REG - Mirriad Advertising - Results for the year ended 31 December 2019

Mirriad AdvertisingAnnouncement

12/05/2020 07:02

RNS Number : 5478M
  
Mirriad Advertising PLC
  
12 May 2020
  
 

Mirriad Advertising plc
 
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019
 
12 MAY 2020
 
 
Mirriad Advertising plc
("Mirriad", the "Company" or the "Group")
 
Results for the year ended 31 December 2019
 
Mirriad Advertising plc, the computer vision and AI platform company, announces its unaudited results for the year ended 31 December 2019.
 
Financial overview
 
·    2019 revenue of £1,140k (2018 £416k) 
·    Operating loss reduced 16% to £12.2m (2018: £14.4m) 
·    Net assets £19.2m (2018: £15.6m) 
·    Cash and cash equivalents at 31 December 2019 were £19.1m
 
Operational highlights
 
·    New strategy announced March 2019
·    New commercial team in the US and new CTO April 2019
·    Signature of contract with Tencent Video in China in June 2019
·    £16.2m (gross) successful fundraise in July 2019
 
Post period highlights
 
·    Signature of contract with first UK customer: Channel 4 in January 
·    Brand count on Tencent platform at highest level in March as China starts to recover from Covid-19 impact
·    Unaudited Q1 revenue 2020 up 129% at £305k (2018: £133k)
·    Cash and cash equivalents at 30 April 2020 were £15.81m
 
 
Stephan Beringer, Chief Executive Officer of Mirriad, commented:
 
"After the significant strategic reset in March last year, it is tremendous to see a sharp increase in Mirriad's 2019 revenue. The simplification of our go to market strategy to focus on the developed advertising markets in China, the UK, France, Germany and the US drove improved growth and underpinned the landmark deal with Tencent. The strategy was further endorsed by the successful £16.2 million fundraise in July last year.
 
"Our emphasis in 2020 will be driving shareholder value by increasing adoption in our target markets with existing and new partnerships, leveraging the impressive scale of high-level relationships that we've built. 
 
"Despite the immediate challenges posed in Europe and the US by the emergence of Covid-19, we are already tracking positive recovery in our Chinese business. As a result of our partnership with Tencent, the number of brands using Mirriad on its platform was at the highest level ever in April as businesses and consumers in the country resumed stalled activity. Alongside this, we are in advanced partnership discussions with multiple tier one entertainment majors in the US, engaging with global agencies in our key markets and executing campaigns for leading advertisers such as P&G. When combined with the encouraging revenue figures from Q1 2020, there are good grounds for optimism in the months ahead."
 
For further information please visit www.mirriad.com or contact:
 



Mirriad Advertising plc
Stephan Beringer, Chief Executive Officer
David Dorans, Chief Financial Officer 
 


Tel: +44 (0)207 884 2530  




Nominated Adviser & Broker:
Canaccord Genuity Limited
Simon Bridges
Thomas Diehl
 


Tel: +44 (0)20 7523 8000
 




Financial Communications:
Charlotte Street Partners    
Tom Gillingham
Andrew Wilson 
                                                


 
 
Tel: +44 (0) 7741 659021
Tel: +44 (0) 7810 636995 
 



 
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement, this inside information is now considered to be in the public domain.
 
Notes to Editors
 
About Mirriad
 
Mirriad's award-winning solution unleashes new revenue for content producers and distributors by creating new advertising inventory in content. Our patented, AI and computer vision technology dynamically inserts products and innovative signage formats after content is produced. Mirriad's market-first solution seamlessly integrates with existing subscription and advertising models, and dramatically improves the viewer experience by limiting commercial interruptions. 
 
Mirriad currently operates in the US, Europe and China.
 
 
 
Forward looking statements
Certain information contained in this announcement, including any information as to the Group's strategy, plans or future financial or operating performance, constitutes "forward-looking statements". These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "projects", "expects", "intends", "aims", "plans", "predicts", "may", "will", "seeks" "could" "targets" "assumes" "positioned" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this announcement and include statements regarding the intentions, beliefs or current expectations of the Directors concerning, among other things, the Group's results of operations, financial condition, prospects, growth, strategies and the industries in which the Group operates. The directors of the Company believe that the expectations reflected in these statements are reasonable, but may be affected by a number of variables which could cause actual results or trends to differ materially. Each forward-looking statement speaks only as of the date of the particular statement.
 
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future or are beyond the Group's control. Forward-looking statements are not guarantees of future performance. Even if the Group's actual results of operations, financial condition and the development of the industries in which the Group operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods.




 
Chairman's statement
 
We finish 2019 in a far stronger position than 2018 thanks to a resolute focus on the new strategy and a successful fundraising round last summer. The significant capital raise of £16.2 million was a material vote of confidence in our new management team and revised strategy. We were hugely encouraged to have the support of high-quality shareholders who share our belief in the opportunity. 
 
The Covid-19 pandemic has thrown up significant challenges for every sector and has put unprecedented pressure on global stock markets. It is likely that the associated uncertainty will last for some time, but I am confident the business is in a good position as a result of the decisive action we took in key areas last year.
 
The important decisions taken to streamline the Company's physical footprint and focus more closely on the highest-reward advertising markets in the past year have already been showing results. In all of this Stephan's impact since joining the business has been impressive, and we were delighted to welcome Tencent as one of the first new platform partners, validating both our technology and our revised market position.
 
Similarly, we have seen considerable progress on the patented Mirriad technology itself, which underpins the future success and scalability of the Company.  It is also important to acknowledge the context in which Mirriad is working. Despite the current uncertainties created by the Covid-19 pandemic, we believe underlying market conditions still favour Mirriad better than at any time in its history.
 
The international advertising industry faces significant headwinds in the shape of revised or deferred spending decisions, rising ad-blocker use and changing consumer behaviours. It will therefore have to adapt to new ways of generating value and revenue. 
 
It is not just the advertising industry that is contending with platform-defining issues. Alongside shifting viewer preferences and demands, streaming services are now challenged with raising additional revenue as the number of services proliferate, and users are faced with increased costs to access the content they want to watch.
 
Against these challenges, it is clear audiences have a strong preference for the non-disruptive advertising experience that Mirriad's technology enables. This significant market opportunity is something the Company is well placed to capitalise on going forward.
 
Research conducted after recent campaigns demonstrated that Mirriad's advertising drives both significant improvements in brand awareness and substantial uplifts in brand consideration, using a format that viewers feel adds to the authenticity of content.  These campaigns and their results help underpin our confidence in Mirriad's outlook.
 
Board updates
 
I was delighted to step up from Non-executive Director to the role of Chairman on April 2019 and, in June, we strengthened the Board with the appointment of Bob Head as a Non-executive Director. He has a wealth of experience acting as a CEO and non-executive director to a variety of technology and digital businesses, and he now chairs Mirriad's Audit and Remuneration Committees.
 
Engaging with our stakeholders
 
The Board, Stephan and I take our responsibilities to shareholders and wider stakeholders seriously. We have sought to improve communication around significant events by offering our stakeholders the opportunity to join webinars presented by the executive directors, and further steps have been taken to give regular updates on strategy and technology. The Company itself continues to engage actively with its employees via regular staff surveys and monthly Town Hall meetings.  The Company has also demonstrated its resilience in the Covid-19 environment with all staff working effectively from home. The management team is actively engaged with its customers from broadcast platforms, advertising agencies and senior international advertisers.
 
The year ahead
 
The focus for the year ahead will be converting the positive and enthusiastic sentiment of advertising clients, agency groups and broadcasters/distributors into concrete engagement. Securing contracts with defined revenue from these parties is central to improving shareholder value, and this will be the management team's number one priority in 2020.  This drive will be supported by further development of Mirriad's patented technology and the AI that underpins it to ensure we continue to offer untapped opportunities for advertisers and content producers.
 
We enter 2020 with proven technology and an experienced and established management team. We are reaching into a rapidly evolving international market that is primed for our products.
 
John Pearson
Non-executive chairman
12 May 2020
 
CEO's statement
 
2019 was a year that was defined by the decisive implementation of our new strategic direction.
 
Last March we embarked on a transformative strategy reset, setting a strong pace for the rest of the year. This new approach to growth is fuelled by a synchronised demand and supply side strategy, alongside a clear vision for our technology that will further exploit Mirriad's unique position and market opportunity.
 
Our strategy gave us a new and strong focus on China, the UK, France, Germany and, of course, the US as our main markets to develop. On the back of the strategy we announced a radical simplification of the organisation in April, which included the closure of our commercial operations in Brazil and India. As part of our plan, we welcomed global leaders to the team, namely in our technology and product divisions as well as a new leadership team in the US.
 
Over the summer months we announced a series of new contracts, including a two-year exclusive agreement with Tencent - one of the largest online video platforms in China. It immediately enhanced 2019 revenues and will continue to do so in 2020 due to the fixed fee nature of the agreement.
 
This positive news was followed by the confirmation of a successful fundraising process, with £16.2 million raised from a new share issue announced on 31 July. This showed great confidence in our product and the overall strategy from a range of existing and new investors. These funds are being used for general working capital purpose and to provide Mirriad with sufficient funds to demonstrate the efficacy of the new market strategy that is being implemented. We have changed and accomplished a lot within a very short period of time, thanks to the clarity of our strategy and the steadiness in how we're executing against our plan.
 
Our time is now
 
This strategy, alongside the successful fundraise, has given us the ability to adapt to the macro challenges of the Covid-19 pandemic. Our refreshed global footprint is also a positive factor in this context. In China, one of our key markets, staff and clients have returned to work, with key revenues quickly resuming. In Europe and the US volatility persists, but we are confident in our ability to steer through this with a keen focus on the wellbeing of our people and our partners.
 
Our management team continues to make strong progress in increasing engagement with senior stakeholders at advertising clients, agency groups and broadcasters/distributors. Furthermore, developing our technology to integrate with existing industry frameworks and core systems has been at the centre of our mission this year, and will continue to be a focus going forward.
 
Our patented technology is now able to detect and process multiple contextual parameters at high precision for identification of advertiser relevant inventory, and we've also completed segment streaming technology APIs that allow scaled delivery to third party ad servers, the distribution and content management systems used widely by industry partners.
 
We are optimistic about what the future holds for Mirriad in 2020 and beyond and we feel very encouraged by the  progress that we're making.
 
Stephan Beringer
Chief Executive Officer
12 May 2020
 
Financial review 
 
Introduction
 
2019 was a year of steady progress resulting in the Company's highest ever revenues and creating a strong base for 2020. The Company announced a successful fundraising of £16.2 million (gross) at the end of July 2019 which will allow the Company to see through the two advertising cycles in late 2019 and late 2020. By that time we expect to have clearly demonstrated the efficacy of the product and established relationships with customers in our five core markets: China, the US, France, Germany and the UK. 
 
All of the Company's KPIs improved year on year with both revenues and customers under contract increasing while cash consumption decreased.
 
Current year results
 
Revenue for the year was £1.14 million (2018: £416k) an increase of 2.7 times principally following the signature of the key Tencent deal in July 2019. During the year the Company continued to focus on developing its operations in the US, the world's largest advertising market, and Europe. In the US the contract with Univision was renewed and new contracts were also signed with Condé Nast and Tastemade. In Europe the particular focus was on France where the Company has now signed all the major broadcasters as customers and first campaigns have been  run with TF1.
 
We continue to caution that sales cycles with large broadcasters and distributors are long and it can take some time from contract signature to revenue generation. Revenue was particularly strong in China following the signature of the Tencent deal in July 2019. This deal runs from April 2019 to March 2021 and guarantees a level of revenue in each contract year in return for exclusivity in the People's Republic of China. The contract also provides for a volume of advertising seconds to be delivered to Tencent. As at the 31 December 2019, 9 months into the first contract year, the Company had delivered 47% of the first year's contracted total advertising seconds.
 
As a result of the increased level of revenue gross profit increased to £961k (2018: £272k). As noted in previous years the Company is making steady progress in automating key elements of content analysis and campaign delivery nevertheless a significant part of the Company's cost of sales relates to staff which is a  semi-fixed cost. As the staff element of this work is largely fixed at current volumes margin is impacted by the throughput of work and has the potential to continue to improve as the volume of campaigns increase.  The Group's principal cost is staff. The Group undertook a range of actions to simplify its structure and operations during 2019 and incurred a level of restructuring costs disclosed in our interim accounts at £351k. Over the course of 2019 administrative expenses decreased substantially to £13,160k (2018: £14,873k). This was a partly a result of the impairment charge taken in 2018 not recurring and partly a result of savings arising from the restructuring activities. In 2019 headcount reduced compared to 2018 and the Company has focused investment in its commercial operations and technology team. At the end of 2019 the Company had 97 staff compared to 116 at the end of 2018. This was mainly due to the closure of operations in Brazil and India and the removal of a small number of UK based roles.
 
The Company has continued to review and monitor the application of IAS 38 with respect to the capitalisation of development cost. The Company continues to take the view that due to the uncertainty of future revenue generation it should not capitalise any development cost in 2019 even though technology remains key to the Company's business and internally generated software and IP remains a key focus for future development of the business.  Accordingly, the income statement includes £2,319k (2018: £2,340k, after adjustment for the impairment taken in 2018) related to research and development ("R&D") activity. In total expenditure on the Company's technology team was very similar year on year while average headcount increased modestly to 33 (2018: 31). This number includes a small number of non-UK based contractors.  
 
EBITDA loss decreased to £11,505k (2018: £11,931k). Adjusting this measure to remove the one-off restructuring costs noted above shows a truer picture of the Group's current cost base and on this measure adjusted EBITDA loss for 2019 is £11,154k (2018: £11,931k) a reduction of 6.5% year on year. 
 
As a result of improvements in revenue and the reduced EBITDA loss, the loss for the year before tax decreased to £12,151k (2018: £14,371k).
 
Tax
 
The Group has not recognised any tax assets in respect of trading losses arising in the current financial year or accumulated losses in previous financial years. The tax credit recognised in the current and previous financial years arises from the receipt of R&D tax credits.
 
Earnings per share
 
Loss per share was 8p per share (2018: loss of 14p per share) as a result of decreased costs over the period and by the increase in the Company's issued share capital. This calculation is based on the weighted average number of shares in issue during the financial year.
 
Dividend
 
No dividend has been proposed for the year ended 31 December 2019 (2018: £nil).
 
Cash flow
 
Net cash used in operations was £10,951k (2018: £11,921k) as revenue increased and the Company simplified and restructured operations resulting in a reduction of costs over the year. The Company incurred £62k (2018: £137k) of capital expenditure on tangible assets. 
 
Net proceeds from the issue of shares in July 2019 totalled £15,290k (2018: £1,926k) following the successful fundraising. Cash consumed by the business reduced by almost £2m over the year as a result of increased income and reduced costs.
 
Balance sheet
 
Net assets increased to £19.2 million (2018: £15.6 million) as a result of the proceeds from the issue of shares less the losses for the year. Cash and cash equivalents at 31 December 2019 was £19.1 million (2018: £15.2 million).
 
Accounting policies
 
The Group's consolidated financial information has been prepared in accordance with International Financial Reporting Standards as adopted in the EU. 
 
Going concern
 
The financial statements have been prepared on the going concern basis.  After making enquiries and producing cash flow forecasts, the Directors have reasonable expectations, as at the date of approving the financial statements, that the Company and the Group have adequate resources to fund the Company and the Group for the next 12 months.  The Group's cash holding at 30 April 2020 was £15.81m and the Directors disclosed that the Group's cash burn continues to be not more than £1m per month and is anticipated to gradually improve with increased revenues.  Revenues will increase in 2020 as a result of higher contracted minimum guaranteed revenues.  On the basis of the Company's internal forecasts the Directors believe that the Company has sufficient cash resources to fund its activities until the end of the third quarter 2021 at which point it may require additional cash resources depending on the rate of increase in revenue.    
 
 
The Directors have also reviewed the potential impact of Covid-19 on the business and believe that, while there is significant uncertainty about the longer term impact of the virus on the business, it does not change their going concern assessment.
 
Events after the balance sheet date
 
In early 2020 the existence of a new coronavirus (Covid-19) was confirmed.  The virus had an immediate impact on the volume of business transacted with Tencent in China but no impact on revenues or cash as the Company has a guaranteed revenue stream with Tencent.  The virus subsequently spread to all the markets in which the Company operates.  Although activity has now picked up in China, the scale and duration of these events in other markets remains uncertain and could impact both revenue growth and cashflow.  The Directors will continue to actively review the Company's cost base and take steps to preserve cash to ensure longevity throughout this period of significant uncertainty. 
 
 
David Dorans
Chief Financial Officer
12 May 2020




 
Consolidated statement of profit or loss
For the year ended 31 December 2019
 











Year ended


Year ended












31 December


31 December












2019


2018








Note


£


£




Revenue


3


1,139,538


415,886




Cost of sales






(178,091)


(143,548)




Gross profit






961,447


272,338




Administrative expenses






(13,159,812)


(14,872,725)




Other operating income






24,421


171,433




Operating loss


4 


(12,173,944)


(14,428,954)






















Finance income






46,436


57,968




Finance costs






(23,627)


-




Finance income - net






22,809


57,968






















Loss before income tax






(12,151,135)


(14,370,986)




Income tax credit






56,231


42,217




Loss for the year






(12,094,904)


(14,328,769)




Loss per Ordinary Share - basic


5


(8p)


(14p)



 
All activities are classified as continuing.
 
 
Consolidated statement of comprehensive income
For the year ended 31 December 2019
 







Year ended


Year ended








31 December


31 December








2019


2018








£


£




Loss for the financial year


(12,094,904)


(14,328,769)




Other comprehensive income / (loss)












Items that may be reclassified to profit or loss:












Exchange differences on translation of foreign operations


136,179


(88,346)




Total comprehensive loss for the year


(11,958,725)


(14,417,115)



 
Items in the statement above are disclosed net of tax. 




 
Consolidated balance sheet 
At 31 December 2019
 











Group
















As at


As at












31 December


31 December












2019


2018












£


£




Assets
















Non-current assets
















Property, plant and equipment






912,983


414,062




Intangible assets






-


170,053




Investments






-


-




Trade and other receivables






212,143


186,321












1,125,126


770,436




Current assets
















Trade and other receivables






1,024,996


973,750




Other current assets






76,754


288,009




Cash and cash equivalents






19,091,613


15,203,920












20,193,363


16,465,679




Total assets






21,318,489


17,236,115




Liabilities
















Non-current liabilities
















Lease liabilities






423,328


-












423,328


-




Current liabilities
















Trade and other payables






1,297,624


1,622,460




Current tax liabilities






24,809


36,952




Lease liabilities






373,227


-












1,695,660


1,659,412




Total liabilities






2,118,988


1,659,412




Net assets






19,199,501


15,576,703




Equity and liabilities
















Equity attributable to owners of the parent
















Share capital






52,029


50,949




Share premium






40,932,183


25,643,192




Share-based payment reserve






2,500,944


2,141,094




Retranslation reserve






(142,652)


(278,831)




Accumulated losses






(24,143,003)


(11,979,701)




Total equity






19,199,501


15,576,703



 




 
Consolidated statement of changes in equity
For the year ended 31 December 2019
 







Year ended 31 December 2018
























Retained




























earnings/




















Share-based


Retranslation


(accumulated












Share capital


Share premium


payment reserve


reserve


losses)


Total equity








£


£


£


£


£


£




Balance at 1 January 2018


50,917


23,717,390


1,964,835


(190,485)


2,349,068


27,891,725




Loss for the financial year


-


-


-


-


(14,328,769)


(14,328,769)




Other comprehensive loss for the year


-


-


-


(88,346)


-


(88,346)




Total comprehensive loss for the year


-


-


-


(88,346)


(14,328,769)


(14,417,115)




Proceeds from shares issued


32


1,999,968


-


-


-


2,000,000




Share issue costs


-


(74,166)


-


-


-


(74,166)




Share-based payments recognised as expense


-


-


176,259


-


-


176,259




Total transactions with shareholders recognised directly in equity


32


1,925,802


176,259


-


-


2,102,093




Balance at 31 December 2018


50,949


25,643,192


2,141,094


(278,831)


(11,979,701)


15,576,703



 







Year ended 31 December 2019
















Share-based


Retranslation


Accumulated












Share capital


Share premium


payment reserve


reserve


losses


Total equity








£


£


£


£


£


£




Balance at 31 December 2018 as originally presented


50,949


25,643,192


2,141,094


(278,831)


(11,979,701)


15,576,703




Change in accounting policy


-


-


-


-


(68,398)


(68,398)




Balance at 1 January 2019


50,949


25,643,192


2,141,094


(278,831)


(12,048,099)


15,508,305




Loss for the financial year


-


-


-


-


(12,094,904)


(12,094,904)




Other comprehensive income for the year


-


-


-


136,179


-


136,179




Total comprehensive loss for the year


-


-


-


136,179


(12,094,904)


(11,958,725)




Proceeds from shares issued


1,080


16,196,750


-


-


-


16,197,830




Share issue costs


-


(907,759)


-


-


-


(907,759)




Share-based payments recognised as expense


-


-


359,850


-


-


359,850




Total transactions with shareholders recognised directly in equity


1,080


15,288,991


359,850


-


-


15,649,921




Balance at 31 December 2019


52,029


40,932,183


2,500,944


(142,652)


(24,143,003)


19,199,501



 




 
Consolidated statement of cash flows
For the year ended 31 December 2019
 







Group








2019


2018








£


£




Cash used in operations


(11,222,098)


(11,972,408)




Tax credit received


291,502


-




Taxation paid


(43,288)


(6,691)




Interest received


46,436


57,968




Lease interest paid


(23,627)


-




Net cash used in operating activities


(10,951,075)


(11,921,131)




Cash flow from investing activities












Investment in subsidiaries


-


(168,587)




Capitalisation of development costs


-


(878,500)




Purchase of tangible assets


(62,484)


(137,386)




Proceeds from disposal of tangible assets


236


-




Net cash used in investing activities


(62,248)


(1,184,473)




Cash flow from financing activities












Proceeds from issue of Ordinary Share capital 
(net of costs of issue)


15,290,071


1,925,834




Payment of lease liabilities


(389,055)


-




Net cash generated from financing activities


14,901,016


1,925,834




Net increase / (decrease) in cash and cash equivalents 


3,887,693


(11,179,770)




Cash and cash equivalents at the beginning of the year


15,203,920


26,383,690




Cash and cash equivalents at the end of the year


19,091,613


15,203,920




Cash and cash equivalents consists of












Cash at bank and in hand


19,091,613


15,203,920




Cash and cash equivalents


19,091,613


15,203,920



 




 
Notes to the consolidated financial statements
For the year ended 31 December 2019
 
1. Corporate Information
Mirriad Advertising plc is a public limited company incorporated and domiciled in the UK and registered in England with company registration number 09550311.  The Company's registered office is 6th Floor, One London Wall, London, EC2Y 5EB.
 
2. Basis of preparation
The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2019 or 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the registrar of companies, and those for 2019 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
 
The consolidated financial information has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, IFRIC interpretations and the Companies Act 2006. The financial information contained in these financial statements have been prepared under the historical cost convention, and on a going concern basis.
 
The accounting policies applied are consistent with those of the annual report and accounts for the year ended 31 December
2018 other than standards, amendments and interpretations which became effective after 1 January 2019 and were adopted by the Group. The only new standard which had a material impact on the Group is IFRS 16 "Leases", and the Group had to change its accounting policies as a result of adopting IFRS 16. The Group elected to adopt the new rules retrospectively but recognised the cumulative effect of initially applying the new standard on 1 January 2019. This is disclosed in note 2.1(b).  The impact of the new leasing standard and the new accounting policies are disclosed in note 2.1(a) below.
 
2.1 Impact of IFRS 16 adoption
This note discloses the new accounting policies applied from 1 January 2019 and the impact of the adoption of IFRS 16 "Leases" on the Group's financial statements in note 2.1(b) below.
 
(a) The Group's leasing activities and how these are accounted for
The Group leases offices in the countries where it operates, and rental contracts are typically made for fixed periods of 1 to 10 years but may be extended in some cases. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Until the 2018 financial year, leases of property, plant and equipment were classified as either finance or operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.
 
From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.  The impact of this change in accounting policy is described in note 2.1 (b) below.
 
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: 
·      fixed payments (including in-substance fixed payments), less any lease incentives receivable
·      variable lease payment that are based on an index or a rate 
·      amounts expected to be payable by the lessee under residual value guarantees 
·      the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and 
·      payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option. 
 
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms, security and conditions. 
 
Right-of-use assets are measured at cost comprising the following: 
·      the amount of the initial measurement of lease liability 
·      any lease payments made at or before the commencement date less any lease incentives received 
·      any initial direct costs, and 
·      restoration costs
 
As all the right-of-use assets held by the Group are property leases these are depreciated over the non-cancellable portion of the lease term.
 
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment.
 
(b) Impact of IFRS 16 adoption
This note explains the impact of the adoption of IFRS 16 "Leases" on the Group's financial statements.
 
As indicated in note 2.1 above the Group has adopted IFRS 16 retrospectively from 1 January 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the modified retrospective approach which is one of the specified transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019. 
 
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 4% for a UK property lease, 4.75% for a Chinese property lease and 10% for an Indian property lease.
 
(i)   Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard: 
 
·      the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases 
·      the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application, and 
·      the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease. 
 
The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessment made applying IAS 17 and IFRIC 4 "Determining whether an Arrangement contains a Lease". 
 
(ii)   Measurement of lease liabilities
 







2019








£




Operating lease commitments disclosed at 31 December 2018


1,077,688














Discounted using the lessee's incremental borrowing rate at the date of initial application


1,018,926




(Less): short-term leases not recognised as a liability


(28,203)




Add: Adjustments as a result of a different treatment of extension and termination options


195,408




Lease liability recognised as at 1 January 2019


1,186,131




Of which are:








Current lease liabilities


378,434




Non-current lease liabilities


807,697








1,186,131



 
 
(iii)   Measurement of right-of-use assets
The associated right-of-use assets for property leases were measured on a retrospective basis as if the new rules had always been applied. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application. 
All right-of-use assets recognised relate to property leases and have been included within property, plant and equipment on the balance sheet.
 
(iv)   Adjustments recognised in the balance sheet on 1 January 2019
The change in accounting policy affected the following items in the Group balance sheet on 1 January 2019:
 
·      Property, plant and equipment (right-of-use assets) - increase by £950,330
·      Lease liabilities - increase by £1,186,131
·      Trade and other payables (rent-free period accrual) - decrease by £167,403
The net impact on group retained earnings on 1 January 2019 was a decrease of £68,398.
 
And the impact on the Company balance sheet on 1 January 2019 was as follows:
 
·      Property, plant and equipment (right-of-use assets) - increase by £721,888
·      Lease liabilities - increase by £924,710
·      Trade and other payables (rent-free period accrual) - decrease by £167,403
 
The net impact on company retained earnings on 1 January 2019 was a decrease of £35,418.
 
 
3. Segment information
Management mainly considers the business from a geographic perspective since the same services are effectively being sold in every Group entity. Therefore regions considered for segmental reporting are where the Company and subsidiaries are based, namely the UK, the USA, India, China and Singapore. The Brazil office was closed in early 2019. The revenue is classified by where the sales were booked not by the geographic location of the customer. For this reporting purpose the Singapore and China entities are considered together.
The only income outside of the primary business activity relates to income received from grants which is recognised in other operating income.
The amount of revenue from external customers by location of the Group billing entity is shown in the tables below.







2019


2018




Revenue


£


£




Turnover by geography












China and Singapore


776,115


177,395




USA


160,432


109,541




UK


139,735


40,062




India


38,549


14,806




Brazil


24,707


74,082




Total


1,139,538


415,886



 







2019


2018








£


£




Turnover by category












Rendering of services


1,139,538


415,886




Total


1,139,538


415,886



 
 







2019


2018




Revenues from external customers by country, based on the destination of the customer


£


£




China


834,887


198,863




USA


160,432


109,541




UK


56,500


-




India


38,549


14,806




Brazil


24,707


74,083




France


9,633


-




Ireland


7,750


7,750




Germany


7,080


6,570




Other


-


4,273




Total


1,139,538


415,886



 
 
4. Operating loss
The Group operating loss is stated after charging/(crediting):











2019


2018












£


£




Employee benefits 






8,123,117


6,879,256




Depreciation of property, plant and equipment






498,411


149,102




Amortisation and impairment of intangible assets






170,053


2,349,137




Foreign exchange movements






168,319


(41,341)




Other general and administrative costs






4,378,003


5,680,119




Other operating income






(24,421)


(171,433)




Total cost of sales, administrative expenses and other operating income






13,313,482


14,844,840



 
Other operating income includes income received from government grants. The Group has complied with all the conditions attached to these grant awards.
Included within Employee benefits costs are share based payments for the year ended 31 December 2019 of £0.4m (2018: £0.2m)
 
5. Loss per share
(a) Basic
Basic loss per share is calculated by dividing the loss for the year by the weighted average number of Ordinary Shares in issue during the year. Potential Ordinary Shares are not treated as dilutive as the Group is loss making and such shares would be anti-dilutive.



Group


2019


2018




Loss attributable to owners of the parent (£)


(12,094,904)


(14,328,769)




Weighted average number of Ordinary Shares in issue (number)


150,165,094


104,124,043



 
The loss per share for the year was 8p (2018: 14p).
No dividends were paid during the year (2018: £nil).
(b) Diluted
Potential Ordinary Shares are not treated as dilutive as the Group is loss making and such shares would be anti-dilutive.
 
6. Related party transactions
The Group is owned by a number of investors, the largest being IP2IPO Portfolio (GP) Limited (as general partner for IP2IPO Portfolio L.P), which owns approximately 16% of the share capital of the Company. Accordingly there is no ultimate controlling party.
During the year the Company had the following significant related party transactions which were carried out at arm's length. No guarantees were given or received for any of these transactions:
Transactions with directors
As part of the fundraise in August 2019 the following directors purchased Ordinary shares in the Company at a cost of £0.15 per share:



Director


Number of shares




John Pearson


166,666




Stephan Beringer


333,333




David Dorans


13,333




Dr. Mark Reilly


33,333




Alastair Kilgour


233,333




Bob Head


133,333



 
Transactions with other related parties
IP2IPO Limited - a company which shares a parent company with IP2IPO Portfolio (GP) Limited, a major shareholder in the Group, and which also appoints a Director of the Group charged Mirriad Advertising plc for the following transactions during the year: (1) £20,000 for the services of Dr. Mark Reilly as a Director during the year. £3,333 of this amount was invoiced and unpaid as at 31 December 2019. These outstanding amounts were paid on 2 January 2020 and 2 March 2020; (2) £12,000 for the services of the Company Secretary during the year. £3,000 of this amount was invoiced and unpaid as at 31 December 2019. This outstanding amount was paid on 2 March 2020; (3) £757 for event hire and refreshments; and (4) £118 for travel costs related to Dr Mark Reilly. £68 of this amount was invoiced and unpaid as at 31 December 2019, and was paid on 2 March 2020.
Top Technology Ventures Limited - a company which shares a parent company with IP2IPO Portfolio (GP) Limited, a major shareholder in the Group, charged Mirriad Advertising plc for the following transactions during the year: (1) £9,498 attendance and travel costs for an employee's attendance at IP Group events in China. 
Parkwalk Advisors Limited - a company which shares a parent company with IP2IPO Portfolio (GP) Limited, a major shareholder in the Group, charged Mirriad Advertising plc for the following transactions during the year: (1) £20,000 for the services of Alastair Kilgour as a Director during the year. £1,667 of this amount was accrued and unpaid as at 31 December 2019, but was subsequently paid on 17 January 2020.
All the related party transactions disclosed above were settled by 31 December 2019 except where stated.
During the year ended 31 December 2019, the Company entered into transactions with its subsidiary companies for working capital purposes, which net off on consolidation - these have not been shown above.
The Directors have authority and responsibility for planning, directing and controlling the activities of the Group and they therefore comprise key management personnel as defined by IAS 24 "Related party disclosures". Remuneration of Directors and senior management is disclosed in the Remuneration Report.
 
 
 


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