Intangible assets 18 Tangible fixed assets Available-forsale investments Carrying amount 01.01.2016 12,043 548 372 23 12,986 Additions 0 148 217 0 365 Changes in exchange rates 0 0 1 0 1 Disposal and transfers 0-75 -49-15 -139 Sale of business activities -500 0 5 0-495 Total
Deprecation and amortizations for the review period 0-298 -207 0-505 Carrying amount 31.12.2016 11,543 323 340 8 12,214 Carrying amount 01.01.2017 11,543 323 340 8 12,214 Additions 1,234 5,608 192 0 7,035 Deductions 0 0 0-1 -1 Changes in exchange rates -23-118 -7 0-148 Depreciation for the review period 0-789 -125 0-914 Carrying amount 31.12.2017 12,755 5,024 401 7 18,185 KEY FIGURES ASSETS 31.12.2017 31.12.2016 Earnings per share, EUR, diluted -0.02-0.03 Earnings per share, EUR -0.02-0.03 Equity per share, EUR 0.01-0.01 Cash flow from operations per share, EUR, diluted 0.00-0.01 Cash flow from operations per share, EUR 0.00-0.01 Return on investment, % -36.5-70.1 Return on equity, % neg neg Operating result/turnover, % -24.5-50.7 Net gearing from total equity, % 184.8-288.3 Equity ratio, % 21.9-26.1 EBITDA, 1000 EUR -3,985-7,231 OTHER INFORMATION 31.12.2017 31.12.2016 EMPLOYEES, average 203 188 Employees at the end of the period 240 174 COMMITMENTS, TEUR Guarantees given for own commitments 19
Corporate mortgages 23,500 23,500 Leasing and other rental commitments Due within 1 year 1,290 831 Due within 1-5 years 1,129 1,307 Due after 5 years 0 0 Total 2,419 2,138 Nominal value of interest rate swap agreement Due within 1 year 253 253 Due within 1-5 years 0 253 Due after 5 years 0 0 Total 253 506 Current value -2-7 CALCULATION PRINCIPLES FOR KEY FIGURES EBITDA = Earnings before interest, taxes, depreciation and amortization Diluted earnings per share = Profit for the period / Average share issue-adjusted number of shares corrected by the dilution effect Earnings per share = Profit for the period / Average share issue-adjusted number of shares Equity per share = Equity / Undiluted number of shares on the closing date Cash flow from operations per share, EUR, diluted = Net cash flow from operating activities / Average share issue-adjusted number of shares corrected by the dilution effect Return on investment (ROI) = (profit before tax + interest expenses + other financing expenses) / (Balance sheet total interest-free debts (average)) x 100 Return on equity (ROE) = net profit / Total equity (average) x 100 Gearing = interest-bearing debts liquid assets / total equity x 100 20