Financial Statements Release of Digitalist Group Plc 01.01.-31.12.2018

Digitalist Group Plc                       Stock Exchange Release              28 February 2019 at 09:00

DIGITALIST 2018 – GLOBALISING GROWTH

SUMMARY

October – December 2018 (figures for 2017 in brackets):

• Turnover EUR 7.5 million (EUR 6.6 million), growth of 13.3%.
• Earnings before interest, taxes, depreciation, and amortisation (EBITDA) EUR -0.8 million
  (EUR -1.2 million), -11.4% of turnover (-17.5%).
• Operating result EUR -1.3 million (EUR -1.5 million), -17,2% of turnover (-22.9%).
• Net result EUR -1.5 million (EUR -1.9 million), -20.5% of turnover (-28.6%).
• Earnings per share (diluted and undiluted) EUR -0.00 (EUR -0.00).
• Cash flow from operating activities EUR -0.0 million (EUR 0.6 million).

Accounting period January - December 2018 (figures for 2017 in brackets):

• Turnover 24.7 million (EUR 20.0 million), growth of 23.7%.
• Earnings before interest, taxes, depreciation, and amortisation (EBITDA) EUR -4.8 million (EUR -4.0 million), -19.6% of turnover (-19.9%).
• Operating result EUR -6.4 million (EUR -4.9 million), -26.0% of turnover (-24.5%).
• Net result EUR -6.8 million (EUR -6.9 million), -27.6% of turnover (-34.7%).
• Earnings per share (diluted and undiluted) EUR -0.01 (EUR -0.02).
• Cash flow from operating activities EUR -6.4 million (EUR -5.6 million).
• Number of employees at the end of the review period 270 (240), growth of 12.5%.

Future prospects

In 2019, turnover and operating result are expected to develop positively compared to 2018.

CEO’s review

The year began with the company opening new studios in North America, Vancouver and San Francisco. Digitalist Group focused its operations and reduced the number of personnel in Finland e.g. in the Kemi and Jyväskylä offices. At the same time, the company sought to obtain new customer relationships and to improve its profitability. During the first quarter, the company concluded major cooperation agreements with City Cruises from London and the Helsinki Regional Transport Authority. These agreements supported the major know-how of the company in the digitalisation of travel and tourism. During the first quarter, the result of the company suffered from the delay of major client projects.

Growth in Sweden
During the second quarter, the company grew and globalised by acquiring branding, design and consulting know-how when Grow AB and Grow Nine AB joined Digitalist Group. The cooperation and integration of the companies commenced quickly and joint business relationships were created during the first year together. At the end of the year, the companies moved into common premises in Stockholm’s Östermalm.

Focus of new strategy: development of customer experience
The expertise of Digitalist consists of combining research, design, marketing and technology. The intention is to help companies lead digitalisation, design new services and products and to create better customer experience. In the third quarter, the Board of Directors of the company approved a new strategy, according to which the company wishes to grow and improve its know-how within CRM as well. In the third quarter, the company organised its leadership and management according to this new strategy and hired a new commercial director.

Globalisation and growth continued
The share of company turnover from outside of Finland grew steadily during the whole of 2018 and in the last quarter, roughly two thirds of turnover came from outside of Finland. The company has major customer relationships and projects in Vancouver, San Francisco, London, Stockholm and Helsinki. The culture of the company is very international and it serves the best companies in the world. The biggest customers include the Canadian Finning, Honda, the Swedish Unionen, Volvo and Tikkurila. The company combines versatile know-how in client projects and delivers internationally from different studios. During the fourth quarter, the growth of the company was 13% and the result suffered from the delay of major client projects and additional costs resulting from the integration of the company.

/ Ville Tolvanen, CEO

SEGMENT REPORTING

Digitalist Group reports its operations in a single segment.

TURNOVER

During the fourth quarter, the turnover of the Group was EUR 7.5 million (EUR 6.6 million), which is 13.3% more than in the previous year.

The turnover of the Group during the accounting period was EUR 24.7 million (EUR 20.0 million), which was 23.7% more than in the previous year. The growth of turnover resulted from the expansion of the international business. This was positively affected by the acquisitions made in Sweden in 2017 and 2018. Turnover from outside of Finland composed more than half the turnover during the review period and was 62% (26%).

RESULT

During the fourth quarter, the earnings before interest, taxes, depreciation, and amortisation (EBITDA) was EUR -0.8 million (EUR -1.2 million), operating result was EUR -1.3 million (EUR
-1.5 million) and result before taxes was EUR -1.6 million (EUR -1.9 million). The net result in the fourth quarter was EUR -1.5 million (EUR -1.9 million), earnings per share was EUR -0.00 (EUR
-0.00) and the cash flow from the operating activities per share was EUR -0.00 (EUR -0.01).

In the accounting period, the earnings before interest, taxes, depreciation and amortisation (EBITDA) was EUR -4.8 million (EUR -4.0 million), operating result was EUR -6.4 million (EUR -4.9 million) and result before taxes EUR -7.1 million (EUR -7.2 million). In the review period, the earnings before interest, taxes, depreciation and amortisation (EBITDA) were affected e.g. by costs relating to acquisitions, delays in major client projects and additional costs related to the integration of the company. The net result in the review period was EUR -6.8 million (EUR -6.9 million), result per share was EUR -0.01 (EUR -0.02) and cash flow from business operations/share was EUR -0.01 (EUR -0.01). The result in the review period contains a total of EUR 0.5 million (EUR 0.6 million) of costs relating to acquisitions.

RETURN ON CAPITAL

The Group’s equity was EUR 7.0 million (EUR 5.5 million). Return on equity (ROE) was negative. Return on investment (ROI) was -28.3 (-36.5) per cent.

INVESTMENTS

Investments in the accounting period totalled EUR 7.3 million (EUR 7.0 million). The investments were mainly related to acquisitions. The R&D costs capitalised in the balance sheet in the accounting period amounted to a total of EUR 0.5 million (EUR 0.0). The R&D costs were related to the new Ticknovate product announced in the autumn.

BALANCE SHEET AND FINANCING

The balance sheet total grew due to acquisitions made in 2017 and 2018 and was EUR 32.2 million (EUR 25.0 million). Equity was EUR 7.0 million (EUR 5.5 million). The equity ratio for the entire shareholder’s equity was 21.8% (21.9%). The liquid assets of the Group at the end of the review period amounted to EUR 0.3 million (EUR 1.4 million).

The positive change in the company’s equity in the accounting period was affected by the rights issues offered in the context of the acquisitions and the financial arrangements conducted with the principal owner amounting to a total of EUR 8.7 million.

At the end of the accounting period, the Group’s balance sheet included EUR 7.5 million (EUR 3.2 million) in loans from financial institutions, including the credit limits in use.

In addition to this, the company has loans from its principal owner. Interest-bearing debt as of 31 December 2018 was EUR 16.3 million (EUR 11.5 million), of which loans from related party companies constitute EUR 8.6 million (EUR 8.1 million). Loan agreements signed with related party companies during the review period are listed under the section: Related party transactions.

CASH FLOW

The consolidated cash flow from operating activities during the accounting period was EUR -6.4 million (EUR -5.6 million), a change of 13.2%. The negative consolidated cash flow from operating activities is due to the operating loss in the review period. 

To shorten the rotation of sales receivables, the Group is selling some of its sales receivables from Finland. Sold sales receivables in the accounting period amounted to EUR 7.6 million (EUR 6.8 million).

GOODWILL

The Group’s balance sheet as of 31 December 2018 included EUR 18.1 million (EUR 12.8 million) in goodwill.

The following parameters have been used in goodwill testing:
- Length of review period: 4 years
- WACC discount rate: nine per cent
- One per cent growth estimate used for terminal value calculation.

No need for goodwill impairment was recognised during the goodwill impairment testing on 31 December 2018. The present value of future cash flows exceeded the carrying value of assets by EUR 19.3 million.

The present value of the cash flow calculation, EUR 43.1 million, is lower than the sum of the financial liabilities of the company EUR 16.3 million and market price of the shares EUR 30.6 million as of 31 December 2018.

PERSONNEL

The average number of personnel in the last quarter was 272 (239). The average number of personnel during the review period was 258 (203) and at the end of the period, there were 270 (240) employees. At the end of the accounting period, 119 (158) persons were employed by the Finnish companies and 151 (82) persons by the foreign companies of the Group. During the accounting period, the number of personnel increased by 30 people due to acquisitions.

SHARES AND SHARE CAPITAL

Share turnover and price

During the accounting period, the highest price for the company share was EUR 0.10 (EUR 0.16), the lowest price was EUR 0.04 (EUR 0.07) and the closing price on 31 December 2018 was EUR 0.05 (EUR 0.07). The average price for the accounting period was EUR 0.07 (EUR 0.11). A total of 15,294,061 shares were traded during the accounting period (44,747,638), which corresponds to 2.35 (8.08) per cent of the number of shares listed at the end of the accounting period. The market value for shares using the closing price on 31 December 2018 was EUR 30,598,069 (EUR 38,767,704.22).

Share capital

The registered share capital of the company at the beginning of the accounting period was EUR 585,394.16 and the number of shares was 553,824,346 pieces. At the end of the accounting period, the share capital was EUR 585,394.16 and the number of shares was 651,022,746. The company has one series of shares and the company does not own its own shares at the end of the accounting period.

Option plan 2016

The Digitalist Group Plc has a valid stock option programme for 2016, which in total gives the right to subscribe to 24,749,592 new company shares. Descriptions of the option plans are available on the company website at https://digitalist.global.

Shareholders

The number of shareholders on 31 December 2018 was 3,969 (3,906). Private persons owned 8.51 (9.75) per cent and institutions 91.49 (89.90) per cent. The share of foreign ownership was 0.03 (0.35) per cent. Nominee registered ownership was 4.73 (5.63) of all shares.

The ownership of Tremoko Oy Ab, a related party company, was 72.13 per cent. Options allow an increase in ownership up to 72.20 per cent.

Related-party transactions

On 30 January 2018, Digitalist Group Plc has agreed with Nordea Bank AB (publ), Finnish Branch, on the increase of the current credit limit from EU 0.2 million to EUR 1.0 million. The credit limit is secured by a directly enforceable guarantee granted by Turret Oy Ab and Holdix Oy Ab to Nordea Bank AB (publ), Finnish Branch, amongst other things, as collateral for the liabilities of Digitalist Group and its subsidiaries (published 22 December 2017). Turret Oy Ab and Holdix Oy Ab are the owners of Tremoko Oy Ab, the principal owner of the Digitalist Group.

On 21 February 2018, Digitalist Group Plc has agreed with its principal owner Tremoko Oy Ab on the increase of the current credit limit published on 18 August 2016 from EUR 2.5 million to EUR 3.0 million. This additional financing will be due no later than 31 December 2019.

On 25 April 2018, Digitalist Group Plc has accepted a binding offer from its principal owner Tremoko Oy Ab for a maximum of EUR 1.0 million debt financing arrangement. This arrangement enables further funding of EUR 1.0 million for the Digitalist Group compared to the previous situation. The additional financing complying with the financing arrangement will be due no later than 31 December 2019.

As part of the financing arrangement, Digitalist Group has also agreed with its principal owner Tremoko Oy Ab on the postponement of the due date 31 January 2019 for the previously provided EUR 4.6 million credit line facility. The new due date will be no later than 31 December 2019.

In conjunction with the financial arrangement, Digitalist Group Plc has agreed on a drawdown of debt securities for an amount of EUR 2.0 million from Nordea Bank AB (publ), Finnish Branch, converting the previous revolving credit facility of the same amount. These will be due in equal instalments every three months starting on 30 April 2020, the last payment date being on 30 April 2023.

On 25 May 2018, Digitalist Group Plc has agreed with Nordea Bank AB (publ), Finnish Branch, on the increase of the current credit limit by EUR 2.0 million to a total of EUR 3.0 million. The credit limit is secured by a directly enforceable guarantee granted by Turret Oy Ab and Holdix Oy Ab to Nordea Bank AB (publ), Finnish Branch, amongst other things, as collateral for the liabilities of Digitalist Group and its subsidiaries. Turret Oy Ab and Holdix Oy Ab are the owners of Tremoko Oy Ab, the principal owner of the Digitalist Group

On 31 May 2018, the company launched a directed share issue to Tremoko Oy Ab as part of the acquisition of the Grow Group.

To fulfil the conditions for the implementation of the arrangement, the Board of Directors of the Company decided, on the authorization of the Annual General Meeting of 17 April 2018, to issue a total amount of 22,222,222 new Company shares to be subscribed for by Tremoko Oy Ab in a directed share issue (“Rights Issue”) in deviation from the shareholders’ pre-emptive right. The issue price of new shares in the Rights Issue was EUR 0.09 apiece.

In the Rights Issue, the shares were issued to develop the business of the Company and to carry out the acquisition, so there is a weighty financial reason for the Rights Issue and the deviation from the shareholders’ pre-emptive right as is required under the Limited Liability Companies Act.

Tremoko Oy Ab has paid for the shares subscribed for by setting off receivables it has from the Company, amounting to EUR 1.6 million, and will pay the rest of the subscription price EUR 399,999.98 by cash.

Convertible bond to Tremoko Oy Ab
On the authorization of the Annual General Meeting on 17 April 2018, the Board of Directors of the Company decided, in deviation from the shareholders’ pre-emptive right, to direct the convertible bond and associated special rights referred to in Chapter 10 Section 1(2) of the Limited Liability Companies Act to be subscribed for by Tremoko Oy Ab in accordance with the terms of the Loan agreement. The principal of the loan is EUR 8,671,932.36. Tremoko Oy Ab or the current holder of the Special Rights is entitled to subscribe for a maximum of 150,000,000 new Company shares under the terms set out in more detail in Terms. Tremoko Oy Ab has subscribed for the Loan and the associated Special Rights in full in accordance with the Terms, and the Company’s Board of Directors has approved the subscription of Tremoko Oy Ab.

The number of shares issued on the basis of the right of conversion is determined by dividing the amount of principal of the Bond by the rate of conversion. The Rate of Conversion of the share (which means the subscription price per share as referred to in the Limited Liability Companies Act) corresponds to the trade volume weighted average price of the Company’s share in the Nasdaq Helsinki Stock Exchange during the period of six (6) months preceding the making of the Request to Convert as defined in section 13 of the Terms of the Loan minus 10 per cent, yet so that each Bond can be converted into a maximum of ten million (10,000,000) new company shares. The Rate of Conversion of a Share will be revised in accordance with the Terms of the Loan.

The other main terms of the Loan and Special Rights are the following:

• interest 6.0% p.a.
• interest starts to accrue as of 1 January 2019
• Interest paid biannually on 30 June and 31 December
• the maturity date (if conversion right has not been exercised) 31 December 2021. In addition to this, the debtor has the right to once repay the Loan including interests to the creditor at any time between 1 July 2018 and 30 June 2021
• the conversion period is any time between 1 July 2019 and 31 December 2021 (unless otherwise agreed between the creditor and the debtor for a pressing financial or other weighty reason), yet so that the debtor has the right to notify that it intends to repay the loan, in which case no conversion right exists for 3 months starting from such a notification, regardless of whether or not the creditor has submitted a notice of the conversion. The debtor may submit the request to convert referred to herein only once.

Tremoko Oy Ab has paid the subscribed Loan and the attached Special Rights by setting off its receivables from the Company in the total amount of EUR 8,671,932.36.

On 26 September 2018, Digitalist Group Plc has agreed with Nordea Bank AB (publ), Finnish Branch, on the increase of the current credit limit by EUR 1.0 million to a total of EUR 4.0 million. The credit limit is secured by a directly enforceable guarantee granted by Turret Oy Ab and Holdix Oy Ab to Nordea Bank AB (publ), Finnish Branch, as collateral for the liabilities of Digitalist Group and its subsidiaries. Digitalist Group and Digitalist Finland Oy have provided a joint collateralised counter-indemnity to Turret Oy Ab and Holdix Oy Ab, in which the company has, among other things, committed to paying market-priced guarantee provision. Turret Oy Ab and Holdix Oy Ab are the owners of Tremoko Oy Ab, the principal owner of Digitalist Group.

On 19 December 2018, Digitalist Group Plc has agreed with Nordea Bank Plc on the increase of the current credit limit by EUR 1.0 million to a total of EUR 5.0 million. The credit limit is secured by a directly enforceable guarantee granted by Turret Oy Ab and Holdix Oy Ab to Nordea Bank Plc, as collateral for the liabilities of Company and its subsidiaries. Digitalist Group and Digitalist Finland Oy have provided a joint collateralised counter-indemnity to Turret Oy Ab and Holdix Oy Ab, in which the company has, among other things, committed to paying market-priced guarantee provision. Turret Oy Ab and Holdix Oy Ab are the owners of Tremoko Oy Ab, the principal owner of Digitalist Group.

OTHER EVENTS DURING THE FOURTH QUARTER

The Stock Exchange releases of the review period are available on the company website at https://digitalist.global/investors/releases.

EVENTS FOLLOWING THE REVIEW PERIOD

On 29 January 2019, the company has concluded a major deal with a Swedish public operator on the supply of design and development services. The deal is part of long-term cooperation and its value is roughly EUR 1.5 million. The services have been planned to be delivered during 2019. The deal supports the growth of the Digitalist Group in Sweden and its objective to act as a strategic partner.

The deal does not cause any changes to the instructions provided by the Company for 2019.

RISK MANAGEMENT AND NEAR FUTURE UNCERTAINTY FACTORS

The risk management objective of Digitalist Group Plc is to ensure the undisturbed continuation and development of the company’s operations, and to support the achievement of the business goals set by the company and promote the increase of the company’s value. More detailed information on the organisation and processes of risk management and the identified risks can be found on the company website at www.digitalist.global.

Despite the measures implemented to improve efficiency, the company has recorded operating losses, which have an immediate effect on the company’s working capital. Risks are therefore managed by maintaining readiness for different financing solutions.

Changes in key accounts may have a negative effect on the operations, performance and financial position of the Digitalist Group. If one of the largest clients should move their purchases from Digitalist Group to its competitors or dramatically change their business model, the prospects for finding new client volume in the short term would be limited.

The turnover of the Group mainly consists of individual client contracts that are often fairly short in duration. Forecasting the dates and scope of new projects is sometimes challenging, while the cost structure is largely fixed by nature. The above factors may cause unexpected variation in turnover and, thereby, profitability.

Fixed-price project deliveries form part of the business of the Group and they involve risks related to time and content. Contract and project leadership tools are used in order to mitigate this risk.

A proportion of the Group’s turnover is invoiced in currencies other than euros. The risks related to currency exchange rates are managed by different means, including net positions and hedging agreements. The review periods in 2018 and 2017 did not include hedging agreements.

The Group has a subsidiary in England. The impact of Brexit on the business of the subsidiary has been assessed and it has been estimated to be minor.

The Group has a substantial amount of goodwill in its balance sheet, which is subject to an impairment risk in case the expected cashflow of the Group declines due to internal or external factors. Goodwill is tested each quarter and also at other times if need arises.

ON LONG-TERM GOALS AND STRATEGY

In the long run, Digitalist Group seeks a minimum of 10 per cent profit level. In order to achieve its long-term goals, Digitalist Group aims to grow globally and profitably by designing new thinking, services and technology solutions in the digitalising sectors. These include the technology and energy industries, transport and logistics and consumer services in the private and public sector. In its strategy, Digitalist Group focuses on deepening its service and solutions business and a seamless combination of user and usage research, branding, design and technology.

PROPOSAL OF THE BOARD OF DIRECTORS TO THE ANNUAL GENERAL MEETING

The Board of Directors of Digitalist Group Plc proposes to the Annual General Meeting that the distributable funds be left in the shareholders’ equity and no dividend be distributed to the shareholders for the accounting period 2018. On 31 December 2018, the distributable funds of the parent company were EUR 34,077,492.

The Annual General Meeting of Digitalist Group Plc will be held in Helsinki on Tuesday, 2 April 2019.
NEXT REPORT

Business review 1-3/2018 shall be published on Friday 26 April 2019.

DIGITALIST GROUP PLC
Board of Directors

For further information:
Digitalist Group Plc
- CEO Ville Tolvanen, tel. +358 50 3100642, ville.tolvanen@digitalistgroup.com
- Chief Financial Officer Hans Parvikoski, tel.+358 40 5866154, hans.parvikoski@digitalistgroup.com

Distribution:
NASDAQ OMX Helsinki
Major media

DIGITALIST GROUP

SUMMARY OF FINANCIAL STATEMENTS AND NOTES 1 January – 31 December 2018

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME, TEUR

STATEMENT OF COMPREHENSIVE INCOME, TEUR

CONSOLIDATED STATEMENT OF FINANCIAL POSITION, TEUR

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:               Equity total

CONSOLIDATED STATEMENT OF CASH FLOWS, TEUR

Accounting principles

This interim report has been prepared in accordance with IAS 34 (Interim Financial Reporting standard). The interim report follows the same accounting principles and methods as the annual financial statements, notwithstanding the changes in the accounting principles mentioned below.

Preparing the interim report in accordance with the IFRS standards requires the use of such assessments and presumptions from the management that affect the amounts of assets and liabilities at the time of preparation as well as the earnings and expenses during the review period. Consideration is also required in the application of the accounting principles for financial statements. Since the assessments and presumptions are based on the outlook at the time the interim report is concluded, 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 companies of the Group. The original release is in Finnish. The English release is a translation of the original.

The figures in the release are rounded, which is why the sum of individual figures may deviate from the total sum presented. The data for the 2017 and 2018 financial periods in the interim report have been audited.

Changes in the accounting principles

The International Accounting Standards Board has published three new standards concerning the Digitalist Group Plc, which are the IFRS 15, Revenue from Contracts with Customers; IFRS 9, Financial Instruments and IFRS 16, Leases. The IFRS 15 and IFRS 9 standards shall be applied from 1 January 2018 and the IFRS 16 standard from 1 January 2019.

The IFRS 15 standard is not considered to alter the principles for recording profits, the amount of profits or the timing thereof in the financial year 2018 or the reference period 2017, and hence no changes have been made in the revenue recognition of client contracts.

The IFRS 9 standard is not estimated to have impact on the financial statement transactions, values or notes during financial period 2018 or the reference period 2017.

Application of new and revised IFRS standards

IFRS 16 Leases

On 1 January 2019, Digitalist Group Plc introduced the IFRS 16 standard on leases. The most notable effect is that Digitalist records new assets and debts in the balance sheet that are mainly premises contained in existing other lease agreements. In addition, the nature of the costs associated with the lease 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 lease agreement debt, reported as part of financial costs. Digitalist Group will adopt the standard with a cumulative catch-up transition method, without restating prior periods. The impact of the change on the balance sheet on 1 January 2019 is roughly EUR 3.6 million.

Acquired business operations

On 21 May 2018, Digitalist Group concluded an agreement, whereby all shares in the Swedish Grow Holding AB and 51.9% of the Swedish Grow Nine AB transferred by exchange of shares to the ownership of Digitalist Group. Grow Holding AB owns 48.1% of Grow Nine AB’s shares. As compensation in the Transaction, Digitalist Group provided a total of 74,976,178 new shares in the Company in a special issue to be subscribed to by the owners of Grow Holding AB and the minority owners of Grow Nine AB. The subscription price for the shares in the shares issue was EUR 0.09 apiece. Thus, the total price of the acquisition was MEUR 6,747,856.02. The transaction was carried out on 31 May 2018.

The Compensation Shares represent roughly 11.52% of the shares and votes in Digitalist Group following the Share Issue. The Compensation Shares entitle their owners to any full dividends possibly distributed by Digitalist Group and to any other distribution of assets, and provide full shareholder rights in the Company from the point the Compensation Shares are recorded in the trade register and in the company’s list of shareholders. According to a separate agreement, the Compensation Shares are subject to a lock-up period between twelve (12) months and three (3) years from their issue.

Through the arrangement, Digitalist Group expands its Swedish operations and strengthens its ability to shape and deliver comprehensive innovation, design and technology solutions. Grow is a Swedish company, which has, from 2004, supported the growth of its client companies by offering strategic, design and communications services both in Sweden and globally. Through the acquisition, Digitalist Group received approximately 50 experts. Together Digitalist Group and Grow form a creative international design and technology company.

PURCHASE PRICE ALLOCATION

Fair value of total consideration                                                   6,748

Current values of acquired assets and debts taken on
at the acquisition date

Intangible assets                                                                          6,424
Tangible assets                                                                               136
Backlog                                                                                           272
Receivables                                                                                 1,505
Cash and bank deposits                                                                 198

Total assets                                                                                8,535

Accounts payable and other debts                                               1,547
Calculated tax debt                                                                         240
Total debt                                                                                    1,787

Total acquired net assets                                                          6,749

Impact of acquisition on cash flow

Total consideration paid                                                               6,748

Share of consideration consisting of cash assets                          0.00
Acquired cash assets                                                                      198
Impact of acquisition on cash flow                                                   198

The turnover arising from the acquisition, roughly EUR 5.3 million, reflects the synergy benefits expected to be achieved in producing comprehensive innovation, design and technology solutions to the global clients. The turnover resulting from the acquisition is not deductible in taxation.

If the acquisition had been carried out in 2017, the impact of the Grow companies on turnover would have been roughly EUR 5.5 million and the impact on the result for the period EUR -0.3 million.

Going concern

This interim report has been prepared in line with the principle of going concern, considering the financing arrangements executed by the company in 2018 and the business forecasts for 2019. The forecasts take into consideration the probable or foreseeable changes in future expectations, both in revenue and costs.

At the time of publication of the interim report, the company estimates that its net working capital will be sufficient for the needs of the following 12 months.

Goodwill impairment testing

Digitalist Group performed goodwill impairment testing on 31 December 2018. Goodwill is attributed to one cash-generating unit.

Based on the goodwill impairment testing conducted, the value in use of the assets tested exceeded the tested amount by EUR 19.3 million, and hence, there was no need for impairment. The balance sheet at the end of the review period included EUR 18.1 million in goodwill. The present value of the cash flow calculation, EUR 43.1 million, is lower than the sum of financial liabilities of the company EUR 16.3 million and the market price of the shares EUR 30.6 million as of 31 December 2018.

The company tests its goodwill based on the value of assets in use. In the testing performed on 31 December 2018, the cash flow forecast period consisted of the forecast between Q1 2019 and Q4 2022.

In the forecast period of Q1 2019 – Q4 2022, the company is expected to achieve an average growth of 17 per cent as digitalisation affects an increasingly large section of business. The operating profit percentage is expected to rise to an average of 6 per cent.

The assets tested in the method are compared to the cash flow that they generate in the chosen period, considering the discount rate and the growth factor of cash flows subsequent to the forecast period. A rate per annum of 9 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. In calculating the terminal value, the weighted average operating result percentage level for the period was used.

In goodwill testing, the most important sensitivity factors are the cash flow forecasts themselves and the assumptions that they contain and the growth rate in the terminal value and the discount rate used. If -9.9 per cent instead of 1 per cent had been used as the growth rate of the terminal value, the value in use had equalled the tested amount. If 15.5 per cent had been used instead of 9 per cent as the discount rate, the value in use had equalled the tested amount. If the operating profit percentage were an average of 1.1 per cent instead of 6 per cent, the value in use would equal the tested amount.

CONSOLIDATED INCOME STATEMENT BY QUARTER, TEUR

CHANGES IN INTANGIBLE ASSETS AND TANGIBLE ASSETS, TEUR 1000

KEY FIGURES

OTHER INFORMATION

CALCULATION PRINCIPLES FOR KEY FIGURES

EBITDA = Earnings before interest, taxes, depreciation and amortisation

Diluted earnings per share = Profit for the period, attributable to equity holders of the parent / Number of shares, adjusted for issues and for option dilution, average

Earnings per share = Earnings for financial period / Average share issue-adjusted number of shares outstanding during the period

Equity per share = Equity attributable to equity holders of the parent / Number of undiluted shares on the closing date

Cash flow from operations per share, EUR, diluted = Net cash flow from operations / Average share issue-adjusted number of shares outstanding during the period, adjusted for dilution

Return on investment (ROI) =
(earnings before tax + interest expenses + other financing expenses) /
(Total assets - interest-free debt (average)) x 100

Return on equity (ROE) = net earnings / Total equity (average) x 100

Gearing = interest-bearing debt - liquid assets / total equity x 100

Attachment