DIGITALIST GROUP’S HALF-YEAR REVIEW, 1 JANUARY–30 JUNE 2020
Digitalist Group Plc Stock Exchange Release 26 August 2020 at 09:00
DIGITALIST GROUP’S HALF-YEAR REVIEW, 1 JANUARY–30 JUNE 2020
DIGITALIST 2020 – AN EXCEPTIONAL SPRING
SUMMARY
April–June 2020 (comparable figures for 2019 in parentheses):
·Turnover: EUR 4.7 million (EUR 7.3 million), decrease: -34.9%.
·EBITDA: EUR - 0.8 million (EUR -0.6 million), -16.9% of turnover (-8.1%).
·EBIT: EUR -5.2 million (EUR -1.4 million), -110.7% of turnover (-19.8%).
·Net income: EUR -5.7 million (EUR -2.3 million), -119.8% of turnover (-32.1%).
·Earnings per share (diluted and undiluted): EUR -0.01 (EUR 0.00).
January–June 2020 (comparable figures for 2019 in parentheses):
·Turnover: EUR 11.2 million (EUR 14.9 million), decrease: 24.5%.
·EBITDA: EUR -1.5 million (EUR -1.0 million), -13.3% of turnover (-6.6%).
·EBIT: EUR -6.7 million (EUR -2.7 million), -59.8% of turnover (-18.0%).
·Net income: EUR -7,8 million (EUR -3.4 million), -69.5% of turnover (-22.6%).
·Earnings per share (diluted and undiluted): EUR -0.01 (EUR -0.01).
·Cash flow from operations: EUR -0.3 million (EUR -0.7 million).
·Number of employees at the end of the review period: 208 (260), decrease of 20%.
The EBIT and net result of the review period was impacted by a write-down of the company’s goodwill (EUR -3.7 million).
Future prospects
In 2020, turnover is expected to decrease in comparison with 2019, and EBITDA is expected to improve in comparison with 2019.
CEO’s review
Digitalist Group combines brand, design and technology expertise in a unique way. We aim to help our customers to provide their target groups with first-class customer experiences.
At the end of June, the company had a total of 208 employees (a decrease of 20 per cent) of more than 30 different nationalities in four different countries. This is a good illustration of our company’s diversity, a characteristic which provides our customers with added value. Digitalist Group has studios in Helsinki, Stockholm, London and Vancouver, each focusing on different areas of expertise and employing top-level experts, ranging from strategy and brand designers to design and technology specialists.
Digitalist Group’s largest customers include Honda, Volvo, Spotify, Forsea, Fennia, and the City of Helsinki.
EVENTS DURING THE SECOND QUARTER
In the second quarter of 2020, we continued to work on improving profitability. The Covid-19 pandemic had a particular impact on customer accounts in the travel and tourism sector, causing business uncertainty.
In March (17 March 2020), we initiated co-operation negotiations concerning every member of the Group’s personnel. As a result of the co-operation negotiations, Digitalist Group’s personnel were laid off in a staggered manner. Some personnel had a reduced number of working hours, and many rapid adjustments were made due to the changes in the market conditions while ensuring the delivery of customer projects. Many of these measures will also help to improve profitability in the second half of the year.
We expect to achieve annual savings of approximately EUR 2.3 million through restructuring and organisational efficiency measures.
The business outlook improved towards the end of the second quarter. In many of our customer relationships, we are building new ways of working to respond to increased demand in areas such as improving the online customer experience.
I am in awe of the work efforts and positive attitude of every Digitalist Group employee despite the difficult times we are going through. Almost all of our personnel worked from home in the second quarter, but we were able to work seamlessly, both internally and with our customers and partners.
Digitalist Group has everything in place to assist customer companies in renewal, acquiring feedback using the LeanLab user experience tool, and improving the customer and employee experience – particularly online. I believe that comprehensively improving the customer experience is an increasingly important priority for our customers.
Despite the gravity of the situation, we are starting the second half of the year in a strong position. We have implemented a comprehensive programme of adjustments and clarified our offering to address the changing market circumstances. Demand is normalising, customer feedback has been positive, and the entire Digitalist team is ready to design and implement top-class customer experiences in a changed world together with our customers.
/ CEO Petteri Poutiainen
SEGMENT REPORTING
Digitalist Group reports its business in a single segment.
TURNOVER
In the second quarter, the Group’s turnover was EUR 4.7 million (EUR 7.3 million), which is 34.9% less than in the previous year. Turnover was significantly affected by the decline in customer projects due to Covid-19 and the reduction in capacity due to efficiency improvement measures in 2019 and 2020.
The Group’s turnover for the review period totalled EUR 11.2 million (EUR 14.9 million), which is 24.5% less than in the previous year. The decrease in turnover was partly due to the impact of Covid-19. The efficiency measures implemented during the review period and the comparison period reduced the Group’s capacity substantially. The share of turnover earned outside Finland was almost three quarters of the total in the review period at 74% (74%).
RESULT
In the second quarter, EBITDA came to EUR -0.8 million (EUR -0.6 million), EBIT was EUR -5.2 million (EUR -1.4 million), and profit before taxes was EUR -5.7million (EUR -2.3 million). Net income for the second quarter amounted to EUR -5.7 million (EUR -2.3 million), earnings per share were EUR -0.01 (EUR 0.00). The net result of the second quarter was impacted by a write-down of the company’s goodwill (EUR -3.7 million).
In the review period, EBITDA came to EUR -1.5 million (EUR -1.0 million), EBIT was EUR -6.7 million (EUR -2.7 million), and profit before taxes was EUR -7.9 million (EUR -3.5 million). The negative development of EBITDA in the review period was influenced by the decrease in turnover. The cost savings arising from the implemented efficiency measures are not yet fully reflected in lower costs during the review period. Net income for the financial period amounted to EUR -7.8million (EUR -3.4 million), earnings per share were EUR -0.01 (EUR -0.01) and cash flow from operating activities per share was EUR 0.00 (EUR -0.01). The EBIT and net result of the review period was impacted by a write-down of the company’s goodwill (EUR -3.7 million).
RETURN ON EQUITY
The Group’s shareholders’ equity amounted to EUR -15.5 million (EUR 3.3 million). Return on equity (ROE) was negative. Return on investment (ROI) was -153.2 (-23.8) per cent.
INVESTMENTS
Investments in the review period totalled EUR 0,2 million (EUR 0.6 million). Most of the investments were related to the system project. At the end of the review period, product development costs capitalised on the balance sheet totalled EUR 0.8 million (EUR 1.1 million). The product development costs are related to the development of the Ticknovate product.
BALANCE SHEET AND FINANCING
The balance sheet total was EUR 20.3 million (EUR 34.2 million). Shareholders’ equity amounted to EUR
-15.5 million (EUR 3.3 million). The equity ratio was -77.5% (9.7%). At the end of the review period, the Group’s liquid assets totalled EUR 1.5 million (EUR 0.4 million).
At the end of the review period, the Group’s balance sheet recognised EUR 8.6 million (EUR 8.6 million) in loans from financial institutions, including the overdrafts in use.
In addition, the company has loans from its main owners. On 30 June 2020, the Group’s interest-bearing liabilities amounted to EUR 27.3 million (EUR 22.1 million), of which related-party loans amounted to EUR 0.0 million (EUR 10.1 million). During the review period loans from related parties amounting to EUR 17.8 million have been converted into convertible bonds. The loan agreements made with related-party companies during the review period are in the section of the review entitled related-party transactions.
CASH FLOW
The Group’s cash flow from operating activities during the review period was EUR -0.3 million (EUR -0.7 million), a change of EUR +0.4 million. The positive development of the company’s liquid assets was influenced by the payment arrangements agreed with various authorities and the Covid-19 support packages provided by various countries.
In order to reduce the rate of turnover of trade receivables, the Group sells some of its trade receivables from Finnish customers. In the second quarter, EUR 1.8 million (EUR 2.8 million) of trade receivables were sold.
GOODWILL
On 30 June 2020, the consolidated balance sheet recognised EUR 7.2 million (EUR 17.9 million) in goodwill. The company conducted an IAS 36 impairment test on its goodwill to reflect the status on 30 June 2020, and this led to the recognition of a goodwill impairment charge of EUR 3.7 million. The impairment is due to the company’s assumption that the risks associated with the growth of the previously acquired businesses in its balance sheet will materialise, with growth more moderate and slower than previously anticipated. This change in assumptions has also affected the cash flows used for impairment testing.
The following parameters were used to test goodwill for impairment:
- Length of the testing period: 4 years
- WACC discount rate: 14 per cent
- Assumed growth (“terminal value”): 1 per cent
PERSONNEL
The average number of employees during the period under review was 227 (268), and the Group had 208 (260) at the end of the period. At the end of the review period, 74 (102) of the Group’s personnel were employed by the Finnish companies, and 134 (158) were employed in the Group’s foreign companies. During the period under review, the number of personnel decreased by 36, mainly due to the co-operation negotiations conducted within the Group.
SHARES AND SHARE CAPITAL
Share turnover and price
During the review period, the company’s share price hit a high of EUR 0.05 (EUR 0.08) and a low of EUR 0.03 (EUR 0.05), and the closing price on 30 June 2020 was EUR 0.03 (EUR 0.05). The average price during the review period was EUR 0.04 (EUR 0.05). During the period under review, 19,328,777 (6,259,768) shares were traded, corresponding to 2.97 (0.96) per cent of the number of shares in circulation at the end of the review period. The Group’s market capitalisation at the closing share price on 30 June 2020 was EUR 22,134,776 (EUR 31,900,115).
Share capital
At the beginning of the period under review, the company’s registered share capital was EUR 585,394.16, and there were 651,022,746 shares. At the end of the period, the share capital was EUR 585,394.16, and there were 651,022,746 shares. The company has one series of shares, and it did not hold any treasury shares at the end of the period under review.
Option programmes 2016 and 2019
Digitalist Group Plc has option programmes for 2016 and 2019, and the maximum number of new shares in the company to be subscribed is 15 360 000. Descriptions of the option programmes are on the company’s website at
Shareholders
The number of shareholders on 30 June 2020 was 4,173 (4,028). Private individuals owned 8.9 (8.5) per cent of the shares, and institutions held 91.0 (91.2) per cent. Foreign nationals or entities held 0.01 (0.3) per cent of the shares. Nominee-registered shares accounted for 4.4 (4.8) per cent of the total.
RELATED-PARTY TRANSACTIONS
Financing arrangements with related parties:
On 24 January 2020, Digitalist Group Plc agreed on a short-term loan of EUR 1,000,000 with Holdix Oy Ab. The loan was agreed on market terms, and it matures on 13 March 2020.
Convertible bonds 12 March 2020
On 12 March 2020, Digitalist Group Plc agreed on a financing arrangement of approximately EUR 9.2 million with Turret Oy Ab and Holdix Oy Ab whereby the Company’s short-term liabilities to Turret and Holdix were converted into long-term convertible bonds amounting to approximately EUR 8.2 million. In addition to the debt conversion, Turret will pay EUR 1.0 million in cash to the Company as the price of subscription of the convertible bonds in accordance with the terms and conditions.
As part of the Arrangement, Turret’s receivables of approximately EUR 1.375 million from the Company’s subsidiaries Digitalist Sweden AB and Grow AB became the liabilities of Digitalist Group. The Arrangement also includes an agreement between the Company, Turret and Holdix on the alteration of the terms of Digitalist Group’s Convertible Loan of 31 May 2018 such that the interest payable on the bond principal as of 12 March 2020 was postponed for payment in a single instalment at the maturity of each bond on 31 December 2021.
The Company has issued a stock exchange release relating to the details of the convertible bonds 13 March 2020..
OTHER EVENTS DURING THE SECOND QUARTER
On 7 April 2020, the company concluded co-operation negotiations covering the Group’s entire personnel. The negotiations had begun on 17 March 2020.
As a result of the co-operation negotiations, Digitalist Group’s employees will be laid off in Finland for a maximum of 90 days. Temporary lay-offs will be implemented in a staggered pattern part-time and/or full-time so that the delivery of customer projects is assured. In addition, 5 employees has been made redundant in Finland, and an estimated maximum of 22 employees will be made redundant in the Company’s foreign subsidiaries. Digitalist Group has also decided to close its office in the USA.
The company expects to achieve annual savings of approximately EUR 2.3 million through restructuring and organisational efficiency measures.
On 4 June 2020, the Financial Supervisory Authority approved the Company’s registration document in accordance with the Securities Markets Act. The registration document contains information about the Company, its business and its financial position. The registration document is valid for 12 months after approval.
The stock exchange releases for the review period are on the company’s website at /investors/releases
Annual General Meeting 14 April 2020
The company held its Annual General Meeting on 14 April 2019. The minutes of the Annual General Meeting and the decisions made are on the company’s website at
The Annual General Meeting elected Paul Ehrnrooth, Andreas Rosenlew, Esa Matikainen, Peter Eriksson and Maria Olofsson as ordinary members of the Board of Directors.
At the Board meeting held on 15 April 2020 after the Annual General Meeting, the Board of Directors elected Andreas Rosenlew as the Chair of the Board and Esa Matikainen as the Deputy Chair of the Board.
EVENTS SINCE THE REVIEW PERIOD
On 22 July 2020, the Company announced the incorporation of the Ticnovate business, a joint venture ABC Leisure investments Ltd to develop Digitalist’s Ticnovate business. Digitalist UK Limited has on 21 July 2020 sold Ticknovate Limited’s shares in cash for the amount of EUR 0.3 million to ABC Leisure Investments Ltd, in addition to which ABC Leisure Investments Ltd has subscribed for EUR 0.5 million's worth of Ticknovate Limited's new shares in a directed issue.
Following the above measures, ABC Leisure Investments Ltd now holds 35 per cent of the shares and votes in Ticknovate Limited, and Digitalist UK Limited holds 65 per cent. Digitalist and ABC Leisure Investments Ltd will continue the further development and commercialisation of the TicknovateTM product and business in Ticknovate Limited. From Digitalist Group Plc's point of view, the Arrangement provides additional investment in the further development of the TicknovateTM product and business as a part of the Group's internationalisation strategy. For Digitalist Group, the positive effect on cash flow amounts to approximately EUR 0.7 million (net).
RISK MANAGEMENT AND SHORT-TERM UNCERTAINTIES
The objectives of Digitalist Group Plc’s risk management are to ensure the undisrupted continuity and development of the company’s operations, support the achievement of the company’s business objectives and increase the company’s value. For more details about the organisation of risk management, processes and identified risks, see the company’s website at
In recent times, the company has been making a loss despite the efficiency measures it has taken.. The company’s loss-making performance directly affects its working capital and the sufficiency of its financing. This risk is managed by maintaining the capacity to use different financing solutions. The Company aims to continuously assess and monitor the amount of necessary business financing to ensure that it has sufficient liquid assets to finance its operations and repay maturing loans. Any disruptions in the financial arrangements would weaken Digitalist Group’s financial position.
When Covid-19 developed into a pandemic in early 2020, the restrictive measures taken to prevent the spread of the disease affected the businesses of the company’s customers, thereby reducing the number of projects with some customers and the number of orders. This is reflected in the development of turnover.
The company is currently dependant on external financing, most of which has been obtained from related-party companies and financial institutions. Digitalist Group’s ability to finance its operations and reduce the amount of its debt depends on several factors, such as the cash flow from operations and the availability of debt and equity financing, and there is no certainty that such financing will be available in the future. Similarly, there can be no certainty that Digitalist Group will be able to obtain additional debt or refinance its current debt on acceptable terms, if at all. In early 2020, the company rearrange its short-term loans with both the main owner and a financial institution. The rearranged loans are now the company’s long-term debts, which had the effect of reducing the short-term loan repayment obligations.
A significant proportion of the Group’s turnover is generated by its 20 largest customers. Changes in key customer accounts could adversely affect Digitalist Group’s operations, earning capacity and financial position. If one of Digitalist Group’s largest customers decided to switch to a competing company or drastically altered its operating model, the chances of finding customer volumes to replace the shortfall in the near term would be limited. The Company has been more successful than before in its investment in these key customer accounts, and this contributes to stronger prospects for the future.
The Group’s business consists mainly of individual customer agreements, which are often relatively short-term. In addition, some of the project contracts have fixed or target prices. The length of delivery contracts makes it difficult to reliably estimate the longer-term development of the Group’s business operations, earnings and financial position. With regard to fixed-price projects, it is essential to be able to estimate the workload and/or contractual risks of the project correctly in order to ensure an adequate level of profitability.
Irrespective of the market situation, there is a shortage of certain experts in Digitalist Group’s sector. Furthermore, the aggressive recruitment policies that are prevalent in Digitalist Group’s sector may increase the risk of personnel moving to competitors. There is no guarantee that the Company will be able to retain its current personnel and recruit new employees to maintain growth. If Digitalist Group loses its current personnel, it would be more difficult to complete existing projects and acquire new ones. This could have an adverse impact on Digitalist Group’s business, earnings and financial position.
Part of the Group’s turnover is invoiced in currencies other than the euro. The risk associated with changes in exchange rates is managed in various ways, including net positioning and currency hedging contracts. No hedging contracts were used in the 2019 and 2020 reporting periods.
The Group has a subsidiary in England. The impact of Brexit on the subsidiary’s business has been assessed and is estimated to be limited.
The Group’s balance sheet contains goodwill that is subject to write-down risk in the event that the Group’s future yield expectations decrease due to internal or external factors. The goodwill is tested for impairment every six months and whenever the need arises.
LONG-TERM GOALS AND STRATEGY
Digitalist Group aims to achieve a profit margin of at least 10 per cent over the long term. In order to achieve its long-term goals, Digitalist Group strives for profitable, international growth by shaping new forms of thinking, services and technological solutions for digitalising sectors. These sectors include the technology industry, energy industry, transport and logistics, as well as consumer services in the public and private sectors. Digitalist Group’s strategy focuses on enhancing its service and solution business and seamlessly integrating user and operational research, branding, design and technology.
NEXT REVIEW
The next interim report, for January–September 2020, will be published on Thursday 22 October 2020.
DIGITALIST GROUP PLC
Board of Directors
Further information:
Digitalist Group Plc
- CEO Petteri Poutiainen, tel. 2,
- CFO Mervi Södö, tel. 9,
Distribution:
NASDAQ OMX Helsinki
Key media
DIGITALIST GROUP
SUMMARY OF THE HALF-YEAR REPORT AND NOTES, 1 JANUARY – 30 JUNE 2020
CONSOLIDATED INCOME STATEMENT, EUR THOUSAND
| 1 Apr–30 Jun 20 | 1 Apr–30 Jun 19 | Change (%) | 1 Jan–30 Jun 20 | 1 Jan–30 Jun 19 | Change (%) | |
| Turnover | 4,735 | 7,272 | -34.9 | 11,244 | 14,894 | -24.5 |
| Operating expenses | -9,976 | -8,715 | -14.5 | -17,967 | -17,569 | -2.3 |
| EBIT | -5,241 | -1,443 | -263.6 | -6,723 | -2,675 | -59.8 |
| Financial income and expenses | -490 | -892 | 45.1 | -1,215 | -828 | -46.7 |
| Profit before taxes | -5,730 | -2,335 | -145.4 | -7,938 | -3,504 | -70.6 |
| Income taxes | 59 | 68 | -12.8 | 123 | 136 | -9.7 |
| PROFIT/LOSS FOR THE FINANCIAL PERIOD | -5,671 | -2,267 | -150.2 | -7,815 | -3,367 | -69.5 |
| Distribution: | ||||||
| Parent company shareholders | -5,671 | -2,267 | -150.2 | -7,815 | -3,367 | -69.6 |
| Earnings per share: | ||||||
| Undiluted (EUR) | -0.01 | 0.00 | -0.01 | -0.01 | ||
| Diluted (EUR) | -0.00 | 0.00 | -0.01 | -0.01 |
COMPREHENSIVE INCOME STATEMENT, EUR THOUSAND
| 1 Apr–30 Jun 20 | 1 Apr–30 Jun 19 | Change (%) | 1 Jan–30 Jun 20 | 1 Jan–30 Jun 19 | Change (%) | |
| Profit/loss for the financial period | -5,671 | -2,267 | -150.2 | -7,815 | -3,367 | -132.1 |
| Other items of comprehensive income | ||||||
| Translation difference | 854 | 259 | 229.8 | 620 | -359 | 272.7 |
| TOTAL COMPREHENSIVE INCOME FOR THE YEAR | -4,817 | -2,008 | -139.9 | -7,196 | -3,726 | -93.1 |
CONSOLIDATED BALANCE SHEET, EUR THOUSAND
| ASSETS | 30 June 2020 | 30 June 2019 | 31 December 2019 |
| NON-CURRENT ASSETS | |||
| Intangible assets | 4,374 | 3,991 | 4,903 |
| Goodwill | 7,206 | 17,878 | 10,934 |
| Tangible assets | 2,201 | 4,879 | 3,050 |
| Buildings and structures, rights-of-use | 1,887 | 3,278 | 2,673 |
| Machinery and equipment | 265 | 400 | 290 |
| Other tangible assets | 49 | 102 | 87 |
| Other non-current financial assets | 2 | 2 | 2 |
| NON-CURRENT ASSETS | 13,252 | 26,750 | 18,889 |
| CURRENT ASSETS | |||
| Trade and other receivables | 4,963 | 7,033 | 6,032 |
| Income tax asset | 263 | 10 | 572 |
| Cash and cash equivalents | 1,525 | 381 | 787 |
| CURRENT ASSETS | 6,751 | 7,424 | 7,391 |
| ASSETS | 20,003 | 34,174 | 26,280 |
| SHAREHOLDERS’ EQUITY AND LIABILITIES | |||
| SHAREHOLDERS’ EQUITY | |||
| Parent company shareholders | |||
| Share capital | 585 | 585 | 585 |
| Share premium account | 219 | 219 | 219 |
| Invested non-restricted equity fund | 73,185 | 73,185 | 73,185 |
| Retained earnings | -81,681 | -67,321 | -67,648 |
| Profit/loss for the financial period | -7,815 | -3,367 | -14,662 |
| Parent company shareholders | -15,507 | 3,301 | -8,321 |
| SHAREHOLDERS’ EQUITY | -15,507 | 3,301 | -8,321 |
| NON-CURRENT LIABILITIES | 22,126 | 14,242 | 13,523 |
| CURRENT LIABILITIES | 13,383 | 16,631 | 21,078 |
| SHAREHOLDERS’ EQUITY AND LIABILITIES | 20,003 | 34,174 | 26,280 |
CALCULATION OF CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY, EUR THOUSAND
A: Share capital
B: Share premium account
C: Invested unrestricted equity fund
D: Translation difference
E: Retained earnings
F: Total shareholders’ equity attributable to the parent company’s
G: Total shareholders’ equity
| A | B | C | D | E | F | G | |
| Shareholders’ equity 1 Jan 2019 | 585 | 219 | 73,186 | 412 | -67,375 | 7,027 | 7,027 |
| Other changes | |||||||
| Profit/loss for the financial period | -14,662 | -14,662 | -14,662 | ||||
| Other items of comprehensive income | |||||||
| Translation difference | -541 | -541 | -541 | ||||
| Share-based remuneration | -145 | -145 | -145 | ||||
| Shareholders’ equity 31 Dec 2019 | 585 | 219 | 73,186 | -129 | -82,182- | -8,321 | -8,321 |
| Shareholders’ equity 1 Jan 2020 | 585 | 219 | 73,186 | -129 | -82,182 | -8,321 | -8,321 |
| Other changes | |||||||
| Profit/loss for the financial period | -7,815 | -7,815 | -7,815 | ||||
| Other items of comprehensive income | |||||||
| Translation difference | -639 | -639 | -639 | ||||
| Share-based remuneration | -10 | -10 | -10 | ||||
| Shareholders’ equity 30 Jun 2020 | 585 | 219 | 73,186 | 510 | -90,007 | -15,507 | -15,507 |
| Shareholders’ equity 1 Jan 2019 | 585 | 219 | 73,186 | 412 | -67,375 | 7,027 | 7,027 |
| Other changes | |||||||
| Profit/loss for the financial period | -3,367 | -3,367 | -3,367 | ||||
| Other items of comprehensive income | |||||||
| Translation difference | -359 | -359 | -359 | ||||
| Share-based remuneration | |||||||
| Shareholders’ equity 30 Jun 2019 | 585 | 219 | 73,186 | 54 | -70,742 | 3,302 | 3,302 |
CONSOLIDATED CASH FLOW STATEMENT, EUR THOUSAND
| Cash flow from operations | 1 Jan-30 Jun 2020 | 1 Jan–30 Jun 2019 | 1 Jan-31 Dec 2019 |
| Earnings before taxes in the period | -7,938 | -3,504 | -14,998 |
| Adjustments to cash flow from operations: | |||
| Depreciation, impairment | 5,228 | 1,696 | 10,371 |
| Financial income and expenses | 1,215 | 868 | 911 |
| Other adjustments | 200 | -82 | -489 |
| Cash flow financing before changes in working capital | -1,295 | -1,021 | -4,205 |
| Change in working capital | -1,010 | 544 | -594 |
| Interest received | 7 | 2 | |
| Interest paid | -9 | -273 | -3 |
| Taxes paid | -6 | 47 | -17 |
| Net cash flow from operations | -292 | -705 | -4,286 |
| Investments in other shares | 1 | ||
| Investments in tangible and intangible assets | -198 | -706 | -1,045 |
| Received investment grants | 318 | ||
| Taxes paid | 7 | ||
| Net cash flow from investments | 119 | -704 | -1,045 |
| Net cash flow before financial items | -172 | -1,409 | -5,864 |
| Cash flow from financing activities | |||
| Draw down of long-term loans | 1,000 | 392 | |
| Short term loans, increase | 1,000 | 2,234 | 7,502 |
| Short-term loans, decrease | -207 | 3 | -33 |
| Interest paid | -234 | ||
| Repayment of lease liabilities | -648 | -761 | -1,525 |
| Net cash flow from financing | 911 | 1,476 | 6,336 |
| Change in cash and cash equivalents | 739 | 67 | 473 |
| Liquid assets, beginning of period | 787 | 314 | 314 |
| Liquid assets, end of period | 1525 | 381 | 787 |
Accounting principles
This interim report release has been prepared in accordance with IAS 34 – Interim Financial Reporting. The interim report release complies with the same accounting principles and calculation methods as the annual financial statements. New and revised standards have been implemented from the beginning of year 2020. These changes have not affected accounting principles nor financial statements from previous years.
The preparation of a financial statement release in accordance with IFRS requires the management to use certain estimates and assumptions that affect the amounts recognised in assets and liabilities when the balance sheet was prepared, as well as the amounts of income and expenses in the period. In addition, discretion must be used in applying the accounting policies. As the estimates and assumptions are based on outlooks on the balance sheet date, they contain risks and uncertainties. The realised values may deviate from the original assessments and assumptions.
The figures on the income statement and balance sheet are consolidated figures. All Group companies have been consolidated. The original release is in Finnish. The English release is a translation of the original.
The figures in the release have been rounded, so the sums of individual figures may deviate from the presented totals. This interim report is unaudited.
Going concern
The interim report release was prepared in accordance with the principle of the business as a going concern. The assumption of continuity is based management assumptions on several factors, including the following:
- The Group has completed significant cost-saving programs, which are expected to result in improvements to the Group’s profitability from the second half of 2020 onwards. During the second quarter, operating costs decreased by EUR 2.4 million in comparison with the corresponding period in the previous year and by EUR 3.3 million in the review period.
- The Group has invested in its key customers in line with its strategy, and this is expected to have a positive impact on sales trends.
- The Group’s liquidity has improved in comparison with the earlier forecast due to successful negotiations concerning payment times in various units and the Covid-19 aid received by the Group.
- When the financial statements were published, the company expected its working capital to be sufficient to cover its requirements over the next 12 months.
The company has restructured its financing in the review period by extending the payment period for loans from related parties and by transforming them into convertible bonds. Repayment for loans from financial institutions has also been changed.
Goodwill impairment testing and recognised impairment
Digitalist Group tested its goodwill for impairment on 30 June 2020. The goodwill is allocated to one cash-generating unit.
The goodwill test revealed that the utility value of the assets tested was EUR 3.7 million less than the book value, so a corresponding impairment charge was recognised against goodwill. Following the impairment, the amount of goodwill in the balance sheet at the end of the review period is EUR 7.2 million.
The company tests its goodwill based on the utility value of the assets. In the testing conducted on 30 June 2020 in conjunction with the financial statements, the cash flow forecasting period was from 2020 to 2024.
During the 2020–2024 forecasting period, average growth in revenueof 18 per cent is expected to be achieved as digitalisation spreads to an increasing share of business life. The operating margin is expected to rise to about 5 per cent by the end of the forecasting period.
The method involves comparing the tested assets with their cash flow over the selected period, taking into account the discount rate and the growth factor of the cash flows after the forecast period. The discount rate is 14 per cent per cent. The growth factor used to calculate the cash flows after the forecast period is 1 per cent. The weighted average operating profit margin for the forecast period was used to calculate the value of the terminal period. A negative change in significant individual assumptions used in the calculations would necessitate an additional goodwill impairment charge.
CHANGES IN INTANGIBLE AND TANGIBLE ASSETS, EUR THOUSAND
| | Goodwill | Intangible assets | Tangible fixed assets | Other investments | Total |
| Carrying value 1 Jan 2019 | 18,059 | 4,183 | 1,652 | 7 | 23,896 |
| IFRS 16 1 Jan 2019 | 3,817 | 3,817 | |||
| Increases | 646 | 79 | 725 | ||
| IFRS 16 increases | 288 | 288 | |||
| Decreases | 0 | ||||
| IFRS 16 decreases | 0 | ||||
| Changes in exchange rates | -181 | -100 | 1 | 0 | -280 |
| Depreciation for the review period | 0 | -738 | -131 | 0 | -869 |
| IFRS 16 depreciation for the review period | -827 | -827 | |||
| Carrying value 30 Jun 2019 | 17,878 | 3,991 | 4,879 | 2 | 26,750 |
| Goodwill | Intangible assets | Tangible fixed assets | Other investments | Total | |
| Carrying value 1 Jan 2020 | 10,934 | 4,903 | 377 | 2 | 16,216 |
| IFRS 16 increase 1 Jan 2020 | 2,673 | 2,673 | |||
| Increases | -161 | 16 | 0 | -145 | |
| IFRS 16 increases in the review period | 0 | ||||
| Decreases | 0 | ||||
| IFRS 16 decreases in the review period | -128 | -128 | |||
| Impairment | -3,700 | -3,700 | |||
| Changes in exchange rates | -28 | -103 | -5 | 0 | -136 |
| Depreciation for the review period | -797 | -74 | 0 | -871 | |
| IFRS 16 depreciation in the review period | -658 | -658 | |||
| Carrying value 30 Jun 2020 | 7,206 | 3,842 | 2,201 | 2 | 13,251 |
KEY INDICATORS
| ASSETS | 1 Jan–30 Jun 2020 | 1 Jan-30 Jun 2019 | 1 Jan-31 Dec 2019 |
| Earnings per share (EUR) diluted | -0.01 | -0.01 | -0.02 |
| Earnings per share (EUR) | -0,01 | -0.01 | -0.02 |
| Shareholders’ equity per share (EUR) | -0.00 | 0.01 | -0.01 |
| Cash flow from operations per share (EUR) diluted | 0.00 | 0.00 | -0.01 |
| Cash flow from operations per share (EUR) | 0.00 | 0.00 | -0.01 |
| Return on capital employed (%) | -153.2 | -36.0 | -69.9 |
| Return on equity (%) | neg. | neg. | neg. |
| Operating profit/turnover (%) | -59.8 | -18.8 | -51.4 |
| Gearing as a proportion of shareholders’ equity (%) | -175.8 | 657.8 | -313.4 |
| Equity ratio as a proportion of shareholders’ equity (%) | -77.5 | 9.7 | -31.7 |
| EBITDA (EUR thousand) | -1,495 | -979 | -3,716 |
| MATURITY OF FINANCIAL LIABILITIES AND INTEREST ON LOANS | ||||||
| 31 December 2019 | Balance sheet value | Cash flow | Under 1 year | 1–5 years | Over 5 years | |
| Loans from financial institutions | 3,418 | 3,905 | 807 | 3,098 | 0 | |
| Credit limits | 5,295 | 5,295 | 5,295 | |||
| Convertible bonds | 8,672 | 9,712 | 520 | 9,192 | 0 | |
| Other related-party loans | 6,087 | 7,029 | 7,029 | 0 | 0 | |
| Lease liabilities IFRS 16 | 2,949 | 3,125 | 1,661 | 1,098 | 366 | |
| Accounts payable | 2,176 | 2,176 | 2,176 | |||
| 30.6.2020 | Balance sheet value | Cash flow | Under 1 year | 1–5 years | Over 5 years | |
| Loans from financial institutions | 3,364 | 3,542 | 243 | 3 281 | 0 | |
| Credit limits | 5,072 | 5,072 | 5,072 | |||
| Convertible bonds | 17,881 | 19,475 | 0 | 19,475 | 0 | |
| Lease liabilities IFRS 16 | 2,071 | 2,147 | 881 | 1,296 | 0 | |
| Accounts payable | 1,538 | 1,538 | 1,538 | 0 | 0 | |
| The company has made an agreement with its principal financiers on a loan payment holiday until 31 December 2021. Credit limits are valid until further notice. | ||||||
OTHER INFORMATION
| 1 Jan -30 Jun 2020 | 1 Jan -30 Jun 2019 | 1 Jan -31 Dec 2020 | |
| NUMBER OF EMPLOYEES, average | 227 | 268 | 262 |
| Personnel at the end of the period | 208 | 260 | 246 |
| LIABILITIES, EUR THOUSAND | |||
| Pledges made for own obligations | |||
| Corporate mortgages | 13 300 | 23 500 | 13 300 |
| Leasing and other rental liabilities | |||
| Maturing within 1 year | 0 | 101 | 0 |
| Maturing within 1–5 years | 0 | 69 | 0 |
| Maturing after 5 years | 0 | 0 | 0 |
| Total | 0 | 170 | 0 |
| Nominal value of interest rate swap contract | |||
| Maturing within 1 year | 0 | 0 | 0 |
| Maturing within 1–5 years | 2 000 | 2 000 | 2 000 |
| Maturing after 5 years | 0 | 0 | 0 |
| Total | 2 000 | 2 000 | 2 000 |
| Total interest-bearing liabilities | |||
| Long-term loans from financial institutions | 2 871 | 2 871 | 2 871 |
| Other long-term liabilities | 17 881 | 10 558 | 9 980 |
| Short-term interest-bearing liabilities | 5 678 | 8 672 | 14 015 |
| Total | 26 430 | 22 101 | 26 866 |
CALCULATION OF KEY FINANCIAL FIGURES
EBITDA = earnings before interest, tax, depreciation and amortisation
Diluted earnings per share = Profit for the financial period / Average number of shares, adjusted for share issues and for the effect of dilution
Earnings per share = Profit for the financial period / Average number of shares adjusted for share issues
Shareholders’ equity per share = Shareholders’ equity / Number of undiluted shares on the balance sheet date
Cash flow from operations per share (EUR) diluted = Net cash flow from operations / Average number of shares, adjusted for share issues and for the effect of dilution
Return on investment (ROI) =
(Profit before taxes + Interest expenses + Other financial expenses) /
(Balance sheet total - non-interest-bearing liabilities (average)) x 100
Return on equity (ROE) = Net profit / Total shareholders’ equity (average) x 100
Gearing = interest-bearing liabilities - liquid assets / total shareholders’ equity x 100
Attachment
