BDO Statsautoriseret revisionsaktieselskabHavneholmen 29DK-1561 København V20222670Årsrapport2024-06-28Søren GammelgaardENCODIFY A/SSverigesgade 5 3.5000 Odense CRevisionspåtegning263177972001-10-31Odense2023-01-012023-12-312022-01-012022-12-31BDO Statsautoriseret revisionsaktieselskabHavneholmen291561Copenhagen VOdense2024-06-14Søren GammelgaardEivind BergsmyrChairmanErik Fjellvær HagenJakob Kemp HessellundMogens NielsenKonklusionGrundlag for konklusionCopenhagen2024-06-14BDO Statsautoriseret revisionsaktieselskab20222670Mads Juul HansenRevisionspåtegningState Authorised Public Accountantmne4438632628833244531122227464036574003439906848426447000000448640-1044875-17412175518793-4973615380613087797019198277-469295-175293110-837549-469295-16691762518793-49736-988088-16642026-469295-1669176210276505947419122635640125400699474191377835947937783594791511777992984193338422935170511514159191428296710949589260427324634116566343216391403303287028715199778847466418001365426050653335735709605175792899701011709149232799772265873813205931320593147804195924897812547389869-5063527-168405475163617985656700000007000000072114260412731349747168761748714153248317451191332908876361614673082876361614673082232799772265873813205939592487389869-1684054518793-9880887443250-7443250-43773724377372-674493674493132059314780419781254-5063527284420508268338959171493464218277427290849531222274640365740031157861308773802001538061308770-8375492812913805179686226356433308824226356418654947043773720230323190102765052263564650596505955802169627276377833373642293602589602554943373619333895924805187930147804101511777193338Regnskabsklasse BtruefalseToday the Board of Directors and Executive Board have discussed and approved the Annual Report of ENCODIFY A/S for the financial year 1 January - 31 December 2023. The Annual Report is presented in accordance with the Danish Financial Statements Act. In our opinion the Financial Statements give a true and fair view of the Company's assets, liabilities and financial position at 31 December 2023 and of the results of the Company's operations for the financial year 1 January - 31 December 2023. The Management Commentary includes in our opinion a fair presentation of the matters dealt with in the Commentary. We recommend the Annual Report be approved at the Annual General Meeting. To the Shareholder of ENCODIFY A/S We have audited the Financial Statements of ENCODIFY A/S for the financial year 1 January - 31 December 2023, which comprise income statement, Balance Sheet, statement of changes in equity, notes and a summary of significant accounting policies. The Financial Statements are prepared in accordance with the Danish Financial Statements Act. In our opinion, the Financial Statements give a true and fair view of the assets, liabilities and financial position of the Company at 31 December 2023 and of the results of the Company's operations for the financial year 1 January - 31 December 2023 in accordance with the Danish Financial Statements Act. Basis for Opinion Grundlag for konklusion We conducted our audit in accordance with International Standards on Auditing (ISAs) and the additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the “Auditor’s Responsibilities for the Audit of the Financial Statements” section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code), together with the ethical requirements that are relevant to our audit of the financial statements in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion. Management's Responsibilities for the Financial Statements Management is responsible for the preparation of Financial Statements that give a true and fair view in accordance with the Danish Financial Statements Act and for such Internal control as Management determines is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error. In preparing the Financial Statements, Management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting in preparing the Financial Statements unless Management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements. As part of an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. Conclude on the appropriateness of Management’s use of the going concern basis of accounting in preparing the Financial Statements and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and contents of the Financial Statements, including the disclosures, and whether the Financial Statements represent the underlying transactions and events in a manner that gives a true and fair view. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Statement on Management Commentary Management is responsible for Management Commentary. Our opinion on the Financial Statements does not cover Management Commentary, and we do not express any form of assurance conclusion thereon. In connection with our audit of the Financial Statements, our responsibility is to read Management Commentary and, in doing so, consider whether Management Commentary is materially inconsistent with the Financial Statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated. Moreover, it is our responsibility to consider whether Management Commentary provides the information required under the Danish Financial Statements Act. Based on the work we have performed, we conclude that Management Commentary is in accordance with the Financial Statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstatement of Management Commentary. Principal activities The company's main business area is development and sales of the company’s Marketing Workflow Management software platform. In addition hereto, the company delivers support and consulting services to existing and potential future clients. Encodify’s customer target groups are: 1) Content creating agencies 2) National and international retailers The Encodify product is developed by Encodify A/S, and is implemented and delivered to the client as a hosted cloud solution. The company has offices in Copenhagen, Odense, London and Madrid, and delivers the software platform and services to customers in all countries. Development in activities and financial and economic position 2023 was a year of financial turnaround with significant cost reductions compared to 2022. 2022 showed a substantial loss due to sales investments made that did not result in the expected revenue growth. In addition to the financial turnaround, the company's new management disclosed in May 2023 a potential irregularity in its dealings with a large client in the Spanish subsidiary of the Company. This potential irregularity was promptly reported to the client through its whistleblower scheme. As a result, the Company has in 2024 - i.e. after the fiscal year 2023 - entered into negotiations with the client to terminate the commercial relationship. Negotiations concerning the terms of this termination are continuing beyond the closing of the annual report. Management has addressed the long-term commercial ramifications of the termination, even though the terms are pending closure, by taking necessary actions, including completing a cost adjustment after the end of the financial year. Furthermore, due to discovered irregularities, the client initiated legal proceedings against the Company's subsidiary in May 2024. The potential liability from these proceedings amounts to EUR 822,000. The Spanish subsidiary of the Company has denied the claim and will continue to do so. Nonetheless, the Company has set aside an extraordinary provision of DKK 6,124,000 (EUR 822,000) for potential liability associated with the legal proceedings in the Spanish subsidiary. Additionally, a provision of DKK 876,000 has been made to cover attorney fees directly related to these legal proceedings. The total provisions made amount to DKK 7,000,000. The balance sheet on 31 December 2023 shows an equity of DKK'000 7,516 compared to DKK'000 7,986 year end 2022. Satisfactory 2023 result - when excluding provision made for extraordinaryevents after the balance date Excluding the provision of DKK 7,000,000, the Company’s income statement for 2023 would have shown a profit of DKK'000 6,531 before tax compared to a pre-tax loss of DKK'000 17,529 in 2022. An improvement of DKK'000 24,059. The company’s result excluding the provision made is satisfactory and aligns with the expectations that were set for the year. Significant events after the end of the financial year As mention above the Spanish subsidiary received after year end a notice of legal procedings against the subsidiary, apart from above, no other significant events have occurred. DKK Share Capital Reserve for net revaluation according to equity va Reserve for development costs Retained profit Total Equity at 1 January 2023 1.320.593 959.248 7.389.869 -1.684.054 7.985.656 Proposed profit allocation 518.793 -988.088 -469.295 Other legal bindings Capitalized development costs 7.443.250 -7.443.250 0 Transfers Depreciations -4.377.372 4.377.372 0 Tax on changes in equity -674.493 674.493 0 Equity at 31 December 2023 1.320.593 1.478.041 9.781.254 -5.063.527 7.516.361 2023 2022 DKK DKK Staff costs 1 Average number of full time employees 28 44 Wages and salaries 20.508.268 33.895.917 Pensions 1.493.464 2.182.774 Social security costs 272.908 495.312 22.274.640 36.574.003 Depreciation, amortisation and impairment 2 Development projects completed 4.377.372 4.837.064 Leasehold improvements 21.696 5.580 4.399.068 4.842.644 Special items 3 Special items in 2023 include provision related to a client wich has initiated legal proceedings against the company's subsidiary in May 2024. The potential liability from these proceedings amounts to DKK 7,000,000. As mentioned in the Management commentary, the result for the year is affected by the case and Management considers the case to differ from the primary operations. 2023 2022 DKK DKK Other financial income 4 Group enterprises 115.786 130.877 172.110 Other interest income 38.020 0 153.806 130.877 Intangible assets 6 DKK Development projects completed Development projects in progress and prepayments Cost at 1 January 2023 28.129.138 0 Additions 5.179.686 2.263.564 Cost at 31 December 2023 33.308.824 2.263.564 Amortisation at 1 January 2023 18.654.947 0 Amortisation for the year 4.377.372 0 Amortisation at 31 December 2023 23.032.319 0 Carrying amount at 31 December 2023 10.276.505 2.263.564 Development projects relates to the development of new versions of the Company’s existing software products. Costs are essentially composed of internal costs in the form of salaries, IT costs as well as indirect development costs, which are registered through the company's internal project management. The projects are continuously completed, and the marketing is started. The projects are progressing according to plan through the use of the resources allocated by Management to the development. The software is expected to be sold in the present market to the Company’s existing customers. Prior to the initiation of the projects, Encodify A/S has always had dialogue with relevant customers, and they indicate that the projects are needed. Costs related to market research are not capitalized. The carrying amount of completed development projects and development project in progress is pr. 31 December 2023 DKK'000 12.540. Property, plant and equipment 7 DKK Leasehold improvements Cost at 1 January 2023 65.059 Cost at 31 December 2023 65.059 Depreciation and impairment losses at 1 January 2023 5.580 Depreciation for the year 21.696 Depreciation and impairment losses at 31 December 2023 27.276 Carrying amount at 31 December 2023 37.783 Financial non-current assets 8 DKK Equity investments in group enterprises Rent deposit and other receivables Cost at 1 January 2023 33.736 422.936 Additions 0 25.896 Disposals 0 -255.494 Cost at 31 December 2023 33.736 193.338 Revaluation at 1 January 2023 959.248 0 Profit/loss for the year 518.793 0 Revaluation at 31 December 2023 1.478.041 0 Carrying amount at 31 December 2023 1.511.777 193.338 Investments in subsidiaries (DKK) Name and domicil Equity Profit/loss for the year Ownership Encodify Ltd., UK 1.102.643 81.414 100 % Encodify Spain S.L, ES 409.134 437.379 100 % Contingent assets The company has tax losses amounting to DKK'000 21.423 with a tax-value of DKK'000 4.713 which is not recognized as a tax asset due to a conservative assessment by management. Contingent liabilities Liabilities under rental or lease agreements until maturity is in total DKK'000 408. Charges and securities 10 As security for a balance with Danske Bank A/S, a floating charge has been created on recivables, operating equipment, fixtures and fittings as well as intellectual property rights, nom. DKK'000 6,500. The Annual Report of ENCODIFY A/S for 2023 has been presented in accordance with the provisions of the Danish Financial Statements Act for enterprises in reporting class B and certain provisions applying to reporting class C. Regnskabsklasse B1 true false The Annual Report is prepared consistently with the accounting principles applied last year, except for the following changes. Change as a result of change in the classification In the annual report for 2022 expenses were included in the item Staff costs, which should have been correctly classified as Other external expenses. The changed classification has been incorporated into the comparative figures of the annual report for 2023 and has the effect that the comparative figures for the item Staff costs have been reduced by DKK'000 1.677 and the item Other external expenses has been increased by DKK'000 1.677 in the income statement. The changed classification entails that the Gross profit has been reduced by DKK'000 1.677. The change has no effect on the net profit or loss for 2022, and no taxable effect. The Equity and the Balance sheet total for 2022 have not been affected. Net revenue Encodify A/S sells SaaS (Software as a Service) by hosting the software and related services as cloud-based service. The software is not installed on the customer´s own servers but on cloud servers that Encodify manages. The customers continuously receives this service, which includes license, support, and maintenance, during the term of the agreement and is recognized linearly over the contract period. The control is transferred to the customer continuously during the term of the agreement. Sale of other services is generally recognised on the basis of a measurable degree of completion, using straight-line recognition of services delivered over time in a regular pattern. Where the degree of completion is not measurable or the sales value or the total costs of completion are uncertain, revenue is recognised by the amount that the enterprise as a maximum believes to have a right to claim and is expected to be received for services delivered at the Balance Sheet date. Net revenue is recognised exclusive of VAT and less duties and discounts related to the sale. Other operating income Other operating income includes items of a secondary nature in relation to the enterprises' principal activities, including profit from sale of intangible and tangible assets, operating loss and conflict compensations, as well as salary refunds. Compensations are recognised when the income is estimated to be realisable. Work carried out on own account and capitalized as assets Work carried out on own account and capitalized as assets consists of development costs relating to staff costs and external development costs allocated to completed development projects and development projects in progress. Other external expenses Other external expenses include other production, sales, delivery and administrative costs, including costs of energy, marketing, premises, loss on bad debts, lease expenses, etc Staff costs Staff costs comprise wages and salaries, including holiday pay and pensions, and other costs of social security etc., for the Company's employees. Other operating expenses Other operating expenses include items of a secondary nature in relation to the Group’s and the Company’s activities. Losses from sale of intangible and tangible fixed assets are also included. Income from investments in subsidiaries The proportional share of the results of subsidiaries, stated according to the Parent Company’s accounting policies and with full elimination of unrealised intercompany profits/losses and deduction of amortisation of added value and goodwill resulting from purchase price allocation at the date of acquisition, is recognised in the Parent Company’s Income Statement. In connection with transfers, potential profits are recognised when the economic rights related to the sold subsidiaries are transferred, however, at the earliest when the profit has been realised or is regarded as realisable. Moreover, realised losses other than impairments are included where identified. Financial income and expenses Financial income and expenses include interest income and expenses, debt and transactions in foreign currencies, as well as charges and allowances under the tax-on-account scheme, etc. Financial income and expenses are recognised by the amounts that relate to the financial year. Interest income and expenses are calculated on amortised cost prices. Tax The tax for the year, which consists of the current tax for the year and changes in deferred tax, is recognised in the Income Statement by the share that may be attributed to the profit for the year, and is recognised directly in equity by the share that may be attributed to entries directly to equity. Intangible fixed assets Development projects comprise costs, including wages and salaries, and amortisation, which directly or indirectly can be related to the Company’s development activities and which fulfil the criteria for recognition in the Balance Sheet. The accounting item is measured at the lower of the capitalised costs less accumulated amortisation and recoverable amount. Capitalised development costs are amortised on a straight-line basis over the estimated useful life after completion of the development work. The amortisation period is normally 3-5 years. Intangible fixed assets are generally written down to the recoverable amount if this is lower than the carrying amount. Profit or loss from sale of intangible fixed assets is calculated at the difference between the sales price and the carrying amount at the time of the sale. Profit and loss are recognised in the Income Statement under other operating income or other operating expenses. Tangible fixed assets Leasehold improvements are measured at cost less accumulated depreciation and impairment losses. The depreciation base is cost less estimated residual value after end of useful life. The cost includes the acquisition price and costs incurred directly in connection with the acquisition until the time when the asset is ready to be used. Straight-line depreciation is provided on the basis of an assessment of the expected useful lives of the assets and their residual value: Useful lifeResidual value Leasehold improvements 5 years 0 % Profit or loss on sale of tangible fixed assets is stated as the difference between the sales price less selling costs and the carrying amount at the date of sale. Profit or loss is recognised in the Income Statement as other operating income or other operating expenses. Financial non-current assets Investments in subsidiaries are measured in the Parent Company Balance Sheet under the equity method, which is regarded as a method of measuring/consolidation. Investments in subsidiaries are measured in the Balance Sheet at the proportional share of the enterprises’ carrying equity value, calculated in accordance with the Parent Company’s accounting policies with deduction or addition of unrealised intercompany profits or losses and with addition or deduction of the residual value of positive or negative goodwill calculated according to the acquisition method. Negative goodwill is recognised in the Income Statement when the equity interest is acquired. Where the negative goodwill is related to acquired contingent liabilities, the negative goodwill will be recognised as income when the contingent liabilities have been settled or cease. Net revaluation of investments in subsidiaries is transferred under equity to reserve for net revaluation under the equity value method to the extent that the carrying amount exceeds the acquisition value. Profit and loss at disposal of investments in subsidiaries are determined as the difference between the net selling price and the carrying amount of the disposed investment at the time of sale, including non-depreciated excess values and goodwill. Profit and loss are recognised in the Income Statement under income from investments. Subsidiaries with a negative carrying equity value are measured to DKK 0 and any amounts due from these enterprises are written down to the extent that it is deemed to be irrecoverable. If the carrying negative equity value exceeds receivables, the residual amount is recognised under provision for liabilities to the extent that the Company has a legal or actual liability to cover the subsidiaries deficit. Impairment of fixed assets The carrying amount of intangible fixed and tangible assets together with fixed assets, which are not measured at fair value,, are assessed annually for indications of impairment other than that reflected by amortisation and depreciation. In the event of impairment indications, an impairment test is made for each asset or group of assets, respectively. If the recoverable amount is lower than the carrying amount, the asset is written down to the recoverable amount. The recoverable amount is calculated at the higher of the capital value and the sales value less expected costs of a sale. The capital value is determined as the Company's share in the current value of the net cash flows which the subsidiary is expected to generate through its activities and from sale of assets after the end of their useful lives. A discount rate is used which reflects the risk-free market rate and the owners' minimum return on interest requirements for similar assets. The growth rate in the terminal period is determined in accordance with the standards within the industry. Receivables Receivables are measured at amortised cost which usually corresponds to nominal value. The value is written down to meet expected losses. Write-off is performed to provide for losses when an objective indication has been assessed to have incurred that a receivable or a portfolio of receivables are impaired. If there is an objective indication that an individual receivable is impaired, the write-off is performed at individual level. Receivables for which there are no objective indication of impairment at individual level are assessed at portfolio level for objective indication of impairment. The portfolios are primarily based on the debtors’ registered office and credit rating in accordance with the Company’s policy for credit risk management. The objective indicators, which are applied for portfolios, are determined based on the historical loss experiences. Write-off is determined as the difference between the carrying amount of receivables and the present value of the expected cash flows, including realisable value of any received collaterals. The effective interest rate is used as discount rate for the single receivable or portfolio. Contract work in progress Work in progress on contract is measured at the sales value of the work performed. The sales value is measured on the basis of the degree of completion on the Balance Sheet date and the total anticipated revenue related to the specific piece of work in progress. Accruals, assets Accruals recognised as assets include costs incurred relating to the subsequent financial year. Cash and cash equivalents Cash and cash equivalents include cash at bank. Other provisions for liabilities Other provisions for liabilities include the expected cost of warranty commitments, loss on work in progress, restructurings etc., legal proceedings and deferred tax. Tax payable and deferred tax Current tax liabilities and receivable current tax are recognised in the Balance Sheet as the calculated tax on the taxable income for the year, adjusted for tax on the taxable income for previous years and taxes paid on account. Deferred tax is measured on the temporary differences between the carrying amount and the tax value of assets and liabilities. Deferred tax assets, including the tax value of tax loss carryforwards, are measured at the amount at which the asset is expected to be used within a reasonable number of years, either by setoff against tax on future earnings or by setoff against deferred tax liabilities within the same legal tax entity. Deferred tax is measured on the basis of the tax rules and tax rates that under the legislation in force on the Balance Sheet date will be applicable when the deferred tax is expected to crystallise as current tax. Any changes in the deferred tax resulting from changes in tax rates, are recognised in the income statement, except from items recognised directly in equity. Liabilities Financial liabilities are recognised at the time of borrowing by the amount of proceeds received less transaction costs. In subsequent periods, the financial liabilities are measured at amortised cost equal to the capitalised value when using the effective interest, the difference between the proceeds and the nominal value being recognised in the Income Statement over the loan period. The amortised cost of current liabilities corresponds usually to the nominal value. Accruals, liabilities Accruals recognised as liabilities include payments received regarding income in subsequent years. Foreign currency translation Transactions in foreign currencies are translated at the rate of exchange on the transaction date. Exchange differences arising between the rate on the transaction date and the rate on the payment date are recognised in the Income Statement as a financial income or expense. Receivables, payables and other monetary items in foreign currencies that are not settled on the Balance Sheet date are translated at the exchange rate on the Balance Sheet date. The difference between the exchange rate on the Balance Sheet date and the exchange rate at the date when the receivables or payables come into existence recognised in the Income Statement as financial income or expenses. 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